Document ofThe World Bank

Report No. T7557-MAI

TECHNICAL ANNEX

FOR A PROPOSED CREDIT

OF SDR 22 MILLION (US$29 MILLION EQUIVALENT)

AND GRANT OF SDR 15.9 MILLION (US$21 MILLION EQUIVALENT)

TO

THE REPUBLIC OF MALAWI

FOR AN

EMERGENCY DROUGHT RECOVERY PROJECT

September 30, 2002

Rural Development OperationsAfrica Region

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CURRENCY EQUIVALENT(Exchange Rate Effective August 13, 2002)

Currency Unit = Malawi Kwacha (MK)US$1 M MK 75.7

WEIGHTS AND MEASURESMetric System

GOVERNMENT MCAL YEARJuly Ist to June 30th

ABBREVIATIO)NS AND ACRONYMS

ADMARC = Agricultural Development and Marketing CorporationAG Auditor GeneralCONGOMA = Council for Non-Govemment Organizational in MalawiDDLGA = Departnent of District and Local Governent AdministrationDFID = Department for International DevelopmentDHS = Demographic and Healthy SurveyFAO = Food and Agriculture OrganizationFHH = Female-Headed HouseholdsFRDP = Fiscal Restructuring & Deregulation ProjectIDA = International Development AssociationIEC = Information, Education and CommunicationIHSP = Integrated Household Survey on PovertyMASAF = Malawi Social Action FundMOHP = Ministry of Health and PopulationMTPW = Ministry of Transport & Public WorksNEC = National Economic CouncilNFRA = National Food Reserve AgencyNGO = Non-Government OrganizationOPC Office of the President and CabinetPAP = Poverty Alleviation ProgramUNDP = United Nations Development ProgrammeUNICEF = United Nations Children's FundUSAID = United States Agency for International DevelopmentVAMS = Vulnerability Assessment Monitoring SystemWFP = World Food Programn

Vice President: Callisto E. MadavoCounty Director: Darius MansSector Manager: Karen Mcconnell BrooksTask Team Leaders: Ousmane Sissoko

Stanley lHiwa

REPUBLIC OF MALAWI

EMERGENCY DROUGHT RECOVERY CREDIT

TECIMCAL ANNEX

Table of Contents

1. BACKGROUND AND RECENT DEVELOPMENTS .............. 1:B ackground 1.................................................... The Current Crisis in National, Regional & Historic Context ......... 2

2. BANK RESPONSE AND STRATEGY ................................. 6Donors' and Government's Response to the Crisis ....................... 6Bank Response and Strategy ................................................. 6Lessons Learned .................................................... 8

3. THE PROPOSED EMERGENCY DROUGHT ...................... 8RECOVERY PROJECTObjectives .................................................... 8Components ..................................................... 8Project Cost and Financing .................................................. 10Grant Funding in Combination with IDA Credit ........................ 10Retroactive Financing .................................................... 10

4. INSTITUTIONAL ARRANGEMENTS AND PROJECTIMPLEMENTATION .................................................... 11Implementation ............................. 1....................... 1Financial Management .................................................... 11Funds Flow ................. ................................... 11Accounting and Financial Reporting ................... .................... 12External Audit ....................... ............................. 13Reporting and Monitoring ................................................... 13Action Plan to be carried out for Project Financial Management ...... 14Procurem ent .................................................... 14Retroactive Financing .................................................... 14Procurement Capacity .................................................... 15Procurement Plans .................................................... 16Manual for Procurement Procedures ................. ..................... 17Procurement Methods . ............................................. 17Procurement Monitoring.: ................................................. 19Environmental and Social Aspects . ......................................... 20

5. JUSTIFICATION FOR THE PROPOSED OPERATION 20

6. ACTION PLAN .................................................... 21

Table of Contents (cont'd)ANNEXES

Annex 1: Policy Letter ................................................. 22

Annex 2: Cost Summary ................................................. 29

Annex 3: Allocation of Credit and Grant to Categonres .................. 30

Annex 4: Positive List Items ................................................. 31

Annex 5: Supporting Community Responses to the Food Crisis ....... 32

Annex 6: Addendum on Nutrition Strategy & Distributionof Humanitarian Assistance . ...................................... 43

Annex 7: A Summary of Malawi Emergency DroughtRecovery Project -Transport Issues ... 45

REPUBLIC OF MALAWI

EMERGENCY DROUGHT RECOVERY CREDIT

TECENICAL ANNEX

1. BACKGROUND AND RECENT DEVELOPMENTS

Background

1.1 Malawi is currently facing a severe food crisis. Production of the key food staple,maize during the 2001/2002 growing season estimated at 1.6 million metric tons,approximately 600,000 tons short of estimated domestic disposition. The economic costof the crop failure to the economy in aggregate is between US$150 million and US$180million when the grain is valued at landed replacement cost. The incidence of the shockfalls in most concentrated measure on Malawi's small-holder farmers, who are among thecountry's poorest citizens. The impact of the shortage on human health and nutrition isexpected to increase in severity during the coming eight months prior to the next harvest.

1.2 Early this year it was estimated that 78 percent of farm families (a total of 2.2million households) were without sufficient food. This year's shortage follows the prioryear's reduced harvest. As a result of two successive years of reduced incomes and pooraccess to food, coping mechanisms, including casual labor and distress sales of householdassets have been eroded. Deaths from hunger-related diseases are increasing. Childrenwho are generally vulnerable to malnutrition - Malawi's chronic malnutrition rate is 49percent - are particularly at risk of long-term consequences. In addition, women, theelderly, and adolescent-headed households are particularly food insecure. Othervulnerable groups include those affected by the HIV/AIDS pandemic, smallholderfarmers, tenants, and pregnant and lactating mothers.

1.3 Overall, it is estimated that about 3.9 million people will require humanitarianassistance for varying periods of time until June 2003. Maize prices are expected to risesubstantially as shortages increase. To avert famine, the Government and other donors aretaking immediate action to ensure adequate supplies of grain to the country and timelydelivery of food aid and/or income support to' the most vulnerable Malawians.Approximately 30% of the most vulnerable will receive humanitarian assistance from the208,000 tons of donations in cash and kind anticipated from the donor community.Approximately 150,000 tons of the shortfall is expected to be met by the private sectorand by increased winter production. Hence donations and private sales will cover almostUS$100 million of the cost of the shock, and will address the needs of 60% of thepopulation (those at the higher end of the income distribution through private sales, and atthe lower end through humanitarian relief). The Government is importing 250,000 tons atan estimated cost of US$75 million to augment available supply and to address the needsprimarily of the 40%/o of the population who will require some assistance but will not

receive humanitarian aid. Additional support is needed for recovery of crop production,prevention of resort to coping strategies that undermine recovery and longer term growth,and maintenance and rebuilding of productive assets. The Government's costs ofaddressing the emergency are estimated at approximately US$82 million, including anestimated US$23 million in price subsidy, US$16 million in public works programs,US$15 million in additional programs of targeted assistance, such as school feeding andnutritional intervention through the health system, US$18 million for distribution ofagricultural inputs to poor small-holders, US$5 million for transport and logistics,including emergency repairs to the Nacala corridor of the rail line, and US$5 million fortechnical assistance, expansion of the extension activities, and other preparations for thecoming agricultural year. The Government of Malawi has requested assistance of theWorld Bank to address costs related to management of the emergency and recovery.

The Current Crisis in National, Regional, and Historic Context

1.4 The immediate causes of the current crisis in Malawi are several. Contributingfactors include:

Erratic weather. Malawi experienced drought and floods in 2001 and 2002 which,although not as severe as those of the early 1990s, resulted in significant drops inmaize output. In the 2001/2002 growing season, rains started late but when theyfinally came, they were severe in some places, causing water logging and floods. TheMinistry of Agriculture and Irrigation carried out an assessment of the flood damage.A total of 14 districts with about 29,769 farming families were affected by thedamage. In some parts of the country the rains were also intermittent, with dry spellsthat coincided with sensitive growth stages of crops. The dry spells affected a largernumber of farm households than did the floods. Maize production was especiallysensitive to the deviation in the timing of rains.

* Failure of the early warning systems that form an integral part of the Government'sfood security apparatus. While available data predicted a maize shortfall in 2001, theyalso indicated that the increase in other crop harvests (particularly roots and pulses)would adequately compensate for the maize shortfall. As late as June 2001 the datastill indicated that Malawi would experience a food surplus that year. The inadequacyof the statistical data only became apparent in September 2001, when Malawi beganto import food in anticipation of a shortfall. President Muluzi declared a foodemergency in late February. This failure in the agricultural data delayed decisionmaking and the implementation of remedial action to contain the emergency. Oncethe shortfall became apparent, actions to address the problem were not urgentlyundertaken until the pending crisis was clearly evident.

* Transportation bottlenecks that impeded the timely arrival of imported maize in early2002. To deal with the 2002 maize shortage, the Government raised a $30 million lineof credit to import 134,000 tons of maize for delivery by December 2001, mostly fromSouth Africa, but the maize arrived late because of logistical problems. Topromote optimal use of existing transport facilities and cost effective means of

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delivery of emergency goods to beneficiaries, emergency line repairs on the railwaysof the Nacala corridor will be carried out by Government from its resources for US$2million, over the next four months.

. Poor Marketing System and Poor Management of the SGR. The NFRA has statutoryobligation to manage the strategic grain reserve and to hold a minimum of 60,000 mt.The grain is physically held in facilities managed by ADMARC. In late 2000 NFRAsold its stocks in excess of 60,000 mt and therefore depleted all its reserves. Due toimproper management and, as found by the report of the Anti-Corruption Bureau,possible criminal negligence, the entire reserve was sold under non-transparentprocedures and with insufficient accounting for the proceeds. This action reduced theability of the NFRA to rebuild sufficient reserves, and undermined confidence of thedonor community regarding management of a key instrument for food security. Hadreserves been properly managed, they would nonetheless not have been sufficient tocover the full shortfall of the present crisis.

* Over-reliance on maize. Most farmers depend on a limited number of food and cashcrops for their livelihoods. Maize is considered as the major food crop while tobaccois the major cash crop. In case of crop failure, therefore, farmers have few alternativesources of food and income. Moreover, most common varieties of maize are notdrought-resistant, and require careful management to avoid exhaustion of soilnutrients. Reliance on maize thus entails a high risk strategy for food security inMalawi. The country has made some progress in diversification to other food staples,such as cassava and sweet potatoes, but consumers till prefer maize, and small-holdersstill choose to produce it despite the risks. The longer term strategy thus entailsintroduction of higher yielding and more resilient varieties that will allow preferencesfor maize to be accommodated through contraction of area devoted to maize, leavingmore land for other products.

* Low adoption of Improved Technologies. The country has weak capacity in thedevelopment and dissemination of technologies, and adoption has therefore remainedlow. The gap in crop yields between research fields and farmers is still very wide,indicating that farmers are still using unimproved technologies. On the other hand,some of the technologies developed are not compatible and specific to the ecologicalzones.

* Increased pressure on land without concomitant improvement in productivity. Therising population has increased pressure on limited land resources leading to reducedlEnd to labor ratios without corresponding increase in yields. Lagging growth inproductivity has led to a secular decline in food security, and increased vulnerability toperiodic climatic and other shocks.

1.5 The crisis that Malawi faces is generalized to the Southern African region. TheRegional Early Warning Unit of SADC estimates that supply of maize during the current2002/2003 marketing year (April-March) will fall short of requirements by 3.2 millionmetric tons.

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1.6 The decline in production is due to a number of factors. Drought, flood, anderratic weather patterns have played a role. The severe political and economic disruptionin Zimbabwe's agricultural sector has transformed one of the region's traditional strongsuppliers of grain into a net recipient of humanitarian assistance. The shortfall hits at atime when stocks throughout the region are depleted. Govemments drew down stocks lastyear in response to poor harvests, and did not restock adequately for a number of reasons:e.g., budget problems resulting from the drop in global commodity prices, preoccupationwith elections, mismanagement of strategic stocks. As a consequence, countries hardesthit by this year's shortfall (Malawi, Zambia, and Zimbabwe) enter the coming year withno opening stocks. Approximately two thirds of the stocks are held in South Africa, theone country with significant projected increase in production.

1.7 Throughout the region, an estimated 12 million people are affected by theshortfall. The number is large relative to the aggregate regional deficit becausedistribution of available supply is highly skewed. South Africa has larger than averagesupply, and Malawi and Zambia much less than usual. Without special measures,consumers in Malawi and Zambia (many of whom are small-scale producers) will nothave the purchasing power to access supplies available elsewhere in the region or theworld. Zimbabwe has been in the past a net exporter, but this year is expected to meetonly about one third of domestic needs. Chronic hunger increases the human cost of thisyear's deficit, since poor households have few assets or reserves with which to cushion theshock.

1.8 The present food crisis in southern Africa has historical precedent, most recentlyten years ago. The management of the last severe and regionalized drought offers lessonsfor present interventions by the Governments, and World Bank, and other donors. During1991/92 the countries of Southern Africa suffered from their most severe drought of thecentury, and an estimated 20 million people were believed to be at serious risk. Theproblem was addressed in part by importing about 12 million tons of grains estimated tocost about US$4 billion. The overall response to the drought was considered reasonablysuccessful in funding imports and sparing human lives. Still, many problems wereencountered in customs procedures, procurement, bunching of food aid, congestion inports, food quality, and timeliness of shipments. Logistical costs including for non-fooditems exceeded import costs by a ratio of 2:1.

1.9 The Bank provided policy advice and helped alleviate the crisis through specificemergency operations in Malawi and Zimbabwe. In Malawi the Bank provided a credit in1992 simultaneously to increase imports while also supporting reforms to support privatesector development. The Zimbabwe Emergency Drought Recovery and Mitigation Credit,also provided in 1992, supported importation and also the agricultural recovery, drought-related transportation, emergency water supply rehabilitation, expansion of the food-for-work and child feeding programs; and institutional strengthening. In Zambia, almost 1million tons of food was imported by activating the country's program with the IMF andobtaining unprecedented extemal assistance in the amount of US$1.5 billion.

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1.10 Both the Malawi and Zimbabwe operations were successful in providing timelysupport for importation of foodstuffs. They were less successful in institutional and otherdevelopment to reduce future vulnerability and risks. The analytic work on Zambiaproduced solid recommendation for both the Government and the Bank. These, however,have only partially been implemented.

