Documentof The WorldBank FOROFFICIALUSEONLY ReportNo: 28188-MA1 PROJECTAPPRAISALDOCUMENT ONA PROPOSEDGRANT INTHE AMOUNT OF SDR 18.1 MILLION(US$27 MILLION EQUIVALENT) TO THE GOVERNMENTOF THE REPUBLICOF MALAWI FORTHE COMMUNITY-BASEDRURAL LAND DEVELOPMENTPROJECT MARCH 15,2004 Environmentand Social DevelopmentUnit AFTSl - Country Department3, Malawi Africa RegionalOffice IThis documenthas a restricted distributionandmay be usedbyrecipients only inthe performanceoftheir official duties. Its contentsmav not otherwisebe disclosedwithoutWorld Bank authorization. I CURRENCY EQUIVALENTS (Exchange Rate Effective December 31,2003) Currency Unit = Malawian Kwacha IMK = US$106.0500000 US$1 = MK106.0500000 FISCAL,YEAR July 1 -- June 30 ABBREVIATIONS AND ACRONYMS m I AfricanDevelopmentBank I CAS Country Assistance Strategy CBOs Communitv BasedOrganizations m D P I Community-Based Rural Land Development Proiect I CDD Community DrivenDevelopment CDP Communitv DeveloDmentProjects CPAR Country ProcurementAssessment Report CCA Credit CeilingAuthority DC's District Commissioners DEC District Executive Committee DFID DeDartmentfor InternationalDeveloDment DPD Directors of Planning andDevelopment ED0 Environmental District Officers ESA Environmental and SocialAnalysis ESSR Environmental and Social ScreeningReview Process EMS Environmental Monitoring System EMA Environment Management Act EU I EuropeanUnion F A 0 1 Food and Agricultural Organization FARAH Financial Reporting andAuditing Handbook FDP FarmDevelopment Plan FMR Financial Monitoring;Report FDP FarmDevelopment Plan - GPN General ProcurementNotice GTZ Deutsche Gessellschaftfur Technische Zusammenarbeit Ha Hectares IDA International Development Association IFMIS IIntegratedFinancial ManagementInformationSystem I FOROFFICIAL, USEONLY INTOSAI International Organization of SupremeAudit Institutions IPM Integrated Pest Management LAFD LandAcquisition and Farm Development MASAF Malawi Social Action Fund MASIP Malawi Agricultural Sector Invest M & E Monitoring and Evaluation MES Monitoring and Evaluation Svstem ~~ MLPPS Ministry of Lands, PhysicalPlanning and Surveys 7 MOF Ministry of Finance NACCEA National Advisory Committee for Community Empowerment and Accountabilitv I NAO I National Audit Office ---1 NEP National Environment Policy NASFAM National Smallholder Farmers Association of Malawi NTAC National Technical Advisory Committee OED Operations Evaluation Department PBS PaPer Based Svstem PSR Project Status Report PRSP Poverty Reduction Strategy Paper PMC Project Management Committee PIM Project Implementation Manual PMP Pest Management Plan PMU Project ManagementUnit SA Special Account SAC Structural Adjustment Credit SOE Statement of Expenditures SPA Strategic Partnership for Africa SPN Specific ProcurementNotice UNDP UnitedNations Development Program USAID UnitedStates Agencv for International DeveloDment IWB IWorldBank I Vice President: Callisto Madavo Country ManageriDirector: Hartwig Schafer Sector ManagerDirector: Richard Scobey Task Team Leader/Task Manager: Rogier van den Brink This document hasa restricted distributionand may be used by recipients only in the performance of their official duties. I t s contents may not be otherwise disclosed lwithout World Bank authorization. I MALAWI COMMUNITY-BASED RURAL LAND DEVELOPMENT PROJECT CONTENTS A. Project Development Objective Page 1. Project development objective 2 2. Key performance indicators 2 B. StrategicContext 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project 3 2. Main sectorissues and Government strategy 4 3. Sector issues tobe addressedby the project and strategic choices 7 C. ProjectDescriptionSummary 1. Projectcomponents 9 2. Key policy and institutional reforms supportedby the project 11 3. Benefitsand targetpopulation 11 4. Institutional and implementation arrangements 12 D. ProjectRationale 1. Project alternatives considered and reasons for rejection 16 2. Major related projects financedby the Bank and/or other development agencies 18 3. Lessons learned and reflectedin the project design 19 4. Indicationsof recipient commitment and ownership 19 5. Value added ofBank supportin this project 20 E. Summary Project Analysis 1. Economic 20 2. Financial 21 3, Technical 21 4. Institutional 21 5, Environmental 22 6. Social 25 7. SafeguardPolicies 27 F. Sustainabilityand Risks 1. Sustainability 28 2. Criticalrisks 29 3. Possible controversial aspects 30 G. MainConditions 1. EffectivenessCondition 30 2. Other 30 H. Readinessfor Implementation 30 I. Compliance with Bank Policies 31 Annexes Annex1:ProjectDesign Summary 33 Annex 2: DetailedProjectDescription 37 Annex3: EstimatedProjectCosts 46 Annex 4: Cost Benefit Analysis Summary 47 Annex 5: FinancialSummary 55 Annex6:(A)ProcurementArrangements 56 (B)Financial Management and Disbursement Arrangements 63 Annex7:ProjectProcessingSchedule 72 Annex 8: Documents in the Project File 73 Annex 9: Statementof Loans and Credits 74 Annex 10: Countryat a Glance 76 Annex 11:Environmental and Social Analysis 78 Annex 12: Detailed Description of MASAF Community Development Projects Component 3 90 Annex 13: Choiceof Pilot Districts and the Costs of Scaling Up 100 Annex 14: Social-culturalAppraisal Summary 104 Annex 15: Pilot Districts- MAP 107 MAP(S) Annex 15: PilotDistrictsMap (IBRD-32815) MALAWI Community-BasedRuralLandDevelopmentProject Project AppraisalDocument Africa RegionalOffice AFTS1 Date: March 15, 2004 Team Leader: Rogier J. E. VanDenBrink sector Managermirector: RichardG. Scobey Sector@): Generalagriculture,fishing and forestry sector C'ountry Managermirector: HartwigSchafer (100%) Project ID: PO75247 Theme(s): Landmanagement(P), Ruralmarkets (P), Lending Instrument: Specific Investment Loan (SIL) Participationand civic engagement(S) Project Financing Data [ ]Loan [ ]Credit [XI Grant [ ]Guarantee [ ]Other: BORROWERIRECIPIENT 1S O 0.00 1S O [DA 25.30 1.70 27.00 LOCAL COMMUNITIES 1.28 0.00 1.28 rotal: 28.08 1.70 29.78 BorrowerlRecipient: GOVERNMENTOF MALAWI Responsible agency: MINISTRY OF LANDS, PHYSICALPLANNING,AND SURVEYS Address: PRIVATEBAG, 311, CAPITAL CITY, LILONGWE3, MALAWI Contact Person: MR. PATRICKA. YASINI Project implementation period: 2004-2009 Expected effectivenessdate: 07/01/2004 Expected closing date: 06/30/2009 A. Project Development Objective 1. Project development objective: (see Annex 1) The project development objective is to increase the incomes o f about 15,000 poor rural families by implementing a decentralized, community-based and voluntary approach to land reform in 4 pilot districts in southern Malawi. The approach to land reform piloted under the project includes (i)voluntary acquisition by communities of land sold by willing estate owners, transferred to communities by government, or donated by private individuals); (ii) on-farm development, including the establishment o f shelter, and the purchase of basic inputs and necessary advisory services; and (iii) land administration, viz. the regularization, titling, andregistration of beneficiaries'property rightsinland. Malawi, a landlockedcountry with a current estimated population o f 11million and an average population growth rate o f 3.3% per year, i s significantly dependent on agriculture. Agriculture contributes about 36 % to GDP, employs 85% of the work force, and contributes 90% o f foreign exchange earnings. Total cultivated area in the past five years has been on average about 2.7 million hectares. About 84 % o f agricultural value-added comes from about 1.8 million smallholders who on average own 1 ha. o f land. Landpressures are particularly severe inthe south o f Malawi (where average holdings can be as low as 0.1 ha) and much less in the North and Center, where average holdings are 10-15 ha and 5-10 ha, respectively. About 1.1 million hectares o f land is held in some 30,000 estates, with an average size o f landholding ranging between 10 to 500 hectares. Malawi's agriculture is dualistic. At independence in 1964, it inherited an agriculture sector comprising a few, large foreign-owned, export-oriented estates and a smallholder sector o f mostly poor, subsistence farmers. Colonial laws allowed estates to obtain the full value o f export sales, but prevented smallholders from producing burley tobacco, the most lucrative export crop and forced smallholders to sell through the parastatal, the Agricultural Development and Marketing Corporation (ADMARC). The situation has improved though much still needs to be done with respect to improved distribution and more efficient utilization o f land, and more effective support to the smallholder. Although smallholder agriculture is mainly subsistence oriented, dominated by maize and other food crops, smallholders are now also contributing significantly to cash crop and export production in burley tobacco, cotton, tea, paprika, groundnuts and chillis. The proposed project i s designed to make a start in addressing emerging social conflicts related to unequal access to land by piloting a market-assisted, community-driven land transfer program to land-deprived small scale farmers. The project is a flagship operation o f the Malawi Land Reform Programme Implementation Strategy (2003-2007). 2. Key performance indicators: (see Annex 1) The key outcome or impact indicators by which success of the project will be measured are: (i) incomes o f participating families compared to control groups ("with-without") and pre-project income levels ("before-after"); (ii)increased and sustainable agricultural productivity on participating farms ("with-without" and "before-after"); and (iii) the effective evaluation ofthe piloted approach. Project outputs are: (i) providing access to resources for land acquisition and farm development to about 15,000 poor beneficiary families; (ii) providing beneficiaries with secure title to the land acquired through the piloting o f decentralized land administration; (iii)buildingcapacity at community, district and national levels to implement a community-driven and market-assisted approach to land reform; and (iv) implementing a monitoring and evaluation system to assess project inputs, outputs, and outcomes, and provide a soundbasis for the decision to scale-up the project. - 2 - The proposed project's key performance indicators are the: (i)number o f rural families benefited; (ii) quantity, speed and cost (per beneficiary family and per hectare) of land acquired; (iii)agricultural production established; (iv) number of beneficiary groups or beneficiaries which received appropriate documentation o f land ownership; (v) number and quality o f land acquisition and farm development proposals reviewed, approved and fully disbursed; and (vi) timeliness and content o f reports generated by the monitoring and evaluation system. The Monitoring and Evaluation (M&E) framework also include an intensive focus on the qualitative aspects o f project implementation, inparticular, inrelation to group processes and social integration issues, with communities themselves, District Assemblies and the Ministry being able to access resources to mobilize special assistance for monitoring purposes. The evaluation will start in the first year o f project implementation and will be undertaken annually by an independent institution, selected on the basis o f international competitive bidding. B. Strategic Context 1.Sector-related Country Assistance Strategy (CAS) goalsupportedby the project: (see Annex 1) Document number: 25906 Date of latest CAS discussion: June 10, 2003 Poverty in Malawi i s widespread and deep: about 65 percent o f the population lives below the poverty line (Integrated Household Survey, 1998). Agriculture provides 85 percent o f employment, but land distribution i s sharply unequal, and overcrowded arable land exist next to under-used ones. It i s estimated that one third o f arable land i s under-utilized, while household surveys demonstrate a direct link between poverty and access to land. In addition, Malawi's history o f the carving out o f large-scale farms (estates) from customary land, combined with increasing land pressure, has led to the emergence o f localized tensions around land, sometimes expressing themselves through encroachments and invasions. The project would pilot a transparent, voluntary, legal and resource-supported approach to land reform, which, if scaled-up, would help to avoid a possible escalation o f these tensions, before they find an organized political expression, at which point in time the land issue may become intractable. At the same time, the redistribution o f unused arable lands to the poor would make a direct contribution to increasing economic growth and reducing poverty. Malawi's first full Poverty Reduction Strategy Paper (PRSP) o f 2002 sets as its overall goal to promote the type o f broad-based growth that reduces poverty. The PRSP emphasizes sustainable pro-poor growth and structural transformation, human capital development, improving the quality o f life o f the most vulnerable groups, and promoting good governance. The PRSP argues that land i s the sole source o f livelihood for the majority o f Malawians and notes that inadequate access to land has been identified as one o f the critical factors contributing to poverty in the country. Therefore, increasing secure access to land is a key component o f the Government's strategy to reducepoverty. The 2003 Country Assistance Strategy supports the PRSP and i s built on three pillars: (i) strengthening economic management and achieving macroeconomic stability; (ii) establishing a platform for sustainable poverty-reducing growth; and (iii) improving service delivery and expanding the safety net. The proposed project falls under the second pillar and i s identified as an operation with high strategic rewards. It is also one o f the few projects to be implemented even in the low case, defined as a situation o f macroeconomic instability and problematic governance. Finally, the 2004 Structural Adjustment Credit (SAC) has a land component, underlining its importance for sustainable agriculture and improving the policy environment. The SAC will support the project through the wider dissemination o f the Government's Land Policy - 3 - (adopted by Cabinet in 2002), the drafting o f a new Land Bill based on that policy, and by providing incentives for the release o f unused land to the market (rental or sale) through the raising and improvement o f collection o f leasehold rents, and the future implementation o f a land tax on freehold land. The project's main community-driven component (i.e. land acquisition and farm development) will be implemented through the financial, procurement and disbursement mechanisms o f the Malawi Social Action Fund (MASAF), which has successfully implemented community-driven development for nearly a decade. The project will be governed by the Environmental Management Act (1998), and linkages will be established with the Malawi Agricultural Sector Investment Program (MASIP). The central role o f District Assemblies inthe project is based on the National Decentralization Policy o f 1998, which was given legal status through the Local Government Act, also o f 1998. This Act, inter alia, increases the powers o f the 40 District Assemblies to administer land (including valuation, taxation, surveying, and enforcingleasehold contracts). The project will pilot an approach to decentralized land administration consistent with Malawi's 2002 Land Policy. 2. Main sector issuesand Government strategy: Malawi's dualistic agriculture is the result o f the history o f expropriation o f customary lands in order to establish large farms (as leasehold estates, freehold or state land), combined with the impact o f other market distortions which favored large farmers at the expense o f small farmers (e.g. by imposing restrictions on smallholders to grow cash crops, marketing). These trends have resulted in an unequal distribution o f land, and tenure insecurity for the poor living on customary land. However, substantial numbers o f large-scale farms are now un- or under-utilized due to the so-called "estate crisis". The juxtaposition o f unused land on large estates, on the one hand, and overcrowded customary lands, on the other, i s creating localized tensions in certain rural areas. Already, these tensions sometimes express themselves in encroachments of estates, protected areas, and Government-administered lands. There is a risk that these sentiments and tensions would at some future point find a more organized political expression, at which time the land issues would be much more difficult to resolve than at the present time. Currently, the government i s committed to pro-actively undertaking properly resourced and assisted land redistribution and land tenure reform. It prefers this approach, as opposed to dealing with the land issues on ad-hoc basis, and oftenunder considerable local political pressure (e.g. by accommodating squatters and encroachers as part o f a negotiated settlements). These and other issues are described in the findings of, and background studies prepared for, the Presidential Land Commissiono f Inquiryfor Land Reform (1999), with support from FAO, UNDP, DFID, USAID, the EU and the Bank. These and other studies provided the groundwork for the Land Policy, adopted by Cabinet in 2002, and translated in 2003, with support from DFID and the EU, in the Malawi Land Reform Programme Implementation Strategy (2003-2007). This strategy incorporates the Community-Based Rural Land Development Project as a key component. The Bank i s well-placed to assist the Government in implementing this project, given its international experience with community-driven development and market-assisted land reform, its previous support to implementing land titling and registration, and its past assistance to the development o f Malawi's Land Policy. Given the development objectives o f the project, and following the analysis o f the 2003 CAS, OED's Malawi Country Assistance Evaluation (Report No. 21395, 2000), the "Growth Prospects Study", OED's "Impact Evaluation Report: The World Bank and the Agricultural Sector", and DFID's Sustainable Livelihoods Approach for Malawi, the following issues are the most relevant: - 4 - HighlyUnequalDistributionof Land,LandDegradationandRuralTensions. There are basically four forms o f land tenure inMalawi: i.Therearesome1.8millionsmallholderfamilies, wholiveonabout6millionha.of landunder "customary" rules o f tenure (i.e., land allocated to them by village headmen and traditional authorities). About 60 % o f these households cultivate less than one hectare o f land. ii.Some 1.1millionha. oflandbelongto approximately 30,000 farmers under leasehold tenure created by Government allocations o f customary lands over the last three to four decades, and rangingin size from 10 ha to over 500 ha. iii.About.34,000 ha.belongtolargeestates(mostly teacompanies intheSouth, somelocal, some foreign) under freehold tenure granted during colonial times, iv. There are about 1.8 million ha. o f public lands reserved for parks, urban areas and other purposes. Inthe southern region of the country particularly, rural population density is among the highestinAfrica and combined with extreme poverty, has led to soil erosion and nutrient depletion. The acute land scarcity inparts of the southern region occurs next to abandoned, underutilized or idle lands belongingto medium and large estates or Government agencies. The resulting rural tensions (often described as "chronic but subdued") over the unequal distribution o f land in many areas are increasing, as reflected in the encroachments o f certain private estates and government-administered lands, sometimes accompanied by violence. There is also evidence o f political manipulation o f these tensions which, if not addressed, may lead to increased rural violence. LandMarketFailure. Malawian rural land markets are constrained by the dualistic nature o f its agricultural sector. Whilst, there i s a growing supply o f land from the medium and large-scale farm sector, the so-called "estate crisis" is characterized by the collapse o f unprofitable, poorly-managedtobacco estates due to the decline in international prices and liberalizationo f the marketingsystem inthe last half o f the 1990s. However, in any given area, there are few buyers if any. A 1998 study estimated that commercial banks held unsaleable mortgages o f farms covering over 23,000 ha. Of the 1.1million ha. belonging to medium to large estates, only about 600,000 ha. were under cultivation at the time. Even if a significant part o f this land would not be suitable for cultivation, this leaves a substantial area o f agricultural land which could be transferred to poor landless or land-poor farmers through rental or sale, without having any impact on production o f the existing commercial farms. The benefits would be substantial; several studies estimate that even small amounts o f additional land, i.e. one hectare, could significantly reduce the poverty o f a typical rural family inthe southern region. Alternatively, rapidurbanization is exerting pressure onrural communities to transfer some lands for urban development. By transferring secure property rights to land to the poor, land reform would contribute to increased valuation o f rural lands and thus o f the main asset owned by the poor. The conversion o f customary land into private, normally targeted prime land leaving smallholders to work on the marginal unproductive land. On the other side o f the dual divide, demographic pressure has been forcing increased subdivision o f customary lands, with already low productive potential, to the point that most rural families in (Southern) Malawi today cannot earn enough income out o f agricultural activities to feed themselves. However, this increasing need for land, mostly for young families, does not get translated into effective demand due to lack o f finance (both for purchase and investments) and related opportunities to enter into transactions with willing sellers o f underutilized estate lands. And given that ground rents on leasehold land are very low and poorly collected, estate lease holders have little incentive to rent out unused land, and instead may hold onto the land for speculative purposes. In addition, land owners are reluctant to - 5 - rent out land to smallholders given the history of dispossession, which may lead to restitution claims and difficulties ending rental contracts. As a result, failing estates are often surrounded by land-starved neighboring communities, which sometimes leads to encroachment. Government has so far handled these challenges through ad-hoc solutions under pressure. However, the Government's new Land Policy and the Land Reform Programme Implementation Strategy (2003-2007) intends to address the land redistribution issues described above by developing a number o f effective and transparent mechanisms which will enhance the equity and the efficiency o f Malawi's land distribution. Current high real interest rates (above 30 percent) and the estate crisis, combine to keep landvalues low so the cost o f transferring lands, through market mechanisms, from failing estates to asset-poor but able farmers, is not a very high one. The project will pilot a promising approach to do so, based on voluntary transactions between suppliers and beneficiaries. In addition, the planned increase in ground rents and the introduction o f a land tax on freehold land would make both the sale and rental markets for land more buoyant. Community-DrivenDevelopmentandDecentralization. Malawi has had a long history o f failed top-down and centralized approaches to development. However, since the late 1990s, the Government is committed to a more decentralized model, under which development is driven by communities themselves. The success o f this new paradigm is best demonstrated by the Malawi Social Action Fund, which has been in operation for 8 years. A third version o f the program (MASAF 3) is now effective, using highly effective, open, transparent and participatory implementation processes to create communal infrastructure at the village level. However, using participatory rural appraisal techniques, MASAF received numerous and repeated requests from civil society for a MASAF-type mechanism to also fund individually productive investments, including in land, as complements to the social and economic communal infrastructure funded under MASAF. The Community-Based Rural Land Development Project would respond to this demand. Instead o f puttingnew institutions in place, the project can start implementation immediately through the already operational MASAF system, while Ministry staff benefit from "on the job" training in the decentralized and community-driven development approach. LandAdministration. Finally, outdated land registration systems, inaccurate surveying and limited enforcement o f covenants o f private leaseholds, and corrupt administrative practices by village headmen, chiefs, and government officials have often led to dispossession o f customary lands, encroachment on private and public lands, illegal development o f lands, and tenure insecurity. The new Land Policy supports a move towards a decentralized, transparent and democratic land administration system. This is made possible by the 1998 National Decentralization Policy and Local Government Act, under which local authorities (District Assemblies) are given increasing powers and responsibilities for land administration, including valuation, taxation, surveying, and enforcement o f lease agreements. Designing a land administration system which i s fiscally affordable and responds efficiently to community demand for the formalization o f property rights, will take time and considerable effort. International experience shows that this i s best achieved through a gradual approach, based on pilots. This i s the strategy adopted by the government in this and related projects. The project will directly support institutional capacity-building in land administration, by providing resources for tenure regularization, titling and registration o fparticipatingsettlement schemes. Due to the fact that development o f institutional capacity for land administration at the District level will take time, it i s proposed that this be implemented in a phased manner, starting with providing services to the beneficiary communities, and then to communities on demand. - 6 - Programmatic Approach and Partnership. Inthe past decade, the land policy reform process in Malawi has enjoyed broad support from all the key donors. There is broad agreement among donors to support implementation o f the new land policy under a programmatic approach. For instance, the AfDB, DFID, EU, FA0 IFAD, GTZ, and USAID have all expressed an interest in supporting the implementation o f the new Land Policy. The proposed pilot project will be an important component of a broader land reform program, supported by the donor community. In particular, DFID has expressed interest in parallel financing o f the project through starter packs and its contribution to MASAF. The EU is supporting capacity-building for land administration and the African Development Bank is preparing a pilot project for land titling and registration o f customary land. It would operate in three different districts, but would benefit the proposed project by developing decentralized and least-cost approaches to land registration. 3. Sector issuesto be addressed by the project and strategic choices: International experience demonstrates that a community-based approach to facilitating access to land offers the best chance for effectively transferring assets to some o f the poorest groups in Malawi. The project will finance the development o f transparent mechanisms that empower rural communities intheir ability to identify beneficiaries and establish new farms on underutilized lands and to increase their security o f tenure. These mechanisms will reduce rural tensions, minimize the incidence o f encroachment on either private lands or protected public areas, and encourage productive investments on the newly established farms. The project supports the efforts o f the decentralization process in strengthening the capacity o f Districts to plan, organize, and manage funds. By usingthe operational arrangements and systems already existing and tested under MASAF, the project avoids duplicating an already successful community-driven implementation mechanism. Using the same methods o f community participation and the community development capacity created by MASAF, the project will empower local communities and strengthen their organizational capacity to interact with landowners, local governments, and NGOs. At the same time, the project complements MASAF's activities, which are geared towards the creation o f communal infrastructure, because the Community-Based Rural Land Development Project targets benefits o f an individual nature. The project would allow beneficiary communities to have immediate access to financing to make their newly acquired farms productive. Matching grants, based on a per beneficiary household ceiling and requiringin-kindcontributions by communities, would be made available to beneficiaries. Duringa first phase, the aim is to show that the proposed mechanisms can work. To launch the project, significant external technical support to the districts will be needed but over time, local capacity will be built based on the lessons learned during the early phase o f project implementation. To further minimize operational risks, project design will be flexible to allow for adjustments in the course o f project implementation. Project implementation will be in four pilot districts, which were selected on the basis o f their potential for land redistribution (within districts and between districts), the severity o f land pressures and the existence o f social tensions resulting from the unequal land distribution. The pilot districts are all located in the Southern Region, which has the lowest size o f smallholder land holding, the highest incidence o f poverty, and the most pressing land issues o f the three regions in Malawi. The AfDB and the EU are funding land projects inthe North and the Center. Within the Southern Region, the choice of districts was guided by the principles of high opportunity and - 7 - highneed. This resultedinthe selectionofMulanje and Thyolo, whichhave some ofthe highest population densities inthe country ( 2 0 8 h 2 and 268/km2,respectively) and have been most affected by tensions over land issues and encroachments. They also have under-utilized estates that could be used o f resettlement. Machinga and Mangochi were chosen because they have significant numbers o f land-poor households and also have an ample supply o f idle estates., with relatively low population densities ( 9 7 h 2 ) and an ample supply o f un- and under-used estates. While it is expected that the majority o f farms acquired by beneficiaries will be in their "home" district, the choice o f the four districts also opens an opportunity for limited inter-district migration. Some flexibility would exist during project implementation to include additional districts, within the agreed framework and budget constraints. A scaled up project would expand into land stressed districts in the Center (for example, Nkhotakota and Mchinji) and other priority districts in the South (for example, Chiradzulu, Zomba and Chikwakwa). The estimated number o f potential beneficiaries o f a scaled-up project is inthe order o f 100,000. Ifthe uniform ceiling currently proposed in the pilot project i s proven to be appropriate, scaling up the project would cost around $120 million over, say, 20 years, i.e. around $6 million a year, suggesting that a scaled-up version of the project would be financially feasible. See Annex 14 for a full description o f the choice o f pilot districts and an estimate o f the costs o f scaling-up. The Government and the Bank have agreed that project designand implementation will be based on certain "Basic Principles", which are the outcome o f the strategic choices made. The basic project design principles are the following: 1. Inimplementing the concept of Community-DrivenDevelopment, beneficiaries will be given grants to acquire farms and establish sustainable livelihoods on them. 2. Land redistribution will only take place on un-encroached lands acquired from willing sellers, those already under Government administration, or from private donations. 3. Project explicitly excludes lands in protected or fragile areas, or unsuitable for agricultural purposes. 4. Ground rents on leaseholds and land taxes on freehold will be used as the policy instrument to control land prices. 5. Beneficiaries will be self-selected, formed in groups on a voluntary basis, subject to certain eligibility criteria, and usingparticipatory methods. 6. Beneficiary eligibility will be assessed inbeneficiaries' "home" district, while land acquisition and farm development proposals will be assessed in the district where the farm to be acquired is located. 7. Participatory rural appraisal techniques will be used throughout the implementationo f the project. 8. Specially-targeted assistance will be provided for marginalized groups. 9. Specially-targeted assistance will be provided for resolving social issues arising from the need to ensure integration o f new settlers into receivingcommunities, to integrate farm workers, ifany, into the project, and to address any other social issues arising from project implementation. 10. After proper orientation, beneficiaries will decide themselves on: (i)the legal entity under which they will hold the land (e.g. associationiclub, trust, company, individual sub-divisions); (ii) the specific property rights regime (e.g. freehold, leasehold, or, when the new Land Law is passed, "customary estate"); (iii) sub-divisions, demarcation o f individual lots and common areas; and (iv) the level o f precision required (traditional markers, surveying) and level o f formalizationiregistration o f property rights. 11. The combined grant assistance per beneficiary family will be subject to a "Uniform Ceiling" equal to the combined sum o f resources spent on land acquisition and on-farm development for reasons o f equity and for evaluation purposes. - 8 - 12. MASAF3 will support sub-projects that deliver a community good, rather than an individual benefit. MASAF's indicative positive list consists of: (i)social infrastructure (health centers, classrooms, boreholes for community water supply, construction and rehabilitation o f rural roads, energy efficiency improvements, community kiosks); (ii)labor-intensive works (afforestation, terracing, community roads, community bridges, valley tanks, flood control structures, contour ridging, composting, drainage systems, gravity-fed water schemes, community water reservoirs); and (iii)the establishment o f community savings and loan group schemes (micro-credit). 13. CBRLDP will finance activities which deliver an individual benefit, rather than a communal good. CBRLDP will use the following indicative positive list o f activities which will allow the beneficiary family to finance: (i)land; (ii) settlement costs (shelter, basic amenities, and settlement basic allowance); and (iii)the establishment o f agricultural production (agricultural inputs, tools, livestock, training, technical assistance). 14. CBRLDP discourages encroachments and invasions by making encroached farms ineligible to be acquired under the project; and providing a better alternative under the project: a legal, transparent, and resource-backed mechanism for the poor to access land. 15. No farm will be acquired where there are still unresolved labor disputes between the owner and farm workers. 16. Farm workers will be encouraged to participate inthe project. 17. Implementationwill be decentralizedthrough existing District Assembly Structures, augmented for screening purposes with key stakeholders (including Chiefs and NGOs). 18. There will be targeted public information campaigns that will contribute to good govemance and the transparency ofthe project's principles, methodology, processes and outcomes. 19. Financial management, procurement and disbursement will be implemented through existing MASAF 3 systems and usingthe MASAF Management Information System. 20. A business standards time line will be established to ensure speedy processing o f beneficiaries' grant proposals. 21. The project will support institutional capacity building at grassroots, civil society, local and national govemment levels. 22. The M&E system will track changes along two dimensions: beneficiaries' welfare, and the productivity o f the land and its environmental condition. 23. Communities, Districts and the Ministryo f Lands will hire NGOs to monitor implementation o f the project and undertake beneficiary assessments. 24. The Ministry will, in addition to operating its own monitoring system, also contract out the evaluation o f the pilot project to an independent organization. The project's basic design ensures that (i) the productivity o f the land acquired is improved; (ii)distortions inthe landmarket are addressed; (iii) resources will be disbursed directly to communities usingan existing financing mechanism (MASAF), which is transparent, efficient and has adequate fiduciary controls; (iv) potential risks are adequately addressed; and (v) an acceptable Monitoring and Evaluation (M&E) framework is put in place, which will, inter alia, track the costs o f land acquisition. Based on these conditions, Management has approved an exception to the Bank's prohibition on disbursement against land under para. 2(b) o f OP 12.00 on Disbursement. C. Project Description Summary 1. Project components (see Annex 2 for a detailed description and Annex 3 for a detailed cost breakdown): The indicative total project cost o f the Community-Based Rural Land Development Project (CBRLDP) and Bank grant financing is given in the Table below. Govemment financing would be in the form o f - 9 - counterpart contributions (including Government-administered land made available to the project, and taxes); andbeneficiary communities would contribute the remainder, mostly through in-kindcontributions. indicative Bank- % of Component costs % of financing Bank- (US$M) Total (US$M) financing Land acquisition and farm development 16.50 55.4 15.00 55.6 Land administration 2.97 10.0 2.95 10.9 Capacity building 3.39 11.4 3.29 12.2 Project management and M&E 6.92 23.2 5.76 21.3 Total Project Costs 29.78 100.0 27.00 100.0 Total Financing:Reauired 29.78 100.0 27.00 100.0 The project would finance four components: 1.1. Land Acquisition and Farm Development. This component will be implemented with direct community involvement in identification and negotiation o f land acquisition and the preparation o f farm development proposals. Community proposals for acquiring land and farm development would be reviewed and approved - taking into account legal, technical, environmental, and poverty reduction criteria-by a district-level multi-stakeholder entity (the existing District Executive Committee, augmented with key stakeholders, which i s a technical sub-committee o f the District Assembly) and the National Technical Advisory Council, established under MASAF. The sources o f land include: (i) leasehold or freehold land offered by willing sellers; (ii)Government-administered land (e.g. the so-called "re-entered estates": estates which failed to comply with leasehold covenants); and (iii) private donations. Farm development costs will finance individual benefits, consisting of settlement costs and the establishment o f agricultural production. Communal infrastructure will not be eligible for financing under this component, but will be eligible for financing under MASAF. 1.2. Land Administration. Under the project, secure title will be provided to the beneficiaries. The communities will decide under what property rights regime they wish to register their landand how to distribute land among participating households, which could include the registration o f individual plots, if requested by the community. The RegionalLand Registry in Blantyre will be strengthened to provide the necessary land administration services inthe four pilot districts. 1.3, Capacity-building. The component would finance public information campaigns, community mobilization, participatory rural appraisal, training and technical support to communities, district and national participating institutions and stakeholders. This will include financing environmental and social impact assessments and action plans. Policy analysis, and some basic infrastructure refurbishing at the district and national levels would also be supported. 1.4 Project Management and Monitoring and Evaluation (M&E). This component finances project administration, coordination, supervision, monitoring and evaluation. The existing Management Information System of MASAF will be used for tracking the inputs and outputs, including processes. Qualified$NGOs andor private firms will be contracted to assist project monitoring and evaluation in each o f the districts. Communities themselves, District Assemblies, and - 1 0 - the Ministry o f Lands will be able to contract NGOs to assist them in monitoring project implementation. An independent evaluation will be implemented by a specialized organization, selected through intemational tendering. The M&E system will measure changes "before and after", and "with-without" along two dimensions: (a) the welfare o f beneficiaries; and (b) the productivity and the environmental condition o f the land. 2. Key policy andinstitutional reformssupported by the project: The project seeks to: (i)assist the Government in designing an efficient and effective approach to land reform, based on voluntary transactions; (ii)apply the Community-Driven Development approach, successfully established during 8 years o f MASAF implementation (estimated to have benefited 3 million people) to land reform; (iii)support on-going decentralization o f key Government functions in a cost-effective and fiscally affordable manner; and (iv) assist in the piloting o f a decentralized land administration system appropriate for the Malawian context. 3. Benefits and target population: 3.1. Benefits The goal o f the project is to pilot a new approach to land redistribution, based on market-assisted transactions and community-driven processes, that can be scaled-up across the country. A scaled-up version of a successful pilot project would reduce the negative externalities associated with tensions around the land issue. The pilot project would benefit an estimated 15,000 poor rural families in the four pilot districts through increases intheir income. New family farms covering about 30,000 hectares would be established. The project design, based on community participation, will allow communities to start sustainable production immediately duringthe next season or within one year o f establishing their new farms, In addition to these direct income effects, the project would generate economic benefits in the form o f increased agricultural production on previously underutilized lands within the established farming regions ("efficiency" gains). The project would contribute to reduced social tension in the pilot districts by reducing inequality in access to land ("equity" benefits) and providing a legal, transparent and resource-backed alternative to encroachments and invasions. Following the same logic, the project i s also expected to generate some environmental benefits by discouraging encroachment on protected or otherwise fragile areas ("environmental" benefits). 3.2. Target Population. The project will target poor, land-poor and food insecure families from the four pilot districts. Beneficiaries will be self-selected according to democratic and local customary principles, and with the capability to farm. Errors o f inclusion will be reduced by requiring in-kind or labor contributions for farm development, and the screening o f beneficiary eligibility by the community from which the potential beneficiaries originate, following specific eligibility criteria specified in the Project Implementation Manual. The screening will include adequate provisions to prevent "elite capture" and ensure that women have equal access to land as men. Random audits, to complement the appraisal processes, would be carried out to ensure that project beneficiaries meet the key eligibility criteria. Although it is expected that most beneficiary communities would identify lands intheir immediate vicinity, the project would not exclude inter-district migration on a demand-driven basis. Inthose cases, eligibility o f beneficiaries will be assessed in their home districts, while the proposals for farm acquisition and development will be assessed inthe district where the farm is located. - 11- 4. Institutional andimplementationarrangements: The implementation period of the project would be five years (2004-2009). The current legal and institutional framework is generally adequate for launching the proposed project. Nevertheless, the project will have flexible implementation arrangements to allow for adjustments to be made in the course o f project execution, particularly taking into account that a new land law is likely to become effective inthe near future. For a detailed description o f the project cycle, specifying the executing agencies and implementation arrangements see Annex 2. A summary follows below. The project would finance the establishment o f farms (land acquisition and farm development) up to a certain maximum grant amount (the Uniform Ceiling) for reasons o f equity and for purposes o f evaluation. The ceilingwill be regularly reviewed. At the local level, the project will be implemented by beneficiary communities themselves. A self-selected rural beneficiary community (poor, landless or land-poor, and willing to farm) will: (i)identify the farm which it proposes to acquire; (ii) draw up a general farm plan; and (iii) negotiate the acquisition o f directly the land, resulting in a Letter o f Agreement. Beneficiary group formation and farm purchase will be facilitated by a Community Oversight Committee, which will be established in both the originating and receiving community to ensure fairness, transparency and social integration. Vulnerable and marginalized groups can benefit from up-front special assistancepaid for by the project. The beneficiary community presents a Land Acquisition and Farm Development proposal (including the Letter o f Agreement and a general farm plan) to the Lands Officer inthe district, who issues a public notice announcing the intended sale and leads a Field Appraisal Team to appraise the proposal. If a proposal passes appraisal, it i s submitted to the District Executive Committee (DEC) for approval. DEC is responsible for reviewing and approving community proposals for land acquisition and farm development and would confirm that: (i)the potential beneficiaries meet the eligibility criteria; (ii) title to the land (freehold or leasehold) is clean; (iii) other condition threatens the effectiveness o f the land no acquisition; (iv) the negotiated price is consistent with market conditions; (v) the farm plan is realistic and the intended use o f the land is compatible with land potential; (vi) the community understands the implications o f the choice they have made with respect to the legal entity (association, company, trust, individual, etc.) and specific property rights regime (leasehold, freehold, sub-divisions, etc.) under which they propose to hold the land; (vii) the environmental checklist is met, or whether an environmental impact assessment is needed; and (viii) the farm i s free o f encroachers, no unresolved disputes with farm workers exist, and the integration o f the new settlement into the existing, surrounding communities will not pose significant problems. If necessary, DEC seeks the assistance o f the Project Management Unit at the national level or other specialized assistance to complete this review, and conduct additional assessments (e.g. environmental and social impact assessments). Such assistance would be financed by the project. The procedures for appraisal and approval by DEC are specified inthe Project ImplementationManual. - 12- Upon approval, the beneficiary community signs a "Land Acquisition and Farm Development Grant Agreement", which specifies the conditions for implementation o f the LAFD Sub-project, including the establishment o f a Project Management Committee, the elaboration o f a detailed Farm Development Plan, the disbursement schedule with tranche release conditions, and other responsibilities o f the community (e.g. community contributions, environmental management plan). Once the LAFD Grant Agreement i s entered into by the beneficiaries and the MASAF-MU, the MASAF-MU effects the payment for the farm and the beneficiary communities would be granted title to the land acquired. Ifthe acquired landis leasehold, beneficiaries will now start paying the ground rent, which is currently a small nominal fee, but which will be increased in the next few years. If the acquired land is freehold, beneficiaries will start paying the land tax, which will be introduced over a similar time frame, following agreements reached under the Fiscal Management and Accelerating Growth program, an adjustment credit (2004). This will provide the community with an incentive to immediately start agricultural production, while the gradual raising o f rents and taxes will put downward pressure on land prices, counteracting the potential upward pressure on land prices caused by the project. After the transfer o f the land has taken place (either through direct purchase by communities or transferred from government or a third party), beneficiary communities would become eligible for funding o f communal infrastructure under MASAF. CBRLDP, on the other hand, only finances activities which deliver an individual benefit, rather than a common good. The project will use the following positive list o f activities which allow the family to settle on the farm and start agricultural production: (i)basic settlement costs (shelter, basic amenities, and a small, one-time settlement allowance); and (ii) agricultural production costs (inputs, tools, livestock, and technical assistance). Communities immediately receive the settlement allowance and the DFID-financed Starter Pack. Beneficiaries then prepare a detailed Farm Development Plan (FDP) with the assistance o f the Lands Officer, who will mobilize the necessary technical assistance for its preparation. Participatory Rural Appraisal techniques will be used inproviding this assistance. - 1 3 - The actual distribution o f resources among different cost categories (land acquisition, farm development, technical assistance, etc.) would vary from initiative to initiative. Figure 1) shows an example. Figure 1) Indicative cost shares of a typical land reform project (approximate shares) Starter Pack (5%) 0SettlementAllowance (5%) 0Farmdevelopment 160%) First, the cost o f land would probably represent about 30% o f cost o f the initiative. Second, immediately established upon establishment o f the farm, beneficiary communities will receive a one-time settlement allowance (of approximately 5% o f total cost) to assist them settling in. They will also receive a farmer Starter Pack (also valued at about 5% of total cost, to be provided through parallel financing by DFID). Third, the grant balance under the Uniform Ceiling can then be spent on farm development (basic settlement costs and the establishment o f agricultural production).Under the Uniform Ceiling, the greatest trade-off would occur between the value o f the land and the amount spent on farm development. So, use o f a Uniform Ceiling for all beneficiaries would automatically mean that for farms that are fairly expensive (as a result o fhighper hectare cost, with good infrastructure, or large farm size), fewer resources would be available for basic farm development. And vice-versa, for relatively inexpensive farms, more funds would be available for on-farm development. Communities would see this inherent trade-off explicitly once they are familiarized with the project rules. At the district level, Lands Officers (one for each district) would be hired, financed by the project. They will fimction as team leaders o f appraisal teams o f community proposals and as secretaries to the DEC review and approval meetings. These officers will essentially be "systems developers", piloting this position for future scaling-up. At the national level, a Project Management Unit (PMU) has been established, responsible for overall management o fthe project, including the runningthe Management InformationSystem, conducting periodic performance and procurement audits (and taking remedial action), organizing and facilitating public information campaigns to disseminate information about the project, and facilitating access to the capacity-building activities. The already existing Policy Planning Unit will facilitate manage and coordinate policy analysis activities and the monitoring and evaluation system, ensuring its integration in the overall M&E systems o f the Ministry and the Government. The project's overall guidance will be provided by a Project Steering Committee, with membership drawn from key stakeholders (relevant - 14- ministries, donors and civil society). The M&E framework includes an intensive monitoring o f social development issues, with communities, District Assemblies, and the Ministry, being able to access resources to mobilize special assistance. A community will, for instance, have access to project funds to engage an NGO specifically for monitoring purposes. The monitoring o f the Land Acquisition and Farm Development component will be done as part o f the MASAF MIS, augmented by intensive on-site monitoring by the Lands Officer and specialized NGOs, which, depending on the hiring entity, will report to communities, the DEC or the Ministry. NGO monitoring will include undertaking regular beneficiary assessments. MASAF's system is based on information collected by District-level staff on community activities, submitted to the MASAF Monitoring Unit for aggregation, and then shared with the National Advisory Committee for Community Empowerment and Accountability, chaired by the Ministry o f Economic Planning and Development. The CBRLDP MIS will monitor the project's output indicators as described in the log frame (see Annex 1: Project Design Summary). To ensure adequate process monitoring, each District will hire an NGO to monitor project implementation, using Participatory Rural Appraisal techniques. These assessments will be o f a qualitative nature (e,g. targeting effectiveness, community development, satisfaction, inclusiveness, relations with surrounding communities, incorporation o f farm workers, relations with local government structures and other stakeholders, self-evaluations). Reports will be submitted for review and action to the District and the P M U on a regular basis. The Policy Planning Unit, as part o f the M&E framework, will set up a land market database to monitor and analyze land market transactions (prices and quantities). This i s needed to: provide good information to potential beneficiaries; provide "early warning" for land price increases; compare "with" and "without" project situation; assess whether the program i s improving overall land market activity (e.g. sales, sub-divisions); and assess land distribution impact at district levels. Evaluation will be executed by an independent organization, selected on the basis of international tendering. Evaluation will be based on a sampling framework, which, by use o f base-line surveys and control samples, will be able to assess the following: i.Whataretheabsoluteoutcomes-before/after? ii.Whataretherelativeoutcomes-WitWwithout? The key questions to assess the outcomes o f the landreform pilot program are the following: Beneficiaries: i.Whobenefits?Arewetargetingandreachingtherightpeople? Doesthescreenedself-selection of potential beneficiaries result in the inclusion o f the poor and land-poor, and the exclusion o f better-off and "landed" households? ii.Notethatbeneficiaryfamiliesmaybringinadditionalfamilymembersand/or workerslater-these add to the "who benefits?" list. iii.Welfare measures (household income/expenditures, well-being objective and subjective, quantitative and qualitative). Land: -15- i.Productivitymeasures;and. ii.environmentalconditions. Potentialfor Scaling-Upthe PilotbyMeasuringKey Project PerformanceIndicators: i.Landtransfers-area, speed and cost o f transfers; ii.Fiscalcostpersustainablebeneficiarylivelihoodcreated-do the above economic benefits justify the overall fiscal costs? Evaluation will be carried out annually, starting with a Baseline Survey upon project effectiveness. The evaluation data will be generated from beneficiary surveys and control groups. The quantitative data would be collected from household surveys, stratified to land reform beneficiaries and agricultural areas, and the MIS. Qualitative data would be supplied by the NGOs monitoring the project, using beneficiary assessments and participatory rural appraisals. Three sample surveys will be conducted; i.Beneficiaryhouseholdandfarmpanel; ...ii.Control household panel;' and 111. Control farm panel ("area survey"). D. Project Rationale 1. Projectalternatives consideredand reasonsfor rejection: 1.1. To wait until a new Land Law is passed. Generally, the current legal and institutional fi-amework i s adequate for launching the proposed project and project design would be flexible enough so that when the new law becomes effective, project implementation would be expected to continue without disruption. The project would pave the way for the formulation and implementation o f a scaled-up landreform program under the new policy and law by piloting community-drivenapproaches to land redistributionand land administration. 1.2. To use compulsory, insteadof voluntary, acquisition of land. International experience shows that this would not result in any cost-savings. Moreover, designated farms would need immediate protection to prevent asset-stripping and vandalization. Finally, a badly-executed expropriation program will result in loss o f confidence, leading to loss of investment and currency devaluation. 1.3. To build the Ministry's own capacity to handle procurement, disbursement and financial managementof community-driven components,instead of relying on MASAF. This would delay the effectiveness o f the project, unnecessarily replicate an already existing, mature and successful system, and risk not benefiting from cross-sectoral and stakeholder oversight ("horizontal accountability"). 1.4. To transform part of the community grant into a loan. The objective of adding a loan component would be to provide beneficiaries a strong incentive to immediately start using the land productively. However, Malawi's experience with agricultural credit schemes has been negative--low - 1 6 - repayment rates are the rule, rather than the exception. No credit system appropriate for the beneficiaries targeted by the project exists at the moment, so this would need to be created first, leading to possibly costly delays. In addition, prevailing real interest rates are very high (30 percent plus), while subsidized rates would lead to unwanted distortions. A strategic choice was made to achieve the production incentive objective by, after a grace period, insisting on the payment o f leasehold ground rents or freehold land taxes, as envisaged by the Government. MASAF3 does promote community savings and investment schemes, in which the land reform beneficiaries can participate. While no external resources would be injected into these schemes, making them unsuited to finance the large up-front costs associated with land acquisition and farm development, the increased agricultural incomes generated by the land reform beneficiaries would serve as important sources o f local savings to be mobilized inthese community savings and loans institutions. The general rationale for providing grants for land purchase to the poor i s based on two main arguments. First, a grant targeted towards the poor i s justified from an efficiency point o f view to compensate for distorti,ons in land, credit and agricultural markets that bias against them. These market imperfections cause land prices to exceed the capitalized value o f the agricultural income, the only source out o f which the poor could repay the loan. Because small-scale family farmers are in general more efficient producers than large farmers or absentee landlords, a targeted grant to purchase the farm and make it productive would be justified from an economy-wide efficiency perspective. Second, a targeted grant i s justified because the resulting reduction in the inequality in land holdings would alleviate social and political tensions. If unresolved, these tensions can have severely negative economic consequences, as international experience demonstrates. 1.5. To use IDA credit instead of an IDA grant. Five criteria have been set out by IDA donors as part o f the IDA 13 replenishment framework: (i) HIV/AIDS, (ii) natural disaster, (iii) post-conflict, (iv) poorest IDA-only country, or (v) particularly debt-vulnerable poorest IDA-only country. Malawi qualifies under the fifth criterion. As such, the CBRLDP has been allocated 100% grant financing from IDA. The 2003 Country Assistance Strategy supports the PRSP and is built on three pillars: (i) strengthening economic management and achieving macroeconomic stability; (ii) establishing a platform for sustainable poverty-reducing growth; and (iii)improving service delivery and expanding the safety net. The proposed project falls under the second pillar and is identified as an operation with high strategic rewards. It i s also one o f the few projects to be implemented even inthe low case. - 1 7 - 2. Major related projects financed by the Bank and/or other development agencies (completed, ongoing and planned). Latest Supervision Sector Issue Project (PSR) Ratings (Bank-finance ~ojectsonly) Implementation Development Bank-financed Progress (IP) Objective (DO) Social Fund MASAF 1 (closed 1998) S HS MASAF 2 (closed 2003) S S MASAF 3 (became effective Nov. 2003) Structural Adjustment Fiscal Management and Accelerating Growth (2004) Agriculture Agricultural Marketingand S S Estate Development Project (closed 1995) Agricultural Services Project U U (closed 1999) Agricultural Sector Adjustment S S Credit (closed 1997) Other development agencies European Union Productivity and Soil Conservation Project--on-going, being scaled-up Capacity-building for decentralization o fLand Administration inpilot districts (planned, Mzimba inthe North, Salima inthe Centre, and Mwanza inthe South. DANIDA LandAdministration (closed 2001) DFID Targeted Inputs Programme (on-going) USAID Smallholder Support Project AfDB Land Administration project for customary lands inpilot districts (planned, Rumphi in the North; Kasungu inthe Centre; and Chiradzulu in the South) IP/DO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), I- I (Highly Unsati! - 18- 3. Lessonslearnedand reflectedin the project design: The international experience on unsuccessful andor delayed land reform programs i s quite large. Some o f the important lessons learned from these experiences include: i.Landreformisahighlypoliticalissue. Therefore, theGovernment's willingnessandcommitment to the process is a fundamental condition for success. ii.Centralgovernment identificationoftargetedlands, aswellasexpropriationandlandacquisition directly by Government, tend to create legal disputes, delays, high administrative costs, and they often breed corruption. iii.Itismuchbettertoinvolvebeneficiariesfromtheoutsetinaprocessofvoluntarytransactionswith landowners. iv. Centralized administrative designation of program beneficiaries is not very effective. Direct community participation inthe selection o f beneficiaries i s preferred. v. When unresolved land issues are allowed to fester for too long, popular sentiments will at some point become organized politically. When that happens, the issue will become extremely difficult to resolve in a developmental and planned fashion. Whereas it is difficult to predict how and when this will happen, the key lesson from international experience is to try to resolve land issues before they become organized politically. The evaluations o f the Land Reform and Poverty Alleviation Pilot Project in Brazil (4147-BR), which relies on community initiatives to landreform, have yielded the following lessons: i.A community-basedapproachtolanddistributionisconsiderablymoreexpedientandlesscostly than the traditional administratively-led process. For example, in that project the process o f land acquisition, from identification o f lands to purchase, typically has taken less than 90 days. On average, the actual total cost o f land redistribution (including the land acquisition price, litigation, administrative, and other costs) o f the traditional approach i s close to three and half times that o f a market-assisted approach. 11. Communities have consistently chosen good quality land at costs that represent savings o f 40% or ... more, relative to traditional land reform and without upward pressure on land prices. 111. Self-selection o f project participants has proven effective inpin-pointing the landless rural poor; the vast majority o f beneficiaries have household incomes and characteristics consistent with the target population. The requirement o f own contributions for investment sub-projects ensures effective self-selection. iv. Streamlined approval o f complementary investment sub-projects, such that funds are immediately deposited with the beneficiary community and disbursed once a sub-project proposal is presented and approved, eliminates unnecessary delays. V. Concurrent and ex-post monitoring and evaluation are critical to identify bottlenecks and make adjustments inthe course o f project implementation. 4. Indicationsof recipientcommitment and ownership i.SincethepresentationofthePresidentialCommission's ReportinOctober 1999,Governmenthas adopted a new Land Policy (2002); and designed a LandReform Implementation Strategy (2003). ii.GovernmentiscurrentlydraftinganewLandBilltobefinalizedin2004. iii.Government has negotiated a land component as part of the policy matrix of the Financial Management and Accelerating Growth credit (2004). iv. Government has taken decisive actions to control land encroachments when these have erupted. - 1 9 - 5. Value added of Bank support in this project: Internationally, the Bank has obtained considerable experience in implementing the concept o f Community-Driven Development and market-assisted land reform (e.g. Brazil). InMalawi, the partnership between the Government and the Bank has been instrumental in formulating a new Land Policy and catalyzing other donor support. Finally, successful implementation o f the project would have positive regional demonstration effects and extemalities which the Bank could help materialize for other countries in Africa. E. Summary Project Analysis (Detailed assessmentsare inthe project file, see Annex 8) 1. Economic (see Annex 4): 0 Costbenefit NPV=US$4.1 million; ERR = 15 % (see Annex 4) 0 Costeffectiveness 0 Other(specify) Detailed economic and financial analyses were prepared to quantify the economic benefits o f the project. The primary economic benefits as a result o f the project are the increased agricultural productivity from the redistributedland that is currently under-utilized, and the distributional benefits gained from increasing the incomes o f about 15,000 poor and land-poor rural families. The analysis i s based on three representative farm models - based on agro-climatic zones within the four pilot districts - anticipated to be established by smallholders under the project: i.asubsistencemodelinwhich80%oftargetbeneficiariesareassumedtogrowfoodcropsfortheir own consumption, and a small quantity o f cash crops; ii.asemi-commercialmodelinagro-climaticzonesthatsupportthecultivationofahigherproportion o f cash crops such as rice, cotton, chilies or paprika; and iii.ateamodelinwhichsmallholderssellteatothelocalestatesasout-growers. In each farm model, beneficiaries are expected to buy approximately 2 ha o f land on which they build a shelter, some local infrastructure and begin cultivation. Fullproduction is expected to be reached by year 3 inmodels 1and2 andyear 5 inthe model3. Familylabor is assumed, and a small amount ofoff-farm labor i s assumed inmodel 1, to supplement family income during the dry season. The farm models produce intemal economic rates o f return ranging from 22% to 59%. The NPV o f net benefits i s significantly positive for all models. Model 2 produces about 5 times the net benefits than model 1, model 3, about 3 times the benefits. The analysis aggregates from the individual farm models to determine project benefits, based on a project benefit build-up as beneficiary households enter the project. The NPV for the overall project i s $4.1 million (ERR = 15%). Ifwe just consider the land administration and farm development component (57% o f total costs), the NPV rises to $15.1 million (ERR = 30%). Farm incomes rise substantially over the project life compared to the without project scenario, from 138% inyear 3 to 213% inyear 15 for model 1. The sensitivity analysis demonstrates the robustness o f the analysis for the following variables: land prices, crop yields (most sensitive), input and output prices, cropping patterns, "capture" by non-poor, impact o f linkage effects on nonfarm economy, proportion o f beneficiaries in the three models, assumptions around benefits accruing from asset accumulation and beneficiary entry into the project. - 20 - 2. Financial (see Annex 4 and Annex 5): NPV=US$O.7 million; FRR = 13 % (see Annex 4) See E2 and Annex 4 for discussion. Economic benefits are greater thaqfinancial benefits for two reasons: the increased tax revenue (relatively minor) and the linkage effect from increased farm incomes on the nonfarm economy (substantial, particular inmodel 2). Previously, the key financial issue was to secure commitment from another donor to provide funding for land acquisition. However, the project has obtained an exception to Bank practice o f not funding land acquisition (see Section B.3). Empirical evidence for Malawi demonstrates that household incomes are positively correlated to access to land. Inaddition, even though an unfinished policy agenda exists, the financial profitability o f smallholder farming has increased as a result o f liberalization o f the marketingenvironment duringthe 1990s. Fiscal Impact: The direct fiscal cost per family o f community-based land reform will be subject to a Uniform Ceiling, which will be subject to regular review. The current estimate compares favorably to the cost o f ad hoc solutions, viz. the regularization o f squatting, which entails no cost savings on compensation for the original owner or subsequent infrastructure provision, but has an additional fiscal cost, stemming from the negative impact on governance and the investment climate. Additional cost-savings would be achieved due to the empowerment o f communities in the implementation o f the project (as opposed to a central bureaucracy), resulting in (i)lower cost o f land acquisition caused by the negotiations between willing buyers and sellers; and (ii)lower farm development costs due to community participation in design and implementation. The primary fiscal impacts are: the impact o f reducing poverty o f 15,000 poor families, increase in agricultural productivity, and the moderate gains in employment and tax revenue. The most important unquantified fiscal and economic benefits o f the pilot project and its scaling up result from the reduction o f political and social tensions around the land issue and the associated negative economic consequences. 3. Technical: Empirical research o f smallholder farming in Malawi confirms the feasibility o f establishing sustainable rural livelihoods centered around family farming. Most of the technical features o f the proposed project have been adopted from the highly successful experience o f MASAF in Malawi and from similar experiences in other countries. The project would support only simple, appropriate, and environmentally sound technologies, corresponding to the needs and capabilities (for construction o f shelter, as well as for the establishment o f agricultural production) o f the population. The design and standards o f Land Acquisition and Farm Development Grant proposals will follow the MASAF procedures and guidelines, which conform to the norms and standards o f the' appropriate technical ministries, consistent with Malawi's environmental policy andthe Bank's safeguards, Farm prices will be compared to prevailing market-conditions. Costs for farm development (inputs, tools, livestock, training and technical assistance) will be based on prevailing market unit costs, with appropriate allowance for inflation, and, whenever applicable, a reasonable level o fphysical contingencies. Communities will be allowed to request special assistance from the project for group formation, farm identification and price negotiations. They can also allocate part o f the LAFD Grant for technical -21 - assistance for the preparation o f detailed farm development plans, including community development training, organization and social capital formation, management of natural resources, and farming practices. 4. Institutional: The project would use existing mechanisms for project implementation and avoid the creation of new institutional structures. Inparticular, the project will make use o f existing MASAF financing, procurement and disbursement modalities and procedures. This has the added advantage o f capacity-building through on-the-job training by MASAF counterparts. Project preparation has taken place in close collaboration with the MASAF team. 4.1 Executing agencies: The Ministry o f Lands' P M U will be the main executing agency. It will be complemented by the MASAF Management Unit. The National Technical Advisory Committee (NTAC) o f MASAF will approve all proposals under the Land Acquisition and Farm Development component, after approval by the District Executive Committees (DECs). 4.2 Project management: Project management for the Land Administration, Capacity-Building and Project Management and M&E components will be implemented by the Ministry o f Lands PMU. The P M U will be supervised by the Community-Based Rural Land Development Project Steering Committee, which will be responsible for monitoring project implementation. Project management for the Land Acquisition and Farm Development will be out-sourced to the MASAF MU. See Annex 6.A and 6.B for details. 4.3 Procurement issues: Procurement o f the Land Acquisition and Farm Development Component will go through the existing MASAF systems and use the Community Participation Procurement method. While the development o f robust procurement plans is the basis o f project implementation in most World Bank operations, it will be difficult to develop the same in as far as the Land Acquisition and Farm Development aspects are concerned, as these are community-driven and depend on market conditions. However, attempts will be made to ensure that the relevant procurement framework i s updated regularly (periods o f six months) to reflect projected procurements for the ensuing periods. Other procurement will be done by the Ministry o f Lands PMU. See Annex 6.A for details. 4.4 Financial management issues: Financial management and disbursement o f the Land Acquisition and Farm Development Component will go through the existing MASAF systems. Financial management of the other components will be done by the Ministryo f Lands PMU. The only issue coming out of a financial management capacity assessment o f MASAF and the Ministry o f Lands points to weak capacity in the Ministry o f Lands. An appropriate action plan mitigating against such a risk has been developed to ensure that the project runs smoothly. In addition, less than half o f the credit sum will be disbursed through the Ministry o f Lands. See Annex 6.B for details. 5. Environmental: Environmental Category: B (Partial Assessment) 5.1 Summarize the steps undertaken for environmental assessment and EMP preparation (including consultation and disclosure) and the significant issues and their treatment emerging from this analysis. - 22 - The proposed CBRLDP represents a novel pilot approach to land reform, whereby a significant number o f poor households will have access to farmland through a voluntary and market-driven land acquisition process. The project will be undertaken on estates previously used for agricultural purposes, but now largely under-utilized. Any protected areas and ecologically or culturally vulnerable sites will be excluded from acquisition and resettlement, while only those beneficiaries who form their groups on a voluntary and inclusive basis will be eligible. Similarly, land will only be acquired from a willing seller, an existing government-administered farm, or a private donation. Qualifying beneficiaries will be given grants to buy land that i s either available on the market, free of any encumbrances, or land which i s already Government-administered. Moreover, the Land Acquisition and Farm Development Grant to be provided by the project (capped by the Uniform Ceiling), will include a portion that would be used for settlement expenses, basic shelter and amenities, as well as the purchase of basic tools and inputsto start farming. Although the project will not finance or support any communal infrastructure, and will focus mainly on individual household benefits (which may include, shelter, drinkingwater, pit latrines, and livestock kholus, as well as agricultural inputs and basic technology), it has been classified as "B" (according to World Bank OP/GP 4.0 1) with the requirement that an Environmental and Social Analysis (ESA) would be prepared. This classification has been assigned largely to enhance the potential positive impacts, and to ensure that: (i) acquisitionoffarmsdoesnotencroachonnationalparksorprotectedareas,wetlands, andsensitive the ecosystems, or any sites o f cultural or archeological value; (ii)farms acquired through the project incorporate sustainability principles and the new farmers take advantage o f the capacity-building support available through the project, including a pilot program on integrated pest management; (iii)on-farm renovatiodconstruction o f household shelter and other amenities are undertaken in accordance with sound environmental and social principles; and (iv) that the capacity for dealing with safeguard issues is built among public institutions in charge o f implementing the project, particularly at the level of the local District Executive Committees and District Assemblies (DECs and DAs), and communities, thus enhancing the capacity o f local institutions and the government's decentralization program. The ESA concluded that the project was not expected to have any significant environmental or social impacts, and will, in fact, contribute to the sustainable development o f the rural sector in Malawi through piloting an approach to land reform which would: (i) increase the income o f poor households; (ii) improve agricultural productivity and sustainable land management practices; (iii)strengthen community empowerment, inclusion, and social cohesion; and (iv) mitigate the localized tensions around the land issue. The ESA covers: (i)baseline conditions in the districts where the project will be implemented (Mulanje, Thyolo, Machinga, and Mangochi); (ii)policy and institutional issues; (iii)potential social and environmental issues (related mainly to community development, human health and farming); and (iv) a process framework to identify and mitigate the potential risks and enhance the potential benefits o f project activities. Potential issues identified by the ESA relate to the possible location o f farms to be purchased near natural habitats or critical ecosystem areas, environmental health o f project beneficiaries and their communities, and sustainability o f land use and agricultural management practices on all newly-acquired farms. More specific risks identified by the ESA include: (i) the acquisition o f farms that may encroach (or border) on national parks or protected areas, wetlands, or other sensitive ecosystems; (ii) impacts that may arise from individual shelter rehabilitation or setup (including location, access to drinkingwater, and sanitation for the new farm owners); (iii)increased use o f agro-chemicals, either as part o f a "Starter Pack" or, over time, - 23 - through improved incomes and access to informationand extension services; and (iv) landuse and cropping practices that may exacerbate land degradation, lead to the loss o f biological diversity, or result in poor water management, that may already be ongoing on farms to be purchased through the project. The ESA recommendations for social and environmental issues (described above) resulted in the preparation o f an Environmental Management Plan comprised o f an Environmental and Social Screening and Review Process (ESSRP), a Pest Management Plan (PMP), a Monitoring and Evaluation System (MES), and institutional strengthening, all funded and implemented as part o f the project. Consultations. Despite the fact that the project would not have any significant environmental impacts, and would not involve any resettlement or restriction o f livelihoods, the preparation o f the ESA used a participatory process, conducted in three stages: during preparation o f the Terms o f Reference o f the ESA, at community level during field surveys, and at district level to review the draft report. The consultations were aimed at facilitating a broad-based dialogue and transparency in project development and identifying key environmental and social issues. Disclosure. The ESA (including consultations) was prepared from December 2002 to October 2003, and reviewed by the Bank in November 2003. The Executive Summary was disclosed starting November 18, 2003 in two local languages and in English in the country's capital Lilongwe and at the offices o f the four District Assemblies, the relevant Wards, Traditional Authorities, and Group Village Headmen, as well as in the World Bank's Infoshop. The entire project documentation in English is also available in the country and inthe World Bank's files. Finally, it is important to note that the ESA was prepared in accordance with Government o f Malawi's Environmental Management Act (1996) and its Guidelines for Environmental Assessment (19971, and that the project was reviewed and cleared by the Director o f Environmental Affairs. Annex 11provides a summary o f the findings andrecommendations o f the ESA. 5.2 What are the main features o f the EMP and are they adequate? Given the demand-driven nature o f the project and the types o f issues and risks identified in the ESA, the EMP is comprised o f an Environmental and Social Screening and Review Process (ESSRP), a Pest Management Plan (PMP), a Monitoring and Evaluation System (MES), and institutional strengthening, all funded and implemented as part o f the project. Furthermore, because the project uses a demand-driven process for acquiring farms, both as part o f appraising their viability (at the time o f purchase), and later, as part o f preparing their Farm Development Plans (FDPs), using rapid rural appraisal techniques, a farm-level environmental assessment will be conducted and-if need be-more specific mitigation measures would be incorporated inthe FDPs. This screening process will be mainstreamed in the overall project process framework and will be fully integrated inthe project implementation manual (PIM). 5.3 For Category A and B projects, timeline and status of EA: Date o f receipt o f final draft: ESA start date: December 13, 2002 ESA Final Draft: November 18,2003 5.4 How have stakeholders been consulted at the stage o f (a) environmental screening and (b) draft EA report on the environmental impacts and proposed environment management plan? Describe mechanisms of consultation that were used and which groups were consulted? Extensive consultations conducted helped inform the final project design. In addition to consultations with - 24 - the local communities, technical officers from government, nongovernmental organizations and members o f the private sector were also consulted in each district, including District Commissioners (DC's), Environmental District Officers (EDO), Directors o f Planning and Development (DPD), NGO representatives with an interest in environmental issues, staff responsible for Lands, Land Husbandry Officers, staff from the Ministries o f Fisheries and Forestry, Agriculture, the Meteorological Department and tea estates' representatives. Opinion leaders' views were also sought during the process, including traditional leaders, local politicians and religious leaders, and other key informants. 5.5 What mechanisms have been established to monitor and evaluate the impact o f the project on the environment? D o the indicators reflect the objectives and results o f the EMP? Giventhe nature o f impacts and issues to be encountered duringproject implementation, an Environmental Monitoring System (EMS) has been designed based on two principles: 1. The EMS will not focus on monitoring and reporting on either general environmental and social conditions in the four pilot districts, nor on the impact from individual farm activities (this would be neither feasible nor effective). Rather, the EMS will track a small number o f indicators related to: (i) the sustainability o f the FDPs and adoption o f sound land use practices, and (ii) environmental the health conditions o f the beneficiary households and their communities; and (iii)other process indicators. 2. The Environmental Monitoring Plan will be an integral part o f the Project Monitoring and Evaluation System. The EMS has initially been designed to carry out monitoring and evaluation o f the trends in the adoption o f processes and practices o f the beneficiary groups and their host communities inrelation to environmentally and socially important issues that might arise. Through the Environmental and Social Screening and Review Process (which is hlly integrated in the Project Implementation Manual), a number o f processes have been put in place to ensure that appropriate environmental management practices are followed in the project. These processes are essential at all levels o f the project. The EMS covers three groups o f indicators: (i) process indicators at the village, district, and national levels; (ii)socioeconomic and well-being indicators (part o f the core indictors to be monitored by the project as a whole); and (iii) adoption o f management practice indicators. the Furthermore, periodic supervision missions will also monitor progress achieved and the effectiveness o f the EMS. 6. Social: 6.1 Summarize key social issues relevant to the project objectives, and specify the project's social development outcomes. The net social effect o f the project i s expected to be positive, since it will significantly reduce rural poverty among the beneficiaries and i s likely to encourage increased Government and donor support for a community-based approach to land acquisition and farm development. Specially targeted assistance will be providedto mobilize vulnerable and marginal groups and ensure their inclusion into the project. Inaddition to advancing the Bank's work inthe areas o f community participation and collaboration with NGOs and civil society organizations in Malawi, the project's decision-making processes are expected to contribute towards strengthening the capacity o f local governments and the traditional village system to serve as effective mechanisms for active participation by marginalizedgroups (women, landless, youth). Good relationships will need to be fostered between the settlers and the surrounding communities in those cases where the beneficiaries do not originate from the surrounding communities. Specially targeted - 25 - assistance will be provided to ensure the successful resolution o f such issues, ifnecessary. The project will support the establishment o f Community Oversight Committees to ensure transparency in beneficiary selection, facilitate the integration o f beneficiary groups into the community and resolve social problems, if they were to arise. While the project will support the purchase o f farms available on the market or inthe public sector for the benefit o f poor/landless farmers and other vulnerable groups, the project will involve no involuntary land acquisition, or any form o f restriction o f livelihoods or loss o f access to protected areas or other natural resource reserves. However, the acquisition o f new land by poor and vulnerable groups, particularly in an area where the new farm owners may be outsiders (e.g., from a different district or area where they currently live) may result in social tensions. Thus, the important emphasis in the project-as a fundamental design feature-on community development in order for beneficiaries to access project funds, all through the initial phase o f information dissemination, group formation and application submissions (pre-qualification), until the preparation, appraisal, and approval o f a detailed Farm Development Plan (FDP). A Resettlement Framework will not be necessary, because community sub-projects are screened and financed by MASAF, which prohibits involuntary land acquisition. In addition, no farm will be acquired where there are still unresolved labor disputes between the owner and farm workers, and farm workers will be encouraged to participate inthe project. Finally, the CBRLDP discourages encroaching by: i.makingencroachedfarmsineligibletobeacquiredundertheproject; and ii.providing a better alternative under the project: a legal, transparent, and adequately funded mechanism for the poor to access land. 6.2 Participatory Approach: How are key stakeholders participatingin the project? Key stakeholders include poor rural communities, estate owners, local level organizations-including NGOs, and district-level entities, and small farmer organizations. In addition to the consultations already conducted during the preparation o f the project and the ESA (see Section 5 above), involving the project concept and development objectives, eligibility criteria, and geographical location, structured and more detailed consultations will be undertaken as a fundamental project design feature in order to enable poor and vulnerable communities to access project benefits, on a demand-driven and widely transparent basis. Furthermore, rural communities will be in the driver's seat throughout project implementation. They will identify the lands, negotiate with the seller, and prepare and implement their Farm Land Development Plans (FLDPs) (focused on private household benefits, and not communal sub-projects--which fall under the purview o f Malawi Social Action Fund (MASAF). Estate owners will be active voluntary participants in the project, as they will be approached directly by rural communities and will interact with the appropriate local level district administration entities supporting the project. 