Document of The World Bank . FOR OFFICIAL USE ONLY Report No: 82483-TZ PROJECT PAPER . ON A . PROPOSED ADDITIONAL CREDIT IN THE AMOUNT OF SDR 39.2 MILLION (US$60.2 MILLION EQUIVALENT) AND RESTRUCTURING . TO THE . UNITED REPUBLIC OF TANZANIA . FOR THE PRIVATE SECTOR COMPETITIVENESS PROJECT DECEMBER 2, 2013 Financial and Private Sector Development AFCEI Africa Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. . CURRENCY EQUIVALENTS (Exchange Rate Effective October 31, 2013) Currency Unit = Tanzanian Shilling (TZS) US$ 1 = TZS 1609.48 US$ 1 = SDR 0.65 FISCAL YEAR July 1 – June 30 ABBREVIATIONS AND ACRONYMS AF Additional Financing NIDA National Identification Agency BARA Business Activities Registration Act NCB National Competitive Bidding BERC Business Environment Roadmap NKRA National Key Results Committee Areas BOT Bank of NLUPC National Land Use Planning Tanzania Commission BRELA Business Registrations and Licensing NSSF National Social Security Agency Fund BRN Big Results Now! CAS Country Assistance ORAF Operational Risk Assessments Strategy Framework CEM Country Economic Memorandum OSS One Stop Shop CCROs Customary Rights of Occupancy PAD Project Appraisal Document CMSA Capital Markets and Securities PDB President’s Delivery Authority Bureau DLUFPs District Land Use Framework Plans PDO Project Development Objective EAC East African Community PIU Project Implementation Unit FAS Financial Access PPPFF Public-Private Partnership Survey Facilitation Fund FSDT Financial Sector Deepening Trust PPP Public-Private Partnership FYDP Five Years Development PPRA Public Procurement Regulatory Plan Authority GDP Gross Domestic Product PRSC Poverty Reduction Support Credit GoT Government of PSCP Private Sector Competitiveness Tanzania Project GPS Global Positioning System RDU Regional Delivery Unit IDA International Development RCIP Regional Communication Association Infrastructure Project ICB International Competitive SACCOS Savings and Credit Cooperative Bidding Societies IE Implementing Entity SDR Special Drawing Rights IFMS Integrated Financial Management SGFSR Second Generation Financial System Sector Reform ILMIS Integrated Land Management SPILL Strategic Plan for Implementation Information System of Land Laws IMF International Monetary Fund TDV Tanzania Development Vision MDU Ministerial Delivery TDC Transformation and Delivery Unit Council M&E Monitoring and Evaluation TRA Tanzania Revenue Authority MFI Microfinance UNDP United Nations Development Institutions Program MLHHSD Ministry of Lands Housing and USAID United States Agency for Human Settlements Development International Development MSMEs Micro, Small, and Medium Enterprises NCC National Construction Council WB World Bank WBG World Bank Group Regional Vice President: Makhtar Diop Country Director: Philippe Dongier Sector Director Gaiv Tata Sector Manager Irina Astrakhan Task Team Leader: Moses Kibirige Co-Task Team Leader: Valeriya Goffe UNITED REPUBLIC OF TANZANIA ADDITIONAL FINANCING – PRIVATE SECTOR COMPETITIVENESS PROJECT Table of Contents I. Introduction .............................................................................................................................. 1 II. Background and Rationale for Additional Financing ............................................................. 1 III. Proposed Changes ................................................................................................................ 7 IV. Appraisal Summary ............................................................................................................ 13 Annex 1: Results Framework ....................................................................................................... 18 Annex 2. Arrangements for Results Monitoring ........................................................................... 21 Annex 3. Operational Risk Assessment Framework (ORAF)....................................................... 24 Annex 4: Lessons Learned from PSCP Implementation ............................................................... 28 Annex 5: Detailed Economic and Financial Analyses .................................................................. 29 Annex 6: Composition and Roles of Roadmap Committee in Improving of Business Environment and Investment Climate in Tanzania ............................................................................................. 37 Annex 7: Land Administration Reform in support of the Private Sector in Tanzania .................. 40 Annex 8: Team Composition......................................................................................................... 49 UNITED REPUBLIC OF TANZANIA ADDITIONAL FINANCING – PRIVATE SECTOR COMPETITIVENESS PROJECT ADDITIONAL FINANCING DATA SHEET . AFRICA REGION Basic Information - Additional Financing (AF) Project ID: P145971 Sectors: Industry and trade, finance Expected Effectiveness Date: March 30, 2014 Themes: Financial and private sector Lending Instrument: Investment Project Finance development, rural development, Additional Financing Type: Scale-up and scope trade and integration Environmental category: C – Not required Expected Closing Date: November 30, 2015 Joint IFC: No Joint Level: No Basic Information - Original Project Project ID: P085009 Environmental category: C – Not required Project Name: Private Sector Competitiveness Project Expected Closing Date: December 31, 2013 Lending Instrument: IPF Joint IFC: Yes Joint Level: No AF Project Financing Data [ ] Loan [X] Credit [ ] Grant [ ] Guarantee [ ] Other: Proposed terms: AF Financing Plan (US$m) Source Total Amount (US$m) Total Project Cost: 60.2 Co-financing: 0.0 Borrower: 0.0 Total Bank Financing: 60.2 IBRD IDA 60.2 New Recommitted Client Information Recipient: The United Republic of Tanzania Responsible Agency: Prime Minister’s Office Contact Person: Florens Turuka Telephone No.+255-22-213-5076 Fax No.: 255-22-211-2850 Email:ps@pmo.gov.tz AF Estimated Disbursements (Bank FY/US$m) FY FY14 FY15 FY16 FY17 Annual 10.00 35.00 15.20 Cumulative 10.00 45.00 60.20 Project Development Objective and Description Original project development objective: To create sustainable conditions for enterprise creation and growth. Revised project development objective: To strengthen the business environment in Tanzania, including land administration reform, and improve access to financial services. Project description: The original project seeks to reduce the cost of doing business and increase the capacity of the local private sector to participate in domestic and international markets and to access appropriate financial services. The project supports the government program through three mutually reinforcing components: (i) strengthening business environment; (ii) developing enterprise competitiveness; and (iii) improving access to financial services. The proposed additional financing would support Components One and Three. Safeguard and Exception to Policies Safeguard policies triggered: Environmental Assessment (OP/BP 4.01) [ ]Yes [X] No Natural Habitats (OP/BP 4.04) [ ]Yes [X] No Forests (OP/BP 4.36) [ ]Yes [X] No Pest Management (OP 4.09) [ ]Yes [X] No Physical Cultural Resources (OP/BP 4.11) [ ]Yes [X] No Indigenous Peoples (OP/BP 4.10) [ ]Yes [X] No Involuntary Resettlement (OP/BP 4.12) [ ]Yes [X] No Safety of Dams (OP/BP 4.37) [ ]Yes [X] No Projects on International Waterways (OP/BP 7.50) [ ]Yes [X] No Projects in Disputed Areas (OP/BP 7.60) [ ]Yes [X] No Is approval of any policy waiver sought from the Board (or MD if RETF [ ]Yes [X] No operation is RVP approved)? Has this been endorsed by Bank Management? (Only applies to Board [ ]Yes [ ] No approved operations) Does the project require any exception to Bank policy? [ ]Yes [X] No Has this been approved by Bank Management? [ ]Yes [ ] No I. UNITED REPUBLIC OF TANZANIA II. PRIVATE SECTOR COMPETITIVENESS PROJECT ADDITIONAL CREDIT AND RESTRUCTURING I. Introduction 1. This project paper seeks the approval of the Executive Directors to provide an additional credit in an amount of US$60.2 million equivalent to the United Republic of Tanzania for the Private Sector Competitiveness Project (PSCP), (P085009) Credit No. 41360. The original credit was approved on December 15, 2005, became effective on July 5, 2006, and its closing date will be December 31, 2013. The Additional Financing (AF) will cover a period of about two years and will close on November 30, 2015. 2. The proposed additional financing will scale up activities under PSCP with the aim to make Tanzania’s growth more inclusive and improve shared prosperity. The AF will: (i) support strengthening of the business environment and improving access to financial services; (ii) help develop innovative solutions for increased private sector participation and financial sector development which would be informed by an upcoming Country Economic Memorandum (CEM) which focuses on creating better jobs for the population; and (iii) help implement the Government’s recently announced initiative to speed up delivery of priority programs. 3. The Project Development Objective (PDO) of PSCP and the results framework will be slightly modified. The changes are being made to reflect the aim of the additional financing to scale up and modify some of the activities under the original project, including supporting emerging priorities. The revised PDO is: "to strengthen the business environment in Tanzania, including land administration reform, and improve access to financial services". The results framework has been modified to adjust some of the indicators to make them more specific and measurable and to add new indicators to measure the expanded scope of the project. 4. The safeguard category of the original project was C. No change to the category is expected. II. Background and Rationale for Additional Financing 5. During the past decade, Tanzania has experienced high rates of economic growth, due to economic liberalization, sound macroeconomic policies, and an expanding public sector. Growth reached 7 percent on average in the 2000s. The global economic crisis somewhat slowed Tanzania’s growth although government policies tempered its impact. Exports of goods and services have expanded in real terms, grown as a share of the Gross Domestic Product (GDP), and diversified out of traditional agriculture. 6. The government recognizes the key role of the industrial sector in the transformation of Tanzania’s economy. Policymakers have emphasized the need to build a competitive industrial sector and encouraged more active participation of the private sector in the economy. In 2011, agriculture accounted for only 28 percent of GDP, down from 48 percent in 1991. At the same time, industry and services experienced a notable increase as a share of GDP during this timeframe (25.1 and 47.2 percent, respectively, in 2011 as compared to 16.9 and 35 percent, respectively, in 1991). 1 7. However, large-scale industry remains fairly limited in Tanzania, and overall manufacturing employment accounts for less than 5 percent of the total labor force. Manufacturing still accounted for only 10 percent of GDP in 2011, virtually unchanged from 1991 (9 percent). Enterprises with fewer than 10 employees account for 97 percent of all manufacturing enterprises1. Firms face severe resource constraints, making it difficult for them to expand operations. 8. Despite government actions to enhance the role of the private sector in the economy, the total volume of non-public investment remains small. Private investment stalled at 10-12 percent of GDP in the early 2000s, and between 14-18 percent over the last several years. The share of private investments remains small compared to other African countries, largely due to some weaknesses in Tanzania’s business environment. 9. Tanzania needs to improve its business climate for sustained growth and job creation2. With the support of the World Bank and other donors, major progress in the business environment (and other core reforms) has been achieved although significant work is still needed to improve firms’ competitiveness. 10. Weak land administration, in particular the uncertainty in land tenure, continues to constrain formal ownership. Undocumented property rights make enterprises and individuals vulnerable to losing their land. It also prevents enterprises and individuals to access collateral for borrowing from financial institutions. These constraints are even more pronounced for individuals and small enterprises, which are predominant in Tanzania. Providing tenure security to land holders and improving the land governance environment are central to preserving livelihoods of the population, especially the most vulnerable. Moreover, they are instrumental in opening significant opportunities for investment and job creation. 11. Improving access to finance to spur economic growth is also critical for improving shared prosperity in Tanzania. Reforms have improved the soundness of the banking sector and increased access to finance for the population. For example, according to the International Monetary Fund (IMF) Financial Access Survey (FAS), the number of borrowers from commercial banks in Tanzania increased from 44,000 in 2002 to 719,000 in 2009. The expansion of banking services stimulated growth of credit to the private sector, which has increased from 11.3 percent of GDP in June 2006 to 24.7 percent in June 2013. 12. However, Tanzania still lags behind compared to other countries in Africa. Only 12.4 percent of the population in Tanzania has access to formal financial service (as per the Finscope study of 2009). In comparison with other East African Community (EAC) countries, Tanzania has the highest number of people excluded from access to financial services (56 percent). In September 2011, Bank of Tanzania (BOT) made a commitment to the Alliance of Financial Inclusion that by 2015 at least 50 percent of the population will have access to formal financial services. 