AFRICAN DEVELOPMENT FUND ZAM/PAAI/2000/01

LANGUAGE : ENGLISHORIGINAL : ENGLISH

APPRAISAL REPORT

SMALL – SCALE IRRIGATION PROJECT (SIP)

REPUBLIC OF ZAMBIA

COUNTRY DEPARTMENT OCDSSOUTH REGION May 2000

TABLE OF CONTENTS

Basic Data Sheet, Currency and Measures, List of Abbreviations,PageList of Tables and Annexes, Project Information Sheet,Summary and Recommendations

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Project Matrix

1. ORIGIN AND HISTORY OF THE PROJECT .......................................................... 1

2. THE AGRICULTURAL SECTOR

2.1 Salient Features....................................................................................................... 22.2 Sector Structure ...................................................................................................... 22.3 Constraints to Agricultural Development .............................................................. 22.4 Policy Framework .................................................................................................. 22.5 Institutional Framework ......................................................................................... 32.6 Land Tenure and Land Use .................................................................................... 42.7 Rural Finance ......................................................................................................... 42.8 Poverty Aspects ...................................................................................................... 52.9 HIV/AIDS Threat to Development ........................................................................ 6

3. THE IRRIGATION SUB-SECTOR

3.1 Salient Features....................................................................................................... 63.2 Irrigation Policies and Strategies............................................................................ 73.3 Irrigation Institutions .............................................................................................. 73.4 Experience from Irrigation Programs..................................................................... 8

4. THE PROJECT

4.1 Project Concept and Rationale............................................................................... 94.2 Project Area and Beneficiaries............................................................................... 94.3 Strategic Context .................................................................................................. 104.4 Project Objectives................................................................................................. 114.5 Project Description ............................................................................................... 114.6 Production, Markets and Prices............................................................................ 184.7 Environmental Impacts......................................................................................... 184.8 Project Costs......................................................................................................... 194.9 Sources of Finance and Expenditure Schedule.................................................... 20

5. PROJECT IMPLEMENTATION

5.1 Executing Agency................................................................................................. 215.2 Institutional Arrangements ................................................................................... 215.3 Supervision and Implementation Schedule.......................................................... 22

5.4 Procurement Arrangements.................................................................................. 235.5 Disbursement Arrangements................................................................................ 265.6 Monitoring and Evaluation .................................................................................. 265.7 Financial Reporting and Auditing........................................................................ 265.8 Aid Co-ordination................................................................................................. 27

6. PROJECT SUSTINABILITY AND RISK

6.1 Recurrent Costs .................................................................................................... 276.2 Project Sustainability............................................................................................ 286.3 Critical Risks and Mitigation Measures............................................................... 29

7. PROJECT BENEFITS

7.1 Financial Analysis ................................................................................................ 297.2 Economic Analysis............................................................................................... 297.3 Social Impact Analysis ......................................................................................... 307.4 Sensitivity Analysis .............................................................................................. 30

8. CONCLUSIONS AND RECOMMENDATIONS

8.1 Conclusion............................................................................................................ 318.2 Recommendations and Conditions for Loan Approval ....................................... 31

This Appraisal Report was prepared by Mr. Sami Z. Moussa, Agricultural Economist(Mission Leader), Mr. I. Samba, Environmentalist, and Mr. B. Sambe, Credit Officer,following their mission to Zambia in March 2000. Additional inquiries on this report shouldbe addressed to Mr. D. Tripathy, Manager, OCDS.2 (Ext. 4162) and Mr. E.K. Shaaeldin,Manager OCDS.1 (Ext. 4135).

CURRENCY AND MEASURES

Currency Equivalents(As of March 2000)

Currency Unit = Zambian KwachaUA 1 = ZMK 3612.71ZMK 1 = UA 0.0002768UA 1 = USD 1.33928

Weights and Measures

1 Metric Ton (mt) = 2,200 lbs. (pounds)1 Kilogram (kg) = 2.2 lbs. (pounds)1 Meter (m) = 3.28 ft (feet)1 Kilometer (km) = 0.62 miles1 Hectare (ha) = 2.471 acres

FISCAL YEAR

1 January - 31 December

LIST OF ABBREVIATIONS

ADF : African Development FundAEB : Agricultural Extension Branch of MAFFASIP : Agricultural Sector Investment ProgramCUSA : Credit Union and Savings AssociationDAC : District Agricultural Co-ordinating officeDACO : District Agricultural CoordinatorDC : District CouncilECZ : Environmental Protection Counsel of ZambiaEMP : Environmental Management PlanFAO : Food and Agricultural OrganizationFMU : Financial Management UnitGDP : Gross Domestic ProductGRZ : Government of the Republic of ZambiaIDA : International Development Agency of the World BankIFAD : International Fund for Agricultural DevelopmentISTT : In-Service Training Center TrustJICA : Japan International Co-operation AgencyMAFF : Ministry of Agriculture Food and FisheriesMBT : Micro-Bankers TrustMEWD : Ministry of Energy and water DevelopmentMFI : Micro-Finance IntermediaryMOF : Ministry of FinanceNACP : National AIDS Control ProgramNGO : Non-Governmental OrganizationPACO : Provincial Agricultural CoordinatorPC : Project CoordinatorPRA : Participatory Rural AppraisalPY : Project YearRIF : Rural Investment FundSIP : Small-Scale Irrigation ProjectSIWUP : Small-scale Irrigation and Water Users ProgramSMS : Subject Matter Specialist of MAFFTAF : Technical Assistance FundTSB : Technical Services Branch of MAFFUA : Unit of AccountUNDP : United Nations Development ProgramUSD : United States DollarWUA : Water Users’ AssociationVBs : Village BanksVBSC : Village Bank Supervising CommitteeZESCO : Zambia Electricity Supply CorporationZMK : Zambian KwachaZWB : Zambia Water Board

LIST OF TABLES

Number Title Page

4.1 Summary of Project Cost Estimates by Component .................................................................19

4.2 Summary of Project Cost Estimates by Category of Expenditure .............................................19

4.3 Sources of Finance .....................................................................................................................20

5.1 Summary of Project Expenditure by Component ......................................................................22

5.2 Summary of Expenditure Schedule by Source of Finance.........................................................22

5.3 Procurement Arrangements........................................................................................................25

LIST OF ANNEXES

Number Title No. of Pages

Annex 1. Map of Zambia with Project Sites ..........................................................................................1

Annex 2. Environmental Summary: Impact Analysis ............................................................................1

Annex 3. Provisional List of Goods and Services ...................................................................................1

Annex 4. Tentative Implementation Schedule ........................................................................................1

Annex 5 Calculation of Economic Rater of Return and Its Sensitivity Analysis...................................1

* Detailed Cost Tables and Farm Budget are attached in Volume II

AFRICAN DEVELOPMENT FUND

01 B.P. 1387, ABIDJAN 01Tel: (225) 20-20-44-44Fax: (225) 20-20-49-02

Telex: 23717

PROJECT INFORMATION SHEET

Date: May 2000

The information given hereunder is intended to provide some guidance to prospectivesuppliers, contractors, consultants and all persons interested in the procurement of goods,works and services for projects approved by the Board of Directors of the Bank Group. Moredetailed information and guidance should be obtained from the Executing Agency andBorrower.

1. COUNTRY : Republic of Zambia (GRZ)

2. NAME OF PROJECT : Small-Scale Irrigation Project (SIP)

3. LOCATION : Three Districts: 1) Sinazongwe (Gwembe Valley);2) Mazabuka; and 3) Chongwe.

4. BORROWER : Republic of Zambia (GRZ)

5. EXECUTING AGENCY : Ministry of Agriculture, Food and Fisheries (MAFF)P.O. Box 50197, Lusaka, ZambiaTelephone: (260-1) 253-933Telex: 439/40093 MIANGFax: (260-1) 253-520

6. PROJECT DESCRIPTION :

The project has three components: 1) Establishment of small-scale irrigation schemes; 2)Provision of credit for village banking system; and 3) Capacity building for MAFF staff andbeneficiary farmers.

7. PROJECT COSTForeign : UA 3.64 millionLocal : UA 4.40 millionTOTAL COST : UA 8.04 million

8. SOURCES OF FINANCEADF : UA 5.29 millionTAF : UA 0.76 millionGovernment Contribution : UA 1.31 millionBeneficiaries’ Contribution : UA 0.68 millionTOTAL COST : UA 8.04 million

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9. DATE OF APPROVAL : June 2000

10. ESTIMATED STARTINGDATE OF PROJECT : March 2001

11. PROJECT DURATION : Six years

12. PROCUREMENT :

Project goods, works and services to be financed by the Fund will be procured according to theADF Rules and Procedures for procurement using the Fund’s Standard Bidding Documents.Civil works for conveyance main pipelines will be carried out under International CompetitiveBidding (ICB). Procurement of civil works for rehabilitation/construction of main andsecondary canals will be carried out under National Competitive Bidding (NCB). Civil works atFG/Communities level for construction of pumping stations, service tanks, schemetrack/roads, drains, canal structures and warehouses and input shops will be procured throughNCB using the existing System of RIF to encourage community participation. Construction ofsecondary canals and opening of on-farm furrows, and land cleaning and land re-leveling willbe carried out by FGs as voluntarily contribution. Contracts for pontoons(1) and boosterpumps and vehicles will be awarded under NCB. Vehicles will be procured through ICB.Office and field equipment will be procured using International Shopping (IS) Procedure. Thematerial needed for participatory civil works will be procured through (ICB).

13. CONSULTANCY SERVICES :

Consultancy services including the use of local specialized agencies, Micro-FinanceIntermediaries (MFIs), Non Governmental Organizations (NGOs), individual consultants, ortechnical assistants as well as audit services will be procured through competition amongshortlisted consultants following the selection procedures of technical quality with priceconsideration in accordance with the Bank Group’s “Rules of procurement for the Use ofConsultants”.

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(1) Pontoon is a floating portable board to carry the irrigation pump

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SUMMARY, CONCLUSION AND RECOMMENDATIONS

1. Project Background:

The need for financial support stems from Government’s resettlement program of the TongaCommunity during the construction of Kariba Dam, Gwembe Valley in the 1950’s. Tongafarmers were displaced to the upland of the valley and elsewhere in Southern Province. Theyended up engaging in rain-fed subsistence farming on marginal lands, thus increasing theincidence of poverty. In its resettlement program, the Government of the Republic of Zambia(GRZ) established more than 60 resettlement schemes mainly for resource poor settlers whoare also engaged in rain-fed subsistence farming with limited development support. Inpursuance of its policy of food security, reducing poverty and increasing household income,GRZ in 1998 sought the Bank Group assistance to finance three projects in the agriculturalsectors including small-scale irrigation development project.

2. Purpose of the Loan:

The ADF Loan of UA 5.29 million, amounting to 65.8% of the total project, will be used tofinance 86.5% of the foreign exchange (UA 3.15 million) and part of the local cost (UA 2.14million).

3. Sector Goal and Project Objective:

The agriculture sector goal is to contribute to GDP growth while achieving food security andpoverty reduction. The project objectives are to increase food production and householdincome of the target group of the project.

4. Brief Description of the Project’s Outputs:

In order to achieve the above stated objectives, the project will focus attention on:i) Establishing Small-scale Irrigation Schemes;ii) Establishing village banks for rural saving and credit;iii) Building the human and institutional capacity.

5. Project Cost:

The total project cost is estimated at UA8.04 million out of which UA 3.64 million (45.3%)will be in foreign currency and UA 4.40 million (54.7%) will be in local currency.

6. Source of Finance :

The project will be financed by the African Development Fund and the Government of theRepublic of Zambia (GRZ). ADF funds will be utilized to finance civil works for irrigation,institutional capacity building, marketing support as well as irrigation equipment, technicalassistance, design and surveys, training, and credit for farmers to purchase small electricmotorized pumps and food processing equipment.

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Total ADF contribution representing 65.8% of total costs, will be utilized to cover 86.5% of theforeign exchange costs and 48.6% of local cost. Total TAF contribution representing 9.5% oftotal costs, will be utilized to cover 13.5% of the foreign exchange costs and 6.1% of local cost.The Government’s contribution of UA 1.31 million, representing 16.3% of the total project cost,will be utilized to partially cover electrification cost, staff salaries and rental costs for projectoffice. The project beneficiaries’ contribution which will cover labor force required forconstruction of secondary and on-farm canals, fencing and land preparation and levelingrepresents 8.4% of the total project cost.

7. Project Implementation:

The project implementation period is six years. Ministry of Agriculture, Food and Fisheries(MAFF) will be the Executing Agency and will appoint a full-time Project Coordinator/CivilEngineer (PC) assisted by an Accountant. The PC will be responsible for overseeing thegeneral implementation of all components including the capacity building component andsupervise implementation of irrigation and credit components. Rural Investment Fund (RIF)and Department of Field Services (DFS) will be responsible for implementing the irrigationcomponent. A Micro-Finance Intermediary (MFI) will be selected to manage the creditcomponent and establish the village banks. At the district level, a District Project Manager(DPM) will be assigned to ensure progress of all project activities.

8. Conclusion and Recommendations:

The project is designed to minimize drought risk and increase production and householdincome. The project is participatory in its design and decentralized in its implementation toensure sustainable community development. Doubling the harvest through irrigation facilitieswill reduce poverty for about 1,650 families or 9,900 individuals.

It is recommended that a loan not exceeding UA 5.29 million and a grant of UA 0.76 millionbe granted to the Government of Zambia for the purpose of implementing the project asdescribed in the report and subject to the conditions specified in the loan agreement.

(v)ZAMBIA: Small-Scale Irrigation Project (SIP)

Logical Framework

Narrative Summary (NS) Measurable PerformanceIndicators (MPIs)

Means ofVerifications (MOV)

Important Assumptions

Goal:

Contribute to agriculture GDPgrowth, food security andpoverty alleviation.

1.1 Current agriculture sectorcontribution (17.3%) to the GDPwill increase by PY6.

1.1 Statistics of MAFF

1.2 Statistical Gov.publications.

(Goal to Supergoal)

1.1 Government reformprogram remains ontrack.

Project Objective:

Food production and farmincome of the target groupincreased.

1.1 Present maize deficit of 25%among target groups will beeliminated by PY6;

1.2 Household income of thetarget groups will increase byPY6 from:$0.66 - 1.85 for small-holders$2.05 – 9.30 for emerging farms.

1.1 M&E samplesurveys for targetgroups;

1.2 MAFF statisticalpublications;

(Objective to Goal)1.1 Adequate capacityof FCops and FGs inmanaging irrigation andcredit schemes, and

1.2 Prices of agricultureProducts will remainstable.

Outputs:

1. Small-Scale IrrigationDevelopment Schemesmanaged by Farmer Co-operatives (FCops) and FarmerGroups (FGs).

1.1 Irrigated land increased by1,890 ha and 1,650 farmersbenefited by PY6;

1.2 About 6-8 FCops and 64FGs will be established andlegally registered; and

1.3 Members of the FGs willsuccessfully manage theirirrigation and credit schemes

1. Project files andrecords;

2. Quarterly ProgressReports (QPR);

3. MAFF’s records.

1.1 FCops will belegally registered andapply for water rights;and

1.2 FGs are welling tocontribute at least 25%of the project cost interms of labor andcredit

2. Sustainable Rural CreditSystem established andmanaged by FCops and FGs.

2.1 Between 6-8 Village Banks(VB) will be established byPY2;

2.2 About 25 members of theVB Supervising Committees willbe trained in credit managementby PY3;

2.3 Recovery rate of creditcomponent is 90-95%;

Same as above 2.1 Farmers will formand register FCops andbenefit from creditfacilities;2.2 Credit needs for FGwill be met MFI;

3. Capacity building of MAFF,RIF, and Targeted Groupssignificantly improved.

1.1 About 1,650 farm familiesdirectly benefited from theirrigation technology and trainedmarketing and credit by PY6;

1.2 About 64 FCops and FGsestablished, legally registered,benefit from the project andsuccessfully managed theirschemes.

1.3 About 250 farmers trainedfor 3 months and 50 farmexchanged visits/tours;

1.4 At least 7 marketing andstorage facilities will beestablished for FCops and FGs;

1.5 New building forDepartment of Field Servicesestablished with 30 offices byPY5.

Same as above1.1 Community willparticipate in projectimplementation andprocurement process;and

1.2 Local know-howand materials will beutilized throughcommunityparticipation anddecentralization.

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Narrative Summary (NS) Measurable PerformanceIndicators (MPIs)

Means ofVerifications (MOV)

Important Assumptions

Activities:

Construction, Establishment ormanage the following:

Irrigation Scheme2.1 Introducing power supply;

2.2 Land cleaning/re-leveling;

2.3 Conducting of the main,pipelines, secondary and on-farm canals in all project sites;

2.4 Construction of waterservice tanks and pumpingstations;

2.5 Installation of boosterpumps.

Rural Credit System2.1 Legal registration of theFCops and FGs for creditfacilities;

2.2 Sensitization forFCops/FGs and training ofmembers in credit facilities andmechanism such as:

2.3 Credit pumps, inputs, non-farm activities, and formarketing equipment

Capacity Building3.1 Building Dept. of FieldServices with 30 offices;

1.2 Training of TSB staff incrop management, storage,community and watermanagement;

1.3 Training of DACs staff inproject appraisal;

1.4 Demonstrations/field tours

1.5 Formulation of 6 FCopsand 64 FGs in the project sites.

1.8 Building warehouses andinput shops in project areas.

Inputs:

In UA Million

_______ UA 4.15 million

_______ UA 0.87 million

_______ UA 3.02 million

Total UA 8.04 million

1. ORIGIN AND HISTORY OF THE PROJECT

1.1 Zambia shares borders to the North with Tanzania and Democratic Republic ofCongo, to the West with Angola, to the South and South West with Namibia. In the SouthEast lies Zimbabwe, while Mozambique and Malawi are located on the Eastern border.Zambia is divided into 9 provinces and 53 districts covering an area of about 753,000 Km².The mean annual rainfall ranges from over 1,300 mm in the Northeast and Northwest to lessthan 700 mm in the South to Southwest.

1.2 The total population is estimated at 8.8 million (1998) growing at 2.3 % per annum.Urban population growth is estimated at 3.2 % p.a. while most rural areas are very sparselypopulated. Although the overall average population density is around 12 persons/km², Zambiais one of the most urbanized countries in Sub-Saharan Africa. About 43.6% of the populationlive in urban centers and in a 100-km wide strip along the 1,000-km railway line from Ndolain the North to Livingstone in the South.

1.3 Land and water are Zambia’s main natural resource base. About 70% of its land iscovered with Miombo woodland. Closed forests comprise less than 10% of the Riparian andswamp forests are found along major rivers and on flood plains. Major rivers are in thecopper belt and in the Northeast of the country. The Kafue and Zambezi rivers share borderswith Zimbabwe and Mozambique. Both rivers are important in terms of providing seafood,water for agricultural and domestic purposes as well as provision of hydroelectric power.

1.4 Irrigated agriculture, especially on the small-scale level, has become an essentialmeans of improving land productivity and providing development opportunities for incomegeneration, employment creation, food security and poverty reduction in Zambia. Under itsagricultural development policy the Government of the Republic of Zambia (GRZ) intends todevelop small-scale irrigated agriculture as a means of improving its food security situation,reducing poverty substantially and increasing economic growth at the national level.

1.5 The need for development and financial support in parts of Gwembe Valley stemsfrom Government’s resettlement program of the Tonga Community during the construction ofKariba Dam in the 1950’s. Gwembe-Tonga farmers, living near the construction site weredisplaced to upland Gwembe Valley and elsewhere in Southern Province and ended upengaging in rain-fed subsistence farming often on marginal lands, thus increasing theincidence of food insecurity and poverty. In its resettlement program, the Governmentestablished more than 60 resettlement schemes mainly for resource poor settlers such as NegaNega Settlement B in Mazabuka District, Southern Province and Kanakantapa Settlement inChongwe District, Lusaka Province who are engaged in rain-fed subsistence farming withlimited development support.

1.6 In light of the foregoing, the GRZ invited the ADB in the framework of its intention toseek financial support for Gwembe Small Scale Irrigation Development. Following theGovernment’s invitation, an ADF mission visited Zambia from 26 May to 09 June 1999 andidentified possible sites and collected necessary data and information. Further, an ADFmission visited the country for project preparation during the period 29 August to 17September 1999. Based on the preparation report, an appraisal mission was undertaken from01 to 22 March 2000. The present report is a result of the mission’s findings.

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2. THE AGRICULTURAL SECTOR

2.1 Salient Features

2.1.1 Agriculture is a significant player in Zambia’s socio-economic landscape. Althoughit’s share of the GDP is presently 17.3%, about 50% of the population depend on agriculturefor their livelihood. The real agriculture GDP growth for 2000 was estimated to be 7.3%. Thesector supplies 90% of all the nation’s food consumption. It employs about 67% of the laborforce and it provides by far the most employment opportunities for rural women. Farm laborin the small holder sub-sector accounts for 21% of the economically active rural population.

2.1.2 Agricultural exports (mainly tobacco and cotton) as a share of total exports accountfor less than 3 %. The share of food imports such as wheat, dairy products and vegetable oilsand agricultural inputs, such as fertilizer, however, has increased to 11% of the total foodimports. Also, the share of cereals in total food imports has increased over time reflecting thecountry’s deteriorating food self-sufficiency situation. Even in good years, at least 25% of thesmall-scale farm households are food (maize) deficient.

2.2 Structure

2.2.1 Out of a total of 48 million ha with agricultural potential, only about 27 million ha areactually available for agricultural use. This includes about 3 million ha of state land and 24million ha of customary land, including freehold tenure. Of an estimated 9 million ha of thefarmland only 1.4 million ha is presently under cultivation.

2.2.2 About 8.1 million ha of this farmland is occupied by some 300,000 large-scale andemerging farmers who are situated along the major roads, line of rail or in the high potentialagro-ecological areas. They mostly produce wheat, sugar cane and horticultural cropsincluding citrus for export. On the other hand, 460,000 smallholder farmers occupy about0.87 million ha of the farmland. They are situated in marginal agro-ecological areas withlimited access to markets, credit and information. Smallholder farmers produce primarily forsubsistence and only occasionally do they have a marketable surplus. Most of them cultivatewhite maize, sorghum, millet, cassava, and beans, and engage in livestock production.

2.3 Constraints to Agricultural Development

Overall, agricultural development is constrained by recurrent and prolonged droughts.The southern province is regularly hard hit. Other major problems of the sector are: i) poorinfrastructure; ii) poor crop yield; iii) poor access to inputs; and iv) inappropriate access tocredit by farmers. Other constraints include a weak institutional human resource base andinadequate access to knowledge and information. Land pressure and the inadequate provisionof extension not only constrain production but also contribute to soil degradation.

2.4 Policy Framework

2.4.1 In 1993, GRZ initiated a series of new sector policies described in its “Framework forAgricultural Policies to the Year 2000 and Beyond” policy statement. These new policies aimat: (i) improving food security; (ii) increasing rural incomes and employment opportunities;

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(iii) sustaining the rural resource base; (iv) expanding agriculture’s contribution to industrialdevelopment and (v) expanding agriculture’s contribution to balance of payments.

2.4.2 By mid 1993, the Government fully decontrolled prices and marketing of maize andeliminated agricultural subsidies. The increase in real producer prices led to an expansion inthe area under cultivation and rising interest in cash crops. The Government also showedincreased interest in diversifying crop production and expanding irrigated agriculture.Furthermore, the Government realized the need to improve research and extension services,improve the land tenure situation and ease access of small holders, especially women, tocredit and farm inputs. In 1994, the Ministry of Agriculture, Food and Fisheries (MAFF)selected the Agricultural Sector Investment Program (ASIP) as the vehicle for implementingits various sector policies.

2.4.3 In 1997, the GRZ established the Rural Investment Fund (RIF) as an ASIP sub-program to provide financial support, implementation and supervision services to small-scalerural infrastructure projects in building the productive capacity of the poor farmers. RIF isbased in Lusaka and operates as an autonomous entity of the Economic and MarketDevelopment Department of MAFF. Although, it has limited staff at the headquartersincluding a coordinator, civil engineer, and accountant, it closely coordinates with theTechnical Services Branch (TSB) staff at the provincial and district levels. RIF is financed bydifferent donors including IDA, IFAD, and ADB. Projects under RIF are “group-based”,“demand-driven” investments and “matching grants” partnership between RIF andFG/Communities. The RIF’s eligible farmers and target groups are the small-scale farmerswho are organized in legally recognized groupings in the rural communities. Specificobjectives of the RIF are to: i) encourage equity expansion; ii) promote capacity buildingthrough saving and loan financial institutions; iii) establish and/or strengthenFGs/Communities; iv) offer training in organizational and group activity, group management,report keeping, and decision making.

2.5 Institutional Framework

2.5.1 Public Sector: MAFF was restructured in 1996 into four departments; (i) FieldServices Department (FSD); (ii) Research and Specialist Services Department; (iii)Economics and Marketing Development Department; and (iv) Human Resources andAdministration Department. The FSD comprises the Technical Services Branch (TSB),Agricultural Extension Branch (AEB) and Fisheries Extension Branch (FEB). Responsibilityfor planning and support to irrigation development lies with the TSB. The responsibility ofproviding Agricultural Extension lies with AEB.

2.5.2 Through a process of decentralisation under the ASIP program, the Technical ServicesBranch (TSB) at the headquarters has delegated its power to the Provincial Core Teams(PCTs) and District Field Teams (DFTs). There are presently 9 provincial and 29 functionalDistrict Field Teams. They undertake all TSB activities through Senior Field Services Co-ordinators in the offices of the Provincial Agricultural Co-ordinator (PACO) and DistrictAgricultural Co-ordinator (DACO).

2.5.3 Non-Governmental Organisations (NGOs) in Zambia have sought to fill in the weakhuman resource base by capacity-building of Community Based Organizations and supportinginitiatives emerging through a participatory process of planning and design. Quite a number

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of the NGOs are actually experienced in management and maintenance of activities related toirrigation and water use.

2.6 Land Tenure and Land Use

2.6.1 Zambia has a dual land tenure system comprising regimes that are statutorily andcustomarily regulated. In 1970, the Land and Miscellaneous Act vested all land in Zambiaincluding the Barotse Reserve, in the President’s Office. The 1995 Land (Conversion of Title)Act converted freehold tenure to a statutory lease of 99 years. By this Act, all freehold landand leaseholds of over 100 years were converted into statutory leaseholds not exceeding 100years. Upon expiry, a lease may be extended for a further 100 years or less as the Presidentmay see fit. The President has delegated land administration to the Commissioner of Landswho is responsible for the administration of the State land and allocates this land for variousactivities including farming.

2.6.2 However, under ASIP, GRZ adopted in 1997 a land tenure policy through whichirrigation schemes will be handed over to members of Water User Associations (WUAs),Farmer Cooperatives/Groups (FGs). Upon ratification of the required legislation, land titlesand water rights would be transferred to the WUAs/FGs. Prior to this transfer, beneficiaryfarmers will be trained in managerial aspects. In general, for any agricultural settlement, landis distributed to farmers on tenure basis. When irrigation development is introduced, land titlefor the entire scheme is issued in the name of MAFF. Once beneficiary farmers are organizedinto Farmer Co-operative/Association, the land title is transferred to their association. (para.3.2.3)

2.6.3 In the project-area most of the selected sites belong to farmers who have title deeds orwho are in the process of obtaining such deeds through the Commissioner of Lands. InBuleya Malima scheme and Nega Nega settlement B, beneficiary farmers are organized intoFarmer Co-operatives that are legally registered. In Kanakantapa settlement some farmersalready have title to their land on an individual ownership basis. However, in GwembeValley, farmers utilize the land under customary law.

2.7 Rural Finance

2.7.1 The financial sector in Zambia consists of (i) commercial banks; (ii) para-statalorganizations; and (iii) Micro-Finance Intermediaries (MFIs) and credit oriented NGOs.Though there are 19 commercial banks, with a network of branches in 52 locations outsideLusaka, only 5 have a significant rural branch network and agricultural credit portfolio. Dueto the inability of the small and emerging farmers to provide satisfactory collateral and legalguarantee, the commercial banks mainly provide credit to large-scale commercial farmers.

2.7.2 The para-statal organizations for rural finance such as Lima Bank and ZambiaCooperative Federation collapsed in the early nineties. While the main purpose of the latterwas to provide credit to the rural poor, most of them succumbed to the Governmentinterference. Although, the Credit Union and Savings Association (CUSA) is the onlyorganization that is still in operation, it faces serious financial and managerial problems. In1998, based on a study of the rural finance sub-sector, the UNDP decided to support CUSA toplay an important role in the delivery of micro-credit. Presently, UNDP is providing technical

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assistance and training to reinforce CUSA’s capacity to deliver micro-finance effectively andpossibly at lower cost.

2.7.3 After the collapse of the para-statal organizations, a new type of credit institutionscame up to provide micro-finance services. Some were private initiatives while others wereNGOs that entered the field of micro finance. Currently, there are a number of programs withsubstantial outreach such as CARE-PULSE program, Credit Management Services privatecompany, Women Finance Cooperatives Zambia, and Christian Enterprise Trust of Zambia.However, most of these organizations are working in the urban areas of Lusaka and theCopperbelt. Estimated outreach of all these programs together amounts to approximately14,000 borrowers countrywide. Further, the loan recovery rates of these organizations varybetween 50% and 80%. In addition, since all of these MFIs are still in the development stage,financial viability indicators are low and for the majority of them information concerningtheir registration as micro finance intermediary is not available.

2.7.4 Currently, in the micro finance market there are some institutions established as anautonomous body to execute credit delivery system through the empowerment of the targetgroup for self-management of the credit system such as Micro Bankers Trust (MBT). In 1996,the MBT was established to implement the Micro-Credit Delivery for the Employment of thePoor program as a joint venture of the GRZ and the European Union. The vision of MBT is tocreate a credible micro-finance industry with capacity for sustainable national outreachwhereby the vulnerable people are economically empowered to improve the quality of theirlives. Its main functions are to provide group formation, savings mobilization, and cap micro-credit services. The MBT is embarking on identifying grass roots organizations in the fieldand is working together with these organizations to build accountable organizations that willdeliver micro-finance services to the vulnerable groups.

2.7.5 In 1998, an Association of Micro finance organizations in Zambia (AMIZ) wasestablished as an umbrella organization to represent its members to develop capacity buildingservices and contribute to the establishment of an appropriate legal framework anddocumentation of its members. AMIZ has approximately 40 members most of whom are stillpreparing to lend. It has received assistance from the Swedish International DevelopmentCooperation Agency (SIDA) to define its business plan as a finance provider.

