Report No. PID9382 Project Name Eritrea-Emergency Reconstruction Program (+) Region Africa Regional Office Sector Multisectoral Borrower(s) Government of Eritrea Project ID ERPE44674 Implementing Agency Project Management Unit (PMU) in Ministry of Finance, GOE Environment Category B Date PID Prepared July 14, 2000 Projected Appraisal Date September 2000 Projected Board Date October 2000 1. Circumstances of the Disaster Eritrea has suffered extensive damage from two sources: a border war with Ethiopia and a prolonged drought. Until May 2000, the war with Ethiopia was contained to a relatively limited area in Eritrea, with some 270,000 internally displaced persons (IDPs) from the border areas. After May 12, 2000, with the resumption of full-scale fighting and Ethiopian advances deep into Eritrea, there has been a sudden and massive increase in the internally displaced population, including evacuation from two large regions in Eritrea (Gash Barka and Debub), which contribute some 70 percent of Eritrea's total grain production and are host to 48 percent of the total population. According to a joint Government/Donor/NGO assessment, the internally displaced people number 1.1 million, including those displaced earlier. Of these, an estimated 230,000 have been settled in 8 camps in central Eritrea, 90,000 have crossed the border into Sudan and the remaining are without a secure place to stay. The sudden movement of such large numbers of people, in a total population of roughly 3.5 million, has put host communities under considerable strain and it is estimated that about 170,000 people in host communities themselves are seriously affected. The war has also had a substantial adverse impact on the agricultural sector loss of food and seed stocks, loss of farm tools, damage to the ploughed land, weakening and/or loss of livestock, and so on. Since the rainy season in Eritrea started at the end of June, the outlook for agricultural production in the coming year is very dismal, with serious nationwide repercussions. A joint Eritrean Relief and Refugee Commission (ERREC)/UN/NGO rapid assessment mission at the end of May suggested that most of the displaced people are living without shelter and sanitation and many are seeking safety in remote areas, making access by the relief agencies extremely difficult. Because of the sparseness of trees and shrubs in these areas, most IDPs are exposed to the hot climate, and now rain. IDPs in the areas visited by the joint mission comprised 65-70 percent children and 25-27 percent women. This underscores the urgency for support to arrest further suffering and to begin the recovery efforts. As if the war were not enough, Eritrea is also suffering from drought. Along with several other parts of the Horn of Africa, the Sahel area of Eritrea (predominantly pastoral areas) has been particularly affected by the failure of short rains two years in a row. Out-migration to more food-secure and urban areas has begun. Some 316,000 people are estimated to have been affected. Another joint ERREC/UN drought assessment team characterized the humanitarian situation in the affected areas as fragile. Although widespread famine and disease outbreaks have not yet occurred, partly owing to Government efforts to mitigate the adverse impact by providing food and other assistance, there is a growing concern that the situation will deteriorate in the coming months and early warning signals, such as rising morbidity rates and falling livestock prices, are already evident. 2. Preliminary Damage Assessment Government ministries have taken the lead in assessing the damage caused by the war. The Government has also asked the University of Asmara to prepare a comprehensive report on the damages to households which should soon be available and will be incorporated into subsequent documentation for this project. From a preliminary assessment, the estimated value of all destroyed/looted property in the two administrative regions of Gash-Barka and Debub alone is approximately US$ 860 million, and the bulk of the damage has been on farming communities (see Table 1). The three banks (Commercial Bank of Eritrea, the Housing and Commerce Bank of Eritrea and the Eritrea Development and Investment Bank) estimate that assets worth $30 million financed by their loans have been damaged or destroyed. The responsible line ministries have made assessments of their immediate needs for reconstruction and it is these estimates that have been used for costing this program. These needs include replacement of farm machinery, inputs and livestock lost to conflict and drought; reconstruction of roads and bridges, schools, clinics, water supply and sanitation facilities damaged by the conflict; and the rehabilitation of roads to improve access to drought-affected areas. The ERP team visited Tesseney and Barentu, two of the towns most affected, and the damage was considerable. The accumulated macroeconomic stress since the conflict began in May 1998 has been substantial. Very preliminary estimates suggests that the fiscal deficit increased from 5.5 percent of GNP in 1997 to 35.1 percent in 1999, and is projected to decline to 24.1 percent of GNP in 2000. The deficit has been financed by a sharp increase in domestic borrowing, from US$4.8 million in 1997 to about US$160 million in 1999 and projected to total US$130 million in 2000. Gross international reserves have declined from the equivalent of 6.4 months of imports in 1997 to 3.3 months in 1999. Interviews with private sector representatives, as well as the banks, suggest that the private sector currently has almost no access to foreign exchange and this has had a significant inhibiting effect on private sector activity. Note: This document contains tables that cannot be converted into text files. However, if you have MS Word or Word Viewer on your computer, you should be able to download the complete original version by going to: http://www.worldbank.org/pics/pid/er44674.doc - 2 - 3. Impact on the Poor With a per capita income of about US$200, Eritrea is one of the poorest countries in the world. Even prior to the displacements that occurred in May 2000, the mobilization of almost all the men aged 18-40, as well as many women, from throughout the country had already affected most families. The massive displacement caused by the latest outbreak of hostilities - mainly of women and children - has exacerbated this situation, as the displaced have lost their assets, including homes, household goods, businesses, livestock, and farm machinery and implements. People in drought-affected areas have also lost most of their assets, primarily their livestock. In addition, as noted above, the affected areas comprise the bread basket of Eritrea and the war- affected people have lost the opportunity of planting crops during the summer 2000 agricultural season. Much of the country's most fertile farm land was occupied at the start of the rainy season, giving farmers no time to prepare their fields and plant their crops. The outlook for food production in the coming year is grim. 4. Response of the Government and the International Community The Government and the people of Eritrea have immediately started reacting to the humanitarian crisis on two fronts: (i) by providing emergency relief and assistance to the IDPs and the host communities; and (ii) by organizing the available human and financial resources in order to start the process of reconstructing and rehabilitating the areas damaged by the recent invasion. The main actor for the first set of activities is the Eritrean Relief and Refugee Commission (ERREC) which, since the time of the liberation struggle, has provided essential food, shelter, and medical care for people in need. In the past two years, ERREC has been carefully tracking the situation in communities throughout Eritrea through a well-organized communication network, collecting regular updates from village councils and NGOs, and visiting camps, ERREC regional office staff, and zoba and subzoba officers. It also coordinates all NGO activities in the country, ensuring that all people in need receive critically needed goods and services. ERREC has so far succeeded in providing most people with sufficient food, medicine, shelter and other basic goods and services to prevent major loss of life or disease. It has been able to do this by importing food and essential supplies using scarce foreign exchange. An appeal to seek international support for emergency and relief needs has been prepared by ERREC in collaboration with the UN system and launched during the month of May, 2000. Many donors have responded to the Appeal, including Italy, the United States, Denmark, the United Nations agencies (World Food Program, United Nations High Commission for Refugees, UNDP, FAO, WHO, UNFPA, and UNICEF) which have supplied funds, goods and logistical assistance. International NGOs, including OXFAM, Save the Children (U.K.), Africare, ACCORD, International Committee of the Red Cross and others, are working through ERREC to provide water and sanitation facilities, tents and tarps, and essential food and medicines to the refugee camps. But the total response has been well below 50 percent of what is needed. The second set of activities is more directly connected with the proposed ERP. They require the involvement of all government agencies, and an even more significant contribution from the international community. The process of reconstruction and rehabilitation of such large areas of the country will be - 3 - tackled in two phases: (i) a first set of immediate needs will be met through the financing of the ERP; the activities financed will enable the country to restart some productive activities and repair the infrastructure necessary to allow this process; (ii) the remaining and less urgent needs will be addressed through individual sector programs prepared and financed in collaboration with the development community. 5. Bank Response and Strategy The Bank's response to the emergency situation in Eritrea has been threefold: - Reallocation of: (i) US$1.2 million equivalent from the ongoing Health Project (Credit No. 3023-ER) to finance essential drugs and other urgently needed medical supplies; and (ii) up to US$3.7 million equivalent from the ongoing Eritrea Community Development Fund (ECDF) Project (Credit No. 2823- ER) to finance water supply and sanitation subprojects in areas with high concentrations of IDPs, which are of high priority in the current emergency situation. These two reallocations are fully consistent with the original development objectives of the projects. - Reallocation of US$20 million equivalent from the ongoing Human Resources Development Project (Credit No. 3033-ER) to finance nutritional supplements, kitchen utensils, stoves, agricultural inputs, and associated transport services. - Preparation of an Emergency Reconstruction Program (ERP) in collaboration with all interested development partners. The Government asked for the Bank's assistance in preparing the ERP and presenting it to the international community for financial support. The Program, whose total cost has been estimated around US$300 million, has been discussed with representatives of several multilateral and bilateral agencies during a donors meeting organized by the Government in Asmara in July 2000, as well as meetings with individual donor agencies. The response so far has been good, both in terms of reaching agreement on the use of a single set of procedures and administrative requirements, and in terms of allocation of resources. 