13. In response to the urgent needs to improve service delivery, the government launched the “Big Results Now!” initiative in 2013. BRN! is a “science of delivery”-type 1 Tanzania Industrial Competitiveness Report 2012, United Nations Industrial Development Organization and Government of the United Republic of Tanzania 2 Country Assistance Strategy (CAS) for Tanzania for the period FY 2012-2015 2 initiative. It establishes a strong leadership team to drive, monitor, and evaluate the implementation of development plans. The initiative has had a good start and is important to keep the momentum into implementation. The BRN initiative, based on Malaysia’s Big Fast Results approach, involves the identification of solutions to key development bottlenecks (governance and prioritization), the development of detailed implementation plans (performance management and problem solving), and a new delivery system to ensure effective execution and monitoring. Phase 1 of BRN consisted of an intense planning process (“Labs”), in February- April, 2013 covering six National Key Results Areas (NKRAs): Agriculture, Education, Energy, Water, Transport, and Resource Mobilization. Phase 2 operationalizes the Labs' implementation plans -- while future labs on new NKRAs would be identified in later years to complement interventions and enhance growth. An important objective of the BRN initiative is to facilitate greater private sector involvement in the priority result areas. 14. The World Bank Group has supported the improvement of the business climate in Tanzania through the PSCP. The PSCP was developed to support the implementation of the government’s private sector development program. Implementation of PSCP progressed well. The overall progress towards achievement of the PDO has been rated “Moderately Satisfactory” or above for the last 12 months. The original credit is fully disbursed. 15. The Additional Financing will build upon the original project; it will provide financial support to enable scaling up of work on a number of critical activities and support emerging priorities. Specifically, additional financing will be provided to support and scale up activities under Component 1 of the original project to: (i) advance land administration reform; (ii) complete business registration reform; and (iii) support the BRN President’s Delivery Bureau (PDB) initial set up3 to establish functions, resources and instruments that will be critical to facilitate private sector involvement in NKRAs, and under Component 3 of the original project -- to finance additional demand-driven activities to further improve access to finance in the country. All of these cross-cutting/horizontal investment climate reforms will help to further improve legal certainty and lower the costs of doing business. Significant, economy-wide impact is expected from these interventions, and developmental impact achieved will be further magnified as the result of additional interventions that may be supported in the future (building on the work being undertaken in the CEM). 16. The proposed additional financing is consistent with the Country Assistance Strategy (CAS) FY12-15. The CAS first strategic objective seeks to promote inclusive and sustainable private sector-led growth, with outcome 1.1 being improved business environment and financial intermediation, which the proposed additional financing seeks to promote. 17. The project’s design incorporates lessons learned from the original project and Annex 4 provides a detailed overview of these lessons. In this regard, the additional financing will be implemented in the two year period. The project design aims to ensure that the implementation of the additional financing starts at an accelerated pace and all of the sub- components move quickly. The implementation arrangements allow for participating entities to 3 The BRN delivery system is structured as follows: at the center, there is the PDB and in each NKRA lead Ministry, there are the MDUs. Throughout the year the PDB and MDUs will ensure that progress is regularly monitored and fed up the system, delivery bottlenecks are speedily identified and if necessary escalated and ultimately results delivery is kept on track. They will be supervised by the TDC and the NKRA Steering Committee respectively. 3 substantially manage their own sub-component and for the activities to be implemented in parallel. Overall, given the familiarity of the participating entities with their activities due to the ongoing project, implementation is expected to be smooth. Significant steps have been undertaken to speed up implementation. For example, a Project Preparation Advance (PPA) is supporting the work under the BRN sub-component. For land administration reform, the government has already prepared the design and the bidding documents of the Integrated Land Management Information System (ILMIS). And for the business registration sub-component, the government has prepared the draft technical specifications for online registration. 18. PSCP helped to improve the legal and regulatory framework for land administration. Specifically, PSCP undertook improvement of the legal framework with new laws and regulations which are complementary to the basic land law, namely the Land Act 1999 and the Village Land Act 1999, and are essential to the implementation of the 1995 National Land Policy. The government is now developing a new land acquisition and compensation bill and associated regulations. 19. PSCP supported an overhaul of the geodetic infrastructure for surveying by replacing the outdated one with one based on a modern Global Positioning System (GPS). The government is now converting the old data to fit the new infrastructure, as well as implement the new surveying policy in line with the new infrastructure. 20. PSCP also supported activities in land registration, land use planning and regularization of tenure rights. For instance, PSCP piloted a low cost and faster land demarcation and registration approach to replace the traditional high cost registration on demand (which is about 10 times more expensive). The government is now scaling-up this approach. 21. PSCP and the Regional Communication Infrastructure Project have supported the design of an ILMIS. Background studies and land records sorting and consolidation in readiness for design and implementation of ILMIS have already been undertaken under the original PSCP. The government is now ready to implement the system. As part of PSCP, activities aimed at modernization of the Business Registrations and Licensing Agency (BRELA) were implemented. PSCP enabled the digitization of BRELA’s paper records, specifically 88,700 Companies and 191,243 Business Name hard copy files. All companies and Business Names Files are now accessible both electronically and physically. The BRELA website has been improved to include an online name search database for companies and business names. A records management system has been installed. 22. However, the incorporation process is still paper based, and is currently managed separately from other registration procedures, such as tax and social security registration. In addition to registering in BRELA, firms must also visit several other offices and register with the Tanzania Revenue Authority (TRA), the social security funds and, depending on their business activities, with the Ministry of Industry and Trade or the municipality. 23. Although a slight improvement was recorded in DB 2013, there is room for further simplification and streamlining of the processes. According to the DB starting a business indicator it takes 9 procedures and 26 days to complete the business registration procedure. The cost for completing this procedure represents 28.2 percent of income per capita. Overall, Tanzania ranks 113 in the starting a business Doing Business indicator. By putting in place an electronic business register, re-engineering of processes and exchange of information and 4 coordination between BRELA and other relevant stakeholder agencies (primarily TRA and social security funds), procedures 1, 3 and 4 herein below could be performed in parallel, as well as procedures 5, 7, 8 and 9. This would enable businesses to start a business in approximately four steps. Figure 1: Current Business Registration procedures in Tanzania – DB 2013 No. Procedure Time to Complete 1 Apply for clearance of the proposed company name at the Business Registration and 1 day Licensing Agency "BRELA" 2 Obtain a notarized declaration of compliance 1 day 3 Apply for incorporation of a company and obtain certificate of incorporation 4 days 4 Apply for taxpayer identification number (TIN) with the Tanzania Revenue Authority 1 day 5 Obtain taxpayer identification number (TIN) 1 day 6 Apply for business license from the regional trade officer (depending on the nature of 6 days business) 7 Apply for VAT certificate with the Tanzania Revenue Authority 4 days 8 Register for the workmen’s compensation insurance at the National Insurance Corporation 1 day or other alternative insurance policy 9 Obtain registration number at the social security fund 7 days 24. The government is planning to establish a One Stop Shop (OSS) for business registration within BRELA. The e-register will enable application and payment online, the submission of one application form for all business registration procedures and the electronic exchange of data between all relevant institutions (including the TRA and social security funds), ultimately leading to the reduction of time and cost to register a business. 25. Given the strong emphasis on private investment in productive sectors of the country across the NKRAs, the BRN initiative has identified private investment as a foundational condition for success in certain NKRAs, namely agriculture, energy, and transport. Private sector involvement (domestic and external) through public private partnerships (PPPs) is also a key element under the resource mobilization NKRA. The Government has identified private investment as one of the ways to mobilize resources to implement the three above NKRAs. The government has also emphasized the role of the private sector for long-term economic growth and the importance of improved business environment in its new budget for fiscal year 2013/2014, proposing priority measures, including legislative amendments related to PPPs, measures to improve the investment climate in the agricultural sector, and efforts to involve the private sector in funding improvement of railway infrastructure (Ministry of Finance, June 2012). As such, BRN activities are expected to have a truly transformational impact on private enterprises in the country. 26. According to that 2003 Financial Sector Assessment Program (FSAP), the Tanzania financial system was found to be playing a limited role in the economy. Credit to the private sector remained very limited and mostly short-term; interest rate spreads were high and banks accumulated extensive holding of Government Paper and sizeable offshore dollar placements. Financial intermediation was further limited and access to long term financing for enterprises, infrastructure, and housing was inadequate. The authorities used the recommendations of the FSAP as the basis for preparing a comprehensive Action Plan for the Second Generation Financial Sector Reforms (SGFSR). In view of the strong commitment shown by the GOT in 5 advancing the reform agenda in the sector, the government, the World Bank and the Department for International Development – United Kingdom (DFID), started supporting the Financial Sector Support Project (P231099) through a basket fund.4 Additional assistance for improving access to finance was channeled under PSCP through the Financial Sector Deepening Trust (FSDT). In particular, PSCP/FSDT took the lead in providing support to improving the access to finance. 27. The financing provided to the Financial Sector Deepening Trust (FSDT) through PSCP resulted in an increase in access to financial services in the country as indicated below:  Financial Institutions: Investments were made in Tanzania microfinance institution (MFI) BRAC, which now has 74,000 active borrowers and 92,000 clients making it the country’s largest MFI. Total loans outstanding of BRAC are US$ 7.1 million. Moreover, investments were made in two savings and credit cooperatives (SACCOS) networks (Dunduliza and FERT/USAWA) which together have provided financial services to over 75,000 members and they also invested in a housing microfinance program.  Informal Financial Services: Investments were made in Village Savings and Loan Associations and Village Community Banks, from which over 35,000 people benefited.  Building capacity of Project partners: Investments were made in CRDB Bank, which supported affiliated SACCOS with over 200,000 people.  Filling Knowledge Gaps in the Financial Sector: Two Finscope surveys and a small business survey completed.  Supporting Policy/Strategy, Legal and Regulatory Frameworks: A rural financial services strategy for Tanzania was developed and capacity building was provided to BoT to implement the regulations relating to Microfinance Companies. 28. The government is continuing its efforts to promote increased household and firm access to financial services, facilitate efficient financial intermediation, and support financial stability and integrity. Several key objectives of the government relating to increased household and firm access to financial services, efficient financial intermediation, and financial stability and integrity have, to varying degrees, been met. Nevertheless, there remains much work to be done on the SGFSR action plan to continue implementing and guiding future reforms of the financial system. Some of the areas which require further support include improving legal and regulatory infrastructure to support access to financial services, development of financial markets, promotion of an efficient and competitive pension sector, as well as improvement of long-term development financing availability. 4 The funding for the Financial Sector Support Project was provided in the form of a five-year technical assistance credit from IDA amounting to US$15 million, a DFID grant of GBP 3 million (equivalent to approximately US$5 million) and GOT contribution of US$2 million. 6 III. Proposed Changes 29. The proposed additional financing will scale up activities under two components of the original project: (i) strengthening business environment and (ii) improving access to financial services. The current PDO “to create sustainable conditions for enterprise creation and growth” will be modified into "to strengthen the business environment in Tanzania including land administration reform and improving access to financial services." The revised PDO is more focused on outcomes that are directly attributable to the project. Scope of Additional Financing 30. The specific activities to be supported by the additional financing are described below: Component 1: Strengthening the Business Environment (US$49.2 million) A. Land Administration Reform (US$35.2 million): a) Infrastructural interventions (US$25.5 million): i. Conversion of old survey and mapping data to fit the new geodetic surveying infrastructure, and awareness-raising of the professionals about using the new system (~ US$6.5 million). ii. Implementation of a new surveying and mapping policy in line with the modernized infrastructure (~ US$2 million). iii. Strengthening of land use planning through strengthening the collection, storage and dissemination of geospatial data and improving the use of land and resource data for land use planning (~US$2 million) iv. Implementing the ILMIS and re-engineering the business process (~US$15 million). b) Strengthening of legal and regulatory framework: review, preparation, and processing of legislative pieces (e.g., a Land Acquisition and Compensation Bill, a Property Valuation Bill, and Regulations for the above), and strengthening of land tribunals (US$3 million) c) Work on land use planning in urban areas and regularization of tenure rights (US$4 million): Support to the implementation of participatory land use planning approaches in urban areas and regularization of land tenure in urban informal settlements including in Mwanza and Dar es Salaam where initial work has already been done. d) Technical assistance will be provided to advise the government on guidelines in undertaking inventories of government land (US$0.2 million). Funding would be provided to hire consultants to review past experiences in undertaking government land inventories including in Ghana and Botswana and to draw lessons and good practices that could guide preparation of guidelines for similar exercises in Tanzania. e) Regulatory simplification of land administration process (US$2.5 million): 7 i. Regulatory changes (such as elimination of the requirement to obtain a Tax Clearance Certificate, streamlining of the procedure of notarization and execution of the sale agreement and preparation of the transfer deed, elimination of the inspection to value the property, etc.); ii. Reorganization of workflow processes of the land registry to improve the efficiency of the process to register and transfer a property. B. Support to Business Registration Reform (US$4 million): i. Design and Implementation of an OSS for starting a business in BRELA (US$3.5 million). Establishment of a single access point/OSS for businesses to complete the procedures for registration within BRELA. Activities would include:  The development of a business registry technology platform and software application for an online registration system within BRELA that will enable online registration as well as communication and exchange of data with all the other stakeholder agencies (TRA, social security funds) – this platform would provide the BRELA with the capacity to collect electronic information (using a series of standardized forms); to offer registrations services at branch offices which will communicate with the central database at the head office in order to input the information with very little delay into a central electronic database; to provide full public access to the database through internet connections.  Procurement of the necessary hardware.  Capacity building of BRELA staff and staff of other stakeholder agencies, primarily on use of the online registration system, but also on good practice in the efficient delivery of services. iii. Streamlining and simplification of the business registration procedures (US$0.25 million). The activities to be undertaken include a review of the current legislation related to starting a business and development of recommendations and an action plan as to the amendments needed to streamline and simplify the processes.  BRELA oversees the Registrations of Companies, Business Names, Trade and Service Marks, issuance of Patents and Industrial Licensing, and these registration processes are going to be streamlined and simplified accordingly.   The Business Activities Registration Act (BARA) was enacted in 2007 but never implemented in practice, which creates legal uncertainty in the area of business licensing and registration. While the Act was meant to provide for an OSS for business registration and it repealed the Business Licensing Act (1972), it imposed additional burdens to businesses, which need to be removed.  BARA remains under the Ministry of Industry and Trade, including issuance of Business License. 8 iv. Reorganization of workflow processes of BRELA to improve the efficiency of the business registration process and a better service delivery (US$0.25 million). Activities will include:  Detailed process mapping of procedures within BRELA as well as other stakeholder agencies involved in the starting a business procedures;  The development of internal manuals and a service delivery charter for BRELA;  The development of a communication strategy to ensure that all information about reforms is efficiently communicated to the business community as well as other government agencies. C. Support to BRN (US$10 million)5. This subcomponent will deliver four activities as follows. i. Start-up of the PDB with a focus on private sector functions and capacity (US$3 million). This activity will provide PDB with private sector-related capacity, equipment, resources, and instruments to enable it to deliver its mandate during the start-up phase. The output of this activity will be the existence of private sector- oriented functions, resources, and capacity at PDB. ii. Operationalization of the TDC (US$2.7 million). This activity will consist of facilitating the final stages of establishing the TDC. The TDC will review NKRA progress and advance solutions to eventual bottlenecks encountered by NKRA ministries. The output of this activity will be the full operationalization of TDC. iii. Train PDB, MDU and other Ministries, Departments, and Agencies (MDA) staff on the requirements to facilitate private sector operations across the BRN delivery system (US$2.3 million): The BRN program aims to enhance government performance and facilitation of private sector investment. This activity will enable PDB to carry out the necessary training and other capacity enhancement activities in the PDB but also in the implementing agencies with responsibility to achieve this objective. This will contribute to improving the overall business environment and the overall transformation of government delivery capacity. iv. Identify additional areas for priority interventions and develop detailed plans for further private sector development under BRN (US$2 million): To be truly and sustainably transformational, the BRN program will need to expand beyond the initial six NKRAs, and seek additional leveraging for private sector participation. Under this activity, PDB will undertake analysis to identify additional strategic areas where results can be delivered through private sector interventions and develop the associated action plans and solutions. 5 A PPA of US$5.7 million is providing vital capacity and functions in the BRN delivery system to ensure private sector focus. 9 Component 2: Improving Access to Financial Services (US$ 10 million)6 A. Strengthening legal and regulatory framework for financial sector and improving capacity of regulators (US$6 million): The focus of this sub-component will be on filling the gaps in the legal and regulatory framework that hinder the uptake of available financial products and strengthening capacity of regulators through a number of activities, including: i. Establishing the coordination mechanism, strengthening legal and regulatory framework and conducting capacity-building for consumer protection (US$1.5 million). This activity seeks to: (i) establish a coordination mechanism for financial protection among financial sector regulators7, Fair Competition Commission and the Ministry of Finance to address the issues arising from a fragmented institutional framework in this area; (ii) strengthen and clarify the consumer protection legal and regulatory framework in all parts of the financial sector, including institutions outside the formal regulatory framework (e.g., microfinance); and (iii) improve the capacity of the regulators to better monitor the compliance of financial institutions with market conduct regulations. ii. Supporting deposit insurance (US$2 million). This support will comprise of creating a distinct legal framework for the creation and operation of a deposit insurance system in Tanzania. The drafting of the principal legislation on the deposit insurance will be supplemented by subsidiary pieces of legislation (regulations) that allow for the effective functioning of the Deposit Insurance Board as mandated in the principal legislation. Additional capacity support to the development of deposit insurance system, including acquisition of ICT, will also be part of this activity. iii. Development of reporting standards for microfinance institutions (US$1 million). This activity will assist in the development of minimum financial reporting standards for microfinance institutions (MFIs). Support will also be provided to establishing more realistic regulations for MFIs and gazetting these regulations. Supervision of the sector will be rationalized, including the possibility of introducing risk-based supervision in the sector. The responsibility for this activity will be with BOT taskforce. iv. Addressing weaknesses in collateral system (US$1 million). Support will be provided to a number of activities, such as developing a Secured Transactions Law and regulations to allow the use of movable assets as collateral and creating a registry of movable assets. v. Development of standards for overseeing and supporting mobile financial services infrastructure (US$0.5 million). This activity will support the creation of a 6 The list of activities under this component is based on requests received from the BOT and also by the analytical and technical assistance work undertaken thus far including: (i) Tanzania and EAC Financial Sector Assessment, (ii) Consumer Protection and Financial Literacy Diagnostic for Tanzania, (iii) FIRST-funded TA on Islamic Banking, (iv) SME Finance Background Paper for the CEM etc. 7 BOT, Social Security Regulatory Agency, Capital Markets and Securities Authority, Tanzania Insurance Regulatory Authority, Tanzania Communications Regulatory Authority 10 legal and regulatory framework for the use of mobile and other alternate channels and strengthening of capacity of the regulators. B. Supporting new products to expand access to finance (US$4 million): The focus of this sub-component will be support to the development of new or relatively new financial products tailored to specific users, aimed at expanding financial access. Such products may include, inter alia, finance leasing, takaful (Islamic insurance), M-akiba bonds8, and other products. Component 3: Project Management (US$1 million) i. The existing PIU at the Prime Minister’s office will implement the project and be responsible for the overall coordination and management of activities. ii. To ensure proper coordination and supervision of the project, the Business Environment Roadmap Committee (BERC) in the Prime Minister’s office will continue to provide policy guidance and oversight on the project as it has done under PSCP. The BERC meets quarterly. It is chaired by the Permanent Secretary in the Prime Minister’s office and comprises of eight (8) thematic Task Forces each headed by a respective Permanent Secretary and includes private sector representatives. Involvement of private sector in the Task Team provides field experience and the recipient perspective to the proposals of the required reforms (Annex 6). iii. The PIU will develop and implement an information, education and communications strategy. Results Framework 31. The proposed Additional Financing includes modifications to the PDO and previous project design, thereby resulting in revisions to the Results Framework. These revisions allow for better alignment of the indicators with the investments supported by the proposed Additional Financing. New outcome indicators include the following: the number of days to complete the registration of a certificate of occupancy, the number of new financial products for which the legal/regulatory framework is developed, and number of days to formally start a business, representing the major part of the investments in strengthening the business environment and improving access to finance for MSMEs. Previous PDO indicators, including the number of formal MSMEs, value of titled land, and increase in sales and assets for firms supported under the Project, have been modified or dropped due to (i) difficulties in attribution and (ii) revisions to the Project design with the proposed Additional Financing. 