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Implementation Completion Report (ICR) Review - Cameroon - Structural Adjustment Credit III


  
1. Project Data:   
ES Date Posted:
03/08/2005   
PROJ ID:
P054443
Appraisal
Actual
Project Name:
Cameroon - Structural Adjustment Credit III
Project Costs(US $M)
 180.00  222.50
Country:
Cameroon
Loan/Credit (US $M)
 180.00  222.50
Sector, Major Sect.:
Forestry, General agriculture fishing and forestry sector, Central government administration, Telecommunications, Ports waterways and shipping,
Agriculture fishing and forestry; Agriculture fishing and forestry; Law and justice and public administration; Information and communications; Transportation
Cofinancing (US $M)
   
L/C Number:
C3102      
   
Board Approval (FY)
  98
Partners involved
 
Closing Date
12/31/2000 03/31/2004
         
Prepared by: Reviewed by: Group Manager: Group:  
Pierre M. De Raet
John H. Johnson Kyle Peters OEDCR

2. Project Objectives and Components:

a. Objectives
The overall objective was to lay the groundwork for a substantial increase in economic growth (annual GDP growth of over 5 percent) in order to create jobs, especially for the young and to reduce poverty. Four major development areas were targeted as vehicles for meeting this objective, namely:

1) In the transport sector, the objective was to substantially lower transport costs and increase the availability and quality of services, both internationally and domestically;
2) In the public enterprise (PE) sector, two areas were targeted: (i) in public utilities, the objective was to increase the availability of telecommunications, water, and electricity services and the efficiency of service providers; and (ii) in the agro-industrial sector, the objective was to unleash the sector's potential to produce exports as well as supplies for the domestic market;
3) In the financial sector, the objectives were to develop a stable, sound and efficient financial sector, boost public confidence in the financial system, and increase its capacity to finance productive economic activity; and
4) In the forestry sector, the objectives were to promote sustainable exploitation of the forests; preserve ecological stability; promote economically efficient, high value-added, unsubsidized processing industries; and encourage the participation of all stakeholders in forest conservation and management.

b. Components
There were four components corresponding to the four sectoral areas targeted for reforms:
1) In transport, the program called for regulatory, institutional, and management reforms in the port sector, maritime transport, road maintenance, rail transport, and air transport;
2) In privatization, reforms called for (i) establishing a regulatory framework for and the privatization of the public utilities (telecom, electricity, water) and (ii) privatizing the 4 largest remaining PEs in the agro-industrial sector (palm oil, cotton, sugar, and fruits); for both (i) and (ii), the conditionality required that bids be analyzed and the successful bidder invited to negotiate;
3) In the financial sector, reforms called for the full liberalization of bank commissions; the privatization of the one remaining public sector bank; the privatization of two insurance companies; and support to the Banking Commission for Central Africa (COBAC) and to the regional insurance supervisor (CIMA) in the implementation of their prudential regulations; and
4) In the forestry sector, reforms included the establishment of an institutional framework conducive to sound forest management; the adoption and implementation of a tax reform to reduce dependence on export taxes; the reduction of subsidies to inefficient domestic processing industries; improvement in the mechanism for allocating cutting rights and concessions; and provisions for an independent and transparent validation of auction outcomes and publication of auction results.

c. Comments on Project Cost, Financing and Dates
The Credit had two cross-sectoral tranches, the first one disbursed upon effectiveness, and four floating sectoral tranches linked to the completion of agreed actions in the transport sector (one tranche), the privatization program (two tranches), and the forestry sector (one tranche). The original Credit of US$180 million was supplemented by five additional credits amounting in total to US$42.5 million. Some reforms were supported by the Public/Private Partnership for Growth and Poverty Reduction Project, a technical assistance project approved in May 2000, itself a follow-up to the Privatization and Private Sector Technical Assistance Project of May 1996 which was in support of the 1996 SAC-II. The Closing date was extended four times for a total of 39 months to allow for more time to meet tranche conditions, especially on account of the privatization program.


