Documentof The World Bank FOROFFICIAL USEONLY ReportNo: 35466-MZ PROJECTAPPRAISAL DOCUMENT ONA PROPOSEDCREDIT INTHEAMOUNT OF SDR 14.0MILLION (US$20.0MILLION EQUIVALENT) TO THE REPUBLICGOVERNMENT OF MOZAMBIQUE FORA MARKET LED SMALLHOLDER DEVELOPMENTINTHE ZAMBEZI VALLEY May 23,2006 Environment,Ruraland Social DevelopmentUnit,AFTS1 CountryDepartment2, Mozambique Africa Region This document has a restricted distribution and may be usedby recipients only in the performance o f their official duties. Its contents may not otherwise be disclosedwithout World Bank authorization. CURRENCY EQUIVALENTS (Exchange Rate Effective May 2006) Currency Unit = Meticais 27,000 Meticais = US$1 US$1.437 = SDRl FISCAL YEAR January 1 - December31 ABBREVIATIONS AND ACRONYMS ADB African Development Bank BDS Business Development Services CAEIF Community Agricultural and Environmental Investment Fund CAS Country Assistance Strategy CBD Convention on Biological Diversity CBNRM Community BasedNaturalResource Management CBO Community Based Organization . CDD Community DemandDriven CFAA Country Financial Accountability Assessment CLUSA Cooperative League ofthe USA DA District Administrator DANIDA Danish InternationalDevelopment Agency DBS Direct Budget Support DDA District Agricultural Directorate DF District Facilitator DPFP DecentralizedPlanning and Finance Project DNA Department of Water Affairs DNPDR National Directoratefor the Promotion of Rural Development DTT District Technical Team ERR Economic Rate of Return ESMF Environmentaland Social Management Framework FMA FieldManagement Advisor FMR Financial MonitoringReport GDP Gross Domestic Product GEF Global EnvironmentFacility GIS Geographical Information System GOM Government of Mozambique GPZ Zambezi Valley DevelopmentAuthority GTZ German Foundation for Technical Cooperation IC Individual Consultants ICB International Competitive Bidding IDA International DevelopmentAssociation FAD International Fundfor Agricultural Development IGF Inspectorate General of Finance IPCC IntergovernmentalPanel on Climate Change LCS Least-Cost Selection LIG Local Investment Grant M&E Monitoring and Evaluation MICOA Ministry for the Coordination of EnvironmentalAffairs MJNAG Ministry of Agriculture MPD MinistryofPlanningandDevelopment MPWH Ministry of Public Works and Housing NAP NationAction Program NAPA National AdaptationPlan of Action NBSAP National Biodiversity Strategy and Action Plan NCB National Competitive Bidding NEPAD New Partnership for African Development NEMP National EnvironmentalManagement Program NGO Non-GovernmentOrganization OP Operational Policy PAMA Agricultural Markets Support Project PARPA Action Plan for the Reduction of Absolute Poverty PEFA Public Expenditure and Financial Accountability PIU Project ImplementationUnit PFM Public Financial Management PPC Provincial Project Coordinator PWH Ministry of Public Works and Housing PRSP Poverty Reduction Strategy Paper QCBS Quality and Cost Based Selection RPF Resettlement Policy Framework SBD StandardBiddingDocument SIDA SwedishInternationalDevelopment Cooperation Agency SLG Savings and Loans Group SLM Sustainable LandManagement SPA Strategic Priority o f Adaptation sss Single Source Selection SWAP Sector Wide Approach U M C Community Management Unitwithin the NationalDirectorateof Forest & Wildlife UNAC National Union of Farmers Association UNDP UnitedNations DevelopmentProgram UNEP UnitedNations Environment Program UNFCCC UnitedNationsFrameworkConvention on Climate Change UNCCD UnitedNations Convention on Climate and Desertification VSL Village Savings and Loans WVI World Vision International Vice President: Gobind Nankani Country Director: Michael Baxter Sector Manager: Richard ScobeyRrank Byamugisha Task Team Leader: Jeeva A. Perumalpillai-EssexanielLiborio da Cruz E Sousa MOZAMBIQUE Market-LedSmallholderDevelopmentinthe Zambezi Valley CONTENTS Page A. STRATEGIC CONTEXT AND RATIONALE......................................................... 7 Country and sector issues........................................................................................ 7 2. 1. Rationale for Bank involvement and GEF eligibility ............................................. 8 3 . Higher level objectives to which the Project contributes...................................... 10 B. PROJECT DESCRIPTION....................................................................................... 11 11 2. Project development objective andkey indicators................................................ 1. Lendinginstrument............................................................................................... 11 12 4. 3. Project components.. ............................................................................................. Lessons learned and reflected inProject design ................................................... 16 5. Alternatives considered andreasons for rejection ................................................ 18 C. IMPLEMENTATION............................................................................................... 19 19 Monitoring and evaluation of outcomes/results .................................................... Institutional and implementation arrangements .................................................... 2. 1. 20 Sustainability and replicability ............................................................................. 21 4. 3. 22 Loadcredit conditions and covenants................................................................... Critical risks andpossible controversial aspects................................................... 5. 24 D. APPRAISAL SUMMARY ....................................................................................... 24 Economic and financial analyses.......................................................................... 24 2. 1. Technical............................................................................................................... 25 26 4. 3. Fiduciary ............................................................................................................... 5. Environment.......................................................................................................... Social..................................................................................................................... 27 28 6. 28 Policy exceptions andreadiness............................................................................ Safeguard policies................................................................................................. 7. 29 i Annex 1: Country and Sector or ProgramBackground................................................... 30 Annex 1 - Attachment 1: Status of Decentralization inMozambique............................. Annex 2: Major RelatedProjects Financedby the Bank and/or other Agencies.............36 39 Annex 3: Results FrameworkandMonitoring................................................................. 45 54 Annex 4 - Attachment 1: Elements ofthe ParticipationPlan.......................................... Annex 4: Detailed Project Description............................................................................ 64 Annex 4 - Attachment 2: Special Priority on Adaptation Activities ................................ 70 74 Annex 6: Implementation Arrangements......................................................................... Annex 5: Project Costs..................................................................................................... 78 82 Annex 8: ProcurementArrangements.............................................................................. Annex 7: Financial Management and Disbursement Arrangements ............................... 92 Annex 9: Economic and Financial Analysis.................................................................... 96 Annex 9 - Attachment 1: FarmModels ......................................................................... 103 Annex 9 - Attachment 2: Incremental Cost Analysis .................................................... 106 Annex 10: Safeguard Policy Issues................................................................................ 123 124 Annex 12: Documents inthe Project File...................................................................... Annex 11: Project Preparation and Supervision............................................................ 126 127 Annex 14: Country at a Glance...................................................................................... Annex 13: Statement of Loans and Credits ................................................................... Annex 15: Land Degradation and Climate Change inthe Central Zambezi Valley......129 131 Annex 16: STAP Roster Review ................................................................................... 140 Annex 17: Map (IBRDNo: 34637) ............................................................................... 150 MOZAMBIQUE MARKET-LEDSMALLHOLDERDEVELOPMENTINTHE ZAMBEZIVALLEY PROJECTAPPRAISALDOCUMENT AFFUCA AFTS1 Date: M a y 23,2006 Team Leader: Jeeva A. Perumalpillai-Essex Country Director: Michael Baxter Sectors: General agriculture, fishing and forestry Sector ManagerjDirector: Richard Scobey/John sector (20%); Animal production (20%); Irrigation McIntire and drainage (20%); Crops (20%); Agricultural Project ID: PO93165 extension and research (20%) Lending Instrument: Specific Investment Loan Themes: Rural markets (P); Rural non-farm income generation (S); Rural services and infrastructure (S); Other rural development (S) Environmental screening category: Partial Assessment Global Supplemental ID: PO98040 Team Leader: Jeeva A. Perumalpillai-Essex Lending Instrument: Specific InvestmentLoan Sectors: General agriculture, fishing and forestry Focal Area: L-Land degradation sector (100%) Supplement Fully Blended?: No Themes: Land administration and management (P); Environmental policies and institutions (S) For Loans/Credits/Others: Borrower: Republic o f Mozambique Responsible Agency: National Directorate for the Promotion o f Rural Development MinistryofPlanningandDevelopment Bairroda Maxaquene * The proposedProject reflectsGEF financing. The GEF financing i s expected to be approved by the Board in October 2006 after GEF Council approval. National Directorate for the Promotiono f Rural Development Ministryo fPlanning and Development Bairroda Maxaquene "C" Rua 3253, No. 134 P.0 Box 4518, Maputo, Mozambique Tel: 258 21 414434 Fax: 258 21 419824 Email: dndrl@tvcabo.co.mz FY 07 08 09 10 11 12 13 Annual 2.97 3.32 3.47 3.92 3.39 2.13 0.8 Cumulative 2.97 6.29 9.76 13.68 17.07 19.20 20.0 -- GEFEstimateddisbursements(Bank FY/US$m) FY 07 08 09 10 11 12 13 Annual 0.54 1.03 1.16 1.21 0.92 0.42 0.22 Cumulative 0.54 1.57 2.73 3.94 4.86 5.28 5.50 Project implementation period: Start September 30,2006 End: September 30, 2012 Expected effectiveness date: September 15,2006 Expected closing date: March 31,20 13 Does the Project depart from the CAS in content or other significant respects? Re$ PAD A.3 [ ]Yes [XINO Does the Project require any exceptions from Bank policies?Re$ PAD D.7 [ ]Yes [XINO 1 Have these been approved by Bank management? ]Yes [ IN0 Yes X N o Does the Project include any critical risks rated "substantial" or "high"? Re$ PAD C.5 [XIYes [ ] N o Does the Project meet the Regional criteria for readiness for implementation?Re$ [XIYes [ ] N o Project development objective Re$ PAD B.2, TechnicalAnnex 3 The development objective of the Project is to increase the income o f smallholder farmers in selected districts o f the Zambezi Valley region o f central Mozambique. Increased incomes will be achieved not only by direct support to smallholder groups and other supply chain participants, but also through the strengthening of local level capacity to undertake and manage service delivery within the context o f the Government o f Mozambique's decentralization policy. Global Environment objective Re$ PAD B.2, TechnicalAnnex 3 The Global Environment Objective i s to limit land degradation, provide predictive capacity for assessing vulnerabilities to climate change, and to improve the ecosystem's resilience towards climate change inthe Central Zambezi Valley. Project description [one-sentence summary of each component] Re$ PAD B.3.a, TechnicalAnnex 4 The Project will achieve its objective o f increasing the incomes o f smallholder farmers within the Project area through three technical components, with a fourth component dedicated to management, coordination and monitoring. The three technical components comprise: development, including not only direct outreach to groups and agribusiness participants in production, marketing and other supply chain elements, but also encompassing applied research, demonstrations, training and the expansion o f local extension capacity A demand-driven Community Agricultural and Environmental Investment Fund which will provide resources for agriculturally related infrastructure, small scale investment and improved natural resource management. Component 3 (Community Agricultural and Environmental Investment Fund) will make small scale investments, including water and land-based investments, including in agribusiness. These investments may require either involuntary land acquisition, or displacement o f people, or both, so OP4.12 on Involuntary Resettlement i s triggered. A Resettlement Policy Framework (RPF) i s being prepared as a mitigation instrument since the sites and nature o f investment sub-projects will only be determinedduring Project implementation. OP7.50 (Projects on International waterways) i s triggered as there may be water withdrawals for small irrigation Projects implemented inthe Zambezi basin, including the Shire River - a major tributary o f the Zambezi. Sources o f water will include: (a) shallow groundwater from alluvial aquifers; (b) small tributary streams which rise entirely in the territory o f Mozambique; (c) small tributary streams which rise in neighboring Malawi; and (d) direct extraction from the Zambezi and the Shire. Notification has been sent by the Government o f Mozambique to all riparians under OP7.50. GOM has a well-established and capable International Waters Division inthe Department o f Water Affairs (DNA) that has undertaken the notification process. Significant, non-standard conditions, if any, for: Re$ PAD C.7 Credit effectiveness: The Recipient has: (a) adoptedthe Project Operational Manual (OM), in form and substance satisfactory to the Association; (b) established a Financial Management System (FMS), in form and substance satisfactory to the Association, to ensure proper execution and monitoring o f Project activities; and (c) recruited the following technical assistants, satisfactory to the Association: (i) one Senior Financial Management Specialist; (ii) one Senior Procurement Specialist; (iii) District Facilitators; (iv) one two FieldManagement Advisor; (d) recruitedaProcurement Officer at national level. Covenants applicable to Project implementation: a) (i) that the Project i s implemented inaccordance with the recommendations of the ESMF; anc ensure (ii)carry out a screeningprocedure to determine ifa resettlementplan is required under ani 5 Subproject under Component 3 of the Project; and (b) ensure the recruitment o f two agricultural extension staff per administrative post, in the First Phase Project Districts, by January 31,2007 and inthe second Phase Project districts by January 31,2008. (c) Withdrawal Condition for Component 3: (i) Recipient shall have ensured that the following staff have been recruited in any province or district and are in place: one accountant per Province; one accountant and one procurement officer per District; and one regional procurement specialist; and (ii) to any Project Beneficiary untilthe related Project Beneficiary shall have concluded an Agreement, 6 A. STRATEGIC CONTEXT AND RATIONALE 1. Country andsector issues Mozambique has witnessed rapid growth since achieving peace in 1992. The economy grew by 8% annually between 1994 and 2004, albeit from a very low base, and the national poverty headcount index fell from 69% in 1996 to 54% in2002. The conditions for growth were created by the economic reforms initiated by the Government, as well as the Government's success in maintaining national peace and stability. Growth inthe agricultural sector has been an important contributor to overall economic growth and has been the key factor inreducing rural and national poverty. Agricultural growth has mainly been driven by the post-conflict re-settlement of refugees inthe rural areas, and the resulting expansion in labor and land. This expansion caused the sector to grow by an average 6.8% per year from 1992 to 1997 and an average 4.6% between 1997 and 2003. Agriculture inMozambique i s almost entirely dominated by smallholders. Smallholders comprise 99% of all rural households and provide 95% of agricultural GDP. Most of the smallholders are subsistence farmers with an average of 1.4 ha of cultivated land per household. Their traditional low input, traditional farming practices result in generally low yields relative neighbouring countries with similar agro-ecological potential. Smallholders, in particular in the Zambezi Valley, are also highly vulnerable to extreme climatic conditions which alternate between frequent droughts and floods. Land degradation, the unsustainable exploitation of natural resources, and changing climatic patterns are likely to only aggravate such problems inthe hture. An IISD/UNEP study' indicates that returning migrants and increasing climate variability are additional challenges to people's livelihood and to sustaining ecosystem services inMozambique with significant negative impacts for Tete and Sofala provinces. Extensive agriculture by returningmigrants is resulting in increased deforestation, the loss of biodiversity, and a rapid decline in soil fertility of cleared areas, which leads to further deforestation. The loss of ecosystem services increases the vulnerability o f both existing and new settlements to droughts and floods. Even though the overall macro-economic and policy environment is considered to be relatively conducive to agricultural and smallholder growth, current growth patterns driven by land and labor expansion are unlikely to be sustained, unless a number of critical and inter-related constraints are addressed. These constraints include the weak organizational capacity o f farmers, the weak institutional support to smallholders, the lack of access to credit, poor rural infrastructure resulting in inefficient input-output markets, inadequate access to knowledge on improved land management and improved farming systems. These factors result in low local capacity to adapt to both short term climate variability and medium to long term climate change. The Government of Mozambique (GOM) is determined to promote continued economic growth and poverty reduction. Absolute poverty reduction is the main priority for all Government action, as reflected inits Five-Year Program 2005-2009 and in its Poverty Reduction Strategy (PARPA- I,soon to be followed by PARPA-11). Agriculture and rural development, as well as improvements in natural resources management, are considered key in achieving economic growth and poverty reduction. At the same time, GOM is pursuingan ambitious decentralization UNDP andIISD,Connecting Poverty and Ecosystems Services, 2005. 7 program, which aims at making the district the development pole, from where all development action should be initiated. GOM acknowledges that further smallholder growth and poverty reduction will depend on gains inagricultural productivity, and so it pursues a two-pronged strategy of (i) building producers' capacity to increase their productivity, and (ii) transforming the role of public institution into facilitators and providers of essential growth-facilitating services. Critical elements of GOM's strategy are the stimulation of market mechanisms, the promotion of the creation of financial institutions for the rural areas, the improvement of rural and agricultural infrastructure, the stimulation of agri-business development, and the improvement o f the performance o f extension, research and market information services. All of these actions should support smallholders in their gradual transformation into more intensive, productive and commercially oriented farming. The type o f approach GOM intends to take inthe implementation of its agricultural strategy will be (i) by the needs and demands o f farmers, which comprise the whole spectrum of driven production, marketing, finance and rural infrastructure, (ii) focused on direct impact at the district level, and (iii)open to collaborative arrangements with non-state actors, such as farmers associations, NGOs and private sector actors, including through mechanisms such as outsourcing o f services. The long-term sustainable use of natural resources, and, more specifically, land, forests, wildlife and water i s a key ingredient of the Government's strategies. Inthe Poverty Reduction Strategy, the GOMhas committed itself to promote and enforce the sustainable use of naturalresources for the benefit o f the country as a whole, and to encourage the cultivation of renewable resources. The National Action Plan for drought and desertification (NAP), prepared by the GOM in the context o f the UnitedNation Convention on Drought and Desertification (UNCCD) - establishes the strategic measures for drought mitigation. Finally, the Central Government has in place a strategy for disaster preparedness in the major flood plains, in which early warning systems of floods and seasonal migration between the floodplain and the uplands are the proposed strategies for the affected communities. 2. Rationale for Bankinvolvement and GEF eligibility First, the Project supports environmentally sustainable agricultural intensification among smallholder farmers, which i s key for continued economic growth of Mozambique and i s consistent with the GOM's strategy i.e. PROAGRI11, for the sector. The Project will complement ProAgri-I1 by directly mobilizing demand for agricultural and environmental services from the community-level and will be implemented in close collaboration with District and Provincial Directorate o fAgriculture (DDA) staff. Second, empirical evidence from the past decade inMozambique' suggests that the overall thrust of the Project, i.e. increasing the incomes o f smallholder farmers, i s critical for poverty reduction in Mozambique. This comprises the primary objective of GOM, and has been accepted by the Bank in its Country Assistance Strategy (CAS). Third, the Bank's global experience incommunity-driven and market-led approachesallows it to assist GOM inits efforts to change its approach in agricultural development. Even though GOM Cf. World Bank Mozambique Agricultural Development Strategy -Promoting Smallholder Agricultural Growth (draft) analysis based on IAF 1996197poverty data from Fox et al. (2005) andTIA 199511996 and 2002/03 production data from Mather et al. (2005a). 8 has officially declared its full commitment to a more participatory, community-driven, market-led and horizontal (i.e. integrated and multi-sectoral) approach, there i s not yet much experience in Mozambique inthe actual applicationof such approaches.While community-driven, participatory approaches are beginningto show some positive results in the Northern Region o f Mozambique, further success stories could convince and encourage GOM to pursue similar approaches more vigorously inother areas of the country. Fourth, the Project will build on and support the GOM's decentralization policy and program, where districts will be the focus of development and a budget entity. This program i s also being partly supported by the Bank's Decentralized Planning and FinancingProject (DPFP) (Grant No. 80670), operative in the same area. However, while DPFP has a strong emphasis on capacity building and participatory planning at the district level, it does not specifically address agricultural issues in district planning. The synergies that could be attained from collaboration between the two Projects could result invaluable experience that could help GOM inits efforts to move to a more horizontal (i.e. multi-sectoral), territory-based (i.e. district) approach to agriculture andrural development. Fifth,the proposed Project will, inmany ways, address aspects that are not likely to be resolved by other actors inthe short to mediumterm. While the Project area offers significantpotential for agriculture and trade (the latter particularly arising from its proximity to the Malawianmarket), it i s currently still relatively underdeveloped, due, inter alia, to the damage it suffered during the war. Private sector actors are unlikely to step in forcefully at this stage, without initial public investment in the region. Some o f the proposed districts, e.g. Mutarara in Tete Province, have also been relatively neglected by other donor-sponsored initiatives. The Ministry o f Agriculture (MINAG) is expected to enhance its extension coverageunderthe secondphase of its sector-wide programProAgri-11. In addition, the Project is expected to benefit from complementarity with several World Bank- financed infrastructure Projects, such as the second Roads and Bridges Project, which will finance the Caia Bridge over the Zambezi River, as well as the Beira Railway Project. Both Projects will contribute to opening up the Zambezi Valley to the rest o f Mozambique and thus contributeto improved conditions for success of the proposed Projects. Besides the national economic and social benefits of increased agricultural growth, the blending o f the Project with a Global Environment Facility (GEF) grant will significantly harness the potential synergies between national goals and global benefits such as reduced deforestation and the resultant above- and belowground biodiversity loss and reduced greenhouse gas emissions while maintaining the functional integrity of bothupland forest and lowlandriparian ecosystems. For example, the current use o f extensive farming methods is leading to increasing deforestation, land degradation, and further clearing of native woodlands as farmers abandon degraded land. The loss of ecosystem services (local hydrology, habitats for native biodiversity) from deforestation and land degradation i s resultingin increased vulnerability o f local communities to droughts, floods and unstable markets. Priority areas for improving land management for global environmental benefits include forest margins, gallery forests, and riparian zones, which are not only important for native biodiversity but also help to stabilize hydrological flows and thus reduce the possibility of degradation o f existing agricultural lands. These areas are not normally a priority for national development programs so incremental OP 15 fundingwill ensure the synergy between the local benefits of improved management and the global benefits (reduced loss o f high biodiversity habitats, improved protection and conservation o f forest buffer zones and terrestrial- aquatic boundaries. Inaddition to the activities proposed under the GEF OP 15 (Sustainable Land Management), specific incremental funding i s being sought under the GEF's Special Priority of 9 Adaptation (SPA) to strengthen Mozambique's capacity to assess and integrate climate change risk into sustainable land management planning via the testing and calibration of dynamic vegetation, soil, hydrology models for improved predictive capacity of local climate change impact scenarios and assessment of priority mitigation interventions to reduce the negative impacts o f extreme events on localpopulations and ecosystems. GEF eligibility flows from Mozambique's signing and ratification of the key global treaties on the environment3: The Project would directly contribute to the implementation of the UNCCD NAP and to some of its main operational strategies, including community mobilization, training and knowledge sharing, sustainable forest exploitation, sustainable soil management, improved water use and management, improved landrights for local communities and institutional capacity building, and would serve to report onprogress made inthe implementation o fthe Action Plan. It would also address priorities under the National Biodiversity Strategy and Action Plan (NBSAP), and respond to the recommendations of the Initial National Communication under UNFCCC. Synergies among conventions will be sought, and adaptation to climate change will offer a unique concrete opportunity to test these linkages at the operational level, filling the gap between the regimes created by the Conventions and the reality on-the-ground. 3. Higher level objectives to which the Project contributes The Project's support to smallholder development will directly contribute to GOM's objective for the agricultural sector, which i s to "contribute to improvedfood security andpoverty reduction by supporting the eflorts of smallholders, the private sector, [and] of governmental and non- governmental agencies to increase agricultural productivity [and] agro-industry " (Proagri-I1 strategy document). By increasing the incomes of smallholders, who make up the majority of Mozambique's poor, the Project will also contribute to the central objective o f Mozambique's Poverty Reduction Strategy, i.e. "a substantial reduction in the levels of absolute poverty in Mozambique through the adoption of measures to improve the capacities oJ and the opportunities available to, all Mozambicans, especially the poor. The specific objective is to reduce the incidence of absolute poverty from 70% in 1997 to less than 60% by 2005 and less than 50% by the end of this decade" (PARPA-I, 2001-2005). With respect to the World Bank's CAS for Mozambique, this Project would primarily support its first and to a lesser degree also its secondpillar. One o f the CAS objectives within the first pillar - improving the investment climate - i s that o f "raising crop yield through farmers' use of improved technologies 'I,an objective to which this Project would directly contribute. By working through local District Administration staff, and strengtheningtheir capacities, the Project will also contribute to the CAS objective of "an improved structure for service delivery though local authorities",which forms part o f its secondpillar on expanding service delivery. The Project is consistent with GEF Operational Policy 15 (OP15) concerning mitigation and prevention o f land degradation. The Project follows OP 15 Strategic Priorities 1 (Targeted Capacity Building)by enhancing the enabling environment and capacity o f local stakeholders to support sustainable land and natural resource management practices that yield not only local benefits but are also synergistic with global environmental benefits (enhance conservation and use o f native biodiversity, reduced deforestation and carbon emissions). The Project also addresses Strategic Priority 2 (Implementation o f Innovative and Indigenous SLM Practices) by UnitedNations Conventionto CombatDesertification (UNCCD, 1997),the Convention onBiological Diversity (CBD, 1999,the UnitedNations Framework Convention on Climate Change (UNFCCC, 1995), and the StockholmConvention onPersistentOrganic Pollutants (2005). 10 first documenting local and traditional best practice NRM approaches and then facilitating demand driven research and adaptation o f innovative and indigenous SLM practices through on- the-ground investments mainly under Components 2 and 3. Examples o f best bet practices include agroforestry systems with native species, sustainable forest and woodland extractive practices such as the elimination o f fire in honey collection and reduced collection o f wild medicinal plants coupled with increased cultivation o f these species in agroforestry systems. Annex 9 has a more detailed description o f the anticipated GEF and incremental costs associated with achieving these benefits. The published Intergovernmental Panel on Climate Change (IPCC) scenarios for climate change impacts for southern Africa suggest that Mozambique i s highly likely to suffer an increase in the frequency and severity of extreme events (droughts and floods). Mozambique has developed a DRAFTnational adaptation programo faction (NAPA) -(see Annex 4 Attachment 2). While the draft NAPA4is focused on 4 major programs for short to medium term priorities, this Project includes a specific component on the GEF's Strategic Priority o f Adaptation (SPA) to both strengthen Mozambique's proposed NAPA and to develop and sustain the long-term national institutional capacity to: (a) Identify, characterize and quantify basidcatchment scale hydrology and land cover and land use changes. (b) Create and sustain a national capacity to model the interactive impacts o f climate change and land cover land use change and assess the priority mitigation responses. (c) Contribute to strengthening o f a national data base of land cover and land use change dynamics, hydrology, and climate information to support the collaborative activities o f national agencies (e.g. National Meteorological Agency, CENACARTA, National Directorate o f Water, ARA Zambezi, GPZ) and policy makers. B. PROJECTDESCRIPTION 1. Lendinginstrument The proposed Project would be a Sector Investment Loan comprising an IDA Credit o f US$20 million equivalent and an expected GEF grant o f US$5.5 million. 2. Projectdevelopment objectiveand key indicators The development objective o f the Project i s to increase the incomes o f smallholder farmers in selected districts o f the Zambezi Valley region o f central Mozambique. Increased incomes will be achieved not only by direct support to smallholder groups and other supply chain participants, but also through the strengthening o f local level capacity to undertake and manage service delivery withinthe context o f the GoM's decentralization policy. The Global Environment Objective is to limit land degradation and to improve the ecosystem's resilience towards climate change. The Global Environment Objective is linked to the creation o f local environment benefits indicated under Section A. Key outcome indicators reflecting achievement o f the Project development objective will be: the creation o f social, physical and investment capital as well as associated market and support systems, which will facilitate an increase inaverage incomes o f farmer groups. Increased incomes Basedon communication with Eduardo Baixo, MICOA 11 would arise from improved yields and reduced losses, increased labor productivity; the diversification of farming systems and improved market linkages, while the achievement of the global environment objective will be measured by: i)an increase o f at least 20,000 ha under improved SLM or natural resource management practices in Project area by Project end; ii)a measurable increase in biodiversity or carbon sequestration in targeted Project sites vs. control sites through one or more of the following: (a) reappearance o f native species, (b) increased carbon stocks, (c) reduced soil erosion, (d) reduced incidences of wild fires; iii)at least 3 predictive and basin specific hydrology-land cover-climate change scenarios for land use-land cover change impacts on hydrology under changing rainfall and evapotranspiration regimes; and (iv) increased use of drought-tolerant crops, fodder species and varieties, crop rotations to increase soil organic matter, reduce weeds, and conserve soil moisture by local land users, Progress inachieving environmentaltargets will be measuredby remote sensing and field surveys inProject and control areas. An initialbaseline beneficiarysurvey ofalmost 1,000 geo-referenced households, which will includecontrol areas, will be completed prior to Project effectiveness. A second impact evaluation survey will be carried out prior to the mid-term review and a final impact survey prior to the completion o f the Project. Similarly, remote sensing with appropriate ground truth surveys and a GIS system will be used to establish the baselines for the national agricultural and natural resource and the global environment indicators and outcomes. The Project will maintain both internal and external monitoring systems and conduct mid term and end of the Project evaluations. 3. Projectcomponents The Project will be implementedover a six year period intwo phases across five districts within the Zambezi Valley region of Central Mozambique. The Project will start operations in the two adjacent districts; Mutarara, Tete Province and Morrumbala, Zambezia Province. Further three districts are proposed for inclusion during the second year o f implementation. Preliminary selection of the remaining three districts has identified Mopeia in Zambezia province and Maringue and Chemba in Sofala Province, although these could be modified during the initial stage of implementation. The selection of districts- five over three provinces and under two phases are based on the following; (i)GOM selected the districts in the Project area and suggested working over two phases; (ii) working across provincial boundaries provides a wider variety of socio-economic and natural resource contexts inwhich to assess the Project approach; (iii) activitieswillbeabletobenefitfromcomplementarityandpotentialsynergieswith Project other programs, already operating inthe selecteddistricts. Project preparation funds obtained via a GEF PDF-B grant are being used to develop quantitative baselines for natural resource endowments (e.g. forest, crop, riparian areas; land cover change dynamics, soil productivity, water courses, areas prone to flooding and drought, roads and other infrastructure, settlements). These activities will be completed by September 2006. The Project will be integrated and support Government's decentralization policies and initiatives, thus being district focused. It will achieve its objective of increasing the incomes of smallholder farmers within the Project area through three technical components, with a fourth component dedicated to management, coordination and monitoring (detailed Project description i s provided inAnnex 4). The three technicalcomponents are: Component 1: Community Group Organization and Local Institutional Strengthening (Total: US$8.6 million; IDA: US$7.6 million; GEF: US$O.9 million; Government: US$O.1 million) comprising: (a) community based organization capacity development; (b) rural financial 12 services, and; (c) district capacity development. Expenditures under this component include consultancy services, training, goods and equipment and a modest amount of civil works. Activities under this component lay the basic foundation for the sustainability o f Project intervention. The primary objective i s to empower and buildthe social capital o f farmer groups, women's groups and other supply chain participants in areas such as marketing, agribusiness development, and district agricultural staff. The empowerment of groups will ensure that district planning process has the participation of key stake holders in the rural community. The vision for the farmer and savings and loans groups i s that from small groups o f 15-25 individuals, they will grow into apex organizations of community based organizations such as rural producer organizations and village savings groups. A group-based approach to smallholder farmer and supply chain participant support is dictated by the current lack of outreach capacity for the target group at district level, rendering the support of development activities through individual farmers infeasible. Furthermore, the lengthy civil conflict which was at its most intense in the Project area, and the major dislocation of population and abandonment of settlements which occurred as a result, have resulted in low levels of social coherence and collaboration. Given the low resource endowments o f the vast majority o f the target group, collaborative responses to development constraints and priorities i s considered essential, and will require a significant increase in social capital. The component therefore will focus on `empowerment', through support for the mobilization and strengthening of common interest groups, as well as on building capacity o f local government and non- government organizations to sustain and contribute to the needs o f such groups. NGOs (international and national) or other private sector providers will be contracted for assisting in mobilization o f communities. The establishment of savings and loans groups (SLGs) will be supportedthrough the procurement of NGO services for mobilization of groups. SLGs may evolve from the initial focus of group activity or as part o f other common interest groups. These groups are expected to eventually develop into local savings unions, or apex institutions. Inaddition, the Project will promote and facilitate the expansion o f financial institutions (that have adequate liquidity) into the Project area, through the provision o f technical assistanceand part of start up costs. The latter service will beprovided so as to encourage financial institutions into the highriskruralareas. Other inputswill also include training and support services to providers, district level government agencies and financial institutions. The key output will be functioning smallholder farmer groups and SLGs which are able to define their own needs and priorities and participate effectively in district planningprocess and capacity among local institutions to support such groups. GEF OP 15 funds will be used to (i) complete the quantitative baseline data set being compiled with PDF-B resources. Some data and maps already exist at various agencies inMozambique but access to the data i s very poor and it i s difficult to judge the adequacy and quality of these data layers for the proposed activities. (ii) Establishthe baselines for aboveground biodiversity using a tested rapid appraisal tool (Plant Functional Attributes), (iii)Document and geo-reference indigenous NRM and native biodiversity knowledge, and (v) Quantify land cover change dynamics in attempt to identify deforestation and land degradation frontiers. A participatory approach that involves community members in the baseline surveys will be used to identify the improved crop, soil and water management "best bet" interventions and to facilitate their contributionto local land use planning and future uptake o f Project findings 13 Component 2: AgriculturalProduction and MarketingDevelopment(Total: US$6.4 million; IDA: US$3.9 million; GEF: US$2.5 million) comprising: (a) agribusiness and market development; (b) strengthening of extension services; (c) applied research, training and demonstrations; and (d) improved agricultural and agroforestry systems. Expenditures under this component include limited civil works, equipment, consultancy services and incremental operating costs. This component provides technical support for market driven, broad-based sustainable agricultural development. Through a strengthened extension service, technical assistance would be provided to stakeholders involved in production, marketing and processing o f agricultural products. Contracted studies, applied research, specialized training and awareness campaigns would be undertaken in such areas as market opportunities identification and development, crop diversification, sustainableland and water management, market information etc. In undertaking these activities, it is recognized that the group formation promoted under Component 1cannot occur inisolation, and would need to be closely tied to support for priorities set by group members. Response to these priorities would be provided both by the public and private sectors. Public extension staff will work with community based groups to strengthen market linkages and improve the profitable and sustainable production of crops and livestock. Demonstrations, applied research, awareness campaigns and outreach campaigns will provide impetus for the adoption of market driven technologies and practices. Additionally, they will ensure that infrastructure needs are taken into account by influencing the district planning process. The private sector will be provided with technical assistanceto improve input and output markets. Additionally, an enabling environment will be created to encourage private sector to participate actively inthe rural areas. The bulko f GEF OP 15 incremental fundingwill beusedto provide technical support to facilitate the adoption o f improved management o f land and water resources through the adaptation o f available "best bet" agroforestry, soil conservation and alternate energy sources and to ensure the priority linkages with global environmental benefits (carbon sequestration, above and below ground native biodiversity conservation). Special attention will be given to improving and diversifying cropping systems by coupling indigenous knowledge, species, and varieties with current natural resource management. Communities currently practice a range o f extractive activities (collection o f firewood, honey, and medicinal plants, charcoal burning) in existing forests, which often involve the use of fire and the occurrence of unintended forest fires. The proposed forest management activities will target the development and implementation (see component 3 below) of more sustainable extraction practices and alternative cultivatiodproduction practices for the currently extracted forest products. Agricultural intensification practices that facilitate nutrient cycling (e.g. the use of legume cover and intercrops, small amounts o f fertilizer with cash crops), reduced weeds and pests (e.g. via crop rotations), and the use o f highvalue-low volume crops to avoid nutrientexports will be promoted to provide alternatives to the current practice of slash and bumagriculture. Under the proposed SPA component, the main goal is to strengthen the country's emerging NAPA priority activities (see Annex 4 - Attachment 2), which are targeting the development o f early warning systems for climate variability and climate change. The proposed SPA activities will strengthenthe capacity o fnational partners to (i) the vulnerability of specific sectors identify (agriculture, forestry, fisheries, water supply and quality) to droughtlflood prediction, erosiodlandslide hot spots, infrastructure, re-forestation schemes by region, and (ii) to evaluate the tradeoffs among sectors as a basis for future policy interventionsand financial investments. 14 The specific activities include the calibration andtestingofbasinand catchment level land cover dynamics-hydrology models (VIC, DHSVM) with participation (observatiodmeasurements) by local communities and stakeholder agencies (The National Meteorological Agency, The National Directorate for Water, The Ministry for Coordination of Environmental Actions (MICOA), The National Institute for Disaster Management (INGC). Both VIC and DHVSM handle dynamic land use-land cover changes and have already been tested at basin to field scales in other regions (e.g. the Amazon and Mekong basins). In addition, the Erosion Productivity Impact Calculator (EPIC) Crop Model will be evaluated for use in the study of impacts of climate variability and climate change on local crop productivity and as a tool to simulate the impact of improved crop rotations as a mitigation strategy to changing rainfall. (see Annex 4 - Part 2 for details of the proposed activities and models). The key inputs under this component will be education campaigns for rural stakeholders, demonstrations, farmer training, and appliedresearchon marketing, active participation of private sector in agribusiness, and agroforestry techniques and natural resources management aspects. The key output will be groups actively engaged in the validation and adoption of improved technologies and entering into close linkswith other non-agricultural supply chainparticipants. Component 3: Community Agricultural and Environmental Investment Fund (Total: US$8.5 million; IDA: US$5.9 million; GEF: US$1.7 million; Beneficiaries: US$0.9 million) comprising the following windows: (a) agriculturally related infrastructure; (b) small-scale agricultural investment; and (c) sustainable land management. Expenditures under this component include civil works, consultancy services, equipment, and materials for infrastructure, agriculture and agribusiness investments. The Fund will operate under a demand driven approach linked with the participatory district planning process and would provide resources for identified priorities in agriculturally related infrastructure, small scale investment and improved land management. There are no formal financial institutions operating inthe Project area, and few informalfinancial intermediaries. In addition, district administrations have limited resources to develop and maintain infrastructure, especially those related for the support o f agricultural production. Resourceshave beenmade available to districts in2006 under the current decentralization efforts of GOM ($300,000 per annum), as well as through the Bank financed DPFP program. Giventhe limited infrastructure investment inrecent decades and the lack of commercially-based financing, demand i s highand existing resources are not expected to meet all needs. Current financing has been directed primarily to the reconstruction o f public administration buildings, schools, health clinics and mainroads. The key inputs under this component will be financial resources and associated technical assistance for developing, appraising and implementing sub-Projects. Key outputs will comprise: agriculturally related infrastructure such as small reservoirs and irrigation systems, markets and roads leading to markets; small-scale productive activities in agriculture, livestock, aquaculture with preferred native fish species and agro-processing; and investments in improved natural resources management (in-situ conservation o f important native plant species identified by local communities, e.g in community managed home gardens and protected riparian and buffer zones, improved agroforestry practices with native fruit, medicinal, forage plants, improved honey collection methods to reduce fires from traditional use o f fires to collect wild honey). GEF OP 15 investments will target improved natural resources management that result in verifiable global environmental benefits. These grants will be based on community demands 15 guided by priority criteria to ensure global environmental benefits. Examples of "best bet" practices that are not only attractive to communities but also fulfill priority global benefit criteria include (i)in-situ conservation inbiodiverse home gardens of important native fruit, medicinal, forage plant species identifiedby local communities, (ii) protection and/or restoration o f degraded community managed areas such wetlands, and riparian and buffer zones and use rights for extractive products, (iii)improved, fireless honey collection methods to reduce wildfires from traditional honey collection practices, and (iv) conservation of habitats identified as important sources of medicinal plants. Component 4: Project Management, Coordination and Monitoringand Evaluation(Total: 'US$2.6 million; IDA: US2.0 million; GEF: US$0.4 million; Government: US$0.2 million). Expendituresinclude consultancy and training and goods and equipment. This component will include technical supervision and coordination, work plan and financial reporting functions at district, provincial and national levels. The component will be congruent with the government's decentralization initiatives and will utilize existing public sector arrangements as far as possible. Additionally, the existing inter-ministerial national and provincial steering committees and district consultative councils established under GOM's Decentralization Law will be utilized for the Project. In addition, two key technical staff will be recruited; a District Facilitator for each district and a Field Management Advisor (see Annex 6) who will work across all five districts. Funds will be provided for intensive monitoring of the Project (see Section C2). The remote sensing quantitative baselines developed via the GEF PDF-B grant will serve as objective reference points to evaluate progress over the life of the Project and beyond. The SPA modeling component will provide an interactive predictive and analytical framework to assess current and emerging resource management issues during and beyond the lifetime o f the Project. GEF funds will be usedto recruit a Senior Environmental Specialist (ES) who will be basedwith the Field Management Unit and two District Technical Facilitators (DTFs). The ES will support the two DTFs and interact closely with the FieldManagement Advisor and associatedstaff inthe FieldManagement Unit.GEF funds will also be usedto equip (vehicles, motor cycles, GPS units) the technical specialists who will work across all five districts. Project Preparation Facility (PPF): IDA: (US$580,000) An advance against the PPF was requested in October 2005, by GOM to carry out the preparatiodfeasibility o f the Project. The resources were utilized for the procurement of consultancy services, conducting workshops, equipment and a vehicle. Retroactive financing of US$1 million has been requested for Project start-up activities. 4. LessonslearnedandreflectedinProject design Key lessons appliedinProject design include: Determinants of Rural Poverty in Mozambique; Analysis o f the determinants of rural poverty in Mozambique (undertaken in the context of the World Bank's Agricultural Development Strategy - Promoting Smallholder Agricultural Growth) suggests that agricultural growth, and in particular smallholder growth, i s the main determinant o f poverty reduction inMozambique. This has been taken into account in Project design by making smallholder producers and their supply chains the principal targeted beneficiaries of the Project. Roads and transportation for agricultural products are also among the most important factors determining a rural household's poverty level. For example, access to transportation for agricultural production increases rural consumption by 16 30%. Inaddition, extension, the increased access to and use of appropriate fertilizers, and non- farm employment opportunities strongly improverurallivelihoods. Alignment with Government structures and svstems: Recent Experience with the Bank-supported DPFP and in the IFAD-support Agricultural Markets Support Project (PAMA) has shown that relying on government structures and systems might add additional challenges to the efficiency of Project implementation. A lesson learnt i s that strong collaboration with and support and advice to government staff at both provincial and district level i s critical for successful Project implementation. The Project has incorporated these lessons in its design (see also section C on implementation arrangements). Capacity Building;and Technical Assistance to Beneficiaries: Based on other donor operations in Mozambique (including PAMA, DANIDA's Agricultural Sector Program, and African Development Bank (ADB)-supported small-scale irrigation Project,) point to the need for extensive capacity-building and technical assistance to beneficiaries. Even in those interventions that were intended to be more or less market-led, such as the Private Sector Development component o f DANIDA's Program (operative in Tete and Manica province), considerable and pro-active Project support to beneficiaries in the identification, formulation and supervision of sub-projects was requiredto get activities off the ground The proposed Project therefore has a strong emphasis on capacity-buildingand technical assistance. Group Promotion and Mobilization: Experience o f organizations active in Mozambique such as CARE, W A C , World Vision International (WVI) and CLUSA points to the need for farmers groups and/or associations to deliver clear economic benefits to their members. Group formation that i s not demand-driven or not linked to demand-led technical assistance in production, marketing, or finance-related activities is therefore likely to lead to demoralization and un- sustainability. The proposed Project intends to buildon these lessons by buildingin strong links between the groups formed (under component 1) and the services and investment support provided under component 2 and 3. Cost-sharing of investment bv smallholders: Experience from WVI and GTZ indicates that smallholders are both willing and able to contribute a significant proportion o f the cost required for small productive investments (e.g. small-scale irrigation) and to re-pay the financed portion of the investment, so as to permit other group members to make similar proposals. Importance of tangible benefits in SLWCBNRM Projects: Matakala and Mushove (2001) and U M C (2006) indicate that in CBNRM and SLM Projects in Mozambique communities will become more involved if they perceive the Project as providing them with tangible benefits; Projects which generate only intangible benefits such as soil and water conservationtend to draw less interest amongst communities. The Project's blended design (addressing poverty and global environment issues in an integrated manner) and focus on increasing smallholders' income respond to this lesson. Awareness and education campaigns will convey the Project's approach to Projectbeneficiaries, PeopleAand management focus: Lessons from the GEF Land Degradation Linkage Study (200 1)5 The study aims to identify the results and initial impact o f the land degradation component o f those linkage Projects which llnk biodiversity, international waters and climate change with land degradation. Lessons learned from this review lead to a set of recommendations on how land degradation issues should be addressedinsubsequent GEF activities. 17 indicate that (a) Projects with a peoplehand management focus tend to address land degradation issues more directly. The Project employs a demand-driven approach, including in the land use planning process under component 1; and (b) the most effective linkage Projects appear to be those where land degradation i s built in as an initial component o f the problem and the solution. The smallholders Project's objective under the GEF increment is focused on reducing land degradation through SLM, land use planningand related activities. 5. Alternatives consideredand reasonsfor rejection Implementina agency: There were two main reasons for selecting the National Directorate for Promotion o f Rural Development (DNPDR) of the Ministry o f Planning and Development (MPD) as an alternative to the Ministry of Agriculture (MINAG). These are: (a) the Project emphasis on group promotion and mobilization, and (b) the strong links with the district-level decentralization administration. Need for investment in infrastructure: Given the current relatively low absorptive capacity o f districts in the Project area, and the need to avoid unnecessary duplication with DPFP Project, which already finances rural roads, one alternative was to eliminate investment in infrastructure from the Project. The reason for rejecting this alternative was that the community planning process supported by DPFP currently does not specifically address agricultural issues, and lacks the mechanisms to ensure the identification and mainstreaming o f the agricultural infrastructural needs of smallholders into the local planning process. The amount of funding available through the DPFP is also very limited, amountingto an average of only US$302,000 per district over the four and a half year implementation period and i s not expected to satisfy the demand. for infrastructure. Nevertheless, Project resources would only be used for infrastructure where demand was inexcess of DPFP's capacity to respond. Use of a Proiect Credit Mechanism: As the Project area currently lacks the presence of formal credit institutions, one alternative for facilitating the flow o f investment funds was through a line of credit under the Project. This alternative was eventually rejected, as establishing a credit mechanism or institution purely on the basis o f time-bound Credit funds would not be a sustainable solution and there was adequate liquidity inthe banking system. A community-based fund is proposed for producer groups, with attention to developing improved access to rural financial services to provide longer term sustainability. Savings and loan groups supported by the Project will not receive funds, as global experience has shown that the performance of savings- basedgroups often deteriorates when external funds are provided. Inclusion of adaptation activities: There was some concern to including climate change adaptation activities as they may be construed as contributing to the complexity o f Project implementation. However, it was recognized, though, that the impacts o f climatic events such as droughts and floods are crosscutting and diverse, with severe consequences for agriculture and natural vegetation besides the indirect effects on health and economy. Any changes in land use and agricultural practices should, therefore, take into account climate trends in order to reduce the vulnerability towards increased weather variability. While the effect o f climate change in other countries in the region i s still uncertain, a number of regional climate models predict that the intensity and frequency of both droughts and floods (from cyclonic events) in Mozambique in general and the central Zambezi Valley inparticular will increase inthe mediumto long term. 18 C. IMPLEMENTATION 1. Institutionalandimplementationarrangements Overall responsibility for implementation will rest with the National Directorate for the Promotion o f Rural Development (DNPDR) of the Ministry of Planning and Development (MPD). DNPDR has been responsible for leading and preparing the Project on behalf o f the Government o f Mozambique. The DNPDR was selected because agriculture, environmental aspects, group mobilization and decentralization issues are all central to Project implementation. Additionally, MPD has the responsibility for integrated socio-economic development. In addition, the Project has been designed to support the decentralization strategy o f the GOM, which i s implemented through the MPD, under the Provisions of the Decentralization Law established in2003 (details inAnnex 1). District: The focus of all activities will be at the district. To coordinate the activities at the district, a DistrictFacilitator (DF) will be appointed. The DF will collaborate closely with district government and with the District Administrator. The DF would play a catalytic role in ensuring technical departments work for the needs of smallholders and provided technical assistance when required. This includes development of annual Project work plans, budgets and reports. The DF will be supported by government recruited accounting and procurement officers to supplement existing local capacity. The operation of the Community Agricultural and Environmental Investment Fund (CAEIF) will be largely a district responsibility, and would be integrated into the decentralization process, including the district consultative councils, to the extent it relates to the provision ofpublic goods. Provincial: At the Province, coordination is required for the services provided by public and private sector that are not present in districts. In addition, banking facilities are not available in the district. A key implementationrole based in one of the provincial capitals will be that of the FieldManagement Advisor (FMA), supported by an associated pool o f short and medium term specialist consultants. The FMA will be supervised by the National Director of DNPDR, and work in close collaboration with the representatives department o f DNPDR inthe Provinces and District Facilitators. The FMA will have the responsibility for ensuring implementation quality and coordination between districts and provinces. Together with the consultant specialists, he/she will provide training, methodological support, reference materials and guidance to government staff as well as for contracted service providers. The Provincial Representative of DNPDRwould act as Provincial Project Coordinator and would supervise the work o f the District Facilitators in coordination with the District Administrators. The DNPDRprovincial team will be responsible for incorporatingprovincial level activities into aggregated district plans, reports and budgets and overseeing the timely flow of funds from national to provincial level. National: Giventhe central role of the district inProject implementation, tasks and roles at the national level will be largely contract supervision and oversight. At the national level an existing Inter-Ministerial Steering Committee,6 will be expanded to include representatives of other relevant ministries. The key role o f the steering committee i s to ensure that overall strategic direction o f the Project i s appropriate, as well as to approve Project work plans and budgets. The National Director o f DNPDR will be responsible for the Project activities and will act as The Inter-Ministerial Steering Committee currently includes senior officials fromMPD, Finance, Agriculture, Public Works and Housing and State Administration. 19 Secretary to the steering committee on matters related to the Project. To assist him inpreparing the necessary progress, financial and procurement reports three full time staff will be provided, namely a senior Financial Management Specialist and Procurement specialist (consultants for up to 2 years) supported by a accountant, and procurement officer The latter staff will be provided bythe Government. 2. Monitoringandevaluation of outcomes/results Project monitoring will occur at three levels. Internal monitoring will form part o f Project implementation activities -primarily management information system. At the district, this will be the responsibility of the District Facilitator, who will ensure the collection and reporting of data on inputs and outputs. Data will derive from quarterly expenditure and work data supplied by district Project participants -public, private and non governmental - as well as from C A E F disbursement records and verification visits to funded sub-Projects. The work o f the DF will be supported on a Project-wide basis by the Field Management Advisor (FMA) who will monitor technical performance indicators and completion of activities and outcomes against work plans, particularly for service providers. Process monitoring will be undertaken by an independent contractor reporting directly to the Inter-Ministerial Steering Committee. Their work will include not only reviewing and analyzing the internal monitoring data generated within the Project, but also assessing the implementation process itself and the manner in which the overall Project objectives are being met. In this context, the Project's success inboth the sustainable mobilization o f a traditionally marginalized population and the creation of an enhanced district level capacity to support such groups must be a central component. In addition, the external monitoring system should attempt to assess the extent to which sub-projects put forward by participating groups, and eventually funded, actually reflect their priorities. Inorder to generate and utilize this data, the external process monitoring will be expected to maintain a database containing annual sample surveys covering the activities, income levels and perceptions o f beneficiary groups and control populations. Inthis work they will draw heavily on the baseline study to be completed before Project effectiveness, as well as a second major survey to be conducted prior to the mid-termevaluation. ImpactEvaluationwill be carriedout by an independent institution. There will be two surveys - one at midterm and at the end of Project. These will be based on the baseline survey carried out prior to effectiveness. These are fully budgeted. Remote Sensing (RS) and Geographic Information System (GIS) will be used by the Project for capturing baseline and diagnostic information on natural resource endowments, villages and communities, and infrastructure and establishing baselines for Project indicators by time of Project effectiveness. RS and GIS information will also be utilized, to monitor and evaluate the changesresulting from Project interventions. Finally, information collected will feed into the land use planningprocess as a decision making tool. Partnerships with national institutes, such as CENACARTA and the National Meteorology Institute, will provide the Project with information on agriculture yield forecast, land cover maps, forest cover monitoring and evaluation, annual forest and woodland burning and agriculture frontier expansion, mapping o f soils and hydrology o f an area and providing an indication of areas that are vulnerable to droughts and flooding that need to be avoided or rehabilitated. Participation by faculty and graduate students from Eduardo Mondlane University will be 20 obtained for documenting indigenous natural resource knowledge and for adapting indigenous knowledge with current researchindemonstration and on-farm trials. Monitoring and Evaluation will also be enhanced at the local level - the Project will support community-based M&E as a tool for building the capacity of associations to implement their plans and monitor their impact. M&E will build on accepted traditional methods of surveillance which exist at the community level, and involve associations in surveillance activities and reporting o f abuses o f natural resources (such as illegal hunting and logging and uncontrolled wild and anthropogenic fires) to the proper local authorities. Ecological monitoring would initially be carried out by extension agents with the view o f transferring such responsibilities to associations as their capacities are developed. 3. Sustainabilityand replicability The sustainability of the Project rests upon several key factors. Firstly,the Project design places major emphasis on institutional and process strengthening. Overall, the objective i s to ensure that at the end o f the implementation period, all major Project stakeholders - smallholder farmers, private input suppliers, processing agents, traders, local NGOs and extension services, rural financial service providers, district and provincial technical agencies, district administrations and the DNPDR itself - have all increased their capacity to support agricultural development. This objective renders the success o f the process aspect of the Project o f almost as great importance as the immediate Project development objective of poverty reduction. Second, the Project design responds fully to the current and expanding decentralization policies of GOM. This approach ensures that Project activities will be congruent with district procedures. The decentralization modality also allows the Project to build upon the considerable investments madeby the DPFP Project inestablishing and developing district capacity. Third, the Project design does not include a Project implementation unit, relying instead on existing government structures for management o f the Project, including flow o f funds. This provides for greater GOM ownership of the Project and integrates the activities within the structure of the DNPDR and the Ministryo f Planningand Development. Fourth, GEF funds will be used to ensure that increasing productivity of land resources results in objectively verifiable local ecosystem services AND global environmental benefits. This will, in turn, provide a longterms basis for vulnerability reduction among the poor and strengthen their ability to focus beyond immediate subsistence needs. It would, furthermore, preserve the natural potential o f land and protect the integrity o f the ecosystem. The geo-referenced, Project area natural resource baselines and community-based land use planning will be assembled in standardized and accessible databases located at multiple stakeholder agencies so that they serve all future development programs. Project staff, community leaders and members, students from the local university that will participate inbaseline surveys and model calibration will contribute to enhanced local capacity to continue to apply and refine Project methods and extendresults and lessons learned to other areas. Change detection analysis will allow the quantification of Project impacts vis a vis rates o f deforestation and incidences o f burning. Finally, the sustainability o f Project support to the adoption of new technologies and investments will be greatly increased by expanded, Project facilitated access o f smallholders and agribusiness participants to rural financial services. Given the limited GOM capacity to provide public funds for such activities, the presence of a private sector finance capacity i s seen as critical for investment and innovation beyond the implementationperiod. 21 The potential for replication of the Project i s considered to be high. Due to the innovative approach in which smallholder development is closely linked to current decentralization policies and the integration of management within existing structures, the Project encompasses only a small number of districts. Successful implementation, both in terms o f poverty reduction outcomes as well as the mainstreaming o f smallholder support processes, would provide a strong argument for replication o f the Project into other districts within the Zambezi Valley region and, eventually, nationally. A replication strategy and action plan will be prepared before end of Project. The plan would identify the main lessons learned from the first years of implementation, assess the progress o f the national decentralization process and capacity o f additional districts to carry out Project activities, as well as resources (outside National allocation to districts) required to carry out these activities and potential sources. 4. Critical risksand possible controversial aspects As inthe case of all innovative Project designs, a number o f significant risks are present. These risks are discussed inmore detail inthe relevant working papers and are summarized below: R I S K RATING RISKS R I S K MITIGATIONMEASURES WITH MITIGATION To Prqject development objective 1. Reversal or weakening o f GOM Support to decentralization by Project decentralization policies reduces using existing mechanisms established capacity o f districts to implement and by Law and empowering communities sustain Project activities to participate actively in district M planning process. 2. Institutional capacity at all levels o f Substantial investment o f Project GOM and among service providers resources in institutional strengthening insufficient to adequately manage tasks and stafftraining S 3. Inability to identify and contract suitable Promote partnership between larger, service providers and technical advisors more experienced organizations and to provide high quality support local institutions inbidding on contracts M 4. Severe drought or flooding inthe Project Links to National Institute for Disaster area prevents gains inoutput and income Management capacity o f early monitoring systems in the region and identify "high risk" zones and introduce S adaptation measures 5. Inadequate collaboration and Provision of two key Project positions; coordination betweendifferent Project District Facilitator and Field stakeholders Management Advisor N 22 To component results 1. As funds are routed through the Reporting structures in place with M Treasury timely availability o f funds to strengthened capacity o f financial districts and communities may be a management staff at national, provincial constraint. and district levels. Government commitment to ensure resources provided on a timely basis to the districts and communities. 2. HIV/AIDs impacting adversely on Awareness campaigns, distribution o f S agriculture head o f households and on condoms and links with on-going extension staff. programs. Use o f traditional medicines for treatment (e.g. African potato). 3. Poor response to group promotion Allocation o f significant resources to M efforts, limiting -participation by this activity and use o f service provider smallholders with appropriate experience. 4. Inability to achieve sustainable increase Contract specialized financial system M inrural financial service access service provider and promote linkages to formal financial sector. 5. Elite capture o f groups and thus majority Focus on full community participation M of Project benefits in creation of groups and transparency ingroup activities. 6. District extension service too weak to Provision o f resources to DDA for N effectively support groups and expansion o f both subject matter entrepreneurs specialists and field staff. Strengthening o f DDA. 7. Inability to establish improved a Strong focus on market development N agribusiness and market linkages for beneficiary groups and local entrepreneurs. 8. District staff unable to ensure effective Creation o f new district posts, use of M and timely response to sub-project simplified procurement procedures, proposals training o f staff and contracting of support agents. 9. Lack o f local capacity to procure goods Support to local traders inresponding to N for small scale sub-Projects, resulting in requests for supply o f goods. lengthy delays in implementation o f sub-projects 10. Lack o f group and small entrepreneur Awareness and promotion campaign N interest inmaking investments under the among participating groups Fund 11. Poor financial reporting delays funds Strengthening o f financial management S transfers to provinces and districts capacity and introduction o f transparent systems at all levels Overall risk rating S 23 The overall `substantial' risk rating arises not because o f individual risk ratings in the high or substantial category, but due to the number of risks faced by the Project in different areas. Considerable effort has been made to keep the Project structure as simple and flexible as possible, but the inclusion of districts (in response to strong government wishes) in three different provinces increases management complexity. 5, Loadcredit conditions and covenants Additional conditions of Effectiveness: (a) adopted the Project Operations Manual (OM), in form and substance satisfactory to the Association; (b) established a FinancialManagement System(FMS), inform and substance satisfactory to the Association, to ensure proper execution and monitoring of Project activities; (c) recruited the following technical assistants, satisfactory to the Association: (i)one Senior Financial Management Specialist; (ii) one Senior Procurement Specialist; (iii)two District Facilitators; and (iv) one FieldManagement Advisor; and (d) recruited a Procurement Officer at national level. Special Covenants: (a) ensure that the Project is implementedinaccordance with the recommendations o f the ESMF; and (ii) out a screening procedure to determine if a resettlement plan i s required under carry any Subprojectunder Component 3 o f the Project; (b) ensure the recruitmentof two agricultural extension staff per administrative post, inthe First Phase Project Districts, by January 31, 2007 and Second Phase districts by January 31, 2008; and (c) Withdrawal Condition for Component 3: (i) Recipient shall have ensured that the following staff have been recruited in any province or district and are in place: one accountant per Province; one accountant and one procurement officer per District; and one supervisory procurement officer; and (ii) Project Beneficiary shall have concluded a MoU referred to in paragraph 6 of Section Io f this Schedule. D. APPRAISAL SUMMARY 1. Economic andfinancial analyses Financial Analysis. Project financial and economic performances were estimated taking into account all Project costs except costs with long-term benefits which are difficult to evaluate at this stage. Such costs correspond to the following activities: (i) district capacity building; (ii) management,coordination, monitoring&evaluationand(iii) ofcomponent3: Project 60% Community agricultural and environmental investment fund (this, to take into account investments in rural road rehabilitation and environmental public goods). The Project financial rate ofreturni s estimated at 13% and financial net present value at US$0.5 million. However, this i s probably an underestimate as the analysis i s based on several conservative assumptions and 24 does not take into account benefits generated within the value chain (increased farm-gate prices, increased income o f traders and agribusinesses, etc.). Economic Analysis. The Project economic rate o f return i s estimated at 15% and net present value U S $ I.6 million taking into account the proportion o f Project costs justified in the financial analysis. If all Project costs were to be included in the economic analysis, the economic rate o f return would still be o f 8%. Sensitivity Analysis. A sensitivity analysis was conducted using switching values. The Project i s not particularly sensitive to small increases in costs or decreases in benefits (by 10%). The Project is relatively more sensitive to declines inbenefits than increases incosts. A 30% increase in costs would yield an ERR of lo%, while a 30% reduction in benefits would cause to drop the ERR to 8%. The ERR i s not very sensitive to delays in Project investments such as large investments o f public good nature, e.g. feeder roads rehabilitation. A two year delay inaccrual o f Project benefits would yield an ERR o f 10%. Fiscal Impact. The GOM's budget i s not expected to sustain investment made by the beneficiaries. A large part o f the Project costs would be within subprojects implemented and co- financed by private beneficiaries. The main budget impacts are related to the maintenance o f rehabilitated feeder and district roads after the Project completion, which would cost about US$175,300 per year, and the continuation o f the extension services, which would cost approximately US$lOO,OOO per year. 2. Technical Local circumstances and smallholder needs as well as international best practice and lessons learned have been incorporated in the technical design of the Project. A number o f such best practices and lessons learned are: Linking community investmentfunds with theprovision of production and market-related advice: International practice as well as experiences in Mozambique (e.g. by DANIDA in Tete and Manica) have shown that in relatively under-developed business environments like the proposed Project area, with little or no presence o f formal Business Development Services (BDS) providers, providing finance through community investment funds will have to be accompanied by pro-active provision of assistance in production and/or marketing issues. Without such assistance, the fund will run the risk o f being either under-utilized (thereby failing to reach its objective o f injecting the much needed financial resources into the region), or being "misused" for purposes that do are not viable or sustainable from a business point o f view. The Project has incorporated this lesson in the design by building in strong links between the groups formed under Component 1, the assistance provided under Component 2, and the CAEIF funds o f Component 3. Working with groups to overcome production- and marketing-related constraints: While donors often consider working through groups necessary if only for efficiency reasons, there i s also a certain degree o f consensus that groups can be effective and indeed sustainable in carrying out production- and marketing-related activities, as long the group serves a clear and tangible economic purpose for each o f its individual members. Groups should be based on a clear demand and only engage in such demand-driven activities that cannot be carried out by its members individually. Without these conditions, groups are unlikely to be sustainable, as both international and Mozambican experiences have shown. These lessons learned have been incorporated in the 25 proposed Project approach and the abidance by these lessons will be monitored during Project implementation, particularly with respect to the interventions under Component 1. Value Chain approach: There i s now a strong international consensus on the need to take into account all actors and activities along the value chain, when designing and implementing smallholder or business development interventions. These lessons have also been learned in the Mozambican context and are now being applied in related Projects such as EMPRENDA or PAMA. They have been incorporated into the Project design, in particular in the interventions proposedunder Component 2. Ruralfinance through Village Savings and Loans (VSL) groups: International experience shows that in environments such as the proposed Project area, where no commercial banks or micro- finance institutions are currently operating, the creation of Village Savings and Loans (VSL) groups i s an effective way to provide basic financial services to people living in remote rural communities. It may be possible to federate such groups to enable linkage to the formal financial institution that the Project expects to attract to the area. Economies of scale exist on the following three levels: (i)the accumulation of capital, that cannot be achieved by individualmembersalone, (ii)the specialized technical assistanceneededfor the group, which wouldbetoo costly to provide on an individual basis, and (iii) the attractiveness of groups (compared to individuals), in terms o f lower transaction costs for commercial banks or formal micro-credit institutions. 3. Fiduciary The Project will be implemented at three levels; national, provincial, and district (see Annex 6). At nationallevel, implementationtasks will largely be concerned with financial management and central oversight of the whole Project. The Project has also been designed to closely complement the activities of the ongoing World Bank- financed DecentralizedPlanning and Finance Project (DPFP), which i s also being implementedthrough the MPD. Fundswill flow from IDA to the two Special accounts inthe Ministryof Finance. Activities to be financed using Project funds will be indicated in the annual plans drawn up in accordance with existing financial and accounting regulations. The consolidated work plans will be submitted to the Ministry of Finance for approval. Based on these approved work plans, the MOF will advance to the Government Treasury Account, from the Special Accounts, an amount equal to the forecasted local currency expenditures for a three month period. All other funds advanced by IDA to the Special Accounts, including those requiredfor foreign currency expenditures will remain in the MOF Special Accounts. Once the work plans (and other relevant documentation e.g. accountability for grants previously disbursed) are reviewed and approved by the DNPDR, a request will be sent to the Treasury Department for funds to be released. The Treasury Department will then arrange a transfer of funds on the Treasury in favor o f the DNPDR at the center, or to the relevant Provincial Treasury Account. Each provincial DPPF will then request for a transfer to Project bank accounts for activities at the province and district respectively. The provinces and districts will receive an initial advance after meeting the disbursement conditions, and subsequent replenishments upon presentation o f adequate documentation of expenditures incurred. Due to decentralized nature of fund flows, an adequate financial management system i s required to ensure the reports on expenditures to be incurred at provincial and district levels are prepared and submittedto the DNPDRintimely manner. The financial transactions relating to this operation would be recorded and monitored using a separate management and accounting system. Actions outlined in the Financial Management 26 Action Plan in Annex 7 will be undertaken by the Project to further strengthen the financial management system. The actions required to be done by the Project before effectiveness o f the Credit are opening bank accounts, setting up books o f accounts, incorporating Project budget lines and disbursement categories into the existing chart of accounts, as well as demonstrating the ability to prepare the Financial Monitoring Reports. .4. Social Inthe districts along Zambezi Valley poverty is insidious, commercial networks are almost non- existent, agriculture i s primarily rain-fed and smallholder production mostly used for subsistence. The districts targeted by this Project are all economically isolated with almost no formal commercial or financial services. Significant portions o f most o f the resident population's recent history have involved living elsewhere either as refugees or as internally displaced communities. Tendencies o f social fragmentation, mistrust and isolation o f individuals or small groups are in constant tension with development dynamics requiring inclusion, collaboration, cohesion, sharing and mutual benefit. Although some traditional mutual assistance practices persist, and more recent group activities have been promotedby various non-government organizations inthis area, longer term impacts are not evident, and it still remains a significant challenge to establish longer term stable group organizations with individual and common benefits. Rural women and young people are still very much marginalized from the public sphere in these areas. With the high HIV/AIDSprevalence inthis region, their full integrationinto development activities is essential. The Project i s explicitly a demand responsive initiative. The key areas to be closely monitored include: (a) Community attitudes at the end of support period. (b) There i s also a risk that the Project will not be able to adequately stimulate the emergence of entrepreneurs. (c) People benefitingmost from the Project may be the more influential and better motivated male members of farmer and other self-help groups if careful facilitation does not promote full group participation in decision-making processes. (d) Illiterate and poor smallholders living inremoter areas may not be able to take advantage of the processes involved in obtaining access to Project benefits, unless specific mechanisms are usedto ensure the Project i s as inclusive as possible. Using the demand responsive approach clear consistent communication about opportunities and eligibility to participate in the Project will be promoted so that messages do not contradict or undermine those o f other Projects inthe same area. Communities that are confused take longer to react, trust levels drop and time to redress the situation is required. Adequate preparation to launch this approach i s essential. Presently communities are mostly reactive and unaware o f their civil rights. It will take some time to establish group confidence to take up their responsibilities. The approach to legalizing farmers groups and securing their use rights to basic assets such as land i s one way to improve group performance. It i s possible that during the six years of implementation many o f the groups will not be legalized as procedures are very slow and complex7.This may limit the impact of their acquisition o f social and economic capital duringthe Projectperiod. The main social benefits of the Project are likely to be added knowledge, skills and experience of smallholders, including women and youth, that strengthen the organizational cohesion, leadership and member motivation o f their groups and associations. Their increased institutional and leverage capacity i s expected to assist them to manage and control their access to rural finance, agribusiness services and government managed resources, significantly improving their _ _ _ _ _ ~ ~ The Mozambicangovernment is presentlyadapting the Law onAssociations (Law no8/91) to make the legalization process for agricultural associations more simple. 27 development opportunities. These and the potential negative impacts discussed above will be monitored through community level participatory review mechanisms that promote the critical review o f key indicators and progress o f the groups involved inthe Project. Indicators will also be quantitatively measured inpre-mid-term and pre-Project completion household surveys. Potential involuntary displacements o f people, or land acquisitions, as a result o f Project investments will be handled through a Resettlement Policy Framework (RPF). 5. Environment Potential environmental concerns resulting from Project activities are those associated with (a) rehabilitation and maintenance o f roads, (b) irrigation systems, (c) agricultural development and commercialization which would leadto increasedproduction volumes both through extensive and intensive farming practices and (d) increased value added processing and marketing capacity o f agribusinesses involved inthe commodity supply chains. Anticipated subprojects would include, for example, investments in: farm power, farm equipment and implements, small tributary reservoirs and irrigation schemes and facilities, integrated pest management, post-harvest and handling equipment and means, technology and marketing at agro-enterprise level; and handling, transportation, storage and processing assets improvements. The Project would not finance any major infrastructure, and sub-projects are unlikely to involve the acquisition o f land. The road rehabilitation and maintenance works are expected to have minor, manageable negative environmental impact since the works will follow the existing alignments. Small-scale agriculture and commercial farming Projects may involve strengthening existing practices, introducing new and perhaps exotic crops, or crop diversification or intensification with new farming systems. They may also assist people move from shifting to settled agriculture, from subsistence to cash cropping, and/or from labor-intensive to mechanized farming. The Project would not directly finance purchases o f fertilizer and chemicals. Ago-businesses and farmers are able, or course, to purchase them from input suppliers. Measures to avoid or minimize adverse environmental effects from Project investments, including changes to agricultural practices, i s included in the Environmental and Social Management Framework (ESMF). 6. Safeguard policies Safeguard Policies Triggered by the Project Yes N o EnvironmentalAssessment (OP/BP 4.0 1) Natural Habitats (OP/BP 4.04) Pest Management (OP 4.09) Cultural Property (OPN 11.03, being revised as OP 4.11) [I Involuntary Resettlement (OP/BP 4.12) [XI IndigenousPeoples (OPBP 4.10) E l Forests (OP/BP 4.36) [I [XI Safety o f Dams (OPBP 4.37) [I [XI Projects inDisputedAreas (OPBP 7.60)" [I [XI Projects on InternationalWaterways (OP/BP 7.50) [XI 11 By supporting the Project, theBank does not intend toprejudice thefinal determination of theparties' claims on the disputed areas 28 This is an EA Category "B" Project. Actual Project investments will be demand-driven and will only be determined during implementation. Thus, an Environmental and Social Management Framework (ESMF) has been prepared to address the substantive requirements o f OP4.01 and OP4.09, the latter primarily for livestock hygiene facilities and weed control around Project- funded facilities. The ESMF will also contain a screening procedure for determining if a resettlement plan i s required for any particular investment according to the Resettlement Policy Framework (RPF) that has been prepared according to the requirements of OP4.12. Both the ESMF and RPF have been disclosed inthe Project districts and provinces, and sent to the Bank's Info Shop. OP7.5 (Projects on International Waterways) i s triggered as there may be water withdrawals for small irrigation Projects implemented in the Zambezi River basin, including the Shire River - a major tributary o f the Zambezi River. The Republic o f Mozambique has sent notifications to all riparians providing May 15,2006 as deadline to provide approvalho-objection. 7. Policy exceptions and readiness There are no policy exceptions under the Project. The Bank has appraised the draft Operational Manual, procurement plan the financial management system and the staffing plan. The ESMF and the RPF have been disclosed. The disbursement schedule reflects the need for significant capacity buildinginthe initial years o f the Project. 29 Annex 1: Country andSector or ProgramBackground 1. CountryIssues Mozambique has witnessed impressive growth since the 1992 peace agreement that officially endedthe sixteen-year civil war which had left the country with the lowest GDP per capita inthe world. On average, the economy grew by 8% annually between 1994 and 2004. Peace and democracy, post-war resettlement inthe rural areas, the achievement o f macro-economic stability, and the transformation of a centrally-planned state-owned economy into a market-oriented one, have all contributed to this growth. Economic growth has been accompanied by rapid poverty reduction: between 1996 and 2002, the national poverty index fell from 70% to 54%. Despite this progress, Mozambique remains one of the world's poorest countries and out of its estimated population o f 18.3 million, almost 10 million are still poor. The majority of the poor (and o f the population at large) live in the rural areas and are working in agriculture. Isolationcausedby a lack o f basic infrastructure (including roads and markets), a lack of institutional support and low agricultural productivity characterize the poor in Mozambique and are important obstacles in their attempts to escape poverty. Until recently, HIV/AIDS infection rates were relatively low compared to neighboring countries, but they are now risingrapidly -the latest estimatesput the national average infectionrate at 16.2% - and are expected to significantly affect economic growth and poverty reduction in the coming years. The Zambezi Valley forms part of Mozambique's Central Region, one o f the hardest hit areas during the civil war. Most infrastructure in the region was heavily damaged or destroyed and many communities were effectively abandoned during the conflict. Some areas, notably those close to reconstructed primary and secondary roads and with higher precipitation levels, have grown relatively rapidly over the last decade. Others, however, have lagged behind, hinderedby poor market linkages, limited access to new technologies, lack o f investmentcapital and variable rainfall. With a prevalence of 20.4%, HIV/AIDS has so far affected Mozambique's Central Region also muchmore than the rest of the country. 