32. A number of result indicators will not be part of the Additional Financing because some initiatives have been successfully completed under the original project. For example, the indicator measuring an increase in gross revenue in firms supported by the project is no longer applicable because the component related to it (Enhancing Enterprise Competitiveness) has been successfully completed and is not continued under additional financing. This activity 8 M-akiba is a proposed savings bond that will be intermediated through the mobile channel but will also trade at the Dar es Salaam stock exchange 11 already achieved higher increase in gross revenue of firms against the baseline than what was targeted under the project (17 percent increase in 2012 compared 15 percent target). 33. An updated Results Framework including Arrangements for Monitoring is included in Annex 1 and Annex 2. Table 1 below highlights changes made to the PDO indicators. Table 1: Changes in Results Framework Project Outcome Indicator Original Changes with Revised Target Target Additional Financing PDO Level Number of formal (MSME) 75,000 Not an N/A enterprises increased indicator for AF Value of the titled land compared 7.76 titled / Not an N/A to untitled increased 7.60 for indicator for untitled AF Increase in sales and assets for 562,500,000 Not an N/A firms supported under the 70,000,000 indicator for project: (a) Sales, (b) Assets AF Number of days to complete the N/A9 Calculation 40 registration of a certificate of methodology occupancy revised10 and the indicator moved from intermediate indicators to PDO level OSS for business registration N/A New Yes11 established and fully functional Number of new financial products N/A New 2 for which the legal/regulatory framework is developed Direct Project beneficiaries 14,490 Target revised 35,000 (number) Of which Female (% of total) 41% Target 41% maintained 9 The original target was set under a different calculation methodology and not applicable for the revised indicator 10 When the indicator for PSCP was introduced, it was measuring the days taken to register a certificate of occupancy, excluding the first process which is to approve a land allocation by the Commissioner of Lands. The indicator for Additional Financing includes this first process of approving a land allocation and is consistent with the method used by Doing Business report. The baseline (2006) and progress to date (2013) values were obtained from the Doing Business report (see Annex 2) 11 OSS for business registration established and operational, as evidenced by completion of all the following steps: (i) BRELA technology platform connected with TRA and social security funds; (ii) OSS is fully staffed; (iii) OSS online registration and payment enabled, and (iv) OSS personnel and key stakeholders have been trained 12 34. Closing Date. The additional activities will be implemented in a time frame of approximately two years. The new closing date is November 30, 2015 35. Project Costs. The changes in total cost by component and impact of the proposed additional financing on the project by component are shown in Table 2 below. Table 2: Costs by Component Component IDA Original Cost Changes with IDA Revised Cost (US$ million) Additional Financing (US$ million) Business Environment 51.8 49.2 101 Strengthening Enterprise 38.9 - 38.9 Competitiveness Improving Access to 5 10 15 Financial Services Project Management - 12 1.0 1.0 Total 95.7 60.2 155.9 IV. Appraisal Summary 36. The additional financing activities have been appraised for economic and technical viability. Implementation arrangements will not change from the existing ones under the original project. No new fiduciary arrangements are sought. Finally, no changes in the project’s safeguard category are envisioned, and no new safeguard policies are triggered. Economic Appraisal 37. The economic analysis is built as a financial analysis with the estimated difference in cash flows to beneficiaries (individuals and MSMEs) accounted for as cash flows to the Project. The costs and benefits that are expected to accrue from sub-components 1A (Land Administration Reform) and 2 (Improving Access to Financial Services) have been estimated and the Net Present Value (NPV) and the Economic Rate of Return (ERR) for the investments in these components were calculated. Details on these calculations are provided in Annex 5. The economic analysis of sub-components 1B (Support to Business Registration Reform) and 1C (Support to BRN) present a special challenge due to the indirect relationship between the capacity building reforms supported under the Project and the stream of benefits that these are expected to trigger. In light of this, a literature review has been provided on the positive effects of business registration reform and capacity building on business creation, SME development and growth. 38. Overall Project NPV is estimated at US$26.6 million at a 10 percent discount rate (with costs and benefits based on only component 2), with a 23 percent ERR. The data and the assumptions are based on field research that estimates the impact of similar programs on SMEs growth and productivity rates, and changes in wages. 10 and 12 percent discount rates are used for different scenarios, in line with World Bank guidelines. Further details on these are provided in Annex 5. 12 Project Management Cost was covered under Business Environment Strengthening 13 Support to Land Administration Reform 39. Land administration reforms envisioned under the project will reduce the amount of time required for property registrations, transfers and transactions, thereby reducing the associated costs borne by individuals and businesses. The impact of this reduced cost on individual businesses has been estimated as part of the economic analyses with a number of different scenarios. 40. The ERR of this sub-component is expected to be 28 percent, and the NPV is expected to be about US$29.4 million with a discount rate of 10 percent. 41. There are other unquantifiable economic benefits that would accrue from investments in land administration reforms. These include: improved land use planning; improvements in dispute resolution mechanisms; and an increase in transparency and legal certainty for existing land-holders. Support to Business Registration Reform 42. The project will support design and implementation of the OSS for business registration and the streamlining and simplification of business registration procedures. As a result, individual enterprises will be able to reduce costs and as such increase their profits. The impact of this reduced cost on individual businesses has been estimated as part of the economic analyses with a number of different scenarios. 43. The ERR of this sub-component is expected to be 24 percent, and the NPV is expected to be about US$5.3 million with a discount rate of 10 percent. 44. The conclusion of the analysis is that activities under sub-components 1C, 2A, and 2B are expected to result in improvements in the capacity of the government and local financial institutions, thereby improving the business climate and access to finance. These improvements in the business climate are expected to contribute to investment and growth, a relationship established in previous empirical studies (listed in Annex 5). Procurement 45. Procurement will be carried out in accordance with the World Bank’s “Guidelines: Procurement of Goods, Works, and Non-consulting Services under IBRD Loans and IDA Credits and Grants by World Bank Borrowers,” dated January 2011; “Guidelines: Selection and Employment of Consultants under IBRD Loans and IDA Credits and Grants by World Bank Borrowers,” dated January 2011; and “Guidelines on Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants”, dated October 15, 2006 and revised in January 2011 and provisions stipulated in the Financing Agreement. 46. National Competitive Bidding (NCB) for Goods and Works shall be subject to the following: (a) In accordance with para.1.14 (e) of the Procurement Guidelines, each bidding document and contract financed out of the proceeds of the Financing shall provide that: (i) the bidders, suppliers, contractors, and subcontractors shall permit the Association, at its request, to inspect their accounts and records relating to bid submission and performance of the contract and to have said accounts and records audited by auditors appointed by the Association; and (ii) the deliberate and material violation by the bidder, supplier, contractor, or subcontractor of such 14 provision may amount to an obstructive practice as defined in paragraph 1.14 (a)(v) of the Procurement Guidelines; and (b) There shall be no preference accorded to the domestic suppliers and contractors. 47. For contracts financed under the Credit Agreement, the various procurement or consultant selection methods, the need for prequalification, estimated costs, prior review requirements, and timeframe have been agreed between the government and the Bank in the Procurement Plan. The Procurement Plan will be updated at least annually or as required to reflect actual project implementation needs and improvements in institutional capacity. 48. The overall assessment in implementation of procurement function under the original project is considered as moderately satisfactory. Taking into account the activities proposed under the AF and to mitigate the risk of capacity, the recruitment of a new procurement specialist is being finalized (the previous one left because the original project is already fully disbursed). Financial Management 49. Financial management and disbursement arrangements currently in place under PSCP will continue, and are deemed adequate. Financial management arrangements, including compliance with the legal covenants related to financial management, are satisfactory and there are no outstanding audit reports. The project's financial management systems comply with Generally Accepted Accounting Principles and thus provide reasonable assurance that the project funds are used for the intended purposes Implementation Arrangements 50. The unit in the Prime Minister’s office will implement the additional financing under existing arrangements as for the PSCP which are deemed adequate. A Project Coordinator (already in place), reporting to the Permanent Secretary in the Prime Minister’s office will administer the program, assembling quarterly and annual reports, compiling the annual work plans and procurement plans prepared by the implementing agencies, keeping all institutions involved in the program informed, and informing stakeholders and decision makers of the project progress and constraints. The Project Coordinator will also ensure that project activities are aligned with those of other Government programs. The Project Coordinator will be supported by a Project Accountant, an Accounts Clerk, a Monitoring and Evaluation Specialist and a Procurement Specialist (being recruited). 51. To ensure proper coordination and supervision of the project, the Business Environment Roadmap Committee (BERC) in the Prime Minister’s office will continue to provide policy guidance and oversight on the project as it has done under PSCP. The BERC meets quarterly. It is chaired by the Permanent Secretary of the OPM and comprises of eight (8) thematic task forces each headed by a respective Permanent Secretary and includes private sector representatives. 52. Several entities will provide technical support to the implementation of project sub- components. The Ministry of Lands, Housing and Human Settlements Development will provide technical support for the Land Administration Reform sub-component, which they have been supporting under the original project. The Bank of Tanzania will provide technical support for Improving Access to Financial Services component; they have gained significant experience in these matters under the closed Financial Sector project. BRELA will provide technical support 15 for the Business Registration Reform sub-component as they have been doing under PSCP. Finally, technical support to the implementation of the BRN sub-component will be handled by PDB which has been set up and started operations. All of the agencies mentioned above are in place and are operational. Environmental and Social Safeguards 53. Social (including safeguards). The project is expected to lead to favorable social outcomes, including employment generation and poverty reduction. 54. The project does not trigger OP 4.12 on Involuntary Resettlement. No involuntary taking of land is envisaged by the project. With respect to Sub-components 1(A)(c), OP 4.12 does not apply to disputes between private parties in land titling projects and to land use planning activities unless such activities involve Bank-financed investments requiring the taking of land, which will not be the case under the project. The project will focus on the regularization of private interests of land, and titling of land currently under the control of the state is not anticipated. Where intended beneficiaries of the regularization activities are found as a result of the project to be located partially or entirely on state land, regularization activities on that land will not be completed and the parcel will be marked on the register as disputed. The disputed cases will be referred to the normal and special courts of law starting at the Ward Land Tribunals which, if unresolved there, are cascaded up to the District Land and Housing Tribunals and ultimately to the Land Court Division of the High Court. This land dispute resolution mechanism has worked well under the piloting schemes funded by PSCP and will therefore be extended for use under the proposed Additional Financing. Annex 7 provides more information on this approach. Details of the dispute resolution mechanism can be found in the Operations Manual for Systematic Land Titling contained in the Project File. 55. Nevertheless there are certain risks pertaining to engagement in land related activities (regularization of tenure rights, piloting land use planning) that need to be acknowledged. Depending on the location, particular challenges may revolve around (i) confirming with certainty existing rights to the land and the absence of disputes concerning those rights, and (ii) ensuring that all land users on a given piece of land are protected. Along the same vein, participatory land-use planning can be a key instrument to strengthening overall land governance and prosperity. However, when done in a perfunctory manner that excludes important voices at local level (women and other vulnerable segments of the population) or driven largely at the behest of investors, it may become a potential source of conflict. As elaborated in Annex 7, project design includes provisions to create awareness to encourage full participation of all stakeholders, ensure transparency, robust consultative processes, and strengthen dispute resolution mechanisms and mitigate the risks inherent in land administration reform activities. 56. Environmental (including safeguards). The project does not pose any significant direct environmental risks. There are no constructions envisaged in the project. Risk Factors and Unforeseen Events 57. The overall risks of project implementation are Substantial. The project benefits from structures already in place. The PIU is already existing with an implementation team in place. 16 Nevertheless, substantial risks still remain. For instance, coordination is rather challenging since multiple beneficiary agencies are involved. Some other risks that need to be monitored closely relate to issues of capacity in some of the beneficiary agencies. The risk of project implementation is therefore rated as Substantial. Mitigation measures have been identified and incorporated in the design. An updated Operational Risk Assessment Framework is included in Annex 3. 17 I. Annex 1: Results Framework United Republic of Tanzania: Additional Financing – Private Sector Competitiveness Project Revisions to the Results Framework Comments/Rationale for Change PDO Current (PAD) Proposed To create sustainable To strengthen business The Proposed PDO is more conditions for enterprise environment in Tanzania, specific and will allow for better creation and growth. The including land evaluation of the overall Project project’s progress in achieving administration reform, and outcomes. this objective will be improve access to financial measured by the increase in services. the number of formal enterprises, the increase in the value of titled land relative to untitled, and growth in sales and assets of firms participating in the project. PDO Indicators Current (PAD) Proposed change Number of formal (MSME) Not an indicator for AF Attribution of this indicator to enterprises increased Project activities is difficult; thus it is not an appropriate measure for the PDO. Value of the titled land Not an indicator for AF Measurement and attribution of compared to untitled increased this indicator to Project activities is difficult; thus it is not an appropriate measure for the PDO. Additionally, the proposed additional financing focuses on the regulatory side of land administration reform and the ILMIS rather than land value. Increase in sales and assets for Not an indicator for AF The proposed Additional firms supported under the Financing does not include the project: (a) Sales, matching grant component which (b) Assets this indicator pertained to. Number of days to complete Continued This measure is indicative of the the registration of a certificate regulatory and ILMIS activities of occupancy supported under the Land Administration Reform sub- component, thereby making it an appropriate PDO-level indicator. OSS for business registration New Indicator for sub-component 1B, 18 established and fully business registration functional Number of new financial New This measure is indicative of the products for which the activities supported under legal/regulatory framework is Component 2 of the proposed developed Additional Financing, thereby making it an appropriate PDO- level indicator. Direct Project beneficiaries Continued (number) Of which Female (% of total) Continued Intermediate Results Indicators Current (PAD) Proposed change Number of steps to formally Drop The number of steps to formally start a business reduced start a business is less relevant than the number of days required, thereby making it redundant. Number of days to formally Continued start a business reduced Cost to formally start a Continued Indicator remains the same but business reduced the End Project target has been (GNI per capita) reduced from 60% to 20% to reflect even lower expected costs. Number of days to complete Drop as intermediate This measure is indicative of the the registration of a certificate indicator; revise and use as regulatory and ILMIS activities of occupancy PDO indicator. supported under the Land Administration Reform sub- component, thereby making it an appropriate PDO-level rather than intermediate indicator. Number of days to complete Continued Indicator remains the same but the registration of a mortgage the End Project target has been reduced from 20 to 4 days. Number of days to resolve a Drop This indicator is not relevant to dispute on the overdue debt in investments supported under the court reduced proposed Additional Financing. Official cost ( as a % of debt) Drop This indicator is not relevant to to complete a dispute on the investments supported under the overdue debt in court reduced proposed Additional Financing. Rigidity of employment index Drop This indicator is not relevant to investments supported under the proposed Additional Financing. Staff of PDB, MDU and MDA New Indicator for activities under sub- trained in private sector component 1C: Support to BRN 19 operations added. Completion of detailed plans New Indicator for activities under sub- for new NKRAs component 1C: Support to BRN added Increase in gross revenue in Drop This indicator is not relevant to firms supported by the project investments supported under the proposed Additional Financing. Creation of the framework for New Indicator for activities under sub- deposit insurance component 2A: Strengthening legal and regulatory structures (Component 2: Improving Access to Financial Services) added. Number of active loan Drop This indicator does not directly accounts – SME align with investments supported under the proposed Additional Financing. Number of active loan Drop This indicator does not directly accounts – Microfinance align with investments supported under the proposed Additional Financing. Increase in the volume of Drop This indicator does not directly savings (Tsh Billions) align with investments supported under the proposed Additional Financing. Number of active micro- Drop This indicator does not directly savings accounts align with investments supported under the proposed Additional Financing. Percentage of active micro- Drop This indicator does not directly savings accounts held by align with investments supported women under the proposed Additional Financing. Development of financial New Indicator for activities under sub- reporting standards for component 2A: Strengthening microfinance institutions legal and regulatory structures (Component 2: Improving Access to Financial Services) added. 20 II. Annex 2. Arrangements for Results Monitoring United Republic of Tanzania: Additional Financing – Private Sector Competitiveness Project Original PDO: To create sustainable conditions for enterprise creation and growth. The project’s progress in achieving this objective will be measured by the increase in the number of formal enterprises, the increase in the value of titled land relative to untitled, and growth in sales and assets of firms participating in the project. Revised PDO: To strengthen business environment in Tanzania, including land administration reform, and improve access to financial services. Annual Target Values D=Dropped Baseline C=Continu Original Responsibilit Core PDO Level Results Unit of Progress End of e Project Frequency y and Data Comments Indicators Measure To Date 2014 2015 Project N= New Start source R=Revised (2006) (2013)13 Target Indicator One: Number of Land days to complete the 14 R Days 77 68 65 60 40 Annual Registry/ registration of a DB certificate of occupancy Indicator Two: Number of new financial products End of for which the N Number 0 0 0 1 2 BOT Project legal/regulatory framework is developed 13 For new indicators introduced as part of the additional financing, the progress to date column is used to reflect the baseline value. 14 We note that the baseline and progress to date values have been obtained by the team from the Doing Business report. These values are different in the original project as they were calculated under a different methodology (not including the time to approve a land allocation by the Commissioner of Lands). 21 Indicator Three: OSS for business registration 15 established and fully N Text No - - - Yes Annual DB functional Indicator Four: Direct Project Beneficiaries Number 27,224 30,000 32,000 35,000 (number), of which N 0 Annual PCU Percent 40% 40% 41% 41% female (%) Intermediate Result Indicators D=Dropped Baseline C=Continu Original Progress End of Responsibilit Core Intermediate Level e Unit of Project To Date 2014 2015 Project Frequency y and Data Comments Results Indicators Measure N= New Start (2013) Target source R=Revised (2006) Component 1: Improving the Business Environment Intermediate Result indicator One: Cost to formally start a business C % 168.3% 28.2% 26% 23% 20% Annual DB reduced as % of gross national income (GNI) per capita) Indicator Two: Number of days to formally start a C Days 35 26 24 22 20 Annual DB business reduced 15 OSS for business registration established and operational as evidenced by completion of all the following steps: (i) BRELA technology platform connected with TRA and social security funds; (ii) OSS is fully staffed; (iii) OSS online registration and payment enabled, and (iv) OSS personnel and key stakeholders have been trained 22 Intermediate Result indicator Three: Number Ministry of of days to complete the C Days 61 5 4 Annual 7 6 Lands registration of a mortgage reduced Intermediate Result Indicator Four: Staff of President’s 16 PDB, MDU and MDA N Yes/No No - - - Yes End of Project Delivery appropriately trained in Bureau private sector operations Intermediate Result President’s Indicator Five: Completion 17 N Yes/No No - - - Yes End of Project Delivery of detailed plans for new Bureau NKRAs Component 2: Improving financial services to MSME’s 18 Intermediated Result indicator Six: Creation of 19 End of N Yes/No No - - - Yes BOT the framework for deposit Project insurance (Yes/No) Intermediate Result indicator Seven: 20 End of Development of financial N Yes/No No - - - Yes BOT Project reporting standards for microfinance institutions 16 Staff of PDB, MDU and MDA trained in private sector operations enabling them to obtain greater understanding of private sector operations and routinely apply new knowledge to facilitate private sector engagement in their respective sector, as evidenced by the completion of 2 weeks of training in risk analysis, types of transactions and processes, project finance, and market analysis 17 Details plans have been prepared and approved 18 For institutions and organizations FSDT has worked with. 19 Principal legislation and regulations that allow for the effective functioning of the Deposit Insurance Board have been drafted 20 Minimum financial reporting standards for MFIs have been developed; regulations for MFIs have been developed and gazetted 23 III. Annex 3. Operational Risk Assessment Framework (ORAF) United Republic of Tanzania: Additional Financing – Private Sector Competitiveness Project 1. Project Stakeholder Risks 1.1 Stakeholder Risk Rating Moderate Description: Risk Management: There is a risk that the beneficiary agencies will not have This risk has been largely mitigated through carrying out detailed consultations with the enough ownership of their components, which may delay beneficiary agencies regarding the activities they will implement to ensure there is full buy-in implementation. discussions have been informed by lessons learned from the implementation of the original operation. Further strengthening of the relationship with beneficiary agencies and providing support to them throughout implementation will also help to mitigate this risk. The agencies have already demonstrated strong commitment s all of them have participated in the implementation of the existing project. There is a risk that other donors that support activities, in This will be mitigated through the GoT actions: the Government will take on leadership of some of the areas addressed by the project, may not fully reforms, including accountability for their implementation, as well as the inter-agency support the reforms if the laws, regulation, supervision, consensus building that sustainable reform requires. or standards are onerous or infringe on their current operations. The private sector and land holding groups might not The risk will be mitigated through the Government’s adoption of policies which ascertain have clear titles for registration and might resist activities protection of land rights, consultation with all stakeholders, and conducting appropriate implemented as part of the land administration reform communication campaigns to inform the stakeholders of the planned actions to ensure they are aware of what to expect and cultivate their trust Resp: Stage: Rec Due Frequency: Status: In Progress Client Preparati urre Date: Quarterly on nt: 24 2. Implementing Agency (IA) Risks (including Fiduciary Risks) 2.1 Capacity Rating Substantial Description: Risk Management: Insufficient institutional capacity of some of the Beneficiary agencies remain essentially the same as in the original project, and they have been beneficiary agencies could affect the pace and quality of significantly strengthened as the result of participation in project activities. In order to further implementation mitigate this risk, the project will fund any additional skills enhancement activities, including institutional strengthening, for agencies which require further capacity-building. Additional staff will be recruited to fill in gaps if deemed necessary. Substantial