Document of The International Development Association Acting as Administrator of the Interim Trust Fund FOR OFFICIAL USE ONLY Report No. P-7041 MAI MEMORANDUM AND RECOMMENDATION OF THE MANAGING DIRECTOR TO THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION ON A PROPOSED INTERIM FUND CREDIT IN AN AMOUNT OF SDR 8.7 MILLION TO THE REPUBLIC OF MALAWI FOR AN ENVIRONMENTAL MANAGEMENT PROJECT May 14, 1997 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. CURRENCY EQUIVALENTS Currency Unit Malawi Kwacha (MK) US$ 1.00 MK 15 (as of October 1996) SDR 1.00 US$ 1.44 (as of October 1996) WEIGHTS AND MEASURES Metric System GOVERNMENT FISCAL YEAR April 1 - March 31 ABBREVIATIONS AND ACRONYMS CBNRM Community-Based Natural Resources Management CAS Country Assistance Strategy CURE Coordinating Unit for the Rehabilitation of the Environment DEO District Environmental Officer DDC District Development Committee EAD Environmental Affairs Department EIA Environment Impact Assessment EIS Environmental Information Systems EMA Environmental Management Act EMP Environmental Management Project ESP Environmental Support Programme GDP Gross Domestic Product GEF Global Environment Facility IAPSO Inter-Agency Procurement Services Office IPCC Intergovernmental Panel on Climate Change MASAF Malawi Social Action Fund MOREA Ministry of Research and Environmental Affairs MNR Ministry of Natural Resources NEAP National Environmental Action Plan NCE National Council for the Environment NEP National Environment Policy NGO Non-Governmental Organization PRA Participatory Rural Appraisal SOE Statement of Expenditure TCE Technical Committee on the Environment NRC Natural Resources Committee UNDP United Nations Development Programme Vice President Mr. Callisto Madavo Country Manager Ms. Barbara Kafka Technical Manager Ms. Cynthia Cook Task Team Leader Mr. Robert Clement-Jones FOR OFFICIAL USE ONLY REPUBLIC OF MALAWI ENVIRONMENTAL MANAGEMENT PROJECT Credit and Project Summary Borrower: Government of the Republic of Malawi Implementing Agency: Ministry of Research and Environmental Affairs, Ministry of Natural Resources, Ministry of Transport (Meteorological Department), other Government Departments, Non-Government Organizations, Communities. Beneficiaries: Government and Non-Government Organizations, Communities. Poverty: Not applicable. Amount: SDR 8.7 million (US$ 12.4 million equivalent) Terms: Standard with 40 years maturity Financing Plan: See Schedule A Net Present Value: Not Applicable Staff Appraisal Report: No. 15768 -- MAI Map: IBRD 24575 Project Identification No.: MW-PA-1664 This document hag 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. MEMORANDUM AND RECOMMENDATION OF THE MANAGING DIRECTOR TO THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION (THE ASSOCIATION ACTING AS ADMINISTRATOR OF THE INTERIM TRUST FUND) ON A PROPOSED INTERIM FUND CREDIT TO THE REPUBLIC OF MALAWI FOR AN ENVIRONMENTAL MANAGEMENT PROJECT 1. I submit for your approval the following memorandum and recommendation on a proposed credit from the Interim Trust Fund to the Republic of Malawi, for SDR 8.7 million (US$12.4 million equivalent), on standard terms with maturity of 40 years, to help finance an Environmental Management Project (EMP). 2. Country and Sector Background. With a nominal per capita income of US$140 (1994), Malawi is one of the poorest countries in the world. Malawi's predominantly rural population of about 11 million is growing at about 3.0 percent, and population density, at 170 inhabitants per km2, is among the highest in the region. Agriculture is mostly rainfed, and is highly susceptible to climatic variability. Drought has occurred during three of the last four years. Malawi enjoyed healthy growth during the first years of independence, with per capita incomes increasing between 1966 and 1980 at an annual average rate of 3%. However, during the last 15 years, Malawi has suffered from a series of shocks in the form of droughts, increases in oil prices and interest rates, decreases in tobacco prices (Malawi's major export), and civil war in Mozambique which significantly increased transport costs and brought more than 1 million refugees. Recent years have seen a series of structural adjustment programs aimed at stabilizing the economy and removing impediments to growth. 3. Among Malawi's key development challenges are the critical environmental problems stemming largely from its poverty and population pressures, and the need for sustainable management of its natural resource base. Key environmental problems include: loss of soil fertility and land degradation; unsustainable exploitation of woodland and biodiversity resources; rapid degradation of water resources; deterioration of its rich fishery resources; rapid urban development and worsening human habitat; and vulnerability to climatic variability. These problems are likely to intensify with the increasing demand for food, water and energy. Natural resources underpin the well being of the vast majority of Malawi's population and the deterioration of such natural capital could undermine Malawi's growth prospects. 4. To begin to address these problems, the Government of Malawi started preparation of a National Environmental Action Plan in 1993. The NEAP used a highly participatory process that involved all the key line ministries, districts, local communities, traditional leaders, NGOs and donors. In mid-1994, the Government of Malawi established the Ministry of Research and Environmental Affairs (MOREA) to take the lead in the coordination of the NEAP process and its implementation. The NEAP, which was formally launched in December 1994, identified the key environmental priorities facing Malawi (soil erosion, deforestation, water resources degradation, high population growth, depletion of fish stocks, threats to biodiversity, human habitat degradation, climatic change and air pollution), and focused on the policy, institutional and investment issues to be tackled. -2- 5. Since completion of the NEAP document, substantial progress has been made on the policy and institutional fronts: the National Environment Policy was approved by Cabinet in February 1996, and Parliament enacted the Environment Management Act (EMA) in June 1996. These instruments outline the overall policy framework and institutional structures. The EMA sets out the duties and responsibilities of: the National Environmental Council (a high-level body whose Chairman is appointed by the President), and its Technical Committees; the Minister responsible for Environmental Affairs; the Environmental Affairs Department (EAD) (within MOREA); and District Environmental Officers. The EMA also provides for the introduction of Environment Impact Assessment (EIA) together with appropriate powers for the Minister and the Director of Environmental Affairs. Major efforts have been made to strengthen the staffing of EAD which has the overall mandate for the coordination of environmental programs and a network of environmental focal points has been established throughout the Government and parastatal sectors. In parallel with the EAD, there is an apex environmental NGO, CURE (Coordinating Unit for the Rehabilitation of the Environment) which provides a coordinating, training and information dissemination function for environmental NGOs. 6. Under the NEP and embodied in the EMA, provicion is made for a review of all sectoral policies and legislation to eliminate inconsistencies between sectoral legislation and the EMA. This work has already started (with assistance from USAID and UNDP/IUNEP), commencing with a full review of sectoral legislation to be followed by modifications where necessary to legislation and policies. Other key elements of the EMA include: a series of provisions on environmental management, pollution control, and legal sanctions, and provision for the establishment of the Environmental Fund for the "protection and management of the environment and the conservation and sustainable utilization of natural resources". 7. Since completion of the NEAP, Malawi has prepared its Environmental Support Programme which includes the main elements of policy reform and institutional development, and itemizes an investment program valued at over US$120 million (over 5 years). In May 1996, an ESP Roundtable held in Lilongwe, brought together a broad range of Government departments and agencies, including members of municipalities ane '3cal government, NGOs and donors, to discuss the strategy contained in the draft report on the ESP and provide feedback on program priorities and focus. The Roundtable underscored the need for: community participation for sustainable management of natural resources; capacity building at all levels; improved coordination amongst the different actors; and environmental education. The World Bank has been closely associated with the preparation of the ESP, which has already enabled Malawi to mobilize resources from bilateral and multilateral sources. Most notable is USAID which, under its NATURE program has committed about US$40 million dollars in project and non-project assistance. Others include UNDP, UNEP, ODA, Japan, GTZ/KfW, CIDA, DANIDA and the Netherlands. 8. Project Rationale. As the preparation of the ESP unfolded, the clear need in Malawi for strong coordination and capacity strengthening to promote environmentally sustainable development was revealed. Public policy formulation and implementation are required to complement local actions to slow or reverse environmental degradation. Sustained support in this arena is essential to maintain the momentum achieved to date. This project aims to underpin the capacity development and institutional strengthening objectives of the ESP, while also providing resources for a series of field and pilot activities which will help to integrate -3- environmental issues throughout the entire development process in Malawi. This type of relatively modest, learning-by-doing project is designed to support Malawi's overall program. It was selected over alternative types of project such as large scale sectoral projects as being the most appropriate way to develop human and institutional capital without overburdening the relatively weak administrative structures in Malawi. 9. Project Objectives. The objectives of the proposed project, which will complement the activities of the other donors, as ITF/IDA's contribution to the ESP, are to: (i) strengthen the capacity of MOREA and the environmental network in Malawi, and improve capabilities in environmental regulation, information management, promotion and coordination; (ii) implement a broad-based program of environmental education; (iii) promote a shift in the responsibility for sustainable resource management, and the reversal of degradation, to the community level; and (iv) support initiatives in key areas of environmental degradation. 10. Project Description. The IDA-financed portion of the ESP called the Environmental Management Project (EMP) would consist of four main components (amounts include contingencies): Institutional Capacity Building and Strengthening of the Environment Information System (US$ 3.0 million) - this component would include support for training and operations, to enable MOREA to carry out its policy, monitoring and control functions. Training of focal points in line departments, regional and district administrations and NGOs would also be covered. MOREA's information systems, financial and logistical management capabilities would be strengthened. Support would include training courses, workshops, vehicles, equipment, technical assistance and operating costs as needed. USAID and UNDP are also involved in these activities, in a fashion complementary to IDA. Resources would also be provided to strengthen the Environmental Information Systems in MOREA. For the implementation of Environmental Impact Assessment guidelines and regulations IDA would support a unit in MOREA charged with reviewing, auditing and participating in the environmental impact assessment process. Support would include training, technical assistance and equipment necessary to provide the expertise and data management capabilities to exercise this function effectively. The Environmental Education (US$ 2.0 million) component would aim to: (i) increase public environmental awareness and participation; (ii) integrate environmental education into the formal education system; (iii) improve the quality of environmental information and access to such materials; and (iv) identify formal and non-formal systems for dissemination of environmental information. The Community-Based Environmental Management (US$ 6.1 million) component would aim to develop the capability of communities to manage the natural resources which they control and depend on for a livelihood. Urban communities would also be able to participate in these components to address critical urban environmental problems. Activities will fall under two categories: (i) those managed by NGOs which will be responsible for mobilizing communities (using PRA techniques) to identify priority environmental actions at the community level, and micro-projects to finance small-scale activities; and (ii) those managed by line Departments (e.g., Forestry, National Parks and Wildlife, Fisheries), which would enter into agreements with communities for the co-management of forest reserves, national parks and other publicly-held resources. NGOs would play a role in community mobilization for co-management. Modest resources would also be provided to strengthen capacity in the line Departments and implement activities in the designated areas. The Environmental Actions and Studies (US$ 2.6 million) component -4- would support action in areas of high priority on the environment agenda. Examples of activities which could be financed include: (i) Climate Change and Long Lead Forecasting to support Malawi's Meteorological Department and help improve Malawi's resilience to climatic variability; (ii) Water Hyacinth Control to help stem the spread of this fast growing weed; (iii) Bilharzia Control Pilot programs to test holistic approaches to control this debilitating disease; (iv) improved management and modest infrastructure for Lake Malawi National Park; and (v) support for the Policy Planning Unit (PPU) in the Ministry ofLands and Valuation. 