World Bank Document · document of the world bank report no: 19107-rw project appraisal document...

Document ofThe World Bank

Report No: 19107-RW

PROJECT APPRAISAL DOCUMENT

ONA

PROPOSED CREDIT

IN THE AMOUNT OF SDR 3.8 MILLION

(US$5 MILLION EQUIVALENT)

TO THE

RWANDESE REPUBLIC

FOR AN

AGRICULTURAL AND RURAL MARKET DEVELOPMENT PROJECT

July 1, 1999

Rural Development 2Country Department 9Africa Region

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CURRENCY EQUIVALENTSCurrency Unit = Franc Rwandais (FRw)

FRw 342.57 US$ 1 (June 1999)

FISCAL YEARJanuary 1 - December 31

ABBREVIATIONS AND ACRONYMS

ADB African Development BankAFMS Administrative and Financial Management SpecialistARMD Agricultural and Rural Market Development Project]BNR Banque Nationale du RwandaCAS Country Assistance StrategyCRDP Community Reintegration and Development ProjectD)EM Direction of Extension and MarketingDPM Direction de la Politique MonetaireDRSA Direction Regionale des Services AgricolesEMES Extension, Monitoring and Evaluation SpecialistFEWS Food Security Early Warning SystemFRw Franc RwandaisFY Fiscal yearGDP Gross Domestic ProductICIF Input Credit Insurance FacilityICR Implementation Completion ReportIDA International Development AssociationIFAD Intemational Fund for Agricultural DevelopmentLIL Learning and innovation LoanMIANAGRI Ministry of Agriculture, Animal Resources and ForestryMINECOFIN Ministry of Finance and Economic PlanningMININTER Ministry of the Interior, Communal Development and ResettlementlNsGO Non-govemnmental organizationPFI Participating Financial IntermediariesPNAS Programme National d'Actions SocialesPRA Participatory Rural AppraisalPS Procurement SpecialistPSD Private Sector Support ProjectSFICF Small Fanner Input Credit FacilitySIM Systeme d'Infonnation sur les MarchesTSU Technical Support UnitUBP Union des Banques Populaires du RwandaUNDP United Nations Development ProgramUSAID United States Agency for International Development

Vice President: Callisto MadavoCountry Director (Acting): Emmanuel Mbi

Sector Manager: Joseph Baah-DwomohTask Team Leader: Ousmane Badiane

RwandaAgricultural & Rural Market Development Project

CONTENTS

Project Appraisal Document ............................................................

A: Project Development Objective ............................................................. 2..1. Project Development Objective .................................................................. 2.2. Key Perfonnance Indicators .................................................................. 2.

B: Strategic Context ........................................................... 2....1. Sector-related Country Assistance Strategy (CAS) Goal Supported by the Project ...................... ........................22. Main Sector Issues and Government Strategy .................................................................. 2...3. Learning and Development Issues to be Addressed by the Project .................................................. ..................4. Learning and Innovation Expectations .................................................................. 3....

C: Project Description Summary ........................................................... 4..1. Project Components .................................................................. 4.2. Institutional and Implementation Arrangements .................................................................. 6...3. ProjectAlternativesConsidered ................................................................... S4. Key Policy and Institutional Reforms to be Supported by the Project .................................................................. 95. Benefits and Target Population .................................................................. 10...

D: ProjectRationale ............................................................... E: Summary Project Analysis ............................................................. 10.

1. Institutional .................................................................. .0.2. Environmental Assessment .................................................................. II...3. Par ticipatory Approach .......................................................................

F: Sustainabilty andRisks ................................................................1. Sustainability of Project Activities .................................................................. 11....2. Critical Risks and Minimization Measures .................................................................. 12..

G: Main Loan Conditions ............................................................. 6.1. Effectiveness Conditions: .................................................................. L6..2. Disbursement Conditions .................................................................. 16...3. Other: .................................................................. 16.

H: Readiness for Implementation ........................................................... l6AI,: Compliance with Bank Policies ........................................................... 1l..

Annexes:Annex 1. Project Design Summary ...........................................................................................................................Annex 2. Detailed ProjectDescription .22..Annex 3. Estimated Project Costs .31...Annex 4. Financial & Disbursement Summaries.. 32.

Tabie I .Financial Summary .32..Table 2. DisbursementAccounts by Financiers ....................................................................................... 33.

Annex 5. Procurement, Disbursement and Financial Management Arrangements .3.4Table 1. Project Costs by ProcurementArrangements .40Table 2. ThresholdsforProcurementMethods and PriorReview . 41

Annex 6. Project Processing Budget and Schedule .42.Annex 7. Documents in Project File .43..Annex 8. Statement of Loans and Credits .4.4..Annex 9. Eligibility Criteria .45...Annex 10. Environmental Analysis. 4..Annex 11. Overview of Survey Results of Input Use, Fertilizer Distribution & Rural Marketing Systems . .51

Table 1. Use of Improved Seed and Fertlizers among Farm Households (1998 . 555Table 2. Crop Production by Farm Households (1998) .55Table 3. Marketed Output by Farm Households (1998) .5.6.Table 4. Private Sector Partcipation in Agricultural Output Marketing .5.6Table 5. Private Sector Participation in Agricultural Input Distribution. 5. 7Table 6. Access to and Use of Credit by Traders (1998). 57

Annex 12. Capacities of Specialized Local Organizations. 58.Annex 13. Country at a Glance .60...

Map: IBRD No. 25927R

RwandaAgricultural & Rural Market Development

Project Appraisal Document

Africa RegionCountry Departnent 9

Date: July 1,1999 Team Leader: Ousmane BadianeCountry Manager/Director (Acting): Emmanuel Mbi Sector Manager/Director: Joseph Baah-DwomohProject ID: 58038 Sector: AgricultureLending Instrument: Learning and Innovation Loan (LIL) Theme(s):

Poverty Targeted Intervention: [x] Yes [ ] No

Project Financing Data[ ] Loan [x] Credit [] Grant [ Guaranty [ Other [Specify]

For Loans/Credits/Others:Amount (UJS$m): SDR 3.8 million (US$5 million equivalent)

Proposed terms: [ ] To be defined [ ] Multicurrency [ Single currency[ ] Standard Variable [ ] Fixed [ ] LIBOR-based

Grace period (years): 10Years to maturity: 40Commitment fee: n/aService charge: 0.75%Front-end fee on Bank loan: n/a

Finaiwingplim: E I. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ .......

Government 0.50 - 0.50IDA 3.00 2.00 5.00Other (Beneficiaries) 0.11 - 0.11Total: 3.61 2.00 5.61

Borrower: Rwandese RepublicGuarantor:Responsible agency or entity: Ministry of Agriculture, Animal Resources, and Forestry; Banque Nationale du Rwanda

Estimated disbursements (Bank FY/US$M):,. B ,.,< ...... ,..isoB . B:t s.EegB,Ssi -|3 g ' 3 1SS .................................................I......'

Anrnual 1.88 1.64 1.48Cumulative 1.88 3.52 5.00

Project imiplementation period: FYOO-FY03Expected effectiveness date: August 1999 Expected closing date: June 30, 2003Implementing agency: Ministry of Agriculture, Animal Resources, and Forestry; National Bank of Rwanda

Contact person: Alfred Mutebwa, Director of Extension and Marketing, MINAGRI.Address:

Tel: 250-85053 Fax: 250-85057 E-mail:

Agricultural S Rural Market Development Project Page 2

A: Project Development Objective

1. Project Development Objective (See. Annex 1)

The project's main objective is to contribute to the revitalization of Rwanda's agricultural and ruraleconomy by successfully identifying policies and institutional mechanisms: (a) to promote efficient,private-sector based, local agricultural input distribution and output marketing systems in order (b) toraise modem farm input use among farmers and thereby the productivity of labor and hence the level ofincomes in the rural sector. Its subsidiary objectives are to test alternative approaches to:

* facilitate access by farmers to credit for modem farm inputs;* provide technical advisory services to farmers on the use of modem farm inputs;* encourage the emergence of a sustainable modem input import and distribution system; and* encourage investmnents by private traders in marketing services in rural areas.

2. Key P:erformance Indicators (See Annex 1)

Indicators of progress towards the achievement of the project objectives would document both theeffectiveness of the instruments used and the impact on the beneficiaries so as to enable government toassess the replicability of the project activities on a national scale. The indicators would be measuredthrough: (a) the increase in the volume of modem input imports by private traders and modern input useby farmers; (b) the increase in the number of modem input importers and the share of farmers usingmodem farm inputs and improved seeds; (c) the number of improved rural marketing sites; (d) the level ofinvestment in input distribution and output marketing services by private traders; (e) the increase inaverage output sales by small-holder farm households; and (±) the level of quality of implementation ofproject activities. A baLseline survey of the input distribution, output marketing, and faLrm householdsectors has been carried out during project preparation. The above indicators would be produced fromregular (annual) updates of these surveys.

B: Strategic Context

1. Sector-related Country Assistance Strategy (CAS) Goal Supported by the Project (Annex 1)

CAS document number: 17478-RW Date of latest CAS discussion: April 7, 1998;Progress Report: June 29, 1999

The Courntry Assistance Strategy (CAS) outlines the following sector-related goals: (a) the revitalizationof the rur-al economy which requires sustainable increases in agricultural productivity and the protection ofnatural resources, the provision of social and economic infrastructure, and the improvement in thefunctioning of rural markets; (b) investment in human resource development and capacity building inorder to develop a skilled labor force and improve the welfare of the population; and (c) support to policyand regulatory reforms and selected infrastructure investments to promote private sector trade andinvestmenit, and improve Rwanda's competitiveness.

2. Main Sector Issues and Government Strategy

The combination of rapid population growth, deteriorating soil fertility and limited availability ofagricultural land has resulted in the following set of problems in Rwanda's agricultural sector:(a) increasing labor intensity and declining labor productivity; (b) strong subsistence orientation,reinforced by weak coramodity and labor markets; (c) low levels of local off-farm employment: and

Agricultural & Rural Market Development Project Page 3

wages; and (d) declining incomes and a deteriorating food security situation. These problems reinforceeach other as limited market orientation reduces the incentives for technology innovation which isnecessary to raise labor productivity and incomes. The level of investment in technical innovation that isnecessary for sustained intensification and productivity increases depends on the rate ofcommercialization, i.e., the pace at which additional output can be absorbed through local and foreignmarkets to yield returns that are high enough to induce continued investment in better technologies.

The Ministry of Agriculture has recently completed extensive work on the formulation of its agriculturalstrategy, with the assistance of the Bank, FAO and the EU. The strategy reflects a clear shift from the pastnarrow approach of food self-sufficiency towards greater market-orientation, underpinned byintensification in input use, diversification and specialization in agricultural production. The Governmentof Rwanda, with the assistance of the World Bank and the International Monetary Fund, has recentlycompleted a Policy Framework Paper (PFP) which outlines the Government's objectives for the mediumterm and lays out the framework for an adjustment program which would be supported by the Bank'sEconomic Recovery Credit (ERC). One of the main components of the ERC is the revitalization of theagricultural and rural economy. The Government also intends to develop a comprehensive action plan forprivate sector development in the context of the IDA-supported Private Sector Development Project. TheGovernment has expressed its commitment to create an enabling policy environment for the developmentof a market-oriented agricultural system through reforms in the institutional, regulatory and incentivesframework. Finally, the Government has articulated its strategy for promoting export competitivenessthrough further liberalization of the trade, exchange and investment regimes.

3. Learning and Development Issues to be Addressed by the Project

There are no clear-cut policy options to achieving the objectives of higher productivity and income levelsthrough increased intensification in the current context of an initially heavily subsistence-orientedagricultural sector. The challenge facing the proposed project is, thus, different from, for instance, that ofa project that is seeking to deliver services directly to a target population based on a set of well-understoodpolicy options and existing / effective institutional mechanisms. The challenge here is to indirectlyinduce a change in the behavior of farmers and other economic agents in the crop marketing and inputdistribution systems, in line with overall sector objectives of increased commercialization and improvedaccess to and higher adoption of modem farm inputs. Consequently, the lessons to be learned through theproposed pilot project relate to the best set of policies, incentives, and institutional mechanisms in thecurrent context of Rwanda to raise local supply of modem farm inputs (fertilizers, improved seeds,agrochemicals, and livestock supplies), stimulate demand for these inputs among farmers, and foster thedevelopment of marketing services in the rural areas. In other words, the focus of the project would be onthe institutional, structural, and policy-related determinants underlying the behavior of economic agents inthe farming and input and output marketing sectors, as well as the constraints conditioning that behavior.During the preparation of the proposed project, a rapid survey of the three sectors has been carried out inorder to increase our understanding of the above determinants and constraints. The knowledge that isgained therefrom has been used to design the set of policies, incentives and institutional mechanisms to betested under the proposed project.

4. l,earning and Innovation Expectations

[x] ]Economic [x] Financial [x] Technical [x] Institutional [ ]Social [ ]Environmental[x] Participation [ ] Other

The learning and innovation expectations are that by the end of the project, we would have identified themost effective strategies to: (a) sustainably improve the supply of and access to modem farm inputs in the

Agrcultural & Rural Market Development Project Page 4

context of liberalized market; (b) accelerate the transition towards greater market-orientation amongRwanda's farmers; and (c) foster the emergence of markets for technical and institutional advisoHrservices in rural areas;

C: Projiect Description Summary

1. Prcject Components (See Annex 2 for a detailed description; and Annex 3 for adetailed cost breakdown)

The proposedproject would have the following three main components:

* Promotion of input use and distribution systems. The specific objectives of this component are:(i) to sustainably raise the supply of modem farm inputs, i.e., fertilizers, improved seeds,agrochemicals, and livestock supplies; and (ii) to stimulate demand and facilitate access by farmersto these inputs. Most farmers in Rwanda lack the resources to buy modem farm inputs in cashwhen it is needed. Raising the level of input use fast enough and speeding up intensificationtherefore require institutional mechanisms that ensure sustained access to credit for modem farminputs. The project seeks to achieve this through the following set of activities:

(a) farmer access to seasonal credit for modern farm inputsthrough: (i) a line of credit toprivate importers of modem farm inputs, fertilizers, certified seeds, agro-chemicals, andlivestock supplies that would provide to them the necessary resources and incentives toextend sales credit to farmers. The line of credit would also facilitate access to capital formodem input imports to a sufficiently large number of importers and thus promotecompetition in the sector; (ii) the creation of an Input Credit Insurance Facility (ICIF) thatwould nmake term credit available to farmers for the repayment of seasonal input credit incase of production shortfalls that are due to weather or similar emergency situations. TheFacility would hence operate as an "insurance scheme" that would protect the nascentinput distribution systems from potential shocks in its early stages that might set back itsdevelopment. The Facility would be funded through an initial contribution of theequivalent of $100,000 by Government and through the revolving funds generated fromthe repayment of the loans to private importers under the line of credit for the import ofmodem farm inputs; and (iii) the establishment of a Small Farmer Input Credit Facility(SFICF)l to promote farmer cooperative lending activities for poor farmers and farnergroups, especially those in remote areas who may not be able to have access to banklending or sales credit by traders. This component would provide grants to these poorfarmers through their cooperatives for the establishment of revolving credit funds tofinance the acquisition of modem farm inputs.

(b) advisory services for the adoption of modern farm inputs and access to credit to farmersthrough specialized local organizations and producer groups. Training and demonstrationactivities would be used to raise farmers' technical know how about the use of modemfarm inputs, thereby raising their profitability and encouraging adoption. In addition,support would be provided with respect to the access, use, and management of credit formodem farm inputs in order to reduce repayment risk and sustain access to loans;

(c) multiplication and distribution of improved seeds through targeted technical training andadvisory services support, using specialized local organizations and producer groups, inorder to encourage farmers to engage in seed multiplication and traders in seeddistribution across local markets.


* Support to local agricultural marketing systems. This component's specific objectives are to:(i) encourage farmers to enter the market exchange system; and (ii) to improve the performance oflocal markets in the rural areas through the following activities:

(a) crop conservation, processing, and marketing technologies through (i) training, usingspecialized non-govemnmental and other local organizations to promote improved cropconservation and marketing techniques among farmers; and (ii) funding of R&D activitiesto develop, test, and disseminate adapted crop processing technologies.

(b) strengthening of rural agricultural marketing poles through grants and institutionalsupport to local communities for the improvement of basic marketing infrastructure,which would create the incentives for supplementary investment in storage and othermarketing infrastructure and equipment by private traders. This activity would includeinstitutional support to local communities to strengthen their capacities to effectivelymanage the rural marketing sites and to private traders to raise their management skills;

(c) support to private trader investment in marketing services through technical andinstitutional support to traders and producer groups to facilitate their access to andmanagement of credit from local banks for investment in infrastructure and equipment forstorage, processing, transport, and marketing of agricultural products.

* Technical support, monitoring, and evaluation. The main tasks under this component are to:(i) work with local organizations and specialized NGOs to provide effective technical support tobeneficiary groups; (ii) manage project funds, including the handling of request for funding frombeneficiaries, and (iii) organize the updates of the baseline surveys and gather other necessaryinformation to closely monitor and evaluate the project's output and outcome.

Indicative Project Costs

- ' :--{on t: *S- gIndicative Bank-'' o- Bank-

Promotion of input use and AM 3.29 59 3.03 61distribution systems

Supporttolocalagricultural AM 1.77 32 1.56 31marketing systems

Technical support, monitoring, .55 9 0.41 8and evaluation

Total Project Costs 5.61 100 5.00 100

Note: The total project cost includes beneficiaries contribution.