2.7.6 Despite the presence of a large number of small MFIs/NGOs in Zambia, theiroperations are still in the development stage and required data concerning their financialviability are not available. In addition, the majority does not have capacity to manage such acredit component. However, there are three credit worthy micro finance institutions inZambia namely (i) CUSA; (ii) MBT; and (iii) AMIZ which are viable to manage the creditcomponent in the project. In addition, there are few NGOs, which seem to have the requiredexperience in micro-finance and capacity to help manage the micro credit services in theproject area. GRZ will contract one MFI/NGO through short-listing to manage the micro-credit component.

2.8 Rural Poverty in Zambia

2.8.1 Poverty and food insecurity in Zambia are deeply entrenched. Some 70% of ruralhouseholds live below the poverty line i.e. population living below US$ 1.00 a day perperson, compared to 43% in the urban areas. The Eastern and Southern Provinces have the

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highest concentrations of people living below the poverty line. Detailed surveys reveal thatseveral of Southern Province districts have very high levels of malnutrition. Further, recentDemographic and Health Surveys show that, in this area, underweight prevalence in childrenhas increased to 25% which implies that more than 400,000 children are affected.

2.8.2 More than 60% of the rural people in Gwembe Valley are poor and have no access tocredit facilities. They lack collateral, satisfactory to Commercial Banks due to absence of titledeeds and lack the capacity for equity contribution, which is required for medium-term loans.Women farmers’ needs in particular are not adequately recognized. An additional problem isthat credit provided by NGOs and/or Outgrower Schemes is often localized and tied to fewcrops/commodities. Also, inputs delivered by credit institutions and suppliers reach the farmtoo late. This situation, therefore, calls for special support measures to smallholder farmers.

2.9 HIV/AIDS: Threat to Development

2.9.1 One of the constraints to agricultural development, in general, in Zambia is theHIV/AIDS pandemic that is causing a loss of qualified labour, especially in the agriculturalsector. The first AIDS case was diagnosed in Zambia in 1985. In 1997, the estimated numberof adults and children living with HIV/AIDS was 770,000, of whom 730,000 were adults. Apopulation-based survey of 1995/96 indicated that 10% of the rural and 26% of the urbanpopulation are HIV-infected. In 1998, about 20% of the adult population in Zambia wereHIV/AIDS-infected while the opportunistic infections such as tuberculosis were spreading atan alarming rate.

2.9.2 HIV/AIDS is thus, the most important public health problem in Zambia and it has amajor and direct impact on development. Because of AIDS, life expectancy is likely todecrease by more than 15 years by 2010 compared to projected life expectancy in the absenceof AIDS. The epidemic will exacerbate poverty and lower the growth of the labour force andproductivity. If the current trends of the endemic are not checked, it will undermineZambian’s achievement of its projected medium term development agenda. Given themagnitude of the epidemic and its impact on development, a multi-sectoral approach isrecommended to curtail the spread of the epidemic. In response to the epidemic, the GRZ hasdeveloped a National AIDS Control Program (NACP) to lower the incidence of HIVinfections.

3. THE IRRIGATION SUB-SECTOR

3.1 Salient Features

3.1.1 Irrigation development in Zambia started in the early 1960s both by government andthe private sector. The national total irrigated area is estimated at 53,000 ha. Out of this,government and para-statal schemes account for 22,200 ha and the private sector for 30,800ha. GRZ schemes can be classified into: (i) Large scale commercial schemes funded bycommercial banks; (ii) Medium scale commercial schemes, funded by the GRZ and para-statals; and (iii) small holder non-commercial schemes, funded by the GRZ, donors andfarmers themselves. Private commercial irrigation systems have generally proven successful.The largest GRZ project covering an area of 10,000 ha is Nakambala Sugar Estate inSouthern Province was constructed in 1986 and owned by the Zambia Sugar Corporation.This was followed by 5 other large-scale schemes ranging between 1,300 and 2,100 ha in the

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1970s and 1980s. These schemes are the Kaleya Small-scale Company farm; MpongweDevelopment Company; Munkumpu Project; Gwembe Development Company and MastockCompany farm.

3.1.2 Zambia offers extensive possibilities for irrigation development. With the assistanceof JICA, a National Water Resources Master Plan was undertaken, the final report of whichwas submitted in 1995. The study identified over 360,000 ha for possible surface irrigationand 60,000 ha for groundwater development. Annual runoff from major rivers has beenestimated at 153 billion m³ (or 12% of rainfall). Groundwater potential for irrigation has beenestimated at 57.5 billion m³ or about 4.5% of rainfall.

3.2 Irrigation Policies and Strategies

3.2.1 The irrigation policy as adopted in the National Development Plan (1989-1993),included the development and promotion of a national irrigation program aimed at bothsmall-scale and large-scale producers through the following strategies: (i) developing waterstorage facilities and irrigation infrastructure; (ii) developing gravity fed systems for small-scale schemes for increasing production; (iii) expanding the electricity grid to cater for theirrigation areas; (iv) preparing a national water resources Master Plan; and (v) establishingand sustaining a credit scheme for the promotion of irrigated agriculture.

3.2.2 With a view to reinforcing the sub-sector, the government adopted policies under theASIP including: i) promoting economically sustainable irrigation systems among small andlarge-scale farmers; ii) expanding the area under irrigated agriculture and contributing toincreased crop production; and iii) creating rural employment and income generation.

3.2.3 In support of its scheme-transfer program, the Water Act was amended in 1995 priorto the introduction of ASIP. There is now a revised legislation recognising the use of waterfor irrigation for all levels of farmers and not only as secondary users, to ensure an equitableand sustained use of water. It also makes provision for the sale, transfer and inheritance ofdeveloped irrigation facilities and includes elements of dispute settlement (para. 2.6.2).

3.2.4 The Water Development Board (WDB) is empowered to grant water use permits forapplications. Beneficiaries have to obtain a water user rights to be able to benefit from theproject. MAFF submitted a request to WDB for clearance of water user rights for the sixproposed project sites. The WDB had no objection for the three sites in Sinazongwe District.For the two sites in two other districts, official clearance has not yet been provided.Submission of the clearance of the water user rights for the project beneficiaries will thereforebe retained as a loan condition.

3.3 Irrigation Institutions

3.3.1 MAFF is mandated to develop and co-ordinate all agricultural and livestock activitiesin Zambia. Among the four departments of MAFF, the Department of Field Services (DFS) isresponsible for irrigation. It is made up of three branches: Technical Services, AgriculturalExtension and Fisheries. The first phase of MAFF decentralisation under ASIP has beencompleted. This involved decentralisation of decision-making and program management tothe district level and staff rationalisation. (para. 2.5.1)

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3.3.2 Responsibility for irrigation planning and development rests with the TechnicalServices Branch (TSB) which is made up of Farm Power, Land Husbandry and IrrigationSections. The Irrigation Engineering Section is responsible for irrigation development inZambia through policy formulation, resource assessment, project implementation andprovision of technical services to institutions, farming enterprises and individuals. TheBranch is organised at provincial level into provincial and field teams. For provincial teamsthe establishment provides for 3 Subject Matter Specialists (SMS) for the three sections and 4mapping and remote sensing Technical Officers. The field teams, on the other hand, are to bemade up of one specialist, one Chief/Principal Technical Officer, 3 Senior and 4 JuniorTechnical Officers.

3.3.3 Agricultural Extension is implemented by the Agricultural Extension Branch (AEB)which has sections for crop husbandry, horticulture, animal husbandry and training. TheBranch is organised at provincial level into Districts, Blocks and Camps. At the District, aDistrict Agricultural Officer (DAO) is supported by Subject Matter Specialists (SMSs) asappropriate. An Agricultural Supervisor heads a block and is supported by AgriculturalAssistants (AAs) or Camp Officers. The three districts under the project are made up of 12blocks, which are divided up, into a total of about 66 camps. In Southern and LusakaProvinces, the AEB staff consists of 46 professional staff and 252 technical officers. In thethree project districts, there are 11 block extension officers and 55 camp extension officers.

3.4 Experience from Irrigation Projects

3.4.1 The Bank Group has not as yet financed any specific irrigation project in Zambia.However, the experience of some of the recently donor-funded irrigation projects are givenbelow:

3.4.2 During the period 1997-99, RIF has been able to manage, finance and implement over114 rural infrastructure sub-projects including irrigation and earth dams rehabilitation andconstruction costing over US$ 1.8 million. Its success is attributed to participation of thefarmers groups and to its simple decentralised procurement procedures. However the US$30,000 procurement limit set by IDA for the projects has proved inadequate for constructionof dams as most of the dam projects undertaken have been more expensive.

3.4.3 IFAD is financing the Small-scale Irrigation and Water User Program (SIWUP)starting 1996 for a period of five years. The project designed 19 earth dams in 1998 andconstructed/rehabilitated only seven dams by the end of 1999. The delay in the program waspartly due to the restructuring of MAFF and delays in procurement process through theProcurement and Supply Unit and its limited technical capacity.

3.4.4 For the sake of harmony and avoiding confusion among communities in the projectarea, the GRZ requested IFAD to streamline its implementation activities and to adopt thesame approach as followed by RIF in financing IDA projects. In 1999, SIWUP adopted theRIF procurement procedures to improve the project implementation rate. As lesson learnt, theSIP project has been designed to use the RIF existing facilities to carry out activities under theirrigation component in a participatory and decentralised manner to ensure long-runsustainability and to minimise possible implementation delays.

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3.4.5 The Japanese International Co-operation Agency (JICA) financed KanakantapaSettlement Development Project in 1993. The project focused in rural and communityinfrastructure development including construction of an irrigation-training centre,mechanisation centre, and an administration and storage centre in addition to earth and accessroads. Although the training centre trained about 300 farmers in irrigation technologies,farmers still practise rain-fed agriculture due to the lack of irrigation infrastructure. In co-ordination with donors, the SIP project will provide farmers in the Kanakantapa Settlementwith an earth dam, two irrigation stations and main canals to irrigate about 620 ha.

3.4.6 Gwembe-Tonga Development Project (GTDP) is being implemented by ZESCO as acomponent of the joint World Bank and Development Bank of South Africa’s powerrehabilitation project. The project includes agricultural development, recession agricultureand land conservation. Community infrastructure development, including electricity supply,health, water supply and schools are also covered. This SIP project will benefit from thecommunity development and roads improvement in Sinazongwe where the project willdevelop four sites.

4. THE PROJECT

4.1 Project Concept and Rationale

4.1.1 The proposed project will assist the GRZ in its effort to eradicate rural poverty bypromoting small-scale irrigated agriculture. The project design is in line with Government’sASIP program and its agricultural diversification policy. Further, the project will encouragedecentralization by implementing irrigation development at district level, through fullbeneficiary participation in design and management of the irrigation and credit schemes. Theproject is also in line with ADF-VIII policy in that it has adopted a development assistancestrategy, which promotes sustainable economic growth with poverty reduction as its centralgoal. This project is also in line with the Bank Group vision of poverty reduction as well asAgricultural and Rural Development Policy

4.1.2 The project design has been participatory. Traditional leaders, communities anddistrict MAFF staff have all been closely involved in the preparation process. Based onvarious consultative meetings, six sites have been retained for irrigation development.Beneficiary qualifications have been examined and preference given to organized and legallyregistered FGs/Co-operatives, which demonstrated ability to develop their capacity to becomeeconomically self-supporting and were willing to participate in the project by providing laborand becoming part of a credit/savings scheme. As the project is targeting the poor, beneficiaryfarmers were selected based on: (i) increased vulnerability to food shortages; (ii) inability toovercome resource handicaps in farm production; (iii) cultivation of less than 3 ha under rain-fed conditions; and (iv) experience in working as groups or formulated farmer co-operatives.

4.2 Project Area and Beneficiaries

4.2.1 The project will develop six sites located in three districts namely Sinazongwe,Mazabuka (Southern Province) and Chongwe (Lusaka Province). Selection of the projectsites was based on the following criteria: (i) existence of a sustainable source of water; (ii)technical feasibility of the irrigation technology; (iii) cost of lifting water; (iv) soil suitability;(v) environmental impacts and ease of mitigating them; and (vi) market potential. Traditional

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Authorities have agreed to the sites and communities have expressed their desire toparticipate in the project activities.

4.2.2 In Sinazongwe District of Gwembe Valley, the project will develop 4 sites: (i)Simunpande Village; (ii) Nzenga Fishing Camp; (iii) Sinazongwe Village; and (iv) BuleyaMalima. The Buleya Malima scheme will be rehabilitated and expanded. Farmers in the foursites are smallholder farmers with communal lands that range from 0.26 to 1.0 ha. InMazabuka District, the project will develop Nega Nage Settlement B scheme. Beneficiaryfarmers (emerging farmers) have freehold cultivable plots of an average size of 5.0 ha. InChongwe District of Lusaka Province, the project will develop Kanakantapa settlementscheme for smalholder farmers. The average holding area in that site is 4.0 ha.

4.2.3 In Sinazongwe District, the land area of the first three sites totals 400 ha with 530beneficiary farmers. In Buleya Malima, the scheme has 171 farmers. Its co-operative boardhas been managing the scheme since 1982. Its farmers are currently cultivating only 45 hausing electric powered irrigation pumps. The project will rehabilitate the existing scheme andexpand the irrigated land to 275 ha to serve 436 farmers.

4.2.4 The Nega Nega settlement B scheme of Mazabuka District has been established formore than 18 years. This settlement comprises about 200 freehold plots of various sizes witha total area of about 2,000 ha. Currently about 40% of the freehold plots are under rain-fedcultivation while the remainder is woodland and grazing land. The average cultivated land ishowever 5.0ha. The proposed irrigation development will serve about 620 ha. Currently,some farmers have already obtained their title deeds. Scheme members have formed legallyregistered agriculture development associations.

4.2.5 Under the supervision of the Department of Resettlement, the Kanakantapa settlementscheme was established in 1993. The scheme has three blocks out of which block “A” of thescheme has 7 villages that were first established for the poorest people. The project will focusits irrigation development on those 7 villages. Total beneficiary farmers are 483 householdswith an average freehold plot of 4 ha. Six co-operatives are already formed out of which fourare legally registered. Due to high administration cost, only about 10% of farmers havealready obtained their title deeds. The proposed irrigation development will serve 595 ha.since the remaining area is utilized for woodland, grazing, access roads as well as residentialareas.

4.2.6 Project Beneficiaries in Sinazongwe Districts will be Tonga Farmers who wereresettled during the 1950’s. About 966 farm holdings (families) will directly benefit from theproject. They are considered poor to very poor. In Mazabuka District, farmers who are partlyresettled Tonga people and partly coming from peri-urban areas totaling 164 farm families,will directly benefit from the project. In Kanakantapa settlement a total of 483 farm familiesare expected to benefit directly from the project. A total of 1,650 farm families will directlybenefit from the project in the three districts. The project is expected to benefit directly a totalof 9,900 people.

4.3 Strategic Context

The agriculture sector goal is to contribute to GDP growth while achieving food securityand poverty reduction. The project will address: (i) the food security situation by expanding

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the area under irrigated agriculture; (ii) improving household incomes by providing credit,marketing, and extension support; (iii) agriculture’s contribution to balance of payments bypromoting high value cash crops through diversification; (iv) human resource capacity byproviding intensive farmer training and capacity building at various levels; (v) sustainabledevelopment through forming Farmer Co-operatives, introducing self-management of theirrigation and credit schemes, and through the participation of beneficiary farmers in thedecentralized implementation of the project especially its procurement process at thecommunity level.

4.4 Project Objectives

The project objectives are to increase food production and farm income of the targetgroup in the project area.

4.5 Project Description

4.5.1 The Small-Scale Irrigation Project (SIP) will comprise three components: (A)Irrigation Development; (B) Rural Saving and Credit; and (C) Capacity Building.

