Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No 16241

IMPLEMENTATION COMPLETION REPORT

MALAWI

INSTITUTIONAL DEVELOPMENT PROJECT(CREDIT 2036-MAI)

JANUARY23. 1997

CouLntry Department 3Africa Region

This document has a restricted distribution and may be used by recipients only in the performance oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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CURRENCY EQUIVALENT

Current Unit = Malawi Kwacha (MK)

US$1.00 = MK 2.70 (May 1989) = SDR 1.255610US$1.00 =MK 15.26 (Dec. 1994)= SDR 1.448970US$1.00 = MK 15.30 (June 1996) = SDR 1.440840

WEIGHTS AND MEASURES

Metric System

FISCAL YEAR OF BORROWER

April 1 - March 31

ABBREVIATIONS AND ACRONYMS

DCA Development Credit AgreementDEVPLAN Development PlanICR Implementation Completion ReportID I Institutional Development Project IID II Institutional Development Project IIIDA International Development AssociationIMF International Monetary FundGOM Government of MalawiHIID Harvard International Institute for DevelopmentMDC Management Development ConsultantMIM Malawi Institute of ManagementMOF Ministry of FinanceMOWS Ministry of Works and SuppliesOPRPG Operations Policy DepartmentSACS Surtax Administration Computer SystemSAL Structural Adjustment LoanSAR Staff Appraisal ReportSDR Special Drawing RightsTA Technical AssistanceTACS (Income) Tax Administration Computer SystemTMP Tax Modernization ProgramTOT Training of TrainersUK/ODA United Kingdom/Overseas Development AdministrationUNDP United Nations Development ProgramUOM University of MalawiWB World Bank

Vice-President Callisto MadavoCountry Director Barbara Kafka

Staff Member Ladipo Adamolekun, Principal Public Sector Management Specialist

FOR OFFICIAL USE ONLYTable of Contents

PREFACE .......................................................... ii

EVALUATION SUMMARY .......................................................... iii

INTRODUCTION ........................................................... iii

PROJECT OBJECTIVES AND DESCRIPTION ........................................................... iii

IMPLEMENTATION EXPERIENCE AND RESULTS .......................................................... iv

SUMMARY OF FINDINGS .......................................................... v

PART L PROJECT IMPLEMENTATION ASSESSMENT ............................... 1...........................

PROJECT IDENTITY .......................................................... 1BACKGROUND .................................................................................................................................................. 1PROJECT OBJECTIVE AND DESCRIPTION ........................................................... 1ACHIEVEMENT OF PROJECT OBJECTIVES .......................................................... 2MAJOR FACTORS AFFECTING THE PROJECT .......................................................... 3IMPLEMENTATION RECORD ........................................................... 3PROJECT SUSTAINABILITY AND FUTURE OPERATION ........................................................... 5BANK'S PERFORMANCE ........................................................... 5BORROWER'S PERFORMANCE .......................................................... 5ASSESSMENT OF OUTCOME .......................................................... 6KEY LESSONS LEARNED ........................................................... 6TAX REFORM PROGRAM .......................................................... 7

PART H. COMMENTS CONTRIBUTED BY THE BORROWER ......................................................... 12

PART ImL STATISTICAL TABLES .......................................................... 15

TABLE A: SUMMARY OF ASSESSMENTS (MM ........................................................... 15TABLE IB: SUMMARY OF ASSESSMENTS (TAX MODERNIZATION PROGRAM) .................................................... 15TABLE 1C: SUMMARY OF ASSESSMENTS (COMPOSITE OF TABLES IA AND 1B) ....................... I ......................... 16TABLE 2: RELATED BANK CREDITS .......................................................... 17TABLE 3: PROJECT TIMETABLE .......................................................... 17TABLE 4: CUMULATIVE ESTIMATED AND ACTUAL DISBURSEMENTS (US$ MILLION) .................. ...................... 18TABLE 5: PROJECT COSTS (US $ THOUSANDS) .......................................................... 18TABLE 6A: PROJECT FINANCING (US $ MILLION) .......................................................................... 19TABLE 6B: ALLOCATION OF CREDIT PROCEEDS (OBTAINED FROMM I) ......................................................... 19

TABLE 7A: PARTICIPANTS AT MIM's COURSES ............................................ 20TABLE7B: CONSULTING PROJECTS BY CATEGORY .......................................................................................... 20TABLE 7C: CONSULTING PROJECTS BY SECTOR ............................................. ,,,,,.,,,,.. 20TABLE 8: COMPLIANC E WITH CREDIT COVENANTS ............................................ 21TABLE9: BANKRESOURCES: STAFFINPUTS .21............................................ 2 1TABLE 10: BANKRESOURCES: MISSIONS .................................... ...................................................... . 22

AppendicesAPPENDIX A LIST OF PERSONS MET DURING THE MISSION .......................................................................... 1APPENDIX B TWINNING ARRANGEMENT BETWEEN ARA CONSULTANTS AND THE MALAWI INSTITUTE OF

MANAGEMENT ............................................................................... 3APPENDIX C EVOLUTION OF THE ENDOWMENT OF THE MALAWI INSTITUTE OF MANAGEMENT .................. 10

APPENDIX D CONSTRUCTION OF MALAWI INSTITUTION OF MANAGEMENTREPORT BY MINISTRY OF WORKS AND SUPPLIES ............................................................................... 13

APPENDIX E MALAWI INSTITUTE OF MANAGEMENT - ORGANIZATIONAL CHART AT INCEPTION ............... 16MALAWI INSTITUTE OF MANAGEMENT - PROPOSED NEW ORGANIZATIONAL CHART ................................... 17APPENDIX F REPORTS AND OFFICIAL DOCUMENTS ON FILE ........................................................................ 18

This document has a restricted distribution and may be used by recipients only in the performance of theirofficial duties. Its contents may not otherwise be disclosed without World Bank authorization.

IMPLEMENTATION COMPLETION REPORT

MALAWIINSTITUTIONAL DEVELOPMENT PROJECT

(CREDIT 2036-MAI)

Preface

This is the Implementation Completion Report (ICR) for the First Institutional DevelopmentProject (ID I) in Malawi, for which Credit 2036-MAI in the amount of SDR8,800,000 was approvedon June 13, 1989 and which became effective on January 8, 1990. The original closing date for thecredit was December 31, 1994. The closing date was extended thrice for a total of eighteen months,with a final closing date of June 30, 1996. The last twelve months of extension was necessary to allowfor the delivery of approved purchases and the completion of the claims for expenditure. By November4, 1996, the undisbursed balance of the credit was US$143,861.53. This amount was canceledeffective from the same date. The amount approved in 1989 was US$11,300,000 and the amountdisbursed by November 4, 1996 was US$12,051,131.42. The total amount disbursed is higher thanthe amount approved because of gains due to the appreciation of the SDR in terms of dollars.

The ICR was jointly prepared by the Institutional and Social Policy and the CountryDepartment 3 (Preface, Evaluation Summary, Parts I and III). The report was reviewed by BarbaraKafka, (Country Director for Malawi). The Borrower's comments on the ICR constitute Part 11. 1

Preparation of this ICR was undertaken during a Bank mission in January/February 1995. Thedraft ICR served as the Aide Memoire of the mission and was discussed at a wrap-up meeting. Withthe approval of the Southern Africa Department's Operations Adviser who had consulted withOPRPG, the report follows the "simplified form of ICR" as per footnote 3 (c) of OP13.55. It wasconsidered inappropriate to undertake a comprehensive ICR, as spelled out in the April 1995 directiveon ICR (OP 13.55), because the major beneficiary of the credit, the Malawi Institute of Management(MIM), will also be supported under the successor Second Institutional Development Project (ID II)with about 30 percent of the total Credit amount. It was agreed that the elaborate ICR required underOP 13.55 would be more appropriate at the completion of ID II. The report is based, inter alia, on theStaff Appraisal Report; the Credit Agreement; Supervision reports; correspondence between the Bankand the Borrower; internal Bank Memoranda; and interviews with Bank and Malawi Governmentofficials who were closely associated with the project.

' The UNDP that co-financed parts of the project and was expected to provide parallel financing for someother parts was invited to participate in the ICR mission but declined the invitation. However, the mission metwith the relevant UNDP staff and a copy of the draft ICR was sent to them. The Borrower's conunents on theICR were not shared with the UNDP.

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MALAWIINSTITUTIONAL DEVELOPMENT PROJECT

(CREDIT 2036-MAI)

Evaluation Summary

Introduction

1. The Government of Malawi decided to establish a management institute as part of a project forinstitutional development. The Malawi Institute of Management (MIM) was to provide in-servicetraining for middle and senior managers in the public, parastatal and private sectors. The proposedproject also included the strengthening of institutional capacity in the Ministry of Finance and thecontinuation of an on-going Tax Modernization Program. The institutional strengthening actions ofMOF were to be derived from the Ministry's Development Plan (DEVPLAN) prepared with theassistance of the UNDP. Project preparation was completed in 1989 with negotiations in April andBoard approval was granted in June. The project became effective in January 1990.

Project Objectives and Description

2. Project Objectives. The project's objective was to strengthen national economicmanagement. The Malawi Institute of Management was to offer a wide range of training programs andseminars aimed at improving the capacity of Malawian managers in the public and private sectors.The strengthening program in the Ministry of Finance was to improve the Ministry's capacity tomanage public resources through upgrading processes for budgeting, accounting and auditing, debtmanagement and claims, and to improve revenue flows through modernization of the tax system.

3. Project Description. The project was to establish and operate the Malawi Institute ofManagement (MIM) to train managers in the public and private sectors in management techniques. Inaddition to its own campus, MIM was to work closely with the University of Malawi, sharing facilitieswith two of the University's affiliates, Chancellor College and the Polytechnic. An Endowment Fundwas to be established to receive all the fees MIM generated during the five-year project investmentperiod. Income from its endowment, along with annual fees, were to help MIM cover its operatingexpenses in the post-project period. The project was to fund MIM's civil works, furniture, equipmentand operating costs. A Canadian consortium was selected to provide initial technical services under atwinning agreement.

4. The project was also to assist the Ministry of Finance (MOF) with the implementation of itsDevelopment Plan and its ongoing tax modernization program. MOF was to be reorganized tostrengthen its forward budgeting capability, to improve government accounting and auditing, and tostrengthen claims processing and debt management. The project was also to continue support for theongoing tax modernization begun under SAL III. The tax progran was to focus on reforms in tradetaxes, more efficient collection of corporate taxes and an improved duty-drawback scheme to promoteexport growth. The project was expected to provide the technical assistance, equipment and training

iii

required to help MOF carry out its Development Plan and tax modernization program. UNDP wasexpected to provide US$6.0 million equivalent in parallel financing.

5 . It turned out that at project completion in 1994,2 implementation of the MOF component hadnot taken off, except the Tax Modernization Program which continued to be implemented. The story ofthe non-implementation of the major part of the MOF component is provided separately at the end of"Part I: Project Implementation Assessment". The next sections on "Implementation Experience andResults" and "Summary of Findings" are devoted to the project component on the Malawi Institute ofManagement (MIM) and to the sub-component on Tax Modernization, the only part of the MOFcomponent that was implemented.

Implementation Experience and Results

6. Based on the review of available documents both at Headquarters and in the field as well as oninterviews conducted in the field, the mission found that:

A. MIM.

* Training: MIM exceeded planned targets for participants during the first three years butfell short of the targets in the last two years. The conduct of in-house management traimngproved particularly attractive for private sector enterprises. MIM revised and re-designedselected generic courses and introduced some new courses, notably in the areas of BusinessManagement and Human Resources Management. But localization of training materialsprogressed at a lower pace than expected.

* Consultancy: MIM recorded impressive achievements in consultancy with a cumulativetotal of over 150 tasks. The respective shares of clients among the civil service, statutorycorporations and private sector enterprises were 20 percent, 31 percent and 25 percent.MIM's clients expressed satisfaction with the quality of work performed. The onlycomplaints were occasional delays caused by work overload.

* Research: MIM's record in the area of research was poor and the ManagementDevelopment Consultants (MDCs) failed to exploit the mutually beneficial linkagesbetween training, consultancy and research.

* Civil Works: The construction of the campus of MIM was successfully completed, somenine months behind schedule. The construction work appears very satisfactory and theentire complex stands out as a beautiful and functional facility.

2 The original completion date for this project was June 30, 1994, six months before the initial closing date ofDecember 31, 1994. However, some implementation activities continued until December 1994 and projectcredit was still used to cover some operational expenses until June 30, 1995 when the component on MIMunder the successor Second Institutional Development Project (ID II) became effective. Although the closingdate was extended to June 30, 1996, project credit was only used for the purchase of supplies and equipmentthat had been approved before December 31, 1994. Therefore, 1994 will be used as the project completion datein this report.

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B. Tax Modernization Program

The results achieved under the TMP were mixed. The tax base was broadened with theintroduction of surtax and some tax officials attended in-country and overseas training courses,focused on tax auditing techniques, surtax administration, tax collection and tax policy analysis.But the income tax administration computer system that was designed and installed could not beupgraded when this became necessary. There was also delay in the design and installation of acomputerized system for customs and excise administration.

Summary of Findings

The first part of this summary focuses on MIM and the second part is on the TMP.

A. MIM

7. Overall, the project outcome in respect of MIM was satisfactory and the establishment of theinstitute can be called a partial success story. Although a definite opinion on the sustainability ofMIM would have to await the completion of the successor Second Institutional Development Project(ID II), a cross-section of the Institute's clients expressed confidence in its future, provided it learnsfrom the lessons of the first five years. The following were identified as the areas of improvement thatcould contribute significantly to MIM's prospects for self-financing and sustainability: cost-consciousness, diversification and aggressive marketing of training and consultancy products, moresystematic consultation with clients, creative use of visiting trainers (adjunct faculty), networking bothin-country and abroad, and optimal utilization of campus facilities.

8. The main positive lessons learned are:

* Country ownership and commitment built through intensive participation at projectpreparation and maintained through implementation (the beneficiary organization, MIM,was also the implementation agency) were key ingredients for ensuring satisfactory projectoutcome.

* Establishing MIM as a parastatal with significant autonomy ensured a sense ofresponsibility and accountability. To enhance this autonomy the practice of secondingcivil servants to MIM was abandoned in 1993 and the incumbent chairman of MIM'sGoverning Board (1995) was selected from the private sector.

* Donor coordination was effective throughout the project cycle, from preparation throughimplementation. The Bank was informed about the mid-term Evaluation undertaken byGOM and UNDP and it received a copy of the report. In turn, every Bank supervisionmission consulted in detail with UNDP. All this contributed to the achievement of projectdevelopment objectives

* Clarity in the objectives set for technical assistance (TA) as was the case for ARAconsultants (provided under a twinning arrangement with MIM) helped to guarantee sometangible results even though some of the objectives were not achieved. The concreteresults recorded were particularly notable in the areas of curriculum and teaching materialsdevelopment, staff training and development of consultancy capability.

v

* Supervision with appropriate skills mix, and with adequate frequency, had a positiveimpact on project implementation.

9. The following are the lessons from implementation problem areas:

* The weakness of the accounting function in an implementation agency is certain to haveadverse consequences for disbursement, auditing and procurement. MIM's limitedcapacity in accounting was largely responsible for the problems experienced in these areas.MIM was obliged to appoint a professionally qualified accountant as a condition of creditdisbursement under ID II.

* The implications of the objective of self-financing for MIM should have been spelled outmore clearly with strong emphasis on cost-consciousness, examples of investmentopportunities and monitoring targets for measuring progress toward the achievement of theobjective. The fact that successive MIM chief executives failed to devote adequateattention to the subject meant that little progress was made.

* Although MIM was granted significant autonomy, the composition of its Governing Board,with about 80 percent senior civil servants, and the employment of several civil servants asMDCs resulted in the enthronement of civil service culture in the Institute. Progresstoward a business and entrepreneurial culture was slow. The recent increase in the numberof Board members from the private sector, with one of them as its chairman, could help tohasten the transition from a civil service culture to a business culture.

* The weak points in the twinning arrangement between ARA consultants and MIMincluded, among others, poor management of the transition from the expatriate Principal toa Malawian Principal; inadequate attention to the skills mix of the consultants recruitedfor MIM; limited interaction between some ARA experts and their Malawian counterparts;and inadequate attention to research and the development of a business culture.

* The high proportion of TA funds that is spent on the payment of salaries and otherexpenses of expatriates, compared to what is spent directly on building capacity(fellowships for training and purchase of training materials and equipment), is certain toremain a controversial subject. The ARA/MIM experience was not an exception. Overall,about 72 percent of a total of US$4.2 million (provided by UNDP) was spent on the ARAconsultants compared with only 28 percent on building local capacity in MIM.

B. TMP

10. The importance attached to TMP by both the Government and the donors who supported itsimplementation (UNDP and the World Bank) ensured that it was actually implemented even though theother activities under the MOF component were not implemented. However, the results were mixedwith some achievements recorded in the areas of tax policy reform (broadening the tax base) andtraining. Problems included building local capacity in tax policy analysis, increased staff training, andinstallation of computerized systems for income tax, customs and excise administration.

vi

11. The main lessons from the TMP relate to the role of TA in capacity building for development:

* Resident TA that is almost an enclave, as was the case with Harvard Institute forInternational Development (HIID) for most of the 1987-94 period, could performsatisfactorily in some areas (such as the reform of tax policy and the design of newcomputer systems) but inadequate oversight by the beneficiary government could result inavoidable errors such as the unupgradable TACS. With the advantage of hindsight, onecan now say that the oversight the GOM tried to provide through request for periodicreports turned out to be ineffective as HIID produced thick reports (including newproposals for extension of contract) that were not critically reviewed . After thedisbursement of the funds provided under the IDA credit was completed in July 1991, theWorld Bank only monitored developments regarding TMP. And the UNDP apparently didnot supervise the utilization of the additional grants that it provided. The result of all thisfrom 1992 onwards was one "bridging finance" after another (always at the request ofGOM) with no real check on what had been achieved. Thus, for example, the inadequacyof the TACS was not discovered until late in 1994.

* The poor coordination (involving GOM, UNDP and the World Bank) evident in the plansfor the computerization of customs administration suggests that the new strategy GOMwas putting in place for donor coordination in the field of TA for economic and fiscalmanagement (January/February 1995) needed to be fine-tuned. (Subsequently, some fine-tuning of donor coordination mechanisms was carried out and the IMF, UNDP andUK/ODA are now supporting GOM's efforts to improve tax and customs administration).

* The training of counterparts in specialized areas of tax policy analysis and the design andinstallation of computer systems produced the same mixed results as in TA efforts in manyother developing countries: many counterparts were sent for training but only a few havereturned to strengthen tax administration. Some were lost to other sectors of the economywhile a few were lost to natural causes. Currently, GOM has only two experts in taxpolicy analysis and GOM has decided to utilize part of the new Second InstitutionalDevelopment credit to build tax policy analysis capacity.

vii

MALAWIINSTITUTIONAL DEVELOPMENT PROJECT

(CREDIT 2036-MAI)

Part 1. Project Implementation Assessment

Project Identity

Project Name Institutional Development Project (ID I)Credit No. 2036-MAIRVP Unit AF1C3Country Malawi

Background

1. In 1985, the Government of Malawi decided to establish a management institute and itformally requested the Bank for assistance in 1986. GOM's decision was based on studies carried outbetween 1979 and 1985 on how it could provide in-service training for middle-level and senior officialsin the civil service. Following a further preparatory study, it was decided that a Malawi Institute ofManagement would be established with a main campus in Lilongwe and satellite campuses in Zombaand Blantyre. The satellite campuses were intended to help ensure close collaboration between theproposed MIM and the University of Malawi (UOM) through its Chancellor College at Zomba and thePolytechnic in Blantyre. Furthermore, MIM was expected to use the satellite campuses for coursesaimed at the numerous parastatal and private enterprises in the Blantyre area.

2. By 1988, GOM had decided to make the establishment of MIM part of a larger project forinstitutional development. The proposed project included the strengthening of institutional capacity inthe Ministry of Finance (MOF) and the continuation of an on-going Tax Modernization Program(TMP). The institutional strengthening actions of MOF were to be derived from the Ministry'sDevelopment Plan (DEVPLAN) prepared with the assistance of the UNDP. Project preparation wascompleted in 1989 with negotiations in April and Board approval was granted in June. The projectbecame effective in January 1990.

Project Objective and Description

3. Project objective. The project's objective was to strengthen national economic management.The Malawi Institute of Management was to offer a wide range of training programs and seminarsaimed at improving the capacity of Malawian managers in the public and private sectors. Thestrengthening program in the Ministry of Finance was to improve the Ministry's capacity to managepublic resources through upgrading processes for budgeting, accounting and auditing, debtmanagement and claims, and to improve revenue flows through modernization of the tax system.

4. Project Description. The project was to establish and operate the Malawi Institute ofManagement (MIM) to train managers in the public and private sectors in management techniques. Inaddition to its own campus, MIM was to work closely with the University of Malawi, sharing facilitieswith two of the University's affiliates, Chancellor College and the Polytechnic. An Endowment Fundwas to be established to receive all the fees MIM generated during the five-year project investmentperiod. Income from its endowment, along with annual fees, were to help MIM cover its operatingexpenses in the post-project period. The project was to fund MIM's civil works, furniture, equipmentand operating costs. A Canadian consortium, ARA consultants, was selected to provide initialtechnical services under a twinning agreement (see Appendix B).

5. The project was also to assist the Ministry of Finance with the implementation of itsDevelopment Plan and its ongoing tax modernization program. MOF was to be reorganized tostrengthen its forward budgeting capability, to improve government accounting and auditing, and tostrengthen claims processing and debt management. The project was also to continue support for theongoing tax modernization program (TMP)begun under SAL III. The tax program was to focus onreforms in trade taxes, more efficient collection of corporate taxes and an improved duty-drawbackscheme to promote export growth. The project was expected to provide the technical assistance,equipment and training required to help MOF carry out its Development Plan and tax modernizationprogram. UNDP was expected to provide US$6.0 million equivalent in support of the project. At theimplementation stage, only the TMP sub-component continued to be implemented. Following thedetailed "Implementation Assessment" of the MIM component, a brief assessment of the TMP isprovided and this is followed by the story of the non-implementation of the MOF component.

A. MIM

Achievement of Project Objectives

6. The objective of establishing MIM as a center of excellence for training and consultancy inmanagement was achieved to a great extent. The Mid-Term Evaluation Report prepared jointly by theUNDP and the Government of Malawi in July 1992 declared MIM a success story, pointing to the factthat it was providing high quality training and consultancy services for the civil service, the parastatalsand the private sector. At that point in time, MIM steadily exceeded the targets set for it in respect ofboth training and consultancy and its Endowment Fund was much larger than had been anticipated. Atthe end of the project, a verdict of apartial success story would be more appropriate. MIM did notfully meet the targets set for participants at its courses in 1993 and 1994. However, consultancyactivities remained at levels that were above what had been anticipated in the SAR. Although theEndowment Fund was almost thrice the amount projected in the SAR, the real value of the total amountwas probably only slightly over the initial projection because of high inflation and rapid depreciationof the Malawi Kwacha in 1993/1994. The goal of self-financing for MIM at the end of the project,that is, the capacity to meet its operating costs from its Endowment Fund along with annual fees, wasnot achieved (see Appendix C).

2

Major Factors Affecting the Project

7. The poor performance of the Malawian economy from 1992 onwards, due partly to thesuspension of overseas development assistance (excluding humanitarian aid) for governance reasonsand partly to successive droughts, reduced the demand for MIM's services. Although the actual impactis difficult to measure, MIM's clients admitted that a period of staff reduction and reduced profits wasalso matched by reduced resources for training and consultancy services.

8. The political transition that dominated the last two years of project implementation (1993 and1994) had some impact on the project. While the construction of MIM's campus was completelyinsulated from this factor, the leadership crisis at the Institute which persisted for most of 1993 couldbe traced, in part, to the new atmosphere of questioning of authority prevailing in the larger society. Inthe end, the first Malawian Principal who was appointed in April 1992 was removed in September1993. (The interim Principal who took over from him was confirmed in the position a year later).This leadership crisis interlude adversely affected MIM's performance in 1993 and 1994. (In additionto the Principal, MIM lost three of its MDCs whose secondment from the Civil Service was terminatedas part of the resolution of the leadership issue).

Implementation Record

9. Key Performance Indicators. The SAR provided key performance indicators in two areas ofMIM's activities: participants in its courses and the progress recorded in building up its EndowmentFund. A summary of the targets set for MIM regarding participants at its courses and the actualachievements is provided in Table 7A. The targets set regarding the Endowment Fund and the actualresults are recorded in Appendix C.

10. Training, Consultancy and Research. As shown in Table 7A, MIM exceeded the plannedtargets for participants during the first three years but fell short of the targets in the last two years.The adverse effect of the leadership crisis of 1993 was the major explanatory factor of this decline inperformance. The mix of training through the delivery of generic courses and the conduct of in-house(tailor made) training (in form of consultancy) was uneven - participation in in-house training was veryhigh in both 1993 and 1994 when there was a significant decline in the participation in generictraining courses. MIM's clients expressed great satisfaction with in-house management trainingcourses throughout the project period. The courses are designed in close collaboration with relevantofficials of the enterprises concerned and this ensured both relevance and ownership. They were alsocost-effective because they were delivered in-house to varying numbers of clients' employees.Significantly, the private sector made greater demand on MIM's in-house courses than the parastataland public sectors. Selected generic courses were revised and re-designed and some new coursesintroduced, notably in the areas of Business Management and Human Resources Management. Butlocalization of training materials progressed at a lower pace than expected. With regard to the objectiveof having clients pay for the full costs of training at MIM, GOM's 1990 directive to ministries tomake annual budgetary allocations for training was not faithfully implemented and MIM sentconfusing signals to its clients by failing to systematically phase out the fellowships for its courses.

11 MIM's achievements in consultancy were very impressive. The SAR only mentioned that itwould conduct some consultancy tasks, yielding only modest earning that would be paid to itsEndowment Fund. Tables 7B and 7C show the number of consultancy tasks undertaken by MIMduring the period. The respective shares of the civil service, statutory corporations and private sector

3

enterprises are 20 percent, 31 percent and 25 percent. The significant contributions of consultancy toMIM's Endowment Fund is reflected in Appendix C. MIM's clients expressed satisfaction with thequality of work performed by the MDCs. The only complaints were occasional delays caused by workoverload. Within, MIM there was lack of adequate monitoring of the balance between training andconsultancy. Specifically, there was a tendency to spend more time on consultancy (which yieldedadditional earning for the MDCs) than MIM's own rules formally allowed, leaving reduced time fortraining and research. In theory, each MDC was expected to share his/her time as follows: 60 percentfor training; 30 percent for consultancy and 10 percent for research. In practice, MDCs spent, onaverage, more than 40 percent of their time on consultancy.

12. MIM's record in the area of research was poor. The occasional efforts made did not yield anysignificant results. The attempts to launch a publication, were quickly abandoned and no real effortwas made to disseminate what MIM learned about management in the Malawian milieu. The MDCsfailed to exploit the mutually beneficial linkages between training, consultancy and research.

13. Civil Works. The construction of the campus of MIM in Kanengo, Lilongwe, wassuccessfully completed, some nine months behind schedule. The construction work appears verysatisfactory and the entire complex stands out as a beautiful and functional facility. (See Appendix D,"Construction of Malawi Institute of Management. Report by Ministry of Works and Supplies").

14. Disbursements, Counterpart Financing and Co-financing. Disbursement data show asteady utilization of project credit that was very close to the projections in the SAR for the mniddleyears. Total credit disbursed by November 4, 1996 was US$12.1 million.3 The undisbursed balanceat project closing was canceled.

15. Counterpart financing was provided by GOM as required in the DCA. Of the US$1.6 milliongovernment contribution envvuag?.d, US$2.5 million was actually spent. Thuls, the Borrower's share ofproject financing was 21 percent (see Table 6A).

16. UNDP, the cofinancier, was expected to contribute about US$6 million to the financing of theproject UNDP's actual contribution was US$4.1 million.4

17. Procurement. The major procurement in the project was the contract for MIM's campus andthis was done according to acceptable Bank procedures. Procuring vehicles and other equipment alsofollowed acceptable Bank procedures. The final tendering for carpets and furnishing of the buildingson MIM's campus was delayed partly because it had to be prepared over several iterations to ensurecompliance with established procedures. To allow adequate time for completing the procurementprocess, the original closing date of December 31, 1994 was extended thrice at the request of theGovernment for a total of eighteen months, with a final closing date of June 30, 1996.

3 This figure includes the SDR 620,000 (US$0.8 million) spent on TA and training for the Tax ModernizationProgram.4 While UNDP's actual financing of MIM is known, data on its actual financing of the Tax ModernizationProgram are not available. The non-financing of the other activities under the MOF component is discussedseparately below.

4

Project Sustainability and Future Operation

18. MIM has been firmly established as a management Institute and continued IDA support underthe Second Institutional Development project (ID II) is intended to help consolidate the achievementsrecorded under ID I. While a verdict on the institute's sustainability would have to await thecompletion of ID II, the single performance criterion set for it under the new operation is the progress itmakes towardfinancial self-reliance. To this end, performance indicators have been established tomonitor progress and project credit will be provided on a declining basis to ensure that the Institute'sown resources are progressively used to meet operating costs. The SAR for ID II requires MIM toprogressively cover its salaries and operating costs from its Endowment Fund as follows: 20 percent in1995/96, 40 percent in 1996/97, 60 percent in 1997/98, and 80 percent in 1998/99.

Bank's Performance

19. Identification of the project was largely completed by the Government before IDA assistancewas formally requested. Preparation was a joint effort of the Government and IDA. UNDP ascofinancier provided some inputs. In appraisal, the innovative idea of an Endowment Fund for MIMwas adopted but the expectation that the Fund would help to ensure MIM's financial self-reliance at theend of the project turned out to be unrealistic. Similarly, the scope of physical infrastructure envisagedfor MIM - one main campus in Kanengo (Lilongwe), one satellite campus each in Zomba (ChancellorCollege) and Blantyre (at The Polytechnic) and some staff housing - was far beyond what the projectcredit could finance. These ambitious plans were agreed upon by IDA and the Government atnegotiations. However, the physical infrastructure plan was quickly scaled down to the construction ofthe main canpus by the end of the first year of project implementation.

20. Supervision by IDA was adequate: an average of two supervision missions per year. Onlytwo task managers were involved from project preparation through project completion. This continuityhad a positive impact on project implementation. To ensure that MIM was provided with relevantadvice and some comparative perspectives, one Institutional Development Specialist with first-handfamiliarity with the work of similar Institutes in Sub-Saharan Africa participated in one of the twosupervision missions in 1990, 1991, 1992 and 1993. The self-standing reports prepared by theInstitutional Development Specialists contain thoughtful observations and suggestions that MIM couldcontinue to mine for use in future. IDA failed to get MIM to submit audit reports on time. However,the delayed audit reports were unqualified and they were accompanied by useful "management reports"which consistently drew attention to MIM's lack of cost-consciousness. IDA monitored adherence toprocurement and disbursement procedures fairly closely and a major case of misprocurement wasaverted because of the vigilance of the Resident Mission which was systematically involved in projectsupervision.

