Doouent of

The World Bank

]FOR OFmCIL USE ONLY

6j2 ?)g /&/ -A--lReport No P-5999MAI

IORANDUtI AND RECOMATION

OF THE

PRESIDENT OF THE

INTERNATIONAL DEVELOPME ASSOCIATION

ERCUTIVE DIRECTORS

ON A

PROPOSED CREDIT

OF SDR 33 MILION (US$45.8 MLLION EQUIVALE)

TO THE

REPUBLIC OF MALAI

FOR AN

AIRICULTURAL SERVICES PROJECT

NAY 24, 1993

MICROFICHE COPY

Report No. :P- 5999 MAI Type: (PM)Title: AGRICUTLTURAL SERVICES PROJECTAuthor: ANSON, R.Ext. :34397 Room:J11167 Dept. :AF6AG

This doement has a restricted distibution d may be used by tecipleuts only in the perfonnance oftheir official duties. Its contents may not otherwise be disclosed without World Banik authorizaton.

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CURRENCY EQUIVALEN1S

Currency Unit - Malawi Kwacha (MK)US$ = MIK 4.0MKI = US$0.25

ABBREVIATIONS

ADB African Development BankASC Agricultural Sciences CommitteeASP Agricultural Services ProjectASSC Agricultural Sector Steering CommitteeEC European CommunityEEC European Economic CommunityPA Field AssistantFHA Farm Home AssistantGDP Gross Domestic ProductGOM Government of MalawiGTZ Deutsche Geiellschaft Fur Technische Zusamenarbeit GmBHIDA Iterational Development AssociationIFAD Intecnational Fund for Agricultura DevelopmentMOA Ministry of AgricultureNGO Non Governmental OrganzationNRDP National Rural Development ProgramODA Overseas Development AdministrationUNDP United Nations Development ProgramUSAID United States Agency for Intenational Development

FISCAL YEAR

Government: April I - March 31

FOR OMCIAL USE ONLY

MALAWI

AGRICULTURAL SERVICES PROJECT

Credit and Project Summary

Borrower: Republic of Malawi

Beneficiaries: 1.0 million smailholder households; Ministry of Agriculture;Bunda College of Agriculture; fertilizer importers anddistributors

Amount: SDR 33 million (US$45.8 million equivalent)

Terms: Standard IDA terms, with 40 years maturity

Ei cwj Plan:

Local Foreign Total-- US$ Millionn

IDA 26.3 19.5 45.8ADB 3.9 8.8 12.7GOM 6.3 0.0 6.3

Total 36.5 28.3 64.8

Rate of Return: Not Applicable

Staff Apprai Report No. 11602-MAIMap: IBRD No. 24575

This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. its contents may not otherwise be disclosed without World Bank authorizaion.

1

MEMORANDUM AND RECOMMENDATION OF THE PWEDENTOF THE INTERNATIONAL DEVELOPMENT ASSOCIATION

TO THE EXCUIE DIRECTORSON A PROPOSED CREDIT TO THIE REPUBLC OF MALAWI

FOR AN AGRICULTURAL SERVICES PROJECT

1. The following memorandum and recommendation on a proposed Credit to Republic of Malawi of SDR33 million (US$45.8 mllion equivalent) are mubmitted for your approval. The proposed Credit would berepayable over 40 years, including a grace period of ten years at standard IDA terms. It would help to financea project which would enhance the capacity of the research, ectension and input supply systems to provide cost-effective and sustnable technologies suitable to smallholder farmers. Ibe project wold contribute directly toincreasing smallholder incomes and food security.

2. Cgnta gac d: Despite a series of adjustment programs, Malawi remains one of the poorestcountries in the world with a per capita GNP of US$240 (1991). It is extremely vulnerable to extemal shocks,becase of its land-locked position and narrow resource base. Although the coutry has made sonsiderableprogress on the macroeconomic front over the past four years, the medium-term economic outlook is highlyuncertain because of:

* the exten shocks and the adverse impact of an unprecedented drought in 1992 throughoutSouthern Africa; and

* deterioratng relations with biat donors due to unresolved issues related to governance.

3. Malawi's period of strong growvl came to a halt In the early 1980s when the country faced a combinationof unforable terms of trade, high interestrates, weather-related shocks, and major domestic policy weaknesses.The first series of adjustment operations was a response to this set of shocks. However, while the Governmentof Malawi (GOM) was responding to these shocks, the country was hit by a worsening of the war and civil strifein neighboring Mozambique. Mhis not only led to a major increase in intenational transportation costs, but alsoto increased security-related expenditures and a large influx of refugees. TIis caused sharp deterioration in themacroeconomic enviroment in the mid-1980s. Despite the partial reopening of the Nacala rai route throughMozambiqe in October 1989, and recent peace overtures, the Mozambican situation has not eased and remainsuncertain. Certain policy responses to this second and more drmaic set of shocks, including expanded fiscaldeficits and implementation of import controls, compounded the difficulties and discouraged private sectorinvestments and output. The situation was further exaeated by the severe drought in 1992 which reduced themaize crop by nearly 60 percent. Widespread poverty and food insecurity have emerged as important socialdimensions to the economic difficulties. This has resulted in additiona foreign exchage requirements of US$236million for maize imports in order to avoid widespread food shortages, marition and starvation. Drought-related expenditures for the inernal distribution of emergency food aid, water supply rehabilitation and healthprograms will fiurther worsen the Government's fiscal difficulties.

4. At the May 1992 Consultative Group Meeng held in Paris, bilateral donors and the EC refrained frompledging additional exernal assistce to Malawi due to political goverance issues. To close the resulting fiscaland external financing gap, the Malawian authorities Implemented an austerity package in June 1992, comprisinga 22 percent devauation of the Kwacha, strict expenditure controls, and a tightening of the monetary stance.ITese measures have helped the economy to remain broadly on track. Nevertheless, timely resumption ofbilatera and EC extera support (eg., balance of payment support) is ccial for the succeful continuon ofthe adjustment program.

2

S. Ae Agriculture continues to be the backbone of Malawi's economy. Eighty-five percentof the popuation of 8.3 million, plus about one million Mozambican refugees, reside In rural areas and rely onagriculture and natural resources for their livellhood. Agriculture accounts for nearly 33 percent of GDP and85 percent of exports, provides two-thirds of the inputs for the manufacturing sector, and dominates thecommercial and distnbution sectors. Maize is Malawi's staple food and occupies nearly 80 percent of cultivatedarea. Domiat exports are tobacco, tea and sugar, with tobacco comprising 45 percent of total export eatnings.Production is predominandy under rainfed conditions, relying on one rainy season per year. This makes Malawivulnerable to drought, as in 1992. Rapid population growth (3.5 percent p.a.) and limited land have eliminatedfallow in most areas, resulting in environmental degradation and reduced productivity.

6. Malawi's agricultural sector consists of smallholder and estate farm sub-seors. There are significantdifferences in resource allocation and farming practi:es between and within these two categories. 'he smallholdersector comprises about 1.8 million families, producing mainly for subsistence. This sector farms 75 percent ofthe cultivated area, but with 55 percent of households cultivating less than 1 hectare. Some 40 percent arefemale-headed households, of which 70 percent cultivate less than 0.5 ha. Low productivity (i.e., 800 kgmaize/ha on average) and small farm sizes result in extremely low incomes and chronic food insecurity for mostfamilies. In an average rainfall year, about 75 percent of households run out of maize 3 months before theharvest. The estate sector is comprised of about 18,000 farms, which occupy about 25 percent of the cultivatedland and produce mainly export crops and hybrd maze.

7. Growth of Malawi's agricultural sector since Independence has varied widely (-2 to 10 percent p.a.), dueto a fiaile and narrow resource base and uncertain rainfall. The 1992 drought resulted in a negative growth rate.The main source of growth has been expansion of the area under cultvation and increased tobacco exports. Theeste sector has driven agricultural growth, due to privileged access to land, tobacco licenses, inputs and credit.By conrast, the smallholder sector stagnated in the 1980s, due to policy distortions, dwindling land resources,and inadequate agricultural and financial services. With alleviation of these constraints, the smallholder sectorhas the greater poteal for growt!' and poverty reduction. For eample, with good weather and improvedpolicies, smaholder growth in 1991 exceeded 10 percent.