(A) Irrigation Development

4.5.2 This component seeks to establish sustainable small-scale irrigation schemes andrehabilitate an existing scheme to be self-managed in a decentralized and participatorymanner. Activities under this component will include i) Community Mobilisation and survey;ii) Planning and design work; and iii) Construction works.

4.5.3 The total estimated area to be developed is about 1,890 ha. Out of this, about 675 hawill be supplied with water from Lake Kariba, 595 ha from Kafue River and 620 ha from theupper reaches of the Kanakantapa River.

(i) Community Mobilisation and Survey

4.5.4 In collaboration between RIF and the District Agricultural Coordinator office (DAC),information campaigns will be initiated in order to inform farmers and other stakeholdersabout the project’s activities, facilities and its implementation mechanism. RIF will trainTSB, AEB, and Appraisal Team members of DAC. Under supervision of the ProjectCoordinator (PC), the trained DAC staff will be instrumental in explaining to farmers theproject methodology and assisting them in voluntarily forming and registering their FarmersCo-operative (FCops). RIF will arrange with the selected Micro-Finance Intermediary (MFI)to ensure that FCops satisfy the legal requirements for village banks. Members of the FCopswill be trained by RIF and TSB/DAC staff in scheme management, budget planning, costestimate, simple financial analysis, and bookkeeping. (para. 2.5.1 and 2.5.2)

4.5.5 FCops will be sub-grouped into about 64 FGs assuming that each FG will be made ofabout 25-30 farmers. Each FG will elect a Management Committee (MC) consisting of i)president; ii) treasury; and iii) secretary. Women will be represented in the MC by at least onewoman in each committee. The FG members will agree on how the scheme will be managedincluding operation and maintenance fee to be collected by the treasury to cover the recurrent

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cost of electricity and maintenance. The MC will assign an operator to manage theirirrigation pump station and be paid from the collected fees by the FG.

4.5.6 In accordance with RIF’s procedures, members of FGs will prepare a proposal for RIFinvestment, with help from TSB staff at district level, and submit it to the DAC for approval.With the assistance of RIF and DAC, farmers will survey the land topography and plan for itsclearing and re-leveling. The MFI will explain to beneficiary farmers the necessity of savingup front 15% of the required loan amount prior to receiving benefits from the credit facilities.FCops/FGs will submit their credit requests to finance the purchasing of their irrigationpumps.

(ii) Planning and Design Works

4.5.7 During the first two years, FGs will be formed and trained by RIF and TSB staff inParticipatory Rapid Appraisal techniques. FGs will identify their needs to develop theircommunity. FG will prepare a summary proposal including main and secondary canals, andrequired credit facilities. The DAC Appraisal Team will appraise the proposal and forward itto RIF for endorsement with copies to the Financial Management Unit (FMU). Funds will bereleased to a district RIF account and will be managed by the FG. The DAC and FMU willprovide support in fund management. The project will provide necessary support andequipment to the TSB and RIF to undertake these activities. RIF will coordinate with TSBHQ to take the necessary steps for the electrification of the project sites.

(iii) Construction Works

4.5.8 Once RIF clears the FGs' proposal, beneficiary farmers will start clearing and re-leveling their land for gravity irrigation. Contractors will be invited to undertake constructionof civil works. The project will bear the investment costs of irrigation infrastructure includingtracks/access roads, intake channels, pumping stations, booster pumps, pipelines/main canals,storage tanks, and some secondary canals. Supervision and monitoring of activities under theirrigation component will be the responsibility of RIF assisted by TSB at the district level.FGs will purchase lift pumps through the access to credit facility as part of their contribution.Further, FGs will contribute labor to construct secondary and on-farm canals and re-leveltheir farm lands for gravity irrigation. The project will provide local materials, small tools,and artisans for building the on-farm canals as well as fencing materials.

4.5.9 In Sinazongwe District, the first three new sites will be equipped with eight pumpingstations to pump water from Lake Kariba into ground-level open storage tanks. Each pumpingstation will be equipped with a 35 kw pump (or two of 20 kw) on a pontoon. Each stationwith one pump of 35 kw, pipelines, and one tank will serve two FGs covering a block of 50ha. In Nzenga and Sinazongwe, intake channels of 500 and 800 meters respectively will beconstructed to lead water from the lake to the station. In Simunpande site, the water will bepumped directly from the lake. Water will be released under gravity from the service tanksinto main and on-farm canals to feed the farmers’ plots totaling 400 ha. On average eachfarmer will need to borrow about US$ 135.00 through the credit facilities to be paid backduring 6-12 months. (para. 4.2.2)

4.5.10 In Buleya Malima scheme, implementation will be in three stages namely (a)rehabilitation of the existing scheme to cover up to 75 ha; (b) development of a further 75 ha

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west of the existing scheme; and (c) extension of an additional 125 ha north of the existingscheme. A total of 4 pumping stations and 4 storage tanks will be provided. The pumpingstations will be equipped with 8 pumps of 35 kw capacity. The two existing stations will beequipped with 4 lift pumps on pontoons. One of the two new stations will be located at theintake point and equipped with 2 booster pumps to pump into an intermediate tank, and theother with two lift pumps. On-farm, the irrigation will be under gravity. On average eachfarmer will need to borrow about US$ 120.00 through the credit facilities to be paid backduring 6-12 months. (para. 4.2.3)

4.5.11 In Nega Nega Resettlement, an existing intake channel of 1.5 km will berehabilitated and extended for another 1.2 km to serve three blocks totaling 620 ha. Thechannel will take water from the Kafue River to the first block. Three pumping stations willbe established to serve the whole scheme through pipelines. The first station will be equippedwith two lift pumps to serve its farmers through a tank by gravity. The second station will beequipped with four booster pumps to feed an intermediary tank from which water will belifted to an end tank to serve its farmers by gravity. Similarly, four booster pumps will beinstalled in the third station to serve an intermediary tank from which water will be lifted to atank for the third block to serve its farmers by gravity. The co-operative members (emergingfarmers) of this scheme have agreed to purchase the required lift pumps for each block inphases. For full capacity, average credit facilities required is about US$ 425.00 per farmer tofinance lift pumps through the credit facilities to be paid back during 12-18 months. (para.4.2.4)

4.5.12 In Kanakantapa Resettlement Scheme, an earth dam will be constructed on theKanakantapa River with a reservoir. Two-pump stations will be constructed with 5 lift pumpsof 35 kw each (or 2 each of 75kw) to pump the water from the reservoir into a service tankthrough a set of pipelines. From the service tank water will be conveyed under gravitythrough a lined main canal. A third pumping station will be installed with one 35Kw pump tolift water through pipes into a total of 595 ha at the seven settler villages. On average eachfarmer will need to borrow about US$ 165.00 through the credit facilities to be paid backduring 8-16 months. (para. 4.2.5)

(B) Rural Savings and Credit

4.5.13 This component seeks to improve overall access of Farmer Groups (FGs) to financialresources. Activities under this component will include (i) establishment of a decentralizedmicro-credit delivery mechanism and (ii) credit mechanism and training of farmers in self-management of village banks.

4.5.14 The micro-credit component will be extended to finance short and medium termagricultural operations; specifically for the purchase of irrigation equipment (motorizedpumps); procurement of agricultural inputs (certified seeds, fertilizers, chemical products andnap-sack sprayers), post-harvest and market related facilities (tractors, small trucks, oxendrawn carts, food processing equipment). To meet the demand for credit, UA 0.8 million willbe made available under the project budget as a credit fund. The credit fund will be channeledthrough a local commercial bank for on lending to the legally registered FCops in the projectarea through a Micro-Finance Intermediary (MFI).

(i) Village Banking System

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4.5.15 Due to the low population density in Zambia and poor infrastructure, the VillageBanking methodology would ensure its efficiency in reducing cost of credit delivery,management and monitoring as well as the overhead cost. The starting point of this creditcomponent will be through the project information campaigns in the project sites, which willcover credit facilities and organization of beneficiary farmers. The project will contract oneMFI through competition among shortlisted MFIs to administer and manage the credit fund.The selected MFI will upgrade and utilize existing Farmer Co-operatives (FCops), but wherethey do not exist, assist in establishing and registering them. The MFI will facilitateestablishment of a minimum of six community-based and self-managed Village Banks (VBs).A Village Bank will consist of members of the FCop. Each FCop will include a few FGs of25-30 farmers. Further, FGs will be sub-divided into cells of 5 farmers to access credit andprovide group security and liability (savings and irrigation equipment).

4.5.16 Members of VBs will be invited to complete an application form and pay anaffordable entrance fee to confirm their membership and strengthen their sense of ownership.Women members of the VBs will be exempt from the membership fee to encourage theirparticipation. Each VB will elect a Supervising Committee (VBSC) of at least three members.At least one woman will be represented in each committee. Members of the VBs will beencouraged to save and open a deposit account. Members will benefit from the interest ontheir deposits. Members will need to save up front 15% of the requested loan in advance to beeligible for loan services. Both members of the VBs and elected VBSC will agree on detailsof managing the micro-credit system.

4.5.17 Since the village banking methodology involves a high degree of organisation anddiscipline, the supervising committee, will be trained in credit management, bookkeeping,accounting and loan appraisal. The selected MFI will assign a field assistant to stay in theconcerned community during the first six months to facilitate group selection and train the FGmembers. Each VB will discuss and adopt bylaws to follow rules and regulations. (para.4.5.26)

(ii) Credit Mechanism

4.5.18 To ensure sustainability of the credit component, VBs will be self-managed andupgraded to be self-owned. Once the irrigation infrastructure is completed, FGs will need thecredit facilities to be able to finance the purchase of the required irrigation pumps for theirschemes. FGs will submit their credit request to the selected MFI through their VBSC. Loansapproval will be against at least 15% savings made by the concerned group. The selected MFIwill then request MAFF to release funds at agreed rates (prime +) from the special account forcredit in the commercial bank. The MFI will on-lend the credit fund to the VBs at a rateequals to the cost of on-lending to it by the Government, its administrative cost and a smallmargin. Beneficiary farmers will be charged market interest rate. The difference between thetwo interest rates will be used for capitalization of VBs. TSB staff will identify the potentialsuppliers and inform beneficiary farmers. Farmers will also be advised of the technicalcharacteristics of the recommended irrigation equipment, truck, farm inputs and other goods.Eligible farmers to access the credit will receive an Authorization Letter endorsed by theProvincial Administration to receive their pumps. The MFI will pay the suppliers who willdeliver the goods to the farmer groups. If the VBs properly manage the credit scheme andshow that they are credit worthy, by repaying promptly three consecutive loan cycles and

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report appropriately on a quarterly basis, then the VB will be partially capitalised in cost-sharing basis. The initial capital base for VBs will comprise of members’ savings, interest ontheir savings and profit from loan operations. Successful VBs would turn into a credit-worthyco-operative that may attract funding from other sources on commercial terms. The VBs willbe located at the FCops’ administration buildings. (para. 4.5.6)

4.5.19 The selected MFI will be responsible for the overall management of the creditcomponent including recovery of any amount due. Group pressure at the farmers' level will beused to enforce repayment. The MFI will enter into a Loan Agreement with the FCops toensure efficient management of the credit. New loans will not be made available to the FGsunless the pervious loan has been paid off except in limited emergency cases. The selectedMFI will ensure a high recovery rate through adequate supervision, monitoring and follow up.The MFI, through its legal capacity and policies, will seize the savings, the interest earned ondeposits and the membership fees to offset arrears. Further, if the loan is over due, the MFIwill have the option to seize the assets that were purchased with the loans to offset anymoneys owed to the MFI. The project will assist the selected MFI by providing logisticsupport to strengthen its credit management capacity.

(C) Capacity Building

4.5.20 This component seeks to strengthen the implementation capacity of the executingagencies and management capacity of the target groups. Specific activities under thiscomponent will include (i) Training of MAFF/DAC staff; (ii) Practical training of farmers;(iii) Provision of technical assistance; and (iv) Marketing and Institutional support; (v)Environment and HIV/AIDS awareness training.

(i) Training of MAFF/DAC staff

4.5.21 Technical Services Branch (TSB): A total of 48 TSB staff (irrigation and landhusbandry) will be trained during the first two years of the project. About 12 AgriculturalSpecialists (AS) and Technical Officers (TO) will be trained in participatory techniques incommunity development; planning and design of small-scale irrigation systems and trainingof trainers for two weeks during the first year of the project. Additional 12 ASs and TOs willbe trained in Monitoring and Evaluation (M&E); project management (PM); and training oftrainers for two weeks during the first year of the project. These five courses will be repeatedduring the second year for additional 24 TSB staff. Priority will be given to the TSB staffworking in the three districts of the project area especially the participating DAC AppraisalTeam members. The In-Service Training Trust (ISTT) will provide the training according tothe curriculum, which was agreed upon during the appraisal mission.

4.5.22 Agricultural Extension Branch (AEB): A total of 56 AEB staff will be trained duringthe first two years of the project. About 8 Camp Extension officers and 6 Block ExtensionSupervisors will be trained in crop management; entrepreneurship development promotion;and training of trainers for two weeks during the first year of the project. Additional 14extension officers will be trained in post-harvest techniques; monitoring and evaluation(M&E) including base-line data collection; and training of trainers for two weeks during thefirst year of the project. These five courses will be repeated for additional 28 staff in thesecond year. The ISTT in Lusaka will provide this training. Priority will be given to the EABstaff working in the project area especially the District Field Teams and Province Core Team

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members. The In-Service Training Trust (ISTT) in Lusaka will provide the training accordingto the proposed training curriculum that was agree upon during the appraisal mission.

4.5.23 Agricultural Management Training for Africa (AMTA): Key project implementationand management staff including the Project Coordinator will be trained in courses organizedby the AMTA program. AMTA's training program will cover procurement, financialreporting and auditing of projects in addition to management of agriculture projects.

4.5.24 In-Service Training Trust (ISTT) will be provided with training and office equipment.Provision will be made for demonstrations and field tours. The TSB, at head quarters, will besupported with survey and soil analysis equipment and with office equipment. They will beprovided with one 4WD vehicle for backstopping and supervision. The PCT will be providedwith one 4WD vehicle. Each DAC will be provided with 4WD and office equipment. TSBfield teams in the districts will be provided with motorbikes on credit basis. The LandHusbandry Section will be assisted with survey equipment and office equipment. Trainingfacilities in the form of a regional study tour as well as overseas short training course inirrigation management is made available.

(ii) Practical Training of Farmers

4.5.25 Beneficiary Farmers: Four farmers will be selected from each of the 64 FGs for fieldskills support through an intensive field training in crop production and crop marketing for aperiod of three months. A total of 256 farmers representing 15% of the total beneficiaryfarmers will benefit from this field intensive training. The field training course will beprovided by the Agricultural Training Institute (ATI)-Twin Fountain. The ATI is a privatesector institute, which has been involved in education in Southern Province since 1926. Theinstitute provides training for persons involved in farming as self-employed farmers. Farmerswill have a plot of land available for irrigated vegetable production, as well as rain-fed cropsto enable them to produce and sell in the market and raise some profit. The training programwill include practical training in farming for processing, agro-forestry as well as awareness ofthe HIV/AIDS problem in Zambian society. Furthermore, about 50 farmers will benefit fromfarm exchange visits and field day-tours especially to the existing Buleya Malima scheme.Further, about 10-15 farmers, including the scheme manager and board members, of BuleyaMalima will be visiting other sites to discuss their success stories in irrigation schememanagement.

4.5.26 Village Banks for Farmer Co-operatives (VBs): The selected MFI will providetechnical assistance and training support to build the institutional and human capacity of theVillage Banks at community level to be self-managed. The MFI will test potentials of thefarmer group members, assist in registration of the FCops, assist in the election of the VBSC,and establishment of VBs. Members of the VBSC will be trained in computer skills, micro-finance, delivery of a credit method, financial planning, preparation of credit policies,procedures and manual, preparation of monthly progress reports, office organization setup,credit design and appraisal methods for loan approval, loan agreement and pledges, loantracking and monitoring, financial control and accounting report. The training support will bein the form of workshops at the available community training centers. This training programwill start in PY1 and continue till PY3. Budget provision has been made by the project for theselected MFI to conduct the above-listed activities and training.

17

(iii) Provision of Technical Assistance

4.5.27 Technical Services Branch (TSB): The project will support and strengthen theinstitutional and human capacity of TSB through provision of a civil engineer-irrigationexpert. The irrigation engineer will provide technical support to TSB and RIF specifically incommunity survey, planning and design works for the project sites. Further, supervision andmonitoring of activities will be the responsibility of the TSB/DAC with assistance of RIFspecifically for supervision of works, undertaken by contractor/farmers.

4.5.28 Rural Investment Fund (RIF): The project will support the capacity of RIF throughprovision of a social expert for community mobilization. RIF will be responsible for farmermobilization including the establishment and/or the registration of the FCops and FGs.Further; RIF will facilitate the identification of sub-project infrastructure. RIF will manage allfunds related to the above activities. The project will support and strengthen the institutionalcapacity of RIF through provision of: (i) Technical Assistance; (ii) office and fieldequipment; (iii) operational expenses for field work including sub-project field appraisal andsupervision; and (iv) provision for general co-ordination and back stopping.

4.5.29 Project Coordinator (PC): A provision of office and field equipment is madeavailable for the PC office to build its capacity in project planning, implementation, andsupervision according to the proposed project implementation schedule. The PC will beclosely working with the TSB staff and M&E staff of MAFF. The Government will providenecessary office space for the PC in Lusaka.

(iv) Marketing and Institutional Support

4.5.30 Farmers’ Co-operatives (FCops): About eight management/administration andstorage facilities for FCops will be constructed in all project sites to facilitate farmersmanagement of their irrigation schemes as well as their Village Banks management for creditfacilities. The administration building will include a storage room for farm inputs farmers’meeting room, shelter, and management office. Furthermore, marketing support is envisagedthrough the provision of credit for farm inputs, small trucks and food-processing machines. Inaddition, marketing information will be supported to strengthen FCops through provision ofradiotelephone system to the DAC in three districts in order to collect and communicatemarketing information for the members of the farmers’ co-operatives. Furthermore, a buildingof 30 offices will be constructed for the Department of Field Services.

(v) Environment and HIV/AIDS

4.5.31 The project will include an Environmental Management Plan covering management ofhills (cutting and harvesting), and the entire watershed in the project. Deforestation of thehills and other parts of the watershed may trigger a snowball cycle of erosion andsedimentation that will threaten the irrigation scheme. The Environmental Management Plan(EMP), among other components will include (1) environmental training for farmers, (2)environmental training for extension agents and other civil servants; and (3) Live fencing ofthe irrigation schemes. In the project launching exercise, an environmental presentation willtake place, and implementation of environmental mitigation and environmental plan areintegrated in the overall project implementation right at the start. Environmental ProtectionCouncil of Zambia (ECZ) will assist in the preparation of the EMP and its monitoring.

18

Further, ECZ will be involved in co-ordination and monitoring of project environmentalactivities.

4.5.32 Six information campaigns will be organized to sensitize farming communities ineach of the selected sites. More than 1,000 farmers will be trained in environmental aspectsrelated to irrigated agriculture including sustainable environmentally friendly farmingpractices, and public health training to mitigate irrigation related diseases such as malaria,shistosomiasis, diarrhea, dysentery and episodically cholera as well as HIV/AIDS. There is apackage within farmers campaigns, extension and training program in awareness andprevention of AIDS.

4.6 Production, Markets and Prices

4.6.1 The total production in the project area is expected to significantly increase as a resultof (i) expected increase in the crop yields due to the use of improved seeds; and (ii) access towater for irrigation which will allow farmers to cultivate their land at least two times a yearinstead of one. Further, with permanent irrigation schemes farmers will switch to moreproductive and profitable cropping systems. On the basis of the analysis undertaken for theselected schemes, it is estimated that, at full development, incremental crop production willbe 2,900 tons of maize, 2,500 tons of paprika, 4,200 tons of onion, 3,600 tons of cabbage,4,000 tons of vegetables, 1,200 tons of green maize, 800 tons of sugar beans, 850 tons ofsunflower, and 165 tons of Soya beans.

4.6.2 Due to food shortages, it is expected that about 60% of the food crops would beconsumed by the beneficiary farmers and the rest would be sold in the local markets.However, for the cash crops, local markets have the capacity to absorb about 50% of theexpected incremental crop production. The remaining cash crops would be exported throughthe existing private sector export agencies.

4.6.3 Markets for crop produce range from local communities to nearby rural servicecenters and urban cities. Nearby marketing centers are mainly located in Sinazongwe,Sinazeze and to as far as Choma. The tomatoes, onion, and other vegetables produced inGwembe Valley are sold as far as Livingston city in the southern of the country. Food cropsand grains such as maize and sorghum are sold in rural and urban centers. Agriculturalproducts of emerging farms--irrigation schemes--of Mazabuka are sold in nearby rural areasand in the capital Lusaka which is about 80 km to the north east of Mazabuka.

4.7 Environmental Impacts

4.7.1 The project is classified in the environmental category 2. It has limited environmentalimpacts, or impacts that can be mitigated through applying specific measures. The projectdoes not include population resettlement. Rather it is responding to problems that werecaused by earlier resettlements.

4.7.2 Positive Impact: The project positive impacts include minimisation of randomsettlement, intensification of production (as it will reduce extensive agriculture in the area),reduced soil erosion (through continuous cultivation and improved agricultural practices),improvement of self-sufficiency in staple food, and improvement of the well being of

19

smallholder families. In addition, increased incomes through the project will indirectly improvehealth conditions through nutrition and possible improvement in water and sanitation and localecology through better purchasing power.

4.7.3 Negative Impact and mitigation measures: Foreseeable adverse impacts can be fullymitigated. Impacts on hydrology (water balance, quality, and recharge of aquifer) due toconstruction of the 5.0 m high earth dam will be negligible. The inherent pollution risks fromthe misuse of fertilizers and pesticides will be mitigated using Integrated Pest Management(IPM) according to the Bank environmental guidelines on Irrigation. Risks of salinity that arepresent in most alluvial soils will be managed through leaching and proper drainage. Theremay also be slight risks of negative impact on the ecology of some water bodies, which willbe mitigated by proper disposal of drainage water.

4.7.4 Health problems relevant to changes in disease ecology due to irrigation will be handledthrough the Environmental Management Plan (EMP) which includes awareness campaignsand medical assistance through the NACP and local health structures. Environmental adverseimpacts that might pose risk to the project are: (1) loss of vegetation in the watershed and onthe hills that may generate erosion and result in silting of watercourses and irrigationschemes; and (2) conflicts that could arise between wildlife and domestic animals on the oneside and the irrigation schemes on the other. These risks will be controlled using erosionprotection processes and planting of live fences using fast growing thorny plants. (See para.4.5.33)

4.8 Project Costs

The total project cost including physical and price contingencies is estimated at UA 8.04million. The foreign exchange component is UA 3.64 million i.e. 45.3% of the total projectcost. UA 4.40 million i.e. 54.7% of the total project cost will be in local currency. Physicalcontingencies have been applied to all office and field equipment at 5% and civil works at10%

Table 4.1

Summary of project Cost Estimates by Component

(In ZMK Million) (In UA Million)

Components ForeignExchange

LocalCosts

TotalCosts

ForeignExchange

LocalCosts

TotalCosts

%F.E.

A. Irrigation DevelopmentB. Rural Saving and CreditC. Capacity Building

5,942.71,937.23,222.1

6,826.7604.2

5,795.6

12,769.42,541.49,017.7

1.650.540.89

1.890.161.61

3.540.702.50

46.576.335.7

Total Base CostPhysical ContingencyPrice Contingency

11,102.0858.0

1,190.5

13,226.51,006.81,641.7

24,328.51,864.82,832.2

3.080.230.33

3.660.290.45

6.740.520.78

45.646.042.0

Total Project Cost 13,150.5 15,875.0 29,025.5 3.64 4.40 8.04 45.3

Table 4.2

Summary of project Cost Estimates by Category of Expenditure(In ZMK Million) (In UA Million)

Categories ForeignExchange

LocalCosts

TotalCosts

ForeignExchange

LocalCosts

TotalCosts

%F.E.

20

(In ZMK Million) (In UA Million)

Categories ForeignExchange

LocalCosts

TotalCosts

ForeignExchange

LocalCosts

TotalCosts

%F.E.

1. Civil Works2. Goods and Equipment3. Consultancy—Design

4. Credit for Pumps5. Credit for other Equipment

6. Training7. Technical Assistance8. Operations andMaintenance

5,456.62,137.9

5.7

697.3951.5

557.0225.1

1,070.9

5,838.51,397.1

355.8

77.4298.1

739.71,351.33,168.6

11,295.13,535.0

361.5

774.71,249.6

1,296.71,576.44,239.5

1.510.590.00

0.190.26

0.150.060.31

1.620.390.10

0.020.08

0.200.380.89

3.130.980.10

0.210.34

0.350.441.19

48.360.51.4

90.176.2

43.014.325.3

Total Base Cost 11,102.0 13,226.5 24,328.5 3.07 3.67 6.74 45.6Physical ContingencyPrice Contingency

858.01,190.5

1,006.81,641.7

1,864.82,832.2

0.240.33

0.280.45

0.520.78

46.042.2

Total Project Cost 13,150.5 15,875.0 29,025.5 3.64 4.40 8.04 45.3

Price contingencies have been applied to all cost items at an annual rate of 5% compounded,which is based on the recent estimates of exchange rate and inflation rate in the country aswell as the projected increase in the world commodity prices. Cost estimates by componentsummarised in Table 4.1 are based on prices prevailing in March 2000. Project cost bycategory of expenditure is summarised in Table 4.2.

4.9 Sources of Finance and Expenditure Schedule

4.9.1 The finance plan of the project is summarised in Table 4.3 below. The ADF loan ofUA 5.29 million will finance 86.5% of the foreign exchange costs amounting to UA 3.15million and part of the local costs amounting to UA 2.14 million i.e. 26.6% of the totalproject cost. The TAF grant of UA 0.76 million will finance 9.5% of the total costs andrepresents 25.2% of the capacity building component. This component will includeinstitutional and human capacity building including training for RIF, TSB, and DAC staff aswell as farmers intensive training and tours. The Government will finance UA 1.31 million(i.e. 16.3%) of the total project costs which will partially include electrification cost, staffsalaries and rental cost for the project office. The project beneficiaries will contribute 8.4% ofthe total project cost by providing free labour for construction of secondary and on-farmcanals, fencing and land clearing and levelling. Their total contribution will amount to UA0.68 million.

Table 4.3

Sources of Finance (In UA Million)

SourceForeign

ExchangeLocal Costs Total Costs % of Total

ADFTAFGovernmentBeneficiaries

3.150.490.000.00

2.140.271.310.68

5.290.761.310.68

65.89.5

16.38.4

Total 3.64 4.40 8.04 100.0

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4.9.2 Since the 1990s, Zambia has been implementing an economic adjustment programwith the IMF and the World Bank, which has an important component for reducing fiscalpublic expenditures, as well as increasing expenditures on social services to reverse thedecline in health and education facilities. Further Government is committed to honor all debtservicing obligations to donors. For these reasons, the room left to the Government forproviding counterpart funding for a number of development projects is rather constrained.With respect to this project, the bulk of the requirements for its implementation – mainlycommunity simple civil work to be implemented by farmers, training of beneficiary farmersand extension staff, credit for agricultural inputs, local materials and tools for canals,construction of irrigation facilities—are to be procured locally and are beyond Government’scapacity to finance. Further, by the nature of this project as it is a rural/communitydevelopment project, about 55% of the total cost is to be locally financed. Hence there is aneed for ADF to share in the financing of the local cost.

5. PROJECT IMPLEMENTATION

5.1 Executing Agency

MAFF will be the Executing Agency and will appoint a full-time Project Coordinator(Civil Engineer) who will be responsible for overseeing the project implementation. TheProject Coordinator (PC) will be assisted by a Secretary and an Accountant. Under thesupervision of the PC, RIF will implement the Irrigation Component. Similarly, the CreditComponent will be implemented by a selected MFI. The PC will be directly responsible forthe implementation of the Capacity Building component and will supervise theimplementation of irrigation activities and credit component. At each district, a DistrictProject Manager (DPM) will be assigned by TSB HQ to ensure progress of all projectactivities. The Government will provide necessary office space for the PC in Lusaka as a partof Government contribution. (para. 2.5.1, 3.3.1, 3.3.2, and 4.5.29)

5.2 Institutional Arrangements

5.2.1 A Project Steering Committee (PSC) will periodically review the project progress andprovide direction for effective implementation. The PSC will comprise a Civil Servant atDirector level (as PSC chairperson); RIF; ISTT; FMU; MFI, NACP, Environmental Council,and the PC. The PC will serve as a Secretary of the PSC. The PSC will be responsible forensuring that all the activities are implemented in accordance with the guidelines stipulated inthe project documents. In doing so, it will (a) review and approve the annual work programand budget of the project; (b) review the design of the irrigation schemes and ensure that theyconform to the required standards and requirements of the project; (c) review the progressreports and ensure that project implementation schedules are adhered to; and (d) ensureeffective coordination among the project coordination and RIF, MFI, and the supportinginstitutions and resolve any issues. The PSC will meet at least once in three months to assessthe progress of the project, examine constraints in implementation and provide solutions.Meetings of the PSC will be called by the PSC chairperson. Minutes of these meetings will bekept by the PC and made available to Bank supervision mission fore review and follow up.The establishment of the PSC will be a loan condition.

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5.2.2 In conformity with ASIP, RIF, through the existing MAFF institutions (TSB/AEB)will plan, design, approve, contract and supervise implementation of the farmer-led irrigationschemes in addition to rehabilitation and construction works in the capacity buildingcomponent such as administration offices for FCops. RIF’s activities will start withcommunity survey and mobilization and grouping farmers. RIF will play a key role in qualitycontrol of the design, construction, and supervision works. A civil/irrigation engineer will beattached to the TSB HQ and a community mobilizer will be attached to RIF to strengthentheir capacity and ensure effective implementation. The credit component will be conductedby a selected MFI under the supervision of the PC. The PC will be fully responsible forimplementing the capacity building component. The HIV/AIDS activities will beimplemented and monitored by the National AIDS Control Program (para. 2.9.3).

5.2.3 At the district level, project activities will include: (a) planning, design, constructionand supervision of irrigation works, (b) execution of extension, farmers’ training and capacitybuilding; (c) monitoring and supervision of contract works by RIF; and (d) preparation ofdistrict work plans and compilation of data for reporting. The District Project Manager(DPM) will report to the PC on quarterly basis.

5.3 Supervision and Implementation Schedule

5.3.1 The project has been designed to be implemented over a six-year period beginning inMarch 2001 and to be completed by February 2007. It is planned that the first year of theproject (PY1) will mainly focus on organizational aspects including farmer sensitization,formation, and registration of co-operatives, as well as starting of training of key staff. DuringPY1, the project will also start with site survey, sub-project identification, design andirrigation works. Wherever, beneficiary farmers are already organized in registered FCops,such as in Buleya Malima, Nega Nega and Kanakantapa settlements, the project will startsome implementation activities during the first year (PY1).

