AFRICAN DEVELOPMENT FUND

Language: English

Original: English

PROGRAMME: LIVESTOCK INFRASTRUCTURE

SUPPORT PROGRAMME

(SECTOR BUDGET SUPPORT)

COUNTRY: RWANDA

APPRAISAL REPORT

Date: May 2011

Appraisal Team

Team Leader: Mr. Lawal Umar, Livestock Officer, OSAN.1

Team Members: Mr. Sebastian Okeke, Agricultural Economist, OSAN.1

Mr. Robert Peprah, Financial Management Specialist, OSAN.1

Mr. Makonnen Loulseged, Water Resources Engineer, OSAN.1

Ms. Kisa Mfalila, Environmental Specialist, OSAN.4

Mr. Moctar Hassane, Procurement Specialist, ORPF.1

Mr. Joseph Nyirimana, Agronomist, RWFO

Division Manager: Mr. Alex Mend, Agronomist, OSAN.1 (OIC)

Sector Director: Mr. Abdirahman Beileh, Ag. Director, OSAN

Regional Director: Mr. Gabriel Negatu, Director, OREA

Peer Reviewers

Mr Kabyemera Justus, Chief Policy Economist, ORQR.2

Mr Guedegbe Corbin, Chief Education Analyst, OSHD.2

Ms Hamza Amel, Senior Gender Specialist, OWAS.2

Mr Wetherill Charles, Young Professional, OSAN.1

TABLE OF CONTENTS CURRENCY EQUIVALENTS i

FISCAL YEAR i

WEIGHTS & MEASURES ii

ACRONYMS & ABBREVIATIONS ii

LOAN INFORMATION iv

PROGRAMME EXECUTIVE SUMMARY v

RESULT-BASED LOGICAL FRAMEWORK vii

PROGRAMME TIMEFRAME x

I –THE PROPOSAL

II – COUNTRY AND PROGRAM CONTEXT

2.1. Government overall development strategy and medium-term reforms priorities 1

2.2. Recent economic and social developments, perspectives, constraints and

challenges 2

2.3. The agriculture sector and related national development program 4

2.4 Bank Group portfolio status 5

III – RATIONALE, KEY DESIGN ELEMENTS AND SUSTAINABILTY

3.1 Link with the CSP, analytical works underpinnings and country

readiness assessment 5

3.2 . Collaboration and coordination with other donors 7

3.3 . Outcomes of Past and On-Going Similar Operations and Lessons 9

3.4 . Relationship to other Bank operations 9

3.5 . Bank comparative advantages 10

3.6 . Application of good practices principles on conditionality 10

3.7 . Application of Bank Group non concessional borrowing policy 10

IV – THE PROPOSED PROGRAMME AND EXPECTED RESULTS

4.1. Programme’s goal and purpose 11

4.2. Programme’s pillars, operational objectives and expected results 11

4.3. Financing needs and arrangements 12

4.4 Programme Beneficiaries 12

4.5 Impacts on gender 13

4.6 Environmental impacts 13

V – IMPLEMENTATION, MONITORING AND EVALUATION

5.1. Implementation arrangements 14

5.2. Monitoring and evaluation arrangements 16

VI – LEGAL DOCUMENTATION AND AUTHORITY

6.1. Legal Documentation 17

6.2. Conditions associated with Bank’s intervention 17

6.3. Compliance with Bank Policies 18

VII – RISKS MANAGEMENT 18

VIII – RECOMMENDATION 18

i

ANNEXES

ANNEX 1: Letter of Sector Development Policy (SBS)

ANNEX 2: Operational Policy Matrix

ANNEX 3: Application of Good Practice Principles on Conditionality

ANNEX 4: Rwanda-LISP General and Technical Prerequisite Conditions

ANNEX 5: PSTA-II/ASIP Government and Development Partners (DP)

Funding Gap.

Currency Equivalents As of 11, February 2011

UA 1.00 = RWF 929.42

US$ 1.00 =RWF 595.04

UA 1.00 = US $ 1.56

Fiscal Year

1 July - 30 June

Weights and Measures

Metric system

ii

Acronyms and Abbreviations

ADB African Development Bank

ADF African Development Fund

AgSS Agriculture Sector Strategy

AIC Artificial Insemination Centre

ASIP Agriculture Sector Investment Plan

RDB Rwanda Development Bank

BSHG Budget Support Harmonization Group

CAADP Comprehensive Africa Agriculture Development Programme

CPAF Country Performance Assessment Framework

CPS Country Partnership Strategy

DFID Department for International Development

DP Development Partners

DPCG Development Partners Coordination Group

EA Executing Agency

ESMP Environment and Social Management Plan

EDPRS Economic Development and Poverty Reduction Strategy

EU/EC European Union/European Commission

FAO Food and Agriculture Organisation

FM Financial Management

FRA Fiduciary Risk Assessment

GDP Gross Domestic Product

GoR Government of Rwanda

HIPC Highly Indebted Poor Country

ICT Information and Communication Technology

IFAD International Fund for Agricultural Development

IMF International Monetary Fund

JBSRR Joint Budget Support Review for Rwanda

JICA Japan International Cooperation Agency

JSR Joint Sector Review

LISP Livestock Infrastructure Support Program

LWS Livestock Watering System

MCC Milk Collection Centre

MINAGRI Ministry of Agriculture and Animal Resources

MINECOFIN Ministry of Finance and Economic Planning

MTSP Medium Term Strategic Plan

NBR National Bank of Rwanda

OAG Office of the Auditor General

OSAN Agriculture and Agro-Industry Department

OREA Operations East Africa Region

ORQR Operations Review and Quality Assurance

PAF Performance Assessment Framework

PADEBL Dairy Cattle Development Support Project

PBL Policy Based Lending

PCR Project Completion Review

PDRCIU Umutara Community Resources and Infrastructure Development

Programme

PEFA Public Expenditure Financial Accountability

PFM Public Financial Management

PPC Public Private Collaboration

PRGF Poverty Reduction and Growth Facility

iii

PRSP Poverty Reduction Strategy Paper

PSI Policy Support Instrument

PSTA Strategic Plan for the Transformation of Agriculture in Rwanda

RAB Rwanda Agriculture Board

RARDA Rwanda Animal Resources Development Agency

RWF/Frw Rwanda Francs

RWFO Rwanda Field Office

SME Small and Medium-scale Enterprises

SWAp Sector Wide Approach

SWG Sector Working Group

TBD To be Determined

UA Unit of Account

USAID United States Agency for International Development

WB World Bank

WHS Water Harvesting System

WUA Water Users Association

iv

Loan Information

Client’s information

BORROWER: Republic of Rwanda

EXECUTING AGENCY: Ministry of Agriculture and Animal Resources

Financing plan

Source Amount (UA) Instrument

ADF

21.81 million

Loan

GoR “ “

Beneficiaries “ “

TOTAL COST 21.81 million Loan

ADB/ADF key financing information

Loan currency Unit of Account

Loan Denomination

Loan Amount UA 21.81 million (USD 35.35 million)

Loan rate 1% per annum from 11th

to 20th year

3% per annum from 20th

to 50th year

Interest type*

Interest rate spread* (basis points)

Commitment fee* 0.5% per annum on undisbursed portion of the loan

Other fees* 0.75% on the principal amount of the loan disbursed and

outstanding

Tenor 40 years

Grace period 10 years

Number of tranches Two tranches 1st Tranche UA 13 million; 2

nd Tranche

UA 8.81 million

*if applicable

Timeframe - Main stepping stones (expected)

Concept Note approval

8 December, 2010

Programme approval (month, year)

Effectiveness (month, year)

Completion June, 2015

Last repayment (month, year)

v

Programme Executive Summary

Context

Between 1990 and 1994, Rwanda suffered a civil war followed by the genocide. The Country is still suffering

from the aftermath of these events that have deeply affected the livelihood of all Rwandans. Coupled with

these, the second round effects of the global financial crisis and its associated economic downturn have

adversely impacted the economic outlook of Rwanda. The situation is still presenting tremendous

macroeconomic challenges for the Country, as agriculture continues to play a dominant role in the economy

accounting for over 80% of total export revenues and 30% of the national GDP, employing about 80% of the

working population. It also threatens the significant gains from reforms successfully implemented by the

Government of Rwanda (GoR) since 2003 and the subsequent economic performance achieved so far.

Recent developments show that the macroeconomic framework of Rwanda is improving, as a result of past

successful reforms, the GoR’s response to the global crisis and the improving external assistance

environment. However, major constraints remain and have been exacerbated in the context of the global food,

fuel and financial crisis. One of the challenges faced by the Government primarily consist of addressing the

agriculture sector constraints vis-à-vis the livestock sub-sector bottlenecks, so as to create an enabling

environment for private sector participation, in order to sustain growth in the sector, create employment and

reduce poverty.

Despite the growth and appreciable performance in the dairy sub-sector, milk supply and utilization remains

very low as the country still relies on imports in order to meet the market demand, which is only covered up

to 40.5% by domestic production. The dairy sub-sector is however, faced with serious challenges including

the tremendous pressures created by lack of livestock infrastructure and land on which to grow animal feed.

Other key constraints include: i) very little proportion of breeds with high genetic potential for milk yield; ii)

poor animal husbandry practices; iii) animal diseases including zoonosis; iv) weak veterinary services

delivery system; v) inadequate linkage between research and extension; vi) poorly organised milk marketing

system based on direct marketing; vii) insufficient processing capacity and low levels utilization of the

capacity of existing milk processing plants; and viii) lack of supportive policies and the necessary regulatory

organ(s) for the development of a vibrant market-oriented livestock sub-sector.

These constraints are further compounded by other factors that contribute to the general poor performance of

the agriculture sector such as the low level of education and literacy amongst rural smallholder farmers,

exposure to variable weather conditions, price variations, limited and weak institutional arrangements.

To this end, Government has updated its sector strategy and in February 2009 issued the Strategic Plan for

Agricultural Transformation in Rwanda – Phase II (PSTA II) which covers the period 2009-2012. The PSTA

II is fully aligned with the EDPRS and Vision 2020 and is based on a SWAp approach.

The proposed Livestock Infrastructure Support Programme (LISP) is anchored on the PSTA II, specifically

under strategic programmes 1 and 3. It is the Bank’s response to a formal request of the GoR dated December

9 2009 for a quick disbursing fiscal stimulus ADF funds to support its efforts aimed at mitigating the adverse

impact of the global financial and economic crisis and consolidate the gains made under the Dairy Cattle

Development Support Project (PADEBL). The LISP was prepared in July 2010 and appraised in February

2011.

Program

Overview

The LISP is the Bank’s second sector budget support operation in Rwanda and will be implemented over four

fiscal years, 2011 to 2015. The LISP is aligned with the Economic Development and Poverty Reduction

Strategy (EDPRS) 2008-2012 of the GoR, which aims to consolidate and extend the strong achievements in

human development while promoting three flagship programmes: Sustainable Growth for Jobs and Exports,

Vision 2020 Umurenge (integrated rural development programme to eradicate extreme poverty and release

the productive capacities of the poor) and Good Governance as key elements to building a robust, resilient

and competitive economy for sustainable growth. The LISP is consistent with priorities articulated in the

Medium Term Expenditure Framework (MTEF) 2008-2012 and the 2010/2011 annual budget.

