FOR OFFICIAL USE ONLY

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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Document of The WorldBank FOR OFFICIAL USE ONLY PROJECT APPRAISAL DOCUMENT ON A PROPOSED CREDIT IN THE AMOUNT OF SDR 14.2 MILLION (US$23.4 MILLION EQUIVALENT) ANDA PROPOSED GRANT IN THE AMOUNT OF SDR 34.4 MILLION (US$56.6 MILLION EQUIVALENT) TO THE FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA FOR A PASTORAL COMMUNITY DEVELOPMENT PROJECT I1 Sustainable Development Department Agriculture and Rural Development Africa Region May 5,2008 Report No: ET 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.

2 CURRENCY EQUIVALENTS (Exchange Rate Effective April 18,2008) Currency Unit = Ethiopian Birr (ETB) 9.58ETB = US$1 US$1 = SDR0.608 Ethiopian FISCAL YEAR July8 - July7 ABBREVIATIONS AND ACRONYMS AfDB APL APR ASC ATVET BOARD CAHW CAP CAS CDD CF CF CPAR cso DA DER DFID DPCF DPCP DPIP DPPB DPPO EMCP ESMF EPADGoN EU EWRB EWRDMoARD EWRD EWS FA FCA FFSCB African Development Bank Adaptable Program Loan Annual Progress Review Audit Services Corporation Agricultural Technical and Vocational Educational Training Bureau of Agriculture and Rural Development Community-based Animal Health Worker Community Action Plan Country Assistance Strategy Community-Driven Development Community Facilitator Community Investment Fund Country Procurement Assessment Report Civil Society Organization Development Agent Disaster Early Response Department for International Development (UK) Disaster Preparedness and Contingency Fund Disaster Preparedness Contingency Plan Disaster Preparedness Investment Plan Disaster Preparedness and Prevention Bureau Disaster Preparedness and Prevention Office Expenditure Management and Control Program Environmental and Social Management Framework Ethiopian Pastoral and Agro-Pastoral Development and Governance Network European Union Early Warning and Response Bureau (regional) Early Warning and Response Department (MoARD) Early Warning and Response Desk (woredu) Early Warning System Fiduciary Assessment Federal Cooperatives Agency Federal Food Security Coordination Bureau

3 FIB FMS FPCU FSP GoE GPS HSDP ICAS IDA IFAD IFR IGA ILRI IT JBAR JSDF LDP LIG LIU M&E MDG MIS MoARD MoE MoFA MoFED MoH MOT MoU MST MoWR NRM O&M OFAG PADS PAL PASDEP PBS PCA PCDP PDC PDN PDO PDB PEFA PFM PIM PLA PLKM FOR OFFICIAL USE ONLY Federal Inter-ministerial Board Financial Management System Federal Project Coordination Unit Food Security Program Government of Ethiopia Global Positioning System Health Sector Development Program Interim Country Assistance Strategy International Development Association International Fund for Agricultural Development Interim Financial Report Income-Generating Activities International Livestock Research Institute Information Technology Joint Budget and Aid Review Japanese Social Development Fund Local Development Plan Local Investment Grant Livelihood Integration Unit Monitoring and Evaluation Millennium Development Goal Management Information System Ministry of Agriculture and Rural Development Ministry of Education Ministry of Federal Affairs Ministry of Finance and Economic Development Ministry of Health Mobile Outreach Teams Memorandum of Understanding Mobile Support Team Ministry of Water Resources Natural Resource Management Operations and Maintenance Office of the Federal Auditor General Pastoral Area Development Strategy Participatory Action Learning Plan for Accelerated and Sustained Development to End Poverty Protection of Basic Services Public Accounts Committee Pastoral Community Development Program / Project Pastoral Development Commission Pastoral Development Network Pastoral Development Office/r Pastoral Development Bureau Public Expenditure and Financial Accountability Public Financial Management Project Implementation Manual Participatory Learning and Action Participatory Learning and Knowledge Management This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not be otherwise disclosed without World Bank authorization.

4 PM&E PRA PRM PRS PRSP PSC PSCAP PSCPD PSNP REWFSSC RCBP RLP RPCU RUFIP RUSACCO SBD SCF/UK SDPRP SLE SNNPR SOE TA TBA TOR UEAP UNOCHA USAID WaSH WCPD WDC WSSP WWDP Participatory Monitoring and Evaluation Participatory Rural Appraisal Pastoral Risk Management Poverty Reduction Strategy Poverty Reduction Strategy Paper Project Steering Committee Public Sector Capacity Building Program Parliamentary Standing Committee on Pastoral Development Productive Safety Net Program Regional Early Warning and Food Security Steering Committee Regional Cooperative Promotion Bureau Rural Livelihoods Program Regional Project Coordination Unit Rural Financial Intermediation Program Rural Savings and Credit Cooperative Standard Bidding Document Save the Children Fund/UK Sustainable Development and Poverty Reduction Program Sustainable Livelihoods Enhancement Southern Nations, Nationalities and Peoples National Regional State Statement of Expenditure Technical Assistance Traditional Birth Attendant Terms of Reference Universal Electrification Access Program United Nations Agency for the Coordination of Humanitarian Affairs United States Agency for International Development Water Supply, Sanitation and Hygiene Woreda Cooperative Promotion Desk Woredu Development Committee Water Supply and Sanitation Project Woreda Water Development Plan Vice President: Country Director: Sector Manager: Task Team Leader: Obiageli Katryn Ezekwesili Kenichi Ohashi Karen McConnell Brooks Ingo Wiederhofer

5 ETHIOPIA Pastoral Community Development Project I1 CONTENTS I Page. STRATEGIC CONTEXT AND RATIONALE... 4 A. B. C. I1. A. B. C. D. E. F. I11. A. B. C. D. E. F. IV. A. B. C. D. E. F. G. Country and Sector Issues... 4 Rationale for Bank involvement... 4 Higher-level objectives to which the project contributes... 5 PROJECT DESCRIPTION... 6 Lending Instrument... 6 Program Objective and Phases... 6 Project Development Objective, Key Indicators and Triggers... 8 Project Coverage and Components Lessons Learned and Reflected in the Project Design Alternatives Considered and Reasons for Rejection IMPLEMENTATION Partnership Arrangements., Institutional and Implementation Arrangements Monitoring and Evaluation of Outcomes and Results Sustainability Critical Risks and Possible Controversial Aspects IDA Financing Conditions and Covenants APPRAISAL SUMMARY Economic and Financial Analyses Technical Fiduciary Social Environment Safeguard Policies Policy Exceptions and Readiness... 31

6 Annex 1: Country and Sector or Program Background Annex 2: Major Related Projects Financed by the Bank and/or other Agencies Annex 3: Results Framework and Monitoring Annex 4: Detailed Project Description Annex 5: Project Costs Annex 6: Implementation Arrangements Implementation Arrangements Specific to Project Components Annex 7: Financial Management and Disbursement Arrangements Annex 8: Procurement Arrangements Annex 9: Anti-Corruption Action Plan Annex 10: Economic and Financial Analysis Annex 11: Safeguard Policy Issues Annex 12: Project Preparation and Supervision Annex 13: Documents in the Project File Annex 14: Statement of Loans and Credits Annex 15: Country at a Glance Annex 16: Map IBRD

7 ETHIOPIA PASTORAL COMMUNITY DEVELOPMENT PROJECT I1 PROJECT APPRAISAL DOCUMENT AGRICULTURE AND RURAL DEVELOPMENT AFRICA REGION Date: May 5,2008 Country Director: Kenichi Ohashi Sector Managermirector: Karen McConnell Brooks Project ID: P Lending Instrument: Adaptable Program Loan Team Leader: Ingo Wiederhofer Sectors: General agriculture, fishing and forestry sector (20%);General education sector (20%);Animal production (20%);0ther social services (20%);General water, sanitation and flood protection sector (20%) Themes: Rural services and infrastructure (P); Water resource management (S);Natural disaster management (S);Decentralization (S);Rural policies and institutions (S) Environmental screening category: Partial Assessment [ ] Loan [XI Credit [XI Grant [ 3 Guarantee [ ] Other: For Loans/Credits/Others: Total Bank financing (US$m.): Borrower: Government of the Federal Democratic Republic of Ethiopia Responsible Agency: Ministry of Federal Affairs P.O. Box 5608 Ethiopia Tel: Fax: mofa@,telecom.net.et

8 Project implementation period: Start July 1,2008 End: June 30,2013 Expected effectiveness date: July 1, 2008 Expected closing date: December 3 1, Does the project depart from the CAS in content or other significant respects? Re$ PAD A.3 Does the project require any exceptions from Bank policies? Re$ PAD D. 7 Have these been approved by Bank management? Is approval for any policy exception sought from the Board? Does the project include any critical risks rated substantial or high? Re$ PAD C.5 [ No [ ]Yes [x ]No [ ]Yes [x ]No [ x]yes [ ]No Does the project meet the Regional criteria for readiness for implementation? [ [ No Re$ PAD D. 7 Project development objective Re$ PAD B.2, Technical Annex 3 To increase the resilience of Ethiopian pastoralists to external shocks and to improve the livelihoods of beneficiary communities. Project description [one-sentence summary of each component] Re$ PAD B.3.a, Technical Annex 4 Component 1 - Sustainable Livelihoods Enhancement: This component would further strengthen decentralized and participatory planning procedures at the community/ kebele (sub-district) and woreda levels through a Community Investment Fund, and it would provide access to savings and cooperatives support systems and grants through a Rural Livelihoods Program. Component 2 - Pastoral Risk Management: The goal of this component would be to improve the existing Pastoral Early Warning System through a participatory approach as well as the establishment of an early response Fund, and to support Strategic Disaster Preparedness and Mitigation investment planning and financing of associated subprojects. Component 3 - Participatory Learning and Knowledge Management: this component would strengthen demand driven participatory learning, knowledge generation and research methodologies at the community level; and support knowledge management and information exchange/networking system at the federal and regional levels. Component 4 - Project Management: this component would assist project management units at the regional and federal levels to effectively coordinate, supervise and implement project activities under the direction of the Ministry of Federal Affairs and Pastoral CommissionsBureaus of each region. Which safeguard policies are triggered, if any? Re$ PAD D. 6, Technical Annex 10 Environmental Assessment (OP/BP 4.0 1) Pest Management (OP/BP 4.04) 2

9 Projects on International Waterways (OPBP 7.50) Significant, non-standard conditions, if any, for: Re$ PAD C. 7 Board presentation: None Loadcredit effectiveness: (a) The Recipient has adopted a Project Implementation Manual, setting out the administrative and financial procedures including procurement and disbursement procedures, in form and substance satisfactory to the Association. (b) The Recipient has submitted a project implementation plan for the first eighteen months of the Project, in form and substance satisfactory to the Association. (c) The Recipient has submitted evidence satisfactory to the Association demonstrating the clearance of any material balances in the inter-fbnd accounts under the first phase of the Program. Covenants applicable to project implementation The Recipient undertakes that: (a) Not later than 60 days following the Effective Date, the Recipient shall ensure that a memorandum of understanding for the management of the Pastoral Early Warning and Response Program has been duly executed between the Early Warning and Response Department of Ministry of Agriculture and Rural Development (MoARD) and the Federal Project Coordination Unit (FPCU) within Ministry of Federal Affairs (MoFA), in form and substance satisfactory to the Association; (b) Not later than 60 days following the Effective Date, the Recipient shall ensure that a memorandum of understanding for the management of the rural livelihoods program has been duly executed between the Federal Cooperatives Agency (FCA) and the FPCU within MoFA, in form and substance satisfactory to the Association; and (c) In order to ensure the proper financing of the Project, it shall make available to the FPCU not later than: (i) October 15,2008 an initial amount equivalent to $1,000,000 for the first year of implementation of the Project; and (ii) October 15 of each Fiscal Year thereafter during Project implementation, such amount as shall be required to ensure that the FPCU has available to it a total of the initial amount referred to in paragraph (i) above for the following Fiscal Year. 3

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11 I. STRATEGIC CONTEXT AND RATIONALE A. Country and Sector Issues 1. Ethiopia s Development Strategy. Ethiopia is currently implementing its second Poverty Reduction Strategy (PROS), known as the Plan for Accelerated and Sustained Development to End Poverty (PASDEP). The PASDEP s strategic vision is one of rapid and sustained growth primarily through scaled-up development assistance and large domestic investments targeted at eliminating the poverty traps that have hindered the development of the country. While building upon the first PRS (Sustainable Development and Poverty Reduction Program, SDPRP), the PASDEP contains several new elements, including an explicit link with the Millennium Development Goals (MDGs) and a greater focus on growth. 2. Pastoralism in Ethiopia. In Ethiopia, pastoralism is extensively practiced in the Afar and Somali Regional States (Regions), in some Zones of the Oromiya Region, and in some Zones of the Southern Nations, Nationalities and Peoples National Regional States (SNNPR), referred to hereafter as the Southern Region). Pastoralists are also found in other parts of the country. These lowlands encompass at least twelve million people, over 500,000km2 (almost half of the surface area of Ethiopia) and over eleven million animals. People living in the pastoral and agro-pastoral areas of Ethiopia comprise: (i) the comparatively wealthy who hold substantial livestock assets; (ii) a larger number of poor people who have small herds and flocks and those who, to a greater or lesser extent, depend upon cropping or sale of their labor ( ago-pastoralists ); and (iii) a significant number who are gradually abandoning pastoral livelihoods due to loss of assets and degradation of grazing lands. Although climatic conditions and hardships are similar for most pastoral areas, the people inhabiting these areas differ in their social structure, herd composition, coping strategies and the extent of their integration into the market economy. 3. In the past, development of pastoral areas received relatively little attention from policymakers, and pastoral peoples were economically, socially and politically marginalized in Ethiopia. Key development issues in these areas include: (i) land-tenure security for grazing land and encroachment by sedentary populations as well as large-scale development schemes; (ii) poor access to public and social services; (iii) a restrictive livestock marketing and export policy; (iv) vulnerability to drought shocks; (v) environmental degradation, in particular of rangelands; and (vi) restrictions on movement and conflicts related to natural resource management (NRM) as well as regional competition. The relative severity of pastoralists socio-economic status prompted the Government of Ethiopia (GoE) to intensify its search for sustainable development strategies in these areas from 2002 onwards. 4. The GoE s current vision for addressing development in pastoral areas is stipulated in PASDEP. The dedicated section on Pastoralist Livelihoods and Development acknowledges the previous marginalization of pastoral populations and recognizes that they are among the poorest of the poor in Ethiopia. It proposes a range of adapted livelihoods and service-delivery interventions to remedy this situation. B. Rationale for Bank involvement 5. The Bank is supporting the Government s program through a three-stage Adaptable Program Loan (APL) initiated in The rationale for Bank involvement as defined for Phase I of the 4

12 Pastoral Community Development Program (PCDP) remains valid and continues to provide a strong impetus for continued Bank involvement. (9 (ii) (iii) (iv> First, the current Interim Country Assistance Strategy (ICAS) identifies good governance, addressing vulnerability and growth as central pillars of Bank support to Ethiopia. The PCDP 11, identified in the ICAS, is the primary investment program supporting these objectives in lowland areas of the country. The proposed Country Assistance Strategy (CAS) that is currently under preparation maintains this focus, with an additional emphasis on enhancing the scale and quality of service delivery. Communities and local governments have demonstrated their desire for capacity to implement PCDP I resources beyond initial expectations. Approximately 94% of the PCDP I resources were disbursed 12 months ahead of the scheduled closing date. Further financing is required to consolidate the gains in existing target woredas (districts) as well as to expand access to financing to other pastoral communities and woredas which have expressed strong demand for access to PCDP I1 resources. The establishment of effective state support to pastoralist livelihoods and service delivery in the Ethiopian lowlands is a long-term process. The GoE, the Bank and the International Fund for Agricultural Development (IFAD) need to continue their engagement with the PCDP I1 in order to realize its full potential. Finally, Bank resources are required to fill a financing gap. The Bank s financial contribution continues to be critical in leveraging financing from IFAD, and may be instrumental in helping the GoE to hrther broaden the donor base for the PCDP 11. C. Higher-level objectives to which the project contributes 6. The Government s PASDEP (covering /10) supports pastoralist livelihoods and development as an important means in achieving poverty reduction and economic growth. PASDEP clearly states the main elements of the pastoralist program: (i) improving pastoral livelihoods and asset bases; (ii) improving the lack of basic services in pastoral areas; and (iii) improving the institutional issues related to pastoralists. 7. The proposed PCDP I1 supports a number of strategic objectives of the Bank s new CAS, expected to be presented to the Board in FY08, including fostering economic growth, improving access to and quality of basic service delivery, reducing vulnerability and fostering governance. 5

13 11. PROJECT DESCRIPTION A. Lending Instrument 8. The PCDP I1 is the second phase of a three-phase APL launched in PCDP I1 is planned to run from June 2008 to June Performance triggers for the completion of Phase I have been met, opening the way to the development of Phase IDA funding totaling SDR 48,600,000 (US$ 80,000,000) is proposed for PCDP 11. In addition, US$33.5 million will be made available from IFAD as of The GoE and beneficiary communities will provide US$19.7 million in support of this Project. PCDP I1 is designed to accommodate contributions from other donors as and when these become available. B. Program Objective and Phases 10. The overall objective of the Program is to sustainably improve the livelihoods of pastoralists living in the arid and semi-arid Ethiopian lowlands. A livelihood is defined as a peoplecentered concept comprising four key elements related to the wellbeing of individuals and families: (i) growth and stability of income; (ii) access to social and public services; (iii) the social relations, institutions and natural environment that facilitate or constrain standards of living; and (iv) reduction of vulnerability to disaster Over a 15-year period, the Program s interventions are designed to empower communities and district (woreda) and regional governments to better manage local development in pastoral areas, with the aim of increasing and diversifying incomes, improving social infrastructure and increasing access to public services. This is to be achieved through a community-based process of development planning linked to a community investment hnd which flows through local government. The Program also supports a participatory disaster risk management program to reduce the risk of pastoral communities to drought and other disasters. While recognizing the central role that animal production plays and will continue to play in pastoral life, the PCDP I1 also helps to identify and develop alternative livelihoods with a view to enhancing the development prospects of different segments of the pastoral and agro-pastoral populations. 12. The Program has multiple phases, using the APL instrument with a horizontal approach, expanding geographically over time. Table 1: Overview of PCDP three-phase APL ( ) Phase Objective Basic feature- PCDP I o08 0 community development Establish and test Community Investment Fund, including income-generating activities. Establish and pilot community-based pastoral risk management mechanisms. Identify and pilot processes and institutional mechanisms 6

14 ble 1: Overview of PCDP three-phase APL ( ) PCDP I Target up to 213 of pastoral and agro-pastoral woredas for community development. Institutionalize income-generating activities in national savings and credit cooperative systems Expand pastoral risk management system to all pastoral and ago-pastoral woredas Expand pastoral development networking at regional level. Expand community development and pastoral risk management systems. PCDPIII Target all pastoral and agro-pastoral woredas for community development and mainstream into decentralization initiatives to maximize sustainability Expand national savings and credit cooperative systems to most pastoral and agro-pastoral woredas. Refine pastoral risk management system and ensure institutional sustainability Further expand geographically while consolidating and institutionalizing community development and pastoral risk management systems. 13. The Project Development Objective for PCDP I was $or a selected set of woredas, to provide capacity-building and establish effective models of public service delivery, investment and disaster management in pastoral areas that address communities priority needs and reduce their vulnerability. Implementation of PCDP I is on track (see section B.4) and agreed triggers required to move to the second phase have been met. A full description of the achievement of triggers is summarized in Table 2 below: of commuhties and local stakeholders are satisfied with the PCDP and wish to continue. At least 50% of communities in woredas targeted in the first phase have received capacity-building support and have formally articulated their local development plans (LDP). At least two-thirds of woredas have submitted approved Disaster Preparedness Contingency Plans (DPCPs) stakeholders are satisfied with PCDP approach and wish to continue. of communities in woredas targeted in the first phase have received capacity-building support and have formally articulated their Community Action Plans (CAPS). Achieved. A total of 23 project woredas (72%) have developed their DPCPs. 7

15 At least one-half of the Community Investment Fund (CIF) has been disbursed for micro-projects which were approved and successfully implemented. At least one-half of the Disaster Preparedness and Contingency Fund (DPCF) has been disbursed for subprojects which were approved and successfully implemented. The Pastoral Development Network (PDN) is active and operational and has made substantial progress towards harmonization of decentralized development approaches. Govemment, through its reforms and support to phase 1, continues to demonstrate strong support for decentralization and community-based development in pastoral areas, and has produced a Pastoral Area Development Strategy (PADS) that has been validated at the regional and local level through consultation with a broad spectrum of stakeholders. Achieved. According to the report of the external consultant and financial records of the Project about 72% of the resources set aside for CIF has been disbursed for community-prioritized micro-projects that have been completed; and at least 59% of the completed subprojects are functional. Achieved. According to Project records and assessment report of the external consultant, about 86% of DPCF resources have been disbursed for approved sub-projects, and 60% of the completed subprojects are operational. Achieved. The Ethiopian Pastoral and Ago-Pastoral Development and Governance Network (EPADGoN) was established in 2007, with significant civil society participation. Progress on decentralization approaches is being addressed largely through larger national programs (see trigger 7 below). Achieved. Government continues to support national decentralization process with donor assistance, including through large programs such as the Protection of Basic Services Project and Public Sector Capacity-Building Program. Government included a dedicated section on pastoralist livelihoods in the PASDEP (2006), which was developed with consultation at regional and civil society levels. Government also prepared a revised Policy Statement for the Sustainable Development of Pastoral and A go Pastoral Areas of Ethiopia (2008) to further guide implementation of the PASDEP in these areas. C. Project Development Objective, Key Indicators and Triggers 14. The objective of PCDP I1 is to contribute to: (i) increasing the resilience of Ethiopian pastoralists to external shocks; and (ii) improving the livelihoods of beneficiary communities, and thereby to contribute to overall poverty alleviation in Ethiopia. Accordingly, the Project is designed to: (i) Increase access to and effective delivery of social services in pastoral and agropastoral areas; (ii) Enhance pastoralists access to savings and credit resources and services; 8

16 (iii) (iv) (v) (vi) Increase pastoral community engagement in woreda processes and local development decision-making;' Expand and institutionalize the pastoral early warning system and the responsiveness of decentralized disaster early response financing; Prepare and implement regional disaster preparedness investment strategies and plans; and Improve access to information and awareness of pastoral development issues. 15. Progress towards achieving the outcome of the Project will be measured by the following Project Development Objective Outcome Indicators: (i) (ii) Percent of Beneficiary communities are satisfied with service delivery through the social infrastructure financed under the Project; Income of pastoral saving and credit loan clients in Beneficiary Communities has increased ; (iii) Disaster early warning data are made available in a regular and timely manner at woreda, regional and federal levels for pastoral and agro-pastoral woredas in Ethiopia. (iv) Percent of Beneficiary Communities are satisfied with timeliness, quantity and quality of disaster early response. 16. Triggers for Moving to a Third Phase. Moving from Phase I1 to Phase I11 of the Program will depend on achieving performance triggers related to the satisfactory implementation of agreed Phase I1 activities and the readiness of the PCDP and national capacity to expand geographically. These triggers are the following: decentralization and community-based de areas, and this will be reflected in its next Strategy Paper (PRSP). World Bank task team. * The GoE has in the past few years launched a number of national programs to strengthen decentralized publicsector management (Public Sector Capacity Building Program, PSCAP), decentralized service delivery (Protection of Basic Services, PBS) and food security (Productive Safety Net Program, PSNP). Phase I1 o f the PCDP will complement these initiatives by enhancing the capacities o f pastoral communities and woredu authorities in these areas to engage in participatory local development and disaster-management activities. 9

17 CDP ( ) delivery through PCDP-financed social infrastructure as well as with procedures for community participation in training, subproject identification and implementation, financial management, procurement and safeguards. The FPCUPCDP, in consultation with regions and communities, has developed a graduation strategy for phase I CIF beneficiary woredas to facilitate their access to mainstream Government decentralization support. At least 150 Pastoral Rural Savings and Credit Cooperatives have been established and its members and management trained, having the appropriate governance structure and being actively involved in collecting savings and providing credit to its members on a sustainable basis. The Pastoral Early Warning System (PEWS) is operational in at least 80% of pastoral and agro-pastoral woredas and reports are disseminated on a regular basis. 8. At least four regions with pastoral woredas have prepared regional Disaster Preparedness Strategic Investment Plans for pastoral areas and have disbursed at least 50% of the DPSI finding allocation. Verification Mechanism Combined evaluation and beneficiary assessment by consultant to be contracted by MoFNFPCUPCDP. Review by World Bank task team. Evaluation by consultant to be contracted by MoFAEPCUPCDP. Evaluation commissioned by MoFNFPCUPCDP. ~~ Evaluation commissioned by MoFNFPCUPCDP. D. Project Coverage and Components 17. The primary target population for Phase I1 is about 600,000 rural households in pastoral and agro-pastoral communities in 57 woredas of the Afar, Somali, Southern and Oromiya Regions.2 This represents approximately 45% of pastoral and agro-pastoral woredas in Ethiopia. The Program is expected to have a positive impact on the income and wellbeing of several million people living throughout the lowlands of Ethiopia. 18. The second phase of the PCDP will consist of four components: (i) Sustainable Livelihoods Enhancement, (ii) Pastoral Risk Management, (iii) Participatory Learning and Knowledge Management; and (iv) Project Management. Criteria for the selection of the 23 new woredus eligible for Community Investment Fund assistance include: (i) adequate security conditions for implementation, supervision, monitoring and evaluation (M&E); (ii) road and communications accessibility; (iii) population; (iv) poverty and vulnerability as measured by food security needs; (v) the need to minimize overlap with woredus where similar activities are being supported by other projects; and (vi) proximity to existing Project woredas. Of these woredas, 16 have been identified and will be included from 2008 onwards, while an additional 9 will be added once IFAD financing becomes available in

18 Component 1: Sustainable Livelihoods Enhancement (SLE) (US$93.4 million, including US$5 1.9 million from the World Bank, US$21.7 million from IFAD, US$5.0 million from the Regional States and US$14.7 million from the Beneficiaries) 19. This component will further strengthen decentralized and participatory planning at the communitylkebele (sub-district) and woreda level, operating within the regional government structure. Women and men in pastoral and agro-pastoral communities will design and implement Community Action Plans (CAPs) that reflect their development priorities. Based on these CAPs, they will identify, budget, implement and evaluate subprojects. Capacitybuilding around community-based conflict management will also be emphasized, with training provided to a range of actors including local officials (kebele, woreda) as well as leaders of customary institutions, pastoral associations and community-based organizations - to empower these actors and to help them develop the tools they need to be effective peace advocates within their communities and mitigate against intercommunity resource conflicts. Beneficiary communities will be supported by Proj ect-financed Mobile Support Teams (MSTs), who will work with woreda administrations and associated sector offices. 20. Sub-component A: Community Investment Fund (CIF): Proposed community subprojects will be financed as grants through the CIF sub-component. In order to respect the diverse priorities of the pastoral communities, giving particular attention to poorer subgroups and to women, investments covered under the CIF will not be limited to specific sectors, with the exception of a short negative list. This sub-component will finance subprojects including but not limited to water supply, micro-scale irrigation, healthcare, education and rangeland management A Woreda Development Committee (WDC), comprising representatives of the woreda administration, customary institutions and beneficiary communities, will appraise and endorse CIF requests with the support of MSTs. CIF subproject proposals will be appraised against transparent criteria known in advance to all stakeholders and evaluated in accordance with technical standards of sector ministries. CIF subprojects will be implemented directly by beneficiary communities to build capacity, ensure correspondence of investments to prioritized needs and guarantee accountability to the community. Beneficiary communities will be required to make at least a 15% community cash or in-kind contribution to demonstrate commitment, and this contribution will increase should communities wish to benefit from additional rounds of CIF support. 22. Sub-component B: Rural Livelihoods Program (RLP): This sub-component will support the establishment of rural savings and credit cooperatives in beneficiary communities at woreda and regional levels, and the capacity-building of associated support services. The subcomponent will draw upon the experience of the Ethiopian Rural Financial Intermediation Program (RUFIP) and other micro-finance projects in rural Ethiopia, with appropriate modifications to respond to pastoral social and economic environments and characteristics. Support for establishing pastoral Rural Savings and Credit Cooperative (RUSACCO) will be extended to both members of income generating grant beneficiary groups established under PCDP I and other members of the respective communities as well as to interested new groups in selected woredas. 11

