Document of The World Bank FOR OFFICIAL USE ONLY Report No: 87115-BF INTERNATIONAL DEVELOPMENT ASSOCIATION PROJECT PAPER ON A PROPOSED ADDITIONAL CREDIT IN THE AMOUNT OF SDR32.40 MILLION (US$50.0 MILLION EQUIVALENT) TO BURKINA FASO FOR THE AGRICULTURAL DIVERSIFICATION AND MARKET DEVELOPMENT PROJECT May 20, 2014 Agricultural and Rural Development Sustainable Development Department Country Department AFCW3 Africa Region This document is being made publicly available prior to Board consideration. This does not imply a presumed outcome. This document may be updated following Board consideration and the updated document will be made publicly available in accordance with the Bank’s policy on Access to Information. CURRENCY EQUIVALENTS (Exchange Rates Effective March 31, 2014) Currency Unit = CFAF CFAF 475 = US$ 1 US$ 1.55 = SDR 1 FISCAL YEAR January 1 – December 31 ABBREVIATIONS AND ACRONYMS AAA Analytical and Advisory Activities AgPER Agriculture Public Expenditure Review ADMDP Agricultural Diversification and Market Development Project ADG Average Daily Gain AF Additional Financing AFD Agence Française de Développement (French Development Agency) AfDB African Development Bank AOP Annual Operations Plan ASP Agro-Sylvo-Pastoral BRS Banque Régionale de Solidarité (Regional Solidarity Bank) CAS Country Assistance Strategy CEM Country Economic Memorandum CFAF CFA Franc CPS Country Partnership Strategy CONASUR Conseil National de Secours d’Urgence et de Réhabilitation (National Emergency Support and Relief Council) CQ Consultant Qualification DANIDA Danish International Development Agency DGADI Direction General for Management and Development of Irrigation DGPER Direction General for Rural Economy Promotion. DO Development Objective EOP End of Project ERR Economic Rate of Return ESIA Environmental and Social Impact Assessment ESMF Environmental and Social Management Framework FCFA Franc CFA FM Financial Management FOB Free on board FY Fiscal Year GDP Gross Domestic Product GF Guarantee Fund GoBF Government of Burkina Faso GAM Gross Additional Margin HH Household IBRD International Bank for Reconstruction and Development ICB International Competitive Bidding ii IDA International Development Association IFAC International Financial Accounting IFC International Finance Corporation IFR Interim Financial Report IIF Innovation and Investment Fund IP Implementation Progress IPF Investment Project Financing IPMP Integrated Pest Management Plan IPO Inter-Professional Organization IRR Internal Rate of Return ISR Implementation Status and Results Report LCS Least Cost Selection M&E Monitoring and Evaluation MASA Ministère de l’Agriculture et de la Sécurité Alimentaire (Ministry of Agriculture and Food Security) MD Managing Director ME Micro-Enterprise MEBF Maison de l'Entreprise du Burkina Faso MESD Ministry of Environment and Sustainable Development MGP Matching Grant Program MP Micro-project MoLF Ministry of Livestock and Fisheries MoU Memorandum of Understanding MEAHA Ministère de l’ Eau, de l’Hydraulique et de l’Assainissement (Ministry of Water, Hydraulic Planning, and Sanitation) MTR Mid-Term Review NCB National Competitive Bidding NPV Net Present Value OP Operational Plan OP/BP Operational Policy/Bank Policy PAD Project Appraisal Document PAFASP Projet d’Appui aux Filières Agro-Sylvo-Pastorales (Agricultural Diversification and Market Development Project) PAPSA Projet d’Amélioration de la Productivité Agricole et de la Sécurité Alimentaire (Agricultural Productivity and Food Security Project) PCU Project Coordination Unit PDO Project Development Objective PER Public Expenditure Review PNSR Programme National du Secteur Rural PO Professional Organisation PP Project Paper QBS Quality Based Selection QCBS Quality and Cost Based Selection RAP Resettlement Action Plan R&D Research and Development ROI Return on Investment RPF Resettlement Policy Framework RVP Regional Vice-President SCADD Stratégie de Croissance Accélérée et de Développement Durable (Accelerated Growth and Sustained Development Strategy) iii SDP Strategic Development Plan SDR Special Drawing Rights SIL Specific Investment Loan SME Small and Medium Enterprise SOFIGIB Société Financière de Garantie Interbancaire du Burkina (Financial Company for Interbank Guarantee of Burkina) SONAGESS Société Nationale de Gestion des Stocks de Sécurité (National Stock Management Company for Food Security) SP/CPSA Secrétariat Permanent/Coordination Politique Secteur Agricole (Permanent Secretariat/Sectoral Coordination of Agricultural Policy) SSS Single Source Selection TA Technical Assistance USAID U.S. Agency for International Development V/C Value Chain WAAPP West Africa Agricultural Productivity Program WB World Bank WFP World Food Program Vice President: Makhtar Diop Country Director: Ousmane Diagana Sector Director: Jamal Saghir Sector Manager: Martien van Nieuwkoop Task Team Leader: Nicolas Ahouissoussi iv BURKINA FASO ADDITIONAL FINANCING FOR AGRICULTURAL DIVERSIFICATION AND MARKET DEVELOPMENT PROJECT Project Paper TABLE OF CONTENTS PROJECT PAPER DATA SHEET ................................................................................................................................... vii I. Introduction ....................................................................................................................................................... 1 II. Background And Rationale For Additional Financing............................................................................................. 1 Strategic alignment ................................................................................................................................................ 3 Objective, design, and scope of the original project .............................................................................................. 3 Project implementation performance to date ......................................................................................................... 4 Lessons learned from successes and failures in ADMDP implementation: 2007-2013 ........................................ 5 Rationale for the Additional Financing.................................................................................................................. 5 III. Proposed Changes ................................................................................................................................................ 7 Project Development Objective ............................................................................................................................. 8 Results Framework and Results Indicators for AF Phase ...................................................................................... 8 Project description ................................................................................................................................................. 8 Implementation Arrangements............................................................................................................................. 11 IV. Appraisal Summary ........................................................................................................................................... 13 Project design and implementation ...................................................................................................................... 13 Economic and financial analysis .......................................................................................................................... 13 Safeguards policies .............................................................................................................................................. 14 Financial management ......................................................................................................................................... 15 Procurement ......................................................................................................................................................... 15 Closing dates ........................................................................................................................................................ 16 Policy exceptions and readiness........................................................................................................................... 16 Annex 1: Revised Results Framework and Monitoring Indicators ........................................................................... 17 Annex 2: Revised Estimate of Project Costs............................................................................................................. 22 Annex 3: Operational Risk Assessment Framework (ORAF) .................................................................................... 24 Annex 4: Detailed Description of Continuing, Modified, or New Project Activities of AF Phase ............................ 30 Annex 5: Financial Management and Procurement ................................................................................................ 36 Annex 6: Economic and Financial Analysis............................................................................................................... 40 Annex 7: Preliminary Project Implementation Performance of Parent Project ....................................................... 46 Annex 8: Map ........................................................................................................................................................... 51 v LISTE OF TABLES Table 1: Changes in Project Outcome and Results Indicators………………..………………………………….… 9 Table 2: Changes in Project Costs (US$ million) by Components with Additional Financing……................…... 10 Table 3.1: Micro-project (MP) categories and gross margins (GM) ……................…….....................……..42 Table 3.2: Returns on enterprise-level investments………................……................……................................43 Table 3.3: Project economic and financial NPV (in US$ million) ………................……..............................45 Table 3.4: Sensitivity analysis………...................……................……................……........................................45 Table 4: Summary of the Project Performance over the Course of 2013 as rated in ISRs…………….…..46 vi BURKINA FASO ADDITIONAL FINANCING FOR AGRICULTURAL DIVERSIFICATION AND MARKET DEVELOPMENT PROJECT PROJECT PAPER DATA SHEET Basic Information – Additional Financing (AF) Country Director: Ousmane Diagana Sector: Agricultural marketing and trade (40%); Sector Director: Jamal Saghir Agricultural extension and research (30%); Sector Manager: Martien van Nieuwkoop General agriculture, fishing and forestry sector Team Leader: Nicolas Ahouissoussi (20%); Agro-industry (10%) Project ID: P147978 Theme: 100% Agribusiness Expected Effectiveness Date: 10/01/2014 Lending Instrument: Investment Project Financing (IPF) Additional Financing Type: Scale-Up Basic Information - Original Project Project ID: P081567 Environmental category: B - Partial Assessment Project Name: Agricultural Diversification Expected Closing Date: 06/30/2016 and Market Development Project Joint IFC: Lending Instrument: SIL Joint Level: [ ] Loan [ X ] Credit [ ] Grant [ ] Guarantee [ ] Other: Proposed terms: Standard AF Financing Plan (US $m) Source Total Amount (US$ m) Total Project Cost 65.91 Co-financing by beneficiaries 6.58 Participating financial institutions 3.74 Borrower 5.59 Total Bank Financing 50.00 IBRD - IDA: 50.00 New Recommitted vii Client Information Recipient: Government of Burkina Faso Responsible Agency: Ministry of Agriculture and Food Security Contact Person: Monsieur Bernard Dabiré Coordonnateur National du PAFASP PO Box 6285 Ouagadougou, Burkina Faso Tel: (226) 50304279 (cell); Fax: (226) 5030 4280 pafasp@fasonet.bf; www.pafasp.org AF Estimated Disbursements (Bank FY/US $m) FY FY15 FY16 Annual 25 25 Cumulative 25 50 Project Development Objective and Description Original project development objective: The objective of the project is to increase the competitiveness of selected agricultural sub-sectors that target national, sub-regional and international markets, thereby contributing to shared agricultural growth of the Recipient’s territory. Revised project development objective: The PDO remains unchanged with the Additional Financing (AF). Project description Component 1: Improvement of ASP supply chains performance that aims primarily to increase the technical and economic performance of targeted value chains, improving their structure, and strengthening the capacity of private actors to respond to opportunities and market requirements. Component 2: Development of irrigation and marketing infrastructure to strengthen the links between producers and markets. Component 3: Improvement of the business environment, regulatory framework and provision of advisory services including project coordination and management through a dedicated PCU to facilitate private sector initiative and attract private investors. viii Safeguard and Exception to Policies Safeguard policies triggered: Environmental Assessment (OP/BP 4.01) [X]Yes [ ] No Natural Habitats (OP/BP 4.04) [ ]Yes [ X ] No Forests (OP/BP 4.36) [ ]Yes [ X ] No Pest Management (OP 4.09) [X]Yes [ ] No Physical Cultural Resources (OP/BP 4.11) [ ]Yes [ X ] No Indigenous Peoples (OP/BP 4.10) [ ]Yes [ X ] No Involuntary Resettlement (OP/BP 4.12) [ X] Yes [ ] No Safety of Dams (OP/BP 4.37) [ ]Yes [ X ] No Projects on International Waterways (OP/BP 7.50) [ ]Yes [ X ] No Projects in Disputed Areas (OP/BP 7.60) [ ]Yes [ X ] No Is approval of any policy waiver sought from the Board (or MD if [ ]Yes [X ] No RETF operation is RVP approved)? Has this been endorsed by Bank Management? (Only applies to Board [ ]Yes [ ] No approved operations) [ ]Yes [X ] No Does the project require any exception to Bank policy? [ ]Yes [ ] No Has this been approved by Bank Management? Conditions and Legal Covenants Financing Agreement Description of Condition/Covenant Date Due Reference Section I A2(a) of Schedule Update the Project Manual of 3 months after Financial, Accounting and effectiveness Administrative Procedures by, inter alia, including detailed procedures for the management of Sub- projects, all in a manner acceptable to the Association and the Project Implementation Manual. Section I A2(b) and (c) of Employ a qualified internal auditor 3 months after Schedule 2 and 2 accountants whose terms of effectiveness reference shall be satisfactory to the Association for the PCU. Section I A3 (a) Enter into a partnership agreement 3 months after with the Maison de l’Entrerpise du effectiveness Burkina Faso pursuant to which the Maison de l’Entreprise du Burkina shall provide advisory services to small and medium entreprises involved in the carrying out of Sub- project in the areas of, inter alia, development of business plans, training, and access to financing and to markets. ix Section I A3 (b), (e), (g), and Enter into memoranda of 3 months after (f) of Schedule 2 understanding with selected effectiveness financial institutions, pursuant to which the latter institutions shall finance micro enterprises and small and medium enterprises, the Secretariat Permanent of Coordination of Rural Sector Policy to ensure inter-sectorial coordination of the implementation of policy reforms, the directorates of MASA and MEAHA for the monitoring of the implementation of irrigation and market infrastructure, and suitable arrangements with qualified technical experts to which said experts shall carry out the technical evaluation of Sub-projects. Section I A3(c) of Schedule 2 Extend the term of its existing 3 months after agreement with SOFIGIB. effectiveness Section I A3 (d) and (h) of Establish: (a) a pool of experts in 3 months after Schedule 2 the field of management of effectiveness enterprises to support the preparation of micro-projects and the establishment of new micro- enterprises, and to provide advisory support to promoters, and (b) local/decentralized regional branch offices of the PCU with terms of reference and resources acceptable to the Association, supported by qualified and experienced staff in adequate numbers, including in each office, 2 specialists in micro- enterprises, and an infrastructure specialist. x BURKINA FASO ADDITIONAL FINANCING FOR AGRICULTURE DIVERSIFCATION AND MARKET DEVELOPMENT PROJECT I. INTRODUCTION 1. This Project Paper seeks the approval of the Executive Directors to provide Additional Financing (AF) to the Government of Burkina Faso (GoBF) in the amount of US$50 million for the Agricultural Diversification and Market Development Project (ADMDP). The Project aims to increase the productivity, improve market access, and enhance the governance of agro-sylvo-pastoral (ASP) value chains other than cotton. 2. The proposed Additional Financing (AF) would help finance the costs associated with the scaling up of ADMDP activities, with a view to securing a higher level of Development Objective (DO) achievements over an additional two-year project implementation period. The AF will enhance the project impact by expanding its coverage to a larger group of emerging market-oriented small and medium enterprises (SMEs) in project-targeted agriculture and livestock Value Chains (V/Cs). The project impact will also be enhanced by laying the groundwork for a sound exit strategy and strong sustainability. 3. The proposed AF would help finance the costs associated with a scale-up of activities to enhance the poverty impact and developmental effectiveness by expanding: (i) small-scale irrigation on an additional 1,900 ha where feasibility studies have already been completed during implementation of the parent project; (ii) marketing infrastructure by up-grading, rehabilitating or constructing new facilities including horticulture terminals, cold storage and packing facilities, livestock markets and slaughterhouses, and vaccination parks in regions not covered during the initial phase; (iii) investments in supply chain development by the matching grant scheme for onions, mangoes, cattle/beef and poultry for an additional 500 micro-projects to be proposed by smallholders and small-scale processors; (iv) project activities to four additional regions not targeted by the parent project, completing therefore the nationwide coverage of ADMDP; (v) capacity building for three additional professional and agricultural trade organizations representing three new sub-sectors with activities including the development of their value chain strategic development plans, as well as the Ministry of Agriculture and Food Security to facilitate improved management of public expenditures in the agriculture sector. 