Document of The World Bank FOR OFFICIAL USE ONLY Report No. 66813-MZ INTERNATIONAL DEVELOPMENT ASSOCIATION INTERNATIONAL FINANCE CORPORATION AND MULTILATERAL INVESTMENT GUARANTEE AGENCY COUNTRY PARTNERSHIP STRATEGY FY12-15 FOR THE REPUBLIC OF MOZAMBIQUE February 8, 2012 AFCS2 Southern Africa Country Department 2 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. 1 Currency Equivalence at Official Interbank Rate US$1.00 = Metical 26.6 (as of December 1, 2011) Government Fiscal Year January 1 to December 31 IDA IFC MIGA Vice President: Obiageli Katryn Ezekwesili Thierry Tanoh Izumi Kobayashi Director: Laurence Clarke Jean Philippe Prosper Ravi Vish Task Team Leaders: John Factora Eduardo Boechat Conor Healy Acronyms and Abbreviations Mozambique e-Government and Communications MEGCIP AAA Analytical and Advisory Activity Infrastructure Project AusAID Australia Agency for International Development MIGA Multilateral Investment Guarantee Agency BAREC Building Africa’s Resilience to Climate Change MMAS Ministry of Women and Social Action CPAR Country Procurement Assessment Review NGOs Non-Governmental Organizations CPE Country Program Evaluation PAD Project Appraisal Document CPI Corruption Perceptions Index PAF Performance Assessment Framework CPPR Country Portfolio Performance Review PARP Plano de Acção de Redução de Pobreza CPS Country Partnership Strategy PEDSA Strategic Plan for Agricultural Development CPS CR Country Partnership Strategy Completion Report PEFA Public Expenditure and Financial Accountability CSOs Civil Society Organizations PES Economic and Social Plan DFID Department for International Development (UK) PERs Public Expenditure Reviews DPL Development Policy Lending PFM Public Financial Management DPO Development Policy Operation PROIRRI Sustainable Irrigation Development Project ECD Early Childhood Development PPP Public Private Partnership EITI Extractive Industries Transparency Initiative PRSC Poverty Reduction Support Credit e-SISTAFE Integrated Financial Management Information System PRSP Poverty Reduction Strategy Paper ESW Economic and Sector Work RENAMO Mozambican National Resistance FDI Foreign Direct Investment ROSC Reports on the Observance of Standards and Codes FRELIMO Front for the Liberation of Mozambique SAPP South African Power Pool GDP Gross Domestic Product SDI Spatial Development Initiative GEF Global Environment Facility SETSAN Technical Secretariat on Food Security and nutrition GFDRR Global Facility for Disaster Risk Reduction SMEs Small and Medium-Sized Enterprises IBRD International Bank for Reconstruction and Development SOEs State-Owned Enterprises IDA International Development Association TA Technical Assistance IEG Independent Evaluation Group TB Tuberculoses IFC International Finance Corporation TDM Telecommunication of Mozambique IMF International Monetary Fund TI Transparency International INE Statistical Office of Mozambique TVET Technical and Vocational Education and Training LOLE Law on Local Organs of the State UFSA Central procurement institution M&E Monitoring and Evaluation UGEAS Unit for Management of Acquisition MDGs Millennium Development Goals UN United Nations MDM Democratic Movement of Mozambique WASIS Water sector and Institutional Support i Country Partnership Strategy FY12-15 for The Republic of Mozambique TABLE OF CONTENTS Executive Summary ................................................................................................................................................................. 1 I. Country Context and Development Agenda .......................................................................................................................... 3 A. Political Context ....................................................................................................................................................................... 3 B. Recent Economic Developments and Prospects ....................................................................................................................... 4 C. Millennium Development Goals and Poverty ........................................................................................................................... 6 D. Development Challenges and Opportunities ......................................................................................................................... 12 Promoting Inclusive Growth to Enhance Job Creation .......................................................................................................... 12 Investment Climate ............................................................................................................................................................... 15 Diversifying Sources of Growth ............................................................................................................................................. 16 Infrastructure ........................................................................................................................................................................ 18 Climate Change and Natural Disaster ................................................................................................................................... 21 Social Protection ................................................................................................................................................................... 21 Service Delivery ..................................................................................................................................................................... 22 Governance and Public Sector Management ........................................................................................................................ 23 E. Government Priorities and Medium-Term Strategy ............................................................................................................... 25 II. World Bank Group Country Partnership Strategy ................................................................................................................26 A. Lessons Learned from Previous CPS ....................................................................................................................................... 27 B. CPS Consultations with Country Stakeholders ........................................................................................................................ 29 C. Country Partnership Strategy Objectives and Program.......................................................................................................... 30 (a) Pillar I. Competitiveness and Employment ...................................................................................................................... 31 (b) Pillar II. Vulnerability and Resilience ................................................................................................................................ 38 (c) Governance and Public Sector Capacity: The Foundation................................................................................................ 42 III. Implementing the Country Partnership Strategy ...............................................................................................................45 A. Resources to Implement the Strategy .................................................................................................................................... 45 B. Partnerships and Donor Coordination .................................................................................................................................... 46 C. The Bank Portfolio Performance ............................................................................................................................................ 48 IV. Risks and Mitigation .........................................................................................................................................................48 Annex 1. CPS FY12-15 Results Matrix .................................................................................................................................51 Annex 2: CPS Completion Report ........................................................................................................................................58 Annex 3: Mozambique Social Indicators ..............................................................................................................................81 Annex 4: Mozambique – Key Economic Indicators .............................................................................................................82 Annex 5: Mozambique – Key Exposure Indicators .............................................................................................................84 Annex 6: Mozambique – IFC Investment Operations Program ..........................................................................................85 Annex 7: Mozambique – IFC Operations ............................................................................................................................86 Annex 8: Mozambique At a Glance .....................................................................................................................................87 Annex 9. Overview of Main Trust Funds ..............................................................................................................................90 Annex 10: Mozambique - Selected Indicators of Bank Portfolio Performance and Management ......................................91 Annex 11: Mozambique Operations Portfolio (IBRD/IDA and Grants) .............................................................................92 ii Annex 12: Donor Areas of Focus ..........................................................................................................................................93 Annex 13: Donor Participation in Sector Working Groups .................................................................................................94 Boxes, Figures, Tables Box 1. Mozambican Development from a Gender Perspective .................................................................................................. 10 Box 2. Growth Identification and Facilitation in Mozambique .................................................................................................. 13 Box 3. Opportunities and Perils of Mozambique’s Burgeoning Extractive Industry ................................................................... 14 Box 4. Regional Integration and the Potential of Mozambican Infrastructure .......................................................................... 19 Box 5. Mainstreaming Gender in the Bank Portfolio ................................................................................................................. 34 Figure 1. Mozambique Growth Record 1993-2012 ...................................................................................................................... 4 Figure 2. Poverty Headcount by Sex of Household Head and Urban-Rural Areas ........................................................................ 9 Figure 3. Mozambique’s Youth Bulge: Population by Age Groups and Sex (Absolute number in millions) ............................... 11 Figure 4. CPS Pillars and Alignment with Mozambique PARP ................................................................................................... 31 Figure 5. IDA Commitments and Projects .................................................................................................................................. 48 Figure 6. Average Size of New IDA Projects ............................................................................................................................... 48 Table 1. Mozambique – Key Macroeconomic Indicators, 2008-2013 ........................................................................................... 6 Table 2. Mozambique’s Progress Towards the Millennium Development Goals .......................................................................... 7 Table 3. Objectives and Expected Outcomes of Pillar I: Competitiveness and Employment....................................................... 32 Table 4. Proposed Program for Pillar I: Competitiveness and Employment ............................................................................. 33 Table 5. Objectives and Expected Outcomes of Pillar II: Vulnerability and Resilience ................................................................ 39 Table 6. Proposed Program for Pillar II: Vulnerability and Resilience ....................................................................................... 40 Table 7. Objectives and Expected Outcomes of Governance and Public Sector Capacity........................................................... 43 Table 8. Proposed Program for Foundation: Governance and Public Sector Capacity ............................................................ 44 iii EXECUTIVE SUMMARY i. Overall Context. The launch of the proposed Mozambique Country Partnership Strategy (CPS) for FY12-15 comes at a momentous period in the country’s impressive post-conflict journey; one which many analysts suggest has propelled the nation to a unique point of inflection. The optimism that accompanied the previous CPS for FY08-11, after two decades of growth and poverty reduction, has been replaced by sober but purposeful deliberation over Mozambique’s path to development. In recent years, Government and donors have had to grapple with a deceleration of poverty reduction in the face of strong growth; social unrest that closely preceded those in the Arab world; a drop in the Human Development Index and Doing Business country rankings, and the broader perception of reform deceleration; the likelihood of increased pressure and decreased aid among bilateral donors; and serious capacity constraints to manage increasingly important natural resources, including significant coal and newly discovered gas deposits which by all accounts will be a ―game changer‖ for Mozambique’s future. Thus, while significant challenges of sustaining stability and building a more equitable society persist, the upside potential of leveraging its strong post-conflict performance towards transformative growth in the medium to longer-term, is enormous and almost second to none in Sub-Saharan Africa. ii. Recent Economic Developments and Prospects. Since the end of the two-decade long civil war in 1992, Mozambique has had to play catch up with the rest of the world. Macroeconomic stability, structural reforms, and reconstruction drove post-conflict growth which has been sustained over the past decade by enclave mega-projects in mining and energy production. The country has weathered the global economic and financial crises, with economic growth dipping to 6.3 percent in 2009 but projected to have risen to 7.2 percent in 2011. Increased infrastructure spending as well as foreign investments in new mega-projects are expected to drive economic growth to 8 percent over the medium-term. iii. Development Challenges. The deceleration of poverty reduction in the face of robust economic growth is the defining development challenge in today’s Mozambique. The challenge is to diversify the sources of economic growth; integrate capital-intensive mega-projects with the Government’s poverty reduction strategy; and develop the agriculture sector which employs close to 80 percent of the workforce but remains largely unproductive, subsistence-based, and where there is a growing ―feminization of poverty.‖ More broadly, Mozambique needs to accelerate investment climate reforms; improve provision of public goods to facilitate inclusive growth (e.g., infrastructure, education, health); set up well-targeted safety nets for the most vulnerable; and promote greater voice and citizen participation while building transparent and accountable systems, including those related to extractive industries. iv. Government’s Poverty Reduction Strategy. The Plano de Acção de Redução de Pobreza (PARP) for 2011-14 is the third Poverty Reduction Strategy Paper (PRSP) and aims to reinvigorate the poverty reduction agenda to foster more inclusive growth. It specifically recognizes the empowerment of women as a decisive factor in poverty eradication and economic growth. Acknowledging the need to diversify sources of growth, the PARP looks to complement efforts to improve service delivery with an economic strategy to boost productivity in labor-intensive sectors and unleash the structural transformation of the economy. The PARP is built on three main pillars: (a) increasing production and productivity for the agricultural and fisheries sectors; (b) promoting employment; and (c) fostering human and social development. Two supporting pillars focus on good governance and macroeconomic stability. 1 v. Lessons Learned. The CPS Completion Report (CR) in Annex 2 identified the following lessons: (a) an appropriate program of analytic work to underpin Bank programs and projects is needed to inform public debate on key development issues, including the entry points for economic transformation; (b) the CPS should be a living document and updated and monitored at mid-term with updated monitoring indicators; (c) Bank lending instruments should be chosen and sequenced more strategically to address sectoral bottlenecks and implementation capacity constraints; and (d) staffing and management vacancies affected the overall program delivery and results, and should have been addressed more expeditiously. vi. CPS Pillars and Outcomes. The CPS for FY12-15 takes as its starting point the Government’s PARP, with its theme of inclusive and broad-based growth. The Africa Regional Strategy also provides an overall framework for setting priorities and managing the proposed program. Like the Africa Regional Strategy, the CPS has two cross-cutting pillars and a foundation: Competitiveness and employment. In view of structural issues and growth and poverty trends, the Bank looks to help improve the regulatory environment; prioritize investments through spatial planning; enhance agricultural productivity and employment in potential growth sectors; improve provision of transport, water, energy, and other infrastructure; and promote an educated, skilled, and healthy workforce. Vulnerability and resilience. Given the country’s susceptibility to idiosyncratic and exogenous shocks, the Bank aims to help improve health services for the vulnerable; strengthen social protection; and encourage climate change adaptation and reduce vulnerability to natural disasters. Governance and public sector capacity. Key to achieving the country’s development objectives is improved public financial management, particularly at the sector and local levels; improved citizen participation in service delivery monitoring; greater contribution of wildlife conservation to the economy; and improved transparency in extractive industries. In addition, the CPS aims to mainstream gender, social accountability, and nutrition in the portfolio. On gender, the Bank will build on an already solid track record of addressing gender equality during project preparation and implementation. There is broad scope to introduce social accountability mechanisms, particularly in projects seeking to improve service delivery. A parallel strategy to incorporate social accountability is currently under discussion. Similarly, with chronic malnutrition among the worst in the world, nutrition-related activities are planned for active and pipeline operations, as appropriate. vii. CPS Program and Resources. The CPS for FY12-15 will be supported by IDA 16: the notional envelope is US$1.04 billion for the first three years of the CPS period. IDA resources will continue to be supplemented by trust funds, parallel and basket financing, and used strategically to catalyze and leverage donor and private sector financing. Given the potential for the mineral and gas sectors, agribusiness, tourism, and other sectors, as well as the Government’s desire for the Bank to be a catalyst for large and complex infrastructure projects, the Bank will look at the range of instruments, including IBRD enclave financing, and will ensure coherence and complementarity with IFC and MIGA. The Bank will also generate greater knowledge products, including South-South knowledge exchange across a range of areas. viii. Risks. Risks include: (a) weak government capacity to coordinate and implement key cross sectoral reforms and operations, and to manage the extractive industry sector, including private sector participation; (b) elevated social tensions particularly among urban unemployed youth; (c) 2 macroeconomic shocks and their impact on the Government’s reform program; and (d) reduced donor aid. I. COUNTRY CONTEXT AND DEVELOPMENT AGENDA 1. The Country Partnership Strategy (CPS) for FY12-15 will be implemented during a period of inflection in Mozambique’s history. Over the medium-term, the country has an opportunity to lay the basis for a marked transformation of its social and economic structure. For now, the latest household survey indicates that despite impressive growth rates over two decades, the pace of poverty reduction has been disappointing.1 Social unrest in recent years underlines the vulnerability of large segments of the population and is the impetus behind a more inclusive growth strategy. The CPS will also coincide with the final push to achieve the 2015 Millennium Development Goals (MDGs): many are within reach but will require a determined effort by all stakeholders. Meanwhile, Mozambique is at the cusp of a major ―game changer‖ in the form of its vast mining and oil and gas sectors, which are at world-class scale and could generate sizeable resources for needed public investments in the long run. The next two years will be a critical window to make the appropriate policy and investment decisions that will shape the natural resources sector for the next generation. But attention to this and to the broader development agenda will be tested by a potentially disruptive political cycle, with the Frelimo Party convention and municipal and presidential elections taking place over the next three years. In sum, the medium-term outlook is fraught with both unmatched opportunities and persistent downside risks. A. Political Context 2. Mozambique, a southeast African country of 22.9 million people, occupies an area of 800,000 square kilometers. About 70 percent of the population live and work in rural areas. The country has more than 2,500 kilometers of coastline along the southwestern rim of the Indian Ocean. It is endowed with ample arable land, water, energy, and gas and mineral resources; three deep seaports; and a relatively large potential labor pool. It is also strategically located, bordering six countries — four of them landlocked and hence dependent on Mozambique as a conduit to global markets. In addition, the country’s strong ties to the regional economic engine of South Africa underscore the importance of Mozambique’s economic, political, and social development to the stability and growth of the region. 3. Following independence from Portugal in June 1975, the country underwent a protracted 15- year armed conflict, fueled largely by regional powers and Cold War politics, leaving the country and its economy in ruins. Mozambique began a slow but successful transition to peace, political stability, and democracy in the late-1980s and two years after the formal peace agreement in October 1992, the country held its first democratic elections. The Front for the Liberation of Mozambique (Frelimo) edged out its civil war rival, the Mozambican National Resistance (Renamo). Frelimo has remained in power ever since, most recently winning the fourth presidential and parliamentary elections in 2009 by 70 percent of the popular vote (an increase from the 60 percent garnered in the 2004 elections). Frelimo has a two-thirds majority in the national parliament, 80 percent of the seats in the provincial assemblies, and majorities in all elected municipal assemblies. Such control over the elected 1 Inquérito Sobre Orçamento Familiar 2008-09 (Instituto Nacional de Estatística, 2010). 3 and politically appointed state positions is unparalleled in the country's recent history. Political analysts predict it could undermine the Government's ability to respond to the needs of its citizens. 4. Looking ahead, the next three years will be marked by several political milestones that could distract from the country’s development agenda. The political jockeying ahead of Frelimo’s party convention in 2012 has been accompanied by discussion over the future ideological tilt of the party, given the emergence of a new generation of leaders with no connection to the struggle for independence and little allegiance to the Socialist ideals of the party’s founders. There is also some talk about a possible constitutional amendment to extend presidential term limits which may cause dissention within the party. The 2013 municipal elections will also be highly anticipated and will determine whether the Democratic Movement of Mozambique (MDM), an off-shoot of Renamo, can build on its control of two of the largest municipalities (Beira and Quelimane) and emerge as a serious force in Mozambican politics. Both Renamo and MDM’s power base lies in the central provinces of Sofala, Manica, and Zambezia – often referred to as ―Mozambique’s breadbasket‖. B. Recent Economic Developments and Prospects 5. For the past two decades since the end of the civil war, Mozambique recorded a sustained and impressive rate of growth. Average real GDP growth rate soared from zero percent during the 1981-92 period to 8 percent between 1993 and 2010; and real GDP per capita almost doubled after 1992, making Mozambique one of the best performing countries over the past two decades among African oil importers (Figure 1). While growth in the immediate aftermath of the peace accords was driven by a return to political and macroeconomic stability, a first wave of structural reforms, and a post-conflict ―catch-up effect‖ in infrastructure and agriculture, more recent growth (since 1998) has been driven by policies to entice foreign investments, particularly in isolated mega-projects in mining and energy production, and strong donor support. Foreign direct investment totaled US$890 million in 2009 and increased to US$1 billion in 2010. These flows support the growing perception of Mozambique as a market-oriented economy with strong prospects for structural transformation and high growth. 6. Economic growth has remained Figure 1. Mozambique Growth Record 1993-2012 relatively strong albeit with some slow down during the global food, fuel, and financial crises and consequent global economic slowdown since 2008. While the country’s real GDP growth rate fell slightly to 6.3 percent in 2009, it rose to 6.8 percent in 2010 and is estimated to have increased to 7.2 percent in 2011. The country’s economic growth has remained one of the strongest in the region, outpacing not only the Sub- Saharan average but also that of the other Source: Estimates and projections from Government of Mozambique, so-called ―frontier economies‖.2 IMF, and World Bank. Mozambique’s resilience in large part reflects the Government’s rapid and flexible policy responses, 2 Frontier economies typically refer to low-income Sub-Saharan African countries undergoing high growth: Angola, Ghana, Kenya, Mozambique, Nigeria, Senegal, Tanzania, Uganda, and Zambia. 4 including measures to rationalize expenditures for non-priority sectors, and monetary policy aimed at limiting the impact of the higher public debt on credit to the private sector. With economic growth now back on a sound footing, the Government has started tightening macroeconomic policies, reverting from the expansionary stance adopted during the global economic crisis to address the double-digit inflation that Mozambique had in 2010. Inflation in 2011 fell to 5.5 percent. 7. Mozambique's rapid economic growth has not translated into significant poverty reduction in recent years. Growth was accompanied by significant strides in reducing poverty up to 2003. Household survey data indicate that the national poverty headcount fell from roughly 69 to 54 percent from 1996 to 2003. The results of the 2008-09 household survey suggest the response of poverty reduction to economic growth has since weakened. The geographical distribution of poverty, however, continues to be concentrated in the rural areas, and in the center and northern part of the country. 8. The medium-term outlook for Mozambique remains positive. Increased public investments, particularly in infrastructure, as well as foreign investments in new mega-projects in the energy sector and extractive industries are expected to drive economic growth to 8 percent over the medium term, putting the country back on its pre-global crisis trajectory (Table 1). Investment spending is already at about 15 percent of GDP in 2011 and an expansion is necessary given the country’s low physical capital stock. Given low private investment rates, the Government may need non-concessional external resources. Emphasis should be placed on the quality of projects so as to ensure an adequate growth dividend and ability to repay additional borrowing. Such efforts would need to be embedded in a continued pursuit of macroeconomic stability. 9. The World Bank and the IMF have recently upgraded Mozambique as a Higher Capacity Country in terms of its non-concessional borrowing capacity. This is a result of improvements in sub- Country Policy and Institutional Assessment (sub-CPIA) and Public Expenditure and Financial Accountability (PEFA) scores, as well as the significant progress achieved in terms of debt management, including the formulation of medium term debt strategies and the preparation of annual debt sustainability analyses. Higher borrowing capacity should serve Mozambique well as it looks to increase public investment in infrastructure over the medium-term. Aid flows, including direct budget support, have remained strong but have been falling from their peak in 2009, as a percent of a fast growing GDP, and are estimated to level off in 2012. 10. Recent discoveries of coal and gas resources indicate that over the medium-term Mozambique's development could receive a very significant boost. Mozambique has the potential to join the ranks of resource rich economies especially if the exploitation of natural gas resources materializes. This could be transformative, providing government with significant resources and altering the geographic distribution of development which is now heavily centered in the southern part of the country. Government's attention to EITI, public financial management, and the continued strengthening of tax administration is a good basis, but will need to be complemented with stronger attention to polices to support economic diversification and strengthening government's ability to deliver services. 11. Despite an overall positive economic outlook, the Mozambican economy faces substantial downside risks, particularly with regards to a slowdown in international economic growth. The increased risks posed by the deteriorating global environment and the negative impacts it would bring to the country – as prices of commodities decline resulting in lower export revenues, foreign investment 5 retracts, and economic activity slows down – will also result in lower tax revenues. The main transmission channels of a significant downturn in the global economy (and especially from a recession in Europe) would result in lower commodity prices and its effects on growth through lower foreign direct investment to resource-rich Mozambique. In addition, the important trade links to South Africa (including aluminum exports and imports of consumer goods) could have a wider effect through the bilateral exchange rate. Table 1. Mozambique – Key Macroeconomic Indicators, 2008-2013 2008 2009 2010 2011 2012 2013 Act. Act. Act. Est. Proj. Proj. Real GDP growth rate (%) 6.7 6.3 6.8 7.2 7.5 7.9 CPI inflation (%, period average) 10.3 3.3 12.7 10.8 7.2 5.6 Credit to the economy (% change) 45.9 58.6 27.5 19.4 22.2 20.5 Average nominal interest rate (average T-Bill Rate) 1/ 13.8 10.6 12.0 15.8 .. .. Gross domestic savings (excluding grants)/GDP -4.0 -2.6 3.0 4.3 6.0 7.3 Gross domestic investment/GDP 15.7 16.5 22.0 21.2 22.0 23.1 Government 11.6 12.9 14.0 11.6 12.0 12.4 Other sectors 4.1 3.6 8.0 9.6 10.0 10.7 Terms of trade change -3.9 -0.7 12.3 7.0 9.5 4.1 Current Account Balance/GDP (including grants) -11.9 -12.2 -11.7 -11.2 -11.1 -10.9 Real exchange rate change (- = depreciation) 11.8 -6.6 -15.1 .. .. .. 1/ 2011 data refers to average from January to October. Source: Estimates and projections from Government of Mozambique, IMF, and World Bank. 12. Under an alternative global growth scenario, assuming the downside risk of a global slowdown, Mozambique's growth is projected to decelerate with growing fiscal and external imbalances. Assuming a decline in GDP in developed countries of about 1 percent and almost stagnant overall global growth, real GDP growth in Mozambique is projected to fall by 1.8 percentage points in 2012 and by 1.6 percent in 2013 (compared to the baseline scenario). Also, under this alternative scenario, the global downturn is projected to add pressure to the fiscal accounts as fiscal revenues fall faster than spending and the external current account deficit to widen slightly as lower external demand and falling commodity prices are expected to affect exports. Mozambique also remains vulnerable to changing global food and fuel prices, given the moderate fiscal capacity to moderate its impact on domestic prices. C. Millennium Development Goals and Poverty 13. As the country moves closer to 2015, Government and stakeholders are looking to make a final push to achieve the Millennium Development Goals (MDGs). The country can potentially achieve 13 of the 21 MDG targets by 2015 (Table 2). Those within reach relate to poverty, under-five mortality, maternal mortality, and the establishment of an open trading and financial system. Improved public financial management (PFM) and massive investment in priority areas have helped to improve service delivery in education, health, transport, and infrastructure, resulting in progress across a range of non-monetary poverty indicators. Enrolment and attendance rates over the past decade have increased 6 significantly; 81 percent of primary school-age children (6-12 years) attend school, with only a two percentage-point difference between boys slightly outnumbering girls. Overall, the achievement represents one of the most significant improvements in gender equality in the country over the past decade. Net enrolment in all grades of EP1 (escola primária do primeiro grau, level 1 up to grade 5) increased from 45 to 77 percent during 1998-2008, and the completion rate increased from 39 percent in 2003 to 73 percent in 2010. Table 2. Mozambique’s Progress Towards the Millennium Development Goals Will Targets Goal / Target Be Met Extreme Poverty and Hunger Reduce to half, by 2015, the proportion of people living under extreme poverty Potentially Ensure, by 2015, decent work for all, including women and young people Without data Reduce to half, by 2015, the proportion of people who suffer from hunger Potentially Universal Primary Education Ensure that, by 2015, all boys and girls will be able to complete a full course of primary schooling Potentially Gender Equality Eliminate, preferably by 2005, gender disparity in primary and secondary education, and by 2015 in all levels of Probably education Child Mortality Reduce by two-thirds, by 2015, the under-five mortality rate Probably Maternal Health Reduce by three-quarters, by 2015, the maternal mortality ratio Without data Achieve, by 2015, universal access to reproductive health Potentially Communicable Diseases Have halted, by 2015, and begun to reverse the spread of HIV/AIDS Potentially Achieve, by 2010, universal access to HIV/AIDS treatment for all those who need it Improbably Have halted, by 2016, and begun to reverse the incidence of malaria and other major diseases Probably Environmental Sustainability Integrate the principles of sustainable development into national policies and programs and reverser the loss of Potentially environmental resources Reduce the loss of biodiversity, achieving, by 2010, a significant level Without data Reduce to half, by 2015, the number of people without access to safe drinking water and sanitation Potentially By 2020, to have achieved a significant improvement in the standard of living of the slum dwellers Potentially Global Partnership for Development Develop further an open, rule-based, predictable, non-discriminatory trading and financial system. This includes a Potentially commitment to good governance, development and poverty reduction – both nationally and internationally Address the special needs of the least developed countries Without data Address the special needs of landlocked developing countries and small island developing States and the outcome of Without data the 22nd special session of the General Assembly of the UN Deal comprehensively with the debt problems of developing countries through national and international measures in Without data order to make debt sustainable in the long term In cooperation with pharmaceutical companies, provide access to affordable essential drugs in developing countries Without data In cooperation with the private sector, make available the benefits of new technologies, especially information and Probably communications Source: Mozambique, Ministry of Planning and Development, Report on the Millennium Development Goals, 2010. 14. Progress has been made from a low base in the health sector, but many challenges remain, including inequality in access and health outcomes, and require sustained commitment. The under- five mortality rate decreased from 178 to 138 per 1,000 live births between 2000 and 2008 due to 7 improved vaccination rates and service coverage. Maternal mortality has decreased from an estimated 1,000 to 340 per 100,000 between the early 1990s and 2007. Despite these significant improvements, Mozambique fares less well than the Sub-Saharan Africa average. HIV appears to have stabilized at a prevalence rate of 11.5 percent among 15-49 year olds, still among the highest prevalence rates in the world, and adolescent girls are 3 times more likely than adolescent boys to be infected by HIV. Married women have limited ability to negotiate safe sexual practices (such as condom use) and are at greatest risk of contracting HIV. The Bank estimates that the high prevalence rate may reduce Mozambique’s economic growth by as much as one percentage point annually. And the Food and Agriculture Organization estimates that Mozambique may lose more than 20 percent of its agricultural labor force by 2020 because of the epidemic. Coverage of malaria prevention methods, such as insecticide-treated nets, has also improved. Nonetheless, malaria continues to pose a major public health problem, accounting for a large proportion of deaths among children under-five. It is also a contributing factor to at least 30 percent of maternal deaths. All regions of the country remain at high risk of transmission, requiring coverage to be further improved and sustained over the long-term. 3 15. Chronic malnutrition is extremely high. In Mozambique, approximately 47 percent of children under five suffer from chronic under-nutrition (or stunting), a rate that has remained virtually unchanged since 2003 and is considered "very high" by World Health Organization standards. Chronic under- nutrition accounts for at least one-third of child deaths. Stunting affects individual children but is also closely linked to overall development of a country as stunting affects cognitive development and is related to timely school enrolment and future educational outcomes. This high burden of under-nutrition stems from soaring levels of poverty, food insecurity, poor child-feeding practices, and inadequate prevention and management of acute illnesses. 