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2 Annex 1. IDENTIFICATION Title/Number Total cost Aid method / Method of implementation Support to the Productive Safety Nets Programme of Ethiopia CRIS No. ET/FED/ EU contribution: EUR 58 million Estimated total cost of the programme over 5 years ( ): EUR 1,4 billion i) co-financing through Multi Donors Trust Fund ii) Other Donors (indicative, Feb 2010): 1. CIDA: Cash: EUR 37,1 million + Food: 42,300 MT 2. DFID: EUR 177 million 3. Irish Aid: EUR 52 million 4. RNE: EUR 60.2 million 5. SIDA: EUR 16.4 million 6. World Bank: EUR 29.5 million 7. USAID: Cash: EUR 25 million + Food: 515,000 MT Project approach Joint management with an international organisation (World Bank) 1. DAC-code Sector Food Security 2. RATIONALE 2.1. Sector context Chronic poverty and food insecurity 2 remain pervasive in much of Ethiopia. Yet 35% of rural households still live below the food poverty line and most of them are engaged in subsistence farming on small plots of degraded land where they are vulnerable to weather fluctuations, so that households are not able to fully meet their most basic consumption needs even in years when rainfall is adequate. In the past years the humanitarian assistance mechanism has been substantial (estimated at about USD 265 million a year on average between 1997 and 2002) in saving many lives but did little to protect livelihoods and preserve physical or human household assets. As a result, despite the large food aid inflows, household-level food insecurity has remained both widespread and chronic in Ethiopia. Started in 2005 as one of three major components of the Government of Ethiopia Food Security Programme (FSP), the Productive Safety Net Programme (PSNP) represents an innovative approach to move away from responding to chronic hunger through emergency appeals towards a more predictable response to address the above mentioned recurring problems. In its first phase ( ), the PSNP has ensured targeted and timely transfers to 7.5 million beneficiaries allowing them to retain factors of production and to integrate into society's productive strata and providing them with a springboard for development. The productive aspect of the programme focus on the creation of community assets as more than eighty percent of beneficiaries participate in micro-projects such as soil and water conservation, construction and/or maintenance of rural infrastructures that in the long run will have a positive contribution in enhancing agricultural productivity. The PSNP also represents an example of effective implementation of the Paris Declaration principles. It has focused on mobilizing multi-annual resources from development partners to ensure predictability of resources for the programme implementation and for adequate planning, capacity building, and monitoring and evaluation systems to be in place. The design of the new 1 2 A Financing Agreement will be signed with the Government of Ethiopia. Subsequently an Administrative Agreement will be signed with WB. Food insecurity is a lack of access, at all times, to enough food for an active and healthy life. Chronic food insecurity is the persistence of this state over time such that households are generally unable to meet their own food needs. EN 1 EN

3 phase of the FSP for the period is the result of a joint review of the first phase and of the joint formulation process carried out throughout This has been done under the auspice of the Rural Economic Development and Food Security RED&FS Sector Group of the Development Assistance Group DAG 3. The final programme documents have been formally agreed at the end of the appraisal process led by the World Bank in September This second phase of the programme incorporates a number of innovative measures to address relevant issues such as transparency and accountability, financial management, support to household asset creation, improvement of public work quality and risk management Lessons learnt Overall assessments of the PSNP to date suggest that the program is smoothing household consumption, which is the core protective benefit of a safety net such as the PSNP. The 2008 Impact Evaluation found that participation in the PSNP measurably improved household food security, as measured by changes in self-reported household food gap, although this affect was strongest among those households that received regular, high value transfers. This suggests that when implemented as designed the PSNP can be an effective safety net. The same source shows that the PSNP has had a measurable and positive impact on household assets and investments. Participation in PSNP public works increased growth in livestock holdings by 0.28 Tropical Livestock Units (TLU) over comparator households. Households participating in the PSNP perceived themselves to be better off in 2008 as compared with 2006, despite a period of drought in Notably, this change in perceived welfare status is even higher among those households that received regular, high-value transfers than households that received irregular transfers. The combined implementation of the PSNP and investments in household assets does lead to more significant improvements in food security. In fact, the 2008 Impact Assessment measured the combined impacts of the PSNP and the Other Food Security Program (OFSP, a second pillar of the FSP). Households that received high value, regular support from the PSNP and had access to the OFSP experienced an improvement in