training to the implementing agencies is provided in a timely manner to enhance their ability to properly implement the project’s activities. Resp: Stage: Due Frequency: Status: In Progress Recur Client Implem Date: Quarterly rent: entation 2.2 Governance Rating Moderate Description: Risk Management: The risk is mitigated through putting in place the appropriate implementation structure. To overcome the problem of a lack of clear leadership, overall There is a risk that the beneficiary agencies will not have responsibility for implementation will rest with the implementing agencies assisted by the enough ownership of their components, which will delay participating line ministries. However, all of the beneficiary agencies will be greatly involved implementation. Moreover, the agencies’ bureaucratic in the process of implementation to ensure their ownership of respective components. The procedures can also delay timely decisions for the Business Environment Roadmap Committee (BERC) in the Prime Minister’s office which is project's activities. part of the original project will continue guiding project implementation. Resp: Stage: Due Frequency: Status: In Progress Recur Client Implem Date: Quarterly rent: entation 3. Project Risks 3.1 Design Rating Substantial Description: Risk Management: As this project represents additional financing, activities mostly scale-up the work already A project with many components and activities (e.g., land successfully performed in a number of areas. As such, necessary initial work has been 25 administration, business registration, BRN support, and undertaken; personnel responsible for implementation are familiar with procedures and new access to finance) may be difficult to implement and activities represent a continuation of previous activities in the same areas. The project manage. incorporates lessons learned from the original operation as well as other private sector development projects in the region and builds on the experience of the implementing agencies. It has also incorporated lessons learned from other World Bank funded projects in the areas of land administration, business registration, and improvement of access to finance. A comprehensive needs assessment has been done through discussions with relevant stakeholders and beneficiaries during the preparation stage. Resp: Stage: Due Frequency: Status: In Progress Recurr Client Prepara Date: Quarterly ent: tion 3.2 Social and Environmental Rating Moderate Description: Risk Management: Environment risk is moderate since the project will The original project has been rated category C and no changes to the category are expected. mainly finance technical assistance and capacity The original project has not encountered any environmental issues during implementation. building. Social risks pertain to land related activities (regularization of tenure rights, piloting land use No safeguard policies are triggered by the proposed Additional Financing. The project planning). Depending on the location, particular components are expected to lead to favorable social and environmental outcomes, including challenges may revolve around (i) confirming with employment generation and poverty reduction, and improved land management. Nevertheless, certainty existing rights to the land and the absence of social risks are acknowledged pertaining to land rights and disputes. These will be addressed disputes concerning those rights, and (ii) ensuring that all under the existing dispute resolution mechanism which has already proved effective under the land users on a given piece of land are protected. Along original project and it is explained in detail in Annex 7. In summary, where there are the same vein, participatory land-use planning can be a challenges to the adjudication results that cannot be immediately and easily addressed, the key instrument to strengthening overall land governance disputed cases are referred to the normal and special courts of law starting at the Ward Land and prosperity. However, when done in a perfunctory Tribunals which, if unresolved there, are cascaded up to the District Land and Housing manner that excludes important voices at local level ( Tribunals and ultimately to the Land Court Division of the High Court. This land dispute women and other vulnerable segments of the population) resolution mechanism has worked well under the piloting schemes and will therefore be or driven largely at the behest of investors, it may extended for use under the proposed Additional Financing. become a potential source of conflict Resp: Stage: Recurre Due Frequency: Status: In Progress Prepar nt: Date: ation 26 3.3 Program and Donor Rating Moderate Description: Risk Management: Inadequate coordination and alignment across numerous In order to mitigate this risk, the Bank is maintaining a dialogue with development partners private sector-related projects and programs and who would like to cooperate and coordinate and will continue consulting with other supporting agencies could lead to duplication of effort development partners to ensure adequate coordination. As this is a follow-up operation, the and/or reduce effectiveness of interventions Bank is already well aware of all of the major players in the sector (e.g., DFID, USAID) and has informed them all of the planned additional financing for this project. Resp: Stage: Rec Due Frequency: Status: In Progress Bank Preparati urre Date: on and nt: Impleme ntation 3.4 Delivery Monitoring and Sustainability Rating Substantial Description: Risk Management: As this is a follow-up project, adequate M&E systems have already been developed and Poor quality of operations and maintenance established in the implementing agency. The project will finance any additional capacity- arrangements, and weak institutional capacity issues building activities which will be necessary. could negatively impact project outcomes Resp: Stage: Due Frequency: Status: In Progress Both Imple Recurre Date: 01- mentat nt: Jul-2013 ion 4. Overall Risk 4.1 Overall Implementation Risk Rating Substantial Description: The project seeks to finance additional activities under the components of the original project. As such, all of the systems (e.g., FM, procurement- specialist under recruitment) have already been set up and capacity built in the PIU. At the same time, implementation of multiple activities aimed at both strengthening the business environment and improving access to finance are envisioned. Coordination is rather challenging since multiple beneficiary agencies are involved. The risk of project preparation and implementation is therefore rated as Substantial. 27 IV. Annex 4: Lessons Learned from PSCP Implementation United Republic of Tanzania: Additional Financing–Private Sector Competitiveness Project The design of the additional financing incorporates lessons learned from the implementation of the original project. Some of the lessons learned are presented below: 1. Design, preparation, and implementation: The PSCP is a multi-sectoral project with many implementing agencies, beneficiaries, and activities. Due to lack of consultations during the design phase, implementation of various sub-components did not occur at the same pace. Consultations have been held with key stakeholders during the design of the additional financing to ensure that the implementation starts at an accelerated pace and all of the sub-components move quickly. The agreed-upon implementation arrangements are such that beneficiary agencies will substantially manage their own sub-component to ensure that work on all of the sub- components of the project can occur simultaneously. Overall, given the familiarity of the beneficiary agencies with their activities due to the ongoing project, implementation is expected to be rather smooth. This is because the PSCP-AF content and activities are based on an existing land and business registration component under implementation. The activities on access to finance are also based on a closed project. 2. Absence of technical capacity at the implementing agencies: The PSCP activities were implemented in various agencies, and the staff of some of these agencies were not yet familiar with the Bank procedures and also lacked some technical capacity to implement the project. The capacity was gradually built up, which helped to accelerate implementation. In order to ensure that capacity of the implementing agencies under the additional financing operation is strong from the start and the project is implemented quickly and efficiently, they will be constituted with relevant staff in the shortest periods of time and relevant training is provided. 3. Results framework: PSCP had an M&E framework in place; however, since there were several agencies doing the implementation, it failed to capture some baseline information. This created some issues with measurement of some indicators, especially where targets were set as an increase from baseline. To address this issue during preparation of the additional financing project, the M&E staff under PSCP-AF will be available during the project period and will capture baseline data. 4. Procurement and contract management: Under the PSCP, the PIU at PMO was responsible for procurement but the respective agencies were responsible for contract management, which creates a number of issues with implementation. Problems encountered as the result of this arrangement suggest that the agency responsible for procurement also needs to be responsible for contract management, and this practice will be followed in the additional financing project. Capacity of implementing agencies under PSCP-AF has been assessed and gaps will be filled before implementation starts to ensure that all of the agencies are able to perform their functions properly. 28 V. Annex 5: Detailed Economic and Financial Analyses United Republic of Tanzania: Additional Financing – Private Sector Competitiveness Project 1. The proposed additional financing aims to contribute to increased private sector investments, firm growth and jobs created by targeting land administration and business registration reform and access to finance for MSMEs, all of which are key constraints to private sector growth in Tanzania. The project will comprise two mutually- reinforcing components: (i) strengthening the business environment; and (ii) improving access to finance for small and medium enterprises. In addition the third component of the project will support project implementation. The economic analysis for sub-components 1C (Support to BRN), 2A (Strengthening legal and regulatory structures) and 2B (Supporting new products) presents a special challenge due to the indirect relationship between the BRN support and the access to finance reforms supported under the proposed additional financing and the stream of benefits that these are expected to trigger. For components related to investment climate and access to finance reforms, the complexity in quantifying economic benefits is multiplied. In the absence of commonly accepted methodologies for the economic analysis of these types of access to finance reform, these types of projects are based on cost effectiveness and more general analytical work on the positive effects of access to finance on private sector growth and entrepreneurship. 2. The economic analysis of this Project is built as a financial analysis with the estimated difference in cash flows to beneficiaries (individuals and MSMEs) accounted for as cash flows to the Project. The following includes economic analysis of sub-components 1A (Land Administration Reform) and 1B (Support to Business Registration Reform). Under sub- component 1A, the proposed additional financing will support the legal and regulatory framework, scale-up successful work in systematic registration, and infrastructural interventions. In sub-component 1B, the proposed additional financing will support the design and implementation of the OSS and streamlining and simplification of business registration procedures. An attempt has been made to quantify the costs and benefits that are expected to accrue from these investments, and the Net Present Value (NPV) and the Economic Rate of Return (ERR) for these sub-components have been calculated. These valuations are constructed through scenario based analyses with sensitivity testing. A qualitative analysis has been included for sub-components 1C, 2A and 2B, based on the literature discussing the impact of access to finance reform on competitiveness and firm entry. 3. The total investment under sub-components 1A and 1B is estimated to result in an NPV of US$26.6 million at the discount rate of ten21 percent, and an ERR of 23 percent with the base case scenario. Different assumptions and detailed data from multiple sources are used for the analysis of specific components. Correspondingly, all sub-components include their own sensitivity analyses, which follow. 21 Discount rate: The Bank traditionally has not calculated a discount rate but has used 10-12 percent as a notional figure for evaluating Bank–financed projects. This notional figure is not necessarily the opportunity cost of capital in borrower countries, but is more properly viewed as a rationing device for World Bank funds. 29 Land Administration Reform 4. Land administration reforms envisioned under the project will reduce the amount of time required for property registrations, transfers and transactions, thereby reducing the associated costs borne by individuals and businesses. The impact of this reduced cost on individual businesses has been estimated as part of the economic analyses with a number of different scenarios. The proposed additional financing is investing a total of US$35.2 million to manage implementation of this sub-component, disbursed over the two remaining years of the Project. 