1.11 ]Lessons of the prior interventions to facilitate recovery include the following:

(i) Food supply must be enhanced along with establishment of distributionchannels that reach the vulnerable, through provision of food, free of charge tothe poorest, as wage in cash or food-for-work programs, and for sale so as toreduce excessive market prices (short-term actions);

(ii) Productive capacity for the next and subsequent production seasons must beenhanced (short- to medium-term actions); and

(iii) Investments and institutional structures, etc. to reduce long-term vulnerabilityshould be identified even if they cannot be put in place during the period ofimmediate crisis (long-term actions).

1.12 In both the Malawi and the Zimbabwe operations, the Bank's intervention largelyachieved the first objective, but was less successful in helping governments to achieve thesecond and third objectives. In Zimbabwe the agricultural recovery component (objectiveii) did not achieve its targets and the emergency water program was delayed. In bothcountries, institutional development (objective iii) was unsatisfactory.

1.13 An assessment of these programs showed that an emergency operation shouldassist the government to maintain critical non-food imports needed for maintenance oflong term growth while the government shoulders the unanticipated budgetary burden ofthe direct food imports. Without this assistance, the government's appropriate efforts toavert famine will come at the expense of needed investments in schools, clinics,infrastructure, and public services needed for growth and poverty reduction. Theassistance in maintaining critical imports should be augmented by additional short terminvestments to assist production in the next crop year, to build or rebuild infrastructurethat reduces immediate vulnerability, and by commitments to address the longer termissues once the crisis is resolved. For those purposes, quick-disbursing loans with a shortproject period are used and most appropriate. Although it is not surprising that mediumand longer-term actions tend to receive less attention once the crisis abates, the presentrecurrent food emergency is a reminder that longer term actions at the sectoral, national,and regional levels are imperative.

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2. RESPO'NSE AND STRATEGY

Donors' and Government's Response to the Crisis

2.1 In early 2002, the World Bank received a request for assistance in assessing whatwas feared to be a worsening food situation in the SADC region. In response, resourcesfrom the FAO/WB Cooperative Program were made available to send teams of expertsfrom FAO to undertake the assessments, including one for Malawi. FAO and WFPestimated a maize import requirement of 585,000 mt. for August 2002 to March 2003. TheGovernment's current estimate of the shortfall is 600,000 mt. Of this amount, 208,000 mt.is expected in pledges from the WFP and other donors, 250,000 mt will be imported bythe Government on its own account, and 142,000 mt is hoped for through activities ofprivate traders and as additional production under a winter production program supportedby the Ministry of Agriculture and Irrigation this year. Of the 208,000 mt expected inpledged relief, about 68,000 mt remain to be filled, perhaps with assistance from Japanand/or Italy following consultations currently under way. The IMF has approvedemergency support of SDR 17 million (US$22 million), and DFID is likely to provide upto US$10 million of assistance for provision of inputs.

Bank Response and Strategy

2.2 The World Bank has contributed toward assessment of the situation, and iscontributing to recovery, protection of the vulnerable during the crisis, and to measures toreduce vulnerability to food crises in the future. The contribution to assessment of thesituation has been covered above. The design of the proposed support for economicrecovery is presented below. The medium and longer term strategy of assistance isreflected in the discussions of the CAS' presently under way. In the medium-term, theBank will assist Malawi in five areas relevant to the present emergency: (a) improving thestatistical basis for crop estimates; (b) addressing issues relating to access to land,agricultural services, and better agricultural technology in order to promote improvementin agricultural productivity; (c) providing technical assistance for review of theGovernment's food security policy); (d) improving transportation along the Nacalacorridor (the Bank has supported railway and port reform along the corridor in bothMalawi and Mozambique, and will support additional improvements); and (e) scaling-upof safety net programs through MASAF (including MASAF 3, which is now underpreparation), and orienting the public works components toward activities that improveaccess to rural areas and reduce vulnerability to drought and flood. With the assistance ofthe Bank, the Government is presently enhancing the public works component of thesecond Malawi Social Action Fund (MASAF 2), which is by far the largest public works/social safety net scheme in Malawi.

2.3 On July 26, 2002, Minister Friday Jumbe, Minister of Finance and EconomicPlanning, requested that the Bank provide a $45 million credit for an emergency drought

' The 1998 CAS was updated and a CAS Progress Report (#21419-MAI of November 28, 2000) wasdiscussed at the meeting of the Executive Directors held on December 21, 2000. The full new CAS which isbeing prepared is due by December 31, 2002.

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recovery assistance to finance critical imports to help alleviate the effects of the droughtand to mitigate its impact on the country's efforts to reduce poverty and promote growth.A request for an increased assistance was subsequently made on September 6, 2002. Atan emergency meeting of the Regional Operations Committee, the Vice Presidentauthorized a mission simultaneously to prepare and appraise an Emergency DroughtRecovery Credit (EDRC). Donors have been particularly supportive of the work of themission, and have concurred with the objectives of the proposed operation The Bank staffparticipate in regular meetings, and activities of the joint task force established tocoordinate emergency efforts of the Govemment and the intemational community.

2.4 The Bank's strategy in the sector is in line with the Government's views andexpected response to the crisis. The strategy focuses simultaneously on short-termmeasures to tackle the current disaster and on medium- and long-term measures to preventthe recurrence of the problem and ensure agriculture production and the provision ofsocial protection through scaling up public works and social programs to benefit the poorand vulnerable groups. The Government's approach to the immediate crisis is presented inthe Letter of Sectoral Policy. To oversee the overall management and coordination of theresponse to the crisis, the Govemment has established a JointGovemment/Donor/UN/NGO Task Force. Donors and NGOs will handle all distributionof humanitarian aid. While the scaling up of the public works programs will makeresources available for the communities to buy food, limited targeting policies will bepursued in favor of vulnerable groups including orphans, child-headed households,FHV/AIDS affected, pregnant women, the elderly, etc. The Government intends to sellmaize that it imports at a fixed price of 17 MK per kilo, which entails a subsidy of aboutone third of the landed price. The Govemment will use geographic targeting to increasethe likelihood that the subsidized maize will be available in areas most affected by thecrop failure, and where poverty is greatest. Enhancement of winter cropping, cropdiversification, seed multiplication and soil fertility improvement technologies are beingapplied to further mitigate the effects of the drought and avert reoccurrence of cropfailure.

2.5 The Govemment's approach to the medium term agenda for agricultural growthand improved productivity is expressed in the recently completed the design of aproposed agricultural sector investment program (MASIP). The program is framedwithin the context of the PRSP and focuses on the critical role that agriculture must playin pro-poor growth. Bank support to the sector will implement medium and long-termmeasures to increase access to inputs, improve market infrastructure and information,improve access to land and efficiency of its use, enhance technology generation anddissemination, and build capacity for the effective delivery of key services in rural areas..Initiatives to promote improved management of water by small-holders, the conservationof soil and water, improvement of soil fertility through the expanded use of organicmanure, and adoption of improved technologies will be pursued to facilitate theachievement of increased incomes and food security especially among poor smallholderfarmers. The most appropriate mechanisms and instruments for delivering support will bedetermined in the context of the CAS process. Although key elements of the program

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have been identified in the protracted process of formulating the MASIP program, themodalities for implementation and support by the Bank have not yet been decided.

Lessons Learned

2.6 Lessons learned from previous similar operations have been taken into account inthe design of the project. The project preparation/appraisal team also drew on advice fromstaff involved in responding to similar emergencies in other countries. Key lessons notedmay be summarized as follows: (a) commitment and ownership of the Borrower arecritical for the successful implementation of emergency recovery operations; (b) speed inpreparation, appraisal and implementation are also critical elements for success; (c)emergency operations must be simple, rapidly executable and not burdened withconditionality; (d) disaster management and mitigation measures should be included; (e)community involvement and participation are critical to the success of the delivery ofsocial investments and protection; (f) the operation should focus on the sectorimmediately affected, and not undertake too broad an agenda of cross-cutting issues; and(g) the longer term agenda to reduce the likelihood of recurrence cannot be neglected.

3. TEE PROPOSED EMERGENCY DROUGHT RECOVERY PROJECT

Objectives

3.1 The objectives of the proposed Emergency Drought Recovery Project are: (a) toallow the Government to maintain key commitments to economic priorities andinvestments consistent with the PRSP process while at the same time fulfilling itsimmediate obligations to avert famine; (b) to help restore the productive capability in thecountry; and (c) to support longer term disaster management by the Government.

Components

3.2 The proposed operation will provide quick-disbursing assistance to support criticalimports through a positive list of import requirements linked to the drought and assist theGovemment in drought recovery efforts. The Government has assessed the need foradditional imports of grain (i.e., those not likely to be covered by the humanitarianprograms) and has already undertaken to order much of the needed quantity. Thus theGovemment has on its own initiative sourced the food needed for the relief effort. TheGovemment's program for distributing the food relief (in conjunction with NGO's andcivil society) is outlined in the Letter of Development Policy. The Government seeks theemergency credit to help rebuild productive capacity, and to avoid a situation whereby theadditional cost of the drought undermines developmental goals, particularly for health andeducation. The positive list is constructed with these objectives in mind, and each elementof the list is linked to recovery and/or to maintaining critical services in health andeducation. The agreed positive list of imports includes: (a) petroleum and fuel products;(b) agricultural inputs; (c) agricultural equipment; (d) construction equipment; (e) spare

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parts; (f) livestock, animal products and veterinary supplies; (g) school supplies; and (h)medical supplies and equipment. An amount of US$40 million would be available underthis component. The role that each of these elements of the list will play in the recovery isbriefly noted below:

3.3 Agricultural equipment and inputs: This will be largely improved seeds andfertilizer for farmers and some equipment and inputs for the public research andextension services.

3.4 Petroleum andfuel products: Additional fuel will be needed for distribution of therelief food and for distribution of the starter packs.

3.5 Construction equipment: Additional investments in infrastructure, especiallyroads and bridges, to facilitate improved access to remote areas will have to beundertaken. This will require construction equipment and materials, in addition to thelabor supplied largely through the public works program.

3.6 Spare parts: The burden of transporting large quantities of food and inputs overrough roads will necessitate additional vehicle spare parts.

3.7 Livestock, animal products, and veterinary supplies: Livestock numbers havebeen drawn down, and the public sector will assist with restocking improved breeds.Veterinary supplies will be needed to maintain animal health under stressed conditions ofreduced forage.

3.8 School supplies: Schools are undertaking some public feeding for vulnerablechildren, and will need additional supplies to undertake these efforts. More generally,investments in school supplies and equipment must be maintained despite the additionalcosts of the drought.

3.9 Medical supplies and equipment: Medical services must be maintained despite thecosts of the drought. Under-nutrition is likely to lead to additional health complications,necessitating availability of medical supplies and equipment.

3.10 The Government intends to augment the purchasing power of those whoseincomes are reduced by expanding the public works component of the MASAF program,among other means. The Government's relief efforts will thus work simultaneously on thesupply and demand sides of food markets.

3.11 The operation will also provide support for essential social investments andservices to vulnerable groups through MASAF, which has developed substantial expertisein the field. Detailed activities to be carried out by MASAF and implementationmodalities are presented in [Annex 5]. An amount of US$8 million would be availablefor such activities.

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3.12 In addition to the two components presented above, the project will includesupport for implementation, technical assistance, and studies. The technical assistanceand studies will have the following objectives: (i) to support full public discussion andconsideration of the causes of the present crisis and measure to prevent recurrence,including the work of the technical sub-committees of the Inter-Ministerial Task Force;(ii) to support Malawi's participation in the SADC-wide efforts to craft a regionalapproach to prevention and management of crises; (iii) to diagnose the key problems withagricultural statistics and how to fix them; (iv) to finance regular meetings of a technicalsteering committee to monitor implementation of the present program; (v) to put in place amechanism for monitoring and evaluation of the impact of the crisis and mitigationefforts; and (vi) to provide short term support to strengthen the agricultural advisoryservices available to small farmers as they rebuild following the present catastrophe, andto focus on ways of improving water and soil managemen.., mitigating the impact offuture disasters and upgrading disaster preparedness and management will be provided. Atotal amount of US$2.0 miflion would be available for such services.

Project Cost and Financing

3.13 The proposed operation would be funded from IDA resources totaling SDR 37.9million, or US$50 million equivalent including the equivalent of US$21 million as grantand US$29 million on standard IDA credit. The size of the credit is based on theestimated cost of the response to the crisis, the Government's request for emergencydrought assistance, and the assistance and pledges received by the Government from otherdonors including multilateral organizations and bilateral agencies (UK, DFID, CIDA) andother specialized humanitarian organizations including CARE and Save The Children.

3.14 Under the proposed operation, 100 percent of the cost of eligible imports on thepositive list would be financed. The cost of social investments and services, and theexecution of the public work programs would be also financed. In addition, all auditsrequired would be funded under the emergency operation.

Grant Funding in Combination wit' l IDA Credit

3.15 In view of the emergency situation imposed by the drought in Malawi and becausethe country is eligible - as a debt-vulnerable IDA only country - a grant funding under theIDA 13 Replenishment Agreement, is being proposed for the equivalent of US$21million. The grant would be used for securing critical imports required under theemergency and including petroleum and fuel products, agricultural inputs and equipment,construction equipment, spare parts, livestock, animal products and veterinary supplies,school supplies, medical supplies and equipment. The use of the grant would be furtherdiscussed in the upcoming full new CAS.

Retroactive Financing

3.16 Because of the nature of the operation, it is expected that payments made by theborrower out of its own resources before signing of the Development Credit

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Agreement (DCA) an-i the Development Grant Agreement (DGA) but no earlierthan four months before signing, will be eligible for retroactive financing.Payments made by the Government of Malawi not exceeding 20 percent may beeligible for reimbursement to the Government of Malawi under retroactivefinancing.