16. The Mozambique health system is weak in general, with particular challenges in human resources, healthcare financing and supply chain management. Mozambique has the fifth lowest ratio of health workers to population (0.03 doctors, and 0.21 nurses per 1,000 inhabitants). There are 26 donors in the health sector, making predictability and coordination difficult. Government allocation to health spending has recently decreased, and public financial management needs to improve. Poor management of the supply chain has resulted in expired drugs in central warehouses at the same time as drug stock-outs at health facilities. Challenges outside of the health system also have a heavy impact on health status. While 77 percent of people in urban areas had access to improved drinking water sources in 2008, this fell to 29 percent for rural populations (48 percent overall). Among rural households, only six percent have access to safe sanitation compared to 47 percent of urban households. 17. Significant challenges in education remain. Progress in school enrolment masks challenges in the quality of education, with 44 percent of children in primary schools being over-age and only 1 in 5 children of secondary school age actually attending secondary school. Gender parity has been achieved in school enrolment, but there are more out-of-school girls than boys. Especially significant, gender gaps remain in the higher grades of primary education (EP2, escola primária do segundo grau, grades 6 to 7) and secondary education. This is particularly pronounced in the Northern provinces where low literacy rates persist for women of ages 15-24. Adult literacy rate for women is only 41 percent compared to 70 percent 3 The data in this paragraph came from the Health Commodity Security Project, Project Appraisal Document, Report No. 56431-MZ (World Bank, 2010) and World Bank staff analysis. 8 for men.4 For women, this is far below average rates of neighboring countries. Key issues that influence girls’ retention in the education system — beside the wealth of their family — are premature marriages, dominance of male teachers and inherent fear of sexual harassment, and distance to water supply systems. 18. Despite significant progress, the provision of water remains a major Figure 2. Poverty Headcount by Sex of Household Head challenge in Mozambique. Although the and Urban-Rural Areas share of people with access to safe drinking water in urban areas has increased significantly and achieving the MDG target for sustainable coverage is expected for urban water supply (reaching 70 percent), overall access remains low. The 47 percent with access to water is below the average of 58 percent across the African continent. This is mainly because coverage in rural areas, which accounts for 73 percent of the total population, is low at 30 percent compared to the African Source: Inquérito Sobre Orçamento Familiar 2008/09 (Instituto average of 46.5 percent. Among rural Nacional de Estatística, 2010) households, only 6 percent have access to safe sanitation compared to 47 percent of urban households. 19. The uneven progress on the MDGs mirrors the challenges in sustaining broad-based poverty reduction. Mozambique's rapid economic growth was accompanied by significant strides in poverty reduction in the decade following the civil war. Poverty rates fell from 69 percent in 1996-97 to 54 percent in 2002-03 — equivalent to nearly three million people (or 13 percent of the country’s population) lifted out of poverty. Despite this success, Mozambique needs to further decrease the poverty rate by 15 percentage points to achieve the MDG target of 40 percent of the population below the poverty line by 2015. Mozambique remains one of the poorest countries in the world, ranking 184 out of 187 countries in the 2011 Human Development Index.5 It ranks 197 out of 210 countries in GDP per capita (US$441 in 2010, compared to the US$510 average for low-income countries).6 Moreover, the results of the 2008-09 household survey, while subject to some methodological caveats, suggest overall poverty reduction has remained at roughly 54 percent of the population, with rural poverty actually increasing slightly to 57 percent since the 2002-03 survey.7 While the food and fuel crisis of 2008-09 played a role in this outcome, the poverty trend suggests that growth has become less inclusive in recent years. 4 Adult Literacy Rate (World Bank, 2011). http://data.worldbank.org/indicator/. 5 Human Development Report 2011. Sustainability and Equity: A Better Future for All (UNDP, 2011) 6 Data. GDP per capita (Current US$) (World Bank, 2011). http://data.worldbank.org/indicator/NY.GDP.PCAP.CD 7 Inquérito Sobre Orçamento Familiar 2008/09 (Instituto Nacional de Estatística, 2010) and Inquérito Nacional aos Agregados Familiares sobre Orçamento Familiar 2002/03 (Instituto Nacional de Estatística, 2004). 9 Box 1. Mozambican Development from a Gender Perspective Since Independence, Government policies have emphasized gender equality and women’s empowerment and some have contributed to important development results. They include drastically improved gender gaps in schooling and significant reductions in infant and under-five child mortality. There has also been a notable increase in women’s political representation (ranked 61 out of 116 countries under the Gender Empowerment Measure). However, women continue to live and work at a disadvantage under a strong patriarchal culture that hinders their optimal benefit from and contribution to economic and social development achievements. Compared with men, women still have heavier workload responsibilities, inferior employment and lower income, inferior access to land and lower agricultural production, and lower levels of education and health. Gender-based violence continues to be a fundamental obstacle to the achievement of gender equality; and while one of Africa’s best performing economies, Mozambique has experienced a ―feminization‖ of poverty and the agricultural sector. An important aspect of the ―feminization‖ of poverty is that women stay in the agricultural, informal sector and low paid occupations while men are moving to pursue higher earnings in other sectors. Trends between 1997 and 2003 show that men moved out of agriculture and into the private sector and self-employment in non-agricultural sectors to a higher degree than women.a Women are also less likely than men to grow tradable crops because they concentrate on basic foods to feed their familyb and women experience lower technology adoption rates than men.c This gender gap not only has important implication on equity, social cohesion and individual welfare, it also creates important economic inefficiencies. Strategies are needed to specifically help women diversify crops and raise output to a commercial scale without risking household food security, for example through extension services targeting women. Another finding shows that women with education do move into commercial agriculture, underlining the multiple advantages of enhancing access to education among rural women.d a Beating the Odds: Sustaining Inclusion in a Growing Economy. A Mozambique Poverty, Gender and Social Assessment (World Bank, 2007). b “Trade Reform and Gender in Mozambique�, Nordic Journal of Political Economy (Arndt, Robinson, 2006). c Beating the Odds: Sustaining Inclusion in a Growing Economy. A Mozambique Poverty, Gender and Social Assessment (World Bank, 2007). d “Trade Reform and Gender in Mozambique�, Nordic Journal of Political Economy (Arndt, Robinson, 2006). 20. The 2011 Gender Inequality Index8 ranks Mozambique 125 out of 146 countries, revealing that Mozambique remains poor in overall as well as in gender equality terms. 9 Gender of the household head is a major determinant of poverty in Mozambique. According to the Social and Gender Assessment and using data from the 2002-03 household survey, it has been observed that households with low consumption levels tend to be larger, have a higher proportion of children, and live in rural areas; and their head of households work in the agriculture sector and have a lower education level. Households headed by females tend to be poorer than those headed by males.10 Of families headed by women, 57.8 percent fall below the poverty line, compared to 53.9 percent of those headed by men. Yet, as seen in Figure 2, one of the most significant outcomes of the 2008-09 household survey relates to gender: female- headed households are experiencing a more consistent drop in poverty rate than male-headed households, 8 UNDP’s Gender Inequality Index (GII) reflects women’s disadvantage in three dimensions—reproductive health, empowerment and the labour market. The health dimension is measured by two indicators: maternal mortality ratio and the adolescent fertility rate. The empowerment dimension is also measured by two indicators: the share of parliamentary seats held by each sex and by secondary and higher education attainment levels. The labour dimension is measured by women’s participation in the work force. 9 Gender Inequality Index 2011 (UNDP, 2011), http://hdr.undp.org/en/media/HDR_2011_EN_Table4.pdf 10 Sustaining Inclusion in a Growing Economy. A Mozambique Poverty, Gender and Social Assessment (World Bank, 2008). 10 particularly in urban areas.11 Key gender analyses conclude that there is a ―feminization of poverty‖ in Mozambique.12 The overall proportion of female-headed households is at 26.4 percent, but it ranges between 54 percent in the southern province of Gaza to 21 percent in the two most populous northern provinces of Nampula and Zambézia.13 21. Growth in Mozambique has not been as pro-poor as in other high-growth countries and it has become less pro-poor over time. When compared to peer countries, GDP growth has had less of an effect in reducing the headline poverty rate.14 Despite a healthy pace of growth, the current elasticity of poverty reduction with respect to mean income (about 1.5) will lead to only very slow poverty reduction over the next decade. In a country with no social safety nets and where half of the population is under 20 years old (Figure 3), 80 percent of the labor force in informal or subsistence, low-productivity activities, that baseline scenario would be a recipe for sociopolitical tensions. The September 2010 riots, following the Government’s announced price increases for bread, water, and electricity, underlined the extreme vulnerability of the country’s population. The aftermath of the riots have also prompted the Government and the donor community alike to place greater emphasis in developing rural areas where about 60 percent of the population lives, and to promote labor-intensive growth, particularly in the agriculture sector which employs 78 percent of the workforce and is an obvious engine for sustained and transformative growth and poverty reduction. At the same time, the Government is mindful of the high and growing risks associated with urban unemployment and poverty — driven by rural migration and high population growth — and the potential for social unrest. Figure 3. Mozambique’s Youth Bulge: Population by Age Groups and Sex (Absolute number in millions) Source: United Nations, Population projection. http://esa.un.org/unpd/wpp/population-pyramids/population-pyramids.htm 22. With population growth relatively fast at 2.8 percent in 2008, the government faces the challenge of creating employment opportunities for its fast growing and young labor force. Using 11 Inquérito sobre Orçamento Familiar 2008/09 (Instituto Nacional de Estatística, 2010). 12 Louise Fox, Elena Bardasi, and Katleen Van den Broeck, “Poverty in Mozambique: Unraveling Changes and Determinants� (Africa Region Working Papers Series, No. 87, World Bank, August 2005); and Inge Tvedten, Margarida Paulo, Georgina Montserrat, Gender Policies and Feminisation of Poverty in Mozambique (Chr. Michelsen Institute, Bergen, CMI Report R 2008: 13). 13 Inge Tvedten, Margarida Paulo, Georgina Montserrat, Gender Policies and Feminisation of Poverty in Mozambique (Chr. Michelsen Institute, Bergen, CMI Report R 2008: 13). 14 IMF Country Report No. 11/149 (June 2011). 11 15 to 59 as the working age, the labor force in Mozambique will increase by almost 50 percent during the 22 years from now to 2025, from about 8 million in 2010 to about 11.6 million in 2025. While Mozambique’s employment to population ratio currently stands at 78 percent, job creation in the non- agricultural modern wage sector has not kept up with labor force growth. Moreover, the country’s human capital base is quite thin: more than 90 percent of the labor force has either no formal education or only 5 years of formal education. D. Development Challenges and Opportunities 23. Slow poverty reduction in the face of robust economic growth is the defining development challenge in today’s Mozambique. Promoting Inclusive Growth to Enhance Job Creation 24. Recent poverty outcomes can be attributed in part to low growth in agricultural productivity (especially food crops), weather shocks affecting the 2008 harvests, and increase in international food and fuel prices. However, more broadly, slow poverty reduction reflects the structural deficiencies and the narrow productive base of the economy, the inadequacy of the Government’s growth strategy, and the breadth of the investment climate reform agenda left to be addressed. For some time there has been broad agreement that the drivers of growth in the recent past — the post-conflict catch-up effect and overseas development assistance — were bound to fade over time; and long-run productivity growth needs to replace them. However, growth in the past decade has been concentrated at one end of the productive spectrum: foreign-owned, capital-intensive, and export-oriented mega-projects. Mega-projects have contributed significantly to Mozambique’s economic growth and have put the country on the map as an attractive destination for international investors, but they have had limited impact on employment creation and productivity spillovers. While representing 62 percent of the production value of the manufacturing sector, mega-projects only employ 3 percent of the sector’s labor force and 2 percent of urban private sector employment.15 Mega-projects dominate Mozambique’s exports, about half of which derive from the aluminum smelting mega-project, making the economy highly dependent on world commodity prices. There are only 14 other products registering exports in excess of US$1 million.16 Also, mega-projects have had limited fiscal benefits — a legacy of the Government’s tax incentives to lure foreign investors. 25. Inclusive growth calls for better integration of mega-projects into the overall socio-economic development strategy, but Mozambique must also develop broader and more diverse sources of growth. The country has a vast potential for diversification. Box 2 assesses options for diversifying sources of growth. Beyond mining and energy, the untapped development of agribusiness, fisheries, forestry, tourism, trade and logistics, light manufacturing and services holds significant potential in terms of growth but also job creation and livelihoods. In order to encourage a structural transformation of the economy and a more competitive and diversified productive and export base to emerge, the Government of Mozambique needs to accelerate reforms to improve both the overall investment climate and to 15 Mozambique Investment Climate Assessment (Regional Program for Enterprise Development, Africa Finance and Private Sector, World Bank, 2009). 16 Country Economic Memorandum: Reshaping Growth and Creating Jobs through Trade and Regional Integration (World Bank, July 2011). 12 untangle sector-specific bottlenecks in potential growth areas. At the same time, Mozambique needs to maintain its strong track record of macroeconomic stability, particularly in the face of continued global economic uncertainty; boost public investment in infrastructure as a way to crowd in private sector activity and improve the quality of life and productivity of its citizens; and enhance the competitiveness of the local workforce through improved education and skills development. More than 90 percent of the labor force has either no formal education or only five years of formal education. Box 2. Growth Identification and Facilitation in Mozambique The key questions for the country’s economic agenda are whether high growth rates can be sustained and even increased to levels that would ensure prosperity for Mozambicans, and what strategic policy choices and tradeoffs are needed in order to get there. Among the many challenges facing the country, lifting the 80 percent of the population currently in low-productivity or subsistence activities into industries that conform to the country’s comparative advantage is probably the most important one. At the request of the Mozambican authorities, a World Bank team is currently preparing jointly with the Government a Policy note on the appropriate way of identifying new sources of growth, and some specifics on the facilitation role that the state should play. The work will feed into a high level ―Jobs Summit‖ to mobilize global experience on job creation through growth facilitation. Preliminary results of the analysis suggest that Mozambique has several options at its disposal: Option A: Fostering current policies to exploit the country's large energy, and gas and mineral resources. The risk, however, is price volatility. Heavy reliance on aluminum, for example, which accounts for about one- third of exports, subjects the economy to the sharp declines in aluminum prices that the country experienced during the 2008-10 global economic crisis. Option B: Strengthening the emerging agri-business sector, which is already attracting strong interest and high levels of foreign investment, often from countries such as Brazil where there is deep knowledge and expertise. Mozambique is endowed with ample arable land and water and could certainly establish itself as a powerhouse in agri-business industries. This option could transform the rural economy, where over 2/3 of Mozambique's poor households live, owing to linkages and spillovers to the traditional farming sector. Option C: Developing light manufacturing industries-and trying to seize some of the 85 million low-skilled manufacturing jobs that China will have to graduate from in the next decade due to its fast-rising wages. Mozambique has a relatively large potential labor pool and manufacturing provides more long-term economic benefits than other activities. It generates economies of scale, sparks industrial and technological upgrading, fosters innovation, and is characterized by big multiplier effects. This option would reduce urban poverty and have spillovers to rural areas as well through informal transfers. Option D: Positioning itself as a regional hub. Mozambique is also strategically located, bordering six countries - four of them landlocked and hence dependent on Mozambique as a conduit to global markets. In addition, it has three deep seaports, more than 2,500 kilometers of coastline along the southwestern rim of the Indian Ocean, and strong ties to the regional economic engine of South Africa. Option E: Developing tourism to make it one of the main sources of foreign exchange and growth. The potential is virtually unlimited. If combined with programs to develop the required skills in the labor force, this option could lead to substantial employment gains, but would not reach the majority of the labor force. It would work best in combination with others. For each one of these options, two main obstacles will have to be overcome: high factor costs (often due to poorly- conceived regulations and rigidities in land policy) and high transaction costs (often due to insufficient infrastructure and poor governance). By facilitating the clustering of competitive private firms in some geographic locations with excellent logistics (without using the distortionary instruments of old industrial policies such as tariffs or other forms of heavy protection), the government could foster the backward and forward linkages that will bring capital and knowledge to the Mozambican economy. 13 26. The magnitude and complexity of the reform agenda requires stronger development planning, management, and oversight. The Government has already begun a series of measures and reforms, such as tightening the fiscal regime for large investments and mega-projects to ensure mineral revenues are at comparable levels to other resource-rich countries and to bring them more in line with current international good practice. Higher mineral revenues would, in turn, support the stepped up infrastructure and education investments needed to improve competitiveness over the medium to long term, as well as institute effective social protection programs.17 Box 3. Opportunities and Perils of Mozambique’s Burgeoning Extractive Industry Mozambique is at the cusp of becoming a world-class destination for mining and gas. For the latter, the next two years will be a critical window to put in place policies and investments that will shape the sector for the next 30 to 40 years. Exploration in the Rovuma basin in 2010-11 first confirmed the presence of natural gas volumes in excess of 30 Tcf (comparable to Oman), and more recent announcements by investors increased that potential estimate to between 80 and 100 Tcf (comparable to Norway).a Mozambique already plays an important role in the world’s production of aluminum and beryllium. Its massive coal reserves could eventually place Mozambique at par with the largest coal exporters in the world. The extractive industries sector currently accounts for about 5 percent of the country’s GDP, primarily from gas, with a limited share from mining. However, the country has only just begun to tap into its huge potential. Expectations are that in 5 to 10 years, coal and natural gas projects alone could double the sector’s contribution to GDP. With over 1,000 active prospecting and exploration licenses, the mining and oil and gas sectors have the potential to contribute additionally up to 10 percent of GDP (based on global comparators). Large-scale mining and petroleum operations provide a unique opportunity unlike other industry sectors to bring in private financing for development of regional infrastructure to facilitate local value addition and business development that could serve as ―anchors‖ for growth corridors development. One key challenge facing the country for harnessing its natural resource opportunities is to design the right strategic policies in a context that supports a sound sector governance, legal, and regulatory regime; linkages to the broader economy; and fiscal prudence. Another challenge is to minimize macroeconomic distortions and the negative impacts (―the resource curse‖) seen in other resource-rich countries. These include a decline in the competitiveness of other economic sectors (due to real exchange rate appreciation), volatility of revenues from the natural resource sector due to global commodity market swings, government mismanagement of resources, and weak or corrupt institutions. To avoid the latter, the Government of Mozambique made a commitment to increase transparency and accountability in the management of extractive industries. On May 15, 2009, Mozambique became an Extractive Industries Transparency Initiative (EITI) Candidate Country. The country is undergoing EITI validation, which assesses compliance with EITI principles and standards. As of 2011, Mozambique has largely passed the first stage of reforms by establishing a sound legal and regulatory regime and generating modern, high-quality geodata. The second-generation reforms that Mozambique is facing can produce the highest results in terms of revenues to the country by ensuring that exploration turns into mines, that mines produce in accordance with the plans, and that mines pay their dues in accordance with the laws and regulations. Technical assistance for the extractive industries and specific support for a ―master plan‖ for the gas sector are also planned under the CPS. a Tcf = trillion cubic feet. 17 Mozambique, Country Report No. 11/149, (IMF, June 2011). 14 27. The Government is also looking to improve the impact of mega-projects on employment and revenues, as well as greater linkages with local enterprises. More generally, the Government is keen to improve land use, strengthen mining law and regulations, manage offshore gas development, revise the Public-Private Partnership Law, and improve public financial management to deliver effective services that facilitate growth. In this regard, the Government is looking at spatial development planning to improve efforts to set the proper enabling conditions for private sector investment and public-private- community partnerships in developing or underdeveloped regions or ―corridors‖ that demonstrate potential for growth. While limited capacity to undertake such level of development will continue to be a concern, the potential for better planned, integrated, and managed development that spurs inclusive growth shows considerable promise. Box 3 discusses the potential for development of Mozambique’s extractive industry. Investment Climate 28. Despite efforts to improve the investment climate, Mozambique still ranks low on international indicators of economic competitiveness and business environment. In the 2012 Doing Business Index, for example, Mozambique ranked 139 out of 183 countries. This is despite recent reforms related to business licensing and registration for smaller business.18 New business owners in Mozambique still have to go through an extensive bureaucratic process to formally register their business. It also remains particularly costly and/or burdensome to deal with construction permits, employ workers, register property, trade across borders, and enforce contracts. Similarly, in the World Economic Forum’s Global Competitiveness Report 2010-2011, Mozambique ranked 131 out of 139 countries in terms of economic competitiveness.19 Poor access to finance, the perceived prevalence of corruption, inefficient government bureaucracy, inadequate infrastructure, and the education level of the workforce were regarded as particularly challenging. The World Bank Investment Climate Assessment released in 2009 also found that the top private sector constraints in Mozambique were shown to be access to finance, practices of the informal sector, inadequate electricity supply; high tax rates; and crime, theft, and disorder.20 The shortage of technical skills is a particular constraint to local economic development, and other concerns may be even more acute in the provinces outside the capital. Despite some modest reforms in the trade area, Mozambique’s ranking in the 2010 Global Logistics Performance Index is 136 out of 155 countries surveyed.21 This contrasts sharply with South Africa, which is ranked 28 in the same survey. Trade facilitation reforms would also go a long way for Mozambique to play its natural role as the gateway for trade for the Southern Africa region. 29. The weak business environment has a particularly negative impact on small and medium-size enterprises (SMEs). About 90 percent of all private businesses in Mozambique are small to medium-size enterprises. Over-regulation, administrative procedures, and rigid labor laws discourage most of these firms from formal registration, putting them in a very tenuous position. Most employ less than 10 18 Ease of Doing Business (World Bank, 2010). www.doingbusiness.org/rankings . 19 Economic Competitiveness Index (World Economic Forum, 2011). www.weforum.org/issues/global- competitiveness . 20 Mozambique Investment Climate Assessment (World Bank, 2009). http://siteresources.worldbank.org/INTMOZAMBIQUE/Resources/ICAMoz.pdf . 21 Overall Logistics Performance Index rank (World Bank, 2010). http://info.worldbank.org/etools/tradesurvey/mode1a.asp?countryID=98 . 15 employees, sell mostly to the local market, operate with very low profit margins, face severe resource constraints, offer few opportunities for savings and investment to escape poverty, and contribute modestly to exports and economic growth. Supporting small and medium-size enterprises would necessarily have to focus on improving access to finance, which is often the principal constraint most often cited by entrepreneurs. Factors accounting for lack of progress in increasing financial access include economy- wide structural impediments to financial intermediation that limit the number of creditworthy clients and/or increase the costs and risks of offering financial services. There is also a lack of competition in the banking sector, high overhead costs and interest spreads, and high and nontransparent bank commissions and fees. Other factors are the informal nature of the private sector and limited management, financial, and technical skills at smaller firms. Small and medium-size enterprises also suffer from lack of business advisory services. The local business services market is characterized by large firms supplying high- quality and expensive accounting, auditing, information technology, and legal services to large enterprises, with limited affordable services available to small and medium-size enterprises. Catalytic interventions can help stimulate the demand and supply of business advisory services. Addressing the skills deficit in the workforce requires investments in technical and vocational training so that graduates have marketable skills. Small and medium-size enterprises would also benefit by greater linkages with mega-projects and more streamlined registration procedures that would help businesses graduate from the informal to the formal sector. Diversifying Sources of Growth 30. Agriculture is arguably the most critical sector relative to a more inclusive growth strategy in Mozambique. It is the country’s second largest sector in the economy, contributing 24 percent of GDP and employing 78 percent of the workforce. While annual growth in the agricultural sector has averaged about 7 percent since 2003 and has been an important contributor to overall economic growth, it has mainly been driven by the expansion in labor and land that followed post-conflict resettlement of refugees in rural areas. Although new investments have taken place in specific subsectors, largely in response to existing domestic and export market opportunities, the sector remains relatively unproductive and consists largely of subsistence farming in which 85 percent of rural households are engaged. The average size of cultivated land per household is less than 1.5 hectares.22 And their traditional inputs — using outdated seeds, plants, tools, and techniques — result in low yields relative to neighboring countries with similar agro-ecological potential. Low adoption rates of productivity-enhancing agricultural technologies, coupled with an inadequate provision of agricultural services; limited access to rural finance; and a land law inefficiently enforced are major constraints to transforming subsistence smallholders into market-led agricultural entrepreneurs. And despite recent investments in roads, the density of the road network is the lowest in southern Africa, and linking investments in rural roads to agricultural production areas still remains a challenge. Other key infrastructure such as power, telecommunications, and irrigation are also underdeveloped. Total irrigated area is only about three percent of its potential. Moreover, the rural population suffers from high rates of malnutrition, HIV/AIDS, and malaria, which reduce productivity. Smallholders, particularly in the Zambezi Valley, are also highly vulnerable to extreme climactic 22 Agriculture Census (Instituto Nacional de Estatística, 2011) 16 conditions that alternate between frequent droughts and floods. The increase in rural poverty reported in the 2008-09 household survey23 is largely attributable to such weather events. 31. More women (83 percent) participate in the active labor force than men (72 percent).24 Eight- nine percent of women are occupied in the agriculture sector while only 5.5 percent work in commerce and 3.3 percent in the service sector.25 Men’s occupational pattern varies more with 68 percent in the agricultural sector, 10 percent in commerce, 8 percent in services and 6 percent in government. Women are staying in the agricultural, informal sector, and low-paid occupations while men are moving to pursue higher earnings in other sectors. Improving the productivity of women in agriculture would boost economic growth and reduce poverty. However, a country study finds that women are less likely than men to grow tradable crops because they concentrate on basic foods to feed their family; yet the study also finds that women with education do move into commercial agriculture.26 This accentuates the multiple advantages of enhancing the level of education among women in rural areas. Furthermore, women in rural communities experience lower technology adoption rates than men.27 This gender gap does not only have important implications for equity, social cohesion, and individual welfare, it also creates important economic inefficiencies. The latest poverty and gender assessment concludes that strategies are needed to specifically help women diversify crops and raise output to a commercial scale without risking household food security, for example through extension services targeting women. 32. The constraints faced by smallholders also deter agribusiness investment to a large extent. Agribusiness successes over the past 20 years remain limited. The product mix has barely changed since colonial times; technological change has been slight; and few investments in agribusiness have taken place with the exceptions of sugar plantations and cashew, maize, and tobacco processing. Growth in agribusinesses is also constrained by procedures for accessing suitable land and water rights, high cost of expanding infrastructure, inadequate logistics and complex bureaucratic procedures for effective supply- chain management, and minimum wage for labor that often exceeds labor productivity. These constraints could be overcome through a series of reforms, prioritized investment programs, and public-private partnerships in creating the necessary support institutions and access to financial resources. In addition, Mozambique offers agribusiness investors with tremendous natural assets: extensive undeveloped and fertile farmland, abundance of water for irrigation, and diverse agro-ecological environments suitable for growing a variety of products.28 33. Beyond agriculture, the Government has identified the fisheries sector as an important contributor to growth and poverty alleviation. The sector contributes to food security, balance of payment, public revenues, employment, and gender equity. Fisheries are the foundation of economic growth in many rural and urban areas and often the resource of last resort for poor, marginalized, and isolated communities. About 850,000 households get income from fisheries, and fishing is the primary 23 Inquérito sobre Orçamento Familiar 2008/09 (Instituto Nacional de Estatística, 2010). 24 Employment to Population Ratio, Male, Female (Trading Economics, 2011). http://www.tradingeconomics.com/mozambique/indicators. 25 Gender Polices and Feminization of Poverty in Mozambique (Tvedten, Inge & M. Paulo, G. Montserrat, 2008). 26 Trade Reform and Gender in Mozambique (Arndt & Tarp, 2006). 27 Beating the Odds: Sustaining Inclusion in a Growing Economy. A Mozambique Poverty, Gender and Social Assessment (World Bank, 2007). 28 Country Economic Memorandum, Reshaping Growth and Creating Jobs through Trade and Regional Integration (World Bank, July 2011). 17 source of income for about 330,000 people. The number of artisanal fishers involved in marine fisheries doubled from 2002 to 2007. Women make up almost half the labor force, mostly engaged in post-harvest processing and marketing and shellfish cleaning. Nevertheless, the sector’s economic performance has fallen below its former position as a leading contributor to the national economy and foreign exchange. Weak terms of trade and economic inefficiencies have undermined this contribution: up to three-quarters of the economic rent escaped from Mozambique through transfer pricing (estimated at US$16 million per year for a US$20 million per year rent). At the same time, rent could have been almost doubled (US$35 million per year) under appropriate management of the exploitation. In addition, better domiciling of the activities, including upstream and downstream value chain, could improve the sector’s direct and indirect contribution to the GDP. Reforms can reverse the observed downward trend, and new sector policy instruments should be designed to improve integration of the activities in the national economy. New principles and practices of allocation of fishing rights, an improved taxation regime, and spatial planning would also support the distribution of benefits among the economic agents and the regions. 34. Given Mozambique’s varied and relatively pristine environment and mild year-round climate, together with its rich cultural heritage and proximity to South Africa, the tourism sector is often seen as an excellent prospect for development. However, the sector has not performed to its potential, and investments have been slow to mature. Only 18 percent of approved tourism investments between 2005 and 2007 have actually materialized. As shown by experience elsewhere, tourism growth depends on two major factors: the overall investment climate and the quality and accessibility of the tourism product. In Mozambique, tourism is hobbled by complex land acquisition process; inadequate transport infrastructure, particularly air transport to coastal areas; and high cost of sourcing consumer goods from South Africa. The Government of Mozambique nonetheless has set a target of attracting 4 million tourists over the next few years, compared to about 1 million in 2006. Arrivals are projected to increase at 7.8 percent annually over the next few years, reaching 30.5 million by 2020. Tourism is already the third largest investment sector in the country. Conservation areas and targeted coastal districts have particularly high prospects because nature-based and sustainable coastal tourism are expected to be the largest growth area in the coming decades: 60 percent of South Africa’s 6 million tourists, for example, now visit protected areas each year, producing revenues of US$2.5 billion. Tourism’s linkages to transport, agriculture, food and beverage, retail, financial services, and construction sectors offer compelling job creation and economic growth opportunities. Infrastructure 35. There has been substantial improvement in the provision of public goods that could facilitate sustained and inclusive growth. This is particularly the case in transport infrastructure, electricity, urban and rural water, and telecommunications. Mozambique’s infrastructure is beginning to approach the level of its neighbors; entrepreneurs are less worried about energy provision, for example, than they were in 2003.29 Overall improvements however mask significant urban-rural disparities; and compared to middle- income economies such as South Africa, inadequate infrastructure in Mozambique continues to represent a significant obstacle to improved living standards and economic productivity. 29 Investment Climate Assessment (World Bank, 2009). 