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International advisory reportREPORT OF THE INTERNATIONAL ADVISORY PANEL
August 2011
QMM AND REGIONAL DEVELOPMENT
The original Regional Development Plan identified agriculture as the base for long-term sustainable development of the region. This is true both as the most likely economic opportunity and as most people’s subsistence and employment. However for agriculture to succeed as a basis of development two essential transformations are needed: increased productivity of local agriculture to produce more food for the region and for export; and access roads to the port. One road from the Ranomafana area has just been rehabilitated. The next priority is the road West to Ambovombe.
Other potential sources of development for the region include tourism, light labor-intensive industry (especially in the 400 ha zoned at the port), other mining developments both northward on the coast in the Manantenina region (bauxite), and in the Mandrare basin (apatite, mica, uranium).
QMM is an important motor of development for the region, through the direct economic activity of the mine and port and through its actions as responsible corporate citizen. In our previous report, we mentioned the risk of QMM being “the only game in town” given the political paralysis and the interruption of international aid flows. QMM is indeed, at the moment, the only game in town. But there are encouraging stirrings:
- There is general recognition, from authorities, NGOs and others concerned, that QMM cannot remain the “development agency for the Anosy”;
- There is willingness to breathe new life into the CRD and to update the regional development plan for the Anosy;
- Some aid flows may be resumed for social investments and humanitarian assistance;
- A willingness to explore exit strategies for QMM from its current role.
The report examines these avenues and some of the key tools for regional development.
The Port of Ehoala and Road Transport
Construction of the Ehoala port was always envisaged by the Madagascar government, the World Bank and QMM as the single factor that could most contribute to sustainable development in the region by lowering the cost of imports, opening the interior of the region to exports on an expanding scale and facilitating major expansion in the tourism industry. Its location, determined after much debate, was set explicitly to favour the development of the region and an industrial zone adjacent to the port was secured with that in mind.
The port is now an operational reality whose use is expanding gradually. Since the first ilmenite shipment in 2009, it is demonstrating a comparative advantage based on deep water access, modern turn-around times and equipment and lower costs than other regional ports (especially Durban, the largest port in the region). In addition, the 400 ha of adjacent land available for development holds numerous further potentials for the region. Following extensive consultations, a long-term plan (Schéma Directeur) was adopted in July 2010 and is awaiting formal government endorsement. Its aim is to bring about the full economic and financial benefit potentials of the facility. Included in the plan are proposals for the development of a Port Franc.
Ehoala Port now exports all the region’s formal sector products: frozen fish and lobsters, Madagascar periwinkle, scrap iron, sisal, and ilmenite. This year’s litchi harvest could soon be added to the list. In addition, visits by ten cruise ships are projected for 2011, bringing a welcome increase in tourist income to the region.
Thus, the past year has included concrete supporting evidence of the port’s potential as a critical asset for the region’s development. There are still major barriers to overcome if the full potential is to be realized. Any increase in regional exports will need to come either from new industries or new agricultural opportunities. This means a move from agricultural production by the basket-full to production by the container-full, a challenge.
In order to stimulate investment in the 400 ha area designated for commercial use, such as light industry and transshipment facilities, the Port Authority is seeking Free Port status. The Schéma Directeur stipulates that a proportion of the enterprises must offer high employment to local labor to avoid a common failing of many free port zones which become enclaves adding limited value to products, with few backward linkages to local materials and little local employment.
The major current obstacle to the full use of Ehoala Port is the near-impassable state of RN 13, the road out of Fort Dauphin. It is estimated that if this were improved, Ehoala could provide 25% of national imports and exports. Since the EU has suspended its support for road development because of the political crisis, the Anosy area remains an enclave. The World Bank’s PIC program did restore the 50 km road to Ranomafana-Sud, which will reduce the isolation of that sub-region and stimulate increased exports of its rice, oranges, and litchis. Rehabilitation is now urgently needed to RN 13 which traverses the famine-prone area of Androy and where especially high rates of poverty and malnutrition are endemic but where there is known to be major potential for exports of beef and minerals and for eco-tourism. The priority should be to rehabilitate the first 10 km link with the road to Ranomafana and then the further 90 km to Ambovombe: that would have major impact on poverty and malnutrition reduction. Given rates of malnutrition, this could be justified on humanitarian as well as more general regional development grounds.
