Document of

The World Bank

FOR OMCLAL USE ONLY

Re"t No. 5340

PROJECT COH?LETION REPORT

MALAWI

SECOND KARONGA RURAL DEVELOPMENT PROJECT PHASE II

(LOAN 1286-T-MAI)

November 28, 1984

Government of MalawiMinistry of Agriculture

andEast Africa Projects DepartmentRegional Mission in East Africa

This document has a restricted ditribution and may be used by recipients only in the performnnce oftheir official duties. Its contents may not otherwise be disclosed witbout World Bank authorization.

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ABBREVIATIONS

A.D.D. = Agricultural Development Division

ADMARC = Agricultural Development and MarketingCorporation

CADO = Chief Agricultural Development Officer

CSC = Cold Storage Company

IBRD International Bank for Reconstructionand Development

IDA International Development Association

KCRDP = Karonga-Chitipa Rural Development Project

MANR Ministry of Agriculture and NaturalResources

NRDP National Rural Development Programme

NRDP (PI) National Rural Development ProgrammePreliminary Investment

RDP = Rural Development Project

STA = Senior Technical Assistant

TO = Technical Officer

FOR OFFCIAL USE ONLY

KARONGA-CRITIPA RURAL DEVELOPMENT PROJECT, PHASE II

PROJECT COKPLETION REPORT

TABIE OF CONTENTS

Page No.AbbreviationsTable of ContentsPreface iBasic Data Sheet iiFootnotes iiiHighlights iv

Comments on and Summary of Government's PCR 1I INTRODUCTION I1I PROJECT OBJECTIVES I

III PHYSICAL IMPLEMENTATION 2IV PROJECT MANAGEMENT 2

V AGRICULTURAL SERVICES SUPPORTED BY THE KARONGA-CHITIPA RURAL DEVELOPMENT PROGRAM 3

VI NATIONAL RURAL DEVELOPMENT PROGRAM PRE-INVESTMENT 7VII PROJECT COSTS 7

VIII DISBURSEMENTS OF WINDOW TWO LOAN 8IX PROJECT BENEFITS 9X GOVERNMENT PERFORMANCE 13

XI BANK PERFORMANCE 14

Government PCR 16

Foreword 17

MAIN TEXT PART A : KCRDP II 181. Introduction and Summary 182. Background 193. Formulation 214. Implementation 245. Imnact 346. Financial Performance 447. Institutional Performance 458. Economic Rate of Return 489. Discussion and Conclusion 49

PART B NRDP PRE-INVESTMENT 501. Background and Formulation 502. Implementation 533. Financial Performance 564. Overall Evaluation 585. Conclusion 58

PART C LAKE TRANSPORT 591. Background 592. Implementation 603. Conclusion 62

KARONGA-CRITIPA RDP PHASE II - ANNEXES 63

Table of Contents 64

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

MALAWI

Karonga Rural Development Project, Phase II - Loan 1286-T-MAI

PROJECT COKPLETION REPORT

Preface

This is a completion report of the Karonga Rural DevelopmentProject, Phase II, for which a third window loan (Lu 1286-T-MAI) wasapproved on June 2, 1976. The loan was fully disbursed and clo3ed inDecember 1982.

This report consists of a project completion report (PCR)prepared by the Planning Div'ision in the Ministry of Agriculture, datedFebruary 1983, a revised economic analysis completed in October 1983 and asummary evaluation by the Resident Mission East Africa, completed inNovember 1983.

The PCR was submitted to OED but the Project was not selected foraudit. The 1DCR and the overview was sent to the Government for comments onAugust 31, 1984. i&1i.ng prepared the PCR, the Government did not send anyfurther comments.

ttt)

SECWD KAROXA RURAL EVLOErT PROJECr - WAN 1286-T-nl

PRO.ECa CtGClON REPORT

Basic Data Sheet

KFY PROJECr DATAActual or Actual as percentage

Apprisml Estimated of AppraisalEstimate Actual Estifmte

Project coat (USS dillion) 12.093 12.434 102.8Loan Amout (USS million) 9.2 9.2 100Date of Board Approval 06/30/76Date of Effectiveness 09/24/76Date Physical Components Completed 09/PD 03/82 Houses 10O:

Roads n3loreholes 9o0Markets 202Health 1O01Training Centers 1007

Closing Date : 03/81 12/82Econoidc Rate of Return: NRDP 14X 14t

- : l~~akeTransoort 18X LOz

Instittitonal Performance: Phor 1/Agronontc Performance : Variahle 21Financial Performance : Poor 31 -Nober of Direct : 11.000 farmers 41Beneficiaries

aMIATIVE DISBURSEMENTS:

FY77 FY78 FY79 FY80 FY81 FY`82

Appraisal Estimate (USS nillon): 0.8 4.0 7.4 8.6 9.2 -Actual (USS million) : 0.5 3.5 6.9 8.0 8.9 9.2Actual as 2 of Estimate : 62.5 87.5 93.2 93.0 96.7 100Dte of Final Disbursement : February 1982

MIS5ION DATA: Staffweeks Tpes t/Ifssion No. of Specializations In the Performance

5! 6/ of

Mission Source Date Persons Represented Field Rating Trend Problems

Preparation RMEA 10(28/74 2Preparation IMEA 01/22/75 1Appraisal HQ 10/04/75 5 Econ.Supervision RMEA 01/30/77 3 Econ/Publ.Health 6 2 - TOSupervision RMEA 01/10/77 1 Econ. 2 2 2 10Supervision RIEA 09/03/78 2 Econ.fAgronomy 4 2 2 FMSupervision RMEA 09/20/7R 2 Engin/Econ. 6 2 2 TOSupervision RICA D8/01/79 I Agronomy 2 2 1 TSupervision RIfA 05/09/80 2 Agric. Econ./Agron. 2 2 2 FTSupervision RSEA 01/21/81 1 Agronu-y 1 2 2 FT

OIE PROJECT DATA:

Borrower : Govertnnt of Malawi (GCI)Executitng Agency : Mtnistry of Agriculture. Halawi RailwaysFiscal Year of Borrower : April I - March 31Nne of Qarrency : Malawi Kwacha (MK)Carrency Exehange Rate

Appraisal Year Average (1975) USS 1.00 - 0.90 MKIntervening Year Average (1975-1981) USS 1.00 - 0.84Completion Year Average (1981) USS 1.00 - 0.90

FOLLOW-N PROJECr

:National RIral Development Progrsm (NRDP) Phase IIICredit iNumber : 183-MAICredit Amontt (USS million) : 7.3Date of Board Approval : 10/31/1%i

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FOOTNOTES

1/ Poor management and budget control in earlyProject years for Karonga Rural DevelopmentProject.

2/ Variable due to variability of rainfall and ofcrop prices. Farmer profits unsatisfactory forcash crops, cotton and groundnuts. Farmersreacted favorably to crop price Increase formaize and rice in particular. Insufficientdevelopment of extension messages.

3/ Excessive expenditures for operating costs inthe first Project years.The Ministry of Finance appropriated M1K 1.5million from the Credit Fund.Budget allocations generally satisfactory.

4/ Some 11,000 farmers representing 28% of thefarming cormunity were participating in thegroup credit schemes.Others benefitted indirectly from roads, watersupply and education provided under project.

5/ Status 1: Problem-free or Ninor Problems; 2: Moderate Problems3: Major Problems.

6/ Trend 1: Improving; 2: Stationery; 3: Deteriorating

7/ Types of Problems: F - Financial; T - Technical; P - Political;O - Other

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MALAWI

Karonga Rural Development Project, Phase II, Loan 1268-T-MAI

PROJECT I'IOMPLETION REPORT

Highlights

(i) The project, which was the seventh IDA/Bank supported ruraldevelopment project in Malawi, was the second phase of a rural developmentprogram in Malawi's far north. The first-phase Project was implementedfrom 1972 to 1976. It provided finance for rainfed and irrigatedagricultural development, health services and transportation in the Karongadistrict only. The irrigation component under the first phase project wasnot successful because of high costs overruns (unexpected requirement ofcanal lining) and the resulting shortfall in its economic viability. Inaddition berthing and handling facilities at the southern lake port ofChipoka could not be comnpleted because of cost overruns in other parts ofthe Lake Transport component and inability of Government to finance theoverrun. The second-phase project was extended in area coverage to includethe sparsely populated Chitipa district. The second phase project hadthree distinct components including (a) agricultural and livestock servicesand infrastructure in the Karonga and Chitipa districts, (b) a two-yearpre-investment phase to the National Rural Development program (NRDP), and(c) the completion of the Lake Transport component started under the phaseI project.

(ii) Project start-up was with funds from the first phase project.Project funds were used for 5 1/4 years compared to the original life of4 years. Disbursements for local operating and personnel costs for theKaronga Chitipa Rural Development program were 80% above estimates. Inaddition, an appreciation of the Mtalawi Kwacha relative to the dollarduring the project period reduced the Kwacha value of the Third WindowLoan. Government increased its Kwacha contribution to the project by .8million Kwacha (US$.94 million equivalent) compared to the appraisalestimate. Despite this, total costs denominated in Kwacha (10.5 millionKwacha, or USS12.4 million equivalent) were about 4% lower than appraisalestimates (10.9 million Kwacha). Annual work programs and budgets wereadjusted downwards to availabl-: finance, except for operating costs whichcould not be contained. Phys.cal road construction for example amounted toonly 32% of the appraisal estimate.

