PROJECT INFORMATION DOCUMENT (PID) CONCEPT STAGE Report No.: AB7052

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1 Project Name Region Country Sector(s) Lending Instrument Project ID Borrower(s) Implementing Agency Environmental Category Date PID Prepared Estimated Date of Appraisal Completion Estimated Date of Board Approval Concept Review Decision Other Decision I. Introduction and Context Country Context PROJECT INFORMATION DOCUMENT (PID) CONCEPT STAGE Report No.: AB7052 Support for Poor and Disadvantaged Areas II Project (SPADA II) EAST ASIA AND PACIFIC Indonesia Agro-industry, marketing (40%), General Agriculture/fishing/forestry (40%), Public Administration-Agriculture (20%) Specific Investment Loan P Ministry of Finance State Ministry for Development of Disadvantaged Areas, Government of Indonesia B-Partial Assessment 18-Jun Dec Feb-2013 During the last decade, Indonesia has embarked upon a far-reaching institutional transformation and has become one the region s most vibrant democracies. Economic growth is expected to reach 6.7% in 2012 in spite of the slowdown experienced by the global economy. While Indonesia is doing well it could be doing far better across the areas of poverty reduction, service delivery and governance. The proportion of the population living below the poverty line has fallen from 17.4 percent in 2004 to 13.3 percent in Despite these gains, more than 31 million Indonesians currently live below the poverty line of US$ 22 per month. In addition, 40 percent of households live just above the national poverty line, remaining vulnerable to falling back into poverty. While there have been some gains from decentralization in terms of regional accountability and efficiency, the capacity of district governments to provide equitable and accessible services and the ability of poor people to engage with processes of local governance still vary considerably across regions. Sectoral and Institutional Context Poverty is particularly high in rural areas. Income generation and employment opportunities remain limited, while the level of access to and the quality of basic services is still poor. The combination of great diversity in socio-cultural, ethnic and religious identities alongside significant disparities in

2 income, regional endowments, quality of service delivery and population distribution has led to a wide dispersion of the incidence of poverty and in the absolute numbers of poor, entrenching and worsening existing inequities. KPDT s mandate is to increase growth and reduce poverty in 183 disadvantaged districts - identified on the basis of local economic performance, human resources, infrastructure, fiscal capacity, accessibility, and other regional characteristics - which is also one of the Medium-Term Development Plan (RPJMN) priorities. KPDT pursues this mandate by improving the economic performance of disadvantaged areas through the utilization of local resources (human resources and institutions) and by enhancing participation of a range of stakeholders. SPADA 2 would support KPDT s mission by empowering local producer organizations, by facilitating their access to markets, and by building the capacity of local governments to deliver key productive services to their constituents and to attract private investment. Relationship to CAS SPADA 2 will create business opportunities, increase income and improve livelihoods in targeted poor and disadvantaged districts of Indonesia. The proposed project promotes private sector development one of five thematic areas that form the core of the World Bank s engagement, and is consistent with the approach set out in the CPS with its focus on building the capacity of selected state and non-state actors to meet Indonesia s development objectives. II. Proposed Development Objective(s) (Display Only - Pulled from PCN) Proposed Development Objective(s) (From PCN) The Project Development Objective is to increase the competitiveness of, and build entrepreneurship in, targeted rural poor and disadvantaged areas in a sustainable manner. This will be achieved by: (i) facilitating the development and scaling-up of demand-driven productive partnerships with the commercial private sector; (ii) improving access to critical infrastructure and key government support services; and (iii) improving the capacity of local governments and service providers to deliver production and business development services. The overall goal of the project is to reduce poverty, increase employment, and develop entrepreneurial skills in rural poor and disadvantaged areas by enabling small rural producers to compete successfully in national and international markets. Key Results (From PCN) Progress towards the achievement of the PDO will be measured through the following results indicators: (i) number of productive partnerships between producer organizations and micro and small scale enterprises, and the commercial private sector formed under the project; (ii) number of beneficiaries involved in the productive partnerships supported under the project; (iii) revenues accruing to farmers organizations and the private commercial sector under the productive partnerships supported by the project; (iv) an increase in employment as a result of the productive partnerships created under the project. III. Preliminary Description Concept Description The project will have four main components, described below. Component 1: Productive Partnerships and Local Entrepreneurship The objective of this component is to facilitate the development of sustainable demand-driven