4. The Association has received a letter from the GoBF requesting this AF. In the letter dated August 26, 2012, the GoBF requested the Association to allocate US$50 million in IDA resources for ADMDP AF. II. BACKGROUND AND RATIONALE FOR ADDITIONAL FINANCING 5. Burkina Faso is a low-income landlocked country facing significant economic vulnerability. Burkina has maintained economic stability in the face of structural obstacles and economic shocks, including recurring droughts. Strong production of gold and a vibrant agricultural (cotton and food grains) sector have supported a solid economic growth rate, despite vulnerability to terms of trade shocks. Due to its good performance, Burkina has also received significant aid flows in the last decade. Unfortunately, high population growth rate and a non- 1 inclusive pattern of growth have had little impact on poverty incidence which has only registered a moderate decline since the 1990s and remained at 47 percent in 2009 (compared with 51 percent in 2003). Stubborn and persistently high levels of predominantly rural poverty still undermine development. There are significant inequalities by region, gender, and location (urban and rural). 6. Burkina Faso has faced difficult years in 2012 and 2013, confronting food shocks and refugee crises. An inflow of Malian refugees in 2012 has put fiscal pressure on Burkina's budget. The GoBF has responded by allocating close to US$10 million to pay for food and schools for the Malian refugees. In response to the food crisis and in order to avoid an outbreak of major famine, the government spent close to US$130 million as of December 31, 2012, and an additional US$64 million in 2013 to help feed the vulnerable population. So far, close to 50,000 tons of food have been sold or distributed to the rural population by the two key agencies, National Stock Management Company for Food Security (SONAGESS) and National Council for Emergency and Relief, Ministry of Social Action and National Solidarity (CONASUR), together with the international aid agencies like WFP. The government facilitated access to strategic grain reserves, strengthened the early warning system to identify vulnerable segments of the population, and embarked on an ambitious program of subsidized sale of foods in food- deficit areas. 7. Dependence on a narrow base of natural resources, coupled with its Sahelian climate and inland location, exposes Burkina Faso to both climatic changes and exogenous shocks, such as exchange rate volatility and declines in international prices of cotton. These problems have been exacerbated by unrest in neighboring Mali, from which Burkina Faso has taken in a sizable number of refugees, whose support has added fiscal pressures and endangered food security. There has also been internal unrest about the unequal distribution of resources and a perceived lack of accountability in the management of public resources. The redistribution of growth gains has also been impeded by inefficiencies in public sector management and a lack of opportunities for gainful employment, particularly for youth. 8. Burkina Faso’s agriculture-based economy is still dominated by subsistence production systems characterized by low crop and livestock productivity, low but increasing diversification, and limited participation of formal private businesses in the development of agro-pastoral value chains. Agriculture, including livestock and agro- processing sectors, continues to account for about 40 percent of GDP, and it employs over 80 percent of the labor force. While becoming less dominant in total exports due to the booming mining sector and recent increases in non-cotton agricultural exports spurred in part by ADMDP interventions, cotton exports continue to dominate total agricultural exports. According to the 2009 Country Economic Memorandum (CEM), the most competitive products in the West African market seem to be onions, tomatoes, cowpeas, cattle/beef and maize. Burkina also has a comparative advantage in exporting mangoes, sesame, and Shea nut products to the international markets. There is also potential for rice and milk import substitution. 9. Agriculture is one of the priority sectors of the country’s poverty reduction and growth strategies, and in line with its Maputo commitment, the country has spent on average approximately 10 percent of its budget on the agricultural sector since 2004. While significant, this level of agricultural sector financing is still insufficient to make agriculture the leading sector for transformative growth, strengthened competitiveness, and greater diversification of the economy. At the same time, there are opportunities to improve the quality 2 of public spending in the agriculture sector as indicated in a recently completed Agriculture Public Expenditure Review (AgPER). Strategic alignment 10. In December 2010 the Government adopted the Accelerated Growth and Sustained Development Strategy for 2011-15 (Stratégie pour la Croissance Accélérée et de Développement Durable (SCADD). The SCADD combines promotion of growth poles to support agribusiness and small and medium-sized enterprises with pro-poor programs and critical structural reforms. A Country Partnership Strategy (CPS) was approved on September 19, 2013, by the Board, indicating how the World Bank Group will support the SCADD. The SCADD and the CPS have identified the agriculture sector and related interventions in rural development as one of the country’s major sources of growth with high potential for shared prosperity and poverty reduction. 11. The proposed Additional Financing (AF) operation is fully consistent with the goals set out in the CPS, the SCADD, and the rural sector strategy. It is also fully aligned with the World Bank’s twin goals of ending extreme poverty and promoting shared prosperity. The Programme Nationale du Secteur Rural (PSNR) was adopted by the Council of Ministers in October 2012 and is the sector strategy in support of the SCADD. The PNSR supports the government’s vision to modernize Burkina Faso’s rural sector and to make it a driver of food security, sustainable growth, and modern job creation through the development of professional, competitive, market-oriented businesses and agro-industries. Achieving these goals requires critical investments in both institutional development and productive infrastructures, including a significant scaling up of irrigation capacities. Support of the World Bank to the PNSR is currently being carried via a portfolio of lending and Analytical and Advisory Activities (AAA), including ADMDP, West Africa Agricultural Productivity Program (WAAPP), Projet d’Amélioration de la Productivité Agricole et de la Securité Alimentaire (PAPSA), Programme National de Gestion des Terroirs-III, the Bagré Growth Pole Project, the Agricultural Finance Support Project (AFSP) 1 , a TA on Agricultural Finance Support, as well as budget support operations targeting the cotton sector and food security. Objective, design, and scope of the original project 12. The original Project was approved by the WB Board on June 20, 2006. The corresponding IDA Credit of US$66 million became effective on December 11, 2006. The original closing date was March 31, 2013. The revised closing date was March 31, 2014. A further extension of the closing date to September 30, 2014 has already been granted as part of a level II restructuring. 13. The objective of the Project is to increase the competitiveness of selected agricultural sub-sectors that target national, sub-regional and international markets, thereby contributing to shared agricultural growth on the Recipient’s territory. 14. The PDO of the original project will remain unchanged in the AF. The original Project comprised the following three components: Component 1: Improvement of ASP supply chains 1 Its objective is to increase access to quality financial services for farmers, particularly smallholders and other agriculture-related enterprises. 3 performance (US$39.5 million including all contributions, IDA financing: US$28.0 million). Component 2: Development of marketing and irrigation infrastructure (total: US$ 3.7 million, IDA financing: US$26.7 million). Component 3: Improvement of the business environment, regulatory framework and provision of advisory services (total: US$11.3 million; IDA Financing: US$11.3 million). For more details see the project description of the AF in the main text or Annex 4. Project implementation performance to date 15. Overall the project is successfully achieving its development objectives. The project is currently rated satisfactory in terms of progress towards achieving its PDO and also satisfactory in the overall Implementation Progress (IP). As of March 20, 2014, 95 percent of the credit amount has been disbursed. The undisbursed balance equivalent to SDR2.5 million is expected to be disbursed as implementation of all irrigation construction works and marketing infrastructure is expected to be completed by end of June 2014. There are no outstanding financial audits and all audit reports are unqualified. Implementation of the safeguards requirements is also satisfactory. A Results Framework with performance indicators (up to 02/28/2014) is attached in Annex 1. Annex 7 provides more details on the project implementation performance of the parent project. 16. The key impacts have been the rise in rural incomes and agricultural exports. Some 350,000 direct beneficiaries have benefited from project activities (EOP Target: 200,000). About 65 percent of beneficiary producers have increased their income by at least 50 percent (EOP target: 60 percent of producers increasing their income by 50 percent). Agricultural exports for the targeted supply chains on international markets in 2012 have reached 71,500 tons (EOP target: 35,000 tons). Agricultural exports for the targeted supply chains on sub-regional markets in 2012 have reached 67,600 tons (EOP target: 20,000 tons). 17. Financial Management (FM). The overall performance of the Agricultural Diversification and Market Development Project in financial management is Moderately Satisfactory due to poor management of the micro-projects and lack of internal audit function since July 2013. The external audits for the last three years 2010 to 2012 for the project were submitted on time, and were unqualified but the management letters revealed serious weaknesses in the management of funds transferred to micro-projects (outstanding funds, lack of physical verification of investments and rigorous follow up of activities). 18. Procurement. Procurement performance is rated satisfactory. Procurement arrangements will remain largely the same under the proposed Additional Financing. The procurement unit is well staffed to handle the existing portfolio and the proposed additional resources. 19. Monitoring and Evaluation (M&E). The M&E arrangement of the PCU is satisfactory with a core M&E team at the national level and in all three local offices (West, Center, and North) where ADMDP activities are carried out. The team is implementing an M&E system which integrates the various activities of the project and functions in the PCU. 20. Safeguards. Over the last seven years of implementation (2007-2013), overall safeguard compliance was satisfactory, based on a review of progress reports and project site visits for: (i) 4 the micro-projects financed by the matching grant scheme, and (ii) irrigation and marketing infrastructure. Lessons learned from successes and failures in ADMDP implementation: 2007-2013 21. ADMDP has tested various approaches to stimulate market-oriented ASP supply chains so as to increase the competitiveness of products and improve operators’ gross and net revenues. Based on current impact assessments and continuous monitoring of project activities, several lessons could be drawn from project implementation. The following key lessons are being reflected in the design of activities to be included for the Additional Financing. 22. Lesson 1: Strengthening mutually beneficial linkages among smallholders and rural entrepreneurs so that they work together to take advantage of market opportunities. Inter- farmer and inter-firm cooperation in the cattle/beef and onions MPs has yielded positive outcomes for ADMDP. Inter-operator connections have been important in determining how agile smallholders and rural entrepreneurs are able to link to markets. In these two sub-sectors, operators have been successful in sharing information, technologies, inputs and buyers. In contrast, collaboration and linkages in the mango and poultry value chain have been less notable due to lack of leadership, mistrust of competitors, weak information, or lack of scale. Regrouping cattle production operations through the use of clusters and networks and the joint use of onion conservation facilities was critical to success of the market linkages and access objectives. During the last three years, the Project Team has successfully operationalized an approach with the POs and the IPOs to enhance collaboration and cooperation with information sharing, bulk purchases of inputs and contract farming. The AF would build on the success and lessons from these collective action platforms, as well as from the experience gained by the project staff and professional organizations. 23. Lesson 2: Identifying needed support for the development of ASP value chains. Profitable value chains are supported by services that allow the chain to grow, be more efficient, and enhance its competitiveness. The overall objective sought by ADMDP via Component 3.2 (capacity building for service providers) is to improve the depth and breadth of services currently being provided to value chain actors, enabling them to be commercially sustainable and to help those services emerge where they are not being provided. The availability of new and better services should enhance the profitability of the whole value chain. 24. Lesson 3: A large proportion of the value chain activities promoted by ADMDP take place in the rural sector where results in terms of growth and poverty reduction have been disappointing. The sector is within the scope of the Ministry of Agriculture and Food Security (MASA), the Ministry of Livestock and Fisheries (MoLF), the Ministry of Water, Hydraulic Planning and Sanitation (MEAHA), and the Ministry of Environment and Sustainable Development (MESD). As part of the operationalization of the SCADD for the rural sector, the three departments have finalized the PNSR in 2012. It is expected that the PNSR will be subject to annual reviews to be accompanied by annual reviews of public spending in the rural sector. Rationale for the Additional Financing 25. A key objective of the scaling up is to complete the unfinished agenda related to a well- performing project. The AF is expected to contribute to reducing extreme poverty and promoting shared prosperity. The value added of the World Bank has been to: (a) help 5 improve the business environment; and (b) promote rural entrepreneurship and micro-enterprise company success. The expected development impact is the result of an increased volume of public investment in agro-forestry-pastoral sectors targeted by the project. 26. The ADMDP is a project to promote businesses in rural Burkina Faso where access to credit from commercial banks and microfinance institutions is limited. The rationale for the Additional Financing (AF) is to consolidate and expand project activities showing strong results with a view to securing an even higher level of DO achievement over an additional two-year project implementation period. The AF will scale up the impact and development effectiveness of ADMDP by expanding ASP activities and irrigation and marketing infrastructure to new sites and the targeting of some 25,000 additional project beneficiaries in the country to reach a total of 375,000 people by the end of the AF implementation period (the number as of 02/28/2014 is 350,000 beneficiaries; the original end of project target was: 200,000 beneficiaries). 27. The AF will focus on: (i) consolidation and expansion of the portfolio of subprojects funded under the Innovation and Investment Fund (IIF) through the provision of matching grants, to reduce the risk and provide incentives for small and medium enterprises to embark on investment activities; (ii) strengthening of V/C effectiveness to remedy the project-targeted V/Cs’ weak institutional capacity to serve the needs of participant economic agents regarding preparation of investment projects, market investigation, contract negotiation, and resolution of technical and marketing issues; (iii) continued facilitation of access to commercial funding by V/C actors to relieve the severe lack of investment funding, particularly through the project Guarantee Fund; (iv) development of commercial infrastructure facilities since access to such facilities is critically important for Burkina Faso producers, particularly for small producers, so that they can adhere to the same quality standards as foreign competitors. The AF will develop private-based management systems for these facilities; and (v) consolidation of the project institutional and operational framework, and transfer of project competencies to permanent entities to ensure sustainability of project activities. 28. The proposed AF will contribute to raising agricultural competitiveness in sectors other than cotton which is critical to achieving Burkina Faso’s aim of diversifying its economy while continuing to draw on its natural resource base. There is also a need for significant investment in Burkina irrigation capacities to which the AF will contribute. Irrigated agriculture in Burkina represents less than 9 percent of potentially irrigable land and less than one percent of total cultivated area. The country has developed over the past two decades some effective small- scale irrigation schemes, which are today considered as best practice in the sub-region. Thus, there is significant room to scale up these successful practices under ADMDP so as to reduce weather-related vulnerabilities, and secure the quality and quantity of raw materials required for profitable agro-industrial development 2. 29. Implementation risks. It is understood that the two-year implementation period is tight. So every effort is currently being made to get ready for the implementation, such as preparing procurement documents ahead of project effectiveness. For the irrigation activities, only the sites for which studies have already been completed have been retained, and the bidding process 2 This AF seeks to contribute to the Sahel initiative efforts with the financing of some additional 1,900 ha in small- scale irrigation in Burkina Faso in a way consistent with the pledge of the World Bank to increase work on pastoralism and irrigation in order to boost agricultural productivity and create opportunities in rural areas. 6 is underway. For the few new value chains to be added, only capacity building activities for the stakeholders have been agreed upon, with no new investments. There are some risks related to the upcoming elections. However, these are considered moderate. Even if there was a change in government, the impact on the project is expected to be limited, since the project is private sector-oriented. 30. Exit and sustainability risks. In terms of reducing risks at the end of the project, the main thrust of the project itself, i.e. the transformation of micro-projects into MEs and SMEs, will lead to more sustainability as these enterprises are more likely to be able to stand on their own feet, including with their connections to commercial banks. Also, efforts will be made to link these enterprises to IFC, which is an additional means for an improved exit strategy. Future sustainability will also be emphasized by putting in place plans for maintaining irrigation and market infrastructure. 31. The proposed additional credit is consistent with paragraph 26 of OP 10.00 (Investment Project Financing) under which the International Development Association (Association) may provide Additional Financing for Investment Lending for scaling up the development effectiveness of a well-performing project. III. PROPOSED CHANGES 32. The proposed AF will scale up ADMDP interventions by expanding activities at three levels. First, a scale-up will occur by expanding the same activities carried out under components 1 to 3 with a particular focus on the continuation of capacity building efforts for producers and inter-professional organizations, the matching grant scheme, and investments in irrigation and market infrastructure. Second, a scale-up will occur on a geographic level by expanding activities to the Center, South-West, Center-East, and East Regions, justified by the high poverty headcount and potential for agricultural development 3. Third, a scale-up will occur on a sub-sectoral level by expanding capacity building for supply chain development into new ASP sub-sectors 4. 33. Fourth, as part of component 3, TA will be provided to the Permanent Secretary of the Sectoral Coordination of Agricultural Policy. A large proportion of the value chain activities promoted by PAFASP take place in the rural sector, a sector within the scope of competence of the Ministry of Agriculture and Food Security (MASA), the Ministry of Animal Resources (MAR), and the Ministry of Environment and Sustainable Development (MESD). As part of the operationalization of the SCADD for the rural sector, the three Ministries finalized, in 2012, the PNSR. In that context a Public Expenditures Review (PER) supported by the World Bank was conducted in 2013 jointly for MASA, MAR, and MESD. The PER indicated a need to improve the quality of public expenditures in agriculture to achieve the objectives set by the SCADD. A portion of the Additional Financing would therefore be used to add a new TA activity requested by the three Ministries operating in rural areas to develop strategies and policy frameworks to better coordinate and implement agro-sylvo-pastoral interventions and in particular operationalize the recommendations of the PER by providing support for a dedicated delivery unit (Cellule en Charge des Reformes Sectorielles). 3 The parent project so far covered 9 of the 13 regions in the country. For the AF phase it was decided to extend the Project interventions to the four remaining regions, thereby making the project a nationwide one. 4 There will be no new investments for these new V/Cs, but just capacity building for their inter-professions. 7 Project Development Objective 34. There is no change in the Project Development Objective (PDO) which is to increase the competitiveness of selected agricultural sub-sectors that target national, sub-regional, and international markets, thereby contributing to shared agricultural growth in Recipient’s territory. The key performance indicators for the project objective are expected to remain unchanged, although targets will need to be adjusted where necessary, and include: (i) increased exports (except cotton) to the international market (tons/year); (ii) increased exports (except cotton) to the sub-regional market (tons/year); (iii) at least 60 percent of producers that benefited from project support have increased their income by 50 percent; and (iv) specified number of project beneficiaries. Results Framework and Results Indicators for AF Phase 35. The results framework for the overall ADMDP program was revised to take into account the increased number of beneficiaries envisaged and to establish new targets for exports of commodities targeted by project activities given the additional two-year implementation period. The following are the key indicators for the AF phase: (a) agricultural exports (excluding cotton) on international markets reach 106,500 tons by the end of the FA against 71,500 tons at present; (b) agricultural exports (excluding cotton) in the sub-region reach 96,000 tons against 67,600 for targeted value chains; (c) at least 60 percent of farmers who have benefited from project support have increased their revenue target by at least 50 percent at maturity of the AF; and (d) at least 25,000 new beneficiaries will be reached during the AF Phase over the current 350,000 beneficiaries. 36. The only significant change is the indicator for direct project beneficiaries. It was agreed to collect information related to gender-disaggregated direct beneficiaries (i.e. the percentage of female beneficiaries). The project will continue to collect data for all beneficiaries (direct and indirect) for the needs of the internal completion reports. The proposed new indicator of the number of micro-projects will distinguish between: (i) micro-enterprises and (ii) small and medium enterprises. Fiveour indicators have been reformulated to refocus on the activities under the additional financing. In addition, four indicators will be dropped: (a) increased cotton yields; (b) development and implementation of the plan of building the capacity of public service publicservice and private providers of services, (c) elaboration of a national training strategy; and (d) dissemination of the results of monitoring and evaluation to private operators. 37. Key indicators are summarized in Table 1; more details of indicators by components and subcomponents are presented in the results framework in Annex 1. Project description 38. A brief description of project components and activities is provided below. The cost comparison of project components under the initial and AF phase is presented in Table 2. More detailed costs of the AF Phase are presented in Annex 2. The detailed project description is in Annex 4. Like the parent project, the Additional Financing (AF) will be implemented through the same three components: (i) improving of ASP supply chains performance; (ii) development of marketing and irrigation infrastructure; and (iii) improving the business environment, 8 regulatory framework, and provision of advisory services including project coordination and management through a dedicated PCU. Table 1: Changes in Project Outcome and Results Indicators Original AF Revised Indicator Unit targets targets targets PDO OUTCOME INDICATORS  Direct Project Beneficiaries (number) Number 200,000 25,000 375,000  of which female (percent) 30% 5  Volume of production marketed by project- Tons 35,000 35,000 106,500 supported V/Cs Agricultural exports (cotton excluded) on international markets for the targeted supply chains  Mangoes  Sesame 600 6,500 34,400 100,000  Agricultural exports (cotton excluded) on Tons 20,000 28,400 96,000 regional markets for the targeted supply chains  Mangoes  Onion 700 4,000  Sesame 4,000 21,000 12,000 45,000  Beans 5,700 20,000  Livestock/cattle 1,600 6,000  Percentage of producer income increase (in Percentage 60 60 60 relation to targeted supply chains) INTERMEDIATE RESULTS INDICATORS Component 1: Improvement of ASP Supply Chains Performance  Number of micro-projects successfully implemented Number 2,500 575 3,350 thanks to project promotion fund Component 2: Development of irrigation and marketing infrastructure  By the end of project, 4,400 ha of land have been Hectares 5,000 1,488 4,400 irrigated Component 3: Improvement of the business environment, regulatory framework and provision of advisory services including project coordination and management through a dedicated PCU  Major constraints removed Number 5 2 7  Performance-based contracts with public service Number 5 2 11 providers 39. Component 1: Improvement of ASP supply chains performance (approximately US$26.0 million, including US$18.4 million IDA). The component aims primarily to increase the technical and economic performance of targeted value chains, improving their structure, strengthening the capacity of private actors to respond to opportunities and market requirements, while helping to sustainably increase agricultural productivity. This component includes the main thrust of the AF, which supports the evolution of existing micro-projects (MP) into viable, profitable micro-enterprises (MEs) and Small and Medium Enterprises (SMEs), the 5 The 30 percent represents the targeted percentage of female beneficiaries during the AF phase. If this rate is achieved, then the overall rate of female beneficiaries (for the parent project and the AF Phase combined) will increase from 15 to 16 percent by the end of the project. 9 capitalization/dissemination of successful experiences of the mother project, and the implementation of a range of quality services to meet the specific needs of MEs and SMEs. Two lines of actions will be pursued: (i) improving the competitiveness of value chains; and (ii) strengthening inter-professional (IP) organizations to enable them to support collective missions. Table 2: Changes in Project Costs (US$ million) by Components with Additional Financing Changes with AF Total revised Original IDA IDA % Components Total IDA project costs/1 only original AF only costs costs Component 1 – Improvement of 39.5 28.0 26.0 18.4 65.8 65.5 ASP Supply Chain Performance Component 2 – Development of 33.7 26.7 26.9 18.9 70.8 60.6 Irrigation and Marketing Infrastructure Component 3 – Improvement of 11.3 11.3 13.0 12.7 112.0 24.3 the Business Environment, Regulatory Framework and Provision of Advisory Services including Project Coordination and Management through a Dedicated PCU Total costs 84.5 66.0 65.9 50.0 75.7 150.4 1/ Source: ADMDP PAD May 23, 2006. 40. Component 2: Development of irrigation and marketing infrastructure (approximately US$26.9 million, including US$18.9 million IDA). The component aims to strengthen the links between producers and markets. In particular, the AF will help complete the construction of infrastructure and promote the management and operation of production and marketing infrastructure by the private sector. The AF will thus contribute to addressing issues discussed during the initial stage, namely: (i) the lack or inadequacy of infrastructure and equipment to support the marketing and export of products; and (ii) inadequate infrastructure and technologies adapted to the development needs of irrigated production in the targeted sectors. The component comprises two subcomponents: (i) development of irrigation infrastructure; and (ii) infrastructure development and marketing. 41. Component 3: Improving the institutional environment, regulatory framework and provision of advisory services including project coordination and management through a dedicated PCU (approximately US$13.0 million, including US$12.7 million IDA). The AF will maintain support for: (i) a legal and regulatory framework conducive to private investment; (ii) capacity building support services to industries to ensure quality control and standards; (iii) the development of an improved policy environment of public and private providers; and (iv) better coordination, effective management, and adequate monitoring and evaluation of the Project. The component consists of three subcomponents: (i) improving the legal, regulatory and 10 financial environment; (ii) strengthening of support and support services sectors; and (iii) coordination and monitoring and evaluation of the Project. 42. Under Component 3 the Project will also provide Technical Assistance (TA) to the Permanent Secretary of the Sectoral Coordination of Agricultural Policy in the framework of the implementation of the reform measures in the agricultural sector by: (i) establishing a fund for agricultural development 6; (ii) establishing a program to support the promotion of SMEs in the rural sector mechanism; (iii) establishing a comprehensive financial instrument that incorporates the National Climate and Environmental Response Fund; (iv) establishing an Agricultural Insurance Fund; (v) creating a marketing structure and stabilization of local products for export; (vi) developing and adopting a code for specific investments in the agricultural sector; (vii) developing and implementing a national system of extension and advisory support, taking into account the specificities of the different departments and the involvement of different stakeholder groups; (viii) developing a national policy on water projects; (ix) establishing a fund for the development of agricultural entrepreneurship; and (x) strengthening the monitoring and evaluation system of the PNSR, particularly on monitoring of reform measures in the rural sector. 43. Gender. The project will make a special effort to ensure that female producers and operators benefit from the project. As one of the measures, a performance indicator of the project is related to the percentage of women beneficiaries of the project interventions. The end- of-project target is set at 30 percent of new beneficiaries of the AF Phase (i.e. the target is 7,500 female beneficiaries). This indicator will be achieved through actions targeted at women in areas that have potential for a greater participation of women, such as in cattle fattening and the production of local poultry, dried mango production, and conservation of cowpeas. Implementation Arrangements 44. Project Coordination Unit (PCU). The PCU is currently composed of staff who have been recruited based on their skills needed for the various positions. Given the strategic orientations of the AF and the nature of the scaling-up to new geographical areas and new activities identified in the matching-grant scheme, including the passage of MPs to micro- enterprises, the PCU will include: (i) technical operations, and (ii) financial management operations. Regarding technical operations: The current technical team consists of a national coordinator, an irrigation/infrastructure specialist, a database manager, and a communications specialist. Specialists who have left the project for reasons of professional advancement will be replaced, i.e. a crops specialist, a livestock specialist, and an M&E manager. Support staff will continue as during the initial project. To cope with the challenges of AF, the technical team will be strengthened with an operations manager to assist the coordinator, a private sector funding specialist, and an environmental and social safeguards specialist. The composition of the FM team will remain the same, i.e. it will include a financial manager, three accountants, an internal auditor 7, and a procurement specialist. 6 The FA will only carry out preparatory studies to lay the ground for this and other proposed funds; it will not contribute to them financially. 7 The Internal Auditor has left the project and will be replaced. 11 45. Local/decentralized regional branch offices. These will consist of current staff (a coordinator, an M&E specialist, an accountant, and support staff). In each office two specialists in Micro-Enterprises will be contracted to coordinate the pool of advisors and oversee the quality of the preparation and monitoring of MPs. One will be primarily responsible for overseeing the preparation and monitoring of 500 new MPs, and the other one will coordinate support to the 1,500 MPs of the initial project. Each office will also contract an infrastructure specialist in charge of irrigation and market infrastructure development. 46. The project will develop support systems tailored to the specific needs of ME/SME training, support and advice, and platforms for innovation. In order to carry this out, it is proposed to : • Enter into partnership agreement with the Maison de l'Entreprise du Burkina Faso (MEBF) as a specialized service for advising SMEs; • Enter into Memoranda of Understanding (MoU) with selected financial institutions such as the two partner banks that currently benefit from a credit line for technical assistance from Danish International Development Agency (DANIDA) Ecobank and Orabank, with the Guarantee Fund of the U.S. Agency for International Development (USAID; Ecobank), and with Banque Régionale de Solidarité (BRS) that was already involved in the project during the initial phase; • Extend the term of the existing agreement with SOFIGIB; • Establish a pool of providers (three individual consultants for each region) to support the establishment of MPs and MEs and to provide advisory support (technical, financial, and accounting management) to promoters; • Enter into a Memorandum of Understanding with the SP/CPSA for the coordination of the action plan for implementation of sectoral policy measures supported under the AF; • Establish execution protocols with decentralized technical services to achieve the technical evaluation of micro-projects, monitoring and control of the implementation, as well as gathering information to supply the information system of monitoring and evaluation Project; and • Establish execution protocols with the central technical services (DGPER and DGADI) for the monitoring of the implementation of irrigation and market infrastructures. 47. For implementing Subcomponent 3.1, ‘improving the regulatory, legal, and financial environment’, performance contracts or memoranda of agreement will be used with service providers based on project results and with: (i) the relevant public services for the review, adaptation, development, and support the dissemination of texts; (ii) the inter-professional organizations in the dissemination of texts, information, and sensitization of members; (iii) SOFIGIB, to adapt the conditions of access guarantee Fund; and (iv) banks to promote credit lines. 48. For implementing Subcomponent 3.2, ‘strengthening support services and support networks’, performance contracts or memoranda of agreement will be entered into between the Project and: (i) the MEBF to provide technical assistance to SMEs in targeted sectors; (ii) specialist pools formed around regional offices of the Project; and (iii) decentralized technical services involved in the implementation of initiatives by private developers. However, for the sake of efficiency, the PCU will continue to develop, with the ministries concerned, appropriate mechanisms to promote the direct establishment of protocols with decentralized technical 12 services. In particular, each local/regional branch office, as during the initial stage, will subcontract directly with decentralized technical services departments and provide funding for the implementation of the measures. 