Borrower's Performance

21. The fact that project identification had been completed by the Government before it requestedIDA assistance was a strong evidence of country ownership and commitment. Subsequently, theinvolvement of several pioneering MIM staff in projectpreparation further deepened borrowerownership and commitment. Government decision to grant significant autonomy to MIM as aparastatal enhanced its smooth take off and steady progress. In implementation, MIM's

5

capacity was rather limited in its Accounting Section and this was largely responsible for the delayedaudits and persistent errors in disbursements. MIM staff responsible for procurement did not fullymaster IDA's procurement procedures and this almost resulted in a serious mis-procurement in 1994.Covenant compliance was very satisfactory; all covenants relating to MIM in the Development CreditAgreement were met on schedule. In project operation, MIM's coordination with the Ministry ofFinance was inadequate, with IDA serving as a link on occasions. Some improvement was noticeableduring the last year of project implementation.

Assessment of Outcome

22. Overall, the project outcome was satisfactory. Indeed, there is a real sense in which theestablishment of MIM could be called apartial success story. The ICR mission found unanimity onMIM's relevance and satisfactory performance among its clients in the public, parastatal and privatesectors. It was variously referred to as a "welcome management gap filler", a "very useful institution",a "superb initiative" and the "best in the market". Although a definite opinion on its sustainabilitywould have to await the completion of ID II, it is significant that the cross-section of its clientsexpressed confidence in its future, provided it learns from the lessons of the first five years. MIM'sstaff as well as all six key members of the Governing Board met by the mission shared this opinion.(See Appendix A). There was broad agreement on the areas of improvement that could contributesignificantly to MIM's prospects for self-financing by the end of ID II: cost-consciousness,diversification and aggressive marketing of training and consultancy products , more systematicconsultation with clients, creative use of visiting trainers (adjunct faculty), networking both in-countryand abroad, and optimal utilization of campus facilities.

Key Lessons Learned

23. The main positive lessons learned are:

* Country ownership and commitment built through intensive participation at projectpreparation and maintained through implementation (the beneficiary organization, MIM,was also the implementation agency) were key ingredients for ensuring satisfactory projectoutcome.

* Establishing MIM as a parastatal with significant autonomy ensured a sense ofresponsibility and accountability. To enhance this autonomy the practice of seconding civilservants to MIM was abandoned in 1993 and the incumbent chairman of MIM'sGoverning Board was selected from the private sector.

* Donor coordination was effective throughout the project cycle, from preparation throughimplementation. The Bank was informed about the Mid-Term Evaluation undertaken byGOM and UNDP and it received a copy of the report. In turn, every Bank supervisionmission consulted in detail with UNDP. All this contributed to the achievement of projectdevelopment objectives.

* Clarity in the objectives set for TA as was the case for ARA consultants helped toguarantee some tangible results even though some of the objectives were not achieved. Theconcrete results recorded were particularly notable in the areas of curriculum and

6

teaching materials development, staff training and development of consultancy capability.

* Supervision with appropriate skill mix, and with adequate frequency, had a positive impacton project implementation.

24. The following are the lessons from implementation problem areas:

* The weakness of the accounting function in an implementation agency is certain to haveadverse consequences for disbursement, auditing and procurement. MIM's limitedcapacity in accounting was largely responsible for the problems experienced in these areas.MIM was obliged to appoint a professionally qualified accountant as a condition of creditdisbursement under ID II.

* The implications of the objective of self-financing for MIM through the Endowment Fundshould have been spelled out more clearly with strong emphasis on cost-consciousness,examples of investment opportunities and monitoring targets for measuring progresstoward the achievement of the objective (see Appendix C). The fact that successive MIMchief executives failed to devote adequate attention to the subject meant that little progresswas made.

- Although MIM was granted significant autonomy, the composition of its Governing Board,with about 80 percent senior civil servants, and the employment of several civil servants asMDCs resulted in the enthronement of civil service culture in the Institute. Progress towarda business and entrepreneurial culture was slow. The recent increase in the number ofBoard members from the private sector, with one of them as its chairman, could help tohasten the transition from a civil service culture to a business culture.

* The weak points in the twinning arrangement between ARA consultants and MIMincluded, among others, poor management of the transition from the expatriate Principal toa Malawian Principal; inadequate attention to the skill mix of the consultants recruited forMIM; limited interaction between some ARA experts and their Malawian counterparts;and inadequate attention to research and the development of a business culture.

* The high proportion of TA funds that is spent on the payment of salaries and otherexpenses of expatriates, compared to what is spent directly on building capacity(fellowships for training and purchase of training materials and equipment), is certain toremain a controversial subject. The ARA/MIM twinning experience was not an exception(see Appendix B). Overall, about 72 percent of a total of US$4.2 million was spent on theARA consultants compared with only 28 percent on building local capacity in MIM.

B. TMP5

5 This assessment is brief, compared to that of MIM, because the IDA funding was disbursed quickly withinthe first eighteen months of project life. Subsequent funding was through "bridging finance" that was mostoften provided retroactively (mostly by UNDP) and the full details were not available to the ICR mission.

7

25. According to the Development Credit Agreement, the Ministry of Finance (MOF) wasexpected to implement TMP "with the assistance of suitable consultants." As already mentioned, theTMP, was already on-going when the other components of the project were being prepared. The firstimplementation phase was through a two-year contract signed with the Harvard Institute forInternational Development (HIID) in 1987. IDA's contribution to the TMP was SDR 620,000 to bespent on TA and training. By July 1991, the IDA credit allocated to the TMP had been spent and overUS $1.0 million of UNDP funds had also been spent on the program. In 1992, UNDP allocated anadditional US $0.5 million to the TMP.

26. Before the HIID contract was renewed for another two-year period (March 1992 - February1994), the major achievements of the TMP were in respect of tax policy and legislative reform,especially the broadening of the tax base. Surtax, a value-added type of taxation, was introduced andlater expanded to cover most services. An income tax administration computer system (TACS) and asurtax administration computer system (SACS) were designed, installed and made operational. Manytax officials attended in-country training courses and a few were sent on overseas training. The in-country training courses focused on tax auditing techniques, surtax administration, and tax collectionadministration (using training manuals prepared by HIID experts). The overseas training courseswere focused on tax policy analysis and computer studies. The achievements recorded during the 1992-94 period consisted of the addition of new features to the computerized income tax system and thedesign of a computerized system for customs and excise administration. By February 1995, the systemwas partially ready to begin operation. In-country training of the staff of both the Income TaxDepartment and the Department of Customs and Excise also continued, especially in computerapplications.

27. Notwithstanding the achievements recorded, the mission found that GOM was dissatisfied withthe performance of its tax and customs administration. The computerized system designed for theIncome Tax Department is not upgradable and the existing system has to be expanded and newequipment must be purchased. With regard to customs administration, new technical assistance to beprovided by the IMF and UK/ODA could mean that only the aspect of HIID computerization workrelating to customs administration in border posts would be used for about two years while a newsystem, the ASYCUDA (reputed to be performing satisfactorily in many developing countries),developed externally, would be installed. If this were to happen, the current system developed forMalawi will be discarded. It would also mean that the Customs Department would not be able toexchange data easily with the computer system already in place for income tax and surtaxadministration. All this would amount to a huge waste of resources: all the expenses on research,design, programming and computer-related training would be lost. Only some of the recently purchasedequipment would be salvaged.

Key Lessons Learned

28. The main lessons from the TMP relate to the role of TA in capacity building for development:

Resident TA that is almost an enclave, as was the case with HIID for most of the 1987-94period, could perform satisfactorily in some areas (such as the reform of tax policy and thedesign of new computer systems) but inadequate oversight by the beneficiary governmentcould result in avoidable errors such as the unupgradable TACS. With the advantage ofhindsight, one can now say that the oversight the GOM tried to provide through request forperiodic reports turned out to be ineffective as HIID produced thick reports (including newproposals for extension of contract) that were not critically reviewed. After the

8

disbursement of the funds provided under the IDA credit was completed in July 1991, theWorld Bank only monitored developments regarding the TMP. And the UNDP apparentlydid not supervise the utilization of the additional grants that it provided. The result of allthis from 1992 onwards was one "bridging finance" after another (always at the request ofGOM), with no real check on what had been achieved. Thus, for example, the inadequacyof the TACS was not discovered until late in 1994.

* The poor coordination evident in the plans for the computerization of customsadministration suggests that the new strategy being put in place for donor coordination inthe field of TA for economic and fiscal management (January/February 1995) needed tobe fine-tuned. (Some fine-tuning of donor coordination mechanisms has since taken placeand the IMF, UNDP and UK/ODA are now supporting GOM's efforts to improve tax andcustoms administration).

* The training of counterparts in specialized areas of tax policy analysis and the design andinstallation of computer systems produced the same mixed results as in TA efforts inmany other developing countries: many counterparts were sent for training but only a fewhave returned to strengthen tax administration. Some were lost to other sectors of theeconomy while a few were lost to natural causes. Currently, GOM has only two experts intax policy analysis and GOM has decided to utilize part of the new Second InstitutionalDevelopment credit to build tax policy analysis capacity.

C. MOF's Devplan: Implementation Failure

29. The identification and preparation of the MOF component involved GOM, UNDP and theBank. Although there were consultations among all three partners during the preparation phase, thestudies undertaken with financial support from the UNDP and the Bank were not effectivelycoordinated. A Bank-supported study, "Building Capacity for the Future: A Program to Strengthen theOrganisational Performance of the Malawi Ministry of Finance in a Period of Structural Adjustment"was completed in February, 1988 while the UNDP-supported study on the Development Plan(DEVPLAN) of MOF was not completed until February, 1989. According to the Development CreditAgreement, MOF was expected to implement its comprehensive development plan by taking allnecessary measures to:

"(a) restructure its organisation, in accordance with such plan, with the assistance ofconsultants, as necessary;

(b) (i) prepare a plan for introducing a forward budget system;(ii) develop terms of reference for a user needs study of computerization

requirements; and(iii) prepare a plan for improving its audit services;

(c) prepare a human resources development plan including a timetable for filling vacancies forprofessional positions in MOF."

30. In September 1990, UNDP approved US$3.5 million to support the MOF DEVPLAN but theproject document was not finalised until October 1991 when it was renamed "Government FinancialManagement Development" and the project fund was reduced to US$2.5 million. The institutional

9

strengthening activities spelled out in the project document were to focus on government financialmanagement, government accounting, government auditing and taxation. (The specificity in the projectdescription contained in the Bank's DCA had disappeared).