(iii) Only increased production from rainfed rice in Karonga, and maizefrom Chitipa contributed to project benefits. Favorable farmer profitsobtainable for these crops (due to relatively high prices) induced farmersto grow larger areas, and to devote more labor, management and inputs tothese crops. However, financial incentives were inadequate for obtainingincreased production of cotton, groundnuts and livestock.

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(iv) Surveys indicated that there was virtually no uptake of thetechnology advocated by extension agents during the project period.Farmers who were able to introduce the simple technology advocated byextension agents had already done so by the end of the first phaseproject. Both the extension and the research service failed to generateand communicate new technology of interest to the larger credit-worthyfarmers. Both services also failed to consider the strong risk aversion ofsubsistence farmers when designing agricultural improvements. Subsistencefarmers were untouched by the extension service. In this regard, the NRDPpre-investment component failed to strengthen agricultural research.

(v) Benpfits from the livestock component were minimal because of alack of market in the remote project districts despite increasing numbersof livestock. Indeed improved animal health facilities increased thenumber of livestock, while offtake did not increase. This exacerbatedover-grazing.

(vi) ADMARC had insufficient funds and incentives to construct themarkets/inputs stores foreseen at appraisal. Input supply services by thisparastatal were particularly poor. Marketing services were less bad,ADMARC handling an increase in rice and maize throughout despite the lackof construction of new facilities. However, the good performance was theunassisted parallel market which was able to handle increased productionoffered for sale.

(vii) Management of the Karonga Rural Development Project Area wasmediocre, in particular during the first 18 months when poor budget controlresulted in excessive operating costs. Management of the Chitipa area wasgood. In general however, Government procedures for creating positions andfilling posts with suitable qualified staff were lengthy and cumbersome.

(viii) The NRDP pre-investment component achieved its "hardware" objec-tives of providing the necessary infrastructure (houses, office facilitiesand stores) equipment and staff in three futture NRDP development areas(Mzimba, Thiwi Lifidzi and Kawinga). However, its "software" activitieswere nct met. It failed to appoint staff to the agricultural researchcomponent and agro-economic studies were not undertaken. Accounts andaudits were not received for this project component. The investtaeat costsfor the pre-investment component remained 12% below the appraisal estimate.

(ix) Malawi Railways was the executor of Chipoka harbor improvementsunder the Lake Transport component of the Project. Because of lowappraisal cost estimates, MK 310,000 of construction could not be includedin the tender. In addition, it was decided that barges undertake fueltransport instead of the oil tanker which the original project was to berehabilitated. Despite these shortfalls, cargo tonnages handled grew toapproximately the level foreseen at appraisal. Between 1976 and 1979(latest available data) the freight forwarded from Chilumba (in Karongadistrict) increased by 67Z, in part indicating the increased productionavailable for sale from Karonga. A crude estimate of the economic rate ofreturn on the Lake Transport component is 10%.

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(x) The project's economic rate of return (ERR) for the agriculturalcomponents of the project is estimated in the Government PCR at 14%,identical to that projected at appraisal. Higher rainfed rice and maizeproduction than originally envisaged offset the lack of project impact oncotton, groundnuts and livestock. This success compares very favorably toother Rural Development Projects in East Africa having similar design. Thecritical factor was probably the relatively favorable agricultural policyenvironment in Malawi, particularly price policy for rice and maize.Nevertheless, unfavorable price policy for cotton, groundnuts and beefcurtailed possible production benefits from these crops. The parastatalmarketing and input supply agency ADMARC performed poorly. However, thiswas largely mitigated by a flourishing parallel market which was notmolested by Government. Finally, there was some synergy effect inexpanding agricultural production resulting from high prices for rice andmaize, the flourishing parallel market, improved credit availability(credit use expanded to one-third of the farm population), roads, watersupply, and education provided by the project.

(xi) As can be judged from the above, the importance of the agri-cultural policy environment was seriousLy under-estimated at appraisal.This policy environment turned out to have as much of an impact onproduction in the project area as did project services. In retrospect, itis also unfortunate that the project attempted to assist the parastatalADMARC and not the private traders which constituted the parallel market.

MALAWI

Karonga Rural Development Project, Phase II - Loan 1286-T-MAI

PROJECT COMPLETION REPORT

Comments on and Summary of Government's PCR

I. Introduction

1. The Planning Division in Ministry of Agriculture, in conjunctionwith Karonga ADD personnel prepared a PCR for the above project, a finaldraft of which was received in RMEA on October 18, 1983. IDA staff havereviewed this PCR, and comments are provided below. The Ministry ofAgriculture has been self-critical in preparing its PCR. Most comments(though not all) made by IDA staff on earlier drafts have been incorpo-rated. The preparation of a PCR was not a condition of the Credit Agree-meent, and Government's efforts are therefore particularly commendable.The following comments should be read in conjunction with, or as addiLionsto Government's PCR. They try to clarify a few inconsistencies in data andexpress some views which differ from those expressed in the Government'sPCR.

II. Project Objectives

2. This integrated rural development project followed a first phasewhich was implemented in the Karonga District of northern Malawi, and wascomple:ed in 1976. This second phase expanded the project to anotherdistrict: Chitipa. Both projects were directed primarily to increasingagricultural production, income and social services. The total areacovered in the second phase was 900 thousand hectares of which 7% wascultivated and on which 38,000 farm families lived. The project containeda project management unity, development of agricultural research andextension, agricultural credit, livestock services, fisheries, soilconservation services, marketing and input supply facilities, water supply,health and education facilities, and roads. The project also was toundertake preliminary investment in infrastructure and the development ofCentral Ministry of Agriculture Services needed to accelerate theimplementation of a "National Rural Development Program" throughoutMalawi. Finally, the project included investment in transportationservices between Karonga and Chipoka harbors on Lake Malawi. Most cargobetween Karonga and southern Malawi is carried by ship on the ]ake (theroad link is poor). The component included harbor facilities, cargohandling equipment, and rehabilitation of an oil tanker.

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III. Physical Implementation

3. The Third Window Loan for the project became effective inSeptcmber 1976, and the project was closed in March 1982, one year longerthan expected at appraisal.

4. Karonga-Chitipa Rural Development Project. Civil worksconstruction commenced promptly and targets for staff housing, offices,health facilities (7 dispensaries and 5 maternity wards constructed), andprimary schools (36 schools) were reached early. Borehole drilling (watersupply) was about on target (83 boreholes drilled compared to 90 planned).However, because of substantial overspending in operating costs during thefirst 18 months, a rescheduling of funds was undertaken, along withimproved monitoring procedures and financial control. Operating costincreases were contained. In addition, several construction programs werereduced in scope due to insufficient funds to meet unexpectedly highcosts. The road construction program was cut back for this reason, andachieved only 30% of its original target (30 miles of road were constructedor rehabilitated). Livestock dipping tanks were not constructed becausecosts exceeded appraisal estimates and Government could not provide theadditional funds necessary. ADMARC (marketing and input supply parastatal)failed to construct markets and input stores because of its own financialconstraint. ADMARC constructed only five small marketing sheds.

5. NRDP Pre-Investment. Most of the staff houses and officesforeseen at appraisal were constructed. These were located in districts inwhich subsequent NRDP p-jects would be based (Thiwi-Lifidzi, Kawinga andMzimba districts). Road -uilding (largely in Thiwi-Lifidzi) was about 50%of that foreseen. I'ehicle acquisition for NRDP staff was largely asforeseen. The two ADMARC markets foreseen were not constructed.

6. Lake Transport. The oil tanker was never refitted. Instead, abarge was purchased to carry fuel. Cargo handling equipment was procured.Civil works construction at Chipoka harbor was largely completed. Costswere underestimated at appraisal, so some construction was dropped. Inaddition, due to a cement shortage in Malawi, construction was late.

IV. Project Management

7. Karonga Chitipa Rural Development Project. (a) There were 3Project Managers during the project's life in Karonga district. The firstManager allowed excessive operating expenditures due to overstaffing, poorcontrol of vehicle running, etc. A total of MK 803,000 was spent on

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operating costs above estimates in the first 18 months of the project.Following a detailed review of financial management by Ministry ofAgriclture staff, reprogramming of project activities and financing wasagreed with the Bank. Under the following two project managers there wasimprovement in program planning and budgeting, and execution of projectactivities. (b) Staff vacancies for several key posts and some poorquality support staff created management problems in both Karonga andChitipa districts. (C) A large number of surveys were carried out by theMonitoring and Evaluation section. The data was not always adequatelyanalysed and evaluated and was of limited assistance to management indecision making and forward planning. (d) ADMARC showed no interest in orcommitment to the project.

8. NRDP Pre-Investment Phase. This component was implemented by theMinistry of Agriculture and National Resources, under the authority of theNRDP coordinator. As indicated in para 5, management of physicalimplementation was good. However, management of software" (agriculturalresearch, socio-economic studies, and the resources survey) was poor (seealso para 18).

9. Lake Transport. This component was adequately managed. Freighttraffic through the two harbors increased substantially during the projectperiod. This was handled despite deficient pvrt facilities.