5.3.2 During project implementation, monitoring and supervision of project’s activities willbe carried out as a regular management function. RIF and TSB will implement, monitor andsupervise the irrigation component and report to the Permanent Secretary (PS) of MAFF, PSCand the PC. Similarly, the selected MFI will manage the credit component and supervise thevillage banks and report to the PS of MAFF. The PC will monitor the three components andreport to the PS, PSC chairperson and relevant directors in MAFF. In cooperation with theexisting general implementation system under ASIP including the Monitoring and Evaluation(M&E) officers, the PC's office will design and implement a management information systemwith activities checklist for periodic control and evaluation.

Table 5.1Summary of Project Expenditure by Component

(In UA Million)

Components FY1 FY2 FY3 FY4 FY5 FY6 Total

A. Irrigation DevelopmentB. Rural Saving and CreditC. Capacity Building

0.710.050.90

1.470.220.59

0.940.220.39

0.650.220.40

0.380.110.39

0.000.050.36

4.150.873.02

23

TOTAL 1.66 2.27 1.55 1.27 0.88 0.41 8.04

Table 5.2Summary of Expenditure Schedule by Source of Finance

(In UA Million)

Source FY1 FY2 FY3 FY4 FY5 FY6 Total

ADFTAFGovernment ContributionBeneficiaries’ Contribution

1.190.190.260.03

1.590.200.290.19

1.050.100.210.19

0.780.110.200.17

0.510.080.190.10

0.170.080.160.00

5.290.761.310.68

TOTAL 1.67 2.27 1.55 1.26 0.88 0.41 8.04

5.3.3 The expenditure schedule by component and by source of finance over the projectperiod is projected to be as shown in Tables 5.1 and 5.2 above. The tentative implementationschedule is shown in Annex. 4.

5.4 Procurement Arrangements

5.4.1 Procurement arrangements are summarized in Table 5.3. All procurement of goods,works and acquisition of consulting services financed by the Bank will be in accordance withthe Bank’s Rules of Procedures for Procurement of Goods and Works or as appropriate, Rulesof Procedures for the Use of Consultants, using the relevant Bank Standard BiddingDocuments.

5.4.2 Zambia’s national procurement laws and regulations have been reviewed anddetermined to be acceptable. The MAFF is the Executing Agency. It has a Purchasing andSupplies Unit (PSU) mandated to procure goods and services under the laws of Zambia. It hasbeen supported under the ASIP program. Under ASIP, the GRZ adopted in 1997 the use ofthe RIF as a means to assist small holder farmers to build a sustainable business capacity atthe community level. RIF has a mini-tender committee composed of representatives fromRIF, Procurement and Supplies Unit (PSU), Financial Management Unit (FMU) andEconomics and Marketing Development Department (EMDD). RIF has the mandate to allowprocurement at district level instead of central level. In line with ASIP, RIF is mandated tocontract a sub-project agreement up to USD40,000 per FG without seeking prior approvalfrom the Project Coordinator (PC). Beyond this value prior approval needs to be sought fromthe PC or the normal PSU guidelines needs be followed. Generally therefore major civilengineering and goods/equipment procurements beyond USD40,000 will be undertakenthrough the PSU, with the approval of the Ministerial Tender Committee (MTC).

5.4.3 To ensure decentralization and sustainability, the project is designed to allowcommunity participation in procurement and project implementation, especially for sub-projects less than USD40,000 per FG. Beneficiary groups at the targeted local communitieswill participate in procurement to increase utilization of local know-how and materials. UnderRIF’s guidelines, the Farmer Groups/Communities (FGs) are responsible for all procurementwith oversight being provided by the District Agricultural Committee (DAC) through the

24

District Agricultural Co-ordinator (DACO). The FG/Community is responsible for collectingthree pro-forma invoices for specific goods (motorized pumps) and services (small civilworks). They present these to the DACO for verification. The DACO uses the TechnicalServices Branch (TSB) staff to verify whether the goods and services are the correct ones forthe project. For large projects, especially construction of headworks and main canals, RIF willsubmit the project documents to the MTC for tender and award of contract.

5.4.4 Funds for projects are disbursed under three categories: (a) small projects for FGs thathave a registered cooperative and who are well organized and trained; (b) small projects forFGs who are not well organized and (c) large projects awarded by the MTC. Under "a" RIFtransfers the project funds to the FG's account to be disbursed to the contractor/supplier uponcertification of the DAC/District Project Manager (DPM) and District Accounts Officer.Under "b" RIF transfers the project funds to the district RIF’s account to be disbursed by theDAC but with the consent and certification of the FG. Finally, under "c" contractors are paiddirectly by the PC upon certification of the DAC and RIF. For small projects, the use of threequotations assists in making procurement more transparent and competitive. The co-signingof checks for payment direct to suppliers of goods, works and services by the DACOChairperson and the FG/Communities also builds in control on avoiding misuse of funds.

5.4.5 Civil Works: (i) Procurement of civil works for conveyance main pipelines valuedbetween UA 0.013 and 0.628 million per contract will be carried out under InternationalCompetitive Bidding (ICB). Between 6 and 8 contracts will be awarded for pipelinesconstructions. (ii) Procurement of civil works for rehabilitation/construction of main andsecondary canals as well as earth dam and department of field services valued between UA0.02 and 0.33 million per contract will be carried out under National Competitive Bidding(NCB). About 24 small civil works contracts at FG/Communities level for construction ofpumping stations, service tanks, scheme track/roads, drains, canal structures and warehousesand input shops valued between UA 0.03 and UA 0.21 million will be awarded through NCBusing the existing system of RIF to encourage community participation. In addition, there willbe construction of secondary canals and opening of on-farm furrows, and land cleaningand land re-leveling amounting to UA 0.76 million which represent FGs voluntarilycontribution. For ease of tender management and to encourage qualified contractors to bid,invitations for tenders will be packaged into lots as far as possible. The small values of thesingle contracts and as they are scattered around different sites, the project will not attractinternational contractors.

5.4.6 Goods and Equipment: Contracts for vehicles valued at UA 0.19 million will beprocured through ICB. The material needed for participatory civil works (secondary, on-farmcanals and fencing) valued at a total of UA 0.57 million will be procured through ICB.Contracts for pontoons and booster pumps valued at UA 0.08 million will be awarded underNCB. Office and field equipment (hydraulic, soil and water flow) valued at UA 0.26 millionwill be procured using International Shopping (IS) Procedure, as they are diversified anddifferent in nature and quantity. The pontoons and booster pumps are different in nature, andusage and spread over the need of FGs in different sites.

5.4.7 Consulting Services: Consultancy services including the use of specialized agencies,Micro-Finance Intermediaries (MFIs), Non Governmental Organizations (NGOs), individualconsultants or technical assistance as well as audit services will be procured throughcompetition among shortlisted consultants following the selection procedure of technical

25

quality with price consideration, in accordance with the Bank Group’s “Rules of Procedurefor the Use of Consultants”. When the amount of each contract is less than UA350,000 forconsultant firms and less than UA100,000 for individual consultant, the borrower may limitthe publication of the announcement to national/regional newspapers. However, any eligibleconsultant being regional or not may express his/her desire to be shortlisted.

5.4.8 Training Services: The ISTT in Lusaka will basically implement the training forMAFF staff. Under ASIP program, part of the training of farmers will be implemented throughRIF, TSB and AEB. Intensive field training for selected farmers will be conducted by a privatesector Agricultural Training Institute through direct negotiation, as it is the only institution inthe project area that can provide such training. Further, total farmers to be trained is 260 withtotal cost of UA8.20 thousand per year. Training in credit management for Village Banks willbe conducted by selected MFI through short listing. (para. 4.5.24 and 4.5.25)

5.4.9 Under the credit component, small irrigation equipment (motorized pumps,processors, small farm implements, farm inputs and market equipment) valued at a total valueof UA 0.69 million will be procured through NS as they are diversified and readily availableoff-the-self goods. Irrigation equipment will be purchased according to the credit request ofeach FG/Communities. FGs will be given the credit to purchase their pumps through DistrictProject Manager (DPM). Provisional list of goods and services is shown in Annex 3.

Table 5.3

Summary of Procurement Arrangements

(In UA Million)

PROJECT ITEM ICB NCB Others Short-List

Non-BankFunded

Total

1. Civil Works:1.1 Power supply for project sites 0.12 (0.06) 0.12 (0.06)

1.2 Earth Dam 0.12 (0.12) 0.12 (0.12)

1.3 Intake canal: Rehab(1.5) &Exten(2.5km) 0.07 (0.07) 0.07 (0.07)

1.4 Pumping Station (24 stations) 0.03 (0.03) 0.03 (0.03)

1.5 Main Pipelines (450mm & 300mm) 1.23 (1.23) 1.23 (1.23)

1.6 Main Line Fittings etc. 0.03 (0.03) 0.03 (0.03)

1.7 Service Tanks (21 tanks) 0.21 (0.21) 0.21 (0.21)

1.8 Main Canal & Structure… 0.74 (0.71) 0.74 (0.71)

1.9 Scheme roads, drains & struc. 0.05 (0.05) 0.05 (0.05)

1.10 Solar fencing & wooden posts 0.12 (0.09) 0.12 (0.09)

1.11 Build.Dept. of Field Serv.(30 office) 0.14 (0.14) 0.14 (0.14)

1.12 Buil.warehouses/shops/meet.room 0.06 (0.06) 0.06 (0.06)

1.13 Second. Canals & structure (49km) 0.18 (0.00) 0.18 (0.00)

1.14 On-farm canals (91km) 0.29 (0.00) 0.29 (0.00)

1.15 Land clearing/leve.//drains 0.15 (0.00) 0.15 (0.00)

1.16 Gov. contribution in all Civil Works 0.14 (0.00) 0.14 (0.00)

2. Goods and Equipment:2.1 Pontoons/booster pumps/instal.(9of75kw)

0.08 (0.08) 0.08 (0.08)

2.2 Office and Field Equipment 0.26 (0.21) 0.26 (0.21)

2.3 Tools and Local Material 0.57 (0.47) 0.57 (0.47)

2.4 Vehicles 0.22 (0.19) 0.22 (0.19)

3. Consulting Service:3.1 Technical Assistant3.1.1 Design/super. civil works –RIF/TSB 0.12 (0.12) 0.12 (0.12)

3.1.2 Social Mob. & Env. Mgt. & Monit.. Plan 0.07 (0.07) 0.07 (0.07)

3.1.3 TA /Engine. for TSB and Audit for PC 0.34 (0.34) 0.34 (0.34)

3.1.4 TA for managing credit – MFI 0.13 (0.13) 0.13 (0.13)

3.2 Training

26

3.2.1 Human capacity building-Staff by ISTT 0.24 (0.24) 0.24 (0.24)

3.2.2 Farmer Training: RIF, TSB, AEB, & Env 0.14 (0.14) 0.14 (0.14)

3.2.3 Farmer Training in Credit by MFI 0.04 (0.04) 0.04 (0.04)

4. Goods on Credit4.1 Lift Pumps (42 of 35kw) 0.26 (0.26) 0.26 (0.26)4.2 Agricultural Inputs 0.06 (0.06) 0.06 (0.06)4.3 Food Processing Equipment 0.19 (0.19) 0.19 (0.19)4.4 Open credit: Income generating activities 0.12 (0.12) 0.12 (0.12)4.5 Motorbikes for Ext. staff and FGsmembers

0.06 (0.06) 0.06 (0.06)

5. Miscellaneous Cost5.1 Vehicles and Office Equip. 0.28 (0.28) 0.28 (0.28)

5.2 Poject Manag. RIF off. Oper. Cost 0.06 (0.06) 0.06 (0.06)

5.3 Project Super.& Farm.Sup.-TSB/AEB/DAC

0.09 (0.09) 0.09 (0.09)

5.4 Project Manag./Super. (PC) 0.10 (0.10) 0.10 (0.10)

5.5 Office Rental 0.13 (0.00) 0.13 (0.00)

5.6 Gov. Staff Salaries (Contribution) 0.80 (0.00) 0.80 (0.00)

TOTAL 2.02 (1.89) 1.21 (1.18) 2.54 (2.40) 0.58 (0.58) 1.69 (0.00) 8.04 (6.05)

(1) Numbers between brackets are funded by ADF resources

(2) “Others” include National Shopping Procedures.

5.4.10 General Procurement Notice: The text of General Procurement Notice (GPN) will bediscussed and agreed upon with the GRZ during negotiations. It will be issued for publicationin Development Business, upon approval of the Loan Proposal by the Board of Directors.

5.4.11 Review Procedures: The following documents are subject to review by the Bankbefore promulgation: (a) Specific Procurement Notices; (b) Tender Documents/Request forProposals; (c) Tender Evaluation of Proposals Reports, including recommendations forcontract awards; (d) Draft Contracts if these have been amended from the drafts included inthe tender invitation documents.

5.5 Disbursement Arrangements

The Borrower will open two special accounts in foreign currency in a commercial bankacceptable to the Fund so that ADF loan could be disbursed to these accounts. One specialaccount will be used for credit funds, and the other for meeting small expenditures. Each ofFMU and RIF will open a local currency account. According to its work plan and anticipatedexpenditures, RIF will withdraw money from FMU account. Similarly, each of the districtswill open a local currency account and withdraw money from FMU account according towork plan and anticipated expenditures.

5.6 Monitoring and Evaluation

5.6.1 As indicated in para 5.3.2, the M&E activities will be carried out as a regularmanagement function by the M&E officers under the supervision of the PC. The M&E officeof MAFF will be responsible to collect and collate data from the districts. TSB staff will betrained in M&E to assist in data collection from the field. Progress reports will be prepared bythe DPM’s and submitted to the PC for preparing the Quarterly Progress Report (QPR).Reporting on progress will be compared with set targets of the Annual Work Program Budgetand against targets. The QPR will include information on achievements, expenditure andphysical acquisition as well as problems encountered during the reporting period (para.4.5.23).

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5.6.2 In addition to the supervision missions by the Fund, a mid-term review will beundertaken during the third project implementation year. The mid-term review report willassess the progress of the project and identify major problems and constraints. It will makerecommendation for any desired modifications or continuation of the project as designed.Performance indicators designed in the project matrix will be used to monitor the projectperformance and measure achievements of the project at that stage.

5.6.3 The environmental mitigation measures are integrated into the project’s activities.TSB staff of MAFF will have the mandate to implement and monitor the recommendedmitigation measures in the project areas. An Environmental Management Plan (EMP) will bedrafted by ECZ who will also regularly monitor project activities with proper arrangement oflogistics with MAFF. Environmental aspects of the project will also be monitored by theBank supervision missions.

5.7 Financial Reporting and Auditing

5.7.1 Under the supervision of the PC, the Project Accountant will be responsible for thedesign and installation of a computerised accounting system. He/she will ensure that accountsare maintained by category of expenditure, source of funding and that a system of internalcontrol is put in place to ensure prompt recording of transactions, timely production ofaccounts and reports and safeguard the project assets. All project accounts will be subject toannual external audit. The financial statements of the project will be internally audited by theGRZ.

5.7.2 Further, provisions have been made available under the project for an annual externalauditing. MFI will forward an annual work plan, cost estimates and audited accounts to theBank. It will also submit to the Bank a quarterly progress report on on-lending activities andloan portfolio development with copies to MAFF, PSC and PC.

