Document of The World Bank

Report No: ICR00001095

IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA-34980 IDA-34981 IDA-34982 IDA-3498A)

ON

CREDITS

IN THE AMOUNT OF SDR 131.6 MILLION (US$ 178.0 MILLION EQUIVALENT)

TO THE

REPUBLIC OF MADAGASCAR

FOR A

COMMUNITY DEVELOPMENT PROJECT

June 26, 2009

Human Development Department III AFCS1 Africa Region

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CURRENCY EQUIVALENTS (Exchange Rate Effective 06/23/2009)

Currency Unit = Ariary MGA 1,000 = US$0.51 US$ 1.00 = MGA 1,961

FISCAL YEAR

January 1 - December 31

ABBREVIATIONS AND ACRONYMS

CAC Centre d’Appui aux Communes (Commune Support Center) CAS Country Assistance Strategy CDD Community Driven Development CDP Community Development Project CDSP Commune Development Support Program DCA Development Credit Agreement EC European Commission EIFID Etude d’Impact du FID EFSRP Emergency Food Security and Reconstruction Project FID Fonds d'Intervention pour le Développement (Community Development

Fund) ) GoM Government of Madagascar HIMO Haute Intensité de Main d’œuvre (Highly Intensive Manual Labor) ICR Implementation Completion and Results Report IDA International Development Association IEC Information, Education and Communication ISR Implementation Status Report LD Local Development LDF Local Development Fund MAP Madagascar Action Plan MDAT Ministère de la Décentralisation et de I'Aménagement du Territoire

(Ministry of Decentralization and Regional Planning) MIS Management Information System MOP Manual of Procedures MPWSS Manual Procedures for Water Supply and Sanitation MTR Mid-Term-Review NGO Non-Governmental Organization ONE Office National pour l’Environnement (National Office for Environment) OPCI Organisme Public de Coopération Intercommunale (Inter-communal

public organization) PAD Project Appraisal Document PCD Plan Communal de Développement (Communal Development Plan)

PDO Project Development Objectives PRSP Poverty Reduction Strategy Paper SDR Special Drawing Right SME Small and Medium Enterprise SP Social Protection UNDP United Nations Development Programme

Vice President:Obiageli Ezekwesili

Country Director: Ruth Kagia

Sector Manager: Lynne D. Sherburne-Benz

Project Team Leader:Philippe Auffret

ICR Team Leader:Philippe Auffret

REPUBLIC OF MADAGASCAR Community Development Project

Table of Contents

A.  Basic Information ....................................................................................................... iB.  Key Dates ................................................................................................................... iC.  Ratings Summary ....................................................................................................... iD.  Sector and Theme Codes........................................................................................... iiE.  Bank Staff.................................................................................................................. iiF.  Results Framework Analysis.................................................................................... iiG.  Ratings of Project Performance in ISRs.....................................................................H.  Restructuring (if any) ..................................................................................................I.  Disbursement Profile .................................................................................................. i1.  Project Context, Development Objectives and Design ............................................... 2

1.1  Context at Appraisal............................................................................................. 21.2  Original Project Development Objectives (PDO) and Key Indicators ................ 41.3  Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification.................................................................................................. 41.4  Main Beneficiaries ............................................................................................... 41.5  Original Components ........................................................................................... 51.6  Revised Components............................................................................................ 61.7  Other significant changes ..................................................................................... 8

2.  Key Factors Affecting Implementation and Outcomes............................................... 82.1  Project Preparation, Design and Quality at Entry ................................................ 82.2  Implementation................................................................................................... 102.3  Monitoring and Evaluation (M&E): Design, Implementation and Utilization ..112.4  Safeguard and Fiduciary Compliance ................................................................122.5  Post-completion Operation/Next Phase ............................................................. 14

3.  Assessment of Outcomes........................................................................................... 153.1  Relevance of Objectives, Design and Implementation ...................................... 153.2  Achievement of Project Development Objectives ............................................. 153.3  Efficiency ........................................................................................................... 183.4  Justification of Overall Outcome Rating............................................................ 183.5  Overarching Themes, Other Outcomes and Impacts..........................................193.6  Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops .. 20

4.  Assessment of Risk to Development Outcome ......................................................... 205.  Assessment of Bank and Borrower Performance...................................................... 22

5.1  Bank Performance .............................................................................................. 225.2  Borrower Performance ....................................................................................... 23

6.  Lessons Learned ........................................................................................................247.  Comments on Issues Raised by Borrower/Implementing Agencies/Partners ........... 25

Annex 1. Project Costs and Financing..............................................................................26Annex 2. Outputs by Component......................................................................................29Annex 3. Economic and Financial Analysis .....................................................................34Annex 4. Bank Lending and Implementation Support/Supervision Processes.................36Annex 5. Beneficiary Survey Results ...............................................................................38Annex 6. Stakeholder Workshop Report and Results.......................................................42Annex 7. Summary of Borrower’s ICR and/or Comments on Draft ICR .........................43Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders ...........................60Annex 9. List of Supporting Documents ..........................................................................61MAP..................................................................................................................................63

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A. Basic Information

Country: Madagascar Project Name: Community Development Project

Project ID: P055166 L/C/TF Number(s): IDA-34980,IDA-34981,IDA-34982,IDA-3498A

ICR Date: 06/30/2009 ICR Type: Core ICR

Lending Instrument: SIL Borrower: GOVERNMENT OF MADAGASCAR

Original Total Commitment:

XDR 85.2M Disbursed Amount: XDR 131.6M

Environmental Category: F Implementing Agencies: Fonds d'Intervention pour le Developpment (FID) Ministere de la Decentralisation et de l'Amenagement du Territoire (MDAT) Cofinanciers and Other External Partners: B. Key Dates

Process Date Process Original Date Revised / Actual Date(s) Concept Review: 12/21/1999 Effectiveness: 10/23/2001 Appraisal: 02/05/2001 Restructuring(s): 10/22/2002 Approval: 04/19/2001 Mid-term Review: 11/30/2003 04/01/2005 Closing: 06/30/2007 12/31/2008 C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Satisfactory Risk to Development Outcome: Moderate Bank Performance: Satisfactory Borrower Performance: Satisfactory

C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings

Quality at Entry: Satisfactory Government: Satisfactory

Quality of Supervision: Satisfactory Implementing Agency/Agencies: Satisfactory

Overall Bank Performance: Satisfactory

Overall Borrower Performance: Satisfactory

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C.3 Quality at Entry and Implementation Performance IndicatorsImplementation

Performance Indicators QAG Assessments

(if any) Rating

Potential Problem Project at any time (Yes/No):

No Quality at Entry (QEA):

None

Problem Project at any time (Yes/No):

Yes Quality of Supervision (QSA):

Satisfactory

DO rating before Closing/Inactive status:

Satisfactory

D. Sector and Theme Codes

Original Actual Sector Code (as % of total Bank financing) General agriculture, fishing and forestry sector 15 General education sector 15 40 General public administration sector 35 25 General water, sanitation and flood protection sector 15 5 Other social services 20 25 Roads and highways 5

Theme Code (as % of total Bank financing) Decentralization 17 20 Improving labor markets 33 10 Participation and civic engagement 17 10 Rural services and infrastructure 33 60 E. Bank Staff

Positions At ICR At Approval Vice President: Obiageli Katryn Ezekwesili Callisto E. Madavo Country Director: Ruth Kagia Hafez M. H. Ghanem Sector Manager: Lynne D. Sherburne-Benz Arvil Van Adams Project Team Leader: Philippe Auffret Eileen Murray ICR Team Leader: Philippe Auffret ICR Primary Author: Paul Geli F. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) (from Development Credit Agreement dated May 22, 2001)

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The objective of the Project is to contribute to the improved use of, and satisfaction with, social and economic services provided thereunder amongst participating rural communities. Revised Project Development Objectives (as approved by original approving authority) (a) PDO Indicator(s)

Indicator Baseline Value

Original Target Values (from

approval documents)

Formally Revised Target Values

Actual Value Achieved at

Completion or Target Years

Indicator 1 : Percentage of beneficiaries reporting satisfaction with services from project-supported infrastructure Value quantitative or Qualitative)

non applicable 70% 84%

Date achieved 10/23/2001 12/31/2008 12/31/2008 Comments (incl. % achievement)

An impact evaluation carried out in the third quarter of 2006 reported that 84% of beneficiaries (which is 20% above the target of 70%) are satisfied with the services provided by the infrastructure sub-projects.