The LISP is also in line with the two pillars of the CSP 2008-2012, which aim at economic infrastructure and

competitiveness and enterprise development, stimulating private sector-led growth through enhanced

infrastructure, agricultural and rural development. A Review of the CSP highlights the primary importance to

be placed on the livestock sub-sector. The design of the programme took into account the good practice

principles on conditionality and country ownership. It also incorporates lessons from the Bank’s past policy-

based operations in other countries and those of other donors in Rwanda.

vi

The goal of the Programme is to create an enabling environment that will stimulate the development of a

modern livestock industry in Rwanda through value addition and access to markets in order to encourage

diversification of the economy, sustain growth, create jobs and alleviate poverty. Its operational objective is

to build the necessary infrastructure and services that will contribute to the development of a sustainable and

profitable livestock products marketing as well as stimulation of production and overall improvement of the

livestock industry in Rwanda. This is aimed at supporting the implementation of the Government

development agenda of improving the livestock sub-sector and the livestock business environment for active

private sector participation. In addition, the LISP will provide the Bank with a donor-coordinated platform to

engage in dialogue with the GoR on on-going PFM and fiduciary reforms, as macroeconomic stability is a

necessary condition for addressing the critical challenges in the agriculture sector and protecting strategic

budget priorities in the context of the global financial downturn. The objectives of the LISP are: (i) improving

the marketing system in a sustainable manner through the provision of critical infrastructure; (ii) improving

the business environment for active private sector participation; and, (iii) contributing to ensuring

macroeconomic stability.

Program

outcomes &

beneficiaries

The expected outcomes of the LISP are: (i) maintain macroeconomic stability; (ii) sustain livestock sector

growth; (iii) increase access to marketing of livestock products; (iv) an improved environment for private

sector participation in the livestock sector. The entire population of Rwanda will benefit from the programme,

including small scale farmers and large scale agro-industrialists. Overall, the wellbeing and quality of life of

all Rwandans will improve, as a result of enhanced access to a more reliable supply and marketing of

livestock products of improved quality and at reduced cost. The programme will have a major positive impact

on the private sector, through two main channels: (i) substantial reduction in the cost of doing business in the

agricultural sector; and, (ii) increased private sector investment in the livestock sub-sector, as a result of the

improved sector business environment including greater participation of the smallholder dairy producers and

Cooperative Societies whose capacities would be strengthened.

Needs

assessment

The GoR is strongly committed to its reform programme to address the macroeconomic and infrastructure

challenges. However, as a direct result of the unforeseen scale and depth of the second round effects of the

global financial crisis, the ability of the GoR to finance its planned development programs has seriously been

impacted on negatively.

Banks

value added

The involvement and experience of the Bank in agriculture is continent-wide in Africa. Following the GoR

reform program and the new Agriculture Sector Strategy of the Bank, the area of concentration of the Bank in

its agriculture support is the provision of agriculture infrastructure and natural resources management. This is

because agriculture is the most demand-driven, supply-side bottleneck to sustain private sector-led growth,

job creation and poverty reduction. Donor coordination is widening, bringing together partners and

accounting for about 80% of Rwanda’s development assistance (AfDB, IFAD, JICA, DFID, USAID and

World Bank). It is right therefore, to select livestock infrastructure as a main focal area of concentration under

the CPS. Also, given that the LISP is a PBL operation, it provides the Bank with the best opportunity to be a

key player in the sector policy dialogue.

Institutional

development

&

knowledge

building

The Bank will capture the knowledge from this programme through the Country Performance Assessment

Framework (CPAF) and routine monitoring and evaluation of achievements by the GoR using the indicators

provided in the Results-Based Logical Framework and through the Programme Completion Report.

vii

Results Based Logical Framework

Country and Programme Name: RWANDA LIVESTOCK INFRASTRUCTURE SUPPORT PROGRAMME (LISP)

Purpose of the Programme: To enhance rural incomes and food security on a sustainable basis

RESULTS CHAIN PERFORMANCE INDICATORS Means of

Verifi

cation

RISKS /

MITIGATION MEASURES Indicator

(including CSI) Baseline Target

IMP

AC

T Reduction in Poverty

Increased value addition

Improved marketing to

provide the necessary pull

effect for private sector

investment in the

Livestock/Dairy industry

%age of households below the

basic needs poverty line

% age increase in marketable

livestock/dairy surplus

%age increase in livestock/dairy

infrastructure provided

57 % in 2010

379,642 MT in

2010

45% at 2011

46.8% In 2016

924,288 MT in

2020

60 % at end 2015

MINAGRI,

MINECOFI

N/IMF

Reports

OU

TC

OM

ES

Improved access to

livestock/Dairy markets

for smallholder livestock

producers and traders

Volume and value of

Livestock/Dairy products

marketed by smallholder livestock

farmers

45% at 2011 55% at end 2013 MINAGRI

Reports &

BASELINE

STUDY in

project year

1.

Assumptions

Government commitment, social and

political consensus and macroeconomic

stability

Risk: Beneficiaries’ reticence to contribute

to investment cost for livestock water

supply.

Mitigation: Sensitization and

Improved environment for

private sector participation

%age of livestock/Dairy

infrastructure provided TBD 50% at final

stage of

provision by

2012/2013

Increased level of income

of livestock/dairy

smallholder producers and

traders

Average income and standard of

living of smallholder producers &

traders

TBD +25% Formation of WUA for implementing the

livestock watering systems. Risk: Weak Districts’ capacities in rural

infrastructure maintenance

Mitigation: The programme will finance an

institutional support for Districts in the

programme area and capacity building

Risk: Continuing global economic

downturn, failure by GoR to restore

Coops/Investor confidence through Public-

Private Collaboration.

Mitigation: Prudent Fiscal and Monetary

support by Donors.

viii

OU

TP

UT

S

Component A: Livestock Infrastructure Support

Sub-component 1: Community

Livestock Infrastructure Support

1.1 Milk Collection Centres (MCCs).

1.2 Development of Livestock

Watering System (LWS)

1.3 Construction of Livestock

Markets (LM)

1.4 Construction of Slaughter

Facilities

Sub-component 2: Public

Livestock Infrastructure Support

1.2.1 Construction & equipping of

Veterinary Clinics

1.2.2 Rehabilitation and equipping of

Existing Artificial Insemination

Centre (AIC)

1.2.3 Rural Feeder Roads

rehabilitation

1.2.4 Construction/Rehabilitation of

Veterinary Quarantine Stations

1.1 No. of MCCs constructed and

supplied with equipment(s) to stimulate

and improve milk quality

1.2 No. of LWSs developed

1.3.No of LMs constructed and provided

with adequate facilities

1.4 No of hygienic Slaughter Facilities

constructed

1.2.1 No of Veterinary Clinics

constructed and equipped

1.2.2 No of AICs rehabilitated and

equipped

1.2.3 Km of rural feeder roads

rehabilitated

1.2.4 No of Veterinary Quarantine

Stations constructed/rehabilitated

MCCs with cooling tanks, cheese, cream and

pasteurization equipment depending on the

specific requirement of the MCC constructed

LWSs developed to provide water to livestock

farmers

LMs provided with adequate facilities

constructed

Modern and Hygienic Slaughter Facilities

constructed

New Veterinary Clinic constructed and

equipped. 1 already constructed Veterinary

Clinic equipped

Existing AIC rehabilitated and equipped

Rural feeder roads rehabilitated

Veterinary Quarantine Stations

constructed/rehabilitated

Quarterly

progress &

Annual Reports.

Supervision

Mission Reports

Procurement &

Audit Reports

MTR and PCR

Reports

Component B: Food Security and Capacity Building

Sub-component 1: Support to One

Cow Per Poor Family

2.1.1 Cross-breed Heifer provided to

poor families to support food security

and income generation

Sub-component 2: Support to

Productivity Enhancing

Technologies

2.2.1 Support to Genetic

improvement

2.1.1 No of poor families receiving

cross-breed heifer

2.2.1 No of AI Technicians receiving

Motor cycles

Poor households receiving one cross-breed

heifer per household (at least 30,000 women and

female headed households will benefit)

AI Technicians receiving Motor cycles

Quarterly

progress &

Annual Reports.

Supervision

Mission Reports

Procurement &

Audit Reports

MTR and PCR

Reports

ix

2.2.2 Support to Feed Production

Techniques

Sub-component 3: Capacity

Building

2.3.1 Training

2.3.2 Study tours

2.3.3 Training of Veterinary Staff

- short courses

- seminars

- conferences

- workshops

2.2.2 No of families engaged in fodder

multiplication and distribution

2.3.1 No. of livestock farmers and other

stakeholders trained (disaggregated into

beneficiary groups and gender)

2.3.2 No. of study tours organized

(disaggregated into beneficiary groups

and gender)

2.3.3 No of Veterinary Staff attending

short courses, seminars, conferences and

workshops and imbibing new

knowledge1.

Households (at least 30,000 women and female

headed households participation) in feed

production and distribution

Livestock farmers and other stakeholders will

receive training in various aspects of animal

husbandry, animal health, agribusiness,

entrepreneurial skills, milk handling and

processing techniques, feed formulation, group

formation and management.

KE

Y A

CT

IVIT

IES

Component A : Livestock Infrastructure Support Component:

Sub-component 1: Community Livestock Infrastructure Support

Milk Collection Centres constructed and equipped, Livestock Watering Systems developed, Livestock Markets constructed and

provided with adequate facilities, Construction of modern and hygienic Slaughter facilities, Design studies for LWSs using Project

Preparation Facility (PPF)

Sub-component 2: Public Livestock Infrastructure Support: Construction & equipping of Veterinary Clinics,

Construction/Rehabilitation of Veterinary Quarantine Stations

Component B: Food Security and Capacity Building

Sub-component 1: Support to One Cow Per Poor Family: Cross-breed Heifer provided to poor families (including at least 30,000

women and female headed families) to support food security and income generation

Sub-component 2: Support to Productivity Enhancing Technologies: Provision of Motor cycles to Artificial Insemination (AI)

Technicians to support Genetic improvement, Support to Feed Improvement Techniques through fodder multiplication and

distribution and awareness campaigns,

Sub-component 3: Capacity Building: Training of livestock farmers and other stakeholders in the livestock industry, Study tours,

Training of Veterinary Staff- short courses, seminars, conferences & workshops

INPUTS

UA 21.81 Million (ADF LOAN)

1 Disaggregated by type of beneficiary group and gender.

x

Programme Timeframe

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

1 PREPARATION

1.1 LISP Preparation Mission

1.2 LISP Concept Note

2 APPRAISAL

2.1 LISP Appraisal Mission

2.2 LISP Appraisal Report

3 AfDB SCHEDULED BOARD PRESENTATION

4 LISP EFFECTIVENESS

5 LISP IMPLEMENTATION

5.1 1st

Tranche Disbursement

5.2 1st Joint Sector Review (JSR)

5.3 2nd

JSR

5.4 2nd Tranche Disbursement

5.5 3rd

JSR

5.6 4th JSR

5.7 5th JSR

5.8 6th JSR

5.9 7th JSR

5.10 8th JSR

5.11 LISP Completion

2013/2014 2014/2015TASK ID TASK NAME 2009/2010 2010/2011 2011/2012 2012/2013

1

REPORT AND RECOMMENDATION OF THE MANAGEMENT OF

THE ADB GROUP TO THE BOARD OF DIRECTORS ON A

PROPOSED LOAN TO RWANDA FOR THE LIVESTOCK

INFRASTRUCTURE SUPPORT PROGRAMME.

