IN THE AMOUNT OF SDR 6.4 MILLION (US$ 1 0 MILLION EQUIVALENT)

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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Document of The World Bank FOR OFFICIAL USE ONLY PROJECT PAPER ON A PROPOSED ADDITIONAL FINANCING GRANT IN THE AMOUNT OF SDR 6.4 MILLION (US$ 1 0 MILLION EQUIVALENT) TO REPUBLIC OF MALAWI FOR THE Report No: MW COMMUNITY- BASED RURAL LAND DEVELOPMENT PROJECT Sustainable Development Department Agriculture and Rural Development Unit Country Department AFCS2 Africa Region October 27,2009 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

2 CURRENCY EQUIVALENTS (Exchange Rate Effective: October 14,2009) Currency Unit = Malawi Kwacha [US$l.OO = MWK 1401 [US$ = SDR 11 FISCAL YEAR July 1 - June 30 BESTAP BG CAS CBRLDP EMP FMR GDP GOM IDA lhs ISR IDA IPM ISR KPI LAFD MASAF-MU MDG MIS MGDS M&E MLHUD MTR PMU NGO NSO PDO SDR ABBREVIATIONS AND ACRONYMS Business Environment Strengthening Technical Assistance Project Beneficiary Group Country Assistance Strategy Community-Based Rural Land Development Project Environmental Monitoring Plan Financial Monitoring Report Gross Domestic Product Government of the Republic of Malawi International Development Association Integrated Household Survey Implementation Status Report International Development Association Integrated Pest Management Implementation Status and Results Report Key Performance Indicator Land Acquisition and Farm Development Malawi Social Action Fund Management Unit Millennium Development Goal Management Information System Malawi Growth and Development Strategy Monitoring and Evaluation Ministry of Lands, Housing and Urban Development Mid-Term Review Project Management Unit Non-Governmental Organization National Statistical Office Project Development Objective Special Drawing Rights Vice President: Country Directormanager: Sector DirectorManager: Task Team Leader: Obiageli Katryn Ezekwesili Peter Nicholas/Timothy Gilbo Inger Andersen Karen Brooks Hardwick Tchale 11

3 FOR OFFICIAL USE ONLY REPUBLIC OF MALAWI COMMUNITY- BASED RURAL LAND DEVELOPMENT PROJECT ADDITIONAL FINANCING CONTENTS I. Introduction... 1 I1. Background and Rationale for Additional Financing... 2 IV. Consistency with the country Assistance Strategy V. Appraisal of Scaled-up Project VI. Expected Outcomes VI1. Benefits and Risks VI11. Financial Terms And Conditions For The Additional Financing ANNEX A: Preparation and Timetable of Key Processing Steps ANNEX B: Monitoring and Evaluation Improvement Action Plan ANNEX C: Results Framework ANNEX D Arrangements for Results Monitoring ANNEX E: Procurement Improvement Action Plan ANNEX F Statement of Loans and Credits ANNEX F Countq'at a glance ANNEX H: MAP - IBRD This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not be otherwise disclosed without World Bank authorization

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5 REPUBLIC OF MALAWI COMMUNITY- BASED RURAL LAND DEVELOPMENT PROJECT ADDITIONAL FINANCING Date: October 27,2009 Country: Republic of Malawi Project Name: Community -Based Rural Land Development Project Project ID: P Lending Instrument: Specific Investment Loan Recipient: Republic of Malawi PROJECT PAPER DATA SHEET Team Leader: Hardwick Tchale Sector DirectorManager: Inger Andersen / Karen Brooks Country DirectorManager: Peter Nicholas /Timothy Gilbo Environmental Category: B (Partial Environmental Assessment) Responsible Agency: Ministry of Lands, Housing and Urban Development(M0LHUD) FY Annual o Cumulative Current closing date: December 3 1, 2009 has been modified, some outcome indicators have been refined and new intermediate results have been introduced in line with the modified activities. The revised project development objective is to increase the agricultural productivity and incomes of approximately 15,000 poor rural families through the implementation of a decentralized, voluntary community-based land reform pilot program on Eligible Land in the Project Districts. Does the scaled-up or restructured project trigger any new safeguard policies? No. For Additional Financing [ ] Loan [ ] Credit [ XI Grant For Loans/Credits/Grants: Total Bank financing: US$10 million Proposed terms: IDA Grant iv

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7 I. INTRODUCTION 1. This Project Paper seeks the approval of the Executive Directors to the proposed: (i) additional financing of the Community- Based Rural Land Development Project ( MW) in the amount of SDR 6.4 million (Ten million United States Dollars [US$ 10,000,000] equivalent IDA Grant); (ii) modification of the Project objective and the Land Administration component (Part B) of the original Grant and (iii) an extension of the project closing date from December 31, 2009 to September 30, The project development objective has been modified, a few outcome indicators have been introduced and the results framework has been streamlined to incorporate.the modified activities. 2. The proposed additional financing would primarily be used to cover an over-run related to the costs of relocating 1,000 households to reach the project target of 15,000 households, enhancement of the Capacity Building component to strengthen the capacity of the land administration institutions, and further support to reform of the legal framework for land administration. Funding for capacity building would be used primarily for land registries at district level and surveying and registration services. Capacities in land surveying, land administration and land information technology at national and district levels are crucial for effective delivery of services under land reform programs. They enhance governance and ease of access to land by investors, while reducing the amount of time it takes to register a land transfer. 3. Part of the additional financing will be utilized to help resolve policy issues that hinder the development of land markets. These issues include (i) collection of land rent, (ii) introduction of a land tax on freehold land, and (iii) enactment of a new Land Law. This will also enable the World Bank to continue to support the framework for land reform during the extension period. The Original Grant 4. A SDR 18.1 million (US$27.0 million equivalent) IDA Grant in support of the Malawi Community-Based Rural Land Development Project was approved by the Board of Executive Directors on April 13,2004 and became effective on July 12, As stated in the original project s Development Grant Agreement (DGA), the project development objective is to increase the incomes of about 15,000 poor rural families through the implementation of a decentralized, voluntary community-based land reform pilot program on eligible land in the Project districts. The original project was initially implemented in 4 pilot Mulanje, Thyolo, Machinga and Mangochi), but in October 2008, Government requested for an amendment to the DGA to include 2 other districts (i.e. Balaka and Ntcheu) into the pilot project. The project s current closing date is December 31, 2009 following the approval of a six month extension to the original closing date of June 30, The Government is exploring how to scale up the experience under the project in a broader land reform programme. The Bank has disbursed SDR 17.7million (98%) and the total undisbursed amount is SDR 0.4 million. The amount in the two Special The PDO in the original PAD is slightly different from the DCA in terms of formulation, but not in substance. 1

