Urban Rehabilitation
    Report No: ; Type: Report/Evaluation Memorandum ; Country: Mozambique; Region: Africa; Sector: Urban Management; Major Sector: Urban
                                                      Development; ProjectID: P001789


    The Republic of Mozambique Urban Rehabilitation Project, supported by Credit 1949-MOZ for
US$60 million equivalent (of which US$6.3 million equivalent was cancelled), was approved in FY89.
The Credit was closed on October 31, 1996, 1.8 years behind schedule. The Implementation Completion
Report (ICR) was prepared by the Eastern and Southern Africa Regional Office. A borrower completion
report is not included.

    Project preparation took place in extremely difficult circumstances as the country’s long civil war still
raged. The project’s objectives were not directly war-related, however. They were to stem the
deterioration of basic infrastructure and services in Maputo and Beira—Mozambique’s two largest cities,
both located outside the theater of armed conflict--and mitigate the social impacts of structural adjustment
through implementing a program of urban rehabilitation and employment generation. The project
complemented other IDA interventions in the education, health, industry, transport and agriculture sectors
in support of the much broader 1987 Economic Rehabilitation Program (ERP) funded by the Bank, IMF
and bilateral donors. Approved in January 1987, ERP aimed at stalling further economic decline of
Mozambique, now recognized as the poorest country in the world.

    To attain its objectives, the project planned to implement five components in Maputo and Beira: (i)
rehabilitation and limited extension of urban infrastructure (roads, storm drainage, water, sewerage and
coastal protection); (ii) rehabilitation of low-income housing; (iii) equipment for municipal services; (iv)
credit for small businesses, home improvement and construction; and (v) technical assistance and training.

    The risks of project failure given the precarious security situation and the very limited capacity of
government agencies to implement an operation of this kind were explicitly recognized at appraisal, but
nevertheless underestimated. Mitigating the risks through implementation assistance alone—as the
project proposed—was clearly not enough. Implementing this kind of operation—covering many
subsectors, and with elaborate but unworkable arrangements for cost recovery—would have been
challenging enough in normal circumstances. Relying upon agencies of a government on a war footing
where day-to-day survival was top priority, this complex project was doomed to fail. With few agencies
able or willing to participate in designing the project, preparation was top-down and failed to nurture
borrower ownership, especially at the local level, according to the ICR.

    Among the project components, road rehabilitation had the highest productivity and the best outcome,
delivering satisfactory physical results and strengthening the National Directorate for Roads and Bridges
(DNEP), the executing agency. But it was the only successful intervention. Other components, such as
water supply and coastal protection failed primarily because of the poor implementation capacity of the
local agencies. Not putting the project’s schemes for cost recovery into place contributed to the failure of
three project components, namely urban solid waste, housing rehabilitation and the lines of credit. Project
housing was not affordable to the intended beneficiaries. There were no funds for sustaining ongoing
solid waste operations. Loans to small businesses effectively became grants, as delinquency rose as high
as 70 per cent. Apart from DNEP, none of the agencies targeted for technical assistance made much
progress under the project’s institutional development component.

    With hindsight, the project erred in raising unduly optimistic expectations about successfully realizing
a complex urban rehabilitation program at an inauspicious time—during civil war—and unpropitious
place—the world’s poorest country. Government priorities were understandably elsewhere and evidently
did not embrace the aims of the project. The project design, is faulty for not taking these unfavorable
conditions into account. Like the ICR the Operations Evaluation Department (OED) rates project
outcome as unsatisfactory and institutional development as negligible. But OED rates sustainability as
unlikely as there is no evidence of even modest progress toward cost recovery, project ownership by local
agencies, ongoing operations and maintenance, or other conditions that might otherwise have ensured the
lasting achievement of benefits that the project failed to generate even in the first place. The ICR rates
sustainability as uncertain. For Bank performance, OED’s rating is unsatisfactory, since the Bank’s
identification, preparation and appraisal efforts led to a fundamentally flawed project design that was
divorced from the reality of war and poverty in which the operation would have been implemented. In
such circumstances, a project design with policy covenants geared toward achieving financial viability
within the urban sector, for example, betrays a poor assessment of the constraints this reality imposed
upon already weak local agencies in the two largest cities of the country. The appraisal’s hope that the
risk of project failure would be dispelled by extra assistance during implementation was unfounded, and
suggests that institutional appraisal was incomplete and that future problems lay ahead. The ICR rates
Bank performance as satisfactory.

     The key lessons of the project are well highlighted in the ICR. Perhaps the most important of these is
that local implementation capacity must drive project design if a sustainable project impact is to be
achieved. Also, for success in very difficult circumstances of war and poverty, project design needs to
focus on a few very important interventions that are feasible to implement and a priority for the borrower.

    The ICR for this project is of satisfactory quality. An audit is not planned.