4. INSTITUTIONAL ARRANGEMENTS AND PROJECTIMPLEMENTATION

Implementation

4.1 The operation will be implemented by two entities - a small and temporary ProjectCoordination Unit (PCU) and MASAF. The PCU will be staffed with experienced andqualified professionals, including a national coordinator, a financial professional, aprocurement specialist, and support staff. It will be responsible for the overallcoordination of all activities of the project and will work very closely with the ReserveBank of Malawi in managing the quick-disbursing component of the operation. Thecoordinator will be responsible, inter alia, for the day-to-day management of theoperation, dialogue with government agencies, development partners and otherstakeholders, securing procurement, collecting information and monitoring activities inthe field, and establishing quarterly progress and financial reports. He or she will report tothe Principal Secretary of MOAI. MASAF will be responsible for the public worksprograrns (PWP) and social investments component, for which it developed extensiveability over the past several years of implementation of IDA-financed projects.

4.2 The operation will be implemented over a period of two years, from November2002 to' November 2004.

Financial Management

4.3 The capacity of the Ministry of Agriculture and Irrigation to manage the mainSpecial Account for the project and to provide accounting and financial management wasassessed and found to be inadequate, essentially because of human resource shortage. Asa result, an experienced financial specialist will be engaged under the project to design asimple financial management system that is able to produce complete, accurate and timelyinformation from it for all activities of the project. MASAF will manage a separatespecial account for the Public Works Programs. Though no formal capacity assessmentswere done on MASAF, an update of the previous assessments of MASAF managementunit, which has implemented two phases of a Bank financed project, through review ofannual and semi-annual audits, management letters, quality and timely assessments oftheir quarterly reports, shows that the institution has enough capacity to handle the PublicWorks Programs to be financed under this operation.

Funds Flow

4.4 The Project will use a quick disbursement mechanism where government will haveto submit expenditures incurred on imports for procurement review, and be refunded atotal sum consisting of disbursements in foreign exchange for purchases based on apositive list. Special Accounts would be opened for the PCU to be used for all paymentsother than the PWP and another for the MASAF unit to be used for PWP. The SpecialAccounts will be opened through the Reserve Bank of Malawi with a reputed internationalbank in New York under terms and conditions satisfactory to IDA. Funds from the creditand grant accounts will be transferred into three special accounts. Payments of importsfrom the agreed positive list will be made either directly by IDA or from the specialaccounts. Local currency account will be used to finance payments under the PublicWorks Program.

4.5 IDA will deposit an initial amount of $8,300,000 representing about four monthsof disbursements under the project into the Special Accounts to be opened out of which,funds will be transferred into the Reserve Bank of Malawi. On transfer of funds to theReserve Bank, the Accountant General's Department will issue a separate Credit CeilingAuthority to the local commercial bank of each account with copies to the PCU andMASAF. In absence of any new receipts of funds from the credit accounts into therespective special accounts and finally into the Reserve Bank holding account, the projectwould have to spend funds up to maximum limit of the credit ceiling given for paymentsout of the local accounts. IDA replenishments will be made on summary documentationsubmitted in Statements of Expenditure (SOE) for expenditures for: (i) eligible imports ofpetroleum and fuel products under contracts costing less than $3,000,000 equivalent; (ii)eligible imports of agricultural inputs and equipment, construction equipment, spare parts,livestock, animal products and veterinary supplies, school supplies, medical supplies andequipment under contracts costing less than $500,000 equivalent; (iii) goods undercontracts costing less than $150,000 equivalent; (iv) services from consultant firms undercontracts costing less than $100,000 equivalent; (v) services from individual consultantsunder contracts costing less than $50,000 equivalent; and (vi) subprojects, all training andoperating costs. Full documentation submitted will be submitted for contracts above thesethresholds. IDA would be informed of the accounts opened by the Reserve Bank ofMalawi.

4.6 Disbursement requests will originate from the PCU which reports to the Ministryof Agriculture and Irrigation, and from the MASAF management unit endorsed byMinistry of Finance and Economic Planning - Claims Unit, prior to a withdrawal beingmade from the Special Account for payments to suppliers and local bank accounts. Alldocumentation will have to be kept by the PCU and MASAF management unit for reviewby the Bank missions. Semi-annual audits will be carried out by the National audit officeor a private audit firm to be engaged. Replenishments of the special accounts wouldfollow Bank procedures.

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Accounting and financial reporting

4.7 The financial specialist will be responsible for maintaining records and accounts toreflect. in accordance with sound accounting practices the resources and expenditures ofthe project. He/she will set up a simple project accounting and financial managementsystem adequate to provide complete, accurate and timely information regarding projectresources and expenditures. He/she will also submit financial and other related reportsrelating to the project on a quarterly basis.

4.8 The Financial specialist will be responsible for preparing overall FinancialMonitoring Reports (FMRs) on a quarterly basis and their consolidation with FMiRs fromMASAF. Such reports will provide information on whether funds disbursed to the projectare being used for purposes intended, project implementation is on track and that projectbudget costs will not be exceeded. Such FMRs will include financial, physical progressand procurement reports.

4.9 Financial reports in the FMRs will include a statement showing for the period andcumulatively (project life cycle or year to date) cash receipts by sources and expendituresby main expenditure classifications, beginning and ending cash balances of the project;and supporting schedules comparing actual and planned expenditures. It will also includeuses of funds by project activities.

4.10 In as far as line reporting is concerned in such FMRs, the project will ensure thatthe FMRs follow the projects chart of accounts as far as possible, provided that isseparately records all significant discrete activities.

4.11 He/she will also submit FMRs not later than 45 days after the end of each quarterand other related reports relating to the project to the Bank and the Principal Secretarywith copies to the Project's steering Committee. These FMRs will form the basis for thepreparation of quarterly, semi-annual or annual financial statements.

External Audit

4.12 The entire project will be subjected to external audits. The accounts will besubmitted to the Bank no later than six months after year end of each fiscal year forreview. There will also be semi-annual audits conducted by an appointed auditor tocheck on the following issues among other things: internal controls in the project,compliance with financial covenants, compliance with eligibility criteria of expendituresincurred in the project is accordance with the 'DCA, that special accounts is operatedaccordingly, there is adequate maintenance of documentation of transactions in the projectand that budgets are strictly adhered to. Such an audit will be submitted to the Bank andthe Government two months after every semi-annual period for which the audits aresupposed to be carried out. Where possible government's new internal audit function willbe effectively used to conduct internal audit reviews of all documentation andcompliance with the legal agreements relating to expenditures pertaining to the projectwhen requested to do so.

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Reporting and Monitoring

4.13 The financial transactions for the project will be recorded and monitored using asimple project specific computerized financial management and accounting system. Thefinancial specialist will determine chart of accounts for the project as well as format andcontent of quarterly Financial Monitoring Reports (FMRs) and annual financialstatements. He/she will also determine the selection and adoption of accounting policiesand accounting standards as well as making a choice on supplementary notes to theproject financial statements in order to enhance the presentation of a true and fair view. Itis anticipated that these reports will include financial statements such as sources andapplication of funds, expenditure classified by project components, disbursementcategories, expenditure types and comparison with budgets.

Action Plan to be carried out for Project IFinnciaD lManagement

1. Recruit a Financial Specialist and a Procurement Specialist for the project for theproject coordination unit.

2. Establish a simple financial management and accounting system inclusive of achart of accounts for the project.

3. Develop formats and content of various periodic reports that will be generated forthe project

4. Development of terms of reference for audit of the project.

Procurement

4.14 Procurement of the Goods and Commodities in the positive list provided in SectionC of this document will be governed by the Guidelines for Procurement under IBRD Loansand IDA Credits published in January 1995 and revised in January and August 1996,September 1997 and January 1999. The Bank's Standard Bidding Documents (SBD) andStandard Bid Evaluation Forms will be used. However, for the quick disbursementcomponent, the currency provisions in the SBDs will be suitably amended to make themmore responsive and consistent with standard practice in international trade.

4.15 Consultant services contracts financed by IDA will be procured in accordance withthe Bank's Guidelines for the Selection and Employment of Conisultants by World BankBorrowers published in January 1997 and revised in September 1997 and January 1999and May 2002. The Bank's Standard Request for Proposals (RFP) will be used for Qualityand Cost Based Selection (QCBS) and Standard Forms of Contract as needed (lump-sum,time-based, and/or simplified contracts for short-term assignments and individualconsultants) and also the Sample Form of Evaluation Report for the Selection ofConsultants.

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Retroactive Financing

4.16 From documents provided by Petroleum Importers Ltd (PIL) and SmallholderFarmers' Fertilizer Revolving Fund of Malawi (SFFFRFM), IDA is satisfied that these twocompanies have used acceptable commercial practices to procure petroleum and fertilizersrespectively. The two companies have each imported more than US$5.0 million ofcommodities since June 2002. The commodities imported by these two companies aretherefore eligible for retroactive financing. The US$10.0 million allocated for retroactivefinancing will be split between petroleum products and fertilizers imported by PIL andSFFFRFM, i.e.

* Petroleum Products - US$4.2 million* Fertilizers - US$5.8 million

4.17 Two other companies interviewed to verify eligibility for retroactive financing ofitems imported by them were Farmers World Ltd and Central Medical Stores. Althoughthey appeared to have used acceptable procurement procedures they could not proviaedocumentary evidence to that effect.

Procurement Capacity

4.18 A Country Procurement Assessment Report has not been done for Malawi (it isplanned for FY03) but the procurement system was reviewed in 1996 with the assistance ofconsultants under the aegis of the Fiscal Restructuring and Deregulation T.A. Credit. Anumber of recommendation were made to reform the procurement system including: (a)revising the existing procurement regulations to make them more transparent, efficient andeconomic; (b) Developing and implementing a procurement training program forgovermnent staff; (c) preparing standard bidding documents and manuals; and (d)promulgating a procurement law based on the UNCITRAL model.

4.19 Except for the last one, all the above recommendations are under implementationalthough progress has been slow. New Procurement Regulations were prepared and came toeffect in 2000. These Regulations are acceptable to the Bank. A draft procurement bill hasbeen drafted and presented to Cabinet. The Cabinet has just rejected two major reformprovisions in the bill; that of establishing a regulatory'body to oversee public procurementin Malawi and that of decentralizing the procurement function to procuring entities.Instead, the Cabinet has decided that contracts above a certain threshold will be approved bythe Government Contracting Unit in the President's office. This decision raises a number ofissues which will be discussed with the GOM.

4.20 There are two main executing agencies for this Credit: the Ministry of Agricultureand Irrigation (MoAI)and Malawi Social Fund (MASAF). A procurement capacityassessment of each executing agency was carried out in accordance with OPCPRInstructions of July 15, 2002. The capacity of the MoAI to plan, implement, monitor andevaluate development programs has gradually been declining for the past ten years due to

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high staff turnover and limited resources to fill vacant posts. The MoAI has therefore got nocapacity to implement the EDRP. The procurement risk is considered High.

4.21 The EDRP will be implemented by a Project Coordination Unit (PCU) to bespecifically established for the project. The PCU will be composed of four key personnel: aprogram coordinator to manage and administer the whole project; a procurement specialist,who will be highly experienced in IDA projects, to organize all the procurement underMoAI; a financial controller to take care of the accounting and disbursement aspects of theproject and a logistics expert for ensuring that supplies are delivered to their destinations ina timely manner. Individuals with qualifications acceptable to the Bank will be recruited tofill these positions. Due to the importance of this project, the prograrn coordinator willreport directly to the Secretary of the MoAI. The terms of reference for all the positionshave been prepared and the MoAI will commence the recruitment process immediately.Normally all the positions would be advertised in a national paper of wide circulation inMalawi but owing to the urgency to establish the PCU, the MoAI, with the agreement of theBank, may recruit the program coordinator through comparing the qualifications of threeknown reputable individuals without having to advertise. The program coordinator needs tobe in place as soon as possible so as to set up the PCU and recruit the other staff.

4.22 MASAF has been implementing two social funds operations and is at the end of thesecond operation. A third operation (MASAF III) is at the design stage. MASAF willexecute the public works component of the project using procedures contained in itsOperational Manual which has been approved by the Bank. MASAF has a proven trackrecord in social funds procurement. MASAF's organization and management appearscapable to take up the additional procurement of US$8.0 million demanded by the EDRP.MASAF has been disbursing about this level of funds annually but the funds now availablein MASAF II are well below this level and therefore there appears to be adequate availablecapacity until MASAF IH is effective. The procurement risk of MASAF is considered asLow. However, there are two areas that need strengthening: procurement capacity atMASAF Zonal level; and supervision of works at the District Assembly level. Zonalmanagers do not have the necessary procurement knowledge to advise on procurementmatters. Most of the works will be carried out through Force account where the supervisionof laborers is done by foremen employed by districts. Poor quality of works has beenidentified as one for the weaknesses of social funds sub-projects. To mitigate the risksposed by the two weaknesses, targeted procurement training will be given to MASAF zonalmanagers and independent supervisors will be recruited and posted to all the districts. Theprocess of screening independent supervisors has already started.

4.23 The private sector appears to have much more procurement capacity than theGovernment. By and large the private sector is driven by profit and procurement is a verycritical element of the business. The private companies interviewed with respect toretroactive financing had the capacity for international competitive bidding except it wasonly PIL and SFFFRFM that shared their procurement documentation with the mission.While the interviewing process will continue with other private sector companies andparastatals, the mission is fairly confident that the procurement practices for most of theprivate companies are likely to be acceptable. The mission's confidence is enhanced by the

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fact that all imports are subject to pre-shipment inspection, by SGS, of quantity, quality andprice.

Procurement Plans

4.24 The MoAI will procure some of the items contained in the positive list; some goods(computers and vehicles); and consultancy services. The MoAI is in the process ofpreparing a procurement plans for these items. The procurement plan is at an advancedstage of preparation. As far as the MASAF component is concerned, sub-projects compiledfrom Districts' 3-year rolling plans are available and a procurement plan is also underpreparation. Another component under MASAF is the procurement of 30 computers forstrengthening monitoring and auditing. MASAF's procurement plan will also be reviewedand finalized during negotiations. The procurement plans from MoAI and MASAF will bepart of the Project Implementation Plan. The procurement plans will show the step-by-stepprocedures and processing times for procurement including: contract packages for goods,works, consultant services and training; estimated cost; procurement/selection method;bidding, evaluation and contract award; the activities which follow contract signature suchas manufacture, shipment, delivery and installation of goods; mobilization, construction andcompletion of works. Considering the short duration of the project, the procurement planswill be reviewed quarterly.

