Document of The World Bank FOR OFFICIAL USE ONLY Report No: 80357-BJ RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF THE COMPETITIVENESS AND INTEGRATED GROWTH OPPORTUNITY PROJECT (CIGOP) (P104881) CREDIT 4424-BJ APPROVED ON APRIL 29, 2008 TO THE REPUBLIC OF BENIN December 5, 2013 Finance and Private Sector Development Africa Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS (Exchange Rate Effective June, 2013) Currency Unit = CFA Franc CFA Franc 503 = US$1 US$ 1.44899 = SDR 1 FISCAL YEAR January 1 – December 31 ABBREVIATIONS AND ACRONYMS APIEX Agence de Promotion des Investissements et des Exportations (Investment Promotion and Export Agency) APL Adaptable Program Loan BCEAO Banque Centrale des Etats de l’Afrique de l’Ouest (Central Bank of West African States) BDS Business Development Services BPC Business Plan Competition CAMEC Centre d’Arbitrage de Médiation et de Conciliation CAS Country Assistance Strategy CGA Centres de Gestions Agrées CIGOP Competitiveness and Integrated Growth Opportunity Project CPI Centre de Promotion des Investissements CPS Country Partnership Strategy DGI Direction Générale des Impôts (Tax administration) DO Development Objective ECOWAS Economic Community of Western African States EC European Commission EU European Union FPD Finance Private Sector Development ICA Investment Climate Assessment ICT Information Communication Technology IEG Independent Evaluation Group IFC International Finance Corporation MCC Millennium Challenge Corporation MICPME Ministry of Industry Commerce and SMEs MITEP Minimum Integrated Trade Expansion Platform MOU Memorandum of Understanding MPDEP Ministère de la Prospective, du Développement et l’Evaluation de l’Action Publique MSME Micro, Small & Medium Enterprise MTR Mid-term review (PADSP), Projet d’Appui au Développement du Secteur Privé PCU Project Coordination Unit PCCI Projet de Compétitivité et de Croissance Intégré PDF Project Development Fund PDO Project Development Objective PDF Project Development Fund PPD Public Private Dialogue PPP public private partnership PRSC Poverty Reduction Strategy Credit PRSP Poverty Reduction Strategy Paper PSD Private Sector Development SC Steering Committee SEZ Special Economic Zone SIL Specific Investment Loan SPCPI Secrétariat Permanent du Conseil Présidentiel de l’Investissement SME Small & Medium Enterprise TA Technical Assistance TMC Technical Monitoring Committee UEMOA Union Economique et Monétaire Ouest Africaine OHADA Organisation pour l'Harmonisation en Afrique du Droit des Affaires WBG World Bank Group Regional Vice President: Makhtar Diop Country Director: Madani Tall Sector Director Gaiv Tata Sector Manager / Director: Paul Noumba Um Task Team Leader: Magueye Dia Benin Competitiveness and Integrated Growth Opportunity Project (CIGOP) (P104881) TABLE OF CONTENTS A. SUMMARY ......................................................................................................................................... 1 B. STATUS OF ORIGINAL PROJECT ............................................................................................... 3 C. PROPOSED CHANGES .................................................................................................................... 6 D. APPRAISAL SUMMARY ............................................................................................................... 17 Annex 1: Results Framework and Monitoring....................................................................................... 21 Annex 2: Implementation schedule ......................................................................................................... 23 Annex 3: Operational Risk Assessment Framework (ORAF) .............................................................. 25 Benin Competitiveness and Integrated Growth Opportunity Project (CIGOP) (P104881) Project Data Sheet Restructuring Status: Final Restructuring Type: Level One Last modified on date : November 11, 2013 1. Basic Information Project ID & Name P104881:Competitiveness and Integrated Growth Opportunity Project (CIGOP) Country Benin Task Team Leader Magueye Dia Sector Manager/Director Paul Noumba Um/Gaiv Tata Country Director Madani M Tall Original Board Approval Date 29-Apr-2008 Original Closing Date 01-Mar-2014 Current Closing Date 01-Mar-2014 Proposed Closing Date [if applicable] 01-Mar-2017 EA Category C – Not Required Revised EA Category C – Not Required EA Completion Date Revised EA Completion Date 2. Revised Financing Plan (US$ million) Source Original Revised RECIPIENT 0 0 IDA 25.0 25.0 Total 25.0 25.0 3. Recipient Organization Department Location Ministry of Economy and Finance, Benin 4. Implementing Agency Organization Department Location Project Coordination Unit Benin i 5. Disbursement Estimates (US$m) Actual amount disbursed as of 11/11/2013 6.0 Fiscal Year Annual Cumulative 2014 1.0 7.0 2015 6.5 13.5 2016 7.5 21.0 2017 4.0 25.0 6. Policy Exceptions and Safeguard Policies Does the restructured project require any exceptions to Bank policies? N Does the restructured project trigger any new safeguard policies? If yes, please select from N the checklist below and update ISDS accordingly before submitting the package. 7a. PROJECT DEVELOPMENT OBJECTIVES/Outcomes The original PDO was: “To support enterprise and entrepreneurship developments through improved business development infrastructure, an improved trade expansion platform, and catalytic interventions for direct investment promotion and the development of new products and new markets”. The original PDO outcome indicators were: (i) full establishment of business development infrastructure by the end of the project; (ii) establishment of the Minimum Integrated Trade Expansion Platform; (iii) private investments generated from project development activities are eight times the amount disbursed out of the PDF; (iv) set up of a fiscal régime favorable to investments; and (v) preparation of a code of investments favorable to investment promotion. 7b. Revised Project Development Objectives/Outcomes The new proposed PDO is to foster entrepreneurship and investment in high potential value chains and public-private partnerships. Project assistance will focus on value-chains with high growth and job creation potential. Project development objectives will be measured through: (i) Number of New Businesses formalized under the “Entreprenant” regime; (ii) Number of jobs created through Business Plan Competition; (iii) Decrease in average number of days to judge a commercial dispute; and (iv) Number of feasibility studies for public-private partnerships projects completed. Proposed Key performance indicators are presented in Annex 1. ii BENIN COMPETITIVENESS AND INTEGRATED GROWTH OPPORTUNITY PROJECT RESTRUCTURING PAPER A. SUMMARY 1. The proposed Level I restructuring of the Benin Competitiveness and Integrated Growth Opportunity Project (CIGOP) is being undertaken at the request of the Government of Benin following a supervision mission conducted in December 2012 and a restructuring mission undertaken in April 2013 (see restructuring request submitted by the Government). 2. In five years of its implementation, the project has not delivered any visible impact and requires a bold restructuring in order to deliver some results before it is closed. The lack of visible impact is mainly as a result of the following factors: (i) highly complex design; (ii) long procurement delays; (iii) insufficient alignment with the Government’s emerging priorities; (iv) lack of ownership by beneficiaries; and (v) lack of close monitoring both by the Bank and the Government. 3. Recognizing the unsatisfactory project performance to date, the team considered two options moving forward: (i) closing the project by original closing date (March 2014); or (ii) extending the closing date and restructuring the project. 