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eport No. 9743

PROJECT PERFORMANCE AUDIT REPORT

MALAWI

SECOND TECHNICAL ASSISTANCE PROJECT(CREDIT 1428-MAI)

JUNE 28, 1991

Operations Evaluation Department

This document has a restricted distribution and may be used by reciplents only in the performance oftheir official duties. Its contents may not otherwise be disclosed without World Bank sathorization.

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CURRENCY EQUIVALENTS

(Period Average)

Currency Unit: Kvacha (K)

US$1.00 - K US$1.00 - K

1982 - 1.0555 1986 - 1.86111983 - 1.1748 1987 - 2.20871984 - 1.4113 1988 - 2.56131985 - 1.7191 1990 - 2.7289

LIST OF ACRONYMS AND ABBREVIATIONS

ADMARC Agricultural Development and Marketing CorporationDPMT Department of Personnel, Management and TrainingDPU Data Processing UnitEPTD Economic Planning DivisionESCOM Electric Supply CommissionPAO Food and Agriculture OrganizationIDA International Development AssociationIDP Institutional Development ProjectILO International Labor Organizationkwh kilowatt hourMIM Malawi Institute of ManagementMOF Ministry of FinanceNRDP National Rurs 1 Development ProgramOED Operations Evaluation DepartmentPCR Project Completion ReportPPAR Program Performance Audit ReportPPF Project Preparation FacilitySAL Structural Adjustment LoanSDR Special Drawing RightsTA Technical AssistanceTRA Tobacco Research AuthorityUNDP United Nations Development Program

SYSTEM OF WEIGHTS AND MEASURES: setric

Metric US Equivalent

1 metric ton (t) 1.102 tons (t)1 kilogram (kg) 2.205 pounds (lb)1 cubic meter (mW) 35.32 cubic feet (cf)

THE WORLD BANK FOR OFFICIAL USE ONLYWashington, D.C. 20433

U.S.A.

Offere of Dirctor*GWWaIOpwatkms Ivaluatim

June 28, 1991

MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT

SUBJECT: Project Performance Audit Report on Malawi -Second Technical Assistance Project

(Credit 1428-MAI)

Attached, for information, is a copy of a report entitled "ProjectPerformance Audit Report on Malawi - Second Technical Assistance Project (Credit1428-MAI)" prepared by the Operations Evaluation Department.

Attachment

This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be discksed without World Bank authorization.

FOR OFFICIAL USE ONLY

PROJECT EEREORBWCE AUDIT REPORT

MAIAWISECOND TECHNICAL ASSISTANCE PROJECT

(Credit 1428-MAI)

TABLE OF CONTENTS

Page No.

PREFACE............................. ............... . . ..iBASIC DATA SHEET.............. ..... . . . . . .. iiiEVALUATION SUMMARY................. ..... . .. vii

I. BACKGROUND................ ...... . . ..1

II. OBJECTIVES AND DESIGN........... ..... . . . . 3

III. IMPLEMENTATION.............. ...... . . . . 5A. The Energy Planning Component. ................ 5B. Pilot Fuelwood Savings Program at the Tobacco Research

Authority (TRA) ................... .... 6C. Study of Power Tariff for the Electricity Supply Commission

of Malawi (ESCOM)..... .................. 8D. Strengthening the Financial Management of the Agricultural

Development and Marketing Corporation (ADMARC) ..... 9E. Support to the Ministry of Finance Debt Management Unit 9F. Other Studies and Components.................10G. Implementation and Supervision................14

IV. RESULTS........................................................15A. Results of individual Components...............15B. Overall Results.. ...................... 18

V. SUSTAINABILITY. ......................... 23

VI. LESSONS OF EXPERIENCE ...................... 23

This document has a restricted distribution and may be used by recipients only in the performanceinf their official duties. Its contents may not otherwise be disclosed without World Bank authorization.


MALAWISECOND TECHNICAL a.SSISTANCE PROJECT

(Credit 1428-MAI)

PREFACE

1. This is a Project Performance Audit Report (PPAR) on the SecondTechnical Assistance Credit 1428-MAI. The credit, in the amount of US$1.5million to the Government of Malawi, was approved on December 20, 1983, becameeffective on January 6, 1984, and was closed on June 30, 1989, two years behindschedule. The last disbursement took place in October 1989. The credit wasfully disbursed.

2. The audit was prep&red by the Operations Evaluation Department (OED).The Project Completion Report (PCR) for the above project, prepared by the AfricaRegional Office of the Bank, has already been issued to the Board as an OEDReport No. 8958 (dated August 13, 1990). This audit is based on the PCR, thePresident's Report, sector and economic reports, study of the project files, anddiscussions with Bank staff. The audit has also relied on a case study of theFirst and Second Technical Assistance Projects carried out by OED in conjunctionwith an Evaluation Study of Free-Standing Technical Assistance for InstitutionalDevelopment in Sub-Saharan Africa (April 1990). An OED mission visited Malawiand discussed the effectiveness of the project with Government officials andrepresentatives of the business and financial community. Their kind cooperationand valuable assistance in the preparation of this report is gratefullyacknowledged.

3. The PCR provides a good account and assessment of the projectexperience with regard to the implementation of the various action programs;achievement of the components, administration and use of the credit; and drawslessons of experience. The audit discusses the evolution of technical assistancein Malawi, portrays the critical issues of concern that led to the genesis ofthis credit in conjunction with structural adjustment programs; evaluates theprogress made in creating and implementing the various components of the project;determines the purposefulness and effectiveness of technical assistance measures;and ascertains the key factors that determined the credit's outcome andeffectiveness and sustainability of the project. The audit, then, draws furtherlessons from the project experience.

4. The draft case study referred to above (para. 2) was sent to theBorrower for review and comments, but none were received.

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MALAWISECOND TECHNICAL ASSISTANCE PROJECT

(Credit 1428-MAI)

BASIC DATA SHEET

CREDLT POSITION(amounts in US$ million)

As of April 30. 1991Ctedit Original Disbursed Cancelled Reaid Outstanding

1428 1.501' 1.671' -.- -.- 1.87

CUMULATIVE ESTIMATED AND ACTUAL DISBURSEMENTS

S.6 EX.Z EIY8

Appraisal Estimate (US$M) 0.10 1.50 --

Actual (US$M) -- 1.17 1.67Actual as % of Appraisal (%) - 78% l11%!,Date of Final Disbursement: October 3, 1989

PROJECT DATES

Original &ctual

Initiating Memorandum 02/83 04/23/83Negotiations 11/83 11/11/83Board Approval 12/83 12/20/83Credit Agreement 12/83 12/20/83Effectiveness 01/84 01/06/84Credit Closing 06/87 06/30/89

1 Equivalent to SDR 1.40 million.

i Actual as % of appraisal was 100% when expressed in SDR.

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STAFF INPUTS(staffweeks)

EM5 EHA E2. EA E.2 £EQ .T.L

Appraisal 3.3 - - - - - - 3.3Negotiations 1.4 - - - - - - 1.4Supervision 0.9 4.0 4.4 3.9 0.7 2.0 - 15.9Completion - - - - - - 3.8 3.8

Total 5.6 4.0 4.4 3.9 0.7 2.0 3.8 24.4

MISSIONDAT

No. of No. of Staff Date ofMonth/Year Weeks Persons Weeks Report

Preparation 06/82 2 3 6 07/21/8202/83 2 1 2 02/24/83

Appraisal 06/83 3 1 3 07/06/83Supervision I 05/84 1 3 3 06/01/84Supervision II 07/86 2 1 2 08/12/86Supervision III 07/88 2 1 2 08/05/88Completion 02/90 1 1 1 08/13/90

Note.- Separate Supervision missions for various subprojects are not included.

OTHER PROJECT DATA

Related Projects

Borrower: Government of Malawi

Project: Structural Adjustment ILoan No.: 2026-MAIAmount: US$45.0 millionApproval Date: July 2, 1981

-V-

Project: Technical Assistance ILoan No.: 2027-MAIAmount: US$1.0 millionApproval Date: July 2, 1981

Project: National Rural Development ProgramCredit No.: 1183-MAIAmount: US$7.3 millionApproval Date: October 13, 1981

Project: Structural Adjustment IICredit No.: 1427-MAIAmount: US$55.0 millionApproval Date: December 20, 1983

Project: Structural Adjustment IIICredit No. 1644-MAIAmount: US$30.0 millionApproval Date: December 20, 1985

Project: Institutional DevelopmentCredit No.: 2036-MAIAmount: US$11.3 millionApproval Date: December 14, 1989

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(Credit 1428-MAI)

EVALUATION SUMMARY

Introduction

1. Two associated Technical sectors (Energy, Indus.ry andAssistance Projects have supported Agriculture) and in the fields ofimprovements in the public sector resource rabilization, management andmanagement, in addition to reforms in institutional development. A numberthe agricultural, energy, and of proposed actions were to beparastatal sectors. The US$1.5 carried out with bilateral andmillion Second Technical Assistance multilateral technical assistanceCredit was approved by the Board in since Malawi still had a shortage of1983 in conjunction with the Second trained personnel in both the civilStructural Adjustment Credit. It service and key private sector areas.followed on the First Technical A separate technical assistanceAssistance Credit approved earlier in proje,,t was thus prepared to help1981, also in support of a Structural implementing some of the actionsAdjustment Operation. supported by the SAL (para. 2).

Structural adjustment reforms ObJic.iware envisaged to cover a number of

years due to the fact that it was 4. The project aimed at assistingrealized in the early 1980s that the the Government in achieving its goalsadjustment process in Malawi would of improved gn.e.gy planning andtake time to implement, and that a coordination, substantially reducingseries of credits from the Bank would its consumption of fuelwood,be necessary if the Government was to improving its pricing of power,

have the resources to carry out its strengthening the debt and financialprogram of economic recovery. F,r capabilities of the Ministry ofthis reason, SAL I was followed by a Finance and the Agriculturalsecond SAL in 1983 and a third SAL in Development and Marketing Corporation1985. The latter also provided some (ADgARg) (para. 16).room for technical assistance byearmarking a small fraction of the 5. Five specific components of thetotal Credit for a number of studies project were identified, in additionon budgeting, public investment to various studies. These componentsprogramming, export promotion, and were:tax system (paras. 1 and 4).

* strengthening the energy3. This Second Adjustment Credit planning capabilities of the Economicwas to support a number of actions Planning Division through a long-termand steps to be taken in specific expert, training and equipment;

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* carrying out a pilot fuelwood and the Government to findsavings program in order to reduce alternative grant financing for allfuelwood consumption in flue-curing the components of TA-TI (paras. 21-of tobacco through the financing of 22).consultant services and vehicles;

Implementation* carrying out an electric power

tariff study and an industrial price 8. Delays occurred in thedecontrol study, through the implementation of two components:provision of consultant services; the energy planning and the fuelwood

savings program; but on the whole,* strengthening of the progress was made in implementation

Agricultural Development and of all components. Only one of theMarketing Corporation's financial two experts who were to helpmanagement capabilities by financing strengthening ADMARC's financialassignments of one financial analyst management was hired. The Debtand one financial controller to head Management Unit of the Ministry ofthe Finance and Accounting Finance did receive a microcomputerDepartment; system and other equipment, but thera

is no indication that advisory* strengthening the Ministry of assistance was provided to firmly

Finance's debt management establish the analytical capacity tocapabilities through consultant make projections and simulations toservices, training and acquisition of facilitate decision-making and choicecomputers and other equipment (para. of Debt management options. Finally,18). the study on power tariff was

implemented, but the analysis of the6. The various components varied data and drafting of the report tookwidely in respect to their specific place abroad, with members of theobjectives (type of results and ESCOM management team participatingimpact to be achieved) and in the only in the final phase which reducedactual form in which technical the degree of commitment to the studyassistance was to be rendered (para. 24-52).(foreign experts in line position,advisers, trainers or consultants 9. Several studies were carriedproducing a study, --tc.). out using unallocated funds for

various activities. The most7. The five components under TA-II important ones were:were all explicitly mentioned in theLetter of Development Policy * The Comprehensive Humansupported by SAL-II and the attached Resources Study (Manpower Survey).TA project, providing a convenient"umbrella" for the different * Agricultural Diversificationcomponents. Apparently, the three Study (analysis of the viability of aenergy components (out of a total of proposed agricultural creditfive) were included in the Project in institution for the large estateorder to facilitate the subsector).implementation of usefulrecommendations made by a Bank Energy * Study on the revision of theAssessment mission in 1981. It is, Code for Government Procurementhowever, difficult to know if greater (paras. 53-61).efforts would have enabled the Bank

- ix -

10. Unallocated funds were also has been reduced by 50%. On the jobutilized to finance parts of project training effects were very limited,preparation activities for an however (paras. 79-80).Institutional Development Project tobe financed by the Bank, and to C. Study on Power Tariffsprovide support for training abroadof sixteen staff members of the 15. The resulus of the study wereMinistry of Finance (paras. 62-69). not implemented because ESCOM was

unconvinced of its usefulness from11. The individual subprojects the start, and there was insufficientwhich were executed by various dialogue between the consultants andGovernment institutions were to be ESCOM (paras. 81-82).supervised by ths Ministry ofFinance. This super--.sion, however, D. Financial Management ofADMARCwas largely confined to the financialand administrative aspects. It was, 16. The Financial Controller playedin fact, unrealistic to expect the an important role in ADMARC'sMinistry to play a very active role financial management operations.in managing an "umbrella" project However, he also tended to worksuch as TA-II (para. 71). independently, and did not provide

guidance to his counterparts. It is12. The overall project was difficult to ascertain if the extentsupervised three times in six years. of his contribution has been aGiven the varied nature of the lasting one (para. 83).components, supervision tasks had tobe assigned between several divisions E. Debt Managementin the Bank, which inevitablycomplicated the coordination of 17. The planned technicalactivities and decreased central assistance in the form ofcontrol and responsibility. However, consultancies did not materialize,Bank supervision of the energy- but free advice and support wasrelated components had much higher provided by the External Debtfrequency (para. 72). Division of the Bank. The

professional capacity of the localResults staff was only partly developed to

make full use of the facilities forA. Energy Planning simulations and analysis of

alternative debt strategies.13. The major achievement was the However, progress was made in inter-completion of a fairly comprehensive agency communications on debt issuesNational Energy Plan. However, staff and the computer system was, in mosttraining benefits were not fully respects, completed (paras. 84-86).sustainable, and the results ofenergy data collection were F. Human Resources Studydisappointing (paras. 74-78).

18. The study provided useful dataB. Fuelwood Savings Program and a basis for setting priorities

influencing future investments in14. There were substantial manpower training. However, theachievements. Technical solutions training part of this subproject washave been developed, and fuelwood not sustainable, as the Malawianconsumption in flue-curing tobacco staff left the Manpower Unit and

nobody is available to assist in S nbility"selling" the product to potentialusers and to serve as a bridge for 23. Sustainability can only befuture updating of the data generated ensured where a professionally soundin the survey. The latter output has been produced and has beenexperienced a 40% cost overrun accepted by the recipient(paras. 87-89). institution, and wheve tangible

training and know-how transfer hasG. Overall Results taken place. A striking example of

non-sustainability is the Human19. With the exception of the Resources Study where all localfuelwood savings project, which was professionals left the Manpower Unit.the most concrete and technical Only in the case of the fuelwoodcomponent, none of the subprojects savings project sustainability iscan be regarded as a complete likely to be achieved within thesuccess, However, none of them target group (tobacco growers),should be .egarded as a total failure Overall, the TA-11 project iseither. All have had at least unlikely to maintain an acceptablepartial success; they have made some level of net benefits throughout itscontributions, or there is still a economic life. Moreover, its impactreasonable probability that some on institutional development has beenbenefits will accrue in the near generally negligible (paras. 105-future (para. 98). 107).

20. In respect to the professional Lessons of ENeriencequality of the personnel involved andthe quality of the job performed, no 24. The TA-It project was notstrong critical comments were voiced. designed to provide neededHowever, some doubts were l-ed in institutional support over theseveral cases by the formt_ local considerable period of time necessarycounterparts and/or Bank supervision to internalize fully reforms inreports, whether an optimum choice of economic management. Instead ofpersonnel had been made, e.g. Energy grouping in an "umbrella" typeAdvisor, Human Resources Study team project overly diffused components,(para. 100). one should rather concentrate on a

limited number of high priorit.y21. Lack of commitment was evident reforms to be carried out over ain ESCOM, which was never really sufficiently long period of time.convinced that the tariff structure Such an integrated form of technicalwas an issue of urgent concern (para. assistance would better mer Malawi's101). pressing needs to strengthen national

economic management (para. 109).22. The lack of training and know-how transfer was a negative feature 25. There has been a tendency tocommon to all subprojects, with one use a rigid, "blueprint" approach toexception- -the Human Resources Study, technical assistance projectswhich was done in a form conducive to because, for administrative reasons,familiarizing the local professionals both the donor and the recipientwith relevant techniques for manpower prefer to have the objectives,surveys and planning (para. 103). support and activities of technical

- xi

assistance already defined for the the three- or four-year time horizonwhole contract period. However, this of a single technical assistanceapproach is more suitable for project. More narrowly defined,investment projects than for successive technical assistanceassistance to improve social and projects planned over a longer periodmanagement processes. Future TA could, thus, could lead to betterprojects oriented to institutional fulfillment of long-termdevelopment should be molded in such institutional objectives (para. 112).a fashion, so that both sides learnfrom the experience of implementing 28. In sum, efficient free-standingthe project. And provision should be technical assistance projectsmade for more frequent supervision of require:both the overall project and possiblesubprojects (para. 110). * preparation of realistic

institutional development strategies;26. Based on the TA-II projectexperience, future technical * a clear and precise statementassistance should concentrate in such of objectives;fields where the Bank has acomparative advantage over donors, * establishment of performancefor example, projects which help indicators for subprojects;develop macro and microeconomicanalysis capal-ilities in such areas * detailed differentiationas debt management and energy between various types of TA inputs,planning (para. 111). implying preparation of a detailed

program and on-the-job training27. Funds provide, under Technical components, a thorough analysis ofAssistance projects should not be the respective expected contributionslooked upon by both sides as free of short- and long-term experts, andresources to be used in an a careful definition of the local TAuncoordinated way. Similarly, it project coordinator'sseems more appropriate to organize responsibilities;technical assistarce on a country orsectoral basis, with only one or few * a clear definition of themajor partner institutions being Bank's comparative advantage in theinvolved administratively and in provision of technical assistance onterms of staff contributions. To a credit basis vis-&-vis grantachieve this goal, an institutional financing provided by bilateraldevelopment strategy should be donors and the UNDP;planned taking into account the timeneeded to achieve reforms in public * a clear link between TA andsector management, often going beyond SALs (para. 113).



(Credit 1428-MAI)

I. BACKGROUND

1. The Second Technical Assistance Project was approved together with a

Structural Adjustment Operation in December 1983. A first Technical Assistance

Project had been approved earlier in July 1981, also in support of a first

Structural Adjustment Project. Soon after the 1981 project was approved, it was

realized that the structural adjustment process in Malawi would take a number of

years to implement and that a series of loans/credits from the Bank would be

necessary if the Government was to have the resources to carry out its program

of economic recovery. This program was designed to diversify the export base,

encourage efficient import substitution, adjust incentives, improve the public

sector's financial performance, and strengthen policy-making capability. To

provide support for this program, a second Structural Adjustment credit was

consequently approved for an amount equivalent to US$55.0 million, in 1983.

2. This Second Adjustment Credit was to support a number of actions and

steps to be taken in specific sectors (Energy, Industry and Agriculture) and in

the fields of resource mobilization, management and institutional development.

A number of proposed actions were to be carried out with bilateral and

multilateral technical assistance since Malawi still possessed a shortage of

trained personnel in both the civil service and key private sector areas. A

separate technical assistance project was thus prepared to help implementing some

of the actions supported by the SAL.

3. The agreement on TA-II provided for an IDA credit of SDR 1.4 million

equivalent to US$1.5 million. Three categories of items were to be financed out

of the proceeds of the credit: (1) vehicles, equipment and office supplies (SDR

230,000); (2) consultants' services and training (SDR 990,000); (3) unallocated

(SDR 180,000). The credit agreement defined five specific components (three in

the energy field, one dealing with agriculture marketing, and one with the

management of external debt) and left a sixth one open for "other studies

associated with the Second SAL."

4. Following SAL-II and TA-II, a third Structural Adjustment Program,

approved in December 1985, also provided some room for technical assistance by

earmarking a small fraction of the total SDR 28.0 million credit for a number of

studies on budgeting, public investment programming, export promotion, and tax

systems.

5. However, neither the SALs nor the TA operations were designed to

provide institutional support over the considerable period of time needed to

fully internalize reforms in economic management. The need was, however, felt

at a later stage, to provide more consistent and long-term support for the

reforms that were to be made, and to concentrate on a limited number of high

priority reforms. As result of this new, less broad-based approach to technical

-2-

assistance, an Institutional Development Project was approved in December 1989and is now being implemented over a five-year period.

6. One of the structural problems faced by Malawi and addressed by SAL Iand II, was the rising cost of energy resources. With respect to petroleum,Malawi is totally dependent on imported resources. While the volume onlyincreased by 8% between 1977 and 1980, the value of imported petroleum doubledand the share of imported petroleum in total imports rose from 10% to 15%. Thus,the Government's difficult task in the sector was to reduce the country'sdependence on imported oil.

7. Another energy issue was related to the needs of the rural areas.Fuelwood represents some 80% of the total energy consumed in Malawi. Wood isused for cooking and for curing tobacco and tea. As a result of populationgrowth and expansion in tobacco and tea production, the demand for fuelwood wasoutstripping available supplies, leading to deforestation and environmentalproblems.

8. The Government recognized that a comprehensive Energy Sector Study wasneeded to assess available resources, project future demand and supply, andexamine alternative sources of energy and the possibility for intrasectoralsubstitution. The Government asked the Bank to carry out such a Study which wasfinanced in part by the UNDP Energy Account. During negotiations of SAL-I, the

general scope of work and timetable for completing the sector Study were agreedon by the Bank and the Government. An energy sector Mission visited Malawi inSeptember 1981 and June 1982.

9. The mission recommended a number of measures and in particular in threeareas: demand management, energy planning and power pricing.

10. The main thrust of the Government's strategy to tackle the fuelwood

problem had so far comprised measures to increase the supply of this resource,with little being done to improve the management of fuelwood demand. Tackling

the demand side was more difficult because, for most users, wood was not acommercial fuel. However, one aspect of demand management which held

considerable potential and which had been comparatively neglected was a programto increase the low efficiency with which the tobacco industry used fuelwood.Considerable energy savings were thought to be obtainable by improving theefficiency of the furnaces and barn design and by developing new designs for theflues themselves to achieve better heat transfer and thus lower the fuelrequirements for producing flue-cured tobacco, a major export for Malawi.

11. The Bank Energy Sector Report also recommended a strengthening of theinstitutional framework for energy planning and capability. In particular, itwas felt that the Energy Unit of the Economic Planning Division (EPD) needed to

be strengthened through additional national staff and the provision of technicalassistance, including a senior energy economist/planner and the budget forcarrying out energy studies and training national staff working in the Unit.

12. Finally, the Bank Report recommended a study on power tariffs due to

a number of anomalies which had been found in the rate structure. There was a

need to determine long-range marginal costs, to evaluate the effects of

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introducing a single kwh rate and the effects on low income users of a monthlyfixed charge.

13. The above recommendations were accepted by the Government and includedin a Letter of Development Policy drafted in conjunction with SAL-II and TA-II.

14. Although energy issues represented the most important component of theTA project, two other unrelated topics were also included: improved operationof the agriculture marketing organization and management of the external debt.

15. The Second Technical Assistance Project was evaluated in conjunctionwith SAL-II. The latter, as well as SAL-I, was broad-based with simultaneousactions on several fronts to enhance resource allocation in the productivesectors (energy, agriculture, industry) and to improve efficiency in supportinginstitutions, including the Government itself (PCR, para. 11). The role of theTechnical Assistance Project, coupled with SAL-II, was thought to provide theexpertise where it was lacking for selected areas.

II. OBJECTIVES AND DESIGN

16. The Project aimed at assisting the Government in achieving its goalsof improved energy planning and coordination, substantially reducing itsconsumption of fuelwood, improving its pricing of gower and industrialcommodities, strengthening the debt and financial management capabilities of theMinistry of Finance and the Agricultural Development and Marketing Corporation(ADMARC).

17. As a result of the project, Malawi was assumed to have developed amedium-term energy investment plan which addressed its major energy problems, afuelwood savings program to reduce the level of wood consumption, a revised powertariff structure reflecting the long-run marginal costs to the economy of meetinguhe demand for electricity in Malawi, a phased program for decontrollingindustrial prices, and an improved system in financial and debt management.

18. Five specific components of this project were identified at the timeit was approved, with a sixth category left for other studies. They were:

(1) Strengthening the energy planning capabilities of the EconomicPlanning Division of the office of the President and Cabinet, including training.This component included mainly the financing by IDA of a long-term expertassignment at a cost of US$130,000; there was cofinancing from UNDP mainly fortraining and equipment.

(2) Carrying out by the Tobacco Research Authority (TRA) of a pilotfuelwood savings program. This component involved the financing of vehicles,operating expenses and engineering and consultant services for a pilot fuelwoodsavings program. The component may be regarded as the partial financing(US$313,000) of a project strongly supported by UNDP.

(3) Carrying out of an electric power tariff Study by the ElectricSupply Commission (ESCOM) and an industrial price decontrol Study by the Ministryof Trade, Industry and Tourism. Consultant services for the power tariff Studywere estimated at US$130,000. Consultant services were also included to examineprice controls for industrial commodities (US$40,000).

(4) Strengthening of the Agricultural Development and MarketingCorporation's financial management capabilities. This component assisted infinancing assignments of one financial analyst (US$220,000) and one financialcontroller (US$110,000) to head the finance and accounting department.

(5) Strengthening the Ministry of Finance's debt managementcapabilities, including consultant services, training and acquisition ofequipment. This was a continuation of technical assistance started under the TA-I projt:.t. The assumed foreign exchange cost of this component was US$98,000.

19. The total foreign exchange cost of these components was US$1,121,000and US$1,255,000 after adding local costs to be incurred. Since the amount ofthe credit for TA-II was US$1.5 million, the difference was allocated toconsultant services for other studies needed to carry out the structuraladjustment program.

20. The five components of the TA-II project had the followingcharacteristics: (i) three were dealing with energy sector issues (planning,fuelwood conservation, and power tariffs) which had been raised by a Bank EnergySector mission; and (ii) two were expanding on work already started under TA-I(diagnostic study of ADMARC and support to the Ministry of Finance's DebtManagement Unit). However, the various components differed widely in respect totheir specific objectives (types of results and impact to be achieved) and in theactual form in which technical assistance was rendered (foreign experts in lineposition, advisors, trainers or consultants producing a study, etc.).

21. The components also differed widely in the scope of their ambitions tocontribute to institutional development. Some of the subprojects (EnergyPlanning Unit, Debt Management Unit, support to ADMARC) really aimed at a broad-based strengthening of an institution or organizational unit. Others may be seenas a contribution to certain strategic decisions (improved energy management forfuelwood, better power tariffs) without institutional development as a basicobjective.

22. The Bank's assistance given under TA-II, although assumed to providesupport to SAL-II (and this was done to some extent), included a wide spectrumof relatively small technical assistance components greatly differing in theirobjectives, means of delivery, and comprehensiveness of the resources provided.As it will be seen below, unallocated funds provided under TA-II, in order toincrease flexibility, were sometimes used for purposes loosely or sometimes notat all related to the policies of Structural Adjustment. However, the five maincomponents financed under TA-II were all explicitly mentioned in a 1983 Letterof Development Policy supported by SAL-II and the attached TA project, providinga convenient "umbrella" for the different components. It is, however, temptingto believe that the three energy components were conveniently included in the

project to facilitate the implementation of useful recommendations made by the

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Bank Energy Assessment missions of 1981-82. The Assessment missions' report hadbeen partly financed by the UNDP Energy Account and, indeed, the energy planningcomponent was subsequently picked up under grant financing. However, as statedin the PCR (para. 17), it is not possible to know if greater effort at the timeof TA-II preparation would have enabled the Bank and the Government to find grantfinancing for all the components of TA-II.

III. IMPLEMENTATION

23. Given the diversity of components, implementation aspects have beenfirst reviewed for each of them, followed by an evaluation of globalimplementation and supervision problems.

A. The Energy Planning Component

24. Keeping in mind that the various energy subsectors (fuelwood,petroleum, power, coal and non-conventional energy sources) were taken care ofby different Government institutions (and not by the Ministry of Energy), thestrengthening of a coordinating Energy Unit in the Economic Planning Department(EPD) of the office of the President and Cabinet appeared to be the rationalapproach. Towards this end, the Government agreed to employ additionalprofessionals (in particular an economist as head of the Unit) and requested IDAto finance the assignment of an experienced energy economist/planner for a periodof eighteen months.

25. The original request for the advisor (March 1984) emphasized product-oriented studies like preparation of an overall National Energy Plan,identification of energy resources, identification and priority ranking ofprojects, etc. In addition, the resident advisor was to help managing che Unit,define its work program and provide on the job training to counterpart staff.The team which the expert was to work with was planned to consist of up to fiveprofessionals.

26. According to the Credit Agreement, the work was to start in mid-1984.In fact, there were considerable delays until a contract with an Americanconsulting firm was concluded (mid-1985) and until the energy advisor actuallyarrived on the spot (June 1986). It took another several months until a coregroup of Malawian professionals (less than planned) joined the Energy Unit.

27. The work of the advisor, in overall terms, seems to have been adequate,although there were some critical comments in two Bank Supervision Reports(September 1986 and August 1987). As planned, the work concentrated on producingstrategic documents (contribution to the Development Plan 1987-1996, and as themain "product": The National Energy Plan 1988-1997). At the same time, effortswere made to strengthen the Unit's internal organization (including rudimentarydata banks) and its external links to the various institutions involved in theenergy sector.

- 6 -

28. The National Energy Plan became ready in draft in October 1988,necessitating an extension of the advisor's assignment by three months. This wasnot financed by the TA-II project but by UNDP funds which were also used foracquiring computer equipment and sending Malawian staff members for trainingabroad.

29. The assignment of the Energy Advisor appears to have been supervisedby Bank regional staff only once, at the very beginning. More regular andintensive supervision came from the Bank's Central Energy Department Staff whowas also involved in supervising or preparing other activities in the energysector. Any professional input does not seem to have been given by theConsulting firm to the Unit (except direct discussions with the advisor on thework program).

30. For some time cooperation between the advisor and his Malawiancolleagues was made difficult by the former's double (and not clearly defined)role of a performer being charged with specific own tasks, and of an advisorsupposed to assist the Malawian staff in getting the Unit's work done.

B. Pilot Fuelwood Savings Program at the Tobacco Research Authority (TRA)

31. Already in 1980, Phase II (wood energy) of the National RuralDevelopment Program (NRDP) financed by IDA Credit 992-MAI, embarked on variousmeasures to increase forest resources and the creation of an Energy Unit in theForestry Department of the Ministry of Agriculture and National Resources. Nospecific efforts relating to fuelwood savings in the tobacco sector were includedin this project.

32. As indicated above (para. 10), the Bank Energy Assessment Report gavespecific attention to the fuelwood savings potential in the process of curingtobacco. Tobacco curing accounted for an estimated 40% of Malawi's fuelwoodconsumption, some 400 growers of flue-cured tobacco used 75% of the wood and42,600 growers of fire-cured tobacco used the remaining 25%. While energysavings were possible in both, the greatest immediate potential obviously laidin the flue-cured tobacco. Malawi's TRA estimated that the flue-curing tobaccoestates consumed between 0.02 cubic meter and 0.13 cubic meter of wood perkilogram of tobacco in their barns. Even the most efficient barns, however, usedabout three of four times more wood energy than the best ones in the UnitedStates.

33. It is against this background that a pilot project was proposed to:(i) survey wood use as well as the number and condition of the barns used in theflue-cured tobacco se-tor; (ii) to determine and demonstrate the possible savingsin fuel usage made by improving furnaces and vents, and to show that suchimprovements were economic; and (iii) to disseminate the findings and results togrowers for implementation. Phase I of the project was intended as a pilotscheme to start in April 1984 and continue for two years.

34. This two-year period was not meant to be a complete fresh start. Itwas to intensify and to widen the work already begun by a FAO-financed researchofficer who had been working with TRA since 1980. Because of this, the one-yeardelay in implementing this two-year project phase did not lead to the full loss

-7-

of one season. The FAO expert was able to initiate the necessary survey work andsome preliminary work on research equipment, the latter in informal cooperationwith an instrumentation technician who had already been selected and was waitingin Malawi to get his contract. Due to various administrative delays, the actualproject phase financed under TA-II began about mid-1985 and comprised two mainlines of action:

a. Research, mainly done by the instrumentation technician incooperation with the FA0 Research officer, related primarily to barn trialmeasuring wood consumption for different existing and improved barn types. Forone season this work was done Ln five different regions of Malawi and for thefollowing season research was concentrated in one location, allowing a much morecontrolled and systematic comparison of different technical solutions and firingpractices,

b. Extension, done by an extension expert, with more than 20 yearsof experience in Malawi, comprised the development of extension material (and amonthly bulletin) on the research findings and their applications, as well as theactive dissemination through workshops and visits to tobacco growers.

35. It had been planned from the outset that a second project phase (on awider scale) would have to follow. Therefore, the instrumentation technician wasgiven a second two-year contract, and the former FAO advisor to TRA, after theend of his IDA-financed contract in November 1987, stayed with the project undera special trust fund agreement with FAO financed by a UNDP/Bank Energy IIProject. From the same funds some further equipment was provided (partly evenbefore the end of the TA-II project phase).

36. While the team leader was working under a UNDP/FAO contract, the twoexperts financed under TA-II were working under individual work contracts withthe Government of Malawi, represented by the Ministry of Finance. Inorganizational terms, the project suffered considerably from the followingweaknesses:

a. The financing under TA-II provided but one phase (about twoyears) of a project which actually started before that phase and which had to gobeyond that phase. This created a substantial amount of uncertainty as to thelong-term perspectives of the project, and it certainly did not facilitate aconsistent project management by the Bank and the Government of Malawi.

b. At the time of the TA project phase, TRA management andadministration were weak and not really able to actively support the project interms of logistics and financial administration (including liaison with theMinistry of Finance).

c. The Ministry of Finance did not take an active role in theadministration of any of the individual subprojects of TA-II and the fuelwoodsubproject was no exception. Responsibilities for dealing with the subprojectswere not defined; the project personnel often did not know who to approach inmatters relating to their work contract. The Bank field office did not offerassistance on such matters.

-8-

37. No counterparts were provided for the experts financed under TA-II.Even after establishing the reqvired posts, it was not possible to get themfilled. Potential candidates were reluctant to join the Project because of itsuncertain perspective. Only from April 1988 were counterparts employed afterposts were established with TRA proper (not with the Project as such).

38. In contrast to some other TA-II subprojects, this component was fairlyclosely supervised or guided by the Bank Control Energy Department staff who tooka quite active interest in the project and its results. Supervision missionstook initially place about once a year, later twice a year. The project teamreported fairly regularly on the project's progress. In fact, this is the onlysubproject on which some progress reports could be found.

C. Study of Power Tariff for the Electricity Supply Commission of Malawi(ESCOM)

39. The Government's medium term program (1981/82-1985/86) which wasformulated in the context of the First Structural Adjustment Program made thereview of price systems and tariffs one of four areas of priority concern. Astudy on power tariffs and suitable formulas for future adjustments was rationalin that context. It appears that the Bank, at the same time, was interested touse the Malawi case (among others) as a test case for a fairly new concept ofdeveloping a tariff structure which reflected, as closely as possible, the long-run marginal cost to the economy of meeting power demand. Considering the factthat, in comparison to other Malawian parastatal organizations, ESCOM hadmaintained a relatively sound economic position, no particularly pressing reasonsfor introducing a new power tariff structure seem to have existed at the time ofconceiving the TA-II Program. However, this study, though being the only ESCOM-related activity under the "free-standing" TA-II agreement, was but one of manyBank-supported activities related to ESCOM. There had been TA components invarious capital projects, and there are still such components in the Bank's morerecent sectoral projects. The study was thus not as "free-standing" as it mightappear at first glance.