(b) Intermediate Outcome Indicator(s)

Indicator Baseline Value

Original Target Values (from

approval documents)

Formally Revised

Target Values

Actual Value Achieved at

Completion or Target Years

Indicator 1 : Transfers to community associations: number of sub-projects approved per year

Value (quantitative or Qualitative)

0

314/yr (cumulative number of sub-projects = 1,885 during 6 years of implementation)

483/yr (cumulative number of sub-projects = 3,383 during 7 years of implementation)

Date achieved 10/23/2001 12/31/2008 12/31/2008 Comments (incl. % achievement)

Implementation of 3,383 community-based social and economic sub-projects (including 1,425 rehabilitations and reconstructions in the aftermath of cyclones). The actual value achieved is 54% above the target.

Indicator 2 : Number of communes with plans that receive annual grants for executing investments Value (quantitative or Qualitative)

0 186 186

Date achieved 10/23/2001 12/31/2008 12/31/2008 Comments The target has been achieved (186 communes with 3-year plans have received

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(incl. % achievement)

annual grants for executing investments).

Indicator 3 : Project-supported infrastructure operated and maintained adequately one year after completion Value (quantitative or Qualitative)

0 80% 81%

Date achieved 10/23/2001 12/31/2008 12/31/2008 Comments (incl. % achievement)

The 80% target has been achieved.

Indicator 4 : Number of person/days of employment created under the Social Safety Net (Shocks) component Value (quantitative or Qualitative)

Non applicable 20.4 million 21.2 million

Date achieved 10/23/2001 12/31/2008 12/31/2008 Comments (incl. % achievement)

Target has been slightly exceeded: 21.2 million person/days of employment have been created benefiting 700,000 individuals.

Indicator 5 : Health centers built or rehabilitated (number) Value (quantitative or Qualitative)

0 0 394

Date achieved 10/23/2001 12/31/2008 12/31/2008 Comments (incl. % achievement)

This IDA 15 indicator was introduced in September 2008 as part of the retrofitting of IDA 15 indicators into Bank projects.

Indicator 6 : Classrooms built and/or rehabilitated (number) Value (quantitative or Qualitative)

0 0 5,958

Date achieved 10/23/2001 12/31/2008 12/31/2008 Comments (incl. % achievement)

This IDA 15 indicator was introduced in September 2008 as part of the retrofitting of IDA 15 indicators into Bank projects.

G. Ratings of Project Performance in ISRs

No. Date ISR Archived DO IP Actual

Disbursements (USD millions)

1 08/16/2001 Satisfactory Satisfactory 0.00 2 02/18/2002 Satisfactory Satisfactory 4.50 3 05/20/2002 Satisfactory Unsatisfactory 4.52 4 09/30/2002 Satisfactory Satisfactory 9.04 5 04/01/2003 Satisfactory Satisfactory 28.82

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6 11/12/2003 Satisfactory Satisfactory 53.93 7 02/24/2004 Satisfactory Satisfactory 69.63 8 10/18/2004 Satisfactory Satisfactory 104.61 9 06/01/2005 Satisfactory Satisfactory 147.50

10 12/22/2005 Satisfactory Satisfactory 152.95 11 07/28/2006 Satisfactory Satisfactory 156.54 12 04/09/2007 Satisfactory Satisfactory 165.42 13 11/14/2007 Satisfactory Satisfactory 178.58 14 04/17/2008 Satisfactory Satisfactory 184.88 15 08/25/2008 Satisfactory Satisfactory 191.16 16 12/22/2008 Satisfactory Satisfactory 192.32

H. Restructuring (if any)

Restructuring Date(s)

Board Approved

PDO Change

ISR Ratings at Restructuring

Amount Disbursed at

Restructuring in USD millions

Reason for Restructuring & Key Changes Made DO IP

10/22/2002 N S S 12.88

When the entire IDA portfolio was restructured in 2002 to respond to the urgent social and economic needs of the country following the six-month political crisis, the legal documents were amended in November 2002 to: (i) add a component to the project to provide a permanent social safety net mechanism, and (ii) expand the project by including urban areas that were most affected by the crisis. Therefore, the project development objective was slightly amended to include participating urban communities, in addition to participating rural communities. The PDO amendment was not submitted to the Bank's Board of Directors for approval and the key indicators were not changed at that time. It should be noted that the same revised wording of the PDO applied to the 2004 First Additional Financing and the 2006 Second

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Restructuring Date(s)

Board Approved

PDO Change

ISR Ratings at Restructuring

Amount Disbursed at

Restructuring in USD millions

Reason for Restructuring & Key Changes Made DO IP

Additional Financing that were submitted to and approved by the Board.

I. Disbursement Profile

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Context of the preparation of the Implementation Completion and Results Report (ICR) 1. The ICR was prepared under difficult circumstances. A political crisis erupted in Madagascar at the end of January 2009, which had several negative impacts on the preparation of the ICR. The second phase of the impact study did not take place in early 2009, as planned, which limited the amount of information available on the impact of the Project. The Bank’s OP/BP 7.30 “Dealing with de facto governments” went into effect on March 17, 2009 and, as a result the ICR team did not have any contact with the Government and had only limited contacts with the FID, as travel to Madagascar was suspended. Therefore, the ICR team did not benefit from first-hand discussions and inputs from beneficiaries and other stakeholders. Because of the prevailing situation, the Bank agreed that the ICR would be sent to the Board without prior review by the Government. Introduction 2. An original credit of US$110 million / SDR85.2 million (Credit 3498-0 MAG) for the Community Development Project (CDP) was approved on April 19, 2001 and became effective on October 23, 2002. 3. When the entire IDA portfolio was restructured in 2002 to respond to the urgent social and economic needs of the country following the six-month political crisis, the legal documents were amended. In November 2002, a component was added to the Project to provide a permanent social safety net mechanism, and the Project was expanded to include urban areas that were most affected by the crisis. 4. In April 2004, the legal documents were amended, again to add a new component for cyclone emergency and disaster relief activities. 5. An Additional Financing of US$50 million / SDR34.2 million (Supplemental Credit 3498-1 MAG) was approved on June 16, 2004 to address the emergency situation arising from the 2004 cyclones which resulted in substantial damage to social and economic infrastructure. 6. A new Additional Financing of US$18 million / SDR12.2 million (Credit 3498-2 MAG) was approved on June 23, 2006 to scale-up the Project and finance capacity-building activities, as requested by the Ministry of Decentralization to support implementation of the deconcentration and decentralization strategy, including the preparation of the Commune Development Support Program (CDSP). 7. Following the various amendments and two additional financings, the Project had the following components: (1) transfer of funds to community associations to implement small-scale basic infrastructure sub-projects; (2) transfer of funds to communes to implement small-scale basic infrastructure sub-projects; (3) social safety net (cash-for-work) to protect the poorest segments of the population; (4) rehabilitation and reconstruction of basic infrastructure in response to natural disasters, including cyclones;

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(5) capacity-building activities for communities and communes and institutional support to the Ministry of Decentralization for the preparation of the CDSP; and (6) project administration and supervision. Legal documents / amendments Amounts in US$

equivalent Date of legal documents / amendments

3498-0 MAG 110,000,000 May 22, 2001 Amendment of legal documents for social safety net mechanism

November 2002

Amendment of legal documents for cyclone emergency

April 2004

3498-1 MAG –First Additional Financing (amendment of legal documents)

50,000,000

July 2004

3498-2 MAG – Second Additional Financing (Financing Agreement and Project Agreement)

18,000,000

September 6, 2006

Total 178,000,000

8. Based on available outcome and output indicators, the Community Development Project (CDP) and previous projects implemented by the Fonds d’Intervention pour le Développement (FID) have established the right mechanisms to reach out to poor communities, deliver basic infrastructure and provide quick and flexible responses in the aftermath of natural disasters. The ICR shows that working directly with communities is appropriate in the context of Madagascar where the central government goes through recurrent political crises and faces difficulties to reach communities, in part because of their remoteness. The CDP also worked well because of its ability to coordinate the preparation and implementation of sub-projects with sectoral policies. 1. Project Context, Development Objectives and Design

