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19. Madagascar is without doubt one of the world's most important biodiversity countries. Although not as species-rich as some other countries in the Afrotropical Realm, its exceptional levels of plant and animal endemism make Madagascar the country with sole responsibility for safeguarding some of the world's most interesting biodiversity. The discrepancy in Madagascar between threats to globally-significant biodiversity and government capacity to address them is unparalleled. Six years of concerted government and donor effort has made significant progress, but major support is still needed. Full implementation of these initiatives will only be possible with GEF funding.
20. The GEF project is eligible for GEF funding in line with all four operational programmes under the Operational Strategy for Biodiversity. In accordance with article 8 of the Convention on Biological Diversity the GEF project will address in situ conservation through support to protected areas and sustainable use across four major ecosystems: coastal, marine and wetlands; forests; mountains; and arid and semi-arid lands. The GEF project is a national priority as identified in the NEAP and conforms with COP guidance to support conservation and sustainable use of ecosystems and habitats and endemic species. It will promote sustainability through demonstration projects and innovative measures to strengthen local community involvement and integrate conservation and sustainable use with regional development programmes. GEF funding is incremental and requested for only a small part of a holistic national plan that will address a comprehensive Madagascar-wide programme, supported by all major donors, to protect the environment and promote sustainable development
21. The GEF contribution to EP2 will lay the groundwork for new approaches addressing root causes of biodiversity loss in the country. It will build integral components of biodiversity conservation into revitalized forestry institutions and strengthen the administration of protected areas. Finally and most importantly, it will build consideration of biodiversity into on-going national programmes aimed at decentralizing the management of natural resources.
22. GEF inputs are essential in overcoming the transaction costs of putting these new systems in place while maintaining ongoing conservation efforts.
SUSTAINABILITY AND PARTICIPATION
23. Stakeholder participation, financial sustainability, and governmental commitment were central elements of the programme design. The process of formulating the second phase programme is being carried out entirely by Malagasy agencies. The initial participatory process, during the period June-December 1994, resulted in the preparation of an identification report that was discussed at the December 94 meeting of the programme's Steering Committee (COS: Comité d'Orientation et de Suivi). Detailed preparation work was completed in November 1995. It included a GEF-funded Participatory Process for the Definition of Options and Priorities (PPDOP) in which Government, local communities and other stakeholders worked together to define problems, establish priorities, and discuss future actions. The formulation of new forest policies and legislation and of the new law on local community management of natural resources were also the result of participatory processes. In addition, a beneficiary assessment has been carried out to evaluate the first-phase activities involving local populations (i.e. land titling, micro-projects for erosion control, integrated conservation and development operations), and the conclusions were used as an input into programme design and appraisal. Finally, all donors and international NGOs involved in the environment in Madagascar have worked jointly with the Malagasy agencies - something almost unprecedented in Madagascar - in order to seek full consensus on strategies and priorities.
24. In the implementation of EP2, an adaptation of the PPDOP, the Annual Participatory Programming Process (APPP), will be applied at regional level, as illustrated by the diagram in annex E. The goal of the APPP will be to achieve agreement on conservation problems and their solutions, as well as to allocate funding to implement these solutions and ensure that the approaches are adjusted when necessary as revealed by the ongoing participatory process.
25. EP2 is being designed to build financial self-sufficiency. The financial sustainability of protected areas is a major issue. In the long run, the combination of income from eco-tourism (entrance fees to parks, royalties on private activities that benefit from the existence of a park, etc.) with the revenue from capital investment (e.g. through a trust fund or foundation such as the one recently established in the country) should be sufficient to ensure such a viability. In the short to medium term, external financing, including GEF grant resources, will be required. Financial sustainability of forestry operations would come from a decrease in the need for Government intervention together with an improvement in recovery of stumpage fees and other levies from sustainable forest products, through the National Forestry Fund. Subsidies are considered justified in the short term to offset the risks of change and promote sustainable natural resource management. In order to ensure long-term sustainability of the schemes, cost recovery would be progressively introduced. The level of cost recovery would depend on the importance of direct benefits versus externalities. Recovered funds would be managed at village community level to finance expansion and/or maintenance of investments.
LESSONS LEARNED AND TECHNICAL REVIEW
26. One of the principal ideas behind EP1 was the integration of all environmentally related activities into one programme. This integration encouraged priority setting on a national scale, but did not involve many of the regional and local stakeholders. The lesson of the PPDOP used to prepare EP2 is that regional involvement is necessary to fully address Madagascar's environmental issues. This lesson will be applied in EP2 in the form of the APPP to ensure that a multi-level priority-setting approach replaces the strictly national priority-setting approach of EP1.
27. In the EP2 design process, biodiversity threats were found in all areas, many of which do not currently fall within the protected area system. It is therefore critical that biodiversity conservation efforts focus both inside and outside the protected area system. This realization has led to broadening of the geographic scope of EP2 and to the integration of a participatory process into its design and implementation
28. The EP2 design process also shows that in order to best prioritize and address Madagascar's environmental concerns, biodiversity should not be focused on as a separate issue. This presently occurs due to the sectoral focus for which each of Madagascar's governmental institutions is responsible. For example, ANGAP is charged with overseeing Madagascar's parks system, and DEF with forests. These institutions currently have no proper mechanism for collaborating on the related issues that they are separately facing in the same region. Neither is able to look beyond its specific focus more deeply into possible root causes of a particular situation, and biodiversity concerns are not addressed. Hence in EP2 a regional approach conducive to institutional cooperation, will be used, focusing on incorporating biodiversity as a major component of environmental initiatives.
PROGRAMME FINANCING AND BUDGET
29. Total programme cost is estimated at US$ 156 million (including taxes and contingencies). Such a cost is comparable to the cost of EP1 (US$ 150 million, most of it net of taxes). Of this it is calculated that US$ 44.75 million is Incremental Cost financing, ie. financing which is over and above what Madagascar would rationally commit as a baseline. This increment specifically addresses the globally significant biodiversity of Madagascar and is made up of both GEF financing - US$ 20.8 million, and co-financing of the Incremental Costs (in addition to their contributions towards the baseline) by other bilateral and multilateral donors - US$ 21.95 million. The level of pledges made by the different donors who participated in the pre-appraisal missions is US$ 105-110 million (including IDA and expected GEF funding), in addition to US$ 15.5 already financed. It is anticipated that Government will finance about US$ 35 million (5 million taxes, 8 million net-of-tax financing, and 22 million through tax exemption against external grants) and that the IDA Credit will be about US$ 30.0 million. The country's commitment to such a large programme will need formal confirmation, in the form of a "programme-law" and this law will be presented to the Parliament during its Autumn 96 session.
30. The following table presents cost estimates for the EP2 as well as proposed GEF financing: