Report No. PID10891 Project Name GEORGIA-GEORGIA SOCIAL INVESTMENT FUND II Region Europe and Central Asia Region Sector Social Assistance Project ID GEPE74361 Borrower(s) GOVERNMENT OF GEORGIA Implementing Agency Address GEORGIA SIF Address: 39A, Chavchavadze Ave. 11th Floor, Tbilisi, 380062 P.O. Box #112, 380079 Contact Person: Shalva Kokochashvili Tel: 995-32-23-07-79- Fax: 995-32-23-01-03 Email: skokochashvili@gsif.ge Environment Category C Date PID Prepared January 25, 2002 Projected Appraisal Date November 30, 2002 Projected Board Date April 15, 2003 1. Country and Sector Background Nearly 43 percent of the population in Georgia is poor when measured by the official poverty line. The main correlates of poverty are employment status and ownership of productive assets. Urban poverty is more widespread, depper and more severe than rural poverty. Regional differences in living standards vary widely, with the incidence of poverty in the poorest regions being several times that in richer areas. Vulnerability to poverty is high - while the poverty rate is relatively stable, it is estimated that some 80 percent of the poor escaping poverty over the course of a year. Projections of poverty rates under different growth scenarios reveal that economic growth can have a big impact on poverty, but this impact is adversely affected by rising inequality. Poverty is also very sensitive to a slowdown in growth.The formal social protection system in Georgia comprises three main cash benefits - social assistance, pensions and unemployment benefits. Adverse economic developments over the past few years have reduced the formal safety net to a bare minimum. An extensive informal safety net has emerged in its place. However, its coverage is limited, and many families slip through the cracks. Despite severe fiscal constraints, a formal safety net can play an important role in poverty alleviationThe Government recognizes the need to strengthen mechanisms that address population groups at risk. The World Bank has been asked to participate in developing an affordable formal safety net that not only provides protection, but also offers a springboard out of poverty. There is increased interest in introducing strategies that link poverty relief with social services, including in particular stronger community-based services, exploring the positive role that NGOs can play in poverty alleviation, and raising living standards in communities. There is also increased recognition of the importance of entrepeneurship and self-employment in creating new economic opportunities and stimulating privatization and economic development. 2. Objectives The development objective of the Second Georgia Social Investment Fund Project (GSIF II) is to raise living standards among low-income communities in Georgia. GSIF II will achieve this objective by (i) promoting active citizenship participation in the implementation of sustainable community-level micro-projects and building capacity for community action and self-help in addressing local socio-economic problems; and (ii) introducing local governments to the participatory development process. This involves a shift in the emphasis of GSIF interventions from financing micro-projects to using micro-projects as a means to activate and empower communities. A micro-project would no longer be viewed primarily as a construction activity for producing or rehabilitating socio-economic infrastructure. Instead, it would be more comprehensive, consisting of a package of interrelated elements aimed at (i) implementing a project that the community will take ownership of; and (ii) empowering communities to become self-reliant.It also involves a shift in the relationship between local government and its constituency. Where communities become empowered, demand for participation grows, and public authorities become more accountable for their performance. Increasingly this will require the introduction of participatory approaches in the way local government addresses local issues. Only through community empowerment and participatory management can the financial and human resource constraints to raising living standards in poor communities. 3. Rationale for Bank's Involvement IDA brings to bear its global experience in helping design and implement social fund operations that strengthen community action and local governance. In addition, this project will introduce modern standards for construction and repair that are expected to form a basis for new national standards to replace the old Soviet ones. 4. Description The project will have two components: (a) community development; and (b) project management. The project is desdcribed below. 1. Community development (a) micro-projects: (i) socio-economic community works for temporary employment and income generation; (ii) productive community investment projects for sustainable employment and income generation; 2. Project management 5. Financing Total ( US$m) BORROWER 0 IDA 15 Total Project Cost 24 6. Implementation GSIF will be the project implementing agency. It was established as an autonomous public agency under the previous Social Investment Fund Project for the purpose of functioning as a social fund financing community-level demand-driven socio-economic micro-projects. It will be responsible for -2 - overall project management. It will also be responsible for (i) promoting micro-projects at at the community level, and providing training and technical assistance to communities and local governments with a view to generating such projects and establishing local government/community collaboration in their implementation; (ii) appraisal of micro-projects submitted by communities on their own or in collaboration with local authorities and/or other civil society organizations; (iii) supervision (i.e. follow up) of micro-project implementation; and (iv) monitoring and evaluating project outcomes and impact on the target population.Under GSIF II, additional tasks would be added to the GSIF menu. In addition to the directly project-related outreach that it undertakes during the micro-project cycle, it would undertake local government and community-level capacity building - in the former case to incorporate community and citizen participation in the local development planning process, and in the latter to strengthen community-level self-help and advocacy functions.GSIF organization. GSIF is headed by an Executive Director and consists of five departments - project development, micro-projects, procurement, finance and administration, and management information. All departments are manned by skilled professionals recruited competitively and employed on annual, renewable contracts. Work is undertaken either by GSIF staff, sub-contracted, or through a combination of these methods. An Executive Board composed of senior government representatives and one non-governmental representative, approves GSIF policies and procedures, annual budgets and work plans, quarterly and annual reports and appoints an independent auditor. The Executive Board takes decisions on projects over $70,000. All other projects are decided on by the Executive Director in consultation with the department directors. Decision-making is transparent and in accordance with criteria set out in the organization's Operational Manual. An appeals process allows GSIF to work with communities whose projects have been rejected to improve them for re-submission. In accordance with the new emphasis of GSIF's work on community development rather than micro-project support, the organization wil undergo a number of changes as noted above (Section xx). The project development department will be significantly strengthened in order to provide more diversified outreach, and it is expected to increasingly collaborate with outside entities, especially NGOs, in generating community dynamics. At the same time, the working relationships between the different departments will become much closer, the aim being that staff from different departments will work as cohesive mutually supportive teams throughout the project cycle and beyond in inputing community engagement. Technical skills in the micro-project department will be enhanced to enable the introduction of appropriate design and construction norms and standards, and technical specifications will be set out for different types of micro-projects. During project preparation, consideration will be given to restructuring the GSIF Executive Board. During the first project the Board appears to have played only a marginal role in guiding GSIF's operations. Nonetheless, an Executive Board for a social fund has important functions - it represents the public interest in the broadest sense, and it provides an essential linkage to the public administration. Consequently, during project preparation, it will be explored to what extent the Board can be strengthened so as to better reflect those functions by introducing respected representatives from civil society - f.i. academia and the NGO sector - that have a strong interest and expertise in poverty questions, as well as attempting to activate the Board in its important supervisory - 3- role of GSIF activities.GSIF's Operational Manual (OM), and accompanying manuals on finance and administration, will be revised. The OM is the main document guiding GSIF iunterventions. It specifies processes, procedures, roles, and responsibilities for project implementation, and it describes eligible micro-project typologies and key appraisal criteria for micro-projects.In addition to the OM, a comprehensive, computerized Information System (MIS) provides GSIF with up-to-date information on its operational activities and the status of micro-project implementation. As a monitoring instrument, the MIS provides transparency and accountability of GSIF activities, maintains data for relevant poverty targeting, and facilitates contracting and payment by storing information on conjtractors, unit prices and field progress. It also tracks activities in the micro-project cycle, including basic micro-project data, progress of works, cost overruns, etc. The MIS is also a progress evaluation tool that helps to prepare and present progress reports to the GSIF managers, its Board, the Government, the World Bank and other donors.Financial Management: Currently, the accounting system adopted by GSIF does not present an accurate picture of project costs at any point of time because it is maintained on a cash basis, and not on an accrual basis. As a result, it does not facilitate the recording of all dues and expenses, as for example dues from communities, their contributions in kind, expenses incurred, but not paid, and dues to contractors, which are often high, because of shortfalls in Government and communities' contributions. For GSIF II, GSIF will prepare balance sheets based on accrual accounting. 7. Sustainability Sustainability of project benefits is critically dependent on the following: (i) community ownership of micro-projects; (ii) ability of local governments to respond to demands/expectations of empowered communities; and (iii) positive demonstration effect of community participation/empowerment on communities not directly benefiting from the project 8. Lessons learned from past operations in the country/sector Lessons learned from GSIF I: The design of GSIF II will draw extensively on the experience under the first project. The following are major considerations in preparing GSIF II: 1. Sustainability. Sustainable community development requires engagement by community members as well as local governments (participation), the output has to be satisfactory, and operations and maintenance arrangements in place.Community participation requires intensive interaction before, during and after project implementation. GSIF II will reflect this in an increased emphasis on the demand orientation of the project and on community mobilization and capacity building; and capacity building for participatory development at local government levels;In addition to the project being a recognized priority by the community, technical execution is important. Particular attention will be paid to the quality of works during GSIF II, the upgrading of standards and norms, the introduction of technical specifications for all works, and the upgrading of GSIF staff skills accordingly for effective supervisionIncreased attention needs to be paid to operations and maintenance arrangements to ensure that staffing and supplies are available, and preventive maintenance is undertaken appropriately. Both are joint responsibilities of beneficiary communities and local government authorities and underline the need for active involvement of both communities and local governments for successful - 4 - community development. GSIF II will pay particular attention to enhancing community development in both constituencies.2. Micro-project size. Under GSIF I, the average size of micro-projects was a relatively high US$ 70,000 equivalent. This has proven awkward for a number of reasons:In many instances poor communities find it difficult to mobilize the necessary counterpart resources for larger projects;Larger projects that exceed the capabilities of poor communities may often be inappropriate and not cost-effective for the community;Local authorities may unduly influence the selection process in the direction of larger urban projects and in support of official priorities which do not necessarily focus on poverty;Based on some GSIF experience, undertaking large projects may result in underfunded and/or partially completed projects.Therefore, during preparation of GSIF II, consideration should be given to ways of reducing the average size of projects from its current level or, if it is maintained, introducing appropriate constraints.3. Counterpart funds. Shortages of government counterpart funds and difficulties to mobilize community contributions adversely affected performance under GSIF I. Regarding the former, preparation will focus on how to better ensure availability of government funds, essentially to meet tax requirements. Community contributions may have suffered both from a lack of ownership of projects by the community and the often excessive size of projects. These issues will be addressed under the new project - by means of strengthening ownership (see sustainability above), by attempting to reduce project size and designing projects that better correspond to current and future community needs and that are technically sound. The size and nature (cash/in-kind) of the community contribution will also be reviewed.4. Poverty targeting. Under GSIF I, the targeting formula contained a number of biases, which resulted in a selection bias towards wealther communities (see Section xx below). During preparation of GSIF II, consideration will be given to ways to reduce this selection bias, including emphasizing smaller, more manageable projects that are more appropriately calibrated to the community, through more intense outreach by GSIF in seeking affordable and sustainable solutions.5. The GSIF Executive Board. Under GSIF I, the Executive Board played a modest role in guiding GSIFs activities. Nonetheless, a Fund Board plays a prominent role in providing formal links to the government authorities, setting policy directions, avoiding misuse and misallocation of funds and more generally reflecting a national commitment to poverty reduction that involves both public authorities and civil society. For the second project, the structure of the Board therefore will be reconsidered in order to make it pro-active. In particular, consideration will be given to broaden the variety of stakeholders to include a strong representation of NGOs, respected citizens with a strong interest in community work and poverty alleviation, as well as some appropriate selection of representatives of local government authorities