THE AFRICAN DEVELOPMENT BANK GROUP

PROJECT: MULTINATIONAL NACALA ROAD CORRIDOR DEVELOPMENT PROJECT PHASE V

COUNTRY: MALAWI

PROJECT APPRAISAL REPORT

Date: 24 May 2019

Preparation Team

Team Leader: Davies MAKASA, Principal Transport Engineer COMW 6308 Team Members:

Annah MUJA, Social Development Officer RDGS4 8462 Anne MUKUDI, Senior Gender Specialist RDGS2 8471 Michael MKANDAWIRE, Procurement Officer SNFI3 6309 Joseph BYAMUGISHA, Financial Management Specialist RDGS4 8449 Mwila MUSUMALI, Climate Change Officer PECG2 3983 Pamela AYEBARE, Environnemental/Social Consultant RDGS4 -

Sector Director Amadou OUMAROU PICU 3075 Regional Director Kapil KAPOOR RDGS 2045 Director Mono MUPOTOLA IDRI 2156 Operations Manager Farai KANONDA RDGS1 8411 Officer In-Charge Eyerusalem FASIKA COMW 7049 Operations Manager Mamady SOUARE IDRI0 1987

Peer Reviewers

Vera OLING – Country Economist COMW 6783 Lydie EHOUMAN – Principal Transport Economist PICU1 4215 Richard MALINGA – Principal Transport Engineer RDGS1 8463 George MAKAJUMA – Infrastructure Specialist RDGE3 8241 Zerfu TESSEMA – Chief Transport Engineer RDGE3 8268

Contents I – STRATEGIC THRUST & RATIONALE ................................................................................. 1

1.1 Project linkages with country strategy and objectives .......................................................... 1 1.2 Rationale for Bank’s involvement ........................................................................................ 3 1.3. Donors coordination............................................................................................................. 4

II – PROJECT DESCRIPTION ...................................................................................................... 4 2.1 Project Development Objectives........................................................................................... 4 2.2 Project components ............................................................................................................... 5 2.3 Technical solution retained and other alternatives explored ................................................. 6 2.4. Project type .......................................................................................................................... 7 2.5 Project cost and financing arrangements .............................................................................. 7 2.6 Project’s target area and population ...................................................................................... 9 2.7 Participatory process, project identification, design and implementation ............................ 9 2.8 Bank Group experience, lessons reflected in project design ................................................ 9 2.9 Key performance indicators ................................................................................................ 10

III – PROJECT FEASIBILITY .................................................................................................... 11 3.1 Economic and financial performance ................................................................................. 11 3.2 Environmental and Social impacts ...................................................................................... 12

IV – IMPLEMENTATION ........................................................................................................... 14 4.1. Implementation arrangements ............................................................................................ 14 4.2 Monitoring .......................................................................................................................... 16 4.3 Governance ......................................................................................................................... 16 4.4 Sustainability....................................................................................................................... 16 4.5. Risk management ............................................................................................................... 17 4.6 Knowledge building ............................................................................................................ 17

V – LEGAL INSTRUMENTS AND AUTHORITY.................................................................... 17 5.1. Legal instrument ................................................................................................................ 17 5.2. Conditions associated with Fund’s intervention ................................................................ 18 5.3 Compliance with Bank Policies .......................................................................................... 19

VI – RECOMMENDATION ........................................................................................................ 19 Appendix I – Country’s comparative socio-economic indicators .................................................... I Appendix II – Table of ADB’s portfolio in the country .................................................................. II Appendix III – K ey related projects financed by the Bank and other development partners ...... III Appendix IV – Map of the Project Area ......................................................................................... IV Appendix V – Composition of the Road Network............................................................................ V Appendix VI – Transport costs by commodity USD/tonne (2016) ................................................. V Appendix VII – Multinational Nacala Road Corridor Development Project – Progress.............. VI Appendix VIII – Financing Arrangements by component............................................................ VII Appendix IX – Procurement Summary Table.............................................................................. VIII

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Currency Equivalents April 2019

1 UA = EUR 1.2400 1 UA = USD 1.38825 1 UA = MWK1,020.18

Fiscal Year Malawi: 01 July – 30 June

Weights and Measures

1metric ton = 2204 pounds (lbs) 1 Kilogram (kg) = 2.200 lbs 1 meter (m) = 3.28 feet (ft) 1 millimeter (mm) = 0.03937 inch 1 kilometer (km) = 0.62 mile 1 hectare (ha) = 2.471 acres

ACRONYMS

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ADF African Development Fund AfDB African Development Bank CSP Country strategy paper DPs Development partners EA Executing agency EC European Commission EU European Union EU-AIP European Union Africa Investment Platform EIB European Investment Bank EIRR Economic internal rate of return ESIA Environmental and social impact assessment ESMP Environmental and social management plan FM Financial management GoM Government of Malawi IDEV Independent Development Evaluation IT Information technology JICA Japan International Cooperation Agency MoTPW Ministry of Transport and Public Works MTR Mid Term Review NEPAD New Partnership for Africa’s Development NPV Net present value OSBP One-stop border post PAPs Project affected persons PCR Project Completion Report RA Malawi Roads Authority RAP Resettlement action plan RFA Roads Fund Administration SADC Southern African Development Community SME Small and medium enterprise STIs Sexually Transmitted Diseases SWG Sector working groups VOC Vehicle-operating costs WB World Bank

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Loan Information

Client’s information BORROWER : Republic of Malawi EXECUTING AGENCY : Roads Authority Financing plan

Source

Amount (Million UA) Instrument

ADF-14 (PBA) 13.300 Loan ADF-14 (RO) 13.300 Loan EU-AIP1 15.121 Grant GoM 3.568 TOTAL COST 45.289 AfDB’s key financing information

Loan/grant currency

Units of Account (UA)

Interest type N/A Interest rate spread N/A Commitment fee 0.5% Service charge 0.75% Tenor 40 Years Grace period 10 Years FIRR, NPV (base case) USD 7.92 million EIRR (base case) 16.6%

Timeframe – Main Milestones (expected)

Concept note approval 30th April 2018

Project approval 19th June 2019 Effectiveness 31st December 2019 Last disbursement 31st March 2024 Completion 30th June 2024 Last repayment 30th September 2024

1EU-AIP grant – €18.095 million. Fees to AfDB – €0.362 million is not reflected in the financing plan above.

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PROJECT SUMMARY Project overview The Multinational Nacala Road Corridor Development Project Phase V will involve: (i) Rehabilitation of a 55 km road between Nsipe and Liwonde in Malawi; and (ii) construction of a one-stop border post (OSBP) between Malawi and Mozambique at Chiponde. The total project cost estimate is UA 45.289 million. The African Development Bank (AfDB, or the Bank) will contribute UA 26.6 million (59%), the European Union (EU) UA 15.121 million (33%), and the Government of Malawi (GoM) UA 3.658 million (8%). The project shall be implemented over a period of 5 years starting in July 2019 and ending in June 2024. The development objective of the project is to contribute to regional integration and trade facilitation for Malawi, northern Mozambique, and Zambia. The Nacala Road Corridor is the shortest route to the seaport for Malawi, northern Mozambique and Zambia. The catchment area of the Nacala Road Corridor extends from Lusaka in Zambia, through Malawi, and northern Mozambique to Nacala Port. The beneficiaries include an estimated population of over 2 million people who use the Nacala Road Corridor for personal travel and economic activities. Other beneficiaries include import and export firms in Malawi, Zambia, and northern Mozambique; as well as tourists who use the corridor to reach desired sites in the three countries. In addition to the above, the Nacala Road Corridor will be an important alternative route to the seaport for Malawi and Zambia while the transport infrastructure along the Beira Corridor that was damaged during Cyclone Idai is being repaired. The total amount committed by the Bank and other development partners (DPs) so far on the overall Multinational Nacala Road Corridor Development Project in Malawi, Mozambique, and Zambia is UA 413.041 million (approximately USD 576.26 million).

Needs assessment First, the proposed project is Phase V of the on-going Multinational Nacala Road Corridor Development Project, which the Bank and DPs are currently supporting in Malawi, Mozambique, and Zambia. This project will therefore complement the economic benefits of the on-going projects along the Nacala Road Corridor. Second, this project is in line with the national and regional development strategies to enhance trade competitiveness. Third, the project is within the Bank’s Ten-Year Development Strategy (2013–2022) as well as the Bank’s “High 5s”. The proposed project will specifically contribute to the integration and industrialization of Southern Africa, as well as improving the quality of life of the people of Africa. Bank’s value addition The Bank has extensive experience in the implementation of large-scale road projects and OSBPs in Africa, and Malawi in particular. This wealth of experience will assist in guiding and supervising the executing agency (EA) in Malawi to successfully implement the project. In addition, the Bank’s procurement rules and procedures shall be used to ensure competitive pricing of the project components and value for money. Knowledge management The project has a capacity building component that will include among others: (i) preparation of an axle-load control strategy aimed at the prevention of vehicle overload and protection of the road network; and (ii) installation of a pavement management system (PMS) and training of staff. The PMS will enable the Roads Authority (RA) to efficiently prioritize routine and periodic maintenance works and prepare multi-year and annual budgets that optimize the road sector’s constrained resource envelope.

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RESULTS-BASED LOGICAL FRAMEWORK

Country and project name: Multinational Nacala Road Corridor Development Project Phase V Purpose of project: To contribute to regional integration and trade facilitation for Malawi, Mozambique, and Zambia

RESULTS CHAIN PERFORMANCE INDICATORS

MEANS OF VERIFICATION

RISKS/ MITIGATION MEASURES Indicator

(including CSI) Baseline Target

IMPA

CT

Contribute to trade facilitation and regional integration: Malawi, Mozambique and Zambia

Trade volume (%) along Nacala Road Corridor

14% in 2018 20% by 2025 and 44% by 20302

Import and export statistics at Nacala Port; (2) Malawi National Statistics Office

Risk: Procurement delays Mitigation: The executing agency (EA) is carrying out advance contracting to reduce on procurement lead time. Risk: Cost overrun on road project Mitigation: Bidders will be requested to provide a lump sum in the balance of quantities to take care of price adjustments. This will be competitive and predictable instead of using the price adjustment formula. This has proven effective in other countries. Risk: Inadequate for road maintenance Mitigation: The Bank and donors will continue supporting government effort and initiatives to expand the Road Fund to ensure adequate resources to the road sector (road bonds, road tolls, international transit fees, incremental increase of pump-price fuel levy, etc.).

OU

TC

OM

ES

Reduction in transport cost

Travel time from Nsipe to Liwonde

1.5 hours

50 minutes

Roads Authority (RA) surveys: travel-time and International Roughness Index road condition; OSBP quarterly reports; RA annual reports; Monthly and quarterly project progress reports; Bank supervision Reports, MTR, and PCR.

Composite vehicle-operating costs (VOCs)

USD 0.83/vehicle-km in 2019

USD 0.53 /Vehicle-km by 2023

Reduced wait-time at Chiponde for cargo traffic

Wait-time 24 hours < 6 hours by 2023

Improved road maintenance planning

Percentage budget utilization 60% 80% by 2022

OU

TPU

TS

Rehabilitation of Nsipe-Liwonde Road (55 km)

Road length (km) 0 55 km by 2023

OSBP between Malawi and Mozambique at Chiponde

Number of OSBPs constructed3 0 1

Roadside markets Number of markets constructed 0 2

Axle-load control strategy

Number of reports prepared 0 1

Pavement-management system (PMS) PMS installed N/A

PMS in use by 2023

2 Projection from the National Transport Master Plan (2017) 3 The OSBP on the Mozambique side will be constructed under the Multinational Nacala Road Corridor Development Project Phase III – On-going in Mozambique

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Capacity building

Number of Road Agency/Ministry of Transport and Public Works staff trained

N/A 10 (20% women)

Number of cross-border small and medium enterprises trained

0 20/(50% women)

Temporary employment Jobs created N/A 400 (25% women)

KE

Y

AC

TIV

ITIE

S

COMPONENTS INPUTS (COST ESTIMATE MILLION UA)

1. Road infrastructure 34.368

2. Trade facilitation 10.085

3. Capacity building 0.401

4. Project management 0.435

TOTAL 45.289

FUNDING SOURCE CONTRIBUTION (IN MILLION UA)

African Development Bank 26.600

European Union – Africa Investment Platform Grant 15.121

Government of Malawi 3.568

TOTAL 45,289

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PROJECT TIMEFRAME

ACTIVITY 2019 2020 2021 2022 2023 2024 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4

Project approval Project effectiveness Component 1 – Road rehabilitation 1.1 Nsipe-Liwonde – design 1.2 Mangochi-Chiponde – design 1.3 Nsipe-Liwonde – works 1.4 Construction of markets 1.5 HIV/STI sensitization 1.6 Road safety sensitization 1.7 Road safety audit 1.8 Tree planting 1.9 Compensation Component 2 – Trade facilitation 2.1 OSBP – design 2.2 OSBP – works 2.3 OSBP – installation of information technology 2.4 OSBP – weigh bridge 2.5 Compensation and resettlement Component 3 – Capacity building 3.1 PMS – installation 3.2 PMS – staff training 3.3 Border – staff training 3.4 Axle-load control strategy Component 4 – Project management support 4.1 Financial audit 4.2 Technical audit 4.3 Monitoring & evaluation 4.4 Communication 4.5 Operation budget

Note: The time units are in quarters of a year.

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REPORT AND RECOMMENDATION OF THE MANAGEMENT OF THE AFRICAN DEVELOPMENT BANK GROUP TO THE BOARD OF DIRECTORS ON A PROPOSED LOAN TO THE GOVERNMENT OF MALAWI FOR THE MULTINATIONAL NACALA ROAD CORRIDOR DEVELOPMENT PHASE IV Management submits the following report and recommendation on a proposed loan of UA 26.6 million to the Government of Malawi to finance the Multinational Nacala Road Corridor Development Project Phase V involving rehabilitation of Nsipe-Liwonde Road and construction of an OSBP between Malawi and Mozambique at Chiponde/Mandimba border post.

I – STRATEGIC THRUST & RATIONALE

1.1 Project linkages with country strategy and objectives 1.1.1 The dominant mode of transportation in Malawi is road transport; it comprises more than 85% share of total traffic. Other modes of transport include rail, inland waterways, and air. The road network covers 15,451 km, and 78% of paved roads are in a fair to good condition compared to 50% of unpaved roads being in a fair to good condition. The composition between paved and unpaved network and condition is presented in Appendix V. The total length of the rail line is about 797 km, and it connects with Mozambique and Zambia. Water transport is predominantly on Lake Malawi with four major ports: at Chipoka, Nkhata Bay, Nkhotakota, and Chilumba. There are 27 airstrips and four airports with paved runways, including two major international airports, in Lilongwe and Blantyre. Plans are underway to construct another major airport in Mzuzu, the third-largest city in Malawi. The contribution of the transport sector to the gross domestic product is on average 8%. 1.1.2 Malawi, being a landlocked country, depends on international transport corridors leading to the seaports for its imports and exports. This implies that the efficiency of these corridors has a direct bearing on the country’s trade competitiveness and economic growth. Studies indicate that transport costs for Malawi are relatively high; these costs account for more than 55%4 of the price of imports and exports compared to the sub-Saharan regional average of 20%. The main drivers for high transportation costs in Malawi can be itemized as follows: (i) long distances to the seaports, (ii) poor road infrastructure, (iii) excessive delays due to lengthy clearing processes at ports and border crossings, (iv) poor logistics supply chain, (v) small trucking market, (vi) and low trade volumes due to the small size of the country’s economy. Malawi’s current total volume of exports and imports is just slightly above 2 million tons per year, transported through four main international corridors: Beira (20%), Nacala (15%), Durban (60%), and Dar es Salaam (5%). The distances to the seaports for these corridors and the current indicative transport costs per ton are presented in Appendix VI. 1.1.3 In the last 10 years, Bank interventions in Malawi have concentrated on improving international transport corridors, both road and rail. In the rail sector, the Bank was the lead arranger and provided USD 300 million to Vale,5 in a syndication that refinanced the Nacala Rail and Port Project. In the road sector, the Bank, in collaboration with other DPs, have supported projects along the Nacala Road Corridor since 2009, in Zambia, Malawi, and Mozambique. The effectiveness of these interventions is beginning to show, as more cargo traffic is slowly shifting from Malawi’s traditional routes of Durban and Dar es Salaam to Nacala Port; from less than 6%

4 Malawi National Transport Master Plan (2017 – 2037) 5 Vale is a Brazilian mining conglomerate company that has invested in Moatize coal mine in Mozambique and constructed/partly rehabilitated a railway line from Moatize through Malawi to Nacala Port.

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in 2008 to the current 15%. Cargo traffic to Nacala is expected to grow to 44% by 2030. The Nacala Port in Mozambique, currently concessioned to Northern Development Corridor Company (CDN, is the nearest and most economical port for Malawi. However, due to underdevelopment of the port, and poor roads and border crossings leading to the port, it only handles 15%6 of Malawi’s total imports and exports; by comparison, Durban handles about 60% of Malawi’s cargo traffic, despite being the longest and most expensive route. The current port capacity per year at Nacala is 1.0 million tons for general cargo, 600,000 twenty-foot-equivalent unites, and a coal terminal of 18 million tons. Japan International Cooperation Agency (JICA) has prepared a port development master plan that involves port expansion, handling facility improvement, and storage. The plan is currently being implemented. However, for Malawi, northern Mozambique, and Zambia, to benefit from the improvement at Nacala Port, the whole Nacala Road Corridor stretching from Lusaka through Malawi and northern Mozambique will need to be improved in terms of the road infrastructure and border crossings leading to the port. 1.1.4 The GoM recognizes transport as a key element in the realization of Malawi Growth and Development Strategy (2017–2022) goals, which include a commitment to unlocking private sector potential, attracting investment, and creating jobs. The government has therefore prioritized investment in transport, among other economic infrastructure,7 as a means of supporting other productive sectors – namely agriculture, manufacturing, mining, and tourism – to create wealth and improve the lives of the people of Malawi. The proposed project will specifically support trade facilitation along the Nacala Road Corridor. The project will involve two major components: (i) the construction and establishment of an OSBP between Malawi and Mozambique at the Chiponde/Mandimba border post; and (ii) the rehabilitation of a 55 km road between Nsipe and Liwonde in Malawi along the Nacala Corridor. The governments of Malawi and Mozambique will jointly construct the OSBP. The OSBP on the Mozambique side will be constructed under the Multinational Nacala Road Corridor Development Project Phase III, which is currently on-going in Mozambique. 1.1.5 The Nacala Road Corridor is not only important for Malawi’s national development strategy. It is also part of the Trans-African Highway system and is one of the priority and core corridors in Southern Africa identified under the Programme for Infrastructure Development in Africa, which is managed by the New Partnership for Africa’s Development (NEPAD).8 Once developed, the Nacala Road Corridor will contribute to the Southern African Development Community (SADC) region’s trade competitiveness. The Corridor is also in line with the SADC strategy to develop international corridors to enable regional economic integration and trade competitiveness. In recognition of the economic importance of the Nacala Road Corridor, Malawi, Mozambique, and Zambia signed a tri-partite agreement in 2001 to establish a spatial development initiative zone along the corridor. The initiative involves commitment from the three countries to develop transport infrastructure along the corridor to serve as a backbone around which other economic sectors can grow, attract investments, create jobs, and improve the livelihood of their people. 1.1.6. The project falls within the overall vision of SADC and has been endorsed by SADC member states at the highest level of summit. It is in line with the regional integration and development program of SADC, which is guided by the SADC Regional Infrastructure Development Master Plan and the revised Regional Indicative Strategic Development Plan (2015–2020). The key priority areas of the latter development plan include among others: (i) industrial development and market integration, (ii) infrastructure in support of regional 6 JICA Report (2015) 7 Energy, irrigation, water and sanitation, health, and education 8 NEPAD is a technical wing of the African Union.

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integration; and (iii) special programs with regional dimension such as financing and resource mobilization.

1.2 Rationale for the Bank’s involvement 1.2.1 The proposed project is well aligned to the Bank’s 2018–2022 country strategy paper (CSP) for Malawi. The CSP is anchored on two pillars: (i) Pillar 1 – commits to supporting investments in infrastructure that reduce the cost of doing business, particularly in the energy and transport sectors; and (ii) Pillar 2 – commits to supporting investments in economic transformation projects by strengthening value addition to boost economic diversification. The proposed project supports Pillar 1 of the CSP and spans the Bank’s “High 5s”, specifically, industrialization and integration of Africa, and improving the lives of the continent’s people. 1.2.2 The project is also in line with the Bank’s 2013 to 2022 Strategy, which seeks to support regional integration in Africa for sustainable and inclusive growth as well as integration with the global economy. It is also in line with the Bank’s regional integration strategy, which emphasizes harmonized policy, capacity building and the dissemination of good practice within the regional economic communities. The proposed project also fits within the Bank’s Regional Integration Strategic Framework (2018–2025) and in particular Pillar 1 (infrastructure connectivity), which aims to strengthen regional connectivity and cross-border investment and trade through integrated regional transport infrastructure, among other things. This pillar also addresses areas identified by the project by augmenting “hard” regional infrastructure investments with “soft” support such as complementary capacity development, and trade facilitation. The project will therefore encompass construction as well as capacity development. 1.2.3. The proposed project will be Phase V of the on-going Multinational Nacala Road Corridor Development Project, which the Bank and other DPs9 are already supporting in Malawi, Mozambique, and Zambia. Current project activities along the Nacala Road Corridor include rehabilitation and upgrading of selected road sections, construction of an OSBP between Malawi and Zambia at Mchinji, and improvement of port handling facilities at Nacala Port. The proposed project will contribute to maximizing the economic benefits of the already on-going project phases. The progress on various phases of the project is indicated in Appendix VII. The total amount committed so far on the rehabilitation and upgrading of roads and construction of the OSBP between Malawi and Zambia is UA 413.041 million (approximately USD 576.26 million). 1.2.4 Tropical Cyclone Idai hit Malawi, Mozambique, and Zimbabwe in the middle of March 2019, decimating infrastructure, and culminating in loss of life and displacement of people. Infrastructure along the Beira Corridor was particularly hard hit. This will negatively affect Malawi and Zambia’s imports and exports through Beira. It is expected that, while the Beira Corridor is being restored, the Nacala Corridor will serve as an alternative route for Malawi and Zambia. In Malawi, the heavy rains and floods have affected 15 districts and disrupted socio-economic infrastructure, eroded socio-economic gains made during the recent past, and negatively affected livelihoods. Preliminary damage assessments compiled by the Department of Disaster Management indicates that the total amount required in the short term to restore damaged roads and bridges and improve citizen mobility is about USD 9.1 million. In total for all sectors, the required amount is about USD 45.2 million. The Bank is in the process of preparing a regional project to help restore socio-economic infrastructure across all sectors in

9 DPs include the EU, EIB, JICA, & Korean Exim Bank

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affected areas in the three countries. This project will contribute to the short-term restoration requirements in the transport sector.

1.3. Donor coordination 1.3.1 The 2017 Independent Development Evaluation (IDEV) report on the Bank’s development assistance to Malawi, covering the period 2005 to 2016, noted that the Bank interventions have largely delivered satisfactory results. The report further noted that the policy, legal, and institutional initiatives in the road sector have continued to ensure sustainability in relation to environmental aspects, management, and financing of the road network. Specifically, the IDEC report rated the overall performance of the road sector as satisfactory, both in terms of selection of transport sector interventions and project management. Table 1.1 – Donor coordination

Sector or subsector*

Size

GDP Exports Labor force

Road sub-sector [%] [%] [%] Public annual expenditure in the road sector (2013–2018) Government Donors UA m [UA 60 m] [UA 22 m]

[73.3%] [26.6%]

Level of donor coordination Existence of thematic working groups [YES] Existence of SWAPs or integrated sector approaches [YES] AfDB involvement in donor coordination*** [Leader] * as most appropriate ** years [2014 – 2018] *** for this sector or sub-sector

1.3.2 The active donors in the transport sector are the AfDB, WB, EU, and JICA. The AfDB is currently the lead donor. The donors engage government on sector policy and institutional issues to make the sector efficient. Examples include the gradual increase of fuel levy from 8% to 12% of the pump price, over a period of five years from 2015 to 2020; and the establishment of legislation to establish an autonomous civil aviation authority to improve management and regulation of the civil aviation sector. With the legislation in place, what remains is the actual establishment of this authority. The donors are also part of the sector working group (SWG) that the Ministry of Transport and Public Works (MoTPW) chairs. The SWG meets quarterly to review progress of the annual work plan for the MoTPW, which among other things includes legal and institutional reforms to be carried out during the year.

II – PROJECT DESCRIPTION

2.1 Project development objectives 2.1.1 The development objective of the project is to contribute to regional integration and trade facilitation for Malawi, Mozambique, and Zambia. Specifically, the project will contribute to the reduction of transportation costs along the Nacala Road Corridor, which is expected to enhance Malawi’s trade competitiveness.

AfDB 30% EU 20% WB 35% BADEA 15%

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Table 2.1 – Project components Nr. Component name Est. cost (UA million) Component description

1 Road rehabilitation 1.964 1.1 Nsipe-Liwonde Road – design review/supervision 0.471 1.2 Mangochi -Chiponde Road – feasibility study 31.398 1.3 Nsipe-Liwonde Road Rehabilitation – works 0.209 1.4 Construction of markets 0.025 1.5 HIV/STI sensitization 0.017 1.6 Road safety sensitization 0.05 1.7 Road safety audit 0.033 1.8 Catchment area protection 0.201 1.9 Compensation and Resettlement 2 Trade facilitation 1.588 2.1 OSBP – design review/supervision (Chiponde) 7.856 2.2 OSBP – works 0.216 2.3 OSBP – installation of information technology (IT) 0.125 2.4 OSBP – weigh bridge 0.3 2.5 Compensation and resettlement 3 Capacity building 0.117 3.1 Upgrading of pavement management system (PMS) 0.042 3.2 Training of RA staff in PMS 0.117 3.3 Training border staff/SMEs in OSBP operations 0.125 3.4 Axle-load-control capacity building 4 Project management 0.05 4.1 Financial audit 0.117 4.2 Technical audit 0.117 4.3 Monitoring and evaluation 0.067 4.4 Communication 0.084 4.5 Operating costs TOTAL 45.289

2.2 Project components 2.2.1 The project will have four components, namely: (i) road infrastructure, (ii) trade facilitation, (iii) capacity building, and (iv) support to project management. The detailed description of the activities and cost estimates under each component are presented in Appendix VIII. The OSBP on the Mozambique side will be constructed under the on-going Multinational Nacala Road Corridor Development Project Phase III in this country. 2.2.2 Component 1 – Road infrastructure (UA 34.368 million). This component will include: (i) Rehabilitation of the Nsipe-Liwonde road and feasibility study of the Mangochi-Chiponde Road. The Chiponde-Mangochi Road leads to the border between Malawi and Mozambique and is a continuation of the Liwonde-Nsipe road, which the Bank is currently rehabilitating. (ii) Construction of a market. The market will be located at one of the densely populated areas along the road, to prevent people from selling their merchandise close to the road. (iii). Road safety and HIV sensitization. The rehabilitated road is likely to make motorists move at higher speeds, and the communities in the affected areas will be sensitized on the safe use of the road to avoid accidents. The influx of construction workers in the project area may result in increased risk of HIV/AIDS. The communities will therefore require to be sensitized on the prevention and management of HIV/AIDS. (iii) Technical safety technical will be undertaken to ensure safety of users, including motorist, cyclists, pedestrians, and others. (iv) Catchment area protection. The project will include reforestation in selected areas along the road to prevent erosion and reduce possibilities of roads being washed away during floods. (v) Compensation. All project affected

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persons (PAPs) shall be compensated and, where necessary, there will be resettlements in accordance with the Bank’s policy and Malawian law. 2.2.3 Component 2 – Trade facilitation (UA 10.085 million). This component will include: (i) Construction, installation of information technology (IT) equipment and establishment of the OSBP between Malawi and Mozambique at Chiponde. The OSBP will contribute to reducing cargo traffic waiting time. (ii) Weigh bridge, which will assist in preventing overloading by trucks entering the border at Chiponde. (iii) Compensation. All persons affected by the construction of the OSBP will be compensated. It is expected, however, that compensation will be minimal, as the Malawian and Mozambican sites for the planned OSBP are not inhabited. 2.2.4 Component 3 – Capacity building (UA 0.401). This component will include: (i) Acquisition of a PMS and training of staff. This will enable the RA to improve the road network. (ii) Revision and strengthening of the existing axle-load-management strategy. This will strengthen management and control of overloading on the road network to prevent degradation of the road infrastructure. (iii) Training of border staff and small and medium enterprises (SMEs) in cross-border operations. A gender analysis of SMEs will be conducted during implementation, and women will be targeted for the training. 2.2.5 Component 4 – Support to project management (UA 0.435). This component will support the project monitoring and management in the form of: (i) financial audit services, (ii) technical audit services where necessary, (iii) monitoring and evaluation, (iv) project communication and visibility, and (v) operating costs for facilitating workshops and meetings, especially between Malawi and Mozambique on the OSBP.

2.3 Technical solution retained, and other alternatives explored 2.3.1 Three alternative designs were considered for the reconstruction of the road (see Table 2.2). The optimal solution was determined based on the following considerations: (i) durability, (ii) safety of road users, and (iii) economic benefits. The selected solution involves reconstructing the carriageway to 6.7 m and 2 m sealed shoulders, recycling the existing base course to a sub-base course of 175 mm, constructing a 150 mm thick crusher-run base course, and finishing with a 40 mm asphalt concrete wearing course. The design service life is 20 years based on SADC design standards. The rehabilitated road will follow the alignment of the existing road. The feasibility study and detailed engineering designs of the road were initially done in 2012, and the RA updated the traffic counts, design, and economic analysis in December 2018.

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Table 2.2 – Project alternatives considered and reasons for rejection Alternative Brief description Reasons for rejecting/accepting Option 1

9 6.7 m carriageway and 2 m

shoulders; recycle sub-base and base to subbase; 150 mm base; finish with Cape Seal

1. Less durable compared to asphalt

concrete. Easily polishes by tracks and compromise safety;

2. Economic internal rate of return (EIRR) (15.3%); net present value (NPV) USD 15.3 million – Less than Option 3

Option 2

9 6.7 m carriageway and 2 m

shoulders; recycle sub-base and base to subbase; 150 mm base; and finish with DBST

1. Less durable compared to asphalt

concrete. Raveling of aggregates and potholing common.

