Document of The World Bank

FOR OFFICIAL USE ONLY

Report No: 47494-KE

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED CREDIT

IN THE AMOUNT OF SDR 55 MILLION (US$82 MILLION EQUIVALENT)

IN SUPPORT OF THE

SECOND PHASE OF AN ADAPTABLE PROGRAM LOAN

TO THE

REPUBLIC OF KENYA

FOR THE

KENYA AGRICULTURAL PRODUCTIVITY AND AGRIBUSINESS PROJECT

May 15, 2009

Agricultural and Rural Development Unit Sustainable Development Department Country Department 2, Kenya Africa Region

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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CURRENCY EQUIVALENTS

Currency Unit = Kenya Shillings (KSh) US$1 = KSh 79

SDR 1 = US$1.49

FISCAL YEAR July 1 – June 30

ABBREVIATIONS AND ACRONYMS

ABDC Agribusiness Development Center ADF Agricultural Development Fund AfDB African Development Bank AIDS Acquired Immune Deficiency Syndrome AKIS Agricultural Knowledge and Information System ALRMP Arid Lands Resource Management Project APL Adaptable Program Loan APR Agricultural Policy Review APVC Agricultural Product Value Chain ARIS Agricultural Research Investment Service ASAL Arid and Semi-Arid Lands ASARECA Association for Strengthening Agricultural Research in East & Central Africa ASPSC Agricultural Sector Programs Steering Committee ASDS Agricultural Sector Development Strategy ASCU Agricultural Sector Coordination Unit ATC Agricultural Training Centers AWP Annual Work Plan CAADP Comprehensive African Agriculture Development Program CAS Country Assistance Strategy CAGR Compound Average Growth Rate CBA Cost Benefit Analysis CBO Community Based Organization CBS Central Bureau of Statistics CDD Community Driven Development CGIAR Consultative Group on International Agricultural Research CIG Common Interest Group CIMMYT International Maize and Wheat Improvement Center CRF Coffee Research Foundation CSO Civil Society Organization CQS Consultants Qualifications DANIDA Danish International Development Assistance DAC District Agricultural Committee DAO District Agricultural Officer DDC District Development Committee DDP Dairy Development Policy DEO District Environmental Officers DFID Department for International Development (UK) DLO District Livestock Officer DP Development Partners DSU District Service Unit EA Environmental Assessment

FOR OFFICIAL USE ONLY

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not be otherwise disclosed without World Bank authorization.

iii

EAAPP East Africa Agricultural Productivity Program EAGC East Africa Grain Council ECA Economic Crimes Act EC/EU European Commission/European Union EIA Environmental Impact Assessment EIS Environmental Impact Study ERS Economic Recovery Strategy ESP Extension Service Provider ESMF Environment and Social Management Framework FAO Food and Agriculture Organization FAOSTAT Food & Agricultural Organization Statistics FEW Frontline Extension Worker FGM Farmer Grant Manual FM Financial Management FRR Financial Rate of Return FSD Financial Sector Deepening GAP Gender Action Plan GDP Gross Domestic Product GEF Global Environment Fund GIS Geographical Information System GoK Government of Kenya GSPK Governance Strategy for Building a Prosperous Kenya GTZ German Technical Assistance HIV Human Immunodeficiency Virus IC Individual Consultant ICB International Competitive Bidding ICC Inter-ministerial Coordination Committee ICT Information and Communication Technologies ICRAF International Centre for Research in Agro-Forestry IDA International Development Association IFAD International Fund for Agricultural Development IFR Interim Financial Report IFPRI International Food & Policy Research Institute ILRI International Livestock Research Institute IMF International Monetary Fund IP Indigenous People IPPF Indigenous Peoples Planning Framework IPM Integrated Pest Management IRR Internal Rate of Return JICA Japan International Cooperation Agency JKUAT Jomo Kenyatta University of Agriculture & Technology KAPP Kenya Agricultural Productivity Project/Program KAPAP Kenya Agricultural Productivity and Agribusiness Project KAPSLMP Kenya Agricultural Productivity & Sustainable Land Management Project KARI Kenya Agricultural Research Institute KESREF Kenya Sugar Research Foundation KEFRI Kenya Forestry Research Institute KEMFRI Kenya Marine and Fisheries Research Institute KENFAP Kenya National Federation of Agricultural Producers KIRDI Kenya Industrial Research Development Institute KJAS Kenya Joint Assessment Strategy KPIA Kenya Poverty and Inequality Assessment KS KAPAP Secretariat KSC Kenya Seed Company LANs Local Area Networks

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LCS Least Cost Selection LIB Limited International Bidding LSP Letter of Sectoral Policy LTIs Livestock Training Institutions LVEMP II Lake Victoria Environmental Management Project – Phase II MDG Millennium Development Goals M&E Monitoring and Evaluation MIS Management Information System MoA Ministry of Agriculture MOF Ministry of Finance MoLD Ministry of Livestock Development MoFD Ministry of Fisheries Development MoCDM Ministry of Co-operative Development and Marketing MTP Medium Term Plan MTR Mid Term Review NALEP National Agricultural and Livestock Extension Project NARS National Agriculture Research System NASEP National Agricultural Sector Extension Policy NACO National Consumer Organization NCB National Competitive Bidding NEMA National Environmental Management Authority NGO Non-Governmental Organization NLDP National Livestock Development Policy NPC National Project Coordinator NRM Natural Resource Management NRMP Natural Resource Management Project PBGs Producer Business Groups PDO Project Development Objectives PIE Project Implementing Entities PIP Project Implementation Plan PME Project Monitoring & Evaluation PMP Pest Management Plan PPDA Public Procurement and Disposal Act PPOA Public Procurement Oversight Authority PPPs Public Private Partnerships PPF Project Preparation Facility QCBS Quality and Cost Based Selection R&D Research and Development R&E Research & Extension RCoE Regional Centers of Excellence REA Rural Electrification Authority RFP Request for Proposal RGM Research Grant Manual ROR Rate of Return RSU Regional Service Unit SBD Standard Bidding Document SIDA Swedish International Development Agency SIL Specific Investment Lending SMS Subject Matter Specialists SMEs Small Medium Enterprises SOE Statement of Expenditure SP Service Provider SRA Strategy for Revitalizing Agriculture SSA Sub-Saharan Africa SSS Single Source Selection

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TOR Terms of Reference TRFK Tea Research Foundation of Kenya T&V Training and Visit TWG Thematic Working Group USAID United States Agency for International Development VC Value Chain WDR World Development Report

Vice President: Obiageli Katryn Ezekwesili Country Director: Johannes Zutt Sector Manager: Karen McConnell Brooks

Task Team Leader: Andrew Mwihia Karanja

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KENYA Kenya Agricultural Productivity and Agribusiness Project

CONTENTS

Page

A. STRATEGIC CONTEXT AND RATIONALE ................................................................... 1

1. Country and Sector Issues....................................................................................... 1 2. Rationale for Bank Involvement............................................................................. 2 3. Higher Level Objectives to which the Project Contributes .................................... 3

B. PROJECT DESCRIPTION ................................................................................................... 4

1. Lending Instrument................................................................................................. 4 2. Program Objective and Phases................................................................................ 4 3. Project Development Objective and Key Indicators............................................... 5 4. Project Components ................................................................................................ 6 5. Lessons Learned and Reflected in the Project Design.......................................... 15 6. Alternatives Considered and Reasons for Rejection............................................. 16

C. IMPLEMENTATION .......................................................................................................... 16

1. Partnership Arrangements..................................................................................... 16 2. Institutional and Implementation Arrangements .................................................. 17 3. Monitoring and Evaluation of Outcomes/Results................................................. 20 4. Sustainability......................................................................................................... 21 5. Critical Risks and Possible Controversial Aspects ............................................... 21 6. Loan/Credit Conditions and Covenants ................................................................ 23

D. APPRAISAL SUMMARY ................................................................................................... 24

1. Economic and Financial Analyses ........................................................................ 24 2. Technical............................................................................................................... 25 3. Fiduciary ............................................................................................................... 25 4. Social..................................................................................................................... 26 5. Environment.......................................................................................................... 26 6. Safeguard Policies................................................................................................. 27 7. Policy Exceptions and Readiness.......................................................................... 28

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Annex 1: Country and Sector or Program Background ...........................................................29

Annex 2: Major Related Projects Financed by the Bank and/or other Agencies.....................37

Annex 3: Results Framework and Monitoring.........................................................................38

Annex 4: Detailed Project Description ....................................................................................45

Annex 5: Project Costs.............................................................................................................62

Annex 6: Implementation Arrangements.................................................................................63

Annex 7: Financial Management and Disbursement Arrangements .......................................70

Annex 8: Procurement Arrangements......................................................................................84

Annex 9: Economic and Financial Analysis............................................................................94

Annex 10: Safeguard Policy Issues........................................................................................105

Annex 11: Project Preparation and Supervision ....................................................................115

Annex 12: Letter of Sector Policy .........................................................................................117

Annex 13: Documents in the Project File ..............................................................................121

Annex 14: Statement of Loans and Credits ...........................................................................122

Annex 15: Country at a Glance..............................................................................................124

Annex 16: Maps.....................................................................................................................127

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KENYA

KENYA AGRICULTURAL PRODUCTIVITY AND AGRIBUSINESS PROJECT

PROJECT APPRAISAL DOCUMENT

AFRICA

AFTAR

Date: May 15, 2009 Team Leader: Andrew Mwihia Karanja Country Director: Johannes Zutt Sector Manager/Director: Karen Mcconnell Brooks

Sectors: Agricultural extension and research (97%); Renewable energy (3%) Themes: Rural services and infrastructure (100%)

Project ID: P109683 Environmental screening category: Partial Assessment

Lending Instrument: Adaptable Program Loan

Project Financing Data [ ] Loan [X] Credit [ ] Grant [ ] Guarantee [ ] Other: For Loans/Credits/Others: Total IDA financing (US$m.): 82.00 Proposed terms: The Credit would be on standard IDA terms, with a maturity of 40 years, including a grace period of ten years

Financing Plan (US$m) Source Local Foreign Total

BORROWER/RECIPIENT 14.13 0.00 14.13 International Development Association (IDA) 64.26 17.74 82.00 Local Communities 2.45 0.00 2.45 Total: 80.84 17.74 98.58 Borrower: Government of Kenya Responsible Agency: Ministry of Agriculture Kilimo House P.O. Box 30028-00100 Nairobi Kenya Tel: 254-20-2720586 Fax: 254-20-2711149

Estimated disbursements (Bank FY/US$m) FY 2010 2011 2012 2013 2014 Annual 10.00 18.00 24.00 20.00 10.00 Cumulative 10.00 28.00 52.00 72.00 82.00 Project implementation period: Start: September 12, 2009 End: December 31, 2014 Expected effectiveness date: September 9, 2009 Expected closing date: December 31, 2014

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Does the project depart from the CAS in content or other significant respects? Ref. PAD A.3. [ ]Yes [X] No

Does the project require any exceptions from IDA policies? Ref. PAD D.7. Have these been approved by IDA management?

[ ]Yes [X] No [ ]Yes [ ] No

Is approval for any policy exception sought from the Board? [ ]Yes [X] No Does the project include any critical risks rated “substantial” or “high”? Ref. PAD C.5. [X]Yes [ ] No

Does the project meet the Regional criteria for readiness for implementation? Ref. PAD D.7. [X]Yes [ ] No

Project development objective Ref. PAD B.3, Technical Annex 3 The Project Development Objective (PDO) is to increase agricultural productivity and incomes of participating smallholder farmers in the Project Area. Project activities will contribute to these objectives by transforming and improving the performance of agricultural technology systems, empowering stakeholders and promoting the development of agribusiness in the Project Area. Project description [one-sentence summary of each component] Ref. PAD B.4., Technical Annex 4 The Project will have four components: (i) Policy/Institutional and Project Implementation; (ii) Agricultural Research Systems; (iii) Agricultural Extension and Farmer and other Stakeholder Empowerment; and, (iv) Agribusiness and Market Development. The details of the four components and the proposed activities are briefly set out below: Component 1: Policy/Institutional and Project Implementation (about US$8.06 million - IDA) Strategically, this component will support activities that will lead to better coordination of the sector with an aim of creating the necessary impetus for a sector-wide approach. These activities will be undertaken both at the national and lower levels. The component will also support Project implementation structures, monitoring and evaluation (M&E) and impact assessment. Component 2: Agricultural Research Systems (about US$22.8 million - IDA) This component will focus on supporting the agricultural research systems in the country and will have two sub-components, namely (i) Support to the National Agricultural Research System (NARS), and (ii) Support to Kenya Agricultural Research Institute (KARI). The NARS sub-component objective will be to operationalize the NARS policy developed during KAPP Phase I for better coordination of agricultural research in Kenya. Support to KARI will focus on its research programs and institutional support and aim to make KARI a key player in the proposed NARS. Component 3: Agricultural Extension, Farmer and other Stakeholder Empowerment (about US$29.38 million - IDA) This component will have two sub-components (i) support to pluralistic and participative agricultural extension, and (ii) support to empowerment of farmers and other stakeholders, including service providers. The objective of the extension sub-component will be to support the Government to implement the National Agricultural Sector Extension Policy, which was developed during KAPP Phase I. The cross-cutting empowerment sub-component will support the empowerment and organization of farmers/clients and service providers towards increased smallholder productivity and the transformation of subsistence farming to commercial agriculture. Component 4: Agribusiness and Market Development (about US$21 million - IDA) The objective of this component is to empower public and private stakeholders along selected commodity value chains to plan, design and set-up sustainable agribusinesses. This component will provide support for the following activities: (i) developing agribusiness; (ii) linking rural agro-processing with off-grid energy sources; (iii) designing an agribusiness partial risk guarantee financing instrument to provide commercial banks and other financial institutions an incentive for lending to agribusiness; and (iv) developing and promoting weather-based risk insurance products to insure farmers against weather-related risks.

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Which safeguard policies are triggered, if any? Ref. PAD D.6., Technical Annex 10 Environmental Assessment (OP/BP 4.01): Applicable because under Components 2 and 4, the Project will support investments in infrastructure, such as the construction and upgrading of building facilities at research and rural market centers. An Environmental and Social Management Framework (ESMF) developed and disclosed will guide the screening process. Pest Management (OP 4.09): Applicable because under Components 2 and 3, the Project will finance: (a) agricultural, livestock, and laboratory chemicals, including pesticides, which will be used for research purposes; and (b) adoption of new technologies by smallholders, including for purchasing agro-chemicals, livestock pharmaceuticals and pesticides. An Integrated Pest Management Framework (IPMF) developed and disclosed will be used as a guide. Indigenous Peoples (OP/BP 4.10): Applicable because there are Ongiek and Sengwer indigenous peoples living in the Nakuru and Uasin Gishu districts, which are located in the Project Area. An Indigenous Peoples Plan Framework (IPPF) developed and disclosed will guide the preparation of specific Indigenous Peoples Plans (IPPs) when the policy is triggered. Significant, non-standard conditions, if any, for: Ref. PAD C.6. Board presentation: The Project complies with all applicable Association policies. Loan/credit Effectiveness: (i) The Recipient has adopted a Project Implementation Plan (PIP) in form and substance satisfactory to the Association. (ii) The Recipient has opened a Project Account and deposited therein an initial deposit of Kenya Shillings 6,000,000. (iii) The Recipient has updated and submitted to the Association the Financial Management Procedures Manual in form and substance satisfactory to the Association. (iv) The Recipient has found suitable office accommodation for the KAPAP Secretariat and has appointed an agribusiness specialist, gender and social specialist, environmental specialists and other support staff at KS, and has appointed Regional coordinators, monitoring and evaluation specialists, accountants and other support staff in the 20 Regional Service Units all with experience, qualifications and terms of reference satisfactory to the Association. (v) The Recipient has submitted in form and substance satisfactory to the Association, KAPP’s account to the external auditors relating to an amount equivalent to US$8,189,245.82, which has not been accounted for under the Fiscal Year 2007/08 audit report relating to KARI's Respective Parts of the Project under the Association-financed KAPP. Covenants applicable to project implementation: The Recipient shall, not later than January 31, 2012 carry out jointly with the Association, a Mid-Term Review (MTR) of the progress made in Project implementation and not later than 30 days after completion of the MTR, commence implementation of the recommendations of the MTR as agreed with the Association.

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A. STRATEGIC CONTEXT AND RATIONALE

1. Country and Sector Issues 1. Agriculture remains the mainstay of the Kenyan economy and contributes directly 24 percent of gross domestic product (GDP). Sector performance greatly affects the poor, as 67 percent of the population and 80 percent of the poor live in rural areas and depend on agricultural activities for their livelihoods. Agriculture grew at an average annual rate of 3.5 percent in the 1980s, but declined to 1.3 percent in the 1990s. Recent Government efforts focused on reversing poor sector performance have started to bear fruit, with the compound average growth rate (CAGR) in the agricultural sector increasing annually by 5.0 percent between 2001 and 2007, with even a higher export growth of 8 percent. Overall agricultural productivity has also increased in the last five years. Setting aside the unusual circumstances (post election crisis) of the first quarter of 2008, indications are that the recent dynamism will be maintained into the short and medium-term future. Unpredictable weather patterns, exacerbated by global climate change and the effects of high volatility of fuel and input prices as well as the current global financial crisis, may complicate growth as they affect agricultural productivity. 2. In May 2008, the Government launched “Vision 2030,” whose aim is to transform Kenya into “a newly-industrialized, middle income country, providing a high quality of life to all its citizens in a clean and secure environment”. The Vision will be implemented through five-year rolling Medium-Term Plans (MTPs), starting with one which will cover the period 2008-2012. The agricultural sector is identified as one of the key sectors of the economic pillar in the Vision 2030 and the first MTP, with an annual growth projection of 5 to 7 percent. The sector priorities were articulated in the “Strategy for Revitalizing Agriculture (SRA) 2004–2014”, which aims to “provide a policy and institutional environment conducive to increasing agricultural productivity, promoting investments, and encouraging private sector involvement in agricultural enterprises”. In light of progress achieved and the recent global developments, and in response to the goals of the Kenya Vision 2030, the SRA has been updated into the Agricultural Sector Development Strategy (ASDS). 3. According to the findings of an Agricultural Policy Review (APR)1 conducted by the Bank, agriculture remains a vital development tool in Kenya. This finding confirms the 2008 World Development Report’s main message. The APR also re-affirms the fact that agriculture-led growth in Kenya is more than twice as effective in reducing poverty as compared to industry-led growth. In addition, the just concluded Kenya Poverty and Inequality Assessment (KPIA)2 indicates that inequality is a critical issue in the country, especially in rural areas. The APR points out that the key to better performance in agriculture is rapid increases in small-holder productivity3. This requires not only increases in physical production volumes and values (through technology - the supply side), but also better linkages of farmers4 to diversifying consumer markets (the demand side). These reviews

1 World Bank (2008) - Agricultural Policy Review: Current trends and future options for pro-poor growth (draft). 2 World Bank report - Kenya Poverty and Inequality Assessment, June 2008. 3 Also pointed out in the World Development Report, 2008 (World Bank). 4 The term “farmer” is being used for men and women involved in managing natural resources for crop production, livestock husbandry, fish raising and local agro-processing and value addition. To qualify as smallholder farmer, the ‘farmer’ must own less than 5 ha of cultivated land.

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identified areas that need to be addressed, including land policy and land use, diversification into higher-return activities and value addition, the need for focusing on the policy and regulatory environment, and the need to support farmer organizations. The global food crisis has brought into sharp focus the centrality of enhancing agricultural productivity as a key developmental challenge. 2. Rationale for Bank Involvement 4. The main Bank support to the sector has been through the Kenya Agricultural Productivity Project (KAPP), which was designed as the first phase of an Adaptable Program Loan (APL). The KAPP development objective was to improve the overall technology system by supporting agricultural research, extension and farmer empowerment. The APL design was thought prudent, given the need to have long-term engagement to succeed with reforms of agricultural services. The first phase of the APL closed on December 31, 2008. 5. The support provided under KAPP has been instrumental in achieving a number of reforms in the sector. Through KAPP support, the sector has been able to review and formulate a new National Agricultural Sector Extension Policy (NASEP) and its implementation framework, a National Livestock Development Policy and Dairy Development Policy, and a draft National Agricultural Research System (NARS) policy, and implement reforms in the coffee sub-sector. The support has also facilitated: (i) carrying out agricultural research, resulting in the release of new crop varieties and other technologies; (ii) training researchers and building the capacity of their institutions; (iii) empowering farmers and their organizations to strengthen demand for services; and (iv) piloting, with encouraging results, of public-private partnerships (PPPs) in provision and financing of extension services. Although the impacts of these reforms and developments will take time to be felt, there is evidence to the effect that Bank support has played a crucial and catalytic role in creating the necessary momentum towards improving agricultural productivity and service delivery to farmers. Support to be provided under the proposed Kenya Agricultural Productivity and Agribusiness Project (KAPAP, the second phase of the APL) will aim to consolidate and scale-up these gains while supporting emerging opportunities and meeting challenges in the sector, in line with Vision 2030, the MTP, and the ASDS. 6. The proposed KAPAP will focus on the productivity agenda while embracing diversification, value addition and linkage to markets, and promotion of PPPs in service delivery and agribusiness development. Through this proposed second phase of the Program, the Bank will support the Government to address medium- to long-term supply response related issues linked to agricultural technology/research, implementation of reforms in extension service delivery, and agribusiness. Lessons learned from the implementation of the first phase of the APL indicate that, to have a greater impact from the productivity growth, farmers have to be supported to link better to both input and output markets and through agribusiness development. According to the KPIA report, rural households have shown a very strong upward trend in both on- and off- farm diversification of economic activities in the last decade. The report also indicates that diversification as a strategy is a key driver out of poverty. The proposed second phase of the program will, therefore, support and encourage households to diversify into high payoff on- and off- farm activities.

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7. The Government is in the process of finalizing the ASDS and its investment plan, which will facilitate and enhance the sector-wide approach. In addition, the Government and other key development partners5 supporting the extension sub-sector in the country have expressed their willingness for a better coordinated approach in financing and implementation of extension and other advisory services under the new national extension policy. This development calls for a sector-wide approach as far as extension services are concerned. The Bank, being a major player in the sector, is being called upon to spearhead and catalyze activities that will eventually lead to the sector-wide approach. Activities that will promote the sector-wide approach will, therefore, be factored into the design of the proposed second phase of the program. 8. The Project also reflects commitments made under the World Bank Group’s Gender Action Plan (GAP),6 which supports efforts to advance women’s economic empowerment in client countries. The GAP seeks to advance the gender focus of Bank operations in, inter alia, agricultural markets, to promote shared growth. A linkage is also being established with the Financial Sector Deepening (FSD) program in order to design and implement funding and risk management instruments together with other partners, without disrupting the Kenyan financial market. 9. The second phase of Kenya Agricultural Productivity Program (KAPP) will include strong governance features, focusing on four principal areas: (i) results orientation; (ii) accountability; (iii) transparency; and, (iv) effective stakeholder participation. The results orientation activities include targeting and monitoring and evaluation against socio-economic indicators reflecting production, sales, employment, investments, and so on. For accountability, KAPAP will include capacity-building in institutional risk management, financial engineering and procurement monitoring. For transparency, it will address information dissemination and communication about Project targeting and objectives, documentation, such as a comprehensive operational manual, complaints mechanisms (for financial management and social accountability), and supervision and quality control of Project activities. For effective stakeholder participation, it will support consultation processes with affected communities, decision-making processes, and social accountability. Vision 2030 also strives for equity in power and resource distribution between genders and for youth. Thus, KAPAP’s commitment to strengthen the participation of women and youth in decision-making processes will be an important contribution to good governance. 3. Higher Level Objectives to which the Project Contributes 10. The Project’s strategic focus will be on the promotion of sector-wide approaches in line with Vision 2030 and ASDS for agricultural sector growth and poverty reduction. It will enhance: (i) agricultural productivity (through support to agricultural research, extension and empowerment of farmers and other service providers); (ii) diversification and value addition in agriculture, livestock and fisheries; and (iii) the promotion of PPPs in service delivery and agribusiness development. 11. Although the Project was not included in the last CAS, it does not depart in substance from the CAS and responds to a current urgent need to ensure food security in Kenya. The importance of the agricultural sector was a central theme of the 2004 Kenya

5 DANIDA, EU, GTZ, SIDA. 6 World Bank (2007) – Gender Equality as Smart Economics: A World Bank Group Action Plan.

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CAS and the 2007 CAS Progress Report (which expired in June 2008). A new CAS is currently under preparation. However, urgent global and country circumstances called for a response to ensure food security in Kenya. As such, the project has been processed quickly at the request of the Government to increase agricultural productivity in the medium- to long-term as the key means for dealing with the rising cost of food and ensuring food security. The Project is also aligned with the Vision 2030 which identifies the growth of the agricultural sector as key to the realization of the country’s growth and development targets. B. PROJECT DESCRIPTION

1. Lending Instrument 12. The Project will be a follow-on phase of the Adaptable Program Loan (APL), in line with the original KAPP design. The APL instrument was preferred, as it offers continuity with the Phase I activities and is also suitable for long-term engagement in the sector. The Second Phase APL, in addition to the support to agricultural research and extension, will also support agribusiness development, in line with Vision 2030. During this phase, foundations for a sector-wide approach will be laid, with consolidation expected to be the focus in the third and final phase of four years. A set of triggers for Phase III is listed below and was agreed upon during Appraisal. 2. Program Objective and Phases 13. The long-term objective of KAPP as envisaged during the original design was to improve the overall agricultural system by supporting generation, dissemination, and adoption of technology through: (i) reforms in extension to increase pluralism, responsiveness to clients, and participation by private providers; (ii) an evolutionary change in the existing system of agricultural research to improve accountability and impact; and (iii) increased empowerment of producer organizations to influence the planning, design, implementation, funding, and monitoring and evaluation of research, extension, training and capacity building activities. To achieve this objective, three Project phases of three, four, and five-year periods were anticipated. The first phase, which closed in December 2008, was initially planned to take three years, but was extended for one year due to delays that occurred during start-up. Due to the changing circumstances, there is a need to review this original design and it is now planned that the second phase will be for five years while the last phase will take four years. Phase II of the program will focus on consolidating reforms in research, implementing reforms in extension, and building the basis for sustainable financing of the entire system. The current phase will also focus on building the necessary policy and related frameworks for a sector-wide approach, which will be consolidated in the third and final phase of the program. The Government has confirmed the acceptance of the objective and scope of the overall program in a Letter of Sector Policy (LSP) to the Bank (Annex 12). 14. KAPAP (Phase II) will be implemented over a five year period (FY2010-2015). This is to enable scaling-up and consolidating KAPP Phase I activities, and to give sufficient time for implementation of the agribusiness development activities. The indicative IDA allocation is US$82 million, with Government co-financing estimated at US$14.1 million. The Government contribution will cover personnel emoluments for staff seconded to the Project, taxes and some operational costs. The Project beneficiaries will also contribute around US$2.3 million.

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15. The Project will be linked to the East Africa Agricultural Productivity Project (EAAPP - P112688), whose objective is to strengthen regional cooperation in the generation of technology, training and dissemination programs for four priority commodities (dairy, cassava, rice and wheat) by establishing Regional Centers of Excellence (RCoE). For Kenya, EAAPP will support the establishment of an RCoE for dairy at the Kenya Agricultural Research Institute (KARI), which is also being supported under KAPAP. 16. The Project will also be linked to the GEF-supported Kenya Agricultural Productivity and Sustainable Land Management Project (KAPSLMP- P088600). KAPSLMP’s objective is to facilitate agricultural producers in three catchment areas (Cherangani, Taita and Kikuyu-Kinale) to adopt environmentally-sound land management practices without reducing their incomes. The two Projects will share a common institutional and implementation arrangement to reduce overhead costs, while maximizing on synergies. 17. For the first two and half years, the Project will be implemented in 20 districts originally covered by KAPP Phase I. Under Phase I, two divisions were covered in each of the 20 districts. The original 20 districts have since been sub-divided into 59 districts. KAPAP will initially focus on the original geographic area, to consolidate the gains achieved under Phase I. Based on the implementation progress, the geographical coverage will be re-assessed during the MTR. 3. Project Development Objective and Key Indicators 18. The Project Development Objective (PDO) is to increase agricultural productivity and the incomes of participating smallholder farmers in the Project area. Project activities will contribute to this objective by transforming and improving the performance of the agricultural technology systems, empowering men, women, youth and other stakeholders, and promoting the development of agribusiness in the Project area. 19. To achieve this objective, the Project will support:

• Improvement of research and extension systems and their linkages to sector priorities through the implementation of ASDS, NASEP, and NARS policies, including improved planning, coordination, funding and implementation of public agricultural programs aimed at sector transformation, growth and reduced risk;

• Empowerment of farmer organizations and other stakeholders to influence planning,

design, funding, implementation and monitoring and evaluation of agricultural research, extension services, training and capacity building activities;

• Development of agribusiness along commodity chains aimed at improved value

addition and marketing; and, • Integration and mainstreaming of gender and other crosscutting issues (HIV/AIDS,

youth, environment) throughout the Project area and along the value chains. 20. The proposed key performance indicators are:

• Percent increase in average yields of selected agricultural products in small-holder farming systems in the Project area.

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• Percent increase in earnings of men and women from small-holder agricultural activities in the Project area.

• Percent increase in public investments in the agricultural sector. • Proportion of participating men and women small-holder farmers who are satisfied

with extension, empowerment and agribusiness services.

21. The triggers for moving to Phase II: Three triggers were agreed upon for moving from Phase I to Phase II. These were: (i) national extension policy and related institutional and implementation framework to be approved by the Government of Kenya (GoK); (ii) two cycles of Project monitoring and evaluation completed, with at least 85 percent of the district intervention impacts evaluated; and (iii) at least 60 percent of the KARI component implemented and evaluated as satisfactory. The triggers on extension policy and on the KARI component were met. The trigger on district level interventions was partially (70 percent) met by the time the Project closed in December 2008. The delays caused by the slow start-up of the KAPP Phase I Project, time required to operationalize the district service units (DSUs), and problems associated with delays in the disbursement of funds to district level were the main reasons for partial fulfillment of this trigger. 22. The triggers for moving to Phase III. The triggers for moving to Phase III will build on what was achieved in Phase I and will mainly focus on implementation of various policies developed in Phase I, including the national extension and national research system policies. The Phase III triggers will also focus on establishing the foundations for moving to a sector-wide approach; in this regard, one of the key triggers will concern approval of a sector policy and the development of an investment plan that will be key for guiding sector investments for the next decade. The three triggers for moving from Phase II to III are listed below:

(i) The Government has approved the ASDS by year 1, prepared an ASDS implementation framework and investment plan in year 2 and initiated implementation by the MTR in year 3 of KAPAP;

(ii) The Government has rolled out the implementation of the NASEP and has set out the institutional framework for regulation and financing of commercial extension/advisory services by the MTR in year 3; and,

(iii) The institutional mechanisms for implementation of the NARS policy are in place by year 2 and KARI re-structuring is completed by the MTR in year 3 of KAPAP.

4. Project Components 23. The Project will have four components, of which three are a continuation of the components supported in Phase I. The three components continued from Phase I were support for: (i) Policy/Institutional and Project Implementation; (ii) Agricultural Research Systems; and (iii) Agricultural Extension and Farmer and other Stakeholder Empowerment. A new component supporting Agribusiness and Market Development was added in this phase of the program. The details of the four components and the proposed activities are set out in Annex 4. A summary of the Project components is outlined below.

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Component 1: Policy/Institutional and Project Implementation (About US$8.06 million - IDA and US$5.41 million GoK contribution) 24. This component will have two sub-components, namely (i) policy and institutional support and (ii) support to Project implementation structures and monitoring and evaluation (M&E). Sub-Component 1.1: Policy and institutional support (About US$1.61 million - IDA) 25. Support for sector wide-approaches and policies: Strategically, this sub-component will support activities that will lead to better coordination of the sector, with an aim of creating the necessary impetus for a sector-wide approach. These activities will be undertaken both at the national and lower levels. At the national level, the Project will support the development of the ASDS investment plan, its implementation, activities that will facilitate harmonization of both Government and donor supported programs, and activities to align them with ASDS. These will include strengthening of a Government-led joint steering committee that can spearhead joint programming and oversight. The capacity of the Agricultural Sector Coordination Unit (ASCU) will be further strengthened to enable it to play a key role in sector coordination. This support will be aligned with the support being provided to ASCU by other development partners through the basket funding. At the district and lower levels, the proposed Project will support joint programming and create the necessary capacity and institutional framework for it. The immediate outcome will be preparation of an ASDS policy, its investment plan and implementation framework within two years. 26. Policy Support: During KAPP I, good progress has been achieved in finalizing the policy/reform agenda in some of the priority areas in the agricultural sector, which is essential to economic growth. KAPAP will help to: (i) finance the implementation and operationalization of the policies and institutional frameworks which have been either finalized, or are close to finalization, under KAPP I (e.g. NASEP, NARS); (ii) deepen the policy/reform implementation agenda in the agricultural sector, through a sector-wide consultative process, to provide an environment that is conducive to increasing agricultural productivity and investments in line with the ASDS; (iii) support the development of priority sector policies, strategies and their implementation frameworks for livestock, aquaculture, co-operatives and agribusiness; (iv) support cross-cutting gender, environmental and social policies and frameworks and general policy support on a need basis; and, (v) support for finalization of the avian influenza strategy, which was started in KAPP, will be continued. 27. Gender mainstreaming: KAPAP strongly integrates gender concerns in Project planning, implementation and participation, and puts a strong emphasis on sex-disaggregated monitoring and evaluation. A sex-disaggregated baseline will be established at Project start-up. To ensure that women and men benefit equally from the Project, training will be provided at all levels, and the development of a sector gender policy will be supported. This will also result in a sustained national base of gender mainstreaming capacity. Specific investments to strengthen the economic empowerment of women and youth and their effective participation in decision-making processes are anticipated, such as safeguards to ensure that women as well as men can retain control of their income, investments in participation and leadership skills training of women and youth in higher-level decision-making structures, and a mentorship program involving successful young women and men.

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Sub-component 1.2: Support to project implementation and M&E (About US$6.45 million – IDA and US$5.41 million GoK contribution) 28. Support to Project implementation structures: The Project will be multi-institutional, requiring an enhanced level of coordination. The design of the Project will incorporate this sector-wide and bottom-up approach at district and national levels. The Project will also be closely coordinated with other GoK and donor supported projects. The national and lower level Project implementation structures set up under KAPP Phase I will be supported and enhanced. These structures include the Inter-ministerial Coordination Committee (ICC), a sector programs steering committee, Project secretariat, mainstreamed regional service units and farmers’ fora at all levels. 29. The Project will also provide support in the following key areas:

• M&E and impact assessment: The Project will finance the development of a harmonized, sector-wide M&E system that will provide reliable and timely data to inform decision-makers and the public on progress, results and shortcomings of interventions in the agricultural sector; and that will facilitate compilation of indicators for the different sub-sectors (e.g., production, value-addition, investments, marketing, employment, natural resource management, food security, and institutional development). The M&E system will also provide gender-disaggregated baseline information to allow close monitoring of gender-based issues. Support will be provided for capacity building at all levels and for the necessary data collection and analysis infrastructure. The ASCU will be facilitated to take a lead in the development of the sector-wide M&E system. Apart from the sector-based M&E system, a Project M&E system, developed in Phase I, will be up-graded and fine-tuned to provide Project-specific information and data. Linked to the M&E system, the Project will provide support for impact assessments based on baselines undertaken during Phase I and during Project preparation.

• Management information system (MIS): An MIS system, linked to the M&E

system, will be rolled out. The initial design of the Project MIS system was undertaken during Phase I, but requires support from KAPAP to make it operational.

• Communication strategy: The Project will finance a phased-out implementation of

the sector communication strategy, and provide support for improved internal communication and information sharing and dissemination system (through local area networks - LANs). KAPAP will invest in information and communication technologies (ICT), to facilitate stakeholders’ access to the agricultural knowledge and information system (AKIS), including for timely and factual information that will enable them to make informed technical and market oriented decisions, and arrive at the appropriate choice of interventions.

• Networks: KAPAP will facilitate the implementation of policies and processes that

encourage sustainable networks, collaboration and linkages that integrate farmers/beneficiaries, agricultural educators, researchers, extension service providers, policy makers, and agribusiness community, within the agricultural product value chain continuum.

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Component 2: Agricultural Research Systems (About US$22.83 million - IDA) 30. This component will focus on supporting the research system in the country and will have two sub-components, namely:

(i) Support to the NARS; and (ii) Support to KARI.

31. Support to NARS (About US$4.83 million - IDA). The objective under this sub-component will be to revise and operationalize the NARS policy and its implementation framework developed in KAPP Phase I. The sub-component will also support initial investments that are necessary for the NARS for enhanced coordination, resource sharing and capacity building. Support will be given for: (i) six competitive and collaborative research grants for value chain development, one of which shall be on aquaculture; (ii) establishment of a national reference resource center; (iii) laying the legal and financial framework needed for a sustainable funding mechanism for the entire NARS; (iv) publication of the East African Agricultural and Forestry Journal; (v) capacity building within the scientific community; (vi) the establishment of innovative mechanisms aimed at achieving sustainable funding for agricultural research; and (v) establishment of an agricultural research consortium for the core agricultural research institutes. Although the NARS policy, its implementation framework and an investment plan were being finalized under KAPP Phase I, there is need to have a few of the controversial aspects of the policy and its legal framework reviewed and approved/enacted by the Government. as they are critical to the operationalization of the NARS. A milestone for the finalization of the NARS policy has been set as one of the triggers for Phase III. 32. Support to KARI (About US$18.00 million - IDA). Investment will continue towards the strategic research programs of KARI, in order to support the implementation of its Investment Plan. The support to KARI under the proposed Project will focus on promoting an agricultural innovation approach, which is a clear shift from previous paradigms which focused more on capacity building and institutional strengthening. The research will address client market needs, and target value addition, and impact, as articulated in the NARS framework. Research on Natural Resource Management (NRM) issues will also be supported, with a special focus on climate change. For each research program to be supported, clear milestones in terms of resource allocation and socio-economic impact will be set regarding the balance between maintenance of critical, strategic research, and post harvest and value addition research. More resources over time will be dedicated to the value addition research, as this is expected to feed into the value addition and agribusiness initiatives supported by other Project components. 33. Institutional support to KARI will focus on making the institute ready to take its role in the NARS, both as a key leader and the largest player. Investments to enhance decentralization of resource management to research programs and KARI centers will be made, while support will be given for reforms on KARI corporate governance and research programs, as recommended by the External Program and Management Review undertaken during KAPP Phase I. To enhance the effectiveness and efficiency of both researchers and the management, investments will be made on ICT to ensure all KARI centers are interconnected and have access to internet and other ICT services. To serve better the livestock community, a modest budget will be provided under KAPAP to construct and equip

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the Garissa KARI Center. To link better with extension and other stakeholders, the Project will support the establishment and strengthening of an outreach and partnership unit. 34. Another area of support will be developing sustainable research funding mechanisms to reduce the dependency of KARI and other NARS institutions on Development Partner (DP) funding. In the last five years, the GoK contribution to KARI’s development budget has averaged around 15 percent, with the rest being financed from Development Partners and other sources. Mechanisms for leveraging more public resources will be factored into the design of the Project. It was agreed during Project negotiations that the GoK will increase its funding to KARI’s development budget by 5 percent per year for the next five years. The Project will also support the development of the necessary legal and administrative instruments necessary for the establishment of an Agricultural Research Trust Fund for KARI and the development of KARI’s Agricultural Research Investment Services (ARIS) business plan, to facilitate higher generation of internal revenue.

Component 3: Agricultural Extension and Farmer and other Stakeholder Empowerment (About US$29.38 million - IDA and US$2.01 million beneficiary contributions) 35. The objective of this component is to support the GoK to implement the NASEP and lay the foundations for sustainable intensification and diversification of agricultural production systems and improved linkages to both markets and agribusiness, to generate greater impact for agricultural productivity growth and improved risk management. The component focuses on empowering the extension clientele and multi-stakeholder platforms through sharing information, imparting knowledge and skills, and changing attitudes, so that they can efficiently make decisions and manage their resources for increased productivity, improved incomes and standards of living in targeted rural areas. 36. Building on experiences and lessons learnt from the extension pilots in KAPP Phase I and other on-going extension support programs (e.g. NALEP), this component promotes the access of Common Interest Groups (CIGs) to demand-driven support services and the empowerment of farmers and other stakeholders. In close coordination with the research and the agribusiness components, the main thematic support areas are: (i) empowering and organizing farmers/clients for the transformation of subsistence farming to commercial agriculture; (ii) enhancing participatory, gender-sensitive planning and priority setting for local agricultural sector development; (iii) promoting PPPs for competitive demand-driven extension service delivery; (iv) improving farmer access to technical and market information using modern ICT; and (v) enhancing capacity building and empowerment for support service providers. The area coverage will be widened to include all divisions of KAPP Phase I targeted districts (currently 59 districts or about 400,000 men and women as direct beneficiaries). Special attention will be given to enable poor farmers, especially women, youth and other vulnerable groups, to innovate, access markets and share benefits. 37. Sub-component 3.1: Agricultural extension (About US$23.22 million - IDA and US$1.46 million beneficiaries’ contribution). The overall objective of this sub-component is to support the GoK to implement the NASEP, focusing on empowering the extension clientele and targeting the implementation of a pluralistic, participatory, demand-driven and market-oriented, professional and decentralized extension and innovation system. In line with the ASDS, KAPAP will strengthen and scale-up its support to implement the NASEP

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framework aimed at harmonized sector-wide extension services. This reform agenda provides a conducive environment for strengthened public-private partnerships in the sector, by supporting public and private service providers to cater for the diverse needs of extension clientele. The extension sub-component will provide specific support at both national and local levels:

• At local level, key support will be given to participatory advisory and support services for management of farming ‘enterprises’, mainly focused on: (i) strengthened participative bottom-up development planning, budgeting, implementation and monitoring; (ii) improving dissemination/sharing of knowledge among all the agricultural sector players; (iii) broadened farmers access to appropriate agricultural knowledge and improved technology options to enhance sustainable agricultural productivity growth and agribusiness development; and (iv) providing Farmer Grants (matching grants) to farmer groups (CIGs, PBGs, cooperatives, micro-small enterprises, etc.) to implement agricultural productivity, marketing and agribusiness micro-projects. The micro-projects will cater for contracting of demand-driven farm advisory and training services, and co-financing of CIGs’ investments in areas with a high ‘public good’ element and high technical risks.

• At national level, the sub-component will support: (i) sector-wide coordination of

demand-driven agricultural extension services, including the consultancies to design and develop sustainable financing mechanisms; (ii) enhanced agricultural and market information systems; (iii) strengthened demand-driven research-extension-farmer-market linkages; and, (iv) development of a regulatory framework and quality standards for demand-driven agricultural service delivery.

38. Sub-component 3.2: Farmers and other stakeholders’ empowerment (About US$6.16 million - IDA and US$0.55 million beneficiaries’ contribution). This sub-component will support the empowering and organization of farmers/clients, service providers and other stakeholders towards the transformation of subsistence farming to commercial agriculture for increased farmer incomes and improved livelihoods. The paradigm change towards demand-driven services calls for focused awareness, capacity building and strengthened organization of farmers to enable them to have a voice in demand-driven support services and policy reforms, while addressing the diversity of farmer needs. 39. The main activities will be organized around the following outcomes: (i) strengthened farmers’ knowledge and organization at the grass-roots level; (ii) organizational support to apex farmers and commodity associations/organizations with effective representation, partnerships and networks, articulated strategic orientations and active participation in development issues; (iii) institutional support and strengthening of the Kenya National Federation of Agricultural Producers (KENFAP) to develop its core role; (iv) organization/ support of other stakeholders, including service providers and consultative stakeholder platforms; and (v) support to improving governance and strengthening the cooperative movement. Farmer empowerment and strengthening of their association is a core role of KENFAP. On the basis of pilots already implemented under KAPP Phase I, KENFAP as a strategic partner for KAPAP will support men and women farmers and their organizations to access demand-driven support services and to strengthen their voice in policy reforms. Farmer and stakeholder empowerment will be implemented in close collaboration with the other components to ensure wide spill-over effects.

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Component 4: Agribusiness and Market Development (about US$21.73 million - IDA and US$0.28 million beneficiaries contribution) 40. The objective of this component is to empower public and private stakeholders along commodity value chains to plan, design and set-up sustainable agribusinesses. This will be achieved through the delivery of agribusiness services and support to develop and to set-up appropriate funding instruments to stimulate agriculture growth and stakeholders’ revenues through value-addition and producers’ linkages with input and output markets. The activities to be supported will be organized along the value chain (VC) approach. These VCs are constituted by several operators, mainly producers (farmers, herders, etc.), markets, small and medium enterprises, cooperatives and other stakeholders who are key to agricultural growth. The Project will ensure close linkages and coordination with the Ministry of Industrialization through the MSME Competitiveness Program in order to dove-tail its activities on its funding and training tools to ensure a continuum from the farm production to the agro-industrial production. In addition, a key issue is to boost the development of the sector skilled manpower. 41. To achieve this objective, the component will have two sub-components: (i) support to agribusiness development and (ii) a pilot project on linking agro-processing to off-grid energy sources. Both will build on the Farmer and other Stakeholders Empowerment activities under sub-component 3.2. The activities under these sub-components are summarized below. 42. Sub-component 4.1: Support to agribusiness development. (US$19.73 million - IDA). This sub-component will support the following inter-related activities:

(i) Create a network of Agri-Business Development Centers (ABDCs) to lead the VC structuring process while providing agribusiness and market development services to assist the VCs’ stakeholders in elaborating bankable projects;

(ii) Design and establish appropriate agribusiness funding instruments to be rolled out by financial institutions, and support the development of market-based weather risk products to be rolled out to farmers by insurance companies;

(iii) Support the creation of one Agro-Food Park in each of the four selected regions where relevant agro-processing facilities and marketing infrastructures will be bundled together along specific VCs; and

(iv) Enhance training in agribusiness management and food technologies to meet market demands.

43. Selectivity criteria were used to select four VCs (meats, fruits and vegetables, dairy, and grains) based on their potential for value addition and their geographical distribution. The VCs were also selected based on their capacity to ensure food security as well as a sustainable income for the relevant stakeholders (farmers and operators) while having a spill-over effect on related VCs using common infrastructure7. As the VC development is capital intensive, the Project will support VC development in a phased approach along the following four lead VCs in each Project region: (i) grains in Rift Valley; (ii) fruits in Coast; (iii) meats in North Eastern; and (iv) dairy in Central region. In addition, aquaculture will be supported in Eastern region. Other value chains will be developed in the other regions, based on the experiences gained from the first lot. These are poultry in Nyanza

7 See also WBI/ARD study on agribusiness development.

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and vegetables in Western province. The phased approach will ensure that the activities to be supported not only dove-tail on one another, but are also fundamentally related to VC assessments and the related development based on feasibility studies, made in consultation with the agribusiness sector involving the farmers/producers groups. An agribusiness and market (AIM) sub-committee will be established in each region to guide and coordinate advice on the development of the VCs. 44. Creation of Agribusiness Development Centers (ABDCs) to assist VCs’ stakeholders (about US$7 million - IDA). The overall objective of this activity is to nurture entrepreneurship while building trust within the selected VC. This Project will support the creation of a network of ABDCs at regional (four) and national (one) levels. These ABDCs will be managed under specific Public Private Partnerships (PPPs) to drive the transformative process of the selected VCs:

• At regional level, the ABDCs will essentially deliver the following services: (i) VC appraisals and technical feasibility studies (transport, storage, processing, packaging, environment impact studies, etc.); (ii) development of agribusiness management and accounting capacities; and (iii) support to the creation of Value Chain Councils (VCC).

• At national level, the national ABDC will coordinate the VC activities and have a critical role in: (i) aggregating data and agribusiness intelligence at national level for further dissemination; (ii) providing legal assistance and lobbying to improve the policy and regulatory framework; and (iii) supporting the creation of national VC organizations to voice the interest of the VC actors.

45. Assistance in the establishment of agro-industry funding instruments and risk management tools (about US$5 million - IDA). To facilitate access to capital investment to small holders and more generally to boost investment in the agribusiness sector in the country, the Project will, as an initial step, support a consultancy/study to explore possibilities and avenues to facilitate access to credit (working capital) as well as to equity for start-up capital for the farmer groups and others interested in value addition and agribusiness. In collaboration with the Financial Sector Deepening Trust of Kenya (FSD-Kenya) program and other DPs (AGRA, EU, IFAD, etc.), the Project will set aside US$4.5 million for the creation of a specific funding facility to support agribusiness development. The funds will be used as a risk guarantee8 to participating financial institutions or designed as in another way that does not distort the financial sector market (based on outcomes of the initial study), to attract and leverage investment in the sector, both in terms of equity and loans. An open and competitive system will be used to select the commercial banks and other financial institutions to participate in the facility. This facility will mainly be geared towards smallholders, producer business groups, SMEs, cooperatives, and so on. Specific attention will be given to ensure an effective and fair access to funding resources among men and women agribusiness promoters. The Project will also support technical assistance for development of weather-based risk insurance products and their promotion, which insurance and banking sector can roll out to farmers. The technical assistance will mainly support the design of the products including their basic pricing and other technical and financial requirements. This will be done in close collaboration with the International Livestock

8 A loss sharing arrangement (either loss by loss or first-loss basis) will be worked out and agreed with the financial institutions during the detailed design of the facility.

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Research Centre (ILRI), Rockefeller Foundation and FSD-Kenya, which are piloting the design of some of the risk products. 46. Creation of four Agro-Food Parks. Since agro-industries are capital intensive and need appropriate infrastructure such as roads, water, sewage, energy, and telecommunications to operate efficiently, the Project will support the development of one Agro-Food Park in each of the selected regions. Innovative PPPs will be established to attract investments in the designed areas along the selected VCs. The final location of these Agro-Food Parks will be decided on the basis of relevant prefeasibility studies involving all stakeholders of the selected VC in the region. As far as possible, this will build on existing institutions and infrastructures such as Export Processing Zones (EPZ), Agricultural Training Centers (ATCs), Livestock Training Institutions (LTIs), Agri-Business Centers, and other established private and public institutions. Specifically, the Project will: (i) support the prefeasibility studies to set up the Agro-Food Parks; (ii) support the development of a special legal structure to operate them and prepare the relevant PPP agreements; (iii) lobby to attract the related investors and/or agro-industries within the premises of the parks; and (iv) provide the initial GoK financing portion required to establish the Parks. 47. Agribusiness management and food technologies training enhancement (about US$1 million - IDA). Since agro-industries are built for the long term and need a significant number of skilled manpower to operate them, it is critical to develop appropriate curricula in agribusiness development and food processing technologies with the universities, both at national and regional levels. The Project will support: (i) curricula development; (ii) preparation and procurement of training materials; and (iii) training of about 200 students per year while building the capacity of relevant agribusiness and food technology teachers and extension staff, with a keen attention to a well balanced gender representation. 48. Sub-component 4.2: Linking rural agro-processing activities to off-grid energy sources (US$2.0 million - IDA and US$0.28 million beneficiary contribution). During the implementation of Phase I, 176 grants were given to communities for value addition and scaling-up technologies with encouraging results. However, a key constraint that most communities faced was poor road networks and low access to electricity or other forms of modern energy. While the GoK and other DPs are investing in rural access roads, there is a need to address the issue of rural access to energy, as it is central to most agribusiness activities. The Bank and other DPs are planning to support the GoK’s Energy Access Expansion Project (P103037), covering both rural and urban areas. To enhance the impact of both operations, the Energy Access Expansion Project will cover, to the extent possible, the same communities and districts supported under KAPAP. In order to advance the energy support, pilot activities for linking agro-processing to renewable energy sources are planned. These pilot energy facilities will have to demonstrate their sustainability and reproducibility while efficiently addressing the needs of rural primary processing units, using local renewable energy sources (e.g. mini-hydro, biomass, wind and solar). This sub-component will be implemented in conjunction with the Rural Electrification Authority (REA) and the Ministry of Energy, and will be appraised prior to KAPAP effectiveness. Levels of funding of the proposed matching grant, beneficiary eligibility criteria and contributions,and so on, will be further detailed in the Community Energy Grant Manual (CEGM) to be prepared by the GoK. The clearance of this manual will be a disbursement condition for these pilot activities.

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5. Lessons Learned and Reflected in the Project Design 49. As a follow-on phase of KAPP Phase I, there are a number of key lessons learned from the first phase that have been taken into consideration during the design of this Project. 50. Sector-wide approach and other cross cutting agenda. Although Phase I of the Project had some elements that focused on promotion of sector-wide approach, it nevertheless became clear during its implementation that there is need to invest more on these sector-wide approaches for greater impact. The GoK and other DPs have urged the Bank to be in the forefront promoting sector-wide approach in the agricultural sector, as well as harmonization of programs in line with the Kenya Joint Assistance Strategy (KJAS). The development of ASDS, which is a sector-wide policy, has brought in the necessary impetus and platform on which to promote the sector-wide approaches in the sector. Equally important is the need to strengthen focus on cross-cutting issues such as gender mainstreaming. 51. Mainstreaming implementation structures into the GoK system. Although attempts were made in Phase I of the Program to mainstream implementation structures into the GoK system, some Project structures and systems were maintained. The rationale then for maintaining stand alone Project structures and systems was based on low capacity within sector ministries. However, during Phase I implementation, it became clear that the stand alone Project structures are not only expensive and unsustainable, but also tended to distort the incentives and other conditions for public civil servants. During the same time, the capacity of sector ministries has improved. The implementation of current phase of the Project will, therefore, be mainstreamed within GoK structures and aligned with the structures for sector coordination. 52. Financial management and disbursement to local-level activities was a main challenge during implementation of KAPP Phase I. Long delays affected Project implementation progress. While the financial management structures inherited from the Project that preceded KAPP Phase I were suitable for the research activities, major challenges were encountered when the project initiated disbursements to communities. The low capacity of communities to account for the funds played a significant role in clogging the financial flows. Although the financial management capacity of the KAPP Secretariat (KS) was strengthened over time, there is need to put more emphasis on this aspect under KAPAP. This aspect has been factored into the design and KS financial management capacity will be strengthened further by seconding experienced staff from the implementing agencies. While fiduciary capacity at the community level remains a challenge, the Project has identified capacity building for beneficiary communities as a key activity to be supported. 53. The design of the first phase was over-ambitious, as the time needed to set up institutional arrangement especially at the local level was under-estimated. The setting up of local-level institutions delayed the implementation of KAPP by almost a year, and this necessitated extending the Project period by one year. In the design of the current phase, a more cautious approach has been taken especially regarding the new agribusiness component. For this component, it is planned that the first 12-18 months will be used to set up the necessary institutional arrangements and consultations for the agribusiness component. 54. Although no explicit gender targeting was done in the first phase, it emerged that gender parity was almost achieved, judged by the participating men and women in

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groups supported by the Project. Nevertheless, it was apparent that women’s capacity to accumulate resources, retain income, and have a voice in decision-making bodies needed to be strengthened. The Project has, therefore, taken a more pro-active approach to mainstream gender issues in the Project. This has been done at all levels and will be monitored through a gender sensitive baseline and M&E system. 6. Alternatives Considered and Reasons for Rejection 55. The alternative of designing the Project as an investment loan was considered but rejected. The SIL alternative was considered unsuitable, given the need to maintain long-term engagement in the sector. The preferred alternative was to continue with the original design of an APL which also allowed the follow-on phase to learn from the reforms and lessons started in Phase I. The addition of the agribusiness component in the current phase and the focus on value-addition presented a challenge on whether the original PDO of the APL should be maintained or amended without jeopardizing the APL operational guidelines. The APL alternative was eventually adopted based on the following considerations; (i)the amended PDO still focuses on enhancing agricultural productivity as was in the first phase, and (ii) the key project components on technology generation (research and extension) and farmer/client empowerment will be maintained and scaled-up. 56. The alternative of having a separate farmer empowerment component, as was the case in KAPP Phase I, was considered and rejected. Although this component was originally conceived to be cross-cutting, it was found in practice to be strongly related to extension. Linking empowerment with the extension component was a clear signal that although empowerment goes towards strengthening the demand side of service delivery, it was important for the demand and supply side of service delivery to be seen to work in tandem. Furthermore, the combination of these two aspects into one component also made the Project design much simpler, as it reduced the number of components. 57. In the context of the food emergency prevailing in Kenya in early 2009, a fifth quick-disbursing component to support GoK procurement of farm inputs, mainly fertilizers, was given serious consideration but was rejected. It was noted that the quick-disbursing component might complicate Project design and not be in line with the longer-term objectives of the Project, and also that EU support being provided through the Bank to address the food emergency would support higher access to inputs by farmers. It was therefore considered prudent to reassess the situation once the EU facility has been designed. The Bank continues to monitor food security in Kenya, and has informed the GoK that, in case there is still need to support input procurement later in 2009, the GoK can seek additional financing for this aspect later in the program.

C. IMPLEMENTATION 1. Partnership Arrangements 58. The objectives, framework and principles for effective partnership in the sector, set out in the GoK’s SRA during the implementation of KAPP Phase I, have been reinforced in the ASDS. The ASDS recognizes and values the role of DPs in providing not only resources but also technical assistance, training and international experience. ASDS also advocates for pro-active and consistent Government-led coordination of DP support.

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KAPAP will build on this framework to define and organize its partnership arrangements with all DPs. Partnership through the entities created under KAPP is likely to expand, as other DPs clarify their approaches to increased support for Kenya’s agricultural sector. The EU, DANIDA, and the Swedish International Development Agency (SIDA) have confirmed to the Bank their desire to coordinate their future interventions with the KAPAP under the ASDS framework. For example, the GoK will work closely with SIDA to coordinate extension initiatives supported under the NALEP Project within the NASEP framework. Similarly, as part of this sector-wide approach, the EU is expected to ask the Bank to administer the funds earmarked to respond to the food crisis in Kenya. 59. Given the great emphasis and focus on PPPs under KAPAP, especially in the promotion and delivery of extension and agribusiness services, strong partnerships will be forged with private sector players. Some of the key partners include knowledge and support service providers, commercial banks, insurance companies, manufacturers, traders (both input and output), retail and wholesale chains. 2. Institutional and Implementation Arrangements 60. Sector-wide Coordination: The implementation of KAPAP will follow a sector-wide approach, consistent with the institutional framework envisaged by the GoK in its ASDS. The GoK has already established the ASCU, with support from DPs, to coordinate sector-wide initiatives, policies, programs, and projects. Overall coordination and fiduciary responsibility for the Project will rest with Ministry of Agriculture (MoA), as the leading agriculture sector line ministry, whose capacity will be strengthened to undertake these responsibilities efficiently and effectively. KAPAP will receive policy guidance from organs already set up by the GoK to implement the ASDS. The ICC, set up to implement the SRA, and composed of Permanent Secretaries from ten ministries (Agriculture, Livestock Development, Fisheries Development, Cooperative Development and Marketing, Water and Irrigation, Environment and Mineral Resources, Lands, Forestry and Wildlife, Regional Authorities and Local Government) will be maintained. KAPAP will continue to support the National Stakeholder Forum, consisting of all stakeholders operating in the sector. 61. Project Coordination: The membership of the KAPP Steering Committee will be expanded to form a broad-based Agricultural Sector Programs Steering Committee (ASPSC). The ASPSC will become responsible for coordinating all programs and projects in the agricultural sector, rather than having stand-alone steering committees for each project/program. The ASPSC will meet quarterly and be responsible for approving: (i) work program proposals for applied research, extension and empowerment, agro-business and investment projects, including the oversight of micro-projects planned and implemented at regional level; (ii) the annual work plans and budgets of investment projects (e.g. KAPAP), before recommending their endorsement by the ICC; (iii) monitoring of the implementation progress of investment projects; and (iv) reviewing and making recommendations on proposed policy changes to the ICC. The ASPSC will constitute thematic sub-committees to guide the implementation of the Project components, and a sub-committee on finance and audit. The ASPSC will comprise 13 nominees of the ministries represented in the ICC, representatives from ministries of Finance, Trade, Energy, Industrialization and Roads, the Director of KARI, and also senior officials representing the private sector, universities and NGOs. In order to limit the membership of the ASPSC, the Chair of the ASPSC would be authorized to invite representatives of other stakeholders to the ASPSC meetings. The members of the ASPSC will be appointed by the ICC to oversee Project implementation. The

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KS will act as Secretary to the ASPSC as far as the KAPAP matters are concerned, and the ASCU will offer the Secretariat of ASPSC assistance on general sector matters and programs. 62. Project Implementation: KAPAP implementation will be mainstreamed into the GoK system, both at national and the local (district and lower) level. The Project will be implemented by six agencies: the Ministries of Agriculture, Livestock Development, Fisheries Development, Cooperative Development and Marketing, KARI, and KENFAP, which will be responsible for implementing activities within their respective areas of responsibility. Except for specific activities that will be undertaken by other implementation agencies (e.g. policy studies), the KAPAP Secretariat (KS) will be responsible for facilitating and coordinating the implementation of the Project with the other implementing agencies. It will also act as the convener of Project specific consultative processes at the national level, that will include the National Farmer and Stakeholder Fora. The KS will be responsible for coordinating the information, monitoring, evaluation and analytical input into those processes, financial management, procurement, information communication and public relations associated with KAPAP. Responsibility for implementation of the NARS component will formally rest with the KS, whilst KARI will retain responsibility for the KARI sub-component. The KS will be staffed by professionals, who will be selected through an open and competitive process and seconded from the line ministries for the duration of the Project; the performances of KS staff will be evaluated at mid-term. The KS staff in place from KAPP I will be retained, based on their performance. Confirmation of appointment of all technical staff at KS will be subject to review and approval by the Bank. 63. The original 20 KAPP districts have been split into 59 districts. To keep implementation arrangements simple and effective at the local level, the former DSUs will be converted into 20 Regional Service Units (RSUs). Each RSU will undertake the delegated functions of the KS. The RSU will: (i) coordinate, in consultation with the District Development Committees (DDCs), all consultative, planning and implementation processes at the district and division levels, including micro-projects implemented at local level and (ii) assume monitoring and evaluation, financial management, procurement, and public relations functions. Each RSU will have at least two professional staff, a Regional Coordinator and an M&E Specialist, and support staff (accountant, secretary, and driver). All professional staff will be seconded to the RSU from the line ministries. The coordination structure at the ‘regional’ level will mirror the structure of ASPSC at the national level. As under KAPP Phase I, each RSU will be steered by an enhanced version of the District Agricultural Committee (DAC) in each district (‘Regional’ Agricultural Sector Steering Committee - RASSC), which will be composed of representatives of ‘new’ district line departments and implementing agencies, local NGOs, CBOs, and private sector representatives. The representation on the RASSC will be as follows: 50 percent from District officials, 25 percent from the private sector, and 25 percent from relevant NGOs, farmers’ organizations and CBOs. The Regional Coordinators will play an active and supportive role in DDCs, RASSC and District Farmers’ Fora. However, the RSU will need to bring together a representative number of participants from each expanded DAC for joint consultations, on a quarterly basis, to ensure that “regional” priorities are being taken into account in the preparation of micro-projects. The Project specific organs (KS and RSUs) will take full responsibility for the implementation of Project activities and accounting for Project funds. 64. Administration of Farmer, Research and Energy Grants: In order to guide implementation of extension activities under KAPP Phase I, GoK prepared the Farmer Grant Manual (FGM) and Research Grant Manual (RGM). These manuals set out details of: (i)

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activities to be financed by farmer or research grants, beneficiaries and eligibility criteria; (ii) arrangements and procedures for preparation, appraisal, approval, implementation and supervision of activities to be financed by grants; (iii) procurement, financial management and disbursement arrangements; (iv) performance indicators; (v) standard formats for Farmer or Research Grant Agreements; and (vi) such other administrative, financial and organizational arrangements as shall be required for providing grants. These manuals will be reviewed and revised in the light of lessons learned during KAPP implementation, and adopted for similar grants planned under KAPAP. The Borrower, following the same format of FGM, will also prepare a Community Energy Grant Manual (CEGM) which will specify the eligibility and implementation arrangements for the energy grants under component 4. 65. The RSU will provide farmer grants to farmer groups in accordance with procedures and eligibility criteria set forth in the FGM. Only farmers’ groups will have access to the matching grants, with a maximum contribution to a group/CIG limited to US$5,000 per CIG proposed sub-project. Farmers/beneficiary contribution shall be set at a minimum of 10 percent of the total sub-project cost for technology adoption grants and 20 percent for value-addition/agribusiness activities. Research grants for individual scientists, research institutions and universities will be approved in accordance with the guidelines provided in the RGM, but shall not exceed US$300,000. Similarly, community energy grants will be approved in accordance with the provisions set out in the CEGM. Bank approval of the FGM, RGM and CEGM shall be a disbursement condition under their respective categories. For funding of the agro-industry development, funding instruments and risk management tools will be designed and agreed, in close collaboration with FSD-Kenya and the Ministry of Finance (MOF); a Manual will be developed prior to disbursement of these funds. The GoK is also preparing harmonized community grant manuals that will be translated into Kiswahili and other local languages. 66. Project area: Support to agricultural extension, farmer and service providers’ empowerment will be provided, and the agribusiness and market development component implemented, in the following 59 districts: Old district New districts Old district New districts West Pokot West Pokot, Central Pokot, North P. Tana River Tana River, Tana Delta Nakuru Nakuru, Molo, Nakuru North

Naivasha, Njoro Kwale Kwale, Kinango, Msambweni

Trans Nzoia Trans Nzoia West, Trans Nzoia East, Kwanza

Garissa Garissa, Fafi, Lagdera

Nyandarua Nyandarua North, Nyandarua Central, Nyandarua South, Kipipiri

Wajir Wajir East, Wajir South, Wajir North, Wajir West

Nyeri NyeriSouth, NyeriNorth, NyeriCentral, Nyeri East

Meru Central Meru Central, Imenti North, Buuri Imenti South

Homa Bay Homa Bay, Ndhiwa Makueni Makueni, Mbooni, Kibwezi, Nzani

Gucha Gucha, Gucha South Embu Embu Siaya Siaya, Ugenya Kakamega Kakamega North, K. Central, K.

South, Kakamega East Taita - Taveta Taita, Taveta Busia Busia, Samia, Bunyala Kilifi Kilifi, Kaloleni Butere-Mumias Butere, Mumias

67. The 59 districts cover the geographical area covered by the 20 districts where KAPP Phase I was being implemented. The increase in the number of districts is a result

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of their sub-division. The district coverage will be reviewed during the mid-term evaluation. However, the geographical catchment of the agribusiness and market development activities may naturally spill over beyond the focal district boundaries and some of them will have a national coverage. 3. Monitoring and Evaluation of Outcomes/Results

68. The responsibility for this task will rest with the KS for supervision and strategic planning of Project activities and, functionally, with the Project management. The M&E system will be two-pronged: (a) implementation monitoring to track progress and effectiveness in the implementation of the Project (inputs, activities, processes, and output) and (b) impact evaluation to measure the final outcome (results) of the Project interventions at MTR and upon closing of the Project. A results framework which illustrates the outcome and intermediate outcome indicators is presented in Annex 3. A Project implementation manual will be developed that contains the specific activities to be implemented towards the realization of each intermediate outcome indicator contained in the results framework. An internal information management system will be developed for tracking Project implementation progress. Monitoring of the implementation of the Project will be undertaken by the Project team while impact evaluation will be carried out by an independent entity. The internal monitoring system is central to sound management, and important in keeping the Project management informed on day-to-day performance, and in playing a key decision support role for appropriate corrective actions that may become necessary during the course of Project implementation. The independent evaluations will be contracted to credible firms and will be designed using appropriate approaches. They will focus on the extent to which the Project has succeeded in meeting its set objectives through an evaluation of the intermediate outcomes and final PDO outcomes. 69. A centralized MIS for M&E supports the Project as part of building stronger country systems. The GoK initiated a Geographical Information System (GIS)-based centralized MIS to support its projects in agriculture and rural development and environment management. The objective of this facility is to facilitate and institutionalize M&E as part of the Government by offering necessary capacity building and technical backstopping activities to the KS. The facility has a tremendous amount of data on various aspects of agriculture and rural development, which will require regular updating to provide the information needed for implementing and managing the Project. KAPAP will support this process in close collaboration with other investment projects sharing the use of the facility in the country. 70. A customized MIS will be developed and the capacity of the implementing institutions will be enhanced for the successful implementation of the Project. The MIS was designed and developed for the management of the Project during KAPP Phase 1 but the Project closed before it was fully implemented. Several factors necessitate the revision of the MIS and expansion of its scope: the Agribusiness component is new in KAPAP, there is a deliberate plan to integrate gender in the implementation of the Project, and Project activities have been expanded in scope. The system will be developed based on the Project results framework and focus on the results chain—linking the PDO to Project outcome and intermediate outcome indicators, outputs, activities, and inputs. This will be an effective tool for Project management and provide a feedback loop for the Project team to detect and provide solutions to implementation problems as they emerge. (See Annex 3 for details on the MIS, M&E Plan and the Project Results Framework).

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4. Sustainability 71. The sustainability of Project activities will depend to a large extent on how benefits accrue to the communities and other stakeholders, so as to give them an incentive to maintain and further develop the investments made under the Project. Given the Project’s APL design, it is expected that early lessons will inform the implementers of what works and what does not, which would help to improve the Project’s chances of success in the current and the follow-on phase. 72. In the past, donor support in the agricultural sector has been through multiple projects and programs, of which the results in general have not been sustainable. This was one of the main reasons for the Government to develop a prioritized sector development strategy (ASDS). KAPAP will support the Government to design and implement further harmonization and alignment, in close collaboration with involved DPs. Furthermore, the Project’s implementation follows the “subsidiarity principle”, with most activities implemented at the regional and district levels. At the national, regional, and district level, institutional sustainability is likely to be achieved because the Project will be mainstreamed into Government structures. This is a departure from the first phase of the program, where Project specific structures were found not only to be expensive to maintain, but also unsustainable. 73. Kenya is vulnerable to recurrent droughts and has correspondingly made national and household food security a top priority. There is ample scope for increased food productivity with increased profitability of small-scale farmers’ enterprises. The Project will support sustainable (e.g., conservation farming) and profitable productivity growth (‘push’) in small scale farming systems, by stimulating farmers to experiment with alternative technology options responding to their needs. The in-built farmers’ empowerment, participation and demand-driven and feedback mechanism will ensure that the technology/knowledge and support services supply chains respond to farmers’ choices and preferences. The agribusiness services and supports (‘pull’) will further stimulate agricultural growth and stakeholders’ revenues through value-addition and enhancement of producers’ linkages between input and output markets. 5. Critical Risks and Possible Controversial Aspects 74. There are several risks facing the implementation of the Project. Some of the main risks identified so far are: (i) The technical capacity to handle diversification, value-addition, and marketing and agribusiness development is limited in the sector ministries, as they have mainly tended to focus on production related issues. A capacity needs assessment will be undertaken and where necessary capacity building will be done in these aspects. The mechanism for participation of the private sector and other public agencies with capacity in these areas has been factored into the Project design. (ii) Fiduciary aspects will be critical to maintain good governance of the program, and measures for strengthening of both financial management and procurement at all levels of Project implementation were agreed as part of the design. (iii) The KS does not have the capacity to implement and supervise the IPPF; it will be critical that KS bring on board staff/consultants with the experience, knowledge and skills to effectively implement and supervise the IPPF. (iv) There are general concerns in Kenya regarding good governance and accountability, which were taken into consideration in the Project design. The Project design includes features to assure transparency,

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accountability and good governance of the program. A strong emphasis on social accountability and independent verification mechanisms is included. A summary of the risks is provided in the table below:

Risk Ratinga Mitigation measures Residual I. Country and/or Sub-National Level Risks Post-election conflict destabilizes the macroeconomic framework. The 2008/09 budget has an expansionary stance. In addition, inflation has been running high mainly driven by high food and fuel prices.

M

The GoK has practiced prudent macroeconomic management for several years now. It is attempting to use monetary policy tools for containing inflation and subsidies to improve food supply. An IMF program was concluded in December 2007, and access under the IMF’s Exogenous Shocks Facility is currently under discussion.

M

Implementation of the Government’s Governance Strategy for Building a Prosperous Kenya (GSPK) and related Governance Action Plan (GAP) slows down, including support for the implementation of key anti-corruption legislation (e.g. Freedom of Information Bill and Anti-Money Laundering Bill).

S As envisioned in the CAS Progress Report, the lending program would be delayed to the extent progress in relevant areas of the GSPK/GAP are delayed (See Table 2 in the Kenya CAS PR).

S

II. Sector Governance, Policies and Institutions The GoK’s policy stance in the sector is inappropriately altered, in response to emergencies or other emerging issues

S Policy-related research and sector dialogue will address these issues, and will be pursued in conjunction with other DPs

S Sector Specific Risks (country and sectoral).

High price of agricultural inputs: The recent high level and volatility of agricultural inputs may put many producers out of business.

S Although this risk is global (and therefore beyond the control of the Project), the focus on improving productivity and promotion of high value enterprises will help reduce its impact.

M

III. Operation-specific Risks Technical Design.

Low level participation of the private sector and/or civil society organizations.

S The mechanisms for enhanced participation of the private sector and other community based and civil society organizations with capacity in these areas is included in the Project design.

M

Implementation Capacity and Sustainability.

The technical capacity to handle diversification, value-addition, and marketing and agribusiness development is limited in the sector ministries as they have mainly tended to focus on production related issues.

S A capacity needs assessment will be undertaken and, where necessary, capacity building will be undertaken in these aspects. For the medium term, a coordinated action plan will be established.

M

Implementation Capacity and Sustainability.

Decentralization of agricultural services might blur sector responsibilities and reduce efficiency of agricultural extension systems.

S The Project will promote demand driven extension services and implement alternative agricultural service provision, including out-sourcing and contracting to private service providers.

M

Financial Management.

The oversight capacity, reporting (IFRs) capacity as well as financial management at the beneficiary level are critical risks.

S The Project will build on the capacity developed under KAPP Phase I; a fiduciary risk assessment was undertaken, especially targeting the new implementing agencies and an action plan for capacity building was agreed.

M

Procurement. Weak procurement capacity at national and grassroots level.

S Capacity building to be done and Phase I experiences to be utilized.

M

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Risk Ratinga Mitigation measures Residual IV. Overall Risk (including Reputational Risks) Overall Risk There are general concerns regarding good governance and accountability in Kenya.

The Project design includes features to assure transparency, accountability and good governance of the program. A strong emphasis on social accountability and independent verification mechanisms are included.

S

Memo items: A Rating of risks on a four-point scale – High, Substantial, Moderate, Low - according to the likelihood of occurrence and magnitude of potential adverse impact.

6. Loan/Credit Conditions and Covenants 75. Conditions of Effectiveness

(i) The Recipient has adopted a Project Implementation Plan (PIP) in form and substance satisfactory to the Association.

(ii) The Recipient has opened a Project Account and deposited therein the initial

deposit referred to in the Financing Agreement.

(iii) The Recipient has updated and submitted to the Association the financial Management Procedures Manual in form and substance satisfactory to the Association.

(iv) The Recipient has found suitable office accommodation for the KAPAP

Secretariat and has appointed Agribusiness, Gender-social and Environmental Specialists and other support staff at KS, and has appointed Regional Coordinators, M&E officers, accountants and support staff in the 20 regions.

(v) The Recipient has submitted, in form and substance satisfactory to the

Association, KAPP’s account to the external auditors relating to an amount equivalent to US$8,189,245.829, which has not been accounted for under the Fiscal Year 2007/08 audit report relating to KARI’s Respective Parts of the Project under the Association-financed KAPP.