11. Project Implementation. The Environmental Affairs Department in MOREA will have the main responsibility for coordinating the ESP, including the IDA-financed activities. Financial and procurement capacity will be developed in MOREA to coordinate the ESP. However, other than training its own staff, developing capacity, enforcing Environmental Impact Assessment legislation and managing the Environment Information System, this Department will not be responsible for the direct implementation of any program components. Project activities will be carried out by NGOs, by the line departments in the Ministry of Natural Resources (Forestry, National Parks and Wildlife, and Fisheries), and by other agencies (e.g., Meteorology Department). The Water Hyacinth Component is likely to be implemented under contract with an international research institute. The Community Environmental Mobilization and Micro- Projects component would be managed through MOREA's Outreach Unit, and supervised by a Steering Committee drawn from the public sector (including MOREA), the private sector, and the NGO community. 12. Project Financing. The total cost of the ITF/IDA-financed project is estimated at US$ 13.7 million, (including US$ 0.85 for the PPF). The foreign exchange component of the project is estimated at US$ 7.1 million, equivalent to 52 percent of the total project cost. The proposed ITF Credit of SDR8.7 million (US$ 12.4 million equivalent) would finance 90 percent of expenditures net of duties and taxes. A breakdown of costs and the financing plan are shown in Schedule A. Amounts and methods of procurement and disbursements, and the disbursement schedule, are shown in Schedule C. A timetable of key processing events and the status of Bank Group operations in Malawi are given in Schedules D and E respectively. Malawi at a glance is shown in Schedule F, and a Map - IBRD 24575 is attached. The Staff Appraisal Report, No. 15768-MAI, is being distributed separately. 13. Lessons Learned. IDA's participation in the Environmental Support Programme is based on a major multi-stakeholder preparation effort following from a highly participatory NEAP process. This effort has drawn from experience in other countries in Africa and elsewhere and from ongoing operations in Malawi. Only the GEF/SADC Lake Malawi/Nyasa Biodiversity Conservation Project has been provided directly for environmental purposes. However, much of the prior and ongoing IDA lending (agriculture, forestry, social infrastructure, urban, water) has a direct impact on the environment. The main lessons, including those from similar environmental support programs are: (i) avoid overly ambitious goals and try to minimize the inevitable complexity of this kind of program to the extent possible; (ii) set clear priorities through a process of consensus building and enhancing ownership of program objectives on the part of the relevant stakeholders; (iii) take a highly participatory approach to program preparation and implementation; and (iv) start with a modest and flexible program to strengthen institutional -5- capacity and initiate the process of change. These lessons have been incorporated in project design. 14. Country Assistance Strategy and Rationale for IDA Involvement. The Government's request for IDA assistance is a logical outcome of the partnership between Malawi, the Bank, and other donors which has been developed over the past years during the preparation of the NEAP and the ESP. To date, the Bank's efforts have been focused on providing support to a Malawian- driven process, rather than designing a specific IDA project. Significant progress has already been made towards the development of a sound legal, policy and institutional framework, a large measure of consensus and awareness-raising has been achieved, and the level of ownership of the overall program is very high. Given the severity of Malawi's environmental problems and the likely social and economic impact of continued deterioration of the natural environment which could undermine Malawi's growth prospects, fully integrating environmental considerations in Malawi's development process is essential. Continued support for environmental management is entirely consistent with the Bank's central focus of poverty reduction as expressed in the Country Assistance Strategy (CAS), discussed on March 19, 1996. ITF/IDA's contribution is designed to complement other donor interventions in this area and other IDA operations (including National Water Development, Malawi Social Action Fund, Agricultural Services, Local Government, and the ongoing adjustment operations). 15. Agreed Actions. The following are conditions of credit effectiveness: (i) that a Financial Controller and a Procurement expert, with qualifications, terms and conditions satisfactory to IDA, be in place in the Administration and General Department of MOREA; and (ii) that a Project Implementation Plan acceptable to IDA is adopted. The condition of disbursement of funds to support community microprojects grants, is that appropriate arrangements, set out in the PIP have been entered into between the Government of Malawi and the community concerned establishing mechanisms for the flow of funds, the responsibilities, and the reporting requirements of the parties. Other key agreed dated actions include: the publication of environmental assessment guidelines (by December 1997); agreement on the rights of communities to share in the proceeds from the sustainable exploitation of natural resources (by December 1997); the acquisition of additional office space for MOREA (by December 1997), and the completion of a functional and public expenditure review of the forestry department (by March 1998). 