8 Accounts A and B is respectively SDR0.9 million and SDR1.7 million for a total of SDR2.6 million as of June 30, 200g2. Special Account B is to be used solely for Land Acquisition and Farm Development under Cost Category 1. It is expected that the unutilized balance will be fully utilized by December 3lS', 2009 as there are over 1,300 households ready for reallocation under the project. The unutilized balance in Special Account A will also be fully utilized by December 31, The project has already submitted withdrawal applications through the April to June, 2009 Financial Monitoring Reports (FMRs) and the FMRs (and Withdrawal Applications) for the quarters ending September 30 and December 31 are expected by November 15, 2009 and February 15, respectively. 5. The project components under the original Grant consist of: (i) Land Acquisition and Farm Development- implemented with direct community involvement through identification, negotiation and acquisition of land and the preparation of farm development proposals, approved by a district-level multi-stakeholder entity, taking into account legal, technical, environmental, and poverty reduction criteria. These sub-projects are carried out through the award of land acquisition and farm development grants to project beneficiaries who are the poor, landless and food insecure households from the pilot districts; (ii) Land Administration- to facilitate the transfer of secure title to the beneficiaries by supporting the strengthening of land administration institutions in the project area; (iii) Capacity Buildingsupporting public information campaigns, community mobilization, participatory rural appraisal, training and technical support to communities, district and national participating institutions and stakeholders; and (iv) Project Management, Monitoring and Evaluationsupporting overall project administration, coordination, supervision, monitoring and evaluation. 11. BACKGROUND.AND RATIONALE FOR ADDITIONAL FINANCING 6. Country context: Malawi is one of the poorest countries in the world, with an average income per capita of around US$171. The population is currently estimated at 13.6 million people and has been growing at a rate of 2 percent per annum. Malawi has a relatively high inequality in income distribution, with a Gini coefficient of The poverty headcount was measured at 54 percent in 2004/05 household survey, and is said to have been declining to about 40% in 2008 according to the Welfare Monitoring Surveys conducted by the National Statistical Office (NSO). However, social and human development indicators remain very weak. For example, the 2007/2008 Human Development Index ranks Malawi as 164th out of 177 countries. 7. Malawi's economy is based on agriculture which generates around 36% of the Gross Domestic Product (GDP), provides 85% of employment and earns 90% of foreign exchange earnings. Land distribution is sharply unequal, and overcrowded arable land exists next to underutilized holdings. Over 90% of the total agricultural value-added comes from about 1.8 million smallholders who on average own less than 1.0 ha of land. The * The last FMR reviewed and cleared was for the period to June The accounts were therefore reconciled to 30" June The project has not yet submitted the next FMR which is due on 15" November

9 poverty and vulnerability assessment indicates that average cultivable land holding is less than 1 hectare (0.90 ha) and just about 0.2 ha per capita for the poorest while the richest have on average 1.3 hectares (0.4 ha per capita) as shown in Figure 1. As shown in Table 1, in terms of land distribution, about 58 percent of the farmers cultivate less than 1 ha, of which about 11 percent are near landless. Only 13 percent cultivate more than 2 ha and the majority of these are in the north where population density is still relatively low (about 50 people per h2). About 1.1 million hectares of land are held in some 30,000 estates, with an average land holding ranging from 10 to 500 hectares. Therefore, one of the key constraints to improved smallholder productivity is the small and declining land holding sizes. The CBRLDP aims at contributing towards addressing this challenge. Figure 1 : Average size of households landholdings by wealth and land quintiles L P Household landholdings Poorest Rchest Q k ) I Landholdings per capita 10 Cuitivated 1 morest Rchest Source: National Statistical Office, IHS2, 2004/05 Table 1 : Distribution of landholdings by region, poverty status, and wealth quintiles Oha ha ha > O ha > ha > 2.0 ha Source: National Statistical Office, MS2 2004/05 8. Land pressure exists in the face of underutilized land in both the estate and customary sector. Based on estimates from land utilization studies undertaken in 1996, about 2.6 million hectares of suitable agricultural land under estate and customary tenure, or 28% of the country s total area, were said to be uncultivated or underutilized. However, Government s current estimates indicate that approximately 600,000 hectares are either underutilized or remain idle. It is this land that has been the target for redistribution under the project. 3