31. At the fonnal completion of ID I in June 1994, implementation of the MOF component hadnot taken off apart from implementation of the Tax Modernization Program (TMP) which continuedwith periodic interruptions. GOM, the Bank (which provided the framework ID project) and UNDP(which approved funds for the MOF component) failed to coordinate effectively to ensureimplementation. (See GOM's views on this problem in Part II of the Report). A major problem onthe part of GOM was the lack of continuity and quality in the staffing of MOF in some criticalpositions for most of the period. This delayed the finalisation of the project document and after UNDPhad approved the project, MOF was unable to provide qualified staff to take charge of implementation.Because the MOF component was regarded as one single package (excluding the TMP), the activitiesaimed at strengthening the Accountant General's office could not be implemented even though the AGand his staff were ready for action.

32. UNDP was unable to persuade GOM to employ some technical assistants to lead theimplementation effort. GOM did not want a large proportion of the project fund to be spent on thesalaries of TA. It was at this juncture that UNDP proposed a further reduction of its allocation from$2.5 million to US$ 1.1 million in 1992. (This new reduction coincided with a general reduction ofUNDP's total support for the Fifth Country program, 1992-1996). Finally, UNDP abandonedpressing for the implementation of the Government Financial Management Development Project in July1994 when it diverted the project fund to a new initiative, called Capacity Building Program forEconomic Management (CBPEM).

33. The continuous promise of impending agreement between GOM and UNDP between 1990 and1992 prevented the Bank from considering any amendment to the project's Development CreditAgreement to take into account the non-implementation of the MOF component. Eventually, by thetime the preparation of the successor Second Institutional Development Project (ID II) began in 1992,both GOM and the Bank agreed to take into account the lessons of implementation failure of the MOFcomponent under ID I, especially in respect of the use of technical assistance. Furthermore,strengthening the capacity of the office of the Accountant General was constituted into a distinct sub-component of ID II.

Key Lessons Learned

34. The following are the key lessons learned from this unsuccessful effort to strengthen theinstitutional capacity of the MOF.

* The studies sponsored by IDA and UNDP did not involve MOF staff who were onlyrequired to react to the reports of the studies. This was responsible for the delay infinalising the project document. More importantly, MOF staff did not seem committed tothe project.

* UNDP's excellent idea of using Govermments as executing agencies for its developmentprogrammes runs the risk of failure in cases where there is limited local managementcapacity as in the MOF experience.

10

* Ineffective donor coordination was a major explanatory factor for this implementationfailure. Although both the UNDP and the Bank showed interest in assisting GOM tostrengthen its MOF, no single tripartite meeting was held; the Bank consulted regularlywith the UNDP and each maintained regular contacts with GOM. With the advantage ofhindsight, one or two tripartite meetings (GOM/UNDP/Bank) at some critical points couldhave made a difference.

* The fact that TMP was implemented as a self-standing sub-component suggests that if theinstitutional strengthening actions proposed for the Accountant General's Office and theNational Audit Office had been constituted into self-standing sub-components,implementation could have taken place in the two areas.

11

PART 11. Comments Contributed By The Borrower

Ministry of Finance

Ref. No. 32/l/32NIV/72 8 December 1995

Mr. Ladipo AdamolekunPrincipal PSM SpecialistCapacity Building and Implementation DivisionAfrica Technical DepartmentThe World Bank1818 H Street, N.W.Washington D.C 20433USA

Dear Sir,

INSTITUTIONAL DEVELOPMENT PROJECT (IDP I)CREDIT 2036 - MAI: IMPLEMENTATION COMPLETION REPORT

I acknowledge receipt of the draft Implementation Completion Report (ICR) on the First InstitutionalDevelopment Project which you presented to us in February 1995. I regret the inconveniences causedby our delay in submitting our comments on the report to you.

2. While we generally accept the contents of the draft report, I wish to inform you that we haveproblems in accepting the point made [in paras 28-30] to the effect that the implementation of theMinistry of Finance's component of IDP I did not take off mainly because of lack of continuity andquality of staffing of the Ministry of Finance in some critical positions.

3 . You may wish to note that in 1990, the Ministry of Finance established an ImplementationManagement Group (IMG) to coordinate the activities of the project. The IMG consisted ofrepresentatives from the Ministry of Finance Headquarters and the Departments of AccountantGeneral, Auditor General, Customs and Excise, Income Taxes and Data Processing. The IMG washeaded by a Senior Deputy Secretary and its meetings were often attended by senior officers such asthe Deputy Accountant General, Deputy Auditor General, Controller of Taxes, etc. Thisrepresentation, for us, illustrates serious commitment to the project.

4. In 1990 and 1991, the IMG worked very closely with the UNDP consultant, Mr. Peter Dean inpreparing a project document which we believe was subsequently approved by both the Governmentand UNDP. However, in January 1992 the UNDP informed us that they had decided to retitle theproject to reflect the fact that the project would address problems being faced by both Ministry ofFinance and the Audit Department. A revised document was then submitted to the Government inwhich the UNDP contribution was reduced from the original US$3.5 million to US$2.5 million; noreason was given for the reduction. In addition, a number of the activities proposed by the IMG were

12

removed, while considerable additional UN technical assistance was introduced in the revised documentwithout any prior consultations with the IMG.

5. The revised document was therefore not immediately approved by the Government because itwas felt that the Government did not need all the TA that was being proposed by UNDP. TheGovernment's position was fully discussed with Mr. Dean. The delay in approving the document wasfurther caused by the need on the part of the IMG to review the various project components in line withthe reduced resources from UNDP.

6. It was at this point that we were informed of a further reduction of the UNDP contributionfrom US$2.5 million to US$1.1 million. The reduction, I understand, was largely due to a generalreduction in UNDP's support to Malawi. This was finally followed by the UNDP's decision toreallocate the project's resources to a new initiative related to capacity building.

7. In light of the above, we do not accept the conclusions stipulated [in para 34] of the draft finalreport that "the Ministry of Finance staff did not seem committed to the project" and that there was"limited local management capacity". We believe our commitment was duly illustrated by theestablishment of the IMG which worked closely with UN consultant throughout the time the projectwas being discussed. A project document was jointly prepared by the two parties and wassubsequently apparently approved by the UNDP. The problems arose when the consultant or UNDPdecided to revise the project document unilaterally. In the revised document, the original componentswere changed, additional technical assistance introduced and project costs revised. It is indeed worthnoting that during this process, the UN consultant, Mr. Dean, was the main link in the discussionsbetween the government and UNDP. This is rather unusual, since we normally, in matters like thisone, deal directly with UNDP staff either from the UN Headquarters or the UNDP resident office.

8. It is therefore clear to us that the failure in the implementation of the Ministry of Financecomponent of IDP I was largely a result of poor coordination among the three parties involved, butmainly between the UNDP and the Government. We believe that there is a clear lesson that we shouldin future be careful on we use [sic] consultants during preparation of project proposals.

9. We hope that with these few observations, you will now finalise the preparation of the finalreport of IDP I. We once again apologize for the delay in submitting our comments to you.

Your faithfully,

(signature)J. Chiteyeye

for Secretary to the Treasury

13

Malawi Institute of ManagementP.O.box 30801, Lilongwe

Ref. No. MIM.A.2.0.Vol.IV

11 December 1995

Professor Ladipo AdamolekunWorld BankWashington D.C.USA

Dear Prof. Adamolekun,

DRAFT IMPLEMENTATION COMPLETION REPORT IDP I (CREDIT 2036 - MAI)

I have read the draft ICR for IDP I and confirm that it is a fair representation of MIM's activities.

Yours sincerely,

(signature)Dr. B.F. KandooleExecutive Director

14

PART Ill. Statistical Tables6

Table 1A: Summary of Assessments (MIM)Substantial Partial Negligible Not applicable

A. Achievement of objectivesInstitutional Development XEndowment Fund X

Likely Unlikely UncertainB. Project sustainability X

Highly Satisfactory Deficient Highlysatisfactory unsatisfactory

C. Bank PerformanceIdentification XPreparation assistance XAppraisal XSupervision X

D. Borrower performancePreparation XImplementation XCovenant compliance XOperation X

E. Assessment of outcome X

Table 1B: Summary of Assessments (Tax Modernization Program)7

Substantial Partial Negligible Not applicableA. Achievement of objectives x

Likely Unlikely UncertainB. Project sustainability X l_X

Highly Satisfactory Deficient Highlysatisfactory unsatisfactory

C. Bank PerformanceIdentification XPreparation assistance XAppraisal XSupervision X

D. Borrower performancePreparation XImplementation XCovenant compliance XOperation X

E. Assessment of outcome X

6 Tables 7A, 7B and 7C refer only to the MIM component.7 The Bank's systematic supervision of this sub-component ended when disbursement was completed inmid-1991. The ad hoc nature of the funds provided thereafter accounts for the "deficient" scoresrecorded.

'5

Table 1C: Summary of Assessments (Composite of Tables IA and 1B)8

Substantial Partial Negligible Not applicableA. Achievement of objectives X

Likely Unlikely UncertainB. Project sustainability X

Highly Satisfactory Deficient Highlysatisfactory unsatisfactory

C. Bank PerformanceIdentification XPreparation assistance XAppraisal xSupervision x

D. Borrower performancePreparation xImplementation xCovenant compliance xOperation x

E. Assessment of outcome x

8 These ratings reflect those in Table IA for MIM because of the preponderance of the MIM component in theproject.

16

Table 2: Related Bank Credits

Credit Title Year of Achievement/Purpose j StatusApproval l l

Preceding Operations1. Loan 2027-MAI 1981 Produce studies on which Closed 5/30/85Technical Assistance I reforms were to be based2. Credit 1428-MAI 1983 Closed 6/30/89Second Technical AssistanceOperation

Following Operation1. Credit 2624-MAI 1994 In progressSecond InstitutionalDevelopment Project

Table 3: Project Timetable

Steps in Project Cycle Actual Date (Month/Year)Preparation 10/86, 2/87, 7/87, 2/88, 7/88Appraisal 11/88Negotiations 04/89Board Presentation 06/89Signing 09/89Effectiveness 01/90Mid-term Review 06/92Project Completion 07/94Credit Closing 06/96

17

Table 4: Cumulative Estimated And Actual Disbursements (US$ Million)

Bank FY 1990 1991 1992 1993 1994 1995 1996Appraisal estimate 1.5 4.0 6.5 9.0 10.5 11.3 n.a.Actual 3.1 5.0 7.0 9.0 10.5 11.0 12.1

Actual % of Credit 28% 44% 62% *80% 93% 97% 107%

*The final figure is higher than the original amount because of exchange fluctuation

Table 5: Project Estimated Costs (US $ Million)

Category Appraisal Estimate|___________ |Local Foreign Total Actual (Total)Malawi Institute ofManagement 5.3 7.8 13.1 17.889Ministry of FinanceBudgeting/FinancialManagement 0.4 1.2 1.6Accounting/AuditTax Modernization 0.1 1.8 1.9 0.82'0Sub-total 0.5 3.0 3.5Total Baseline Costs 5.8 10.8 16.6PhysicalContingencies 0.2 0.3 0.5Price Contingencies 0.5 1.3 1.8 ___

Total Project Cost 6.5 12.4 18.9 18.7

9 This amount includes IDA's actual disbursement ($11.3 million) and the actual amount provided the UNDPand the Government of Malawi.10 This represents the actual amount disbursed by IDA. Data on the actual amounts provided by the UNDPand the Government of Malawi were not available to the ICR mission.