5.8 Aid Co-ordination

5.8.1 The Consultative Group meeting is the most important forum that brings together allthe donors on Zambia in which ADB participates actively. The activities of donors in Zambiaare generally financed and coordinated through Sector Investment Programs (SIPs). The SIPsare designed to increase public efficiency by avoiding the overlap, inconsistency andadministrative overload associated with many separate donor-funded projects within eachsector. The SIPs have been established in agriculture, health, education, power, and roadssectors.

5.8.2 In one of the project area (Gwembe Valley), Zambia Electricity Supply Corporation(ZESCO) and the World Bank are currently undertaking the Gwembe-Tonga DevelopmentProject. The proposed small-scale irrigation project has been discussed with representativesfrom ZESCO and the World Bank. It was established that there would be no overlap, as theproject activities would entail only socio-economic support. It was also agreed that donorcoordination will continue during the implementation and supervision of the proposed SIPproject.

5.8.3 The Small holder Irrigation and Water Use Program (SIWUP) was initiated in 1995under the ASIP Irrigation Sub-program. SIWUP comprises four components (a) construction

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of irrigation structures; (b) rehabilitation/construction of selected publicly operated irrigationschemes for transfer to beneficiaries; (c) capacity building including support to the TSB staff.This project is complementing with the proposed SIP project.

6. PROJECT SUSTAINABILITY AND RISKS

6.1 Recurrent Costs

6.1.1 Total recurrent costs are estimated at UA 1.46 million during the six years ofimplementation. Recurrent cost is financed by the project and by the GRZ. Adequateprovisions have been made in the project budget to cover part of project management andsupervision costs, amount to UA 0.53 million. GRZ will finance the TSB and AEB of DACstaff salaries and office rental cost, amounting to UA 0.93 million. (table 5.3)

6.1.2 After project completion, the project’s impact on government recurrent cost will beminimal as the irrigation schemes and the village banks will be self-owned and self-managedby the FCops/FGs. The treasury of each FG will collect the agreed operation and maintenancefees to cover the recurrent cost including electricity, salary for the pump station operator, andmaintenance cost. The rest of the recurrent costs consist of salaries for the staff, which willhave no incremental effect on the Government’s budget since the TSB and extension staff arealready in the Government’s payroll (para. 4.5.5).

6.1.3 Once the irrigation scheme is established, the FCops/FGs will take over themanagement of the scheme. Similarly, once members of the credit committee are trained incredit and recovery rates are satisfactory, the FCops/FGs will take over the management oftheir village banks. FCops/FGs will be responsible for collecting funds from the beneficiariesto pay for the operation and maintenance cost of the irrigation schemes.

6.2 Project Sustainability

6.2.1 The irrigation technology proposed under this project is simple and already availableon a small scale in the country. It has been tried by smallholder farmers in both Governmentschemes and private sector and found to be suitable. Further, the project will introduce theelectric powered irrigation pumps that are clean for the environment and cheaper in theiroperations cost, which will ensure long-term sustainability. In addition, water inlets in theproposed sites were selected with technical evidence of water availability during the fourseasons of the year in both sources namely Kariba Lake and Kafua rivers.

6.2.2 To ensure long-term sustainability, beneficiary farmers and stakeholders participatedin the project design and were consulted through extensive field meetings and discussions.Further, the use of the RIF decentralized implementation system will ensure full communityparticipation through the TSB, AEB, and DAC Appraisal Team members during the fieldsurvey, design, appraisal, and implementation stage including the procurement process. Inaddition, the involvement of RIF which operates through group-based, demand-driven, costsharing, and participatory approach will ensure the long-term sustainability of the project.According to the project design, the FGs will contribute at least 25% of the total cost ofschemes in terms of i) labor work, and ii) credit to purchase irrigation pumps in-groups. Theircontribution will ensure the sense of ownership of the beneficiary farmers and thus the long-term sustainability of the project. Moreover, the extensive training for farmers at the

29

grassroots level in both irrigation practices and credit management will ensure fullresponsibility of management leading to self-management and thus long-term sustainability.

6.2.3 Before the start of the project implementation, beneficiaries will have to be fullyintegrated as members in the Farmers Co-operatives and shareholders in the Village Banksfor credit. The FCops/FGs will be formed and legally registered to ensure consistency withthe credit legislation and thus sustainability of the Village Banks. Once the FCops/VBs provethat they are credit worthy, by repaying promptly three consecutive loan cycles, they will beupgraded from self-managed to self-owned. The VBs will be partially capitalised in cost-sharing basis. Accordingly, successful VBs would turn into credit-worthy co-operatives thatmay attract funding from other sources on commercial terms. On the other hand, the financialanalysis of the farm budget shows that the irrigation schemes will support beneficiaries to befully self-financing and self-sustainable.

6.2.4 According to ASIP program and its policy framework, the ownership of the irrigationschemes will be fully transferred to Farmer Co-operatives (beneficiary farmers) along withthe water user right as well as the operations and maintenance responsibilities with nogovernment commitment for financial support. Furthermore, the credit is provided on arevolving fund base with possible capitalization based on the performance of FCops/FGs toensure continuation beyond the financing phase of the project.

6.3 Critical Risks and Mitigation Measures

Important assumptions made and risks envisaged under the project objective:

(i) Reduction in world prices of certain high value cash crops may reduce theexpected benefits. The project has considered a 10% reduction in the expectedbenefits through its sensitivity analysis, which showed that the EIRR would be13.8%. (section 7.4)

(ii) The recovery rate of the micro-finance component might be lower than theexpected level of 90%. The project proposes the establishment of the villagebanks which will be self-managed and rely on the group pressure to ensurehigh recovery rate and thus long-term sustainability.

7. PROJECT BENEFITS

7.1 Financial Analysis

7.1.1 Farm models were prepared for small-scale and emerging farmers before (rainfedfarming) and after the project (irrigated farming) who are expected to benefit from theirrigation facilities. Crops proposed to be grown under irrigation are maize, paprika, soyabeans, sunflower, green maize, onion, cabbage, tomatoes, sugar beans, and okra.

7.1.2 The resulting financial analysis shows that the annual gross revenue from cropproduction under irrigated cropping will increase from its present level (rainfed cropping) ofUS$ 292 thousand to US$ 2.80 million at full development. Average net revenue for thetarget group, at constant prices, will increase from US$ 161 thousands to US$ 1.37 million.

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7.1.3 The average farm income per person day under smallholder rainfed conditions for anaverage holding area of 0.50 ha is expected to increase from US$ 0.52 to US$ 2.05 underirrigation conditions. For the emerging farms, the average farm income per person day underrainfed conditions for an average holding area of 1.0 ha is expected to increase from US$1.60 to US$ 7.30 under irrigation conditions. The average net family farm income for thetarget group under irrigation conditions is estimated to increase from US$625.00 to US$3,150per annum for a householder of one ha at full development.

7.2 Economic Analysis

7.2.1 An economic analysis was also undertaken in order to assess the economic viability ofthe project by calculating the Economic Internal Rate of Return (EIRR). The estimated EIRRis 29.7%. Calculated EIRR is presented in Annex 5

7.2.2 In calculating the EIRR, some assumptions were made: (i) as Paprika is mainlyproduced for export while other vegetables are grown either for domestic consumption or forexport, export parity prices were used for these two commodities; (ii) farm gate prices wereused for crops that are produced for domestic consumption; (iii) it was assumed that farmlabor is engaged for about 75% of the year and therefore wages were converted to shadowwages by a factor of 0.75; (iv) the exchange rate has been liberalized in the country so that theprevailing exchange rate reflects the true value of the Zambian Kwacha in the financialmarket.

7.3 Social Impact Analysis

7.3.1 At the national and community levels, the project will contribute significantly to foodsecurity and poverty reduction. A total of 1,650 farm families will directly benefit fromtraining in irrigated agriculture as well as credit management and marketing facilities. Bytargeting small-scale producers, out of whom 60% are women, the project will directly impacton women. According to available statistics 45% of the total beneficiaries are expected to bewomen headed households.

7.3.2 The project will ensure that women will have equal access to all project activitiesespecially micro credit. The implementation process will be participatory and based on theactual needs of beneficiaries. Women will be empowered through the creation of groupsincluding the elected Management Committee of FCops and the Supervision Committee ofthe VBs. At least one women will be represented in each VB’s supervision committee.Further, women members of the VBs will be exempt from the membership fee to encouragetheir participation. Empowering women will not only be on technical matters but also inissues related to management, leadership and credit administration. Women will be providedthe opportunity to engage in other income generating activities (e.g. food processingmachines) that will boost their economic independence. Further, family’s nutrition willimprove through higher intake of food including vegetables.

7.3.3 The project will directly benefit 1,650 small and medium-scale farm families. Theintroduction of irrigation and two harvests per year will contribute to providing food security tothese families or 9,900 individuals. Farmers’ disposable incomes will therefore increase whichwill raise their purchasing power and thus their demand for consumer goods. This will in turnattract entrepreneurs to open retail shops and establish workshops thereby establishing rural

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growth centres. Such growth centres are important in order to reduce rural urban migration.Furthermore, through the credit facilities in the project, it is expected that local savings willincrease. In addition, the project will contribute to the GRZ’s effort to curtail the spread of theHIV/AIDS epidemic and improve the well being of the population in the project area throughthe proposed awareness campaigns and the training program.

7.4 Sensitivity Analysis

7.4.1 Sensitivity analysis was also undertaken for various possible situations. Anassumption was made of a 15% increase in the investment cost of the project, which reducedthe EIRR to 21.7%. An assumption of 10% reduction in expected revenues resulted in anEIRR of 13.8%. Furthermore, an assumption of 10% increase in the investment cost alongwith 10% decrease in the expected production revenue resulted in an EIRR of 10.84%. Annex5 shows the above results.

7.4.2 It should be mentioned that in calculating the EIRR, it was assumed that underirrigation farmers would cultivate their plots only twice a year. With such conservativeassumption, it is not likely that the production reaches a lower level than the assumed leveli.e. it is not expected that the production would decrease by 10% as indicated above.

8. CONCLUSIONS AND RECOMMENDATIONS

8.1 Conclusions

8.1.1 This Small-scale Irrigation Project (SIP) is designed to reduce poverty throughirrigation development, provision of micro-credit and building the capacity of thestakeholders in the project area. By utilizing a part of the water resources potential in thecountry, the project will reduce the risk of drought, increase agricultural production, facilitatecrop diversification and provide rural employment and alleviate poverty of the vulnerablegroups targeted by the project. The participatory approach in project design andimplementation will help project sustainability after the completion of the project.

8.1.2 As indicated above, the project will substantially empower rural women who havebeen neglected for long. Women will not only have equal access to the productive resources,but will also be given advantages and encouragement tools to participate in the managementand supervision committees of both FCops and VBs respectively. Accessing micro-credit tofinance purchasing of irrigation pumps, farm inputs and facilitate purchasing of foodprocessing machines will create additional income generating activities especially forhousehold headed by women.

8.1.3 Developing sustainable rural institutions to mobilize saving and credit throughbeneficiary participation in the micro-credit framework is a prominent feature in this project.While a large number of experiments in the credit have failed in the past due to non-involvement of beneficiaries, this project has the necessary supply and demand sideconsiderations, including monitoring and control mechanism to make the credit mechanismeffective and sustainable in the long-run.

8.1.4 Appropriate and proven successful irrigation technologies, which can be operated andmaintained by the farmer groups, themselves will be used where the recurrent costs will be

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fully borne by the beneficiaries. The cost of pumps will also be charged to farmers throughthe credit system in addition to their labor contribution for secondary and on-farm canalsconstruction. The project therefore is unique in that it attempts at full cost recovery.

8.1.5 The project is in line with the Bank Vision and its Agricultural and RuralDevelopment Policy. The project is also in line with ADF-VIII policy in that it effectivelypromotes sustainable economic growth with poverty reduction as its central goal.Furthermore, in cooperation with other donors development attempts, the project is designedto fit in the framework of ASIP and will be implemented through the Rural Investment Fund(RIF)

8.2 Recommendations and Conditions for Loan Approval

In the light of the above analysis and information, it is recommended that a loan of anamount not exceeding UA 5.29 million and a grant of UA 0.76 million be granted to theGovernment of Zambia for the purpose of implementing the project as described in the report.The loan and the grant should be made available subject to the following conditions:

ADF Loan

A. Conditions Precedent to Entry into Force of the Loan Agreement

The entry into force of the Loan Agreement shall be subject to the fulfillment by theBorrower of the provisions of Section 5.01 of the General Conditions Applicable toLoans and Guarantee Agreement of the ADF.

B. Conditions Precedent to First Disbursement of the Loan

The obligation to the Fund to make the first disbursement shall be subject to the entryinto force of the Loan Agreement and the Protocol of Agreement and the submissionby the Borrower of evidence, satisfactory to the ADF, that it has fulfilled the followingconditions:

i) Secured clearance from the Water Board of Zambia concerning water user rightsfor beneficiary farmers in the selected six project sites to be transferred to farmers’co-operatives upon the commencement of the project implementation; (para 3.2.4)

ii) Submitted a written undertaking that it shall finance fifty (50) per cent of the costof electrification of the selected six (6) project sites as estimated by the ZambiaElectricity Supply Company (ZESCO), and in connection thereto, make provisionin the budget of MAFF, for the Government contribution, in equal amounts for thethree (3)-year period commencing in the year 2001; (para. 4.9.1 and 4.5.4)

iii) Provided, in the year 2001 budget of MAFF, for the Government contributiontowards fifty (50) per cent of the cost of electrification of the selected six (6)project sites; (para. 4.9.1)

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iv) Establish a Project Steering Committee (PSC) composed of representatives fromrelevant stakeholders including a Civil Servant at Director level (as PSCchairperson); Rural Investment Fund (RIF); In-Service Training Trust (ISTT);Financial Management Unit (FMU); Micro-Finance Intermediary (MFI); NationalAIDS Control Program (NACP) Environmental Council, and Project Coordinator(PC) as a PSC Secretary. The PSC will oversee the general direction of projectimplementation; (para 5.2.1)

v) Provide evidence of having made available the required office space for theProject Coordinator office (PC) in Lusaka and the secondment of the ProjectCoordinator whose qualifications and experience are accepted to the Fund;(section 5.1)

vi) Opened two foreign currency denominated special project accounts in acommercial Bank acceptable to the Fund; one of such accounts being for thedeposit of the credit funds, and the other a revolving fund account for minorexpenditure; (section 5.5)

vii) Opened a special ZMK account for the FMU, and a special ZMK project accountfor RIF to withdraw money from the FMU according to its work plan andanticipated expenditures. Further, opened a ZMK account in the three Districts, ata commercial bank, to withdraw money from FMU according to work plans andanticipated expenditures. (section 5.5)

C) Other Conditions

Prior to any disbursement of the funds for the credit component of the Project (notlater first of April 2002):

i) the Government and the Micro Finance Intermediary (MFI) shall have executed, ina form satisfactory to the ADF, a binding and unconditional agreement for the on-lending of the credit portion of the Loan funds to the Farmer Cooperatives(FCops) and Farmer Groups (FGs); (para. 2.7.4 and 4.5.13)

ii) the Government and a commercial bank shall have executed, in a form satisfactoryto the ADF, a binding and unconditional agreement for the administration of thefunds for the credit component; (para. 4.5.13, 4.5.16 and 4.5.17).

iii) the Government shall have submitted to the ADF a copy of the memorandum ofunderstanding between RIF and the selected MFI indicating the level ofcooperation and a list of responsibilities of each of them in the Projectimplementation process; (Para. 4.5.3 and 4.5.4)

REPUBLIC OF ZAMBIA

PROVINCIAL MAP

This is intended exclusively for the use of the readers of the report to which it is attached. The names used and the borders shown do notimply on the part of the Bank and its members any judgement concerning the legal status of a territory nor any approval or acceptance of

Annex 2

ENVIRONMENTAL SCREENING MEMORANDUM (ESM)SMALL-SCALE IRRIGATION PROJECT (GSIP)

BADZMB1999O72 OCDS

A) ENVIRONMENTAL CATEGORY: 2JUSTIFICATION FOR ENVIRONMENTAL CATEGORIZATIONProjects with limited environmental impacts or impacts that can be easily mitigated by applying specific measures orchanges in the project design. The project is not located in or close to environmentally Sensitive Areas, that requireparticular protection for different reasons, such as ecosystems with a high species diversity, or which harbour endangeredor endemic. As far as the cultural environment is concerned, the sites do not present unique historical or archaeologicalvalues, nor unique landscape features.