16. Poverty Category. While this project is not a targeted poverty reduction initiative, the implications for poverty reduction are significant. Poorer households (in particular those headed by women) and communities are critically dependent on natural resources for their livelihoods and often survival, and in urban areas are more likely to suffer from a degraded environment. Hence efforts to mobilize and empower local communities, while improving the flows of benefits through revenue sharing should contribute to poverty reduction. Direct assistance to implement environmental actions at the community level proposed under the micro-projects component would also contribute towards improved welfare. 17. Environmental Aspects. The proposed project has a clear environmental focus, with the objective to monitor and reduce the environmental impact of development activities, and improve sustainable management of natural resources. An environmental impact assessment procedure for Malawi would be put in place and strengthened under the project. All activities -6- under the project are expected to have a positive environmental impact. The project is therefore classified as Category C. 18. Program Objective Categories. The ESP's and the ITF/IDA project's principal contribution is towards environmentally sustainable development. It would also directly address the program objective of local capacity building and human resources development, with emphasis on participatory natural resources management at the community level. Through its impact on sustainable resource use and growth, the project would directly address the poverty reduction objective. 19. Participatory Approach. The Environmental Agenda has been well set out in Malawi through the highly participatory processes of the NEAP which involved extensive consultations throughout the country at all levels of society. The design of the ESP has maintained this process through the work of a number of Task Forces, a series of systematic client consultation exercises for community-based pilot activities, technical inputs from a broad array of local and foreign sources including expertise from other African countries. Presentations have been made to Parliamentarians, journalists, and NGOs and awareness building has continued through the media and other channels. Successive drafts of a synthesis report for the ESP have been prepared and used to define more precisely the policy, institutional and investment priorities. A multi- stakeholder Roundtable was held in May 1996, to reaffirm and sharpen the priorities of the ESP, and at this stage IDA was able to identify, with the Government, the priority areas for support. The emphasis on community mobilization and participation, embedded in the ESP, will help maintain the momentum established to date. 20. Benefits. The proposed ITF/IDA contribution to the ESP, which is directed largely towards institutional strengthening and pilot programs, is not susceptible to detailed cost-benefit analysis and rate of return calculations. The main benefit of the ESP is that it will enhance Malawi's capacity to formulate, implement, and monitor national level environmental policies and programs in both the public and private sectors. The pilot investments to halt the country's natural resource degradation are expected to generate modest economic benefits. As successful investments are replicated in future ESP phases substantial benefits should be generated in terms of sustainable economic growth for the rural population, particularly for women, and poverty alleviation. These benefits would include reversing the decline in crop yields, and improving sustainable forestry, fisheries and biodiversity conservation. The ESP would raise the population's environmental awareness and foster community participation and empowerment in the decision-making process on the sustainable use and management of Malawi's natural resources. 21. Project Sustainability. The need for sustained efforts towards improving environmental management in Malawi is recognized, and the country's commitment to sound environmental management is enshrined in the new Constitution (1994).' Ultimately, it will not be through the Chapter III, section 13 (d) calls upon the State: "To manage the environment responsibly in order to: prevent the degradation of the environment; provide a healthy living and working environment for the people of Malawi; and accord full recognition to the rights of future generations by means of environmental protection." -7- application of marginal additional resources that sustainability will be achieved, but through the overall development process. The key challenge is to create the social capital and incentive structure sufficient to induce sustainable use of natural resources. A key feature of the approach is that the communities perceive, and receive, tangible benefits from adopting a more conservationist and sustainable approach to resource management, on wildlife, forests, fish or soil. In particular, revenues from eco-tourism, or harvesting of wildlife or forest products should be shared with the local communities. The ESP and this project is designed to help develop the necessary capacity at all levels in society, while inducing policy changes which improve the incentive structures for sustainable management of natural resources. At the national level, a strong commitment to environmental management will entail maintaining support for the key agencies (including MOREA and MNR), although no additional staff beyond the current levels is envisaged at this time. ITF/IDA project funding would complement Governments resources and improve the operational capabilities of existing institutions with training, improved equipment and operating cost finance. The implication is that, after 5 years of implementation, the current annual operating budget of MOREA (about US$ 300,000) would have doubled. It is expected that this additional resource requirement, in support of a new and important Government ftinction, will not be difficult to meet. 22. Risks. The key risk in the process of improving environmental management over the medium and long term relates to changing incentive structures with respect to the management of natural resources. Inevitably there will be competing interests in the use, ownership and benefits derived from natural resources. It is by no means certain that conflicting interests can always be reconciled, nor that the correct policy decisions will be made. Major risks to implementation of the program (and the ITF/IDA project) are: (a) the relative newness and inexperience of the Environmental Affairs Department in MOREA; (b) the inherent complexity of such cross sectoral, multi-donor, multi-agency programs; and (c) the difficulties of