I – THE PROPOSAL

1.1 Management submits the following Report and recommendation for a proposed ADF

loan to the Republic of Rwanda (GoR) for a total of UA 21.81 million to finance the

Livestock Infrastructure Support Programme (LISP). It is a sector budget support operation

and will be applied on four fiscal years from 2011 – 2015. It resulted from a formal request

from the GoR dated 9 December 2009. The request is in line with the Economic

Development and Poverty Reduction Strategy (EDPRS) 2008-2012 of the Government,

endorsed by donors in September 2007 and the Country Strategy Paper (CSP) 2008-2011

approved on 11 November 2008. The Programme was appraised in February 2011. The

design of the Programme took into account good practice principles on conditionality and

Bank Group provisions on non-concessional debt accumulation policy.

1.2 The purpose of the Programme is to create an enabling environment for both the

public and private sector that will stimulate the development of a modern livestock industry

in Rwanda through sustainable growth, increased value addition, access to markets with the

ultimate aim of reducing poverty. Its operational policy objective is to build the necessary

infrastructure and services that will contribute to the development of a sustainable and

profitable livestock dairy value addition and marketing and overall improvement of the

livestock industry in Rwanda. It has the following expected outcomes: Improved access to

livestock/Dairy markets for smallholder livestock producers and traders, increased level of

income of livestock/dairy smallholder producers and traders and improved environment for

private sector participation and employment generation.

II – COUNTRY AND PROGRAM CONTEXT

2.1. Government overall development strategy and medium-term reform

priorities

2.1.1 Government’s Development Strategy: Rwanda’s long term development priorities are

articulated in the Rwanda Vision 2020. The goal of Vision 2020 is to transform Rwanda into

a lower middle income economy (US$900 per capita) by 2020, while ensuring unity and

equitable distribution of development.

2.1.2 The Economic Development and Poverty Reduction Strategy (EDPRS) is Rwanda’s

second generation PRSP and covers the period 2008-2012. The EDPRS provides a medium-

term framework for achieving the country’s long term development goals and aspirations.

The EDPRS priorities are contextualized via three flagship programs: Sustainable Growth for

Jobs and Exports; Vision 2020 Umurenge; and Governance. The sustainable growth flagship

supports policy and investment interventions aimed at: (i) developing skills and capacity for

productive employment; (ii) improving economic infrastructure especially transport, power

and communications; (iii) promoting science, technology and innovation; and (iv)

strengthening the financial sector. Vision 2020 Umurenge prioritizes the achievement of

shared growth and the creation of opportunities for the poorest Rwandans while the

Governance flagship seeks to strengthen political governance, economic governance, and

build institutions and capacity of the state.

2

2.1.3 Medium-term reforms priorities: The implementation period of the EDPRS to-date

has been marked by improvements in economic governance and management, social

economic improvements, and noteworthy achievements in the doing business environment. In

spite of these achievements, the Government of Rwanda has underscored further

improvements in economic infrastructure, private sector development and capacity

enhancement as key reform priorities over the medium term. Key strategic investments were

identified in 2010 to address Rwanda’s economic infrastructure deficit including (i) energy

rollout to increase household grid connections from 6 % at end-2008 to 50 % by 2017; (ii)

building core ICT Infrastructure for high-speed broadband connectivity; and (iii) construction

and rehabilitation of a regional railway linking Rwanda to Burundi and Tanzania; iv)

construction of the Kigali Convention Centre; (v) capitalization of Rwandair; and (vi)

construction of the Bugesera Airport and the international railway to Tanzania through

Burundi. These investments are expected to improve overall competitiveness, support

additional employment creation, contribute to the diversification of the export base, and thus

contribute to poverty reduction and growth.

2.1.4 The Government of Rwanda has also adopted a new holistic approach to capacity

strengthening, with a focus on identifying the main capacity constraints in priority sectors for

export promotion and growth. Interventions here will address staffing and skills gaps in these

sectors and strengthen central government operations by redressing poor retention, high

turnover and skills gaps currently plaguing the civil service.

2.2 Recent economic and social developments, perspectives, constraints and

challenges

2.2.1 GDP growth rate strengthened in 2010 and medium term growth prospects are

favorable. Real GDP growth rebounded to 7.5% in 2010, from 4.1% in 2009, mainly driven

by a rebound in exports, services (mainly telecommunications) and construction sectors, in

addition to continued growth in agriculture. In the medium term, real GDP growth is

expected to be sustained at an annual rate of 7%, as the economy benefits from: i) the

government’s strategic investments; ii) increased investments in improved agricultural

infrastructure and inputs (livestock infrastructure, fertilizers, and seeds); iii) an improving

business-friendly environment; iv) stronger external demand of Rwanda’s export products;

and v) an increase in credit to the private sector.

2.2.2 Macroeconomic Management is anchored on the new three-year IMF Policy Support

Instrument (PSI)-supported programme approved in June 2010 to support the implementation

of the EDPRS while ensuring macroeconomic stability. The first review under the PSI was

completed in December 2010 and it indicated that the programme was on track.

2.2.3 Monetary policy stance is aimed at promoting credit expansion while cognizant of the

underlying inflation pressures from rising food and fuel prices. The National Bank of Rwanda

(NBR) pursued a policy of monetary easing in 2010, cutting the policy rate and lowering the

reserve requirement on bank deposits to boost credit growth to the private sector and support

economic recovery. Headline inflation slowed sharply to 2.3% in 2010, from the peak level

of 22.3% at end-2008, driven mainly by the decrease in import prices, improved domestic

food production and a stable exchange rate. Inflation is expected to increase to 7.5 % at end-

2011, but stabilize around 6% in the medium term.

2.2.4 Fiscal policy remained expansionary in 2010/11 to support economic recovery in line

with the 2009/10 fiscal stimulus, but the Government is committed to gradual fiscal

3

consolidation over the medium term. The overall fiscal deficit (including grants) decreased

from 2.6% of GDP in 2008/9 to 1.3% of GDP in 2009/10 on account of increase in grants.

The deficit (including grants) is projected to increase to 4.2% of GDP in 2010/11to finance

the Government’s strategic investments before decreasing to 1.8% in 2011/12 due to fiscal

consolidation and gradual withdrawal of the fiscal stimulus2. Fiscal policy in the medium

term is aimed at sustaining funding for the EDPRS priority areas of economic infrastructure,

productive capacities, human development and social sectors.

2.2.5 The external current account deficit (excluding official transfers) continued to widen

in 2010, increasing to 17.7 % of GDP up from 17.3% in 2009 largely driven by rising imports

and weaker growth in exports. Projections are for further increases in the current account

deficit over the medium term, particularly on account of increased capital imports associated

with government’s strategic investments. A limited export base remains a significant risk to

Rwanda’s external position and Cabinet has approved (April 2011) the Country’s National

Export Strategy to guide export diversification.

2.2.6 The 2010 debt sustainability analysis3 indicates that Rwanda is at moderate risk of debt

distress. Central Government debt levels declined from 85% of GDP in 2000–04 to 14.4% of

GDP in 2009, as a result of substantial Highly Indebted Poor Country/Multilateral Debt

Relief Initiative (HIPC/MDRI) debt relief.

2.2.7 Social development has continued to register progress even as poverty levels and

income inequality remain high. Poverty levels remain high with an estimated 57% of the

population living below the national poverty line in 2006 compared to 60.4% in 2000/2001.

Inequality has increased between 2001 and 2006, with the Gini coefficient rising from 0.47 to

0.51. However, the April 2011 Joint Budget Support Review noted that Rwanda has made

strong progress in the areas of health, education, water and sanitation, youth and social

protection. The 2010 Human Development Index (HDI) increased to 0.385 (rank 152 out of

169 countries) up from 0.379 in 2009. Rwanda is on course to meet and even surpass the

MDG targets on infant mortality, while equality between boys and girls in primary education

and participation of women in politics have been achieved. Sustained improvements are

required to meet the MDG targets on maternal mortality.

2.2.8 Key challenges in the medium-term comprise promotion of policies to sustain higher

and inclusive growth to expedite poverty reduction and achievement of the remaining MDGs.

According to the IMF4, Rwanda has a growth potential of about 8.5% in the medium term,

provided that: i) investment is scaled up significantly; ii) productivity growth increases and

remains elevated; and iii) there are no adverse shocks. To reach the ambitious EDPRS growth

targets of 7-8% per annum, achieve significant reductions in poverty and the Millennium

Development Goals (MDGs), GoR will have to continue implementing policies that redress

the binding constraints to growth and promote social development. Such policies include

strengthening overall competitiveness, scaling up public investments and supporting private

sector investments.

2 Source: IMF Country Report 11/19, January 2011

3 Source: Joint World Bank/IMF Debt Sustainability Analysis, May 2010

4 Source: IMF Country Report 11/19, January 2011

4

2.3 The Agriculture Sector and Related National Development Programme

2.3.1 Agricultural transformation has been identified as one of the major pillars for

achieving the Vision 2020 and EDPRS goals. Agriculture remains the economic backbone

and a major component of GDP employing about 80% of the working population,

contributing over 30% of the national GDP and generates about 80% of total export

revenues. It also provides 90 per cent of the country’s food needs. The sector is considered to

be the main springboard for the country’s fight against poverty and also the vehicle for

raising rural incomes and spurring on progressive development in the secondary and tertiary

sectors. However, the sector is highly susceptible to shocks (particularly weather-related) and

has expanded slowly because of low productivity and poor land use practices. In line with

this, the Government has updated its earlier sector strategy (Strategic Plan for Agricultural

Transformation in Rwanda – Phase I (PSTA I), 2002-2007) and in February 2009 issued the

Strategic Plan for Agricultural Transformation in Rwanda – Phase II (PSTA II) which covers

the period 2009-2012.

2.3.2 The PSTA II which is fully aligned with the EDPRS and Vision 2020 is based on a

SWAp approach and has four interrelated strategic programmes as follows: (i) Physical

resources and food production: Intensification of sustainable production systems which

entails relieving the physical constraints to the sector’s development, in the areas of erosion

control, water capture and management structures, input use, food and nutrition security. It

also incorporates the training activities that need to accompany the provision of physical

infrastructure and inputs; (ii) Producer organisation and knowledge systems: The

professionalization of producers and other economic agents aimed directly at making the

sector more knowledge-intensive through professionalization and capacity building for

producer organizations and through improvements in the systems for technology generation

and dissemination; (iii) Creating an environment conducive to entrepreneurship: A

framework for commodity chains, horticulture and agribusiness development. This

programme is designed to enhance producer knowledge in the areas of quality control, post-

harvest management and marketing, including the production of fortified food products, and

to provide associated technical expertise and infrastructure, including in agro-processing. It

also aims to promote agribusiness development; and (iv) Institutional development:

Strengthening the public sector and regulatory framework for agriculture directed at

strengthening the public sector’s capacity to support sectoral development and at improving

the policies that guide actions by producers and entrepreneurs. These four Programmes

provide the framework for the planning and financing of interventions in the sector for both

the GoR and its Development Partners (DP), including the AfDB who are using the Strategy

as the basis for programming their assistance to the sector.

2.3.3 The government launched the Agriculture Sector Investment Plan (ASIP) in 2009 for

the period 2009 to 2012 which lays out the investment requirements of the Ministry of

Agriculture’s medium-term strategic plan. The Investment Plan is structured according to the

PSTA II. The purpose of the agricultural investment plan is to contribute to sustainable food

and nutritional security, to increase the incomes of rural households, and to secure national

economic growth. The plan aims to transform agriculture into a modern, professionally-

managed and market-oriented economic undertaking. This will be achieved through targeted

investments that create an environment conducive to increased production; especially

investing in the infrastructure required for agricultural intensification, promotion of

professionalism, agricultural technological innovations and public – private sector

partnerships.

