AFRICAN DEVELOPMENT BANK GROUP Public Disclosure Authorized

CLIMATE INVESTMENT FUNDS – PPCR BUSINESS DEVELOPMENT FOR RESILIENCE PROGRAM

Public Disclosure Authorized

Technical Assistance for the development of a Climate Resilience Policy and Strategy and; Drought Insurance products for the Arid and Semi-Arid Zones of Southern and central parts of

Public Disclosure Authorized

Mozambique

Public Disclosure Authorized February 2021

1. INTRODUCTION

Mozambique is a tropical wet-dry to sub-tropical country with some semi-arid climate and is located in the eastern coastal zone of Southern Africa. The country's total population in 2020 is estimated at 31.3 Million people's with annual growth of 2.9% between 2015 and 2020(UNFPA,2020). Total land cover is estimated at 82,36 Mha of which respectively 45% is dry forest; 0.3% is mangroves, 37% is grassland and fallow;13.7% is cropland, 2% is wetland; 1.3% of other categories (rocks, sands, bare soils) and 0.1% of urban areas (Grinand et al., 2018). Land-use change is mainly driven depend on the region by changes in urbanization, climate variabilities, and observe deforestation with annual deforestation of 207 272 ha per year between 2000-2016 (Grinand et al., 2018). In 2019, the country GDP per capita yield 1328 PPP while 81.3% of the population live below the poverty threshold ($3.20 a day), Gini index yield 54 and human development index (HDI) 0.446 ranking Mozambique the 198th country in the world (UNDP,2019; World Bank,2019). Of the total GDP (2019 PPP), the agricultural sector accounts for 24.04% while the industrial sector(infrastructure, construction; electricity; mining and manufacturing) accounts for 23.59%, and services 43.17% (H. Plecher, J,2020).

Despite the relatively low share of the agricultural sector(29% of total GDP) compared to services, it is an extremely important source of employment and livelihoods as it employed more than 80% of the labor force and more predominantly subsistence farmers. Of total cultivated land, 95% of the production is rain- fedrice, maize ( in ), sorghum, and cassava (in ) the dominant crops, and covered over a third of the total cultivated land area while limited land is allocated to major cash crops such sugarcane (grown especially in the province), tobacco, and cotton, mostly cultivated and processed by large multinational or state companies(World Bank,2019). Irrigated farming is largely carried out along the river valleys in the Southern region. The sectoral investment in agricultural technologies is very low which constrains most farmers to cultivate on more fertile soils along river banks and flood plains with high-risk destruction harvests by floods given their low adaptive capacities( Government of Netherlands,2019)

Indeed, agriculture a in Mozambique is extremes exposed to land degradation and frequent climate hazard especially severe droughts; devastating cyclones, and floods in central and southern provinces (MADER, 2019).,2019). In 2019, Mozambique was affected by two consecutive tropical cyclones (Idai in march 2019 and Kenneth in April 2019) and in February 2020 by severe floods in the districts of Buzi and Nhamatanda () (Global Disaster Alert and Coordination System(GDACS,2019); International Federation of Red Cross (IFRC),2020). The two 2019 cyclones that hit the country has caused an estimated loss and damages of US$3 billion(World Bank,2019). Overall, consecutive shocks such as cyclones, floods & droughts, food insecurity and outbreaks (cholera, COVID-19), as well as conflict-related displacement have dragged 7.9 million people to a situation of deepened vulnerability in Sofala, Manica, Tete, and Zambezia( central provinces); in the northern provinces of Cabo Delgado and Maputo, Gaza and Inhambane an arid- semiarid provinces of the southern region where (IFRC,2020).

The global index for risk management (INFORM) of 2021 very highly weight Mozambique (6.7) as the 10th most exposed country to natural and human hazard (6.4), very highly vulnerable (7.2) (socio-economic vulnerability and vulnerable groups) and very highly lack adaptive capacities (6.5) (institutional & infrastructure capacities). Majors occurs natural hazard in Mozambique are floods(high); tsunami(high); tropical cyclone(high); drought(high) and epidemic (very high) with food insecure people the most vulnerable groups (INFORM,2021). Perhaps knowledge on future trends reveals that the country will experience an increase in frequency and intensity of annual rainfall changes between -16 to +5% and of annual temperature between +1.0 to +5.0°C] (GERICS,2016; World Bank; 2017). The country integrated context analysis conducted in 2017 revealed that high food insecure risk regions are mainly located in arid and semi-arid provinces of central and southern part namely Tete (Kahora-Bassa & ); Sofala(Malingue, caia, Cherigoma, Nhamantanda, and Chibabava district); Manica( Machaze and Guro district); Inhambane (Mabote, Inhassoro, Vilankulo, Masinga, Homoine, Inharrime and Zavala districts)

1 and Gaza (Mandlacaze, Chibuto, Chokwe and )(World Food Program, 2018). This is a combination of recurrent droughts and floods, poor soil fertility, and low adoption of appropriate adaption technologies. - However, since 2000, the Government of Mozambique (GoM) in his effort of building national knowledge and capacities in identifying appropriate measures to strengthening the country's resilience and low carbon socio-economic development trajectory, has adopted several institutional policies frameworks and action plans at national and local level. This includes the National Adaptation Programmes of Action (NAPA)(MICOA,2008); National Climate Change Adaptation and Mitigation Strategy 2013–2025 (MITADER, 2012); Green Economy Action Plan(GoM, 2012); Climate Change and Gender Action Plan (MICOA,2014); National Climate Change Monitoring and Evaluation Framework (GoM,2014); Intended National Determined Contribution(NDC) (MITADER,2015); Master Plan for Risk and Disaster Reduction 2017–2030(GoM,2017); and its National Adaptation Plan Roadmap(GoM,2017); Strategic Plan for Development of Agrarian Sector (PEDSA 2010-2019) and associate investment plan(PNISA 2010-2019) and some pilots programs. Moreover, the GoM in addition to its five-year development plan (PQG 2020- 2025) is planning the development of a second generation of PEDSA II (2020-2025) and PNISA II (2020- 2025). The master plan for DRR is fully integrated in the country NAPs roadmap and PQG 2020-2025. It aims to reduce disaster risk, the loss of human lives, impact on livelihoods and critical infrastructures, as well as avoid the emergence of new disaster risks by increasing the resilience of people and infrastructure to climate and other natural and man-made hazards. This through mainstreaming disaster and climate resilience in public investments, territorial planning, and public financial management, while building capacity at all levels.

Despite the progress made, identification and adoption of appropriated cost-effective climate resilience and low carbon technologies as well as private sector participation, remain key challenges facing Mozambique, to scale-up its long-term sustainability and poverty reduction goals especially in the arid and semi-arid regions. In addition, major gender gaps presented showcase the results chain related to gender within this activity. Therefore, the activities resulting from these objectives will contribute in reducing the gender gaps previously identified. For facilitating and making the assessments more accurate, gender indicators including sex-disaggregated and age-disaggregated indicators will be used to monitor, report and evaluate the specific expected gender results.

AfDB has been providing over the years investments and technical support in these areas, including irrigation kits, multifunctional boreholes, tertiary roads, and capacity building through its flagship projects namely the SLWRMP, DRARP, and institutional support to the RBL.- The proposed TA,targets the arid and semi-arid regions, particularly in the southern regions of ozambique, and aims at foster the implementation of the Disaster Risk Reduction Management (DRRMin these regions by providing a specific policy framework and, an investment strategy and explore agriculture related productos, to strengthen the GoM capacities and the adaptive capacities and resilence of the communites, particularly women and youth, in the arid and semi-arid areas of the country.

It is anticipated that the outocmes of the TA will incrase GoM institutions capacity to develop climate proof integrated development programs for the target areas in Mozambique. This CIF-PPCR technical Assistance (TA) grant will be used to develop a Climate Resilience Policy and Strategy for the Arid and Semi-Arid Zones of Mozambique and, to carry out a series of Climate Resilience Studies and Market Assessments to inform the development of Drought Insurance Financing Mechanisms. This TA is consistent with the SPCR objectives of Improving institutional frameworks for addressing climate change (with support from climate change development policy operation i.e. sector budget support); and Strengthen capacity for climate resilient planning at national, sector and local levels.

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2. STRATEGIC THRUST AND RATIONALE

2.1 Strategic context

The Government of Mozambique strives to enhance its climate change response framework. The climate change legal framework priority aims at increasing resilience in communities and the national economy, including the reduction of climate risks. It also aims to promote a low carbon development and pursue a green economy through the integration of adaptation and mitigation plans and measures in sectorial and local planning. Mozambique signed the Paris Agreement on April 22, 2016 and communicated its climate mitigation and adaptation commitments and priorities through its Nationally Determined Contribution (NDC)1.

2.2 Climate Rationale

Mozambique ranks 10th in countries most vulnerable to disaster risks world-wide (NCCAMS, 2012) 2. The effects of extreme weather events vary from region to region. Extreme weather patterns, such as droughts and severe flooding and cyclones, will continue to have devastating effects for large parts of the population. The historical records on disasters over the past 58 years (1956-2016), indicate that the country experienced 11 droughts, 24 floods, 15 tropical cyclones, 20 epidemics and two earthquakes.

Expected increases in temperature and irregular spatial and temporal distribution of rainfall from climate change, will most likely lead to more varied and unpredictable flows, affecting both agriculture (including forests and fisheries). Weather fluctuations will cause increased uncertainty of the official start of the agricultural season, estimated to cause a 25% drop in revenue in some regions (Ibid.). An increase in temperature is also anticipated to negatively affect the fish stocks and such a reduction would mean increased food insecurity and threaten income reliability while simultaneously placing coastal ecosystems under even greater stress with increased competition for fish stocks that are already considered over exploited.

For poor people living in rural areas, access to productive land and other natural resources is critical for their chances of survival, given their high vulnerability to climate risks and shocks. Because of the high proportion of women in agriculture, women are more at risk to climate-induced effects in the country (World Bank Group, 2016). In addition, coastlines and areas of water and agriculture stress, are prone “hotspots” for climate-driven out-migration.(World Bank Group, 2018). Even though Mozambique is not among the countries that is projected to experience high volumes of climate-driven migration, it is surrounded by countries that will. By 2050, SSA is projected to have 86 million climate migrants. Mozambique falls in the category of high risk of humanitarian crisis (rating 6/10), and is at higher risk compared to regional peers (Malawi, Tanzania, Zambia and Zimbabwe (INFORM, 2019).

Adaptation to these new conditions for agriculture and fishery in different parts of the country is currently weak and, since climate-related disasters are likely to become more frequent, there is a risk that people will be pushed increasingly into poverty and, resort to unsustainable use of biodiversity resources for survival and subsistence. The droughts and floods have had, over the years, dire consequences on food supply and security, nutrition, water accessibility, security and quality, energy resources and, livelihoods of most rural communities. Furthermore, climate change coupled with high population growth, high deforestation rates and widespread soil erosion poses serious challenges to Mozambique predominantly agriculture and fisheries/based economy.

1 https://climateknowledgeportal.worldbank.org/country/mozambique 2 https://www.ctc-n.org/sites/www.ctc-n.org/files/resources/mozambique_national_climate_change_strategy.pdf

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2.3 Climate Change Impacts likely to occur in the target areas

Rising temperatures and the changing nature of drought periods will increase demand on water resources. Mozambique’s water management and irrigation supply system remains limited—85% of the nation’s agriculture is rain-fed. Climate change will likely result in increased water demand and bring additional stress to the limited existing irrigation systems.

Figure 1. Historical Hazard maps for Mozambique (flood, drought, cyclone) . Source: INGC(2015)

Investments in modern agricultural technology are done only in small areas—mostly along the riverbanks and flood plains where there are rich soils. Flooding, risks destroying these systems exacerbating the challenges of increased agricultural production, productivity and transformation. The Risks and impacts of climate related events, on human well-being and vulnerability range from land degradation, widespread soil erosion, depreciation of ecosystems services and agriculture landscapes, infrastructure damage, vector- borne diseases, crops and animal losses and often human life’s loss, stretching people’s adaptive capacity to climate shocks. Climate Change is also expected to adversely affect water availability and quality, increase pollutant loadings from heavy rainfall, disrupt treatment and rainwater harvesting facilities and, increase groundwater deterioration (UNESCO, UN-Water, 2020). The anticipated impacts on food supply systems and security are equally adverse. A Context Integrated Analysi undertaken by Relef (ICA, 2017), estimates a growing number of food insecure people, as a result of climate related events (see table 1 below)

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Table 1. Trends of Estimated Number of food insecure people at National Level.

The average number of people estimated as Food insecure Timeline food insecure Long-term planning: average number of food insecure 8,064,717 people in 2006, 2009 & 2013 Most vulnerable: of the above, estimated number of 7,584,945 consistently food insecure people Preparedness planning: in addition to the above, additional number of food insecure in 705 the event of a shock (be it natural or man-made) Source: ICA, 2017 2.4 Climate risk and index-based insurance rationale

Since the introduction of climate risk insurance products in Mozambique in 2012 through the Global Index Insurance Facilities(GIIF) initiative and a public-private partnership business model, only 10% of premium risk is covered by private sector while government average contribution account for 40%(World Bank,2019). The remainder being borne by the beneficiaries. Indeed, exising products are mainly index base insurance schemes with focus on drought and excess rains extrems events on priorties agricultural value chains such as maize; coton and seasame. Northerm and central provinces are dominants in constrast to southern dry and semi arid regions . Despite the government effort toward enhancing climate insurance products coverage across the country to yield a target of 200.000 farmers in 2020, the development of innovative insurance products is limited by availability of data for instance data on historical climate data/ exposure and data on crop yield . In addition to uncertainity, lack of appropriate regulatory framework and farmers low technical capacity constraints their participation and willingness to pay back. This call for the need to improved the design of existing product.

Furthermore, at the sovereign level, the Government of Mozambique seeking sovereign disaster insurance solutions to help better protect its economy and people against the impacts of drought, floods and tropical cyclones, by participating int he African Risk Capacity (ARC) regional risk pool. The country is working with the parametric development insurance provider the African Risk Capacity (ARC), as well as other agencies including the World Bank, in order to help it develop appropriate protection structures and finance the necessary premium payments as well. The African Risk Capacity (ARC) Agency and the Government of Mozambique have signed a Memorandum of Understanding (MoU) on this subject, aiming to provide mid to long-term solutions including parametric insurance that will respond to the main perils Mozambique faces. Mozambique is particularly vulnerable to climate change, extreme weather and natural disasters, given its coastline is exposed to tropical cyclones, while severe droughts every few years as well as river and coastal storm surge flooding are also a threat. With 2,470 km of coastline, Mozambique’s exposure to these natural events creates socioeconomic fragility and puts its infrastructure, coastal agriculture, key ecosystems and fisheries at risk.