8. Sector Objetives and Constraints: The Govemmentes broad sectoral objectives are to promoteagricultural growth, raise rural incomes, ensure food security at the national and household levels, and increaseand diversify export earnings, while conserving natural resources. Government's main strategies involvedeepening policy reforms in agricultural produce markets and cash crop production, improving public expendituremanagement and allocation, making the provision of agricultural services to smallholders more cost-effective, andexpanding the role of the private sector. Agriculture has the potential to achieve a sustainable and broad-basedgrowth rate of at least 4 percent p.a. Realizing this potential Is essential to trigger growth in other sectors andto reduce iV-espread poverty. Agricultural growth will need to be derived mainly from increases in smallholderproductivity and in returns per unit of land under cultivation. The recent development of high-yielding flint maizevarieties is a promising prospect for such growth and for enhancing food security. While some progress has beenmade in increasing productivity, the majority of smallholders, especially the resource-poor, continue to face majorconstaints. These include limited land resources; declining soil fertility and deforestation; severely limited accessto cash crop production; lack of access to inputs (especially improved seeds and fertilizer) and financial services;limited availability of labor during peak-season (especially for female-headed households) and deficient researchand extension services. Steps are being taken to address some of these constraints, with assistance from IDA andother donor agencies (including ADB, IFAD, EEC, UNDP, USAID, ODA and GTZ). Notwithstauding theseprograms, recen studies have highighted the need for additional action in order to: (i) generate and introduceimproved technologies suitable for different household types and agroecological zones, through increasing thefocus of agricultural research and extension; (ii) increase the avaiability and use of improved seeds and fertilizer;(iii) remove restrictions on smallholder production of cash crops; (iv) expand access to rural financial services;

3

and (v) provide more effective targeted Income-generating intervendons for the resource-poor, most of whom arewomen. The ASP would be a catlyst for such actions.

9. ETect hbJecives: Ie Projects key objectives are: (i) to help formulate and Implement institutionaland management reforms In the national research, extension, and Input supply systems, with the aim of prosidingcost-effective and sustainable technologies suitable for a range of smallholders; and (ii) to enhance farm incomesand food security by increasing and diversifying smallholder production, especially among female and resource-poor farmers. A secondary objective is to provide a policy and operational framework for channeling andcoordinating assistance to the development of agricultural services from other donors.

10. .. DescipAtion: The Project would be implemented over a six year period and would be comprisedof four major components: research, extension, input supply and institutional strengthening.

(a) Agrigultural Research (US$18.1 million or 28 percent of total project costs): This component wouldsupport: () formulating and implementing research action pluas which are consistent with the national researchmaster plan and rei1istic budget ceilings; (ii) strengthening research-extension-farmer linkages to ensure researchresponds to smallholders' needs; (iii) diversifying participation in publicly fiunded research through expandingcontract research by qualified bodies, and facilitating progress towards the commercialization of some researchactivities; (iv) improving the setting and updating of national research priorities and allocation of public funding(ncluding donors) by activating the Agricultmal Sciences Committee (of the National Research Council ofMalawi, in the Office of the President); and (iv) improving research system management, and enhancingresearcher career structures, motivation and accountability.

(b) Agricultural Extension (US$24.2 million or 37 pereent of total project costs): The extension componentwould cover five technical areas: crops/agro-forestry; livestock; land resources and conservation; small-scaleirrigation; and food and nutrition. In all these areas, the Project would support activities which would: (i)increase the efficiency of extension delivery through streamlining organizational arrangements, operations, staffinglevels, functions and capacities; (ii) expand the coverage of smallholders to reach more female and resource poorfarmers, through separating credit administration from extension, promoting low-cost and proventechnologies/practices, strengthening research-extension-farmer linkages, integrting technical messages that aremore responsive to smaUholder constrains, collaborating with NGOs, using farmer groups other ta those whichare credit based, increasing the mnmber of female field assistants (FAs), and training all FAs in gender-relatedissues, particularly nutrition; and (ill) increase the effectiveness of extension through improving staff traing,using more interactive teaching methods, and encouraging better quality and consistency of field supervision,supported by improved operational fumding, close monitoring and rewarding good performance.

(c) Input Supply (US$10.0 million or 16 percent of total project costs): To increase the availability anduse of improved seeds and fertilizers by smallholders, this component would: (i) help formulate and implementseed and fertlizer policy reforms to further liberalize importation (fertilizers), production (ybrid seeds), pricingand domestic distribution; and (ii) help finance incremental fertilizer imports, as well as mobilize additional donorassistance for fertlizer imports within a consistent policy framework.

(d) Institutional Strengthening (US$12.5 million or 19 percent of total project costs): This component wouldstrengthen the capacity of MOA to deliver agricultural services in an efficient, effective and sustainable manner,and thus ensure the realization of benefits to smallholders from reforms in the extension, research, and inputsupply systems. Actions would be supported to Improve: planning and financial management in MOA; transportmanagement; procurement (including a cross-Ministerial study and action plan); agricutural policy analysistraining (-county); pilot schemes in small scale irrigation, with an emphasis on building capacity of farmergroups; sectoral and project monitoring and evaluation.

4

11. Poject Cost and Financing: Estmated total project costs would be US$64.8 million. IDA wouldfinance US$45.8 M (70 percent); ADB US$12.7 M (20 percent) and Government the balance of US$6.3 M (10percent). Schedule A provides a break-down of estimated project costs and a project finacing plan; ScheduleB provides details of procurement methods, a break-down of disbursements and an estimated schedule ofdisbursement; Schedule C provides a timetable of key processing events; and the status of Bank operations inMalawi and the statement of LFC investments are provided in Schedule D.

12. Project LmpteMenA&n: MOA would be responsible for overall Project coordination and implementation.All of the Project activities build on existing programs and would be implemented through established institutionalarrangements, The activities and arrangements, however, would be refocused to generate more tangible andsustainable results. MOA D)epartment and Unit heads would be responsible for specific components. AnAgricultura Sector Steering Committee (ASSC), would be activated to ensure effective coordinadon among, andmonitoring by participating departments, units and agencies for this Project, as well as the other major projectsbeing implemented by MOA. The ASSC would be supported by MOA's Monitoring and Evaluation Unit, andbacked-up by a senior Monitoring and Evaluation (M&E) officer who would be assigned to monitoring overallproject progress. Project implementation in Malawi has, in the past, suffered from weak institutional capacity.IDA has carried out workshops in Malawi and provided assistance to various government agencies to alleviatedisbursement problems. In addition, the activities under the ASP have been carefully phased to take into accountweak implemeion capacity and the project provides in-service training and technical assistance to buildcapacity. MOA, together with IDA and GTZ, has prepared a detailed implementation manual for projectcomponents to help guide implementation. Project implementation and impact will be closely monitored throughbiennial reviews and the use of performance indicators and targets which were developed and agreed with theimplementing agencies.

13. Proect Sustainabit: The active participation of Government and especially the key implementingdepartments in the design and preparation of the project should enhance the sustainability of project activities.Various mechanisms, including two workshops and continuous and open dialogue promoted through the ResidentMission staff, were used during project processing to ensure active participation and ownership of the projectaction plans on the part of the relevant officials at both Headquarters and field levels. In addition, the Projectwould strengthen the capacity of MOA to plan and provide more effective, efficient and sustainable agriculturalresearch and extension services. Measues to promote sustainability iniclude: keeping project scope consistentwith existing levels of funding (in real terms) and implementation arrangements and capacities; streamliningresearch and extension staff; using improved method (i.e., "yardsticks" and improved budgetary processes) toestimate and allocate required operating funds; improving the policy environment to expand the role of theprivate sector in providing key agricultural inputs; improving the motivation and accountability of research andextension staff; and ensuring that Govenment gradually absorbs the modest incremental recurrent costs.

1. Lessons Learnt from Previous IDA Agricultral 3ItJ: Relevant projects in Malawi include: theSmallholder Fertilizer Project (Cr. 1352); several projects under the National Rural Development Program in the1970s and 1980s; the National Agricultural Research Project (Cr. 1549); the Agricultural Extension and PlanningSupport Project (Cr. 1626); and the Agricultural Sector Adjustment Credit (Cr. 2121). Lessons from these andsimilar projects in sub-Saharan Africa include: (i) project scope must be kept simple and adjusted to budgetaryconstraints consistent with macroeconomic conditions and implementation capacity; (ii) institutional reforms taketime and require a long-term commitment, phasing, detailed action plans and a broad-based consensus of bothdecision-makers and implementors; CMii) effective coordinating arrangements are necessary; (iv) overse degreecourses should be funded sparingly, especially when incentives are weak in the public sector; and (v) strongcapacity in Government/MOA budgeting, financial management, procurement and policy formulation Is essential.The Project takes these lessons into account by: focussing on the most critical agricultural services; developinga broad-based consensus during preparation and appraisal; supportng a phased program of institutional and policy

5 .

reforms, backed by agreed action plans; expanding the role of the private sector; emphasizing In-service and in-country training; and employing simple Implementation and coordination arrangements.

15. Rationale for IDA Involvement: In the 1980s, IDA played a key role in supporting Malawi's stuctand agricutural adjustment and investment programs. Currendy, lIDA, In close collaboration with GOM anddonors, is preparing an Agricultural Sector Memorandum (ASM) to update sector strategies and provide theanalyical underpinnings for Project investment. Ihis Project has integrated the initia findings of the ASM intoits design. The ASP is also well-timed in terms of building on past riulti-donor investmets (especially ininfastructure and training), policy and institutional reforms, and the MDA-supported pilot extension initve andagriculturl research project (coming to closure in 1993). The later, together with the Rockefeller Foundation,assisted in the development of two promising hybrid variedes of maize which are now ready for disseminationto smallholders. The Project would support the implementation of specific measures to secure a supply response(especially for the new maize hybrids) from a larger proportion of smallholders as an engine for growth andpoverty alleviation. The Project also provides an investment framework for coordinat and mobilizingadditional donor assistance, including co-financing by the African Development Bank and a proposed parallelproject financed by the International Fund for Agricultural Development (IFAD). In addition, the proposed IDA-supported Rural Financial Services Project would expand smallholder access to finance, and thus enable a wideradoption of the improvedi technologies being promoted by the ASP. The Project is therefore consistent withIDA's strategy with respect to Malawi's agricultural sector in that ASP would contribute directly to increasingsmalhoider productivity and incomes and to alleviadng poverty in a sustainable hamer.

16. Main Assurances Obtained: There is broad agreement with Government on the Project's objectives andthe need for policy and operational improvements during implementation. In order to ensure Governmentconmitment to the essential policy and institutional changes, and their timely implementation, the Project designhas emphasized -At n ations. the fllowing aurc y : (a) the ASPPlan of Action (containing action plans for each component and subcomponent) satisfacwry to IDA would beimplemented; (ii) improved seed and fertilizer policy reforms would be implemented in 1993/4; (dii) the proposalsconcering the functions, coamposition and operation of the Agricultur Sciences Committee (ASC) aresatisfactory to IDA; and (iv) budgetary alloaions for non-salary operang expenditures would be accordancewith realistic requirements, based on improved methods of calculation. Before Board Presentation, theGovernment fulfilled the following actions satisfactory to IDA: finalized the sectoral leuer of agriculturalpolicies; approved and announced the seed and fertilizer policy reforms; finalized and approved measures toImprove researchers' career structure and incentives; completed the research action plans in accordance withagreed creria; and completed the implementation reports on the small-scale irrigation and food and nutritionsubcomponents. Conditions of credit effectiveness include the appointment of the head of the ASC technicalsecretariat; issuance of a circular formalizing the role of the Agriculhtu Sector Steering Committee and theappointment of tbree key technical assistance staff, all satisfactory to IDA. Cnitio of disbursement for theinputs component will be the implementation of fertilizer policy reforms and action plan satsfactory to IDA.

17. Environmental Aspects: ASP's environmental assessment category is "B." The project is ewected tohave a beneficial environmental impact through dissemiating extension messages on: increased, but moreefficient, fertilizer applications (fertiizer use is at low levels in a country with rapidly declining soil fertlity);soil and water management and conservation; agro-forestry and nitrogen-fixing plants. These efforts wouldpromote land conservation and environmental protection, as well as sustainable cultivation. The final design andexecution of the small scale irrigation schemes would need to meet pre-defned environment criteria and wouldbe monitored closely for adverse effects, if any. The Government is currently preparing a national environmentalaction plan which will identify measures and establish the policy and institutional framework to stregthenMalawi's capacity to monitor and address the environmental effects of investment projects such as ASP.

6

18. Areas gf Special Emphasis The Project emphasizes household food security and poverty reduction amongresoureor farmers, many of whom are female, ahough increased prodklivity and diversification. The Projectpromotes an epanded role for the private sector ir, agriculhua services through contracting out research, usingNMOs and established local farmers' groups in extension and small scale irrigation, and further promoting theliberalization of seed and fertilizer markets.

19. Troect Beneft: lhe Project would provide two types of benefits: proluctiontincome and institutional.Production benefits would include: increased adoption of improved seeds, especially the promising hybrid maizeseed; more efficient and profitable application of fertilizer; use of fertilizer by a larger number of smallholders;and more widespread adoption of agro-forestry, nitrogen-fixing rotations and water and soil conservation; andthe development and replication of viable technologies for small scale irrigation. Institutional benefits wouldinclude: improved institutional mechanisms and capacity to sustain more efficient research and extension systems,which are responsive to the needs of smaillholders, especily women and the resource poor; impoved financial,transport and monitoring systems to support agricultural services, and a beter motivated and :abned research andextension staff. The net value of smallholder output is expected to increase by 35 percen in red tems by2002/3. The ASP benefits would also be enhanced by several proposed parallel projects (including support fromIFAD) which would provide additional assistance through the ASP fhamework.

20. Prie Ris L: imited Govarment/MOA capacity to formulate and impiement the required policy andinstitional changes would adversely affect project Implementation. This outcome would be minimized byensuring realistic project scope, developing phased implementation action plans prior to project start-up, andproviding in-service training and carefully designed technical assistance to build local capacity. Deterioration ineconomic performance and budgetary funding could undermne the required non-salary recurrent funding of keyservices. IThese risks are countered by developing an lnpioved method for estimating and alloctng recurrentfunding, financing incremental operating costs on a declining basis to ensure phased absorption by MOA, andclose monitoring on an anua basis. The proposed improvements in research and extension may not generateworkable solutions to constraints of resource poor smallholders, but priority will be placed on ensuring a rapidflow of remunerative and affordable technologies, strengthening research-extension-fanr linkages, and closelymonitoring farmer adoption rates. Other donor projects involving agdcultural services may diffuse budgetaryand management resources, but ASP provides an improved framework and mechanisms for more effctive donorfunding support and collaboration.

21. ROrunedwo: I am satisfied that the proposed Credit would comply with the Articles of Agreementof the Association and recommend that the Executive Directors approve it.

Lewis T. PrestonPresident

AttachmentsWashington D.C.May 24, 1993

7

Schedule A

MALAWI

AGRICULTURAL SERVICES PROJECT

Estmated Project Cost and Flnandng Plan

Estematd Projed Costs

LoaMl Forpgn Total

-US$ MlUioa-

Research 9.6 6.0 15.6

Extension 16.2 3.9 20.1

input Supply 0.0 9.0 9.0

1nstiional Strengtening 4.6 5.3 9.9

roject Preparation 0.2 1.0 1.2

Physical Contingencies 1.4 0.4 1.8

Price Contingencies 4.5 2.7 7.2

Total 36.5 28.3 64.8

Project Financng Plan

Local Poreign Total

-US MUiion-

IDA 26.3 19.5 45.8

ADB 3.9 8.8 12.7

Government 6.3 0.0 6.3

Total 36.S 28.3 64.8

8

Schedule BPage 1 of 3

MALAWI

AGRICULTURAL SERviCES PROjECT

Procurent Methods and Disbursement

Procurement Method(USS Million)

Project Element ICB LCB Others NA Total

Civil Works - 5.9 - - 5.9- (4.0) - - (4.0)

Technical Assistance - - 5.9 - 5.9(5.4) - (5.4)

Training - - 13.2 - 13.2(11.1) - (11.1)

Vehicles and Equipment 5.3 - 1.0 - 6.3(2.9) - (0.9) - (3.8)

Incremental Operating - - 22.3 - 22.3Costs - (16.3) - (16.3)

Fertilzers 10.0 - - - 10.0(4.0) - - - (4.0)

Refinancing Project 1.0 0.2 - - 1.2Preparation Facility (1.0) (0.2) - - (1.2)

Total 16.3 6.1 42.4 - 64.8(7.9) (4.2) (33.7) - (45.8)

Note: Figures in parenthesis are the respective amounts financed by the IDA Credit.

9

Schedule BPage 2 of 3

MALAWI

AGRICULTURAL SERVICES PROJECTr

Disbursement Amount and Percentage for IMA Credit

Category Amount of Credit Percentage lnanced by IDAAllocated

((US$ Milon)

1. Civil Works 4.0 90 percent

2. Consultants' Svices ad 16.5 100 percentTraining

3. Vehicles, Equipment and 3.8 100 percent of foreignSupplies expenditures and 80 percent of

local expendiures

4. Fertlizers 4.0 100 percent

S. Incremental Operating Costs 16.3 100 percent through December31, 1996 and 60 percentthereafter

6. Refunding of Project 1.2 100 percentPreparaion Advance

10

Schedule BPage 3 of 3

MALAWI

AGRICULTURAL SERVICES PROJECT

Etsmated IDA Schedule of Disburisutent

Projed Year FY94 FY95 FY96 FY97 FY98 FY99 FY2000 TOTAL

Annual Disburs 5.4 11.4 9.8 6.6 7.3 3.5 1.8 45.8(US$ Million)

Cumulative Disbursements 5.4 16.8 26.6 33.2 40.5 44.0 45.8 45.8(US$ Million)

ii

Schedule C

MALAWI

AGRICULTURAL SERVICES PROJECT

Timetable of Key ProceI ig Evenb

1. Ilm8 taken to prepare 9 Months

2. Prepared by : Government with techical assistance and IDA collaboradon

3. First IDA Mission October 1991

4. Approval Departure : June 1992

5. Negotiations February 1993

6. Planned date of effectiveness July 1993

7. List of relevant PCRs PCR No. 7759 NRDP H (Wood Energy); PCR No. 8534Smaliholder Fertlizer Project; PCR No.8638 Third NRDP.