3. Achievement of Relevant Objectives:

1) In the transport sector, costs were reduced and services improved, except in air transport. Institutional and regulatory reform, privatization of several port activities, rehabilitation of infrastructure, and dredging made the port of Douala more competitive and efficient: average stay at quay was reduced from 3.8 days to 1 day, clearance delays were reduced, the cost of import container handling was reduced by 27 percent, etc. More than 20,000 km of roads received maintenance funding against 10,000 before the creation of the road fund, thereby reducing transport costs and transit time. Maritime rates were reduced following the liberalization of levies charged by the Shippers Council. Rail traffic increased substantially following the privatization (concession) of the railway. However, the privatization strategy for CAMAIR (the domestic airline) was not implemented and the company remained subject to government interference.
2) Achievements under the privatization program are mixed. In the public utility sector, the objectives of raising the availability and quality of service and of raising the efficiency of service providers were not achieved, except in mobile telephony. The historical telecom company was not privatized; the electricity company, albeit privatized, was not able to improve service due to various problems (deferral of urgent investment programs and consecutive years of drought); and service in the water sector remained poor as the privatization of the water company failed. In the agro-industrial sector, surfaces planted, yields, production and employment rose for the PEs successfully privatized (sugar, palm oil, banana, tea), but no progress was achieved by those whose privatization was unsuccessful (palm oil/rubber) or incomplete (cotton).
3) Reforms in the financial sector, notably the successful privatization of the last large public bank and the successful restructuring of the insurance sector, led to increased financial deepening, expanded and improved services, increased credit to the private sector, and increased confidence of the public in the banking sector.
4) In the forestry sector, a revamped institutional and regulatory framework, including a competitive auction system for the award of logging rights and independent supervisory mechanisms, has led to a much improved and more transparent forest management system. The Government identified 10 percent of the country's territory as protected areas. As a result of a revised taxation system, there was an important shift from log-based to processed products exports. Finally, revenues from forest exploitation were redistributed more equitably to local communities.

4. Significant Outcomes/Impacts:

1) The PRSP was adopted in 2003 and a stable macro-economic framework was maintained until the closure of the project in March 2004. During the SAC III period, GDP grew at about 4.5 on average per year, inflation declined to below 1 percent in 2004, the fiscal deficit was kept low at about 1.5 percent of GDP, and the current account deficit declined to 2.7 percent of GDP in 2004. However, in the course of 2004, the fiscal situation deteriorated, owing in part to the poor financial performance of some PEs. As a result, the fifth and sixth reviews under the IMF PRGF could not be concluded and the IMF program went off-track. The completion point under HIPC is not envisioned now until 2006.
2) The restructuring/privatization of the financial sector has been completed and the sector is now stable and profitable. Access to credit by the private sector has improved.
3) Considerable progress has been achieved in the forestry sector (management, transparency, downstream activities, exports); this is particularly important since the sector, traditionally prone to corruption, is of vital importance to the economy.
4) Transport costs were substantially reduced, resulting in increased competitiveness.
5) Several large PEs were privatized, with little risk of reversal.

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

1) Resistance to privatization and restructuring of some PEs proved stronger than anticipated, notably within the administration, casting continued doubt on the ability of any government to bring the privatization program to fruition in the medium term. As a result, the privatization of several important PEs were unsuccessful or have remained incomplete.
2) In the public utility sector, service coverage was not expanded, quality of service not improved, and greater efficiency of service providers not realized, except in mobile telephony.
3) Progress under the reform program (notably the privatization component) suffered from the absence of a well focused TA operation designed in parallel with preparation of SAC-III and tailored to its specific needs (the May 2000 TA operation mentioned under Section 2 (c) above came too late). In addition, an estimated implementation period of only two and a half years for a very broad and complex program was unrealistic, a serious design flaw at preparation/appraisal, especially since Bank experience with the time required to conduct PE reforms is well known.
4) The multiplicity of regulatory authorities set up under the program presents a danger to the effectiveness, consistency, and harmonization of regulation and across sectors. Cameroon does not have the personal and financial resources to maintain several high caliber independent regulatory authorities. Serious consideration should be given to merge them into a single one.

6. Ratings:ICROED ReviewReason for Disagreement/Comments
Outcome:
SatisfactorySatisfactory
Institutional Dev.:
SubstantialSubstantial
Sustainability:
LikelyLikely
Bank Performance:
SatisfactorySatisfactory
Borrower Perf.:
SatisfactorySatisfactory
Quality of ICR:
Satisfactory

7. Lessons of Broad Applicablity:

1) Cameroon's experience with the privatization program confirms two lessons repeatedly highlighted by OED: (i) complex privatization programs should be accompanied from the start by well targeted TA operations; and (ii) they should be well sequenced within a long time-frame, possibly over several operations.
2) Bank teams should be attentive to the frequent disparity in commitment between the political and administrative levels.
3) Small countries with limited resources should be encouraged to have a single multi-sector regulatory authority.
4) Floating tranches are useful in allowing the country to prioritize and pace the reforms according to circumstances.

8. Audit Recommended?  Yes

          Why?  To review progress made by Cameroon in redressing its economy since the devaluation of the CFA franc in January 1994.

9. Comments on Quality of ICR:

The ICR is of good quality.

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