V. Agricultural Services supported by the Karonga-Chitipa RuralDevelopment Program

10. Agricultural Extension. This component was expected to be mostimportant in generating agricultural benefits. A new extension methodologywas successfully introduced, referred to as the farmer group approach.Extension agents contacted fixed groups of farmers on a systematicscheduled basis. The approach had some of the elements of T & V (indeed insubsequent years, it has evolved towaTd the T & V system). The groupapproach enabled more farmers to be reached than under the phase I project,and was relatively cheap since agents visited groups rather thanindividuals. To assess the impact of extension it is informative to lookat the major extension messages, combined with survey results including thedegree or uptake of extension advice. There were five categories ofextension messages for maize, groundnuts, rice and cotton:

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Message Percent of Farmers Following Message

1977/78 1979180(a) Use Improved Seed

Maize 35 7Rice 75 33

(b) Use Fertilizer, manureHaize 31 12Rice 48 49

(c) Plant EarlyMaize (before December 30) 68 75Cotton 60 91

(d) Optimum Plant DensityMaize 18 10

{e) Weed on Time-Maize 98 80Groundnuts 96 93Rice 93 81Cotton 98 100

The percentage of farmers following extension adrice for the most partdeclined during the project period.

11. Despite the above results, the Government's PCR shows data (page 19)indicating that farmers reached by extension got higher crop yields formaize, pulses and groundnuts than did farmers not reached by extension.However, from the information in para 10 above, it could be deduced thatthose farmers following extension advice were already introduced to theimproved technology in the first phase project. This would explain thehigher yields of those farmers who followed the advice of extension agentsand suggest the second phase project failed to introduce new technology toadditional farmers. The use of fertilizer, improved seed, and earlyplanting may be difficult for subsistence farmers who have little cash topurchase inputs, are not credit-worthy, and cannot hire labor (due to lackof cash) at peak labor-demand times for early and rapid planting, weeding,etc. Such farmers may plant at less than the "optimum" plant density inorder to give individual plants a greater chance of survival in :ase ofadverse weather conditions. They may use less fertilizer than recommendedto reduce the possible adverse financial impact from using costlyfertilizer in years of rainfall. Alternatively, the result of inadelquateand untimely supplies of inputs would produce a similar impact with alimited number of farmers able to utilize new technology. Despite thefocus of extension messages, the balance of farmers would have to adaptproduction systems that would function adequately without improved seedsand fertilizer. There is evidence from a recently completed crop survey(1979-83) 1/ to support this view point. Although maize plantingsincreased dramatically over the project period and this was sustained inthe follow-up project 2/, the expansion was totally confined to localmaize and inrerplanted maize prodoction neither of uhich requirefertilizer. National supply of fertil5zer has now been addressed through aBank/IFAD Project 3/. Most small farmers :,tercrop, for which noextension advice was available. This failure of extension was also thefailure of agricultural research which was inadequately executed under theproject. Indeed, the national agricultural research apparatus wasinadequate. This problem is only being addressed now.

12. Rice yields in Karonga district and maize yields in Chitipaincreased marginally during the project period, but there was a significantincrease in the area of maize planted in both project districts. Expansionin production of rice and maize accounts for the project's acceptableeconomic rate of return. How is this explained given the failure ofextensior and research and input constraints? The most importantexplanatory factor was the increase in the relative price of maize and riceduring the projer period. The resulting greater profitabilil-y of maize andrice stimulated greater farmer attention and labor input in cultivation ofrice and maize, hence leading to increased plantings. There was also truthto the concept of integrated rural development activities (water supply,credit, road building and education especially) having an impact onproduction. Better educated farmers with better educated children make

1/ Source: ADD Monitoring and Evaluation Unit 1984.2/ NRDP III (Cr. 1183-MA).3/ Smallholder fertilizer project (Cr. 1352-MAI)

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13. Seasonal credit was only provided through credit groups. Theintroduction of group credit helped double the number of credit farmers toabout 10,600. Thue 30% of farmers received credit. Late availability ofinputs tended to inhibit an even greater demand for credit. In addition,many farmers were either not convinced that the profitability of some cropsincreased when using expensive fertilizers, or were unprepared to take therisk of purchasing fertilizer on credit. Failure of sub optimal levels offertilizer to increase yields and income would have left these farmers in aperilous situation having a debt to repay and no additional income to repayit with. This rational risk aversion inhibited uptake of new technologyrequiring a cash outlay or credit. Less than expected demand for creditwas the result. The average loan per farmer was MK 25 per season. Creditrepayments were excellent at 98%, mainly because defaulting groups becameineligible for new credit. This component -as in general successful,although it did not reach as many farmers as targetted.

14. Livestock extension services concentrated on improving animalhealth (cattle dipping, castration) and on livestock management (culling,marketing of unproductive animals) after several development componentswere cut following Government's review of project activities in 1978.Results were not good in an economic sense. The marketing of livestock didnot increase (at least partly due to the inadequate official priceoffered), while cattle numbers did increase. Overgrazing is worse as aresult.

15. The Land Husbandry Component demarcated 7% more land into watercontrol areas in Karonga district than foreseen at appraisal. Watercontroi measures, however, were not successfully carried out, largelybecause of lack of funds for construction. Flooding is therefore still aproblem in Karonga. The Land Husbandry staff provided assistance withfeeder road layout and design. Feeder roads were then constructed on aself-help basis.

16. Marketing and Input Supply. ADMARC not only failed to constructmost of the facilities foreseen under the project, but also generallydistributed inputs late or not at all, and was somewhat inefficient in itsmarketing activity. Government ignored a flourishing parallel market whichwas able to absorb additional rice and maize production. In retrospect, itwas unfortunate that the efficiency and resourcefulness of this parallelmarket was not recognized and assistance provided through the project toits development. This could have had a much larger impact than did theattempt to assist ADMARC.

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VI. National Rural Development Program Pre-Investment

17. The objective of this component was to create the necessaryinfrastructure, central services and staff necessary to launch the nationalrural development program which was to eventually (in about 20 years) coverthe entire country. The concept was to prepare for the introduction of lowcost, replicable investments in marketing, extension, input/creditorganization, roads, and water supply. The pre-investment phase financedunder the Karonga/Chitipa Rural Development project succeeded in meetingmost of its infrastructure and equipment targets. However, the CentralMinistry of Agriculture Services which were to be developed to serve theentire NRDP Program were not strengthened as foreseen except in itsaccounting department. This hurt the start-up of adaptive agriculturalresearch in particular, in turn retarding the process of developing validextension messages. Other central services such as agro-economic surveysand land resource analysis were not undertaken. In conclusion, the'hardware element of this component was successfully implemented, but the"software- element was not.

VII Project Costs

18. The various tables in Government's PCR show coflicting total costdata. The data in Annex IV is correct. Total cost was MK 10.537 million.The Bank provided US$9.2 million (MX 7.8 million equivalent) or 74%. Totalcost at appraisal was estimated at MK 10.9 million of which 75% was to befinanced by IDA. In local currency there was a 3% cost underrun.5! Thiswas due to an appreciation of the Malawi Kwacha which caused the Kwachaequivalent of the Third Window Loan to decline, combined with ADMARC'Sinability to finance its share of the input supply and marketing facilities(which were not constructed).

Financial Source Appraisal Estimate ActualAmount % Amount X(MK mil) (MK nil)

IDA 8.3 75 7.8 74Government 1.9 18 2.7 26ADMARC 0.7 7 0 0

Total 10.9 100 10.5 100

Government's contribution increased considerably to finance overruns oflocal (largely operating) costs. 1

5/ In the Basic Data Sheet, total project costs are shown in US$equivalent. Because of the appreciation of the Kwacha, actual totalcost denomination in dollar equivalent was 2.8% higher than expectedat appraisal.

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Recurrent Costs

19. The PCX shows high operating and personnel costs during projectexecution (about US$1.1 million p.a. equivalent in current prices). Thislevel of operating costs is excessively bigh. An attempt should have beenmade during project execution to reduce operating costs and increase costrecovery in order to impose less of a burden on the Government budget. Thegeneral issue of high operating costs of agricultural projects in Malawi isbeing addressed in the SAL. In addition, under the third phase of thisProject (NRDP III, Credit 1183-HAI) high recurrent costs for staffsalaries, vehicle operations and building maintenance are being funded byIDA on a declining basis over the Project period. This procedure whichpasses an increasing share of the financial burden of operating costs ontoGovernment during project execution, is intended to provide an additionalincentive to Government to reduce and/or to recover costs. Unfortunately,the overruns of operating cost during the second phase project, largelyfinanced by Government, did not induce Government to reduce such costs orrecover more cost. Greater attention must be given in project design tothis issue.

VIII. Disbursements of the Window Two Loan

20. The following table compares Loan allocation with actualdisbursements.

Allocation Actual ZCategory at Appraisal

_ _ _- IJS$ -

IA Karonga RDP - vehicles, machinery, 600,000 393,085 65.5equipment

B - civil works 1,000,000 1,277,909 127.8C - personnel 1,000,000 1,447,751 144.8D - operating costs 1,000,000 2,151,415 215.12A NRDP pre-inv. - vehicles, machinery, 400,000 370,710 94.3

equipmentB - civil works 900,000 1,028,126 114.2C - personnel 400,000 198,367 49.4

D -- operating costs 300,000 401,309 133.7E ' - consultants 130,000 87,292 67.23A Lake Transport - civil works 1,500,000 1,652,073 110.1B - cargo handling eguip. 150,000 191,963 128.0C - Mpasa refitting 20,000 -

Unallocated 1,800,000

TOTAL 9,200,000 9,200,000

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21. Disbursements for local personnel and operating costs exceededdisbursement estimates at appraisal by 80%. Physical completion of civilworks was somewhat less than expected at appraisal. Cost was 20% higherthan the appraisal basic (before contingency) estimate, reflecting theexpected rate of price inflation. Expenditures for foreign personnel andconsultants were lower than expected because not all staff anticipated atappraisal were appointed. Equipment purchases were lower than anticipatedat appraisal to keep costs down. In effect there was a substitution ofoperating and personnel costs for equipment and for foreign personnel.This was undesirable. Greater efforts should have been directed tolimiting persor:el and operating costs.