2.5 COVID-19 Rationale

The COVID-19 outbreak reached Mozambique at a weak moment in its economic history, as the country attempted to recover from two major shocks: the hidden debt crisis of 2016 with more than halved the average rate of growth and, the devastating effects of cyclones Idai & Kenneth in 2019.

Mozambique made notable progress in remedying the effects of these shocks. The Covid-19 pandemic now presents a massive set back that could erase past gains and affect the short-term growth prospects of Mozambique as illustrated by the decline in growth projections for 2020 (from 4.3% pre-COVID to 1.3 %.). A consequence of this economic downturn is that a sizeable number of Mozambicans will fall back

5 into poverty because of the pandemic. Livelihoods, food security and nutrition will worsen as incomes are affected by the slowdown in economy activity, potentially leading to an additional 250,000-300,000 people dropping below the poverty line. The GoM response Plan to COVId-19, lays out the approach on how it will respond to the crisis and provides a good basis to shelter the agriculture sector and more broadly the private sector, from the impact of COVID-19 while at the same time mitigate the risk of disruptions of food supply chains in both rural settings as well as in urban and, peri-urban areas.

The agriculture sector is committed to seek multi-sectoral synergies to deliver the most effective response possible, for example, working with the Ministry of Industry and Commerce (MIC) and the Confederation of Private Sector (CTA), to minimize disruptions on the import of rice and wheat from international markets. The response also addresses linkages with Social Protection measures, in particular through scaling up cash transfers to small producers, protect harvest workers, by acquiring protective equipment and ensure food stocks through innovative storage facilities (Silo-Bags). The response plan entails continuous updated data, analysis and assessment of the situation; aiming at selecting interventions that are informed by a strong evidence-base (disaggregated by gender and age) and; by engaging agriculture research institutions.

However, some risks and gaps in the plan were identified, including: i) Lack of measures to mitigate potential market distortions ( seeds purchasing, credit, storage and distribution of inputs); ii) Gender mainstreaming; iii) The need for greater engagement with the Food Security and Nutrition (SETSAN_FSN); iv) Lack of Immediate measures to address the increased food insecurity due to the reduced availability of household food access; v) Unclear medium to long-term plans and programs, for Post-COVID recovery and; vi) Lack of measures to address potential disruptions on the recovery efforts to cyclone IDAI and Kenneth and; vii) Lack of clarity on the consequences on food systems, due to the insecurity in the northern and central regions of the country.

2.6 Social, Environmental and Governance Issues

The population of Mozambique in 2017 stood at 28.9 million (INE, 2017), from which about 68% live in rural areas and 60% along the coastline. Not unlike the rest of the continent, Mozambique has a young population with nearly 45% under the age of 15 (Ibid). Despite the progress observed over the years (with an increase in the score from 0,217 in 1990 to 0,446 in 2018 on Human Development the country remains among the bottom nine countries in the world Human Development Index (HDI, 2017) Poverty remains high with approximately 80% of poor living in rural areas. The country has a Gender Inequality Index (GII) of 0.569 and compares relatively well to countries with a similar HDI rank and population (Ibid).

Agriculture, together with forestry and fisheries still the main source of livelihood and income for most Mozambicans: There are an estimated 3.2 million smallholder farmers who account for 95% of total agricultural production, and about 400 commercial farmers who account for the remaining 5%3. Nearly 99% of the rural population is engaged in family farming, largely women and youth, which represents around 82% of the rural economy. About 3.9 million families are engaged in dry farming at their place of residence, on plots of land averaging 1.1ha. Family agriculture in Mozambique accounts for 98.7% of agricultural holdings in the country (MADER, 2020). Mozambique nearly tripled total agricultural output over the past 20 years. Over the same period, agricultural production per capita, increased by 78%. Mozambique ranks 19th in agricultural production

3 http://www.fao.org/mozambique/fao-in-mozambique/mozambique-at-a-glance/en/

6 per capita in Africa (Prospects and Challenges: Mozambique’s Growth and Human Development Outlook to 2040, Porter et al, January 2018.). Over half of agricultural production is concentrated in staples like maize (29%), cassava (13%) and sorghum (11%) The main export crop is tobacco (37% of export value), followed by sugar, cotton, bananas, seeds and nuts. Main imports are rice, wheat and palm oil; main import partners are South Africa and Thailand. Agriculture is practiced on less than 10% of the arable land and largely in flood- and drought-prone areas. Challenges such as low productivity with low use of improved inputs and the dominance of rain-fed agriculture which also makes the sector vulnerable to shocks –low value-addition, weak market access/linkage and low access to financial services, hamper higher earnings (World Bank/IFC, 2018).

In the international context, the uncertainty on trade policies of major economies, geopolitical factors and the emergence of pandemics (swine fever in Europe and Asia, and the Corona virus), will most likely influence the dynamics of international trade with an impact on the national economic growth. At the southern African level, the impact of climate change with a focus on drought in the region is raising the level of food insecurity with a greater focus on Zimbabwe and Zambia. Similar to the East African countries, Mozambique still faces challenges of public insecurity due to the phenomenon of social destabilization, who condition the well-being of the population in , which will represent an added challenge to the food security systems and development.

The agriculture sector in Mozambique has a high potential to contribute to poverty reduction and food insecurity alleviation. Climate Smart Agriculture (CSA) practices targeted at improved farming practices, sustainable fishing and livestock pastures management, can contribute significantly to the growth of a low- emission agricultural sector. However, this has been significantly impaired, among other things, by the impact of climate hazards that bring about annual losses estimated at US$ 790 million. On-farm adoption of CSA practices and technologies by small-scale farmers are generally hindered by low access to knowledge and technology, high investment costs (especially in the case of multifunctional boreholes and irrigation systems and kits), as well as limited opportunities for credit and insurance access.

Traditional agriculture practices (itinerant and, slush and burn, unsustainable fishing and livestock production), represent the main greenhouse gas (GHG) emitters from farming. Despite efforts to mainstream climate change into the development agenda, mitigation actions remain highly embedded within the forestry/environmental sector. Since farming is an important contributor to the country’s GHG emission and given the mitigation opportunities that many CSA practices and technologies bring (intercropping, mulching, direct seeding and manure/livestock waste management), there is a need to systematically integrate adaptation and mitigation into agricultural development policies and programming, along with the existing adaptation and productivity goals.

The promotion of CSA in the country may need to go by an integrated approach to address adaptation, mitigation and productivity at a landscape level, rather than at plot level. The Involvement of the medium/large private sector in climate-smart agriculture remains marginal; however, opportunities exist to engage them in CSA policy dialogue, value addition, microfinance, agricultural climate risk insurance, and climate-smart technology development.

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The Ministry of Agriculture and Rural Development (MADER) is the responsible entity that provides oversight of the agriculture sector development. MADER organizational structure, in the current governance cycle has the following institutional arrangements:

▪ District Agricultural and Rural Development Services (restructure of District Services for Social and Economic Activities (SDAEs). ▪ Oilseeds Institute (restructure of the former Cotton Institute of Mozambique). ▪ Establishment of the National Almond Institute (restructure of the former National Institute ▪ Of Cashew). ▪ The National Rice Institute. ▪ The National Authority for Agricultural Health and Biosecurity. ▪ The National Investment Bank (BNI) _ Agricultural Box/(agricultural credit institution ▪ The National Fund for Sustainable Development Merger of former FNDS, the Agricultural Development Fund and the and the Zambezi Valley Agency) ▪ The Agency for the Integrated Development of the North (ADIN)

A range of actors including GoM and non-GOM agencies and, cooperation partners support MADER work both technically and financially. These include MIC, MEF, INGC, the World Bank, The African Development Bank, USAID, IFAD, AICS, WFP, FAO, AGRA EU, etc. Most cooperation partners have already pledged funding to support to the 5-year program and the COVID-19 response plan, as well as to the 20201-2030 Agriculture and Rural Development (PEDSA) and 2021-2-2025 Investmne Plan (PNISA). On the policy side, the relevant priorities that will impact the sector include the ongoing review of land policy, the National and provincial Plans for Territorial Development, draft of the maritime spatial planning plan and; drafting of the Regulation on the capture and marketing of live animals.

2.7 Strategic Thrust

The proposed TA intends to contribute to Mozambique’s climate commitments and, the Government overarching Development Agenda Strategy 2030, whose main objective is to reduce poverty through sustainable socio-economic growth and infrastructure development that concur with the Bank high priorities. The Agenda focuses on five priority areas: i) Agriculture; ii) Transport and ICT infrastructure; III) Health and Population; iv) Education and Human Development and; v) Climate Resilience.

The Agriculture development and transformation is key to socio-economic growth and has direct impact on the lives of the majority of Mozambicans particularly women, youth and children. In accordance to Agriculture and Rural development plan, the GoM aims at achieving Food safety, Increased Family Income, Job Creation, Social Inclusion and, increased agriculture Production and Productivity. Furthermore, the NDC (2016) prioritizes scaling up adaptation and resilience measures in the agriculture sector.

The proposed TA is aligned with the Bank Group’s 10-year Strategy (2013-2022) with its twin objectives of inclusive growth and transition to green growth by improving, amongst others, the water infrastructure investments and management in arid and semi-arid regions as well as increased resilience to climate adverse shocks and impacts. The TA is also consistent with the Bank’s Climate Change Action Policy (2017), the AfDB) strategy of Climate Risk Management and Adaptation (CRMA, 2009); the 2016 Strategy for Agricultural Transformation in AFRICA (2016-2025). The TA will support addressing climate change related impacts in the agriculture and rural development sector, taking into account gender and youth and, establish a framework to promote integrated resilient investments in the arid and semi-arid areas as well as the GoM capacity for planning, implementation and, monitoring and learning.

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3. PROJECT DESCRIPTION

3.1 Project Development Objective

The proposed project seeks to: (i) strengthen the resilience and coping mechanisms of communities, particularly women and youth in arid and semi-arid areas and; (ii) the capacity of the Government institutions to develop climate proof programs in the southern areas of Mozambique. This will be done, by developing a Climate Resilience Policy and Strategy (including action plans that take into account the different contexts of the target province) for the Arid and Semi-Arid Zones of Mozambique and; by, carrying out a series of Climate Resilience Studies and Market Assessments to inform the development of Drought Insurance Financing products. The provinces of Maputo, Gaza and Inhambane, located in the southern region of Mozambique, and similar to others in the central parts of the country, are among the most adversely affected by climate change events, with frequent occurrence of droughts and floods. The interventions will aim to:

(i) Design an integrated framework for their sustainable development of drought-affected zones using approaches that take the interlinked vulnerabilities related to climate, agriculture, health, and economics under full consideration; (ii) Increase resilience development models in target geographic areas and communities; (iii) Increase GoM inter-sectoral coordination capacity and to plan, implement and monitor sustainable interventions in arid and semi-arid zones; (iv) Adopt improved coping and resilient livelihoods in target areas and communities (v) Enhance soil and water conservation techniques; (vi) Identify potential water systems, value chains and viable agriculture chains; (vii) Identify credit and insurance mechanisms while attracting private sector to engage in the relevant agriculture value-chains

3.2 Project Beneficiaries

Developing a Policy and Strategy for Arid and semi-arid zones as well as conducting relevant studies will lead to a diverse number and typology of beneficiaries ranging from Central and local GoM, cooperation partners, private sector, communities and the public at large. The TA is expected to reach out directly up to 500,000 rural house holds in Arid and semi-arid areas, from which over 60% are women and, at least 95% of the central and local GoM entities in the target provinces, as well as 90% of medium-large Private sector operating in/or in the vicinity of the target geographic areas, from which at least 60% will be women and youth.

3.3 Project Outputs and Activities

Outcome 1. Adoption and mainstreaming of a National Policy and Strategy for the Integrated Development of Arid and Semi-Arid Areas This project component entails technical assistance (TA) that will focus on supporting the Government of Mozambique to develop a National Policy and Strategy (including action plan) for the Integrated Development of Arid and Semi-Arid Areas (PDIZASA). The Policy and the Strategy aim at providing guidelines to inform and strengthen GoM institutional capacities in the implementation of sustainable development models for increased resilience in arid and semi-arid regions of Mozambique.

Activities: The Policy and Strategy combined will constitute fundamental documents that, in addition to responding directly to the Agriculture and Rural Development sector and, the Disaster Risk Management Agency visions and stated objectives, will include key elements for its implementation. A consultant (or

9 group of consultants) will formulate the Policy and Strategy based on the following technical assistance sub-components:

▪ Identification and mapping of geographic, institutional and legal instruments as well as the economic, and social baselines of arid and semi-arid areas in Mozambique; ▪ Identification of demand-driven climate change solutions for the comprehensive, long-term interventions by the government, private sector, communities and other stakeholders; ▪ Alignment of the strategy with relevant government programs and economic policy instruments; ▪ Considerations of COVID-19 response strategies underway in the country and alignment with related vulnerability reduction and economic recovery mechanisms; ▪ Drafting high-level goals and specific objectives of PDIZASA, including: (i) governance and legal instrument aspects (ii) economic and social context (iii) climate change resilience tools (iv) the sustainable management and use of natural resources, (v) disaster risk management; ▪ Collation and mapping of the CC relevant legislation, institutional aspects, strategies and programs implemented or under implementation, as well as national socio-economic and climate statistics needed to inform the policy and strategy; ▪ Gather lessons learnt from sustainable development experiences and practices from PPCR and related to the development of arid and semi-arid areas in Mozambique and elsewhere found relevant to the Policy and Strategy ( similar international experiences should also be referenced and analyzed); ▪ Identification of modalities to mainstream Climate Change Resilient Strategies (CCRS) into the government's programs. These should be consistent with other relevant policy instruments, namely, water, land, environment, rural development, disaster management policies, and the National Action Program for Adaptation to Climate Change (NAPA); ▪ Development of a high-level prioritized action plan, building on key measures and activities recommended by the policy and strategy; ▪ Formulation of a monitoring and evaluation framework for the proposed policy and strategy, including selection of appropriate indicators, data sources, and baseline data; ▪ Provision of high-level cost estimate for the policy and strategy implementation, taking into consideration the priority actions for the existing fiscal and budgetary legislation.

Outcome 2. Drought insurance financing sector achieves level of readiness aiming at attracting private and public investments Within the overall framework of climate resilience in arid and semi-arid zones, the Government of Mozambique has requested additional support from the African Development Bank to help in the design of a climate resilient drought insurance financing mechanism.

To this end, the Bank has identified a series of interlinked technical studies to be undertaken in the arid and semi-arid areas, including climate-water resource assessments, agriculture market assessments, and socio- economic study on climate risk profiling, to help inform Mozambique’s nascent drought insurance financing.

Activities: The requisite technical assistance grant will be used to recruit a specialized consulting firm to carry out the various studies, the outcomes of which will help inform the government’s strategic approach to promoting investments in the sector and insurance models applicable to the country context. This proposed component on Climate Resilience and Drought Insurance Finance will be carried out over a period of 12 months, by a specialized consulting firm with wide experience on climate resilience issues in the agriculture sector, and strong knowledge of climate insurance finance mechanisms.

The studies aim at addressing various elements impacted by climate change-related shocks, including water harvesting infrastructure, land-use type (e.g. agriculture and forestry), production of drought tolerant crops and associated value chains, as well as the technical, institutional, social, economic, and environmental aspects. It will also include upstream analysis of main water harvesting and irrigation production systems

10 with a special focus on irrigation kits, and considerations of COVID-19 risk, mitigation, and response factors into the market analyses. In sum, the combined studies will comprise:

▪ A water resource assessment study examining water resource risks (hydrological drought/flood) and water quality in line with risk mitigation. In addition, the study will provide a description of soil profiles and a needs assessment for irrigation supply and drainage network;

▪ A drought-tolerant value chain and marketing assessment, including an analytical piece on the current and potential future markets for drought-tolerant crops, identification of market constraints and opportunities for building and maintaining competitiveness and, proposed strategies for achieving long- term sustainability; ▪ A baseline assessment of the socio-economic characteristics of the target areas and population, climate risk hazards, potential for social impact disaggregated by gender and age, local perceptions, and the overall appetite for insurance schemes.

Following the conclusion of these technical assessments, AfDB in coordination with the GoM and other partners, will be in a position to scope and identify possible future investments and insurance mechanisms in the target areas.

3.4 Project Cost and Financing

Expenditures4 Amount (USD) - estimates Consultants 604,000 Workshops/Seminars 16,000 Travel/Transportation 110,000 Contingencies (max. 10%) 70,000

Total Cost 800,000 Co-Financing5: Amount (USD): Type of contribution: • Government 20, 000 In-kind offices, electricity, water, and other costs

4. PROJECT FEASIBILITY

4.1 Gender, Youth and cross cutting issues

Women and men have differentiated abilities to cope with natural hazards due to a number of factors, including cultural and traditional household (HH) roles in the household and cultural rules. Climate Change has had a greater impact on women in the target TA areas, characterized by considerable migration of men to South Africa (to work on the mines), high percentage of HHs run by women that rely on rain fed agriculture for their subsistence. Women in general, have the least capability to respond to impacts of climate change such as such as droughts, floods and hurricanes that are frequent in Mozambique. Yet, women can play a critical role in response to climate change and building resilience to climate shocks due to their local knowledge of sustainable resource management and sustainable practices at the household

4 Expenditure categories should be provided by the MDBs based on own procedures. 5 This includes in-kind contributions (monetary value), MDB loan or grant, parallel financing, etc.

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and community level. The Policy, Strategy and, the strategic studies proposed in this TA, will focus on the gender resilience dimensions as well as of youth.

5. IMPLEMENTATION ARRANGEMENTS

5.1 Implementation Arrangements

The recipient of the Technical Assistance grant will be the GoM through the Ministry of Finance and Economy and, the Local Agriculture authorities at Provincial Levels in Maputo, Gaza and Inhambane provinces. INGD in coordination with local authorities will be the executing agency. The project will set a task force that will coordinate the various activities with the relevant agencies from GoM, cooperation partners, private sector, and communities. INGD will be the focal point in identifying the key stakeholders both from GoM, private sectors, local authorities and communities to be consulted and, to organize the implementation of the TA including meetings, interviews and workshops, as deemed necessary.

5.2 Implementation Schedule Tasks Month Month Month Month Month Month Month Month Month Month Month Month 1 2 3 4 5 6 7 8 9 10 11 12 1. Procurement of Consults/Consultant Firms 2.Selection and Interview Process 3. Contract approval and signing 4. Literature Review

4. Consultations/Interviews

5. Draft of the Policy and Strategy

6. Validation of the Policy and Strategy

7. Launch of Market and technical studies

8. Carry out Studies

9. Validation 10. Monthly Progress Reporting/Meetings

11. Review Policy and Strategy 12. Working Groups and Workshops 13. Review of Market and technical Studies

14. Approval of Deliverables

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Tasks Month Month Month Month Month Month Month Month Month Month Month Month 1 2 3 4 5 6 7 8 9 10 11 12 15. Dissemination of Deliverables

5.3 Procurement

Procurement Arrangements. AFDB Mozambique Country Office will lead the procurement of consultants to develop the strategy and carry out the studies, in line with the procurement guidelines and methods of the Bank including tender dossiers, bidders review requirements, estimated costs, timeframes and financial reporting.

5.4 Financial Management

Financial Management: The financial management will be carried out according to the Bank requirements and subject to the Agriculture Task manager approval and other internal approval systems. The project- executing agency will be responsible for the day-today management of the project finance and reporting to the Bank, including planning, budgeting, record keeping accounting and reporting.

5.5 Monitoring, Evaluation and Learning

The monitoring and evaluation plan will be further developed and will be consistent with the project timelines and deliverables. The first responsibility rests with the executing agency in coordination with the Bank. The process will also entail the follow-up of the ownership of the deliverables by the beneficiaries and the mainstreaming of the policy instruments in the development agenda and relevant plans and programs.

5.6 Results Dissemination

The Bank and the appointed entities GoM (MEF, MTA, MADER, INGC, Provincial and District authorities)) in coordination with the relevant project partners will lead the dissemination of the project results to the relevant TA recipients at central and local levels. The dissemination will include pamphlets, media coverage, brochures, debates, radio communication, etc..

5.7 Stakeholder Engagement Approach

The TA will be conducted using participatory approaches. It will be carried out following consultations with relevant GoM entities, provincial and local governments, affected communities, CSOs, private sector and development partners. The participatory process should entail mechanisms that ensure full ownership by the GoM at all levels. This will entail target interviews to key informants, workshops, working group meetings, and case studies and feedback to relevant stakeholders and beneficiaries. The TA should build on lessons and target groups, of previous work and projects, done by the Bank in the target areas.

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6. KEY RISKS AND MITIGATION MEASURES

Risk Likelihood Mitigation Measures Limited availability of key Medium Draft an outline of the agreed plan of work with the key Stakeholders stakeholder from the outset of the proposed TAs Challenges in the GoM and other High Engage High-Level Ministerial, Provincial and district stakeholders ownership of the process authorities and, secure designated focal points and teams, from the inception of the TA Limited mainstreaming and High Ensure adequate alignment of the TA with the ongoing implementation of the policy and policy reforms, plans and priorities strategy Challenges in the uptake of the Medium Define clear linkages between the strategic studies with the results of the strategic studies key development challenges in the agriculture sector

7. RATIONALE FOR PPCR FINANCING/INVESTMENT CRITERIA

According to the African Regional Strategy for Disaster Risk Reduction, Mozambique ranks second amongst the African countries most vulnerable to risks from multiple climate related hazards and is cyclically threatened by extreme natural events such as droughts, floods, tropical cyclones, earthquakes, and disease epidemics.

Between 2019 and 2020 alone, the Southern and Central parts of Mozambique were devastated by droughts that reduced significantly the hydrometric levels of the main river basins in the southern (Limpopo, Incomáti, and Save). Droughts have driven crop losses and will result in significantly below average harvests. At least 1.6 million people in the central and southern parts of Mozambique are presently in need of assistance due to the devastating effects of the ongoing drought and increasingly severe weather events. All these natural events have impacted the rural population in particular women and children with some 67,500 children most under the age of 5, facing acute malnutrition. Coupled with COVID-19 pandemic, the severe food shortage is taking a heavy toll in rural and peri-urban areas. Crops are failing and farmers are unable to produce enough for subsistence and to sell.

There is a high risk of negative coping mechanisms, such as selling of productive assets and, migration. Based on data from the Technical Council of Disaster Management (CTGC), nearly 160 000 ha of crops have been total or partially lost in Gaza, Inhambane and Maputo. The price of maize grain is approximately 25 to 75 percent above 2019 prices and 25 to 55 percent above average due to below average market supply. Overall, abnormally high staple food prices will lower purchasing power among poor households, driving acute food insecurity in areas where households rely heavily on markets, including southern region.

The management of natural hazards related to Climate Change is a priority for the GoM, testified by the policy framework comprised of the National Adaptation Program of Action (NAPA, 2007), the SPCR, 2011, the National Climate Change Adaptation and Mitigation Strategy (NCCAMS, 2013-2025) and the Partnership Plan for Nationally Determined Contributions, 2018.

Mozambique has also, approved the National Disaster Risk Reduction Master Plan 2017-2030 (PDRRD) to promote the country's resilient development through disaster prevention, preparedness, response, and recovery. The Master Plan recognizes the need to mainstream disaster and climate resilience in pubic investments, territorial planning and public financial management. The proposed project seeks to strengthen the existing Climate Change legal framework and lay the foundations for climate insurance products that will safeguard the development gains of the Bank's investments in the country. The TA is

14 equally in line with the Bank’s Ten Year Strategy (2013-2022), Agricultural Transformation in Africa Strategy (2016-2025) under the Bank’s High 5, objectives of the Climate Change Action Plan (2015 --- 2020), and the Bank's flagship programme on disaster risk management, the ADRiFi programme and, contribute to the first objective of the SEP and the first pillar of the Country Strategy Paper through the envisaged increased climate resilience, as a result of a robust legal framework that enables mainstreaming climate risks in the development plans and investments.

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