10 9. The major policy issues for the land sector in Malawi relate to equity of access, security of tenure and sustainability of land use. The Government has been piloting the Community-based Rural Land Development Project (CBRLDP) since 2004 to introduce policies and strategies that will improve efficiency of land use by bringing idle land into production through voluntary mechanisms. The CBRLDP is piloting a transparent, voluntary, legal and resource-supported approach to land redistribution through efforts that are market-assisted, community-driven, and focused on rural areas, where poverty is most pervasive. Government response to the land issues 10. The Government instituted the Presidential Commission on Land Reform in The Commission was entrusted with the task of reviewing the previous Land Policy as well as the Land Act of 1965, which was essentially inherited from the colonial Government. The Commission s work culminated into the new Land Policy adopted in In 2003 Government instituted a Special Law Commission to draft a new Land Law with which to implement the Land Policy. Malawi s new draft Land Bill awaits legislative approval. When the draft Bill was first presented, it was recommended that the Special Law Commission should review other related legislative instruments in order to come up with a comprehensive Land Law. So far the review process is complete, but due to the lapse of time, more consultation and sensitization will be required before it is presented to Parliament for legislative approval. Performance of the Original Project 11. The last Project Implementation Support Mission (March 2009) rated project performance as Satisfactory with regard to meeting the expected project development objectives and related outcomes, while IP ratings were Marginally Satisfactory, due mainly to slow progress on issuance of titles to beneficiary groups and the failure to complete the required annual as well as overall impact assessment of the project. The government has submitted an action plan to the Bank outlining remedial measures to be taken by Issuance of land titles has improved since then, and 89% of the 551 relocated beneficiary groups had received their titles by June 30, 2009, compared to 41% at the end of March To improve the IP rating with regard to land administration, the project has been closely monitoring and facilitating the Surveyor General s Department in MOLHUD to ensure speedy processing. This explains why registration of titles has improved significantly. In terms of the M&E, the PMU has engaged the services of another consultant and is monitoring the performance on a weekly basis and helping to address challenges when they occur. Furthermore, the project has also prepared an interim project evaluation report. 12. The PDO rating had been moderately satisfactory since June 2008 mainly due to problems in M&E, project management, financial management and land administration. After the March 2009 mission, the rating was upgraded to satisfactory due to the improved progress on relocation of beneficiaries and the positive impact of the project on beneficiaries livelihoods in terms of productivity and incomes. The IP rating was 4

11 maintained at moderately satisfactory after the March 2009 mission because of the slow progress in issuing group land titles to relocated beneficiary groups and delays in the completion of the impact evaluation. However, following the implementation of the action plan agreed upon during the mission, both the issuance of group titles and performance on impact evaluation have improved significantly. About 90 percent of group titles have been issued (an increase from 41 percent achieved in March 2009) and the interim impact assessment report has been prepared and another independent consultant has been engaged to produce the final impact evaluation. As such, the original development objectives are on track to be met by the revised closing date. 13. The project has so far relocated 84% of the target beneficiaries. Disbursement is at 98% of the total project budget3. Issues related to impact evaluation are being resolved and all fiduciary issues are satisfactory. The project is on track to meeting its development objectives. Key aspects of the technical and fiduciary performance of the national program are summarized below. 14. Key Achievements: Key achievements of the Community Based Rural Land Development Project to date are summarized below (by project component). (a, Component 1 - Land Acquisition and Farm Development (LAFD): So far the project has resettled 12,656 households on 27,998 hectares. In addition, a total of 1,344 households (61 BGs) have already been processed for relocation on 3,255 hectares. The fhds for these are available and are being processed through MASAF. Once these relocations are completed, the project will have achieved 93% and 95% of the total target beneficiaries and land acquired, respectively. Each beneficiary household has been allocated 2.2 hectares on average, compared to their original holdings 0.45 ha. Yields of maize, the main staple food improved from an estimate of about 962kgha at baseline to 2,269 kg/ha, through a combination of improved access to land and input support provided through the project s farm development grant. Tobacco yield has also improved from about 519 kg/ha at baseline to 1,390 kg/ha4. As a result of larger holdings and improved productivity, food insecurity among project beneficiaries has been reduced and annual household incomes have improved from an average of MK11,830 to MK32,858 per household. The project has been hailed as a model showing an approach to land reform from which other countries in the Southern African region could draw lessons. (b, Component 2 - Land Administration: The project had, by June 30, 2009, transferred group land titles to 493 beneficiary groups (of the 551 groups relocated so far), representing about 89% of beneficiaries. Progress in this component has been affected by capacity problems with regard to land administration in general, and surveying of land in particular. The proposed additional financing will About 14% of the total Grant funds disbursed is outstanding advances to the Special Accounts. For purposes of measuring impact on productivity, the project focuses on two main crops grown under the smallholder sector in Malawi i.e. maize and tobacco. However, farmers grow many other crops such as pulses, roots and tubers etc. The project received a waiver related to OP4.76 on tobacco. 5

12 strengthen capacity in land administration to speed up land surveying, registration and titling. Jc) Component 3 - Capacity Building: The project has mounted comprehensive and effective public awareness and training programs in all the project districts. As a result, the project has been well received and potential social conflicts have been largely avoided. Jd) Component 4 - Project Management. Monitoring and Evaluation: The project has put in place a monitoring and evaluation framework including a management information system (MIS), and has carried out studies including an independent impact evaluation which was contracted to a private consultancy firm. The impact evaluation is not yet complete because the original consultant was not able to prepare a report that met quality criteria as stipulated in the terms of reference. The Project Management has consequently decided to retain another consultant to finalize the work. The project team has prepared an interim evaluation report which confirms that the project has had an overall positive impact on land holdings, and that beneficiaries have improved agricultural productivity, food security and household incomes. Key challenges 15. The original project was designed as a pilot, and several challenges will affect its scalability. Two of these have been identified as requiring particular attention and are included in the program for which additional financing is sought. These are weak capacity in land administration and deficiencies in the legal and regulatory environment la) Weak capacity in land administration: The pace at which land transactions are undertaken is very slow in Malawi, and this constrains the pace at which land reform could be scaled up. Land registries at district, regional and national levels are manually-based and most of the records are in disarray. Capacity in surveying and registratiofi is inadequate. The additional financing will strengthen capacity in these areas. (b) Weak policv environment to support the development of land markets: Although the Government has a new land policy which was adopted in 2002, a new land law which would aim to create a favorable environment for the development of land markets has not yet been enacted. Throughout the implementation of the pilot project, the development of land markets has been hindered by, among others, (i) inconsistencies in the collection of land rent, (ii) lack of an appropriate tax on freehold land, and (iii) the lack of progress on the enactment of a new Land Law. Slow progress in these key policy reform issues is likely to undermine the success in any follow-up land reform programme in Malawi. These issues will be dealt with under the proposed additional financing. Fiduciary Performance 6

13 16. Fiduciary aspects of project performance are summarized in the sections below: (a) Procurement performance: The Bank has undertaken post procurement reviews annually and performance has been rated moderately to fully satisfactory. Procurement cycle management (and supply chain management) has been on track throughout the implementation of the project. The project procurement performance is currently rated as Satisfactory. Some issues such as community procurement requiring attention to improve procurement performance have been identified and an action plan was agreed with Government during the March 2009 mission. The plan is presented in Appendix E. (b) Financial management performance: The project is currently rated Satisfactory in performance of financial management. The Audit Reports for FY05, FY06, FY07, FY08, all have been received, albeit slightly late. All the submitted audit reports have had unqualified audit opinions except the FY 2007 audit report which had an except for qualification. After the audit review it was decided that the internal control weaknesses identified did not warrant a qualification but should be highlighted in the management letter. The auditors raised a number of issues in management letters and there has been follow up on the audit recommendations by the Bank s fiduciary team. The earlier action plans generally have been implemented. In instances where the action plan has not been fully implemented, the project has provided a satisfactory explanation to justify why certain actions were not taken as proposed. The project is up to date with the submissions of the quarterly Financial Monitoring Reports (FMRs). From the foregoing, it can be concluded that the Financial Management covenants have been met. As of the March 2009 mission, there was an outstanding action with regard to migration to the SUN system; however, this has now been achieved. (c) Disbursement performance: The project encountered slow disbursements during the initial two years when relocation could not start due to a number of challenges. However, since the mid-term review, disbursement has been consistently above schedule mainly due to quick processing of beneficiary relocations. Given the current pace of disbursements, the Additional Financing operation (US$ 10,000,000 over two years) assumes a moderate per annum financing plan roughly the same as the disbursement under the project (US$ 27,000,000 over five years, moderately backloaded). (d) Environmental and social safewards: The current rating on environmental and social safeguards is Satisfactory. The project is on track in implementing the environmental management plan. The project has not encountered serious social problems due to attention to potential conflicts during design and implementation, and inclusion of public awareness to avoid them. A social assessment study commissioned by the project indicated that there are no major 7

14 social impacts and conflicts as a result of the relocations. The resettlement approach involved purchase of fms from willing sellers and voluntary settlement of beneficiaries. As a result, OP/BP 4.12, Involuntary Resettlement, is not triggered5. All land acquired by the BGs so far has been bought from voluntary sellers. There have not been any compulsory acquisitions, and the environmental and social screening and review process envisaged under the Environmental Management Plan prepared for purposes of the original grant has been applied judiciously to ensure that the land is free of encroachers, that there are no disputes with former estate workers and that it is free of any other encumbrances. Former workers have not been forced to leave the acquired farms and, in cases where they have expressed a desire to join the project, have also benefitted from the relocation program. To ensure continued compliance, the Bank will undertake an- audit as per Bank guidelines as contained in the Involuntary Resettlement Sourcebook (2004). In addition, greater emphasis will be given to some environmental issues that are now understood to be more relevant than at the design stage, such as human / animal conflict, including threats to people and crops from elephants wandering out of protected areas into populated areas where the project has been active. Accordingly, and as noted in Section V below, special attention will be accorded to avoid relocating beneficiary groups to farms that are under significant threat by wandering elephants and other wild animals. Rationale for Requesting the Additional Financing 17. The Additional Financing is justified as per the requirements of paragraph 2 of OP The planned activities are consistent with the PDO, and with the current Malawi CAS. The objectives are also in line with the Millennium Development Goals (MDGs) in terms of reducing poverty, improving food security and household incomes. The proposed scale-up activities have been appraised and will be concluded within the period of the 21 months period of the extension of the closing date, which is within the three years window of the current closing date of the project (as per the requirements of OP13.20, paragraph 2). 18. The proposed additional financing will be used: (i) to cover a shortfall for relocation of 1,000 households to reach the project target of 15,000 households6, and (ii) to provide additional resources to modified activities under the existing components. The proceeds will be allocated as follows: Land Acquisition and Farm Development ($ 1.09 million), Land Administration ($3.86 million), Capacity Building (for government land administration institutions ($1.79 million) and for improved systems for more efficient land rent and tax collection), and Project Management, Monitoring and Evaluation ($2.70 million). 19. The additional financing will support coverage of the remaining target beneficiaries. As indicated at MTR, the amount currently available for the project is not OP4.12 applies to actions taken without the displaced person s informed consent or power of choice. The project has funds from the original grant to relocate 1,344 households (61 BGs) whose sub-projects have already been processed. 8

15 sufficient to cover the costs of the relocation of the balance of about 1,000 households required to meet the target of 15,000 beneficiary households. This is in part because in December 2005 IDA financing was raised to 100 percent for all disbursement categories, resulting in a reduction of US$1.654 million in the overall project budget. Furthermore, the initial allocation for land acquisition and relocation was insufficient to cover the needs bf 15,000 beneficiaries, and this shortfall was not apparent at the time of appraisal. Beneficiaries require complementary services, such as extension and other capacity building services to allow them to use the land acquired productively. A portion of the additional financing will cover activities in the recently extended project area in the districts of Balaka and Ntcheu. The project was extended to these districts following the shortage of land in the original receiving districts of Mangochi and Machinga. These new districts are very close to the original project area and do not therefore result in significant added costs to the project s operational expenses. Finally, hnds will be needed to cover operational expenses during the extension period. Additional financing was considered appropriate to enable the Borrower to effectively complete the pilot project, analyze the lessons and use them in the preparation of the scaled-up land reform program. Preparation of a new operation was considered inappropriate and pre-mature given that the pilot project has not been completed and therefore the Government does not have a firm basis for the preparation of its scale-up operation. 20. The additional financing will strengthen land registries at district level and surveying and registration services. Capacities in land surveying, land administration and land information technology at national and district levels are crucial for effective delivery of services under land reform programs while a transparent, efficient and secure process to transfer land is also critical for improving the wider investment climate in Malawi. Modernization of land registries and land administration would improve services and governance and ease of access to land by investors, while reducing the amount of time it takes to register a land transfer. 21. The Government intends to scale up the program nationwide, and the additional financing will assist in this endeavor by providing an objective evaluation of the pilot and drawing lessons to inform the design of a scaled-up program, including options for resettlement and technical, environmental and social dimensions of the program. In addition, the additional financing will assist in cleaning up and computerization of the land records which will facilitate the establishment of an efficient land information system which is required to support the development of land markets, once the land law is passed. The Government views IDA S continuing support as critical over the next two years while plans for the scale-up are finalized. 22. Finally, part of the additional financing will be utilized to support activities to resolve policy issues that hinder the development of land markets. Important among these are collection of land rent, introduction of a land tax on freehold land, and enactment of the new Land Law. The specific activities to be financed through the additional financing in support of the legal framework include sensitization and consultation of interested stakeholders such as estate owners and Members of Parliament to get their support before 9