49. The implementation period of two years is ambitious, but steps have been taken to speed up implementation such as by: (a) launching the bidding process for the small irrigation activities that was delayed during the implementation of the parent project; (b) the operational manual has been already updated; (c) hiring of missing staff is in the process of being carried out; and (d) only activities which can be carried out in a timely fashion have been include in the AF. Also, retroactive financing will be considered. 50. The project is conscious of the need to lay the groundwork for a sound exit strategy and strong sustainability. The proposed partnership with MEBF is one way to ensure a sound transformation of the MPs to ME/SMEs and to be able to better support the MPs. The transformation of MPs to ME/MSEs is expected to ensure their sustainability through the commercial banks. 51. During the AF period special attention will be given to O&M for irrigation and marketing infrastructure with the intent that full funding for O&M will be assured, including with beneficiary contributions, and that thus the structure will remain functional and sustainable. IV. APPRAISAL SUMMARY Project design and implementation 52. Implementation arrangements will remain largely unchanged during the AF phase but strengthened with some additional staff as described above. Steering and advisory committees will continue, and the Project Coordinating Unit (PCU) will continue to oversee and coordinate project implementation, supported by competitively-recruited, field-based international Technical Assistance (TA) teams. Implementation will take place at the national and the local/decentralized regional levels (branches of West, South-West, Center and North). Economic and financial analysis 53. Rationale for public funding. Involvement of the private sector through large numbers of small entrepreneurs is essential for a project of this sort. However, public involvement and funding are still important and justified because of public goods benefits of a significant number of people from marketing investments and improvements in the policy and regulatory environment. There are also some investments, such as small-scale irrigation, where public contributions to the capital investments are important along with a requirement that beneficiaries carry out O&M at the canal level. 54. Value added of WB involvement. The World Bank is well-placed to support this project due to its experience and successes in agriculture, rural development, micro-project development, and value chain development. The project will combine and apply these experiences, providing a unique window of opportunity to integrate a strategic approach to productivity enhancement, diversification, and value chain development. This includes 13 experience gained in community and matching grant programs, and from achievements and lessons learned notably in the parent project. 55. Development impact. Successful development of key value chains is expected to provide significant benefits to producers and traders. Improving the value chains will help improve market access that will benefit the Burkinabe economy as a whole. 56. An analysis of the different investments anticipated under ADMDP’s AF phase was performed to assess their economic and financial impacts for the beneficiaries individually and for the country as a whole. The results were compared with those of the initial phase (see Annex 6). The results of the financial analysis of enterprise-level investments are encouraging. Although each recommended technology demands new skills and increased spending on inputs, the analysis shows that these investments can lead to large gains in individual enterprise gross margins. The IRRs for individual enterprises range from 32 percent for local poultry to 70 percent for stored onions in a 12-ton infrastructure. 57. The Net Present Value (NPV) in economic terms for enterprise-level investments (micro- projects) is approximately US$26.7 million. The Economic Rate of Return (ERR) for the entire project is estimated at about 17.3 percent. This result is in line with the ERR of the initial phase, estimated at about 16 percent. The slightly higher ERR is explained by the fact that entrepreneurs are expected to build on the knowledge and lessons of experience acquired during the first phase of project implementation. The sensitivity analysis based on increases of 10, 20 and 30 percent of project costs (other than enterprise-level investments) which yields rates of return of 16.1, 15.0, and 14.0 percent, respectively, denotes robustness to increases in project investments costs. The sensitivity analysis based on decreases of 10, 20, and 30 percent in the gross margins of participant investors gives rates of return of 15.9, 14.5, and 12.8 percent, respectively. This is further evidence of the robustness of the project ERR to possible decreases in the revenues received by investors, such as those arising from a combined production volume and market price decrease. The sensitivity analysis based on a delay of 2 years in the generation of benefit gives a rate of return of 13.5 percent 8. Safeguards policies 58. Similarly as for the parent project ADMDP, this AF triggers three safeguards policies: OP/BP 4.01 on Environmental Assessment; Pest Management (OP/BP 4.09); and Involuntary Resettlement (OP/BP 4.12). No additional new safeguards will be triggered for the AF. Both the parent ADMDP and the AF are rated as environmental assessment Category B. There are no significant or irreversible adverse impacts that are expected from the implementation of activities that will be financed under this AF. Most of the adverse environmental and social impacts 8 Other benefits of the project are the following: (i) 5022 jobs created or strengthened via the enterprises supported by the project, (ii) improvement of the institutional, legislative, and statutory framework, (iii) the implementation of the infrastructures of irrigation and marketing of products, (iv) the development of the public and private partnerships: MEBF, CIC-B, and AGRODIA-COCIMA. The project contributed to an increase of the exports of mangoes and onions between 2007 and 2012, from 10,300 tons to 26,450 tons. 10.7 billion FCFA of sales were generated by the enterprises financed between 2007 and 2012, against an allocation of 10 billion FCFA for the funds of development of the values chains. 350,000 people benefited from supports of the project (training, support, advice, and financing). Approximately 1,674 financed enterprises are operational. Sixty-eight percent among them increased their incomes from the value chains targeted by at least 50 percent, and 74 percent for them reinvested a part of income in the enterprise. 14 associated with these investments will be small-scale and site-specific. Hence, they will be manageable at an acceptable level. 59. For the parent project, an Environmental and Social Management Framework (ESMF), an Integrated Pest Management Plan (IPMP), and a Resettlement Policy Framework (RPF) were prepared, consulted upon and disclosed publicly both in-country and at the InfoShop in 2006. These safeguards instruments were revised in 2011 and have now been updated to reflect the AF scale-up and they have been consulted upon, and disclosed publicly in country and at the InfoShop on March 19 and March 20, 2014, respectively. All three safeguard documents provide detailed mitigation measures to ensure sustainability and compliance with Burkina Faso’s regulations and legislation, as well as with the World Bank environmental and social policies. Activities financed under the project will be screened using a standardized approach based on the tools developed under the original project. ESMPs will be prepared as needed for the small civil works expected to be undertaken under this AF. For works with negligible impacts environmental measures based on national laws and regulations will apply. 60. The PCU does not currently have a specific environmental specialist. Moving forward, under this AF, the PCU will hire an Environmental and Social Expert to oversee the implementation of the project safeguards instruments and coordinate efforts at the national level. The PCU staff will continue to regularly monitor and follow-up with any safeguard issues. The Bank’s supervision missions will also continue to include environmental and social specialists. Moreover, as part of capacity building activities under Subcomponent 3.2, the project will help the Ministry of Environment to monitor the implementation of the project’s three safeguards instruments. Financial management 61. The Project Coordination Unit (PCU) under the oversight of the Ministry of Agriculture and Food Security will handle the additional activities. The financial management arrangements for the additional financing will be based on the existing arrangements in place under the ongoing IDA project. The FM arrangements are in place and FM staffing has remained adequate in the PCU and nine regions covered by the ongoing project. The interim un-audited financial reports for the on-going project are also submitted on time. More details are provided in Annex 5. Procurement 62. Procurement for the project will be carried out in accordance with the World Bank’s “Guidelines: Procurement under IBRD Loans and IDA Credits “dated January 2011 (Procurement Guidelines); and “Guidelines: Selection and Employment of Consultants by World Bank Borrowers” dated January 2011 (Consultant Guidelines) and the provision stipulated in Financial Agreement. The various procurement actions under different expenditure categories are described in general below. For each contract to be financed under the Financing Agreement, the various procurement or consultant selection method, the need for pre- qualification, estimated costs, prior review requirements, and time frame have been agreed between the borrower and the Bank in the Procurement Plan. The Procurement Plan will be updated at least annually or as required to reflect the actual project implementation needs and improvements in institutional capacity. The implementing entities, as well as contractors, suppliers, and consultants will observe the highest standard of ethics during procurement and 15 execution of contracts financed under this project. “Guidelines on Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA and Grants” dated October 15, 2006, updated in January 2011 (the Anti-Corruption Guidelines) shall apply to the project. Additional details on procurement are provided in Annex 5. Closing dates 63. The closing date of the original Credit was previously extended to March 31, 2014. It has recently been further extended to September 30, 2014 in order to permit the preparation of this AF Operation and to minimize a possible gap in project implementation until such time as the AF Credit is effective. A reallocation of the remaining funds from the parent project has also been approved in order to focus the funds on priority areas with the biggest development impact. 64. The proposed closing date of the Additional Financing is June 30, 2016. Policy exceptions and readiness 65. There are no policy exceptions for this project. 16 ANNEX 1: REVISED RESULTS FRAMEWORK AND MONITORING INDICATORS BURKINA FASO - Agriculture Diversification and Market Development Project Additional Financing Comments or rationale of change Project Development Objective Current (PAD) Proposed change Agricultural exports (cotton The indicator was Disaggregated information is more meaningful excluded) on international disaggregated according to markets for the targeted supply supply chain, and the targets chains were revised Agricultural exports (cotton The indicator was Disaggregated information is more meaningful excluded) on regional markets disaggregated according to for the targeted supply chains supply chain, and the targets were revised Increase of producer income No change No change, but data collected by the PCU was (percentage; in relation to related to turnover instead of producer revenue. targeted supply chains) The implementation of the AF will allow the team to recalculate producer revenue in order to have accurate data to document this indicator and revise accordingly the new targets that remain tentative. In the meantime, the PCU will continue to document the number of beneficiaries including indirect ones for the project purpose as this information was collected during the parent project. During the implementation of the parent project, Number of direct data related to this indicator was about the overall beneficiaries of the project direct and indirect beneficiaries. The new Number of beneficiaries formulation will focus only on those directly of which female (percentage) affected by the project, including women in percentage. Intermediate Results indicators Current PAD Proposed Change Comments rational for change Component 1: Improved of agro-sylvo-pastoral supply chain performance The reformulation will help capture project efforts to make newly created or restructured Inter- professional organization functional. The aim is to Number of Inter-professional Number of Inter-professional have these organizations active. Two criteria will organizations created and organizations created be used to that end: (i) organization of the statutory functional meetings; (ii) intra & inter professional agreements concluded by the OP/IPs; (iii) capacity of resources mobilization: internal and external. Number of micro-projects No Change successfully implemented thanks to the project promotion fund Number of enterprises converted New This indicator will capture the intermediary result to: of project support to promoters, especially those Micro-enterprises that are converted into Micro-Enterprises (ME) and Small and Medium Enterprises into Small and Medium Enterprises (SMEs). This is to capture directly the impact of the project in the dynamic of enterprises mutation that derives from a simple micro-project to a ME or SME. Increase of cotton yield of 1,050 Not applicable under the AF The EOP will not change. kg per hectare in 2004 by 15percent The change affects the productivity instead of Increase of non-cotton crop Increase of non-cotton production. In addition the indicator is now production productivity disaggregated to capture the percentage increase of the each supply chain concerned. Amount of credits provided to No change beneficiaries with the guaranty fund Component 2: Development of irrigation and marketing infrastructure By the end of project, 5,000 ha By the end of project, 4,400 Target for this indicator has been downgraded to of land have been irrigated ha of land have been irrigated 4,400 ha instead of 5,000 By the end of project, at least No change. The EOP is unchanged. 1,000 ha of land equipped with small-scale irrigation equipment Number of marketing Percentage of marketing The indicator is now formulated in terms of infrastructures managed by infrastructures managed by percentage to comply with the spirit of the parent specific private operators specific private operators project. In fact data collected related to percentage instead of number. Component 3: Improvement of business environment, regulatory framework and provision of advisory services Number of major constraints No change removed Number of texts and regulations Number of texts and This indicator has been split up in two indicators in revised, produced, and regulations revised, produced order to be able to document the two dimensions: disseminated to actors Number of texts and (i) revision and productions; and (ii) dissemination. regulations disseminated to actors Elaboration and implementation Capacity building action plan for public service of a capacity building action plan providers has been elaborated under parent project. Not applicable under the AF for public private service AF will support its implementation. But there is no providers need to follow particularly this indicator. Number of performances-based contracts with public service No change providers National strategy for agricultural Not applicable under the AF The strategy was elaborated under the parent training elaborated project. Dissemination of M&E results to It is evident that private operators are entirely part private operators Not applicable under the AF of the project M&E system as data providers and data users. 18 REVISED PROJECT RESULTS FRAMEWORK Target Values Data collection Baselin Progress to Project Outcomes Indicators e date ; Year 1 Year 2 Unit of Source/ Responsible for data Core Parent (February Frequency Measure methodology collection project 28, 2015 2016 2005 2014) Project Development Objectives (PDO) Number of direct beneficiaries of Number 0 350,000 365,000 375,000 the project Surveys, PCU M&E systems within Of which female (percentage of Percent 0% 15% 15% 30% Private Operators, Annual sector ministries, all beneficiaries over entire Ministries of Agriculture, Private operators data project; i.e. not incremental); the Livestock and Trade base incremental rate during the AF itself is 30 percent. Agricultural exports (cotton 17,500 71,500 83,200 106,500 PCU excluded) on international M&E systems within Private Operators, markets for the targeted supply sector ministries, Ministries of Agriculture, Tons Annual chains Surveys of exporters Livestock, Trade and Mangoes 5,900 6,200 6,500 Customs data Economy and Finance Sesame 65,600 77,000 100,000 (Custom) Agricultural exports (cotton 6,000 67,600 81,000 96,000 excluded) on regional markets PCU for the targeted supply chains M&E systems within Private Operators, Mangoes 3,300 3,500 4,000 sector ministries, Ministries of Agriculture, Tons Annual Onion 17,000 18,000 21,000 Surveys of exporters, Livestock, Trade and Sesame 33,000 38,000 45,000 Customs data Economy and Finance Beans 14,300 16,500 20,000 (Custom) Livestock/cattle 4,400 5,000 6,000 Percentage of producer income Percent 65% 60% 60% Mid-term and HH surveys PCU 19 increase (in relation to targeted end of project supply chains) Component 1: Improved of agro-sylvo-pastoral supply chain performance Number of Inter-professional organizations created and Number 4 5 5 Annual Project M&E data PCU functional Number of micro-projects successfully implemented thanks Number 2,835 3,350 3,350 Quarterly Project M&E data PCU to the project promotion fund Number of enterprises converted 0 1,250 1,250 to: Project M&E data+ Number Annual PCU Micro Enterprises 0 1,100 1,100 field surveys Small and Medium Enterprises 0 150 150 Increase of non-cotton crop Field Survey, productivity Project M&E data, Mangoes Tons/ha 7 12 15 Annual inter-professions and PCU Onion Tons/ha 17 20 22 commodity trade Livestock/cattle ADG 9(g) 500 600 650 association Poultry Per head 5 12 15 Amount of credits provided to Million beneficiaries with the Guarantee 780 1,200 1,500 Quarterly Bank data base PCU XOF Fund Component 2: Development of irrigation and marketing infrastructure By the end of project, 4,400 ha Project M&E data+ Ha 1,912 3,500 4,400 Annual PCU of land have been irrigated farm surveys Percentage of marketing infrastructures managed by UNPCB and cotton specific private operators Percent 100% 100% 100% Field Survey companies 9 Average Daily Gain (ADG) in grams. 20 Component 3: Improvement of business environment, regulatory framework and provision of advisory services Number of major constraints Number 5 7 7 Annual Progress reports PCU removed (cumulative) Number of texts and regulations PCU + MASA + revised/produced (cumulative) Number 1 2 4 Annual Progress reports Ministries of Livestock and Trade Number of texts and regulations PCU + MASA + disseminated (cumulative) Number 3 5 6 Annual Progress reports Ministries of Livestock and Trade Number of performances-based contracts with public service Number 9 11 11 Annual Progress reports PCU providers (cumulative) 21 ANNEX 2: REVISED ESTIMATE OF PROJECT COSTS BURKINA FASO - Agricultural Diversification and Market Development Project Additional Financing Costs and Financing Componants and subcomponents IDA % Govern- % Benefi % Finan- % Total % (US$ ment 10 ciaries cial (US$ ‘000) ‘000) (US$ (US$‘ Institu- ‘000) 000) tions Component 1: Improvement of 18,382 70.6 591 2.3 3, 302 12.7 3,744 14.4 26,019 39.5 ASP Supply Chains Performance Subcomponent 1.1: Strengthening 1,895 64.5 294 10.0 751 25.5 0 0 2,939 4.5 the professional and inter- professional organizations and supporting the competitiveness of value chains Subcomponent 1.2: Support for 16,488 71.5 297 1.2 2, 551 11.1 3,744 16.2 23,080 35.0 traders, producers and small processors and access to finance Component 2: Development of 18,877 70.2 4,742 17.6 3,272 12.2 0 0 26,891 40.8 Irrigation and Marketing Infrastructure Subcomponent 2.1: Development of 14,449 69.8 3,691 17.8 2,569 12.4 0 0 20,709 31.4 irrigation infrastructure Subcomponent 2.2: Development of 4,428 71.6 1,051 17 703 11.4 0 0 6,182 9.4 marketing infrastructure 10 The total of the government contribution corresponds to the taxes on goods and services needed by the Project. 22 Component 3: Improvement of the 12,741 98.0 257 2.0 0 0 0 0 12,998 19.7 Business Environment, Regulatory Framework and Provision of Advisory Services including Project Coordination and Management through a Dedicated PCU Component 3.1: Improving the 636 100 0 0 0 0 0 0 636 1.0 regulatory, legal, and financial environment Component 3.2: Strengthening 7,440 100 0 0 0 0 0 0 7,440 11.3 support services and support networks Component 3.3: Coordination and 4,664 94.8 257 5.2 0 0 0 0 4,922 7.4 monitoring and evaluation Total 50,000 75.9 5,590 8.5 6, 574 9.9 3.744 5.7 65,908 100.0 23 ANNEX 3: OPERATIONAL RISK ASSESSMENT FRAMEWORK (ORAF) BURKINA FASO - Agricultural Diversification and Market Development Project Additional Financing Stage: Board PDO Statement The project development objective (PDO) is to increase the competitiveness of selected agricultural sub-sectors that target national, sub- regional and international markets, thereby contributing to shared agricultural growth in Recipient’s territory. . Stakeholder Risk Rating Moderate Risk Description: Risk Management: The analytical underpinnings of the Project, including clear definition of selection criteria (potential for In Burkina Faso, the Agro-sylvo-pastoral growth and employment, number of people reached and level of organization of producers’ and inter- sector covers a wide range of supply chains professional organizations) in project documents as well as communication to the public during project of a national or regional nature. While the preparation missions may help address the issue. For the Additional Financing, scale-up to new supply majority has a domestic market vocation, chains and regions not covered in the parent project was considered. some have a nascent or significant established presence in the sub-regional Resp: Client Status: Stage Recurrent: Due Frequ and/or international market. Selection of : Date: ency: limited supply chains and focused areas for project interventions may raise equity Risk Management: issues. Stakeholders, including farmers and political leaders, and agro-industries in Inclusive approach and an assessment and dissemination of parent project impacts may help address the areas or supply chains not selected from risk. As part of the capacity building activities, discussions are ongoing to reach agreement on project intervention may express discontent improved governance procedures of Producers’ organizations and Inter-professions through which or frustration if not included in project some of the project activities will be implemented. Furthermore, the Project will focus on activities. strengthening the weak links of the supply chains (namely producer associations) to enhance their negotiation proficiency and their participation to the decision process. A communication strategy will be developed to ensure transparency and control over project activities. 24 Resp: Both Status: In Stage Imple Recurrent: Due Frequ Yearly Progres : menta Date: ency: s tion Risk Management: Project will take advantage of the law on Inter-professions passed in November 2012 by Parliament. Resp: Client Status: Not Yet Stage Imple Recurrent: Due Frequ Yearly Due : menta Date: ency: tion Implementing Agency (IA) Risks (including Fiduciary Risks) Capacity Rating Moderate Risk Description: Risk Management: Inadequate institutional capacity for The organization of farmers in producer associations varies in quality by sub-sector. Some inter- implementation of Project activities and professions provide a good platform for coordination of producers and processors while others lack the coordination of multiple stakeholders strength and resources for the role. At the same time, some envisaged investments under the project, across multiple value-chains in multiple e.g. irrigation and market infrastructure, will require coordination across value-chains, for which locations. Given the variation in adequate implementation modalities will have to be specified during project preparation. institutional capacity across the various value-chains, coordination of project activities and executing agencies by the Resp: Client Status: Comple Stage Recurrent: Due Frequ Ministries of Agricultural and Food ted : Date: ency: Security (MASA), Ministry of Livestock and Fisheries (MoLF), Ministry of Water Risk Management: and Hydraulic Planning and Sanitation (MEAHA) and MESD (Ministry of A project coordination unit (PCU) has been established within MASA, with the project support to Environment and Sustainable ensure coordination of executing agencies and compliance with bank fiduciary requirements. The Development) would be challenging given project will also provide capacity building support to the MASA/MoLF/MEAHA for better limited capacities, both in terms of staffing coordination of the PNSR. The project will continue with the Additional Financing to tailor and financial resources. It is understood implementation arrangements and capacity building efforts accordingly, which will be detailed in that the two-year implementation period is MoUs between the PCU and implementing agencies, including the producers’ organizations and inter- tight. There are also some risks related to professions. For the sub-sectors not targeted in the initial parent project, draft MoUs will be prepared 25 the upcoming elections. and agreed on by closing of appraisal, and signed before effectiveness. Every effort is being made to get ready for the extension, such as by preparing procurement documents. Also, for example, for the irrigation activities, only the sites for which studies have already been completed have been retained, and the bidding process is about to start. For the few new value chains to be added, only capacity building activities for the stakeholders have been agreed upon, with no new investments. Risks related to the evolving political situation are considered moderate. Even if there was a change in government, the impact on the project is expected to be limited, since the project is private sector oriented. The main thrust of the project itself, i.e. the transformation of micro-projects into MEs and SMEs, will lead to more sustainability as these enterprises are more likely to be able to stand on their own feet including with their connections to commercial banks. Also, efforts will be made to link these enterprises to IFC, which is an additional means for an improved exit strategy. Future sustainability will also be helped by attention to O&M, which would be put in place for maintaining irrigation and market infrastructure. Resp: Client Status: Stage Recurrent: Due Frequ : Date: ency: Governance Rating Moderate Risk Description: Risk Management: The Project Steering Committee – in charge of approval of project work plan and budgets derives from Weak overseeing of Project Coordination the PNSR overseeing committee, enlarging the sight of stakeholders over project management and Unit by the Government and inadequate supervision. Furthermore, Project contribution to the Supply Chains Promotion Fund is governed by supervision of executing agencies and the procedures consistent with Bank’s fiduciary standards and information policies. The Manual will be PCU leading to lack of transparency in the reviewed and updated by the Government's project preparation team and will submitted to the Bank for management of project resources through review and no objection by closing of negotiations. the Supply Chain Promotion Fund; lack of accountability vis-a-vis the end Resp: Client Status: Not Yet Stage Recurrent: Due Frequ beneficiaries. Due : Date: ency: Risk Management: MASA, MEAHA, and MoLF have already appointed qualified staff, as focal points of each supply- 26 chain or component, under the supervision of the respective Secretary General of each Ministry to review project quarterly reports and recommend corrective measures for action as necessary. A formal grievance redress mechanism will be established for the Additional Financing to address complaints from beneficiaries and project stakeholders. Periodic SPN missions will be carried out by the Steering committee, whose members include stakeholder representatives. Resp: Client Status: Not Yet Stage Imple Recurrent: Due Frequ Quarterl Due : menta Date: ency: y tion Risk Management: Bank will continue ensuring intensive formal supervision missions based on the draft quarterly project execution and Interim financial reports (IFRs) and will maintain virtual review of implementation progress from the Ouagadougou Bank Country Office, in complement to formal implementation support mission every six month. Resp: Status: Stage Recurrent: Due Frequ Quarterl : Date: ency: yy Design Rating Moderate Risk Description: Risk Management: In terms of institutional strengthening in An assessment made by the parent project during implementation found: (i) a high degree of the sub-sectors selected by the project, individualism among actors of the value-chains; (ii) poor understanding of their mandate in most significant advances have been made, elected OPs; (iii) lack of financial and human resources; (iv) limited data on professional entities; (v) including in the sensitization of leadership driven by political motives; and (iv) an offer of products that tends to be un-coordinated and stakeholders, a consensus approach to scattered. interventions throughout the value-chain, the establishment of professional families During implementation, the project will address the risk related to poor governance and performance in (links in the value-chain) but risks remain the value-chain chain and will include activities in Component 1 (improvements of supply chain with the ability of the professional and performance) aimed at: (i) reactivating the capacity-building plans elaborated in 2010 by the project; organizations to carry their mandate. (ii) coupling institutional strengthening activities in the professional organizations with more technical activities with more focus on services delivery for members; (iii) operationalizing the Integrated Market Information System to offer actors in the professional organizations with an improved strategic 27 planning tool. Social and Environmental Rating Moderate Risk Description: Risk Management: Adverse Social and Environmental Impacts Safeguards provisions and corresponding institutional capacity will continue to be developed and of New Plantations. deployed to avoid adverse social and environmental impacts. Envisaged certification efforts and the promotion of organic farming supported under the project activities will further strengthen managing social and environmental concerns. Government has prepared for the parent project an Environmental and Social Management Framework (ESMF), a Pest Management Plan (PMP) and a Resettlement Policy Framework (RPF). They will be updated by the client and reviewed by the Bank. Resp: Client Status: Stage Appra Recurrent: Due Frequ : isal Date: ency: Program and Donor Rating Low Risk Description: Risk Management: Project activities might overlap with other Project activities related to capacity building, matching grants scheme, and irrigation/marketing programs funded by Donors, Government, infrastructure will continue to be mainstreamed through existing funding mechanisms established, or the export industry, leading to doubling whose functioning, governance, and procedures will continue to be assessed and upgraded to meet of effort and inefficient interventions. Bank standards. Furthermore, collaboration with donor community through the PNSR Donors Group, and embedding Project Overseeing in the PNSR institutional framework will help mitigate the risks. In addition, close collaboration will continue with majors partners of the Government – including but not limited to AFD, EU, USAID, Swiss cooperation, GiZ, Danish cooperation, and AfDB - in the agricultural sector, including the possibility of parallel projects using key features of the project design or feasibility studies envisioned under the project. For the selected activities related to the cotton sector, the Bank and AFD will continue their implementation coordination through joint missions and continuous communications. Resp: Both Status: In Stage Recurrent: Due Frequ Progres : Date: ency: s 28 Delivery, Monitoring and Sustainability Rating Low Risk Description: Risk Management: Ministry’s ability to collect and process The PCU will be held accountable for overall project's M&E system and will report to MASA. Under relevant data on the sector performance has the new subcomponent on sector coordination and support to reforms, the project would provide been weak over the years. additional support to MASA/MoLF/MEAHA to improve their M&E capacity in connection with project areas of interest. Continuing Public Sector dependence may Resp: Client Status: Not Yet Stage Recurrent: Due Frequ hinder the sustainability of project Due : Date: ency: intervention. Risk Management: Some of the inter-professions are monitoring fairly well their respective sub-sector performance, and overall are generating and dissemination relatively good quality information that may serve the Project M&E purpose. But other IPs have a relatively weak and in some cases inexistent M&E system. The PCU will rely on the inter-professions’ M&E systems and will provide additional support as necessary to improve such systems. Envisaged support under the project will continue to be tied to the development and establishment of sustainable financing mechanism for future capital investment and operation needs of the respective value-chains under their Strategic Development Plans, including irrigation and market infrastructure. Doing so would require measures facilitating scaled-up engagement of Burkina Faso’s financial sector in the agro-sylvo-pastoral sub-sectors, as well as increasing mandate and governance in each respective value-chain's associations (i.e. inter-professions) to manage internally generated revenues. Resp: Status: Stage Recurrent: Due Frequ : Date: ency: 5. Overall Risk: Moderate 29 ANNEX 4: DETAILED DESCRIPTION OF CONTINUING, MODIFIED, OR NEW PROJECT ACTIVITIES OF AF PHASE BURKINA FASO - Agriculture Diversification and Market Development Project Additional Financing 1. Like the parent project the Additional Financing (AF) will be implemented through the same three components: (i) Improvement of ASP supply chains performance, (ii) Development of marketing and irrigation infrastructure, and (iii) Improving the business environment, regulatory framework, and provision of advisory services including project coordination and management through a dedicated PCU. 2. Component 1: Improvement of ASP supply chains performance (approximately US$26.0 million, including US$18.4 million IDA). The component aims primarily to increase the technical and economic performance of targeted value chains, improving their structure, strengthening the capacity of private actors to respond to opportunities and market requirements, while helping to sustainably increase agricultural productivity. This component includes the main thrust of the AF, which supports the evolution of existing micro-projects (MP) into viable, profitable micro-enterprises (MEs) and Small and Medium Enterprises (SMEs), the capitalization/dissemination of successful experiences of the mother project, and the implementation of a range of quality services to meet the specific needs of MEs and SMEs. 3. Two lines of actions will be pursued: (i) improving the competitiveness of value chains, and (ii) strengthening inter-professional (IP) organizations to enable them to support collective missions. This guidance focuses on facilitating members' access to research and development, inputs, services, trade facilitation, development of human resources and capacity building, management quality, and the preparation and implementation of action plans of the value chain. This component will be divided into two subcomponents: (i) support to the organization and structure of courses and support to the competitiveness of priority value chains, and (ii) support to traders, producers, and small processors (promotion initiatives by private actors), and access to finance. 4. Subcomponent 1.1: Strengthening the professional and inter-professional organizations and supporting the competitiveness of value chains (approximately US$ .9 million including US$1.9 million IDA). This subcomponent will strengthen inter-professions (IP) organizations to enable them to support collective missions. This focuses on facilitating the access of members to: (i) research and development, (ii) inputs, (iii) facilitation of trade, (iv) human resource development and capacity building, (v) quality management, and (vi) preparation and implementation of action plans pathways. 5. The subcomponent will focus on improving the competitiveness of value chains through implementation of strategies/plans for better targeted marketing of products. These activities will focus on improving the competitiveness of priority value chains (mango, onion, cowpea, sesame/grain, livestock - meat) through the following actions: (i) further development of parameterized orchards (mango density) with different varieties, (ii) dissemination of technology of tunnel drying mango and developing business partnerships in the traditional dried mango 30 market, (iii) improved storage (storage models and type of storage infrastructure management), (iv) centralization of stocks including cowpea, sesame, cereals, packing, and crating for groups or individuals, (v) the improvement of information on prices and markets systems, (vi ) capacity building and institutional support to national and regional inter-professional organizations to enable them to take over the operations of collective operations and advocacy on value chains. In addition, the subcomponent will favor the consolidation of MEs/SMEs for value addition (conservation, marketing, processing) of products in the targeted value chains. 6. Subcomponent 1.2: Support for traders, producers and small processors and access to finance (i.e. promotion of initiatives by private actors) (approximately US$23.1 million including US$16.5 million IDA). This subcomponent aims to ensure the consolidation of successful MPs of the original project and putting in place about 100 SMEs. Out of 100 SMEs, 80 would be scaled up from the existing successful MPs and the remaining 20 will be identified with the additional financing. The AF will also keep track of MPs of the first generation. It will provide access to bank financing of SMEs through the implementation of a partnership with a pool of commercial banks. The principle of cost-shared funding remains the same as in the original project. Moreover the AF will introduce a more entrepreneurial orientation by supporting micro-projects in their initial development toward micro-enterprises (MEs) and small and medium enterprises (SMEs). 7. Categorization of micro-enterprises. MPs supported by the project will be grouped in two categories. MPs that will be transformed into MEs and those that will be transformed into SMEs. The AF will support: (i) promotion of 80 initial MPs with potential to grow into SMEs; (ii) development of 20 new SMEs by private developers in order to reach the target of 100 SMEs by the end of the project; (iii) promotion of 850 existing MPs that have potential to grow into MEs; (iv) 500 new MPs, out of which 300 will be transformed into MEs to bring the total MEs to 1,125 by the end of the project. ME and SME promotion must meet criteria developed in the ME/SME Manual, in order to meet the requirements of bankers. These criteria include, among others, entrepreneurial quality of the developer and his/her financial capacity for self-financing of 25 percent and a partial guarantee of 30 percent. In addition, the project will enter into negotiations with the bankers to introduce flexibility in collateral requirements such as warrantage stocks. Monitoring of the Project must ensure the effective implementation of these agreements. 8. Support systems. The Project will develop support systems tailored to the specific needs of ME/SME training, support and advice, and platforms for innovation. To do this it is proposed that: (a) one builds a partnership with the MEBF as a specialized service in advising small and medium enterprises. Through this partnership MEBF will ensure: (i) preparation of business plan records, (ii) technical and technological support, (iii) support to the accounting and financial management, (iv) commercial support and marketing, and (v) facilitating access to credit, and (b) develop a pool of advisors for micro-enterprise development (3 per regional branch) that are providers benefiting from the coaching of the MEBF and regional branches within the project. They will each help prepare and monitor 500 new MPs and bring multifaceted consulting (management, marketing, technology, etc.) to all 1,500 MPs of the parent project. Every business Adviser will support a portfolio of approximately up to 60 MP. Each regional branch of the Project will be enhanced by two experts in micro-enterprises that will coordinate the pool of 31 business advisors who are providers and oversee the quality of the preparation and monitoring of MPs. One will be primarily responsible for overseeing the preparation and monitoring of 500 new MPs and the other coordinate support to the 1,500 MPs of the initial project. 9. Promoting a funding mechanism adapted to SMEs. The Matching Grant Fund will continue to provide a lever in helping to fund ME and SMEs, and also with the consolidation of former MPs. The financing of the 500 MEs will follow the procedures for financing the MPs of the original project. The consolidation will be mainly through the provision of advisory services, but will also require additional/complementary investments following the procedures of MPs. The financing of SMEs will benefit from a package (FCFA 10-20 million) of the matching grant, the personal contribution of the promoter, and bank credit. 10. Access to financing. Access to bank funding will be realized through a dual partnership: (i) a technical partnership with MEBF described above, and (ii) a memorandum of understanding with selected financial institutions. These financial institutions include inter alia, the two partner banks’ beneficiaries of a line of credit from Danida (Ecobank, CORYSBANK, etc.), Orabank which has always been a partner in micro finance lending under the original project and a guarantee fund from USAID through Ecobank. This partnership will be based on an agreement between the selected banks and ADMDP for funding 100 SMEs and a response to the demands of the 1,125 MEs of the project. 11. The current Guarantee Fund (GF) of the Project will continue to support micro-projects with partner banks. To ensure close financial management of the GF, the project will initiate discussions with the SOFIGIB to refocus its role in the management of the GF. The current role of SOFIGIB concentrating on monitoring and evaluation of enterprise project’s activities duplicate with the other structures meant to evaluate and monitor funding proposals, thus resulting in additional costs for the support of SMEs. 12. Component 2: Development of irrigation and marketing infrastructure (approximately US$26.9 million, including US$18.9 million IDA). The component aims to strengthen the links between producers and markets. In particular, the additional funding will help complete the construction of infrastructure and promote the management and operation of production and marketing infrastructure by the private sector. The AF will thus contribute to addressing issues discussed during the initial stage, namely: (i) the lack or inadequacy of infrastructure and equipment to support the marketing and export of products, and (ii) inadequate infrastructure and technologies adapted to the development needs of irrigated production in the targeted sectors. It comprises two subcomponents: (i) development of irrigation infrastructure, and (ii) development of marketing infrastructure. 13. Subcomponent 2.1: Development of irrigation infrastructure (approximately US$20.7 million including US$14.4 million IDA). This Subcomponent will consolidate the increase in area and production capacity of irrigated crops on a sustainable basis through the creation of private initiatives and developments of small community irrigation sites. As for sites where planning studies have already been conducted, the AF will finance: (a) the development of approximately 1,900 ha, including 300 ha of micro-projects and 1600 ha of community sites (including at least 100 ha of community sites in new regions), (b) the establishment of 32 demonstration plots of localized irrigation for mango orchards, (c) strengthening the technical and organizational capacities of sites developed by beneficiary irrigators, and (d) development irrigators place committees at community sites. In addition, the Project will facilitate access of producers and their organizations to the Promotion Fund of the sectors and the Guarantee Fund to finance the development of irrigated areas including advisory support and training as necessary. 14. Implementation of the Subcomponent will involve the recruitment of specialist providers for studies and coordination of activities, undertaken to carry out the work, and independent consultants or competent technical services for monitoring and supervision of works. 15. Subcomponent 2.2: Development of marketing infrastructure (approximately US$6.2 million, including US$4.4 million IDA). The AF will strengthen the development and diversification of product offerings to meet the requirements of markets. Project interventions will focus on: (a) construction of infrastructure for marketing (4 poles of centralization and marketing infrastructure in Ouahigouya (Goïnré, Tougou, and Titao) for which feasibility studies were completed, 20 vaccination parks, 6 livestock markets), (b) support future recruitment process partner for the management of the refrigerated slaughterhouse in Ouagadougou (AFO), (c) support for the implementation of 3 poultry markets (2 to Ouagadougou and 1 in Bobo Dioulasso) integrating poultry slaughterhouses according to the recommendations of the study on the establishment of kiosks selling poultry, and (d) implementation of environmental and social standards in the market for fruits and vegetables in Bobo Dioulasso, rehabilitation work and equipment and small equipment for the national breeding laboratory. 16. Component 3: Improving the institutional environment, regulatory framework and provision of advisory services including project coordination and management through a dedicated PCU (approximately US$13.0 million, including US$12.7 million IDA). The AF will maintain support for: (i) a legal and regulatory framework conducive to private investment, (ii) capacity building support services to industries to ensure quality control and standards, (iii) the development of policy environment of public and private providers, (iv) better coordination, effective management, and adequate monitoring and evaluation of the Project. It consists of three subcomponents: (i) improving the legal, regulatory and financial environment, (ii) strengthening of support and support services sectors, (iii) coordination and monitoring and evaluation of the Project. 17. Subcomponent 3.1: Improving the regulatory, legal, and financial environment (approximately US$0.6 million IDA). It will support: (i) dissemination of texts developed or under development, and (ii) facilitating access of value chain actors to commercial credit. The use of services from public and private organizations and actors will be the main mode of implementation of the subcomponent. 18. Subcomponent 3.2: Strengthening support services and support networks (approximately US$7.4 million IDA). It will finance: (a) Strengthening the capacity of the support system of private initiatives through: (i) the use of MEBF, (b) the recruitment of a consultant in each regional branch of the Project, (c) 33 establishment of pools of specialist and advisory support to the company around the three branches of the Project, (d) soliciting decentralized technical services, (e) the development and implementation of a plan to strengthen capacities (training or equipment for certain public services) for the various stakeholders who will be subject to performance contracts; (b) Support for schools and vocational training centers (ENESA and Matourkou CAP ) in the implementation of reforms in the context of the revision of curricula through: (i) the upgrading of teachers (seminars, specialization, etc.), (ii) the acquisition of necessary teaching materials to improve teaching conditions (laboratory equipment, practical work, etc.), and (iii) the development of agents active in the Regional Directorates; (c) Technical assistance to the SP/CPSA in the context of the implementation of the resulting reform measures aimed primarily at the rural agricultural sector to increase: (i) the supply and availability of inputs, equipment, and veterinary products, (ii) the provision of business support (SMEs/SMIs) in the rural sector services, (iii) the provision of financial services (agricultural development funds, funds of agricultural insurance and climate). The TA will be provided in the framework of the implementation of the reform measures in the agricultural sector by: (i) establishing a fund for agricultural development; (ii) establishing a program to support the promotion of SMEs in the rural sector; (iii) establishing a comprehensive financial instrument that incorporates the National Climate and Environmental Response Fund; (iv) establishing an Agricultural Insurance Fund; (v) creating a marketing structure and stabilization of local products for export; (vi) developing and adopting a code for specific investments in the agricultural sector; (vii) developing and implementing a national system of extension and advisory support, taking into account the specificities of the different departments and the involvement of different stakeholder groups; (viii) developing a national policy on water projects; (ix) establishing a fund for the development of agricultural entrepreneurship; and (x) strengthening the monitoring and evaluation system of the PNSR, particularly on monitoring of reform measures in the rural sector. (d) Capacity building for monitoring and evaluation of project activities by the technical services and stakeholders through: (i) the development of a participatory monitoring and evaluation of outcomes and impacts for real involvement of stakeholders through the monitoring and evaluation activities by the relevant technical departments of the ministries concerned and professional organizations actors, (ii) the development of tools and actions of institutional communication and pathways, and (iii) the capitalization and dissemination of learning from the project, particularly if it is successful. 19. Subcomponent 3.3: Coordination and monitoring and evaluation (approximately US$4.9 million, including US$4.7 million IDA). This Subcomponent seeks to ensure effective implementation of the Project through: (i) a mechanism for efficient control, (ii) coordination of activities, (iii) effective administrative and financial management, and (iv) monitoring and evaluation of results and impacts. 34 20. With regard to monitoring and evaluation the main focus will be to: (i) strengthen the collection and dissemination of results through the improvement of the database, and (ii) to provide continuous and close monitoring of performance and evaluation of results at the end of the Project. The final evaluation will be conducted independently by specialized service providers. The approach will be interactive and involve the various partners involved in the implementation of the Project. 35 ANNEX 5: FINANCIAL MANAGEMENT AND PROCUREMENT Financial management 1. The Project Coordination Unit (PCU) under the oversight of the Ministry of Agriculture and Food Security will handle the additional activities. The financial management arrangements for the additional financing will be based on the existing arrangements in place under the ongoing IDA project. The FM arrangements are in place and FM staffing has remained adequate in the PCU and nine regions covered by the ongoing project. The interim un-audited financial reports for the on-going project are also submitted on time. 2. In order to maintain the continuous security and reliability of information produced by the PCU and to safeguard the assets and funds, an internal auditor needs to be appointed as soon as feasible to carry out quarterly internal control reviews, and the FM officer will follow up the implementation of the key recommendations to strengthen the control environment. As a result of the financial management capacity constraints, the dated covenants for this Additional Financing are: (i) the update of the Project FM Manual including detailed procedures for the management of micro-projects, (ii) the appointment of an internal auditor with adequate and relevant experience and familiar with Bank FM procedures, and (iii) the recruitment of two accountants to ensure proper bookkeeping of activities planned in the additional four regions. These mitigation measures should be taken within three months after effectiveness. 3. A Designated Account (DA) will be opened at the Central Bank in Ouagadougou and will receive project proceeds on the basis of the project cash needs. The DA will be used as a transit account, and as such funds will be transferred from the DA to transactions account. This account will be opened at a commercial bank. The coordinator and the finance officer will be joint signatories of these accounts. Direct payments and special commitments will be made to service providers if needed. Withdrawal applications shall be submitted to the Bank on a monthly basis. Additional details will be contained in the Disbursement Letter. 4. In-year Reporting and Monitoring: The un-audited Interim Financial Report (IFR) format of the original project will be updated to include the new elements introduced under additional financing. It will comprise sources and uses of funds by project expenditure classifications, a comparison of budgeted and actual project expenditures (commitments and disbursements) to date, and for the quarter. The PCU will submit the financial reports to the Bank within 45 days following the end of each calendar quarter. 5. Annual Financial Statements: As required under the original project, the PCU will prepare the project’s annual financial statements, including the activities related to additional financing in compliance with IFAC Standards and World Bank requirements. These financial statements will include: (a) a statement of sources and uses of funds; (b) a statement of commitments; (c) accounting policies adopted and explanatory Notes; and (d) a Management Assertion that project funds have been expended for the intended purposes as specified in the relevant financing agreements. 36 6. External audit: The Financing Agreement will require the submission of Audited Financial Statements for the project (original and AF) to IDA within six months after end of Government’s fiscal year. The scope of the work of the external auditor of the project will be extended to cover the additional activities under the additional financing. An opinion on the Audited Project Financial Statements in compliance with International Federation of Accountant (IFAC) and a specific opinion on the management of the micro-projects is required. 