food security by 0.81 months (or 25 days) from 2006 to 2008 as compared with comparator households. Similarly, livestock holdings of PSNP households with support from the OFSP increased by TLUs, while the value of their livestock increased by 14.3% as compared to non-beneficiary households. Beyond the household level, the PSNP has impacted communities in several ways, most notably through the creation of public assets. It is important to note that these benefits accrue to the community at large and extend beyond the immediate target group. The types of community infrastructure created since 2007 resulted in at least 34,000 individual projects initiated annually. The bulk of investments was concentrated in soil and water conservation (SWC) and rural feeder roads, with selected investments in natural resource management and social services. The PSNP compares favourably with international experience on public works programs, for its targeting, high wage intensity and a low administrative cost from the use of existing government systems (and the program scale itself). As a percent of total program cost, 17.2% is dedicated to staff time, administration costs and capacity building. The first phase of the FSP and of the PSNP in particular, also provides a wide range of experiences and lessons learnt, from the institutional and the operational point of view. The most relevant are indicated here 4. The shift from a relief system to a predictable social protection system can be achieved through agreement on broad principles and adopting a pragmatic approach to implementation. Working within this broad framework has enabled implementation to move forward addressing implementation and policy issues as they arise and as the program evolves. Supporting Government-led programs such as PSNP requires full integration into Government systems. This requires to strengthen the capacity of these institutions and to enhance the social contract between citizens and the State. The PSNP has shown that this has to be done in such a way that integrates responsibility for the program into the regular tasks of departments and staff at different administrative levels. 3 4 The DAG is the Development Assistance Group. DAG aims to foster information sharing, policy dialogue and harmonise donor support to Ethiopia in order to enable the country to meet the MDGs, to improve aid effectiveness and to assist in the preparation, monitoring and evaluation of the country s Poverty Reduction Strategy (PRS). The RED&FS aims to strengthen donor coordination and alignment particularly in three sectors or pillars: Food Security, Agricultural Growth and Sustainable Land Management. The RED&FS is chaired by the Federal Ministry of Agriculture and Rural Development and co-chaired by the EU and Canadian CIDA. The programme review carried out in 2008, several specific studies and the regular in built monitoring tools, including the biannual baseline survey, are the source of the lessons learnt described here. EN 2 EN

4 According to biannual IFPRI 5 surveys and specific evaluation missions, there is significant evidence that the programme is having an impact: the PSNP is smoothing consumption and protecting assets. Where the PSNP and household asset building interventions are integrated, particularly in areas where the programme has been well implemented (indicated by a high level of timely and appropriate transfers) household asset holdings have increased and crop production appears to have improved 6, which represent the basis for achieving graduation at scale. Addressing the environmental constraints in terms of lack of infrastructures and of low productivity of land, represents a key factor for enabling rural households to actively and efficiently involve in the rural economic growth process. The extensive soil and water conservation and reforestation activities, as well as the construction of rural infrastructures (rural roads, small scale irrigation schemes, water harvesting structures, rehabilitation of schools and health facilities) require to ensure quality and maintenance of these infrastructures as well as an adequate implementation of the environmental impact analysis following the guidelines provided by the jointly agreed Environmental and Social Management Framework (ESMF). Transparency and social accountability of the programme have shown to be a key factor for the acceptance and ownership by the population. The introduction of a computer based payroll system and of "client cards" for the PSNP beneficiaries (including a "charter of rights") represents a major step forward in the institutionalization of a social transfer system 7. Establishment of the Appeals Mechanism which allows beneficiaries to lodge their complaints on the targeting process is another factor that strengthens the transparency of the PSNP While timeliness of transfers as well as timeliness and quality of technical and financial reporting have been progressively improving, achieving timely transfers in low capacity environments requires investments in capacity building, continuous monitoring, and ongoing corrections to the payment process. Greater focus on addressing the causes of poor performance of some woredas 8 and increasing awareness, responsibility and accountability of Ministry of Finance and Economic Development (MoFED) structures is required. While it is anticipated that staffing levels and high staff turnover will likely remain key constraints to programme implementation, capacity constraints in financial and technical management will be addressed through a specific capacity building "sub-component" Complementary actions While the PSNP has to be considered as a strategic cornerstone of the EU interventions in the sector, the Commission is supporting a number of actions in the country that are complementary to PSNP: emergency interventions through ECHO (ECHO budget), the Information for Food Security projects (EU Budget) as well as several Non Governmental Organisations projects funded through Food Security Budget Line and the recent Food Facility (EU Budget as well). Complementarities exist since 2005 with the Protection of Basic Services (EDF funds) programme, designed to ensure expansion and improved quality of basic services delivery (education, agriculture, health, water supply, etc.) at sub national levels. Untied factors between chronic poverty and food production indicate that combined interventions addressing agricultural growth need to be combined with social transfer schemes. In this context, the EU is also contributing to the Agricultural Growth Programme AGP through two specific projects covering the livestock sector and marketing related issues. AGP aims to provide support to households in high potential and food secure woredas. The complementarities between the two programs (AGP in food secure woredas and PSNP in non food secure woredas) should ensure an overall wider impact on the rural dwellers. The EU NGOs FS interventions have been integrating and complementing other food security initiatives including the PSNP. The projects are contributing to effective implementation of the food security initiatives such as: i) Support to the woredas and kebele partners for effective design, planning and implementation of the public works (PW) under the PSNP; ii) Establishment of information system including household Food Economy survey, database and PSNP financial accounting; iii) Integration of PSNP PW activities with watershed development approach ; iv) Promotion of income diversification opportunities targeting the PSNP beneficiaries to facilitate their graduation. In the framework of the FSP itself, complementarities with the other components of the programme are 5 International Food Policy Research Institute 6 Gilligan et al An Impact Evaluation of Ethiopia s Productive Safety Nets Program IFPRI 7 This has also led to the adoption of the wording "client" instead of "beneficiary" of the PSNP programme. This wording will be also adopted in the rest of this document. 8 Districts, in the Ethiopian administrative organization EN 3 EN

5 ensured by design, in particular with the Household Asset Building Programme (HABP) aimed to support household asset creation and thus contributing to the graduation process Donor coordination The PSNP embodies best practice in development partners' collaboration. The policy shift to a productive safety net system has been strongly supported by a consortium of development partners including 9 EU, World Bank, CIDA, DFID, Irish Aid, RNE, SIDA, USAID, and WFP. The development partners group has pooled its financing both in cash and food and developed a unified stream of technical advice in support of a single Government-led program. A new Government-development partner Memorandum of Understanding for the second phase was signed on the 24 th of February 2010, which lays out the rights, obligations and coordination arrangements of the partnership. Each financing agency also takes on responsibility for being Chair of the development partners group on a rotating basis. The donors' community is fully committed to ensuring proper coordination and harmonisation of development actions, in particular through the DAG and the Disaster Risk Management & Food Security Pillar of the RED&FS. The RED&FS forum, set up in 2008, represents at the same time the privileged platform for strategies and policy dialogue with the Government of Ethiopia on rural development and food security related issues. It is meant to address the root causes of food insecurity on a sustainable approach. Internally in the EU, since 2006, PSNP has been funded through both EDF (A and B Envelopes) and EU Budget funds. While regular funding has been ensured through the EDF funds, the support from the Food Facility in 2009 was used to address the consequences of the food crisis, i.e. allowing the scaling up of the programme in particularly affected PSNP chronically food insecure areas. 3. DESCRIPTION 3.1. Objectives The Global objective of the PSNP is to achieve, in 300 woredas in eight regions, food sufficiency for male and female members of chronic and transitory food insecure households. The Specific objective is covering three aspects: a) Food consumption assured and asset depletion prevented for food insecure households; b) Markets stimulated and access to services and natural resources enhanced for PSNP and other households, and c) Natural environment rehabilitated and enhanced Expected results and main activities Results focus on four main areas of intervention: i) ensuring appropriate, timely and predictable transfers (cash and/or food); ii) building community assets of adequate quality and ensuring appropriate management mechanisms; iii) ensuring capacity in addressing transitory cash and food needs through a newly designed Risk Financing Mechanism, iv) strengthening institutional capacity to manage the programme and to coordinate within the Government systems and with other relevant programmes and organisations. Activities related to the execution of transfers have to do with the overall process of targeting, execution of the annual plan (including cash/food split), physical transfer of funds and food, monitoring, evaluation and reporting of the transfer process. Public works for the creation of functional community assets are labour intensive community-based activities for which the PSNP transfers are made. Unconditional transfers are ensured to non able-bodied poor households with no other means of support. The Risk Financing Mechanism allows scaling-up the safety net when needed, so that it is able to address transitory needs in PSNP Woredas. So far, the EU is not funding this subcomponent of the programme. Critical activities to improve the level of capacity throughout Government systems will include production of manuals and guidelines; addressing staffing gaps; provision of equipment, services and training. Linkages with other related initiatives, with the HABP in particular, are expected to facilitate and enhance graduation through improved access to services and infrastructures and through asset creation. 9 CIDA: Canadian International Development Agency; DFID: British Cooperation; USAID: USA Aid Agency; SIDA: Swedish development Agency; WFP: World Food Programme. EN 4 EN

6 3.3. Risks and assumptions Integration among FSP components is effective: it is assumed that support from other components of the FSP will be available to PSNP participants at the required scale to allow progressive graduation from PSNP. If this assumption does not hold, then a continuation of the limited levels of graduation can be expected. Shocks do not deplete household assets: it is assumed that PSNP woredas will not suffer major social, climate, economic or other type of shocks. Moderate shocks in PSNP woredas will largely be managed through a combination of the contingency budget and Risk Financing Mechanism, internalising part of this assumption. Moving from Direct Support to Social Protection: it is assumed that discussions regarding implementation of a national plan of action based on the Social Protection Policy document diffused by the Government of Ethiopia in 2009 will be held with the Government of Ethiopia, and with Disaster Risk Management and Food Security Sector (DRMFSS) and the Ministry of Labour & Social Affairs (MoLSA) in particular. This is expected to guide the evolution towards a better structured Government of Ethiopia led social transfer system. Targeting: While the yearly participatory retargeting exercise will increasingly incorporate the graduation criteria and benchmarks, risks of inclusion and exclusion errors as well as of dilution of transfers will be minimized implementing the communication strategy and the client card system. Specific studies on the graduation process and possible revision of the benchmarks are planned to improve the targeting process. Cash and food mix: the risk linked to the increase of food prices has been addressed since 2009 generalizing the 50% cash/food split to most PSNP woredas. Nevertheless, Woreda capacity, geographical remoteness and access to and functioning of markets have been taken into account to identify woredas where full food transfers (mainly in pastoral areas) or full cash transfers (some highland areas) can be more appropriate. These criteria and the annual revision of the wage rate will be maintained. Financial Management: risks linked to low level of effective financial management will be further addressed at all administrative levels through increasing the involvement, responsibilities and capacities of involved ministries' structures and staff, in particular Ministry of Finance (MoFED) and Ministry of Agriculture (MoARD). The fiduciary risk of the disbursement mode has been addressed (meant to reduce humanitarian risk) that triggers replenishment upon disbursement to woredas rather than upon submission of expenditure reports. Poor quality and delayed financial reports may cause delays in donors' payments. This risk will be addressed through the recently established joint government-donors Financial Management Taskforce which will closely follow up on financial management aspect of the programme. Possible distortions in the use of funds: While the MoFED financial management procedures are followed, the programme itself has a number of in built mechanisms to minimize the risk of inappropriate use of funds. Among them: Quarterly Interim Financial reports, Annual audits carried out by the Office of the Audit General and Fiduciary Risk Assessment conducted every two years by DFID. Allegations of political distortion have been made in relation to PSNP as well as to other relevant programmes such as PBS (Protection of Basic Services) and the Relief programme, with these allegations suggesting that geographical areas, households and individuals affiliated with the EPRDF (the ruling party) enjoy preferential access to aid and the goods and services that aid supports. In this context, in January 2010 the Development Assistance Group (DAG) of Development Partners decided to conduct an exploratory and desk-based study into possible distortion in donor-supported development programmes. The study is not on the basis of the limited review of the allegations in a position to make a definitive statement on the extent to which the allegations of political distortion are true. What can be said, is that most of the allegations with which the study is familiar