B) BRIEF DESCRIPTION OF THE PROJECT:- The components of the project are: 1) Capacity Building for both Government staff and

farmers in various aspects of the project including environment, natural resourcesmanagement and health; 2) Irrigation Development of a total of 1890 ha, in 6 sites, for thebenefit of 1613 farmers; 3) Agricultural Development including credit, extension, and otherincome generating activities.

C) POTENTIAL ENVIRONMENTAL ISSUES APPARENT AT SCREENING:- Irrigation may lead to temporary water resources shortages in rivers, and affect downstream users.- Potential use of pesticides/fertilizer with potential contamination of surface/ground water, crop, and population.- Irrigation may result in the increase of water related diseases such as malaria, shistosomiasis, diarrhea, dysentery,

etc… The attraction & concentration of population by the development of the schemes, may favor spread AIDS.- The income generating activities, other than irrigation (such as food processing, truck operation, tractor rental,

car and tractor maintenance, etc..), integrated into the project, may generate localized pollution.- Drainage waters from the irrigation has strong potential environmental problems, if directly discharged in surface

water bodies, such as eutrophication and proliferation of aquatic weeds, including water hyacinth that is alreadypresent in the area. This is even more important to mitigate as irrigation occur during dry season low river flow.

- Loss of vegetation in the watershed and on the hills may induce erosion and silting in thewatersheds and in irrigation schemes.

- Conflicts between wildlife and domestic animals (cattle and goats), and the irrigation schemes may appear- for proliferation of crop pests, such as birds in rice irrigation

D) MITIGATION MEASURES RECOMMENDED:Mitigation measures for environmental impacts and environmental risks identified, will be thoroughly discussed withthe Zambia Environmental Protection Council, as the basis for the project Enviro. Mitigation and Monitoring Plan.- In cases of risk of depletion of river water resources, irrigation will be supplemented by small scale earth dams;- The project includes extensive training and capacity building on the use and disposal of chemicals and their

containers;- The project provides for awareness building and medical assistance to control those diseases;- Training and capacity building for search and adoption of best practices is integrated in the project to mitigate the

potential environmental impacts and risks related to income generating activities other than agriculture;- To avoid direct discharge of drainage water in the surface water bodies, it is proposed that the drainage waters are

re-directed into captive ponds for disposal. A buffer tree belt will uptake the excess nutrients at the root level.- Village wood-lots are proposed to provide alternative wood resources to avoid clearing, erosion and silting.- Live and electric fencing is proposed to protect fields from attacks of large mammals (hippopotamus and cattle)- Use best practices to combat crop pests (IPM), i.e. birds can be easily controlled by stretching tapes across the

fields.

E) PUBLIC CONSULTATION & DISCLOSURE REQUIREMENTS:- Population are fully involved the preparation and evaluation of the project. In addition and prior to this project

the benefit from extension agents living in each village to learn and accommodate agriculture and environmentalbest practices.

F) RESETTLEMENT PLAN REQUIRED?- The project does not include relocation of people, or economic activities. The fields that are in the project areas

will be converted from rain-fed agriculture to irrigated agriculture.

G) CATEGORIZATION CHANGEDATE:REASON:

Annex 3

ZAMBIA

Small-Scale Irrigation Project (SIP)

Provisional List of Goods and Services: ADF and TAF

Million UA Source of finance (Million US)

PROJECT ITEMFE LC TOTAL ADF TAF Gov. Benef TOTAL

1. Goods and Equipment:

1.1 Pontoons/booster pumps/installation (9 of75kw) 0.06 0.02 0.08 0.08 0.08

1.2 Office and Field Equipment 0.23 0.03 0.26 0.21 0.05 0.26

1.3 Tools and Local Material 0.34 0.23 0.57 0.47 0.10 0.57

1.4 Vehicles 0.20 0.02 0.22 0.19 0.03 0.22

2. Civil Works:2.1 Power supply for project sites 0.00 0.12 0.12 0.06 0.06 0.12

2.2 Earth Dam 0.08 0.04 0.12 0.12 0.12

2.3 Intake canal:Rehab.1.5 & Extend 2.5km 0.05 0.02 0.07 0.07 0.07

2.4 Pumping Station (24 stations) 0.02 0.01 0.03 0.03 0.03

2.5 Main Pipelines (450 & 300 mm) 0.74 0.49 1.23 1.23 1.23

2.6 Main Line Fittings etc. 0.02 0.01 0.03 0.03 0.03

2.7 Service Tanks (21 tanks) 0.13 0.08 0.21 0.21 0.21

2.8 Main Canal & Structure… 0.44 0.30 0.74 0.71 0.03 0.74

2.9 Scheme roads, drains, structure, drain ponds 0.04 0.01 0.05 0.05 0.05

2.10 Solar electric fencing & wooden posts 0.07 0.05 0.12 0.09 0.03 0.12

2.11 Building Dept. of Field Services (30 office) 0.08 0.06 0.14 0.14 0.14

2.12 Building warehouses/input shops/meeting room 0.04 0.02 0.06 0.06 0.06

2.13 Secondary canals & structure (49km) 0.00 0.18 0.18 0.18

2.14 On-farm canals (91km) 0.00 0.29 0.29 0.29

2.15 Land clearing/leve./furrows/drains 1890ha 0.00 0.15 0.15 0.15

2.16 Gov. contribution to all Civil Works 0.00 0.14 0.14 0.14

3. Consultancy Service:3.1 Design/super. civil works –RIF/TSB 0.02 0.10 0.12 0.12 0.12

3.1 Social Mob. & Env. Mgt. & Monit.. Plan 0.01 0.06 0.07 0.07 0.07

3.1 TA and engineering for PCO & TSB 0.05 0.29 0.34 0.34 0.34

3.1 TA for managing credit – MFI 0.02 0.11 0.13 0.13 0.13

4. Operating Cost:4.1 Vehicles and Office Equip. 0.07 0.21 0.28 0.28 0.28

4.2 Poject Manag. RIF off. Oper. Cost 0.02 0.04 0.06 0.06 0.06

4.3 Project Super.& Farm.Sup.-TSB/AEB/DAC 0.02 0.07 0.09 0.09 0.09

4.4 Project Manag./Super. (PCO) 0.03 0.07 0.10 0.10 0.10

4.5 Office Rental 0.03 0.10 0.13 0.13 0.13

4.6 Gov. Staff Salaries (Contribution) 0.20 0.60 0.80 0.80 0.80

5. Mescellaneous5.1 Training

5.1.1 Human capacity building-Staff by ISTT 0.10 0.14 0.24 0.24 0.24

5.1.2 Farmer Training by RIF, TSB, AEB, & Env 0.06 0.08 0.14 0.14 0.14

5.1.3 Farmer Training in Credit by MFI 0.02 0.02 0.04 0.04 0.04

5.2 Credit

5.2.1 Lift Pumps (42 of 35kw) 0.23 0.03 0.26 0.26 0.26

5.2.2 Agricultural Inputs 0.05 0.01 0.06 0.06 0.06

5.2.3 Food Processing Equipment 0.17 0.02 0.19 0.19 0.19

5.2.4 Open credit: Income generating activities 0.11 0.01 0.12 0.12 0.12

5.2.5 Motorbikes for Ext. staff and FGs members 0.05 0.01 0.06 0.06 0.06

TOTAL 3.80 4.24 8.04 5.29 0.76 1.31 0.68 8.04

ZAMBIA Annex 4SMALL-SCALE IRRIGATION PROJECT (GSSIP)

Tentative Implementation ScheduleActivity/Action Initiator Starting Ending

1 AdministrationBoard approval ADF Jul-00 Jul-00Loan Agreement signed ADF/GRZ Sep-00 Sep-00Loan effective ADF/GRZ Jan-01 Jan-01

2 Project Management and NGOsPC Office allocated and furnished MAFF/RIF Jan-01 Jan-01Personnel assigned (Steering Committee & ProjectStaff)

MAFF-TSB/AEB/E&MD,EC/FMU/PPSU/RIF/DCo-Op, EC&ISTT; ADF

Feb-01 Feb-01

PCO staff (PC, Financial Controller, ProcurementExpert, Secretary, 1 Driver) short-listed approvedand contracted

MAFF/TSB/ADF Feb-01 Mar-01

Social Mobilisers short-listed & 1 approved andcontracted

MAFF/RIF/ADF Feb-01 Mar-01

External Auditors short-listed & 1 approved andcontracted

MAFF/FMU/ADF Mar-01 Apr-01

ISTT & ATI appointed for training MAFF/PC Apr-01 Apr-01Environmental experts short-listed & 1 appointed MAFF/EC/PC/ADF Apr-01 Apr-01Project staff orientation carried out AMTA/PC/Project staff Apr-01 Apr-01Farmer grouping & training carried out RIF/AEB/TSB/MFI/DCo-op Apr-01 Sep-06

3 Establishment of Credit SystemMFI short-listed and proposals invited MAFF/PC/ADF Mar –01 Mar -01MFI Selected MAFF/ADF Apr –01 Apr -01Legal agreements signed MAFF/ADF Apr –01 Apr -01TA services provided MFI/MAFF/PC May-01 May-01

4 Vehicles, Office & Field EquipmentList of suppliers drawn and approved RIF/TSB/AEB/ISTT/PSU/MFU/PC

/ADFMay-01 Jun -01

Tender documents prepared and approved RIF/TSB/AEB/ISTT/PSU/MFU/PC/ADF

May-01 Jul - 05

Bids invited PSU/PC Aug-01 Aug-01Bids received and evaluated (Continuous) PSU/TSB/AEB/RIF/PC Oct- 01 Oct- 01Evaluation report approved (Continuous) MTC/ADF Nov-01 Sep-05Tenders awarded (Continuous) MAFF/RIF/PC/ADF Dec- 01 Sep-05Goods supplied (Continuous) Supplier/PC/MAFF Feb- 02 Oct-05

5 Training at ISTT, ATI & OverseesCourse material prepared TSB/AEB/ISTT/ATI/PC May-01 May-01Overseas training reserved TSB/PC Dec –02 Dec -02Regional training/tour reserved TSB/AEB/PC Jul – 02 Jul - 04Local staff training carried out TSB/AEB/PC/ISTT Sep- 01 Sep -02Overseas training accomplished TSB/PC Sep- 03 Jul - 04Farmer training carried out ATI/AEB/TSB/PC Sep- 01 Sep- 06

6 Civil Works for Irrigation & Marketing Infr.Tender documents prepared and approved RIF/TSB/PSU/PC/ADF Jun –01 Dec-05Bids invited RIF/TSB/PSU/PC Jul – 01 Jan -06Bids received and evaluated RIF/TSB/PSU/PC Sep- 01 Aug-06Evaluation report approved MTC/RIF/TSB/PC/ADF Nov-01 Feb-06Contracts awarded MAFF/RIF/TSB/PC Dec- 01 Mar-06Construction executed Contractor/RIF/TSB/PC Aug-02 Sep-06

7 Small-Scale Irrigation EquipmentList of suppliers drawn and approved RIF/TSB/PSU/PC/ADF Jun- 01 Jun- 01Tender documents prepared and approved RIF/TSB/PSU/PC/ADF Jul- 01 Jul - 06Bids Invited RIF/TSB/PSU/PC Aug-01 Aug-06Bids received and evaluated and approved MTC/RIF/TSB/PSU/PC/ADF Oct- 01 Oct- 06Contracts awarded MAFF/RIF//TSBPC Nov-01 Oct- 06Goods supplied Supplier/MAFF/RIF/PC Dec- 01 Oct- 06

ZAM BIA ANNEX 5

SM ALL-SCALE IRRIG ATION PROJECT (GSIP)

Calculation of the Econom ic Rate of Return (E IRR)

B E N E F I T SProject (In ZM K M illion) (IN ZM K M illion)

W ithout

Year Project Total Increm ental Increm ental Increm entalCrop Investm ent O perating Crop Net

( PY ) Production Cost Cost Production Cost Cost W ithout W ith Benefit BenefitsCost Cost

PY1 209.30 3579.41 757.69 3844.40 8181.5 7972.2 391.2 7456.60 7065.4 -906.8

PY2 209.30 5120.91 809.68 3844.40 9775.0 9565.7 391.2 7456.60 7065.4 -2500.3

PY3 209.30 3183.59 866.11 3844.40 7894.1 7684.8 391.2 7456.60 7065.4 -619.4

PY4 209.30 2484.69 833.45 3844.40 7162.5 6953.2 391.2 7456.60 7065.4 112.2

PY5 209.30 1451.62 823.79 3844.40 6119.8 5910.5 391.2 7456.60 7065.4 1154.9

PY6 209.30 247.42 823.79 3844.40 4915.6 4706.3 391.2 7456.60 7065.4 2359.1

PY7 209.30 0.00 823.79 3844.40 4668.2 4458.9 391.2 7456.60 7065.4 2606.5

PY8 209.30 0.00 823.79 3844.40 4668.2 4458.9 391.2 7456.60 7065.4 2606.5

PY9 209.30 0.00 823.79 3844.40 4668.2 4458.9 391.2 7456.60 7065.4 2606.5

PY10 209.30 1802.77 823.79 3844.40 6471.0 6261.7 391.2 7456.60 7065.4 803.7

PY11 209.30 0.00 823.79 3844.40 4668.2 4458.9 391.2 7456.60 7065.4 2606.5

PY12 209.30 0.00 823.79 3844.40 4668.2 4458.9 391.2 7456.60 7065.4 2606.5

PY13 209.30 0.00 823.79 3844.40 4668.2 4458.9 391.2 7456.60 7065.4 2606.5

PY14 209.30 0.00 823.79 3844.40 4668.2 4458.9 391.2 7456.60 7065.4 2606.5

PY15 209.30 1802.77 823.79 3844.40 6471.0 6261.7 391.2 7456.60 7065.4 803.7

PY16 209.30 0.00 823.79 3844.40 4668.2 4458.9 391.2 7456.60 7065.4 2606.5

PY17 209.30 0.00 823.79 3844.40 4668.2 4458.9 391.2 7456.60 7065.4 2606.5

PY18 209.30 0.00 823.79 3844.40 4668.2 4458.9 391.2 7456.60 7065.4 2606.5

PY19 209.30 0.00 823.79 3844.40 4668.2 4458.9 391.2 7456.60 7065.4 2606.5

PY20 209.30 1802.77 823.79 3844.40 6471.0 6261.7 391.2 7456.60 7065.4 803.7

Econom ic Internal Rate of Return (E IRR) = 29.66%

____________________________

W ith assum ption of 15% increase in project investm ent cost EIRR = 21.66

W ith assum ption of 10% decrease in production revenue EIRR = 13.79

W ith 10% increase in investm ent cost and 10% decrease in production revenue EIRR = 10.84

C O S T S

W ith Project Crop Revenue