2. EIRR (16.3% and NPV (USD 7.11 million) – Less than Option 3

Option 3 (selected)

9 6.7 m carriageway and 2 m

shoulders; 175 mm recycle sub-base and base to subbase; 150 mm base; and finish with 40 mm asphalt concrete

1. Asphalt concrete is more durable; 2. Maintenance costs are lower 3. EIRR (16.6%) and NPV

(USD 7.92 million) – higher than Option 1 & 2

2.4. Project type 2.4.1 The project is a stand-alone operation, which means the Bank will closely supervise its implementation. It suits typical civil works contracts for road projects as opposed to budget support. 2.5 Project cost and financing arrangements 2.5.1. The total project cost is UA 45.289 million. The Bank will contribute UA 26.6 million (59%), the EU will contribute UA 15.121 million (33%), and the GoM will contribute 3.568 million (8%). It is noteworthy that in July 2017 a framework agreement between the European Commission (EC) and the Bank was approved, referred to as the Pillar-Assessed Grant or Delegation Agreement (PAGODA) (Resolution No. B/BD/2017/124 – F/BD/2017/87). On 25 February 2019, the EC approved a grant of EUR 18.095 million for this project. The Bank and the EC are expected to sign a delegation agreement with regard to the project, which will define the activities entrusted to the Bank for implementation under the project. It will define the implementation modalities, lay down the rules governing the transfer of the EU’s contribution, and further define the relations between the Bank and the EC. The Bank shall disburse and manage resources to be obtained from the EU-Africa Investment Platform (EU-AIP). A grant agreement shall be signed between the Bank and the Recipient. The GoM will finance compensation and resettlement and will contribute 10% to the road works. The tables below present summaries of the cost estimates per component and category, and the financing plan. In consultation with the Mozambican government, the Bank has applied for an EU grant to supplement resources under Nacala Project Phase I to complete the upgrade of the Nampula-Cuamba Road and supplement financing for the construction of an OSBP between Malawi and Mozambique at Chiponde/Mandimba border post under the Nacala Road Project Phase III, Muita-Massangulo road. The request has passed the EU technical committee and is scheduled to be presented to the EU Board for consideration and approval in July 2019.

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Table 2.3 – Project cost estimates by component (UA million)10 Components

Foreign currency

costs

Local currency

costs

Total costs % Foreign

Road infrastructure 21.480 7.160 28.640 75% Trade facilitation 5.883 2.521 8.404 70% Capacity building 0.334 0.000 0.334 100% Project management support 0.218 0.145 0.363 60% Total base cost 27.915 9.826 37.741 74% Physical contingency (10%) 2.791 0.983 3.774 74% Price contingency (10%) 2.791 0.983 3.774 74% Total project cost 33.498 11.792 45.289 74%

Table 2.4 – Sources of financing (UA million) Sources of financing Foreign

currency costs

Local currency

costs

Total costs % Total

AfDB Group 19.684 6.916 26.600 59% EU-Africa Investment Platform 11.190 3.931 15.121 33% Government of Malawi 2.284 1.284 3.568 8% Total project cost 33.157 12.132 45.289 100

Table 2.5 – Project cost by category of expenditure (UA million) Categories of expenditure

Foreign currency

costs

Local currency

costs

Total costs % Foreign

Works 24.335 8.550 32.885 74% Services 3.513 0.390 3.903 90% Goods 0.666 0.286 0.952 70% Total base cost 28.514 9.226 37.740 76% Physical contingency (10%) 2.851 0.923 3.774 76% Price contingency (10%) 2.851 0.923 3.774 76% Total project cost 34.217 11.071 45.288 76%

Table 2.6 – Expenditure schedule by component (UA million)

Components 2019 2020 2021 2022 2023 TOTAL 1. Road rehabilitation 0.400 9.000 11.000 11.000 2.968 34.368 2. Trade facilitation

0.500 4.000 4.000 1.585 10.085

3. Capacity building

0.050 0.151 0.1000 0.100 0.401 4. Project management

0.109 0.109 0.109 0.109 0.435

Total 0.400 9.659 15.240 15.209 4.762 45.289 10 Exchange rates are provided in the introduction of this report (page ii).

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2.6 Project’s target area and population 2.6.1. The proposed project is Phase V of the on-going Multinational Nacala Road Corridor Development Project in Zambia, Malawi, and Mozambique. The target area is the entire Nacala Road Corridor from Lusaka in Zambia through Malawi and Mozambique to the Nacala Port. The target population are the people in the three countries that use the Nacala Road Corridor for personal travel and economic reasons, an estimated population of more than 2 million people. Other beneficiaries include import and export firms in Malawi, Zambia, and northern Mozambique, as well as tourists who use the Nacala Road Corridor in the three countries.

2.7 Participatory process, project identification, design and implementation

2.7.1 Sector level: SADC member states have prioritized the Nacala Road Corridor Development Project, which is particularly important for trade competitiveness for Malawi, Mozambique, and Zambia. In addition, both the MoTPW’s Transport Sector Investment Program and the RA’s five-year business plan (2017–2022) prioritize the section of road earmarked for rehabilitation.

2.7.2 Project level: The proposed project has benefited from stakeholder consultations conducted during project preparation and appraisal, as well as during preparation of the environmental and social impact assessment (ESIA) and the resettlement action plan (RAP). Stakeholder consultations were held with local authorities and the traditional leadership in Ntcheu and Balaka districts. The community members welcomed the project and observed that the project will generate economic opportunities in the area. However, they raised the following concerns: (i) compensation payment method and complaint redress mechanisms; and (ii) mitigation measures against the spread of HIV/AIDS and social tension due to the influx of construction workers from other towns. The project has addressed the issue of compensation in the RAP. Environmental issues have been addressed in the environmental management plan. A budget has been allocated for HIV/AIDS sensitization and road safety awareness programs. 2.8 Bank Group experience, lessons reflected in project design 2.8.1 In the last decade, in addition to the on-going Multinational Nacala Road Corridor Development Project Phase IV, the Bank has completed three other major road projects: the Malawi Trunk Roads Rehabilitation Project (UA 23 million), the Mzuzu-Nkhata Bay Road Rehabilitation Project (UA 22 million), and the Lilongwe Western Bypass (UA 14.32). A number of lessons have been drawn from these projects (detailed in Table 2.7).

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Table 2.7 – Lessons learnt Times

Description Lesson

1.

Procurement of services, installation of IT equipment, and works for OSBP

x The design review and supervision services contract should be under one contract and the cost shared by the two countries.

x Preferably only one contractor should be procured to do the works on both sides. However, the bills of quantities for purposes of payments for actual work done on each side of the border should be different

2.

Gender mainstreaming in project

x The proposed project will benefit from the experiences on on-going projects, which include, equitable allocation of market stalls between men and women, targeting 60% of women, as the majority of women sale in markets; making sure that, the construction site is friendly to women to encourage them to work with men; and training of SMEs, targeting at least 50% of SMEs to be women.

3.

Interim payments to the contractor

x The EA tends to lump several interim payments certificates (IPCs) in one disbursement request. This has always created confusion when checking which IPCs have been paid. Under the proposed project, each IPC will have a corresponding disbursement request.

4.

Use of the price adjustment formula

x The experience in Malawi is such that, contractors have often times abused the use of the price adjustment formula. Under the proposed project, the contractors will be required, in the bidding documents, to quote a lump sum to take care of price adjustments of materials, equipment and labor. This lump sum will then be spread over the duration of the contract in monthly payments. This way, provision of price fluctuations under the works contracts will be competitive, predictable, and easy to manage. This approach of providing for price adjustment has worked well in some countries

2.9 Key performance indicators 2.9.1 Impact indicator: The medium- to long-term impact of improving the Nacala Road Corridor will be the increase in trade volume (in tons) passing through the corridor to Nacala Port. At the moment, Nacala Port handles only about 15% of Malawi traffic cargo. Once improvements are made to the port facilities, road infrastructure, and border crossings, cargo traffic from Malawi and Zambia passing through Nacala Port is expected to increase from the current 15% to 25% by 2025 and to 44%11 by 2030. Data for this indicator will be obtained from the Malawi National Statistical Office’s figures of imports and exports collected at border crossings. 2.9.2 Outcomes: The project outcomes shall include: (i) Reduction in transport costs in terms of savings in travel time and vehicle-operating costs (VOCs) on account of the improved roughness

11 Projections from the National Transport Master Plan (2017)

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of the road. (ii) Reduction in waiting time at border crossings. The establishment of an OSBP between Malawi and Mozambique is expected to cut down the waiting time of cargo traffic, especially over the medium to long term, when traffic along the Nacala Road Corridor increases as anticipated. (iii) Improved road maintenance planning. Installation of a PMS and staff training will enable the RA to produce improved multi-year and annual work plans and be able to optimize the constrained budget for road maintenance. Data on outcomes will be obtained from the travel and road roughness surveys, and the actual work plans generated based on the PMS that shall be acquired. 2.9.3 Outputs: The following outputs are expected from the project: (i) Rehabilitation of a stretch of 55 km of road from Nsipe to Liwonde. (ii) Construction and operationalization of the OSBP between Malawi and Mozambique at the Chiponde/Mandimba border post. (iii) Installation of a PMS and training of staff. (iv) Establishment of a roadside market. (v) Creation of 400 temporary jobs (25% held by women) and planting of about 400 trees at selected places along the road. Progress on output indicators will be based on project progress reports.

III – PROJECT FEASIBILITY

3.1 Economic and financial performance

3.1.1 The economic analysis of the project is based on a cost-benefit analysis. The “with” and “without” project costs and benefit streams were compared over a period of 15 years using the Highway Development and Management Model (HDM-4). The project’s economic viability has been determined in terms of net present value (NPV) and economic internal rate of return (EIRR). See Table 3.1 for the economic analysis results for the selected option (Option 3 – asphalt concrete surfacing). Table 3.1 – Key economic and financial figures – Option 3 NPV (base base) USD 7.92 million

EIRR (base base) 16.6% 3.1.2 A discounted rate of 12% (the opportunity cost of capital for Malawi) has been used, and a standard conversion factor for Malawi of 0.85 has been used for converting financial costs to economic costs. The costs and benefits considered in the economic analysis are described below. Project costs considered are: (i) capital investment cost; and (ii) routine and periodic maintenance costs during the operation of the road – the routine maintenance and construction unit cost has been determined from current maintenance rates and from recent projects the RA tendered. The project benefits include: (i) savings in VOCs for normal and generated traffic – the annual average VOC per vehicle-km (for a car) is expected to reduce by 25%; and (ii) savings in travel time for motorized traffic between Nsipe and Liwonde, which is expected to reduce by 25%. A sensitivity analysis was conducted for the selected option (Option 3 – asphalt surfacing) by considering a worst-case scenario where project costs increased by 20% and benefits reduced by 20%. The results indicated that, even under the described worst-case scenario, Option 3 (asphalt concrete) had an internal rate of return of 12.1% and NPV of USD 1.290 million. Based on the above results, Option 3 was considered to be economically viable. Details of switch value analysis are presented in Technical Annex B.7.

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3.2 Environmental and social impacts Environment 3.2.1 The project has been classified as category 1. This is in line with the Bank’s environmental safeguards policy, for road projects in excess of 50 km. However, even if it classified as category 1, the project is not expected to cause any significant impacts to the environment and livelihoods of the people in the project area because the rehabilitation of the road will follow the existing alignment, and all road works will be confined within the road reserve, measuring 30m from either side of the road centerline. The ESIA and the RAP for the Nsipe-Liwonde Road Rehabilitation were prepared in January 2019 and have the approval of the Malawi Ministry of Environment and Climate and the Bank. The ESIA and RAP were prepared in compliance with the Bank’s environmental and social safeguards policies, particularly the Integrated Safeguards system (OS1 & OS2).12 In accordance with the Bank’s requirements, the summaries were posted on the Bank’s website on 28th February 2019. The detailed negative impacts and mitigation measures are specified in the ESIA and the environmental management plan. 3.2.2 The negative impacts will include noise, and dust pollution from construction works; borrow pits left open turning into breading grounds for mosquitoes; and quarries and borrow pits disturbing the aesthetics of the landscape. There is also a possibility of water pollution from construction works, and potential conflict between communities and construction companies for water sources. Mitigation measures include: regular watering of deviation earth roads; avoiding use of very old construction vehicles; strictly adhering to water laws for obtaining permits, regulations and procedures in relation to abstraction of both surface and ground water; requiring contractors to reinstate the quarries and borrow pits and to blend in with the surrounding landscape as much as possible; and closely supervising to ensure minimal contamination of water resources and conflict between communities and construction works. 3.2.3 However, the ESIA and RAP for the OSBP between Malawi and Mozambique has not been prepared because the design and layout of the OSBP has to be prepared jointly by both countries once financing of the OSBP on the Mozambique side has been sourced. Preliminary assessments and site visits have indicated that there are unlikely to be major environmental and social impacts due to the implementation phase of the OSBP, since the footprint is small, resulting in minimal impacts on the flora and fauna, as well as on land acquisition. It is therefore prudent that the preparation of the ESIA and RAP before commencement of the works be a condition in the Loan Agreement. This will ensure that whatever impacts result from the implementation and operation phases of the project are identified, and those found to be negative are systematically mitigated. Involuntary resettlement and compensation 3.2.4 The Rehabilitation of the 55 km stretch of road between Nsipe and Liwonde and construction of an OSBP between Malawi and Mozambique at Chiponde will cause involuntary resettlement. However, no households will need to be physically relocated, because, the road rehabilitation works will be confined within the road reserve. Nonetheless, regardless of the magnitude of resettlement, as required by the Bank, a RAP has been prepared to ensure that all those people whose assets are affected – such as trading platforms, trees, crops etc. – will be compensated under the project to ensure that their standards of living and income-earning capacity are reinstated. According to the RAP, which was prepared in December 2018, the loss to the communities will be economic mainly in the form of loss of fruit trees, crops, and small 12 OS – operations safeguards

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makeshift shops and trading platforms. In this respect, a total of 65 households in Ntcheu will be compensated for 49 trees and 14 structures. In Balaka, a total of 988 households will be compensated for 285 structures and 703 trees. The RAP indicates that an estimated total cost of MK 161 million (USD 220,000) will be required for compensation. Affected women constitute about 32% of the total PAPs. A grievance redress mechanism for compensation is in place through the traditional and local authorities (see Technical Annex B8.4). Climate change 3.2.5 Context of vulnerability: The project is identified as climate risk category 2. The key risks include damage, temporary impairment of operation, and increased repair and maintenance due to increased frequency and severity of extreme events particularly floods and storms. Adaptation: Some of the measures integrated in the project design include adequate drainage, particularly in low laying areas to ensure longevity of the roads. In this regard, existing design standards for culverts will be adapted to a more conservative return period of 30 years instead of the usual five to 15 years. All exposed cuts will be grassed to reduce erosion, and drainage ditches in cuts shall be lined with either concrete or stone pitching. Where feasible, catch-water drains shall be introduced on the upstream side of runoff catchment areas to divert flood water away from the road and thus prevent the road from toppling and washing away. As a long-term measure to counter the impact of extreme storm events such as the recent Cyclone Idai, the Bank is considering supporting the RA in a study of appropriate policies, and institutional and funding arrangements that can enable the country’s transport sector, and specifically the road sector, to adapt to extreme weather and swiftly restore damaged transport infrastructure. The project also involves planting trees at selected locations along the road to prevent gully erosion and mitigate climate change. Gender 3.2.6 The gender marker score (GMS) for the project is category 3, which means one or more of the project outputs and/or outcomes are focused on gender equality, and/or women’s empowerment, and indicators related to the outputs/outcomes are sex-disaggregated or gender-relevant, depending on the specific sector and the nature of the project. Gender analysis of the project area and the proposed gender action plan are presented in Technical Annex B8.3. In general, the project will stimulate economic activities in the area through improved mobility and access to markets, schools, health facilities, and other socio-economic amenities. The rehabilitation of the Nsipe-Liwonde road and construction of the OSBP at Chiponde will provide employment opportunities for both men and women during and after construction. It is expected that out of the total number of direct jobs that will be created, 25% will be allocated to women, in accordance with the RA employment policy. Gender interventions in the previous phases of the Nacala Road Corridor Project have included training SMEs in business management skills and OSBP transactions, establishing markets at locations with high density populations, and providing boreholes for water and sanitation. The above interventions have been included in the proposed project. It is expected that more than 60% of traders at the roadside markets that are to be constructed will be women. 3.2.7 The project will further enhance the knowledge of women in terms of immigration and custom formalities linked to trade facilitation, as SMEs will be trained in import and export procedures and business management. The supervision services of the project shall include a gender expert, who will put in place actions to ensure equal employment opportunities for women and men. Some of the actions include sensitization on sexual harassment, gender-based violence, and reporting mechanisms; provision of appropriate facilities at work sites to include

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clean toilets and change rooms; and ensuring adequate occupational health (protective attire, equipment, and safe working conditions). Social 3.2.8 The project will provide job opportunities to both women and men during construction and after completion of the project as the road will require routine maintenance. The planned planting of trees along the road – to prevent gully erosion and protect the road, and to some extent mitigate against climate change – will offer further employment opportunities for the communities in the project area. Indirectly, the influx of construction workers in the affected areas will enable entrepreneurial activities in the communities, to sell groceries and second-hand clothes, and to rent out their houses. This will indirectly benefit the communities and help to increase household disposable incomes. Once completed, the road will contribute to boosting economic activities in agriculture, tourism, and small-scale trading through increased mobility. The negative impacts of the project will include: a potential increase in the spread of sexually transmitted diseases, especially among women and girls, due to influx of construction workers to affected areas; respiratory ailments, especially among children and senior citizens, due to dust resulting from due to construction activities; and potential increase in road traffic accidents, due to likely speeding. Communities will be sensitized to the prevention and management of sexually transmitted diseases. The building contractors will be requested to water the earth roads to prevent dust, and the communities will be sensitized to the safe road use. In addition to road safety sensitization, the road rehabilitation will incorporate road safety features, including 2 m-wide shoulders to accommodate cyclists and pedestrians, and traffic calming features to reduce speed, specifically in densely populated areas and accident hotspots.

IV – IMPLEMENTATION

4.1. Implementation arrangements 4.1.1 Project coordination. The RA shall be responsible for overall coordination of the project, including procurement and administration of contracts, through a project coordinator to be appointed from within the RA. The RA’s capacity to execute the project has been rated satisfactory. The RA has good experience in managing Bank-supported road projects and has successfully completed several Bank projects in the past. The RA has a procurement section with a manager, a design and planning section managed by a director, a construction section managed by a director, and a social and environment unit that falls under the construction section. This setup will ensure successful implementation of the project. The Bank and the GoM will conduct at least two comprehensive supervision missions per year for the purposes of resolving bottlenecks and ensuring smooth project implementation. The joint supervisions will include, among others, compliance with the procurement plan and procedures, financial management (FM), contract administration, environmental and social aspects, technical aspects, and adherence to the Loan Agreement covenants. 4.1.2 Malawi and Mozambique will jointly construct the OSBP at Chiponde. The two governments have signed a bilateral agreement to this effect. The Chiponde OSBP design will be based on that of the Mchinji one (between Malawi and Zambia), with some adaptations. A cross-border steering committee, jointly chaired by the trade ministries of the two countries, will come to include other border agencies once construction of the OSBP commences. The Chiponde OSBP will benefit significantly from the experience gained during the construction of the Mchinji OSBP.

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4.1.3 Financial management. The Roads Fund Administration (RFA) will be responsible for the FM. The RFA has extensive FM experience of Bank- funded projects. The RFA’s existing systems, experience and qualifications will ensure satisfactory FM. The overall FM risk is assessed as “low”. The existing systems shall, therefore, be adopted for budgeting, accounting, transaction processing, and internal controls and shall be based on the existing financial procedures manuals. Given the fiduciary requirements related to the AfDB financing, the RFA will retain the existing FM arrangements, including the project accountant, with the appropriate qualifications and experience, to primarily focus on the project-related FM tasks. The project will make use of the Bank’s various disbursement methods including: (i) direct payment, (ii) special account, and (iii) reimbursement methods in accordance with Bank rules and procedures as laid out in the Disbursement Handbook. The special account will be used to meet the smaller eligible expenditure items, while the direct payment method will be used for larger contractual payments eligible under the financing agreement. The Bank will issue a disbursement letter, and its contents will be discussed and agreed with the borrower during negotiations. Detailed and disbursement arrangements are also included in Technical Annex B.4. 4.1.4 In accordance with the Bank’s financial reporting and audit requirements, the project will be required to prepare and submit a quarterly financial report to the Bank no later than 45 days after the end of each calendar quarter. The project will prepare and submit annual financial statements, audited by an independent private audit firm, together with the auditor’s opinion and management letter to the Bank no later than six months after the end of the financial year. The detailed auditing arrangements are included in Technical Annex B.6. In line with the current practice, the external audit of the project will continue to be conducted by independent auditors recruited through competitive bidding. The RFA’s internal audit department will perform periodic internal audit reviews. The Bank will also review the internal audit reports as part of on-going monitoring. The Bank will undertake a minimum of two FM supervision missions in addition to desk reviews of financial reports in order to ensure the adequacy of financial arrangements and, where necessary, to recommend remedial action. 4.1.5 Procurement management. Procurement of goods, works and services, financed by the Bank for the project, will be carried out in accordance with the Procurement Policy for Bank Group Funded Operations dated October 2015 and following the provisions stated in the Financing Agreement. Procurement would be carried out following Bank Procurement Methods and Procedures using the relevant Bank standard or model solicitation documents and review procedures. Unless it is sufficiently justified, BPS is not recommended due to the risks enumerated in Technical Annex B5. The proposed procurement methods are highlighted in Table B5.5 of the Technical Annexes. Procurement risks and capacity assessments (PRCA) were undertaken at the country, sector, and project levels, and of procurement capacity at the EA, and the findings have informed the decisions on the procurement methods for specific transactions or groups of similar transactions under the project. According to the assessment, the risk rating at country level is high, while it is moderate at sector level and low at project level. The appropriate risk mitigation measures have been included in the procurement PRCA action plan proposed in Technical Annex B5, Para. 5.3.8. Procurement financed with African Development Fund (ADF) resources shall be open to all countries. Procurement financed by the resources of the EU-AIP is subject to the rule of origin. The Board of Directors of the AfDB shall be requested to waive the Bank’s rule of origin to open the procurement of goods, works, and services financed from the resources of the EU-AIP grants to countries that are non-member states of the Bank.

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4.2 Monitoring 4.2.1 At regional level, the SADC Secretariat monitors and reports on the progress of the Regional Infrastructure Master Plan, including the Nacala Road Corridor, at high-level member state meetings. At sector level, the government has set up a committee of principal secretaries, chaired by the Ministry of Finance, Economic Planning and Development, to monitor the progress of the Malawi Growth and Development Strategy, which includes projects in the road sector. At project level, a monitoring and evaluation (M&E) expert shall be hired collect and report data for the logframe indicators. The M&E expert shall also, where necessary, advise on the restructuring and engender the indicators. The Bank task team shall continuously provide informal supervision over and above formal supervision sessions twice a year to monitor, inter alia: (i) EA compliance to loan covenants, (ii) compliance to the Bank’s procurement and FM rules and procedures, (iii) compliance with procurement work plans, and (iv) project performance indicators. 4.3 Governance 4.3.1 The GoM, with the collaboration of DPs, has made significant strides in improving its public FM system (PFM). A major improvement in the PFM has been the successful implementation of an integrated FM information system (IFMIS), which is used to control commitments and payments. However, Malawi’s rating on Country Policy and Institutional Assessment (CPIA) has dropped from 3.7 to 3.6, mainly on account of Bank portfolio performance. The Bank will continue to provide necessary procurement and FM training to improve capacity in these areas. 4.4 Sustainability 4.4.1 Institutional sustainability. The government has put in place a strong institutional and legal framework under which two entities have been established, namely the RA and the RFA. The RA plans and manages the road network. The RFA is charged with the mobilization and management of finances in the road sector. The RA plans and manages the road network. 4.4.2 Financial sustainability: The resources to the road sector come from: the government development budget (32%), fuel levy (24%), and loans and grants from DPs (44%). The average annual budget, based on recent annual work plans, is approximately USD 200 million. However, the actual average amounts disbursed to the sector is in the order of USD 160 million (80%), which leaves a gap of USD 40 million (20%). To address this gap, the government, with the support of the DPs, has embarked on a number of initiatives including: (i) expanding the Road Fund to include other road user fees, namely, international transit fees, and motor vehicle licensing; (ii) increasing the government’s development budget allocation to the road sector; (iii) passing legislation, in the last two years, allowing for road bonds and tolls; (iv) introducing a self-adjusting fuel levy of 8.3% on the petrol pump price and 10.2% on the diesel pump price. With the adjustment to percentage, fuel levy contribution to routine maintenance is expected to increase to more than 70%. In addition, through donor engagement, the GoM has agreed to gradually increase the fuel levy to an average of 14% by December 2020. 4.4.3 Environmental and social sustainability: Existing legislation ensures that an environmental and social mitigation plan (ESMP) is in place at all times for all road construction and maintenance projects. The Department of Environmental Affairs is mandated to enforce this

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legislation. In this regard, all the necessary environmental approvals and permits have to be issued before any work can proceed, and from time to time random compliance checks are conducted on road and bridge works. In addition, the RA has an environmental monitoring unit that polices consultants and contractors in the sector in terms of national environmental laws. 4.5. Risk management Description Risk rating Mitigation action 1.

Procurement delays Medium

The EA is carrying out advance contracting for design review and supervision services. This will reduce lead time for procurement of works.

2. Cost overrun on road works

Medium

A lump sum to take care of price fluctuations in materials, equipment and labor shall be adopted instead of applying the price adjustment formula.

3. Road maintenance

Medium

The Bank and other donors will continue to support government on initiatives to expand the Road Fund, including gradual increment of the fuel levy to 12% of the pump price by 2022, from the current average of 8%, and where necessary, support government road bonds, road tolls, and any other financing arrangements, to increase financing towards road maintenance.

4.6 Knowledge building

4.6.1 The project has a capacity building component involving; (i) establishment of a PMS and training of staff; and (ii) preparation of an axle-load control strategy. The PMS coupled with the HDM-4 will enable the RA to effectively plan, prioritize routine and periodic maintenance works, and prepare multi-year and annual budgets within the road sector’s constrained resource envelope. The axle-load strategy will set a framework for effective implementation of vehicle overload control to protect the road network.

V – LEGAL INSTRUMENTS AND AUTHORITY 5.1. Legal instrument

5.1.1 The legal instruments for the project will be: (a) ADF Loan Agreement to be executed between the ADF and the Republic of Malawi as the Borrower; (b) A EU-AIP Protocol of Agreement to be executed between the Bank (as administrator of EU-AIP and the Republic of Malawi as the Recipient); and (c) a Delegation Agreement between the EU-AIP and the Bank (as administrator of EU-AIP grants) defining the activities entrusted to the Bank by EU-AIP for its implementation under the Project.

5.1.2 It is worth noting that all the contractual obligations of the Bank, under the Framework Agreement concluded between the Bank and the EC (PAGODA); the General Conditions of the PAGODA; and the Delegation Agreement with regard to the project abovementioned (inclusive of its annexes, in particular on FM; disbursement; financial audit and accounting; and visibility and communication, etc.) shall be fully transferred to the Republic of Malawi under the relevant EU-AIP Grant Agreement.

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5.2. Conditions associated with Fund’s intervention 5.2.1 Conditions Precedent to Entry into Force:

(a) The ADF Loan Agreement shall enter into force upon fulfilment by the Borrower, of the provisions of Section 12.01 of the General Conditions Applicable to the African Development Fund Loan Agreements and Guarantee Agreements (Sovereign Entities).

(b) The EU-AIP Protocol of Agreement will enter into force upon its signature by the Bank

and the Republic of Malawi as Recipient. 5.2.2 Condition Precedent to First Disbursement: The obligation of the Fund and the Bank to make the first disbursement of the loan and grant, shall be conditional upon the entry into force of the Loan Agreement and Protocol of Agreement, respectively. 5.2.3 Conditions Precedent to Disbursement for Works Involving Resettlement. The obligation of the Fund/Bank to disburse the Loan/Grant for works that involve resettlement shall be subject to the fulfillment by the Borrower/Recipient, in form and substance satisfactory to the Fund/Bank, of the following conditions: (a) Submission of a Works and Compensation Schedule prepared in accordance with the

Resettlement Action Plan (“RAP”) and the Fund’s Safeguards Policies, detailing: (i) the sections into which the works for the rehabilitation of the 55 km road between Nsipe and Liwonde will be divided; and (ii) the timeframe for compensation and/or resettlement of PAPs in respect of each affected section of the Road; and

(b) Submission of evidence confirming that all PAPs in respect of affected sections of the Road have been compensated and/or resettled in accordance with the Environmental and Social Management Plan (“ESMP”), the Resettlement Action Plan (“RAP”) and/or the agreed works and compensation schedule, and the Fund’s Safeguards Policies, prior to the commencement of works in the affected sections, and in any case before the PAPs’ actual move and/or taking of PAPs’ land and related assets.

5.2.4 Other Conditions: The Borrower/Recipient shall: (a) make timely provision of the funds and resources required as its counterpart contribution

to financing of the Project, to facilitate timely implementation of the Project;

(b) within three (3) months of the signing of the Loan Agreement/Protocol of Agreement, submit to the Fund evidence, in form and substance satisfactory to the Fund, confirming: (i) the appointment of a Project Coordinator, with qualifications, experience and terms of reference acceptable to the Fund; (ii) the establishment of a cross-border Steering Committee (between Malawi and Mozambique), to provide strategic guidance, direction and oversight to the construction of the OSBP at Chiponde, with terms of reference and composition acceptable to the Fund; and (iii) the Environmental and Social Management Plan (ESMP) and the Resettlement Action Plan (RAP) or Abbreviated Resettlement Action Plan (ARAP), as the case may be, relating to the construction of the OSBP at Chiponde.

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5.3 Compliance with Bank Policies 5.3.1 This project complies with applicable Bank Group policies.

VI – RECOMMENDATION

6.1 Management recommends that:

a. The Boards of Directors of the Fund approve the proposed loan of UA 26.6 million to the Republic of Malawi to finance implementation of the Project, under the terms and conditions stipulated in this report;

b. The Boards of Directors of the Bank and Fund approve the proposed grant of EUR 18.095 million from the resources of EU-AIP to the Republic of Malawi to finance implementation of the Project; and

c. The Boards of Directors of the Bank approve a waiver of the Rule of origin for

procurement financed from the resources of the EU-AIP to be open to all countries including those that are non-member states of the Bank.

I

Appendix I Country’s comparative socio-economic indicators

Year Malawi AfricaDevelo-

ping Countries

Develo- ped

CountriesBasic IndicatorsArea ( '000 Km²) 2016 118 30,067 97,418 36,907Total Population (millions) 2016 17.7 1,214.4 6,159.6 1,187.1Urban Population (% of Total) 2016 16.5 40.1 48.7 81.1Population Density (per Km²) 2016 188.3 41.3 65.1 33.8GNI per Capita (US $) 2015 350 2 153 4 509 41 932Labor Force Participation *- Total (%) 2016 81.1 65.7 63.5 60.0Labor Force Participation **- Female (%) 2016 81.2 55.7 48.9 52.1Sex Ratio (per 100 female) 2016 99.8 100.1 106.0 105.0Human Dev elop. Index (Rank among 187 countries) 2015 170 ... ... ...Popul. Liv ing Below $ 1.90 a Day (% of Population) 2010 70.9 ... 12.6 ...

Demographic IndicatorsPopulation Grow th Rate - Total (%) 2016 3.1 2.5 1.3 0.6Population Grow th Rate - Urban (%) 2016 4.0 3.6 2.4 0.8Population < 15 y ears (%) 2016 44.9 40.9 27.9 16.8Population 15-24 y ears (%) 2016 20.5 19.3 16.9 12.1Population >= 65 y ears (%) 2016 3.4 3.5 6.6 17.2Dependency Ratio (%) 2016 93.7 79.9 54.3 52.0Female Population 15-49 y ears (% of total population) 2016 23.2 24.0 25.7 22.8Life Ex pectancy at Birth - Total (y ears) 2016 64.8 61.5 69.9 80.8Life Ex pectancy at Birth - Female (y ears) 2016 65.7 63.0 72.0 83.5Crude Birth Rate (per 1,000) 2016 38.1 34.4 20.7 10.9Crude Death Rate (per 1,000) 2016 7.1 9.1 7.6 8.6Infant Mortality Rate (per 1,000) 2015 43.4 52.2 34.6 4.6Child Mortality Rate (per 1,000) 2015 64.0 75.5 46.4 5.5Total Fertility Rate (per w oman) 2016 5.0 4.5 2.6 1.7Maternal Mortality Rate (per 100,000) 2015 634.0 476.0 237.0 10.0Women Using Contraception (%) 2016 55.6 31.0 62.2 ...

Health & Nutrition IndicatorsPhy sicians (per 100,000 people) 2005-2015 1.8 41.6 125.7 292.2Nurses and midw iv es (per 100,000 people) 2005-2015 33.6 120.9 220.0 859.4Births attended by Trained Health Personnel (%) 2010-2015 87.4 53.2 69.1 ...Access to Safe Water (% of Population) 2015 90.2 71.6 89.4 99.5Access to Sanitation (% of Population) 2015 41.0 39.4 61.5 99.4Percent. of Adults (aged 15-49) Liv ing w ith HIV/AIDS 2015 9.1 3.4 ... ...Incidence of Tuberculosis (per 100,000) 2015 193.0 240.6 166.0 12.0Child Immunization Against Tuberculosis (%) 2015 90.0 81.8 ... ...Child Immunization Against Measles (%) 2015 87.0 75.7 83.9 93.9Underw eight Children (% of children under 5 y ears) 2010-2015 16.7 18.1 15.3 0.9Prev alence of stunding 2010-2014 42.4 33.3 25.0 2.5Prev alence of undernourishment (% of pop.) 2015-2016 20.7 16.2 12.7 ...Public Ex penditure on Health (as % of GDP) 2014 6.0 2.6 3.0 7.7

Education Indicators Gross Enrolment Ratio (%) Primary School - Total 2010-2016 145.5 101.2 104.9 102.4 Primary School - Female 2010-2016 147.0 98.4 104.4 102.2 Secondary School - Total 2010-2016 43.4 52.6 71.1 106.3 Secondary School - Female 2010-2016 41.0 50.2 70.5 106.1Primary School Female Teaching Staff (% of Total) 2010-2016 42.0 47.1 59.8 81.0Adult literacy Rate - Total (%) 2010-2015 66.0 66.8 82.3 ...Adult literacy Rate - Male (%) 2010-2015 73.0 74.3 87.1 ...Adult literacy Rate - Female (%) 2010-2015 59.0 59.4 77.6 ...Percentage of GDP Spent on Education 2010-2015 5.6 5.0 4.0 5.0

Environmental IndicatorsLand Use (Arable Land as % of Total Land Area) 2014 40.3 8.7 11.2 10.3Agricultural Land (as % of land area) 2014 61.4 41.7 37.9 36.4Forest (As % of Land Area) 2014 33.6 23.2 31.4 28.8Per Capita CO2 Emissions (metric tons) 2014 0.1 1.1 3.5 11.0

Sources : AfDB Statistics Department Databases; World Bank: World Development Indicators; last update :UNAIDS; UNSD; WHO, UNICEF, UNDP; Country Reports.

Note : n.a. : Not Applicable ; … : Data Not Available. * Labor force participation rate, total (% of total population ages 15+)** Labor force participation rate, female (% of female population ages 15+)

June 2017

0

20

40

60

80

100

120

2000

2005

2009

2010

2011

2012

2013

2014

2015

Infant Mortality Rate( Per 1000 )

Malawi Africa

0

500

1000

1500

2000

2500

2000

2005

2009

2010

2011

2012

2013

2014

2015

GNI Per Capita US $

Malawi Africa

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2000

2005

2009

2010

2011

2012

2013

2014

2015

Population Growth Rate (%)

Malawi Africa

01020304050607080

2000

2005

2009

2010

2011

2012

2013

2014

2015

Life Expectancy at Birth (years)

Malawi Africa

II

Appendix II AfDB portfolio in the country

# P ro je c t Na me Fu n d in g Win d o w

Ap p ro va l Da te

Effe c tive 1s t Dis b .

Da te

Fin a l Dis b Da te

Amo u n t Ap p ro ve d

Dis b u rs e d Amo u n t

Dis b Ra te Ag e (ye a rs )

IP (Imp l. P ro g . )

DO (De v. Ob je c tive s )

Ove ra ll P e rfo rma n c e

S ta tu s

AGRICULTURE S ECTOR 4 3 , 9 17 , 0 4 8 2 4 , 3 19 , 4 3 1 5 5 . 3 8 3

1 S MALLHOLDER IRRIGATION AND VALUE ADDITION P ROJECT (S IVAP /FUN [ ADF ] 3/13/2013 10/4/2013 31.12.2018 253,000 212,069 83.82

S MALLHOLDER IRRIGATION AND VALUE ADDITION P ROJECT (S IVAP /FUN [GAFS P TF] 3/13/2013 10/4/2013 31.12.2018 27,299,048 23,870,226 87.44

2 FEAS IBILITY S TUDY ON THE ES TABLIS HMENT OF AN AGRICULTURE COO [ ADF ] 12/11/2015 8/23/2016 30.04.2018 365,000 30,689 8.41 2.4

3 AGRICULTURAL INFRAS TRUCTURE AND YOUTH AGRIBUS INES S P ROJECT [ ADF ] 9/28/2016 3/21/2017 30.06.2022 16,000,000 206,447 1.29 1.6 3 2 P P

TRANS P ORT S ECTOR 6 4 , 2 5 0 , 0 0 0 2 5 , 9 4 1, 7 10 4 0 . 3 8 4 . 7 9

4MZUZU- NKHATA BAY ROAD REHABILITATION P ROJECT NACALA ROAD CORRIDOR P ROJECT P HAS E IV (LIWONDE- MANGOCHI) MA [ ADF ] 3/13/2013 2/13/2014 31.12.2018 21,890,000 15,457,782 70.62 5.15

5 NACALA ROAD CORRIDOR P ROJECT P HAS E IV (LIWONDE- MANGOCHI) MA [ ADF ] 12/3/2013 3/26/2015 31.12.2018 42,360,000 10,483,928 24.75 4.43

WATER S UP P L/S ANIT 3 6 , 8 0 7 , 9 7 1 12 , 17 8 , 0 7 0 3 3 . 0 9 2 . 9 8

6S US TAINABLE RURAL WATER AND S ANITATION INFRAS TRUCTURE FOR IM a nd MZIMBA INTEGRATED URBAN WATER AND S ANITATION P ROJECT [ ADF ] 4/30/2014 5/20/2015 31.12.2019 15,000,000 5,544,024 36.96

S US TAINABLE RURAL WATER AND S ANITATION INFRAS TRUCTURE FOR IM [ NTF ] 4/30/2014 5/20/2015 31.12.2019 5,000,000 3,596,122 71.92

S US TAINABLE RURAL WATER AND S ANITATION INFRAS TRUCTURE FOR IM [RWS S I] 4/30/2014 6/10/2015 31.12.2019 2,967,510 1,606,018 54.12

7 MZIMBA INTEGRATED URBAN WATER AND S ANITATION P ROJECT [ ADF ] 10/23/2015 2/25/2016 31.12.2019 3,600,000 1,431,906 39.78 2.53

MZIMBA INTEGRATED URBAN WATER AND S ANITATION P ROJECT [OP EC] 12/18/2015 3/9/2016 31.12.2020 10,240,461 0 0 2.38

S OCIAL S ECTOR 6 4 , 2 7 0 , 0 7 1 4 8 , 8 3 9 , 8 6 7 7 5 . 9 9 4 . 6 8

8S UP P ORT TO HIGHER EDUCATION S CIENCE & TECHNOLOGY & TECHNICAL, JOBS FOR YOUTH AND LED [ ADF ] 2/8/2012 7/23/2012 30.06.2018 9,050,000 7,641,563 84.44

S UP P ORT TO HIGHER EDUCATION S CIENCE & TECHNOLOGY & TECHNICAL [ ADF ] 2/8/2012 7/23/2012 30.06.2018 10,950,000 8,911,897 81.39

S UP P ORT TO HIGHER EDUCATION S CIENCE & TECHNOLOGY & TECHNICAL [ NTF ] 2/8/2012 7/23/2012 30.06.2018 6,500,000 3,955,730 60.86

9 COMP ETITIVENES S AND JOB CREATION S UP P ORT P ROJECT [ ADF ] 12/16/2011 6/26/2012 31.12.2017 10,000,000 9,099,577 91 6.4 3 3 NP P P

10 JOBS FOR YOUTH MALAWI [ ADF ] 12/7/2016 6/1/2017 31.12.2020 7,520,000 119,415 1.59

JOBS FOR YOUTH MALAWI [ ADF ] 12/7/2016 6/1/2017 31.12.2020 1,250,071 111,685 8.93

11 P ROTECTION OF BAS IC S ERVICES [ ADF ] 4/29/2015 25/06/2015 31.03.2018 19,000,000 19,000,000 100 3.02

MULTI_ S ECTOR 13 , 2 8 6 , 9 9 2 4 , 4 7 3 , 0 0 0 3 3 . 6 6 1. 8 6

12 P UBLIC FINANCE MANAGEMENT INS TITUTIONAL S UP P ORT P ROJECT [ ADF ] 10/8/2013 3/24/2014 6/15/2018 2,980,000 2,695,319 90.45 4.58 3 3 NP P P

13 P UBLIC FINANCE MANAGEMENT INS TITUTIONAL S UP P ORT P ROJECT- P HA [ ADF ] 9/10/2015 12/2/2015 30.09.2018 1,860,000 1,039,200 55.87 2.65 3 3 NP P P

14 MALAWI NACALA RAIL AND P ORT VALUE ADDITION P ROJECT [FAP A] 5/23/2017 07/09/217 31.12.2020 686,992 8,364 1.22 0.95

15 2016 MALAWI ECONOMIC CENS US [ ADF ] 7/5/2017 18/11/2017 31.12.2018 760,000 730,117 96.07 0.83

16 P ROMOTING INVES TMENT & COMP ETITIVENES S IN TOURIS M S ECTOR [ ADF ] 1/11/2018 2/3/2018 31/12/2021 7,000,000 0 0 0.3

2 2 2 , 5 3 2 , 0 8 2 115 , 7 5 2 , 0 7 8 5 2 . 0 2 2 . 9 3 . 4 3 . 3

5.2 3 3 NP P P

4.02 3 3 NP P P

3 3 NP P P

6.25 3 3 NP P P

1.4

TOTAL

Note : Ra tings (1- 4): Highly Unsa tis fa c tory = 1; Unsa tis fa c tory = 2; S a tis fa c tory = 3; Highly S a tis fa c tory = 4 NP P = Non P ote ntia lly P roble ma tic P roje c t; P P = P roble m P roje c t; a nd P P P = P ote ntia lly P roble ma tic P roje c t

III

Appendix III Key related projects financed by the Bank and other development partners in the country

No. Project

Financing Organization

Amount Million

USD

Status

1. Multinational Nacala Road Corridor Development Project Phase IV

AfDB (ADF Loan and Grant)

59.31 On-going. expected to completed Dec 2020

2. Mzuzu-Nkhata Bay Road Rehabilitation Project AfDB (ADF Loan) 30.65 Completed Dec 2018

3. Nacala Rail and Port Project ADB (LOAN) 300 Completed 2017

4. Malawi Trunk Roads Rehabilitation: Blantyre-Zomba Road Rehabilitation Project

AfDB (ADF Loan) 35.65 Completed Dec 2014

5. Multinational Nacala Road Corridor Rehabilitation Development Project I – Lilongwe Western Bypass

AfDB (ADF Loan) 22.22 Completed Dec 2014

6. The Project on the Rehabilitation of Ntcheu-Mwanza-Neno-Tsangano Road

AfDB (Grant) 1.74 completed March 2013

7. Feasibility study of One-stop-Border-Posts (OSBP) between Malawi/Zambia and Malawi/Mozambique

AfDB – NEPAD – IPPF Grant

0.340 Completed 2015

8. Shire Zambezi Waterways Development AFDB – (African Water Facility/NEPADIPPF)

1.53 Completed 2015

9. Project for Replacement South Rukuru Bridge north of Malawi on the Muzu -Karonga Road

JICA 8.80 Completed

10. The Project for Improvement of Blantyre City Roads (Phase II)

JICA 9.30 Completed

11. The Project for Replacement of Air Navigation System at Kamuzu International Airport

JICA 7.90 Completed

12. The Study on Urban Development Master Plan for Lilongwe

JICA – Completed

13. The Project for the Study on Development of the Sena Corridor

JICA – Completed

14. The Project for the improvement of Major Roads in the City of Lilongwe

JICA – Completed

15. Sena Corridor Development Study JICA – Completed

16. Road Transport Sector Policy Support Program EU 90.12 Completed

17. Rural Infrastructure Development Program – Rehabilitation of roads and bridges

EU 25.92 On-going

18. Rural Feeder Roads Programme: Upgrading of Mchinji-Kawere feeder road and spot improvement of numerous other feeder roads in all three regions of the country

EU Budget Support

21.89 Feeder road at different levels of completion

19. Rural Roads Project (Additional Financing) WB/DFID 25.0 Completed

20. Transaction advise for Malawi Rail Concession Renegotiation

EU/WB 0.15 On-going

21. Road Safety Audit WB (GRSF Grant)

0.35 Under preparation.

22.

Southern Africa Trade and Transport Facilitation Project. Expected to include the Karonga-Songwe rehabilitation, safety improvement on the M1, trade facilitation and HIV/AIDS activities

WB Subject to regional financing

30.00 Under preparation Design to be finalized through COMESA. Procurement to start.

23. Feasibility studies for the Mwanza and Dedza border posts

WB 0.200 Under Preparation

IV

Appendix IV Map of the project area

V

Appendix V Composition of the road network Road Network Length (km) Poor Fair Good Paved 4,312 22% 40% 38% Unpaved 11,139 50% 40% 10% TOTAL 15,451

Appendix VI Transport costs by commodity USD/ton (2016)13 Export Route 14Distance

(km) Tobacco Sugar Tea Cotton Food Crops

Nacala 800 61 49 88 68 73 Beira 825 138 71 103 83 90 Durban 2340 233 164 - 245 184 Import Route Distance

(km) Fuel Fertilizer Cement Wheat

Dar es Salaam 1980 154 - 137 - Nacala 800 116 115 134 128 Beira 825 118 108 164 135 Durban 2340 173 144

13 Transport and Trade facilitation Study for Malawi (AfDB – On-going) 14 Distances shown are measured from Blantyre, the commercial capital for Malawi

VI

Appendix VII Multinational Nacala Road Corridor Development Project – progress Country Road Section/SBP km Status Funding PHASE I - UA 195,940,000.00 24.06.2015 to 30.11.2017

Malawi Lilongwe Western Bypass 14 Completed AfDB Mozambique Nampula-Cuamba 369 Completed AfDB/JICA

Cuamba – Muita 133 Completed AfDB/KEM

PHASE II - UA 67,471,000.00 27.09.2010 to 30.11.2017

Zambia Luangwa Bridge – Nyimba 99 Completed EU/EIB Nyimba – Sinda 115 Completed AfDB

Sinda – Zambia/Malawi order 146 Completed EU/EIB

PHASE III - UA 99.660,000.00 05.12.2012 to 31.12.2020

Mozambique Muita-Massangulo 94 In progress AfDB

Mandimba-Lichinga 89 In progress JICA

PHASE IV - UA 47,970,000.00 03.12.2013 to 31.12.2020

Malawi Liwonde-Mangochi 75 In progress AfDB

OSBP Malawi/Zambia – Mchinji - In progress AfDB

TOTAL: UA 413,041,000.00

1,114

PHASE V UA 45,289,000.00 27.06.2019 to 31.12.2023

Malawi Nsipe Liwonde Road/and 55 Proposed AfDB/EU

OSBP Malawi/Mozambique

VII

Appendix VIII Financing arrangements by component

Component EU AfDB GoM TOTAL Component 1 – Road Rehabilitation 1.1 Nsipe-Liwonde Road – Design Review/Supervision 1.964 1.964 1.2 Mangochi -Chiponde Road – Feasibility Study 0.471 0.471 1.3 Nsipe-Liwonde Road Rehabilitation – Works 11.474 16.856 3.067 31.398 1.4 Construction of Markets 0.209 0.209 1.5 HIV/STI Sensitization 0.025 0.025 1.6 Road safety Sensitization 0.017 0.017 1.7 Road safety Audit 0.050 0.050 1.8 catchment Area Protection 0.033 0.033 1.9 Compensation and Resettlement 0.201 0.201 Subtotal 14.244 16.856 3.268 34.368 Component 2 – Trade Facilitation 2.1 OSBP – Design Review/Supervision (Chiponde) 1.588 1.588 2.2 OSBP – Works 7.856 7.856 2.3 OSBP – Installation of IT 0.216 0.216 2.4 OSBP – Weigh Bridge 0.125 0.125 2.5 Compensation and Resettlement 0.300 0.300 Subtotal 0.125 9.659 0.300 10.085 Component 3 – Capacity Building 3.1 Upgrading of pavement management system (PMS) 0.117 0.117 3.2 Training of RA Staff in PMS 0.042 0.042 3.3 Training Border Staff/SMEs in OSBP Operations 0.117 0.117 3.4 Axle-load-control capacity building 0.125 0.125 Subtotal 0.401 0.401 Component 4 – Support to Project Management 4.1 Financial Audit 0.050 0.050 4.2 Technical Audit 0.117 0.117 4.3 Monitoring and Evaluation 0.117 0.117 4.4 Communication 0.067 0.067 4.5 Operating costs 0.084 0.084 Subtotal 0.351 0.084 0.435 TOTAL (UA Million) 15.121 26.599 3.568 45.288

VIII

Appendix IX Procurement summary table

Project Categories

UA '000 000

BPS15 BMP Third Party PMPs Total

ICB NCB Other OCB LCB Other 1. Works

1.3 Nsipe-Liwonde Road Rehab 1.4 Construction of Markets 2.2 OSBP – Works

2. Goods 1.8 Catchment Area Protection 1.9 Compensation – Nsipe-

Liwonde Road 2.3 OSBP – Installation of IT 2.4 OSBP – Weigh Bridge 2.5 Compensation – OSBP 3.1 Upgrading of PMS 4.4 Communication 4.5 Operation Budget

3. Services 1.1 Nsipe-Liwonde Road –

Design/Sup. 1.2 Mangochi -Chiponde Road -

Feasibility 2.1 OSBP – Design

Review/Supervision

3.2 Training of RA Staff in PMS 3.3 Training Border Staff/SMEs 3.4 Axle-load control capacity

building 1.7 Road Safety Audit 1.5 HIV/STI Sensitization 1.6 Road safety Sensitization 4.1 Financial Audit 4.2 Technical Audit 4.3 Monitoring and Evaluation

[0.201] [0.300]

31.398 0.209 7.856 0.033 0.216 0.125 0.117 1.964 0.471 1.588 0.042 0.117 0.125 0.050 0.025 0.017

0.050 0.117 0.117

0.067 0.084

31.398 0.209 7.856

0.033

[0.201]

0.216 0.125

[0.300] 0.117

0.067 0.084

1.964 0.471

1.588

0.042 0.117 0.125

0.050 0.025 0.017 0.050 0.117 0.117

TOTAL

[0.501] 57.099 0.284 0.151

44.788 [.501]

15 Procurement methods OCB, LCB and DP mentioned are indicative and should be aligned with what is available in the BPS