IX. Project Benefits

Crop Production

22. Most project benefits were expected from increased production ofmaize, rice, cotton and coffee, with smaller production increases ofgroundnuts, beans and beef. The concept was that the development ofagricultural services, infrastructure, and people (health and education)would combine to have an impact on production. It was recognized that theindividual impact of each component would be difficult to identify.Unfortunately, the PCR presents conflicting data on the evolution ofcropped areas, crop yields and production. This reflects the inadequacy ofthe monitoring and evaluation system. In addition, different sourcesprovide different data. Inconsistencies of data in an early draft of thePCR were reported to Government. Government in response provided acorrected Annex X entitled "Economic Analaysis'. The data in this annexare the best available.

Crop Production in Karonga District

23. Crop Area. 6/ Appraisal estimates were for 1,420 ha each of theimproved crops maize, groundnuts, cotton and unimproved cassava or maize.The PCR indicates that the maize area exceeded this target significantly(4,500 to 5,200 ha in the last 4 years) but cotton and groundnut areasdeclined to less than 150 ha in 1980/81. Rainfed rice was expected toincrease to 4,490 ha. This area was slightly exceeded in 1978/79 and in1979/80 but almost doubled to 8,800 ha in 1980/81, no doubt due tofavorable producer prices and good rains.

6/ Data on cropped area reported in the Government's PCR may not beaccurate.

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24. Crop Yields were expected at appraisal to increase toapproximately 2,000 kg/ha foDr maize, 720 kg/ha for cotton, 410 kg/ha forgroundnuts and 2,200 kg/ha for rainfed rice. Yields varied considerablyfrom season to season mainly reflecting rainfall and price as discussed inDara 10 above. Maize yields averaged about 1,150 kg/ha or slightly betterthan half the target yield. Average cotton yields appear to have slightlyexceeded the target, and average groundnut yields were below that antici-pated. Rainfed rice yields ranged from an unusually high 3,000 kg/ha in1980/81 to 1,037 kg/ha in 1977/78.

25. Crop Production. Project crop production varied considerablyfrom year to year, mostly depending on seasonal conditions (rainfall) andproducer prices. Maize and groundnut production in Karonga was less thanprojected without the project. This occurred as rice production wassubstituted for maize and groundnuts due to increased paddy prices. Cottonproduction increased only marginally compared to the without projectprojections.

26. Official Crop Purchases. ADMARC data on crop purchases forKaronga do not indicate substantial increases during project imnplemen-tation. Rice purchases in Karonga were highest in 1977/78 with 10,850tonnes and then declined to about 7,500 tonnes per annum. Cotton purchasesstabilized at about 380 tonnes, while maize and groundnut purchases werenegligible. This means that much of the incremental production wasmarketed through unofficial channels, possibly the result of insufficientADMARC prodived marketing facilities and, no doubt, also due to higherunofficial produce prices.

Crop Production in Chitipa District

27. Crop Area. The SAR indicates that the pre-project maize area of2,732 ha (mostly intercropped with beans and grounduuts) would be replacedin 1980/81 by 1,093 ha each of composite and improved local maize and 547ha each of improved beans and groundnuts. During project implementationthe maize area stabilized at about 10,500 ha, or at 4-5 times the appraisalestimate, mainly due to attractive prices on informal markets. The ground-nut area was close to estimates but more than doubled in 1979 to 1,300 ha.Bean areas exceeded the appraisal target and stabilized at about 1,900 hain 1979/80.

28. Crop Yields. Maize and groundnut yields were expected to beabout 2,370 and 525 kg/ha respectively. Only in 1977/78 was the appraisalestimate for maize yield reached; in the following years it ranged from1,734 to 1,937 kg/ha. Groundnut yields varied between 280 and 645 kg/ha.

29. Crop Production. Incremental maize production exceeded appraisaltargets while groundnut production did not.

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30. Official Crop Purchases. Since 1976/77 maize purchases by ADMARCmore than tripled the average of the previous five years. Furthermore, ithas been alleged that some over-the-border trading has occurred. Sales ofgroundnuts and pulses were highest in 1979/80 with only some 30-40 tonnesrespectively.

31 Causes for Production Changes. It is clear from the data thatproducer price and rainfall were critical factors in determiningproduction. Because of inadequate producer prices cotton and groundnutproduction was not stimulated as expected. Rice production in Karonga wasstimulated as was maize in Chitipa. Extension messages appear to have hadlittle impact during the project period as indicated in para 10. Littlebenefit accrued from the livestock component, although the cattlepopulation increased qt a more rapid rate because of increased dipping andimproved veterinary services. The essential constraint to achieving theobjectives of the livestock component was Karonga-Chitipa's isolation whichprevented the Cold Storage Company from purchasing all offered stock(because the company had a limited imprest account reducing its ability topurchase from areas which have high transport costs).

32. The "synergy" effect on agricultural production expected from asimultaneous, integrated development of agricultural services, infra-structure and social services was important, with however some unforeseencauses. Expanded agricultural credit services, roads, water supply andeducation contributed directly or indirectly to increasing agriculturalproduction. However, the predominant unforeseen factors were the high riceand maize prices making these two crops profitable, and a dynamic parallelmarket. Rainfall was also of great importance.

33. Annex 10 of the Government's PCR provides an economic rate ofreturn calculation. It includes incremental crop production benefits, andthose project costs related to production. 7/ It excludes Lake Transportservices, health, hydrology studies, monitoring and evaluation andlivestock (for which benefit data are not available). The result is an ERRof 14%. The ERR for the livestock component (not computed in theGovernment's PCR) is likely to be about 0%. The total cost of thelivestock component was MK 147 thousand, or 2% of costs. Assuming a 0%rate of return to livestock if this component is included, the FRR falls

7/ The economic rate of return analysis contained in the Government's mainreport (page 48) was not correctly prepared, and was sent back toGovernment with a request for changes. These changes were made in anew Annex 10, which is to be taken as the correct calculation.

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insignificantly. It would still be rounded off to 14%. The ERR projectedat appraisal, which was estimated on the same basis, was also 14%.8/

34. Ex-post economic rate of return analysis does not distinguishbetween agricultural benefits generated in a project area by projectservices, and those generated by other factors. Agricultural projectssituated in countries having appropriate agricultural development policiestend to succeed, while those projects situated in countries havinginappropriate policy tend to fail (see the World Bank's Eight Annual Reviewof Project Performacne Audit Reports for this conclusion). In Malawi,agricultural policies were relatively good. The economic rate of return of14% reflects this fact as much as it does the impact of project services.Only recently has the Bank realized the overwhelming importance of thepolicy environment. Presently, considerable assista:ice is being providedto improve agricultural policies in Malawi through SALs, technicalassistance, and Bank agricultural sector work.

35. The impact of the project on the Government's budget has beennegative. The budget has benefitted little from increased taxes andduties, and was negatively affected by the high operating costs of theproject. ADMARC, the main purchaser of surplus produce, de..lved little orno benfits from the project because of its high costs of handling themostly Chitipa maize and because of financial losses incurred in marketingKaronga rainfed rice.

36. Social benefits are significant and observers have repeatedlyremarked on the improved education facilities for the population. Thenumber of pupils attending primary school in Karonga rose from 20,000 in1974 to 23,600 in 1981. In Chitipa, attendance rose from 13,600 to 21,000in the same period. The boreholes have improved water quality, reduced thedrudgery of obtaining water, and liberated labor or farming. Only healthcare has not improved significantly because of understaffing in the healthcentres created. In addition, these facilities and services requireconsiderable recurrent expenditures. For the time being the latter arefunded from the third phase project (NRDP III ) and SALs. It would beuseful to introduce cost recovery mechanisms which would contribute to theoperation of health facilities and help finance better health services.

8/ If all project costs are included, the rate of return would fallto 7%. This estimate is not particularly useful since it included thecosts of social and extra-project services which were intended to (anddid) have social benefits and economic benefits outside the projectarea. These components were not intended to directly stimulateagricultural production.

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37. As stated above the NRDP Pre-investment phase succeeded increating certain basic infrastructure useful in accelerating start-up ofsubsequent NRDP projects. However, this component did not undertake theadaptive agricultural reserach foreseen, which was intended to generatemore appropriate extension messages. Nor did it undertake theagro-economic analysis foreseen.

38. Lake Transport. The appraisal report calculated benefits of theLake Transport component on the basis of increased cargo which would becarried to and from Karonga permitted by project harbor improvement andrehabilitation of the oil tanker. The increased cargo was expected to comefrom additional agricultural production in Karonga. Freight traffichandled through the two ports which were partly rehabilitated by theproject did increase rapidly during the project period (by 39% in terms ofweight handled from 1974 to 1979). No economic rate of return wascalculated in the PCR. However, project costs were approximately equal tothe appraisal estimate of Kwacha 2 million. Freight traffic grew at a ratenearly identical to that projected at appraisal. Given this situation, theactual ERR was probably close to the 18% estimated at appraisal, andcertainly above 10% (10% has been placed in the basic data sheet).