Agricultural &. Rural Market Deve opment Project Page 6

2. Institutional and Implementation Arrangements

A detailed draft implementation manual is available and has been discussed during negotiations. It iscurrently under review for finalization by Government. A summary of the implementation arrangementsis presented below:

Implementation period: 3 years: 1999-2002

Executing agencies: Ministry of Agriculture, Animal Resources, and Forestry (MINAGRI); and BanqueNationale du Rwanda.

Project Management: A Technical Support Unit (TSU), staffed with qualified professional that arerecruited on a competitive basis, would be in charge of the day-to-day management of the projectactivities. In addition to the Project Coordinator (PC), the unit would include, an extension, monitoringand evaluation specialist (EMES) and an administrative and financial management specialist (AFMS),plus support personnel. If MINAGRI decides, for reasons of cost-saving, sustainability, and/or capacity-building, to recruit the project coordinator (PC) or the extension, monitoring and evaluation specialist(EMES) among its staff, an assessment of the qualification of the considered staff would be carried outbefore project effectiveness. Any cost-savings would be set aside for the first year of the projectimplementation and used for any necessary staffing adjustment in case of unsatisfactory implementationor monitoring of the project activities. If project implementation is satisfactory, the resources could beallocated to other uses at the end of the first year. Furthermore, MIiNAGRI staff that are recruited intoTSU should work full time for the project. The project would be implemented primarily throughcollaboraition with specialized non-governmental and other private sector organizations. The TSU wxouldtherefore not include techmical personnel but would rather work through sub-contracting.

Project Implementation: There is a significant number of specialized non-governmental and localorganizations in Rwanda that are active in rural development. In implementing the project, maximum usewould be made of these institutions. Besides the need to ensure proximity and participation, the addedbenefits of doing so would be to promote the emergence of a local market for technical advisory servicesthat would outlive the project. A brief assessment of the technical, institutional, and financial capacitiesof these organizations is presented in Annex 12.

Promotion of input use and distribution systems: The line of credit under this component would be madeavailable to eligible private traders through eligible financial institutions, with Banque Nationale duRwanda (BNR) acting as the Apex institution. The line of credit would be tied to modem input imports toprevent its eventual use for other purposes than facilitating farmer access to modem farm inputs thrDughsales credlit. Participating financial institutions would assume the full financial and commercial risks ofthe sub-loans granted under the line of credit. Participating importers would apply for the loan throughthe usual procedures used by the financial institutions, which would review these applications u-singprevailing standard policies and procedures. The signing of a subsidiary loan agreement between BNRand the government defining the functions and responsibilities of BNR and participating financialinstitutions, under terms and conditions satisfactory to IDA, would be a condition of effectiveness of thecredit. The relationship between IDA and BNR would be defined in a separate project agreement.

The Inpult Credit Insurance Facility will have an account at BNR, in which the reimbursement from thesub-loans to importers or modem farm inputs would be deposited, including the interest charges less theremuneration of BNR's DPM. In the case of weather-induced or similar production shortfall, and upondecision by MINAGRI and the TSU, in consultation with IDA, to mobilize the funds under the Facility,eligible farmers would apply to TSU for credit from the Facility to repay their seasonal loans. TSU, with


the help of the specialized organizations working with beneficiary farmers would screen and approve theapplications. The screening and evaluation of beneficiary applications would be based on (a) the technicaldata sheet that each beneficiary farmer would have with the respective partner organization, which willdetermine (i) the land and other assets that he/she owns, (ii) the crops that are cultivated, (iii) the expectedyields and revenue, as well as (iv) his/her borrowing capacity; and (b) the contract that each beneficiaryfarmer would have with the input distributor or local bank providing the credit, which has to be approvedby the partner organization on behalf of TSU. Upon approval, TSU would ask BNR to credit the accountsof distributors and local banks that had provided input credit to the eligible farmers.

In order to ensure access to credit for modem farmn inputs by poorer farmers and farmers in remote areas,grants would be provided to farmer groups under a Small Farmer Input Credit Facility (SFICF) toencourage cooperative lending activities for the acquisition of these inputs. The adoption by Governmentof an adequate framework satisfactory to the Association, including a manual of procedures detailing thecriteria, procedures, guidelines, and standard contracts applicable to the provision of such grants is acondition of disbursement for this component.

The TSU would contract with specialized local organizations to complement the efforts of the DRSA toprovide the necessary technical and institutional advisory services to farmers in order to disseminate knowhow about modem farm inputs and ensure maximum profitability of their use. Besides the technicalsupport, assistance with respect to credit application and management would also be provided throughparticipating organizations. The TSU would be responsible for ensuring that the specialized organizationsthat are hired are qualified. Its staff would review their work programs to ensure their effectiveness withrespect to the project's output and outcomes.

Supp?ort to agricultural marketing systems: The TSU would contract with specialized non-govemnmentaland local organizations to provide training to beneficiary farmers on crop marketing and conservationtechniques. The same approach would be used in implementing the sub-component on the improvementof crop marketing sites. The specialized organizations, based on demand and willingness / ability ofbeneficiaries to participate in the investment, would provide assistance in preparing project and grantapplications to the TSU. The TSU would review and approve the grant applications. Using the same sub-contracting approach, the project would provide training and other necessary advisory services to tradersto facilitate access to investment credit from local banks, and ensure proper management of the marketingsites and trader investments in marketing infrastructure and equipment. The TSU would be responsiblefor ensuring that the specialized organizations that are hired are qualified, verifying that their workprogram is consistent with the project output, monitoring the interventions and evaluating theireffectiveness.

Accounting, financial reporting, and auditing arrangements: The Project Technical Support Unit (TSU)will be established for the execution and implementation of the Project activities. The TSU will beresponsible for project financial management including the preparation and production of the annualfinancial statements, in accordance with intemationally accepted accounting principles, as well as makingarrangements for their certification by a competent and experienced audit firm under terms and conditionsacceptable to IDA. The TSU will also monitor all disbursements under the projects and ensure that theyare made in conformity with IDA requirements. BNR will submit to IDA through TSU annual andquarterly reports on the progress of implementation of the line of credit component. During Pre-appraisal,the key areas of the project financial management were reviewed in compliance with the IDA-establishedfinancial management system assessment guidelines to ensure agreement with Bank laid downprocedures. It was agreed that a computerized financial management information system, including theManual of procedures, the accounting, budgetary, financial, and internal control systems, will beestablished in the TSU by a reputable consultant and it would be operational at the outset of projectimplementation. The design of the financial management system will be based on the reporting


requirements of the Bank's new Loan Administration Change Initiative (LACI) or PMR-baseddisbursenment method. The TSU will be adequately staffed by three competent and experiencedprofessionals, including an Administrative and Financial Management Specialist. The financialmanagemLent system will allow for the proper recording of all project-related transactions as well as timelymonitoring of expenditu.res per category, per executing agencies, and components. The financial repc.rtingwill evolve from the traditional basic set of financial statements during the first 18 months of the projectimplementation to the PMR-based method. The PMR-based reporting will start after the Midterm Reviewand continue till the end of project implementation.

The records and accounits of all the components of the project, including the line of credit and the ICIFrevolving funds at the Banque Nationale du Rwanda (BNR), would be audited annually by an independentauditor. Regarding the LoC, the audit firm will review the performance of (BNR) as well as that of theprivate domestic input distributors and the local banks contractors, and provide a specific opinion on theeffectiveness and efficiency of the lending and distribution procedures. In addition to the audit opinion onthe financial statements, the auditor will be required to express separate opinions on the SOEs and themanagement and utilization of the special accounts. Finally, the auditor will issue a Management reportwith practical recommendations for improving the project intemal control system. The establishmentwithin the TSU of a sound financial management system acceptable to IDA and the recruitment of theproject auditors would be conditions of effectiveness.

Monitoring and evaluation arrangements: The Technical Support Unit would implement a systematic anddetailed monitoring and reporting system focusing on both the output and outcome of the project. TMesystem should allow an effective evaluation of: (a) the effectiveness of the project's delivery mechanismsand procedures; (b) the impact of the pilot activities on the basis of the stated objectives, the baseline database, and the input, output, and impact indicators that are identified in the Project Design Summary(Annex 1); and (c) the replicability of the activities at a wider national scale. The key tasks under themonitoring arrangements would include: (i) updates in years two and three of the project of the baszlinesurveys of the input distributor, output trader, and farm-household sectors; (ii) analysis of the survey datathrough qualified and independent research entities (universities, research centers, consulting firms); and(iii) collection of additicinal information at commune level and as necessary to document the progressstatus of project activities. The progress towards project outcomes would be evaluated during executionand at project completion. A project mid-term review would be carried out by Govemment and IDA afterthe first eighteen months of project implementation. The mid-term review would determine, based on theresults of M&E as described above, the extent to which the project is performing vis-a-vis its developmentobjectives: and the possibility of its replicability. An Implementation Completion Report (ICR) would beprepared at least six months prior to the final disbursement of the Credit. The Government would prepareits own evaluation of the, project, including a plan for its continued implementation, if needed. For thispurpose, it could enlist thLe support of an independent entity to carry out all or part of the evaluation.

3. Project Alternatives Considered

A number of altemative project constellations could have been chosen to potentially achieve the samneobjective of raising agricultural productivity and rural incomes through increased intensification ofproduction activities. Such project activities would have to ease access to and raise use of modern farminputs while at the same time improving rural marketing systems to provide increase market outlets for theadditional output that would result from better and higher use of these inputs. One such alternative couldbe a project to improve road infrastructure and promote the rural transport sector. A disadvantage of thatoption in comparison to the one proposed here is that it would have a less direct effect on input use andmarketing activities. Furthermore, it would take a considerably larger amount of time for roadinfrastructure and transport sector projects to lead to the types of induced investment in production


technologies and marketing infrastructure and equipment that are expected to take place under theproposed project. A second altemative would have consisted in setting up a project that would directly orindirectly, through a public or private company, import modem farm inputs for sale through privatedistributors. The European Union has been running such a program for fertilizers for the last few yearswith very limited success. One of the main weaknesses of such a program compared to the proposedproject is that it would not contribute significantly to the development of an effective private sector-basedmodem farm input supply system. For instance, by importing directly instead of encouraging privatetraders to do so, the EU program has created disincentives for the latter to develop business contacts withforeign suppliers. A mechanism based on such a program would be unsustainable and would most likelylead to a collapse of input supply systems as soon as the project would end. One could still encourageintensification by improving access to rural credit through a project that would support local banks.Ac,ess to credit is, however, not primarily a supply issue. Furthermore, credit alone would not lead to anincrease in modem farm input demand and use, unless input distribution and output marketing systems arestrengthened. Moreover, local banks in Rwanda have traditionally received considerable support from theSwiss and such support, although interrupted currently, is likely to continue in the further. Canada alsohas been showing some interest lately in supporting rural financial systems. Consequently, the proposedproject would, instead of focusing on support to local banks directly, include a component to strengthenbusiness ties between the latter and farmers and to reduce the risk associated with seasonal credit lendingin nrual areas.

The sub-component that aims at encouraging lending by local banks to fanners is not only a complementto the one that seeks to promote seasonal credit trough private traders. If local banks where in a positionto satisfy farmers' demand for seasonal credit, then there would be no need to set up a separate activitytargeting input traders as a possible source of credit. The two sub-components as well as the proposedSmall Farmer Input Credit Facility are therefore to be seen as competing alternative approaches toimproving access to modern farm input credit among farmers. The proposed project is designed such thatthe altematives would compete directly. They would be monitored closely and project resources andactivities would then eventually be shifted to support the alternative(s) that would provide access to creditmore effectively.

4. Key Policy and Institutional Reforms to be Supported by the Project

The government has initiated a series of reforms aimed at liberalizing the country's trading and exchangerate regimes and improving the environment for private sector development. The proposed project wouldsupport these reforms by successfully identifying the most effective set of policies, incentives, andinstitutional mechanisms to encourage private sector entry in importing, local marketing, and tradingsystems of the country's largest economic sector, agriculture. The project would also test how policyreforms can be complemented with targeted institutional and technical support to accelerate response bythe private sector. It would contribute to laying a strong foundation for sustained private sector-ledgrowth in the agricultural sector by encouraging investment and by enhancing cooperation between theprivate and public sectors. The govermment intends to deepen economic and institutional reforms toimprove the competitiveness of the economy and enhance the efficiency and effectiveness of the privatesector in providing services. The proposed activities aimed at promoting efficient systems of supplyinginputs and providing technical advisory services to farmers through the private sector would contributedirectly to these objectives. Furthermore, the government is currently preparing a major agriculturalsector support program which is primarily based on the reform objectives outlined above. The centerpieceof the program is the acceleration of agricultural intensification and diversification of the rural economy,both requiring input and output distribution systems that are efficient and sustainable. The lessons learnedthrough the proposed 3-year pilot program are thus expected to make a major contribution to theimplementation of the government's reform and support programs in the agricultural sector.


S. Benefits and Target Population

In addition to a series of local consultations, several structured surveys have been carried out in order todetermine the likely benefits of the proposed activities for the main target groups. The groups targeted bythe project are farmers, modem input importers, local input distributors, and traders of agriculturaloutputs .

The benefits for the target groups that are expected from the project are the following:

* farmers in the project communes would have greater access to modem farm inputs through localmarkets and would have acquired the know-how to use these inputs in the most profitable manner.Farmers would also benefit from better performing local marketing systems, which together withthe improvement on the input side would lead to higher productivity of farm-household resources,increased sales, and higher incomes from farming.

* private traders flocal distributors and importers) would have access to increased resources and thenecessary skills to expand trading activities in local markets. Furthermore, private traders wouldhave strengthened their financial, logistical, and institutional capacity to directly import anddistribute modem farm inputs to farmers. The expansion in activity levels in the sector is expectedto lead to increased employment and higher incomes within this target group.

local communities would benefit through greater integration into the exchange system and hencethe national economy, meaning improved access to agricultural inputs, goods, and servicesmarkets. Local communities would also benefit from the multiplier effects of increasedagricultural outpilt and marketing activities, which would result in greater diversification of localeconomic activities and increased levels of employment and income.

* consumers (which include the targeted farner and trader groups) would benefit from increasedprice stability, lower marketing margins, and increased supplies in local markets, all of which areexpected to result directly from higher productivity in agriculture and its related sectors, as well asthe improved performance of local marketing systems.

D: Project Rationale(This section is not to be completed in a LIL PAD.)

E: Summary Project: Analysis (detailed assessments for applicable analyses are in the projectfile, see also Annex 10 & 12)

1. Institutional

(a) Executing agencies:

A Technical Support Unit (TSU) would execute the project on behalf of the Ministry of Agriculture,Animal Resources, and Forestry (MINAGRI). The TSU would be under the tutelage of MINAGRI'sDirection of Extension and Marketing (DEM). The respective responsibilities of TSU and DEM staff withrespect to the pilot project would be defined clearly in the implementation manual in order to avoidinterference by the latter with TSU's day-to-day management functions. In implementing the variousproject components, the TSU would make maximum use of the wealth of specialized non-governmentaland local organizations through sub-contracting. Implementation through local organizations would


ensure both proximity and adequate participation. A brief assessment of the technical and financialcapacities of these organizations is presented in Annex 12.

(b) Project management:

The TSU would be in charge of the day-to-day management of the project. Key areas of the projectfinancial management have been assessed during pre-appraisal to ensure agreement with Bank'sestablished procedures. TSU staffing would be adequate and would include the Project Coordinator (PC),an Administrative and financial management specialist (AFMS), an extension, monitoring and evaluationspecialist (EMES), and support personnel. The Unit would: (a) coordinate individual project activities;(b) prepare and supervise the execution of contracts between the project, the beneficiaries and thespecialized local organizations; and (c) prepare the project's annual work program, annual budgets,accounts and financial statements, progress reports, disbursements applications, and procurement plansand execution.

2. EnvironmentalAssessment Environmental Category [ ] A [x] B [ ] C

An environmental analysis has been carried out (Annex 10). Input misapplication and the associatedpollution effects, and input transport safety are the main sources of potential environmentally negativeeffects under the proposed project. Consequently, adequate soil fertilization practices and transport safetymanagement and awareness would be included in the advisory services activities to ensure better soilregeneration and prevention of road transport accidents. The training programs would include modules toprevent abuse in fertilizer and pesticides usage, pollution of ground water and soil salinization,particularly in wetland areas. Furthermore, fertilizer and pesticides use and their effects would be assessedbefore beginning project activities in fragile land areas.

3. iParticipatory Approach

During project preparation a structured survey of beneficiary groups was conducted using detailedquestionnaires. The surveys were carried out in rural areas and communes in 8 prefectures betweenJanuary and February 1999 under the supervision of MINAGRI's Directorate of Rural Development(Direction du Developpement Rural, DDR). MINAGRI has collaborated with research centers anduniversity experts in implementing the surveys and analyzing the collected information. The total surveysample included 600 beneficiaries comprised of farmers, input importers and distributors, ruraltransporters, and output traders. A summary of selected survey results is presented in Annex 11. Inaddition to the formal surveys, a series of local consultations has been organized with targetedbeneficiaries, specialized local organizations, and local government in several prefectures. The results ofthe survey and the input from the local consultations have guided the design of the proposed project.

F: Sustainability and Risks

1. Sustainability ofProjectActivities

Sustainability concems would relate primarily to two main aspects of the pilot project. The first would bewith respect to access of traders to funding for modem input imports and seasonal credit after thedepletion of the line of credit. The second would be with respect to the funding and management of the.Input Credit Insurance Facility. Regarding the former, funding under the line credit would be offered totraders on a declining basis, with the share of modern input import cost that can be funded through the


credit going from 70 percent for the first import project, down to 55 and 40 percent for the second andthird projects, respectively, and 25 percent for the fourth and any subsequent import projects. By the endof the third year, participating traders would have demonstrated their ability to mobilize the necessaryfunding to finance their import and seasonal credit activities. The line of credit would encourage directbusiness contacts between importers, on the one hand, and local banks and foreign suppliers, on the otherhand, thereby opening future sources of funding. In the same manner, the project's technical andinstitutional support activities, by promoting institutional mechanisms to reduce repayment risks and raisecredit mainagement skills among farmers, would provide additional incentives to local banks to lend toinput traders.

Regarding the Input Credit Insurance Facility, the sustainability issue is less about funding, which isguaranteed through the r evolving funds from the line of credit, but rather about its management after thecompletion of the pilot project. The best option would be to place the Facility under the institutionalresponsibility of its immediate beneficiaries. Assistance would be provided to existing farmerorganizations possibly under the current pilot project but certainly under the rural sector support projectunder preparation to develop an institutional mechanism that would allow the Facility to contin-ue tooperate effectively and under the oversight of these organizations. At the end of the first year,TSU/M1NAGRI would: (i) carry out an evaluation of the technical and administrative aspects of theFacility and (ii) propose alternative institutional mechanisms to ensure its long term viability beyond theproject's life.

Sustainability of the Small Farmer hiput Credit Facility depends on the ability of the beneficiary farmercooperatives to manage the funds and ensure credit repayment by their members. Given that the fundsthat are lent belong to the groups, it is expected that peer pressure would have a strong positive influenceon the willingness of individual members to repay. It is further proposed that farmer cooperatives sub-contract the management of their revolving credit funds to the local branch of the Banques Populaireswhich would be in charge of screening, evaluation, and approval of loan applications.

Albeit to a lesser extent, the continued availability of the advisory services that the project would provideto farmers would also raise some sustainability questions. There are examples of specializedorganizations that currently offer similar services to farmers on a semi-commercial basis but at a muchlower scale. Working through these types of organizations, the project would seek to encourage thedevelopment of markets for such services in two ways. Firstly, it would build business ties between thelocal service providers arid local farmers which should survive the life of the project. Furthermore, duringimplementation, the project would work with farmer and local organizations to induce farmers to pay anincreasing share of the services provided to them.

2. Critical Risks and Minimization Measures

The propcsed project activities rely on a host of explicit and implicit, technical as well institutional andbehavioral assumptions. The table below summarizes these assumptions and indicates, where applicable,the mitigation measures that would be adopted during implementation. Some of these mitigationmeasures are already included in individual sub-components of the project.


1. Critical Risks: (reflecting assumptions in the fourth column of Annex 1)

Annex 1: Cell "Outputs to Objective"(i) Government would pursue the Low (i) Government has displayed strong commitment toliberalization of trade, exchange policy reforms. Policy dialogue with Govermment wouldand investment regimes to continue during project implementation and under otherpromote processing, marketing and Bank activities in order to eliminate risk of policyexport of agricultural products. reversal.

(ii) Rtoad infrastructure Low (ii) Current level of road infrastructure is sufficient todeficiencies and weaknesses in the carry the expected expansion of marketing activitiestransport sector would not pose during pilot activities. Necessary infrastructureserious constraints to expansion of improvement to support fiuther expansion of marketingmarketing activities in the short beyond pilot phase would be addressed under the plannedrun. rural sector support project. Other constraints linked to

the transport sector would be addressed through activitiessupporting private traders who, based on the surveyresults, are also the main transport operators.

(iii) Improved access to credit Modest (iii) TSU would monitor and ensure the removal ofwould encourage traders to raise eventual obstacles to competition in the distributioninput imports and extend seasonal systems and thereby maximize the pressure to competecredit to farmers. for market share among traders and hence create the

incentives to provide credit. The project would alsocollaborate with qualified local organizations to advisefarmers in use of credit and help screen credit applicantsin order to reduce the risk involved in extending seasonalcredit.

(iv) Access to credit and better Modest (iv) Project would work with specialized localperf orming markets would organizations and government extension services to trainencourage farmers to increase use farmers in the use of modem farm inputs and provideof modem farm inputs. advisory services to ensure their profitability.

(v) Qualified specialized local Low (v) There is a wealth of specialized local organizationsorganizations are available to with strong institutional backing and track records inadvise and train beneficiaries. Rwanda. TSU would ensure that these are identified.

(vi) Improvement in the marketing Low (vi) Farmers would receive training in use of modemenvironment would encourage farm inputs and conservation techniques in order tofarmers to enter the exchange generate larger quantities of marketable surplus.system and raise demand formodem farm inputs.


1 . ........ ........ , f--0.......... .. .....;:

Rs Xis atn ik ti~~ton -: - - --

(vii) Traders would respond to Low (vii) TSU would monitor and work with Governmenteasier access to credit by towards removal of eventual policy and otherexpanding marketing activities. institutional barriers to entry and expansion of marketing

activities.

(viii) Farmers would respond to Low (viii) TSU would monitor farmer marketing behavioradvisory services and greater and work with Government and beneficiaries to removemarket opportunities with eventual constraints to raising marketed surplus that areincreased marketed surplus. not addressed in other project components.

(ix) TSU would have sound Low (ix) The availability of a sound financial managenmentfinancial management and system and the recruitment of a qualified monitoring andeffective monitoring and evaluation specialist would be included in the conditionsevaluation systems in place. of credit effectiveness. This would be complemented

through close supervision of work programs and theirimplementation.

(x) TSU would have the necessary Modest (x) The respective responsibilities of the TSU, on the oneautonomy to effectively implement hand, and that of IMINAGRI services and otherand manage the project activities. govemnment entities collaborating with the proposed

project, on the other hand, would be clearly defined in theimplementation manual. Attentive supervision wouldensure that these responsibilities are understood andfulfilled.

Annex 1: Cell "Components to Outputs"(i) There would not be any Modest (ia) Issuance by Government of instructions setting andistribution of fertilizer g;rants that adequate framnework for the free distribution of modernwould disturb the functioning of farm inputs would be a condition of credit effectiveness;input markets.

(ib) In the few cases where this might be necessary, suchas in cases of emergency reintegration programs, TSUwould work closely with implementing agencies andlocal organizations participating in the projectimplementation to ensure that the quantities involved are:(a) purchased in the local markets; (b) actually used bythe targeted beneficiaries; and (c) not resold in themarket.

(ii) EU would not start a new Low (ii) TSU would work with EU representatives andfertilizer import and subsidy Government to ensure that any future support to theprogram. fertilizer sector is compatible with efforts under the

proposed project that are aimed at promoting asustainable private sector-based distribution system.


, ,,,,. ,s,kgg, 9' ' '""' "- '' i;~izati~n ""-ear4

(iii) D)ifficulties with respect to Modest (iii) TSU would monitor eventual constraints other thanclient screening and credit the credit screening and monitoring aspects which aremonitoring would be the main being addressed under the proposed project activities. Itreasons preventing local banks and would take the necessary steps to work with Government,traders from extending seasonal local banks, and beneficiaries to ensure their removal.credit to fanners.

(iv) Increased know how and Low (iv) TSU would monitor eventual constraints that are notaccess to credit would encourage addressed under the proposed project activities and workmodem farm input adoption. with beneficiaries and concerned entities to remove these

obstacles.

(v) Better conservation and Low (v) TSU would monitor farmer response with respect tomarketing skills would encourage their marketing activities in order to identify anyprivate traders to enter the remaining constraints and work towards their removal.exchange system.

(vi) Lack of adequate basic Modest (vi) TSU would monitor trader investment response and |infrastructure in rural markets and work with beneficiaries and other concerned parties tolimited access to credit have remove constraints that may not be effectively addresseddiscouraged investment in under the project activities.marketing services by privatetraders.

(vii) Beneficiaries have the Low (vii) The capacity to participate financially or in-kindcapacity to participate in financing would be included in the eligibility criteria of marketand implementation of market sites. Training would also be offered under the projectinfrastructure improvement activities to ensure effective participation ofactivities. beneficiaries.

(viii ) TSU would have adequate Low (viii) TSU would use subcontracting with qualified localcapacities to implement and organizations to augment its capacities to implementeffectively manage the proposed project activities. Attentive supervision would ensureactivities. that effectiveness of the management system is

maintained throughout the implementation period.

Overall Risk Rating Low

Risk Rating -H (High Risk), S (Substantial Risk), M (Modest Risk), N (Negligible or Low Risk)


G: Maiin Loan Condlitions

1. Effectiveness Condlitions:

* Initial payment of the equivalent of $100,000 by Government into the project account opened atBNR for the Input Credit Insurance Facility.

* Initial payment of the equivalent of $50,000 by Government into the project account opened allBNR for the remaining project components.

* Establishment of a Technical Support Unit within MINAGRI and recruitment of staff havingqualifications and experience satisfactory to IDA.

* Adoption by Government of a project implementation manual that is satisfactory to IDA.* Signing of a subsidiary loan agreement between BNR and Government under terms and conditions

satisfactory to IDA.* Issuance by Government of instructions, satisfactory to IDA., setting forth an appropriate

framnework for free distribution of modem farm inputs, limiting such distribution to emergencyreintegration and poverty alleviation programs.

- Establishment of an adequate financial management system that is satisfactory to IDA and whichensures proper monitoring and execution of project activities.

* Appointment of the project auditor under terms and conditions satisfactory to IDA.

2. Disbursement Conditions

Disbursement for expenditures under the Small Farm Input Credit Facility component would notstart until the Borrower has adopted an adequate framework satisfactory to IDA, including amanual of procedures detailing the criteria, procedures, guidelines, and standard contractsapplicable to the provision of grants to poor and remote farmer groups for revolving credit funcdsunder that component.

3. Other:

None.

H: Readliness for Implementation

1. (a) The engineering design documents for the first year's activities are complete and ready for thestart of project implementation.

[ ] 1. (b) Not applicab.le.

[ j 2. The procurement documents for the first six months' activities are complete and ready for the startof project impleinentation; and a framework for agreement on standard bidding documents thatwould be used for ongoing procurement during the project has been established.

[X] 3. Tlle LIL's implementation plan has been appraised and found to be realistic and of satisfactoryquality.

[ 4. Thte following items are lacking and are discussed under loan conditions (Section G):


I: Compliance with Bank Policies

[ I 1. This project complies with all applicable Bank policies.[x] 2. The following exceptions to Bank policies are recommended for approval. The project complies

with all other applicable Bank policies.

OP 10.02 requires that audit costs be financed as 'operating costs'. However, given thecircumstances prevailing in Rwanda and, hence, the likely detrimental impact of a 95%-financingon the conduct and timeliness of audits, it is proposed that these be financed by IDA at 100% andunder consultant services.

/se]Leader: Ousmane Badiane

SectoDr Manager: Joseph -Dwomoh

[signature] L a, /X.Country Director (Acting): Emmanuel Mbi

Agricultural & Rurail Market Development Project Page 18

Annex 1: Project Design Summary


le-ri -( F. iv- sw .K~ ~ancl"-" t>r iMitaig adCiA?wBims, *? n 0? ? .>. > * ? ............................ ........ ? -?........... . . ......... ..... ........ ..... .. .........C .*.

Sector-related CAS goal: Sector Indicators: Sector / Country Reports: (Goal to Bank Mission)

Raise agricultural 1. Higher agricultural yields. 1-3. Anuual update of (i) Government wouLd continueproductivity and increase 2. Increased output per rural baseline survey and economic reforms.agricultural and rural household. analysis of farmincomes. 3. Higher agricultural and household sector in (ii) Security situation would not

rural incomes. years two and three of deteriorate.the project.

4. Higher agricultural growth 4. National statistics.rate.

Project Development Outcome / Inpact Project Reports: (Objective to CAS)Objective: Indicators:

Increased intensification of 1. The quantities of modem Annial update of baselhie There would be no otheragricultural production farm inputs used by survey and analysis of farm significant technologicalthrough higher adoption beneficiary farmers are 25% household sector in years constraints that would limitrates of modern farm higher than the baseline two and three of the supply response to higher inputinputs. averages in the It year, 50% project. use.

in the 2d, and 75% in the 3rd

year. (Annex 11, Table 1).

2. Average output amongbeneficiary farmers is 25%higher than the baselineaverage in the 1t year, 50% inthe 2`d, and 75% in the 3 rd

year (Annex 11, Table 2).

Project Outputs: Output Indicators: Project Reports: (Outputs to Objective)

1. Promotion of input useand distributionsystems

1.1 Greater efficiency and 1. l(a) The number of modem 1. 1(a) - 1. 1(b) Armual (i) Govermnent would pursue thesustainability of private input importers is 50% higher update of baseline survey liberalization of trade, exchangesector-based input than the baseline average in and analysis of input and investment regimes todistribution and output the Ist year, 75% in the 2nd, and distribution systems; BNR promote processing, marketingmarketing systems have 100% in the 3 d year (See reports on line of credit and export of agriculturalbeen achieved. Annex 11, Table 5). activities; national trade products.

statistics.1,.1(b) The volume of modem (ii) Road infrastructurefann inputs imported by the deficiencies and weaknesses in theprivate sector is 50% higher transport sector would not posethan the baseline average in serious constraints to expansionthe It year, 75% in the 2"n, and of marketing activities in the short


100% in the 3r year (See run.Annex 11, Table 5)

(iii) Improved access to1. 1(c) Increased private sector 1.1(c) - 1.1(d) Annual credit would encourage traders toparticipation in output update of baseline surveys raise modem input imports andmarketing, both in terms of (i) and analyses of input extend seasonal credit to farmers.average level & (ii) geographic distribution and outputcoverage of marketing marketing systems in year (iv) Access to credit and betteractivities as compared to two and three of the perfomniing markets wouldbaseline (Annex 11, Table 4). project. encourage farmers to increase use

of modem farm inputs.1. I(d). Increased privatesector participation in input (v) Qualified specialized localdistribution, both in terms of organizations would be available(i) average level and (ii) to advise and train beneficiaries.geographic coverage of salesactivities as compared tobaseline (Annex 11, Table 5).

1. 1(e). Reduced costs of inputdistribution and outputmarketing as reflected in lower 1. 1(e) Quarterlyprice margins across local monitoring reports; FEWSmarkets. reports; SIM reports.

1.2 Farmers have received 1.2(a). By the middle of thetraining on the use of second year of the project, atmodem iarm inputs and least 70% of beneficiary 1.2 Quarterly monitoringmanagennent of credit. fanners have received training reports #6 and #12.

in the use of modem farminputs.

1.2(b). At the end of year 3 ofthe project, at least 90% ofbeneficiary farmers havereceived training in the use ofmodem farm inputs.

1.3 Farmers have greater 1.3. The amount of inputaccess to modem farm credit received by beneficiaryinput credit. farmers is 25% higher than the 1.3 Annual update of

baseline average in the 1 year, baseline survey and50% hi the 2nd, and 75% in analysis of farm householdthe 3rd year. sector in years two and

three of the project.2. Support to localagricultural marketingsystems

2.1. Farmers' crop 2.1 (a). The quantities 2.1 & 2.3. Annual update (vi) Improvement in theconservation and marketedby beneficiary of baseline surveys and marketing environment would


M-'' ''- Y > 1X 01 , IE hX-marketing skills have farmers are at least 10% higher analyses of output encourage farmers to enter the

I imnproved; adapted than the baseline average in marketing and farm exchange system and raiseprocessing technologies ithe 1* year, 25% in the 2nd, household sectors in years demand for modem farm inputs.are available. and 50% in the 3rd year two and three of the

(Annex 11, Table 3). project. (vii) Traders would respond toeasier access to credit by

2.1(b). Adapted technologies expanding marketing activities.ifor processing of agriculturalcrops have been developed, (viii) Farmers would respond totested, and adopted by farmers advisory services and greaterand traders. market opportunities with

increased marketed surplus.

2.2. Basic market '2.2. Improvement of basicinfrastructure in target infrastructure of agricultural 2.2. Quarterly m onitoringrural areas has been marketing sites in at least 7 reports #4, #8, and #12.upgraded. communes per year, for a total

of 21 by the end of project.

2.3. Investment by private 2.3. The amount of credittraders i-n marketing obtained by traders forservices has incrcased, investment in marketing

services is at least 25%, 50%,and 75% higher than thebaseline average in the I', 2nd,and 3rd year, respectively(Annex 1 1, Table 6).

3. Project TechnicalSupport Unit

Effective implementation, Timeliness of submission of Supervision reports (ix) TSU would have soundmonitoring an,d evaluation rnonitoring reports; level of financial management andof project, activities are quality of monitoring and Annual work programs effective monitoring andachieved. evaluation activities; level of evaluation systems.

quality of financialrmanagement. (x) TSU would have tlie necessary

autonomy to effectivelyimplement and manage the projectactivities.

Project Components Inputs: (budget for each (Components to Outputs)/Sub-components: (see component)Annex 2 for projectdescription)

1. Promotion of iput use 1. US$3.29 million (i) There would not be anyand distribution systems distribution of fertilizer grants

that would disturb the functioning1.1 IFarmer access to 1.1 $2.40 millions of input markets.seasonal creditfor modern dQuerly monitoring


<tt,,,,,,.2,, d, ,,,,,-w .. ....- farm inputs (through line reports (ii) EU would not start a newof credit to input fertilizer import and subsidyimporters, input credit Disbursement reports program.insurance facility, andgrants from the small Supervision reports (iii) Difficulties with respect tofarmer input credit facility client screening and creditto poor and remote farmers monitoring would be the mainfor the creation of reasons preventing local banksrevolving credit funds). and traders from extending

seasonal credit to farmers.1.2 Advisory services for 1.2 $0.39 millionadoption of modern farm (iv) Increased know how andinputs and access to credit. access to credit would encourage

modern iput adoption.1.3 Multiplication and 1.3 $0.50 milliondistribution of improvedseeds (technical andinstitutional support).

