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Home , Andranomafana, Befotaka, Benenitra (district), Beroroha, Farafangana, Madagascar

GROUP

MADAGASCAR

Public Disclosure Authorized Disclosure Public - PROJECT TO DEVELOP CORRIDORS AND

FACILITATE

PICU/RDGW DEPARTMENTS

November 2018

Public Disclosure Authorized Authorized Disclosure Public Translated Document

TABLE OF CONTENTS

1.1 STRATEGIC THRUST AND RATIONALE: ...... 1

1.2 PROJECT LINKAGES WITH STRATEGY AND OBJECTIVES ...... 1

1.3 RATIONALE FOR BANK INVOLVEMENT ...... 2

1.4 AID COORDINATION ...... 2 2. PROJECT DESCRIPTION ...... 3

2.1 PROJECT OBJECTIVES AND COMPONENTS ...... 3

2.2. TECHNICAL SOLUTIONS RETAINED AND ALTERNATIVES EXPLORED ...... 5

2.2 PROJECT TYPE ...... 6

2.4. PROJECT COST AND FINANCING ARRANGEMENTS...... 6

2.5. PROJECT AREA AND BENEFICIARIES ...... 9

2.8. KEY PERFORMANCE INDICATORS ...... 11 3. PROJECT FEASIBILITY ...... 11

3.1 ECONOMIC PERFORMANCE ...... 11

3.2 ENVIRONMENTAL AND SOCIAL IMPACT ...... 12

ENVIRONMENT ...... 12

CLIMATE CHANGE ...... 13

GENDER ...... 13

SOCIAL AND YOUTH EMPLOYMENT SOCIAL...... 14

ROAD SAFETY ...... 14

INVOLUNTARY RESETTLEMENT...... 15 4. IMPLEMENTATION ...... 15

4.1 IMPLEMENTATION ARRANGEMENTS ...... 15

4.2 PROCUREMENT ...... 16

4.3 DISBURSEMENT ARRANGEMENTS ...... 16

4.4 FINANCIAL MANAGEMENT...... 16

4.5 AUDIT ...... 17

4.6 GOVERNANCE ...... 17

4.7 SUSTAINABILITY ...... 17

4.8 RISK MANAGEMENT ...... 18

4.9 KNOWLEDGE BUILDING ...... 19 5. LEGAL FRAMEWORK AND AUTHORITY ...... 19

5.1 LEGAL INSTRUMENT ...... 19

5.2 CONDITIONS FOR BANK INVOLVEMENT ...... 19

5.3 UNDERTAKINGS ...... 21 6. CONCLUSION AND RECOMMENDATION ...... 21

6.1 CONCLUSION ...... 21

6.2 RECOMMENDATION ...... 22

7. APPENDICES ...... I

APPENDIX I : COMPARATIVE SOCIO-ECONOMIC INDICATORS ...... I

APPENDIX II : TABLE ON PROCUREMENT OF GOODS AND SERVICES ...... II

APPENDIX III : AFDB PORTFOLIO AS AT 28/09/2018 AMOUNT IN UA (CPO) ...... III

APPENDIX IV:).PROCUREMENT SYSTEM ...... IV

APPENDICE V. PROJECT FRAGILITY ASSESSMENT REPORT (PFAR ...... V

APPENDIX VI: MAP OF PROJECT AREA ...... IX Appendix VII: Information Note - Eligibility Criteria for Accessing the ADF RO Envelop X

Currency Equivalents May 2018 UA 1 = USD 1.44 UA 1 = EUR 1.19 UA 1 = MGA 4 557.57 USD 1 = MGA 3 169.25 EUR 1 = MGA 3 828.12 Fiscal Year From 1 January to 31 December Weights and Measures 1 metric tonne = 2204.62 pounds (lbs) 1 kilogramme (kg) = 2.20 lbs 1 metre (m) = 3.28 feet (ft.) 1 millimetre (mm) = 0.04 inches (“) 1 kilometre (km) = 0.62 mile 1 hectare (ha) = 2.47 acres

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Acronyms and Abbreviations

AADT Average Annual Daily Traffic IOC ADF African Development Fund MTPI Ministry of Public Works and Infrastructure ADG “As dug” Gravel AFD French Development Agency NH National Highway AIDS Acquired Immunodeficiency Syndrome OFID OPEC Fund for International Development AIIB Asian Infrastructure Investment Bank PACN National Committee Action Plan AIP Investment Platform (EU) ARM Road Authority PACPT Fishermen's Community Support Project BADEA Arab Bank for Economic Development in PAPs Project-affected persons Africa BN Standards Bureau CEG Comprehensive Secondary School PIA Project Impact Area COMESA Common Market for Eastern and Southern PIU Project Implementation Unit Africa CSP Country Strategy Paper PK Kilometre Point DDP Public Debt Department PRPIM Irrigation Scheme Rehabilitation Project ERR Economic Rate of Return PRPT Road Project ESIA Environmental and Social Impact RECs Regional Economic Communities Assessment ESMP Environmental and Social Management RER Road Maintenance Charges Plan EU European Union RMF Road Maintenance Fund GCS Graded Crushed Stone SDF Saudi Development Fund HIMO High Labour Intensity STI Sexually Transmitted Infection HIV Immunodeficiency Virus TSF Transition Support Facility INSTAT National Institute of Statistics UA Unit of Account WB Bank

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Project Information Client Information Sheet BORROWER : OF MADAGASCAR EXECUTING AGENCY : MADAGASCAR ROAD AUTHORITY Financing Plan

Amounts in million UA SOURCE Local Devises Total % total INSTRUMENTS

ADF loan 3.2 0.8 4.00 3.6% Loan

ADF grant 10 2.5 12.50 11.45% Grant

TSF Loan 6.76 1.69 8.45 7.74% Loan

ADF regional resources, loan 14.944 3.736 18.68 17.13% Loan

ADF regional resources, grant 15 3.75 18.75 17.19% Grant

EU (AfIF) 25.736 6.434 32.17 29.49% Grant

OFID 7.224 1.806 9.03 8.28% Loan

GdM 0 5,45 5.45 5.00% Counterpart funds

ADB PROJECT : TOTAL 82.904 26.176 109.08 100%

BADEA and Arab Funds 33.36 8.34 41.7 27.74% Loan

GRAND TOTAL 116.264 34.516 150.78

Key ADF Financing Information

Loan Currency Unit of Account (UA) Interest Type Not Applicable Interest Rate Margin Not Applicable ADF Loan Service Fee 0.75% per year on the disbursed but unreimbursed loan amount ADF Loan Commitment Charge 0.5% on the undisbursed loan amount 120 days following signature of the Loan Agreement Other Charges Not Applicable ADF Loan Maturity 40 years Grace Period 10 years FRR Not Applicable ERR, NPV (baseline scenario) 18% and MGA 4609 million

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Timeframe – Main Milestones (expected)

Concept Note Approval : May 2018 Project Approval : November 2018 Effectiveness : 2019 Last Disbursement : December 2023 Completion : December 2024 Last Reimbursement : December 2058

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EXECUTIVE SUMMARY

Project Overview

Inadequate development and ageing transport infrastructure are among the main obstacles to Madagascar's capacity to expand its trade with other member of the Common Market for Eastern and (COMESA), the Southern African Development Community (SADC) and the Indian Ocean Commission (IOC) and, consequently, to promote regional integration. The country's road network has hardly received any major interventions in the last ten years, due in part to the impact of the 2009-2013 political crisis. Only 24.6% of the paved road network is in good condition. According to the Bank's 2018 African Infrastructure Development Index, Madagascar has a very low scores for transport: 3.01 points out of 100. Freight transport is estimated at around 8 million tonnes per year, including 3 million tonnes of domestic trade in local agricultural products, 1.5 million tonnes of domestic distribution of imported goods and 3.5 million tonnes of external trade in dry goods, of which 1.5 million tonnes of containerized goods.

Consequently, improving transport systems connectivity between production areas and export points (ports and airports) to countries in the sub- is still a key element for increasing trade and investment within the framework of regional integration. This project aims to lay the groundwork for road network development in Southern Madagascar (currently the most isolated part of the Big ), which is connected to potentially important ports on two maritime fronts: the South-West with Tuléar Port and the South-East with the Ehoala Mineral Port. Both ports provide the country access to the Channel and Indian Ocean countries, respectively.

The project will be implemented over 5 years, from 2019 to 2023. It will open up Southern Madagascar, thus unlocking a vast region with a considerable agricultural potential to the rest of the country and through the two seaports (Ehoala and Tuléar), and providing access to COMESA countries and the Indian Ocean.

Needs Assessment

Despite its significant agricultural potential, the project impact is inaccessible for nearly two to four months in the year. This inaccessibility is the consequence of adverse weather conditions, the most prominent of which are frequent and floods. The project will attract the private sector and develop agricultural value chains, while consolidating the achievements of agricultural and fishery projects that the Bank has financed in the South-West region over the past ten years. The two road sections combined with the establishment of major port facilities will develop opportunities for agricultural product export especially to COMESA and Indian Ocean countries, thus confirming Madagascar's vocation as the "breadbasket of the Indian Ocean" as proclaimed by the IOC. The project needs assessment was carried out in May 2018.

The lack of road infrastructure to facilitate trade and connectivity, high levels of poverty and inequality, high unemployment rate, vulnerability to natural disasters (droughts, floods and cyclones) and climate change, as well as the absence of economic opportunities, are key factors of fragility in the project area, as indicated in Appendix V.

This project is in line with the Bank's Strategy for Addressing Fragility and Building Resilience in Africa (2014-2019) and has been designed to promote activities that can address fragility and develop mechanisms to strengthen the country’s resilience. Building road infrastructure will improve trade, connectivity and regional integration, and at the same time address social exclusion, inequality and poverty. The project will support vulnerable groups by providing them with stable sources of income, sustained food security, and expanded economic opportunities, especially for the youth and women.

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The Bank’s Value Added

The thirteenth transport sector operation to be financed by the Bank in Madagascar, this project will tap from the body of knowledge that AfDB experts and the Country Office have of the sector, particularly in the region concerned. Implementing the trade facilitation and institution building component will also strengthen aspects of inclusive growth and regional integration. Inclusive growth will be achieved by developing value chains around agricultural products, which abound in some areas of both , thus creating substantial income for the local population and building their capacity. Moreover, regional integration will be enhanced through trade in three of the RECs of which Madagascar is a member: IOC, COMESA and SADC. Furthermore, the main project component studies conducted under the previous Road Project in the Toliara (Tuléar) and Taolagnaro (Fort Dauphin) Provinces will facilitate a better implementation of the project. This will showcase the impact of the Bank's previous and ongoing interventions, particularly in agriculture and fisheries.

Knowledge Management

This new operation will provide an opportunity to enhance road infrastructure knowledge in Madagascar, especially trade facilitation through road - maritime - aviation inter-modality, to achieve inclusive growth. The relevant development components will facilitate the construction of local infrastructure, vital for the transportation of agricultural production and social cohesion across the . Furthermore, the National Institute of Statistics (INSTAT) will monitor and evaluate the project, contributing to knowledge building and training of local experts in this area.

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RESULTS-BASED LOGICAL FRAMEWORK

Country and Project Title: Madagascar: Project to Develop Corridors and Facilitate Trade between Madagascar, COMESA and Indian Ocean Countries Project Objective: Contribute to opening up the Southern Region and creating competitive corridors

PERFORMANCE INDICATORS RESULTS CHAIN MEANS OF RISKS/ Indicator Baseline Situation Target VERIFICATION MITIGATION MEASURES (including ISC)  In 2017 : In 2024 : Sources :

Enhanced regional integration Volume of trade between Madagascar, COMESA and Trade combined: EUR 4.8 Exports up 15%, or EUR 2.3 billion Central Bank of through the growth of inter- Indian Ocean countries. billion: Imports: 15% increase in the value of Madagascar; Customs regional trade. Exports: EUR 2 billion imports: EUR 3.1 billion. Authority of the Atsimo Imports: EUR 2.7 billion. Andrefana and

IMPACT 1. regions.