X. Government Performance

39. Government commitment to the project was satisfactory as istypified by its willingness to finance cost overruns from its budget.Project management initially was weak, particularly in workplan and budgetpreparation and in containing operating costs. Throughout the Project veryclose Ministry of Agriculture assistance and supervision was required (fromthe Chief Agriculture Development Officer). Staff appointments weredelayed because of cumbersome and time-consuming procedures, and there were3 Project managers in Karonga district in 4 years, all factors whichaffected Project management adversely. The only major curtailment inplanned Project activities occurred in road construction (only some 32% ofthe target) and in ADMARC's inability to construct markets and inputstores. The Government provided insufficient crop price incentives forcotton and groundnuts to allow appraisal targets to be reached. TheMinistry of Finance also withdrew MK 1.5 million from the revolvingagricultural Credit Account. It has been agreed, however, that this amountwill be refunded to the Karonga ADD Credit Fund or to a Central Credit Fundif and when this latter is established.

40. The major Project weakncss was the inadequacy of on-farmresearch, in particular that focussing on the needs of subsistencefarmers. As a result there was no strengthening of extension messagesduring the project period. Although the extension sevices adopted a farmergroup approach, its focus remained mostly on creditworthy farmers who hadland in excess of subsistence requirements.

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41. The withdrawal of the post of NRDP Coordinator contributed topoor coordination of NRDP pre-investment activities. Accounts and auditswere never received for this component, nor were they received for the lastfew years of the Karonga-Chitipa Rural Development Project. Othercovenants were complied with in a timely manner.

XI. Bank Performance

42. The appraisal team suitably reduced the scope and cost of theKaronga-Chitipa component (deleting coffee development proposals andscaling down credit and ADMARC components). This contributed positively tothe Project design. The change in approach of the agricultural researchcomponent from the originally proposed large number of replicated trials tothat of on-farm trials was sound, but trial implementation was less thansatisfactory because the required staff were not appointed. The inadequacyof the national agricultural research system was overlooked. The impact ofexisting extension messages was over-estimated. The extension service hadmuch less to offer in terms of improved technology than was anticipated.Input usage (except improved rice seed in Karonga) was overestimated, butthe appraisal team could not foresee the external logistical problems ofgetting farm inputs into Malawi, nor were the unfavorable crop prices forcotton and groundnuts predictable. Nevertheless, as with other agricul-tural project appraisals in East Africa, the importance and impact of thepolicy enrivonment was grossly under-estimated.

43. There was too much faith in the possibility of assisting aninefficient marketing, and input supply parastatal (ADMARC). It isunfortunate that no thought was given to assisting energetic traders on theparallel market.

44. NRDP pre-investment proposals by the Government were suitablyreduced by the appraisal team to allow more time to establish the necessaryinstitutional framework and to collect and analyze essential data on whichspecified NRDP development proposals were to be based. In the event, thisproved to be an excellent decision since the administration of thiscomponent was relatively poor.

45. Although the appraisal team altered project design in order tominimize investments and recurrent costs, there was not enough attentiongiven to ways in which to wean the project from dependency on highGovernment expenditures for operating costs. The project is too costly tooperate, and offers little in temrs of cost recovery.

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46. The Bank's Resident Mission in East Africa srnt 7 supervisionmissions to Karonga-Chitipa, which provided considerable technicalassistance, particularly on extension organization and projectmanagement. The project was probably somewhat better managed as a result.Supervision missions for example asissted in resolving staffing andfinancial problems. Excessive operating expenditures were detected earlywhich resulted in a rescheduling of project activities and expenditures.Nevertheless, recurrent costs were excessive and no system was recommendedfor reducing recurrent costs or increasing cost recovery. Althoughsupervision missions pointed out the negative impact on cotton andgroundnut production of price policy, they were unable to influence achange in such policy. Errors made at the design stage marked the projectfor its life.

47. In summary, the Bank appraisal mission did marginally improveproject design, and Bank supervision did improve management. However, Bankstaff did not fundamentally alter or improve design nor were theyinfluential in changing Government price policy or project design duringimplementation.

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MALAWI

SECOND KARONGA RURAL DEVELOPMENT PROJECT PHASE IIoIZan 1286-T-MAI)

PROJECT COMPILETION REPORT

Government of MalawiMinistry of Agriculture

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FOREWORD

This project completion report for Karonga-Chitipa Project PhaseII has been prepared by the Central Evaluation Unit of the PlanningDivision in the Ministry of Agriculture. It is the second completionreport, after that of Lilongwe Land Development Programme Phase III, to beprepared by a local team. Therefore local experience is being developedin the preparation of project completion reports.

While the Preparation of the report started in good time to allowfor the presentation of the report about six months after the completionof the project to the World Bank, a number of problems emerged. Firstly,the then Senior Economist (Evaluation) who initiated the work left thecountry at the end of his contract with Malawi Government in April, 1982.At the same time, he took away with him all the information that had beengathered with the promise that he would work on the report while outsidethe country. This did not materialze even after numerous correspondences.The data was returned in September 1982. Therefore, the work had to bestarted again. Secondly some key data could not easily be traced andretrieved for instance, the performance of the pre-investment phase and theLake Transport Component.

The draft report was prepared in October 1982 and valuablecomments on its content were received from various government officers aswell as World Bank staff from the Regional Office in Nairobi. Thesecomments have, either whole or in part, been incorporated in this finalreport.

As -will De gathered from the report, the project had beensuccessful in incressing crop production during the phase and a network ofsocial infrastructure was provided in order to improve the living standardof the people.

This report is a result of joint effort by staff of the PlanningDivision and Karonga Agricultural Development Division (KADD). The write-up of the report was done by Messrs. D.M. Chembezi and F.R. Mwambaghi, allEvaluation Economists in the Planning Division's Central Evaluation Unit.The Senior Economist (Planning) assisted the team in finalizing the report,especially in producing the chapter on Economic Analysis. The ChiefProjects Ofticer provided valuable guidance in the preparation of the FinalReport.

G.B. ChirwaCHIEF PROJECTS OFFICER

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1. INTRODUCTION AND SUMMARY

1.0 This is the second Project Completion Report to be prepared andpresented to the Bank by Malawi Government, thie first one being that of theLilongwe Land Development Programme Phase III prepared in 1979. Phase ICompletion Report for Karonga Rural Development Project was prepared by theBank itself. Although some mention has been made of how much investmentwent into Phase I, this report has laid emphasis on the activities andimplementation of Phase II which included Chitipa District originallyomitted _n the first phase.

1.1 Basically the presentation of material in this report fo]lowsguidelines detailed in the Bank's Operational Manual Statement (IBRD,February 1979). This manual clearly presents and indicates what aspectsought to be included under each section. An attempt has been made toinclude as much information in the text as possible, however, follow-updetails have been presented in the form of Annexes and referenced withinthe text.

1.2 This report finds that physical implementation of the project wasgenerally good although markets and roads fell short of the appraisaltarget. The project was however implemented with weak management andfinancial control. Autonomy, within the frame of decentralization, appearsto have been granted to the project far too early and because of thiscoupled with lack of proper financial control, cost over-runs wereexperienced during the first two years of the project life.

1.2.i The Project has had considerable impact and success on cropproduction. Incremental crop production for rice, maize and somehow cottonbeen increasing annually, and higher yields except for groundnuts have beenmaintained. Reduced land under cultivation and change from Malimba toManipintar groundnut appears possible cause for the poor productionperformance of cotton and groundnuts respectively. The estimated economicrate of return is 33% over a period of 25 years. This excludes costs ofcomponents left out in the analysis at appraisal. If all component costsare included, the rate of return falls to 18%. Because of lack of phase Icost streams, no attempt has been made to calculate a combined rate forphases I and II.

1.2.2 Research has not focussed their attention on local needs and liukwith the extension service has been weak. Credit use has expanded andrecovery rate has also improved considerably. Seasonal inputs on credithave however fallen short of the appraisal targets probably because of theintroduction of credit groups and the policy which restricted loans togroups.

1.2.3 Little attention has been paid to land use planning and data forthe monitoring of envircnmerntal effects are hardly available. Onlivestock development, little emphasis was laid on inproved livestockdevelopment programmes instead general livestock extension was undertaken.

1.3.0 Regarding the preliminary Investment Phase of the National RuralDevelopment Programme, considerable infrastructural development has beenac ieved. Work which was suppose to be done by Land Resources andAgricultural Research in proposed NRDP project areas never took shape

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because of the problems of filling the posts agreed at appraisal. On thisbasis therefore, the Pre-Investment Phase has been a failure.

1.4.0 A considerable part of the work proposed at appraisal under thegeneral objective of Lake transport improvement has been done. BothChipoka and Chilumba harbours are being used and the amount of cargohandled is increasing with time.

1.5.0 In conclusion, the project (KCRDP II) has demonstratedconsiderable success in as far as crop production is concerned therebyccntributing to the improved socio-economic life of the target populationand the nation as a whole. Mention also needs to be made of the valuablelessons learnt from the planning and implementation of KCRDP II. This hashelped to improve the planning and implementation of the project's thirdphase and also other Rural Development Projects (RDPs) within the NationalRural Development Programme (NRDP).

2. BACYrROUND

2.1 Following the implementation of regional intergrated developmentprojects in the Central and Southern Regions of Malawi in 1968, theNational Development Council, early in 1969, directed that an economicallyviable integrated development project be mounted ir the Northern Region.The Northn Region was regarded as disadvantaged by being at the extreme endof a long line of communication with a severe lack of feeder roads. KarongaLakeshore produced practically all the saleable surplus of the Region andwas viewed as the area with the greatest immediate potential in terms ofirrigation, and human and cattle populations. A Phase I for Karonga RuralDevelopment Project was subsequently appraised in 1971 and commenced withfinanzial assistance from in 1972 VCredit Agreement 282-MAI).

2.2 The first Phase was originally expected to run for five years (to1977) however, due to initial difficulties in staff recruitment anddelays in housing construction, progress in the first year was slower thanexpected. Revisions were made and the Phase was shortened to four years.Proposals were then prepared by Malawi Government for a Second phase andthis was subsequently appraised by the World Bank in 1976. Phase IIcommenced with financial assistance from IBRD (Third Window) in the sameyear (Credit Agreement 1286-MAI). This Phase was designed to last for fouryears (to early 1981), was however subsequently extended by one year toclose on 31st March, 1982.

2.3 These two phases of the project received finance from IDA/IBRDCredits Malawi as follows:-

Phase AppraisalReport Credit Amount Period

I PA 106a 282-MAI US$6.6 Million 1972-1978II 1084-MAI 1286-MAI USS9.2 Million 1976-1981

There has been an cverlap between phases I and II in finances: residualfunds from Phase I have been used in Phase II.

Included was funding towards improved Lake Transportation Services and aPre-Investment for the National Rural Development Programme. Thesetogether made up some (46) per cent of the total.

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2.3.1 The total cost of the two phases (including contributions fromMalawi Government) amounted to an estimated MKI5.85 million. This wasallocated as follows:

Phase I Phase II Total(MK "Million)

Karonga and ChitipaProject: Development

Account 6.61 5.14 11.75Karonga and ChitipaProject: Revenue

Account 0.10 1.58 1.68NRDP Pre-Investment - 2.42 2.42

Total 6.71 9.14 15.85

2.4 The Completion Report for Phase I concluded that the Project hadprovided a stimulus to the development of Karonga; not only through theprovision of inputs and extension services but also from the improvedphysical infrastructure which had been achieved. The purpose of Phase IIwas to continue this support for the development of agricultural productionin Karonga and spread this development to Chitipa District. In additionthe second Phase included a component to support the preparation of theNational Rural Development programme through a strengthening of theplanning capacity withiMANR and through preliminary investment in threeselected 3-eas of Malawi. A component for the further improvement of Laketranspoication services was alincluded.

2.5 The total area of the Karonga and Chitipa Districts is 0.89million hectares of which 7% were estimated to be under cultivation at thecommencement of Phase II. The project area is bounded by Zambia to theWest, Tanzania to the North and Lake Malawi to the East. A large mDuntainrange to the South confined road accsss between the project and the rest ofMalawi to a single unreliable lakeshore route. The two districts could be

divided into five main natural areas, namely: the steep-sidedcoffee-growing Misuku hills, the scarcely populated undulating Chitipaplain, the agriculturally unproductive and unpopulated Karonga scarp zone,the fertile North Karonga Lakeshore plain. Annual average rainfall rangesbetween 750 to 1500 millimetres, most of it falling between November andMay. An estimated 38,000 farm families lived ithe two districts at thecommencement of Phase II.

2.6 To some extent the design of the second phase represented anadjustment in policy from an intensive Scheme approach towards a moregeneral approach covering all farmers and all crops-. This was in linewith the present National extension policy which aims at covering allSmallholder farmers.

2.7 By the commencement of Phase II, a considerable facility ofinfrastructure and staffing was already available in both Karonga andChitipa Districts. A summary of these facilities is provided at Annex I.

2.8 The principal sources of information which have been used forcompiling this project completion Report were the reports and records ofthe project Evaluation Unit, the Financial Division (cost accounts and

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Credit Fund Control), Programme Management and component heads and thefiles and records stored at Ministry of Agriculture Headquarters. Numerousother specific sources are quoted in the text and a list of the mainreference at Annex II.

3. FORMULATION

3.1 Initial discussion and Project Identification outline for asecond phase of Karonga Project took place at a meeting with leaders andpoliticians of Karonga and Chitipa districts at Karonga in October, 1971.Provisional proposals for this second phase were then prepared by a jointteam from Planning Division (Ministry of Agriculture and Natural Resources)and Karonga project management. These proposals were prepared in full

consultation with senior staff working on the project and with allMinistries and departments concerned;particularly the AgriculturalDevelopment and Marketing Corporation, Cold Storage Company, Ministry ofHealth, Ministry of Works, and other Departments within the Ministry ofAgriculture and Natural Resources. Following this integrated planningprocedure, the Project Proposal Document was submitted to a World Bank(IBRD) Appraisal team in October 1975.

3.2 The concept of a National Rural Development Programme was beingactively discussed within Government at that time. The extension of theproject phase II to Chitipa District was originally envisaged as a firstpilot for the concepts of NRDP.

3.3 The Malawi Government Proposals for Phase II over a four yearperiodcommencing 1st April, 1976 amounted to a base cost of K6.603million. Physical and price contingencies were calculated at K2.892million giving a total o K9.50 million. Detailed cost breakdown bycomponent were presented and an internal rate of return of 13.3 per centwas estimated over a 25 year period. This economic analysis omitted thecomponents of research, hydrology, fisheriesevaluation, health andlivestock. The primary benefits of the project were expected to beincreased production of maize, rice, cotton and coffee, with smallerproduction increases of groundnuts, beans and beef.

3.4 An IBRD Appraisal Mission of five team members visited Malawi inOctober/November 1975. An additional team of two visited in February, 1976concerning the lake transport proposals.

3.5 There were some considerable differences between the finalappraisal document and the original Malawi proposals. The main points ofdifference we as follows:

(i) The Appraisal document required an additionalMalawi Government provision of over K1.5 millionaccording to an enlarged project design and achange of contributory financing proportion.

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Text Table 1: Financing Arrangements compared (MK'OOC

Project Proposal Appraisal Prov.Source by Malawi Govt. (1084-HMAI)World Bank Loan 8,071 (85%) 8,300 (75%)Malawi Government 338 ( 4%) 1,900 (18%)ADMARC 1,066 (11%) 700 ( 7Z)TOTAL 9,495 100% 10,900 100%

(ii) Components for Fisheries and coffee developmentwere dropped by the Appraisal document;

(iii) Two large new components, which involved pre-investment for the National Rural DevelopmentProgramme and the development of lake transport-ation facilities, were introduced at appraisal.These components alone made up some 46 per centbase cost provision in the new project design.

(iv) The proposals for staff housing were amended atappraisal with provision for less junior (P-type)housing and more senior (C and D type). At thesame time the cost provision for the constructionunit and civil works was out at appraisal by almostfifty per cent to cover what was virtually anequivalent programme.

(v) For extension the farmer to technical assistant(extension worker) ratio was reduced by abouttwenty per ceiLt (to 1:600). Although a groupextension approach was emphasised by the proposalswith concentration on defined areas (schemes),these aspects were not specifically mentioned bythe appraisal document.

(vi) Allocation of new funds, the farmers revolvingcredit fund were reduced at appraisal. This wasbased on a revised estimate of loan requirementsduring the phase representing only one-thirdthat anticipated by the project proposal. Theappraisal document revised downwards the project-ions of package-adopting maize and cotton farmers(by 50 per cent) and of medium term credit inputs(by 80 per cent). The projection of groundnutadopters' (Karonga) was however increased by 30per cent. Credit for coffee production wasdropped. A schedule for phasing farmers off credittowards cash purchases of inputs was adopted bythe appraisal document with a more rapid move tocash (advanced by two years).

(vii) The Appraisal document considered that the LandHusbandry work programme should give increasedemphasis to encouragement in adoption of good land

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use practices. To this end it was recommendedthat this component be absorbed into the extensionservices during the last two years of Phase II.This was not the object of the original projectproposal which had emphasised concentration onrainfed rice schemes (as in Phase I) and thesurvey of alignments for farms and roads.

(viii) Proposals for the development of a holding groundin the south of Karonga District (at ChLilumba)for marketed Livestock together with an investiga-tion of the possibility of their movement by lakebarge to Central Region markets were not adoptedat appraisal. Further appraisal omissions were fora temporary cattle market and three pilot grazingschemes in Chitipa District.

(ix) For the Research component, the appraisal documentplaced emphasis on a programme of project specificresearch. This was to be based on an extension systemof farm scale tests to be initiated with the help ofextension staff. The project proposal had based itsresearch component on large numbers of replicatedtrials to fit within the national framework of researchdepartment headquarters.

(x) The programme for development of ADMARC facilitieswas reduced at appraisal from an original proposalof twelve input stores and thirteen market complexesto eight input stores and nine market complexes.

Summarised comparison of component costs are as follows:

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Text Table 2: Component costs compared (K14'0O)(a)

Project Proposal Appraisalby Malawi Govt. Document

1084-M&IComponent (4 years) (4 years)

Karonga Project Area:Management Unit 398 255Financial Control 254 625Mechanical Maintenance 158 169Construction 1,540 836Extension 952 719Credit Operations 450 (b)Land Husbandry 161 143Livestock 306 262Research 251 208Hydrology 131 136Evaluation 149 181Health 351 399Fisheries 58 0Component Costs sub-total 5,159 3,833

Credit Fund Injection 763 173ADMARC Construction 681 466Total Base Costs (KCRDP) 6,603(100Z) 4,472(54Z)

NRDP Pre-Investment: 0 2,276Lake Transport: 0 1,536Total All Base Costs 6,603 8,284

Contingencies: Physical 584(9X) 540(7%)Price 2,308(35%) 2,059(25%)

Total Project Cost 9,495 10,883

Note: (a) These are costs on Development Account only.

3.7 Description of the Project

A formal description of the Phase II project, as given by theDevelopment Credit Agreement (1286-T-MAI) Schedule 2, is reproduced atAnnex III.

4. IMPLEMENTATION

4.1 Effectiveness and Start-up

4.1.1 The funding for Phase II (Credit 1286 MAI) was officially agreedon June 24, 1976 and became effective on September 24, 1976. After anextension in the life of this phase, to allow for the completion ofoutstanding infrastructure and the financial arrangements for a third

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phase, the available funds were finally used ui on 31st March 1982 giving atotal implementation of 34 years.

4.1.2 With a considerable (HK440,000) carry-over of funds from Fgase I(282-MAI) and the basic managemeat and staffing already available, thePhase II project was able to start-up on schedule without any delays onOctober lst, 1976. Funds were actually warrainted by Treasury on October13th.

4.2 Revisions: Although there were no major revisions duringimplementation to the basic design of the p7oject for its principalobjectives, some changes were found to be necessary both in the life of theproject (as mentioned above) and financial aLlocations between loancategories. These changes were introduced to meet both the growingdifficulty of Malawi Government funding of local contributions and 8a aresult of a particularly excessive over-expenditure in operating costsduring the first eighteen months of project life.

4.2.1 Ailnual. Treasury allocations to development account for thisproject Phase, compared to those anticipated at appraisal, were as follows:

Fundiag (MKt 000)

(1) (2)Financ'al Period AppraieaJ Plan Treasury Allocation

1976-77 3,435 8001977-78 5,010 1,5351978-79 1.527 1,5041979-80 911 8821980-81 0 4001981-82 0 0

(1) From 1084-MAI Annex 8 Table 1.(2) From Development Estimates. Malawi Government.

Excluding Lake Transportations and NRDP Pre-investmentcomponents.

4.2.2 Following a monitoring and supervision visit to the project by ateam from the Central Evaluation Unit (MANR) in 1978, weaknesses infinancial management were uncovered and an excessive over-expenditure inoperating costs was highlighted. The Report on the findings resulted inthe development of improved monitoring procedures and tighter financialcontrol. A request for the re-programming of funds for the Karonga-ChitipaProject component was then prepared; this is reproduced in details at AnnexIV, and includes adjustments to allow for a correction to the originalproject financial design (re-ADMARC Contribution), fluctuations in thevalue of US$ and an increased provision to operating cost categories.

4.2.3 Plans for the construction of livestock dipping tanks weredropped because funds allocated for these became inadequate as a result ofraising the standards for construction of dipping tanks. The funds werethen reallocated to the construction of other civil works.

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4.3 Infrastructure Development: A sumanary of infrastructureachievement compared to target for Phase II is given at Annex l(b).Achievements of appraisal targets have been varied as is indicated in thefollowing paragraphs.

4.3.1 The construction programme was largely satisfactorilyimplemented. Housing, training centres, borehole, health facilities,offices, workshops and stores were all completed to the required standardin good time as shown in Annex V.

4.3.2 Of the 96 miles of roads planned, 30.4 miles were constructed,incorporating 6 bridges, 17 culverts and one drift. The coatings used atappraisal were found to be considerable underestimates; funding wasinsufficient for the full construction programme.

4.3.3 Responsibility for construction of marketing facilities (creditinput stores and ADMARC sheds) was handed over to ADMARC. Owing tofinancial problems within ADMARC, no facilities were constructed underPhase II, although five ADMARC sheds were constructed in Chitipa districtusing ADMARC maintenance funds late in the Phase.

4.3.4 Out of 92 boreholes planned, 83 were drilled representing 90%achtievement of target. This is an impressive achievement when comparedwith that of road construction programme.

4.4 Crop Development: During Phase II, general approach to cropdevelopment was adopted for both rice and dryland crops. To achieve thisend, group approach in extension activities was the principal method ofreaching farmers. The general approach and the group approach to extensionare in line with NRDP policy.

4.4.1 The advantages of the group approach are that the staff farmersratio can be reduced considerably without adversely affecting extensioncontact, and that farmers easily learn from each other. The groups mayalso be used for other project activities such as credit disbursement. Thegroup approach and the general approach to crop development in KarongaPhase II has been an improvement over the scheme approach which wasfollowed in Phase I.

4.4.2 Rice: Phase II concentrated largely on rainfed rice which ispredominant as opposed to irrigated rice; as Table 3 shows the increasedproduction was to be achieved by increases in area cultivated and yield.Yield was to increase as a result of improved cultural practices, use ofimproved varieties and fertilizers and also the ability of Faya rice toyield well even without inorganic fertilizers.

4.4.3 The appraisal yield target of 2400 Kg/ha was achieved by 1978/79season and by the end of the second phase rice yields in Karonga were 27%higher than the appraisal target. Exact reasons for this impressiveachievement of yield targets are not known, however, favourable rainfallcould be one of the reasons. Appraisal hectarage targets were alsoachieved during the phase, emphasising the importance of rice as source offamily revenue.

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4.4.4 Dryland Crops: Planning of Phase II envisaged that developmentof dryland crops would be achieved by yield and area increases. Tables 4and 5 show planned cropped area and actual in Chitipa and Karongadistricts. In none of the years, are the appraisal targets achieved. Thedeviation from appraisal estimates was most pronounced for cotton andgroundnuts, and this is due to the low returns per hectare relative to theothe crops (see Text Table 3).

TEXT TABLE 3 : GROSS MARGINS (M I(ACHA/HECTARE)

II S E A S 0 N I

C R O PICRIP 1980/81 1981/82

Rice (Faya) 220.00 220.00

I .i IMaize (MH12) 118.17 269.29

I I iGroundnuts (Malimba) 80.00 80.00

I Cotton 160.29 195.29

Source: KCRDP Evaluation Unit.

TEKX TAKE 4 CROP EEIELDR1JT (HA)

KAOW

IDescip. 1976/77 1977/78 1978/79 1979/80 1980/81 1Year P=ied Achiev. lamed Ahiev-. Planed Achieve. Eanne_ ATieve BI. T1.aIj Achie'v.

lR1oe 2,040 4,050 2,653 4,250 3,265 5,000 4,490 5,200 4,490 8,808 1ICOtte 1,517 sXo 1,705 870 1,898 856 2,126 770 2,309 125

IMaize 7,494 3,450 7,568 4,250 7,680 5,000 8,080 5,235 8,469 4,526

fGroLm&nts 2,371 500 2,542 509 2,724 300 2,977 360 3,189 140

TDTAL 13,422 8,900 14,468 9,879 15,567 11,156 17,673 11,565 18,457 13,600

Source: World BaRk appraisal (Revised) and Evaluation Farm Su-rvys.

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TEXT TABLE 5: CROP DEVELOPKENT (HA)

CHITIPA

I . $~~~~~~~~~~~~~~~~~~~~~~~~-

1976/77 1977/78 1978/79 1979/80CROP Planned Actual Planned Actual Planned Actual Planned Actual

Maize 13,325 10,500 13,650 10,600 14.025 10,275 15,075 10,400

Groundnuts 4,850 400 5,000 550 5,175 450 5,400 1,300 I

Pulses 8,225 3,000 8,225 2,100 8,250 1,950 8,250 1,900

Millet 2,650 1,050 2,700 750 2,800 600 2,875 800

Cassava 5,175 600 5,225 450 5,275 800 5,325 650

Source: World Bank Appraisal Report and Evaluation Farm Surveys.

4.5 Management and Organization: The Programme Management Structureis summarised in the organization chart at Annex VI. No major changeoccurred during the phase. The overall implementation of the project isthe responsibility of the Ministry of Agriculture. The Programme Managerwho looks after the day-to-day implementation of the activities is directlyresponsible to the Chief Agricultural Development Officer (CADO). In linewith the NRDP set-up and also following the appraisal document, the post ofProject Manager (F7) upgraded to Programme Manager (P6).

4.5.1 Mention needs to be made of the fact that the Programme Managerexperienced some form of autonomy within the frame of decentralisation.This is right and good if decisions are to be made and corrective actionstaken where deviations are imminent without having to wait from theMinistry headquartersfor action. Supporting the question of autonomy isthe fact, for example, that some procurements in Phase II had to be made bythe Project directly through the Blantyre Office. The idea of having acertain degree of autonomy has so farbeen advocated and appears now toexist in all the eight Development Divisions.

4.5.2 Staffin*: The senior staff chart at Annex VI shows the situationsenior staff level. The posts of Programme Manager, Assistant ProgrammeManager, Financial Controller, Senior Extension Officer and EvaluationOfficer were generally always filled during the phase. However, change ofmanagement was prevalent, and this may have had some adverse effects on theoverall implementation of the project (lack of continuity). At both seniorand lower levels, most sections suffered from staffing problems. Forexample, the Project was without Senior Administrative Officer and Engineerfor the whole phase. Financial control had to rely on untrained staff andCredit Section iad to run without the Credit Accountant.

4.6 Extension and Training Component: The following table summarisesratio of field assistants (TA) to farmers and the staffing situation (TAsand DAs) as at the end of Phase II, Development Assistants reduced to two(2). This was expected as the aim was to increase staff of TA grade.

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to be carried out, for -sample, flood control in rice fields which is stilla problem. The other problem was that of transport forcing the sectio. tofail to achieve some of its objectives.

