for official use only report no: pad2703€¦ · pmp pest management plan ppa project preparation...

FOR OFFICIAL USE ONLY Report No: PAD2703

INTERNATIONAL DEVELOPMENT ASSOCIATION

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED CREDIT

IN THE AMOUNT OF SDR 49.8 MILLION

(US$70 MILLION EQUIVALENT)

TO THE

REPUBLIC OF MADAGASCAR

FOR THE

MADAGASCAR INTEGRATED GROWTH POLES AND CORRIDOR SOP-2

August 27, 2018

Finance, Competitiveness And Innovation Global Practice Africa Region

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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CURRENCY EQUIVALENTS

(Exchange Rate Effective June 30, 2018)

Currency Unit = Malagasy Ariary (MGA)

MGA 3,275 = US$1

US$ 1 = SDR 0,71094933

FISCAL YEAR

January 1 - December 31

Regional Vice President: Hafez M. H. Ghanem

Country Director: Mark R. Lundell

Senior Global Practice Director: Ceyla Pazarbasioglu-Dutz

Practice Manager: Douglas Pearce

Task Team Leaders: Eneida Herrera Fernandes, Yannick Saleman

ABBREVIATIONS AND ACRONYMS

ACP Africa, Caribbean and Pacific

ADEMA Aéroports De Madagascar (Madagascan Airports Authority)

ADER Agence de Développement de l’Electrification Rurale (Rural Energy Development Agency)

AFD Agence Française de Développement (French Development Agency)

AfDB African Development Bank BDC Business Development Center

BPC Business Plan Competition

CCC National Cocoa Council CIIP Competitive Industries and Innovation Program

CPF Country Partnership Framework DA Designated Account

DEFIS Inclusive Agricultural Value Chains Development Programme

DFIL Disbursement and Financial Report Information Letter

DMC Destination Management Company DPO Development Policy Operation DTLA Decentralized Territorial Local Authorities

DTS Decentralized Technical Services

ECF Extended Credit Facility

EDBM Economic Development Board of Madagascar EFA Economic and Financial Analysis

EFTA Ecoles de Formation de Technicien Agricole (Agricultural Technical Training Centers)

EoI Expression of Interest

EP Environmental Program

ERR Economic Rate of Return

ESIA Environmental and Social Impact Assessment ESF Environmental and Social Framework

ESMF Environmental and Social Management Framework ESMP Environmental and Social Management Plan

EU European Union FDI Foreign Direct Investment FM Financial Management

FOFIFA National Center for Applied Research on Rural Development, Madagascar

GBV Gender-based Violence

GDP Gross Domestic Product GIZ German Development Agency GoM Government of Madagascar

GP Global Practice

GRM Grievance Redress Mechanism

GRS Grievance Redress Service ICR Implementation Completion Report

ICRP Investment Climate Reforms Program IFAD International Fund for Agricultural Development

IFC International Finance Corporation

IFR Interim Financial Reports

IMF International Monetary Fund

IRM Immediate Response Mechanism

ISR Implementation Status Report

M&E Monitoring and Evaluation

MBIF Madagascar Business Investment Facility

MFD Maximizing Finance for Development

MNP Madagascar National Park

MoU Memorandum of Understanding

MSME Micro, Small and Medium Enterprises NDP National Development Plan

NGO Non-governmental Organization

NPF New Procurement Framework

NPV Net Present Value

OCAI Opération Communale d’Appui Intégré (Integrated Support for Municipalities)

ONE Office National pour l’Environnement (National Environment Office)

ONTM Office National de Tourisme de Madagascar (National Tourism Office)

OP/BP Operational Policy / Bank Policy

OSS One-stop-shop PAP Project-affected-persons

PAPI Investment Promotion Support Project

PAPSP Public Sector Performance Project PSAEP Programme Sectoriel Agriculture, Elevage et Pêche (Sectoral Program for

Agriculture, Livestock and fisheries)

PEFA Public Expenditure and Financial Accountability

PI Personal Initiative PIC Project Pôles Intégrés de Croissance (Integrated Growth Poles Project)

PIU Project Implementation Unit PIM Project Implementation Manual

PFM Public Financial Management

PMP Pest Management Plan

PPA Project Preparation Advance

PPIAF Public Private Advisory Facility

PPP Purchasing Power Parity PPP Public-private partnership

PPSD Project Procurement Strategy for Development

PSAEP Sectoral Program for Agriculture, Livestock and Fisheries PUDi Plan d'Urbanisme Directeur (Urban Master Plan)

RAP Resettlement Action Plan RPF Resettlement Policy Framework SCD Systematic Country Diagnostic SDR Special Drawing Rights

SEA Sexual Exploitation and Abuse

SESA Strategic Environmental and Social Assessment

SME Small and Medium Enterprise

SoE Statement of Expenses

SOP Series of Projects SORT Systematic Operations Risk-Rating Tool STEP Systematic Tracking of Exchanges in Procurement

TA Technical Assistance ToR Terms of Reference

TTL Task Team Leader

UNICEF United Nations Children’s Fund

UNWTO United Nations World Tourism Organization

WBG World Bank Group

The World Bank Madagascar Integrated Growth Poles and Corridor SOP-2 (P164536)

TABLE OF CONTENTS

DATASHEET ................................................................................. Error! Bookmark not defined.

1. STRATEGIC CONTEXT ...................................................................................................... 7

A. Country Context................................................................................................................................ 7

B. Sectoral and Institutional Context .................................................................................................... 8

C. Relevance to Higher Level Objectives ............................................................................................. 10

2. PROJECT DESCRIPTION .................................................................................................. 12

A. Project Development Objective ..................................................................................................... 12

B. Project Components ....................................................................................................................... 12

C. Project Beneficiaries ....................................................................................................................... 20

D. Results Chain .................................................................................................................................. 22

E. Rationale for World Bank Involvement and Role of Partners......................................................... 23

F. Lessons Learned and Reflected in the Project Design .................................................................... 25

3. IMPLEMENTATION ARRANGEMENTS ............................................................................ 26

A. Institutional and Implementation Arrangements .......................................................................... 26

B. Results Monitoring and Evaluation Arrangements......................................................................... 27

C. Sustainability ................................................................................................................................... 28

4. PROJECT APPRAISAL SUMMARY ................................................................................... 28

A. Technical, Economic and Financial Analysis ................................................................................... 28

B. Fiduciary .......................................................................................................................................... 30

C. Safeguards ...................................................................................................................................... 31

5. KEY RISKS ..................................................................................................................... 34

6. RESULTS FRAMEWORK AND MONITORING ................................................................... 36

ANNEX 1: Implementation Arrangements and Support Plan .......................................... 50

ANNEX 2: Detailed Project Description .......................................................................... 66

ANNEX 3: Maps of Target Regions ................................................................................. 82


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DATASHEET

BASIC INFORMATION BASIC_INFO_TABLE

Country(ies) Project Name

Madagascar Madagascar Integrated Growth Poles and Corridor SOP-2

Project ID Financing Instrument Environmental Assessment Category

P164536 Investment Project Financing

B-Partial Assessment

Financing & Implementation Modalities

[ ] Multiphase Programmatic Approach (MPA) [ ] Contingent Emergency Response Component (CERC)

[✓] Series of Projects (SOP) [ ] Fragile State(s)

[ ] Disbursement-linked Indicators (DLIs) [ ] Small State(s)

[ ] Financial Intermediaries (FI) [ ] Fragile within a non-fragile Country

[ ] Project-Based Guarantee [ ] Conflict

[ ] Deferred Drawdown [ ] Responding to Natural or Man-made Disaster

[ ] Alternate Procurement Arrangements (APA)

Expected Approval Date Expected Closing Date

18-Sep-2018 31-Oct-2023

Bank/IFC Collaboration Joint Level

Yes Complementary or Interdependent project requiring active coordination

Proposed Development Objective(s)

The development objective is to contribute to the sustainable growth of the tourism and agribusiness sectors by enhancing access to enabling infrastructure and services in the Target Regions of Madagascar. PIC 2.1 (SOP1) has supported economic recovery by improving the investment climate, increasing investor confidence, investing in key infrastructure and restoring economic governance, to lay the foundation for inclusive growth and shared prosperity in the target regions.


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Components

Component Name Cost (US$, millions)

Leveraging private investment in tourism and agribusiness 11.50

Removing key binding constraints for private investment in tourism 32.50

Removing key binding constraints for private investment in agribusiness 22.00

Project Implementation 4.00

Immediate Response Mechanism 0.00

Organizations

Borrower: Republic of Madagascar

Implementing Agency: PIC National Project Secretariat

PROJECT FINANCING DATA (US$, Millions)

SUMMARY-NewFin1

Total Project Cost 75.00

Total Financing 75.00

of which IBRD/IDA 70.00

Financing Gap 0.00

DETAILS-NewFinEnh1

World Bank Group Financing

International Development Association (IDA) 70.00

IDA Credit 70.00

Non-World Bank Group Financing

Counterpart Funding 5.00

LOCAL: BENEFICIARIES 5.00


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IDA Resources (in US$, Millions)

Credit Amount Grant Amount Total Amount

National PBA 70.00 0.00 70.00

Total 70.00 0.00 70.00

Expected Disbursements (in US$, Millions)

WB Fiscal Year 2019 2020 2021 2022 2023 2024

Annual 2.37 4.96 7.62 14.24 19.81 21.01

Cumulative 2.37 7.33 14.94 29.18 48.99 70.00

INSTITUTIONAL DATA Practice Area (Lead) Contributing Practice Areas

Finance, Competitiveness and Innovation Agriculture, Governance, Macroeconomics, Trade and Investment, Transport & Digital Development

Climate Change and Disaster Screening

This operation has been screened for short and long-term climate change and disaster risks

Gender Tag

Does the project plan to undertake any of the following?

a. Analysis to identify Project-relevant gaps between males and females, especially in light of country gaps identified through SCD and CPF

No

b. Specific action(s) to address the gender gaps identified in (a) and/or to improve women or men's empowerment

No

c. Include Indicators in results framework to monitor outcomes from actions identified in (b) No

SYSTEMATIC OPERATIONS RISK-RATING TOOL (SORT)

Risk Category Rating

1. Political and Governance Substantial


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2. Macroeconomic Moderate

3. Sector Strategies and Policies Moderate

4. Technical Design of Project or Program Moderate

5. Institutional Capacity for Implementation and Sustainability Moderate

6. Fiduciary Moderate

7. Environment and Social Substantial

8. Stakeholders Moderate

9. Other

10. Overall Substantial

COMPLIANCE

Policy Does the project depart from the CPF in content or in other significant respects?

[ ] Yes [✓] No

Does the project require any waivers of Bank policies?

[ ] Yes [✓] No

Safeguard Policies Triggered by the Project Yes No

Environmental Assessment OP/BP 4.01 ✔

Performance Standards for Private Sector Activities OP/BP 4.03 ✔

Natural Habitats OP/BP 4.04 ✔

Forests OP/BP 4.36 ✔

Pest Management OP 4.09 ✔

Physical Cultural Resources OP/BP 4.11 ✔

Indigenous Peoples OP/BP 4.10 ✔

Involuntary Resettlement OP/BP 4.12 ✔

Safety of Dams OP/BP 4.37 ✔


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Projects on International Waterways OP/BP 7.50 ✔

Projects in Disputed Areas OP/BP 7.60 ✔

Legal Covenants

Sections and Description Schedule 2, Section I, A, 4, (a). The Recipient shall, not later than, nine (9) months after the Effective Date establish an MBIF Implementation Unit which shall report to the PIU on overall MBIF fiduciary management.

Sections and Description Schedule 2, Section I, A, 2 (the one on PIU), (c), (ii). In each Target Region, the Recipient shall, not later than six (6) months after the Effective Date recruit: (a) a coordinator; and (b) one (1) account assistant, all in accordance with the provisions of Section III of Schedule 2 to this Agreement, and each on the basis of terms of reference, qualifications and experience acceptable to the Association, to be assigned one in each Target Region.

Sections and Description Schedule 2, Section I, A, 5 (a). The Recipient shall, not later than twelve (12) months after the Effective Date establish and, throughout Project implementation, maintain Regional MBIF Validation Committees which shall be responsible for ensuring the coherence of the MBIF with the regional and national economic context and priorities.

Sections and Description Schedule 2, Section I, D, 2. The Recipient shall furnish to the Association, as soon as available, but in any case not later than November 30 of each year, the annual work plans and budgets approved by the PSC and the evidences referred to in subparagraph 1(b) above, for the Association’s review and approval; except for the annual work plan and budget for the Project for the first year of Project implementation, and the evidence which may be required for the implementation of the activities included in the draft annual work plan and budget for such period which shall be furnished no later than one (1) month after the Effective Date. Only the activities included in an annual work plan and budget expressly approved by the Association (each an “Annual Work Plan and Budget”) are eligible to a financing from the proceeds of the Financing.

Conditions

Type Description

Effectiveness The Recipient has revised the PIC-SOP 2 Project Implementation Manuals in form and

substance acceptable to the Association. Type Description

Disbursement No withdrawal shall be made for payments made prior to the Signature Date. Type Description

Disbursement No withdrawal shall be made under Category 2 unless and until (i) the MBIF Grants Manual

has been updated in form and substance satisfactory to the Association; (ii) the MBIF

Implementation Unit has been established with resources and staff satisfactory to the


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Association; (iii) the Regional MBIF Validation Committees have been established with

resources and staff satisfactory to the Association. Type Description

Disbursement No withdrawal shall be made under Category 3 unless and until the OCAI Grant Manual has

been updated in form and substance satisfactory to the Association.


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1. STRATEGIC CONTEXT

A. Country Context 1. While Madagascar is an island nation blessed with many assets, repeated political crises have held the country back. With a population of nearly 24 million, of which 64 percent is less than 25 years of age, Madagascar has the potential to reap a demographic dividend. Agricultural lands, forest areas, and access to the sea could make it the “food basket” of the Indian Ocean, if not beyond. An unparalleled biodiversity and cultural wealth could drive tourism expansion. The workforce is relatively literate, and its small but reasonably diversified private sector could thrive. However, political crisis has repeatedly caused setbacks for the country’s development. Over the last fifty years, all heads of state have either gained or lost power as the result of an unconstitutional event. The application of existing institutions and legal norms has been repeatedly undermined by the political networks of a few. The Malagasy population has borne the cost of this political instability.

2. Madagascar has one of the highest rates of poverty in the world. The average Malagasy is 42 percent poorer today than in 1960, the year of Madagascar’s independence. As of the latest data available (2012), only 30 percent of Malagasy live above the national poverty line, and only 10 percent above the international one. Poverty is not only widespread, it also runs deep: the average Malagasy consumes 32 percent less than a person living directly at the national poverty line. The most recent poverty analyses1 show that Madagascar made little progress in improving the welfare of the poor between 2001 and 2012. The incidence of extreme poverty is higher among female-headed households, which make up one-fifth of all households. Close to 80 percent of Madagascar’s population lives in rural areas, and rural poverty rates are more than twice as high as urban rates. Because most of the rural poor depend on agriculture for their livelihood, they are particularly vulnerable to the frequent and severe climatic shocks that burden the country.

3. Since the return to constitutional order in early 2014, Madagascar’s per capita gross domestic product (GDP) growth has been progressively rising. Growth was estimated at 4.2 percent in 2017 and is projected at 5.0 percent in 20182, compared with an estimated annual population growth rate of 2.8 percent. This economic recovery has been supported by International Monetary Fund (IMF) facilities, including two Rapid Credit Facilities, a staff-monitored program, and a three-year Extended Credit Facility (ECF) program that started in 2016 and is ongoing, with all staff reviews successfully concluded thus far. Macroeconomic and fiscal reforms have also been supported by World Bank Development Policy Operations (DPOs), including the Reengagement DPO (P150503), in 2014 the Resilience DPO (P153084) in 2015, a two-year programmatic Public Finance Sustainability and Investment DPO (P160866) series in 2016-2017, and a two-year programmatic Inclusive and Resilient Growth DPO (P162279) in 2017-2018. These reforms have supported an increase in tax revenue collection, improved composition of expenditures with higher investment spending and lower transfers to under-performing state-owned enterprises, improvements to the business climate, and measures to bring economic growth closer to the rural population. While inflation peaked at 9.0 percent in 2017, an increase in domestic rice production in the first quarter of 2018 has seen inflationary pressures start to ease, with overall inflation projected at 7.7 percent in 2018.

1 World Bank (2016). “Recent Trends and Analytical Findings on the Causes of Madagascar’s Persistent Poverty.” It uses household survey data from EPM

2001, 2005, 2010, and ENSOMD 2012. Also see World Bank (2014). “Face of Poverty in Madagascar: Poverty, Gender, and Inequality Assessment.” The next household survey is expected to take place in 2018, following the census. 2 By the World Bank.


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4. A key challenge for Madagascar is to ensure that economic growth becomes more inclusive and benefits the many poor that have so far been left behind. Mining and the tertiary sector, including public works, are the main drivers of Madagascar’s recent macroeconomic growth. Export processing zones are also growth sectors.

Yet, the main sector of employment for the bottom 80 percent of households is agriculture. Madagascar’s urban poor remain locked in often unproductive micro enterprises, without access to better employment opportunities.3 Economic growth has therefore largely bypassed the poor.

5. Recognizing this challenge, the country is embarking on an ambitious reform program to promote the inclusiveness and resilience of economic growth. The Madagascar National Development Plan (NDP) 2015-2019 has set out the national goal of “development through inclusive and sustainable growth, taking into account the spatial dimension”. A number of World Bank-financed projects are helping the government scale up investment in the provision of basic public goods to address low levels of human capital (health, education, etc.) and access to productive infrastructure (roads, electricity), for which Madagascar has one of the lowest levels in Sub-Saharan

Africa.4 This is done in parallel to a series of budget support operations aimed at strengthening the fiscal framework to increase resources available for priority spending and investment, ensuring the efficiency and effectiveness of such spending, and encouraging mobilization of private financing. The latter, however, requires supporting the government in resolving existing market failures and mitigating investment risks. 6. Perspectives to accelerate and sustain growth are promising based on the sound macro-economic management of the past four years, but may be threatened by the possibility of political instability as the country approaches presidential elections later this year. Projected growth of 5.0 percent in 2018 is expected to be sustained in the medium run, if reforms are continued and investment is further scaled up as planned. However, such a trajectory may be interrupted in the short-term, as it has in the past, if upcoming presidential elections lead to a new political crisis. Recent turbulence and protests by opposition parliamentarians are a sign that the risks of such a crisis are real, though there have also been signs of appeasement. A stable political environment constitutes the most important condition for investment and sustained growth.

B. Sectoral and Institutional Context 7. Madagascar’s ability to attract foreign investment and unlock local private investment has historically been limited, and further constrained by a history of political instability. In 2012, close to one of two local firms stated in the World Bank survey that political stability constituted the single most important challenge to their business activity. Similarly, Madagascar has consistently ranked at the bottom of international rankings such as the World Economic Forum’s Global Competitiveness Index (121 out of 137 in 2017-2018, and an average of 125 over 2007-2018) and the Doing Business ranking (162 out of 190 in 2018). Challenges range from infrastructure to governance, financing, and skills, to cite a few. Consequently, meaningful investment by nationals has been concentrated among the few able to mobilize their own financing, and able to withstand or even benefit from the unsupportive environment (e.g., taking advantage of bad roads to develop local monopolies), and focused on mature sectors and the capital city where the ecosystem is already developed (e.g., textiles). Investment by foreign investors has been concentrated in extractives, which can often develop their own supportive environment (e.g., by mobilizing external financing through their headquarter operations, investing in dedicated infrastructure and importing foreign skills).

3 In 2012, over 87 percent of employed workers worked in enterprises with five or fewer workers (World Bank, 2016. Shifting Fortunes and enduring poverty in Madagascar). 4 World Bank (May 2018). Fiscal Sustainability and Energy DPO (P166752). Project Document.


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8. Tourism is one of two sectors where unlocked investment would have significant multiplier effects. Madagascar offers tourists a tremendous diversity of activities and distinctiveness of products. It is famed for its biodiversity and a unique culture manifested in the island’s multicultural cuisine, crafts, traditions and architecture. Recent analytical work highlights tourism and agribusiness as still having some of the best prospects for promoting private investment and job creation in Madagascar. According to the Government of Madagascar’s (GoM) ambitious estimates, the targeted 500,000 tourist arrivals by 2019 could generate tourism receipts of up to US$1.4 billion and result in a doubling of the number of direct jobs in hotels and tourism enterprises, and a direct contribution of tourism to GDP of 8 percent, in line with the average for other African countries and up from 5.1 percent. Given the large economic multipliers of the sector, tourism growth would have a strong positive impact on the livelihoods of poor urban and rural dwellers. 9. Agriculture offers similar growth opportunities and represents an even more important opportunity for poverty reduction. The overall agriculture sector represents 24 percent of national GDP and nearly 80 percent of employment. However, the contribution of agriculture to growth has been low compared to other low-income countries, suggesting a significant dormant potential in the sector.5 Creating earnings opportunities in activities at the periphery of basic agriculture also holds great promise for poverty reduction in Madagascar. A recent World Bank analysis of poverty trends in Madagascar found that those households able to diversify to off-farm activities experience higher welfare levels.6 The report also pointed to the need for setting the right price policies along agricultural value chains: policies aimed at stabilizing consumer prices have in the past led to isolating rural producers from rising world prices and have deepened poverty levels. In recognition of the sector’s crucial role, the government has set ambitious goals to enhance access to export markets and double the value of exports by 2025. In 2017, agribusiness exports (including livestock and fisheries products) accounted for 48 percent of total export earnings in Madagascar, of which around 50 percent came from vanilla exports. 10. To unlock investment, job creation and growth in both sectors, several binding constraints need to be tackled at the local level. The potential of both sectors is geographically dispersed and faces fundamental infrastructure and capacity challenges, requiring a set of integrated transversal, sectoral and locally-concentrated interventions to resolve market failures and de-risk private investments. Capacity to attract additional investment—and to deal with its inherent challenges—requires strengthening both in terms of sectoral expertise and in terms of government structures. Such capacity strengthening has already been applied successfully through previous phases of this Series of Projects (SOP) to lay the necessary foundations for growth in key agribusiness and tourism value chains. 11. Deficiencies in essential infrastructure and services constitute one of the most important binding constraints for both sectors. According to the Global Competitiveness Index, the quality of roads in Madagascar is rated 2.2 on a scale of 1 to 7, while air and port transport perform only slightly better (3.2). In fact, while road investment planning and maintenance are officially delegated to independent agencies, minimum repair and maintenance work have fallen short due to poor planning and management, combined with a lack of properly allocated resources. In 2012, half of the secondary roads and two thirds of tertiary roads—which are critical to the development of the agricultural sector and to the reduction of poverty in rural areas—were classified to be in “bad condition”. Deteriorated urban roads also deter the potential for many agglomerations to play their role as tourism hubs. Costly and erratic electricity supply is also a particularly serious obstacle to businesses, including those in the tourism and agribusiness sectors, and directly affects living conditions.

5 World Development Indicators (WDI), 2018. 6 World Bank (2016). “Recent Trends and Analytical Findings on the Causes of Madagascar’s Persistent Poverty.”


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12. Capacity and resource limitations of relevant sectoral ministries and other stakeholders constitute additional binding constraints to growth. In the tourism sector, key constraints include regulatory and fiscal incentives that have encouraged informal rather than formal activity, growing insecurity at tourism sites, health and hygiene (including unreliable water supply), as well as a lack of cohesive organization due to fragmented mandates of the various responsible public institutions. In addition, inadequate equipment and standards prevent regional airports from reaching international standards, limiting their potential to drive tourism growth. In the agricultural sector, commercial value chains often remain constrained by weak organization, with a multiplication of intermediaries. This increases the likelihood of opportunistic behavior and reduces incentives to invest (e.g., side-selling). The absence of essential support services such as quality control, traceability, sanitary and phytosanitary standards and storage facilities adds to the challenge. In addition, regulatory obstacles to competition hinder entry, adversely impacting market dynamics. For instance, in the lychee value chain, the largest players, concentrated in the Eastern part of the country, are colluding to deter new players in the Southern region from entering the market (e.g., by effectively enforcing export quotas). 13. Local government capacity to deal with increased investments and the increased demand these generate for public services continues to be limited. Local governments can be a limiting or a supporting factor when it comes to private investment in local communities. As economic activities expand, they will compete for existing resources in the area, which can challenge other interests and lead to resistance. Local governments that are both financially and technically prepared for these new challenges are more likely to support the change. PIC 2.1 provided capacity building to reinforce the fundamentals of governance in selected communes in the project areas. This project will build on the success of these interventions with a focus on institutionalizing, sustainable and inexpensive maintenance of roads and other shared infrastructure.

14. Finally, private sector activity in both sectors is further challenged by climate events and dependence on price volatile commodities. The high frequency and intensity of climate-related events constrains the potential of high-value crops such as lychee and cocoa, and threatens the sustainability of tourism sites. Dependence on a few highly volatile commodities leaves the agricultural sector prone to boom and bust cycles. To address these challenges, innovative and ideally private sector-driven solutions such as climate-smart solutions for agribusiness and tourism development, and the development of new value chains to diversify the economy, are required. However, the large learning and technology externalities associated with these innovations are likely to require public interventions. Currently, that type of support is largely missing in Madagascar.

C. Relevance to Higher Level Objectives

15. As phase two of the second in a SOPs, the proposed project (PIC 2.2) constitutes the continuation of an established growth poles program. The PIC 2.2 project has been designed to build on the strong base for growth built by phase one of the second in the SOP (PIC 2.1) in agribusiness and tourism in the Target Regions through a deepening of interventions and limited strategic geographical extensions.7 PIC 2.2 will allow the acceleration of private investments in the existing Target Regions. Its geographical focus will evolve strategically to ensure economies of scale are maintained and the benefit of earlier work is maximized.

7 The PIC 2.1 project has already disbursed 66 percent and committed 80 percent of its funds. It is achieving its targets in terms of firm and job creation, increased tourism visitation and improvements in farmers’ revenues and exports in the three targeted poles or corridors.


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16. The integrated, multi-sectoral approach to job creation and inclusive growth is fully aligned with the WBG’s CPF for Madagascar for FY17-FY218. The CPF aims to build on the current relative political stability to help address structural fragilities that hamper sustainable human and economic development in Madagascar. The project supports the two Focus Areas of the CPF: i) increase resilience and reduce fragility; and ii) promote inclusive growth. It aligns with the CPF objective to unlock productivity of labor-intensive sectors by improving the investment climate and building resilient infrastructure. 17. The project also supports the third of the five strategic axes of development of the GoM’s NDP for 2015-2019. This axis is dedicated to "Inclusive growth and territorial anchoring of development”, where the focus is placed on the implementation of reforms, actions and measures to achieve four specific objectives: strengthen high value-addition and decent work-intensive sectors, strengthen structuring infrastructure, optimize the organization and territorial structuring of the economy, and develop the private sector and particularly small and medium enterprise (SME) with high capacity for job creation. The project is also consistent with the subsequent strategic and sectoral policies, e.g., the Air Transport Policy Letter, Tourism Policy Letter, Energy Policy and Strategy, and Sectoral Program for Agriculture, Livestock and Fisheries (PSAEP). 18. Consistent with the CPF approach, the project has been prepared in synergy with all relevant WBG projects in Madagascar. Project preparation is closely coordinated with the Agricultural Growth and Land Management Project (P151169), allowing its design to draw on and leverage existing findings, achievements and lessons learned. Local governance activities under the project have been designed in line with the broader objectives and territorial strategy of the Public Sector Performance Project (P150116). Critically, connectivity activities under the project will benefit from hands-on involvement of the Transport Global Practice (GP) and the design of these activities already capitalizes on early findings of the Spatial Analysis of Transport Connectivity and Growth Potential study under preparation (P163751). The synergy and complementarity developed with the International Finance Corporation (IFC) advisory Investment Climate Reform Program (ICRP) during PIC 2.1 will be further strengthened under PIC 2.2, for instance through implementation of licensing reforms and facilitation that build on and expand ICRP reform roadmaps. Similarly, the project is coordinating with the Energy, Macroeconomic, Trade and Investment, and Climate Change GPs on relevant aspects of design. 19. As per the CPF, the project maximizes synergies with other development partners (geographically, in scope and in type of support) to ensure maximum consistency and impacts. This builds on the lead facilitation role played by the WBG for the private sector donor platform since 2015. Key relevant donors with which the World Bank is engaging include the European Union (EU), German Development Agency (GIZ), the African Development Bank (AfDB) and the Agence Française de Développement (French Development Agency - AFD). See Table 3 for full details.

20. The project is aligned with the WBG’s “Maximizing Finance for Development” (MFD) approach. The project will help facilitate the Government’s plan to develop the private sector and leverage private sector investment for job creation in the agriculture and tourism sectors. At the transversal level, the project includes investment promotion and purchasing power parity (PPP) transaction support to reduce information failures that limit private investments in tourism and agribusiness. This follows on from groundwork under PIC 2.1 and renewed government support for such an approach, such as the enactment of relevant PPP decrees supported under that project. It also includes a key component on de-risking innovative investments through matching grants, which

8 World Bank (May 2017). Country Partnership Framework for the Republic of Madagascar for the Period of FY17-FY21. Report number 114744.


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can bring significant value to the two sectors by helping fill market gaps, adapt to climate change and diversify the subsectors. Financing for essential public goods and services will be used to leverage private investments, e.g., focusing on roads and water supply support for key tourism sites or areas where these elements have been identified as the key binding constraint to significant hotel investments. Overall, it is expected that the project will catalyze a total of more than US$25 million9 in private investments in the two sectors over the life of the project, notably from foreign investors, from a negligible baseline.

2. PROJECT DESCRIPTION

A. Project Development Objective

PDO Statement

21. The project development objective is to contribute to the sustainable growth of the tourism and agribusiness sectors by enhancing access to enabling infrastructure and services in Target Regions of Madagascar. 22. PIC 2.1 (Phase I) has supported economic recovery by improving the investment climate, increasing investor confidence, and restoring economic governance, to lay the foundation for inclusive growth and shared prosperity in the Target Regions.

PDO Level Indicators

23. The PDO-level results expected from the project are:

(a) Number of formal jobs created in Target Regions (b) Value of private investment enabled by the project.

B. Project Components Selection of regions and sectors 24. In line with the geographical focus of PIC 2.1, the project targets the three regions of Diana, Anosy and Atsimo-Andrefana, with a focus on the poles of Diego, Fort Dauphin and Tulear. The regions were originally selected from among a number of economic centers according to the following criteria: (i) presence of an anchor investor(s) and/or sizeable cluster(s) of competitive export-oriented firms willing to invest and expand; (ii) clear synergies and complementarities with key donor-funded infrastructure programs and the potential for adopting a multi-sector approach; (iii) a strong public and private interest in partnering with the WBG to promote private sector development, employment, and shared prosperity; and (iv) real potential to leverage new infrastructure investments and ability to unlock economic potential through the removal of key bottlenecks—particularly through public private partnerships (PPPs).

9 Investment in Ramena road in Diego is expected to leverage hotel investments of US$40 million. The rehabilitation of Crater Road and V1/V2 in Nosy Be will leverage at least two hotel investments of US$20 million and US$5 million for a Nosy Be Marina. The upgrade of Ambanja and the High Sambirano Road are expected to leverage at least US$5 million in logistics investments and agro-processing. The team has accounted for around 30 percent of anticipated investments to account for external risk factors (politics, climate…).


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25. The PIC 2.2 approach focuses on deepening investments and activities in the existing Target Regions to ensure agglomeration benefits. The project will incorporate one strategic geographic extension of activities to a new growth pole, the island of Sainte Marie, which the Ministry of Tourism aims to establish as the country’s first “sustainable destination” and a model to be followed by other destinations in the country. The Anosy corridor will be expanded to support targeted agribusiness value chains along the RN12a up to Farafangana (in the Atsimo-Atsinanana region). The Atsimo-Andrefana corridor will be extended to support tourism development efforts along the RN7 up to Isalo National Park. As such, Target Regions and corridors under PIC 2.2 encompass the Atsimo-Andrefana region with the city of Tulear as its anchor pole, the Anosy region with Fort Dauphin as the anchor pole, the Diana region anchored on the poles of Diego and Nosy Be, and the new growth pole, the island of Sainte Marie (located in the Analanjirofo region). See Annex 3 for maps of the Target Regions, including the key locations of tourism and agribusiness activities).

26. The design of PIC 2.2 components and sub-components, as described below, is grounded in the outcomes of PIC 2.1 interventions. Successful interventions are being scaled and/or replicated in other areas, and policy reform is being strategically sequenced. Table 1. Overview of components and sub-components

1. LEVERAGING PRIVATE INVESTMENT IN TOURISM AND AGRIBUSINESS (US$11.5 million)

1.1: Madagascar Business and Investment Facility (MBIF)

1.2: Investment promotion and transactions support

2. REMOVING KEY BINDING CONSTRAINTS FOR PRIVATE INVESTMENT IN TOURISM (US$32.5 million)

2.1: Supporting public management capacity related to tourism

2.2: Upgrading urban connectivity and services for tourism development

2.3: Preparing DTLA and DTS for private investment in tourism

3. REMOVING KEY BINDING CONSTRAINTS FOR PRIVATE INVESTMENT IN AGRIBUSINESS (US$22 million)

3.1: Supporting public management capacity related to agribusiness

3.2: Upgrading urban connectivity and services for agribusiness development

3.3: Preparing DTLA and DTS for private investment in agribusiness

4. PROJECT IMPLEMENTATION (US$4 million)

5. IMMEDIATE RESPONSE MECHANISM (US$0 million)


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Table 2. Comparison of PIC 2.1 and PIC 2.2 PIC 2.1 (2015-2019) PIC 2.2 (2019-2024)

IDA Financing US$50 million US$70 million

Spatial approach

Poles and corridors Poles and corridors

Regional Focus i) Diana Region – support along the RN6 corridor from Ambanja to Diego ii) Atsimo Andrefana Region – along RN9 corridor to the North and in the

south from Anakao and Tsimanampetsotsa National Park iii) Anosy Region – targeted support in Fort Dauphin

i) Diana Region – with extension of support to Nosy Be ii) Atsimo Andrefana Region – with extension along the RN7 corridor to include the Isalo

National Parks (most visited national park in Madagascar) iii) Anosy Region– with extension along the RN12a up to Farafangana (in Atsimo-

Atsinanana) to support targeted agribusiness value chains iv) Sainte-Marie new tourism pole – identified by the Ministry as “First Sustainable Tourism

Destination” (Analanjirofo Region).

Sectors & Constraints

Tourism, Agribusiness, Investment Climate reforms, Investment Promotion & PPP, Entrepreneurship, Governance, Infrastructure.

Same sectors, with additional support to trade logistics and competition policy in key agribusiness value chains.

Objective & Approach

PIC 2.1 supported economic recovery through improving the investment climate, increasing investor confidence, and restoring economic governance in Target Regions. The project used the growth pole and corridor approach, an integrated set of interventions designed to tackle all key binding constraints in anchor sectors and regions, taking advantage of agglomeration economies

PIC 2.2 will support economic expansion through the acceleration of private investment in, and deepening of the tourism and agribusiness sectors, and increased private participation in shared service delivery in Target Regions. The growth pole and corridor approach is maintained, prioritizing deepening investments and activities in existing areas, and extending strategically along the corridors/new pole (Sainte Marie) to maximize leverage of previous interventions

Types of interventions

- IC reforms: overall DB Investment Climate support, commercial justice and taxation.

- Investment promotion support to Economic Development Board of Madagascar (EDBM) business plan

- PPP framework: develop the regulatory and institutional framework - Support to entrepreneurship with MBIF window for startups and creation

of business centers - Tourism: support to national tourism institutions, marketing, support to

air transport development, product development. - Agribusiness: value chain structuration and organization, review and

update of legal and regulatory framework, strengthen data collection and dissemination mechanisms, strengthen national institutions in capacity certification and quality standards

- Local governance: strengthening the basics of governance: service delivery, accountability.

- Sector-focused IC reforms: focus on licensing, competition, commercial justice. - Investment promotion support targeted to Tourism lodging and Agri sectors. - Transaction support: Conduct feasibility studies on transaction opportunities, including

priority PPP projects - Boost to entrepreneurship and private investment with three windows: business plan

competition, tourism and agribusiness, and scaling up of business centers - Tourism: support to national tourism institutions, product management and

diversification, strengthening of key air and road connectivity infrastructure and services, sectoral coordination and capacity building

- Agribusiness: support to multi-stakeholders’ platform for quality control and market intelligence, support to anchor value chains and private sector-driven diversification and environmental sustainability, strengthening of key rural connectivity and quality infrastructure and services

- Local governance: boost revenue generation and investment planning to support the tourism and agribusiness sectors.


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Component 1: Leveraging private investment in tourism and agribusiness (IDA allocation: US$11.5 million equivalent, total US$16.5 million equivalent) 27. The objective of this component is to strengthen the government’s ability to attract and channel private investments into productive infrastructure and improved services delivery, as well as to provide direct support to new investment in productive sectors and support services. 1.1 Madagascar Business and Investment Facility – MBIF (IDA allocation: US$8.5 million, total US$13.5 million equivalent10) 28. The MBIF, a competitive grant program, will support the creation of new enterprises and growth-oriented SMEs and the realization of investments with significant economic, environmental and social externalities in the project’s key sectors, tourism and agribusiness. 29. MBIF grants (IDA allocation: US$7.5 million, total US$12.5 million equivalent). Three different funding windows (summarized below) reflect specific objectives, grant recipient profiles and scales of subprojects, corresponding to identified market needs and market failures, which cannot be internalized by private investors. The MBIF Grants Manual will further detail the processes, governance, functions, and detailed eligibility and selection criteria of the program.

(a) MBIF Business Plan Competition (BPC) Window will provide grants on a highly competitive basis for eligible private commercial entities leading startups/early-stage firms that fill gaps in the agribusiness and tourism ecosystems in the Target Regions.

(b) MBIF Tourism Window will provide matching grants on a competitive basis to eligible tourism entities proposing eligible private commercial subprojects to improve product and service offerings in the tourism sector.

(c) MBIF Agribusiness Window will provide grants11 on a competitive basis for eligible agribusiness entities working with outgrowers, supporting the development of key value chains in the Target Regions.

30. MBIF support activities (US$1.0 million). The project will fund regional-level MBIF Implementation Units, which will report to the project implementation unit (PIU) and locally-managed BDCs, already established or reinforced under PIC2.1 support.12 BDCs will provide an extended range of services and assist MBIF beneficiaries to: (a) access commercial financing to cover non-grant parts of their business plans and to continue investments beyond the grant financing stage; and (b) participate in Personal Initiative (PI) training13 financed by the project (mandatory for BPC Window beneficiaries). 1.2 Investment promotion and transactions support (US$3.0 million) 31. This sub-component will provide the GoM with investment promotion and transaction advisory support to

10 US$5 million expected contribution from private sector Beneficiaries of MBIF. 11 Grants will finance the part of the proposals requiring the provision of public or semi-public investment or externalities related to innovation, learning or the environment. 12 Central-level MBIF support activities are funded under Component 4. 13 PI training has shown potential to increase firm sales and profits, especially for women-owned businesses, compared to traditional training. PI is also expected to help entrepreneurs in their efforts to access commercial financing.


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improve the public-private interface for investors and build capacity to strategically invite and manage more private investment.14 The project will finance technical assistance (TA), training and capacity building and equipment to reinforce investment promotion and facilitation through: (a) improving commercial justice by speeding up the settlement of commercial disputes and strengthening EDBM’s one-stop-shops (OSS) to attract private investment in the hospitality sector as prioritized in the Tourism Policy Letter, which will be built upon the institutional and regulatory advancement achieved under PIC 2.115; (b) preparing feasibility studies for selected pilot projects, including PPPs (e.g., Airport Master Plans for Aéroports De Madagascar (Madagascan Airports Authority – ADEMA) secondary airports in the poles); (c) support implementation for selected PPP projects in the Target Regions; and (d) strengthening EDBM and public-private platforms to promote investments in the targeted value chains. Component 2: Removing key binding constraints for private investment in tourism (US$32.5 million equivalent)

32. The objective of this component is to help the targeted destinations to grow into sustainable, standalone tourism destinations anchoring a growing portfolio of circuits for increasingly diverse markets. These activities are clearly aligned to priority pillars identified in the Tourism Policy Letter and will target development corridors clearly identified by the GoM as priority tourism development areas for the country with strong potential to attract domestic and foreign direct investment (FDI) in the hospitality sector.

Figure 1. Geographical scope of tourism activities

2.1 Supporting public management capacity related to tourism (US$10.0 million) 33. This sub-component will provide continued support to tourism institutions to encourage more strategic

14 The project aims to support the government in generating private investment in key infrastructure from minimal public investments. 15 The project will support OSS in business facilitation in particular to facilitate administration of issuing permits/licenses through procedural and institutional reforms.


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tourism development approaches and market-oriented coordination for sector development. It will finance TA, capacity building, equipment and small civil works to: (a) support the Ministry in charge of Tourism in the implementation of the vision of the Tourism Policy letter; (b) develop Strategic Tourism Physical Master Plans to guide tourism development while ensuring sustainability of the destinations16; (c) support the institution in charge of tourism promotion at the national level17 and the Tourism Confederation of Madagascar in the implementation of their strategic plans; and (d) support the Ministry in charge of Transport, Civil Aviation (ACM) and ADEMA to implement the Air Transport Policy Letter to improve competitiveness and increase international long-haul flights and domestic routes. At the regional level, this sub-component will build on PIC 2.1 efforts to improve basic tourism-related infrastructure and implement site upgrades for existing nature-based tourism products, improve management of key tourist attractions, increase supply and quality in the accommodation sector, and enhance local skills through skills development programs for the tourism industry. 2.2 Upgrading urban connectivity and services for tourism development (US$19.5 million)

34. This sub-component will finance public works and equipment to create a more favorable and safer urban environment for citizens and tourists and to enhance the attractiveness for investment in the hospitality industry, through:

(a) Urban roads: In Nosy Be, design, supervision and works, including upgrade of the road surface and bridge repairs, and construction of structures to prevent landslides to 24 km of V1 and V2 roads, and full rehabilitation of 1.6 km of the “Crater” road. In Diego design, supervision and works to rehabilitate 24 km of paved road between the city center of Diego and neighboring Ramena. In Tulear, design, supervision and works for the rehabilitation of 5 km of paved and cobbled roads and side-road drains.

(b) Water: In Tulear, investment in infrastructure, equipment and related TA to build or replace approximately 13 km of water distribution network and install around 300 connections, improving access for an estimated 75,000 people (70 percent population coverage).

(c) Airports: In Fort Dauphin and Tulear, targeted improvements in terms of security standards, terminal upgrades and night lighting, which would allow for certification as International Airports.

2.3 Preparing DTLA and DTS for private investment in tourism (US$3.0 million) 35. A strong capacity building program at the local level will support decentralized territorial local authorities (DTLA) and decentralized technical services (DTS) to improve overall municipal service delivery, render expected outcomes of project interventions more sustainable, and enhance local municipalities’ capacity to conduct the planning processes required in cases of private investment in the key sectors. More specifically, this transversal sub-component will finance TA, capacity building, equipment and small civil works related to: (a) updating/improving regional and commune-level development plans and sectoral investment strategies; (b) improving revenue mobilization and collection of tourism-related infrastructure; and (c) supporting the local budget planning process by providing small grants based on Opération Communale d’Appui Intégré (Integrated

Support for Municipalities - OCAI) 18 to local authorities that encourage delivery of communal and intercommunal

16 The Tourism Master Planning will include Strategic Environmental and Social Screening tools to ensure all cumulative impacts are considered and addressed. 17 The National Tourism Office (ONTM). 18 The design of this component follows the successful OCAI model implemented under PIC 2.1, which is based on participatory budgeting and citizen engagement, revenue management and local public service delivery. It allocates and monitors the use of modest grants to local authorities to support change


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projects linked to tourism value chains.19 Finally, the sub-component will carry out small civil works for improved

service delivery in water supply, solid waste management and rural electricity provision in targeted communes.20 Component 3: Removing key binding constraints for private investment in agribusiness (US$22.0 million equivalent) 36. The objective of this component is to build on PIC 2.1 results in key agribusiness value chains to support the establishment of efficient, diversified and sustainable agribusiness systems for high potential export crops in the Target Regions. Specifically, activities seek to increase profitability (increased revenues and exports and decreased transaction costs) and reduce risks (financial, social and environmental) for value chain actors, in turn unlocking private investments into further value addition. The component will support anchor value chains (cocoa, cotton and aquaculture, lychee) and diversification value chains (pre-identified value chains include vanilla, essential oils, cloves, dried beans, stevia, moringa).

Figure 2. Geographical and value chain scope of agribusiness activities

3.1 Supporting public management capacity related to agribusiness (US$8.0 million) 37. This sub-component will provide TA, capacity building equipment and small civil works to the Ministry in charge of Agriculture and the Ministry in charge of Trade at the national level to: (a) review, update and monitor the legal and regulatory framework covering key value chains and develop a market-based vision and strategic action plan for each value chain; (b) strengthen data collection and dissemination (on prices, production volumes,

management. Grants are identified through a participatory planning process and linked to target sectors tourism and agribusiness (under Sub-components 2.3 and 3.3). 19 The design of this sub-component follows the successful OCAI model implemented under PIC 2.1, which is based on participatory budgeting and citizen engagement, revenue management and local public service delivery. It allocates and monitors the use of modest grants to local authorities to support change management. Grants are identified through a participatory planning process and linked to the target sectors of tourism (Sub-component 2.3) and agribusiness (Sub-component 3.3). 20 Activities will include improving water supply (standpipes), primary and secondary solid waste management systems, and rural electricity provision linked to the tourism sector. PPP models will be promoted where possible.


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traded values) and strengthen nascent and existing private-private and public-private platforms in supported value chains; (c) develop advocacy strategies to address sector-specific regulatory obstacles to competition; (d) support simplification and harmonization of requisites and procedures for the licensing of economic activities in the agribusiness sectors; and (e) strengthen export promotion agency and automation of export OSS. At the regional level this sub-component will build on and expand PIC 2.1 efforts to support research into and the renewal of plantation and selected seeds to adapt to climate change; build capacity of farmers and primary processors to improve practices to renew plantations and to improve post-harvest techniques; support farmers to regroup and link with primary processors as well as export markets; and accelerate mechanization and phytosanitary certification for higher-value products. 3.2 Upgrading rural and urban connectivity for agribusiness development (US$11 million) 38. This sub-component will finance a TA, equipment and civil works to rehabilitate urban and rural secondary and tertiary roads directly linked to key agricultural value chains.

(a) In Diana: (i) targeted rehabilitation and maintenance for the 47 km rural access High Sambirano road, which concentrates 60 percent of national cocoa production and other target crops and; (ii) design, supervision and works to rehabilitate 6 km of selected tracks of urban roads in Ambanja, with a mix of paved and cobbled roads and side road-drains, to enhance the economic attractiveness of the city and encourage the development of agro-industrial, commercial activities.

(b) In Atsimo-Andrefana, Anosy and Sainte Marie: the design, supervision and works of approximately 10 km of rural connectivity secondary and tertiary roads key to the project supported sectors.

3.3 Preparing DTLA and DTS for private investment in agribusiness (US$3.0 million) 39. This sub-component will finance TA, capacity building, equipment and small civil works to improve overall

municipal service delivery21, render expected outcomes of project interventions more sustainable, and enhance local municipalities’ capacity to conduct the planning processes required in cases of private investment in the agribusiness sector. The sub-component will also provide small grants based on the OCAI model to DTLA that encourage delivery of communal and intercommunal sub-projects linked to agribusiness value chains.

Component 4: Project Implementation (US$4.0 million equivalent) 40. This component will finance the PIU and allow it to implement the project, comply with fiduciary rules and safeguards, and fulfill monitoring and evaluation (M&E) and impact evaluation commitments. Specifically, it will fund: (a) the continued operation of the PIC 2.1 National Project Secretariat PIU based in Antananarivo, as well as decentralized technical units in the three Target Regions and Sainte Marie; (b) the MBIF Implementation Unit Coordinator at the national level; (c) the project’s M&E system; and (d) preparation and implementation of all safeguards processes and documentation.