'he Project is based on the findings of an appraisal and post-appraisal mission which vished Malawi in July andNovember of 1992, and comprised Messrs/Mmes R. Anson (Mison lader, Sr. Agriculural Economist); E.Gadzama (Women in Agriculture); R. Gopalkrishnan (Sr. Procurement Specialist); S. Hiwa (Ag. ProgramOfficer, Resident Mission); Z. Matmor (Sr. Extension Specialist); P. Mbuka (Sr. Ag. Services Speciist,Resident Mission); V. Scarborough (November mission Ag. Economist); L. Schwat (July mission Ag.Economist); V. Venkatesan (Sr. Extension Advisor); A. Yates (Sr. Research Specialist). In addition, several GIZconsultants and C. Dickerson (WAD) participated in the mission. Messr/Mmes A. Spurling (Principal ResearchSpecaist) was the Lead Advisor; A. Rioust-de-Largentaye and K. Saito were peer reviewers. C. Helman ismanaging Division Chief and S. Donning Department Director for the operation.

Page I of 3

Status Of ar3* GrGi Csrti.s In 9A IPFDUZ - SUary 8utat I1 Of Laws IOA CtDriitoCU edate s of 330/93 - NiS data as of 042M93)............ .......................... _......

By CsattryC.ntry: NALMS

*mt in MS witi {n(Las cmacllatiss)

Loen or Fisa tisi CLosinigcredit No. Year Borow PupBse IDA brsed Date....... . . ... ... ...... .......

Credits

42 Creits(s) etosed 63m.57

C152s0-sAL 1985 AL URBAN I 15.00 5.53 06/30/93(1)C15490-lUL 1985 ALAMI AGRI RES. 23.80 2.91 10/31/93(2)C16260.L 1986 kALAIt EXT. PULAIGO 11.10 2.18 06/30/93(0)C17420-AL 1987 SALAMI LILOGIdE WATER CM 20.00 .36 06/30/93C167?0-IAL 1967 PALAWI F. SECIt OMIT I 27.00 2.45 12/15/93C17680-IAL 1987 SAAI 2ID FAIJLT IEALTE 11.00 .19 06/30/C185104AL 1986 SALAWI ACRIWU CREDIT 5.90 1.02 0630/95C18790NAL 1966 mAAm TRASIT 1 13.40 3.62 06/0/%C19660-AL 1989 SALAMI AGRI JARKETINQ & S? 18.30 5.84 06/C096C199004IL 1989 PALAWI ENERGY 1 46.70 2S.88 12n31/94C20360AL 1989 NALAMI ISTUM.DEV. 11.30 3.75 12431/94C206904WA 1990 PALAWI INFRASTS)CIUE I 8.80 13.71 12/31/95C0830-AL 1990 SALAMI E9UC.SEC.11 36.90 27.44 06/30/96O0-AL 1991 SALAMI Po SECMOR CIT 5.5J0 49.08 0MA30/9

C2u2e-MAL 1991 UWi FINANCIAtL & MtU 32.00 23.52 06/09?C2250-SAL 1991 NAtUl FIIIERS On. 8.80 6.05 06/30/9C23790-SAL 1992 SALAMI LOCAL GM. 24.00 22.79 12/31/99C Z860-VAL 1992 SALAI PWER V 55.00 54.61 06/09C3960-SAL(S) 1992 SALAMI NUnWm DEV a 0 120.00 54.21 06/30/SC23961-SAL(S) 1993 NALAMI E1IIE1_ NEV & 5 5.9f 5.95 12/31/9

TOTAL ntb.r Credits 2 570.45 312.91

La"s

10 Lons(s) cled 1".52

All cloed for NALAMI

TOTAL rfr Loa 0

T*TAL* 106.52 1,209.02Of didch epaId 45.04 2332

TOTAL heLd b 3* IMA 54 1.15.70Anogt sold

At uhtch repsd

TOTAL uisbursed 313.01

Notes:..... ......... _..

* Not w effectiveN Sot ywt signedTotal Approved, R _epsust, NW C*staWieg bn an reprsat both ative ad uistive Los aN Credits.

(3) fndicfates ft Lty revise ClosiW Dat.(S) Indicates SWSECAL Loam s Credit.

The Net Apoved wd 6Bn RpA)int ae historical waLtu, att ers ae mrkot waltu.

The Signing, gffetive W Closlng dats ar based mn th Loan Dermat offfcal ditt ad we rot tamsfrom the Task Sud.t fito.