76. Dated Covenants The Recipient shall, not later than January 31, 2012, carry out jointly with IDA, a MTR of the progress made in Project implementation, and not later than 30 days after completion of the MTR, commence implementation of the recommendations of the MTR as agreed with the Association.

9 KAPP Phase I submitted the audit reports and management letter up to the year ended June 30, 2008, within the December 31, 2008 deadline. The annual audit is conducted by the Kenya National Audit Office (KENAO) which is considered to be sufficiently independent and acceptable to the Bank. The Special Account Opinions for both the KAPP Grant and Credit were unqualified (clean reports), while the financial statements’ opinions for the Grant and Credit were qualified, on the grounds that the Special Account statements reflected amounts of US$3,462,726.82 and US$4,726,519 under amounts withdrawn and not claimed for the Grant and Credit, respectively, but the relevant supporting documents had not been submitted to Ministry of Finance by the end of the financial year. The relevant supporting documents have since been made available to KENAO, which is reviewing them. Field work related to this outstanding review has been completed and KENAO is expected to issue a clearance certificate within the coming weeks. The management letter also highlighted certain internal control weaknesses, which were not considered material.

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77. Disbursement Conditions The Recipient shall update the Farmer and Research Grant Manuals (FGM and RGM) used in KAPP Phase I, and submit the same to the Bank for review and approval. The Borrower shall also prepare a CEGM and submit the same to the Bank for review and approval. The approval of the FGM, RGM and CEGM shall be disbursement conditions for the respective categories in the Financing Agreement. 78. The Recipient has prepared and submitted a report detailing the design, implementation arrangements, and the selection procedures for participating Banks and other financial institutions, for the eligible activities to be financed under the Agribusiness credit risk guarantee scheme. D. APPRAISAL SUMMARY 1. Economic and Financial Analyses 79. Investments in agricultural research and extension (R&E) from 1953 to 1997 showed internal rates of return (IRR) in the range of 40-60 percent per year (IFPRI meta-analysis, 2000). A recent study by Alene and Coulibaly (2008) demonstrates that agricultural research in SSA has an impressive aggregate IRR of 55 percent, while the rates of return on individual commodity research and extension investments have been in the range of 30–40 percent: for Kenya, the estimated IRR on agricultural R&E was 45 percent. The average elasticity of productivity with respect to agricultural research is 0.38, while the elasticity of GDP per capita with respect to productivity is estimated at 0.95 and the poverty elasticity of per capita GDP is - 0.60. Two approaches are used to provide an indication of economic and financial viability of the Project. 80. First, it uses the “minimum national impact” assessment, which finds the minimum annual growth rate in farm yields to have an IRR of 14 percent (breakeven point), assuming a corresponding increase in farm costs. This method identifies the “minimum incremental benefit stream” which would justify the proposed investment in agricultural research, extension, farmer empowerment and agribusiness. To obtain a financial rate of return of 14 percent on the proposed off-farm investments, it is sufficient to generate a supplementary annual farm yield increase of 0.068 percent per year, or 8.6 percent cumulated increases in productivity and net benefits over 20 years. Compared to baseline, this is equivalent to 0.45 percent average annual net increases in productivity, net of farm cost increases. In terms of economic values, a minimum impact of 0.058 percent increase in yield every year is required, or 7.4 percent accumulative increase in productivity over 20 years. Sensitivity analyses were performed, and the analyses and conclusions remain robust. 81. Second, it uses the “indicative enterprise models” or “farm budgets” to assess the financial and economic viability of a few sub-projects. On the base of 400,000 farmer-beneficiaries, a simple calculation indicates that the investment is justified if the Project is able to generate US$59 per farmer-beneficiary average per year of incremental revenue (or US$39 per farmer-beneficiary average per year of incremental net income). A few farm budgets (maize, bean, and banana) were adopted to provide indications on the impact of the Project on farmers’ net income. (See details in Annex 9).

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82. Fiscal impact: Public expenditures on agricultural R&E are currently about US$155 million total (2008/09 figure). These expenditures represent around 48 percent of the public sector budget for agriculture and an annual investment of 4.8 percent of agricultural GDP. In terms of share of agricultural GDP, these are relatively high figures, especially compared to averages for Africa. The total Project costs are estimated to amount to about US$98.6 million over five years. This will increase the percentage of public expenditure to agricultural R&E from 2.3 percent to 2.6 percent and increase the percentage of public expenditure to agriculture and rural development from 4.8 percent to 5.0 percent. The fiscal impacts of the planned investments into the national R&E system depend significantly on co-financing and cost-recovery mechanisms to be implemented. For KAPAP, US$2.45 million will be co-financed by beneficiaries (or 2.5 percent of the total Project costs). Assuming that the same amount would be co-financed by beneficiaries after Project completion, public expenditures on R&E have to still increase by about US$15 million annually, and remain at about 50 percent of public expenditure on agriculture and rural development.

2. Technical 83. The Project is largely institutional in its objectives, but also responds to the major technical constraints affecting agricultural productivity growth. It proposes a number of interventions to improve the efficiency of the country’s solid network of research, extension, farmer empowerment and agribusiness development, and market and community-based organizations towards enhancing productivity and incomes. The following specific technical issues will need priority attention: (i) bio-technology, and the use of genetically modified organisms; (ii) intellectual property and patenting rights; (iii) land tenure and use; (iv) broader use of sustainable and integrated soil water and fertility management, including conservation farming, to cope with climate variability and land degradation; and (iv) use of pesticides and their impact on humans and the environment. The GEF supported Kenya Agricultural Productivity and Sustainable Land Management Project (KAPSLMP), which is linked to this Project, will also address various sustainable land management issues within the broad framework set out by the Comprehensive African Agriculture Development Program (CAADP) pillar IV. 3. Fiduciary 84. Financial Management. The Financial Management (FM) assessment revealed that MoA has adequate FM capacity and experience to implement the Project. The Project Secretariat (KS), which successfully implemented the KAPP Project, will be retained to manage the KAPAP Project. The funds flow procedures are also satisfactory. KS has developed comprehensive FM and Grant Manuals (for the CDD component), which will be updated for KAPAP. The internal control systems and internal audit procedures are deemed adequate and the management oversight is effective. However, challenges were noted in the CDD grant component of the KAPP Project with regard to the accountability process for the funds. In view of these challenges, the overall risk rating of the main implementing entity has been assessed as Substantial. The FM arrangements will continue to be monitored throughout Project implementation. Following the implementation of agreed risk mitigation measures by MoA, its residual risk rating is assessed as Moderate. The details of the FM and disbursement arrangements for KAPAP are set out in Annex 7. 85. Procurement. Procurement capacity assessment rates the procurement risk as High. Procurement thresholds and guidelines were agreed during Appraisal. Procurement will be

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carried out in accordance with the World Bank’s “Guidelines: Procurement under IBRD Loans and IDA Credits”, published by the Bank in May 2004 and revised in October 2006; and “Guidelines: Selection and Employment of Consultants by World Bank Borrowers,” dated May 2004 and revised October 15, 2006; and the provisions stipulated in the Financing Agreement. All contracts to be procured on the basis of ICB shall use the Bank’s Standard Bidding Documents and all consulting services shall use the Bank’s Standard Request for Proposal, on the of Quality and Cost Based Selection (QCBS). (See details in Annex 8). The Project will also be carried out in accordance with the “Guidelines on Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants”, dated October 15, 2006. 4. Social 86. KAPAP is not expected to have any significant negative social impacts. The Project will not involve any land acquisition or resettlement, since implementation of program activities will take place within existing research stations or farmers’ farms. Gender issues have been included in the selection of commodities of focus, and will be explicitly considered in design of training and technologies dissemination. Other social issues relate to how resource poor farmers can get better access to extension services and inputs; and HIV/AIDS and its impact on production systems. These have also been addressed in the Project design, by making provision for targeted matching grants for adoption of new agricultural and livestock production technologies. 87. KAPAP is expected to yield substantial positive social impacts, including increased empowerment and improvement in livelihoods. The Project is expected to improve livelihoods and enhance food security, by increasing crop and livestock yields, diversifying farm and off-farm enterprises, and adding value to farm produce. The Project will also result in a multiplier effect on the local economy, through development of entrepreneurial skills, by supporting agribusiness development. The Project will follow a participatory and inclusive process of direct and systematic engagement with both beneficiary and affected communities in the selection, implementation, and monitoring of the supported activities. 88. An Environment and Social Management Framework (ESMF), developed and disclosed, provides a strategic guide for integrating social considerations into the planning and implementation of subprojects’ activities. The ESMF will guide the initial screening of negative social impacts of all subprojects, and development of their mitigation measures. 5. Environment 89. The KAPAP has been assigned environmental Category B. This is because some of the infrastructure investments and community-driven subprojects to be supported under KAPAP may potentially have limited adverse impacts on human populations or environmentally important areas, such as on wetlands, forests, grasslands, and other natural habitats. The potential impacts are site-specific, few if any are irreversible, and specific mitigation measures can normally be designed. The Environmental and Social Management Framework (ESMF) will guide the screening of all investments to identify specific environmental impacts, and develop appropriate mitigation measures required to address the problems.

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90. At screening stage, the proposed infrastructure investments and community-driven subprojects will be classified as Category A, B, or C, depending on the type, location, sensitivity, scale of the activities, and the nature and magnitude of its potential environmental impacts. KAPAP will not finance Category A subprojects, which require full Environmental Impact Assessment (EIA), because these interventions may have diverse, significant, and probably irreversible environmental impacts, and are likely to be cost ineffective. For Category B subprojects, limited EIAs will be undertaken, since the interventions would most likely have only site-specific environmental impacts, and their mitigation measures could be designed more readily. Finally, Category C subprojects, which normally have minimal or no adverse environmental impacts, will be exempted from further environmental assessments. 91. The KAPAP focuses on assisting agricultural producers and other natural resource users to increasingly adopt profitable and environmentally-sound production practices. The Project is, therefore, expected to produce environmental benefits due to the sustainable land management and conservation practices. The Project interventions will also focus on implementing specific activities that will improve the long-term sustainability of the ecosystem. The legal framework for environmental management is in place, but the local capacity to enforce is inadequate. Thus, KAPAP will enhance capacity for environmental management at the district level. 6. Safeguard Policies 92. The Bank’s safeguard policies applicable to the Project are: (i) Environmental Assessment (OP/BP 4.01); (ii) Pest Management (OP 4.09); and, (iii) Indigenous Peoples (OP/BP 4.10). To meet the Bank’s and Government’s environmental and social safeguard policies, an Environmental and Social Management Framework (ESMF), an Integrated Pest Management Framework (IPMF), and an Indigenous People’s Planning Framework (IPPF) have been prepared. These documents provide a step-by-step description on how to identify, plan mitigation or preventive measures, implement, and monitor them. They were cleared by the NEMA and the Bank and disclosed in Kenya on April 1, 2009 and at the World Bank’s Infoshop on April 6, 2009. The proposed prevention and mitigation measures, together with their monitoring plans, form an integral part of the Project design and costs. 93. The ESMF instrument will also be used for screening infrastructure investments and subprojects to ensure that they do not trigger other Bank safeguard policies, such as Natural Habitats (OP/BP 4.04), Forests (OP/BP 4.3), Physical Cultural Resources (OP/BP 4.10), and Involuntary Resettlement (OP/BP 4.12). The screening process will ensure that KAPAP does not finance any activities that are: (i) located in the critical natural habitats; (ii) likely to lead to the destruction of natural forests; (iii) involving physical cultural resources; or (iv) relocating people or limiting their access to public or common assets, thus impacting their livelihoods.

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Safeguard Policies Triggered Yes No TBD Environmental Assessment (OP/BP 4.01) X Natural Habitats (OP/BP 4.04) X Forests (OP/BP 4.36) X Pest Management (OP 4.09) X Physical Cultural Resources (OP/BP 4.11) X Indigenous Peoples (OP/BP 4.10) X Involuntary Resettlement (OP/BP 4.12) X Safety of Dams (OP/BP 4.37) X International Waterways (OP 7.50) X Projects in Disputed Areas (OP/BP 7.60) X

7. Policy Exceptions and Readiness 94. The Project complies with all applicable Bank policies. A Project Preparation Facility (PPF) in the amount of US$2,021,963 was used to support key studies and capacity building for the preparation of the Project. In terms of readiness GoK already has in place a project secretariat staffed with professionals to implement KAPAP. GoK has also prepared: (i) a draft project implementation plan; (ii) a procurement plan for the first eighteen months; and (iii) submitted a draft Letter of Sector Policy.

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Annex 1: Country and Sector or Program Background

KENYA: Kenya Agricultural Productivity and Agribusiness Project 1. Agriculture remains the mainstay of the Kenyan economy and contributes directly 24 percent of gross domestic product (GDP). The sector performance greatly affects the poor, as 67 percent of the population and 80 percent of the poor live in rural areas and depend on agricultural activities. Agriculture grew at an average annual rate of 3.5 percent in the 1980s, but declined to 1.3 percent in the 1990s. Recent Government efforts focusing on reversing the poor sector performance have started to bear fruits with the compound average growth rate (CAGR) in agriculture increasing by 5.0 percent between 2001 and 2007, with even a higher export growth of 8 percent. The overall agricultural productivity has also increased in the last five years. Setting aside the unusual circumstances (post election crisis) of the first quarter of 2008, which are expected to affect this year’s growth, indications are that the recent dynamism will be maintained into the short and medium-term future. Unpredictable weather patterns, exacerbated by global climate change and the effects of escalating global fuel prices, may complicate growth as they affect agricultural productivity. 2. In May 2008, the Government launched “Vision 2030”. The aim of Vision 2030 is to transform Kenya into “a newly-industrializing, middle income country, providing a high quality of life to all its citizens in a clean and secure environment”. The Vision will be implemented through five year rolling Medium-Term Plans (MTPs), starting with the first one which will cover the period 2008-2012. The Vision is anchored on three pillars to be supported on the foundations of macroeconomic stability; continuity in governance reforms; enhanced equity and wealth creation opportunities for the poor; infrastructure; energy; science, technology and innovation; land reform; human resources development; security; and public sector reforms. 3. The Vision 2030 has identified agriculture as one of the key sectors to deliver the 10 percent annual economic growth rate envisaged under the economic pillar. To achieve this, transformation of small holder agriculture from subsistence to an innovative, commercially-oriented, and modern agricultural sector is critical. This will be accomplished through: (i) transforming key institutions in agriculture and livestock to promote agricultural growth; (ii) increasing productivity of crops and livestock; (iii) introducing land use polices for better utilization of high and medium potential lands; (iv) developing more irrigable areas in arid and semi-arid lands for both crops and livestock; (v) improving market access for smallholders through better supply chain management; and, (vi) adding value to farm and livestock products before they reach local and international markets. The Vision has identified the following four major challenges that continue to face the agricultural sector:

• Productivity: Productivity levels for many crops are below potential and for some agricultural produce; yield and value over a five-year period have either remained constant or are on the decline.

• Land use: Land remains under-exploited for agricultural production both in the high and medium potential areas as well as in the arid and semi-arid lands (ASAL) areas. Moreover, much of the available crop land remains under-utilized, with smallholders utilizing only 60 percent of their crop land for agricultural production.

• Markets: The productivity of the agricultural sector is constrained by inefficiencies in the supply chain resulting from limited storage capacity, lack of post-harvest services,

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and poor access to input markets. Because of this, the Vision calls for proactive efforts to maintain existing markets and create new ones, and to increase Kenya’s bargaining power in global agricultural markets.

• Value addition: Value addition in agriculture is important in determining the competitiveness of Kenya’s produce on world markets. However, Kenyan farmers export semi-processed, low-value produce, which accounts for 91 percent of total agriculture-related exports. The limited ability to add value to agricultural produce, coupled with high production costs, makes Kenyan agricultural exports less competitive in global markets.

4. In view of these developments at the national level and recent global developments, the agricultural sector has developed an Agricultural Sector Development Strategy (ASDS). The strategy is aimed at positioning the agricultural sector strategically as a key driver for delivering the 10 percent annual economic growth rate envisaged under the economic pillar of the Vision 2030. The strategy is aimed at guiding the public and private effort in addressing major development challenges facing the agricultural sector. 5. The Bank is in the process of finalizing an Agricultural Policy Review (APR). The results so far from the review indicate that the high expectations placed on agriculture in Vision 2030 are not misplaced. The APR results show that enhancing agricultural growth in Kenya could be a very powerful and effective way to induce overall economic growth and reduce poverty. The results suggest that agriculture-led growth is more than twice as effective at reducing poverty as industry-led growth. This source of overall growth has been significantly underutilized thus far, which is reflected in declining public spending on the agriculture-related public goods. The general conclusions from this review for Kenya confirms the broader, global message in the 2008 World Development Report (WDR) that in the 21st century, agriculture growth and development continues to be vital for achieving the Millennium Development Goal that calls for halving by 2015 the share of people suffering from extreme poverty and hunger. 6. Although there are many necessary interventions, research evidence from Kenya, Africa, and around the world indicates that the greatest contribution that public sector resources can make to sustained agricultural growth and poverty reduction is to invest in crop science, effective extension programs, physical infrastructure, and a stable and supportive marketing policy environment that provide income growth opportunities for smallholders in a range of different agro-ecological environments. These are the broad themes that KAPAP will aim at supporting. The Role and the need to Transform Smallholder Farming in Kenya 7. Kenya’s agriculture is predominantly small-scale farming, mainly in the high potential areas. The small-scale farming sub sector accounts for 75 percent of the total agricultural output and 70 percent of marketed agricultural produce. Small-scale farmers produce over 70 percent of maize, 65 percent of coffee, 50 percent of tea, 80 percent of milk, 85 percent of fish and 70 percent of beef and related produce. Production is carried out on farms averaging 0.2-3 hectares mostly on commercial basis. Currently, the sub-sector’s use of improved inputs such as hybrid seed, concentrate feeds, fertilizers and pesticides or machinery is relatively low. Increase in productivity, therefore, will need to take place in the smallholder sub-sector and will involve enhanced efforts to encourage farmers to adopt

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modern farming practices. Furthermore, there is need to create an entrepreneurial culture in rural communities where farmers produce what they can market rather than tying to market what they produce. 8. Irrigation-based farming is still very limited. It is mainly developed in form of irrigation schemes and large-scale irrigation of some crops such as rice and coffee. Individual farmers have developed their own systems of irrigation especially for export crops such as coffee and horticultural produce. Large commercial farms account for 40 percent of irrigated land, while the smallholder farmers and government-managed schemes account for 42 percent and 18 percent of irrigated land, respectively. The smallholder sub-sector, therefore, remains key to agricultural development, poverty reduction and growth in incomes, and has remained the center of focus for various sector and national policies including ASDS and Vision 2030. It is out of this realization that the Project has made a strategic choice to focus on smallholder producers and institutions that deliver various services to them. Sector issues to be addressed by the Project and strategic choices

9. In the following sections historical and current developments in the areas of agricultural research, extension and agribusiness development are highlighted. Also highlighted are the policy reforms, challenges and opportunities in these areas of KAPAP support. Some of the key developments in these focus areas, which were made during KAPP Phase I, are also highlighted. Agricultural Research 10. Over the last decade, investments in agricultural research in Kenya as a proportion of AgGDP have averaged 2.6 percent, or about 0.7 percent of GDP. While this is higher than the sub-Saharan countries’ average of 0.62 percent, it still falls far short of that of newly industrialized countries like India (0.78 percent) and South Korea (2.53 percent) that were at par with Kenya at independence in 1963. The level of funding in sub-Saharan countries, Kenya included, is far too low to produce significant changes in agricultural development. One of the major challenges facing future investment in agricultural research and development is maintaining past productivity gains while supporting technological innovation in more diverse agricultural systems that would differentiate products and add value to enable clients capture a larger share of the gains. Agricultural research systems face challenges brought about by globalization, market liberalization, decentralization, advances in science and technology, and the evolving roles of the public and private sectors. These challenges are more acute in developing countries and in Kenya due to underdeveloped and segmented agricultural research systems, and increased technological demands. To address these changes and new demands, restructuring the current agricultural research system is imperative. 11. In Kenya, it is noteworthy that agricultural research services are provided by both public and private institutions, including a number of international research organizations such as ILRI and ICRAF. Some of the public research organizations are funded directly by farmers through levies deducted from sale of the respective commodities - research on coffee, tea and sugar is funded under such arrangements. The Kenya Agricultural Research Institute (KARI), the Kenya Forestry Research Institute (KEFRI), the Kenya Marine and Fisheries Research Institute (KEMFRI), and the Kenya Industrial Research and Development Institute (KIRDI) are public research institutions established under the Science

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and Technology (Amendment) Act of 1979 with specific mandates. KARI is the largest research organization responsible for all research on crops (except coffee, tea and sugarcane), livestock, and land and water resources. It has a network of national commodity and factor research centers responsible for generating knowledge and technology, and regional centers responsible for applied and adaptive research in respective regions. KEFRI, KEMFRI and KIRDI carry out some aspects of agricultural research. The Coffee Research Foundation (CRF), the Tea Research Foundation of Kenya (TRFK), the Kenya Sugar Research Foundation (KESREF), and the Kenya Seed Company (KSC) are state corporations that are registered under the Company’s Act (Cap 486). CRF, TRFK and KESREF are responsible for research on coffee, tea and sugarcane respectively, while KSC is involved in agricultural research relating to seed production. The National Irrigation Board (NIB), established under the State Corporations Act (Chapter 446), has a research division that undertakes research on irrigation technologies and practices. 12. Universities and other public bodies also play a key role in agricultural research. In all the public and private universities, several faculties provide training in biophysical sciences such as animal and veterinary sciences, wildlife and range management, forestry, plant pathology, entomology, weed science, biotechnology, environmental sciences and statistics/biometrics that are readily applied in agricultural research. Despite the large number of faculties engaged in agricultural research in both public and private universities, no mechanism exists to harness these strengths at national level, or even a designated process linking the universities with the public or private research initiatives and industry. In addition, faculties of agriculture in universities have limited extension components. 13. The pluralism in agricultural research institutes offers many advantages, but it poses major challenges in ensuring that the research activities are well coordinated to avoid duplication and to take advantage of any resultant synergies. Agricultural research in Kenya is also not well linked to industry. This implies that meager research resources have been inefficiently used yielding minimal results. The Government has initiated efforts to formulate a National Agricultural Research System (NARS) policy that will offer the necessary platform for research coordination and other necessary reforms. The NARS policy seeks to establish appropriate institutional arrangements and management structures to efficiently coordinate, mobilize and use resources. In addition, the agricultural research focus will be reoriented to respond to national development goals, market demands, client (farmer) needs and cross-cutting and emerging issues. The policy also seeks to develop and manage an effective and efficient agricultural knowledge, information and communication system that links knowledge and information from a variety of providers and users. Promoting commercialization of agricultural research innovations in technology development and transfer is also a key policy objective. The policy provides for mechanisms for improving human, physical and financial resource capacities. To achieve the objectives of the national agricultural research system, funding will be a challenge. The policy recommends the establishment of innovative mechanisms to achieve sustainable funding, while focusing on and relating to farmers, fisher folk and livestock producers. It is hoped that through this policy and its implementation framework, agricultural research will be coordinated, prioritized, issue-based and client-centered to stimulate the development of an agricultural sector that is innovative, dynamic, responsive and globally competitively. Accelerating the finalization and implementation of the NARS policy as part of the reform agenda is now a high priority. While the KAPP Phase I supported the Government to develop the NARS policy and its implementation framework, KAPAP will support activities that will support the policy implementation.

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14. As in many countries, budgetary allocation for research continues to be inadequate. It is important to demonstrate the impact of research, both at the national and farm levels, to provide a convincing case of the benefits of investment in agricultural research. This should help provide a strong justification for increasing budgetary allocation for priority research areas. The formulation of an effective National Agricultural Research System (NARS) will, arguably, be instrumental in the efficient utilization of public and other resources allocated to research. To ensure sustainable funding for research, there is also need to explore alternative funding mechanisms. 15. The other major challenge facing research, as in other countries, is to strengthen the link with farmers, service delivery agents and other stakeholders. One way to achieve this is to involve them more in priority setting, monitoring and in technology dissemination than has been the case in the past. To tackle this challenge, there is need for institutional reforms in the existing research arrangements, in research dissemination, and also strengthening of producer and other organizations, to be able to have a meaningful representation and articulation of issues from the demand side. Agricultural extension, training and information services 16. Bearing in mind the importance of agricultural sector extension , there is need to ensure that the agenda for technology development are demand-driven, well formulated and adequately funded; extension agents are well trained and facilitated to carry out their duties; and that there is a conducive environment for extension clientele to understand and apply the acquired knowledge. It has also been Government’s position to encourage the development of pluralistic extension system to cater for diverse needs of extension clientele in the country.

17. Starting in the mid-1980s, the GoK attempted to consolidate the extension system and improve its focus on smallholder farmers, which resulted in the adoption of the Training and Visit (T&V) system. In over a decade of implementation, the system failed to show any significant impact and was generally found to deliver poor quality advice to farmers with little consideration for economic feasibility. T&V was abandoned in the late 1990s and a process begun to identify more farmer-responsive extension methodologies. The Government’s National Agricultural Extension Policy of 2001 explicitly recognized the need to diversify and decentralize extension services in order to increase its relevance to farmers and achieve sustainability. 18. In 2006, the Government in consultation with key stakeholders embarked on a revision of the 2001 policy. The new National Agricultural Sector Extension Policy (NASEP) and its implementation framework were finalized in October, 2007. The NASEP incorporates the core elements of the 2001 policy and adopts a sector wide approach that is in line with ASDS. The implementation of the new policy is expected to start along with other reforms envisioned from Vision 2030. Through the support provided under KAPP Phase 1, the Government has been able to implement, on pilot basis, activities geared towards empowerment of farmers and their organizations to demand for services, and piloting with encouraging results on public-private partnerships in provision and financing of extension services. Although the impacts of these reforms and developments will take time to be felt, there is evidence to the effect that the Bank support has played a crucial catalytic role in creating the necessary momentum towards improving agricultural productivity and service

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delivery to farmers. KAPAP will support activities aimed at consolidating these gains while supporting emerging opportunities and challenges. This will assist the government to implement the new extension policy. 19. Despite a new policy environment, public extension services have been severely weakened by limited support for its operations. A freeze on employment has been in place for some staff categories for most of the 1990s and early 2000s. This has resulted in an aging cadre of field staff and in many areas, large gaps in the numbers of qualified staff actually in post. The number of extension staff, as a percentage of overall Ministry of Agriculture staff, peaked in 1991 at over 55 percent of total Ministry staff to around 40 percent in 2004, due to natural attrition and the freeze on new employment. In addition, a progressive and steady reduction in Government financial resources allocated to agriculture10

has resulted, among other things, in severe shortages of operational funds, inadequate staff training, and low staff morale. In some areas, the non-state sector has filled the gap caused by the weaknesses in the GoK services. A large number of programs are being implemented with the assistance of an equally wide range of donors and service providers. 20. Driven largely by the official extension policy framework, partly by necessity (funding constraints), and partly by the recognition that the GoK does not have the capacity nor the need to provide extension services to all farmers irrespective of their means, the structure, delivery mode and approach of extension services in Kenya are in transition. This involves a number of transitions: (i) from a top-down, supply driven paradigm in which the GoK dominates and decides the priorities, towards a bottom-up, demand driven, participatory approach where the people are in charge of who provides what; (ii) from centralized control to full decentralization where local authorities are responsible for extension planning, service provision and at least some funding; (iii) in the balance of service providers where pluralism is fostered, leading to an increased role for the private and non-government sector; (iv) in funding with the emphasis on full cost recovery for private good services and partial cost recovery where services involve a mix of both private and public good; (v) in the role of extension from teaching to facilitating a joint learning culture with farmers and within the respective institutions – a culture that respects the considerable knowledge and experience of farmers, from which all can learn; and, (vi) from a total focus on increasing production towards one of capacity building, learning, poverty reduction and improving livelihoods. 21. Government agricultural extension services are now managed through four ministries: the Ministries of Agriculture, Livestock Development, Fisheries Development and the Ministry of Cooperative Development. The institutional structure devolves through headquarters to the Provinces, Districts, Divisions and finally the Locations and sub-locations, the lowest level in the hierarchy. Extension managers (District Agricultural Officer and/or District Livestock Development Officer as the case may be) are located at the Districts, together with a range of subject matter specialists (SMS), who provide backup support and technical advice to the Location based front line extension workers (FEW). Front line extension workers, who are usually Certificate holders (two years technical college), act as multi-purpose extensionists, handling both crop and livestock production and husbandry. In general, NALEP has achieved relatively modest success in food security but has been much less successful in facilitating commercialization and value added production. Other Extension Service Providers (ESPs) include Non-Governmental 10 During the first two decades following independence, resources allocated to extension as a proportion of the total annual Government budget averaged around 5.9 percent. Since then this figure has steadily declined to about 1.7 percent in 2003-04 and has picked up somewhat in the last 4 years.

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organizations (NGOs), community based organizations (CBOs) and Faith based organizations. The entry of these new players has helped to fill the gap created by the reduced presence of public sector extension service. 22. Despite the positive aspects in pluralistic extension system, it has its own challenges, which include the need for a regulatory system to coordinate the players. Coordination and regulation are required to promote professionalism; and reduce unnecessary competition, dissemination of conflicting extension messages to clients, duplication of efforts and wastage of resources. An overriding challenge for both public and private sector extension provision is how to mobilize sufficient resources to provide the required services and formulating a strategy for increasing private sector participation. 23. Several public training institutions in the country offer services to the agricultural sector. They include Universities, middle-level Colleges and Institutes, and Farmer and Pastoral Training Centers. There are also private sector-run agricultural training institutions offering general and specialized courses. Other public support institutions also involved in human resource capacity building include a livestock recording center, national bee keeping station, fish breeding and demonstration farms; sheep and goat stations; livestock farms; agricultural mechanization stations, and rural technology development stations. These institutions provide specialized training to clients (farmers and extension personnel) as well as acting as demonstration centers for improved technologies. 24. Among the institutional constraints in human resource development include inadequate level of funding of the public training institutions; leading to deterioration of infrastructure and facilities for training and technology demonstration. There is also limited capacity to train on emerging areas such as husbandry of indigenous animals and plants, organic farming and advanced bio-technology. The slow pace of commercialization of services offered by training institutions and failure to respond to market demands for specialized courses is another stumbling block in capacity building. Limited employment opportunities in both public and private sectors are attributed to the low overall enrolment in agricultural training institutions, mostly with very few women compared to men. 25. The Agricultural Information Center and agricultural shows have been important sources of agricultural knowledge, information and technology. Mechanisms will be put in place to enhance the performance of Agricultural Information Center. These will include among others, allocation of adequate resources. Farmer and other stakeholder empowerment

26. The Vision 2030 and indeed the current MTP recognize the importance of an integrated national strategy for good governance and effectiveness. To integrate these principles in development, the Vision commits for empowerment of the Kenyan community through various forms of devolved resources, with an aim of increasing public participation and the voice of the poorest members of the local communities in shaping their destiny. The Vision recognizes the need for public private partnership in driving development initiatives and effectively provides for such participation under the roles and sector specific concerns. The SRA encouraged participation and indeed the ASDS has effectively incorporated the contributions of private sector in agricultural development.

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27. Agro-based private sector comprises primary producers as individuals, groups, organizations, cooperatives or federations, the agribusiness pool consisting of individuals or corporate entrepreneurs, transporters and financial service providers among others. Private sector participation in development is coordinated by the Kenya Private Sector Alliance (KEPSA), under the National Business Agenda (NBA) driven by the private public partnership framework. KEPSA discharges its responsibility through sector boards with that of agriculture currently chaired by the Kenya National Federation of Agricultural Producers (KENFAP). Private sector participation in agricultural development is constrained by a number of challenges with producers being largely small and disorganized, suffering inadequate participation in the national policy arena, and often affected by the consequences of poor returns to investment. Producer organizations are characterized by poor governance structures, often suffering from political interference, poor consolidation of position due to sub-optimal intra and inter-organizational consultations, resulting in inadequate participation in policy and research dialogue and inappropriate recognition by other stakeholders. Value addition and Agribusiness development

28. A characteristic feature of Kenya’s agriculture is the dominance of primary production. There is very little on-farm or off-farm processing of crop, livestock and fish produce, which translates to low income for farmers and less job opportunities. Currently 40 percent of agricultural production is lost through poor storage. Value addition, which involves turning agricultural produce into other semi-processed or processed commodities, has the potential of providing producers with income generating opportunities as it offers the potential to recapture a large share of the food cash. Currently, policies on value addition are not clearly articulated. Similarly, the linkages from production to value addition and to markets are weak. In addition to the policy, the business and investment environment is not conducive for value addition. 29. There are, therefore, compelling reasons for encouraging agro-processing. Firstly, it improves rural incomes by adding value to produce, thereby saving on transport costs by delivering high-value/low-volume products and creating opportunities for the use of by-products as inputs in other farm operations such as animal feeds, manure, and fuel. Secondly, it provides an opportunity for reducing farm losses through the conversion of perishable commodities into more durable products. Thirdly, it will help create jobs in the rural areas, thereby contributing to the reduction of both poverty and rural-urban migration.

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Annex 2: Major Related Projects Financed by the Bank and/or other Agencies KENYA: Kenya Agricultural Productivity and Agribusiness Project

Sector Issue Project Latest

Supervision (ISR) Ratings

BANK FINANCED Drought Management & CDD Agriculture Research Environment CDD and water management

Arid Lands Resource Management Project (Second phase ongoing) Kenya Agricultural Productivity Project (Closed December 2008) Western Kenya Integrated Ecosystem Management Project Natural Resources Management Project Lake Victoria Environmental Management Project II (Approved in March 2009) Western Kenya CDD and Flood Mitigation Project (Ongoing)

IP

S

S

MS MU N/A

S

DO

S

S

MS MS N/A

S

OTHER DEVELOPMENT AGENCIES SIDA EU IFAD FAO USAID DFID GTZ DANIDA JICA AfDB

National Agricultural and Livestock Extension Project (NALEP) Kenya Arid and Semi-Arid Lands Program (KASAL) Horticulture and Traditional Crops Project Central Kenya Dry Area Smallholder South Nyanza CDD (planned) Special Program for Food Security (SPFS) Environment & Natural Resource Management

Kenya Dairy Project Kenya Maize Development Project Horticultural Drops Development Project Kenya Agriculture Biotechnology Support Program North Eastern Pastoral Development Program

Smallholder Dairy Development Project Promotion of Private Sector Development in Agriculture

Agricultural Sector Support Project (ongoing and planned) Smallholder Horticulture Empowerment Project (planned) Smallholder Irrigation Project (planned) Baringo Integrated Rural Development Project (planned) Support to Livestock Development

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Annex 3: Results Framework and Monitoring KENYA: Kenya Agricultural Productivity and Agribusiness Project

PDO Project Outcome Indicators Use of Project Outcome Information

To increase the agricultural productivity and incomes of small-holder farmers, from agricultural and agribusiness activities in the Project area.

1. Percent annual increase in average yields of selected agricultural products in smallholder farming systems in the Project area.

2. Percent increase in earnings11 of men and

women from smallholder agricultural activities in the Project area.

3. Percent increase in public investment in the

agricultural sector. 4. Proportion of participating men and women

smallholders farmers who are satisfied with extension, empowerment and agribusiness services.

If production targets for selected agricultural products are not being achieved by mid-term, the components must be reviewed for efficiency. If there are differences of more than 10 percent against targets for any group at midterm, reevaluate the design of the project to promote equity. To evaluate the commitment of the government to increase investment in the agricultural sector. If the disparity between men and women in satisfaction is more than 5 percent at midterm, reevaluate beneficiary targeting and service delivery process.

Intermediate Outcomes Intermediate Outcome Indicators Use of Intermediate Outcome Monitoring Outputs

Component 1. Policy/Institutional and Project Implementation Support Agricultural sector policies formulated, adopted and implemented12.

5. A harmonized agricultural sector development strategy (ASDS) and its implementation framework completed, endorsed and implemented.

If at midterm, implementation of the ASDS is not started, assess the commitment of the Government and development partners for sector-wide approaches and review need for further support.

Stakeholders’ access to agricultural information enhanced.

6. Proportion of men and women using the services of agricultural information resource centers/desks in the Project area.

If at year 2 of Project, the agricultural communication strategy is not implemented, review need for further support.

Component 2. Agricultural Research Systems Enhanced development and promotion of demand driven technologies by KARI.

7. Proportion of KARI’s development budget generated internally (auto-financed).

8. Number of technologies and innovations

generated that directly respond to women and men smallholder priorities along selected product value chains.

To evaluate long-term sustainability of KARI financing. To provide information on KARI technology products and their linkage with identified value chains.

Component 3 Agricultural Extension and Framer and other Stakeholders Empowerment Strengthened participative demand-driven agricultural support services for increased agricultural productivity and household (HH) income.

9. Proportion of smallholder producers who have adopted agricultural technologies promoted in the project area disaggregated by age and gender.

Assess the performance of the extension and farmer empowerment and make necessary adjustments.

11 A specific methodology to evaluate men, women and youth earnings needs to be developed (see Component 1) 12 Agricultural sector policies include triggers for APL Phase III.

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PDO Project Outcome Indicators Use of Project Outcome Information

10. Percent increase in proportion of stakeholders perceiving that their voice has been taken in account in decision-making disaggregated by men, women and youth.

To evaluate whether the stakeholder empowerment programs are leading to increased voice and decision making.

Component 4 Agribusiness and Market Development Enhanced public private partnerships for delivery of agribusiness services along selected value chains.

11. Turn-over generated by the selected value chains within the Project area.

12. Total number of new clients served by the

off-grid energy services.

To determine if the investments in the selected value chains are resulting in increased turn-over. The number of clients served will indicate extent to which the off-grid energy responds to local energy demand.