obtaining significant changes in outlook, and incentive structures at the community level, in order to obtain sustained changes in environmental management in Malawi. The program (and the ITFIDA project) does attempt to address these risks by ensuring congruence of objectives, and complementarity of actions on environmental issues under the aegis of an Environment Support Programme to which all donors, Government agencies and NGOs have "bought in", following a year and a half process of participatory design. The Environmental Affairs Department, to be strengthened under the program with support from various donors, will improve its capacity to coordinate program activities through an annual programming and review process, through the use of focal points in line ministries, and through its Environment Information System. Key policy reforms and supporting mechanisms will be in place early in the program. Much of the program and the ITF/IDA project focuses on initiatives at the community level, supported by NGOs and line ministries, designed to improve community stewardship of natural resources. Given the pilot nature of many of the interventions under the ITF/IDA project, together with the flexibility of approach built in, we feel that the risks are acceptable. -8- 23. Recommendation. I am satisfied that the proposed Interim Fund Credit would comply with Resolution No. 184, adopted by the Board of Governors of the Association on June 26, 1996, establishing the Interim Trust Fund and I recommend that the President approve it. Gautam S. Kaji Managing Director Washington, D.C. May 12, 1997 Schedule A Government of Malawi Environmental Management Project Project Cost Summary (US$ million) Component Local Foreign Total MOREA Institutional Strengthening 0.2 1.3 1.6 Environment Information System 0.4 04 0 8 Environmental Impact Assessment 0.1 0.2 0.3 Subtotal Institutional Development 0.8 2.0 2.8 Environmental Education 1.0 0.8 1.8 Subtotal Environmental Education 1.0 0.8 1.8 NGO-Based Community Environmental Management 1.6 0.5 2.1 Forest Resources Co-Management 0.6 1.0 1.6 Wildlife Co-management 0.7 1.1 1.8 Subtotal Community Environmental Management 2.9 2.6 5.5 Environmental Actions and Studies 1.2 1.2 2.4 Subtotal Environmental Actions and Studies 1.2 1.2 24 Total Base Cost 5.9 6.5 124 Physical Contingencies 0.3 0.3 0.6 Price Contingencies 0.4 0.3 0.7 TOTAL PROJECT COSTS 6.6 7.1 13.7 Notes: 1. Amounts are inclusive of duties and taxes 2. Totals may not add up due to rounding Financing Plan Local Foreign Total ITF a/ 5.3 7.0 12.4 Government of Malawi 1.3 0.1 1.4 Total 6.6 7.1 13.8 Note: a/ includes US$0.85 million Project Preparation Facility Totals may not add up due to rounding Schedule B Page 1 of 2 ENVIRONMENTAL SUPPORT PROGRAM - PERFORMANCE MONITORING INDICATORS Narrative Indicators Measurement Assumptions Project Development Objectives Improved Policy and Institutional Adoption of National Environment NEP adopted in February 1996, EMA Improved policies will actually make a Framework Policy and Environment Management enacted in June 1996 EMA sets out role difference and there will be sufficient Act. Role of MOREA and EAD of EAD, and Public Services Commission capacity and political will to established and agreed expedites recruitment of staff implement the new policies Promulgation of guidelines and By December 1997 regulations under the EMA Revision and review of sectoral Forestry 9/98 policies and legislation Fisheries 9/98 Parks and wildlife 9/98 Soil conservation 9/98 Land tenure 9/99 Water/irrigation 9/98 Increased staffing for MOREA Full staffing complement achieved and Capacity development will be maintained 12/96, and annually monitored sustainable - staff turnover, political thereafter support for institutions concerned remains high. Must maintain momentum through training and replacement of staff when turnover occurs Improved capacity to manage Effective coordination of: Frequency of meetings Availability of Funding natural resources and environment at all levels * National Council for the Twice per year 4 times per year Environment * Parliamentary Committee During each Session * Technical Committees on the At least three times per year Environment Regular with focal points - specific agenda * ministries Regular organized by CURE * NGOs Monthly - thematic * donors Preparation of annual Work Plans Annual Review process Effective establishment of Official designation of focal points by Incentives for data collection and environmental focal points network 12/97 supply sufficiently strong for focal points and others to supply data EIS - Establishment of effective EIS Demonstration pilot for Shire River system - mapping and data input accomplished (12/98) Training Establishment and implementation of training programs for MOREA, line Ministries, NGOs, Communities 12/97. Annually thereafter, numbers of training course and people trained Effective empowerment of Areas of forest and public land Forest resources co-managed Community empowerment provides communities for CBNRM brought under effective management Hectares/Numbers of Communities sufficient incentive for communities to by communities mobilized and empowered annually take control of their resource base National parks and wildlife areas co- Government commitment to co- managed, numbers of communities management remains strong mobilized. Agreement by Ministry of Finance on revenue sharing by communities 12/97 Enhanced Environmental Greater public awareness and Surveys, active participation of all levels of Continued support at political level Awareness informed population society in environmental management and active participation by groups Newspapers, radio, dance groups, including parliamentarians, Ministers, environmental clubs, choirs traditional leadership structures Schedule B Page 2 of 2 Outputs Improved environmental capacity Functioning lead Ministry, Efficient allocation of resources, client Very efficient financial monitoring and and coordination functioning committees (e g satisfaction Records of meetings, and control system NCE), donor groups, NGOs account of decisions taken Functioning Environmental Impact Quantitative numbers ofEIAs approved Sufficient trained personnel to conduct and Assessment Process analyze EIAs Quantitative number of users, size of Functioning Environmental databases, number of projects using Information Systems system Qualitative surveys, client consultation, continued flow of resources Better trained groups working on Numbers of people, communities Quantitative. Numbers of training Timely delivery of high quality training environmental management in trained courses (to be included in training courses Malawi program to be developed