Average daily heavy goods vehicle traffic on the RN 9 In 2017 : In 2024 : Sources: Outcome 1: Improved service and RNT 12A, Tuléar-Manja and Fort Dauphin1. - 93 veh./d 1. 174 veh./d. ARM counts, surveys 1.1 Risks: level on the RN9 and RNT sections. and activity reports, and Failure to maintain roads due to 12A roads. report of the Monitoring insufficient resources in the Road Travel time of a heavy goods vehicle on the RN9 In 2017 : In 2024: and Evaluation Maintenance Fund. 1. Tuléar-Manja section: 1. 11 h 1. 6 h Consultant. Early degradation caused by 2. Fort Dauphin-Vangaindrano section: 2. 16 h 2. 10 h failure to comply with the axle Average vehicle operating cost, VOC (MGA/KM): In 2017 : In 2024 : load. Tuléar-Manja section: 1.2 Mitigation Measures: Fort Dauphin-Vangaindrano Section: 1. MGA 910 /km 1. MGA 591 /km ; -Acceleration of reforms aimed at 2. MGA 910 /km 2. MGA 591 /km building the capacity and autonomy of the RMF. Continue Average vehicle operating cost, VOC (MGA/km) In 2017 : In 2024 : and improve the replenishment of

heavy trucks 1. MGA 2644 /km 1. MGA 1718 /km the Road Maintenance Fund, in Tuléar – Manja Section: 2. MGA 2644 /km 2. MGA 1718 /km particular by settling outstanding 1. Fort Dauphin – Vangaindrano Section : debts owed by oil companies and COMES In 2017 : In 2024 : Source: regular payments in future; Number of people sensitised on road safety. 1. 0 person. 1. 15 000, of whom at least 40% women. ARM Report. Institutional study on road OUT maintenance financing. In 2017 : In 2024 : Sources : - Axle load control by axle scales Outcome 2: Increased Annual value of goods procured by exporting companies1. To be determined ; 1. 15% increase Quarterly ARM reports acquired under the first phase of productivity and from local SMEs. 2. 2. and project monitoring the project. competitiveness of SMEs, and Improved production volume and profitability 3.of To be determined ; 0% increase in production volume for and evaluation reports 2.1 Risks: improved living conditions for targeted agricultural SMEs. 4. targeted SMEs. from the Chamber of Delays by the Government in paying the counterpart funding the PIA population. Number of jobs created in man/day. 5. 0 pers. 40 000 person/days, at least 20% of whom Commerce, Ministry of 1. 6. women Trade. Number of people with improved income. 7. 0 pers. 45 young graduates recruited, at least 50% 2.2 Mitigation Measures: Number of people sensitised on HIV/STI, gender-based8. of whom women - Obtaining the necessary violence. 9. 0 pers. 3 000 people, at least 50% of whom women. commitments from the 2. Government during negotiations; consultations between COMG and

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1. Linear of the paved distance on the rehabilitated In 2017 : In 2024 : the Government party, for

RN9 –Manja section 1. 107 km 1. 275,9 km Sources: inclusion of the counterpart 2. 2. 0 km 2. 74 km ARM activity report. funding in various budget years; 3. Bridges and access roads built on RN9 3. 2 km 3. 4 (all bridges) including this point among the 4. Bridges and access roads built on RN12A 4. 0 km 4. 2 bridges over 350 m conditions precedent to first disbursement. 3.1 Risks : 1. In 2017 : In 2024 : Sources : Output 2: MTPI and ARM’s ARM's institutional weaknesses Number of MTPI and ARM managers, counterpart1. Inadequate 1. TBD ARM Report and 3.2 Mitigation Measures: capacity built and related engineers from the Befandriana Engineering School and 2. Number of technical audit reports Supervision Mission Capacity building for ARM facilities built and the DDP trained managers commissioned. Number of boreholes /mini DWSS completed 3. Number of road security reports - Technical Assistance Linear of rural roads developed 4. 2. Inadequate Number of markets rehabilitated 5. About 30 km 3. 6. 4. 0 7. 4

PUTS Agricultural SMEs benefiting from the incubation and In 2018 : In 2024 Sources : Output 3: SMEs trained to OUT business relations programme launched through 1. the 1. 300 SMEs Report of the Malagasy meet market needs. project 2. In 2018 : 0 2. 5 000 members Employer’s Association (FIVPAMA) Members of business or SME associations trained in business management skills, export standards and good Regional Chamber of agricultural practices Commerce. 1. Level of implementation of the National Trade In 2018 : In 2024 : Sources : Output 4: Strengthened, Facilitation Committee Action Plan. 1. 0% (2018) 1. 45%. Reports: National Trade digitised and simplified quality Institutional and regulatory framework for quality2. No Framework. 2. Framework in place and operational. Facilitation Committee control systems and customs management and standardisation of export products in (CNFE), Customs procedures. place and functional. Department, Ministry of Trade and Madagascar Country Office. COMPONENTS RESOURCES (UA Million)

Road and bridge works TOTAL RESOURCES: UA M (100%) Related facilities 1. Road and civil engineering works : 96.18 Trade facilitation and institution building 2. Related facilities : 1.68 Project management and monitoring 3 Trade facilitation and institutional building: 6.43 4. Project Management and Monitoring : 4.74

KEYACTIVITIES TOTAL RESOURCES : 109.08

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PROJECT IMPLEMENTATION SCHEDULE

Year 2018 2019 2020 2021 2022 2023 2024 Month 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 N° Task Name 1 Trade Facilitation Project Implementation Schedule X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X 2 1. GENERAL ACTIVITIES 3 1.1. Grant approval by the Bank X 1.2 Publication of the General Procurement Notice 4 (Advance Contracting - AC) x 5 1.3 Grant effectiveness x 6 2. ROAD WORKS 7 2.1 Development and asphalting of Section RN9 x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x 8 2.2. Mission to supervise work on the RN9 x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x 9 2.3. Development and asphalting of Section RNT 12A x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x 10 2.4. Control and monitoring of works on the RNT 12A x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x 11 3. RELATED WORKS 12 RN9 13 3.1. Ancillary facilities X X X X X X X X X X X X X X X X X X X 3.2. Supply of farming equipment kits to women's 14 associations X X X X X X X X X X X X X X X X X X X 15 3.3 Control of related work on RN 9 Phase II X X X X X X X X X X X X X X X X X X X x 16 RN12A 17 3.4. Ancillary facilities X X X X X X X X X X X X X X X X X X X 3.5 Supply of farming equipment kits to women's and youth 18 associations X X X X X X X X X X X X X X X X X X X 19 3.6 Control and monitoring of works on the RN 12A X X X X X X X X X X X X X X X X X X X x 20 4. TRADE FACILITATION AND INSTITUTIONAL SUPPORT 21 CUSTOMS 22 4.1 PACN implementation for trade facilitation x x x x x x x x x x x x x x x x x x x x x x x x x x x x 23 STANDARDS 24 4.3 Support to the Standards Bureau (BN) for the deployment of mobile laboratories x x x x x x x x x x x x x x x x x x x x x x x x x x x x 25 4.4 SME & agricultural value chains x x x x x x x x x x x x x x x x x x x x x x x x x x x x 4.5 Design and implementation of an incubation 26 programme for export-oriented companies x x x x x x x x x x x x x x x x x x x x x x x x x x x x 4.6 Support to farmers' cooperatives and agricultural 27 SMEs in the selected value chains x x x x x x x x x x x x x x x x x x x x x x x x x x x x 4.7 Design and deployment of a business relations programme to link SMEs to large companies and facilitate 28 trade with SADC, COMESA and IOC x x x x x x x x x x x x x x x x x x x x x x x x x x x x 29 INSTITUTIONAL SUPPORT 30 4.8 Procurement of VOR for Tulear Airport x x x x x x x 31 4.9 Improving the employability of young engineers x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x 32 4.10 Training of PIU and DDP managers x x x x x x x x x 33 5. PROJECT MANAGEMENT AND MONITORING 34 5.1 Accounting and financial audit x x x x x x x x x x x x x x x 35 5.2 Project-technical Audit x x x x x x 36 5.3. Road Safety Audit x x x x x x 37 5.4 Sensitization of people in the Project Impact Area (RN 9 and RN 12A) x x x x x x x x x x x x x x x x 38 5.5 Project impact monitoring and evaluation (RN 9 and RN 12A) x x x x x x 39 5.6 Functioning of the Project Implementation Unit x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x

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BANK GROUP MANAGEMENT'S REPORT AND RECOMMENDATION TO THE BOARD OF DIRECTORS CONCERNING A LOAN AND GRANT PROPOSAL TO MADAGASCAR TO FINANCE THE PROJECT TO DEVELOP CORRIDORS AND FACILITATE TRADE

Management hereby submits this report and its recommendations concerning a proposal to award: (i) an ADF grant of UA 31.25 million (UA 18,75 million on the regional envelope and UA 12.50 million on the country allocation); (ii) an ADF loan of UA 22.68 million (UA 18,68 million on the regional envelope and UA 4.00 million on the country allocation); (iii) Transition Support Facility loan of UA 8.45 million and (iv) a grant under AIP (Africa Investment Platform) EU investment facility equivalent to EUR. 39.2 million to the republic of Madagascar, for the funding of the Project to Develop Corridors and Facilitate Trade.

1.1 STRATEGIC THRUST AND RATIONALE:

1.2 Project Linkages with Country Strategy and Objectives

1.2.1 Madagascar's National Development Strategy covers the period 2014-2019. It stems from the broad outlines of the General State Policy (PGE) announced by the President of the Republic at the beginning of his and which the Government must commit to implement in accordance with the provisions of the Constitution. Therefore, a new PGE is expected in view of the upcoming elections scheduled for November 2018. Under these conditions, the project is aligned on the current strategy as set out in the National Development Programme (PND) 2015-2019. The same continuity approach has been adopted at sector level, namely the confirmation of the priorities set out in the PND and the 2015-2019 Strategies and Action Programmes, with updates by the Ministry of Public Works for 2017-2021. The linkage between infrastructure, growth and poverty reduction is reaffirmed in the sector strategy. The opening up of the regions is also deemed of primary necessity, justifying the allocation of substantial resources to them, with priority to the transformative national road network. In November 2017, the Bank approved the new Country Strategy Paper 2017-2021, which followed the Interim CSP 2014-2016 that guided its support to the country's efforts to meet pressing political and economic consolidation challenges. The new CSP 2017-2021 aims to innovate, paying greater attention to removing the structural constraints that prevent the country from embarking on the path of strong and shared economic growth. Therefore, it focuses on structural transformation and the creation of decent jobs that generate high value added. The two pillars around which the current CSP is structured are: (i) the development of energy and transport infrastructure to support inclusive growth; and (ii) support for agricultural transformation and industrial development. In the same vein, the project is in full harmony with four (4) of the Bank’s High 5s: (1) Integrate Africa, (2) Feed Africa (3) Improve the quality of life for the people of Africa, and (4) Industrialise Africa.

1.2.2 The project is in line with the Strategy for Addressing Fragility and Building Resilience in Africa, which focuses on building state capacity, establishing effective institutions, promoting resilient societies through inclusive growth, and equitable access to employment and basic services, as well as ensuring fair distribution of the benefits derived from natural resources, among others. The strategy also aims to strengthen the Bank's leadership role in policy dialogue and foster partnerships and advocacy on fragility issues.

1.2.3 This project is a continuation of the national socio-economic development policy and is part of the new operations proposed in CSP 2017-2021 for the development of transport infrastructure to support inclusive growth, agricultural transformation and promotion of industry. The implementation of the project's main components, namely: (i) development and asphalting of sections of RN 9, and construction of the bridge over the Ranozaza River and its

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access points at PK 71 on RN 9; and (ii) development and asphalting of sections 1 and 5 of RNT 12A and construction of the Ebakika and bridges, will contribute to opening up rural areas by providing access to the Tuléar and Fort Dauphin Port facilities. This will establish increased trade opportunities with COMESA and Indian Ocean countries. It should be noted that the priority given by the country's authorities to this project is amply justified by the fact that it covers a landlocked agricultural production area, where there is also a very high incidence of rural poverty (82.2%). The "Trade Facilitation" component of the project aims to improve the development of value chains around specific agricultural products, whose processing for export will create significant added value for the country's economy. It will also strengthen quality control systems and customs procedures.

1.3 Rationale for Bank Involvement

1.3.1 Madagascar is still an economically uncompetitive country, with a sharp deterioration in the business environment since the 2009 political crisis. Despite the abundant and relatively cheap labour, the private sector faces several constraints, including high input costs due to the lack of road and energy infrastructure.

1.3.2 The government has striven to improve the situation, in the context of a sluggish recovery that is highly exposed to macroeconomic shocks and the impact of climate change. The increase in the 2017 budget deficit is attributable to the high public spending on emergency aid and reconstruction following the March 2017 , as well as the drought that preceded the cyclone. As a result, there has been a shortage of financial resources to cover both infrastructure investments and related recurrent costs, leading to further deterioration of the country’s road network.

1.3.3 Furthermore, the project is located in the South part, which is characterised by an 82.1%1 poverty rate (one of the highest among the country) and chronic exposure to natural disasters. However, the southern part has a rich and diversified natural heritage and great agricultural, fishing, tourism and mining potential. The development of the two road sections, RN 9 and RN 12A, the backbone of this part of the country in terms of road infrastructure, is of crucial importance to facilitate trade with other parts of the country, COMESA and Indian Ocean regions. It will also facilitate the development of eco-tourism in the country, which is a priority for IOC states. The project will contribute to poverty reduction and inclusive growth in the region concerned, and will enable the Bank to consolidate results achieved through the agricultural and fishery projects that it is currently implementing and financing2 in the area.

1.4 Aid Coordination

1.4.1 Besides the Bank, several sister institutions such as the OPEC Fund for International Development (OFID), the (WB), the European Union (EU), the French Development Agency (AFD), the Japanese International Cooperation Agency (JICA), the European Investment Bank (EIB), the Arab Bank for Economic Development in Africa (BADEA), the Saudi Development Fund (SDF), the Fund for Development, and China are active in the transport sector in Madagascar. The interventions of these donors target diverse sectors and geographic areas, and are implemented in a spirit of

1 Cf. Periodical Household Survey (PHS) 2010, page 222. 2 The Lower Mangoky Rice Scheme Rehabilitation Project, the Manombo Irrigation Scheme Rehabilitation Project (PRPIM) in the implementation phase, and the Toliara Fishing Community Support Project (PACPT). For the latter project, the development of RN9 into a paved and all-season road will help to connect 16 fishing villages located along this road axis.

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complementarity and synergy. Accordingly, this project is being co-financed by AfDB, the EU and the Arab Funds on a parallel basis.

Table 1.1 Aid Coordination: Madagascar's Development Partners (2018) involved in the Transport Sector

Size Sector or Sub- Sector Labour GDP Exports

Transport 14.6 % 0 % N/A Stakeholders – Annual Public Expenditure (Average)

Government Donors AfDB : 27 % EU : 22 % WB : 0 %

UA 23,206,849.83 144,969,369.3 CHINA: 2 % EIB : 21 %

% Total 14 % 86 % ARAB F. : 28

Level of donor coordination Existence of Thematic Working Groups (this sector/subsector) [O] Existence of SWAps or Integrated Sector Approaches [N] AfDB Participation in Donor Coordination [M]

2. PROJECT DESCRIPTION

2.1 Project Objectives and Components

2.1.1 The project's overall objective is to help improve Madagascar's connectivity with countries of the sub-region, with a view to increasing trade. The specific objectives pursued include: (i) opening up Madagascar’s Southern Region by improving its accessibility; (ii) promoting trade by facilitating export processes to add value to various activities that are typical to Southern Madagascar, particularly agriculture, mining and tourism; and (iii) improving the living conditions of the PIA population.

2.1.2 The project is in line with the key regional operations of NEPAD, COMESA and SADC, and will contribute to strengthening Madagascar's integration with Southern African countries and IOC member countries. It will also improve traffic conditions, and reduce travel time and costs to coastal hubs that connect with countries in the region.

2.1.3 The project is structured around the following four (4) components:

A. Road and Civil Engineering Works: UA 96.18 million

A.1 Upgrading and asphalting Section 2 of RN 9: Analamisampy

Antaninieva and Bevoy (Mangoky Bridge), PK 107 + 840 to PK 192+784;

Section 3: Exit of Mangoky and Manja Bridge, from PK 194+730 to PK 274+844;

Upgrading and asphalting the urban section at the beginning of RN 9 (PK 0+00 and PK 1+400); and Construction of the bridge over the Ranozaza River and its access points at PK 71;

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A.2 Control and supervision of RN 9 works;

A.3 Upgrading and asphalting of the RNT 12 A Section: Fort Dauphin-Ebakika and Masianaka-Vangaindrano sections; Construction of the Ebakika and Masianaka bridges

A.4 Control and supervision of RNT 12 A works

B. - Related Development: UA 1.68 million

Road Axis RN 9

B.1 Construction of the Antanimieva Market

B.2 Strengthening the Befandriana Centre for

B.3 Rehabilitation of the Ankiliabo Health Centre

B.4 Construction and equipment of the Ankiliabo, Ankatsakatsa and Befandriana gendarmeries

B.5 Construction of the Manja Social and Cultural Centre

B.6 Drilling of boreholes for drinking water supply

B.7 Supply of school furniture

B.8 Supply of agricultural equipment kits to women's groups

B.9 Mission to control related works on RN 9 Phase II

RNT 12A Road Axis

B.10 Rehabilitation and equipment of schools

B.11 Rehabilitation and equipment of health facilities

B.12 Construction of 3 local markets

B.13 Provision of agricultural equipment for women and youth groups

B.14 Drilling of boreholes for drinking water supply

B.15 Construction of 30 km of related tracks

B.16 Control and supervision of RNT 12 A related works

C. Trade Facilitation and Institution Building: UA 6.43 million

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Customs

C.1 Support for the implementation of the National Trade Facilitation Committee Action Plan (simplification of customs clearance procedures, studies on transport formalities and costs, digitalisation of customs services at border crossings, etc.)

Standards

C.2 Establishment of a National Product Certification System

C.3 Support to the Standards Bureau for the deployment of mobile laboratories and auditors to facilitate the verification of compliance with standards for products sold frequently or exported

C.4 SMEs and agricultural value chains - implemented through the Malagasy Employer’s Association (“Groupement du Patronat Malgache”) and the Regional Chamber of Commerce

C.5 Design and implementation of an incubation programme for exporting companies

C.6 Support to farmers' cooperatives and agricultural SMEs in selected value chains, including: , , rice, coffee, , and cattle. This activity could include the establishment of small production units for value added purposes

C.7 Design and implementation of a business relations programme to link SMEs to large enterprises and facilitate exchanges with SADC, COMESA, and the IOC

Institution Building:

C.8 Procurement of the VOR for Tuléar Airport

C.9 Support for improving the employability of young engineers

C.10 Support for the training of PIU and DDP professionals

D. Project Management and Monitoring: UA 4.74 million

D.1 Accounting and financial audit

D.2 Project technical audit

D.3 Road safety audit

D.4 Monitoring and evaluation of project impacts

D.5 Operation of the Project Implementation Unit.

2.2. Technical Solutions Retained and Alternatives Explored

2.2.1 According to the traffic study conducted under RN 9 Phase II (the Analamisampy - Section + Mangoky Bridge), the pavement structure selected has an average base course of 20 cm in lateritic gravelly sandy soil, a 20 cm base course in ADG 0/31.5 and 4 cm in semi- dense bituminous concrete (SDBC). For the section between the exit of the Mangoky Bridge (Bevoay) and Manja, the pavement structure selected has an average subgrade thickness of 20 to 25 cm in lateritic sandy silty loamy soil, with the other elements identical to the section

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described above. A subgrade layer varying in thickness between 0 and 35 cm in places, made of viable materials, will be used to raise the pavement above water in steep areas or to replace low load-bearing platform soils. For both sections, the shoulders will be covered with a single- layer surface coating.

2.2.2 With regard to the RNT 12 A, the project provides for the systematic raising of the red line in order to address water-related concerns. As a result, the selected pavement structure includes a base course with an average thickness of 15 cm of selected materials, a base course of 20 cm of ADG 0/31.5 and a wearing course of 5 cm of semi-dense bituminous concrete (SDBC). A 30 cm subgrade layer of viable materials will be used to raise the pavement above water in steep areas or to replace low-load-bearing platform soils. For both sections, the shoulders will be covered with a single-layer surface coating.

2.2.3 The alternative technical solutions explored and reasons for their rejection are given in the Table below:

Table 2.2 Alternative Solutions Explored and Reasons for Rejection Alternatives Brief Description Reasons for Rejection 15 to 20 cm lateritic gravel base, The durability of the pavement 0/31.5 untreated natural gravel structure is considered Paved road with surface base and 4 cm asphalt concrete inadequate in view of the high coating wearing course volume of overloaded heavy vehicle traffic on this section.

2.3 Project Type

2.3.1 The project is an investment operation. This financing instrument has been selected as the most appropriate for the Bank's intervention in this operation. Donor interventions in transport infrastructure in Madagascar are generally through such operations.

2.3.2 Investments to be financed are specifically defined. Accordingly, combined project loans and project grants were deemed the appropriate instruments for the Bank's participation in financing this public investment operation, given the fragility situation of the country.

2.4. Project Cost and Financing Arrangements

2.4.1 The overall project cost, net of taxes and customs duties, is UA 109.08 million, equivalent to USD 156.81 million at the May 2018 exchange rate (UA 1 = USD 1.44), including UA 71.15 million in foreign currency and UA 37.93 million in local currency, representing 65.23 % and 34.77% respectively of the total cost. Provision for physical contingencies represents 8% of the base cost, while that for financial contingencies represents 5% of the base cost and the provision for physical contingencies. Summaries of estimated project costs by component and by expenditure category are provided below in Tables 2.3 and 2.4 respectively. The project will be jointly financed by AfDB (TSF and ADF loans and grants), the EU through a grant from AIP, the Government of Madagascar, OFID, on a parallel funding by BADEA and Arab fund.

2.4.2 The estimated cost of the components (excluding taxes), as summarised in Table 2.3., is UA 109.08 million, of which UA 71.15 million in foreign currency (65,23%) and UA 37.93 million in local currency (34,77%).

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2.4.3 Regarding the financing arrangements by the African Investment Facility (AfIF), the Board approved on July 12th 2017 (Resolution Nº B/BD/2017/124 – F/BD/2017/87) the cooperation framework between the European Commission (EC) and the Bank, known as “PA Grant or Delegation Agreements (PAGODA)”. The EC has approved on 5th October 2018, a grant equivalent to 39.92 million Euros under this project. It is expected that the Bank and the EC will sign a delegation agreement in the framework of this project. The said agreement will define the activities conferred to the Bank during implementation of the project. The agreement will also determine implementation arrangements, but also will define the rules governing the payment of the EU contribution and the relationship between the Bank and the EC. The mobilized resources under the AfIF mechanism, will be disbursed and managed by the Bank.

Table 2.3 Project Cost by Component COMPONENTS USD Million UA Million MGA Million For. Loc. For. Loc. Exch. Cur. Total Exch. Cur Total For. Exch. Loc. Cur. Total A. ROAD WORKS 81.98 38.18 120.27 58.14 27.08 85.22 273 333.05 127 297.03 400 630.09 B. RELATED DEVELOPMENTS 0.42 1.71 2.13 0.30 1.21 1.51 1 409.52 5 704.68 7 114.21 C. TRADE FACILITATION AND INSTITUTION BUILDING 5.64 2.42 8.06 4.00 1.71 5.72 18 808.68 8 060.86 26 869.55 D. PROJECT MANAGEMENT 0.85 3.58 4.43 0.60 2.54 3.14 2 822.07 11 931.30 14 753.37 E.MISCEL. 0.00 1.50 1.50 0.00 1.07 1.07 0.00 5 015.58 5 015.58 PROJECT BASE COST 88.89 47.39 136.31 63.05 33.61 96.66 296 373.33 158 009.46 454 382.79 Physical contingencies (PC) 8% 6.98 3.72 10.70 4.95 2.64 7.59 23 265.31 12 403.74 35 669.05 Financial contingencies and Price escalation (5%) 4.44 2.37 6.81 3.15 1.68 4.83 14 818.67 7 900.47 22 719.14 TOTAL PROJECT COST 100.32 53.48 153.80 71.15 37.93 109.08 334 457.31 178 313.68 512 770.98

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Table 2.4 Sources of Financing SOURCES UA Million USD Million For. Loc. For. Total % Loc. Cur Total % Exch. Cur Exch. ADF Loan 3.20 0.80 4.00 3.67% 4.51 1.13 5.63 3.67% ADF Grant 10.00 2.50 12.50 11.46% 14.11 3.53 17.63 11.46% TSF Loan 6.76 1.69 8.45 7.75% 9.53 2.38 11.91 7.75%

ADF Regional 14.94 3.74 18.68 17.12% 21.07 5.27 26.34 17.13% Resources Loan

ADF regional 15.00 3.75 18.75 17.19% 21.15 5.29 26.44 17.19% resources Grant OFID 7.22 1.81 9.03 8.28% 10.18 2.55 12.73 8.28% EU 25.74 6.43 32.17 29.49% 36.30 9.07 45.36 29.49% GOV. 0.00 5.50 5.50 5.04% 0.00 7.76 7.76 5.05% TOTAL COST 71.15 37.93 109.08 100.00% 100.32 53.48 153.80 100.00%

Table 2.5 Project Cost by Expenditure Category

CATEGORIES USD million UA million MGA Million For. Loc. For. Loc. Exch. Cur Total Exch. Cur Total For. Exch. Loc. Cur Total A. GOODS 1.13 0.69 1.82 0.80 0.49 1.29 3 763.30 2 304.60 6 067.91 B. WORKS 76.04 38.08 114.12 53.93 27.01 80.94 253 531.76 126 957.58 380 489.33 C. SERVICES 11.48 4.95 16.43 8.14 3.51 11.65 38 273.39 16 487.76 54 761.15 D.PROJECT OPERATING COSTS 0.24 2.17 2.41 0.17 1.54 1.71 804.88 7 243.94 8 048.82 E. MISCL. 0.00 1.50 1.50 0.00 1.07 0.00 804.88 5 015.58 5 015.58 PROJECT BASE COST 88.89 47.39 136.29 63.05 33.61 96.66 296 373.33 158 009.46 454 382.79 Physical 6.98 3.72 10.67 4.95 2.64 7.59 23 265.31 12 403.74 35 669.05 contingencies (8%) Financial contingencies and Price escalation (5%) 4.44 2.37 6.81 3.15 1.68 4.83 14 818.67 7 900.47 22 719.14 TOTAL PROJECT COST 100.32 53.48 153.80 71.15 37.93 109.08 335 357.76 178 313.68 512 770.98

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Table 2.6 Expenditure Schedule by Category IN UA MILLION TOTAL N° CATEGORY 2019 2020 2021 2022 2023 2024 A GOODS 0.00 0.12 0.55 0.63 0.00 0.00 1.29

B ROAD WORKS 12.42 24.96 35.66 7.42 0.48 0.00 80.94 C SERVICES 0.90 3.17 3.08 2.21 1.22 1.07 11.65

OPERATING COSTS 0.26 0.34 0.34 0.34 0.26 0.17 1.71

D MISCELLANEOUS 0.53 0.43 0.11 0.34 0.00 0.00 1.07 PROJECT BASE COST 14.11 29.02 39.73 10.59 1.96 1.24 96.66 Physical Contingencies 1.11 2.28 3.12 0.83 0.15 0.10 7.59 Financial Contingencies 0.71 1.45 1.99 0.53 0.10 0.06 4.83 TOTAL COST 15.92 32.75 44.83 11.96 2.20 1.40 109.08

2.5 Project Area and Beneficiaries

2.5.1 The project’s impact area is located in the southern part of the country, in particular the South-West and South-East of Madagascar, straddling the Atsimo-Andrefana (9 districts: Toliara I, , , , Betioky, , , Toliara II and ) and regions (5 districts : , Manja, , Belo - Tsiribihina and Miandravazo) for the South-West; Atsimo Antsinanana (5 districts: , Vangaindrano, Midongy-Atsimo, and ) and Anosy regions (3 districts either Taolagnaro or Fort Dauphin, Betroka and Amboasary Atsimo) for the South-East. In all, the project will cover a large area of 22 districts in four regions. Atsimo Andrefana is Madagascar’s largest region with an area of 66,236 km2 and a population of 1,400,756 inhabitants. The Menabe region stretches over 48,860 km2, with a population of 828,649 inhabitants (52% of whom women, and 75% of the population are aged below 45).

2.5.2 In the South-East part, the project covers two important regions, namely Anosy with an area of 25 731 km2 and a population of 510 000, and Atsimo Antsinanana with an area of 18 863 km2 and a population of 621 200. These regions have the highest poverty rates, with minimum and maximum levels ranging from 85% to 93% of people living below the poverty line. The population growth rate in the Anosy region is estimated at 2.9% compared to 2.7% in Atsimo Antsinanana. Projections (Regional Territorial Planning Framework, SRAT 2012) indicate that by 2030, Anosy region will have a population slightly above one million.

2.5.3 The area’s population is made up mainly of farmers, fishermen and agro-pastoralists. The region offers significant economic opportunities for the development of agricultural and agro-pastoral activities as a result of its considerable water resource potential. The tourism sector3 is also a source to be tapped. However, the potential is underutilised as there are no all- season access roads. The project will make a substantial contribution to opening up the southern part, developing its economic potential and, subsequently, improving the living conditions of the people by easing both input supply and product flow to domestic, regional and export

3 In particular with the Mikea reserve, as well as in the eastern part of RN9, the Andraitsazo and Ambatomainty baobab , the Andranobe Lake site, the Amboboka and hot springs, the Ifaty and Morombe seaside resorts.

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markets. The project will thereby contribute to strengthening regional integration through increased trade, by opening up export opportunities for products in the context of regional integration with COMESA, SADC and Indian Ocean countries.

2.6 Participatory Approach to Project Identification, Design and Implementation

2.6.1 Various project stakeholders (NGOs, local communities, associations, women's groups, cooperatives, administrative and political authorities at the national and local level) were consulted during Bank missions. Participatory consultations were held with the people, the main road users and stakeholders in the Malagasy transport system (carriers, Malagasy port authorities, etc.). Plenary participatory sessions were also organised in both the project area and the capital. This approach will be pursued during project implementation in order to strengthen the process, particularly with regard to: (i) compensation; (ii) site installation and commencement of works; and (iii) establishment of the baseline situation and monitoring and evaluation of the project's socio-economic impact.

2.6.2 Participatory sessions helped to take account of the population’s grievances and needs, with a view to determining related facilities to be financed under the project. Activities to enhance the project's socio-economic impact include: (i) developing the Antanimieva rural market to market products from agricultural production areas; (ii) providing social support for women by purchasing agricultural equipment; (iii) improving children's learning conditions by building appropriately equipped classrooms and structures protecting schools from road traffic; (iv) drilling boreholes for drinking water supply to villages; (v) rehabilitating health centres; and (vi) rehabilitating and equipping gendarmerie stations for the protection of the people.

2.7 Bank Group Experience and Lessons Reflected in Project Design

2.7.1 The Bank's portfolio review (PR) was conducted in May 2018. Table 2.7 summarises the measures taken to ensure that the project design takes account of the main lessons drawn from implementing operations in the road subsector covered by the review, as well as those from completed projects.

Table 2.7 Lessons Reflected in Project Design Lesson Activities integrated into the design of the Project to Develop Corridors and Facilitate Trade Large counterpart funding arrears are a Opening a special account and replenishing it periodically at recurrent problem that severely penalizes the beginning of the year by paying the estimated amount of companies. the counterpart funding for the year in question is a loan condition. Frequent changes in Project Management Since its establishment, ARM has been the sole executing Teams. agency for Bank-financed road projects (on a permanent basis). Delay in undertaking project audit and The Bank will ensure that the dossiers relating to these monitoring activities. components are prepared at the same time as those for road works. Moreover, the fact that INSTAT will be directly entrusted with the monitoring and evaluation task will substantially reduce its mobilization. The ownership of a collective asset such as Sensitisation on infrastructure ownership and management is infrastructure by local communities is built a sub-component of the project. through a process that should be an integral part of the project.

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2.8. Key Performance Indicators

2.8.1 The key performance indicators and expected outcomes on project completion are presented in the Results-based Logical Framework, namely: (i) increased volume of trade between Madagascar, COMESA and Indian Ocean countries; (ii) substantial increase in exports and imports; (iii) lower vehicle operating costs (VOCs); (iv) reduced travel duration; (v) increased annual average daily traffic (AADT), which strongly correlates with changes in economic activities; (vi) modernised and simplified customs procedures; and (vii) rendering the road useable at all season. The baseline situation for these indicators will be validated/confirmed at the beginning of the project. A mid-term and end-of-project evaluation will be conducted by an agency to be selected in consultation with the Government.

2.8.2 Performance indicators for project implementation should also be considered in addition to the key impact and outcome indicators. These are mainly: (i) the time required to implement and meet conditions precedent to first disbursement; (ii) procurement timeframes, (iii) the average indicator of project status (PI); and (iv) disbursement trends vis-à-vis the expenditure schedule. These indicators will be monitored during supervision missions and routine project management.

3. PROJECT FEASIBILITY

3.1 Economic Performance

3.1.1 For RN 9, the road segment under consideration is that between Analamisampy and Manja, which links Toliara and RN 35 and can be broadly divided into two main sections considered to be homogeneous: the Analamisampy - Bevoay Section (PK107-PK192+784) and Bevoay bridge exit (PK194+730) - Manja (PK274+744). The current traffic on the two segments was assessed based on the outcome of the campaigns carried out in 2014 by the Madagascar Road Authority (ARM) with the support of the Louis Berger Company. The data collected at the time gives an AADT of 30 vehicles per day (including 65% LV and 35% HGV) on Analamisampy/Bevoay and 23 vehicles per day (including 65.3% LV and 35% HGV) on Bevoay/Manja. In the year of service, the total traffic will comprise normal traffic, induced traffic resulting from the increase in the level of economic activities in the project impact area, and diverted traffic consisting of vehicles operating on the Toliara/Morondava link and currently using RN 7 and RN 35, given the poor condition of RN 9. The recommended annual growth rate assumptions are 4% for light vehicles and 6% for heavy vehicles.

3.1.2 In the case of RNT 12A, which is the section between Taolagnaro (Fort Dauphin) and Vangaindrano, current traffic is assessed based on information from the registers of the various road ferries on the route. Traffic counts and Origin-Destination Surveys have been carried out although traffic on the current road is very low, mainly due to its condition, features and numerous ferry crossings. Traffic counts were conducted from 26 February to 1 March 2015 and Origin-Destination Surveys on 26, 27 and 28 February 2015 due to weather conditions.

3.1.3 The economic benefits obtained by the community in a project situation concern reduction in vehicle operating costs (VOCs), reduction in maintenance costs and the residual value of road infrastructure, which in this case is estimated at 30% of the cost of works. The economic benefits of implementing the project over the period covered by the analysis (2016- 2035) present an economic rate of return (ERR) of 22.10% on the RN 9 section and 14.70% on the RNT 12A section, representing a consolidated ERR of 18.4% for the entire project. The corresponding net present values (NPVs) are MGA 2 916 million for the first section and MGA 1 693 million for the second section, representing a consolidated NPV of MGA 4 609 million for the entire segment. The sensitivity tests conducted (10% variation in the costs of works and

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benefits) yielded an ERR of 20.76% in the case of an increase on RN 9 and 13.0% in the case of an increase on RNT 12A. Therefore, the project is economically viable for the community.

Table 3.1 Key Economic and Financial Figures (detailed calculations available in the Technical Annex) Economic Parameters Toalagnaro-Vangaindrano Toliara-Manja (RN 9) Entire Project Analysed (RNT 12A) ERR 22.10% 14.70% 18.4% NPV in MGA million 2916 million Ar. 1693 million Ar. 4609 million Ar. ERR sensitivity test 20.76% 13.0% 16.88% (+10%)

3.2 Environmental and Social Impact

Environment

3.2.1 The project is classified under Category 1 in accordance with the Bank (AfDB) Integrated Safeguards System (ISS), based on the scale of the works and the number of people affected. It is also classified as a Category 1 operation as per national regulations. The project was the subject of two ESIAs: the RN 9 Road ESIA (Phase II) prepared in January 2017, and an Environmental Permit issued on 12 December 2017 by the National Office for the Environment (ONE); and the RNT 12A Road ESIA prepared in October 2017, and an Environmental Permit issued on 20 November 2017. A Resettlement Action Plan (RAP) was also prepared for each of the two components.

3.2.2 The main impacts during the works will primarily relate to the worksite effects and the risks to the physical environment, such as compaction (on the structure and texture) of soils outside the works area, deterioration of surface and ground water quality, and risks of uncontrolled discharge of solid and liquid waste from the construction site. While the right-of- way remains almost exclusively on the current route, the impacts on the environment involve the clearing and felling of trees. Threats in some areas will primarily concern the destruction of food crops along the road. Work in the quarries will cause noise pollution, due to the sound of earth-moving machinery and the firing of explosives. During the operational phase, the improved level of road service will result in increased traffic, which will in turn raise the risk of accidents when crossing urban areas, not just for the local population. The impacts identified will be contained through the implementation of appropriate mitigation measures as described in the ESMPs. The RN 9 and RNT 12A ESMPs were used by ONE to establish the Environmental Compliance Specifications (ECS). ESIA reports (including ESMPs) already validated by NEB will be included in the bidding documents for the recruitment of the contractor and the Control Mission.

3.2.3 The Supervision Consultant will ensure compliance with regulatory and legal provisions on environmental protection. It will have a full-time environmental officer on site to verify that: the required contractual documents are produced on time; the implementation of mitigation measures is effective; the results of the environmental monitoring programme are acceptable; and the mitigation measures are effective. The Control Mission will report to the management body (i.e. the project manager, MTPI and ARM) on its work. During the road operation phase, MTP and ARM will work in partnership with the Regional Directorate in charge of the environment and local authorities to ensure that the planned mitigation and enhancement measures are implemented.

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Climate Change

3.2.4 The process of climate risks identification (screening) undertaken through the Bank’s Climate Safeguards (SSC), classifies the project as category II (the project can be vulnerable to risks linked with climate change, which necessitates an analysis of said risks and the development of mitigation measures. Workable options for risk management and adaptation should be incorporated in the conception plans and implementation of the project). The project area is classified as a "high cyclone risk area" and is vulnerable to the effects of climate change. Although cyclones are not frequent, they have become more violent in intensity, wind speed and amount of rain. Rainfall, particularly in the southern part, is becoming even less frequent than before, albeit with significantly higher intensities, which can cause floods. These phenomena will aggravate landslides, the "lavaka" phenomena (i.e. and formation of breaches characteristic of lateritic hillsides), the silting of rivers, change of the beds of big rivers, the erosion of riverbanks and the rise in water levels.

3.2.5 In terms of adaptation, the construction of suitable structures (submersible riffles) is being considered in areas exposed to violent flooding. The bidding documents will also include the necessary provisions to address the adverse effects of climate change. The project design takes into consideration: (i) the waterproofing of road sections to be developed; (ii) the installation of ditches to protect against erosion; (iii) the design of hydraulic structures to take into account the fifty-year flood recurrence interval, in light of climate zoning in Southern Madagascar. Furthermore, with regard to the bridge over the , the design took into account the 100-year flood recurrence interval. Climate change considerations must be further developed when updating the ESIA/ESMP/RCP prior to project implementation, particularly for RNT 12A. The SSC report on annex presents more proposed adaptation measures to the identified climate risks. Moreover, it should be noted that the country has committed to reduce gas emissions by 14% by 2030, through the activation of actions geared at reducing the latter, but also adaptation measures, as proposed in the report on annex.

Gender

3.2.6 Project implementation will reduce gender disparities on the social and economic front. These disparities affect the health sector, where access to basic health services remains problematic for women. In terms of access to education, there is still discrimination that favours access to education for boys to the detriment of girls. In the agricultural sector, women continue to be marginalised because of the lack of mastery of modern techniques. Moreover, in terms of daily work, women's workload is higher because of the social roles they have to perform. This project will help to develop ancillary activities, especially agriculture and facilitation of trade in food products. These activities will contribute to the improvement of women's socio- economic situation. The cultivation of food products remains a favourite field for women. They derive income from the sale of food products. However, such income is quite limited because of low production resulting from the use of rudimentary techniques. Women cultivate food for domestic consumption and the surplus is often for commercialisation. Income from sales is used to cater for the children's education and health. However, the lack of reliable transport infrastructure and inadequate mastery of modern farming techniques reduce women's ability and determination to produce on a large scale. To enable them and other vulnerable groups to benefit from the project, specific actions will be taken based on the expectations of various social categories.

3.2.7 In this regard, measures have been taken in the context of related activities to reduce these inequalities through social and economic developments aimed specifically at: (i) promoting the proper functioning and better quality of service of health and education facilities;

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(ii) alleviating women's domestic tasks; (iii) improving the income of women and youths; (iv) providing access to drinking water in terms of quantity and quality; (v) opening up production areas; (vi) assisting farmers to sell their local products; and (vii) promoting community reforestation and renewable energies.

3.2.8 It should be noted that emphasis will be placed on the project's impact on gender and vulnerability when updating the RCP.

Social and Youth Employment

3.2.9 The project will provide a number of economic opportunities (employment, development of local production) during construction periods, which may not be of equitable benefit to the poor. The impacts can be summed up as the improvement of the socio-economic conditions of the local people concerned by the monetary benefits provided by the site workers; the creation of temporary direct jobs during the construction works; and the development of new access roads that will open up the area. 3.2.10 During the road construction phase, the project will create direct, skilled and unskilled jobs, i.e. 40,000 person/days, of which at least 20% will be women. 3.2.11 To promote employability, the project will recruit and train 45 young graduate interns, at least 50% of whom will be girls. The recruitment will be done in 3 waves during the implementation phase, for a period of 6 months renewable only once. The trainees will be placed respectively within the management unit, the control mission and the contracting firm, to assist various experts. They will be remunerated during their internship period according to applicable Malagasy terms and conditions. This training will be funded from the project budget. Road Safety

3.2.12 Three entities are responsible for road safety: (i) the Vehicle Registration Centre, under the supervision of the Ministry of Interior, which registers vehicles; (ii) the General Directorate of Road Safety, under the supervision of the Ministry of Defence, which carries out roadworthiness tests on vehicles; and (iii) the Road Safety Department of the Ministry of Transport, in charge of developing and monitoring sector policy and regulations. The data is patchy and the effective monitoring of texts is not centralised, resulting in some confusion for stakeholders.

3.2.13 In terms of the number of accidents recorded each year, Madagascar's roads are highly prone to accidents. However, the tendency is decreasing: the number of accidents dropped from 1 482 in 2006 to 1 091 in 2011, indicating a slight reduction. The main factors behind these accidents are: (i) human error (drink-driving, excessive speed, lack of civility); (ii) the generally deplorable mechanical state of vehicles; and (iii) road infrastructure defects (poor design, lack of proper facilities, insufficient markings and signs, lack of maintenance).

3.2.14 To address this situation, the project design provides for measures to improve road safety through: (i) the training of gendarmes to gain a better understanding of accidents and in data collection; (ii) compliance, in the design of structures, with the regulations and technical standards in force relating to road safety with regard to signs, slopes, embankments and detours; (iii) the development of temporary parked vehicle clearance areas; (iv) road safety awareness campaigns that will target users and local communities; and (v) road safety audits during the implementation phase and upon works completion.

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Involuntary Resettlement

3.2.15 The construction of the 2 main roads, RN 9 and RNT12A, will entail the loss of agricultural land and crops (all crops combined), the loss of residential houses, ancillary structures (veranda, outdoor kitchen, outbuilding, hangars, kiosks, fences, etc.), the loss of unused bare land, tenant farming land, businesses, etc. In this regard and in accordance with the social protection policy relating to the protection of persons affected by any infrastructure investment project, the Malagasy Government has submitted a Resettlement and Compensation Plan (RCP) for each of the main roads.

3.2.16 1421 households or 6395 people would be affected on RNT 12A and 159 households or 731 people on RN 9. The total cost of the RCP is MGA 2,189,826,455 or EUR 625,665 for RN 9 and MGA 8,212,230,023 or EUR 2,494,831 for RNT 12A. This represents a total RCP cost of MGA 10,402,056,478 or EUR 3,120,496 to be financed by the Malagasy Government as part of the counterpart funding. The Government shall show evidence of mobilising these funds before project start up ("conditions precedent to disbursement").

3.2.17 To meet the Bank's requirements, provision has been made to review the two RCPs prior to effective project start-up, with a view to updating, consolidating and finalising the data. This should be one of the conditions precedent to disbursement and/or start of works.

4. IMPLEMENTATION

4.1 Implementation Arrangements

Executing Agency and Institutional Arrangements

4.1.1 The ARM will be the executing agency. Given the complexity of the Project, a Project Implementation Unit (PIU) will be set up within ARM. The PIU will comprise a coordinator, a procurement specialist and an administrative and financial officer, two public works engineers (including a specialist in civil engineering structures), an environmental expert, a trade facilitation specialist and an accountant. Given the project’s multi-sector nature and complexity, the Unit will be provided a technical assistance to undertake ad-hoc interventions throughout the implementation phase. The PIU members will be selected on a competitive basis, to guarantee the best project management capacity. The appointment of the coordinator and the establishment of the PIU is one of the conditions precedent to first disbursement (Condition C (i). The CV for the PIU’s selected members shall be approved by the Bank.

4.1.2 In addition to the Unit responsible for the day-to-day management of the project, a Steering Committee (SC) and a Technical Committee (TC) made up of key government agencies in charge of transport infrastructure, trade and the private sector issues, will be put in place. The SC will comprise the following: (i) Chairperson of the Steering Committee: S.G. (Secretary General) Ministry of Finance and Budget; (ii) 1st Chairperson: S.G. Ministry of Public Works and Infrastructure; (iii) 2nd Chairperson: S.G. Ministry of Trade and Consumer Affairs; (iv) Members: Chairpersons of APMF, the Private Sector, Regional Chambers of Commerce (Atsimo Andrefana, Menabe, Anosy and Atsimo Antsinanana); the Public Debt Department (DDP) (v) ARM will provide serve as the secretariat. The Steering Committee will meet twice a year to approve the work programme and annual budget as well as annual activity reports.

4.1.3 The Technical Committee (TC) will be the monitoring agency for project activities. It will comprise ten (10) focal points designated by each of the beneficiary structures. These ten focal points will be made up of the following: Ministry of Finance and Budget (Borrower’s

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representative), Ministry of Public Works and Infrastructure, Ministry of Trade and Consumption, a representative of APMF, a representative of the Private Sector, a representative of the Chamber of Commerce in the Atsimo Andrefana, Menabe, Anosy and Atsimo Antsinanana regions as well as a representative of the General Customs Directorate.

4.2 Procurement

4.2.1 Procurement. Goods (including services other than those of consultants), works and consultancy services, financed by the Bank under the project, will be procured in accordance with the Procurement Framework for Bank Group-Funded Operations, October 2015 edition, and the provisions set out in the Financing Agreement.

 The Borrower’s Procurement System (BPS): the Borrower’s Procurement System (BPS) governed by law No. 2016-055 on Public Contracts Code (CMP) of 25 January 2017, will be applied, using the national standard bidding documents (SBD) or other bidding documents, as agreed during project negotiations. This will apply for the case of the less complex contracts for goods and works, provided they are available in the national market.

 Bank’s Procurement Methods and Procedures (PMP): the Bank’s Procurement Framework for Bank Group funded Operations, and its Procurement Methods and Procedures (PMP) shall apply to the major complex contracts for goods and works as well as for consultancy services, which are deemed to be the most suitable and in the event where use of the BPS is not deemed appropriate for a given activity or set of activities considering the high risks associated and to ensure a smooth implementation of the project’s activities. The plan is to request a waiver from the Board, to open the procurement of goods, works and services, financed by EU AfIF resources, to Non-Bank’s members.

4.2.2 Procurement Risks and Capacity Assessment: Risk assessment at country, sector and project level as well as the Executing Agency's procurement capacity was conducted and the results guided the choice of the country's system, which will be used for part of the procurement to be made under the project. Appropriate risk mitigation measures have been included in the Action Plan provided in para. B.5.9. of Annex B 5.

4.3 Disbursement Arrangements

4.3.1 Part of the ADF grant resources will be disbursed into the special project account as working capital to cover the project’s operating expenses. In this regard, an account bearing the project’s name will be opened with the Central Bank of Madagascar, in accordance with the legal provisions in force in the country. This will be a condition precedent to first disbursement of loan resources. Expenditures on consultancy services, construction companies and suppliers shall be made by direct payment or reimbursement, in accordance with the provisions of the Bank's Disbursement Manual.

4.4 Financial Management

4.4.1 The Madagascar Road Authority that implemented the PAIR project has satisfactory management tools, namely a management procedures manual that has been validated by the Bank and the TOM2PRO management software. However, internal control and communication weaknesses were identified during the implementation of the PAIR project. As a result, financial and administrative management arrangements will be proposed as part of this new

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operation to ascertain, with reasonable assurance: (i) the use of project resources for the intended purposes and in an efficient and cost-effective manner; (ii) the accountability and availability of project financial information in the required formats, quality and timelines; and (iii) the security of assets acquired as part of the project.