16 tabling the draft Bill to Parliament. This financing will support Government's own plan to finalize the Bill and get it approved by Parliament. 23. The project remains as originally designed and appraised. The proposed changes are modest and consist primarily of extending the Bank's financial contribution to the project by US$10 million to address cost overruns and allow additional focused attention to specific issues related to: (i) strengthening the land administration capacity through the acquisition of equipment and vehicle, provision of technical advisory services and training, and the financing of Operating Costs (ii) provision of support towards lobbying stakeholders to support the passing of the new land law including building the capacity of the MOLHUD to effectively collect land rent/tax as well as introduction of a tax on freehold land. Finally, the additional financing will also provide support towards the preparation of the scale-up land reform program. The economic, financial, and technical justifications remain the same as in the original project. The project components and implementation modalities remain unchanged. For all procurement and consultant services under the additional financing, the "Guidelines: Procurement under IBRD Loans and IDA Credits" dated May 2004, revised October 2006; and "Guidelines: Selection and Employment of Consultants by World Bank Borrowers'' dated May 2004, revised October 2006 will apply. The environmental management plan fiom the original grant remains applicable, but an addendum will be included to give greater emphasis to some environmental issues that are now understood to be more relevant than at the design stage PROPOSED CHANGES 24. Extension and reallocations: The task team is proposing to extend the closing date of the original Grant from December through September 30, This is also the proposed closing date for the Additional Financing. 25. The costs and financing allocation, by component, for the original operation and for the proposed additional financing are presented in Tables 2 and 3 (below). As previously noted, there is no change in the design as well as the project components or their implementation modalities. However, modest modifications will be done to components 2 (Land administration) to incorporate specific training activities in surveying, registration, titling and provide for equipment to clean-up and modernize the land registries at the district, regional and national levels. In particular, the modifications to Part B, as highlighted in Section I11 (4), (ii) and (iii) of the Appendix.to the FA are: (i) enhancement of district, regional, and national land registries through capacity building o f the Surveyor General's Department in surveying, registration, and titling services, and land information technology; and (ii) assessment of issues relating to land rent collection, freehold land taxation, and finalization of the Recipient's new land law, and identification of possible solutions. 10

17 26. In view of the modified activities, new and/or modified intermediate indicators will be introduced within the results framework to enable measuring of progress with regard to the modified activities. For example, a new indicator on time taken to complete a land registration process will be included to assess progress on land administration capacity strengthening. On the audit requirement, Government will produce annual financial statements and submit annual audit reports to the Bank. This is different from the semiannual requirement in the original Grant. Table 2: Cost Summary by Project Component Table 3: Project Cost Category Disbursement Summary Proposed New Indicators Category LAFD Grants Goods Consultant services Training and workshops Operating costs PPF Unallocated Total Proposed IDA Additional Financing Financing (US$ million equivalent) % % % % % % % IDA financing is inclusive of taxes. 11

18 progress on project impact evaluation, given that the decision to scale-up would have to be based on the evaluation of the pilot project. The results framework in Annex C reflects the original project and additional financing and will supersede the results framework and arrangements in the original PAD. Number of land registries computerized and functional Reduced number of days taken to register a land transfer 0 Number of staff trained in surveying and registration of land parcels, including monitoring and collection of land taxhent Timely and acceptable project impact evaluation report 28. The words agricultural productivity have been added to the PDO statement to align with the outcome indicator. Secondly, some outcome indicators have been refined and new intermediate results have been introduced in line with the modified activities. For example, the income indicator will be reported as real and not nominal income in order to control for price increases or inflation in the income changes. Thirdly, the outcome indicator on increased production has been refinedchanged to increased productivity to better measure the PDO. Fourthly, the third outcome indicator in the PAD has been moved to component 4 because it is more aligned to the specific intermediate result under component 4. This will help to keep the project management focused on completing the impact evaluation. The increase in the number of staff trained and the reduction in the time taken to process a land transfer have been introduced as new intermediate results. Other intermediate results indicators have been introduced to adequately capture the modified activities and other indicators have been dropped because they are either difficult to monitor or measure based on the experience encountered during the implementation of the original project. These changes and refinements are summarized in Table 4. Table 4: Refinements in the intermediate results and indicators Original PDO To increase the incomes of about 15,000 poor 1 rural families through the implementation of a decentralized, voluntary community-based land reform pilot program on eligible land in the Project districts Original outcome indicators Incomes of participating families compared to control groups and pre-project income levels Increased agricultural production Refined PDO To increase the agricultural productivity and incomes of about 15,000 poor rural families through the implementation of a decentralized, voluntary community-based land reform program on eligible land in the Project districts. Refined outcome indicators Increase in real incomes of participating families as compared to those of control groups and of such families prior to the project (Malawi Kwacha /month) Increase in agricultural productivity (maize and Original intermediate result indicators Number of farm families established on land New or refined intermediate result indicators Nochange 12