4.9 Livestock Section: The Livestock Section placed emphasis onconventional livestock extension methods, i.e. cattle dipping, castrations,culling and emphasis on marketing unproductive animals. The envisageddevelopment programmes of Weane:/Yearling, grazing schemes, demonstrations(Lu_lta) etc. were not achieved. Lack of adequate funds and shortage ofstaff contributed to failure to implement the programmes successfully. Theprices the weaners did not provide enough incentive and as a result,farmers found more profitable to sell animals amongst chemselves orslaughter them at locamarkets.

4.10 Research Section: Like the Construction Unit, this section alsosuffered understaffing at senior level. The project was without SeniorAgricultural Research Officer for most of Phase II. Although a post wasavailable at Karonga for Senior Agricultural Research Officer, policywith'i Research Department demanded that the post be filled by aProfessional Officer and so the Senior Agricultural Research Officer wasposited out of Karonga. It should be noted that Research programmes werealmost entirely designed to fit the National trials programmes. Therewasn't sufficient emphasis on project specific trials and resultsinterpretation for localised packages. The achievemants of the section,however, included accompli-ment of selection and multiplication of improvedfaya seed; establishment of natural grass/legume sward in Chitipa;introduction of UCA and CCA maize varieties in both Chitipa and Karongadistricts, and also some recommenda-tions on groundnuts fungicide (Sulphurand Daconil).

4.11 Financial Control: No accounting machine was used during thephase. All financial control work was done manually. There was problem ofinsufficiently trained staff and untrained industrial grade staff had to beused. Initial problem in lateness of financial records production causedproblems in monitoring of costs and expenditures. These were largelyovercome towards the end of the phase. Accounts and statements ofexpenditures were however audited every year.

4.11.1 A Senior Credit Accountant to control credit finance was not inpost for most of the phase (see Annex VI). This placed extra burden on theFinancial Controller.

4.12 Health Section: The major problem in this section was the lackof staff to man the health facilities which were constructed. The sectionhowever, implemented some bilharzia programmes searching for existence ofsnails and prevention of bilharzia in the rice schemes and in some villagesoutside these schemes. Annex VII(L) under "Social Impact" indicates theactivities of thesection in great more detail.

4.13 Evaluation Section: There was satisfactory success in theimplementation of the section's programmes during phase II. Several surveywere conducted and coverage was quite good, ensuring more representativedata base. Resident enumerators were used in the enumeration areas. Thesection experienced some staffing problems (enumerators). There was highturnover of enumerators during the phase due to non-established posts.

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4.13.1 Data handling and processing improved considerably by the useof the Central computer in Blantyre. These improvements have ensuredadequate analysis and more timely reporting. Clear and simplifiedreporting system and interpretation of data were used for rapid referenceand effective use of the survey findings.

4.13.2 The Evaluation section conducted several farm surveys during thephase. Garden, household composition and yield surveys were/are run everyyear to monitor and measure progress on crop mixtures, crop husbandrypractices, input/output relationship etc. Other surveys were conducted asand when required at the request of the Programme Management. Analyseswere done and working papers written up as follows:-

Survey TitleCrop Disposal (1975/76)Yield Study (1975/76)Yield Study (1976/77)

Household Composition (1976/77)Garden Survey (1976/77)Yield Study (1977/78)Household Composition (1977/78)Garden Survey (1977/78)

Survey Title (Cont'd.)Local Market Survey (1977/78)Irrigated lice Survey (1977/78)Resource Survey (1977/78)Garden Survey (1978/79)Pilot Livestock Survey (1978/79)Local Market Survey (1978/79)Yield Study (1978/79)Household Composition (1978/79)Household Composition (1979/80)Garden Survey (1979/80)Yield Study (1979/80)Local Market Prices Survey (1979/80)Garden Survey (1980/81)Yield Study (1980/81)Household Composition (1980/81)Resource Survey (1980/81)Extension Survey (1980/81)Energy Survey (1980/81)Livestock Survey (1980/81)NatioTal Survey (1980/81)Local Market Prices Survey (1930/81)Income and Expenditure (1980/81)Crop Storage Survey (1980/81)

Note: 1980/81 information has been processedjointly by the Project and NationalStatistical Office. Working papers tobe prepared.

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4.13.3 A number of working papers have been useful in exercises carriedout by Management such as:- Crop Estimates, Gross Margin calculations andAnnual Work Plans. Information from Evaluation has also been useful in thepreparation and production of this completion report.

4.14 Hydrology Section: With the beginning of the Karonga ChitipaProject, it was found necessary to expand the collection of data onrainfall, stream flow, evaporation and other relevant data useful indesigning hydraulic structures like dams and determining sowing dates forcrops and climatic suitability of an area for new crops. Such surveysweve/are also important for the better understanding of the irrigationpotential of the Karonga Lakeshore Plain.

4.14.1 During phase I the Hydrological and Meteorological network withinthe project was expanded and improved and a paper on the Hydrology of theSongwe River catchment was prepared. In Phase II these hydrometeorologicalactivities continued; data processing and analysis was completed andpapers on the hydrology of the Wovwe and North Rukuru rivers catchmentcharacteristics were produced. Further expansion work to stations was doneand new gauging stations were established. The hydrological andmeteorological network was as follows at the end of Phase II:

Karonga ChitipaHydrological Station 15 12Evaporation Fan Stations 4 5Rainfall Stations 29 39Weather Stations 4 4

4.15 ADMARC: Existing markets and input storut; were maintainedand staffed by ADMARC. The planned construction of new markets and inputstores was not achieved, horever, because of ADMARC's financial problems.Late distribution and availability of inputs by ADMARC was greatlyexperienced in Phase II, but this improved during the last two years ofthe phase. Lack of storage space in ADMARC Depots aused a slow down inmarketing activities.

4.16 Credit and Marketing Component: In Phase II of the Project,credit policy changed to provide seasonal credit zo credit groups only (seeAnnex IX(a) Table 1). In the first season of Phase II (1976/77) the firstcredit groups were organised (70 in Chitipa and 30 in Karonga), while atthe same time some individual farmers still continued to receive credit.In the following years, however seasonal credit was disbursed to groupfarmers only.

4.16.1 Disbursement of medium-term credits were slow during the phasebecause in most years items were not available and there was a shortage ofspare parts. In addition, rising prices of implements reduced effectivedemand for ox-drawn implements. Credit recovery was low because prioritywas on recovering seasonal credit during marketing.

4.16.2 As already pointed out in 4.11.1, the credit section was withouta Senior Credit Accountant for most of the phase. There was also lack ofadequate and more perrmanent staff in the section and, consequently, lack ofproper basic data in credit offices of the project was experienced.

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4.16.3 Other problems faced in Phase II included difficulty in operationof markets due to poor roads and lack of adequate ADMARC transport at peakmarketing periods. It should also be mentioned that in Karonga concen-tration of credit issues was only on Scheme farmers due to lack ofcaretaker committees. More problems regarding credit issues ar:d adminis-tration are discussed in greater detail in Chapter 5.

4.16.4 Text Table 6 presents disbursement of seasonal credit inputs byyear compared against targets and shows that targets were generally notachieved. More details on constraints are presented in paragraph 5.5.5.

MT TABLE 6: TAR(EI AGANSr ACHanYJf?S ON SEASOAL CRDILT DIN5(MEMC EON-S)

1975/76 1976/77 1977/78 1978/79 1979/80 1980/811=Target Achiev. Target AchIev. Target Addev. Target Adiev. Target Adciev. Target Aduiev.

'Am=da (S/A) 594 251 804 324 1029 514 1271 536 1486 645 1585 767: I120:2D:0 104 52 165 109 239 246 331 152 436 144 535 194

IRice Seed 105 254 126 356 154 367 182 139 198 300 138 461

jMaize Seed 11 4 17 9 23 29 31 13 40 21 48 19l

IG/nuts Seed 35 - 52 - 72 40 95 9 120 13 147 14 lt ICaDtton'i

lInsecticideslper acre package / 1125 47 1625 567 2125 1139 2625 1096 3125 480 3500 436 I

1/ Cottor. insecticide pacage is based cn ecomendatioor of 50 sachets sevin, 24 sachets MDT75% and 7 sachets Dimethoate. Ihe package hanged to 50 sachets sevin, 30 DET and 10Dimethoate in 1979/80. It is apparent that some insecticides were obtained outside thepackage.

crce: KRDP, Credit and Marketing Section.

5. lMPACT

5.1 Introduction

Project impact is mainly achieved by increased agriculturalproduction as a result of project activities. Karonga Phase II aimed atincreasing the production of both livestock and crops. Rice, cotton,maize, groundnuts and pulses were given priority.

5.1.1 Methodological issues do not allow attributing increase of yield,hectarage and production directly to project impact because even withoutthe project, crop development would still take place probably at a reducedrate. Methodological issues also do not allow us to assess project impact

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by comparing achievement in Karonga project with that of other projectsbecause of climatical weather and soil differences. Because of thesereasons impact assessment is based exclusively on the extent the appraisaltargets have been achieved.

5.2.0 Crop Yields

Yield estimates for Phase II are shown in Text Table 7 for bothChitipa and Karonga Districts. Appraisal targets are also presented forcomparison with the actual yields. In general, rice (which is predomi-nantly Faya type) and cotton yields were achieved and did not deviate muchfrom the expected. This is a result of improved cultural practicesfollowed and the ability of these crops to yield well without fertilizer.Yields of other crops deviated considerably from appraisal estimates. By1980/81 season, groundnut yields were 69 and 80 per cent of appraisaltargets in K