19 23. Support for establishing pastoral RUSACCOs will include awareness building programs and training. Once registered, pastoral RUSACCOs will be eligible for Project financing of basic office equipment, account books and promotional material, as well as a grant of up to 200% of their pre-registration compulsory and voluntary savings as seed capital for income-generating activities for beneficiary communities, up to a limit of Birr 50,000 each. The amount of seed capital per pastoral RUSACCO may be increased for those pastoral RUSACCOs comprising more than 50 members, depending on their performance with respect to members savings mobilization and repayments of loans. Pastoral RUSACCOs will lend to their members under commercially viable lending terms and conditions, including at least two loan guarantors, with members borrowing limited to 200% of their savings at the time of loan signature. 24. The RLP will be overseen by the Federal Cooperative Agency (FCA) and implemented through the Regional Cooperative Promotion Bureaus (RCPBs) and relevant Woreda Cooperative Promotion Desks (WCPDs). MSTs will provide basic training and support to pastoral RUSACCO s at community level in areas where WCPDs require support. Component 2: Pastoral Risk Management (PRM) (US$29.0 million, including US$20.4 million from the World Bank, and US$8.6 million from FAD.) 25. Sub-component A: Pastoral Early Warning and Response Program (PEWRP): A PEWRP will build on and expand geographically an ongoing woreda and livelihoods zonebased early warning process through the provision of studies, training and equipment. The program will be managed by the Early Warning and Response Department (EWRD) of the MoARD under a Memorandum of Understanding (MoU) with the MoFA. It will be implemented by the regional Early Warning and Response Bureaus (EWRB) and woreda Early Warning and Response Desks (EWRD) with the support of partner civil society organizations (CSOs), which will help to collect and analyze basic household-welfare data for the early identification of the onset of disasters. In the medium term, and using part-time data monitors at community level, woredas will compile and analyze trends in household, environmental, economic and social conditions in discrete livelihood areas. These data will flow to regional EWRBs and the federal EWRD of the MoARD on a regular basis, providing information to trigger early non-food responses to declines in the welfare of pastoral communities. 26. The pastoral Early Warning System (EWS) will provide information to assign each participating woreda to one o f five disaster stages, with appropriate responses corresponding to each stage. Early response will be financed through Disaster Early Response (DER) Grants, which will be administered at regional level under a EWRD/EWRB management system supported by Regional Project Coordination Units (RPCUs). The Project will build sector capacity at woreda level to prepare Disaster Preparedness Contingency Plans (DPCPs) that identify both disaster mitigation and early response activities. Early response activities will be prepared in advance and held as shelf plans for implementation at the appropriate disaster stage. 27. DPCPs will also include information on disaster mitigation activities and will be aggregated at regional level. DPCPs will be prepared for all 132 lowland woredas during the first three 12

20 years of PCDP 11. The plans will be developed in conjunction with the PSNP planning process at woreda level, with a particular focus on identifying vulnerable communities and households. 28. Sub-component B: Disaster Preparedness Investment Program: Regional Pastoral Development Office/Commission (PDO/C) will integrate DPCPs into a long-term strategic disaster preparedness strategy and prioritized Disaster Preparedness Investment Program (DPIP) for their respective regions. DPIPs will identify community, woreda and regional needs for long-term regional disaster preparedness and mitigation. To the extent possible, PSNP catchment-management proposals will be integrated into the DPIPs. The disaster preparedness strategy will be approved by a regional Steering Committee. 29. Each region will receive funding from PCDP I1 to finance a number of strategic disaster preparedness subprojects prioritized in the DPIP through Disaster Preparedness Strategic Investment Grants (DPSI Grants). It is expected that these investments will include construction and rehabilitation of feeder roads, improved water supply and catchment management, fodder banks and rangeland improvement. The Project will provide technical assistance and staff capacity-building to support the development of the regional disaster preparedness strategies, DPIPs, and DPSI subprojects. Additional funding for strategic disaster mitigation investment is also likely to be available through the European Union (EU) Disaster Preparedness I1 Program, other donor programs and, for more labor-intensive disaster preparedness investments, through the PSNP. 30. The Pastoral Risk Management (PRM) component will be coordinated by the PRM Officer in the FPCU and supported at regional level by PRM Officers located in the RPCUs. The Pastoral Early Warning and Response sub-component will be managed by the MoARD Early Warning and Response Department under the terms of a M ou with the FPCUiMoFA. The Disaster Preparedness Planning and Investment Program will be implemented by the regional PDO/Cs with the support of the PCDP PRM Officers and fiduciary staff. Component 3: Participatory Learning and Knowledge Management (PLKM) (US$1.8 million, including US$1.3 million from the World Bank and US$0.5 million from FAD) 3 1. Sub-Component A: Participatory Action Learning: Participatory Action Learning pilots will be undertaken in selected beneficiary communities to apply and further develop methodologies for demand-driven approaches to participatory knowledge generation and innovation. This will start on a small scale with two Participatory Action Learning (PAL) facilitators per Project region. These facilitators will work with pastoral communities to help them identify their research and knowledge priorities. The Project will finance studies, equipment and advisory support from other research and development partners as requested by communities. 32. Sub-Component B: Knowledge Management and Networking: Knowledge management will be supported at regional and community levels; including through the establishment of small resource units on pastoral research and development as well as pastoral development networks at regional level. These networks will provide a forum for interested actors to share lessons and information on pastoral development issues in respective regions. This sub-component will also 13

21 support information exchanges and peace-building at community level, including through financing of studies of interest to communities in conflict. Finally, the Project will also support a knowledge fair to be held in conjunction with the annual Pastoral Day. 33. Sub-component C: Policy Studies: A modest budget will be made available to the MoFA and Regional Pastoral Development Commissions/ Bureaus to commission studies they regard as necessary to inform the implementation of social and economic pastoral development policies. Component 4: Project Management (US$8.9 million, including US$6.3 million from the World Bank and US$2.6 million from IFAD) 34. As during PCDP I, the Federal Project Coordination Unit (FPCU) located in the MoFA will continue to be responsible for overall PCDP I1 management, annual planning, and fiduciary management, liaison with stakeholder groups at federal level, communication, M&E and reporting, staff capacity-building, and mobilization of technical backstopping. Given the decentralized structure of the PCDP 11, the Project will be managed substantially at the regional and woreda levels. At regional level, the Pastoral Commissions and Pastoral Development Bureaus will house the Regional Project Coordination Units (RPCUs), which have overall responsibility for PCDP I1 implementation at regional level. E. Lessons Learned and Reflected in the Project Design 35. Sustainable Livelihoods Enhancement. This was the largest component of Phase I, and several key lessons have been learned with respect in particular to CIF activities. Key lessons include the following: The importance of establishing, in advance, annual budgets and work plans for beneficiary woredas and communities; The importance of effective sanctions for non-performing communities and woredas; The need for thorough and sustained capacity-building of beneficiary communities as well as MSTs and WDCs; The importance of empowering communities with information and processes to enable them to lead local development processes and to hold WDCs accountable; The need to provide thorough procedures and systems to support IGAs if they are to be sustainable; The fact that the majority of Income Generating Activities (IGAs) are implemented by women groups and that these groups are based on and acceptable to local customs and culture; The importance of following through on community contributions as a measure to ensure genuine community ownership; and The need to ensure effective linkages with relevant sector counterparts at woreda and regional level. 36. Income-Generating Activities (IGAs). As rural cooperatives and micro-finance institutions were largely absent from pastoral areas, PCDP I supported IGAs for vulnerable groups through 14

22 the CIF. As a means of improving the prospects for sustainability of IGA investments in Phase 11, new activities in this area will be financed through Pastoral Rural Savings and Credit Cooperatives (RUSACCOs) under strict commercial lending conditions. Intensive capacitybuilding assistance will be provided for group formation, compulsory and voluntary savings and establishment of RUSACCOS in beneficiary communities. This effort will be overseen by the FCA and coordinated with the ongoing Rural Finance Intermediation Project (RUFIP). 37. Water Supply and Sanitation. During PCDP I, the drilling of boreholes was under the negative list of PCDP-financed activities due to concerns associated with environment, cost and management. Given the importance of drinking water to pastoral communities, for both humans and livestock, PCDP I1 plans to continue financing small schemes under the CIF and DER subcomponents, while also strengthening linkages with Regional Water Bureaus to benefit from the established capacity at the regional level. In view of the recent up-scaling and expansion of the Water Supply and Sanitation Project (WSSP) into pastoral areas, requests for motorized boreholes will be referred to the WSSP wherever possible. In areas where the WSSP is not operational, the Project will apply relevant procedures outlined in the WSSP guidelines for pastoral areas as well as in the Project Implementation Manual (PIM) in appraising any proposed activities related to motorized boreholes. 38. Pastoral Risk Management. The PRM component of PCDP I did not achieve its development objectives fully for a number of reasons, leading to the following lessons learned: (i) The importance of a comprehensive approach that addresses early warning, mitigation and early response in an integrated manner and looks beyond short-term emergency responses focused on food; (ii) (iii) The need to develop clear operational procedures and implementation arrangements for such a system; and The value of household economic analysis approaches based on livelihood zones. 39. Research and Policy Reform. During PCDP I, the identification of research to be commissioned by the Project was centralized. While the research undertaken provided some potentially usefbl information to guide policy and action, regional stakeholders had little say in what research was conducted. Moreover, the results of the research were neither widely disseminated nor translated into action. As a project seeking to empower communities, the PCDP I1 will focus on involving pastoralists and local development-support organizations in forms of research that stimulate participatory innovation and adaptation to problems and opportunities and that enhance community capacities to make demands on formal research and extension services, Moreover, the PCDP I1 will facilitate better networking and access to user-friendly information relevant for pastoral community development. 40. Conflict Management. Conflict is one of the major risks to pastoral livelihoods. Therefore, Phase I1 will support activities related to peace-building and conflict resolution at the community-level across all components. As conflict dynamics in each of the Project s regions of intervention vary, these activities will be adapted to local needs and opportunities and will be implemented in close partnership with experienced agencies. 15

23 41. Accountability. While PCDP I included efforts to improve participation of pastoral communities in subproject planning and implementation, and also engaged woreda and ministry line staff in community development processes, it did not seek to develop a structured effort to empower citizens to engage in woreda budgeting. PCDP I1 will strengthen accountability measures in its procedures and will pilot accountability measures appropriate for local development in pastoral areas. 42. Project Management. In Phase I, a relatively small number of Project staff accomplished a great deal in a challenging environment. Lessons for what is required for effective implementation of PCDP I1 activities include the following: The need for a clear set and shared understanding of roles and responsibilities at all levels of the Project, as well as incentive and enforcement mechanisms for performance; The need for continuous staff training and adequate allocation of resources to enable the FPCU and RPCUs to provide effective support to beneficiary communities and woredas, including through MSTs; The value of partnerships with sectoral and regional stakeholders, as well as civil society actors; The need for timely and effective M&E and Management Information System (MIS) in order to effectively assess progress and impacts, and to facilitate informed management; The need for a communication strategy to ensure greater awareness of PCDP I1 activities and accomplishments among partners; and The importance of ensuring strict adherence to financial management and procurement systems, in particular the need for sustained support and oversight of procurement at the sub-national level. F. Alternatives Considered and Reasons for Rejection 43. Sectoral vs. Holistic Focus. Past Bank interventions in Ethiopia's lowlands have been sectoral, focusing on livestock health, NRM and rural infrastructure. While successfbl in providing services in the short term, the narrow focus of these programs and their lack of community participation compromised their sustainability. Government policy now favors more holistic and participatory approaches to pastoral development. 44. Centralized vs. Decentralized Implementation. Past lowland projects have been centrally managed. However, this project has had good success to date with the devolution of many management functions to regional, woreda and particularly community level. The federal government, in turn, focuses on coordination, advocacy and policy reform issues. Decentralized implementation supports the GoE's commitment to strengthen the role of woredas and communities in development planning and enhances accountability. 16

24 111. IMPLEMENTATION A. Partnership Arrangements 45. IFAD will continue to co-finance Phase I1 of the PCDP. It has earmarked US$33.5 million for this purpose. These resources are expected to become available by June B. Institutional and Implementation Arrangements 46. Project Oversight. The Ministry of Federal Affairs will have overall responsibility for supervision of the Project. Oversight for Phase I1 will be provided by the Federal Interministerial Board (FIB). At regional level, Project Steering Committees will be established and will include a representative of the office for Women s Affairs. The FIB will review progress of the PCDP I1 on a semi-annual basis and work plans on an annual basis. The MoU will govern the operational relationships with Ministry of Water Resources (MoWR) and FCA. 47. Federal Management: As during PCDP I, overall project coordination will continue to be carried out by the Federal Project Coordination Unit (FPCU) attached to the Ministry of Federal Affairs (MoFA). The FPCU will continue to be responsible for overall project management, annual planning, fiduciary management, liaison with federal stakeholder groups, project communication, overall M&E and reporting, strategic staff capacity-building and mobilization of technical backstopping. 48. Regional and Woreda Management. The Project will seek to continue to strengthen existing government structures at regional and woreda level, as appropriate. RPCUs will continue to report to existing regional institutions, i.e. the Pastoral Development Commission (Oromiya); the Pastoral Development Coordination Office (Somali), the Pastoral and Rural Development Bureau (Afar) and the Food Security and Pastoral Development Coordination Bureau (Southern Region). The Project has established RPCUs within these offices. The role of the RPCUs will be at regional level to: (i) manage project fund flows and liaise with relevant bureaus and the federal level; (ii) oversee the CIF; (iii) supervise MSTs; (ii) oversee the PRM component; (iv) oversee the PLKM component; (v) facilitate capacity-building activities at community and woreda level to improve planning and provision of support services; (vi) monitor and report; and (vii) provide technical assistance in procurement management at woreda and community levels. 49. The RPCUs are supported by Project-financed MSTs, which will provide capacity-building with the aim of filling existing capacity gaps at both community and local-government level. The roles of the MSTs are to: (i) provide initial orientation and ongoing training using a learning-by-doing approach and introduce communities and woredas to the Project; (ii) support the preparation and review of community sub-proj ect procurement plans; (iii) facilitate communication between communities and formal government structures; (iv) assist woredas to appraise and approve CIF subprojects; (v) provide support to the formation of pastoral RUSACCOs and related livelihood activities; (vi) monitor; and (vii) assist with woreda funding mechanisms. An MST will cover no more than three woredas and some MSTs will be based in small sub-regional offices to improve their access to beneficiary communities. In 17

25 addition, the Project will deploy financial accountants in each CIF beneficiary woreda to support sub-proj ect financial management. 50. Sustainable Livelihoods Enhancement. The concept of Community-Driven Development (CDD) is central to this Project, and communities themselves constitute the primary implementing agencies for the CIF sub-component. Communities will identify, appraise, implement, monitor and evaluate subprojects which are financed through the CIF. They will also be closely involved, as part of the woreda prioritization process, in the design and implementation of DPCPs through the DER sub-component of the Project. In addition, they will participate in the M&E. Up to two percent of the CIF community sub-project investment can be used to cover the operational costs of community participation in its development. Communities could designate a Community Facilitator (CF) to serve as a focal point if they wish. The CF would help coordinate the investment implementation and represent the community s interests at various fora. The CFs will also be able to assist in group formation and provide support for savings and loan groups to be financed via pastoral RUSACCOs. Procedures for selection of CFs will be specified in the PIM Definition of Community I. This varies from region to region and also within regions, requiring a flexible approach to identifying social groupings with which the Project can work. Local institutions and social groupings may take different forms and names. Therefore, all community-based interventions will be informed by a participatory analysis of local socioeconomic structures. It is intended that a coalition of community groups, including traditional organizations and groups representing specific interests (women, youth, environment, culture etc) will work together to set community development priorities and manage their implementation. Inter-community dialogue will be promoted to encourage peace-building and intercommunity conflict resolution where necessary. 52. Implementation of the formation and establishment of pastoral RUSACCOs will be overseen by the Federal Cooperative Agency (FCA) and implemented through the Regional Cooperative Promotion Bureaus (RCPBs) and relevant Woreda Cooperative Promotion Desks (WCPDs), supported by MSTs, who will be trained in savings and credit cooperative development. Pastoral RUSACCO operating procedures will be specified in the PIM. 53. Pastoral RiskManagement. The Pastoral Early Warning and Response Program will be implemented by the EWRD/MoARD under the terms of a M ou signed with MoFA. The EWRD/MoARD will undertake the day-to-day management of the Project-financed early warning and response activities, including the preparation of DPCPs, collection of household economic data at woreda level, and its processing and analysis at regional level through Early Warning and Response Bureaus (EWRBs). CSOs are expected to play a role in supporting DPCP preparation and data collection. The DER Grants will be managed by regional EWRBs with the fiduciary support of RPCUs. 54. The Disaster Preparedness Investment Program (DPIP) sub-component will be coordinated by the regional PDO, based on information collected from woreda DPCPs and a wider analysis of the natural resource base and its traditional use. Prioritized disaster preparedness investments will be financed through procedures specified in the PIM. The 18

26 FPCU/PCDP will support the implementation of the PRM component through the appointment of a PRM coordinator in the FPCU and PRM officers in each RPCU. The PRM staff of the FPCU and RPCUs will work closely with the EWRD, regional and woreda PDOs, regional Disaster Prevention and Preparedness Bureaus (DPPBs) and woreda Disaster Prevention and Preparedness Offices (DPPOs) and other stakeholders to support PRM implementation. 55. Participatory Learning and Knowledge Management. The PLKM component will be coordinated by the Participatory Learning and Knowledge Management Officer in the FPCU in collaboration with the Communication Officer in each RPCU. The FPCU will be responsible for setting up the information unit at national level, whereas the RPCUs will be responsible for setting up the regional information units in the offices of the Pastoral Development Offices, Pastoral Development Bureaus, or a regional pastoral forum. The RPCUs will be responsible for facilitating regional pastoral development networks. C. Monitoring and Evaluation of Outcomes and Results 56. Monitoring and evaluation (M&E) of PCDP I1 will be a results-based framework with an emphasis on project impacts and outcomes, as well as the regular monitoring of inputs and outputs covering the four project components. Based on the M&E experience from PCDP I, procedures and tools will be simplified. The system will include the following areas: (i) outcome/impact evaluation; (ii) implementation and process M&E; and (iii) Participatory Monitoring and Evaluation (PM&E). The PIM will include a detailed outlining M&E systems, procedures and tools. 57. The outcomes/results of activities will be measured by a set of qualitative and quantitative indicators (see Annex 3). Baselines for these key indicators will be collected through secondary data available through partner organizations. Any gaps in the data will be filled by data collection during the first year of PCDP 11. Monitoring data will be entered into the Management Information System (MIS) and shared through semi-annual MIS-generated reports. This information will be used to make adjustments to the strategies, mechanisms and activities during project implementation. The current MIS will be upgraded to include a range of data on the agreed performance indicators, some qualitative data derived from participatory monitoring and household economic analysis available through the EWRD and monthly monitoring of contingency plans. 58. PCDP I1 will revise and simplify the phase one PM&E approach and train its staff and communities on a new and user-friendly PM&E procedures to be specified in the PIM. PM&E will be instrumental in promoting community participation and improving the effectiveness of Project M&E. Relevant instruments will be used to gauge user perceptions (on availability, access, satisfaction and quality) of basic services, as well as RUSACCOs, and provide valuable feedback to service providers. PM&E will also be used to assess communities perceptions of empowerment and participation. 59. Overall responsibility for M&E will rest with the M&E specialist of the FPCU, who will be supported by an MISAT Specialist. At regional level, the Project will recruit Regional Monitoring Officers and MISAT Specialists. The Regional Monitoring Officers will work closely 19

27 with the MSTs, which will including a monitoring focal point. Woreda Project officers will have a monitoring and reporting function. MSTs will support communities PM&E efforts. 60. Evaluation activities will be contracted out to a qualified organization to be selected on a competitive basis. This organization will undertake impact assessments and performance evaluations of all project components at mid-term and in the final year of Phase 11. D. Sustainability 61. Sustainable Livelihoods Enhancement. Institutional sustainability of this Project will depend primarily on capacity-building and community ownership. While community action plans will be implemented with external technical and financial assistance, decisions on the content of such plans will rest ultimately with communities. Once communities acquire the knowledge, awareness and necessary skills to design, implement and maintain subprojects, sustainability of institutional objectives will be likely, provided that financing is available. Local governments have demonstrated their support for participatory approaches in Phase I. Greater ownership by the Regional Governments would firther improve the effectiveness and sustainability of the approach. To this end, PCDP I1 will seek to engage the regional governments systematically in annual planning and reviews, as well as co-financing. 62. Financing for local development in Ethiopia will continue to rely on central and donor sources for the foreseeable future, since the level of poverty is such that substantial local revenue generation is challenging in most of the communities. PCDP I1 financing flows are intended to prime the pump of fiscal decentralization through woredas. In this context, linkages with the Local Investment Grant (LIG) activities planned under the next phase of the PBS program will be explored as the programs respectively develop. 63, Adequate planning for operations and maintenance will be reinforced by CIF, DER and DPSI Grant procedures committing communities to identify funding mechanisms and set aside finds for the fiture repair and maintenance of Project-financed capital investments as appropriate. Where relevant, woreda offices and regional sector bureaus will be required to commit resources for complementary services (e.g. teachers, books) for social infrastructure prior to the approval of such subprojects. 64. Pastoral Risk Management. The Project will provide the necessary resources and capacitybuilding to enhance the effectiveness and geographic coverage of government s institutional arrangements. The PEW sub-component will help to institutionalize the government s disaster monitoring and reporting procedures across all lowland woredas and establish systems and software for data reporting and analysis. For the DPIP sub-component, the management and maintenance of disaster preparedness resources will be transferred to either woreda administrations or communities depending on their size, type and location. Woreda budgets will include finding for the operation and maintenance of relevant Project-supported investments as necessary. 65. Participatory Learning and Knowledge Management. The sustainability of PLKM activities will depend primarily on the quality of capacity-building that can be provided. Once pastoral 20

28 communities acquire the confidence, skills and linkages to formulate demands on research and extension services (both governmental and non-governmental), sustainability of institutional objectives will be likelier. Also, the capacity-building and experiential learning within research organizations working together with the PCDP 11, as well as sharing of experiences with other projects and agencies via the pastoral development fora at regional level should create support for a more demand-driven approach to generating knowledge and innovations suitable for pastoral areas. 66. Environmental sustainability should be enhanced through the incorporation of multiple sources of knowledge, including pastoralists own knowledge of their environment, and the development of appropriate technologies and institutions to manage natural resources in a more sustainable way. The participatory research should lead to sustainable strategies for addressing environmental challenges such as bush encroachment and weed invasion. The approach adopted carries a high probability that the results of the Participatory Action Learning and adaptive research will lead to innovations that will be relevant for pastoral areas, low-cost and largely dependent on locally available resources and skills. 67. Responsibility for managing, maintaining and improving the pastoral resource units to be built up in Phase I1 will be progressively assumed by appropriate state or civil-society organizations (CSOs) such as the regional Pastoral Development Commissions or pastoral associations. The mechanisms for this will be developed during this second phase of the PCDP. E. Critical Risks and Possible Controversial Aspects 68. Before the start of implementation of Phase I in 2003, the Project Appraisal Document identified seven potential risks faced by the program. These included: (i) competition for a diminishing natural resource base exacerbating conflicts; (ii) lack of cooperation between Government and CSOs; (iii) timing and implementation of policy reform measures; (iv) lack of experience with participatory development; (v) lack of capacity among project staff; (vi) inadequate animal health coverage in remote areas; and (vii) capture of Project resources by local elites. Overall, program risk was determined to be substantial. After four years of dialogue, Project implementation, and capacity-building, many of these risks have been reduced significantly. Phase I1 must however continue to address these risks, as well as additional risks to achievement of the long-run development objectives of the Program. Key risks to PCDP I1 and associated mitigation measures are identified in table 4 below: 21

29 oreda and kebele levels) n many pastoral areas. over of assigned local PCDP activities may be disrupted due to conflict. GoE fails to develop a comprehensive policy and institutional framework for risk management in pastoral areas Substantial Substantial Substantial (High in Somali region) Substantial isk Factors Mitigation PCDP I1 will continue to invest in the capacity of local government personnel and to advocate with regional governments for greater continuity of local government staffing. Clearer guidelines, more frequent visits from project MSTs, access to training and a more robust M&E system will also help to mitigate against this risk. Additional investments in the capacity of communities will allow them to play a leading role in CIF sub-projects. PCDP I1 will strengthen fiduciary systems at all levels, including through the deployment of Finance Assistants to all project CIF woredas and procurement experts in MSTs. PCDP I was designed to reduce this risk and has largely worked effectively in the past. This will be reinforced in Phase I1 by strengthening of MSTs to enable them to support improved compliance of communities and local government officials with project rules and safeguard interests of the poor. The Project will recruit internal auditors in high-risk regions. There will also be further strengthening of subproject accountability measures at community and woreda levels. The Project will establish criteria for continuing with and/or initiating new activities in conflict-affected areas. In areas where conflict significantly hampers implementation, supervision or monitoring, project activities may be suspended. The Project will establish criteria and procedures for re-engagement in such areas when the security situation stabilizes. The Project will also invest in communitybased conflict resolution capacity-building activities, and conflict resolution training will be provided to Project staff and local government personnel Social analyses will be conducted in new areas of operation and will include an assessment of conflict risks. Monitoring systems will include conflict indicators. Government is currently reviewing its national disaster management policy and the associated institutional framework. PCDP I1 will seek to strengthen the capacity of the reformed framework through support to 22

30 Table 4: PCDP I1 Risk Factors Description of Risk I Probability I Mitigation PCDP activities as well as livelihood gains may be undermined by a natural disaster, in particular a severe drought Project monitoring and evaluation fails to provide timely and useful information on Project implementation progress and results. Substantial Substantial the EWRDMoARD and the expansion of the livelihoods based EWS in pastoral areas. The PRM component is designed to mitigate against this risk through the strengthening of early warning and response systems. Monitoring procedures and systems to be reinforced at all levels of Project implementation arrangements. Mid-term review and final evaluation to be contracted to a qualified external organization. F. IDA Financing Conditions and Covenants Conditions for Effectiveness (i) The Recipient has adopted a Project Implementation Manual, setting out the administrative and financial procedures including procurement and disbursement procedures, in form and substance satisfactory to the Association. (ii) (iii) The Recipient has submitted a project implementation plan for the first eighteen months of the Project, in form and substance satisfactory to the Association. The Recipient has submitted evidence satisfactory to the Association demonstrating the clearance of any material balances in the inter-fund accounts under the first phase of the Program. Covenants (0 (ii) Not later than 60 days following the Effective Date, the Recipient shall ensure that a memorandum of understanding for the management of the Pastoral Early Warning and Response program has been duly executed between the Early Warning and Response Department of MoARD and the FPCU within MoFA, in form and substance satisfactory to the Association; Not later than 60 days following the Effective Date, the Recipient shall ensure that a memorandum of understanding for the management of the rural livelihoods program has been duly executed between the Federal Cooperatives Agency (FCA) and the FPCU within MoFA, in form and substance satisfactory to the Association; and (iii) In order to ensure the proper financing of the Project, it shall make available to the FPCU not later than: (i) October 15,2008 an initial amount equivalent to $1,000,000 for the first year of implementation of the Project; and (ii) October 15 of each Fiscal Year thereafter during Project implementation, such amount as shall be required to ensure that the FPCU has available to it a total of the initial amount referred to in point (i) above of this section for the following Fiscal Year. 23

31 IV. APPRAISAL SUMMARY A. Economic and Financial Analyses 69. The Project is expected to have significant economic and social benefits in four areas: (i) increased capacity for risk management and early response at local and national level; (ii) effective citizens consultation and participatory development, strengthening local ownership and generating improvements in access to and provision of basic public facilities and social services; (iii) increased pastoral community access to sustainable financial services and associated increases in incomes; and (iv) greater effectiveness in public administration through capacitybuilding, community participation and accountability. B. Technical 70. The following issues are likely to feature prominently during the implementation of PCDP 11. The specific types of technical innovations that will be addressed by the Project will depend on the interests and needs identified by the pastoral communities and woredas. 71. Water Supply and Sanitation. The GoE is implementing a national Water Supply, Sanitation and Hygiene (WaSH) program, which includes the pastoral regions. This follows the Water Supply and Sanitation Project (WSSP), which began in November The WSSP aims to ensure sustainability through increased local participation and capacity-building. In addition to creating implementation capacity at regional, woreda and community level, the program has supported the preparation of a number of guidelines, manuals, systems and procedures, including: Implementation Guideline for Water Supply Sanitation and Hygiene Projects in Pastoral Areas. PCDP I1 will seek to benefit from the existing capacity at the regional level, Woreda Support Groups and Community Facilitation Teams to assist in the preparation, training, study, design and construction supervision, and M&E of water-related subprojects wherever possible. 72. Motorized Boreholes. Appropriately located and effectively managed boreholes can be highly valued sources of clean, reliable and ofien cheap water supply. However, experience in many arid and semi-arid areas has shown that, where water becomes available in large quantities, there is a risk that the concentration of people and livestock can lead to significant ecological damage. Control by one community or subsection of a community over a new or large source of water in arid lowlands can lead to exclusion or inequity within the communities and potentially exacerbates conflicts. Moreover, the costs involved in locating and drilling deep aquifers are high (preliminary estimates in Ethiopia indicate drilling in the Afar and Somali lowlands to be about Ethiopian Birr per linear meter). The operation and management of such schemes typically exceeds communities financial and technical capacities. Therefore, the CIF and DER sub-components of the Project will focus on financing small schemes such as hand-dug wells and shallow drilled wells fitted with hand pumps, spring development, ponds, hafirs and birkas. 73. PCDP I1 will further strengthen links with Regional Water Bureaus to benefit from the established capacity at regional level. Requests for motorized boreholes under the regional DPSI sub-component will be referred to the WSSP wherever possible. In areas where the WSSP is not 24

32 operational, the Project will apply relevant procedures outlined in the WSSP guidelines for pastoral areas as well as in the PIh4 in reviewing any activities related to motorized boreholes. This will include: (i) preparation of Woreda Water Development Plan (WWDP) in pastoral areas is a necessary condition to ensure efficient and sustainable water development initiatives; and (ii) completion of an Environmental and Social Impact Assessment Report on any the planned drilling of boreholes that will be sent to IDA for review and clearance prior to the commencement of construction activities. 74. Animal Health is of primary concern to pastoralists. Effective interventions depend on a sound understanding of disease epidemiology, particularly when related to disaster-based interventions. Ethiopia s epidemiological capabilities have been constrained by conflicts, inadequate resources, limited technical service outreach and lack of community-based diseasesurveillance capability. To the extent that animal health is prioritized by pastoral communities, the Project will support an integrated approach to animal health services through: (i) training of Community-based Animal Health Workers (CAHWs) in traditional ethno-veterinary and firstaid clinical procedures and as frontline disease-surveillance scouts at community level; and (ii) establishing linkages between central public-sector support services and private-sector woreda- and community-based practitioners. 75. Forage Supply is central to livestock performance. It is likely that demand-driven Participatory Action Learning (PAL) and supportive research will address some issues in this connection, e.g., setting aside pasture areas for range rehabilitation and drought reserves, expanded use of indigenous fodder, testing of introduced fodder species, fodder conservation and strategic feeding strategies for immature and lactating female stock. 76. Natural Resource Management (NRM). Two interdependent components of traditional rangeland management which have maintained a sustainable pastoral production system are: (i) controlling access to water resources; and (ii) managing wet-season and dry-season pasture. For the most part, the Ethiopian rangelands have to date escaped the worst excesses of unfettered access and unsustainable water exploitation. Water and pasture management is also an essential element for effective disaster preparedness. The participatory planning processes at woreda and community level to be continued in PCDP I1 will permit more effective management of water and pasture resources. 77. Livestock and Animal Product Marketing are central to improving pastoral livelihoods, implementing environmentally sound NRM practices and formulating plans for disaster preparedness. Timely herd off-take and easy access to markets are essential in droughtpreparedness planning. The Project will encourage pastoral communities to develop culturally acceptable strategies for commercial destocking in the event of drought and for restocking during the drought-recovery phase. 78. Bush Encroachment is one of the most critical problems in rangeland management, with invasive species advancing onto the fertile riverine soils of the Awash Valley (Afar) and into the more productive valley bottoms (Borana). While manual, chemical and mechanized packages have been successfully employed elsewhere for bush control, the current GoE policy on bush burning, tree felling and charcoal making has constrained options for countering bush 25

33 encroachment. Although pastoralists are adapting to their changing environment through shifts in herd composition, bush encroachment threatens the sustainability of some pastoral systems. The PCDP I1 will support pastoral-led research into the role of fire, rangeland set-aside procedures and various forms of clearing to inform relevant policy reform where required. 79. Irrigated Farming. This offers some potential for improving food security of people in the lowlands, if it can be done in ways that do not disturb the pastoral grazing and watering systems. High river banks along many lowland rivers often necessitate pumped irrigation, although water-spreading technology, primarily for fodder production, may be possible in some areas. The cost of pumped irrigation must be carefully evaluated against the value of the crops produced. Reliable water supply can also be a constraint. Irrigated farming, when combined with ill-defined land-use rights, also carries the risk of elite capture and conflict. 80. Subproject Plans involving simple infrastructure will require careful planning prior to presentation for financing approval. The plans will be assessed according to technical, financial, environmental, operations and maintenance, and sustainability criteria to be specified in the PIM. As ministries such as health, works and urban development, education, roads, environment and agriculture will be involved, protocols will be drawn up to formalize collaborative guidelines at regional level. Woreda-based technical staff will be closely associated with the entire process, providing support to communities from the initial planning and design stage, to implementation and, finally, to ongoing management of subprojects. C. Fiduciary 8 1. Procurement. A procurement capacity assessment has been carried out at MoFA and the FPCU, as well as on a sample of the woredas that will be implementing PCDP 11. Under PCDP 11, the definition of a community is area-specific, but the project structures i.e. Project Management Committees, Project Procurement Committees and the Project Audit Committees will be accountable for the procurements by the communities. 82. Several-studies in various areas of procurement have been or are being undertaken as part of the GoE s ongoing procurement reforms. The Public Procurement Agency is in the process of finalizing a Manual of Public Procurement, and is also in advanced stages of conducting an assessment of the actions needed to professionalize the public procurement function. These activities are supported by various development partners including the Bank through the PSCAP, and are geared to fill the enormous capacity gap in the public procurement fbnction. 83. The last Country Procurement Assessment Report (CPAR) done in 2002 identified procurement capacity as one of the major weaknesses in public sector procurement. Some progress has been recorded from the measures taken to implement the recommendations of the CPAR. A public procurement law was enacted in January 2005, and Standard Bidding Documents (SBDs) were prepared and issued to be used for all procurements financed by public funds. The autonomous Regional Governments are expected to adopt the public procurement law, the Determining Procedures of Public Procurement and establishing its Supervisory Agency Proclamation No. 430/2005 as well as the Federal, Public Government Procurement Directive to govern public procurement in the region. 26

34 84. Except for Harar region and Dire Dawa city administration, all other regional governments and Addis Ababa city administration have adopted the public procurement law as well as the public government procurement directive to govern public procurement at the sub-national level. All procurement under the project will therefore take place under the new legal framework for public procurement. The Bank has not been actively involved with the procurement reforms at the sub-national level, and only the CPAR update planned for FY2010 will provide an insight of the standard and practices of public procurement at the sub-national level. 85. The capacity gap to implement Bank financed procurement is widespread at the national level and is even bigger at the sub-national level across Ethiopia. Therefore, the PCDP 11: (i) will provide to staff involved in the project procurement fbnction access to procurement training, refresher procurement courses, and hand-holding support from the MSTs; (ii) will finance at least one Procurement Officer position at the RPCU in addition to the Procurement Officer and Procurement Assistant positions at the FPCU to provide oversight for the procurement function at the sub-national level while each MST will include a Procurement Officer to support procurement planning, implementation, and reporting at the Woreda and Community levels; and (iii) the standard bidding documents/templates and the procedures for Community Participation in procurement will be detailed in the Procurement and Contract Administration Manual part of the Project Implementation Manual that the government is preparing and will submit to the Bank for approval. Manuals will be translated into the local languages commonly used by the project implementation agencies and communities. 86. Financial Management. All implementing entities follow the government accounting system - double entry accounting system on a modified cash basis. The project has a financial management manual which spells out important internal control and accounting procedure. The current manual, however, lacks adequate information on the formats of Interim Financial Report (IFR), updated chart of accounts, and important internal control procedures on imprest / petty cash system and segregation of duties, etc. 87. The FPCU, all RPCUs and most woredas offices are using Peachtree accounting software for the project find. This system is capable of producing the required financial deliverables for the project. However, few woredas have not yet introduced a computerized accounting system due to lack of electricity, computer and other facilities. Instruction has been given by the FPCU that all woredas should use the project fund to acquire the necessary facilities and introduce the computerized system. 88. Each of the implementing agencies (RPCUs, FPCUs and woredas) are responsible for maintaining the project s records and documents for all financial transactions occurred in their offices. These documents and records will be made available to the Bank s regular supervision missions and to the external auditors. 89. Each community audit committee will maintain a simple accounting book, which shows the amount of money received and expenditures made for CIF subprojects. All the supporting documents from the community should be submitted to the respective woreda finance office along with regular financial reports. 27

35 90. Actions outlined in the Financial Management Action Plan will be undertaken by the project to strengthen the financial management system. The actions required before effectiveness of the IDA Credit and Grant financing are: (i) the revision of the Financial Management Manual for the project, and (ii) clearing all material inter-find account balances. The other actions that will strengthen the financial management system and should be implemented are: (i) the recruitment of the external auditor to ensure the project accounts are audited and submitted to the Bank in time within 90 days of IDA Credit and Grant Effectiveness; (ii) recruitment of internal auditors in Somalia and Afar regions within 180 days of Effectiveness. 91. In order to ensure that the project is effectively implemented, the FPCU and RPCUs will ensure that appropriate staffing arrangements are maintained throughout the life of the project. 92. The overall conclusion of the financial management assessment is that the project s financial management arrangements satisfy IDA S minimum requirements under OPBP except for the issues mentioned in the Action Plan shown in Annex 7. D. Social 93. Over the centuries, pastoral communities have devised coping strategies, including mobility of households and herds, to suit the fluctuating climatic conditions in which they live. The Project will strive to respect and build on these indigenous mechanisms and strategies. The Project is expected to contribute to the following social development outcomes: (i) improved living conditions of pastoral communities, through diversifying and increasing production and income of pastoral households and increasing their access to social and technical services; (ii) increased capacity of beneficiary communities to manage their own development in an equitable and sustainable way, through promoting gender and poverty-sensitive decision-making and implementation of development-oriented activities under their ownership; (iii) increased influence of pastoral communities on research and development agendas and policies; and (iv) increased community capacity for conflict-management and conflict resolution. 94. However, the Project must continue to be aware of the potential constraints it will face in decentralizing social and technical support services and in implementing community development activities in an equitable and inclusive way. These include: conflicting traditional and modern systems for access to and tenure of natural resources; expansion of crop farming into key grazing areas; reduced mobility and greater concentration of people and livestock around permanent water points; limited opportunities for employment and income generation outside of agriculture; the weak economic position of women in pastoral society; erosion of traditional social safety nets; scarcity of technical support facilities; low levels of formal education and literacy; limited access to market, financial services and information; and incidences of violent conflict. 95. No single project is able to address this range of challenges. However, PCDP I1 will include the following elements to address some of the key challenges identified above: 28

36 Ensuring an improved understanding of pastoral social dynamics by undertaking social analyses in new Project woredas, especially in Southern and Oromiya Regions; Strengthening community participation by: (a) institutionalizing participation of communities in community-led planning and implementation of CIF subproject; (b) use of Participatory Learning and Action (PLA) tools to ensure that all members of the community (men, women, young, old, rich, poor) are able to express their views and needs; (c) strengthening the capacity of community leadership to engage with woreda authorities; and (d) use of community-based M&E methods to enable the communities to assess the impact of Project activities on their lives; Integrating conflict resolution capacity-building activities in all Project components; Helping pastoral communities to diversify their livelihood options; Providing capital financing to improve access to and delivery of education services; Encouraging greater awareness of and providing information about pastoral issues among relevant policymakers. 96. In order to institutionalize participation, the Project will invest in training for communities and local government authorities. PCDP I1 will seek to further empower citizens and pastoral communities to engage in local development decision-making and performance monitoring. Identification of capacity constraints and priority issues will be carried out at the local level and determine the types of instruments to be adopted. Instruments may include mapping, community score cards and citizen report cards, participatory planning and budgeting, budget reviews and budget tracking. 97. The experiences in Phase I have shown complementarities in the work of the PCDP and CSOs in pastoral area. There is a shared understanding that capacity-building and awarenessraising activities by CSOs working together with MSTs can usefully extend and deepen the latter s outreach. CSOs may similarly be an important resource to MSTs and RPCU staff around conflict analyses and conflict management activities. CSOs involved in the Japanese Social Development Fund (JSDF) supported work have appreciated the opportunity to participate in the planning of PCDP 11. In addition to the ongoing work supported under the current JSDF grant, the PCDP I1 may contract CSOs to provide training services (including refresher training) for community groups, and providing them with follow-up backstopping support as necessary. 98. Attention to women s issues will remain an important feature of the PCDP 11. Women in pastoral societies have heavy physical tasks not only related to homemaking (e.g. fetching water and fuel, building and dismantling huts) but also in caring for livestock, milking cattle and goats, and processing and selling milk products. Some agro-pastoral women are also involved in petty trading and other activities such as teashops, handicrafts and small-scale gardening. Men, however, typically still control factors of production in livestock keeping and crop farming, and dominate decision-making in the traditional socio-political structures. The Project will continue to seek ways to involve women in situation analysis and planning of development, so that community projects will also address women s needs. In addition, the development of women- pastoral RUSACCOs will be encouraged, in order to build upon the 29

37 positive experiences with women-led IGAs during Phase I. The Project team will be trained and will train others in gender awareness. E. Environment 99. PCDP I1 is directly focused on enhancing the livelihoods of poor pastoralists through improved management of natural resources and reduced vulnerability to environmental shocks such as drought. To enhance sustainable pastoral livelihoods, the CIF will support investments in, for example, micro-scale irrigation and rangeland management, and the RL,P will support investments in rural livelihood activities less susceptible to environmental shocks. The DPIP will make strategic natural resource investments for disaster preparedness such as improved water supply, catchment management and range improvement. PCDP I1 will also support the development of regional preparedness strategies for natural disasters, and will fund priority investments to implement those strategies. F. Safeguard Policies Safeguard Policies Triggered by the Project Yes No Environmental Assessment (OP/BP 4.01) [XI [I Natural Habitats (OP/BP 4.04) [I [XI Pest Management (OP 4.09) 1x1 [I Physical Cultural Resources (OP/BP 4.1 1) [I [XI Involuntary Resettlement (OP/BP 4.12) [I [XI Indigenous Peoples (OP/BP 4.10) [I [XI Forests (OP/BP 4.36) [I [XI Safety of Dams (OP/BP 4.37) [I [XI Projects in Disputed Areas (OP/BP 7.60)* 11 [XI Projects on International Waterways (OP/BP 7.50) [X 1 [I 100. PCDP I1 is an Environmental Assessment Category B project. It will finance smallscale community-driven subprojects under the CIF, RLP and DPIP, some of which will require environmental management. These can include schools, health posts, veterinary posts, smallscale water supply and irrigation, small feeder roads, catchment management and rangeland improvements. An Environmental and Social Management Framework (ESMF) for community subprojects was prepared that specifies subproject screening procedures, the preparation of environmental and pest management plans as required, and implementation supervision to ensure that adverse impacts are avoided or minimized. Since Borrower capacity to address safeguards issues is relatively weak, the ESMF specifies training and capacity-building requirements at federal, regional and woreda level to support effective implementation. M&E procedures will track ESMF implementation and provide for annual reviews to support continuous performance improvement. The ESMF was made available at the InfoShop on March 26,2008 and in-country on the same date. By supporting theproposedproject, the Bank does not intend to prejudice the final determination of the parties claims on the disputed areas 30

38 101. Indigenous Peoples: PCDP I was largely implemented by and with the pastoral peoples that form the dominant society in the respective Project areas. They will continue to be the beneficiaries of the Project investments in phase 11. Such groups cannot be regarded as "indigenous peoples" in terms of OP 4.10, i.e. social groups distinct from the dominant society that are vulnerable to being disadvantaged by the Project. Therefore, this safeguard policy is not triggered. PCDP I1 will institute social screening and social analysis in any new areas into which it expands in the Southern and Oromiya regions in Phase I1 to ensure that any minority and/or marginalized groups are recognized and their needs addressed. In the event that this social screening identifies the need to trigger the World Bank's Indigenous People's policy, an Indigenous Peoples Development Plan will be developed to ensure the interests and needs of such groups are addressed in accordance with Operational Policy Safety of dams: This Project will not finance large investments aimed at dam construction and is in accordance with this safeguard policy Projects on International Waterways: OP 7.50 is triggered because the project will finance small-scale irrigation investments along international waterways. Riparian notification was given to the governments of Kenya and Somalia for PCDP I, and PCDP I1 investments will not result, cumulatively, in more project-financed irrigated area than specified in that notification. Thus, a new OP 7.50 notification is not required. PCDP I1 will not finance irrigation investments in areas not covered by the original notification. G. Policy Exceptions and Readiness 104. Readiness. The main design parameters and operating systems for he Project were established under APL I. The design for APL I1 was strengthened in numerous ways, particularly with respect to community participation methodologies, institutionalization of income-generating and pastoral risk management activities, implementation arrangements for fiduciary aspects and M&E in particular, accountability mechanisms and reporting. The FPCU is in place and leading the preparation of Phase 11. RPCUs are in place in four regions. The MoFA is negotiating the terms of a MoU with the MoARD for the implementation of the PRM component and a separate MoU with the FCA for the implementation of the rural savings and credit activities. The Project is deemed ready for implementation, subject to fulfillment of the conditions for effectiveness Audits. The annual external audit for PCDP I was submitted in a timely manner. The audit was qualified due to the presence of unreconciled balances between federal and regional local currency Project accounts. The clearance of material inter-fund balances identified in this audit is currently in progress and has been made a condition for Effectiveness for PCDP Policy Compliance. This project complies with all applicable Bank policies. 31

39 Annex 1: Country and Sector or Program Background ETHIOPIA: Pastoral Community Development Project I1 Recent Economic Developments 1. Ethiopia is experiencing a strong spell of economic growth, albeit from a low base. Over the last four years, Ethiopia s economy has grown at over 11% per annum -extraordinary by its own past performance as well as by world comparison, averaging more than twice the rate of growth of other countries in sub-saharan Africa. The average Ethiopian income is now 43% higher than the level in 1990s. However, given the low initial per capita income, the country remains one of the poorest in the world, underscoring the urgency of sustained and equitable growth. Poverty Context 2. Over the past decade, Ethiopia has made significant strides in improving the living standards of its citizens. Household-survey evidence suggests that, between 1999/00 and 2004/05, the real total expenditure per capita grew by 19% (1 5% with respect to 1995/96). As a result, the poverty headcount fell by 12.4 percentage points between 1999/00 and 2004/05 and by 18.5 percentage points since the mid-1990s. Yet, 39% of the population (slightly lower as per World Bank estimates), still remain mired in poverty. Gender disparities persist despite a significant increase in female enrolment in school at secondary level. While HIV prevalence is relatively low, AIDS is the leading cause of mortality among year-olds and accounts for an estimated 43% of all adult deaths. The severity and persistence of poverty in rural areas is disconcerting, as is the growing income inequality among urban households. Ethiopia s Development Strategy 3. Ethiopia is currently implementing its second Poverty Reduction Strategy (PRS), known as the Plan for Accelerated and Sustained Development to End Poverty (PASDEP). PASDEP s strategic vision is rapid and sustained growth primarily through scaled-up development assistance and large domestic investments targeted at eliminating the poverty traps. This vision extends development trajectory of the previous Sustainable Development and Poverty Reduction Program (SDPW) in areas such as infrastructure, human development, rural development, human security and capacity-building, but includes new elements including an explicit link to MDGs as well as a new focus on growth in the areas of private-sector and urban development, industry and the commercial agriculture. PASDEP includes the following priorities: 4. Market-based Development of Agriculture. Subsistence agriculture predominates, characterized by fragmented land management and a limited resource base, low supply and dissemination of technology and limited information flow and implementation capacity as the major problems in the sector. In response, PASDEP focuses on human resource development, technology and economic infrastructure in the context of a strong enabling environment for private-sector activity, and improved infrastructure. 5. Private-Sector Development. PASDEP emphasizes the integration and interdependence between the agricultural and industrial sectors. PASDEP thus seeks to encourage export-oriented development by providing support to the private sector and addressing market failures. An active industrial policy is central to the program. Selected value chains and clusters are to be targeted, following the successful example of the floriculture sector. Infrastructure, power generation, and 32

40 construction and supply opportunities are also highlighted in PASDEP as high-potential areas for private-sector participation, as is the growth of private schools in urban areas. 6. Urban Development. The PASDEP urban development strategy emphases regional equity and good governance. The strategy is built on four pillars: (i) support for micro and small enterprises and job creation; (ii) integrated housing development; (iii) improved access to land infrastructure and services; and (iv) promoting urban-rural and urban-urban linkages. 7. Infrastructure. Road and utility network expansions are seen as central to the growth agenda. The Universal Electrification Access Program (UEAP) will extend electrification to 24 million people, reaching penetration of 50% of the country over five years. PASDEP also aims to provide access to clean potable water to the entire population within seven years. Finally, the strategy s goal is for the entire population to have access to telecommunications within a 5km radius. Coverage for 2005/2006 is 47%, up from 13% in the base year 2004/ Human Development. The Government aims to implement a 20-year education plan aimed at improving the quality, equity and relevance of education, with special emphasis on primary education for all by 2015, as well as Agricultural Technical and Vocational Educational Training (ATVET), teachers training and cross-cutting issues such as gender, civic, ethics and HIV/AIDS education. In the area of health services, the Government continues implementing its Health Sector Development Program (HSDP) I and I1 and will extend it into HSDP I11 with an increased focus on poverty-related health conditions such as communicable diseases (HIV/AIDS, tuberculosis, malaria) and health problems that affect mothers and children. 9. Governance. PASDEP includes a number of interventions to implement Ethiopia s commitment to transparent and inclusive governance. A series of reforms has been planned under PASDEP, including participatory mechanisms to be established at the local level. The independence of the judiciary will be improved as will the performance of the police, prosecutors and the prison system and strengthen journalistic freedom. 10. Vulnerability. The Food Security Program (FSP) remains the GoE s strategy to overcome food insecurity and reduce reliance on food aid. The key interventions under the FSP are: (i) building household assets through on-farm activities; (ii) voluntary resettlement from environmentally degraded to more productive areas; (iii) the Productive Safety Net Program (PSNP) to help transition from food aid to cash aid while building community assets; and (iv) promoting non-agricultural IGAs. Related efforts include an increased focus on nutrition and putting in place flood preparedness and EWS. The PCDP I1 will work closely with the FSP. Pastoralism in Ethiopia Background. In Ethiopia, pastoralism, which is the primary livelihood for 29 different Cushitic and Nilotic ethnic groups, is extensively practiced in the Somali and Afar National This summary of Ethiopian pastoralism draws extensively from reports prepared for the EU in 2002 (Short-Term Technical Assistance to Identify Appropriate Pastoral Intervention Areas for EC Support), the 2004 Pastoral Areas Development Study financed by the African Development Bank and various social and livelihood studies undertaken during the preparation and implementation of PCDP I. 33

41 Regional States (Regions), in parts of Oromiya and Southern National Regional States, and in other pockets of the country. The pastoral lowlands encompass almost seven million people, about 545,000km2 (almost half of the surface area of Ethiopia) and over 11 million animals including an estimated 28% of the cattle, 26% of the sheep, 66% of the goats and almost 100% of the camels in Ethiopia. About 20% of the rangeland vegetation cover is in good condition, 30% fair, 40% poor and 10% depleted, with continued range degradation, exacerbated by unregulated water development, a worrisome trend. Another half a million ha of high-potential grasslands have been abandoned because of ethnic conflicts along the Afar-Somali border in the northeastern part of the country, and more that 2 million ha of rangeland in western Ethiopia are underutilized due to tsetse infestation. 12. People living in lowland Ethiopia comprise both the comparatively wealthy who hold substantial assets in the form of livestock, a larger number of poor people who have small herds and flocks and those who, to a greater or lesser extent, depend upon cropping or sale of their labor ( agro-pastoralists ), Livestock production provides just half of pastoral incomes, the balance coming from rain fed agriculture (20% of the average income), natural products as game, wood and wild h its (lo%), crafts and services (lo%), remittances (5%) and humanitarian aid (5% - mainly cereal food relief). Collectively, the pastoral areas of Ethiopia have among the highest rates of poverty and lowest human development indices in Ethiopia. 13. Declining access to communal rangeland due to increased private use and expansion of farming, combined with an annual population growth of around 2.6%, has had a significant effect on pastoral livelihoods. The increasing frequency of drought firther constrains livelihoods, driving a growing number of households to destitution, from which recovery back into pastoralism is difficult. According to a report by the Agriculture Bureau of Somali Region, droughts occurred in the years , , , , , , , , and In the Borana area, currently afflicted by drought (2008), the three previous droughts were in , and The supply of veterinary services including health posts, veterinary drugs and trained veterinarians is inadequate in lowland areas. Vaccination coverage against communicable diseases, treatment of common livestock ailments and prevention against insect infestation (ticks) are poor, except in the limited locations in Somali Region and the Borana area of Oromiya Region where private veterinary services are evolving. The control of endemic diseases such as Foot and Mouth, Contagious Caprine Pleuro-Pneumonia, Contagious Bovine Pleuro- Pneumonia, Rift Valley Fever and camel trypanosomiasis in pastoral areas remains inadequate. 15. Pastoralists access to education and health services, although improving, remains low. Adult literacy rates in rural Afar and Somali are 17% and 13% respectively, well below the national average of 3 1%. Gross school enrolment rates in rural areas, at 37% and 15% in Afar and Somali Regions, are also low compared to 67% nationally. In the Southern Region, however, 70% of rural children have access to primary education, while in pastoral areas of Oromiya the enrolment rate is 45%. Government health service coverage is also constrained in pastoral areas. A study in the Afar Region in 2000 found that there was one general practitioner per 95,732 persons, under-5-year-old health service coverage of 2% and fill vaccination of only 3.7% of 34

42 children. Lack of sector staff and budgets as well as inappropriate service-delivery modes for nomadic populations constrain pastoralists access to health services. 16. The 1995 Proclamation on the Right of Property states Ethiopian pastoralists have the right to free land for grazing and cultivation as well as the right not to be displaced from their own land. Those rights are included in the Constitution, but have yet to be legislated. Government policies on lowland agricultural development and settlement, and pastoral society s inability to effectively balance private and public land use both challenge pastoral land rights and require urgent policy and planning direction. 17. Decreasing per capita livestock numbers, a declining natural resource base exacerbated by private land enclosure, weakening of customary NRM institutions, rising sedenterization and associated engagement in low-value agriculture, often driven by destitution due to drought and the limited availability of alternative sources of livelihood, compounded by low education levels are placing pastoral communities under high economic and social stress. Alternative livelihood opportunities are few. Voluntary sedenterization of pastoralists, particularly along perennial rivers, is a long-term policy goal of the government, and riverine irrigated agriculture has been promoted in the lowlands through schemes funded and managed by the Government. Notwithstanding some successes, this policy is yet to have a significant positive impact on pastoralist livelihoods. 18. Although the climatic conditions and hardships are similar for most pastoral areas, the people inhabiting these areas differ in their social structure, composition of their herds, coping strategies and extent of their integration in the market economy. 19. Afar Region, located in the northeastern part of the country, borders Tigray Region in the north and northwest, Amhara Region in the west and southwest, Oromiya Region in the south and Somali Region in the southwest and shares international borders with Djibouti and Eritrea to the west and northwest, respectively. Afar Region is divided into five zones, 29 woredas and 358 kebeles. Covering 97,970km2, the population is estimated to be 1.2 million, of which 90% are pastoralists and 10% agro-pastoralists. Casual employment in irrigated farms and urban settlements along the main Addis-Djibouti Road are minor livelihood activities in the region. There are about 1.5 million livestock in the region, of which 0.55 million (36%) are goats, 0.39 million (26%) are sheep, 0.33 million (22%) are cattle and 0.19 million (2%) are camels. Livestock production depends on rain fed natural pasture. Productivity is declining as a result of recurrent droughts, land degradation, encroachment of crop farming, conflicts and invasion of Prosopis. Agro-pastoralism is common in the Awsa-Gewane areas and specific woredas adjacent to Oromiya, Amhara and Tigray Regions. An estimated area of 30,000ha is used for crop farming, mainly teff, barley, wheat, maize, sorghum, millet, pulses, and cotton and oil crops such as noug, linseed and rapeseed. Afar Region is categorized by the Government as food-insecure. 20. Somali Region occupies an area of about 81,900km2, bordering Oromiya Region in the west, Afar Region and the Republic of Djibouti in the north, Kenya in the south and Somalia in the south and east. The region is divided into nine zones and 52 woredas. About 87% of the region is undulating, except the area adjoining the upland plateau has moderately steep topography. The 200 and 700mm/rainfall is bimodal, with a main wet season from March to June and short rains 35

43 from September to December. Only Jijiga and Shinile have rainfall of over 700mm/year. The population is estimated at about 3.4 million, of which about 85% are pastoralists. The rest are either agro-pastoralists, sedentary farmers or urban-based. About 450,000ha are cropped, mostly for rain fed crops in the Jijiga and Shinile Zones, with smaller areas in Liben and Gode Zones. Irrigated agriculture is practiced on about 20,000ha along the perennial Genale, Dawa and Wabi Shebelle Rivers, although the potentially irrigable land may exceed 500,000ha. Conflict is currently hampering development in some parts of this Region. 21, The Southern Region includes 112 woredas occupying most of southwest Ethiopia. The region contains up to one-fifth of the country s population: about million. The region has by far the greatest number of ethnic and language groups, including Gurage, Hadiya, Kambata, Wolayta, Sidama, Gamo, Goffa, Ari, Sheko and the pastoravagro-pastoral Hamer and Surma of the Omo River area. With a total land area of about 1 12,000km2, the Southern Region occupies some 10% of Ethiopia. Rainfall in lowland areas is modest, with the Hamer rangeland receiving about 600mm per annum and the lowlands around Lake Abaya around 9OOmm. In the south, trypanosomiasis has constrained cattle rearing. 22. Oromiya Region includes the Borana Zone in southern Ethiopia, bordering Kenya, consisting of 12 woredas, of which six (Liben, Yabello, Dire, Arero, Taltele and Moyale) are in the lowlands, where pastoral and agro-pastoralism are the main modes of land use, with livestock production dominant. The Borana pastoral system combines a relatively settled family with highly mobile herds. The Sagan and Dawa Rivers serve as dry-season water sources supported by traditional wells and stock ponds. During drought periods, livestock concentrations reach alarming numbers around higher-yielding wells and ponds Pastoral Development Issues 23, The following sector issues are important for pastoral development in Ethiopia: (a) Good governance and community participation. The establishment of the Regional States has improved the opportunity for participatory development. Much remains to be done, however, to improve transparency, accountability and citizens participation in local development activities in the lowland areas o Ethiopia. (b) Periodic drought. With increasing human and livestock population pressure and an apparent increase in frequency of drought, the capacity to cope with drought has declined to the point where the survival of viable pastoral production systems is threatened in some areas. Government has established a disaster prevention and preparedness system, but its primary focus to date has been on upland agricultural systems, with lowland administration lacking the resources and knowledge to protect pastoral livelihoods effectively against natural disasters; (c) Rangeland degradation, is increasing, evidenced by soil loss, bush encroachment, reduced biodiversity, weed invasion and deforestation. Traditional range management systems based on indigenous knowledge, mobility, reciprocity agreements, fluid boundaries and traditional law are facing new pressures calling for new institutions, technologies and systems; (d) Poor support livestock marketing and trade continue to constrain the economic potential of the lowlands. Ethiopian pastoralists have traditionally engaged in cross-border livestock trade, mostly directed on Kenyan and Gulf markets. Recent restrictions to both these markets, primarily due to sanitary concerns, caused price falls and reduced trade to the Gulf States. Key 36

44 constraints are: (i) weak sanitary control; (ii) deficient market and transport infrastructure; (iii) cumbersome documentation needs; and (iv) inadequate banking systems. (e) Animal health services rarely extend beyond lowland woreda towns and information on disease incidence and risk, essential to high-value export markets, is not systematically available. Drug supply, now privatized, has improved, however, drug quality, including dilution and unregistered imports, remains a problem. The Government is progressively privatizing veterinary services and has integrated CAHWs into the national animal health services, providing a platform for investment in animal health service for pastoral communities; fl Human health services. The Government has developed Traditional Birth Attendants (TBAs) and Community Health Assistants training in pastoral areas and a training-of-trainers program for pastoral region health specialists. Further investment in capacity-building and communitybased pastoral health and posts is required. HIV/AIDS is a major health concern in Ethiopia, but little is known about the rates of HIV prevalence in pastoral populations; (g) Education services reach less than one-third of pastoralists, limiting opportunities to diversify livelihoods. Government has launched a pastoralist education initiative focused on both an expanded school network and mobile primary education services. The need for further investment in teacher training facilities and capacity and in community schools is indicated. In the longer term, higher education services will also be needed close to pastoral communities; (h) Agricultural advisory services are poor in pastoral areas and market information services inadequate. Despite the Government s new thrust to decentralize political and economic decision-making to woreda level, serious gaps in skills and technology remain. (0 Rural infrastructure. Stock routes and watering points for marketed livestock are often poor, with resultant weak ownership and maintenance. Voice communication systems are equally weak, isolating pastoralist communities from the national mainstream. j) Land-use issues: Ethiopia s increasing farming population and area under cultivation is reducing pastoral community dry season grazing. Customary law and NRM practices are giving way to population pressure and landlessness. As in other countries conflicts between sedentary farmers and pastoralists are prevalent. Land-use security also constitutes a major factor for achieving increased investment and productivity and relieving land degradation and poor management of water resources. (k) Sedentarization ofpastoralists and non-livestock sources of income: The emergence of dryland agriculture and some irrigated agriculture has resulted in rising agro-pastoralism. The Government is promoting sedentary livelihoods for pastoralists. Few pastoralists have pursued irrigated agriculture, but a larger number have shown interest in diversifying income sources. (1) Food security: Food-security programs are penetrating lowland areas, but need to be tailored to protect the livelihoods of mobile pastoralists. For poorer pastoralists, interventions that increase livestock productivity and enhance water access and drought security are important. Government Strategy for Pastoral Area Development 24. Government s strategy for pastoral area development is outlined in the Poverty Reduction Strategy paper, the Rural Development Strategy and the Food Security Strategy and in the Government s Letter of Development Policy (MoFA, 2008). The PASDEP states that the problem of food security and agricultural growth in the nomadic areas is being conceived in 37

45 terms of the development of the pastoral economy in its entirety. The PCDP I1 corresponds with Government s pastoral area development strategy by promoting an integrated and holistic approach that focuses on people, not merely their animals or the rangeland they inhabit. 25. Decentralization The Government and has made significant progress with decentralization in the highlands, though progress has to date been limited in the lowlands. The Government is committed to ensuring that the Project rests firmly with the Regions, which will receive substantial capacity-building support from the Project. PCDP I1 will also support the PASDEP s emphasis on community empowerment, by enabling communities to identify their own priorities, to propose modest development plans and to gain access to the financial resources and training necessary for their implementation. 26. Land-usepolicy. The Constitution stipulates that land is owned by the State, being administered by the Regions for the benefit of the local communities. Power to regulate on land allocation, management and tenure is devolved to regions. However, some of those with pastoral populations have not passed supporting laws. Currently, the 1997 proclamation of the Federal Rural Land Administration provides that demarcation of land for house building, grazing, forests, social services and such other communal use shall be carried out in accordance with the particular conditions of the locality and through communal participation. There appears to be growing support for community/clan certification of rural land. 27. Voluntary Sedentarization ofpastoralists. MoFA promotes settlement of pastoralists as a long-term strategy, recognizing that this must be voluntary. The PASDEP acknowledges the right of pastoral groups not to be coerced into any form of resettlement, just as the 1994 Constitution provides for pastoralists not to be displaced without their wish. 28. The Government has mandated MoFA to address the governance and administrative needs of the emerging regions including Afar and Somali Regions. MoFA also chairs the Federal Inter-ministerial Board (FIB), which has a mandate that includes lowland development. Because of this mandate, and the multi-sectoral nature of the PCDP 11, MoFA provides the high-level institutional support to PCDP

46 Annex 2: Major Related Projects Financed by the Bank and/or other Agencies ETHIOPIA: Pastoral Community Development Project I1 Protecting Basic Services 1 Service delivery Public Sector Capacity Building Institutional capacitybuilding I Active I I Active Water Supply and Sanitation Project Water supply Active 3 3 S I S I S I I I I S Pastoralist Livelihoods Initiative Food security I Risk Program Irrigated Pasture in Afar Pastoral Livelihood Program Emerging Regions Development Program Pastoral Communication Initiative Disaster Preparedness Program Y FA0 Ongoing Norwegian Ongoing Development Agency Institutional capacity- UNCDF/UNDP Ongoing building Conflict resolution I UNOCHA Ongoing Research and advocacy Early warning and SCF/UK Ongoing disaster risk management 39

47 Annex 3: Results Framework and Monitoring ETHIOPIA: Pastoral Community Development Project I1 Results Framework of Ethiopian pastoralists to external shocks and (ii) improved livelihoods of targeted communities 70% o f community members satisfied with timeliness, quantity and quality of disaster early response 70% o f the targeted community members satisfied with service delivery through PCDP 11-financed social infrastructure Increased average income of pastoral saving and credit loan beneficiaries in beneficiary communities Early warning information on disaster risks available for all pastoral and agro-pastoral woredas Assess the effectiveness o f the disaster early response system Assess the effectiveness o f PCDP I1 investments in social infrastructure Assess the effectiveness o f the saving and credit intervention on project loan provided to pastoral credit and saving beneficiaries Assess the effectiveness o f the EWS Subcomponent (a): Community Investment Fund (CIF) Communities identify and implement subprojects addressing priorities agreed upon in their CAPS % o f community members, disaggregated by gender attending Project-related meetings (m, f, y) % o f approved (budgeted) community sub-projects completed each year % of sub-projects completed that receive recurrent costs associated with PCDP CIF social investments First and second cycle education net enrolment rate for Grade 1-8 (f, m) disaggregated by region % o f HHs in beneficiary community with access to potable water Captures active participation of community members in Projectrelated issues An indication that priorities are met and supported by woredas An indication that woredas are providing recurrent costs associated with subprojects, such as teachers and health workers salaries, to ensure that subprojects are running, to increase the likelihood of sustaining the projects MDG-related indicator to measure accessibility by communities to frst and second cycle education Determine if key input will reach the targeted number of beneficiaries 40

48 O&M arrangements are in place and I Determine if program needs to functioning for >80% of increase its inspection and infrastructure that requires supervision of technical works and maintenance. O&M arrangements Woredas and their communities establish transparent accountability processes Subcomponent (b): Rural Livelihoods Program (RLP) Sustainable savings & credit service established in selected pastoral areas plans, budgets and service performance at public centers % o f woredas with a complaint redressal system for CIF accountability of woredas to community members financial services to marginalized communities - increasing their % o f savings & credit groups with <5 % 30 day overdue payments. % o f savings and credit beneficiaries whose HH income has increased Subcomponent (a): Pastoral Early Warning and Response Program 1. EWS: Early warning system established and operational (national and regional) by EWRDMoARD 80 % o f pastoral and agro-pastoral Project prepare and review DPCPs Assess whether communities are engaged in the DPCP process. 2. Disaster Early Response Fund operational Subcomponent (b): Disaster Preparedness Strategic Investment Program 1. Regions identify, prioritize and implement disaster preparedness investments % o f DER Grants-financed early response activities within one month of pastoral area EWS identifying change from normal conditions % o f available DPSIP resources expended on prioritized strategic investments by region Evaluates the timeliness o f the DER Grants to response to identified changes Measures the utilization of DPIP resources based on prioritized strategic investments 41

49 1. Improved access to information on development issues in pastoral areas 2. Participatory research being carried out on issues identified by pastoral communities 3, Improved information on pastoral development issues for policymakers Four regions prepare comprehensive strategic disaster preparedness investment plans % o f community-based disaster preparedness infrastructure investments that are operational and have maintenance plans. Number of website visits per month # o f PAL groups that have completed research activities # of quarterly regional EPADGON meetings held and recorded # o f policy implementation studies and # o f decisions legislated in support o f policy frameworks Assess the effectiveness o f the region in preparing comprehensive strategic preparedness investment plans Determine the sustainability o f infrastructure related to disaster preparedness ment (PLKM) Ensures website is providing relevant information To ensure research outputs are relevant to pastoralist needs. To ensure pastoralist networking on development issues. To ensure expansion and implementation of government pastoralist policy framework 1. Improved project management performance: planning, budgeting and evidence-based decision-making % o f semi-annual project progress reports submitted at federal (4 weeks), regional (3 weeks) and woredu (2 weeks) level after end of each semester % o f quarterly financial reports submitted at federal (4 weeks), regional (3 weeks) and woredu (2 week) level after end of each quarter External audit report submitted within six months o f end of financial year Consolidated annual work plan and budget prepared in accordance with government fiscal planning cycle. % o f agreed training plans completed each year (gender, communications, social accountability, conflict, MIS, M&E and IT) management o f Project activities and will allow management to address quickly any issues or obstacles to achieving results Findings from reports and audits will allow the Project to adjust and improve its operations and procedures Training needs have been identified by the Project; this indicator will measure PCDP management commitment to filling capacity gaps by training Project staff and other direct beneficiaries o f the Project 42

50 1. Monitoring and Evaluation in PCDP I1 will be an integrated system covering the four project components. It is a results-based framework, developed in a participatory manner, with a strong emphasis on project impacts and outcomes, as well as the regular monitoring of outputs and inputs. Based on the M&E experience from PCDP I, the integrated M&E system will be simplified and consist of the following areas: (i) outcome/ impact evaluation; (ii) implementation and process M&E; and (iii) Participatory Monitoring and Evaluation (PM&E) tools. In parallel to the overall monitoring of the Project, a modular approach to monitoring will measure the outcomes and performance of each of the functions and mechanisms under each component. The PIM for each of the four components of the Project will include a section on M&E and will be owned by the respective mechanisms/institutions, with oversight from the FPCU. 2. Impact/Outcome M&E. Monitoring and evaluation of project impact/outcome at the level of the Project Development Objective will be based on a set of quantitative and qualitative indicators shown in the above table. Following PCDP I, substantial changes have been made to these indicators to make them more measurable, attributable to project interventions and outcome-oriented. The key indicators will measure the benefits and impact of the Project related to social impact, disaster preparedness, improved livelihoods, service delivery, IGAs and project management. In addition, a set of intermediate outcome indicators were developed and simplified, based on the objective of each component, to support the M&E at the level of the Project Development Objective. 3. Data will be collected through various instruments, including the output information from the MIS and internal supervisions, social assessments/community and household surveys, participatory and interactive evaluation by the communities (community supervisors and evaluators etc). To the extent possible, secondary data sources will be used to fill out the baselines and provide follow-up data. Those will include data from the EWRD (MoARD), the Ministries of Health, Water and Education at both federal and regional level, UNICEF, DFID and others, as appropriate. This will minimize the cost and duration of the baseline collection process. Baselines for indicators related to empowerment, participation and community satisfaction will be collected early on in the Project by the Regional Monitoring Officers, with support from the MSTs. Given the complexity and cross-sectoral nature of the project interventions, a consulting firm will be hired to analyze data available on the four regions to fill out the baseline and fill in any gaps, and to conduct the mid-term and end-of-project evaluation surveys using consistent sampling size and methodology. The M&E information will be used to make adjustments to Project strategies and activities during implementation, draw lessons at mid-term and end of the project, and provide guidance to Phase I11 and future operations. 4. Participatory Monitoring and Evaluation. PCDP I1 will revise, simplify and customize its PM&E approach and train its staff on a new and user-friendly PM&E manual. PCDP I1 will adjust its approach continuously to adapt to the heterogeneous characteristics of communities. PM&E will be instrumental in promoting community participation and improving the effectiveness of the M&E. The PM&E approach was applied in communities in Phase I, but to a limited extent, because of high turnover rates in the Mobile Outreach Teams (MOTS) and the lack of user-friendly and easy-to-use formats at community level. Phase I1 will fully integrate the PM&E approach, including capacity-building at all levels, simplification of the PM&E forms and improvement in participatory mechanisms. PM&E can promote information disclosure, and 43

51 citizen report cards will be used to gauge user perceptions (on availability, access, satisfaction and quality) of basic services as well as IGAs, and to provide valuable feedback to service providers. It can also capture citizens perceptions of empowerment and participation. 5, Implementation/Process M&E. The MIS will be upgraded to facilitate implementation process and input/output monitoring. It will integrate a wide, but manageable, range of information on the key performance indicators, including qualitative and quantitative data derived from participatory M&E and semester monitoring reports, which will include outcome and output data on woreda activities. This will improve timeliness and reliability of data collection and reporting and reduce the workload of evaluation surveys. Secondly, it will integrate the Pastoral Risk Management component by including a set of data provided by the EWRDMOARD.~ The MIS will also contain baselines for the DPCPs, and data will be updated accordingly. In addition, the MIS will be linked to the Financial Management System (FMS) to monitor the physical and financial progress of project implementation in parallel. Data will be manually collected from kebele level and processed at woreda level, using basic reporting formats through Microsoft Excel. Data will then be aggregated at regional level by the monitoring officers and entered into the MIS by the MIS specialists in the RPCUs. The system will allow on-line data sharing with PCDP I1 management at national level and between regions. 6. Reporting Mechanisms and Policy. PCDP I1 will have four levels of reporting, using simple basic formats with a set of indicators to be monitored, in addition to any other monitoring data on which the different levels in the Project and the communities want to report: (i) Monitoring at kebelelcommunity level with the support of MSTs and MOTs, following a basic format and submitted to woredas; (ii) Each woreda, with the support of the designated MST, will aggregate kebele data, after checking for quality, based on an agreed-upon basic format in Microsoft Excel to report on outcomes, outputs and financial progress; (iii)each Regional Monitoring Officer will then be responsible for aggregating data coming from the different woredas and entering the woreda data and aggregated data in the MIS, after checking it for quality; (iv)the FPCU will then receive the data, enter it into the MIS, and develop quarterly and annual progress reports to be shared with all levels of the organization; (v) If a woreda does not submit timely and quality reports that demonstrate progress, it will not be eligible for additional funding until performance data are provided, based on a basic set of indicators to be monitored at all PCDP I1 woredas. 7. Safeguard M&E. Throughout implementation, PCDP I1 is required to carry out safeguard monitoring to ensure that the Project brings intended benefits, while ensuring that any adverse environmental and social impacts are avoided or minimized. Arrangements for monitoring safeguard activities during project implementation will be incorporated into the overall M&E system for PCDP 11. Safeguard monitoring will be twofold: (i) ensuring that subproject environmental and social screening and checklist forms are properly completed by MOTs with the support of MSTs; and (ii) Environmental and Social Performance Reviews by a local consultant contracted to visit each Project woreda at least once a year to support compliance with EWRD/MOARD coordinates and receive reporting data from and received from Livelihood Integration Unit and Save the Children on livelihoods and disaster preparedness. 44

52 ESMF procedures, determine lessons learnt and provide guidance for improving future performance. Safeguard monitoring will be built into the overall M&E training for the Project. 8. Institutional Arrangements. The institutional set-up for M&E has multiple levels and is well aligned with the PCDP I1 management system. Overall responsibility for M&E will rest with the PCDP management, specifically in the M&E Unit, to be staffed with a manager for M&E activities, an M&E officer and an MIS/IT specialist. At the four regions, monitoring officers and MIS/IT specialists will report directly to the M&E specialist in the FPCU. The Regional Monitoring Officers will work closely with MSTs, which will have a focal point for supporting monitoring activities at woreda level. MSTs will support the PDOs and MOTS in their monitoring work with communities. The data management, analytical and reporting capacities of MSTs and at local levels need to be enhanced. Therefore, training programs and Technical Assistance (TA) are planned and budgeted to strengthen the capacity at local levels, which is crucial for the success of the scaling up. 9. In order to support the matrix of an integrated M&E system, the M&E team will work closely with staff in charge of each component. M&E will draw on and strengthen the existing institutions in M&E, in particular the Statistics Bureau at national and regional level. Officers from the Statistics Bureaus will be members of the working groups, and meetings and workshops will be held to exchange experience, especially on indicators for the national survey and on the process of community participation. 45

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60 Annex 4: Detailed Project Description ETHIOPIA: Pastoral Community Development Project I1 By Component: Component 1: Sustainable Livelihoods Enhancement (SLE) (US$93.4 million, including US$5 1.9 million from the World Bank, US$21.7 million from IFAD, US$5.0 million from the Regional States and US$14.7 million from the Beneficiaries) Sub-component A: Community Investment Fund (CIF) 1, The purpose of the Community Investment Fund (CIF) is to make capital resources available for small-scale community-driven local investments. These investments should be identified, prioritized, implemented and monitored by beneficiary communities. Communities will also be tasked with procurement and financial management of these subprojects. Therefore, the Project will initially focus on renewing community Participatory Rural Appraisal (PRA) exercises and capacity-building of Community Project Committees, Community Procurement Committees and Community Audit Committees. These committees will include men and women, as well as a representative of customary institutions and youth representatives. Customary leadership institutions will be requested to confirm their support for the CIF processes and to adjudicate disputes as appropriate. After an initial PRA exercise and capacity-building, communities will prioritize subprojects on the basis of a vote of all adult community members. PCDP I1 will pilot the use of community focal points to serve as a liaison between the Project and communities. 2. Eligibility criteria for financing under the CIF will be kept as broad as possible to respect the priorities of pastoral communities. It may include investment in social infrastructure, such as revolving drug funds; community health workers and community drug shops; TBAs and kits; mobile schools, static schools or hostels or parts thereof; static health clinics or parts thereof; a domestic water point or part of one. It may also involve funds for building capacity in social service delivery. 3. The Project will provide Birr2.2 million per to participating woreda per year (except for firsttime woredas which will receive Birr 1.2 million in their first year). Individual community groups will be eligible for up to three grants of up to US$35,000 each, dependent on performance. The percentage share of community contribution will increase progressively over the three rounds. Accordingly, 1st round... 15% (5% cash) 0 2nd round... 20% (7% cash) 0 3rd round... 25% (10 % cash)7 ' NB: for communities who suffered from any disaster or became more vulnerable the cash part of the community contribution will be half of the proposed one, as the situation is declared and get approval from WDC and documented by facilitating MST 53

61 4. The sustainability and success of this sub-component will depend on the capacities of the communities to effectively assume responsibility for the planning, prioritization, implementation, subproject management and monitoring activities, and for the woreda authorities to provide necessary support. Therefore, PCDP I1 will invest significantly in strengthening the capacity of communities to assume these responsibilities. This will include skills training in key areas such as basic literacy and numeracy, proposal development, subproject management, budgeting, procurement, financial management, contract management, environmental screening, conflict resolution and management, and PM&E. Needs assessment methods, including PLA tools, consensus-building techniques and constraint analyses will be used to formulate Community Action Plans (CAPS), which will be amalgamated into Woreda Development Plans. Procedures for identifying, preparing, managing, implementing and monitoring progress and quality of subprojects will be described in the PIM. 5. PCDP I1 will also invest in strengthening the capacity of relevant woreda officials to appraise and review subprojects, and to support project sustainability and participatory development efforts as part of the Woreda Development Committee. The woreda PDO will be the focal point for the CIF at the woreda level and will be supported by a PDO assistant funded by the Project. 6. Graduation. In light of the limited coverage of communities in target woredas, PCDP I1 will not seek to exit from current beneficiary woredas in Phase 11. However, PCDP I1 will develop a strategy for woreda graduation from the CIF at the end of this phase on the basis of criteria related to community coverage, poverty, capacity to attract and mobilize resources, and the rollout of decentralized capital investment financing for pastoral woredas. The terms and conditions of all Project components, notably Community Investment Fund (CIF) subprojects and the Rural Livelihoods Program (UP) will be made clear to community members and discussed with community and woreda authorities so that the terms for community targeting, rotation and exit are accepted. In addition, written records and agreements of roles and responsibilities for handover of Project investments will be developed to improve prospects for sustainability and for record-keeping. Sub-component B: Rural Livelihoods Program (RLP) 7. In Phase I, 426 community-prioritized IGA subprojects were undertaken in 28 Project woredas. These subprojects strengthened targeted disadvantaged pastoral and agro-pastoral households to supplement and diversify their income and asset base. Project supervision reports and external evaluation of the first phase, however, indicate that procedures for IGA establishment need to be strengthened to improve: (i) the sustainability of these investments, (ii) beneficiary contributions, (iii) capital recycling, (iv) capacity building for business management, (v) market linkages, and; (vi) linkages to banking systems. 8. PCDP I1 will continue to support income generation and diversification in the existing and also in new Project woredas. Rather than using revolving funds, in PCDP I1 this will be achieved through the provision of capacity-building assistance to the formation and strengthening of pastoral Rural Savings and Credit Cooperatives (RUSACCO) and seed capital to the pastoral RUSACCOs in targeted kebeles. The pastoral RUSACCO will provide financial services in a savings-based approach for the income-generating groups and individuals. Pastoral RUSACCO 54

62 will be eligible for grants of 200% of compulsory and voluntary savings up to a limit of Birr 50,000 (US$5,050) per pastoral RUSACCO to capitalize their lending operations (seed capital), The amount of seed capital per pastoral RUSACCO can be increased for those pastoral RUSACCOs with more than 50 members, based on their performance regarding savings mobilization and repayments of loans. The initial period of the Project will focus on preparing the ground for establishment of viable groups and a functioning cooperative system. The RLP resources will not be released before these conditions have been met. Existing IGA group members will be encouraged to join with the wider community to form pastoral RUSACCO and will be provided with training to strengthen the management of their PCDP IGA and to organize it as a (separate) cooperative or limited liability company. 9. Project support will be provided to new primary pastoral RUSACCOs to enable them to administer savings based credit funds to support income generating investments. The pastoral RUSACCOs will be responsible for record keeping and ledgers on their grant leveraged savings fund, appraising loan applications, lending to members, determining loan conditions, monitoring the use of the funds for intended purposes and collection of interest (or service fee) and capital payments when due. Loans will be secured by at least two guarantors with securable assets. To ensure the delivery of these services, the Project will commission the FCA and RCPBs and WCPDs to provide technical assistance to capacity-building for up to 400 new primary pastoral RUSACCOs in selected kebeles for developing their governance structures, policies and procedures. This will include: (i) training to committee members on savings and credit cooperative management skills; (ii) community sensitization and awareness creation; (iii) providing basic office materials; and (iv) the provision of operational resources at woreda level. 10. Pastoral RUSACCOs will be established as self-reliant community-based financial intermediaries. They will be member-managed and fully autonomous. Each pastoral RUSACCO will be governed by its own bylaws and be subject to the cooperative legal and policy framework. In accordance with the cooperative system, pastoral RUSACCOs should reach fullfledged operation within one year of being legally established. During the first six months, their primary focus will be promotion of compulsory and voluntary savings. The pastoral RUSACCOs will decide on their operating procedures, credit and savings products, and lending interest rates (or service fees) with due attention to financial and operational sustainability under the rules and procedures set by the FCA and the respective Regional Cooperative Promotion Bureaus. The existing RUSACCO manual used by the cooperative system will be adapted to the pastoral situation and a Pastoral Savings and Credit Cooperative Manual will be produced. This manual will then be used to guide the operation of pastoral RUSACCO in the Project The cooperative development aspect of this sub-component will be implemented by the Federal Cooperative Agency, Regional Cooperative Promotion Bureau and Woreda Cooperative Desk. The Project will provide financial resources and technical backstopping via rural savings and loans specialists in the MSTs. This partnership will be further clarified and endorsed in a MoU to be signed between the Federal Cooperative Agency and MoFA. Details of the operational procedures, implementation arrangements including reporting, auditing system, supervision mechanisms, and specific roles and responsibilities of participating institutions will be specified in the PIM. 55

63 Component 2: Pastoral Risk Management (PRM) (US$29.0 million, including US$20.4 million from the World Bank, and US$8.6 million from WAD.) 12. Pastoral Risk Management (PRM) will be addressed through: (i) expanding and strengthening the management capacity of the GoE s EWS in lowland woredas; (ii) development of woreda Disaster Preparedness Contingency Plans (DPCPs) that will include early response shelf plans in relation to specific warning stages; (iii) financing drought early response subprojects to enable timely responses to disasters; and (iv) preparation of regional strategic disaster preparedness plans and hnding associated subprojects that address strategic, longer-term risk mitigation. These elements are contained in two sub-components: (i) a Pastoral Early Warning and Response Program (PEWRP, including contingency planning and early response fbnding; and (ii) a Regional Disaster Preparedness Investment Program (DPIP). Sub-component A: Pastoral Early Warning and Response Program (PEWRP) 13, The PEWRP sub-component includes a participatory pastoral early warning and response program and strengthening of its management capacity. This will expand and further institutionalize the ongoing EWRDMoARD EWS for lowland areas, including through supporting systems for the collection and analysis of basic household livelihood and natural resource, economic and conflict-related data. Using part-time data monitors at kebeze and community level, woredas will collect household, child nutrition and environmental, economic and social information by livelihood zones. Survey forms will be collected from enumerators by the Woredu Early Warning and Response Desk officer, entered into a database, collated into a woreda early warning report and periodically passed on to the regional EWRB. These reports will initially be prepared quarterly, but may be increased to monthly if conditions warrant and capacity allows. EWRBs will prepare a regional EWS report for consideration by the Regional Early Warning and Food Security Steering Committee (REWFSSC). 14. Building on the pilot work already completed under the PCDP I and the ongoing EWS development in lowland areas by the EWRDMoARD and associated donors and CSOs, the subcomponent will be rolled out across all lowland woredas over the first three years of this Project. PCDP I1 will finance the provision of studies, training and equipment to support the EWS program. This will includes community capacity-building, EWRDMoARD staff capacitybuilding, equipping and mobilization, database and communications system development and operating budget. The Project will also support remote-sensed data capture where appropriate. 15. The Project will finance the following to support the EWRDMoARD in the refinement of the EWS: (i) technical assistance to support the development of a computerized database, (ii) training of federal and regional staff in its use as part of a larger capacity-building program, (iii) financing of an additional database manager and data-processing coordinator, (iv) office equipment and hmiture, (v) computing and Global Positioning System (GPS) equipment and printers including a plotter, (vi) employment of five part-time household monitors at each woreda, phased in over the Project, (vii) a food security analyst for each participating EWRO from Project Year 1 to coordinate the development of household food-security monitoring systems and (viii) two regional food security analysts in each of the six EWRBs covering 56

64 lowland woredas. EWRD staff in participating woredas will be provided with a motorcycle to track field monitors and collect survey reports. Participating EWRB regional offices have been provided with a 4WD double-cabin pickups under PCDP I to support community monitoring and disaster contingency planning. Voreda, zonal and regional early warning and response offices will also be equipped with computing, office and GPS equipment and provided office and fieldoperating expenses related to managing the EWS. Project resources will also be provided for training programs in EWS management. 16. The EWS will trigger responses to one of the five levels of disaster threat summarized below: Normal Alert Alarm Emergency Recovery All the main indicators - household economy, child nutrition, rainfall, pasture production and availability, pastoral terms of trade, conflict - are likely to remain within normal ranges for the time of year. Dry-season preparations have been carried out satisfactorily. Some indicators are outside their normal range and there are reasons for concern. Specific preparations are required locally. Most indicators are outside their normal range and the rural economy is under heavy stress. National support is required to overcome upcoming disaster. There is widespread disruption and suffering. Animal deaths are increasing, and normal patterns of life have been abandoned. All the main indicators are returning to their normal ranges, but livestock numbers are reduced and communities need continuing support to maintain purchasing power and entitlements. 17. Disaster Preparedness Contingency Planning. The EWS process will include the preparation and periodic (3-4 years) updating of community-driven woreda Disaster Preparedness Contingency Plans (DPCPs). The Project will invest in capacity-building in woreda and regional level to prepare DPCPs8, It is expected that woreda-level disaster contingency plans will identify both disaster mitigation activities, such as small feeder roads, improved water and catchment management, fodder banks and range improvement, to be implemented through Component (b), as well as early response activities, such as destocking, water tankering, response to human and animal disease outbreaks and the like. Each warning level identified above will trigger appropriate reactions to mitigate the threat to household welfare, prepared in advance as shelf plans under the DPCPs. 18. DER Grant funds will be available during the early mitigation stage (e.g., livestock destocking and water tinkering) as well as the recovery warning stage for livelihood rehabilitation activities (e.g. provision of tools and seeds, or livestock restocking). Woreda DPCPs will be reviewed and consolidated at regional level. The woreda disaster contingency manual will be periodically updated (every 3-4 years) and underpin the implementation of contingency plans. The manual will contain a description of the strategy, the early warning and rapid reaction system.the manual will also contain inventories of equipment and supplies (such as vaccines or A DPCP operational manual has been prepared under Phase I, and will be annexed to the PIM for PCDP

65 tools for public works projects) needed in the event of an emergency, so no time is lost in ordering these. It may contain instructions for emergency cash-for-work or feeding programs. 19. The woreda-level DPCP processes will integrate the work of the PCDP I1 and PSNP in lowland areas to better protect communities from disaster. The responsible MST, together with representation from the regional Public Works Focal Unit, EWRB and partner CSOs, will conduct a single woreda planning exercise addressing the needs of both projects. Parallel PCDP I1 and PSNP programs, coordinated through a joint Regional Steering Committee, will ensure complementarity between PCDP I1 CIF (Component 1) and PSNP contingency finding, e.g. PSNP contingency funds providing paid labor for more capital-intensive civil works. 20. Disaster Early Response Grants (DER) Grants. The Project will finance Disaster Early Response sub-proj ects implemented through the EWRDMoARD and its regional counterparts with the fiduciary support of the RPCUs. The FPCU/PCDP will specify procedures for the DER Grants in the PIM. DER Grants will finance early response and rehabilitation subprojects identified in DPCPs in disaster-affected woredas. Sub-component B: Disaster Preparedness Investment Program 21. The DPIP process will identify community and woreda perceived needs for strategic longterm disaster preparedness and mitigation, many of which are anticipated to be cross-woredu or regional in their application. These proposals will be aggregated at regional level and integrated into a long-term disaster preparedness strategy and prioritized investment plan. PSNP catchment management proposals will also be integrated into this plan. 22. Each region will receive finding from PCDP I1 to finance subprojects through the provision f Disaster Preparedness Strategic Investment Grants. The disaster preparedness strategy will be approved by the Regional PCDP IUPSNP Steering Committee and implemented in accordance with available fbnding under the oversight of the PDO, supported by the RPCU finance and procurement units. It is expected that these investments will include, inter alia, construction and rehabilitation of feeder roads, improved water supply and catchment management, fodder banks and rangeland improvement. 23. The Project will provide technical assistance and staff capacity-building to support the development of the regional disaster preparedness strategies and prioritized investment plans and a budget for strategic disaster preparedness investments. Procedures for the development of regional disaster preparedness strategies and the management of resulting investment projects will be specified in the PIM. Component 3: Participatory Learning and Knowledge Management (PLM) (US$1.8 million, including US$1.3 million from the World Bank and US$0.5 million from IFAD) 24. During PCDP I, the procedure of selecting research to be commissioned by the project was centralized at federal level. The research conducted, particularly the policy gap analysis and the gender and social analyses in Afar, Oromiya and Somali Regions, provided some potentially useful information to guide policy and action. However, regional stakeholders had little say in 58

66 what research was conducted. Aside from the research on participatory varietal selection in Somali and the field testing of introduced tree species in Afar Region and pastoralists responses to researchers in focus-group discussions, there has been little involvement of local resourceusers in the research process. Moreover, the results of the research have not been widely disseminated and translated into action. 25, PCDP I1 will focus on involving pastoralists and local development-support organizations in forms of research that stimulate participatory innovation and adaptation to new problems and opportunities and that enhance community capacities to make demands on formal research and extension services. The second phase will also focus on making research results, not only from the project but also from other organizations involved in pastoral research and development in Ethiopia, available to key stakeholders, including the pastoralists themselves. In addition, PCDP I1 will support a limited number of studies designed to provide a better basis for policy implementation at federal and regional levels. 26. Under PCDP 11, the Participatory Learning and Knowledge Management will consist of the following three sub-components: a. Participatory Learning: pilots in participatory knowledge generation and innovation development in selected woredas; b. Knowledge management: compilation and exchange of information, networking and policy dialogue at federal and regional levels; and c. Policy Implementation Studies: to assist federal and regional policymakers with the implementation of key policy priorities. Sub-component A: Participatory Action Learning 27. Most research in or for pastoral areas is not community-driven, action-oriented and participatory. This is partly because there is a strong culture of top-down research and there is little experience with community-driven research in pastoral areas. PCDP I1 will initiate ways to fill this gap by promoting community-driven learning. On a pilot basis, in each of the four regions included in Phase I, two Participatory Action Learning (PAL) facilitators - preferably one male and one female - will be associated to MSTs. They will work with pastoral and agropastoral communities in selected kebeles in the three woredas covered by the MST to help the communities identify priority topics for community-led investigation and experimentation. 28. The topics to be studied may stem from indigenous knowledge and local innovation or may be promising technologies that have been developed elsewhere and can be tested and adapted locally. The topics could encompass institutional topics such as seeking a better understanding of the marketing chain or exploring new (or revitalized and adapted traditional) forms of natural resource management. These investigations will be conducted as joint efforts of pastoralists; development agents (DAs) and/or subject-matter specialists; researchers with relevant expertise from a nearby research centre, college or university; andor private-sector people with relevant expertise. The innovations being tested by community groups can serve as a basis for demonstration and discussion by visiting pastoral and agro-pastoral groups. 59

67 29. In the pilot period (2 years), the PAL activities will be limited to 10 kebeles in each region (5 kebeles per PAL facilitator). The criteria for selecting the pilot areas will include: (i) (ii) (iii) presence of DAs and subject-matter specialists interested in testing this approach; proximity to research station or university interested in supporting this approach; and balance of pastoral and agro-pastoral communities over the selected pilot areas. 30. Resources will be made available to PAL groups in the pilot areas for purchasing equipment and materials they need for experimentation and to cover the expenses of specialists and researchers whom they want to draw in from outside the kebele or woreda to support them. These resources can also be used for study tours by the communities to sources of information, such as other communities, research centers or private enterprises with relevant knowledge and experience. The WDC will appraise proposals from the communities to access these resources and will give balanced opportunity to proposals from women s, men s and mixed groups Training in facilitating community-led situation and problem analysis will be part of the Participatory Rural Appraisal (PRA) training for all MSTs. The PAL facilitators will likewise receive this training. In addition, they will receive training from a trainer in identifying local innovations and facilitating participatory experimentation/ innovation development. They will meet twice a year to share and analyze the processes that they are facilitating, to learn from each other and to improve the methodology. The federal PLKM Officer and the regional Communication Officers will also attend these meetings. The meetings will offer an opportunity for additional capacity building by the national trainer. 32. The PAL facilitators will, to the extent possible, integrate the identification of research issues at community level with the activities around PRA and community planning for the CIF. In addition to issues that communities want to investigate themselves, they may also identify issues that need more formal research. The PAL facilitators will convey these issues to the nearest research centre or collegehniversity. 33. During the Mid-Term Review, the experiences with this pilot will be assessed by interviewing the pastoralists and agro-pastoralists directly involved and randomly selected members of their communities, both male and female, about the process and interim results of the community-led investigations and experimentation. It will then be decided whether and how the PAL activities should be continued and scaled up. It will be important to do this in concert with the activities of the Rural Capacity Building Project to develop farmer-responsive research, which eventually intends to work in pastoral areas. Sub-component B: Knowledge Management and Networking 34. A gap between research and practice, resulting partly from the conventional research approach but also from a lack of communication, networking and dissemination of research outputs, was noted during PCDP I. Documentation on research and learning results and project experiences related to pastoralism and agro-pastoralism are scattered and not widely known. Policy makers and development workers do not use research outputs because these are not readily available and/or are not in a user-friendly form. Moreover, the general impression is that 60

68 many research outputs are not appropriate for pastoral conditions. PCDP I1 has an important role to play in facilitating better networking and better access to useful information relevant for pastoral community development. It will thus step up its efforts to link different stakeholders for information sharing, dialogue and building partnerships in research for development on issues identified by stakeholders, foremost by pastoralists. 35. PCDP I1 will support information units and networking at both federal and regional levels. It will post relevant information, research outputs and activities in pastoral development on a website, to serve as sources of relevant information and expertise for pastoral communities and other stakeholders seeking partnership in pastoral research and development. It will support the dissemination of development-relevant information in digital and printed form, also in local languages via radio and in posters, brochures, leaflets and booklets that can also be used in literacy training in pastoral areas. 36. PCDP I1 will also facilitate peace-building meetings and exchanges between communities through supporting knowledge management and information exchange activities. While adapting the approach in different regions to local specificities, the project will have a role to play in promoting dialogue between communities throughout the project s zones of intervention - through activities including undertaking preparatory discussions with the different communities, facilitating meetings of community elders, and organizing exchanges, including supporting transport, neutral venues, trained facilitators etc. Studies of interest to conflicting communities are one theme around which inter-community dialogue could be promoted. 37. The information units at national and regional levels respectively will be overseen in each case by a multi-stakeholder group involving volunteers from research institutions, higher learning institutions, the MoARD (BOARD at regional level) and representatives from CSOs and communityhased organizations from pastoral areas. The information unit at national level could initially be housed in the FPCU but should be transferred to a government institution. At regional level, the unit could be hosted by the Pastoral Development CommissionlBureau or by a regional pastoral forum. The information units will seek and store the documents of all organizations involved in research and development to improve livelihoods in the lowlands. They will be open to the public for on-site reference. 38. At the national level, the PLKM Officer, will have the task to outsource, supervise and facilitate activities that: (i) (ii) (iii) build up information units with hard and soft copies of publications and reports, as well as audiovisual materials, on pastoral research and development in Ethiopia; post digital versions of documents on the Web, preferably by building on existing websites such as the ELDIS website operated by the University of Sussex in the UK or the WISP site; links should also be made to other relevant websites, e.g. of the Dryland Coordination Group-Ethiopia. develop and regularly update an inventory of research organizations and activities in Ethiopia (understanding the term research in a wide sense as systematic activities to generate knowledge and innovations); the rapid scan of organizations doing research on different aspects of pastoral development, which was made for the consultative workshop on pastoral research, can serve as a starting point; 61

69 (iv) (v) identify research and development experiences from other countries that appear to be relevant for PCDP I1 partners in the regions and acquiring documentation on these experiences; publish and disseminate overview/synthesis papers, issue papers and policy briefs based on the outputs of relevant research; produce CDs with pastoral research updates; and ensure that research on issues demanded from pastoral communities in any one region is disseminated to other regions; and once a year, organize a fair, attached to the Ethiopian Pastoralists Day, on pastoral knowledge and innovation with participation from representatives of pastoralists involved in this component from all four regions, that will give an opportunity for the pastoralists to show and explain their knowledge and innovations to others. 39. The tasks of the information units at regional level will be similar to those at national level, but will also include ensuring the following: (i) (ii) (iii) (iv) (v) documentation of the Participatory Action Learning (PAL) processes and results; translating research overviewshyntheses, issue papers, policy briefs and research demanded by pastoral communities into local languages; providing information from the Region for the website on pastoralism in Ethiopia; organizing study tours for collegehniversity staff and students to visit pastoral communities to learn about local innovation and development activities; and organizing study tours for woreda- and kebele-level government staff and pastoral leaders to visit development and PAL activities in their own and other regions. Sub-component C: Policy Studies 40. A modest budget will be set aside at national and regional levels to be used by MoFA and the Regional Pastoral Development CommissionsBureaus, to commission studies that they regard as necessary to inform pastoral policy implementation. The outputs of this research will be made available through thefora and information units at national and regional level. A review committee will be established at national level to determine the topics of overview/ synthesis papers and policy briefs to be commissioned by the PCDP 11. This committee will consist of volunteer resource persons with experience on pastoral development and policy issues. Component 4: Project Management (US$8.9 million, including US$6.3 million from the World Bank and US$2.6 million from FAD) 41. MoFA will retain overall responsibility for project implementation. The FPCU based in Addis Ababa will be tasked with the following responsibilities: (i) coordination at federal level; (ii) annual work planning; (ii) fiduciary obligations; (iv) liaison with stakeholder groups; (v) communication; (vi) M&E and reporting; and (vii) mobilization of technical backstopping and training. Based on lessons learned from Phase I, the FPCU will be strengthened in the following functional areas: (i) dedicated staff capacity for oversight of each Project component and procurement; (ii) M&E (including MIS); (iii) communications; and (iv) human resource development / training. The RPCUs will retain primary responsibility for: (i) coordination at 62

70 regional level; (ii) the implementation of the CIF; (iii) monitoring of project activities at regional level; (iv) regional fiduciary obligations; and (v) liaison with similar interventions. Further details on the institutional arrangements are provided in Annex 6. Project Management Issues by Project Components: 42. Rural Livelihoods Program: A Sustainable Livelihoods Enhancement coordinator at federal level will be responsible for coordination of CIF and RLP activities at federal level. At the regional level, MSTs will be strengthened with enterprise and cooperative development as well as procurement skills. Overall management of this sub-component will be delegated to the Federal Cooperative Agency. 43. Pastoral Early Warning and Response Program: The MoFA will sign a MoU with the MoARD Early Warning and Response Department for the implementation of this program through Regional Early Warning and Food Security Committees and downwards through regional E m, EWRO and EWRD offices. The FPCU PRM officer will provide technical guidance and oversight for the program. 44. Disaster Preparedness Strategic Investment Program: Regional PDOs will work with RPCUs, interested donors, contracted experts and regional donor and CSO programs to develop regional disaster preparedness strategies and prioritized investment plans. The strategy and investment plans will be reviewed and approved by the Regional PCDP IUPSNP Steering Committee and implemented in accordance with available resources for the region. 45. Participatory Learning and Knowledge Management: The FPCU will be responsible for setting up the resource unit and network at national level, and the RPCUs for setting up the resource units and networks at regional level. The website and resource units will be managed by a webmaster/documentation specialist at national level and one document manager each at regional level, responsible initially to the FPCU and RPCU, respectively. The PAL subcomponent will be coordinated by the PLKM Officer in the FPCU. In each region, two PAL facilitators will be hired as members of the MSTs working in the woredas selected for this pilot activity and will report to the RPCU. 63

71 Annex 5: Project Costs ETHIOPIA: Pastoral Community Development Project I1 Table 1: Total Project Costs by Component I I I Price Contingencies Total Project Costs Total Financing Required Total Financing Required (IDA) I I I I Table 2: Total Project Costs by Source of Financing Subtotal: Sustainable Livelihoods Project Management Project Support and Coordination Total Project Cost

72 Table 1: IDA Credit and Grant Financing by Disbursement Category Subprojects (2) Consultant s Services including audits for all activities other than CIF Subprojects, IG Subprojects, DPSI and DER Subprojects 800,000 2,000, % I I I (3) Training 800,000 2,000, % (4) Goods, works and services for CIF Subprojects 6,700,000 16,300, % (5) Goods and Works and services for IG Subprojects 300, , % (6) Goods, works and services for DER Subprojects (7) Goods works and services for DPSI Subprojects 600,000 1,500, % 2,300,000 5,500, % (9) Unallocated TOTAL AMOUNT 500,000 1,200,000 14,200,000 34,400,000 48,600,000 65

73 Annex 6: Implementation Arrangements ETHIOPIA: Pastoral Community Development Project I1 Key Institutions for Project Implementation 1. National Oversight. The Ministry of Federal Affairs will have overall responsibility for supervision of the Project. Oversight for Phase I1 will be provided by the Federal Interministerial Board (FIB). The FIB will review progress of the PCDP I1 on a semi-annual basis, and will assess work plans on an annual basis. Measures to promote a proactive role for the FIB in Phase I1 include: a training seminar for FIB members upon project launch; the inclusion of guidelines and procedures for FIB meetings (recommended on a semi-annual basis) in the PIM; dissemination to the FIB of all project semester reports and discussion of said reports on a semiannual basis; and inclusion of a measure of the timeliness and regularity of FIB oversight of Project performance in relation to key indicators. 2. As in Phase I, a lean FPCU will be maintained in Addis Ababa to perform the following functions: overall project management, annual planning, fiduciary management, liaison with federal stakeholder groups, project communication, overall M&E and reporting, strategic staff capacity-building and mobilization of technical backstopping. The FPCU will include: (a) a Project Coordinator; (b) a Monitoring and Evaluation Team; (c) two Financial Management Specialists; (d) one Procurement Officer and one Procurement Assistant; (e) a Participatory Learning and Knowledge Management Officer; (0 a Pastoral Risk Management Officer; (g) a Communications Officer; (h) a Training Officer; (i) a Logistics Officer and 6) a Sustainable Livelihoods Officer; and (k) appropriate support staff. Terms of Reference (TOR) for these posts will be appended to the PIM. Capacity-building will be provided to all staff around cross-cutting issues that feature prominently in Phase 11, including community-based conflict management, accountability and anti-corruption measures. 3. Regional Project Steering Committees will be established to oversee RPCU operations at regional level also, with a view to improving integration into regional planning and budgeting exercises. The regional PSC shall be responsible at regional level for: (i) providing overall supervision for Project implementation; (ii) approving the overall annual regional Project work program and budget; and (iii) reviewing the annual implementation performance report prepared by the RPCU in relation to key performance indicators 4. At present, four RPCUs have been established within the four Project regions. At regional level, the role of the RPCUs will be to: (i) manage project fund flows and liaise with relevant bureaus and the federal level; (ii) oversee the CIF, (iii) supervise MSTs; (ii) oversee the PRM component; (iv) oversee the PLKM component; (v) facilitate capacity-building activities at community and woreda level to improve planning and provision of support services; (vi) monitor and report on Project implementation; and (vii) provide technical assistance in procurement management at woreda and community levels. The RPCU will consist of the following: (a) a Regional Project Coordinator; (b) a Communications Specialist; (c) an Accountant; (d) a Procurement Officer; (e) a Regional Monitoring Officer; (0 a Training Officer; (g) an MIS Officer; (h) a Pastoral Risk Management Officer; (i) a CIF Officer; 6) a RLP Officer; and (k) support staff. The Project will also establish up to 10 sub-regional offices, staffed by a 66

74 secretary and caretaker, to support out-posted MSTs. Finally, the Project will recruit internal auditors in high-risk regions. 5. Woreda and community level. The day-to-day field operations of the CIF at woreda and community level are undertaken by Project-financed Mobile Support Teams (MSTs), each of which operates within a subset of woredas. The roles of the MSTs are to: (i) introduce communities and local authorities to the Project and provide initial orientation and training using a learning-by-doing approach; (ii) train communities to identify, manage and monitor subprojects, including procurement aspects; (iii) facilitate communication between communities and formal government structures; (iv) assist Woreda Development Committees to appraise and approve CIF subprojects, and observe and validate such decision-making; (v) carry out Project monitoring; and (vi) trouble-shoot. MSTs will be composed of: (a) a Team Leader; (b) a Training Officer; (c) a Savings and Cooperatives specialist; (d) a Procurement specialist; and (d) support staff. MST staff have technical qualifications (e.g. in veterinary, range, education, water and/or health), but should be primarily experienced facilitators, drawing upon technical staff in regional and zonal bureaus for training and technical backstopping as needed. Based on evaluations and assessments during Phase I, the number of MSTs will be increased significantly for Phase 11. Each MST will cover no more than three woredas. 6. Communities. Community-Driven Development (CDD) is central to this project, and communities themselves constitute the key implementing agencies for several sub-components of the PCDP 11. Building on the levels of community involvement fostered during Phase I, beneficiary communities will play the primary role in identifying, appraising, implementing, monitoring and evaluating subprojects financed through the CIF. They will also be closely involved, with the support of their respective woredas, in designing and implementing disaster preparedness plans and related investments through the PRM component of the Project. The role of communities in research and policy dialogue will be enhanced, with participatory action research being used as a key tool to involve communities in setting the research agenda and to prioritize demand-driven, applied research of direct benefit to pastoral communities. Finally, communities will have a stronger role to play in M&E activities. 7. As the success of the Project s core programs depends on strong community-based organizations, including customary institutions, their knowledge and experiences will be applied to the identification of groupings and forms of organization that can best promote development at local levels. It is intended that a coalition of community groups, including traditional organizations and groups representing specific interests (women, youth, environment, culture etc) will work together to set community development priorities and to manage their implementation. Strengthening the capacities of communities to undertake local development activities and to hold woreda authorities accountable for service delivery will thus be a priority in Phase 11. Links with other IDA-financed projects 14. The PCDP I1 will seek to collaborate closely with a number of World Bank-supported projects, including the following: 67

75 PSNP. This project is currently piloting activities in pastoral areas. PCDP I1 will seek to cooperate closely with the PSNP with a view to harmonizing the following key elements: (i) early warning systems; (ii) woreda development planning; (iii) contingency responses; and (iv) approaches to social infrastructure investments; FSP. In the highlands, this project is initiating work with Rural Savings and Credit Cooperatives (RUSACCOs) which may provide opportunities for learning and cross-fertilization with the PCDP 11; Protection ofbasic Services (PBS). PCDP I1 will seek to build the capacity of pastoral woredas to be able to draw upon Local Investment Grant resources under the PBS in the medium term, and will seek to inform community participation approaches used by PBS. PBS may also offer some examples of relevant social accountability approaches which the PCDP I1 could test in lowland areas; and Water Sector Supply Project (WSSP). As this project expands its presence in pastoral areas, the PCDP I1 will seek to build upon the WSSP guidelines for water interventions in pastoral areas, and will also try to call upon the resources of WSSP in particular for larger and more complex water investments (e.g. boreholes). Implementation Arrangements Specific to Project Components Component 1: Sustainable Livelihoods Enhancement 15. Community Investment Fund. Communities will be requested to identify and prioritize subprojects at most once a year according to a schedule prepared by the MSTs in consultation with woreda authorities. Proposals will be consolidated at woreda level by the PDOs. Proposals will be appraised by relevant WDCs for appraisal and review with a view to ensuring consistency with any other investment plans, feasibility of any recurrent expenditure implications and coherence with Government standards. Once appraised, subprojects will be submitted to elected Woreda Councils for consideration and approval. Where there are no elected Woreda Councils in place, the Project will continue to rely on WDCs to select sub-projects. WDC s will be restructured to include a number of community representatives from beneficiary communities in addition to relevant woreda sector officials. Project selection criteria will be specified in the PIM, and will include environmental screening and scoping guidelines (including mitigation of environmental impacts), future sustainability prospects etc prior to acceptance for financing. 16. All woreda subproject decision meetings will be observed and validated by an MST representative, who will act as the Secretary to the WDC. Representatives of communities submitting proposals will be invited to present the proposals and to observe the decision meeting. All committee proceedings will be documented in writing. Councilhommittee subproject decisions and budgets will be posted at woreda offices and other relevant locations. Woredas that demonstrate a capacity to support communities will attract higher levels of funding. Those that demonstrate poor interaction with communities and/or poor levels of implementation will obtain less support. Details of the procedures and criteria for CIF use will be included in the PIM. 17. Rural Livelihoods Program (RLP). This sub-component will be implemented by Rural Savings and Credit Cooperatives at community and woreda levels. At federal and regional level, 68

76 this activity will be overseen by the Federal Cooperatives Agency under the terms of a MoU to be signed with MoFA (see section on RLP in Annex 4 above). Details of the implementation arrangements including reporting, auditing system, supervision mechanisms and roles and responsibilities of participating institutions will be provided in the PIM. Component 2: Pastoral Risk Management 19. Data Management. EWS data will be collected periodically by part-time field enumerators resident in the community. Field enumerators will be required to have at least an gth grade education and could include, inter alia, teachers, health workers or educated pastoralists. Data forms completed by the enumerators will be collected by the woreda EWRD officer and entered at woreda level into an electronic database according to livelihood zones. Woreda EWS reports will go directly to regional EWRBs. At each level, livelihood zone data will be analyzed against base-year information and seasonal trends to detect any significant shifts in livelihood. Any significant deterioration in the value of a key indicator (e.g. a drop of more than 15% in milk yield over a one-month period) would trigger a shift in to Alert status in the disaster cycle, triggering an appropriate early response in accordance with shelf plans identified in the woreda DPCPs, which will have been aggregated by livelihood zone. The regional EWRB will send the aggregated regional database, together with its interpretation of the disaster status by livelihood zone to the federal EWRD/MoARD within five days of its receipt from woreda level. 20. Early response interventions to a shift from Normal to Alert or Alarm phase will be requested by the regional EWRB and authorized by the Regional Early Warning and Food Security Steering Committee (REWFSSC), chaired by a representative o f the Regional President s office. The early response will be applied by either administrative or livelihood zone, depending on the nature of the emergency, and will be based on pre-approved and priced shelf plans identified through the woreda DPCPs and collated at regional level. The EWRD procure framework contracts covering the shelf plans, and will hnd early response measures through DER Grants. Detailed procedures for the DER Grants will be specified in the PIM. Component 3: Participatory Learning and Knowledge Management 22. Participatory Action Learning. The PAL sub-component will be coordinated by the Participatory Learning and Knowledge Management (PLKM) Officer in the FPCU in collaboration with the Communication Officer in each RPCU and with representatives from the Regional Pastoral Development Commission/ Bureau. 23. A Participatory Action Learning (PAL) trainer will be contracted by the FPCU to provide initial training to the eight PAL facilitators, the PLKM Officer and the Communication Officers in the RPCUs. The trainer will provide additional capacity-building during the semi-annual experience-sharing meetings of these project staff and will also accompany each PAL facilitator at least twice per year (one week each time) to provide coaching in the field. 24. In each of the four regions that were involved in PCDP I, two Participatory Action Learning (PAL) facilitators will be attached to one MST team each. They will initiate and support the pilot activities in demand-driven experimentation and innovation development. They will preferably 69

77 have a background in adaptive research but will be, above all, facilitators and networkers bringing stakeholders together in user-led research in a wide sense of the term. Budgets for community research will be managed by the PAL trainers. Proposals from community groups will be reviewed by the WDC / Woreda Council. The RPCUs will manage these resources at regional level. The regional allocation for these activities will be transferred to the RPCUs on an annual basis. The RPCU will make quarterly progress reports of PAL activities and use of funds to the respective Regional Pastoral Development Commission/ Bureau and to the FPCU. The process and outputs of the activities supported through these funds will also be communicated in relevant regionalforu. 25. The FPCUFCDP will consult with MoARD to explore possibilities of collaboration in the Rural Capacity Building Project in building capacities in agricultural research, extension and education (in the ATVET colleges) and promoting participatory innovation development around Pastoral Training Centers in lowland kebeles. The Communication Officer in the RPCU will establish and maintain close contact with the Rural Capacity Building Project, with a view to subsequent scaling up of the PAL and demand-led research initiated under PCDP The FPCU will be responsible for setting up the information unit at national level, initially within the FPCU office, whereas the RPCUs will be responsible for setting up the regional information units in the offices of the Pastoral Development CommissionsBureaus or a regional pastoral forum. PCDP I1 will provide IT expertise to the information units at national and regional level. The website and national information unit will by managed by a webmaster/ documentation specialist responsible to the PLKM Officer. Each regional information unit will be under a document manager responsible to the Communication Officer in the RPCU. 27. The b ds for policy-informing research commissioned by MoFA and the Regional Pastoral Development Commissions/Bureaus will be transferred annually from the FPCUFCDP to the relevant offices at national and regional levels. A committee of voluntary resource persons will review proposals for studies to assure the appropriateness of the methodology. Component 4: Project Management 30. Federal Management: See paragraphs 1-2 above of Annex Regional and Woreda Management. See paragraphs 3-9 above o f Annex 6 70

78 Annex 7: Financial Management and Disbursement Arrangements ETHIOPIA: Pastoral Community Development Project I1 Introduction 1. The financial management (FM) assessment is conducted in line with the Financial Management Practice Manual issued by the FM Board on 3 November The objective of the assessment is to determine whether the implementing entities have acceptable financial management arrangements, which will ensure: (i) the funds are used only for the intended purposes in an efficient and economical way; (ii) the preparation of accurate, reliable and timely periodic financial reports; (iii) ensure that finds are properly managed and flow smoothly, rapidly, adequately, regularly and predictably to implementing agencies at all levels (federal, regional and woreda); (iv) enable project management to monitor the efficient implementation of the project and (iii) safeguard the entities assets and resources. 2. As part of the FM assessment, the financial management team visited the Federal Project Coordination Unit (FPCU) and the Oromiya Region Project Coordination Unit (ORPCU). Furthermore, the cumulative knowledge and experience about the country and the project that is being implemented by PCDP I have been considered during the assessment. This assessment was conducted in the month of February Summary Project Description 3. The objective of PCDP I1 is to contribute to: (i) increasing the resilience of Ethiopian pastoralists to external shocks; and (ii) improving the livelihoods of beneficiary communities. The second phase will seek to consolidate the progress made under PCDP I, and to expand the geographic impact area in order to establish the platform from which the long-run development objective of sustainable pastoralist livelihoods can be met. 4. The second five year phase of the PCDP APL (US$50 million) is scheduled to begin by June 30,2008. PCDP I1 will continue implementation of most PCDP I program components, subject to modifications to further strengthen and focus on community development activities. PCDP I1 components will be: (i) support to sustainable livelihoods (including CF); (ii) pastoral risk management (including pastoral Early Warning Systems, woreda Disaster Prevention Contingency Plans, and disaster coordination activities); (iii) participatory research; and (iv) project management (including monitoring and evaluation activities). Country Issues 5. The recently completed Joint budget and Aid review (JBAR) and the Fiduciary Assessment (FA) show that Ethiopia has made significant progress in strengthening public financial management in recent years. The JBAR, which was conducted by the Bank in collaboration with other donors, reviewed the Public Financial Management (PFM) system using the Public Expenditure and Financial Accountability (PEFA) framework. Out of the sixteen indicators covered under this review, fourteen were on government s systems for public expenditure 71

79 planning, budgeting and reporting. The remaining two indicators are means to assess donor performance. Ethiopia scored high on seven of the fourteen indictors, i.e. macroeconomic management, including aggregate fiscal discipline and minimizing fiscal risks. The JBAR observes satisfactory progress in budgeting and accounting reform but notes that the adequacy and quality of budget reporting leaves room for improvement and remain a key concern. 6. The Fiduciary Assessment completed in early 2005, notes that considerable progress has been made in implementing PFM reforms in both federal and regional levels. The areas of improvements include budget processes, internal controls and cash management. Also, some steps have been taken in reforming internal and external audits. The status of PFM reform and performance varies among regions. Southern Nation and Nationalities Peoples (SNNP) and Tigray regions have been the beneficiaries of investment and local initiatives to support PFM reform. They both show improvement in the overall public finance function and a consequential reduction in fiduciary risk. Few other Regions, such as Amhara and Oromiya, have also exhibited significant progress in public financial management while others are at an earlier stage of investment in PFM. However, there continues to be capacity and staffing issues in areas such as audit in all the regions. 7. Ethiopia s public financial management reforms have been carried out through the Expenditure Management and Control sub-program (EMCP) of the government s civil service reform program (CSRP). EMCP has developed a revised strategic plan to implement the nine components of the sub-program. Mobilization behind the EMCP (in terms of financial and human resources) is a key component of the Public Sector Capacity Building Program (PSCAP) and has now been considered a priority in order to achieve hrther improvement in all aspects of financial management. Overview of the PEFA Assessment Report 8. An evaluation of Public Financial Management (PFM) performance in Ethiopia was conducted in early 2007 based on an international reference framework - the PEFA or Public Expenditure and Financial Accountability framework. The assessment was done at the federal and regional levels and two separate reports were issued. Seven regions were included in the assessment. The draft assessment report issued in April 2007 observed significant improvement in the area of financial management at regions, including budgetary transparency in recent years, robust budget preparation, regular internal audit scrutiny and follow up of internal audit recommendations, timeliness of in-year and annual financial reports, and mutual supportiveness of the federal and regional Auditor Generals. Nonetheless, the report noted that the quality and nature of internal audit is uneven across the regions. It also reported untimely clearance of suspense accounts and that some regions are still experiencing significant delays in producing timely in-year and end of year information. 9. The report for the assessment conducted at the federal level shows that the classification of the budget meets international standards and the information included in the budget documentation is of good quality. The fiscal relations between the federal government and the regions are transparent. The report also noted that the budget process is well ordered with the existence of a budget calendar generally adhered to, and a budget circular issued to budgetary 72

80 institutions. Payroll and procurement controls are identified as being satisfactory while control for non-salary expenditure shows some weaknesses. Internal audits are also improved over recent years although the department does not share its work with the Federal Auditor General. The report indicated that the quality of in-year budget reports and annual financial statements is satisfactory and delays in submitting financial statements to OFAG have been significantly reduced. 10. The Federal government report also shows that the OFAG adheres to INTOSAI auditing standards and focuses on significant issues. OFAG forwards audited accounts on time and these are reviewed by the parliamentary Public Accounts Committee (PCA) The report also looked at the status of the government reform processes. It is highlighted that the first phase of the reform (transaction platform) has taken place through budgeting, planning, accounting, and information systems. The second phase of the reform, policy platform, is continuing at the sub-national level with reforms to the block grant mechanisms and a move towards more performance based budgeting. The government leadership and ownership regarding ongoing PFM reform efforts are both high. The report, however observed challenges in carrying out these reforms. Risk Assessment and Mitigation Inherent risk Country level S S N The risk arises mainly from weak capacity, including shortage of qualified accountants and auditors, and weaknesses in the country s PFM system. It is being addressed by the Government outside this project through the ongoing Expenditure Management and Control Program which is supported by the Public Sector Capacity Building Project (PSCAP). Also, the Private Sector Capacity Development Project is supporting some private sector initiatives. 73

81 Entity level S S N The number of accountants at every level is low and this is aggravated by high turnover of staff. Accounting, financial reporting and auditing not timely Project level Control Risk Budgeting Accounting S M S The FM manual will further be revised to accommodate the needs o f new activities added into APL- I1 and comments given by the auditors and the Bank in previous missions. S M M M N N Y (for FM manual and clearing o f inter-fund account balances) Due to the nature o f the project (Le. CDD project), the ongoing AF'L-I was prone to miss-procurement and other FM related deficiencies. The implementing units are widely dispersed specifically woredas and beneficiary communities. Budgeting mainly follows the government budgeting system Under revision of the FM manual the existing chart o f accounts will be revised in light o f the APL-I1 specific needs. Internal Control S Clear inter-fund account balances upon consolidation of the accounts o f implementing entities. Recruitment of accountants in the new woredas High risk regions such as Somali and Afar M (N) (Recruitment of accountants in new woredas) N To be completed within 90 days o f Effectiveness. PIM to specify that no CIF disbursements to take place to woredas where no accountant is in place. The internal audit department of the FPCU has become operational. It should be 74

82 Remarks Funds Flow Financial Reporting Auditing Overall Risk Rating '-High, S-Substantial, M-Moa region will recruit internal auditors and all implementing agencies internal audit units will include the project into their work program A new M Designated account will be opened at the FPCU Formats of the I M un-audited Interim Financial Report (IFR) for APL- I1 were agreed during Negotiations of the Project - Early notification and follow-up will be exercised to ensure that audit is completed within the due date. In addition the external auditor will conduct interim audit on the accounts. I 'ate, L-Low I I M N augmented with support from the internal audit unit of the MoFA. The FM manual sets out important control procedures. The fimd flow arrangement will largely follow the existing arrangement for APL-I. Regular and enhanced quality IFRs (through time) have been submitted to IDA by the ongoing APL-I project. Audit reports for APL-I have been received on a timely basis, and there is no outstanding audit report from Phase-I. 12. Considering the above risk assessment and mitigation table the overall residual risk of the project will be Moderate after the risk mitigation measures are undertaken. 75

83 Strengths 13, The country s discipline in executing budget and complying with the existing government regulations are the major strengths indicated in most of the PFM diagnostic works conducted so far. The woreda Finance Offices will be involved in processing most of the project financial transactions in which the woredas are strictly following-up the budgetary discipline and regular government reporting mechanism. MoFA has previous experience in implementing donorfinanced projects, including the ongoing PCDP I jointly financed by IDA and FAD. PCDP I has been submitting regular IFRs and audit reports on a timely manner and, at present, there is no outstanding report from the project. Weaknesses and Action Plan Significant Weaknesses The FM manual is not up-to-date Uncleared inter-fund account balances upon consolidation of the accounts the implementing entities. The project is implemented by various agencies, mainly woredas Lack of submission o f regular financial information, mainly from the new woredas to be added in Phase-I1 The ongoing APL-I was prone to misprocurement and other FM related deficiencies. Action Revise the manual Clear material inter-fund account balances Recruitment of accountants at new woredas and providing training to them Closer follow-up on the submission of IFRs Recruit internal auditors in Somalia and Afar region Responsible Person FPCU FPCU, RPCUs, woredas FPCU, RPCUs FPCU, RPCUs, woredas WB, FPCU, RPCUs FPCU and, RPCUs Completion effectiveness effectiveness Within 90 days of Effectiveness 1 Regular of effectiveness Implementing entities 14. The existing Federal Project Coordinating Unit (FPCU) will be responsible for coordinating the project (APL-11). To ensure appropriate fiduciary management, the FPCU will have a Project Coordinator, Financial Officers (2) and one Finance Assistant, a Procurement Officer, a Procurement Assistant and a Monitoring and Evaluation expert. Its roles would be to release funds against agreed plans, disburse funds to all implementing levels, and co-ordinate monitoring and evaluation of the project as a whole. It would not be an implementing agency. 15. The Regional PCUs (RPCUs) will be responsible for supporting, coordinating and overseeing the operational and financial functions of the woreda offices. 16. The flow of funds to communities will be overseen by the Woreda Development Committee (WDC), which includes heads of relevant bureaus (agriculture, health, labor and social affairs), and representatives of the private sector and civil society. The woreda Finance 76

84 Office will be responsible for overseeing the financial transactions of the project at the woreda and for providing support to communities to manage resources for CIF sub-projects. Assistant finance officers will be required for those new woredas which will be added in the APLI Communities, with the support of Woreda and MSTs, will prepare Community Action Plans (CAPS) for appraisal by their respective WDCs. Funds for approved plans will flow from woredas to communities in appropriately sized and phased tranches as shall be determined in the PIM. Expenditure on any tranche must be completed before a new tranche is released. Budgeting 18. The Ethiopian budget system is complex, reflecting the fiscal decentralization structure. Budget is processed at federal, regional, zonal (in some regions), woreda and municipality levels. The federal budgeting process usually begins by issuing the budget preparation note to the Budgetary Institutions. Based on the budget manual, the Budgetary Institutions prepare their budgets in line with the budget ceilings and submit these to MoFED within six weeks following the budget call. The budgets are reviewed at first by MoFED and then by the Council of Ministers. The final recommended draft budget is sent to parliament around early June and expected to be cleared at the latest by the end of the fiscal year. 19. MoFA prepares annual budgets based on its strategic plans following the government budget processes. The project budget is included in the annual budget proclamation of the federal government, under the name of MoFA. The project prepares regular reports comparing actual and budget and submit the same for management and donors for information and decision making. The financial management manual will explain the detailed budgeting and budget control processes in the project. Accounting 20. All implementing entities follow the government accounting system - double entry accounting system on a modified cash basis. The project has a financial management manual which spells out important internal control and accounting procedure. The current manual however lacks needs to be updated to reflect adequate information on the formats of Interim Financial Report (IFR), updated chart of accounts, and important internal control procedures on imprestlpetty cash system and segregation of duties, etc. The manual will therefore be revised so as to incorporate the above issues. The revision of the manual, which will be attached to the overall PIM, will be an effectiveness condition for the project. Efforts are already made to address in the manual comments given by external auditors and IDA S various supervision mission in respect of the recognition of income from donors and accounting for inter-fund accounts The FPCU, all RPCUs and most woredas offices are using Peachtree accounting software for the project hnd. This system is capable of producing the required financial deliverables for the project. However, a few woredas have not yet introduced a computerized accounting system due 77

85 to a lack of electricity, computers and other facilities. The FPCU provided the woredas the necessary facilities and instructions to introduce the computerized system. 22. A standardized reporting format and chart of accounts have been used by the APL-I. These formats shall be used in the APL-11. However, the existing chart of accounts will be revised in light of the new activities included in PCDP I1 must be able to report expenditures on a component and on a category basis. 23. Presently, the FPCU has two finance officers and one assistant accountant. Each of the RPCUs has a finance officer and assistant. The woreda finance offices have each recruited one assistant finance officer for the project. The existing staffing arrangement will be used for APL- 11. However, project accountants should be hired in each of those new woredas to be included in the APL-11. The FPCU finance officers should build the capacity of RPCUs, who will in turn build the capacity of woreda finance offices through regular visits and formal trainings. 24. The FPCU and RPCUs should ensure that each of the newly added woredas in APL-I1 have hired project accountant, with the required educational background and experience, before transferring funds to them. Moreover, the FPCU and RPCUs should ensure that these new woredas have opened separate bank account for the project. 25. Each of the implementing agencies (RPCUs, FPCUs and woredas) is responsible for maintaining the project s records and documents for all financial transactions occurred in their offices. These documents and records will be made available to the Bank s regular supervision missions and to the external auditors. 26. Each community committee will maintain a simple book for registering transactions, which shows the amount of money received and expenditures made. All the supporting documents from the community should be submitted to the respective woreda finance office along with regular financial reports. Internal Controls and Internal Auditing: 27. Internal control comprises the whole system of control, financial or otherwise, and has been established by management in order to (i) carry out the project activities in an orderly and efficient manner, (ii) ensure adherence to policies and procedures, (iii) ensure maintenance of complete and accurate accounting records, and (iv) safeguard the assets of the project. 28. The FPCU, RPCUs and woreda offices are using those control procedures prescribed by the financial management manual. These procedures are adequate to ensure authorization, recording and custody controls. As noted above, the existing financial management manual (of APL-I) should be revised to clarify important control, reporting and auditing procedures for APL The FPCU has an internal auditor. MoFA has also an internal audit unit performing internal audit on government funds. However, the MoFA internal audit unit has been passive over the project. The two audit units should work complementarily so as to attain the project objectives. The MoFA internal audit should help to perform internal audits on the projectfinancial 78

86 transactions. The internal audit units at the FPCU and MoFA will include the project in their annual work programs and perform the necessary internal audit on the project financial transaction. 30. The RPCUs do not have separate internal audit units, nor do they receive adequate audit service from the regional pastoral offices they are housed in. Some RPCUs have expressed interest in having separate audit unit in their offices that will continuously assess and evaluate the project s operations, implementation of control procedures, management s efficiency in managing risks, etc at the regional and woreda levels. The project should recruit internal auditors in high-risk regions, specifically in the Somali and Afar regions and it should ensure that these auditors work in close collaboration with the regional pastoral office internal audit departments The government Civil Service Reform Program is building the capacity of internal audit in the country. So far, internal audit manuals have been issued and training has been provided to internal auditors. The improvement in internal audit has been recognized in recent diagnostic works, e.g., the FA assessment. Funds Flow and Disbursement Arrangements Disbursement Mechanism 32. The project may follow one or a combination of the following disbursement methods: Designated Account, Direct Payment, Reimbursement and Special Commitment. Designated Account and Disbursement Method: 33. The FPCU will open a new Designated Account denominated in US Dollars. The existing Local Account in Birr will also be used to receive transfer from the USD account. The local account in Birr would finance all eligible project expenditures at the respective offices and would be used by FPCU to transfer funds to RPCUs. The authorized ceiling of the Designated Account would be US$ 10 million. The amount has been calculated to cover approximately six months expected expenditures of the project. 34. Each of the RPCUs and woreda finance offices will continue operating the existing project Birr accounts to receive funds from the FPCU. Advances to these regiondworedas from the FPCU will be based on the approved work plan. The initial advance will cover four months expected expenditures and the subsequent transfer will be based on actual expenditures justified through statement of expenditures, and will only be made to those regiondworedas that provide regular financial reports to FPCU. 35. Before transferring any money to the lower level, the FPCU and RPCUs will ensure that separate bank accounts have been opened for the project (mainly in those new woredas included in APL-11) and there are adequate financial management systems including financial management staff capable of producing the required financial deliverables. 36. On the recommendation of the WDC, the woreda Finance Offices will transfer money to the Community Based Organizations implementing CIF sub-projects. Community Participation in 79

87 procurement method will be used widely; which implies the use of local currency in contractual payments, and that SOEs will be the basis for replenishment of the Special Account on a regular basis. 37. Disbursement of IDA finds to the Designated Account will initially follow Transaction- Based Disbursement through the use of statement of expenditures (SOE). The Transaction- Based Disbursement Method will be used during at least the first two years of implementation. In order for the project to move from transaction based disbursement to report based disbursement where six monthly forecasts of expenditure are paid quarterly hence ensuring the project has adequate funding at all times, PCDP I1 will during implementation have to meet the following requirements: (a) sustain satisfactory financial management rating during the project's supervision; (b) submit Interim Financial Reports consistent with the agreed form and content within 45 days of the end of each reporting period, and (c) submit all expected Audit Reports by the due date. 38. The find flow arrangement for the project is summarized in the following chart. IDA Credit A IFAD Credit Designated Account A in US$ nt MnF A /FPf'T T Designated Account B in US$ nt MnF A /FPf'T T Birr account A at MoFNFPCU Birr account B at MoFNFPCU 1 Birr account at woreda finance 39. The allocation of IDA Credit and Grant proceeds will be "ased on the project components. This will facilitate the monitoring of the project performance indicators as well as financial aspects since expenditures are directly allocated to components. Requests for replenishment of the Designated Account for expenditures incurred under each component will be based on expenditures incurred at the implementing agencies for which justification of utilization has been provided. 80

88 40. The FPCU will be responsible for paying to contractors, service providers and suppliers for all works done, goods procured and services obtained at the federal level. Likewise, RPCUs will be responsible for effecting payments for all services obtained and goods procured in their offices. Communities will be responsible for the same with respect to the implementation of CIF sub-projects, with support from woreda finance officers if necessary. Reporting on use of IDA Credit and Grant Proceeds and SOE limits 41, Disbursements for all expenditures should be made against full documentation except for contracts valued at less than as follows: i) US$200,000 for works; (ii) US$200,000 for goods; (iii) US$ 100,000 for consulting firms and (iv) US$ 50,000 for individual consultants (v) training and workshops, and operating costs on all contracts regardless of the amount which will be claimed on the basis of Statement of Expenditures (SOEs). All supporting documentation for SOEs will be retained at each of the offices where financial transactions occurred. They will be kept in a manner readily accessible for review by regular IDA missions and internal and external auditors. The statement of expenditures will be included in the Withdrawal Applications that will be submitted to IDA on a monthly basis. 42. The supporting documentation for reporting eligible expenditures paid from the Designated Account will be summary reports and records evidencing eligible expenditures for payments against contacts valued above the SOE thresholds defined above. The supporting documentation for direct payment requests should be records evidencing eligible expenditures (i.e., copies of receipts, suppliers invoices, etc). The project will submit a bank statement and a reconciliation of the Designated Account together with the Withdrawal Application on a monthly basis. Minimum Value ofapplication 43. The Minimum Value of Applications for Direct Payment US$ 100,000, and for Reimbursement and Special Commitments the minimum amount is US$200,000. Counterpart Funding Regional Governments will make an amount of US$ Smillion available to support implementation of CIF subprojects in the course of the Project. The first installment of these resources will be made available to the FPCU not later than: (i) October 15, 2008 an initial amount equivalent to $1,000,000 for the first year of implementation of the Project. Subsequently, on October 15 of each Fiscal Year thereafter during Project implementation, such amount as shall be required to ensure that the FPCU has available to it a total of the initial amount referred to above for the following Fiscal Year 81

89 Allocation of IDA Credit and Grant Proceeds 1,400, % Subprojects, DPSI and DER 2,000, % 2,000, % 16,300, % 700, % DER Subprojects 1,500, % 5,500, % 3,800, % 44. The Closing Date of the proposed IDA Credit and IDA Grant will be December 31,2013. The proposed IDA Credit and IDA Grant would be disbursed against the categories shown in the above table in a proportionate manner across all disbursement categories. Disbursements will be 82

90 made in accordance with procedures and policies outlined in the Bank's Disbursement Handbook. Financial Reporting 45. Financial reports will be designed to provide quality and timely information on project performance to project management, IDA and other relevant stakeholders. The existing accounting and reporting systems of FPCU, RPCUs and woreda finance offices are capable of producing the required information regarding project resources and expenditures. Duties of each implementing entity in the preparation of the regular financial reports are explained below. 1. Based on the regular reports received from RPCUs, it is the responsibility of FPCU to prepare consolidated quarterly Interim un-audited Financial Reports (IFRs) and annual accounts and facilitate the external audit of the consolidated accounts. 2. Based on regular reports received from woreda finance offices, RPCUs prepare and submit to FPCU a consolidated quarterly financial report. 3. Woreda finance offices are responsible for preparing and submitting quarterly reports to RPCUs. 46. Formats of the interim financial reports for this project (APL-11) will largely be the ones used by the ongoing APL-I and it will be agreed with IDA during project negotiation. In addition, the formats will be included in the financial management manual of the project. 47. On the basis of financial reports received from RPCUs, the FPCU will submit a consolidated IFR to IDA within 45 days after the end of each quarter. As explained above, submission of regular financial reports to the higher tiers will be conducted within the timeframe prescribed in the financial management manual. The consolidated IFR by the FPCU shall include, at a minimum, the following: statement of sources and uses of funds; statement of expenditures classified by Project components and or disbursement category (with additional information on expenditure types) showing comparisons with budgets for the reporting quarter and cumulatively for the project life; beginning and ending cash balances; cash forecast for the next six months; explanatory notes to the IFR; Designated Account activity statements. 48. In compliance with International Accounting Standards and IDA requirements, the FPCU will produce annual financial statements. These include: (i) a Balance Sheet that shows Assets, Liabilities and Fund balances; (ii) a Statement of Sources and Uses of Funds showing all the sources of Project finds, expenditures analyzed by Project component and or category; (iii) a Designated Account Activity Statement; (iv) a Summary of Withdrawals using SOE, listing individual withdrawal applications by reference number, date and amount; and (v) Notes related to significant accounting policies and accounting standards adopted by management and underlying the preparation of financial statements. These financial statements will be submitted for audit at the end of each year. 49. The FPCU has submitted to IDA quarterly IFRs up to December 31,2007. Contents and quality of IFRs have improved over time taking into account recommendations given by the 83

91 Bank s various supervision missions. Further attempts are being made by the FPCU to address measures recommended in the last supervision mission (Nov 2007). 50. No later than April 30 of each year, the FPCU will submit to the project steering committee, with a copy to IDA, the proposed Annual Work Programs. This will detail activities, associated unit costs and an implementation timetable. It will also include monitor able progress indicators for each proposed activity. In addition, the FPCU will submit semi-annual progress reports to its Board showing budgeted and actual expenditures, source of funds used, statements of progress achieved on the basis of the agreed upon indicators and the (revised) objectives and financial reports for the forthcoming six months Auditing 5 1. The Office of the Federal Auditor General (OFAG) is responsible to carry out the audit of all the financial transactions of the federal government and subsidies to the regions. Each of the regions has regional auditor general responsible to audit financial transactions in the region. OFAG usually delegate its responsibility mostly to the Audit Services Corporations (ASC), the government owned audit firm, and in some cases to private audit firms to carry out the audit of donor-financed projects. The ASC and most of the private audit firms conduct audits in accordance with international standards on auditing. For this project, OFAG will assign external auditors acceptable to IDA. The project external auditors with qualifications experience and TORS satisfactory to IDA, should be recruited within 90 days after IDA Credit and IDA Grant effectiveness. The auditor will conduct interim audit of the accounts within six months of effectiveness and will produce an interim management letter indicating internal control weakness if there are any. 52. According to the audit policy of IDA, the FPCU will each prepare consolidated project annual accounts, including all the statements explained above, and the auditors will express a single opinion on each of these consolidated accounts. 53. The FPCU will submit to IDA audit reports six months after the end of each fiscal year, which ends on 7 July of each year. Audit Report The project audit report - by FPCU Due Date By January 7 of each year (starting 2008) 84

92 Conditionalities 1. The Recipient has adopted a Project Implementation Manual, setting out the administrative and financial procedures including procurement and disbursement procedures, in form and substance satisfactory to the Association. 2. The Recipient has submitted a project implementation plan for the first eighteen months of the Project, in form and substance satisfactory to the Association. 3, The Recipient has submitted evidence satisfactory to the Association demonstrating the clearance of any material balances in the inter-fund accounts under the first phase of the Program. Supervision Plan A financial management supervision mission will be conducted over the project lifetime. Considering the nature of the project, the Bank's supervision mission should be as regular as possible. Each year, there should be at least two main supervision missions and another two interim supervision missions by the country office staff and the FPCU. This explains the FMS supervision needs based on the risk analysis. Financial Covenants 1. The project will submit the audited project accounts to IDA within six months after the end of each fiscal year. The fiscal year ends on 7 July of each year. In addition, the Government shall submit to the World Bank an interim audit reports, on a semi-annual basis, for the initial two years of Project implementation, no later than 90 days after the end of each relevant semi-annual period. 2. The FPCU, after receiving the financial reports from all implementing agencies (WCUs and woreda finance offices), will submit Interim un-audited Financial Reports (IFR) to IDA forty-five days after the end of each quarter. Undertakings 1. Recruitment of internal auditors in Somalia and Afar region within 180 after Credit and Grant Effectiveness. 2. The PIM will specify that no resources for CIF sub-projects will be disbursed to beneficiary woredas where no financial accountant is in place. 85

93 Financial Management Action Plan Item Action to be taken Revise the existing FM manual and annex to PIM Clear inter-fund account balances( Inter-fund balances between implementing agenesis should agree and be eliminated at consolidation) Recruit accountants in the new woredas, Recruit internal auditors Somalia and Afar region Recruit external auditor for APL-I1 (contract signed) Expected completion date Before effectiveness Before effectiveness Responsible Body FPCU FPCU, RPCUS, woredas FPCU and RPCU FPCU and RPCU Within 90 days of Effectiveness Six months after effectiveness 90 days after Credit and FPCU Grant effectiveness (dated covenant) One for each Region 86

94 Annex 8: Procurement Arrangements ETHIOPIA: Pastoral Community Development Project I1 A. General 1. Procurement for the proposed project would be carried out in accordance w L the Woi 1 Bank s Guidelines: Procurement under IBRD Loans and IDA Credits dated May 2004, revised October 2006; and Guidelines: Selection and Employment of Consultants by World Bank Borrowers dated May 2004, revised October 2006 and the provisions stipulated in the Legal Agreement. The various items under different expenditure categories are described in general below. For each contract to be financed by the IDA Credit and the IDA Grant, the different procurement methods or consultant selection methods, the need for pre-qualification, estimated costs, prior review requirements, and time frame are agreed between the Borrower and the Bank in the Procurement Plan. The Procurement Plan will be updated at least annually or as required to reflect the actual project implementation needs and improvements in institutional capacity. 2. Procurement of Works: Works procured under this project would include: (i) interventions under the Sustainable Livelihoods Enhancement Component for sub-projects costing $5,000 equivalent excluding community contribution per community of 100 persons, or $30,000 equivalent excluding community contribution per 500 households. These would involve shallow hand dug or drilled wells, springs, ponds, hajirs, and birkas for water supply improvements; as well as micro-scale irrigation; Healthcare; and Education infrastructure. (ii) interventions for Pastoral Risk Management including framework contracts to implement works from the shelf plans ; small feeder roads; improved catchment management, and fodder banks under the Disaster Contingency Fund and the Disaster Prevention Strategic Investment Program (DPSIP). The procurement will be done using the Bank s Standard Bidding Documents (SBD) for all ICB and National SBD agreed with or satisfactory to the Bank. Communities will be facilitated to plan, select, design and implement sub-projects of their choice and will contribute at least 15% of the cost of the sub-project. The details of the community participation in procurement under such sub-projects can be found in the Procurement and Contract Administration Manual as part of the Project Implementation Manual (PIM) 3. Procurement of Goods: Goods procured under this project would include human and animal vaccines, farm tools for strategic restocking under the DER Grants through framework contract to supply goods in the shelf plans ; vehicles and motorcycles for monitoring and survey work; office equipment and hiture; and GPS equipment and seeds and animals for restocking using Community Participation in procurement. The procurement will be done using the Bank s SBD for all ICB and National SBD agreed with or satisfactory to the Bank. 4. Procurement of non-consulting services: Non-consulting services to be procured under the project would involve a framework contract for the provision of transport of water, and livestock or fodder movements, under the DER Grants; as well as contracts for the installation and maintenance of VHF radio communication on vehicles; and the provision of internet connectivity using the Bank s sample bidding documents for the procurement of non-consulting services. 87

95 5. Selection of Consultants: The consulting assignments to be contracted to firms will include: Income Generating Group formation and support, under the Rural Livelihoods Program; preparation of shelf plans, Research Grants, Environmental Impact Assessments, and Strategic Disaster Preparedness Plans under the Pastoral Risk Management component; and assignments for knowledge management and participatory learning under the and Participatory Learning and Knowledge Management (PLKM) Component. Assignments to be contracted to individual consultants will be in the areas of: preparing the Pastoral Savings and Credit Manual, organization of peace building meetings, project staff and strengthened MSTs. Short lists of consultants for services estimated to cost less than $200,000 equivalent per contract may be composed entirely of national consultants in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines. Under the Pastoral Risk Management component, a Memorandum of Understanding will be signed with the Ministry of Agriculture and Rural Development s Early Warning and Response Department to implement the Pastoral Early Warning program. 6. Universities, government research institutions, public training institutions, CSOs, may be engaged under the PLKM component on exceptional and case-by-case basis to participate in policy and other demand driven research and knowledge management contracts. 7. Operating Costs: The operating costs which would be financed by the project include fuel and vehicle running and maintenance costs, stationary and sundries; advertising and other office running costs. These would be procured using the Government s administrative procedures which were reviewed and found acceptable to the Bank. The procurement procedures and SBDs to be used for each procurement method, as well as model contracts for works and goods procurement, will be included in the Procurement and Contracts Administration Manual. B. Assessment of the Agency s Capacity to Implement Procurement 8. The PCDP I1 will follow a Community Driven Development (CDD) approach to project implementation; therefore the majority of the procurement activities will be carried out by the beneficiary communities, while the large ticket items will be procured by the FPCU and the RPCUs under the Ministry of Federal Affairs and Pastoral Development Offices respectively. The FPCU function includes overall project coordination and management, monitoring and evaluation, capacity building and project reporting. Each region will have a RPCU to manage project funds flows link the government institutions with the civil society and facilitate beneficiary community participation in the project across the woredas and kebeles. The procurement function is staffed by an FPCU Procurement Officer, RPCU Procurement Officers in each region and procurement officers in MSTs at the woreda level. 9. An assessment of the capacity of the Implementing Agencies to implement procurement actions for the project has been carried out by Henry Mutwiri Riungu; Samuel Haile Selassie; and Richard Olowo between March 3 and 19,2008 and supplemented by the Post Procurement Review (PPR) mission report prepared by a Consultant for the SNNP Region prepared by a Consultant. The assessment reviewed the organizational structure for implementing the project and the interaction between the project s staff responsible for procurement and the Ministry s relevant central unit for administration and finance. 88

96 10. The key issues and risks concerning procurement for implementation of the project have been identified and include: a. The Procurement Environment. The PCDP I1 will involve a few contracts for large ticket items procured by the FPCU and RPCU, as well as numerous small contracts procured by the beneficiaries, with community participation in procurement. The legal framework and Standard Bidding Documents (SBDs) for public procurement in Ethiopia are fairly robust, but there is lack of capacity for the oversight and operational functions. Procurement Units and a procurement cadre have not been institutionalized in the civil service structures, and there is no capacity-building strategy being implemented to professionalize the procurement fiction. The definition of Community is broad, and therefore the communities will likely vary in size, name and organization depending on where and by whom it is formed, e.g.: (i) by group of youth with common interest, or (ii) by a kebele. b. Organization of the Procurement Function. There are three levels at which procurement is done: (i) At the federal level, the FPCU processes procurement for both federal level and consolidated requirements from the regions. A Procurement Committee of five members chaired by a senior official of the Ministry of Federal Affairs meets for public bid opening and contracts adjudication. The Project Coordinator has the authority to approve the Procurement Committee recommendations. The Procurement Specialist has contract management responsibilities. (ii) At the regional level, a similar arrangement exists at the RPCU, and the Procurement Committee is chaired by a senior official for the Pastoralist Affairs Bureau. Again, the Project Coordinator has the authority to approve the Procurement Committee recommendations. (iii) At the woreda and communitylkebele level, there are slight variations of the organization, but each kebele has three committees for: Project Management with five members; Procurement with three members; and Project Audit with three members. The Woreda Development Committee (WDC) has the approval authority of the community priorities. c. StafJing. At the FPCU, only one Procurement Officer out of two is in place. At the two regions that were sampled, SNNPR had a Procurement specialist at the RPCU but two Procurement Officers at the woreda level had left their jobs. The Oromiya region did not have any Procurement staff at the RPCU, and the Finance Officer was acting and in Fantale woreda there was no Procurement staff although a Community volunteer was acting. The Oromiya region reported that it had a high turn-over of staff with staff lasting on average three months before they move on. d. Procurement Planning and Execution. The FPCU, RPCUs and woredas that have implemented PCDP I have been trained to, and now have experience in systematically preparing project procurement plans. Procurement plans are prepared by consolidating the requests of beneficiaries, estimating the contract amount, selecting the procurement method, scheduling the procurement activities including the contract management activities, and obtaining approval of the plans. Bidding 89

97 opportunities are advertised in the press or posted on local notice boards for sealed bids; the Procurement Committees witness the public bid openings and endorse the bids. Bids are evaluated by technical persons supported by Procurement Officers who prepare the bid evaluation reports for consideration by the Procurement Committees. At both the FPCU and RPCU the Project Coordinator is the procurement approval authority, while the at the woreda and Kebele level, the WDC is the procurement approval authority. The procurement approval is required first for the membership to the evaluation teams, and then for the contract award recommendations made by the Procurement Committees. e. A project Procurement and Contract Administration Manual is available, but with translation only to the Amharic language but not to the Oromifa and other local languages. Two misprocurements were declared under PCDP I, leading to the temporary suspension of disbursements to the Somali region. The misprocurement at the FPCU was due to non-compliance with the procurement rules in the selection of consultants. However, misprocurement at the Somali region, was due to suspected collusion in the preparation of bids leading to uncompetitive contract prices for furniture. The Project Audit Committees inspect to verify delivery and witness storage of supplies; witness, and verify the issue of project supplies from woredu stores; and verify the proper use of project supplies at the final project sites. f. Procurement Records Management. There are procurement files in place, however they all lack financial information which is separately kept in the Finance section. The information on record is mostly in Amharic, but some in the English language and is not systematically filed. g. Internal Controls and Oversight. Procurement Specialists are also responsible for contract management which may create a potential or perceived conflict of interest. However, national oversight at the political level is provided by the Federal Inter Ministerial Board (FIB) which will bring together the ministries of Agriculture and Rural Development, Water, Health, Water, Infrastructure as well as the Livestock Marketing Authority and the Parliamentary Standing Committee on Pastoral Development (PSCPD). Below that, the Public Procurement Authority (PPA) has started conducting procurement audits at the federal level, but the PPA has serious capacity constraints and has not audited any Bank-financed projects yet. At the regions, the Project Audit Committees are the oversight arrangement. 11. The overall project risk for procurement is HIGH. 12. The corrective measures which have been agreed are in the table below: 90

98 Schedule of Corrective Actions to be Carried Out Lack of adequate guidance on community Participation in Procurement including the detailed procedures and documentation. Inadequate competitive bidding procedures o f the Recipient Preparing and submitting to IDA the draft updated Project Procurement and Contract Administration Manual (forming part of the PIM) with a description of a procurement monitoring and reporting system based on which the PCDP I1 will regularly review the procurement activities in each o f the regions. National Competitive Bidding (NCB) shall follow the Recipient s procurement procedures subject to the following additional procedures: (i) the Recipient s standard bid documents for procurement of goods and works shall be used; (ii) if pre-qualification is used, the Bank s standard prequalification document shall be used; (iii) margin of preference shall not be applicable; (iv) bidders shall be given a minimum of 30 days to submit bids from the date of availability of the bidding documents; (v) the use of the merit point system shall not be allowed in bid evaluation, (vi) the process does not preclude participation by foreign bidders; and (vii) results of evaluation and award of contract shall be made public. PCDP IIRegions PCDP IVRegions Prior to effectiveness Whenever NCB procurement method is used. Procurement Staff turn-over Strengthen the MSTs by revising the TOR and including Procurement officers on the teams. Procurement training session program focused on procurement planning and contract management issues PCDP I1 Prior to effectiveness PCDP I1 I Regions I Woredas I Kebeles Project launching workshop Insufficient procurement skills Participation of the procurement staff in World Bank procurement workshops andor training events PCDP I1 I Regions / Woredas Kebeles As needed during the life of the Project and in accordance with an approved annual training program 13. The Borrower, at appraisal, developed a procurement plan for project implementation which provides the basis for the procurement methods. This plan has been agreed between the Borrower and the Project Team on April 10,2008 and is available at the Federal Project Coordination Unit of the PCDP at the Ministry of Federal Affairs. It will also be available in the project s database and in the Bank s external website. The Procurement Plan will be updated in agreement with the Project Team annually or as required to reflect the actual project implementation needs and improvements in institutional capacity. 91

99 ~ D. Frequency of Procurement Supervision 14. In addition to the prior review supervision to be carried out from Bank offices, the capacity assessment of the Implementing Agency has recommended semi-annual supervision missions to visit the field to carry out post review of procurement actions. E. Procurement Plan 1. Goods, Works, and Non Consulting Services (a) List of contract packages: - 1 Ref. No. - a I 3 Contract (description) ~ ~~ Goods Equipment, Materials and Computer equipment, networks and soft ware Computer equipment, networks and soft ware Specialized Equipments for Early warnings (GPS, A0 Plotter, and GPS software eis) Office Equipment and supplies to New Region, FPCU and all other region for all project years Estimated cost %(OOO) 8 Office Furniture and Apparatus for New woredas and additional for existing offices (FPCU, WCU, PDOs) $216 NS No No Total I $660 $265 $117 $6,155 4 Procure ment method ICB ICB ICB ICB Field Equipment and 7 Extension Aids for 18 $259 NS woredas in 5 RPCU 5 Pre Qualifica tion Yes/ No No No No No 6 Demestic Preference Yes/No No No No No ICB No No NS No No Review 9 Comments Prior First package of IT I 09/01/09 equipment. Second Prior 07/09/09 package of IT -I equipment. Prior Supplies and office materials procurement will be planned Post 1 Tbd according to needs identified All 5 regions will execute Post Tbd as per their specific schedule All 5 regions will execute Post Tbd as per their specific schedule 92

100 (b) Contracts estimated to cost US$200,000 equivalent or more per contract and all direct contracting will be subject to prior review by the Bank. Contracts estimated to cost US$200,000 equivalent or more per contract will be procured using the International Competitive Bidding (ICB) procedure 2. Consulting Services (a) List of consulting assignments with short-list of international firms Ref. No. 1 2 Contract (description) Estimated cost $(OOO) Consulting Services International Technical Assistance Environment Impact Assessment and studies $22 1 for existing CIF woredas Environment Impact Assessment and studies $277 I for existing CIF woredas I M&E and MIS soft ware upgrading I Design WANILAN connection and internet accessing of RPCUPCDP woredas Regional strategic disaster preparedness plan - and 100 Woredas DPCP - I Selection method Review by Bank (Prior I Post) Expected proposal submission date QCBS No 02/23/09 QCBS No 03/25/ development and I $80 CQ No /09 Project component/ subcomponent manual development: pastoral RUSACCO, CIF, DPSI, DER and fiduciary manuals. Project implementation assessment and evaluation after execution of 1 st half $79 $403 CQ No 0 1/12/08 CQ No various $200 IC No various QCBS No Comments For 30 existing woredas Forthe 18 new PCDP I1 woredas 5to6CQ selections will be carried out. (contracts for less than $ each) At least 4 individual consultants are expected to carry out the listed assignments (contracts for less than $ each). To be determined after MTR. Total $1,400 93

101 (b) Consultancy services provided by consulting firms estimated to cost US $1 00,000 equivalent or more per contract and single source selection of consultants (firms) will be subject to prior review by the Bank. Consultants services contracts of individual consultant for procurement officers and single source selection, will be subject to prior review by the Bank. (c) Short lists composed entirely of national consultants: Short lists of consultants for services estimated to cost less than US$200,000 equivalent per contract may be composed entirely of national consultants in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines. 94

102 Annex 9: Anti-Corruption Action Plan Pastoral Community Development Project I1 1. The objective of this Anti-corruption Action Plan for this project is to identify corruption risks and mitigation measures beyond the standard control systems employed by the Bank. While more detailed, program-specific control systems are outlined in Annex 7: Financial Management & Disbursement Arrangements and Annex 8: Procurement Arrangements, this Action Plan: (a) proposes the mapping of the potential risks of corruption; and (b) presents a suggested program of activities to address potential risks in the form of an Action Plan. A. Corruption Mapping 2. Limiting the occurrence of corruption in this project starts with identifying potential risk areas - this is called corruption mapping. A corruption matrix identifies potential risks of corruption and specifies specific mitigation measures that have been agreed by the FPCUPCDP. The mapping exercise will be repeated during the lifetime of the project to incorporate innovations and lessons learned. Transfer of funds M Leakage of funds in transfer from L national, to regional, to woreda level PROGRAM DESIGN AND MAN/ ZEMENT Staff turnover has meant that a significant percentage of PCDP staff has changed There is also a high level of staff turnover of Government woreda personnel Technical qualifications of woreda sector personnel sometimes questionable capacity of FPCC, RPCU, and woreda staff PCDP I1 will supplement woreda staff in each woreda with MST procurement specialist, one assistant finance officer and one assistant pastoralist development officer PCDP I1 will provide regular training to its personnel Increased focus of PCDP I1 CIF on community level should reduce burden / responsibility of woreda offices The PCDP I1 PIM will specify procedures for competitive recruitment as well as sanctions in cases where procedures not respected M Favoritism in personnel management S Nepotism and favoritism in appointment of RPCU and Woreda staff M Lack of accountability of management and implementation staff. S Conflict of interest for staff members Overlapping roles and responsibilities; Dual accountability - staff accountable to both regional and woreda levels The PIM will clearly specify roles and responsibilities of all staff The PIM will specify criteria and performance indicators for key staff, and there will be an annual performance review of all staff A training plan for the first year of the M 95

103 Absenteeism - Risk of project staff not attending posts. Abuse of facilities, vehicles for private use uromam will be submitted bv the kp&jpcdp as part of the PIM The PIM will include procedures to measure absenteeism and sanctions for absenteeism The PIM will include procedures for vehicle management, and measures to sanction abuse. Logistics officers to be recruited at federal and regional levels should improve project asset management Audit Report Publication M Risk of unavailability of information on the progress and results of project implementation (including misuse, collusion and nepotism, if The FPCUPCDP will make final audit reports promptly and publicly available on the project website, along with the formal government response to issues I TENDERING AND P Capacity of the FPCU and TendedEvaluation Committee )CUREM S JT Non-independent judgment of the consultant evaluation process. Decisions bias towards consultants as instructed by the higher level officials or other parties. Independent professionals included as part of the proposal evaluation team for any major procurement. Capacity building for all actors involved in procurement. M PIM to specify and streamline all procedures and sanctiodcomplaint handling mechanisms. Proposal evaluation S Delay in evaluation process that would benefit exclusive consultants The procurement plan, with detailed timeline, will be binding in the legal agreement, and will set as the basis for any procurement actions. M Proposals are rejected due to reasons unrelated to the capacity of consultants in carrying out of the contractsiservices The Bank would impose appropriate sanctions for any unjustified extension of validity of proposals. Significantly high technical scores allocated to the preferred consultants, such that no other consultants can effectively beat their proposals regardless of the prices, which could result to significantly high prices False data provided by the consultants The estimated budget for each contract package will be based on actual experience determined through phase I Any evidence of collusion or fraud will result in rejection of proposal and disqualification of the bidders. At community-level, proposal evaluation to be conducted publicly 96

104 Award of Contract, including in subprojects S Negotiation with prospective winner on contract amount outside of regular procedures. Project management does not execute award as described by the Tender Evaluation Committee rigid. Prices will be carefully reviewed based on PCDP I experience. WB post-procurement reviews will be conducted on an annual basis M Procurement Planning, including in subprojects M Collusion and nepotism in awarding the contract Risk of kickback, and budget markup Mandatory disclosure of contract awards. Mandatory review by the Bank of annual project procurement planning and disclosure of procurement plan in public domain, including disclosing the contract amount in PCDP website and in every RPCU L Woreda procurement assistants to review all community sub-project procurement plans Overall Procurement M Risk of kickback, collusive practices to award the contract to preferred consultants, and lower quality of services Regular assessment and analysis of the unit Drices bv the Bank team. Enhanced control system (internal and external) including internal audit offices Regular checks on a random sampling of project invoices. L Quality & Cost of delivered services S The delivered services are of lower quality than those specified in the TOR, with savings possibly used as kickbacks to local officials. Significant changes of key staff of consultants at the early stage of the assignment Inclusion of clear procurement arrangements in the PIM. Involvement of community groups in monitoring the quality of the consultants deliverables at community and woreda levels: (for example: community accountability and audit committee, woreda accountability committee) M Intentionally low quality of supervision of contracts, and kickback from the consultants Stronger presence and accountability role of MSTs MIS will track budgeted vs. actual expenditures for each sub-project Enhanced complaint handling mechanism. Sanctions will be specified in the PIM All sub-project financial information is made public at the woreda office For purchases above US$5,000 each, the project requires the conduct to conduct a limited bid whereby quotations must be read out in public. For smaller purchases, local shopping 97

105 I must be carried out by two persons seeking quotations from local suppliers. CONSTRUCTION Fraud linked to materials and construction (including at community level) S Poor quality materials, workmanship bv contractors Cover up and silence payments linked to poor construction Collusion ctnff and bribery of inspection Materials diverted to officials or non-beneficiaries use Strengthening of community-level, project management, procurement as.i well accountability &monitoring committees Clear accountability for woreda procurement assistant Enhanced oversight from regional audit personnel Enhanced monitoring from MSTs, woreda assistant pastoral development officers and RPCUs External audit frequency increased FPCU to review RPCU procurement on semi-annual basis M M M M WOREDA & COMMl Sub-project selection at woreda level Capture of subprojects at community level by elite or by particular ethnic/clan groups Selection of Project committee members (at woreda and community levels) Facilitators manipulate project benefits Fraudulent Eligibility UTY LE\ S S S S S L CORRUPTION Interference in decision-making in selection and approval of plans / proposals Non-transparent selection of projects At woreda level approval of projects could be influenced by few woreda officials Funds expropriated for personal use Clan leaders and other elite members of the community capture benefits intended for all, or intended for other members of the community (e.g. women). Leaders fund their own not community preferences Non-transparent process of committee member selection at woreda and/or community levels resulting in low integrity ~ MSTs/Community Facilitators do not reflect kebele needs and priorities/ change proposals Communities say they have achieved certain criteria (e.g. Clear procedures for sub-project selection at woreda level in PIM Greater presence, sensitization, training and facilitation by MSTs Strengthening of woreda accountability committees Availability of woreda level complaints mechanism Clear and inclusive procedures for subproject selection at woreda level in PIM Greater presence, sensitization, training and facilitation by MSTs & Community Facilitators Strengthening of community accountability & monitoring committees Availability of woreda level complaints mechanism Clear and inclusive procedures for committee election in PIM Committee establishment to be facilitated and monitored by MSTs RPCU monitoring of this process to be strengthened Woreda assistant PDO to monitor Availability of woreda level complaints mechanism RPCU to monitor MST performance Enhanced project monitoring through woreda-level assistant PDO as well as M M M M M 98

106 community contributions, group formation) FPCU to conduct regular supervision visits to all project woredas Limited dissemination of information related to PCDP (e.g. accessibility requirements) S Information is kept limited to certain circulation or group of people only such that non-qualified proposals could be expected Socialization will be carried out through meetings, workshops and focus group discussions at community, woreda and regional levels. It will also include a campaign through newspaper spots and radio programs. The socialization strategy is geared towards making communities aware of the project s goals, and its rules and regulations. These are aimed to ensure that stakeholders know what their respective roles and responsibilities are, and how to hold each other accountable for their actions. M All project decisions to be posted at woreda level Implementation of the sub-project investments S Misuse of funds by the community and/or Woreda PCDP I1 will have project website All communities and woredas are required to prepare and submit reports on progress and their use of project funds to the RPCU and the FPCU. M All financial information is made public and displayed in the woreda offices. Minutes of meetings, community quarterly financial status, and names and amounts for funded proposals are posted on signboards that are displayed around the woreda and at RPCUs. Discretion of actors is limited by setting rules that all financial transactions require at least three signatures, two from the elected community members and one from the project woreda procurement assistant. Any procurement beyond the subproject will be undertaken either at RPCU or FPCU levels PCDP I1 finances will be audited each year. There will be at least one community accountability meeting per sub-project cycle. 99

107 B. The Action Plan 3. Risks identified through the below mapping exercise will be mitigated through a set of anti-corruption activities. This anti-corruption strategy has been developed to tackle the framework of implementation and the community driven dimensions to the program. Along with the supply side mechanisms envisaged, community participation and empowerment are crucial to the success of the project and to the mitigation of corruption risks. Together, these factors will encourage greater accountability and better governance. 4. The most important aspects of the anti-corruption action plan can be summarized into the five key elements that follow. Underpinning each of these elements is the participatory methodology and the high levels of oversight in pastoralist communities - this needs to be harnessed to project ends with appropriate training and exposure at the outset. (i) Enhanced Disclosure Provisions and Transparency. The program will involve government s own disclosure requirements, further simplifying disclosed materials and making them readily available through FPCUs and RpCUs. Key information on planning, budgets and performance will be made available to communities by a range of means, including public meetings and notice boards. Specific disclosure measures will include, but not be limited to: Public disclosure of annual procurement plans and schedules (and their updates), bidding documents and requests for proposals. Disclosure to all bidders of the summary of the evaluation and comparison of bids, proposals, offers, and quotations, after the successful bidder is notified. Disclosure of audit reports. (ii) Multi-stakeholder Oversight. The program recognizes that greater oversight by a range of stakeholders is likely to reduce the risk of corruption and misuse of power. The program involves a high degree of formal participation by community groups, such as beneficiaries, community project management committees, woreda development committees, private sector, and traditional leaders, at the planning stage. This will be extended to mechanisms such as the monitoring of the projectdend results, placing citizens as members in tender committees of larger sub-projects, and the evaluation of the quality of delivery procured services/products. The role of civil society organizations will also be considered as evaluators on a random basis. (iii)mitigating Collusion, Fraud & Nepotism. Opportunities for collusion and fraud exist in any project and this is also the case with PCDP I1 which operates at woreda, kebele and sub-kebele levels. At the outset, collusion, fraud and nepotism will be reduced through transparent and well-advertised procurement activities. Additional auditing and procurement procedures are proposed, such as oversight by technical assistance (TA) and capacity building, with TA procurement and financial management specialists mapped to each region. The FPCU Will commission an independent consultant to carry out Annual Performance evaluations of woreda activities (including the behavior of consultants and contractors) hired at the federal, regional and woreda levels. The FPCU will circulate 100

108 results to relevant technical parties. Cases of collusion, fraud and nepotism will be reported directly to the institution mandated by Ethiopian law. (iv) Complaints Handling Mechanism. Complaint handling procedures, as currently defined at kebele and woreda level will be assessed and compared with the reality of complaints, and complaints handling on the ground in the four participating regions. Appropriate mechanisms will be set up at the regional level (in consultation with the REACs). This mechanism should also increase the social cost of misuse of funds. Complaints will be properly documented and acted upon in a professional and timely fashion, and without risk of reprisal to 'whistleblowers' in the public. Wider access for community input is provided through the establishment of an independent organization nominated by the project to handle and receive complaints by mail. This address will be posted to public centers along with other public information materials (such as posters) to be made publicly available on an ongoing basis. (v) Sanctions & Remedies. Clear sanctions and remedies are important final steps in the effort to fight corruption. Formal sanctions will be applied through formal channels in all cases. Any official (government, non-government, etc.), community member, or private sector entity participating in the project can be prosecuted if sufficient evidence is available for its involvement and acts of corruption. It is intended that in all procurement contracts, evidence of corruption, collusion or nepotism will result in termination of the relevant contract, with additional penalties potentially imposed (such as fines, blacklisting, returning disbursed finds, etc.) in accordance with Bank and Government regulations. If annual performance assessments detect the misuse of funds, further allocation will cease to the financial entity (region, woreda, community) in question. Information regarding successful cases, where lessons are learned and funds are retrieved, will be widely disseminated. 101

109 INTRODUCTION Annex 10: Economic and Financial Analysis ETHIOPIA: Pastoral Community Development Project I1 1, The Project addresses improvements in rural livelihoods in the Ethiopian lowlands in a holistic way through an integrated set of interventions with individual components and activities being mutually reinforcing and producing a diverse range of benefits. PRh4 measures, for example, increase the potential for profitable bio-off-take (i.e. meat, fiber, milk) and mitigate the effects of animal losses on society and the economy (e.g. disruption of schooling and other social services and reduced government exposure to post-disaster recovery costs). One also needs to estimate the intervening factors which may impede or enhance the effects of the Project components, such as external (climatic, epidemic or macro-economic) shocks, interventions from other national projects and overall changes in the macro-environment. 2. Given the complementarities of components, a calculation of economic benefits by component is of limited value as it does not illustrate the multiple anticipated spillover effects between the Project s activities. The analysis, therefore, focuses on: (i) disaster early warning and response; (ii) IGAs under the RLP; and (iii) the introduction of a process ensuring sustainability and cost-effectiveness of all project-supported investments. This annex presents steps that would need to be taken to ensure adherence to these principles. FINANCIAL ANALYSIS A. Sustainable Livelihoods Enhancement (i) Community Investment Fund 3. The SLE component aims to improve access to and provision of basic public facilities and social services by establishing effective, transparent and socially inclusive mechanisms that facilitate pastoralists participation in prioritization and selection of investments in PCDP I1 woredas and kebeles. These investments in terms of subprojects are characterized by: (i) their relatively small size in monetary terms; (ii) the demand-driven nature with an open menu to choose from; (iii) their multi-sectoral composition; and (iv) designs based on government standards. This makes conventional economic evaluation techniques not fblly relevant. Poor communities often value a minimum level of social services and the associated building of human and social capital well above their actual economic value. Furthermore, the synergy of the development of a range of social services subprojects across a woreda is difficult to capture. At the same time, the CIF s objective also targets the institutionalization of mechanisms that facilitate citizens participation in the prioritization and selection of investments in local public facilities throughout lowland Ethiopia and the establishment of systems of social accountability to ensure transparent use of resources. The component is, therefore, seen as establishing the conditions and mechanisms for a delivery system of public facilities and social services provided by local woreda governments throughout lowland Ethiopia. The analysis of the CIF investments in Phase I revealed that most of the more than 2000 civil works implemented by community 102

110 groups through subprojects were cost-effective and timely relative to the alternative of government contracting their construction to private contractors. (ii) Income-Generating Activities 4. The most important IGAs implemented during PCDP I in the kebeles and woredas in all four regions included: (i) grain milling; sheep and goat rearing, fattening and marketing; (ii) milk processing and marketing; (iii) grain purchase and reselling; and (iv) petty trading. IGAs under Phase I, however, were poorly managed and monitored by the project, with minimum attention to counterpart contribution and little or no attempt to revolve finds. A PCDP I - financed study is currently evaluating their financial impact. The examples cited below are representative of the types of investment made by pastoral groups under Phase I. Household: Grazing (plus 400g teff straws per headday due to poor pasture) Household 2: Grazing plus supplementation Revenue from sale (per head) (ETW 73.5 (200g teff straw, 50g noug cake and 50g 154 wheat bran Der headfdav) Total variable Net cost/head returdhead (ETB) (ETW Under PCDP 11, IGAs will be financed by commercial credit issued through PCDP-supported cooperative credit unions, typically secured through group joint and several liability. Borrowers will have to have saved at least 20% of their investment in cash over an extended (6-8 month) period, during which their capacity to evaluate and manage their proposed investment will be enhanced. B. Pastoral Risk Management 7. In eastern Africa, disaster early warning and response interventions are very recent, and little empirical data are available to quantify the linkage between ex ante adaptation and mitigation measures. However, experience indicates that preventive measures are more effective than postdisaster arrangements. In this analysis, livestock mortality is used as a measure of pastoral risk, although the declines in health and productivity preceding livestock death (e.g. milk production, weight, conception rate) are likely to be equally important sources of risk. Since livestock account for most of the wealth of Ethiopian pastoralists, mortality provides a reasonable proxy for project-related PRM benefits throughout the Ethiopian lowlands. The direct economic benefits of managing pastoral risks consist of a reduction in livestock mortality and retention of livestock productive value, while wider economic and social benefits include, for example, the cost of post-disaster recovery including the social and financial cost of the urbanization of destitute pastoralists. The direct economic benefits of the PRM component can therefore be 103

111 estimated as a share of the sum of the replacement value of adult livestock (including camels, cattle, sheep and goats) over project years. 8. Livestock mortality in normal years is estimated at 2% of total livestock per annum across livestock species. Livestock mortality during drought, which typically occurs one in five years, fiequently exceeds 30% of the total herd. Early response measures (vaccination, subsidized transportation, water and fodder carting, early herd movement to unaffected areas) are estimated to allow for the commercial off-take of up to 10% of the herd and a reduction in losses of the remainder of 10-20%. Table 1: Costs and Potential Benefits: Scenario for PRM-based Livestock Mortality Savings 08/09 09/10 10/11 11/12 12/13 (US$ X1O6) (US$ X1O6) (US$ X1O6) (US$ X1O6) (US$ X1O6) PRM component: investment & recurrent cost Total capital value of pastoral herd (US$ x106) 4, Cost of losses in normal year (2%) Annualized cost of cyclical drought (assume 25% of livestock population affected, 25% loss and drought occurrence every 5 years) Assume 15% of losses avoidable through PRM Assuming the occurrence of drought every five years, a modest impact of 25% losses for 25% of the total lowland herd, the average annual cost is estimated at US$70 million. Assuming that the PRM is able to prevent just 15% of those deaths through drought-mitigation measures, the annual cost of the PRM component would be economic. This estimate is conservative, given that the analysis does not include the future productivity of breeding livestock or the impact of productivity losses due to morbidity. The main assumptions for the economic analysis are that: (i) the livestock base stays constant over the life of the project, including relative distribution between animal species; and (ii) the average replacement value per adult animal (February 2007) is constant throughout the project at US$400 per camel, US$320 per cow, US$30 per sheep and US$20 per goat. C. Sustainability and Cost Effectiveness 10. Sustainability and cost effectiveness are two key requirements for every investment funded by the Project. The sustainability requirement for IGAs also includes the demand that the investment should provide a decent long-term financial income for the owner whereas, for pure public goods, maintenance and management are more important aspects. The following definitions of sustainability and cost effectiveness will guide IGA and social investments under PCDP

112 Sustainability would require that: (9 a e e e The investment is profitable, namely that: operational profits be positive: i.e. sales revenues minus (input cost + maintenance charge); financial profits be positive: i.e. operational profits minus depreciation I savings charge; financial profits per day of family labor should be high enough to offset alternative labor opportunities; adequate savings are made to replace the investment good or an equivalent good at the end of the expected life-time of the investment good. (ii) e A maintenance plan for assets is established, including: a description of planned periodical maintenance; and estimated cost of spare parts and servicing needed. (iii) e e A risk analysis and mitigation plan is established, including: a description of the three main risks to profitability; and a description of mitigation measures to avoid these risks. (W e An agreed management structure and plan is established, including: a simple worksheet addressing the requirements described above has been developed and will be included in the Project Implementation Plan, for use: a. during the CDD capacity-building efforts as part of the curriculum; b. during the PRA exercises to assess sustainability with the communities; c. as the baseline for PM&E; and d. during the Community Action Plan (CAP) decision meetings of the WDC The WDCs will approve fhding for CAPS only when sustainability criteria are met. This worksheet would be used only for public or social safety net activities of the CDD component. Credit cooperatives, which will be the primary financiers of private IGAs, will use credit manuals established under the FAD-supported RUSACCOs movement. 12. Cost eflectiveness would require that the least-costly assets be purchased that fulfill certain requirements which, bearing in mind the isolation, climatic and physical conditions in the project area, could be quite stringent and might exclude the cheapest available solutions (it is the costeffectiveness of the investment over the entire required lifespan that matters). Public buildings will be built to government construction standards. The community procurement system that will be employed under PCDP I1 will facilitate the cost effectiveness of the CDD projects. A provision in the budget has been made to review and enhance the community procurement system and to develop manuals for the MSTs and community partners. The MSTs and woreda procurement assistants will receive training in the use of the community procurement system. 105

113 D. Fiscal Impact 13. In the short run, the fiscal impact of the proposed project would be relatively neutral, given that only around 15% of the total project cost will be financed by the Government, primarily in the form of deferred taxes. In the long run, it is expected that the fiscal impact of the proposed project would be highly positive, owing to the increased tax base with the rise in economic activities and the savings of public expenditure on climate-related relief efforts as a result of improved pastoral risk management. The Project s recurrent cost implications would include the staffing and operation and maintenance of public facilities such as schools and public health and veterinary clinics together with the supporting equipment. These recurrent costs, which will be partially met through service charges to users, are already factored into the Government s longterm budget plan, which aims to provide universal education and health services to lowland communities. 106

114 Annex 11 : Safeguard Policy Issues ETHIOPIA: Pastoral Community Development Project I1 1. PCDP-I1 environmental safeguard issues may arise fkom community-level project investments through the Community Investment Fund (CIF), Rural Livelihoods Program (RLP) and Disaster Preparedness Investment Program (DPIP). Typical investments are anticipated to include: CIF RLP DPIP Grain mills Small-scale water Milk collection and marketing Rental houses Petty trade Livestock fattening Grain store and milling Services shops and milk collection centers Public shower and toilet service Workshops Schools 0 Health posts 0 Veterinary Posts 0 Small-scale water 0 supply (ponds, 0 shallow wells, 0 cisterns, water 0 pipeline extension, spring development) Small-scale irrigation Small feeder roads 0 supply Catchment management Small feeder roads Boreholes: new and rehabilitation Rangeland improvement Small damdponds and reservoirs River dikes Etc 2. These small-scale, geographically dispersed investments are expected to create little to no adverse impacts that will anyway be largely avoidable through informed, common-sense subproject planning. Pest management issues may arise through PCDP I1 promotion of rain fed and/or small-scale irrigated farming, or of the use of animal pesticides (e.g. livestock dips). Involuntary resettlement will be avoided, given the small footprints of subprojects, the vast amounts of land available to pastoralists and the low marginal cost of land. Large-scale, significant, cumulative and/or irreversible impacts are highly unlikely. 3. The applicable safeguard policies are Environmental Assessment (OP 4.01), Pest Management (OP 4.09) and Projects on International Waterways (OP The FPCU distilled the key operational elements of the PCDP I Environmental Assessment Management Framework and prepared an Environmental and Social Screening List for Community Sub-Projects. Project staff and implementing agencies received training in its use, but gained little to no implementation experience. Based on this work, a PCDP I1 Environmental and Social Management Framework (ESMF) was prepared, and hrther training, implementation support and M&E will strengthen institutional capacities to meet safeguards requirements. The ESMF specifies subproject screening; the preparation of environmental and pest management plans as required; and implementation supervision to ensure that adverse impacts are avoided or minimized. 5. All proposed subprojects will be based on community consultations and planning for subproject investments, and proposals will be aggregated at the woredu, zonal or regional level 107

115 for review and approval. The consultations will, among other things, examine alternatives to avoid or minimize adverse environmental and social impacts. 6. Overall responsibility for implementing the ESMF will rest with the FPCU, while day-to-day implementation will be the responsibility of PCDP I1 staff at the regional level in support of woreda staff. The MSTs will be particularly important in providing technical assistance, training and implementation support at woreda level. A training consultant will be retained to design the ESMF training program, and to train regional staff both substantively and as subsequent trainers of woreda staff. A long-term local consultant will be retained to periodically review ESMF implementation performance, to identify lessons learnt and any needed performance improvement measures, and to provide on-the-job training as needed. It is expected that ESMF training and implementation procedures will be harmonized with other Bank-hnded projects working through the woreda administrations. 7. The following is the estimated cost of implementing the provisions of the ESMF: Item cost 0 Materials (forms, checklists, brochures, monitoring formats $200,000 etc for use at regional and woreda offices) 0 EMPs / PMPs (consultancy allowance) $ 100,000 0 Training (materials, staff and participant travel, venue, consultants, etc 0 Existing and new woreda (approx. 50) $ 150,000 0 Refresher trainings (allowance) $ 75,000 0 Performance Reviews (5yrs x 50 woreda /yr x 3 day/ $175,000 woreda) Total $700, The safeguards policy on Projects on International Waterways (OP 7.50) is triggered because the Project will finance small-scale irrigation investments from international waterways. Riparian notification was given for PCDP I, and PCDP I1 investments will not result, cumulatively, in more project-financed irrigated area than specified in that notification. Thus, a new OP 7.50 notification is not required. PCDP I1 will not finance irrigation investments in areas not covered by the original notification. 108

116 Annex 12: Project Preparation and Supervision ETHIOPIA: Pastoral Community Development Project I1 1. The following project preparation timeline has been established: Planned Actual Project Concept Note review January 2008 January 27,2008 Initial PID to PIC January 2008 February 28,2008 Initial ISDS to PIC January 2008 February 23,2008 Appraisal April 2008 April 8,2008 Negotiations April 2008 April 26,2008 BoardRVP approval Planned date of effectiveness Planned date of Mid-Term Review Planned closing date May 2008 June 2008 September 2010 December Key institutions responsible for preparation of the project: Federal Project Coordination Unit of the PCDP, Ministry of Federal Affairs 3. Bank staff and consultants who worked on the project included: Name Title Unit Ingo Wiederhofer Senior Operations Officer AFTCS Azeb Fissha Eyerusalem Fasika Richard Olowo Tafesse Freminatos Abrham Christine Cornelius Sarah Michael Janelle Plummer John Boyle Gelila Woodeneh Almaz Teklesenbet Rahel Lulu Basma Ammari Mulat Negash Tegegn Ingrid Pierre Mollard Tesfaye Bekalu Jonathan Pavluk Luz Meza Bartrina Ngozichukwu C. Njemanze Renate Kloeppinger-Todd Garry Smith Ann Waters-Bayer operations Analyst Research Analyst Senior Procurement Specialist Financial Management Specialist Lead Operations Officer/Program Coordinator Social Development Specialist Governance Advisor Senior Environmental Specialist Communications Officer Program Assistant Program Assistant Consultant Consultant Consultant Consultant Senior Counsel Senior Counsel Legal Associate Advisor Consultant Consultant AFTAR AFTP3 AFTPC AFTFM AFTAR AFTCS AFCE3 AFTEN AFREX AFTRA AFMET AFTRL AFTFM AFTAR AFTUl LEGAF LEGAF LEGAF ARD 109

117 4. Bank funds expended to date on project preparation: 0 Bank resources: US$90,000 (variable only) 0 Trust funds: NIA 0 Total: US$90,000 (variable only) 5. Estimated approval and supervision costs: 0 Remaining costs to approval: US$50,000 (variable only) 0 Estimated annual supervision cost: US$50,000 (variable only) 110

118 Annex 13: Documents in the Project File ETHIOPIA: Pastoral Community Development Project I1 Government Documents 1. MoFED: A Plan for Accelerated and Sustainable Development to End Poverty (2005/ /10), September MoFA: Beneficiary Assessment of the PCDP Community Investment Fund and Disaster Contingency and Planning Fund MoFA: Implementation Assessment of the PCDP Community Investment Fund and Disaster Contingency and Planning Fund MoFA: Pastoral Community Development Project I1 Project Proposal (draft). February MoFA: Pastoral Policy Gap Analysis MoFA: Assessment of the First Phase PCDP MoFA: PCDP Quarterly Progress Reports from MoARDFCA: A Project Proposal to Establish RUSACCOs Based on PCDP Initiated Income Generating Groups. April, 2008 World Bank/International Fund for Agriculture Documents 9. PCDP, Project Appraisal Document for Pastoral Community Development Project APL I, April PCDP, Mid-Term Review Report. August PCDP, Aide-Memoires and Back-to-Office Reports of Supervision Missions, FY03-FY PCDP I1 Appraisal Aide - Memoire, 17 April PCDP, Proceedings of the Consultative Workshop on Phase I1 of the Pastoral Community Development Project. February, PCDP, Proceedings of the Consultative Workshop on Research for Development in the Lowlands of Ethiopia. February, Ethiopia: IFAD country evaluation report Ethiopia: Protection of Basic Services, Joint Budget Review Ethiopia: PCDP I1 Concept Note. January, Ethiopia: Project Appraisal Document for Productive Safety Net Program APL 11. December 11, Ethiopia: Guidelines for the Implementation of the Productive Safety Net Program Pastoral Area Pilot, October

119 Others 20. Delsol, Herve Preliminary thematic note on possible fields of intervention for a 1ivestocWpastoral sector-based initiative. EC Rural Development and Food Security Section. PPT, 22 January Pastoral Forum Ethiopia Japanese Social Development Fund (JSDF) activity and financial progress report (1 st July 2006 through 3 1 st December 2007). Addis Ababa. 22. Somali Regional State Bureau of Capacity Building Operations Manual: Effective investment at the local level: infiastructure provision for service delivery. Supported by UNCDFLJNDP. October Action research on extension on Participatory Variety Selection under rain fed (Jijiga) and irrigated (Gode, Adadle, Kelafo) conditions. 24. Vegetation dynamics, restoration and the perception of pastoralists in the rangeland of Shinile Zone, Somali Region. PCDP, The role of micro finance for pastoral household food security: the case of Dolo Ado Woreda, Somali Region. PCDP, Basic issues and plantation problems in the process of nursery establishment in Afar Region. PCDP, Community-based natural resource management in pastoral areas: the case of Hamer, Bena Tsemay, SNNP Region. PCDP Regional enhanced livelihoods in pastoral areas: Mandera Triangle baseline assessment. USAID, Impact of drought-related vaccination on livestock mortality in pastoralist areas of Ethiopia; Andy Catley, Dawit Abebe, Berhanu Admassu, Gem Bekele, Bayou Abera, Gezahegn Eshete,Tesfaye Rufael and Tesfaye Haile, Community based animal health care in the Somali regions of Africa: A review PARCNAC, OAU/IBAR, Andy Catley, Saving lives through livelihoods: critical gaps in the response to the drought in the Greater Horn of Africa; HPG Briefing Note, ODI, London May Delivering the agenda Addressing chronic underdevelopment in Kenya's arid lands, Oxfam, Regional enhanced livelihoods in pastoral areas. Mandera Triangle baseline assessment. USAID, Linking livelihoods and protection: A preliminary analysis based on a review of the literature and agency practice Susanne Jaspars, Sorcha 0 'Callaghan and Elizabeth Stites HPG Working Paper December National policy for the sustainable development of the arid and semi arid lands of Kenya, office of the President, Special Programs, Kenya, April Report of the Pastoral Appraisal Team on emergency response interventions in pastoral areas of Ethiopia, Stephen Sandford and Yohannes Habtu, DFID,