A. Manual of Procurement Procedures

4.25 The Operational Manual (OM), the Project Implementation Plan (PIP) and theProcurement Procedures Manual (MPP) will be systematically drafted by the MoAI andcompleted by Credit Effectiveness. In preparing these manuals, MoAI should solicitparticipation of all stakeholders, set out the procurement plans, assess local counterpart fundrequirements, specify responsibilities for commitment and implementation, and the risksthat need to be controlled.

Procurement Metlhods

4.26 The procurement methods to be used are presented in Table A below.

Ouick Disbursement Component The quick disbursing component is composed ofUS$10.0 million for retroactive financing and the remaining US$30.0 million is made offuture procurements. Both private and public sectors will benefit from the quickdisbursement component but for eligibility the procurement arrangements will be slightlydifferent. For the private sector, except petroleum products, procurements for contractsestimated to cost US$500,000 or more per contract will be procured through modifiedinternational competitive bidding with all contracts subject to Bank's prior review.Contracts estimated to cost less than US$500,000 per contract will be procured usingcommercial practices acceptable to the Bank For petroleum products, the threshold for ICBwill be US$3.0 million or more. Any contract below US$3.0 million for petroleum productsmay be procured using commercial practices acceptable to the Bank. For procurement bythe public sector, modified ICB procedures will be used for contracts estimated to cost

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US$150,000 or more while international shopping will be employed for contracts estimatedto cost less than US$150,000.

MASAF Component. The procurement arrangements defined in MASAF's OperationalManual will be used for the EDRP. These arrangements have been agreed with the Bank.

MOAM Comnponent. For goods (vehicles and computers) all contracts estimated to costmore than US$150,000 per contract will be procured through ICB. Contracts estimated tocost less than US$150,000 will be procured through NCB using bidding documentsacceptable to the Bank. Contracts estimated to cost less than US$50,000 may be procuredthrough national shopping. All the ICB contracts will be subject to Bank's prior review. Forconsultancy services, all contracts for firms estimated to cost US$100,000 or more will beprocured through the QCBS selection method. Consultancy contracts for firms estimated tocost less than US$100,000 will be procured through the Consultants Qualifications method.Consultancy services for financial audits and external evaluations will be procured throughleast-cost selection method. Consultancy services that meet the requirements of paragraphs3.8 to 3.11 of the Consultant Guidelines may be procured through single-source selectionmethod with the prior approval of IDA. Individual consultants will be selected on the basisof their qualifications in accordance with Section V of the Consultants Guidelines.

Table A: Project Costs by Procurement Arrangements(US$ million equivalent)

Expenditure Cstegory Procurement Method1 TotalCost

IlCB Modirn ned NCB Other 2

11CB/CommercialPractice ___

1. Quick Disbursement 0.00 40.0 0.00 0.00 40.0(40.0) (40.0)

2. Public Works 0.00 0.00 0.00 6.84 6.84(6.5) (6.5)

3. Goods 0.00 0.00 0.57 0.57 1.14(0.53) (0.54) (1.07)

4. Consultancy 0.00 0.00 0.00 2.33 2.33Services and (1.97) (1.97)Training

5. Operating Costs 0.00 0.00 0.00 0.55 0.55(0.46) (0.46)

Total 40.0 0.57 10.26 50.86(40.0) (0.53) (9.47) (50.00)

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1/ Figures in parenthesis are the amounts to be financed by the Credit. All costs includecontingencies.

2/ Includes civil works and goods to be procured through national shopping, consultingservices, services of contracted staff of the project management office, training,technical assistance services, and incremental operating costs related to managing theproject

Prior ireview thresholds

4.27 Prior review thresholds are presented in Table B below. Contracts for petroleum andfuel products estimated to cost US$ 3,000,000 or more under the quick disbursementcomponent will be subject to prior review by IDA. The threshold for prior review for all theother items under the quick disbursement component will be US$500,000 or more.Contracts for goods estimated to cost US$150,000 or more under the MOAI component willbe subject to prior review.

4.28 Contracts for consultant services estimated to cost US$100,000 or more for firmsand US$50,000 or more for individual consultants will be subject to prior review by IDA.Terms of Reference and Single Source Selection for all consultant services will require priorreview- by IDA regardless of the contract value.

4.29 These prior review thresholds may be updated after the first year of the project basedon satisfactory project performance.

Procuirement monitoring

4.30 During project implementation, the PCU will provide quarterly reports on progressof procurement highlighting difficulties encountered in the past, and how they would beaddressed in the future to ensure timely project completion. There will be procurementsupervision every six months which will include special procurement supervision for post-revieNv/audits. During these missions, IDA will review one in five randomly selectedcontracts which are below the prior review thresholds specified above.

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Tlable 1B: Thresholds for Procurement Methods and Prior Review

EExpenditure Category Contract Value Procurement Contract subjectThresholds Method To Prior Review(US$) (US$)

Quick lDlisbursementComponent(a) Imports of petroleum and > 3,000,000 Modified ICB 3,000,000Fuel products (Private < 3,000,000 Commercial None - Postcompanies) Practice Review

(b) Other imports under the > 500,000 Modified ICB 500,000positive list < 500,000 Commercial None - Post(Private companies) Practice Review

(c) Imports by Public > 150,000 ICB 150,000Sector < 150,000 Intemational None - Post

Shopping Review

Public Works-MAISAIF All According to According toComponent MASAF's MASAF's

Operational OperationalManual Manual

M(DAO Component(a) Goods 2 150,00 ICB 150,000

< 150,000 NCB None - Post< 50,000 National Shopping Review

None - Post(b) Consultant services by Ž100,000 QCBS Reviewfirms < 100,000 Consultants

Qualifications 100,000None - Post

Consultant services by 2 50,000 Individual ReviewIndividuals < 50,000 Qualifications

Individual 50,000Qualifications None - Post

Review

EnvironmentaD and SocisD Aspects

4.31 The operation is not expected to have any major environmental impact as it islargely a quick-disbursing instrument to provide financing on the basis of a positive list of

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import requirements. A limited portion of about 16 percent will support public workactivities through MASAF project which is classified under environmental category B.None of the project activities is expected to lead to or involve involuntary resettlement.However, a Resettlement Policy Framework will be prepared, approved and submittedduring project implementation to guide any potential resettlement/compensation issues.Safeguard measures including environmental and social screening, assessment andmitigation will be applied during project implementation through MASAF'senvironmental and social management mechanism. The operation is classified asCategory B.

5. JUSTIFICATION FOR THE PROPOSED OPERATION

5.1 Several important benefits justify the proposed operation. Expected major benefitsinclude the following: (a) increased likelihood that the Government will succeed inpreventing excess deaths and morbidity associated with the present food crisis, and willalso be able to maintain investments in education and health critical to longer termpoverty reduction; (b) poverty reduction and enhanced capacity of the vulnerable to buyfood by stimulating production and providing employment and resources through publicworks to a large number of unemployed Malawian youth and women; (c) complementingthe assistance provided by other multilateral organizations and bilateral agencies, as animmediate response to the Government's drought recovery efforts and being a catalyst foradditional assistance; and (d) reduced likelihood of recurrence of food crises, due toassessment of policy and institutional failures that contributed to the present one andidentification of appropriate remedial measures.

5.2 The operation carries risks. Delays may occur in delivery of the pledgedhumanitarian assistance by other donors, and the residual gap may not be fully pledged.The relief efforts undertaken by the Malawian Government may not be fully successful,given the magnitude of the effort and logistical challenges. In the previous year, publiclyprocured grain was released from a limited number of urban depots, and incentives totransport these supplies to rural areas with great need were poor. To prevent recurrence ofthis eventuality, the Govemment will prepare and make public a schedule of release ofpublicly procured grain, assuring that geographic areas and critical time periods arecovered by the subsidized product. More generally, there is a risk that despite best effortsat relief by all parties engaged in the effort, some Malawians may still experience hungerthis year. If the relief effort is less than fully successful, the process of recovery will alsobe more challenging. To mitigate this, donors have set a joint task force to coordinate,monitor and report on pledges, shipments and disbursements. In the past, lack oftransparency and mismanagement has been a problem with regard to flows of grain for thefood reserve. If this situation were to recur, it would undermine the efforts of recoverythat the Bank seeks to support. Risk of mismanagement of project funds will beminirnized by establishing effective mechanisms for auditing and reporting, consultationand involvement of communities in the operation, and regular public information. Inaddition, the Government has committed to fully transparent accounting for all grain thatit purchases for the present crisis, and to monitoring of the impact of the relief effort. A

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further risk relates to fragmentation and insufficient coordination of efforts by the variousactors at the national level, and limited capacity at the local level. Improved coordinationat the national level can be achieved by designating one focal point at the PS level tocoordinate technical inputs from the various ministries. A final risk relates to the dangerof reversion to "business as usual" after the crisis abates, without putting in placesustained capacity to prevent and/or manage future crises. This risk can be addressed bysecuring commitment of the Government to contribute to a SADC-wide effort to improvecrisis management, fulfilling the commitments, and addressing the domestic agriculturalagenda outlined above.

6. AC¶TG'N PLAN

6.1 The Government's Action Plan is presented in the Emergency Drought RecoveryCredit Policy Letter presented in [Annex 1].

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ANNEX I

Telegrams: Finance. Lilongwe Ministry of FinanceTelephone: (265) 789 355 P Bx 0Telex: 4402Ml P.O. Box30049Fax: (265) 789 173 Lilongwe 3E-mnail:fiiarnce~nin-f,nance.sd.gmw MALAWI

Ref. No. 19/1/9 2 0 th September, 2002

Dr Dunstan WaiCountry ManagerThe World BankMalawi OfficeP 0 Box 30557Lilongwe 3

Dear Sir,

MALAWI EMERGENCY RELIEF CREDIT:LETTER OF POLICY

We are pleased to submit to you the Letter of Policy on theEmergency Relief Credit and attachments. The Letter of Policy andattachments are being sent to you to complete the documentationrequired to process the Emergency Credit.

Please do not hesitate to contact us in case you should need anyadditional information.

Yours faithfully,

Dr Maxwell M MkwezalambaPrincipal Secretary (Economics)

For SECRETARY TO THE TREASURY

Attd.

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ANNEX 1I

Tclesraiw: Finance, Lilongwe MINISTER OF FINANCETclkphone: Lilongwe 782 199 P.O. BOX 30049

Telex: 44402 LILONGWE 3Fax: 781 679 MALAWI

Ref. No. 19/1/9 26'h August, 2002

The Vice President,Africa Region,The World Bank,Washington, D.C. 20043,United States of America.

Dear Mr. Vice President,

POLICY LMTER: MALAWI EMERGENCY RECOVERY CREDIT

I would like to express my appreciation for your prompt response to myrequests for emergency assistance of $45 million and $20 million and yourapproval for a credit facility of $50 million to implement a recoveryprogram to deal with the current severe food shortage facing Malawi.

2. As I indicated in my letter referred to above, Malawi has over thelast two years experienced food shortages due to severe floods anddrought which have resulted in poor harvests. The maize shortage isestimated to be approximately 600,000 metric tonnes (mt). The foodshortage has necessitated large-scale importation of maize. The countryis expected to experience another food shortage in 2002/03 owing to thecontinued effects of drought, - flooding in some parts of the country,inadequate uptake of inputs, consumption of green maize or "corn on thecob" prior to the usual period of harvest, and lack of grain reserves.

3. To avoid further humanitarian distress, the Government declared astate of disaster on 27th February, 2002, indicating that Malawi isexperiencing a catastrophic food shortage with a large number of the

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farm families facing starvation. Following this, the Government appealedto the international community for intervention on humanitarian grounds(see Annex I and 11 for details). The donors have responded by so forpledging about 140,000 mt out of the required 208,000 metric tonnes ofmaize for relief. The relief programme is being co-ordinated by the WorldFood Programme. Another 75,000 mt is expected from the Winter InputProgramme. Private sector sources are expected to provide a similarquantity. Given that the maize to be brought by the cooperating partnersand the private sector is likely to fall short of the country's requirements,the import of 250,000 mt of maize for commercial purposes is necessary ata total cost of around US$75 million. However, the private sector's abilityto import this additional maize is hampered by the high cost of borrowing.

4. The government intends to use the foreign exchange reserves at itsdisposal to contract the purchase. This will deplete foreign exchangereserves and expand the domestic debt stock, exposing the economy tothe risk of macroeconomic instability.

5. The Government in this regard plans to use the IDA resources ofUS$45 million from the World Bank to augment its foreign exchangeposition and to support the recovery programme. The proceeds of theIDA support will be allocated through the budget to support the recoveryprogrammes and to maintain economic and social priorities during thisperiod of crisis. The Government's revised budget will include allocationsfor the Public Works Program (PWP) and other mechanisms of assistanceto the vulnerable now under consideration, repairs to the Nacala railwayline, the targeted inputs program, and studies to avert future food supplycrises - including the review and updating of the country's Food SecurityPolicy.

Pricing Policy

6. A large part of the population is unable to afford the maize atimport cost and we will therefore sell the 250,000 metric tonnes of maize ata subsidised price of MK1 7 per kilogram. The ability of our people to copewith the impending shortage has been seriously eroded by the crisis earlierthis year, when the poor sold their assets to purchase food. Thus, inaddition to the one-third of the population receiving humanitarian aid, webelieve that another one-third of the remainder, of those classified aspoor, will need assistance as they will not have the purchasing power toafford the maize at import cost. Our preferred option would have been toprovide a targeted subsidy. However, we have insufficient time to designand implement a nationwide program through cash transfers or coupons.

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7. We have elected to combine a price subsidy with additionalmeasures of targeting to direct the maize to those in need but unable topay the full price. The price subsidy will be reflected in the budget. Due toour shared concerns about possible diversion of subsidized maize toneighbouring countries and/or to income groups not in need ofassistance, we intend to ration and monitor distribution through the JointGovernment/Donor/United Nations (UN) /Non-Governmental Organisation(NGO) Task Force which will oversee operations at national, district andcommunity levels.

8. I wish to confirm that Malawi remains committed to economicreform programmes including liberalisation. It is therefore our intention todiscontinue the subsidy after the food crisis.

9. I have taken this opportunity to provide some details on the actionsthat the Government is taking to address the immediate food crisis and toreduce the recurrence of future food crisis.