and communities.6. Other donors. Currently, GSIF is receiving support from KfW in addition to the IDA. In anticipation of a second IDA credit, GSIF will be encouraged to actively seek broader donor support for its activities. In doing so, particular focus would be given to harmonizing conditions and criteria for the use of the funds of other potential donors as closely as possible with each other for efficient managementImplications for GSIF structure and operations. The proposed shift in emphasis in GSIF II from the undertaking of micro-projects to community mobilization, will have implications for GSIF structure and operations.Promotion. As community mobilization and advocacy throughout the micro-project cycle become - 5- critical to success, outcomes will not only be judged on micro-project completion in the narrow sense of physical construction, but increasingly on indicators of community ownership and empowerment. The role of the GSIF Social Development Unit (SDU) changes. The intensity of interactions between the SDU and client communities may need to significantly increase in terms of number and nature of visits with a greater emphasis placed on advocacy, i.e. community empowerment. The SDU has already developed strategies that, if implemented, would go a long way towards establishing a strong community mobilization and support function. At the same time, the SDU may need to be strengthened, including by reconsidering the role of Regional Coordinators to provide more support for a community empowerment function.GSIF working methods. With a more comprehensive approach to micro-projects and micro-project design, close collaboration between different units in GSIF becomes more important, especially those responsible for promotion, appraisal and follow-up functions. During preparation of GSIF II, the modalities for collaboration will be precisely defined to allow a comprehensive approach. This will also require a review of the skills mix in the various teams, as well as the need for upgrading and broadening of skills - for instance, the design of a micro-project should reflect compatible technical, social and institutional recommendations. Quality of works. Increased attention needs to be paid to the technical quality of works and functional considerations in implementing micro-projects. Appropriate standards for construction and repair need to be developed, and the skills to apply them developed; and functional considerations - the purpose and effective use of the facility - need to be introduced in assessing micro-projects. Only a facility that has appropriate construction standards (f.i. winterization) and meets the needs of the community can be expected to develop ownership at the community level. The micro-project cycle may become longer, as the previous emphasis on community participation in the early stages of the project cycle towards institutional development at the community and local government level. At the same time, there will be an increased emphasis on impact evaluation, including the role of the community in project outcomes and the extent to which community members awareness of problems and their willingness to face them has increased. Changes in GSIF administration. These considerations will have implications for the following elements in GSIF's administration:n The Operating Manual and related manuals and annexes will need to be adjustedn New norms and standards for works need to be developedn The new approaches will generate training requirements on the staff in anticipation of their implementationn A new budget will need to be preparedn The current structure of the organization (the organigram) will need to be reconsideredn The management information system will need to be revisedn Additional staff with complementary skills especially in community development work may need to be employed 9. Program of Targeted Intervention (PTI) N 10. Environment Aspects (including any public consultation) Issues The proposed project is expected to have a positive environmental impact, espcially by rehabilitating sanitation and water-supply facilities. Likewise, improvements in schools in many instances is expected to improve energy efficiency. To safeguard the environment, the GSIF has incorporated environmental criteria into microproject appraisal and selection in accordance with the Environmental - 6 - Impact Assessment methodology in the Operational Manual. Whenever a microproject would have an identifiable negative impact, an appropriate mitigation plan would be submitted to IDA. Microprojects with serious negative impacts would be excluded from funding. The environmental impact methodology and mitigation plans will be monitored during Bank supervision of the GSIF. 11. Contact Point: Task Manager Aleksandra Posarac The World Bank 1818 H Street, NW Washington D.C. 20433 Telephone: 202-458-5950 Fax: 202-477-3387 12. For information on other project related documents contact: The InfoShop The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 458-5454 Fax: (202) 522-1500 Web: http:// www.worldbank.org/infoshop Note: This is information on an evolving project. Certain components may not be necessarily included in the final project. This PID was processed by the InfoShop during the week ending February 2, 2002 - 7 -