Supplementary Loan Local Economic Development


  • Reference: P-MW-IE0-003
  • Approval date: 09/12/2010
  • Start date: 09/12/2011
  • Appraisal Date: 29/09/2010
  • Status: OngoingOnGo
  • Location: FOUR DISTRICTS


Project Description Project Design (components). The project is designed under the existing framework of the approved Local Economic Development project. The current supplementary loan will focus on supporting only component 1 which has already consumed all the resources allocated to it by the World Bank. Justifications for Request for Additional Funding by Component

Component I: Deepening Enterprise Development

At initial project design stage, it was envisaged that the activities under this component would be supported with financial resources from the IDA. Upon commencement of implementation, the project has projected that funding under this component is inadequate to implement all the specific planned activities that will target the four beneficiary communities of Component I. The reason for this is that the IDA funds are financing nationwide savings and investment activities, being implemented by the COMSIP, where beneficiaries of public works programmes are supported to graduate into Local Economic Actors in the country. As a result, funding under this component is spread thinly all over the country and insufficient to address the new demand from communities in the four rural growth centres. The additional funding will be utilized for

(i) the formation and strengthening of 600 business associations/commodities groups/multi-purpose cooperatives;

(ii) savings mobilisation for at least 6,000 individuals (at least 40% women);

(iii) 1,075 entrepreneurs/value chain actors acquiring new technological and business skills (at least 40% women); and

(iv) facilitating market linkages through possibly (a) the development of Market Information Systems linked to the Agricultural Resource Centres for at least 4 districts; (b) organisation of at least 8 buyer-seller events.

Implementation Arrangements The project will be implemented through the existing structures of the Local Development Fund which is managing the original project. This involves project resources being channeled through the LDF, under the Ministry of Finance. The main management features of the LDF are: "A Steering Committee for policy oversight and representing the main national coordinating Ministries and chaired by the Secretary to Treasury; "A National Technical Advisory Committee (NTAC) chaired by Ministry of Local Government will review and approve proposals and investment plans on behalf of the Steering Committee; "A National Local Government Finance Committee (NLGFC) to coordinate Financial Reporting from LAs' and issue resource allocation guidelines.

A lean Technical Support Team (TST) has been established within the Directorate of Debt and Aid Management to provide the needed fiduciary and accountability support to the projects funding the LDF including this one. Specifically, the TST will

(i) track the inflows of funds from both Development Partners and Government based on an agreed Programme of Work;

(ii) be responsible for releasing funds to the Assemblies as advised by the NLGFC based on the agreed resource transfer formula;

(iii) harmonising donor financing standards and agreements;

(iv) finance agreed-to studies, evaluations, and processes that support Public and Social Accountability as part of linking resource flows with development outcomes; and

(v) undertake knowledge building functions to facilitate organization learning and knowledge sharing. At the DAs level, the Directorate of Planning and Development will assist and provide operational support, prior to and during the implementation of project activities. The project aims to use to the extent possible existing district and community planning and development structures such as the District Executive Committee, Area Development Committee and Village Development Committee at the local level in the implementation of project activities.

Procurement and Financial Management Arrangements Procurement All procurement under the requested supplementary loan will be in line with procurement for the LED Project, in which all procurement of goods and works and acquisition of consulting services financed by the Bank are in accordance with the Bank's Rules of Procedure for Procurement of Goods and Works or, as appropriate, Rules of Procedure for the Use of Consultants, using the relevant Bank Standard Bidding Documents.

For Local Authority level activities, the procurement modes for works, goods and services will be guided by the LDF Operations Manual and Local Authority and Community Procurement Handbook. The bank has already approved the LED Operations Manual which was a Condition Precedent to First Disbursement under the original project.

Financial Management GOM uses a computerized (IFMIS) central accounting system. IFMIS will be used for central budgeting, for cheques initiation and generation. This system is being rolled out to DAs by the NLGFC and the Accountant Generals Department with support from the GOM/ World Bank-funded Financial Management Transparency and Accountability Project (FIMTAP). At the DA Level and Community Level, a manual spreadsheet based accounting will be used to account for the project funds until IFMIS is rolled out to the districts.

Internal Audit will be carried out by the Government's Central Internal Audit Unit (CIAU). To meet fiduciary requirements, Project accounts will be audited by the National Audit Office (NAO). However, due to the capacity constraints within the NAO, the project will support the services of external auditors to be engaged by the NAO to carry out the external audit. The Ministry of Finance shall submit to the Bank audited financial statements at least 6 months after the end of the financial year. The external auditors, during their annual audits, would express an opinion on the utilization of the Loan's proceeds, and compliance with the ADF Loan Agreement. They will also make recommendations for improving any systemic weaknesses if identified. Follow-up procedures for audit recommendations would be in line with Bank practice. Regarding project external audit, it should be specified that the project audit will be carried out in accordance with a Bank approved comprehensive Terms of Reference and include specific opinions on the project financial statements and Statements of Expenditures on use of the Special Account, internal control systems, procurement arrangements etc with a detailed management letter. The report will be sent to the within six (6) months of the end of the respective fiscal year.

The existing Special Account will be used to disburse the supplementary loan resources.

Expected/Designed Cross-cutting Focus/Benefits. The project will use the Local Development Fund (LDF) gender strategy and the social development expert to monitor gender specific targets in beneficiary outreach. In particular, the project will ensure that all business associations and cooperatives formed under the project are gender balanced. Moreover, the project will also use the existing environment management and monitoring framework of the LDF. Both cross cutting issues will be monitored and duly reported in the project quarterly progress reports.

The project also assists GOM (central and local) as well as traditional structures respond to community demands by (a) providing safety nets for the most vulnerable within communities, (b) deepening decentralization approaches supportive of sustainable service delivery, and (c) stimulating local economic development as a viable strategy of helping poor households get out of poverty. The requested supplementary loans allows for increasing the number of vulnerable that will be assisted in the project.

Necessary Steps to obtain Baseline data (such as consultant study, if not available) Baseline data and information are already being established under the approved project. The results of this study will inform the project indicators and the M&E plan.

Specific required feasibility/technical studies? By whom? Estimated budget and time? None Participatory Process / Public Consultations The LED project is underpinned by a participatory community demand-driven intervention framework. The project design also recognizes that civil society organizations (CSOs) will continue to play a role as promoters of and advocates for improving services to the poor, marginalized and voiceless. They will further continue to play a complementary role in those areas where action by the assemblies is less effective and where they can operate in a more effective and cost-efficient manner, for instance in the field of implementing projects for the most vulnerable members of the society. CSOs, including women groups and organizations will continue to promote accountability through creating societal checks and balances at community and district action levels. This process will promote effective participation, ownership and sustainability of interventions. It is envisaged that at community level Community Based Organizations (CBOs) will be active partners during the project management process while NGOs will mostly be active at district level. Gender representation should be in all stages of the project. Women should not only be recipients of the project benefits but active participants throughout the project implementation.

Monitoring Arrangements: (will M&E use project resources or based on/integrated with national, sector, or PRSP?). What is Initial Assessment of M&E capacity? In line with the LED project in progress, the Ministry of Development Planning and Cooperation (MODPC) is responsible for monitoring and evaluating the outputs and outcomes of development interventions as they relate to achieving the MGDS. In this regard, in liaison with MLGRD, the MODPC will continue its responsibility over M&E and ensuring that all stakeholders are taking part in the monitoring of project processes. The TST is internally gathering baseline data to allow for proper monitoring of project implementation and results. The project will continue to strengthen the M&E capacities of DAs and facilitate implementation of participatory community monitoring tools such as citizen report cards and community score cards to ensure that the project activities are executed in a satisfactory manner and benefits are sustainable.


Key stakeholders such as, GOM, LAs, local community, the private sector and CSOs will be instrumental in ensuring sustainability of the project. GOM's commitment to local economic development as demonstrated in the MGDS and the establishment of the LDF will allow for mainstreaming of local economic development across all sectors at national and local levels. This will also allow for local economic development to be better aligned with the process of decentralization and devolution of service delivery to LAs. Other important elements ensuring project sustainability relates to

(i) the involvement of the private sector and communities in the implementation of the project;

(ii) the requirement for all sub-projects to be funded under the Growth Centres Development component to determine their economic and financial feasibility as a prerequisite for project support; and

(iii) CSOs' role of promoting accountability through creating societal checks and balances at community and district action levels. The sustainability of the project will be defined by the actions of local community to create employment and entrepreneurial opportunities, alleviate poverty and implement sub-projects that spurs local economic development and opportunities to benefit local residents in the four Growth Centers.


The Development Objective is to improve the socio-economic well being of the local population and strengthen economic growth in selected growth centres.


* Project Linkages with Country Strategy and Objectives

**The primary thrust of the MGDS is to create wealth and reduce poverty through sustained economic growth and infrastructure development. The strategy recognises that broad based economic growth and development cannot be achieved if rural areas with the potential for growth are sidelined. It is on this basis that the GOM identified integrated rural development as one of the key priority areas under the MGDS in order to stimulate local economic growth and reduce rural poverty. To this effect, through the integrated rural development strategy (IRDS), GOM has further identified five mutually reinforcing strategic areas of intervention, namely:

(i) provision of basic socio-economic infrastructure at potential growth points and other open markets for rural products;

(ii) developing capacity for local economic development through entrepreneurship and skills development;

(iii) improving agricultural productivity;

(iv) promoting value addition and related economic activities; and

(v) provision of rural financial services to support economic activities. The strategy also recognizes the critical role of the private sector and Local Authorities (LAs) in fostering local economic development. Furthermore, the MGDS recognizes that gender inequalities in accessing productive resources, development opportunities and decision-making affect economic growth and development and hence seeks to mainstream gender into the national development process.

*Rationale for Bank's Involvement

**Poor local economic growth and development have primarily been attributed to the pervasive poverty and chronic food insecurity in Malawi. These, in turn, have largely been exacerbated by:

(i) poor economic infrastructure,

(ii) low agricultural productivity- from lack of skills, technology and reliance on rain-fed food crops production etc,

(iii) weak marketing systems and market linkages

(iv) low incomes, resulting from limited value addition in farm-based agriculture produce,

(v) limited off-farm employment opportunities,

(vi) weak enterprise culture, (vii) gender inequality in access to productive resources and services; (viii) weak business development services, and (ix) weak capacities of local governments to provide an enabling environment for private sector-led growth, among many other factors. This poor state of socio-economic conditions in most rural areas has occasioned unprecedented rates of rural-urban migration (5.5%). This has not only affected production in the agricultural sector, but has also exerted profound pressure on urban infrastructure. In light of these, it is essential to have an integrated intervention on local economic development based on the premise that broad based economic growth and development cannot be achieved if rural areas with the potential for growth are sidelined.

**The initial project approved in 2008, aims at empowering the local governments and communities to support a demand driven development prioritization. The existing project focuses on building capacity of the local governments in financial and administrative governance as well as procurement related issues. It also supports capacity development in key areas of development planning and implementation. This focus is combined with the concept of kick-starting local economic growth in four rural growth centres, namely: Jenda, Malomo, Chitekesa and Monkey Bay. The support to local economic growth processes includes development of socio-economic infrastructure, entrepreneurship development as well as increasing access to business financing. This approach is supported by all partners in the country and is expected to be scaled up as the only mechanism for decentralized economic growth poles in the country. The existing project experienced delays in declaring disbursement effectiveness due to the delays in parliamentary ratification of the loan which resulted in a low disbursement rate. The project is rated satisfactory over the last two supervision missions.

**The Bank's support has become a success story in that the Local Development Fund has now become the interlocutor for local development. The implementation of the existing project has already generated a demand which has exceeded expectations:

**Component 1, which includes creating local business organizations and value chains as well as creating jobs through enterprise development, is funded by the WB contribution. The resources under this component have been fully committed to planned activities. In this an experienced NGO, COMSIP, has been selected by the project to mobilize communities in the four growth centres and organize them into business groups and plan for the implementation of specific business ideas. As such, it is expected that at least 600 business associations will be established and a related impact of at least 1,000 new jobs will be created. Given the success of this model, additional communities have requested support under this component to be included in the formation of business groups and enable their access to enterprise development as well as empower them to access financing from the market. Therefore, the GoM has requested the Bank to provide additional support to extend support to these additional communities. The additional financing under the supplementary loan is expected to create an additional 600 business associations and value chain entrepreneurs resulting in an expected increase in employment opportunities of about 1,500 new jobs.

**To this effect, the proposed supplementary loan financing to Support for Local Economic Development project will seek to engender pro-poor economic growth and tackle livelihood insecurities (including food insecurity), through the scaling up of the development of selected growth centres, improvement of the local productive activities, promotion of women's and youth participation, facilitation of the diversification of the household economic activities and the creation of jobs and incomes through enterprise development in the 4 selected rural growth centres of Jenda, Malomo, Chitekesa and Monkey Bay.


The project will apply a multi-faceted approach to increase the market outcome for women by

(i) enhancing the value of women dominated production and processing through skills training, use of technologies, using a group (women only or mixed groups established where the groups will be encouraged to jointly produce, quality standard, labelling and marketing will be promoted);

(ii) promoting women entrepreneurs (comprising of at least 40% of the envisaged 2,150 beneficiaries for the business development services and 40% of the 12,000 of the beneficiaries of the savings mobilisation) to venture into the segment of the value chain often dominated by men, for example, as distributors and marketers;

(iii) building women

Key contacts

BANDA Kelvin Kanswala - OSHD1


Finance source Amount
ADFUAC 3,162,000
GovernmentUAC 300,000
TotalUAC 3,462,000