40. The contract for the study was given to Coopers & Lybrand Associates(London) who, in cooperation with Merz & McLellan, provided a team of threeexperts (two economists, one engineer). The team visited Malawi for about threeweeks primarily for fact finding. During this period ESCOM staff was active inproviding data, primarily on the demand structure and cost characteristics of thevarious elements of the power system. The analysis of the data and drafting ofthe report took place mainly in Britain with members of the ESCOM management teamparticipating only in the final phase (February/March 1985).

41. Bank sector staff obviously was quite active in initiating the studyand financing it under the TA-II agreement. It seems that during a Banksupervision mission in September 1986, discussions were held with ESCOM on theresults of the study. ESCOM did not agree to some of the assumptions andconclusions of the study. The Bank's mission report stated that "it was agreedthat the results of the study should be held in abeyance until some time in 1987,when firmer information becomes available."

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D. Strengthening the Financial Management of the Agricultural Develomentand Marketing Corporation (ADMARC'

42. ADMARC is one of Malawi's large parastatal organizations, involved invarious agricultural development schemes and particularly in helping thesmallholder farmers to market their cash crops. In the context of SAL-I and SAL-II the strengthening of ADMARC was important in respect of two objectives:providing better price incentives to the farmers and reducing the governmentbudget deficit to which losses of various parestatals had been contributing.

43. In the same way as other companies such as the Malawi DevelopmentCorporation (MDC) and Press Holding, ADMARC was to screen and streamline itsportfolio, an operation which required capacity for financial analysis andcarrying out investment/disinvestment decision. Assistance to ADMARC was notexplicitly mentioned in the TA-I Agreement. However, a short-term consultancywas financed unde. this agreement in 1982 (carried out by an expert who hadpreviously served as ADMARC's Company Secretary). Apart from otherrecommendations, the consultant strongly emphasized the necessity ofstrengthening ADMARC's financial management. This was taken up in thePresident's Report for TA-II proposing assignments of two financial experts:

(a) a financial analyst,

(b) a financial controller (to head the finance and accountingdepartment.

44. The financial analyst was never hired while the financial controllerhad already been recruited before the TA-II project had been signed. From mid-1983, -he controller was financed through the US$7.3 million NRDP-I project fora peri3d of two years. The TA-II project intended to further finance thecontroller's services beyond mid-1985.

45. According to a 1986 Bank Supervision Report, the financial controllerwas actively involved in developing ADMARC's divestiture program in collaborationwith IDA and with USAID. However, given the preparation of an ADMARC separateproject, Bank staff did not actively supervise this component.

E. Support to the Ministry of Finance Debt Management Unit

46. During preparations for SAL-I and TA-I, the need for strengtheningMalawi's debt management capacity was already emphasized. The President's Reporton TA-II (para. 62) stated: "Although Malawi's debt reporting and managementperformance had been satisfactory in the past, there is a need to strengthen debtmanagement and to monitor more closely external borrowing ... ; it was furtheragreed during negotiations that a Bank staff member would visit Malawi to assistthe government in standardizing and streamlining its debt reporting system."However, no explicit provision was made under TA-I for technical assistance inthis field.

47. It seems, however, that fuads were utilized under TA-I to purchase somecomputer hardwares and hire a consultant to help set up a computerized recordingand monitoring system. This system was to help not only in recording debt

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already contre,7ted but also help in the formulation of future borrowing policythat would reduce the debt service ratio.

48. The President's Report on TA-II emphasized the "continued improvementsin institutions dealing with external debt and investment screening" as one ofthe important aspects of the Government's development policy in the context ofthe Second Structural Adjustment Credit, and it made the "strengthening the debtmanagement capabilities of the Ministry of Finance', an explicit component of theTA-II project (para. 102):

"The project includes funds to computerize the system(purchase of micro-computer and associated equipment) andsix to eight months of consultant services to strengthenfurther the debt management system including helpingformulate an appropriate debt management policy."

49. The Ministry of Finance (MOF) acquired a microcomputer system for usein developing its debt management capabilities. Additional equipment was alsopurchased to: (i) increase capacity to enable projections and analysis of therecurrent and development budget; and (ii) develop the capability forsimulations, projections, and the incorporation of microeconomic variables intothe analysis of debt and thus enhance capability for decision-making and choiceof debt management options.

50. Although a 1986 Bank mission suggested that advisory assistance beprovided under TA-II to firmly establish the above described analytical capacity,there is no indication that such technical assistance took place. In fact,technical assistance was actually replaced by free assistance from the Bank's ownExternal Division. The system was developed largely by Malawian professionals,and in particular by a system analyst who had joined the Unit in 1982 (comingfrom the data processing department) and left the Unit in spring 1987. Foreigntraining of MOF personnel as financed under TA-II (see below) did relate to avariety of subjects but not really to debt management.

51. The debt management's system was part of MOF's Economic AffairsDivision. In terms of personnel and equipment, it was highly integrated with theother tasks of that Division, and could not be regarded as a separate Unit.

52. On the Bank's side, resp>nsibility for supervision rested with theAfrica Regional Office and the Debt and International Finance Division,International Economics Department. The latter undertook seven missions from1983 to 1988 to provide assistance in setting up and running the Debt ManagementUnit.

F. Other Studies and Components

53. The TA-II project included unallocated funds to be tapped for variousactivities for which other funding could not be found, even if the links to theSAL were somewhat tenuous at times (PCR, para 18).

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a. Comprehensive Human Resources Study (Manower SurveX) for theDepartment of Personnel. Management and Training (DPMT)

54. The context of this Study is not quite clear. None of the variousreports or agreements on SAL or technical assistance ment.ons the non-availability of data on human resources or manpower (existing or missing) as aproblem deserving specific attention. An issues paper on SAL-II and TA-II datedJuly 29, 1983 refers to a proposed consultancy on personnel policy guidelines anda public service manpower and training program. However, this proposal isneither identical with the comprehensive human resources Study nor made it itsway into the actual agreement on TA-II.

55. The official request (telex from May 29, 1985) reads as follows: "...

we propose to carry out a human resource development Study to produce a publicand private sector manpower development program to enable the Government meet thenational objectives of self-sufficiency in skills in short supply. This studyis related to the achievement of the institutional development objectives of theGovernment's ongoing structural adjustment program." This Study was notmentioned in the Credit Agreement on TA-II; however, that agreement envisaged(under part F of Schedule 2) "other studies associated with the second structuraladjustment project...." This connection to SAL is not obvious.

56. By mid-1986, the Government entered into an agreement with ILO to carryout the Study, based on a proposal elaborated by a consultant before. Under thiscontract ILO was to provide two long-term experts for about one year each plusshort-term assignments of two consultants (among which the consultant who haddrawn up the proposal). The Chief Advisor (from Ghana) arrived by November 1986,the second advisor (statistician, from Sierra Leone) by March 1987. The surveyinvolved substantial field work; more than 1,100 establishments and more than30,000 skilled employees were covered. Processing of data was planned to befully handled by the Data Processing Unit (DPU) of the Ministry of Finance, buthad to be done partly with DPMT's own resources. A draft report was produced byend-1987; the final version was printed by end-1988.

57. The remarkable feature of this subproject is the discrepancy betweenthe original cost (and time) estimate and the actual requirements. It appearsthat the original proposal grossly underestimated the work and time required toget the sufficient number of enumerators and supervisors selected and trained,and to get the required number of questionnaires returned from the respondents(establishments and individuals). There may have been some differences ofopinion in interpreting thF original work proposal, leading to more work thanoriginally intended. The files show that the Government asked for three (March,August, and October 1987) additions (total approximately US$127,000) to theproject's budget of originally US$321,000. The Bank's reaction cannot be fullyascertained from the files. According to information from the Ministry ofFinance total disbursements amounted to approximately SDR 350,000.

58. According to information from DPMT, there was no real supervision fromthe Bank (except for casual talks during missions having a different focus). ILOrepresentatives came twice to assist in overcoming the difficulties the projecthad run into.

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b. AgXicultura1 Diversification Study

59. This Study was to analyze the viability of a proposed agricvlturalcredit institution for the estate subsector (as opposed to the traditional small-holders subsector). SAL-II included a provision that, after a review by theBank, the Government would develop an estate credit project. The reason was theneed to provide medium- and long-term financing to the estates and to studywhether a new institution was necessary or whether commercial banks could handlethis need if the Government would provide assistance such as a guarantee schemeor rediscounting facilities.

60. The Study was carried out at a very early stage of TA-II (1984-85), ata cost of approximately SDR 82,000. The study showed that credit demand couldbe met without creating a new institution (PCR, para. 16-Fl).

c. Study on the Revision gf the Code for Government Procurement

61. This Study (cost approximately SDR 33,000) was written as a draft whichwas then completed by end-1990 (PCR, para 16-F3).

d. Support to the Ministry of Finance for Training Abroad and otherActivities aiming at Institutional Development

62. Apart from strengthening the Debt Management Unit, the Bank has beenassisting the Ministry of Finance in two other lines: in financing short-termtraining abroad for MOF staff members (under Technical Assistance II), and infinancing a number of studies and consultancies as preliminary steps to a morelong-term strengthening of the MOF. The latter was expected to take shape in anInstitutional Development Project (IDP) which Zombines Bank assistance withassistance from other donors (particularly UNDP) and which relates tostrengthening MOF as well as establishing a Malawi Institute of Management (MIM).The studies and consultancies relating to IDP have been partly financed underSAL-III and mainly under a Project Preparation Facility (PPF).

i. Training Abroad

63. Schedule 2 of the TA-II Credit Agreement lists the various projectcomponents. Training is included in two of the five explicitly defined projectcomponents: strengthening the EPD Energy Unit and strengthening the Ministry ofFinance's debt management capabilities. There is no provision for training ingeneral, and the most flexible part ("other studies associated with the SecondStructural Adjustment Project....") provides for studies and not for training.

64. In 1987, MOF asked the Bank to agree to financing under TA-II someindividual short-term training measures (MOF staff members attending coursesabroad). The Bank agreed although the link between the course topics and debt

management appears to be somewhat vague. The Bank-financed MOF training"program" obviously gained momantum in mid-1988 when it became obvious thatcommitments and disbursements under the TA-II Agreement were lower than expected.A proposal for extension of the closing date of the Agreement to June 30, 1989[memo from the Country Department (AF6CO) dated June 17, 1988] gives thefollowing information: "Almost US$200,000 is still to be committed under the

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project (including approximately US$90,000 which is being reimbursed by theGovernment from a previous duplicate disbursement). Funds are still left in theproject because expenditures have not been as high as expected and new uses havenot come up as quickly as anticipated. All of these funds should be committedand disbursed during the next year. Most of them will be used for foreigntraining and seminars, with some to also go for additional computers for theMinistry of Finance...." At end-1988, MOF had prepared a list of training casesto be financed under TA-II giving the names of 16 staff members (including thecases from 1987) with the topics and the cost (some in the range of K 5,000 -K 10,000, mostly in the range of K 25,000 - K 35,000) of their training. Thetotal cost of this training "program" amounted to approximately SDR 100,000.According to the desk officer (multi-lateral) at MOF an agre,ement on funding thisprogram under TA-II was reached during a supervision mission of the Bank'sCountry Officer in July 1988. The Aide Mdmoire on this visit does not explicitlyrefer to the subject of widening the training assistance to such a wide range oftraining topics (not related to debt management). The list of topics includes:

* Investment planning, appraisal and management for developmentfinance institutions.

* Agricultural and rural project management.

* Public budgeting and financial management.

* Public enterprise policy and management.

* Use of computers in financial management.

* Use of computers in public budgeting and financial management.

* Procurement and material management.

65. Such courses had a duration of 6-10 weeks and are held mostly in theUK or in the USA. The list also showed several participants in World Bankdisbursement seminars, partly in Washington, D.C., partly in Kenya.

66. In the course of this evaluation, four of the trainees (two economistsand two administrative officers) were interviewed. All of them stated andexplained that the course content was relevant for (at least a part of) theirtask at MOF. However, all of them also stated that their participation in thatspecific training program was not he outcome of a deliberate planning effort onthe part of the Ministry; it was mainly an outcome of own initiative after havingheard of specific courses being offered by training institutions in the US or UK,and funds being potentially available under the TA-II scheme. This may be aquite normal procedure. However, it is somewhat surprising in a situation where,at the same time, a UNDP-financed consulting firm was drawing up a DevelopmentPlan for the Ministry of Finance whose implementation (as part of the IDP) wasto involve a thorough planning of future manpower and related training needs ofMOF.

67. This evaluation does not provide a basis for really criticizing thedecisions made. However, there are reasons to believe that the actual shape

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which this training took was heavily "supply-driven": The availability ofunutilized fund3, and the fact that courses were actively advertised byinstitutions in the US and UK, very much intensified the 1988 MOF training"program" which, of course, was in line with the wide-spread individualpreferences for attending training courses abroad. Although all the trainingcases were certainly endorsed by the superiors of the trainees, there are noindications that these endorsements were part of a well-thought of concept takinginto consideration that the Bank's assistance to this training came in the formof a credit, a form of assistance otherwise rather rarely used for financingtraining abroad.

ii. Other Assistance to the Ministry of Finance

68. Apart from the attempts to strengthen the Ministry of Finance's debtmanagement capacicy, efforts were made for several years to lay the ground fo:a longer-term process of strengthening the Ministry's capacity in other areas,namely relating to a reform of Malawi's tax system and to an improvement of theaccounting and budgeting processes. In the context of SAL-II, approved inDecember 1985, some preliminary studies were carried out for both of these areas.From the end of 1987 and the beginning of 1988, two groups of consultants workedon a follow-up which was meant to lead to a several-years' process of technicalcooperation under a new Institutional Development Project (IDP) (approved inDecember 1989) which comprised the establishment of a Malawi Institute ofManagement and strengthening the Ministry of Finance.

69. The Institutional Development Project (now under implementation) wasjustified by the belief that previous Bank experience with improvements ineconomic management had demonstrated the need to provide consistent and long-termsupport for the reforms which were to be made. It was argued (cf. SAR,Institutional Development Project, 1989) that earlier reforms were too allencompassing, that too much was required at once rather than a proper sequencing.It was observed thal- reforms introduced under the pressure of SALs (supported byTA projects) and tied to tranche releases, lacked the mechanism to ensure thatthey were carried on after the immediacy had passed and the tranche released.The IDP project sought to learn from these experiences and concentrated on alimited number of priority reforms. It provided low-intensity technicalassistance designed to support and not replace ez sting capacity.

G. Implementation and Supervision

70. Planning, at the subproject level, mainly relates to the thoroughdefinition of the terms of reference for the consultants or consulting firms tobe employed. Only in some of the cases investigated in this study, the terms ofreference were still traceable in the files. In general, they seemed adequate,sufficiently precise to give direction, sufficiently flexible to adapt tochanging or unknown needs. A common feature seems to be that training tasks,though principally part of technical assistance operations, are not detailed insufficiently clear terms in the terms of reference or contracts.

71. In principle, the individual subprojects which were executed by variousGovernment institutions were to be superised, on the Malawi side, by theMinistry of Finance, as the agency responsible for the overall project. This

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supervision, however, was largely confined to the financial and administrative

aspects. It was, in fact, unrealistic to expect the Ministry of Finance to playa very active and driving role in managing an "umbrella" project such as TA-II

in terms of substance. The Ministry probably had more than enough to do with

managing technical assistance projects in purely financial and administrativeterms, reacting to initiatives and requests from the other institutions ratherthan taking the lead itself.

72. On the Bank's side there was some substantial supervision in respect

to the energy-related subprojects. Other components (external debt, manpower

study) were supervised by various departments of the Bank. The Bank supervisedthe overall project only three times, in 1984, 1986 and 1988. Given the variednature of the components, supervision tasks had to be allocated between several

Divisions in the Bank, but this inevitably complicated the coordination ofactivities and decreased central control and responsibility.

IV. RESULTS

73. After analyzing results obtained by individual components, an attemptis made to discover common denominators and achievement of TA-II as a whole.

A. Results of Individual Components

(1) Energy Planning

74. The major achievement was the completion of a National Energy Plan.

The latter was a fairly comprehensive and readable document providing data and

concepts; it appeared to be a suitable basis for further planning and

coordination within and between the various energy subsectors.

75. Another positive achievement was the working relationship establishedwith the various institutions involved; the joint work on the Energy Plan (to

which all the institutions contributed) was instrumental to this.

76. Three Malawian staff members benefitted from the cooperation with the

expatriate Energy Advisor (primarily regarding work organization, establishing

external links and use of computers). However, not all the benefits were fullysustainable. These staff members went abroad for training with returningcolleagues replacing them.

77. It was planned to establish the core of a computerized data bank on the

energy sector. No sustainable results were achieved in this field. In

particular, data collected for an energy subsector were lost.

78. Finally, the Advisor left without submitting any final report on his

assignment and apparently without proper information on how to follow up with his

own work and contacts.

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(2) Pilot Fuelwood Savings Program at the TRA

79. Up to now, the project made substantial achievements. However, it is

not possible to clearly isolate those achievements which were made during the

phase financed under the TA-II project agreement. The major achievements are:

* The project has clearly established that flue-curing of tobaccois possible with an input of less than 10 cubic meters offirewood per ton of tobacco using low-investment technology.

* Suitable technical solutions have been developed, tested and arebeing propagated through extension material.

* The project has caused a general awareness of the fuelwoodproblem and the savings potential amongst growers. An extensionsystem (with five agents in different regions coordinated by aextension engineer at TRA) has been made operational and will beable to further propagate the project's message for some time tocome.

* It is estimated that, with strong influence by the project,total fuelwood consumption in flue-curing of tobacco in Malawihas been reduced by 50% since 1984. This means that about400,000 cubic meters are saved annually. Valued at 15 K percubic meter (a price just reflecting the logging and transport

operations, not the true value of the wood), this amounts toannual savings of K 6 million (i.e., about US$21 million).There is likely to be a potential for further cutting down the

wood consumption to about 50% of the present level.

80. This project aims at achieving a specific objective (reduction of

firewood consumption), not at establishing or strengthening an institution for

carrying out long-term tasks. On-the-job training effects were very limited

during the TA-II period since no counterparts were available to the Bank-financed

experts. A substantial transfer of knowledge, however, has taken place since

spring 1988 when counterparts finally were employed.

(3) Study on Power Tariffs for ESCOM

81. The study seems to have created a certain understanding of the new

concept of tariffs strongly reflecting future marginal energy cost. However, the

results of the study as such have not been implemented probably for two reasons:

* The process of the study (fact-finding mission and subsequentwrite-up of the report in London) was not conducive to adialogue between the consultants and the client, convincingESCOM management of the suitability of the concept and making

the study team sufficiently aware of specific questions orconstraints which ESCOM thought to be important.

* Despite a fairly strong Bank role in initiating the study, therewas little commitment on the recipient side.

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82. There was little participation of ESCOM staff in actually carrying outthe analysis; therefore, training effects were very limited.

(4) Strengthening the Financial Management of ADMARC

83. In the period in which the Financial Controller was financed from TA-IIfunds, unforeseen market developments (inter alia, increasing purchases at fixedprices, decreasing export prices) brought ADMARC into financial difficulties.The financial management had to play a particularly important role at that time.In the view of ADMARC management it had been the right decision (in 1983) toestablish the post of the Financial Controller and to recruit an expatriate forthis post since sufficiently qualified Malawians were not available at that time.The controller certainly played an important role in ADMARC's day-to-dayoperations. However, he also started to do things on his own instead of makingother persons understand why and with which perspective things had to be done.

(5) Debt Management Unit in MOF

84. Progress was made in inter-agency communication on debt issues and thecomputer system was, in most respects, complete. However, while only some minorproblems existed in the computer programs, the system was not yet effectivelyused when the TA project component was completed. The causes of these problemswere:

(a) Inadequate data collection, partly due to insufficientcommunication between the various agencies having access to debtinformation and lack of clear guidelines on the responsibilitiesof each agency.

(b) Lack of knowledge of the system capabilities by users, due toinsufficient documentation and minimal communication of systemcapabilities to people who could use the information.

(c) Poor data quality in the computer's data base, due to inadequateand inappropriate staffing in the debt unit, inadequateprogrammatic validation of data, and insufficient checking ofdata after it has been entered into the computer.

(d) Insufficient knowledge and testing of system functions, due tostaff-turnover and lack of systematic testing procedures.

(e) Incomplete records in the ledgers maintained in the office ofthe Accountant General.

85. A task force was created which involved representatives from MOF,Accountant General, Department of Planning and Development, and the Reserve Bankof Malawi. The group tried to improve and secure the flow of data on which thesystem fully depends. The group has also analyzed the division of labor betweenthe Debt Unit in MOF, the debt information system of the Reserve Bank of Malawiand the debt management system in the Department of Economic Planning andDevelopment. Within MOF, apart from the need to check and clean up the existingdata files, the main task still seems to be to build up an analytical capacity

- 18 -

sufficient to really make use of the system, i.e., a team of economists really

versed in the mechanisms and possible strategies of debt management.

86. To conclude, two remarks can be made on results obtained by this

component:

* The planned TA in the form of consultancies did not materialize,but the External Debt Division of the Bank provided free, usefulassistance, and undertook seven missions in 1983-1988.

The professional capacity of the MOF staff was not sufficientlydeveloped to make full use of the facilities for simulations andanalysis of alternative debt strategies.

(6) Human Resources Study for DPMT

87. There has been some disagreement regarding the quality of the study.

In spite of some weaknesses, it can, however, be regarded as a useful basis for

setting priorities influencing future investments in manpower training. It not

only provided data on existing (and missing) skilled manpower but also commentson available training capacity and the priority needs for expanding suchcapacity.

88. The Malawian members of the team (four professionals) have learned in

the process (including some short-term training abroad). However, this trainingeffect was not sustainable: the four Malawian team members who have gained some

experience in planning, organizing, and evaluating the manpower survey bave left

the Manpower Unit of DPMT. None of them is available to assist in "selling" the

product to potential users and to serve as a bridge for future updating of the

data generated in this survey.

89. This study, together with other studies financed through unutilized

funds from TA-II, had a somewhat tenuous link to SAL-II. The Human Resources

Study was particularly expensive and cost approximately SDR 350,000 or 25% of the

total credit amount. It experienced a cost overrun of over 40% (PCR, para. 18).

B. Overall Results

90. A number of problems have been identified with technical assistance in

general in Malawi and many of these are evident in the TA-II project.

(1) The lack of sufficient Government coordinating capacity, able todefine technical assistance needs on the basis of own personneldevelopment plans, and to request and supervise technicalassistance from various donors accordingly.

(2) Difficulties in the Government's system of personnel management,leading to a loss (or insufficient use) of trained personnel(including personnel trained in the context of technicalassistance.

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(3) The unsolved issue of whether and to what extent foreign donorsshould make more use of local professionals instead ofexpatriates (advantages in terms of cost and trainingcpportunities, disadvantage of creating distortions in local payscales).

(4) Competition and non-coordination among donors; influence of owninterests of donor agencies and experts (e.g., prolongation ofassignments beyond actual needs).

(5) Difficulties of donor agencies to react fast and flexibly toassistance needs and to recruit fully qualified personnel.

(6) Insufficient planning and supervision of the individualtechnical assistance projects, both through donor and recipientagencies, particularly in respect to "soft" objectives liketraining of local personnel.

(7) High cost of technical assistance (even if given on a grantbasis); strong reluctance to use loans or credits for technicalassistance purposes.

91. Issue (1) is regarded a key issue. Without strengthening the MalawiGovernment's capacity for a better coordination and supervision of technicalassistance, little progress can be made in solving any of the other issues.

92. Looking at the subprojects financed under TA-II, it is very difficultto discover any common denominator except the following:

* Funds from the TA credit were used for the import of expertservices (including payment of salaries for expatriates alreadyliving in the country) and, in some cases, of goods with a hightechnology content.

* These imported services (goods) were not directly linked toother Bank-financed capital projects (e.g., infrastructureprojects) or import programs (as financed under SALs). However,in several cases there were quite strong indirect links (e.g.,studies relating to sectors where the Bank is or intended to beinvolved). Three subprojects (ADMARC, ESCOM, Debt ManagementUnit in MOF) were linked to SALs, while two were not and twowere doubtful.

* In principle, all the subprojects referred to the import ofknow-how (thought to be non-existing in Malawi) which was to bebrought to use, in quite different ways, within the MalawiGovernment's and parastatal institutional framework.

93. The latter seems important. There are, at least, four different waysof bringing to use the foreign know-how:

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a. Foreign experts work in line positions, making direct use oftheir know-how with or without transfer to others (FinancialController).

b. Foreign experts act as advisors and trainers, transferring theirknow-how to local professionals who actually bring it to use (innone of the cases existing in pure form; however, to someextent, transfer of know-how in the Energy Unit and the FuelwoodSavings Project).

c. Foreign experts produce a study. This "product" incorporatesthe experts' know-how and work results, and it is left to therecipient institution(s) to make use of it (dominating form inthe case of the Power Tariff Study and the Human ResourcesStudy; there are strong elements of this "delivery system" alsoin other cases like support to the Ministry of Finance).

d. Through training abroad, foreign know-how is transferred tolocal professionals who, at a later stage, will have to make useof that know-how in their own work situation (almost non-existing in the Bank-financed technical assistance to Malawi,except the recent, more or less unplanned, training for theMinistry of Finance personnel).

94. Thus, the subprojects differed widely in respect to the "deliverysystem" of the technical assistance, understood as the system through whichforeign expertise is transferred to, and brought to use in Malawi. They alsodiffered widely in their objectives or, one may say, in the scope of theirambitions to contribute to public sector management and institutionaldevelopment. Since there are no generally accepted categories for aclassification of such objectives, such differences can be described here onlyin a pragmatic way; one may distinguish the following types of cases:

(1) There were only some cases where, at least in principle, thetechnical assistance was meant to lead to a broad-based andsustainable strengthening of a specific institution: this seemsto have been the case with the strengthening of the Energy Unitof EPD and the intended support to the Ministry of Finance.

(2) There were other cases where it was intended, through theprovision of a study, to contribute to specific strategicdecisions which would play a decisive role for the developmentof a certain institution: examples may be the Power TariffStudy for ESCOM. One may say that this was one-shotcontribution to institutional development.

(3) The Human Resources Study was not oriented to a specificinstitution; it was providing important basic informationpotentially relevant for many different institutions.

(4) There were other cases where the main objective seems to havebeen the filling of a specific gap within the personnel

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structure of an institution: this may have been true for theFinancial Controller of ADMARC. This is a form of so-called"substitution" technical assistance.

(5) The pilot Fuelwood Savings Project had no ambitions ofinstitutional development and public sector management; it wasa classical project meant to produce a certain output (researchresults) and to deliver those results to the target group.

95. Several cases combined elements of several categories; the givenclassification may not do full justice to them. It also should be noted that insome cases the Bank-financed assistance covered only a part of the foreigninputs; other important contributions to the same "project" had been made byother donors, for instance, by UNDP. In such cases, neither the success nor theproblems can be fully attributed to the Bank's assistance.

96. Summarizing, one may say that Bank's assistance given under TA-II,although assumed to support SAL-II (and this was done to some extent), includeda wide spectrum of relatively small technical assistance components, greatlydiffering in their objectives, means of delivery, and comprehensiveness of theresources provtded.

97. Only for some of the components one can see a fairly close link to thepolicies of Structural Adjustment. Such links, more obvious in the case of TA-Ithan TA-II, may be seen in the attempted strengthening of the parastatalorganizations (ADMARC, ESCOM) or perhaps in the strengthening of coreinstitutions (Energy Unit in the Department of Planning and Development, Ministryof Finance). In the case of the Fuelwood Savings Project and Human ResourcesStudy, it is more difficult to see such links. Consequently, although the TAproject was appraised at the same time as SAL-II and was presented to the Boardsimultaneously with the SAL, some of its components were in fact loosely or notat all related to this SAL.

98. With the exemption of the Fuelwood Savings Project, which was the mosttechnical and practical project related, none of the subprojects can be regardedas a complete success, fully meeting the expectations which were originallyformulated or which one reasonably could have had. However, one must also pointout that none of the cases evaluated should be regarded as a total failure; allhave had at least a partial success; as seen above, they have made somecontributions, or there is still hope that such contributions will mature.

99. The subprojects had shortfalls in respect of one or more of thefollowing success criteria which, though not explicitly formulated in a.y of theproject documents, can be regarded a necessary condition of successful technicalassistance activities.

a. The professional quality of the personnel involved and the jobperformed.

b. The correspondence to needs in the sense that the output reallyfits a felt need, making the recipient institution(s) to absorband fully utilize the technical assistance output.

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c. The efficiency/economy of producing the output at reasonablecost (particularly without undue and costly delays).

d. The training and transfer effect: having local professionals toparticipate in the work process and absorbing the know-howbrought in by expatriates.

e. Sustainability: the recipient organizational unit is maintainedafter the end of technical assistance, and the localprofessionals trained under the project remain available withthis unit for the work still to be done.

100. The cases investigated differ widely as to the extent to which thosesuccess criteria have been met or not. In respect to the professional quality(criteria a) no really strong critical comments were voiced. However, somedoubts were raised in several cases by the former local counterparts and/or Banksupervision reports, whether really an optimum choice of personnel had been made,particularly referring to the Energy Advisor and the team working on the HumanResources Study.

101. The case of technical assistance not really matching the needs of therecipient institutions can be found in ESCOM which was never really convincedthat the tariff problem under study 'tariffs based on long-term marginal cost)was an issue of urgent concern; the study remained an academic exercise.

102. Doubts concerning the efficiency/economy of TA have been and may beraised in respect to several subprojects. The Fuelwood Savings Project sufferedlong delays in the execution (this must be seen as the only major shortfall inthis subproject) while the Human Resources Study ran into substantialdifficulties due to budget overruns.

103. The lack of training and know-how transfer was a negative featurecommon to practically all the subprojects, perhaps with one exception: theexecution of the Human Resources Study was done in a form conducive tofamiliarize the local professionals with relevant techniques for manpower surveysand manpower planning.

104. Project management has been done with very low intensity and withtechniques which could be improved.

* On both sides, in the Bank and in the Ministry of Finance,documentation on the project/agreement was kept only in the formof purely chronological files, taking in information if and whenit comes up. Apart from the few Supervision Reports, there areno other instruments producing information on a routine basis ina standard form.

* There is no standardized information on the individualsubprojects (subproject data sheet) giving some major data likeobjectives, targets, responsibilities assigned to differentinstitutions or persons, budget, commitments, actualdisbursements.

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* Disbursements were not made/classified by subprojects but onlyby types of cost (equipment, consultants, etc.); "projectmanagers" have difficulties to find out from the files whatcommitments and disbursements actually have been made in respectof individual subprojects.

* In the course of implementing TA-II, there were periods in whichthe responsible persons on both sides had great difficulties todecide how many funds were still available under the Agreementand how much room there would be to enter into furtheractivities.

V. SUSTAINABILITY

105, Sustainability of technical assistance projects may be defined as therecipient organizational unit being maintained after the end of technicalassistance, and the local professionals trained under the project remainingavailable with this unit for the work still to be done.

106. Consequently, sustainability can only be applied where positive short-and medium-term effects have been achieved, i.e., where a professionally soundoutput has been produced and has been accepted by the recipient institution andwhere some training and transfer effects have taken place. A striking exampleof non-sustainability seems to be the Human Resources Study. Although definitelycertain training effects were achieved during the study, such effects were notsustainable: all the local professionals who had participated in this projectleft the Department; the former Manpower Unit was practically dissolved. In caseof the Energy Unit, training effects during the assignment of the advisor seemto have been below optimum, and their sustainability endangered by the fact thatthe local professionals who had worked with the advisor left the unit for furtherlong-term training abroad. In the case of the fuelwood savings project,sustainable effects are likely to be achieved within the target group (tobaccogrowers); they were not intended to be achieved in the public institutions (TRA).

107. Overall, the project is unlikely to maintain an acceptable level of netbenefits throughout its economic life. Moreover, its impact on institutionaldevelopment has been generally negligible.

VI. LESSONS OF EXPERIENCE

108. The Bank's three SALs and two associated Technical Assistance Projectshave supported improvements in the public sector management in addition toreforms in the agricultural and energy sectors and in the operation of theparastatal sector. The Program Performance Audit Report, prepared by OED (ReportNo. 6833, June 13, 1987) on SALs I and II (Loan 2026-MAI and Credit 1427-MAI) andTechnical Assistance I (Loan 2027-MAI) noted that the institutional capacity to

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sustain reform in Malawi was fragile and required a longer timeframe that

provided by the three above mentioned operations. The report also noted that

while Malawi was politically committed to reform, it lacked sufficient manpower

in order to predict confidently that the new concepts and processes set in traincould be operated without risk of failure.

109. The lesson learned from TA-II is that previous observations on the

fragile nature of the institutional improvements introduced apply to this

operation as well. The TA-II project was not designed to provide institutional

support over the considerable period of time needed to internalize fully reforms

in economic management. The lesson is, thus, that instead of grouping in an

"umbrella" type project overly diffuse TA project's various components, some of

them loosely related to SAL operations, one should concentrate on a limitednumber of high priority reforms to be carried out over a sufficiently long period

of time. Such integrated form of technical assistance should better meet

Malawi's pressing needs to strengthen national economic management.

110. Where technical assistance is meant to support institutional

development (which seems to be a key priority in Malawi) and this means to

support social and management processes rather than projects defined in technicalterms, a major drawback lies in the rigidity of technical assistance provided

under contract basis. For administrative reasons, both sides, the donor and the

recipient, prefer to have the objectives, output and activities of technicalassistance, already defined for the whole contract period. In this sense, they

prefer a "blueprint approach" as the one prevailing in technical projects.However, in the field of institutional development, changes cannot be defined in

technical terms; they occur in the form of social processes. The exact path and

speed of which cannot be fully predicted in advance. Quite often, even new

issues, and the corresponding targets relating to their solution, are identified

during the process; the same may refer to the identification of definition of

specific needs for foreign expertise of training abroad. An example could be

found in the preliminary phase of the broad-based support to the Ministry of

Finance when the latter questioned the sustainability of the "blueprint

approach." The lesson is that further TA oriented to institutional developmentshould try to avoid or to minimize some other disadvantages of the Bank's present

technical assistance, namely the tendency towards a "blueprint approach" (which

is a more suitable for capital projects than for assistance to social processes),and the Bank's insufficient supervision of technical assistance projects.

111. Future technical assistance may concentrate in such fields where the

Bank has a comparative advantage over donors (for example, projects which help

develop macro and microeconomic analysis capabilities and debt reporting). An

example can be found in the positive experience with the Energy Planning

component. An in-depth energy assessment made several useful recommendations,

one of them being to carry out detailed economic analysis of the energy sector

and to prepare an Energy Plan. This recommendation was implemented and the

preparation of an Energy Plan was financed under TA-II. The lesson, thus, is to

concentrate TA on areas where the Bank is able to bring sufficient expertise and

resources to obtain positive results.

112. Finally, an important lesson of the project is that technical

assistance should not be given in the form of multi-sectoral, general agreement,

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with too many loosely related project components. Extra funds should not belooked upon as a free resource to be used in an uncoordinated way. It seems moreappropriate to organize technical assistance country or sectorwise with one ora few major partner institutions being involved, not only administratively butalso professionally. To that effect, a long-term institutional developmentstrategy taking into account the time needed to achieve reforms in public sectormanagement, and thus, often going beyond the three or four-year-time horizon ofa single TA project should be planned. Successive technical assistance projectsplanned over a longer period could thus lead to better fulfillment of long-terminstitutional objectives.

113. As demonstrated by the TA-II project inMalawi, efficient free-standingtechnical assistance projects require:

* Thorough evidence of institutional development strategies;

* a clear and precise statement of objectives;

* performance indicators for subprojects;

* detailed differentiation between types of TA inputs, implyingpreparation of a detailed program and on-the-job trainingcomponents, a thorough analysis of the respective expectedcontributions of short- and long-term experts and a carefuldefinition of the local TA project coordinator'sresponsibilities;

* a clear definition of the Bank's role in the provision oftechnical assistance on a credit basis vis-h-vis bilateraldonors and the UNDP;

* a clarification of the link betieen TA and SALs.

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