18 Box 4. Regional Integration and the Potential of Mozambican Infrastructure The two leading Regional Integration Arrangements (RIA) in Southern Africa – the Common Market for Eastern and Southern Africa (COMESA) and the Southern African Economic Community (SADC) – are making good progress toward an envisioned African Common Market. The recently-established Customs Union is expected to be fully operational in 2012 and many member countries are already part of a free trade area (FTA). These moves should enhance the economic potential of a region whose combined population of 160.5 million is about 17 percent of Africa’s total. The combined GDP is 42 percent and landmass is 22 percent of the continent’s total. Progress on trade and regional integration has nevertheless been slower than desired due to several factors: overlapping regional arrangements and membership, political turmoil in some countries, political sensitivities between countries, weak productive capacity, low value addition in the production chain, and unsupportive business environment. Inadequate infrastructure is another major challenge. Poor transportation network and infrastructure, insufficient energy supply, and underdeveloped ICT all contribute to the region’s poor trade performance. Mozambique can play an important role in ameliorating infrastructure bottlenecks. The country enjoys a privileged and strategic location as the natural exit to most of its landlocked neighbors, in particular Zimbabwe, Zambia, and Malawi. The transport infrastructure of central Mozambique extends east to west, from the Port of Beira to Zimbabwe, and marginally to Malawi and Zambia. The southern transport network links the Port of Maputo to the northeastern part of South Africa, Swaziland, and Zimbabwe. These two ―transport clusters‖ are multimodal, mostly functional, connecting mining and agricultural clusters inside Mozambique and in neighboring countries to exit ports. The quality of roads along these corridors is relatively good and the railway system is mostly functional, albeit in needs for significant upgrade and rehabilitation. The regional importance of Mozambique also extends to the power and ICT sectors. The country, already a net exporter of electricity, still has untapped hydropower potential mainly in the Zambezi watershed. Plans to expand the generation and transmission infrastructure, which involve Bank participation, is underway which will enhance the country’s role as a key player in the regional power market, catering to the demand for clean energy in South Africa and other neighboring countries. In ICT, domestic fiber-optic backbone extends to all provincial capitals in the country and the commissioning of two fiber-optic submarine cables (the first of which was completed in 2009) will add significantly to Mozambique’s international Internet capacity. The parallel fiber-optic infrastructure not only provides redundancy in access to an international gateway, but implicitly creates competitive conditions between landing points. Despite the potential that exists, Mozambique and its neighbors are far from having an efficient, seamless and cost-effective trans-boundary network of infrastructure that could significantly facilitate regional economic integration. The road network needs to be improved and extended, and it must connect the east-west transport corridors to one another. Rehabilitation, upgrade, and maintenance of railways are needed to meet growing demand from increased cross-border trade and domestic coal production. Mozambique also needs to improve the financial sustainability of the power sector and take advantage of the opportunities that power trade offers to the country. The potential for ICT is hampered by the need to further develop the Internet market. All these issues require large and sustained investments over decades, with the needed participation of the private sector and nontraditional financiers. Weak institutional capacity similarly poses a sizeable challenge. Source: Mozambique’s Infrastructure: A Continental Perspective (World Bank, 2011) 36. Of Mozambique’s network of 37,000 kilometers of roads, only about 6,000 kilometers are paved. Road density per land area is low at 46 meters per square kilometer due to the large size of the country, but quite average relative to the population at 423 meters per 1,000 people. Estimates suggest that the network could provide potential access (measured as those living within 2 kilometers of any road) to around 41 percent of the rural population. However, because of the poor condition of the network, the share of the rural population with reliable, all-year access is much smaller (the Government’s Performance Assessment Framework puts it at 11 percent). Poor road condition contributes to high vehicle operating costs, high transport costs, and low traffic volumes, posing major constraints to agricultural areas. Moreover, much of the transport infrastructure was designed to serve the colonial economy, providing access to seaports for landlocked countries in southern Africa. This has had serious implications, particularly for the agriculturally productive areas of the north and center, which historically have been poorly integrated into the national markets. Through the Government’s Roads and Bridges Management and Maintenance Program, there has been much progress in expanding links to agricultural areas; securing access to ports; upgrading corridors to neighboring countries to encourage industrial 19 development; and improving the main north-south road to stimulate internal commerce and provide access to markets, district capitals, employment opportunities, and educational and health facilities. 37. Over the past decade, the Government has invested substantially to accelerate access to and improve quality of modern energy services. Mozambique is endowed with huge energy resources. The Cahora Bassa dam is one of the largest hydropower installations in Africa, generating 2,075 Megawatts (or 85 percent of the country’s current energy production capacity), with much of this power exported regionally. The country’s potential hydropower generation is estimated at 13,000 Megawatts, with the capacity to produce 65,000 Gigawatt-hours per year of energy. This untapped resource has attracted significant foreign private sector interest in investing in several power mega-projects that could make Mozambique one of the largest power producers in the African continent. Despite this potential, Mozambique has — even with significant gains in recent years — one of the lowest electrification rates in southern Africa, with approximately 15 percent of households having access to electricity, half of them living in Maputo and its surrounding areas and most of the remainder in the provincial capitals and municipal district seats. Most of these urban and peri-urban centers are connected to the main national electrical grid. 38. Access to grid-based electrification in the rural areas is extremely low at two percent. Due to low demographic densities and geographically dispersed loads, access will remain very low for the foreseeable future. Increasing household access to grid-based electricity is a major focus of the Government but requires significant concessional financing. In addition, the majority of Mozambicans rely on biomass such as wood, charcoal, dung from animals or agricultural waste as their principal energy sources, all of which have a number of detrimental effects on people’s health and the environment. Off- grid electrification schemes (such as solar photovoltaic systems) have and can continue to increase access to modern energy services. But substantial and sustained investments are required, anchored by a long- term national electrification strategy and a medium-term spatial, least-cost rollout of grid-based and complementary off-grid programs. 39. While teledensity has shot up in recent decades, access to broadband is still limited, and is particularly expensive outside of Maputo. With the introduction of a second mobile operator in 2002, tele-density shot up from 0.8 percent in 2000 to 8 percent in 2006 to 22 percent by 2009 and close to 30 percent in 2011. Access to Internet and broadband is still expensive, especially outside of Maputo. The lack of competitively priced backbone access constitutes one of the most severe barriers for operators to expand. A deficient telecommunication infrastructure is a barrier for accessing information, for doing business, in particular outside of Maputo, and to achieve effective decentralization. 40. Low-level access and poor service delivery characterize water supply and sanitation in Mozambique. Only 43 percent of the population has access to safe water and 19 percent to adequate sanitation. The rural-urban disparities are acute; while 70 percent of urban residents have access to safe water supply and 47 percent to adequate sanitation, the corresponding numbers for rural inhabitants are 30 percent and 6 percent, respectively. Poor and uneven access to safe drinking water and adequate sanitation is responsible for regular outbreaks of cholera and diarrhea, a major cause of child illness and death. While urban areas are better served, Mozambique is experiencing a trend seen in Sub-Saharan Africa as a whole. Service provision has not kept pace with rapid urbanization and, as such, the share of the urban population with access to water and sanitation actually declined during the 1990-2006 period. 20 41. This decline is particularly notable in the Greater Maputo area where safe water supply ranks low among major urban areas. On average, water is supplied for about 9 hours per day (compared to 14 hours in 2005) with some areas limited to about 5 hours. The long-term supply of water to the Maputo area is of major concern given the city’s contribution to overall economic growth. It is estimated that by 2012, the present source of water (the Umbeluzi River) will be fully utilized and will still be able to serve about 73 percent of the population. In the meantime, the estimated demand for water in the Greater Maputo area is expected to grow from about 206,000 cubic meters per day in 2012 to about 560,000 cubic meters per day in 2035. The rapidly increasing numbers of peri-urban residents (around 200,000 people per year) without access to adequate sanitation facilities and fecal sludge management services is of particular concern from a public health perspective. Climate Change and Natural Disaster 42. Mozambique ranks third among African countries most exposed to risks from extreme weather events in the form of floods, cyclones, and droughts.30 Drought is the most frequent disaster, occurring primarily in the southern and central regions with a frequency of 7 in 10 and 4 in 10 years, respectively. There are areas in these regions classified as semi-arid and arid (Gaza, Inhambane, and Maputo) where rain, even when above average, is inadequate and results in critical water shortages and limited agriculture productivity. An estimated 35 percent of the population is now thought to be chronically food insecure. Economic impacts of drought seem to be most significant in Zambezi Province, where production losses could range between US$12 million to US$170 million in maize alone. Floods in Mozambique occur most frequently in the southern and central regions, along river basins in low-lying regions, and in areas with poor drainage systems. They are linked not only to heavy rainfall but also to water drainage from rivers in upstream neighboring countries. Water from nine major river systems from vast areas of southeastern Africa finds its way to the Indian Ocean across Mozambque. The flood in 2000 killed about 800 people and displaced 540,000. Most recently, in January of 2012, Tropical Storm Funso, while never making landfall, directly affected 65,000 people whose homes were inundated and suffered severe damage. 43. From January to March, Mozambique is subject annually to 3 or 4 cyclones, which travel up the Mozambique Channel. More than 60 percent of the population of 22 million live in coastal areas and is therefore highly vulnerable to seawater inundation, as are coastal agriculture and the fisheries sector. Such inundation threatens coastal infrastructure such as roads and housing. In some areas of Beira, 30 to 40 meters of beach have been eroded in the past 15 to 20 years. Storm surges pose a huge threat to coastal infrastructure as they can temporarily raise sea levels by as much as five meters. While many of the major coastal cities of Mozambique have infrastructure in place to stem the effects of such extreme events, many are in need of serious maintenance. In regional projections, climate change is expected to increase the frequency and magnitude of weather events. As a result, droughts, floods, and cyclones are likely to pose a large threat to the country’s economic growth. Social Protection 44. Along with natural disasters and the projected impact of climate change, exogenous shocks stemming from global economic events expose the extreme vulnerability of the majority of the 30 Mozambique: Economics of Adaptation to Climate Change (World Bank, 2010). 21 population falling near or below the national poverty line. According to a 2007 FAO assessment, 20 of the 128 districts in the country are ―highly prone to drought‖, 30 to flooding, and 7 to both. The poorer households tend to spend a higher share of their budget on food and have fewer assets (wealth). Floods and cyclones have the strongest impact on household expenditures, reducing them by about 32 percent. Droughts are estimated to have an impact of approximately 17 percent. However, the impact on households’ expenditure from idiosyncratic shocks is even higher. It is estimated that the death of a breadwinner may cause a reduction in household’s expenditure by mover 50 percent, while illness would reduce it in about 25 percent. Only a minor proportion of workers, usually the less poor (formal workers and public servants) have access to any kind of insurance or any other social benefit. An equally low proportion of households has access to financial and credit markets. Social assistance interventions comprise few and in some cases fragmented social transfers as well as other welfare programs with limited coverage and unclear targeting methods or eligibility criteria. Consequently, households usually have to rely on informal coping mechanisms to address seasonal as well as unpredictable shocks, such as reducing food consumption or selling assets. These strategies not only represent a further barrier for poor households to overcome poverty and vulnerability but may inflict irreversible damage to human capital formation (especially as a result of chronic malnutrition among infants, which is likely to affect learning capacity as children and productivity as adults). 45. Since 2007, the Government has been taking measures to establish basic social protection. The Social Protection Law (Law 4/2007) was issued in 2007, and the Government approved the Basic Social Protection strategy in 2010. The Government has also made progress in defining clear institutional responsibilities regarding social protection and social safety net strategy and programs. In this framework and under the overall coordination of the Ministry of Women and Social Action (MMAS), the Productive Social Action, a multi-sector strategy, will promote the socio-economic inclusion of vulnerable and food- insecure population with the opportunities to work. At the core of the strategy is an intervention to provide seasonal (temporary) but predictable sources of income to households affected by regular and unexpected shocks mainly by participating in public works and complemented by other income- generation initiatives. The labor-intensive public works program will complement the current cash transfer intervention (with targeted public service announcement to the elderly, chronically ill, and disable) to provide a temporary source of income to those able to work during periods of food insecurity, thus reaching all vulnerable households. A strategic combination of public works programs and cash transfers may be adequate to gradually link vulnerable groups both to productive and income-generating activities and to social services for human capital accumulation and thus contribute to economic growth and poverty reduction. To ensure that the programs reach the poorest and most vulnerable, an accurate targeting mechanism to select beneficiaries should be developed and tested. Service Delivery 46. Rising demand for social services is not being met with a commensurate increase in supply. Mozambique has made good progress toward achieving the Millennium Development Goals. However, the progress could have been even greater if the supply to essential services could have kept up with the increasing demand. For example, net enrollment in primary education more than doubled from 45 to 95 percent between 1998 and 2010. This massive increase has put enormous pressure on the system. Recent data suggest quality is deteriorating and there is an acute shortage of spaces in secondary schools. In health, the percentage of the population with access to a health unit within 45 minutes’ travel by foot rose 22 from 55 to 65 percent between 2002-3 and 2008-9. The increase in the numbers of schools and clinics is constrained by the ability of government to train and hire all the teachers and health workers that are required and provide adequate financing for school materials and drugs. 47. Inequities in access to basic social services persist. While access to social services has increased, it has often been inequitable in terms of gender, income, or geography. Provincial disparities also exist, where the northern and central provinces have lower access to health services, education, water, sanitation, and social protection. These provincial disparities are reinforced by lower per capita budget allocations. The proportion of school age population enrolled in secondary education varies from only 2 percent in Niassa to 12 percent in Maputo. Poorer families are also less likely to access services. For example, antenatal care coverage varies between 58 percent and almost 100 percent in the lowest and highest quintiles. Governance and Public Sector Management 48. Another challenge for Mozambican society is weak governance structures, including institutions and the rule of law. The Worldwide Governance Indicators for 2009 indicate improvements since 2004 across 5 indicators, most prominently for political stability but also those measuring government effectiveness, regulatory quality, rule of law, and control of corruption. 31 However, on voice and accountability, Mozambique’s percentile showed a modest slippage. Compared to country groupings, Mozambique’s percentile ranking exceeds those of Sub-Saharan Africa and other low-income countries across all 6 indicators. Nevertheless, there is plenty of room for improvement. With the exception of political stability, all other indicators for Mozambique in the 2009 assessment fall below the 50th percentile. Despite adoption of the National Anti-Corruption Strategy in 2006, perceived corruption has increased. Transparency International (TI) Perception Index (scale of 10 to 0, ―very clean‖ to ―highly corrupt‖) for Mozambique has been static at 2.8 from 2004 and 2007; slipped to 2.7 in 2008; down to 2.5 in 2009; the back to 2.7 in 2010, a score that did not change in 2011.32 And while there has been stepped up efforts by the donor community to engage civil society organizations (CSOs) and to give voice and increase participation, tangible results beyond the demonstration effects of donor projects have been slow to materialize. 49. Civil society engagement in governance is recent in Mozambique. Accountability mechanisms are generally thought to be weak.33 Voice and accountability are rather unfamiliar concepts in Mozambique, and citizens know very little about rights and responsibilities.34 There is still a culture of deference towards authorities, especially in rural areas, which restricts citizens’ active engagement. There is general agreement that non-governmental organizations (NGOs) and CSOs are typically characterized as weak in capacity and organization. In addition, the existing legislation makes it cumbersome, complex, and expensive to register an organization. For instance, a minimum of ten people is required to start the registration process, and all signatories have to submit proof of no criminal record, which is 31 Worldwide Governance Indicators (World Bank, 2009). http://info.worldbank.org/governance/wgi/index.asp. 32 Perception Index (Transparency International, 2010). www.transparency.org/policy_research/surveys_indices/cpi. 33 See for example the CIVICUS Civil Society Index, Freedom House Index, APRM Country Review Report (2009). 34 Literature Review and Mapping: Citizen Engagement in Health and Education(Nina Bowen and Fernanda Farinha, DFID, September 2011) 23 extremely difficult to obtain. Overall, CSOs are excluded from real decision-making processes and their influence on development policies remains weak. 50. Mozambique has come a long way from its dire state of public financial management at the end of the civil war. Three successive Public Expenditure and Financial Accountability (PEFA) assessments help trace the course of the remarkable improvements resulting from a strong emphasis on the introduction of a new legal framework, coupled with the implementation of an integrated financial management information system (e-Sistafe). The proportion of indicators scored B or above has gone from 39 percent in 2004, to 54 percent in 2006 and 61 percent in 2009. This puts Mozambique in the top league of PFM performers in Africa. However, this relatively ineffective spending despite good PEFA scores is an apparent paradox. PEFA data shows that although Mozambique does well on formal, centralized processes, such as following a structured budget process, maintaining aggregate fiscal discipline, or producing financial statements on time, significant challenges remain in utilizing the new rules and systems toward improving day-to-day practices at sector level. For instance, manually operated processes coexist with electronic technology, in particular for expenditure commitment. Similarly, although automated financial reporting capabilities and internal oversight entities exist throughout government, there is little evidence that they are properly utilized to monitor spending for compliance, economy, efficiency, and effectiveness. These findings about the gap between the theoretical blueprint of PFM reform at play, partial implementation of reforms, and the reality of daily practices are especially acute when it comes to spending in sectors, provinces, and districts as opposed to central finance agencies. 51. While progress was made in improving Mozambique's public procurement system, challenges remain for enhancing its efficiency and transparency and strengthening the capacity of public officials to implement the procurement legislation. The Government has demonstrated strong commitment to improve the country's procurement system with its the adoption of the 2005 procurement legislation and the creation of a new central procurement institution (UFSA) in 2006-2007, and a unit for execution and management of acquisition (UGEA). These reforms were supported by a capacity-building exercise program, and technicians were trained at the central, provincial, district, and local municipality levels. Nonetheless, the 2008 Country Procurement Assessment Review (CPAR) identified areas for improvement in the legal framework, capacity, and transparency. By publishing a revised Procurement Decree in 2010 and by reinforcing UFSA and installing 821 UGEAs, the Government has contributed significantly to the legal framework and institutional architecture; but little has been achieved on the operation of the system and less on integrity. Although the capacity of public officials improved over the years, limited detailed knowledge of the procurement legislation, meager financial resources, and resistance to change required with adoption of new procurement practices undermines their ability to fulfill their mandate. 52. Public sector reform shows limited results. The Government of Mozambique adopted the Global Strategy for the Public Sector Reform (2001-2011) aimed at enabling the public sector to promote socio- economic development and reduce poverty. It is in the process of developing the next strategy. Significant progress had been made with the creation of an integrated database allowing strategic management of human resources and establishment of an electronic payment management system (e-FOLHA) to improve payroll management. The implementation of a new wage policy in 2009 and the approbation of a national policy for HIV/AIDS and disabilities in the work place also show positive trends. Progress however 24 remains limited in other areas. There is a lack of clear reform priorities and little attention is paid to sequencing reform. The absence of a communication strategy supporting the implementation of the reform and the lack of clarity of roles and responsibilities of central and decentralized government structures also undermines the implementation of the Public Sector Reform. Inter-governmental coordination remains a significant challenge in Mozambique. 53. Decentralization is an explicit strategy of the Government to achieve many of the objectives of its PARP for 2011-14. The broad aim is to bring the management of public services closer to the people and to allow districts to act as ―polos de desenvolvimento‖ (poles of development). A self- standing decentralization policy does not yet exist but the Law on Local Organs of the State (LOLE) in 2003 and its regulation in 2005, have provided the legal framework for decentralization. They provide the basis for the structure of local governments, deconcentration of functions to the districts, legal requirements regarding preparation of local level development plans, and establishment of mechanisms for flow of funds to the local level. Progress, however, has been tempered by shortcomings to implementation, including the level of resource transfers, strengthening financial management, accountability, and service delivery. On the municipal side, the creation of new municipalities together with the transfers of responsibilities is creating additional demands on service delivery. But small budgets and weak institutions have made it difficult for municipalities to comply with their mandates. To accelerate the process of decentralization, and specifically to make policy objectives more specific and operational, the Government is preparing a long-awaited Decentralization Strategy to be approved by the Council of Ministers. In the meantime, as the 2011 by-elections showed, the simple fact that there are municipalities with a political life of their own, and that local elections can take an unexpected turn, means that the decentralization process, limited though it may be, is contributing to political evolution and change. E. Government Priorities and Medium-Term Strategy 54. Against the backdrop of continued strong growth and a deceleration of poverty reduction, the Government seeks to reorient its new poverty reduction strategy to make economic growth more inclusive and broad-based. The Government’s third poverty reduction strategy (PARP) is the operational plan for the Government’s Five-Year Program and sets out a broad and ambitious agenda of reforms. In preparing the strategy, the Government held broad-based consultations with major stakeholders and civil society. While reflecting some continuity from the past PARP, it acknowledges the challenges of sustained and inclusive poverty reduction; the urban–rural disparities in human development and service delivery; uneven development across regions; and the precarious situation of women, children, the elderly, and other vulnerable groups. Its principal theme reflects the intensified policy dialogue among the World Bank, other development partners, and the Government: combating poverty requires transforming the structure of production and economic productivity and their linkages, the centrality of rural development in undertaking such transformation, and strengthening the domestic market while facilitating its integration into the national economy. The PARP seeks to return to its impressive record of poverty reduction and establishes a target of cutting poverty incidence from the 55 percent reported in the 2008-09 household survey to 42 percent in 2014.35 35 Inquérito sobre Orçamento Familiar 2008/09 (Instituto Nacional de Estatística, 2010). 25 55. The strategic orientation of the PARP is clustered around three pillars that contribute to the overall objective of inclusive economic growth and poverty reduction. These are (a) increased agricultural and fishery production and productivity, (b) job creation, and (c) human and social development. The three main PARP pillars are complemented by two supporting themes (or cross-cutting pillars) on fostering good governance and preserving macroeconomic stability. The PARP includes a strategic matrix of key indicators that are the basis for monitoring progress. It is the intention that these indicators will be monitored through existing national systems that comprise the annual economic and social plan (PES), the annual monitoring of the PES (Balanço do PES), and the annual budget and budget execution reports. A subset of the indicators will be used to jointly assess progress on General Budget Support through the Performance Assessment Framework (PAF). 56. The Government designed the PARP as a dynamic and flexible document. In contrast to the previous two PRSPs, the PARP allows the Government to adjust priorities and targets in light of changing economic and social conditions and international developments, and in tandem with the implementation of sectoral strategies, such as the Strategic Plan for Agricultural Development (PEDSA) for 2010-19, the forthcoming Financial Sector Development Strategy, and the successor to the 2008-2012 Strategy for the Improvement of the Business Environment in Mozambique. The objectives and indicators would be updated in the PES and reflected in the PAF, in agreement with budget support donors. The Bank strongly welcomes this new dynamic nature of the document. II. WORLD BANK GROUP COUNTRY PARTNERSHIP STRATEGY 57. The new Country Partnership Strategy for FY12-15 will be implemented as Mozambique confronts a critical juncture in its development. The country is faced with the daunting and immediate task of maximizing the social and economic benefits of its natural resources; transitioning toward a more inclusive growth strategy anchored to productive agriculture; accelerating efforts to achieve MDG targets; putting in place policies, programs, and institutions to mitigate the myriad shocks that impact the country; and reversing the perception of a stalled reform process that could lead to cuts in development assistance. These constitute only part of a weighty development agenda whose implementation will be tested over the next few years by political events and on-going global economic challenges. 58. The Government has expressed a strong desire for robust support and leadership by the World Bank at this important juncture in the country’s history. The CPS for FY12-15 supports the catalytic role the Bank is taking to: develop one of the region’s largest hydroelectric generation and transmission projects in partnership with the private sector and donors; develop the burgeoning natural resources sector in a sustainable, well-managed, and transparent way based on global good practice; crowd-in financing, particularly from the private sector, to help rehabilitate or upgrade its railways, road, and other infrastructure that are key to national and regional development; leverage private sector investments in mega-projects to stimulate ancillary economic activity in growth corridors; strengthen the links between improved governance and enhanced service delivery through innovative results-based approaches; put in place a comprehensive and unprecedented social protection program to protect vulnerable populations; provide technical leadership and a convening role on donor dialogue on agriculture and climate change; and close the vast infrastructure gap. Leadership on the operational and financing side will be underpinned by a renewed commitment to analytical and advisory activity (AAA). 26 59. The CPS for FY12-15 incorporates lessons learned from the past and is strongly aligned with the country’s vision for the future. It is aligned with the priorities and embedded in the framework laid out in the Africa Regional Strategy. Gender, social accountability, and nutrition – all critical to the country’s vision of inclusive growth, will be mainstreamed throughout the portfolio (see Box 6 on gender mainstreaming). The CPS will employ an integrated approach that stresses (a) partnerships with various stakeholders; (b) stepped up demand-driven knowledge generation and advisory work; and (c) use of IDA resources as a catalyst for leveraging financing by government and traditional and non-traditional partners. These approaches will be undertaken in the context of greater selectivity; efforts to address portfolio fragmentation and quality; cross-sectoral approaches to complex development challenges; and continued efficiency gains in project preparation and implementation, greater decentralization, and results orientation. A. Lessons Learned from Previous CPS 60. The Independent Evaluation Group (IEG) undertook a Country Program Evaluation (CPE) of the World Bank’s assistance to Mozambique in 2010.36 The CPE covered the period from FY01-08 although many of the general findings could also apply to the period of the previous CPS for FY08-11. Its main findings included the following: (a) Bank support to agriculture did not have a significant impact on the productivity of small-scale farmers in rural areas; (b) progress in Bank support to the SME sector was slow owing to limited access to finance; and (c) the Bank’s program also fell short of intended results in improving the quality of social services, countering the perception of corruption, strengthening the judicial system, and stemming the spread of HIV/AIDS. It also noted that the IFC portfolio was dominated by investments in two foreign-owned, capital-intensive mega-projects (with IDA participation) that contributed to growth through increased exports and helped enhance foreign investors’ perception of the investment climate. However, the extent of their development impact has been limited due to weak linkages with the local economy and limited employment generation. 61. The IEG evaluation made several key recommendations to the World Bank. The IEG recommendations included: (a) help make credit more accessible to small and medium-size enterprises, assist to improve business procedures and regulations, and ensure a firm basis for increased agricultural productivity (helping Mozambique sustain high growth while reshaping its pattern to facilitate greater employment creation and poverty reduction); (b) focus analytical work on infrastructure strategy, agricultural productivity, education quality, and HIV/AIDS; and (c) support more efficient public expenditures with emphasis on high-quality social services. The evaluation noted that while the Bank advanced the harmonization and alignment agenda through joint efforts with other development partners to provide budget support and while this arrangement helped to structure the dialogue and improved predictability of resource transfers, it also limited the Bank’s flexibility and increased transaction costs. 62. These findings not only remain valid for the FY08-11 CPS period, they offer a degree of caution for the Bank’s work over the next four years. The broad agenda that includes supporting small and medium-size enterprises and in particular addressing bottlenecks to accessing finance and advisory services will require long-term engagement with Government to see the type of structural, policy, and institutional reforms needed to stimulate entrepreneurship and to provide incentives for small and 36 Mozambique Country Program Evaluation (World Bank, Independent Evaluation Group, IEG 2010/07, April 2010). 27 medium-size enterprises to move to the formal sector. Stimulating agricultural productivity is also a long- term proposition that will require greater Government coordination, commitment, and a clearer vision of how productivity is to be achieved. Stimulating the growth of agribusiness, for example, would require a broad set of policy and institutional reforms, including politically sensitive reforms involving land policy and administration, as well as significant institutional building of key agencies. As Mozambique undergoes such transformative processes, poverty levels remain high and a large segment of the population remains highly vulnerable to shocks. A minimum level of social protection would address vulnerability 63. The CPS Completion Report (CPSCR) reviewed CPS implementation during the FY08-11. The CPSCR rated the CPS for FY08-11 as ―moderately satisfactory‖ in terms of both the program performance and the Bank’s performance. The CPSCR found that the CPS was relevant, adequately designed, responsive to client needs, integrated with the overall development partner harmonization agenda, and that the anticipated portfolio was successfully delivered. The Bank’s performance was characterized by a well-performing portfolio (on balance) and delivery of a larger than envisioned lending program and high-quality and just-in-time knowledge products. However, there were some delays in project delivery, leading to uneven achievement of outcomes. Moreover, the results matrix and the strategy itself were not updated vis-à-vis a mid-term CPS progress report, rendering some outcomes unobservable. The last semester of the CPS period also witnessed a deterioration of the portfolio with four IDA projects in problem status. 64. The CPSCR highlights operational and portfolio issues that should be addressed in the CPS for FY12-15. First and foremost, the failure to monitor CPS outcomes and to prepare a mid-term CPS progress report to assess the need for strategic and operational changes in keeping with changing country conditions was one of the most significant shortcomings of the past four years. The proposed CPS FY12- 15 should take a pro-active approach and have an annual stocktaking exercise on CPS milestones and implement the necessary adaptations at mid-term together with a CPS progress report. The CPS monitoring should be based on a more selective results matrix with a smaller number of outcomes to avoid fragmentation of results. In addition, the results framework should carefully take into account the level of results it can realistically achieve over the CPS period, given the timeframe, risks, and resources available to support operations. It would also be worth trying to map investments per supported outcome as this may place particular attention to high-value outcomes. 65. Going forward the CPS should lay out a more focused and planned AAA program related to PRSC areas to inform the sector dialogue, as suggested by the IEG Country Program Evaluation. Together with more Public Expenditure Surveys, analytical work will then have a better chance of influencing reforms on which in turn investment operations can build. The Bank team should also take seriously the suggestion by the IEG Country Program Evaluation to assume a stronger leadership role in the budget support program, building on analytical work as a foundation. Besides other priority areas determined by budget support areas and sector engagements, the analysis should focus on analyzing why poverty rates are stagnating while Mozambique's economy sustains high levels of growth. 66. Lastly, echoing the CPE recommendations by IEG, the CPSCR notes that the heavy aid architecture entails high transaction costs on the donors’ side. While there have been significant improvements in recent years, there is scope for streamlining the donor aid architecture in Mozambique in 28 order for the donor community as well as Government to benefit from efficiency gains. This may need high-level dialogue beyond the level of Heads of Cooperation. B. CPS Consultations with Country Stakeholders 67. World Bank staff undertook consultations with civil society organizations, local and central Government officials, and development partners. The consultations took place in four cities: Maputo, Beira, Nampula, and Pemba. Approximately 300 individuals took part in the CSO consultations, representing a wide range of organizations, from private sector groups to international NGOs that undertake both advocacy and operational work. Stakeholders also included groups affiliated with political parties, academic institutions, student associations, private sector representatives, union movements, farmers associations, civic youth organizations, members of local community-based organizations, as well as national and international NGOs. The main messages included:  The World Bank should be more visible, known and understood at the local level. Civil society has little knowledge of the Bank's activities in Mozambique and in their respective communities. Task managers or members of the implementing units should use their travels to liaise more often with civil society about their specific projects. These comments are being taken on board as part of the preparation of the Bank’s communications strategy of engagement with Mozambican society, including the press, civil society, and ordinary citizens to improve awareness of the Bank’s support and development issues more generally.  There was a universal call for the Bank to work more closely with civil society, beyond consultations, and to partner with civil society operationally. Suggested areas of collaboration included service delivery at the community level, project monitoring and evaluation, governance and anti-corruption, and monitoring of project finances by implementing agencies. Whether such a partnership develops, CSOs asked that these consultations do not end with the individual workshops but rather should continue through follow-up communications. To this end, the mid- term CPS progress report would be a good opportunity to have follow-up consultations to inform participants of progress on CPS objectives.  Many participants expressed the opinion that the Bank was committed to greater transparency and openness - both in terms of itself as well as to the Government. Given the difficulties in obtaining information from Government authorities on policies and decisions that affect their lives, participants requested that the Bank play a more active role in facilitating access to information about Government policies and programs. More broadly speaking, CSOs - particularly those based in Maputo - called for the Bank to push for improved governance and anti-corruption as a means to enhance development effectiveness. 68. Among local provincial, district, and municipal authorities, discussions focused largely on local needs. Service delivery, particularly in health and education, was brought up consistently as a challenge, given devolved responsibility and inadequate budgets. Inadequate infrastructure, particularly in more rural areas, was also raised as a main concern. Discussion also revolved around possible Bank support to local industries, such as tourism, fisheries, agriculture, and manufacturing. Echoing one of the messages from CSO participants, local authorities asked that Bank teams take some time to make 29 ―courtesy visits‖ to keep appropriate authorities abreast of Bank activities and to explore possibilities for collaboration. 69. Directors of central ministries participated in a roundtable discussion about the Bank’s program of active and planned lending and analytic work. The Bank team stressed the importance of maintaining a well-performing portfolio and high disbursement ratios. While acknowledging that there were elements within country systems that require sorting out, Government participants noted that Bank procedures were also cumbersome and cause implementation delays. Government also pointed out that there was scope to improve just-in-time analytic work to inform Government decision-making and to underpin policy and institutional reforms, as well as strategies and programs. Lastly, Government acknowledged the need for greater coordination across sector ministries as the Bank adopts a more multi- sectoral approach to its program. 70. The Bank held two consultations with development partners in Maputo. One consultation was with the UN country team and included the heads of all UN agencies. The other included heads of bilateral aid agencies providing budget support (G-19 members) as well as other non-budget support donors, both traditional and emerging, including Japan and China. The consultations provided the Bank an opportunity to lay out the overall thrust of the CPS and the proposed program of lending and analytic work; to emphasis the need for stronger and broader partnerships, greater program selectivity, and multi- sectoriality; and to discuss in detail specific projects, such as the Growth Poles Development Project. Development partners expressed support for the Bank’s plan to increase its program of analytic work (a participant commented on the notable decline in Bank analytic work that used to underpin the PRSCs); welcomed the Bank’s proposed engagement in ―new‖ areas, such as climate change, social protection, as well as plans to deepen involvement in EITI and agriculture. A question on trade-offs was posed to the Bank team in reference to the flat budget environment the Bank is operating in while pursuing a fairly ambitious program covering myriad sectors. Other partners questioned whether the Bank was doing enough to ―push the envelope‖ in areas such as water, agriculture, and governance. Aid coordination and development effectiveness were also discussed, particularly in relation to the Bank’s participation in sector working groups and budget support. C. Country Partnership Strategy Objectives and Program 71. The CPS is aligned with both country and Bank strategies. The CPS FY12-15 takes as its starting point the country’s own vision of its development goals and its strategy for achieving them. The close collaboration among Government, the Bank, and development partners over the past two years has led to considerable symmetry between the PARP and the proposed CPS, not only in terms of the main theme of inclusive, pro-poor growth but also in its focus on priority policy and institutional areas that will be key to achieving the Government’s vision. The CPS is consistent with the IDA policy framework’s main themes of climate change, gender considerations, and regional integration and is also embedded within the framework of the Africa Regional Strategy. Like the Africa Regional Strategy, the CPS has three pillars. The first two are Competitiveness and Employment, and Vulnerability and Resilience. The third, Governance and Public Sector Capacity, is considered a ―foundation‖ (see Figure 4). 72. Seventeen outcomes have been defined encompassing 30 outcome indicators. The set of indicators primarily derive from the ongoing Bank programs and not from products and services in the 30 pipeline, given the need to measure tangible results in two years’ time in the CPS Progress Report. The Progress Report, in turn, will include an updated Results Matrix taking into account indicators from new projects entering the pipeline and revised targets through the end of the CPS period. An overview of the major objectives, outcomes, and programs defined for each pillar is included below. The CPS Results Framework Matrix is found in Annex 1. Figure 4. CPS Pillars and Alignment with Mozambique PARP CPS 2012-2015 PARP 2011-2014 Increased Agricultural & Fishery Pillar I. Competitiveness & Employment Production & Productivity Job Creation Pillar II. Vulnerability and Resilience Human & Social Development Macroeconomic Stability Foundation Pillar. Governance, Good Governance Public Sector Capacity (a) Pillar I. Competitiveness and Employment 73. Pillar I is expected to provide the principal support to the overarching CPS goal of broad- based, inclusive, and pro-poor growth. There are eight objectives that underpin this goal: (a) improved regulatory environment; (b) improved management of development process through spatial planning; (c) increased crop yields and overall productivity; (d) increased employment and growth in the tourism sector; (e) improved provision and management of road infrastructure; (f) improved provision of water and sanitation service; (g) improved access to electricity; (h) improved access to affordable telecommunications; and (i) better educated, skilled, and healthier workforce. Achievement of these objectives entails a mix of investments, policy, and institutional reforms; capacity building; analytic work; and the ability to convene various stakeholders, including local communities and the private sector (Table 3). The proposed program of new products and services supporting Pillar I is detailed in Table 4. 74. The on-going PRSC series has been the primary means of supporting reform. Over the next CPS period, FY12-15, the annual PRSCs will more strongly support reforms to improve the business environment, including simplifying administrative procedures and eliminating unnecessary regulations (e.g., import and export clearances); strengthening the financial sector; and maximizing the benefits from megaprojects, concessions, and public–private partnerships. Over the medium term, there is scope to support more fully the range of sectors in the PAF matrix for budget support, including addressing constraints to agricultural productivity, infrastructure provision and management, exploitable renewable and non-renewable resources, fisheries, and tourism. The Bank is currently in discussion with 31 Government and development partners over the scope of the reform agenda to be supported by the next PRSC series. Table 3. Objectives and Expected Outcomes of Pillar I: Competitiveness and Employment Objectives CPS Outcomes Reduced constraints to private and financial  Improved regulatory environment sector growth Increased productivity in agriculture and other  Increased crop yields and overall productivity potential growth sectors  Increased employment in tourism sector  Improved management of development process through spatial planning Improved provision and management of public  Improved provision and management of road infrastructure goods for growth  Improved provision of water and sanitation services  Improved access to electricity  Improved access to affordable telecommunications Satisfied workforce demands of a growing  Better educated, skilled, and healthier workforce economy 75. The Bank is working closely with IFC to provide the needed analytic and advisory support to improve the country’s business and investment climate. The Competitiveness and Private Sector Development Project (FY09) aims to enhance the overall business environment by improving the SME competitiveness through improved access to business development services, broader tourism-led growth in Inhambane, and improved horticulture skills through a new training center in Nampula. It also invests in standards and quality-related services while strengthening the accounting profession. The IFC’s Mozambique Investment Climate Project (FY12) will support and help implement key elements of the Competitiveness and Private Sector Development Project, improving the country's investment climate through regulatory simplification of business registration and licensing procedures. The Financial Sector TA Project (FY06) is part of an overall multi-donor framework to improve the soundness of the banking sector and public debt management through key policy, regulatory, and institutional reforms that aim to support the development of a financial sector capable of delivering more appropriate, affordable, and sustainable services needed by firms, both large and small and medium-size enterprises. The Bank is looking at options to continue support to the financial sector, including a Financial Sector Access project that would focus on promoting access to financial services for households and businesses while consolidating the recent achievements in terms of financial sector stability and soundness. The ongoing work on the Financial Sector Development Strategy will result in more immediate targeted advice, technical assistance, and enhanced policy dialogue for financial sector development. 76. Supporting high growth SMEs is a key focus of IFC’s strategy in Mozambique. Until 2009, IFC implemented an SME initiative that provides financing and technical assistance and aims to build the Mozambican economy's ―missing middle‖ by targeting local firms with long-term funding, hands-on partnership, and support in key business functions, including marketing, management, human resources, and information technology. This program is now being handed over to a fund manager for expansion. IFC will expand its established SME capacity building programs, Business Edge and the SME toolkit, both implemented through partnerships with Mozambican institutions. The third phase of IFC’s successful supplier linkages program with large firms, Mozlink, will transfer operational responsibility to the CPI. IFC has helped increase access to finance by supporting a bank in Mozambique through 32 subordinated debt and credit line products plus advisory service aimed at helping the bank to grow and adequately manage SMEs. Those projects assist the Bank in extending financing to the SMEs, including women entrepreneurs (Gender Finance) as well as growing its retail business in line with IFC’s strategy. IFC will replicate this approach with other banks, including supporting the establishment of new greenfield banks to spur competition in the sector, and potentially local currency lending. 77. IFC support for large-scale projects Table 4. Proposed Program for Pillar I: will help ensure their broad-based Competitiveness and Employment development impact. IFC has supported three Projects: large-scale industrial, natural resource, and  Water Resources Development (FY12) infrastructure projects to date: Mozal, the  Integrated Growth Poles Project (FY13) (multisector) Sasol gas pipeline, and the Moatize coal mine  Roads and Bridges Management and Maintenance III (FY13)  Mining and Gas TA (FY13) and related infrastructure, the latter two as  Greater Maputo Water Supply (FY14) integrated World Bank Group efforts. In the  Trans-Frontier Conservation Area II (FY14) (multisector) future, IFC will seek to support those large-  Fisheries and Coastal Livelihood (FY14) scale natural resource and infrastructure Budget Support: projects where IFC involvement can help  PRSC 8-11 (FY12-15) (multisector) ensure economic and social sustainability, and  Agricultural Productivity DPO (FY13-15) broad-based development impact. Potential Additional Financing involvement currently ranges from projects in  Technical and Vocational (FY12) cement, infrastructure, and energy, including  Early Childhood Development (FY13) the extension of the Sasol pipeline project to  Peri-Urban Water Supply (FY14) Maputo for electricity production and industrial use. Regional:  CESUL Regional Transmission (FY13) 78. The CPS FY12-15 will place  Regional Agricultural Productivity (FY14) appropriate emphasis on agriculture as a AAA: natural source of employment, livelihood,  Agriculture Strategy and Policy Notes (ESW) and inclusive growth and poverty reduction.  Gender Survey (ESW)  Growth Identification and Facilitation Note (ESW) The on-going Market-Led Smallholder  Political Economy of Investment Climate (ESW) Development in the Zambezia Project (FY06)  Infrastructure Through Spatial Lens (ESW) has provided direct outreach and technical  Financial Sector Strategy (ESW)  Reforming the Fisheries Sector (TA) support to smallholder groups and other  PPP / SOEs (TA) supply-chain participants in the area of  Consumer Protection and Financial Literacy (TA) production, marketing, applied research, and training. The project also provides resources Note: Table does not include programs under implementation for agriculture-related infrastructure; small- scale investment, including farm-level storage facilities and small-scale processing units; improved natural resource management, and strengthening district-level agricultural planning. The new PROIRRI – Sustainable Irrigation Development Project (FY11) addresses infrastructure constraints to productivity by financing sustainable irrigation schemes in central Mozambique as well as tertiary roads segments, and energy supply to those schemes. To enhance sustainability of irrigation schemes and improve access to markets by smallholder farmers, it also strengthens institutional capacity and participatory irrigation management, and improves access to finance as a way of supporting the development of value chains. 33 The PROIRRI Project will directly link with the Spatial Development TA Project (FY11) and the Growth Poles / Corridors Project (FY13) that identify the Zambezi Corridor as one of the core geographic areas for agriculture-based economic development. The regional Agriculture Productivity Project for Southern Africa (FY13) looks to strengthen and scale up regional cooperation in the generation of research, technology, training, and dissemination programs for priority commodities and induce the required transformation in the national research and extension system. To help ensure a healthy and skilled agricultural workforce, the Bank’s portfolio of health and education projects will continue to increase the numbers of rural schools and health facilities. Box 5. Mainstreaming Gender in the Bank Portfolio The Bank recently undertook an assessment of how it is addressing gender issues in Mozambique. The review involved 25 projects, including 14 on-going IDA operations, 6 pipeline projects, and 5 ESW to be delivered in the beginning of the CPS period (FY12-15). For a project to be considered as having a ―gender-responsive design‖, the project appraisal document (PAD) should demonstrate that (a) there has been a gender analysis or a gender-sensitive social assessment during project preparation, and/or relevant diagnosis and recommendations from a Country Gender Assessment (made by the Bank or partners) are adopted in the PAD, and/or consultations that address male and female beneficiaries separately informed the PAD; and (b) the results of that analysis have informed project design, as indicated by at least one of the following: (i) specific project policy or activity that seeks to promote gender equality through either gender-targeted or universal policy/project intervention; or (ii) gender-specific target or indicator in the Results Framework. The review found that 64 percent of the projects in the current portfolio have a gender-responsive design. This means that a majority of projects in the portfolio have addressed gender issues in the preparation of the project and have identified specific project policies or activities that seek to promote gender equality through either project intervention and/or gender specific indicators in the binding documents for the projects. The review cautiously estimates that 75 percent of the country’s lending portfolio will be gender mainstreamed by the end of the CPS period in FY15. This estimate excludes all IDA projects, which are planned to end before FY15, and potential future projects not included in this review. The country program could benefit by showing how Bank assistance addresses gender issues. Only 50 percent of the ongoing and pipeline projects in the portfolio have a gender-informed results framework (in the ongoing project portfolio alone the level is 43 percent). This means that while the majority of projects in the portfolio draw on gender-related diagnostic work, and these are translated into specific project policy or actions, only half of the portfolio can generate measurable results related to gender. That said, the review finds that 70 percent of the projects in the pipeline are expected to generate gender impact and results data, which means that the project portfolio holds the potential to improve its reporting on gender targets. 79. Further support to the agriculture sector will include a programmatic Agriculture DPO (FY13-15). Based on the analytical evidence from AAA and other sector work under the previous CPS, the Agriculture DPO will address policy and institutional constraints to the implementation of the country's 2010-2019 Strategic Plan for Agricultural Development (PEDSA) and the country’s commitments to the Comprehensive Africa Agriculture Development Program (CAADP). The Agriculture DPO will align closely with the Economic Governance Project (FY13) activities in agriculture and is expected to contribute to outputs in the areas of: enhancing agriculture productivity through technology adoption, improving land access and land administration, improving access to rural finances, enhancing market access through rural roads improvements and supporting the decentralization of the agriculture administration. 80. IFC and MIGA also support increased agricultural productivity through development of sustainable commercial agriculture/agribusiness. Two MIGA guarantees were issued for a sugar plantation project involving the rehabilitation of Mozambique’s largest sugar estate, which employs 8,000 people and injects US$7 million in annual salaries and wages into the local economy, and contributes an estimated US$33 million annually to the Mozambican economy through import substitution and export earnings. MIGA also issued a guarantee for a project to develop land for rice production. IFC has 34 supported the expansion of domestic grain processing, and currently is developing a pipeline of agriculture and agribusiness projects. 81. Beyond agriculture, the Bank looks to support the tourism (particularly related to wildlife recovery and conservation) and fisheries sectors, both priorities of the Government and with untapped potential for growth. The on-going Transfrontier Conservation Areas and Tourism Development Project (FY06) has contributed to the growth of tourism in Mozambique by building the country’s capacity to manage natural tourism assets. The project has two major dimensions: (a) supporting reforms to the regulatory framework and (b) support to protected area management and sustainability. On the latter, the project has provided a model for shared growth by establishing community–private joint ventures whereby the community becomes a more prominent player in the development of tourism rather than the classic model of tourism investment. It is expected that five protected areas will have achieved minimal capacity to sustain wildlife recovery and gradually build their sustainability through tourism revenues. The follow-on project under preparation, Transfrontier Conservation Areas and Tourism Development Project II (FY14) looks to scale up the partnership with local communities, improve management capacity, and invest in infrastructure that will allow greater visitor access within the protected areas. Reductions in malaria transmission, as supported through the Health Service Delivery Project (FY09), are also likely to contribute to the growth of tourism. The IFC Tourism Anchor Investment Program is implemented in collaboration with the Ministry of Tourism and local communities, facilitating private investment in tourism and helping implement regulatory reforms aimed at improving the investment climate in the sector. The program has developed approaches to concessioning tourism development sites, including those in sensitive areas, and brought two initial projects to closure in Zambezia Province and in the Maputo Special Reserve. 82. Fisheries are the foundation of economic growth in many rural and urban areas, and often the resource of last resort for poor, marginalized, and isolated communities. The on-going Community-based Coastal Resources Management and Sustainable Livelihoods Grant (FY09) targets the reduction of pressure on over-exploited marine and coastal resources through community awareness and promotion of sustainable exploitation methods and innovative alternative activities. It is expected that the project will provide a model for mitigating impact on coastal population brought on by future access restrictions to fishery grounds due to the expansion of coastal protected areas or need to maintain the health of fish resources. In parallel the Regional South West Indian Ocean Fisheries Project (FY08) supports the improvement of knowledge of fisheries resources, capacity building in research, creation of a regional management structure, and biodiversity mainstreaming in fisheries management. To enhance the sector’s potential, the Fisheries and Coastal Livelihood Project (FY14) aims to increase in a sustainable way the overall benefits generated by the exploitation of marine and coastal fisheries resources and the proportion of those benefits captured by Mozambique, and to insure a fairer distribution of the benefits both spatially and among economic agents (households, entrepreneurs, the state). The project will focus on (a) economic governance; (b) private sector development; (c) human and institutional capacity strengthening; and (d) global public goods management and regional fisheries collaboration. 83. Reflecting the division of labor agreed to with development partners, the Bank will continue to focus on water supply and sanitation in urban areas though may respond to opportunities for support to small rural towns. The Water Sector and Institutional Support Project (WASIS) (FY08) has significantly increased water service coverage in the four major cities of Beira, Nampula, Quelimane, and 35 Pemba and helped establish an institutional and regulatory framework for smaller cities and towns. With additional financing (FY11), the project has expanded the scope to nine other provincial capital and tertiary cities. The planned Greater Maputo Water Supply Project (FY14) will provide similar investment and regulatory and institutional support to Maputo, which has seen its water supply services deteriorate, given the pressures of increased urbanization and spatial expansion. The future project is closely linked to and will follow the Water Resources Development Project (FY12), which will strengthen the management of national water resources and increase the yield from the Corumana Dam to augment water supply for the greater Maputo metropolitan area through 2020 and provide water to low-income, peri-urban areas not currently served. Institutional and investment support to Maputo in the area of solid waste management will continue through the Maputo Municipal Development Program II (FY11). Looking forward, the Bank is in discussions with AusAID on further collaboration in supporting peri-urban sanitation in Maputo and other cities, and water supply improvements in secondary urban centers. 84. The Bank will continue its support to improve the roads network to promote equitable access and broad-based growth. The CPS will encourage activities that clearly support growth sectors, such as agriculture feeder roads and roads that can link tourism sites to the markets. The Roads and Bridges Management and Maintenance Program II (FY08) along with the associated additional financing (FY11) looks to bridge the infrastructure gap in Mozambique, particularly for rural residents, through investments to repair and maintain sections of the main north-south highway. The next phase of the project, to be supported by Roads and Bridges Management and Maintenance Program III (FY13) pending agreement with authorities, will complete the program of rehabilitating the entire length of the north-south highway, along with feeder roads to agricultural areas. The next phase of the Transfrontier Conservation Area and Tourism Project (FY14) will improve road access within protected areas to bolster conservation and tourism efforts. The Maputo Municipal Development Program II (FY11) supports rehabilitation of major municipal arteries, primary and secondary roads, as well as unpaved peri-urban roads in the greater Maputo municipal area. Both programs support institutional capacity and strategic planning to encourage sustainable management of the roads infrastructure. 85. Beyond the on-going and proposed projects noted above, the Bank is in early discussions with Government to look at ways to take a catalytic role in addressing infrastructure needs, especially those with regional scope and implications. This includes a long-term strategic approach that would help Government prioritize infrastructure investments, a strategy to manage and finance the rehabilitation and operation of the railway sector, and key power transmission investments as a way to unlock the country’s vast water resources and hydropower potential. The Spatial Development Planning TA Project (FY11) promises to provide a long-term roadmap for the best use of resources for infrastructure development. The Bank looks to take on a convening role in crowding in financing from development partners and the private sector, leveraging limited IDA as well as exploring opportunities for IBRD enclave financing and partial risk guarantees. 86. The Bank will continue its support to improve access to affordable telecommunications over the course of the CPS for FY12-15. Through the Mozambique e-Government and Communications Infrastructure Project (MEGCIP) (FY09) the Bank will continue support that contributes to lower prices for international capacity and extends the geographic reach of broadband networks. Affordable access to telecommunication services and to Internet services in particular is essential for improved access to information, for doing business, and to promote effective decentralization of services to the provinces. 36 Through MEGCIP, and as the recently attributed third mobile licensee starts operations, competition and affordability are expected to improve. The new entrant plans to build an extensive backbone network that would compete with Telecomunicações de Moçambique (TDM) network. Growing demand through additional use and development of applications, coupled with an appropriate regulatory framework, will also help the viability of the networks and eventuality of lower prices. As the infrastructure becomes available, government can deliver in a decentralized manner a wide range of applications in several sectors (e.g., education, health, public administration, etc). Development of services and e-Government applications as well as the underlying regulatory and physical framework to make it possible will contribute to improved efficiency and transparency in public service delivery. 87. Improving access to and management of electricity and energy services will continue over the course of the CPS for FY12-15. The US$80 million Energy Development and Access Project (FY10) aims to reinforce the primary electricity network and extend the medium- and low-voltage grid in peri- urban areas, with a target of connecting an additional 25,000 households, as well as health facilities and schools. It also seeks to accelerate access to off-grid electricity and modern energy services in underserved rural areas through renewable energy resources and technologies, primarily through solar photovoltaic systems. Separately, the planned Regional Transmission Development Program (FY13) supports an estimated US$2.5 billion transmission expansion program co-financed commercially and by other development partners. Its main objective is to support the development of a high-voltage transmission system in Mozambique by linking the central grid that extends from Tete Province to the southern grid in Maputo Province, and ultimately connecting to the South African Power Pool (SAPP) via Kwazulu-Natal. The key objectives for the program are to increase the provision of affordable energy services and efficiency to urban, peri-urban, and rural areas in Mozambique by evacuating power southwards from new generation capacity in Tete province; support regional economic development by supplying bulk power into the SAPP system; and support regional environmental sustainability by replacing thermal power generation based on coal with renewable hydropower. IFC and MIGA, together with IDA, have continued to support the oil and gas sectors through the Sasol Pipeline, a project consisting of an 865 kilometers of gas pipeline from the central processing facility in Mozambique to South Africa. 88. Beyond expanded infrastructure and improved business environment, Mozambique’s competitiveness depends on a better-educated and appropriately skilled workforce. The Bank’s education portfolio contains significant depth and breadth, supporting efforts to better prepare the country’s workforce to contribute to sustained economic growth. The Education Sector Support Project (FY11) aims to improve access to and quality of primary and secondary education through teacher training, curriculum reform, distribution of school books, and supporting institution building to better manage the sector. The planned additional financing (FY12) will expand the scope of the project to include early childhood education while the additional financing to the Health Service Delivery Project (FY09) will include a nutrition component to address chronic malnutrition, thus enhancing learning ability and ultimate capacity of the population. The Higher Education, Science and Technology Project (FY10) seeks to increase the number and raise the quality of graduates at the undergraduate and graduate levels, and strengthen the national research capacities to produce research outputs of relevance to the country’s strategic economic sectors. The Technical and Vocational Education and Training (TVET) Project (FY06) and associated additional financing (FY12) looks to improve the quality and responsiveness of the TVET system to labor market needs by providing training that is delivered in a 37 sustainable, integrated, effective, and equitable manner. Other on-going operations also have activities that aim to enhance skills development. 89. Bank support to the health sector will also contribute to a healthier and more productive workforce. The Health Commodity Security Project (FY11) aims to improve the availability of selected and drugs and supplies including ARVs to treat HIV/AIDS and ACTs to treat malaria, both diseases which take a heavy toll on the productivity of the workforce. The Health Service Delivery Project (FY09) also finances activities to reduce the burden of malnutrition in addition to HIV/AIDS and malaria. The Health Care Financing AAA (FY13) will help provide options to improve productivity and sustainability of health services for the next ten years. 90. The Government of Mozambique realizes the potential of its many natural endowments and its considerable development potential, as well as the need for proper planning and management. With help from the Bank through the Spatial Development Planning TA Project (FY11), the Government hopes to improve its national development planning with the introduction, institutionalization, and mainstreaming of multi-sector spatial development planning methodologies and practices. The planned Growth Poles Project (FY13) will build on this approach by supporting a critical mass of reforms, productive infrastructure investments, skills development, and other value-added activities around large anchor projects, normally mineral-based, that promote trade and investment-led growth and that are located along under-developed or developing corridors with high potential to link anchor projects to the local economy through densification (e.g., provision of feeder infrastructure to support smallholder agriculture producers) and deepening (e.g., forging backward and forward linkages with local enterprises). 91. The size of recent discoveries of gas deposits presents a potential “game changer� for Mozambique’s development. The country has an historic opportunity to develop its domestic gas market in addition to export schemes and subsequently create value from its natural resources beyond revenues from export. The proposed Gas Master Plan, to be developed by the Government with support from the Bank, aims to identify policy options to maximize the monetary, social and environmental value of natural gas to Mozambique. Value will arise from domestic access to secure and affordable energy, employment generation, reduction of fuel imports, economic diversification, community benefit sharing, sustainable development through corporate social and environmental responsibility mechanisms/models – all of which will be fundamental to inclusive growth. A significant challenge for the Government will be to develop institutional capacity: in this regard, the Bank is preparing a Mining and Gas Technical Assistance Project (FY13) to address identified policy and capacity gaps. The proposed project will support reforms, initiatives, and capacity building to enhance the efficiency and accountability of institutions involved in the management and planning of the mining and hydrocarbon sectors. (b) Pillar II. Vulnerability and Resilience 92. In recent years, Mozambique has been buffeted by various shocks that have impacted the pace and level of its growth, poverty reduction, and social cohesion. As such, Pillar II is an integral part of the overall CPS goal of achieving inclusive and pro-poor growth. The deadly riots in 2008 and September 2010, sparked by rising food and fuel prices, underlined the extreme vulnerability of most Mozambicans to even the slightest rise in the cost of living — whether through a reduction in subsidies or to the Mozambican Metical depreciation against the South African Rand. The spike in the global price of 38 food in 2007 had a significant impact on household consumption, which is estimated to have decreased by more than seven percent.37 This is expected to have had a considerable impact on food insecurity for more than half of the population given the high proportion of household income consumed in food (more than 65 percent in rural areas).38 Furthermore in 2009-10, the climatic phenomena El Niño produced a drought similar to those in 2002-03 and 2004-05, which affected food production and food access.39 The seasonal and unpredictable shocks suggest the need for permanent effective measures to mitigate future shocks and to address the high degree of vulnerability among a significant portion of the country’s population. 93. The proposed program supported by Pillar II will address vulnerability in its various forms. Pillar II entails three main objectives: (a) effectively respond to macroeconomic and idiosyncratic shocks; (b) improve resilience to natural disasters and the impacts of climate change; and (c) strengthen social safety net for the most vulnerable people (Table 5). The objectives of Pillar II will be supported by on- going and new projects and analytic work, including those listed in Table 6. 94. Macroeconomic shocks include those stemming from terms of trade. Mozambique (particularly urban inhabitants) is highly dependent on imported food from South Africa. In the 12 months preceding the riots, the Metical depreciated one-third against the US dollar and two-fifths against the South African Rand, exacerbating inflation triggered by rising food and fuel prices. Mozambique has established a strong track record of maintaining a stable macroeconomic framework; and the World Bank, in close partnership with IMF, continues to monitor and advise on policy responses against this and other types of macroeconomic shocks. The PRSC series will continue to help fund the budget and maintain stability in the real economy. Past actions have helped to improve revenue mobilization and public expenditure management. More frequent country economic updates will also help ensure the Bank’s ability to participate in the dialogue on macroeconomic management. Table 5. Objectives and Expected Outcomes of Pillar II: Vulnerability and Resilience Objectives General Outcomes Effective response to idiosyncratic shocks  Improved health services for the vulnerable Mitigate the impacts of climate change and extreme  Adaptation to climate change and reduced risk of natural weather events disasters Reduce vulnerability to exogenous and endogenous  Strengthened social protection shocks 95. There are multiple idiosyncratic shocks in the Mozambican context. Food insecurity is at a very high level. Almost half of all children under-five are malnourished — a rate that has remained virtually unchanged since 2003 — and chronic under-nutrition accounts for at least one-third of child deaths. Malaria also poses a major public health problem, accounting for a large proportion of deaths among children under-five. It is also a contributing factor to at least 30 percent of maternal deaths. The incidence of tuberculosis (TB), at 431 per 100,000 is above the average incidence in Sub-Saharan Africa. Sixty-six percent of all diagnosed TB cases are co-infected with HIV, another significant health challenge. Fifteen percent of people between the ages of 15 and 49 are living with HIV/AIDS, the eighth 37 Higher Fuel and Food Prices: Impacts and Responses for Mozambique, Report No. 47455-MZ (World Bank, December 2008). 