5. In the economic analysis of this component the ERR is expected to be 28 percent. The NPV is expected to be about US$29.4 million, with a discount rate of 10 percent. Table 1: Economic analysis of Land Administration Reform Component NPV (10% Discount rate) $29,372,067 NPV (12% Discount rate) $23,001,151 ERR 28% 6. The sensitivity results of this component and the underlying assumptions and economic benefit calculations are summed below. Land Administration Reform Component Assumptions Without the Project Annual  government costs (annual  TZS)     3,000,000,000 Annual  government costs (annual  USD)             1,860,000 Growth rate  in annual  government costs 1% Number of  properties registered                 140,000 Growth rate  in number of  properties registered per annum 2% Monthly average  wage  (TZS)                 105,000 Average  daily wage  (TZS) 5,250                       Exchange  rate  (TZS to USD)                 0.00062 Average  daily wage  (USD)                        3.26 Growth rate  in wages 2% Cost (% of property value) 4.4% Average  property value  (TZS)           41,180,029 Average  property value  (USD)                   25,532 Growth rate  in average  property value 2% Fees (USD) 1,123                       Number of  days 68                             30 With the Project Percentage  increase  in annual  government costs 150% Annual  government costs (annual  TZS)     7,500,000,000 Annual  government costs (annual  USD)             4,650,000 Growth rate  in annual  government costs 1% Number of properties registered                 140,000 Growth rate  in number of  properties registered per annum 2% Monthly average  wage  (TZS)                 105,000 Average  daily wage  (TZS) 5,250                       Exchange  rate  (TZS to USD)                 0.00062 Average  daily wage  (USD)                        3.26 Growth rate  in wages 2% Cost (% of  property value) 4.4% Average  property value  (TZS)           43,239,031 Average  property value  (USD)                   26,808 Growth rate  in average  property value 2% Fees (USD) 1,180                       Number of days 40                             7. Assumptions: (a) The technical data on government costs, annual growth rates, number of properties registered, and average wage are taken from data gathered during the identification and pre-appraisal missions through discussions with Tanzania based experts validated by available data from local surveys, comparisons with nearby countries with similar enterprise demographics, and the Doing Business Reports. In many cases, these numbers were adjusted to arrive at more conservative estimates for the sub-component ERR. (b) The main impacts of the Project are expected due to cost savings for businesses and individuals transacting in and registering property. These savings are due to the reductions in the number of days required for each of these transactions. Government costs for operating registration services are estimated to increase by 50%. These assumptions have been tested for sensitivity below. 8. The sensitivity analysis shows that the Land Administration Reform ERR with a 175% increase in government costs will only result in a 26 percent ERR. In contrast, a 130% percent increase in government costs will increase the component ERR to 31 percent with everything else held constant. The results of the sensitivity analysis include: 31 Sensitivity Analysis with Different Scenarios 1. Increase in government costs by 175% rather than the assumed 150%  Reduces ERR to 26% 2. Increase in government costs by 30% rather than the assumed 50%  Increases ERR to 31% 3. Number of days to complete property registration is 45 rather than the assumed 40  Reduces ERR to 15% 4. Number of days to complete property registration is 35 rather than the assumed 40  Increases ERR to 43% Support to Business Registration Reform 9. The Project will support design and implementation of the OSS for business registration and the streamlining and simplification of business registration procedures. As a result, individual enterprises will be able to reduce costs and as such increase their profits. The impact on of this reduced cost on individual businesses has been estimated as part of the economic analyses with a number of different scenarios. The proposed additional financing is investing a total of US$4 million to manage implementation of this component, disbursed over the remaining two years of the Project. 10. Business registration reform is expected to reduce costs borne by businesses through two channels. First, the direct fees required for business registration are expected to decrease as a result of the investments supported under the proposed additional financing. Second, the number of days required to complete business registration procedures is also expected to reduce. As such, the associated cost of an employee’s time to attend to registration procedures will also decrease, thereby reducing the overall cost of registration. 11. In the economic analysis of this component the ERR is expected to be 24 percent. The NPV is expected to be about US$5.3 million, with a discount rate of 10 percent. Table 4: Economic analysis of Business Registration Component NPV (10% Discount rate) $5,264,326 NPV (12% Discount rate) $4,004,912 ERR 24% 12. The sensitivity results of this component and the underlying assumptions are summed below. 32 Business Registration Component Assumptions22 Without the Project Annual  government costs (annual  TZS)     3,000,000,000 Annual  government costs (annual  USD)             1,860,000 Growth rate  in annual  government costs 1% Number of  businesses registered                   10,000 Growth rate  in number of  businesses 2% Monthly average  wage  (TZS)                 105,000 Average  daily wage  (TZS) 5,250                       Exchange  rate  (TZS to USD)                 0.00062 Average  daily wage  (USD)                        3.26 Growth rate  in wages 2% Cost (% of income  per capita) 28.2% Income  per capita (USD) 1,600                       Fees (USD)                         451 Number of  days 26                             22 Under the business registration component, savings are expected to come from the reduction in the cost of registration and number of days spent on registration 33 With the Project Percentage  increase  in annual  government costs 150% Annual  government costs (annual  TZS)     7,750,000,000 Annual  government costs (annual  USD)             4,727,500 Growth rate  in annual  government costs 1% Number of  businesses registered                   10,000 Growth rate  in number of  businesses 2% Monthly average  wage  (TZS)                 105,000 Average  daily wage  (TZS) 5,250                       Exchange  rate  (TZS to USD)                 0.00061 Average  daily wage  (USD)                        3.20 Growth rate  in wages 2% Cost (% of income  per capita) 20% Income  per capita (USD) 1,600                       Fees (USD)                         320 Number of  days 20                             13. Assumptions: (a) The technical data on government costs, annual growth rates, number of businesses registered, and average wage are taken from data gathered during the identification and pre-appraisal missions through discussions with Tanzania based experts validated by available data from local surveys and comparisons with nearby countries with similar enterprise demographics. In many cases, these numbers were adjusted to arrive at more conservative estimates for the sub- component ERR. (b) The main impacts of the Project are expected due to cost reductions for businesses that are registering due to the reduction in number of days required from 26 to 20 and a drop in the associated fees to 20% of per capita income in the base case scenario. Government costs for operating registration services are estimated to increase by 150%. These assumptions have been tested for sensitivity below. 14. The sensitivity analysis shows that the sub-component ERR with a 175% increase in government costs will only result in a 14 percent ERR. In contrast, a 130% percent increase in government costs will increase the component ERR to 34 percent with everything else held constant. The results of the sensitivity analysis include: 34 Sensitivity Analysis with Different Scenarios 1. Increase in government costs by 175% rather than the assumed 150%  Reduces ERR to 14% 2. Increase in government costs by 130% rather than the assumed 150%  Increases ERR to 34% 3. Number of days to complete business registration is 22 rather than the assumed 20  Reduces ERR to 23% 4. Number of days to complete business registration is 18 rather than the assumed 20  Increases ERR to 26% 5. Fees associated with business registration only reduce to 22% of per capita income rather than the assumed 20%  Reduces ERR to 17% 6. Fees associated with business registration reduce to 18% of per capita income rather than the assumed 20%  Increases ERR to 31% Sub-components 1C (Support to BRN), Component 2: Improving Access to Financial Services – sub-components A (Strengthening legal and regulatory structures) and B (Supporting new products) 15. These sub-components will support capacity building reforms to the PPP facilitation fund and other government entities, the Central Bank, and financial institutions to improve access to finance for MSMEs. 16. The relationship between access to finance reform and the performance of firms is well supported in the literature. Greater business opportunities and better access to finance are generally related to a more robust private sector23. Additionally, at the individual and micro- enterprise level, the probability of making an investment tends to increase with greater access to credit and collateral. The number of financial instruments available to both lenders and borrowers also contributes to a higher probability of personal and business investment 24 . As such, the literature supports TA programs with financial institutions to increase the number of financial products offered to MSMEs. This benefit is particularly large for relatively unbanked populations, where improvements in access to finance and financial development have larger poverty impacts25. As such, access to finance reforms and improvements such as those proposed under the Project are likely to benefit Tanzanian individuals and businesses, particularly within the current unbanked population. 23 Demirguc-Kunt, Asli and Klapper, Leora, 2012. "Financial inclusion in Africa: An Overview," Policy Research Working Paper Series 6088, The World Bank. 24 Property Rights and Investment Incentives: Theory and Evidence from Ghana. Timothy Besley: Journal of Political Economy. Vol. 103, No. 5 (Oct., 1995), pp. 903-937 25 Burgess, Robin and Rohini Pande. 2005. “"Can Rural Banks Reduce Poverty? Evidence from the Indian Social Banking Experiment," American Economic Review 95 (3), pp. 780-795. 35 17. The data below (Figure 2) also show a positive and significant relationship between economic and financial development and entrepreneurship. The log of GDP per capita and domestic credit to the private sector (as a percentage of GDP) are both positively and significantly correlated with entry rates (see below) and business density. This suggests that greater business opportunities and better access to finance are related to a more robust private sector (Klapper et al. 2008), lending further credence to the investments supported by the Project. Figure 1: Entry rates and GDP per capita and Private Credit to GDP, by country, Average 2003-2005 36 Annex 6: Composition and Roles of Roadmap Committee in Improving of Business Environment and Investment Climate in Tanzania United Republic of Tanzania: Additional Financing – Private Sector Competitiveness Project PRIME MINISTER’S OFFICE 1. BACKGROUND PSCP, among other activities, supports Land reform, Business Registration reform and improving access to finance. When these activities are implemented they will improve Business Environment/Investment climate. The Permanent Secretary Prime Minister’s Office constituted a “Roadmap Committee” consisting of eight (8) thematic Task Forces each headed by a respective Permanent Secretary and including private sector representatives. Involvement of private sector in the Task Team provided a field experience and the recipient perspective to the proposals of the required reforms. The main roles of the Task Forces among others included undertaking analysis of each procedure using the World Bank Ease of Doing Business report framework to establish underlying policy, legal or administrative issues. As the result, recommendations were developed for streamlining procedures or removing unnecessary procedures to reduce the time and costs of compliance to the minimum level possible. The list of indicators implemented and corresponding lead Ministry is as follows: NO TASK FORCE MDA RESPONSIBLE 1. Starting and Closing Business Ministry of Industry, Trade and Marketing (BRELA) 2. Dealing with Construction Prime Minister’s Office, Regional Administration and Permits Local Government 3. Registering Property Ministry of Lands, Housing and Human Settlements Development 4. Employing Workers Ministry of Labour, Employment and Youth Development 5. Trading Across Borders Ministry of Home Affairs 6. Paying Taxes and Protecting Ministry of Finance and TRA Investors 7. Getting Credit Bank of Tanzania 8. Enforcing Contract Ministry of Constitution and Justice (Judiciary and Attorney General Chambers) 37 2. THE OVERALL IMPLEMENTATION FRAMEWORK AND COORDINATION The Roadmap implementation is coordinated by the Prime Minister’s Office and implemented by MDAs within their statutory mandates for respective reform areas. Mainstreaming of reform activities into MDA’s strategic plans and funding into Medium Term Expenditure Framework (MTEF) has deepened the reform ownership and sustainability. All identified activities form part of implementing MDA strategic plans and funded through MTEF. Co-coordination arrangements are summarized in two categories as: Category I – The coordination interventions: The coordination and oversight intervention are under PMO MTEF and Category II – Implementation interventions (MDA led): The intervention appears in the MDA’ MTEF and are responsible for producing outputs. All other MDAs report to the Prime Minister‘s Office on quarterly basis after conducting quarterly Task Team meetings. Overall, the President’s Office is overseeing the ongoing reforms implementation through the Reform Coordination Unit (RCU) and the Permanent Secretariat Committee chaired by the Chief Permanent Secretary. Moreover, the Prime Minister’s Office also reports to the Finance and Economic Affairs Committee of the Cabinet, on regular basis. 