19 acquired through the project Amount, speed and cost of land acquisition per beneficiary family and per hectare Speed and cost of establishment of agricultural production per beneficiary family and per hectare Number of beneficiary groups which have received appropriate documentation of land owner ship Number, speed and cost of titles, cautions and hectares registered and sketch maps completed Number and quality of farm development proposals by eligible beneficiary communities and/or hectares of land received, reviewed, approved and fully disbursed Timeliness and content of reports generated by M&E system Dropped (difficult to monitor and measure) Dropped (difficult to monitor and measure) Nochange Dropped Number of Land Registries computerized and functional Reduced number of days taken to register a land transfer No change Number of staff trained Improved timeliness and quality of reports generated by the M&E system Timely and acceptable project impact evaluation report IV. CONSISTENCY WITH THE COUNTRY ASSISTANCE STRATEGY 29. The proposed additional financing is consistent with the FY07-10 Malawi Country Assistance Strategy (CAS) and also supports the Government of Malawi s Growth and Development Strategy, its Poverty Reduction Strategy. The proposed additional financing was included among the planned FY09 lending deliverables, and carried over to FY10. The activities of the proposed Additional Financing remain consistent with objectives of the CAS (Outcome l), which seeks to enhance agricultural productivity and household incomes. V. APPRAISAL OF SCALED-UP PROJECT Project Implementation Arrangements 30. The institutional arrangements for the Additional Financing remain unchanged from the original operation. The additional financing will be implemented by the Project Management Unit (PMU). In pursuit of sustainability and in light of the intent to scale the program up, the Government will gradually shift administrative responsibility from the PMU which is under the supervisory authority of the MOLHUD, to the Ministry proper. This shift is envisaged to have been completed by the closing date for the Additional Financing. The MOLHUD has prepared a detailed action plan to achieve this. 13

20 31. Project Analyses: The fiduciary, economic, technical, social, and environmental analyses and justifications remain the same as in the original project appraisal document. Fiduciary Analvsis: The Original Grant disburses on the basis of FMRs into the Special Accounts. There are no proposed changes to this arrangement apart from that now reference is made to Designated Accounts instead of Special Accounts. The Designated Account for the Additional Financing will be held at a commercial bank. The project s regular financial reporting will be provided through quarterly financial management reports (FMR) submitted to the Bank no later than 45 days following the end of the quarter. Government will continue to produce annual financial statements and submit annual audit reports to the Bank no later than 6 months following the end of the fiscal year. Semiannual audit of the project financial statements was required under the Original project. However, in line with the FM risk rating of the Additional Financing, this has been changed to annual audit for the Additional Financing Grant. The external audit terms of reference have been agreed with the Bank. Economic Analysis: Household incomes of beneficiaries have improved. Taking into account productivity increases, the estimated economic rate of return is at least 17 percent (with a net present value of US$8.2 million), assuming full relocation of 15,000 households and the total costs associated with Additional Financing. At less than full relocation and without Additional Financing, the estimated economic rate of return is 14 percent, approximately the same as the appraisal estimate. The estimated rate of return relates to total project costs, not just the resettlement component, and includes all costs of capacity building in the Ministry of Lands and all operational and administration costs of the project. A more rigorous evaluation of the rate of return, taking into account synergy between and among various programs serving beneficiaries, will be undertaken prior to the project s closing. Technical Analysis: The technical aspects of the project are not expected to change, although the main emphasis will shift towards strengthening land administration capacity. There will be closer collaboration with the Surveyor General s Department as well as the Commissioner for Lands to ensure that capacity is appropriately achieved. Other technical competencies will be absorbed into the Ministry of Lands, Housing and Urban Development as the PMU winds-down. Key assumptions are: average yields for hybrid maize and burley tobacco are 2,269 kgiha and 1,390 kgha respectively, as estimated by the impact evaluation survey and the number of beneficiaries is 15,000. Each beneficiary would have on average 2.2 hectares. The economic rate of return would have been much higher if we considered the benefits from land administration and capacity building components (which are difficult to value in the short-term). This analysis pertains to project beneficiaries and all of them did not benefit from the Input Subsidy Program because they were not eligible given that they were already benefiting from another Government program. 14

21 (d) Environmental Analysis: There are no unresolved safeguard issues associated with the current operation. All legal covenants have been met and the implementation of the environmental management plan is proceeding in a satisfactory manner. Local level EMPs have been developed in consultation with local communities to include specific measures to mitigate negative environmental and social impacts observed at some project sites, such as the clearing of large areas with vegetation and trees by some beneficiary groups, cultivation of wetlands, and human /animal conflicts (specifically wandering elephants in part of the project area). The Environmental Management Plan and the Project Implementation Plan have been updated to enhance attention to these issues, including the adoption of a simple land use planning tool by the BGs to enhance their farm planning capabilities; enhanced training in integrated pest management (IPM), contour marker ridge demarcation and planting of vertivar grass for better soil conservation on cultivated lands; promotion of tree planting and nursery development; and the sustainable utilization of wetlands. Specific IPM measures, including e.g. planting of chilies and jatropha along field boundaries have also been adopted to keep away elephants from villages in and around the project areas. The project does not include any new civil works. The proposed additional financing will not change the environmental category of the project, which is B (Partial Environmental Assessment) or trigger any new safeguard policies. The additional financing does not involve any exception to Bank policies. (e) Social Analysis: Most of the social challenges have been addressed in the implementation of the pilot project. The additional financing is not expected to result in new social challenges, except some expected initial resistance from landowners to increased taxes arising from the implementation of the land policy reforms. The additional financing will help the Government to undertake adequate stakeholder consultations to dispel any of these challenges. 32. Sustuinubility: Key issues related to the institutional, technical, and financial sustainability of the proposed Additional Financing are summarized below. (a) Institutional sustainability The lessons learnt from the pilot project will be mainstreamed in the scaled-up program to be administered by the Ministry of Lands, Urban Housing and Development. The Ministry has shown strong commitment to the implementation of the project and is likely to able to absorb the lessons. Other relevant sector and line ministries, such as Local Government, Agriculture and Finance, as well as district authorities, have also been committed through the implementation of the project and are likely to be supportive of the broader land reform programme. Prospects for sustainability are good, and will improve when the outstanding policy reforms are fully adopted. (b) Technical sustainability: Technical sustainability is likely to be affected by the capacity challenges in the line and sector ministries. These challenges will 15

22 remain for some time, The capacity building proposed under the Additional Financing will contribute towards addressing the technical capacity in MOLHUD and therefore improve the technical sustainability of the development outcomes created through this project. (c) Financial sustainability: Financial sustainability of the activities supported under the pilot project is not at high risk, since beneficiary groups have their land with secure title, do not carry residual financial obligations associated with the transfer, and are earning higher incomes. Financial implications of scaling up the program and retaining investments in land administration after the project closes are substantial. The GOM will face trade-offs among the various programs supporting rural development, and will probably need to seek external financing. 16

23 VI. EXPECTED OUTCOMES 33. The Community-Based Rural Land Development Project has demonstrated the feasibility of a market-assisted voluntary land reform. The project has yielded key lessons upon which the design of any fiture land reform programs will be based. With the additional financing, it is anticipated that the project will strengthen land administration capacity and contribute to a favorable policy environment for development of land markets. The project indicators are derived from the original results framework and are detailed in Appendix C. The Results Framework has been updated to reflect progress to date under the parent project and proposed new indicators under Additional Financing. VII. BENEFITS AND RISKS 34. With additional financing, the economic rate of return of the project would remain within the initially estimated range (14% to 17%) with a net present value estimated to be US$8.2 million. Although the costs associated with the relocation have been somewhat higher than initially estimated, the income increases have also been high due to increased yields and high prices, so the overall rate of return has not changed much from the initial estimate. The new approach to land redistribution piloted under this project has already reduced tensions around the land issue, and 15,000 poor families will have been empowered by the end of the project to start agricultural production on previously underutilized land 35. The major risks are related to: (i) the government s ability to implement sensitive policy reforms such as land tax and land rent increases and (ii) weak capacity of the land administration system, especially at district level. In recognition of these issues, the Bank, through this and other projects such as the Business Environment Strengthening Technical Assistance Project (BESTAP)9 is providing support aimed at strengthening the land administration capacities at national and district level. The original project s risks such as those related to land reform policy and decentralization will continue to affect the project as well as the broader agenda on land reform in Malawi. The mitigation measures for these risks as specified in the PAD for the original project will also continue to be implemented during the Additional Financing phase of the project. The critical risks, including those of the original project that are likely to affect the implementation of the additional financing and their mitigation measures are presented in Table 5. The assessment of the risks is based on the experience during the implementation of the original project. BESTAP is a World Bank funded project (H293 MAI) aimed at improving the business climate in Malawi. Its support towards land administration is aimed at improving the speed o f processing land title deeds for investors as a way of improving the investment climate. 17

24 Table 5: Risk assessment Risk From outputs to objective Government does not use land rents and land tax policy instrument to suppress speculative behavior (Government not willing to implement sensitive policy reforms) The New Land Law is not passed and therefore the legal framework for supporting decentralized land administration is not in place Property rights allocated to beneficiaries do not provide sufficient tenure security to I I Risk Rating I Mitigation measure (current) M S M Continued support towards policy reforms and legal framework and the passing of the new land law and strengthening the capacity to monitor and collect land taxeshents AF will support activities aimed at fostering consultation and sensitization of key stakeholders towards the approval of the Draft Land Bill. Project provides group titles to beneficiary groups and encourages prepare and implement profitable land acquisition and farm development proposals M&E system is ineffective Financial management and procurement capacity of project implementation structures is weak Overall risk rating district development framework M M&E performance will be closely monitored and supported through TA targeted to specific issues M MASAF will continue to provide support to local Government institutions in the pilot districts M 18

25 VIII. FINANCIAL TERMS AND CONDITIONS FOR THE ADDITIONAL FINANCING 36. The additional financing will be provided as an IDA Grant through an additional Financing Agreement signed by the Republic of Malawi and IDA. Legal conditions of effectiveness are the standard ones set out in the 2006 IDA General Conditions, that is, due authorization or ratification of the Financing Agreement and submission of a satisfactory legal opinion to IDA confirming that such authorization or ratification has been effected and that the Financing Agreement is binding upon the Republic of Malawi. Negotiation conditions 37. The following negotiation condition was stipulated and subsequently met: (i) Completion of an interim project impact assessment report by the PMU. The project has submitted an interim project impact assessment report which was reviewed by the Bank prior to Negotiations. Effectiveness conditions 38. The conditions of effectiveness are: (i) Submission of an annual work-plan and budget for the Recipient's first fiscal year of Project implementation acceptable to the Association; (ii) Authorization or ratification of the Financing Agreement and submission of a satisfactory legal opinion to IDA confirming that such authorization or ratification has been effected and that the Financing Agreement is binding upon the Republic of Malawi. 19

26 ANNEX A: PREPARATION AND TIMETABLE OF KEY PROCESSING STEPS MALAWI: COMMUNITY- BASED RURAL LAND DEVELOPMENT PROJECT ADDITIONAL FINANCING Project Milestone Technical Discussions/ Project Negotiations RVP Approval Board Presentation Date of Planned Effectiveness Grant Closing October 14,2009 October 23,2009 November March 31,2010 September 30,201 1 Date IDA staff and consultants involved in the preparation of this project included: Name Hardwick Tchale Frank Byamugisha Simon Chinva Francis Mkandawire Christine Kamwendo Lungiswa Gxaba Grace Chilambo Sameena Dost Suzanne Morris Mary Bitekerezo Title Amicultural Economist/ Task Team Leader Y Operations Advisor Procurement Specialist Financial Management Consultant Operations Officer Senior Environmental becialist Program Assistant Senior Counsel Senior Finance Officer Senior Social Development Specialist Unit AFTAR AFTAR AFTPC AFTFM AFMMW AFTEN AFMMW LEGAF CTRFC AFTCS 20