6.3 How does the project involve consultations or collaboration with NGOsor other civil society organizations? NGOs were involved in public consultations from the very beginning, both at national and district level. The preparation o f the ESA involved a number o f NGOs (such as members o f the National Smallholder Farmers Association o f Malawi, NASFAM) from all four pilot districts, during all the three phases o f consultations conducted. It is expected that NGOs will play a major role during the launch phase o f the project, during which an extensive communication campaign will be launched at the national and local levels, in order to identify - 26 - eligible communities and help them access project funding to present their applications, identify farms available on the market, negotiate a price, and meet the requirements for land acquisition through the project.NGOs will also be active participants on a demand-driven basis, as rural communities and district-level entities will contract out some technical assistance services from them, particularly in relation to the initial phase of community formation and application submission, detailed farm appraisal, and FLDP preparation and implementation. 6.4 What institutional arrangements have been provided to ensure the project achieves its social development outcomes? The project implementation arrangements will be based on the highly successful experiences o f MASAF in Malawi and other community-based land development programs. Although this project will not fund community sub-projects (since its focuses on market-drivenland acquisition and household benefits), it will use essentially the same institutional arrangements as MASAF, adapted to the specific needs o f the project. Local institutions, particularly District Executive Committees (supported by other local government technical entities and NGOs, as needed), will be the main counterparts o f communities, and will be in charge o f information dissemination, application screening and appraisal, including capacity-building support and M&E. At the national level, the National Technical Advisory Committee (NTAC) provides a final review before the land transactions are sanctioned by the Lands Minister (as required by the legislation in place). In turn, NTAC is monitored by the National Advisory Committee for Community Empowerment and Accountability (NACCEA). The P M U plays a role o f managing the capacity building support and M&E for the project as a whole. 6.5 How will the project monitor performance in terms o f social development outcomes? It is expected that through the combination o f an effective management and information system compatible with that o f MASAF that generates periodic implementation progress reports at the district level, periodic Bank supervision missions, random audits, beneficiary assessments, and independent evaluations, project performance in terms o f social development outcomes will be effectively monitored. Details o f the monitoring and evaluation arrangements are included inthe Project Implementation Manual. 7. SafeguardPolicies: 7.2 Describe provisions made by the project to ensure compliance with applicable safeguard policies. The project does not present any major safeguard issues. The net social and environmental effects o f the project are expected to be positive, since the project will significantly reduce rural poverty among the beneficiaries and i s likely to discourage encroachment on private and public lands. The only safeguard policies triggered are OP 4.01 and OP 4.09, - 27 - Compliance with Environmental Assessment (OP 4.01) is ensured through the implementation o f the Environmental Management Plan which includes, an Environmental and Social Screening and Review Process (ESSRP), a Pest Management Plan (PMP), Monitoring and Evaluation (M&E), and institutional strengthening, all funded and implemented as part o f the project. Inaddition, through ESSRP, the project will specifically screen potential farms to be purchased by poor communities for the existence of, or connection to, potential natural habitat issues, and will promote sustainable land use practices as part o f the Farm Development Plans. Finally, the appraisal phase o f the Farm Development Plans will use a safeguards screening checklist and will promote sustainable practices at the household and agricultural production level, by providing capacity-building resources to the new communities, as needed. Compliance with Pest Management (OP 4.09) is ensured through the Pest Management Plan. Since one o f the key aims o f the project i s to help poor and vulnerable groups in Malawi own farmland and improve their livelihoods, the Farm Development part o f the Land Acquisition and Farm Development Sub-projects Grant is designed to enable beneficiaries to acquire basic production technology, that may involve agro-chemicals, seeds, tools and implements, etc. Therefore, the Pest Management Policy i s triggered and a Pest Management Plan has been developed and incorporated into the Environmental Management Plan o f the project. The PMP, as designed, has a dual objective: i)to enhance the capacity o f the project beneficiaries to use pesticides inan economic and safe way (ensuring that banned pesticides or ago-chemicals inWHO classes IA, IB and I1will not be acquired by farmers), and introduce them to Integrated Pest Management (IPM) on a pilot basis--for which technical capacity will be established in project districts through training o f trainers; and 2) to identify key strategic and institutional issues at the national and local government levels, inorder to promote movement towards the development and implementationo fa pest management policy. Finally, it is important to note that while the project will support the purchase o f farms available on the market for the benefit o f poor/landless farmers and other vulnerable groups, the project will involve no involuntary land acquisition or any form o f restriction o f livelihoods, or involuntary restrictions o f access to legally designated parks and protected areas. This is ensured through the following project design features: i.farmspurchasedfromthemarketwillbeunencumberedandfreeofanylegalandfinancialclaims or any other liens; ii.farmswithencroachersorsubjecttoanyformofunresolvedlabordisputeswillnotbeeligiblefor purchase and payment by the project; iii.theFarmDevelopmentpartoftheLandAcquisitionandFarmDevelopmentGrantwillbeusedfor individual benefits only, allowing farmers to setup shelter, and basic amenities, and to enable them to start agriculture production; and iv. the project will not fund any community infrastructure. Instead, if they express the need, communities will be supported in the preparation o f proposals to MASAF (which uses a community-driven approach to support a variety o f community socioeconomic and infrastructure sub-projects). F. Sustainability and Risks 1. Sustainability: Sustainability o f community-based land acquisition and farm development activities is highly likely due to: - 28 - i.the high degree of community participation in identification, preparation, contracting, implementation, and supervision; ii.theownershipbybeneficiariesasevidencedbycashorin-kindcontributions; iii.theuseoftheexistingandtestedMASAFprocedures;and iv. the involvement o f other sectors, local NGOs and other stakeholders ("horizontal accountability"). 2. Critical Risks (reflecting the failure o f critical assumptions found inthe fourth column o f Annex 1): Risk Risk Rating Risk Mitigation Measure From Outputs to Objective Government does not use ground rents and M Policy instrument supportedby adjustment land tax policy instrument to suppress )peration with land component speculation inland prices Property rights allocated to beneficiaries M Project will provide secure title to beneficiaries, do not provide sufficient tenure security to including individual sub-divisions ifdemanded encourage on-farm investment 4cceptance o f land sale by neighboring :ommunity is part o f approval process Decentralization policy inpilot districts i s S Both MASAF and CBRLDPprovide not implemented zapacity-building support to local government institutions inpilot districts I Resources are directly controlledby beneficiary groups, creating strong effective demand on local government performance Social issues (withinthe group and with M Group cohesion and prevention o f elite capture respect to the receivingcommunity) are will be facilitated through specialized assistance. not resolved satisfactorily. Ifbeneficiaries have identifieda farmina different district than where they live, both originating and receivingdistricts will be supported to work with beneficiaries and receiving communities to resolve potential conflicts. Project will hire a social development specialist. From Components to Outputs Insufficient land, at excessive prices, is M Iflandmarket supplyis not sufficient or too available for acquisition inparticipating costly, Government can increase ground rents districts and land taxes, as agreed under parallel adjustment operation with landcomponent. Strengtheningo f ground rent collection will be financed under the project. - 29- Decentralization o f Land Administration M 3roject finances decentralization, including a inpilot districts is not effective LandAdministration Manager who reports to :heMinistry'slandadministrationline function nanagement Support to local government institutions M rargeted and specialized assistance has been inpilot districts is ineffective xogrammed into the project, to be providedby mblic and private agencies at the community mddistrict levels. [ftechnical assistanceisnot sufficiently ivailable at the local level, the participating iistrict would seek supplemental technical and financial support from the Project Management Unit at the national level. Beneficiaries do not have sufficient access S Project finances special capacity-building to technical and financial assistance to support to beneficiaries and local NGOs prepare and implement profitable land acquisition and farm development proposals. M&Esystemis ineffective M Readiness o f M&E system i s condition for effectiveness Financial management andprocurement S Financial management and procurement capacity o f project implementation assessments undertaken, including formulation structures i s weak. o f action plans. Land Acquisition and Farm Development component will use existing MASAF systems, with low financial management and procuremen risks. Overall Risk Rating M iisk Rating - H (High Risk), S (Substantial Ri! , M (Modest Risk), F Negligible or Low Risk) 3. Possible Controversial Aspects: Given the voluntary nature o f the land redistribution approaches being proposed, the project i s not expected to engender resistance from either estate-owners or potential beneficiaries. Voluntary movement o f beneficiaries between districts may sometimes be problematic, but, under the pilot project, will take place within the same socio-ethnic regional grouping. Movement between regions, under a scaled-up operation, would be controversial, however. Given the high degree o f landlessness in Malawi, non-pilot districts might feel excluded. An Information-dissemination Education, and Communicationcampaign will be mounted to inform the nation -30 - o f the pilot-nature o f the project, and, if successful, its scaling-up. The project obtained an exception to the Bank's policy on tobacco, as set out in OP 4.76: "The Bank does not lend directly for, invest in, or guarantee investments or loans for tobacco production, processing, or marketing." CBRLDP includes no specific activities targeted to tobacco production, processing, or marketing. However, under this community-based approach to land reform, project beneficiaries would be empowered to make their own decisions on the purchase and development o f their farms -- and it cannot be ruled out that some farmers would choose to use the grants that they receive under the project to purchase inputs to raise small amounts o fburley tobacco. The exceptionwas granted on the basis that: i.Malawiisheavilydependentontobaccoasasourceofincome(accountingforabout60percentof merchandise exports, 23 percent o f total tax base, and 10percent o f GDP); ii. the proposed land reform activities are highlightedinthe Malawi Poverty Reduction Strategy Paper, the FY03 Country Economic Memorandum, and the FY04 Country Assistance Strategy as ... core elements for promoting pro-poor growth; ill. the beneficiaries of the proposedmeasures would be poor smallholder farmers, who account for 70 percent o f total production; and iv. the Bank program includes a number o f activities designed to help Malawi diversify away from tobacco. G. Main Grant Conditions 1. EffectivenessCondition i.Keyprojectmanagement staff inplace andTerms ofReference acceptable :ProjectManager, Finance Manager and Procurement Specialist. ii.Positionofindependentevaluatoradvertised. 2. Other [classify according to covenant types used in the Legal Agreements.] i.MASAF-ManagementUnitwiththeappropriateprojectstafftobemaintaineduntilcompletionof the project to implement the Land Acquisition and Farm Development component; ii.Project Management Unitwith the appropriate staffto be maintained untilcompletionofthe ... project to implement the other components o f the project; 111. Steering Committee to be maintained until completion o f the project to oversee the overall implementation o f the project; iv. Project to be carried out in accordance with the Project Implementation Manual and the Environmental Management Plan; v. Land Acquisition and Farm Development (LAFD) component to be implemented in accordance with the procedures set out in the Project Implementation Manual and the LAFD Sub-project GrantAgreements. vi. Annual procurement plan to be submittedby May 15 o f each year o f project implementation; vii. Semi-annual and annual financial audits to be carried out under the project; viii. Mid-termReview to be carried out by December 31, 2006; and ix. An Independent evaluator appointed within six months o f the effectiveness date. H. Readinessfor Implementation 0 1.a) Theengineeringdesigndocuments forthefirstyear's activitiesarecompleteandreadyforthestart o f project implementation. 1. b) Not applicable. -31 - 02.Theprocurementdocumentsforthefirstyear'sactivitiesarecompleteandreadyforthestartof project implementation. Ix13. The Project ImplementationPlanhasbeen appraised andfoundto berealistic andofsatisfactory quality. 04.Thefollowingitemsarelackingandarediscussedunderloanconditions(Section G): I. Compliance with Bank Policies 1. This project complies with all applicable Bankpolicies. 02.ThefollowingexceptionstoBankpoliciesherecommendedforapproval. Theprojeawnplieswith all other applicable Bank policies. 4 fi' Rogier J. E. Van DenBrink L R i c h a r d G. Scobey hafer i Team Leader Sector ManagerlDirector ' Country ManagerlDirector - 32 - Annex 1: Project Design Summary MALAWI: Community-Based Rural Land Development Project Key Performance Data CollectionStrategy Hierarchyof Objectives Indicators Critical Assumptions iector-related CAS Goal: iector Indicators: iector/ country reports: from Goal to Bank Mission) 0 Reducepoverty by 0 Poverty and extreme 0 Comparison o f rural 0 Selected poverty increasing broad-based poverty headcount household survey data indicators are relevant for economic growth measurement o f actual poverty 'roject Development Iutcome / Impact 'roject reports: from Objective to Goal) Ibjective: ndicators: 0 To increase the incomes Incomes o f participating 0 Annual project M&E 0 Scaling-up o f pilot project o f about 15,000 poor families, compared to reports by Ministry o f i s feasible rural families by control groups and Lands, Physical Planning 0 Localizedtensions implementing a pre-project income levels. and Surveys according to around land issue do not decentralized M&Eframework escalatebefore pilot i s community-based 0 Increased agricultural 0 Annual independent scaled-up approach to land production. evaluation reports 0 Macroeconomic and acquisition and farm 0 Bank supervision reports govemance situation do development in four 0 Pilot program evaluated 0 Mid-TermReview not markedly deteriorate districts. and decision to scale-up 0 Progress inthe positive unfinishedagricultural policy reform agenda through adjustment programs is effective and enhances the profitability o f smallholder farmers 0 HIV / AIDS pandemic is significantly mitigated -33 - Key Performance Data Collection Strategy Hierarchy of Objectives Indicators CriticaI Assumptions htput from each 3utput indicators: `rojectreports: `Tom Outputsto Objective) :omponent: I. Landacquired, number o f 0 Number o f family farms 0 M I S implementation 0 Government uses ieneficiary families, and establishedon lands progress reports groundrents and land igricultural production acquired through the 0 Progress Reports by Land taxes to suppress ichieved project Acquisition and Farm speculation in land prices 0 Amount, speed and cost Development Manager o f land acquisition (per 0 Annual independent beneficiary family and evaluation reports per hectare) 0 Speed and cost o f establishment o f agricultural production (per beneficiary family and per hectare) ?.Decentralized, transparent 0 Number o f beneficiary 0 M I S implementation 0 Property rights allocated and administration system in groups or beneficiaries progress reports to beneficiaries provide )lace which have received 0 Annual independent sufficient tenure security appropriate evaluation reports to encourage on-farm documentation o f land investment ownership, 0 Number, speed and cost o f titles, cautions and hectares registered, and sketch maps completed 3. Capacity to implement 0 Number and quality o f 0 M I S implementation 0 Decentralization policy i s :ommunity-driven land land acquisition and farm progress reports effectively implemented icquisition and farm development proposals by e Annual qualitative group e Social issues are resolved levelopment program exists eligible beneficiary monitoring o f selected satisfactorily (within )r is created communities (andor beneficiary groups beneficiary groups and hectares o f land) (i) 0 Community monitoring between beneficiary received; (ii) reviewed; reports groups and receiving (iii)approved; and(iv) 0 Annual independent communities). fully disbursed. evaluation reports 1.Monitoring and evaluation 0 Timeliness and content of 0 M I S implementation e Government makes system provides appropriate reports generated by progress reports effective use o f M&E nformation for effective M&Esystem 0 Annual independent results xoject management and evaluation reports rcaling-up decision after xoject completion - 34- Key Performance Data Collection Strategy Hierarchv of Objectives Indicators Critical Assumptions 'roject Components I nputs: (budget for each 'roject reports: from Components to Iub-components: :omponent) 1utputs) .Land acquisition and farm JSS 15.00 m e MIS implementation e Sufficient land, at evelopment progress reports reasonable prices, generated at district-level becomes available for acquisition in e M I S aggregated participating districts (on implementation reports the market or as prepared and coordinated counterpart contribution) by the Ministryof Lands e Independent evaluation reports .Land administration JSS 2.95 million e Periodic random audits e Supportto and field supervisions by decentralization o f land Ministry o f Lands administration is effective 0 MISreports .Capacity building JSS 3.29 million e MISreports e Support to local government institutions e Beneficiary assessments through M A S A F and CBRLDP is effective e Beneficiaries have e Independent evaluation sufficient access to reports technical and financial assistance to prepare and implement profitable lanc acquisition and farm development proposals. I.ProjectManagement and JS$5.76 million e Disbursement reports e Use o f resources for d&E project management is effective e Financial management and procurement capacitJ i s adequate. e Use o f resources for M&I system is effective e Procurement records, contracts, audits, etc. e Periodic Bank supervision reports 0 Timeliness and quality of M I S reports e Timeliness and quality of independent evaluation - 35 - - 36 - Annex 2: DetailedProject Description MALAWI: Community-BasedRural Land Development Project By Component: Project Component 1. Land Acquisition and Farm Development US$16.50 million - This component covers the voluntary acquisition o f landby eligible communities, basic settlement costs and the establishment o f agricultural production. The sources o f this land acquisition are: i.land(leaseholdorfreehold) soldbywillingowners; ii.landtransferred to communities byGovernment (so-called "re-entered" estates, whichfailedto comply with development covenants); and iii.landdonatedbyprivateindividualsandentitiesforresettlementpurposes. A business standards timeline has been developed in the PIM to ensure speedy project processing. The timeline will be communicated as part o f the initial information package to the potential beneficiaries. During the public dissemination campaign, the project information, including a detailed description of application and approval procedures, will be made available in local languages in each district by the District Commissioner. The campaign will be conducted with the assistance o f MASAF and NGOs. A special dissemination and mobilization program will be targeted to marginalized groups (e.g. destitute people, women, orphans). Potential beneficiary groups will first undertake to pre-qualify. Group formation will be facilitated by Community Oversight Committees (COC) which will be formed by both originating and receiving communities. The committees would ensure fairness and transparency at community level and certify that self-selected beneficiaries qualify; participate during field appraisal meetings; and facilitate integration o f beneficiary groups with the receiving communities. A group submits names and the relevant proof o f eligibility o f each member o f the group to the Lands Officer in the District, using a standard