7. Financial Covenants: The Borrower shall establish and maintain, at all times, a financial management system including records and accounts, and shall prepare related financial statements in accordance with accounting standards acceptable to the Bank. Procurement 8. Procurement for the project will be carried out in accordance with the World Bank’s “Guidelines: Procurement under IBRD Loans and IDA Credits “dated January 2011 (Procurement Guidelines); and “Guidelines: Selection and Employment of Consultants by World Bank Borrowers” dated January 2011 (Consultant Guidelines) and the provision stipulated in the Financial Agreement. The various procurement actions under different expenditure categories are described in general below. For each contract to be financed under the Financing Agreement, the various procurement or consultant selection method, the need for pre- qualification, estimated costs, prior review requirements, and time frame have been agreed between the borrower and the Bank in the Procurement Plan. The Procurement Plan will be updated at least annually or as required to reflect the actual project implementation needs and improvements in institutional capacity. The implementing entities, as well as contractors, suppliers and consultants will observe the highest standard of ethics during procurement and execution of contracts financed under this project. “Guidelines on Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA and Grants” dated October 15, 2006, updated in January 2011 (the Anti-Corruption Guidelines) shall apply to the project. 9. Procurement of goods, works and non-consulting services: Procurement will be done under International Competitive Bidding (ICB) or NCB using the Bank’s Standard Bidding Documents for all ICB and National Standard Bidding, or alternative documents agreed with or satisfactory to the Bank. Community participation in accordance with the provisions of paragraph 3.19 of the Procurement Guidelines will apply for activities outlined in the financial agreement and elaborated in the project implementation document. Small value procurements for goods may be procured under shopping procedures. Direct contracting may be used where necessary if agreed in the procurement plan in accordance with the provisions of paragraph 3.7 to 3.8 of the Procurement Guidelines. 10. National Competitive Bidding (NCB) Procedures: For all contracts which are not advertised internationally, identified as NCB procurement method in the project procurement plan approved by the Bank, national procedures will apply consistent with the legal framework for procurement in Burkina Faso. The national competitive bidding procedures currently in force in Burkina Faso were evaluated previously by the Bank and generally found to be acceptable, with certain exceptions. Firstly the national procurement thresholds are very low compared to the Bank thresholds and all contracts estimated to cost $10,000 and more are submitted to prior 37 review of the Ministry of Finance. This is causing time delays in the procurement process. The Ministry is implementing measures to eliminate redundant prior review controls and reduce time delays. Second, the national standard bidding documents were finalized and published in July 2009. The Bank is working with the government to identify the inconsistencies with the Bank’s standard bid documents in order to recommend some exceptions to the NCB method, to facilitate Bank investment operations. Until the national bidding documents are finalized and acceptable to the Bank, the Bank’s standard ICB documents should be adapted for all NCB procurements identified in the procurement plan. The adapted version will need to be cleared by the Bank. 11. Selection and Employment of Consultants. The selection method will be the Quality and Cost Based Selection (QCBS) method whenever possible. Contracts for specialized assignments estimated to cost less than US$200,000 equivalent may be contracted through Consultant Qualification (CQ). 12. The following additional methods may be used where appropriate: Quality Based Selection (QBS); Selection under a Fixed Budget (FB); and Least-Cost Selection (LCS). Short lists of consultants for services estimated to cost less than the equivalent of: (i) US$500,000 per contract for supervision; and (ii) US$200,000 for all other consultancy assignments may be composed entirely of national consultants in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines. However, if foreign firms express interest, they will not be excluded from consideration. Single Source Selection (SSS) may be employed with prior approval of the Bank and will be in accordance with paragraphs 3.8 to 3.11 of the Consultant Guidelines. All services of Individual Consultants (IC) will be procured under contracts in accordance with the provisions of paragraphs 5.1 to 5.6 of the Guidelines. 13. Operating Costs: Operating costs shall consist of operations and maintenance costs for vehicles, office supplies, communication charges, equipment, utility charges, travel expenses, per diem and travels costs, office rental, training costs, workshops and seminar and associated costs, among others. Operating costs will not include salaries of civil servants. 14. Training and Workshops: Training and workshops will be based on capacity needs assessments. Detailed training plans and workshops activities will be developed during project implementation and included in the annual work plan and budget for the Bank’s review and approval. 15. Assessment of Procurement Capacity and Risks: Procurement performance is rated satisfactory. Procurement arrangements will remain largely the same under the proposed Additional Financing. The procurement unit is well staffed to handle the existing portfolio and the proposed additional resources. 16. Procurement plan: The Recipient developed a draft procurement plan for the first 18 months of the project implementation with the basis for the procurement methods for each contract. Immediately upon approval of the Credit, with the Recipient’s agreement and following revisions if needed, the plan will be published on the Bank’s public website and the Recipient’s intranet website. Once approved, the procurement plan shall be updated in 38 agreement with the Bank on an annual basis or as required, to reflect the actual project implementation needs and improvements in institutional capacity. 17. Fraud, Coercion, and Corruption: All procuring entities, as well as bidders, suppliers, and contractors shall observe the highest standard of ethics during the procurement and execution of contracts financed under the project in accordance with paragraphs 1.16 & 1.17 of the Procurement Guidelines and paragraphs 1.23 & 1.24 of the Consultants Guidelines. 18. Frequency of Procurement Implementation Support: In addition to the prior review as indicated in the procurement plan, the preliminary capacity assessment of the implementing agency recommended supervision missions to visit the field twice a year and to carry out post review of procurement actions once annually. 39 ANNEX 6: ECONOMIC AND FINANCIAL ANALYSIS BURKINA FASO - Agriculture Diversification and Market Development Project - Additional Financing 1. An analysis of the different investments anticipated under the AF phase was performed to assess their financial and economic impacts for the beneficiaries individually and for the country as a whole. The results were compared to those of the initial project. The methodology used and the results obtained are detailed below. 2. During the AF phase, ADMDP continues to be designed as a ‘framework’ program for selected value chains (mainly mangoes, onions, poultries, and live animals) with the main objective to support their corresponding production both for export and the domestic/regional market. Hence the Project’s focus will be both on: (i) V/C-level structural investments and capacity building, and (ii) investments in individual enterprise-level production and processing activities (the ‘micro-projects’) of strategic relevance for the V/Cs. These activities are supported by the Matching Grant Program (MGP). The benefits of the V/C-level structural investments under (i), associated with capacity building, are clearly positive, but difficult to assess. No attempt has been made to quantify these benefits under the present analysis. In terms of the enterprise-level investments, the Project, through the MGP, provides matching grants to investors with a view to supporting investments in new technologies, developing new markets, and facilitating access to commercial bank credit. The process is demand-driven. Therefore, it is difficult to know precisely ex-ante who will benefit from project support. For the sake of estimating project costs, however, an attempt has been made to estimate the number of project beneficiaries together with a typology of enterprises. The costs and revenues of these enterprises were based on the databases that the Project developed during the initial phase. This has made it possible to compute the NPV and IRRs of individual enterprises and, on that basis, the NPV and IRR for the project as a whole, using reliable field data reflecting project circumstances. 3. Analysis of enterprise-level investments. The results of the financial analysis of enterprise-level investments are encouraging. Although each recommended technology demands new skills and increased spending on inputs, the analysis shows that these investments can lead to large gains in individual enterprise gross margins. The IRRs for individual enterprises range from 32 percent for local poultries to 70 percent for stored onions in a 12-ton infrastructure. The main micro-project enterprises are extremely profitable, as evidenced by their respective IRRs: (i) onions: 61 percent, (ii) dried mangoes: 60 percent; (iii) fattening of live animals in a cowshed of 20 heads: 55 percent, (iv)mangoes: 39 percent. The analysis also reveals that the matching grants planned under the Innovation and Investment Fund (IIF) will help in significant ways to improve the enterprise cash-flow and lead directly to increased incomes during the critical financial period when producers/processors are just getting started with the new activities. Measures to screen individual investment proposals are critical to ensure that the enterprise-level investments approved under the Project continue to be economically justified. Hence the need to strictly adhere to the procedures laid out in the Operating Manual of the IIF regarding that matter. This manual has been revised to better suit the needs of the new portfolio of micro- projects. Compared with the period before the project, productivity increased with the project as 40 follow: the local poultries 200 percent; onions 159 percent; mangoes 88 percent; and the fattening of live animals 30 percent. 4. Overall project profitability measures. The Net Present Value (NPV) in economic terms for enterprise-level investments (micro-projects) is approximately US$26.7 million (computed at a 10 percent discount rate reflecting the opportunity cost of borrowing for the country). The Economic Rate of Return (ERR) for the entire project is estimated at about 17.3 percent. This result is in line with the ERR of the initial phase, estimated at about 16 percent. The slightly higher ERR is explained by the fact that entrepreneurs are expected to build on the knowledge and lessons of experience acquired during the first phase of project implementation. The sensitivity analysis based on increases of 10, 20, and 30 percent of project costs (other than enterprise-level investments) which yields rates of return of 16.1, 15.0, and 14.0 percent, respectively, denoting robustness to increases in project investments costs. The sensitivity analysis based on decreases of 10, 20, and 30 percent in the gross margins of participant investors gives rates of return of 15.9, 14.5, and 12.8 percent, respectively. This is further evidence of the robustness of the project ERR to possible decreases in the revenues received by investors, such as those arising from a combined production volume and market price decrease. The sensitivity analysis based on a delay of 2 years in the generation of benefit gives a rate of return of 13.5 percent. Methodology 5. The ADMDP Additional Financing (AF) will focus on completing and consolidating the work initiated during the Project’s initial phase, in terms of institutional support and capacity building of targeted V/Cs. The AF will provide financial and socio-economic benefits to beneficiaries in the targeted VCs in the regions and to the national economy. Due to the difficulty to measure and quantify the direct benefits of the Subcomponent 1.1 (Strengthening of professional and inter-professional organizations and support the competitiveness of value chains), Component 2 (Development of irrigation and marketing infrastructure), and Component 3 (Improvement of business environment, regulatory framework and provision of advisory services) focusing respectively on capacity building and enabling financial access, no cost- benefit analyses have been conducted for these components. Only real/direct measurable benefits were taken into account under Subcomponent 1.2 (Support to traders, producers, and small processors and access to finance) under the Matching Grant Program and of the commercial bank credit for the purpose of the Project’s analysis. 6. Since enterprise-level investments under Subcomponent 1.2 are to be demand-driven and based on a participatory approach, the type and size of investment micro-projects are not known with any degree of precision beforehand. The analysis therefore relies on assumptions concerning the categories and types of micro-projects financed. In that sense, it is illustrative. The analysis will be reviewed as project implementation unfolds and as requests for micro- projects are collected. Although illustrative, the analysis conforms as closely as possible to real conditions as it considers enterprise models based on the RTEs. Indeed, it builds on the project- developed technical and economic database, developed by ADMDP during the first phase on the different crop enterprises supported by the Project based on real regional and country circumstances. These data are based on actual results in both experimental conditions and 41 farmers’ fields, and are therefore reliable. This will ensure that micro-projects selected and funded are financially and economically viable. 7. The Cost-Benefit Analysis carried out for Subcomponent 1.2 is based on eight models of commodity value chains development as shown in Table 1. These models are based on actual results based both on experimental conditions and farmers’ fields: Model 1: 1 ha of onions; Model 2: 2.5 tons stored onions; Model 3: 12 tons stored onions; Model 4: 5 ha of mangoes; Model 5: dried mangoes; Model 6: 5 cattle fattened; Model 7: 20 cattle fattened; and Model 8: 33 poultries. 8. The financial analysis is based on current market prices. Economic prices have been estimated from wholesale or FOB prices after deduction of intermediary costs. In Burkina Faso taxes on inputs and subsidies are generally nearly non-existent. But there is a tax on fuel used by vehicles to transport things; therefore the economic cost has been estimated at 85 percent of the financial cost. The financial analysis took into account that matching grants are necessary for the dissemination and adoption of new technology in the context of Burkina Faso with difficulties to access credit in general and long-term investment credit in particular. The matching grant targets small farmers and will cover about 70 percent of the infrastructure costs. Table 3.1: Micro-project (MP) categories and gross margins (GM) Micro- GM Area Planted projects (FCFA/ Total GM (FCFA) (ha) (number) MP) Type of micro- Year Year2 Year 1 Year 2 projects 1 Production 525 400 125 1 Onions 450 350 100 3 034 645 1 062 125 768 303 464 505 2 Mangoes 75 50 25 13 928 696 437 500 348 218 750 750 Animal Production 400 300 100 3 Cattle fattening (5 150 120 30 475 000 57 000 000 14 250 000 oxen) 4 Cattle fattening (20 150 100 50 3 600 000 360 000 000 180 000 000 oxen) 5 Poultries (33) 100 80 20 743 911 59 512 880 148 78 220 Processed and 200 125 75 conserved products 6 Onions storage (2.5 55 35 20 2 073 013 72 555 455 41 460 260 tons) 7 Onions storage (12 100 60 40 3 319 988 199 199 297 132 799 531 tons) 8 Mango dryer 45 30 15 50 928 1 527 862 500 763 931 250 ATESTA 750 Total 1125 4 034 693 400 1 799 002 516 42 Financial results at individual enterprise level 9. Based on the above assumptions, the financial returns on investments [without matching grants] are in the range from 32 percent for local poultries to 70 percent for stored onions in a 12-ton infrastructure (see Table 3.2 below). The main micro-project enterprises are highly profitable, as indicated by their respective IRRs: (i) onions: 61 percent, (ii) dried mangoes: 60 percent; (iii) fattening of live animals in a cowshed of 20 heads: 55 percent, (iv) mangoes: 39 percent. The analysis also reveals that the matching grants planned under ADMDP will help in significant ways to improve the enterprise cash-flow and lead directly to increased incomes during the critical financial period when producers/processors are just getting started with the new activities/technologies. Measures to screen individual investment proposals are critical to ensure that the enterprise-level investments approved under ADMDP continue to be economically justified. Hence, the need remains to strictly adhere to the procedures laid out in the IIF Operating Manual. That manual has been revised to better suit the needs of the expected new portfolio of sub-projects. Table 3.2: Returns on enterprise-level investments Type of micro-projects Improved capacity for technologies and agricultural practices Model 1: 1 ha of onions IRR 61% NPV at 10% (FCFA) 16 237 710,1 Return on investment (ROI) 93,3% Model 2: 2.5 tons stored onions IRR 60,1% NPV at 10% (FCFA) 10 806 139,1 Return on investment (ROI) 73,6% Model 3: 12 tons stored onions IRR 70,1 NPV at 10% (FCFA) 18 065 213,1 Return on investment (ROI) 86,2 Model 4: 5 ha of mangoes IRR 39% NPV at 10% (FCFA) 63 146 120,2 Return on investment (ROI) 50% Model 5: dried mangoes IRR 60% NPV at 10% (FCFA) 270218029,9 Return on investment (ROI) 77% Model 6: 5 cattle fattened 43 IRR 51% NPV at 10% (FCFA) 2 729 273,3 Return on investment (ROI) 37% Model 7: 20 cattle fattened IRR 55% NPV at 10% (FCFA) 21223209,6 Return on investment (ROI) 54% Model 8: 33 poultries IRR 32% NPV at 10% (FCFA) 3 387 841,8 Return on investment (ROI) 97% Overall project economic analysis 10. Project activities will lead to increased benefits and reduced costs as follows. The Project focuses on agricultural products which have a competitive advantage on the international and regional markets and can easily be sold in the national market as well. In terms of benefits, Subcomponent 1.2 will contribute to improve adoption of production and procession technology through the MGP. Subcomponent 1.1 is expected to strengthen the capacity of Inter-Professional Organizations in the targeted Value Chains (V/Cs). 11. Component 2 (Irrigation and market infrastructure): The Market-oriented infrastructure will provide resources to carry out an investment program aimed at improving basic commercial and communication infrastructure in order to improve linkages to markets and reduce transaction costs. It will facilitate the creation of export facilities, collection centers, storage and processing facilities to support the development of agricultural value chains and improve their competitiveness. 