3 partnerships in clusters of villages within targeted districts, whereby clusters are identified on the basis of common characteristics, such as agro-ecological zones or similar natural resource endowments. Activities supported by this component are expected to lead to: (i) a sustainable increase in employment and volume of sales through a demand-driven expansion of locally-based small and medium-sized enterprises engaged in activities that integrate productive, processing, and marketing activities along value chains that draw on an area s comparative advantage in terms of natural and human resources; and (ii) development of a sound local investment climate, leading to sustained local investment, technology development, and an increase in nonfarm and farm jobs. These outcomes will be achieved through the following subcomponents: 1.1. Participatory Development Planning: value chain action plans for each of the targeted clusters will be prepared by regional or local service providers (e.g. universities, NGO or consultants) contracted by the project through the involvement of local governments, producer communities and private sector organizations. The value chain action plans will be consistent with local development plans, including the Bedah Desa (accelerated rural area development program) and the PRUKAB (kabupaten s potential commodities), both supported by KPDT as part of its effort to coordinate and integrate local development planning with existing District and Provincial Master Plans. The initial planning phase will allow identifying those value chains whose competitiveness is underpinned by the local availability of natural and human resources. Value chain action plans will be designed and monitored through the establishment of Local Development Forums for each of the targeted clusters. The Forums will facilitate the dialogue and coordination between local governments, the private sector, producer organizations, local banks and microfinance institutions, and other actors in the preparation and monitoring of the value chain action plans. The action plans will commit stakeholders to a set of coordinated actions that are intended to address investment and technical capacity gaps and other bottlenecks that have been identified as constraints to the development of the targeted value chains The Development of Productive Partnerships sub-component will provide matching grants to support the establishment of demand-driven partnerships between organizations of small producers and private sector firms that are consistent with the value chain action plans developed through the Local Development Forums. The grants are intended to develop appropriate conditions for producer organizations (PO) to improve their access to technology and start-off capital, and to develop linkages to markets by establishing, scaling up, or enhancing market-oriented joint ventures or long-term contractual arrangements with private sector partners. To maximize the incentives for the development of sound and commercially viable partnerships, the grants will match resources internally provided by the partners, either through own funds, in-kind labor or services (e.g. technical assistance), or loans from microfinance institutions or rural banks. The grants will therefore be designed so as to maximize the opportunities for POs to link, in addition to private sector counterparts, to local private and public extension services, local R&D centers, rural banks, district and provincial Dinas, and other relevant local providers of business services. They will be used to finance training, learning activities, transfer of technology, acquisition of production facilities, and equipment. By acting as a catalyst for interaction among local actors, the grants will therefore contribute to activating local development networks in support of the targeted industries. Furthermore, this sub-component will support the development of POs capacity to manage their internal governance, and financial and planning processes and to negotiate with private sector counterparts. The strengthening of producer organizations will ensure that the partnerships supported by the project will be perceived as fair and sustainable by the members of the producer organizations.

4 1.3. The Improving the Local Investment Climate sub-component will build the capacity of district governments in developing and operating One Stop Shops (OSS) where prospective investors will be able to acquire information regarding local firms and POs, access digitalized information and maps, and process the licenses required to operate a business more transparently and expeditiously. The establishment of OSS will include a joint review with local government planning authorities of local business regulations and implementation modalities of relevant national legislation in terms of their impact on the business investment climate, in particular for priority sectors. Component 2: Public Infrastructure Support This component will involve the provision of essential productive and market access infrastructure to participating village clusters as identified during the preparation of the Value Chain Action Plans developed under sub-component 1.1. The goal of the component is to improve access to markets for enterprises involved in agricultural, livestock, fisheries and other industries in line with cost effective, high-quality rural infrastructure through participatory planning processes. To attract local government funding and to ensure ownership, the project will provide grants to participating districts. Only intervillage infrastructure, (involving the area of two or more villages), will be eligible for funding under the project (community-level projects will be handled through other programs, such as PNPM-MP). In addition, funding will be approved on the basis of a Memorandum of Understanding whereby District and/or Provincial governments will clearly commit to allocating the funds required for the necessary O&M of the infrastructure developed under the project as part of their multi-year local development plans. Component 3: Institutional Capacity Building The objective of this component is to improve service delivery of both national and local governments in targeted districts through a program of technical assistance and training of BAPPEDA staff and key Dinas (Agriculture, Infrastructure, Industry, etc.) in targeted local districts to improve to their capacity to: (i) promote local sector investment; (ii) assist in the preparation of cluster development frameworks, local value chain development plans; and (iii) manage the procurement and monitor the implementation of infrastructure sub-projects. Component 4: Project Management and Monitoring and Evaluation Besides the more specific project management, a local-government system of monitoring and evaluation will be developed to track project performance at the district and cluster level. IV. Safeguard Policies that Might Apply Safeguard Policies Triggered by the Project Yes No TBD Environmental Assessment OP/BP 4.01 Natural Habitats OP/BP 4.04 Forests OP/BP 4.36 Pest Management OP 4.09 Physical Cultural Resources OP/BP 4.11

5 Indigenous Peoples OP/BP 4.10 Involuntary Resettlement OP/BP 4.12 Safety of Dams OP/BP 4.37 Projects on International Waterways OP/BP 7.50 Projects in Disputed Areas OP/BP 7.60 V. Tentative financing Financing Source Amount Borrower 0.00 International Bank for Reconstruction and Development Total VI. Contact point World Bank Contact: Fabrizio Bresciani Title: Senior Agriculture Economist Tel: Borrower/Client/Recipient Name: Ministry of Finance Contact: Mr. Rahmat Waluyanto Title: Director General of Debt Management Tel: (62-21) Implementing Agencies Name: State Ministry for Development of Disadvantaged Areas, Government of Indonesia Contact: Mr. Suprayoga Hadi Title: Tel: (62-21) VII. For more information contact: The InfoShop The World Bank 1818 H Street, NW Washington, D.C Telephone: (202) Fax: (202) Web: