World Bank Document

The World Bank Maputo Urban Transformation Project (P171449) Public Disclosure Authorized Public Disclosure Authorized Project Information Document (PID) Appraisal Stage | Date Prepared/Updated: 16-Oct-2020 | Report No: PIDA28549 Public Disclosure Authorized Public Disclosure Authorized Sep 19, 2020 Page 1 of 14 The World Bank Maputo Urban Transformation Project (P171449) BASIC INFORMATION OPS_TABLE_BASIC_DATA A. Basic Project Data Country Project ID Project Name Parent Project ID (if any) Mozambique P171449 Maputo Urban Transformation Project Region Estimated Appraisal Date Estimated Board Date Practice Area (Lead) AFRICA EAST 07-Oct-2020 18-Dec-2020 Urban, Resilience and Land Financing Instrument Borrower(s) Implementing Agency Investment Project Financing Ministry of Economy and Maputo City Council Finance Proposed Development Objective(s) To improve urban infrastructure and strengthen institutional capacity for sustainable urbanization in Maputo. Components Informal Settlement Upgrading Maputo City Center Revitalization Sustainable Urban Growth Project Implementation and Institutional Support Contingency Emergency Response PROJECT FINANCING DATA (US$, Millions) SUMMARY-NewFin1 Total Project Cost 100.00 Total Financing 100.00 of which IBRD/IDA 100.00 Financing Gap 0.00 DETAILS-NewFinEnh1 World Bank Group Financing International Development Association (IDA) 100.00 Sep 19, 2020 Page 2 of 14 The World Bank Maputo Urban Transformation Project (P171449) IDA Grant 100.00 Environmental and Social Risk Classification High Decision The review did authorize the team to appraise and negotiate Other Decision (as needed) B. Introduction and Context Country Context 1. 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 and the devastating effects of cyclones Idai and Kenneth in 2019. In 2016, Mozambique’s track record for high growth was disrupted when large previously unreported external borrowing, amounting to US$1.3 billion, came to light. The hidden debt crisis dented confidence in the country, increased debt levels, and more than halved the average rate of growth.1 In 2019, Cyclones Idai and Kenneth caused massive damage to infrastructure and livelihoods2, further lowering growth and wellbeing of the population. COVID- 19 pandemic now presents a massive setback that could erase past gains. 2. COVID-19 dims the short-term growth prospects of Mozambique. Economic activity is declining as social distancing measures and travel restrictions disrupt supply chains and reduce demand for goods and services. At the same time, lower demand and prices of commodities are slowing the pace of investment in gas and coal, two key industries for Mozambique. As a result, the economy is expected to contract by 0.4 percent in 2020, down from pre- COVID-19 forecast of 4.3 percent, with significant downside risks. When the contribution of sizable Liquified Natural Gas (LNG) investments is excluded, the contraction in 2020 is estimated at -1.9 percent. Mozambique is also expected to experience large external and fiscal3 financing gaps in 2020 and 2021 in a context characterized by exposure to external shocks and limited fiscal space. Nonetheless, a growth recovery is expected to begin in 2021, with growth reaching 4.4 percent by 2022, owing to a rebound in global demand and additional stimulus to the business environment from LNG projects. 3. Moreover, a sizeable number of Mozambicans will fall back into poverty as a result of the pandemic. Given the depth of the COVID-19 crisis, Mozambique’s already difficult poverty situation is expected to be aggravated further. It is likely that livelihoods, food security and nutrition will worsen as incomes are affected by the slowdown in economy activity. The negative impacts on income are expected to be felt relatively more in urban and peri-urban areas where social distancing measures and business closures are having most effect. As such, the pandemic is expected to 1 Having averaged at 8.4 percent between 2003 and 2015, average GDP growth fell to 3.3 percent between 2016 and 2019. 2 Losses and damages following cyclone Idai are estimated at US$ 3bn (US$ 2.7bn). 3 The COVID-19 shock is expected to contribute to a fiscal gap of 5.5 and 2.5 percent of GDP in 2020 and 2021. Sep 19, 2020 Page 3 of 14 The World Bank Maputo Urban Transformation Project (P171449) predominantly affect poor populations in these areas, impacting their sources of income from informal work and self- employment. Mozambique’s urban poverty rate is estimated to increase from 29 to at least 31 percent in 2020, pushing an additional 250,000-300,000 urban people into poverty on account of employment and income losses, price increases and a deterioration of public services.4 4. The pandemic is also likely to exacerbate pre-existing factors of fragility and widen inequalities and imbalances across the country. The spatial distribution of poverty is skewed – with poverty almost twice as high in rural as in urban centers – and growing inequality between rural and urban areas. The Northern and Central regions continue to lag behind the Southern regions, with many more people being poor in Niassa (67 percent), Nampula (65 percent) and Zambezia (62 percent) than in Maputo Province (12 percent) and Maputo City (4 percent), the two areas that have seen the largest decline in poverty rates in the past decade. The pandemic could widen these divides, heighten socioeconomic grievances, and sharpen the inequalities and sense of marginalization that have helped to underpin the escalating insurgency in the northern province of Cabo Delgado. 