ANNEX. Support to the Productive Safety Net Programme (PSNP) CRIS 2008/ Total cost EC contribution : EUR 20,230,000

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1 ANNEX 1. IDTIFICATION Title/Number Support to the Productive Safety Net Programme (PSNP) CRIS 2008/ Total cost EC contribution : EUR 20,230,000 Aid method / Management mode Contribution of the beneficiary country: N/A Contribution of other donors: EUR 95,000,000 1 Project approach 2 joint management with an international organization (World Bank) DAC-code Sector Food security 2. RATIONALE 2.1. Sector context Chronic food insecurity is a salient feature of rural Ethiopia in any year, irrespective of the presence of unusual climatic, social or economic shocks. Repeated shocks lead the rural poor into a spiral of poverty which results in an increased number of chronically food insecure caseload over time. In particular, in 2008 Ethiopia is facing yet another drought situation due to the failure of the belg rains, which usually occur from February to April. Under normal circumstances the belg season contributes about 10% to the country s agricultural production, but it is significantly more important in some regions of Ethiopia. The consequence of this severe drought is having dramatic negative impact on PSNP beneficiaries and it will be further exacerbated in the lean period of July September when under normal circumstances people are not expected to receive transfers from the programme. Furthermore, this situation is being aggravated by continued grain price increases resulting in the need for further additional assistance to the beneficiaries during this period. The surge in grain prices, which increased twofold between February July 2008, coupled with shortage of food supply to markets due to the drought, has considerably eroded the purchasing power of cash beneficiaries by about two third. The Productive Safety Nets Programme (PSNP), has started in 2005 as one of three major components of the GoE Food Security Programme. The PSNP represents an innovative approach to move away from responding to chronic hunger through emergency appeals towards a more predictable response to address these recurring problems. Targeted and timely transfers to the poor allow them to retain factors of production and to integrate into society's productive strata, providing them with a springboard for development. The EC contribution to the Safety Net Programme since 2006 amounts 98 M Euro 3 out of which 86 M Euro has already been disbursed to the Multi Donors Trust Fund established at the World Bank. In the 10 th EDF 100 M Euro have been allocated for the PSNP for the period , and in 2008 a first Financing proposal has been submitted for the amount of 42 M Euro. The present proposal is therefore to be considered in the same framework of the previous one, representing an additional support aimed at strengthening the programme in a critical phase of its life span. 1 Estimation based on the announced additional support made by WB, DFID, SIDA in cash, and USAID, WFP and CIDA in food (details in chapter 3 of this Action Fiche). 2 Sector Budget Support could be envisaged in future beyond M Euro from the 9 th EDF and 20 M Euro from the BL.

2 2.2. Lessons learnt The EC mid-term evaluation (MTE, October 2007), the regular biannual Joint Review and Implementation Support (JRIS) Missions 4 during the implementation of the current PSNP programme contributed to identify weaknesses, strengths, lessons learned and provided recommendations for further improvement. The major lessons learned are: a) delays in timely transfer of resources to beneficiaries should be minimised; b) inclusion and exclusion errors in targeting should be addressed; c) institutional capacities of woredas 5 to effectively deliver the programme have to be reinforced; d) integration of PSNP with other food security programmes needs to be enhanced, and e) an increase in the wage rate is required to respond to price hikes for grains. The EC MTE noted that the programme has also exhibited significant improvement over the years in achieving its core objective of filling consumption gaps and protecting depletion of household assets. The implementation difficulties of the transition phase 6 led the GoE to revise a number of design and implementation features and to incorporate lessons learnt including: (i) a shift of the financial management to MoFED as well as frontloading of funds from the federal level to regions and woredas; (ii) improving and strengthening the retargeting methodology; (iii) a number of measures to strengthen federal, regional and woreda capacities, including training for woreda staff, provision of payroll management tools and recruitment of additional cashiers and accountants at woreda level; (iv) increase in the cash wage rate with a view to compensate for the increasing cereal prices; (v) endorsement of a re-visioning process to update and strengthen GoE s strategy to address food security issues with increased integration with other development interventions Complementary actions The PSNP should be considered as a strategic cornerstone of the EC interventions in the sector which is complemented by several other EC funded programmes linked to the Safety Nets Programme implemented through ECHO, UNICEF, FAO as well as several NGO funded through the Food Security Budget Line. Under the Food Facility EUR 45.4 million have been allocated to Ethiopia, out of them EUR 20 million is additional support to the PSNP which aims at responding quickly to the impacts of soaring food prices on the poor and vulnerable segment of the population, who in the Ethiopian context are PSNP beneficiaries. The remaining funds will be allocated to NGOs through Call for Proposals and are intended to implement activities that contribute to increased agricultural production, creation of additional incomes to beneficiaries in order to improve their food security situation, building capacities of local level institutions for improved implementation of food security related interventions. The NGOs interventions will mainly be implemented in the same geographical locations as the PSNP and maximum care has been taken during the evaluation of the proposals to avoid overlap and ensure that the interventions put forward by the applicant NGOs are complementary to what the PSNP is doing and have an added value in terms of enhancing the impact of the PSNP on targeted population. Hence general actions implemented by NGOs with the funds obtained from the Food Facility are aligned with the food security strategy of the GoE and are complementary to the objectives of the PSNP. The Food Facility fund together with the EUR million from the B- Envelope will ensure availability of adequate resources to the PSPN in order to cover additional costs of the programme created as the result of increased wage rates of PSNP beneficiaries due to soaring food prices. Several other programmes implemented by other donors (GTZ, Italian Cooperation, Irish Cooperation) complement EC and PSNP intervention. Complementarity with government s actions: Other Food Security Programmes and the Resettlement Programme is ensured. 4 Held in April/May and in September/October each year. 5 Woreda is the equivalent Amharic word for district 6 The period from the start of the programme in 2005 up to the end of 2006 is commonly considered the "transition phase". The period from 2007 up to 2010, end of the programme is agreed as "consolidation phase".

3 2.4. Donor coordination Harmonization among donors and between donors and GoE has been a central feature of the programme. The design process of the PSNP took place within a common framework, with joint donor missions during the concept development and design and appraisal phases. Strong coordination has been established with the GoE through different mechanisms like the bi-annual Joint Review and Implementation Supervision mission, the Joint Coordination Committee and the Rapid Response Mechanism. Common arrangements also include a coordinated dialogue with Government and the commitment to common financial and procurement procedures. 3. DESCRIPTION In order to cope with the emergency situation the country is experiencing in 2008, PSNP Donors and the Government have agreed to provide an additional three months (July to September) extended assistance to 5.7 million PSNP beneficiaries living in drought affected "hotspot" woredas. This extra coverage requires a frontloading of funds during this period from existing programme resources. The proposed EC allocation will fill the cash flow gap created due to frontloading to respond to the emergency situation and is deemed vital in ensuring the timely availability of funds for the programme in The Delegation considers therefore that additional funding channelled through the existing programme is the most cost effective and rapid way to promptly respond to this emergency situation Objectives The PSNP general objective is stated as following: Food sufficiency for male and female members of chronic and transitory food insecure households in PSNP woredas achieved and status of livelihood maintained and improved. The specific objective is: Food consumption assured and vulnerability reduced by 2010 for 8.29 million chronically food insecure people in 286 targeted woredas 7. The present proposal supports the implementation of the PSNP in the same regions as the previous programme: Oromiya, Amhara, Tigray, SNNPR, Harari and Afar, as well as Dire Dawa City Administration, covering about 286 woredas by Expected results and main activities The expected results and linked activities are: 1. Appropriate timely and predictable transfers (cash and/or food) received by households in response to chronic requirements o Identify eligible participants through annual targeting/ graduation process o Ensure mainstreaming of gender and HIV/AIDS in targeting process o Prepare and approve annual plan, including cash/food split, and disbursement schedule o Make cash and/or food transfers to participants 2. Quality, new and existing, community assets with operational management mechanisms established o Identify public works through participatory planning, including contingency planning o Construct public works o Identify and plan management and maintenance arrangements for new and existing public works 3. Markets for food and non-food products promoted o Monitor relative values of cash and food transfers and adjust as necessary o Plan for sufficient availability of food and cash to respond to participant demand 4. Institutional capacity to manage the PSNP strengthened 7 The 5.7 million benefiting from this extended assistance are among the 8.29 million chronically food insecure population covered by the PSNP