6. Program Objectives The overall objective of the proposed program is to assist Eritrea rapidly to rebuild its physical and social infrastructure, help displaced and drought- affected people rebuild their lives and resume their economic activities, and assist the Government to maintain macroeconomic stability through balance of payments support. The number of the people who will be able to return to their community of origin in the immediate future is still uncertain. This is due to various reasons: (i) the peace process has not been completely finalized; (ii) the border demarcation process may take some time, and some aspects can be controversial; and (iii) in the meanwhile, Ethiopian forces are still occupying portions of Eritrean territory. For these reasons, the ERP will focus on people and the services they need, rather than purely on rehabilitation of infrastructure. This will mean that the program will provide resources for both reconstruction of infrastructure for those communities - 4 - where people will be able to return in the short term, and provision of temporary services (i.e., make-shift classrooms, mobile health facilities) for those communities that will need to stay in temporary resettlements. 7. Program Description The program will comprise five components: (a) agriculture, (b) infrastructure reconstruction and rehabilitation, (c) private sector development, (d) social protection, and (e) balance of payments support. The ERP will not operate in contested areas, in areas currently under Ethiopian control, or in areas too close to the border where there is risk of mines. For this reason, no demining is included, and no risk related to land mines is anticipated. The overall size of the program is estimated to be US$307 million, of which IDA will finance US$80-100 million, and the Government will contribute US$30 million equivalent. It is expected that multilateral and bilateral development partners will finance the gap of about US$180-200 million, through parallel or cofinancing. On the basis of indicative pledges received, it is expected that IDA resources will be used to fill the gaps in the following components: agriculture; infrastructure; private sector development; and social protection. Preliminary Emergency Reconstruction Program Financing Plan Source Millions US$ IDA 80-100 Government of Eritrea 20-30 Others 180-200 Total (estimated) 280-310 Program components Component A: Agriculture. This component will finance the purchase and distribution of seeds, pesticides, fertilizers, agricultural tools, tractors and machinery and livestock. The agricultural inputs will be given as a one- time grant to war and drought-affected people to enable them to resume agricultural and livestock production. The provision of tractors and heavy machinery is needed for the following reasons: (i) the reduced availability of agricultural labor calls for a partial shift from labor-intensive to mechanized agriculture; and (ii) since part of the Gash Barka and Debub regions will not be available for agricultural production in the near future, there is need to expand the activities in the Sahel region, and this expansion requires some irrigation work (small canal diversions, etc.). Component B: Infrastructure Rehabilitation. This component will finance the reconstruction and rehabilitation of infrastructure in the roads and energy sectors. In the roads sector, the project will likely finance (a) reconstruction of roads and bridges damaged during the conflict, including the Tesseney Gash bridge, Dassie-Awgaro bridge, and Kuluku Gash bridge; (b) the - 5 - rehabilitation, upgrading and reshaping of links around the central belt to provide improved access to settlements and camps of displaced people; (c) the construction of a bridge and culverts, and reshaping of road sections in the northern and northeastern areas of the country to improve access to communities affected by drought and famine; (d) procurement of Culverts, Gabions and some 255 linear meters of Bailey bridge sections; and (e) preconstruction studies and design work, and construction supervision. In the energy sector, the project will finance the rehabilitation of the Massawa power plant heavily damaged during the recent conflict, the replacement of power generators in Barentu and Tesseney, and repairs to the electrical power systems in Adi-Quala and Senafe. Component C: Private Sector Development. The private sector component will provide assistance to Eritrean banks whose portfolios have been affected by the destruction of assets financed by loans, tentatively estimated at US$30 million. This assistance will support those enterprises, with bank loans, which have been affected by the war. This component will assist the private sector by providing investment and working capital to