application form. The Lands Officer receives the form and does a desk appraisal. He communicates to the group whether the form has been filled out correctly or not. When the form has been correctly filled out, the Lands Officer explains the standard proposal forms and supplies the information of available farms to the beneficiaries. This information is contained in a Land Data Base which will be established by the Department of Lands at the Ministry o f Lands Physical Planning and Surveys. Beneficiaries can also obtain information themselves using real estate agents, the Districts, advertisements in local newspapers, and other sources, but the Policy Planning Unit in the Ministryo f Lands will assist by collating such information in a monthly District newsletter, produced by MASAF. A potential beneficiary group identifies a farm and provisionally negotiates the price with the existing leaseholder or freeholder. The group can ask the assistance o f a valuer, NGOs, or a registered estate agent. The group verifies that no unresolved labor disputes exist, involving farm workers, and that no encroachment problems exist. The group then draws up a general farm plan, using a standard template, which describes: (i) the agricultural production envisaged (short and medium-term); (ii) basic land use a and environmental plan; (iii) the legal entity under which the group proposes to acquire the farm initially (e.g. as an associatiodclub, trust, company, individuals each holding sub-divisions); and (iv) the property regime under which they will hold the land (leasehold, freehold, or, when the new Land Law is passed, "customary estate"). -37 - After negotiations, the group obtains a letter of agreement from the seller. The group presents the letter o f agreement and a general farm plan to the Lands Officer in the District. The Land Officer issues a Public Notice, announcing the intended sale of the land, and inviting anyone with an interest in the land to step forward within twenty-one days o f issuing the notice. However, even ifsomeone steps forward after the twenty-one days, and the land has already been transferred to the beneficiary group, disbursements under the remainder o f the LAFD Grant will be stopped untilthe issue is resolved. The Land Officer leads a Field Appraisal Team to inter alia (i) confirm beneficiary eligibility; (ii) review the provisional sale agreement, farm purchase price and farm plan; (iii) review the environmental and social aspects affecting the proposed land purchase; analysis, and (iv) carry out a preliminary determination as to whether the land title is free of any encumbrances and not subject to any prior claims. This appraisal will be guided by practical checklists and use Participatory Rural Appraisal techniques. The composition o f the team will be flexible, given the specific characteristics o f the group and the farm. Ifthe farm identifiedfor acquisition by the group is ina different district thanthat from which the group originates, the Lands Officer contacts his or her counterpart in the group's home district for the appraisal o f the eligibility o f beneficiaries. The Field Appraisal Team decides on-site whether the proposal (i)passes field appraisal as is; (ii) fails appraisal; or (iii) merits further evaluation. The Lands Officer explains the decision to the group. Iffurther evaluation is needed, the Lands Officer mobilizes special assistance (public andor private, financed by the project). Ifthe appraisal is positive, the Lands Officer submits the proposal to the District Executive Committee (DEC) where the farm i s located for approval. This proposal will now be known as the "Land Acquisition and Farm Development Sub-project". The DEC i s an existing local government institution and the implementing agency o f MASAF at the District Level. Ifthe appraisal i s negative, the group i s advised o f the decision and given a copy o f the appraisal report. The DEC is composed o f Heads o f relevant departments and, for the purposes o f this project, augmented by relevant civil society representatives, including the Traditional Authorities. The appropriate composition o f the augmented Committee will be decided on by each District, in consultation with the Ministry o f Lands. The DEC meets regularly to approve MASAF and CBRLDP proposals, but will meet at least once a month for the purposes o f this project, given the market-based characteristic o f the land acquisition process. The DEC o f the "home" district o f the group evaluates whether beneficiaries meet the eligibility criteria, as specified inthe Project Implementation manual, including confirmationthat the members o f the beneficiary group are: (i) Malawian citizens; (ii)poor (according to a predefined list o f criteria and the Field Appraisal's own assessment); (iii)land-poor (no land, or less land than needed for own subsistence in particular agro-climatic zone); (iv) willing to farm (as demonstrated by their farm plan and their understanding o f this plan); and (v) capable to undertake this project as a group. However, DEC can make exemptions to the eligibility criteria to accommodate vulnerable groups (e.g. orphans, disabled). The DEC evaluates whether the farm price is fair and reflects prevailing market-conditions. If needed, it hires an independent valuer to check the price paid (fee paid by project). The DEC evaluates the agricultural and legal aspects o f the proposal, by assessing whether: i)the intended use o f the land i s compatible with its potential; ii) the group understands the farm plan and has (or will - 38 - acquire) the capacity to execute it; and iii)the group understands the implications o f the different legal entities and property rights regimes. The DEC evaluates the environmental soundness o f the proposal, by assessing whether: i) the environmental checklist is met (zoning, protected area, bordering protected areas or water bodies, fragile ecosystems); ii)an Environmental Impact Assessment is needed; and iii)the proposed landuse conforms to the District EnvironmentalPlan. The DEC evaluates whether the social issues are properly addressed: i)the farm is free o f encroachment; ii) no unresolved disputes with farm workers exist, or, if special assistance is needed (financed by the project); and iii)the integration o f the new settlement into existing, surrounding communities does not pose significant social problems, or, if special assistance i s needed (financed by the project). The DEC checks that: (i)the title to the land (freehold or leasehold) i s unencumbered and clear o f legal claims; and ii)no other condition threatens the effectiveness o fthe land acquisition. The DEC assesses which key, priority communal infrastructure could be financed under MASAF as a matter o f priority. If necessary, the DEC may seek the assistance of the Project Management Unit at the national level to complete the review o f the proposal, and such assistance will be financed under the capacity-building component o f the project (e.g. assistance for Community Development, Environmental Impact Assessments, Social Impact Assessments), Ifthe project has met all criteria, the project is approved by the District Executive Committee. The DEC abides by the rules o f the District Assembly; and the existing sector norms and standards. The DEC then sends the project to the Project Management Unit o f the Ministry o f Lands. The P M U sends it to the members o f National Technical Advisory Committee (NTAC) for approval, in batches. For Community-Based Rural Land Development projects the NTAC will convene special meetings because market transactions cannot afford long delays. The N T A C i s chaired by the Ministry o f Finance and comprises representatives from the MLPPS; Ministry o f Education, Science and Technology; Ministry o f Health; Ministry of Water Development; Ministry o f Transport & Public Works; Ministryo f Commerce & Industry; Ministry o f Agriculture, Irrigation & Food Security; Ministry o f Gender and Community Services; Ministry of Local Government; the National Local Government Finance Committee; and the Executive Secretary o f Council for Nongovernmental Organizations in Malawi. The N T A C in tum is monitored by the National Advisory Committee for Community Empowerment and Accountability, composed o f seven members, including the Centre for Social Research, DFID, and UNICEF. After the NTAC approval, the beneficiary community signs a "Land Acquisition and Farm Development Grant Agreement" with the MASAF-MU. The LAFD Grant Agreement will include inter alia the following terms and conditions include: (i) details o f the proposed landpurchase; (ii) establishment o f a the project management committee; (iii)the elaboration o f a detailed Farm Development Plan; (iv) the disbursement schedule (40-30-30) with tranche conditions; and (v) the responsibilities o f the community in implementing the agreement (e.g. beneficiary contribution o f at least 10% o f the farm development portion o f the LAFD Sub-project Grant incash or inkind, environmental management conditions). After the signing o f the LAFD Grant Agreement, MASAF issues the cheque to the seller o f the farm and the MLPPS transfers the land ownership to the beneficiary group inits selected legal form. MASAF sends information to the DEC and Ministry o f Lands on a monthly basis. The District Lands Officer transfers - 39 - the property to the new owners inthe specific regime requested. Ifthe landis leasehold, beneficiarieswill now start payingground rent (MK5Oha currently, to be increased inthe next years). Ifthe land is freehold, beneficiaries will start paying land tax, when introduced innext years. This will provide them with an incentive to immediately start agricultural production. After the transfer o f the land, beneficiary communities will become eligible to receive finding for communal infrastructure through MASAF through procedures established under MASAF 3, CBIUDP will finance activities which deliver an individual benefit, rather than a community good. CBRLDP will use the following indicative positive list o f activities which allow the family to settle and start agriculture production: basic settlement cost (shelter, basic amenities, settlement allowance) and agricultural production (agricultural inputs, tools, livestock, technical assistance). In addition, through parallel financing, the group will receive Starter Pack provisions (through NGOs, DFID-financed). Beneficiaries immediately: (i) receive the settlement allowance (cash, 5% o f grant), and the Starter Pack; and (ii) are informed o f the balance remaining per beneficiary (uniform ceiling minus costs o f land acquisition). Beneficiary groups then prepare a detailed Farm Development Plan (FDP), detailing the use o f the grant balance for basic settlement cost and agricultural production, based on a detailed farm and land use plan. To prepare the detailed FDP, the group will use technical assistance coordinated by the Lands Officer. The proposal specifies community contributions in cash, labor or in-kind(10% o f the Farm Development part o f the LAFD Grant), replicating the MASAF3 model. The FDP is appraised by the Field Appraisal Team, led by the Lands Officer and composed o f Technical Specialists as relevant. The Field Appraisal Team i)uses a detailed checklist for the evaluation o f the proposal, andthe existing MASAF checklists for economic, environment and social aspects and; ii)can call on specialized agencies if further review is necessary, and this will be paid for by the project (e.g. environmental impact assessment, social impact assessment). The Field Appraisal Team authorizes the disbursement o f tranches by the MASAF-MU. Procurement follows IDA'SCommunity Procurement rules. Tranche releases are governed by the conditions spelled out inthe signed LandAcquisition and FarmDevelopment Grant Agreement (see above). The Lands Officer, with specialists as needed, monitors implementation. The Lands Officer will use the Local Assembly Management Information System o f MASAF. Project Component 2. Land Administration US$2.95 million - This Component will support the Ministry o f Lands, Physical Planning and Surveys in carrying out land administration tasks required by the project. There are currently several important change processes underway in land administration in Malawi, including implementation o f the decentralization o f land administration to districts mandated by the Local Government Act, 1998. The European Union i s currently funding a revision o f relevant land laws, and will be supporting a broad effort to strengthen land administration. This component focuses much more narrowly on the land administration tasks needed to ensure that those purchasing land under Component 1 receive secure titles. The legal framework for the land acquisitions and titling is satisfactory, and no legal changes are required to allow this project to achieve its objective. But the Ministry o f Lands, Surveys and Physical Planning has large numbers o f unfilled posts and Ministry staff lack training and equipment for simpler, labor-saving - 40 - technologies such as GPS. The Ministry's capabilities must be both strengthened and supplemented. This will be done through training for existing staff, contract hiring o f key project staff, and reliance on the private sector, including lawyers, valuers, and surveyors. These private sector service suppliers are available to people in the pilot districts due to their relative proximity to Blantyre, the commercial center o f the country. The land purchased under the project will be registered as freehold and leasehold land. It is anticipated that most o f the land purchased by the beneficiary groups will be retained in those tenures. In the case o f leaseholds, the un-exhausted term o f the lease will be purchased by the buyers but the Ministry will then renew or extend the lease for the purchasers so that they will enjoy a term o f ninety-nine years. After reviewing the first transactions under the project, the Minister will facilitate these transfers by providing a general consent under the Land Act 1965 to all transfers o f land financed by this project. The purchases would be registered under the Registered Land Act 1967, a title registration law which will provide secure title. Purchasers will have the option, if they wish, to take the land purchased under the customary land tenure system o f the area. If the new Land Law carries out the intention o f the 2002 Land Policy, that law will allow for registration o f customary estates, and any beneficiaries who took their land under customary tenure would then have this option. In order to provide secure tenure to project beneficiaries, the Ministry will need to (i)advise and assist District authorities implementing Component 1;(ii) provide advice and assistance to communities obtaining land, including advice on physical planning and accessing private sector services; (iii)provide quality control o f services provided to project beneficiaries by private surveyors, conveyancers, valuers, and lawyers; (iv) facilitate the transfer o f purchased properties currently registered in the older Deeds Registry to the Land Registry, and e) process and register both the initial transfers to the groups purchasing the land and any subsequent partition o f that land among the members o f the groups. The number o f parcels to be purchased is estimated to be in the order o f 600 over the life o f the project. The land administration work required will phase in as parcels are purchased, over the life o f the project. They number o f parcels which may ultimately be surveyed and registered on the initiative o f the beneficiaries will depend on the number o f groups which elect formal partition o f the purchasedland among their members, at their own cost, but it could be on the order o f 20,000 parcels. Implementing these processes will require (i)the posting o f a Land Officer to each o f the foLir Project Districts; (ii) strengthening the capacity in the RegionalLand Survey Office and Land Registry in Blantyre to carry out functions detailed above; and (iii) strengthening the capacity o f the Headquarters to supervise the land administration tasks under the project. The Ministryis currently seriously understaffed at regional level and it hasno officers inthe Districts. The project will support the hiring o f key staff under contract, who will be dedicated to work under this project. These include the four district land officers and an administrative assistant for each officer; an assistant registrar, a valuer, a physical planning officer, and a supervising surveyor for the Regional Office; and a lands officer for the PMU, at Headquarters. The project will fund necessary vehicles, office equipment, communication equipment, furniture and operating expenses for the central, regional and the four district offices. In the districts it will also fund office renovation (where the district has office space available) or office rental and renovation (where district office space is not available). The Ministry will undertake a study o f lessons to be learned from past experience in land acquisition and distribution, including Makande and other relevant cases. The project may support other studies and international technical assistance as requested by the Ministry,within the budget figures specified. -41 - As implementation of the project proceeds, further strengthening o f district and regional landadministration will be needed. The increased number o f registered titles created under the project will increase the demand for land registry services in the pilot districts. Partitions o f land purchased seem likely to increase the number of registered parcels in the pilot districts by a factor o f ten to twenty, and after five years the beneficiaries will be able to engage intransactions concerning those parcels. Inthe course of the periodic reviews of progress in achieving the objectives of the project, if the Ministry and the Bank find that those objectives are being achieved and funding i s available in the budget over and beyond what is needed for that purpose, then they may agree to reprogram that funding to more broadly strengthen land administration at regional and district levels. Any such strengthening would be closely coordinated with assistance being provided by the European Union, and if such an adjustment inuse o f the component budget i s contemplated, international TA will be providedto advise on the most strategic use o f such funding Designinga LandAdministration system which is fiscally affordable and responds efficiently to community demand for the formalization o f property rights, will take time and considerable effort. International experience shows that this is best achieved through a gradual approach, based on pilots. At the local level, activities under this component will be focused on providing beneficiaries o f land acquisitions with secure rights, understanding their needs for tenure security and their preferences regarding tenure in the acquired land, then working with the Ministry o f Lands to meet those needs. This "learning-by-doing" will inform project inputs into landpolicy and law reform taking place at national level. Project Component 3. Capacity building US$3.39 million - The project will support capacity-building at: National level: i.MLPPS'ProjectManagementUnit,PolicyPlanningUnitandrelevantDirectoratesand ii.MASAF-MU District level. i.DistrictExecutiveCommitteesand ii.Traditionalauthorities, civilsocietyorganizations,professionalassociations. Community level. i.Eligiblebeneficiaries; ii.Vulnerablegroupsand iii.Communitiesoverseeingbeneficiaryselectionandintegratingbeneficiarygroups. These activities include: 1. Dissemination Campaigns. (Project information, detailing application and approval procedures, to be made available in local languages). i.ineachDistrictbytheDistrictCommissioner,usingpublicinformationcampaign, withassistance from MASAF ii.special dissemination and mobilization programwill be targeted to marginalized groups (e.g. destitute, women). 2. LandDatabase. - 42 - i.collatedfromlocalnewspapers,fromDistrict,andfromrealestateagents; ...ii.coordinated by the Ministry's Lands Department and 111. it will send, every month, this informationto MASAF to produce a district newsletter covering the four districts. 3. Special Technical Assistance. This would be provided for the development and appraisal o fproposals, including: i.communitymobilizationandbuilding,farmassessments,negotiations, farmplans; ..* ii.participatoryRuralAppraisal; 111. assessment and addressing o f social issues (e.g. community integration); iv. preparationo f detailed farm developmentproposal; v. Environmental Impact Assessments; and vi. Pest Management anduse o fpesticides. Project Component 4. Project Management and Monitoring & Evaluation US$6.92 million - The CBRLDP will be implemented through a decentralized framework. Using the Community Driven Development approach, the project will work directly with beneficiaries, communities, district-level institutions, NGOs, and line ministries. The Project Management Unit o f the CBRLDP will ensure the overall supervision o f the project, including the effective coordination between the various stakeholders. While the financial management o f the Land Acquisition and Farm Development Component rests with the MASAF-MU, the financial management o f the other components will be executed by the PMU. The Community-Based Rural Land Development Project has the development and implementation of a rigorous M&E framework as one o f its key project outcomes. Market-assisted land reform i s a relatively new concept and will need a better evaluation o f impact than "standard" projects (e.g. housing) to justify the use o f public resources, in particular because an exception to the Bank rule to use IDA resources for land acquisition would be given. In addition, the land reform target group is largely self-selected-an evaluation will need to estimate the errors o f inclusion and exclusion. Importantly, project benefits will be evaluated along two dimensions, the beneficiaries and the land. This is because the project not only intends to raise the living standards o f the beneficiaries, but also the sustainable productivity o f the land. And finally, because this is a pilot project, the M&E effort itself i s defined as a project outcome. To monitor project performance and evaluate the impact o f the activities financed, the project will support the design and implementation o f a monitoring and evaluation (M&E) system which is compatible with that o f the Malawi Social Action Fund (MASAF) implemented by District Assemblies, communities and NGOs/CBOs. The M&E framework will include an intensive monitoring o f social development issues, with communities, District Assemblies, and the Ministrybeing able to access resources to mobilize special assistance. A community will, for instance, have access to project funds to engage an NGO specifically for monitoring purposes, The evaluation will be undertaken by an independent institution, selected on the basis o f international selection. Monitoring will be based on the MASAF MIS, augmented by intensive on-site monitoring by the Lands Officer and specialized NGOs, which, depending on the hiring entity, will report to communities, DEC or the Ministry. NGO monitoring will include undertaking regular beneficiary assessments. For the Land Acquisition and Farm Development component, the M I S will be operated by MASAF, but ultimate responsibility rests with the P M U at the Ministryo f Lands. The MIS will monitor the inputs and outputs o f this component, in particular: (i) number o f family the farms established on lands acquired through the project, the speed of land acquisition (from first - 43 - beneficiary screening to land transfer); (ii) cost o f land acquisition (per beneficiary family and per the hectare); (ii) the speed and cost o f establishment o f agricultural production (per beneficiary family and per hectare). Process inputs and outputs will include: (i) number o f land acquisition and farm development proposals by eligible beneficiary communities (and/or hectares o f land) reviewed and approved by participating local government inparticipating districts; and (ii) number o f beneficiary communities which enjoy secure tenure and have received appropriate documentation o f land ownership (based on prevailing legal framework at time o f land acquisition). To ensure adequate process monitoring, each district will hire an NGO to monitor project implementation, based on the MIS and using Participatory Rural Appraisal techniques. These assessments will be o f a qualitative nature (e.g. targeting effectiveness, community development, satisfaction, inclusiveness, relations with surrounding communities, incorporation o f farm workers, relations with local government structures and other stakeholders, self-assessments). Reports will be submitted for review and action to DEC and the P M U every four months. The Department o f Lands will set up a land market database to monitor and analyze land market transactions (prices and quantities). This i s needed to: i.providegoodinformationtopotentialbeneficiaries; ...11.provide "early waming" for landprice increases; 111. compare with and without project situation; iv. assess whether the program is improving overall land market activity (e.g. sales, sub-divisions); and V. assess land distributionimpact at district levels. Evaluation will be executed by an independent organization, selected on the basis o f international tendering. Evaluation will be based on a sampling framework, which, by using o f base-line surveys and control samples, will be able to assess (i)what are the absolute outcomes-before/after? and (ii)what are the relative outcomes-witldwithout? Key questions to assess the outcomes the land reform pilot program are the following: Beneficiaries: i.Whobenefits? Arewetargetingandreachingtherightpeople? Doesthescreenedself-selectionof potential beneficiaries result in the inclusion o f the poor and land-poor, and the exclusion o f better-offand "landed" households? 11. Note that beneficiary families may bring in additional family members and/or workers later--these ... add to the who benefits?" list. 111. Welfare measures (household income/expenditures, well-being-objective and subjective, quantitative and qualitative). Land: 1. Productivitymeasures; and the environmental condition. 11. Potential for scaling-up the pilot by measuring key project performance indicators; (a) land transfers-area, speed and cost o f transfers; (b) fiscal cost per sustainable beneficiary livelihood - 44 - created- do the above economic benefitsjustify the overall fiscal costs? Evaluation will be carried out annually, starting with a Baseline Survey upon project effectiveness. The evaluation data will be generated from beneficiary surveys and control groups. The quantitative data would be collected from household surveys, stratified to land reform beneficiaries and agricultural areas, and the MIS. Qualitative data would be supplied by the NGOs monitoring the project, using beneficiary assessments and participatory rural appraisals. Three sample surveys will be conducted: i.Beneficiaryhouseholdandfarmpanel; ii.Controlhouseholdpanel;and iii.Controlfarmpanel("area survey"). Importantly, the M&E results will need to assess the feasibility o f a scaled-up program, based on the pilot project. For instance, how much financing the government and the donors would be willing to put into a 20-year land reform program will depend on the economic return and the poverty impact measured in the pilot. But other factors, outside the scope o f this project, are equally important. For instance, Malawi has experienced low growth rates in recent years. Ifthe adjustment efforts are successful, the macroeconomic, agricultural and lands policy environment will accelerate the growth rate, which would make the program more affordable over time. The poverty impact will not be measurable in the short runby looking at the income and production on the farms in the first years, but will depend on the rate o f savings and capital accumulation, in kind and in cash, o f the beneficiaries over a longer period. The pilot project, since it has a timespan o f five years, will generate therefore only partial information on the long-run poverty impact. This makes it imperative to also obtain evaluation results from land reform programs which have a longer time series measuring beneficiaries poverty and production levels. These experiences include the Brazil program, and the results o f Zimbabwe's earlier land reform efforts (1980-83). Finally, increased agricultural production and beneficiaries will have multipliereffects, which need to be estimated for the scaled-up program, but will not be generated by the results o f the pilot project. Potential fiscal cost savings for a scaled-up program would be identified under the pilot project. In particular, the gradual increase o f ground rents on leasehold contracts and a land tax on freehold during the pilot project period would provide a basis to estimate the potential additional fiscal revenues under a scaled-up program. Other potential cost savings which can be imputed from the pilot project stem from the fact that the pilot will develop and test the implementation systems, so that a scaled-up subsequent program would not need to finance this systems development cost. This will include some modest economies o f scale in the overhead. Finally, the pilot project would investigate whether farmers associations could manage parts o f the project at a lower cost than government employees or NGOs. - 45 - Annex 3: EstimatedProject Costs MALAWI: Community-BasedRural Land DevelopmentProject Local Foreign Total Project Cost By Component US $million US $million US $million Land Acquisition and FarmDevelopment 14.50 0.00 14.50 Land Administration 1.66 1.29 2.95 Capacity Building 2.69 0.52 3.21 Project Management and Monitoring and Evaluation 4.42 0.50 4.92 Total Baseline Cost 23.27 2.3 1 25.58 Physical Contingencies 2.00 0.10 2.10 Price Contingencies 2.00 0.10 2.10 Total Project Costs1 27.27 2.5 1 29.78 Total Financing Required 27.27 2.51 29.78 Local Foreign Total Project Cost By Category US $million US $million US $million LAFD Sub-projects 16.50 0.00 16.50 Goods 0.50 1.50 2.00 Consultants, Studies 1.62 1.oo 2.62 Training and Workshops 3.08 0.00 3.08 Operating Costs 5.58 0.00 5.58 Total Project Costs1 27.28 2.50 29.78 Total Financing Required 27.28 2.50 29.78 I Identifiable taxes and duties are 0 (USSm) andthe total project cost, net o f taxes, is 29.78 (US$m). Therefore, the project cost sharing ratio is 90.66% of total project cost net of taxes. - 46 - Annex 4: Cost Benefit Analysis Summary MALAWI: Community-Based Rural Land Development Project [For projects with benefits that are measured in monetary terms] I I I I I ' The difference between the present value o f financial and economic benefits are primarily due to the linkage effects between farm incomes and the nonfarm economy. I Ifthe difference betweenthe present value offinancial andeconomic flows is large andcannot be explained by taxes and subsidies, a brief explanation o f the difference i s warranted, e.g. "The value o f financial benefits i s less than that o f economic benefits because o f controls on electricity tariffs." Summary of Benefitsand Costs: A detailed economic and financial analysis has been prepared to quantify the economic benefits o f the project. The primary economic benefits as a result o f the project are the increasedagriculturalproductivity from the redistributed land that is currently under-utilized, and the distributional benefits gained from increasing the incomes o f about 15,000 poor and land poor rural families. Two important benefits not valued in the analysis are the relieving o f the negative externalities associated with tensions around the land issue, and the value in piloting new approaches to land redistribution, in particular, market-assisted transactions, and community-driven approaches, that can be scaled-up across the country. The analysis is based on three representative farm models - based on agro-climatic zones within the four pilot districts - anticipated to be established by smallholders under the project. The internal rate o f return o f each o f these farm models is calculated, taking into account all financial and economic costs and benefits. The change in household income, due to own-consumption and cash sales of crop surplus are examined. The analysis aggregates from the individual farm models to determine project benefits, based on a project benefit build-up as beneficiary households enter the project, considering financial and economic rates o f return. The project costs are based on the cost estimates that result from the detailed project costing. The sensitivity o f results to changes in key assumptions are analyzed to test the robustness o f the results. Finally, the fiscal impact o f the project i s assessed. 1. Cost-benefit Analysis Summary: Three farm models are considered: - 47 - i. Subsistencemodel: 80% oftargeted beneficiaries are expected to grow primarilyfood crops for their own consumption and a small proportion of cash crops. The crops and cropping pattern will differ between agro-climatic zones, however the average smallholder, based on aggregate data from the four districts, is assumed to include some quantities of local and hybrid maize, groundnuts, sweat potatoes, pigeon peas (inbetween the maize), cassava and sorghum; ii. Semi-commercialmodel: 10%ofbeneficiariesareexpectedto grow ahigherproportionofcash crops inagro-climatic zones where this is possible, in addition to some food crops. Expected crops are: hybrid maize, sweet potato, cassava and rice, however, cotton, sugar, chilies and paprika are plausible substitutes (while tobacco i s also a likely substitute, it is not considered inthis analysis); iii. Tea model: 10%ofbeneficiaries (inThyolo andMulanje) are expected to grow tea (and some food crops) on an out-grower basis with the local tea estates. The major assumptionsinclude: i.Where data is significantly divergent or unreliable, conservative assumptions havebeenmade. This is particularly significant with data on crop yields and input and output prices o f agricultural production. 11. A 20 year time horizon i s considered for the full project build-upo f costs andbenefits based on an ... individual farm-level horizon o f 15 years. 111. Current income levels (and assumed "without project" incomes) are assumed to be $100 per family per year, o f which own consumption is a component. iv. Beneficiaries in the subsistence model derive a small proportion o f their income from off-farm employment (mainly as ganyu labor, as is the current situation) which will come into affect by year 3, once shelter and basic infrastructure has been constructed. V. It is assumed that no credit is available for smallholders. vi. Smallholder productionyields o f all crops are expected to increase by 2% per year as productivity performance andtechnology adoption increase. vii. Input costs include fertilizer, seeds, establishment costs and farm implements. Output prices ... assume low quality, farm gate prices. Yields assume low fertilizer use. v111. Family labor is valued at the ganyu labor rate (informal labor) o f MKlO/day, the opportunity cost ix. The land price i s assumed to be fixed throughout the four districts at $175/ha. The project i s assumed not to affect the price o f land. Adjustments in land tax and ground rents (expected to be part o f the new Land Policy when it gets codified into law) are expected to contain any possible price escalation. X, A discount rate o f 12% is used, inline with the figure recommendedby the Ministry of Economic Planning and Development. xi. Significant distortions in the economy in input costs (e.g. fertilizer) and output prices are assumed to be minimal. Therefore, financial and economic costs and prices are assumed to be virtually the same (except for a minor taxable proportion o f input costs). xii. The nonfarm multiplier from the linkage effect o f a change infarm cash on the local economy is assumed to be 1.5. Costs accruing at the family level include the grant for land acquisition ($350), agricultural support (starter pack, $60), and basic settlement costs (shelter, amenities and settlement allowance, $640) i.e. total o f $1050. Benefits included in the analysis include: the net cash derived from crop sales (Le. sold output less purchased inputs), family consumption o f own production and a nominal valuation o f the asset - 48 - accumulation from the sweat equity inthe shelter and basic infrastructure. Overall project costs include the total per family grant (15,714 beneficiaries at $1050 = $16.5 million) and "overhead costs" o f land administration ($2.lm), capacity building ($3.5m), project management and M&E ($5.8m). $100,000 per year is estimated as the ongoing overhead cost after the project is completed. Therefore the total direct project cost i s $27.9m. The following benefits have been ignoredinthe analysis as they are either difficult to value, or due to data shortages: (i)value o f land improvements expected, for example, it i s likely that some smallholders will plant fruit trees which will yield benefits; (ii) contributed by social infrastructure constructed under value MASAF i.e. schools, clinics, roads, It is not clear what number o f these activities will be completed and it is difficult to include them in the analysis; (iii) expected health improvements (lower morbidity and less health costs) associated with improved nutrition, water supply and sanitation; (iv) other benefits associated with increased security o f tenure, for example, increased investments in home and consequent capital accumulation; (v) livestock production, in particular, goats and chickens (and possibly cattle and pigs in certain districts) is likely and should lead to substantial productionbenefits. Beneficiaries are anticipated to enter the project evenly across the districts inthe proportions given in table 1. Table 1: Beneficiarybuild-up year 1 year 2 year 3 year 4 year 5 Total 7% 20% 33% 27% 13% 100% Mangochi 262 786 1310 1048 524 3929 Machinga 262 786 1310 1048 524 3929 Mulanje 262 786 1310 1048 524 3929 Thyolo 262 786 1310 1048 524 3929 Total 1048 3143 5238 4190 2095 15714 The net financial and economic benefit from the individual farm models represent the net benefit stream for the land acquisition and farm development component as shown in Table 2. The breakdown o f the overhead costs are as developed in the project costing. Project net benefits then subtract out the overhead cost from the net benefit stream from the farm models. - 49 - Table 2: Benefitbuild-up for project Year Net financial benefitNet economicbenefit Overheadcosts Project net Project net from land and farm from land and farm financial economic - dev. dev. benefit benefit Proj. Man. & Ongoing Land admin.Cap. Build. M&E overheads Subtotal 1 (0.8) (0.8) 1.38 0.56 1.87 3.8 (4.7) (4.6) 2 (2.4) (2.4) 0.50 0.76 1 2.3 (4.7) (4.6) 3 (3.6) (3.5) 0.50 0.9 0.87 2.3 (5.9) (5.8) 4 (14 (1.7) 0.50 0.78 0.99 2.3 (4.1) (3.9) 5 0.9 1.1 0.50 0.7 0.99 2.2 (1.3) (1.1) 6 3.3 3.7 0.1 0.1 3.2 3.6 7 3.7 4.2 0.1 0.1 3.6 4.1 8 4.0 4.5 0.1 0.1 3.9 4.4 9 4.1 4.7 0.1 0.1 4.0 4.6 10 4.2 4.9 0.1 0.1 4.1 4.8 11 4.4 5.1 0.1 0.1 4.3 5.0 12 4.5 5.2 0.1 0.1 4.4 5.1 13 4.6 5.4 0.1 0.1 4.5 5.3 14 4.7 5.5 0.1 0.1 4.6 5.4 15 4.8 5.7 0.1 0.1 4.7 5.6 16 5.0 5.9 0.1 0.1 4.9 5.8 17 5.1 6.0 0.1 0.1 5.0 5.9 18 5.1 6.1 0.1 0.1 5.0 6.0 19 5.1 6.1 0.1 0.1 5.0 6.0 20 5.1 6.1 0.1 0.1 5.0 6.0 Total 60.1 71.9 3.4 3.7 5.7 1.5 14.3 45.8 57.6 NPV 11.9 15.1 2.9 3.0 4.8 0.7 11.1 0.8 4.1 Table 3 shows the summary results o f the cost-benefit analysis. Financial and economic costs are assumed to be the same (see assumptions), however economic benefits include a small component o f incremental taxes (derived from tax on agricultural inputs) and the linkage effects o f changes in farm income. These economic benefits have little impact on the subsistence model, however are much greater in the semi-commercial andtea models. - 50 - Table 3: Summary cost-benefitanalysisresults Farm models rota1Project Subsistence Semi-commercial Tea ($ millions) Proportionsof households(hh) 80% 10% 10% 100% Number of hh 12,571 1,571 1,571 15,714 Uniform grant ceiling $1,050 $1,050 $1,050 Area per hh 2 2 2 Total area 25,142 3,143 3,143 31,428 Land price $175 $175 $175 Area under cultivation 1.5 1.a 1.5 Annual revenueper ha planted $120 $392 $415 Financial analvsi8 NPV of total costs $1,050 $1,050 $1,050 $13.0 NPV of total benefits $1,578 $3,411 $2,544 $13.7 NPV of net financial benefits $528 $2,361 $1,494 $0.7 Economicanalvsis NPV of incrementaltaxes $10 $12 $15 $0.2 NPV of linkage effects $24 $1,239 $805 $3.1 NPV of net economic benefits $563 $3,611 $2,314 $4.1 FRR 22% 45% 34% 13% 22% 59% 43% 15% As the project is piloting new approaches to land redistribution, in particular, market-based land transactions (willing buyer and willing seller) and community-driven approaches, a high proportion o f the total project costs (43%) are for "overhead costs" i.e. costs not in the land acquisition and farm development component. If we were to analyze the project net benefit for just this component, the economic benefits are much higher. This is arguably the more realistic net present value. Land acauisitionand farm develooment comoonent Financial NPV $11.9 FRR 27% Economic NPV $15.1 ERR 30% If we assume 50% of.the overhead costs will be needed in a scaled-up project, and thus, the project overhead cost are reduced by 50%, the overall project FRR is 18% and the ERR is 20%. Similarly, at 70%, FRR= 15%; ERR = 18%. 2. FarmIncomeAnalysis: Farm incomes in all three models are expected to rise substantially. This i s due to a rise in consumption (currently target beneficiaries do not consume enough all year round for an adequate subsistence quantity) and a rise in cash income. Consumption figure have been valued at the same price as outputs, and are assumed to level off at a subsistence level o f 600-700 kg o f maize per family. Cash income i s derived from primarilyfrom crop sales with a small proportionfrom off-farm labor. -51- Table 4 Familyincome Family Income Compared to base year Model 1 Model2 Model 3 (weightedaverage) Year 3 138% 211% 120% 143% Year 6 155% 451% 319% 201% Year 15 213% 579% 433% 272% Household consumption of own maize (kg) 617 108 390 Annual days family labor per farm (year 5) 116 145 232 Figure 1 graphically presents the rise in family income due to cash income, consumption and off-farm employment over the project life. Figure 1:Family incomeover project life Total famlly income. subsltence $200 0 $150 - e- si00 m U S50 cn 1 2 3 4 5 6 7 8 9 1 0 1 1 1 2 1 3 1 4 1 5 1 2 3 4 5 6 7 8 9 x 1 1 1 1 2 1 3 1 4 1 5 Years YMrS 111Off farm employment W Farm cash 0 Consumption 1 Total family income. tea 1 2 3 4 5 6 7 8 9 1 0 1 1 1 2 1 3 1 4 1 5 Years IBOff farm employment W Farm cash Consumption 3. SensitivityAnalysis: - 52 - The net present value o f net economic benefits is positive ($4.1 million) and has been calculated using conservative assumptions, therefore, the positive economic rationale for the project should be robust. The sensitivity o f this assertion on key assumptions i s analyzed below: i. Land prices: An increase in the land price - due to an increase in demand for estate land (assuming the market mechanism for controlling the price through increased ground rents and land taxes does not to work, or is not implemented) - will have little impact on project benefits as it will not impact agricultural productivity. Less grant will be available for shelter and infrastructure, however it is assumed that the beneficiaries will still purchase 2 ha. for agricultural production. ii. Cropyields: While conservative assumptions havebeenmade, itispossiblethat evenlowercrop yields could be achieved due to drought, or exceptionally low performance o f beneficiaries. If yields are reduced by lo%, project NPV drops to -$0.2. At 20% lower yields, N P V for the project i s -$4.4, however the NPV for the land acquisition and farm development component is still positive untilyields are reduced by 33%. iii. Inputandoutputprices:Increasinginputcostsby50% willlowerproject rateofretumto 13%. Subsistence smallholders will not experience an increase in cash income until year 12, however they will still have a large increase in consumption. Ifoutput prices, for each commodity, were to drop by lo%, the ERR would still be above the rate o f capital (12%), however at 20%, this would drop to 9%. Conversely at, prices 20% higher than current prices, the overall project ERR would rise to 20%, with FRR's for the three models at 29%, 53% and 41% for the subsistence, semi-commercial and tea models respectively. iv. Cropping pattern: Changes in the crops grown and area cultivated will clearly have a large difference on the overall returns o f individual farmers. While all the possible scenarios are impractical to model, the following are worth noting (i) Ifsubsistence farmers grow 1.5 ha ofjust local maize (and nothing else) and the semi-commercial and tea models are as given, the ERR for the project i s 3%, however the ERR for land acquisition and farm development component i s still above cost o f capital. Smallholders experience a decrease in income until year 8 and (ii)If subsistence farmers grow lha o fjust hybridmaize, the project ERR = 12%. V. "Capture"by non-poor: Ifthe targeting mechanismo fthe project fails, and non-poor, or non-land poor beneficiaries qualified for the grant, in economic terms, this is represented by an increase in the estimate o f the existing income levels o f target beneficiaries. If we assume we have under-estimated annual cash incomes by 100% i.e. beneficiaries actual incomes are $165 per year, N P V for the project drops from $4.lm to $0.6 (ERR = 13%), and incomes do not increase as dramatically as estimated in Table 4, however increased incomes still range from 26% (year 3) to 288% over the project life. vi. Linkage effects: The analysis assumes a nonfarm multiplier o f 1.5. The linkage effect at project level results in a NPV o f $3.1 million (most o f which i s derived from the semi-commercial and tea models). Ifwe assume no linkage effects, the project NPV drops to $0.9 million, however, if we assume the multiplier i s 2, our N P V rises to $7.2 million. Obviously, there i s no impact on farm incomes. vii. Proportion of beneficiaries in each model: If we assume that 100% o f beneficiaries are in the subsistence model, the NPV i s -$2m (with IRR o f lo%), however still strongly positive NPV for component 1 ($7.7m with ERR o f 23%). However, increases in income (the primary objective o f the project) are still very high (103% in year 3). If we assume 20% of tea model (and 0% semi-commercial), ERR = 15% and if we assume 20% semi-commercial (and 0% tea), ERR = 18%. viii. Valuing asset accumulation: The analysis has considered a small component (20%) o f the - 53 - infrastructure cost as a benefit accrued to the family through sweat equity (see project costs and benefits). However, if we do not value this benefit at all, the impact on the rate o f r e m is negligible (15% to 14%). ix. Beneficiary build-up: If we assume that the initial demand for the project is weak, and beneficiaries only join in the following proportions: 0%, lo%, 20%, 30% 40%, this has little impact on the overall ERR (14%). Indeed, even ifwe assume there is no beneficiaries inthe first 4 years, and all in the last, project ERR i s 12%. Higher beneficiary demand early on the project increases project net benefits. 