4 o Assess key programme management systems for adequacy, accountability and transparency on an ongoing basis and amend as necessary o Implement plan for adequate staff availability o Implement plan for adequate capacity building equipment and services 3.3. Risks and assumptions The major risks and mitigating measures related to this programme are: Programme Expansion and Links with the Emergency System: Possible delays of transfers to beneficiaries could pose humanitarian risk. In the past, the GoE responded adequately by invoking the primacy of transfers and issuing instructions to expedite transfers. In addition, the GoE emergency system should provide a back-up system, ready to be activated in case of failure of the PSNP to deliver on a timely manner. Targeting: the PSNP beneficiaries constitute some of the poorest and most vulnerable members of the population. While the targeting system has considerably improved over the years it still remains a critical issue which is systematically being reviewed both by the Rapid Response Mechanism and the bi-annual review missions, and more recently through the on going analysis of the graduation process. Cash and food mix: A large capital injection could lead to localized price inflation as food prices rise in the short term. This risk has been fully integrated into the programme design from the start and the decision over which woredas get all food or a percentage of food is made taking account of woreda capacity, geographical remoteness and access to markets. Moreover, woredas have the opportunity to shift to food during the year if price hikes are too high. Institutional Capacity: The PSNP entails a substantial increase in the responsibilities of local level administration to deliver assistance to the chronically food insecure. GoE has shown strong commitment to increase the institutional capacity, including the necessary recruitment, procurement and training. Capacity assessments have been carried out in 2005 and the resulting action plans have been resourced. Financial Management: Overall, the scale of resources flowing into woredas has increased significantly during the transition phase. Added to this is the fiduciary risk of the disbursement mode adopted (meant to reduce humanitarian risk) that triggers replenishment upon disbursement to woredas rather than upon submission of expenditure reports. Continuous training programmes, recruitment of additional staff and provision of office equipment to increase financial management capacities of woredas have been undertaken in the past to ensure that this risk is minimized. Assumptions: No security problems will occur in programme areas that will hamper smooth implementation Donors commitment to provide resources to support the programme will continue The programme remains a top priority in the development agenda of the government at federal, regional and woreda levels to address food insecurity problems in the country Efforts will continue to strengthen integration of the PSNP with Other Food Security Programmes to enable beneficiaries create household assets 3.4. Cross-cutting Issues An Environmental and Social Management Framework has been established in order to ensure criteria for Public Work (PW) project selection, basic check list for their preliminary assessment, list of mitigating measures to be adopted for various types of PW projects during the PSNP implementation. Gender equality and vulnerable female-headed households will be particularly targeted by the PSNP through a number of measures such as: (i) the provision of direct support to labour poor female-headed households, and (ii) an explicit provision to assist, through public works, in the productivity enhancement of lands owned by labour poor female-headed households.

5 3.5. Stakeholders Food consumption gap of 8.29 million chronically food insecure people filled and household assets protected through the transfer of cash and/or food resources to beneficiaries. Out of the 8.29 million beneficiaries 5.7 million will benefit from the extended assistance. The Agriculture and Rural Development structures at Federal, Regional and Woreda levels through the Food Security Offices are primary government stakeholders who are responsible for the planning, implementation and supervision of the programme. The government has taken important measures to enhance capacities of implementing institutions, including that of the Ministry of Finance and Economic Development and its counterparts at regional and woreda levels. PSNP donors (Irish Aid, DfID, EC, WB, USAid, SIDA, CIDA and WFP) are the other stakeholders of the programme which have shown continued support for the programme through allocation of funds until 2009/2010. Donors are also actively engaged in the follow up of the implementation process of the programme through established monitoring mechanisms such as joint supervision and rapid response missions as well as the Joint Coordination Committee consultations. 4. IMPLEMTATION ISSUES 4.1. Method of implementation The implementation method will be joint management with the World Bank. This first rider to the Financing Agreement No 10027/ET/ will be signed between the Commission and the Government of Ethiopia for the implementation of this programme. Subsequently a new rider will be signed between the Commission and the World Bank who will manage the funds on behalf of the Commission. A Multi-donor Trust Fund has already been established at the World Bank to which donors channel resources for the implementation of the programme. The rules and procedures of the World Bank will apply in managing the Trust Fund Procurement and grant award procedures The EC will sign an Administration Agreement with the World Bank for the management of its contribution under the PSNP Multi-Donor Trust Fund (MDTF). This fund will be managed, monitored and audited in accordance with the Trust Fund and Co-financing Framework Agreement between the EC and the World Bank signed on 8 November 2001 and revised on 17 March All contracts implementing the action must be awarded and implemented in accordance with the procedures and standard documents laid down and published by the International Organisation concerned Budget and calendar The overall amount required to cover the extended assistance for the year 2008 was estimated at $ 44.8 million equivalent to about 29.9 million. On top of that, the additional food aid support is estimated to be about MT; mainly provided by USAID, WFP and CIDA. Other donors have agreed to cover this extended assistance: SIDA (Swedish) has increased its contribution by $ 6 million and DFID by $ 9.8 million. These two contributions have already been transferred to the pooled account. WB has frontloaded a relevant part of its contribution for 2009 in order to cover these urgent needs. Other PNSP donors are planning additional contributions through their respective HQs. The million is the amount specifically requested from the EC to fill the financing gap created due to frontloading from existing commitments to cover the extended support to the PSNP beneficiaries.