4. Option (i) was seriously considered, but ultimately rejected after taking into account the perspectives of internal and external stakeholders. Private sector representatives emphasized the importance of remaining engaged with the government on issues related to Private Sector Development (PSD) and the government strongly rejected the idea of closing the only Bank instrument available to support its new strategic vision and priorities for private sector development. Instead of the suggested closing, the Ministry of Finance and the Ministry of Development 1 clearly stressed the Government’s interest in restructuring of the project. 5. The team opted for the restructuring of the project after recognizing: (i) the high level of interest and buy-in both by the government and other stakeholders, who appealed for the extension of the closing date; ( ii) the importance of undertaking critical activities that will allow to exit with some results from this project and lay the ground for the follow-on project on cross-border investment opportunities under the Country Partnership Strategy for 2014-2017, which was discussed by the Executive Directors on April 9, 2013; (iii) the existence of some activities, critical to the government new private sector led growth agenda, that can safely be delivered before the proposed new closing date; and (iv) the cost efficiency and time savings associated with restructuring the project instead of preparing a new one. 6. The restructuring approach was developed together with the Government and private sector, following which the package was formally endorsed by the Cabinet. 7. More specifically, the restructuring will: (i) realign project activities with the Government’s strategic vision and priorities; (ii) strengthen governance arrangements; and (iii) accelerate 1 Minister of Development is Governor of the Bank for Benin. 1 implementation and disbursement by simplifying activities and procedures. It would also extend the project closing date to March 1, 2012, an extension of 3 years. This additional time is needed to ensure that restructured activities can mature and deliver on intended results critical to the preparation and readiness for implementation of the follow-on project envisioned in the recently discussed Benin 2014-2017 CPS (i.e. conducting Feasibility studies, strengthening institutions such as PPP unit, Investment promotion agency, etc.). 8. This is the first proposed extension of the project closing date. The project would be 8 years and 10 months at the new proposed closing date. 9. Government and bank team agreed that any activities to be financed should: (i) be aligned with the government priorities; (ii) have a meaningful impact on Private Sector Development in Benin; (iii) have negligible risk of not being completed during the extended project period; (iv) have proved readiness for implementation; and (v) demonstrate clear evidence that there is demand. 10. The project team is confident that the project will be implemented efficiently after restructuring due to the following changes. (a) The country context is now much more supportive than when the original project was launched. The Government is proactively undertaking some important initiatives that demonstrate its commitment to a successful implementation of the restructured project. As an illustration, the Government of Benin has endorsed the restructuring approach and agreed to rely, as needed, on World Bank procurement procedures (instead of a combination of government and Bank procedures) to reduce delays. In addition, the Government has taken the following critical steps: (i) outlining a PPP policy, preparing a draft PPP law, and identifying priority PPP projects; (ii) committing to entrust to the private sector the management of the proposed Business Plan Competition (BPC); and (iii) committing to have the draft decree establishing an agency for investment promotion approved by Cabinet by end of November 2013. (b) Most activities are ready for implementation. Specifically, a detailed procurement plan prepared by the PIU has been approved by the Bank and is ready for implementation. A PPP policy providing establishment of a PPP unit has been approved by Cabinet. Decree of creation for this entity is under preparation and is expected to be signed by the President by December 2013. The Government has identified priority projects for which feasibility studies will be conducted. The procurement process for these studies will be launched by end of November 2013. Under component 1, the government has elaborated and started to implement a detailed roadmap for the establishment of a commercial court. More specifically the legal framework is under revision to provide for the creation of a commercial court. The 2 amended law should be approved by end of February 2014, ahead of the Consultative Group meeting scheduled early March 2014. Finally, the procurement process to hire the implementing agency that will be in charge of managing the Business Plan Competition has been launched. Four firms have been short-listed. The Process should be finalized by end of January 2014. Activities under this component are expected to start in February 2014. Considering all of these factors, there is a high probability that the restructured project will be successfully implemented by the new proposed closing date. 11. The Level 1 restructuring includes: • Revision of the project components and Project Development Objective (PDO); • Modification or elimination of some original project activities and the addition of others more consistent with the new PDO; • Revision of the Results Framework in line with the revised PDO, components and activities; • Reallocation of funds across new disbursement categories; and • Extension of the closing date by 36 months, from March 1, 2014 to March 1, 2017. 12. There are no outstanding audit reports. 13. There are no open investigations in this sector or related to the project. The team also confirms that no contract has been awarded to or is in the process of being awarded to a debarred firm(s). B. STATUS OF ORIGINAL PROJECT 14. The original project (US$25 million) was approved by the Board on April 29, 2008 and became effective on June 23, 2009. The original closing date of the project is March 1, 2014. 15. The original Project Development Objective is “to support enterprise and entrepreneurship development through improved business development infrastructure, an improved trade expansion platform, and catalytic interventions to promote direct investment and development of new products and new markets.” The project has the following components: (i) improved business development infrastructure; (ii) products and markets development; and (iii) project implementation, monitoring and evaluation. 16. Project implementation has been challenging since inception. Due to the Government’s inability to meet effectiveness conditions, it took nearly a year after the project was approved to be declared effective in March 2009. 17. Following effectiveness, project implementation has been slow and has not led to any significant impact. Most project activities have not been initiated and are unlikely to be completed by the current closing date of March 2014. 3 Status by Original Component Component 1: Improved Business Development Infrastructure 18. Interventions under this component included supporting: (i) the creation of an investment promotion agency; (ii) the establishment of a Permanent Secretariat (SP) for the Presidential Investments Council (Secrétariat permanent du Conseil Présidentiel de l’Investissement, (SPCPI)); (iii) the design of an adaptive financial intermediation system; and (iv) the consolidation of selected structural reforms initiated under an earlier Bank private sector development project (PADSP). • Under the first subcomponent, creation of an investment promotion agency, the project has provided consultancy services to conduct feasibility studies, elaborate a strategy, and devise a business plan for the investment promotion agency. A draft decree establishing that agency, known as APIEX, has been elaborated and is expected to be approved by the Cabinet by the end of 2013. • Under the second sub-component establishing the SPCPI, after four years, implementation has consisted solely of: (i) provision of computers and office furniture to the SPCPI; (ii) support to organize a thematic workshop on procedures related to delivery of construction permits; and (iii) development of a communication plan, brochures and leaflets on chartering an SME, which have not been disseminated. • Under the third sub-component, no progress has been made toward the design of an adaptive financial intermediation system, except for a study confirming the financial, legal, and technical feasibility of establishing a financial intermediation framework. • Under the fourth sub-component to consolidate reform of the structures set up under PADSP, the project mobilized advisory services to support the privatization process for Benin Telecom. Following the decision by the authorities to suspend the process, the technical assistance was not pursued. There is no evidence that the project has supported any of the activities carried over from PADSP as originally agreed to with the Government. Component 2: Products and Markets Development 19. Interventions financed by the credit under this component aimed to establish: (i) a framework for the promotion of investment and entrepreneurship, including a Project Development Fund (PDF) to support catalytic interventions; and (ii) a Minimum Integrated Trade Expansion Platform (MITEP) to provide integrated opportunities for development of new markets and new products that meet international quality standards and expectations. • Under the PDF subcomponent, a call for proposals was issued, and more than 300 proposals covering a number of sectors (agro-processing, tourism, construction materials etc.) were presented. Out of these, 28 proposals were selected for further business plan development, and 20 business plans were finalized and will be considered for further support under the restructured project. In addition, the following start-up activities were 4 completed: (i) development of the operating manual for the PDF; (ii) development of the framework for environmental and social management of the PDF; (iii) development of operational tools (rules of procedure for the management committee, evaluation grid for proposed projects); (iv) implementation of operational instances of FDP; (v) selection of projects in sectors identified in the Government’s Strategic Plan for Agricultural Sector Recovery (PSRSA); and (vi) recruitment of firms to carry out feasibility studies and draft business plans for the selected projects. A disbursement condition regarding the PDF’s legal and institutional structure was waived, taking into account that the PDF was implemented by the PCU which provided the necessary governance and oversight. This sub-component will be dropped in the restructured project. • Under the sub-component to setup the MITEP, there was no progress. This sub- component will be dropped in the restructured project. Component 3: Project Implementation, Monitoring and Evaluation 20. The main objective of this component was to support the creation of an autonomous Project Coordination Unit (PCU) to coordinate project activities (including fiduciary and M&E) among agencies and departments involved in project implementation and project management. The project has established a PCU composed of a project coordinator; two coordinators for project activities (one coordinator for each component); one specialist each in financial management, procurement and M&E; and administrative support staff. According to project ISRs, the PCU was responsible for some of the delays in project execution and the discrepancies observed in financial management, which culminated in replacement of the project coordinator in 2011. The new project coordinator has been in place since May 2011. The PCU will draw on lessons gained from project implementation experience, in supporting implementation going forward. 21. Both the progress towards the achievement of the DO and Implementation Progress are rated Unsatisfactory. With disbursement reaching only 26 percent as of November 2013, after more than five years since Board approval (April 29, 2008). 22. The poor performance of the project can be traced to the following factors which are all addressed in this restructuring: • Highly complex design. • Long procurement delays due to the combination of Bank and Government procedures. • Lack of close monitoring. • Lack of ownership by the Government and other stakeholders. • Little alignment of project development objectives and activities with the Government’s emerging priorities. 5 • Some instances of inadequate project management by the PCU. C. PROPOSED CHANGES 23. The proposed changes will bring the project into alignment with the strategic vision for Benin set out in the newly approved CPS and the PRSC IV, which aim to harness Benin’s comparative advantages 2 by focusing on: (i) improving the investment climate; (ii) supporting investment generation in dedicated value chains and industries where the country has a clear competitive advantage in serving the domestic and Nigerian markets; and (iii) promoting PPPs to improve productivity in the trade, agriculture, and services sectors. 24. The proposed changes build on the recommendations of the Government/Private Sector Roundtable held in Cotonou in October 2012, and support priority reforms identified in the Government’s development agenda. 25. The restructured project will support: (i) creation of an enabling environment for private sector development (including commercial justice, public-private sector dialogue, and cross-border trade procedures); (ii) preparation of PPP projects; and (iii) enterprise development in high growth and job creation potential value chains. 26. In line with the proposed changes, the proposed new PDO is to foster entrepreneurship and investment in high-potential value chains and Public-Private Partnerships. Project assistance will focus on value-chains with high growth and job creation potential. 27. The Results Framework has been revised to: (i) include indicators that reflect the revised PDO; and (ii) provide intermediate (mid-term) indicators for each of the sub-component and their activities. 28. Project outcomes will be measured in terms of: (i) number of Businesses formalized under the “entreprenant regime”; (ii) number of jobs created through Business Plan Competition; (iii) decrease in average number of days to judge a commercial dispute; and (iv) number of feasibility studies for Public-Private Partnerships projects completed. Proposed key performance indicators are presented in Annex 1. 29. Restructured Project will draw from all WBG resources (IFC, PPP network etc.) to intensify implementation support. Components 30. The original project included two technical components and one component dedicated to project coordination. The restructured project will also have two technical components, with mostly new activities and a few activities from the original project as summarized in Table 1. 2 Access to Nigeria’s market; the Port of Cotonou and its logistics platform; sufficient land to spur sustainable private sector-led agricultural growth. 6 31. The new activities: • will contribute directly to the revised PDO; • have negligible/low risk of not being completed during the extended project period; • have a proved readiness for implementation based on the evolution of preparatory activities by the government; • are aligned with the Government’s key development priorities. Component 1: Business Environment Modernization 32. This component will support the Government’s efforts to implement key regulatory and institutional reforms needed to create an enabling environment for private sector development. Some activities from the original project are already underway, and the project will support their completion. This component will have two major subcomponents: Sub-component 1.1: Enabling institutions for private sector investment 33. The aim of this sub-component is to help the Government establish key institutions for implementation of its development and growth agenda. (a) Operationalization of the investment promotion agency This sub-component of the project will support the operationalization of the investment promotion agency (APIEX)-which is expected to play a key role in implementing the Government’s growth agenda. A decree establishing the agency has been elaborated and is pending Cabinet approval. The project will fund the competitive recruitment of the agency’s top management and technical team, with a focus of attracting high caliber capacity and experience. TORs have been prepared to hire a firm that will be in charge of managing the recruitment process. While the project is expected to fund APIEX in the short term, moving forward, it is expected that the Government’s own budget will gradually take over the operational costs of APIEX. It is important to note that creation of the agency is among the prior-actions for the 2nd MCA compact expected to be effective first quarter of 2014. 7 (b) Establishment of institutional framework for development of PPPs This activity will support the establishment and operationalization of a PPP unit tasked with the preparation and implementation of PPP projects. The project will also fund capacity building for all ministries and agencies involved in the implementation of the Government’s PPP agenda. A consultant has been identified to undertake needs assessments of these entities and elaborate a training program to be implemented in 2014. (c) Public-Private dialogue Strengthening PPD through establishment of a consensual platform for dialogue was among the main recommendations of the Government/Private Sector roundtable held in Cotonou in October 2012. This sub-component will support the implementation of this agenda through: (i) the operationalization of the PPD platform that government and private sector will put in place; (ii) the provision of consultancy services for diagnostic analysis to build consensus on proposed priority reforms to improve the business environment; and (iii) capacity building for the different stakeholders of the PPD. 34. In addition this sub-component will provide technical assistance to strengthen the capacity of a Secretariat Permanent of the CPI. Sub-component 1.2: Investment Climate reform 35. The aim of this sub-component is to: (i) implement the “Statut de l’Entreprenant” (Enterprise Regime); and (ii) improve commercial dispute resolution mechanisms as recommended by the Cotonou Roundtable. (a) Implementation of the “Statut de l’Entreprenant” This activity will support the formalization of informal enterprises under OHADA’s new regime for small businesses through the provision of: (i) equipment and consultancy services to Centre de Gestion Agrée (CGA) to enable it to provide business development services to firms willing to adopt the new Entreprenant Regime; (ii)technical assistance to the Tax Administration (DGI) to identify and implement tax incentives attractive enough to bring informal firms under the new regime; and (iii) technical assistance and equipment to the one-stop shop to put in place a specific registration system for the new regime. WBG-IFC missions have conducted in-depth needs assessments of CGA, the one-stop shop and the tax administration. Detailed activities have defined for these beneficiaries and included in the procurement plan approved by the Bank team. The team has developed TORs and is ready to launch this activity. 8 (b) Improvement of commercial dispute resolution mechanisms The objective of this activity is to help the Government alleviate the key investment climate constraints of slow and poor quality decision making with regard to commercial disputes, as recommended by the Cotonou Roundtable. The activity will finance: (i) creation and operationalization of a Commercial Court; and (ii) enhancement of staff and management capacity of the alternative dispute resolution center (CAMEC). It is important to note that a stakeholder workshop that took place July 29-31 identified needed institutional reforms and elaborated a detailed roadmap for establishment of the Commercial Court. The legal framework is being amended to provide for the creation of a commercial court and the government has committed to have the amended law approved by March 2014 ahead of the Consultative Group meeting scheduled in March 2014. Component 2: Support to SMEs and PPP Project Development 36. This component is aimed at supporting the Government’s efforts to promote investments in selected value chains (with high growth and job creation potential), and develop Government priority PPP projects. It is composed of two sub-components: Sub-component 2.1: TA to support the PPP project preparation 37. This sub-component will support the preparation of priority PPP projects, some of which the Government will present to investors at the Benin Consultative Group meeting in Paris in March 2014. It will mobilize technical assistance to conduct feasibility and pre-feasibility studies for at least two priority PPP projects in a range of sectors, including SEZ, agribusiness, Tourism, ICT etc. A list of priority PPP projects has been approved by the government and procurement for the studies will begin as soon as the restructuring package is approved. Sub-component 2.2: SME development 38. This sub-component will contribute to building a strong and vibrant SME sector in Benin by financing a Business Plan Competition as a vehicle for identifying motivated business entrepreneurs, building their skills, and supporting them in launching and growing sustainable businesses that create economic growth and new jobs in selected value chains. Participants to the competition will be provided with a program of training, mentoring, technical assistance, to develop fundable and implementable business plans. Best sub-projects, selected by a committee of independent judges, will be awarded cash prizes ranging from US$5,000 to US$100,000. The BPC cycle will require 18 months to ensure the sustainability and growth of the selected businesses. The program will promote the participation of women and target a minimum of 30 percent of awards for women entrepreneurs. 39. This sub-component will also finance the hiring of a private sector firm that has a proven track record in BPC and World Bank funded project to implement the BPC (including planning, coordinating, and monitoring of competitions; selecting judges; coordinating outreach activities; 9 and submitting regular reports to the World Bank Team). This firm shall be remunerated for the provision of these services. It is important to note that aside from improving the effectiveness of the process, the use of a specialized firm for the implementation of the BPC will help minimize potential conflict of interest issues. Procurement process for the recruitment of the implementing agency has been launched. Four firms have been short-listed. Process should be finalized by end of January 2014. 40. Given the critical role of the implementing agency, the proposed amendment of the FA provide, among other conditions, that no disbursement shall be made under the Business Plan Competition unless the private sector firm has been hired. Component 3: Project Implementation and Monitoring and Evaluation 41. The PCU will remain the main institutional structure for project coordination and implementation. It will prepare quarterly reports and will bring to the attention of the Bank or the steering committee, as appropriate; any problems encountered in project implementation or expected obstacles to project execution. The PCU will also prepare a three-pronged communication strategy aimed at: (i) informing the private sector, including SMEs, and other stakeholders, on project achievements; (ii) providing stakeholders with updates on the creation of an enabling environment for PSD; and (iii) raising public awareness of the Government’s efforts to improve the business environment. 42. The project M&E framework will be revised as part of the restructuring (see Annex 3), and the participating institutions will enter into a detailed Memorandum of Understanding (MOU) to report on their activities. A template for the MOU, satisfactory to the Bank, will be developed by the PCU. Table 1: Original and Revised Project Components and Activities Original Components and Revised Components Status of Comments activities and activities activity Component 1 : Improved Component 1: Business Business Development Environment Infrastructure through Modernization Reform of Structures (US$7.70 million) (US$5.47 million) 1.1 Creation of the "Agence In addition to the de Promotion des original activities Investissements et des supporting APIEX Exportations (APIEX)" (1.1.) and the SPCPI 1.1 Enabling institutions 1.2 Establishment and (1.2), this activity will for private sector continued strengthening the "Secretariat support (i) the investment Permanent du Conseil strengthening of PPD Presidentiel de through the l’Investissement (SPCPI)" establishment of a consensual platform for 10 Original Components and Revised Components Status of Comments activities and activities activity dialogue; and (ii) the establishment of institutional framework for development of PPPs 1.3 Design of an Adaptive dropped Financial Intermediation System 1.4 Consolidation of selected dropped reform of structures initiated under the PADSP 1.2 Investment Climate new This activity will reform mainly contribute to improvement of commercial dispute resolution mechanisms and formalization of informal enterprises under OHADA’s new regime for small businesses. Component 2: Products and Component 2: Support Markets Development to SMEs and PPP (US$14.79 million) project development (US$13.56 million) 1.1 The Project Development dropped The disbursement Fund (PDF) category for this sub- component will be maintained until full disbursement is made for the activities already undertaken. 1.2 Set Up of Minimum dropped Integrated Trade Expansion Platform (MITEP) 2.1 TA to support PPP new This sub-component project preparation will finance feasibility studies for government priority PPP projects. 2.2 SME Development new This activity will finance a business plan competition that will provide to participants a program of training, 11 Original Components and Revised Components Status of Comments activities and activities activity mentoring and technical assistance, to develop fundable and implementable business plans. Best sub-projects will be awarded grants. Component 3: Project Component 3: Project continued Implementation, Monitoring Implementation, & Evaluation Monitoring and (US$3.00 million) Evaluation (US$3.74 million) Contingencies dropped (US$1.74 million) Total: US$25 million Total: US$25 million Institutional Arrangements 43. The original three-level implementation arrangement will be slightly modified to include arrangements envisioned for the Business Plan Competition. The new implementation arrangement consists of: • A Project Coordination Unit. • A steering committee responsible for approval of annual work plans and provision of strategic direction. It is composed of Minister of State in Charge of Prospective, Development and Evaluation of the Public Action; the Minister of Economy and Finance; and the Minister of Trade and Industry. As the project will provide support to improve commercial justice, the Minister of Justice will be invited to join the steering committee. • A technical monitoring committee (TMC) charged with appraising and resolving strategic and technical issues that may arise in the course of project implementation. It is composed of representatives of lines ministries, technical departments, and private sector stakeholders. The TMC will be strengthened and continue to monitor progress in project implementation; provide technical operational support; and verify that annual work programs and budgets prepared by the PCU conform to steering committee directives. The TMC will approve financial management reports prepared by the PCU before submission to the steering committee and other stakeholders. The TMC also will support the PCU’s communication and dissemination activities as needed. • An executing agency to implement the BPC, supervised by a private sector-led executive committee including representatives of relevant ministries, private sector institutions, 12 professional associations, local government authorities, and large private sector companies that can facilitate market linkages and SME business development opportunities. 44. Institutional arrangements and project monitoring will be strengthened as follows: (i) clear TORs outlining the roles and responsibilities of the TMC will be elaborated; and (ii) the composition of the TMC will be revised to give a more prominent role to the private sector and ensure that the committee is able to provide good quality technical operational support to the project. Financing 45. Reallocations of credit proceeds among categories of expenditure will be made as shown in Table 2.The revised Table of eligible expenditures includes two new credit categories (category (6), and category (7)) out of which all future expenses of the project will be made. 46. Category (6) will replace Category (1), (2), (3), (5), which are included in the Table for record with the allocated amount limited to the amount already spent. The original category (7) (unallocated) is dropped and the corresponding amount reallocated to the new categories. The new Category (7) will cover consultant services for training, audits, and grants for the BPC winners, which were not part of the original project. 47. Even though the Project Development Fund component has been dropped, Category (4) (under the initial project, “Project Development Fund”) is maintained to allow the documentation of expenditures incurred (under this category) and already paid through the designated account. The revised allocated amount for category 4 is limited to the amount of expenditures already incurred. 13 Table 1: Allocation by category N° Category of Expenditure Allocation (SDR) % of financing Current Revised Current Revised Current Revised 1 (1) Goods Removed 4,250,000 513,437 100% 100% (2) Consultants 2 Services Removed 2,000,000 1,250,221 100% 100% (3) Training and 3 Workshop Removed 1,150,000 211,233 100% 100% (5) Operating 4 Cost Removed 1,900,000 1,312,401 100% 100% 5 (7) Unallocated Removed 1,650,000 - 100% of the amounts payable under (4) Goods and the applicable services for the grant 6 (4) PDF Fund PDF Fund 4,750,000 452,656 agreement (6) Goods and consultants services for the project including Training, Audits, operating costs out 8,000,052 7 of BPC 0 100% (7): (a) Consultants Services under 2,640,000 Part 2 (B) of the Project 8 (b) Sub-grants 0 1,320,000 100% TOTAL 15,700,000 15,700,000 Allocation by component 48. The allocation to all components has been revised. In addition, the names of Components 1 and 2 have been revised. Table 2 below shows that reallocation by component. 