firms, especially to finance foreign exchange needs. Eritrea's total exports in 1999 is tentatively estimated at US$18 million, and increasing this will be critical. The private sector development component will be complementary to the Savings and Credit Program being implemented under the Eritrean Community Development Fund (ECDF), which provides small- and medium-sized loans to private entrepreneurs. Component D: Social Protection. The project will assist vulnerable households by financing activities aimed at preventing further deterioration in the welfare of those most affected by the consequences of the combined war and drought, and at strengthening their capacity better to manage social and economic risks. Specific activities include: - Replenishing the Eritrean Community Development Fund. The ECDF finances community-based subprojects, which in turn support the rehabilitation and development of basic social and economic infrastructure, the provision of basic social services and the income-generating capacity of poor households. The Village Banks Savings and Credit Program, part of ECDF, will be refinanced to allow it to provide loans of up to US$1,000 to groups or individuals for income-generating activities. The Tier Two Credit Program of ECDF will also be refinanced to allow it to provide loans of up to US$10,000 to groups or individuals to finance businesses mainly in rural areas. - Housing program. Many households lost their houses and all their belongings during the recent fighting. The project will provide some resources and/or materials to subsidize the cost of rebuilding houses of poor families. Special attention will be given to ensure that the process of rebuilding houses does not have a negative impact on the already poor natural resource base of the country. In this respect alternative options for provision and distribution of materials, or construction of houses, are being considered. - Public works schemes. Some of the works financed under the infrastructure component will be implemented through labor-intensive public works schemes, providing income-earning opportunities to needy households. - 6 - Component E: Balance of Payments Support. This component will provide immediate, quick-disbursing balance of payments support. This component will not be financed with IDA resources. Emergency Reconstruction Program Costs- Preliminary Estimate Component Millions US$ 1. Agriculture 50 2. Infrastructure rehabilitation 60 Energy 25 Roads 35 3. Private sector development 45 4. Social protection 32 ECDF infrastructure component 12 ECDF microcredit component 5 Housing program 10 Public works program 5 5. Balance of payment support 70 6. Monitoring and evaluation 1 7. Program management 1 8. Contingencies 48 TOTAL 307 8. Project Implementation The program will be coordinated by a small management unit (Program Management Unit - PMU) housed in the Ministry of Finance. The PMU will be responsible for ensuring that inputs are delivered on time to the various implementing agencies; collecting information about implementation progress and making it available to concerned development partners; and managing all international procurement, and the project's special account. It will also be responsible for fulfilling all auditing, financial management and reporting obligations. The actual implementation of individual components will be the responsibility of the relevant line ministries or government agencies, in particular: Ministry of Agriculture (agriculture), Ministry of Energy (energy), Ministry of Public Works (road and bridge rehabilitation and public works), Ministry of Local Government (ECDF and housing), Ministry of Finance (BOP support), and the Bank of Eritrea (private sector development). The establishment of successful mechanisms to coordinate inputs and contributions being provided by different development partners will be key to - 7 - the success of the project. The Government stresses the importance of adopting harmonized procedures for procurement, financial management, and reporting. A meeting with all concerned development partners will be organized during the appraisal mission to agree on common implementation procedures. A second tier of coordination needs to be established at the level of each implementing agency. The ERP will have a strong monitoring and evaluation capacity, in order to generate baseline data which are currently missing, and also to guide the execution of the project, through impact evaluations. Moreover, to ensure that the intended beneficiaries are being targeted, regular monitoring, evaluation and quality control will be essential. An evaluation report stating the living conditions of the IDPs should ideally be produced every six months. This monitoring will be done in three steps: (1) A structured questionnaire will be administered to a sample of households at the camps, to collect the "before" information. Since the households are together, and more easily accessible, a large sample of about 5,000 households should be adequate. (2) During rehabilitation, households will move back to their villages and become less accessible. At this stage a random sample of households from each Kebabi will be selected, so as to arrive at a representative sample in each sub-Zoba, with probability proportional to the size of the sub-Zoba. To these households is administered the same structured questionnaire, to capture the "after" information. A sample of 2,117 households will be selected from Debub and 1,519 from Gash Barka giving a total of 3,600. The households will be distributed between sub-Zobas in proportion to the size of the sub-Zoba. The selected households will be distributed according to the share of the type of household in the total number of households in the Zoba. In other words, if in Deberewa, agricultural households make up 70 percent of all households in the Zoba, the sample should be representative, and contain 70 percent of agricultural households. (3) The quantitative data generated in (1) and (2) will be supplemented by information from administrative data, as well as information collected through participatory assessments. 9. Project Timing The program will be implemented over eighteen months, starting in October 2000. The Government expressed the need for an exceptionally high share of the IDA credit being eligible for retroactive financing to make it possible for the Government to start using national resources to rehabilitate some of the very critical infrastructure (e.g., bridges) before the beginning of the rainy season. 10. Environmental Category The program is classified as environmental category B because no component is expected to have a significant environmental impact. The primary issues of concern relate to the use of pesticides, the impact of housing and settlement on the local environment, and how potential environmental impacts from the private sector component will be identified and mitigated. An Environmental Analysis of the whole Program will be carried out and completed no later than - 8 - six months after the date of effectiveness. TORs for the Analysis will be agreed upon during appraisal, and the agreement of the TORs will be a condition for negotiations. No major new construction is envisaged. In fact, the program will support the reconstruction and rehabilitation of war-damaged roads, bridges, buildings, small-scale irrigation systems, power transmission lines and community infrastructure. It will also support rehabilitation and minor upgrading of roads in the drought-affected areas to improve access of farmers and pastoralists to markets and social services. 11. Major Benefits and Risks The proposed program is designed to provide Government access to an adequate level of financing to begin responding to the humanitarian crisis caused by the war and drought. Two major immediate benefits are to: (i) mitigate the immediate impact of the humanitarian crisis through the reconstruction of roads and bridges that will allow delivery of relief to the needy; the provision of agricultural inputs to resume food production; and the social protection component to directly assist households; and (ii) begin longer-term reconstruction by rebuilding infrastructure; providing liquidity to farmers, pastoralists and business owners to rebuild their livelihoods and prevent the further deterioration of health and loss of life of people who were already living on less than US$0.50 a day. There are five main risks. First, there is the risk that the conflict resumes. This could lead to the destruction of newly rebuilt infrastructure, housing and businesses, and once again displace people who have returned to their homes. However, the acceptance by both sides of the internationally- mediated peace agreement and the deployment of UN observers in advance of the full peacekeeping force reduce this risk considerably. Second, because resources are fungible, there is the risk that project resources are used indirectly for military spending. The deployment of the peacekeeping force should provide sufficient confidence to Government to reduce defense expenditure, and preliminary budget information provided by the Government suggests that defense spending had already started falling in 2000. Third, the large-scale mobilization means that not only are some key personnel from the implementing ministries at the front, but that labor shortages will slow the economy from getting on track again until there is some demobilization. Again, it is expected that the deployment of the peacekeepers will provide confidence to the Government to institute demobilization. Fourth, there is risk of a poor rainy season with consequent low agricultural production. This is going to be partially mitigated by expanding irrigated agriculture in the Sahel region. Finally, there is a risk that other donors will not provide sufficient financing to fully fund the program, or that Government will not be able to contribute its share. In either case, further prioritization will be required to fit the program to the available resources. For information, please contact: The InfoShop The World Bank 1818 H Street, NW Washington, DC 20433 -9- Telephone: (202) 458-5454 Fax: (202) 522-1500 Task Manager Laura Frigenti Note: This is information on an evolving project. Certain components may not be necessarily included in the final project. Processed by the InfoShop week ending July 14, 2000. - 10 - Annex Because this is a Category B project, it may be required that the borrower prepare a separate EA report. If a separate EA report is required, once it is prepared and submitted to the Bank, in accordance with OP 4.01, Environmental Assessment, it will be filed as an annex to the Public Information Document (PID) . If no separate EA report is required, the PID will not contain an EA annex; the findings and recommendations of the EA will be reflected in the body of the PID. 9 11 - 11 -