There are two minor downsides to the port:
- Substandard boats do not have access—either unsafe boats or those without insurance. This is a crimp in the cheapest maritime transport as the old port is now unusable. This underscores the need to move to container shipment or for entrepreneurs to upgrade small transport capacity.
- There are limitations to use of the port side of the bay when a ship docks. The ongoing development programs with the fishermen are intended to improve their productivity and make them less dependent on a daily catch. Another opportunity would be for a local private opérateur to invest in a small-scale freezer facility for local consumption. This would relieve local fishermen from having to go out when the port is in use or cyclone warnings in effect, smoothing income from a good day to cover bad days.
Recommendation # 9: QMM should continue its efforts to obtain formal adoption of the port Schéma Directeur as soon as the political situation permits. The institution of a Zone Franche would also be useful as long as norms and standards are in place to ensure that investments in that zone are clearly directed at maximum local employment and value added.
Recommendation # 10: The World Bank and other development agencies that have committed to improving the road network as a means of creating access to the port from the hinterland should consider both humanitarian and regional development criteria in order to give priority to the urgent rehabilitation of RN 13 out of Fort Dauphin.
Fort Dauphin
Fort Dauphin continues to have obvious unmet needs. The main road from airport to market to Town Hall was supposed to be rehabilitated by the World Bank’s PIC program, but this was suspended after the 2009 political crisis. Other PIC projects included garbage disposal, and water and electricity distribution. QMM has responded to this situation through provision of water last year and electricity this year.
After much negotiation with JIRAMA, the national electricity and water company, QMM will be providing power from its generator on the mine site using heavy fuel paid for by JIRAMA. There has been a temporary setback as the QMM-installed transformers broke down. Until the transformers are repaired, expected in August 2011, QMM has accepted that it must support temporary generators for the town. This has huge value to the morale of Fort Dauphin. It is recognized that QMM obligations did not and do not include provision of electricity for Fort Dauphin; that the company adopted a flexible and understanding position and is providing and subsidizing electricity provision to the town.
Fort Dauphin, however, continues to be the obvious flashpoint for conflict. QMM reports that when they originally advertised a job opportunity they would get about 50 applicants, whereas now it may be several hundred. This will not change unless or until there is widespread improvement in the local economy. QMM recruitment is now handled through a “Guichet Unique”, administered by the Ministry of Employment, with preference for locally resident candidates who fulfill the conditions of the post. Low level posts are advertised only in Fort Dauphin, high-level posts are advertised in both Fort Dauphin and Antananarivo.
PDI, PAP & AGEX
QMM also supports rural regional development through its Projets de Développement Intégré (PDI). This program serves the communes of Ampasy and Mandromondromotra adjacent to the Mandena mine site, some communities in the Fort Dauphin area (Andrakaraka) and communities around the port/quarry area.. It is intended to be a time-limited contribution to sustainable development of the region beyond QMM’s specified contractual obligations.
The Panel visited several of the PDI projects which seemed to us to be well focused, grass roots undertakings aimed at improving incomes of rural people by raising rice productivity and increasing sustainable livelihoods. For instance, one of the pilot projects in agriculture has shown that rice production can be raised through a combination of better inputs and improved management techniques from an average of one ton per hectare to five tons. The objective is to raise this further to seven tons. If this is achieved and the improved practices become widespread and sustainable, the impact on poverty reduction in the region will be significant. Other projects include blacksmithing, pig raising, laying hen raising, and honey production.