1.1 Context at Appraisal 9. From 1960 to 1999 the population of Madagascar experienced a long descent into deeper and deeper poverty, as average real income per capita fell by a third. The growth of real GDP recovered in the 1990s but this did not reduce poverty rates. Instead, the poverty rate was broadly stable in the 1990s, rising from 70 percent in 1993 to 73% in 1997 and then slipping to 71% in 1999. Physical measures of nutrition, which are an alternative and basic indicator of poverty, were roughly consistent with the poverty rate, as stunting (age/height) improved only marginally over the decade of the 1990s. Other poverty indicators were more positive. In particular, the school enrollment rate of children 6 to 14 rose from 51% in 1993 to 68% in 1999, despite the decline in consumption. Living conditions were generally quite poor but tended to improve during the decade. Access to electricity in urban areas rose and access to sanitation services rose across the board. Access to clean drinking water rose from 18% in 1993 to 23% in 1999. 10. However, there were some significant changes in the poverty profile in the 1990s. Rural poverty rose from 74.5% in 1993 to 76.7% 1999, despite the migration of poor

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rural families to urban areas. The worsening of rural poverty seemed associated with increased physical isolation caused by a breakdown of the road system. The distribution of income among provinces shifted significantly in the 1990s. The poverty rate fell to 72% in Toliara, which used to be the poorest province, but deteriorated in Mahajanga (76%), Antsiranana (73%) and Fianarantsoa which became the poorest province in 1999 with a poverty rate of 81%. Finally, poverty in Antananarivo was relatively moderate during the 1990s and reached 62% in 1999. 11. The Interim Poverty Reduction Strategy Paper (I-PRSP) of the Government had three pillars: (a) higher and more sustainable levels of economic growth; (b) governance and institutional reform; and (c) improved basic service delivery. With respect to the last pillar, the Government program included: (i) improving rural infrastructure; (ii) increasing access to education for the poor; and (iii) broadening the health system. The I-PRSP included an action plan for rural development, which goal was to improve the productivity and competitiveness of the rural economy. The Community Development Project (CDP) was part of that action plan. 12. One of the main objectives of the latest CAS was to ensure that economic growth would be broad-based and benefit the poor. Since a large majority of the poor live in rural areas, the CAS aimed at reducing rural poverty by improving productivity and competitiveness in the rural economy. 13. To this end the CAS proposed investments in human capital development in rural areas, particularly in education, basic health care, water, nutrition, and rural infrastructure. Moreover, the CAS supported strengthening the delivery of basic social and economic services in poor areas through decentralization of power and resources to communities. 14. The Project addressed these objectives through intensive investment in the provision of social and economic services in poor rural areas. Over the medium and long term, a sustained flow of improved social and economic services was expected to improve public health and education in targeted communities. This increase in human capital was expected to contribute to higher labor productivity and incomes. 15. The Project was to support the CAS objectives through significant devolution of powers to communities and communes, who would select and implement sub-projects. The communes were in place, had elected officials and were receiving budgetary transfers. The Project was designed to enable communes to strengthen their managerial, financial and developmental capacity. The long-term vision was that the transfer of funds to communes would be successful, so that communes would play a key role in rural development. Although its role would change, the FID would become a permanent instrument for targeted transfers of matching funds to communities and communes. 16. The Project was implemented by the Fonds d’Intervention pour le Développement (FID). FID was established as a non-profit association for public service (“association à but non lucratif reconnue d’utilité publique”) in 1993. It has successfully implemented

4

earlier social funds in Madagascar financed by IDA (the Food Security and Nutrition Project, the Second Social Fund Project, and the Third Social Fund Project). FID would continue to operate on a decentralized basis through six inter-regional offices in accordance with the provisions of its by-laws, the Framework Agreement (Convention) between the FID and the Government, and its Manual of Procedures approved by the Bank.

1.2 Original Project Development Objectives (PDO) and Key Indicators 17. According to the Development Credit Agreement (DCA) dated May 22, 2001, the objective of the Project was “to contribute to the improved use of, and satisfaction with, social and economic services provided thereunder amongst participating rural communities”. The Project Appraisal Document (PAD) dated March 23, 2001 has a slightly different wording: “The PDO is to improve use of and satisfaction with project-supported social and economic services within poor rural communities”. The difference between the two wordings is not significant. For purposes of the ICR, the relevant wording is that of the PDO in the DCA. 18. In the PAD, the key indicators related to the project development objectives are the following:

• A minimum of 80% utilization of designed capacity for primary schools, health centers, potable water supply, micro irrigated perimeters and rural roads.

• At least 70% of beneficiaries report that they are satisfied with services from

project-supported infrastructure.

1.3 Revised PDO (as approved by original approving authority) and key indicators, and reasons/justification

19. When the entire IDA portfolio was restructured in 2002 to respond to the urgent social and economic needs of the country, after a six-months political crisis, the legal documents were amended in November 2002 to: (i) add a component to the Project in order to provide a permanent social safety net mechanism, and (ii) expand the Project by including urban areas that were most affected by the crisis. Therefore, the Project Development Objective (PDO) was slightly amended to include urban communities, and it reads as follows: “The objective of the Project is to contribute to the improved use of, and satisfaction with, social and economic services provided thereunder amongst participating rural and urban communities”. The PDO amendment was not submitted to the Bank’s Board of Directors for approval and key indicators were not changed at that time. The same revised PDO wording applied to the 2004 and 2006 Additional Financings, which were approved by the Board.

1.4 Main Beneficiaries 20. In accordance with the PAD dated March 23, 2001, the Project was expected to benefit the Malagasy who inhabit rural areas, by: (i) primarily, increasing their access to

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basic social and economic services and improving the quality of the services; (ii) building the capacity of community associations and commune authorities to plan, implement and operate development sub-projects; (iii) providing communities and local authorities with the ability to seek additional funding for development activities in a systematic manner; and (iv) increasing productivity and income over the medium and long-term, as economic investments in infrastructure such as feeder roads improve the profitability of agriculture, while social infrastructure in health and education improves labor productivity. The purpose of the 2002 restructuring was to expand the project so that it would benefit also the Malagasy living in urban areas. 21. For transfers to communes, in the first year the Project would disburse funds to those communes that already have a communal development plan financed by other partners (UNDP, French Cooperation, and European Union). After the first year of operation, communes would be selected according to their implementation capacity. More specifically, the Project would give preference to communes which have a communal development plan, have experience in implementing an investment of the type specified in the plan, and have the capability to maintain administrative accounts. 22. With the addition of new components, the Project also provided Madagascar with an efficient instrument to respond to the major natural disasters that the country faces on a recurrent basis (such as cyclones) through: (i) rehabilitation and reconstruction of damaged or destroyed infrastructure; and (ii) labor-intensive public works (safety nets). The 2004 Additional Financing was expected to benefit about 1.2 million people living in areas affected by cyclones Elita and Gafilo.

1.5 Original Components 23. The initial project included four components. 24. Component 1: Transfer of Funds to Community Associations(Community sub-projects – individual investments) – estimated cost: US$80.0 million. This component would fund sub-projects chosen by the communities themselves through a participatory rural appraisal process. The sub-projects had to meet specific qualification criteria designed for schools, health centers, small-scale rural water supply, rural roads, bridges, and markets. Education and health infrastructure had to be approved by the respective ministries and meet their design and technical norms. The sub-projects had to cost less than US$50,000 (US$100,000 for rural roads), and the communities had to provide contributions in kind as well as money equal to at least 15% of the cost (or 10% for rural roads) of the sub-projects. With the exception of rural transport infrastructure and small scale irrigation, which were executed by FID, sub-projects were executed by community associations (such as parent associations for schools), which were responsible for procurement, supervision and payment of contractors and suppliers. 25. Component 2: Capacity Building Activities – estimated cost: US$15.0 million. . This component would fund the training of members of the project cells (cellules de projet) of community associations and of elected officials and personnel of communes in

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project management, accounting, procurement, etc. It would also support the preparation of participatory communal development plans. 26. Component 3: Transfer of Funds to Communes– estimated cost: US$25.0 million. Under this component, funds would be transferred to communes to finance priority investments in their communal development plans. Under this pilot operation, funds estimated at US$5 per capita per year throughout the project period would be transferred to 60 communes during the first year, 120 during the second year, 180 in the third year, 240 in the fourth year, and 300 in the fifth year. By the end of the Project, the pilot would therefore have reached 300 of the 1400 communes in Madagascar. The choice of investments that could be financed was large, since there would be no positive list, but only a negative list. The beneficiary contribution to the investment would be 15 percent of sub-project costs, as in component 1. Communes would be fully responsible for the selection and implementation of sub-projects. The FID would conduct ex-post inspections and audits on a semi-annual basis to ensure that the component is implemented in accordance with the Manual of Procedures. 27. Component 4: Project Administration and Supervision - estimated cost: US$17 million. This component would fund the operating costs of FID which is responsible for overseeing the implementation of all activities under the project. It would also finance training of staff, beneficiary assessments, impact evaluations, poverty studies, monitoring and evaluation, and financial and technical audits.