are poorly substantiated. With most of the allegations reported by leaders of opposition parties, and a lack of corroborating evidence, it is not difficult for the Government to dismiss the allegations as politically motivated. However, one should not infer, from the absence of clear evidence, that there is no political distortion, for two main reasons. Firstly, because in an environment where people may be reluctant to bring forward their complaints fearing the consequences or doubting the independence and effectiveness of the accountability systems that ought to prevent, detect and address distortion compiling credible evidence about political distortion presents a serious challenge. Secondly, because in a country where the party and the state are closely intertwined, and in a context where actions taken by local officials might serve the party s interests as well as their own, it may be practically EN 5 EN

7 impossible to differentiate between apparently uncoordinated local actions and systemic (although not necessarily top-down coordinated) political distortion. Development Partners will need to be vigilant to ensure that the Government of Ethiopia meets its responsibilities to deal appropriately with the allegations, but in a country where the governance context makes gathering and assessing evidence to support or refute allegations of political distortion a major if not insurmountable challenge, a focus on accountability systems and how they might be strengthened constitutes a more constructive line of inquiry for Development Partners to take. It is also assumed that: No security problems will occur in programme areas that will hamper smooth implementation; Development partners' 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 district levels to address food insecurity problems in the country Crosscutting Issues An Environmental and Social Management Framework has been established in order to ensure criteria for PW project selection and for the environment and social impact assessment. Gender equality and vulnerable femaleheaded households will be particularly targeted by the PSNP through direct support and an explicit provision to assist them in enhancing the productivity of their lands. The programme will also assist people living with HIV/AIDS through its direct support component. Increased transparency in the programme management and implementation (client cards, payroll system) is believed to contribute to improving good governance in particular at the lower administrative levels in making the institutions more accountable to PSNP clients. As climatic shocks remain one of the greatest threats to the country and to graduation of PSNP clients in particular, the PSNP public works program is designed to rejuvenate the agricultural resource base and mitigate the negative impacts of climate change. By promoting, financing and implementing sustainable land management measures, the PSNP continues to represent a unique opportunity to contribute to environmental transformation at scale in Ethiopia and mitigate negative impact of climate change Stakeholders The MoARD has the overall management responsibility of the programme. MoFED has the overall responsibility for the financial management and the cash transfers. MoARD/DRMFSS 10 structures at Federal, Regional and District levels through the Food Security Offices are primary government stakeholders who are responsible for the planning, implementation and supervision of the programme. PSNP development partners are the other stakeholders of the programme which have so far shown continued support for the programme through allocation of funds. Development partners are actively engaged in the follow up of the implementation process of the programme through joint supervision and coordination bodies, the joint review missions, technical task forces and monitoring mechanisms. PSNP clients participate to relevant processes such as the community self-targeting exercise, the definition of the community development plan and priorities to be reflected in the public works plan, to the execution of the PW themselves. 4. IMPLEMENTATION ISSUES 4.1. Method of implementation The implementation method will be through joint management with the World Bank, ensuring continuity with the previous phase implementation method. A Financing Agreement will be signed between the Commission and the Government of Ethiopia. Subsequently, an Administration Agreement will be signed between the Commission and the World Bank who will manage the funds on behalf of the Commission. A new Multi Donor Trust Fund (MTDF) has been established for this phase 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 in the context of agreement signed between the World Bank and Government of Ethiopia for the second phase of the PSNP. The 10 Minister of Agriculture and Rural Development / Disaster Risk Management and Food Security Sector EN 6 EN

8 funds allocated for verification, evaluation, technical support and ad-hoc studies will be managed by the Commission through service contracts Procurement and grant award procedures Fund disbursed to the MDTF will be managed, monitored and audited in accordance with the Trust Fund and the global Co-financing Framework Agreement between the EU and the World Bank signed on March 20, All the contracts must be awarded and implemented in accordance with the applicable procedures of the WB Group. Hence, procurement for the PSNP, from the MDTF administered by the WB will be carried out in accordance with the procedures and standard documents laid down and published by the World Bank. All contracts under direct centralised management (such as technical assistance, audit and evaluation missions) will be awarded and implemented in accordance with the procedures and standard documents laid down and published by the Commission for the implementation of external operations, in force at the time of the launch of the procedure in question. Participation in the award of contracts for the present action shall be open to all natural and legal persons covered by 10 th EDF. Further extensions of this participation to other natural or legal persons by the concerned authorising officer shall be subject to the conditions provided for in the article 20 of Annex IV of the Cotonou Agreement Budget and calendar The total EU financial contribution to the PSNP will amount to Euro 58 million over a period of forty eight months as from the signature of the Financing Agreement. The indicative breakdown of the EU contribution is as follows: Budget item Amount (EUR) Contribution to the PSNP TF Technical support, studies and visibility Ex post verification and evaluation Contingency (1.4%) Total The EU contribution to the PSNP Trust Fund is foreseen to be disbursed during 2011 and 2012 implementation period in order to frontload resources for greater impact during subsequent years. The estimated total cost of the programme for this phase is about EUR 1,4 billion 11, out of which about EUR 0,75 billion in the form of cash transfers, with an annual cost varying between about EUR 186,5 and 119,4 million due to the fact that the caseload is supposed to decrease during the five years. Eight other donors contribute cash and/or food to the programme 12 : WB, DFID being the major cash contributors and USAID being the main food contributor. The Government of Ethiopia has committed itself to fund the other components of the FSP (HABP, CCI 13 and Resettlement programmes) for an amount of ETB 2 billion per year (about EUR 110 million) Performance monitoring The programme has an in-built M&E system and a number of mechanisms to ensure joint, close and continuous follow up of the progress and assessment of performances (this includes bimonthly field missions, bi annual review missions, etc.). All these will feed the EU monitoring process, also in line with the Paris Declaration on Aid effectiveness principles. In addition, provision for an independent evaluation is included in the budget, which will be jointly agreed and coordinated with the Government of Ethiopia and the development partners. 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). 11 All amounts are converted from USD used in the programme budget estimations at the exchange rate of April 2010 (1 EUR = 1,4 USD). The Medium Term Financing Framework of PSNP provides estimation of the programme cost under different scenario. The one indicated here is the "average" cost. 12 EU, CIDA, RNE will provide financing for the PSNP and HABP via a World Bank-administered co-financing MDTF. DFID, Irish Aid, and SIDA will provide parallel financing. These development partners will continue to channel their contributions to pooled accounts that are subject to common procurement and financial management processes. USAID and WFP will provide in-kind contributions to the PSNP. 13 CCI: Community Complementary Investments EN 7 EN

9 4.5. Evaluation and audit The same principles as above apply to the financial management of the PSNP. As well, provision for an independent verification mission is included in the budget in order to verify compliance with the relevant rules and procedures. The mission will be jointly agreed and coordinated with the Government of Ethiopia and the development partners. Costs related to audit/verification and evaluation shall be eligible up to the end of the closure phase Communication and visibility A communication strategy for the overall FSP has been developed since 2007 on the coordinated initiative of Donors and FSCD 14, with the purpose to extend the knowledge of the programme and build support among stakeholders and the general public. Special care will be taken in applying EU Visibility guidelines particularly when providing supplies and equipment and when implementing technical assistance and studies. 14 Food Security Coordination Directorate, responsible for the management of the Food Security Programme, in the Disaster Risk Management and Food Security Sector of the Ministry of Agriculture EN 8 EN

10 Appendix 1: List of Acronyms AGP Agricultural Growth Programme CIDA Canadian International Development Agency DAG Development Assistance Group DFID Department for International Development (UK) DRMFSS Disaster Risk Management and Food Security Sector ESMF Environmental and Social Management Framework FSCD Food Security Coordination Directorate FSP Food Security Programme HABP Household Asset Building Programme IFPRI International Food Policy Research Institute MDTF Multi-donor Trust Fund MoARD Ministry of Agriculture and Rural Development MoFED Ministry of Finance and Economic Development MoLSA Ministry of Labour and Social Affairs MoU Memorandum of Understanding PSNP Productive Safety Net Programme PW Public Works RED-FS Rural Economic Development and Food Security RNE Dutch Cooperation SIDA Swedish International Development Agency TF Trust Fund USAID United State Agency for International Development WB World Bank WFP World Food Programme EN 9 EN