Documentof The World Bank ReportNo: 26566-COB TRANSITIONAL SUPPORTSTRATEGY FOR THE REPUBLIC OF CONGO August8,2003 Country Department 9 Africa Region This document has a restricteddistribution and may be used by recipientsonly in the performanceof their official duties. Its contents may not otherwise be disclosedwithout World Bank authorization. CURRENCY EQUIVALENTS SDR 1.OO =US$1.26543 US$l.OO = CFAF550.55 June 30,2003 FISCAL YEAR January 1to December 31 ABBREVIATIONS AND ACRONYMS AAA Advisory and Analytical Activities BP Bank Procedure CAS Country Assistance Strategy CEMAC Economic and Monetary Community of Central Africa CFAA Country Financial Accountability Assessment CPAR Country Procurement Assessment Report DSA Debt Sustainability Analysis FA0 Food andAgriculture Organization FY Fiscal Year GDP Gross Domestic Product HIPC Highly-Indebted Poor Countries IDF InstitutionalDevelopment Fund IMF InternationalMonetary Fund I-PRSP InterimPoverty Reduction Strategy Paper JSA Joint Staff Assessment MDG MillenniumDevelopment Goal MDRP Multi-country Demobilization and Reintegration Program NGO Non-governmental organization OP Operational Policy PCF Post-Conflict Fund PER Public Expenditure Review PRGF Poverty Reduction and GrowthFacility PRSP Poverty Reduction Strategy Paper SMP Staff MonitoredProgram SNPC Socie'te'Nationale des Pe'troles Congolais UNDP UnitedNations Development Program TSS Transitional Support Strategy Vice President: Callisto Madavo Country Director: EmmanuelMbi Task Team: Xavier Devictor (Team Leader) Alassane Diawara, Bienvenu Monthe Biyoudi, Deo Ndikumana, SandraNonnann FOR OFFICIAL USEONLY TABLE CONTENTS OF INTRODUCTION ............................................................................................................................... 1 IBACKGROUND . ............................................................................................................................ 2 A The conflict trap 2 B Recentmilitary and political developments 2 C Recenteconomic developments 3 D The persistingsocialcrisis ... . ............................................................................................................. ................................................................... ............................................................................................. ..................................................................................... 7 IIIMPLEMENTATIONOFTHE2001TRANSITIONALSUPPORTSTRATEGY . ................................. 9 A The 2001TSS . ................................................................................................................ 9 B.Implementationstatus 9 C Overall assessment and lessons learned . .................................................................................................... ....................................................................... 11 .THE ROADM E A D ................................................................................................................. 13 A Gettingout ofthe conflict trap 13 B 14 C The key challenges ahead ..The . ..................................................................................... Poverty ReductionStrategy PaperProcess ........................................................... .Createjobs-throughgrowthanddiversification............................................ ............................................................................................. 14 .Enhanceandrepositionthepublicsector......................................................... 15 .Mitigateshort-andmediumtermriskstothesocialenvironment.................... 17 18 .Increaseresourcesforpeaceanddevelopment................................................. 19 .A BANKSTRATEGY FORFY04 ANDNO5 ............................................................................ 21 A Operationalcontext 21 B. Objectiveand strategic elementsofthe TSS................................................................ . ...................................................................................................... C.Donor coordinationand selectivity.............................................................................. 21 D Instrumentsfor BankGroup assistance....................................................................... . 22 --- Supporting 23 Managing the existingportfolio ........................................................................ access to HIPC ............................................................................... 23 24 -- Engaging Providing advisory services and developing a knowledge base........................ Launching new operations................................................................................ 24 25 E.Proposedactivities and strategic objectives ................................................................. the entire Bank Group and other donors.......................................... 25 26 G. Monitoring and evaluation........................................................................................... F.Risks and mitigation..................................................................................................... 27 -- Managingfor 28 Exit strategy....................................................................................................... results and indicators ................................................................. 28 29 ANNEXES Annex 1: TSS Performance Indicators................................................................... Summary of the ProposedAssistance Program...................................... 30 Annex 2: Annex 3: Ongoingand planneddonor support to the Republicof Congo.............31 32 Annex 4: Implementationperformance for the 2001TSS ..................................... 36 Annex 5: 38 Map of Congo......................................................................................... Republicof Congo at aglance................................................................ Consultations with Stakeholders............................................................. Annex 6: 40 Annex 7: 42 This document has a restricted distribution and may beusedby recipients only in the performance of their official duties Its contents may not be otherwise disclosed . without World Bank authorization . 1 INTRODUCTION 1, This TransitionalSupportStrategy (TSS) aims to define a road mapfor Bank support to the Republic of Congo (Congo) in the comingperiod. It follows an earlier TSS, which was discussed by the Board on January 16,2001, and pavedthe way for Bank re-engagement inthe country. It was prepared within the context o f OP/BP2.30 on "Development Cooperation and Conflict", as the conditions on the ground remain fragile andthe pre-requisites for a more medium-termsupport program inplace yet. Itoutlines a proposed program for continued Bank support, which will be needed to build on the last two years' substantial progress made by Congo towards peace, political reconciliation, and economic recovery -and to help consolidate and deepen these achievements, within the context o fthe Poverty Reduction Strategy Paper (PRSP) process, with a view to moving to a formal Country Assistance Strategy (CAS) as soon as conditions allow. 2. The new TSSwas designed through an extensive consultationprocess with a broad variety of stakeholders -to learn from the experience o f other key actors for Congo's recovery. Formal consultations were organized duringthe preparation of the TSS with Government counterparts, Congolese experts responsible for the implementationo f Bank-financedprojects, regional and military authorities, leaders o f the political opposition, private sector representatives, NGO activists, bishops and church leaders, women groups - as well as with UNagencies and other donors. The outcome o f these discussions (see Annex 5) provided a useful guide as to the selection of priorities for proposed Bank assistance over the coming period. 3. Thepreparation of the new TSSis also takingplace against the backgroundof theBank's growing experienceinpost-conflict countries. Particular attention was paid to Bank research and experience inother countries, with regard to the type o f support neededto help break the cycle o f conflict and impoverishment. Inthis context, the proposed strategic directions reflect recent analytical work by DEC (inparticular Breaking the Conflict Trap),as well as general orientations and best practices from the Africa Region and elsewhere (inparticular Post-conflict recovery in Africa: An agenda for the Africa Region). 4. The document is organizedasfollows. It starts with a briefdiscussion o f recent developments inCongo inPart A. Part B takes stock o fthe implementation o f the 2001 TSS, discussing progress to date and summarizing some o f the key lessons learned along a the way. Part C outlines a strategic agendafor the years to come as it emerges from consultations with Congolese stakeholders, discussing key challenges and strategic priorities. Part Dproposes a strategy for Bank support and a new assistance program for the nexttwo years. 2 I.BACKGROUND A. T h e conflict trar> 5 . Since the early 1990s, Congo has been confined in a cycle of conflict and impoverishment. After three decades of a centrally-plannedeconomy between independence in 1960 and 1990, Congo went through three successive rounds o f civil war -in1993,1997and1998/1999.Keyactorsintheseconflictsincludedtheregulararmed forces and four main militias (the "Cobras" led by current president Denis Sassou Nguesso, the "Coyotes" and the "Zulus" ledby Pascal Lissouba, and the "Ninjas" ledby BernardKolelas andPastorNtumi). 6. Such repeated violence brought havoc to Congo, a largely forested country which i s almost as large as Germany- and many o f the 3 million Congolese went through terrible ordeals. Large parts o f the country were affected: the 1993 and 1997 civil wars were fought with particular violence inthe capital, Brazzaville, which i s home to about 25 to 30 percent o f the population (800,000 people); the 1998/1999war spread further, inparticular inthe most populated Central Congo and Southern areas. At one point, about a third o fthe population was internally displaced, having sought refuge in the forest and surviving inmiserable conditions. 7. Throughout the 1990s, conflict andpovertyfueled each other -and Congo has become an illustration of the so-called "conflict trap". Each successive round o f conflict resulted ineconomic decline and heightenedsocial tensions. Inthe aftermath, the Government failed to jump-start recovery and to move towards reconciliation. Impoverished and marginalized groups became easy prey for political activists, and some o f the youth were luredintojoining militia groups. Insuch an explosive context, new eruptions o f violence rapidly transformed into renewed, full-scale civil war. This pattern has been observed invarious parts o f the world, and research shows that a country that just emerged from conflict has a risk o frenewedfightingten times higherthanbefore the war started (thetypical country reaching the end of a civil war faces a 44 percent risk o f returningto conflict withinfive years). B. Recent militarv and Dolitical developments 8. Significant progress has been made to restore security. Large-scale military activity has ceased since the end o f the last round o f conflict (at the end o f 1999),and most o f the country has been at peace. Still, sporadic eruptions o f violence (largely fueled by poverty and unemployment) continued inthe Pool region, particularly after March2002 -with a significant impact on economic activity inBrazzaville (since the main transport link to the sea was regularly cut by attacks). The Government responded with a combination o f force andnegotiation-and reached an agreement with the last rebel group (Pastor Ntumi'sNinjas) on March 17,2003, paving the way for the disarmament, demobilization, andreintegration o f about 4,000 militia fighters. 9. Parallelprogress has been made towardsreconciliation. Since the cessation o f hostilities in 1999, the Government has pursued a policy o f reconciliation through both political inclusion and decentralization. 0 Political inclusion. The political arena was re-opened and liberalized in November and December 1999 (the ceasefire agreements called for the re- establishment o fpolitical parties). A new constitution was adopted inJanuary 2002, which represented a break with the past political organization o f the country, created space for free political activities, and established a system o f checks and balances. A series o f elections followed: presidential elections (which President SassouNguesso won) on March 19,2002, and legislative elections in May and June o f 2002 (the National Assembly and the Senate started their work inAugust 2002). These elections created anenvironment for reconciliation and dialogue, with the political oppositionbeing actively represented inParliament. 0 Decentralization. Since late 2002, efforts have also been made towards decentralization, bothto improve service delivery at local level andto empower communities. The country i s administratively divided into ten de'partements (counties), each governed by a Government-appointed pre'fet and an elected local assembly, which are entrusted with significant responsibilities for service delivery. The six urbanareas with a population o f over 20,000, are formed into municipalities, governed by an elected mayor and municipal assembly. This process enables political opposition to be involved inlocal political life, and i s expected to strengthen local government's accountability. 10. Recent developments are encouraging but the situation remainsfragile. While much progress has been made over the past years, the explosion o f violence inthe Pool region during 2002/03 underlined the fragility o fthe recovery process. With a population traumatized by a decade o f fighting and insecurity, and unemployment affecting large groups o f people, especially among the youth, Congo still has to tackle difficult issues for peace and reconciliation to be consolidated. Progress over the last years has created hopes that the conflict trap, the cycle o f conflict and impoverishment, can be broken -but continued efforts will be needed to do so. C. Recent economic develoDments 11. The decade of recurring conflicts had devastatingeffects on Congo's economy (see Box 1) War and civil disturbance, compounded by the legacy o f a long period o f economic mismanagement, have taken a heavy toll on the country. Infrastructure has suffered considerable damage, inparticular due to the interruption o f maintenance (about half o f the 17,000 kmroad networks i s no longer passable and most regional capitals do not have reliable access to major roads; entire provinces do not have access to clean water). A number o f institutions are inshamble. Many people have lost their assets- whether buildings, livestock (75 percent lost), or tools (50 percent lost). Investment has come to a halt. Indebtedness has dramatically increased, while public finance 4 management has deteriorated. Although the offshore economy inthe oil sector continued to function throughout the wars, GDP per capita has dropped from about US$1,100 per capita in 1990 to US$630 per capita in2001, almost back to the level at independence in 1960(US$580 per capita). Box 1: Main features of the Congoleseeconomy Congo is a member of the Economic andMonetary Community of Central Africa (CEMAC). It uses the CFA Franc, and has committedto regional discipline on monetary matters. The Congolese economy is characterizedby thejuxtaposition of competitive, foreign-dominated export sectors (oil, forestry) and traditional agriculture and informal activities -with very few linkages between the various segments ofthe economy. Historically,public service has played an important role in providingjobs and incomes. Today, there are about 70,000 public servants, including22,000 ineducation, 15,000 inthe military, and 9,000 inhealthand social affairs. Congo'seconomy is dominated by the oil sector. With a productiono f 15 million tons in2002, the sector accounts for 50 percent of GDP, 70 percent of Government revenues, and 90 percent of export earnings. Production is off-shore and managedbyjoint ventures between foreign companies (Total and Agip) and the Socie`te`Nationale des Pe`trolesdu Congo (SNPC). Ancillary services are largely dominated by foreign groups and most suppliesare imported. Theforestry sector is gradually recoveringfrom theyears of conflict. Congo's forests cover about 55 percent of the country (22 millionhectares, about the size ofthe UnitedKingdom), and account for about 10percent of Africa's total forest. Recovery is well underway, with a production almost doubled between 2000 and 2002. The sector accounts for about 2 percent of GDP and two-thirds of non-oil export revenues. It providejobs to about 10,000 to 20,000 people. Theformal private sector remains largely undeveloped. Besidethe oil and forestry companies, there are only 30 to 40 private companies with 30 to 200 employees (e.g., sugar mills, flour mills, breweries), about 100 companies with less than 30 staff(hotels, restaurants, and trade sector), and about 100 individual firms (such as doctors and lawyers). The informal sector i s not organized and is relatively less developed than in other African countries. Agriculture employs about 40percent of the activepopulation, but accounts for only 5 percent of GDP (in2001). It consists mainly of subsistence activities by smallholders (cassava, sugar cane, plantain, rice), with relatively little commercialization(inpart due to the poor state of rural infrastructure), and limitedexport activities (coffee, tea). Fishery(half industrial, halfartisan) is also developed in coastal areas. Food imports have increasedby 80 percent since the beginningof the 1980s and make up 30 percent ofthe country's total annual import volume today. 12. The challenge of recovery is also a challenge of transition. Congo's economy continues to suffer from the legacy o fthe oil-dominated, centrally-planned system o f the 1960s, 1970s, and 1980s (see Box 2). Duringthese decades, revenues from the oil sector financed a relatively large public sector, and fueled rural migrations to urbancenters (the urbanpopulation inthe two main cities o f Brazzaville andPointe Noire grew from about 15 percent in 1960 to over 50 percent today). Inparallel, a system o f predationo f oil resources emerged, allegedly with the involvement o f foreign companies. Overall, the country's rich economic potential and natural resources has failed to be translated into an actual improvement o f living conditions for the largest part o f the population. Reforms to 5 improve governance and move towards a market-based economy were initiated inthe early 1 9 9 0 butthese efforts were disrupted by the conflicts. ~ ~ Box 2: Key data on the oil sector in Congo Congo is a relatively minor-player on internationalmarkets. With a production of 258,000 barrels per day, it ranks fourth in sub-Saharan Africa (although with only 6.4 percent of production), and 36" worldwide (with 0.4 percent oftotal production). Congo i s particularly exposedto price fluctuations since its oil is of relatively low quality and its production insufficient to affect internationalprices. Oilproduction is steadily declining:by 6.2 percent in2000, by 1.5 percent in2001, and again by 4.6 percent in 2002. Overall, oil GDP per capita shrank at an average annual rate of 3.5 percent between 1986 and 2001. Oil reserves are rapidly depleting. Provenreserves are currently estimated at 1.5 billionbarrels (0.1 percent of worldwide reserves), i.e. about 16years of exploitation at current pace. Oil revenuesare significant-but they remain modest in view of the challengesthe country is facing. Annual oil revenues stand at about US$580 million, i.e. US$194 per capita. Total oil revenues untildepletion of reserves(assuming current oil prices) are about US$3,100 per capita. 3. To address these challenges, the Governmentembarked over thepast twoyears on a broad-rangingprogram of reforms supported by the Bretton WoodsInstitutions. Reform efforts focus on: (i) macroeconomic stability; (ii) discipline; (iii) fiscal debt management; (iv) transparency, inparticular inthe oil sector; and (v) public expenditure management. The program received support from the IMF inNovember 2000 under the post-conflict emergency assistance window and through two successive staff-monitored programs (SMP) in2002 and 2003. Bank assistance was provided through a single- tranche Post-conflict Economic Recovery Credit (approved inJuly 2001) and a Transparency and Governance Capacity BuildingProject (approved inFebruary 2002), and current Bank financed activities implementationis satisfactory (see details under para. 24). After a slow start, the pace o f reforms accelerated, inparticular with the appointment o f a new Government inAugust 2002. Implementation o f the current SMP (January-June 2003) i s satisfactory (see Box 3), and there are solid prospects for an access to the IMF Poverty Reduction and Growth Facility (PRGF) by end 2003. 14. I n parallel, the Governmentjinanceda substantial reconstruction program. In a context of limitedexternal assistance, most reconstructionprojects were financed by the Government (through revenues from the oil sector). This effort was very significant (about US$950 million over two years) and largely successful -with a focus on housing andpublicbuildings repairs (inparticular inBrazzaville whichhad borne the brunto fthe fighting), and rehabilitation o ftransport infrastructure (including the Brazzaville - Pointe Noire railroad, which is the country's lifeline link,river ports, and airports to access isolatedareas). Short o f substantial external support, however, reconstruction could not be undertaken on the scale necessary to mitigate the impact o f a decade o fconflicts and instability. 6 Box 3: Implementationof key economicreformsunderthe S M P and other structuralreforms Preliminaryinformationindicates satisfactory performance duringApril -June 2003 under the SMP, thus extending the positive trend registered inthe last quarter o f 2002 and the first quarter o f 2003. All quantitativetargets have beensurpassed. Between the thirdquarter o f 2002 and end-March 2003, the non-oil primary deficit (a good indicator o f underlying fiscal effort) was cut in half. The surplus inthe overall primary budget balance inthe first quarter o f 2003 was further boosted by higher-than-expected oil revenues. This strong fiscal performance allowed the Government to reduce domestic and external payment arrears, as well as its indebtedness to the banking system. Inflation remains contained at 3.3 percent in 2002. Progressin implementingstructuralreformshas beenequallyencouraging. A draft financial audit (unqualified) o f the national oil company (SNPC) was completed by KPMG in July 2003 and the Government is reviewing its recommendations. No new oil-collateralized debt was entered into. Government-owned commercial banks have been effectively restructured and privatized (privatization o f the last one is being finalized). Debt service to multilateral creditors and key bilateral creditors was regularly paid (albeit with some delays for the African Development Bank in February and March 2003). 15. Overall, the situation remainsfragile. While Congo has been preserved from monetary instability by its membership inthe CEMAC, growth remains fragile. GDP in the oil sector is declining and is making a negative contribution to overall growth, dueto the diminution o fextracted quantities andthe volatility o foil prices on international markets. Growth inthe non-oil sector surged inthe immediate aftermathof the conflict due to the resumptiono f trade and agricultural production, but rapidly returnedto lower levels (which i s a typical pattern o fpost-conflict countries), and the challenge i s to stabilize it around current levels at 5 to 6 percent a year. Economic Growth (1997 2003) - 25.0 20.0 15.0 10.0 5.0 Non-oil 0.0 -Total -5.0 -10.0 -15.0 7 D. The persisting: social crisis 16. Despite recentprogress, Congo is still mired in a deep social crisis, which constitutes a major riskfor the country's political stability: Unemployment is affecting more than 50percent of the activepopulation, with dramatic consequences interms o f poverty and social exclusion. Youth are particularly affected: less than 30 percent o f the 15- to 25-year old have ajob, less than2 percent are employed inthe formal sector. Long-termunemployment and the associated lack ofprospects and opportunities are exacerbating a senseof frustration (which translated into eruptions o f violence throughout the 1990s). The conflicts caused "development in reverse" in the social sectors. Over 50 percent o f medical structures were ransacked and educational buildings inthe four southernmost provinces sufferedconsiderable damage. Social services are no longer delivered inlarge parts o fthe country, inparticular inrural areas, and only 30 percent o f the population has access to adequate medical care. Reconstruction is underway, often with the active involvement o f local communities, but the needs exceed available resources by far. The decade of conflict and crisis has had a devastating impact on social capital -breakingupfamily andothersolidaritynetworks. Large-scaledisplacements, violence and human rights abuses, as well as unemployment and impoverishment, have caused tremendous psychological suffering and a disruption o f the nation's social fabric. As a result, traditional safety nets are no longer functioning effectively (as illustratedby the growing number o f street children and abandoned elderly). Social networks which are key for economic recovery have also been severely disrupted. A number ofpeople areparticularly vulnerable as a result of conflict: 11 percent o f children under 15 are orphans, 60,000 women and girls were victims o f rape, 5,000 children fought duringthe war. According to UNICEF, an additional 70,000 people are still inneed o f urgenthumanitarianassistance. Thesocial crisis is compoundedby the rapid spread of HIVAIDS. At the end o f 2001,an estimated 7.2 percent o f the Congolese adult population (15-49 years) was living with HIV/AIDS, a proportionwhich is rapidly increasing. InPointe Noire, the country's economic capital, the prevalence rate increased from 10 percent in 1996 to 14 percent in2000. Large-scale population movements, the collapse o f the public health system, and sexual violence during the conflicts are seen as the major causes for the accelerated spread o f HIV/AIDS. 17. This crisis is reflected in a steep deterioration of poverty and social indicators: TheHuman Development Index declined by more than 12percent inthe last ten years - and Congo ranks 136 out o f 173 countries. 8 About 7Opercent of the Congoleselive below thepoverty line -compared to about 30 percent at the beginning o f the conflicts in 1993. Poverty has become a "near-universal phenomenon" and i s aggravated by the vulnerability o f those who are above the poverty line. People living inrural areas seem particularly affected, inparticular due to the collapse ofthe transport systemwhich restrictstheir access to economic markets and social services. Social indicators have collapsed. Primary education attendance dropped from 90 percent in 1990 to 44 percent in2000. Inparallel, life expectancy dropped from about 52 years inthe early 1990sto 48.6 years in2002. 18. I n this context, the chancesfor Congo to achieve the Millennium Development Goals (MDGs) by 2015 are compromised. While detailed statistical information i s lacking, available indicators point to a serious degradation o f living conditions since 1990 (see Box 4). The country i s not likely to achieve the MDGtargets by 2015, with the possible exception o f target 4 (gender equality ineducation), target 7 (HIV/AIDS), and target 9 (environmental sustainability). Box 4: Targetsand current status of MDGs in Congo MillenniumDevelopment Goal 1990 Target Status Remark Target 1: Halve, between 1990 and 2015, the 30% 15% 70% Est.2001 proportion of people whose income i s less than (est. one dollar a day. 1993) Target2: Halve, between 1990and 2015, the n/a n/a n/a About 30% in 1998- proportion of people who suffer from hunger. 2000 Target3: Ensurethat, by 2015, children 90% 100% 44% Est.2000; enrollment rates at about 70% and have increaseddue to major diseases Idisplacements Target9: Integrate the principles of - Development and sustainable development into country policies implementationof a sustainable and programs and reverse the losses o f forestry policy underway. environmental resources. TargetIO: Halve, by 2015, the proportion of 30% 15% 49% Est. 1987(50% urban, people without sustainable access to safe 11% rural), 2000 (71% drinking water urban, 17% rural) 9 11. IMPLEMENTATION OFTHE 2001TRANSITIONAL SUPPORT STRATEGY A. The 2001 TSS 19. The 2001 TSSaimed to help the Governmentas itfaces thefour simultaneous challenges of: (i) consolidating the home-grownpeace process; (ii) and solidifying laying the foundation for the democratization ofpolitical life; (iii)physically reconstructingthe country; and (iv) improving economic management (including transparency). 20. To that effect, the 2001 TSSidentified activitiesto support the Government's Interim Post-Conflict Program infive areas, namely: (i) strengthening economic stability and equitable growth and supporting reforms to facilitate the transition to a market-based economy (inclose cooperation with the IMF); (ii) reestablishingbasic economic and social services (including rehabilitation and maintenance o f small- and larger-scale infrastructure); (iii) building capacity o f government and civil society; (iv) fighting the growing threat o f HIV/AIDS;and (v) providing assistance to war-affected and vulnerable groups. Specific actions included: helping Congo inclearing its arrears to the Bank; re-opening o f the Bank office inBrazzaville (which had been closed in 1997); providing financial assistance; and providing analytical and advisory support. B. Implementation Status 21, Arrears to the Bank were cleared in August 2001,which paved the way for a resumption o f lendingactivities. Arrears amounted to US$65 million. About half o f the stock was cleared through the Government's own resources, the other halfthrough a bridge financing arrangement, withinthe context o f Bank support under the Post-Conflict Economic Recovery Credit. 22. TheBrazzaville Country Office re-opened in May 2001. The Office has developed a solid dialogue with key Congolese stakeholders, through regular consultations with ministers and staff intechnical ministries, as well as with donors and UNagencies, Ithas engagedinanoutreacheffort to the private sector andNGOs. Itis also providing precious support to task teams, which i s critical to ensure timely preparation and implementation o f ongoing operations. The Office currently includes one international staff, and nine national staff. 23, Five newprojects were approved (see table below) The lending program was in line with the strategy outlined inthe TSS. It includes four operations identifiedinthe TSS and one operation (the Emergency Recovery and Community SupportProject) which was not included but was judged necessary to help stabilize the situation outside the two main centers of Brazzaville and Pointe Noire. Preparation for the HIV/AIDS project which was part of the 2001 TSS program i s inprogress -and the Project i s expected to be submitted to the Board inthe coming months. 10 24. Implementation is overallsatisfactory, despitesome delays. All projects are rated satisfactory on both implementationand development objectives ratings. Procurement and financial management systems have been put inplace which ensured an effective and transparent use of financial resources made available. Implementation, however, has been slower than expected - due inpartto delays inratifying financing agreements for early operations, inpart to the time neededto re-establish administrative capacity for management o f Bank projects, and inpart to the very nature o f the operations. The pace o f implementationhas accelerated since the appointment o fthe new Government inAugust 2002. I Project Amount 0bjective ApprovalI Disbursed Rati g(*) (US$ Effectiveness (end FY03) -- IF' DO mil.) Emergency 5 Facilitate July 20011 37 % S S Demobilization reintegration o f Jan. 2002 and Reintegration about 10,000 Project ex-combatants into civil life Post-Conflict 38 support July 20011 100 % S S Economic implementation July 2001 Rehabilitation of fiscal and Credit governance reforms. Transparency and 7 Provide Feb. 20021 15 % S S Governance institutional Feb. 2003 Capacity Building support; Project increase transparency in oil sector Infrastructure 40 Rehabilitate May 20021 6 % S S Rehabilitation and keytransport Dec. 2002 Improvement o f infrastructure; Living Conditions support local Project development activities in Brazzaville. Emergency 41 Provide June 20031 0 % n/a d a Recovery and support to d a Community recovery in Support Project small towns and rural areas I (*) Ratings: IP =Imp 'mentation i rformance Rating; DO =Development Objectives Ral T 25. Theprogram offinancial assistance was complemented by several grants, inparticular under the Post-Conflict Fund(PCF). Thisincluded: (i)US$915,000 PCF a grant to help prepare the 2001 TSS (approved in 1998, implementedby the French Development Agency and the European Union); (ii)US$l,OOO,OOO PCF grant to a support community action for reintegration and recovery o f youth and women (approved in2001, implementedby the UNDevelopment Program); and(iii)US$300,000 grant a 11 from the Statistical Capacity Trust Fundfor Poverty Reduction Strategy Papers (approved in2003) to strengthen institutional capacity to monitor poverty indicators. The PCF grants proved critical inre-engaging inCongo, by providing the necessary resources for strategic work and by allowing for early, targeted support to war-affected groups. 26. I n parallel, the Bank providedsubstantialpolicy advice to the authorities, in close coordination with the IMF. Such advice focused on matters o f public expenditure management, transparency (inparticular inthe oil sector, to ensure an effective implementation o f the 2001 conventionbetween the Government and the national oil company), forestry management (on both environmental and fiscal matters), financial sector reform (inparticular for the restructuring and privatization o f Government-owned commercial banks). Inresponse to Government's calls for urgent, hands-on support in these areas, a decision was made to allocate the limited staff and administrative budget resources available to providing practical advice and operational assistance - andto postpone the preparation and completion o fthe formal pieces o f analytical work identified inthe 2001 TSS: ThePublic Expenditure Review is underway and should be completed inFY04. 0 Thestudy on natural resource management has been replacedwith technical advice provided over the last two years within the context o f the forestry reforms and further analytical work financed underthe Emergency Recovery and Community Support Project. 0 Thesocial assessment and the labor market analysiswere prepared(inpart under grant funding) as informal pieces ofwork, aimed at providing early results to inform Government policies - and their formalization i s not considered a priority by the Government. C. Overallassessment and lessonslearned 27. Overall, substantialprogress has been made over thepast twoyears. A relationship o ftrust has beendevelopedbetweenthe Bank andthe Government-which has been instrumental in defining and implementingthe program o f economic reforms currently underway. Inparallel, Bank-fundedprojects are expected to provide a significant contribution to the recovery o f economic activity as well as to improving living conditions inselected areas. Performance indicators for the 2001 TSS have only partlycaptured this success: inretrospect, they appear over-ambitious ina post-conflict context (e.g., returno f primary enrollment rates to pre-warlevels ina context o f devastated education infrastructure), and not easily measurable (e.g., economies o f war- affected communities successfully re-launched). 28. A number of lessons have been learned, which are important for future Bank and donor support to Congo and are consistent with lessons learned inother post-conflict countries (see Box 5). These include: 12 Objectivesneed to be realistic andperformance indicators adequate and measurable. Objectives needto reflect the distinctive environment o fpost- conflict countries (e.g., private investment for infrastructure i s not likely to materialize inthe coming years, and reform programs need to be designed accordingly). Performance indicators needto be measurable and realistic to avoid the type o f discrepancy betweenperformance and indicators observed with the 2001 TSS. External assistance can help to spur reform. The Bank has played an important role insupporting pro-reform constituencies inCongo through a dialogue with Government, parliamentarians, labor unions, business organizations, and civil society. External support to economic reforms, even insensitive areas, has also proven effective inhelping the Government to tackle difficult issues. Constraints to implementation can be overcome andprojects canbe effectively andtransparently executed. Ina context o f compromised administrative capacity, simplicity o f designis key. Flexibility is also critical to allow for adjustments ina rapidly-changing environment and to respond effectively to emergingneeds. Bank projects have become seedsfor change. Key Congolese counterparts welcome the introduction o f sound andtransparent procurement and financial management systems for the management o f Bank projects. These arrangements are becoming benchmarks for the designand monitoring o f the reform o f the Government's own procurement and financial management systems. Presence in thefield is critical. The reopening o f the Bank office inBrazzaville has considerably easedthe dialogue with Congolese authorities and stakeholders. Box 5: Lessonsof post-conflict assistance programs Over the last years, several lessons have emerged from Bank's interventions inpost-conflict countries inAfrica and elsewhere, including: 0 Windows o f opportunity are short and early engagement is key. Initial efforts often need to focus on consolidating peace and stability as a condition for eventual poverty reduction. 0 Effective assistance to post-conflict countries requires specific programs (e.g., for war- affected groups), but more importantly it calls for a comprehensive effort and an overhaul of standard approaches (e.g., nature, pace, and sequencing o f reforms). 0 Solid partnerships are needed and the Bank can play critical role inhelpingto mobilize and coordinate donors. 0 Key ingredients to success include the quality o fthe team, strong presence inthe field, and availability o f extraordinary levels o f financing. Success i s possible - as evidenced inAfrica by the cases o f Mozambique and Uganda. 111. THEROAD AHEAD A. Getting; out of the conflict trap 29. Looking ahead, the key challengefor Congo is to get out of the conflict trap - that is, to definitively break the cycle o f conflict and impoverishment, by consolidating the political and economic recovery o fthe last couple o fyears and transformingit into sustainable peace and broad-based economic growth. Throughout the 1990s, each lull in fightinghas beenfollowed by renewedviolence within a few years. Although there has been considerable progress over the last years, such experience suggests that the situation remains fragile and that recent achievements could easily be overturned, if they are not rapidly consolidated. 30. Economic recovery is critical to break the cycle of conflict andpoverty. Political and economic issues are intrinsically linked -since the lack o f economic opportunities breeds violence and conflict. Experience, both inCongo and inother post-conflict countries, shows that the early provision o f "peace dividends" is key infragile economic and social environments, and that the search for deep-rooted causes o f conflict can be misleading, since the war has often transformed the political and social context (see Box 6). Research suggests that efforts must focus on a forward-looking agenda aimed at reviving economic growth (with adequate attentionto boththe sequencing of reforms and social policies) and tackling governance issues (both to improve service delivery and to diminishopportunities for rent-seekingbehaviors). Box 6: Causes of the conflicts and sources of instability The original causes of the conflicts, in the early I990s, are complex and multi-fold. Most observers, however, cite the interplay of three key factors as having been particularly devastating: (i) mismanagement of oil revenues; (ii) repressed demands for increased political participation; and (iii)regional instability. The ethnic dimension i s not seen as having played a major role (about 70 ethnic groups live in Congo, none representing more than a few percents of the population), even though in a context o fviolence and insecurity, ethnic solidarities have proved effective. The dynamics of the conflicts have transformed thepolitical and social context. Some o fthe original causes o fthe conflict are no longer major threats to stability (e.g., the regional environment i s no longer one o f descent into chaos, but one o f gradual stabilization; political participation is improved). Other factors have emerged, however, which could cause major instability, such as the impoverishment o f large segments of the population or the lack o f opportunities for specific groups (e.g., ex-combatants). The challengeis hence tofocus on the current causes of instability rather than on the original causes of conflicts-while still paying attention to ensuring that these original causes do not re-emerge and that the underlying issues are effectively addressed. 14 B. The Povertv Reduction Stratew Paper process 31. There is a broad consensus in Congo on the needfor decisive action to escape the conflict trap. The Government and all stakeholders met duringthe TSS consultation process share a similar analysis o f the current situation ("Congo i s no longer inthe eye of the cyclone -but it is not out o fthe water yet"), and expressed strong support to the program o f economic reforms currently under implementation. Moreover, there was a significant degree o f overlap betweenthe detailed priorities expressed by each constituent group (despite large variations inperspectives and interests). 32. ThePRSPprocess is expected to helpformalize this consensus. An early draft o f the InterimPRSP (I-PRSP) was circulated inSeptember 2002, but was criticized by some donors for insufficient consultations and weak strategic focus. A revised version i s currently under preparation with support o f UNDP and France. The process has been improved and involves a number o f stakeholders inbothBrazzaville and provinces. The strategic focus has been strengthened and i s expected to center aroundthe overarching goals o fpeace and economic recovery -with a particular focus on growth, governance, private sector development, infrastructure, social services delivery, HIV/AIDS, and rural development. An early draft was presentedto donors inJuly 2003 to discuss key strategic directions and receive early feedback (see Box 7). A final version i s expected by early Fall 2003 -and a Joint StaffAssessment (JSA) is expected to be presented to the Bankand IMF Boards inlate Fall2003 ~~ Box 7: Strategicdirections inthe current draft I-PRSP Therecent draft I-PRSPfocused on six "strategicdirections":(i) consolidating the macro- economic framework; (ii)promoting good governance; (iii) promoting sustainable and equitable growth; (iv) enhancing access to basic public services; (v) addressing gender issues; and (vi) reinforcingthe fight against HIV/AIDS. Thisdraft is currently being reviewed to reflectfeedback receivedfrom donors(who commended the Government for the quality ofthe participatory process). The final version is expectedto have a stronger and more focused strategic fit (possibly by grouping some of the "directions" together), and to include specific and operational action plans. I I C. The Key Challenges Ahead 33. Thereis a broad consensus in Congo around afour-fold agenda of action to consolidatepeace and economic recovery: (i) createjobs, through both economic growth and diversification, to provide incomes and opportunities andto stabilize marginalized groups, especially among the youth; (ii) improve and reposition the public sector, to break away with the legacy o f the past while carefully managing the population's expectations andfrustrations; (iii) mitigate short- and medium-term risks to the social environment; and (iv) increase resources for stability and development, inparticular by easing the debt burden 15 Create jobs -through growth and diversification 34. Congo's high unemployment rate is a major threat to social andpolitical stability. Unemployment, sustained demographic growth (2.2 percent), large inequalities, and predatory behaviors (inparticular inthe oil sector) combine to create an explosive cocktail o f poverty, hopelessness, and frustrations. Recent history inCongo suggests that this cocktail canbe easily ignited. 35. Unemployment is closely linked to Congo's over-dependence on oil. Over the last decade, the country has sufferedfrom the Dutchdisease, while the oil sector did not create a significant number o fjobs (not eventhrough ancillary services). Diversification i s hence critical to create employment, particularly ina context o f rapidly-depleting reserves (with only 15 to 20 more years o f exploitation). It i s also key to reducingthe country's exposure to external shocks associated with oil price fluctuations, andto minimizing incentives for renewed conflict (rivalries for the control o f the oil rent were reportedly one o f the causes o fthe 1990s conflicts). 36. Congo has thepotential to createjobs in the non-oil sector,provided it can sustain the current level of non-oil growth. There i s a broad consensus among Congolese stakeholders, including both Government and private sector representatives, that there remains significant potential for growth ina number o f areas (see Box 8). Box 8: Congolese perspectives on potential sources of growth Agriculture. With only 2 percentofthe arable landunder cultivation, Congohas apotential for sustained agricultural growth. Rural stakeholdersregardsuchgrowth as key to creatingjobs in poor, secluded, andvolatile areas. Urban stakeholdersclaim that this would have a dramatic impact on food prices incities (andhence help alleviate urbanpoverty). Forestry and transformation activities. Although forestry is Congo's second largest industry (after oil), there remains significant potential for growth, inparticular with regardto value-adding transformation activities: only about 16 percentof wood production is sawn inCongobefore . beingexported-and only 1.7 percentgoes through further transformation inthe country. Tradeof goods and services. Congo's geographicallocation(and inparticular the presenceof a well-developed, deep-water harbor in PointeNoire) and its relatively higher proportion of educated people provides the country with a comparative advantagefor trade and services inthe sub-region- includingthe Democratic Republic of Congo (which does not havea sea port), the CentralAfrican Republic and SouthernChad(which traditionally import suppliesthrough Congo). 37. Thispotential, however, remains largely to be unleashed -and there is a strong consensus among Congolese stakeholders around a four-fold agenda o f action: e Pursue and deepen implementation of the ongoing economicprogram. Priorities include: (i) strengtheningthe fiscal framework (improving budget planning and implementation withina medium-term framework, consolidating the recent revenue increase, drawing the large informal sector into the mainstream, andensuringregular payment of Government's ownbills); (ii) managing 16 volatility o f oil revenues (through a combination o f multi-year spendingplans and some forms o f a price-based policy rule under which temporary excess oil revenue would be placed ina stabilization fund and savings used to clear external and internal arrears and accelerate debt repayment); (iii) Box 9: BankAssistance to CEMAC deepening financial intermediation by consolidating TheBankprepared a Regional Integration Assistance Strategyfor CEMAC,which was recent reforms (establishing a discussed at the Board inFebruary2003. This corporation to manage bank strategy aimedto help CEMAC implement its liquidations and recover bad strategic agenda, i.e.: (i) deepen regional loans, improving the legal integration (inparticular on matters of customs, environment, and restructuring macro-economicconvergence, andfinancial sector the postalfinancial services) and integration); and(ii)promote cooperationon sector developing micro-credit; and (iv) policies and projects(inparticular in infrastructure enhancing the regulatory andHIV/AIDS). This agenda sets the context in framework for private sector which Congo's reforms will be designedand development. Some of these implemented. reforms will need be prepared Within this context, Congois expectedto benefit and implemented withinthe from the impact of a US$14.5million Regional context o f CEMAC (see Box 9). Payment SystemProject, approved inJuly 2002, andaimed at strengtheningpayment system of the Reconstruct large-scale Banquedes Etats d'Afiique Centrale (CEMAC infrastructure, inparticular: (i) centralbank). This is expectedto be the railandroadlinks between complementedby further projects(trade facilitation, micro-finance) inthe comingyears. PointeNoire and Brazzaville, which constitute the backbone o f the country's economy (from Brazzaville goods can be transported on the Congo River and its tributaries) and i s inpoor shape; (ii) key elements o f the electric power system (the lack of reliable supply i s a major constraint to economic activity); and (iii) telecommunications. There i s consensusthat this will requirebothphysical investments and improvements in the management o fthe networks (e.g., utilities, railways), includingthrough private sector involvement. Rehabilitate the education system, to develop the skills that are indemand and requiredfor economic diversification -with a particular focus on expanding professional education (e.g., for wood transformation) and reforming higher education (e.g., curricula). This will require a combination o f substantial investments(to rehabilitate facilities), capacity enhancement (inparticular for teachers), and policy reforms (to better manage available resources). It should be noted that Congolese stakeholders emphasize the link between education and growth (rather than seeing education as a mere social service). Revitalize the rural sector, to remedy decades o f neglect and conflict-induced destructions. While this i s expected to be a complex and lengthy process (see Box lo), there is a consensus that immediate priorities center around the 17 rehabilitation (and maintenance) of rural roads, as their poor condition i s a critical obstacle to commercialization (and hence to agriculture production). Box 10: Revitalizing the rural sector Key constraints to agriculture production include: (i) collapse of ruraltransport the infrastructure, which connects producers and suppliers to their markets; (ii) the lack ofclear regulatory framework for marketing(laws were voted, but implementation decrees are to be published); (iii) absence of processing facilities (inparticular for cassava); and (iv) a low the agricultural productivity (cassava yields in Congo are less than half o f yields inneighboring Cameroon). Revitalizingtheprivate sector will hence require a mix of investments (mostly rehabilitation of rural roads), policy reforms (including clarifying fiscal and regulatory framework), and support to extension and to producer organizations. Enhanceand repositionthe publicsector 38. There is a consensus in Congo that economic recovery andpolitical stabilization both require a transformation of the State, to deal with boththe legacy o f the 1970s and 1980s andthe impact o fconflicts. Experience inother countries also shows that re-establishinga functioning service delivery capacity often goes a long way towards mitigating grievances and reducing risks of social instability. 39. There is a debate, however, around the role of the State. While the Government has taken decisive action to move to a market-based economy inwhich the State would withdraw from productive sectors, there remains a constituency which opposes such reforms. This opposition partly reflects entrenched vested interests, but it also builds on the frustrations ofa populationwho continues to expect the public sector to dominate the economy, and inparticular to providejobs. Efforts are needed to continue to build a consensus around the role o f the State ina modern economy, for reforms to be sustained. 40. Despite this debate, there is broad agreement among Congolesestakeholders around afour-fold agendafor immediate action: Restore afunctioning judiciary to ensure the rule of law - and inparticular to put an endto the culture o f impunity among armed groups, to improve the security o f people and goods, and to eventually create an environment conducive to private sector activity. Inthis context, stakeholders underline the need to strengthen the judiciary's integrity and professionalism. a Increase transparency, in particular in the oil sector andfor managing public resources. There i s a consensus that the recent Government's efforts to clarify the use o foil resources needto bepursued-andthat parallel measures should be taken to enhance transparency for public resources management. This i s seen as 18 critical not only to ensure an adequate use o fthe country's resources, but also to remove incentives for renewed conflict. The Government i s formulating an anti- corruption strategy to that effect, through a broad participatory process and with assistance from Transparency International. Improve social services delivery, inparticular through decentralization. There i s broad support among Congolese for the decentralizationreform, which aims to enhance social service delivery by empowering local government. To be successful, however, this process needs to be accompanied by capacity enhancement efforts, for local governments to have the necessary resources and skills for effective service delivery. Reconstitute a skilled workforce in thepublic service. Congolese stakeholders underlinethe needto resume recruitments inthe public sector inorder to prevent a further erosion o f administrative capacity (to reduce the bureaucratic overhead, the Government has frozen hiring since the late 1980s, and most civil servants are now over 35). While this i s pursued, the pace o f recruitment should be compatible with the Government's reform and stabilization program. Inparallel, a substantial effort i s needed to strengthen skills and improve human resources management. Mitigateshort- and medium-termrisks to the social environment 41. There is a consensusin Congo that urgent measures are needed to handle several risk groups. Several social groups are causing particular concern as their continued disenfranchisement may threaten the peace and recovery process. Specific short-term measures are needed- as it will take years for economic growth to translate into the type o f large-scale job opportunities necessary for these people to be fully integrated in society. Congolese stakeholders call for particular attention to three groups: e Former combatants. Following the recent peace agreements, the disarmament, demobilization, and reintegration o f former militias as well as the gradual downsizing o fthe armed forces are seen as priorities -to restore security, reduce military expenditure, and ensure that those who were luredinto fighting are provided with alternative opportunities. The challenge i s to tackle the specific needs o f former combatants in such a way that it does not create grievances from those who chose not to fight or perverse incentives for future recruitments. e Unemployedyouth, Congolese stakeholders underlinethe need for short-term measures (such as labor-intensive rehabilitation works, or micro-credit facilities) to alleviate youth unemployment inthe short-term. e Groups made vulnerable by the conflict, in particular women-headed households and street children. There i s a consensus that the specific needs o f these groups will require targeted programs, possibly implementedthrough NGOs -andthatsuchsupportiskeytopreventinginsecurityinthemedium-term. 19 42. I nparallel, there is a consensus that vigorous action is needed to curb the HIWAIDS epidemic, which looms as a major threat to medium-termrecovery and political stability. A number o f leaders have started to unequivocally voice their concern inface o fthe epidemic-at the highestpolitical levels, inthe armed forces, and among churches and community activists. Overall, there i s a growing awareness among Congolese that urgent measures are neededto containthe spread o fthe epidemics, in terms o f bothprevention and treatment o f opportunistic diseases. 43. Such efforts need to beparalleled by the rehabilitation of the health system, which has suffered considerable damage during the conflict. Congolese stakeholders underlinethe needto restore systematic immunization programs and to reduce the toll taken by diseases such as malaria, polio, or tuberculosis - for medium-term recovery to be possible. Increaseresources for stabilityanddevelopment-throughdebt reliefand otherwise 44. I n the short-term, debt relief is critical tofree up resourcesfor peace and development. Over the past decades, weak policies and conflict, Box 11: Congo's external debt compounded by sometimes misguided borrowing and lending decisions, have Totalstock:US$6.5 billion (about US$2,100 per produced anunsustainable debt burden capita), i.e. 193% of GDP and 235% of exports. (see Box 11). Debt service obligations significantly reduce Government Composition:55% Paris Club, 20% commercial banks, 11% multilaterals, 14% others. resources available for breaking the cycle o f conflict and impoverishment. Arrears: US$3.8 billion (59% o f total stock), Le. Ina context o fhighoil dependence, 115% of GDP and 139% o f exports. this further restricts the room for Service:very high inthe nexttwo years: 48% of maneuveringinface o fprice shocks. revenues in 2003,42% in2004 (between 35 and 45% in 2005-2008). 45. Priorities are two-fold: Collateralized debt:the Government has abandonedthis practice used during the conflicts 0 Tackle the arrears issue. (advance sales of oil); collateralized service will Duringthe first halfo fthe decrease from 38% o f oil revenues (Le. about one 1990s, Congo interrupted third of Government revenues) in2002, to 26% in repayment o f most o f its debt 2003, 15% in2004, and less than 6% after 2005. resultedina significant build- up ofarrears. Since 2001, the Government has demonstrated its commitment to normalize relations with some o f the country's key creditors (including the Bank) -andhasusedthefavorableoilpricestoclearorstabilizepartofitsarrears. Still, much remains to be done by both Congo and its creditors for this issue to be resolved and for some o f the major donors to re-engage. 20 Rapidly access the Enhanced HIPC initiative, making best use o fthe existing flexibility to "front-load" assistance for post-conflict countries (through an early decision point combined with a longer periodto completion point). Assuming continued strong economic performance, as well as support from all major creditors (which will requirereaching an agreement with the Paris Club and key multi-lateral creditors, including the African Development Bank, on the treatment o f arrears and the resumption o f debt service), the target date for the decision point could be as early as the first semester o f 2004. 46. To be effective, such debt relief will need to be accompanied by a substantial effort tofurther improve the management of public resources. Congolese stakeholders underlinethe needto ensure that HIPC relief is adequately used. This will require reforms to enhance the systems usedfor budget preparation, execution and supervision, as well as a gradual shifting o fpublic expenditure towards targeted poverty alleviation. It should be complemented by a vigorous effort aimed at improving transparency and effectiveness inthe use o f scarce public resources. 47. Finally, there is aperception that more should be done to ensure that Congoleseefforts are adequately supported by the donor community. To date, Congo has not benefited from a level o f support commensurate to its needs or comparable to other post-conflict countries o f a similar size. Only two donors have large programs (the Bank and the European Commission), and only a few bilaterals have active programs (mainly France, Italy, and the US). Efforts to clear arrears and to ensure a better use o f the country's own resources should contribute to facilitating donor re-engagement. 21 Iv. A BANKSTRATEGYFORFY04-FY05 A. Operational context 48. Bank assistance to Congo should continue to beprovided within the context of OPBP2.30 on "Development Cooperationand Conflict" -inview o f the continued need for exceptional support to consolidate progress towards stability and economic reform, and to definitively break the cycle o f conflict and poverty. 49. Criteriafor thepreparation ofa TSS are met: (i) conflict has diminished active sufficiently for Bank staff to be able travel to the area for the purpose o f identifying and supervisingBank-supportedactivities, and for the country to prepare and carry out any such activities effectively and achieve their objectives; (ii) is a reasonable there expectation o f continued stability or o f a sustainable formal cease-fire; (iii) there i s an effective counterpart for the Bank; and (iv) there i s evidence o f strong international cooperation andthe potential for a well-defined role for the Bank. 50. The new TSSproposes an assistanceprogramfor the next 24-month period, and identifies operations for the outer years (for which preparationwill needto start over the next two years). At the end o f this period, staff will review the situation (both social stability and implementation o f economic reforms) as well as the status o f preparation o f a full PRSP, with a view to moving to a formal CAS as soon as conditions are right. B. Obiective and strategic elements of the TSS 5 1. Theproposed objective of the TSSis to help Congo get out of the conflict trap - by working together with the Government and other key stakeholders to address the four key challenges identified during consultations 52. Thespecific strategic elements of the TSSare: e Support tojob creation through growth and diversification -with a focus on: (i) supporting implementation o fthe ongoing economic program, particularly inthe context o f access to a PRGF; (ii) rebuilding an adequate infrastructure network, to ensure connectivity and develop the country's potential for trade and export; (iii) enhancing education and professionaltraining; and (iv) supporting rural development; Help enhance and reposition thepublic sector -through both advisory services and adjustment operations, with a focus on: (i) increasingtransparency inthe oil sector; (ii)improving public resources management; and (iii) enhancing capacity. e Help mitigate short- and medium-term risksfor the social environment -with a focus on: (i)supporting demobilization and reintegration o f former combatants 22 within the Multi-country Demobilization and Reintegration Program (MDRP) framework; and (ii) assistinginthe fight against HIV/AIDS. Assist in increasing resourcesfor peace and development -by: (i) helping Congo to access HIPC at an early stage; and (ii) helping to mobilize support from other donors as well as from IFC andMIGA. 53. The TSSalsoproposes to strengthen the Bank's office in Brazzaville, to allow for satisfactory implementation of the proposedprogram and continued dialogue with the Government and other Congolese stakeholders. Arrangements will be made to transfer responsibilities to the field, andto buildthe necessary capacity for hands-on implementation support (from the Brazzaville office or neighboring country offices). C. Donor coordination and selectiviw 54. Donors discussed their approaches andprograms during a recent I nformation Meeting, which was held inParis on July 15,2003. Overall, donors indicated their support to Congo's efforts towards reconciliation andreform (see Box 12). This sets the frame for donor coordination, incomplement to the active and well-functioning mechanismsinBrazzaville. Box 12: Summary conclusionsof the July 15,2003 Donor Information Meeting This meetingwas an opportunityfor donors andthe Government to engage ina dialogue with eachother, following an earlier meetinginOctober 2000. Donors commended the Governmentfor its efforts to date towardsreconciliation andprovided encouragements to consolidate these achievements in particular by empoweringlocal authorities, strengtheningthe independenceofthejudiciary andhelpingdisplacedpersonsto reintegrate. Donors expressedsatisfaction with the Government'sefforts towards economicreform and underlinedthe need to maintain performance. They supportedCongo's efforts to access the PRGF as early as the country's performancewill allow, tentativelyby end 2003, as well as an early access to HIPC in line with guidelines for post-conflictcountries. Donors acknowledgedthe Government'seffort to increase transparency (inparticularthrough the recent audit ofthe national oil company). They encouragedthe Government to pursuethese efforts, andto rapidly develop an actionplanto that effect. Donorsprovidedpositivefeedback on the Governmentfor a draft I-PRSP whichwas proposed for discussion and for the participatoryprocesswhich had beenfollowed. They presented a number of general and specific comments to this draft and encouraged the Governmentto rapidlyfinalize this document, tentativelyby Fall 2003. 55. Within this context, attention waspaid to ensuring the complementarity of proposed Bank activities with other donors'programs. The synergy betweenthe proposedBank program and donor activities was discussedduring TSS consultations - 23 and it is expected to be maintainedthroughout the period of TSS implementationthrough close coordination inthe field. Ongoing and plannedsupport by other key donors i s summarized inAnnex 3. 56. Selectivity criteria have been agreed upon with Congolesestakeholders and other donors:the Bank being the second largest donor may need to be involved ina broad range o f sectors, but it still needs to focus and target its support (ina context o f limited resources). Criteria for selectivity include: (i) focus on those activities which promise to have the largest pay-off with regard to breaking the cycle o f conflict and poverty; (ii) on areas inwhich the Bank has a comparative advantage vis-a-vis focus other donors currently involved inCongo, including areas inwhich the Bank i s already active; and (iii)focus on areas which are complementary to other activities plannedor underway -by other donors or local stakeholders. 57. Attention was alsopaid to ensure that Bank activities will contribute to increasing Congo's absorption capacity for external assistance, inparticular by setting up adequate mechanisms for transparent and effective implementationo f externally- financed activities. This i s o f particular importance as substantial additional resources could be made available by key bilaterals after Congo's access to the HIPC initiative. D. Instruments for Bank Group assistance 58. The TSSproposes ajive-fold agenda: (i) managing the existing portfolio; (ii) supporting access to HIPC; (iii) providing non-lending services; (iv) launching new lendingoperations; and (v) engaging the entire Bank Group and other donors. Managing the existing portfolio 59. Thejirstpriority for the country team will be to ensure effective implementation o fthe operations approved by the Board over the last two years (4 active operations, with US$87 million undisbursed as o f end FY03). The country team will focus on mobilizing the right human and budgetaryresourcesto: (i) fast and effective disbursement; ensure and (ii) pro-active inaddressing implementation issues as they emerge. Effective be implementation o f ongoing operations is critical - as it i s the activity which i s most likely to produce results on the ground inthe short-term. Supporting access to HIPC 60. Thesecondpriority will be to help Congo meet the criticalpre-requirements for access to HIPC. Assuming continued satisfactory performance on the implementationo f the economic program supported by the BrettonWoods Institutions. Bank and IMF staff are planning to complete the necessary work for access to HIPC by the end o f the first semester o f 2004. Bank support will include preparation o f a DSA and JSA. 24 Providing advisory services and developing a knowledge base 61. Non-lending services are a critical component of Bank support. The TSS proposes to focus on: (i)advisory services for implementation o f the ongoing economic program; (ii)analytical work to strengthen the knowledge base andprepare for new lending operations; and (iii)sectoral work to support the PRSP process. 62. Such work will bepartlyjinanced through ongoing operations -inparticular through the Transparency and Governance Capacity BuildingProject (for transparency issues) and the Emergency Recovery and Community Support Project (for activities associated with economic reform and decentralization). This will help ensure that non- lendingactivities best meet the Government's needs-and mitigate Bank administrative budget constraints (which are particularly strict for a country o f the size of Congo). 63. Analytical andAdvisory Activities (AAA)jinanced through Bank administrative budget will hencefocus on a set of targeted interventions, which are expected to complement project-financed activities. A proposed program is presented inthe table below. ProposedProgram Remark years be undertakenat regionallevel. Complementary to work funded underthe EmergencyRecoveryand CommunitySupport Project Legalandjudicial assessment Support effortstowards ajudicial reform. Launching new operations 64. To help Congo addresspriority issuesfor stabilization and growth, the following financial assistanceprogram isproposed. The table below indicates estimated needs for each operation (project amounts may needto be adjusted inline with the evolution o fthe financial envelope available overall): s 25 Fiscal Outer years rehabilitation project Project Ioperation. Financedunder MDRP. 65. These operations are expectedto be designedin a manner that responds to the specific circumstances of apost-conflict situation. They will be prepared under OP/BP 8.50 on emergency assistance where appropriate, and financed through a combination o f credits and grants (as per IDA 13 guidelines and on the basis o f an allocation reflecting post-conflict performance). They are expected to be complementedby small grants underthe Post Conflict Fund(PCF) andthe Institutional Development Fund(IDF). 66. Given the stillfragile state ofpeace in the country,flexibility in applying the TSSis of paramount importance. Inview ofboththe ongoing efforts by the Government to clear external arrears as a key step towards resuming normal relationships with its creditors, and the need to ensure quick implementation o f activities (which is crucial to help consolidate peace), the Government will not be required to provide counterpart funds for any o f the operations included inthe TSS (as with projects under the 2001 TSS). Engagingthe entireBankGroup andother donors 67. The TSSproposes that efforts be made to encourage both IFC and MIGA to engage in Congo (neither o f which i s currently involved) -building on a recent high- level mission by MIGA and on interest recently expressedby large private investors for IFC. Support from these institutions i s critical to facilitate private investment inCongo. 68. I nparallel, the Bank will engage in an effort to mobilize support by other donors. Inthe recent period, the Government has started to address some of the key issues that were impedingdonors engagement (inparticular inthe governance area), and has demonstrated its commitment to resolvingthe arrears issue. The Bank intends to help by organizingregular donor meetings -initially to raise awareness within the international community (on issues, recent progress, risks of inaction) and ina second phase to share implementation experience and discuss financing arrangements. E. Proposed activities and strategic obiectives 69. The table below details the mix of instruments to be usedfor each strategic element of the TSS. This summarizes the description of interventions presented above and indicates the approach proposed for the Bank to achieve its objectives. Strategic Area of focus Proposedinstruments element Creatingjobs: Economic Implementation:Emergency Recovery and Community growth and program Support Project diversification implementation Lending: Economic Recovery Credit Infrastructurefor Implementation:InfrastructureRehabilitation and trade and export Improvement of Living Conditions Project Lending: Multi-sector infrastructure and trade Education/ m:Education facilitation project sector review professional Lending: Education/ professional training project training Rural IImplementation: Emergency Recovery and Community development m:Agriculture support Project policy note Enhancing/ Transparency in Implementation: Transparency and Governance repositioning the oil sector Capacity Building Project public sector Public resources m:(i)Public Expenditure Review (PER), (ii) management combined Country Procurement Assessment Report (CPAR) and Country FinancialAccountability Assessment (CFAA) Capacity Implementation: (i) Transparency and Governance enhancement Capacity BuildingProject, (ii) Emergency Recovery and Community Support Project Mitigating Demobilization Implementation: Emergency Demobilization and short- / and reintegration ReintegrationProject medium-term HIV/AIDS Lending:HIV/AIDS project social risks Increasing Access to HIPC m:(i)DebtSustainability Analysis, (ii) Staff Joint resourcesfor Assessment stability and Donor Organizationo f regular donor meetings, preparation of development mobilization background documents 27 F. Risksand mitigation 70. Engagement in apost-conflict context is a high-risk, high-gain enterprise. The situation inCongo remains difficult and challenging-butthe risks o f engagement have to be balanced with the risks o f inaction, which are considerable. Research and experience show that external assistance can play a key role inpromoting the type o f reforms neededfor consolidating economic growth and political normalization, and hence for escaping the conflict trap. The approach suggested here consists o f adopting a pro-active risk management strategy rather than a risk avoidance approach -to identify key factors o frisks and designways to minimize their potential impact. 71. Through consultationswith both other donorsand Congolesestakeholders, Bank staff have identifiedfive main types of risks, each o f which could seriously jeopardize the successful implementation o f the proposed TSS: 0 Regional instability and threatsto thepeaceprocess. The peace process in Congo i s intrinsically linkedto progress throughout the region. Wars and civil conflicts have engulfed a large part o f Central Africa over the last decade, including three o f Congo's five neighbors. Congo's recovery cannot happen in isolation and requires a stabilization o f the entire sub-region. The TSS aims precisely to helpefforts inreducing the odds for renewed conflict inCongo. These actions are complemented by parallelprograms inother affected countries inthe region with the ultimate objective o f promoting a return to stability. 0 Difficulties on the reform path. Anti-reform constituencies remain active and influential inCongo -within the administration as well as among private operators. Recent reforms could be delayed by unwilling stakeholders (although this will become more andmore difficult as time passesandreforms aretaking roots). To mitigate this risk, the TSS aims to support and strengthen pro-reform constituencies, including among non-government stakeholders, through dialogue, capacity building, and an appropriate phasing o f reforms. Progress will be closely monitored by the Bretton Woods Institutionsthrough an intensivepolicy dialogue, so as to react early to slippages. 0 Compromisedadministrative capacity. After a decade o f conflict and instability, implementationcapacity remains less than desirable, whether for Government- initiated policy reforms or for Bank-fundedprojects. This could slow down implementationo f the reform program and support o f projects. The TSS aims to address this issue by working on capacity issues. With regardto Bank-supported operations, experience to date shows that difficulties can be overcome ifimplementation mechanisms are appropriately designed. 28 0 Volatility of oilprices. Ina country that draws the quasi-totality of its export revenues from oil, and that i s a price-taker on the oil market, price volatility i s a critical risk. Current highprices have allowed Congo to service its debt to key creditors (including the Bank) and to free up some resources for development programs. A decline inprices could result injeopardizing Congo's foreign position, makingit difficult to service multi-lateral debt, and eventually putting the recovery effort at risk. The TSS aims to contribute to Congo's efforts to diversify the economy to reduce its vulnerability to shocks. Incase o f a fall in oil prices, the Bank would also engage ina dialogue with the Government to help identify key expenditures which even intimes o f crisis needto be preserved inorder to safeguard the program. 0 Lack of donor support. Ina context o f acute social crisis after a decade o f instability and war, Congo needs to tackle a number o f urgent issues for peace and recovery to be sustainable. Inview o fthe limitedfiscal resources available, the absence o f substantial external support would make it impossible to address these issues - and would hencejeopardize the recovery effort. The TSS aims to support the type o freforms that can contribute to making Congo more attractive for donors andprivate investors. The TSS also proposes that the Bankplay anactive role inmobilizing donors beyondthose already involved. It i s expected that through implementation o f its ongoing projects the Bank will help increase absorption capacity to facilitate an effective use o f donor resources. 0 Delays in the HIPCprocess. Similarly, delays inaccessing HIPC could be a major threat to the sustainability o f the economic recovery and reform program, by diverting about halfo f Government resources from social stabilization and poverty alleviation. The TSS aims to help Congo access HIPC as early as its performance allows under the post-conflict framework. Bank staff will pay particular attentionto avoiding any unnecessary delay inthe process. G. Monitoring;and evaluation Managing for results and indicators 72. The TSSproposesto assessperformance against a set of indicators aimed at measuring the outcome of Bank support (see Annex 2). Such indicators should be simple, measurable, and easy to monitor even inthe absence o f detailed statistics. Progress against these indicators will be assessedon an ongoing basis, through regular consultations with the Government, key Congolese stakeholders and donors (so as to 29 integrate a variety o fperspectives). Progress achieved through Bank interventionwill be measured against all criteria on an annual basis. This will help ensure that Bank programs are managed for results and focused on making a measurable difference on the ground. Should the situation stabilize sufficiently in2004, the Region could initiate the preparationof a Country Assistance Strategy (CAS) inFY05. Exit strategy 73. Theproposed contingency response to apossible deterioration of thepolitical and security situation is an incremental and targetedscaling down. Inview o f Congo's recent history, the risk o f renewedconflict cannot be excluded. Experience shows, however, that while the security o f staff needs to be preserved, suspendingoperations over a long period o ftime and closing an office makes it difficult to provide the type of rapid support which i s neededwhenthe situation improves. While the resumptiono f a full-scale and lengthy war could lead the Bankto consider withdrawing from Congo, the primary response to a deterioration o fthe security or political situation will consist in scaling down activities, rather than withdrawing. 74. The Bank will work in close coordination with UNagencies and key bilaterals to monitor political and security developments,so as to rapidly respond to unfolding events. The response will be based on a dual assessment -o f staff security and o fthe probability for the TSS to be successfully implemented. Practical steps will include revisions o f specific activities' implementationschedule, revision o f the planned interventions, and possibly partial suspension o f activities. The TSS proposes specific strategies for two key scenarios o f negative security developments: e Localized eruptions of violence or insecurity in rural areas (similarto the events that affectedthe Pool Region inearly 2003). Implementation o fthe TSS would continue, with a suspension o f activities to be implementedinthe affected areas. e Sporadic eruptions of violence in Brazzaville. This could result ina temporary relocation o f non-critical staff anda possible scaling-down and/or refocusing o f Bank-funded activities. James D.Wolfensohn, President by Shengman Zhang Washington, D.C. August 8,2003 30 ANNEX1:PROPOSED ASSISTANCEPROGRAM SUMMARY Lending Non-lending activities Fiscal Proposed Program Remark Year FY04 PublicExpenditureReview(PER) Focuson oil sector management,budgetpreparation (completion) andexecution Debt SustainabilityAnalysis (DSA) Preparefor HIPC be combinedto 31 ANNEX2: TSS PERFORMANCE INDICATORS Strategic Area of focus Proposed performance indicator element (after two years of implementation) Creatingjobs: Economic Access to a PRGF and satisfactory implementation. growth and program diversification implementation Infrastructure for Regular operation o f the backbone railways line trade and export between Brazzaville and Pointe Noire maintained throunhout most o f the TSS imdementation Deriod. Education / Primary enrollment rates increased at a pace professional comparable to the 1999 - 2003 period (keeping in training mindthe difference instartingpoint). Rural Substantial rural roads and rural infrastructure development rehabilitationworks ongoing inat least seven o fthe ten provinces. Enhancing/ Transparency in External audits o f SNPC regularly carried out and repositioning the oil sector action effectively taken on issues identified inthese public sector audits. Public resources Action underway to implement key management recommendations to emerge from the ongoing PER Capacity Capacity for social services delivery at local level enhancement substantially increased (as measured through baseline studies). Key measures to reform the civil service launched. Mitigating Demobilization N o significant outbreak o f renewedviolence or short- / and reintegration large-scale insecurity caused by constituted groups medium-term o f former combatants. social risks HIV/AIDS Effective and pragmatic HIV/AIDS prevention program underway, with an active participation o f critical stakeholders. Increasing Access to HIPC Qualification for Decision Point, inline with resources for Congo's performance and guidelines for post- peace and conflict countries. development Donor Total financial support by bilateral donors doubled mobilization (from FY03 level). 32 ANNEX3: ONGOINGAND PLANNEDDONORSUPPORT TO THE REPUBLICOF CONGO Amount Timeframe Priority area' US$9,262,345 2000 -2003 3S, f&D US$2,566,360 2001 -2003 PS US$2,77 1,797 2000 -2004 SS, P&D US$335,208 2001 -2004 I 4,262,858 2002 - 2004 G&D 15,245,751 1995,2001/ PS 02 -to date 8,090,000 2002 - 2005 G&D, P&D 55,000,000 Ongoing G&D, P&D . 5,727,941 Ongoing ss Reintegration of displacedyouth and ex-combatants,collecting of ..... arms School reinsertion andfight against sexually transmittablediseases, HIV/AIDS Improvement of health services in war-affected zones Post-conflict emergency assistance NGO co-financing 1,322,955 N/A SS, P&D SOS-Faim and Forum desjeunes entreprises Development of educational center in Dolisre Youtheducationfor theprevention of HIV/AIDS in Pointe-Noire . Health 913,149 NIA ss Fight against HIV/AIDS Preventionand reduction of mother-child HIV/AIDS transmission Other 12,957,500 2002 -to date SS, P&D . Support of national medical program (PNDS) Supportprogramfor the arts Support of National Director AFD NIA 1994196- PS, ss G&D, ... Structural adjustment loans Privatization of water, electricity (SNE) and telecommunication 2003 (ONPT) sectors Computerizationof the Ministry of Finance Privatization ofthe Navigable Waterways,Ports and River Transport Authority (VNPTF) Reconstruction of Health infrastructure 33 Private Sector Support - several billion NIA 3&D Refinancing credit line with Cre'dit Lyonnais Congo FCFA Privatization of banking sector m Intervention in reinforcement of MUCODEC capital stocks (Mutuelles Congolaises d'Epargne et de CrPdit) m Study on theport rehabilitation of Pointe Noire Hotel renovation in Pointe Noire Capacity enhancementin sugarproductionfor C E M C exports Financial Supportfor forestry sector FA0 Regular support program US$1,799,885 2001 -2005 S&D m TCP (Technical Cooperation Program)for FAORS Integratedproduction andprotection of manioc 9 Researchand statistics onfishery resources m Reinforcement of national system of quality assurance offishery products m Support in identifying micro-enterprises for agro-food transformation m Programfor Food Security Support of PSSA (Programme SpPcialpour la Se'curite'Alimentaire) Emergency support US$1,739,625 2001 -2003 ss m Provision of agricultural materials (5projects total) Reinsertion of women andyoungpeople into the agricultural sector m Reinsertion of vulnerablepopulation into the agricultural sector Tele-food program US$74,302 2001 - 2003 G&D Revalorization of thepiscicultural station in Tsieme Production of tablefowls and eggs Capacity enhancementof women in manuring offish Technical improvement offresh fish distribution Installation of seedbedsfor fruit tree seedlings in Ngo m 3projects of technical improvement ofavicolous breedingfor women groups Re-launch offishery activities at Enyele and Epena UNICEF Health US$1,765,557 N/A ss Address child diseases Revive PEV (Programme Elargi de Vaccination) and control of diseases Promote proper childbirth Nutrition US$114,126 NIA SS Fight against micronutrient deficiencies Reduce mortality among children of age 5 or less caused by malnutrition Promote integral child development in communities Education US$298,289 NIA ss Primary education Framing of the early childhood Planning ofprimary education Protection US$70,000 NIA ss Pleafor the application ofchildren 'srights m Taking care of children with speci'jk needsfor protection Taking care of women as victims of violence Taking care of victims of discrimination and exclusion Program Planning, Implementation and Evaluation N/A PS National capacity enhancement Analysis of situation Preparation of new program 2004-2008 Cross-sectoralactivities US$ll5,000 NIA / Emergency programs US$1,750,968 NIA ss Basic Services Health Education Water and sanitation m Protection 34 Donor Planned activities Amount Timeframe Priority area' UNDP ... Governance NIA NIA PS Capacity enhancementfor Congoleseparliament . Support offight against corruption Support of local governance and in capacity enhancementfor local communities Support of Government strategies (PRSP, MDGs etc.) Poverty NIA NIA SS, P&D .. 8 Support ofPRSPprocess and in achieving MDGs Support of local developmentinitiatives Promotion ofyouth employment Support in reintegrating ex-combatantsand small arms collection . .. Environment and natural resources N/A NIA SS, P&D 8 Environmental information, education and sensitization .. Coastalpollution Improving urban environment and living conditions Woodenergy International waters, climate change and biodiversity Assessment of national capacities to reinforce ANCR Cross-cuttingissues: N/A NIA ss, G&D, Fighting HIV/AIDS PS m New Information and Communication Technologies .. Capacity enhancementfor establishingNational StrategicFramework for Fight against HIV/AIDS Pleafor thefight against HIV/AIDS Education and HIV/AIDS Institutional supportfor the Minister of Telecommunications in the formulation of a National Strategyfor the developmentICT and necessary infrastructure Installation of Internet hubs in Brazzaville and Pointe Noire Gender . Capacity enhancement and support of Governmentfor CEDAW (Convention on the Elimination of All Forms of Discrimination against Women) EU Transport sector 68,550,000 2003 -2007 G&D m Rehabilitation work on RN 1 . Institutional support and road maintenanceprogram InstitutionalDevelopment 14,300,000 2003 -2007 PS Democracy and the constitutional state Priority sectors/areas 23,950,000 2003 -2007 ss, . Institutional supportfor the development ofprotected areas G&D ISTAC school in Pointe Noire Other AFD NIA NIA NIA I F A 0 Regular support program US$6,175,000 NIA G&D, ss ...... ... Promotion of agricultural and agro-alimentary PMEs Diversification of agricultural production Production andprotection of manioc Reinforcement of the seed multiplication program Re-launch of animalproduction Creation of smallfoodproduction units in rural zones Re-launch ofpotato cultivation in the Plateaux region Re-launch of rice production Programme Spe'cialde Se'curite'Alimentaire (PSSA)for Congo Reinsertion ofyoung people and ex-combatants into agricultural activities 35 UNICEF ... Child development US$3,885,000 N/A ss VaccinationPlus Nutrition and child development Control of child diseases Risk-free pregnancy Primary education IUS$2,890,000 1NIA 1 ss Planning of education Primary education Schools as children'sfriends ss .. .. Maternal and child protection US$2,244,000 N/A Protection of child digniv Protection of orphans and vulnerable children Rehabilitation of women and children victims of violence HIV/AIDS US$1,895,000 N/A ss HIV/AIDS urevention amonp vouth .. . HIV/AIDS'prevention of mother-child transmission Social policies IUS$S95,000 IN/A I PS,SS Creation and implementation 'ofpolicies Communicationofpolicies Note: Priority area corresponds to the four key challengesidentified in the TSS: Creatingjobs throughGrowth and Diversification (G&D); Enhancingand Repositioningthe Public Sector (PS); Mitigating Short- and Medium-TermRisks to the Social Environment(SS); IncreasingResourcesfor Peace and Developmentthrough Debt Reliefand Other (P&D). 36 ANNEX4: IMPLEMENTATIONPERFORMANCEFORTHE 2001 TSS Thetables below summarizes current status for each outcome indicator identifiedinthe 2001 TSS. A. Security and reconciliation Items Progress indicators Outcome indicators Status Public security Effectiveness o f civil N o restrictions on Achieved policing movement o fpeople around the country Reconciliation 1 representation Degree o f o f all I National dialogue successfully concluded I held. Exceeded. Elections Political stakeholders inthe opposition represented political process innationalandlocal assemblies Demobilization Status o f disarmingand Security sector reform Achieved. and demobilization ex- initiated reintegration militia B. Economic recovery Items I Prowess indicators Outcome indicators Status Management Degree o f momentum Structural reforms Achieved. o f the reform intransparently ongoing ina satisfactory Performance under process implementing structural manner SMP overall reforms satisfactorv. Management Commitment to Arrears to multilateral Partly achieved. o f external debt manage the external creditors cleared and Arrears to some and adequacy debt situation, arrears to bilateral and multilateral creditors o f the budget including clearance o f commercial creditors cleared (but not the arrears stabilized African Development Bank). Arrears to bilateral and commercial creditors cleared. Management Existence o f processes War-affected groups Partly achieved -with and permittingpeople and benefitingfrom wide variations among sustainability stakeholders to completedrehabilitation war-affected groups. o fthe participate indecision- activities rehabilitation making program 37 C. Social inclusionand social sector development Items Prowess indicators Outcome indicators Status Reintegration Status o f return o f Economies o f war- Partly achieved and o f displaced displaced people affected communities ongoing - with wide population successfully re-launched variations among communities. Education Degree o f school Primary enrollment rates Ongoing. Enrollment rehabilitation efforts in returnto pre-war levels rates still lower than war effected areas pre-war,butrapidly increasing. Health Degree o f rehabilitation Health centers functional Partly achieved -with efforts to overcome inmostwar-affected wide variations across disparities between communities regions. individuals, groups and geographic areas; preparation o f a national strategic HIV/AIDS plan. D. Publicsector managementandinstitutions Items Progress indicators Outcome indicators Status Budget Timeliness o f budget Publication o f annual Ongoing. Audit formulation formulation and degree audit o f accounts o fthe currently underway, and efficiency o f implementation national oil company o f revenue (SNPC) mobilization Reestablishing Timeliness o f payment Reorganization o f civil Achieved -regular the o f civil service salaries service initiated wage payments administration resumed, civil service re-organization initiated. Transparency Extent to which the Regular publication o f Partly achieved. and authorities monitor the awards o f contracts over Substantial progress accountability prevalence o f CFAF 25 million over last period. inthepublic corruption and sector implement sanctions transparently 38 ANNEX5: CONSULTATIONSWITH STAKEHOLDERS 1. A series of consultations were organized in Brazzaville with Congolesestakeholders,to discuss experience with Bank's past activities, lessons learned, and priorities for future Bank support. All stakeholders expressed their satisfaction withthe process, whichmany qualified exemplary. Substantial contributions were made though this process, which inform both the TSS andthe designo f specific future lendingandnon-lending activities. 2. The team met in particular with: Government officials, including Mr.Isodore Mvouba, Minister o f State, incharge o f Coordination o f Government's Action; Mr.Roger AndCly, Minister o f Economy, Budget, and Finance; Mr.Pierre Moussa, Minister o fPlanning and Economic Integration; Mr.Pierre Oba, Ministero fInterior andTerritorial Administration, and Mr.Simon Mfoutou, Ministerto the Presidency for Control o f the State. General staff of the armedforces. Regional administrators, including from the regions o f Likouala, Niari, and Sangha. Managers of all Bank-funded projects and coordinators of the PRSPprocess. Oppositionleaders (leaders o f key opposition groups inParliament). Religious leaders, including the head o fthe Congolese Episcopal Council. Representativesfrom the NGO sector (through the Coordination o f Associations and Civil Society Networks inCongo, Caresco). Representatives of women groups, involved indevelopment activities. Private sector representatives, including representatives o f the main businessorganization (Unicongo) and forestry industrialists. Dortors, including Belgium, EuropeanCommission, France, and United States; UNagencies,including representatives from the FoodandAgriculture Organization (FAO), the UnitedNations Development Program (UNDP), UNICEF, andthe World Health Organization (WHO). 3. All stakeholdersunanimously insistedthat the key challengefor Congo in theyears ahead is to break the cycle of war andpoverty o f the 1990s, i.e. to stabilize and consolidate peace and economic reforms. The team also observed a large degree o f consensus around the four-fold agenda o f action described inthe TSS: (i) jobs, through growth and diversification; (ii) create enhance and reposition the public sector; (iii)mitigate short- and medium-termrisks to the social environment; and (iv) increase resources for development. 4. I n addition, the team noted a number of specificpoints, including: Security situation. There is a consensus that security has beenrestoredthroughout the country. Progress has been such that a gradual downsizing o fthe armed forces i s reportedly being considered. Supportfor the Government's reform program. Support for the economic program supported by the Bretton Woods Institutions was unanimous, and is apparently sharedvery broadly beyond Government circle. Civil society leaders have publicly intervened inthe media in support o f it. Private sector representatives are encouraged by the improvements inthe 39 business environment. And some churches have reportedly organizedprayers for the success o fthis effort. Fight against corruption. The efforts undertaken to increase transparency, inthe oil sector as well as for managingpublic resources, are perceivedby all stakeholders as the most critical factor for recovery and growth in Congo. At the same time, there i s a consensus that, while much remains to be done, the steps recently taken by the Government go inthe right direction. Constituencyfor a state-dominated economy. There remains a strong constituency, both in political circles andwithin some civil society groups, for an interventionist state. Inparticular, ina context o fhighunemployment, some stakeholders feel that the state shoulduse oil revenues to providejobs by increasing the size o f civil service. Sources ofgrowth, While there i s a consensus around key sectors (agriculture, forestry, trade), there i s a need for a more structured debate on the country's potential and on ways to unleash this potential. For example, some stakeholders retainviews which reflect the pre-1990 economic environment. There are also only limited economic links with neighboring DRC, althoughthis could be a critical market for Congo's products. The PRSP process shouldhelp clarify the social consensus around the country's prospects. Importance of infrastructure. There i s a consensus that the rehabilitation o ftransport infrastructure, power, and rural roads i s critical for economic recovery. Some stakeholders also noted issues o f management o f utilities and transport companies. Rural areas. Stakeholders emphasized that assistanceto date has focused on the urban areas o f Brazzaville and Pointe Noire and should be expanded to the country's interior and rural regions to have a substantial impact on recovery (and some suggested that urbancounterparts are often estranged from the situation inthe provinces). Latent violence. Most stakeholders noted the deteriorated state o fthe social capital and its implication for the further development o fthe country. The environment inCongo, particularly inthe countryside, remains anenvironment o flatent violence, withthe circulation ofa large number o f weapons. Demobilization and reintegration. Several stakeholders mentioned that attention hadto be paid indemobilization and reintegrationprogram to ensure fairness inthe treatment o f ex- combatants and others. They underlined the risk that perverse incentives may be provided by appearing to reward those who chose to fight over those who abstained. Bankprocedures. While some stakeholders criticized the Bank for its slowness, a number o f others indicated that Bank procedures offer best practices to be used as benchmarks for public expenditure management. Within this context, participants encouraged the Bank to focus on procurement reform inits analytical work - and to have decision-making staff present infield to help ensure smooth implementation. Congo, Rep. at a glance 9/23/02 Sub- POVERTYand SOCIAL Congo, Saharan Low- Rep. Africa income Developmentdiamond* ~ 2001 Population,mid-year (millions) 3.1 674 2,511 Lifeexpectancy GNI per capita (Atlas method, US$) 700 470 430 I GNI (Atlasmethod, US$billions) 2.2 317 1,069 1 Average annual growth, 1996-01 I TI Population(%) 2.9 2.5 1.9 Laborforce (%) 2.9 2.6 2.3 I GNI Gross +primary Most recent estimate (latest year available, 1996-01) capita enrollment Poverty (% ofpopulation belownationalpovertyline) 70 Urbanpopulation(% of totalpopulation) 73 32 31 Life expectancyat birth (years) 49 47 59 Infant mortality (per 1,000live bidhs) a i 91 76 Childmalnutrition(% ofchildrenunder5) 16 1 Access to improvedwater source - Access to an improvedwater source (% ofpopulation) 46 55 76 illiteracy(% ofpopulation age 15+) 40 37 37 Gross primaryenrollment (% ofschool-agepopulation) 79 78 96 Congo, Rep. Male 62 65 103 Low-incomegroup Female 76 72 86 KEY ECONOMIC RATIOS and LONG-TERMTRENDS 1981 1991 2000 2001 1 Economic ratios' GDP (US$ biiiions) 2.0 2.7 3.2 2.6 Gross domesticinvestmenffGDP 46.2 20.5 21.o 27.2 I Exportsof goods and serviceslGDP 56.0 45.1 78.6 79.7 Trade Gross domesticsavingslGDP 30.1 16.6 60.7 59.2 Gross nationalsavingslGDP 24.5 2.2 29.0 31.0 I Current accountbalancelGDP -26.7 -16.7 7.9 3.8 Interest paymentslGDP 4.8 1.8 6.5 6.9 Domestic 4 Investment Total debVGDP 75.1 177.3 173.3 195.0 savings Total debt service/exports 20.5 25.7 23.6 21.9 Presentvalue of debVGDP 142.3 Presentvalue of debtlexports 181.9 I Indebtedness 1981-91 1991-01 2000 2001 2001-06 (averageannualgrowth) GDP 1.6 -0.1 8.2 2.9 4.0 - Congo, Rep. GDP per capita -1.1 -3.0 5.5 0.2 1.9 Low-incomegroup Exportsof goodsand services 3.4 6.2 9.1 -1.3 2.3 I STRUCTURE of the ECONOMY 1981 1991 2000 2001 Growthof Investmentand GDP(%) (% of GDP) Agriculture 7.9 11.3 5.3 6.0 150 Industry 50.9 36.0 70.9 64.5 Manufacturing 6.3 6.9 3.4 4.5 Services 41.2 52.6 23.6 29.5 Privateconsumption 56.5 60.4 26.2 29.5 l-50 1 86 97 88 98 00 01 Generalgovernmentconsumption 13.4 21.0 11.1 11.3 Imports of goods and services 76.1 47.0 36.9 47.7 I _s_ GDI +GDP I 1981-91 1991-01 2000 2001 (averageannualgrowth) Growthof exports and Imports (%) Agriculture 2.9 1.9 6.4 4.1 I Industry 4.0 2.7 4.4 0.6 Manufacturing 5.1 -1.6 20.9 9.1 Services 0.1 -5.0 14.9 5.1 I Privateconsumption 2.3 0.6 37.6 8.3 General governmentconsumption 1.6 -6.2 2.6 -1.o 2.8 Gross domestic investment -16.5 17.6 -12.4 -Exports +Imports Importsof goods and services -6.5 11.7 17.3 2.1 I Note: 2001 data are preliminaryestimates. The diamondsshow four key indicators in the country (in bold) compared with its income-groupaverage. If data are missing,the diamond will be incomplete. Congo,Rep. PRICESand GOVERNMENTFINANCE 1981 1991 2000 2001 Domesticprices IInflatton I (% change) Consumer prices 17.0 9.2 0.4 -0.5 ImplicitGDP deflator 27.8 -1.5 48.1 -14.6 Government finance (% of GDP, includescurrent grants) Current revenue 25.5 26.7 33.0 Currentbudget balance -10.9 8.2 11.2 I I Overallsurplusldeficit -13.1 1.2 1.o -GDP deflator *CPI TRADE 1981 1991 2000 2001 (US$ millions) Export and import levels (US$ mill.) Total exports (fob) 1,137 2,456 2,181 Crude oil 878 2,300 2,030 3,0Do T Wood 141 144 139 Manufactures 26 12 12 Total imports(cif) 549 1,139 1,153 Food 31 23 24 Fuel and energy 198 229 237 Capitalgoods 180 525 496 Export priceindex (1995-100) 120 164 153 95 96 97 98 99 00 01 Importprice index (1995=100) 93 111 109 Exports imports Terms of trade (1995-100) 130 148 141 BALANCE of PAYMENTS 1981 1991 2000 2001 (US$ millions) Current account balanceto GDP (%) Exportsof goods and services 1,157 1,228 2,518 2,303 Importsof goods and services 1,517 1,280 1,334 1,367 2oT Resource balance -360 -52 1,184 936 Net income -112 -446 -947 -834 Net currenttransfers -60 -10 19 3 Current account balance -532 -508 256 105 Financing items (net) 595 463 -73 -249 Changes in net reserves -83 45 -183 144 Memo: Reservesincludinggold (US$ mi/lions) 128 8 222 85 Conversionrate (DEC,/ocal/US$I 271.7 282.1 710.0 732.5 EXTERNAL DEBT and RESOURCE FLOWS 1981 1991 2000 2001 (US$ millions) Compositlon of 2001 debt (US$ mill.) Total debt outstandingand disbursed 1,498 4,832 5,596 5,461 IBRD 42 165 26 19 A:19 B:232 IDA 37 75 234 232 F: 555 Total debt service 241 300 460 691 IBRD 4 7 16 9 IDA 0 0 3 3 Composition of net resourceflows Officialgrants 8 4 Officialcreditors 91 28 4 29 Privatecreditors 147 -195 -153 -162 Foreigndirect investment 340 160 Portfolioequity E: 4,265 World Bank program Commitments 0 0 0 43 A - IBRD E Bilateral ~ Disbursements 19 1 0 38 - F Private C - IMF B IDA D - Other multilateral ~ Principalrepayments 1 2 3 54 G - Short-term Net flows 17 -1 -3 -16 Interestpayments 3 5 2 26 Net transfers 14 -6 -5 -42 DevelopmentEconomics 9/23/02 41 ANNEX7: MAP CONGO OF