The Monitoring and Evaluation Framework

1. The results-based M&E system will be adequately financed by the Project and will draw on a number of available Government information sources including: (i) existing administrative and boundaries data and new data collected through the Project information system; (ii) specially designed qualitative and quantitative household and beneficiary surveys; (iii) existing and/or new geo-referenced data; and, (iv) welfare and poverty indicators collected by the Government. The M&E system builds on successful experiences of previous projects, in particular the Arid Lands Resource Management Project (ALRMP) and the Western Kenya Community Driven Development and Flood Mitigation (WKCDD&FM) Project. The central focus of the system will be on the results/outcomes and the results chain which will enhance planning and implementation of activities that contribute to specific outcomes/results specified in the results framework and the project implementation plan. The system will enable the implementing teams to regularly monitor the Project inputs, activities, outputs and outcomes and determine the efficiency of the implementation process. The key performance indicators of percent increase in men, women and youth earnings13 from agricultural activities in smallholder households in the project area and proportion of participating men and women smallholders who believe that they have gained useful knowledge due to provision of extension, empowerment and agribusiness services, will be monitored by carefully designed periodic household surveys that will be conducted in the Project intervention areas. 2. The collection and management of the Project data/information will be enhanced through the implementation of a customized management information system (MIS). KAPP I initiated the development of the MIS which was not fully implemented at the time of its closure. KAPAP will further develop the system to include the new Agribusiness component and integrate gender in the implementation of its activities to capture the expanded scope of the Project. The MIS will enhance overall Project management by creating provisions for capturing the Project assets, annual work plans, procurement plans, financial management, and monitoring the implementation of the Project activities. Having improved access to information on Project implementation progress will enable the Project management to detect implementation challenges early and make appropriate adjustments to address them. The role of the MIS as a decision support tool will be further enhanced by the provisions for managing procurement plans, implementation progress and financial management. In 13 A specific methodology to evaluate men, women and youth earnings needs to be developed (see component 1).

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particular, the interim financial reports (IFRs) will be generated by the system and automatically linked to key outcomes/results in each component. While KAPAP will be promoting the implementation of sector-wide M&E, MIS, and data collection and management system, the project MIS will be project specific and will be implemented only in project districts and at the KS headquarters. ASCU has already initiated efforts for the development of data collection and management system towards a sector-wide M&E system. KAPAP will contribute to these efforts through technical and financial assistance.

3. In order to further promote best practice approach and use of country systems, the M&E system will be integrated in a broader framework that incorporates four other IDA financed projects in Kenya in agriculture and rural development and environment sectors. A key feature of this approach is the use of common modules for the Projects’ baseline and subsequent household surveys. These modules are also comparable to the nationally representative surveys and censuses collected independently by the Kenya National Bureau of Statistics. This approach will enable the Project to benefit from synergies in terms of data analysis and measuring its impact on welfare and livelihoods of beneficiaries and how they compare with national trends. KAPAP will also be part of an integrated geo-referenced data base that links all Project area including: agro-climatic zones, access to service delivery points and networks, as well as identification of the location of specific investment projects.

The Impact Evaluation Framework

4. The Project impact evaluation will be independently conducted by a recognized institution to ensure objectivity in the process. The Project M&E data will play a major role in providing the basis of impact evaluation. In addition, special household and beneficiary surveys will be conducted at specific periods of time to support independent impact evaluation. The surveys will be carefully designed to enable a double difference approach to be used in the impact evaluation. The target and control groups will be identified during these surveys and a panel data generated and used for the impact evaluation of identified outcome indicators that relate to income levels, well-being, and levels of satisfaction with service delivery stakeholders in the Project area. By using the target and control approach in the design, it will be possible to determine which changes can be attributed to the project investments. Additional data collection strategies will be implemented with regard to other key performance indicators like the private and public investment levels in the agricultural sector. 5. The agricultural extension, stakeholder empowerment and agribusiness components contribute to increased productivity and incomes of households in the project intervention areas. During the first two years of the Project, the implementation of activities under these components will entail increasing the number of beneficiaries by increasing the numbers of sub-locations in the KAPP Phase 1 districts. In Phase I of the Project, a comprehensive household baseline survey was done that collected data from the target and non-target communities used as control group for impact evaluation. During the first year of the KAPAP, the KAPP household module will be expanded to include the new components and be used to conduct a comprehensive survey which will provide the basis for impact evaluation of KAPAP’s interventions. The evaluation design will then apply single and double difference comparison methods of the Project development indicators based on the target and non-target communities. This will enable specific attribution of the changes in the Project outcome indicators to the Project interventions, as well as a determination of the differences in benefits to households and why such differences exist. A second household survey will be conducted just before the MTR and will provide valuable insights for making

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potential improvements in the Project implementation during the MTR and for scaling up Project interventions in other regions. 6. Evaluation of Phase III triggers. Both internal and external evaluations will be conducted on the Phase III triggers during the final year of the Project implementation. KS will initiate internal evaluation of the triggers at the beginning of the final year of the Project. An independent external agency will be contracted to conduct an evaluation of the achievement of the triggers within the first three months of the final year of the Project. Both reports will be available to the Association six months before the closure of the Project.

Social Accountability Mechanisms

7. The Project will set up and promote specific social accountability mechanisms and systems that entrench beneficiary participation, stakeholder empowerment and gender mainstreaming in the implementation of the Project. All the Project stakeholders, Project management, central and local government institutions, CSOs, extension and research service providers, and agribusiness service providers will be evaluated using among other instruments score cards, report cards and social audits to ensure accountability. The Project will also promote transparency by openly displaying all financial and fiscal information in forms that are publicly accessible and comprehensible. Social Audit Sub-committees will be set up among the communities and will use simple input and expenditure tracking report cards to develop a culture of transparency within communities. Gender mainstreaming will be enhanced by giving voice to women in Project interventions and ensuring equity in leadership positions at all levels. This information will be used for rating Project components.

Arrangements for M&E

8. Table 3.2 elaborates the arrangements for monitoring and evaluation of the KAPAP Project. The overall responsibility for M&E will be vested with KAPAP Secretariat (KS). KS will ensure that in each Project component, appropriate activities are determined and implemented according to the Project implementation plan. A results-based implementation and management will be adopted with activities contributing to specific outcomes and outcome indicators, as identified in the results framework. Regular progress in Project implementation will be monitored through the Project MIS and special reports.

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Tab

le 3

.2 A

rran

gem

ents

for

resu

lts

mon

itor

ing

T

arge

t V

alue

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as.

45

Annex 4: Detailed Project Description KENYA: Kenya Agricultural Productivity and Agribusiness Project

1. The Project will have four components: (i) Policy/Institutional and Project Implementation; (ii) Agricultural Research Systems; (iii) Agricultural Extension and Farmer and other Stakeholders Empowerment; and, (iv) Agribusiness and Market Development. The details of the four components and the proposed activities are set below.

Component 1: Policy/Institutional and Project Implementation (US$13.47 million, including an IDA contribution of US$8.06 million, and a Government contribution of US$5.41 million). This component will have two sub-components, namely (i) Policy and institutional support, and (ii) Support to Project implementation structures and M&E. Sub-Component 1.1: Policy and institutional support (About US$1.61 million - IDA) 2. Support for sector wide-approaches: Strategically, this component will support activities that will lead to better coordination of the sector with an aim of creating the necessary impetus for sector-wide approach. These activities will be undertaken both at the national and lower levels. At the national level, the Project will support the development of the ASDS investment plan, its implementation, activities that will facilitate harmonization of both Government and donor supported programs, and activities to align them with ASDS. These will include strengthening of a Government led joint steering committee that can spearhead joint programming and oversight. The capacity of Agricultural Sector Coordination Unit (ASCU) will be further strengthened to play a key role in sector coordination. This support will be aligned with the support being provided to ASCU by other development partners through the basket funding. At the district and lower levels, the proposed Project will support joint programming and create the necessary capacity and institutional framework for it. The immediate outcome will be to have ASDS policy, its investment plan and implementation framework ready for implementation in two years. 3. Policy: During KAPP I, good progress has been achieved in finalizing the policy/reform agenda in some of the priority areas in the agricultural sector, which is essential to economic growth. KAPAP will help to: (i) finance the implementation and operationalization of the policies and institutional frameworks which have been either finalized, or are close to finalization, under KAPP (e.g. NASEP, NARS); (ii) deepen the policy/reform implementation agenda in the agricultural sector, through a sector-wide consultative process, to provide an environment that is conducive to increasing agricultural productivity and investments in line with the ASDS; (iii) support the development of priority sector policies and their implementation frameworks for livestock, aquaculture (strategy and master plan) , co-operatives and agribusiness; (iv) support cross-cutting gender, and environmental and social policies and frameworks, (v) support needs based policy analysis to be indentified by ASCU and relevant departments and conducted by the local policy research institutes; and, (vi) continue to support the Government in preparation of the avian influenza national strategy which was started under KAPP Phase I. 4. Gender Mainstreaming: Based on the lessons learned from the earlier phase, KAPAP strongly integrates gender concerns in Project planning, implementation, participation, and monitoring and evaluation. Gender strategies are developed for each Project component, targets are set for the participation of women and youth in the Project, responsibilities for gender mainstreaming are clearly specified, and a strong emphasis is put

46

on gathering sex-disaggregated information. A sex-disaggregated baseline will be established at Project start up, allowing for the close monitoring of the participation in, and benefits from the Project for women and youth, and allow for corrective action if needed. This data will also strengthen the evidence-base regarding the connection between gender and development and inform the sector gender policy which will be supported by KAPAP. At the end of KAPAP, a gender-sensitive impact assessment will be undertaken. 5. Several capacity building initiatives are further provided to ensure the targets are met, thus strengthening a sustained national base of gender mainstreaming skills. In addition to the mainstreaming approach and the secondment of a gender and social development specialist to the KAPAP secretariat, specific investments are anticipated which will be required to strengthen the economic empowerment of women and youth and their effective participation in decision-making. The Project provides safeguards to ensure that women as well as men can retain control of their income, such as training of all CIG members, women and men, to operate as partners in agricultural production and agribusinesses, using a tested and positively evaluated KENFAP-model. KAPAP also sets aside resources to boost the participation and leadership of women and youth in higher-level decision-making structures, so that they can effectively influence decisions that promote gender equality issues and youth concerns at local and higher levels. In addition, the Project will provide platforms in which 10 successful young women and men agribusiness entrepreneurs every year are identified to mentor others in their communities. 6. The Project will also develop and pilot a model that allows for the analysis of women’s and men’s different roles and resources in the targeted value chains, that could be replicated elsewhere in the region to ensure women and men benefit equally in trade and from market-based approaches. The results of the study will be disseminated widely and the outcomes of a launching workshop will advise on the opportunities and constraints involved in expanding women’s and men’s roles in production, processing, value addition, marketing and trading. The outcomes are expected to influence a capacity-building program on gender in the selected value chains, including the development of training material, thus ensuring its effective institutionalization in national processes. In addition to its own substantial investment in favor of women’s economic empowerment, KAPAP will foster an environment which is expected to attract additional funding to advance the economic empowerment of women and youth in agricultural production and agribusiness, thus promoting a sustainable financing framework. Sub-component 1.2: Support to project implementation structures and M&E (About US$6.45 million – IDA and US$5.41 million GoK contribution) 7. Support to Project implementation structures. The Project will be multi-institutional requiring enhanced level of coordination. The design of the Project will incorporate a sector-wide and bottom-up approach at district and national levels. The Project will also be closely coordinated with other GoK and donor supported projects. The national and lower level Project implementation structures set up under KAPP Phase I will be supported and enhanced. These structures include the Inter-ministerial Coordination Committee (ICC), a sector programs steering committee, Project secretariat and mainstreamed regional service units, and farmers fora at all levels.

47

8. The Project will also provide support in the following key areas:

• M&E and impact assessment: The Project will finance the development of a harmonized, sector-wide M&E system that will provide reliable and timely data to inform decision-makers and the public on progress, results and shortcomings of interventions in the agricultural sector; and, that facilitates compilation of indicators for the different sub-sectors (e.g. production, value-addition, investments, marketing, employment, natural resource management, food security, and institutional development). The M&E system will also provide gender disaggregated information for close monitoring of gender based issues. Support will be provided for capacity building at all levels and for the necessary data collection and analysis infrastructure. The ASCU will be facilitated to take a lead in the development of the sector-wide M&E system. Apart from the sector based M&E system, a Project M&E system developed in Phase I will be up-graded and fine tuned to provide Project specific information and data. Linked to the M&E system, the Project will provide support for impact assessment based on baselines undertaken during Phase I and during Project preparation.

• Management information system (MIS): Linked to the M&E system will be an

MIS system which will be rolled out. The initial design of the Project MIS system was undertaken during Phase I, but needs to be made functional.

• Communication Strategy: Finance a phased out implementation of the sector

communication strategy, and provide support for improved internal communication and information sharing (through LANs), and dissemination system. KAPAP will invest in information and communication technologies (ICT), to facilitate stakeholders within the agricultural knowledge and information system (AKIS) to access timely and factual information that will enable them to make informed technical and market oriented decisions, and arrive at the appropriate choice of interventions.

• Networks: Facilitate the implementation of policies and processes that encourage

sustainable networks, collaboration and linkages that integrate farmers/beneficiaries, agricultural educators, researchers, extension service providers, policy makers, and agribusiness community, within the agricultural sector.

Component 2: Agricultural Research Systems (US$25.01 million, including an IDA contribution of US$22.83 million and GoK contribution of US$2.18 million)

9. This component will focus on supporting the research system in the country and it will have two sub-components, namely:

(i) Support to the National Agricultural Research System (NARS); and, (ii) Support to Kenya Agricultural Research Institute (KARI).

10. Support to NARS (About US$4.8 million - IDA). The objective under this sub-component will be to revise and operationalize the NARS policy and its implementation framework developed in KAPP Phase I. The sub-component will also support initial investments that are necessary for the NARS for enhanced coordination, resource sharing and

48

capacity building. Support will be given for: (i) six competitive and collaborative research grants based on the value chains identified under the agribusiness component (the aquaculture/inland fishing research grant was given priority as it has special needs and it is currently under-funded). Each grant will be limited to a maximum amount of US$300,000; (ii) establishment of a reference resource center to serve the entire NARs; (iii) laying the legal and financial framework needed for a sustainable funding mechanism for the entire NARS; (iv) publication of East African Agricultural and Forestry Journal; (v) capacity building of the scientific community; and, (vi) the establishment of innovative mechanisms aimed at achieving sustainable funding for agricultural research. Although the NARS policy, its implementation framework and an investment plan were being finalized under KAPP Phase I, there is need to have the policy and its legal framework reviewed and approved/enacted by the Government. The revised NARS policy is expected to focus more on the establishment of coordination mechanisms for the critical NARS institutions, namely; KARI, commodity research institutes, fisheries and forestry research institutes and universities undertaking agricultural research and training. After the revision of the NARS policy and its implementation framework in the first year of the Project, the government is expected to adopt/approve these documents to guide the reform process. A milestone for the finalization of the NARS policy has been set as one of the triggers for Phase III. This sub-component will be implemented by KS in collaboration with the relevant NARS institutions.

11. Support to KARI (about US$18.00 million - IDA). Increased productivity of both crop and livestock sub-sectors depend directly on development and adoption of new technologies and innovations. Agricultural research is therefore the engine of agricultural development since it provides the technologies and knowledge required to improve agricultural productivity. In line with KARI’s Strategic Plan (2009-2014) and its implementation plan developed during KAPP Phase I, support and investment will be directed towards supporting the strategic research programs promoting an agricultural innovation approach. Institutional support to KARI will focus on improvement of internal efficiency in executing its research mandate and on positioning the institute to play a leading role in a reformed and strengthened NARS.

12. The key features of the KARI Strategic Plan which will be supported under KAPAP include:

• Adoption of the Agricultural Product Value Chain (APVC) approach in conducting research with strong emphasis on value addition and market development;

• Establishment of an Adaptive Research, Outreach and Partnership department to strengthen linkages with partners in the value chains;

• Strengthen ICT capabilities; • Strengthen PME for effectiveness, efficiency and impact of research; • Strengthen research in arid areas by developing research facilities in Garissa; • Strengthen NRM research especially on impacts of climate change and biofuels; • Strengthen strategies for sustainable funding; and, • Refocus the research planning and implementation to nationally coordinated programs.

13. Given the institutional strategic focus, KARI has identified five result areas that are necessary and sufficient to deliver on the institutional purpose. These include:

• Technologies and innovations for demand-driven agricultural product value chains generated and promoted;

49

• Markets and marketing strategies for agricultural product value chains developed and promoted;

• Policy options for enhancing demand-driven agricultural product value chains facilitated and advocated;

• Capacity for implementing agricultural product value chain research strengthened; and, • Availability of knowledge, information and technologies on agricultural product value

chain research enhanced.

14. These results are designed to position KARI strategically as the key driver for increasing productivity, commercialization and competitiveness of the agricultural sector. This will in turn contribute significantly to the achievement of the agricultural sector growth rate of 7 percent per year over the next five years envisaged in the Vision 2030.

15. Food crops research will focus on developing, validating and disseminating technologies (improved crop varieties and management practices) to farmers using the value chain approach. Emphasis will be put on developing appropriate cropping systems/crop mixes and post-harvest processing in every agro-climatic zone to address emerging effects of climate change (new pests and diseases), high cost of agricultural inputs, enhanced biodiversity and the need for maintaining stable agro-ecological systems. In order to deliver on the expected results, the Horticulture and Industrial Crops Research Program will focus on four intervention strategies on eight commodity (fruits, nuts, vegetables, flowers, oil crops, fibers crops and botanicals) chains outlined below. Each intervention strategy will be expected to contribute to the attainment of the program results. Animal production research will focus on developing, validating and disseminating livestock technologies under small ruminants, non-ruminants, emerging livestock and pasture/fodder production. This will complement the support given under the EAAPP which is supporting KARI to become an RCoE in dairy. To serve better the livestock community, a modest budget will be provided under KAPAP to build and equip the Garissa KARI Center.

16. The NRM program will focus at availing/brokering technologies that would promote water use efficiency, water efficient crop varieties, and the introduction/ adoption of appropriate irrigation technologies. There will be need for strategies and measures that can help mitigate against the effects of climate change. Support will also be given for the cross-cutting research areas such as bio-technology and socio-economic research. The adoption of some of the KARI technologies and innovations has remained low. This has contributed to the low crop and livestock productivity, nationally. These technologies and innovations emanate from basic, applied and strategic research. Adaptation of the technologies and innovations has been through KARI’s Adaptive research programs located in various centers which also coordinate the research-extension-farmer linkage activities.

17. Institutional support to KARI will focus on making the institute ready to take its role in the NARS both as a key leader and the largest player. Investments to enhance decentralization of resource management to research programs and KARI centers will be made. The project will support a consultancy to guide this process. Capacity building and rationalization of research centers’ mandate will also be supported. Support will be given for reforms on KARI corporate governance and research programs, as recommended by the External Program and Management Review undertaken during KAPP Phase I. The corporate governance reforms will involve balancing the representation of various stakeholders in the KARI Board of management, reconstitution and broadening of scope of research centers’

50

advisory committees, and to develop a KARI organizational structure that reflects decentralization of research priority setting and resource management to the centers. The decentralization and the corporate governance reforms are expected to be finalized before the mid-term review in the third year of the Project, and have been set as a trigger for Phase III.

18. Another area of support will be on developing sustainable research funding mechanisms to reduce the dependency of KARI and other NARS institutions on Development Partner funding. In the last five years, the Government contribution to KARI’s development budget has averaged around 15 percent, with the rest being financed from DPs and other sources. The Government direct funding to KARI’s development budget declined from 84 percent in 2002/03 to 45 percent in 2008/09 with donor support increasing from 16 percent to 55 percent in the same period. Although the Government also funds KARI’s recurrent budget which mainly caters for staff salaries, there is need to increase the public funding to ensure that the research programs are undertaken on more sustainable basis. This will also enable KARI to implement its next strategic plan and make meaningful contribution towards the implementation of the ASDS and Vision 2030. Mechanisms for leveraging more public resources will be factored into the design of the Project with the government’s contribution expected to increase gradually over the five year project period. Towards this end, clear funding targets have been set and agreed with the government. The Project will also support the development of the necessary legal and administrative instruments necessary for the establishment of Agricultural Research Trust Fund for KARI, and the development of KARI’s Agricultural Research Investment Services (ARIS) business plan, to facilitate higher generation of internal revenue. It is hoped that at the end of the Project, KARI will be able to generate around 15 percent of its revenue from internal sources, up from the current 10 percent.

19. Support for ICT. To enhance the effectiveness and efficiency of both researchers and the management, investments will be made on ICT to ensure all KARI centers are interconnected and have access to internet and other ICT services. An ICT needs assessment study will be funded to identify areas of support and development of an implementation plan.

Component 3: Agricultural Extension and Farmer and other Stakeholders Empowerment (US$34.88 million, including an IDA contribution of US$29.38 million, a Government contribution of US$3.49 million, and a Beneficiaries’ contribution of US$2.01 million)

20. The objective of this component is to support the Government to implement the National Agricultural Sector Extension Policy (NASEP) and lay the foundations for sustainable intensification and diversification of agricultural production systems by farmers’ access to demand-driven support services22 and the empowerment of farmers and other stakeholders in the Project’s targeted areas. Within the frame of this major paradigm shift, the component focuses on empowering the extension clientele and multi-stakeholder platforms through sharing of information, imparting knowledge, skills and changing attitudes, so that they can efficiently make decisions and manage their resources for increased productivity, improved incomes and standard of living in targeted rural areas.

22 Including knowledge services (research, extension, information), but also improved access to other support services such as access to input and output market services, through farmer empowerment and organizational strengthening as well as specific CIG micro-projects, aimed at strengthening market linkages and primary value addition.

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21. This component builds on experiences and the lessons learnt from the extension pilots in KAPP Phase I, indicating that improved linkages to both input and output markets and diversification of the production systems, generate greater impact and improved risk management from productivity growth. The component will also strengthen the coordination with other on-going programs (e.g. National Agriculture and Livestock Extension Program, NALEP23) on the base of mutual strengths to foster the implementation of the sector wide NASEP framework. In close coordination with the research and the agribusiness components, the component will aim at sustainable intensified smallholder farming systems and the development of selected supply chains by: (i) empowering and organizing farmers/clients for the transformation of subsistence farming to commercial agriculture; (ii) enhancing participatory, bottom-up planning and priority setting for local agricultural sector development, including strengthened research, extension and agribusiness linkages; (iii) promoting PPPs for competitive extension/support service delivery; (iv) improving farmer access to technical and market information using modern ICT; and, (v) enhancing capacity building and empowerment for clients and service providers.

22. The area coverage will be widened to include all divisions (currently 59 districts) of KAPP Phase I targeted districts until the mid-term review would recommend further geographical targeting. Special attention will be given to support capacity building aimed at empowering poor farmers, particularly women, youth and other vulnerable groups to innovate through improved access to agricultural production and agribusiness support services and markets. The estimates of targeted areas and direct beneficiaries of the extension and empowerment component are as follows: 59 districts, 236 divisions (an average of four divisions/district), 472 locations (two locations per division) and about 7,080 CIGs (15 CIGs per location); the total number of direct beneficiaries is estimated at about 400,000 women and men.

23. Critical risks include: (i) capacity among producers and their organizations to meet and manage technology supply, organizational strengthening and contractual delivery; (ii) the will among private support service operators to invest directly in sustainable contractual relations with agricultural producers; (iii) maintaining and strengthening incentive policies from the government in favor of agricultural private sector; and, (iv) the decentralization of decision-making and financing of agricultural support services to respond adequately to local demand and needs. 24. Sub-component 3.1: Agricultural extension (about US$23.22 million IDA, US$2.29 million GoK and US$1.46 million Beneficiaries’ contribution)). The overall objective of this sub-component is to support the Government to implement the NASEP, focusing on empowering the extension clientele and targeting the implementation of a pluralistic, participatory, demand driven and market oriented, professional, and decentralized national extension and innovation system. In line with the Agricultural Sector Development Strategy (ASDS), KAPAP will strengthen and scale-up its support to extension based on the implementation framework of the NASEP, developed by the agricultural sector line Ministries. This reform agenda provides a conducive environment for strengthened public-private partnerships in the sector to fill the gap created by the reduced presence of public

23 NALEP aims at strengthening community based development planning and capacities of public extension services. KAPAP will complement those efforts by supporting the implementation of CIG micro-projects, derived from community plans, and strengthen commercial demand driven support services. Furthermore, farmer knowledge and organizational empowerment will enhance farmers’ voice for demand driven support services, addressing the diversity of their needs and related policy reforms.

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sector extension service providers, by supporting commercial service providers to cater for the diverse needs of extension clientele. The extension sub-component will provide specific support at both national and local levels. 25. At local level, key actions for advisory services for management of farming ‘enterprises’ (production, value addition and marketing), will mainly focus on:

• Strengthening capacities and practice of participative bottom-up sector development planning, budgeting and implementation of coordinated annual district work plans involving farmer (CIGs, fora), other stakeholder organizations and their multi-stakeholder platforms;

• Improving agricultural information and communication systems (ICT) for dissemination and sharing of knowledge among all the agricultural sector players, including the establishment and operation of information desks at division (236) and location level (472) respectively, and link them to their respective district Agricultural Information Resource Center. Radio and TV broadcasting, SMS services, diffusion of brochures and other non-conventional methods will be promoted for improved communication and information exchange;

• Broadening farmers’ access to appropriate agricultural knowledge and improved technology options, including conservation farming, water management and energy for agriculture, to enhance sustainable agricultural productivity growth and agribusiness development. Support to district R&D planning and evaluation meetings will enhance on-farm research and demonstration activities, coordinated by trained district R&D liaison officers: demand-driven access to technical information, farmer tours and exchanges as well as support to Farmer Field Schools (FFS) will also be promoted; and,

• Providing farmer grants targeted at CIGs, cooperatives, micro-small enterprises, etc. with special attention on rural youth to support agricultural productivity, marketing and agribusiness micro-projects. These micro-projects will include contracting of demand-driven farm advisory and training services, but also co-financing of CIGs’ investments leveling areas with high ‘public good’ element and high technical risk.

26. At national level, the sub-component will support overall coordination and regulatory functions mainly by:

• Strengthening the sector-wide coordination of agricultural extension services under the NASEP-IF within line Ministries coordination (ASCU), involving all strategic sector partners, including main support programs, national farmer and stakeholder fora and the private sector;

• Supporting consultancies to develop a sustainable financing mechanism for demand-driven agricultural support service delivery at national and local level. The outcome will be a well designed and functional Agricultural Development Fund and related District Funds which will be used to finance agricultural investments and service delivery within a sector-wide framework. The mid-term review will evaluate the opportunity for aligning the financing of KAPAP local support activities, using the Government proposed decentralized support attribution and disbursement mechanisms;

• Enhancing agricultural information systems on the base of AKIS-ICT strategies to improve farmers/stakeholder access to technical knowledge and market information:

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digital agricultural information resource centers will be equipped and supported at national (one) and district (59) levels respectively;

• Strengthening demand-driven research-extension-farmer-market linkages at regional and national levels, in response to farmers, agricultural markets and value chain needs; and,

• Establishing a regulatory framework and quality standards for demand-driven agricultural service delivery in close cooperation with key sector stakeholders. This includes the development of guidelines and setting-up the institutional framework for service provider registration and participative service quality assessment.

27. Information Resource Centers. KAPAP will implement a major investment to improve agricultural information access and exchange at all levels, including national and district information resource centers, divisional and locational information desks. At each level, major public and private stakeholders will cooperate for increased efficiency, comprehensive content, client targeting and sustainability. Coordination at national level will be provided by ASCU, while at district and local level respective stakeholder platforms will ensure that the proposed tools respond to client needs in terms of access and content. Linkages will be established with information resources supported under agricultural research and agribusiness components.

28. All capacity (training) and organizational strengthening activities will be implemented on a cost sharing basis, whereby beneficiaries and/or their organizations will contribute at least 10 percent to the specific activity cost. This approach would allow for enhanced involvement and ownership of beneficiaries towards sustainable build-up of capacities, leadership and organizations at all levels.

29. Micro-projects. The specific objective of micro-projects is to test, extend and up-scale sustainable agricultural productivity and related promotional activities planned, prioritized and implemented by CIGs. This will be achieved by supporting CIGs and farmer fora proposals for innovative joint investments in agricultural production and value addition. The main purpose of the Farmer Grants is to: (i) facilitate farmers access to demand-driven advisory/support services and to provide stakeholders control over those services; (ii) contribute to the strengthening of service tools for farming systems and commodity chain development; (iii) strengthen management and control capacities of producers/ transformers/ marketers through their organizations, and, (iv) improve the integration of producers/farmers in regional/national economy. The possibility of mainstreaming the Farmer grants into the proposed Agricultural Development Fund will be explored during the mid-term review if the Government will have approved proposals for decentralized support attribution and disbursement mechanisms.

30. The implementation modalities of the Farmer Grants: Mechanism for financial assistance to CIGs micro-projects corresponding to the broad objectives of the KAPAP will be outlined in the Project implementation plan and Farmer Grant Manual (FGM). The FGM will include a list of eligible/non-eligible activities, selected on the basis of their potential contribution to project/government objectives. Eligible activities will clearly relate to agricultural productivity, marketing and agribusiness and sustainable management of natural resources that are proposed by beneficiaries, and co-financed in cash and kind, either under own capital, or under microcredit. The Project’s grants will cover required technical support services, training and capacity strengthening activities, but also infrastructures, equipments and inputs that have a high ‘public good’ element and high risk level. The average poverty

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level of the CIG members could be considered as access priority criteria. Proposals will be selected on competitive basis by the regional project committee (or former KAPP district) level. This committee will be in charge of approving requests for the grants.

31. The Farmer Grant (FG) would be shared between participating districts and locations (on average about KSh 400,000 per location per year, equivalent to about two micro-projects per location per year) on the basis of objective criteria such as rural population, rural poverty level, etc., but also the respective district performance in the previous year. The FG contribution to a CIG project would not exceed KSh 400,000 (equivalent to US$5,000), but several CIGs could propose and implement together ‘larger’ projects demonstrating higher levels of ‘public good’ nature. The FG fund will co-finance (matching grant) on a competitive basis priority actions proposed by farmer group/fora for the following collective initiatives:

Support to sustainable production intensification and diversification investments.

• Applied on-farm research including studies, experimentation or contracting expertise to improve the development and/or diffusion of knowledge to farmers, all along the production, transformation and marketing chain;

• Introduction, dissemination and on-farm development of sustainable agricultural production techniques (conservation farming, agro-ecological techniques, etc.);

• Awareness raising and demonstration campaigns (inputs, equipment, etc.); • Rehabilitation/development of on-farm quality seed production; • Technical and farm management advisory services; • Information/knowledge diffusion, advisory services, training, economic/legal services,

management support; etc. • Capacity strengthening of farmers and stakeholders organizations to ensure their

respective missions; and, • Matching grants for collective equipments (e.g. transformation, production) and

infrastructures (small scale storage, irrigation, water harvesting systems and energy for agriculture) could be co-financed on the basis of their ‘public good’ nature.

Support services to productive input/output24 investment.

• Integrated projects for setting up contract-based agriculture systems to the benefit of small scale producers;

• Infrastructures for grouping, storage and post-harvest treatment; • Specialized training and technical assistance to financial service providers focused on

credit risk assessment, management and pro-poor product development; and, • Improved (indirect/direct) access to production factors and markets network development

for agro-dealers and microfinance institutions.

32. Beneficiary contributions for micro-project implementation will be maintained at a minimum of 10 percent for technology adoption grants and 20 percent for value-addition/ agribusiness activities. Beneficiary contributions will be adapted in line with proposed investment nature, e.g., support services and training (10 percent), infrastructures and equipments (20 percent in cash and kind) and inputs (50 percent in cash). The details will be contained in the FGM.

33. Sub-component 3.2: Farmers and other stakeholders empowerment (about US$6.16 million IDA, US$1.20 million GoK and US$0.55 million Beneficiaries’ contribution). This sub-component will support the empowering and organization of farmers/clients, service providers and other stakeholders towards the transformation of subsistence farming to commercial agriculture for increased farmer income and improved livelihood. The change in orientation from supply-driven services to demand-driven services

24 Market surveys; supply chain analysis; development of quality and certification management systems; and commercial/market trials (see component 4).

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calls for focused awareness, capacity building and strengthened organization of farmers to enable them to fulfill these roles. Actual demand articulation has been a major challenge since current extension services tend to address mainly technical capacities, often ignoring client empowerment and the diversity of farmers’ needs.

34. Farmer empowerment and strengthening of their association is a core aim of the Kenya National Federation of Agricultural Producers (KENFAP). On the basis of actions already implemented under KAPP, KENFAP will be a strategic partner for KAPAP (as an implementing agency) to strengthen further men and women farmers and their organizations to stimulate farmer demand-driven support services and strengthen farmers’ voice in policy reforms. Main activities will be organized around the following outcomes: (i) strengthened farmers knowledge and organization at the grass-root level; (ii) organizational support to apex farmers’ and commodity associations/organizations with effective representation, partnerships and networks, articulated strategic orientations and active participation in development issues; (iii) institutional support and strengthening of KENFAP to deliver its core functions; (iv) organization/support of other stakeholders, including service providers and consultative stakeholder platforms; and, (v) support to the cooperative movement. Main KAPAP supports are targeted on the following actions:

(i) Farmers knowledge and organizational empowerment (at the grass-root level) to enable farmers to articulate effective demands on appropriate support services and policy reforms and strengthen interaction with other technical and socio-economic actors for sustainable local development. The Project will support:

• Farmers’ knowledge and skills empowerment through intensive training in

topics such as participation, group dynamics, leadership, business approaches, gender25,participatory needs assessment, planning and prioritization of appropriate intervention strategies, value chain mapping and joint operation, formation of enterprise based farmers groups, contracting and assessing quality service providers, etc.;

• Farmers’ organizational empowerment, including capacity building of farmer groups in organization, membership and leadership, identification and addressing the membership needs, organizational development and sustainability, delivery of legal status of CIGs, democratization of CIGs, lobby and advocacy, integration of CIGs’ leadership into local to divisional level consultative fora, capacity building of the cascaded fora, access to markets, etc.; and,

• Mobilizing farmers into bottom-up organizational structures (fora) by supporting gender balanced elections, training and consultative meetings to enhance effective participation of the farmers in consultations at various levels from the location level (monthly), divisional (bi-monthly), district (quarterly) and national (2 per year) levels.

(ii) Support to apex farmer associations (district and national level), including commodity chain apex organizations, to raise farmers’ voice in policy dialogue and value chain management. In support to the Agribusiness and Market Development component, the Project will provide institutional support towards

25 Women and men of all CIGs will be trained to operate as partners in agricultural production and agribusiness, using a tested and positively evaluated KENFAP training module (see also component 1 on gender mainstreaming).

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strengthening apex organizations (23) of selected value chains by: (i) updating database of existing apex organizations; (ii)profiling of identified apex farmer organizations; and, (iii) prioritization and addressing identified needs in the areas of organizational purpose and leadership, strategies especially for agribusiness development and capacity strengthening (matching grants).

(iii) Institutional and functional support to KENFAP national secretariat and area/district branches to enable the federation to deliver its mandate, face upcoming challenges and play its strategic role in farmer empowerment, by: (i) capacity building to improve both the technical and operational capacity of KENFAP staff in agribusiness, both at district and headquarter levels; (ii) strengthening the digital information exchange between district and KENFAP headquarters to allow for more efficient information flow and exchange, including the equipment of district offices, operational information management systems for networking KENFAP district (59) offices and the headquarter; and, (iii)capacity building of elected farmer leaders at district and national levels for appropriate choice of representatives and requisite packaging of farmers’ issues.

(iv) Empowerment and organizational strengthening of other stakeholders including service providers, agro-dealers, marketers, etc., to enhance their capacities and organizational strengthening of service providers to deliver competitive support services. Main focus will be given to strengthen methodological and technical capacities and the organization of knowledge service providers for high quality commercial support services. Consultative meeting for stakeholder platforms at district and national levels will also be supported.

(v) Strengthening the cooperative movement. Under the leadership of specialized services of the Ministry of Cooperative Development and Marketing, support will be offered on competitive basis to the cooperative movement to enhance good governance and business practices of co-operatives by: (i) enhancing graduation of groups/CIGs into cooperative societies and SACCOs (including support for acquiring legal status); (ii) training of cooperatives and SACCOs for improved capacities in agribusiness and management; and, (iii) providing institutional support towards strengthening the National Consumer Organization (NACO) and the federation of cooperatives.

35. Kenyan National Federation of Agricultural Producers (KENFAP) aims at empowering Kenyan farmers to make informed choices for improved and sustainable livelihoods. Therefore, the federation has organized its members into groups at the locational level, and area branches at district level up to the national level; it has a current membership of 1.43 million farm households, with about 4,000 formally registered farmer groups and 23 commodity based apex organizations. KENFAP has fully operational offices in the 50 area/district branches which also operate as area branch Farmers Information Centers. During KAPP phase I, KENFAP assisted in the elaboration and implementation of the farmer/client empowerment component; the KAPP mid-term review mission recognized KENFAP as an important strategic partner and its significant contributions in the delivery of key farmer empowerment outputs and outcomes. The Federation has been instrumental in farmer organizational development in other African countries, e.g., Uganda, Tanzania, DRC, Rwanda, Zambia, South Africa and Eritrea, as well as acquiring specialized experience from Europe, Asia and South America.

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36. Farmer/client empowerment will be best delivered by farmers’ organizations themselves. KENFAP has a wide experience in dealing with farmer groups and organizations. It has already developed and successfully used performing collaborative tools and manuals for farmer knowledge and organizational empowerment and apex profiling under KAPP (1120 CIGs and further 2000 farmer groups in other districts), thus giving KENFAP the legitimacy to drive the component. The outcome of such a process is accurate articulation of demand and clear engagement of the correct actors for appropriate resolution of impediments in the entire agricultural value chain. To deliver this mandate, KENFAP will require support to strengthen its service domain and build the institutional professionalism to effectively face upcoming challenges.

Component 4. Support to Agri-Business and Market Development (US$24.21 million, including an IDA contribution of US$21.73 million, a Government contribution of US$2.20 million, and a Beneficiaries’ contribution of US$ 0.28 million) 37. The objective of this component is to empower public and private stakeholders along commodity chains to plan, design and set-up sustainable agribusinesses. This will be achieved through the delivery of agribusiness services together with appropriate funding instruments to stimulate agriculture growth and stakeholders’ revenues through value-addition and enhancement of producers’ linkages with input and output markets. The component will assist farmers to produce what they can market in a profitable manner. A dynamic agribusiness sector effectively links producers to consumers along various Value Chains (VCs). These VCs are constituted by several operators mainly producers (farmers, herders, etc.), markets, small and medium enterprises, cooperatives and other stakeholders who are key to agricultural growth. To develop a market-oriented agriculture, as an improvement to the prevailing subsistence farming system, it is critical to create an appropriate enabling environment which includes infrastructures such as road, water and power access, together with appropriate rules and regulations. Both are critical for marketing and processing activities. For a fluid flow of goods and money from one end to the other of the VC, there must be a strong confidence among the various stakeholders. Since agro-industries are capital intensive, it is essential that agro-industry entrepreneurs have access to appropriate funding capacity. The Project will ensure a close linkage and coordination with the Ministry of Industrialization through the MSME Competitiveness program in order to dove-tail KAPAP activities on its funding and training tools, to ensure a continuum from the farm production to the agro-industrial production. In addition, to boost the development of the sector skilled manpower is a key issue. 38. To achieve this objective, the component will have two sub-components, building on the Farmer and other Stakeholders Empowerment activities under sub-component 3.2. The agribusiness component will support (i) Agribusiness development, and (ii) pilots on linking agro-processing to off-grid energy sources.

39. Sub-component 4.1: Agribusiness development (about US$19.73 million IDA and US$2.12 million GoK contribution) will lead the overall process of the Agribusiness and Market Development component through the implementation of the following activities:

(i) Create a network of Agri-business Development Centers (ABDCs) which will lead the VC structuring process while providing agribusiness and market development services to assist the VCs’ stakeholders in elaborating bankable projects;

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(ii) Foster the creation of agribusiness funding instruments with private and public banking institutions as well as risk management tools with relevant insurance institutions;

(iii) Support the creation of four Agro-Food Parks in four regions where relevant agro-processing facilities, energy production unit, and marketing infrastructures will be bundled together along specific VCs; and,

(iv) Enhance training in agribusiness management and food technologies to meet market demands.

40. Creation of a network Agribusiness Development Centers (ABDC) to assist VCs’ stakeholders. The overall objective of this activity is to nurture entrepreneurship while building trust within the selected VCs. More specifically, the ABDCs will: (i) lower barriers to entry relating to capital, technology, information and market access; (ii) facilitate the conceptualization and establishment of new agro-enterprises; (iii) lower unit costs of production, transport and marketing; (iv) encourage and facilitate innovation; (v) support specialized farmer VC fora and VC enterprises to coalesce into sustainable Value Chain Councils; and, (vi) attract private capital as well as international donor resources.

41. The Project will support the creation of a network of ABDCs at regional (four) and national (one) levels. These ABDCs will be managed under specific Public Private Partnerships (PPP) to drive the transformative process of the selected VCs:

• At regional level, the ABDCs will essentially deliver the following services: (i) VC appraisals, including detailed production, infrastructure and VC models in relation to the technical feasibility studies (transport, storage, processing, packaging, environment impact studies, etc.); and, (ii) development of agribusiness management and accounting capacities; (iii) coordination of the creation of the Agro-Food Parks along the VCs in each region; and, (iv) collection of market intelligence along the selected VCs.

• At national level, the national ABDC will coordinate the activities and have a critical role in: (i) aggregating and synthesizing data and agribusiness intelligence for further communication; (ii) providing legal assistance and lobbying to improve the policy and regulatory framework; (iii) supporting the creation of national VC organizations to voice the interest of the VC actors; and, (iv) liaising with the stakeholders in policy, research, extension and farmer empowerment.

42. The establishment of the ABDCs is to be subcontracted through a tendering process to private Business Development Service providers (BDS) which will implement the above mentioned activities. During the first two years, they will receive the full support of KAPAP while developing their own business service capacity in the development of the VC and establishing the ABDC. Thereafter, the ABDC must have the capacity to develop its own business plan and become progressively self sustainable by the end of the program. To apply for this mission, the selected BDS will have to present a performance bond which will be determined at the contracting stage.

43. Assistance in the establishment of agri-business funding instruments and risk management tools. Start-up capital is a major constraint for Agribusiness development and value addition activities. To support small holders and other interested stakeholders to access capital to boost investments in the agribusiness sector in the country, the Project will assist the design of appropriate funding instruments to be administered by commercial banks and

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other financial institutions. This facility will not only avail credit for agribusiness development but will also help in financial sector development, especially as regards rural enterprises. Initially, the project will support a detailed study to assist in the design of the facility. This study and related activities will be undertaken in collaboration with the Financial Sector Deepening program (FSD). Depending on the outcome of the study, an appropriate risk sharing facility will be put into place where interested development partners and the Project will contribute. The facility will be implemented through commercial banks and other financial institutions on a competitive basis and under terms and conditions to be specified from the initial study. Specific attention will be given to ensure an effective and fair access to funding resources among men and women agribusiness promoters. During appraisal, it was noted that a similar facility (“Kilimo Biashara”) to support credit for agricultural inputs is in place. The “Kilimo Biashara” is a partnership between the Government of Kenya, Alliance for the Green Revolution in Africa (AGRA), Equity Bank and IFAD. Both IFAD and AGRA have contributed US$ 2.5 million each as guarantee funds for this facility. Against the guarantee, Equity Bank has earmarked USD 50 million for on-ward lending to small-holder farmers and agro-dealers to enable them to purchase fertilizer and other inputs. During its first year of operation, the program has given out loans totaling KSh 320 million (US$ 4 million) to smallholder farmers, commercial farmers and agro-dealers, and the repayment rate has been good. Initial assessment done by AGRA indicates that the perceived risk for lending to farmers and other players has been higher than actual risk, which has averaged around 5% in the last one year. The proposed agribusiness credit facility will be designed on the lines of “Kilimo Biashara” but will incorporate features that ensure competition in the financial sector. The Government will submit the detailed design and conditions of the agribusiness fund plan to the Bank for review and approval before the fund is set up.

44. The Project will also support technical assistance for development of weather-based risk insurance products and their promotion. This will be done in close collaboration with Financial Sector Deepening Program (FSD), and the International Livestock Research Centre (ILRI), which are piloting, respectively, crop and livestock weather-indexed insurance projects. The Bank Commodity Risk Management Group, which is offering the necessary technical support to the FSD initiative, will also be involved.

45. Creation of four Agro-Food Parks. Value-chains are essential to the food security and agribusiness development. They need a comprehensive network of infrastructures to ensure a sufficient quantity and a regular flow of commodity from the field to the markets while adding value to it in a transparent way. The objective of this activity is, therefore, to assist the VC operators to set up the appropriate infrastructures and services for the VC to reach a critical mass of commodity and effectively influence the market. The Project will specifically: (i) support the prefeasibility studies to set up the Agro-Food Parks (where necessary the project will support international TAs to support the development work); (ii) propose a special legal structure to operate them and prepare the relevant PPP agreement; and, (iii) lobby to attract the related investors, service providers and agro-industries within the premises of the parks. The Project will support the establishment of four Agro-Food Parks in the selected regions. Specific, innovative Public Private Partnerships will be established to attract investment in the Agro-Food Park area (long term land lease, developing actual processing facilities and selling them out, etc). Where possible, agro parks will be established using existing institutions and infrastructures such as, but not limited to, Export Processing Zones (EPZ), Agricultural Training Centers (ATCs), Livestock Training

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Institutions (LTIs), Agri-Business Centers (ABCs) and other established private and public institutions including warehouses, slaughterhouses and aquaculture centers.

46. Agribusiness management and food technologies training enhancement. Since agro-industries are built for the long term and need number of skilled manpower to operate them, it is critical to develop appropriate curricula in agribusiness development and food processing technologies with the universities, both at national and regional levels. The Project will support: (i) curricula development, and (ii) training and capacity building of relevant agribusiness and food technology teachers and extension staff, with a keen attention to a well balanced gender representation. For the development of the agribusiness management curriculum, the project will liaise with the Global Business School Network (GBSN) sub component of the MSME competitiveness program to adapt its curriculum and the related training material for micro, small and medium enterprises for the agro-industry. Other tools specifically developed for agribusiness (e.g. by FAO, UNIDO) will be adapted.

47. Sub-component 4.2: Linking rural agro-processing activities to off-grid energy sources (about US$2.00 million IDA and US$0.28 million Beneficiaries contribution). During the implementation of Phase I, one hundred and seventy six grants were given to communities for value addition and up-scaling of technologies with encouraging results. However, a key constraint that most communities faced was poor road networks, and access to electricity or other forms of modern energy. While the Government and other donors are investing in rural access roads, there is a need to address the issue of rural access to energy as it is central to most agribusiness activities. The Bank and other donors are planning to support the Government's Energy Access Expansion Project (P103037) covering both rural and urban areas. To enhance impact of both operations, the Energy Access Expansion Project will cover, to the extent possible, the same communities/districts supported under KAPAP.

48. In order to advance access to modern energy services, a market introductory activity for linking agro-processing to energy sources will be established under KAPAP. The objective of the pilot is to introduce and test business models that demonstrate sustainability and ease of replication while addressing efficiently the needs of rural primary/secondary processing units, as well as domestic and small enterprise energy demand in the area. The component will use local renewable energy sources where they are economically viable (e.g. mini-hydro, biomass, wind, solar).

49. The pilot will focus its tests and innovation on (i) organizational setups, and (ii) involvement of commercial finance. It will use mature renewable energy technologies that have been exploited commercially successfully. The component will seek public–private-partnerships by working with private operators and where possible leveraging the resources with loans from commercial financiers. The pilot will, on a demand-basis, provide matching grants for an estimated five (5) off-grid energy projects promoted by CIGs or MSMEs; these projects will take place in different districts and for different processing demands (for example: grains; fruit and vegetables; fishery; and dairy). It will also provide matching grants for supply of energy to a full Value Chain or at least supply energy to two different groups of a Value Chain.

50. Levels of funding of the proposed matching grant could be provided for up to 80 percent of the total investment cost of a Project. Details of the levels of matching grant, disbursement conditions, beneficiary eligibility criteria, and their contribution will be further detailed in the Community Energy Grant Manual (CEGM) to be prepared by GoK.

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Clearance of this manual will be a disbursement condition for this activity. The component will be appraised prior to KAPAP effectiveness.

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Annex 5: Project Costs KENYA: Kenya Agricultural Productivity and Agribusiness Project

Table 5-A: IDA financed Project Cost by Component

Project Cost By Component Local US$

million

Foreign US$ million

Total US$

million 1. Policy/Institutional and Project implementation Support

Support to Sector-Wide Approach & Policies 1.05 0.56 1.61 Support to Project Implementation Structures

3.61 2.84 6.45

2. Agricultural Research System Support to NARS 4.74 0.08 4.83 Support to KARI 10.36 7.64 18.00

3. Agricultural Extension and Farmer and other Stakeholders Empowerment

Agricultural Extension 19.75 3.46 23.22 Farmer and other Stakeholders Empowerment 5.24 0.91 6.16

4. Agribusiness and Market Development

Agribusiness Development 16.91 2.82 19.73 Linking Agro-processing to off-grid Energy 1.55 0.45 2.00

Total Project Costs1 62.23 18.76 82.00

Total Financing Required 62.23 18.76 82.00

Table 5-B: Total Project Costs by Component and Financiers

Component IDA GoK

Taxes/duties GoK

Budget Beneficiaries Total

Component 1 8.06 0.76 5.41 0.00 14.23 Component 2 22.83 1.99 0.19 0.00 25.01 Component 3 29.38 3.49 2.01 34.89 Component 4 21.73 2.21 0.28 24.21 Total 82.00 8.45 5.60 2.29 98.34

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Annex 6: Implementation Arrangements Kenya: Kenya Agricultural Productivity and Agribusiness Project

General Considerations 1. Sector-wide-approach: The implementation of KAPAP will follow a sector-wide approach, consistent with the institutional framework envisaged by the Government of Kenya (GoK) in its Agricultural Sector Development Strategy (ASDS). GoK has already established the Agricultural Sector Coordination Unit (ASCU), with support from DPs, to coordinate sector-wide initiatives, programs, and projects. ASCU’s mandate is to facilitate, coordinate and add value to the sector reform process. The unit mandate does not include implementation of programs, a mandate that is exercised by the relevant technical departments. ASCU therefore acts as the focal point for the DPs, and briefs the ICC on planned financing of investments proposed under the ASDS. ASCU is currently supported by four DPs (Danida, GTZ, SIDA and EU) through a basket fund. Other DPs (USAID, IFAD, FAO, World Bank) support ASCU on a bilateral basis but aligned to the annual work plan supported under the basket funds. GoK contributes around 20 percent of total ASCU budget. All the development partners supporting the agricultural sector have expressed strong support for the sector-wide approach, and have asked the Bank to take the lead in this regard. The Project will strengthen the capacity of ASCU to effectively lead the donor harmonization efforts in the agricultural sector. 2. Strengthening multi-sectoral coordination: Overall coordination and fiduciary responsibility for the Project will rest with MoA, whose capacity will be strengthened to undertake these responsibilities efficiently and effectively. Given the multi-sectoral dimension of the Project, however, six ministries/agencies will be responsible for implementation of Project activities pertaining to their areas of responsibility. This will allow a desired level of autonomy, stakeholder participation, and mainstreaming of gender and cross-cutting issues by the implementing agencies within their respective sectors. The proposed six implementing agencies are: MoA; Ministry of Livestock Development (MoLD); Ministry of Fisheries Development (MoFD); Ministry of Cooperative Development and Marketing (MoCDM); Kenya Agricultural Research Institute (KARI); and, the Kenya National Federation of Agricultural Producers (KENFAP). 3. Consistency with Paris Declaration: First, under the Kenya Agricultural Productivity Project (KAPP - Phase I of the APL), overall coordination of the Project was undertaken by the KAPP Secretariat. Under KAPAP (Phase II of the APL), the Ministries/Agencies will implement their own activities, with overall coordination by the KAPAP Secretariat (KS), which will be mainstreamed within the GoK structure. Second, KAPAP will be implemented at several levels (national, district and local) and across different ministries in the 59 new districts (which have been carved out of the previous 20 KAPP districts). It will continue to build upon, and rely on the effective institutional structures set up under KAPP. This will be fully consistent with the Paris Declaration (March 2005), which recommended, inter alia, the elimination of stand-alone Project implementation units, and working with country systems. A detailed description of the composition and function of each of the KAPAP structures, followed by the implementation arrangements by component, is set out below. The institutional framework for KAPAP is shown in Figure 1.

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4. Inter-ministerial Coordination Committee (ICC): The ICC comprises Permanent Secretaries of ten sector ministries: Agriculture, Livestock Development, Fisheries Development, Cooperative Development and Marketing, Water and Irrigation, Environment and Mineral Resources, Forestry and Wildlife, Regional Authorities, Local Government, and Lands and Housing. The ICC was set up by the Government under the SRA to: (i) oversee the implementation of the Strategy for Revitalizing Agriculture (SRA); (ii) to provide policy and administrative support to KAPP and other sector programs; and, (iii) to provide linkages to line ministries during KAPP’s implementation. The ICC will be maintained as the overall policy guidance organ for the sector and the Project. 5. The Chair of the ICC is the Permanent Secretary of MoA: The ICC is convened by the Chair on at least a quarterly basis. Based on the agenda of the ICC meeting, relevant technical experts, including members of the Agricultural Sector Programs Steering Committee (ASPSC - see below), may be asked to attend the ICC meetings as resource persons. The head of ASCU and the KAPAP National Project Coordinator (NPC - who will head the KS) can participate in the ICC meetings, both as observers and/or resource persons. The ASCU coordinator usually acts as Secretary to the ICC. The ICC will be mainly responsible for the following aspects: (i) providing policy guidance on all issues relating to the sector, project and programs; (ii) endorsing annual work plans and budgets approved by the ASPSC; (iii) facilitating the strengthening of intra-sectoral linkages amongst the sectors represented on the ICC; (iv) resolving implementation bottlenecks and providing positive impetus to facilitate achievement of the Project’s results/outcomes; and, (v) appointing members to the ASPSC. 6. Agricultural Sector Programs Steering Committee (ASPSC): The KAPP Steering Committee (KAPP-SC) was one of two bodies created specifically for purposes of overseeing KAPP implementation. The KAPP-SC was appointed by the ICC during the first phase, and was composed of chief executives and directors of all the ministries and agencies represented in the ICC. This structure served KAPP well and will be continued. However, in order to implement the sector-wide approach, GoK has decided that, instead of stand-alone steering committees for each project/program, it will have one broad-based steering committee (at the technical level) for the agricultural sector, for all ongoing and planned programs and projects. Therefore, it is proposed to expand the membership of the KAPP-SC and form the ASPSC. In addition to the 13 nominees of the ministries/agencies (at director level) represented on the ICC, the ASPSC will include relevant actors from the agricultural sector with whom partnerships would be mutually beneficial, such as from the universities (e.g. Jomo Kenyatta University of Agriculture and Technology - JKUAT), the private sector (East African Grain Council - EAGC), commercial banks involved substantially in microfinance in the agribusiness area (e.g. Equity Bank), and NGOs (e.g. Kenya Gatsby Trust). In order to limit the membership of the ASPSC, whilst maintaining some balance between the public and the private sectors, the Chair of ASPSC can invite representatives of other stakeholders to the ASPSC meetings, as deemed best suited for providing advice concerning methods and approaches for the successful implementation of the investment projects, under the umbrella of the ASDS. The ASPSC will meet quarterly, and be responsible for approving: (i) proposals for applied research and investment projects, including micro-projects; (ii) proposals and recommended topics for new areas of research; (iii) the annual work plans and budgets of investment projects (e.g. KAPAP), before recommending their endorsement by the ICC, together with; (iv) monitoring of the implementation progress of investment projects; and, (v) reviewing and making recommendations on proposed policy changes to the ICC. The ASPSC will constitute thematic sub-committees to guide the implementation of the

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Project components, and a sub-committee on finance and audit. The KS will act as Secretary to the ASPSC for KAPAP related matters. 7. KAPAP Secretariat (KS): KAPAP implementation will be mainstreamed into the GoK system, both at national and the local levels. Except for specific activities that will be undertaken by other implementation agencies (e.g. policy studies), the KS will be responsible for facilitating and coordinating the implementation of the Project with the implementing agencies. As indicated earlier, the KS will act as Secretary to the ASPSC on KAPAP matters. It will also act as the convener of Project specific consultative processes at the national level that will include the National Forum. The KS will be responsible for managing the consultative processes, as well as coordinating the information, monitoring, evaluation and analytical input into those processes, financial management, procurement, information communication and public relations associated with KAPAP. The KS will be staffed by professionals/qualified staff, who will be seconded from the line ministries for the entire period of the Project. The secondment of the professional staff will be undertaken through an open and competitive process, including the National Project Coordinator (NPC), specialists in research, extension, farmer and client empowerment, monitoring and evaluation, communications, environmental safeguards, financial management, and procurement. The GoK staff seconded to the KAPP Phase I will be retained, subject to satisfactory performance. The capacity of KS will be strengthened to include, an agribusiness specialist, a gender and social development specialist, accountants and auditors26 and other support staff. The KS may delegate and supervise some of the financial and procurement functions to Regional Support Units (RSUs - see below), and will build their capacity for financial and procurement management over the Project implementation period. 8. National Forum: The SRA envisioned a National Forum of agricultural sector stakeholders meeting once a year, under the chairmanship of the President, to ensure political will and visibility, and to review implementation of the SRA of which KAPP Phase I was an integral part. This forum brings together lead and cooperating ministries in the agricultural sector, implementing institutions, farmers’ organizations, civil society, private sector and development partners. Support for this forum will continue under KAPAP. The KS will support this forum in a number of ways - financially, with information, with adequate representation from the districts, and by supporting specific task forces on improving agricultural research and agricultural extension. The thematic working groups (under ASCU) will draw from the National Fora and report to them on insights gained through pilot activities, regional and international study tours, analytical work, and databases generated by the Project. 9. Regional Service Units (RSUs): Under KAPP Phase I, District Service Units (DSUs) acted as local KAPP secretariats in the 20 districts. Each DSU also acted as the secretariat of the District Farmers’ Forum, coordinated the tasks under the Project including consultative processes at the district and division level, planning, generation and monitoring of work plans, monitoring and evaluation, financial management and public relations. Each DSU operated with two professional staff, a District Coordinator and a Monitoring and Evaluation Specialist, and support staff, including an accountant, secretary, and driver. Following the splitting of the 20 KAPP districts into 59 districts under KAPAP, it is proposed to keep implementation arrangements simple and effective at the local level. Therefore, the

26 KARI staff working with the KS under Phase I will be seconded to the KAPAP Secretariat to ensure continuity in implementation.

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former DSUs will be converted into RSUs, i.e. 20 RSUs will handle the same responsibilities that were undertaken by the former DSUs from the Phase I district headquarters. The coordination structure at the ‘regional’ level will mirror the structure of ASPSC at the national level. As under KAPP Phase I, each RSU will be steered by an enhanced version of the District Agricultural Committee (DAC) in each district (‘Regional’ Agricultural Sector Steering Committee - RASSC) , which will be composed of representatives of ‘new’ district line departments and implementing agencies, local NGOs, CBOs, and private sector representatives. While Government representation should preferably not be a majority, it is expected that at least the Departments of Agriculture, Livestock Production, Veterinary Services, Fisheries (where relevant), Cooperatives, and Environment will be represented. Two major differences under KAPAP, however, will be that (i) the RSUs will be managed entirely by GoK seconded staff, and (ii) the RSU will need to bring together a representative number of participants from public, associative and private sector to form the RASSC for joint consultations, on a quarterly basis, to ensure that “regional” priorities are being taken into account in the preparation of micro-projects. The representation on the RASSC will be as follows: 50 percent from District officials, 25 percent from the private sector, and 25 percent from relevant NGOs, farmers’ organizations and CBOs. As at the national level, RASSC will be guided by the advice received from specialized technical working groups/sub-committees related to the implementation of the Project components. Implementation responsibility by component 10. Component 1 - Policy, Institutional and Implementation Support: The implementation responsibility for the sub-components will be as follows:

• Policy - relating task force to Agricultural Sector - KS and ASCU; • Policy - relating to NARS - KS; • Policy - Other - relevant implementing agency, depending upon the subject

matter; • Institutional - respective implementing agencies, depending upon the area and

nature of capacity building; and, • Implementation Support - KS.

The above activities will be undertaken after receiving technical guidance from the ASPSC and policy guidance from the ICC. 11. Component 2 - Support to Research: The National Agricultural Research System (NARS) sub-component will be implemented by the KS. The thematic working group (TWG) set up under ASCU to look at wider issues in agricultural research and extension, will continue to bring input from KARI, other Government and commodity research institutions, and universities, to deliberate on how best to organize and implement an integrated NARS. The NARS task force and its sub-committees will be re-constituted and will continue to work with the guidance from the TWG on research and extension. The KARI part of the Research component will be implemented by KARI under the guidance of the ICC and ASPSC. 12. Component 3 - Extension and Farmer/Stakeholder Empowerment: The Extension and Farmer Empowerment sub-component will be implemented by three ministries- Agriculture, Livestock Development, and Fisheries Development, through the KS and the RSUs at the regional/district level. The Extension task force, set up under the National Forum during KAPP, along with the DACs (through their interaction with the

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farmers/stakeholders during the District Farmers Fora) will continue to bring inputs from private and civil society service providers, and any others interested in, or able to make a contribution toward improving extension services in Kenya. Universities, commodity organizations, NGOs, and private input suppliers are members of the National Forum. Some of the component activities will be undertaken by KENFAP, private sector and commodity specific umbrella bodies, as identified by the KS, following the setting of farmers/ stakeholders’ priorities at the District Farmers Fora, and their adoption by the technical staff (e.g. District Agricultural Officer, District Livestock Development Officer) at RASSSC meetings. Capacity building activities will be undertaken at both the district/regional and national levels. The District Farmers’ Fora will help determine which organizations are best placed to deliver specific capacity building interventions in the districts. 13. Extension Services of Sector line Ministries at local and district level will provide leadership for the implementation of the NASEP framework towards sector-wide coordination of extension activities. Under the leadership of ASCU, the sector line Ministries will strengthen their regulatory functions by establishing a regulatory framework and quality standards for demand-driven agricultural service delivery in close cooperation with key sector stakeholders. The Ministry of Cooperative Development and Marketing will provide leadership and coordination for activities supporting cooperatives, in close collaboration with national and regional organizations of the cooperatives movement. 14. Under the coordination of the KS and the regional Project coordination units, respectively, the implementation modalities for the proposed sub-components are specified as follows: Subcomponent Implementation 3.1.a Extension local

Competitive contracting of public and private service providers (training, advisory and other support services) – To be contracted by the Regional Coordination Unit (up-to mid-term review) and thereafter aligned on Government decentralized structure (DAO, DLO, etc.).

Micro-projects Managed by CIGs that will contract support services as per micro-project implementation plan (A farmer grant manual will specify all the details).

3.1.b Extension national Extension services of sector line Ministries, coordinated by ASCU; Private extension/support service providers.

3.2. Farmer and other stakeholders empowerment

KENFAP: knowledge/organizational strengthening at all levels Ministry of Cooperative Development and Marketing; and, Competitive contracting of service providers (training, advisory and other support services).

15. Component 4 - Agribusiness and Market Development: The implementation of this component will be coordinated by the KS together with the agribusiness departments in the line ministries. An agribusiness specialist will be seconded to the KS from the implementing agencies for day to day coordination of the component activities. The component will be implemented through partnerships with public sector institutions (e.g. Universities and research institutes), development partners, Non-governmental and community based organizations, private sector players involved in agribusiness including private agro-processing companies, commercial banks and other financial intermediaries. Producer business groups (PBGs) will be formed from common interest groups at community level as vehicles for agribusiness development.

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16. The setting up of the overall agribusiness component will be spearheaded by Agribusiness Component Task Force under KS. Membership to this task force will be drawn from MoFD, MoLD, KARI, JKUAT, UoN, MoA, KNFC, MoCMD and other relevant stakeholders. The task force will operate only for the first 18 months to set-up the structures of the agribusiness component. The task force will report to the ASPSC through the KS, which will offer secretarial services. The ASPSC will draw the TORs for the task force and make appointment of the members. At the regional level, the Agro-Industry & Marketing Committees (AIM), a sub-committee of the regional steering committee, will be established to spearhead and offer guidance on the implementation of this component. The AIM sub-committee will be established in each region and constituted of seven members distributed as follows: farmer associations, regional MoA/MoLD/MoFD representative of the relevant VC, from the Agribusiness Development Directorate, from the local Authority, from local agro-industries (SMEs, Cooperatives, marketing infrastructures), from research and from non-public extension service providers. The members of these committees will be appointed by the ASPSC upon recommendation made by the KAPAP Secretariat. The Chairperson will be selected from the representatives of the private sector. This committee will play a leading and consultative role in the implementation of the agribusiness component; it will meet once every two months in each region to advise and follow-up the project implementation. The roles of these regional committees are to: (i) assist the project in selecting the Service Provider who will take the responsibility of setting up the ABDC; (ii) validate the appraisal of the selected VC in the region; and, (iii) validate the VC development plan and set the priorities on which the project should focus. The regional AIM sub-committee will be linked to the national Agribusiness task force and will feed into the national process through RSUs and KS. The RSU coordinator shall be the secretary to the regional steering committee and AIM sub-committee. .

17. Component 4.2 will be implemented by the KS with technical support from the Rural Electrification Authority (REA) and the Ministry of Energy. The KS will carry overall responsibility for implementation of the sub-component, as well as aggregation of key administrative information according to World Bank guidelines. REA will ensure compliance with national technical and legal requirements; and a commercial bank will be involved to review financial and business viability of investment proposals. An Implementation Specialist will be contracted (on a need basis) for day-to-day implementation and management of the sub-component on behalf of Ministry of Agriculture and KS.

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70

Annex 7: Financial Management and Disbursement Arrangements KENYA: Kenya Agricultural Productivity and Agribusiness Project

I. Background 1. The World Bank conducted a Financial Management (FM) Assessment of the Ministry of Agriculture (MoA) on January 21, 2009. IDA intends to provide a credit to the Kenya Government under the Kenya Agricultural Productivity and Agribusiness Project (KAPAP). This will be Phase II of an APL. The Kenya Agricultural Productivity Project (KAPP - Phase I) closed in December 2008. MoA will have overall fiduciary responsibility over the funds as the lead implementing agency, and will be accountable for the Project funds. However, MoA will use the former KAPP Project Team (KAPAP Secretariat - KS), which will be mainstreamed within GoK structures, to execute KAPAP. 2. The objective of the assessment is to determine: (i) whether the entity has adequate financial management arrangements to ensure Project funds will be used for purposes intended in an efficient and economical way; (ii) Project financial reports will be prepared in an accurate, reliable and timely manner; and, (iii) the entity’s assets will be safely guarded. The FM assessment was carried out in accordance with the Financial Management Practices Manual issued by the Financial Management Sector Board on November 3, 2005. II. Executive Summary 3. The Assessment revealed that MoA has adequate FM capacity and experience to implement the Project. The Project Team (KS) is already in place and consists of a National Project Coordinator, five technical specialists, four accountants (all with Certified Public Accountancy (CPA) qualifications and over five years experience), a Procurement Officer, and two internal auditors (CPA qualification and over five years experience). This Team successfully implemented the KAPP Project which at the date of closing of December 31, 2008, had disbursed 100 percent of the US$40 million (Credit US$27 million and Grant US$13 million). This Team (KS) will be retained to manage the KAPAP Project. The funds flow procedures are also satisfactory. The Grant component of KAPP was a community-based (CDD) component dealing with farmers in 20 districts in Kenya. The same districts have now been sub-divided into 59 districts to be covered by the KAPAP. KS has developed comprehensive FM and Grant Manuals (for the CDD components). KS has an accounting computer package (Fimpronet) which is deemed adequate. The internal control systems are deemed adequate and the management oversight is effective. The MoA Ministerial Audit Committee is properly constituted in line with Treasury Circular No.16 of 2005 (on setting up of oversight committees), and is deemed to be effective. The budget process through the Ministries of Agriculture and Finance is deemed to be adequate. The KAPP Phase I Project has fully complied with the Bank’s FM covenants, submitted the quarterly Financial Management Reports (FMRs - required at the time) within the stipulated 45 days, and addressed the issues raised by the Bank. KAPP Phase I management also submitted the audit reports and management letters for the year ended June 30, 2008 by December 31, 2008, as required, and are in the process of addressing the audit issues raised. 4. However, challenges were noted in the community grant (CDD) component of the KAPP Project with regard to the accountability of the funds. As with all Kenya CDD projects, funds are deemed to be accounted for at the time of disbursement by the Project and not when the community receives, spends and accounts for the funds. Hence at the time

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KAPP closed on December 31, 2008, Project funds were disbursed and shown to have been properly accounted for, but subsequent FM Supervision reviews revealed that in some cases the beneficiary communities had not received the funds. Some of the funds were still held by intermediaries, including NGOs. There were also delays in completing community level procurement activities. The contracts for the district project accountants (who were hired from the private sector) expired on December 31, 2008, at the time the project closed. These accountants left before the Project had received accountability for the funds disbursed. In order to address the above concerns, the following FM conditions are proposed for KAPAP:

• The Farmer Grant Manual should be revised, in a manner satisfactory to IDA, to capture accountability for community funds at the time the community receives, spends and accounts for the cash, and also provide for stronger management supervision (at least 30 percent verification of CDD component funds) and enhanced social accountability arrangements. Clearance of this revised FM Manual by the IDA is a condition of Project Effectiveness.

• Treasury to designate 20 “regional” project accountants at the headquarters of the former 20 districts covered under KAPP, one for each KAPAP region, to cover the Project area. The MoA should send a copy of the Treasury letter indicating the names of the nominated “regional” project accountants ahead of Project Effectiveness.

• An in-depth audit review of KAPP Phase I Project, farmer grant funds is being conducted by the Kenya National Audit Office and the report is expected to be submitted by June 30, 2009 to the bank upon which, corrective measures will be taken to address any accountability issues.

5. In view of the noted CDD challenges, the overall risk rating of the main implementing entity has been assessed as Substantial. The FM arrangements will continue to be monitored throughout Project implementation. Following the implementation of agreed risk mitigation measures by MoA, its residual risk rating is assessed as Moderate. III. Country Financial Management Issues 6. The most recent piece of diagnostic work that provides up to date information on the country’s public financial management (PFM) system is the Country Integrated Fiduciary Assessment (CIFA, draft September 2006). The assessment, together with the current Country Assistance Strategy (CAS) that became effective in May 2004, reviewed Government’s performance since the last Country Financial Accountability Assessment (in 2001) and CAS (in 1998). The CIFA adopted the PEFA performance measures framework as a guiding reference to diagnose the key challenges facing policymakers, report on recent progress, and outline priority areas for attention. 7. The CIFA highlighted that Government has progressively put in place a new set of laws and regulations to strengthen the PFM system. The Government enacted in 2005 the Public Procurement and Disposal Act, which provides for an independent Public Procurement Oversight Authority (PPOA). Parliament also passed legislation establishing an independent Auditor General’s Office, and was expected to debate new legislation which will give the body a stronger role in the preparation of the budget. The capacity of the Government to manage public finances has also been strengthened. Over the past two years, the budget preparation process has been substantially reformed. This has led to a reorientation of budgetary allocations towards investment in infrastructure and delivery of services to the poor. It has also led to the more direct participation of stakeholders in

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reviewing policy choices prior to finalization of the budget. Budget reporting has also improved both through technical changes in the way the budget is presented and through a dramatic reduction in the audit backlog for central government operations. It is expected that these reforms will enable the parliament’s Public Accounts Committee to play a more effective role in reviewing Government expenditures and the concerns raised by these audits, thereby increasing the strength of parliamentary oversight.

8. However, significant challenges remain. Substantial areas of Government spending are not properly scrutinized. A number of ministries returned funds to the treasury, underscoring weaknesses in budget implementation and procurement across the public sector. While good progress has been made in addressing the backlog of audits of central government operations, local authorities have yet to produce audited accounts, raising concerns that corruption at this level remains unchecked. 9. Through its Public Financial Management Reform Strategy, Government remains committed to strengthening fiduciary safeguards with a view to achieving economy, efficiency and effectiveness in the use of public funds. With the support of a number of development partner-assisted initiatives, including the IDA-funded Institutional Reform and Capacity Building Project (IRCBP), Government is seeking to rapidly enhance the financial accountability framework, particularly through strengthening legislation related to public financial accounting and audit. 10. Other country-level FM risks arise from the country’s overall governance environment, a weak judiciary and corruption concerns. The Government has prepared a governance action plan that has been implemented and is being monitored. The Government has also mandated the setting up of independent oversight committees, especially the audit and finance sub-committees for public bodies. 11. On the Bank-financed portfolio, project implementation has generally been slowed down by constraints in the flow of resources and limited absorptive capacity arising from bureaucratic processes. Government is committed to improving portfolio performance. In the last couple of years, agreements have been reached on several key issues in the context of Country Portfolio Performance Reviews and other discussions. These include actions to improve audit compliance, closer monitoring of Project performance by MOF and improvements in the flow of Project resources, although significant improvements still need to be done. 12. The findings of Government commissioned forensic audits of selected projects in the country portfolio (November 2004 and June 2005) include the following financial management related issues: (i) projects were generally not controlled using a balancing general ledger system that was fully integrated and regularly reconciled with the rest of the government’s central accounting system; (ii) project designs did not identify fraud risks and fraud risk management was not an integral part of each project; (iii) senior government oversight of the projects was weak; (iv) management accounts and project quarterly reports reflect levels of activity but did not necessarily identify major issues on which corrective action can be taken; and, (v) lessons learned and best practices were not shared among similar projects or passed into the wider Government structure. Discussions are on-going between the Bank and Government to address these issues at portfolio level. IV. Project FM Arrangements

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A summary of the key findings is set out below. Budgeting 13. Budgeting for the Project will be undertaken by MoA, in coordination with other implementing agencies, and approved by the Ministries of Agriculture and Finance as per the existing Government Regulations. Detailed cost tables will be prepared and approved for the Project. The budgeting for the IDA funds will be done as part of the MoA annual budgeting process which is deemed adequate. Accounting 14. MoA has overall fiduciary responsibility over the Project. However, the former KAPP Project Team will form the KAPAP Secretariat (KS) and will be responsible for implementation of the Project. The accounting systems are deemed adequate and accounts will be prepared in accordance with International Public Sector Accounting Standards. KS has developed comprehensive FM and Grant Manuals (for the CDD components). KS has an accounting computer package (Fimpronet) which is deemed adequate. However, challenges were noted in the community grant (CDD) component of the KAPP Project with regard to the accountability process for the funds. As with all Kenya CDD projects, funds are deemed to be accounted for at the time of disbursement by the Project and not when the community receives, spends and accounts for the funds. Hence at the time KAPP closed on December 31, 2008, Project funds were disbursed and shown to have been properly accounted for, but subsequent FM Supervision reviews revealed that substantial amounts had not even reached the beneficiary communities. Most of the funds were still held by intermediaries including NGOs. There were also delays in completing community level procurement activities. To address this issue, it was necessary to review the Financial Management Manual for the project which would be a condition of effectiveness.

Staffing 15. KS has adequate FM capacity and experience to implement the Project. The Project Team is already in place and consists of a National Project Coordinator, four Technical specialists, four accountants (all with CPA qualifications and over five years’ experience), a Procurement Officer and two internal auditors (CPA qualification and over five years’ experience). This Team has been with KARI managing various projects (including Bank-funded projects) for over five years, and has undergone several capacity building trainings with the World Bank. However, the district project accountants, who were hired under KAPP, left in December 2008 on expiry of their contracts. In order to address the staffing gap for this Project, it will be necessary for Treasury to designate 20 “regional” project accountants at the headquarters of the former 20 districts covered under KAPP, one for each KAPAP region, to cover the Project area. The MoA should send a copy of the Treasury letter indicating the names of the nominated “regional” project accountants as a condition of Project Effectiveness. Internal Controls 16. Project Financial Management and Grant Manuals: KARI (as the main implementing agency under KAPP phase I) developed the Project FM and the Grant Manuals which were used for implementation of the KAPP Project. However, these Manuals will be amended as explained under ‘Accounting systems’ as a condition of Project Effectiveness. There is an effective internal audit function with two internal auditors (CPA qualifications and over five years’ experience) who report to the Audit Committee and are deemed to be

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independent. The approval and authorization controls over payments are deemed sufficient. A fixed assets register is maintained and regularly updated. The fixed assets are adequately insured. There is adequate segregation of duties in the accounts section. Audit Committee 17. The Audit Committee is properly constituted in line with Treasury Circular No.16 of 2005 (on setting up of oversight committees), and is deemed to be effective. Institutional Risk Management Policy Framework (IRMPF) 18. Treasury has issued Circular No.3/2009 which makes it mandatory for all public institutions in Kenya to develop and implement the IRMPF. This is spearheaded by the Internal Audit Department of the Treasury. The IRMPF includes developing robust social accountability arrangements such as:

• Public disclosure of information regarding: (i) activities funded under the Project; (ii) periodic resource appropriation and accountability; (iii) Project implementation progress and operational results; and, (iv) sharing of best practice experiences amongst beneficiary entities. These are expected to be prominently disclosed, including through the local media (FM radios and local magazines), and posting Project reports at prominent places in the district such as market places and Chief’s offices (in local vernacular languages); and,

• Complaint handling mechanisms: Reporting hotlines, including toll free communication lines, and other complaint handling mechanisms are expected to be established/strengthened with explicit arrangements for collation of information, follow-up action and public reporting. It is proposed that collation and follow-up responsibilities are vested in Internal Audit and overseen by the Ministry’s Audit Committee.

Financial Reporting 19. Interim Financial Reports (IFRs): MoAs’ accounting system would be used to generate quarterly unaudited IFRs in form and content satisfactory to the Bank. These IFRs will be submitted to the Bank within 45 days after the end of the quarter to which they relate. The quarterly IFRs will be used as a basis for the disbursement. KS has demonstrated its ability to prepare and use IFRs under the report-based FMR method of disbursement under KAPP Phase I. All the FMRs, up to and including that for the September 30, 2008 calendar quarter, have been prepared and submitted to the Bank within the stipulated deadline and were deemed to be of good quality. 20. Contents of the IFR: The IFRs will capture only those funds disbursed through the existing country FM system. The IFR will consist of a statement of sources and uses of funds (by main expenditure classifications); opening and closing balances of the funds from the Bank; and actual and budgeted expenditures, by component and/or activity within each component and explanations of any variances, for the quarter and cumulatively for the Project. It will also contain forecasts for the next six months. The format of the IFR will include an age analysis of funds disbursed to each district/community level in order to track unaccounted advances such that appropriate measures can be undertaken to follow up and recover the accountabilities. The formats of the IFR were agreed between the Bank (IDA) and MoA at Negotiations.

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Audit Arrangements 21. Annual Audited Financial Statements: KAPP Phase I submitted the audit reports and management letter up to the year ended June 30, 2008, within the December 31, 2008 deadline. The annual audit is conducted by the Kenya National Audit Office (KENAO) which is considered to be sufficiently independent and acceptable to the Bank. The Special Account Opinions for both the KAPP Grant and Credit were unqualified (clean reports). However, the financial statements’ opinions for the Grant and Credit were qualified on the grounds that the Special Account statements reflected amounts of US$3,462,726.82 and US$4,726,519 under amounts withdrawn and not claimed for the Grant and Credit, respectively, but the relevant supporting documents had not been submitted to Ministry of Finance by the financial year end. The management letter highlighted certain internal control weaknesses, which were not considered material. KARI is in the process of addressing these audit issues amongst which, the recovery of the total amount of US$8,189,245.82 is a condition of effectiveness. GoK’s Treasury and the Bank have agreed on a format of financial statements reporting based on Cash Basis of Accounting of the International Public Sector Accounting Standards (IPSAS). 22. Audit Completion Timetable: KS has committed to a clear timetable for the completion of the annual audit and the submission of the audit report and management letter. The audit reports to be submitted are summarized below:

Audit Report Due Date Project Financial Statements (including IFRs and Designated Accounts with appropriate notes and disclosures) prepared for the financial year ended June 30 of every year.

By December 31 each year.

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23. In order to meet the above deadlines, KS has committed to the following timetable: No. Activity Date 1. Completion of Project financial statements. July 31 every year. 2. Invitation of Auditors. First week of

September. 3. Audit exercise. September and

October. 4. Issuance of Management Letter. October 31. 5. KS to respond to management letter queries from the auditors. By mid November 6. Issuance of Draft Audit Certificate. By end of

November 7. Issuance of Final Audit Certificate. December 15. 8. Submission of copy of audited financial statements, auditors

report (including Designated Account Opinion) and management letter to the Bank.

Before December 31, each year.

Flow of Funds and Disbursement Arrangements 24. Disbursement Method: The Project shall adopt the report-based method of disbursement by use of quarterly IFRs. 25. Funds Flow Arrangements: The IDA funds will be deposited in a dollar denominated Designated Account opened by the Recipient in a local commercial bank, acceptable to IDA, and will subsequently be transferred to a local currency denominated Project account in a local commercial bank, acceptable to IDA, under MoA. These bank accounts shall be maintained in accordance with Government procedures and the World Bank disbursement procedures and policies. MoA will have overall fiduciary responsibility over the funds as the lead implementing agency and will be accountable for the Project funds. However, all transfer of funds and payments under the Project will be made through KS. KARI will receive funds through MoA/KS, and be responsible for implementing the KARI sub-component. Therefore, KARI and other agencies implementing various components will open segregated bank accounts in local commercial banks to receive and spend funds from MoA/KS. Both the Designated Account and the Project Account for MoA/KS will be opened by the Recipient before Project Effectiveness. 26. Funds Flow Diagram: The funds flow process can be depicted diagrammatically as follows:

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27. Bank Signatories: The Designated Account and the Project Accounts will be operated under the existing Government Financial Procedures and Regulations issued by GoK’s Treasury. The DA will have signatories designated by Treasury while the Project Account will have signatories designated by MoA. Project Operating Accounts - One local currency project operating account will be opened, to be operated by the KAPAP secretariat. The operating account will form the primary source of financing for the Project. Project Sub-accounts and Region/District Project Accounts - KARI and every region (for the districts within it) will open a local currency project account with a commercial bank, to be operated by the authorized signatories. This will form the primary source of financing for Project activities to be implemented at the respective regions/districts and KARI. 28. Accounts will have two mandatory signatories. The categories of signatories are as follows: Category 1: Accounting Officer The PS, MoA, as the Accounting Officer or his designated representative; and, Category 2: Project and Accounts Department Staff:

• The National Project Coordinator; • The Principal Accounts Controller (PAC); or • Any one of the four designated accountants in the Ministry.

Any two signatories can sign a cheque for making payments for the Project, or a letter of instruction to the bank for transfer of funds to another implementing agency (IA). Each IA (including RSUs) will be required to maintain a similar procedure for Project related expenditures. 29. IDA Disbursement methods:

• Report- based Disbursements: IDA disbursements will be made into the respective Designated Account based on quarterly IFRs which would provide actual expenditure for the preceding quarter and cash flow projections for the next 2 quarters. Initial cash flow forecasts upon which the advance disbursement will be made from the IDA Credit should be prepared within one month after the Date of Effectiveness. A duly authorized Withdrawal Application for the additional cash replenishment required by the Project will be provided along with the IFRs. The IFR, together with the Withdrawal Application (WA), will be reviewed by the Bank’s Financial Management Specialist (FMS) and approved by the Task Team Leader (TTL) before the request for disbursement is processed by the Bank’s Loan Department.

• Other Methods: In addition, whenever needed, the direct payment method of disbursement, involving direct payments to suppliers for works, goods and services upon the borrower’s request, may also be used. Payments may also be made to a commercial bank for expenditures against pre-agreed special commitments. These payments will also be reported in quarterly IFRs. The IDA Disbursement Letter will stipulate the minimum application value for direct payments and special

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commitments, as well as detailed procedures to be complied with under these disbursement arrangements.

30. Remedies for non-compliance: If ineligible expenditures are found to have been made under the Project, the borrower will be obligated to refund the same. If the Project Accounts remain inactive for more than six months, IDA may reduce the amount advanced. IDA will have the right, to be reflected in the terms of the Financing Agreement, to suspend disbursement of the funds if significant conditions, including reporting requirements, are not complied with. V. Summary of Strengths and Weaknesses 31. The major strengths of the Project financial management system are:

• The Project team in KS has past experience in implementing Bank-funded projects. • MoA has well qualified professionals in the financial management and internal audit

functions. • Project FM arrangements for the Ministry are well integrated into the existing MoA

FM systems. • Strong audit arrangements are in place, including audit by the KENAO.

32. Areas of weaknesses that need to be addressed and monitored are:

• Possible disbursement and accountability challenges at community level. These will be addressed using enhanced social accountability structure, annual review of at least 30 percent of the communities in the districts and tracking of community funds using age analysis in the IFRs. FM Manual to be amended to strengthen community level FM arrangements, designation of 20 regional project accountants by Treasury, and conducting an in-depth audit review of KAPP Phase I community funds as a condition of effectiveness.

• Country/portfolio level issues that will likely impact on this Project resulting into funds flow delays. However, the Government has agreed to conduct six monthly risk-based internal audit reviews of Bank projects, starting from June 2009.

33. Actions to address these weaknesses have been discussed in preceding paragraphs and are summarized in the ‘FM Action Plan’.

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34. The analysis of the FM assessment is as follows: Type of Risk Risk

Rating Brief Explanation Risk mitigating

measures incorporated into project design

Condition of Effectiveness (Y/N)?

Residual Risk

Rating INHERENT RISKS

Country Level S Takes into account overall country governance environment, weak judiciary and corruption concerns, and current political crisis arising from the general election in December 2007.

Issues are being addressed at the country level through the country’s governance action plan, strengthening of the public financial management system (supported by the Bank through the Institutional Reform and Capacity Building Project).

No S

Entity Level M MoA is well established and has adequate capacity to manage Bank funded projects.

No M

Project Level M Project design relatively simple. However, accountability concerns at community level due to weak FM arrangements.

Clearly defined activities and funds flow mechanisms, and regular monitoring.

No M

OVERALL INHERENT RISK

S S

CONTROL RISKS

Budgeting M Budget system deemed adequate for purposes of the Project.

Detailed project budgets and cost tables to be prepared and agreed. Regular reporting including variance analysis.

No L

Accounting S KS (or KS/MoA) accounts office well staffed; FM and Grant Manuals developed and implemented under KAPP; and accounting computer system installed which will be used by KAPAP. However, staff capacity concerns at district/ “regional” level. Community funds under KAPP not fully accounted for.

KAPP Project Team to implement Project. FM Manual to be amended to strengthen community level fiduciary arrangements. Treasury to designate 20 “regional” project accountants. In-depth review of KAPP project planned for community funds not accounted for.

No Yes, condition of effectiveness Yes, condition of effectiveness Dated covenant

M

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Type of Risk Risk Rating

Brief Explanation Risk mitigating measures incorporated into project design

Condition of Effectiveness (Y/N)?

Residual Risk

Rating Internal Controls

S Internal audit section adequately staffed and internal controls assessed as adequate. Audit Committee properly constituted and deemed effective. However, accountability concern for community level funds.

Current KAPP internal auditors to be assigned to the Project. IFR format to track community funds not accounted for using age analysis. Annual review of 30 percent of the communities/ beneficiaries. FM Manual to be amended.

No No. IFR format agreed at negotiations. No Yes, condition of effectiveness

M

Funds Flow M Funds flow process relatively simple with funds being managed by MoA. However, possible delays in community level disbursement.

Clearly defined activities and funds flow mechanisms.

No

L

Financial Reporting

M KS has been preparing and submitting FMRs and audited financial statements on a timely basis to the Bank, in form and content satisfactory to the Bank.

Format of IFR were agreed between Bank and KS during negotiations

No

L

Auditing S Audit reporting arrangements deemed adequate. However, financial statements’ audit reports for KAPP Phase I for FY08 qualified on unsupported expenditures at community level of US$8.2 millions that needs to be accounted for or paid to the Bank.

Commitment by the KS to a clear timetable of actions to ensure timely audit reports. KAPP audit issues to be accounted for or paid to the Bank as a condition of effectiveness.

Yes. Condition of effectiveness to recover US$8.2 millions.

M

OVERALL CONTROL RISK

S M

OVERALL RISK

S M

H = High; S = Substantial; M = Moderate; L = Low.

VII. Financial Management (FM) Action Plan

35. The action plan below indicates the actions to be taken and the dates by which the actions are due to be completed, as well as the person(s) responsible for the specific actions. The FM Action plan has been discussed and agreed with MoA/KS:

Action Date due by Responsible 1. Agree formats for quarterly, unaudited Interim Financial

Reports. Agreed at negotiations. KS/MoA

2. The FM Grant Manual should be revised in a manner satisfactory to IDA to capture accountability for community funds at the time the community receives, spends and accounts for the cash and also provide for stronger management supervision (at least 30 percent verification of CDD component funds), and enhanced social accountability arrangements. Revised Manual to be cleared by IDA.

By Project effectiveness. KS/MoA

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Action Date due by Responsible 3. An in-depth audit review of the KAPP Project CDD grant is

being conducted by the Kenya National Audit Office and the report is expected to be submitted to IDA by June 30, 2009. Corrective action will be taken to address any issues arising related to accountability of funds.

June 30, 2009 MoA

4. Treasury to designate 20 “regional” project accountants, one for each KAPAP region, to be covered by the Project. The MoA should send a copy of the Treasury letter indicating the names of the nominated regional project accountants.

By Project effectiveness. MOF (Treasury and MoA)

5. KAPP Project accountability documents regarding the unaccounted US$8,189,245.82 shown in audit report for 30 June, 2008 be provided to the Kenya National Audit Office (KENAO) for validation, and where accounted for, KENAO should communicate to the Bank or refund be made to the Bank for the amount of US$8,189,245.82.

By project effectiveness. MoA

6. Open Designated and Project Bank Accounts. Within one month after project effectiveness.

MoA/other IAs

7. Submit audit reports to the Bank (including Designated/Special Account Opinion) and management letters for the Project.

Within 6 months after the end of the relevant financial year end (by December 31).

MoA/KS

8. Prepare and submit Withdrawal Applications for reimbursement of funds together with the quarterly IFR in form and content satisfactory to the Bank.

Within 45 days after the end of the quarter to which these relate.

MoA/KS

VIII. Financial Covenants 36. These are described in the Financing Agreement and they relate to the following:

• Financial Management Arrangements: The Ministry is required to ensure the continuing adequacy of financial management arrangements over all aspects of the Project until it is completed. In this regard, MoA shall ensure that a financial management system is maintained in accordance with the provisions of Section 2.07 of the IDA Standard Conditions.

• Interim Financial Reports (IFRs): The MoA shall ensure that quarterly, unaudited IFRs are prepared and submitted to the Bank as stipulated.

• Financial Statements and Audit Report: The MoA shall prepare Financial Statements for the Project for every financial year as herein stipulated, in form and substance acceptable to the World Bank.

IX. Implementation Support Plan 37. Based on the outcome of the financial management risk assessment, the following implementation support plan is proposed:

FM Activity Frequency

Desk reviews Interim financial reports review. Quarterly. Audit report review of the program. Annually. Review of other relevant information such as interim internal control systems reports.

Continuous as they become available.

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On site visits Review of overall operation of the FM system. 2 times a year

(Implementation Support Mission).

Monitoring of actions taken on issues highlighted in audit reports, auditors’ management letters, internal audit and other reports.

As needed.

Transaction reviews (if needed). As needed. Capacity building support FM training sessions. Before project start and

thereafter as needed. 38. The objectives will include that of ensuring that satisfactory financial management systems are maintained for the Project throughout its life.

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Annex 8: Procurement Arrangements KENYA: Kenya Agricultural Productivity and Agribusiness Project

A. Procurement Environment

1. The public procurement system in Kenya covers all government entities such as the central government, local authorities, state corporations, education institutions and other government agencies that purchase goods, works and services using public resources following the public procurement law; i.e. the Public Procurement and Disposal Act of 2005 (PPDA), which came into effect in January, 2007, replacing the Exchequer and Audit Act (Public Procurement) Regulations, 2001. Section 8 (1) of the Act established a central Public Procurement Oversight Authority (PPOA) in addition to the Public Procurement Department established under the Regulations (2001) in the Ministry of Finance. The PPOA was officially launched by the Minister of Finance in June 2008. The Act sets out the rules, procedures and institutional arrangements that the public entities should follow in the management of public procurement. Further, the Act provides mechanisms for enforcement of the law. The PPOA provides oversight function in monitoring compliance with rules and procedures in the Act. However, the Procurement Act contains provisions which are not consistent with the Bank’s Procurement Guidelines and Consultants’ Guidelines. The provisions are listed in paragraph 7 of this Annex. 2. Under the provisions of the Public Procurement and Disposal Act 2005, the Public Procurement Oversight Advisory Board and the Public Procurement Administrative Review Board were created to assist the authority discharge its duties. These bodies have been in operation since 2001. In addition, all public procuring entities are required to set up a Procurement Unit, and Procurement Tender and Inspection and Acceptance Committees to be responsible for implementation of the procurement process of the procuring entities. The Accounting Officers of the procuring entities, together with their established committees, are responsible and accountable for the procurement decisions of their entities. 3. In Kenya, public procurement accounts for over 70 percent of public funds expenditure (excluding staff emoluments, debt servicing and other statutory payments). The major challenge in Kenya today is to ensure that public procurement systems and processes are streamlined so as to provide for efficiency, economy and transparency, and further promote fair and equal treatment to all. As an interface between the public and the private sectors, public procurement provides multiple opportunities for both public and private actors to divert public funds for private gain. 4. Given that public procurement is a major economic activity of GoK and that it has considerable financial interest due to the volume of transactions that it attracts, there is a need to maintain an appropriate degree of accountability and transparency to reduce risks to integrity while pursuing other aims of public procurement. The law and supplementing procurement regulations aim at ensuring that public resources are used in accordance with the intended purposes, procurement officers’ exercise due diligence and are professionally accountable in their duties. In addition, they provide for putting systems in place that make it possible to challenge public procurement decisions, ensure accountability and promote public scrutiny. 5. To promote transparency and accountability in public procurement decisions, the Procurement Law has put in place specific provisions for administering security-related

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procurement that has hitherto been vulnerable to corruption. This is in addition to other complementary legal requirements such as the anti-corruption and Economic Crimes Act (ECA), which in 2003 created the Kenya Anti-Corruption Commission as an independent body corporate, tasked with the responsibility of fighting corruption, recovery of assets acquired through corrupt practices, and public education and awareness on corruption. The body is accountable to Parliament and the Kenya Anti-Corruption Advisory Board. The board members are drawn from civil society, professional bodies, trade union movement and religious bodies, who are vetted by Parliament before appointment by the President. Also in existence is the Public Officers Ethics Act which provides for Codes of Conduct and Ethics for all public officers to enhance professionalism and prevent risks to integrity in the Public Sector. Performance Contracts with the Permanent Secretaries, accounting and senior officers in government institutions, introduced in 2004, incorporate anti-corruption measures within the organizations as part of the monitorable aspects for performance assessment. These contracts have (i) improved performance, and (ii) reduced incidents of corruption in public procurement. 6. Under the Governance Action Plan, GoK has included the implementation of the following procurement reform actions which are at different stages of implementation:

• Enhancing transparency and information symmetry in bidding process and contracts

implementation by requiring all agencies to publish information on all contracts required by law on a functional Government website which is accessible to the public.

• Pre-qualification of companies interested in bidding for government contracts and the updating of these schedules on a yearly basis to avoid conflict of interest.

• Establishment of a mechanism for evaluation, vetting, disqualification and debarring of errant companies from participating in government procurement processes.

• Development of a website and implementation of e-procurement.

7. PPOA has set out the following additional actions:

• Prepared and distributed to all agencies and government ministries a price reference guide for 576 commonly procured items in the public sector to reduce risks of overpricing and collusion, pursuant to the provisions of Clause 30 (4) of the Act. However, the proposed annual review of the price schedule may be inappropriate given the volatility of prices for raw material inputs for goods and works in the country.

• Developed and piloted a tool for measuring compliance with the procurement law within all public entities.

• Developed a strategic risk assessment and mitigation matrix. • Published all decisions made by the Administrative Review Board on public

procurement for public information. • Produced several National Standard Bidding Documents (SBDs). However, the use

of these National SBDs may be allowed with the exception of the following provisions of the Public Procurement and Disposal Act:

(i) PPDA 55(2): instead, the tender submission date shall be set so as to allow a period of at least 30 days from the earlier of (A) the date of advertisement, and (B) the date of availability of the tender documents.

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(ii) PPDA 4(2) (c): instead, Recipient's Government-owned enterprises shall be allowed to participate in the tendering only if they can establish that they are legally and financially autonomous, operate under commercial law and are not a dependent agency of the Recipient's Government. (iii) The Recipient shall use, or cause to be used, bidding documents and tender Documents (containing, inter alia, draft contracts and conditions of contracts, including provisions on fraud and corruption, audit and publication of award) in form and substance satisfactory to the Association. (iv) PPDA 61(4): instead, extension of tender validity shall be allowed once only, and for not more than thirty (30) days, unless otherwise previously agreed in writing by the Association. (v) PPDA 66(3) (b): instead, evaluation tender shall be based on quantifiable criteria expressed in monetary terms as defined in the tender documents. It shall not be based on a merit points system. (vi) PPDA 39: instead, no domestic preference shall be used in the evaluation of tenders. Therefore, as a result of the non application of PPDA 66(3)(b) and 39, contracts shall be awarded to qualified tenderers having submitted the lowest evaluated substantially responsive tender. (vii) PPDA 67: instead, notification of contract award shall constitute formation of the contract. No negotiation shall be carried out prior to contract award. (viii) PPDA 91: instead, Shopping procedure will apply for each low value contract, in lieu of Direct Procurement, except as otherwise previously agreed in writing by the Association. (ix) Regulations 47: instead, the two envelope bid opening procedure shall not apply.

B. Procurement Arrangements

8. Bank Guidelines: Procurement under the Project would be carried out in accordance with the World Bank's “Guidelines: Procurement under IBRD Loans and IDA Credits” dated May 2004, revised October 2006 (referred to herein as the Procurement Guidelines) and “Guidelines: Selection and Employment of Consultants by World Bank Borrowers” dated May 2004, revised October 2006 (referred to herein as the Consultant Guidelines) and the provisions stipulated in the Legal Agreement. All contracts to be procured on the basis of ICB shall use Bank’s Standard Bidding Documents (SDBs) and all consulting services shall use the Bank’s Standard Request for Proposal (RFP). 9. Use of National Procurement Procedures: All contracts, other than those to be procured on the basis of ICB, and consulting services shall follow the procedures set out in the Public Procurement and Disposal Act of 2005. The Act has been reviewed by the Bank and found to be acceptable except for the provisions listed in paragraph 7 of this Annex, which will not be applied under this project. Under NCB, the Bank’s standard bidding documents for goods and works shall be used with appropriate modifications.

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10. The general descriptions of various items under different expenditure categories are described below. For each contract to be financed by the Credit, the different procurement methods or consultant selection methods, the need for pre-qualification, estimated costs, prior review requirements, and time frame would be agreed between the Borrower and the Bank in the Procurement Plan. The prior review and procurement method thresholds indicated below are intended for the initial Procurement Plan. The Procurement Plan will be updated at least annually, or as required, to reflect the actual project implementation needs and improvements in institutional capacity. 11. Scope of Procurement and Applicable Procurement Methods: The implementation of the Project entails procurement of various types that comprise: (a) construction and rehabilitation works; (b) goods (i.e. vehicles, computer hardware and software, stationery, office equipment and furniture, farm inputs, laboratory equipment and supplies, etc.); (c) consulting services (i.e. reviews, studies, monitoring and evaluation, audits, etc.); and, (d) training and workshops. The project implementing agency/agencies would be responsible for procurement management. 12. Procurement of Civil Works (estimated to cost US$2.18 million equivalent): The Project will finance: (a) construction of KARI center at Garissa, a NARS reference center, agribusiness centers and parks; and. (b) repairs/maintenance of offices and laboratories, all works with a total estimated cost of US$ 2.1 million equivalent. All of these activities will be carried out under contracts to be award through NCB procedures. 13. Procurement of Goods (estimated to cost US$8.8 million equivalent): Goods procured under this Project will include vehicles, computer hardware and software, stationery, office furniture, etc. Depending on their cost estimates, contract packages may be procured competitively under either International Competitive Bidding (ICB), Limited International Bidding (LIB), National Competitive Bidding (NCB) or Shopping methods. 14. Direct contracting for goods: Direct contracting may be an appropriate method under the following circumstances:

• Where an existing contract for goods, awarded in accordance with procedures acceptable to the Bank, may be extended for additional goods of a similar nature. The Bank shall be satisfied in such cases that no advantage could be obtained by further competition and that the prices on the extended contract are reasonable.

• Where there is need for standardization of equipment or spare parts, to be compatible with existing equipment, may justify additional purchases from the original Supplier. For such purchases to be justified, the original equipment shall be suitable, the number of new items shall generally be less than the existing number, the price shall be reasonable, and the advantages of another make or source of equipment shall have been considered and rejected on grounds acceptable to the Bank.

• Where the required equipment is proprietary and obtainable only from one source. • Where a Contractor responsible for a process design requires the purchase of critical

items from a particular Supplier as a condition of a performance guarantee. • In exceptional cases, such as in response to natural disaster.

15. Procurement of non-consulting services: Non-consulting services, which are services that are not of intellectual or advisory in nature, will include distribution of supplies

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from central-level procurement to the districts, workshops, and IT services. The procurement of non-consulting services shall follow the existing SBDs with appropriate modifications. 16. Selection of Consultants (estimated to cost US$15.5 million equivalent): Consulting services under the project will include audits, technical assistance, monitoring and evaluation, studies, etc. All consulting services will be procured following the procedures set out in the Guidelines for the Selection and Employment of Consultants by World Bank Borrowers. Consultancy services by firms may be procured competitively through Quality and Cost Based Selection (QCBS), Least-Cost Selection (LCS), or Consultant Qualifications Selection (CQS) methods. Individual Consultants (IC) will be selected on the basis of their qualifications by comparison of qualifications of at least three candidates from those expressing interest in the assignment, or those approached directly by the Implementing Agency. Single-Source Selection (SSS) would be applied only in exceptional cases if it presents a clear advantage over competition when selection through a competitive process is not practicable or appropriate, and would be made on the basis of strong justifications and upon Bank’s concurrence to the grounds supporting such justification: (a) for tasks that represent a natural continuation of previous work carried out by the firm; (b) in emergency cases, such as in response to disasters and for consulting services required during the period of time immediately following the emergency; (c) for very small assignments; or (d) when only one firm is qualified or has experience of exceptional worth for the assignment. Short List of consultants may be comprised entirely of national consultants in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines. 17. Training and Workshops (estimated to cost US$18.6 million equivalent): All consulting and non-consulting services identified under the training program will be procured using the appropriate methods described in this document. 18. Operating Costs (estimated to cost US$15.5 million equivalent): Operating costs will be procured using the Borrower's administrative procedures, acceptable to the Bank. 19. Bank’s Review Thresholds: The Borrower shall seek World Bank prior review in accordance with Appendix 1 of both Procurement and Consultant Guidelines for contracts above the thresholds as agreed in the Procurement Plan. For purposes of the initial Procurement Plan, the Borrower shall seek the Bank’s prior review for: (i) goods valued at US$500,000 equivalent and above per contract; (ii) all consultancy contracts for services to be provided by consulting firms of US$200,000 equivalent and above; (iii) for individual consultants, contracts estimated to cost the equivalent of US$100,000 or more; (iv) all direct contracting and single source selection contracts regardless of their value; and, (v) annual training plan. In addition, the first two contracts for the procurement of goods below the ICB threshold will also be subject to prior review. These prior review thresholds may be reviewed annually and any revisions based on reassessment of the implementing agencies’ capacity will be agreed with the Borrower and included in an updated Procurement Plan.

20. All other contracts would be subject to post-review and procurement audit by the Bank. The implementing agencies would maintain proper and accurate records of all procurement activities and documents related to the Project. The procurement files would be maintained for review by the Bank’s supervision missions and independent auditing, including consolidating procurement activities into Quarterly and Annual Progress Reports.

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21. Procurement Plans: A draft procurement plan for the first 18 months of the project implementation shall be submitted during appraisal. The final procurement plan will be provided and agreed at negotiations. The procurement method and prior review thresholds indicated in Table 2 (below) should be reflected in the Procurement Plan. The plan will be available at PIEs’ offices and also be available in the Project's database and in the Bank's external website. The Procurement Plan will be updated in agreement with the Bank annually, or as required, to reflect the actual project implementation needs and improvements in institutional capacity. 22. The Procurement Plans would be posted in the Bank’s external website. The “Actual” column of the procurement plan would be updated regularly so as to reflect progress made on each contract package, to include any new packages that were not foreseen at the time of preparing the plan, and to reflect any packages that are no longer required. The management of the implementing agency would, at the end of each fiscal year, review the performance of the execution of its procurement plan, so as to determine the proportion of the plan achieved each year. C. Assessment of the Project’s Procurement Capacity 23. KAPAP will be implemented by the Ministries of Agriculture (MoA), and Livestock Development (MoLD), Ministry of Fisheries Development (MoFD), Ministry of Co-operative Development and Marketing (MoCDM) and the Kenya Agricultural Research Institute (KARI). KARI is a semi-autonomous body under MoA. The four ministries have not implemented Bank-funded operations for more than a decade, and hence the knowledge and experience of their procurement units in Bank procurement procedures is limited. KARI has a long experience in implementing Bank-funded projects, the latest being the Kenya Agricultural Productivity and Lake Victoria Environmental Management projects which closed in December 2008 and December 2002, respectively. Because of procurement staff turnover, KARI’s procurement capacity is rudimental. Therefore, the overall procurement risk of the Project is assessed as “high”. D. Procurement Risk Mitigation Measures

24. Key risks and the agreed mitigation measures are summarized below: 25. Table 1: Procurement Risks and Recommended Mitigation Measures applicable under all the five Project Implementing Entities (PIEs).

Assessment Risk Item Assessed

Null/poor/fair/ satisfactory

Major weaknesses (Aspects where procurement risk is low is excluded from the matrix)

L/M/S/H (*)

Actions Proposed Proposed Completion Date

A. Procurement Unit Capacity 1. Procurement capacity (Professional Knowledge and Experience in procurement procedures).

Poor

• Lack of experience in Bank projects and procurement procedures.

• Lack of professional knowledge and practical experience in the procedures for hiring consultants, or procuring specialized or high value goods.

High • Organize a training workshop at the Bank’s Kenya Country Office for all procurement staff of the implementing agencies (for at least a full day).

• Procurement staff who would be directly involved in procurement implementation of the Project to be trained through the regional training

• Training at the Country Office to be conducted as soon as possible.

• The Formal Training to be conducted as soon as possible.

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Assessment Risk Item Assessed

Null/poor/fair/ satisfactory

Major weaknesses (Aspects where procurement risk is low is excluded from the matrix)

L/M/S/H (*)

Actions Proposed Proposed Completion Date

• Procurement staff in the PIEs have limited formal training in Bank procurement.

institutions in procurement of goods and works, and the selection and employment of consultants (ESAMI and GIMPA).

• PIEs shall require the services of an experienced procurement consultant for at least 6 months.

• Procurement Consultant engaged prior to Credit effectiveness.

2. Sustainability of existing capacity and/or capacity built during project implementation.

Poor Procurement Units of line ministries are staffed with personnel seconded by MOF for short periods usually not exceeding 3 years; too frequent transfers of personnel hampers capacity growth and thus perpetuates delays in procurement implementation.

High • Once procurement staff is trained, retain them throughout the Project implementation period. If transfers are inevitable, ensure that no vacuum exists in the PIEs throughout project implementation.

• Request secondment to MoA and MoLD etc of dedicated procurement staff for project duration.

• To be confirmed

• Prior to Credit effectiveness.

3. Number of Procurement Staff.

Poor • Additional procurement staff is needed.

High • Recruit a procurement consultant for at least 6 six months.

As soon as possible.

B. Operational Procurement Procedures and Documents

1. National Procurement Procedures.

Fair • Unacceptable provisions in GoK Public Procurement and Disposal Act (2005) and associated regulations and procedures which contain deviations from Bank’s Guidelines.

Substantial • Incorporate exception provisions in the Financial Agreement.

Project negotiations

2. SBD for NCB contracts.

Fair • National SBDs have been produced on the basis of the Public Procurement and Disposal Act (2005). However, they have not been cleared by the Bank.

Substantial • The SBD is subject to Bank clearance.

• Bank’s SBDs should be used in the meantime.

As soon as possible. Review of the first NCB contract under PIE.

3. RFP for Selection of Consultants.

Poor • National Standard RFP documents based on the Public Procurement and Disposal Act (2005) are in use. However, they have not been cleared by the Bank.

High • Subject to the National SRFP document clearance by the Bank.

• Bank’s SRFP Documents should be used in the meantime.

As soon as possible. Review of the first two consultancy contracts.

C. Procurement Process Administration and Contract Management 1.Procurement Planning

Null • Procurement Plans developed annually for budget purposes, but not project specific or updated regularly.

High • Update procurement plan and monitoring by project

Throughout project implementation.

2. Process Administration.

Poor • Delays in procurement process decisions common in public sector.

• Advertising of small dollar requirements

High • Set up service standards for completion of procurement process decisions and a compliance monitoring system.

• PIEs to ensure consistency

As soon as possible.

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Assessment Risk Item Assessed

Null/poor/fair/ satisfactory

Major weaknesses (Aspects where procurement risk is low is excluded from the matrix)

L/M/S/H (*)

Actions Proposed Proposed Completion Date

inconsistent due to cost.

• Inconsistent application of clarifications with bidders.

• Apparent occasional interference and delays with bid evaluation process by associated committees.

and utilize other methods such as free access website.

• PIEs to ensure compliance with clarification process during procurement process.

• Compliance of committee to process required and conduct awareness workshops for committee members.

3. Contract Management.

Null • Poor contract management or lack of capacity in contract administration, monitoring and evaluation.

• Access to contract data not easily available to PIEs across other Ministries.

High • Embrace sound contract management practices with monitorable outputs.

• Should look to future integration of data by electronic means with MIS.

Throughout project implementation.

4. Approval processes.

Fair • The two level approval processes leads to accountability problems and may result in delays in processing of contracts and payments.

Substantial • Set up tracking, monitoring and reporting approval mechanisms for all procurement processes.

• Reduce duplication of effort in payment verification process between approval levels.

Immediately

5. Office Space. Satisfactory • Constrained office, store and record storage space hampers effective operational and procurement processes.

Low • Allocate adequate office space for procurement staff.

Immediately

6. Record Keeping of procurement documentation.

Poor • Procurement documents filed under various subject files are kept in different office locations within same procurement entity.

• Very little electronic data which is manually entered.

Substantial • Procurement filing to be carried out on a contract by contract basis and in one central location.

• Should look forward to electronic entry. i.e. scanning, etc.

Immediately

D. Auditing Processes

1. Procurement Audit.

Fair • Apart from the Bank Procurement Post Reviews (PPRs), GoK has not been carrying out procurement audits.

Moderate • The Public Procurement Oversight Authority to conduct procurement audits in addition to Bank’s PPRs.

Throughout the Project implementation period.

*Risk levels: High (H), Substantial (S), Moderate (M), Low (L)

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E Procurement Plan

I. GENERAL Project information: KENYA: Kenya Agricultural Productivity and

Agribusiness Project Project ID No: P109683 Project Implementing Entities (PIEs):Ministry of Agriculture (MoA), Ministry of Livestock Development (MoLD), Ministry of Fisheries Development (MoFD), Ministry of Co-operatives Development and Marketing (MoCDM), Kenya Agricultural Research Institute (KARI), and Kenya National Federation of Agricultural Producers (KENFAP). Bank’s approval date of the Procurement Plan: April 29, 2009 Date of General Procurement Notice: XX-XX-2009 Period covered by this procurement plan: First 18 months II. Goods and Works and non-consulting services 1. Prior Review Threshold: Procurement Decisions subject to Prior Review by the Bank as stated in Appendix 1 to the Guidelines for Procurement: Procurement Method Prior Review Threshold 1. ICB and LIB(Goods) >=500,000 2. ICB and LIB (Works/Supply &

Installation of Plant & Equipment)

>=5,000,000 3. ICB (Non-Consultant Services) >=500,000 4. NCB 3 contracts under each PIE 5. Direct Contracting All values 6. Force Account All values 7. Shopping None 8. Established Private or Commercial

Practices >=500,000

2. Prequalification: N/A.

3. Reference to (if any) Project Operational/Procurement Manual: N/A. 4. Procurement Packages with Methods and Time Schedule 1. Goods, Works, and Consulting Services Project information: KAPAP Project ID No. P109683 Project Implementation Entity (Lead agency): MOA Banks approval date of the Procurement Plan: April 29, 2009 Date of General Procurement Notice: XX-XX-2009

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Period covered by this procurement plan: 18 Months

Ref No. Contract Package

Estimated Cost USD(000)

ProcurementMethod

Domestic Preference (Yes/No)

Review By Bank (Prior/ Post)

ExpectedBid Opening Date

Supply of Goods 1 Motor

Vehicles 1,023.75 ICB No. Prior 11.11.09

2. Computer Items

1,838.91 ICB No Prior 11.11.09

3. Laboratory Equipment

823.3 ICB No Prior 11.11.09

III. Selection of Consultants

1. Prior Review Threshold: Selection decisions subject to Prior Review by Bank as stated in Appendix 1 to the Guidelines for Selection and Employment of Consultants:

Selection Method Prior Review Threshold(*) 1. Competitive Methods(Firms) >=200,000 2. Single Source (Firms) All Values 3. Consultants Individuals >=100,000

(*) TORs of all contracts shall be cleared with the Bank.

2. Contracts for which shortlists may consist exclusively of local consultants pursuant to the provisions of paragraph 2.7 of the Consultants’ Guidelines will be determined in the Procurement Plan based on of their nature and availability of firms in the local market.

3. Any Other Special Selection Arrangements: N/A. 4. Consultancy Assignments with Selection Methods and Time Schedule

Consultancy Services: Ref. No.

Description of Assignment

Estimated Cost US$ (000)

Selection Method

Review by Bank (Prior / Post)

Expected Proposals Submission Date

1 Develop Sector ESMF 254 QCBS Prior 11/09/2009

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Annex 9: Economic and Financial Analysis KENYA: Kenya Agricultural Productivity and Agribusiness Project

1. Introduction 1. The economic analysis of the KAPAP follows recommendations for good practices in the World Bank and is based on experiences with similar projects in other regions. The analysis is structured as follows: (i) a brief summary of general issues for economic analysis of agricultural research, extension, and agribusiness projects; (ii) a brief review of returns to past investments in agricultural research and extension projects worldwide with particular emphasis on East Africa and on Kenya; (iii) economic and financial analysis; (iv) sensitivity analysis by varying key assumptions of important variables; and, (vi) a fiscal analysis focusing on the implications on public expenditures. 2. Economic and Financial Analysis of Agricultural Research, Extension and Agribusiness Projects 2. The Good Practice Notes “Ex-Ante Economic Analysis in AKIS Projects - Methods and Guidelines” (Horstkotte-Wesseler et al., 2000), “A Meta-Analysis of Rates of Return to Agricultural R&D” (Alston et al., (2000), and “Monitoring and Evaluation for World Bank Agricultural Research and Extension Projects” (Rajalahti et al., 2005) review issues to be considered for economic analysis of agricultural research and extension (R&E) projects. The particular challenges to conduct an economic analysis of agricultural R&E projects include: (i) the natural uncertainty of research outcomes and technology adoption and difficulties in establishing timetables for technology development and dissemination; (ii) the difficulties of capturing the diverse objectives of R&E projects, such as poverty reduction, natural resource conservation, food security, export promotion, economic growth, and reduction of social conflicts; (iii) the problems related to cause-and-effect attribution of impact due to diverse external factors (e.g. rural credit institutions, input supply systems, product marketing systems; macro-economic policies), which are outside of direct project control; (iv) the lack of reliable national data to make sound estimation; and, (v) limited knowledge to predict future benefit and cost flows inherent in ex ante analyses. Some studies occasionally fail to attribute an appropriate portion of R&D overhead (including the costs of associated basic R&D) to the particular projects being evaluated, or they omit components of effort involved in the development and extension phases of a project. Overstatement of benefits arises, in particular, from not counting the effects of private sector R&D and not counting the effects of spillovers of technology from other places (states, countries, or institutions) and attributing all the gains in productivity to only a subcomponent of the total relevant R&D spending. 3. The good practice notes emphasize that the calculation of a single summary measure should not be the major objective of the economic analysis of R&E projects because it is usually subject to a wide range of assumptions. Rather, the mainstreaming of economic analysis into a process of evaluating costs and benefits for more efficient resource allocation within the R&E system should be the priority. Moreover, rather than estimating IRR or benefit-cost ratio with several underlying assumptions, such as on adoption and input-output relationships, a useful exercise done in previous studies is to look for minimum productivity gains or benefit streams to breakeven. Sensitivity analyses are intensively used to assess the robustness of the estimates and conclusions about economic viability of the investment.

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4. Another common practice is looking at the financial and economic analysis of project subcomponents, rather than assessing the impact of the whole project. However, in many instances, several components contribute to one common measurable indicator. For example, the investments for research and extension (R&E) are very much interrelated and they lead to increases in farm productivity and income, which are being measured in this analysis. While their costs are easy to disaggregate, the benefits to farmers would be much harder to estimate. The analysis used below assumes a compounding effect of these two types of investment in influencing productivity of selected commodities targeted in KAPAP. 5. Adding to the complexity is a large share of resources in R&E projects being allocated to policy institutional development. This policy and institutional development component is an essential part of R&E investment so that potentially high returns are realized. Farmer and stakeholder empowerment are not usually part of R&E investments in past projects, but this component would potentially add to ensuring that agriculture services provision and related institutional development are in place to effect yield increases, technology and good management practices adoption, and farmers’ income. For these reasons, the costs for these two components are added to the R&E costs in determining the minimum net benefit stream, in terms of productivity increases, from the project. 6. There is only one component that was not included in this estimation which is the agribusiness component. As it is designed, this component lays down infrastructural and institutional foundations for greater value adding and agro-processing and does not directly affect farm productivity. The measurement and analysis on the viability of the agribusiness component are also difficult. In theory, a way to measure this is to look at the amount of employment or income generated as a result of the project in relation to the second best alternative of people impacted by the subproject (“without” project scenario). Determining this without project scenario is a difficult exercise especially in ex ante analysis context due to data intensiveness. Past studies have not attempted to measure the impact of the project or subproject on capacity building and institutional strengthening as this is inherently difficult to measure. An illustrative Cost Benefit Analysis (CBA) is often carried out for private agricultural enterprise models, which frequently represent the “typical” or average or enterprise size, in the project’s primary intervention areas. Given the wide variations in terms of geographical coverage and enterprise-specific differences occurring within the production systems, the enterprise models are indicative and often underestimated, and thus do not capture upstream and downstream linkages and value chain development. Another useful exercise to measure the impact of agribusiness development is quantifying the increase in price and produce to be marketed through the developed value chains. This would entail assumptions of price increase in improved value chains and percentage of produce that will be channeled through the improved value chains. A critical point to be considered is the measurement of consumption at home versus produce marketed. The analysis done here assumes that produce consumed at home is still valued at market prices. 7. Lastly, there are several measures of IRR: nominal versus real; social versus private; average versus marginal; and financial versus economic. Based on the meta study done by (Alston et al., 2000), past studies used different types of IRR depending on data availability and the purpose of the analyses. Due to considerations given on time dimension by using discount factors, the estimated IRR for KAPAP is not adjusted for inflation and, therefore, is in nominal rather than real terms. Externalities (environmental, institutional strengthening, capacity building, and social impacts) are not measured and thus

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private IRR are estimated. Average IRR are estimated rather than marginal IRR, which are data intensive and more applicable for comparing several discrete alternative technologies. Marginal analysis involves a stepwise manner from a lower-cost technology to the next higher-cost technology, and comparing marginal rates of return to acceptable minimum rates of return. The rule is: a producer should invest in the costlier technology as long as the marginal rate of return (in switching from a lower-cost technology to a higher-cost technology) is greater than the minimum acceptable rate of return. Lastly, both financial and economic IRR are calculated. The latter excludes transfers (such as subsidies, taxes, etc.) in the estimation and attempts to measure economic profitability using opportunity costs or economic prices rather market prices. 3. Returns to Past Investments in Agricultural Research and Extension Projects 8. Many ex post economic analyses have shown high rates of return to investments in agricultural R&E (about 40-60 percent on the average). The most comprehensive review of literature was conducted by Alston et al. (2000).27 The study reviewed 292 studies (including extension) reporting 1,858 estimates of returns on investments in agricultural research and development. After eliminating extremes, the report found that the remaining 1,852 estimates indicated an average return of 81 percent per year. These results confirm the conventional view that returns on investments in agricultural research and development are relatively high. Returns averaged 99.6 percent on investments in research alone, 84.6 percent on extension alone, and 47.6 percent on R&E combined. The report argues that the lower estimates for R&E combined might be because the corresponding studies captured more of the total costs of the technology innovation process. No evidence was found of declining rates of return in recent years and little consistent difference among regions. However, the estimated rates of return tended to be lower in Africa (average return of 50 percent) and West Asia-North Africa (average return of 44 percent) than in Latin America and the Caribbean (average return of 53 percent) or particularly Asia (average return of 78 percent). The average return in developed countries was estimated to be 98 percent and in developing countries 60 percent. Rates of returns were similar across all research categories except for natural resource research where lower rates of return were mainly due to the longer production cycle. 9. A recent study by Alene and Coulibaly (2008)28, using polynomial distributed lag structure for agricultural research within a simultaneous system of equations framework, demonstrates that agricultural research in Sub-Saharan Africa (SSA) has an impressive aggregate IRR of 55 percent (or 45 percent simple average across the focus countries). The elasticity of productivity with respect to agricultural research is 0.38, implying that a 1 percent increase in agricultural research expenditures increases productivity by 0.38 percent. The elasticity of GDP per capita with respect to productivity is estimated at 0.95, indicating that a 1 percent increase in productivity leads to an almost equivalent 1 percent growth in per capita incomes. The poverty elasticity of per capita GDP is 0.60, implying that a 10 percent growth in per capita incomes - brought about largely through agricultural productivity growth - reduces poverty by as much as 6 percent.

27 Source: J.M. Alston, C. Chan-Kang, M.C. Marra, P.G. Pardey and T.J. Wyatt, A Meta-analysis of Rates of Return to Agricultural R&D: Ex Pede Herculem, International Food Policy Research Institute, Washington, DC, USA. 2000. 28 Arega D. Alene and Ousmane Coulibaly. 2008. “The impact of agricultural research on productivity and poverty in sub-Saharan Africa,” Food Policy (Article in Press).

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10. The estimated aggregate IRR of 40-60 percent is generally in agreement with past evidence on the returns to agricultural research and extension in the developing world in general, and in SSA in particular. According to the World Development Report 2008 (World Bank, 2007), agricultural research and extension investments have driven agricultural productivity growth and have had high returns in all developing regions, including SSA. Consistent with this view, a meta-analysis of about 700 studies on agricultural research and extension investments in developing countries has shown an average IRR of 60 percent, with a comparable 50 percent IRR for SSA alone (J.M. Alston, C. Chan-Kang, M.C. Marra, P.G. Pardey and T.J. Wyatt, A Meta-analysis of Rates of Return to Agricultural R&D: Ex Pede Herculem, International Food Policy Research Institute, Washington, DC, USA (2000) - Alston et al., 2000). Maredia et al., (2000)29 reviewed available evidence of research impact in Africa and concluded that the rates of return on individual commodity research and extension investments have been in the range of 30-40 percent. Overall, the evidence points to high rates of return on investments in agricultural research and extension in SSA. 11. Payoffs to agricultural research investments are generally greater for larger countries. The estimated IRR range from 5 percent for Lesotho and 14 percent for Botswana to 47 percent for Kenya (slightly higher than the 45 percent simple average across countries) and 82 percent for Ethiopia. It is argued that small countries in Africa are unable to exploit the increasing returns associated with technology generation (Thirtle et al., 2003).30 The lower returns on investments in the smaller countries are generally consistent with the view that the smaller countries in Africa are unable to exploit the increasing returns associated with technology generation. On the other hand, the high returns for larger countries, such as Kenya or Ethiopia, are due to high productivity gains attributable to sustained national research investments with modest research capacity, long term CGIAR operations, and regional technology spillovers. A possible factor that would explain why Ethiopia has higher overall IRR than Kenya is the difference in the types of commodities in the research portfolio, which potentially have different IRR. Nevertheless, IRR on agricultural R&E for Kenya remains high and there is no reason to expect that economic returns in Kenya would be substantially below the high levels reported consistently in most analyses. 12. In terms of commodity choices, a recent study by IFPRI and ASARECA31 points to priority commodities that would maximize the benefits for Kenya in terms productivity growth, agro-ecological potential and income generation. These commodities include maize, sorghum, wheat, banana, mango, pulses, poultry, sheep, beef, dairy, and aquaculture. Based on previous studies, IRR for varietal improvement research on wheat in Africa, after accounting for the share of CIMMYT’s cost on wheat research, is estimated to be about 23 percent, with lower rates of return for Kenya for periods 1921-90. Past estimates of IRR on maize research in SSA range from 44-135 percent, while estimates of IRR on maize research in Kenya for periods 1955-88 range from 40-60 percent. A recent ex-ante IRR estimation of dairy research in Kenya indicates it is 32 percent (for Kenya alone) and 38 percent (with spillover effects on Ethiopia and Tanzania).32 These examples indicate high returns on

29 Source: Maredia et al., 2000 M.K. Maredia, D. Byerlee and P. Pee, Impacts of food crop improvement research: evidence from sub-Saharan Africa, Food Policy 25 (2000), pp. 531–559. 30 Source: Thirtle et al., 2003 C. Thirtle, L. Lin and J. Piesse, The impact of research-led agricultural productivity growth on poverty reduction in Africa, Asia and Latin America, World Development 31 (12) (2003), pp. 1959–1976. 31 Source: “Strategic Choices and Research Priorities for the ASARECA Sub-Region” (Full Document) (2008) and “Survey of Agricultural Research Priorities at the National and Sub-regional Levels” (2008). 32 Based on the ex-ante cost-benefit analysis for the East Africa Agricultural Productivity Project (EAAPP).

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investment on agricultural research and extension in these selected commodities and there is no reason to expect that economic returns for these commodities in Kenya would be substantially below the high levels reported consistently in most analyses. 4. Economic and Financial Analysis 13. This section is divided into two parts. First, it uses the “minimum national impact” assessment, which finds the minimum annual growth rate in farm yields (across full area cultivated) to have an IRR of 14 percent (break even point), assuming a certain proportional increase in farm costs due to use of more inputs as a result of extension service or training. This method is often used to identify the “minimum incremental benefit stream”, which would justify the proposed investment in agricultural research and extension (including components on policy and institutional development and farmer and stakeholder empowerment). Second, it uses the “indicative enterprise models” to assess the financial and economic viability of sub-projects, from the beneficiaries’ perspective. 4.1. Minimum National Impact Basic Assumptions Target commodities: 14. The analysis focused on several commodities: maize, sorghum, wheat, banana, mango, pulses, poultry, sheep, beef, dairy and aquaculture. These are identified as priority commodities by the ASARECA-IFPRI study. There is a possibility that new research and new extension approaches on these commodities can also benefit others, but this was not included in the estimations. As a result, it is likely that economic analysis results are on the conservative side. Production benefits 15. Two scenarios were looked at. First scenario: the incremental returns from increasing yield of farms were calculated net of farm costs increases. This would give the incremental net benefit stream of the investment in terms of increase in agricultural productivity. While the project is being implemented in 59 districts, the impact is being evaluated in terms of its impact on national indicators such as increases in national agricultural productivity, net of increases in input costs. As such, percentage increase in yield and percentage increase in farm costs were applied to national total production value and applied across full area cultivated to derive the incremental returns. Almost all improvements in productivity come about from an increase in farm costs, due to the increase in the quantity or quality of purchased inputs (improved seed, more suitable fertilizers, better targeted pesticides) or an increase in labor inputs (to improve soil preparation prior to planting, to plant earlier, monitor for pests, etc.). Due to limited data on total cost of production, several assumptions were made and sensitivity analyses were employed to test the robustness of the estimates and conclusions. The weighted average of the total cost of production relative to total value of production of available representative farm budgets (maize, bean, banana, and dairy) was calculated to be about 70 percent. Assumptions used by similar context in past studies (such as the Ethiopia-NAEP2) on the ratio of the increase in farm yield to increase in farm costs were 2:1. This is then equivalent to the assumption that the increase in farm costs is a third (1/3) of the percentage yield increase. Incremental on-farm costs are then 30 percent of the incremental on-farm benefit stream. For example, if yield increase is by 1 percent per year; farm costs are assumed to increase by 0.5 percent as a

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ratio of total costs, or by 0.3 percent as a ratio of production value; and thus total net benefits for farmers (in aggregate) is 0.7 percent of the value of production annually. 16. Second scenario: The full productivity or yield increase was used as the incremental net benefit stream with the assumption that the increased farm costs resulting from increased use of inputs would benefit input suppliers, and thus would still count as incremental benefit from the investment. 17. In both scenarios, it is assumed that benefits accrue across 20 years (based on other studies and economic analyses on R&E done in the past (e.g. National Agricultural Extension Project-Phase 2 (Tanzania); Kenya Agricultural Productivity Project; West Africa Biotechnology Project; and East Africa Agricultural Productivity Project). One-year lag of benefits is assumed, i.e., benefit stream will start in Year 2. 18. One major off-farm benefit from the R&E project is the income generation and value generation from processing. Due to limited data, these off-farm benefits were not calculated, and the analysis remains to be underestimated because of these unaccounted benefits. There are other benefit streams related to the project’s activities, which are difficult to quantify at this stage, thus they were not considered in the economic and financial analysis (e.g., improved quality and efficiency of agricultural and food production, enhanced management and negotiating skills of rural producers, and long run institutional strengthening of farmer organizations). Prices: 19. Producer prices were used. Average of 2006 and 2007 producer prices (farm-gate prices) were used as collected from the FAOSTAT. Input-output price relationships are not varied. Both market and economic prices were used to calculate the financial rate of return (FRR) and economic rates of return (ERR). Off-farm costs: 20. The project’s total annual cost (until Year 5) (excluding the agribusiness component as explained earlier) was used as the off-farm cost of investment. This includes matching grants from national and local governments and from farmers’ groups. The cost to maintain the project in an annual basis is assumed to be the same as the Year 5 expenditure. It does not incorporate the costs of developing germplasm, derived from CGIAR centers, that would be utilized and disseminated in Kenya. Depending on the size of this borrowed germplasm or varieties, the analysis is likely to be overestimated. The analysis also does not include the policy and institutional development and research initiated by KAPP and other previous agricultural productivity projects in Kenya. This may be underestimating the cost or overestimating the benefits of KAPAP investment. Baseline Scenario (“without project” case): 21. It is assumed that the average production in recent years would provide an appropriate “without project” scenario. Average national production value of each of the focus commodities for 2006-2007, based on FAOSTAT database, were used as baseline. Incremental benefit streams were computed by applying the percentage increase in yield (and in farm costs) to these baseline or “without project” data. 22. Results. The financial analysis shows that to obtain a rate of return of 14 percent on the proposed off-farm investment in agricultural research and extension (including

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component on policy and institutional development and on farmer and stakeholder empowerment), it is sufficient to generate farm yield increase of 0.07 percent every year, or 8.9 percent accumulative incremental net benefits or net increases in productivity over 20 years compared to baseline. This is equivalent to 0.44 percent average annual increases in productivity (net of farm cost increases) compared to baseline. Note here that the accumulative incremental net benefit for 20 years is not a simple calculation of the annual percentage increase in yield (i.e., 0.07 percent) multiplied by the number of years (i.e., 19 years due to 1-year lag of benefit stream). Rather, the increased value of production each year here is compared to the “without project” scenario and not the previous year’s production. This makes the percentage increase in incremental benefits much higher than 0.07 percent every year, with geometric progression across the years. If farm cost increases are not accounted for, the required yield increase every year is 0.047 percent, compared to baseline, to break even (or to get the required minimum of 8.9 percent accumulative incremental net benefits over 20 years, or 0.44 percent required average annual increases in productivity). 23. In terms of economic values, the required minimum impact is 0.06 percent yield increase every year (or 7.6 percent accumulative increase in productivity over 20 years, or 0.38 percent increase in productivity per year compared to baseline). If farm cost increases are accounted for, the required yield increase every year is 0.047 percent, compared to baseline, to breakeven (which is a minimum of 8.9 percent accumulative incremental net benefits over 20 years or 0.44 percent average annual increases in productivity). If farm cost increases are not accounted for, the required yield increase every year is 0.04 percent, compared to baseline, to break even (or to get a required minimum of 8.9 percent accumulative incremental net benefits over 20 years or 0.44 percent average annual increases in productivity). Due to the adjustment on the underestimation of market prices relative to its economic values, required levels under economic analysis are much lower than the financial analysis. Sensitivity analyses were performed, but the analyses and conclusions for both financial and economic analyses remain robust. Note that these benefits are not across all of agriculture GDP; and are confined to a selection of commodities. Nevertheless, a major part of the AgGDP is this set of selected commodities, and thus one can compare the productivity gains with what are internationally reported. Findings for KAPAP suggest a much lower required level than other estimates. In many countries, expected productivity gains from agricultural R&E of between 0.5 to 1.5 percent per year of AgGDP have been reported. 24. KAPP Phase 1 was able to reach about 200,000 farmer-beneficiaries. Assuming that the project would scale up the extension efforts and double the number of farmer-beneficiaries (400,000), a simple calculation indicates that investment is justified if the project is able to generate US$59 dollars per farmer-beneficiary average per year of incremental revenue (or US$39 per farmer-beneficiary average per year of incremental net income). With an average net income of US$300-400/person/year, the incremental would mean an increase of about 11 percent per year. This seems a reasonably attainable minimum impact required. 25. A few representative farm budgets (maize, bean, and banana) were adopted to provide indications on the impact of the project on farmers’ net income. Using local versus improved maize variety and increasing the level of fertilizer application (four different levels of application were used as various scenarios), average incremental net income “with project” is about US$153 per hectare per year or 57 percent of baseline net income (maize); US$286 per hectare per year or 67 percent of baseline net income (beans); and US$792 per

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hectare per year or 83 percent of baseline net income (banana). These are indicatively large compared to the minimum required increase in net income estimated above (i.e., 11 percent). For maize, using the representative crop budget incremental net income and given a total area planted in 8 relevant regions (Rift Valley, Nyanza, Eastern, Western, Coast, Central, Northeast, and Nairobi) of 1.6 million hectares, the project will have a total increment benefit stream through increases in net income of US$122 million per year (assuming that 50 percent of total area will be planted with improved variety and using new management practices), or US$61 million per year (assuming that 25 percent of total area will be planted with improved variety and using new management practices). Average annual project cost (approximately US$18.5 million) would have been already recovered by increases in the net income of maize farmers alone. For beans, given a total area planted of 0.846 million hectares in 8 relevant regions, the project will produce a total incremental net income of US$121 million per year (assuming that 50 percent of total area will be planted with improved variety and using new management practices), or US$60 million per year (with a conservative assumption that 25 percent of total area will be planted with improved variety and using new management practices). For fruits, given a total area of 59,500 hectares planted, and using the incremental net income from the banana crop budget, the project will provide a total incremental net income of US$24 million per year (assuming that 50 percent of total area will be planted with improved variety and using new management practices), or US$12 million per year (with a conservative assumption that 25 percent of total area will be planted with improved variety and using new management practices). 26. Sensitivity Analysis. If the increase of farm costs, primarily due to increased use of inputs, is increased from a third to half of the incremental increase in the value of production, the minimum incremental benefits which result from farm yield increase by 0.093 percent per annum over the 20 year economic life of the Project. The analysis indicates that investment is justified if the Project is able to generate US$78.66 dollars (or KSh 6,210) per farmer-beneficiary average per year of incremental revenue to generate the same level of net income to lead to an IRR of 14 percent. This is about 22 percent of the “without project” net income, which is much lower than the estimated incremental revenue (as a percentage of net income), which is more than 100 percent for all the three sample crop budgets. These indicate that analysis and conclusions are robust and that the required minimum incremental benefits from the investment are very small and will very likely be attained by the project, and thus, investment is justified and potentially viable. 4.2 Indicative enterprise models (for agribusiness component) 27. The benefits for the agribusiness component are more complex as KAPAP is laying down the infrastructural and institutional foundation for value chain development. Measurable impacts of this component will come from an assumed increase in produce to be marketed rather than consumed at home, and increases in output price received by farmers due to formation of value chain with core; and with corresponding assumption of the percentage of production that will be channeled through organized value chains in selected provinces. These estimates will likely underestimate the true benefits from the institutional market development since capacity strengthening and spillover to other non-target provinces are not included. More comprehensive assessment will be done during the KAPAP Phase 3, when the full implementation of agribusiness component will be done. The basic assumptions for each of the commodities considered are available in the project files.

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28. Results. The financial analysis indicates an IRR on investment in agribusiness development of 84 percent or NPV of US$2.11 billion for 20 years at IRR of 14 percent (Table 1). Economic analysis shows an IRR of 85 percent or NPV of US$2.45 billion for 20 years at IRR of 14 percent. The agribusiness component proves to be an economically and financially viable investment for the country. Table 1. Cost-benefit analysis of Agribusiness component (financial analysis)

Year Cost-Agribusiness

component (US$ million)

Total Benefits*

(US$ million)

Discount factor

Discounted benefit (in US$

million)

Discounted cost (in US$

million)

2009 6.15 0.00 1.00 0.00 6.15 2010 3.98 17.22 0.86 14.81 3.42 2011 4.73 125.05 0.74 92.49 3.50 2012 3.72 175.75 0.64 111.79 2.37 2013 1.58 327.03 0.55 178.89 0.86 2014 1.58 365.83 0.47 172.10 0.74 2015 1.58 404.09 0.40 163.48 0.64 2016 1.58 444.86 0.35 154.78 0.55 2017 1.58 488.28 0.30 146.10 0.47 2018 1.58 534.52 0.26 137.55 0.41 2019 1.58 583.71 0.22 129.18 0.35 2020 1.58 636.05 0.19 121.05 0.30 2021 1.58 691.69 0.16 113.21 0.26 2022 1.58 750.83 0.14 105.69 0.22 2023 1.58 813.67 0.12 98.50 0.19 2024 1.58 880.40 0.10 91.66 0.16 2025 1.58 951.26 0.09 85.17 0.14 2026 1.58 1026.46 0.08 79.03 0.12 2027 1.58 1106.25 0.07 73.25 0.10 2028 1.58 1190.88 0.06 67.82 0.09

NPV (US$) 2115.47

IRR 14.00 NPV=0 at IRR=84%

*Includes aquaculture, beef, poultry, maize, wheat, beans, fruits, and milk in selected pilot provinces.

5. Fiscal analysis 29. Of interest is the financial sustainability of the project in the context of the fiscal discipline that Kenya aims to maintain. The fiscal analysis aims to assess whether Government of Kenya would allocate adequate funds to cover for incremental recurrent costs during the implementation and over the life of the project. Kenya’s historical support to agriculture and to agricultural research and extension provides a useful background to this analysis. This assessment will include analysis of the incremental cash flow of Government finance, co-financing, and mechanisms of cost recovery. 30. Base analysis: The fiscal analysis aims at assessing the likelihood that sustainable local sources of funds will be available at the end of the Project to take over from funds provided under the Project. Findings indicate the project costs of KAPAP during the 5 year implementation period. To calculate a factor which reflects the proportion of the investment costs which would have to be taken over by the Government after the project ends, the

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investments were categorized according to maintenance and replacement versus one-off investments such as foreign technical assistance (50 percent of equipment and vehicles; 50 percent of consultancy services; and 50 percent of training, studies, and workshops are assumed to be one-off investments). The calculation of a factor for recurrent costs is based on the relation of the recurrent costs in the last year of the project in relation to the average annual recurrent costs o f the project. 31. Public expenditures on agricultural research and extension are currently about US$155 million total (2008/09 figure). These expenditures represent around 48 percent of the public sector budget for agriculture and an annual investment of 4.8 percent of agricultural GDP. In terms of share of agricultural GDP, these are relatively high figures, especially compared to averages for Africa. 32. The total project costs are estimated to amount to about US$98.34 million over five years. Incremental public expenditure per year would be US$15.59 million. Public expenditures in agriculture R&E would have to increase in nominal terms by 10 percent annually and public expenditure in agriculture and rural development would have to increase in nominal terms by 4.83 percent in 2013 and beyond, after the end of the project, to sustain the investments and activities initiated by KAPAP. This will increase the percentage of public expenditure to agricultural R&E from 2.3 percent to 2.6 percent of AgGDP and increase the percentage of public expenditure to agriculture and rural development from 4.8 percent to 5.0 percent of AgGDP, making the figures much higher, which is already a high figure relative to averages for Africa. 33. Co-financing and Cost Recovery: The fiscal impacts of the planned investments into the national R&E system depend significantly on implemented co-financing and cost-recovery mechanisms. The base analysis above is conservative by assuming that total project costs have to be covered by public expenditures after the Project is phased out. For KAPAP, US$2.29 million will be co-financed by beneficiaries (or 2.3 percent of the total project costs). Assuming that the same amount would be co-financed by beneficiaries after project completion, public expenditures on R&E have to still increase by about US$15.37 million annually, and remain at about 50 percent of public expenditure on agriculture and rural development. More co-financing options could be explored. Research institutes that would function as training and information centers for extension service providers could move to a charge-back system, by which they would partially recover the costs for the training courses. Farmers could also be increasingly charged for receiving advice from extension agencies. The use of levies could also be tried to see if they are financially feasible for some commodities. The Project needs to strengthen its support for increased private sector participation in extension services, which, if successful, could enable widespread expansion of extension services outside the public wage bill. These measures would further decrease the amount to be provided by the Government.

34. International Comparators: Due to the lack of data for extension, only public expenditures for agricultural research are compared to international levels. On average, developed countries spent 2.6 percent of AgGDP on agricultural research in 1995. In comparison to that, the levels spent in developing countries on average (0.62 percent of AgGDP) and Africa on average (0.85 percent of AgGDP) is relatively low. Public research expenditures in Kenya were 2.7 percent of AgGDP in 2000, which is relatively high compared to Africa average. Tanzania and Uganda spent 0.4 percent of AgGDP and 0.5 percent of AgGDP on agricultural research, respectively. However, South Africa spent 3.04

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percent, which is higher than Kenya. Given the importance of agriculture sector for Kenya, this is a good sign that agricultural research (and extension) and agricultural productivity are being paid attention to by the government. The government is on the right track in terms of reinvesting back into agriculture. The challenge remains on the quality and composition of this public investment. A review of Kenya’s agriculture sector performance and public expenditure done during KAPP preparation demonstrates the need for improving the effectiveness of public expenditures. The bulk of agriculture and rural development expenditures continue to be spent on recurrent costs, with relatively little allocated to investments. Salaries and wages, of which nearly half are for extension workers, are among the biggest expenditure items in the recurrent budget, still averaging nearly 47 percent of the total budget in recent years. Any increase in effectiveness of salaried employees can be expected to have a significant impact on the overall performance of the ministries.

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Annex 10: Safeguard Policy Issues KENYA: Kenya Agricultural Productivity and Agribusiness Project

1. The KAPAP Project has been assigned an environmental risk Category B, because some of activities to be supported under the project have potential adverse impacts on human populations or environmentally important areas, such as on wetlands, forests, grasslands, and other natural habitats are limited. The potential impacts, however, are site specific, few if any are likely to be irreversible; and specific mitigation measures can easily be designed. Activities that are likely to trigger environmental and social safeguards include investments in infrastructure, such as the construction and upgrading of building facilities at research and rural market centers that will be supported under Components 2 and 4. Others include, support to KARI and NARS research activities and adoption of new technologies by smallholders, under Components 2 and 3. These will include purchase and use of agricultural, livestock, and laboratory chemicals, and pesticides. Safeguards preparation and disclosure 2. The Bank’s safeguard policies applicable to KAPAP are: (i) Environmental Assessment (OP/BP 4.01); (ii) Pest Management (OP 4.09); and (iii) Indigenous Peoples (OP/BP 4.10). To meet the Bank’s and Government’s environmental and social safeguard policies, an Environmental and Social Management Framework (ESMF), an Integrated Pest Management Framework (IPMF), and an Indigenous People’s Planning Framework (IPPF) have been prepared. These documents incorporate recommendations of the Environmental Audit report for KAPP, which was completed in November 2008. All safeguard documents were cleared by the NEMA and the Bank, and disclosed in Kenya (March 31, 2009) and at the World Bank’s Infoshop (April 3, 2009), prior to the Appraisal Mission. The proposed prevention and mitigation measures, together with their monitoring plans, form an integral part of the KAPAP design and costs. Summary of consultations during safeguards preparation and disclosure 3. The preparation of ESMF, IPMF and IPPF documents involved extensive consultations with national and local governments/authorities, National Environmental Management Authorities (NEMA), research and academic institutions, law societies of Kenya, NGOs, CBOs, Civil Society, community leaders, and many people in project areas that were visited by the consultants. Some of the key issues raised during discussions as relate to the national agricultural research institutions and community-driven and agribusiness subprojects are summarized below. 4. National Agricultural Research: Most of the environment issues discussed under the agricultural research vary across centers due to the different commodity research being undertaken. This means that each station has its own needs, activities, and products, as well as unique services for specific clientele it serves. For example, plant pathology under the crop protection sections need “Disaster Preparedness” in case of fire, because they have laboratories that use flammable chemicals. In the case of the weed science and soil chemistry laboratories, disposal of used herbicides and obsolete chemicals is a priority. Nevertheless, about six key environmental issues were raised during consultation meetings, and need to be taken into account during the project implementation:

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• Environmental awareness: There was a concern that a significant number of staff in

research institutions were not aware of key environmental and social impact of their activities.

• Cost saving opportunities: Research institutions are not deploying environmentally sustainable measures, such as switching off lights at the end of the day, recycling paper and water use/re-use, which could reduce the cost of research activities.

• Disposal of used or obsolete laboratory chemicals: Stakeholders noted with concern that research institutions have inadequate mechanisms for disposing of used or obsolete laboratory chemicals to comply with the NEMA law (EMCA2000).

• Disaster preparedness: It was also noted that research centers lack the ability to adequately respond to disasters and manage any emergencies that would occur in the course of discharging their duties.

• Environmental aesthetics: Stakeholders were not happy with the failure of many research centers to continuously maintain their compounds, especially taking care of the landscape, general cleanliness, ornamentals, and buildings.

• Waste disposal: A significant number of research centers are not well equipped to dispose various wastes, including solid waste materials, fuel and oils, and wastewater from both residential and office buildings.

5. Community-driven and Agribusiness subprojects: Since most of the activities to be financed under Components 3 and 4 are demand-driven and not fully known ex-ante, stakeholders’ discussions were general. The main safeguards issues raised during the consultations process included, whether: (a) given their low capacity, the beneficiary farming communities will be able to effectively identify the potential environmental and social impacts associated with the selected subprojects and their mitigation measures; (b) sufficient budget will be allocated to cover the costs of mitigating the identified impacts; (c) District Authorities have sufficient capacity to backstop communities during the environmental and social screening of the selected subprojects, and supervise the implementation of mitigation measures; (d) NEMA, which also review Environmental Impact Studies (EIS) for large private investments will have time and incentives to review KAPAP subprojects; and, (e) given a potentially large number of applications from communities, the District Authorities have the capacities to effectively review and approve the proposed subprojects, after EIA certificates are issued by NEMA. Main features of the Safeguard documents Environmental Assessment (OP 4.01) 6. The OP 4.01 is applicable because KAPAP will support investments in infrastructure under the Component 2 - Agricultural Research Systems; and Component 4 - Agribusiness and Market Development. A full Environmental Assessment (EA) has not been prepared because the research activities under Component 2 and the CDD-type subprojects under Components 3 and 4, and their exact locations have not been identified ex-ante. As a result, the safeguard instrument used is the ESMF. For relatively large infrastructure

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investments, such as the construction and upgrading of building facilities at research and rural market centers, specific EAs and Environmental Management Plans (EMPs) will be prepared before funding is approved by the Bank. 7. The ESMF prepared for the KAPAP will allow the implementing agencies to identify, assess, and mitigate potential negative environmental and social impacts of the proposed interventions; and to ensure that proper mitigation measures, and monitoring plans are in place, and are an integral part of the project cost. The ESMF presents guidelines and procedures consistent with the National Environmental Management and Coordination Act (1999) (EMCA) for Kenya and the World Bank’s Safeguard Policy on Environmental Assessment OP/BP 4.01. 8. The ESMF instrument will enable the national and local governments, as well as communities, to identify potential environmental and social impacts; and to address them by incorporating the relevant mitigation, prevention, and management measures. To ensure that negative impacts are minimized or eliminated, the ESMF requires the inclusion of mitigation impacts at the design of subprojects, prior to implementation. Specifically, the ESMF lays out procedures for screening and mitigating impacts that may arise during the KAPAP implementation, including: (i) Guidance on preparation of comprehensive checklists of potential environmental and social impacts and their sources; (ii) Systematic procedures for participatory screening of subproject sites and activities and the environmental and social considerations; (iii) A step-by-step approach for forecasting the main potential environmental and social impacts of the planned subproject activities; (iv) An institutional arrangement for mitigating, preventing, and managing the identified environmental impacts; (v) A typical environmental management planning process for addressing negative externalities in the course of project implementation; (vi) A system for monitoring implementation and impacts of mitigation measures; and, (vii) An outline of recommended capacity building measures for environmental planning and monitoring of project activities. 9. At screening stage, the proposed subprojects will be classified as category A, B, or C, depending on the type, location, sensitivity, and the scale of the intervention and the nature and magnitude of its potential environmental impacts. KAPAP will not finance Category A subprojects, which require full EIA, because these interventions may have diverse, significant, and probably irreversible environmental impacts, and are likely to be cost ineffective. For Category B subprojects, limited EIAs will be undertaken, since the interventions are likely to have only site-specific environmental impacts, and their mitigation measures can be designed more readily. Finally, Category C subprojects, which normally have minimal or no adverse environmental impacts, will be exempted from further environmental impact assessment. 10. The ESMF instrument will also be used to screen subprojects to ensure that they do not trigger other Bank’s safeguard policies, such as Natural Habitats (OP/BP 4.04), Forests (OP/BP 4.3), Physical Cultural Resources (OP/BP 4.10), and Involuntary Resettlement (OP/BP 4.12). In short, the screening process will ensure that KAPAP does not finance any activities that are: (i) located in the critical natural habitats; (ii) likely to lead to the destruction of natural forests; (iii) in areas with physical cultural resources; and, (iv) relocating people or limiting their access to public or common assets, thus impacting their livelihood.

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Pest Management (OP 4.09) 11. The OP 4.09 is applicable because under the Component 2 - Agricultural Research Systems and Component 3 - Agricultural Extension and Farmer and other Stakeholder Empowerment, the KAPAP will finance the purchase of agricultural, livestock pharmaceuticals, laboratory chemicals, and pesticides to support the KARI and NARS research activities; and adoption of new technologies by smallholders. The Bank’s pest management policy supports safe, effective, and environmentally sound pest management interventions. In addition, the policy emphasizes on the safe handling and disposal of pesticides. It also promotes the use of biological and environmental pests control methods, which are also cost effective. 12. An Integrated Pest Management Framework (IPMF) has been prepared for KAPAP, which has: (a) Identified the key pests of major crops and livestock in the project area; (b) Assessed the impact of the pest control methods and vulnerability of the project area to pests and diseases; (c) Analyzed the institutional, policy and legal frameworks for pest control and management; (d) Developed an IPM strategy and its monitoring framework; (e) Identified key researchable areas in pest management; and, (f) Outlined the recommended capacity building measures for pest management and safe handling of pesticides. Since, KARI and the NARS research programs are not yet fully defined, and the CDD-type agricultural productivity enhancement and livelihoods improvement subprojects have not been selected in advance, each selected subproject will prepare its specific Pest Management Plan (PMP). The IPMF will serve as a guide and/or reference document for the preparation of specific subprojects’ PMPs. Indigenous Peoples (OP 4.10) 13. The OP 4.10 is applicable because the CDD-type subprojects under Component 3 - Agricultural Extension and Farmer and other Stakeholder Empowerment, may impact the welfare of Indigenous Peoples (IP) groups living in the Mau Forest areas. An Indigenous Peoples Planning Framework (IPPF), prepared for the GEF-supported Kenya Agricultural Productivity and Sustainable Land Management Project (KAPSLMP), was adopted and revised to suit the needs of KAPAP, and will be used to address this policy. The IPPF for KAPSLMP documented that members of the Sengwer and Ogiek ethnic groups are found in a structurally subordinate position in the Nakuru and Uasin Gishu districts respectively, within the project area. These two districts are also covered by the KAPAP. Therefore, to address the OP 4.10 policy, the IPPF for KAPAP provides guidance for comprehensive screening mechanisms to identify, inform, and consult the Sengwer, Ogiek, and other IP in all project areas, well in advance of any investment and/or subproject implementation. 14. The IPPF proposes a specific framework to address the needs and rights of IP in the project area. This is shown to be necessary to mitigate the risks that the challenges facing them are not exacerbated, and in particular that they do not: (i) face further physical and economic displacements from land and forests traditionally utilized by them as a source of livelihood and basis for their cultural and social survival; (ii) lose all legal access to natural resources, which are an important source of livelihood and basis for their cultural and social system; (iii) continue to be harassed by land grabbers and cattle rustlers; (iv) become even more marginalized in the society and become alienated from national life; (v) receive less support from Governmental services; (vi) have less capacities to defend their legal rights;

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(vii) become or remain dependent on other ethnic groups; and, (vii) lose their cultural and social identity. 15. Although KAPAP does not intend to acquire land or resettle people, some of the subprojects supported may limit access of common natural resources by the IPs. Should this happen, the indigenous peoples safeguard policy will be triggered. As a result, an Indigenous Peoples Plan (IPP) will be developed for each specific case, once the ESMF screening process identifies the impacted group. Each IPP will contain measures to: (i) avoid potentially adverse effects on the indigenous peoples’ groups; (ii) when avoidance is not feasible, minimize, mitigate, or compensate for such effects; and, (iii) ensure that the indigenous peoples receive social and economic benefits that are culturally appropriate and are gender, as well as inter-generationally inclusive. 16. To ensure free, prior and informed consultations with indigenous peoples, the IPP will be undertaken in five steps: (i) baseline survey and in-depth consultations with representative indigenous peoples’ communities, indigenous peoples’ organizations, and NGOs; (ii) elaboration of a draft IPP on the basis of this information; (iii) distribution of the draft IPP to indigenous peoples’ communities and indigenous peoples’ organizations; (iv) internal discussion of the draft IPP among the indigenous peoples’; (v) feedback workshop to discuss and finalize the IPP of the individual subproject; and, (vi) documentation of the entire process to ensure transparency. 17. The Borrower will ensure that the specific mitigation measures developed in the IPP of the individual subprojects are implemented. In other words, the Borrower will ensure that the rights, livelihoods, dignity, and culture of the indigenous peoples groups are respected, and guarantee that KAPAP fulfils international standards as outlined in OP 4.10 of the World Bank. To achieve this, the Borrower will allocate appropriate budget for effective implementation of the IPPs. Institutional Arrangements for Environmental and Social Impact Assessment 18. The sections below illustrate the stages of the environmental and social screening process leading to the review and approval of the subprojects. The extent of environmental assessment work that might be required prior to implementing a subproject will depend on the outcome of the screening process described below. The basic components of the EIA process, including outputs and inputs, are illustrated in Figure 1. In addition, a summary of institutional arrangements for subprojects screening, EIS, and decision making processes is provided in Table 1. Stage 1: Screening of subprojects 19. Initial screening: The objective of the screening phase is to determine if a proposed subproject does or does not have significant environmental and social impacts. Communities will identify subprojects with help from extension teams (SPs, CBOs, and NGOs) and RSUs. Screening will be done by communities, with assistance from the facilitators, extension agents, or health workers, using a Screening Checklist provided in the ESMF. If a subproject is determined not to have potential to cause significant environmental and social impacts, it shall be categorically exempted from further environmental impact assessment. An appropriate decision shall be made to approve and implement the subproject, with recommendations to the community or developer, for sound environmental management of

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the subproject. If it is not exempt, and is found to have potential significant environmental impacts, further screening will be conducted to determine if mitigation measures can readily be identified through further Environmental Impact Review (EIR) or a full Environmental Impact Study (EIS). If adequate mitigation measures to address the identified impacts are incorporated during the EIR, then the subproject will be approved.

20. Assignment of appropriate Environmental Category: The District Environmental Officers (DEOs) will assign each subproject an appropriate environmental category based on the information provided in the Screening Checklist from one of the following categories:

• Category C - Clearly does not require EIS, i.e. exempt category;

• Category B - Has significant environmental impacts for which mitigation measures can readily be identified either directly or through EIR; or,

• Category A - Has significant environmental impacts whose mitigation measures cannot readily be identified, hence requiring a detailed EIS.

21. The Screening Checklist will be submitted to the NEMA by the DEOs. If a decision is made at this stage of the screening process to exempt a subproject (Category C), or to approve its environmental aspects on the basis of identified mitigation measures (Category B), such a decision shall be contained in a Certificate of Approval of the EIA issued by the NEMA. If, however, it is determined that the subproject requires a full EIS (Category A), it will be dropped and the community would be encouraged to select an alternative subproject. Stage 2: Environmental Impact Study (EIS) 22. Scoping: The initial step in the EIS is to determine the scope of work to be undertaken in assessing the likely environmental and social impacts of a proposed subproject. The responsibility for scoping shall be that of the community, with assistance from facilitators and extension agents. Scoping shall entail identification of potentially significant environmental and social impacts and/or elimination of insignificant impacts. This process will determine what should be included in the study, and what alternatives should be considered in the planned subproject design and implementation arrangements. The scoping exercise shall, to the extent possible, involve consultation with NEMA, RSU and DEOs, potentially affected communities, representatives of other interested parties including NGOs and CBOs, the private sector, and all other stakeholders. 23. Identification of significant impacts during scoping: In identifying potentially significant environmental and social impacts, participants in the scoping exercise shall use their own experience, expertise and knowledge of the project area/site, and a Checklist. The participants shall also consider direct and indirect impacts, as well as cumulative impacts of the proposed activities. Once the potentially significant impacts are identified, the participants shall review the proposed alternatives and suggest, if necessary, other alternatives which should be assessed. Impacts which the participants agree must be addressed to protect the environment shall be considered potentially significant. This exercise shall conclude with the identification of the relevant inter-disciplinary expertise necessary to address the identified significant impacts. The names and qualifications of the experts identified to undertake the EIS shall be approved by the NEMA. The community,

111

with assistance from the facilitators and extension agents, shall then prepare a Scoping Report or Subproject Brief, which will summarize the results of scoping exercise. 24. Decision of NEMA on the Scoping Report/Subproject Brief: The community will submit 10 copies of the Scoping Report/Subproject Brief to the NEMA. If the Authority deems it to be complete, it shall transmit a copy of the report/brief to the RSU and DEOs for stakeholders’ consultations and comments, as deemed appropriate. If the NEMA is satisfied that the subproject will have no significant impact on the environment, or that the Scoping Report/Subproject Brief discloses sufficient mitigation measures to cope with the anticipated impacts, it will approve the subproject. NEMA shall then issue a Certificate of Approval for the subproject. However, if the NEMA finds that the subproject will have significant impacts on the environment, and that the Scoping Report/Subproject Brief does not disclose sufficient mitigation measures to cope with the anticipated negative impacts, it shall require the community to undertake an EIS for the planned subproject. The TORs defining the scope of the EIS shall be prepared and submitted to the NEMA, which in-turn will forward them to the RSU and DEOs for stakeholders’ consultations and comments. An EIS shall only be conducted after the approval of the TORs by the NEMA, in consultation with the RSU and DEOs. 25. Carrying out the Environmental Impact Study: The community shall be responsible for preparing the EIS report. The report will incorporate, but not be limited to, the following information the proposed location of the subproject; the objectives of the subproject; a description of the potentially affected environment; the environmental effects of the subproject, including the social and cultural effects, as well as the direct, indirect, cumulative, irreversible, short- and long-term effects anticipated from subproject implementation; analysis of alternatives including subproject site, design and technologies and reasons for preferring the proposed site, design and technologies; an environmental management plan proposing measures for eliminating, minimizing or mitigating adverse impacts on the environment, including the cost, timeframe and responsibility for implementing the proposed measures; and any other matters as may be required by NEMA. 26. Public Consultations and Disclosure of EIS report: The draft EIS report shall be subjected to public scrutiny through consultations. The comments received from NEMA, RSU and DEOs, and other stakeholders shall be incorporated into the draft EIS report. Where a public hearing is conducted, the results of the hearing will also be included in the EIS report, and taken into account when a decision is made on whether or not a NEMA certificate should be issued for the subproject. A draft EIS will be disclosed prior to NEMA’s decision on a proposed subproject, and the public will be given the opportunity to comment on the subproject, regardless of whether or not the subproject will be approved. The final EIS document will be made available to the public in the affected areas by the NEMA, through RSU and DEOs.

Stage 3: Decision Making 27. Role of the Bank in the EIS process: The Bank will have a crucial input in the EIS process, particularly in terms of providing guidance and technical support required to meet its Environmental and Social Safeguards policies. The Bank will review the screening, EIS, and decision making processes of the first ten environmental Category B subprojects. These subprojects shall only be implemented after receiving approval from both NEMA and the Bank. The NEMA, through the RSU and DEOs, shall be responsible for submitting the

112

documents for the Bank review and comments. In addition, the Bank will randomly review the EIS, EMPs, and IPP for various subprojects to assess both their comprehensiveness and implementation status, and advise the NEMA accordingly. Finally, the implementation of the environmental and social safeguards will be reviewed during the regular Bank supervision missions. 28. Approval of the EIS report: A decision to approve a subproject shall be made by NEMA and the Bank as appropriate, on the basis of a finding that it is a: (a) Category C or B subproject; (b) appropriate mitigation measures to address the identified potential environmental impacts have been incorporated in project design; and (c) satisfactory EIS report has been prepared. Based on the contents of the EIS, and taking into account the RSU and DEOs, stakeholder consultations, and public comments on the EIS, the NEMA shall approve or disapprove a subproject. If a subproject is approved, NEMA shall issue a Certificate of Approval of the EIA, and this record shall be filed accordingly. Once a subproject has received a certificate of approval from the NEMA, the project will disburse funds to the recipient community.

Safeguards supervision plan 29. The comprehensive safeguard supervision or review missions will be conducted semi-annually by environmental and social specialists located in the country offices with technical backstopping from headquarter staff. The timing of safeguards supervision or review missions will be flexible to suit the availability of these specialists. Overall, it is estimated that a total of 20 staff weeks will be required for the safeguards supervision or review missions over the project life. This includes review of the EIA reports for the first ten Category B subprojects, and random environmental audits of approved subprojects, and the regular semi-annual supervision missions. 30. The RSU and DEOs will also be involved in the regular supervision of safeguards, through the KAPAP’s monitoring and evaluation unit, as well as by commissioning random independent environmental and social audits and/or reviews. Environmental monitoring 31. Environmental monitoring will aim at checking the effectiveness of the implementation of the proposed mitigation measures. This will be done using performance indicators to check and balance between environmental management and development. Appropriate indicators will be used to determine whether the mitigation measures have been successful in such a way that the pre-investment environmental and social conditions have been restored, improved upon, or worsened. In case of the latter, further mitigation measures shall be proposed. The responsibility for monitoring and evaluation of the mitigation measures is assigned to beneficiary communities, RSU and DEOs at the local level, and to the ASPSC and NEMA at the national level. KAPAP will finance independent environmental audits at the end of the second and fourth year of the project. The environmental audit report, prepared at the end of the second year, will provide inputs to the MTR mission, while that at the end of fourth year to the Implementation Completion Report (ICR). A budget of US$250,000 has been set aside for the environmental monitoring activities.

113

Institutional capacity building for EIA 32. Effective implementation of the ESMF, IPMF, and IPPF will require adequate institutional capacity for undertaking EIA, implementing the proposed mitigation measures, and monitoring the results. In this regard, the institutional capacity for EIA will be enhanced at community level, RSUs, DEOs, and NEMA, through tailor-made training courses in environmental and social safeguards management. 33. With regards to tailor-made training, the areas of focus will include: (i) training of beneficiary communities on basic environmental and social implications anticipated from KAPAP subprojects’ activities; (ii) training of RSUs and DEOs on environmental and social screening, mitigation measures, and monitoring; (iii) sustained sensitization programs on public education and awareness on issues of development, health, and safety; and, (iv) training on community-based monitoring, and subprojects assessment and/or effective supervision by the RSUs, ASPSC, and NEMA. A budget of about US$100,000 has been set aside for institutional capacity building for EIA management and safeguards supervision. In preparation for the implementation of the ASDS, the project will support the preparation of a Strategic Environmental and Social Impacts Assessment (S-ESIA) for the agricultural sector. A budget of US$250,000 has been set aside to finance the study. It is assumed that GoK and other development partners will support the consultation process costs.

Table 1: Summary of institutional arrangements for subprojects screening, EIS, and decision making processes

Activity Responsible officers/centers Initial screening of the subprojects. Beneficiary Communities with assistance from

extension teams (SPs, CBOs, and NGOs) and RSUs. Assigning Environmental Impact Category to the subprojects based on the initial screening process.

RSUs and DEOs.

Analysis of screening findings and preparation of screening forms.

Beneficiary communities with assistance from facilitators and extension agents.

Review and approval of EIA screening forms and submission of Screening Reports to NEMA.

RSUs and DEOs.

Preparation and submission of Screening Reports to NEMA.

Beneficiary communities with assistance of environmental experts registered by NEMA.

Scoping, preparation of Project Brief and preparation of ToRs for the EIS reports.

Beneficiary communities with assistance of environmental experts registered by NEMA.

Preparation of EIS reports. Beneficiary communities with assistance of environmental experts registered by NEMA.

Review of EIS reports. NEMA and Bank (for the first ten Category B subprojects).

Stakeholders consultations, public hearings, and EIA disclosure.

RSUs, DEOs, ASPSC, and NEMA.

Issue environment permit that confirms EIA is satisfactory.

NEMA.

Approval of subprojects with satisfactory EIAs.

ASPSC after receiving recommendations from the relevant RSUs and DEOs.

Environment Monitoring. Beneficiary communities, RSUs and DEOs at local level; and KS/MoA and NEMA at national level.

114

Figure 1: The EIA Process Flow

COMMUNITY OR DEVELOPER

SUBPROJECT BRIEF SUBMITTED TO ASPSC

SUBMITS SUBPROJECT BRIEF TO NEMA

SCREEN 1 WHETHER SUBPROJECT IS EXEMPT

SCREEN 3 WHETHER ADEQUATE MITIGATION MEASURES HAVE BEEN INCORPORATED

SCREEN 2 WHETHER SUBPROJECT REQUIRES MANDATORY EIA

SCOPING

PREPARING TORS

REVIEWING THE TORS

COLLECTING INFORMATION FOR EIS

PREPARING AN EIS

REVIEWING AN EIS REPORT

APPROVING EIS REPORT

APPROVING SUBPROJECT

NEMA AND ASPSC CONSULT ON SUBPROJECT BRIEF

CERTIFICATE OF APPROVAL BY NEMA

STAKEHOLDER CONSULTATIONS AND FEEDBACK

NEMA, ASPSC AND STAKEHOLDER S CONSULTATIONS

PUBLIC AND STAKEHOLDERS CONSULTATIONS

DRAFT EIS REPORT

BANK, NEMA, ASPSC, PUBLIC AND STAKEHOLDERS CONSULTATIONS

CERTIFICATE OF EIS APPROVAL FROM NEMA

STA

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EE

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115

Annex 11: Project Preparation and Supervision KENYA: Kenya Agricultural Productivity and Agribusiness Project

Planned Actual PCN review December 18, 2008 December 18, 2008 Initial PID to Infoshop December 18, 2008 December 24, 2008 Initial ISDS to Infoshop February 20, 2009 April 16, 2009 QER March 11, 2009 March 11, 2009 Appraisal March 23, 2009 March 23, 2009 Negotiations April 29, 2009 April 29, 2009 Board/RVP approval June 11, 2009 Planned date of effectiveness September 9, 2009 Planned date of mid-term review January 31, 2012 Planned closing date December 31, 2014 Key institutions responsible for preparation of the Project: Ministry of Agriculture, Ministry of Livestock Development, Ministry of Fisheries Development, Ministry of Co-operative Development and Kenya Agricultural Research Institute (KARI). Bank staff and consultants who worked on the Project included: Name Title Unit Andrew Karanja Senior Agricultural Economist - TTL AFTAR Christine Cornelius Program Coordinator AFTAR Ladisy Chengula Senior NRM Specialist AFTEN Mohammed Taqi Sharif Consultant/Institutional Specialist AFTAR Hermann Pfeiffer Senior Agricultural Officer (Extension) FAO/CP J.-J. Franc de Ferrière Consultant/Agribusiness Specialist FAO/CP Tom Owiyo Consultant/M&E Specialist AFCE2 Henry Amuguni Financial Management Specialist AFTFM Yasmin Tayyab Senior Social Development Specialist AFTCS Dahir Warsame Senior Procurement Specialist AFTPC Nightingale Rukuba-Ngaiza Senior Counsel LEGAF Asa Torkelsson Senior Gender Specialist PRMGE Dana Rysankova Senior Energy Specialist AFTEG Catherine Ragasa Consultant/Economist ARD Lisa Paglietti Consultant/Economist FAO/CP Monica Okwirry Program Assistant AFCE2 Almaz Teklesenbet Program Assistant AFTAR Luisa Matsinhe Program Assistant AFTAR

116

Bank funds expended to date on Project preparation: 1. Bank resources: US$120,000 2. Trust funds: N/A 3. Total: US$120,000

Estimated Approval and Supervision costs: 1. Remaining costs to approval: US$60,000 2. Estimated annual supervision cost: US$120,000

117

Annex 12: Letter of Sector Policy KENYA: Kenya Agricultural Productivity and Agribusiness Project

118

119

120

121

Annex 13: Documents in the Project File KENYA: Kenya Agricultural Productivity and Agribusiness Project

1. Project Concept Note 2. Project Information Data Sheet (PCN stage) 3. Integrated Safeguards Data Sheet (PCN stage) 4. Minutes of the PCN Review Meeting 5. Project Information Data Sheet (PAD stage) 6. Integrated Safeguards Data Sheet (PAD stage) 7. PPF request package 8. Minutes of the QER 9. Minutes of the Decision Meeting 10. Environmental and Social Management Framework (ESMF), March 2009 11. Integrated Pest Management Framework (IPMF), March 2009 12. Indigenous Peoples Planning Framework (IPPF), March 2009 13. Minutes of the local/regional consultations on safeguard documents (April 2009) 14. Detailed Economic & Financial Analysis 15. Financial Management Capacity Assessment Report (March 24, 2009) 16. Procurement Capacity Assessment Report (March 2009) 17. Project Implementation Plan (PIP), April 2009 18. Project Procurement Plan, April 2009 19. Financial Management Manual (Draft), April 22, 2009 20. Procurement Manual (Draft), April 22, 2009 21. Farmer Grant Manual (Draft), April 2009

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123

KenyaIFC's Committed and Disbursed Outstanding Investment Portfolio

As of 12/31/2008(In USD Millions)

Committed Disbursed Outstanding

FY Approval Company Loan Equity**Quasi Equity *GT/RM

Partici pant Loan Equity

**Quasi Equity *GT/RM

Partici pant

2006 Abe-kenya 6 0.63 0 0 0 0 0.63 0 0 01997 Aef ceres 0.93 0 0 0 0 0.93 0 0 0 0

1997Aef deras ltd. 1 0 0 0 0 1 0 0 0 0

2000 Aef lesiolo 2.5 0 0 0 0 2.5 0 0 0 0

1997Aef redhill flrs 0.32 0 0 0 0 0.32 0 0 0 0

2004 Bp kenya 0 5 0 0 0 0 1.75 0 0 0

07/08/1982Diamond trust 10 4.45 15 0 0 10 4.45 15 0 0

2005 Im bank 1.5 0 0 0 0 1.5 0 0 0 0

0Ips(k)-allpack 0 0.36 0 0 0 0 0.36 0 0 0

0Ips(k)-frigoken 0 0.06 0 0 0 0 0.06 0 0 0

0Ips(k)-prem food 0 0.11 0 0 0 0 0.11 0 0 0

1996/99/09 K-rep bank 0 4.68 0 0 0 0 2.3 0 0 0

2006Kingdom hotel 20 0 0 0 0 0 0 0 0 0

2005 Kongoni 1.47 0 0 0 0 1.47 0 0 0 00 Mabati 5 0 0 0 0 0 0 0 0 0

2005Magadi soda co. 0 0 0 3.6 0 0 0 0 1.68 0

1994/96 Panafrican 1.54 0 0 0 0 1.54 0 0 0 0

2006Panari center 5.67 0 1 0 0 5.07 0 1 0 0

2007 Rvr 22 0 10 0 0 0 0 10 0 01972 Tps ea ltd. 0 0.04 2.2 0 0 0 0.04 2.2 0 0

2000/07Tsavo power 5.49 0.83 0.52 0.93 8.56 5.49 0.83 0.52 0.89 8.56

Total Portfolio: 83.42 16.16 28.72 4.53 8.56 29.82 10.53 28.72 2.57 8.56

* Denotes Guarantee and Risk Management Products.** Quasi Equity includes both loan and equity types.

124

Annex 15: Country at a Glance KENYA: Kenya Agricultural Productivity and Agribusiness Project

Kenya at a glance 9/24/08

Sub-Key Development Indicators Saharan Low

Kenya Africa income(2007)

Population, mid-year (millions) 37.5 800 1,296Surface area (thousand sq. km) 580 24,242 21,846Population growth (%) 2.6 2.4 2.1Urban population (% of total population) 21 36 32

GNI (Atlas method, US$ billions) 25.6 762 749GNI per capita (Atlas method, US$) 680 952 578GNI per capita (PPP, internat ional $) 1,540 1,870 1,500

GDP growth (%) 6.9 6.2 6.5GDP per capita growth (%) 4.1 3.7 4.3

(most recent estimate, 2000–2007)

Poverty headcount ratio at $1.25 a day (PPP, %) .. 50 ..Poverty headcount ratio at $2.00 a day (PPP, %) .. 72 ..Life expectancy at birth (years) 53 50 57Infant mortality (per 1,000 live births) 79 94 85Child malnutrition (% of children under 5) 17 27 29

Adult literacy, male (% of ages 15 and older) 78 69 72Adult literacy, female (% of ages 15 and older) 70 50 50Gross primary enrollment, male (% of age group) 107 99 100Gross primary enrollment, female (% of age group) 104 88 89

Access to an improved water source (% of population) 57 58 68Access to improved sanitation facilit ies (% of population) 42 31 39

Net Aid Flows 1980 1990 2000 2007 a

(US$ millions)Net ODA and of ficial aid 393 1,181 510 943Top 3 donors (in 2006): United States 39 95 46 282 United Kingdom 39 67 73 108 Japan 27 93 67 106

Aid (% of GNI) 5.6 14.4 4.1 4.1Aid per capita (US$) 24 50 16 26

Long-Term Economic Trends

Consumer prices (annual % change) 13.9 17.8 10.0 2.8GDP implicit def lator (annual % change) 9.6 10.6 6.1 13.1

Exchange rate (annual average, local per US$) 7.4 22.9 76.2 67.3Terms of t rade index (2000 = 100) 86 85 100 109

1980–90 1990–2000 2000–07

Population, mid-year (millions) 16.3 23.4 31.3 37.5 3.6 2.9 2.6GDP (US$ millions) 7,265 8,591 12,604 29,509 4.2 2.1 4.4

Agriculture 32.6 29.5 33.1 22.7 3.3 2.2 3.6Industry 20.8 19.0 17.5 19.0 3.9 1.1 4.7 Manufacturing 12.8 11.7 11.6 11.8 4.9 1.1 4.6Services 46.6 51.4 49.4 58.2 4.9 3.2 4.2

Household final consumption expenditure 62.1 62.8 75.2 74.8 4.5 3.6 4.0General gov't final consumption expenditure 19.8 18.6 15.3 16.0 2.6 7.2 1.6Gross capital formation 24.5 24.2 17.6 19.5 0.4 6.1 6.7

Exports of goods and services 29.5 25.7 22.3 22.8 4.4 0.5 8.3Imports of goods and services 35.9 31.3 30.5 33.2 1.9 9.4 6.4Gross savings 15.4 18.6 15.2 11.4

Note: Figures in italics are for years other than those specified. 2007 data are preliminary. . . indicates data are not available.a. Aid data are for 2006.

Development Economics, Development Data Group (DECDG).

(average annual growth %)

(% of GDP)

20 10 0 10 20

0-4

15-19

30-34

45-49

60-64

75-79

percent

Age distribution, 2007

Male Female

0

50

100

150

200

1990 1995 2000 2006

Kenya Sub-Saharan Africa

Under-5 mortali ty rate (per 1,000)

-6

-4

-2

0

2

4

6

8

90 95 00 05

GDP GDP per capita

Growth of GDP and GDP per capita (%)

125

Kenya

Balance of Payments and Trade 2000 2007

(US$ millions)Total merchandise exports (fob) 1,773 4,048Total merchandise imports (cif) 3,306 7,029Net trade in goods and services -1,015 -3,735

Workers' remittances and compensation of employees (receipts) 538 1,300

Current account balance -284 -3,051 as a % of GDP -2.3 -10.3

Reserves, including gold 897 3,015

Central Government Finance

(% of GDP)Current revenue (including grants) 19.0 20.9 Tax revenue 15.9 17.2Current expenditure 16.4 24.4

Technology and Infrastructure 2000 2007Overall surplus/deficit 0.6 -7.7

Paved roads (% of total) 12.1 14.1Highest marginal tax rate (%) Fixed line and mobile phone Individual 30 30 subscribers (per 1,000 people) 1 31 Corporate 30 30 High technology exports

(% of manufactured exports) 3.9 3.2External Debt and Resource Flows

Environment

(US$ millions)Total debt outstanding and disbursed 6,145 6,534 Agricultural land (% of land area) 47 47Total debt service 591 433 Forest area (% of land area) 6.3 6.2Debt relief (HIPC, MDRI) – – Nationally protected areas (% of land area) .. 12.6

Total debt (% of GDP) 48.8 28.7 Freshwater resources per capita (cu. meters) .. 581Total debt service (% of exports) 21.2 7.1 Freshwater withdrawal (% of internal resources) 7.6 ..

Foreign direct investment (net inflows) 111 51 CO2 emissions per capita (mt) 0.33 0.31Portfolio equity (net inflows) -6 2

GDP per unit of energy use (2005 PPP $ per kg of oil equivalent) 2.7 2.8

Energy use per capita (kg of oil equivalent) 481 484

World Bank Group portfolio 2000 2007

(US$ millions)

IBRD Total debt outstanding and disbursed 47 0 Disbursements 0 0 Principal repayments 40 0 Interest payments 7 0

IDA Total debt outstanding and disbursed 2,262 2,968 Disbursements 170 159

Private Sector Development 2000 2008 Total debt service 45 88

Time required to start a business (days) – 30 IFC (fiscal year)Cost to start a business (% of GNI per capita) – 39.7 Total disbursed and outstanding portfolio 99 132Time required to register property (days) – 64 of which IFC own account 99 120

Disbursements for IFC own account 40 16Ranked as a major constraint to business 2000 2007 Portfolio sales, prepayments and (% of managers surveyed who agreed) repayments for IFC own account 14 7 Access to/cost of financing .. 72.5 Corruption .. 72.5 MIGA

Gross exposure 42 103Stock market capitalization (% of GDP) 10.2 45.4 New guarantees 37 95Bank capital to asset ratio (%) 12.9 ..

Note: Figures in italics are for years other than those specified. 2007 data are preliminary. 9/24/08.. indicates data are not available. – indicates observation is not applicable.

Development Economics, Development Data Group (DECDG).

0 25 50 75 100

Control of corruption

Rule of law

Regulatory quality

Political stability

Voice and accountability

Country's percentile rank (0-100)higher values imply better ra tings

2007

2000

Governance indicators, 2000 and 2007

Source: Kauf mann-Kraay-Mastruzzi, World Bank

S hort-term , 574IB RD, 0

Other m ul ti - lateral , 672

IM F, 153

IDA, 2,764

Private, 305

Bi la tera l, 2 ,066

Composition of total external debt, 2006

US$ millions

126

Millennium Development Goals Kenya

With selected targets to achieve between 1990 and 2015(estimate closest to date shown, +/- 2 years)

Goal 1: halve the rates for extreme poverty and malnutrition 1990 1995 2000 2007 Poverty headcount ratio at $1.25 a day (PPP, % of population) .. .. .. .. Poverty headcount ratio at national poverty line (% of population) .. 52.0 .. .. Share of income or consumption to the poorest qunitile (%) 3.4 5.1 .. .. Prevalence of malnutrition (% of children under 5) .. 20.1 17.5 16.5

Goal 2: ensure that children are able to complete primary schooling Primary school enrollment (net, %) 76 .. 66 75 Primary completion rate (% of relevant age group) .. .. .. 93 Secondary school enrollment (gross, %) 28 .. 39 50 Youth literacy rate (% of people ages 15-24) .. .. 80 ..

Goal 3: eliminate gender disparity in education and empower women Ratio of girls to boys in primary and secondary education (%) 94 .. 98 96 Women employed in the nonagricultural sector (% of nonagricultural employment) 21 27 .. .. Proportion of seats held by women in national parliament (%) 1 3 4 7

Goal 4: reduce under-5 mortality by two-thirds Under-5 mortality rate (per 1,000) 97 111 117 121 Infant mortality rate (per 1,000 live births) 64 72 77 79 Measles immunization (proportion of one-year olds immunized, %) 78 83 75 77

Goal 5: reduce maternal mortality by three-fourths Maternal mortality ratio (modeled estimate, per 100,000 live births) .. .. .. 560 Births attended by skilled health staff (% of total) 50 45 44 42 Contraceptive prevalence (% of women ages 15-49) 27 33 39 39

Goal 6: halt and begin to reverse the spread of HIV/AIDS and other major diseases Prevalence of HIV (% of population ages 15-49) .. .. .. 7.8 Incidence of tuberculosis (per 100,000 people) 116 232 420 384 Tuberculosis cases detected under DOTS (%) .. 57 51 70

Goal 7: halve the proportion of people without sustainable access to basic needs Access to an improved water source (% of population) 41 46 51 57 Access to improved sanitation facilities (% of population) 39 40 41 42 Forest area (% of total land area) 6.5 .. 6.3 6.2 Nationally protected areas (% of total land area) .. .. .. 12.6 CO2 emissions (metric tons per capita) 0.2 0.3 0.3 0.3 GDP per unit of energy use (constant 2005 PPP $ per kg of oil equivalent) 2.7 2.8 2.7 2.8

Goal 8: develop a global partnership for development Telephone mainlines (per 100 people) 0.7 0.9 0.9 0.7 Mobile phone subscribers (per 100 people) 0.0 0.0 0.4 30.5 Internet users (per 100 people) 0.0 0.0 0.3 8.0 Personal computers (per 100 people) 0.0 0.1 0.5 1.4

Note: Figures in italics are for years other than those specified. .. indicates data are not available. 9/24/08

Development Economics, Development Data Group (DECDG).

Kenya

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Primary net enrollment ratio

Rat io of girls to boys in primary &secondary education

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Kenya Sub-Saharan Africa

Measles immunization (% of 1-year olds)

MAP SECTION

Yat ta P lateau

Ndoto M

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Lot ik ipi P lain

Mau Escarpment

Cherangany Hi l l s

ChalbiChalbiDeser tDeser t

Ngangerabel i P lain

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Mt. KenyaMt. Kenya(5,199 m)(5,199 m)

E A S T E R NE A S T E R N

R I F T VA L L E YR I F T VA L L E Y

C O A S TC O A S T

N O R T HN O R T HE A S T E R NE A S T E R N

N YA N Z AN YA N Z AKarunguKarungu

LodwarLodwar

LokicharLokichar

KangatetKangatet

KitaleKitale

EldoretEldoret

ButereButere NyahururuNyahururuFallsFalls

KerichoKericho

NarokNarokLolgorienLolgorien

MagadiMagadi

NamangaNamanga

KonzaKonzaMachakosMachakos

KibweziKibwezi

VolVol

TsavoTsavo

KwaleKwale

GarsenGarsen

BodheiBodhei

KolbioKolbioBuraBura

NguniNguni

IkuthaIkutha

KituiKitui

MackinnonMackinnonParkPark

LokichokioLokichokio

KarunguKarungu

KakumaKakuma

EmbuEmbu

NanyukiNanyuki

ThikaThika

GilgilGilgil

MbalambalaMbalambala

Garba Garba TulaTula

MandoMandoGashiGashi

WajirWajir

El WakEl Wak

TarbajTarbaj

RamuRamu

BunaBuna

MoyaleMoyaleSololoSololo

MarsabitMarsabit

North HorrNorth Horr

South HorrSouth Horr

MaralalMaralalKapedoKapedo

MarigatMarigat

Archer’sArcher’sPostPost

IsioloIsiolo

ManderaMandera

KisumuKisumuNakuruNakuru

GarissaGarissaNyeriNyeri

KakamegaKakamega

NAIROBINAIROBI

CENTRALCENTRAL

WESTERNWESTERN

NAIROBINAIROBIAREAAREA

Karungu

Lodwar

Lokichar

Kangatet

Kitale

Eldoret

Butere NyahururuFalls

Kericho

NarokLolgorien

Magadi

Namanga

KonzaMachakos

Kibwezi

Vol

Tsavo

Kwale

Shimoni

Malindi

Garsen Lamu

Bodhei

KolbioBura

Nguni

Ikutha

Kitui

MackinnonPark

Lokichokio

Karungu

Kakuma

Embu

Nanyuki

Thika

Gilgil

Mbalambala

Garba Tula

MandoGashi

Wajir

El Wak

Tarbaj

Ramu

Buna

MoyaleSololo

Marsabit

North Horr

South Horr

MaralalKapedo

Marigat

Archer’sPost

Isiolo

Mandera

KisumuNakuru

Garissa

Mombasa

Nyeri

Kakamega

NAIROBI

CENTRALNAIROBI

AREA

E A S T E R N

R I F T VA L L E Y

C O A S T

N O R T HE A S T E R N

N YA N Z A

WESTERN

E T H I O P I A

SOMALIA

TANZANIA

UGANDA

SUDAN

Ng’iro M

ilgis

Suam

Turk

wel

Tana

Mara

Galana

Athi

Ewaso

Thua

Tsavo

Loga Bogal

Lak Dera

Lak Bor

INDIANOCEAN

Lake

Victor ia

LakeTurkana

To Murle

To Juba

To Dila

To Imi

To Kismaayo

To Bur Gavo

To Dar Es Salaam

To Moshi

To Arusha

To Seronera

To Musoma

To Kampala

To Mbale

Yat ta P lateau

Ndoto M

tns.

Lot ik ipi P lain

Mau Escarpment

Cherangany Hi l l s

ChalbiDeser t

Ngangerabel i P lain

Bi lesha P lain

Daniss

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Mt. Kenya(5,199 m)

34°E 36°E 38°E 40°E 42°E

34°E 36°E 38°E 40°E

2°S

0°

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4°N

4°S

2°S

0°

2°N

4°N

KENYA

0 40 80 160120

0 40 80 120 Miles

200 Kilometers

IBRD 33426R

MARCH 2008

KENYASELECTED CITIES AND TOWNS

PROVINCE CAPITALS

NATIONAL CAPITAL

RIVERS

MAIN ROADS

RAILROADS

PROVINCE BOUNDARIES

INTERNATIONAL BOUNDARIES

This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, o r any endo r s emen t o r a c c e p t a n c e o f s u c h boundaries.