|1. Project Data:
ICR Review Date Posted:
|Sn-priv Inv Promotion Sil (fy03)
Project Costs(US $M)
Loan/Credit (US $M)
Cofinancing (US $M)
Board Approval Date
|General industry and trade sector (43%), General public administration sector (25%), Telecommunications (15%), Postal services (10%), Compulsory pension and unemployment insurance (7%)|
|Export development and competitiveness (29% - P)
Regulation and competition policy (29% - P)
Personal and property rights (14% - S)
Legal institutions for a market economy (14% - S)
Tax policy and administration (14% - S)|
||ICR Review Coordinator:
|Melvin P. Vaz
|2. Project Objectives and Components:|
According to the Development Credit Agreement (page 11), the objective was "to assist the Borrower in creating conditions to stimulate a sustained increase in private sector investment in the Borrower's economy through an improved investment climate, the fostering of a greater participation of the private sector in economic activities, and related policy and sector reforms."
According to the Project Appraisal Document (page 2), "to help create the conditions to stimulate a sustained increase in private investment in Senegal through an improved investment climate, greater private participation in economic activities, and policy and sector reform. The project is thus expected to make important incremental contributions towards attaining 8 percent GDP growth called for in the Government's poverty alleviation program."
The main difference between the objective of the project as stated in the Project Appraisal Document and Development Credit Agreement is that, in addition to the statement of objective in the Development Credit Agreement, the Project Appraisal Document makes a reference to an 8 percent GDP growth. Therefore, this review assesses the original objective of the project as stated in the Project Appraisal Document.
The project had undergone a Level I restructuring on July, 2010 which involved dropping the reference to the 8 percent GDP growth from the PDO, and revision and simplifications to the results framework by significantly reducing the number of key performance indicators. The statement of the objective in the Restructuring Paper (page 2) and revised Development Credit Agreement (page 11) were similar.
"To create the conditions to increase private investment. This will be accomplished through an improved investment climate, greater private participation in economic activities, and policy and sector reforms." (Restructuring Paper, page 2)
b. Were the project objectives/key associated outcome targets revised during implementation?
If yes, did the Board approve the revised objectives/key associated outcome targets?
Date of Board Approval: 07/14/2010
1. Improving the Investment Climate (Planned: US$ 7 million; Actual: US$ 5.45 million)
The component would improve the investment environment by: strengthening legal and judicial reforms; improvements in the business environment and in trade facilitation;enhancing the capacity of the Government to regulate infrastructure and resolve post-privatization issues; and reactivating the public/private consultative process.
2. Facilitating Private Participation and Enhancing Competitiveness (Planned: US$ 11.5 million; Actual: US$ 12.96 million)
The component would include the following four sub-components:
- Investment facilitation support to help APIX (an investment promotion agency operating on the basis of international best practice) reach its strategic objectives by financing: APIX's business plan to focus on results; preparation of studies to help determine the viability of infrastructure projects identified as priorities by government, and which would be used to encourage private interest in those projects; and general economic and specific training for staff of embassies and the Ministry of Foreign Affairs;
- Matching-grant facility to improve private sector competitiveness by enabling enterprises to enhance their know-how through access to business development services on a 50:50 cost-sharing basis;
- capacity building to help ensure that the institutions play their facilitation role under the matching-grant component, and to help develop sound business plans to enhance their sustainability; and
- support to divestiture and oversight of public entities.
3. Stimulating Sector Investment and Implementing Policy Reforms (Planned: US$ 21.8 million; Actual: US$ 16.97 million)
This component would promote sub-sector reforms that would: directly stimulate growth in areas where Senegal benefits from untapped potential; improve the linkages that affect the ability of the private sector to operate effectively and competitively; and free-up public and private resources which would be available to fund pro-poor private initiatives and indirectly finance private investments. These objectives would be achieved through the implementation of the following activities: pension reform; telecommunication reform and development of the information technology sector; postal reforms covering both post and financial services; support to the development of tourism; promotion of the music industry; and assistance to edible oil sector reform.
4. Supporting Implementation and Capacity Building (Planned: US$ 5.7 million; Actual: US$ 9.06 million)
The Project Management Unit would be housed within APIX, but accountable to the project steering committee. It would oversee the financial management, procurement, monitoring and evaluation, audit, undertaking the impact assessment of various components, preparing quarterly progress reports, facilitating the mid-term review and orderly closing of the project, a public information and communication campaign, strengthening UPE (a think tank in the Ministry of Finance), and implementation and dissemination of the new procurement code. The management of the matching grant would be outsourced to a team of local and international consultants.
The level 1 restructuring approved by the Bank's Management on July, 2010 resulted in the following changes in the project's components:
1. Improving the Investment Climate (Planned: US$ 10.2 million; Actual: US$ 5.45 million)
The project restructuring proposed to increase the importance of improving the investment climate, while focusing on the most needed reforms in light of changes noted since the project's effectiveness. The assistance would foster the improvement of time and cost related to four aspects: (a) general entry and operation requirements; (b) import and export procedures for trade; (c) construction licenses procedures; and (d) tax administration and payment. The sub-component to provide assistance to upgrade technology infrastructure as well as to facilitate the movement of passengers and baggage would be dropped because the government was building a new international airport in Dakar with private investors. Also, the sub-component on infrastructure regulation which financed capacity building for the telecommunication regulatory agency would be dropped (refer to information below under component 3 - Stimulating Sector Investment and Implementing Policy Reforms).
2. Facilitating Private Participation and Enhancing Competitiveness
(Planned: US$ 13.8 million Planned; Actual: US$ 12.96 million)
The investment promotion assistance provided by this project would be complemented by a well- performing technical learning for SMEs through a matching grant to provide a broad range of support to SMEs. The matching grant would focus on the following five strategic sectors: agriculture and agro- industry; information technology and telecommunication; tourism and cultural industry; textiles; and fisheries and aquaculture. This component would also enable financing the technical assistance and providing partial guarantee for a portfolio of loans to participating commercial banks that meet the eligibility criteria specified in the Risk-Sharing Framework Agreement. The sub-component to support divestiture and oversight of public entities would be discontinued. Also, the support to the Ministry of Foreign Affairs would be discontinued due to lack of demand.
3. Stimulating Sector Investment and Implementing Policy Reforms
(Planned: US$ 17.0 million Planned; Actual: US$ 16.97 million)
The number of sector policy reforms would be reduced from 6 to 3 by ending project assistance to: telecommunications reform and the development of Information Technology sector; postal reforms; and edible oil sector reform.
4. Supporting Implementation and Capacity Building
(Planned: US$ 10.3 million Planned; Actual: US$ 9.06 million)
It would include: formally moving the project implementation unit to APIX; revamping the project steering committee; and hiring of a dedicated team of high caliber professionals by APIX to carry out functions such as, project coordination, procurement, and financial management.
d. Comments on Project Cost, Financing, Borrower Contribution, and Dates
Project Cost: The total estimated cost at appraisal was US$ 56.69 million. The actual cost at closing was US$46.04 million. Total cancellation at closing was US$ 6.8 million. The level 1 restructuring approved by the Bank Management on July 2010 resulted in the following changes:
Financing: Of the total project cost, US$ 1.6 million was financed by the government (US$ 7.7 million at appraisal), US$ 44.44 million from the IDA credit (US$ 46 million at appraisal) and US$ 0 from contributions to the matching grant scheme by local firms (US$ 3 million at appraisal).
Dates: The project was appraised on February 02, 2003, approved on May 20, 2003 and the credit became effective on February 26, 2004. The original closing date (December 31, 2008) was extended twice: first, by 19 months (August 2010) to make up for the lost time due to suspension of disbursements between July 03, 2008 and December 15,2008; and second, by 16 months (December 2011) due to project restructuring.
|3. Relevance of Objectives & Design:|
a. Relevance of Objectives:
Country Conditions: Performance of the private sector in Senegal was uneven due to the decrease in private investment from 17 percent of GDP in 2000 to 15 percent in 2004 and the relative stagnation of exports at around 27 percent of GDP. Streamlining bureaucracy and improving transparency were key challenges that were illustrated by Senegal's poor ranking in Doing Business Indicators and the 2005 World Bank's Report on The Observance of Standards and Codes on Auditing and Accounting Practice (Country Assistance Strategy for Senegal, FY07-10, page 13).
Borrower Strategy: The core growth objective of the 2006 Poverty Reduction Strategy Paper for Senegal for 2006-10 was to raise the economic growth to about 7-8 percent per year, the level estimated to be needed to bring poverty incidence to 30 percent by 2015, in line with the targets set out in the Millennium Development Goals (April, 2011, PRSC V, page 10). One of the key objectives of the government's Accelerated Growth Strategy which was finalized in January, 2007 was -- "improving the overall investment climate in the economy by focusing on a series of cross-cutting issues (including in the areas of justice, taxes, infrastructure, and administrative barriers)" (Country Assistance Strategy for Segenal, FY07-10, page 13 and 17).
Bank Strategy: Promoting a competitive investment climate and facilitating access to financial resources by small and medium enterprises were some of the outcomes under the accelerated growth/wealth creation pillar of the Country Assistance Strategy (CAS) for Senegal (FY07-10). Also, strengthening GDP growth to an annual rate of 7 percent was perceived by Senegal as one of its prerequisites for reaching MDGs (CAS FY07-10, page vi). According to the FY07-10 CAS Progress Report (May, 2009) "Given the impact of the crisis on growth and poverty reduction, the key challenges identified in the CAS -- ... and enhancing private sector development -- continue to be in line with the government's development agenda and are still relevant today".
Although the original objective (to help create the conditions to stimulate a sustained increase in private investment ...attaining 8 percent GDP growth called for in the Government's poverty alleviation program) was linked to both the borrower and bank strategies, the statement was quite broad because it included reference to contributions towards attaining 8 percent GDP growth. The relevance of original objectives is rated Substantial.
The project was restructured on July, 2010 and PDO was revised to be more realistic because Senegal was not going to achieve the 8 percent GDP growth (refer to Restructuring Paper, page 3). The main difference between the original and revised objective was the reference to contributions towards attaining 8 percent GDP growth in the original objective. The revised objective (To create the conditions to increase private investment. This will be accomplished through an improved investment climate, greater private participation in economic activities, and policy and sector reforms) was linked to both the borrower and bank strategies. However, the project should have been restructured much before July, 2010 because the annual economic growth rate averaged only 3.3 percent during the period 2006-11 due to exogenous shocks (such as, food and fuel global prices, global financial and economic crisis, energy crisis and drought crisis in Sahel). The relevance of revised objectives is rated Substantial.
b. Relevance of Design:
Before restructuring: Modest
- The reference to contributions towards attaining 8 percent GDP growth in the original objective was over ambitious due to problems attributing the results to the contributions made by this project.
- The sub-objective (policy and sector reforms) within the statement of project development objective was too broad and the component (Stimulating Sector Investment and Implementing Policy Reforms) related to this sub-objective was overly complex because it involved implementation of reforms in multiple sectors (such as, pension, telecommunication and information and technology, postal, tourism, music industry, and edible oil sector) within an original time frame of only 5 years and 7 months.
- Although, each of the project components (Improving the Investment Climate, Facilitating Private Participation and Enhancing Competitiveness, and Stimulating Sector Investment and Implementing Policy Reforms) was closely linked to the sub-objectives (improved investment climate, greater private participation in economic activities, and policy and sector reform), the extent to which the project components and sub-objectives contributed to the attainment of the 8 percent GDP growth was unclear in the results framework i.e., there was no direct linkage between the project components and sub-objectives to contributions towards GDP growth. Also, both the PAD and ICR did not illustrate the causal chain between an improved investment climate, increased Private Investment, and accelerated GDP Growth of 8 percent.
- Some activities such as support to monitor the residual government participation in State Owned Enterprises (SOEs) and support to the music industry were too generic and difficult to link to the objective of the project (ICR page 12).
- There was no apparent linkage between the removal of import taxes for edible oil and an increase in private investment because removal of this tax seemed to be more of a pro-poor initiative than an activity aimed at increasing private investment (ICR page 12).
After restructuring: Modest
- Except for dropping the reference to attaining an 8 percent economic growth, the statement of the revised objective remained unchanged.
- The project objective remained too broad despite dropping several activities from each of the three project components during restructuring.
- There were problems in attributing the new PDO outcomes, such as job creation, to the contributions made by this project.
|4. Achievement of Objectives (Efficacy) :|
The original objective was to help create the conditions to stimulate a sustained increase in private investment in Senegal through an improved investment climate, greater private participation in economic activities, and policy and sector reform. The project was thus expected to make important incremental contributions towards attaining the 8 percent GDP growth called for in the Government's poverty alleviation program.
Improved Investment Climate:
The extent to which improvements in the investment climate have been achieved will be evaluated by first identifying the areas of greatest improvement in the Business Environment from the 2013 Doing Business report for Senegal and then by assessing the contributions made by this project in these areas. According to the 2013 Doing Business Report for Senegal (page 9), the following were the four areas of greatest improvements in the Business Environment during the period 2005 to 2012:
- Starting a Business. The project helped in establishing within APIX a one-stop-shop for business registration and licensing to facilitate the start up of a business within 48 hours. During the life of the project the time taken to register a firm declined from 67 days in 2002 to 5 days in 2011.
- Getting Credit. Although the activities related to the implementation of matching grants and partial credit guarantees were given special attention during project restructuring, both interventions were abandoned prior to project closing. The development of the business plans to enhance the sustainability of institutions (ADEPME, SODIDA, UNAQUA, etc. who are intermediaries for the matching grant schemes) was started but not completed at project closing.
- Trading Across Borders. The center for arbitration, a mechanism for appeals and resolution of disputes with customs, was operational and effective in resolving conflict. However, Customs was not converging towards ISO 9000 certification and the target for reducing the time to clear goods for export/import was not achieved (i.e., it took an average of 14 days to clear goods through customs, significantly above the target of 8 days).
- Resolving Insolvency. Resolving Insolvency is defined as the time and cost required to resolve bankruptcies. It is used to identify weaknesses in existing bankruptcy laws and the main procedural and administrative bottlenecks in the bankruptcy process. The project did not contribute towards resolving insolvency.
- On balance efficacy for this objective is rated modest.
Increased Private Investment:
- APIX, with the project's support, became one of the best investment promotion agencies in Africa (according to 2009 Global Investment Promotion Benchmarking report commissioned by the Foreign Investment Advisory Service) and plays a crucial role in leading investment climate reform in Senegal.The level of private investment, at US$ 3.2 billion, slightly exceeded its target of US$3 billion and there is evidence from the World Development Indicators that the share of GDP that is used by the private sector investment increased during the life of the project from 15 percent in 2003 to 19 percent in 2011. However, post-restructuring improvements to the investment climate were not the main driver of new investments due to slow progress made in implementing investment climate reforms during that period. Moreover, this review agrees with the ICR (page 16) that it is difficult to isolate the effect of incentives provided to firms from the real impact of overall improvements to the business environment supported by the project, giving rise to questions of attribution.
- Based on the cumulative data collected by APIX during the period 2004 to 2010, 772 new firms were established and commenced operations utilizing investment climate incentives, significantly exceeding the target of 100 new firms. Also, 155,000 directly attributable new jobs were created by the end of the project, exceeding the target of 130,000. The attainment of these indicators was largely attributable to pre-restructuring activities.
- According to the ICR (page 28), the infrastructure studies to determine the viability of infrastructure projects identified as priorities by Government and to encourage private interest in those projects have been carried out.
- According to the ICR (page 28), the Presidential Investment Climate Council (whose objective was to ensure that an effective private-public consultative process remains in place) was in place and organized once a year while technical discussions were ongoing.
- The matching grant scheme was ineffective at developing skills and was not sustainable due to poor implementation of the mechanism. Moreover, it dit not contribute to increasing manufacturing output or job creation (ICR, page 28).
- On balance efficacy for this objective is rated Substantial.
Contributions to Senegal's Growth target of 8 percent:
According to the latest Article IV Consultation Report from the IMF (December 9, 2012, p.4), exogenous shocks (i.e., food and fuel global prices, global financial and economic crisis, and more recently, the electricity sector crisis and drought in the Sahel) were partly responsible for the decreased growth rate to an average of 3.3 percent in 2006–2011 from a relatively strong average growth rate of 4.5 percent in 1995–2005.
Although Private Sector Investment for Senegal increased from 15 percent in 2003 to 19 percent in 2011, average GDP growth with and without Private Sector Investment remained almost at the same level of 4.2 percent (below table). Even though the project contributed to the increase in Private Sector Investment through APIX, it is difficult to attribute the increased Private Sector Investment to the contributions made by this project due to the reasons explained under the Increased Private Investment paragraph.
Efficacy for this objective is rated Modest.
Both the original and revised objectives were the same except for the reference to contributions towards Senegal's GDP growth. Slow progress made in implementing investment climate reforms after restructuring suggests negligible efficacy duting this period.
The cost-benefit analysis presented in the PAD (page 64) is no longer applicable because the assumption of "a minimum of 400 firms are expected to use the matching grant scheme with an average amount of $7,500 per beneficiary" used in the model is no longer valid because the interventions related to the matching grant scheme and partial credit guarantee were cancelled prior to project closing. This review agrees with the ICR (page 17) that the model only considered the costs incurred by APIX and claims full responsibility for jobs generated, while overlooking the cost of investors.
Despite two extensions of the closing date, about 20 percent of original commitments were cancelled. The cancelation of the matching grant undermined expected gains in private sector productivity, and the cancelation of the partial credit guarantee led to a loss of investment opportunities (ICR page 17).
Efficiency rating is Modest.
a. If available, enter the Economic Rate of Return (ERR)/Financial Rate of Return at appraisal and the re-estimated value at evaluation:
* Refers to percent of total project cost for which ERR/FRR was calculated