27 ANNEX B: MONITORING AND EVALUATION IMPROVEMENT ACTION PLAN MALAWI: COMMUNITY- BASED RURAL LAND DEVELOPMENT PROJECT ADDITIONAL FINANCING Item Observed deficiencies Actions Required Responsible Entity Completion Date Lack of interim evidence on original project impact given the failure of the independent evaluation to produce quality and timely reports Inadequate panel data to undertake credible impact evaluation Failure of independent evaluation consultant to prepare and submit quality reports Management Information System not fully hctional Inadequate monitoring of the implementation of the EMP Appoint new consultants for preparation of an independent impact evaluation of the original project Consultant to improve and complete data collection for the impact evaluation following the engagement of a new fm. Consultants to prepare an independent impact evaluation report of the original project Submit the independent impact evaluation report of the original project to the Bank Finalize the establishment of a fully hctional MIS that captures all relevant M&E data Strengthen environmental monitoring at the District level Project Management unit Project Management unit Project Management Unit / MOLHUD Project Management UnirnOLHuD Project Management unit Project Management unit District Environmental Monitorine Team Completed June Four months after effectiveness I effectiveness until July

28 ANNEX C: RESULTS FRAMEWORK MALAWI: COMMUNITY- BASED RURAL LAND DEVELOPMENT PROJECT ADDITIONAL FINANCING To increase agricultural productivity and incomes of about 15,000 poor rural families by implementing a decentralized, voluntary community-based land reform program on eligible land in the project districts. such families prior to the project (Malawi Kwacha /month) 9 Increase Land acquired, number of beneficiary families achieved 9 Number of farm families established Assess the effectiveness of on land acquired through the project project in facilitating land acquisition and relocation of beneficiaries, including establishment of farm plans Decentralized land administration system in place I Component 3: Capacity Building Capacity to implement community driven land acquisition and farm development is created 9 Number of beneficiary groups Assess the effectiveness of receiving appropriate documentation the project in piloting a of land ownership community-based market assisted land reform, as 9 Number of Land Registries well as establishing a computerized and functional decentralized and effective land administration system 9 Reduced number of days taken to register a land transfer 9 Number and quality of farm development proposals by eligible beneficiary communities i.e. hectares of land received, reviewed, approved and fully disbursed. Assess the effectiveness of the capacity building activities in support of strengthened land administration Increased number of staff trained in surveying and registration of land parcels, including monitoring and collection of land tadrent 9 Number of staff trained 22

29 Monitoring and evaluation system provides appropriate information for effective project management and scaling-up decision after pilot Droiect comdetion 9 Improved timeliness and quality of Ensure effective project reports generated by the M&E system management including the evaluation of the pilot 9 Timely and acceptable project impact evaluation report 23

30 3 m m* :- 3 I 0 v, v, P v, v, m 0, d v, r- n 0 d

31 a 2 3 t d n 3 3

32 ~~ ANNEX E: PROCUREMENT IMPROVEMENT ACTION PLAN MALAWI: COMMUNITY- BASED RURAL LAND DEVELOPMENT PROJECT ADDITIONAL FINANCING Item Observed deficiencies Actions Required Responsible Completion entity Date 1 2 Beneficiary groups face Intensify IEC messages targeting traders CBRLDP Continuous challenges on and beneficiary groups PMU procurement under Land Revamp the use of LAMIUprice data CBRLDP Continuous Acquisition and bank to guide beneficiary groups on PMU Administration expected prices Component Institute independent technical audits to CBRLDP Continuous cover procurement undertaken by PMU beneficiary groups alongside the annual financial audits Delays in procurement Prepare a detailed procurement plan CBRLDP completed will be detrimental to with monitorable timelines PMU implementation of the Identify consultants with long lead times CBRLDP Six months Additional Financing and start the process immediately. All PMU after large value consultants to be engaged within first six months after for all identified consultants 26

33 ANNEX F: STATEMENT OF LOANS AND CREDITS MALAWI: COMMUNITY BASED RURAL LAND DEVELOPMENT PROJECT ADDITIONAL FINANCING PO83401 PO70823 PO72395 PO75247 PO PO PO78408 PO70235 PO35917 PO63095 PO01666 PO Original Amounts in US$ Millions Difference between expected and actual disbursements Project ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. FrmRev d P Business Environment Strengthening PO Second National Water Development PO Infrastructure Services PO MW- Irrig. Rural Livelihood and Agric. Dev. Health Sector Support MW- Education Sector Support MW - FIMAG SAL MW- Com Based Rural Land Dev. Multi-sector Aids Project MW-MASAF APL3 Fin. Mgmt. Transparency, Accountability Regional Trade Facilitation Mulanje Mt. Biodiversity Conservation Privatization and Utility Reform MW-Road Main. & Rehabilitation Secondary Education Total: MALAWI STATEMENT OF IFC s Held and Disbursed Portfolio In Millions of US Dollars Committed Disbursed FY IFC IFC approval Company Loan Equity Quasi Partic. 1 Loan Equity Quasi Partic NICO Celtel oo NBS Bank Total portfolio Approvals pending commitment FY approval Company Loan Equity Quasi Partic. Total pending commitment

34 ANNEX G COUNTRY AT A GLANCE MALAWI: COMMUNITY BASED RURAL LAND DEVELOPMENT PROJECT ADDITIONAL FINANCING Malawi at a glance Mdowi 5ub- Saharan Mica LOWinumm &JD w 762 1, P I E~Cntios' Trade swing $ tarareoe~oravm) GDP ~prespita Expaisdpoodrwdsenias Mo I --ru'--lavlrxmlc n Growth af capital a d GDP (w) I m 4 zp n -m 28

35 20c

36

37 MAP SECTION