13

Page 2 of 3

MALAWI

AGRICULTURAL SERVICES PROJECT

Statement of IFC Investmentsas of December 31, 1992

Investment Lean Equity Total

Number FY Obligor Business -1US$ Miion-

326-MAI 1976

618-MAI 1982 D. Whitehead & Sons Textiles 10.8 - 10.8

362-MAI 77/81/95 Dwanga Sugar Corp. Sugr 11.3 - 11.3

434-MAI 1979 INDEBANK Devt. Finan - 0.6 0.6

502-MAI 1980/84 Malawi Hotels Ltd. Tourism 2.1 - 2.1

543-MAM 1981

614-MIM 1982 Ethanol Co. Ltd. Chem/Petrochem 2.3 0.2 2.5

832-MMA 1986 ILasing & Finance Co. Money/Cap. MkkL 0.7 0.2 0.9

741-MMA 1987

872-MAI 1987 Viphya Plywood Plywood 3.9 O.S 4.4

Total Grows Commitmenas 31.1 1.5 32.6

Lesm: Cncellations, terinations, exchange adjustments, repayments, write- 24.9 0.5 25.4offs, and sales

Total Comminients held by IFC 6.2 1.0 7.2

Total Uncommitted Investments - - -

14

Page 3 of 3

MALAWI

AGUCULTURAL SERVICES PROJECT

Disbursement Delays

'he Bankrs portfolio in Malawi is fairly large and includes 19 ongoing operations. TheGovernent's limitet capacity to implemen the project remains a concern. One of the chaeistcs of projectimplemeation in Malawi has been slow disbursement - ie., slower than planned in the original project StaffAppraisal Reports. As illustrated on page 1 of Schedule D, total disbursements as of March 31, 1993 were about55% of total approved credits. A large part of the undisbursed amount is due to delays in the commencementof Power V Project and in the release of the second tranche under the Entre eurip Development and DroughtRecovery Project It is also relevant to note however, that 11 out of 19 operations are about 3 years old or lessCie., they became efecve in 1989 or later). The major causes of delayed disbursements in Malawi are: (i) ashortage of trained/experienced staff resuting in inadequate knowledge of the Bank's disbursement procedures;(ii) a frequent turnover of disbument staff (iii) lack of adequate counterpart funds; and (iv) lack of staffincentives. On the Bank"s side, disbursements are slowed down by: (i) overly complex project components;Cii) occasional staff delays in procurement approval; and (iii) a failure to resolve project budget issues atnegotiations. To remedy these problems, a number of disbursement workshops have been undertaken in Malawiand these will cotinue to be held annually, wih disbursement officers working in the Goverment and inparastatads paricipating. In addition, in FY93 a Bank disbursement officer visited Malawi twice to assist variousNMiistries/agencies in resolving pendin disbursement issues and in clearing the bacldog. Finally, based on theCountry Implementtion Review of May 1993, the Government and IDA joindy formulated an action programaimed at improving various aspects of project implementation in Malawi, including disbursements.

IBRD 24575

02 To Oat Es Son

MALAWI

ADMINISTRATIVEela'f7 a DIVISIONS .0,

This map has been prepored REINzWhWoXdd~~~ -ksr91 0 % < a l~~b REGIONSedswy far the aowonvenw4e AND

OfOdpTho d is for DISTRICTSad ff boudre shown an tis map do not imn an tm Rheow _part aF TheWarddSn Grasp,am lu= cR athilr;4er W1 lon \ tumPPRINCIPAL ROADS

ndtesnat orebcCetoflCe6<such boundaries. RIVERS

7, RTt E F>l t~~~'-'X RIVERS

// ndeaiC Lake 0 TOWNS

S00x2F j qlttU | ~ NQ (D DISTRICT CAPITALS

> NATIONAL CAPITAL

fM}* -zimb 5 Jf / /DISTRICT BOUNDARIES

1t' [ ); Itt awbumuhns 3 - REGION BOUNDARIES 30

ZAMBIA Li t U k o < - INTERNATIONAL BOllNDARIES

Mlowi KILOMETERS 0 20 40 6.0 8l0 100

MILES 0 20 40 60

[ S4 ~~~~~~~~Nkbelokolo \

NTX isf ) \ MOZAMBIQUE

TobLusakaC tohi.ire

T. N LIL NWEcX JJanua 1993

> FQ r/MACHINGA

MOZAMBIQUE h.

T* TolJe G O

5 AM t.ZA MUne- i hkoo\ 5 H 4 NJI 1

AN O9 To S ei.iom

lanuory 1993