1.6 Revised Components 28. When the entire IDA portfolio was restructured in 2002 to respond to the urgent social and economic needs of the country following the six-month political crisis, the Development Credit Agreement (DCA) was amended to add a component to provide a permanent social safety net mechanism and US$15.7 million was taken from the other components to be allocated to this new component. The project was also expanded to include urban areas that were most affected by the crisis. 29. In May 2004, the DCA was again amended to add a new component to the Project, which would allow the financing of emergency activities following the devastating effects of the Elita and Gafilo cyclones. The objective of the new component was to improve the living conditions of the most affected households for a six months period, including distribution of nutritional supplements and other provisions for pregnant and lactating women, as well as children under five; critical medicines to combat disease outbreaks, such as respiratory infections, pneumonia and malaria; and distribution of drinking water, soap and water treatment kits. The development objective of the Project was not affected by this amendment. 30. In July 2004, the DCA was amended again to provide a Supplemental Credit of SDR 34.2 million (US$50 million equivalent) to respond to the most urgent needs of the population and restore basic infrastructure after the Elita and Gafilo cyclones. The

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Additional Financing was consistent with the project development objective and components and could be fully executed during the initial implementation period.

31. Finally, a new Additional Financing was signed in September 2006 in an amount of SDR 12.2 million (US$18 million equivalent) to finance the completion of the on-going program and clarify the future role of FID in the decentralization process. This Additional Financing consolidated the full-fledged components and activities that had been added over the life of the Project. It also financed capacity building activities (US$1 million), as requested by the Ministry of Decentralization and Regional Planning (Ministère de la Décentralisation et de l’Aménagement du Territoire - MDAT) in order to support the implementation of the Government 2005 Deconcentration and Decentralization Policy. Under this policy, the Government was planning to establish a Local Development Fund (LDF) as a means to harmonize and streamline support to local development within the government structure. A multi-donor financed LDF would consolidate the transfer of resources to communes in a sustainable way, and would build their long term capacity. In addition to the preparation of the LDF, the new capacity building activities would support the establishment and operating costs of eight commune support centers (Centres d’Appui aux Communes or CAC). CACs, which were composed of three individual consultants, would be legally attached to inter-communal public organizations (Organisme Public de Coopération Intercommunale or OPCI). Each CAC would cover between 10 and 15 communes and would provide direct capacity building in areas such as communal legislation, fiscal management and revenue administration, and would match commune needs with training service providers and investment funds channeled through the LDF. 32. The Project Development Objective (PDO) under the second Additional Financing remained the same as under the initial project following the November 2002 amendment. Project components were the same as those of the initial Project except for the component on “Cyclone Emergency and Disaster Relief Activities”, which was replaced by a new component 4 on “Rehabilitation and Reconstruction in Response to Natural Disasters”. This component focused on disaster-related rehabilitation and reconstruction previously included in the components of the original project on “Transfer of Funds to Community Associations” and “Transfer of Funds to Communes”. Also, the contents and implementation modalities of the component for capacity building activities were substantially modified with the addition of the LDF preparation and the CACs. 33. Following the amendments and additional financings, the project was financed by three credits/amendments and had six components. Credits/amendments:

• Credit 3498 – MAG – DCA dated May 22, 2001 – SDR85.2 million – US$110.0 million;

• Credit 3498-1-MAG – amending agreement dated July 21, 2004 - SDR34.2 million – US$50 million; and

• Credit 3498-2-MAG – Financing agreement dated September 6, 2006 – SDR12.2 – US$18.0 million.

• Total: SDR131.6 million – US$178.0 million.

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Components:• Component 1: transfers of funds to community associations; • Component 2: transfers of funds to communes; • Component 3: social safety nets (shocks); • Component 4: rehabilitation and reconstruction in response to natural disasters; • Component 5: capacity building activities; and • Component 6: project administration and supervision.

34. Components 1 and 2 supported local development and decentralization; components 3 and 4 addressed shocks; and components 5 and 6 dealt with cross-cutting issues. These changes were consistent with the recommendations of the April 2005 Mid-Term Review, which suggested a clearer institutional and administrative separation of the FID’s double mandate of: (i) supporting long term local development; and (ii) responding to shocks, a short-term and largely unpredictable activity by nature.

1.7 Other significant changes 35. The FID’s Manual of Procedures was updated to include some modifications in the allocation to communes, following the Mid-Term Review recommendations. Under the Original Project, US$5 per capita was allocated to selected communes each year under a pluri-annual agreement. This created large inequities between communes, and prevented less populated communes from financing meaningful investments. Allocation to communes would be based on the cost of priority sub-project in the Communal Development Plan, with a cap of US$100,000 per sub-project. The system of multiple agreements with selected communes was replaced by annual agreements. The 66 new communes, which would be receiving a grant under the 2006 Additional Financing were to be selected based on a mix of criteria reflecting their poverty and capacity levels defined in the Manual of Procedures, as well as criteria linked to the sampling requirement for the planned project impact evaluation. In the future, the targeting criteria of the Local Development Fund (LDF) would apply. 2. Key Factors Affecting Implementation and Outcomes

2.1 Project Preparation, Design and Quality at Entry

36. The project was designed as a Community Driven Development (CDD) Project which transfers funds to communities associations and communes. The long-term vision was that the transfer of funds to communes would be successful, so that their allocation would increase and they would play an enhanced role in rural development. During the Mid-Term Review these alternative ways of decentralizing resources to communities would be compared in terms of the soundness of financial management of project funds and in terms of the cost, quality and implementation period for similar investments. Any allocation increase would also be based on commune’s implementation capacity, and particularly their capacity to manage funds.

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37. The Project aimed to work within a “decentralization” process to communes, since communes were local governments, had elected officials and were receiving budgetary transfers. However, the Project was not a comprehensive decentralization Project as it was not, for example, dealing with fiscal decentralization which can be achieved more effectively through a macro-economic dialogue focusing on this issue. 38. The choice of FID as implementing agency was logical since FID had successfully executed social fund projects in Madagascar. With a regional office in each province, it was a key instrument that could be used to support government decentralization policies. The FID III project had piloted community management of funds and procurement in many sub-projects. In view of the somewhat different approaches of the Project, FID management revised the skills mix of its staff and its organizational structure, and the recruitment of IEC, MIS and training specialists was a condition of effectiveness of the initial Credit (3498-0 MAG). Insofar as the Project built on the institutional capacity that had been established under previous projects executed by FID, the PDO appeared clear and realistic. However, there would have been a better correlation between the PDO and the key performance indicator on utilization of assets if the PDO had referred to a “satisfactory utilization of design capacity”, instead of “improved use” of social and economic services. 39. The Project design incorporated lessons from social funds supported by the Bank and by other agencies in many regions of the world, as well as from the Bank's experiences with the earlier social funds projects with FID in Madagascar. It emphasized governance measures to be put into place, including as conditions of effectiveness. Lessons learned from previous projects were related to the effectiveness of an independent execution unit, the need to respect the strategies of sector ministries, the importance of establishing incentives for good management of project funds, targeting, procurement, coordination with other agencies, community mobilization and sustainability. The Project design also included coordination in the rural areas with other IDA-financed projects. 40. The Project was designed to take into account the structure of the country's rural society, particularly the structure of rural communities -- where for example notables, such as teachers or doctors, lead the decision-making process of their communities. The awareness-creation campaigns would ensure that these notables promote actions that render investments sustainable through the operation and maintenance phases. The Project was unusually participative in the context of a country where community participation is not commonplace. The Project was developed in part through the feedback of beneficiaries in annual survey assessments. In addition, consultations took place with deputies, rural mayors, NGOs, decentralized ministerial structures, and civil society to solicit their views as how best to address issues in rural areas. The 2004 Additional Financing emphasized also the participatory approach, with maximum community involvement in all phases of the project cycle. 41. During appraisal of the initial operation, the overall project risk was rated as “Modest”. The PAD clearly identified the modest risks (counterpart funds not provided