38 Inquerito Sobre Orçamento Familiar 2008/9, Quadros Básicos, (INE, 2010). 39 Mozambique Comprehensive Food Security and Vulnerability Analysis (World Food Program, September 2010). 39 highest prevalence rate in the world and almost twice the Sub-Saharan average of 7.2 percent. In 2005, there were 123,000 AIDS-related deaths, and an estimated 1.6 million orphans. 96. The CPS will help the Government address these health-related crises. The Bank is working with government and other partners to address key health system constraints. This includes policy dialogue on human resources, health financing and the supply chain. This is combined with focused project support. The Health Service Delivery Project (FY09) seeks to reduce maternal and child mortality, the burden of malaria and tuberculosis, and the inequity in service provision in three Northern provinces. The project supports rehabilitating and constructing health facilities, strengthening of the Government’s malaria control management program, and capacity building. Additional financing under preparation for FY13 will add a nutrition component, which will support interventions, such as Vitamin A distribution, salt iodization and food fortification. Community-based nutrition activities will also be supported, including the promotion of exclusive breastfeeding, education on safe water, hygiene, and sanitation. The ESW on health care financing will provide options for reducing the burden of poor health on the poor and limiting catastrophic expenditures that push people into poverty. The Health Commodity Security Project (FY11) seeks to improve the availability of selected drugs and medical supplies for people living with HIV/AIDS, women seeking family planning and prenatal care, those needing vaccination against measles, and people living in malaria prone areas (i.e., those requiring insecticide-treated mosquito nets). Health has also been selected as a pilot for a new cross-sector program being developed to improve service delivery performance by strengthening economic governance and accountability. Table 6. Proposed Program for Pillar II: 97. As noted earlier, Mozambique ranks third Vulnerability and Resilience among the African countries most exposed to risks from multiple weather-related hazards. Major floods, Projects: cyclones, and droughts have a significant impact on the  Cities and Climate Change (FY12)  Social Protection Program (FY13) (multisector) country's economy. As much as 58 percent of the population and more than 37 percent of GDP are at risk Budget Support: from two or more hazards. Each major shock can reduce  Climate Change DPO (FY13, FY15) (multisector) GDP growth on average by 5.6 percent. Observed trends and future scenarios suggest climate change will Additional Financing increase the extremity of weather patterns.  Nutrition Program (FY13) (multisector) AAA: 98. Under the proposed CPS, climate change  Health Care Financing Strategy (ESW) mitigation and adaptation activities will be a new and  Pension Reform Note (ESW) important business line. Given the critical need for  Targeting and Review of Social Protection (ESW) policy, regulatory, and institutional changes needed on Note: Table does not include on-going programs and climate change planning, a programmatic series of those mapped to and mentioned under Pilar I. development policy operations (DPO) is planned during the CPS period. The objective of the proposed operations will be to support progress in achieving policy reforms necessary for mainstreaming climate change throughout the Government’s policymaking process and to ensure a coordinated approach that addresses the many parallel strategies and planning processes at different levels of government. Outputs would likely include a national climate change strategy; development of a national institutional framework; and sectoral strategies and action plans in selected sectors such as water, energy, forestry, social protection and health. Possible outcomes could include 40 progress in achieving lower carbon-intensity development and helping to ensure sustainable use and preservation of the country’s vast tracts of forests for carbon sequestration. 99. The DPL-supported measures are intended to complement the portfolio of investment projects co-financed by the Pilot Program for Climate Resilience, one of the newly established Climate Investment Funds. The already mentioned National Water Resources Development Project (FY12) seeks to address water scarcity through enhanced water resources planning and capacity of the regional water authorities in the country’s river basins, including the Zambezi. It also aims to develop and implement mechanisms to facilitate comprehensive water allocation, licensing, revenue, and compliance with monitoring measures, in addition to rehabilitating the hydrometric network in the Zambezi Valley. The third phase of the Roads and Bridges Management and Maintenance Project, which is under discussion for FY13, will pilot appropriate and cost-effective engineering and adaptive maintenance approaches on 1,000 kilometers of rural roads in the Zambezi Valley and develop an innovative rapid response mechanism to road ruptures and bridge washouts. Another investment project, the Cities and Climate Change Project (FY12) looks to improve municipal management and sustainable financing approaches to enhance climate resilience in Maputo, Beira, Nacala, and Pemba, the coastal urban areas that account for a significant share of the country’s GDP. In Beira, for example, heavy rainfall and higher sea tides have already destroyed parts of the existing coastal protection infrastructure, leaving the interior parts of the city vulnerable to flooding. Beira is also prone to cholera outbreaks, which are aggravated during flood-related events. The project will support the city’s adaptation deficit in infrastructure investments by improving drainage, coastal protection, and strengthening the municipal sanitation agency. The on-going Health Services Delivery Project (FY09) can also integrate climate resilience measures in Nampula, which is in one of the three provinces targeted by the project. More recently, Mozambique has prepared a Disaster Risk Management Plan (FY11) aimed at building policy, strategies, and institutions; identifying, assessing, and monitoring risks; and reducing underlying risk factors. The implementation of the plan is being supported by the Global Facility for Disaster Risk Reduction (GFDRR). 100. Two IFC Programs will support climate resilience in the private sector. IFC will implement the private sector components of the PPCR under the Building Africa’s Resilience to Climate Change (BAREC), a pre-pipeline advisory services program. The program will channel $10 million in PPCR funding to catalyze private sector investments that result in climate resilience across all economic sectors, with a focus on agriculture and forestry. At least one component will be implemented through commercial banks to target small-scale projects. The IFC Mozambique Forestry program will provide advisory services to develop sustainable private forestry investments, with a focus on maintaining and/or expanding forest cover while generating economic returns. The program will focus on expanding productive livelihoods for communities adjacent to productive forests, as well as taking advantage of potential carbon offsets or other means of monetizing the forest’s carbon sequestration contribution. 101. The high degree of vulnerability to macroeconomic and idiosyncratic shocks, as well as natural disasters, underlines the need for a comprehensive social protection system. Despite still low coverage, Mozambique has developed some social safety-net programs. Social insurance only covers seven percent of households, comprising public servants and other formal workers. Other social assistance programs, including cash transfers to the elderly, disabled, and chronically ill, and in-kind transfers for indigent populations, have limited coverage and low-budget allocation. Within this context, the Bank is supporting implementation of the Government’s Productive Social Action Strategy through a 41 pilot project of labor-intensive public works to provide temporary income generation. The Bank’s 2008 Poverty Assessment shows that a labor-intensive public works program is an adequate short-term measure to address immediate needs of highly vulnerable households. The Developing the Building Blocks for Effective Crisis Response: Piloting a Public Works Program (FY11), funded by the Rapid Social Response Multi-Donor Trust Fund, is expected to improve the design and implement the first phase of a public works program; concurrently, the program supports developing tools, methods, and processes to reach the poorest more efficiently; formulating and implementing appropriate interventions; and monitoring safety net programs to inform decision-making. To complement the current social safety-net assessment, discussions with authorities are considering the additional analysis needed to support development and testing of targeting mechanisms. The pilot project, underpinned by on-going and planned analytic work on targeting systems, will act as an entry point to a much more comprehensive engagement by the Bank in social protection, culminating in a Social Protection Project (FY13) which will support government in consolidating and making operational a social safety net system (as opposed to a collection of programs) to protect the poorest and most vulnerable from chronic poverty and seasonal and unpredictable shocks, and support the implementation of the productive social action strategy (possible through a cash-for-work intervention in urban and rural areas). 102. The conservation of natural ecosystems and biodiversity are the building blocks toward better resilience to natural disasters and livelihood vulnerability. The on-going Transfrontier Conservation Areas and Tourism Development Project II (FY06), which is co-financed by the Global Environment Facility (GEF) with the Bank, has contributed to building the country's capacity to manage biodiversity in protected areas, in particular by supporting national reforms and on-the-ground investment in five protected areas. The follow-on project under preparation, Transfrontier Conservation Areas and Tourism Development Project III (FY14), also to be co-financed with GEF, looks to scale up the partnership with local communities and to further improve biodiversity management capacity. These national parks represent valuable tourism assets, but they deserve attention for their global value as well as for many other ecosystem services. Mozambique contains a wide diversity of habitats, including mountainous, woodland, wetland, and coastal/marine ecosystems. These large areas are important for their richness of biodiversity and because they contain topographic and ecological gradients and transition zones, and historical corridors for large-scale animal movements, which will become increasingly important with habitat modification due to climate changes. Increasingly, the ecosystem services provided by these protected areas are valued as buffer to land degradation and disasters such as flood or drought. They are also ―insurances‖ for the most vulnerable livelihood in rural areas by providing an array of wild resources ranging from energy, meat protein, construction material, and medicinal plants. (c) Governance and Public Sector Capacity: The Foundation 103. Weak governance and public sector capacity underlie Mozambique’s myriad development challenges. All activities discussed under Pillars I and II require a strengthened public sector capacity and improved governance deciding on the most effective way to mitigate high international food and fuel prices; channeling benefits of mineral wealth to ease people out of poverty; lifting legal and regulatory constraints to access finance; planning and implementing integrated spatial development along growth corridors; and bridging urban-rural disparities in service delivery. Every Bank project includes activities that enhance the Government’s ability to develop strategies, plan, budget, manage, implement, and monitor. Institution building is fully mainstreamed throughout the portfolio. And as the consultations for 42 the Africa Regional Strategy conveyed clearly, ―governance and leadership were the most important factors driving Africa’s future development.‖ And just like the Africa Regional Strategy, the Mozambique CPS considers this the ―foundation‖ upon which the pillars, in fact, the entire Bank program, rests. And while every product and service undertaken during the CPS period can be ―mapped‖ to Governance and Public Sector Capacity, this Foundation has specific objectives, projects and analytic work in the area of economic governance, social accountability, and natural resources management (see Tables 7 and 8). 104. Beyond institutional capacity components in its projects, the Bank is supporting greater transparency and accountability primarily through reforms in public financial management. The PRSC series in particular will continue to support reforms to improve financial management and procurement while possibly broadening its scope to better respond in a timely way to other likely changing realities on the ground over the CPS period. A challenge is to broaden and deepen these reforms to decentralized levels as well as in sector ministries at the central level. Given the decentralization process and the deconcentration of functions, including the provision of service delivery, to the provincial and district levels, two on-going programs are supporting the former. The Maputo Municipal Development Program II (FY11) is building on the successful implementation of the first phase and aims to continue efforts to strengthen the capacity of the Maputo City Council to plan, finance, manage, and maintain urban services and infrastructure. Similarly, the municipal strengthening component of the Coastal Cities and Climate Change Project (FY12) will support 19 municipalities in the central and southern regions of the country in the areas of financial management and urban/environmental planning. The project will continue the long-term engagement of the Bank in the area of municipal development and will bring additional resources to strengthen both the municipal and relevant sectoral agencies. The National Decentralized Planning and Finance Project (FY10) is the Bank’s contribution to a common fund that aims to improve the capacity of local government to manage public financial resources for district development and to better integrate district planning and budgeting into the national systems. The project seeks to achieve this objective through technical assistance and capacity building, and institutionalization and mainstreaming of best practices in all districts of the 10 provinces. The public expenditure reviews and health financing study will also provide information to help improve inefficient public spending in human development. Table 7. Objectives and Expected Outcomes of Governance and Public Sector Capacity Objectives General Outcomes  Improved public financial management Improved economic governance and policy making  Improved capacity of local administration to manage public finances Enhanced social accountability mechanisms  Improved citizen participation in public service monitoring Strengthened non-renewable, renewable natural  Greater contribution of wildlife conservation to economy resources and environmental management  Improved transparency in extractive industries 105. The objective of the Economic Governance Project (FY13) will be to lift key procurement, public financial management, human resources, and monitoring and evaluation bottlenecks to service delivery in selected sectors. The action to take is narrowing the gap between PFM and procurement policy, rules and systems, and their actual implementation. Service delivery sectors will be 43 used as entry points to narrow the gap between PFM and procurement reforms and their implementation. A Program-for-Results component may be used to provide incentives for the development of common solutions to service delivery problems identified in the key sectors targeted (health, education, justice, and agriculture). A PFM and procurement technical assistance component will complement the Program-for- Results component. The technical assistance component will aim to address the critical PFM, procurement, human resource issues; but it would do so by focusing the attention of the authorities on the ―softer‖ aspects of the implementation of these reforms, such as change management and communication, and by encouraging them to identify the real nature of the issues and the level of local capacity rather than jumping on good practice for ready-made solutions. The technical assistance component would also include a knowledge window that aims to gather analytical evidence on the causes of poor service delivery. In light of the governance environment in Mozambique, it would also put a strong emphasis on social accountability mechanisms in order to increase the demand for better public services and leverage the ―short route‖ to accountability. 106. Another challenge is to stimulate the demand Table 8. Proposed Program for Foundation: Governance and Public Sector Capacity for good governance by increasing citizen participation in the monitoring of public services Program: and the effective use of public resources. The  P4R in Economic Governance (FY13) (multisectoral) Maputo Municipal Development Program II (FY11) is the only program that includes social accountability Budget Support: activities, including citizen surveys, municipal report  PRSC 8-11 (FY12-15) cards, citizen access to municipal information, and AAA: participation in municipal affairs. The aim is to bring  Public Expenditure Review (ESW) service delivery closer to end-users and to encourage  Country Procurement Systems (AAA) greater voice and participation as a way of demanding  Community Scorecard (AAA)  Maputo-Paraná Souh-South Exchange (AAA) better-quality provision of public services. Under the CPS FY12-15, the Bank will look at ways to Note: Table does not include on-going programs and those mapped to and mentioned under Pilars I and II. mainstream social accountability and public voice either as integral components of projects or as complementary activities, building on lessons learned from on-going work by civil society groups and in partnership with them and other development partners similarly interested in building social accountability measures in their respective programs. 107. One area of governance that has grown in importance in recent years is the Extractive Industry Transparency Initiative (EITI). The Government has made a strong commitment to develop its natural resources in line with global best practice guided by transparency principles. Mozambique is currently an EITI-candidate country. The Bank has been working with other development partners to support the Government in this process. During the CPS FY12-15 period, the Bank through a Mining and Gas TA Project (FY13) will continue to help improve the legal, fiscal, and regulatory frameworks; create provisions to facilitate adequate contribution of the sector to economic development and regional levels; and improve extractive industries sector transparency and build capacity for sector revenue estimation and collection, and revenue management. 108. Over the last 15 years, the World Bank has supported the Statistical Office of Mozambique (INE). Bank support has focused particularly in the collection and analysis of micro data. Recent achievements include the new Atlas of Mozambique, an important analytical tool based on the 2007 44 census and 2008/2009 household survey that maps the socio-economic characteristics of the country and compares them with 1997 census and survey findings. Despite solid collaboration, there is scope for a stronger partnership. INE still needs support to develop a coherent long-term plan of work as well as to improve its technical capacities. As shown by the last household survey (2008-09), a number of weaknesses still affect INE in various areas, from the design of questionnaires, to the collection of data, and finally to the early stages of data analysis. In this regard, the Bank plans to avail itself as needed for the next household survey, tentatively scheduled for 2014. Bank support to INE would complement the support provided by the Norwegian, Swedish, and Danish aid agencies through the Scanstat program which looks to improve institutional capacity, general statistics, census taking, and surveys. III. IMPLEMENTING THE COUNTRY PARTNERSHIP STRATEGY A. Resources to Implement the Strategy 109. The CPS covers the three years of IDA 16 (FY12-14) and the first year of IDA 17 (FY15). The CPS operational program was calibrated based on an assumption of annual IDA-16 lending envelopes in the order of US$346 million for a total notional IDA allocation of US$1.04 billion. Actual allocations will depend on (a) the country’s own performance; (b) its performance relative to other IDA recipients; (c) the amount of overall resources available to IDA; (d) changes in the list of active IDA-eligible countries; and (e) terms of financial assistance provided (grants or loans); (f) the amount of compensatory resources received for MDRI; and (g) availability of IDA resources that could be reallocated. Mozambique may also avail of IBRD financing for enclave projects in the energy, transport, logistics, and minerals and gas sectors. 110. In keeping with the African Regional Strategy, the Bank will continue to leverage IDA resources to mobilize external financing and to ensure a greater concentration of resources to address key challenges. The Mozambique program has already demonstrated a good track record of leveraging external financing in the form of donor trust funds, with US$149 million in trust fund resources activated during the previous CPS period (FY08-11). Total active trust fund resources as of end-FY11 stood at US$216 million in the form of co-financing or as stand-alone arrangements. In addition, two active projects, the National Decentralization Planning and Finance SIL (FY10) and the Education Sector Support Project (FY11) with a combined commitment of US$100 million are part of a basket funding arrangement with non-Bank donor resources estimated at about US$360 million. The Bank is also one of 19 budget support donors that provided US$471 million in 2011 (the Bank’s contribution was US$85 million). Many other active projects are part of broader programs of coordinated support where other donors and the Government alike fund related activities. 111. In regard to human resources, the Bank will maintain a decentralized and high-capacity Mozambique country office. Of the 19 active IDA projects currently in the portfolio, 14 are managed by task team leaders based in the country office. Another two are based in neighboring countries, while three are based in Washington. There has been good progress over the years to provide local senior staff with task management experience in other, mostly Lusophone countries. The Bank office in Maputo includes a Country Director, the Lead Economist, and Sector Leaders for Sustainable Development, PREM, and Human Development. Senior fiduciary staff covering financial management, procurement, and social / environmental safeguards are also based in the country office. The IFC office is headed by a 45 resident Country Manager, with 8 professional investment and advisory staff. In total, the country office comprises 75 staff and consultants (including IFC), of which 27 (or 36 percent) are internationally recruited. B. Partnerships and Donor Coordination 112. The Africa Regional Strategy emphasizes the importance of partnerships as the foremost important instrument to implement country strategies. Indeed, the Mozambique country program views partnerships – with Government, development partners, the private sector, and local institutions – as an indispensable aspect of our work. Partnerships entail close operational coordination with development partners, leveraging IDA resources to mobilize external financing, and taking a catalytic and convening role to mobilize the attention, resources, and technical skills of others. The Bank’s current and proposed work program provides many examples of such partnerships:  Leveraging external resources: the Bank’s active TF portfolio is about $200 million and complements an IDA portfolio of about $1 billion in net commitments.  Budget support: the Bank closely coordinates its budget support operations with 19 other donors, ensuring a coordinated dialogue on key policy issues. In FY11, the Bank disbursed $85 million out of a total $450 million in donor budget support.  Basket funding arrangements: currently, the Bank is providing a combined commitment of $100 million to support basket funding arrangements in decentralization and education with other donor resources estimated at about $360 million.  Program coordination: the Bank and other donors have formal geographic divisions of responsibilities to support Government programs in roads, agriculture, and water.  Catalytic role: the Bank has played a catalytic role in the planned Regional Transmission Development Project (FY13), providing $150 million in total IDA resources to crowd in approximately $1 billion from private sector and development partners.  Convening power: over the past two years, the Bank has organized (with financing support by donors) flagship workshops with top Government policy makers on growth, inviting speakers from around the globe to discuss various growth strategies, models, and lessons learned.  WBG partnerships: the Bank’s program in Mozambique benefits from extensive collaboration across the WBG, with strong synergies with IFC and MIGA programs to strengthen the investment climate, infrastructure provision, agribusiness, SMEs, tourism, energy, and even climate change resiliency. The Mozambique program is facilitating joint work between DEC and the Prime Minister’s office on growth and employment creation. Collaboration with WBI will be strengthened over the next four years: beyond current joint work on urban management, WBI will help strengthen the Government’s capacity for communication dissemination.  Knowledge generation: the Bank is in the works to set up a TF with DFID to finance analytic work on growth and economic governance. A key aspect of the TF entails efforts to collaborate and forge closer relationships with local think tanks and academic institutions. WBI will assist in improving capacity of these institutions. 113. Donor aid coordination in Mozambique is highly structured and to a large degree, facilitates strong partnerships across the range of development actors. The Bank, together with the UN, co- 46 chair the Development Partners Group (DPG) which is a forum for substantive discussions among development partners and coordination among numerous donor programs and project activities. Quarterly ―extended‖ DPG meetings include presentations on inclusive growth, rural development, climate change adaptation, management of agricultural land, social protection, and post-disaster response. They have also drawn high level government participation and serves as an informal forum to exchange ideas on key development challenges. 114. Donor budget support is coordinated through the Group of 19 donors (G19), including the World Bank. The group is chaired on a rotation basis with Canada currently chairing. The Memorandum of Understanding (MoU) signed in March 2009 between the Government and the G19 is based on a set of ―fundamental principles‖: (a) predictability and alignment with domestic systems; (b) monitoring has to be done jointly and all policy actions or expected outcomes in the program have to be based on the common Performance Assessment Framework (PAF); (c) no separate reporting to the donors is required; and (d) mutual accountability is a primary factor to be included.40 115. The G19 system has brought substantial benefits in terms of streamlining and harmonizing the donor dialogue with the Government. And while there is scope for introducing greater flexibility in the G19 processes and systems, the past year has seen some significant changes. Budget support decisions were previously based on policy actions or outcomes introduced in the PAF matrix three years prior. Starting in 2012 and reflecting the newly introduced concept of a ―dynamic PARP‖, such decisions will be based on indicators agreed to from the previous year and allows the Government to adjust priorities and targets in light of changing economic and social conditions, or changing priorities and strategic orientation. Hence the PAF could be modified to take into account analytic work or new sector strategies, such as the Strategic Plan for Agricultural Development, the Financial Sector Development Strategy, and the Strategy for the Improvement of the Business Environment. Still, greater flexibility could allow indicator-based disbursement brought forth in real-time and reflecting changing conditions (e.g., external shocks) or new government priorities. Second, there could be a better balance in the PAF between outcome indicators and policy reform actions. The PAF is heavily skewed toward the former. This is a challenge for the preparation of PRSCs since Bank policy requires that DPL operations should disburse against the completion of policy and institutional actions. 116. The donor harmonization system in Mozambique could be strengthened further by consolidating the policy dialogue in a smaller number of working groups, which would lead to improved prioritization and efficiency. Implementation of the PARP will be monitored through sector working groups with indicators included in the PAF assessed during the Annual Review typically scheduled in April. This work is complemented by September Planning Meetings to agree on the indicators and triggers for the following year. The sector working groups can be good vehicles for policy dialogue, donor harmonization, and for reaching agreement between the Government and all the donors involved in a specific sector. At present, this donor coordination system is organized around 29 main sector working groups, which involve government participation and 43 additional donor-only subgroups. An unintended consequence of this large number of groups is that the policy dialogue tends to be excessively fragmented, focusing too narrowly on specific issues discussed across many different 40 See www.pap.org.mz for details and a copy of the MoU. 47 meetings. This makes prioritization and dialogue difficult — while imposing a heavy burden on the time commitments of all involved. Annexes 12 and 13 provide a summary of donor support by sector. C. The Bank Portfolio Performance 117. Over the course of the CPS FY08-11 period, the Bank delivered its largest program for Mozambique (Figure 5). The Board approved US$1,016 million in IDA for 17 new lending projects and three additional financing projects. New deliverables accelerated in the last year of IDA 15 in FY11 as seven new projects were approved. Record lending has resulted in a fairly large active portfolio comprised of 19 IDA projects and a net commitment amount of US$976.1 million. However, despite the growth of the portfolio, the average project size has remained constant, averaging US$46.6 million, below the Africa Region’s average of US$73.6 million (Figure 6). This has led to fragmentation of the portfolio that will need to be remedied through preparation of umbrella projects that are likely to be programmatic, multi-sectoral, and is of sufficiently large scale to maximize development impact. Figure 5. IDA Commitments and Projects Figure 6. Average Size of New IDA Projects 118. As agreed to with Government, Country Portfolio Performance Reviews (CPPRs) take place twice a year. The focus on the CPPR alternates between (1) a focused discussion on specific projects and issues impeding smooth implementation and disbursement; and (2) a broader discussion of systemic and institutional issues that affect the entire portfolio, including those of other donors. An example of the latter included the challenges the Bank and other donors experience using country systems, given the on- going transition to newly automated financial management systems and procurement and audit procedures. Moving forward, greater effort will be made to incorporate into the CPPR exercise a greater results orientation to keep track of progress toward achieving key program outcomes. IV. RISKS AND MITIGATION 119. Reduced donor assistance. As one of the largest recipients, Mozambique is heavily dependent on donor assistance, which is estimated at about 20 percent of GDP. Donor budget support comprises about 40 percent of the Government’s budget. However, economic difficulties in donor countries may lead to less predictable aid and other financial inflows. In anticipation of such reductions, the Government is in discussion with the Bank about possibly raising the level of budget support. Such potential increases would likely need to correspond to an acceleration of reforms, particularly to the overall business climate and to constraints in key sectors. In such a tightening environment challenges of donor coordination are likely to intensify. In addition, given the desire to develop its energy and natural resource industries, the 48 Government may also look at IBRD enclave financing, as well as IFC and MIGA products and services. Bank and other donor policy dialogue will continue to underline the need to continue improving on revenue generation and collection, and to allocate meager budgets to a few strategically targeted programs, reforms, and industries that have the potential to compete and provide a source of revenue needed for development spending. 120. External shocks. There are risks related to the potential for macroeconomic shocks and their impact on the implementation and achievements of the government reform program. The current deterioration and high uncertainty of the global economy brings with it risks of deteriorating terms of trade, reduction of FDI, and potential reductions in donor disbursements, especially through budget support. As for mitigation measures, the Government is following the course that helped them manage the 2008-09 crisis by maintaining a high level of reserves, a flexible exchange rate regime, and keeping low external debt vulnerability. Additionally, Mozambique has a stable relationship with the IMF, anchored on a Policy Support Instrument (PSI), which has contributed to solid macroeconomic management. The elaboration of the new PARP contributed to deepening the communication and to address differences of views that could have lead to reduced donor support. Over the long run, Government is keen to continue to build its own revenue base to gradually reduce dependency of foreign aid. While the risk of macroeconomic shocks affecting the reform program is moderate, it requires constant attention to changing circumstances. 121. Slowing pace of reform. The drop in Mozambique’s ranking in the 2011 Doing Business report reflects both accelerated reforms in other countries, but also a much slower pace of reform in Mozambique over the past year.41 If this is an indicator of a broader trend, the ability of Mozambique to foster a vibrant private sector will be greatly impaired and may trigger the reduction of donor aid. The Government is working closely with the donor community and private sector groups to update its set of priority business climate reforms, a complement to the PARP that will provide a blueprint for discussion on private sector development. 122. Capacity constraints and weak client coordination. Notwithstanding significant progress over the past two decades, a deep-seated and persistent challenge for Mozambique will be its still largely fragile capacity, especially at technical levels across the board. In the important agricultural sector for example, with an irrigation project recently achieving effectiveness, a regional agriculture productivity project under preparation, and an Agriculture DPO in the pipeline, the agriculture sector is receiving appropriate emphasis in the CPS for FY12-15 as an engine of economic growth and poverty reduction. However, given capacity constraints at the Ministry of Agriculture, the Bank will have to closely monitor on-going activities, including technical assistance and institutional capacity development. The Bank is also looking at alternative ministries for future projects, e.g., housing the Agriculture DPO under the Ministry of Planning and Development (MPD). Relatedly, the slew of multisector projects – including the Growth Poles Development, Economic Governance, and Climate Change DPO – will test the Government’s ability to coordinate across ministries and agencies. The Bank will work closely with the Ministry of Planning and Development, as well as the Prime Minister’s office, to ensure such high-profile projects receive the appropriate level of coordination required for implementation. 41 Doing Business 2011: Making a Difference for Entrepreneurs (IFC and World Bank, November 2010); http://www.doingbusiness.org/reports/global-reports/doing-business-2011/ 49 123. Management of extractive industries. The Government at the highest levels has expressed concern over the ability to manage the burgeoning mining and gas sectors and the entry of large multinational firms looking to negotiate and sign contracts. Given the potential ―game changer‖ that these sectors represent, the Government aims to maximize the benefits to the country, particularly in terms of revenue sharing. Negotiating deals of this magnitude requires international and sectoral expertise that the Government currently lacks. The Bank Group as a whole, building on on-going mining and gas policy dialogue and advice, as well as positive experience with EITI-related work, is inter alia preparing a TA project to address identified policy and capacity gaps. The proposed project will support reforms, initiatives, and capacity building to enhance the efficiency and accountability of institutions involved in the management and planning of the mining and hydrocarbon sectors. 124. Possible elevation of social tensions. Recent global events have shown that no government is immune to social unrest stemming from a lack of economic opportunities and unresponsive governance. The related events of 2008 and 2010 were perhaps wake-up calls for Government to do more to address a slowing pace of poverty reduction, create employment and improve livelihoods, and to provide a minimum level of social protection for vulnerable populations. The CPS for FY12-15 supports these efforts. In addition, by integrating social accountability mechanisms throughout its program, the Bank hopes to give rise to citizens’ voices and increase participation as a means to improve accountability and delivery of public goods and services. 50 ANNEX 1. CPS FY12-15 RESULTS MATRIX Pillar I: Competitiveness and Employment Long Term Development Issues CPS Outcomes Milestones Products / Instruments PARP Goals Key Challenges Active:  Competitiveness &Private Sector 1.1. Improved regulatory environment Development Project (FY09) Regulatory and administrative in targeted areas.  