2. Support to local 2. US$1.77 million (i) Better conservation andagricultural marketing marketing skills would encouragesystems private traders to enter the

exchange system.2.1 Crop conservation, 2.1 $0.49 million Quarterly monitoringprocessing, and marketing reports (ii) Lack of adequate basictechnologies (through infrastructure in rural markets andtechnical assistance to Disbursement reports limited access to credit havefarmers and traders and discouraged investment inR&D funding). Supervision reports marketing services by private

traders.2.2 Strengthening of rural 2.2 $1.07 millionagricultural marketing (iii) Beneficiaries have thepoles (through grants and capacity to participate in theinstitutional support to financing and implementation oflocal communities). market infrastructure

improvement activities.2.3 Private sector 2.3 $0.21 millioninvestment in marketingservices (<technical andinstitutional support tolocal communities andtraders).

3. Project Technical 3. US$0.55 millionSupport Jnit

Effective implementation, (i) Capacities to implement andmonitoring and evaluation effectively manage the proposedofproject activities are activities would exist and couldachieved. be mobilized by the project.


Annex 2: Project Description


The project's main objective is to contribute to the revitalization of Rwanda's agricultural arndrural economy by successfully identifying policies and institutional mechanisms: (a) to promoteefficient, private-sector based, local agricultural input distribution and output marketing systemsin order (b) to raise modem farm input use among farmers and thereby the productivity of laborand hence the level of incomes in the rural sector. Its subsidiary objectives are to test alternativeapproaches to:

* facilitate access by farmers to credit for modem farm inputs;* provide technical advisory services to farmers on the use of modem farm inputs;* encourage the emergence of a sustainable modem input import and distribution system;

and• encourage investments by private traders in marketing services in rural areas.

In addition to the technical support, monitoring, and evaluation component, the project wouldcomprise two complementary major components. Each of these two main components would bemade up of sub-components regrouping sets of activities that reinforce each other:

* the first of these components would focus on the demonstration of effective and replicablemechanisms to: (i) significantly and sustainably raise modem farm input use among farmersand (ii) expand and strengthen the nascent private sector-based input import and distributionsystems; and

• the second component would test strategies to: (iii) provide an incentive framework as wellas technical advisory services that are conducive to greater market orientation among small-holders, (iv) encourage private sector investment in marketing services, and (v) provide thetechnical and institutional support to raise the efficiency and reduce unit costs in ruralrnarketing systems.

The design of the proposed project has been guided by: (a) a detailed analysis of the strategicissues surrounding the question of agricultural intensification in Rwanda; and (b) a structuredbaseline survey, using detailed questionnaires, of the input distribution, output marketing, ruraltransport, and farm household sectors. The report on agricultural intensification in Rwanda wasboth a complement to the country's agricultural and food security strategies as well as a furtherrefinement of the work that was carried out by the government of Rwanda to guide the preparationof a program to proimote agricultural input and output markets. The report analyzed the problemof agricultural intensification, identified the strategic issues and proposed policy options that haveserved as guidelines in drawing the activities of the proposed project. The baseline survey wascarried out by a teanm of enumerators and supervisors under the direction of MINAGRI's Planning,Studies, and Monitoring Unit between January and February 1999 and covered 8 prefectures(districts). The survey included randomly selected samples of farm households and output tradersof 200 respondents each. The samples of input traders and rural transporters had each about halfas many respondents. The results of the survey of the constraints to increased supply and use ofmodern farm inputs and greater integration of farmers into the market exchange system were usedto fin.etune the design of the activities and mechanisms to be tested under the proposed project.


1. Promotion of Input Use and Distribution Systems - $3.29 millions

The fertilizer import program of the European Union and donor grants currently constitute themain source of fertilizer supplies in Rwanda. The EU Program imports fertilizers and sell them totraders in Kigali through bidding and, at times, at subsidized prices. The program has not workedsatisfactorily due to logistical difficulties and conflicting sales practices, and is being discontinuedthis year. There are practically no plans in place to ensure the future supply of fertilizers. Thegovernment, on the other hand, has signaled its intent to discourage the distribution of fertilizergrants. However, no fornal decision to that effect has been issued yet. The adoption of anadequate framework for free distribution of grant fertilizers and other modem farm inputs,including the limitation of such distribution to emergency reintegration and poverty alleviationprograms would, hence, be a condition of effectiveness. Against this background, the specificolbjectives that are pursued under this component are to: (i) sustain and raise the supply ofmnodem farm inputs, fertilizers, improved seeds, agro-chemicals, and livestock supplies bypromoting the emergence of an autonomous and competitive private sector-based system toirnport and distribute inputs; and (ii) stimulate demand for and facilitate access by farmers to theseinputs.

Experience in Rwanda and elsewhere in Africa has shown that the great majority of farmers faceserious seasonal liquidity constraints that limit their ability to acquire the necessary amounts ofmodem inputs that are required to significantly raise their productivity. Low profit marginslinked to output market deficiencies, lack of collateral, and failing financial (credit and insurance)markets all contribute to that liquidity constraint. The only exceptions here are in the case ofindustrial and other cash crop sectors. Access to input in these cases is frequently facilitated bythe existence of a public or private company which serves as a conduit for credit and which oftenalso has some degree of control over output marketing channels. In the absence of such anintermediary system, farmers rarely have the capacity to autonomously raise sufficient credit fromlocal banks to meet their demand for modem farm inputs.

In the current context of liberalized markets, there is no parastatal in Rwanda to play that role.Furthermore, a large share of the country's agricultural production consists of food crops that aremarketed directly in local markets and not through companies that could use their control oversales channels to limit the risk involved when serving as intermediaries for credit. Consequently,an alternative category of economic agents would have to be found whose business objectives aredirectly tied to the level of demand and use of modem farm inputs. The most viable options in thecurrent context of Rwanda would be: (a) private input traders who, given acceptable risk levels,would have an interest in selling modern farm inputs on credit; and/or (b) local banks, whichwould extend short term credit to farmers to procure these inputs. If successful, activities basedon the above options would go a long way towards improving access to modem farm inputs,except in the case of poor and remote farmers. The first sub-component of the present componentof the proposed project (farmer access to seasonal credit for modern farm inputs) would,therefore, include three sets of activities, as outlined below, to test alternative options offacilitating access to seasonal credit for modern farm inputs: (i.a) a line of credit for importers ofmrodern farm inputs to provide them with the resources and incentives to extend seasonal credit tofarmers; (i.b) a Small Farmer Input Credit Facility to provide grants to groups of poor and remotefarmers for the creation of revolving credit funds; and (i.c) an Input Credit Insurance Facility thatfarmers could borrow from to repay seasonal input credit from traders and/or local banks in caseof emergency production shortfall.

Higher rates of intensification require not only better access to credit but also increased supply ofmodem farm inputs in local markets and a broad dissemination among fanners of sufficient


technical know how with respect to the use of these inputs. Consequently, two additional sub-components would be added to the present component: (ii)advisory services for the adoption cfmod'ern farm inpuits and access to credit; and (iii) the promotion of multiplication anddistribution of improved seeds through technical assistance to farmers and traders. The set ofactivities under the second and third sub-components would complement the first sub-componentas their activities would ensure the proper use of the acquired inputs and thereby contribute toreducing the risk of credit default among farmers and hence create incentives among traders andlocal banks to extend seasonal credit. It would also seek to raise the profitability of modem farminpu.ts and thereby stimulate demand and attract more private distributors into input markets. Thefollowing sections describe the above set of activities that are proposed under the currentcomponent on the promotion of input use and distribution systems

1.1 Farmer access to seasonal credit for modern farm inputs: One element of this activity wouldbe aL line of credit that would provide to private traders some of the necessary resources anidincentives to extend seasonal credit to farmers that is tied to the procurement of modem farminpuits. The line of credit could be provided to traders at any level of the distribution chain.However, in order to exclude any eventual misuse of the allocated resources for other purposesthan facilitating farmer access to modem farm inputs through seasonal credit, the line of creditwould be applied alt the source of the supply chain by linking it directly to input imports. The lineof credit would accordingly be made available to private importers of modem fann inputs whosatisfy the eligibility criteria as defined in the implementation manual (See also Annex 9). Thecredit would be channeled through eligible financial institutions, with BNR acting as the Apexinstitution. The signing of a subsidiary loan agreement between BNR and the governmentdefining the functions and responsibilities of BNR and that of participating financial institutions,under terms and coDnditions satisfactory to IDA, would be a condition of effectiveness of thecredit. The relatioinship between IDA and BNR would also be defined in a separate agreemenit.Eligible financial institutions would have to: (i) be duly established and operating under the lavwsof the Borrower; (ii) maintain a sound financial structure, a healthy portfolio, and theorganization, management, staff and other resources required for the efficient carrying out of sitsactivities; (iii) conduct their affairs, including interest rate policies, in accordance with soundfinanicial principles and practices; (iv) maintain a lending policy, i.e.,prudential and solvencynorms, quality of loan analysis, and distribution of risks, acceptable to the Association andBNR, and suitable ]procedures, as well as an adequate number of suitably qualified staff to enableit to effectively appraise the financial, technical, and economic feasibility of the import activitiesfor which traders are applying for sub-loans. Any local bank, development bank or financialinstitution operating in Rwanda may apply for eligibility. BNR would review the applicationbased on the criteria described above.

Eligible importers would apply for the loan through the usual procedures used by the financialinstitutions, which would review these applications using prevailing standard policies ar.dprocedures. Eligible importers would have adequate expertise with respect to the use of modernfarm inputs, have adequate experience in import or distribution activities involving agriculturalinputs or products, possess adequate infrastructure, staff, and administrative and financialmanagement systems as well as procedures in place to efficiently carry out input import activities.

Private importers would need access to considerable resources to be able to serve as a conduit forseasonal credit to farmers. Until importers have developed sufficient ties to foreign supplysources that would give them access to supply credit with terms that would allow them to extendcredit further to their customers, these resources would have to come from local banks. In theory,there may not be serious foreign exchange or liquidity constraints among local banks to justify aline of credit for input imports. In practice, however, the perceived risk that is associated with


input markets in the context of: (a) small-holder production conditions; and (b) failing ruralinsurance markets, in general, puts modem input importers at a disadvantage when competing forloan resources with other users of commercial credit. Targeted but commercially-oriented lendingthirough a dedicated line of credit would correct the "bias" and facilitate access to resources whileproviding the opportunity to financial institutions to better appreciate the market potential andrisk in the modem farm input sector. In order to overcome the obstacles to greater access toformal credit, the project would work through specialized local organizations to provide advisoryservices to farmers with respect to credit use and management and thereby reduce the risk of loandefault, raise incentives for importers / traders and local banks to extend credit, and sustain theavailability of seasonal credit beyond the lifetime of the project. The project would also establishan Input Credit Insurance Facility that farmers could borrow from in case of emergencyproduction shortfalls to repay shorter tenn input credits.

Access to the line of credit by input importers would be on a declining basis, in order to attractentrepreneurs who have the willingness and are in a position to mobilize resources to financemodem input import and distribution activities beyond the lifetime of the project. Hence, thecontribution of individual importers to the cost of their modem input imports that are fundedunder the line of credit would increase with the frequency of their use of the line of credit. Inother words, individual importers would contribute a minimum of 30% of the cost of their firstimport project under the line of credit, 45% for the second, and 60% for the third project. Theminimum contribution to the cost of the fourth and any subsequent import project would be 75%.The use of the frequency of utilization as the basis for calculating the level of contribution byinidividual traders to the cost of input imports ensures that the contribution does not represent asignificant barrier to entry. This is because first time entrants face the same condition, i.e., themiinimum contribution of 30% to import costs, whether they start importing in the first, second, ortihird year of the project. If the level of contribution were to increase automatically over time andinidependently of how often an individual importer accesses the line of credit, early entrants wouldenjoy an advantage over late entrants as the latter would face a higher investment hurdle whenentering the sector. The adopted formula thus would encourage competition as it would keep thedoor open for new entrants until the end of the project.

Participation in the line of credit or extension of seasonal credit to farmers would not becompulsory for importing traders and distributors. Importers would be free to use the line ofcredit as far as they need it and are eligible, based on the agreed criteria. The incentives to extendseasonal credit would come from: (a) the need among importers I traders to compete for marketshare; and (b) the institutional support that would be provided under the proposed project toreduce the risk of credit default. An important requirement for the success of this componentwould be the cessation of free distribution of modem farm input grants that would distortcompetition and discourage private sector entry into input markets. The issuance by Governmentof instructions setting an adequate framework for the free distribution of modem farm inputs,including the limitation of such distribution to emergency reintegration and poverty alleviationprograms, would therefore be a condition of project effectiveness. In the rare cases where it mightbe necessary, such as under emergency reintegration programs, the TSU would work closely withimplementing agencies, beneficiaries, and local organizations participating in the projectinplementation to ensure that the quantities involved are: (i) purchased in the local markets;(ii) actually used by the targeted beneficiaries; and (iii) not resold in the same markets,

The risk of loan default is often the main disincentive to providing credit to farmers. There aretwo main sources of the risk that is associated with modem farm input credit in small-holderagriculture: (a) technical and commercial risk due to inappropriate utilization of modem fairninputs or failing output markets; and (b) weather / climate related production shortfall in the


absence of insurance markets. In order to eliminate the first source of risk, the project wouldinclude: (i) institutional and advisory activities to increase technical know how with respect tothe use of modem farm inputs among farmers (see 1.2 below); and (ii) a series of activities topromote local marketing systems as described under component 2 of the project. In order toeliminate the default risk resulting from changing climatic conditions, the current component ofthe project would also include an Input Credit Insurance Facility (ICIF) that farmers could borrowfromr to repay shorter term seasonal loans in case of production shortfalls that are related toweather and similar conditions. The Facility would ensure repayment and thus reinforce thewillingness to lend on the part of local banks and input traders. It would operate as an "insurancescheme" that would protect the nascent input distribution systems from potential shocks in itsearly stages that might set back its development. Government would make an initial contributicnof the equivalent of $100,000 to ICIF before project effectiveness. This contribution would be acondition of effectiveness. In addition thereto, the amounts that are reimbursed by modem inputimporters under the line of credit would be allocated to the Facility to expand its resources.Furthermore, it is proposed that the interest charges paid by participating banks to BNR under theline of credit be allocated to the Input Credit Insurance Facility. The initial contribution byGovemment would allow farmers to make use of the facility to eventually repay their modeimfarrn. input credit, should the need arise, before the first flow of reimbursed funds under the line ofcredit become available.

Because it may be more difficult for poor farmers and farmers in remote areas to access creditthrough traders or local banks, a Small Farmer Input Credit Facility (SFICF) is proposed whichwould provide initial funding to groups of farmers to set up revolving credit funds to finance theacquisition of modem farm inputs. Initially, farmer groups and cooperatives who do not have thecapacity to manage the revolving credit funds directly may sub-contract to the local branch of theBanques Populaires the management of the funds, awaiting the reinforcement of their capacities.Disbursement under that component would be conditional upon adoption by Government of anadeq[uate framewor]k, satisfactory to IDA, including a manual of procedures detailing the criteria,procedures, guidelines, and standard contracts applicable to the provision of such grants.

Lending by local banks for input purchases, the provision of input credit by importers / traders,and cooperative lending by farmer groups are altemative/complementary mechanisms to facilitatemodem input adoplion by farmers that are being tested in parallel. The three mechanisms wouldcompete directly under the proposed project. The outcome would be monitored very closely andadjustment made in favor of the mechanism(s) that would contribute more effectively to easingfarner access to input credit.

1.2 Advisory services for the adoption of modern farm inputs and access to credit: Supportwould be provided to farmers through a private sector based extension system, including qualifiednon-governmental and other local organizations, and producer groups, to accelerate the adoptionof modem farm inputs. The main extension services system that was built around the DirectionsRegionales des Services Agricoles (DRSA) has been severely affected by the war. The system hasbeen rebuilt but at a much smaller scale and currently does not have the human nor materialresources to carry out an effective extension program. The extension activities under the pilotproj ect would seek to promote a complementary, private sector-based system that would providethe needed technical advisory services to farmers. In order to facilitate collaboration with thelocal DRSAs, the project would allocate a modest financial support to the latter for the acquisitionof a limited number of motorcycles for the technicians that would work with the project teams.

The technical advice should lead to higher profitability of modern farm inputs, which would raiseboth. the demand for these inputs and the capacity of farmers to pay for them. Higher profitability

A,gricultural & Rural Market Development Project Page 27

would also raise the creditworthiness of farmers. In addition, the advisory services would includeadvice on access to and use of credit to farmers. The project would also collaborate with localbanks to prepare and monitor credit to farmers. The sum of these activities should not only reducethe risk of giving credit to farmers and hence demonstrate the opportunity to do business withfarmers. They would also contribute to the emergence of local markets for credit advisoryservices and monitoring, as farmers and banks discover the value of the services offered under theproject.

1.3 Promotion of multiplication and distribution of improved seeds by the private sector: Theproject would provide institutional and technical advisory support through qualified non-governmental and other local organizations to farmers that are willing to engage in seedmultiplication. The government has launched with support from Belgium a program to breedimiproved seed varieties. These varieties have not yet found their way to farrmers for lack of aneifective system of multiplication. The project would work with the above organizations toprovide the necessary technical know how and encourage farmers to engage in seedmultiplication. Depending on the outcome during the pilot project, the activities under the presentanld preceding sub-components would be expanded under the subsequent rural sector supportproject to further strengthen producer organizations, which would take more responsibility withrespect to extension and other advisory services, including credit support services.