The Government's Actions to Address Ohe Immediate Crisis of FoodShorlage

Distribution to Reach the Vulnerable

10. Two parallel modes of maize distribution are envisaged to mitigatethe prevailing food crisis, one for the commercial maize and the other forthe humanitarian food aid. Government is committed to ensuringtransparency in the management and control of both commercial maizeand the humanitarian food aid. In order to achieve this, Government willensure that control and management of the two types of stocks will bedone separately. Management and distribution of the humanitarian foodaid will be handled in collaboration with World Food Program (WFP).Importation of commercial maize will be entrusted to the National FoodReserve Agency (NFRA). The maize imports will be financed through theReserve bank of Malawi (RBM). NFRA will then sell the maize to theAgricultural Development and Marketing Corporation (ADMARC), or acredible trader who may be contracted after review and approval by theJoint Task Force, and proceeds from the sale of the maize will bedeposited by the NFRA in an account at the RBM. ADMARC, or thecontracted trader, will retail the maize to recipients. To ensuretransparency and accountability, the Joint task Force will oversee the flowof payment of sales proceeds from maize by ADMARC and/or trader to

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NFRA, and eventually into the RBM account. Reconciliation of theaccount will be done within 30 days of transactions.

11. The Joint Government/Donor/UN/NGO Task Force will oversee theoverall coordination of the national response to the crisis. District andVillage Level Civil Protection Committees have been formed to supportimplementation at the community level. A lead NGO has already beenselected for each district to coordinate relief operations. Vulnerablegroups to benefit from the humanitarian food aid will include the elderly:female headed households; the orphans; families having adoptedorphans, particularly those affected by HIV/AIDS; the chronically ill; smallland holders who experienced severe crop failures; and the landless.

Logistical Bottlenecks and Distribulion Plan

12. Learning from 2001-2002 maize importation exercise,implementation of the emergency food crisis program may be subject tomajor constraints. These include poor operational procedures andcongestion at the ports and off-loading points, inadequacy of haulagecapacity for domestic food distributions, and the poor condition for mostrural roads. The Government has taken particular note of the importanceof improving operations on the Nacala corridor, including repairing theline between Cuamba and Entra Lagos to facilitate quick and efficientflow of stock from the ports into the country. Trucks' for internaltransportation are being imported, for example, through the WFP/NGOconsortium. In addition, Government plans to improve internal logisticsand networks in order to further improve distribution of stocks, for example,through paying attention to road infrastructure improvement byexpansion of public works and provision of equipment.

13. Geographical targeting in the distribution of commercial maize willbe based on the district food requirement assessment as provided inAnnex Ill, while temporal targeting will be based on national averagemaize consumption, estimated at 30,000mt/month. ADMARC willprepare distribution plans based on this information.

14. The vulnerability assessment will be used to arrive at monthlyallocation per district. The assessment will be updated in Qctober andJanuary. The existing Vulnerability Assessment Committee composed ofrepresentatives of the National Economic Council (NEC), Ministry ofAgriculture and Irrigation, the Donor Community, Department of Reliefand Disaster Preparedness and NGOs, will undertake the monitoring of themaize delivery and distribution.

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Institutional Arrangement In the MaAze Distribufilon

15. A Program Implementation Unit (PIU) is to be established under theMinistry of Agriculture and Irrigation to manage the maize import anddistribution processes. A Logistics Officer will be assigned within the PIU,specifically to oversee and monitor the operations of ADMARC and NFRAin the maize marketing and distribution. The PIU will be reporting to theJoint Task Force on the Management of the Food Crisis.

16. Government will ensure that there is no conflict in the operations ofADMARC and NFRA in so far as local purchoses and distributions andmanagement of the Strategic Grain Reserve (SGR) is concerned.Procedures are being developed by a specific working group under theJoint Task Force. Specific attention will be given to measures to preventrecycling of subsidized maize into the SGR and elite capture of subsidizedmaize, for example, through restriction in the quantities permitted persales transaction. These measures will be publicized widely.

Informafion Education and Communicafton (IEC) in Maize Distribution

17. A structured IEC effort will be implemented during the wholeprogram to convey information on the geographical distribution of themaize and prices at which it will be sold. This will be coordinated by theInformation Systems Working Group under the Joint Task Force. Specificpersonnel will be allocated on a full time basis to implement the IEC.Channels of mass communication including TV, radio and pri,nt media willbe used to inform the public. In addition, the agricultural extensionnetwork will include information on distribution plans and prices in itsleaflets and posters. NGOs and faith communities will form part of theinformation network.

Government Action to Assist Preparation for the Next Harvest and MAitigateFuture Crises.

18. To avoid the resurgence of the problem for the next season and inthe foreseeable future, the Government has initiated a number ofprograms inter-linking short, medium and long term measures as follows:

* Providing free inputs through the Targeted Inputs Programme (TIP)to smallholder farmers who have land but lack basic inputs likefertilizer and improved seed.

o Promoting public works program (cash, inputs or food for work).

28

* Establishing employees inputs credit schemes.* Promoting irrigation (use of simple technologies such as treadle

pumps and canals) and crop diversification (root and tuber andother drought resistant crops).

* Facilitating provision of input credit by financial institutions.. Encouraging and promoting the use of manure to complement

inorganic fertilizers.* Promoting natural resource management, to contain and reverse

environmental degradation (in liaison with other administrativestructures and stakeholders);

* Medium and long-term improvements to infrastructure, logistics andtransport, including international transport links throughMozambique (Nacala, Beira and Quelimane).

* Continuing, where appropriate, with policy reforms.* Developing a comprehensive national food security policy.

A number of these programs are already being implemented. Forinstance, the Extended TIP, Public Works Program, and encouragementand promotion of manure to complement inorganic fertilizers are alreadyin place. In addition, Government is currently developing acomprehensive food security policy.

19. 1 am satisfied that the actions and programs outlined abovecontribute to an adequate and satisfactory set of interventions tomanage the current emergency effectively. I further hope that this willmaintain the long term policy and development thrust of theGovernment, and that the actions will avert or reduce the impact ofsimilar crises in the future.

Yours sincerely,

Frdy A. JumbeMINISTER OF FINANCE AND

ECONOMIC PLANNING

29

Annex 2

COST SUMMARY- MALAWI EMERGENCY DROUGHT RECOVERY PROJECT(US$ MILLUONS)

Govt.Counterpart.

Component (category) Total Foreign Local FundingA. Quick DisbursingComponent

100%Imports 40.00 40.00 financing 0.00 0.00

Consultant Services 100% 80%(including audits) 1.30 1.00 financing 0.30 financing 0.06

B Pub. Works Prog.(w/subitems)

95%1. SSPs 0.72 0.00 0.72 financing 0.04

80%2. Equipment-Task Force 0.13 0.00 0.13 financing 0.03

100%3. Multi Sectoral Training 0.62 0.00 0.62 financing 0.00

85%4. Extra Operating Costs 0.16 0.00 0.16 financing 0.02

95%5. PWP Sub-projects 6.37 0.00 6.37 financing 0.32

100% 80%C. Equipment and Veh. 0.20 0.10 financing 0.10 financing 0.02

D. Project Management100% 80%

Operating 0.30 0.20 financing 0.10 financing 0.02

E. Unallocated 0.20 0.20 0.00

GRAND TOTAL 50.00 41.50 8.50 0.50

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Annex 3

Allocation of Credit and Grant to Categories

_______________ ~in USD

Category Total Grant Credit

1 Eligible imports 40,000,000(a) petroleum 7,000,000 0

(b) other than petroleum 14,000,000 19,000,000

2 Goods _

( part C 200,000 0 200,000(b) part B.3 130,000 0 130,000

Cons. services,3 including audit

for Part C 1,300,000 0 1,300,000

4 Training for part B.3 620,000 0 620,000

5 Sub-projects(a) Part B.1 6,370,000 0 6,370,000

(b) Part B.2 720,000 0 720,000

6 Operating Costs(a) part C 300,000 0 300,000(b) part B.3 of the Project 160,000 0 160,000

7 Unallocated 200,000 0 200,000

50,000,000 21,000,000 29,000,000

31

Annex 4

Positive List Items

Items Quick-Disbursing Component ofUSD 40 miHionRetroactiveFinancing 20% ofUSD 50 million OtherUnder Under PaymentsGrant Credit

Petroleum & Fuel Products 4.2 0 2.8

Agricultural Inputs 0 5.8 1.2

Ag. Equipment 6.0

Construction Equipment 4.0

Spare Parts 5.0

Livestock, Animal Prod. & Vet. 2.0Supplies

School Supplies _ 4.0

Medical Supplies & Equipment 5.0

Total (USD millions) 4.2 5.8 30.0

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Annex 5

Supporting community responses to the food crisis

1. Bank support

Background

1.1 The 2001 Malawi Poverty Reduction Strategy Paper (MPRSP), a successor to the1995 Poverty Alleviation Policy Framework Document, has four basic pillars withinwhich the Government intends to achieve poverty reduction. There is a recognition in allthe pillars that community action is a necessary pre-condition for achieving the goals ofthe strategy - be it pro-poor economic growth, improving the lives of vulnerable persons,improving governance, or achieving human capacity development. Similarly, the cross-cutting issues of HlV/AlDS, gender, and the environment all require communityparticipation if the goal of self-reliance is to be achieved. The emergency crisis facingMalawi is to a large extent a consequence of past shortfalls in achieving success in thefour pillars and three cross-cutting issues outlined in the MPRSP. Strengthening the workof agencies which support community development in Malawi during this crisis shouldmake a useful contribution to the foundation being laid to implement the MPRSP. It is forthis reason that the EDRP will support several agencies with responsibilities forpromoting community participation for empowerment: District Assemblies, TraditionalAuthority, MASAF, NGOs, CBOs, Community Support Organizations, Ministry ofCommunity Development, Department of Local Government, Ministry of Agriculture andIrrigation, as well as community elected committees.

1.2 The newly-elected Government of Malawi in 1995 established the Malawi SocialAction Fund (MASAF) in the same year as part of its strategy to strengthen communityparticipation in the implementation of the Poverty Alleviation Policy FrameworkDocument. The Project design, structure and procedures have evolved during this time inorder to respond effectively to the demands of communities. High demands fromcommunities and early full commitment of available funds led the Bank to finance asecond phase (MASAF H) in 1998. MASAF II was fully committed by 2001, but therewere unfunded community requests worth over US$300 million. The Government ofMalawi set up a Programme Preparation team for a third Phase of MASAF, and the Bankresponded positively - with the design of an operation which will be appraised and madeeffective during this financial year.

1.3 in the context of the current emergency, it is proposed to scale up certaincommunity interventions at the community, NGO/CBO, and District Assembly levelswithin ithe framework of MASAF working with the Ministries of Agriculture, LocalGovernment, and Community Development. The cash-transfer Public Works Program(PWP), implemented in areas identified by District Administration as suffering fromsevere food shortages, provides the first opportunity to scale up community response tothe crisis created by food shortages. The PWP allows District Assemblies (DAs)tomobilize able-bodied vulnerable community members like widows, female-heads of

33

households, and the landless to construct assets (community roads, bridges, waterreservoirs, and environment rehabilitation) though self-targeting wage set just below theminimum market wage. Although Community Development Assistants (CDAs) havebeen active in community mobilization for Community Sub-Projects (like schools andclinics), they have been less active in the PWP. In the context of developing acomprehensive PWP intervention in response to the crisis, it will be necessary to developa comprehensive program to equip CDA with improved skills.

1.4 A Sponsored Sub-Projects (SSP) component was piloted under MASAF II inresponse to the needs of vulnerable persons who could not participate in PWP (orphans,street children, people with disabilities, the aged, and those infected and affected withHIV/AIDS). The SSP provides financial grants and technical support for programstargeted at the marginalized persons by NGOs, CBOs, and CSOs. The main activitiessupported under SSP are skills training, capacity building, income generating activities,construction of skills centers, day care centers, food security initiatives, and home basedcare management and advocacy. The Ministry of Health and Population (MPHP) has alsobeen involved in mobilizing communities to feed children (therapeutically at hospital-based Rehabilitation Units and at health center-bases Supplementation Sites), but there islittle scope for expanding these because the MOHP is greatly constrained by a staffshortage - estimated at 50% staff vacancy rates. Thus, the main strategy for expandingsupport for vulnerable groups is through the work of NGOs, CBOs, and CSOs; somesupported by MASAF, but many working with little extemal support. The manycommunity members who have come together to look after vulnerable persons at thehousehold level have limited opportunity to access extra resources, and the emergencyoffers us an opportunity to respond to this need.

Lessons learnt

1.5 In promoting Community Demand-Driven development, MASAF has learntlessons from its interactions with communities, NGOs, CBOs, CSOs, District Assemblies,and central line Ministries. Some of these lessons are relevant to the design of the ERC,the main ones being:-

o Communities can develop the capacity to manage sub-projects to increase serviceaccess, but there are few suitable mechanisms for direct transfers to individuals.Most success has been in the building of community assets to increase access toservices, with a total of 1,392 CSPs completed under MASAF I and a similarnumber is expected under MASAF II.

o A self-targeting wage is an effective mechanism to reach the able-bodiedvulnerable persons, but there are major management deficiencies in the DistrictAdministrative structures - especially accounting for funds and provision oftechnical supervision. Under MASAF I, a total of 13.6 million person days ofemployment were created, transferring a total of MK 165 million and building atotal of 5,036 miles of community roads. More is expected under MASAF II dueto extra resources provided by the DfID to this component, but there is need to

34

unleash the potential capacity of DAs to respond to community needs and increasepublic assets in the districts.

* In addition to the existence of formal NGOs/CBO, communities have been able toform their own Community Support Organization (CSOs) to facilitate the transferof resources to those who are vulnerable and unable to take advantage of the PWPwage. There are nevertheless some capacity constraints in these organizations,especially in remote areas where training and learning opportunities are limited. Apilot under MASAF II is so far supporting close to 100 CBO/NGO/CSO projectsat a total cost of US$1.5 million, it has been difficult to expand this support due toresource and capacity constraints.

