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Implementation Completion Report (ICR) Review - Private Sector


  
1. Project Data:   
ES Date Posted:
06/20/2001   
PROJ ID:
P002262
Appraisal
Actual
Project Name:
Private Sector
Project Costs(US $M)
 19.25  16.36
Country:
Rwanda
Loan/Credit (US $M)
 12.0  11.7
Sector, Major Sect.:
Business Environment,
Private Sector Development
Cofinancing (US $M)
 6.95  4.66
L/C Number:
C2541      
   
Board Approval (FY)
  94
Partners involved
None 
Closing Date
06/30/1999 09/30/2000
         
Prepared by: Reviewed by: Group Manager: Group:  
Fareed M. A. Hassan
Patrick G. Grasso Ruben Lamdany OEDCR

2. Project Objectives and Components:

a. Objectives
The project objective was to promote the expansion of the private sector as the key element in a development strategy for growth and diversification. The project was meant to provide the sector with the incentives and the means to engage in labor-intensive, export-oriented activities in an environment where local and foreign entrepreneurs can operate within a free market economy.

b. Components
The project consisted of three components: (i) a line of credit (US$7 million) to support investment financing for new and existing private enterprises; (ii) a Private Sector Support Fund (US$2.5 million) to help cofinance private enterprises' use of management consultants, organize training, and cover operational costs; and (iii) an institutional strengthening support (US$2 million) to the Central Bank, including supervision, economic and monetary analysis; to the Ministry of Commerce and Industry to implement the private sector development strategy; and to create a tribunal of commerce, together with legal and regulatory reforms.

c. Comments on Project Cost, Financing and Dates
Although the project was not formally restructured after the war, it was amended to reflect the post-conflict conditions. For example, the cost-sharing agreement for the Private Sector Development Fund was changed in favor of the beneficiaries. The condition that the Fund be initially headed by an international expert was changed to the requirement that a national expert be recruited instead, and an international expert, to provide technical assistance. The proposed creation of a tribunal of commerce was replaced by the strengthening of a newly created Arbitration Center. The project became effective in June 1995, 18 months behind schedule due to the civil war and genocide that broke out shortly after credit approval in September 1993. The original closing date was June 30, 1999, but the project was extended twice to finally close on September 30, 2000.


3. Achievement of Relevant Objectives:

About 95 percent of the line of credit was disbursed through 14 sub-loans. Over half of them were allocated to manufacturing and 41 percent to services. However, 4 of the 14 sub-loans experienced arrears; 14 percent of the total outstanding loan portfolio was classified as loss, and 9 percent was classified as facing difficulties. This performance reflects the difficulties of the participating banks in evaluating projects and credit risk in loan recovery in an unfavorable business environment following the 1994 genocide. Other than noting that 380 jobs were created, the ICR did not fully assess the economic impact of the line of credit. The Private Sector Support Fund met its quantitative targets: (i) approving a total of 119 grants mainly for consultant services (feasibility studies); and (ii) providing training for 195 persons. However, many feasibility studies were carried out for beneficiaries with insufficient access to financial resources to realize the studied projects. In terms of enabling the business environment, the Chamber of Commerce was liquidated and a new institution, the Rwanda Private Sector Federation, was established, which is not yet fully operational. An Investment Promotion Agency (IPA) was also established including a one-stop window to promote private investment. However, the one-stop window has not functioned as the government has not yet reformed the relevant regulations. These institutions will receive further support in the follow-up project. On the other hand, new central bank statues give autonomy and independence to the Rwanda Central Bank Other laws, including a new Labor Code and new insurance legislation, have been approved by the Parliament and are expected to be enacted.

4. Significant Outcomes/Impacts:

A new banking law was enacted that mandated Rwanda Central Bank to regulate and supervise banks. Audits of all major banks were carried out. Commercial banks were required to submit restructuring plans and their minimum capital was substantially raised.

5. Significant Shortcomings (include non-compliance with safeguard features):

The line of credit and the Private Sector Support Fund were disbursed, but the ICR provides no indication of the impact of these activities on the economy. Other than noting that 380 jobs have been created, no evidence is provided to show that export-oriented activities and foreign exchange earnings were realized. That is, the stated objective and expected outcome (namely providing the private sector with the means to engage in labor-intensive, export-oriented activities in an environment where local and foreign entrepreneurs can operate within a free market economy) has not yet been achieved. No performance indicators were designed to measure the link in the resource-investment-export chain. The resource transfer was not accompanied by foreign private investment. The experience of this project has been reflected in the design of a follow-up project in which no line of credit was included. Of the 14 sub-loans, only 2 projects had feasibility studies supported by the Private Sector Support Fund, raising questions about whether the Fund should have been in place before the line of credit (or at least accompanied the line of credit). The implementation of the Fund was delayed because the government did not agree with the requirement that the institution should be completely autonomous. In sum, the priority given to promoting export-oriented private sector development was arguably premature in a volatile post-conflict setting.
6. Ratings:ICROED ReviewReason for Disagreement/Comments
Outcome:
SatisfactoryUnsatisfactoryThere is little evidence indicating that the project achieved its development objective of enhancing Rwanda's private sector development (see section 5). Efforts to promote export-oriented private sector growth could not succeed given the volatile situation and the lack of government commitment.
Institutional Dev.:
SubstantialModestThe project contribution to institutional development was modest because most of the institutions established were weak and unsustainable.
Sustainability:
LikelyUnlikelyThe environment of an emergency and conflict is usually not conducive to major sector policy changes which are not directly related to the emergency.
Bank Performance:
SatisfactoryUnsatisfactoryThe project's numerous components and complexity were hard to handle for a country emerging from a major conflict. The Bank did not adequately assess the new government's commitment to reform nor its implementation capacity. Further the Bank failed to compensate for the project's complexity with more intensive supervision, nor did it devise performance indicators or attempt to provide annual reviews to adjust to the changing circumstances or restructure/close the project when the lack of government commitment and political instability were evident.
Borrower Perf.:
SatisfactoryUnsatisfactoryThe borrower's commitment to reform was limited. The client also underestimated its implementation capacity in adopting a complex project with no monitoring and evaluation mechanism.
Quality of ICR:
Unsatisfactory

7. Lessons of Broad Applicablity:

Bank staff and management should have greater flexibility in departing from original project objectives in restructuring portfolios in post-conflict situations from major policy changes to emergency, reconstruction and rehabilitation activities. There should be a written understanding between the Board and Bank management that spells out this flexibility.
  • A private sector development project for a country emerging from a major conflict needs to be carefully prioritized and sufficiently supervised. To implement post-conflict projects satisfactorily, the Bank must be prepared to allocate sufficient administrative budget resources for adequate restructuring, monitoring, and supervision.
  • If a project is negotiated under one government, but there is a change of regime, new discussions are needed to ensure commitment by the new government.

8. Audit Recommended?  Yes

          Why?  The Regional staff disagrees with most of the ICR Review - Evaluation Summary ratings. Given the special circumstances of Rwanda and that most private investments supported by the project are very recent, an audit may provide a better assessment. The proposed audit would be a building block toward a forthcoming country assistance evaluation.

9. Comments on Quality of ICR:

There is little evidence to support the ICR outcome rating. Also, there is lack of data on the enterprises financed by the project. The ICR could have provided more details on the performance of the 14 private enterprises financed under this project. The borrower did not comment on the ICR and did not prepare its own assessment.

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