5

2.3.4 One of the main programmes in the EDPRS is improvement of dairy farmers’

technical and organizational capacity, improving the dairy chain and strengthening the

institutional framework at central and local level. The dairy industry in Rwanda is young and

growing fast. It currently produces about 160,000,000 litres of fresh milk. About 62,000,000

litres are consumed on farm, and about 35% of the raw milk is wasted from spoiling before

reaching the market or being processed. Milk production is severely affected by water

availability as average milk production falls by as much as 60% during the dry season. Poor

infrastructure especially road networks between production areas and the market is another

major constraint to milk producers. Dairying is one of the most cost-effective methods of

converting scarce land, crude and improved feed resources into high quality protein- rich

food for human consumption. Equitable growth strategies for poor countries foster inclusion

of the rural poor into high-value agricultural markets. Dairy production presents an

opportunity for Rwandan smallholder households to become more integrated into such

markets while improving their nutrition

2.4 Bank Group Portfolio Status

2.4.1 The Bank Group’s on-going portfolio in Rwanda consists of 12 national operations

and 5 multinational operations. The net commitments are UA 227.6 million (UA 114.6

million for national and UA 113 for multinational operations). The transport sector is the

largest beneficiary, accounting for about 50% of the total current commitments (including

multinationals), followed by agriculture sector – 17.5%, energy sector- 13.4%, Water and

Sanitation sector 7%, social sector - 6.4%, Private sector – 3.1%, and multi-sector – 2.6%.

Infrastructure sector (transport, energy and water combined) represent 70.4% of the total

commitments of on-going operations. The distribution for national operations only is as

follows: Transport – 40.3%; agriculture sector – 21.6%, Water and Sanitation sector 14%,

social sector – 12.7%, Private sector – 6.1%, and multi-sector – 5.2%. The average age of the

national portfolio is 3.6 years and compares favourably with the Bank Group’s average- 4.2

years.

2.4.2 There are currently 17 active Bank Group operations in Rwanda, comprising 12

national operations of which 2 are Private sector operations (PSOs), and 5 are Multinational

operations. The overall total commitment is UA 227.6 million. Cumulative disbursement

level stands at 35% (April, 2011) (excluding private sector and multinational operations).

Key indicators of the portfolio, excluding PSOs and multinational are i) Potentially

problematic Projects: 20%; ii) Portfolio at Risk: 20%; iii) Commitment at Risk: 28% and iv)

Proportion of PBL at Risk: 0%

III - RATIONALE, KEY DESIGN ELEMENTS AND SUSTAINABILITY

3.1 Link With The CSP, Country Readiness Assessment And Analytical

Works Underpinnings

3.1.1 Link with the CSP: The proposed budget support operation is in line with both the

EDPRS and the Bank's strategic goals including those in the CSP. The Bank's CSP for

Rwanda (2008-2011) focuses its support on the Growth for Jobs and Exports flagship of the

EDPRS and has two pillars: (i) economic infrastructure, covering transport, energy, ICT,

water and sanitation; and (ii) competitiveness and enterprise development, including the

development of the skills for science, technology, and innovation. The CSP emphasizes on

the need to raise private sector productivity and competitiveness. Further, it proposes a

combination of instruments, including direct budget support and project investment lending,

6

to support three strategic objectives of the EDPRS, namely: (i) creating an enabling

environment for private sector growth; (ii) reducing the cost of doing business; and (iii)

broadening access to financial services.

3.1.2 The EDPRS, supported by earlier studies and surveys, made the case that

infrastructure services, the regulatory environment, and inadequate financial services were

serious constraints to the Growth for Jobs and Exports. Easing these constraints requires (i)

regulatory and financial sector reforms to enhance private sector development; and (ii)

effective management of public investments in infrastructure, knowledge and skills

development as well as overall public expenditures. The Bank's CSP and this programme

have been designed with these objectives in mind. Further, these Bank instruments were

developed to respond to the Government's preference for untied budget support, as evidenced

in its Aid Policy Paper, to ensure that public expenditures are aligned to the priorities of the

EDPRS. The LISP will focus mainly on infrastructure and fall under Pillar I economic

infrastructure of the CSP. The food security enhancement activities under the programme are

on the other hand in line with Pillar II competitiveness and enterprise development. It is thus

fully compliant with the CSP pillars. The LISP will follow the strategic direction of the

Bank’s AGSS in terms of rural infrastructure, natural resources management and capacity

building.

3.1.3 Country Readiness Assessment: Rwanda has a stable and democratic government

based on constitutional power sharing by different political formations. The Government has

prioritized maintenance of macroeconomic stability and the successfully concluded IMF's

Poverty Reduction and Growth Facility (PRGF) review in November 2008 noted that the

actions it is taking to control the recent surge in inflationary pressures are appropriate. The

EDPRS, which is strongly owned by Rwandans, underpins the strategic framework for the

medium-term expenditure framework (MTEF) and other policy actions. Rwanda's Aid Policy

provides a framework for a strong partnership between the Government and the donors. An

effective donor coordination arrangement, under the auspices of the Budget Support

Harmonization Group (BSHG) is in place.

3.1.4 The Rwandan Government has made substantial progress towards improving the

procurement environment. The major challenge is about the capacity of the procurement

entities to deliver in conformity with the law and regulations. But necessary actions to

address this challenge were being taken and implemented leading to a continuous

improvement of the procurement framework. The procurement system is reasonably

adequate to support the proposed intervention.

3.1.5 Public Financial Management (PFM). A major area of governance reforms in

Rwanda is Public Financial Management (PFM) where reforms have focused on capacity

building for accounting, auditing and procurement functions, and management of public

investment at various levels of government. A PEFA assessment, completed in October

2007, and a Fiduciary Risk Assessment (FRA) conducted by DFID and the Bank in 2008,

found Rwanda's PFM systems to be sound with good fiduciary safeguards, although

challenges remain. In December 2008 the Public Financial Management Reform Strategy

(PFMRS) [2008-2012] along with its detailed Action Plan, was approved by Cabinet. The

PFMRS was elaborated based on several PFM diagnostics and surveys including a Country

Financial Accountability Assessment (CFAA), a Country Procurement Assessment Report

(CPAR) and a Public Expenditure and Financial Accountability (PEFA) assessment. The

ultimate goal of the PFM Reform Strategy, contained within the Vision 2020, is to ensure

efficient, effective and accountable use of public resources as a basis for economic

development and poverty eradication through improved service delivery. This therefore

7

requires strengthening budget execution and as well as strengthening external audit in the

medium term. The aim of the PFMRS is to have an “Enhanced Public Financial Management

System” by 2012, which is efficient, effective, transparent and reduces opportunities for

corruption. The Action Plan covers a wide range of reforms including strengthening budget

management, accounting, fiscal reporting, auditing, and procurement systems

3.1.6 Another PEFA assessment undertaken in July 2010 showed that recent reforms in the

area under the PFM Reform Strategy 2008-2012 have resulted in concrete improvements in

Rwanda’s national PFM systems. For the first time in Rwanda, the PEFA also included a

partial assessment of PFM at the Sub-National Level, which is of crucial importance given

the ongoing decentralization process. This assessment informed the preparation of the

appraisal report of the present Sector Budget Support.

3.1.7 A specific PFM assessment of MINAGRI was undertaken in 2008. This assessment

concludes that the national PFM systems have been introduced at all the key levels that have

direct impact on the agricultural sector, namely at the ministry headquarters, the six semi-

autonomous agencies and the 30 districts. However, the 2010 PEFA assessment results and

the Bank’s fiduciary risk assessment carried out during the appraisal of the programme,

show a skill gap in the area of internal audit. MINAGRI will recruit an internal auditor

during the first year of programme implementation to address this internal control weakness.

3.1.8 Finally, the Bank has granted the GoR and advance from the Project Preparation

Facility to mainly design the water infrastructure so that they are ready for implementation

by the time the operation starts. The evaluation of the bids is completed and the consultant

should commence work in June 2011. The designs should be ready by September 2011.

3.1.9 Analytical Works and Underpinnings: A number of analytical works and

consultations underpin the proposed budget support operation. The EDPRS consultations,

the Government's Aid Policy Paper, and the dialogue with the Government and the other

development partners during the Bank's CSP preparation, have all identified the priorities

and modalities for support. The World Bank's 2007 Country Economic Memorandum and

the recent Doing Business surveys have identified the constraints to private sector

development and areas requiring urgent attention. The Government undertook wide

consultations to prepare a Financial Sector Development Program that is currently under

implementation. On the financial governance front, recent analytical works include the 2007

PEFA review, the 2008 FRA, and the wide consultations during the development of the PFM

Reform Action Plan. In addition, the IMF has been undertaking regular reviews of economic

and financial performance in the context of the PRGF program. Finally, the Public

Expenditure Review (PER) exercise that is being conducted by the Bank, World Bank and

the Government will play a major role in strengthening the management of public finances

during the implementation of LISP.

3.2 Collaboration and Coordination with Other Donors

3.2.1. During the preparation and appraisal of the LISP, the Bank worked closely with

IFAD, JICA, USAID, FAO, UK-DFID and the World Bank. Participatory discussions and

workshops were held with the Beneficiaries and other Stakeholders to sensitise and share

with them the proposed programme. The design of the LISP put into consideration the

outcomes of these discussions and consultations, the aim being to complement each other

and develop synergies. This coordination with the Donor Group and stakeholders will

continue during the implementation, monitoring and evaluation processes of the LISP. The

Bank collaborates with other development partners through the Development Partners

8

Coordination Group (DPCG) and the Budget Support Harmonisation Group (BSHG)

consisting of 7 development partners namely ADB, WB, DfID, European Commission,

Germany, Sweden and Netherlands. The Bank is an active member of the DPCG and

currently the co-chair of the Water Sector Working Group. The DPCG and the BSHG

provide the umbrella structures for donor coordinating policy dialogue with the Government.

The DPCG consists of thematic cluster and sector working groups. The Bank through

RWFO is actively participating in the social, economic and governance clusters as well as

the public financial management, macro-economic management, energy, transport,

agriculture, education and water and sanitation sector working groups. The BSHG provides

the platform for members to coordinate high level policy dialogue on broad economic

management/governance with the government. Development partners providing general and

sector budget support in Rwanda meet twice a year for a Joint Budget Support Review

(JBSR) which serves as a forum to discuss general budgetary priorities and implementation

progress with the GoR. The JBSRs is the conclusion of a series of Joint sector Reviews

(JSRs), where the GoR and donors take stock of sectoral progress and policy and budgetary

priorities. Policy actions and performance information discussed at the JSRs make up the

Common Performance Assessment Framework (CPAF), which donors providing budget

support use to inform their disbursement decisions.

3.2.2 The agriculture sector working group meets on a monthly basis to share information

and discuss policy issues. In 2008, the Ministry of Agriculture and Animal Resources signed

a Sector-Wide Approach Memorandum of Understanding (SWAp MoU) with its partners in

order to improve collaboration and define reporting, management and co-ordination systems,

as well as to clarify the role of the different partners. The agricultural sector SWAp in

Rwanda is above all a coordinating mechanism that puts the Government in the driver’s seat

of its own strategy’s implementation. Implementation of the SWAp structure is being

supported by several development partners, most notably through support from IFAD, DFID

and Belgium in the form of the Support Project for the Transformation of Agriculture in

Rwanda (PAPSTA). A sub-working group of the agriculture sector budget support is

working to strengthen the emerging sector-wide approach.

3.2.3 The LISP will also develop synergies with the USAID funded Dairy Competitiveness

Project being implemented in Rwanda which will come to a close in 2011 and also with the

HEIFER Project funded by the USAID which commenced operation in 2001.The aims of the

projects are to address the low productivity of the dairy industry in the country and improve

the capacity of the farmers in milk handling etc, in order to create the basis for sustainable

growth in the sub-sector through public-private collaboration (PPC) arrangements.

3.2.4 Sustainability: In order to ensure the sustainability of the Programme beyond

external funding, GoR has put in place credible institutional arrangements including linking

the Livestock Cooperative Associations (managers of the Milk Collection Centres) to the

Rwanda Development Bank (RDB) that has obtained a UA 8 million Line of Credit (LOC)

from the Bank Group for continued financial assistance. Capacity building and training have

been institutionalised as integral part of the programme. Private sector operators in the Dairy

industry will also continue to play important roles following the provision of rural roads and

livestock processing infrastructure. The sustainability of the programme is going to be

dictated and enhanced by the involvement of the cooperatives/private sector and the benefits

accruing from their participation in the programme. The Government intends to run this

programme as a Public Private Collaboration (PPC) activity by handing over the milk

collection centers marketing and slaughter facilities to cooperatives/private entities while

maintaining the role of provision of veterinary services and animal health certification. The

9

cooperatives will manage, operate and maintain the infrastructure and make provisions for

replacement of equipment and further investments. The roads will be maintained by the

district authorities after rehabilitation while the water supply systems will be operated and

maintained by the farmers grouped into water users associations.

3.3 Outcomes of Past and On-Going Similar Operations and Lessons

3.3.1 The Livestock Infrastructure Support Programme (LISP) is a follow up to the ADF

funded Dairy Cattle Development Support Project (PADEBL) which was completed in June

2009. The objective of the PADEBL was to improve food security and poverty reduction and

to satisfy domestic demand for milk and meat and increase incomes of farmers. The PCR for

the project was done in June 2009 which showed that the project exceeded its outcomes set

at appraisal including increasing annual milk production to 355,091 metric tonnes, 34%

above the target of 265,000 MT; increase annual meat production to 56,000 MT, 239%

above the target of 16,500MT; and increase of farmer’s annual income to RWF 1,424,000

from a target of RWF 300,000 increase. The project successfully purchased and distributed

8,200 local breed of cattle and 3,000 crossbred cattle (100% target) in support of the One

Cow per Poor Family Programme. It also constructed and equipped 15 targeted cattle

markets and 31 targeted milk collection centres (MCCs), extended 4 milk collection centres

into cheese making. The benefits of the project included increased food and nutrition

security at household level due to increased consumption of milk as a protein source; change

in gender roles and more employment for women; increased employment opportunities for

the rural communities; and increase in crop productivity resulting from increased availability

and use of manure.

3.3.2 The need to improve programme/project readiness for implementation at entry has

been identified during preparation of the 2008-2011 CSP dialogue as a critical factor to

improve the Rwanda portfolio. Lessons from implementation of programme/projects in

Rwanda indicate that strong political support from the Government is instrumental to the

success of any programme/project. The strong support from GoR and establishment of strong

partnership with Donors and NGOs are all important and will be leveraged to ensure the

successful implementation and sustainability of the LISP. The design of the PADBEL

project seemed to focus only on increased milk production but did not adequately address

other crucial factors such as milk transformation by the milk collection centres, access to the

MCCs so that farmers could bring their milk quickly and reduce spoilage and water

availability in milk collection centres for hygiene and sanitation. Future programmes/projects

should try to be integrated into the Government structures as much as possible without

creating parallel PIUs. Challenges encountered during implementation of budget support

activities include weak capacity, coordination and oversight. In the case of SWAp

operations, especially where there are many districts, submission of audit reports and

development plans on time and a common format for reporting have been challenging. Also,

due to fungibility of resources it is not possible to track the money used for the activities of

the ADF resources.

3.4 Relationship to On-Going Bank’s Operations

The LISP will impact positively on the Bank’s operations in two ways. As indicated, the on-

going portfolio in Rwanda is concentrated in the infrastructure and multinational operations,

(i.e., transport; water; energy and communications; multi-national including budget support).

As it aims to improve the livestock sub-sector and private participation in business, the LISP

will have a positive impact on the execution, sustainability, development outcomes as well as

the business environment of Bank-funded programmes/projects. Furthermore, the Bank is

10

planning a Fourth Phase Poverty Reduction Strategy Support Programme (PRSSP-IV) for

2011 in Rwanda through a General Budget Support operation to support capacity building

and Public Private Collaboration (PPC). The planned programme will contribute to

providing the requisite skills to support the GoR’s effort towards accelerating the

implementation of the National Agricultural Policy, PSTA II and ASIP. This programme is

expected to reinforce the LISP with respect to private sector involvement in livestock

infrastructure investments and improvement in the capacity of MINAGRI to implement the

programme. Actually, the inadequate feeder roads and unreliable livestock water supply in

the milk basins lead to wastages and increased cost of operations. Even when projects are

completed, the sustainability of their development outcomes remains a major concern which

will be addressed under the LISP.

3.5 Bank’s Comparative Advantages

3.5.1. The involvement and experience of the Bank in agriculture is continent-wide in

Africa. Following the GoR reform program and the new Agriculture Sector Strategy of the

Bank, the area of concentration of the Bank in its agriculture support is the provision of

agriculture infrastructure and natural resources management; given that agriculture is the

most demand-driven, supply-side bottleneck to sustain private sector-led growth, job

creation and poverty reduction. Within the context of the Country Partnership Strategy

(CPS), Donor coordination is widening, bringing together partners and accounting for about

80% of Rwanda’s development assistance (AfDB, IFAD, JICA, DFID, USAID and World

Bank). It is right therefore, to select livestock infrastructure as a main focal area of

concentration under the CPS. Sector constraints and policy issues in relation to the overall

development strategy of Rwanda will thence, be the main issue for Government, Bank and

other Donors’ engagement. Also, given that the LISP is a PBL operation, it provides the

Bank with the best opportunity to be a key player in the sector policy dialogue. Obviously,

the LISP provides the basis for a donor coordinated dialogue with the GoR and other major

Stakeholders, particularly by agreeing on major challenges, key policy measures and

following a logical sequence that makes meaning and achieving results at the end.

3.5.2 The LISP will assist the GoR to consolidate the gains recorded under PADEBL and

to regain vigorous traction in the livestock sub-sector activities. The LISP is also a natural

successor to the Bank funded PADEBL in Rwanda which ended in December 2009. The

mission held high level discussions and identified major interventions in the livestock sub-

sector which could potentially utilize financial assistance from the Bank.

3.6 Application of good practice principles on conditionality

The LISP applied the good practice principles on conditionality as indicated in the Bank’s

Budget Support Operations annotated format (2008). These principles are: (i) Reinforce

ownership; (ii) Agree on a coordinated framework; (iii) Customize the accountability

framework and modalities of Bank’s support to country circumstances; and, (iv) Select only

actions that are critical for achieving results as conditions of disbursement.

3.7 Application of Bank Group non- concessional borrowing policy

This policy does not apply in the case of Rwanda. Rwanda is classified as an ADF country,

eligible for only ADF financing. The country is also a HIPCs/MDRI debt relief beneficiary.

Consequently, the public sector has restricted its funding request from the Bank to only the

ADF window in recent years.

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IV – THE PROPOSED PROGRAMME

4.1 Programme’s goal and purpose

The goal of the Programme is poverty reduction through increased value addition and

marketing which will provide the necessary pull effect for private sector investment in the

Livestock/Dairy industry. The purpose of the programme is to build the necessary

infrastructure and services that will contribute to the development of a sustainable and

profitable livestock and dairy industry in Rwanda.

4.2 Programme’s pillars, operational policy objectives and expected results

4.2.1 LISP is anchored on the PSTA II specifically under strategic programmes 1 and 3. In

line with the Government’s priority the LISP would provide support to the Government

programmes on the improvement of rural infrastructure, especially water supply for livestock

farmers and feeder roads to improve access for livestock farms, milk collection centres

(MCCs) to increase the milk handling capacity and safety, improved marketing and

slaughtering facilities for livestock. Support would also be provided on the upscaling of

technologies and building capacity of cooperatives in order to raise the productivity of

livestock farmers, and their competitiveness which would contribute significantly to the

technological transformation of the dairy industry. Overall, the programme would contribute

to the reduction of poverty and increasing incomes of poor families. It has 2 major

components (i) Livestock Infrastructure Support Component and (ii) Food Security

Enhancement and Capacity Building Component.

A. Livestock Infrastructure Support Component

4.2.2 This component will contribute to increasing the national milk handling capacity

through the construction of 70 Milk Collection Centres (MCC) supplied with cooling tanks,

cheese, cream and pasteurization equipment depending on the specific requirement of the

MCC. The financing of the MCC will be in the form of a Public Private Partnership. The

MCC will be financed through (i) contribution from the cooperative (13.3%); (ii)

contribution from the Government through the project (40%); and (iii) loan from the Rwanda

Development Bank (RDB) (46.7%). In this regard the cooperatives will benefit from the

Line of Credit that the Bank will be giving to the RDB. The MCCs will be ceded over to the

cooperatives by the government who will manage, operate and maintain the infrastructure

and make provisions for replacement of equipment and further investments for sustainability.

4.2.3 Livestock Watering System (LWS) will be developed in 72 sites in the main milk

producing areas for both human and livestock use and to improve milk production during the

dry season. GoR has requested and obtained an advance of UA 500,000 from the Bank

through the Project Preparation Financing Facility (PPF) to carry out the design and prepare

the tender documents of the livestock water systems in the Programme area. Two Feed Mills

will be established to assist in providing adequate and balanced nutritious feed stuff to the

livestock especially the improved breeds. Twenty four (24) Livestock Markets will also be

constructed and provided with adequate facilities for animal handling and two modern and

hygienic slaughter facilities for large and small livestock will also be constructed.

4.2.4 This component will also construct and equip one new veterinary clinic (VC) while

an existing one will be equipped. The existing Artificial Insemination Centres (AIC) will be

rehabilitated and equipped to support artificial insemination services delivery in the country.

Rehabilitation of 150 km (total length) of rural feeder roads will be carried out in order to

provide farmers with access to markets. The maintenance of the rural feeder roads will be

12

undertaken at the district through the community work (Umuganda). Government support

through the Road Maintenance Fund will compliment this effort. Five Veterinary Quarantine

Stations will either be constructed or rehabilitated to support disease control.

B. Food Security Enhancement and Capacity Building Component

4.2.5 This component will support food security and income generation activities through

support to the “One Cow Per Poor Family (Girinka)” programme where one in-calf

crossbreed heifer will be provided to 15,000 poor families. At least 30% will go to women

headed households. It will also support the spread of productivity enhancing technologies

through support for genetic improvement through the provision of logistical support to about

416 artificial Insemination technicians to facilitate insemination service which envisages

inseminating about 300,000 cows during the programme period. Support will also be

provided for fodder multiplication and distribution as well as campaigns to increase

awareness of the value of improved feed in livestock production. Farmers and other

stakeholders in the livestock industry will receive training in various aspects of animal

husbandry, animal health, agribusiness, entrepreneurial skills, milk handling and processing

techniques, feed formulation, group formation and management techniques. Some study

tours will be carried out to expose them to best practices. About 500 veterinary staff will also

undergo short courses, seminars, conferences and workshop to improve their capacity.