* Weak extension systems by Government agencies have impacted negatively on theability of communities to transform social capital from MASAF to economiccapital; especially in agriculture-related investments. The CDAs have foundthemselves very short of resources although they are a critical resource incommunity mobilization. Similarly, the reported decline in numbers ofagricultural extension workers, as well as inadequacy of resources for effectiveagricultural extension, has constrained the conversion of social capital intoeconomic capital as a basis for poverty alleviation.

* Shortages in recurrent costs, especially that related to human resources, on the partof central ministries has hindered the full use of assets created by communitiesunder both the PWP and CSP. Inadequate Government funding for a number ofministries such as Community Development, Agriculture and Irrigation, and othershas negatively impacted on the empowerment of communities so that they canbecome better partners in the delivery of services. It is for this reason that theMOHP has for instance been unable to expand the Community Drug RevolvingFund, which is necessary for increasing access for communities in remote areas.

* The private financial sector has not been fully mobilized in the current MASAFoperations, affecting the ability of communities to take advantage of market-created opportunities. The micro-finance sub-sector has limited outreach, there arefew outlets for agricultural inputs on account of low cash availability in the ruralareas, and rural markets for agricultural produce have been severely constrained.

* When communities are under stress from drought and seasonal demand foragricultural labour at the household level, MASAF activities are affected. There isoften increased demand for PWP and SSP during drought, while communities tendto pull back from CSP. Increased household labour demands tend to affect allMASAF activities negatively. During this emergency, it is expected that thecompletion of CSPs supported by MASAF will be slowed down while there willbe increased demand for PWPs.

* Information, Education, and Communication (IEC) have proved the most potenttool for promoting transparency and accountability; backed by community-based

35

accounting for funds channeled to communities. The lack of an adequate district-level Management Information System (MIS) and Monitoring and Evaluationstructures have nevertheless put constraints on the development of a community-based IEC capacity of intensifying accountability at the lower levels.

MASAF safety operations under PWP have stopped at the cash transfer stage. Forincreased socio-economic impact, there is need to gain a deeper understanding ofintra-household decision making processes and work with participating householdsso that they can engage in income generating activities as well as promote savings.

1.6 These and other lessons have been influential in the design of MASAF 3, and willinform the design of the EDRP component to be implemented through MASAF and itspartners (several national line ministries, District Assemblies, NGOs/CBOs/CSOs, andProject Management Committees) supported by national sector ministries.

2. Proposed Actions

2.1 While the crisis affecting Malawi today has many causes which need to be tackledin the medium and longer-term, the EDRP will, in addition to responding to the immediatecrisis, begin to lay a foundation for these issues to be addressed once the crisis hasstabilized. Thus, the policy and institutional changes needed in a number of areas cannotbe tackled now, but some initiatives can be started now to provide a suitable entry pointfor longer-term interventions. The EDRP will support social investments, public works,and vulnerable groups through MASAF using mechanisms established under the currentproject (MASAF I). The main activities proposed are:-

2.2 (a) Increase PWP funded through Cash For Relief Work in all District Assemblies.During this drought, the Government of Malawi channeled MK1 13 million

through MASAF to start a Cash for Relief Work (CFRW), which allowed DistrictAssemblies to incorporate small Public Works Projects with quick approval processes andwith a set maximum of MKO.5 million per project. The District Assemblies haveindicated that they can scale this up substantially if clear guidelines and procedures fordistrict-level approval and accounting are available. With DflD financing, MASAF isdeploying an Accounts Assistant in every DA (both rural and urban) for this purpose andsimplified approval procedures (to be adopted under MASAF 3) are being formulated foruse under the ERC. The DflD has also allocated US$1.7 million to MASAF to financeCFRW within the PWP starting September 2002.

2.3 The PWP will be paying each beneficiary MK30 per day and an additional cashadjustment based on the need to bring the wage to the price of 2 kilograms of maize atmarket prices. MASAF will put the cash adjustments over and above the PWP wage intoaccounts held by the Malawi Savings Bank, or it will pay lumpsums at the end of themonth.

36

2.4 As part of gearing towards MASAF 3, the PWP will be fully decentralized toDistrict Assemblies with a new implementation mechanism characterized by thefollowing: -

* DAs will be allocated funds, based on a formulae developed by the LocalGovermnent Finance Committee, only as these become available, and not onpromises of finds.

* Every DA will open a PWP account, get an Accounts Assistant with a computerfrom MASAF, and ensure that the Accounts Assistant is among the signatories.

* Funds allocated to the DA will finance, among other things, sub-projects in: roadsrehabilitation, some new road works, water conservation, soil conservation,community compost heaps, community food banks, seedlings nurseries, smallearth dams, hyacinth clearance, flood control, and others.

* All sub-project worth less than US$10,000 will be approved by the DistrictExecutive Committee (DEC) and endorsed by the full DA; and sub-projects abovethis US$10,000 threshold will be forwarded to MASAF MU for review andapproval.

* Sub-project costs will aim for a minimum of 60% of the costs going towardsunskilled labor; and any sub-project without this minimum will be subject toreview by MASAF MU before implementation can commence.

* MASAF will disburse funds to DAs in three trances of 40%, 30% and 30%; withrequests for the second tranche being made when 70% of the first tranche isutilized and accounted for.

* The DAs will utilize a MASAF supplied computer and software to maintainproject records, and to produce specified reports for comrnmunity leaders,councilors, Zone Offices, District Assembly, and MASAF MU. On a monthlybasis, MASAF MU will prepare a summary performance report by DAs andpublish it in the local press for public accountability.

* MASAF MU will strengthen its financial management system at three ZoneOffices (central, southem, and northern) so that DAs can receive technical supportwith their accounting for funds. The IEC, MIS, and M&E systems of MASAFwill also be strengthened in support of this decentralized implementation of PWP.

* Resources will be made available for the training of Community DevelopmentAssistants and Officers so that they can strengthen the implementation of PWP inthe districts.

* MASAF will enter into an MOU with the Local Government Finance Committeespelling out the provisions to be followed by the DAs, and the Finance Committee

37

will be supported with resources to undertake limited monitoring of how the DAsare implementing the MOU.

2.5 (b) Extend Sponsored Sub-Projects (SSP) for the vulnerableMany of the SSPs involved in income-generating projects are facing hardships as

their projects have also been affected by drought. The NGOs/CBOs managing these SSPswill be supported so that they can receive food from the humanitarian assistancedistributed under the WFP, failing which they will get a limited grant to supplement theirincomes and undertake feeding. Furthermore, many of them have expressed a desire torun hammer mills as revenue-generating activities, but these will also contribute to areduction of labor demands on women by brining grain milling capacity closer to thehomes. Tnus, there will be a limited number of hammer mills distributed to theseNGOs/CBOs working with Incapacitated Vulnerable Persons (IVPs).

2.6 (c) Support Community Food BanksAs a bridge to post-drought recovery methods, the PWP wage will be extended to

community groups involved in establishing Community Food Banks (CFBs) which can beused to feed the IVPs in normal times and extend support to other vulnerable persons intimes of emergencies. Traditional Authorities, Village Headmen, and communities withagriculture-based Income Generating Projects for IVPs can be supported to establishCompost Heaps, prepare land for Community Food Banks (CFBs, receive agriculturalinputs, plant, weed, and harvest the crops for storage in the CFBs. These CFBs would beunder the control of a Traditional Leader supported by an Elected PMC - making up aCFB Committee, which would ensure that the grain is distributed to the IVPs in normaltimes and selected vulnerable persons in emergencies. In times of food crisis, such as thepresent, communities could also designate the site of CFBs as suitable for supplementaryfeeding (cooking to feed malnourished children and others in need of supplements). Thus,the CFB Committees could become important permanent mechanisms in communities forpurposes of targeting assistance to the very vulnerable in a transparent and accountablemanner. These CFGs will be evaluated at the end of the emergency, and the lessons usedto improve the delivery of MASAF 3.

3 Studies and tecdhnical assistance

3.1 The expansion and scaling up envisaged here would require some selectedstrengthening of delivery mechanisms at MASAF Management Unit and DistrictAssembly levels. In particular, the IEC, M&E, MIS, and Financial Management systemswould require strengthening with short-term staff and with resources to produce thematerials needed to ensure public accountability at community, district, and nationallevels. For instance, MASAF plans to publish monthly status reports (in the press)showing how every DA is performing, and a summary of the whole ERC componentunder MASAF management.

3.2 MASAF has been given the responsibility to develop and implement an IECprogram for the emergency by the Joint Task Force, and staff for this activity will workunder MASAF - but with mandates supplied by the Joint Task Force. Thus, it is proposed

38

to attach a Relief IEC Officer in the Zones with strengthened accounting capacity so thatthey can work together in preparing information to strengthen accountability.

3.3 At the end of the EDRP, it will be necessary to carry out an evaluation of howcommunities, DAs and national level agencies worked together, with a view to using thelessons in the improvement of MASAF operations in the areas of vulnerability and socialrisk matnagement.

4. Institutional arrangements

4.1 MASAF will designate an Officer at Management Unit for the EDRP to ensurethat there is integration and improved collaboration. The designate EDRP Officer will beaccountable to the Directors for SSP and PWP, and will ensure that EDRP activities donot hinder the successful completion of MASAF II (set to close on May 31, 2003) and thedesign of MASAF 3 (set to be delivered this financial year). Any strengthening ofsystems (IEC, MIS, M&E, and finance) within MASAF in response to the EDRP will beco-ordinated by the EDRP Officer, who will be the liaison person between MASAF andall agencies working on the EDRP; but technical officers will work under the relevantMASAF technical unit.

4.2 MASAF will send EDRP progress reports to the Secretariat set up to manage theERC under the MOAI, co-ordination focal point in MOF, and the Ministry of Poverty andDisaster Management Affairs, for these activities. Information from community,NGO/CBO/CSO and DA level work with MASAF will be made available to thesenational focal points on a monthly basis, including accounts, beneficiaries being reached,and performance by various implementing agencies. Suitable summaries of the sameinformation will be disseminated through the press for enhanced public accountabilityunder the EDRP.

4.3 MASAF will also work with the Ministry of Community Development, Ministryof Local Government, and Ministry of Agriculture and Irrigation to address capacityconstraints in the way extension staff in these ministries work with DAs so that the EDRPcan be a success. The main interventions will be training and some limited resources tostrengthen supervision and monitoring within the DAs. In the case of the DAs, it isexpected that there will be DA staff (at least one) made available to work with theAccounts Assistant to ensure that information is entered into the computer so thatinformation for councillors, DA, communities, zones, and MASAF MU can be producedon time.

5. Justification

5.1 MASAF channels funds directly to communities, CSOs, CBOs, NGOs and DistrictAssemiblies. On the basis of past performance in transferring assistance to vulnerablepersons through PWP and IVPs through the SSP, MASAF has been identified as asuitable partner to implement the EDRP. The transfer of cash minimizes the risks of lossbetween the source and the beneficiaries, and allows communities to take advantage of

39

market channels in the distribution of inputs (food, building materials, agricultural inputs,etc.). The approach adopted by MASAF strengthens both the private sector andGovernment structures working directly with communities. Over the last seven years,MASAF has established a management and community infrastructure which can respondto the EDRP and deliver flexibly, transparently, and speedily primarily using self-targeting mechanisms.

5.2 It is estimated that close to 2 million beneficiaries will be reached with thisemergency PWP if the arrangements with DAs can be finalized and implemented. Thetopping up of PWP wage with cash based on the need to meet a need for 2 kilograms ofmaize, combined with a savings element, will not only give the able-bodied vulnerablepersons an opportunity to eam money for food purchases, but give them an opportunity tosave for some agricultural inputs.

6. Action plan

- Agree on resources available to MASAF under the EDRP, and inform MASAF MU sothat it can prepare the DA allocation schedule for dissemination.

- Give MASAF authority to immediately finance EDRP activities using CSP resourcesbeing held for next year's disbursement to communities (retroactive financing).

- Agree on format and date for first progress report.

- Develop an MOU government the new relationship between MASAF and DAs in theimplementation of the EDRP.

7. Budget

3.1 This budget is based on the assessed capacity with respect to what the DistrictAssemblies might be able to absorb during this emergency. It is expected that MASAFwill get these resources from the DfID Emergency Relief contribution. IDA EDRPcontribution, and government contribution from local funds generated from the fast-disbursing component of the EDRP .

7.2 The US$8 million set aside for use by MASAF under the EDRP would be used asfollows:-

US$- SSPs 0.72- Equipment (task force work) 0.13- Training 0.62- Extra operating costs 0.16- PWP sub-projects 6.37

Total 8.00

Costs for strengthening the IEC within the Joint Task Force framework would be takenfrom the US$ 2 million set aside for studies and technical assistance.

40

7.3 The eventual size of the emergency PWP will depend on how many more resourcescan be mobilized during this period.

COSTING SUMMARY: MAXIMUM ABSORPTION

Sub-component MK US$

SUB-PROJECTS COST - PWP 1,618,814,340.00 21,160,971.76

SUB-PROJECTS COSTS - SSP 41,000,000.00 535,947.71

EQUIPMENT (Joint Task Force work) 6,120,000.00 80,000.00

TRAINING / WORKSHOPS 34,807,500.00 455,000.00

IEC (Joint Task Force work) 4,207,500.00 55,000.00

INCRE.ASED OPERATINGS COSTS 9,206,300.00 120,343.79

TOTAL COSTS 1,714,155,640.00 22,407,263.27

41

LOGFRAME

Indicators Means of Risks andVerification Assumptions

Goal: To assist with management of Minimal levels of M&E for drought Logisticalthe drought and recovery. increased death and effort, health bottlenecks,

morbidity, adequate indicators, inadequatepreparation for agricultural surveys managerial capacitvsubsequent crop year

Objectives:To contribute to a reduction in Health indicators Ministry of Health Assumed thathardships imposed by floods and School attendance reports. current GOM-Donordrought on Malawians, restoring the Distribution of Ministry of Agric. collaboration will beproductive capability in the country agricultural inputs and reports. maintained and evenand supporting longer-term advice improved.Goverunent capacity in disaster Adequate focus bymanagement. Government on

logistical issues.Outputs:* successful procurement of Performance of Procurement Assumed thatitems from positive list Disbursement and records.Records kept District Assemblies

Quantities of items by Secretariat. will quickly gain the* expanded participation in public Procured against positive MASAF reports experience andworks program list. expertise to* identified TA completed document progress* M&E progress reports produced Decline in number of Reports kept by and prepare reportsand shared. under-five malnutrition. Secretariat, MOAI on tine.

and MOF, joint task* accountability interventions Number of participants force.disseminated. in Public Works

Programs increased.

Number of droughtmitigation studiesundertaken.

Increase in areas underirrigation.

Detailed components: Procurement underA. Fast Disbursing Fund positive list

B. Social Investment (MASAF) Participants in publicworks programs,additional drought relatedspecial projects

C. Studies and Technical Assistance Reports, publicinformation,dissemination

42

Estimating impact of various emergency interventions

Intervention Activities No. of Total Cost $ perbeneficiaries cost, US$ beneficiary

millionsFast disbursing Import of critical items NA 40.0componentPublic Works Scale up public works About 11 8.0 Payments of

through District Assemblies million about $.5person/days, per daydistributed (equivalentamong 70% to 2 kilosof poorest maize)

Studies. public Support work of task forces, 2.0education, public dissemination,agricultural advice additional resources for

agricultural extension

43

Annex 6

Addendum

A. Addendum on Nutrition Strategy & Distribution of Hummanitarian Assistance

1.1 The Malawi Poverty Reduction Strategy includes nutrition under two of its fourpillars - human capital development and improving the quality of life of the mostvulnerable - with the Ministries of Agriculture and Irrigation, the Ministry of Health andPopulation and the Minister of State for Poverty Alleviation Programmes. The MPRSPrecognizes the need to coordinate the various programs that affect nutrition and to this endsuggests that a food and nutrition council be set up.

1.2 In the short term, protecting the nutrition of children will mainly be addressedthrough the humanitarian relief efforts underway. In addition to the provision of free foodto vulnerable households under the WFP these include programs for supplementaryfeeding as well as school feeding in selected sites (though the main objective of the latteris more to achieve educational goals than to prevent malnutrition).2 UNICEF is taking alead in the provision of supplementary feeding. Children who are deemed malnourishedreceive 10 kg. of supplementary feeding as take home rations every month. This serves asa second tier of protection for vulnerable children in the sense that it reaches children whohave not benefited from relief for one reason or another. However they currently reachonly 48,00 children - maybe 10% of the number of young children who are acutelymalnourished, the criterion for eligibility (there is currently no surveillance system thattracks acute malnutrition, although UNICEF and other NGOs are establishing one).Despite this need, expansion of this program - which is clinic based - is hindered by thelack of capacity in the Ministry of Health.

1.3 Even in years of excellent harvests levels of malnutrition in Malawi are high.Global experience - as well as experience in Malawi over the last 20 years - indicates thatsupplementary feeding programs without community based support to care givers leads tolittle sustainable improvement in nutritional indicators. On the other hand, a number ofcommunity based growth promotion projects have achieved measurable success with littleor no food transfers. Thus, while the focus on providing food to young children andpregnant women during the emergency is fully justified, a sustainable strategy forreducing the number of underweight children needs to shift the balance of services toinclude community based activities that impact skills to care givers.

B. Distribution oT Humanitarian Assistance

2.1 The following existing procedures put in place by Government of Malawi inpartnership with development partners will continue during the ERDP implementation. ANational Disaster Preparedness and Relief Committee (NDPRC) has been established as

2 The WFP also supports take-home food distribution conditional on school attendance ofgirls on a limited scale.

44

the highest institution to manage the emergency response under the Ministry ofAgriculture and Irrigation, and the Ministry of Poverty Alleviation and DisasterManagement Affairs. International agencies, under the leadership of the UNDP, havebeen incorporated into a GOM Joint Task Force (under the NDPRC), with a Secretariat, tomanage relief activities through five Committees - one of which is the HumanitarianResponse Committee (HRC). The other four committees are Management of StrategicGrain Reserve, Inputs and Logistics, Food Policy and Programs, and Information SystemsDevelopment. At lower levels, the HRC works through District Assembly Task Forceschaired by District Commissioners and implementing activities in Traditional AuthorityAreas through Area Relief Committees, and in villages through Group Village and VillageRelief Committees. Thus, the HRC has four organizational structures below it to handlethe distribution of food to the vulnerable households identified using criteria administeredby the Village level Relief Committees.

2.2 Food channeled through these committees is procured externally and delivered tothe World Food Program (WFP) depots for storage, while district-level NGOs distributethe food. These NGOs are reimbursed between US$18 and US$35 per metric ton for theirlogistics. In this distribution system, Government has left its structures with managementoversig:ht responsibilities while food distribution has been given to the WFP and NGOs.

2.3 In accord with WFP standard procedures, targeting of the relief is based on aprioritization of need with female or child headed households, households fosteringorphans, elderly, and landless deemed most vulnerable. A monthly ration of 50kg of grainis provided to each household targeted regardless of the household size and composition.Whenever possible the grain is delivered to a female household member. The WFP alsointends to include pulses, cooking oil, sugar and ground nuts in the distribution dependingon availability. At this time the WFP consolidated appeal (launched in late July, 2002) isnot filly funded; the WFP reports particular difficulty in obtaining pledges forsupplementary foods, such as pulses. The program expects to deliver 6,000 tons inAugust and scale up to over 25,000 tons a month by the end of the year.

45

Annex 7

A Summary of Malawi Emergency Drought Recovery Project -Transport Issues

I. ASSUMPTIONS:o There is a projected need of mainly maize but also other food imports of

approximately 600,000 tons within the next 7-9 months (between August /September this year and March / April of next year);

o Imports of such needs as emergency have already (August 2002) started and willcontinue to intensify for the next 4-6 months up until the next first harvests byMarch 2003. Thereafter, if rains and consequently harvests are good, then foodimports may taper down and reduce;

o The most probable source for the imports are external to the region and thereforethat all shipments are coming into the region by sea;

o The options for receiving relief goods are, therefore, limited to the NorthernCorridor, the Nacala Corridor, the Beira Corridor and imports through the RSA;

o These corridors are the same ones used for all other imports and the exports of thecountry;

o The large quantities of agricultural inputs including fertilizer planned to beimported within the next four months (an average of 3040,000 tons per month)will have a competing impact on limited discharge, loading / off-loading, storagecapacities at the ports causing congestion;

o There will be a transport constrain created by lack of capacity especially withregard to the limited rail transport capacity.

These assumptions are made on the basis of existing data and information. They make aclear case for closer examination into the logistic mechanisms as they currently operate,for anticipation of possible bottleneck situations that may occur and for exploring thepotential improvements that can be suggested.

ML F1DINGSa) The locations for the needThe need for transport services in the immediate future is a factor of the need foremergency items requirements by the population. The distribution of such requirementscountry-wise can be construed to be directly proportionate to the densities of population.Geographically, therefore, the needs would be largest in the Southern Region, followed byCentral Region; and be lowest in the Northem Region. In respect of logistics, forconsideration and comparison of different alternatives, a central point of reference for thecountry as a whole would clearly be Lilongwe.

b) The Transport SystemThe options for import routes for Malawi are limited to the four corridors: The NorthernCorridor, the Nacala Corridor, the Beira corridor, and the Southern Corridor (throughRSA). The cost estimates (as given by WFP and generally confirmed, albeit by slightlylower figures, by other sources) in relation to each one these four corridors, as shown inthe table below, are very much in favor of the Nacala option, followed by Beira.

46

Table I: Transport and Handling Costs (in US$/ton)

(Southern)DEST[NlATION NORTHERN BEIRA - NACALA RSA

VIAMAJOR MALAWI DIRECT (MALAWI CARGO DIRECT DIRECT

CENTRES TRUCK CENTRE) MBEYA TRUCK RAIL TRUCKTo Lilongw 137 124 (115) 101 (87) 64 (125)To BlarLtyre 144 137 (122) 80 (76) 60To Liwonde 142 132 (120) 90 (76) 55To Mziimba 118 100 (96) 111 84*Transport Time 5 days 6 (5 _ys 2 days 3 daysCost to Lilongwe(as % ofNacala) 214 % 194 (180) % 159 (136) % 100 %Source: WFP (figures in brackets are from other sources)* by road ex Lilongwe

Malawi being a landlocked country is rather far from ports, is a highly formalized countrywith cumbersome procedures for commercial operations, and is one where the informalsector is not so well developed, and is a country with a slim and elongated geography(more than 1200 Km. long from north to south); is not surprising that Malawi has a veryhigh cost of transport services (internal and external).

While the Nacala corridor provides the cheapest alternative route to the outside world, itdoes have its restrictions of port capacity, storage capacities, railing capacity related tomotive power and wagon constraints, and problems of infrastructure on the 77 Km of un-rehabilitated section of the railway, between Cuamba and Entre-Lagos. A recentlyconcluded CIDA funded study on the required investments to complete the rehabilitationworks on the railway has estimated that $ US 5.7 million would be required forimprovements of emergency nature (including 2.7 million for emergency repair of the rail,and 3 million for the leasing of 8 locomotives and 40 wagons). The pay back for suchinvestments (believed to be about one million monthly) is about six months. In additionthe benefits of such an improvement will be accrued by the whole country through thereduction of the transport time and the cost of transport on this corridor.

In the Beira Corridor there is only the trucking option. This inevitably makes it a moreexpensive (150%) alternative than the Nacala option. The Beira Port is a much larger portand has a higher level of facilities, but it is used by Mozambique itself and theneighboring countries -Zimbabwe and Zambia. The competition means that the Beiracorridor has but limited capacity reserved for Malawi. This corridor provides the shortestdistance from any port to the major population masses of Malawi.

Both the Nacala and the Beira Corridors are said to have the potential for improvementwhen it comes to efficiency and effectiveness. They operate only limited hours of the 24hour day, some of their equipment lacks minor repair and is either not operating at all ornot at full capacity, the personnel are said to lack motivation to work harder and moreefficiently, etc. While there seems to exist room for performance improvements there is

47

has not been any specific investigation made into these operations with the aim ofeffecting reform and better management practices. This emergency operation may providethe opportunity to do just that.

Both the Northern Corridor -by train to Mbeya and trucking the rest of the way, ortrucking the whole way- and the RSA (Southern) route -trucking the whole way- coververy long distances (to Lilongwe 1700 km. and 2600 km. respectively). They areconsequently very expensive (more than double the rates for the Nacala corridor) but theyare said to have the potential capacity and can both probably provide dependable freightservice to Malawi.

The fact that there is very limited export and that it is not synchronized with the imports isprobably a matter that affects the cost of transport. Exports in Malawi, especially tobacco,are very seasonal. In terms of tonnage exports constitute hardly a third (25-30 %) of theimports. It is also said that for some exporters the RSA route seems to be the preferredone. In all cases, for a major part of the imports, the un-utilized return journey has to becovered by the one way transport charges. This partially explains the very high transportcost of imports. This, nevertheless, does not automatically translate into low costs oftransport for exports.

c) Assessment of alternative routes for food importsTaking into consideration all logistical aspects that need to be factoring in including: -thecapacities of the ports, the transport systems and storage; the speed of loading and off-loading, the turn-around time; the dependability of service, the potential for developmentof bottleneck situations and associated risks; and the costs inherent in each of the abovementioned options - the following picture of the four alternative routes emerges:

48

Table 2: Comparative advantage of using alternatives (to a central location of Lilongwe)

Means Dependability Cost Problems/ Bottlenecks/Risk Constraints situations

1. Northern Rail & High/Low Very Trans-shipments MinimalCorridor Truck High Slower

2. Nacala Rail Moderate/ Low Limited cap. Port CongestionCorridor High Sluggish Loc.& wagon

shortage

Danger ofDerailment

3. Beira Truck Moderate/ Medium Limited Cap. Port congestionCorridor Moderate Slow off-take

Competingfreights

4. Southern (RSA) Truck High/ Very Long distance UnknownCorridor Low High Slow

Using criteria of direct costs, time and convenience for imports from (and exports to) theoutside world, therefore, the preferred option for Malawi is the Nacala Corridor followedby the E3eira Corridor and followed by the Northem (Dar Es Salaam) and finally Southern(RSA) Corridors.

d) The Nacala Corridor's current and potential capacityNacala Corridor being the most cost-effective means of channeling goods from the outsideworld, special attention needs to be paid to it and assure optimum use through the highestlevels of achievable efficiency. In this regard there are an number of possibleimprovements that can be suggested:

The current unloading of vessels is rated at maximum of 1000 tons per day for Malawidestined goods. This can probably be doubled with better management and limited inputs.

The port loading of wagons by port staff is currently limited to one covered wagon perhour which, on the basis of a thirteen hour day, adds up to only one train of 13 wagons perday. This could probably also be increased to double or more by improving the loadingfacilities, increasing staff improving the performance, offering incentives for overtime,etc.

The curTent railing capacity, based on existing stock of motive power and wagons, is notable to cater for the emergency needs. It is reckoned that the optimum quantities of 15,000tons per month (one train of 13 closed wagons carrying 500 tons per day) can only beachieved by increasing existing operational equipment. It is reckoned that the increase of

49

motive power by leasing 8 locomotives and leasing an additional 40 closed wagons willalleviate the situation in the short run. An alternative to look at would be to rehabilitateexisting in-operational locomotives and wagons.

It is estimated that the current off loading and storage capacities of emergency goods atdifferent destinations within Malawi can be easily increased to double the current levels(from about current 500 tons per day to about 1000 tons per day or more).

The aim of W'FP is to increase the currently planned quantities of 15,000 tons per monthto 30,000 or more. Two sets of activities need to be undertaken to achieve this:improvements through inputs into the infrastructure of rails and running stock, andoperational improvements aimed at managing and enabling a more optimal use of thewhole logistic system. While one set is aimed at the reducing the risks related to the lackof maintenance of the 77 km section between Cuamba and Entre-Lagos and theavailability of motive power and wagons in good operative condition; the other is aimed atreducing the long turnaround times of the trains, including the timely unloading at port,loading on wagons, selecting the destinations, cross-border arrangements on clearance andcrew, etc., and offloading from wagons at destinations. The latter has to do withmanagement of the operations in terms of planning, organization and monitoring of thewhole operations involving the port authorities, the railway operators and the customers.Measures to address these are proposed under interventions below.

e) Internal TransportWithin the country transport of goods is to a great extent limited to trucking. As trans-shipment facilities are limited and delays are common, railing is used primarily for directimports and exports.As will be shown below, there is ample capacity for trucking goods within the country(see table 3).The average cost of internal transport (trucking) within Malawi is estimated at US cents10-13 per ton km. This compares very unfavorably with figures (of US cents 3-4 per tonkm) that are quoted by international transporters and is probably higher than fares inneighboring countries with similar or comparable conditions.

f) Trucking CapacityAccording to assessments made by the Technical Sub-Committee, there are over athousand goods transport vehicles of different capacities in the country that can providedependable service (for details see the table below).

50

Table 3. The number of "legitimate" trucks available locally

Capacity 3T 5T 7T IOT 12T 15T 20T 30T

Translp. Orgs. TotalNRTA - 20 25 80 - 75 35 52 287LTA - 20 52 32 - 20 24 96 244RTOA 12 8 34 265 8 56 16 168 567

TOTAL 12 48 1i1 377 8 151 75 316 1,098Source: Technical Sub-Committee meeting of August 16, 2002.

This is not the total fleet in Malawi, but the trucks of three associations that meet thestringent requirements of reliability and legality of the technical sub-committee. There are,therefore, other additional trucks in the market that have not been considered or do notsatisfy such conditions. It is also expected that there will be a fleet of 50-60 NorwegianRed Cross reconditioned 5 ton trucks for use in the emergency relief efforts. These trucksare said. to be off-road 6 X 6 former Norwegian army vehicles and most suitable for use onrural roads. It is hoped that they will be able to operate on many rural roads even duringthe rainy season.

It is also the case that more trucks can be attracted from neighboring countries if the needarises under the so called "third party agreements" where other countries' fleet areallowed to operate within one country for a limited period of time (usually some months,but extendable). In terms of capacity, rough calculations on basis of full utilization haveshown that the actual need for transport of relief goods can be satisfied by approximatelyhalf of the available numbers of trucks. It is therefore not considered a risk to assume thatthere is no constraint as far as trucking capacity is concerned within the country or evenwithin the region.

g) Road InfrastructureWhile there seems to be no problem finding the required quality and quantity of trucks thecondition of the rural roads especially during the rainy season may be a major bottleneckfor movement of emergency goods and services. The major road network in Malawi(primary and secondary roads) has improved remarkably as a result of recent roadreforms. The positive effect of such reforms has, nevertheless, not permeated the ruralsector yet. An effective maintenance system for. rural roads is not adequately established.It is therefore possible that there will be remote areas in rural Malawi that may be difficultor even impossible to access during the heavy rains in the period from November up toMarch. As many of the vulnerable groups and populaitions are living in relatively remoteand isolated areas, the issue of accessing such areas by road becomes critical to the wholeemergency relief efforts and therefore requires special attention.

h) Water transportThere is a maximum transport capacity of 7,000 tons per month along Lake Malawibetween the ports of Chilumba and Chipoka (450 km.). There are a number of smaller

51

boats and vessels that can be used for local transport purposes along the lake and thelarger rivers. Taking into account the problems related to trans-shipment, the sailing timeand the possible delays, the savings in costs (estimated to $ US 5-10 per ton) may not beattractive enough for time-sensitive emergency relief type of transport. It is thereforeconsidered that there is, on the whole, no significant capacity and possibility of using lakeor river transport for relief goods. (It may be possible to use the water transport for otheritems that are not time-sensitive thereby offsetting other transport capacity for relieftransport).

i) Storage facilitiesFor stocking and distribution purposes there are adequate warehouses, stores andbuildings -be they private, parastatal or public- and they are spread out conveniently overthe whole country. The network of ADMARC stores is one such set up. There are anumber of other chain of marketing outlets that have stores throughout the countryside. Incases of need it has been the case that public places including community centers, schools,clinics have been used for such purposes. In remote and isolated areas the homes of chiefsor prominent and credible private proprietor's properties could also be used to storeessential foodstuff. There seems to be, other than possibly localized ones, no seriousproblem related to storing and safe-keeping of stocks of food.

j) DIellivery mechanismsHumanitarian Free Food distributionThe humanitarian side of the implementation of delivery of food and other services seemsto have been well worked out by the WFP and consortium of NGOs and the CBOs in thecountry. In terms of humanitarian food distribution WFP imports and delivers food up towarehouses and stores that should not be further than 10 km. from households. At suchwarehouses NGO take over and in collaboration with districts, local level organizationsand committees distributes to the targeted beneficiaries. For distribution purposes,therefore, the whole country is completely covered by at least one Coordinating NGO andpossibly several Implementing Partner NGOs. (For details see Table 4 below)

Although there is need for clarity over the national level coordination of the wholehumanitarian operations, the roles of all the different partners in the whole process fromimportation, to transport within the country, to storage and distribution, are well defined inthe guidelines for the operations -"Brief on Implementation Modalities". In broad terms,the WFP has been mandated by government to be the overall responsible and as such it isexpected to solicit food and funds, import it into the country and deliver it to stores andcentral distribution centers across the whole country. Such distribution centers areexpected to be no further than 10 km (2-3 hours walking distance) from the remotestplaces up. The NGOs are expected to take over from such storage and distribution centersand, in close collaboration with local government and communities, assure that the food isdistributed to the needy. This arrangement seems to have been well organized andcommands good confidence to deliver.

Commercial food sale distributionThe Government of Malawi has decided to entrust the commercial maize distribution tothe National Food Reserve Agency (NFRA) which in turn is expected to use Agricultural

52

Development and Marketing Corporation (ADMARC) outlets throughout the country toretail the maize at a prefixed price of 17 Kw/ Kg. In terms of capacity the ADMARC doeshave the logistical, competence and infrastructure to handle the sale of maize throughoutthe country. With poor performance. history in the recent past, though, there is someskepticism about the particular arrangement for sale of food through ADMARC.

Table 4: List of NGOs (by district) covering the whole country

REGION - DISIICT Dtri ImPementI;pleP t Impkieait Impkmeit ImplemCoord. - Partner' aner -- Partner; Partner PartnerNGO NGO NGO NGO NGO NGO

NORTHERN CHIT'IPA MRC WVI

NORTHERN KARONGA MRC WVI CADECOM Livingst. Syn

NORTHERN RUMIvPHI MRC WVI CADECOM Livingst. Syn Concern U.

NORTHERN MZIMBA Africare CCF Action Aid SCUS

NORTHERN NKHATAB. Africare CADECOM

CENTRAL NKHOTAK. MRC WVI Action Aid

CENTRAL KASUNGU CRS WVI Concem U. SCUS

CENTRAL NTCHISI MRC WVI CADECOM Livingst. Syn Proj. Hope Maleza

CENTRAL DOWA CARE WVI

CENTRAL MCI{INJI SCUK WVI Action Aid

CENTIRAL SALIMA SCUK CARD CARD

SOUTIHERN MANGOCHI SCUS CADECOM Action Aid SCUS CSC

CENIRAL LILONGWE CARE Concern U.

CENTRAL DEDZA Concem U. CADECOM Plan CPAR

CENTRAL NTCHEU Africare CADECOM

SOUTHERN ZOMBA CRS WVISOUTHERN MWANZA WVI Action Aid CADECOM CSC ELDP

SOUTHERN BLANTYRE Goal WVI Concern U.

SOU1THERN CIfRADZUL Goal Salv.Army Kean Youth

SOUTHERN CHIKWAWA WVI CADECOM CARD CSC SHDP

SOUTHFERN THYOLO WVI Concem U. CARD ELDP

SOUTHERN NSANJE WVI CADECOM Oxfam

SOUTHERN MULANJE WVI CSC Oxfam

SOUTHERN PHALOMBE Salv. Anny WVI CADECOM

SOUTHERN BALAKA SCUS Evang. Bapt. Action Aid CSC ELDP

SOUTHERN MACHINGA Emmanuel 1. WVI Concern U.

NORTHERN LIKOMA Africare

53

M11. RECOMMNDATIONSa) On the corridorsThe project, as an emergency response mechanism should, in terms of transport, focus onthe current and potential bottleneck situations. As identified above current congestionsand future bottleneck situations are likely to develop in the Nacala and Beira corridors.The Northern and Southern Corridors seem to have no capacity constraints, nor are theylikely to develop bottlenecks in the future for Malawi imports of food. It is thereforerecommended that the government support the improvement of the Nacala and Beiracorridors.

Intervention 1.Nacala Corridor being the cheapest alternative route for imports (and exports) for thewhole country the rail improvement has a very positive impact on the whole corridoroperation and should be given priority for improvement / investment. While there areother partners who are keen to assist with the more operational components of theproposed improvement (leasing and management costs), there is no taker for the actualrail improvement works. It is therefore proposed that the government rinance theimmediate emergencv remedial repairs estimated to cost US $ 2.7 mnfllion. Thiswould secure continuous operations of the cheapest alternative route for relief imports;would contribute to reduction of the cost of transport through this route for both importsand exports; would be a good prelude to complete rehabilitation of the remaining (un-rehabilitated) 77 Km. of the track at a later stage; and would be a very obvious and visiblecontribution that caters for the "missing link" in this chain of necessary improvements.

Intervention 2.It is not evident that both of the Nacala and Beira corridors are being utilized to theiroptimum capacities. On the contrary, it seems from the reports, that they lack someequipment and facilities that renders their operations less efficient. It is thereforerecommended that a quick comprehensive study (costed at $ UTS 50,000) be conductedon both Nacala and Beira corridors within the month of September and look at thepossible improvements that can be suggested and followed by an operational andmanagement regime impnrovement that can be put in place (tentatively costed at $ US500,000) with the aim of making them more efficient and cost-effective. This, it isbelieved, will assist Malawi reduce the cost of transport of especially food in the short run.

b) On Rural RoadsIt has been repeatedly pointed out that heavy rains will render access to remote localitiesin Malawi very difficult if not impossible between December and March. There istherefore great need to address the access and accessibility hinders of rural populations,especially during the rainy season. Such measures have to be planned and implementedbefore the inset of the rains in November December.

Intervention 3.As a preventive transport measure, potential bottleneck locations along rural roads leadingto isolated communities including wash-outs and potholes, bad spots, river crossings andother obstacles should be identified for immediate intervention under the Cash-for-work

54

Program. This to be implemented both as a means of employment creation (cash incometransfers) as well as addressine on a spot-improvement-basis (costing $ US 2 million)identified bottleneck locations along rural roads that would otherwise make access byeven lighter off-road trucks impossible. This component is to be implemented by DistrictAssemblies through the support of MASAF and Department of Local Government.

c) On Strategic PlanningWhile the three above mentioned recommendations are specific activities the Credit willnipport in an effort to address current or potential transport bottleneck concerns, there area number of strategy and planning related recommendations that need to be agreed uponand practiced within the whole transport / logistics system if the crisis is to optimallybenefit from it:

a) There should be a Coordination Mechanism put in place specifically for thelogistics and transport system, important as that is for the whole operations. Thismeans that there must be very close and tight coordination of all components ofthe transport and logistics system; and that there is a unified information systemand effective means of communication between all involved parties. In anemergency situation of this magnitude and severity, this can be done effectivelyonly if there is an identifiable and fully committed Unit with a Head and actualqualified full time Staff, who have been mandated by government to accesspertinent information and to deal with all parties in the supply chain including thesuppliers, the ports, the customs, the railway and trucking companies, the storeoperators, the NGOs, etc.

b) The emergency relief goods transport operation should not apriority limit itself toany one of the alternative routes for importation of emergency goods. While itshould strive to use the Nacala corridor (as a rational decision to pick the cheapestroute) as its first and preferred option, it should be open to the use of the Beiracorridor as a second alternative and still have the possibility to opt for the NorthernCorridor or the even the SRA (southern) route should any of the preferred channelsfail to deliver. The tentative planned imports of the 600,000 tons should thereforebe imported through the four corridors should be spread out in the a manner thatminimizes the risks. In this regard, a rational proposed apportioning could be:through Nacala 40 %, Beira 30 %, Northern 15 % and Southern 15 % of the totalimports.

c) The delivery mechanisms including the whole planning, importation, receiving,transporting to different locations including the distribution points, up to stockingand distribution (be it free humanitarian food or commercial for sale food) needs tobe spelt out in a clear and transparent manner. This would go a long way torestoring confidence and allow better participation, cooperation and collaborationfrom all stakeholders.

55

d) All emergency related items should be given priority in respect of logisticfacilities including offloading at port of importation, loading on trains or trucks,transporting by any means, and storing.

e) The shipment of goods, especially the large quantities of expected shipments ofmaize, should be programmed to arrive at the time and in quantities that can beadequately prioritized, fully handled and discharged by existing port facilitieswithin reasonable time. This means that there should be a scheduling and limits ofquantities to arrive, be given first priority by the whole system, but also haveflexibility to divert vessels to other ports, should congestion at port or any otherbottleneck arise in the whole transport and delivery pipeline within a corridor.

f) Measures should be taken to assure that preparatory and planning works areunderway and immediate specific actions taken in recognition of the lead timeneeded for transport and related interventions to be effective. This means that theplanning of the emergency repairs must be initiated and placed on a "fast track"basis; that the storage and distribution systems be already put in place; that thebottleneck situations that can potentially develop in the system be identified andmeasures to address them be proposed.

g) In respect of rural areas with access difficulties, it is recommended that measuresbe taken to assunre that infrastructure repairs are undertaken as much as

possible prior to the inset of heavy rains and that appropriate means of transportare identified and booked for the emergency purposes. This means that thedistrict councils and MSAF urgently identify trouble spots, propose solutions andcost remedies to potential bottlenecks that may eventually develop as a result of

the rains and block passage. This also means that the special off-road trucksdonated by the Norwegian Red Cross specifically for the relief efforts be expressly

dedicated to delivery of relief goods, specially foodstuff, to remote and isolatedareas with poor roads in the districts and also that mechanisms for monitoring theiruse be put in place.

That public servants and public buildings in local areas be mobilized to make theirservices available to assist in the emergency efforts. Also that, for very vulnerablelocations and situations, a food buffer be pre-positioned and stocked at convenient andsuitable locations in quantities that can assure supplies for reasonable time.

56

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[N J AFRICA 34' 361

October 2000

IMAGING

Report No.: T 7557 MAIType: TAN