6 The breakdown of the EC contribution is as follows: Budget item Amount EC-WB Administration agreement for the MDTF 20,230,000 Total 20,230,000 No allocation is planned for technical support, evaluation and audits as far as these costs are already budgeted in the on going Financing Agreement (ET/FOOD/2006/18376) with the GoE which coincides with the implementation period of this proposal. The regular donors contribution to PSNP in cash and/or food is of approximately Euro 220 million per year for the period WB, DFID and EC are the major cash contributors (EC with Euro 78 million through EDF IX, Euro 20 million through the Budget line and Euro 42 million through EDF X). The contribution of the GoE is evaluated at 2 billion Birr per year (i.e. around 150 million Euro at the exchange rate of February 2008). Foreseen operational duration is 16 months as from signature of Financing Agreement Performance monitoring Financial and technical performances of the programme are reported through technical reports from the Food Security Programme Department 8 (FSPD) (quarterly and annually), financial reports from Ministry of Finance and Economic Development (MoFED) (quarterly, half yearly and annually) and through the FSPD Information Centre reports (bi-monthly). Furthermore, the revised PSNP logical framework details specific indicators for any of the hierarchical levels. As in the previous phases, the close follow-up of the PSNP implementation by the Donors Working Group will continue through the established monitoring mechanisms. They include monthly meetings of the Joint Coordination Committee, bi-annual GoE-donors Joint Review and Implementation Supervision (JRIS) missions, bimonthly Donors Working Group meetings, joint Government-Donors Rapid Response Mechanism (RRM). The monitoring system as defined in the Programme Implementation Manual (PIM) will provide regular data on the number of programme beneficiaries as well as on the nature of the projects undertaken. EuropeAid Standard Indicator defined in the identification phase (serial number 604: Number of targeted people to whom food aid and non-food aid is distributed) have been taken into account (see attached Annex 1) Evaluation and audit Internal evaluation will include participatory assessments, quantitative surveys to identify errors of inclusion and exclusion as well as engineering assessments of the quality of public works performed, and beneficiary assessments. An independent evaluation will be undertaken at the end of the programme. It will, amongst other things, feed into the joint review missions and provide information in view of possible further financial support to the PSNP from the Commission. The cost for audit and evaluation is not included in this proposal as this is already budgeted in the on going Financing Agreements with the GoE. 8 Following restructuring of the Ministry of Agriculture and Rural Development the Food Security Coordination Bureau has been re-named as Food Security Programme Department (FSPD)

7 4.6 Communication and visibility A communication strategy for the overall FSP has been developed since 2007 on the coordinated initiative of Donors and FSPD. A framework and timeline for appropriate communication to target audiences through different media such as programme brochures, TV documentaries, regular news announcements and a web site, has been identified. These audiences are the general public, the PSNP implementers, beneficiaries and communities. Special care will be taken in applying EC Visibility guidelines particularly when providing supplies and equipment and when implementing technical assistance and studies.

8 Annex 1 (AIDCO note 11557/ ) Project Title: Support to the Productive Safety Nets Programme (PSNP) CRIS Code No: 2008/ DAC Sector code(s): Baseline value Final value Serial No. Indicator Unit Value at beginning of project (EFY 2005) Final without project value (EFY 2010) Final with project value (EFY 2010) Definition and comments Source Remarks 604 Number of targeted people to whom food aid and non-food aid is distributed No 13 million chronically and acute food insecure people 13 million people continue to need food assistance 8.29 million chronically food insecure people receive resources through the programme Food consumption gap of 8.29 million chronically food insecure people filled and household assets protected through the transfer of cash and/or food resources to beneficiaries. Community assets such as soil and water conservation, rural infrastructures (access roads, schools, health posts, etc.) will be created with labour contribution of beneficiaries. Out of the 8.29 million beneficiaries 5.7 million will benefit from the extended assistance Reports of FSPD and final evaluation reports 8 Error! Unknown document property name.