4.3 Financing Needs and Arrangements

The total cost of financing of the PSTA II and its Programme components is estimated at

approximately US$796 million. Identified available funding by sub-programme, by fiscal

year, including three fiscal years, 2009-2012 amounted to approximately US$471 million

from Government and Development Partners. The gap between the cost of PSTA-II (US$796

million) and available funding (US$471 million), results in a funding gap of US$325 million

to be financed exclusively by external partners. The Bank’s contribution through the LISP

comprising a loan of UA 21.81 million (US$35.34 million) will help bridge part of this

funding gap. Other Donors including EU, USAID, DFID and the World Bank are

contributing or would be contributing to fund the gap. Currently, the European Commission

is funding a Euro 20 million Sector Budget Support operation for Decentralised Agriculture

in Rwanda while DFID and USAID are preparing Sector Budget Support Programmes

expected to come into full operation very soon. LISP will link with these operations to

provide agriculture dividends to the beneficiaries in Rwanda. It is envisaged that the PSTA

II, guided by the SWAp MoU will be funded through one of two funding modalities, either a

basket fund or sector budget support. The Government has requested the use of the sector

budget support funding modality for the LISP which has received the blessing of other

Development Partners.

4.4 Programme’s Beneficiaries

The programme will be beneficial to the entire population of Rwanda, including private

businesses and neighbouring countries’ livestock and livestock products consumers. The impact

will be felt in terms of extended access to a more reliable livestock water supply and improved

rural feeder road that will lead to reduced cost of marketing. It is anticipated that the wastage of

dairy milk will reduce significantly, as more milk will be purchased from the livestock farmers,

processed and marketed. Livestock products handling hygiene will improve significantly and

export of meat and other livestock products to neighbouring countries will increase. Overall, the

wellbeing and quality of life of all Rwandans will be improved and employment creation will be

assured.

13

4.5 Impacts on Gender

4.5.1 Rwanda is one of the Sub-Sahara African countries that has made greater strides in

promoting gender equality and empowerment of women as evidenced in its achievements: (i)

the reduction of poverty among Female Headed Households (FHH) from 66.3% to 60.2 per

cent (between 2001 and 2006) and expected to further decline to 48% by 2012, (ii) gender

equality in participating in policy making (56% share of women in parliament), and (iii)

establishment of an institutional structure for gender mainstreaming (such as gender being

mainstreamed into the Rwanda Environment Policy). Women in Rwanda are the principal

actors in the agricultural sector comprising of 52.3% compared to 38.8% for men. In addition

to agricultural activities, rural women in Rwanda are actively involved in various other

activities such as management of natural resources (land, forestry and water resources), and

environmental protection.

4.5.2 The LISP is expected to have a positive impact on Gender, through long-term

involvement in livestock products handling activities and the employment generating effect,

both formal and informal. Women constitute a significant proportion of livestock and

livestock products consumers in Rwanda, not only as domestic users (e.g. through child and

household feeding) but also in their productive functions particularly in small and medium

scale enterprises (SMEs) and the informal sector (e.g. trading, milking). By increasing access

to a more reliable supply of water and good rural feeder roads, the LISP would ultimately: (i)

reduce the trekking distance women cover in search of water, both for milk handling and

domestic use; (ii) improve domestic gender and familial relations resulting from more time

released from search of water; (iii) increase women’s productivity and incomes in the

various activities they are involved in, particularly in the informal sector and SMEs. The

Programme will put in place, measures to ensure active involvement of women during

Programme implementation with a view to creating employment that would ultimately raise

their household income levels. At least 30,000 women and female headed households are

expected to benefit from the programme

4.6 Environmental Impacts

4.6.1 The Programme is classified as Environment Category 2 according to the Bank’s

Environmental and Social Assessment Procedures (ESAP) and was validated by the Quality

Assurance and Results Department (ORQR.3) on November 26th

, 2010. Negative impacts

likely to be generated by infrastructure investments (livestock water supply systems, rural

feeder roads, livestock markets, milk collection centers and slaughter houses) are site-

specific, short-term and manageable through the design and implementation of appropriate

mitigation and monitoring measures defined in the Environmental and Social Management

and Monitoring Plan (ESMP). The Programme will not finance any major infrastructure, and

there is no involuntary resettlement envisioned within the implementation of the Programme

activities. However, should any unforeseen environmental and impacts occur during

Programme implementation from sub-projects, these will be mitigated and managed

according to the Rwanda EIA Clearance Procedures which stipulate the requirement for

every project to be subjected to environmental impact assessment before obtaining

authorization for its implementation.

4.6.2 Given the nature of the Programme (Sector Budget Support), the MINAGRI has

prepared a Strategic and Social Environmental Assessment for the Programme with its

associated ESMP to comply with Rwanda Environmental Law (Organic Law no. 04/2005

article 67) and meet the international standards and requirements of AfDB. The design-stage

environmental and social analysis for the Livestock Water Supply Systems is currently being

carried out as part of the feasibility studies under the Project Preparation Facility.

14

4.6.3 The Programme is likely to generate positive social and economic impacts that could

lead to reduced poverty levels, improved food security through better livestock yields,

creation of jobs for the local population and the youth during the construction phase of the

programme, and improved household income. The Programme will also result in (i)

increased production and marketing of livestock and dairy products, (ii) easy access to water

points will minimize overgrazing and soil degradation by livestock especially during the dry

seasons, (iii) construction of water supply systems will increase the availability of water

resources for livestock and MCCs, and consequently, reduce the excessive withdrawal from

existing water points and improve milk hygiene. Drainage facilities for water supply systems

will protect underground water from pollution. The main negative impacts are likely to arise

during the construction phase of the civil works and will include, increased localized noise

(due to earthmoving equipment and machinery) vibration and dust levels, disturbance to

local traffic on existing roads or the services provided by other existing infrastructure,

temporary obstruction to daily activities of local households and/or businesses, increased

turbidity in water sources from soil run-off, and limited reduced vegetation cover to clear

land for construction.

4.6.4 Institutional Framework: The county legal and institutional framework for

environmental and social management is very good. The Government has committed itself to

support environmental management in the country and has instituted a structure for this

purpose. Rwanda Environment Management Authority (REMA) is responsible for

supervising and managing environmental issues in the country and is supervised by a cabinet

minister in charge of the environment. The Organic Law No. 04/2005 requires all

programmes/projects to undertake environment impact assessment before obtaining

authorization for their implementation. However, MINAGRI’s capacity to handle safeguard

issues is generally weak. The Programme Coordination Unit that currently oversees

investments within the ministry does not comprise an environmental and social specialist to

lead and coordinate the preparation of environmental and social assessments. The Program

will seek to address this constraint by making provision to recruit an Environmentalist to

strengthen MINAGRI’s capacity.

V. – IMPLEMENTATION, MONITORING AND EVALUATION

5.1. Implementation arrangements

5.1.1 Responsible Institution (s): The Executing Agency of the Programme shall be

the Ministry of Agriculture and Animal Resources (MINAGRI). The principle guiding the

funding modalities for PSTA II is not to appoint component specific managers, but to

gradually delegate all managerial responsibilities, including authority and responsibility for

financial management, to MINAGRI’s departments and units in accordance with agreed-

upon work plans and budgets. The entities to which resources are delegated through this

mechanism will be responsible for results-oriented planning, implementation and

monitoring. Day-to-day management and decision-making, within the work plans and

budgets that have been approved at PSTA level, will be undertaken by the responsible

department at central and district level. 5.1.2 In line with the SWAp MoU, MINAGRI has been restructured to establish four

programme implementation units, one for each of the PSTA II programmes. Each

Programme has a Programme Manager and a team of implementation support staff. The

Programme Manager manages all projects and programmes that fall under their respective

PSTA Programme. The LISP falls under PSTA Programmes 1 and 3, and MINAGRI’s

15

implementation unit for Program 1 will form the implementation framework of the LISP.

Other development partners like the World Bank, are supporting building of the capacity of

the Program 1 SWAp Team to implement all programme activities. The programme

activities are district-based and will be implemented at the district level through the

agricultural offices of MINAGRI. The administration and financial management systems

will be anchored in MINAGRI, with the Permanent Secretary being the Accounting Officer.

With this decision-making structure, the focus would be on working through and

strengthening formal procurement, engineering and financial arrangements adjusting them

for specific PSTA II purposes.

5.1.3 Disbursement: In line with the sector budget support modalities, the ADF resources

composed of a loan of UA 21.81 million will be disbursed in two annual tranches into foreign

currency holding accounts opened in the name of MINAGRI at the National Bank of

Rwanda. The deposited funds will be transferred into the main Treasury Single Account

(MINECOFIN). The first year’s tranche will be disbursed upon (i) entry into force of the

Loan Agreements and fulfillment of the conditions precedent to first disbursement and (ii)

submission of an annual work programme and budget covering the programme activities for

the upcoming fiscal year. Subsequent year’s tranche will be disbursed subject to the

following conditions: (i) submission of an annual work programme and budget covering the

programme activities for the upcoming fiscal year; (ii) satisfactory progress towards the

achievement of the performance targets and indicators of the previous year for the

programme and the sector based on the outcome of the bi-annual Agriculture Joint Sector

Reviews; (iii) transmit to the Fund evidence of establishment of an Internal Audit unit at

MINAGRI; (iv) evidence of cumulative release of at least 80% of 2011 budget appropriation

to MINAGRI; and (v) submission of quality quarterly and audit reports. The second year’s

tranche will be disbursed prior to the first quarter of the fiscal year so as to ensure its timely

incorporation in the State budget.

5.1.4 Procurement: The Rwandan Government has made tremendous progress towards

improving the procurement environment by enacting in 2007, the Public Procurement Law,

the decree of associated Regulations, and establishment of the regulatory body, Rwanda

Public Procurement Authority (RPPA). The existing legal and regulatory procurement

framework is generally consistent with international standards. The procurement institutional

framework is equally sound. However, Rwanda Public Procurement Authority still combines

both transactions and regulatory functions and this situation may generate conflict of interest.

Procurement under the LISP will be undertaken in accordance with paragraph 3.5.6 of the

Bank’s Guidelines on Development Support Lending and in conformity with the MoU

between the Government of Rwanda and Development Partners regarding a Sector-Wide

Approach (SWAp) in Rwanda’s Agricultural Sector. The National Procurement Rules and

Procedures for procurement of goods, works and consultancy services will be used, taking

into account some necessary improvements to the current procurement system.

5.1.5 MINAGRI will be responsible for ensuring that procurement activities conform to

Rwandan public procurement requirements. An assessment of the organizational structure

and how procurement functions are organized at MINAGRI was undertaken and the findings

show the need for the following: (a) preparation of a procurement procedures manual clearly

defining roles and responsibilities of the various actors; (b) detailed procurement plans to be

produced, effectively implemented and used as monitoring and management tool; (c)

improvement in contract management and (d) strengthening of filing systems.

5.1.6 MINAGRI has two qualified procurement staff at central level capable of handling

the procurement activities and they have been trained on Rwandan Public Procurement rules

16

and regulations. However, they need further training in contract management to be more

effective. Considering the weak capacity in terms of procurement at districts level, steps

should be taken to ensure that each concerned district is staffed with a procurement staff.

5.1.7 Audit: The 2010 Public Expenditure Financial Accountability (PEFA) assessment

found a marked improvement in external audit and legislative scrutiny of audit reports. The

scope, quality and follow-up of audit by the Office of the Auditor General (OAG) has

improved substantially through better organization, increased audit coverage and follow-up

to the recommendations. The programme will be audited annually by the OAG, guided by

the audit terms of reference of the Bank. The audit report will be submitted to the Bank after

presentation to Parliament following the close of the fiscal year. To facilitate the monitoring

of progress made and to ensure the efficient use of ADF resources, MINAGRI will submit to

the Bank quarterly progress and financial reports within 30 days following the quarter

reported on. Both the 2010 PEFA assessment review results and the Bank’s fiduciary risk

assessment carried out during the appraisal of the programme show a skill gap in the area of

internal audit. MINAGRI will recruit an internal auditor prior to programme implementation

to address this internal control weakness.

5.2 Monitoring and evaluation arrangements

5.2.1 Responsible Institution (s): MINAGRI will be responsible for the monitoring

and evaluation of the implementation and performance of the LISP as they have established

mechanisms for doing so from the national, down to the district and sector levels. The

official M&E mechanism and reporting instruments will be used for the LISP including the

quarterly performance reports which measures established indicators to monitor and evaluate

the Programme. It is expected that the Head of the Strategic Planning and Programme

Coordination (SPPC) Unit in MINIAGRI embedded in Programme IV of the PSTA-II will

coordinate the exercise to ensure data quality, validity, reliability, analysis and reporting.

Financial issues will be followed up and reported by MINECOFIN that has the responsibility

for fiduciary matters in line with the budget support operations requirement. The indicator

targets and actual performance will be reviewed during the bi-annual agriculture Joint Sector

Review (JSR) of the Development Partners. Capacity of the M&E unit will be strengthened

through adequate training in order to satisfactorily monitor and evaluate the programme. A

Study will be conducted to determine the gaps and weaknesses in M&E capacity and

propose solutions.

5.2.2 Monitoring: The Agriculture Sector Working Group in Rwanda comprising the

AfDB and other donors moving towards the use of SBS, have developed an Agriculture

Sector Performance Assessment Framework (ASPAF) as the framework for sector

performance reporting and monitoring against a common set of indicators. The ASPAF

matrix includes key targets for input, output, outcome, impact and process indicators. The

indicators have been selected to reflect the key policy priorities of the MINAGRI’s Strategic

Plan for the Transformation of Agriculture, Phase Two (PSTA II) and to cover the main

functions of the sector institutions. The ASPAF is the basis for the sector joint bi-annual

reviews, and it is a key component of all agreements between the Government of Rwanda

and SBS donors. The process in Rwanda is seen as quite robust by donors, and represents

significant progress over past reporting, monitoring and review practices. The ASPAF is also

linked to the overall CPAF for General Budget Support (GBS). The ASPAF is strongly

linked to GoR operational plans and budgets for the sector which shows how resources are

allocated to achieve the ASPAF targets. Targets are reviewed annually, through dialogue

between MINAGRI and MINECOFIN so as to closely reflect actual availability of resources

and progress made. The assessment of performance against the ASPAF will be an integral

part of the MINAGRI’s annual agriculture sector implementation report.

17

5.2.3 Evaluation: A Programme Completion Review (PCR) will be conducted to

determine outcomes and possible impacts of the programme. The PCR will be conducted

jointly with other Development Partners and the Borrower.

VI – LEGAL DOCUMENTATION AND AUTHORITY

6.1 Legal documentation

The legal documentation will consist of a Loan Agreement to be concluded between the

Fund and the Republic of Rwanda.

6.2 Conditions associated with Bank Group intervention

6.2.1 Conditions precedent to Entry into force of the Loan Agreement: Shall be subject to

fulfilment of the provisions of section 12.01 of the General Conditions.

6.2.2 Conditions Precedent to First Tranche Disbursement: The disbursement of the first

tranche of the ADF Loan amount of UA 13 million will be subject to maintenance by the

beneficiary of an appropriate macroeconomic framework, and fulfilment of the following

specific conditions:

Transmit to the Fund, the bank references for a Treasury account with National Bank of

Rwanda (NBR), that is intended to receive the loan resources; and

Submit to the Fund, an annual work programme and budget covering the programme

activities for the upcoming fiscal year.

6.2.3 Conditions Precedent to Second Tranche Disbursement: The obligation for the Fund

to disburse the second tranche of the ADF Loan amount of UA 8.81 million will be subject

to maintenance of an appropriate macroeconomic framework. Furthermore, the beneficiary

shall fulfil the following specific conditions:

Submission of an annual work programme and budget covering the programme activities

for the upcoming fiscal year;

Satisfactory progress towards the achievement of the performance targets and indicators

of the previous year for the programme and the sector based on the outcome of annual

Joint Agriculture Sector Budget Support Reviews;

Transmit to the Fund evidence of establishment of an Internal Audit unit at MINAGRI;

Evidence of cumulative release of at least 80% of 2011 budget appropriation to

MINAGRI. [Evidence required: Official document (Warrant of Release) indicating the

cumulative amount and percentage of budget released];

Submission of quality audit and annual report.

6.3 Compliance with Bank Group policies

The LISP fully complies with all applicable Bank Group policies and guidelines, especially the

Bank’s “Guidelines on the Development Budget Support Lending (2004)” and the “Annotated

Format for Policy Based Lending Operations (July 2008)”.

18

VII - RISK MANAGEMENT 7.1 The following risks and mitigation measures have been identified.

The following risks and mitigation measures identified have been presented as follows:

1. Risk #1: The risk exists on beneficiaries’ reticence to contribute on investment cost for

livestock water supply, mainly in Gishwati area.

2. Mitigation #1: The programme will undertake large sensitization of beneficiaries during

technical studies and the formation of Water Users Associations (WUA) for

implementing the livestock watering systems.

3. Risk #2: Continuing global economic downturn & Failure by GoR to restore

Cooperatives/Investor confidence through Public-Private Collaboration.

4. Mitigation #2: Prudent fiscal and monetary support by the World Bank and the AfDB

5. Risk #3: The WUAs do not adequately maintain the LWS

6. Mitigation #3: The programme will define and implement a capacity-building programme

for farmers and their organizations on maintenance of LWS.

7. Risk #4: The Districts’ capacities in rural roads maintenance are weak due to the financial

issues and low capacities of human resources.

8. Mitigation #4: The programme will finance an institutional support for Districts in the

programme area and capacity building for their staff in planning, implementing and

evaluating maintenance programme. A specific study will be financed for maintenance

guide of rural roads for Districts with the populations’ participation.

VIII – RECOMMENDATION

Management recommends that the Board of Directors approve the proposed loan of UA

21.81 million to the Republic of Rwanda in the form of Sector Budget Support for the purposes

and subject to the conditions stipulated in this report.

ANNEX I: Letter of Sector Development Policy (SBS)

1

ANNEX 2: Operational Policy Matrix Medium term policy

objectives

Policy actions (outputs) /Responsible institutions Outputs (Monitoring

indicators)

Outcomes

(Monitoring indicators)

CSP goals to which the

programme is contributing (

CSP references)

Policy actions taken

in 2011

Policy actions before

Board approval and by

end of 2011

2015 Targeted indicators

Baseline-timeframe

2010 - 2015

Targeted indicators

Baseline-timeframe

2011 – 2015

Component A : Livestock Infrastructure Support

Sub-component 1 : Community Livestock Infrastructure Support – Paragraph 4.2.8

Construction of Milk

Collection Centres,

Livestock Water Systems,

Feed Mills, Livestock

Markets and Livestock

Slaughter Facilities

1. Allocate 70% of

total livestock sub-

sector budget allocation before 1st

disbursement. 2. Construct Milk

Collection Centres

equipped with cooling tanks, cheese, cream

and pasteurization

equipment depending on specific

requirement.

Develop Livestock

Watering System

(LWS) Construction of

Livestock Markets (LM) provided with

adequate facilities for

animal handling and drinking water.

Construction of

modern and hygienic Slaughter Facilities for

large and small

animals.

1. Achieve full

disbursement of total

livestock sub- sector budget allocation before

2nd disbursement. 2. Construct Milk

Collection Centres

equipped with cooling tanks, cheese, cream and

pasteurization equipment

depending on specific requirement.

Develop Livestock

Watering System (LWS)

Construction of

Livestock Markets (LM)

provided with adequate facilities for animal

handling and drinking

water. Construction of modern

and hygienic Slaughter

Facilities for large and small animals.

1. Achieve full

disbursement of

livestock sub sector budget allocation.

2. Continue with the

Construction of Milk

Collection Centres equipped with cooling

tanks, cheese, cream and

pasteurization equipment depending on specific

requirement.

Develop Livestock

Watering System (LWS)

Construction of

Livestock Markets (LM) provided with adequate

facilities for animal

handling and drinking water.

Construction of modern

and hygienic Slaughter Facilities for large and

small animals.

1. 70% of total livestock sector

budget allocated for construction

before 1st disbursement.

2. MCCs with cooling tanks, cheese, cream and pasteurization

equipment depending on the

specific requirement of the MCC constructed

LWSs developed to provide water to livestock farmers

LMs provided with adequate

facilities constructed

Modern and Hygienic Slaughter

Facilities constructed New Veterinary Clinic

constructed and equipped.

Already constructed Vet Clinic equipped

Existing AIC rehabilitated &

equipped 150 Km of rural feeder roads rehabilitated

5 Vet Quarantine Stations

constructed/rehabilitated

1. 45% constructed at end

2012 and 75% at end 2015.

2. 45% constructed at end

2012 and 75% at end 2015

with more than 50% of

livestock farmers and

private practitioners having

access to the facilities.

Provide infrastructure to all

livestock farmers for increased

and sustainable livestock

production, poverty alleviation

and employment creation.

Sub-component 2: Public Livestock Infrastructure Support – 4.2.24

Construction & equipping

of Veterinary Clinics,

Rehabilitation and

equipping of Existing

Artificial Insemination

1. Construction & equipping of

Veterinary Clinics

2. Rehabilitation and

1. Construction & equipping of Veterinary

Clinics

2. Rehabilitation and

1.Continue with Construction &

equipping of Vet Clinics

2. Rehabilitation and

New Vet Clinic constructed & equipped. 1 already constructed

Vet Clinic equipped

Existing AIC rehabilitated and

55% constructed/rehabilitated at

end 2012 and 85% at end 2015 with more than 70% of

livestock farmers and

Provide infrastructure to all livestock farmers for increased

and sustainable livestock production, poverty alleviation

and employment creation.

2

Centre (AIC), Rural

Feeder Roads

Rehabilitation and

Construction/Rehabilitatio

n of Veterinary

Quarantine Stations

equipping of Existing

Artificial Insemination Centre (AIC)

3. Rural Feeder Roads

rehabilitation

4.Construction/Rehabi

litation of Vet Quarantine Stations

equipping of Existing

Artificial Insemination Centre (AIC)

3. Rural Feeder Roads

rehabilitation

4.Construction/Rehabilit

ation of Vet Quarantine Stations

equipping of Existing

Artificial Insemination Centre (AIC)

3. Rural Feeder Roads

rehabilitation

4.Construction/Rehabilit

ation of Vet Quarantine Stations

equipped

150 Km of rural feeder roads

rehabilitated

Vet Quarantine Stations

constructed/rehabilitated

private practitioners having

access to the facilities.