5. Mozambique is experiencing changes in its climate and urban areas are increasingly affected by flooding and droughts. More than 60 percent of the population lives in low-lying coastal areas, where intense storms from the Indian Ocean and sea level rise put infrastructure, coastal agriculture, key ecosystems and fisheries at risk. El Niño conditions in 2015–2016 caused the worst drought in 35 years, reducing food availability by 15 percent. Food insecurity caused by the drought worsened in 2017, 2018 and 2019 with Cyclones Dineo, Kenneth and Aida which damaged crops and destroyed infrastructure. Future climate projections show average temperature increases of 1°C in the next 20 years. Cyclones and rainfall intensity are expected to increase, more floods expected during rainy seasons, and additional sea level rise of 13-56 cm by 2090. Sectoral and Institutional Context 6. Urbanization in Mozambique, if managed well, can accelerate economic growth, poverty reduction, and structural change. By enabling agglomeration economies, cities can be instrumental in enhancing productivity, spurring innovation, and economic diversification for the benefit not only of the cities’ residents and firms but for reducing poverty and promoting shared growth for the country as a whole. Indeed, urban growth has rapidly unfolded in Mozambique in the last 30 years with increasing concentration of people and economic activity in urban areas. Both rural-urban migration and high fertility rates have led to a significant increase in the urban population, from 7 to 33.4 percent (INE 2017). At this rate, the urban population is expected to more than double in the next 25 years, adding more than 11 million people to cities. Economic activity has also concentrated mostly around the largest cities. The 23 largest cities generate approximately 51.4 percent of the national GDP, and average per capita consumption in cities is more than triple the rural average ($1,160 versus $336)5. The poverty headcount rate is significantly lower in urban areas than in the rest of the country and has declined faster in urban areas than in rural areas. Between 1996/7 and 2008/9, poverty declined by 24 percent in urban areas, compared to 10 percent in rural area. In 2014/15, the poverty headcount rate for cities was 32 percent6. 7. Maputo City has spearheaded the urbanization process in Mozambique, transforming itself from a small port town into the largest urban agglomeration in the country. Designated the capital of Mozambique in 1898, the formally known Lorenço Marques town developed fast due to its economic and political importance as the capital of the 4 Under a more severe crisis scenario (assuming a 25 percent decline in consumption), the increase in poverty could be three times that. 5 Source: World Bank, Mozambique Urbanization Review, 2017. 6 Source: INE Household Welfare Surveys (IOF 1997, 2007). Sep 19, 2020 Page 4 of 14 The World Bank Maputo Urban Transformation Project (P171449) Portuguese overseas colonies. Starting in the early 1940s, the growth of the city accelerated as the colonial administration started to build a well-planned and modern capital, which included a port, a railway, an airport, a networks of wide avenues, water, drainage and sanitation, electricity, public transport provided by electric streetcars, primary and secondary schools, as well as the first university in the region. Soon Maputo became a modern and cosmopolitan place to live with all of the amenities of an European city for the Portuguese colonial settlers. Figure 1: Maputo built-up area7 Figure 2: Maputo Built-up Area Growth 8. Maputo City sits at the core the largest urban and economic agglomeration and economic in the nation. Since its foundation, the city has grown immensely, forming a contiguous metropolitan area of more than 2.5 million inhabitants (INE 2017). With approximately 8.5 percent of the country’s total population, the Maputo metropolitan area contributes 17 percent to the national GDP8 - a disproportionally large share of the country’s economy. Even as natural resources have gained much larger importance in the country’s economy in the last decades, Maputo continues to spearhead economic transformation, modernization, and diversification thanks to its industrial, financial, and service sectors, as well as a large labor and consumer market. Its robust transport and logistics infrastructure confers Maputo a central role in domestic, regional and international trade.

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