Financial Sector TA Project (FY06) constraints keep the cost of doing  PRSC 8-11 (FY12-15) Create a favorable  Number of days to issue industrial business high and impede start-up  IFC Investment Climate Program environment to develop and commercial licenses reduced by and growth of enterprises  Create an electronic single  IFC SME capacity building and access to SMMEs, attract domestic and 30 percent from 2010 to 2013, 50% window to handle export and finance programs and investments international investment in to 2015 Lack of access to finance and other import procedures AAA: labor intensive industry  Number of days to clear imports & (Strategic Objective #2) key services, particularly for SMME  Financial Sector Strategy (FY12) sector is typically the main exports reduced from 32 and 26 in  PPP/SOEs (FY13) constraint to SMMEs 2009 to 16 and 13respectively in 2015  Consumer Protection and Financial Literacy (FY13)  Political Economy of Investment Climate (FY13) 1.2. Improved management of Active: development process through spatial planning  Spatial Development Planning TA Project Weak planning, coordination, and (FY11) governance of economic zones,  Number of spatial development Promote expansion of  Prepare 6 actual SDI Pipeline: growth poles / corridors and projects adopted for feasibility by infrastructure through public government, private sector, and/or “packages� for the country,  Integrated Growth Poles Project (FY13) natural resources potentially lead and private investment with PPPs increases from 0 in 2010 to 20 broken-down into 3 different  Mining and Gas TA Project (FY13) to misuse/underuse of impact in potentially in 2015 types of SDIs  Fisheries and Coastal Development infrastructure resources & productive zones Project (FY14) (Strategic Objective #1) services, cross-sector linkages, and  Number of projects identified with limited employment & revenue high employment generation for AAA: generation youth and women per each spatial  Growth Identification and Facilitation Note development initiative increases (FY13) from 0 in 2010 to 20 in 2015  Infrastructure Through Spatial Lens (FY13) Strengthen the research 1.3. Increased crop yields and overall  Within the project’s defined Active: capacity and extension of Low agricultural productivity and productivity in target areas locations, hectares equipped  Market-Led Smallholder Development in technological development for lack of markets for farm produce  Increased production of with irrigation & drainage the Zambezi Valley Project (FY06) food production, following the potatoes/tomatoes from 10 and 15 infrastructure increases from 0  PROIRRI – Sustainable Irrigation 51 appropriate agro-ecological tons/ha in 2010 to 18 and 23 in in 2011 to 1,900 in 2013 Development Project (FY11) characteristics of the country 2015, respectively (includes 1,000 for rice, 500 for (Strategic Objective #1)  Number of additional smallholders horticulture, 400 for outgrow) Pipeline: with access to finance to help and to 5,500 in 2015 (includes  Agriculture Sector DPO (FY13-15) develop value chains from 0 in 2011 3,000 for rice, 1,300 for  Regional Agriculture Productivity Project to 8,000 in 2015, of which 33% are horticulture, 1,200 for for Southern Africa (FY13) women outgrow)  Provide cost-sharing grant AAA: scheme for farmers and value  Agriculture Strategy and Policy Notes chain actors, conditional on (FY12) meeting clearly defined eligibility criteria Pillar I: Competitiveness and Employment Long Term Development Issues CPS Outcomes Milestones Products / Instruments PARP Goals Key Challenges Active: 1.4. Increased employment and  Number of linkage contracts growth in targeted areas of the  Transfrontier Conservation Areas & between SMEs and tourism tourism sector Tourism Development Project (FY06) establishments participating in  Competitiveness and Private Sector Create a favorable  Increase in the number of local Bank projects in Inhambane Development (FY09) environment to develop Tourism growth is constrained by residents employed, formally and increase from zero in 2010 to 25 in 2013  IFC Tourism Development Programs SMMEs, attract domestic and poor infrastructure, lack of public informally, in conservation and international investment in investment, and poor human tourism in targeted districts from  New private tourism or Pipeline: labor intensive industry resources 1,300 in 2010 to 2,800 by 2015 conservation-related  Transfrontier Conservation Areas & (Strategic Objective #2)  Number of bed-nights in tourism investment leveraged as joint- Tourism Development Project II (FY14) facilities in the target districts venture with communities in AAA: increase from 164,000 in 2010 and target districts is US$2.0 m in  Reforming the Fisheries Sector (FY14) 240,000 by 2015 2013 Promote expansion of 1.5. Improved provision and Active: infrastructures through public management of road infrastructure  Roads & Bridges Management & and private investment with The poor condition of the roads  Share of total classified roads in  Six Road Mobility Strategies Maintenance Project II (FY07) impact in potentially network deprives people good and fair condition increases and Pilot Programs for  Maputo Municipal Development Program productive areas (particularly rural residents) with from 75% in 2010 to 78% in 2012 transport and trade corridors II (FY11) (Strategic Objective #1) reliable access to social and will be operationalized for  Spatial Development Planning TA Project economic facilities and precludes  Share of rural population with access (within 2km) to an all-season target Spatial Development (FY11) the enabling conditions for private Initiatives between 2010- 2013 Improve the territory planning sector investment to take effect road increases from 31.8% in 2010 Pipeline: and land management system to 32.3% in 2012  Integrated Growth Poles Project (FY13) (Strategic Objective #1)  Number of people in Maputo  Roads & Bridges Management & 52 municipality with access (within 500 Maintenance Project III (FY14) meters) to all-season roads from AAA: 60,000 in 2011 to 300,000 in 2015  Infrastructure Through Spatial Lens (FY13) 1.6. Improved provision of water and sanitation service  20,000 new connections to urban water supply outside Active:  Number of people in urban areas Maputo by2013  Water Services and Institutional Support provided with access to improved Limited access, unequal Project (FY08) Increase access and use of Water Source under the project  560 kilometers of new water geographic distribution and  Maputo Municipal Development Program water and safe sanitation reaches 292,118 people (including supply network will be laid and uneven service delivery of potable II (FY11) service provision in rural and 146,059 women) in 2015 from operational in 2013 and water and sanitation constrains 192,443 in 2011 reaches 757 kilometers in 2015 urban/peri-urban areas Pipeline: productivity and dampens the (Strategic Objective #3) business environment  Number of people in Maputo  The pilot of two Provincial  National Water Resources Development municipality with access to regular Entities to deliver sustainable Project (FY12) solid waste collection services services to small towns.  Greater Maputo Water Supply (FY13) increases from 729,264 in 2010 to (included in WASIS) 1,041,545 in 2015 1.7. Improved access to electricity  Number of people in peri-urban and Active: Only 10.5 percent of households rural areas with access to electricity  Energy Development and Access Project have access to electricity (mostly from 42,500 in 2010 to 67,500 in  National Rural Electrification (FY10) Expansion of energy services in Maputo and provincial capitals), 2015 by household connections. Strategy and Investment  Health Services Delivery Project (FY09) to health and education contributing to low standard of Program finalized and facilities living and human development  Number of rural health clinics and Pipeline: (Strategic Objective #3) schools with access to electricity disseminated  CESUL Regional Transmission Project indicators, and constraining from 150 in 2010 to 400 in 2015, (FY13) productivity and poverty reduction respectably for health clinic and schools Reduce operating costs in areas such as 1.8. Improved access to affordable Active: Access to telecommunications  Additional telecommunications telecommunications in order telecommunications  Regional e-Government and services, in particular to the operator in the market which to guarantee business  Price of broadband Internet Access will promote greater Communications Infrastructure Project internet outside Maputo is limited (FY09) competitiveness [1Mbps] from $90 in 2010 to $30 in competition and expensive. (Pillar of Support: Employment 2015 Promotion) Expand opportunities to 1.9. Better educated and skilled  Number of students provided Active: Workforce lacks sufficient and Workforce with Internships increases from  Technical & Vocational Education & improve the standard of living appropriate education and 10 % in 2010 to 30 % in 2015 Training Project (FY06) for youth and adults through relevant technical and vocational  Share of graduates of targeted TVET secondary, technical and post- programs that find / create jobs in  Additional classrooms built or  Education Sector Support Project (FY11) training to meet the demands of a secondary education related fields within 6 months of rehabilitated at secondary level  Higher Education Science & Technology growing economy (Strategic Objective #3) graduation increases from 27.2% in in project-defined schools (FY10) 53 2007 to 60 % in 2015 Transition rate increased from zero in 2011 to Pipeline: EP2 / next level post primary 400 in 2015  Technical & Vocational Education & increases from 79% in 2010 to 90%  The pass rate of female Training Additional Financing (FY12) in 2015 students enrolled in targeted  Early Childhood Education Additional  Number of students graduating courses increases from 0 in Financing (FY12) from higher education institutions 2010 to 65% in 2015 increased by 30% (from 7,000 in  Direct project beneficiaries AAA: 2010 to 9,100 in 2015) (students in both primary and  Healthcare Financing Analysis (FY13) secondary education increases from 0 in 2011 to 8 million (of which 48.5 % / 3.8 million females) in 2015 Pillar II: Vulnerability and Resilience Long Term Development Issues CPS Outcomes Milestones Products / Instruments PARP Goals Key Challenges 2.1. Improved health services for the vulnerable  Number of additional  Share of institutional deliveries in 3 community health workers Active: Vulnerability to idiosyncratic northern provinces increases from trained reaches 1,100 in 2013  Health Commodity Security Project (FY11) Promote equal access to shocks: mortality associated with 62% in 2010 to 72% in 2015 and 1,400 in 2014  Health Service Delivery Project (FY09) health care, prioritizing health malnutrition, high rates of malaria,  Share of pregnant women  Number of adults and children with Pipeline: and nutrition of women, HIV/AIDS and other infectious HIV receiving ARVs reaches from project beneficiaries who  Nutrition Additional Financing (FY13) children, and other vulnerable diseases pose obstacles to receive at least one dose of IPT 257,410 in 2011 to 409,537 (68% groups expanding the labor pool and increases from 0% to 50% AAA: female) in 2015 at the national level (Strategic Objective #3) improving productivity in the  Impact evaluation of community-based workplace.  Children aged 6-23 months who  Health Care Finance Strategy ECD intervention (FY12) received a minimum acceptable submitted to the Council of  Health Care Financing Strategy (FY13) diet increase from 37% in 2010 to Ministers by December 2012. 60% in 2015 at the national level  Weather radars covering part 2.2. Adaptation to climate change and of the south and central region Active: Mozambique is highly vulnerable Adopt measures to reduce the reduced the risk of natural disasters calibrated, allowing for more  Programmatic support to Disaster Risk to extreme weather events, precise and immediate risk of disasters and Management (DRM) Phase 1 (FY11) namely, droughts and floods – all adaptation to climate change  Accurate weather information warnings of extreme events to  National Water Resources Development likely to be aggravated by climate be issued by end 2013 (Strategic Objective #1) system available to stakeholders in Project (FY12) change. 70 % of Central and Southern  One coastal city and some rural  IFC Climate Reslience program regions on at least a 12 hour basis roads in flood prone areas have  IFC Mozambique Forestry Program 54 from 0 % in 2010 to 70 % in 2015 been climate-proofed as pilots by 2014 Pipeline:  Agreement on operational  Coastal Cities and Climate Change (FY12) procedures for a disaster  Climate Change DPO (FY12-15) contingency fund by end of  Reduction of Emissions from 2013 Deforestation and Forest Degradation (REDD) (FY12)  Report on redesign of climatological and AAA: hydrometeorological network  GFDRR Mainstreaming Disaster (FY12) completed & approved by 2012  First phase of a public works program providing temporary Active: Design and implement the National Program of income support to the poor  Pilot Public Works Program (FY11) Mozambique’s vulnerability to 2.3. Strengthened social protection Productive Social Action in underway in 2011-12 Pipeline: exogenous and endogenous response to chronic food shocks is compounded by an  Vulnerable people benefiting from  Social Protection Project (FY13) insecurity, vulnerability to  Government by 2012 has the absence of effective social safety effective social safety net program climate change, price tools to more efficiently target AAA: net measures for the majority of increase from 80,000 in 2011 to fluctuations, and variable the poorest, formulate  Targeting Systems and Administrative its population. 815,000 in 2015 at the national level agricultural productivity appropriate interventions, Improvements Report (FY12) (Strategic Objective #3) monitor programs to inform decision making Pillar III: Governance and Public Sector Capacity Long Term Development Issues CPS Outcomes Milestones Products / Instruments PARP Goals Key Challenges 55 3.1. Improved public financial Weak PFM performance, management particularly in relation to the  Improved PEFA (PI.12) ranking from credibility of the budget as C+ in 2009 to B in 2013 in the  Direct execution of the budget measured by the variance composition of spending results through the e-SISTAFE between budgets and actual compared to approved budget and  Approved national training expenditures Improve PEFA (PI.26) from C+ in curriculum for the certification Promote greater transparency, efficiency, and 2009 to B in 2013 ranking the scope, of auditors Financial audits by the nature and follow-up of external effectiveness in public  Mozambican auditors certified Mozambique Supreme Audit audit Active: resource management according to international (Pillar of Support: Institution (Tribunal  Improved PEFA (PI.1 and PI.2) standards  PRSC series Administrativo) are not conducted  National Decentralized Planning and Macroeconomics) ranking from C in 2009 to B in 2013  Introduction of a robust in compliance with international Finance Project (FY10) in the area of multiannual fiscal management information standards on auditing planning for spending and budget system to monitor and manage Pipeline: policies procurement performance of  Economic Governance Project P4R (FY13) Weak internal and external oversights  At least 65 % of State Investment key sector ministries AAA: Expenditure is being processed  Public Expenditure Review (FY12) through open competitive bidding in 2015 from 15% in 2011  Country Procurement Systems (FY13) 3.2. Improved capacity of local Weak capacity, particularly in administration to manage public Number of districts that submit Guarantee the reform and annual financial statements to institutional capacity building public financial management, has finances the Administrative Tribunal in of local administration (Pillar hampered decentralization and  Number of districts with more than accordance with current of Support: Governance 3) the deconcentration of functions 90% budget execution of their legislation increases from 40 in to districts district operational plan and budget 2009 to 110 in 2013 and 128 in increases from 85 in 2009 to 105 in 2014 2013, and 110 in 2015  Voice and participation in 3.3. Improved citizen participation in Maputo municipality enhanced Active: public service monitoring through active citizen feedback  Maputo Municipal Development Program Lack of citizen access to mechanisms, e.g., Municipal II (FY11) Guarantee the reform and information and voice and  Mean user perception of quality of Report Card, participatory institutional capacity building public services in Maputo Pipeline: participation in the governing budgeting of local administration (Pillar municipality, as reported in the  Economic Governance Project (FY13) process often leads to poor and  Citizens have access to timely of Support: Governance 3) citizen Municipal Report Card, unequal public service delivery disseminated Maputo remains at 2.8 (0-5 scale) from 2011 AAA: to 2013, and reaches 3.0 in 2015 municipal planning and  Community Scorecard TA (FY12) performance information, i.e., Financial Execution and Report 56 Card Reports Active: Efforts to increase the area,  Trans-Frontier Conservation Area and connectivity, and effectiveness of Tourism Project I (FY06) biodiversity conservation is  South West Indian Ocean Fisheries Project hindered by weak capacity of 3.4. Greater contribution of wildlife (FY08) Improve natural resource decentralized authorities, absence conservation to economy Two new priority areas are management to increase its of a framework for partnering with  Bio-indicator species (2 species / formally designated & managed Pipeline: contribution to domestic the private sector, and lack of area) in Maputo Special Reserve, for biodiversity conservation:  Trans-Frontier Conservation Area and economy and local incentive by local communities to? Zinave National Park, Banhine Punta d'Ouro Marine Reserve and Tourism Project II (FY14) communities welfare (Pillar of National Park and Chimanimani Futti Corridor altogether  Fisheries / Coastal Livelihoods Project Support: Macroeconomics) Limited fisheries resources Reserve continues to increase about comprising 140,000 hectares. (FY14) management and promotion of 1% per year from 2011 to 2015 sustainable fishing practices AAA: threaten sector contribution to  Reduced Emissions from Degradation and national wealth and local welfare. Deforestation (REDD) Initiative (FY12)  Reforming the Fisheries Sector (FY13) Active:  Extractive Industries Technical Advisory 3.5. Improved transparency in Facility (FY11) Natural resource wealth creates Improve natural resource extractive industries  Mozambique publishes an EITI  Spatial Development Planning TA (FY11) incentives for governments to management to increase its ignore citizens since reliance on  Mozambique is an EITI candidate report reconciling company Pipeline: contribution to domestic payments and government  Gas and Mining TA Project (FY13) tax revenue diminishes while country in 2011 and by 2015, it will economy and local strong vested interest, both achieve and maintain EITI compliant revenues from the extractive  Integrated Growth Poles (FY13) communities welfare (Pillar of sector domestic and foreign, are drawn status from the International EITI AAA: Support: Macroeconomics 11) by large rents Board  EI Value Chain TA  Mining Sector Governance 57 ANNEX 2: CPS COMPLETION REPORT Country: Mozambique CPS Report No. 39395-MZ Date of CPS April 24, 2007 Period Covered by the CAS Completion Report: FY08-11 Completed by: Jutta Ursula Kern Date of Report: 10.13. 2011 CONTENTS I. INTRODUCTION .............................................................................................................................................................59 A. Progress Towards Mozambique’s Long Term Objectives over the CPS Period 59 II. CPS PROGRAM PERFORMANCE .....................................................................................................................................61 A. Program Overview and Principles of Engagement 61 B. CPS Program Performance by Strategic Pillar 62 1. Increased Accountability And Public Voice - CPS Pillar 1 63 2. Equitable Access To Key Services - CPS Pillar 2 64 3. Sustainable And Broad-Based Growth - CPS Pillar 3 66 III. WORLD BANK GROUP PERFORMANCE ..........................................................................................................................69 A. CPS Design and Relevance 69 B. CPS Implementation 70 C. World Bank Group Performance Rating 72 IV. KEY LESSONS LEARNED AND RECOMMENDATIONS FOR THE NEW CAS .....................................................................72 CPS CR Annex – Table 1: Summary of CPS Program Self-Evaluation FY08-FY11 74 CPS CR Annex – Table 2: Planned Lending Program and Actual Deliverables (FY08-FY11) 78 CPS CR Annex – Table 3: Non-Lending Program & Actual Deliverables (FY08-FY11) 81 58 I. INTRODUCTION 1. The Country Partnership Strategy (CPS) Completion Report assesses the World Bank Group’s assistance to Mozambique during the FY08-11 period as guided by the Mozambique CPS (Report No. 39395-MZ). It reviews the support provided to Mozambique through a mix of investment instruments, partnerships and knowledge products and assesses (i) the program performance in influencing the CPS outcomes as laid out in the CPS results matrix and (ii) the World Bank Group’s performance with regard to relevance, design and management of the strategy. The last chapter summarizes lessons drawn from this assessment which should feed into the design of the follow-up Country Assistance Strategy (CAS). 2. Overall, this report concludes that the Bank’s program performance is considered to be only Moderately Satisfactory for the FY08-FY11 CPS. Although the Bank’s program over the CPS period was relevant, adequately designed, responsive to Government requests, integrated with the overall development partner harmonization agenda, and the anticipated portfolio was successfully delivered (even surpassing its foreseen scope in terms of lending and grant amounts), there were some slippages in the portfolio. While most of the results were achieved as outlined in the CPS results framework and good progress was made in other areas, the results achieve were uneven across the portfolio and the results matrix was never updated, rendering some outcomes unobservable. A detailed assessment of achievements against outcomes as measured by indicators in the CPS results framework is presented in Table 1 in the Annex. 3. Thus, despite the impressive delivery of a much larger lending program than anticipated and maintaining an overall effective and well performing portfolio for most of CPS period as well as delivering a number of high-quality and timely knowledge products, the Bank’s performance is assessed only moderately satisfactory, mainly due to the: (i) failure of undertaking a CPS progress report causing a number of stale CPS outcomes, (ii) slippages in the portfolio leading to delays in results delivery and the (iii) deterioration of portfolio performance towards the end of the CPS implementation period. Table 2 and 3 of the Annex present the detailed listing of newly committed lending and major grants over the CPS period. 4. The details of the CPS Completion Report as presented in the following reflect a comprehensive self- evaluation undertaken by the country team, in which actual achievements were evaluated against outcomes defined in the CPS results matrix. The assessment is based on several sources, such as project specific data from ISRs and ICRs, portfolio data from institutional systems, as well as economic and sectoral assessments and interviews with Bank staff. Finally, the report included consultations with development partners and key ministerial and project counterparts. A. Progress Towards Mozambique’s Long Term Objectives over the CPS Period 5. Premised on macroeconomic stability and improved public financial management, the overarching goal of Mozambique’s 2006-10 Poverty Reduction Strategy, the PARPA II, was the reduction of poverty through sustainable and inclusive growth. In addition to eight cross-cutting topics highlighting key development priorities, the PARPA II is organized around three pillars: Governance, Human Capital, and Economic Development. 59 6. At the beginning of the CPS period Mozambique had posted a strong 8 percent average GDP growth rate for a number of years, making it one of Africa’s best-performing economies. Together with sustained political stability after a two-decade long civil war, the country was able to attract substantial development partner support. Mozambique was also able cope relatively well with the global food, fuel, and financial crises and consequent global economic slowdown. The Government has repeatedly addressed external shocks with rapid and flexible policy responses, seeking IMF resources to maintain prudent levels of reserves while allowing the exchange rate to depreciate gradually. As a result, economic growth continued to be strong: real GDP growth dipped slightly from 6.7 percent in 2008 to 6.4 percent in 2009, and is expected to post at 6.5 percent in 2010. According to the latest IMF Article IV Consultations, Mozambique’s medium-term outlook remains favorable and economic growth is projected to accelerate to 7¼ percent in 2011 and close to 8 percent over the medium term. 7. After significant strides in poverty reduction between 1996 and 2002/3, the results of the 2008-09 household survey suggest that overall poverty reduction has leveled off at roughly 55 percent of the population. Notwithstanding concerns about the reliability of national poverty data, the results also indicate that urban poverty continued to decline but at a much slower rate, reaching 50 percent, while rural poverty actually increased slightly to 57 percent. These decelerating pace of poverty reduction point to structural deficiencies, weaknesses in the Government’s growth strategy, and the narrow productive base of the economy which leaves significant challenges to be addressed. 8. The agriculture sector, while contributing 24 percent of GDP and employing 78 percent of the country’s workforce, has witnessed private sector investments in specific subsectors in response to existing market opportunities but continues to consist largely of subsistence farming in which 85 percent of rural households are engaged. The manufacturing sector, accounting for 13 percent of GDP, is led by a few capital intensive mega- project investments, most notably aluminum smeltering, that represents 62 percent of the production value of the entire sector but only about 3 percent of the sector’s employment. Meanwhile, reforms to the business climate have been slow, particularly in accessing finance which continues to impede the competitiveness of the vast majority of firms, primarily small and medium enterprises (SMEs) which mostly compete in the local market. 9. Despite concerns with the Government’s current growth strategy, substantial improvements in the provision of public goods were recorded, particularly in transport infrastructure, electricity, urban and rural water, and telecommunications. Entrepreneurs, for example, are now less worried with energy provision, than they were in 2003 according to the 2009 Investment Climate Assessment. Also Mozambique’s business environment has shown some improvements. The 2011 Doing Business survey indicates an improved overall ranking in terms of the ease of doing business, with progress on legal reforms, simplified licensing procedures, and protecting investors, ranking Mozambique as number 140 in 2009 and 135 in the 2010 Doing Business Reports. Nevertheless registering property, dealing with construction permits, access to credit, paying taxes, trading across borders, enforcing contracts, and closing a business are all areas where progress has lagged. 10. Weak governance structures remain a challenge for Mozambique’s business climate. The World Bank’s Worldwide Governance Indicators (WGI) note improvements since 2004 across five indicators, most prominently that for political stability but also those measuring government effectiveness, regulatory quality, rule of law, and control of corruption, but with the exception of political stability, all other indicators for Mozambique in the 2009 assessment fall below the 50th percentile. On voice and accountability, Mozambique’s percentile showed a 60 modest slippage. Corruption consistently ranked among the top constraints to businesses, particularly among SMEs, and irregular payments with respect to customs, taxes, licenses, regulations, and services add up to significant costs. Perceptions of corruption have remained steady according to Transparency International’s Corruption Perception Index which shows Mozambique’s ranking remaining relatively stable, from 111 out of 179 countries in 2007 to 116 out of 178 countries in 2010. And while there has been stepped up efforts by the development partner community to engage civil society organizations and to increase voice and participation, tangible results beyond the demonstration effects of development partner projects have been slow to materialize. The progress made towards a comprehensive decentralization policy and intergovernmental fiscal framework has been substantial in the past decade, significant gaps still exist particularly in the area of intergovernmental fiscal systems and municipal finance. One area that has shown significant progress has been the introduction of investment budgets for districts and the transfer of human resource management to the district level, as well as the creation of local councils, all contribution to citizens’ voice and accountability. 11. Mozambique’s social indicators and its progress toward the MDGs have shown good results, however, based on the results of the recent household survey, the country needs to accelerate efforts to reduce poverty to achieve this goal by 2015. Expenditures on PARPA priority sectors have been maintained at about 65 percent of total expenditures since 2004 and public services have improved over the past decade. However, social progress is uneven and the richest have benefited most in electricity, health, and secondary education, while primary education has particularly benefited the poor. The MDG for sustainable coverage for water supply could be met given the rapid improvements in the provision of urban water supply, while access in rural areas continues to lag and the MDG sanitation targets are very unlikely to be met, especially in peri-urban areas. While there has also been substantial progress in gender equality and women’s empowerment, reduction of child mortality and improving maternal health, as well as immunizations, exclusive breastfeeding, and supervised deliveries, the country’s health status indicators continue to be below the Sub-Saharan Africa average. 12. Mozambique still has the lowest ratio of health providers per population in Southern Africa, and HIV/AIDS continues to pose serious long-term challenges, despite significant progress in the access to Anti- Retroviral treatment (ART) throughout the country over the CPS period. A 2009 national survey estimates the HIV prevalence rate among the adult general population at 11.5 percent. The epidemic seems to be leveling-off notwithstanding the increasing trend of HIV prevalence observed in the southern region, particularly in Maputo where the prevalence rate is estimated at about 20 percent. II. CPS PROGRAM PERFORMANCE B. Program Overview and Principles of Engagement 13. The Bank program in Mozambique was predominantly delivered in the form of investment loans and grants and a PRSC series for general budget support in the overall amount of US$ 1,047 million including regional operations and additional financings. Out of these, US$ 345 million were committed for the PRSC series over the four year program. The lending portfolio was complemented by a considerable and growing Trust Fund program. Over the CPS period an overall of US$ 252.4 million in Trust Funds were signed, with the Education For All Catalytic Trust Fund taking the lion share of US$ 79 million signed in FY 09 and US$ 90 million signed in FY11. Other large Trust Funds were committed in the Water Sector (twice US$ 15mill), the Environment/ Tourism 61 sector with a GEF/PHRD grant contribution to the Trans-Frontier Conservation Area & Tourism Development Project of US$13.7million, and the Agricultural Sector (US$ 6.2 million). 14. Engagement under the CPS followed the three principles of “Collaborate-Focus-Deliver� with a strong anchoring in partnership with Government and other donors. The Bank took an active role in development partner harmonization to achieve overall of eighteen outcomes which the CPS for FY08-11 set out to achieve. The CPS was organized in three broad pillars: (1) Increased Accountability and Public Voice: (2) Equitable access to key sectors; (3) Sustainable and broad-based growth and measured with 28 outcome indicators. The CPS results framework indicates how the policy and investment areas under each pillar are aligned with PARPA II objectives. Because a mid-term CPS Progress Report (PR) was not undertaken, the Bank missed an opportunity to take stock of progress against envisioned outcomes and as a result, a number of outcome indicators that should have been replaced, clarified, or dropped due to changing circumstances and priorities were left in the results framework. The majority of the outcomes that were observable with measurable indicators and were pursued was “achieved� or “partially achieved�. Only three of the eighteen outcomes are considered “not achieved�. 15. The CPS Program by and large delivered the Mozambique CPS - Program Performance Overview: anticipated results across the three pillars, but Achievement by number of outcomes exhibits uneven performance, and some delays in Performance by… # of outcomes demonstrating development impact. The results ACHIEVED 10 56 % framework was inadequately maintained throughout PARTIALLY ACHIEVED 1 5% NOT ACHIEVED 2 11 % the CPS period, missing opportunities to adjust for NOT MONITORED 5 28 % changes in the portfolio and such rendering some Total 18 100% outcomes unobservable or not achieved. Due to this shortcoming and some slippages in the portfolio, the overall performance of the CPS Program is considered only moderately satisfactory. C. CPS Program Performance by Strategic Pillar 16. The CPS for FY08-11 set out to achieve an overall of eighteen outcomes measured by twenty-eight outcome indicators, organized in three broad pillars: (1) Increased Accountability and Public Voice, (2) Equitable access to key sectors, (3) Sustainable and broad-based growth. A detailed assessment of achievements by outcome is presented in Table 1 in the Annex. Mozambique CPS - Program Performance Overview Achievements of CPS Outcomes by Pillar Pillar 1: Increased Accountability and Public Voice 1. Improved budget planning at central, district and municipal level ACHIEVED  2. Improved government fiduciary systems ACHIEVED  3. Improved government information and communication systems NOT MONITORED  4. Increased efficiency in legal and judicial services in selected provinces NOT MONITORED  Pillar 2: Equitable Access to Key Services 5. Increased access to information on HIV/AIDS and to treatment ACHIEVED  6. Improved equity in health services NOT ACHIEVED  62 7. Improved quality of technical and vocational education NOT MONITORED  8. Increased access to potable water ACHIEVED  9. Increased sustainable and affordable access to electricity to ACHIEVED  institutions outside of the power network Pillar 3: Sustainable and Broad-Based Growth 10. Simplified procedures to start a business ACHIEVED  11. Increased access to finance and support for SMEs NOT MONITORED  12. Increased Tele-density and access to ICT-based services ACHIEVED  13. Improved mobility ACHIEVED  14. Increased access to technologies and extension information ACHIEVED  15. Strengthened government capacity to develop the tourism sector ACHIEVED  16. Increased energy production for export, commerce and industry NOT MONITORED  17. Improved sustainable management of water resources NOT ACHIEVED  18. Enhanced capacity to respond to disasters PARTIALLY ACHIEVED  1. Increased Accountability And Public Voice - CPS Pillar 1 17. The PRSC series was the driving force behind the CPS program in the area “Increased Accountability and public voice� and supported significant progress towards improving budget planning at central, district and municipal levels, notably the strengthening of public financial management (PFM) systems. Improvements have focused on the legal framework and the implementation of an integrated PFM information system (e-SISTAFE) which has allowed the full transition from the previous system of advance payments towards a modern system of direct budget execution. Roll-out of e-SISTAFE was also supported by the Public Sector Reform Project and the system has been comprehensively introduced across central government and was accompanied by an extensive training program, involving 1,850 users. The roll out of e-SISTAFE has exceeded the targets set for in the PRSC series, both at the national and sub-national levels. Currently, over 90 percent of goods and services transactions are carried out through the system via direct bank transfer from the Single Treasury Account, thus improving transparency and information on public spending as well as reducing the risk of diversion of funds. Besides the PRSC’s role as a vehicle to buttress reforms, the IMF took a central role through its use of structural benchmarks to effectively implement e-SISTAFE, as pointed out by the IEG Country Study on Mozambique PRSCs (IEG Working Paper 2010/7). 18. Also supported by the PRSC and equally successful were measures to enhance revenue generation capacity through the creation of the Central Revenue Authority. The IEG Country Study on Mozambique PRSCs (IEG Working Paper 2010/7) confirmed that revenue collection is an area where most significant improvements were observable during the PRSC series. Revenue targets were exceeded for 2009 by reaching 17.8% of GDP; Coverage of internal audit and controls increased significantly and meeting the revised Performance Assessment Framework (PAF) targets for 2009 with 75% of central and provincial level bodies having operational internal audit units which amounts to an increase of 50 percentage points over 2007. Another, more general indication of the impressive improvements in PFM is provided by the PEFA assessment (December 2010), where the share of indicators graded B or above has gone from 39 percent in 2004 to 61 percent in 2009. The CPS delivered also two core ESW to support this results area, the CPAR Update and the Accounting and Auditing ROSC. 19. The process of decentralization has provided an opportunity to promote demand-side governance activities, including mainstreaming of social accountability mechanisms in order to enhance citizens’ participation in public sector management and the oversight of public resources. Unfortunately achievement of 63 CPS outcomes in the area of citizen oversight and improvements in legal and judicial services cannot be sufficiently demonstrated as the CPS results framework was not adjusted to allow a selection of different indicators. Due to the closure of the Public Sector Reform Project in unsatisfactory state, only some milestones were achieved and both of the associated CPS outcomes appear as ‘not monitored’. 20. Notwithstanding the shortcomings of the CPS results framework, results achieved through the first Decentralized Planning and Financing Project are witness to quite impressive progress as evidenced by ICR data (Report Nr. ICR00001308). For instance, at the end of the project in 2009, all districts had District Consultative Councils organized approving district plans and implementation reports over a zero baseline in 2004. All of the 128 districts have adopted methodologies for participatory planning and governance. A 2009 study of community participation and consultation found that the project made a major contribution in creating structures for community participation. Some 81 percent of respondents to the survey conducted said they were aware of district investments and 88 percent of these expressed satisfaction with the results. In terms of improving accountability and citizen voice the successful support for the completion and publication of data for the population census by the Public Sector Reform Project should also be pointed out for its important contribution to establish baseline data and reference points to measure improvement of public services. 21. While the Public Sector Reform Project struggled with an ambitious agenda for a three-year implementation period, the public sector team took to heart the lessons learned by dropping the originally planned second phase of the APL to devise a more effective approach to reform and decided for a change- management model for the follow-up operation, now planned for FY12. The successful Decentralized Planning and Financing Project was followed up with an operation in FY10 to sustain and further deepen the results achieved at the district and local level. Despite the politically sensitive decentralization policy in Mozambique, the new operation was successful in harmonizing development partner support under one common results framework. The second Decentralized Planning and Financing Project also continues to support some of the district communication strategies. 22. Despite the highly satisfactory outcomes in the area of PFM, overall, outcomes for this pillar are considered moderately satisfactory given the shortcomings of results achievement in improving legal and judicial services, as well as improved government information and communication systems. 2. Equitable Access To Key Services - CPS Pillar 2 23. The US$ 55mill HIV/Aids Response Project was successful in contributing to increased access to information on and treatment for HIV/Aids and thus provided an effective response to an area that the CPS had singled out HIV/Aids as perhaps the single greatest threat to Mozambique’s growth and development. The MAP project was restructured to better contribute to the implementation process of the Government’s National Strategic Plan to Combat STD and HIV/AIDS, notably the realignment of the CNCS (National HIV/Aids Council), which aims to refocus the organization's role around the core functions of coordination and leadership of the national HIV/AIDS response. Recently the CNCS Board examined and endorsed the decentralization of the HIV/AIDS response to the local level. In addition, the Board considered the new proposed organic statute for the CNCS, which seeks to ensure that the rules, staffing, recruitment and careers governing CNCS are based on the common Government Public Service laws and regulations. This is an important step in ensuring sustainability of the national HIV/Aids response. 64 24. Over the period of the CAS, the number of people receiving ARV treatment increased from 34,000 in 2006 to more than 170,000 by mid 2010 according to Global Fund data. Since the project supported the national HIV/Aids response, these results cannot be solely attributed to the project; however this figure far exceeds the 60,000 people envisioned in the CPS. The project’s last ISR reports that as of April 30, 2011, nearly 234,000 AIDS patients were on ART or roughly 47% of HIV+ individuals who need ART. Over 900 health facilities in Mozambique are providing PMTCT services to about 70,000 HIV positive pregnant women, representing a coverage rate of about 46%. Overall, according to data from successive epidemiological surveillance (2003, 2005, 2007) and the INSIDA 2009, the HIV epidemic in Mozambique appears to be slowing down, notwithstanding the continuing rise in the country’s southern region. 25. Other than in the HIV/Aids program, the CPS was less successful in achieving improved equity in health services, but was responsive to Governments request in quickly delivering an additional Health Commodity Securities Project. Preparation of the Health Service Delivery Project was delayed and then experienced another 10 months effectiveness delay. Although the latest ISR (Jan 2011) projects disbursements of up to US$20 million during the calendar year, by end of the CPS period, it had only disbursed about one percent of funds, mainly due to delays in submitting an acceptable procurement plan. This is juxtaposed by the health team’s quick response to an urgent Government request to help avert the fall-out of the global financial crisis which adversely affected the availability of key public health commodities and delivered an additional US$ 39mill Health Commodity Security Project. The project became effective in February 2011 and aims at improving supply chain management in the country, thus ensuring the availability of selected drugs and medical supplies in Key Distribution Points. 26. The institutional set-up for the national TEVET system was successfully created under the CPS. However, the Technical and Vocational Education Project followed a rather ambitious design by creating the institutions for a market-oriented and competency-based TEVET system and expecting results in labor-market uptake for graduates of newly created qualification program within a five-year implementation period. The project experienced implementation delays, in particular with regard to policy implementation as well as institutional arrangements, but made significant strides towards setting up Mozambique’s TEVET system and met the milestones the CPS set in this area: 19 qualifications and related modules have been developed in the areas of Agriculture, Industrial Maintenance, Tourism and Administration and Management. However, the indicator on labor-market uptake was unlikely to be observable under the projects or the CPS period; the following CAS will have to closely monitor developments in the TEVET area, especially since the project received additional financing in FY11 to scale up its impact. 27. The CPS Results Framework did not include results in the area of access, quality and equity of primary and secondary education, but great progress was made through the US$ 79mill Education For All Catalytic Trust Fund (FY09). Supporting the implementation of the Government's Strategic Plan for Education and Culture 2006-2011, the first FTI project employed a pooled funds mechanism to move Mozambique’s education sector closer to achieving the MDGs. The primary completion rate increased from 38% in 2007 to 48% in 2009 and the illiteracy rate was reduced by 9 percentage points in the three-year period between 2007 and 2009. An additional 7000 teachers graduated from pre-service training in the same period, according to the last ISR of the project. The project is followed by another FTI and IDA combined investment of US$171mill in FY11 to continue improving educational quality and picking up the delays in classroom rehabilitation and construction. Overall, 65 although not officially accounted for in the CPS, achievements in the general education sector which were directly supported by the Bank’s program were significant. 28. Progress in increasing access to potable water through the Water Services and Institutional Support Project was significant under the CPS. The original US$15mill operation received additional financing of US$ 37 million in FY11 and has scaled up its activities to additional cities, now serving Beira, Dondo, Nampula, Quelimane, Ilha de Mocambique, Mocimboa da Praia, Pemba, Tete, Chimoio, Gondola, Angoche, Moatize, and Nacala. By end of June 2011, the project had connected an additional 192,443 urban dwellers to potable water, and hence exceeded the CPS target of 53,000 people by far. 29. This remarkable result was achieved despite the FY07 approved US$ 6 million Output-Based Payments Grant to increase piped-water access to the poor in Maputo, Beira, Nampula, Quelimane, and Pemba never took off and has yet to be restructured to focus on Maputo only. Under the division of labor increased rural access was supported by the African Development Bank with a programmatic lending approach. Although not supported by Bank operations, access to clean water in rural areas has been growing at around 200,000 to 250,000 people per year in the four targeted provinces which exceeds by far the CPS target of adding 360,000 people over 4 years, The CPS should have clearly stated the division of labor in this area; however, taking into account the impressive results, this oversight in managing the CPS shouldn’t impact the assessment of this outcome. 30. The CPS was successful in increasing access to sustainable and affordable electricity to institutions outside of the power network, but did not fully attain its targets within the CPS period. Supported by the IDA US$ 40 million Energy Reform and Access Project (ERAP), the CPS specifically focused on electrifying schools and clinics with off-grid solar systems. Out of the 300 planned systems to be installed, 236 acceptance certificates had been issued by the consulting engineer by May 2010. The remaining 64 facilities, plus an additional 100 facilities not foreseen in the CPS, will be completed by early 2012. The procurement and contractual delays have now been resolved and the contractor for the remaining installations has now mobilized. Although not measured by an outcome indicator, the on-grid electrification activities also supported by the project were very successful in reducing the cost for new grid connections. While the project target was to decrease the new connection cost to under US$ 950 per connection, in May 2010 the average cost was below US$ 700 by the end of the project, thus by far exceeding the project’s target. In addition, approximately 28,000 new household connections in project areas were completed by May 2011. Looking forward, this is a significant stepping stone in ensuring the sustainability of electricity access expansion in Mozambique. 31. Select achievements under this pillar are impressive but are contrasted by significant shortcomings and delays in critical areas. Despite the excellent progress in the area of HIV/Aids prevention and treatment, increased access to potable water and educational outcomes towards the MDGs, outcomes for this pillar cannot be rated better than moderately satisfactory due to the shortfall in general health service delivery, delays in the TEVET system as well as below-target numbers in institutional off-grid access to electricity. 3. Sustainable And Broad-Based Growth - CPS Pillar 3 32. The CPS growth agenda was broadly delivered and achieved, although two critical areas either slipped into the next CAS period or were dropped without being formally adjusted in the CPS framework which reflects negatively on the otherwise satisfactory accomplishments. Guided by the overall goals of sustainable and 66 broad-based growth, this pillar grouped interventions supporting improvements in the investment climate and financial sector, ICT and transport infrastructure, as well as agricultural development and strengthening the tourism sector, one of Mozambique’s growth areas with great potential. Energy production, water resource management and enhanced disaster response were also part of this pillar’s program. The investment lending program and PRSC were supported by a knowledge program of ESW and TA products, including the High-Level Policy Conference on Medium-Term Economic Policy Priorities, hosted by the Government of Mozambique and jointly undertaken with the IMF, Bank and other donors, which was highly appreciated for its in-time and adequate high-quality support to the client. 33. Water resources management and disaster response are critical areas for Mozambique, a country that is frequently exposed to floods on the one hand but has difficulty to serve its capital city with the necessary water supply on the other hand. The National Water Resources Development Project addresses both aspects by increasing the storage capacity of Corumana dam to ensure adequate supply to the Maputo piped system on one hand, and supports the implementation of the National Water Resources Strategy on the other hand. Unfortunately the project slipped into FY12, the next CAS period, mainly due to delays in preparatory studies and the precautions and safeguards needed in projects that involve large dams. Disaster preparedness and response in the meantime was supported by a GFDRR grant that made good progress in mainstreaming integrated disaster risk management and adaptation to climate change into policies and strategies, such as the Plano Quinquennal (Mozambique’s Five-Year National Plan) at the national and sector level. 34. The Bank’s program made critical contributions to power sector development but the CPS outcome to increase energy production for export, commerce and industry was not directly supported by project activities undertaken during the CPS period. The CPS had anticipated the Bank’s involvement in increasing intra-regional power trade via the Mozambique-Malawi Transmission Interconnection (SAPP APL-II) project. However, due to political reasons in Malawi, the credit for the Malawi segment of the project was never signed and the credit is due to be restructured to support the national energy sector in Mozambique. That said, several reform areas in Mozambique’s energy sector were supported by Bank operations, such as the Energy Reform and Access Project (ERAP APL-I), including the successful establishment of an independent, advisory regulator for the energy sector in Mozambique. ERAP’s successor project, the Energy Development and Access Project (EDAP APL-II), which was approved in March 2010, will continue to support on- and off-grid electrification as well as ongoing sector reforms. In a related area, the water resources outcome was not achieved as anticipated, with the regional ESW on the Zambezi Multi-Sector Investment Opportunities, the Bank provided high-quality analysis to inform future sustainable development in the Zambezi valley, including irrigation, tourism and regional power development and trade through the Southern African Power Pool. 35. The ICT agenda was successfully delivered under the CPS by introducing competition in the Mozambican telecommunications market. As a result, ele-density increased from 8% in 2000 to over 20% in 2008, a performance that is also remarkable in comparison to other regional countries. Building on the initial success, the follow-up eGovernment and Communications Infrastructure Project (MEGCIP) project, delivered in FY10, further improves competition, through the introduction of a third mobile operator, improves affordability of international communications and internet services, and addresses the lack of competitively priced backbone access, which constitutes one of the most severe barriers for operators. In addition the new intervention will 67 also reach direct beneficiaries by supporting the setup of up to 20 Community Multimedia Centers (CMCs) throughout the country. 36. Improvements in the Investment Climate, particularly with respect to the ease of doing business and the strengthening the financial and Tourism sector were successfully supported by the CPS program. The number of days to open a business was reduced from 90 in 2006 to 26 in 2009, surpassing the target set by the CPS and the Performance Assessment Framework (PAF) for General Budget Support. While the outcome was supported by the PRSC series, the Financial Sector Technical Assistance Project, and the Competitiveness and Private Sector Development Project, which is a US$ 25 million operation closing in 2014, aiming to accelerating licensing reform and enhance business services for SMEs, an area that is also supported by IFC. The Competitiveness operation will also provide matching grants schemes accessible to participating SMEs which is a critical stepping stone in increasing access to finance.. The achievements in improving standards in the financial sector exceeded the target of 80%, by 93% of banks fulfilling norms and IAS/IFRS in 2010 over a zero baseline in 2006. The CPS complemented its lending program in this area with the FSAP Follow-Up and Mozambique Investment Climate Assessment (ICA) in FY09, a Growth Poles & Economic Zones analysis in FY10, the Regional Investment Climate Assessment and the Regional Trade Report in FY11. IFC newly invested about US$43 million in the banking Sector in Mozambique and otherwise realized roughly US$27 million in private sector investments in the Oil, Gas and Mining Industry and Food and Beverages. 37. IFC’s advisory services played a role in supporting the SME segment in Mozambique over the CPS period but it is difficult to assess in measurable terms in how far the CPS succeeded to increase access to finance for SMEs. IFC provided a rich program for SMEs through its Advisory Services mostly focusing on business plan creation, which in turn would secure investment or lines of credit. IFC also financed capacity building activities including for women entrepreneurs. Most prominently placed was IFC’s SME Initiative with the general objective of creating a sustainable SME funding mechanism complemented by tailored advisory activities to enable SMEs to better deal with issues related to business legalization, environmental and social licensing, strategic and business planning, accounting and financial management, and other management issues. 38. Tourism Sector Development progressed well under the CPS, albeit changes in the regulatory environment are lagging behind. The Tourism sector was supported by two operations under the CPS, the Competitiveness and Private Sector Development project, focusing on support to SMEs in the sector, and the Trans-Frontier Conservation Area & Tourism Development Project (TFACTDP) supporting community participation in tourism development, as well as IFC’s Tourism Anchor Investment Program. The number of bed- nights in tourism facilities in target districts increased to about twice the amount of the targeted 100,000 bed- nights by 2009, and, the TFACTDP also surpassed its targets for revenue generation by targeted protected areas in Mozambique. The tourism agenda was also successfully supported by IFC Advisory Services securing a US$ 2.5 million investment for the Maputo Elephant Reserve for a partnership between a private sector investor and a local community association and securing a US$ 30 million tourism investment for the Casuarina and Epidendron Islands. The development is expected to create 650 jobs during construction and 250 jobs during exploration. IFC also successfully supported regulatory reform in the tourism sector, including the Investment Law Regulation which allows individual Integrated Tourism Resort projects to apply for Special Economic Zone status, the Tourism Interest Zones Regulations which foresees that areas with special natural, cultural or historic characteristics can be reserved for tourism development and the creation of a new government agency, the 68 Tourism National Institute (INATUR) in charge of tourism development and investment facilitation in ‘Anchor Sites’. Despite these achievements and the successful development of Tourism Master Plans for three provinces, critical sector reform processes, such as the award and management of tourism concessions on public land, are delayed at the national level and should be closely monitored under the new CAS until the project closes in 2013. 39. The CPS program was by and large successful in achieving the anticipated outcomes in the transportation sector. Specific challenges became recently evident with the concessionaire for the Railway line in the Zambezi Valley, as rehabilitation works were falling further behind, and line’s capacity and rolling stock fleet were unable to meet the transport demand. This lead the performance of the Beira Railway Project to be downgraded to unsatisfactory state, just nine months before the project’s closing end December 2011. The Beira Railway Project built on the successful delivery of the Railway and Ports Restructuring Project that restructured Mozambique’s Ports and Railway Parastatal (Portos e Caminhos de Ferro de Mozambique, E.P.- CFM) and substantially increased the operating efficiency of the three major port-rail systems in Mozambique and enabled them to increase their share of international freight traffic. The scheduled ESW on the Concessionaire is delayed into FY12. 40. In the roads sector, the Roads and Bridges Maintenance Project, delivered as an Adaptable Program Loan, assisted the recipient successfully in setting up the National Roads Fund and increasing its revenues, which in turn is the main mechanism to finance road maintenance. By end of the first phase of the APL revenue targets were surpassed and such the sustainability of financing for road maintenance significantly strengthened. During the CAS period, additional financing for the second phase of APL2 was delivered and together with support by the PRSC, targets for the percentage of road network in good and fair conditions increased almost as planned from 64% in 2007 to 71% in 2009, albeit falling short of the 78% target. The next CAS will have to closely monitor maintenance and rehabilitation of roads assets. 41. The agriculture sector in Mozambique faced considerable challenges but the CPS program successfully supported the anticipated CPS results. Main vehicles of support were the PRSC, the Marked-Led Smallholder Development Project, a Public Expenditure Review study of the agricultural sector and a set of high-quality set of Land Policy Notes. The anticipated target of increasing access to public extension services from 222,000 in 2007 to 411,000 in 2009 was almost met in 2009 by reaching a total number of 364,752 peasants. However, extension services, while critical, are only enablers for improved productivity and increased agricultural income. Together with the US$ 70 million Sustainable Irrigation Development Project approved in FY 11, the agricultural sector program will have to strengthen its policy dialogue and accelerate implementation to show real impact during the following CAS period. 42. Performance of the CPS program under this pillar was uneven across different sectors but overall satisfactory despite the diverse set of challenges posed by a difficult policy environment and sometimes diverging multi-development partner interests. Nevertheless, due to the inadequate results framework in some of the targeted areas, outcome achievement under this pillar can only be considered moderately satisfactory. III. WORLD BANK GROUP PERFORMANCE D. CPS Design and Relevance 69 43. The FY08-FY11 CPS was relevant in its design by being developed in close alignment with Mozambique’s PRSP, or PARPA II whose name is derived from the Portuguese acronym for the Second Action Plan for the Reduction of Absolute Poverty. One of the main drivers of the CPS program was to address the challenge of sustaining growth in Mozambique’s economy beyond the post-conflict catch-up that could be observed since the end of the civil war in 1992. Other main challenges identified by the CPS were second generation policy and regulatory reforms associated with the broad area of governance and the needs of the human development agenda, including the paramount challenges posed by HIV/Aids. Responding to these challenges, and based on sound preparatory analytical work, the CPS program was arranged in three pillars, (I) Increased Accountability and Public Voice, (II) Equitable Access to Key Services, and (III) Sustainable and Broad-Based Growth. 44. The CPS Results Framework was generally clearly organized, but the opportunity to adjust the program through a progress report was missed causing detrimental effects for the results-based management of the program.. The results matrix aligned the portfolio well with government development goals in an overall of eighteen outcomes, grouped in five results areas and three pillars. While the framework could have defined outcomes more selectively, by and large it was furnished with measureable outcome indicators. However the CPS included end-of-project results for some pipeline operations which were impossible to be realized during the CPS implementation period. Since no CPS Progress Report was prepared the opportunity to correct this shortcoming was missed, and together with delays in project preparation, this lead to CPS outcomes rated as ‘not achieved’, while in fact they should have been dropped or adjusted and replaced with more suitable ones. E. CPS Implementation 45. Most of the lending program planned under the CPS was delivered and the World Bank Group adapted well in response to emerging needs stemming from the Global Financial Crisis and other challenges. In summary the World Bank Group made good use of the instruments available to successfully adapt the program to changing needs. The country team delivered a considerable additional lending program that almost doubled the original indicative lending volume through (i) higher than anticipated lending amounts for most operations, (ii) Additional Financings to ongoing operations and (iii) additional projects. 46. The initially anticipated CPS program exhibited some delays and a few slippages which occurred mostly where complex operations were being prepared in sectors with a challenging political economy environment such as water resources or agriculture. However, projects facing preparation delays mostly were eventually approved with a higher than originally anticipated lending amount. About half of the new lending program was approved in FY11, indicating bunching coinciding with the end of the IDA15 cycle. 47. Overall the portfolio maintained its ‘healthy’ and ‘efficient’ state which is an indication for a well managed portfolio, although portfolio performance took a downward turn in FY11. Equally, the high pro-activity levels decreased to only 33% in FY11. This coincided with the delivery of more than 50% of new lending in FY11, which is an astounding accomplishment given the CMU’s management challenges during this period. In addition, preparation time was reduced from 15 to 9 months on average compared to the previous CAS period and is lower than the average 12 months for the Africa Region overall. The country team carried out a rigorous CPPR program with a strong results focus and follow-up on issues identified, such as intensified client capacity building in procurement, financial management and monitoring and evaluation. 70 48. The Mozambique portfolio was Mozambique FY08 FY09 FY10 FY11 generally effective in terms of achieving # of Projects 17 16 16 20 development outcomes as evidenced Net Commitment Amount 803.7 705.3 676.1 1,001.4 # Problem Projects 1 2 2 5 by 86% satisfactory outcome ratings for '% Commit at Risk 6.8 11.4 20.0 26.5 FY08-10 (IEG) and a 0% disconnect to '% Realism Index 32.4 62.5 81.3 100.0 % Pro-activity 100.0 0.0 100.0 33.3 IEG ratings for exiting projects over the CPS period which is considerably lower than the average for the Africa Region. Only one project, the Public Sector Reform Project (FY03) exited with an unsatisfactory (both Bank and IEG) rating. Nevertheless, bunching, delays and the leadership vacuum had a bearing on CPS portfolio effectiveness. Unfortunately no CPS Progress Report was prepared to adjust the results framework to changing circumstances and to properly reflect additional operations. 49. The CPS included a demand-driven AAA program which was generally consistent with the areas of focus of the Bank. In hindsight, the demand-driven approach worked well in responding in a timely manner to select social and economic challenges (food/fuel price crisis, social protection), but could have benefitted from better strategic programming. The slippage of the publication of one of the major ESW deliverables, the Country Economic Memorandum (CEM), beyond the CPS implementation period into FY12, is an unfortunate shortcoming. However, alternate AAA activities were highly successful and flexible in responding to the changing circumstances, such as the global financial crisis. Notably the High-Level Policy Conference on Medium-Term Economic Policy Priorities which was hosted by the Government of Mozambique and jointly undertaken with the IMF, stands out with respect to providing in-time, high-quality knowledge support to the client. Having been co- sponsored by the United Kingdom Department for International Development (DFID) and the Swiss Agency for Development and Cooperation, the conference is also an excellent example of development partner collaboration. In addition, ESWs such as the ones on Municipal Revenues, Urbanization and the Water Sector Public Expenditure Review proved the Bank’s ability to deliver high-quality knowledge products in time for public policy planning as well as informing the lending program. 50. Overall, progress was made to move forward the Paris Agenda on alignment and harmonization of Development Partners according to the 2011 OECD Mozambique Evaluation Report on the Paris Agenda, but the heavy aid architecture increasingly limits flexibility and efficiency. The PRSC series to provide direct budget support was in line with the effort to accelerate implementation of the Paris Agenda, an explicit objective of the CPS and based on recommendations from the previous CAS. The Memorandum of Understanding serves as the main vehicle for coordination of budget support by the Budget Support Donors Group (G19). An elaborate set- up of up to 72 working groups encompasses the overall aid architecture in Mozambique which is generally believed to reduce transaction costs for Government. Conversely, the World Bank Group’s participation and lead in a high number of working groups entails significant transaction costs at the Bank’s side and restricts somewhat the flexibility in raising policy issues, although sector specialists, over time, have arrived at appreciating the PRSC as a vehicle for generating more effective sector policy dialogue, as the IEG Country Study on Mozambique PRSCs (IEG Working Paper 2010/7) points out. 51. On the other hand, the three-year Performance Assessment Framework (PAF), used to monitor progress against development outcomes for general budget support, was perceived as too rigid and the development partner dialogue at times as challenging, particularly with regard to education and agriculture SWAPs. Donor 71 dialogue reached an impasse in early 2010 in the context of Mozambique’s General Elections, when multilateral positions diverted significantly from the ones brought forward by bi-lateral donors with regard to demanding political change. Despite the challenges of participating in a large group of donors with equal voice, Government officials pointed out in the IEG Working Paper on Mozambique’s PRSCs that the Bank’s convening power lends credibility to the general budget support program and appreciated the Bank’s technical expertise as an asset in helping shape policy formulation. The same review however also encourages stronger Bank leadership on analytical work as a foundation for the budget support program; a suggestion that should be taken seriously for the upcoming CAS. F. World Bank Group Performance Rating 52. The World Bank Group delivered very successfully a stronger than anticipated lending program and timely AAA products, yet the Bank’s performance falls short of a fully satisfactory rating for the following reasons: The impact on the ground could have been even stronger with less slippages, tighter ESW programming and the formal undertaking of the necessary adjustments through a CPS Progress Report. A major contributing factor was certainly the transitional character of management during the second half of the CPS implementation. The success of the strategy despite of these internal management challenges was due to the consistently strong dialogue and close engagement with Government, and the continued strong management at the portfolio and project level which off-set the overall lack of strategic leadership during the last third of CPS implementation. Therefore the World Bank Group performance is overall rated as only “Moderately Satisfactory�. IV. KEY LESSONS LEARNED AND RECOMMENDATIONS FOR THE NEW CAS 53. Poverty Reduction. Poverty has stagnated at roughly 55 percent of the population despite good levels of growth in the economy and during the CPS period growing disparities between rural and urban poverty became more apparent. At the same time there are concerns about the reliability of national poverty data. Over the next CPS period considerable effort should be put towards providing appropriate analytical work to better understand structural deficiencies and weaknesses in the Government’s growth and poverty reduction strategy. Analytics of this kind need to have a thorough grounding in the country itself, going beyond participatory approaches. The Bank, together with Government and other partners should explore avenues for institutionalizing a permanent Think Tank with a strong policy evaluation unit that has, while being independent from influence, enough political clout to be a driver of change. The AAA program and possibly a governance focused operation should take this into account. 54. CAS Monitoring. One of the significant shortcomings of the CPS was the failure to monitor CPS outcomes and adapt to changes in the country environment and the portfolio. The upcoming CAS should take a pro-active approach and have an annual stocktaking exercise on CAS milestones and implement the necessary adaptations at mid-term together with a CAS Progress Report. CAS monitoring should be based on a more selective results matrix with a smaller number of outcomes to avoid fragmentation of results. In addition, the results framework should carefully take into account the level of results it can realistically achieve over the CAS period, given the timeframe, risks and resources available of supporting operations. It would also be worth 72 trying to map investments per supported outcome as this may place particular attention to ‘high value’ outcomes. 55. Leadership, Pipeline and Portfolio Management. Portfolio performance and pro-activity took a downward turn towards the end of the CPS period. This coincided with challenges in the CMU’s leadership, leaving key positions in acting arrangements for significant periods of time. Staff morale in particular at the country office level suffered from a lack in readily available management guidance. Going forward the CMU should ensure strong leadership for the country team and program to reinstate trust and stability. Going hand in hand with this, strong and systematic portfolio management could help in addressing issues quickly and avoid slippages in programmed lending and weaknesses in portfolio performance. As for the pipeline, candid analysis of capacity (client and Bank) and the political economy of the concerned sectors could allow for a more realistic assessment of preparation time and implementation readiness. 56. Choice of Instruments - Investment Loans/Grants & PRSC: While the PRSCs are helpful in embedding sector specific reforms within broader structural reforms in the economy and ensuring that the reforms are aligned with national development strategies, they have their limitations. The successful implementation some of the PRSCs was strengthened by the presence of complimentary technical assistance projects. This was especially the case where capacity was weak. Going forward this cross-fertilization of PRSCs and sector investment programs should be pro-actively used as an instrument to influence and impact outcomes on the national development agenda. 57. AAA Program: Going forward the CAS should lay out a more focused and planned AAA program related to PRSC areas to inform the sector dialogue, as suggested by the IEG Country Program Evaluation (IEG 2010/07). Together with more Public Expenditure Surveys, analytical work will then have a better chance of influencing reforms on which in turn investment operations can build. The Bank team should also take seriously the suggestion by the IEG s Country Program Evaluation (IEG 2010/07) to assume a stronger leadership role in the budget support program, building on analytical work as a foundation. Besides other priority areas determined by budget support areas and sector engagements, the analysis should focus on analyzing why poverty rates are stagnating while Mozambique’s economy sustains high levels of growth. 58. Aid Architecture: While Mozambique is still regarded as a good example of development partner harmonization, the heavy aid architecture takes a toll in terms of transaction costs on development partner sides. Under the upcoming CAS the Bank should take an active role in overhauling the heavy aid architecture in Mozambique to let the entire development partner community benefit from efficiency gains. This may need high-level dialogue beyond Head of Corporations/ Head of Missions level. 73 CPS CR Annex – Table 1: Summary of CPS Program Self-Evaluation FY08-FY11 CAS Outcomes Status and Evaluation Summary42 Lending & Non-Lending Activities Lessons & Suggestions for contributing to the outcome the new CAS Pillar 1: Increased Accountability and Public Voice 1. Improved budget ACHIEVED  CAS Outcomes planning at central,  e-SISTAFE rolled-out to at least 25 ministries and government - PRSC 3,4,5 depending by and large district and municipal agencies, and rolled out to at least 27 districts by end- 2007 and based - Nat’l Decentralized Planning and on one operation only level on new PAF targets subsequently. Actual: e-SISTAFE was operational Financing Project (FY04) put parts of CAS in all 25 ministries and main institutions of the State by end-2007. By achievement at risk. The end 2008 e-SISTAFE was successfully rolled out to 50 districts. next CAS should aim at  Total revenue as percentage of GDP increased from 14.8% in 2006 to reducing the overall 14.9% in 2007, 15.4% in 2008, and 15.9% in 2009. Actual: Central number of CAS outcomes Revenue Authority (CRA) created on time; Revenue targets exceeded and define CAS in 2007, and 2009. 2007: 16.4%, 2008: 16.0%, 2009: 17.8% outcomes based on a 2. Improved government ACHIEVED bundle of operations and fiduciary systems  Increase the coverage and efficiency of internal audit bodies: number - PRSC 3,4 AAA activities. of central & provincial level bodies with operational internal controls - Pub Sec Reform Project (FY04) increased from 20% in 2006 to 30% in 2007 to 65% in 2008 to 100% in 2009. Actual: 2007: 25%, 2008: 59%, 2009: 75%. [Targets are MZ PAF targets and 2009 target was formally revised to 75%] 3. Improved government NOT MONITORED information and  Cumulative number of state institutions linked to the electronic - Pub Sec Reform Project (FY04) communication systems government at central, provincial and local levels increases (from 50 - Nat’l Decentralized Planning and  Ensure that indicators in 2006 to 100 in 2009). Actual: Some outputs achieved: Electronic Financing Project (FY04) selected for CAS are platforms (Govnet and eGov) developed. monitored. Correct at  Percentage of Districts effectively implementing communication CAS Progress Report as strategy linking communities to local administration increased to 60% needed. by 2009. Actual: Activities were implemented and some outputs achieved: Communication strategy formulated, training of media staff and on new law on local organs and participatory planning carried out. 4. Increased efficiency in NOT MONITORED legal and judicial services  Number of days between the intake of a new case in the justice - Pub Sec Reform Project (FY04) in selected provinces system and its sentence reduced (by at least 10% by 2009) in the provincial courts of Maputo, Sofala, Nampula, Tete and Niassa. Actual: Baseline was never established and indicator was not monitored. 42 Status and Evaluation Summary are based on the assessment of CPS Outcome Indicators set forth in the CPS Results Matrix. 