18

Table 6A: Project Financing (US $ Million)

Source of funds Planned at Appraisal Revised ActualIDA 11.3 11.3 12.1*UNDP 6.0 4.2 4.1Government 1.6 1.6 2.5TOTAL 18.9 17.1 18.7** The higher figures were due to gains arising from the appreciation of the SDR.

Table 6B: Allocation Of Credit Proceeds

Category Original Actual Original ActualAllocation Disbursement Allocation (US$ Disbursement

(SDR) (SDR) million) (US$ million)1. Civil Works 3,110,000 4.0 4.0 4.852. Vehicles 390,000 0.50 0.5 0.433. Furnishing

& Equipment 860,000 1.1 1.1 1.644. Operating

Costs 1,870,000 2.4 2.4 2.805. Technical

Assistance& training 620,000 0.8 0.8 0.82

6. Refundingof ProjectPreparationAdvance 1,170,000 1.50 1.5 1.51

7. Unallocated 1.08. Difference

due tocross-exchange 39,344.74

9. Amount tobe cancelled 99,340.91

TOTAL 8,800,000 8,800,000.00 11.3 12.1

19

Table 7A: Participants at MIM's Courses

Year Planned* ActualGeneric In-house Total

1990 100 361 278 6391991 180 586 444 10301992 360 711 82 7931993 540 236 200 4361994 720 N.A N.A. 529

* At Appraisal

Table7B: Consulting Projects by Category

1990 1991 1992 1993 1994 Totals %Management Studies 7 16 5 7 7 42 19%Management Systems 11 7 11 5 8 42 19%In-House Courses 20 23 5 12 22 82 38%Organization Development -9 2 6 5 6 28 13 %Executive Assessment - - 4 3 8 15 7%Facilitation (Conference & 2 2 2 6 3 %Seminars)Other 1 - - - 1 1 0%Totals 47 48 33 34 54 216 100%

Table 7C: Consulting Projects by Sector

1990 1991 1992 1993 1994 TotalCivil Service 9 7 8 7 13 44 (20%)Statutory Bodies 12 19 9 11 15 66 (31%)Private Sector 14 7 5 9 19 54 (25%)Inter-Government 9 11 10 6 1 37 (17%)NGOs 3 4 1 1 6 15 (7%)Totals 47 48 33 34 54 216(100%)

20

Table 8: Compliance With Credit Covenants(Reference to Development Credit Agreement)

Section/Para Covenant Compliance2.01 (b) The Borrower shall open a Special Account Opened in Citibank on

May 28, 19902.01 (c) The Borrower shall provide MIM with the Kwacha This was being done

equivalent of $320,000. annually.4.01 (b) The Borrower shall have all accounts audited by Audit was prepared for

independent auditors, including the Special Account and each year with occasionalSOEs. delays.

Schedule 4 1. MIM shall be established as an autonomous bodyPart A with a Board of Governors. Done

5. MIM shall consult with IDA on the qualifications Done twice (1992/1994)and experience of future candidates for Principal.6. MIM shall develop a plan for its consulting practice,including a schedule of fees to be charged andarrangements for sharing with staff. Done7. MIM shall (i) establish an endowment fund and (ii) (i) Doneprepare a strategic plan for its operation. (ii) Done8. MIM shall prepare a strategic plan for its futuretechnical assistance requirements. Done

Schedule 4 1. By December 1989, Ministry of Finance will carry Not done. FundingPart B out its Development Plan, including measures to approved by UNDP in

introduce forward budgeting, develop TOR for user September 1990 ($3.5needs study of computerization requirements, prepare a million) was reduced toplan for improving its audit services. It will also $1.1 million in July 1993prepare a human resources development plan for filling and diverted to a morevacancies in MOF. broad-based capacity

building effort in 1994.2. MOF will implement the tax reform program. Final phase of

implementation throughHIID was extended toJune 30, 1995.

Table 9: Bank Resources: Staff Inputs

ActualStage of Project Cycle Weeks US$'ooo

Preparation to Appraisal 52.5 125.0Appraisal 16.3 36.8Negotiations through Board approval 8.0 16.0Supervision 70.3 194.6Completion 8.2 14.5TOTAL 155.3 385.9

21

Table 10: Bank Resources: Missions

Performance RatingStage of Month/ No. of Specialized Types of Problems

Project Cycle Year Persons Staff Skills Implementation Development ImpactRepresented Status

ThroughAppraisal

Appraisalthrough BoardApprovalSupervisionI 12/89 2 (MS, E) 2 2II 6/90 3 (MS, FE, IDS) 2 2III 12/90 2 (MS, E) 2 2IV 7/91 3 (MS, E, IDS) 2 2V 1/92 2 (MS, E) 2 2VI 8/92 2 (MS, IDS) 2 2VII 2/93 2 (MS, E) 2 2VIII 11/93 3 (MS, E, IDS) 2 2IX 7/94 2 (MS, E) S SCompletion 2/95 2 (MS, E)

1) MS = Management Specialist; E = Economist;IDS = Institutional Development Specialist

2) G = General; P = Procurement; M = Management; F = Financial

22

APPENDIXES

Appendix A

List of Persons Met during the Mission

1. Mr. R. Kavinya, SecretarN to the Treasury, Ministry of Finance2. Mr. J. Chiteyeye, Deputy Secretary, Ministry of Finance3. Mr. Benlamlin, Deputy Resident Representative, United Nations Development

Program4. Mr. J.G. Mbeye, National Program Officer, United Nation Development

Program5. Mr. A. Bobbe, United Nation Development Program6. Dr. B. Kandoole, Principal, Malawi Institute of Management7. Mr. M. Kambuwa, Deputy Principal, Malawi Institute of Management8. Mr. C. Mkandawire, Principal Management Devclopment Consultant,

Malawi Institute of Management9. Mr. H. Chibwana, Registrar, Malawi Institute of Management10. Mr. B. Mawindo, Project Manager, Public Sector Management Improvement

Unit (PSMIU) former Principal Secretary Department of Human ResourcesManagement and Development

11. Mr. S.B. Chikoti, Management Development Consultant, Malawi Institute ofManagement

12. Mr. C.J. Evans, Manpower Development Manager, Press Corporation13. Mr. R.D. Kachigamba, Personnel Manager, Lilongwe City Council14. Mr. E.E. Zilemba. Assistant Chief Accountant (Training), Account General's

Office, Ministry of Finance15. Mr. B. Mvalo. United States Agency for International Development16. Mr. W. Sabola, Training Officer, PROMAT17. Mrs. V.L. Msasata, Assistant Accountant, Lilongwe Water Board18. Mr. H.E. Nyemba, Human Resources & Training Manager, Lilongwe Water

Board19. Mr. F.G.J. Kankwamba, Commercial Manager, Lilongwe Water Board20. Mr. A. E. Chinyanga, Operations Engineer, Lilongwe Water Board21. Mr. M.J. Chirwa, Assistant Projects Engineer, Lilongwe Water Board22. Mr. F.H.D. Imfa. Training Officer, Lilongwe Water Board23. Mr. S.M. Kalyati, General Manager, Mining Investment and Development

Corporation24. Mr. G.M. Musaya, Administration Manager, Mining Investment and

Development Corporation25. Dr. Chawani, Principal Secretary, Department of Human Resources

Management and Development26. Mr. Mwadiwa, Ministry of Finance27. Mrs. Kaluma, Ministry of Finance28. Mr. Roger Ganse, Principal Partner, Development Management Associates29. Mr. Nick Marshall, Principal Partner, Development Management Associates30. Mr. Warrender, Controller of Buildings, Ministry of Works31. Mr. Mulenga, In-charge of Training, Ministry of Labour32. Mr. L. Chinkhuntha, Staff Development Officer, Ministry of Education33. Mr. S. Salamu, Staff Development Officer, Ministry of Education

1

34. Mr. G. Phiri, Human Resource Development Officer, Ministry of Education35. Mrs. Makungwa, Training & Public Relations Officer, New Building Society36. Mr. D. Nkosi, Chairman MIM Governing Board37. Mr. Mvula, National Insurance Company38. Mr. J. Chipeta, Deputy Principal, The Polytechnic, University of Malawi39. Dr. A.G. Phiri, Principal, The Polytechnic, University of Malawi; also Member, Governing

Board of the Malawi Institute of Management40. Dr. G. Mthindi, Dean, Faculty of Commerce, The Polytechnic, University of Malawi41. Mr. E. Sankhulani, Head, Management Center, The Polytechnic, University of Malawi42. Mr. S. Pamdule, ASP Consulting43. Mr. Masikini, Data Processing Department44. Mr. W.J.F. Slater, Senior Partner, Deloitte & Touche45. Mr. Chimombo, Commissioner, Income Tax Department46. Mr. Robert Chesteen, Computer Consultant, HIID

2

Appendix B

Twinning Arrangement Between Ara Consultants And The Malawi Institute OfManagement

At the outset of the creation of MIM, consideration was given to link MIM with anexperienced institution in the delivery of management courses, consulting and research. Through arigorous process, a Canadian firm, ARA, was selected. This consulting firm was charged with thefollowing duties and roles to perform:

i) Recruitment of up to eight expatriate lecturer/consultants on a contract basis;

ii) Provide advice on architectural design (if not completed in phase I) and assistance insupervision of construction;

iii) Training of Malawian staff;

iv) With Malawian faculty, prepare curricula and training materials for courses;

v) Assist in developing local teaching and case materials;

vi) Initiate and develop MIM's consultancy program;

vii) Set up MIM's Library;

viii) Provide staff to run short courses from time to time;

ix) Administer financing arrangement with donor agencies on behalf of MIM;

x) Continue liaison activities begun in Phase I with existing Malawian training institutions inkeeping with MIM's role as coordinating body for management training in Malawi; and

xi) Establish operating procedures and the "culture" of the Institute.

By the end of 1989, MIM had been established as the national institution responsible forproviding management training and consulting services to organizations in all sectors, private,parastatal and public.

Within the twinning arrangement, areas of specialty and individuals were contracted asfollows:

3

ARA Staff Plan for 1990

Title Name MonthsPrincipal F. Schindeler 11.76Consultancy Adviser B. Maude 0.14Trainer K. Boulter 6.12

D. Chicanot 0.79D. Marion 12.00D. Weachter 11.93L. Hallett 1.98

l ____________________ _ ,N. Maddock 5.68H. Auld 1.52F. McDonald 0.46L. Jones 3.52

Consultancy Adviser R. Dunlop 8.19Trainer D. Charron 1.00

Consultants ServiceRequirements from 1989 to Dec. 1994

Position Person MonthsPlanned Actual % Var.

Principal 36.0 31.2 -13

Consulting Manager 36.0 37.9 + 1

Management Trainers 312.0 223 -29

4

Local Staff as at 1990

Name Position Staff Development Plan

1. Dr. Fletcher Banda Deputy Principal Attend first half of oneyear MPA Program

2. Mr. S. Chikoti MDC - Accounting and Attend first year of an 18Finance month professional

accounting course

3. Mr. V. Kumwenda MDC - Accounting and Attend last segment ofFinance professional accounting

course

4. Mr. M. Kambuwa MDC - Organizational Attend short course inBehavior and communications followedCommunications by first half of a 1 year

MA in OrganizationalAnalysis and Behavior

5. Mr. D. Lakudzala MDC - Management Attend short course in aInformation Systems specialized aspect of MIS

6. Mr. C,C. SMDC - Human Resources Attend short course in theMkandawire Management area of personnel

management or generalmanagement

7. Mr. H. Kuchande MDC - Human Resources Attend a short course in anManagement area of personnel

management or generalmanagement

5

Component Budget

Component Budget (US Dollars)UNDP Contribution

Project Component Total 1993 1994 1995

1. Evaluation Mission 21,265 2,821 0 I2. Sub-contract link 3,042,599 112,772 217,116 94,3273. Fellowships: Long-term 198,641 12,937 9,050 0

Short-term 258,880 67,664 115,343 30,0144. Group Training and 23,182 0 12,276 0Study Tours5. In-service training 106,779 95,380 11,399 0(workshops)6. In-country Fellowship 498,089 134,788 126,093 0(Fund)7. Equipment 28,420 0 5,000 08. Miscellaneous 22,145 1,002 5,000 0

Total 4,200,000 427,364 501,277 124,341

As is common in most TA arrangements, a lot of funds are earmarked for TA payments. Inthis particular case, the ARA link costs represent 72% of the available funds with only 28% foreverything else. It is not easy to make value judgment regarding the allocation of these resources.However, on the basis of the evidence provided by various studies and interviews carried out, itappears reasonable to conclude that this was a worthwhile investment.

Evaluation of Skill Transfer

Successes

One major achievement worth mentioning at the outset is the fact that ARA, under theleadership of Dr. Fred Schindeler, established and set up the tone for MIM. Dr. Schindeler's leadershipwas essential for the starting and development of a management institution in a country where no suchinstitution had ever been established. After a one-year trial phase, the first Principal was able toinitiate and evaluate a market study that was the basis of establishing the MIM curriculum. Thisprovided the basis for selecting the eight ARA experts and corresponding counterparts.

Most of the systems used by MDCs in course development and delivery were imparted by theARA. The recruitment procedure for the initial batch of consultants was professionally done. ATraining of Trainers (TOT) course and consultancy skills workshops helped to ensure a solidfoundation for MIM in staff development.

6

Failures

On the negative side, there was a problem of mis-timing. Although the table above shows animpressive number of staff years of expertise, often this was not timely. The skills transfer modelattempted could only have worked to the optimal levels if both the expert and trainee are interacting.What happened most of the time is that the expert held the fort while the MDC went overseas fortraining. By the time the counterpart retumed, the expert's contract was up, hence no real opportunityfor skills transfer. This was the case regarding the first local Principal: he spent very little timeinteracting with the Principal provided by ARA. The second problem encountered was in the selectionof the experts. In some instances, the experts had very little to add to the MDCs. In order to get themaximnum out of such twinning, one has to assess the quality of the expert in relation to the MDC withwhom the expert has to work.

Principal

The first principal for MIM was an expatriate who managed, within two years, to put MIM onthe map. However, this good quality of leadership could not be maintained. The Principal'scounterpart had not put in sufficient time to understudy him. To begin with the two never really spenttime together. Either the Principal was on leave, or the counterpart was on training. To make mattersworse, the counterpart had other responsibilities, including being chairperson or member of variousboards. This did not allow skills transfer to effectively take place. The capacity for the counterpart toleam institutional management was limited. This manifested itself in the management style heportrayed soon after taking over from the expatriate principal.

One important lesson learnt from this type of arrangement is the need to allow a transitionalperiod during which the counterpart taking over from the expatriate could have been assisted by asenior management consultant, serving as Advisor for six to twelve months.

Advisory, Consulting and Research Skills

Arrangement was made to engage an ARA Business Development Advisor to develop MIM'sbusiness culture in management training, consulting and research. Unfortunately, the advisorappointed was ineffective. This was clearly a fault in the identification and selection of the incumbent.Failure of MIM to develop a business culture is largely due to this gap in its staffing. Thus, by the endof the project, MIM was characterized by an administrative culture focusing on regulating activitiesinstead of a pro-active business oriented culture creating opportunities for revenue/profit generatingand cost minimizing.

Although most of the ARA consultants were selected with special care, not all had thecomplete skill mix required. While ARA provided some qualified and experienced consultants, therewere other consultants with limited expertise. A good example was in HRM, where the consultant haddone a good job in training, developed good HRM programs, but had virtually no experience inconsulting and research. Her replacement also had limited experience in consulting. This resulted inthe abandonment of an on-going HRM Consulting Project. The problem could have been avoided ifthe second expert had been selected with due regard to the need for skill and experience in consulting.

7

Attachments to Management Training Institutions and Industry

MIM had, among its strategies, the plan to second or/and attach its members of faculty toindustry and to regional institutions that are in similar business. Attachment of selected staff toindustry would have compensated for the lack of private sector experience by attaching them to privatecorporations. Similarly, attachment to regional management training institutions would have exposedthe staff concerned to some lessons of experience. This strategy was never implemented.

The following excerpts from written comments on the ARAIMIM twinning experienceprovided by three MIM staff in February 1995 provide further elaboration on the summary providedabove.

• "Arrangements was made to have qualified Malawian faculty linked with qualified andexperienced ARA Consultants in the areas of management training, consulting andresearch. This arrangement was to facilitate skills transfer from ARA Consultants toMalawian faculty. This required ARA Consultants to be qualified and experienced inspecific areas of General Management, Human Resource Management, Finance andAccounting, Project Management, Business Management and Management InformationSystems. While in some cases ARA provided qualified and experienced Consultants, inother cases ARA Consultants had limited expertise. In HRM for example the ARAConsultant was an experienced trainer who developed good HRM Programmes. However,in the areas of consulting and research she had very limited expertise. In order to arrestthis problem another HRM ARA Consultant was brought in to develop HRM Consultingprogramme, but she too had limited consulting skills that during her stay at MIM she nevercompleted a substantial HRM Consulting project. In some cases ARA Consultants hadnegative attitudes towards their Malawian counterparts that made skills transfer difficult toaccomplish, particularly in the MIS section. These problems were caused by inappropriatesystem of recruitment which did not attract the best consultants from the internationalmarket."

* "The 'Skill transfer' based on counterparting of local with foreign experts was marred bylots of problem. The local expected highly qualified and experienced experts. More oftenthan not this was not the case. In some cases, the Malawians were more qualified althoughnot experienced compared to their Canadian counterparts. This problem arose at therecruitment stage in Canada. MIM faculty, particularly local faculty were not consultedwhen recruitment was underway. This resulted in the mis match of qualifications, skillsand experience."

* "While the skills transfers model assumed the presence of the expert and local MDC formost of the experts duration, in reality the expert tended to "hold the fort" while the localMDC went overseas for training. By the time the MDC returned, the expert's contractwas up --hence no real opportunity for skills transfer. In other instances, the "experts"brought over had no real added value to the local MDC or Management. This was directlya result of appointing inappropriate or inadequately qualified "experts". There was nothorough process of gauging the net benefit to be gained over and above what the localMDC already had. This had led to disparities between cost of having the expert vis-a-visthe benefit gained."

8

Lessons Learned from the Twinning Arrangement

* Following the departure of the first expatriate Principal, a transitional arrangement couldhave been made to ensure that a senior ARA management consultant was available toserve as an advisor to the new Malawian Principal. The arrangement could have beenmaintained for between 6 and 12 months. The objective is to achieve a smooth transitionand continuity of management system and procedures.

* Recruitment of ARA consultants should have been intensified to capture the best skillsfrom the international market. This should have been combined with an appropriateevaluation by the UNDP (as donor) and Malawi Government.

* To adequately prepare the Malawian faculty, arrangements ought to have been made toattach them to institutions in the region, such as ESAMI, ZIPAM, IDM, in addition to theoverseas attachments and training.

* ARA consultants could have paid more attention to research, case writing, publication andthe development of a business management culture.

* The arrival of experts should be well planned so as to ensure that they could work togetherwith their counterparts. Full interaction between experts and the counterparts is necessaryfor a successful skills transfer program.

9

Appendix C

Evolution of the Endowment of the Malawi Institute of Management

The Institutional Development Project I, provided for the establishment of an endowment fund(at MIM's inception) whose purpose is to enable MIM attain financial sustainability in the post-projectperiod; after June, 1994. The amounts placed in the endowment fund are set aside during the projectperiod (July 1989 to June 1994) and are derived from fees paid by clients, donor fellowships, interestreceived, consulting fees and go on. The fund was projected to grow to K3 million by the end of theproject and it was expected that returns on investments would be adequate to enable MIM to survivewithout government and donor finance in the post-project period.

A summary of the Investment of the Endowment Fund at 31st March 1993 and the projectedinterest payable to the end of the project period follow.

Financial Amount Date of Interest to Interest Rate Project EndInstitution Invested Investment Maturity Date

LFC 400,800 16 Oct. 91 16 Oct. 96 18% 90,180LFC 350,000 8 Jan. 92 8 Jan. 97 19% 83,125LFC 140,000 26 May 92 26 May 97 19% 33,250LFC 110,000 26 May 92 26 May 97 19% 26,126LFC 460,000 7 Oct. 92 7 Oct. 97 22.75% 130,812LFC 456,000 7 Oct. 92 7 Dec. 97 24% 136,800LFC 400,000 9 Dec. 92 9 Dec. 97 24% 120,000LFC 530,000 31 Dec. 92 31 Dec. 97 24% 159,000LFC 600,000 7 Jan. 93 7 Jan. 98 24% 180,000LFC 844,000 17 Feb. 93 17 Feb. 98 24% 251,174LFC 326,000 14 Apr. 93 14 Apr. 98 24% 97,800NBM 90,000 Savings Account 22% 24,552NBM 65,837 Fixed Deposit 24% 19,751NBM 16,441 Savings Account 24.75% 5,086Total Endowment Fund as at 31 March 93 = K4,789,078Interest Expected on Current Investments = K1,357,655Total in Endowment Fund at end of the Project = K6,146,733LFC - Leasing and Finance Company of MalawiNBM -National Bank of Malawi

10

Table 1A: Targets in SAR (1989)Project Year 1 2 3 4 5

IDA FY 1990 1991 1992 1993 1994 TotalFees paid to MIM Endowment inFY 1-6

(a) Course fees per participant 300 325 350 375 400(b) Room & board per 750 825 900 1,000 1,100

participant(c) Sub-total fees per participant 1,050 1,150 1,250 1,375 1,500

Total Fees (1 + 2(c)) 105,000 207,000 450,000 742,500 1,080,000 2,584,500EndowmentAnnual Interest Earned onEndowment

(a)Yr. 1 10,500 10,500 10,500 10,500(b) Yr. 2 20,700 20,700 20,700(c) Yr. 3 45,000 46,000(d) Yr. 4 74,250(e) Yr. 5

Total Interest Rate Earned 10,500 31,200 76,200 150,450 268,350Total Fund in Endowment at end 2,852,850of FY94

Table IB: Malawi Institute of Management - Income from 1989 to 1994Fiscal Year Ending March

1989-90 1990-91 1991-92 1992-93 1993-94 April-Dec. 94 TOTALSINCOME ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL ACTUALS

Course feesEndowment FundUNDP 724,000 464,012 394,650 478,422 1,182,750 3,382,834EEC Sponsored

Courses 97,947 308,700 406,647Participants

Employers 28,250 94,575 290,004 594,428 1,204,201 1,606,500 5,134,258Paid FeesTotal courses 752,250 558,587 387,951 1,297,778 1,682,623 2,789,250 8,923,739

ConsultancesRevenues 389,354 786,211 454,580 761,582 989,519 1,921,426 5,302,671Expenses 27,934 196,971 270,027 230,254 584,666 848,651 2,122,503

361.420 589,240 184,553 531,328 440,853 3,180,169

Interest receivable 10,866 53,455 199,600 463,024 1,296,167 2,062,480 4,085,592Hiring of MIMFacilities 121,121 778,771Income from staffloans include interest 85,000 279,155 76,251 440,406Other miscellaneous 50,886 50,886TOTAL INCOME 763,116 973,462 1,176,791 2,030,355 3,789,273 5,540,841 17,459,563Note: Fiscalyear isApril I to March 31.

11

From March 1993 to December 1994, the Endowment Fund grew by MK4. 1 million making atotal of MK 8.9 million This represents a huge improvement on the estimates in the project's StaffAppraisal Report. However, by 1993 it had become clear that in spite of the good performance of theEndowment Fund to date, MIM would not be able to attain the goal of self-financing by the end of theproject life. Consequently, MIM's Governing Board gave new directives on the utilization of theEndowment Fund (see below) and the Government of Malawi decided to request IDA to support MIMfor another five years under the Second Institutional Development Project.

Observations of MIM's Governing Board on the Endowment Fund, December 1993

The Board considered the Strategic Plan for the use of the Endowment Fund and an Addendumto the Strategic Plan as well as observations from the World Bank. The Board agreed that therecommendations in the three papers should, wherever feasible (and subject to its approval), beimplemented.

The Board approved that the fund should be managed along the following strategies:

* MIM should cease investing in long-term instruments. This strategy can be reversed ifthere is an irreversible drop in the inflation rate.

* MIM should endeavour to reduce its exposure to LFC by gradually reducing its investmentwith the institution. Eventually MIM will need to limit investing in any one institution tonot more than 40 percent of its resources.

* Investment in long-term financial instruments shall gradually be reduced to 20 percentexcept where the yield is positive in real termns and the risk of the yield being negative isminimal.

* Only a float equivalent to MIM's weekly requirements will be held in a current account.The rest will be invested in instruments ranging from 24 hour call account to 3 monthsfixed deposit accounts, or other instruments.

* MIM will explore the possibility of interest computation and payment on a monthly basison deposits with LFC.

* MIM should diversify its investment portfolio to include real estate and Treasury Bills.* MIM should look out new facilities such as those to be available after formation of a

capital market and unit trusts. The Institute will be poised to take advantage of suchfacilities.

The Board further approved that the fund expenditure should be limited to amounts notexceeding 50% income from interest earned subject to implementation of the following measures byMIM:

* Find means to enhance income-generating through the development of new markets* Reduce costs without affecting the quality of the product* Set and implement a pricing policy that makes profit while remaining competitive.

12

Appendix D

Construction Of Malawi Institution Of ManagementReport By Ministry Of Works And Supplies

Design Work

The Ministry of Works and Supplies appointed a local firm of consulting architects,Montgomerie Oldfield and Denn to design and supervise the construction works. Their remit was todesign a campus to a high standard in keeping with the comparable Kamuzu Academy. (MontgomerieOldfield and Denn were the architects for this also).

Bidding Process

The World Bank issued a "no-objection" letter to a list of seven prequalified bidders on 8thDecember, 1990.

Tenders were opened at the Malawi Government Central Board on 22nd February 1991. Thetender results were as follows:

NAME COUNTRY AMOUNT COMPLETION(MK) PERIOD

(Weeks)1. S.R. Nicholas Malawi 15,490,719.74 1302. Terrastone Construction Malawi 16,033,563.00 1203. Fitzpatrick/Shire (Joint UK/Malawi 17,065,902.54 130

Venture)4. Kier Intemational UK 17,819,109.08 1045. Union Engineering Yugoslavia 29,457,295.59 1046. Group 5 Intemational RSA No bid7. Mota and Companhia Portugal No bid

Contract Commencement

The World Bank issued a "no-objection" letter on the award of the construction contract toS.R. Nicholas Ltd on 8th April, 1991. The formal starting date of the 130 week contract was on 3rdJune 1991 giving a contract completion date of 29th November, 1993.

Construction

The contractor progressed steadily throughout the project. His quality of workmanship andlevel of site supervision were of a reasonably high standard.

Regular monthly site meetings were held with representatives of MIM, Ministry of Works,Consultants (Architects, Quantity Surveyors and Engineers), Contractor and his subcontractors.

The project was supervised by Montgomerie Oldfield and Denn in liaison with othersubconsultants. Day to Day Clerk of Works presence was supplied by the Ministry of Works.

13

Completion

The architects issued a certificate of Practical Completion on 23rd September, 1994. On thisdate, responsibility for the campus was handed over to the Malawi Institute of Management,

The ten-month delay in the completion can be attributed specifically to:

1. the lack of imported materials and equipment2. the breakdown in the supply of locally manufactured cement3. delays in the supply of utilities, eg., Electricity and water4. additional works requested by MIM

Most of the problems itemised in 1 to 3 above resulted from the lack of foreign exchangecombined with the effects of the flotation of the Malawi Kwacha in February, 1994. The MalawiInstitute of Management eventually assisted with the purchase of imported materials via the ProjectSpecial Account but this took time to establish the machinery.

Cost

The cost of the construction works have escalated from K15.49 million to approximatelyK17.95. This has largely resulted from:

1. a high level of inflation over the construction period resulting in increased labour andmaterial costs which the contractor is entitled to have reimbursed.

2. additional items requested by MIM.

A copy of the most recent Cost Report is attached.

The contractor has complained bitterly that apart from several large individuals devaluationsof the Malawi Kwacha, the flotation during 1994 led to a further depreciation of 400% against themajor trading currencies. These currency movements have given rise to huge increases in the cost ofthis overheads, plant, transport and supervision which are not recoverable under the contract.

On the other hand, I am sure that the SDR or US$ equivalent of the projected final accountwill be less than that at the commencement of the project.

Outstanding Problems

There remain quite a few small outstanding issues concerning electrical installations andequipment which are being actively attended to. Furthermore, the provision of adequate number oftelephone lines from the nearest exchange have not materialized despite earlier written assurances fromthe Malawi Post Office. Communications difficulties hamnper the effectiveness of the functioning of thecampus.

The provision of furniture and furnishings, which was not part of the construction contract, isalso outstanding.

14

Conclusion

Apart from the unavoidable delays in completion, this project has been implementedsatisfactorily and to a high standard. Given the backdrop of rampant inflation, the final predicted costof K17.95 million is very acceptable.

(signature)A.C. Warrenderfor: Secretary for Works and Supplies

15

Appendix E

Malawi Institute Of ManagementOrganizational Chart At Inception

PRINCIPAL

I . .. .I. I.

;j-13RSAR RA

CONSULlTING i -RAINING LIB3RARY

-1 Consulting Manager -3 Sr. Mgmt. Trainers - 1 Librarian- 5 Mgmt. Trainers - 1 Asst. Librarian

16

Malawi Institute Of ManagementProposed New Organizational Chart

|EEUTIVE|D DRCTOR|

|DIRECTOR OF ||DIRECTOR OF |PROGRAMMAES ||FINANCE & ADMIN|

LRC MDCs MDCs MDCs ADNIINISTRATIVE |ACCOUNTSMGR & HEAD Information FIN. BUS. ECON. HRM. GEN. MT. OFFICER OFFICER

LIB Technology & PROJ. MGT ORGBE. & CO

- Secretaries-Llb.

- Registry Clerks Asst. A.

Inf. Tech. - Office Support Stores &Production SpotProcurement

-_Av. Umt - SwitchboardAv. Unit

- Drivers

17

Appendix F

Reports and Official Documents on File

A. Reports

Audit Reports:

- Accounts for the year ended 31st March, 1991- Management Report, 31st March, 1991- Accounts for the year ended 31 st March, 1992- Management Report 31st March 1992- Report of a Special Audit: Disbursements from Credit No. 2036-MAI of the

International Development Association, December 1990 - March 1992- Accounts for the year ended 31st March 1993- Management Report 31st March 1993- Report on a Special Audit Disbursements from Credit No. 2036-MAI of the

International Development Association, April 1992 - March 1993- Accounts for the year ended 31st March 1994- Management Report 31st March 1994- Report on a Special Audit Disbursements from Credit No. 2036-MAI of the

International Development Association, April 1993 - March 1994

B. Official Documents

September 1989 Letter from Minister of Finance authorizing Malawi'sAmbassador to the USA to sign the Credit Agreement onbehalf of the Government of Malawi

December 14, 1989 Development Credit Agreement

18

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