12. Component 3 is expected to create an enabling environment for commercial production and improving the investment climate, thereby increasing investments by attracting private investors (either national or international) in the rural sector. The Component is also expected to reinforce private capacities to respond to market opportunities and improve the competitiveness of Burkinabe agricultural products by building the capacity of service providers and public as well as private actors. In addition, it is expected to facilitate access to capital and financial services for the various private actors and operators involved in the V/Cs and strengthening the current agriculture credit market in Burkina Faso. This subcomponent entails particularly inducing and helping financial intermediaries (banks, micro-finance institutions, financial guarantee company) build their capacities, increase their outreach and ability to respond to the needs of the various actors along the value chain (producers, traders, processors, transporters, etc.) by offering a wider range of financial services. 13. Table 3 presents the Internal Rate of Return (IRR) and Net Present Value (NPV) of AF activities. The economic analysis shows an overall economic rate of return of about 17.3 percent. This rate is explained by the yield increases due to the improvement of techniques and 44 technologies schemes and the availability of market facilities provided under the Project. The NPV is based on a discount rate of 10 percent, taken as the long-term opportunity cost of capital in Burkina Faso. The above results are conservative since they are based on Subcomponent 1.2 (Matching Grant Program to fund enterprise-level sub-projects) and do not take into account the benefits expected from other components. Table 3.3: Project economic and financial NPV (in US$ million) Economic ERR NPV Base case 17.3% Switching value (at 10%) 26.7 14. The sensitivity analysis is based on estimated switching values (a change in the value of key factors that lowers the ERR to 10 percent). Table 3.4 indicates the rates of return for different hypotheses. For the models as a whole, economic benefits are less sensitive to an increase in the cost of investments that will occur at the beginning of the 20-year lifespan. Table 3.4: Sensitivity analysis Economic analysis 10% of cost increase 16,1% 20% of cost increase 15.0% 30% of cost increase 14.0% 10% of benefit decrease 15.9% 20% of benefit decrease 14.5% 30% of benefit decrease 12.8% Benefit accruing two years late 13.5% Assumptions:  Costs = Subcomponent 1.2 + Component 3.2  Revenues: additional gross margin from micro-project investments  20-year planning horizon 45 ANNEX 7: PRELIMINARY PROJECT IMPLEMENTATION PERFORMANCE OF PARENT PROJECT BURKINA FASO - Agriculture Diversification and Market Development Project Additional Financing 1. Overall the project is successfully achieving its development objectives. The project is currently rated satisfactory in terms of progress towards achieving its PDO and also satisfactory in the overall Implementation Progress (IP). Over 99 percent of the credit US$66 million is committed by end of FY14. Disbursement levels as of 01/31/2014 are at US$67.15 million or about 101.74 percent (IDA credit), and they are expected to have reached the full credit amount as implementation of all irrigation construction works and marketing infrastructure is completed by end of June 2014. There are no outstanding financial audits and all audit reports are unqualified. Implementation of the safeguards requirements is also satisfactory. Table 4: Summary of the Project Performance over the Course of 2013 as rated in ISRs Area Classification Area Classification 04/20/13 11/2013 04/2013 11/2013 Progress toward S S Component 3 – S S achieving the PDO Improving the business environment, regulatory framework and provision of advisory services Implementation MS MS Project management S S progress Component 1: S S Financial management MU MS Improvement of the ASP supply chains Subcomponent A1 – S S FM risk rating Moderate Moderate Capacity building for professional and agricultural trade organizations Subcomponent A2 – S S Procurement MS MS Investments for supply chain development Component 2 – MS MS Social safeguard S S Irrigation and compliance marketing infrastructure Subcomponent B1 – MS MS Involuntary resettlement S S Irrigation infrastructure Subcomponent B2 - MS MS Environmental S S Marketing safeguard compliance M&E MS MS 46 2. The key impacts have been to raise rural incomes, and agricultural exports. Some 350,000 direct beneficiaries have benefited from project activities (EOP Target: 200,000). About 65 percent of beneficiary producers have increased their income by at least 50 percent (EOP target: 60 percent of producers increasing their income by 50 percent). Agricultural exports for the targeted supply chains on international markets in 2012 have reached 71,500 tons (EOP target: 35,000 tons). Agricultural exports for the targeted supply chains on sub-regional markets in 2012 have reached 67,600 tons (EOP target: 20,000 tons). 3. Component 1, improvement of ASP supply chains performance, is rated satisfactory. Subcomponent 1.1 contributed to improving coordination and performance of the mangoes, onions, cattle, and poultry sub-sectors by bringing together key stakeholders to identify and remove key constraints to supply chains development. The main programmatic vehicle for the development of sub-sectors has been the supply chain strategic development plan (SDP). For each of the four sub-sectors, a comprehensive diagnostic of the respective supply chain has been carried out, SDPs have been elaborated, and annual operational plans (AOP) have been prepared for the period 2010-2013. The Project contributed to building 13 professional organizations (POs; two in mangoes, three in onions, four in cattle, and four in poultry). Performance of these POs since their establishment has varied in terms of operational efficiency and governance structure with the POs in onions, cattle/beef, and mangoes performing well, but less so in poultry. 4. Subcomponent 1.2 provided funds for investments required to improve supply chain performance. First, it financed the implementation of the different annual operation plans (AOPs) elaborated in the framework of Subcomponent 1.1. It also financed investment operations undertaken by individual operators or professional associations in the selected supply chains and consistent with the supply chain SDP and the AOPs. To this end, the project supported the establishment of a supply chain promotion fund that provided matching grants to finance micro-projects (MPs) proposed by smallholders and small-scale processors for specific categories of investments, such as: adaptive research for technology generation and testing, capacity building activities, market studies, logistic tests, small-scale equipment and infrastructure, technology testing and dissemination, technical advisory services, food safety, and quality expertise. As of February 15, 2014, 3,067 MPs have been approved and financed, of which 2835 have been successfully implemented, having benefited from grants totaling XOF 6.9 billion (US$13 million). There are 86 MPs currently under implementation with grants totaling XOF 700 million that are expected to be completed by June 2014. The remaining 146 MPs were cancelled as they faced difficulties at various stages of implementation and are considered as “failed” experiments due to inappropriate micro-project design, poor leadership, or lack of implementation capacity by the operators. The majority of these unsuccessful MPs were selected in the early stages of ADMDP implementation (2007-2009) when the project was going through a learning phase. Improvements made in the selection, preparation, and implementation of MPs after the MTR contributed to a better performance since that time. 5. An evaluation of micro-project implementation has shown that the matching grant instruments coupled with improved organizational and managerial capacity at the project level has succeeded in addressing, albeit at different degrees of intensity, three factors characterizing improved competitiveness in the targeted supply chains: (i) a capacity to produce more; (ii) an 47 ability to provide products of better quality and value; and (iii) an inherent capacity to remain in the market after several cycles of production, processing, and/or export. The most successful experience in the project is that of the onions sub-sector that has seen operators of 615 MPs financed by the project: (i) increase their yields on average from 6.5 t/ha to 17 t/ha and peaking at 22 t/ha in the North Region; (ii) improve their market access owing to an improved storage and post-harvest handling capacity (losses are now at less than 15 percent owing to technology and infrastructure promoted by ADMDP; and (iii) continue their expansion in the sub-regional export markets (onion exports have reached 17,000 tons in 2012 compared to 2500 tons in 2006). 6. With 140 MPs financed in mangoes, good agricultural practices have been applied in orchards covering 3,000 ha, and 350 ha have been planted with new trees. A capacity to produce up to 61,500 plants/year has been established with modern nurseries. A PPP agreement has been entered into with DAFANI to promote irrigated mango through an orchard school and the creation of modern orchards. Support services to the sub-sector has allowed more than 200 trainers to be trained on pruning techniques and maintenance of orchards and more than 400 operators, including 20 sanitary officers trained in techniques to fight against fruit flies and anthracnose. The project contributed also to the development of processing and quality control: (i) through the financing of micro-processing, the Project has contributed to an increase in the production capacity of processed mango with 38,225 liters per year of juice and nectar and 550 tons of dried mango with new drying technology promoted by ADMDP; (ii) diversification of the dried fruit market with new opportunities in Morocco and the European market. Despite these improvements in productivity, market access and sector coordination between actors, the sub-sector remains vulnerable to the threat of weather and market shocks, diseases, and increased competition from Latin American countries (e.g. Peru and Brazil). Gains will need to be consolidated with better access to technology, irrigation, and financing for the renewal of old orchards. 7. Better access to finance, services, and technology combined with improved sector coordination has allowed more than 1,300 MPs beneficiary recipients to improve productivity, quality, and market penetration. The Project has been successful in providing an additional production capacity of more than 28,000 heads of cattle per production cycle or more than 56,000 head of cattle per year. The net margin generated per animal marketed varied between 35,000 and 50,000 FCFA. Productivity and production increases have been coupled with the development of beef processing activities, including the co-financing by ADMDP of three beef processing units with a combined production capacity of about 2,000 carcasses of quality beef per year, equivalent to more than 200 tons of meat annually. 8. In the poultry sub-sector ADMDP has financed approximately 635 MPs, yielding about 635,000 additional heads per cycle of production. The project has also financed the preparation of technical and economic guides for modern poultry production and made available more than 10,000 doses of vaccines against the Newcastle disease, allowing during the 2011/2012 campaign the vaccination of 9 million heads or 22 percent of the total population in Burkina. The Project targeted also the development of transformation activities with the financing of 10 MPs with a combined capacity of 120,000 heads or 100 tons of poultry meat annually. Despite these gains, the poultry sub-sector has not performed up to the levels expected. More significant productivity gains could potentially be reached. Project beneficiaries of project assistance have 48 not received the same kind of support in terms of access to services and technology than the operators in the onion or cattle/beef sub-sectors. ADMDP will be considering operational changes in the delivery of services related to health and nutrition, micro-project design, and selection of MP recipients to close the important performance gaps remaining in the poultry sector. 9. Component 2, development of marketing and irrigation infrastructure, experienced some delays initially, but as of February 28, 2014, the component’s implementation performance can be considered satisfactory. 10. The Project supported the development of two types of irrigation: (i) the development of small-scale private irrigation for producer associations and individual investors; and (ii) the development, on a pilot basis, of large-scale irrigation schemes for the production of high-value crops by private investors. Under small-scale irrigation, the Project has been successful in developing 1,912 ha as of February 28, 2014. An additional 695 ha are under development and are expected to be completed by June 2014. Under large-scale irrigation, the Project has prepared studies for 1,500 ha in Lanfiera (Sourou) and for 1,000 ha in Kounia. An initial 1,000 ha in Bagré has been targeted by the Project. Because of delays in the preparation of studies and issues with securing funding for the Resettlement Action Plan and for other reasons, the development of those areas has been transferred to the Bagré Growth Pole Project for implementation. 11. When preparing the Project, the financing, with public funds, of key commercial infrastructure (logistical platforms, exports terminals, pack-houses, cold storage facilities, etc.) was justified as a way to lift a major constraint to the development of performing agricultural supply chains. Burkina Faso was recognized as being under-equipped to compete effectively on the fresh product export markets that require adapted and efficient logistics and post-harvest treatments, particularly cold chains, and strict compliance with stringent consumer requirements in terms of standards, quality, and safety. 12. Regarding investments into market development, six infrastructure investments were in progress during the mission from 28 November to 4 December 2013. Although these facilities are not yet completed (except for one), progress has occurred since the mission. The structure at Koudougou was completed. The physical structures of two other investments have been completed but there remains the installation of equipment in cold rooms; the vegetable platform at Ouahigouya has an implementation rate of 85 percent, and the packaging unit Ranch Koba has a 75 percent implementation rate. One cattle market infrastructure at Pa is completed at about 70 percent, while another at Banfora and its two collection points currently has an implementation rate of about 15 percent. In summary, the overall implementation of the remaining infrastructures is estimated at 62 percent. It is currently expected that these will be completed by June 2014. 13. Component 3, improvement of the business environment, regulatory framework and provision of advisory services, performed satisfactorily. The Project supported the revision and adaptation of key legal and regulatory texts in accordance with existing regulations related to production, agro-processing, and exports. New legal and regulatory texts have been elaborated 49 on specific emerging issues, such as the legal framework for inter-professional and commodity trade organizations’ activities, land tenure, phytosanitary and quality controls, and reduction of taxes on packing materials for mango exports. Activities in Subcomponent 3.2 included the preparation of annual training plans for service providers, a review of curricula for professional agricultural schools, the promotion of rural entrepreneurship, and support for agro-food innovations. 14. Safeguard performance. Over the last seven years of implementation (2007-2013), overall safeguard compliance was satisfactory, based on review of progress reports and project site visits for: (i) the micro-projects financed by the matching grant scheme, and (ii) irrigation and marketing infrastructure. During the parent project’s implementation, screening of sub- projects has taken place to ensure proper identification and mitigation of any adverse impacts. The regional implementation committees approve the screening results, as per the guidelines in the operational manual of the project. In October 2011, in order to ensure that all the sub- projects financed under the parent project were in compliance with Bank safeguards policies and in line with the national regulatory framework, an Environmental and Social Audit was also carried out by the National Agency in charge of environmental impact assessment and safeguards monitoring (Bureau National des Evaluations Environnementales et de Gestion de Déchets Spéciaux -- BUNED). These practices will continue during the AF. The results of the screening process led to EA category C for most of the sub-projects. Only one sub-project was classified as category B, and an ESIA (including an ESMP) was subsequently prepared to address environmental and social issues related to the implementation of this sub-project. The irrigation infrastructure put in place has not resulted in RAPs because the locations have been either donated by communities or the sites have been administratively held by the government and designated for public works. The last Implementation Support Mission confirmed that environmental management of the project works implemented to date is in compliance with the Bank safeguards policies. 50 4°W 2°W 0° 2°E This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Group, any judgment on the MALI legal status of any territory, or any endorsement or acceptance of such BURKINA FASO Gorom- boundaries. Gorom Djibo SAHEL NIGER Dori 14°N To To Mopti a Niamey g ig N er n Titao te Ouahigouya CENTRE- a Sebba To Y NORD Kongoussi NORD To Dosso San Gourcy Tougan Kaya Sirba To Yako Ségou Bogandé Toma Nouna Boussé Gayéri bi ou Ziniaré Boulsa or G Dédougou OUAGADOUGOU PLATEAU- Koudougou CENTRAL BOUCLE DU r m a Réo CENTRE Solenzo Koupéla Fada- G o u Vol Zorgo MOUHOUN N'Gourma ta Kombissiri Diapaga Bla 12°N 12°N CENTRE- n Vo ch lta E S T e Tenkodogo ir e Boromo OUEST Ro No ug e Manga CENTRE- ta Vol Sapouy Houndé Ouargaye CENTRE- EST HAUTS-BASSINS SUD Pama To Bougouni Orodara Bobo- Dioulasso Dano Léo Pô BENIN Diébougou To 2°E To Téna Kourou Djougou Parakou (747 m) Sindou SUD- Banfora OUEST CASCADES To Tamale To Sokidé BURK INA FASO Gaoua Komoé SELECTED VILLAGES AND TOWNS Volta Noire 10°N REGION CAPITALS Batié GHANA NATIONAL CAPITAL To Bole TOGO RIVERS 0 20 40 60 80 100 Kilometers MAIN ROADS CÔTE D'IVOIRE RAILROADS FEBRUARY 2014 IBRD 33379 0 20 40 60 80 Miles To To REGION BOUNDARIES Bouaké Koutouba 4°W 2°W 0° INTERNATIONAL BOUNDARIES