4. FiscalImpact: The following fiscal impacts are considered: i.Agriculturalproduction:agriculturalproductionwillincreaseinthefourpilotdistrictswhichadds to the national aggregate productionand enhances national self-sufficiency in food crops. ii.Tax revenue: NPVofthe incrementaltax increaseasaresultoftheproject isnotsignificant ($168,000). iii.While ithasnotbeenfklly quantified, theprojectshouldhaveapositive impact ontherateof employment. iv. Poverty reduction: while the impact o f lifting 15,000 poor families (currently under subsistence level) has not been explicitly quantified, this clearly has national level significance on the drain on the economy, for example, in food hand-outs and health care. v. Scale-up: the cost, and fiscal impact, o f a scaled-up project is considered ina separate annex. vi. Without project scenario: the potential economic consequence o f not doing the project, and not addressing the increasing social tension arising from the land issue could have potentially dramatic economic consequences. Main Assumptions: i.Increasedaccesstolandincreasesincomesofbeneficiaries ii.Progress inthe unfinishedagricultural policy reform agenda through adjustment programs is effective and enhances the profitability o f smallholder farmers iii.Existinglandlawprovidessufficienttenuresecuritytoencourageon-farminvestments iv. Localizedtensions around land issues do not intensify becauseofpolitical interference v. Beneficiaries have sufficient access to technical and financial assistance to prepare and implement profitable land acquisition and farm development proposals. Sensitivityanalysis/ Switchingvalues of criticalitems: -54 - Annex 5: Financial Summary MALAWI: Community-Based Rural Land Development Project Years Ending IYear1 I year2 I Year3 I year4 I Year5 IYear6 IYear 7 Total Financing Required Project Costs Investment Costs 5.5 5.5 7.7 6.2 3.6 0.0 0.0 RecurrentCosts 0.2 0.3 0.3 0.3 0.3 0.0 0.0 Total Project Costs 5.7 5.8 8.0 6.5 3.9 0.0 0.0 Total Financing 5.7 5.8 8.0 6.5 3.9 0.0 0.0 Financing IBRDlIDA 5.1 5.1 7.3 6.0 3.5 0.0 0.0 Government 0.4 0.5 0.5 0.4 0.2 0.0 0.0 Central 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Provincial 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Co-financiers 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Beneficiaries 0.2 0.2 0.2 0.2 0.2 0.0 0.0 Other 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total Project Financing 5.7 5.8 8.0 6.6 3.9 0.0 0.0 Main assumptions: - 55 - Annex 6(A): Procurement Arrangements MALAWI: Community-Based Rural Land Development Project Procurement General: Malawi has a new Procurement Law which was passed by Parliament on May 22, 2003 and became effective on August 21, 2003. The Law establishes the Office o f Public Procurement. However, this office i s not yet operational because the Director and his Deputy are yet to be appointed and procurement regulations are yet to be finalized. A Country Procurement Assessment Report (CPAR) for Malawi has been carried out and the first draft has beenproduced. The procurement o f goods, works and consultant services will be govemed by the Development Grant Agreement and procurement plans prepared by the Project Management Unit (PMU) in the Ministry o f Lands, Physical Planning and Surveys (MLPPS) in close collaboration with MASAF, and approved by IDA. Procurement for all IDA financed goods and works will be carried out in accordance with IDA's Guidelines for Procurement under IBRD Loans and IDA s published in January, 1995 and revised in January and August, 1996; September, 1997 and January, 1999. The IDA's Standard Bidding Documents (SBD) and Standard BidEvaluationForms will be used. Consultant services contracts financed by IDA will be procured in accordance with IDA's Guidelinesfor Selection and Employment of Consultant by World Bank Borrowers published in January, 1997 and revised in September, 1997 and January, 1999 and May, 2002. IDA's Standard Request for Proposals (RFP) will be used for Quality and Cost Based Selection (QCBS) and Standard Form o f Contract as needed and also the Sample Form o f EvaluationReport for the Selection o f Consultant. Inaddition to complying with IDA'SGuidelines, procurement will also comply with the new Procurement Act. However, in the event o f a conflict between IDA Guidelines and the Act, the former will prevail and failure to adhere to the Guidelines and detailed procedures as described in the Procurement Procedures Manual may result inthe activities being declared ineligiblefor IDA funding. ProcurementArrangements: Procurement for the Project's community-demand-driven component--the Land Acquisition and Farm Development component-will be implemented by MASAF, utilizing existing MASAF 3 procedures and institutional setup. The P M U will implement procurement under the Land Administration, Capacity Building,and Project Management and M&E components. Procurement o f goods, works and services for the project will follow IDA procedures and Guidelines referredto above. The land acquisition portion of the LandAcquisition and Farm Development Component will follow the detailed procedures as set out inthe Operational Manual, having due regard to economy and efficiency. The first two land acquisitions made in each district will be subject to prior review by IDA. The farm development portion will follow Community Participation procurement as described below. The Project Management Unit (PMU) in the MLPPS will implement the Land Administration, Capacity Building, and Project Management and M&E components. Under this arrangement Project Management Committees (PMCs), Community Based Organizations (CBOs), and Nongovernmental Organizations (NGOs) will take primary responsibility for procuring goods, civil works and services, but will receive support from the MASAF Management Unit (MU). The exact mix o f goods, civil works and services to be financed in the Land Acquisition and Farm Development sub-projects o f the Grant will depend on the - 56 - results o f demand-driven identification and appraisal process. The relationship and specific procurement responsibilities o f the MASAF MU, District Assemblies, NGOs, CBOs and PMCs will be already spelt out duringthe orientation and training that precedes each sub-project proposal's implementation. ProcurementCapacity: There are two main executing agencies for this Grant, MLPPS and MASAF. An agency procurement capacity assessment has not been carried out for MASAF 3 which i s to implement the community demand-driven (CDD) components. However, the implementing agencies to be assessed are well-known to IDA through experience with them on MASAF Iand I1and these should be retained to implement the CDD components o f the project. IDA'S experience through closely following up the implementing agencies under the last two MASAF projects has shown that there were no major procurement or contract administration issues that affected the successful implementation o f the projects. PMC's, NGO's, CBO's and staff at MASAF MU have all been trained in IDA procurement procedures. Based on the above, overall procurement risk to implement CDD components of this project through MASAF I11is considered average. A procurement capacity assessment o fthe MLPPS was carried out inaccordance with OPCPR Instructions o f July 15, 2002. The capacity o f the Ministryto plan, implement, monitor and evaluate procurement has gradually been declining due to lack o f procurement training and high staff turnover. The Ministry has, therefore, limited capacity to implement the project. The procurement risk is considered high. As already mentioned, the CBRLDP's components which are not community-demand-driven, will be implemented by a Project Management Unit to be specifically established for the project. The P M U will be composed o f seven key personnel: Project Manager who will report to the Controller o f Lands, a Land Acquisition and Farm Development Manager, a Finance Manager, a Land Administration Manager, a Capacity-Building Manager, a Monitoring and Evaluation Specialist and a Procurement Specialist who will be highly experienced in IDA projects, to organize all the procurement under Land Administration, Capacity Building, and Project Management and M&E components. Individuals with qualifications acceptable to IDA will be recruitedto fill these positions. ProcurementPlans: Goods, works and services will also be procured inaccordance with annual procurement plans prepared by MASAF and the P M U and approved by IDA. MASAF and P M U are in the process o f preparing these plans. The plans from P M U and MASAF will be reviewed and finalized at negotiations and will form part o f the Project Implementation Plan. The Procurement Plans will be reviewed every six months during implementation. ProcurementProceduresManual: A Procurement Manual has been drafted by the MLPPS as part o f the Project ImplementationManual. In further refining and reviewing these manuals, MLPPS should solicit participation of all stakeholders, set out the procurement plans, assess local counterpart fund requirements, specify responsibilities for commitment and implementation, and the risks that needto be controlled. Procurement monitoring and audit procedures for the community demand driven components will follow the guidelines established under MASAF and are described inthe Project ImplementationManual. - 57 - ProcurementMonitoring: During implementation, the PMU will provide quarterly reports on progress of procurement highlighting difficulties encountered inthe past, andhow these would be addressed inthe future to ensure timely project completion. There will be procurement supervision every six months which will include special procurement supervision for post reviews. During these missions, IDA will review one in every five randomly selected contracts which are below the prior review threshold specifiedbelow. ProcurementMethods: Procurement methods for goods and works will include International Competitive Bidding (ICB), National Competitive Bidding(NCB), National Shopping (NS), International Shopping (IS), Direct Contracting and more importantly Community Participation procurement methods which include local shopping, local bidding,community force account and direct contracting (paragraph 3.15 of the Guidelines). Procurement methods for consultant services will include Quality and Cost Based Selection (QCBS), Least-Cost Selection, Selection Based on Consultants Qualification, Individual Consultants Selection method and Single Source Selection. A General Procurement Notice (GPN) and Specific Procurement Notice (SPN) will be published in the United Nations Development Business and local newspapers for all ICB and QCBS. Notice i s required to be given in sufficient time to enable prospective bidders to obtain pre-qualification or bidding documents and prepare and submit their responses. The draft GPN will be submitted to IDA for prior review and approval. The GPN will be updated annually, showing all outstanding ICB for goods and QCBS for consultant contracts, and submitted to IDA. 1. InternationalCompetitive Bidding (ICB). Goods estimated to cost US$150,000 equivalent or more shall be procured under contracts awarded in accordance with the provisions o f Section I1o f the Guidelines. To the extent practicable, contracts for goods shall be grouped inbidpackages. 2. NationalCompetitiveBidding(NCB). Goods estimated to cost more than US$30,000 equivalent and up to US$150,000 per contract may be procured under contracts awarded in accordance with the provisions o f paragraph 3.3. and 3.4 of the Guidelines. NCB Bidding Documents for goods currently being used by IDA projects and previously cleared by IDA, will be used. 3. InternationalShopping (IS) or National Shopping (NS). Goods estimated to cost less than US$30,000 per contract may be procured under contracts awarded on the basis o f International or National Shopping procedures, in accordance with the provisions o f paragraph 3.5 and 3.6 o f the Guidelines. 4. Direct Contracting. Goods which should be procured as an extension o f an existing or must be purchasedfrom the original supplier to be compatible with existing equipment or are o f proprietary nature or must be procured from a particular supplier as a condition o f a performance guarantee and costing US$1.0 million equivalent or less in aggregate, may with the Association's prior agreements, be procured inaccordance with the provisions o f paragraph 3.7 o f the Guidelines. 5. Community Participation. Goods and works required under the Land Acquisition and Farm Development component will be procured under MASAF through Community Participation utilizing a combination o f methods which include Local Shopping, Local Bidding, Direct Contracting and Community Force Account as described below. Land shall be acquired with due attention to economy and efficiency, through cost and competitive assessment based on prevailing prices in the market, and in accordance with procedures set forth in the Project Implementation - 58 - Manual. 6. Local Shopping. This is a simple version o f National Shopping and is the most commonly used procurement method. Inthis process, communities will solicit at least three price quotations for the purchase of goods, materials or services (other than consulting services) in order to make a cost comparison. Quotations will be submitted inwriting and opened at the same time inthe presence o f community members. As a general rule, the supplier who offers the lowest price should be awarded the contract. Factors such as quality, availability and transportation costs should be taken into account when comparing the potential suppliers. Inrelation to works, contractors may be hiredto carry out a particular part o f an activity that i s technically or physically beyond the community's capacity. Again, at least three quotations are submitted on the basis o f simplified quotation forms. The forms would describe the scope o f the works, detail specifications and where possible include drawings. Goods estimated to cost not more than $10,000 equivalent per contract may be procured through this method. 7. Local Bidding. This is a simplified version o f NCB (with local or regional competition and simplified contracts and biddingdocuments) and is used for larger contracts. This process requires a level o f procurement expertise on the part o f the community. Communities are often interested in open competition in order to enhance the economy, a perception o f faimess and equal opportunity to suppliers and contractors. Open tendering procedures would be limited to local advertising using local newspapers, community radio stations, posting notices on trees at strategic places or announcements in churches and communityipublic meetings. The request for bids spells out the work or goods needed, the criteria for selection, and the deadline for submission o f bids. Bids are opened in a public ceremony. The bids are evaluated by a committee appointed by the community. Bids are examined to determine whether they meet the minimum specifications mentioned in the bidding documents (experience, quality of works, equipment, services offered and delivery dates). Bids that meet the minimum requirements specified in the bid invitation are retained for further evaluation and the bidder who meets the minimum requirements and offers the lowest bid i s selected. The award and amount o f the contract should be announced to all bidders. A contract should be signed within five days of the announcement. Goods and works estimated to cost more than $10,000 equivalent per contract, but not exceeding $50,000 equivalent per contract, may be procured under this method. 8. Direct Contracting. This method may be used when the cost to the community o f another procedure would be disproportionately high relative to the value o f the procurement itself and where only one supplier or contractor i s available locally. Other reasons for direct contracting could be urgency, the need to adopt certain technology or a repeat order. The supplier can thus be chosen without going through either the biddingor shopping procedures described above, provided the cost are in line with local market rates (using an updated Unit Cost Database). Direct contracting should be one case that requires approval o f the community committee in order to remove the inherent risk o f comparison. This method may be used for items estimated to cost not more than $3,000 equivalent per contract. 9. Community Force Account. Under a community force account, the community may implement the sub project using its own resources (skilled and unskilledlabor, materials, equipment) and may sub-contract part of the sub-project. Works under the Land Acquisition and Farm Development component estimated to cost $2.0 million equivalent or less may be carried out through this method. 10. Quality and Cost BasedSelection (QCBS). Consultant services contracts estimated to cost US$ 100,000 or more equivalent per contract shall be procured in accordance with the provisions o f paragraph 3.13 through 3.18 o f the Consultant Guidelines. Where QCBS i s used for consultants services estimated to cost less than US$lOO,OOO equivalent per contract, the shortlist may comprise entirely national consultants in accordance with provisions o f paragraph 2.7 o f the Consultant - 59 - Guidelines. 11. Least Cost Selection. Services for audits and technical services estimated to cost less than US$lOO,OOO equivalent per contract may be procured under contracts awarded in accordance with the provisions o f paragraph 3.1 and 3.6 o f the Consultant Guidelines. 12. Selection Based on Consultants' Qualifications. Services o f firms estimated to cost less than US$lOO,OOO equivalent per contract may be procured under contracts awarded in accordance with the provisions o f paragraph 3.1 and 3.7 o f the Consultant Guidelines. 13. Individual Consultants. Services o f individual consultants estimated to cost less than US$50,000 equivalent per contract may be procured under contracts awarded in accordance with the provisions o f paragraphs 5.1 through 5.3 o f the Consultant Guidelines. 14. Single-Source Selection, Services which are estimated to cost less than US$lOO,OOO equivalent per contract, may, with IDA's prior agreement, be procured under contracts awarded inaccordance with the provisions o fparagraph3.8 through 3.11o f the Consultant Guidelines. Prior Review Thresholds: For goods, all contracts estimated to cost the equivalent o f US$150,000 and US$200,000 respectively, will be subject to prior review o f IDA in accordance with procedures set forth in paragraphs 2 and 3 o f Appendix 1 to the Guidelines. The first two Land Acquisition and Farm Development sub-project proposals in each o f the four pilot districts will also be subject to prior review by IDA. The first two contracts awarded under NCB, the first three contracts awarded under N S or IS and all contracts awarded under direct contracting by the PMUshallbe subject to IDA'sprior review. Consultant services contracts estimated to cost US$lOO,OOO equivalent per contract or more shall be subject to IDA's prior review procedures set forth inparagraphs 2, 3 and 5 o f Appendix 1 o f the Consultant Guidelines. Consultant services contracts procured under Selection Based on Consultants' Qualifications and Individual Consultants estimated to cost more than US$ 100,000 and US$50,000 equivalent per contract respectively, shall be subject to IDA'sprior review. All services contracts procured through Single Source Selection shall be subject to IDA'sprior review - 60 - Procurement methods (Table A) Table A: Project Costs by Procurement Arrangements (US$ million equivalent) I'Figures inparentheses are the amounts to be financed by the Bank Grant. All costs include contingencies. 2!Includes civil works and goods to be procured through national shopping, consulting services, services of contracted staff o f the project management office, training, technical assistance services, and incremental operating costs related to (i)managing the project, and (ii)re-lending project fknds to local government units. - 61 - Prior reviewthresholds (Table B) Table B: Thresholds for Procurement Methods and Prior Review' Contract VaIue Contracts Subject to Threshold Procurement Prior Review Expenditure Category (US$ thousands) Method (US$ millions) 1. Works US$150,000 ICB US$ 150,000 US$100,000 QCBS us$loo,ooo US$50,000 IC US$50,000 US$ 10,000=< 50,000 Community 1st 2 in each district Participation-Local bidding =