Component 5: Immediate Response Mechanism (US$0 million) 41. This “zero-dollar” component will provide as needed immediate assistance (e.g., emergency works) in response to an eligible crisis or emergency that causes a major disaster. Following such an event, the GoM may

21 Activities will include improving water supply (standpipes), primary and secondary solid waste management systems, and rural electricity provision linked to the agribusiness sector. PPP models will be promoted where possible.


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request the World Bank to channel resources from this component into an Immediate Response Mechanism (IRM). The IRM would enable the use of a portion of uncommitted funds from the overall IDA portfolio to respond to emergencies. Specific details of this component (including activation criteria, eligible expenditures, and specific implementation arrangements, as well as required staffing for the Coordinating Authority) will be defined in greater detail in the IRM Operations Manual.

C. Project Beneficiaries

42. The project is expected to benefit four key stakeholder groups in the Target Regions and sectors: 43. Businesses. In tourism: (i) businesses in the Target Regions will benefit from improved market access, better public goods provision in targeted tourism segments and better skilled workers; (ii) SMEs, including micro-enterprises in the tourism value chain (e.g., accommodation, services, creative industries) will benefit from enterprise formation, and growth through the project’s capacity strengthening and matching grants. In agribusiness: (i) existing SMEs, especially exporters and processors of the targeted value chains, will benefit from increased productivity and lower costs from improved logistics, higher value products from better value chain organization and quality control; (ii) new or previously growth-constrained micro, small and medium enterprises (MSMEs), including those involved directly in the value chains, will benefit from improved competition and licensing conditions, as well as those serving the value chains that will benefit from larger and more diversified markets. New businesses and entrepreneurs more broadly, especially youth and women, will benefit from (i) a stronger entrepreneurial ecosystem and innovative capacity building/training with proven impact on sales and profits, with results especially strong for women entrepreneurs; (ii) matching grants that allow them to reach proof of concept stage. 44. Workers and farmers. Workers and farmers in the Target Regions will benefit from increased revenues from higher quality products, increased productivity, and the creation of new opportunities (e.g., new hotel investments, new value chain developments/formalization), and lower risks from diversification and higher market positioning that help hedge against global market fluctuations. Formalization drives and requirements for beneficiary firms will ensure social safety net coverage for employees. Women’s labor force participation rate is high in Madagascar and women are over-represented in tourism and agriculture but tend to occupy low-paying positions. Capacity-building programs and extension services under the project will ensure women’s access to training and opportunities for positions of greater responsibility and leadership, reducing gender pay gaps. 45. Key sectoral institutions. The project is directly supporting such institutions, which can be public, public-private or private, in both the tourism and agribusiness sectors, and are essential in the achievement of project results and their sustainability. In agribusiness, this includes helping previously supported cocoa and cotton platforms reach full capacity to manage the value chains and financial sustainability, as well as supporting or strengthening institutions in the new value chains to be supported by the project. In tourism, project support includes: at the national level, the Ministry in charge of Tourism for the implementation of its vision, financial sustainability for National Tourism Office (ONTM), and TA and capacity building to the Air Route Development Committee; at the regional level, this includes support to regional public-private and private-private tourism dialogue platforms. 46. The broader population. Populations in the Target Regions will directly benefit from improved access to infrastructure and services as well as spillovers from improved electricity access and irrigation that may result


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from MBIF activities. They will also benefit indirectly from the creation of service jobs through new sectoral activities. Improving access to clean water and sanitation reduces the opportunity cost of collecting water for women and girls and has a clear impact on improving child health and in turn educational outcomes. Together with connectivity improvements, these investments are expected to result in greater access to/use of health and education facilities for sustained human capital accumulation.


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D. Results Chain

ACTIVITIESKEY CONSTRAINTS INTERMEDIATE OUTCOMES

Reforms supporting private sector development

implemented

Increase in annual sales revenue for MBIF business

plan competition firms

Increased passenger traffic by air

Increased daily tourist expenditures in products

and services

Roads rehabilitated

Increased export values for targeted crops

Increased smallholder revenues from target cash

crop production

1.2: Investment promotion and transaction support through TA & CB to attract private investment and support PPPs

2.3: Preparing local governments for private investmentStrengthening regional and municipal governance through provision of

TA, CB and small grants

1.1: Madagascar Business and Investment Facility (MBIF) Facility providing competitive grants and CB to entrepreneurs and SMEs filling

market gaps in agribusiness and tourism

Newly-registered formal businesses

2.2 Upgrading urban connectivity and services for tourism development through TA and public works on urban roads and airports

2.1 Support public management capacity related to tourism through TA, CB and works for improved strategic and market-oriented tourism

development approaches, sectoral coordination and capacity, and development of improved tourism sites

3.1: Support public management capacity related to agribusinessthrough TA & CB to new and existing public-private platforms,

regulatory bodies, farmers and associations, research institutions, and linages between them

3.3 Preparing local governments for private investment by Strengthening regional and municipal governance through provision of

TA, CB and small grants

PROJECT DEVELOPMENT

OBJECTIVE

Contribute to the sustainable growth of the tourism and

agribusinesssectors by enhancing

access to enabling infrastructure and

services in Targeted Regions of

Madagascar

PDO indicators

Formal jobs created

Private investment enabled

More hotel rooms established

Limited tourism product offering and deficient management of sites

Limited inter- and intraregional destination

air and road linkages

Limited capacity for tourism strategy of

destination marketing implementation

Inexistent or ineffective sector dialogue for value

chain quality upgrade

Environmental challenges threat to profitability & viability / Unexploited responsible markets

High price risk exposure for farmers

Deficient technical and organizational practices in strategic value chains

Undersupply of skills and inefficient logistics for

quality & exports

Limited & costly access to large production sites

Binding business constraints to increased

investment and exports in the targeted sectors

Lack of government capacity to identify and

attract private investment

Lack of early-stage capital and weak ecosystem for

entrepreneurship

Component 1: Leveraging Private Investment in Tourism and Agribusiness

Component 2: Removing Key Binding Constraints for Private Investment in Tourism

Limited local capacity for productive investments

and maintenance

Key gaps in access to services for socio-

economic development

Limited carrying capacity and quality

3.2 Upgrading urban connectivity and services for agribusiness development through TA and public works on urban and rural roads

Component 3: Removing Key Binding Constraints for Private Investment in Agribusiness

People provided with access to improved water sources

Increased municipal revenues collected in the supported municipalities

Increased share of municipal budgets executed for

investment & maintenance


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E. Rationale for World Bank Involvement and Role of Partners 47. The World Bank offers significant value to the project activities through provision of financing, TA and convening services. The World Bank has significant experience in developing and supporting the implementation of geographically-based growth-oriented programs. Madagascar is in need of strong reforms and public investments and facilitation to support investment in agribusiness and tourism in the three Target Regions that the project can help address. The World Bank also has experience in providing lending, TA and convening services in tourism development and promotion.22 48. The project has been designed, and will be implemented, in a way that aligns with ongoing and planned interventions by other donors and development agencies. The project is coordinating with donors in specific sectors to ensure strategic sequencing of investments, leverage synergies, and avoid overlap, as outlined in Table 3 below.

22 In both existing and pipeline projects, in countries such as Haiti, Tunisia, Georgia, Cote-d’Ivoire, India, and Indonesia.


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Table 3. Relevant partner interventions DONOR PROJECT NAME & TIMELINE OBJECTIVE SPECIFIC ACTIVITIES LINKED TO PIC 2.2 REGIONAL

RELEVANCE

AGRIBUSINESS

USAID FARARANO, 2014-2019 Decrease food insecurity (including through value chain development for increased household revenues)

Value chain development (support to creation of cooperatives; capacity building/professionalization; economic operator and producer linkages). (With CRS, NCBA and CLUSA)

Atsimo Andrefana

UNIDO Support for semi-industrial transformation of sugar cane, 2013-2018

Improve productivity of the semi-industrial sugar cane sector

Integration of small independent producers through sharing of best practices, support to private operators in setting up processing units.

Anosy

GIZ Improving resilience through value chain development in the extreme south and south-east regions, 2012-2017

Better exploit agricultural potential and facilitate early relationships between farmers and businesses as potential buyers

Support to establishment of integrated phytosanitary protection system; mobilization of private actors and establishing links with producers; professionalization of producers and Ministry technicians; support to development of policies and strategies.

Anosy Atsimo Andrefana

GIZ Improving living conditions of (4000) small vanilla producers, 2014-2018

Improve living conditions, economic self-sufficiency and access to agricultural training for vanilla producers in Sava

Strengthening monitoring capacities; promoting establishment of farmer field schools; integration of Economically Sustainable Farm Model among producers.

Sava

AFD PRCC4: Support to organic value chains

Develop the organic sector and improve the positioning of its Malagasy stakeholders in international markets

Institutional support for development of SYMABIO; technical support for organic operators (experimental partnerships; certification; good practices); establishment of sector observatory; support to regulatory framework.

National level

IFAD Inclusive Agricultural Value Chains Development Programme (DEFIS), 2018-2027

Sustainably increase farm revenues and improve food and nutrition security by supporting the transformation of family farming

Promotion of large-scale adoption of efficient and resilient production systems and the integration of smallholders into income-generating sectors; value chain development (support to producers’ organizations to improve market access, development of access to finance in rural areas, development of post-harvest facilities and market access infrastructures).

Anosy Atsimo Andrefana

TOURISM

AFD ISFAM Sectorial Innovation for Alternating Training

Modernize vocational training in hospitality and catering

Support to CS2PC functioning; hospitality PPD; development of sector HR strategy and certification framework; apprenticeships, training of trainers.

National level

INVESTMENT CLIMATE & INVESTMENT PROMOTION

AFDB PAPI Investment Promotion Support Project, 2016-2019

Support domestic and foreign private investment promotion

Support for investment promotion (for textile sector, investment strategy, fund); PP consultation framework; EDBM capacity building; creation of Investor Tracking System; support to PPP framework and project execution.

National level

GOVERNANCE & INFRASTRUCTURE

AFD Programme d’Appui et Développement des Villes d’Equilibre, 2018-2024

Contribute to more balanced economic development, improved living conditions and employment

Infrastructure investment in Diego, Fianarantsoa, Tulear (roads, drainage, market facilities, public spaces); capacity building for cities on municipal and financial management (FM) and national urban policy.

Atsimo Andrefana Diana


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F. Lessons Learned and Reflected in the Project Design

49. The project design incorporates lessons learned from other growth poles projects and catalytic funds in World Bank client countries, and builds on the experiences gained in PIC 1 and PIC 2.1. In order to distill these experiences as lessons learned in a systematic manner, a survey was distributed among World Bank, PIU and regional technical unit staff involved in PIC 1 and PIC 2.1, exploring key successes and failures of the design and implementation of these project phases.23 The lessons drawn from these two sources and used to inform PIC 2.2 design include:

(a) The design should be inclusive and prioritize stakeholder engagement. The high level of engagement of all levels of government, from central to municipal, as well as with the private sector in defining and implementing activities, emerged as key to the success of previous project phases and will be continued and strengthened in PIC 2.2.

(b) The project should be anchored locally. Extensive local consultations and the integration of existing development plans and strategies at the local (as well as national) levels into project design have been essential to build ownership among beneficiaries and avoid duplicative efforts. PIC 2.2 will ensure a greater focus on supporting local governments, to build their capacity to ensure sustainability of results on the ground.

(c) Public investments should be flexible and respond to private sector demand and private sector-led investments. The infrastructure investments and the MBIF support are directly linked to demonstrated private sector demand (e.g., expansion of existing outgrower schemes, access to touristic sites, and increasing demand for skilled workers).

(d) Monetization of natural resources can help protect them, improve their governance and create jobs. The PIC 1 project has demonstrated the success of ecotourism in Nosy Tanikely and Mont Passot, and for Montangne des Francais and Tsingy Rouge in PIC 2.1, and this approach will be the basis for upgrading of natural assets.

(e) Regional results can be achieved with strong decentralized teams. Having local teams on the ground has been and will continue to be crucial to develop a tailored approach, engage local communities early on, be able to take local priorities into account, and gradually build local capacities for full ownership once the project closes. PIC 2.2 will, where feasible, leverage the existing decentralized technical capacity to avoid contracting work out to external firms that could be done by consultants hired directly by the PIU (e.g., for the MBIF fund manager and implementing non-governmental organizations - NGOs).

(f) Institutions must be financially sustainable and expectations must be managed carefully. Building financially sustainable institutions is necessary with a view to manage expectations of results and reputational risks. Strengthening institutions is the most time-consuming and challenging aspect of the integrated approach. Strengthening the capacity of local public and public-private counterpart institutions as well as regional agencies is a priority in PIC 2.2.

(g) PPPs can leverage modest public resources and/or scaled down donor resources to improve services and achieve larger impact. Limited budget for infrastructure investments is a key issue both for national and local governments, and for the project, and can potentially limit transformational impact. Leveraging private capital and expertise can be a bridge to not only infrastructure funding gaps but also managerial and governance deficits. In addition, the private sector can help maintain public assets. Planning for sustainability of newly constructed infrastructure may involve the selection of a private company to operate and ensure proper management and operation of the facilities as well as

23 At the time of writing, 17 key informants completed the survey (7 WB and 10 PIU) ranging from former TTLs to technical assistants based in the poles. 71 percent of respondents were involved in PIC 1, 88 percent in PIC 2.1, and 59 percent in both projects.


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the creation and strengthening of community groups to take over the responsibility for oversight of the PPP.

(h) Synergies with complementary donor-funded activities must be maximized. Given the reduced availability of donor funding, the project has been designed to complement donor-funded large-scale infrastructure projects to maximize alignment and synergies.

(i) Strong external communication is crucial for widespread awareness of project impacts. While positive impacts and beneficiary satisfaction in the Target Regions during previous project phases were largely clear at the ground level, PIC 2.2 will ensure improved external communication to better highlight successes (as well as any challenges) across levels.

3. IMPLEMENTATION ARRANGEMENTS

A. Institutional and Implementation Arrangements

50. Building on lessons learned from implementation of PIC 1 and PIC 2.1, the project will be implemented through the following institutional arrangements (details on Implementation Arrangements are provided in Annex 1). 51. Ministry of Finance and Budget. The Borrower will be the Republic of Madagascar, represented by the Ministry of Finance and Budget. As the Borrower’s representative, this Ministry’s key responsibilities under the project will be to ensure that the executing Ministries carry out their responsibilities in accordance with the terms of the Financing Agreement. 52. The Ministry of Finance and Budget will chair the Project Steering Committee and the PIU will report to the Minister of Finance and Budget.

53. A Project Steering Committee. Given the multi-sectoral approach and multi-region scope of the project, the project will be overseen by a Project Steering Committee. The Steering Committee is charged with defining the strategic orientation of the project and mobilizing technical and financing partners as well as Ministries, public sector entities and the private sector in terms of technical and financial support to the project. The Steering Committee will meet at least once every 12 months to perform a strategic review of Project Progress Reports, validate yearly reports, annual work plans and budgets and provide oversight and support for effective project implementation. The Committee will consist of high-level representatives of relevant Ministries in charge of Agriculture and rural development, Tourism, Commerce, Decentralization, and Water, and will be chaired by the Ministry of Finance and Budget. 54. The PIC 2.1 PIU, based in Antananarivo, whose core staff will remain in place following the closing of PIC 2.1 and will be supported at the technical level by expert advisors, will be responsible for project implementation and management of all components. The PIU will be responsible for overseeing the flow of project funds for each component and sub-component, M&E, management of the Madagascar Business and Investment Fund (through a MBIF Implementation Unit), and ensuring project reporting between agencies, the PIU and the Ministry of Finance and Budget. The PIU will report regularly to and seek guidance from the Steering Committee on strategic aspects of the project. 55. Decentralized technical units in Diana, Atsimo-Andrefana, Anosy and Sainte Marie, consisting of specialists in the fields covered by the project in each region will act as regional focal points, overseeing implementation and


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leading and reporting on dialogue with local stakeholders. Key decentralized technical units and corresponding regional technical staff already in place under PIC2.1 will remain in place following the closing of PIC 2.1.

56. MBIF Implementation Unit. An MBIF implementation unit will be created, which will report to the PIU on overall MBIF fiduciary management, M&E, project oversight and coordination. MBIF Implementation Unit members will be responsible for appraising and scoring each funding request and submitting requests to Regional MBIF Validation Committees for review and approval. The team managing MBIF will consist of the Coordinator, and at least one FM specialist, procurement specialist, private sector specialist, operations and M&E specialist. One designated MBIF project manager will be located in each of the PIU decentralized units. The MBIF Implementation Unit should be established no later than three months after the Effective Date.

57. Regional MBIF Validation Committees. The MBIF Validation Committees will ensure the coherence of the MBIF program with the regional and national economic context and priorities, and maximize transparency in the screening and selection of applications. The Committees will be responsible for reviewing initial proposals and business plans that have been previously appraised by the MBIF Implementation Unit and accepting or rejecting PIU recommendations, providing justifications for decisions. The MBIF Validation Committees should be established no later than twelve months after the Effective Date. 58. The PIU will open a Designated Account (DA) in the Central Bank of Madagascar denominated in US Dollars (US$) to receive funds from the World Bank. A secondary US$ account will be opened at an acceptable commercial bank to enable payment of eligible expenditures. An account at a commercial bank will be opened for each regional office. Transaction-based disbursements will be used. An initial advance up to the ceiling of the DA and representing four months forecasted project expenditures payable through the DA will be made into the DA and subsequent disbursements will be made monthly against submission of the Statement of Expenditures (SoEs) or other documents as specified in the Disbursement and Financial Report Information Letter (DFIL).

59. Robust FM arrangements (including a comprehensive annual audit of project accounts, and FM supervision including review of transactions and asset verification), have been designed to mitigate the fiduciary risks in addition to the PIU’s overall internal control systems. 60. The project will be carried out in accordance with the PIC SOP-2 Project Implementation Manual (PIM), whose completion in accordance with World Bank policies and procedures will be made a condition for effectiveness.

B. Results Monitoring and Evaluation Arrangements

61. The M&E system will be based on the Results Framework, which was designed by translating the project’s underlying logic and theory of change into output and outcome indicators. The project will be able to build on and improve the systems and processes developed during PIC 2.1, that will be described in a thorough M&E plan. 62. The PIU will have the primary responsibility for establishing the M&E system and coordinating all M&E activities. The planned M&E arrangements reflect the Borrower’s strong institutional capacity and address issues related to staffing, accountability, equipment, skills, and budget required to carry out the M&E function. An M&E Specialist within the PIU will be responsible for gathering data, analyzing and reporting it, and using the information to inform implementation. The M&E specialist will be supported by M&E focal points in each of the


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regional PIU offices. Data sources will include a mix of primary data collection and secondary data from relevant government agencies. The M&E function is budgeted for in Component 4.

63. The World Bank team will advise the PIU and assess the M&E system to ensure arrangements are adequate for monitoring results during implementation. The World Bank team will coordinate closely with the PIU to take proactive measures if needed to enhance the project’s likelihood of meeting objectives. Regular joint implementation support missions will aid in monitoring the status of activities and verifying the validity of data reported by the PIU. A mid-term review of the project will further assess project performance and integrate lessons learned in the second half of the project. An Implementation Completion Report (ICR) will be undertaken after completion of the project. Rigorous impact evaluations of selected interventions will be an integral part of the project.

C. Sustainability

64. As with PIC 2.1, the project is anchored in the priorities of the GoM’s NDP. It particularly highlights tourism and agriculture as key sectors for economic recovery and job creation. The project is also aligned with sectoral priorities expressed in the Air Transport Policy Letter, the Tourism Policy Letter, the Energy Policy and Strategy, and the PSAEP. 65. The integrated approach is strongly supported in Madagascar both at the central and regional levels as demonstrated throughout implementation of PIC 2.1 and during PIC 2.2 preparation. The continuation of activities such as integrated investment climate and investment promotion activities, the MBIF, strengthening local governance, improving competitiveness in the air transport sector, improved management of tourist attractions, and support to development of competitive agribusiness value chains from PIC 2.1 will ensure that knowledge transfers take place over time. The expansion of these activities to new sites and new value chains will be guided by lessons learned under PIC 2.1. Finally, all of the public institutions that the project will work with and support will continue to function after the project closes. 66. The key risk to project sustainability stems from uncertainty surrounding the upcoming presidential election and its aftermath, as described in the Country Context.

4. PROJECT APPRAISAL SUMMARY

A. Technical, Economic and Financial Analysis

67. The project’s technical approach has been designed based on lessons learned under PIC 1 and PIC 2.1, extensive analytical work, comprehensive public and private consultations, and multisectoral expertise from across World Bank units, projects and countries.

(a) Lessons learned through previous phases. See Section F. Lessons Learned and Reflected in the Project Design, for a discussion of technical lessons learned through PIC 1 and PIC 2.1, upon which the project’s sub-components are based.

(b) Consultations. The team consulted local authorities, private sector representatives, investors, entrepreneurs and local communities in Antananarivo, the three proposed poles and Nosy Be and Sainte Marie, during scoping missions. Town hall style meetings were organized under the


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leadership of the Chief of Region and national-level government officials from the key counterpart Ministries participated in the field in sector-specific workshops where issues and priorities and proposed project interventions were identified and documented.

(c) Studies. A series of assessments and studies in the proposed technical areas of intervention have been (and are being) conducted. Studies include a tourism market assessment of the three poles, a study to identify the agribusiness value chains to be supported, a study to define a strategy and action plan for SME development, an impact assessment of PIC 2.1 interventions, and a feasibility study for airport upgrades, among others.

(d) Multisectoral and global expertise. The project’s technical design has benefited from cross-sectoral expertise developed through sector-specific projects in multiple countries across the following GPs: Finance, Competitiveness and Innovation; Macroeconomics, Trade and Investment; Transport and Digital Development; Governance; Agriculture; and Water.

Economic and financial analysis

68. As part of project preparation, an economic and financial analysis (EFA) has been conducted across the project components to determine the value of the anticipated benefits relative to the associated costs. The Project Net

Present Value (NPV) is estimated at US$17.5 million at a 15 percent discount rate24, and the Economic Rate of Return (ERR) at 24 percent. Information generated through the EFA has been used to refine details of the project design and are consistent with M&E targets and their associated timing.25

69. Rationale for public intervention. Project design followed the MFD approach, by determining systematically the possibility to use private financing instead of public financing to realize the project’s objectives. Public activities financed by the project are commensurate to the constraints to be removed to leverage private financing, and the nature of the intervention needed. For example, the project will help facilitate the Government’s plan to tackle key regulatory obstacles to private investment of SMEs in the agribusiness and tourism sectors, but also offers the possibility for additional transactional support to the government to resolve coordination and information failures that may also prevent private financing from being mobilized for more strategic investments. It is expected that the combination of interventions will leverage a total of US$25 million in private investment over the life of the project, attributable to it. Grant mechanisms included in the project are designed to: (i) support the de-risking of private investments where justified; and/or (ii) allow the internalization by private investors of externalities. Total private co-financing under the MBIF grant mechanism is expected at US$5 million over the life of the project.26 The project will leverage US$20 million, including investments from potentially large branded hotel investment. Other project interventions are directly related to the provision of public goods that would facilitate private investments, but which themselves could not be viably provided with private sector participation, e.g., rehabilitation of critical urban and rural connectivity infrastructure, safety equipment in secondary airports located in the project regions, support to tourism site infrastructure to boost visitor numbers from initially relatively low numbers, or extension of water distribution systems to both improve the destination viability and benefit local populations.

24 Discount rate: This is based on the risk-adjusted opportunity cost of capital for World Bank financing in Madagascar. 25 The full economic and financial analysis is available in the project files but not annexed to this PAD. 26 Private contribution of US$5.0 million from MBIF tourism (US$1.5 million) and agribusiness (US$3.5 million) windows, at an average 50 percent match for both.


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70. Actions during implementation to revisit EFA at mid-term. At mid-term, the project team will use current M&E data to evaluate the impact to date of the project. These actuals will be used to calculate an updated interim ERR and NPV. Given that much of the impact associated with the project will be visible in the years after closing, the interim ERR and NPV will most likely be negative; however, these values can be used to evaluate the quality of the original predictions during project design. Additionally, the EFA will be updated to reflect the mid-term realities of the project. This includes updating the expected ERR and NPV going forward based on actual data, and using this information to qualify and assess potential changes to the project budget allocations and design. 71. Impact of the project on the Borrower’s financial situation. Madagascar currently runs a fiscal deficit estimated at 2.3 percent of GDP (2017), with public debt accounting for 36 percent of GDP. The risk for debt distress has been assessed as moderate as of the last review under the IMF program. Although the project would contribute further to this public debt, IDA credits are given at highly concessional rates and flexible credit repayment terms. Additionally, the investments under this project are expected to contribute to future fiscal revenues in Madagascar that should far exceed the fiscal cost of the loan. Finally, since standard IDA terms for Madagascar would offer a five-year grace period, it would allow for economic returns from the loan to accrue prior to the start of any repayment.

B. Fiduciary

Financial Management

72. A financial management (FM) assessment of the agency currently implementing PIC 2.1 was undertaken in March 2018 as part of the project appraisal process. The PIC 2.1 phase will close in September 2019. Under PIC 2.1, Interim Financial Reports (IFRs) and audit reports were submitted in a timely manner and were satisfactory, and audit opinions were constantly unqualified during the previous fiscal years. For the last Implementation Status Report (ISR), the FM performance rating was satisfactory and the risk moderate. The assessment concluded that the FM arrangements in place are compliant with World Bank Policy and Directive on Investment Project Financing, and the Financial Management Manual. 73. The existing PIU will be responsible for the FM of PIC 2.2. The PIU will (i) retain the FM staff that possesses the relevant qualifications and the appropriate experience with World Bank FM procedures and requirements, and (ii) recruit a qualified internal auditor.

74. The FM residual risk rating for the project is Moderate.

Procurement

75. The project procurement risk is moderate. The PIU’s Procurement Team is well staffed by two Senior Procurement Specialists, a Procurement Officer and a Procurement Assistant, has strong experience with the World Bank’s Procurement Guidelines, and is well organized to manage procurement processes. The PIU’s experience with the World Bank’s New Procurement Framework (NPF) is limited, although the procurement team has already attended training on the NPF and Project Procurement Strategy for Development (PPSD). The project will address any procurement capacity gaps by training the PIU’s procurement officers, who have already been involved in the implementation of the PPA. The World Bank procurement team will continue to provide coaching and continuous hands-on support to the PIU.


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76. Procurement under the project will be guided by two documents: (i) under the World Bank’s NPF, the procedures specified in the ‘World Bank Procurement Regulations for IPF Borrowers’ dated July 1, 2016, (Procurement Regulations) revised in November 2017; and (ii) the World Bank’s Anti-Corruption Guidelines: ‘Guidelines on Preventing and Combatting Fraud and Corruption’ revised as of July 1, 2016, as well as provisions stipulated in the Financing Agreement. Prior to project effectiveness, the project’s procurement manual will be updated as necessary based on and in accordance with these documents.

77. All goods and non-consulting services will be procured in accordance with the requirements set forth or referred to in Section VI. Approved Selection Methods: Goods, Works and Non-Consulting Services of the Procurement Regulations mentioned above. All consulting services will be procured in accordance with the requirements set forth or referred to in Section VII. Approved Selection Methods: Consulting Services of the Procurement Regulations, as well as according to the PPSD and the Procurement Plan approved by the World Bank.

78. With World Bank guidance and support, the PPSD was developed during project preparation. A brief summary of the PPSD is provided in Annex 1.

79. The PPSD and the project-level Procurement Plan covering the first eighteen (18) months of project implementation were submitted and approved by the World Bank before loan negotiation. The Procurement Plan specifies for each contract (a) a brief description of the activities/contract; (b) the selection methods and the market approach options to be applied; (c) the estimated cost; (d) time schedules; (e) the World Bank’s review requirements; and (f) any other relevant procurement information. Any updates of the Procurement Plan shall be submitted for the World Bank’s approval with the corresponding update in the PPSD. The project will be using the World Bank’s online procurement planning and tracking tools, Systematic Tracking of Exchanges in Procurement (STEP), to prepare, clear, and update its Procurement Plan and to carry out all procurement transactions.

C. Safeguards Environmental risks 80. The project is classified as a Category B project according to OP/BP 4.01 because the environmental and social impacts are site specific, local, reversible and mainly temporary (during civil works only), and can be reduced to an acceptable level after adoption of specific mitigations measures. In addition, no physical relocation issues are anticipated under the project. Most of the resettlement anticipated under the project is economic and temporary (only during the civil work) in nature. No impact on natural habitat or national parks is expected to be generated by tourism activities around or in protected areas, and ecotourism zoning plans prepared under the former Third Environmental Program (EP3) financed by the World Bank will be followed. The project activities have triggered five safeguards policies: OP 4.01 (Environmental Assessment), OP 4.04 (Natural Habitat), OP 4.11 (Physical Cultural), OP 4.12 (Involuntary Resettlement) and OP 4.09 (Pest Management). 81. The proposed PIC 2.2 activities may result in both direct and indirect environmental and social impacts and risks, including: community health and safety risks such as risks to increased HIV/AIDS transmission; risks related to the influx of workers and local recruitment during civil works, as well as to the development of tourism activities (e.g., gender based violence, Sexual Exploitation and Abuse (SEA) risks); increased risk of accidents during works; general nuisances such as noise, dust and vibration; and temporary/permanent land acquisition and economic


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displacement. The national Environmental Law will be reinforced by the World Bank safeguard policies for this proposed project. Safeguards instruments (PMP, ESIAs, ESMPs, RAPs; RPF and ESMF27 have been prepared by the Borrower. 82. The PIC 2.2 project is not expected to have long-term adverse environmental and social impacts in the project areas. Overall project impacts are considered generally substantial, with the most significant related to land use during road rehabilitation and water supply civil works. Cumulative impacts of tourism will be closely monitored and mitigated in particular for Nosy Be, where tourism visitation represents 32 percent of all visitation to the country (localized in a small geographical area) and where the project expects to see the largest increase in arrivals and hotel investments. Tourism impacts will be addressed in early project implementation through the preparation and implementation of Strategic Tourism Master Plans including Strategic Environmental and Social Assessment (SESA) Screening tools and guidelines to ensure all cumulative and potentially induced impacts are considered in the prioritization and selection of investments and investment-specific impacts are screened and identified early in the process. Social risks 83. The project triggers Operational Policy OP/BP 4.12, Involuntary Resettlement, as Component 2 and 3 of the project will induce land acquisition. Economic displacement is expected, but physical resettlement is not likely to occur. Project activities such as road rehabilitation and the rehabilitation/extension of water supply infrastructure have the potential to cause direct and/or indirect social impacts. For both urban and rural roads activities (including those on feeder roads) impacts may occur at the sites themselves but also at camps and quarries on existing right-of-way. For water supply infrastructure, even if construction occurs in areas that host no biophysical resources, temporary or permanent losses of income and assets or relocation (without any physical displacement) may occur. Without appropriate mitigation measures, these project activities could generate a number of social issues such as community health and safety risks and increased risk of accidents during construction phases. The project’s support to achieving the government’s objective of reaching 500,000 tourist arrivals by 2019 also has the potential to generate some negative social impacts as a result of the influx of people. 84. Environmental and social safeguards capacity building: The proposed PIC 2.2 builds on the two previous projects and will be implemented by the same implementing agency. The capacity assessment conducted as part of the Environmental and Social Management Framework (ESMF) and the Resettlement Policy Framework (RPF) concluded that the current environmental and social institutional arrangement is operational and could be maintained, and will be composed of two full time staff: one environmental specialist and one social development specialist. It is proposed that the World Bank task team will continue to provide hands-on training in management of environmental and social safeguards risks, including the new Environmental and Social Framework (ESF). The ESMF and RPF include institutional arrangements outlining the roles and responsibilities for the various stakeholder groups involved, for screening and approval of activities, as well as implementation and monitoring of mitigation measures and capacity building activities needed. Mitigation measures

27 Including ToR for a Strategic Environmental and Social Assessment (SESA) for the strategic tourism development Master Plans for Nosy Be and Sainte Marie.


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85. Project activities have been designed—and will be implemented—in a way that minimizes potential environmental and social impacts. Proposed tourism development activities around protected areas will be conducted in compliance with the protected areas master plan approved under the environmental program, in consultation with local populations, and following in-depth biological and socio-economic studies. Agribusiness development activities are designed in a manner that avoids the need to obtain/convert large tracts of land to minimize both environmental and social impacts, e.g., loss of income/assets. An Integrated Pest Management Plan (PMP) has been prepared and cleared. A SESA of activities aiming to increase tourist arrivals under the project will be carried out during implementation. The Terms of Reference (ToR) for this SESA has been provided in an annex to the ESMF. Public consultations and field visits have confirmed that the project activities will not affect any sites defined as physical cultural resources. The ESMF has made provisions for cultural resources management in the event the Physical Cultural Resources OP 4.11 is triggered during the implementation phase and includes “chance finds” procedures for inclusion in the contractor contract. 86. Project activities have been designed—and will be implemented—in a way that minimizes potential environmental and social impacts. Proposed tourism development activities around protected areas will be conducted in compliance with the protected areas master plan approved under the environmental program, in consultation with local populations, and following in-depth biological and socio-economic studies. Agribusiness development activities are designed in a manner that avoids the need to obtain/convert large tracts of land to minimize both environmental and social, e.g., loss of income/assets, impacts. The Integrated PMP has been prepared and cleared. A SESA of activities aiming to increase tourist arrivals under the project will be carried out during implementation. The ToR for this SESA has been provided in an annex to the ESMF. 87. The project is committed to complying with all triggered safeguards policies and preparing required safeguard instruments. With the support of a consultant firm, the project has prepared safeguards instruments for all activities for which locations and technical designs have been defined during preparation. Framework documents (ESMF and RPF) for activities for which exact locations, scope and designs are not yet fully defined have also been prepared. A Process Framework is not necessary, given that project activities will not restrict access to natural resources. All safeguards instruments (PMP, ESIAs, ESMPs, RAPs; RPF and ESMF with the ToR for the SESA for the strategic tourism development) have been approved by the World Bank and disclosed in-country and on the World Bank’s external website on July 11, 2019. 88. Gender and Equity. The proposed project is expected to benefit both women and men, and individuals of all ages, including the elderly and children. Project activities are expected to deliver significant social benefits by improving household/community and firm/SME access to infrastructure and services, ultimately enhancing living conditions and improving productivity and revenues, and expanding job opportunities across the two target sectors. As in indirect positive impact, the civil works to be carried out (e.g., road construction) will also create income generating opportunities for a wide range of professionals, skilled workers and manual labor. 89. Consultation. The design and preparation of the project has been consultative at several levels. Representatives of the national government, city authorities, local government officials, local communities, neighborhood organizations, project affected persons including women and youth, civil society, and the private sector, were the key stakeholders consulted. Key relevant donors consulted as part of project preparation include: the EU, GIZ, the AfDB, the AFD, and the International Fund for Agricultural Development (IFAD). Project design is informed by the results of the consultations and incorporates expressed community needs. Project affected persons, communities and other stakeholders were also consulted during the preparation of safeguards


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instruments, and they will be consulted again during implementation of the RPF/RAP. Consultation will remain a continuous process. 90. Citizen Engagement and Grievance Redress. Citizen engagement will continue to be a cross-cutting theme in project interventions, especially at the community level. The project will contribute to strengthening social dynamics and reinforcing the accountability of different stakeholders. Independent beneficiary feedback on project activities and their impacts will be gathered through surveys. In addition to the World Bank’s Grievance Redress Service (GRS), the project will prepare and adopt a project-level grievance redress mechanism28 (GRM). The GRM will address all project-related complaints at local, regional and national level, including, but not limited to: (i) corruption; (ii) the non-respect of the rights of direct project beneficiaries; and (iii) resettlement issues; and (iv) gender-based violence (GBV) and labor issues. Local officials and civil society will benefit from training to enhance their capacity for participatory approaches and improved social accountability. 91. Labor influx and Gender Violence Prevention The infrastructure rehabilitation (mainly roads) will induce labor influx from outside local communities, even though the hiring of local labor will be given priority. Measures to be taken to address the challenges of labor influx will include, but not be limited to: a) an assessment of labor influx risks in the ESIA based on the World Bank’s sector-specific experience in the country and other similar conditions; b) based on the risk levels, development of appropriate mitigation instruments such as Labor Influx Management Plan, as needed; c) a requirement that the Borrower includes clauses on workers’ conditions and management, child protection and GBV prevention in all civil works contracts; d) provision of TA and training to the Borrower, and awareness raising on GBV among all contractors, workers and local residents; e) the setting up of an accessibile and accountable GRM system to ensure that any incident related to labor influx and GBV will be addressed in an effective manner with sufficient social sensibility. 92. Communities and individuals who believe that they are adversely affected by a World Bank (WB) supported project may submit complaints to existing project-level grievance redress mechanisms or the WB’s Grievance Redress Service (GRS). The GRS ensures that complaints received are promptly reviewed in order to address project-related concerns. Project affected communities and individuals may submit their complaint to the WB’s independent Inspection Panel which determines whether harm occurred, or could occur, as a result of WB non-compliance with its policies and procedures. Complaints may be submitted at any time after concerns have been brought directly to the World Bank's attention, and Bank Management has been given an opportunity to respond. For information on how to submit complaints to the World Bank’s corporate Grievance Redress Service (GRS), please visit http://www.worldbank.org/en/projects-operations/products-and-services/grievance-redress-service. For information on how to submit complaints to the World Bank Inspection Panel, please visit www.inspectionpanel.org.

5. KEY RISKS

93. The overall risk is rated as Substantial mainly because of the presidential elections planned for the end of 2018, and related issues that may come up at the governance level ahead of those and potentially afterwards. Environmental and social risks are rated substantial as the specific location and scope of some infrastructure

28 The GRMs will include robust protocols to properly address all elements of managing SEA/GBV risk and complaints, and the project will include resources to support the implementation of such GRMs to ensure faster reporting and better resolution of complaints, including those related to GBV/SEA and child abuse.


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investments and activities have not been determined prior to project appraisal and will need to be further evaluated for safeguards during project implementation. 94. However, in the current context, the project’s political, governance and sector strategy/policy risks are mitigated by strong commitment to the integrated approach at the central and regional levels and clear alignment with sectoral strategies in their latest form. Ownership of the project among local authorities and the private sector following the earlier operation are key assets in mitigating stakeholder risks. The project’s technical design has proven to be effective in previous phases, mitigating design-related risks. Finally, the experience of the PIU, including its strong capacity for implementing World Bank procurement, fiduciary and safeguards processes, its ability to coordinate and engage stakeholders at the national and local levels, and its demonstrated ability to continue implementation during political crisis, helps mitigates overall risk. 95. Climate and geophysical hazards pose low risk to project activities. Specifically, climate risks for road rehabilitation, to which a large proportion of project funds will be dedicated, are considered to be low. The project will ensure that the impacts of extreme temperatures, sea level rise and storm surge will be closely monitored in the short and medium term, although these are beyond the scope of project activities and cannot be mitigated by project efforts. While the lack of financial resources for proper maintenance of rehabilitated infrastructure has long been a major challenge, all road rehabilitation activities under the project will include capacity building for local communities and authorities on road maintenance, as well as capacity strengthening for communes in investment planning and the promotion of co-management schemes involving local communities, private sector and local authorities for sustainable maintenance. This can address some of the risks related to cyclones and droughts caused by climate change. Other climate risks relate to the agribusiness sector, increasingly impacted by climate events (such as cyclones or droughts), reinforced by environmental degradation (notably deforestation and erosion). Project interventions in this sector will mostly consist of TA, capacity building, and equipment, and will support implementation of climate smart agriculture and standards focusing on climate adaptation techniques and practices. This includes support for research in climate-adapted seeds, support to diversification as a strategy against climate risk, co-financing of private-sector led initiatives for environmental conservation, TA to encourage agro-forestry approaches, and support to the use of resource-efficient technologies (e.g. energy-efficient boilers). Climate related activities include encouragement to climate-smart solutions and resource efficiency through higher scoring of relevant proposals under the MBIF Agribusiness Window; support to government institutions (e.g. National Center for Applied Research on Rural Development, Madagascar - FOFIFA) and relevant private partners to select and develop seeds to counter effects to climate change and; integration of climate-resilient design and maintenance plans for rural infrastructure. Based on initial assessment, the Climate Co-benefits assesses the project as having US$4 million of climate co-benefits (6 percent of project total).

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6. RESULTS FRAMEWORK AND MONITORING

Results Framework COUNTRY: Madagascar

Madagascar Integrated Growth Poles and Corridor SOP-2

Project Development Objectives(s)

The development objective is to contribute to the sustainable growth of the tourism and agribusiness sectors by enhancing access to enabling infrastructure and services in the Target Regions of Madagascar. PIC 2.1 (SOP1) has supported economic recovery by improving the investment climate, increasing investor confidence, investing in key infrastructure and restoring economic governance, to lay the foundation for inclusive growth and shared prosperity in the target regions.

Project Development Objective Indicators

RESULT_FRAME_T BL_ PD O

Indicator Name DLI Baseline Intermediate Targets End Target

2019 1 2 3 4 2024

Contribute to the sustainable growth of the tourism and agribusiness sectors in Target Regions

Number of formal jobs created in Target Regions (Number)

10,214.00 12,574.00 13,200.00 14,200.00 15,700.00 17,800.00

Of which in tourism (Number)

3,554.00 4,985.00 5,050.00 5,550.00 6,300.00 7,300.00

Of which in agribusiness (Number)

6,660.00 7,589.00 8,150.00 8,650.00 9,400.00 10,500.00

Value of private investment enabled by the projecty (in million) (Amount(USD))

0.00 0.00 0.00 3.00 5.00 25.00


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PDO Table SPACE

Intermediate Results Indicators by Components

RESULT_FRAME_T BL_ IO


2019 1 2 3 4 2024

Leveraging private investment in tourism and agribusiness

Number of formal businesses newly registered in the Target Regions (Number)

15,005.00 21,000.00 22,000.00 23,000.00 24,000.00 25,000.00

Increase in annual sales revenue for MBIF BPC recipient enterprises (MGA million) (Number)

0.00 450.00 1,750.00 3,000.00

Of which increase in annual sales revenue for women-owned enterprises (MGA million) (Number)

0.00 0.00 0.00 150.00 650.00 1,200.00

Removing key binding constraints for private investment in tourism

Passengers traffic by air per annum (Number (Thousand))

1,296.00 1,390.00 1,540.00 1,540.00 1,645.00 1,735.00

Of which at Ivato (Number (Thousand)) 908.00 980.00 1,030.00 1,080.00 1,155.00 1,215.00

Of which in Target Regions (Number (Thousand)) 388.00 410.00 435.00 460.00 490.00 520.00

Hotel rooms available in the Target Regions (Number) 6,575.00 6,600.00 6,700.00 6,800.00 6,900.00 7,000.00

Increase in average daily tourist expenditures on products and services for overnight tourists (Percentage)

0.00 5.00 10.00

Kilometers of urban roads rehabilitated (Kilometers) 12.00 12.00 12.00 12.00 30.00 50.00


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2019 1 2 3 4 2024

Number of People provided with access to improved water sources (Number (Thousand))

250.00 325.00

Percentage of municipal budgets executed for investment by targeted municipalities (Percentage)

6.00 6.00 6.00 6.00 7.00 7.00

Annual municipal revenues collected in the supported municipalities (MGA billion) (Number)

5.72 5.85 6.10 6.40 6.70 6.85

Of which urban (Number) 3.75 3.85 4.05 4.25 4.50 4.60

Of which rural (Number) 1.97 2.00 2.05 2.15 2.20 2.25

Removing key binding constraints for private investment in agribusiness

Increase in the value of exports of the selected crops in the Target Regions (US$ million) (Amount(USD))

0.00 1.55 3.35 5.75 8.55 11.00

Of which cocoa (Amount(USD)) 0.00 0.91 1.82 2.72 4.08 5.45

Increase in revenues from target cash crop production for smallholders in the Target Regions (MGA billion) (Number)

0.00 1.00 2.00 4.00 6.00 8.00

Kilometers of rural roads rehabilitated (Kilometers) 0.00 30.00 55.00

Project Implementation

Percentage of registered complaints that have been addressed by the project

0.00 90.00 90.00 90.00 90.00 90.00


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2019 1 2 3 4 2024

(Percentage)

IO Table SPACE

RESULT_FRAME_T BL_ UL

Indicators to be Mapped Baseline Intermediate Targets End Target

2019 1 2 3 4 2024

Number of formal jobs created in Target Regions (Number)

10,214.00 12,574.00 13,200.00 14,200.00 15,700.00 17,800.00

Of which in tourism (Number) 3,554.00 4,985.00 5,050.00 5,550.00 6,300.00 7,300.00

Of which in agribusiness (Number) 6,660.00 7,589.00 8,150.00 8,650.00 9,400.00 10,500.00

Value of private investment enabled by the projecty (in million) (Amount(USD))

0.00 0.00 0.00 3.00 5.00 25.00

Intermediate Outcome Indicators

Number of structuring institutions reinforced or created (Number)

15.00 16.00 18.00 20.00 22.00 24.00

UL Table SPACE

Monitoring & Evaluation Plan: PDO Indicators

Indicator Name Definition/Description Frequency Datasource Methodology for Data Collection

Responsibility for Data Collection

Number of formal jobs created in Target Regions

Formal jobs are defined as employment as reported by employers to the CNaPS. This is the number of new

Yearly

CNaPS

The PIU M&E Specialist will monitor this indicator through reports provided by the

PIU


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workers entering the formal sector in the targeted regions per year in the tourism and agribusiness sectors as declared by employers. The number of jobs is disaggregated by sector. Targets are cumulative. The baseline is the 31 December 2017 value cumulative over 3 years under PIC2.1 (SOP1).

central level CNaPS. The CNaPS database is populated with records for each new employee declared by employers

Of which in tourism

Formal jobs are defined as employment as reported by employers to the CNaPS. This is the number of new workers entering the formal sector in the targeted regions per year in the tourism sector as declared by employers. Targets are cumulative. The baseline is the 31 December 2017 value cumulative over 3 years under PIC2.1 (SOP1).

Yearly

CNaPS

PIU M&E Specialist will monitor this indicator through reports provided by the central level CNaPS. The CNaPS database is populated with records for each new employee declared by employers.

PIU

Of which in agribusiness

Formal jobs are defined as employment as reported by employers to the CNaPS. This is the number of new workers entering the formal sector in the targeted regions per year in the

Yearly

CNaPS

PIU M&E Specialist will monitor this indicator through reports provided by the central level CNaPS. The CNaPS database is populated with records for each

PIU


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agribusiness sector as declared by employers. Targets are cumulative. The baseline is the 31 December 2017 value cumulative over 3 years under PIC2.1 (SOP1).

new employee declared by employers.

Value of private investment enabled by the projecty (in million)

The indicator tracks the amount of investment committed by supported investors using private financing in the form of equity and/or debt. This will include: (i) private co-investments committed from MBIF recipients; (ii) Supported PPPs: the private contribution will be verified through signed legal documents ; (iii) Agribusiness and tourism enabled through investment promotion activities, tracked through regular reports. Investments are counted the year signed commitments are made. Targets are cumulative.

Yearly

Municipalities/EDBM/PIU

PIU M&E Specialist will monitor this indicator through reports prepared by the MBIF implementation unit under component 1.1 and reporting of component 1.2 prepared by PIU.

PIU

ME PDO Table SPACE


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Monitoring & Evaluation Plan: Intermediate Results Indicators

Indicator Name Definition/Description Frequency Datasource Methodology for Data Collection

Responsibility for Data Collection

Number of formal businesses newly registered in the Target Regions

Flow data of registered formal sector businesses at INSTAT/EDBM/DRI, including sole proprietorships. Reported for the Targeted Regions. Targets are cumulative. The baseline is the 31 December 2017 value cumulative over 3 years under PIC2.1 (SOP1).

Yearly

INSTAT/EDBM/DRI

PIU M&E Specialist will monitor this indicator through data provided by the INSTAT/EDBM/DRI from their respective databases of businesses newly registering at their agencies. Multiple sources are used for triangulation of data and to ensure completeness.

PIU

Increase in annual sales revenue for MBIF BPC recipient enterprises (MGA million)

This indicator measures the total incremental sales revenue of project-supported businesses through the MBIF BPC window. Baseline sales will be zero for startups, or previous year’s sales for existing firms. Data will be collected from firms’ financial statements, subject to monitoring and verification by the PIU, on a yearly basis. Targets are

Yearly

PIU

Primary data collection will be undertaken through surveys administered to BPC recipients, managed by the MBIF implementation unit under component 1.1.

PIU


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cumulative. Sex disaggregation of sales assumes 40% of beneficiaries are women-owned enterprises.

Of which increase in annual sales revenue for women-owned enterprises (MGA million)

This indicator measures the total incremental sales revenue of project-supported businesses through the MBIF BPC window. Sex disaggregation of sales assumes 40% of beneficiaries are women-owned enterprises.

Yearly

PIU

Primary data collection will be undertaken through surveys administered to BPC recipients, managed by the MBIF implementation unit under component 1.1.

PIU

Passengers traffic by air per annum

Passenger traffic includes all visitors by air per annum to targeted poles (Diego, Nosy Be, Fort Dauphin and Tulear, plus Sainte Marie) as well as traffic in Ivato International Airport in Antananarivo. This will ensure project adequately reflects increased visitors to the poles (not limited to tourists) and arrivals and departures at Ivato airport, which has benefited from the partial liberalization of skies and route development activities. Passenger traffic includes

Yearly

ADEMA

PIU M&E Specialist will monitor this indicator through data provided by ADEMA and Ravinala Airports

PIU


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both departures and arrivals as per International Civil Aviation Organization definition. Baselines are as of December 31, 2017 (latest available).

Of which at Ivato Yearly

RAVINALA

PIU

Of which in Target Regions Yearly

ADEMA/ RAVINALA

PIU

Hotel rooms available in the Target Regions

This cumulative number includes all tourist accommodation, (constructed or under construction) including villas, in all Target Regions. Baseline is the total number of hotel rooms in December 2017 in the Target Regions plus Sainte Marie.

Yearly

Ministry of Tourism - Regional Directorate for Tourism (Direction Régionale du Tourisme-DIRTO)

PIU M&E Specialist will monitor this indicator through data provided by the Regional representatives of Ministry of Tourism - Regional Directorate for tourism based on their records of hotels’ declared number of rooms.

PIU

Increase in average daily tourist expenditures on products and services for overnight tourists

Tourism expenditures include accommodation, costs of tickets for site visits, local transportation, food and beverages, souvenirs and local shopping, etc. The baseline USD value of the average daily tourist expenditures on products

Baseline, years 3 and 5

PIU/exit surveys

PIU M&E Specialist will monitor this indicator through primary data collection derived from bi-annual exit surveys

PIU


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and services for overnight tourists will be conducted in 2019, and serve as a reference for years 3 and 5 to calculate the percentage increase and compare with targets. By definition the increase is therefore 0% at baseline.

Kilometers of urban roads rehabilitated

Roads rehabilitated under the project include urban and peri-urban roads in Target Regions. Targets are cumulative. Baseline value is the cumulative SOP1 end of project target, which is already achieved (from 2014 baseline of 0).

Yearly

PIU

PIU M&E Specialist will monitor this indicator through data obtained from reports prepared by PIU for activities under components 2.2 and 3.3.

PIU

Number of People provided with access to improved water sources

Number of people who, under the project, are provided with access to improved water sources in targeted urban areas. This is the sum of the residents in neighbourhoods (fokontany) where improved water sources are available. Improved water sources includes piped household connections and community water points. Targets are cumulative. Baseline value is

Yearly

JIRAMA

PIU M&E Specialist will monitor this indicator through data obtained from reports prepared by PIU for activities under component 2.2.

PIU


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the cumulative SOP1 end of project target, which is on track to be achieved (from 2014 baseline of 0).

Percentage of municipal budgets executed for investment by targeted municipalities

The share of the annual budget of the seven urban communes supported by the project spent on investment in and repair and maintenance of public infrastructures. This indicator captures results of project support to municipalities to improve local governance, increase financial revenues and improve capacity to maintain rehabilitated infrastructure. Baseline value is as of December 31, 2016 (latest available executed budget value), from a SOP1 baseline of close to 0.

Yearly

Municipalities

PIU M&E Specialist will monitor this indicator through data obtained from reports prepared by the PIU for activities under components 2.3 and 3.2, based on municipalities’ financial statements

PIU

Annual municipal revenues collected in the supported municipalities (MGA billion)

Municipal revenues are the amount of money collected by municipalities (communes) every year, excluding state subsidies. This includes all 75 communes in the target regions, rural (68) and urban

Yearly

Municipalities

PIU M&E Specialist will monitor this indicator through data obtained from reports prepared by the PIU for activities under components 2.3 and 3.2, based on municipalities’ financial

PIU


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(7). The targets measure the cumulative increase in annual revenues. Baseline value as of December 2017 (latest available).

statements with local PIU staff.

Of which urban

Of which rural

Increase in the value of exports of the selected crops in the Target Regions (US$ million)

The indicator measures the cumulative increase in the value of exported volumes (measured in US$ using constant value of 2017). * The actual value of exported crops in US$ (taking into account price volatility) will also be tracked internally and reported along with this indicator at each ISR. * A set of indicators for internal tracking will also be established to monitor quality improvements in the key supported value chains (i. e average unit value of exports).

Yearly

INSTAT/Customs

PIU M&E Specialist will monitor this indicator through data obtained from customs, from the primary ports from which targeted crops are exported. Crops supported may be added or removed throughout the project.

PIU

Of which cocoa

Increase in revenues from target cash crop production for smallholders in the

Smallholders supported by the Project are defined as

Yearly

PIU

PIU M&E specialist will monitor this indicator

PIU


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Target Regions (MGA billion) follows: smallholders producing or processing one or more of the targeted cash crops in the poles and corridors and receiving project interventions (training and/or inputs). Crops supported may be added or removed throughout the project. The targets measure cumulative increase in annual revenues earned by supported smallholders’ sale of target crops

through primary data collection obtained from all beneficiary smallholder and reported by the PIU

Kilometers of rural roads rehabilitated

Rural roads rehabilitated by the project include rural access, feeder, market, agricultural, irrigation, forestry, or community roads. Roads must have a maintenance plans with earmarked funds in place managed by local institutions, organizations or PPPs to be counted.

Yearly

PIU

PIU M&E Specialist will monitor this indicator through data obtained from reports prepared by PIU for activities under component 3.2.

PIU

Percentage of registered complaints that have been addressed by the project

Complaints are to be tracked through a formal, institutionalized, project grievance redress mechanism (GRM). Addressing a complaint

Yearly

PIU

PIU M&E Specialist will monitor this indicator through data obtained from the reports related to the GRM system put in place.

PIU


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entails efficiently and effectively responding to queries and resolving implementation problems. The indicator measures the share of complaints addressed by the project compared to the number of complaints logged by the end of each calendar year.

ME IO Table SPACE


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ANNEX 1: Implementation Arrangements and Support Plan

COUNTRY: Madagascar

Madagascar Integrated Growth Poles and Corridor SOP-2

Project Institutional and Implementation Arrangements

1. Ministry of Finance and Budget: The Borrower will be the Republic of Madagascar, represented by the Ministry of Finance and Budget. As the Borrower’s representative, this Ministry’s key responsibilities under the project will be to ensure that the executing Ministries carry out their responsibilities in accordance with the terms of the Financing Agreement. 2. The Ministry of Finance and Budget will chair the Project Steering Committee and the PIU will report to the Minister of Finance and Budget. 3. A Project Steering Committee. Given the multi-sectoral approach and multi-region scope of the project, as was the case with PIC 2.1, the project will be overseen by a Project Steering Committee. The Steering Committee is charged with defining the strategic orientation of the project, and mobilizing technical and financing partners as well as Ministries, public sector entities and the private sector to technically and financially support the project. The Steering Committee will meet at least once every 12 months to perform strategic review of Project Progress Reports, validate yearly reports, annual work plans and budgets, and provide oversight and support for effective project implementation. The Committee will consist of high-level representatives of relevant Ministries and will be chaired by the Ministry of Finance and Budget. 4. Project Implementation Unit: Project implementation and management for all components will be led by a PIU. The PIU will work to ensure timely and effective implementation and disbursement and will require a strong team both in the capital and in the Target Regions. The PIU will be the PIC 2.1 National Project Secretariat PIU based in Antananarivo, whose core staff will remain in place following the closing of PIC 2.1, scheduled for September 30, 2019. At the technical level the PIU will be supported by expert advisors. Approximately 15-20 project staff will likely be needed in Antananarivo. The PIU will work in close collaboration with relevant agencies, delegated authority from line Ministries, and decentralized technical units in project areas (see below). The PIU will be responsible for overseeing the flow of project funds for each component and sub-component, M&E, and ensuring project reporting between agencies, the PIU and the Ministry. Specifically, the duties and functions of the PIU will include: (a) implementation of all planned project activities; (b) procurement of goods, work contracts, consultancy services, etc.; (c) monitoring the quality and costs of deliverables; (d) implementation of social and environmental safeguard instruments; (e) monitoring construction of works; (f) validating results on the ground through local stakeholders and third party observers; (g) communicating and consulting proactively with project stakeholders; (h) coordinating with GoM and local authorities and financing agencies; (i) collecting and updating M&E data; and (j) reporting regularly to and seeking guidance from the Steering Committee on strategic aspects. 5. Decentralized technical units: The PIU will be supported at the regional level through strong decentralized technical units in Diana, Atsimo-Andrefana, Anosy and Sainte Marie. The decentralized technical units will consist of technical specialists in areas such as private sector development, tourism and agribusiness, according to the project activities in each region. The units will be responsible for acting as focal points for each region, overseeing implementation, and leading and reporting on dialogue with local stakeholders. Approximately 15-20 project staff


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will likely be needed in Diana; 15-20 in Atsimo-Andrefana; 15-20 in Anosy; and 2-5 in Sainte Marie. Key regional technical staff will remain in place following the closing of PIC 2.1.

6. MBIF Implementation Unit: The poor performance of the competitively selected PIC 2.1 MBIF private operator in terms of promoting and properly identifying viable proposals, supporting SMEs and entrepreneurs to prepare the pipeline of proposals, as well as lessons learned from other WB projects, and the strong capacity of the PIC 2.2 PIU, has led to a change of approach for the implementation of the MBIF program. An MBIF Implementation Unit will be created, which will report to the PIU on overall MBIF fiduciary management, M&E, project oversight and coordination. MBIF Implementation Unit members will be responsible for appraising and scoring each funding request and submitting requests to regional MBIF Validation Committees for review and approval. TA and tailored capacity building to applicants and beneficiaries for preparation of proposals will be provided by the MBIF Implementing Unit in partnership with regional BDCs supported by the project and in collaboration with the regional Chambers of Commerce. The team managing MBIF will consist of the Coordinator, and at least one FM specialist, one procurement specialist, one private sector specialist, and one operations and M&E specialist. One designated MBIF project manager will be located in each of the PIU decentralized units. 7. Regional MBIF Validation Committees: The MBIF Validation Committees will ensure the coherence of the MBIF program with the regional and national economic context and priorities, and maximize transparency in the screening and selection of applications. The Committees are responsible for reviewing initial proposals and business plans that have been previously appraised by the MBIF Implementation Unit and accepting or rejecting PIU recommendations, providing justifications for decisions. Validation Committees will consist of director-level representatives of relevant regional government institutions and private sector associations. At least one member should be an expert in agriculture, and at least one should be an expert in the tourism sector. There will be three Committees, one in each of Diana, Atsimo-Andrefana and Anosy, that will evaluate dossiers of projects in their region. All members will be required to sign an attestation of no conflict of interest in reviewing each file to ensure there is no bias against or interest in any project reviewed. The ToR and other details on the Validation Committee are defined in the MBIF Grants Manual. PIU capacity

8. The PIU for PIC 2.2 will be the same that implemented PIC 1, was subsequently reinstated, and is currently successfully implementing PIC 2.1. The Implementation Completion Report (ICR) of PIC 1 rated the PIU’s performance as highly satisfactory, and “deeply committed to the achievement of the project development objectives”. The transition between the PIC 1 and PIC 2.1 phases was seamless, benefitting from the PIU’s institutional memory and extensive implementation experience and familiarity with World Bank procedures. 9. At the technical and managerial levels, the PIU displayed strong competence and adaptability, earning it the World Bank regional excellence award in August 2007. At the fiduciary level, the PIC 1 and PIC 2.1 project books have been kept in good order and financial reports were generally submitted on time and in accordance with World Bank standards. Compliance with environmental and social safeguards was also assured through dedicated regional staff.


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10. The PIU also served as a crucial stabilizing entity for the project during the crisis. Since the World Bank could not have a formal relationship with central government during the OP/BP 7.3029 period, the PIU was essential in maintaining project engagement at the local level. It also pro-actively took advantage of the lull in activity to explore new approaches towards achieving project outcomes (by conducting various feasibility studies), engage in retrospective impact evaluation, and improve strategies for implementation going forward.

11. The high visibility of PIC 1 and PIC 2.1 and its success in mobilizing partnerships also owe in large part to the PIU’s local outreach efforts. The PIU fostered an active dialogue with project stakeholders and involved and leveraged local institutions and communities in project implementation.

Financial Management

12. Country risk. The overall country fiduciary risk, including fraud and corruption risks, is high. The 2014 Public Expenditure and Financial Accountability (PEFA) self-assessment indicates that limited progress has been made on improving the credibility of the budget. This finding reflects the policy adopted by the authorities during the political crisis, where cash was tightly controlled as revenues declined. The report of the PEFA self-assessment undertaken in 201730 was published in April 2018. Given the weaknesses in the public financial management (PFM) system and as the project is mostly focused on private sector, the project will partially rely on the country system: disbursement process, DA opened at the Central Bank. 13. Budgeting and planning. Budget arrangements used during PIC 2.1 will apply during PIC 2.2. The PIU will prepare the annual budget which will be approved by the Project Steering Committee. The periodic variance analysis will enable the timely identification of deviations from the budget. These reports will be part of the unaudited IFRs that will be submitted to the Association on a quarterly basis.

14. Accounting software. The PIU will use the existing accounting software for the preparation of the quarterly IFRs, the annual financial statements and the daily monitoring of the project financial transactions.

15. Internal controls / FM procedures manual. The existing (PIC 2.1) FM procedures manual will apply to PIC 2.2. The implementing entities will periodically review the manuals over the project life to ensure their continued adequacy and compliance with the requirements set out therein.

16. Internal audit. The internal audit function for PIC 2.1 is currently performed by an auditor recruited at project effectiveness. The ToR of the internal audit as well as the required qualification will be upgraded to keep the overall fiduciary risk Moderate. The PIU will recruit a qualified Internal Auditor who will continuously review the governance, risk management and control over the project’s activities. The Internal Auditor will prepare after each audit a report to be submitted to the Project Steering Committee.

17. Financial reporting. The PIU will prepare quarterly un-audited IFRs for the project, using the same format as for PIC 2.1. These IFRs will be submitted to the World Bank within 45 days after the end of the quarter to which they relate. The annual financial statements will be prepared using internationally accepted accounting standards.

29 WBG Operational Policy OP 7.30 (dealing with de facto governments) was put in effect in March 2009 following the unconstitutional change in power. Under OP7.30, disbursements were put on hold for all projects starting March 17, 2009. 30 PEFA 2017 covers the Fiscal years 2014 to 2016.


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At the end of each fiscal year, the project will prepare annual financial statements which will be subjected to an external audit.

18. Staffing. The PIU FM staff possess the relevant qualifications and the appropriate experience to carry out the FM activities of the project. The staff is composed by a Finance Manager, A Chief Accountant and an Accountant at central level. Each regional office is staffed by an accountant. 19. The Project will be carried out in accordance with the PIC SOP-2 PIMs, whose completion in accordance with World Bank policies and procedures will be made a condition for effectiveness, containing detailed arrangements, procedures and mechanisms for: (a) institutional coordination and Project implementation; (b) the roles and responsibilities of all involved stakeholders; (c) Project budgeting, accounting, disbursement and FM; (d) capacity building activities; (e) procurement; (f) safeguards; (g) monitoring, evaluation, reporting and communication; and (h) other such administrative, financial, technical and organizational arrangements and procedures as required for purposes of implementing the Project.

Disbursements

20. Flows of Funds—DA. The PIU will open a DA in the Central Bank of Madagascar denominated in US Dollars to receive funds from the World Bank. A secondary US$ account will be opened at an acceptable commercial bank to enable payment of eligible expenditures. An account at commercial bank will be opened for each regional office.

21. Disbursement arrangements. Transaction-based disbursements will be used. An initial advance up to the ceiling of the DA and representing four months forecasted project expenditures payable through the DA will be made into the DA and subsequent disbursements will be made monthly against submission of the SoEs or other documents as specified in the DFIL.

22. External Audit. The project accounts will be audited annually and the audit report will be submitted to the World Bank no later than 6 months after the end of each financial year. At the time of writing, there is no overdue audit report for the sector. The project will comply with the World Bank disclosure policy on audit reports (including making publicly available, promptly after receipt of all final financial audit reports (including qualified audit reports) and place the information provided on the official website within one month of the report being accepted as final by the Association. 23. Supervision plan. Based on the current overall residual FM risk, the project will be supervised twice a year, in addition to routine desk-based reviews and FM regular meeting, to ensure that the project’s FM arrangements operate as intended and that funds are used efficiently for the intended purposes. 24. FM risk assessment and mitigation. The content of these risks is described in the table below:


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Risk

Risk Rating

Risk Mitigating Measures Incorporated into Project Design

Conditions for

Effectiveness (Y/N)

Residual Risk

Inherent risk

Country level: PFM reform is experiencing implementation delays and weaknesses identified by the PEFA 2014 in PFM cycle generate the risk of lack of transparency and accountability in the use of public funds.

H Implement the PFM reform agenda with the support of the World Bank and other donors (AfDB and EU). The World financed project (P150116, Public Sector Services Delivery and Accountability Project) is on implementation stage and is supporting the improvement of the Madagascar public sector and PFM system.

N H

Entity level: FM requirements not met, weak FM capacity

M The PIU will retain the existing FM staff that possesses adequate experience and competence at national and regional level.

N M

Project level: The resources of the project may have distracted due to weak control environment

M The PIU will comply with the internal control processes as set out in the respective FM procedures manuals. The internal audit unit will also continuously review the adequacy of internal controls and make improvement recommendations.

N M

Control Risk

Budgeting: Weak budgetary execution and control leading to budgetary overruns or inappropriate use of project funds.

S The FM procedures manuals will spell out the budgeting and budgetary control arrangements to ensure appropriate budgetary oversight. The budget follow-up will be documented in the quarterly IFR.

N S

Accounting: Reliable and accurate information not provide to inform management decision

M The PIU will recruit/retain suitably qualified and experienced FM personnel to ensure appropriate performance of the accounting and FM functions. The financial reporting processes will be facilitated by the utilization of appropriate computerized accounting systems.

N M

Internal Control: Business process, role and responsibilities within the project is not clear, leading to issues of control

M The FM Procedures Manual will be reviewed to ensure continuing adequacy over the course of the project life. The manual will contain all the key internal control processes pertaining to the various project activities.

N M

Funds Flow: Risk of misused and inefficient use of funds; Inappropriate Funds arrangements may lead to non-financing of the project activities. Risk of delay in the contractors’ payment

S The process leading to payment will be improved to mitigate the risk of the use of funds for unintended purposes. The disbursement plan will be established considering the actual processing time of each step of the country disbursement mechanism. The project will recruit qualified internal auditor.

N S


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Financial Reporting: The project may not be able to produce the financial reports required in a timely manner as required for project monitoring and management

M The PIU will retain the existing FM personnel that possess adequate experience and competence. The PIU will use the existing computerized accounting system that will enable the efficient and timely generation of financial information.

N M

Auditing: Delays in submission of audit reports or delays Low quality of the external report

M The auditor will be recruited early. The computerized accounting system will lead to timely generation of IFRs and financial statements. Only qualified external auditors will be short-listed.

N M

Governance and Accountability: Possibility of corrupt practices including bribes, abuse of administrative & political positions, mis-procurement and misuse of funds etc., are a critical issue.

S Robust FM arrangements, World Bank FM and procurement supervisions. Effective internal control arrangements.

N S

Overall FM risk S M

25. FM Action Plan. The FM Action Plan described below has been developed to mitigate the overall FM risks.

Remedial action recommended

Responsible Entity

Completion date

Effectiveness Conditions

Recruit qualified internal auditor PIU No later than 3 months after the effectiveness No

Procurement

26. Applicable rules and procedures. The project will apply the World Bank Procedure for Procurement in IPF and other operational Procurement Matters dated November 3, 2017, the Procurement Regulations for IPF Borrowers dated July 1, 2016, (Procurement Regulations) and revised in November 2017, and the World Bank’s Anti-Corruption Guidelines: ‘Guidelines on Preventing and Combatting Fraud and Corruption’ revised as of July 1, 2016, as well as provisions stipulated in the Financing Agreement. Before effectiveness and as needed during its implementation, the project will update its Procurement Manual based on and in accordance with these documents. 27. All goods and non-consulting services will be procured in accordance with the requirements set forth or referred to in Section VI. Approved Selection Methods: Goods, Works and Non-Consulting Services of the Procurement Regulations. All consulting services will be procured in accordance with the requirements set forth or referred to in Section VII. Approved Selection Methods: Consulting Services of the Procurement Regulations, as well as according to the Procurement Plan approved by the World Bank issued from the PPSD reviewed by the Bank.


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28. The applicable thresholds which will be updated only through the updating of the World Bank Procedure for Procurement in IPF and other operational Procurement Matters dated November 3, 2017 are:

Type of procurement (US$ million) PIU Moderate Risk

Works (including turnkey, supply & installation of plant and equipment, and PPP) 15

Goods, information technology, and non-consulting services 4

Consultants (firms) 2

Individual Consultants 0.4

Works Goods, IT, and non-consulting services Shortlist with national firms only

ICB ≥

NCB <

RfQ ≤

ICB ≥

NCB <

RfQ ≤

Consultants < Design and construction supervision ≤

5,000 5.000 200 500 500 100 100 300

29. Institutional arrangements for procurement. The PIU will be responsible for the project’s fiduciary aspects. The project will strengthen the PIU’s procurement capacity by training their procurement team, which was involved in the implementation of the PPA. Additionally, the World Bank’s procurement team will provide coaching and continuous hands-on support to the project and the PIU. Nevertheless, to improve their efficiency, the PIU needs to recruit an administrative assistant to support the procurement team.

30. Procurement risk assessment. A procurement capacity assessment of the PIU to implement the project’s procurement activities revealed that the PIU is experienced with World Bank Guidelines and has already attended a training on the PPSD. The assessment concluded that overall procurement risk rating is Moderate. To mitigate any residual risk, the following measures are proposed:

(a) Training for the PIU’s procurement team. The World Bank team’s Procurement Specialist will provide specific training on Procurement Regulations to dedicated procurement staff and basic procurement training to all project staff involved in procurement activities;

(b) The World Bank team’s Procurement Specialist will assist, coach, and provide continuous handholding support to the project staff;

(c) The PPSD is being developed with a fit-for-purpose approach and methods to address the project’s objective and specificity.

31. Summary of the PPSD. Given the specificity of the project, the market analysis concluded that TA activities related to air route development, facilitation of investment promotion and transaction in agribusiness, and implementation of a label for cocoa products, will use international open competition. Specific materials for airports will be procured through international limited competition. TA and consultants continuing from the first phase of PIC 2 (PIC 2.1) or from the Project Preparation Advance (PPA) will be procured through direct selection. For activities that involve direct interaction with local populations, such as the development of value chains along the RN12a axis or training programs for roads maintenance and repair works, an NGO will be hired through direct selection. For workshops and small recurrent services and goods, due to their frequency, the procurement method will be the framework agreement. The full PPSD providing the detailed approach to market and methods justification is annexed to the project package. 32. Procurement Plan. The draft Procurement Plan for the first 18 months is finalized and approved before the loan negotiation. The Procurement Plan will be updated by the PIU at least on an annual basis to reflect actual


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project implementation needs as well as the PPSD to reflect market evolution. The project will use the World Bank’s online procurement planning and tracking tools, STEP, to prepare, clear, and update its Procurement Plan and to carry out all procurement transactions.

33. Procurement supervision. In addition to the prior review carried out by the World Bank, a supervision mission will be conducted every six months and a post-procurement review will be conducted on an annual basis.

Environmental and Social (including safeguards) 34. The project builds on two previous project phases and will be implemented by the same implementing agency. The Borrower has long-standing experience in implementing complex, World Bank-funded projects. Under the implementation of the PIC 1 and PIC 2.1 projects, the Borrower gained tangible knowledge and experience managing social and environmental safeguards risks. The PIU has a full-time safeguards staff member, who, together with seasoned consultants (social and environmental specialists), ensures the implementation and monitoring of environmental and social safeguards instruments and risks. In previous project phases, safeguards instruments (e.g., ESMF, RPF, ESIAs, RAPs) were prepared by the client and disclosed in country and on the World Bank external site in a timely manner. Nevertheless, to further ensure effective compliance with World Bank safeguards policies, the World Bank safeguards team will continue to provide hands-on training in management of environmental and social safeguards risks, including the new ESF.

35. The Malagasy Environmental Law mentions that environmental assessment for both private and public development is governed by the Décret N° 2004-167 relative to the compatibility of investments and the Environment (Mise En Compatibilité des Investissements avec l’Environnement - MECIE). This is fairly effective, but there is a need for strengthening of institutional capacity and technical staff to ensure more widespread application and improved monitoring of the law. The current PIC 2.1 and the former PIC 1 project have contributed to supporting capacity building of the National Environment Office (ONE) through a Memorandum of Understanding (MoU) to hire environmental and social experts to train their technical staff and to develop environmental and social technical review manuals. The national Environmental Law will be reinforced by the World Bank safeguard policies for this project. 36. The project’s preparation and implementation phases have and will continue to heavily incorporate participatory processes. During project preparation, the PIU, together with the concerned municipalities and the sectorial Ministries, conducted public consultations and meetings relating to the project’s proposed activities in the poles. In addition, extensive public consultations have been conducted during the preparation of safeguards instruments to incorporate local communities’ concerns regarding the project design and impacts. Additional consulted stakeholders include the Ministry of Finance, the three regional governments of Diana, Atsimo-Andrefana and Anosy, the targeted municipalities and their local communities, and local, national and international private sector actors. 37. The current PIU has extensive experience in conducting public consultations and disclosure policy, gained through the ongoing PIC 2.1 project. Under PIC 2.2, the PIU will consult project-affected groups and local NGOs on all environmental and social aspects of the project and will take their views into account accordingly. The PIU will initiate these public consultations as early as possible and will provide all relevant material in a form and language(s) that are understandable and accessible to the groups being consulted in a timely manner prior to


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consultation. All safeguards instruments under PIC 2.231 have been approved by the World Bank and disclosed in-country and on World Bank’s external website on July 11, 2018. 38. Project environmental category: The project is classified as Category “B” because the anticipated environmental and social impacts are site specific, local, reversible and mainly temporary (during civil works only), and can be reduced to acceptable levels after the adoption of specific mitigations measures. In addition, no physical relocation issues are anticipated under the project. Most resettlement resulting from project activities is expected to be economic only, and only temporary (during civil works). No impact on natural habitat or national parks is expected to be generated by tourism activities in and around protected areas as interventions are limited to buffer zones and pre-identified ecotourism zones approved under the former Third Environmental Program (EP3) financed by the World Bank. The project triggers five environmental and social Safeguard Policies: OP 4.01 (Environmental Assessment), OP 4.04 (Natural Habitat); OP 4.09 (Pest Management); OP 4.11 (Physical Cultural Resources); OP 4.12 (Involuntary Resettlement). The proposed PIC 2.2 activities may result in both direct and indirect environmental and social impacts and risks, including community health and safety risks such as risks to increased HIV/AIDS transmission; risks related to the influx of workers and local recruitment during civil works, as well as to the development of tourism activities (e.g., gender based violence, SEA risks); increased risk of accidents during works; general nuisances such as noise, dust and vibration; and temporary/ permanent land acquisition and economic displacement. 39. Environmental and Social Management Framework: In compliance with OP 4.01 (Environmental Assessment), an ESMF has been prepared by the Borrower given that not all of the specific activities and locations of infrastructure investments, which are expected to have the most significant environmental and social impacts, could be determined prior to project appraisal (or the technical designs are not yet available). Such activities include: (i) rehabilitation of urban roads; (ii) extension and rehabilitation of water supply; (iii) installation of equipment to upgrade the lighting and navigation equipment at two airports and upgrading of existing airport terminal facilities; (iv) activities to be financed by OCAI and MBIF grants; as well as (v) investment promotion and transaction support in tourism. The ESMF will be used to screen project activity proposals for environmental, social, gender, and health and safety impacts by using the ESMF screening form and checklist. Its includes an Environmental and Social Management Plan (ESMP), which has taken into account the urban and rural environmental and social review and the environmental and social profiles of the Target Regions. 40. In compliance with OP 4.11 Physical Cultural Resources, public consultations and field visits have confirmed that the project activities will not affect any sites defined as physical cultural resources. For additional assurance, the ESMF has made provisions for cultural resources management in the event the Physical Cultural Resources OP 4.11 is triggered during the implementation phase and includes “chance finds” procedures for inclusion in contractor contracts. 41. In compliance with OP 4.04 Natural Habitat, the ESMF assessment has demonstrated that the project seeks to preserve natural habitats, and as such no major activities that could affect natural habitats have been proposed. However, given that some activities, specifically those related to tourism development, will be near National Parks and sensitive areas, the project has triggered this policy and the ESMF has considered all mitigation measures to preserve these zones. Civil works related to tourism activities (e.g., basic tourism infrastructure, access and services) will be limited and developed in compliance with the National Park Management Plan under the park management agency, Madagascar National Parks (MNP). For the upgrading of rural connectivity to tourism sites

31 PMP, ESIAs, ESMPs, RAPs, RPF, ESMF with the ToR for the SESA for strategic tourism development impacts.


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through rehabilitation of rural roads within their existing alignments will not be undertaken in proximity of protected areas. Additionally, the instruments to mitigate any potential impacts and risks are described under Environmental Assessment OP 4.01 above. Tourism development activities that may impact the protected areas are: (i) the promotion of visiting parks through improvement of the park products and marketing; and (ii) promotion of investment in tourism infrastructure in buffer zones (in compliance with the approved layout plan around the National Parks, and/or peripheral areas). Layout plans have been elaborated under the former Third Environmental Program (EP3) funded by the World Bank and currently implemented by MNP. The plans, prepared and approved in a participatory manner, contain various zoning within and around the protected areas and characterize activities such as ecotourism activities and investments that are permitted in certain zones. Potential ecotourism zones are not highly environmentally sensitive and are generally home to limited biodiversity. Tourism activities will be developed in accordance with these plans. A full ESIA is required in accordance with national environmental laws and should be in accordance with the legal frameworks of protected areas in Madagascar under the responsibility of the MNP and the ESMF of this project. All activities that could affect sensitive areas will not be eligible under the project. 42. The ESMF/ESMP outlines an environmental and social screening process for project activities to ensure that they are environmentally and socially sound and sustainably implementable, in line with GoM and World Bank policies and guidelines on environmental and social impact management. The ESMF also outlines the importance of developing an operational GRM which will capture and address environmental, social, governance, and other grievances and negative impacts of the project. 43. Prior to its commencement, and as soon as the implementation sites are identified, each project activity will be screened as per the Environmental and Social Screening Form (ESSF) procedures detailed in the ESMF. The screening outcomes will determine the need to prepare an Environmental and Social Impact Assessment (ESIA), and a freestanding ESMP; whereas the RPF will determine the need for preparation of additional Resettlement Action Plans (RAPs). The works of project activities will be executed with the environmental and social clauses in the respective enterprise contracts and with the required Contractor ESMP included after the specific ESIAs are approved by the World Bank. The screening of project activities will be done by the two safeguards specialists at the PIU. The environmental and social safeguard specialists are responsible for the procurement of consultants to prepare the safeguards instruments, supervision of the consultants and monitoring of the implementation of the ESMPs, and RAPs in the project areas. The safeguard specialist will also ensure that all contractor contracts include environmental and social clauses (including a worker code of conduct, specific GRM, specific measure regarding GBV), which are attached as an annex to the ESMF and will also be developed in the specific ESIA for the selected project activity sites during implementation in order to ensure adequate environmental and social management practices during construction and operation. 44. To reduce the risks of social conflicts, Gender Based Violence and SEA stemming from project support in the tourism sector and during civil works, the ESMF has developed a solid and coherent Strategy for Prevention and Fight Against GBV in its Annex 18. In addition, it was identified that the tourism sector has established a “Code of Conduct for the Protection of Children from Sexual Exploitation in Travel and Tourism,” an industry-driven tourism initiative supported by the United Nations Children’s Fund (UNICEF) and the World Tourism Organization (UNWTO), which the project will work to implement. UNICEF has ongoing activities working with local communities on these issues which will be leveraged and reinforced. An effective and long-term solution however to some of these key social issues is to ensure the benefits of tourism are extended to local communities living near tourist accommodation and destinations. The Borrower has included analysis in the ESMF to launch the


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preparation of a Tourism Master Plan for Nosy Be (and Sainte Marie) which will incorporate a SESA to be undertaken at the start of project implementation to address all risks and adverse environmental and social impacts. 45. Cumulative impacts: The PIC 2.2 project is not expected to have long-term adverse environmental and social impacts in the project areas. Overall project impacts are generally considered substantial, with the most significant related to land use during implementation of civil works linked to road rehabilitations and improvement of water supply. The overall number of tourists visiting Madagascar remains very low and potential cumulative impacts are limited given the country’s landmass and population. In 2016 Madagascar received 296,000 tourists, as compared to neighboring Mauritius, 300 times smaller in size, which received 1.27 million, and to Costa Rica, 10 times smaller (considered an example of sustainable tourism development) which received 2.9 million. The GoM vision for Madagascar is to receive 500,000 tourists by 2019. Cumulative impacts of tourism will be closely monitored and mitigated in particular for Nosy Be, where tourism levels represent 32 percent of total visitors (localized in a small geographical area of the country) and where the project anticipates seeing the largest increase of arrivals and hotel investments. The impacts will be addressed in early project implementation through the preparation and implementation of Strategic Tourism Master Plans including SESA Screening tools and guidelines to ensure all cumulative and potentially induced impacts are considered in the prioritization and selection of investments and investment-specific impacts are screened and identified early in the process. The project in fact aims to make these increases sustainable by focusing activities on the improvement of infrastructure (e.g., roads) and services (e.g., waste management), which will benefit both tourists and the local population while also providing governance TA to all local communities impacted by the project. The project also has the potential to have a positive impact on people in the project's target Regions, especially women, children and youth who disproportionately depend on agribusiness as their main source of livelihood. 46. Environmental and Social Impact Assessments (ESIA): In compliance with OP 4.01 (Environmental Assessment), for project activities already identified during project preparation, four standalone Environmental and Social Impacts Assessments (ESIA) have been prepared and disclosed on July 11, 2018. These are for: the civil works to rehabilitate the High Sambirano rural Road; V1/V2 Road in Nosy Be; Ramena Road in Diego; and the Crater Road In Nosy Be. At the construction stage, the impacts of these activities are mainly related to noise, vibration, erosion of rock and earth on quarry sites, dust, increased STD/AIDS transmission risks with the influx of temporary workers and safety issues with the important number of workers required during the civil works; health and safety issues for workers, traffic disturbance and accident risks. The environmental and social review of each selected project activity has noted that the selected activities could cause direct or indirect impacts at the main work sites, but impacts that are reversible or minor in scope. Following the results of public consultations and field visits it is determined that no natural habitat or archaeological vestiges will be impacted as the project will work under the existing rights-of-way. The ESMP outlines coherent environmental and social measures to manage and reduce to an acceptable level the identified impacts and risks of the planned activities. A Standard Code of Conduct with the Gender Based Violence strategy has been incorporated in the ESMF, including environmental and social clauses to be included in enterprise contracts and with the required Contractor ESMPs to be considered during civil works. 47. Pest Management Plan (PMP): Given the project’s activities in agribusiness promotion, improving agricultural performance and agribusiness investments, the extensive use of pesticides to boost agriculture productivity is possible. In compliance with OP 4.09 (Pest Management), to ensure safe pest management, the project has prepared a PMP, disclosed on July 11, 2018. Project funds will not be used to purchase and distribute


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agrochemicals. The PMP includes: (i) a survey on the local organic pesticides and agronomic technical practices to reduce the impacts of pests on some agricultural value chains in project areas; (ii) actions to reduce the exposure of farmer groups to pesticides used in agricultural production systems; and (iii) guidelines to be adopted in the case of agrochemical application and disposal, and on training sessions to strengthen capacity of different actors (farmers, local vendors, regional agricultural agents, etc.) on the use, storage and disposal of agrochemical products with a coherent budget available in the project financing. Finally, it recommends the application of an integrated pest management approach coupled with the promotion of agro-ecological practices by the farmers' groups. 48. Resettlement Policy Framework: Interventions related to the rehabilitation and development of urban roads, rural tracks, municipal infrastructure (e.g., activities funded by OCAI grants) will affect various elements of the rural and urban environment and are likely to generate land acquisitions that would result in loss of land, property, assets and/or socio-economic activities among the affected communities, including their possible involuntary resettlement. In compliance with OP 4.12 (Involuntary Resettlement), given that the precise locations and potential impacts of some project activities cannot be defined (specifically those under Components 2 and 3) prior to appraisal, a RPF has been developed that takes into account the socio-economic context of any anticipated resettlement. The RPF has (i) identified a global number of affected households (624 households) for the entire project; (ii) described the methodology for developing potential RAPs after identification of specific activities with such impacts; (iii) outlined eligibility criteria for project-affected-persons (PAPs); (iv) defined a specific compensation matrix for the project; (v) outlined consultation processes for the future RAPs; (vi) defined the GRM which will be developed as part of the project and which will capture all complaints related to the project, not only those from resettlement issues; (vii) proposed the institutional arrangements and M&E approach for resettlement . 49. Resettlement Action Plan (RAP): In compliance with OP 4.12 (Involuntary Resettlement), RAPs will be developed to address all aspects related to land acquisition and temporary or permanent involuntary resettlement, or loss of livelihoods, during for the rehabilitation of roads in High Sambirano, Ramena and Crater Road under the project. So far, these RAPs have identified 248 households, elements of infrastructure and PAPs that will be directly or indirectly impacted by the project activities. They also outline variable compensation and resettlement support depending on the categorization of households and PAPs, and without exclusion even if some PAPs are irregular occupants. The RAPs also define a global GRM which will capture all complaints related to the project, including those from resettlement issues. The RAPs include a clear and coherent implementation plan, including institutional arrangements with a total budget of around US$282,000 which will be co-financed by the government and the project.

50. Environmental and Social Capacity Building: The proposed PIC 2.2 builds on PIC 1 and PIC 2.1 and will be implemented by the same implementing agency. The ESMF and RPF include institutional arrangements outlining the roles and responsibilities for the various stakeholder groups involved, for screening and approval of activities, as well as implementation and monitoring of their mitigation measures and capacity building activities needed. The capacity assessment conducted as part of preparation of the ESMF and the RPF concluded that the current environmental and social institutional arrangements are operational and can be maintained for PIC 2.2. The PIU has long-standing experience in implementing complex, World Bank-funded investments. Under the implementation of the PIC 1 and PIC 2.1 projects, the Borrower gained tangible knowledge and experience managing social and environmental safeguards risks. The PIU has a full-time staff (environmentalist), who, together with seasoned consultants (social specialists and environmentalists), ensures the implementation and


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monitoring of safeguards instruments and risks. Instruments such as the ESMF); RPF, ESIA and RAPs were prepared and disclosed in a timely manner by the client and well implemented by the firm under the supervision of the safeguard focal point at the PIU level. Nevertheless, to further ensure strong compliance with World Bank safeguards policies, the PIU will be reinforce by a full-time Social Safeguards specialist. At sectorial Ministries involved in the project (e.g., Tourism and Public Works), an environment unit has been created by the ONE, although with limited staff with little experience with World Bank safeguards policies. While the unit is fairly effective, its institutional capacity and technical staff require development and strengthening to ensure more widespread application and improved monitoring. It is proposed that the World Bank task team will continue to provide hands-on training in management of environmental and social safeguards risks, including the new ESF. The current PIC 2.1 and the former PIC 1 project have contributed to supporting capacity building of the ONE through a MoU to hire environmental and social experts to train their technical staff and develop environmental and social technical review manuals. This capacity building could be maintained under PIC 2.2 to further strengthen national capacity in environment and social assessments. Safeguards training workshops will be iterative and open to other key stakeholders including beneficiary communities, private sector (consultant firms, CSOs, etc.) with the aim of reinforcing the grounding of public consultation and participation to foster more engagement, and the ownership and social accountability for the sustainability of project activities.

Monitoring and Evaluation

51. The M&E system will be based on the Results Framework, which was designed by translating the project’s underlying logic and theory of change into output and outcome indicators. Results-based M&E serves an essential role in systematically tracking project implementation and progress towards achieving PDO and intermediate results, as well as assessing whether corrective measures should be taken to address evolving circumstances. 52. As the second operation in the SOP, the project will be able to rely on the systems and processes developed during PIC 2.1. Data sources will include a mix of primary data collection and secondary data from relevant government agencies. The majority of indicators from the restructured PIC 2.1 results framework have been retained; this ensures not only continuity in tracking results over the course of the two projects, but also the benefit of having many of the necessary arrangements already in place for data collection, including established relationships with government institutions responsible for providing secondary data. Additional indicators, as well as disaggregation by sex and age where appropriate, have been included in the PIC 2.2 results framework to measure the outcomes of new interventions, capture results of previously untracked interventions, shed light on results among women and youth and help cascade the World Bank’s strategic priorities to the operational level by including relevant corporate results indicators. 53. The PIU will have the primary responsibility for establishing the M&E system and coordinating all M&E activities. The planned M&E arrangements reflect the Borrower’s strong institutional capacity and address issues related to staffing, accountability, equipment, skills, and budget required to carry out the M&E function. An M&E Specialist within the PIU will be responsible for gathering data (as per the Results Framework), analyzing and reporting it, and using the information to inform implementation. The M&E specialist will be supported by M&E focal points in each of the regional PIU offices. The PIU, with TA from the World Bank team where needed, will build on resources and experience from PIC 2.1 to prepare a thorough M&E plan, describing in detail indicator definitions and calculations methods, data collection methods and tools, calendars for data collection, roles and responsibilities, analysis plans, reporting templates and dissemination plans. In addition to the indicators in the


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results framework, additional output indicators and further disaggregated data will be tracked internally through the M&E system. The project will build in beneficiary feedback mechanisms to increase accountability and influence decision-making and achievement of results. 54. The task team will advise the PIU and assess the M&E system to ensure arrangements are adequate for monitoring results during implementation. The task team will coordinate closely with the PIU and will rely on biannual (and ad-hoc when needed) PIU reports to flag any issues and take proactive measures if needed to enhance the project’s likelihood of meeting objectives. The reports will also be used to ISRs. Regular joint implementation support missions will aid in monitoring the status of activities being implemented and the achievement of results, and verifying the validity of data reported by the PIU. A mid-term review of the project will further assess project performance and the Borrower and World Bank teams will ensure lessons learned in the first half of the operation are integrated into the second. An Implementation Completion Report (ICR) will be undertaken after completion of the project.

55. Rigorous impact evaluations will be an integral part of the project. Lessons from PIC 2.1 demonstrate that identifying a suitable counterfactual for the project as a whole is challenging, given the complexity and inherent spillovers of the region-wide and even national-level interventions. Rather, the planned impact evaluations will test specific project interventions, with the aim to identify underlying mechanisms driving results and provide evidence on the relative effectiveness of different interventions at reaching objectives. The project will prioritize evaluations of the more innovative activities to contribute to a broader learning agenda. A randomized controlled trial is currently planned to test different capacity building intensities for entrepreneurship support beneficiaries, and other interventions, such as SME partnership with outgrowers, solar-powered irrigation schemes, and feeder road rehabilitation, are being considered for evaluation using experimental or quasi-experimental methods depending on design feasibility.

Implementation Support Plan 56. While this is a complex, multi-sectoral project, given the existing capacity of the national PIU and the regional technical units, the project’s implementation support needs are moderate. As during PIC 2.1 implementation and PIC 2.2 project preparation, the World Bank task team during PIC 2.2 implementation will continue to work closely with the national PIU and the regional technical units to:

(a) Review and update key project documentation (e.g., procurement plans, safeguards documentation and annual work programs and budgets)

(b) Continue discussions with government and private sectors stakeholders (c) Ensure effective site-level supervision of physical interventions (d) Gather first-hand beneficiary feedback on implementation.

57. The World Bank team will also continue to update national government agencies on project progress, including Ministry of Finance and Budget, the Ministry in charge Agriculture and the Ministry in charge Tourism, among others. 58. Implementation of the project will require formal support missions in Antananarivo and in the Target Regions. Formal support missions will be conducted three times a year (for the first year of implementation) and will be attended by the project task team leader (TTL)/co-TTL, FM, procurement, safeguards and M&E specialists, as well


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as specialists from each project sector depending on need. In subsequent years, the frequency of formal missions will be reduced to two missions yearly. 59. The World Bank TTLs (based locally), FM, procurement and safeguards specialists will carry out additional field visits and/or virtual meetings in between formal support missions as required, to ensure smooth implementation progress and timely response to any issues. Formal missions will also be supplemented by the data and feedback continuously gathered through the project’s monitoring mechanisms and provided by the PIU and technical units. 60. The main focus in terms of support to implementation will be as summarized below.

Focus Skills Needed Resource Estimate

Firs

t 1

2 m

on

ths

Task management Task Team lead 30 staff weeks (SWs)

Implementation support & monitoring IC, SME Competitiveness, Tourism, Agribusiness, Governance, Transport & Water Teams

28 SWs per year

Procurement Management (reviews and supervision, training as needed)

Procurement Specialist 4 SWs per year

FM support FM Specialist 4 SWs per year

Environmental safeguards, supervision and monitoring, training as needed

Environmental/social safeguards specialists 8 SWs per year

12

-48

mo

nth

s

Task management Project management (Madagascar-based) 20 staff weeks (SWs)

Implementation support & monitoring IC, SME Competitiveness, Tourism, Agribusiness, Governance, Transport & Water Teams

28 SWs per year

Procurement support Procurement Specialist 4 SWs per year

FM support FM Specialist 4 SWs per year

Performance standards Environmental/social safeguards specialists 8 SWs per year

61. The overall skills mix required is as follows. “Number of trips” includes Antananarivo-based missions and field missions.

Skills needed # of weeks # of trips Comments

Year

1

Task Management 20 4 Madagascar-based

Co-Task Management 10 2 Madagascar/DC-based

FM 4 3 Madagascar-based

Procurement 4 1 Madagascar-based

Social Safeguards 4 2 DC Based

Environmental Safeguards 4 2 Madagascar-based

Monitoring & Evaluation 3 0 Madagascar-based

Investment Climate and PSD 4 2 DC-based

Tourism 8 2 Madagascar/DC-based

Agribusiness 8 2 DC-based

Infrastructure (Transport and Water) 4 Madagascar/Nairobi-based

Governance 4 2 Madagascar-based

Year

s

2-4

Task (& co-task) Management 20 4 Madagascar-based

FM 4 3 Madagascar-based

Procurement 3 1 Madagascar-based


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Social Safeguards 3 3 DC Based

Environmental Safeguards 3 3 Madagascar-based

Monitoring & Evaluation 2 0 Madagascar-based

Investment Climate and PSD 2 2 DC-based

Tourism 2 2 Madagascar/DC-based

Agribusiness 2 2 DC-based

Infrastructure (Transport and Water) 2 2 Madagascar/Nairobi-based

Governance 2 2 Madagascar-based

62. The main partners (e.g., donors, development organizations) engaged during preparation and implementation include those outlined in Table 3 of the main PAD document. Other potential partners will continue to be identified and engaged throughout implementation to ensure synergies and effective investment sequencing. 63. The Implementation Support Plan will be reviewed periodically to ensure that it continues to meet the needs of the project.


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ANNEX 2: Detailed Project Description

Component 1: Leveraging private investment in tourism and agribusiness (IDA allocation: US$11.5 million equivalent, total US$16.5 million equivalent) 1. The objective of this transversal component is to strengthen the government’s ability to attract and channel private investments into productive infrastructure and improved services delivery, as well as to provide direct support to new investment in productive sectors and support services. To fulfill that objective, the component aims to proactively support private investment and entrepreneurship. Sub-components will include: 1.1 Madagascar Business and Investment Facility – MBIF (IDA allocation: US$8.5 million, total: US$13.5 million) 2. MBIF grants (IDA allocation: US$7.5 million, total: US$12.5 million). The MBIF is the continuation and scale-up of a competitive grant program from PIC 2.1. Its overall objective is to have a transformational effect in the Target Regions by supporting the creation of new enterprises and assisting growth-oriented SMEs in making productive investments able to have a catalytic role in targeted value chains and their ecosystems. These investments will generate positive economic, environmental and social externalities, which cannot be fully internalized by private investors. Under PIC 2.2, a third window is added to the two PIC 2.1 windows, as per the PIC SOP design. Each window reflects specific objectives, grant recipient profiles, and scales of subprojects filling identified market gaps and market failures in agribusiness and tourism, and builds on the achievements and lessons learned from PIC 2.1.

(a) MBIF Business Plan Competition (BPC) Window. The BPC Window is an adaptation and scale-up of the successful PIC 2.1 “youth” MBIF window, which has supported almost 120 entrepreneurs creating at least three jobs each. It will provide grants on a highly competitive basis for up to 300 entrepreneurs leading startups or early-stage firms with new investments that fill gaps in the agribusiness and tourism ecosystems in the Target Regions. Business plans will be evaluated on the potential to fill those gaps (either pre-identified by the project or as detailed by the entrepreneurs) as well as demonstrated potential for job creation and scale-up in private investment. Examples of projects that may be supported include those filling gaps in local transportation to tourism destinations, agricultural equipment and services providers, water and sanitation solutions, upcycling of urban solid waste and agricultural residues, development of market information systems, and off-grid energy generation. Innovative projects integrating climate-smart solutions will be especially encouraged to apply and their proposals will be scored higher, increasing likelihood of selection.

Grants will cover TA, capacity building, small works and small equipment and be capped at US$10,000. Grantees will be required to fund portions of the business plans not considered eligible for grant funding, and 100 percent of recurring operational expenses. Grant recipients will also be required to complete PI training offered by regional BDCs given evidence on its effectiveness in promoting business success (see Box 1). Youth and women entrepreneurs will be especially targeted by the BPC. Young entrepreneurs often face greater constraints than older adults, including gaps in technical, cognitive, and non-cognitive skills, lack of capital, and smaller and more capital-poor social networks. The business plan competition seeks to encourage women’s participation in new and promising markets in the Target


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Regions. Women entrepreneurs face numerous challenges to financing, owning, and growing a business. After controlling for business and entrepreneur characteristics, female-owned informal businesses in Madagascar still exhibit a performance gap of 26 percent compared to their male counterparts despite having higher returns to their own labor.32 There is some evidence that women may be self-selecting into sectors that require less start-up capital, contributing to occupational segregation. Lack of networks, knowledge, and links to high value markets further limit youth and female entrepreneurship, which will be addressed by the services offered through the regional BDCs. The project will draw from the wealth of youth and women’s entrepreneurship and employment programs led by the World Bank.33

(b) MBIF Tourism Window. The Tourism Window is an adaptation of the PIC 2.1 “Business” window, which had not been calibrated to respond to specific value chain needs. It will provide matching grants on a competitive basis to SMEs, sectoral business associations and destination management organizations and private service providers delivering education and other key sector services, proposing eligible private commercial subprojects to improve product and service offerings in the tourism sector. Those subprojects should be commercially viable, able to generate benefits beyond private profit, and fill clear “tourism consumer” identified gaps. Eligible subprojects may address destination-specific gaps as well as identified systemic gaps to strengthen the tourism value chain more broadly and support harmonized development of the sector. Grants are expected to represent 50 percent of the proposed project cost on average, with the rest financed privately, but the level of matching will be adjusted depending on the evaluation of the criteria above and job creation and investment potential. The average grant size is expected to be US$100,000 and the maximum is fixed at US$150,000. Eligible expenses will include training, consulting and non-consulting services, equipment and small civil works. The non-appropriability of all benefits and the risk involved in launching innovative products and services provides a strong case for public support. The investments are also expected to increase the number of skilled workers and the range of skills available in the local labor market.

(c) MBIF Agribusiness Window. The Agribusiness Window is a planned addition to PIC 2.1 windows,

including its predesign as a multi-stakeholder window. It will provide matching grants on a competitive basis for agribusiness SMEs typically working with outgrowers, or for associations, proposing investments supporting the development of key value chains in the Target Regions. Calls for proposals will be announced for activities identified through an inclusive stakeholder process as well as recently completed value chain analyses, and targeted to the long list of prioritized value chains, but will remain open and demand-driven. The design of the MBIF Agribusiness Window was also informed by a pilot being conducted under PIC2.1 in the aquaculture sector, with positive early results. The project is supporting the expansion by a private sector operator of a successful, inclusive and sustainable growth model for the sector. The partnership is allowing for the efficient recruitment, training, structuring and equipment of aquaculture farmers in new priority areas, offering them a direct job and market opportunity in the context of diminishing fishing revenues, while allowing the operator to respond to export market demand. The MBIF Agribusiness Window is also incorporating

32 Nordman and Vaillant (2013). Inputs, Gender Roles or Sharing Norms? Assessing the Gender Performance Gap among Informal Entrepreneurs in Madagascar. Université Paris-Dauphine, IRD, DIAL.


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and adapting the “Productive Alliances” model to the Madagascar context: a systematic, private-sector-driven way to support agribusiness value chains and connect them to final markets.34 Grants will finance the part of the proposals requiring the provision of public or semi-public investment (e.g., infrastructure, equipment or services that provide benefits beyond private benefits to the recipient), or the financing of externalities related to innovation, learning or the environment. Grants are expected to represent 50 percent of the proposed project cost on average, with the rest financed privately, but the level of matching will be adjusted depending on the evaluation of the criteria above and job creation and investment potential. The average grant size is expected at US$300,000 and the maximum fixed at US$700,000. Eligible expenses will include training, consulting and non-consulting services, equipment and small civil works.

3. The MBIF will respond to the demand coming from the market and the strength of the business plans as they fit selection criteria in such a way as to maximize spillovers and social returns from the competitive funds. Calls for applications and subprojects will be carefully designed and selected to avoid crowding out private investment and funding sources and promote private risk-taking to the extent possible. 4. To increase take-up and facilitate management of the fund, selection of projects will be conducted through multiple calls for applications until all funds are disbursed or the project is closed. Beneficiaries can apply for more than one grant, provided that the total amount disbursed is within the cumulative cap for the window and each standalone application satisfies all eligibility and selection criteria. Applicants to all three windows will follow a two-step application process. First, applicants will submit an initial expression of interest (EoI) with applicant details and an outline of the proposed project. EoIs that meet basic eligibility criteria as well as initial EoI selection criteria will be invited to submit full proposals for further review and will benefit from assistance in the preparation of business plans. In addition to assessing the technical quality of business plans, selection criteria used to score applications will serve the purpose of nudging SMEs to align with broader PIC 2.2 objectives such as supporting women-led businesses and integrating climate innovations. The implementation manual will describe the detailed weighting and scoring system for evaluating each dimension of a proposal. 5. MBIF support activities (US$1.0 million). MBIF grant allocations will be supported by dedicated management and TA. An MBIF Implementation Unit will be created, which will report to the project PIU on overall MBIF fiduciary management, M&E, project oversight and coordination of the three MBIF windows.35 This choice was based on three key lessons: (i) the poor performance of the competitively selected PIC 2.1 MBIF private operator, in terms of promoting the program, identifying viable proposals, and supporting applicants with business plan preparation; (ii) the strong performance of the PIC PIU when stepping in to remediate that poor performance; (iii) lessons learned from a study of matching grants in World Bank projects.36 Dedicated, competitively selected, independent consultants within the MBIF Implementation Unit will be responsible for effective promotion, marketing and outreach to both the private sector and public institutions and establishment of a pipeline of potential projects; technical, economic and financial appraisal and scoring of each funding request and submitting requests to regional MBIF Validation Committees for review and approval; control and verification of the use of

34 Productive Alliance model implemented successfully in many countries in Latin America and adopted more recently in the World Bank financed Zambia Agribusiness and Trade project. 35 This particular sub-component will finance regional-level MBIF implementation support (and the BDCs described below). The central-level MBIF Implementation Unit is funded under Component 4. 36 Hristova, Diana; Coste, Antoine. 2016. How to make grants a better match for private sector development. Washington, D.C.: WBG. The review covers 106 matching grant schemes, and confirms not only that operating costs tend to be higher with a private manager than for PIUs, but also that schemes with PIU management are rated more positively than matching grant programs managed by private contractors (88% and 72% respectively, rated moderately satisfactory or higher).


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funds; and oversight and fiduciary management responsibilities based on an agreed MBIF Grants Manual. The Multi-stakeholder MBIF Validation Committees will ensure the coherence of the MBIF program with the regional and national economic context and priorities, and maximize transparency in the screening and selection of applications. The Committees will be responsible for reviewing initial proposals and business plans that have been previously appraised by the MBIF Implementation Unit and accepting or rejecting PIU recommendations, providing justifications for decisions. Validation Committees will consist of director-level representatives of relevant regional government institutions and private sector associations. At least one member should be an expert in agriculture, and at least one should be an expert in the tourism sector. All members will be required to sign a statement of no conflict of interest in reviewing each file to ensure there is no bias against or interest in any project reviewed. Experience from implementing similar programs in other countries reveals risks related with the selection process, including capture and corruption. Large projects will require a no-objection from the World Bank before grant agreements are signed and disbursements are made. 6. Locally-managed BDCs established with PIC 2.1 support will be further reinforced to provide an extended range of services. Those services will be available to all entrepreneurs and SMEs in the Target Regions, but will be project-financed or considered eligible expenses for MBIF grant recipients. The project will provide continuous assistance and training to applicants and beneficiaries from EoIs through the end of grant disbursement and beyond to ensure sustainability of investments. All MBIF beneficiaries will receive assistance from BDCs to access commercial financing to cover non-grant parts of their business plans and to continue investments beyond the grant financing stage, with special attention given to BPC window recipients. BPC recipients will be required to complete adequate business trainings to fill capacity gaps, and to attend a PI training financed by the project (see Box 1 below). This innovative training has shown its potential to increase firm sales and profits, especially for women-owned businesses, compared to traditional training, and is also expected to help entrepreneurs in their efforts to access commercial financing. Other available services will include assistance with formalization and regulatory requirements and individualized coaching at every stage of business incubation and acceleration, and tailored services for youth and women.

Box 1. Personal Initiative Training Personal initiative (PI) training is a psychology-based training that aims to develop key behaviors associated with a proactive entrepreneurial mindset such as being self-starting, future-oriented and persistent. Recent experimental research from World Bank projects indicates that PI training is more effective at promoting entrepreneurial success than traditional business management training in terms of profits, sales, and capital and labor inputs, and it also leads to greater impact on product innovation. In Togo, a study of 1,500 MSMEs found that female entrepreneurs in particular saw their profits increase by 40 percent after PI training, compared to 5 percent with traditional business training.

With support from the Africa, Caribbean and Pacific (ACP) window of the Competitive Industries and Innovation Program (CIIP) multi-donor Trust Fund, PIC 2.1 financed the adaptation of PI training materials to the local context in each of the poles, the training of PI trainers, and first pilots of the provision of PI training to entrepreneurs. It also supported the intensive preparation of PI master instructors based in Madagascar, certified to train future new PI trainers, ensuring the sustainability of the approach. All MBIF grantees will be prompted to complete PI training and coaching, and the cost will be covered by the project. Other BDC clients will also be able to benefit, by paying a modest training fee, from the innovative program – which should be helped by demonstration effects from MBIF beneficiaries.


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7. The MBIF Grants Manual will describe the processes, governance, functions, and detailed eligibility and selection criteria of the program, and readiness of the manual will be made a condition for Effectiveness. Implementation arrangements and sequencing of MBIF activities are illustrated in the chart below.

1.2 Investment promotion and transactions support (US$3.0 million) 8. Risk perceptions remain high in both sectors, and public and private risk-mitigation mechanisms limited, posing a challenge to the attraction of new investors, both domestic and foreign. Madagascar has received FDI roughly in line with other similar countries in the Africa region, but is on the decline and has been mostly focused on mining. FDI inflows were at historically high levels in 2008-2012 due to Rio Tinto’s and Sherritt’s mining investments, but private investments in other sectors have been very modest, while public investment fell by around 30 percent in 2008-2010. More recent IMF numbers point to a stable share of private investment in GDP at almost 10 percent between 2016 and 2018 (forecast), but a move from 4.5 percent of GDP coming from FDI in 2016 to only 3.1 percent expected in 2018. This suggests a strong need for investment promotion, as the risk context has improved in a number of sectors, and returns are still high as those are still underdeveloped. 9. Aiming to successfully leverage private capital to stimulate economic recovery and growth in Madagascar, the PIC 2.1 project—supported by Public-Private Advisory Facility (PPIAF) in coordination with other development partners (notably AfDB)—has supported the operationalization of the public-private partnership (PPP) framework

PIC2.2 Madagascar Business Investment Facility Implementation Arrangements

Regional PIU officeAnosy

Central PIU office Antananarivo with dedicated MBIF manager

Regional Validation

Committee:Anosy

Regional Validation

Committee:DIANA

Regional Validation

Committee:Atsimo-

Andrefana

Expressions of interest / business

plan proposals from applicants in

Anosy

Pro

ject

Impl

emen

tati

on

Un

it (P

IU)

Reg

iona

l Val

idat

ion

Com

mit

tees

(RV

Cs)

1. Prospective grant recipients submit applications to regional PIU offices for the applicable MBIF window

2. Regional PIU offices compile and review applications for completeness and forward to central PIU office

Anosy Regional Business Center (CARA)

Atsimo-Andrefana Regional Business Center

(CARSO)

DIANA Regional Business Center (CARD)

Business Development

Centers (BDCs)

3. Central and regional PIU offices and regional BDCs provide ongoing technical assistance and

feedback on application materials to applicants

4. With input from regional PIU offices, central PIU office scores EOIs then business plans and

recommends selection decision to RVCs

5. RVCs review EOIs and business plans and PIU recommendations and accept or reject PIU

recommendations

Selected projects in Anosy

Selected projects in Atsimo-Andrefana

Selected projects in DIANA

Gra

ntre

cip

ient

s

6. Agreements are signed with selected firms and funds are disbursed by PIU, who has fiduciary as

well as technical oversight of MBIF

8. Continuous monitoring of business plan implementation and technical assistance by regional

and central PIU and BDCs

7. BPC winners must attend Personal Initiative Training and benefit from coaching at their place of business by BDCs. Assistance in obtaining additional commercial funding is provided to all.

Gra

nt

appl

ican

ts Expressions of interest / business

plan proposals from applicants in Atsimo-Andrefana

Expressions of interest / business

plan proposals from applicants in

DIANA

Regional PIU officeDIANA

Regional PIU officeAtsimo-Andrefana


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in Madagascar. The PIC 2.1 project has also financed transaction support to the National State-Owned Enterprise, Air Madagascar, to find a strategic partner and investor, which resulted in its alliance with Air Austral. Finally, PIC 2.1 is further financing studies of secondary airports still under the control of the ADEMA to examine the minimum public investments and management improvements needed for these airports to significantly increase their traffic and corresponding private sector investment and/or management. 10. Strong commercial justice and the effective enforcement of commercial laws are key elements of an enabling investment climate. In Madagascar, a number of issues currently limit the effective enforcement of commercial law, from limited information on applicable law and recent judgments or doctrines; limited training and exposure of magistrates, judges and practitioners to commercial laws and practice; failure to implement the existing laws; and uncertainty and wide discretionary powers and weak capacities across the board, meaning that investors are not certain about their rights and obligations. PIC 2.1 supported the setup of an institutional and regulatory environment to improve dispute settlement and contract enforcement. The capacity of practitioners to fully implement the adopted reforms however remains considerably weak. 11. The objective of this sub-component is to strengthen the government’s ability to attract and channel private investments into productive infrastructure and improved services delivery, as well as to provide direct support to new investment in productive sectors and support services. It will provide the GoM with investment promotion and transaction advisory support to improve the public-private interface for investors and build capacity to strategically invite and manage more private investment, as well as to enhance the application of commercial law.37 The project may finance TA, training and capacity building and equipment to reinforce investment promotion and facilitation to attract private investment in the hospitality sector as prioritized in the Tourism Policy Letter and support the implementation of periodic investor confidence surveys; (b) support the government in preparing feasibility studies and Master Plans for PPPs in the poles (e.g., for Diego Airport); (c) support implementation of selected PPP pilot projects in the Target Regions (e.g., secondary airports managed by ADEMA, management of water distribution systems); and (d) help EDBM and public-private platforms to strengthen their capacity for targeted investment promotion, market intelligence, and promotion of inclusive and sustainable investments in the targeted value chains. This sub-component will also build upon the institutional and regulatory advancement achieved under PIC 2.1 to further improve commercial justice and enforce commercial laws and to strengthen One Stop Shops (OSS) in the Target Regions in support of private sector businesses.38 Component 2: Removing key binding constraints for private investment in tourism (US$32.5 million equivalent) 12. The objective of this component is to help the Target Regions to grow into sustainable, standalone tourism destinations anchoring a growing portfolio of circuits for increasingly diverse markets, and to support their sustainable development through strengthened tourism institutions and private stakeholders. 13. With an estimated direct and indirect contribution to national GDP of 13.7 percent, tourism in Madagascar still struggles to realize the full economic potential of the country’s immense natural, cultural and human assets. At the national level, PIC 2.1 aimed to tackle overarching constraints linked to the air transport sector; to develop a reliable statistics platform; to develop and implement a branding strategy and targeted mainstream marketing support in key source markets linked to implementation of a cost-effective digital marketing initiatives strategy;

37 The project aims to support the government in generating private investment in key infrastructure from minimal public investments. 38 The project will support OSS in business facilitation in particular to facilitate administration of issuing permits/licenses through procedural and institutional reforms.


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and to implement a successful hotel and tourism investment facilitation intervention to enhance competitiveness of the country’s offer. At the regional level, PIC 2.1 supported development of key infrastructure; upgrades to key tourism attractions and their management; and development of marketing strategies in the Atsimo-Andrefana and Diana regions. 14. This component under PIC 2.2 will focus on activities with the greatest potential to address the key constraints to Madagascar’s tourism sector development. Specifically, it will address constraints pertaining to underdeveloped tourism products, weak management of key tourist attractions, limited supply and quality in the accommodation and tourism services sector (e.g., car rental, guides) and weak local tourism-related skills. The component includes activities at both the national and regional levels. The design of this component was based on the priority pillars identified in the Tourism Policy Letter39, as well as thorough analysis and studies conducted during PIC 2.1 implementation, including an Air Transport Study, a Hotel Investment Promotion and Land Tenure study, a Tourism Services Concessioning Study, a Tourism Marketing Strategy, and a Tourism Market Assessment40

for the three poles and Nosy Be. The proposed interventions will expand on the geographical scope of PIC 2.1. to corridors clearly identified as priority tourism development areas by the GoM with strong potential to attract domestic and FDI in the hospitality sector, in particular linked to ecotourism in and around national parks and to beach tourism. 2.1 Supporting public management capacity related to tourism (US$10 million) 15. At the national level, this sub-component will provide continued support to tourism institutions to encourage more strategic tourism development approaches and market-oriented coordination for sector development. Specifically, activities may include: TA, capacity building and equipment to: (a) support the Ministry in charge of Tourism in rollout of a tourism information system, including implementation of visitor surveys, and development of Strategic Tourism Physical Master Plans (i.e., for Nosy Be and Sainte Marie) to guide tourism development while ensuring sustainability of the destinations41, and support to public-private dialogue to ensure the effective implementation of the Tourism Policy Letter; (b) support the ONTM42 in implementation of mechanisms to ensure its financial sustainability, and support to targeted marketing initiatives linked to key markets and/or products; (c) support the Tourism Confederation of Madagascar in the implementation of its three-year strategic plan; and (d) support the Ministry in charge of Transport, Civil Aviation (ACM) and ADEMA to implement the Air Transport Policy Letter, and the Route Development Committee to increase international long-haul flights to the four priority tourist zones and to improve flight planning of domestic routes. 16. At the regional level, this sub-component will build on and expand PIC 2.1 efforts to exploit underdeveloped tourism products, improve management of key tourist attractions, increase supply and quality in the accommodation sector, and enhance local skills.

39 The five pillars of the Tourism Policy Letter are 1) Improved accessibility of Destination Madagascar and its priority tourist areas; 2) Greater visibility of the destination nationally and internationally; 3) Effective sustainable management of the destination; 4) Facilitation of hotel and tourist investments; and 5) Increased competitiveness of hotel services and tourist services. 40 Co-funded by the Competitive Industries and Innovation Program (CIIP) multi-donor Trust Fund. 41 The Tourism Master Planning will include Strategic Environmental and Social Screening tools to ensure all cumulative impacts are considered and addressed. 42 Institution tasked with tourism promotion at the national level.


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17. Diana region. Following a relatively stable period of growth in arrivals between 2010-2012, visitation to the Diana region has seen a decline in recent years, although it remains the second most visited region outside of the capital region (after the RN7 circuit). Key challenges for the tourism sector in Diana include the reduction in direct domestic and international flights to Diego; insufficient accommodation capacity, especially of higher standards (3* and higher); limited carrying capacity and ineffective management/financing of some the area’s most visited sites; a lack of basic and/or niche tourism infrastructure in certain areas of high tourism potential, limiting visitation and growth in specific markets; poor road access to and within the region; issues with energy supply43; low capacity among regional-level tourism entrepreneurs to develop and market the destination; and the capture of tourism’s economic benefits among a small number of private sector actors. 18. However, the region shows strong signs of future tourism growth that PIC 2.2 aims to foster and capitalize. The reinstatement of the twice-weekly Nosy Be-Diego flight presents an unmatched opportunity to draw tourists from the country’s “flagship” destination to key attractions in and around Diego. A planned hotel investment in the Orangea/Ramena area, the increased capacity of cruise ships visiting Diego starting in the 2018 season, two confirmed new hotel investments to hold international brands to initiate construction in Nosy Be and the rehabilitation of the RN6 by the EU are also seen as positive steps. Market demand for still underdeveloped nature-based soft adventure products and rapidly growing cruise tourism44 and for untapped markets with large demand at the global level such as sailing, recreational diving and sport fishing have been identified as holding significant potential for the destination. 19. Atsimo-Andrefana Region. Tourism in the Atsimo-Andrefana region is driven by the National Road 7 (RN7), from Antananarivo to the region’s capital, Tulear (from which many visitors return to Antananarivo by air). However, as the end-point of the RN7 circuit, Tulear hosted only 72,400 visitors in 2017, a small increase from 58,500 in 2013, and average stay is very low at only 2.5 days.45 Market analysis identified Tulear’s potential to position itself as a destination offering both beach and nature products to attract regional tourism from La Reunion and South Africa. Yet limited connectivity to Tulear beyond domestic flights and underdeveloped though high potential soft adventure products46 linked to the area’s marine assets have hindered its development as a standalone destination both regionally and internationally. Its proximity to Isalo National Park (226 km, a three-hour drive), the most visited park in the country (23,350 foreign visitors in 201747), remains unleveraged as a tourism development tool. Similarly, linkages with nearby products that have the potential to increase length of stay, such as Anakao in the south of Tulear, or Ankasy/Salary in the north of Tulear, are poor due to infrastructure limitations. 20. Since the launch of PIC 2.1, and thanks to the partial rehabilitation of the RN9 by the AfDB, the tourist potential and attractiveness of Tulear city, and more broadly of the Atsimo-Andrefana region, has grown significantly. PIC 2.1 helped significantly strengthen Tulear’s image through recently completed urban road upgrading, improved solid waste collection and management, and service and infrastructure improvements at the key Jardin de la Mer site. Effects on visitors’ numbers will take more time to be felt.

43 Particularly in Ambilobe-Ankarana and Ambanja. 44 For example, rapid growth of global cruise passenger arrivals (CARG 7% over the past two decades), the construction of 40 new cruise ships completed by 2020, which have the potential to generate more than US$15 billion in visitor spending linked to cruises. 45 Source: Ministry of Tourism, GoM. 46 Market analysis identified high potential for soft adventure travel markets, which according to a recent study by the IFC, generate more than US$470 billion per year in visitor spending. 47 Source: Madagascar National Parks.


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21. Key remaining constraints include the lack of International Airport certification, restricting regional flights, and a short runway that does not allow for wide-body aircrafts to land in Tulear airport; underdeveloped attractions and products around the city, particularly given the area’s rich beach, marine and nature assets; weak local public and private capacity for tourism development and promotion (e.g., over-reliance on Antananarivo-based destination management companies (DMCs) for marketing); a fierce competition between northern and southern sites (i.e., Anakao versus Mangily/Ifaty) for the days tourists spend in the region; and, despite some progress under PIC2.1, a largely poor quality urban road network.48 22. Anosy Region. The Anosy region and its capital, Fort Dauphin, was one of the first and most successful destinations in Madagascar in the 80s. It was served by frequent domestic flights from Antananarivo, international flights from South Africa and Reunion, and regular cruises. However, the sustained unavailability of hotel rooms at the time of the major Rio Tinto investment in the ilmenite mine49, non-compliant airport infrastructure, port infrastructure not adequate for cruise tourism and road connectivity and difficulties with the national carrier have resulted in a quick downward spiral in terms of tourism visitation. The result was diminished promotion by tour operators, a lack of new product development, cancellation of international and cruise routes, a deterioration of access to and infrastructure at key sites, and limited tourism development/promotion capacity in the region. Today, the region lacks a clear market positioning and a critical tourism volume on both the demand and supply sides. 23. As with Diana, the region shows notable potential for increased private investment and tourism growth through careful targeting of public investments. The planned arrival of South African cruise ships carrying 2000+ passengers, rehabilitation of the RN13 by the EU linking the city of Fort Dauphin to products such as Berenty Reserve and potential rehabilitation of the RN12A linking the city to Sainte Luce Bay, are promising initial steps towards reinvigorating tourism in this pole. Potential underdeveloped growth markets identified include cruise tourism (discussed above); wildlife tourism, focused on national parks and private reserves within the region; and soft adventure and watersports, of which surfing has been highlighted, linked to latent market demand from la Reunion. 24. Sainte Marie. In early 2018, the Minister of Tourism expressed a desire to establish Sainte Marie as the country’s first “sustainable destination” and a model to be followed by other destinations in the country. While one of the most known destinations in Madagascar, which has mostly developed as a low impact destination, Sainte Marie faces key issues such as the regulation of the informal sector (transport, guide, informal accommodation). Limited air and sea accessibility to the island hampers increased arrivals. The Ministry of Tourism seeks to work with public and private sector stakeholders in synergy to set and implement a vision that will ensure the sustainable economic development of the destination. The Ministry of Tourism requested the support of the PIC 2.2 project in implementing TA, capacity building and minor civil works interventions in the fields of tourism planning and local governance to contribute to achieving this vision. 25. The project will finance TA, capacity building, equipment and small civil works to:

(a) Provide training to raise standards of tourism establishments (tourism entrepreneurs) and workforce competencies (e.g., guides) to international standards, for an improved visitor experience;

48 Less than 10 percent of the existing 55 km network is considered to be in good condition. 49 These hotel rooms are no longer occupied by the Rio Tinto operation, but the sustained decline in visitation over time has resulted in deterioration of the quality of the rooms.


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(b) Support regional-level sectoral dialogue and collaboration, to improve regional tourism planning, coordination, lobbying power and benefit sharing; and increase the integration of Fort Dauphin, Tulear, Sainte Marie and Diego into packages sold;

(c) Develop focused marketing campaigns targeted at recapturing the key markets (e.g., South African and Reunion), in line with air connectivity and upcoming cruise routes;

(d) Facilitate air access and strategic air route development to increase international/regional flights from key destinations, and prepare actionable plans to develop key domestic routes;

(e) Support the elaboration of destination development plans that will, from the perspective of the ‘tourist consumer’ or ‘buyer’, identify gaps and weaknesses in the visitor experience, to be filled by interventions eligible for financing under the MBIF Tourism Window;

(f) Develop and implement site upgrading and management plans for existing nature-based tourism products (e.g., Ankarana, Montagne d’Ambre, Tsimanampesotse National Parks and Mer d’Emeraude), and strengthen the management of select tourism attractions (e.g., port waterfront, Peak St. Louis, Lake Lanirano in Anosy and the Pirate Cemetery in Sainte Marie);

(g) Improve basic tourism infrastructure (e.g., connectivity to Ifaty/Mangily, to Soalara and Anakao through improved barge management);

(h) Develop (i) maritime tourism products (e.g., yachting, cruises) and leverage private investment in the infrastructure necessary to draw in maritime-related markets (specifically, in Nosy Be and Diego); and (ii) agri-tourism products (e.g., linked to cocoa and other agribusiness value chains);

(i) Enhance linkages (physical and promotional) between Tulear and Isalo National Park as an integrated, high-quality product.

2.2 Upgrading urban connectivity and services for tourism development (US$19.5 million)

26. The project will finance public works to create a more favorable and safer urban environment for both citizens and tourists and to enhance the attractiveness of new investment in the hospitality industry in targeted areas where there is notable expansion of tourism visitation. 27. Upgrade urban roads: In Diana, the project will support: (a) in Nosy Be, design, supervision and works to upgrade the 24 km V1 and V2 roads and 1.6 km of the Crater road. V1 and V2 double-surfaced roads were rehabilitated under the PIC 1 in 2009 and play an important tourism role given that since their rehabilitation, four hotels have been built or extended along them. V1 and V2 link Hell Ville to the airport and the Crater road in pozollane will ensure accessibility between Ambatoloaka center and the marina zone and hotel investment sites. For V1 and V2 roads, the works will include the upgrade of the road surface, bridge repairs and the construction of structures to prevent landslides. For the Crater road, the project will finance complete rehabilitation; (b) in Diego, design, supervision and works to rehabilitate 24 km of paved road, between the city center of Diego and Ramena beach, where a hotel investment is anticipated. In Atsimo-Andrefana, design, supervision and works for the development of additional urban infrastructure, including the rehabilitation of 5 km of urban roads in Tulear to develop tourism and improve the living conditions of the urban population, which is rapidly growing. The 5 km of roads will be carefully selected based on economic prioritization in consultation with the municipal authorities, local master plans (PUDi), traffic density and a feasibility study of the axes with the greatest potential for economic activities and/or services offered to tourists. The rehabilitation will include a mix of paved and cobbled roads and side-road drains.


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28. Improve access to water: The expected inflow of tourists and new investments in hotels and production facilities will further strain water sources and water distribution networks that are operating at full capacity with significant supply shortages in the Target Regions. Weak management of public standpipes is also reducing the supply of water to poor populations. Following PIC 2.1 investments, the water distribution networks cover 80 percent of the population in Diego (Diana region) and 44 percent of the population in Tulear (Atsimo-Andrefana region). PIC 2.1 investments in Diego allowed for works in water production and distribution while in Tulear heavy investment was undertaken to support expansion of the water supply and distribution center, and distribution network expansion is planned under PIC 2.1. Under PIC 2.2, in Tulear (Atsimo-Andrefana), to complement works undertaken in previous PIC activities in Nosy Be, Diego and Fort Dauphin, the project will strengthen the water distribution network through construction or replacement of about 13 km of network and installation of 300 connections (including standpipes, and integrating the successful standpipe model developed for Nosy Be under PIC 1). With this additional financing, it is expected that by project end the network will serve 70 percent of the population. 29. Improve airport infrastructure: In Anosy, the project will support financing of targeted improvements to the Fort Dauphin airport in terms of security standards, terminal upgrades and night lighting, which would allow for certification of the airport as an International Airport, to facilitate the reinstatement of direct regional flights (from La Reunion and South Africa). In Atsimo-Andrefana the project will finance targeted improvements to Tulear airport in terms of security standards and terminal upgrades to facilitate its certification as an International Airport, which would promote the arrival of regional tourists to Tulear/Isalo as a standalone destination. 2.3 Preparing DTLA and DTS for private investment in tourism in tourism (US$3.0 million) 30. PIC 2.1 provided capacity building to reinforce the fundamentals of governance in selected communes in the project areas, to improve service delivery and to enhance the sustainability of project outcomes. This included building the capacity of officials in service delivery, transparency and accountability, while ensuring coherence and synergy with other partners’ work. Municipal capacities have been successfully strengthened in terms of tax collection, municipal management including archiving, one stop-shop implementation, registry computerization, waste management, accounting and FM, as well as budget planning and transparency. In its second phase, PIC 2.1 used that base to more directly support the project's priority sectors and to ensure the sustainability of results, including by developing Public Private Dialogue platforms to encourage interactions and concerted decisions. PIC 2.2 will leverage these improvements to further strengthen regional and local public-sector institutions as driving forces of development in tourism (Sub-component 2.3) and agribusiness (Sub-component 3.3), and increase their ability to enable private sector investments. 31. Strengthening of public sector institutions at the local and regional levels as economic development agents (US$2.25 million). This sub-component will finance TA, capacity building (and, where relevant, equipment and small civil works) at the regional level to: (a) update and implement regional development plans, in coordination with other donors’ work; (b) improve revenue mobilization, particularly for regional governments as they have the responsibility for the structural infrastructure that can support target sectors; (c) improve collection and management of infrastructure and service-related data, for improved decision-making and coordination of interventions at the regional level; (d) improve urban planning capacities, including for the development and implementation of urban plans and construction guidelines/plans; (f) further strengthen dialogue platforms with the private sector to better contribute to the municipal management and sectoral development link. At the local level the project will finance TA, training, and capacity building of local authorities to develop investment


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strategies and concrete action plans that would contribute to development of the project’s sectors. Finally, the project will also finance TA, capacity building and equipment and minor civil works for improved water supply management (i.e., community standpipes), improved waste management systems50, targeted rural energy systems directly linked to implementation of value chain activities, and investments in solar pumps and mini-grid IPP energy systems for SMEs. 32. OCAI Grants (US$0.75 million) The project will provide small grants to local authorities as incentive mechanisms to encourage delivery of tourism-related communal and intercommunal projects identified through a participatory planning process. Following the successful OCAI model implemented under PIC 2.1, grants will primarily finance prioritized economic-related works and equipment to support the tourism sector. Co-management mechanisms involving the private sector will be developed to optimize resources and maximize impacts.

Component 3: Removing key binding constraints for private investments in agribusiness (US$22 million equivalent)

33. PIC 2.1 helped build and operationalize strong value chain competitiveness support systems, which has allowed actors to deliver higher-quality and competitive products in a few export-oriented, high value commodities, including spices (pink pepper), cocoa, and aquaculture (seaweed and sea cucumbers). The lower-value cotton sector has been more challenging. In the aquaculture sector, improved linkages between farmers and markets are reflected in formalized professional relationships between farmers’ associations, exporting companies and local development partners (NGOs). At the farm level, project support led to a doubling of yields from 2015 to 2017 in pink pepper for nearly 2,000 farmers. In the Diana region, despite the downward trend registered on the international market price for cocoa, quality improvements allowed prices paid to nearly 3,500 project-supported farmers to be sustained. In cotton, despite the challenges, improvements were made in reducing the biggest issue of side-selling. Overall, there was a 10 percent increase in incomes for the overall value chains. 34. The objective of this component is to build on PIC 2.1 results in key value chains to support the establishment of efficient, diversified and sustainable agribusiness systems for high potential export crops in the Target Regions. This will be measured by an increase in profitability (increased revenues and exports and decreased transaction costs) and a reduction in risks (financial, social and environmental) for value chain actors, and in turn will unlock private investments into further value addition (e.g., more local transformation of cocoa into chocolate for exports). 35. This will be achieved by a combination of activities supporting both structuring and diversification value chains in each Target Region. Value chains with a potentially structuring impact for the Target Regions will be developed and used as anchor value chains: cocoa in Diana, cotton and aquaculture in Atsimo-Andrefana, and lychee in Anosy. Identified diversification value chains include: (i) in Diana: spices (vanilla, pepper), essential oils (ylang-ylang), cashew, moringa and tropical fruit; (ii) in Atsimo-Andrefana: Lima beans and other dried beans, as well as stevia and moringa; and (iii) in Anosy: pink pepper, cloves and other spices, coffee, and honey. Support to the targeted value chains (anchor and diversification) can impact more than 100,000 farmers in the Target Regions.

50 PIC 1 supported investment in civil works for a sanitary landfill, but the landfill is not fully functional and waste management continues to be an issue for communities and for tourism.


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Those value chains serve markets that represent more than US$10 billion in sales globally, with close to 50 percent growth over the past five years,51 and offer a key strategic market positioning for Madagascar: e.g., high-end niche with large quality premium but still the potential to produce and export amounts that are significant for the local economy (essential oils), high-end with significant global market shares (vanilla, cloves, lychee), or fast-growing new markets (stevia, moringa). 36. Cocoa: More than 3,500 cocoa producers and 140 first-level processors, mainly concentrated in the Low Sambirano region, have benefitted from PIC 2.1 TA and improved processing technology. This has impacted strongly on quality and access to the “fine cocoa” international market, enabled thanks to project support to the creation of the National Cocoa Council (NCC), and to NCC’s participation in the International Cocoa Council Organization (ICCO), which led to its labeling as a “100 percent fine cocoa” country. The NCC has now devised plans to double export volumes (from roughly 9,000t to 18,000t) and move to 100 percent sustainable cocoa by 2025. Such production and quality objectives are threatened by ageing/degenerating cocoa trees, as well as suboptimal density and still limited direct access for farmers to exporters or export markets. Demand from local chocolate-makers is increasing for very high-quality cocoa (three main chocolate makers are based in the Antananarivo area, one of which exports 100 percent of production to high-end US markets), creating the potential for a boost in local value addition, capacity utilization and further investments in value addition if adequate standards can be supported.

37. Cotton: PIC 2.1 experience has shown that although cotton had been a good anchor to positively impact the lives of the largest possible number of farmers in Atsimo-Andrefana, it could not be relied upon as a stable source of decent income for all farmers. Weather risk is high and irrigation water access uncertain; soil fertility for cotton is highly variable; and productivity targets seem unattainable without some degree of mechanization. Support to further diversification into aquaculture and adapted existing or emerging crops, such as Lima beans and other dry beans, and supporting innovative groundwater irrigation techniques to increase yields in high-potential areas, is therefore key.

38. Aquaculture: Under PIC 2.1 the project supported the expansion through a private sector operator of a successful, inclusive aquaculture sector growth model. The partnership has allowed for the efficient recruitment, training, structuring and equipping of 1,100 new aquaculture farmers in, offering them a direct job and market opportunity in the context of diminishing fishing revenues, while allowing the operator to respond to export market demand. Support is still key to organize sector dialogue to preserve sustainability after scale-up (against theft, practices favoring diseases, etc.), and further extension towards identified potential areas such as Anakao (Atsimo-Andrefana region). 39. Lychee: Lychee was found to be a promising anchor crop for PIC 2.2. With an estimated production of more than 80,000t but exports of only 20,000t, Madagascar is the first exporter of lychee on the European market. The coastal south-eastern regions, including regions along the RN12A, are reputed to be a major production area of lychee, but are handicapped by very poor transport that reduces commercialization opportunities. The expected partial rehabilitation of the critical RN12a (to be co-financed by the EU and the AfDB) is an opportunity to exploit that potential and to reach more farmers in the landlocked, especially poor south-eastern part of the country, in and around the Anosy region. Lychee plants also need renewal and are increasingly exposed to climate change:

51 PIC (2018). Mission d’analyse pour la sélection et l’identification d’appuis à des filières agricoles porteuses dans les zones d’intervention du projet PIC2 : Identification et priorisation des principales filières porteuses. Supported by the Competitive Industries and Innovation Program (CIIP), funded by the EU-ACP and implemented by the World Bank.


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the last season has seen very low productivity and small size of lychee fruit, below the requirements of international markets, attributed to both factors. Knowledge and market control for processed fruits remains low and hinders investment in the sector. For processed lychee (pulp, frozen fruit, juice, syrup, vinegar), the viability of the processing units must also be ensured with a continuous supply of fruit along the year, which must be complemented by other fruits from the region. This supply will depend greatly on the accessibility of the production areas. 40. Activities in each of the chains seek to: (i) enhance the capacity of private sector value chain participants and relevant government institutions to improve value chain governance, promotion and regulation in line with market demand; (ii) enhance farmers’ access to improved technologies, capacity for improved practices and market linkages, and SMEs’ access to logistics facilities and services to increase productivity, quality and value addition; and (iii) improve physical linkages and reduce logistics costs between production areas and markets. 3.1 Supporting public management capacity related to agribusiness (US$8.0 million) 41. This sub-component will scale up successful PIC 2.1 support to key stakeholders to improve governance and regulation in project-supported value chains and to create a favorable and sustainable environment for agribusiness investments into higher value addition in the Target Regions. At the value chain level, this involves removing binding constraints to increases in volume and quality, with specific emphasis on facilitating private investments in value addition downstream (first and second level processing, final product making and packaging as in the case of cocoa, etc.), and investing in environmental sustainability (including climate resilience). At the regional level, this involves supporting diversification of value chains, and building or strengthening supportive ecosystems for value addition and efficiency (e.g., research, logistics and skills). 42. Specific activities may include TA and capacity building to the Ministry in charge of Agriculture and the Ministry in charge of Trade (a) to review, update and monitor the legal and regulatory framework covering key value chains, and improve their ability to monitor and enforce that framework; (b) to develop a market-based vision and strategic action plan for each value chain; and (c) to strengthen data collection and dissemination (on prices, production volumes, traded values) and strengthen nascent and existing private-private and public-private platforms in supported value chains(d) supporting simplification and harmonization of requisites and procedures for the licensing of economic activities in the agribusiness sectors; (e) developing advocacy strategies across government to strengthen competition and address sector-specific regulatory obstacles to competition; (f) strengthening of export promotion agency and automation of export OSSs. 43. The sub-component will also finance TA, capacity building, equipment and small civil works in activities linked to:

(a) Support to private-private/public-private value chain platforms relevant to Target Regions, and EDBM, in coherence with national strategies and initiatives.

(b) Support research into and the provision of quality planting, and encourage partnerships between FOFIFA and relevant private partners to increase the use of climate smart adapted seeds.

(c) Build capacity of farmers and primary processors to improve practices (e.g., tree farming instead of “passive” collection), to renew plantations and to improve post-harvest techniques;

(d) Support farmers to regroup and link with primary processors as well as export markets directly and to finance expansion or the use of e-payments;


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(e) Organize groups of farmers to work with agribusiness service providers or exporters to accelerate mechanization and phytosanitary certification for higher-value products;

(f) Support the training of technicians through existing agricultural technical training centers (e.g., agricultural technical training centers (EFTA) in Ambanja and in Betioky) whenever possible through partnerships with private sector actors;

(g) In support of the MBIF Agribusiness Window Investments: (i) facilitate identification and leveraging of private sector-driven solutions to improve agro-logistics and value addition; (ii) support innovative techniques that increase yields for high-potential value chains; and (iii) support SMEs and linked outgrowers to improve linkages to markets and facilitate value addition including transformation.

3.2 Upgrading rural and urban connectivity for agribusiness development (US$11 million) 44. The objective of this sub-component is to provide key public investments in connecting infrastructure to boost access to markets and dramatically reduce logistics costs and risks for farmers, and allow buying agribusiness SMEs to reach profitable scales, reduce supply risks, and in turn increase investments in value addition. The project will finance civil works, equipment and TA to rehabilitate and maintain peri-urban and rural secondary and tertiary roads directly linked to key agricultural value chains. 45. In Diana, the project will finance rehabilitation and maintenance for the critical 47km rural access road to the High Sambirano, which concentrates 60 percent of national cocoa production, as well as other target crops such as vanilla and coffee. This is expected to boost export volumes in cocoa in particular, whereas PIC 2.1 support to the value chain had successfully invested in quality and price increases. Project activities will include: (i) spot improvement contracts with high labor intensity methods; (ii) empowering beneficiaries for simple maintenance; (iii) equipping the public-private platform with small rollers, tractors with trailers, etc. 46. In Ambanja (Diana), the urban core of the Lower Sambirano region where PIC 2.1 cocoa activities are concentrated, the project will finance the design, supervision and works to rehabilitate 6km of selected tracks of urban roads. This will be a mix of paved and cobbled roads and side-road drains, to both enhance the economic attractiveness of the city and to encourage the development of industrial and commercial activities (as well as tourism). 47. The project will also support the design, supervision, works and maintenance of approximately 10km of key rural roads for project supported sectors in Atsimo-Andrefana, Anosy and Sainte Marie (e.g., for access to newly supported crops such as lychee and coffee along the RN12a, which may be partially rehabilitated by joint investments of the EU and AfDB). These roads will also serve to facilitate tourist visitation in the regions. 3.3 Preparing DTLA and DTS for private investment in agribusiness (US$3.0 million) 48. As with Sub-component 2.3, this sub-component will finance TA, capacity building, equipment and small civil works to improve overall municipal service delivery, render expected outcomes of project interventions more sustainable, and enhance municipalities’ capacity to conduct the planning processes required in cases of private investment in the agribusiness sector. This sub-component will also provide small grants based on the OCAI model to local authorities that encourage delivery of communal and intercommunal projects linked to agribusiness value chains. Co-management mechanisms involving the private sector will be developed to optimize resources and maximize impacts.


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Component 4: Project implementation (US$4.0 million equivalent) 49. This component will finance the PIU and allow it to implement the project, comply with fiduciary rules and safeguards, and fulfill M&E and impact evaluation commitments. 50. PIU and decentralized technical units: Component 4 will fund the continued operation of the PIC 2.1 National Project Secretariat PIU based in Antananarivo, as well as decentralized technical units in the Target Regions. 51. MBIF Implementation Unit: This component will finance the Coordinator of the MBIF Implementation Unit at the national level. Designated MBIF project managers in each of the decentralized offices will be financed under Sub-component 1.1. 52. Monitoring and evaluation: This component will also fund the project’s M&E system. The PIU will have the primary responsibility for establishing the M&E system and coordinating all M&E activities, in close collaboration with the World Bank task team. Financed activities will include covering human resources for the M&E function, purchase of necessary technology and equipment, primary data collection for both M&E (including impact evaluation), regular joint implementation support missions, and a mid-term review and implementation completion report. 53. Safeguards: Under Component 4, the PIU will also be responsible for ensuring compliance with all safeguards requirements during the preparation and implementation of the project. This includes (i) the preparation of all impact assessments and management plans for interventions for which location and scope is defined during project preparation, as well as framework documentation for interventions that are yet to be defined at the time of project appraisal; (ii) the development of an operational manual or guidelines for implementation of specific safeguard activities; (iii) sensitization and stakeholder capacity building on environmental and social safeguards; (iv) development of collaboration with Community Service Providers/NGOs or independent consultants with appropriate knowledge of social/GBV risks and monitoring social interactions with communities; and (v) ensuring an operational GRM. Component 5: Immediate Response Mechanism (US$0 million) 54. This component, a “zero-dollar” component, will provide immediate assistance (e.g., emergency works) in response to an eligible crisis or emergency that causes a major disaster, as needed. Following such an event, the GoM may request the World Bank to channel resources from this component into an IRM. The IRM would enable the use of a portion of uncommitted funds from the overall IDA portfolio to respond to emergencies. Specific details of this component (including activation criteria, eligible expenditures, and specific implementation arrangements, as well as required staffing for the Coordinating Authority) will be defined in greater detail in the IRM Operations Manual.


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ANNEX 3: Maps of Target Regions


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for official use only report no: pad2703€¦ · pmp pest management plan ppa project preparation...

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