2. Support to Local Agricultural Marketing Systems- $1.77 millions

The objective of this component is to facilitate the access by farmers to marketing services whileraising the efficiency of rural marketing systems and cutting unit costs of moving goods acrosslocal markets. The proposed activities would improve marketing skills by farmers, improve basicinfrastructure in rural markets, and raise investment in marketing infrastructure and equipment bypiivate traders. They would be carried out under the following three sub-components:

2.1 Crop conservation, processing and marketing technologies: Under this sub-component,the project would provide technical advisory services to farmers through specialized localorganizations, including producer groups, to improve crop conservation and marketingtechniques. Very few rural markets operate on a daily basis in rural Rwanda. Furthermore,horticultural products occupy a large share of agricultural production. Perishability andconservation are therefore important aspects of agricultural marketing in the country. The projectwould provide the necessary training and logistical support to alleviate constraints in this area andfacilitate farners' entry into the market exchange system. Furthermore, the project would providefunding for the development and testing of adapted processing technologies through specializedpaLrtner agencies. In cases where such technologies do exist, the project would provideinstitutional and technical support to traders and producers to secure credit from local banks forinvestment in processing equipment (see 2.3)

2.2 Strengthening of rural agricultural marketing poles: Two main activities would becarried out under this sub-component: (a) financial assistance through grants to localcommunities for the improvement of basic market infrastructure, which would create theincentives for supplementary investment in storage and other marketing infrastructure andequipment by private traders; and (b) advisory services to local communities to effectivelymanage these sites. The type of market improvement to be undertaken would be demand-drivenand would take into consideration the capacity of beneficiaries to participate in the investment andsubsequently manage the sites. TSU would contract with specialized private sector organizations


to carry out the infrastructure improvement work and provide the necessary training andinstitutional as well as advisory support to beneficiary groups.

The support would include funding for the acquisition of fax machines or other adequateequipment for market information collection and dissemination in project market sites andtraining of beneficiary traders on market data collection and management. Each of the marketsites would be linked through fax to the Market Information System (MIS) based at MINAGRI inKigali and which collects market information on local markets around the country. The goal is tohave timely market data on local supply, demand, and price conditions available on a daily basisin each project market site.

Due to administrative and customary reasons, markets in the great majority of communes operatemostly on a weekly basis, which practically is equivalent to a rationing of marketing services.Therefore, one of the eligibility criteria with respect to the selection of zones/communes formarket infrastructure improvement would be the guaranty that markets would operate on a dailybasis.

2.3 Private sector investment in marketing services: In addition to the incentives resulting fromthe improvement of basic infrastructure of marketing sites, the project would provide advisorysupport services, using specialized local organizations, to facilitate access by private traders,including producer associations, to credit for investments in infrastructure and equipment for thestorage, processing, transport, and marketing of agricultural products. As in the case of farmercredit for inputs, the objective of the support is to train beneficiaries to interact effectively withrural and other commercial lending institutions and profitably manage the investments financedfrom the obtained credit in order to ensure repayment. Better access to credit and increasedinvestment in infrastructure and equipment would allow traders to expand activities and cut unitcost of operations. The higher efficiency in rural agricultural markets and the increase in thesupply of marketing services would encourage farmers to enter the exchange system and thusfoster intensification.

3. Technical Support, Monitoring, and Evaluation - $0.55 million

A Technical Support Unit (TSU), comprising the project coordinator (PC), an administrative andfinancial management specialist (AFMS), and an extension, monitoring, and evaluation specialist(EMES), plus support personnel, would be in charge of the day-to-day management of the projectactivities. All key project staff would be selected on the basis of an open competitive process andwith fixed term renewable contracts. At project inception, the coordinator would be recruited on afixed term contract of one year, renewable on a basis of demonstrated performance.If MINAGRIdecides, for reasons of cost-saving, sustainability, and/or capacity-building, to recruit the projectcoordinator (PC) or the extension, monitoring and evaluation specialist (EMES) among its staff,an assessment of the qualification of the considered staff would be carried out before projecteffectiveness. Furthermore, any cost-savings would be set aside for the first year of the projectimplementation and used for any necessary staffing adjustment in case of unsatisfactoryimplementation or monitoring of the project activities. If project implementation is satisfactory,the resources could be allocated to other uses at the end of the first year.

The project would be implemented primarily through collaboration with specialized non-governmental and other private sector organizations. The TSU would therefore not includetechmical personnel. The main functions of the TSU would include: (a) coordinating individualproject activities; (b) contracting and supervising the execution of contracts between the project,the beneficiaries and the specialized local organizations; (c) preparing the project annual work


program , annual budgets, accounts and financial statements, progress reports, disbursementsapplications and procurement plans and execution; (d) monitoring and evaluation of projectoutput and outcome, including reporting to Government and IDA on the project's progress and thelessons learned; and (e) provision of technical advisory services to fanners and traders throughsubcontracting to qualified non-governmental and other local organizations, which haveestablished a sufficient and satisfactory track record. The TSU would operate under the tutelageof MINAGRI's Directorate of Extension and Marketing (DEM). The respective responsibilitiesof TSU and DEM staff with respect to the pilot project would be defined clearly in theimplementation manual in order to avoid interference by the latter with TSU's day-to-daymanagement functions. At the end of the pilot phase, the role of the TSU would be taken over asnecessary under the wider rural sector program, which would include a component that would bebased on the replicable elements of the pilot project. The full terms of reference of the TSU andits staff as well as that of the auditor are contained in the project implementation manual.

4. Institutional Arrangements under the Line of Credit and Input Credit Insurance Facility

The Government and BNR would enter into a Subsidiary Loan Agreement by which theGovernment would pass on the proceeds of the line of credit component to BNR. BNR wouldmake the proceeds of the credit component available to eligible local banks at a variable interestrate that is equal to: (a) the lower of the weighted twelve-month average of the applicable moneymarket rate over the preceding calendar year or the average inflation rate over the precedingcalendar year plus a commission not to exceed one percent (1%); or (b) such other reference rateas may be determined by agreement between Govermnent and BNR and satisfactory to theAssociation. Given the land-locked nature of Rwanda and the considerable time gap of up to 3months, between import orders and deliveries of farm inputs, the proposed repayment period forthe sub-loans to be extended by BNR to participating local banks under the line of credit is 15nonths following the availability of such funds.

There would be no limit to the amount of money individual importers can borrow from the line ofc]redit in any given year or during the lifetime of the project. The only reason for such a constraintwould be to prevent monopolization of the import system. However, for that to happen, a singleirmporter would have to import more than 6,000 tons of fertilizers, using the example of NPK, forwhich he/she would have to mobilize more than $1.0 million in order to have access to the entireline of credit'. Judging from the current annual level of fertilizer consumption of about 2,000 tonsand average import levels by private importers of slightly more than 100 tons, it is highly unlikelythat any individual importer: (i) would venture into an operation of that magnitude; or (ii) find alocal bank that would agree to finance such a risky enterprise.

The IDA-financed sub-loans would be reimbursed both by local banks and their borrowers inlocal currency, unless the Government and IDA otherwise agree. These funds would be used toreplenish the Input Credit Insurance Facility described underSection 1.1 above and for which anaccount would be open at BNR. In the case of weather-induced or similar production shortfall,and upon decision by MINAGRI and the TSU, in consultation with IDA, to mobilize the fundsunder the Facility, eligible farmers would apply to TSU for credit from the Facility to repay theirseasonal loans. Eligible under the input credit insurance component would be farmers who havereceived input credit from importers / traders or local banks and who, because of weather relatedor similar production shortfall during the same season for which the input credit was obtained,were unable to repay their loans. These fanners would have to be receiving advisory services

' Imports of inputs other than fertilizers cannot reach levels that would clain such a large share of the lineof credit.


from the specialized organizations working with project. This last condition is to ensure that theinsurance facility covers only farmers who have acquired or are acquiring the necessary knowhow to use the acquired inputs adequately, in which case the technical risk should have beeneliminated, leaving mainly the weather-related risk as the only possible cause of default to bedealt with. The condition would also eliminate the possibility of abuse or leakage on the part cfbeneficiaries, since the farmers receiving the advisory services and technical support would each:

l have a technical data sheet with the respective partner organization, which will determine:(i) the land and other assets that they own, (ii) the crops they cultivate, (iii) their expectedyields and revenue, as well as (iv) their borrowing capacity; and

@ a contract with the input importer / distributor or local bank providing the credit that has beenapproved by the partner organization on behalf of TSU.


Annex 3: Estimated Project Costs

RwandaAgricultural and Rural Market Development Project

A. P'romotion of Input Use and Distribution 1251.5 2,000.0 3,251.5Systems:

(1) Farmer access to seasonal credit for modern farm 400.0 2.000.0 2,400.0inputs

(2) Advisory services for adoption of modern farm 370.7 - 370.7inputs and access to credit

(3) Seed multiplication and distribution 480.8 - 480.8

B. Support to local agricultural systems: 1,663.6 - 1,663.6

(1) Crop conservation and marketing technologies 473.8 - 473.8

(2) Strengthening of rural agricultural marketing 989.8 - 989.8poles3

(3) Private sector investment in marketing services 200.0 - 200.0

C. Technical Support Unit 530.0 - 530.0

Total Baseline Cost 3,445.1 2,000.0 5,445.1

Physical Contingencies 42.0 - 42.0

Price Contingencies 125.4 - 125.4

TOTAL PROJECT COSTS 3,612.5 2,000.0 5,612.5

2 Includes taxes.

Agricultural & Rural Market Developrent Project Page 32

Annex 4: Table 1 - Financial Summary(US$ thousand)


TTTh? 2001..g?E X , .B >> ?tBE.? ?. d >. 2000 2001 2002 2003 2004 2005Project Costs

Investnent Costs 1,839.2 2,093.7 1,527.1Recurrent Costs 49.3 50.8 52.4 20.0 20.0 20.0

Total 1,888.5 2,144.5 1,579.5 20.0 20.0 0.0

Financing Sources (% of total)Project costs:

II3RD/IDA 90.6 90.4 90.2Government 8.9 8.6 9.3Beneficiaries 0.5 1.0 0.5 100 100 100

Total Project Financing 100 100 100 100 100 100


Annex 4: Table 2 - Disbursement Accounts by Financiers(US$ thousand)

~~ .~~/'•~~~6-~~~' Total ~~~2009 2901 2002

Beneficiaries Input 112.5 100 33.8 45.0 33.8

Civil Works 775.9 100 225.9 310.3 239.7(698.3) (90) (203.3) (279.3) (215.7)

Vehicles 90.0 100 90.0 - -

(90.0) (100) (90) (-) (-)

Equipment 99.2 100 84.9 8.0 6.3(79.2) (79.8) (69.9) (5.2) (4.1)

Line of Credit 2,000.0 100 633.0 842.0 525.0(2,000.0) (100) (633.0) (842.0) (525.0)

Small Farmer Input Credit Fa. 300 100 95 126 79(300) (100) (95) (126) (79)

Input Credit Insurance Facility 100.0 100 31.6 42.1 26.3

Training 358.1 100 104.3- 143.2 110.6(358.1) (100) (104.3) (143.2) (110.6)

Specialist Services 859.5 100 250.3 343.7 265.5(730.7) (85) (212.8) (292.1) (225.7)

Surveys/Studies 75.6 100 - 37.2 38.3(75.6) (100) (-) (37.2) (38.3)

Processing Technology R&D 415.2 100 203.0 104.5 107.7(355.4) (85.6) (173.8) (89.5) (92.1)

TSU Departmental Costs 223.8 100 72.4 74.6 76.8(205.2) (91.7) (66.4) (68.4) (70.4)

Audit 50.2 100 16.2 16.8 17.2(50.2) (100) (16.2) (16.8) (17.2)

Recurrent Costs 152.5 100 49.3 50.8 52.4(57.3) (37.6) (18.5) (19.1) (19.7)

TOTAL 5,612.5 100 1,888.5 2,144.5 1,579.5(5,000) (100) (1,682.0) (1,919.1) (1,398.7)

Amount in bracket: IDAfinancing


Annex 5: Procurement, Disbursement, and Financial Management Arrangements


Capacity Assessment of TSU for Procurement, Disbursements and Financial Management

A small Technical Support Unit (TSU) unit staffed with competent experienced staff, including aProject Coordinator (KPC), an Extension, Monitoring, and Evaluation Specialist (EMES), andAdministrative and Financial Management Specialist (AFMS) plus support staff will be recruited througha competitive and transparent process in accordance with tenns of reference acceptable to the Association.If MINAGRI decides, for reasons of cost-saving, sustainability, and/or capacity-building, to recruit theproject coordinator (PC) or the extension, monitoring and evaluation specialist (EMES) among its staff, anassessment of the qualification of the considered staff would be carried out before project effectiveness.Among the support personnel it is envisaged to hire an assistant accountant and a procurement specialist.Adequate provisions will be made to train the accounting and financial staff. TSU will be established as aseparate entity within the ministry responsible for execution, the Ministry of Agriculture, AnimalResources, and Forestry (MINAGRI).

1.1 Procurement: It is expected that major contracts for consultants services, furniture of goocls andequipment and certainly contracts for services will be executed during the first year of the life of project.MINAGRI/TSU would have the opportunity, based on their appreciation, to hire a procurement specialistor a procurement agenlt to carry out its procurement activities. In case TSU elects to procure through aprocurernent agent, the assistant accountant will be trained to handle all procurement matters. Allprocurernent contracts above established thresholds will be executed by a national procurement agency,the National Tender Board (NTB), that oversees all government procurement of works, goods andequipment.

1.2 Disbursement: A computerized accounting and integrated financial management system will be setup and assessed by IDA as a condition of effectiveness. The system will allow inputs at different levels tocapture all disbursements that will be effected under the project. The system will differentiate betweenpayment. of expenditures done by the TSU for the project activities and those done by the BNR (CentralBank) for the payment of letters of credit under the line of credit. Withdrawal applications would begenerated by the system.

Disbursement for expenditures under the Small Farmer Input Credit Facility would not start until theGovernment has adopted an adequate framework satisfactory to the Association, including a manual ofprocedures detailing the criteria, procedures, guidelines, and standard contracts applicable to the provisionof such grants.

1.3 Financial Management: The project will establish a financial management system, acceptable toIDA, which will provide the borrower and IDA with accurate and timely information regarding resourcesand expenditures. The financial management systems will include accounting, financial reporting andauditing elements. A financial management expert has been recruited to assist in the design andestablishment of the financial management systems of the TSU. The Unit will be responsible for projectadministrative and technical coordination as well as financial management. The final configuration of theTSU, the profile of the staff as well as their job descriptions have been described in the ProjectImplementation Manual (PIM). The relevant internal control system, meanwhile, will be determined andfully described in the Manual of Procedures to be prepared by the financial management consultant. The

AgricLutural & Rural Market Development Project Page 35

establishment by Government of an adequate financial management system, satisfactory to IDA, to ensureproper monitoring and execution of Project activities would be a condition of credit effectiveness.

1. PFrocurement

2. Procurement of goods and works required for the project and to be financed out of the proceeds ofthe Credit shall be governed by the "Guidelines for procurement under IBRD Loans and IDA Credits"published by the Bank in January 1995 and revised in January and August 1996, September 1997 andJanuary 1999. Procurement of consultants' services shall be governed by the "Guidelines for theSelection and Employment of Consultants by the World Bank Borrowers" published by the Bank inJanuary 1997, revised in September 1997 and January 1999. The following paragraphs describe theprocurement arrangements under the Project.

Contracts for Works (Basic Market Infrastructure Improvement)

TSU will contract with specialized local organizations to carry out works on basic market infrastracture.

3. Works estimated to cost less than US$30,000 equivalent per contract,up to an aggregate amountnot to exceed US$240,000 equivalent, should be procured through obtaining at least three bids fromeligible specialized local organizations as described in the Manual of Procedures.

Works estimated to cost more than US$30,000 equivalent per contract, up to anaggregate amount not toexceed US$776,000 equivalent may be procured by National Competitive Bidding under contractsawarded in accordance with the provisions of paragraph 3.3 and 3.4 of the guidelines and as described inthe VManual of Procedures.

The bidding documents shall include a detailed description of the works, including basic specifications,the required completion date, a basic form of agreement acceptable to IDA, and relevant drawings, whereapplicable. The award shall be made to the contractor who makes the lowest responsible offer for therequired work, and who has the experience and resources to complete the contract successfully.

Procurement of Goods (office supplies) and Equipment (vehicles, computers, and other officeequipment)

4. Given the small quantities of goods to be purchased under the project, it is not envisaged to do bulkprocurement. Consequently no ICB is envisaged. Goods estimated to cost US$50,000 equivalent percontract, up to an aggregate amount not to exceed US$170,000 equivalent may be procured by NationalCornpetitive Bidding (NCB) procedures, acceptable to IDA. Contracts under US$50,000 for theprocurement of items that cannot be grouped into bulk procurement and for readily available off-the-shelfgoods would be procured by comparing price quotations obtained from at least three local suppliers asdescribed in the Manual of Procedures. Procurement by this methods should not exceed the total sumof US$220,000 over the project's life. The implementation unit would be required to prepare acomputer-based system to monitor that the aggregate amounts agreed upon would not be exceeded duringpro ject implementation.

IDA financed contracts above the threshold of US$30,000 for civil works and US$50,000 for goods willbe subject to IDA's prior review. All other goods and works contracts will be subject to post review.


Procurementfrom UNAgencies

5 Vehicles, computers, and office equipment estimated to cost more than US$ 50,000 equivalent percontract up to an aggregate amount not to exceed US$170,000 may be procured from IAPSO inaccordance with the provision of paragraph 3.9 of the Guidelines

Consultants' Services (training, advisory services, surveys/studies, audit, and non-MINAGRITS Ustafj))

6. Consultants' services will be procured in accordance with the Guidelines Selection andEmployment of Consultants by World Bank Borrowers January 1997 and revised September 1997 andJanuary 1999. The particular selection methods and the type of services to which they apply are asfollows:

6.1 Quality- and Cost-based Selection

Selection based on quality and cost (QCBS) nonnally involves competition among qualified short-listed firms by evaluating the quality of the proposal before weighting the quality and cost scoresand adding them. The QCBS method would be used for the selection of consultants for thefollowing services: (i) advisory services for the adoption of modem farm inputs and access to creditby farners; (ii) training and demonstration activities to raise farmers' technical know how withrespect to the use of modem farm inputs; (iii) technical training and advisory services to encouragefarmers to engage in seed multiplication; and (iv) technical training to promote improved cropconservation processing, and marketing techniques among farmers. Short-lists for contractsestimated to cost less than US$50,000 equivalent per contract, may be comprised of nationalconsultants.

6.2. Other Procedures for the Selection of Consultants

(a) Least-Cost Selection. For audits of a standard nature and design of marketing polesestimated to cost less than US$50,000 equivalent per contract, these may be procuredby selecting the firm with the lowest cost provided its technical proposal receives aminimum qualifying mark for quality based on pre-established criteria.

(b) Selection Based on Consultants' Qualifications. Services for technical advisoryservices and institutional and logistical support to producer groups for multiplicationand distribution of improved seeds, crop conservation, management of localagricultural marketing poles, feasibility studies, and extension that are estimated tocost less than US$50,000 equivalent per contract, may be procured under contractsbased on the consultants' experience and competence relevant to the assignment.

(c) Individual Consultants. Services for studies and surveys which can be delivered byindividuals, would be selected through comparison of qualifications among individualconsultants expressing interest in the assignment or approached directly.

6.3 Review by the Bank of Selection of Consultant

(a) Selection Planning. Prior to the issuance to consultants of any requests for proposals,the proposed plan for the selection of consultants under the Activities shall befumished to the Bank for its review and approval

AgricLltural & Rural Market Development Project Page 37

(b) Prior Review. (i) With respect to each contract for the employment of consultingfirms estimated to cost the equivalent of US$50,000 or more, (ii) with respect to eachcontract for the employment of individual consultants estimated to cost the equivalentof US$30,000 or more, the qualifications, experience, terms of reference and terms ofemployment of the consultants shall be furnished to IDA for its prior review andapproval. The contract shall be awarded only after said approval shall have beengiven.

6.4 Post Review

All other contract will be subject to post review. Documents related to procurement below the priorreview thresholds will be maintained by the Borrower for ex-post review by auditors and by IDAsupervision missions

2. Disbursement

Disbursements would be in accordance with the Bank's Disbursement Handbook until a transition toPMR-based disbursements is made. The project is expected to be completed over a three-year period, byDecember 31, 2002 and the credit is expected to be closed by June 30, 2003.

Use of statements of expenses (SOEs)

1. Disbursements would be fully documented except for contracts below the equivalent ofUS$30,000 for civil works and individual consultants, and US$50,000 for goods and consulting firms, aswell as for all operating costs and training. As modem farm input imports are not subjected to priorreview, disbursement for all imports financed under the line of credit will also be on an SOE basis. Forsuch contracts, the borrower would be allowed to submit withdrawal applications based on statement ofexpenditures (SOEs). All supporting documents for such applications would be retained by the TechnicalSupport Unit (or BNR for line of credit expenditures) and made readily available for review by periodicIDA supervision missions and external auditors. All expenditures related to contracts above theequivalent of US30,000 for civil works and individual consultants, and US$50,000 for goods andconsulting fims would be fully documented (no SOE use).

Special accounts

2. To facilitate payment of expenditures by the project, two special accounts in foreign currencywould be established at BNR (Banque Nationale du Rwanda), one for the line of credit and one for theremaining project activities. IDA would make initial estimated deposits from Credit immediately aftereffectiveness of $200,000 into the line of credit special account. Once a total of 500,000 SDR has beendisbursed under the line of credit, a supplemental advance of $100,000 will be made bringing that specialaccount's total advance up to the authorized allocation of $300,000. For the TSU special account, aninitial deposit of $100,000 will be made and once disbursements for related project components totalSDR 500,000, the remaining balance of $100,000 of the authorized allocation of $200,000 will be made.

Minimum Value for Direct Payments and Special Commitments

3. Direct payments and requests for issuance of special commitments must total at least 20% ofthe total advance outstanding. In other words, when BNR's special account is initially at $200,000, nodirect payments or special commitments of less than $40,000 will be made. (This threshold will rise to$60,000 once the entirety of the authorized allocation is paid.) For the TSU special account, the initial


minimumn value for direct payments and special commitments will be $20,000, rising to $40,000 once theentire initial allocation is made.

Project / Counterpart Account(s)

4. Two project accounts for Government counterpart funds would be opened at BNR, one toreceive the initial contribution of the equivalent of $100,000 by Government into the Input CreditInsurance Facility and aL second account to receive the revolving funds from the line of credit that aredestined for the Input Credit Insurance Facility.

5. Government would open an account at a Bank that is agreeable to IDA to receive its annualcontribution to the project costs other than the Input Credit Insurance Facility and would make an initialpayment of the equivalent of $50,000 before project effectiveness. Besides the in-kind contribution of theestimated equivalent of $129,000 through the participation of its extension services in project activities,Government contribution would include the following additional payments into the above account: (i) anamount equivalent to $33,100 no later than six months after the beginning of the First Project Year; (ii) anamount equivalent to $90,300 no later that one month after the beginning of the Second Project Year; and(iii) an amount equivalent to $98,200 no later than one month after the beginning of the Third ProjectYear.

Flaw offunds

6 The line of credit account would be managed by BNR which would pay all expendituresunder that component from that account. Expenditures under the Input Credit Insurance Facility and theremaining; project activities would be paid by TSU from the respective accounts. TSU and BNR wouldensure that all disbursements are effected in accordance with Bank procedures. TSU will haveresponsibility for the production of the annual consolidated financial statements, including for the line ofcredit account. BNR will submit the relevant statements to IDA through the TSU.

3. Financial Management Arrangements

Accounting and Financial Reporting

The Project Technical Support Unit (TSU) will maintain the books and accounts of the project activities,except for the line of credit, which would be managed directly by BNR. The latter will maintain a pioperaccounting of the utilization of the line of credit and submit annually to TSU statements of activities.TSU will then be responsible for the production of the consolidated annual financial statements, includingfor the line of credit account. A financial management expert has been appointed to design acomputerized accounting and financial management system, based on internationally acceptableaccounting principles agreed with the Bank. The consultant will also prepare the accompanyingaccounting manual, including a proper chart of accounts, the various transaction cycles, the format,content and periodicity of the various financial statements to be produced, the budgetary procedures andprocess (preparation, monitoring, variance analysis, etc.), and the relevant internal controls. The manualwill be agreed to by IDA. The consultant will be responsible for the initial training of the accounting andfinancial management staff on the efficient operation of the computerized accounting system. They willalso be responsible for the preparation of a training program in financial management withL animplementation timetable for the duration of the project. The selection of the accounting software willensure that the system is Y2000 compliant and supported by a reliable organization.


Before project effectiveness, a Bank Certified Financial Management Specialist will carry out anassessment of the project financial management system (adequacy and competence of the accounting andfinancial staff, relevance of the manual of procedures, completeness of the accounting system) todetermine its soundness and capability to provide IDA accurate and timely information regarding projectresources and expenditures.

Project Management Reports

The project was appraised in May 1999 and needs to adopt a financial management and reporting systemin compliance with the Loan Administration Change Initiative (LACI). It has been agreed, therefore, todesign the financial management system so that it can produce, in addition to the basic financialstatements (Balance sheet, Income statement, Sources and Applications of Funds), other relevant quarterlyfinancial management reports, namely: (i) Summary of Sources and Uses of Funds; (ii) ContractExpenditures Report - Goods & Works; (iii) Contract Expenditures Report - Consultants;(iv) Procurement Management Report - Good & Works; and (v) Procurement Management Report -Consultants, required under PMR-based disbursement. Since the Technical Support Unit (TSU) will benewly established and the capacity of accounting and financial staff has yet to be developed and tested,disbursement will be SOEs-based for the first 18 months of implementation. It is expected that full PMR-based (Quarterly PMRs) will start in the third quarter of the second year of implementation till closing ayear and a half hence. This will require that IDA carry out a comprehensive and detailed assessment ofthe project financial management to determine its full readiness for PMR at the end of the first year ofimplementation. A second assessment will be carried out at the end of the second quarter of the secondyear of implementation to evaluate and effect the transition to PMR-based disbursement

4. Auditing

Project records and accounts, including the line of credit and the ICIF revolving funds accountswill beaudited in accordance with international audit standards by an experienced and intemationally recognizedaudit firm acceptable to IDA. The audit reports will be submitted to IDA within 4 months after the end ofGovernment fiscal year. In addition to their standard short-form report with opinion, the auditors will berequired to: (i) carry out a comprehensive review of all the SOEs as well as the intemal controlprocedures goveming their preparation for the relevant period under audit, and express a separate opinionthereon; and (ii) review the management and utilization of the special account and express a separateopinion thereon as well; (c) the auditor will complete their in-depth review, started at interim, of theinternal control system of the project with a view to identify the major weaknesses and shortcomings andproposing practical recommendations for improvement. The results of this review would be documentedin a Management Letter to be submitted along with the audit report.

The financial auditors will also perform interim audits (9 months into the fiscal year) to review theintemal control system including management performance, and issue reports to that effect within onemonth from the end of their work. The findings and recommendations of the interim reports will beaddressed by management without delay before the final audit (mostly 3-4 months after closing of thefiscal year of the project). The contracting of auditors on a multi-year contract, acceptable to IDA, andcertification by the financial auditors that the project accounting system is operational, is a condition ofcredit effectiveness.

Agricuttural & Rural Market Development Project Page 40

Annex 5, Table 1. Project Costs by Procurement Arrangements4

(US$'000 equivalent)

~~~~~~~~~~~~~~~~~~~~~~~~~.g ...........-.; --,, ... d..t-;.

1. Civilworks 535.9 240.00 112.5 888.4(465.6) (232.7) (698.3)

2 Goods 70.0 119.2 2,000.0 2,189.2(70.0) (119.2) (1,900.0) (2,089.2)

3. Services 2,382.5 2,382.5(2,175.2) (2,175.2)

4. Miscellaneous 152.4 152.4(37.3) (37.3)

Total 605.9 2,741.7 2,264.9 0 5,612.5(535.6) (2,527.1) (1,937.3) 0 (5,000)

Note: N.B.F. = Not Bank-financed (includes elements procured such as, consultancies under trustfunds, any reserved procurement, and any other miscellaneous items).

1/ National Competitive Bidding or IAPSO2/ National Shopping3/ Other: Beneficiary contribution, line of credit, and input credit insurance fund

Figures in parenthesis are the amounts to be financed through the IDA credit.

'For details on Procurement Methods refer to OD 11.02, "Procurement Arrangements for InvestmentOperations."


Annex 5, Table 2. Thresholds for Procurement Methods and Prior Review5

(US $ thousands)

1. WORKS LessthanUS$30 NS PostreviewEqual or more than NCB Prior reviewUS$30

Comparison of at least Prior review (1 to 5three quotations contracts)

aggregagate:US$776

2. GOODS Equal or more than NCB/IAPSO Prior review aggregate:US$50 US$220

Less than US$50 National Shopping Post review

3. SERVICES

3.1 Consulting fims More than US$50 QCBS + Short list Prior reviewTechnical evaluationAggregate:US$600

Less than US$50 QCBS + Short list Post reviewConsultants' (except for TORs)qualification

Less than US$50 LCS for Audits advisory Prior reviewservices Technical evaluation

Aggregate:US$100

3.2 Individual More than US$30 Comparison of at least 3 Prior reviewConsultants CVs aggregate:US$0

Less than US$30 Comparison of at least Post review3CVs (except TORs)

4. MISCELLANEOUS

Total value of contracts subject to prior review: $1,696 or 30% of total cost

Overall Procurement Risk Assessment:HighAverageLow

Frequency of procurement supervision missions proposed: One every 6 month(s) forthe first year and 12 month(s) hereafter (includes special procurement supervision forpost-review/audits)

5 Thresholds generally differ by country and project. Consult OD 11.04 "Review of ProcurementDocumentation" and contact the Regional Procurement Adviser for guidance.


Annex 6: Project Processing Budget and Schedule


- -!-t:i: :t. ':....................... -:.;:- _.5 ................. ,.; : i-:-.. ,~~~~ ..... .... -;., .... .. ..... . .. ... ... .... .E .b ..... . . ... ..... . ....Mj. ...........?r' c SceSl Plne Act.'-'.'' ,',a-;l~1

Time taken to prepare the project (months) 6 months 6 months

First ]Bank mission (Identification) 10/31/1998 11/27/1998

Appraisal mission departure 4 / 7 /19 99 04 / 18/19 99

Negotiations 5 /7 /19 99 06 /17/1999

Planned Date of Effectiveness 8 / 1 /19 99 / /1999

Prepared by: Ministry of Agriculture, Animal Resources, and Forestry

Preparation assistance: TF027015, Japanese Grant (PHRD), Agricultural Sector SupportTF036850, Swedish General Consultant Trust FundTF037242, Swiss Special Studies Consultant Trust Fund

Bank staff who worked on the project included:

Ousmane Badiane Senior Agricultural Economist, Team LeaderSiaka Bakayoko Financial AnalystHassane Ciss6 CounselOusmane Cissoko Principal Financial AnalystDesire Coquillat Financial Management SpecialistDavid Freese Disbursement officerFrancois Kanimba Senior EconomistAzra Lodi Program AssistantProsper Nindorera / Eavan O'Halloran Operations AnalystsBoukari Tare Environmental AnalystRen6 Welter Procurement Specialist


Annex 7: Documents in the Project File*


A. Project Implementation Plan

B. Bank Staff Assessments

C. Other

*Including electronic files.


AnnexY 8: Statement of Loans and Cred i'ts

StatuS of Bank Group Operations in RwandaOperations Portfolio

Numbert of) Clo ea rojcs 3orwr s

Active ProjectsRW-PE-2238 1990 GOVERNMENT TRANS.SECT. 0.00 85.00 0.00 47.70 .11 17.33 S SRW-PE-'2245 1991 GOV.OF RWANDA SECOND COMMUNICATION 0.00 12.80 2.66 1.27 4.39 1.56 S SRW-PE-2237 1991 GOVERNMENT HEALTHI & POPULAIION 0.00 19.60 0.00 4.68 4.46 3.73 S SRW-PE-2242 1991 GOVT. EDUCATION SECT.CR. 0.00 23.30 0.00 2.98 3.79 3.79 5 NRRW-PE-2261 1992 GOVT OF RWANDA FOOD SEC & SOCIAL AC 0.00 19.10 0.00 1.38 .97 -3.26 5 5RW-PE-2241 1993 GOVT OF RWANDA ENERGY SECTOR 0.00 26.00 7.00 6.84 14.42 0.00 U URW-PE-2262 1994 GOVERNMENT PRIVATE SECTOR 0.00 12.00 0.00 3.91 4.08 0.00 5 5RW-PE-57294 1999 GOR EC.REC.CREDIT 0.00 75.00 0.00 71.01 0.00 0.00RW-PE-51931 1999 GOV. OF RWANDA CRDF 0.00 5.00 0.00 4.86 -.03 0.00

Total 0.00 277.80 9.66 144.63 32.19 23.15

Active Projects Closed Projects TOtWTotal Disbursed (IBRD and IDA): 120.61 515.64 636.2 5

of whils has been repaid: 0.00 38.03 38.03Total now held by IBRD and IDA: 268.14 449.96 718.10Amount sold 0.00 4.38 4.38

Of which repaid .0.00 4.38 4.38Total Undisbursed .144.63 .63 145.26

a. hIntended disbursements to dste miinus actual disbursements to dale as projected at appraisal.b. Following the FY94 Annual Review of Portfolio perfornance (ARPP), aletter based system was introduced (15= highly Satisfactory, S =satisfactory,U unsatisfactory,RU=highly unsatisfactory): see

proposed Imnprovcnessts in Project and Portfolio Perfonsmnce Rating Methodology (SecM94-90 1), August 23, 1994.

Note:Disbursement data is updated at the end of the first week of the month.


Annex 9: Eligibility Criteria


The criteria that individual beneficiaries have to meet to be eligible under the current project areas follows:

Criteria for Local banks:

* Be duly established and operating under the laws of the Borrower;* Maintain a sound financial structure, a healthy portfolio, and the organization, management,

staff and other resources required for the efficient carrying out of its activities;* Conduct its affairs including interest rate policies in accordance with sound financial

principles and practices;Maintain a lending policy acceptable to the Association and BNR and suitable procedures andan adequate number of suitably qualified staff to enable it to effectively appraise the financial,technical, and economic feasibility of the import activities for which importers are applyingfor sub-loans.

Criteria for Importers:

* Be a legal entity registered in Rwanda and able to enter into a legally binding contract;'. Have adequate expertise with respect to the uflization of modem farm inputs, adequate

experience in the importation or distribution of agricultural products or inputs, within oroutside Rwanda;

I Have adequate infrastructure and personnel;* Have adequate administrative and financial management systems and procedures in place to

execute contracted activities; andHave no legal dispute or debts which would materially affect the institution's ability toundertake the project.

Criteria for Farmer Access to the ICIF:

* Be registered with a specialized local organization working with the project and conductfarning activities with the support and under the supervision of such an organizations;

* Have obtained with the agreement of TSU or its designated representative an input credit fromimporters / traders or local banks, as evidenced by a signed contract approved by TSU or aspecialized local organization on TSU's behalf; and

* Have faced drought or weather-induced production shortfall in the same season for whichinput credit was received.

AgrcLiltural & Rural Market Development Project Page 46

Criteria for Specialized Local Organizations:

* Be a legal entity registered in Rwanda and able to enter into a legally binding contract;* Have a minimum of 2 years of working experience (within and outside of Rwanda) in the

implementation activities that are similar to those that are proposed under ARMDP;* Hiave adequate infrastructure and personnel to carry out the project;* Have adequate administrative and financial management systems and procedures in place to

safe guard the use of ARMDP resources; and* lHave no legal dispute or debts which would materially affect the institution's ability toD

undertake the project.

Criteria for project ,market sites:

* Be a major trading zone or has clear potential to become one;* Demonstrated capacity of beneficiaries to participate in infrastructure investment; and* Guaranty that improved market site would be open on a daily basis.

Geographic Focus

The ARMDP would be active first in the regions and districts of Rwanda that have been coveredby the survey that was carried out under the preparation of the proposed project. Other regionswill be added as the project activities proceed. The ARMDP would co-ordinate with other donorsso as to avoid duplication and overlap in the respective areas of operation.

Beneficiary Group

To be eligible for consideration, any activities presented to the ARMDP must target the followingbeneficiary groups:

* Modem Farm Input Importers;* Modem Farm Input Distributors;* Individual farmers;* Agricultural Proclucer Groups / Associations; Agricultural Cooperatives;* Private Traders of agricultural products or their associations; and* Local Communes.

Financial Restrictions

The following budget restrictions and financial guidelines would govern ARMDP activities:

* No repayment period under the line of credit should exceed a maturity of fifteen months;* At. no time, would the ARMDP provide funding to a local organization in excess of 50% of

the organization's previous year's annual budget;

Agricultural & Rural Market Development Projed Page 47

For basic market infrastructure improvement sub-projects, beneficiaries would provide no lessthan 10% of the estimated costs of the sub-project in the form of cash, materials, labor or -

other services; andUp to a maximum of 10% of the total ARMDP's proposed budget would be allocated for"institutional" costs including administrative costs, overheads, general equipment which donot directly benefit the beneficiaries groups.

Criteria for selecting specialized local organizations

Specialized local organizations would be selected based on the criteria listed below. Theirproposed activities would be reviewed and evaluated based on a set of technical criteria, generaland specific:

Institutional criteria: including number and types of personnel, available infrastructure andphysical resources to carry out project activities, financial management and administrativesystems, years and types of experience, project value relative to overall finances, etc.

Project coherence: including specificity of project objectives and links to proposed ARMDP'sactivities in achieving the proposed end results.

Financial criteria: appropriateness of proposed inputs and unit costs; conformity with standardspecifications and applicable market rates; and substance in agreement with guidelines.

Sustainability criteria: including level of community participation in project implementation,level of local knowledge or skill required for implementation, potential income generating effectsof project.

Social criteria: including understanding of the social characteristic of the beneficiary communityand region.

Environmental criteria: including identification and mitigation of potential environmentalimpacts of the proposed activities, in particular natural resource exploitation, fertilizers andpesticide use, and road transport safety.


Annex 10: Environmental Analysis


1. Project Overview

With a demographic growth rate of 3.1 per cent per annum and made mainly of rural population, thedemand for land and renewable natural resources is taking a great toll on the country's natural resourcebase and the physical environment is significantly degraded. The average temperature is 18 degreeCelsius with an annual rainfall of about 900 to 1600 mm. The country's agricultural production hasdeclined despite the huge extension of areas under cultivation. The situation has been exacerbated by the1994 war and genocide.

The objective of the pilot project is to speed up the intensification of agricultural production and therebyraise productivity in the, sector and the rest of the rural economy by promoting input distribution andoutput marketing systems. This would be achieved through a rational use of modem farn inputs and asound management of natural resources. The main components of the project are:

1. Promotion of input use and distribution systems through:(a) fanner access to seasonal credit for modem farm inputs;(b) advisory services for adoption of modem farm inputs and access to credit; and(c) multiplication and distribution of improved seeds.

2. Support to local' agricultural marketing systems:(a) crop conservation and marketing technologies;(b) strengthening of rural agricultural marketing poles; and(c) support to private trader investmnent in marketing services.

2. Environmental Analysis

The required environmenital assessment reflects the concern of the Government for sustained use of thenation's resources, whichi constitute the basis of the national economy. The environmental assessment ofthe proposed project was therefore conducted in compliance with the Bank's Environmental AssessmaentSafeguard Policy, OP/BP/GP 4.01.

The proposed project is classified as Category B. The possible negative effects of the project as a wholeare small compared to its positive effects. However, potential negative impacts need to be addressed byensuring strict compliance with the recommendations made in this respect. Land tenure, extensiveagricultural practices and input transport safety should be a focal point and mitigated measures need to bedevised despite the fact that the aggregate environmental impact is expected to be moderate.

The enviromrental analysis was carried out by an intemational expert supported by local consultants.Scoping sessions were orgalnized to consult with Government agencies and beneficiaries in the Butare andKigali regions. The analysis put considerable emphasis on deteTmining the relationships between theincrease in production and input use and the potential impact on the affected populations, and soil andwater resources. An important finding of the analysis is that the environmental protection componentwould need to be carried out according to the type of crops and soils, as well as fertilizer and pesticide


requirements as follows: (a) set up a training and monitoring system to prevent abuse in fertilizer andpesticides usage, pollution of ground water and soil salinization, due to unsafe activities particularly miwetlands; (b) design training activities on health and hygiene aspects to prevent the proliferation ofagricultural and fertilizer-related diseases in areas where fertilizer and pesticides are intensively used; and(c) conduct an awareness program on input transport safety. In addition to the above component, a routineset of environmental protection activities relative to vegetation and soil improvement should be designedand effectively implemented by producers with the assistance of local organizations, local and nationalresearch institutes, and the agricultural faculty of Butare's University, under regulations established andagreed upon by both the Ministry of Soils Resettlement, and Environment Protection and the Ministry ofAgriculture.

3. Mitigation Plans

The EA has determined that the benefits of increased intensification for farmers and the Rwandeseeconomy far outweighs the potential negative impact. Positive effects are in terms of increased foodproduction and food security, deforestation prevention, diversification of production and diets, a lesseningof pressure on lands and rural exodus, higher incomes, and improvement of living standards. Farmershave expressed considerable and unanimous interest in producing more higher-value crops. Potentialnegative effects of the Project do exist and should be taken into consideration during the projectimplementation phase. These effects differ by type of production techniques and across projectcomponents. Effects related to fertilizer and pesticides usage could be important in areas where farmersare already growing crops intensively. Also, the risks are higher for components dealing with inputdistribution and transport. Furthermore, most rural areas lack the necessary preventive measures tomitigate health risks. Traffic accident during input distribution could be one important negative impact.

The main potential, environmentally negative effects under the proposed project are related to inputmisaLpplication and transport. Thus, it is important that soil fertilization practices and transport safetymanagement and awareness be included in the advisory services activities to ensure better soilregeneration and prevention of road transport accidents. Fertilizer and pesticides use should be monitoredand their effects assessed before any expansion of the project activities into fragile land areas.

The environmental analysis has made a comprehensive inventory of all environmental problemsencountered in the project area. This is based on observation and records from discussion and previousreports on similar studies. The proposed mitigation plans include technical, institutional and legislativerecommendations. The technical measures include standard procedures to prevent or controlagrochemical pollution, input transport related impacts, combined with a strong emphasis on informationcampaigns to make farmers and their employees more aware of disease risks involved in intensiveagricultural activities and fertilizers and pesticides usage. In many cases there are non-governmental andother local organizations that can work with the project management, in addition to national agricultureresearch institutes, the National University, and private consulting firms. The project management couldalso hire local organizations with extensive experience in natural resources management to monitor allenvironmental issues generated by the project's upstream and downstream activities. These organizationsshould be provided with limited external support and basic logistics to carry out such routine activities.The implementing agency should work in close collaboration with specialized private firms and researchinstitutes to help enhance producer knowledge on how to protect the environment under the targetedintensification activities.


4. Recommendations

The most important concern associated with agricultural activities in a mountainous and denselypopulated country like Rwanda is the negative impact on soil degradation, wetlands water resourcespollution by agrochemicals, and overexploitation of arable land. There is a weak institutional linkbetween e.xisting agriculture practices and preventive public health. Health authorities are usually notifiedwhen there is a problem. Therefore, there is a clear need to include training activities on the safe usage ofagrocheiricals targeted to producers and their employees. A inventory of natural resources and wetlandwater resources would be required to ensure that appropriate preventive measures can be undertaken. It isrecommended that the Goverment of Rwanda support the reinforcement and the management of a naturalresources monitoring system, establish input road transport safety measures, and support efforts toencourage community based natural resources management, safe handling of pesticides, and the fair use offertilizer lto stop soil erosion and deforestation.


Annex 11: Overview of Survey Results of Input Use, Fertilizer Distribution, and Rural MarketingSystems


1. Scope of the Survey

During project preparation, a structured rapid survey of the farm household, crop marketing, input importand distribution, and rural transport sectors was carried out using detailed questionnaires. The survey wasadministered by a team of 25 enumerators and supervisors under the supervision of MINAGRI's Planning,Studies, and Monitoring Unit (DPES) between January and February 1999. The total sample included 200farm households, 200 output traders, 100 transporters, and 85 input distributors. The survey covered allmajor agro-ecological zones of Rwanda as well as all major zones of with significant surplus or deficit ofagricultural production, which are normally characterized by higher levels of trading activities.Accordingly, it was implemented in the following zones:

Zone 1: Kibungo/Kigali rural;Zone 2: PVK/Gitarama;Zone 3: Butare/Gikongoro;Zone 4: Cyangugu;Zone 5: Byumba.

2. Overview of Survey Results

As stated above, the survey was carried out in early 1999. Most of the questions that were asked in thequestionnaires, therefore, referred to the year 1998. Hence, the large majority of figures that are quoted inthis section refer to that year.

2.1 The Fanning Sector. The most important aspects of fanning activities among small-holders that thesurvey sought to capture are: (i) production pattems; (ii) level and determinants of use of modem farminputs, i.e., agro-chemicals, improved seeds, and fertilizers; and (iii) crop marketing activities by farmers,including quantities and prices. Tables 1-3 of this annex summarize the survey results on production,input use, and crop marketing activities. Overall, less than one third of farners use fertilizers. Thehighest frequency of use is found among farmers in the PVK prefecture, around the capital, where 50percent of farmers use fertilizers. According to the survey results, the main constraints with respect to theuse of modem farm inputs are the following, in order of importance:

1) high prices and weak purchasing power;2) limited availability of fertilizers and other inputs in local markets;3) insufficient technical knowledge; and4) (leficiencies of distribution systems.

The most important among the policy measures that are suggested by the farmers to help them get betteraccess to modem farm inputs and raise the use of these inputs are:

a) grants and free distribution of inputs;b) better access to input credit;


c) improve availability of inputs in local markets;d) strengthen local distribution systems;e) provide extension and technical support.

The first component of the proposed project, "Promotion of Input Use and Distribution Systerms",addresses the four main obstacles to increased modem farm input use that have been identified through thesurvey. The proposed activities under that component of the project consist in a well articulated set ofincentives and institutional mechanisms that reflect the policy options outlined above, with the exceptionof the first option (a), which due to fiscal and sustainability reasons had to be excluded. Moreover, bystrengthening local distribution systems and improving access to seasonal credit, the proposed activitieswould el.iminate the need for free distribution of input grants. Even though 17 percent of farmers declaredthat they do not need credit currently, the share of those who have demanded credit is well belcw 10percent. In these rare cases, half of the credit that was demanded was used for seeds, fertilizers, andequipmenit. The main source for this credit has been local banks, with a share of 43 percent. The largemajority of those, who do not apply for credit, cite the lack of collateral and burdensome formalities as themain reasons.

As to the sale of agricultural crops, farmers have identified the most important obstacles that they facecurrently, again in order of importance, as being:

1) low sales prices;2) lack of market outlets;3) low marketable surplus; and4) lack of means of transport.

The policy options that rank as top priorities from their point of view with respect to supporting theirmarketing activities and expanding their participation in the exchange system, hence speeding upcommercialization are thie following:

a) strengthen local marketing systems;b) control output prices;c) improve access to transport services;d) provide technical support to raise production levels; ande) improve local marketing infrastructure.

The constraints to greater market participation by farners are addressed in the second set of activities thatare proposed under the project component "Support to Local Agricultural Marketing Systems". Theseactivities either correspond directly to the policy options listed above or to altemative measures thatwould have similar effects but are more sustainable and consistent with the context of a liberalizedagricultural sector. For instance, farmers have proposed price controls because they expect such measuresto lead to higher and more stable prices. By facilitating access to credit by traders for investment inmarketing services and by providing technical support for better management of marketing activities anddissemination of market information, thereby encouraging competition in the marketing sector, the projectwould have the same effect on prices without the economic costs that are associated with direct priceintervention.

2.2. The Crop Marketing Sector: The survey of the crop marketing sector included 200 traders in 20markets across the country. One the objectives of carrying out the survey was to leam directly from thebeneficiaries, what the main constraints to operation of local agricultural marketing systems were.Furthermore, the survey has also tried to gather from local traders information and suggestions as to how


these constraints could be overcome. Table 4 summarizes the main characteristics of agriculturalmarketing activities by private traders in terms of average quantities marketed and geographic coverage.The figures indicate that beans, potatoes, and sorghum are by far the most traded crops. The numbers ongeographic coverage also show that traders operate within relatively limited zones, with the exception oftraders in urban Kigali and Gikongoro. Based on the results of the survey, the main constraints outputtraders face in carrying out marketing activities are the following:

1) low procurement capacity due to low capital and higher output prices;2) lack of transport vehicles; and3) high level of taxation.

About three-quarters (73 percent) of traders declare that they would like to expand their trading activities.Two-thirds of these traders cite the limited access to credit as the main reason that has prevented themfrom doing so. Table 6 shows that only about a quarter of traders have applied for credit during the periodcovered by the survey (1998) and only half of those have received the credit. Although access to creditappears as the most important constraint facing traders, the policy options proposed by the latter includeseveral other issues. The most important among the issues to be target by policies, according to tradersare thLe following:

a) facilitation of access to credit;b) improvement of market infrastructure;c) training to strengthen business management skills; andd) facilitation of acquisition of transport vehicles.

The survey results have also shown that there is not enough competition among traders in local markets.Slightly more than a quarter of the trader sample perceive competition in local markets to be high. Giventhe strong desire to expand marketing activities among local traders, the project, by easing access to creditand providing advisory services to strengthen traders' business, should significantly contribute to thedevelopment of rural markets. The development of markets should not only support the objective ofaccelerating agricultural intensification but would also contribute to development of other post-harvestactivities, such as processing, by ensuring a steady supply and broad availability of crops, not only acrossspace but also over time.

2.3. The Input Distribution Sector: The input sector survey sample included a total of 85 distributors.Table 5 of the current annex presents the overview of distribution activities by input traders during theyear 1998. More than three quarters of the surveyed traders are involved in input distribution throughoutthe year, and input trading represent the main occupation for more than half of the sample. hiput tradershave identified the following constraints with respect to their distribution activities:

1) ]Low purchasing capacity of farmers;2) lack of means of transport;3) heavy taxation;4) weak farm extension and technical support systems; and5) limited access to credit.

The large majority of input traders, about 85 percent, would like to expand their distribution activities andcite the limited access to credit as the primary reason of why they have not yet done so. About 40 percentof traders would like to expand area coverage by opening up new distribution points. A quarter would liketo have access to credit to expand into wholesale activities. The most important changes in the operating


environment that input distributors feel would allow them to significantly expand their trading activitiesare the following:

a) improvement of farm extension and technical support systems;b) easier access to credit; andc) elimination of input subsidies and grants.

The problem of input subsidies and grants has now been solved, as government has taken the decision tostop the subsidization or free distribution of inputs, except in emergency cases and for demonstrationpurposes in association with extension activities. The formal confirmation of that decision would be acondition of effectiveness of the project. The constraint related to taxation could be removed ifgovernment would accept to eliminate the 15 percent turnover tax (ICHA - Impot sur les Chiffresd'Affaires) on input trading as well as the custom inventory fee (MAGERWA) of 4 percent that is appliedto imported inputs, primarily fertilizers. It should be noted here that very few countries, if any, wouldapply taxes of such a magnitude to modem agricultural inputs.

The remaining constraints and proposed policy measures are all reflected in the activities that are plannedunder the first component of the project. The line of credit for modem input importers would ease accessto credit for input distributors, of which 60 percent have not used credit in 1998. The level of interest ratehas not been a significant constraint to access to credit. Rather, the lack of collateral and limitedinformalion have prevented input traders, about one third, from demanding credit. For another third,demand for credit has been limited due to the low level of trading activities. Consequently, as many as 44percent of input distributors finance their trading activities using their own resources.

The dedicated line of c:redit for modem input imports, in combination with the provision of institutionalsupport and technical advisory services to raise input demand, should accelerate the development of theinput distribution sector, given the strong desire among traders to expand their activities both in terms oflevel as well as area coverage. Two-thirds of the distributors have entered into a formal contract with atleast one supplier, in most cases an importer. Hence, by facilitating access to financial resources byimporters, the project would also ease the access to credit by other operators in the sector, while higherinput demand would provide the incentives to expand activities. Furthermore, close to 70 percent ofdistributors are producer groups (60%) and non-governmental organizations (10%), a fact which shiouldfacilitate the administration and monitoring of seasonal credit.



Annex 11, Table 1. Use of Improved Seed and Fertilizers among Farm Households (1998)

02;$5. -Beans Price Manioc Price Maize Price Urea Price NPK Price$;<i t (kg) (FRw/kg) (kg) (FRw/kg) (kg) (FRw/kg) (kg) (FRw/kg) (kg) (FRw/kg)

Butare 1.8 296.0 0 0 .7 200.0

Byunmba 5.8 218.7 4.9 176.7 12.5 81.5 1.1 150.0 11.4 228.9

Kibungo 8.2 166.3 3.0 341.7 0 0 0 0 0 0

Cyangugu 3.6 164.3 3.6 235.5 0.5 96.7 10.2 153.0 12.2 162.5

Gikongoro 1.4 264.7 3.2 260.0 26.5 136.5 1.6 131.4 3.0 143.3

GitairLara 3.8 240.9 1.5 425.0 26.6 153.0 0.8 150.0 0.2 290.0

Kigali-rur 2.7 223.3 25.0 45.2 2.8 100.0 0.3 120.0 0.7 122.0

Kigalh-urb 3.6 153.3 0 0 0.50 100.0 2.2 116.7 3.0 120.0

Total 3.9 5.2 8.8 2.02 3.8Averaige

% of users 46 13 17.5 13 16.5

Source: Project Preparation Survey, December 1998 -February 1999.I The per capita quantities are for the entire sample, including farmers who have not used modem seeds or fertilizers; Prices are in

Rwandese Francs."--" Nlissing values.

Annex 11, Table 2. Crop Production by Farm Households (1998)

CAv -. ., -- a..

25i;m-: Beans Potato Manioc Banane Sorghum

Butare 40 120 2530 -- 40

Byumba 20 190 10 530 50

Kibungo 120 1130 140 750 60

Cyangugu 30 150 70 150 10

Gikongoro 20 330 0 220 10

Gitamara 20 180 70 260 20

Kigali-rur 30 180 220 690 30

Kigali-urb 20 820 80 290 0

Total Sample 37 387 390 361 27

Source: Project Preparation Survey, December 1998- February 1999"--" Missing values.


Annex 11, Table 3. Marketed Output by Farm Households (1998)

'~~~~~~~~~~~ .. :: : .- .......x.' . "' " '''' : ? . . ..... - .. .. ........ :? : .>. . ...... ---?.

Beans Price Potato Price Manioc Price Banane Price Sorghum Price(kg) (FRwlkg) (kg) (FRw/kg) (kg) (FRw/kg) (kg) (FRw/kg) (kg) (FR-iv/kg)

Butare 8.8 200.0 33.0 9.50 50.0 15.0 0 0 29.8 135.0

Byumba 30.8 136.0 184.0 21.43 7.9 70.0 98.6 40.0 13.4 79.4

Kibungo 64.3 159.7 76.5 25.00 30.0 47.0 137.0 22.1 19.2 206.7

Cyangugu 12.6 101.8 30.8 16.00 57.0 41.2 55.9 12.9 20.C 55.0

Gikongoro 25.3 173.3 138.6 20.14 0 - 162.8 -- 25.C 100.0

Gitainara 8.1 90.0 45.3 39.19 86.7 58.0 46.2 38.8 12.8 130.0

Kigali-rur 8.2 170.0 72.5 21.00 85.3 50.0 535.0 -- 9.7 75.0

Total 29.8 - 86.2 - 66.2 - 164.1 - 15.3 -

Average

Source: Project Preparation Survey, December 1998 - February 1999."--" Missing values.

Annex 11, Table 4. Private Sector Participation in Agricultural Output Marketing

;i -- S ~~~~~~~~~~~~~~~~~~~~~~~~. ...... .~~~~~~~~~~~~~~.:.:. ... .... .... :. : ..... .......

m . A > ' ' . .:: ' , >: ' ..,: ....... ., ......... ... ., ,, ..... , j ; .... . . . . . . . .

:.~~~~~~~~~~~~~~~~ ~~~~~~~~ ......'',..,...,

Beans Potatoes Sorghum Onions Peanuts Rice Average Average(tons) (tons) (tons) (tons) (tons) (tons) Distancel Quantities2

(kmn) (tons)

Butare 10.7 48.0 1.0 1.6 0.0 0 60.9 3.6

Byumba 13.9 22.1 18.2 3.8 0.8 24.4 42.8 6.1

Kibungo 61.0 3.5 28.9 9.9 1.06 20.0 26.6 0.7

Cyangugu 6.2 12.6 14.9 3.0 1.45 7.5 88.1 2.1

Gikongoro 12.7 19.1 23.5 0.0 0.0 1.2 128.6 3.1

Gitamara 8.5 13.5 4.5 0.0 0.5 2.9 44.1 0.9

Kigali-rural 6.5 15.0 9.7 1.2 1.1 7.4 33.7 0.8

Kigali urban 22.5 0.0 0.0 4.8 14.4 4.2 130.0 1.0

Avemrpge 17.8 16.6 12.5 3.0 2.4 8.5 69.3 2.3

Source: I'roject Preparation Survey, December 1998 - February 1999I Average distance between main procurement and sales markets.2 Average quantities transported between these markets.


Annex 11, Table 5. Private Sector Participation in Agricultural Input Distribution

5I ,": ... ,,g. ... riov'

i N1PK Urea Seeds2 Average distancel Average quantitiesl. . 5 5..s..~s (tons)- (tons) (cg) (Iam) (tons)

-5"R'5'55'5'':5"'m5555'''5'g5;g5'5:'^'';:g.550 MNPK Urea NPK Urea

Butare 2.20 1.2 1.56 135 135 7.7 3.8

Byunba 0.10 0.06 0.01 15 19 2.1 0.5

Kibungo 0.03 0.00 0.00 37 0.0 0.1 0.0

Cyangugu 1.20 2.32 0.00 258 298 15.9 21.4

GiCongoro 0.50 0.26 0.04 73 69 10.5 2.1

Gitamara 0.08 0.03 *

Kigali-rurul 0.08 0.08 0.00 29 29 3.7 1.7

Kigali-urban 129.20 33.90 0.08 2 0.0 50.0 0.0

Sample average3 16.67 4.73 0.21 102 120 8.7 6.4

(0.52) (0.49) (0.02)

Number of traders 61 34 24 41 21 41 21

Quantities Imported4 674 154 0.3

Numnber of Inporters 5 4 1

Source: Project Preparation Survey, December 1998 - February 19991 Average distance between main procurement and sales markets and average quantities transported.2 Cauliflower seeds are the only type of improved seeds that were relatively widely distributed.3 Number in parentheses represent averages without Kigali urban.4 hmports by private traders outside of the EU program* Less than 0.01

Missing values

Annex 11, Table 6. Access to and Use of Credit by Traders (1998)

Butare 10 100 6 400 12

Byumba 33 67 18 287 12

Kibungo 15 67 6 51 18

Cyangugu 20 33 11 29 11

C;ikongoro 20 33 8 9 9

Gitarnara 17 20 4 167 4

Kigali-rur 30 83 6 190 S

Kigali-urb 30 67 15 52 5

T'OTAL 23 53 8 130 10

Source: Project Preparation Survey, December 1998 -February 1999.I Average amount of loan among applicants who have received credit.

Agricultural & Rural Market Development Project Fage 58

Annex 12: Capacities of Specialized Local Organizations.


Co:mpared to many other African countries, Rwanda has a large number of specialized organizationsthat are involved in local and rural development. A recent survey/study carried out by CCOAIB (C onseilde Concertation des Organisations d'Appui aux Initiatives de Base), a network of specializecd non-governmiental organizations, has identified a total of 51 organizations that are involved in ruraldevelopment6 . All these organizations have their headquarter or a local office in Kigali, a f act that shouldfacilitate the work with TSU. From a legal/institutional point of view, all are non-profit organizationsgoverned by the law of'April 25 1962. Three categories of these organizations can be distinguished:

* locad branches of international organizations, which make out 20 percent of the total;* organizations that are affiliated to local churches, which represent 16 percent of all organizations; and* independent organizations, which make up the rest.

Area of activities and Experience. Because of their work at the grass-root level and direct involvement inagricultural and other rural development activities, specialized local organizations have gained recognitionboth in the rural and urban areas as critical actors in the fight against poverty and for economic bettermentin rural areas. As shown in Figure 1, about one-third of the organizations are involved in trainingactivities. About a quarter each are dealing with community development and business prornotionactivities, while nearly 20 percent are active in the technical and advisory services. Furthermore, Figure 2shows that half of the organizations have more than 10 years of experience in the area of environmnent andrural development. Another 30 percent have work experience ranging between 5 and 9 years.

Institutional, Human Resources, and Technical capacities. The assets that specialized local organizationswould bring to the proposed project are: (i) proximity to beneficiaries and familiarity with their realities;(ii) strong experience with respect to participatory approach in the implementation of develcpmentactivities; and (iii) amjple know how in dealing with poverty alleviation, income generation, and naturalresources conservation activities in rural areas. Forty-three of the 51 organizations included in theCCOAIB survey together have more than two-thousand employees, of which about two-thirds have highschool level education. This ratio is estimated to be 3 times higher than that of the public sector. Theorganizations are also well equipped, with an average of 10 vehicles and 6 computers per organization, orone vehicle and one computer for every 5 and 9 employees, respectively. Only 6 of the surveyedorganizations have no vehicles, while 5 have no computers. Here again, the specialized localorganizations appear to be better equipped than the public sector in general. Furthermore, 32 of theseorganizations, for which financial information is available, had an aggregate annual budget in 1997 ofFRw 7.8 billions, that is about $25 millions or 10 percent of the annual budget of the Rwandesegovernment. The annual budget for individual organizations ranges from FRw 2.00 millions ($6,000) toFRw 1.60 billions ($5.00 millions).

6 CCOAB Potentialites des ONG d'environnement-developpement dans la mise en oeuvre de l'Agenda 21National: Inventaire, analyse, et evaluation de leurs capacites et contraintes institutionnelles, techniques etfmancieres. Kigali, Decembre 1997.


Fig.l: Experience of Specialized Organizations Fig.2: Activities of specialized Organizations

Experience (numbers of years) of Specialized Area of Activity of Spedcalized LocalIocal Organizations Organizations

OtherSPOforl-4 SPOfor20- Technical Communtty

ye ars 40 years Support Development20% 16% 18% 24%

SP O fo r 5 l _ P PO for 10-19 Trail nt repreneuryears years 35% 23%30% 34%35/

Source: CCOAIB. Potentialites des ONG d'environnement-developpement dans la mise en oeuvre de l'Agenda 21National: Inventaire, analyse, et evaluation de leurs capacites et contraintes institutionnelles, techniques etfinancieres. Kigali, Decembre 1997.

Annex 13: Rwanda at a Glance 1011/98 Page 60

Sub-POVERTY and SOCIAL Saharan Low-

Rwanda Afhica income Development diamond1997Population, mid-year (mdlions) 7.9 614 2,048 Life expectancyGNP per capita (At/as method. USS) 210 500 350GNP (Atlas method, US$ billions) 1.7 309 722 T

Average annual growth, 1991-97

Population (%) 1.7 2.7 2.1Labor force I(6) 2.3 2.6 2.3 GNP Gross

per primaryMost recernt estimate (latet year available, 1991-97) capita .. enrollment

Poverty (% of population below national poverty line) 51Urban population (% of total population) 6 32 28Life expectancy at birth (years) 42 52 59Infant mortality (per 1,000 lve births) 125 90 78Child malnutrition (% of chiklran under 5) 29 .. 61 Access to safe waterAccess to safe water (% of population) .. 44 71Illiteracy (5I of population age 15+) 40 43 47Gross primary enrollment (% of school-age population) 82 75 91 Rwanda

Male 83 82 100 Low-income groupFemale 81 67 81

KEY ECONOMIC RATIOS and LONG-TERM TRENDS

1976 1986 1996 1997 1Economic ratios

GOP (US$S billions) 0.67 1.9 1.4 1.9Gross dome,stic investment/GDP 13.8 15.9 10.3 10,8 TradeExports of goods and services/GDP 14.6 12.6 630 5.9Gross domestic savings/GDP 9.0 8.3 -9.7 -7.5Gross national savings/GDP 16.5 14.1 4.2 -0.8

Currentaccountbalance/GOP 2.8 -3.1 -. 6 -11.5 DomesticInterest paymenWGDP 0.0 0.3 0.4 0.5 Detic InvestmentTotal debVGDP 7.2 22.1 79.8 62.5 Savigs Ie nTotal debt service/exports 2.7 8.2 19.5 33.5Present value of debt/GDP .. .. 49.7 33.2Present value of debVexports .. . 776.3 528.9

Indebtedness1976-86 1987-97 1996 1997 1998-02

(average annual growth)GDP 51 -4.6 12.0 10.9 7.2 RwandaGNP per capita 1.8 -5.2 5.4 -5.6 4.1 Low-income groupExports of goods and services 6.1 -10.5 42.6 24.8 12.5 __

STRUCTURE of the ECONOMY _

1976 1986 1996 1997 1 Growth rates of output and Investment (%)(% of GDP)Agriculture 54.1 41.8 38.2 37.5Industry 20.8 25.7 23.8 26.0 1 50 t

ManufactuLring 13.5 17.7 16.7 19.0 ° -Services 25.1 32.5 38.0 36.5 ., 92 93- 95 96 97

Private consumption 74.3 79.7 99.8 98.7 o 100-

General govemment consumption 16.7 11.9 10.0 8.9 jGDI - DPImports of cloods and services 19.4 20.2 26.1 24.2 GG

197646 1987-97 1996 1997 Growth rates of exports and Imports (%l(average annual grotwth)Agriculture 3.1 -5.4 12.0 7.8 100Industry 7.2 -4.3 15.9 16.4 5

Manufactuijng 6.8 -1.3 15.1 16.6Services 10.2 -3.8 9.3 9.8 a

92 94 ~s/9 7Private consumption 5.4 -0.7 6.1 20.2 -soGeneral govemment consumption 3.3 -4.6 24.7 -2.6Grossdomestic investment 11.7 -10.3 26.1 28.3 IDO0Imports of goods and services 10.6 4.7 5.1 45.3 -Exports l -mportsGross national product 5.1 -4.5 10.8 10.8 _

Note: 1997 data are preliminary estimates.

* The diamonds show four key indicators in the country (in bold) compared with its income-group average. If data are missing, the diamond willbe incomplete.

Agricuiltural & Rural Market Development Project Page 61

PRICES and GOVERNMENT FINANCE1976 1986 1996 1997 Inflation (%)

Domesbic prices eo(% ch6nge)Consumer prices 7.2 -1.1 7.4 6.0 401 Implicil GDP deflator -1.9 -7.0 9.7 18.6

20Government rinance(% of GDP, includes current grants)Current revenue .. 13.8 16.6 17.7 92 93 94 95 95 97

Current budget balance .. 2.3 3.5 6.3 -GDP deflator -CPIOverall surplus/deficit .. -6.6 -6.1 -2.8

TRADE1976 1986 1996 1997 Exportand import levels (USS millions)

(US$ mlillions)Total exports (fob) 114 186 62 87 600

Coffee .. 143 43 45Other agriculture .. 20 9 20 400

Manufactures .. 10 1 2Total imports (ci) .. 323 257 299

Food 38 51 55 200

Fuel and energy 55 27 31Capital goods 8 4 6

Exporl piceindex(1995=100) .. 11i 91 124 91 92 93 94 S5 95 97

Import pice index (1995=100) .. 69 103 97 a Exports EImports

Terms of trade (1995=100) .. 162 88 128

BALANCE of PAYMENTS1976 1986 1996 1997 Current account balance to GDP ratio(%)

(US$ minDions)Exports of goods and services 122 230 84 110 5TImports of goods and services 154 403 363 451Resource balance -32 -173 -279 -341 o -

Net income -4 -11 -15 -12Net cuirrent transfers 54 124 202 138 -5 .

Currerit account balance 18 -60 -92 -215 -10

Financing items (net) -8 -8 93 216Changes in net reserves -10 68 -1 -1 -15

Memcl:Reserves including gold (US$ millions) 64 162 107 153Conversion rate (DEC, locai/USS) 92.8 87.6 306.8 301.5

EXTERNAL DEBT and RESOURCE FLOWS1976 1986 1996 1997

(USS millions) Composition of total debt, 1997 (USS millions)Total debt outstanding and disbursed 48 430 1,111 1,164

IBRD 0 0 0 0 |F:420 1

IDA 21 195 536 558 F 2

Total debt service 3 20 17 39 E: 137IBR.D 0 0 0 0IDA, 0 2 8 10

_: 558Composition of net resource flows

Official grants 0 0 0 0Official creditors 23 71 53 64 D: 361Private creditors 0 -5 1 30Foreign direct investment 0 0 0 0Portfolio equity 0 0 0 0 c: 40

World Bank programCommitments 6 81 0 50 A - IBRD E - BilateralDisbursements 8 37 43 53 B - IDA 0- Other multilateral F - Private

Principal repayments 0 0 4 5 C -IMF G - Short-term

Nel flows 8 36 39 48 ------Interest payments 0 2 4 4Nel transfers 8 35 35 43

Development Economics 10/1/98

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