2. Agriculture,RuralDevelopmentandEnvironmentalIssues Mozambique has significant agricultural potential, with an estimated 36 million hectares of arable land, of which only 10% i s presently inproductive use. The wide diversity o f soil types and the diverse climatic conditions in the country are suitable for a large variety o f crops. Even though the share of agricultural inits national GDP i s gradually decreasing (from 34% in 1996 to 21% in 2003), Mozambique i s still a predominantly agricultural society. Some 80% of the economically active populationi s currently employedinthe agriculture, forestry, or fishing sector. A quarter of the Mozambican population lives in the Zambezi Valley, which has particularly good potential for agriculture. With 5.5 million hectares o f arable land, the Zambezi Valley accounts for 15% of Mozambique's total arable area. Maize, cassava, and sweet potatoes are the most important food crops, followed by beans, sorghum, millet and rice. Cotton, groundnuts, tobacco and cashew are important cash crops, with sesame and paprika gaining in importance in recent years. Agriculture in Mozambique is almost entirely dominated by smallholders. Taken as a whole, smallholder agricultural producers comprise 99% of all rural households and provide 95% of 30 agricultural GDP. Average cultivated area per agricultural household is only 1.4 hectares, Smallholder farmers often have multiple small plots, practice intercropping, use little or no inputs and achieve only low productivity. Most are subsistence farmers and completely dependent on rain fed production. In2003, for instance, 83% of maize, 78% of rice, 95% o f sorghum, 98% of millets, 74% of groundnuts and 75% of beans produced in the country was retained for home consumption. From the early 1990s onwards, the Government of Mozambique (GOM) embarked on a liberalization process, replacing state intervention in the agricultural sector (in the form o f state companies, marketing boards, pan-territorial and guarantee prices, food security reserves, and numerous subsidies) with more market-oriented policies. Today, GOMhas no control over prices at agricultural input or output markets, with the exception of cotton prices. Agricultural inputs such as fertilizer and agrochemicals are exempt from trade tariffs. As war refugees returned to their lands to resume agricultural activities after the end of the civil war in 1992, and rural infrastructure began to be rehabilitated, Mozambique's agricultural sector grew at an average annual rate of 6.8% from 1992 to 1997. It continued to grow at a somewhat lower average rate of 4.6% between 1997 and 2003. Maincontributors to this growth were maize, sugar and tobacco. However, as agricultural growth has been driven primarily by labor and land expansion, without technological improvements or productivity gains, current growth i s not expected to continue for much longer. In fact, after the post-conflict "bounce-back", growth i s now starting to plateau. Growth poor land management practices have put increased pressure on the ecosystem, resultinginland degradation, deforestation and loss o f biodiversity. These, inturn, have increasedpeople's vulnerability to climatic variability and have adversely affected their well being. Productivity levels of smallholders in Mozambique indicate vast scope for improvement, with current levels much below their estimated potential. Compared to neighboring countries with similar agro-climatic conditions, per hectare maize yields are extremely low at 0.9 tonha. Potential productivity gains are however held back by a number of inter-related constraints, which, ifnot addressed, will hamper further smallholder growth and poverty reduction. The most critical of these constraints are: Weak organizational capacity of farmers: The degree and capacity o f organization among farmers in Mozambique i s weak. Only about 5% o f rural households currently belong to a farmers' association. The Zambezi Valley i s no exception to this: the armed conflict broke down many of the social structures in the communities and social capital was significantly reduced. Farmer groups have been established in the region by organizations such as World Vision International (WVI) and the Zambezi Valley Development Authority (GPZ), but many of these groups will need substantive additional support to ensure long-term sustainability. Recently, positive results have also been achieved by the Dunavant Cotton Company, which has organized farmers into a hierarchical system o f some 700 groups for input delivery, production advice and harvest collection. Weak institutional support to smallholder farmers: Most o f the Government's current limited technical support capacity for the agricultural sector i s concentrated at the provincial level, far from most farmers. Decentralization o f funds and responsibilities within the Ministry of Agriculture (MINAG) under the agricultural sector-wide programme ProAgri has largely involved devolving responsibilities from national to provincial levels, with only limited increases in district authority or capacity. Government services are often top-down and technocratic, and occur in isolation from other rural development stakeholders, including 31 smallholder farmers and the emerging private sector. The outreach capacity o f extension services i s also extremely limited: There are on average 1.3 extension workers per 10,000 rural inhabitants in the country, and only 13% of rural households have effective access to extension. District Directorates of Agriculture (DDAs) also lack the capacity of to facilitate participatory planning and coordination with farmers, civil society and the private sector. Lack of access to rural credit: The lack of rural finance inMozambique i s pervasive even by African standards. With the privatization of the banking industry, commercial banks have virtually disappeared from the rural areas and currently operate almost exclusively from the larger urban centers, with most of their activities concentrated around Maputo. High transaction costs, poor incomes and low saving rates have made the rural areas generally unattractive for commercial bank operations. Public and donor sector initiatives to stimulate rural finance have so far had only a marginal impact and the success of micro-finance institutions has been limited mostly to urban areas. There are however some emerging success stories of NGO-promoted community-based savings and credit arrangement in the country. Use of ineffective-farming methods resulting in land degradation and low productivity: Input markets are liberalized and the Government stresses the role o f the private sector in input supply. Inpractice, however, smallholders use few inputs due to limited access and largely and 5% uses pesticides, most o f them cashcrop growers. Animal traction i s usedby lo%, and subsistence production patterns: only about 4% of rural households currently use fertilizers, about 82% of rural farm households report seed supply as their main problem. The lack of inputtraders andextension agents, andthe lack ofaccess to credit are all importantbarriersto an increased use of productivity-enhancing inputsby smallholders. Inaddition, farmers carry out extensive land management and forest extractionpractices, which often involve the use of fire and inadvertent large scale burning o f native woodlands, resulting in deforestation, land erosion and desertification. Such environmental degradation and the accompanying loss of ecosystem services will negatively impact both pristine ecosystems and agro-ecosystems in the future. a Low level of rural infrastructure (including roads and irrigation) development: Despite recent investment, the density o f the road network i s still the lowest in southern Africa. 57% o f the classified road network i s now in good or fair condition, but the emphasis has been on classified roads. Rural access roads are still underdeveloped and require enormous investments; most are inpoor condition and many are impassable, especially duringthe rainy season. This severely affects farmers' access to markets. Irrigation infrastructure is extremely limited, which, given Mozambique's highly variable climatic conditions, significantly increases the vulnerability o f farmers. Government statistics reveal that the total irrigation- equipped land amounts to 118,000 ha, of which only 40,000 ha i s presently utilised.This i s around 1% o f the total irrigable land, estimated at 3.3 million hectares. 60% o f the country's irrigable land lies inthe Zambezi Valley. Apart from small-scale NGOled interventions, such as the promotion of treadle pumps in Sofala and Zambezia, initiatives to promote irrigation have so far had limited success. A lack o f infrastructure for storage, or processing further limitsopportunities for value addition andcauses highpost-harvest losses. a Hiah vulnerabilitv to climate variability and climate chanae: Mozambique, and inparticular the Zambezi valley, i s highly vulnerable to changing climatic patterns, including extreme climatic events such as drought and floods which are exacerbated by the pressure on 32 ecosystem services. Periodically, severe droughts and floods cause crop failures', and regional climate models predict that the intensity and frequency of droughts will increase as global temperatures rise. 3. The Poverty ReductionStrategy The reduction of absolute poverty has become the main priority in all Government action. Poverty reduction played a central role in the latest presidential and parliamentary elections. It also serves as a rallying point for government, civil society and donors at the annual "Poverty Observatories", established by the Government as a multi-stakeholder forum to monitor progress o f the PRS. Poverty reduction i s also the unifyingcommon denominator among Government and the international donors in Mozambique. The latter have joined forces to support the Government's poverty reduction efforts through Sector-Wide Approaches (SWAPS)or Direct Budget Support (DBS)inthe role of "Programme Aid Partners". Poverty Reduction and the promotion of sustainable and broad-based growth are also the main objectives o f the Government's latest Five-Year Programme 2005-2009, which was adopted by Parliament inApril 2005. Inits Five-Year Programme, GOM commits itself to action inthe three main areas o f governance, human capital and economic development. Across all fields of action, priority will be given to rural areas, where most o f the poor live. At the same time, the Government has stressed it will make the district the principal development pole for combating poverty. The current decentralization o f planning and finance functions, with its emphasis on participatory district-level planning, i s key in this. The ultimate goal of the decentralization agenda i s to close the gap between Government, its institutions and its citizens, to focus Government programmes on the needs of its citizens, and to increase Government's accountability. Recently approved laws, such as the Local Institutions Law (LOLE, 2003) and Regulations o f 2005, and the law on the Government Financial Administrative System, have made district consultative councils mandatory and have institutionalized an annual allocation of $300,000 to district budgets as of 2006. Such policy changes are all indicative o f GOM's commitment to decentralization (see Attachment 1). Mozambique's first PRSP, known as.its Programa Acelerada da Reduqio da Pobreza Absoluta 2001-2005 (PARPA I), had as its specific objective the reduction o f absolute poverty levels from 70% in 1997 to less than 60% by 2005 and less than 50% by 2010. Already in 2002, absolute poverty had been reduced to 54%. GOM i s determined to continue this trend and it i s currently finalizing its second PRSP (PARPA-Il, 2006-2010). As in PARPA-I, economic development, human development and governance will continue to be the three main pillars o f GOM's poverty reduction strategy. 4. Government Support to Agriculture andRuralDevelopment Both in its Five-Year Programme and in its Poverty Reduction Strategy, GOM strongly emphasizes the critical role that agriculture, rural development, and basic infrastructure play in the country's economic development. Agriculture is explicitly recognized as the main driver of poverty reduction and economic growth in Mozambique. GOM also acknowledges that future agricultural growth will to a large extent depend on productivity gains. The two main objectives of GOM for the ascultural sector are therefore (i) to build the capacity o f producers to increase 'Maize yield fell on average by 40 percent to 85 percent inthe Zambezi valley during the drought years 1982/1983, 1986/1987, and 1991f1992. 33 their productivity and (ii) transformthe role o f public institutions to act as both facilitators and to providers of essential services that will ensure growth of the sector and contribute to poverty reduction. To achieve these objectives, the government plans to actively stimulate the market mechanism, promote the creation of financial institutions for the rural areas, improve the rural road network and agricultural infrastructure, stimulate the development of agri-business, and improve the performance o f the extension, research and market information services for the family sector. In recent policy documents, GOM places increasing emphasis on grass root development at district level, and on the gradual transformation of smallholders into commercial farmers by the promotion of better linkages between the family sector and the commercial agriculture sector. ProAgri is MINAG's sector-wide program for the agricultural sector, operational since 1999 and supported by the donor community, including the World Bank, through a SWAP. In its first phase (1999-2004), ProAgri attained important achievements in institutional reform at central level and decentralization to districts and provinces. ProAgri-I1 will begin in 2006 and it recognizes the importance of horizontal integration across sectors and thus the importance of marketing, finance and rural roads for agriculture growth. It also intends to promote the role of non-state actors, such as farmers associations, NGOs and the private sector. As for extension services, MINAGadvocates a combination o f an expansion of qualified government staff, and a move towards a more pluralistic extension system, in which some services will be provided by NGOsandprivate sector actors, through outsourcingmechanisms. 5. Government Strategytoward LandDegradation, Exploitation of Natural Resources and ChangingClimatic Patterns Since the end of the war a number of legal and institutional tools have been developed to ensure that economic activities are carried out in compliance with acceptable principles and standards of social and environment impacts. The most important acts and laws in respect to environmental management are the Water Law (1991), Land Law (1997), Environment Law (1997), Forestry and Wildlife Law (1999), Mining Law (2002) and the Law on Calamities Management (2003). These laws put inplace instruments that allow communities to benefit from natural resources and be protected from natural disasters, and that restrain excessive exploitation of naturalresources. The long-term sustainable use of natural resources, and, more specifically, land, forests, wildlife and water i s a principle that m s through many of the Government's strategies. In the Poverty Reduction Strategy, the GOM has committed itselfto promote and enforce the sustainable use o f natural resources for the benefit of the country as a whole, to prevent its irreversible exploitation, and to encourage the cultivation of renewable resources. GOM acknowledges the strong relationship between poverty and the environment, and aims to ensure that all stakeholders inthe development processplay their role inthe preservation of the environment. Three national reports on the implementation o f the United Nations Convention to Combat Desertification (UNCCD) have been submitted to the Convention in 1999, 2002 and 2004. Implementation of the UNCCD National Action Program (NAP) has started and specific activities have been conducted in the areas o f biodiversity conservation, land degradation, water management and disasters management. Other programs that address land degradation, drought and desertification are the National Environmental Management Program (NEMP), ProAgri, the Water Resources Management Strategy and NEPAD's (New Partnership for African Development) Comprehensive Africa Agriculture Development Program. The Government of Mozambique completed its National Biodiversity Strategy and Action Plan (NBSAP) in 2005 34 with the main priorities of (i) identification and monitoring of biodiversity components, and (ii) establishment and implementationof strategies for sustainableuse and management of biological resources. The LandLaw, and the Forestry and Wildlife Law and its Regulation define local communities as the development focus. Benefits from natural resource use must return to local communities. While the legal framework has thus been set, little has happened inthe field to ensure the sharing o f benefits with local communities. Local communities usually lack the necessary organization structure, the basic knowledge and the necessary leverage to voice their views and demand such benefits. Government and NGOs have promoted the establishment o f local natural resources committees at community level, including in districts of the Project area, but little benefit exists as yet and more work i s still required. Mozambique's Initial National Communication to the UnitedNations Framework Convention on Climate Change (UNFCCC) i s still in draft form and the National Adaptation Plan of Action (NAPA) is not yet complete. The draft Initial National Communication identifies an urgent need to consider sustainable land management and more specifically changes in agricultural management practices such as changes in crop types, season and location of farming or new technologiesg. In the forestry sector proposed measures are to prevent further forest destruction, to reassess and adjust the use o f fuels and construction materials, and to engage in reforestation with reconsideration of the species used. The Communication also envisions significant development o f small dams and an integrated water managementplan to make more effective use o f irrigation. MINAG has put forward strategies for adaptation to climate change and the draft PRSP I1 recognizes that natural disasters resulting from climatic change can aggravate the situation of absolute poverty. The government's strategy for the reduction of the impact of disasters requires that the country i s equipped with the means for prevention through early warning systems and appropriate response mechanisms. Other actions are related to the need to strengthen institutional, regional and international coordination, as well as to intensify training and civic education activities on matters concerned with climate change. The participation ininternational efforts and the establishment o f policies and national programs show clearly the country's commitment to inherently address environmental issues within their policies andprograms. Lack of fundingfor implementationi s the main constraint, and many good policies remain currentlystill on paper. Inthe InitialNational Communications to the UNFCCC six vulnerable sectors are identified: agriculture, water resources, coastal resource, grass land, forest, meteorologyihydrology, and adaptation measures are proposed for each. These include: (1) adjust land management practices, such as changes in crop types, season and location of farming, development o f intensified and mechanized farming; (2) promote drought tolerant crop varieties and livestock in drought vulnerable areas; (3) alternate grazing system; (4) change stocking rates; and (5) change the timing o f the grazing period. 35 Annex 1 Attachment 1: Status of Decentralization in Mozambique - This attachment briefly describes the current status of decentralization inMozambique, including the legal and policy framework, empowerment and accountability aspects and the planning and budgeting process. 1.Legaland PolicyFramework Government policy and objectives: The Government o f Mozambique's Action Plan for the Reduction of Absolute Poverty (PARPA) highlights decentralization as a key element o f its poverty alleviation strategy. The Government has introducednew legislation as part o f its efforts to reform the system of local administration including: (i) Decree 15/2000, which recognizes community authorities as interlocutors between rural communities and the district administration; and (ii) the Law of Local StateOrgans" (LOLE), which gives additional discretionand flexibility to the provincial and district authorities. Structure of the State administration: In Mozambique there i s a two-track system of decentralization: (1) deconcentration of competencies and powers of the Central Government to the provinces and districts, and (2) devolution of responsibilities and resources to autonomous municipalities. The state administration consists of four levels below the central state: provinces (10 + the capital), districts (128), administrative posts (343), and localities (1,048). Districts: A district i s a local organ of the central Government charged of realizing the government program, the social and economic plan and the government budget in the respective district with powers to decide, execute and control the planned activities. It consists o f the District Administrator (DA), the district permanent secretary, and directors of sectoral district services. A typical district has three administrative posts, nine localities and about 110,000 inhabitants. The annual district revenue i s typically about US$25,000, o f which over 70% is from Central Government allocations, while up to 70% i s taken upby salaries and allowances. Municipalities: On the basis of a new statute passedin 1997 (Law 2/1997), municipalities with - democratically elected assemblies and presidents of municipal councils - were established in 33 cities and small towns after the first municipal elections were held in 1998. While the law provides for the creation of elected assemblies and presidents also invillages, the process has not been extendedto that level. Delineation of roles and responsibilities: For the provinces and districts, responsibilities are delegated through vertical sectoral hierarchies to the directorates at the provincial and district levels. The extent o f delegation varies across sectors. District services for agriculture (SDA) are responsible for local service delivery in the areas o f agriculture, livestock, forestry and wildlife, extension and fisheries. They are also responsible for collecting statistical information, distributing government provided inputs, performing regulatory duties and other administrative functions. 2. Empowerment and Accountability Political structures: Provincial Governors and District Administrators (DA) are representatives of the Central Government and accountable to the President. There i s only formal upward loL e i dos OrgBos Locais do Estado (LOLE) 36 accountability from the District Administrations to the Provincial Governments, who are in turn accountable upwards to the Central Government. There i s no provision inthe existing legislation for any form o f local assembly at the district or provincial level. Law 2/1997 establishes municipalities as territorial units, with their own representative body (Municipal Assembly) and executive organ (the Municipal Council). Participation and consultation mechanisms: National guidelines for District Development Plans (adopted in2003) reinforce the role of the districts as units for planning and budgeting.The guidelines allow for the creation of local consultative councils to act as an interface between the civil society and the district authorities in the planning process. In addition to councils, the new statutes recognize local fora, community committees and community development funds. The District Administrator i s responsible for establishing local consultative councils at district and lower levels inhidher area of authority. The councils must include representatives o f community authorities (traditional chiefs andor secretaries) and economic, social and cultural interest groups selected by lower level councils and/or fora. At least 30% of the members must be women. The councils are relatively large, varying from 30-50 members at district level to 10-20 members at locality level, and they are expected to addresspractically all aspects of rural development, social services and civic education. 3. PlanninvandBudgeting Assignment of investment and recurrent expenditures: The Central Government assigns approximately a third of the state budget to the provinces, which i s earmarked to specific bodies or functions. The lion's share of the budget at the provincial and district levels comes from sector allocations for delegated responsibilities. The provincial share of the national budget i s split into priority and non-priority sectors. The priority sectors' budgets (investment and recurrent) are determined by the LineMinistries, with some input from the provinces duringthe planning stage. The non-priority sector investment budget is formulated by the provincial government, while the recurrent budget is largely a function o f staffing decisions at central level. The residual between the provincial investment budget ceiling and sectoral ceilings for priority sectors becomes the allocation to the non-priority sectors. Planningandbudgeting:Three levels are distinguished: At the national level, there are several medium to long term planning instruments. The Plan0 Economico e Social (PES) and Orqamento do Estado" (OE) are producedon an annual basis. LineMinistrieshaveparallel annual planning andbudget managementprocesses; The provincial governments prepare their own annual plans (provincial PES) which they submit to the MinistryofPlanningandDevelopment; Districts prepare five year District Development Plans (PDDs) that are used as a tool for negotiating with higher levels of government and donors. Communities participate in the formulation of these plans through consultative councils (CC). The role of the councils i s to transmit to local state organs the demands o f local communities, and to collaborate with district authorities in disseminating information to communities. Councils are expected to participate inthe preparation o f relevant development plans and budgets and comment on the proposals, and to approve the work-plan and implementation report of the organ responsible for administration o f district level development (Decree no. 11/2005). Under the Law of Local State Organs, the districts will become a budget unit for the first time and will receive l1National State Budget 37 transfers directly from the state budget. As part o f tht planning process o f the 2006 budget, the Central Government has earmarked the equivalent o f US$300,000 per district. Local transition to decentralized planning: the organs responsible for administration o f district level development are mandatory (Decree 11/2005). While their status i s consultative (i.e. they are essentially organs o f administrative deconcentration) they can become important actors in a process o f genuine decentralization. This will, however, require a strengthening o f their capacity, and a greater autonomy, including the status o f autonomous budget centers under the state system, The consultative councils (CCs) have potentially an important role in the process o f transition from previous centralized vertical/sectoral approach to a decentralized and participatory horizontal/area-based mode o f planning. 38 Annex 2: Major RelatedProjectsFinancedby the Bank and/or other Agencies ProgramlProject Sector IssuesAddressed Impl. Status Performance Ratings World Bank(eo) financed IP DO )roAgri-I (Agricultural Sector Public Agriculture, Institutional Strengthening Completed S S 3xpenditure Program) (MINAG) lecentralized Planning and Finance Sub-national government administration, Active M S M S )roject (DPFP) Central government administration, Micro and SME finance, Roads and highways toads and Bridges Management and RuralInfrastructure Proposed aaintenance Project 3eira Railway Project Rural Infrastructure Active S S rransfrontier Conservation Areas and General agriculture, fishing and forestry; Active S SustainableTourism Development general industry, Environment, Biodiversity project (IDNGEF) Cloastaland Marine Biodiversity Environment, Biodiversity Active M S M S Management Project (IDNGEF) Energy Reformand Access Project Power; Renewable energy, Climate Change Active M S M S :IDA/GEF)Water SecondNationalWater Development Supply & Sanitation Adjustment Active S S Project Communication Sector Reform Telecommunications & Informatics Active S S Other Donor(s) ProAgri-I1(Agricultural Sector Institutional Strengthening (MINAG) Active MULTI Expenditure Program) Natural ResourcesManagement, Agricultural Productivity Small-scale IrrigationProject RuralInfrastructure (Irrigation) Active AfDB (Maputo, Sofala, Zambezia) Financial Sector Technical IRural Finance 1 Active IAfDB,IDA/DfID/ ~ ~~~ Assistance Project (FSTAP) SIDA, GTZiKfW Agricultural Sector Programme Farmers' Associations, Agri-Business Active DANIDA Support (ASPS) I1- Private Sector Development, Rural Finance, Rural Development (Tete, Manica, Cab0 Infrastructure (Roads) De1gado)iRural Roads (Manica, Tete) Sustainable Credit for Growth o f RuralFinance Active DfID Micro-Entrepreneurs (Manica, Sofala, Zambezia) (CARE) Support to RuralDevelopment in DecentralizatiodLocal Institutional Proposed to Finland Zambezia Province (Zambezia) Strengthening, Natural Resources start by Management, Agricultural Productivity, April 2006 Rural EnterpriseDevelopment PRODEL (Inhambane, Manica, DecentralizatiodLocal Institutional Active GTZ Sofala) StrengtheningRarticipatory Planning, Agricultural Productionhfarketing, Rural Infrastructure (Irrigation) Rural Finance Support Programme RuralFinance Active IFADiAfDB Agricultural Services Programme Institutional Strengthening, Extension Proposed to IFAD 39 Family Livestock Development Extension, Livestock Development Completed IFAD Programme (FLSDP) Agricultural Markets Support Agricultural Marketing, Rural Infrastructure Active IFAD Programme (PAMA) (Cab0 Delgado, (Roads), Farmers Associations Niassa, Maputo) Decentralized District Planning and Decentralization, Local Institutional Active Norway, FinancingProject (DPFP) Strengthening Netherlands, (UNDP/UNCDF, Nampula, Cab0 Switzerland, Delgado) Ireland, World Bank Clearing House MechanismEnabling Biodiversity CEO UNEP Activity approved Enabling Mozambique to Prepared its Climate change CEO UNDP FirstNational Communication in approved Response to its Commitments to UNFCCC NationalAdaptation Programme o f Climate change CEO UNDP Action (NAPA) National Capacity Self-Assessment Multi-focal CEO UNEP (NCSA) Enabling Activities for the Stockholm POPS CEO UNEP Convention on Persistent Organic approved Pollutants (POPS):National Implementation Plan for Mozambique National Biodiversity Strategy and Biodiversity CEO UNEP Action Plan and First National Report approved to the CBD Regional: Sustainable Land Use Land degradation CEO UNEP Planning for Integrated Landand approved Water Management for Disaster Preparednessand Vulnerability Reduction inthe Lower Limpopo Basin (MSP) Regional: Coping with Drought and Climate change Proposed UNDP Climate Regional: Southern Africa Biodiversity Biodiversity Support Programme OVATA (World Vision, Zambezia) EMPRENDA Alliance Project Farmers' Associations, Agricultural Active USAID (CLUSA, Technoserve, Marketing ACDI/VOCA) The World Bank provides support to four central provinces as part of the GOM's national Decentralized Planning and Finance Program (DPFP). The Program's components are: 1) Participatory District Planning, which aims to develop a district-level participatory planning systembased on civil society consultation and participation; 2) Local Investment Grants (LIG), which provides financing for small rural infrastructure included in annual plans; 3) Capacity Building, designed to strengthen the training system to increase the capacity of local administration officials to undertake key local government functions more effectively; 4) Policy Reform, designed to provide technical assistance to the GOMto improve decision-making; and 5) Project Coordination, which finances a PMU in the Ministry of Finance. The smallholders' 40 Project, which will operate within the DPFP targeted area, has been designed to closely complement the activities of the DPFP. While the DPFP has a strong emphasis on capacity buildingandparticipatory planning at the district level, the smallholders' Project will specifically address agricultural and other land uses issues in district planning. The synergies that could be attained from collaboration between the two Projects could result in valuable experience that could help GOM in its efforts to move to a more multi-sectoral- and district-based approach to agriculture and rural development. The Project will also be coordinated by the committees established under the decentralization law. The second phase of the Agriculture Public Sector Programme, ProAgri 11, provides budget support to the Ministry o f Agriculture to enhance its extension coverage. The Project i s implementedinclose collaboration with District and Provincial Directorate of Agriculture staff, and, thus, success of the Project will, to a large degree, dependon ProAgri-11's plannedexpansion o f the public extension network at the district level. The Project will also complement ProAgri-I1 by mobilizing demand from the community-level for agricultural services and providing for additional extension resources. The goal ofthe seven-year IFAD-initiated Agricultural Markets SupportProject (PAMA) is to increase the participation of smallholder producers in the market economy on more favorable terms, with a view to increasing agricultural income and improving food security at both the national and local levels. At the local level, the objectives are to: 1) respond to specific constraints faced by targeted smallholder producers in accessing markets; and 2) identify opportunities available to alleviate them. The focus on development o f linkages between smallholder producers and markets i s common to both PAMA and the smallholder Project, althoughthe Projects operate in different areas. As PAMA has been operating inthe past 4 years, some lessons learned from its experience as well as Terms o f Reference for service providers will beusedand addressedbythe smallholder Project, especially under component 1and 2. The Project is also expected to benefit from complementarity with the World Bank-financed infrastructure Projects, the second Roads and BridgesManagement and Maintenance Project, which will finance the Caia Bridge over the Zambezi River, as well as the Beira Railway Project. The latter includes the rehabilitation, maintenance and'operation o f the Sena rail line which passes through the provinces o f Sofala and Tete and has a significant potential for economic influence over the Zambezia province. Once rehabilitated, the Sena Line would become again the main transport system for the central region inMozambique. Both Projects would have a significant impact on improving the accessibility o f this area, and would, thus, contribute to improved conditions for success of the proposed Project (e.g. through improved conditions for export of agricultural produce). The smallholder Project would need to lobby for the prioritization o f the works on the Sena Line (currently schedules in2010) in order to draw on the full benefits o f its operation. The USAID funded OVATA Program has four main objectives: 1) increase food security through agricultural production and marketing by means of developing marketing groups; 2) improve access to markets and improve infrastructure; 3) increase utilization o f production through an integrated nutrition program; and 4) decrease the negative impact of HIV/AIDS on food security through an extensive awareness campaign. This Project will provide lessons learned to the smallholder Project with regards to development of market groups and improved access to markets under components 1and 2. 41 The Empowering Private Enterprise in the Development of Agriculture in Mozambique's Beira and Nacala Corridors (EMPRENDA) Project, launched in February 2005, aims to increase per capita rural family income and promote productive asset accumulation inthe Project area. EMPRENDA's focus i s to create and strengthen sustainable, competitive rural enterprises and farmer associations operating inthe three value chains: highvalue horticulture, confectionary nuts, and field crops/animal feeds. EMPRENDA is working to strengthen management and planning skills within farmer associations, to unite these associations at the zonal and regional level to form stronger businesses and to link these enterprises to other actors in the rural economy. Some discussion took place with the EMPRENDA Project during the smallholder Project's preparationphase where it was suggested to expand the focus of EMPRENDA to the 5 districts inorder to provide support for the input supply activities under component 2. As indicated in Annex 1, the Project would directly contribute to the implementation of the UNCCD NAP and to some of its main operational strategies, including community mobilization, training and knowledge sharing, sustainable forest, soil and water use management, improved land rights and institutional capacity building, and would serve to report on progress made inthe implementation o f the Action Plan; the Project would also address priorities under the National Biodiversity Strategy and Action Plan (NBSAP), and respond to the recommendations of the Initial National Communication under UNFCCC as will be articulated in the forthcoming National Adaptation Programme of Action (NAPA) being prepared with assistance from UNDP. The objectives o f the DRAFTNAPA are to: (a) Strengthen the country's (climate) early warning system for extreme events; (b) Strengthen the capacity o f small holder farmers to manage the adverse effects of climate change; (c) Promote the use o f renewable energy for water pumping and lighting in rural and periurban areas; (d) Promote reforestation; (e) Promote measures to collect and conserve rainwater; (f) Promote action to stop and prevent soil erosion; and (g) Promote the integration of climate change issues in the planning context of decentralized institutions andprograms. The Mozambique draft NAPA has proposed 4 major program activities to meet the above objectives inthe short to mediumterm. These include: (1) Improved collection of meteorological data and generation of weather forecasts (including extreme events) and communication of information to stakeholders especially in vulnerable areas, (2) Improved capacity of farmers and livestock herders to collect and store water for enhanced mitigation of drought effects, (3) Mapping of land cover dynamics and erosion vulnerability in coastal regions, and (4) Improved characterization and use o f hydrological resources for irrigation, water storage, and sustainable use of river margins. Project activities linkedto the testing, calibration, and operationalizing the predictive landscape dynamicdwater resource model will directly support the NAPA priority aimed at developing "early warning" systems for climate change impacts and allow the incorporation and synthesis of multi-sector, diverse environmental information into a decision analysis and support framework. The Project activities inthe Zambezi valley are synergistic with the UNDP regional Copingwith Drought and Climate Project (under preparation, estimated effectiveness - early 2007), which i s supporting Mozambique's efforts to develop and pilot a range o f coping mechanisms for reducing the vulnerability of farmers and pastoralists to future climate shocks in the Limpopo basin. The Project i s piloting coping strategies, improving early warning systems, implementing DPM policies, and will replicate and disseminate successful approaches of adaptation while focusing on the delivery of global environmental benefits in the focal area of land degradation. The Project will build on Mozambique's V&A assessment and preliminary results from the National Adaptation Programmes of Action once completed. The proposed WB Zambezi smallholders Project will be nicely placed to test the Limpopo "best bets" coping strategies and 42 contribute novel strategies emerging from the Zambezi basin. In addition, the Zambezi valley Project has a unique but highly complementary aspect to UNDP's Limpopo Project because it will be able to proactively model the impacts of human-induced flooding due to discharges from the Cahorra Bassa dam. The World BanMGEF funded Transfrontier Conservation Areas and Sustainable Tourism Development Project (TFCA) is designed to increase environmentally sustainable tourism investment and development and local participation and incomes from tourism inthe five TFCAs. The Project has two main components: 1) Integrated Development Planning (IDP), in which permanent participation structures will be established in Vilanculos and Matutuine districts using the DPFP model, tourism will be integrated into district planning, and mechanism to involve the private sector would be set up; and 2) Tourism Component, designed to develop a tourism "master plan" from which concessions will be defined. The Project's participatory approaches will be assessed for relevance bythe smallholder Project and adaptedas needed. The World BanMGEF funded Coastal and Marine Biodiversity Management Project i s designed to pilot an integrated approach to sustainable development in Mocimboa da Praia and Palma inCab0 Delgado, andNacala-Porto and Mossuril, inthe province ofNampula. The Project involves macro zoning at the district level with some participationo f communities when deciding where new conservation areas shouldbe established, and indefiningwhat types o f micro Projects could support natural resource management. The Project has been extended for a further two years. Both the coastal, transfrontier and smallholders Projects provide an opportunity for joint promotion of awareness to issues o f global importance related to sustainable natural resource management amongst government offices at national, province and district levels and amongst communities themselves. The World BanMGEF EnergyReformand Access Projectis an eight-year, two-phase program with the objective of increasing access to modern energy in peri-urban and rural areas. It comprises: (i) reforms necessary for improved performance of the energy sector (in particular electricity) and accelerated access to electricity, in rural and peri-urban communities; and (ii) investments in electricity supply infrastructure, including renewables and the setting up o f an optic network across the country. It i s estimated about 40,000 new connections will be made in the first phase of the program with the provinces of Zambezia, Tete and Sofala amongst those which will benefit from this component. Additionally, once available inthe five targeted districts, communities will have access to IT centers which they can use for communication e.g. on market situation and upcoming climatic events. The UNDP regional Coping with Drought and Climate Project (under preparation, estimated effectiveness - early 2007) seeks to support Mozambique, Ethiopia, Kenya and Zimbabwe in their efforts to develop and pilot a range of coping mechanisms for reducingthe vulnerability of farmers and pastoralists to future climate shocks. The Project will focus on addressing the impacts of climate change on land degradation and food security, specifically aiming at: piloting coping strategies, improving early warning systems, implementing DPM policies, and will envisage replicating and disseminating successful approaches of adaptation while focusing on the delivery o f global environmental benefits in the focal area o f land degradation. The Project will build on Mozambique's V&A assessment and preliminary results from the National Adaptation Programmes of Action once completed. As the smallholders' Project will focus on similar approaches under its adaptation activities, the two Projects can learn from each other's experience incountry andthroughout the sub-region. 43 Communication Sector ReformProject: A $14.9 million Project that seeks to improve access to and quality o f communications services by increasing competition and private sector participation in telecommunications, postal services, and air and transport services. Greater competition has resulted in substantially increased access to telecom services, reduced domestic and international prices, and overall improvements in the quality o f service. As a result o f these reforms, teledensity reached 5.5 percent in mid-2005, driven largely by an expansion in the mobile market. The development impact of this increasedteledensity i s likely to be significant as it helps reduce the cost of doing business, and improves access to markets and services, including in rural areas. The Bank plans to provide support through a new analytical activity on rural telecoms funded under the Africa Action Plan, undertaken in collaboration with the proposed Regional Communications Infkastructure Program and a WBI-supported regional connectivity study for academic institutions. 44 Annex 3: ResultsFramework and Monitoring ResultsFramework ProjectGoal/Project DevelopmentObjective Project Outcome(Process) Indicators Use ofProjectOutcome (PDO) Information ProiectGoal Accelerate poverty reduction - Change inaveragepoverty levels inProject - Assess effectiveness of overall within the Central Region o f zone compared with non-Project areas Project strategy Mozambique GlobalEnvironment Obiective: - Increase in areaunder improved S L M or - Y 5-6: Assess whether areas which Limitlanddegradation and natural resource management practices in underwent the most significant improve ecosystem's resilience Project areaby at least 20,000 ha by Project change are those that comprise the towards climate change inthe end largest proportiono f communities practicing S L M (see component 2) - Measurable increase inbiodiversity or carbon and disseminate results sequestration intargeted Project sites vs. control sites through one or more o f the following: reappearanceo f native species, increased carbon stocks, reduced soil erosion, reduced incidences o f wild fires - At least 3 predictive andbasinspecific hydrology-land cover-climate change scenarios for landuse-land cover change impacts on hydrology under changing rainfall and evapotranspiration regimes - Increaseduse by locallandusers o f drought- tolerant crops, fodder species and varieties, crop rotations to increase soil organic matter, reduce weeds, and conserve soil mositure ProiectDevelopment - Y 3&5/6: monitor income levels of Obiective participating households Increase the income o f - 30% average increase inagricultural income - Mid-termreview, determine if smallholder farmers inselected - including self-consumption- o fparticipating modifications to strategy required districts through broad-based smallholder households (Le. an estimated - Discuss mainstreaming o f Project and sustainable agricultural 20,000 HH) compared with nonparticipating approach into national strategies growth HH,bythe endofthe Project - Y. 5&6: Assess linkage between change invegetative cover and biodiversity reappearance and change inaverage income and disseminate results IntermediateOutcomes IntermediateOutcomeIndicators for Each Use of IntermediateOutcome Component Monitoring ComponentOne: ComponentOne: 45 Institutional Strengthening - Numbero f CBO engaging inProject supported - Y. 2 and 3: to assess the relevance organizational development activities o f the Project strategy and service providers efficiency Intermediate Outcome 1: - Cumulative number o f groups active inat least one sub-project supported by the CAEIF Smallholders organized in production and marketing - Proportiono f groups that: groups have access to technical have adopted operational accounting 1and financial resources that systems; -Y. 2 to 6: To assess group contribute to their sustainable have all their members aware o f the account balance; organization, sustainability, trust and use internal M&Ethrough criticalreviews the impact ofcapacity development that result inbetter servicing their members. - Proportionof groups that demonstrate - Y. 2 to 6: To verify the mitigation o f increased knowledge about relevant potentially negative effects o f HIV/AIDS and gender issues increasingmobility and wealth on - Proportion o f women group members in HIV/AIDS incidence decisionmakingpositions; proportion o f the -Y.2 to 6: To verify that the Project groups supported that are youth groups has a positive effect on gender and - Number of membersof savings andcredit age equity groups; Amount and numbero f loans issued -Y. 2 to 4: to assess service provider by Project supported savings and credit groups efficiency. Y. 3: To assess the andMFIs relevance o f the Project strategy. Y. 5&6: To evaluate the Project impact on local investment capacities Intermediate Outcome 2: - Numbero f landuse plans preparedwith clear - Y. 2 to 3: Assess demandfor land District LUPs are formally responsibilities defined, endorsed by the local integrated into districts plans use planning & commitment o f local authorities12,taken into account inthe district and are inuse as basis for authorities. Y. 3: Assess relevance o f plan and implemented development. the Project strategy.13Y. 5 : Assess Project impact Component Two: Component Two: Component Two: Agricultural Development - Facilitation - Y. 3 to 5: Assess implementation Proportion o f participating smallholders progress; Determine factors Intermediate Outcome 1: reporting improved access to inp~ts'~, and affecting take up o ftechnologies for Participating smallholders improved market knowledge Project farmers experience increased and more sustainable agricultural - Percentage o f farmers with a secured market productivity and have greater through contractual arrangements with access to input and output agribusinesses or traders - % o f increasesgained on average by participating households (compared with non participating HH): % increase inyields o f key crops; % increase insales; % increase returnon family labor; - % decrease incrop losses. l2 Includingthe traditional local leaders. l3 Ifleast2LUPsarenotapprovedbyyear3,itcouldindicatethattheprocesshasfailedtoachieveconsensus at and ownership by key stakeholders. This could necessitate a revision in the Project strategy and/or an adjustment/repetition o f capacity building and awarenessraising efforts inthe relevant districts. l4 Seed, fertilizer, agricultural chemicals & spare parts. 46 Intermediate Outcome 2: - Proportion o fparticipating households - Y. 3 & 516: Assess relevance and Increased use o f indigenous adopting improved agricultural and forestry and innovative S L M strategies technologies promoted. success o ftechniques introduced and and techniques; o f adaptation methodologies used; adjust methods measures integratedinto SLM - Proportion o fparticipating SH adopting energy accordingly techniques; and o f energy efficient technologies efficient technologies by SH in - Proportion o fparticipating SH adopting SLM the target 5 districts techniques as an adaptation activities - Above landuse plans integrate the predictive Intermediate Outcome 3: climate change impact scenarios from the basin and catchment level land dynamic landscape level modeling identified in cover dynamics-hydrology the global environmental objective above models (VIC, DHSVM) calibrated and tested with participation observationl measurements) by local communities and stakeholder agencies ComponentThree: Component Three: ComponentThree: CommunityInvestment Fund - Methodologies for proposal identification, - Y. 1& 2: Assess adequatenessof Communities, groups and preparation, evaluationand implementation Project approaches to initiating CIF small entrepreneurs have support hlly defined and incorporated in processes access to resources needed to appropriate training andreference materials; improve the effectiveness and appropriate trainings completed - Y. 2 to 3: Assess the appropriateness benefits and environmental o fproposal formulation and sustainability of their activities - Proportion o f sub-project requests prepared within 6 months o f submission; proposals evaluation procedures evaluated within one montho f submission - Y. 2 to 4: Assess level of demand by window; Y. 3: Review CAEIF - Proportiono feach window disbursed allocation by window - Proportion o f approvedsub-projects completed - Y. 2 to 6: Assess implementation and as scheduled with appropriate participant input contribution capacities (by window) - % of financed sub-projects properly maintained 1& 2 years after completion - Y. 3 to 6: Assess the relevance and impact o f the major type o f small - % o f sub-projects showing positive financial scale activities financed under results and assessed socially & environmentally CAEIF and feed information on sustainable (by type o f activity) success stories into the education and - % o fNRMsub-projects showing awareness programs with the aim to environmental benefit~'~compared to baseline replicate. - Y. 5 & 6 Assess Project impactI6 '' Which can potentially include increase in biomass production (thalyear), reduction in burnt surface, water availability, etc. l6 For those Projects which prove to generate environmental benefits, sustainability o f benefits will be assessed andtechnical guidance will be provided accordingly. 47 ComponentFour: ComponentFour: ComponentFour: ProjectManagement Coordination,and - Establishment, membership and frequency o f - Determine effectiveness o f multi- Monitoring& Evaluation meeting o fmulti-sector Project andprovincial sector steering committee Steering Committees mechanism - Timeliness and adequacy o f annual work plans - Determine adequacy o ftraining Effective oversight, monitoring andreports (including M&Ereports, programme o fProject activities, policy expenditure and accounting reports) - Adequacy o f external monitoring guidance and lessons learned - Timeliness ofbudget preparationat district and provinciallevel, and inclusion o fbudgets into annual government budget - Time required to releasefunds for approved - Determine effectiveness o f funds budgets at provincial and district levels flow mechanismbeing utilized - Time required for recruitment, training and entry into operation o f key Project personnelI7 and major service providers (including M&E) - Availability o f a replication strategy and action - Identifymainlessons learned from planbefore end o f Project the first years o f implementation, assess progress o fthe national decentralizationprocess and capacity of additional districts to carry out Project activities, identify resources (outside National allocation to districts) required to carry out these activities and potential sources - h. l7 Project Coordinator, District Project Facilitators, Technical Assistance Group staff, financelprocurement officers.. . 48 .3 8 z m g I ' m I I I I ' N s m 3 I I I I I I I I s s m s .8 3 m s & I 0 8 0 0 sm d v) i 0 0 W m 0 N W 0 2 0 2 g 0 N 0 v) 0 0 0 -t - s 0 00 I I- g - I d- 00 q g g N N 00 g -m B 0 - -s a2 E .I > w am B m $$ g - m s s s m a 0 m W W I I e, 0 x e, 0 8 n Annex 4: Detailed Project Description The Project will be implemented in two stages across five districts within the Zambezi Valley region o f Central Mozambique over a six year period. Closely integrated with ongoing decentralization policies (See Annex 4 Attachment 1) and district focused, the Project will achieve its objective o f increasing the incomes o f smallholder farmers within the Project area through three technical components, with a fourth component dedicated to management, coordination and monitoring. The three technical components comprise: The promotion and support of groups formed by small producers and other supply chain participants in such areas as marketing, savings and credit, and agribusiness development, as well as the strengthening o f district level institutions which support them; 0 The provision of support for broad-basedmarket-led sustainable agricultural and natural resource development, including not only direct outreach to groups and agribusiness participants in production, marketing and other supply chain elements, but also encompassing use of indigenous natural resource knowledge with cutting-edge applied research, community level demonstration plots, training and the expansion of local extension capacity including farmer field school approaches; 0 A demand-driven Community Agricultural and Environmental Investment Fund which will provide resources for agriculturally related infrastructure, small scale investment and improved natural resource management. GEF funded incremental activities will be fully integratedinto the IDA Project design and adopt the same Project approach and implementationarrangements. GEF has financed the development o f natural resource baselines via a PDF-B grant and will finance complementary activities not addressed under IDA that specifically contribute to the sustainable management of land and natural resources, and support adaptation activities to climate change. These are bothperceivedas critical for securing sustainable increase in smallholders' income as well as the maintenance o f the Zambezi Valley ecosystem's functions andresultingglobal environmentbenefits. Project Area Characteristics: The two Phase 1districts of Mutarara (Tete Province) and Morrumbala (Zambezi Province) have a total population of almost 500,000'8 spread over 8 administrative posts and 21 localities (the latter being the smallest territorial division utilized by GOM). Population density is approximately 25 personsh2.This i s considerably higherthan inthe proposed Phase 2 districts of Mopeia (Zambezia) and Meringue and Chemba (both in Sofala Province). These districts have a total population of less than 250,000 and a population density o f around 12 persons/ km2. Overall, poverty rates throughout the Project area vary from a high o f 66% inMutarara to a low of 45% inthe two Sofala districts. Literacy rates are low, averaging only 13% across the Project area, while female headed households account for an average of 16% o f all households, reaching a higho f 28% inthe Sofala districts. Nearly three quarters of the 131,000 agricultural households within the five districts are in Mutarara and Morrumbala. Across the Project area there is an average o f 8,188 agricultural households per administrative post, rising as high as 15,750 in Morrumbala. Individual holdings Estimatedas 477,940 as of 1/1/2005 54 are typically small, with an average o f 61% of all agricultural households farming less than 1 hectare. Average holding sizes are smaller in Zambezia Province (with 72% having less than 1 hectare) than in Sofala and Tete. Only Morrumbala (170,000 ha) andparticularly Maringue (412,000 ha) have significant protected areas for forest or wildlife. ProjectComponents: Each component is described inmore detail below. Component 1: Community Group Organization and Local Institutional Strengthening (Total: US8.6 million; IDA: US$7.6 million; GEF: US$O.9 million; Government: US$O.1 million). Component one aims to institutionally strengthen smallholders organized in community based production, marketing and savings and loan groups (CBOs) to secure access to technical and financial resources that contribute to the sustainable economic development of their members. Strengtheningthe capacity of CBOs to manage and control their access to support and business services from local institutions and service providers can significantly improve their opportunities for development. The sustainability of CBO activities will depend on their organizational cohesion, leadership, member motivation, official recognition and a secure, well managed basis for mediumand longer term income generation. The long-term vision i s for some of these CBOs to develop as apex organizations, but any confederation would be on a demand driven basis and not prescribed by any service provider or organization. Organizational systems must evolve on a demand and needbasis. The component hasthree mainsub-components: a) CBO capacity development; b) rural financing services, and; c) district agricultural planning and capacity development. a) CBO capacitv development. Under this sub-component, the Project will support: demand promotion and CBO mobilization; capacity development of CBOs to plan and implement demand-based Projects and participatory monitoring and evaluation. The main outputs expected from the sub-component are an estimated 660 CBOs and associations successfklly engaged in Project supported agriculture-related investment activities across the five implementation districts. Successful CBOs will have developed the capacity to engage in internal participatory monitoring and evaluation in order to continuously improve the capacity of the groups to benefit their members. A major NGO or private sector actor, probably inpartnership with smaller local organizations at field level, will be contracted to provide facilitation and community capacity development services across the Project area. The service provider will be supported by Project financed advisors, district extension staff, and technicians from other district departments to provide training and support inareas outside the agency's remit. b) Rural financial services. Under this sub-component, the Project will support the development of savings and loans groups (SLGs), on a demand basis. It is expected that small SLGs will progressively join forces and develop local federations, with the Project's support. However, the development of federations will be demand-driven and developed only after SLGs have been formed, trained and operated for one year. This will enable SLGs to determine if, and how, they 55 want to federate. A rural financial service provider will be sub-contracted to be responsible for facilitating Project-wide support operations, working inclose collaboration with the CBO service provider. In addition, the Project will promote and facilitate the expansion o f a formal financial institution into the Project area. This institution will provide financial services to the SLGs and local entrepreneurs directly and also potentially through federations o f SLGs. The main output o f the sub-component i s the formation of SLGs with a total membership in excess of 10,000 members and the capacity to manage local resources and possibly access external refinancing from a formal financial institution. Credit for rural financial services will not be provided by the Project, any needed external funds will be sourced from existingalternatives. c) District anricultural ulannine;and caDacitvdevelopment. Under this sub-component, the Project will build capacities of government staff to identify and respond to agriculture and natural resource management related smallholder demands. Activities will include needs assessments, group training sessions, coaching and on-the-job training. The main output of the sub-component i s a district level government staff fully trained in CDD approaches in sustainable agricultural development. District capacity development activities will be planned at district level and carried out by specialists contracted for specific tasks. GEF OP 15 funds will be used to (i) complete the quantitative baseline data set being compiled with PDF-B resources existing data layers that are of interest to the Project and district). Some data and maps already exist at various agencies inMozambique but access to the data i s very poor and it i s difficult to judge the adequacy and quality o f these data layers for the proposedactivities. (ii) Establishthe baselines for aboveground biodiversity using a tested rapid appraisal tool (Plant Functional Attributes), (iii)Document and geo-reference indigenous NRM and native biodiversity knowledge, and (v) Quantify land cover change dynamics in attempt to identify deforestation and land degradation frontiers. A participatory approach that involves community members in the baseline surveys will be used to identify the improved crop, soil and water management "best bet" interventions and to facilitate their contribution to local land use planning and uptake o f Project findings Geo-referenced data layers (soil productivity, vegetation cover, land use, water courses, areas prone to flooding and drought, roads and other infrastructure, settlements, crop distribution) obtained via remote sensing and field surveys will be compiled at the district levels. These activities will be initiated by the national level environment adviser in collaboration with the district level technical specialists and community groups and sub-contracts to consultants and service providers as required. Inaddition, the geo-referenced adapt will support the participatory development of communal land use maps at the community level. The geo-referenced data layers will also serve for the Project baseline and for M&E, especially for monitoring the global environmental objective. Activity plans will be developed at the community and interest group level that outline the sub-projects they would like to undertake and submit for funding, the timelineofimplementationandthe technicalassistanceneeded. Component 2: AgriculturalProduction and MarketingDevelopment (Total: US$6.4 million; IDA:US$3.9 million; GEF:US$2.5 million) Activities under this component are concerned with the market-led growth o f the agricultural supply chain, with a focus on enabling producers and other supply chain participants to sustainably increasethe diversity, quantity and value of output generated or handled. Financing of small-scale investments to support such growth is provided in Component 3. Component 2 focuses instead on providing participants with the knowledge and market access required to achieve these goals. Key activities include: (a) agribusiness and market development; (b) 56 strengtheningof field extension services; (c) applied research, demonstrations and trial plots to identify and disseminate new technologies, and (d) improved cropping, agro pastoral, and agroforestry (Best Bet) systems. This component will rely primarily on a strengthened extension service under the District Directorate of Agriculture (DDA) as the key mechanism for implementation, although there will be smaller service provision contracts in some specific areas (e.g. input supply development and naturalresources management). The expansion of field extension staff levels and capacity i s a key element inthe ProAgri I1programme, and guarantees will be sought that, through ProAgri 11, at least two extension staff will be inplace per administrative post and one additional subject matter specialist (focusing on agnbusiness and marketing) in each district headquarters prior to each districts' entry into the Project. The Project will ensure the effectiveness of these staff through the provision of motorcycles for mobility, resources for the conduct of field trials, demonstrations and related activities as well as through training o f staff. Extension staff will be supported by two Project-financed technical advisors working on a Project-wide basis on a part-time basis; one covering agribusiness and production, the other focusing on natural resource management issues. Much of the first year of implementation in each district will be devoted to the training o f extension staff, the initiation of research, trial and demonstration activities and the commissioning of market studies and supply chain analyses. As producer groups become more organized and start to define their investment priorities, and as small-scale local entrepreneurs become aware of opportunities offered by the Project, the extension services will place more emphasis on direct support to sub-project preparation and implementation support (see Component 3) and the facilitation of market linkages. Major component activities can be grouped into the four sub-components defined above: 1. Awibusiness andmarketdevelopment: The linkage of increased smallholder production to strengthened agribusiness activities and increased market access i s critical and will receive particular attention in the development o f district extension services, as well as through studies, the creation of market fora and input market development. The sub-component will facilitate and contribute to supply chain linkages through: (a) Creation and support for district market fora comprisingproducers, traders, agribusinessesand agribusiness contractors to identify key agricultural supply chain constraints and opportunities, including priorities for investment under the agriculturally related infrastructurewindow of the CAEIF (see Component 3); Commissioning o f market opportunity and linkage studies to determine principal areas of demand in accessible markets and the potential for producer linkages to traders, agroprocessors and other buyers; Provision o f training in agri-business management, operations and marketing for extension staff, local service providers (e.g. veterinary auxiliaries) and small entrepreneurs; Initiationo f trial partnership programs between agribusinesses and out growers or contracted suppliers as a means to facilitate technical transfer, financing and market access; Contracting o f a specialized service provider- private sector specialists or NGOs- to promote the development of input supply channels, using a mixture of partial commercial credit guarantees for input supplies to local sales outlets, training of input marketing participants and the demonstration to producers of effective and profitable input usage techniques; 57 (f) The establishment of local market and agribusiness information as a regular element on local community radio schedules and in newspapers, including information collection, taped interviews and broadcast scripts; (g) Study tours and workshops to expose extension staff, progressive farmers, group members and small entrepreneurs to agribusiness and marketing activities in other areas of Mozambique and neighboringcountries; 2. Strenptheningof field extension services: An average of two field extension staff per administrative post and a district level subject matter specialist focused upon agribusiness and marketing issues will be added to existing District Agricultural Directorate personnel during the implementation period, under agreement with ProAgri 11. These staff will greatly increase technical support capacity at field level and will provide the principal implementation mechanism under this component. The Project will support the DDAineffectively utilizing the increased staffthrough: (a) Provision o f appropriate facilities for field extension staff, including the rehabilitation or, if necessary, construction, o f administrative post-level housing, the supply o f necessary field equipment, and the procurement ofmotorbikesto permitstaffmobility; (b) Resources to cover increased DDA operating costs arising from the Project, including: maintenance and fuel; inputs for trials and demonstrations, basic equipment for participating key farmers who would act as diffusion and demonstration agents, and; the preparation of extension messages for radio broadcast or other media; 3. Applied research,studies and training A number of contracts will be issued for the conduct of applied research and studies - primarily on the basis of demand arising from beneficiary groups to provide more in depth investigation - and analysis of issues of importance to producer and supply chain groups. These may include studies to determine the feasibility and profitability of technologies which may be o f value for increased producer income generation, as well as to increase knowledge o f key aspects o f the existingproduction and marketing system. Such studies and researchprograms could include, for example: the potential of identified new crops (in response to identified market opportunities); modifications to livestock traction equipment and improved methods o f equipment utilization; and the potential for intercropping with different species. Some studies will be of more general nature, and will arise from an apparent need for a better understanding of broader issues, particularly those relating to market demand. These studies may include such areas as: market opportunities identification; supply chain analyses (including actors, costs, channels and margins); irrigation and water management techniques; and an assessment of apparenthighlevels of variability inpost-harvest losses and their causes. This sub-component will also provide resources for the mounting o f a number o f specialized training courses for extension workers, NGO staff and key farmers covering specific technologies, cultivation and livestock management practices as proven through applied research and trial plots. 4. Sustainablymanagedagricultural and forestry systems Inorder to ensure the longterm sustainability of gains achieved through the Project, and inorder to assist smallholder farmers and herders in adapting to anticipated climatic changes within the 58 Zambezi Valley area, the Project will utilize GEF fundingto support a range o f activities that will enable participants to increase their awareness of, and response to, these issues. This sub- component will be implemented primarily through the contracting o f a specialized environmental firms or NGOs who'will work closely with the extension services and the community-based organizations service provider to raise awareness of the benefits of sustainable natural resource management approaches. Such sustainable technologies may include: improved cultivation and conservation agriculture practices; improved water management for small scale irrigation and rain-fed production; crop diversification and non-traditional crops; improved fertilizer use efficiency and integrated pest control; improved land management; and adaptation ofproduction systemsto climate change. For livestock systems, possible areas would include promotion o f increased livestock production linked to the sustainable management of grazing areas and agroforestry systems. Major activities will include: a) Contracting a Project-wide environmental specialist, two environmental technicians and a communications specialist, the latter to develop extension-related and media materials for the promotion o f sustainably managed agricultural and forestry systems Provision would also be made for the procurement of equipment and vehicles to ensure the mobility and operational capacity o f service provider staff as well as resources for operations costs incurred by service provider staff; b) Under the management of Field Management Advisor and Environment Specialist, a number of training courses and workshops will be held for both extension staff and participating producers and herders insustainable agricultural and forestry management; c) In close collaboration with the extension services, this sub-component would finance the undertaking of a range of field research, trials and demonstrations to increase the use o f environmentally sustainable agricultural technologies (see above) and show their financial profitability for adoptees. Studies would be expected to include the identification of constraints to the adoption o f improved land and water management technologies such as contour ploughing, mulching, water harvesting and intercroppingwith legumes; d) An awarenessand communications programwouldbe created and implemented to ensure wide diffusion of knowledge concerning these sustainable technologies. The bulkof GEFOP 15 incrementalfundingwill be usedto provide technical support to facilitate the uptake o f sustainable management of land and water resources through the adaptation o f available "best bet" agroforestry, soil conservation and alternate energy sources and to ensure the priority linkages with global environmental benefits (carbon sequestration, above and below ground native biodiversity conservation). Special attention will be given to improving and diversifying cropping systems by coupling indigenous knowledge, species, and varieties with current natural resource management. Communities currently practice a range o f extractive activities (collection o f firewood, honey, and medicinal plants, charcoal burning) in existing forests, which often involve the use o f fire and the occurrence o f unintended forest fires. The proposed forest management activities will target the development and implementation (see component 3 below) of more sustainable extraction practices and alternative cultivatiodproduction practices for the currently extracted forest products. Agricultural intensification practices that facilitate nutrient cycling (e.g. the use o f legume cover and intercrops, small amounts o f fertilizer with cash crops), reduced weeds and pests (e.g. via crop rotations), and the use o f highvalue-low volume crops to avoid nutrient exports will be promoted to provide alternatives to the current practice of slashand bumagriculture. 59 Under the proposed SPA component, the main goal i s to strengthen the country's emerging NAPA priority activities (see Annex 4 - part 2), which are targeting the development of early warning systems for climate variability and climate change. The proposed SPA activities will strengthen the capacity of national partners to (i) identify the vulnerability .of specific sectors (agriculture, forestry, fisheries, water supply and quality) to drought'flood prediction, erosiodlandslide hot spots, infrastructure, re-forestation schemes by region, and (ii) to evaluate the tradeoffs between sectors as abasis for hture policy interventions and financial investments. The specific activities includethe calibration and testingofbasin and catchment level land cover dynamics-hydrology models (VIC, DHSVM) with participation (observatiodmeasurements) by local communities and stakeholder agencies (The National Meteorological Agency, The National Directorate for Water, The Ministry for Coordination o f Environmental Actions (MICOA), The National Institute for Disaster Management (INGC). Both VIC and DHVSM handle dynamic land use-land cover changes and have already been tested at basin to field scales in other regions (e.g. the Amazon and Mekong basins). In addition, the Erosion Productivity Impact Calculator (EPIC) Crop Model will be evaluated for use in the study of impacts of climate variability and climate change on local crop productivity and as a tool to simulate the impact of improved crop rotations as a mitigation strategy to changing rainfall. (see Annex 4 - Part 2 for details of the proposed activities and models). Component 3: Community Agricultural and Environmental Investment Fund (Total: US$8.5 million; IDA:US$5.9 million; GEF: US$1.7 million; Beneficiaries: US$0.9 million). The objective of the component is to provide for an Investment Advisor, preparation and implementation support for subprojects and a Fund to provide technical support and grants to facilitate accelerated agricultural development and sustainable land and water management inthe Project area. These Fund investments will include: (i) improved agriculturally related public infrastructure (rural access, markets, and buildings), as well as communal infrastructure facilities (irrigation and storage); (ii) small-scale productive activities implemented through community- based groups or local entrepreneurs on the basis of contributory grants, including a range of agricultural and agribusiness activities; and (iii)support for improved natural resource management through contributory grants for investment andtechnical assistance. A portion o f the fund (US$O.9 million or 12%) will be allocated to cover the cost of proposal design, evaluation and implementation support and supervision as required across all windows. The Fundwill benefit from district level structures and capacities developed under the DPFP, as well as supplementary support provided under other Project components. However, no disbursement under the fund i s expected in the first year of implementation. Growing district budgets and capabilities will ensure sustainability o f public investments beyond the Project period, while the strengthening o f local credit mechanisms and linkages under Component 1 will provide resources for productive investments. AgriculturallyRelatedInfrastructure(IDA CreditUS$3.4 million):This window will support all infrastructure interventions likely to increase agricultural incomes, with the exception of support to commercial enterprises. Priorities identified through market forums established under Component 2 will be incorporated into annual district budgets following consultative district level planning, sub-project design and proposal evaluation. Anticipated areas of focus for the window include local road spot improvements, bridges at strategic points, markets and small gravity irrigation schemes (irrigation schemes would be operated and maintained by recipient communities). Resources from this window would be supplementary to those already available under the DPFP and would only be used where DPFP resources were unavailable or exhausted. 60 The same mechanisms as utilized for DPFP Local Infkastructure Grants will apply to this window. Fundresources are expected to be usedto procure design and supervision services from relevant GOM agencies or the private sector. Sufficient civil works contractors exist within the region to implement the program. Proposal evaluation and completion inspections would be undertaken, where possible, by provincial level staff of the Ministry o f Public Works and Housing (PWH) or, ifnecessary, be independentcontractors. Small-scale Agricultural Investment (IDA Credit US$2.0 million): This window would provide support for private enterprise development activities o f groups and individuals, which would not therefore form part o f district plans. All sub-projects under US$7,500 would be processed and implemented completely at district level. Group proposals would mainly emanate fkom the producer and trader groups and associations supported under Component 1(butnot from SLGs) and could include on-farm irrigation, agricultural production, post-harvest handling and small processing activities. Individual applications would also be eligible under this category, and would include a range of investments in agribusiness, such as milling and other forms of processing, marketing, and other value addition activities. Technical assistance and related costs would be grant funded, but investment elements would require a 2550% applicant contribution (depending on category - see Working Paper 5), with higher contributions for those investments benefiting only individuals or limitedmemberso f an applicant group. As this type of investment would not form part of district plans, applications under this window would be submitted directly to the district level CAEIF review committee for approval and procurement would be undertaken for approved sub-projects under the World Bank community- based procurement regulations. Sub-projects in excess o f US$7,500 would require approval also by the provincial-level steering committee, up to a maximum o f US$25,000, but these are expected to berare. NaturalResourceManagement(GEFfunding US$1.7 million): GEF OP 15 investments will target improved natural resources management that result in verifiable global environmental benefits. These grants will be based on community demands guided by priority criteria to ensure global environmental benefits. Examples o f "best bet" practices that are not only attractive to communities but also fulfill priority global benefit criteria include (i) in-situconservation inbiodiverse home gardens of important native fi-uit, medicinal, forage plant species identified by local communities, (ii)protection and/or restoration o f degraded community managed areas such wetlands, and riparian and buffer zones and use rights for extractive products, (iii)improved, fireless honey collection methods to reduce wildfires fkom traditional honey collection practices, and (iv) conservation o f habitats identified as important sources of medicinal plants. The objective of these investments would be to improve both livelihoods and economic well being of smallholder farmers, and to preserve or restore ecosystem stability, functions and services. Proposed activities would be in coherence with the community and district land use plans which will be developed under Component 1. They would also respond to specific environmentalcriteria that will be established and disseminated to communities via the awareness and education campaign under Component 2. Support will be provided through a natural resources management subject matter specialist within DDA (Component 2), and a Regional Environmental Specialist and two district level technical specialists will assist communities to develop sub-projects proposals and provide support for sub- Project implementation as well as monitoring and evaluation of sub-Projects. The funds under this component would finance from 70% to 90% of the total sub-project cost depending on the 61 environmental benefits provided. Grants up to US$5,000 will be approved at the district level. Above this amount, and up to a proposed limit of US$20,000, grants will be approved by the Provincial Steering Committee. The beneficiaries will provide the remainder either in kind (manpower, etc.) or in cash. Ten percent of revenues from sales will be paid into a group managedreserve to cover maintenance costs or enable extension o f the investment. Proposals for sub-project financing under this window may aim to complement proposals for other windows or couldbe submittedat a later stage to complement a sub-project already under implementation. Component 4: Project Management, Coordination and Monitoring and Evaluation (Total: US$2.6 million; IDA:US$2.0 million; GEF: US$0.4 million; Government: US$0.2 million). The Project will not utilize a dedicated Project implementation unit. Project coordination, management and monitoring will, therefore, be undertaken by government staff, individual advisors and contracted service providers (see Annex 6). Expenditures include consultancy and training and goods and equipment. Due to the district focus o f the Project, technical management, coordination and monitoring roles are predominantly at the local level, while financial management will be supervised fromnational level. Overall Project strategy will be the responsibility by an Inter-Ministerial Steering Committee, shared with the DPFP, and expanded to include additional ministries such as Industry and Commerce. The National Director of DNPDR will be named as the Project Director and will serve as Secretary to the steering committee on matters related to the Project. He/she will take primary responsibility for ensuring adequate technical and financial management, and will be supported by a Financial Management Specialist and accountant in the financial area and a Project area-based Field Management Advisor (FMA) in technical matters. At provincial level, the DNPDR representative, supported by a Provincial Financial Manager, will provide the key management functions, and act as Secretary for the Provincial Steering Committee, already established by DPFP. Finally, at district level, Project management will be the responsibility of the District Administrator, supported by the District Facilitator (DF), a Project funded position under Component 1and adistrict level financial officer. Project coordination will be undertaken principally at two levels. Within the district, the DF will be principally responsible for coordination, linking together government technical agencies, service providers and district consultative planning participants. On a Project-wide level, the FMA, reportingto the Project Director and supported by a small group of on-call experts, would coordinate between DFs, provincial stakeholders, and the national level. Project monitoring will also be undertaken at two levels; internal (inputs and outcomes) and external (process). Internal monitoring will closely follow the coordination roles, with the DF and the FMA having responsibilities in this area. The information collected - both directly and from service providers own monitoring processes - will comprise part of the annual reporting system o f the Project and will include expenditure, input and performance data, as well as monitoring data derived under Component 1. External monitoring will be undertaken by an independent contractor reporting directly to the Inter-Ministerial Steering Committee and will focus on processes and outcomes. This work will be supported by a baseline study conducted prior to Project effectiveness, followed by similar studies prior to the mid-term and investment completion reviews. The remote sensing quantitative baselines developed via the GEF PDF-B grant will serve as objective reference points to evaluate progress over the life o f the Project and beyond. The SPA modeling component will provide an interactive predictive and analytical framework to assess 62 current and emerging resource management issues duringand beyond the lifetime of the Project. GEF funds will be usedto recruit a Senior Environmental Specialist (ES) who will be basedwith the Field Management Unit and two District Technical Facilitators (DTFs). The ES will support the two DTFs and interact closely with the Field Management Advisor and associated staff inthe Field Management Unit.GEF funds will also be used to equip (vehicles, motor cycles, GPS units) the technical specialists who will work across all five districts. 63 Annex 4 Attachment1: Elementsof the ParticipationPlan - The participationplan will be fully developed and discussedamongst stakeholders before Project effectiveness and integrated into the Project implementation manual. The participation plan will be designed to engage all district stakeholdersin a dialogue and provide them with a platform for interaction, planning, and decision-making in view of a sustainable agricultural development in the Project districts. A preliminary list o f stakeholders and their role i s provided inthe following table. Table A. Preliminary list ofparticipating stakeholdersand their role inthe Project implementation CommunityConsultativeForum IDefines priority programs I s informed and consulted within the Leaders o fthe communities existing for the AP. processo f awarding a matching grant inthe Administrative Post (AP). to a CBO or private entrepreneur. AP Office Establishes the linkage Ensures the provision o fbasic AP Administrator and 2-3 between the District services administrative officers. Administration and the communities. Collects taxes. Basicpublicservices Collection o f information 0 Provision o fbasic services Small numbers o f public officers for the district MIS system. Serviceprovider for group NGO contracted with Promote the formation and formation and development resources from the institutional organization o f CBO. Project 0 Issues opinion about the level o f organization and leadership o f a CBO that have submittedand investment proposal. Communities/CBO Mainbeneficiaries 0 Identificationo f the needs o f Groups o f farmers with varied levels investment. of internal organization and 0 Designthe investment with leadership support o f TA financed by the Project. Implementation of the proposed investment and subsequent operation. DistrictGovernmentStakeholders DistrictAdministrationand Keyauthority at district To coordinate the district District ConsultativeCouncils level, district planning development plan implementation Community leaders, District andProject To facilitate participatory district Administrators, Administrative Post implementation planning and Locality Chiefs, Heads o f coordination To facilitate integration within the District directorates and services Formulates guidelines communities and traditional andpriorities for district leaders development. To facilitate establishment o f local Evaluation and approval community associations andNRM o f District Development committees Plan (DDP) To approve specific proposals o f public nature investments to be carried out with funds made available bv the Project 64 strictTechnicalPlanningTeam Project implementation 0 To implement the district landuse chnical staff nominated by the planning incoordination with the strict Administrator District Officers from various Ministries 0 To liaise with the contracted service provider 0 To oversight and facilitate the outputs o f the district experts' work ~~ ,cal/TraditionalAuthorities Facilitate Project To facilitate Project implementation implementation To persuade and mobilize community members to adhere to the Project Provide localknowledge on land use strategy and natural resource use strict Administration(DA) Governs the district 0 Willhost the Project District strict Administrator, District (scope of decision making Facilitator innanent Secretary and district in evolution). Ensures rvices (Includes Agriculture). provisionof services. Collects taxes. ommitteefor Technical Participation inProject 0 Issues technical evaluation and fahation of Proposals implementation recommendations about the group o f district technical staff (component 3) proposals submitted for financing ~~ ithrecognized competence from CAEIF strict Agriculturalservices Promotes facilitates or Will have extensive (tension services ,forestry directly delivers responsibilities under Component rvices, livestock services land agriculture services. 2 lministration services Collects agricultural statisticaldata, Provides Technical assistance. ommodity/productfor a Promotionofproduction Discusses and identifies ultistakeholder group & marketing ofa specific intervention o f public, private or product or group of public-private nature to be products recommendedfor fundingby the CAEIF ivilSociety Stakeholders ommunityBasedOrganizations Project implementation 0 To promote exchange programs with other communities visting organizations e.g. Provide experience To represent community interests ACODEMAZA/ACODEMADE To implement Project activities -FarmersAssociationof 0 To benefit from the use o f natural ZambCziaDerre resources To establish the linkbetweenthe Project and local community I I 65 Smallholder farmers Beneficiaries Express demand for Project intervention and participate inthe decision making and implementation o f Project activities .Marginalized population Beneficiaries Enhanced participation indecision Women, youth, HIVIAIDS infected, making and implementation o f decapitated people Project activities Private Sector Establishment o f cost To providebusiness opportunities effective methods for for local community members benefit generation To facilitate employment to local communities To establish partnerships with CBO's and Civil Society for implementation o f Project activities Provincial Government Stakeholde Provincial Government (PG) Formalprovincial level oversight Chairedby the Provincial Governor, evolution. Coordination o f the performance o f the District. and including the Prov. Permanent o f activities o f the Administration o f the Project Secretary, and Heads o f Provincial various provincial districts. Directorates Directorates and services. Approves Provincial Plan o f Development and monitors its imdementation. DPFP Steering Committee Consultative and Would be usedfor oversight o f the Chairedby the PPS and includes Coordination Forum for performance o f district Agriculture, Public Works, Finance, activities oriented to administrations o f Project districts State Administration, Environmental districts but above their Coordination scope o f decision Provincial Directorate for Implementation o f land To provide technical expertise in Agriculture (DPA) use plan inline with agricultural landuse activities PROAGRI To facilitate integration ofthe district landuse planning into the provincial and national land use planning Participate inthe provincial steering committee ProvincialDirectorate for Technical assistanceand To provide technical Assistance Environment (DPCA) Project implementation for the evaluation o f the Participate inthe provincial steering committee Facilitate the NAPA information 66 and adaptation strategy for the orovince Provincial Directorate for Public Infrastructure planning, 1 To facilitate the coordination of Works building and maintenance activities related to infrastructure development and maintenance Provincial Directorate of Planning Supports the Provincial 1 Manages provincial budget and Finance (DPPF) Government to prepare allocation and execution at Encompasses the Provincial Rural the Provincial provincial level Development Department, Development Plan. Provincial Departments o f Finance Supports andrepresents and Taxes PG inits relationship with Ministryo fFinance andMPD. Provincial Department of Rural Inthe scopeoffunctions Willhostthe provincial level Development (PDDR) o fthe DPPF formulate accountant and procurement and ensure officer inQuelimane. implementation o f D This department will host the TA programs relevant for to be posted at regional level. rural development that do not fall under the mandate o f the provincial directorates and services. Government: national level (Line m iistries and their regional Xcers) Stakeholders Ministry of Agriculture (MINAG) - - create capacity at To facilitate the implementation of DNFFB-Department of district level the Project activities at provincial Forestry - supportto and district level involving all - DINAGECA - Department of coordination, departments Lands - provide mechanisms 0 Mainstreamthe Project activities - DNER-Departmentof o f technology within MINAG core activities Extension transfer and technical Participate and chair the district 1-- DEA-DepartmentofEconomy assistance forum for sustainable natural IIAM-Agricultural Research - promote resource management Institute implementation o f 0 Facilitate the application o f regulation and laws PROAGRI I1strategic environmental assessment recommendations inthe Project area 0 Supervise implementation o f regulations and laws. Provide technical assistanceand conduct research Ministry of Environmental Affairs Coordinate SEA, EIA, To coordinate the implementation (MICOA) and supervise the o f the Environment Policies and implementation o f the ecological sustainability o f the environmental production Project activities practices, mainstream Establish the linkwith NAP environment concerns (UNCCD), N A P A (UNFCCC), within agriculture NBSAP (CBD), strive for synergy To evaluate the EIA and the strategic environmental assessment Ministry of Industry and Together withMINAG- 0 To promote localprocessing o f Commerce DEA identifymarket agricultural and natural resource opportunities (locally or to createjob opportunities for abroad) for local local communities 67 products; 1 To facilitate the establishment of Promote local processing smalUmedium business based on o fnatural resource and natural resources for community agricultural products associations Ministry of Planning and Implementing agency, 1 To integrate the Project activities Development (MPD) responsibility for within the district development National directorate for Planning integrated socio- process and Budget, National Statistical economic development at 1 To provide assistancewith the Institute, Centre for Investment all levels decentralizationprocess Promotion Coordinates planning and 1 periodically evaluate progress and policy formulation. identify constraints faced by the EncompassesDNPDR Project based on the reports and oversees its presented by the director o f activities. DNPDR National Directorate for Supports MPD inthe 1 Appointed by MPD to implement Promotion of Rural Development formulation o fRural the Project. Several Departments and PIUs Development policies. 1 New Administrationand Finance (structure under review) Responsible for the Section to be developed with implementation o f support for the Project (TA on FM national rural-oriented andProcurement) programs not falling underthe mandate of sector ministries Ministry of Finance Provide the linkbetween b To coordinate the design of the the Financing Agency district disaster preparedness and the Project I To facilitate the disbursement of implementation team Credit funds for Project implementation D To create fiscal incentives for communities to engage inthe formal market B To monitor and audit the Project accounts Ministry of State Administration Coordinate with INGC, B To facilitate the decentralization the district, and local process and provide link with the authorities to identify local authorities safer areas and in accordance to the district preparedness plan, to settle people displaced by floods Technical Inter-ministerial Consultation and D Identificationo f issues requiring Committee coordination at technical specific action at ministry level. Central level, technical level. representatives o f concerned ministries. Created for DPFP D To provide technical and legal communities and provide assistance for the set up o f the district disaster preparedness 68 the district disaster D To coordinate the design o fthe preparednessplan district disaster preparedness University Eduardo Mondlane - Training and technical at To conduct research inall Faculty of Agronomy and all levels during planning agricultural aspects including Forestry and implementationo f social and cultural aspects the district development Coordinate withall departments o f plan MINAGto identify research issues To conduct the biodiversity assessmentinthe Project area LeadingResearchInstitutions Baseline surveys (PDF- 0 Baseline natural resource maps specializedin advanced remote B)dynamic hydrology 0 Digital elevation maps for each sensing and hydrologymodeling modeling to support district country NAPA and 0 Distributed Hydrology Vegetation landscapelevel climate Soil model calibrated for Zambezi risk impact analyses; and valley and Project area training o f personnel at local institutions and university. International Research Research, training and 0 To conduct research Organization (ICRAF, CIMMYT implementation o f Provide informationon regional ICRISAT) agriculture an experiences agroforestry, technology Provide training o ftechnical transfer with IIAMand agents and farmers the University 69 Annex 4 Attachment 2: SpecialPriority on AdaptationActivities - The activities proposed below under SPA funding are synergistic with the specific objectives and activities proposed under Mozambique's draft NAPA. The objectives of the NAPA are to: (i) Strengthen the country's (climate) early warning system for extreme events; (ii) Strengthen the capacity o f small holder farmers to manage the adverse effects of climate change; (iii) Promote the use of renewable energy for water pumping and lighting in rural and periurban areas, (iv) Promote reforestation; (v) Promote measures to collect and conserve rainwater; (vi) Promote action to stop and prevent soil erosion; (vii) Promote the integration of climate change issues in the planning context of decentralized institutions and programs. The Mozambique NAPA hasproposed 4 major program activities to meet the above objectives in the short to medium term. These include: (1) Improved collection of meteorological data and generation o f weather forecasts (including extreme events) and communication of information to stakeholders especially in vulnerable areas, (2) Improved capacity of farmers and livestock herders to collect and store water for enhancedmitigation of drought effects, (3) Mapping o f land cover dynamics and erosion vulnerability in coastal regions, and (4) Improved characterization and use of hydrological resources for irrigation, water storage, and sustainable use o f river margins. The activities proposed under the SPA component of this PAD are aimed at reinforcing the national and long term goals of the NAPA objectives with respect to the following key issues: (1) Improve the national capacity to identify,characterize and managehydrology at a basin scale e.g. the Zambezi. (2) Create and sustain a national capacity to model the interactive impacts of climate change and land cover land use change and assess the priority mitigation responses, and (3) Contribute to strengthening of a national data base of land cover and land use change dynamics, hydrology, and climate information to support the collaborative activities o f national agencies (e.g. National Meteorological Agency, CENACARTA, National Directorate o f Water, ARA Zambezi, GPZ) andpolicymakers. Specific SPA activities include: I. Development of a "Dynamic (Landscape-Water Resource) Analysis Framework for the I' Zambezi River basin: Predictions of Consequences of Climate Variability and Landuse/Landcover Change The objective here i s to assess the vulnerability of specific sectors (agriculture, forestry, fisheries, water supply and quality) o f the Zambezi basin to potential drought, flooding, landslides, infrastructure, and re-forestation schemes, under bothcurrent and possible future conditions. With this information, the next objective i s to evaluate the tradeoffs between sectors as a basis for future policy interventions and financial investments. Contemporary geospatially-explicit, process-based hydrology models (including dams and irrigation schemes) provide a robust basis for analysis o f changes inthe water flow and landscape dynamics of river basins as a function of changes in landuse and land cover and regional climatology. While they address the detailed movement o f water across the landscape, such models are "more" than just hydrology models. The model can be seen as a multi-layered representation of characteristics and processes in a drainage basin that allows us to examine intersections of the data requiredfor describing a basin's topographic and landscape features and its climatology patterns. Overall, the resulting modeling environment can be developed as a 70 "Dynamic (Landscape-Water Resources) Analysis Framework." Because of the fundamental processes and detailed information represented in a functional Dynamic Analysis Framework, a series of critical problems can be examined that may result from climate variability and 1anduseAandcoverchange: What would be the impacts o f changes in agriculture (including irrigation) and forestry practices on local and regional water balances?E.g., will reforestationlead to an increase or to a decrease instream flow? Ifsomeindicationofclimate over a growing seasonwas provided, couldcrop selection (and fire management) be improved? How would changes in streamflow affect fisheries (including through changes in water levels o f nursery areas)? Can floods or droughts be predicated, or at least anticipated, one or two months into the future, as an early-warning system? These models compute not only stream discharge, but such intermediate products as soil moisture and evapotranspiration. If a model is maintained inan operational mode, the current conditions of soil moisture (the antecedent for floods or drought) can be monitored. If the hydrology modeled i s then driven by forecasts from regional climate models (see below), then near-future potential conditions can be tracked, and warnings given. What would future climate bring? While predictions of specific future climates are uncertain, consequencesof different scenarios canbe evaluated. How would developments of infrastructure affect downstream flow, water quality, and fisheries resources? How would changes in landuse practices, with varying climate, affect water supply and water quality? 2. A DynamicAnalysis Framework based on the VIC/DHSVMHydrology Models The geospatially-explicit, process based hydrology models referred to above compute the water and energy balance of a spatial unit of the landscape (a "pixel"), as a function o f landscape structure (topography, soils) and vegetation properties, and are driven ("forced") by a surface climatology. As such, our Dynamic Analysis Framework can be thought o f as the intersection of a physical template module (describing static properties o f topography and soils), a 1anduseAandcovermodule (describing not only what i s present, but the biophysical attributes thereof), a surface climate module (providing the drivers for the land surface), and, finally, the hydrology models themselves. The following discussion focuses on VIC, with a brief summary of DHSVM(where the principles are very comparable). This discussion will make clear how water movement, climate, and the landscape all intersect. 2.1. Geospatial/ProcessBased Hydrology Models Here we describe two such models, VIC and, more briefly, DHSVM. The difference between them is based on the scale of the river basin represented. While it i s not discussed below, biogeochemistry and sediment mobilization sub-models are being developed, which can address such issues as water quality and erosiodlandslides. The VIC (Variable InJiltration Capacityl model is a semi-distributed macro-scale hydrologic model, which represents explicitly the effects o f vegetation, topography, and soils on the exchange of moisture and energy between the land and atmosphere. As compared with other so- called soil-vegetation-atmosphere transfer schemes (SVATS), VIC represents in more detail the 71 generation of streamflow, and its sensitivities to the above factors. The VIC model has been applied to all river basins in the US. the entire country o f China, the pan-Arctic region, the Mekong, and the entire Earth (at 1/2" spatial resolution. The VIC model can be operated in either one o f two modes: in the energy balance mode, the surface energy budget is closed by iterating over an effective surface temperature, and in the water balance mode the effective-surface temperature i s simply approximated by the surface air temperature. Some o f the soil parameters inVIC generally cannot be estimated directly, and must be adjusted by calibration, typically the depth o f each soil layer, the maximum velocity o f baseflow, the fraction o f baseflow where nonlinear baseflow begins, and the parameter o f the variable infiltration curve. Calibration and validation are typically done with different periods o f flow observations (and are, o f course, dependent on data available). The DHSVM (Distributed Hydrology Soil Vegetation Model) i s intended for small to moderate drainage areas (typically less than about 10,000 km'), over which digital topographic data allows explicit representation o f surface and subsurface flows. D H S V M i s utilized for stream flow forecasting and for addressing hydrologic effects o f land management or o f climate change. The model has been applied on several basins in the U S A and in British Columbia, and to the Mae Chaem basin, o f northwestern Thailand.The model simulates soil moisture, snow cover, runoff, and evapotranspiration on a sub-daily time scale. It accounts for topographic and vegetation effects on a pixel-by-pixel basis, with a typical resolution o f 30 to 150m. Snow accumulation and snow melt, where needed, are calculatedby a two-layer energy-balance model. To operate, both models require their respective physical template, landuse/landcover, and surface climate modules. These are briefly outlined inthe next sections, with an emphasis on VIC (given the overall size o f the Zambezi). 2.2. River basin Template The first step in the construction o f a river basin model is to derive a (digital) river network and so-called flow accumulation grid. Runoff simulated by VIC i s routed from each model gridcell to one of its eight neighboring cells, according to the local "flow direction." The VIC routing network has typically been derived from high resolution USGS GTOP030; 30 arc second data, aggregated to the model grid resolution o f 1/12 degree latitude and longitude (roughly, 10 x 10 km, inthe tropics). The recent availability o f SRTM data (90-m) will generally provide enhanced products (though not automatic solutions, especially inflat, forested regions). The soil parameters can be measured directly (rare), or use assigned attributes, typically based on soil texture, which can be derived inturn from existing global soil maps. 2.3. VegetationAttributes A critical intersection between landuse planning and the hydrologic cycle is representedby land cover. Landcover itself i s typically derived from multiple sources, typically involving local surveys and satellites. At broad scales, landcover products from MODIS can provide a broad overview. Closer examination frequently reveals discrepancies. Data from higher-resolution satellites, such as LANDSAT, are often used, producing composite products (here illustrated fro the Mekong). The overall development o f a highly-resolved satellite-based landcover analysis for this Projectis covered elsewhere inthisreport. The Leaf Area Index (LAI) i s one o f the vegetation parameters to which VI C i s most sensitive. It controls not only precipitation (solid and liquid) interception, but also canopy resistance to 72 transpiration, and the attenuation of solar radiation through the vegetation cover. For modeling purposes, LA1 can be derived from lookup tables (where each vegetation type i s assigned a seasonal LAI, based on literature values). More recently, it has become possible to use the standard %day, 1 km MODIS satellite LAIproduct (with caveats for cloud covers). A series of parameters are inferred for each vegetation class, typically from literature values. Vegetation height i s used by VIC as the basis for determiningroughness length(the height above the ground where wind speed is reducedto zero due to surface resistance) and displacement height (height above the ground were wind speed i s not significantly affected by surface roughness) both of which are important parameters in its evapotranspiration formulation. Maximum rooting depth affects the ability of the vegetation to extract moisture from the three soil layers, and hence affects evapotranspiration, and the partitioning o f pfecipitation into runoffand evapotranspiration. 2.4. Surface Climatology A critical element in the development of a river basin model is, of course, the surface climatology. The meteorological data used to drive VIC are daily precipitation, maximum and minimum temperature, and mean wind speed (other forcing data; e.g., downward solar and longwave radiation, humidity, can be derived). Ideally, local surface observations would be sufficient to drive a model. But these are rarely available in adequate quantity. So-called reanalysis products, such as from the NOAA Climate Prediction Center Summary of the Day data archived at the National Center for Atmospheric Research (NCAR) can be used. Hence one o f the major gaps in our ability to understand regional-scale land-surface processes i s that climatological distributions o f rainfall, temperature, and solar radiation are insufficiently resolved inconventionalreanalysis products, particularly inregionsofintense topography and fragmented landscapes, An emerging area i s the use o f regional scale, or mesoscale, climate models. For example, the regional scale Weather Research and Forecasting (WRF) model is a state-of-the-art atmospheric model designed for use on regional grids. The model i s routinely applied for real- time forecasts at the National Center for Atmospheric Research (NCAR) on grid sizes down to a few lulometers, especially for central US spring-time convection and Atlantic hurricanes. WRF does well at simulating the Asian and Australia monsoons, and could be extended to east Afi-ica. ProcessCrouModels:ErosionProductivitv ImpactCalculator lEPIC) EPIC i s a generalized crop model that simulates daily crop growth on a hectare scale. Like most process plant growth models, it predicts plant biomass by simulating carbon fixation by photosynthesis, maintenance respiration, and growth respiration. Several different crops may be grown in rotation within one model execution. It uses the concept o f light-use efficiency as a function of photosynthetically available radiation (PAR) to predict biomass. EPIC has been modified to simulate the direct effects o f atmospheric carbon dioxide on plant growth and water use. Crop management i s explicitly incorporatedinto the model. This approach is useful for evaluating a limited number o f agronomic adaptations to climate change, such as changes inplanting dates, modifying rotations (i.e., switching cultivars and crop species), changing irrigation practices, and changing tillage operations. The parameter files are extremely sensitive to local conditions and EPIC can give grossly misleading results whenrelying on default settings as it is beingtailored to different locations and cropping systems. Applications Drought assessment, soil loss tolerance tool, global climate change analysis, farm level planning, drought impacts on residue cover, and nutrient and pesticide movement estimates for alternative farming systems for water quality analysis. 73 Annex 5: Project Costs Project CostsSummary Total COMPONENT 1: Community group organizationand local institutions strengthening 5.6 2.5 8.1 1.1CBO capacity development 2.8 1.3 4.1 1.2 Rural financial services 0.9 0.4 1.3 1.3 District capacity development 1.9 0.8 2.7 COMPONENT 2: Agricultural Production and MarketingDevelopment 4.0 2.0 6.0 2.1 Agribusiness & market development 0.8 0.4 1.2 2.2 Extension Services StrengtheningandApplied Research 1.7 0.7 2.4 2.3 Sustainablymanagedagricultural & forest systems 1.5 0.9 2.4 COMPONENT 3:Community Agricultural and Environment InvestmentFund 6.5 1.9 8.4 3.1 Supportto CAIEF implementation 0.7 0.6 1.3 3.2 CAIEF investment 5.8 1.3 7.1 COMPONENT 4: Project Management,Coordination andMonitoring & Evaluation 1.8 0.7 2.5 4.1 Project coordination 1.1 0.5 1.6 4.2 ExternalM&E 0.6 0.2 0.8 4.3 Communication & training 0.1 0.0 0.1 PROJECTPREPARATIONFACILITY 0.4 0.2 0.6 Total Baseline Cost 18.3 7.3 25.6 Price Contingencies 0.8 0.3 1.1 Total Project Costs" 19.1 7.6 26.7 1US$ = 27,000 MZM(Mozambique Metical). 2Q Identifiable taxes and duties are US$ 3.6 million and the total Project cost, net of taxes, is US$ 24.1 million. 74 IDA GEF Benef. Govt Total Amount YO Am. YO Am. % Am. % Am. % COMP 1: Community group org. and local institutions strengthening 7.6 88 0.9 10 0.0 0 0.1 2 8.6 32 COMP 2: Agricultural production& marketingdevelopment 3.9 61 2.5 39 0.0 0 0.0 0 6.4 24 COMP 3: Community agricultural and environmentalinv. fund 5.9 70 1.7 20 0.9 10 0.0 0 8.5 32 COMP 4: Projectmanagement, coordination, M&E 2.0 77 0.4 16 0.0 0 0.2 7 2.6 10 Project PreparationFacility 0.6 100 0.0 0 0.0 0 0.0 0 0.6 2 Total PROJECT COSTS 20.0 75 5.5 21 0.9 3 0.3 1 26.7 100 Basis of CostsEstimates The Project costs have beencalculated and projected usingCOSTAE3 software (Version 32), and structured as investment and recurrent costs within the Project components and sub-components, according to the implementation framework. The costs are based on February 2006 prices and include taxes and duties. Unit cost estimates for works and equipment have been collected in the country from different sources including government institutions, NGOs and ongoing Projects. Costs o f consultancies and services are based on recent contracts for foreign and local consultancies and services inMozambique. The duration of the Project is six years, starting from September 2006, with the first year being mainly an inception period, with no investment under the Community Agricultural and Environment Investment fund (CAEIF), as the subprojects financed under this component would need to be prepared and appraised before financing. The main expenses planned during the first year o f the Project would allow for setting-up and launching the needed procedures and implementation mechanisms inthe first two districts covered. Project investments under the CAEIF will be demand-driven. Investment assumptions were made inorder to estimate Projectcosts andunderstandabsorptive capacity ofthe potentialbeneficiaries inthe target districts. The Project cost estimates for the CAEIFhave been developed onthe basis o f proposals and designs by the formulation mission. These assumptions are further described in the Working Paper on rural infrastructure. Physical and price contingencies and exchange rates. All costs have been expressed in US dollars. Price contingencies, for expected price variations, were applied to the foreign exchange component at 2% per annum, in accordance with the forecast inflation rate of 2% for the Major Advanced Economies in2005 and 2006. Domestic inflationinMozambique has decreasedfrom a rather high 16.8% in2002 to 12.6%in2004 and i s forecasted to decrease further to 6.3% in2005. An annual inflation rate of 6.5% in 2007; 5.7% in 2008, 5.4% in 2009 and slightly decreasing thereafter has been retainedin Costab for estimating domestic price contingencies, in accordance with the Projections presented in the Second Poverty Reduction Strategic Document (draft '' As costs havebeenrounded,some ofthe numbersmaynot add-up. 75 version). No variation has been foreseen between data collection and negotiation. The cost period. The Projection of exchange rate assumes stability inthe power purchasing parity - i.e. the estimates take into account the expected changes in the currency equivalent over the Project real exchange rate - and a low and stable rate of inflation. No physical contingencies are considered as actual investments will dependon real demand. Taxes and duties.Taxies and duties have been estimated usingthe latest version of the Customs Tariffs Book. A Value Added Tax (VAT) of 17% i s applicable to all goods and services. Projectfinancing. Withregardto the Project financing, the Government ofMozambique will not directly provide a counterpart funding. However, the Government of Mozambique would contribute to the Project through individual staff and office space. Government officials whose time has been partly taken into consideration to estimate GOM contribution include: the Project coordinator, provincial officials in line ministries (agriculture, planning, public works and housing, environment), district administrators, district permanent secretaries, directors and technicians working inthe district direction of agriculture, which would not be financed under the Project, etc. Beneficiaries' contribution under the matching grant scheme would depend on the nature of the investment; i.e. grant rates would be more generous for investments with a large public good component, and on the financial conditions prevailing in the target areas under parallel interventions. The matching grant scheme would be implemented on a demand-driven basis. Hence, the actual beneficiaries' contribution would depend and vary upon real demand. This contribution has been estimated on the assumptions derived from the subproject models developed, at an average rate of 25% of investment costs for small scale agricultural investments, 5% of investment costs for agricultural infrastructure, and 10% of environmental investments. Beneficiaries would also cover the totality o f the corresponding recurrent costs. ProjectCosts Project Cost by Component and Subcomponent. Based on the above assumptions, the total Project costs (including financial and physical contingencies) are estimated at US$26.7 million of which US$25.6 million as base costs and US$1.1 as contingencies. Contingencies account for some 4% o f the Projectbase cost (respectively 4% and 0% for price and physical contingencies). The four Project components: (1) Community Group Organization and Local Institutional Strengthening; (ii) Agricultural Production and Marketing Development; (iii) Community Agricultural and Environment Investment Fund; and (iv) Project Management, Coordination and US$8.6 million (32%), US$6.4 million (24%), US$8.5 million (32%), US$2.6 million (lo%), Monitoring & Evaluation and (v) Project preparation Facility, would each total an estimated US$0.6 million (2%) respectively, including contingencies. The Project base costs (without contingencies), by major component and subcomponent, are shown inTable 1above. Project Cost by Category of Expenditure.O f the total project cost, US$3.6 million (14%) would be allocated to civil works, US$2.7 million (10%) to goods, equipment and non-consulting services, US$14.0 million (52%) to consulting services and training22,US$4.0 million (15%) to 22 This amount includes all goods and equipment purchased by the service providers responsible for implementing part o f the project activities, as well as correspondingrunning costs. 76 matching grant financed investments and the remaining US$2.4 million (9%) to incremental operationcosts (including salaries). The direct and indirect foreign exchange costs are estimated at some US$7.6 million, or about 28% of total costs (see Table 1 above). Foreign costs would mostly consist o f the procurement of office equipment, commercial software, vehicles, regional consultancy & services and study tours. Project Financing Plan and Disbursement Profile. As presented in the Table 2 above, the proposed IDA Credit would finance about 75% of the project total cost including taxes. GEF Grant would cover an estimated 21%. GOM contribution would mostly consist in staff an office costs, accounting to an estimated US$0.3 million, considering only government staff fully dedicated to the project. The Beneficiarieswould finance US$0.9 million (3% of project total cost), all beingrelatedto CAEIF. Project cost break down by year would respectively be o f 13; 17; 18; 21; 19 and 12% for the six years of the project implementation. Expenses related to the Component 3 would start being significant in year 2 and progress to reach a peak in years 4 & 5. Project Management and Coordination Costs would important in the first year, do to project start-up costs, and stable thereafter. Disbursementby fiscal year is showninthe figure below: Disbursementsbyfiscal year 1 5,000 4,000 0 2 v) Other 3,000 0 0 W IDA 2,000 1,000 07 08 09 10 11 12 13 FY 77 Annex 6: ImplementationArrangements Background Overall responsibility for the implementation of the Project will lie with the National Directorate for the Promotion of Rural Development (DNPDR) o f the Ministry o f Planning and Development (MPD). Below are the detailed implementation arrangements at the district, province and national levels District Level Implementation The focus o f all Project activities will be at the district (see Diagram 1). Extensive collaboration will take place within the structures and processes established as part o f the GOM's decentralization laws and through the DPFP (see box) to ensure complementarity and avoid duplication of institution building activities and ensure adherence to established decentralization channels. Inparticular, the Project will expand the role of the District Technical Team (DTT) to mainstream agricultural and environmental aspects withinthe planning process. A key position of District Facilitator (DF) will be created to ensure that activities funded or promoted under the Project are fully integrated in district planning processes and coordinated by appropriate district structures and institutions. Decentralized Planning and FinanceProject (DPFP) District levelstructures and staffing - Under the current DPFP Project, decentralization is being supported through strengthened district government capacity and the creation of participatory planning processes in each district. Key elements of this process include administrative post and district consultative councils (now mandated under the regulations of 2005), supported by a District Technical Team (DTT),with responsibility for supporting district planning processes. The DTT i s chaired by the District Administrator or his nominee, and includes representatives from all district level technical agencies. The planning process results in a number of documents, including a strategic development plan, a three year rolling plan, and an annual investment plan which provide the basis for public sector expenditure within the district. The DPFP also provides for Local Investment Grants to finance infrastructure and small-scale investments though a series o f grant windows and created two new support positions at district level; a works/procurement officer, and an accountant. Although DPFP financed during the Project, these posts will eventually be absorbed into the district staffing. The DF will report to the District Administrator and the Project Director and work in close collaboration with the DTT and relevant district technical departments (Agri~ulture~~, Public Works and Housing) to prepare annual district Project work plans and reports, manage internal monitoring o f Project activities, formulate annual Project budgets and oversee the preparation of 23 Government plans to add responsibilities for Industryand Commerce to the District Agriculture Directorate, this creating a Directorate for agriculture, Industry and Commerce. However, the two Ministries will continue to maintain their separate identities at higher levels. 78 local contracts and related disbursement^^^. He/she will be supported in these tasks by two full- time positions created in the district administration and funded for the first three years of implementation by the Project. One will be a District Accountant, the other a District ProcurementOfficer.They will work inclose collaboration with the procurement/works officer and accountant recruitedto support the DPFP". Diagram1 DISTRICT LEVEL STRUCTURE +.e Exuansionof Identification o finvestment priorities ~ . . 1. Group promohon and I-... , support, incl. helping groups ..L prepareand implement CAEIF DistrictParticipatory Planning proposals supportedgroups. f 4. Agriculturally-related 3. Rural Financial Services Verification of SA1 Prioritisation and scheduling activities ai ' infrastructuredesignand ! v supervision . 5. Envirdnment andNatural - r n 1 / 1 resourcesManagement tnput supply development ! . . ..--- Agricultural andenvironmentalfocus indistrict planningprocess.Technical quality ofdistrict >I '+'.'. activities. 4 t ' DistrictProjectFacilitatoi I Review andtechnical , r evaluahonof all Internal monitoring andcoordination. `. f ,J Preparingannualreportsand ..,-A -'"-- SALNRM proposals I . cL E m 1to Dismct , \, ! ! I 7 . + Shaded boxes indicate project FieldManagementAdvisor On-calltechnicalexperts createdifinanced positions Solid arrows indicate oversight, Technical support to district level actors, including planning, training, studies and supervision of contracted service providers broken lines, support _.--.. Support will be provided to the primary beneficiariesthrough a number o f service providers over the six year implementation period. Their performance will be monitored by the DF and supervised by specialist advisors linked to the FieldManagementAdvisor, a regionally-based position. These advisors will be responsible for defining training requirements, methodological tools, reference materials and other support to bothpublic sector and service provider staff at the district level. The operation of the Community Agricultural and Environmental Investment Fund technical support - including some contracting - would occur at provincial level. Agriculturally- (CAEIF)26will be largely a district responsibility, although approval of larger sub-projects and related infrastructure proposals would be fully integrated into the district participatory planning process, and their inclusion inapproved annual investment plans will be supported by the creation of a series of DDA-led Marketing Fora at administrative post level which would identify 24 Detailedterms ofreference are providedinthe Implementationworkingpaper andOperationalmanual. 25 Considerationwas givento relyingonthe existing DPFPsupport staff, but current workloads were consideredto renderthis inadvisable. 26 See Working Paper 5: CommunityAgriculturaland EnvironmentalInvestmentFund(CAEIF) 79 infiastructure bottlenecks to agricultural development and submit investment concepts to the planning process for preparation and approval. For those proposals under the small-scale agricultural investment and natural resources management windows, which would support private investments, a District Proposal Evaluation Committee, comprising relevant technical personnel will be created and trained, while procurement would be carriedout by the District Procurement officer under DF supervision Provincial Level Implementation The importance o f the Provincial level government and associated agencies for Project implementation arises principally from two factors. Firstly, provincial technical agencies represent all national ministries, including a number (e.g. Public Works and Housing, Women and Social Action, Environment) which currently have no staff at district level. These provincial directorates are reasonably well staffed with trained and experienced technical personnel. Ifgood working relations are established with the directors o f the agencies, and some support for travel and other expenses are provided, these staff can play important roles in implementation. Secondly, district governments still lack banking facilities and, often, technical skills, to manage budgetary resources. Financial resources will therefore pass from central level to provincial level where both provincial and district level budgets must be amalgamated and supervised. All government salaries and budgeted recurrent expenses are paid from provincial level. Adequate management o f financial resources at provincial level in the case o f this Project i s facilitatedby the continuedunion o f the planning and finance directorate (now separate ministries at national level) and by the existence o f a ProvincialInter-Ministerial Steering Committee already established for supervision o f the DPFP Project. Implementation arrangements for this Project will utilize similar arrangements, including the services o f the steering committee. The Provincial Representative o f DNPDR would act as Provincial Project Coordinator (PPC). He/she will be responsible for; (a) preparing provincial level plans and reports based on district documentation and provincial activities; (b) ensuring the timely flow o f funds from national to provincial level; (c) disbursement o f provincial resources to district level accounts and payment of contracts. He/she will be supported in these tasks by two full-time support personnel located within the DNPDR; a Provincial Accountant and a Provincial Procurement officer. These two positions could be initially funded by the Project at standard government rates, but would eventually be absorbed into DNPDRpersonnel, ifnecessary. A key implementation role based in one o f the provincial capitals will be that o f the Field Management Advisor (FMA), supported by an associated pool of short and medium term contracted specialists. Quelimane, capital o f Zambezia Province, is recommended as an appropriate base for the FMA. The FMA, who will be recruited on a full-time basis over the six year implementationperiod, will work under the general supervision o f the Project Director, and in close collaboration with Provincial Coordinators and especially the five District Facilitators. He/she will be supported by a number o f technical advisors with responsibilities for coordination, supervision and support to district level service providers. These positions would be primarily part-time, although several would be full time during the first 2-3 years o f implementation. They include: 0 Group Promotion specialist- 42 months over 6 years 0 District Capacity Development specialist - 21months over 6 years 0 Agribusiness and Production specialist -42 months over 6 years 80 0 Environmental specialist -42 months over 6 years (GEF financed) 0 Community Agricultural and EnvironmentalFundspecialist - 27 months over 6 years 0 Infrastructure specialist - 11months over 6 years 0 Communications specialist -72 months over 6 years (GEF financed) The role o f the FMA and associatedexperts i s basedupon lessons learnt from other Projects - in particular DPFP and PAMA - as to the importance of technical support to district level actors. They will ensure that implementation quality and performance is maintained by providing relevant technical agencies and contracted service providers with training, methodological support, reference materials and guidance. The FMA would also provide oversight o f multi- district contracts (either provincial or Project-wide) for district level service providersz7. Contracting o f these service providers would, however, be undertaken by the Project Director and his staff, based upon the reports provided by the Technical Coordinator, and the approval of the steering committee. Inaddition, aregional-levelRegionalProcurementAdvisor will alsoberecruitedandfinanced by the Project for the first three years of implementation. Working under the supervision of the National Procurement Specialist, the regional officer would supervise and support the provincial and district levelprocurement officers. National Giventhe centralrole of the district inProject implementation, implementation tasks and roles at the national level will be largely concerned with overall Project strategy as well as management and oversight o ftechnical, financial and procurement activities. At the national level an existing Inter-Ministerial Steering Committee, created for the DPFP and which includes senior officials from MPD, Finance, Agriculture, Public Works and Housing, and Social Action, Industry and Commerce, and Environment - the last as focal point for the and State Administration, will be expanded to include representatives o f the ministries of Women GEF, United Nations Framework Convention on Climate Change (UNFCCC) United Nations Convention to Combat Desertification (UNCCD). The key role o f the steering committee is to ensure that overall strategic direction of the Project i s appropriate; approve work plans, budgets, reports and contracts that will be approved at the national level i.e. technical assistance contracts for NGOs and service providers. The NationalDirector of DNPDRwill be appointed Project Director and will act as Secretaryto the steering committee on matters related to the Project. He and his staff will be responsible for providing the steering committee with all required documentation. The Director will be supported by a full-timeAssistant,providedbyDNPDR. In order to comply with World Bank and national financial reporting and procurement requirementsas well as to train national staff and supervise district andprovincial level activities, two full time staff, comprising a Financial Management Specialist and a National Procurement Management Specialist, will be recruited and funded by the Project, to support this work for a period of from 2-3 years. The FMS will be supported by a nationally funded Accountant. *'Detailed ~~ terms o f reference for the FMA are provided in the Implementation working paper and Operational manual, Other key advisors for Components 1and 2 and for infrastructure are provided in the appropriate working papers. 81 Annex 7: FinancialManagement andDisbursementArrangements This section summarizes the financial management arrangements for the proposed Project. The Project will be implemented at three levels; national, provincial, and district (see Annex 6). At national level, implementation tasks will largely be concerned with financial management and central oversight of the whole Project. Overall coordination, planning, and financial management will be the responsibility of the National Directorate for the Promotion o f Rural Development (DNPDR) of the Ministry of Planning and Development (MPD). The Project has also been designed to closely complement the activities o f the ongoing World Bank- financed Decentralized Planning and Finance Project (DFFP), which is also being implemented through the MPD. At provincial level, the main tasks will include provision of technical capacity especially to manage budgetary resources, as well as banking facilities not present indistricts. Management o f resources will be facilitated through established structures of the planning and finance directorate, and through the existence of Provincial Steering Committees established under the DPFP. The focus of implementation will be at district level, using existing local structures including those created under the DPFP. One o f the objectives o f the DPFP i s the provision o f training courses and operational support for financial administration personnel at district level. The Project's Operational Manual will define in detail the minimumrequirements that a beneficiary community should fulfill in the area of financial management. The use guidelines, including simple hand-written records of receipts and payments would be encouraged. The Project intends to use existing budgetary structures and processes established as part o f the government o f Mozambique's decentralization framework. The proposed financial management arrangements will similarly make extensive use o f the existing government structures at all levels o f Project implementation to manage Project resources. The Project will therefore make effective and extensive use of the improvements inpublic financial management brought by the SISTAFE system for the management of state finances. FinancialManagementinthe GovernmentofMozambique A Public FinancialManagement Assessment conducted in September 2004 (as follow-on to the 2001 CFAA) concluded that the overall public sector financial management risk remained high. Management o f the economy was quite satisfactory, but comprehensiveness and transparency o f the budget was poor, the medium-termplanning andbudgeting was weak, while budget execution and accounting andreporting presented quite serious weaknesses. At the same time, a number of reforms were moving ahead in a very structured and comprehensive manner. This includeda newFinancial Management law, the key reform of which was the introduction and implementation o f a computerized integrated financial management information system, e-SISTAFE. The government has completed a number of key preparatory reforms including: (i) issued regulations for the Financial Management law; (ii) initiated the introduction o f a new and more-detailed functional classifier into the budget; (iii)started to formulate the budget in current prices; (iv) introduced restrictions on bank accounts held by public institutions; (v) started to incorporate off-budget revenues as well as donor-funded expenditures into the budget; (vi) initiated training for budget staff in double-entry accounting; and (vii) established a consolidated electronic treasury account to improve control o f treasury operations and cashmanagement. 82 The e-SISTAFE was rolled out in the Ministry o f Finance in November 2004 allowing for financial execution o f the government budget. This was significant as it will make budget executionmore efficient and transparent inthe short to medium term. The Bank i s part o f a group o f donors which has financed selected components, and i s also part o f a Quality Assurance Group established to provide an independent view o f the management, progress and achievements o f the SISTAFE Project. A report o f this grouping issued in November 2005, the fifth in a series of these reports, noted the roll out o f e-SISTAFE to the Ministries of Finance, the Ministry of Planning and Development (the implementing ministryo f the proposed Project), and the Ministry o f Education and Culture. It also noted the satisfactory production o f budget execution reports for the periodJanuary to August 2005. A draft report made available to the mission in February 2006 on the Assessment o f Financial Management for 2004/05 using the PEFA methodology concluded that there has been improvements in a number o f important areas which were beginning to have an impact. The budget was a credible document with final out-turns reasonably close to initial approvals; there was also a steady improvement in revenue collection and administration. Fundamental weaknesses remained inthe quality o fthe public financial management systems (PFM) especially ininternalcontrol systems, limitedcoverage ofthe external audit, andthe high-level o foffbudget spending mainly from external Project finance. The report noted that the quality o f the PFMwas expected to continue improving as a natural consequence o f ongoing reforms such as e-SISTAFE; however, this would take time. RiskAssessment One of the major risks o f using the established government structures i s that o f delays in the release o f Project funds from the Single Treasury Account to the Provincial Treasury Account and ultimately to the intended beneficiaries. Experience to date has shown that there has been an improvement in the flow o f funds from treasury since the introduction of the electronic treasury account brought about by the roll-out o f e-SISTAFE. Requests for payments, including those for transfer o f funds, are usually completed within days as long as they meet the electronically built- in authorization criteria which include approved budgets and availability o f funds under those budget codes. A number o f donor-financed Project are already channeling resources through the single treasury account. This includes a Bank-financedProject PROAGRI, a sector-wide program to which a number o f other donors including the government subscribe to a common fund. There i s therefore experience already gained in the use o f the government systems which will be brought to bear on the proposedProject. The risk rating for the Project in the area o f financial management i s medium, reflecting the general weak implementation capacity at the district level at which most o f the activities will be taking place. Capacity and experience at central level i s beingput inplace and being strengthened to address identified weaknesses and provide the necessary expertise during Project implementation. Mitigating factors to address identified risks are detailed below and include the use o f already existing structures established at all levels o f government. 83 OVERALLINHERENT RISK X High Auditing X High Project-specific audit requirement using private external auditors OVERALL CONTROL RISK x x Medium/ Overall rating modest to substantial High Iand will reduce further before effectiveness. H-High S - Substantial M-Modest L-Low Country-Specific Pre-2002 assessments have alludedto the weaknesses inthe public financial management (PFM). However, a number o f reforms instituted by the government have started to yield gains in the quality o f PFM. This i s confirmed by recent independent reviews which have confirmed the continuing improvements in important areas of PFM, as well as the expected continued improving as a natural consequenceof ongoing reforms such as e-SISTAFE. Entity-Specific The Project will be implementedat different levels of government with the main activities being carried out in two phases, with two districts in phase one and three in phase two. The DPFP Project covers the four provinces o f the Zambezi Region and the districts will therefore also receive support from the structures beingestablished under the DPFP Project. The phasing of the Project, coupled with the use of existing structures should address the weak financial management and accounting environment at these levels. Inaddition, key staff inaccounting and procurement will be recruited to provide additional capacity to the Project. Project SpeciJic The Project will be implementedby anumber of agencies of varying degrees ofcapabilities. The Project also involves numerous small transactions. There i s therefore need for an effective coordinationby the DNPDRof these agencies especially on the use and accounting for the use of 84 funds. A number of lessonshave been learnt from the implementation ofthe DPFP Project which will be brought to bear on the new Project. This includes improving the monitoring and evaluation function, of which financial information will be a key input. The DNPDR will support additional supervision and guidance activities, at both central, provincial and district level, including clear guidelines and definition of roles of the DNPDR, its staff and relationships to other agencies and units. Staffing A t national level, the DNPDR has initiated the creation of a Financial and Administration Unit, and an accountant has beensecondedto that Unit; an economist will soon be recruited. It was also agreed that the Project will finance the recruitment, through a two years TA contract, o f a Senior Financial Management Specialist to be responsible for: (i) training of the DNPDR Financial and Administration staff and (ii) the establishment o f the Project's financial management system. The consultant i s expectedto be onboardby June 1,2006. For each participatingprovince and district, an accountant will be appointed for the Project, under government compensation conditions. The appointment of an accountant at both provincial and district level will be a condition of disbursement. Planning and Budgeting A Project budget has been drawn up and is included in the PAD and inthe Operations Manual (full set of Costab tables). The Projectannual budgetswill be drawn fromthe Operations Manual and disbursement schedule. The annual budget will be prepared based on the policy guidelines and regulations issuedby the Ministryo f Finance. Accounting Systems and Procedures The accounting systems, policies and procedures employed by DNPDR in accounting and managing the Credit funds will be documented in a Project financial procedures manual. The manual will describe the accounting system, internal control procedures, basis o f accounting, standards to be followed, and policies and procedures that guide activities o f the current Project and ensure staff accountability. In addition, the manual should document the arrangements that have been made for recording Project impacts, outcomes, outputs, and inputs that are requiredto assess progress toward the achievement of Project objectives. It also should document the procedures undertaken for the replenishment o f the Special Accounts. The government of Mozambique is undertaking a public sector management reform, SISTAFE, which among other things, i s aimed at improving public financial management. This would integrate budgeting, treasury management and accounting, through a computerized management information system, and also introduce a new internal control regime to support improved public financial management. The program accounting policies and procedures to be outlined in the financial procedures manual should take into account o f this government initiative and its likely impact on the Project depending on the role out of the SISTAFEcomputer system. Reporting and Monitoring The financial transactions relating to this operation would be recorded and monitored using a separate management and accounting system. The Finance Management Specialist would determine: the Project's Chart o f Accounts as well as the format and content o f quarterly reports 85 and annual financial statements. These reports have already been discussed and agreed with DNPDR and include financial statements (e.g. sources and application o f funds; expenditure classified by Project components, disbursement categories, expenditure types, and comparison with budgets). The reports would closely follow sample formats that are given in the World Bank's "Financial Monitoring Reports for World Bank-Financed Projects: Guidelines for Borrowers ". The starting point for information gathering for reporting and monitoring would be at the community level. Simple formats would be created linking financial information with physical progress and to be submitted as part o f the tranched disbursement arrangements. These would be submitted to the District Administration as detailed below in the Funds Flow and Reporting Chart. The reporting arrangements would eventually serve a dual purpose; firstly to be used for reporting requirements to the government for the use o f funds as well as subsequent release o f additional funding. The documents would also serve as a basis for the preparation o f Financial Monitoring Reports (FMRs) by DNPDR to be used for subsequent replenishment o f the two special accounts associated with the Project. Details o f the reporting requirements, including the formats, content, as well as frequency, would be spelled out inthe Operational Manual. Auditing Arrangements Internal Auditing There i s no internal audit function envisaged for the program. However, internal auditing across the entire government (including Projects) i s the responsibility o f the Inspectorate General o f Finance (Inspecqo Geral das Finanqas-IGF). The IGF i s understaffed and has limited capacity to oversee program implementation. There will therefore be need for thorough supervision, as well as quality assurance o f the program. External Auditing The Annual financial statements o f the Project will be audited by independent auditors, acceptable to the Bank, inaccordance with acceptable auditing standards. The external audit will be conducted usingterms o f reference acceptable to the bank. Auditors will be requiredto issue a single opinion on the program's financial statements, as per the guidelines "Annual Financial Reporting and Auditing for World Bank-financed activities", o f June 30, 2003. In addition, auditors will be required to issue a management letter, highlightingany identified internal control weaknesses, which will contribute to the strengthening o f the control environment. The auditor's report will be submitted to the Bank no later than six months after the end o f each fiscal year. The proceeds of the IDA credit may be used to finance audit costs. Impact of ProcurementArrangements The Project would involve numerous payments at district level. The proposed fund flows recognize the requirements for resources to be available at this level where most o f the Project activities will be taking place. 86 FinancialManagementActionPlan Action Responsibility Completiondate 1 Recruitment o f a FinancialManagement Specialist. DNPDR June 1,2006 2 Establish a financial management and accounting DNPDR Effectiveness system, including a Chart o f Accounts, for the Project. 3 Prepare a Financial Procedures Manual documenting all DNPDR Effectiveness the required financial management arrangements at the various levels o f implementation. In the case o f the Community level, this should be simplified. 4 Recruitment o f an accountant at provincial and district DNPDR Disbursement 87 Funds Flow and Reporting Chart GEF lI 4 !I'-..;* Special Account (US$) w-............................ .............................. e. 0. -0. GovernmentTreasury Account Bankaccount (MZM) t I ProvincialTreasury Account (MZM) v 4 \ \ \ \ \ \ \ \ \ \ \ District (3 Administration Communities ____, -................ -- Flowof funds Governmentreports Projects reports 28 Funds will be advanced from the Special Accounts to the Treasury Account every quarter in amounts not to exceed the forecasted local currency expenditures for the forthcoming quarter. The initial advance will be based on the OperationsManual. Subsequentadvanceswill be based onquarterlyreports approvedby DNPDPR. Paymentsin foreign currency will be made by the MOF (as requestedby DNPDR) usingthe USDfunds inthe Special Accounts. 88 DisbursementArrangements The table below shows the allocation o f the proceeds o f the IDA credit and GEF grant. The proceeds o f the credivgrant will be disbursed over six years from FY2006 through FY2013. The annual estimated disbursements are indicated ina table on the first page o f this document. Category Amount of Credit Percentagesof Allocated Expendituresto be Financed IDA SDR million 1) Goods, consultants' services andtraining for 5.30 100% Component 1, except for Component 1(d) (2) Works, goods, consultants' services and 2.70 100% operating costs for Component 2, except for Component 2 (d) (3) For Component 3: 100% (a) Subproject Grants for FirstPhase Districts 1.90 and Provinces (b) Subproject Grants for SecondPhase 1.50 Districts and Provinces; and (c) Consultants' services, except for .70 Component 3 (c) (4) Goods, consultant services including audits, 1.40 100% training and operating costs for Component 4, except for Component 4 (e), (f) and (g) (5) Refund o f Project Preparation Advance S O Bank Accounts The following bank accounts will be maintainedfor the purposes o f implementing the Project: 0 Special Account A: Denominated in U S dollars, disbursements from the IDA credit will be deposited inthis account to finance activities under the relevant components; In addition to these, the DNPDR shall establish a separate bank account each at central, provincial and district account level for the Project in which will be deposited funds from the government o f Mozambique Single Treasury Account to be used exclusively for Project activities. Disbursement o f IDA and GEF Funds Disbursement o f the IDA and GEF Project fund will be done based on Financial Monitoring Reports (FMRs) that integrate Project accounting, procurement, contract management, disbursement and audit with physicalprogress o f Project implementation. The FMRs will include information under three main categories: a Project financial statement which includes a summary o f sources and uses o f funds, an updated six-month forecast, Special 89 Account activity and reconciliation statements; a statement o f eligible expenditures by disbursement category; a Project progress report explaining variances between actual physical and financial progress versus forecasts; and a procurement management report showing procurement status and contract commitments. An advance will be made to each Special Account at the inception o f the Project. The advance will be meant to cover Project expenditures for 6 months as indicatedinthe initial six-month cash flow forecast. After every subsequent quarter, the Project will submit FMRs which include a cash flow forecast for the following 6 month period. The cash request at the reporting date will be the amount required for the forecast period as shown in the approved FMRs less the balance in the Special Account at the end o f the quarter. Subsequent disbursements o f the IDA Credit will be made inrespect o f this request. Disbursement of Funds to and from the Single Treasury Account Activities to be financed by the Credit will be indicated in the annual plans drawn up in accordance with existing financial and accounting regulations. The consolidated work plans will include those of each district, province and those at the center. These will be submitted to the MinistryofFinance approval. Basedon these approved work plans, the MOFwill advance to the Government Treasury Account an amount equal to the forecasted local currency expenditures for a three month period. All other funds advanced by IDA to the Special Accounts, including those required for foreign currency expenditures, will remain in the MOF Special Accounts. Once these work plans (and other relevant documentation e.g. accountability for grants previously disbursed) are reviewed and approved by the DNPDR, a request will be sent to the Treasury Department for funds to be released. The Treasury Department will then arrange a transfer o f funds on the Treasury infavor of the DNPDRat the center, or to the relevantProvincial Treasury Account. Each provincial DPPF will then request for a transfer to a Project bank accounts for activities at the province and district respectively. The provinces and districts will receive an initial advance after meeting the disbursement conditions, and subsequent replenishments upon presentation o f adequate documentation o f expenditures incurred. Due to decentralized nature o f fund flows, an adequate financial management system is required to ensure the reports on expenditures to be incurred at provincial and district levels are prepared and submitted to the DNPDRintimely manner. Disbursement o f Funds to the Communities Flow o f funds to the districts and communities pose the greatest risk under the Project due to the large number o f small-value transactions, scattered locations as well as the country's banlung network. The general rule i s that funds should be channeled to the level where activities are actually carried out. Funds would therefore be transferred to the bank accounts o f the entity in charge o f implementation (district government or community). The flow o f funds from Government Treasury Account through the Provincial treasury Account to the district would be against schedules o f approved expenditures at that level, including those for community sub- Projects. In addition, funding would be tranched with subsequent payments based on progress reports (physical and financial). As part o f the Operational Manual alluded to above, the DNPDR would detail the obligations o f the districts covering issues such as funds flow, supervision, reporting. The guiding principle between communities and the districts would be the financing agreement which will serve as the basis for disbursement o f funds. This would document a comprehensive 90 list o f activities, timing, estimated costs, and a listing o f responsibilities. Disbursement would also be tranched after accounting for previousreleases. Foreign Exchange Payments Payments in foreign currency will be made by the MOF (as requested by the DNPDR) using the U S D funds in either o f the two Special Accounts. Activities at community, district and provincial level to be financed usingforeign currency will be included inthe annual plans referred to above, and submitted to the DNDPDR for consolidation. The option o f disbursing the funds through direct payments from the IDA Credit will only be made for expenditures above the threshold specified in the Disbursement Letter. Withdrawal applications for such payments will be accompanied by relevant supporting documents such as copies o f the contract, contractors' invoices and appropriate certifications. Costs and Disbursement profile i s inAnnex 5. Conclusion The overall conclusion o f the financial management assessment i s that in order to establish an acceptable control environment and mitigate the financial management risk, measures outlined in the FinancialManagement Action Plan will be taken before effectiveness. Supervision Financial management supervision will be carried out regularly by the Bank Financial Management Specialist (FMS) at least twice a year. The initial supervision will be a review o f the implementation progress o f agreed action plans noted above. The FMS will also: 0 Conduct a financial management supervision before effectiveneddisbursement; 0 Review the financial component o f the quarterly FMRs as soon as they are submitted to the World Bank; and, Review the annual audit reports and management letters from the external auditors and follow-up on material accountability issues by engaging with the TTL, Client, and/or auditors. 91 Annex 8: ProcurementArrangements A. General Procurement for the proposed Project would be carried out in accordance with the World Bank's "Guidelines: Procurement under IBRD Loans and IDA Credits" dated May 2004; and "Guidelines: Selection and Employment of Consultants by World Bank Borrowers" dated May 2004, and the provisions stipulated in the Legal Agreement. The various items under different expenditure categories are described in general below. For each contract to be financed by the Credit, the different procurement methods or consultant selection methods, the need for pre- qualification, estimated costs, prior review requirements, and time frame are agreed between the Borrower and the Bank inthe Procurement Plan. The Procurement Plan will be updated at least annually or as requiredto reflect the actual Project implementation needs and improvements in institutional capacity. Procurement of Works: Works procured under this Project would include: agriculture-related infrastructure, rural access roads, markets, buildings, small scale irrigation systems and storage systems. The procurement will be done usingthe Bank's Standard BiddingDocuments (SBD) for all ICB. National Competitive Bidding (NCB) documents in Portuguese language, translated documents from the ICB version will be used as agreed upon by the World Bank. For contracts estimated to cost less than US$500,000 equivalent per contract NCB procedures will apply. The works may also include minor rehabilitation of infrastructures. The value o f the individual contracts i s not expected to be higher than US$50,000 equivalent and may be procured under lump sum, fixed price contracts awarded on the basis of quotations received from at least three qualified contractors. Works to be procured under the Community Agricultural and Environmental Investment Fund (CAEIF) will be carried out in accordance to the procedures laid out in the Project Operations Manual. Procurement of Goods: Goods procured under this Project would include: office furniture/equipment, information technology equipment, vehicles and motorcycles and bicycles. The procurement will be done using the Bank's SBD for all ICB. National Competitive Bidding (NCB) documents in Portuguese language, translated documents from the ICB version will be usedas agreeduponbythe World Bank. Contracts estimated to cost less than US$200,000 equivalent per contract will be procured through NCB procedures, while contracts costing US$50,000 equivalent per contract and below will be procured through shopping method. Goods to be procured under the Community Agricultural and Environmental Investment Fund (CAEIF) will be carried out in accordance to the procedures laid out inthe Project Operations Manual. Procurementof non-consultingservices:Non-consultingservices procuredunder the Project is marginal and are essentially for communication or dissemination activities through designated media, such as radio or television broadcasting. They may be done by direct contracting. 92 Selection of Consultants : Consultant Services financed under the Project will include among others the community based organization capacity development, rural financial services, district capacity development, production and post-harvest extension, agribusiness and market development, sustainable managed agricultural and forestry systems, monitoring and evaluation systems and communication and training. NGOs may, probably in partnership with smaller local organizations at field level, will be employed to provide facilitation and community capacity development services across the Project Area. All consulting service contracts costing more than US$lOO,OOO equivalent for firms will be awarded through Quality and Cost Based Selection (QCBS) method. Contracts for highly specialized assignments estimated to cost less than US$lOO,OOO equivalent may be contracted through Consultants' Qualification (CQ). Least-Cost Selection (LCS) will be usedfor selecting consultants for assignments o f a standardor routine nature (audit services) where well-established practices and standards exist estimated to cost less than US$100,000.00. Single Source Selection (SSS) may be employed with prior approval of the Bank and will be in accordance with paragraphs 3.9 to 3.12 of the Consultant Guidelines. All services o f individual consultants (IC) will be procured under individual contracts in accordance with the provisions of paragraphs 5.1 to 5.4 of the Guidelines. Short lists of consultants for services estimated to cost less than US$lOO,OOO equivalent per contract may be composed entirely of national consultants in accordance with the provisions o f paragraph 2.7 of the Consultant Guidelines. Consultant's services that may be identified under the Community Agricultural and EnvironmentalInvestment Fund(CAEIF) will also be carried out inaccordance to the procedures laid out inthe Project Operations Manual. TrainingWorkshops:This category would cover all costsrelatedto the carrying out training and workshops, i.e. hiringof venues and related expenses, stationery, resource required to deliver the workshops and per diem and travel costs o f participants. Training programs would be part o f the Project's Annual Work Plan and Budget and will be included in the procurement plan. Prior reviewo f all activities will be required, only on annual basis, including proposed budget, agenda, participants, location of training and other relevant details Operating Costs: Operating costs for Project implementation unit shall consist of office supplies, operation and maintenance costs for vehicles and equipment, travel expenses and subsistence expenditures among others. The procurement procedures and Standard Bidding Documents to be used for each procurement method, as well as model contracts for works and goods procured, are presented in the Project Operations Manual. 93 B. Assessmentofthe capacityto implementprocurement The overall responsibility of carrying out Procurement activities will rest at the National Directorate for the Promotion of Rural Development (DNPDR) of the Ministry o f Planning and Development (MPD). As per the Project design there will be no traditional Project Implementation Unit. The National Director o f DNPDR will be the Project Director and will be supported by three full time staff, including an Accountant, a Procurement Officer and a Financial Manager. Procurement activities will be managed by the procurement officer yet, who will be recruited and integrated as a civil servant. Because of the anticipated low capacity of this permanent staff, an experienced consultant will be recruited for an initialperiod of up to 2-3 years, with qualifications and experience acceptable to IDA, and will be responsible for the overall procurement activities including the coaching and training o f the staff at the central, regional (provincial) and district levels. At the Regional level, covering the three beneficiary provinces, there will be two procurement officers, one identified and integrated in the future Provincial Directorate for the Promotion of Rural Development and a short-term experienced procurement consultant that will, in addition to managing all the procurement activities under the Project at the regional level, train the counterpart at the regional level as well as train, coach and oversee the activities at the district level. At the district level, each of the districts will identify a medium level technician to handle the procurement activities. The technician will be integrated with the District Administration as civil servants. The District Facilitator will oversee the activities of the technician. However, coaching and guidance and overall supervision responsibility of the district procurement personnel, in activities related to the Project, will rest on the Central level Procurement Consultant during the duration o f hiscontract and thereafter at the central levelprocurement officer. The establishment and recruitment of a procurement officer and the hiring of the experienced procurement consultant will be a condition for Project effectiveness. According to the implementation plan the activities at the regional level are not expected to start before February 2007 and therefore the regional procurement consultant will be required at a later stage. The fiduciary staff inthe DPFP Project i s expected to provide some support, as they are in the same ministry. The overall Project risk for procurement is High. After one year of Project implementation an assessment of the agency will bemade to re-assess the Project risk. C. ProcurementPlan The Borrower, at appraisal, developed a procurement plan covering the initial 24 months of the Project implementationwhich provides the basis for the procurementmethods. This planhas been agreedbetween the Borrower and the Project Team on April 6,2006 and is available at DNPDR. It will also be available in the Project's database and in the Bank's external website. The Procurement Plan will be updated in agreement with the Project Team annually or as requiredto reflect the actual Project implementationneeds and improvementsininstitutional capacity. 94 D. Frequency of ProcurementSupervision In addition to the prior review supervision to be carried out from Bank offices, and given the capacity assessment o f the Implementing Agency it i s to have recommended semi-annual supervisionmissions to visit the field to carry out post review of procurement actions. Table B: Thresholds for Procurement Methods and Prior Review Expenditure Contract Value Contracts Subject to Prior Category Threshold Procurement Method Review (US$) (US$) 1. Works >500,000 ICB All <500,000 NCB First two contracts+ all above $150,000 <50,000 Shopping None 2. Goods >200,000 ICB All 50,000-200,000 NCB First two contracts+ all above $150,000 Shopping None <50,000 Direct Contracting All 2. Services Firms >100,000 QCBS Above US$lOO,OOO <100,000 QCBS and CQ Firsttwo contracts Individual Cons. <100,000 LCS Firsttwo contracts >50,000 IC All <50,000 IC None sss All 29 Including all equipment required to implement the consulting services, when relevant. 30 Including non-consulting services. 95 Annex 9: Economic and FinancialAnalysis Benefits and Beneficiaries Beneficiaries Smallholderfarmers. It i s expected that the Project will directly benefit some 20,000 smallholder households, i.e. about 100,000 persons31,through group promotion, agricultural extension and local rural finance services. Participating smallholder farmers will also benefit from secure input supply and markets for their produce through Project supported investments in value chain development. In addition, it i s expected that the saving and credit groups and their unions, originally supported under the Project, will not only benefit the agricultural sector but support a broad economical growth and will continue to extend their activities and membership after the Project completion. Finally, several interventionswill benefit a large part of the population inthe target districts, well above the 20,000 direct beneficiaries. This would be the case, inparticular, o f investments in rural road rehabilitation, awareness raising and information campaigns via rural radios. It i s expected that half of the agricultural households in the target districts - 65,000 households3*- would at least indirectly benefit from the Project interventions. i.e. about Local traders and transporters. Local traders already involved in agricultural produce or input marketing, or those who are potentially interested, would receive a direct support from the Project. This would be achieved through targeted training on bothbusiness and technical aspects, as well as matching grants for technical assistance and investment. It i s estimated that about 200 traders would be supported under the Project. Transporters of agricultural produce will benefit from an improved road network which will result in an increased outreach. Both traders and transporters would be involved inthe market forums and would participate inthe identification of key bottleneck for agricultural development. Partner agribusinesses. A large proportion o f the target smallholders are already participating in contract farming arrangements through buying agreements (for sesame) or out grower schemes (cotton, tobacco and paprika). Certain Project activities - such as the promotion of balanced crop rotations - will be implemented in partnership with interested agribusinesses. Partner agribusinesses will benefit from (i) increased and more secure raw material availability, (ii)improved produce quality, and (iii) reduced transport costs through improved feeder road network inhighagricultural potential areas. Benefits The mainbenefits expected under the Project are increases inincome for the households that will adopt the new technologies and production methods promoted through the increased outreach of extension services. Household incomes will also benefit from improvements inthe supply chain. The Project would generate direct benefits to smallholders through increased production of commercial crops, including high-value crops, reduced losses and increased farm-gate prices. In addition, intensification of smallholder production systems would have a positive impact on food 3' Assuming an average o f 5 persons per household. 32 I t is expected that the Project would benefit 5 districts, out of which 2 have been identified (Mormmbala in Zambezia province, and Mutarara in Tete). The economic and financial analyses are based on the assumption that Mopeia, Merigue and 96 security. Finally, diversification of farm production systems would reduce the reliance on maize and other staple crops for farm incomes and vulnerability against external shocks. This, combined with improved access to markets, would help smallholder farmers make better production decisions that wouldreduce farmers' incomevariability. The Project is expected to contribute to increased foreign exchange earnings by increasing the volume and value of cash crops marketed through the agro-businesses and traders to regional and global markets. Increased agricultural production volumes as well as agribusinesses and commercial activities would have a positive impact on government's revenues. Finally, the Project would also create new employment in the local commercial and agro-processing sector, by supporting supply chains expansion and directly or indirectly facilitating new investments. Crop, livestock & agro-processing enterprises Crops, livestock productions and income generating activities supported under the Project will be identified though a market-led and demand driven approach. As a consequence, it i s not possible at this stage to identify and quantify precisely the activities which would be supported by the Project. However, the agro-ecological and economic conditions prevailing in the target districts are suitable to develop a number of profitable market-ledactivities. Maize. Maize i s produced by almost all smallholder farmers inthe target area. It is both the major staple crop and a significant source o f income. Recent analyses demonstrate that maize will continue to be a major commercial crop inthe future decade inMozambique due to rapid growth inthe urban share ofthe population, income and increasing demand inthe neighboring SADC countries. It is likely that Malawi, Zambia and Zimbabwe will face frequent maize shortfalls inthe foreseeable future which is expected to increase prices as a consequence.Malawi, inparticular, hasanincreasing food gap, as agricultural foodcrop productioncannot keep upwith the population growth34.Lesser domestic resource costs in Mozambique gives the country a comparative advantage in maize production. Mozambique provides, in particular, 75% o f the informal maize traded within SADC and supply Malawi with 95% of its informal maize import3'. With a more consistent production pattern, Mozambique has a good opportunity o f developing the regional maize export further36.Given its location, the Project area is well suited to target the Malawian market. Informal cross-border exchanges are already a common practice. According to the District Directorate o f Agriculture and Rural Development, the production o f maize in Morrumbala amounts to 32,000 tons, 50% o f which can be commercialized. Of the commercializedmaize, 70% i s destined for Malawi. It should be noted that maize is subject to wide fluctuations in price which reflects varying demand in the deficit producing districts of central Mozambique and southern Malawi. Duringyears of increased supplies the price may fall below 1,500 MZMkg in the harvest period (from an average 2,800 MZTkg). Support to maize storage and market information may help mitigate such fluctuations. It is expected that the Project will have a positive impact on maize production and marketing. Improvements in transport, through feeder roads rehabilitation, will have a positive impact on maize farm-gate prices due to maize low value par kg and subsequenthightransportation costs. 33 David Tschirley, Danilo Abdula, and Michael T. Weber; Improving Production and Marketing to Enhance Food Security in Mozambique; Research Results of the Policy Analysis Department, Ministry o f Agriculture, Directorate of Economics; 17 September 2005. 34 Malawi has one o f the highest population density inSub-Saharian Africa and 35 Impact of policies of Neighbouring countries on Agriculture growth; Republic of Mozambique, the World Bank; June 2005 36 Idem. 97 Cotton. Cotton i s the most important cash crop in the target area. It is estimated that approximately 10,000 smallholders in Mutarara and 13,500 smallholders in Mormmbala grow cotton, which represents respectively about 34% and 20% o f the agricultural households (i.e. 26% in average). The cotton value chain is organized through firms that operate contract farming schemes with smallholder farmers. Two cotton companies operate in the potential Project area, one in Tete and Zambezia Provinces (DUNAVANT-Mozambique) and the other in Northern Sofala Province (CNA).37 Each ginnery has a concession which is, at least theoretically, a legal monopoly for the purchase of seed cotton with a minimumpurchase price set by Government authorities (5000 MZM/kg for category 1and 3500 MZM/kg for category 2). A recent economic analysis highlighted the fact that ginning capacity i s well above actual needs and the average volume o f activity per ginnery very low, likely resulting in high overheads for the cotton companies and limitedeconomies of scale. Inaddition, risks o f side-selling tend to minimize the extension services and inputs supply to farmers. Yields obtained at present (around 0.5 to 0.6 MT/ha inaverage) are well below yields obtained inother Sub-Saharancountries such as Burkina Faso (average yields above 1MTha) but compare with the neighboring countries (Zambia). The analysis above mentioned demonstrated that cotton production i s competitive in Mozambique with a domestic resource cost (DRC) of 0.7638. In addition, there i s a significant scope for improvement in cotton yields and quality through improved cropping systems, including improved crop rotations, which would be promoted under the Project. Finally, the price Projections appear positive in the mediumterm: The Cotlook A index i s expected cotton price to average $1.2O/kg during 2005 - down from $1.37/kg during 2004 - and progressively recover with $1.24 during 2006, $1.29/kg and $1.33ikg in 2007 and 2008, as increased demand will remove some o f the price pressure from the cotton market3'. Paprika & sesame. Paprikaand sesameproduction have beenpromoted as smallholder crops by a number of NGOs in the last decade. Such high-value crops are subject to buying agreements andlor out grower schemes with private agribusinesses. Both crops are present in the target districts, with agribusinesses interested inpurchasing them (V&M and Export Marketing buying sesame, and Pimenta de Mozambique buyingpaprika). The importance of paprika and sesame as potential cash crops is also due to the fact that they have minimal competition with food crops in relation to the available household labor. Recent analyses show that sesame i s a highlyprofitable crop for smallholders with a relatively large scope for expansion. In addition, sesame can be relay-intercropped with maize, with very limited additional labor requirements. Paprika price Projections on the international market are encouraging for smallholder income growth. In spite of historic fluctuations between $1.60 and $2.40 per kg over the past decade, further downward price volatility risk i s assumedto be low since current prices lie already at the low end o f historic norms4'. The promotion o f paprika production, under the Project, would be considered with circumspection as past experiences in Northern Mozambique has been troubled by delayed purchaseby the promoting companies. 37 The economics of smallholder households in tobacco and cotton growing areas of the Zambezi Valley of Mozambique - draft for review - by Rui Benfica, Julieta Zandamela, Arlindo Miguel, Nattrcia de Sousa, Research report no.59e, Ministry o f Agriculture o f Mozambique, Directorate o f Economics, August 2005. 38 Economic analysis of comparative advantagefor major agriculture cash crops in Mozambique, Nicolas Gergely, May 2005. 39 Commodity market briej Cotton, Development Prospect Group, the World Bank, 31October 2005 40 Opportunities for Smallholder Income Growth in Zambia's Paprika Subsector, Peter Manda and Steven Haggblade, IDEZambia, October 2003. 98 Vegetable. Programs supporting vegetable production, through improved farming systems and irrigation methods, demonstrated the profitability o f such crops in locations with proper market linkages. Usage of treadle pumps, in particular, was shown to be profitable in a number of studies. The development of off-season vegetable production inupland areas appears particularly profitable when technical aspects are well managed, with margins around 550 per ha for the major crops inthe dry season and higher margins o f f ~eason.~' Rice. Rainfed rice production is practiced in the lowland area in Zambezia province (e.g. in Mopeia district). A recent economic analysis4' o f rainfed rice production in Zambezia combined with small-scale processing by dehuller shows that the current production system is not profitable. If family labor is fully costed, the growth margin o f this cropping system i s negative and the return per day o f work well below the average daily wage. The improved model (which implies construction of water control devices, technical advice for farmers and the existence o f a credit scheme for the payment o f inputs) shows a considerable scope for improvement: rice would become profitable for farmers with a return per day o f work o f 1.5 time the daily wage; the global profit accumulated along the value chain would amount to 25% o f the retail price, both in economic and financial terms; the DRC would be around 0.5, showing a substantial comparative advantage. The Project will support local demand to improve rice production and marketing. Specific studies will be conducted to ensure that any new variety introduced would suit the local taste. Dry beans, cowpeas &pigeon peas. Beans and peas production is traditional inthe Project area. Inparticular pigeonpeas - ofbothannual andperennialvarieties - are wide-spread. There is an important scope for improvement in dry bean and pea production and marketing, by increasing the range o f varieties and improving cleaning. Export o f dry beans and peas to Malawi i s relatively limited at present. However, Mozambique has a comparative advantage in the production o f dry beans and peas43.Inaddition, the installation o f a processing industry in Gurue district creates new opportunities for pigeonpeas produced inMorrumbala. Maize mills. Recent analyses44showed that maize meal prices are extremely highinMozambique. The most common maize meal brand cost close to US$800/MT throughout the country at the beginning o f 2005, while the cheapest cost close to US$440. Maize grain at retail cost close to US$280/MT duringthe same period inMaputo. These prices compare to levels between US$270 and US$330 for comparable meals in Zambia, and grain prices o f US$190. Thus, the differential between prices o f maize grain and maize meals inMozambique i s much greater than that inother developing countries of the region. The maize milling industry in the Center and South i s extremely concentrated, which may contribute to the very high maize meal prices. In such a context, the development o f small local maize mills appears profitable. Animal traction. The use o f animal and mechanical traction i s not very common among smallholder farmers in the region, with less that 5% o f the households using animal traction, However, Mozambique has an excellent potential for animal traction development. Neighboring Zimbabwe, Malawi, Zambia and South-Africa have active networks in the promotion o f animal 41 Sources:ACDINOCA & World Vision. 42 Economic analysis of comparative advantage for major agriculture cash crops in Mozambique, Nicolas Gergely, May 2005. 43 Impact of policies of Neighbouring countries on Agriculture growth; Republic of Mozambique, the World Bank; June 2005. 44 David Tschirley, Danilo Abdula, and Michael T. Weber; Improving Production and Marketing to Enhance Food SecuriQ in Mozambique; ResearchResults of the Policy Analysis Department, Ministry of Agriculture, Directorateof Economics; 17 September2005. 99 traction. Mozambique can learn fiom these experiencesof the neighboring countries. After a long period o f decline, especially due to the civil conflict, the cattle population i s growing. In the target district o f Mutarara, for example, the cattle present before the civil war - estimated to more than 17,000 head in 1973 - was decimated during the war, and had declinedto 650 head in 1995. Two NGOs - Vetaid and World Vision - implemented a restocking programme, which was considered successful raising the cattle population to 3000 head in 1999 and 9000 in 2005. Restocking activities were followed by a support to animal traction development, under a 50% subsidized scheme45.This program demonstrated that the use o f ox carts and animal transport i s a profitable activity in the target area"". The development of animal ploughing requires more intensive training47.The development of animal ploughing requires more intensive training4*but will be equally important in a region where land availability does not appear to be a limiting factor. The Project will support the diffusion o f animal traction on-demand, for both transport and ploughing. The existence of Kanes Engineering Company in Maputo, which produces agricultural and animal traction implements, constitutes an impulse for animal traction. To ensure sustainability at local level, the Project will support small-scale informal workshops which produce and repair carts and ploughs (as well as other equipment such as treadle pumps). Livestock. Livestock have a significant market potential in major provincial cities. Smallholders in the target districts have experience with livestock farming, and recent restocking programs demonstrated the profitability of goat, cattle, pig and poultry raising, in particular in Mutarara. Poultry, in particular, i s a key production for poorest smallholder farmers. The Project will support the development of poultry production, on-demand, concentrating its efforts on low-cost technologies well adaptedto the Project area and the target farmers. Expensivemodels have often proved to be excessively risky andhardly profitable inremote and poor areas.49. Family silo. Highlosses ingrains are reportedas a major constraint inthe target areas. Low-cost improved silos (i.e. silos costing US$40 each including unskilledlabor) with a 3 to 4 years life period have been promoted by a number o f Projects in the country with encouraging results and demonstrated profitability. The reduction in grain losses i s considered as an important outcome expected from the secondcomponent o f the Project. Natural resources. Exploitation of natural resources plays an important role in the poorest households' income. InMutarara, fishing appearsto be a significant source o f income for families living along the Zambezi and Shire rivers. In Morrumbala the exploitation of forest for wood 45 Animal traction in Mozambique a promising technology for small-scalefarmers - Proceedings o f the national seminar Chimoio, June 2000. Editedby Andrew Mattick; organized by VETAID and financed bythe European Commission. 46 A repayment scheme of the animal and equipment over 24 months was considered successful, with 93% repayment after 20 months. However, other experiences in the country demonstrate that the profitability cannot be expected ina shorter time-ftame. 47 The training programme mentioned decentralized its activities to the villages to ensure farmers receive more practice inland cultivation. 48 The training programme mentioned decentralized its activities to the villages to ensure farmers receive more practice inland cultivation. 49 "A clear example is poultry farming by the association o f Cumbabo, which follows a model of the General Union o f Co-operatives (UGC) in Maputo. In 1997, chicken coops were built with donated funds, and both the chicks as well as the feed were imported. After 2 years, logistics broke down and the chickens died." Development of Cooperatives For Agricultural and Agro-Industrial Commercialization I n The Centre Region Of Mozambique, Presentation of Business Plans and Implementation Strategy; ORAM, NOVIBIVerde Azul Consult Lda., February 2005. 100 processing and charcoal i s an important source of income. Such profitable activities would be supported on-demandby the Project, which would promote sustainable methods. Financial and economic results Crop models. Crop models have beendeveloped for major supply chains that are well adapted to smallholder production in the target area and are likely to benefit directly or indirectly from Project support. These models cover both traditional commercial crops that involve a large number o f smallholders (such as maize, cotton, rice, pigeon peas, beans and cassava), and relatively newly introduced crops that are showing a positive trend and have potential for growth (such as sesame, paprika and vegetable). Production technologies used in the "with Project" situation are already known in the country, but not followed to date due to constraints which would be addressed by the Project (e.g. lack of farm input, weak organizational arrangements within supply chains, market uncertainty, lack o faccessto extension services). . Yields hprices. Increased crop yields would result through the adoption of improvedproduction methods and use o f modern inputsas well as irrigation and animal traction equipment. The yield assumptions are in line with what i s being achieved currently by some smallholders in the country. However, these are much lower than those obtained by large scale commercial farmers. Assumptions made on yields and farm gate prices are presented in the Table 1. The analysis is expressed in constant 2005 prices. All economic and financial prices are converted to local currency at the prevailing exchangerate of 26,000 MZMfor 1US$. Physical impact. It i s assumed that the overall annual incremental output due to the Project i s expected to reach is 16,000 MT o f maize, 600 MT of rice; 1,250 MT of cotton; 70 MT of paprika, 1,000 MT of peas and beans; 18,000 MT of cassava; 2,000 MT of vegetable; 250 MT of sesame inthe year 6 ofthe Project. A more limitedincreasehas been Projectedfrom year 7 to 10 due to mediumterm benefits expected after Project completion. Ifcomparedwith the present estimated production in Morrumbala only (major district of the 5 district to be targeted under the Project), the incremental production expected in year 6 represents respectively 35; 31; 70; 30 and 17 percent of the present production of maize, rice, cotton; beandpeas and cassava. Increases foreseen inrice and vegetable production are coherent with the Projectedinvestments inirrigation development. Financial Analysis. Project financial and economic performances were estimated taking into account all Project costs except costs with long-term benefits which are difficult to evaluate at this stage. Such costs correspond to the following activities: (i) capacity building; district (ii) management,coordination, monitoring&evaluationand(iii) ofcomponent 3: Project 60% Community agricultural and environmental investment fund (this, to take into account investments in rural road rehabilitation and environmental public goods). The Project financial rate of return i s estimated at 13% and financial net present value at US$0.5 million. However, this i s probably an underestimate as the analysis i s based on several conservative assumptions and does not take into account benefits generatedwithin the value chain (increased farm-gate prices", increasedincome o f traders and agribusinesses, etc.). Inaddition, theProjectimpacton5major farmmodelshasbeenestimated. This analysis,ofboth qualitative and quantitative nature, i s presented in Table 5. This demonstrates that targeted 50 Such increase canbe expected inthe comparison between with and without Project situation. However, due to the high unpredictability of farm get prices, this has not been considered inthe financial and economic analyses. 101 supports can benefit a wide range o f smallholders, with increases in agricultural incomes ranging fi-om 30 to 8051percent before labor costs and improvements even more significant if labor costs are fully valued at the price o f hired labor. Finally, costs and benefits were compared for the main supply chains analyzed, taking into consideration all relevant costs which were not included in the crop models (i.e. transport, marketing and processing costs). Economic Analysis. The Project economic rate o f return is estimated at 15% and net present value US$1.8 million taking into account the proportion o f Project costs justified in the financial analysis. If all Project costs were to be included in the economic analysis, the economic rate o f return would still be around 8%. Sensitivity Analysis. A sensitivity analysis was conducted usingswitching values (Table 5). The Project i s not particularly sensitive to small increases in costs or decreases inbenefits (by 10%). The Project i s relatively more sensitive to declines in benefits than increases in costs. A 30% increase in costs would yield an ERR o f IO%, while a 30% reduction inbenefits would cause to drop the ERR to 8%. The ERRi s not very sensitive to delays inProject investments such as large investments o f public good nature, e.g. feeder roads rehabilitation. A two year delay in accrual o f Project benefits would yield an ERR o f 10%. Fiscal Impact. Most o f the Project activities would be conducted outside GOM's budget as a large part o f the costs would be within subprojects implemented and co-financed by private beneficiaries. The Project impact on the budget would therefore minimal. The main budget impact i s related to the maintenance o f the rehabilitated feeder and district roads after the Project completion, which would cost about US$175,300 per year, and the continuation o f the extension services, which would cost approximately US$lOO,OOO per year. 51 Inthe case ofsmallholders diversifying their production(introduction ofrice, paprika or sesame onthe farm modeled) and adopting recommended improvements on existingcrops. 102 Annex 9 Attachment 1: FarmModels - - smem Em mm I am Margin Existing Production Labor Margint costs (days) Yield Price Income Margin after labor5' day Maize 70 72 1,200 3.O 3,600 3,530 2,090 49 Seed cotton 550 110 550 5.0 2,750 2,200 0 20 Rice 450 165 1,000 5.O 5,000 4,550 1,250 28 Beans 60 60 400 4.5 1,800 1,740 540 29 Pigeon peas 60 60 500 4.0 2,000 1,940 740 32 Cassava 60 60 4,000 0.8 3,200 3,140 1,940 52 New 1Improved Maize 1,650 76 2,000 3.0 6,000 4,350 2,830 57 Seed cotton 550 130 800 5.O 4,000 3,450 850 27 Paprika 1,450 250 700 14.6 10,200 8,770 3,770 35 Rice 3,000 157 3,000 5.O 15,000 12,000 8,860 76 Beans 500 64 600 4.5 2,700 2,200 920 20 Pigeonpeas 100 65 700 4.0 2,800 2,700 1,400 34 Sesame 30 60 500 11.0 5,500 5,470 4,270 42 Cassava 100 65 7,000 0.8 5,600 5,500 4,200 85 Vegetable 18,000 350 8,000 5.0 40,000 22,000 15,000 63 m year 5 year 6 12,000 16,000 20,000 Cotton 3,000 4,000 5,000 Paprika 60 80 100 Rice 120 160 200 Beans 1,200 1,600 2,000 Pigeonpeas & cowpeas 1,800 2,400 3,000 Sesame 300 400 500 Cassava 4,800 6,400 8,000 150 200 250 ** Labor costs considered at 20,000 MZMper day for both family and hired labor. 103 m year 1 year 2 year 3 year 4 year 5 year 6 3,200 6,400 9,600 12,800 16,000 ~ ~~~ Maize Cotton 250 500 750 1,000 1,250 Paprika 14 28 42 56 70 Rice 120 240 360 480 600 Beans 80 160 240 320 400 Pigeonpeas & cowpeas 120 240 360 480 600 Sesame 50 100 150 200 250 Cassava 4,800 9,600 14,400 19,200 24,000 Vegetable 400 800 1,200 1,600 2,000 Goats 2,000 4,000 6,000 8,000 10,000 Cattle 200 400 600 800 1,000 Poultry 6,000 12,000 18.000 24.000 30.000 - Major characteristics Farm& Smallholder Vegetable Cotton Out Larger Wage labor no cash-crop producer grower smallholder Representationinthe target area 25% 35% 15% 20% 5% # inthe target beneficiaries 5,000 7,000 3,000 4,000 1,000 Area cultivated annually 0.75 2 2 2 6.5 (ha)Maize (intercropping) 0.5 1 1 1 3.25 Seed cotton 0.8 2 Beans 0.15 0.2 0.75 Pigeonpeas 0.25 0.25 0.5 Sesame Cassava 0.25 0.75 0.5 Vegetable 0.1 Equipt/ landpreparation Handtools Hand tools Handtools Handtools Hiredtractors / hirelabor Equipt/ transport WalWBicycle BicycleWalk BicycleWalk BicycleWalk Bicycle Wage labor; fishing; charcoal Investments Other activities production; (Wage labor; (Wage labor; small trade; small trade) small trade) such as maize preparation of mills... aliments/ beverages Goat, Pigs, Livestock Goats; Goats; (Poultry) (Goats; Poultry) Poultry Poultry Poultry (Cattle) Support to improved and sustainableNRMactivities xx X X X X 104 Veterinarian support (goat deworming, etc.) X xx xx xx New livestock production (goats, poultry.. .) xx X Improved family storage xx X X X Intensificationo f crop production X X X xx Improved marketing xx xx xx Improved access to inputs X xx X xx x :off Legumesin Diversification XX :paprika, sesame, etc. season the rotation Idem(soy,. .) production (soy.. .) Irrigation; Animal Animal On-farm investment (animal traction Irrigation traction traction -group) (groups) (service) Improvedcrop rotations X X xx X Incrementalag. income under the Projectbefore 35 93 159 69 206 labor cost Increase (%) 36% 40% 76% 32% 31% Incremental agr. income under the Project after 57% 67% 112% 77% 68% labor cost Increased employment 21 59 (days/year) 3 9 43 I Baseline I 15 I 10%increaseincosts 13 30% increaseincosts 10 10%reduction inbenefits 30%reduction inbenefits 105 Annex 9 Attachment 2: Incremental Cost Analysis - This section discusses the incremental costs eligible for GEF funding for the Project "Zambezi Valley Market Led Smallholder Development Project", defined as the difference between the GEF alternative scenario and the IDA baseline. GEF incremental costs will be developed intwo steps. The first incrementality concerns the costs under OP15 funding (Operational Program on Sustainable Land Management), and the second incrementality falls under the SPA window (Strategic Priority "Piloting an Operational Approach to Adaptation"). For each o f the four components o fthe Project, the section will: (a) Identify the baseline, (b) Describe what would happenifthe baseline is implemented, (c) Indicate the costs o fthe baseline, (d) Describe the alternative scenario, (e) Describe the expected benefits under the alternative scenario, (0 Reportthe cost ofthe alternative, and (g) The incrementalcost. The relationship between the activities o f each component and the environmental benefits generated is synthesized in the below tables. The IncrementalCost Matrix i s reported at the end o f the section. As most o f the decisions, practices and technologies that the beneficiaries o f the Project will adopt cannot yet be determined, the analysis favors a qualitative approach. Component 1:Communi@ group organizationand local institutional strengthening (a) Baseline: This component encompasses the mobilization and support o f groups formed o f small producers and other supply chain participants in such areas as marketing, savings and credit, agribusiness development, as well as the strengthening o f district level agricultural institutions. The component focuses on `empowerment' through support for the mobilization and strengthening o f common interest groups, as well as on building capacity o f local government and non- government organizations to sustain and contribute to the needs o f such groups. In addition, the establishment o f savings and loans groups (SLGs) will be supported. The Project will also promote and facilitate the expansion o f financial institutions into the Project Area, through the provision o f technical assistance and start up costs. (b) Expectedresults under the baseline scenario: Baseline implementation will be considered successful if community based interest groups, including saving and credit groups, are able to define their own needs and priorities and act upon them, as well as greater capacity among local institutions to support such groups. (c) Baseline cost: US$7,600,000 (IDA) (d) GEF alternative scenario (OP15): Environmentalconditions and agricultural potential vary considerably at the local level within the Project zone, especially inrespect to the natural capital soils, forests, wildlife, water and fisheries. These resources play an important role in local population's wealth generation. The selection o f the appropriate location for productive activities such as different agricultural production systems 106 becomes critical. Environmental damage through deforestation and habitat fragmentation can not only locally be very high, without people benefiting in an optimal way from the resources but also degrade environmental goods and services of global importance. With the increased economic and agricultural development supported by the IDA baseline Project, it i s important to have a detailed understanding of why certain activities should be carried out in a particular space in order to optimally benefit and to protect the natural resources and the global environmental goods and services. The PRSP 11, the National Biodiversity Strategy and Action Plan (MICOA, 2003), and the Strategic Plan for Environment (MICOA, 2004) consider land use and territorial planning among the key processesto be undertaken to ensure sustainability of resources use, thus contributing to the development of the nationaleconomy. GEF OP 15 funds will be used to (i)complete the quantitative baseline data set (e.g. soil productivity, vegetation cover, land use, water courses, areas prone to flooding and drought, roads and other infrastructure, settlements, crop distribution) being compiled with PDF-B resources. Some data layers and maps already exist at various agencies in Mozambique but access to the data i s very poor and it is difficult to judge the adequacy and quality o f these data layers for the proposed activities. Weather data was lost during the civil war but data summaries exist in the library of the Provincial Directoratefor Agriculture inTete and can be digitized. (ii) Establishthe baselines for aboveground biodiversity using a tested rapid appraisal tool (Plant Functional Attributes) developed in the GEF-funded Project - Alternatives to Slash and Bum (ASB), (iii) Document and geo-reference indigenous NRM and native biodiversity knowledge, and (iv) Quantify land cover change dynamics in attempt to identify deforestation and land degradation frontiers. A participatory approach that involves community members inthe baseline surveys will be usedto identify the improved crop, soil and water management "best bet" interventions and to facilitate their contributionto local landuse planning and uptake o f Project findings Landuseplanning that takes into account existing agroecological zones (e.g. the globally significant wetlandflood plain at the junction o f the Zambezi and Shire rivers, the delta of the Zambezi river), changing landcover and land use, and changing climate, has so far been missingnot only inthe Project area but also at a basin scale. Proactive planning and modeling o f scenarios based on development and growth pole plans, water and river management o f the Zambezi valley will be essential to evaluate environmental impact tradeoffs and synergies. The land use planningwill include the analysis of the natural resources potential, their spatial distribution and productivity in order to respond to sustainable development needs. It will analyze specific local and global needs for resource protection inorder to guarantee the preservation o f important environmental services in the long run. This process will facilitate informed decision-making by the district stakeholders for optimal land use. Activity plans will be developed at the community and possibly at the householdlevel that outline the sub- Projects the community would like to undertake, the timeline o f implementation, the need for technical assistance (which can be provided under Component 2) and the sub-projects to be submitted for fundingunder Component 3. Communal land use maps will be created via community participation and ground verification of land uselland cover categories and the products made available at the community level. The geo- referenced data layers will be compiled as necessary for developing the Project baselines, for tracking global environmental indicators and outcomes, and for M&E activities. Training for provincial and district technical officers will be provided for geographic informationmanagement and analysis to ensure the capacity to further monitor resource use and land use change under the Project and other development initiatives. Land use planning will be introduced to the 107 communities by the RegionalEnvironmental Specialist and District EnvironmentalTechnicians at the beginningo f the Project. (e) GEF alternative scenario (OP15 + SPA): The SPA incremental funding will be used to derive digital terrain models (DTMs) from the remote sensing products identified in the OP 15 outputs to identify and map forest, land, water degradation "hot spots" as well as high risk areas for floods and drought (flood hazard maps, drought hazard maps). In addition, local adaptation and mitigation strategies will be identified and a local flood and drought adaptation plan established guidedby scientific information, and by community needs and priorities. These activities will be coordinated with and support the on- going activities of the National Institute for Disaster Management. The execution and delivery of remote sensing, digital elevation models for the districts and basins, will be done by contracted remote sensing and modeling specialists in collaboration with national agencies such as Land and Water Division o f the Institute o f Agronomic Research, CENACARTA, and faculty and students at the Eduardo Mondlane University. (f) Expected local and global benefits under the GEF alternative (OP15): The GEF funded landuse plans will contributeto the establishment ofthe baseline for the rational and sustainable use of the natural resource base and for the protection o f natural resources that are o f local and global significance (e,g, the Zambezi delta, the wetlands at the junction o f the Zambezi and Shire rivers). This process will provide the global environmentalbenefit criteria that will be used to evaluate and select funding requests under the NRM fund (Component 3) and community requests. (g) Expected local and globalbenefits under the GEF alternative (OP15 +SPA): GEF funded land use plans will also include a flood and drought adaptation plan that identifies opportunities for improved adaptation to climate variability, which are based on SLM and on improved environmental management thus contributing to an increased resilience of the ecosystem toward climate change. This GEF alternative (OP15 + SPA) will contribute to the achievement of the local and global environmentalbenefits as summarized inthe table below (SPA impacts andbenefits are explicitly mentioned and integrated inthe table) Activities Direct impact Local and global environmental benefits Community landuse Enhanced community awareness and Baseline and plan for improveduse planning planning abilities through community and management of natural resources landuse plans: i s provided and locations for protection ofbiodiversity and the Zoning o f a) community land and environment are identified. This will water resources; b) biodiversity lead to: hotspots within community land; c) degraded land and areas vulnerable Improvement inwater to land degradation; and d) land management anduse o f fertile vulnerable to droughts and floods land for agricultural production (SPA) and intensification 108 Identification o f SLM andNRM 1 Reduction inland degradation, opportunities andpotential Projects deforestation, desertification for communities (NRMfund) Protection o fbiodiversity in Identification o f SLM opportunities forests, freshwater, marshes and to adapt to climate variability (SPA) production landscapes Establisha community activity plan b Identificationand protection o f that identifies sub-projects for critical ecosystem services and technical assistance and for hnding regulation functions (e.g. water (NRMfund) including specific SPA sources, marsh lands, primary sub-projects vegetation, forests) Reinforce the institutional B Reduction o f land use conflicts strengthening at the community level Increase community awarenesso f NR vulnerabilities andpotentials in relation to NR use and management District landuse Enhanced district planning process Baseline and plan for improved use planning through: mdmanagement ofnatural resources Baseline maps for landuse and land is provided and locations for cover change, for each district, soil protection o fbiodiversity and the maps,-drainage courses (hydrology) environment are identified. This will characterized. ultimately lead to: Zoning o fNRMpotential at the Provisiono fbaseline to analyze district level, allowing for global environmental issues at mainstreaming o fNRMinto other district level and beyond. sectors during district planning Reduction inenvironmental process degradation, deforestation, Provision o f geographic information desertification at the ecosystem planning tools to be usedfor level integratedandholistic planning, Protection o fbiodiversity in especially inaccordance with local forests, freshwater, marshes and and global environmental productionlandscapes at larger objectives. ecosystem level Reinforcement o finstitutional Improvedwater management and strengthening at the district level appropriate use o f soils for Identification ofbusiness ideas agriculture based on sustainable management Environmental concerns and protection ofthe natural mainstreamed indistrict resources development agenda and Based on vulnerability assessments synergies developed betweenNR via DHSVM, adaptation plan (e.g. and other sectors exclusion zones, zones for enhanced Reductiono f landuse conflicts vegetative cover, protection o f riparian areas) at the district level as part o fthe district landuse plan (SPA) (h) GEFAlternativecosts: US$8,500,000 (IDA +GEF) (i) Incremental cost: US$900,000 GEF (US$700,000 OP15 + US$200,000 SPA). The incremental cost will cover the costs for establishment of land use and adaptation plans at the community and district level, which includes: costs for an analysis o f remote sensing 109 requirements, appropriate remote sensing products, appropriate interpretation o f the remote sensing products; consultant service payments for land use planning service provider; training o f provincials and district staff in geographic data interpretation, mapping, and land use planning; costs associatedwith acquisition of information, materials and equipment that enables district authorities to proceed with land use planning process as part o f the district planning inthe subsequentyears. Component 2: Arrricultural Production and Marketing Development (a) Baseline: Activities under this component are concerned with the provision o f technical services to the agricultural supply chain. Growth inproductivity and incomes of smallholders in the Project area would be achieved through improved practices in many areas of the supply chain. These include use of improved seeds, fertilizer and pesticides, better soil conservation and planting methods, small-scale irrigation and animal traction, support for private veterinary service provision, improved handling of post harvest products from harvest to sale, including better storage. The IDA baseline will facilitate the linkage between increased smallholder production, strengthened agribusiness activities and better market access. In addition, resources and technical support will be provided for the definition and implementation o f studies and training. Approaches promoted under this component will include use of key farmers for community extension, farmer field schools, funding o f additional extension manpower to be integrated into government services, widespread use of demonstrations and visits, community and market advice points, market forums and media support. (b) Expected results under the baseline scenario: Successful implementation will result in strengthened district extension services and active groups engaged in the validation and adoption o f improved technologies and entering into close links with other supply chain participants. (c) Baseline cost: US$3,900,000 (IDA) (d) GEF alternative scenario (OP15): GEF incremental funding will be used to address and remove barriers for sustainable land and water management and technical support to facilitate the sustainable management of land and water resources through the adaptation o f available "best bet" agroforestry, soil conservation and alternate energy sources and to ensure the priority linkages with global environmental benefits (carbon sequestration, above and below ground native biodiversity conservation). Special attention will be given to improving and diversifying cropping systems by coupling indigenous knowledge, species, and varieties with current natural resource management. Communities currently practice a range o f extractive activities (collection of firewood, honey, and medicinal plants, charcoal burning) in existing forests, which often involve the use o f fire and the occurrence of unintended forest fires. The proposed forest management activities will target the development and implementation (see component 3 below) o f more sustainable extraction practices and alternative cultivatiodproduction practices for the currently extracted forest products. Activities will complement IDA funded activities and support the community demand driven process with critical information and technical advise on economically viable opportunities of improved sustainable land management, o f which the local population i s not yet familiar with. Maintopics will be: 110 Building of sustainable and diversified cropping systems (food crops, cash crops and sustainable soil management, includingthe integration of livestock and cropping systems, and agroforestry technologies such as nutrition gardens, improved fallows, fodder banks); This will not only enhance farm incomes, but also add resilience to the farming system against economic (price) and environmental (climate variability, flood, drought, pest) shocks. Promotion of selectedindigenous plants (indigenous h i t trees and medicinal plants) and high value exotic plants as cash crops, which are ecologically adapted to the Zambezi valley and resist climate variability; technical support for cultivation, ago-processingand marketing of products. Efficiency improvement of energy production (e.g. woodlots) and use (e.g. improved stoves), in addition to the promotion of alternative energy resources (e.g. solar energy). The potential of biofuel production and application (e.g. with Jatropha curcas) will be explored. Awareness raising and development o f alternative NRM strategies to combat environmental degradation. This concerns agricultural land degradation, impacts of widespread wild fires, biodiversity loss through habitat destruction (slash and bum agriculture, wild fires) and over-extraction o f natural resources (such as forest products, wildlife and fish), affecting the functional integrity o f the ecosystem. Main approaches to develop improved SLM will be based on awareness building and communication (with support to rural media), strengthening of local capacity (communities, government, localNGO's and other stakeholders), (e) GEF alternative scenario (OPlS+SPA): o The resources from the SPA component will be used to test, calibrate, and operationalize the proposed land cover dynamics-hydrology models (VIC and DHSVM) with participation (observatiodmeasurements) by local communities and stakeholders. The main goal is to contribute to the country's emerging NAPA priority activities, which are targeting the development o f early warning systems for climate variability and climate change. The proposed adaptation, testing, calibration and operationalization o f the land cover -hydrology models will strengthen the capacity o f national partners to adapt and use the model to (i) identify the vulnerability of specific sectors (agriculture, forestry, fisheries, water supply and quality) drought prediction, infrastructure placement and impact evaluation, re-forestation schemes by region, and (ii) to evaluate the tradeoffs between sectors as a basis for future policy interventions and financial investments. o Other activities under SPA fundingwill be focusing on the development and adaptation of cropping systems based on improved SLMpractices and on reinforcing the system's resilience towards climate variability. This i s in line with the proposed adaptation measures (e.g. improved water management and storage capacity, the promotion of drought tolerant crops and varieties, the promotion o f soil moisture conserving cropping practices, and the change in cultivation calendar, the appropriate selection o f field location) in the Draft Initial National Communications for the agricultural and forestry sectors. Technical assistance will be sought from specialized national or international technical and research institutions such as ICRAF, ICRISAT, IIAM, University of Eduardo Mondlane, WCN, and NGO's such as and local, national or international NGO's such as ORAM, Helvetas, Intermediate Technology Development Group (ITDG) among others. Inrelation to forestry, incremental SPA fundingwill focus on the 111 conservation of natural buffers,prevention of forest deshction, improved management of natural habitats and appropriate selection of reforestation species. This will be done through the support o f CBNRM initiatives (see under SLM), bybuildingawareness, and by adapting the incentive system (eligible under Component 3). By supporting these activities, the Project will also contribute to the "National Program o f Wild Fire Preventionthrough the Agricultural Sector", under the Ministryof Agriculture. Fundingwill be provided for community, district and provincial capacity strengthening and to raise awareness of the threats arising from climate change, to interpret climate risk information, and to assess the appropriateness of proposed risk management options at the local level. Validated options will be eligible for funding under the NRM fund (Component 3) and widely advertised across the Project zone. Research will be funded that responds directly to identified needs. A study on indigenous strategies to adapt to climate variability will contribute to an in- depth understanding of local issues and provide guidance in developing and promoting SLM technologies to adapt to climate change. According to identified needs for the implementation o f the district adaptation activities, collaboration will be sought with relevant organizations, which can be among others MICOA (Ministry for the Coordination of Environmental Affairs, the focal point for W C C C and UNCCD), INAM (The National Meteorological Institute, focal point for PCC: Intergovernmental Panel on Climate Change), INGC (the National Institute for Disaster Management, responsible for coordinating all disaster-related activities), FEWSNET (the Famine Early Warning Systems Network). Specific support will be provided to strengthen the scientific methodology o f climate change vulnerability assessment and identification o f adaptation measures with focus on the Project Area, if identifiedbeing essential for Project success. As the NAPA i s still under development, the Project will make sure that Project activities will be complementary to the NAPA and do not duplicate NAPAactivities. At the local and district level, partners could be the Mozambican Red Cross and the CBDP program (Community Based Disaster Preparedness funded by Netherlands Red Cross). Targeted support will be provided to existing on-the-ground programs to assure their effectiveness of service delivery in the Project zone (for instance: quality and timeliness o f disaster warnings). Support will also be provided to assure the establishment o f at least one meteorological observation station in each o f the five districts of the Project Area that will support INAM in reestablishing its climate data base that got destroyed duringthe war. There i s a major howledge and data gap linkedwith a lack o f meteorological data for the past 20 years, exactly the period crucial for the trend analysis o f climate change. Activities Direct impact Local and global environmentalbenefits Awareness raising, Improvedawareness and strengthened e Developed technologies and demonstration, farmer capacity of Project stakeholders, available knowledge will be training, applied research of ready for implementation of Improvedunderstanding o f NRM improved cropping systems, Agricultural SLM issues and local strategies through integration o f livestock with technologies research insights agriculture, improved , economic valuation o f Agroforestry and forestry Increased availability o f SLM indigenous plant andor 112 S L M technologies I technologies ready to be implemented I animals, improved at local level management o f forests and Energy efficient Agroforestry best bets evaluated and natural habitats with global technologies available for local implementation. environmental benefits o f improvedcarbon stocks, Key extractive forest products biodiversity conservation and identified and characterized and improved protection o f alternative, environmentally friendly globally significant savannah, techniques available for forest and wetland implementation. ecosystems. Activities Direct impact Local and global environmental benefits Awareness raising, Improved awareness and Developed technologies and demonstration, farmer training, strengthened capacity o f available knowledge will be adapted research o f SLM Project stakeholders, ready for implementation o f technologies that enhance improved S L M techniques adaptation to climate variability Improved understanding o f that show an increased NRMissues andlocal resilience towards climate strategies through research variability. This will leadto insights reducedpressure on natural habitats that are often usedas safety net during periods o f dry periods or floods and thus contribute to biodiversity conservation. Establishment o f at least one Increasedknowledge on meteorological observation climate patterns and local land Local benefits will be the station by district. cover and landuse change reducedvulnerability o f local patterns allows for improved population, reduced income Calibration, testing, and adaptation to climate variation losses, improvedfood refinement o f the land cover- andfor improved disaster security, humanhealth and hydrology-climate change preparedness physical security, whereas dynamic models (VIC, DHSVM) the global benefits will bethe and the crop model (EPIC) 113 Collaboration with institutions Vulnerability Hot Spots increasedresilience o f the working on climate monitoring, mapped at district and basin ecosystem. adaptationto climate change and level. disaster relief Improvedstrategies put in place to react to natural disasters, especially droughts and floods Improveddeliveryo f information services to local communities inregards to climate risks and disasters Integratedapproach and collaboration efforts allow for synergies infavor o f environmental protection and the creation o f environmental benefits. (h) GEFAlternative costs: US$6,400,000 (IDA GEF) + (i) Incremental cost: US$2,500,000 GEF (US$1,600,000 OP15 + US$900,000 SPA). Incremental costs will cover the costs o f awareness campaigns and information dissemination implemented during the 6 years of Project life including equipment contribution for local radio stations; expenses in relation to the hiring o f short-term and longer-term consultant services for specific technical inputs, costs for adapted research, training of extension officers, material and equipments needed to develop technical innovations for the Project. Component3: Communityagriculturalandenvironmentalinvestmentfund (a) Baseline: The objective o f the Fundis to provide grants to facilitate accelerated agricultural development in the Project area. IDA will create two windows for agriculturally related infl-astructure and for small-scale agricultural investment. This first window includes local road spot improvements, bridges at strategic points, markets and small gravity irrigation schemes (irrigation schemes would be operated and maintained by recipient communities), whereas the second window would provide support for private enterprise development activities of groups and individuals, such as on-farm irrigation, agricultural production, post- harvest handling and small processing activities. (b) Expected scenario under the baseline scenario: Successful Project implementation will lead to improved smallholder capacity, improved agricultural production, increase in agro- processing activities and in the marketing of a broader variety o f products. In addition, physical investments will berealizedsuch as irrigation systems, aquaculture ponds, cattle-dip tanks, roads, market infrastructure and ago-processing facilities. (c) Baseline cost: US$5,900,000 (IDA) (d) GEF alternative scenario (OP15): GEF will finance a third window that provides grants to support investment and technical assistance in improved natural resource management. The 114 NRM window will provide demand-driven grant funding to stimulate sub-projects that specifically address land degradation and more generally promote the sustainable use o f natural resources. The objective o f these investments would be to improve both livelihoods and economic well being o f smallholder farmers, and to preserve or restore ecosystem stability, functions and services o f global importance. Proposed activities would be in coherence with the community and district land use plans which will be developed under Component 1. They would also respond to specific environmental criteria that will be established and disseminated to communities via the awareness and education campaign under Component 2. Potential sub-projects include promoted technologies and interventions funded by GEF under Component 2, and may respond to new community initiatives in sustainable agriculture, agroforestry or reduced impact extraction o f forest products and cultivation o f species threatened by extraction. Funding will be allocated for specialized training, for technical assistance or for equipment and material needed for the sub-project. Examples are: support o f CBNRM initiatives (obtaining land rights, assistance indeveloping forest management plans, etc.), training in specific agroforestry technologies, technical assistance incultivation o fnew crops, and processing of products. GEF alternative scenario (OP15 + SPA): Eligibility to access the NRM fund will be extended to Projects that directly invest in adaptation mechanisms, which are identified under Component 2. Examples are: testing and planting o f drought resistant crops and varieties, provision o f support for expenses and risk management for changing cropping practices or the location for agricultural production. Expected local and global benefits under the GEF alternative (OP15) and under the GEF alternative (OP15+SPA): Although demand driven, it i s expected that the impacts and local and global environmental benefits will be significant and substantial under this component, as it concerns the implementation o f adaptation and SLM technologies for agriculture, forestry and energy at the large scale. They are presentedinthe following table: GEFalternative(OP15) Activities Direct impact Local and global environmental benefits Implementation of agricultural Increasedannualandperennial Decrease inland SLMtechnologies crop diversity inagricultural degradationand system, with beneficial impact on desertification nutritionandrangeofmarketable Decline insoil erosion products Improvedsoil quality and Improvedagricultural production soil carbon sequestration basedon agro-ecological and Improvedabove-ground agroforestry techniques, carbon sequestration improved nutrient cycling and through improved organic inputs(improved fallows, biological farming cover crops, manure) practices (e.g. improved Improvedsoilprotection and soil fallows), agroforestry fertility management through technologies andwood sustainablefarm practices; lots. Reduction inslash-and-bum Reduction of carbon practicesthanks to available emissionthrough avoided improved SLMtechniques deforestation Reduceddeforestationfor Increaseinagricultural agricultural purposes biodiversitythrough crop 115 Improved valuation o f indigenous diversification and plant and animal resources cultivation o f native Revegetation o f landscape as a species result o f agricultural intensification Implementation of forestry 0 Forest areas protectedthrough Reduced carbon emission SLMtechnologies CBNRM landrights and through wild fire activities prevention, reduced Improved valuation o f forest deforestation resources 0 Improvedprotectiono f Reduced wild fires globally important forest, 0 Reducedavoided deforestation marsh and freshwater Reducedhabitat destruction, ecosystems illegal hunting, over-extraction Improvedbiodiversity conservation Implementation o f energy Increasedavailability o f wood Reduced carbon emission efficient technologies products and charcoal through (through more efficient fast-growing wood lots energy use and substitution Reduced energy need due to o f energy source) improved technology such as Biodiversity loss reduced improved cooking stoves (thanks to substitution o f 0 Reducedbiomass needfor energy indigenous tree species through introduction o f through fast-growing wood alternative technology such as lots). solar energy Reduced pressure on natural forests areas for fielwood and charcoal purposes Reduced harvesting o fnative trees GEFalternative(OPlS+SPA): Activities Directimpact Localand global environmentalbenefits Implementation o f SLM Improved, diversified and Reducedland degradation and technologies that enhance more stable agricultural desertification adaptation to climate variability production as exposed to Increase incarbon climate variability sequestration (thanks to Improved water availability improved land and water for agriculture and livelihood management) needs yearlong. 0 Protection o f forest zones and 0 Protected buffer zones wetlands (delta, flood plains, mitigate impacts o f droughts gallery forests) important in or floods globally significant biodiversity conservation (g) GEF Alternativecosts: US$7,600,000 (IDA + GEF) (h) Incremental cost: US$1,700,000 GEF (US$1,400,000 OP15 + US$300,000 SPA). 82% of the incremental costs will be allocated to the fbnd, whereas 18% will cover the costs of proposal design, evaluation and implementation support and supervision. 116 Component4: ProjectManagement,CoordinationandMonitoring (a) Baseline: This component will include technical supervision and coordination, financial management, work plan and reporting functions at district, provincial and national levels. The component will be congruent with the government's decentralization initiatives and will utilize existing public sector arrangements as far as possible. Additional financial and procurement staff will be recruited and integrated into relevant government structures at all levels. Project coordination will be undertaken at district level, but additionally also at provincial and national level. Project monitoring will be undertaken at internal (inputs and outcomes) and at external (process) levels. (b) Expected scenario under the baseline scenario: Successful implementation o f this component will result in efficient implementation arrangements, effective oversight, monitoring and evaluation o f Project activities. (c) Baseline cost: US$2,000,000 (IDA) (d) GEE: alternative scenario (OP15) and (OP15+SPA): GEF funding will contribute to the Project monitoring and evaluation system by financing the establishment o f a GIS database, to monitor the global and environmental indicators in order to assess impact of Project activities on land degradation, carbon sequestration, biodiversity, habitat protection, and area under SLM and area under SLM that responds to adaptation criteria. In addition, a community-based monitoring system will be developed. For the implementation of GEF funded activities a specialist will be responsible and coordinate activities and sub-contracts short or long term consultants as necessary. Three field agents (master level) will be implementing activities, supported by one communications officer that works with local radio stations. A part time national coordinator will support the GEF fieldteam. Activities Direct impact Local and global environmental benefits Designing and implementing a Improvedunderstanding o f Quantification o f environmental M&E system to monitor localand the underlying causes, benefits global environment indicators processes and dynamics to be included ineconomic associated with land analysis o f the Project Hiring and supervising the degradation Informglobal community, implementation team Environmental information policy makers, research, and system and environmental development communities on indicators Project outcome. Reinforcingthe district planningprocess Realization o f global State-of-the-Art knowledge environmental benefits will be will be available at local unprecedented inthe Project zone level thanks to competent and effective Project implementation team 117 (f) GEFAlternative costs: US$2,400,000 (GEF IDA) + (g) Incremental cost: US$400,000 GEF (US$300,000 OP15 + US$lOO,OOO SPA). Incremental costs will cover the reinforcement of the M&E system with GIS and the participatory monitoringat the local level. 118 I - 121 122 Annex 10: SafeguardPolicy Issues Environmental issues outlined in Section D5 indicate this i s an EA Category "B" Project. Actual Project investments will be demand-driven and will only be determined during implementation. Thus, an Environmental and Social Management Framework (ESMF) has been prepared to address the substantive requirements o f OP4.01 and OP4.09, the latter primarily for livestock hygiene facilities and weed control around Project-funded facilities. Procedures and measures to avoid or minimize adverse environmental effects from Project investments, including changes to agricultural practices, will be included in the ESMF. The ESMF contains a screening procedure for determining if a resettlement plan i s required for any particular investment according to the Resettlement Policy Framework has beenprepared according to the requirements o f OP4.12. Component 3 (Community Agricultural and Environmental Investment Fund) will make small scale investments, including water and land-based investments, including in agribusiness. These investments may require either involuntary land acquisition, or displacement o f people, or both, so OP4.12 on Involuntary Resettlement i s triggered. A Resettlement Policy Framework (RPF) i s being prepared as a mitigation instrument since the sites and nature of investment sub-projects will only be determined duringProject implementation. OP7.50 (Projects on Internationalwaterways) i s triggered as there may be water withdrawals for small irrigation Projects implemented in the Zambezi basin, including the Shire River - a major tributary o f the Zambezi. Sources o f water will include: (a) shallow groundwater from alluvial aquifers; (b) smalI tributary streams which rise entirely in the territory o f Mozambique; (c) small tributary streams which rise in neighboring Malawi; and (d) direct extraction from the Zambezi and the Shire. Notification has been sent by the Government o f Mozambique to all riparians under OP7.50. GOM has a well-established and capable International Waters Division in the Department o f Water Affairs (DNA)that has undertaken the notification process. 123 Annex 11: ProjectPreparationand Supervision Planned Actual PCNreview May 26,2005 -~ Initial PID to PIC June 22,2005 Initial ISDS to PIC June 30,2005 Appraisal April 2, 2006 April 7,2006 Negotiations April 5,2006 April 20 & 21,2006 BoardRVP approval June 20,2006 Planned date o f effectiveness September, 2006 Planned date o f mid-termreview September, 2009 Planned closing date December, 2012 Key institutions and personsresponsible for preparation of the Project: NationalDirectoratefor the Promotion of Rural Development (DNPDR), Ministry of Planning and Development (MPD), Salim Vala (Director), Isabel Cossa (Agronomist), Hermes Sneia ( Economist), Salome Noiane (Advisor), Romao Cossa (Agronomist), Tiago Luis (Agronomist), Rosario Guiliche (Agronomist). Bank staff and consultants who worked on the Project included: Name Title Unit Jeeva Perumalpillai-Essex Team Task Leader AFTS1 Daniel da Sousa Co-Task Team Leader AFTS1 Brighton Musungwa Sr. Financial Management Specialist AFTFM Joao Tinga Financial Management Analyst AFTFM Slaheddine Ben-Halima Sr. Procurement Specialist AFTPC Antonio Chamuco Procurement Specialist AFTPC SuzanneMorris Sr. Finance Officer LOAG2 Luz Meza-Bartrina Sr. Counsel LEGAF Erika Styger Natural ResourceManagement Specialist (cons) AFTS1 Ayala Peled Natural ResourceManagement Specialist AFTS4 John Boyle Sr. Environmental Specialist AFTS1 Arbi Ben-Achour Sr. Social Scientist AFTS1 Josef Loening Economist AFTS2 Erick Fernandes Adviser ARD Anne Ritchie Sr. Financial Sector Specialist OPD Leonard Abrams Sr. Water ResourcesManagement Specialist AFTU1 Luisa Matsinhe ProgramAssistant, Maputo AFc02 ErwindeNys Young Professional YPP Caroline Guazzo ProgramAssistant, Washington AFTS1 Ashok Kumar Seth Consultant Aidan Gulliver FAOICP Team Leader ElenLemaitre FAO/CP Financial/Economic Analyst ErikPlaisier FAO/CP -JPO- Business Management Gaye Thompson FA0 Social andInstitutional Specialist (cons) Antoinette Van Vugt FA0Community Organization Specialist (cons) JonathanCook FA0Agronomist (cons) TimJackson FA0Rural InfrastructureSpec. (cons) Graham Perret FA0RuralFinance Spec. (cons) 124 Bank funds expended to date on Project preparation: 1. Bank resources: US$220,000 2. Trust funds: FA0 CP Resources: 20 staff weeks 3. Total: US$330,000 Estimated Approval and Supervision costs: 1. Remaining costs to approval: US$40,000 2. Estimated annual supervision cast: US$180,000 for the first two years and thereafter uS$100,000 125 Annex 12: Documentsinthe ProjectFile Pre-PreparationStudies: 1, Community Organization 2. FarmingSystems Development Study 3. Rural Financial Systems 4. Rural Infrastructure 5. Irrigation and Water Management Study 6. Marketing and Agribusiness Study PreparationMission-Working Papers: 1. Community Organizations and Local Institutions 2. RuralFinancial Services 3. Agricultural production andMarketing Development 4. Rural Infrastructure 5. Community Agricultural and Environmental Investment Fund 6. Institutional Analysis o f SLM and NRM: the case o f land use planning, participatory NRMandACC 7. Recommendations for the operationalization o f the NRM window o f the CAEIF fund 8. Natural Resource Management Study; Almeida Albert0 Sitoe. 9. Sustainable LandManagement and CBNRM Report 10. Institutional, legal and sector barriers and opportunities for sustainable land management and adaptation to climate change at the district level inthe Zambezi Valley; Celia M.F. Meneses. 11. GEF STAPreview(Prof. MartinWilliams ScD) 126 Annex 13: Statement of Loansand Credits Difference between expected and actual Original Amount inUS$Millions disbursements Project ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. Frill. Rev'd PO86169 2006 MZ-Financial Sector TA Project 0.00 10.50 0.00 0.00 0.00 10.54 1.17 0.00 MZ-TFCA & Tourism Dev 0.00 20.00 0.00 0.00 0.00 20.15 0.36 0.00 PO71465 2006 (FY06) MZ-GEF TFCA & Tourism Dev 0.00 0.00 0.00 10.0 0.00 10.0 0.00 0.00 PO76809 2006 (FY06) MZ-Tech & Voc Edu& 0.00 30.00 0.00 0.00 0.00 29.99 0.00 PO87347 2006 Training (FY06) PO82618 2005 MZ-Beira Railway SIL (FY05) 0.00 110.00 0.00 0.00 0.00 91.03 -4.76 0.00 M Z Energy Reform and Access 0.00 40.26 0.00 0.00 0.00 39.37 19.51 0.00 PO69183 2004 SiL (FY04) MZ-Decentr Planning &Fin SIL 0.00 42.00 0.00 0.00 0.00 30.59 8.24 0.00 POOl807 2004 (FY04) MZ-HIVIAIDS ResponseSIL 0.00 55.00 0.00 0.00 0.00 44.13 2.68 0.00 PO78053 2003 (FY03) PO72080 2003 MZ-Pub Sec Reform(FY03) 0.00 25.60 0.00 0.00 0.00 24.96 22.01 0.00 PO73479 2002 MZ-Corn Sec Reform 0.00 14.90 0.00 0.00 0.00 8.75 4.80 0.00 MZ-Higher Education SIM 0.00 60.00 0.00 0.00 0.00 29.50 9.38 0.00 PO69824 2002 (FY02) POOl806 2002 MZ-Municipal Dev SIL (FY02) 0.00 33.60 0.00 0.00 0.00 16.36 18.88 8.78 MZ-Roads & Bridges MMP 0.00 162.00 0.00 0.00 0.00 75.24 49.48 -4.37 PO01785 2002 (FY02) PO01808 2001 MZ-Mineral NRMCP (FYO1) 0.00 18.00 0.00 0.00 0.00 2.15 0.30 0.00 MZ-Coastal & Marine Biodiv 0.00 5.60 0.00 0.00 0.00 2.30 1.88 -0.04 PO70305 2000 Mgmt (FYOO) PO49874 2000 MZ-Enterprise Dev (FYOO) 0.00 26.00 0.00 0.00 0.00 3.54 2.70 0.00 MZ-GEF Coastal & Marine SIL 0.00 0.00 0.00 4.10 0.00 1.76 1.76 0.43 PO35919 2000 (FYOO) MZ-Railway & Port Restr 0.00 100.00 0.00 0.00 0.00 27.06 22.94 8.14 PO42039 2000 (FYOO) PO01799 1999 MZ-Agr Sec Pep (FY99) 0.00 30.00 0.00 0.00 0.00 5.02 4.71 4.54 MZ-Edu Sec Strtgy Prgm ESSP 0.00 71.00 0.00 0.00 0.00 8.41 6.28 3.55 POOl786 I999 TAL (FY99) PO52240 1999 MZ-Natl Water 2 (FY99) -0.00 90.00 0.00 0.00 0.00 45.89 26.36 0.77 Total: 127 STATEMENT OF IFC's HeldandDisbursedPortfolio InMillions ofUS Dollars Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic. 1998 BIM-INV 0.00 0.30 0.00 0.00 0.00 0.30 0.00 0.00 2000103 BMF 0.00 0.20 0.00 0.00 0.00 0.20 0.00 0.00 2004 ENH 0.00 18.50 0.00 0.00 0.00 0.00 0.00 0.00 1997101 MOZAL 13.32 0.00 0.00 0.00 13.32 0.00 0.00 0.00 1999 Maragra Sugar 10.30 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2000 SEF Ausmoz 0.72 0.00 0.00 0.00 0.72 0.00 0.00 0.00 1997 SEP CPZ 1.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 1997 SEF CTOX 0.73 0.00 0.00 0.00 0.73 0.00 0.00 0.00 2000 SEF Cab0 Caju 0.58 0.00 0.00 0.00 0.51 0.00 0.00 0.00 2001 SEF GrandPrix 0.53 0.00 0.00 0.00 0.34 0.00 0.00 0.00 2000104 SEFMerec 1.20 0.00 0.00 0.00 0.66 0.00 0.00 0.00 1999 SEF ROBEIRA 0.20 0.00 0.00 0.00 0.20 0.00 0.00 0.00 Total portfolio ApprovalsPendingCommitment FY Approval Company Loan Equity Quasi Partic. Totalpendingcommitment: 128 Annex 14: Country at a Glance Sub- POVERTYand SOCIAL Saharan Low- Mozambique Africa income 3evelopment diamond' 2005 Population,mid-year(millions) 19.5 703 2,310 Life expectancy GNI percapita (Atlasmethod, US$) 310 490 450 GNI (Atlas method, US$ billions) 6.0 347 1,038 Average annual growth, 199945 T Population1%) 2.0 2.3 1.9 Laborforce f%J 2.1 2.4 2.3 ;NI Gross ier primary Most recent estimate (latest year available, 199945) :apita nrollment Poverty(% of population belownationalpovertyline) 54 Urban population (% of totalpopulation) 27 37 31 Life expectancyat birth (years) 41 46 58 i Infantmortality(per 1,000live births) 101 101 79 Child malnutrition(% of childrenunder5) 24 44 Access to improvedwater source Access to an improvedwater source I%of population) 42 58 75 Illiteracy(% ofpopulationage 15+) 55 35 39 Gross primary enrollment (% of school-agepopulation) 110 95 94 -Mozambique Male 121 102 101 Low-income group Female 100 88 88 KEY ECONOMIC RATIOS and LONG-TERMTRENDS 1985 1995 2004 2005 Econornlcratlos. GDP (US$ billions) 4.5 2.3 5.9 6.7 Grossdomestic InvestmenffGDP 3.5 30.5 20.7 22.2 Exports of goods and services/GDP 2.9 15.6 30.9 30.6 Trade Grossdomestic savingdGDP -5.1 5.0 12.3 11.9 Gross national savings/GDP -5.0 4.8 12.5 10.6 Currentaccount balance/GDP -9.9 -29.1 -14.1 -17.0 Interestpayments/GDP 0.5 3.2 2.5 2.5 Total debffGDP 64.4 320.6 78.7 73.1 Total debt servicelexports 23.0 24.0 24.0 21.1 Presentvalue of debffGDP 24.4 24.2 Presentvalue of debffcurrentyear exports 84.0 Indebtedness 1985-95 199545 2004 2005 2005-09 (average annualgrowth) GDP 4.2 8.4 7.5 7.7 7.2 - Mozambique GDP per capita 2.9 6.2 5.6 5.9 5.5 Low-incomegrow Exportsof goods and sewices 9.0 19.0 23.9 5.4 5.8 STRUCTURE of the ECONOMY 1985 1995 ~ ~ i 2005 4 (% of GDP) Agriculture 47.5 36.9 23.3 23.2 Industcy 13.2 15.4 29.2 30.0 Manufacturing .. 8.1 14.8 14.2 Services 39.3 47.7 47.5 46.8 Privateconsumption 92.2 85.2 77.2 77.3 General government consumption 12.9 9.8 10.4 10.8 Imports of goods and services 11.5 41.0 39.2 41.0 1985-95 199545 2004 2005 jGrowth of exports and imports (Oh) (average annualgrowth) Agriculture 2.3 5.5 Industry -1.3 15.7 Manufacturing .. 17.5 10.2 10.7 Services 5.2 7.1 Privateconsumption 2.0 4.9 General government consumption 4.7 12.3 Gross domestic investment 7.8 10.2 -13.9 13.5 -Exports +imports Imports of goods and services 2.5 9.6 Note:2005 data are preliminary estimates. Group data are for 2003. * The diamonds show four key indicatorsinthe country(in bold) comparedwith its income-groupaverage. If data are missing. the diamond wlll be incomplete. 129 Mozambique PRICES and GOVERNMENT FINANCE 1985 1995 2004 2005 Domestic prices (% change) 20 Consumer prices 30.8 54.4 12.6 7.2 15 ImplicitGDP deflator 33.1 48.8 9.1 6.3 10 5 - Governmentfinance 0 (% of GDP, includes cun'ent grants) I 00 01 02 03 04 05 Current revenueincl. current grants 10.3 15.5 15.5 16.8 Current budget balance -6.8 4.9 1.o 2.3 GDPdeflator *CPI Overall surplus/deficitaffer all grants -9.0 -3.2 -4.5 -5.7 TRADE 1985 I995 2004 2005 (US$ millions) Exportand Import levels (US$ mlll.) Total exports (fob) 77 174 1,504 1,726 3 000- Cashew nuts and raw cashew 12 13 29 19 2,500 Prawn 33 73 92 98 2.000 Aluminum 568 860 1.500 l,wo Manufactures 5 19 22 I 500 Total imports (ci0 424 727 2,035 2.387 0 Exportprice index (1995=100) 106 100 110 127 89 00 01 02 03 04 05 import price index (1995=100J 92 100 102 111 Exports .Imports Terms of trade (1995=100) 115 100 108 114 BALANCE of PAYMENTS 1985 1995 2004 2005 (US$ millions) Current account balanceto GDP (%) 1 Exportsof goods and services 143 407 1,828 2,060 0 imports of goods and services 481 899 2,320 2,755 5 Resourcebalance -339 -492 -492 -696 -10 Net income -102 -184 -340 -448 -15 Current account balance before grants -440 -677 -832 -1,144 -20 Financingitems (net) 432 736 1,044 1,061 -25 Changesin net reserves 8 -60 -212 83 -30 Memo: ReservesIncludinggold (US$ mi//ions) 18 225 1.159 1.076 Conversionrate (DEC, local/US$J 43.2 8,889.8 22,581.3 22,751.8 EXTERNAL DEBT and RESOURCEFLOWS 1985 1995 2004 2005 (US$ millions) Compooitlon of 2004 debt (US$ mill.) Total debt outstandingand disbursed 2,871 7,458 4,651 4,910 IBRD 0 0 0 0 I IDA 5 890 1.475 1,699 G: 345 Total debt service 42 112 450 445 IBRD 0 0 0 0 IDA 0 6 6 6 Compositionof net resourceflows Officialgrants 139 339 539 550 Officialcreditors 309 202 255 292 Privatecreditors 54 48 -92 -2 Foreigndirect investment 0 45 245 135 I 0:683 World Bank program Commitments 46 99 206 231 A - IBRD E Bilateral - Disbursements 5 160 201 226 B IDA . D- Other multilateral F Private - Principalrepayments 0 0 2 2 C- IMF G Short-term ~ Netflows 5 160 199 224 Interestpayments 0 6 4 4 Nettransfers 5 154 195 220 DevelopmentEconomicsand AFTPl estimates. 5/19/06 130 Annex 15: Land Degradationand Climate Change inthe Central Zambezi Valley 1)Project zone description and landuse The Zambezi Valley Region of Mozambique was one of the hardest hit areas of Mozambique duringthe conflicts of the 1980sand early 199Os, and most infrastructures were heavily damaged or destroyed and many communities effectively abandoned. Since the ending o f the war, rapid resettlement has taken place, most notable along reconstructed primary and secondary roads and inareas withhigherprecipitationlevels. Cropped landinthe Central Zambeziexpanded from 5% in 1992 to 17% in 1995 and has further increased since then. Expansion of agricultural land is based on the traditional methods of slash and bumagnculture. The climate inthe Central Zambezi Valley i s tropical fkom semi-arid with 300 to 600 mmrainfall to humid with rainfall up 1000-1400 mm concentrated between November and March. The topography i s flat to undulating. Altitude ranges from below 100 m (along the Zambezi river), to between 100 and 500m for most of the Project area, to 1800m(Mount Chiperone) inthe hilly area of northern Morrumbala. Geologically, the region shows much variety in parent materials. A range o f soils can be found with variable agricultural productionpotential. There are three distinct ago-ecological zones within the proposed Project area, which i s composed of five districts: Maringue, Chemba (Sofala province), Mutarara (Tete province), Morrumbala and Mopeia (Zambezia province). Agroecoloaical zone (R5): This zone (covering Southern Morrumbala and Mopeia and extending towards to coastal region) i s characterized by high rainfall o f 1000-1400 mm with a corresponding evapotranspiration. The two major soil types are sandy, well-drained soils and heavy vertisols. Rice i s commonly cultivated in the verisols, while maize, cowpea, sorghum, millet and cassava are intercropped in the well-drained soils. Cashew nuts and cotton are also grown as cash-crops inthe well-drained soils. Sesame and paprika are new important cash crops. Yields are very low (maize yields 600-800 Kgka). Agroecoloaical zone (R6): This i s the semi-arid zone o f the Zambezi Valley, especially along the Zambezi River.The three districts Mutarara, Chemba and Maringue are part of it. Precipitation i s between 300-600 mm and evapotranspiration i s very high with 1200-1400 mm, which results in highwater deficit and high probability of crop failure. Yields are very low (sorghum yields 600 Kgha). Cassava is not cultivated due to total absence of rain during the cool season and the elevated evapotranspiration rate. Cotton production is abundant inthe well-drained soils and rice inalluvial soils on the margins ofthe Zambezi River. Sesame andpaprikaarenew important cash crops. Agroecolop.ica1zone (R7): This zone covers the mediumaltitude region o f the Zambezi Valley, with an altitudinal range between 200 and 1000 m with an average rainfall not exceeding 1400mm. Northern Morrumbala i s part o f that zone. Cropping systems are dominated by maize, which yields an average of 1000 Kgha, and sorghum (750 Kgha) intercropped with cassava, groundnuts, and cowpeas. Cotton i s also grown inthis area. Traditional agriculture i s predominant and based on extensive use o f the natural resources base. With the exception o f cotton and tobacco, the use of improved seeds, fertilizers and agrochemicals is very low. The average yields o f most food crops are low (maize 500-1,000 kg. 131 ha; sorghum 400-600/ha; groundnut (small) 300-500 kgiha; cowpea 200-400ha; cassava 4,000- 6,000 kgfha; sweet potato 3,000-5,000 kg/ha). Cattle were decimated duringthe war and the build up in its population remains slow. Farmers express increasing interest inlivestock especially for transport and soil preparation. Animal production is mainly based on goats, pigs, few sheep, guinea fowl, chicken and ducks. People cultivate also fruit trees, such as mangoes, bananas, citrus, pawpaw grown inhome gardens or intercropped with grain crops, and vegetables, such as cabbage, tomatoes, and onions which are grown inmarket gardens on micro-irrigation areas less then one hectare. The Zambezi and Shire Riversare the mainwatercourses inthe area, with high spatial variability of water availability inthe region. Although the Zambezi basinrepresents about 50% of the country's total mean annual water runoff, serious water shortages occur during rainy and dry seasons. Water storage structures such as small dams as well as small-scale irrigation schemes are almost absent inthe regionresulting ina minimal use o f the total runoff. Compared to other countries in the region, Mozambique has a rich natural resource base. The natural vegetation cover, which accounts for 78 percent o f the country's area, varies from evergreen to deciduous, from mountainous to lowland, gallery and mangrove forests to edaphic grasslands. The most characteristic forests are the miombo and mopane woodlands. About 25% of the land has commercial forestry potential, and a further 22% comprises potential wildlife habitat. Forest production i s based almost entirely on the natural forest, the area of plantation forestry being negligible. Mozambique's biodiversity i s very rich with 5692 plant species, 222 mammals, 580 birds, 167 reptiles, and 39 amphibians recorded to date. 177 plants have been reported to be endemic and 300 plants are on the red data list. Some areas have been designated as globally significant with respect to their biodiversity. 34 nature conservation and protected areas cover 12.5% of the country's total area. The howledge of the flora o f Mozambique is mostly restricted to Southern Mozambique. The flora of the Center and Northhas been much less well documented and needs urgently to be updated. Apart from the forest inventory o f the Derre Forest Reserve, there i s limited howledge on biodiversity in the Project areas. Vegetation categories found inthe Project region include the Miombo woodlands (Derre Forest Reserve), the evergreen mountain forests (highlands of the Morrumbala and Chiperone mountains), the baobab-savannas and mopane woodlands (semiarid region of Mutarara), grasslands dominated by Hyparrhenia spp. (flood plains o f the Zambezi River), inundated grasslands on the Lower Shire dominatedby Cyperus spp., Phragmitis spp. and Imperata spp. The mountain zones and the wetlands are expected to have a high number of endemic and protected species, but they are not well documented. While the Malawi part of the marshes along the Shire river have been modified for agriculture, the Mozambican side is still pristine and may represent close to natural habitats for a variety of plant, bird, reptile, mammals, and fish species. The district of Mutarara i s estimated to have more than 500,000 ha with potential for forests and wildlife, particularly concentrated in the low populated Administration Post of Doa. The Project regionhas a highforest potential. Thirteenprecious and first class species are present among them Pterocarpus angolensis, Burkea africana, Pericopsis angolensis, Combretum imberb, Guibourtia conjugate, Afzelia quanzensis, and Dalbergia melanoxylon. Other common species are Acacia spp, Colophospermum mopane, and Adansonia digitata, which are intensively used by local communities for several purposes. Trees used for their edible h i t s are among others, Adansonia digitata, Zyzyphus mucronata, Vitex doniana, Strophantuspetersianus. Other local uses of forest plant species include medicinal plants, shade, honey production. According to the Forest Services report, 300 liters of honey were produced in Mutarara during 2005 using traditional bee hives places in native woodlands. Traditional bee hives are commonly made of bark of different tree species, a practice considered prejudicial for forest production. The practice 132 involves debarking trees such as Pterocarpus angolensis, which i s a first class timber species. Natural resources or their primary derivatives are generally sold unprocessed in local markets. These include wild fruits (e.g. baobab fruit), dry or smoked fish, medicinal plants, logs, among others. Some of these products are exported illegally to Malawi with very little benefit to local communities. Firewood i s the only source of energy for heatingand cooking for almost 90% o f the residents of the Project Area. Even those with access to electricity still use firewood or charcoal for cooking. Although the access to firewood is open for local communities, there are areas in Mutarara that have beenreported to be short infuel wood and their residents having to travel between 6 and 12 Km to collect firewood. Some socio-economic data on the districts is provided inthe following table. Table 1: Socio-economic data of the Project districts Total population- Districts estimate Economically p~~~~ Active/ inative #pen. / HH Poverty Literacy rate 1,1,2005 active population (inhab/km2) population Monumbala 304,073 129,000 23 8 1 1 1 4.1 52% 11% Mutarara 173,867 70,000 27 3 11 4.3 66% 17% Mopeia 89,403 41,000 11.7 1 1 2 4.2 52% 15% Marirgue 71,086 29,000 11 6 1 1 4.3 45% 7% Ckmba 62,278 27,000 157 1 0 9 45% 12% Total 700,707 296,000 21.2 4.2 54% 13% Phase Idistricts 477,940 199,000 Phase Ii districts 222,767 97,000 Momparental agricultwal Averagearea Forest Widelife ~ Districts female headed bseb,ds az;;Tha, % HHwith than ha management mamgement HH area (ha) area (ha) Monumbala 13% 63,000 1 72% 170,000 Mutaram 17% 29,000 1 42% Mopeia 11% 17,000 0 5 72% Marirgue 27% 12,000 28 45% 240,000 172,000 Ckmba 28% 10,000 2 6 45% Total 16% 131,000 61% 410,000 172,000 PhaseIdistricts 92,000 PhaseIIdistricts 39,000 Source: Districtprofiles 2) Land degradationdynamicsinthe Central Zambezi Valley Although the natural resource base i s still abundant, land degradation has become locally an important problem inthe Project zone. It can be expected that with the extension of economic and agricultural development, the pressure on the natural resources is likely to increase. Unlike in many other countries, where land degradation i s much advanced, Mozambique has currently the opportunity to steer its economic development in accordance with principles of environmental sustainability. Protecting its natural resource through improved management, while at the same time economically benefiting from the rich resource base i s the challenge. In support of this endeavor i s the favorable legal and policy framework that has been put inplace since the ending of the war. 133 The main causes of land degradation are identified for the Project zone inthe table and text. The four major consequences that derive from the land degradation dynamics are low production agriculture, the loss of forest coverage, the loss o f biodiversity and the loss of carbon stocks. 2.1. Consequencesof landdegradation Low production agriculture The agricultural system is based on extensive and traditional practices of slash and burn aaiculture. Without any additional inputs and with the shortening o f cycles of field rotations due to increasing population pressure, yields are decreasing and are stagnating at a very low level. Institutional capacity at national, regional, provincial, district and local level i s limited and supporting services are understaffed at all levels, which i s still a consequence of the civil war. There i s a lack of improved farming techniques at the farmer's level, due to absence o f an efficient extension service and lack o f research support. Obvious concerns are nutrient management, adapted varieties and crops, pest management, and post-harvest losses, among others. Crops like tobacco and cotton are highly demanding in soil nutrients and may aggravate the degradation of soil productivity. Climate variability contributes to unpredictable production outcome. There is also a lack o f land use planning, which would allow people to make informed decisions on how to best use soils and land resources. In the hilly areas o f Morrumbala, soil erosion i s a significant problem contributing to loss of soil fertility and low agricultural productivity. In addition, seasonal water fluctuations are very high. Droughts and floods are discussed inmore detail below. The Central Zambezi valley i s also vulnerable to extreme weather events, alternating between drought and floods with some years o f normal weather inbetween. Severe drought is experienced periodically and i s of major concern for agriculture in large parts of central Mozambique. Maize yield fell on average by 40% to 85% inthe Zambezi valley duringthe drought years 1982/1983, 1986/87, and 1991/1992. These events caused large-scale food deficits, hunger and disease. It also increased food imports and worsened the national debt burden. It is estimated that the loss in agricultural production due to drought in 1992 was 4 percent of the GDP or about US$86 million in2004 prices. Droughtsoccurred inthe Zambezi valley inthe three years from 2002 to 2004 and yield reductions upto 50% were reported, translatinginmaize yields of 300kgha. At the national level 29 districts were identified being at risk o f drought and/or desertification. Two o f the five Project districts are among them: Maringue and Chemba (MICOA, 2002). As evapotranspiration rates are much higher then precipitation, a water deficit is created for most o f the year, which often leads to crop failure. Even in normal rainfall years, food shortages are not uncommon in these districts (includingMutarara). People's strategies to cope with drought and food shortage in the Project region are seasonal migration, sale of alcoholic beverages, sale o f domestic animals, and the extraction of natural resources through hunting, fishing and harvest of non-timber forest products. Successive droughts reinforce people's strategies to move towards the floodplains to grow food where soil humidity i s higher. But these river margins are also the habitats for hippopotamus and crocodiles increasing the human-wildlife conflicts in the Project area. Hippopotamus often destroy crops on the floodplains, and crocodiles attack and kill people growing crops along the river, fisherman, or people who go to the river to collect water, collect edible water plants, bath or wash clothes. The Zambezi river valley is also prone to flooding. Despite the high risks o f floods, the inhabitants cultivate the fertile land on the floodplains. The 2000 floods were the worst in living memory. Halfa millionpeople were made homeless and 700 lost their lives. The floods destroyed 134 crops and overwhelmed water and sanitation infrastructure inmany areas among which Zambezi, Limpopo and Soave valley were the most affected. Many communities lost everything they owned including cattle. Floods also returned in2001. It is predicted under the regional climate models, such as HAD3RM, that the intensity and frequency o f droughts will increase as global temperatures rise. This will also amplify land degradation, affecting mostly the poor who dependon natural resources for their livelihoods. The impacts of droughts and floods are crosscutting and diverse, with severe consequences for agriculture and natural vegetation besides the indirect effects on health and economy. Any changes inland use and agricultural practices should therefore take climate trends into account in order to reduce the vulnerability towards increasedweather variability. Loss of forest coverage Major causes for forest cover loss are deforestation for agricultural land, wild fires, fuel wood collection, charcoal production, and illegal logging. The national deforestation rates are estimated at 147,100 ha per year. Deforestation figures for the Project Area are not available. Satellite images show clearly, that large areas have been cleared in recent years for agriculture, mainly around towns and along roads, where most of the population i s located. Areas with difficult accessibility maintain larger areas of natural vegetation with little perturbations, except of wild fires that spread over large surfaces. Fire has become a major threat to natural resources. Its use is widespread for agricultural purposes, clearing around the homesteads and for hunting. According to satellite imagery interpretation, 74 % of northwestern and central parts of the country are burnt annually (compared to the national average o f 40%). 90% of fires were due to human causes, 5% due to natural causes and 5% to unknown causes (Taquidir 1996). The Project area has a hot and wet season from November to April and another cool and dry from May to October. Forest fires are linkedto this seasonality and sporadic fires burningsmall surfaces are common inthe beginning of the dry season inApril. They increase insize and intensity by late August to October when the vegetation i s completely dry. Natural forests are usually not submitted to any management regime. Firebreaks don't exist and the road network is very poor. This results in large blocks of forests being burntuntila river or a road stops the fires. Therefore, the extent o f a fire depends on the month of burning, the extent o f a single block of vegetation, the wind speed and direction and on other weather conditions such as rainandtemperature. Dependingon these conditions, a single fire can either burn a few hectares or extend over many thousands o f hectares. The ultimate effects of frequent and intense fire events are the reduced regeneration o f fire sensitive species, the proliferation of fire-tolerant species, with the consequence o f the loss of plant diversity and associated fauna. Furthermore, high volumes of carbon are lost. But fires have also some direct social costs, when homesteads are accidentally burned and properties destroyed. In addition, charcoal production, loaaina, and firewood collection also contribute to forest cover loss. The loss of forest cover i s also increasing the fram-entation of ecosystems which impacts negatively ecological and watershed services, and decreases landscape values. Loss of biodiversity The loss of biodiversity is o f significance in the Project area due to slash and burn agriculture, deforestation, wildfire, logging, charcoal making and firewood collection, hunting, drainage of wetlands and altering of water courses (dam constructions, irrigations schemes etc) and fishing, In addition to described root causes above, illegal logging and hunting activities contribute to species loss. Large mammal populations are severely depleted. Due to over-hunting, several large 135 mammals inthe Zambezi valley are at the verge of extinction (black and white rhino, giraffe, roan antelope, tsessebe, eland, the mountain reedbuck and the African wild dog). Inthe Project area, people hunt wild pig (Phacochoerus aethiopicus), monkeys, porcupine, duikers, guinea-fowls, and rats. Hunting and protection from wildlife attacks are among the main causes o f wild fires. Woodland burning to confine the animals in pre-established traps i s the most common hunting technique inMorrumbala. Illegal longing i s reportedto be a common practice inthe Project area, even within the protected Derre Forest, the first class species Umbila (Pterocarpus angolensis) i s harvested. There i s illegal wood trade going on across the Malawi border. Communities are often not able to defend their forest resources from incoming illegal loggers. This i s due to lack o f community organization or due to lack of knowledge o f the legal framework that would actually be infavor o f community rights to naturalresources. Fishingis also an important activity for food and cash. Localpractices that use poisonous plants to kill fish are indicated as a cause for reduction o f fish stock in Morrumbala. More than 130 fish species have been identified in the Zambezi River o f which 17% are endemic. However, the Lower Zambezi that includes Mutarara, are said to be poor, with only 60 species. It i s unclear if the low number of speciescan be explained either due to limited taxonomic studies carried out or due to highpressure on fishresourcesthat results inlow populations. Carbon loss Carbon loss is significant due to slash and burningagricultural practices, depletion o f soil carbon through sustainable agricultural practices, deforestation, wild fires, export of biomass via logging, charcoal, wildlife. 3) Outlook Land degradation i s becoming locally an important problem in the Project area. It i s induced by extensive and common land management practices such as slash-and-burn agriculture, deforestation, wild fires, logging, charcoal production, fuel wood collection, hunting and fishing. Nowadays, these techniques are known to be harmful to the ecosystem health. Soil degradation and loss o f soil fertility, forest cover loss, reduction in animal and plant diversity, and carbon loss are the immediate consequences. In the medium-long-term, these techniques are highly destructive and non-sustainable. Shiftingfrom these techniques to sustainable land use methods i s not trivial as it may need education of the community (which may take a generation), large capital investments, and technical supervision, among others. However, a gradual shift is needed to change attitude of local people towards the natural resources. People learn from experiences and need lessons to learn from. Providing lessons through demonstrations o f sustainable, high productivity, and cheap technologies for local people may be of great importance to induce the shift towards sustainable land use techniques. Inthe following table, land degradation root causes and their consequences are summarized in addition to description of measures currently undertaken and an analysis of what additional measures are required to shift towards sustainable land management. Project interventions are described inmore detail inAnnex 4 (Detailed Project description) and inAnnex 9 -Attachment 2 (Incremental Cost Analysis). 136 . ... . .I. . .... . 0 . b M 3 . 0 . I. . . SI.. . . . . 0 . . pl. 0 0 0 . 0 0 0 0 0 . 0 0 0 4 0 0 0 0 0 0 . 0 0 D 0 m . 0 0 0 . 0 0 0 0 f2 .3 ti4 L O . . 0 0 0 . 0 . . Annex 16: STAP Roster Review STAP Reviewer: Professor Martin Williams ScD, University of Adelaide, Australia Date: March 15,2006 1. Scientific and technical soundness of the Project, includingthe degree of stakeholder involvement [Removed: description of Project objectives, focus and statement of issues the Project would address] Inevaluatingthisproposal Iwill consider the following questions: 0 Will the approach taken inthe Projectproposal achieve the objectives o f addressing land degradation? 0 What are the risks and constraints associatedwith the approach? 0 I s there any gap inthe Project? Are there any controversial aspects about the Project? 0 What aspects of the interventions proposed require further research? 0 How will the model of sustainable use outlined inthe Projectbe developed? 0 How effective will the proposed model be? 0 I s there sufficient evidence in the document that the Project offers the best long-term solutions? The Project draft identifies some of the major causes of land degradation but does not consider in suficient detail why this particular region is so vulnerable to severeflooding as well as what might be done to reduce suchfloods or at least to alleviate their impact. More attention needs to be given to discussing this issue, including the use of early warning systems. Since floods and droughts inthis region are primarily due to changes insea surface temperatures in the equatorial Pacific modulated by changes in the latitudinal temperature gradients between the Southern Atlantic Ocean and the Indian Ocean, it i s possible to predict their likely occurrence at least twelve months in advance with a reasonable degree of skill. However, unless this information i s made available to farmers well ahead o f time, and unless suitable strategies are inplace to cope with the impacts of these extreme events, the current situation i s unlikelyto improve. Some more detailed mention of the role of extension services inproviding advice to farmers on how to cope with such extreme events seems warranted. Mention is made o f construction of large numbers of small dams to retain water for use indry years as well as for local small-scale irrigationProjects, and there i s a brief reference to the need for inexpensive silos for grain storage, all of which are useful means of mitigating the impacts of minor droughts, but in the long term some more effective form of large scale water storage will be needed. The map showing areas flooded in the Zambezi valley in four o f the proposed Project districts during2001 suggests that some portions of the flood plain are less prone to flooding than others, as might be expected from an understanding o f the depositional processes responsible for flood plain accretion. This being so, the Project needs to consider the utility o f preparing and using flood hazard maps to assist in developing a more strategic approach to land use planning. Some form o f land use zoning seems essential to avoid inappropriate use o f those sections of the flood plain most liable to inundation. Again, effective longer term flood control measures will require some major investment incontrolling and releasing flood waters and inpreventing further loss of forest inthe headwatersof the Zambezi and its major tributaries. 140 The proposal mentions that The National Action Plan for drought and desertification (NAP), prepared by the central government establishes strategic measures for drought mitigation but no further details are forthcoming. H o w effective are these measures likely to be at the district and local level? Equally, the proposal notes that the central government has in place a strategy for disaster preparedness in the major flood plains, in which early warning systems of floods and seasonal migration between thefloodplain and the upland is among the strategies indicatedfor the affected communities. The question then arises as to how the seasonal migrations are to be implemented and whether the local populations have been consulted about these measures. Ifnot, they are unlikely to be very effective. The causes o f land degradation are identified as deforestation, slash and burn agriculture, unsustainable agricultural and forest extraction practices and wild bush fires. Once again, more detail i s needed. For example, what are the unsustainable forest extraction practices? If preparation o f charcoal i s one (and it obviously is, here as elsewhere in rural Africa), then what alternative sources o f inexpensive fuel are available, if any? H o w might fuel be used more economically? What incentives could be provided to encourage families to plant and maintain trees for fuel and construction? What i s meant by unsustainable agricultural practices? I s this simply synonymous with shifting agriculture and too short a fallow? If more than this i s intended, it would be usehl to specify in some detail. What are the major causes o f fire? I s the primary aim to clear more land for agriculture, or to destroy weeds and dead grass, or to provide fertilizer in the form o f ash? Are the local farmers familiar with the repercussions o f fire, such as increased runoff, reduced infiltration, reduced soil moisture and increased loss of topsoil and soil nutrients? Some form o f rural extension service could assist in altering these long ingrained practices. Perhaps more details o f rural education programs could be provided. The impact o f hunting on the wildlife i s mentioned in passing, as are the adverse impacts o f habitat fragmentation and destruction. A carefully integrated agro-forestry program to complement existing plant cultivation and animal rearing would help to reduce pressure upon existing forests and woodlands. A long-term and systematic forestry program inthe headwaters of all major rivers i s essential inorder to avert accelerated soil loss and the risk o f flash floods. On another matter, what i s thejustification for selecting the five districts and the three provinces? Are they representative o f a much broader region? H o w were they selected? What are their geographical characteristics? In the absence o f such basic information it i s hard to assess the likely scope for replication o f this Project other than in very general terms (see section 5). The proposal notes that the Zambezi valley has considerable agricultural potential, supports a quarter o f the total national population and comprises 15% of the total arable area. However, we are not provided with any coherent reasons for why the remaining 85% o f the area was not considered. [Removed: Project long term goal and means to achieve it] [Removed: Project descriptionby component] 141 Stakeholder involvement The proposal emphasizes the need for strengthening existing institutions and stresses that at the end of the implementation period, all major Project stakeholders - smallholder farmers, local NGOs and extension services, ruralJinancial service providers, district and provincial technical agencies, district administrations and the DNPDR [National Directorate for the Promotion o f Rural Development] itself - have all increased their capacity to support agricultural development. The proposal underlines this by stressing that what it terms theprocess aspect of the Project i s almost as important as the immediate Project development objective of poverty reduction. This part of the draft proposal could be strengthened. The draft indicates that Project activities would be demand driven without indicating how this will be achieved inpractice. The draft also indicates that activities will be closely linked to the government's decentralization strategy, agricultural policies and other development programs in the Project area, as appropriate, However, we are not told inany detail how this mightbe achieved, so we have to take it on trust that this will indeed result in empowering communities, building community organizations, increasing on- and ofs-farm production andproductivity andfacilitating farm access to markets. 2. Identification of the global environmental benefits and/or drawbacks of the Project [Removed: country socio economic and environmental information, Project areas demographic features] The global benefits that should accrue from reducing the degradation of existing areas of natural vegetation and reducing the encroachment onto forested uplands areas include the ensuring o f ecosystem and landscape integrity, stability, functions and services, soil conservation, maintenance of vegetation cover, and conservation of internationally important wildlife and habitats. The outcomes will include improvedsoil structure andwater holdingcapacity, increased crop and livestock yields, better livelihood prospects, and an overall reduction in pressure on local resources and potential conflict between different groups competing for scarce natural resources inthis seasonally-wet tropical environment. The anticipated national benefits will include alleviation of poverty, enhanced food security, improved health, and greater ability to cope with natural climatic variations, especially floods and droughts. 3. Project consistent with GEF goals, operational strategies, program priorities and relevant internationalconventions The Project has a number of aims that fall within the remit o f GEF Operational Programs #I5 (Sustainable Land management) and #I2 (Integrated Ecosystem Management). These global environmental objectives include the reversal o f land degradation, reduction in biomass burning and an overall reduction inbiodiversity loss. The Project is consistent with the aims of the International Convention to Combat Desertification in the dry sub-humid regions as well as with several other international conventions, notably those relating to biodiversity conservation and to climate change. Any increase inplant biomass through increasedagricultural productivity inthis impoverished environment will enhance carbon 142 storage in growing plants and soils and will help to minimise soil loss through erosion by water and mass movement. An additional benefit would be to enhance the ability of ecosystems to adapt to future variations inclimate. 4. Regional conservation context Poverty levels within Mozambique are high, and life expectancy is low, literacy levels are low and infant mortality levels are high.All of these attributes are causally linked. Without improved food security, poverty alleviation, better health facilities, and access to better education, the scope for social and economic improvement remains restricted. These national problems are mirrored in the Project area. A number o f fundamental issues will need to be addressed. First, there will need to be mechanisms in place for ensuring full and effective community participation at all levels. Second, improved methods o f water harvesting and water storage need to be devised and implemented to counteract the impact of recurrent droughts. Third, there i s urgent need for improved forms of river basin management to reduce the risk o f future flooding. Fourth, removal o f live and dead wood for firewood and building i s leaving the soil surface bare and more vulnerable to acceleratederosionby rainfall, runoff and mass movement. 5. Scope for replication of the Project The Project brief considers a number o f issues that are also characteristic o f other seasonally wet tropical regions inand beyond Africa. These includedeforestation and habitat fragmentation, loss o f biodiversity, land degradation and accelerated soil loss, shifting cultivation, biomass burning, low crop yields and vulnerability to recurrent floods and droughts. The Project aims to enhance the capacity of the local communities to improve crop production and productivity and marketing of their produce and hence to develop income-generating activities that are in harmony with the opportunities (and limitations) offered by this seasonally wet tropical environment. If the goals of land use planning, sustainable agriculture, water management and prevention of forest destruction outlined inthis draft proposal are achieved, then the Project could serve as a model for other impoverished areas in the seasonally wet tropics o f Africa. However, the authors o f the proposal wisely confine their attention to more local issues of sustainability. The proposal notes that the emphasis on institutional and process strengthening is a strong guarantee o f the sustainability o f the Project. As noted earlier, the proposal i s designed to ensure that at the endof the implementationperiod, all major Project stakeholders - smallholder farmers, local NGOs and extension services, rural financial service providers, district and provincial technical agencies, district administrations and the DNPDR itself - have all increased their capacity to support agricultural development. The approach taken in this proposal is entirely consistent with national decentralization policies and the moves to establish and develop the capacity o f districts to manage local agriculture and land use planning. In addition, the Project will use existing government structures to manage the Project, including the flow o f funds. The activities of the Project will be integrated within the structure of the National Directorate for the Promotion of Rural Development (DNPDR) and the MinistryofPlanningandDevelopment(MPD). 143 Two final criteria for achieving a sustainable outcome concern the use of GEF funds to ensure environmentally sustainable use of land and the proposed development and expansion o f rural financial services. If the Project proves successful, the proposal authors consider that there would be scope for replication inother districts within the Zambezi Valley and ultimately at a national level. Iconcur with this modest assessment. 6. Project effectivenessand sustainability As a general comment, one can note that ecologically sustainable development requires that social and economic needs be met through maintenance of the life-support functions of ecosystems, both natural and humanly modified. Any action that systematically removes materials from a natural system at a rate faster than the ability o f that system to produce a surplus will cause the system to become degraded. Likewise, any action that systematically adds substances to a natural system at a rate faster than the capacity o f the system to absorb and recycle such materials will also lead to system impoverishment. Since the only source of an increase innet global primary productivity i s via photosynthesis, maintenance of a resilient plant cover i s the prerequisite for achieving sustainable landuse and effective ecosystem management. The only lasting guarantee that this Project can fulfil these fundamental requirements lies in its ability to enhance the capacity o f smallholders in the Zambezi valley to develop and implement appropriate programs of sustainable land use, together with an effective monitoring program. Decentralised planning arrangements and suitable arrangements for conflict resolution are necessaryconditions to achievingthese aims. Other factors will be the successful rehabilitation of presentlydegraded land and the associatedincrease inlocal income as a result o f more efficient use of water during dry years and better methods o f floodprevention duringwet years. [Removed: Project M&E arrangements] Ifthisoccurs, the outcomeshaveagoodchancetobebothsocially andenvironmentally beneficial. Funds need to be designated specifically to train the monitoring staff from the very outset of the Project. 7. Consistencywith operationalstrategies of other focal areas The National Directorate for the Promotion o f Rural Development o f the Ministry of Planning and Development would be responsible for the overall implementation o f the Project since it already deals with issues relevant to this Project, including agriculture, environment, group mobilization and decentralization. The Project would also complement the existing activities of a Decentralized Planning and Finance Project (Loan No. H0670) financed by the World Bank and implemented by the Ministry of Planning and Development, which cover all the districts of interest to the proposed Project. 8. Linkagesto other programsand action plans The draft outline sounds promisingintheory, butthere are formidable practical problems that will need to be overcome if this Project is to succeed. These include the perennial problem of conflicts of interest between different institutions, weak institutional and administrative capacity, lack of access to education and training by the very many poor and underprivileged members of the community, conflicts over competing demands for access to scarce natural resources, and the 144 background vicissitudes of periodic floods and droughts, leached infertile soils and difficult access to markets. Having said that, it seems that the authors of the proposal have taken considerable pains to ensure that this Project dovetails well with existing programs and action plans. 9. Other beneficialor damagingenvironmental effects The proposal contains a lucid, dispassionateand detailed tabulation o f the potential risks involved inthis Project. Against each ofthe identifiedrisks is a list ofpossible riskmitigationstrategies. Risk is then assessed on the assumption that the mitigation measures are in place. The overall assessment o f risk i s regarded as substantial owing to the number of risks faced by the Project under different category headings. However, the authors consider that the Project will have few adverse environmental impacts. Theirreasons for this assertionare givenbelow and seemjustified. [Removed: Project description of environmentalimpact under section Dinthe PAD] 10. Mechanismsfor participation andinfluencingProject management [Removed: Project implementationarrangements at district, province and national levels] The advantage of the administrative structure proposed is that it uses, augments and strengthens existing structures. The success of the Project will depend to a large extent on the capacities o f the FieldManagement Advisor and of the DistrictFacilitators. 11. Capacitybuilding Unless the capacity of the local communities to plan and co-manage sustainable land use in conjunction with national and regional agencies i s enhanced, the Project i s unlikely to succeed. The Project authors are very aware of this and note that Government services are often top-down and technocratic, and occur in isolation from other rural development stakeholders, including smallholderfarmers and the emergingprivate sector. They point out that rural extension services are few, with on average only 1.3 extension workersper 10,000 rural inhabitants. Some 87% of ruralhouseholds do not have effective access to extension services. The Project is structured to ensure that any provision of finance through community investment funds is accompanied by assistance with production and/or marketing issues. Although the emphasis i s on working with and through groups to resolve these latter issues, the authors o f the proposal note that a group will only work if it serves a clear and tangible economic purpose for each of its individual members. They stress that groups should be based on a clear demand and only engage in such demand-driven activities that cannot be carried out by its members individually. Bearing inmindthese concerns, the proposaladvocates the creation of Village Savings and Loans groups as an effective way to reach economies of scale that will facilitate investment in productive activities by individual members o f the group, eventually leading to the formation of micro-credit institutions. 145 12. Innovativeness of the Project The authors o f the proposal note that in the Project areas: poverty is insidious, commercial networks are almost non-existent, agriculture is primarily rain-fed and smallholder production mostly usedfor subsistence in the districts along [the] Zambezi Valley. The districts targeted by this Project are allphysically isolated with almost noformal commercial orfinancial services. They argue that a demand responsive approach is necessary to help rebuild the social networks and structures destroyed during the earlier period of civil war. At present most communities and individuals react more or less passively to external events and few are aware o f their civil rights. The Project will establish a set of processes for reviewing community participation through household surveys conducted before the middle and end of the Project. The innovative aspect of this Project is to empower presentlymarginalized individuals to work together to improve their overall quality o f life. As the authors of this proposal indicate: the main social benefits of the Project are likely to be added knowledge, skills and experience of smallholders, including women and youth, that strengthen the organizational cohesion, leadership and member motivation of their groups and associations. Their increased institutional and leverage capacity is expected to assist them to manage and control their access to rural finance, agribusiness services and government managed resources, significantly improving their development opportunities. 13. Potential for greatest impact and lessonslearned from other similar Projects Inmany parts of the seasonally wet tropics, indiscriminate destruction of the natural vegetation has resulted in severe and widespread land degradation. Such degradation has impacts well beyond the immediate area suffering from loss o f plant cover. In every case, for prevention and mitigation strategies to succeed, the local communities need to be aware o f the benefits and to have a full role in the design and implementation of the measures to control land degradation. Appropriate forms o f environmental education must go hand in glove with measures to reduce poverty and ensure food security among the poorest communities in these regions, who are also the most vulnerable to environmental change. The level of poverty inthe proposed Project is very highand agricultural yields are exceedingly low. About 96% o f rural farm households do not use any form o f fertilizer, 90% do not use animal traction for cultivation, and 82% have problems of seed supply. Lack o f access to oredit reinforces this vicious spiral o f low yields, poor land management practices and persistent poverty. The temptation to engage in illicit removal and burning o f forest i s strong and the outcome is deforestation, accelerated loss o f topsoil and desertification, leading to still lower levels of productivity. [Removed: lessons learned as insection B o f the PAD] [Thefull STAP review text is available onfile] 146 WorldBankTeamresponseto STAPreview comments All comments have been addressed in the Project Document. Below is a summary of main comments and the Team's response: Comment Response Uncoordinated water control in large upstream is so vulnerable to severe flooding as well as dams (Cabora Bassa, Lake Kariba) have a large what might be done to reduce such floods or at influence on floods downstream; Measures to least to alleviate their impact, including the use reduce floods and to improved adaptive of early warning systems. capacity are water control at the basin level, Establishment of effective early warning systems and disaster plans available at local level and the development of adaptive agricultural practices in less vulnerable areas (see Ax13). The dynamic landscape level land cover-land use change modeling (DHSVM) will provide predictive capacity for floods, droughts and likely impacts (scenarios) o f land use and climate change. Clarification needed on what the unsustainable Main unsustainable forest extraction practices forest extraction practices are; what alternative are illegal logging, charcoal and fuel wood sources of inexpensive fuel are available, if extraction, and the setting of fire to facilitate any; how fuel might be used more animal hunting and honey gathering (Ax13). economically; what incentives could be Firewood i s main source o f fuel; there i s an provided to encourage families to plant and open access regime for charcoal making and maintaintrees for fuel and construction. fuel wood collection, depleting the forest resources (Ax13). Project will provide education and awareness programs, favor fast growing fuel wood plantations, and promote energy saving techniques (stoves) and alternative energy sources (see ICA Comp 2). Through NRM fund (Comp 3) incentives are available to invest in fuel-efficient and fireless, forest product extraction techniques. Clarification needed on the term `unsustainable Slash and burn agricultural practices, in agricultural practices'. addition to shortening o f fallow periods, lack of sufficient nutrient replenishment, lack of inputs, exposed soils, lack of erosion control in hilly areas, nutrient demanding and extractive cash crops, non-optimal rotations as described inAx13. Detail i s neededon the major causes o f fire. Deforestation for agricultural purpose, clearing around homestead, for safety reasons (protection against snakes), honey gathering using smoke to drive away bees and hunting are the main causes o f forest fires. As firebreaks and natural barriers seldom exist, a single fire can extend over thousands of 147 hectares destroying forest understorey and contributeto biodiversity loss (see Ax13). Project intervention Consider the utility of preparing and using State of the art remote sensing and mapping flood hazard maps to assist in developing a techniques including digital elevation models more strategic approach to land use planning. derived from the Shuttle ,radar Topographic Some form o f land use zoning seems essential Mission (SRTM) data will be used to map to avoid inappropriate use of those sections of existing natural resource endowments and detect the flood plainmost liable to inundation. changes over time. These data sets will be coupled with a landscape level hydrological model that integrates vegetation cover, soil, evapotranspiration to derive impact scenarios. Integrated into land use planning efforts under SPA activities will be undertaken; Flood hazard maps and drought prone areas will be mapped andstrategies for adaptationestablished(see ICA section 1.e.). It is also included in M&E system (see section C2 Brief). How effective are NAP'S strategic measures A number of policies, laws and regulations for drought mitigation likely to be at the district were established by the government to reduce and local level? impacts of drought and promote sustainable development providing communities rights and opportunities to play an active role in the planning, programming and implementation o f the activities. Currently, the implementation of strategic measures i s the main issue. This Project will pilot with community involvement to effectively implement drought mitigation activities at the local level. A carefully integrated agroforestry program to Agroforestry will be one of the mainpillars for complement existing plant cultivation and SLM. Many technologies are available, tested animal rearing would help to reduce pressure and widely disseminated inthe larger eco-zone upon existing forests and woodlands. A long- o f Angonia Mozambique, Southern Malawi, term and systematic forestry program in the Eastern Zambia. Technical assistance will be headwaters o f all major rivers i s essential in provided to local communities to integrate new order to avert accelerated soil loss and the risk technologies and adapt them directly in their o f flash floods. fields to local conditions. These include: improved fallows, fast-growing woodlots, exotic and indigenous fruit trees, nutrition home gardens, fodder banks, relay cropping, mixed cropping (see ICA, component 2) Land use planning at the district level will allow identifying critical locations for ecosystem service conservation such as protection of springs and headwaters to be integrated in agricultural and forestry programs (see ICA, component 1). Provide justification for selecting the five Project area was one o f the most heavily districts and the three provinces and damaged during the 20 year long war, has consequent potential for replication. What are major agricultural and trade potentials and has 148 the geographical characteristics? Ibeen neglected by donors. Tete and Sofala are highly threatened for ecosystem service losses Provide the reason for the selection of the and by droughts and desertification (Section Zambezi Valley as the Project focus. Al, Ax13). Other WB investments are complementary, and reinforce conditions for success such as the Roads and Bridges Project, and the Beira railway Project (see section A.2). Geographical characteristics are indicated in Annex 13. Project zone covers three distinct agro-ecological zones and three provinces, providing a highpotential for scaling up within these zones and Drovinces. Project participatoly approach Indicate how demand driven approaCh will be Entirecomponent 1 i s dedicated to the demand .. implementedinpractice. driven approach through mobilization of communities and capacity strengthening of Indicate how activities will be closely linkedto community group organizations (see Ax4). the government's decentralization strategy, Project does not create any additional agricultural policies and other development structures but will work with district structure programs inthe Project area. and services and strengthen their capacity, thus prepare and support districts to fulfill their roles within the decentralization process (see section A.2, B.3, Ax 4 and Attach. 1to Ax 4). Awareness and education Detail i s needed on whether local farmers are Although some awareness exits in regard to ~~~~ familiar with the repercussions of fire, such as environmental problems, the issue for the local increased runoff, reduced infiltration, reduced communities lies within how to address the soil moisture and increased loss of topsoil and problem, in addition to lack of opportunities soil nutrient. and alternatives available. Also, awareness, seriousness o f issues and alternatives may vary Appropriate forms of environmental education significantly at the local level and thus will be must go hand inglove with measuresto reduce addressed with a site specific approach in the poverty and ensure food security among the Project. Awareness campaigns, education poorest communities inthese regions. programs on environmental issues are one of the main activities under component 2. They will be complemented by the development of alternative SLMpractices and technologies on- farm. For example, the collection o f honey by traditional methods involves the use of firehmoke to pacify bees and is a significant cause of wild fires in native woodlands. Improved apiculture methods will be introduced that not only eliminate the use of fire but also do not damage hive integrity and bee populations. Environmentally sound practices will be linked and integrated in agricultural production systems according to priority needs of communities (see ICA component 2). 149 IBRD 34637 30° E 35° E 40° E 10° S 10° S To Lake T A N Z A N I A Mtwara Malawi MOZAMBIQUE MocimboaMocimboa MuedaMueda da Praia da Praia Lugenda MetangulaMetangula C A B O N I A S S A Messalo D E L G A D O PembaPemba MALAWI LichingaLichinga MarrupaMarrupa MontepuezMontepuez ItepelaItepela To To Chipata Lilongwe Lúrio Z A M B I A To Mangoche NacalaNacala To CuambaCuamba N A M P U L A Petauke FurancungoFurancungo To RibáuéRibáué 15° S To ChifundeChifunde Zomba 15° S Lusaka FíngoèFíngoè Nampula Nampula MocambiqueMocambique Lago de Lago de T E T E ManjeManje GuruèGuruè Cahora Bassa Cahora Bassa ZumbuZumbu SongoSongo Zambeze To Alto Molócuè Alto Molócuè Blantyre NamarróiNamarrói MphendeMphende MoatizeMoatize IleIle MilangeMilange GiléGilé Ligonha Tete ete LugelaLugela MUTARARAMUTARARA Licungo AngocheAngoche Z A M B E Z I A LuenhaLuenha ChangaraChangara MORRUMBALAMORRUMBALA MocubaMocuba To ChembaChemba MorrumbalaMorrumbala Mutoko CHEMBACHEMBA PebanePebane NhamayábuéNhamayábué NamacurraNamacurra MaganjaMaganja MANICA MarínguèMarínguè MANICA M O P E I A NicoadalaNicoadala CaiaCaia MopeiaMopeia CatandicaCatandica Quelimane Quelimane MARÍNGUÈMARÍNGUÈ InhassungeInhassunge MarromeuMarromeu Z I M B A B W E GorongosaGorongosa InhamingaInhaminga To Harare S O F A L A Chimoio Chimoio MuanzaMuanza INDIAN OCEAN NhamatandaNhamatanda To DondoDondo Masvingo Beira Beira 20° S BúziBúzi 20° S To Bu úzi Masvingo ChibabavaChibabava EspungaberaEspungabera MachangaMachanga Nova Mambone Nova Mambone Save 0 50 100 150 200 Kilometers InhassôroInhassôro To Rutenga Vilanculos lanculos 0 50 100 150 Miles ChicualacualaChicualacuala MachaílaMachaíla To INHAMBANE INHAMBANE MOZAMBIQUE Messina ChiguboChigubo MARKET LED SMALLHOLDER MapaiMapai G A Z A DEVELOPMENT S O U T H Limpopo Changane IN THE ZAMBEZI VALLEY MassingirMassingir PROJECT PROVINCES A F R I C A InhambaneInhambane PandaPanda FIRST PHASE PROJECT DISTRICTS SECOND PHASE PROJECT DISTRICTS GuijaGuija ChibutoChibuto InharrimeInharrime SELECTED CITIES AND TOWNS 25° S 25° S DISTRICT CAPITALS To Xai-XaiXai-Xai PROVINCIAL CAPITALS Nelspruit This map was produced by ManhicaManhica the Map Design Unit of The World Bank. The boundaries, NATIONAL CAPITAL MoambaMoamba MAPUTOMAPUTO colors, denominations and any other information shown RIVERS MAPUTOMAPUTO on this map do not imply, on To the part of The World Bank MAIN ROADS Mbabane Group, any judgment on the legal status of any territory, DISTRICT BOUNDARIES SWAZILAND or any endorsement or ZitundoZitundo a c c e p t a n c e o f s u c h PROVINCIAL BOUNDARIES boundaries. 30° E 35° E INTERNATIONAL BOUNDARIES MAY 2006