74 Pillar 2: Equitable Access to Key Services 5. Increased access to ACHIEVED  Avoid slippages in information on HIV/AIDS  Number of people receiving ARV treatment increased (from 34,000 - MZ-HIV/AIDS Response SIL (FY03) lending program and and to treatment in 2006 to 60,000 in 2009). Actual: 170,198 people were on ARV plan realistic delivery treatment in mid 2010, as reported by the Global Fund. dates for portfolio 6. Improved equity in health NOT ACHIEVED together with strong services  Number of people reached through outreach teams and teams of - MZ-Health Service Delivery SIL portfolio management, community health workers providing basic health services in the (FY09) focused on pro-activity provinces of Cabo Delgado, Nampula, and Niassa increased to 6.1 to ensure timely results million (50% of the provinces’ population). Actual: Project delayed achievement. and only became effective in June 2010 7. Improved quality of NOT MONITORED  Update indicators at CAS technical and vocational  Percentage of graduates from medium level TVET schools find jobs or - MZ Tech & Voc Edu & Training Progress Report to avoid education create jobs in their field of study increased (by 50%). Actual: Project (FY06) detrimental outcome delays, AF and project restructuring in FY12. Some intermediate ratings due to dropped results/milestones achieved: 19 qualifications and related modules activities that were not were developed for Agriculture, Industrial Maintenance, Tourism and formally revised in the Administration and Management. program. Avoid 8. Increased access to ACHIEVED indicators that are too potable water  Total number of additional people connected in the cities of Beira, - MZ Water Services & Inst. high-level given the time- Nampula, Quelimane and Pemba increased from 0 in 2007 to 53,000 Support frame of the in 2011 (10,000 new households connected with 5.3 average people - AF to MZ Water Services & Inst. implementation period. per household). Actual: In September 2009, an additional 63,635 Support people had access to piped HH water in Beira, Nampula, Quelimane - MZ Water Private Sector and Pemba (11,570 HH connections) Contracts: OBA for coverage  Total rural population in the Northern provinces of Zambezia, Cabo expansion Delgado, Niassa and Nampula with access to potable water increased from 1.8m in 2007 to 2.16m in 2011. Actual: Access grew at 200,000 to 250,000 people per year in the targeted provinces, supported by AfDB, complementing the WB program in urban areas.  Total urban population in the Northern provinces of Zambezia, Cabo Delgado, Niassa and Nampula with access to potable water increased from 0.9m in 2007 to 1.06m in 2011. Actual: 151,540 people have gained new access to potable water. 9. Increased sustainable and ACHIEVED affordable access to  Number of hospitals and schools with access to electricity increased - MZ Energy Reform and Access electricity to institutions (from 200 in 2006 to 500 in 2009). Actual: An additional 236 public Project outside the power facilities (125 clinics and 111 schools) were electrified by May 2010. network the remaining 64 facilities, plus an additional 100 facilities not foreseen in the CPS, will be completed by early 2012. The contractor for the remaining installations has already mobilized. Pillar 3: Sustainable and Broad-Based Growth 75 10. Simplified procedures to ACHIEVED start a business  Number of days to open a business reduced (from 90 in 2006 to 30 in - PRSC 3 2009). Actual: 2007: 29, 2008: 26, 2009: 26. - MZ-Competitiveness and PSD 11. Increased access to NOT MONITORED finance and support for  Credit to SMEs as % of GDP increased. Actual: Access to credit is not - MZ-Competitiveness and PSD SMEs explicitly supported by WB operations. Other milestones were - MZ-Financial Sector TA Project achieved: Percentage of banks fulfilling norms and IAS/IFRS from baseline March 2006: 0% to progress by 06/15/2010: 93%. Mid-term target of 80% far exceeded. 12. Increased Tele-density ACHIEVED and access to ICT-based  Tele-density increased (from 8% in 2006 to 22% by 2009). Actual: - MZ-Communication Sector services Baseline 12/31/2000: 0.8 to 2008: 20.6 Reform Project 13. Improved mobility ACHIEVED  Percentage of road network in good and fair conditions increased - Roads and Bridges Management (from 76% in 2007 to 78% in 2009). Actual: (according to RMBP APL and Maintenance Program – I): 2007: 64%, 2008:67%, 2009:71%. [Note: baseline difference] Phase I and II  Improved financial sustainability of rehabilitation and maintenance. - PRSC 3 Actual: Achieved. The APL1 set up the National Roads Fund (financing - MZ-Railway & Port Restructuring roads maintenance) and revenue targets were surpassed by up to Project 20% each year, reaching US$61.3 m (over a US$55m target) in mid 2007.  Increased freight traffic for railways and ports. Actual: Baseline end Dec 2002: Ports: 8.2 million tons; Railways: 4.1 million tons. Actual end June ’09: Ports: 11.6 m tons, Railways: 4.35 m tons. 14. Increased access to ACHIEVED technologies and  Total number of peasants assisted by the public extension services, - PRSC 3 extension information including sub-contracting, increased from 222,000 in 2007 to 411,000 - MZ-Market Led Smallholder Dev in 2009. Actual: 2006: 92,000 (baseline), 2007: 285,000, 2008: (FY06) 354,000, 2009: 364,752 15. Strengthened govern- ACHIEVED ment capacity to  Number of bed-nights in tourism facilities in target districts to - MZ-TFCA & Tourism Dev develop the tourism increase to 100,000. Actual: 12/31/2009: 192,694  Going forward, sector strengthen assessments 16. Increased energy NOT MONITORED of political economy and production for export,  Arrangements to commence trading between ESCOM and EdM risk for regional projects commerce and industry and/or ESCOM and other SAPP entities via Mozambique finalized. - MZ Regional Transmission and increase realism in Actual: While the legal framework for power trading was concluded, Development Project results definition as well the SAPP APL-II credit to build the transmission interconnection was - MZ: Optimizing Megaprojects as undertake progress not signed by Malawi. Given this, power trading was not possible. (Cahora Bassa) TA review and adjust  Strengthened hydropower generation and export capacity through accordingly. Cahora Bassa. Actual: Bank energy sector activities undertaken  Define CAS outcomes during the CPS period did not support this outcome, as the Cahora from pipeline operations 76 Bassa facility is already in place. However, preliminary work to according to a realistic prepare a new Regional Transmission Development (“Backbone�) timeframe of results project commenced during the CPS period, which will evacuate achievement. power from new, privately-developed hydropower projects in the Tete region. The Board date for this project has been moved to FY12. 17. Improved sustainable NOT ACHIEVED management of water  Maputo water supply requirements (to 2020) met. Actual: Project - MZ-Water Resources Dev I SIL resources delayed, scheduled for FY12 - Regional ESW – Zambezi Multi-  Management plan and infrastructure operating rules developed for Sector Investment Opportunities the lower Zambezi Basin. Actual: Zambezi Multi-Sector Investment Analysis Opportunities Analysis completed.  Increased collaboration with Zambezi Valley riparian countries on water resource management. Actual: Riparian Countries completed the Zambezi IWRM Strategy. Number of workshops completed with participation from all riparian countries  In the new CAS 18. Enhanced capacity to PARTIALLY ACHIEVED framework, improve respond to disasters  Early warning and emergency preparedness systems established. - Mainstreaming Disaster indicator definition and Actual: A Drought and Flood Risk Atlas for Mozambique, and a Reduction Track II GFDRR (Stage measurability. number of databases was delivered which inform policy making; 1 and 2) several sectors have integrated disaster risk management and adaptation to climate change into strategies, mgmt of droughts and floods incorporated as priorities in the 2007 Water Policy and the National Strategy for Water Resources and reflected in annual and five-year plans. The second phase of INGC’s Study on Climate Change and Disaster Risk, implements disaster risk reduction in eight major priority areas: Early Warning and Response; Coastal Protection; Urban Areas; Resilient Communities; Preparedness; Water Management: Agriculture; and Analysis of Climate Extremes. 77 CPS CR Annex – Table 2: Planned Lending Program and Actual Deliverables (FY08-FY11) CPS Plans (April 24, 2007) – (IDA+TF) Status (July 1, 2011) – (IDA+TF:GEF, FTI) FY Project Mill. US$ Actual/Dropped/Forwarded to other FY/Additional Actual Mill. US$ Project FY 08 PRSC 4 – Poverty Reduction Support Credit 70 Actual: P103277 – MZ-PRSC 4 – intermediate 60 Health Service Delivery Project (SWAP) 30 Fwd to FY09: Health Service Delivery Project Private Sector Development Finance 20 Fwd to FY09: Private Sector Development Finance National Decentralized Planning & Financing (p.SWAP) 15 Fwd to FY10: National Decentralized Planning & Financing [Regional: Advisory & Capacity Sup. F. Infrastr.Ministries] [10] Dropped [Regional: RCIP – Communications] [5] Fwd to FY09: RCIP Add’l Actual: P098040–MZ-GEF Mrkt Led Smallholder Dev. 6.2 Add’l Actual: P105205–MZ-Higher Education SIL – AF 15 Add’l Actual: P104566–MZ-Water Services & Inst. Support 15 Add’l Actual: P084404–MZ-Transmission Interconnection 93 (Regional) FY 08 Total 150 FY 08 Total Actual 183+6.2 FY 09 PRSC 5 – Poverty Reduction Support Credit 70 Actual: MZ-PRSC 5 90 Communications 2 15 Dropped: MZ – Communications II Market Driven Irrigation Project 20 Fwd to FY11: Market Driven Irrigation Project HIV / AIDS Response – MAP 2 (SWAP) 20 Dropped: MZ-HIV/AIDS Response II SIL Water Resources Management 20 Fwd to FY 12: Water Resources Management Energy Reform and Access Project (APL 2) 30 Fwd to FY 10: Energy Reform and Access Project [Regional: (to be identified)] [10] Fwd from FY08: RCIP/MEGCIP–eGov&Comm.Infrastr. (Regional) 31 Fwd from FY08: MZ-Competitiveness & PS Dev 25 Fwd from FY08: MZ-Health Service Delivery SIL 44.6 Add’l Actual: MZ-Ed. Sect. Support Progr. FTI-CF (no IDA funds) 79 78 FY 09 Total 185 FY 09 Total Actual 190.6 +79 FY 10 PRSC 6 – Poverty Reduction Support Credit 70 Actual: MZ-PRSC 6 110 Energy Generation, Transmission, and Distribution 40 Actual (+ Fwd from FY09): MZ-Energy Dev. & Access Project 80 Higher Education (APL 2) 20 Actual: MZ Higher Educ Science & Techn. 40 Maputo Municipal Development (APL 2) 30 Fwd to FY 11: MZ-Maputo Municipal Dev.Prog II Regional: HI V/AIDS 10 Dropped: Regional HIV/Aids Fwd from FY08: MZ-Nat’l Dec Planning & Fin SIL 30.4 FY l0 Total 170 FY 10 Total Actual 260.4 FY 11 PRSC 7 – Poverty Reduction Support Credit 70 Actual: MZ-PRSC 7 85 Rural Development (to be identified) 30 Actual (+ Fwd from FY08):MZ-PROIRRI Sust.Irrigation Devt 70 Roads and Bridges (APL3) 60 Fwd to FY13:APL3. Add’l Actual: MZ:APL2 Roads & Bridges AF. 41 Other (to be identified) 20 Actual: MZ-Spatial Development Planning TA 20 [Regional: (to be identified)] [10] Dropped Add’l Actual: MZ-Water Serv&Inst Spprt(WASIS)-AF 37 Fwd from FY10: MZ-Maputo Municipal Dev.Prog II 50 Add’l Actual: MZ-Health Commodity Security Project 39 Add’l Actual: MZ-Education Sector Support Program (US$161mill 71 incl. FTI) F Y 11 Total 190 FY 10 Total Actual 413 + 90 TOTAL FY08 – 11 695 TOTAL FY08 – 11 1047 + 175.2 79 CPS CR Annex – Table 3: Non-Lending Program & Actual Deliverables (FY08-FY11)43 FY Status (July 1, 2011) 44 Actual/Dropped/Fwd to other FY/Add’l Actual Project FY 08 ESW: P108428 – MZ-ROSC Acctg. & Auditing Actual: Delivered. TA: P111178 – MZ: Optimizing Megaprojects Actual: Delivered. TA: P110502 – Southern Africa – Workshops on Large Project Finance Actual: Delivered. TA: P110861 - MZ: IHP and Health Systems Actual: Delivered. TA: P103208 - Mozambique CPAR Update Actual: Delivered. FY 09 ESW: P110106 - MZ-Agriculture PER Actual: Delivered. ESW: P096503- MZ-CEM Actual: Final delivery fwd to FY12. ESW: P101999 - MZ-Modern Biofuels Analysis Actual: Delivered. ESW: P106088 - MZ-Urbanization & Mu Actual: Delivered. ESW: P108901 – MZ-ICA Actual: Delivered. ESW: P113442 - MZ: Response to higher food and fuel prices Actual: Delivered. TA: P106338 - MZ-Water Sector Management Actual: Delivered. TA: P112562 - Mozambique EITI Implementation Actual: Delivered. TA: P114559 - Mozambique FSAP Follow-Up Actual: Delivered. TA: P107960 - MZ-MTEF Health Sector Actual: Delivered. TA: P099205 - MZ-Poverty & PRSP BP Actual: Delivered. FY 10 ESW: P113534-MZ-Water PER Actual: Delivered. ESW: P118628-MZ- Growth Poles & Economic Zones Actual: Delivered. ESW: P103333-3A-Zambezi Basin Multi-Sector Investment Study Actual: Delivered. TA: High-Level Policy Conference on Medium-Term Economic Policy Priorities Actual: Delivered. TA: P104447 - MZ-GFDRR Mainstreaming Actual: Delivered. TA: P113170 - MZ-Environmental Policy Notes Actual: Delivered. TA: P119984 - Mozambique Concession Actual: Forwarded to FY11 FY 11 ESW: P118650 - MZ: Land Policy Notes Actual: Delivered. ESW: P124531 - MZ-Political Economy Actual: Dropped. ESW: P103230 - MZ-Impact Analysis Actual: Dropped. Regional ESW: Regional Investment Climate Assessment Actual: Delivered. Regional ESW: Regional Trade report Actual: Delivered. TA: P117425 - MZ Poverty & Growth Diagnostics Actual: Final delivery fwd to FY12 TA: P104447 - MZ-GFDRR Mainstreaming Disaster Actual: delayed TA: P119984 – MZ-Concessions Compliance Monitoring Actual: delayed TA: P119314 - MZ-Municipal Revenue Potential Study Actual: Delivered. TA: P122210 – MZ-Risk-Based Internal Audit Actual: Dropped TA: P123465 - MZ-Rural Retention Health Workers Actual: Dropped. 43 AAA Activities were listed in the CPS Results Framework, but the CPS has not detailed the ESW and TA Program per FY. 44 Based on data from intranet published AFR Deliverables: http://go.worldbank.org/04Y6GME5Q0 and updated versions provided by AFRRM. 80 ANNEX Mozambique Social Indicators ANNEX 3. 3: MOZAMBIQUE SOCIAL INDICATORS Latest single year Same region/income group Sub- Saharan Low- 1980-85 1990-95 2003-09 Africa income POPULATION Total population, mid-year (millions) 13.3 15.9 22.9 839.6 846.1 Growth rate (% annual average for period) 1.9 3.3 2.4 2.5 2.2 Urban population (% of population) 16.7 26.2 37.6 36.9 28.7 Total fertility rate (births per woman) 6.4 6.0 5.0 5.0 4.2 POVERTY (% of population) National headcount index .. .. 54.7 .. .. Urban headcount index .. .. 49.6 .. .. Rural headcount index .. .. 56.9 .. .. INCOME GNI per capita (US$) 260 130 440 1,125 509 Consumer price index (2000=100) 0 31 140 135 141 Food price index (2000=100) .. .. .. .. .. INCOME/CONSUMPTION DISTRIBUTION Share of income or consumption Gini index .. .. 45.6 .. .. Lowest quintile (% of income or consumption) .. .. 5.2 .. .. Highest quintile (% of income or consumption) .. .. 51.5 .. .. SOCIAL INDICATORS Public expenditure Health (% of GDP) .. 3.4 4.1 2.9 2.2 Education (% of GDP) 2.3 .. 5.0 3.8 3.5 Social security and welfare (% of GDP) .. .. .. 0.0 0.0 Net primary school enrollment rate (% of age group) Total 50 44 91 75 80 Male 54 50 93 77 82 Female 45 38 88 73 78 Access to an improved water source (% of population) Total .. 38 47 60 64 Urban .. 73 77 82 85 Rural .. 26 29 47 56 Immunization rate (% of children ages 12-23 months) Measles 39 71 77 68 78 DPT 29 57 76 70 80 Child malnutrition (% under 5 years) .. 24 21 25 28 Life expectancy at birth (years) Total 43 46 48 53 57 Male 41 44 47 51 56 Female 44 48 49 54 59 Mortality Infant (per 1,000 live births) 165 139 96 81 76 Under 5 (per 1,000) 246 207 142 130 118 Adult (15-59) Male (per 1,000 population) 468 418 489 390 312 Female (per 1,000 population) 361 321 469 358 275 Maternal (modeled, per 100,000 live births) .. 890 550 650 580 Births attended by skilled health staff (%) .. .. 55 44 41 Note: 0 or 0.0 m eans zero or les s than half the unit s hown. Net enrollm ent rate: break in s eries between 1997 and 1998 due to change from ISCED76 to ISCED97. Im m unization: refers to children ages 12-23 m onths who received vaccinations before one year of age or at any tim e before the s urvey. World Developm ent Indicators databas e, World Bank - 15 April 2011. 81 ANNEX 4: MOZAMBIQUE – KEY ECONOMIC INDICATORS Actual Estimate Projected Indicator 2008 2009 2010 2011 2012 2013 2014 2015 National accounts (as % of GDP) Gross domestic producta 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Agriculture 28.5 28.7 28.7 29.0 29.3 29.5 29.6 29.8 Industry 23.9 22.8 22.4 22.4 22.8 23.2 23.5 23.9 Services 47.6 48.5 48.9 48.6 47.9 47.4 46.9 46.3 Total Consumption 97.6 100.7 95.0 95.3 92.6 91.0 89.9 89.0 Gross domestic fixed investment 16.5 16.5 22.0 21.2 22.0 23.1 23.6 24.1 Government investment 11.5 12.9 14.0 11.6 12.0 12.4 12.4 12.6 Private investment 4.9 3.6 8.0 9.6 10.0 10.7 11.2 11.5 Exports (GNFS)b 32.3 27.4 30.4 28.2 28.3 27.7 27.8 27.8 Imports (GNFS) 46.4 44.5 47.5 44.7 42.8 41.8 41.3 40.9 Gross domestic savings 2.4 -0.7 5.0 4.7 7.4 9.0 10.1 11.0 Gross national savingsc -2.3 -1.8 3.6 2.3 3.9 5.9 7.2 7.9 Memorandum items Gross domestic product 9,943 10,085 9,805 12,118 13,545 15,054 16,537 17,989 (US$ million at current prices) GNI per capita (US$, Atlas method) 390 430 450 470 510 580 620 660 Real annual growth rates (%, calculated from 95 prices) Gross domestic product at market prices 6.8 6.3 6.8 7.2 7.5 7.9 7.8 7.8 Gross Domestic Income 8.6 4.6 10.9 8.5 9.2 7.9 6.9 7.3 Real annual per capita growth rates (%, calculated from 95 prices) Gross domestic product at market prices 4.3 3.9 4.2 4.8 5.2 5.5 5.4 5.5 Total consumption 11.3 6.4 1.4 5.4 4.2 1.9 1.6 5.1 Private consumption 11.6 4.9 2.0 4.4 3.7 1.5 1.1 5.2 Balance of Payments (US$ millions) Exports (GNFS)b 3,208 2,759 2,985 3,416 3,830 4,174 4,596 5,001 Merchandise FOB 2,653 2,147 2,333 2,649 2,972 3,251 3,582 3,898 Imports (GNFS)b 4,609 4,491 4,657 5,412 5,801 6,290 6,829 7,357 Merchandise FOB 3,643 3,422 3,512 4,029 4,255 4,572 4,942 5,304 Resource balance (1,401) (1,732) (1,672) (1,995) (1,971) (2,116) (2,233) (2,355) Net current transfers 852 763 657 842 783 850 927 1,025 Current account balance (1,179) (1,220) (1,113) (1,422) (1,508) (1,663) (1,845) (2,047) Net private foreign direct investment 587 890 790 1,008 1,019 1,103 1,173 1,249 Long-term loans (net) 254 374 863 706 764 821 796 840 Other capital (net, incl. errors & ommissions) 478 308 (453) (164) (27) 58 216 303 Change in reservesd (140) (352) (87) (128) (248) (319) (340) (345) Memorandum items Resource balance (% of GDP) -14.1 -17.2 -17.0 -16.5 -14.6 -14.1 -13.5 -13.1 Real annual growth rates ( YR95 prices) Merchandise exports (FOB) 8.7 -1.2 -6.0 2.8 3.0 6.9 8.2 8.8 Merchandise imports (CIF) 19.7 8.0 0.5 11.2 5.8 7.7 8.3 6.8 82 ANNEX 4 (CONTINUED): MOZAMBIQUE – KEY ECONOMIC INDICATORS Actual Estimate Projected Indicator 2008 2009 2010 2011 2012 2013 2014 2015 Public finance (as % of GDP at market prices)e Current revenues (incl. current grants) 19.6 21.0 24.2 24.7 24.5 24.8 25.0 25.3 Current expenditures 15.7 18.0 19.1 19.8 19.7 20.1 20.2 20.4 Current account surplus (+) or deficit (-) 3.9 3.0 5.1 4.9 4.8 4.7 4.8 4.9 Capital expenditure and net lending 12.2 12.9 13.1 11.6 11.9 12.4 15.1 14.9 Foreign financing (loans plus capital grants) 9.8 11.4 10.1 7.5 10.1 10.3 10.2 9.9 Overall balance after all grants -2.2 -5.5 -3.9 -3.5 -5.8 -6.2 -5.8 -5.5 Monetary indicators M3/GDP 33.6 39.8 42.0 39.4 40.6 42.2 44.0 45.8 Growth of M3 (%) 20.3 32.6 22.8 11.7 18.9 18.9 19.0 19.0 Private sector credit growth / 129.4 134.9 130.7 72.8 94.0 103.0 106.0 100.0 total credit growth (%) Price indices( YR95 =100) Merchandise export price index 131.9 108.0 123.8 137.2 149.8 153.5 156.6 156.6 Merchandise import price index 189.1 155.9 159.2 164.8 164.4 164.1 163.8 164.6 Merchandise terms of trade index 69.8 69.3 77.8 83.2 91.1 93.6 95.6 95.2 Real exchange rate (US$/LCU)f 113.1 105.7 89.7 .. .. .. .. .. Consumer price index (% change) 10.3 3.3 12.7 10.8 7.2 5.6 5.6 5.6 GDP deflator (% change) 8.4 5.4 12.6 9.6 7.5 6.0 5.9 5.9 a. GDP at factor cost b. "GNFS" denotes "goods and nonfactor services." c. Includes net unrequited transfers excluding official capital grants. d. Includes use of IMF resources. e. Consolidated central government. f. "LCU" denotes "local currency units." An increase in US$/LCU denotes appreciation. 83 ANNEX 5: MOZAMBIQUE – KEY EXPOSURE INDICATORS Actual Estimate Projected Indicator 2008 2009 2010 2011 2012 2013 2014 2015 Total debt outstanding and 6,461 6,175 6,187 6,893 7,657 8,478 9,274 10,115 disbursed (TDO) (US$m)a Net disbursements (US$m)a 254 374 863 706 764 821 796 840 Total debt service (TDS) 616 492 437 373 581 663 828 904 (US$m)a Debt and debt service indicators (%) TDO/XGSb 201.4 223.8 213.7 206.3 197.5 198.4 196.6 194.7 TDO/GDP 65.0 61.2 63.1 56.9 56.5 56.3 56.1 56.2 TDS/XGS 19.2 17.8 15.1 11.2 15.0 15.5 17.6 17.4 IBRD exposure indicators (%) IBRD DS/public DS 0 0 0 0 0 0 0 0 IBRD DS/XGS 0 0 0 0 0 0 0 0 IBRD TDO (US$m)d 0 0 0 0 0 0 0 0 Of which present value of 0 0 0 0 0 0 0 0 guarantees (US$m) Share of IBRD portfolio (%) 0 0 0 0 0 0 0 0 IDA TDO (US$m)d 1,149 1,356 1,491 1,592 1,705 1,791 1,849 1,879 IFC (US$m) Loans 76 81 63 67 69 162 261 368 Equity and quasi-equity /c 8 4 5 3 27 69 107 107 MIGA MIGA guarantees (US$m) 121 121 121 127 127 .. .. .. a. Includes public and publicly guaranteed debt, private nonguaranteed, use of IMF credits and net short-term capital. b. "XGS" denotes exports of goods and services, including workers' remittances. c. Preferred creditors are defined as IBRD, IDA, the regional multilateral development banks, the IMF, and the Bank for International Settlements. d. Includes present value of guarantees. e. Includes equity and quasi-equity types of both loan and equity instruments. 84 ANNEX 6: MOZAMBIQUE – IFC INVESTMENT OOperationsPROGRAM ANNEX 6 - Mozambique: IFC Investment PERATIONS Program 2009 2010 2011 2012* Original Commitments (US$m) IFC and Participants 27.50 41.50 1.36 0.73 IFC's Own Accounts only 27.50 41.50 1.36 0.73 Original Commitments by Sector (% )- IFC Accounts only AGRICULTURE AND FORESTRY 25.45 FINANCE & INSURANCE 30.91 80.72 100 100 FOOD & BEVERAGES 25.45 19.28 OIL, GAS AND MINING 18.18 Total 99.99 100 100 100 Original Commitments by Investment Instrument (% ) - IFC Accounts only Equity 18.18 Guarantee 8.43 100 100 Loan 50.91 91.57 Quasi loan 30.91 Total 100 100 100 100 * Data as of December 01,2011 85 ANNEX ANNEX 7 - IFC's–Operation 7: MOZAMBIQUE IFC OPERATIONS Mozambique Committed and Disbursed Outstanding Investment Portfolio As of 10/31/2011 (In USD Millions) Committed Disbursed Outstanding **Quasi *GT/R Partici **Quasi *GT/R Partici FY Approval Company Loan Equity Equity M pant Loan Equity Equity M pant 0/00 Bakhresa moz 13.4 0 0 0 0 13.4 0 0 0 0 2009 Baobab resources 0 1.02 0 0 0 0 0.32 0 0 0 0 Baobab ujv 0 3.6 0 0 0 0 2.73 0 0 0 0/10 Bci fomento 30 0 8.5 0 0 19 0 8.5 0 0 2004 Enh 0 18.5 0 0 0 0 0 0 0 0 1997/01 Mozal 5.52 0 5.85 0 0 5.52 0 5.85 0 0 2000 Sef ausmoz 0.72 0 0 0 0 0.72 0 0 0 0 2008 Sef merec 3.11 0 0 0 0 3.11 0 0 0 0 Total Portfolio: 52.7 23.12 14.35 0 0 41.7 3.05 14.35 0 0 * Denotes Guarantee and Risk Management Products. ** Quasi Equity includes both loan and equity types. 86 ANNEX 8: MOZAMBIQUE AT A GLANCE ANNEX 8. Mozambique - At a Glance 2/25/11 Sub- Key Development Indicators Saharan Low Age distribution, 2009 Mozambique Africa income (2009) Male Female 75-79 Population, mid-year (millions) 22.9 819 828 Surface area (thousand sq. km) 799 24,242 17,838 60-64 Population growth (%) 2.3 2.5 2.2 45-49 Urban population (% of total population) 38 36 28 30-34 15-19 GNI (Atlas method, US$ billions) 10.0 897 389 0-4 GNI per capita (Atlas method, US$) 440 1,095 470 GNI per capita (PPP, international $) 880 1,981 1,131 10 5 0 5 10 percent of total population GDP growth (%) 6.3 5.2 6.2 GDP per capita growth (%) 4.0 2.7 3.9 (most recent estimate, 2003–2008) Poverty headcount ratio at $1.25 a day (PPP, %) 75 51 .. Under-5 mortality rate (per 1,000) Poverty headcount ratio at $2.00 a day (PPP, %) 90 73 .. Life expectancy at birth (years) 48 52 57 250 Infant mortality (per 1,000 live births) 96 83 77 200 Child malnutrition (% of children under 5) 21 25 28 150 Adult literacy, male (% of ages 15 and older) 70 72 73 100 Adult literacy, female (% of ages 15 and older) 40 54 59 Gross primary enrollment, male (% of age group) 121 105 107 50 Gross primary enrollment, female (% of age group) 107 95 100 0 1990 1995 2000 2008 Access to an improved water source (% of population) 47 60 64 Access to improved sanitation facilities (% of population) 17 31 35 Mozambique Sub-Saharan Af rica Net Aid Flows 1980 1990 2000 2009 (US$ millions) Growth of GDP and GDP per capita (%) Net ODA and official aid 167 998 906 1,994 Top 3 donors (in 2007): United States 9 62 116 227 15 United Kingdom 11 43 83 198 10 European Commission 7 81 79 161 5 Aid (% of GNI) 4.7 43.0 22.6 21.6 0 Aid per capita (US$) 14 74 50 89 -5 -10 95 05 Long-Term Economic Trends GDP GDP per capita Consumer prices (annual % change) 4.2 43.7 12.7 6.1 GDP implicit deflator (annual % change) 4.1 34.1 12.0 3.3 Exchange rate (annual average, local per US$) 0.0 0.9 15.4 26.9 Terms of trade index (2000 = 100) 87 112 100 111 1980–90 1990–2000 2000–09 (average annual growth %) Population, mid-year (millions) 12.1 13.5 18.2 22.9 1.1 3.0 2.5 GDP (US$ millions) 3,526 2,463 4,249 9,790 -0.1 6.1 7.9 (% of GDP) Agriculture 37.1 37.1 24.0 31.5 6.6 5.2 8.2 Industry 34.4 18.4 24.5 23.6 -4.5 12.3 9.1 Manufacturing .. 10.2 12.2 13.6 .. 10.2 7.9 Services 28.5 44.5 51.5 44.9 6.5 5.0 7.0 Household final consumption expenditure 96.7 92.3 80.6 84.4 -1.1 5.8 6.2 General gov't final consumption expenditure 12.2 13.5 9.0 13.4 -6.7 3.2 -4.6 Gross capital formation 7.6 22.1 31.0 21.0 4.1 8.6 5.9 Exports of goods and services 10.9 8.2 16.5 25.1 -6.8 13.1 16.0 Imports of goods and services 27.4 36.1 37.0 43.8 -3.8 7.6 6.2 Gross savings .. .. 12.4 9.1 (Continued) Note: Figures in italics are for years other than those specified. 2009 data are preliminary. .. indicates data are not available. a. Aid data are for 2008. Development Economics, Development Data Group (DECDG). 87 Mozambique - At a Glance (Continued) Balance of Payments and Trade 2000 2009 Governance indicators, 2000 and 2009 (US$ millions) Total merchandise exports (fob) 364 1,853 Voice and accountability Total merchandise imports (cif) 1,163 3,570 Net trade in goods and services -819 -1,841 Political stability Regulatory quality Current account balance -697 -1,171 as a % of GDP -16.4 -12.0 Rule of law Workers' remittances and Control of corruption compensation of employees (receipts) 37 111 0 25 50 75 100 Reserves, including gold 745 1,658 2009 Country's percentile rank (0-100) 2000 higher values imply better ratings Central Government Finance Source: Kaufmann-Kraay-Mastruzzi, World Bank (% of GDP) Current revenue (including grants) 15,235.1 21,217.6 Tax revenue 10,456.1 15,751.6 Current expenditure 11,708.7 18,183.9 Technology and Infrastructure 2000 2008 Overall surplus/deficit -8,403.7 -11,716.0 Paved roads (% of total) 18.7 .. Highest marginal tax rate (%) Fixed line and mobile phone Individual 20 32 subscribers (per 100 people) 1 20 Corporate 35 32 High technology exports (% of manufactured exports) 9.5 3.6 External Debt and Resource Flows Environment (US$ millions) Total debt outstanding and disbursed 7,255 4,168 Agricultural land (% of land area) 61 62 Total debt service 96 43 Forest area (% of land area) 24.8 24.4 Debt relief (HIPC, MDRI) 3,169 1,107 Terrestrial protected areas (% of surface area) .. 15.7 Total debt (% of GDP) 170.7 42.6 Freshwater resources per capita (cu. meters) 5,208 4,481 Total debt service (% of exports) 12.5 1.3 Freshwater withdrawal (billion cubic meters) 0.6 .. Foreign direct investment (net inflows) 139 881 CO2 emissions per capita (mt) 0.07 0.12 Portfolio equity (net inflows) 0 0 GDP per unit of energy use (2005 PPP $ per kg of oil equivalent) 1.3 1.8 Composition of total external debt, 2009 Energy use per capita (kg of oil equivalent) 393 418 Short-term, 643 IBRD, 0 Private, 28 IDA, 1356 World Bank Group portfolio 2000 2009 (US$ millions) IBRD Total debt outstanding and disbursed 0 0 Bilateral, IMF, 171 Disbursements 0 0 1330 Principal repayments 0 0 Other multi- Interest payments 0 0 lateral, 640 US$ m illions IDA Total debt outstanding and disbursed 760 1,356 Disbursements 97 199 Private Sector Development 2000 2009 Total debt service 6 10 Time required to start a business (days) – 26 IFC (fiscal year) Cost to start a business (% of GNI per capita) – 19.3 Total disbursed and outstanding portfolio 99 85 Time required to register property (days) – 42 of which IFC own account 99 85 Disbursements for IFC own account 49 19 Ranked as a major constraint to business 2000 2009 Portfolio sales, prepayments and (% of managers surveyed who agreed) repayments for IFC own account 3 18 n.a. .. .. n.a. .. .. MIGA Gross exposure 114 175 Stock market capitalization (% of GDP) .. .. New guarantees 74 0 Bank capital to asset ratio (%) 8.2 6.7 (Continued) Note: Figures in italics are for years other than those specified. 2009 data are preliminary. 2/25/11 .. indicates data are not available. – indicates observation is not applicable. Development Economics, Development Data Group (DECDG). 88 Mozambique - At a Glance (Continued) - Millennium Development Goals With selected targets to achieve between 1990 and 2015 (estimate closest to date shown, +/- 2 years) Mozambique Goal 1: halve the rates for extreme poverty and malnutrition 1990 1995 2000 2008 Poverty headcount ratio at $1.25 a day (PPP, % of population) .. 81.3 .. 74.7 Poverty headcount ratio at national poverty line (% of population) .. 69.4 .. 55.2 Share of income or consumption to the poorest qunitile (%) .. 5.7 .. 5.4 Prevalence of malnutrition (% of children under 5) .. 28.1 .. 21.2 Goal 2: ensure that children are able to complete primary schooling Primary school enrollment (net, %) 44 44 56 80 Primary completion rate (% of relevant age group) 26 26 16 59 Secondary school enrollment (gross, %) 7 7 6 21 Youth literacy rate (% of people ages 15-24) .. .. .. 70 Goal 3: eliminate gender disparity in education and empower women Ratio of girls to boys in primary and secondary education (%) 73 69 75 87 Women employed in the nonagricultural sector (% of nonagricultural employment) 11 .. .. .. Proportion of seats held by women in national parliament (%) 16 25 30 35 Goal 4: reduce under-5 mortality by two-thirds Under-5 mortality rate (per 1,000) 232 207 183 147 Infant mortality rate (per 1,000 live births) 155 139 123 99 Measles immunization (proportion of one-year olds immunized, %) 59 71 71 77 Goal 5: reduce maternal mortality by three-fourths Maternal mortality ratio (modeled estimate, per 100,000 live births) 1,000 890 780 550 Births attended by skilled health staff (% of total) .. 44 .. 55 Contraceptive prevalence (% of women ages 15-49) .. 6 .. 16 Goal 6: halt and begin to reverse the spread of HIV/AIDS and other major diseases Prevalence of HIV (% of population ages 15-49) 1.4 4.5 9.5 12.5 Incidence of tuberculosis (per 100,000 people) 180 260 380 420 Tuberculosis case detection rate (%, all forms) 65 43 31 42 Goal 7: halve the proportion of people without sustainable access to basic needs Access to an improved water source (% of population) 36 38 42 47 Access to improved sanitation facilities (% of population) 11 12 14 17 Forest area (% of total land area) 25.4 25.1 24.8 24.4 Terrestrial protected areas (% of surface area) .. .. .. 15.7 CO2 emissions (metric tons per capita) 0.1 0.1 0.1 0.1 GDP per unit of energy use (constant 2005 PPP $ per kg of oil equivalent) 0.9 1.0 1.3 1.8 Goal 8: develop a global partnership for development Telephone mainlines (per 100 people) 0.4 0.4 0.5 0.3 Mobile phone subscribers (per 100 people) 0.0 0.0 0.3 19.7 Internet users (per 100 people) 0.0 0.0 0.1 1.6 Personal computers (per 100 people) .. 0.1 0.3 1.4 Education indicators (%) Measles immunization (% of 1-year olds) ICT indicators (per 100 people) 100 100 30 75 75 20 50 50 25 10 25 0 2000 2002 2004 2006 2008 0 0 1990 1995 2000 2008 2000 2002 2004 2006 2008 Primary net enrollment ratio Fixed + mobile subscribers Ratio of girls to boys in primary & Mozambique Sub-Saharan Af rica Internet users secondary education Note: Figures in italics are for years other than those specified. .. indicates data are not available. 2/25/11 Development Economics, Development Data Group (DECDG). 89 ANNEX 9. OVERVIEW OF MAIN TRUST FUNDS 1. IDA and RETF Approvals and Disbursements, FY09 - FY11 IDA RETF Grand Total Fiscal Year Disbursements Approvals Disbursements Approvals Disbursements Approvals FY09 207.27 159.60 59.50 82.52 266.78 242.12 FY10 194.63 260.4 45.51 28.39 240.14 288.79 FY11 157.83 413.00 8.07 107.43 165.90 520.43 Grand Total 559.73 833.00 113.09 218.34 672.82 1051.34 (Amounts in $ millions) 2. BB and BETF Disbursements, FY09 - FY11 Fiscal Year BETF BB Grand Total FY09 Disb 2.23 2.94 5.17 FY10 Disb 1.92 2.91 4.82 FY11 Disb 2.71 2.5 5.21 Grand Total 6.86 8.35 15.20 (Amounts in $ millions) 3. RETF Disbursements by Sector, FY09 - FY11 Share od Share od Share od Sector FY09 Disb FY09 Disb FY10 Disb FY10 Disb FY11 Disb FY11 Disb Agriculture 1.99 3% 0.86 2% 1.31 16% Education 36.7 62% 30.64 67% 0.62 8% Energy & mining 0.09 0.32 4% Finance (0.04) Health & social serv 0.06 (0.02) Industry and trade 1.33 2% 0.38 1% 0.53 7% Public admin, Law 17.74 30% 9.72 21% 2.62 32% Transportation 0.01 Water/sanit/fld prot 1.62 3% 3.90 9% 2.69 33% Total 59.50 45.51 8.07 (Amounts in $ millions) 4. Grant Approvals by Grant Type, FY09 - FY11 FY09 Grant Approvals FY10 Grant Approvals FY11 Grant Approvals Grant Type Grant Type Description Amount No. Amount No. Amount No. BEA AAA Client Support 0.44 5 1.27 11 4.8 19 BET IBRD/IDA Transfers to IFC 0.49 1 REB IBRD/IDA Cofinancing 11.04 3 27.74 3 105.01 2 REP Stand-alone RE Projects 79.76 3 0.52 2 3.88 5 Grand Total 91.25 11 30.03 17 113.69 26 (Amounts in $ millions) 90 ANNEX 10: MOZAMBIQUE - SELECTED INDICATORS OF BANK PORTFOLIO PERFORMANCE AND MANAGEMENT (as of December 1, 2011) Indicator 2009 2010 2011 2012 Portfolio Assessment Number of Projects Under Implementation a 14 15 19 19 Average Implementation Period (years) b 4.4 4.3 3.8 4.1 Percent of Problem Projects by Number a, c 14.3 6.7 21.1 21.1 Percent of Problem Projects by Amount a, c 13.0 6.7 26.0 27.3 Percent of Projects at Risk by Number a, d 14.3 20.0 21.1 26.3 Percent of Projects at Risk by Amount a, d 13.0 19.2 26.0 31.5 Disbursement Ratio (%) e 34.1 28.1 19.6 7.5 Portfolio Management CPPR during the year (yes/no) Yes No Yes Yes Supervision Resources (total US$) $ 2,534 $ 2,427 $ 2,279 $ 1,395 Average Supervision (US$/project) $ 115 $ 110 $ 76 $ 44 Memorandum Item Since FY 80 Last Five FYs Proj Eval by OED by Number 51 7 Proj Eval by OED by Amt (US$ millions) 2,857.8 328.1 % of OED Projects Rated U or HU by Number 19.6 14.3 % of OED Projects Rated U or HU by Amt 8.3 6.3 a.As shown in the Annual Report on Portfolio Performance (except for current FY). b.Average age of projects in the Bank's country portfolio. c.Percent of projects rated U or HU on development objectives (DO) and/or implementation progress (IP). d.As defined under the Portfolio Improvement Program. e.Ratio of disbursements during the year to the undisbursed balance of the Bank's portfolio at the beginning of the year: Investment projects only. * All indicators are for projects active in the Portfolio, with the exception of Disbursement Ratio, which includes all active projects as well as projects which exited during the fiscal year. 91 ANNEX 2. Mozambique ANNEX 11: MOZAMBIQUE OPERATIONS PORTFOLIO (IBRD/IDA AND GRANTS) Operations Portfolio (IBRD/IDA and Grants) (as of December 1, 2012) As Of Date 12/1/2011 Closed 57 Projects IBRD/IDA * Total Disbursed (Active) 331.19 of which has been repaid 0.00 Total Disbursed (Closed) 1,771.90 of which has been repaid 60.20 Total Disbursed (Active + Closed) 2,103.09 of which has been repaid 60.20 Total Undisbursed (Active) 744.07 Total Undisbursed (Closed) 2.41 Total Undisbursed (Active + Closed) 746.48 Active Projects Difference Between Last PSR Expected and Actual Supervision Rating Original Amount in US$ Millions Disbursements a/ Developm Implement Project Project Name ent ation Fiscal Year IBRD IDA GRANT Cancel. Undisb. Orig. Frm Rev'd ID Objectives Progress P111592 MZ Higher Educ Science & Techn. (FY10) S MS 2010 40 32.785963 -6.170417 P087347 MZ Tech & Voc Edu & Training (FY06) S S 2006 67 41.414102 2.5104013 P084404 MZ- Transmission Interconnection U U 2008 93 90.905097 74.778971 P083325 MZ-APL2 Roads & Bridges S S 2007 141 0.4308 56.664586 13.579089 P082618 MZ-Beira Railway SIL (FY05) MU MS 2005 110 1.2433292 -3.822812 -3.822812 P106355 MZ-Competitiveness & PS Dev S MS 2009 25 21.026083 7.9027589 P125127 MZ-Education Sector Support Program S S 2011 71 72.466448 P108444 MZ-Energy Dev. & Access Project (APL-2) S S 2010 80 77.072429 24.710274 P086169 MZ-Financial Sector TA Project MS MS 2006 10.5 2.8915622 2.0930488 P071942 MZ-GEF Enrgy Reform & Access Prgm (FY04) MS MS 2004 3.09 1.3725086 1.3725086 P098040 MZ-GEF Mrkt Led Sm r Dev (FY07) S MS 2008 6.2 4.0830568 P076809 MZ-GEF TFCA & Tourism Dev (FY06) S MS 2006 10 5.3655618 4.8238952 P121060 MZ-Health Commodity Security Project S S 2011 39 15.589996 -5.417071 P099930 MZ-Health Service Delivery SIL (FY09) MS MS 2009 44.6 35.369106 7.1564822 P115217 MZ-Maputo Municipal Development Prog II S S 2011 50 50.701753 6.2067868 P093165 MZ-Market Led Smallholder Dev (FY06) MU MS 2006 20 10.708262 6.9109121 P107311 MZ-Nat'l Dec Planning & Fin SIL (FY10) S MS 2010 30.4 22.297998 5.3807799 P107598 MZ-PROIRRI Sustainable Irrigation Devt MS MU 2011 70 72.149361 P121398 MZ-Spatial Development Planning TA S S 2011 20 20.28444 P071465 MZ-TFCA & Tourism Dev (FY06) S MS 2006 20 5.6709941 1.9417214 -0.084424 P107350 MZ-Water Resources Dev I SIL # # 2012 70 69.119028 P104566 MZ-Water Services & Inst. Support S S 2008 52 45.707817 4.5091908 Overall Result 1053.5 19.29 0.4308 754.88948 144.81758 -3.907237 92 ANNEX 12: DONOR AREAS OF FOCUS Areas of Focus Climate Change & Disaster Agriculture & Rural Dev. Infrastructure/ Transport Judicial & Legal Reform Water & Sanitation Social Protection Energy & Mining Decentralization Financial Sector Governance / Private Sector Food Security Public Sector Environment Education HIV/AIDS Fisheries Gender G19 Health Trade Development Risk Partners Austria YES X X X AfDB YES X X X X Belgium YES X X X X X X X Canada YES X X X X X X X X Denmark YES X X X X X X European YES X X X X X X X X X X X X Commission Finland YES X X X France YES X X X X X Germany YES X X X X X X X Italy YES X X X X X X Ireland YES X X X X X X X Japan NO X X X X X X X X X X X Netherlands YES X X X X X X X Norway YES X X X X X X X Portugal YES X X X X Spain YES X X X X Sweden YES X X X X X Switzerland YES X X X X X X X United Nations YES X X X X X X X X X United Kingdom YES X X X X X X USA (USAID&CDC) NO X X X X X X X X X USA (MCC) NO X X X X X X X X World Bank YES X X X X X X X X X X X X X X X Source: UNDP, 2011 93 ANNEX 13: DONOR PARTICIPATION IN SECTOR WORKING GROUPS Source: UNDP, 2011 94 IBRD 33451R1 30° E 35° E 40° E 10° S 10° S Lake TA N Z A N I A To Mtwara Malawi Mocimboa MOZAMBIQUE Mueda da Praia a end Lug Metangula CABO ssa lo DELGADO Pemba NIASSA Me Lichinga Lichinga ue Montepuez MALAWI M ALAWI Marrupa q Catur bi io To Chipata To m au a e Lúr ZAMBIA Lilongwe oz t Mualadzi To M Pla Nacala To Petauke Mangoche Cuamba NAMPULA Furancungo Ribáuè Ribáu 15° S To 15° S To Zomba Lusaka Fíngo Fíngoè Montes Namule Nampula Moçambique Lago de TETE Zam (2,419 m) Cahora Bassa be Gurué Guru Zumbo Songo ze To Alto Molócue Blantyre Ligo Moatize Milange n ha Tete Angoche un ZAMBÉZIA Lic go Changara Mocuba To Mutoko Namacurra Pebane Sena Za mb Quelimane ZIMBABWE Catandica ez e Gorogosa Inhaminga To Harare SOFALA Chimoio INDIA N O CE AN in To Masvingo MANICA a Pl Monte Binga (2,438 m) (2,436 Beira 20° S 20° S u e i To Bu z Masvingo i q Espungabera m b Nova Mambone e z a Sav Inhassôro To Rutenga M o Vilanculos Chicualacuala 0 50 100 150 200 Kilometers Machaíla To Messina INHAMBANE 0 50 100 150 Miles Chigubo Mapai GAZA Ch a Lim po M O Z A M B I QUE ngane op SOUTH o Massingir Inhambane AFRICA Panda SELECTED CITIES AND TOWNS Guija Inharrime Chibito PROVINCE CAPITALS 25° S MAPUTO NATIONAL CAPITAL 25S To Xai-Xai Nelspruit This map was produced by RIVERS Manhica the Map Design Unit of The World Bank. The boundaries, MAIN ROADS Moamba colors, denominations and Matela MAPUTO any other information shown RAILROADS on this map do not imply, on To the part of The World Bank Mbabane Group, any judgment on the PROVINCE BOUNDARIES legal status of any territory, SWAZILAND Zitundo or any endorsement or acceptance of such INTERNATIONAL BOUNDARIES boundaries. 30° E 35° E JANUARY 2007