14 Table 2: Allocation by component Current Proposed Current Cost Proposed Cost Action Component Name Component Name (US$M) (US$M) Component 1: Improved Business Component 1: Development Business 5.47 7.70 Revised Infrastructure Environment through Reform of Modernization Structures Component 2: Component 2: Products and Support to SMEs and 14.79 13.56 Revised Markets PPP Project Development Development Component 3: Component 3: Project Project Implementation, Implementation, 3.00 3.74 Revised Monitoring and Monitoring and Evaluation Evaluation Contingencies Dropped. 1.74 Revised Total: 25.00 25.00 Table 3: Revised Disbursement Estimate (US$M) FY14 FY15 FY16 FY17 Annual 1.0 6.5 7.5 4.0 Cumulative 7.0 13.5 21.0 25 Safeguards 49. The restructured project involves no safeguard issues. A number of project activities are expected to lead to favorable social outcomes, including employment generation and poverty reduction. 50. A screening mechanism acceptable to the Bank will be put in place in the context of the Business Plan Competition to ensure that development of award-winning business plans will not lead to any investment projects that may trigger the Bank’s safeguard policies, such as those on involuntary land acquisition, population resettlement, or negative environmental impact. 51. The existing environmental and social management framework (ESMF) will be updated with exclusion and inclusion lists before launch of the Business Plan Competition. 15 Financial Management 52. Financial management (FM) arrangements remain the same to those described in the PAD. During the mid-term review, the FM arrangements were assessed as satisfactory, so the project will continue to use the established system. Disbursement 53. To help the project meet the cash flow requirements of the new activities, the Designated Account ceiling will be increased to CFA 1 billion. A revised Disbursement letter will be issued as part of this package. Procurement 54. Procurement arrangements remain the same to those described in the PAD. However, if needed, the Recipient will request an exception to authorize the sole use of WB procedures instead of the combination of national and WB procedures to reduce delays. An updated procurement plan has been prepared and submitted to IDA for approval. Closing Date 55. Under the proposed restructuring, the closing date will be extended by 36 months, until March 1, 2017. This extension is necessary to accommodate and implement the Government’s new approach and priorities, and the streamline design and indicators. This will be the first extension of the project closing date. 56. The extension will permit planned project activities to be completed and allow the achievement of the PDO. New activities such as the BPC and the creation of a Commercial Court, which were added to better align the project with Government priorities, will require long-term implementation. In addition, contracts for technical assistance and acquisition of goods will go beyond the current closing date of March 1, 2014. 57. The project remains the only WBG instrument supporting Government efforts to create an enabling environment for private sector development, and to support the generation of catalytic investments. Implementation Schedule 58. Project activities are scheduled to be implemented through March 2017. See Annex 2 for proposed implementation schedule. 16 D. APPRAISAL SUMMARY Economic and financial analysis 59. The restructured CIGOP aims to Foster entrepreneurship and investment in high potential value chains and Public-Private Partnerships. The project will be implemented through 2 technical components, namely: (i) Business Environment Modernization; and (ii) Support to SMEs and PPPs projects development. 60. The total investment under components 2.1, are estimated to result in NPV of US$16,444,350 and an ERR of 63 percent. Methodology 61. The economic analysis of this type of private sector development project faces some difficulties particularly where there is indirect relationship between the technical assistance provided under the project on its stream of benefits. Therefore in keeping with common practices in the appraisal of project of this type, a mix of quantitative and qualitative techniques has been used to analyze the economic benefits and costs of the project. 62. Main beneficiaries: The main beneficiaries of the project would be: (i) a minimum of 500 firms with access to non-financial business development services and 100 with access to cash awards through a Business Plan Competition; (ii) Government institutions in charge of investment and PPP promotion; and (iii) the private sector which will benefit from an improved investment climate. Component 1: Business Environment Modernization 63. This component will: (i) establishment of a commercial court; (ii) implementation of “Entreprenant Regime”; (iii) establishment of a PPP unit and investment promotion agency; and (iv) operationalization of a platform for Public-private dialog. 64. The experiences and lessons learned from public-private dialogue across different countries and sections have shown that not only significant reforms can be associated to these dialogues but also these dialogues demonstrate a strong measurable economic impact. 65. The direct results expected from the creation of the Commercial court are the following: (i) increase in the number of decision rendered by the court each year; and (ii) Publication of court decisions of the courts on the Web site funded by the project. 66. However, the impact of a well-functioning commercial court extends far beyond the number of cases it resolves. The more timely and predictable a court’s decisions, the better firms are able to predict the outcome of any dispute. As predictability and timeliness improve, the number of disputes filed may decline, because a credible threat of pursuing a remedy in court provides incentives for the parties to honor their obligations. 17 67. Overall, it is expected that private sector satisfaction will increase with the functioning of the independent commercial court. As summarized in the 20005 World Development Report, new research underlines the importance of well-performing courts for a better investment climate. Studies from Argentina and Brazil show that firms doing business in provinces with better performing courts enjoy greater access to credit. New work in Mexico demonstrates that larger, more efficient firms are found in states with better court systems. Better courts reduce the risks firms face, and so increase the willingness to invest more in their enterprises. 68. This component will contribute to making business registration more attractive for informal firms and will also provide capacity building for informal firms. In addition to broadening tax basis, activities under this sub-component will also contribute to increasing productivity of firms. A study which analyzes data in 157 countries, finds that a reduction in entry costs raises output per worker by an estimated 29 percent (Barseghyan, L “Entry Costs and Cross-Country Differences in Productivity and Output.” Journal of Economic Growth 13 (2008). 69. The 2008 World Bank Group Entrepreneurship Survey (WBGES 2008) includes new data on the impact of modernization of business registries on business creation. It gathers extensive data on the functioning and structure of business registries in 71 countries from the registrar of companies, as well as complementing data on the number of total and newly registered businesses in over 100 countries. This empirical evidence suggests that greater ease in starting a business and better governance are associated with increased entrepreneurial activity. After controlling for economic development (GDP per capita), higher entrepreneurial activity is significantly associated with cheaper, more efficient business registration procedures (as measured by the Doing Business 2009 “Starting a Business” indicators) and better governance (as measured by Kaufmann and others, 2008). 70. Finally improved and strengthened government institutional capacities for development and implementation of PPPs is widely recognized to be essential to any long term sustainable development of a private investment market for infrastructure. Component 2: Support to SMEs and PPPs development Sub-component 2.1: Support to PPPs support provision of Business development services to SMEs especially those operating in the two selected value chains with a matching grant. 71. Support provided under this sub-component for the preparation of PPs feasibility studies is not conducive to quantitative analysis. However, it provides the solid economic, financial and safeguards assessment platform on which to generate the quantitative analysis that will be essential in order to proceed with the implementation of the projects. Sub-component 2.2: This sub-component will set-up a Business Plan Competition. Participants to the competition will be provided with a program of training, mentoring, technical assistance, to develop fundable and implementable business plans. Best sub-projects, selected by a committee of independent judges, will be awarded cash prizes. Selected project promoters will match the grants in kind by providing labor and pledging available assets. 18 Overall resources for this component provided by the project amounts to US$ 6 million and are mainly expected to disburse over three years. Assumptions 72. The discount rate used for the economic analysis is 12%. Given the economic environment in Benin, this is slightly more conservative than the standard assumption in most of World Bank Projects, which is that the opportunity cost of capital is 10%. 3 73. It is assumed that following project support, each promoter will create 10 jobs after launch of the program and 15 jobs 5 years after. 74. The project impact is expected to start materializing 2 years after the launch of the BPC while the maximum impact of the support provided to SMEs will be reached 5 years after. Results 75. In the economic analysis of this component the ERR is expected to be 63 percent and the NPV is expected to be closed to US$ 16.5 million with a discount rate of 12 percent. The results of this component are reported in the Table below. Economic analysis of Business Plan Competition Component ERR (5 years) 63% NPV (discount rate 12%) US$ 16,444,350 NPV (discount rate 8%) US$ 42,899,627 Technical 76. The PAD for the original project stated that appropriate technical standards will be sought and achieved through: (i) helping government provide relevant public goods to bring the private sector to a minimum level of comfort that will trigger private investment in the development of new products and new markets; (ii) partnering with IFC, MIGA,UNDP, IFAD and other private investors to leverage IDA to highlight near term investment opportunities;(iii) focusing on commercial, market-driven provision of services to reduce grant dependency among beneficiaries and promote demand responsiveness among service providers; (iv) partnering with practitioners and technical experts with proven track records to train specialized BDS providers to access trade information and assist enterprises to develop new products and new markets; and (v) build the vehicles to successfully transfer know-how through local capacity development. 77. Although some activities have been changed or dropped, the overall framework of the technical approach of the project was not changed. A roundtable between Government and Private sector was undertaken in Cotonou on October 29-31, 2012. The recommendations formulated to foster private sector led growth and job creation included support to the following priority areas: 3 Handbook on Economic Analysis of Investment Operations, OPR, May 2006 19 (i) Commercial Justice; (ii) Public-Private Dialogue; (iii) PPPs; and (iv) agro-processing value chains, Special Economic Zone across Benin and Nigeria Border. 78. The project will continue to partner with the donors who are active in support of private sector at present including IFC, AFD, EU, Belgian, Dutch Cooperation, and MCC. In particular, MCC will finance the construction of a building to house the commercial court and build partnerships with the project to support firms selected in the Business Plan Competition. 20 Annex 1: Results Framework and Monitoring BENIN (CIGOP) PROJECT Revised Results Framework Project Development Objective (PDO): Foster entrepreneurship and investment in high potential value chains and Public-Private Partnerships. D = Droped Cumulative Target Values Unit of Measure C= Responsibility Baseline PDO Level Results Continued YR4 Data Source/ Description (indicator definition Core N= New YR1 YR2 YR3 12/30 YR5 Frequency for Data Indicators 12/30/ 12/30/ 12/30 03/10 Methodology etc.) /2016 Collection 2013 2014 /2015 /2017 Completion of the set-up of the Business Development D - - - Infrastructure (BDI) Completion of the set-up of the Minimum Integrated D - - - Trade Expansion Platform (MITEP) by end of project. Private investment generated are 8 times amounts D - - - disbursed by PDF Set-up of fiscal regime D - - - favorable to investments Preparation of a code of investment favorable to D - - - investment promotion Number of jobs created by # of jobs created through Executing Executing N Number 0 0 300 1000 2000 Yearly enterprises supported under the Business Plan Competition 4 Agency Agency/PCU BPC Commercial Average number of days counted Time to judge commercial PCU/Ministry of N days 450 450 450 250 250 250 Yearly Court/ Ministry from the moment plaintiff file the dispute Justice of Justice lawsuit in court until the judgment PPP Unit/Project Number of feasibility studies Project N Number 0 0 0 2 2 2 Yearly Coordination Coordination Unit for PPP projects completed Unit Number of New Businesses formalized under the N Number 0 0 0 500 1500 3000 Yearly GUFE GUFE “entreprenant” regime 4 Based on projected results from supported Business plans 21 Annex 1: Results Framework and Monitoring BENIN (CIGOP) PROJECT Revised Results Framework INTERMEDIATE RESULTS Intermediate Result (Component One): Business Environment Modernization D= Cumulative Target Values Unit of Measure Dropped C= Baseline PDO Level Core YR1 YR2 YR3 YR4 YR5 Data Source/ Responsibility for Description (indicator definition Continued Frequency Results Indicators 12/31 12/30 12/30/ 12/30/ 03/01/ Methodology Data Collection etc.) N= New M= /2013 /2014 2015 2016 2017 Modified Set-up of APIEX completed. Investment promotion Project Yes and export Single agency (APIEX) C No No No Yes Yes Yearly supervision PCU/APIEX /No promotion by end of project. report not integrated Set-up of MITEP Pillar One (QSMT) by end of Project. PTIS established and operational Percentage (%) D increase of MSMEs reporting new developments in their business annually. A pilot Project Development Fund (PDF) established and D operational. Volume of Bank Support: Enabling Environment - SME D Percentage of commercial Commercial Commercial court decisions Published on N Percent 0 0 20 20 45 75 court of Yearly Court of the court’s website Cotonou Cotonou Intermediate Result (Component Two): Support to SMEs and PPPs projects development At least200 SME have a Project BPC End of business plan prepared N Number 0 0 0 50 100 200 Coordination Implementing Project Unit agency At least 12% increase in the Project BPC turnover of those who N Percent 0 0 0 3 5 12 Yearly Coordination Implementing benefited from investment Unit agency support from the project 5 Volume of investment made Implementing Implementing New Investment generated by by participant to the BPC 6 N Number 0 0 0 US$5 US$2 US$5 Yearly Agency Agency/PCU firms supported by the BPC 5 Based on projected results from supported Business plans 6 Based on projected results from supported Business plans 22 Annex 2: Implementation schedule 2013 2014 2015 2016 2017 Components/Activities Subcomponents Main Activities Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Component 1: Business Environment Modernization 1.1 support to strengthening PPD Preparation of PPD legal and x regulatory framework Assessment of PPD unit x capacity needs Operationalization of the PPD x x x x x unit Implement assistance to x x x x x x x x x conduct the dialogue 1.2 Strengthening commercial code/ADR dispute mechanisms Develop a proper legal and regulatory framework for the x x x commercial justice support to the main x x x x x x x x x x commercial justice institution Enhancement of the capacity x x x x x x x x x x of the ADR Implementation of x x x x x x x communication plan 1.3 Formalization of Business through registration Establish the “entreprenant” x x x x registration system Design and implement the fiscal measures for the x x x x x x entreprenant Support to CGA x x x x x x x x x Communication plan for the x x x x x x x x entreprenant 23 2013 2014 2015 2016 2017 Components/Activities Subcomponents Main Activities Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 1.4 Support to APIEX Provision of T.A and x x x x x x x x x x x x x x equipment to APIEX Component 2: Support to SMEs and PPPs projects development 2.1 Support to development of PPP projects Design and structuring of x x x x x x x x x x projects Transaction advisory x x x x x 2.2 SME Development Business Plan Competition x x Operational Coaching x x x x x x x x x x x 24 Annex 3: Operational Risk Assessment Framework (ORAF) Benin: Competitiveness and Integrated Growth Opportunity Project (CIGOP) (P104881) Stage: Restructuring . Risks. Project Stakeholder Risks 1.1 Stakeholder Risk Rating Moderate Risk Description: Risk Management: The Technical Committee will strive to include all competing representatives of the private sector. Representation of the private The project will be extended for 3 years to ensure that the project delivers on the expectations created across stakeholders. sector is limited to one association. This could create a Resp: Client Status: Not Stage: Implementation Recurrent: Due 24-Jul- Frequency: resistance from other competing Yet Date: 2013 associations catering as Due representative of the private sector. 2.1 Capacity Rating Moderate Risk Description: Risk Management: Even though the implementing Procurement capacity of the PIU will be reinforced through the hiring of short term consultants to support the PIU as needed. agency has gained sufficient knowledge on Bank procedures, Resp: Client Status: Not Stage: Implementation Recurrent: Due Frequency: Quarterly the important volume of activities Yet Date: to be procured in the next three Due years could be overwhelming for the PIU. 3.1 Governance Rating Substantial Risk Description: Risk Management: As reflected in many governance • Close project monitoring and frequent implementation support missions per FY. ratings for Benin, overall • Hiring of an international and independent firm to manage the Business Plan Competition. governance environment is weak 25 and could impact project Resp: Bank Status: Not Stage: Implementation Recurrent: Due March Frequency: Quarterly implementation and the Yet Date: 30, achievement of the PDO. Due 2016 4.1 Design Rating Substantial Risk Description: Risk Management: The design of the project has The Steering Committee will be required to meet as necessary to ensure an effective coordination is in place. been simplified, however, there are still residual problems related to the need to work at policy level, national system and institutional The Technical committee will be strengthened to ensure that the project activities are coordinated and technical issues are thoroughly discussed development and at lower level among the stakeholders. (SMEs support) that require very Resp: Client Status: Not Stage: Implementation Recurrent: Due Frequency: Quarterly strong coordination work. Yet Date: Due 4.2 Social and Environmental Rating Low Risk Description: Risk Management: Under the support to SME sub- A screening mechanism acceptable to the Bank will be put in place in the context of the Business Plan Competition to ensure that development component, cash awards winning of award winning Business plans will not relate to any investment project that may trigger any of the Bank’s safeguard policies, such as projects could implement involuntary land acquisition, population resettlement and or negative environmental impact. activities that may have detrimental social and The existing ESMF will be updated to include exclusion and inclusion lists before launch of the Business Plan Competition. environmental impact. Resp: Bank Status: Completed Stage: Preparation Recurrent: Due Date: N/A Frequency: N/A 4.3 Program and Donor Rating Low Risk Description: Risk Management: No significant risks identified for Discussions initiated during restructuring mission helped identify potential areas of cooperation with donors programs under preparation. the short to medium term. The Discussions will be pursued to define concrete initiatives that will ensure effective complementarities between the various interventions 26 Government is fully committed to Resp: Bank Status: In progress Stage: Preparation and Recurrent: Due By Frequency: N/A private sector development as an implementation Date: December instrument to foster growth and 2013 create jobs. This overall policy stance is strongly supported by the donor community. The project fits in this framework 4.4 Delivery Monitoring and Rating Low Sustainability Risk Description: Risk Management: Data reporting regarding activities PIU team already includes an M&E specialist who will undertake close monitoring and evaluation of activities. of supported firms or beneficiary institutions could be difficult. Focal points will be identified and selected within every beneficiary institution with clear terms of reference on data reporting. Baseline data will be collected before starting implementation of activities. Because of cumbersome procurement procedures (combination of Bank and national Government has committed to use bank procedures when needed to expedite procurement processes. procedures) there may not be Team has requested 3-years extension of project closing date. enough time to implement some of the proposed activities before Government committed to inscribe resources in national budget to take over, on a progressive manner, project assistance to newly created project closing. institutions Institutions to be established could face difficulties after project closing. Resp: Bank Status: In progress Stage: Preparation and Recurrent: Due By end of Frequency: N/A and Implementation Date: project Client 5.1 Overall Implementation Risk Rating Moderate Risk Description: Residual implementation risk is considered as moderate. Both government and private sector fully endorsed envisioned reforms. Extension of project closing date combined with close monitoring and pragmatic measures by the government to simplify procurement procedures will allow timely delivery of project activities. 27