Component B: Food Security Enhancement and Capacity Building

Sub-component 1: Support to One Cow Per Poor Family – 4.2.24

Cross-breed Heifer

provided to poor families

to support food security

and income generation

Poor families

receiving one cross-breed heifer per family

Poor families receiving

one cross-breed heifer per family

Continue with Poor

families receiving one cross-breed heifer per

family

Cross-breed Heifer provided to

poor families to support food security and income generation

50% Cross-breed Heifer

provided to poor families at end 2012 and 100% at end

2015.

Sub-component 2: Support to Productivity Enhancing Technologies – 4.2.24

Support to Genetic

improvement through

provision of Motor cycles

to AI Technicians

Support to Feed

Improvement Techniques

through fodder

multiplication and

distribution.

AI Technicians

receiving Motor cycles

Families (at least 30%

women participating in

fodder multiplication and distribution.

AI Technicians receiving

Motor cycles

Families (at least 30%

women participating in

fodder multiplication and distribution

AI Technicians receiving

Motor cycles

Families (at least 30%

women participating in

fodder multiplication and distribution

continued.

Receipt of Motor cycles by AI

Technicians

At least 30% women

participating in fodder

multiplication and distribution

100% AI Technicians

receiving motor cycles at

end 2012.

Sub component 3: Capacity Building – 4.2.24

Training of livestock

farmers & other

stakeholders in the

livestock industry

Study tours

Training of Veterinary

Staff

- short courses

- seminars

- conferences

- workshops

Livestock farmers &

other stakeholders trained (disaggregated

into beneficiary groups

and gender) Study tours organized

(disaggregated into

beneficiary groups and gender)

Veterinary Staff

attending short

courses, seminars,

conferences and

workshops and imbibing new

knowledge.

Livestock farmers &

other stakeholders trained (disaggregated

into beneficiary groups

and gender) Study tours organized

(disaggregated into

beneficiary groups and gender)

Veterinary Staff

attending short courses,

seminars, conferences

and workshops and

imbibing new knowledge.

Continue with training of

Livestock farmers & other stakeholders

(disaggregated into

beneficiary groups and gender)

Study tours organized

(disaggregated into beneficiary groups and

gender)

Veterinary Staff

attending short courses,

seminars, conferences

and workshops and imbibing new

knowledge.

Livestock farmers & other

stakeholders will receive training in various aspects of

animal husbandry, animal

health, agribusiness, entrepreneurial skills, milk

handling and processing

techniques, feed formulation, group formation and

management.

50% of livestock farmers &

other stakeholders receiving training at end 2012 and

100% at end 2015.

Provide adequate training to all

livestock farmers for increased and sustainable livestock

production, poverty alleviation

and employment creation.

3

ANNEX 3: Application of Good Practice Principles on Conditionality

Principle 1: Reinforce Ownership

The LISP is fully owned by the Government. It is based on home-grown strategies and programs (EDPRS, Vision 2020, PSTA-II, ASIP and SWAp MOU), appropriately reflected in the

country’s budget priorities, planning and processes. The policy actions of the LISP are consistent with measures which Government has proposed and is committed to implement. Appropriate

budget allocations were accordingly made for which are released in a timely manner. As of January 2011, about 70% of the agriculture sector budget appropriation has been released. There is a

political and popular consensus that livestock sub-sector bottlenecks need to be urgently and adequately addressed. Clear time-bound targets have been set.

Principle 2: Agree up front with the government and other financial partners on a coordinated accountability framework The medium-term policy matrix outlines short and medium-term actions with clear and measurable outcome indicators and targets. The matrix was developed jointly with the Rwandan

authorities and shared with other development Partners, particularly the World Bank, EU/EC, USAID and the DFID. The program and its associated policy matrix also build on realistic

achievements made to date. The LISP has even a component on PFM and macro policy issues which is fully harmonized with the second pillar of the World Bank’s DPO. In close coordination

with other donors, the main goal is to maintain dialogue with the Government on broad PFM, governance and macro stability issues that are crucial for the achievement of the development

objectives of the LISP.

Principle 3: Customize the accountability framework and modalities of Bank support to country circumstances The LISP is the Bank response to a formal request made by the GoR for a fast-disbursing fiscal stimulus ADF loan aimed at supporting its efforts to mitigate the adverse impact of the global

financial crisis, while maintaining its reform path and addressing urgently major gaps in the livestock sub sector. The design of the program is based on the Government’s own diagnosis,

priorities, objectives, measures and realistic output and outcome indicators, based on analytical work and actual progress to date towards set targets.

Principle 4: Choose only actions critical for achieving results as conditions for disbursement

The policy matrix focuses on key actions that are critical intermediate objectives (e.g. releasing allocated budget, achieving targeted available livestock infrastructure capacity, etc.) for

achieving the set outcome goals, i.e. improving access to livestock/dairy markets for smallholder livestock producers and traders, improving the environment for private sector participation,

increasing the level of income of livestock/dairy smallholder producers and traders and employment generation. The triggers/prior conditions for disbursement of the four tranches, limited to

three for each of the tranches, were discussed and agreed with the Government and Stakeholders.

Principle 5: Conduct transparent progress reviews conducive to predictable and performance-based financial support The result-based Logical Framework and Policy Actions Matrix of the LISP provide the Performance Assessment Framework (PAF), discussed and agreed with the Government. The LISP uses

the official M&E mechanism and reporting instruments, also discussed and agreed with the Government including the type of evidence to be provided to satisfy the prior conditions. The Joint

Sector Review of the Development Partners with Government, and Bank’s regular supervision and program completion missions as well as continued country dialogue will also apply. Periodic

IMF normal reviews and those of the World Bank will also be used, particularly in the context of its Development Policy Operation.

4

ANNEX 4: RWANDA-LISP General and Technical Prerequisite Conditions

Overall, Rwanda meets the Bank’s prerequisite conditions (both general and technical) for Sector Budget Support Loan (SBSL), as detailed out

in the table hereunder. Prerequisite conditions Observations for Rwanda

General Prerequisites

Political stability Rwanda is internally secure and politically stable, with an all-inclusive Government as required by the 2003 Constitution. The Legislative Elections in

September 2008 received positive assessments from International Election Observers and the Presidential election that took place in August 2010 received a favourable rating by the international community.

Economic stability and

Government’s

commitment

Since 2003, Rwanda is on a robust reforms track and economic performance. The PSI of the IMF was successfully completed in October 2007. The IMF recently provided a positive assessment on the adequacy of the medium term economic framework.

The letter of development policy signals the authorities’ strong commitment to ambitious policy reforms and poverty reduction strategy, particularly in the context of the global financial crisis and economic downturn.

Technical Prerequisites

Comprehensive sector

policy framework drawn

from a well-designed PRSP

or NDP and existence of

implementation

mechanisms

Agriculture infrastructure clearly features as a critical milestone and is very well articulated in the EDPRS of the Government and the 2010 budget, with a

consistent envelope and specific measurable deliverables/output indicators.

Major reforms in introducing a comprehensive performance-based budgeting system are well advanced. The objective is to establish a sound monitoring and

evaluation system on achieving and tracking the impact of resources utilized on the welfare of Rwandans.

MDG Office established to target and implement pro-poor spending/programs on basic social and infrastructure services.

Creation in January 2009 of the Presidential Steering Committee on Global Economic Crisis (PSCGEC) within the new framework for National Economic

Management to address appropriately the challenge of the global crisis. The PSCGEC has broad stakeholder composition across the nation.

The PSCGEC has agreed to a framework on strategic interventions to address infrastructure bottlenecks (livestock infrastructure) and unemployment. A

coordination mechanism was developed with Ministries, Departments and Agencies involved in the implementation of the EDPRS. This new institutional

framework for economic management has already proven to be an effective mechanism for in-depth discussion and consensus building on critical policy

issues.

Viable macro-economic

and sector financial

medium term framework

MTEF and MTSS: Updated Fiscal Strategy Paper 2008-2013. Introduction of Medium-Term Sector Strategy (MTSS) and MTEF, which ensure consistency

between sector spending plans, GoR priorities and available resource envelopes.

Positive IMF Assessment Letter (September 2009): on the adequacy of the medium term framework.

Strong partnership

between RMC and donors

in the sector and strong

partnership among donors

in the sector

Coordination is expanding particularly in the context of the Country Partnership Strategy (CPS)and the Strategic Plan for the Transformation of Agriculture in

Rwanda Phase Two (PSTA-II) as well as the Agriculture Sector Investment Plan (ASIP). CPS brought together partners accounting for 80% of development assistance

(AfDB, DFID, USAID, EU, JICA and World Bank), in coordination with Government.

Agriculture infrastructure is a focal area of concentration under the CPS and PSTA II.

Strong coordination established among AfDB, IMF, World Bank and DFID in the context of this reform program

Satisfactory fiduciary

review of the public

The fiduciary risk assessment carried out by the appraisal team shows that the public financial management system meets the Bank’s minimum

requirements for the proposed sector budget support operation. The overall risk rating was assessed as “moderate”. Additional fiduciary risks are being

5

financial management

system (use of country

system)

addressed by the main policy actions recently taken by the GoR and under the on-going PFM reforms.

The MINCOFIN and MINAGRI have made substantial progress on PFM reforms which are still on-going. MINAGRI financial management staff

adheres to established procedures as documented in the financial management manual.

Budget Credibility: The GoR budget process is carried out in accordance with a well-designed set of laws and procedures that call for multi-year

planning following an MTEF design. It uses an IFMS that organizes data based on an updated chart of accounts, controls and reports on the receipt and

expenditure of funds. All revenues are reported to MINECOFIN and all government expenditures are covered within the budget. Definitions of budget

lines are governed by MINECOFIN and followed by MINAGRI. Capital and recurrent expenditures are consolidated in one budget.

Predictability and control in budget execution: Budget execution in MINAGRI and the districts are carried out according to MINECOFIN procedures

and is tightly controlled by those procedures and IFMS system. The budget process and IFMS are widely understood and utilized by MINAGRI staff at

all levels including the districts. Commitment and payment procedures are clear, provide for separation of responsibilities and are entered and

controlled by the IFMS. MINAGRI and Districts prepare spending/action plans on which allotments from MINECOFIN are based.

Financial recording, reporting and audit: The accounting unit in MINAGRI uses excel and the IFMS for preparation of financial statements. Financial

statements are prepared monthly. Reconciliation of monthly bank statements is now being done using an automated system. The annual financial

statements are regularly audited by the Office of the Auditor General (OAG). However, the 2010 PEFA assessment results and the Bank’s fiduciary

risk assessment carried out during the appraisal of the programme, show a skill gap in the area of internal audit. MINAGRI will recruit an internal

auditor during the first year of programme implementation to address this internal control weakness.

Procurement processes are sound. The processes are entered in IFMS and consistent with the budget, and completion reports are prepared.

Donor Collaboration: Strong MINAGRI and Development Partners collaboration exist through the Agriculture Sector Budget Support Working Group.

Transparency International Ranking: The 2010 Corruption perception Index ranked Rwanda as the 66th country out of the 178 the countries in the

World sampled in terms of transparency..

ANNEX 5: PSTA-II/ASIP Government and Development Partners (DP) Funding Gap.

GoR/DP Funding Needs US$ million

PSTA-II’s Four (4) Programmes 796

Total Funding Needs 796

Minus Available Funds -471

Funding Gap 325

GoR/DP Available Funds US$ million

Projected amount in MTEF: 386

Plus Donor on-going funding not captured in MTEF 85

Total Available Funds 471

Source: FAO Technical Support Mission to Rwanda (1-12 February 2010) Aide Memoire