during 1997) Qualitative training effectiveness (post- course evaluation) Annual Report on training Enhanced Environmental Quantities of materials distributed Quantities: Effectiveness Effective coordination of effort among Education (To be evaluated during annual work different Government agencies. NGOs and Materials prepared and review and planning exercises). donors to minimize duplication of effort disseminated through formal and Community satisfaction and maximize leverage of ESP resources non-formal education channels Enhanced Community Numbers of communities Annual evaluation (numbers) of Maintenance of Government commitment Mobilization and Implementation mobilized for natural communities, projects and participants to community empowerment of Local Environmental resources/environmental Activities management Numbers of communities implementing co-management and environmental micro-projects Components Institutional Capacity Building Procurement and distribution of Annual Report on progress and Maintaining the momentum of capacity and Strengthening of the inputs, provision of traming procurement and disbursement indicators development, with necessary staff Environmental Information resources Continued commitment of resources Systems Effectiveness of capacity to procure inputs and manage financial systems Maintain commitment and resource application Sufficient capacity to implement programs NGOs are sufficiently motivated and organized to continue work Environmental Education Development and supply Annual Report and Work Plan Full collaboration with all elements of of materials formal and non-formal education system, synergy with other initiatives Community Based Timely supply of financial Annual Report and Work Plan Environmental Management resources Environmental Actions and Diverse Annual Report and Work Plan Efficient management of program and line Studies Departments Schedule C Page 1 of 2 Government of Malawi Environmental Management Project Summary of Proposed Procurement Arrangements (US$ million) Procurement Arrangements (USS '000) International National Competitive Competitive Consulting Bidding Bidding Other Services Total A. Civil Works - 10 - - 1.0 (09) (0.9) B. Vehicles and Equipment 1 8 03 0 6 - 2 7 (1.8) (03) (06) (2.6) C. Consultants - - - 2 8 2 8 (2.8) (28) D. Training - - 41 - 41 (33) (33) E. Community Grants - - 1.0 - 1.0 (1 0) (1.0) F. Operating Costs 23 2.3 - (1.8) - (1.8) Total 18 13 7.8 2.8 13.7 (1.8) (1.2) (67) (2.8) (12.4) Notes: 1. Figures in parentheses are the respective amounts financed by the ITF Credit 2. "Other" comprises non-ICB/NCB procurement and includes IAPSO 3. Category totals include duties and taxes 4. Totals may not add up exactly due to rounding Schedule C Page 2 of 2 Government of Malawi Environmental Management Project Summary of ITF Disbursement Schedule Amount Allocated in Percentage of Actual Category of Expenditure US$ 000 Expenditure Financed by ITF 1. Civil Works Contracts 800 90% 2 Vehicles and Equipment 2,400 100% of foreign 100% of local (ex-factory cost) 90 % of local for other items procured locally 3. Consultants' Services 2,500 100% 4 Training 2,800 100% through June 30, 2000, 60% through June 30, 2001 and 40% thereafter 5 Goods and works for Micro-proJects 900 95% 6. Operating Costs 1,600 100% through June 30, 2000 60% through June 30, 2001 and 40 % thereafter 7. Refunding of Project Preparation 800 Advance 8. Unallocated 600 TOTAL 12,400 Note: All amounts and percentages are exclusive of taxes. The Unallocated category is equal to the sum of the physical and price contingencies which have been taken out of the amounts for the other categories Estimated ITF Disbursements, 1/ (US$ million) IDA Fiscal Year 1997 1998 1999 2000 2001 2002 Annual 0.3 0.8 1.2 2.5 3.5 4.2 Cumulative 0.3 1.1 2.3 4.8 8.2 12.4 Note: 1/ the disbursement profile includes the PPF in FY97 Schedule D Government of Malawi Environmental Management Project Timetable of Key Processing Events (a) Time taken to prepare: 20 months (b) Prepared by: Malawian Task Forces, Local and International experts, FAO-CP (c) First IDA mission: December 1994 (d) Appraisal Mission Departure: June 30, 1996 (e) Negotiations: January 21-24, 1997 (f) Planned Effectiveness Date: June 30, 1997 (g) Relevant ICRs/PPARs: None TheAprasa'msson wic vsiedMalaw~ inJneJl 19, opised Messrs Robert Clement.~ Thi A*pAi0a i" ..s._'*9641ibid. Ni.i (eiearW Spe0a64, World Ban R,idn Misin `tw) *ai Smih (on"ent N Kavinya (NGO Liai Ofe World BR idet MsoMlw a (Opeato AaytAFTA) E#izbeth Adu (Pricia Co"l,Stv aini (DsW sm OfiMr) 0aime Romatn (rincipal Prcremntn Offier andk MaHrnsby (Task Team Asistnt APTE1) participated in' project o hld in Washingto during J ay24,99 Cynthi4 Cook wis Lea Adviso, lan Hill and Jan Bo6wree e iewers. TTecnIa Mnger isCynhaCo dteContry iera. . . . . ' ~... ... .. .......... Status of Bank Group Operations in Malawi IBRO Loans and IDA Credits in the Operations Portfolio Difference Onginal amount in US$ millions between expected Proct Loan or Fiscal and actual ID Credit No. Year Borrower Purpose IBRD IDA Cancellations Undisbursed disbursement? Number of Closed Loans/Credits 70 Active Loans MW.PA-1636 C23790 1992 GOVERNMENT OF MALAWI LOCAL GOVERNMENT 2400 1444 3 55 MW.PA1646 C22200 1991 GOVERNMENT OF MALAWI PHN SECTOR CREDIT 55.50 3806 38 10 MW.PA-1648 C28530 1996 GOVERNMENTOFMALAWI FISCAL RESTR&DEREGULATION PROG 102.00 3172 168 MW-PA.1649 C20830 1990 GOVERNMENTOF MALAWI EDUCATION SEC.II 3690 1324 806 MW-PA-16SS C22210 1991 GOVERNMENT OF MALAWI FINANCIAL SECTOR & ENTERPRISE DEV 3200 1209 9 99 MW-PA-1657 C26240 1994 GOVERNMENT OF MALAWI INSTITIONAL DEV.II 22 60 18 65 8 40 MW-PA-1658 C22250 1991 GOVERNMENTOF MALAWI FISHERIES DEV. 880 571 279 MW-PA-1660 C25140 1993 GOVERNMENT OF MALAWI AGRICULTARAL SERVICES 45.80 2891 972 MW-PA-1662 C23860 1992 GOVERNMENT OF MALAWI POWER V 5500 4835 4255 MW-PA-1667 C27530 1995 GOVERNMENT OF MALAWI NATIONAL WATER DEVELOPMENT 79.20 7164 66% MW-PA-1668 C28560 1996 COVFRNMFNTOFMALAWI SOCIAL ACTION FUND 5600 5008 -1I 1 MW-PA-1677 C25130 1993 GOVERNMENTOF MALAWI RURAL FINANCIAL SERVICLS 2500 1079 9 17 MW-PA-34489 C26960 1995 GOVERNMENTOF MALAWI MALAWI RAILWAYS REST 1616 1571 626 MW-PA-42305 C28100 1996 GOVERNMENT OF MALAWI PRIMARY EDUCATION PROJECT 2250 1967 093 TOTAL 000 581 46 000 37904 14675 Active Loans Closed Loans Total Total disbursed (IBRD and IDA) 206.04 1181.39 138743 Of which repaid 0.00 115.47 1 1 547 Total now held by IBRD and IDA 5146 1033 13 161459 Amount sold 000 072 0.12 Of which repaid 000 0.72 072 Total undisbursed 37904 0.54 379.58 a. Intended disbursements to date minus actual disbursements to date as projected at appraisal Note Q. Disbursement data are updated at the end of the first week of the month Malawi - Statement of IFC Investments Committed and Disbursed Portfolio As of 7/31/96 (In US Dollar Millions) Committed Disbursed IFC IFC I I I I FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Paric 1986/90 LFCM 0.00 0.19 0.00 0.00 0.00 0.19 000 000 1987 Viphya Plywoods 1.08 0.00 000 0.00 1.08 000 000 0.00 1995 AEF Mat Stkbrkrs 0.00 0.11 0.00 0.00 0.00 011 0.00 0.00 1996 AEF PCEI. 0.53 0.00 0.00 0.00 0.00 000 0.00 0.00 Total Portfolio: 1.61 0.30 0.00 0.00 1.08 030 000 0.00 Approvals Pending Commitment Loan Equity Quasi Partic 1994 INDEFINANCE 0.00 0.51 0.00 0.00 1996 AEF MWAIWATHU 0.54 0.54 0.00 0.00 Total Pending Commitment: 0.54 1.05 0.00 0.00 C - bi~T Schedule E Page 3 of 5 Status of Bank Group Operations in Malawi Note on Portfolio and Disbursement Performance 1. Portfolio Performance. Poverty alleviation, through growth and targeted interventions for the poorest, is the core of the Government of Malawi's development agenda, as well as the focus of the Bank's activities. As of September 30, 1996, Malawi's diverse portfolio included 13 investment projects and one adjustment operation, with US$581 million in total commitments, and US$384 million undisbursed. The February 1996 country portfolio performance review (CPPR) culminated in an action plan which addressed the key generic issues of procurement, accounting/audits, disbursement, staffing and staff salaries, along with project specific issues. Among the concerns raised by the Government of Malawi at the CPPR was the inadequate understanding of projects by government officials. This has often led to a lack of commitment to projects, start-up delays due to complex designs, and insufficient implementation capacity. To address this problem, future project design will take this into account and address the limited administrative capacity in the country and the frequent turnover of civil servants. To ensure ownership and effective project implementation, greater efforts will be made to collaborate with the relevant stakeholders throughout the project cycle. The Resident Mission will also play a critical supervisory role of the existing portfolio, and in assessing the readiness of government to implement future projects. In response to concerns about limited procurement capacity and procurement procedures, the Resident Mission's procurement capacity has been strengthened, and two procurement workshops have recently been held in Malawi. As agreed at the CPPR, the Government will set up a unit to provide procurement advice and monitoring services. 2. While progress has been achieved with respect to Malawi's portfolio performance, there are a number of actions which are being taken to further improve performance. Two projects, Fisheries Development and Power V, rated as a "U" in the FY96 ARPP, have been undergoing intensive implementation support with a view to restructuring or closing if sufficient progress cannot be achieved. These projects, as well as Local Government, Institutional Development II, Agricultural Services, National Water, Railways, and Primary Education will be retrofitted in FY97 to include performance indicators. The disbursement factor for investment projects has increased from 11.5% in FY94, to 13% (US$39.4 million) in FY95, to 17.1% (US$65.4) in FY96. The table provided at the end of this schedule shows project disbursements for FY95 and FY96. Efforts will also be made to closely monitor the follow-up actions identified in the CPPR. 3. Disbursement Lags. While disbursements rose significantly in FY96, the Government and the Bank also agreed at the CPPR to improve project disbursements. The Medium Term Expenditure Framework's prioritization of activities is expected to help rectify problems with counterpart funding. The Government also intends to strengthen disbursement practices in the Ministry of Finance Claims Unit. The four projects outlined below have significant disbursement lags. * The PHN Sector Credit (Cr. 2200-MW) has undergone significant implementation problems and delays. Although a Health Policy Framework Paper was adopted in early 1996, and government has taken steps to improve implementation in line with agreed benchmarks, progress has been limited. The implementation issues and the progress required for any extension of the project's closing date have been clearly articulated to the Government. * The Fisheries Development Project (Cr. 2225-MW) has been hampered by weak implementation management. Progress has been made during 1996 to resolve these Schedule E Page 4 of 5 problems, with the preparation by the Fisheries Department of an agreed program to resolve management problems and move towards improved implementation. This program, the "Fisheries Project Development Document (1996-99)" enunciates the new fisheries policy and includes a work plan for the remaining project period, as well as proposals for restructuring the Fisheries Department. The Project will be closely followed during the next few months and it is expected that improved performance will result in an upgrading of the implementation ratings by June 1997. * The withdrawal of donor support/cofinancing resulted in a long delay in obtaining effectiveness for the Power V Project (Cr. 2386-MW). A new financing plan is now in place. One of the major issues of the project remains electricity tariff increases which are required for the financial stability of ESCOM. The preparation of revised performance indicators and amendments to the legal covenants should also help to improve project implementation. * The Second Institutional Development Project (Cr. 2624-MW) implementation has been generally satisfactory, except for the slow progress in strengthening the Department of Human Resources Management and Development. Performance indicators will be formulated for the project in early FY97. 4. Effectiveness. Four projects in the Malawi portfolio became effective in 1996. The first, the Primary Education Project (Cr. 2810-MW) was approved by the Executive Directors on January 25, 1996, and was signed on March 28, 1996. The Credit became effective on April 25, 1996. The second project, National Water Development (Cr. 2753-MW) was approved by the Executive Directors in June 28, 1995, and was signed on November 1, 1995. It became effective on May 1, 1996. The third, the Fiscal Restructuring and Deregulation Program (Cr. 2853-MW) was approved by the Executive Directors on April 30, 1996, and signed on May 15, 1996. The effectiveness date for this program was May 24, 1996. Finally, the Social Action Fund (Cr. 2856-MW) was approved by the Executive Directors on May 9, 1996 and signed on May 15, 1996. The project became effective on May 30, 1996 and has already committed about half the credit funds. 5. Audits: As of end April 1997, Malawi had 6 projects with overdue audit reports, most of which were due in September or December of 1996. The Country Director, Resident Mission and Task Team Leaders are actively pursuing all reports with the relevant Ministries, with the Treasury and with the Auditor General's Office. Schedule E Page 5 of 5 Malawi Portfolio Disbursement Trends (US$ millions) Credit No. Project Credit Disb. Dish. Amount FY95 FY96 2083 Education Sector I 36.9 2.41 7.91 2220 PHN Sector 55.5 1.55 4.84 2221 Financial 32.0 4.57 1.88 2225 Fisheries 8.8 0.78 0.63 2379 Local Government 24.0 2.03 5.78 2386 Power V 55.0 4.52 1.00 2513 Rural Financial 25.0 2.96 12.43 2514 Agricultural Services 45.8 4.19 10.44 2624 Institutional Development 22.6 0.93 2.21 2696 Malawi Railways 16.2 0.00 0.43 2753 National Water 79.2 0.00 0.02 2810 Primary Education 22.5 0.00 0.75 2853 Fiscal Restructuring 102.0 0.00 69.17 2856 Social Action 56.0 0.00 1.42 Total Current 581.5 23.95 118.91 Closed Projects* 306.9 15.42 23.23 TOTAL 888.4 39.37 142.14 * Closed in FY95/96. Schedule F Page 1 of 2 Malawi at a glance Sub- POVERTY and SOCIAL Saharan Low- F -- - -- Malawi Africa income Development dlamond* Population mid-1995 (millions) 9 7 589 3.188 GNP per capita 1995 (US$) 160 490 460 Life expectancy GNP 1995 (billions US$) 1 6 289 1,466 Average annual growth, 1990-95 T Population (%) 2 7 2 8 1 8 GNP Gross Labor force (%) 24 2 8 1 9 Gp ross per pnmary Most recent estimate (latest year available since 1989) capita enrollment Poverty headcount index (% of population) Urban population (% of total population) 14 31 29 Life expectancy at birth (years) 43 52 63 Infant mortality (per 1,000 live births) 133 92 58 Access to safe water Child malnutrition (% of children under 5) 27 38 Access to safe water (% of population) 77 47 75 Illiteracy (% of population age 15+) 44 43 34 - Malawi Gross primary enrollment (% of school-age population) 80 71 105 - Lw Male 84 77 112 Low-mcome group Female 77 64 98 KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1975 1985 1994 1995 Economic ratios* GDP (billions US$) 06 11 13 13 Gross domestic investment/GDP 337 186 132 158 Openness of economy Exports of goods and non-factor services/GDP 29 1 24 2 30 3 32 6 Gross domestic savings/GDP 170 129 -0 5 4 1 Gross national savings/GDP 189 9 1 -27 0 8 Current account balance/GDP -14 1 -8 5 -17 9 -150 Interest payments/GDP 1 4 2 6 1 9 2 3 1 Savings Investment Total debt/GDP 424 900 1561 1618 Total debt service/exports 8 0 38 9 17 2 22 7 Present value of debt/GDP 71 1 Present value of debtlexports 235 1 Indebtedness 1975-84 1985-95 1994 1995 1996-04 (average annual growth) - Malaw; GDP 29 24 -102 9.9 4.7 GNP per capita -1 0 -2 0 -140 8 4 24 Low-income group Exports of goods and nfs 2 3 15 108 71 6 6 STRUCTURE of the ECONOMY 1975 1985 1994 1995 i (% of GDP) Growth rates of output and Investment (%) Agnculture 37 2 42 9 377 453 20 Industry 203 21 9 28 4 296 Manufacturing 13 1 145 186 196 Services 424 352 339 25 0 -20 Private consumption 68 9 69 4 776 737 -40 General government consumption 14 1 177 229 222 - GDI ----GOP Imports of goods and non-factor services 45 9 299 440 443 1975-84 1985-95 1994 1995 (average annual growth) Growth rates of exports and imports (%) Agriculture 1 7 10 -29 3 283 so Industry 2 0 3 6 24 5 5 Manufacturing 2 7 34 32 6 3 is Services 4 2 3 6 -13 -1 6 Private consumption 2 1 -06 -282 3 3 o-15 9 91 94 General government consumption 68 11 3 -08 5 9 Gross domestic investment -54 24 -21 7 147 -301 Imports of goods and non-factor services -3 2 3 3 -28 3 -7 7 orts Imports Gross national product 21 2 5 -11 7 11 4 'xp Note 1995 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 Schedule F Page 2 of 2 Malawi PRICES and GOVERNMENT FINANCE Domestic prices 1975 1985 1994 1995 Inflation(%) (% change) 100 Consumer prices 11 8 105 347 829 75 Implicit GDP deflator 8 1 8 9 396 676 so Government finance 25 (% of GDP) o Current revenue 216 186 190 90 91 92 93 94 95 Current budget balance -07 -11 2 -61 - GDP def -- CPI Overall surplus/deficit -87 -258 -159 TRADE 1975 1985 1994 1995 (mitions US$) Export and import levels (mall. US$) Total exports (fob) 250 372 421 soo Tobacco 112 257 260 Tea 54 30 27 o Manufactures Total imports (cif) 287 555 554 400 Food 2 44 41ii Fuel and energy 34 29 28 200 Capital goods 77 213 216 I0 Export price index (1987=100) 89 90 91 92 93 94 95 Import price index (1987=100) I o Exports [nIr.iports Terms of trade (1987= 100) BALANCE of PAYMENTS 1975 1985 1994 1995 (millions US$) Current account balance to GDP ratio (%) Exports of goods and non-factor services 174 276 389 432 o Imports of goods and non-factor services 284 331 591 587 91 92 9 4 95 Resource balance -110 -54 -202 -155 Net factor income 21 -53 -46 -40 Net current transfers 3 10 18 -4 Current account balance, before official transfers -87 -97 -230 -198 -is Financing items (net) 68 57 201 269 Changes in net reserves 18 40 29 -71 -20 Memo: Reserves including gold (mill US$) 88 23 106 Conversion rate (local/US$) 0 9 1 7 8 7 15 6 EXTERNAL DEBT and RESOURCE FLOWS 1975 1985 1994 1995 (millions US$) Composition of total debt, 1995 (mill. US$) Total debt outstanding and disbursed 260 1,018 2,015 2,141 IBRD 0 69 65 55 E 1F4 1 A IDA 62 322 1,160 1,251 I 279 Total debt service 17 110 67 99 IBRD 0 7 10 19 IDA 0 3 14 16 D1 Composition of net resource flows Official grants 5 38 231 220 Official creditors 44 54 76 124 B Private creditors 8 -31 -2 -16 C 1251 Foreign direct investment 9 1 1 1 110 Portfolio equity 0 0 0 0 World Bank program Commitments 20 125 67 100 A - IBRD E - Bilateral Disbursements 11 34 59 73 B - IDA D - Other multdiateral F - Private Principal repayments 0 2 13 19 C - IMF G - Short-term Net flows 11 32 46 54 Interest payments 0 8 12 16 Net transfers 11 24 34 38 MAP SECTION IBRD 24575 To Dr Es Sal.am 55 0 M, ku MALAWI h hpa ADMINISTRATIVE Ch.sen DIVISIONS Tiis map has been prepared ¯ GO by The World Bank's st. REGIONS exclusrvely for the convenience AND of readers and is for the internal use of The World Bank DISTRICTS Group The denomnatons used and the boundnares showrn on this map do not imply, on the RU- port of The World Bank Grop, any iudgment on the legal Katow status of any terntory or any - - --P RINCIPAL ROADS endorsement or acceptance of such boundarres TkE - RIVERS Lake TOWNS DISTRICT CAPITALS ION * NATIONAL CAPITAL Mzimba ,' DISTRICT BOUNDARIES REGION BOUNDARIES -I INTERNATIONAL BOUNDARIES t IL-r ETERS 0 20 40 60 80 100 Chulu 0 MILES 0 20 40 60 O,~ 01 I I AMBIQUE M HINJI Gl'- To L-usako Mchmpn- L11 NGWE L.k ch,- tt * NthuBlkOlTH ERN MACHINGA MOZAMBIQUE L-wond . Mahta *Zomnba ýjKENYA Mpasa -A ~ ~ AýDZLIU M-ULANJI January 1993