4.5 Audit

4.5.1 As regards financial and technical audit, latest six (6) months following project effectiveness, the Ministry of Public Works and Infrastructure, in collaboration with the Court of Auditors, will recruit an external audit firm on a competitive basis and in accordance with the terms of reference approved by the Bank, to conduct the annual financial and technical audit of the project.

4.5.2 The Court of Auditors will be responsible for: (i) the recruitment of the audit firm with the support of the Ministry’s Procurement Committee; (ii) the signing of the auditor’s contract; (iii) audit monitoring; and (iv) the submission of the audit report to the Bank within six months following the end of each fiscal year.

4.6 Governance

4.6.1 State capacity building, the establishment of effective institutions and the promotion of inclusion remain key to containing the effects of fragility and building greater resilience. The elements of fragility to which Madagascar is not immune include, among others: (i) the lack of basic road infrastructure to facilitate trade; (ii) limited economic opportunities; (iii) vulnerability to natural disasters and climate change (droughts, cyclones and floods); (iv) weak institutions and governance issues; (v) high incidence of poverty; and (vi) gender inequalities. The project will help to address these causes of fragility through the construction of road infrastructure to promote trade and community facilities to ensure access to basic services such as education, health, water and sanitation. It will also facilitate market access and contribute to capacity building and food security. Moreover, the Government of Madagascar has undertaken a number of reforms to strengthen governance, transparency and accountability with a view to promoting trade and regional integration.

4.6.2 There are risks to project governance, which could arise during project implementation, through issues such as decisions on procurement and the use of project resources. These risks will be mitigated through the governance structures put in place, financial management, procurement procedures and monitoring systems built around project implementation. The PIU will be required to produce periodic progress reports on project implementation, audited financial statements and external auditors’ report on the financial statements. The Bank will monitor governance issues through works and annual budgets, project implementation and progress reports, supervision missions, procurement plans and audit reports. 4.7 Sustainability

4.7.1 The technical analysis of the dossier shows that the sustainability of the road sections to be upgraded under this project will depend on the following key factors: (i) quality of the preliminary technical studies; (ii) quality of the work carried out; (iii) operation of the infrastructure; and (iv) level and quality of maintenance. In this regard, it should be noted that the project was subject to comprehensive studies in July 2016 and the technical solutions adopted were deemed satisfactory.

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4.7.2 For works execution, the contractors will be selected through international bid invitation based on a bidding document validated by the Bank. The special technical clauses will set out all technical specifications of the materials to be used, as well as the criteria for works acceptance. The selected contractors will then be required to prepare works implementation dossiers, which will be submitted to the supervision mission and the delegated contracting authority (ARM) for approval. To ensure that quality standards are met during the construction phase, works control and supervision will be carried out by two consulting engineering firms (for RN 9 and RNT 12A) chosen from among the most qualified and familiar with similar projects, in accordance with relevant Bank rules and procedures. Furthermore, a top-rated road engineer is expected to participate in the project technical and road safety audit. Finally, the Bank's supervision of the project, as well as the technical and road safety audit missions of consultants recruited as part of the project, will contribute to better technical monitoring of works execution and mitigate any risk of defects.

4.7.3 With regard to infrastructure operation, in particular, the pavement and its surroundings, Madagascar has a set of laws and regulations that contribute to the protection of its road assets. The Bank’s supervision missions will ensure the effective application of the laws in force and the gradual reduction of the problem of overloading on the classified road network. The Government must take all necessary measures to apply the financial penalties under the laws in force and to discharge offending trucks.

4.7.4 With regard to classified road network maintenance, it was noted that the total financial resources mobilised by the Road Maintenance Fund (RMF) for the 2018 financial year was approximately MGA 110 billion, mainly from fuel charges. This amount is insufficient to cover all the maintenance needs of national roads estimated at MGA 400 billion. It is necessary to diversify financing resources to increase the coverage rate of national road maintenance needs and ensure the sustainability of infrastructure to be implemented under this project. The Bank's Country Office and other development partners will continue the dialogue with the country to ensure that the necessary resources are provided for the RMF to prevent road network deterioration.

4.8 Risk Management

4.8.1 There are relatively high risks of fragility and resilience regarding the above- mentioned factors. The country is also facing periods of severe food insecurity, resulting in significant food imports. Unemployment rates are high, especially among the youths. Economic reforms are proceeding at a relatively slow pace and the uncertainty surrounding the upcoming elections adds to the country's fragility to a certain extent. The project design took these factors into account with the aim of targeting interventions and actions that can mitigate the risks involved, while contributing to building resilience.

4.8.2 The project design has integrated measures and technical options to address threats related to climate change. These provisions were mentioned above. Other risks over which the project has little or no control are summarised below:

• Risks related to the socio-political crisis. Despite the restoration of democratic institutions in 2014, Madagascar is struggling to build a peaceful political climate. This situation could lead to political instability. This risk would be mitigated by the organisation of free and fair elections scheduled for December 2018.

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• Risks related to ARM's institutional and technical weaknesses. To mitigate these risks, the Bank and other development partners provided ARM with technical assistance and capacity-building programmes under previous projects.

• Risks related to delays in the payment of counterpart funds. In light of experience from implementing previous operations, the Government is taking steps to mitigate this risk by including a budget chapter on overall project counterpart funding in the Finance Act. The counterpart funds will be transferred to a deposit account to be opened with the Treasury.

4.9 Knowledge Building

4.9.1 The establishment of a baseline before the start of project activities will provide a basis for comparison to realistically assess the project's outputs and impacts. The knowledge generated during project implementation will be based on best practice in road project management, monitoring and evaluation. Such best practice will be disseminated by INSTAT to project stakeholders through regular meetings and briefs.

4.9.2 Moreover, the outcomes of the institutional study on road maintenance will be disseminated following a national workshop on the conclusions and recommendations to be implemented to ensure the sustainability of road infrastructure.

4.9.3 Key knowledge and lessons learned will be managed from a database at the ARM level. This database will facilitate the management of all knowledge accumulated on the activities, achievements, key outcomes and lessons learned under the project. Summaries may be published on the Bank's website.

5. LEGAL FRAMEWORK AND AUTHORITY

5.1 Legal Instrument

5.1.1 The financing instruments retained are: (i) a Grant agreement between the ADF; and the Republic of Madagascar (ii) a Loan agreement between the ADF and the Republic of Madagascar; (iii) a Loan agreement between the TSF and the Republic of Madagascar; and (v) a Grant agreement between the EU AFIf and the Republic of Madagascar.

5.1.2 It is worth noting the fact that all obligations undertaken by the Bank with regard to the European Commission, both pursuant to the framework agreement concluded between the Bank and the EC (PAGODA), and to PAGODA general conditions and the delegation agreement related to this project, and its annexes (in regard to, among others, financial management, disbursement, financial and accounts audit, visibility and communication, etc..), will be entirely transferred to each country in accordance with the AfIF grant agreement.

5.2 Conditions for Bank Involvement

A. Conditions Precedent to Loan Effectiveness

5.2.1 Effectiveness of the Loan Agreement shall be subject to fulfilment by the Borrower of the conditions set forth in Section 12.01 of the General Conditions Applicable to Loan Agreements and Guarantee Agreements of the Bank, to the Fund’s satisfaction.

B. Conditions Precedent to Grant Effectiveness

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5.2.2 Effectiveness of the ADF grant and AFIf grant, shall be subject to signature of the relevant Grant Agreements by the Government of Madagascar and the Bank.

C. Conditions Precedent to first Disbursement of the Loans and the Grants

5.2.3 In addition to the effectiveness of the ADF and TSF Loan Agreements and Grant Agreements for ADF and AfIF, the first disbursement of loan and grant resources shall be subject to the fulfilment by the Borrower/Donee of the following conditions:

(i) Signature and submission of the co-financing agreement between the Donee/Borrower and OFID of which the terms and conditions will have been considered acceptable by the Fund/ Bank or submission of satisfactory evidence of obtainment of other funds that can allow for bridging the financing gap due to absence of co-financing agreement; and

(ii) Submission of supporting documents as proof of appointment of a project coordinator, two public works engineers (including a road structure engineer), an environmentalist, a procurement expert and an accountant for the project implementation unit, of which qualifications and terms of reference will have been deemed acceptable by the Fund/Bank;

D. Conditions precedent to disbursements for works involving resettlement

5.2.4. The obligation of the Fund and Bank to disburse loan and grant resources for works involving resettlement shall be subject to the fulfilment by the Donee/Borrower to the satisfaction of the Fund/Bank of the following additional conditions:

(a) Submit a works and compensation schedule prepared in accordance with the Resettlement Plan and the Fund's Safeguard Policies satisfactory in substance and form to the Fund detailing: (i) each Project works area; and (ii) the timeframe for compensation and/or resettlement of all Project affected persons ("PAP") for each area; and

(b) Provide satisfactory evidence that all Project affected persons ("PAP") in the works area have been compensated and/or relocated in accordance with the Environmental and Social Management Plan ("ESMP"), Resettlement Plan ("RP") and/or the Works and Compensation Schedule, as agreed and the Fund's Safeguard Policies, prior to the commencement of such works and in any event prior to movement and/or taking possession of the land and/or related assets of the PAPs; or

(c) In lieu of paragraph (b) above, provide satisfactory evidence that the resources allocated for the compensation and/or resettlement of the PAPs have been deposited in a dedicated account in a bank acceptable to the Fund or deposited with a trusted third party acceptable to the Fund, where the Donee can demonstrate, to the satisfaction of the Fund, that the compensation and/or resettlement of the PAPs, in accordance with paragraph (b) above, could not be achieved in whole or in part, for the following reasons:

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(i) the identification of PAPs by the Donee is not feasible or possible;

(ii) there are ongoing disputes involving PAPs and/or affecting the compensation and/or resettlement exercise; or

(iii) any other reason beyond the Donee’s control, as discussed and agreed with the Fund/Bank.

E. Other Conditions

5.2.5 Furthermore, the Borrower/Donee shall :

(i) Provide the Fund/Bank, latest 30th April of each year, with evidence of payment into the deposit account opened by the State in respect of the State' s counterpart funds for the project for the year concerned (para. 4.4.5);

(ii) Provide the Fund/Bank, latest twelve months after the first disbursement, with the original or certified copy of the certificate opening an account with the General Revenue, intended to finance the Involuntary Resettlement Plan, into which a total amount equivalent to at least MGA 4.2 billion shall be paid (paragraph 3. 2. 15) ;

(iii) Provide the Fund/Bank, latest 30th June 2019, with evidence of recovery of arrears owed the RMF for 2011 under the RER (para. 4.3.4); and

5.3 Undertakings

5.3.5 The Borrower/Donee undertakes to:

(i) Implement the Project, the Environmental and Social Management Plan (ESMP) and the Involuntary Resettlement Plan (IRP) and have them implemented by its contractors in accordance with national law, the recommendations, requirements and procedures laid out in the ESMP, the IRP and the relevant rules and procedures of the Fund/Bank;

(ii) Not start work in a given project area without fully compensating and/or resettling project-affected persons in that area, except in disputed cases, in accordance with the FRP as might have been updated; and

(iii) Provide the Fund with quarterly reports on the implementation of the ESMP and IRP, including, where applicable, weaknesses and corrective measures taken or to be taken.

F. Compliance with Bank Policies

5.3.6 The project is compliant with all applicable Bank policies.

6 CONCLUSION AND RECOMMENDATION

6.1 Conclusion

6.1.5 The Project to Develop Corridors and Facilitate Trade consists of the construction of two road sections, namely RN 9 in the South-West and RNT 12A in the South-East, Ranozaza Bridge, Mangoky, Ebakika and Masianaka as well as the implementation of trade facilitation

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actions. By helping to open up rural and agricultural areas through the link with the Tuléar and Fort Dauphin Port facilities, this project will create opportunities for increased trade with COMESA, SADC and Indian Ocean countries. The project is economically viable and has an economic return of 20.43%.

6.2 Recommendation

6.2.5 Management recommends that the Boards of Directors :

(i) Decide that the procurement of goods, works and services financed by the AFIf grant resources be open to non-Bank member countries;

(ii) Approve the proposal to extend: (i) an ADF loan of UA 22.68 million, (ii) a TSF loan of UA 8.45 million, (iii) and ADF grant of UA 31.25 million, and (iv) a grant of EUR 39.2 million from AfIF resources to the Republic of Madagascar to finance this project, in accordance with the conditions set out in this report.

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APPENDIXES Appendix I: Comparative Socio-economic Indicators

Madagascar COMPARATIVE SOCIO-ECONOMIC INDICATORS

Develo- Develo- Madagasca Year Africa ping ped r Countries Countries Basic Indicators GNI Per Capita US $ Area ( '000 Km²) 2017 587 30 067 80 386 53 939 Total Population (millions) 2017 25,6 1 184,5 5 945,0 1 401,5 2500 Urban Population (% of Total) 2017 36,4 39,7 47,0 80,7 2000

Population Density (per Km²) 2017 44,0 40,3 78,5 25,4 1500 GNI per Capita (US $) 2016 400 2 045 4 226 38 317 1000 Labor Force Participation *- Total (%) 2017 86,4 66,3 67,7 72,0 Labor Force Participation **- Female (%) 2017 83,8 56,5 53,0 64,5 500

Sex Ratio (per 100 female) 0

2000

2005

2010

2011

2012

2013

2014 2015 2017 99,5 0,801 0,506 0,792 2016 Human Dev elop. Index (Rank among 187 countries) 2015 158 ...... Popul. Liv ing Below $ 1.90 a Day (% of Population) 2012 77,8 39,6 17,0 ... Madagascar A frica Demographic Indicators Population Grow th Rate - Total (%) 2017 2,8 2,6 1,3 0,6 Population Grow th Rate - Urban (%) 2017 4,6 3,6 2,6 0,8 Population < 15 y ears (%) 2017 41,2 41,0 28,3 17,3 Population Growth Rate (%) Population 15-24 y ears (%) 2017 20,6 3,5 6,2 16,0 3,5 Population >= 65 y ears (%) 2017 2,9 80,1 54,6 50,5 3,0 Dependency Ratio (%) 2017 78,9 100,1 102,8 97,4 2,5 Female Population 15-49 y ears (% of total population) 2017 24,4 24,0 25,8 23,0 2,0 Life Ex pectancy at Birth - Total (y ears) 2017 66,3 61,2 68,9 79,1 1,5 Life Ex pectancy at Birth - Female (y ears) 2017 67,8 62,6 70,8 82,1 1,0 Crude Birth Rate (per 1,000) 2017 33,7 34,8 21,0 11,6 0,5

Crude Death Rate (per 1,000) 2017 6,2 9,3 7,7 8,8 0,0

2000

2005

2010

2012

2013

2014

2015 2016 Infant Mortality Rate (per 1,000) 2016 34,0 52,2 35,2 5,8 2017 Mortality Rate (per 1,000) 2016 46,4 75,5 47,3 6,8 Total Fertility Rate (per w ) 2017 4,2 4,6 2,6 1,7 Madagascar A frica Maternal Mortality Rate (per 100,000) 2015 353,0 411,3 230,0 22,0 Women Using Contraception (%) 2017 46,7 35,3 62,1 ...

Health & Nutrition Indicators Phy sicians (per 100,000 people) 2012 14,3 46,9 118,1 308,0 Life Expectancy at Birth Nurses and midw iv es (per 100,000 people) 2012 21,8 133,4 202,9 857,4 (years) Births attended by Trained Health Personnel (%) 2013 44,3 50,6 67,7 ... 80 Access to Safe Water (% of Population) 2015 51,5 71,6 89,1 99,0 70 60 Access to Sanitation (% of Population) 2015 12,0 51,3 57 69 50 Percent. of Adults (aged 15-49) Liv ing w ith HIV/AIDS 40 2016 0,2 39,4 60,8 96,3 30 Incidence of Tuberculosis (per 100,000) 2016 237,0 3,8 1,2 ... 20 Child Immunization Against Tuberculosis (%) 10

2016 70,0 245,9 149,0 22,0 0

2000

2005

2010

2012

2013

2014

2015 2016 Child Immunization Against (%) 2016 58,0 84,1 90,0 ... 2017 Underw eight Children (% of children under 5 y ears) 2004 36,8 76,0 82,7 93,9

Prev alence of stunding 2009 49,2 20,8 17,0 0,9 Madagascar A frica Prev alence of undernourishment (% of pop.) 2015 42,3 2 621 2 335 3 416 Public Ex penditure on Health (as % of GDP) 2014 1,5 2,7 3,1 7,3

Education Indicators Gross Enrolment Ratio (%) Primary School - Total 2016 143,8 106,4 109,4 101,3 Primary School - Female 2016 144,0 102,6 107,6 101,1 Infant Mortality Rate Secondary School - Total 2016 38,3 54,6 69,0 100,2 ( Per 1000 ) Secondary School - Female 2016 38,2 51,4 67,7 99,9 100 90 Primary School Female Teaching Staff (% of Total) 2016 55,2 45,1 58,1 81,6 80 Adult literacy Rate - Total (%) 2012 71,6 61,8 80,4 99,2 70 60 Adult literacy Rate - Male (%) 2012 75,0 70,7 85,9 99,3 50 Adult literacy Rate - Female (%) 2012 68,3 53,4 75,2 99,0 40 30 Percentage of GDP Spent on Education 2013 2,1 5,3 4,3 5,5 20 10

0

2000

2005

2010

2011

2012

2013

2014 2015 Environmental Indicators 2016 Land Use (Arable Land as % of Total Land Area) 2015 6,0 8,6 11,9 9,4 Agricultural Land (as % of land area) 2015 71,2 43,2 43,4 30,0 Forest (As % of Land Area) 2015 21,4 23,3 28,0 34,5 Madagascar A frica Per Capita CO2 Emissions (metric tons) 2014 0,1 1,1 3,0 11,6

Sources : AfDB Statistics Department Databases; World Bank: World Development Indicators; last update : May 2018 UNAIDS; UNSD; WHO, UNICEF, UNDP; Country Reports. Note : n.a. : Not Applicable ; … : Data Not Available. * Labor force participation rate, total (% of total population ages 15+) ** Labor force participation rate, female (% of female population ages 15+)

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Appendix II: Table on Procurement of Goods and Services

II

Appendix III : AfDB Portfolio as at 28/09/2018 Amount in UA No. Project Project Loan or Approval Date of Closing Allocated Original situation as at 01/01/2018 Title and Reference Grant° Date Signature Date Amount Sector Number Cumulative Disbur. INITIAL Disbursement Rate UNDISBURSED BALANCE

Sub-total AGRICULTURE SECTOR 54.71% 101,296,000 19,010,848.21 18.77% 82,285,151.79

1 PRIASO P-MG- ADF 6/19/2013 7/8/2013 12/31/2018 18,300,000 7,652,862.82 41.82% 10,647,137.18 AAB-004 LOAN

NTF 6/19/2013 7/8/2013 12/31/2018 6,500,000 4,165,318.29 64.08% 2,334,681.71 LOAN GEF 6/19/2013 10/2/2014 12/31/2018 4,076,000 997,170.27 24.46% 3,078,829.73 GRANT 2 PEPBM P-MG- ADF 11/26/2014 3/6/2015 5/31/2020 16,140,000 2,198,979.65 13.62% 13,941,020.35 AAB-003 LOAN TAF 11/26/2014 3/6/2015 5/31/2020 24,000,000 2,812,172.98 11.72% 21,187,827.02 LOAN 3 PROJER P-MG- ADF 11/9/2015 11/9/2015 12/31/2021 16,610,000 751,085.41 4.52% 15,858,914.59 MO AA0-027 LOAN TAF 11/9/2015 11/9/2015 12/31/2021 8,000,000 183,474.57 2.29% 7,816,525.43 LOAN 4 ENABL P-MG- ADF 4/13/2016 5/23/2016 6/30/2018 670,000 159,965.27 23.88% 510,034.73 E AA0-029 LOAN YOUTH 5 PTAM P-MG- TAF 2/19/2016 11/25/2016 12/31/2018 1,000,000 89,818.95 8.98% 910,181.05 AA0-040 GRANT 6 PEJAA1 P-MG- ADF 1/11/2018 2/12/2018 12/31/2021 700,000 0 0% 700,000 AA0-039 LOAN TAF 1/11/2018 2/12/2018 12/31/2021 4,300,000 0 0% 4,300,000 GRANT 7 PICAS P-MG- ADF 7/20/2017 6/30/2019 1,000,000 0 0% 1,000,000 A00-006 LOAN Sub-total TRANSPORT SECTOR 31.44% 58,200,000 31,515,009.57 54.15% 26,684,990.43

8 PAIR P-MG- ADF 10/18/2013 11/18/2013 12/31/2018 46,140,000 25,786,330.37 55.89% 20,353,669.63 DB0-015 LOAN ADF 10/18/2013 11/18/2013 12/31/2018 130,000 68,743.05 52.88% 61,256.95 GRANT OFID 10/18/2013 4/29/2013 12/31/2018 11,930,000 5,659,936.15 47.44% 6,270,063.85 LOAN Sub-total GOVERNANCE SECTOR 11.61% 21,500,000 12,964,288.49 60.30% 8,535,711.51

9 PAGI P-MG- ADF 9/17/2013 11/18/2013 12/31/2018 4,320,000 2,717,455.48 62.90% 1,602,544.52 K00-008 LOAN ADF 9/17/2013 11/18/2013 12/31/2018 180,000 36,150.34 20.08% 143,849.66 GRANT 10 PAPI P-MG- ADF 7/9/2015 9/28/2015 9/30/2019 4,000,000 155,510.70 3.89% 3,844,489.30 K00-009 LOAN TAF 7/9/2015 9/28/2015 9/30/2019 3,000,000 55,171.97 1.84% 2,944,828.03 LOAN 11 PACE P-MG- TAF 11/28/2017 12/5/2017 6/30/2018 10,000,000 10,000,000 100% - K00-011 GRANT Sub-total WATER AND SANITATION SECTOR 0.78% 1,442,800 64,607.90 1,378,192.10 12 SDAUM P-MG- AWF 12/23/2015 3/21/2016 12/31/2019 1,442,800 64,607.90 4.48% 1,378,192.10 EB0-001 GRANT Sub-total ENERGY SECTOR 0.54% 1,000,000 0 1,000,000 13 PPF - P-MG- ADF 11/21/2017 2/12/2018 12/31/2020 1,000,000 0 0% 1,000,000 ENERG FA0-006 LOAN Y Sub-total SOCIAL SECTOR 0.92% 1,702,000 89,622.70 1,612,377.30 14 BNGRC P-MG- TAF 11/23/2016 12/1/2016 12/31/2018 1,000,000 89,622.70 8.96% 910,377.30 CZ0-002 GRANT 15 PEST P-MG- FSS 11/21/2017 2/12/2018 5/31/2018 702,000 0 0% 702,000 GRANT E00-010 GRANT GRAND TOTAL 100% 185,140,800 63,644,376.87 34.38% 121,496,423.13

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Appendix IV: Procurement methods and procedures

- The Borrower’s Procurement System (BPS): Procurement methods and procedures under the Borrower's procurement system governed by Law No. 2016-055 of 25 January 2017 on the Public Procurement Code (CMP) shall be used, using the National Standard Bidding Documents (DNSAO) or other bidding documents as approved during the project negotiations and generally for low complexity works and goods contracts provided for in the project and available on the local market. The use of the BPS can improve procurement efficiency through better ownership of the procurement system to be used by the executing agency, and by saving time in the absence of the Bank's a priori review, which is the second control after control by the National Procurement Committee. This new public procurement code generally took into account Bank recommendations during the joint assessment of the BPS with the World Bank in February 2016. However, the Bank reserves the right to ask the Borrower to return to the use of the Bank's System if: (i) the provisions of the above code were not complied with by the Borrower; (ii) the appropriate risk mitigation measures included in the risk assessment action plan were not complied with; and (iii) unsatisfactory changes to the Bank's legal framework for public procurement in the country were made.

- Bank Procurement Methods and Procedures (BPM): The Bank's standard procurement methods and procedures, based on the relevant Standard Bidding Documents (SPDs), will be used for larger and more complex works and goods contracts as well as consultancy services contracts, which are considered the most appropriate and in the event that the use of the BPS is not suitable for a given activity or set of activities in view of the high risks identified that would hinder the effective implementation of project activities. To speed up procurement delays and to start, as from the first quarter of the project's implementation, the following works deemed to be in advanced stages of deterioration, the Government submitted a request to the Bank to use advance contracting (AC) to complete procurement for: (i) the recruitment of key executing agency staff (Project Coordinator, Administrative and Financial Officer, Procurement Officer); (ii) the development and asphalting of RN 9 Section 2 between Analamisampy and Bevoay (Mangoky Bridge), from PK 107 to 187+840, including the Ankililoaka platform; (iii) the development and asphalting of RNT 12A Section 1 between Fort Dauphin and Ebakika (from PK 3 to 45); and (iv) control and monitoring services for these works.

IV

Appendix V: Project Fragility Assessment Report (PFAR)

Background Information

The project area is located in the South, the South-West and South-East regions of Madagascar and has the highest poverty rate, inequality, and social exclusion of the 22 regions of the country. The project will cover an area of 22 districts distributed over four regions. Its population is mainly made up of farmers, fishermen and agro-pastoralists. The region has rich and diverse natural heritage, and has high unexploited economic potential in the field of agriculture, fishing, tourism and mining, yet very prone to natural disasters such as cyclones, drought and floods. Despite its potential for connectivity, trade and regional integration, the region has an acute infrastructure and energy deficit to facilitate trade and private sector development. The project will help to open up rural areas, reduce poverty, inequality, social exclusion through increased agriculture value chain and regional trade within the sub-region.

Methodology for Drivers of Fragility Assessment

The project fragility assessment (PFA) of the Project to Develop Corridors and Facilitate Trade is informed by the Country Fragility Assessment and the Youth and Fragility Study for Madagascar. It is also informed by the preliminary findings of the Country Resilience and Fragility Assessment (CRFA) tool, which objectively, systematically and quantitatively measure pressures and capacities the country faces and complement its findings with the qualitative fragility assessment. The PFA was carried out in accordance with the draft Guidelines on the Application of Fragility Lens issued by RDTS in May 2015. The assessment is aimed at identifying entry points for programs to address, mitigate, or adapt to drivers of fragility as well as program/project areas that can have the greatest impact in building resilience.

Key project/sector drivers of fragility (and indicators)

Lack of infrastructure to support trade and connectivity: While the region and project area has high trade, port, connectivity, fisheries and agriculture potential, it suffers from poor infrastructure including lack of adequate roads, Other intensifying structural constraints include infrastructural deficiencies (roads, electricity and water provision, communication), education and the lack of a skilled labor force (less than 15% of the labor force has a secondary education, and only 3.4% of workers have a tertiary education). To unlock its potential, the country needs to improve integration and connectivity of transport systems between production areas within the country and export points (ports and airports) within the region. The infrastructure would also create economic opportunities for local and vulnerable communities working in agriculture and reduce the inequality, poverty and social exclusion.

High levels of poverty and inequality: Madagascar has very low human development with poverty that has increased sharply over the years. Over 80% live below the $1.25-per-day extreme-poverty line and this is highest in rural areas, where 80% of the population lives. Two-thirds of the rural population can be classified as living in extreme poverty. The poverty ratio in rural areas exceeded 75%, increasing to 90% in the south of the island, which is the project area, compared with 31% in the capital and 55% in the secondary cities. The poorest regions are and Atsimo-, both rural areas. The most vulnerable communities are farmers followed by the self-employed. The Gini Index was last measured at 42.7 in 2012, indicating an increase in income inequality since 2005 (Gini index was 38.88). One-third of the population is deprived in terms of consumption, education, basic household assets and access to public services such as health care and electricity. Significant disparity inequality and poverty has created regional social exclusion with south having high poverty and inequality rates with minimal access to education, employment and the market. This is more so for women and youth due to traditional, cultural, social and economic constraints prevent women and youths from having overall equal opportunities. It remains a challenge for women to inherit land and property. In addition, the literacy rate in Madagascar is below the average in Sub-Saharan Africa, and access to secondary and tertiary education remains limited for the vast majority of the population particularly for women.

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Environmental and Spatial Factors: Within the , Madagascar is the second most vulnerable country to natural disasters, largely due to its geographic position and low adaptive capacity that is driven by high rates of poverty and unsustainable land and natural-resource utilization. The country’s isolated geographical position further complicate management performance. Yet, it accounts for more than 5% of the world’s , of which about 90% of it is endemic and the yearly cost of environmental degradation is very high, over 9% of GDP. The project area is rich and diverse natural heritage, and has great potential in the field of agriculture, fishing, tourism and mining yet is the most vulnerable to natural disasters, particularly cyclones, instances of drought and floods, locust invasions, diseases ().

High Youth Population and lack of economic opportunities: Madagascar suffers from high levels of youth unemployment. The long period of conflict and instability has worsened this situation, leaving large numbers of the communities and youth population without viable economic engagement. Those that are employed are underemployed, carrying out work that does not correspond to their training. The communities’ lack of access to basic needs constitutes a major factor of fragility and socio-economic vulnerability and are more vulnerable to shocks such as economic crises, conflicts or natural disasters. Addressing this challenge requires finding viable economic opportunities. Research shows that one of the most viable areas for providing employment for youths and women in Africa is in agriculture. In low purchasing power and in countries facing fragility like Madagascar, to ensure sustainability, focusing on critical sectors of the economy such as agriculture is key.

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Table 1 Linkages of Drivers of Fragility and Design Responsiveness Key areas of the Project linked to addressing root causes of fragility as identified in Complementary Qualitative Fragility Assessment, Youth Study for Madagascar, CRFA and Knowledge of the Project Area Driver of Fragility Downside risks stemming from the root causes Proposed Project interventions of fragility Lack of infrastructure to (a) Lack of roads to facilitate trade and Component 1 & 2: Road works and support trade and connectivity bridges connectivity (b) Lack of health, water, school, markets and agriculture infrastructure to support vulnerable communities (c) Unexploited agriculture potential High levels of poverty and (a) High levels social exclusion, social Component 2: Provision of the basic inequality instability and increased insecurity services to vulnerable communities in the project area (b) Potential for violence and conflict if youths not gainfully engaged over long periods of time (c) High social inequality and lack of economic opportunities Environmental and Spatial (a) Vulnerability to cyclones, droughts and Component 1, 2 & 3 Factors floods (b) Threats to biodiversity (c) Threats of locust invasion and diseases (plagues) (d) Disruption to economic opportunities (e) Unsustainable land and natural-resource utilization High Youth Population and (a) Potential loss of youth and women Component 2 and 3 lack of economic productivity which forms the highest portion opportunities of the population in the rural project area (b) Vulnerability to shocks such as economic crises, conflicts or natural disasters (c) Unexploited biodiversity, huge population, agriculture and fisheries

Assessment Conclusion

The design of the project responds well to the vulnerable communities that remain isolated, forgotten and with no hope when development is taking place in the country. While the project will facilitate trade and create economic opportunities, it also has very specific interventions that have direct and immediate impacts to the community at the bottom of pyramid in the project area. Support programs such as (i) construction of the socio-cultural Center of Manja to promote social cohesion; (ii) the development of the rural market for marketing of products from agricultural production areas; (iii) social support for women through the acquisition of agricultural equipment; (iv) improvement of the conditions of education of children through the construction of equipped classrooms and school protection structures; (v) construction of water supply for villages; (vi) rehabilitation of health centres; (vii) rehabilitation and equipment of police stations for the safety of the population; and (viii) rehabilitation of health centres will significantly reduce factors of fragility and socio-economic vulnerability for communities in the project areas.

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The project does not have dual objective on fragility nor specific fragility indicators for monitoring and evaluation but the design has duly incorporated the key drivers of fragility. The M & E budget has taken into account the cost of monitoring the implementation of the related interventions. Follow up will be made to ensure actions are taken on the implementation of these activities.

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Appendix VI: Map of Project Area

N.B.: The link between RN 9 and RNT 12A will be built according to the section marked in red on the map above. This is RN 13 between Taolagnaro and Toliara, the two port cities.

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Appendix VII: Eligibility Criteria for Accessing the ADF RO Envelop

Eligibility Criteria for Accessing the ADF RO Envelope

Information Note

I. Background | RO instruments

In response to increased RMC demand, in 2008, the Bank Group started earmarking a growing pool of ADF resources to support regional operations. The Strategic and Operational Framework for Regional Operations (adopted in 2008), was the Bank’s first strategic framework to finance regional operations. Since 2008, an additional instrument was approved and then revised by the Board: i) the Regional Operations Prioritization Framework (ROPF) in 2011; ii) and Revised ROPF in 2014. Collectively, the two instruments above govern the allocation and management of the ADF’s RO envelope. II. Chronology of events

 2008 - Strategic and Operational Framework for Regional Operations - 2008 The Strategic and Operational Framework for Regional Operations was intended to provide a rigorous but flexible framework to mobilize resources for regional integration in Africa. The instrument (see section 4.2) contains the basic eligibility requirements for accessing RO resources4. The eligibility criteria has never been amended since.  2010 - ADF-12 Replenishment Meeting – Proposed Adjustments to the RO Framework During the ADF 12 replenishment process, Deputies proposed adjustments to the 2008 Strategic and Operational Framework for Regional Operations to enhance project selection and prioritization.  2011 - Regional Operations Prioritization Framework (ROPF) The Regional Operations Prioritization Framework was approved by the Board in 2011 as a direct response to the Deputies’ request to enhance the focus, prioritization and methodology in the allocation of RO resources. No revisions were made to the basic eligibility criteria.  2014 – Revised ROPF Drawing on lessons learnt and results obtained from three years of implementation, amendments to the ROPF were proposed by the Board and the Independent Evaluation unit. The changes to the ROPF focused on the need to improve the methodology for project selection, intensify co-financing efforts, and improve regional and sector balances. The eligibility requirements for RO financing were not revised and remained the same as the 2008 instrument. III. Eligibility Criteria for accessing the ADF RO envelope The Strategic and Operational Framework for Regional Operations details the eligibility criteria (see Annex I) for accessing the regional operations window. The part relevant to this note is included below:

4 The eligibility criteria focuses on three aspects: project sponsors, regional character, commitment.

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The framework explicitly states that for an operation to have “regional character” and qualify for RO financing it must “involve costs and/or benefits in at least two participating countries…”. Furthermore, the Revised ROPF categorizes regional projects as either: i) integration operations; or ii) single country operations with cross-border benefits.

The Madagascar Operation is a Single Country Operations with Cross Border Benefits since its trade facilitation component contains a series of activities aimed at driving standards reforms and deepening business linkages between Madagascar and countries within the SADC, COMESA in IOC regions. The project shall also require the involvement of 3 RECs. For example, in the area of Standards and Quality Infrastructure5, the project plans to support the Madagascar Bureau of Standards secure a SADC Standards Accreditation. SADC Accreditation would remove the need for repetitive testing, certification and inspection which in turn would facilitate trade. Standards accreditation shall entail significant involvement from SADC in providing the requisite trainings and facilitating the accreditation process.

With regard to business linkages6, the project shall work through the COMESA Business Council to facilitate business networking and partnerships between Malagasy private actors and SMEs and investors/importers in , and to name a few. Examples of Single Country Operations with Cross-Border Benefits that secured RO financing in the past including the 2010 Regional ICT Center of Excellence Project in (8.6MUA); the 2013 Inga Site Development and Electricity Access Support Project (23.64 MUA) in the Democratic

5 See Page 5 of the Project Appraisal Report, section C2 and C3. 6 See Page 5 of the Project Appraisal Report, section C7. XI

Republic of Congo (DRC); and the 2017 Fibre Optic Backbone Project (4.50 MUA). In these three precedents, the countries concerned were the sole recipients of RO funding and were able to show that other countries benefited from the project. IV. Conclusion & Recommendations By unlocking the southern region of Madagascar, the project is expected to provide significant benefits in terms transport access, trade and SME development to not only Madagascar but also countries in the wider COMESA, IOC and SADC region. Management proposes to revise the ROPF to remove the confusion relating to the eligibility of single country operations with cross-border benefits, such that the definition is aligned with established practice as described above. On the basis of the information provided in this note, Management hereby requests the Board to approve the proposed operation as per the PAR.

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References:  Strategic and Operational Framework for Regional Operations: https://bit.ly/2yW78G5  ADF-12 Replenishment Meeting: https://bit.ly/2QrBuaa  Regional Operations Prioritization Framework (Revised): https://bit.ly/2yUzVus  Rwanda Regional ICT Project: https://bit.ly/2qyetH0  Inga Site Development and Electricity Access Support Project: https://bit.ly/2qyetH0

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Annex I

Eligibility Criteria

Extract - Strategic and Operational Framework for RO

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