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on schedule1, lack of coordination with line ministries, and insufficient implementation capacity in the country) and appropriate mitigation measures. The most substantial risk was the risk that the Government would not follow its policy of decentralization and, therefore, the communes would not be able to finance their share of the cost of construction or rehabilitation of their infrastructure. With the 2006 Additional Financing, new risks included the lack of effectiveness of the partnership between the FID and the Ministère de la Décentralisation et de l’Aménagement du Territoire (MDAT) and the uncertain financial sustainability of Centres d’Appui aux Communes, CACs. 42. The task team leaders of the IDA-supported projects that directly influence rural development agreed on a plan for coordination and for joint action as a way of achieving better results2. The agreement focused on sharing methods for maximizing community participation (through a common design for participatory rural appraisals) and on joint geographical targeting of efforts to maximize impacts. The four projects would prepare and agree on compatible annual work programs. The only area of potential overlap was irrigation. It was agreed that the CDP would respond to demands from communities for investments in small-scale irrigation sub-projects (of less than 100 hectares) during a transition period. On roads, the CDP would finance the rehabilitation of commune roads requested by communities in their action plans. Since the Government had established Regional Working Groups (Groupes de Travail Régionaux) to coordinate projects with investment in agriculture, the Regional Working Groups would participate in the meetings of the FID regional consultative committees that approve CDP supported sub-projects.

2.2 Implementation 43. The Project supported participatory rural appraisals through which the population identified sub-projects and ranked them in order of priority in a communal development plan. The communities were also asked to participate by co-financing and by executing sub-projects proposed in the communal development plans. 44. A number of external events affected project implementation:

a) The six-month political crisis in 2002 led to the addition of a component to provide a permanent social safety net mechanism (cash-for-work program). The Project was also expanded to include urban areas that were most affected by the crisis.

1 This was no longer a risk under the 2006 Second Additional Financing which financed 100% of expenses including taxes (as per the Country Financing Parameters approved on May 12, 2005).

2 The projects are the Community Development Project (CDP), the Rural Development Support Project (RDSP), the Rural Transport Sector Project (RSTP), and the Second Environment Project (SEP).

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b) Following the Elita and Gafilo cyclones that hit Madagascar from January to March 2004, in April 2004 the credit was amended to add a new component to the project allowing for financing of emergency activities, and in July 2004 an Additional Financing was approved to cover the cost of repairing the damages to social and economic infrastructure caused by the cyclones.

45. Under the 2004 First Additional Financing to support repairs of cyclone damages, beneficiary contributions were not required in the zones that were severely affected in terms of infrastructure damage (according to the classification by the FID) where people have lost their homes and field crops. In communities that were moderately or less affected, a beneficiary contribution was required under the components for transfers of funds to community associations and communes. However the percentage of contribution was smaller than for the initial Project. 46. As mentioned above (see 1.7 on other significant changes), the implementation modalities of Component 2 on transfer of funds to communes were changed following the recommendations of the April 2005 Mid-Term Review (MTR). 47. The 2006 Second Additional Financing with the LD sub-component and the pilot commune support centers (Centres d’Appui aux Communes – CAC) introduced a new project risk, since the CAC concept was not well developed. The project design mitigated this through a disbursement condition (namely, the submission of a CAC Manual of Procedures dealing with the legal status of CAC, composition and rules of operation, administration and finance, work plan and M&E plan).

2.3 Monitoring and Evaluation (M&E): Design, Implementation and Utilization 48. The Système d'Information FID, a powerful tool for tracking FID activities, was upgraded to take into account the further decentralization of project activities to the level of communes and communities. The system included modules on: (i) management of beneficiary requests, annual work program and contracts with local consulting firms, small and medium enterprises (SMEs), and NGOs; (ii) preparation of reports; and (iii) monitoring of performance indicators. FID linked electronically technical data from its MIS to data from its accounting system. To complement FID’s monitoring and evaluation system, communities would monitor and evaluate their own sub-projects using agreed upon output and outcome indicators that communities or communes can monitor easily and reliably before, during, and after implementation of a sub-project. 49. Key outcome indicators for the project and output indicators for each component were defined in the original Project Appraisal Document (PAD). Sets of output indicators were added under the 2004 and 2006 Additional Financings, and one “satisfaction” indicator regarding the performance of the commune support centers (CAC) was added in connection with the 2006 Additional Financing. 50. The FID’s M&E system has been able to provide a lot of data and information. However, that information has not always been consistent, which made it difficult for outsiders to use that information for further analysis aiming at drawing lessons and

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recommendations for improvement. Also, the system is more a monitoring system (which has allowed FID to follow closely project implementation) than an evaluation system. FID does not have in-house capacity to do comprehensive evaluations and contracts them out to consulting firms or academics. Consultants carried out an impact evaluation in 2006. In order to have more up-to-date information that would be useful for the ICR, a new impact evaluation was scheduled to take place in two phases: (i) a baseline, which has been established in February 2007; and (ii) the proper impact evaluation, which had been designed and planned for early 2009, but could not take place due to the political events.

2.4 Safeguard and Fiduciary Compliance Environmental aspects 51. At appraisal, the environmental category of the project was “F” (Financial Intermediary Assessment). To monitor and evaluate the impact of the Project on the environment, the Manual of Procedures was revised as a result of the environmental study of February 1999, requiring the signature of an annual framework agreement between the FID and the Office National pour l’Environnement (ONE) for each type of sub-project. This framework agreement defined: (i) the training of FID staff on environment-related matters; (ii) a plan to train and create awareness on environmental concerns for the agency's partners (community associations, local consulting firms, communal authorities, the regional consultative committee of FID, etc.); (iii) the best procedure to follow for joint approval of sub-projects; and (iv) monitoring and evaluation systems to follow-up on the impact of the proposed measures on each type of investment. During the environment study that took place in 1999, FID agreed with the ONE that all of the agency's sub-projects would be category "1" sub-projects which, according to the new version of the national legislation, would require only a limited impact environmental study. This requirement was included in FID's Manual of Procedures. 52. Findings from the field visits and stakeholder interviews during the preparation of the 2004 Additional Financing suggested that there were potential safeguard risks associated with ongoing sub-projects that needed to be addressed by FID3. The main issues identified included: inadequate waste management procedures for health centers and schools; lack of erosion control measures being used for feeder roads, particularly in areas prone to erosion; and potential cumulative impacts associated with improved access to natural habitats and forests via rural roads resulting in habitat degradation. To address these issues, training was provided to FID staff and implementing partners, such as NGOs, local consulting firms and subcontractors on the application of good practice measures for environmental protection during the construction and operation of sub-projects, and on monitoring sub-projects for safeguard compliance. In addition, the FID’s Manual of Procedures was revised to comply more effectively with the World Bank safeguard policies and provide more adequate guidelines for the environmental

3 “Evaluation de la Conformité aux Directives de Sauvegardes du Projet de Développement Communautaire”, Banque Mondiale, ERM/AQUATERRE. July 27, 2004.

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evaluation of small-scale social infrastructure projects. Good practice measures were integrated into subproject technical specifications. Finally, each of FID’s regional offices subcontracted an environmental specialist (NGO or consultant) to ensure that appropriate safeguard measures are being implemented and guidelines are being applied. 53. The quality at entry assessment carried out in November 2007 for the 2006 Second Additional Financing pointed out that the Bank team had failed to comply with the Bank's policy requiring the disclosure of the EMP before the Bank appraises the Project. The revised EMP was not disclosed in-country prior to appraisal, but shortly after during the period June-July 2006. It was received by the Bank but not disclosed at InfoShop until September 2007. The team, however, was commended for the various evaluation reports contracted out to assess either the environmental performance or the impact of the training and capacity building activities. The team was also advised to put in place a continued supervision system to closely monitor the performance of the executing entities in the field, given the generally weak environmental capacity of these entities. Some areas requiring special attention were solid waste management and soil erosion. An important missing component in the Environmental Management Plan (EMP) was the costing of the proposed generic mitigation measures, as well as the cost estimate of the capacity building measures which needed to be provided. Following the recommendation of the November 2007 Quality at Entry Assessment of the Second Additional Financing (Cr. 3498-2), the FID conducted a review of a number of sub-projects in each sector of activity to better incorporate the environmental dimension at all stages of sub-project implementation. Procurement 54. According to the project design, the Bank Guidelines would be used for the procurement of goods by FID for its own use (purchase of vehicle, computers, etc.) and for the recruitment of consultants by FID. For all sub-projects financed from grants and implemented by communities and communes, procurement of civil works, goods and services financed by IDA would be done in accordance with FID's Manual of Procedures, which is based on the AFR Simplified Procurement Procedures for Small Projects. Most contracts for sub-projects would not be subject to prior review. To minimize the risk that procurement by communities and communes is not in accordance with the procedures included in FID’s Manual of Procedures, technical audits reviewed samples of sub-projects to verify the conformity of procurement procedures (including contract awards) and to make recommendations for improving the quality of the works. Procurement audits were also carried out. All these reviews have been successful, in the sense that FID has consistently taken into account the suggestions from these reviews to improve the procurement system and the quality of the works.

Financial aspects 55. At the time of appraisal, a computerized accounting and financial management system based on internationally accepted accounting principles was operational. This

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system operated on a decentralized basis with the six (6) regional directorates. The "special account 90-day advance procedure" especially designed for decentralized agencies were used to facilitate the operation of FID’s regional offices and to ensure prompt payment of contractors and suppliers. The Manual of Procedures of the FID addressed the fiduciary aspects of transfers of funds to community associations and communes. This manual explained the procedures that would be followed by community associations and communes for procurement, accounts and financial reporting on the use of funds. In connection with the 2006 Second Additional Financing, the Administrative and Financial Manual was revised as recommended by a financial management assessment. 56. There were no major problems regarding financial management. During project implementation, the FID has consistently maintained a satisfactory and up-to-date financial management system permitting a close technical and financial follow-up of sub-projects. Financial Reports have been produced on time during implementation and financial audit reports were submitted on time and were unqualified.

2.5 Post-completion Operation/Next Phase 57. The end of the Community Development Project (CDP) does not mean the end of operations for the Fonds d’Intervention pour le Développement (FID). In order to deal with the very challenging situation created by the combined impacts of the food price crisis, the oil price shock, and reoccurring devastating cyclone seasons, the Government of Madagascar and its development partners agreed on a new project. The Bank’s response included, inter alia, a safety net component to provide support to vulnerable groups who are particularly affected by crises. On December 16, 2008 (that is shortly before the closing date for the CDP), the Board of Directors of the World Bank approved an IDA Credit to Madagascar in the amount of SDR 26.9 million (US$40.0 million equivalent) for an Emergency Food Security and Reconstruction Project. The new Project will finance a cash-for-work program to increase access to short-term employment in targeted food-insecure areas. It will also seek to restore access to social and economic services (schools, health centers, small roads, water systems, etc.) in the aftermath of catastrophic events, including cyclones. Finally, it will finance community-based social infrastructure sub-projects in order to increase access to social and economic services among the poorest communities. The project will be implemented by FID which has a strong record of successfully implementing similar emergency relief projects. When the Bank’s OP/BP 7.30 “Dealing with de facto governments” went into effect on March 17, 2009, program implementation was put on hold. As long as the political crisis does not become prolonged, its negative impact on sustainability will be limited because the process used to implement sub-projects has built community capacity for maintenance and management of community infrastructure. 58. With respect to the support to communes and the decentralization program, a follow-up project is under preparation: the Commune Development Support Program (CDSP), to be co-financed by a number of development partners including the European Commission (EC).

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3. Assessment of Outcomes 3.1 Relevance of Objectives, Design and Implementation

59. The main objective of the Government’s August 2003 Poverty Reduction Strategy Paper (PRSP), under the umbrella of human and material security, was to enhance human capacity and strengthen individual assets, through education, health and nutrition. The PRSP viewed the commune as the main local service provider and the anchor for all interventions in this domain. The Bank’s November 2003 CAS was designed to support the implementation of Madagascar’s PRSP, focusing Bank interventions on creating a much larger impact on rural poverty and protecting the most vulnerable against shocks. The Community Development Project (CDP) was a key element of Bank support to the PRSP. Subsequently, the Government of Madagascar (GoM) prepared its “second-generation” PRSP called the Madagascar Action Plan (MAP) for 2007-12, and the Bank prepared its new CAS in March 2007 to support the implementation of the MAP. The MAP reflected the GoM’s focus on delivering services, especially in rural areas. The CDP addressed key challenges outlined by the MAP, including: (i) improving support for very poor and vulnerable segments of the population; and (ii) restoring basic social and economic infrastructure in the aftermath of natural disasters such as cyclones. The CDP thus continued to be a core element in the Bank’s support to the MAP because it continued a successful and effective program for community development that was having a real impact on the ground. 60. In addition, with the 2006 Additional Financing, the CDP had a strategic goal of supporting the agenda of the Ministère de la Décentralisation et de l’Aménagement du Territoire (MDAT), including the transition to the Local Development Fund (LDF). The Project was very much aligned with the MAP and plans for the LDF.

3.2 Achievement of Project Development Objectives 61. An impact evaluation carried out in the third quarter of 2006 and other information and data monitored regularly by FID show that the CDP has reached, or even exceeded its development objectives. A new impact evaluation was scheduled to take place in two phases: (i) a baseline, which has been established in February 2007; and (ii) the proper impact evaluation, which was originally scheduled for June 2008. Delays in sub-project implementation and lack of availability of the consultant have delayed the second phase of the final impact evaluation, which was first rescheduled for early 2010. Since it was felt that more up-to-date information would be useful for the ICR, the plan was changed to have a new impact evaluation in early 2009, but it could not be carried out because of the political crisis. 62. Regarding the two key performance indicators, achievements have been as follows:

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A. The “use” of assets acquired under the Project has been above the target of 80% utilization of design capacity4, as shown below:

Indicators Utilization of design capacity Results as of 12/31/2008

Comments

Cr. 3498-0 & 3498-1 MAG

Cr. 3498-2 MAG

Primary schools 125% 96% The capacity of schools built with Cr. 3498 - 0 & 1 has been lower than actual needs.

Health centers 86% 86% Potable water supply 95% 89% Micro irrigated perimeters

95% N/A Under Cr. 3498-2, FID did not finance any micro irrigated perimeters.

Rural roads 103% 77% Source: Rapports de Suivi Financiers (RSF) – Quatrième trimestre 2008 B. 84% of beneficiaries are satisfied with the services provided from the infrastructure sub-projects, which is above the target of 70%.

63. The Original Credit and the two Additional Financing (Cr. 3498-0, Cr. 3498-1 and Cr.3498-2) have also led to the following:

(i) implementation of 3,383 community-based social and economic sub-projects

(including 1,425 rehabilitations and reconstructions in the aftermath of cyclones) over a period of 7 years equivalent to the implementation of 483 sub-projects per annum, which is above the target of 314 sub-projects per annum (corresponding to 1,885 community-based social and economic sub-projects implemented over a period of 6 years);

(ii) 186 communes with 3-year plans (Plan Communal de Développement – PCD)have received annual grants for executing investments, which corresponds to the target of 186 communes;

(iii) 81% of sub-projects are operated and maintained adequately one year after completion, which is slightly above the target rate of 80%; and

(iv) 21.2 million person/days of employment (HIMO) have been created benefiting 700,000 individuals, which is slightly above the target of 20.4 million person/days of employment.

4 As mentioned earlier, in view of the wording of this key indicator, it would have been better if the PDO had referred to “a satisfactory utilization of design capacity”, instead of “improved use” of social and economic services.

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64. The CDP had a positive impact on the population, through increased enrolment in schools, better health care for mothers and children, increases in trade due to the rural roads and markets, and better access to potable water. Every year cyclones hit Madagascar with devastating impacts on basic economic and social infrastructure, including roads, water systems, schools, etc. The response to natural disaster component of the CDP has financed 1,425 sub-projects which allowed for a fast rehabilitation of damaged infrastructure and resumption of service in the aftermath of natural disasters. 65. Annex 2 provides more details on outputs and achievements under each Project component. In terms of infrastructure, the majority of sub-projects were schools, followed by health centers. The CDP financed 3,790 social safety net sub-projects, which generated 21.2 million persons days of employment benefiting 700,000 individuals. Although the Project financed thousands of activities, the amount spent on training was about half the appraisal estimate. However, community and commune members had plenty of opportunities “to learn by doing”. Regarding the capacity-building supporting the LDF, there were problems with implementation, and the CAC experience was not satisfactory. The quality at entry assessment carried out in November 2007 for the 2006 Second Additional Financing commented that the adequacy of the causal links between the project's activities, outputs, and intended outcomes was satisfactory. 66. The impact study carried out in 20065 showed that the targeting was satisfactory. Globally, the communes selected by FID were poorer and more “enclaved”, or isolated, than the average rural commune. Almost all communes were satisfied with FID’s work, and eighty-four percent of households were satisfied with the sub-projects financed by FID.

67. With respect to “governance” at the level of the communities and communes, the CDP was able to deal satisfactorily with issues that quite often plague CDD operations. FID entered into grant agreements with community associations and communes, under which FID would deposit money, in tranches, into their bank accounts to finance approved sub-projects. A community association, such as a parent association in the case of a school, would be represented by the President of its project cell (cellule de projet), and a commune would be represented by its mayor. In accordance with FID’s Manual of Procedures (MOP), sub-projects were selected following a participatory process with the preparation of communal development plans, so that “elite capture”, if any, must have been very limited. The evaluation carried out in 2006 shows that the participatory process actually took place: only 6% of the households, a very small minority, considered that the sub-project was not a priority. The MOP also stresses transparency in the use of funds, including the procurement of works and goods. When the transfer of the first tranche takes place, a FID representative attends a meeting of all community members where a big panel representing a check is displayed so that community members get an idea of the importance of the sums involved. Community members are told that the project cell must report to them periodically on the award of contracts, payments made to contractors and suppliers and any other use of funds. All members can also consult the simplified

5 Rapport de 1ère étape pour l’étude d’impact du PDC (FID IV) - 2006

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accounting documents kept by the project cell. Project cells are fully empowered to manage their bank accounts, but FID receives directly from the bank copies of the monthly statements and has the right, acknowledged by the bank, to block the account if FID believes that funds have been misused. Finally, the experience shows (and this has been confirmed many times by contractors) that communities do supervise sub-projects very closely by having a representative present at the work site all the time, in addition to the supervising engineer that has been recruited for the job. Social control has worked well in the CDP.

3.3 Efficiency 68. Research into social funds has shown that cost-effectiveness analysis is more feasible and reliable than cost-benefit analysis or calculation of rates of return. That is because it is difficult to measure the social benefits of social funds. Therefore, in the PAD the economic evaluation of the Project focused on a comparison of the unit costs of rehabilitation and construction by the executing agency with those achieved by other agencies and by the Government. 69. Annex 3 on “Economic and Financial Analysis” presents some recent information on school construction. According to a July 2008 study6, the evidence is clear that community based approaches that empower local communities to implement school projects result in lower costs and are more effective in scaling up to build the number of schools that are needed. Community delegation has been the most effective way of building schools. Another finding of the study is that community participation is key to reducing corruption.

70. According to the technical audit reports, the quality of infrastructure financed by FID has continued to improve. FID now has a track record of building quality infrastructure in most cases at competitive prices and more quickly than other projects. For instance, schools and health posts are completed in four to six months.

3.4 Justification of Overall Outcome Rating Rating: Satisfactory 71. The CDP has been remarkably successful, despite some political turmoil in the country during the project implementation period. It built on solid achievements of previous projects, has adapted well to changing situations and has been able to respond to emergencies, such as the cyclones that hit Madagascar every year. 72. Most performance targets have been exceeded, and 100% of the funds were disbursed. The targeting was satisfactory; the communes selected by FID were poorer and more “enclaved” than the average rural commune. The vast majority of beneficiaries were satisfied with the sub-projects financed by FID. Project implementation has been

6 School Construction Strategies for Universal Primary Education in Africa - Should Communities Be Empowered to Build Their Schools? –by Serge Theunynck -

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cost effective. The Project placed appropriate emphasis on the need to work at community level. Communities have been able to implement top priorities identified in their communal development plans. 73. The overall outcome of the CDP is rated “Satisfactory”.

3.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development

74. The Project achieved its social development outcome --of reinforcing community institutions--through its work with community associations and commune governments. In particular, it promoted the engagement of communes in formulating their own development priorities and plans, and a participatory process for the selection of sub-projects by communities. The capacity building component funded 1,846 training activities for the benefit of members of community associations and of elected officials and personnel of communes in project management, accounting, procurement, etc., and 1,709 IEC activities to, inter alia, ensure that communities can manage and maintain the infrastructure that are rebuilt or rehabilitated. 75. The CDP focused well on poverty issues. The impact evaluation carried out in 2006 concluded that the targeted communes were among the poorest communes, and were more “enclaved” (i.e. isolated with more difficult access) than the average rural commune. Grants for sub-projects were made to some of the poorest communities to the same extent as to those more capable of implementing sub-projects successfully.

(b) Institutional Change/Strengthening 76. The CDP contributed to develop the capacity of community associations. A lesson learned is that a Social Fund is a very efficient mechanism to build the capacity of communities. Benefits of social funds will be considerably increased if their design allows them to be innovative and flexible. 77. Also, the CDP strengthened the FID itself, and prepared the way for the Commune Development Support Program (CDSP) through the MDAT. (c) Other Unintended Outcomes and Impacts (positive or negative) 78. Regarding rural water supply, a main criticism made to FID at the beginning was related to poor design and lack of maintenance of FID-funded rural water supply systems. After the 2005 Mid-Term-Review, FID started preparing its own Manual of Procedures for Water Supply and Sanitation (MPWSS) in full compliance with the national one and providing operational guidelines on norms and standards, O&M and M&E. A large dissemination of this MPWSS associated with adequate training and rehabilitation programs including pilot affermage contracts with local private operators, rehabilitation works, and capacity building on community-based management have contributed to improved results. FID now remains on good terms with the sector ministry contributing

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to sector policy dialogue and providing valuable inputs to the sector M&E database. A lesson learned in rural water supply is that compliance with national sector policy and strategy, as well as strong coordination with the sector ministry, lead to better synergy, improvement of quality of investment and better sustainability of infrastructure built. 79. The social safety net (cash-for-work) and the post-cyclone reconstruction of the Project are important programs which provide an overall protection to the Malagasy population. These elements could be integrated in a social protection (SP) strategy. 80. As mentioned earlier, the CDP strengthened a number of communes through training of their elected officials and personnel. Also, by providing communes with funds to carry out sub-projects, it allowed them “to learn by doing”. However, out of the about 1,550 communes in Madagascar, only 186 (12%) received financing under the CDP. On balance, the strengthening of communes had only a limited impact on decentralization.

3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops 81. Annex 5 presents the results of the impact evaluation that was carried out in the third quarter of 2006, which is in many respects a beneficiary survey. Some of the main conclusions are summarized below:

a) The principle of participatory consultation for the preparation of communal development plans (Plan Communal de Développement – PCD) seemed to have been well understood and applied. On the other hand, the use and relevance of the communal development plans often encountered operational problems related mainly to the coordination with the interventions of other donors in the communes and to changes in the municipal teams.

b) Targeted communes were among the poorest communes, and were more “enclaved” (i.e. isolated with more difficult access) than the average rural commune.

c) Populations at the village level were satisfied with the treatment of their requests by the communes.

d) The satisfaction of the communes with respect to FID is very good; it is somewhat less with respect to consulting firms, and even a little less still with respect to NGOs (partenaires relais).

e) The infrastructure created by FID is considered useful by a vast majority of the population.

4. Assessment of Risk to Development Outcome Rating: Moderate 82. The project design included a number of features, which provided incentives to communities and communes to operate and maintain the sub-projects and to contribute to project sustainability. This included devolving the power to select and implement sub-projects to communities and communes, requiring community contributions to sub-project costs, and training of community associations and commune governments in project management. In addition, linking the activities of FID to sectoral development

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strategies and involving deconcentrated ministerial structures in desk and field appraisals of individual sub-projects were designed to help ensure that line ministries would honor their agreements to provide staff, equipment, and a recurrent budget for the sub-project by the time of completion. Although the FID had Memoranda of Understanding with the Ministries of education and health, coordination suffered from administrative bottlenecks and communication problems between the Ministries’ central offices in Antananarivo and their provincial and district offices. The freeze on the recruitment of civil servants was also a problem, but the situation improved from 2006 on when Government made special efforts to recruit and assign teachers and medical personnel to education and health facilities. 83. As mentioned earlier, in rural water supply the strong coordination with the sector ministry resulted in improvement of quality of investment and better sustainability of the infrastructure built or rehabilitated. However, the FID had less impact in the transport sector since it was not able to improve the overall framework regarding the sustainability of rural roads. The sustainability of investments in this sector is still at risk. 84. Although the agreements between FID and the communes included a commitment on the part of communes to maintain completed sub-projects, the sustainability of sub-projects implemented by communes will depend on increased fiscal resources of communes and on the successful execution of complementary investments in rural development. In particular, the sustainability of the mechanism for the commune support centers (CACs) is a risk. 85. The project sustainability will be helped by the Commune Development Support Program (CDSP), which is under preparation and will be financed by development partners including IDA. The CDSP is consistent with Madagascar’s incipient decentralization strategy, which seeks to strengthen the capacity of local governments (communes) to provide basic social and economic infrastructure at the local level. A recently created public agency (the Fonds de Développement Local) will build the capacity of communes and transfer funds to them to implement sub-projects in areas under their responsibilities. The project sustainability will also benefit from the recently approved Emergency Food Security and Reconstruction Project (EFSRP) financed by IDA. 86. The risk to development outcome is assessed as “Moderate”.

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5. Assessment of Bank and Borrower Performance

5.1 Bank Performance

(a) Bank Performance in Ensuring Quality at Entry Rating: Satisfactory 87. The Project was well designed, based on a solid country and sector knowledge at the time. The design was flexible enough so that it could be modified to adapt to changing circumstances and emergencies. There was a plan for the coordination of the IDA-supported projects that influence rural development and for joint action in order to achieve better results. 88. The Project was designed to support the process of decentralization in Madagascar by working with communes, which are local governments, have elected officials and remained the focus of Government policies on decentralization. 89. The Bank performance in ensuring quality at entry is rated “Satisfactory”. (b) Quality of Supervision Rating: Satisfactory 90. Project implementation benefitted from a strong Bank team, both in Washington and Madagascar. The skills mix was excellent, and there was continuity in staffing. Fiduciary and safeguards aspects were well supervised. An experienced Bank team enabled a smooth processing of the initial Project, as well as the amendments and additional financings. The Project was modified, and the legal documents of the initial Project were amended three times and a new financing agreement was signed in order to respond to changing country circumstances and urgent needs. The project experience is an interesting case of an evolution from a purely traditional CDD to a more diversified project including a safety net (cash-for-work program) and emergency response to crises. 91. The 2006 Additional Financing was strategically appropriate. It was an innovative use of the additional financing instrument to provide bridge financing while at the same time supporting government as it shifted from a more traditional social fund (with Bank financing under a SIL) to a program of local development and decentralization (which would include Bank financing under a programmatic instrument). With the new local development direction, the Bank made efforts toward donor harmonization. A lesson learned is that additional financing (AF) may be an appropriate instrument to serve as a "bridge" when the policy environment that provides the context for an existing operation is in transition--when the existing operation is still relevant and appropriate but when there is a new policy that is being developed and can potentially be supported under the existing operation.

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92. The Borrower’s ICR stresses that, in addition to financing the Project, the Bank has been a good technical partner in a constructive and cordial relationship with FID, which contributed to the good performance of the Project in general and the FID in particular. 93. The Bank’s performance for supervision is rated “Satisfactory”. (c) Justification of Rating for Overall Bank Performance Rating: Satisfactory 94. The Bank’s performance for both quality at entry and supervision is rated “satisfactory”. The CDP was well designed and prepared and the Bank did also a good job at the supervision stage. The overall Bank performance is rated “Satisfactory”.

5.2 Borrower Performance (a) Government Performance Rating: Satisfactory 95. The Government, and especially the Prime Minister’s Office (Primature) who is the oversight Ministry of the Project, have always been very supportive of the Project and of FID. At critical moments, such as in 2002 with the political crisis and in 2004 with the cyclones, the Government selected FID to carry out emergency programs. More recently, FID was also chosen as implementing agency for the Emergency Food Security and Reconstruction Project (EFSRP). There is a lesson here for development partners such as the World Bank: it is in their interest to continue to support well-performing and flexible social funds over long periods in order to have at any time an efficient mechanism to finance responses to emergencies. 96. The Government has demonstrated its commitment over the years by paying counterpart funds for the CDP in a timely manner, which has not been the case for all projects in Madagascar. Some further evidence of commitment is that neither the Prime Minister nor other cabinet members have interfered in the day-to-day management of FID and the Project, which helps explain why it was able to perform during times of political upheaval. 97. The Government performance is rated “Satisfactory”. (b) Implementing Agency or Agencies Performance Rating: Satisfactory 98. As mentioned earlier, the FID, which was created in 1993, had successfully implemented earlier social funds in Madagascar under IDA -financed projects (the Food Security and Nutrition Project, the Second Social Fund Project, and the Third Social Fund Project). FID continued to perform well in managing the CDP and rehabilitating social and economic infrastructure.

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99. The FID’s Manual of Procedures clearly defined identification, preparation, appraisal, selection and implementation modalities for each type of sub-project. The Manual was regularly updated, with the addition of new volumes on “social protection”, “water supply and sanitation” and “environment”. The arrangements for the transfer of funds to communes were revised following the recommendations of the April 2005 Mid-Term Review. In connection with the 2006 Additional Financing the Administrative and Financial Manual was also revised as recommended by a financial management assessment. A lesson learned is that, for social funds that operate independently and do not need prior approval from the Government or the Bank on their actions as long as they are in accordance with the provisions of the legal agreements and the Manual of Procedures, it is very important that the Manual of Procedures be regularly updated and revised based on the lessons of experience. 100. Procurement was satisfactory. There were no major problems regarding financial management; audit reports were submitted on time and were unqualified. During the project period, the FID (like most social funds) implemented activities which were not financed by IDA; there were important governance issues in the implementation of these activities outside the Bank project, but no final judgment has been reached on these issues. No governance issues were experienced in the FID activities implemented with IDA funds. 101. The main reasons for the success of the CDP are the quality and dedication of the staff of FID and its management. FID's management is open to constructive suggestions, whether from Bank supervision missions or from technical and financial audits, which it takes into account to improve project implementation. FID staff is always responsive to requests for information. Project management did perform well in response to the numerous changes and crisis that occurred during project implementation, and it ensured that nearly all project funds were utilized and properly accounted for. On that basis, the performance of the Implementing Agency (FID) is rated “Satisfactory”. (c) Justification of Rating for Overall Borrower Performance Rating: Satisfactory 102. With the performance of both the Government and the Implementing Agency (FID) rated “Satisfactory”, the Overall Borrower Performance is rated “Satisfactory”. 6. Lessons Learned

a) A Social Fund is a very efficient mechanism to build the capacity of communities.

b) Benefits of social funds will be considerably increased if their design allows them to be innovative and flexible in order to adapt to changing country circumstances and meet urgent needs.

c) It is in the interest of development partners such as the World Bank to continue to

support well-performing and flexible social funds as they can be an efficient mechanism to finance, at short notice, responses to emergencies or additional

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activities to benefit vulnerable groups, including cash-for-work programs and other kinds of cash transfers.

d) Demand driven programs can run t