The Panel met with members of three NGOs that are the Agents d’exécution (AGEX) for the PDI: FAFAFI, ASOS, and Association Cieloterra. FAFAFI is a church-based agricultural Malagasy NGO, ASOS is a Malagasy NGO originally concerned with health that has branched out to rural development, and Cieloterra is concerned with livelihoods including craft and education.
The AGEX effort is focused on People Affected by the Project (PAPs). These are the 70 families moved from the quarry site and the fishermen who gave up landing near the port during the three years of port construction. One of the projects for the PAPs under the stewardship of the Cieloterra involves craft training for women which has shown steady quality improvement over the past four years and now represents some of the finest craft work in Madagascar. A second initiative offers elementary school instruction for adolescents with no or almost no formal education. Under this program, volunteer adolescents finish the normal five year primary school subjects in just 11 months and most pass the leaving exam.
The PDI projects face two challenges: the first is to expand beyond the pilot/demonstration stage to become ingrained practice. The second is to ensure sustainability once the three-year commitment of QMM expires by the end of 2013.
This latter challenge requires a constructive exit strategy. The prime candidate for such is the much touted Foundation, but as noted earlier in this report, its formal establishment may be some time away. Moreover, there can be no certainty that, even if established, the foundation would attend to the challenges of sustainability in all the projects under the aegis of the PDI. Thus, to avoid the trap of becoming the ongoing social and economic development agency for the region, a QMM exit strategy from the PDI cannot rest exclusively or even principally on the establishing of a foundation and must examine other options. One such option might be support –also temporary—from one of the World Bank supported projects, the PSDR.
Recommendation #11: QMM should continue to enlist the support of interested parties for the establishment of a regional development foundation and help ensure that the focus of the foundation be squarely on high impact long-term development projects such as the PDI. At the same time, it should work to establish future partnerships for these projects with existing World Bank programs and/or investments by other donors.
Local Suppliers
The Panel met with opérateurs économiques that currently have contracts with QMM. Some expressed satisfaction, but several grievances were also expressed. These centered on the insecurity generated by short-term contracting and insufficient local procurement.
QMM has a procurement policy that supports local purchases, including pre-qualification of suppliers, timely and open announcement of appels d’offres for contracts, occasional large-scale meetings, bi-weekly operator’s meetings and access each Wednesday morning for entrepreneurs seeking further information. There are also English courses and business management support courses for local entrepreneurs. In 2010, 34% of QMM purchases were imported, 30% were purchased from Antananarivo, and 36% purchased locally. These wholly local suppliers are understandably pressing for a greater share of procurement, in particular targeting the firms importing goods from Antananarivo.
The Steering Committee on local procurement has held two recent meetings with the community of local suppliers and has obtained support from the World Bank’s International Finance Corporation (IFC) to provide capacity development services to the community. (One slight caveat is that the company supported by the IFC is the international trainer, Business Edge. This, like Sodexho, is about as far from being a locally-owned company as is possible to find. Arguably, it may use Madagascar-based educators to the extent possible, but it hardly sends the message that local procurement is a priority.)
Recommendation #12: For the benefit of the region and to avoid misunderstandings and potential conflict, it is imperative that QMM maintain and even deepen the dialog with local business and engage them in joint initiatives to promote local procurement and employment.
Recommendation #13: At the same time, the expectations of local opérateurs économiques point once again to the high risks associated with the perception of QMM as the only game in town. This underscores further the need for a viable long-term development strategy for the region and the importance of a revitalized CRD. A critical component of a regional strategy should include actions and instruments for the development of commercial activities not directly related to QMM procurement. Examples of such activities would be the marketing of produce and crafts from the PDI interventions, possible freezer facilities at local scale for fishermen and at a larger scale for export, the development of ships for coastal service that would qualify to use Ehoala port. Private enterprise could and should take over many actions now supported by QMM and NGOs if the region is to develop a working economy.