3. OTHER INSTITUTIONS INVOLVED IN THE ROADMAP I. Statutory Bodies: 1. Bank of Tanzania(BoT) 2. Tanzania Revenue Authority (TRA) 3. National Identification Agency (NIDA) 4. Tanzania Investment Centre(TIC) 5. Business Registration Licencing Agency(BRELA) 6. Tanzania Port Authoity(TPA) 7. Economic Processing Zone Agency(EPZA) 8. Capital Markets and Securities Authority(CMSA) 9. Dar es salaam Stock Exchange(DSE) 10. Contractors Registration Board (CRB) 11. National Construction Council II. Private Sector 1. Tanzania Private Sector Foundation (TPSF) 2. Tanzania Chamber of Commerce, Industry and Agriculture 3. Agricultural Council of Tanzania (ACT) 4. Confederation of Tanzanian Industry (CTI), 5. Tanzania Chamber of Minerals and Energy (TCME) 6. Tanzania Banker's Association (TBA) 7. Tanzania Freight Forwarders Association (TAFFA), 8. Tanzania Shipping Agents Association (TASAA), 9. Association of Tanzania Employers (ATE), 38 10. Trade Union Congress of Tanzania (TUCTA), 11. Tourist Confederation of Tanzania (TCT) 12. Tanzania Women Chambers of Commerce (TWCC), 13. CEO ROUND TABLE, 14. Tanzania Horticulture Association (TAHA), 15. Tanzania Civil Engineering Contractors Association (TACECA), 39 Annex 7: Land Administration Reform in support of the Private Sector in Tanzania United Republic of Tanzania: Additional Financing – Private Sector Competitiveness Project 1. Few development challenges in Africa are as pressing and controversial as land ownership and its persistent gap between rich and poor communities26. Only 10 percent of Africa’s rural land is registered. The remaining 90 percent is undocumented and informally administered, which makes it susceptible to land grabbing, expropriation without fair compensation. Despite this abundant land and mineral wealth, much of Africa remains poor and too few countries have been able to translate their rapid economic growth into significantly less poverty and more opportunity. 2. The transformational nature of land administration reforms is important for private sector and overall development. Good land policies with associated land tenure security are essential for facilitating flows of private investment into agriculture and industries including light manufacturing thereby boosting shared growth, jobs and food security. They are also critical for preserving the livelihoods of the population, especially the most vulnerable layers, and maintaining social stability in Tanzania. 3. Land administration reforms will boost the private sector and the overall economy through a number of ways:  Facilitating growth in agricultural productivity via secure land tenure, which enhances incentives for investment.  Enabling manufacturing firms in Tanzania, which often lack access to industrial serviced and other lands, to access land for new and expanded businesses and for use as collateral to secure business loans.  Enhancing secure access to land for the vast majority of the urban population in Tanzania who lives in urban slums under constant fear of eviction.  Facilitating the creation for many unemployed youth in Tanzania new jobs and mobility to look for jobs and other opportunities wherever they can be found in Tanzania.  Facilitating the protection of natural resources and the environment against irrational use and pollution.  Preserving the livelihoods of the population and enhancing social stability. Background of Strategic Plan for Implementation of Land Laws and Land Reform Program in Tanzania 4. Tanzania has one of the lowest registration records (5%) in the world for individually owned land and (together with Kenya) below average performance in terms of efficiency in registering land transactions (days taken to transfer property). Table 1 below shows comparison between the countries. 26 Frank Byamugisha. Securing Africa’s Land for Shared Prosperity. World Bank. 2013 40 Table 1: Comparative Property Rights Indicators – 201327 Country % of land registered No. of days to transfer property Rwanda 70-100 25 Kenya 35 73 Uganda 18 52 Tanzania 5 68 Sub-Saharan Africa (SSA) 10 65 OECD 70 30 5. The National Land Policy (1995) was developed with the principles focusing on: streamlining land delivery; enhancing security of Tanzania’s Land Tenure System; encouraging optimal use of land and its resources and facilitating a broad-based socio-economic development without overburdening and threatening the national ecological balance. In line with the land policy, the following new land acts were developed: The Land Act No. 4 of 1999; the Village Land Act No. 5 of 1999 and the Land Disputes Courts Act No. 2. The new laws had to be made operational. While Land Act No. 4 was easy to operationalize, Village Land Act No. 5 and Land Disputes Courts Act No. 2 were not easy to operationalize. Land Act No. 4 was a replica of the Land Ordinance Act but Village Land and Land Disputes Courts Acts were new and needed basic infrastructure. 6. The Strategic Plan for Implementation of Land Laws (SPILL) was developed in 2005 with short, medium and long term financing strategy at a projected cost of TZS 300 billion (equivalent to about US$300 million). Priorities of SPILL included:  Developing a scaled topographical (terrain) model of the land use mapping  Physical planning  Land Acquisition and compensation to free land of any interests and encumbrances  Cadastral Processes for unambiguous land parcel definition and registration  Developing infrastructure and services  Land delivery  Development Control and dealing with land disputes settlement 7. With SPILL in place, Ministry of Lands prepared a 5 year Land Reform Program with credit from the World Bank starting 2006 under PSCP. Activities of the Land Reform Program included the following:  Land registration and land information under the Registrar of Titles and Director of Management Information System respectively  Geodetic control and mapping services under the Director of Survey and Mapping  Implementation of Village Land Act under the Commissioner for Lands  Formalization of property rights in unplanned settlements under the Director of Rural and Town Planning 27 Sources: (1) World Bank Doing Business (various issues) and (2) Frank Byamugisha. Securing Africa’s Land for Shared Prosperity. World Bank. 2013 41  Resolution of land disputes mechanisms under the Registrar of Land and Housing Tribunals, capacity building under Department of Administration and Personnel Land Rehabilitation Support from the World Bank - PSCP 8. The Tanzania PSCP, which was approved by the Board of Executive Directors in December 2005, included a US$30 million land reform sub-component (out of US$95 million) to implement urgent land sector activities in the first 5 years of the country’s 10- year SPILL. The project funded a number of infrastructural interventions and process improvement initiatives and supported the preparation of an extensive list of legal and regulatory acts and strengthening of dispute resolution mechanisms. Moreover, the project funded a number of initiatives in the areas of decentralization of land administration and registration of village land, as well as land use planning in urban and rural areas. 9. Activities successfully completed under the land component of PSCP include the following: I. INFRASTRUCTURAL INTERVENTIONS (a) Computerization and streamlining of land administration services:  Supported background studies and land records sorting and consolidation in readiness for design and implementation of a computerized ILMIS under the proposed Additional Financing (preliminary design has been supported by the Bank-funded Regional Communications Infrastructure Project (RCIP));  Provided technical support to the preliminary design of the ILMIS;  Prepared a strategy for rolling out the ILMIS, once design is completed. The ILMIS provides a platform for computerization and modernization of land administration (b) Up-grading infrastructure for surveying and mapping:  Overhauled the geodetic infrastructure by replacing the outdated colonial geodetic infrastructure with a modern GPS-based infrastructure for surveying that is faster and cheaper. II. PROCESS IMPROVEMENT (a) Strengthened the capacity of the MLHHSD to handle donor-funded projects, to work on innovations and to prepare for scaling up of successful pilots. III. LEGAL AND REGULATORY FRAMEWORK (a) Supported the development of a number of new laws and regulations:  Land Use Planning Act 2007: 42 i. This Act is essential for efficient and sustainable use of land. ii. Describes the land use planning system with Village Land Use Plans (VLUPs), District Land Use Framework Plans (DLUFPs), Regional Land Use Framework Plans and the National Land Use Framework Plan. Where considered necessary, the NLUPC with the agreement of the Minister can identify an area for a Zonal Land Use Framework Plan28. iii. Provides for the institutional responsibilities for the preparation and approval of plans, in particular providing the legal basis for the National Land Use Planning Commission (NLUPC) under the Ministry of Lands Housing and Human Settlements Development (MLHHSD). iv. Specifies the objectives of land use planning, inter alia, as facilitating the orderly and efficient use of land; improving the productivity of land; promoting sustainability; ensuring security and equity of access to land; helping prevention of land use conflicts; facilitating overall macro planning while being sensitive to regional and sectoral needs; and providing for inter-sectoral co-ordination at all levels. v. Provides a detailed set of procedures to be followed in the land use planning at the village level  Unit Titles (Condominium) Act 2008, essential to promote more efficient housing including apartments and condominiums;  Mortgage Financing Act 2008, essential to promote collateral based lending;  Urban Planning Act 2007, which is essential for sustainable use of land in urban areas, and Operational Manual with guidelines  The Laws Miscellaneous Amendments Act No. 3 of 2009 (to extend the duration of residential licenses from 2 to 5 years) essential to protect land rights for more than 200,000 untitled properties located in urban informal settlements; and  Regulations for these Acts and Bills. (b) Undertook strengthening of dispute resolution mechanisms:  Established 22 district housing and land tribunals, of which 12 were given office and operational facilities  Supported a special program to reduce backlogs of land cases in key municipalities with the biggest case-loads including Dar es Salaam, Mbeya and Arusha. The back logs have been reduced to a level that can be managed by normal court sessions on a sustainable basis. A reduction of land disputes is essential to minimize the volume of land that is put out of production by disputes. 28 For example, such a plan was prepared for the Uhuru Corridor (covering Coast, Morogoro, Iringa and Mbeya regions) following the completion and opening of the Tazara Railway. Uhuru is one of Tanzania’s three main corridors serving its inland neighbors. Uhuru Corridor has long been considered an important outlet for Zambia to the sea 43 IV. WORK ON NEW APPROACHES (a) Decentralization of land administration and registration of village land:  6 Zonal land offices covering the whole country were established, and approval authority of Land Commissioner and Directors of Registration and Surveying decentralized to that level;  Further decentralization of land registration was undertaken in 15 high potential districts, one level below the zonal offices, and to selected villages in each of those districts;  Boundaries of 11,000 villages (out of about 12,000) were surveyed, of which more than 7,000 were registered in a national register, thereby empowering their authorities to plan, allocate and manage land; and A low cost and faster demarcation and registration approach (the so-called systematic approach that is a global best practice) was successfully worked upon to replace the traditional high cost registration on demand (sporadic approach that is about 10 times more expensive) and more than 100,000 Certificates of Customary Rights of Occupancy (CCROs) issued. (b) Regularization of tenure in urban informal settlements:  A Dar Master Plan was prepared;  Participatory land use planning, involving local communities, and regularization of land rights were successfully worked upon in Mwanza and Dar. Participatory urban land use planning took place in unplanned areas, the so-called informal settlements. As part of the project, a number of local plans were prepared, following 6 major steps: community education and participation on rights and responsibilities; adjudication and enumeration of rights of individuals and groups; agreement on and survey of land boundaries; physical planning with wide community participation; adjustment of boundaries, walls, fences, and buildings to meet the agreed physical plan; and recognition of land rights in a local or central formal system, or in a local informal or semi-formal system, a property or land registry of some kind.  A program to scale up participatory land use planning and tenure regularization was prepared, ready to scale up in all urban areas in the country. 10. The work described above has enabled successful introduction of innovative and best practice models for land registration, land use planning and regularization of rights of squatters thus positioning Tanzania for a great leap within the next 5-10 years. 44 PSCP - Additional Financing 11. The design of PSCP-AF Land Administration Component reflects experiences and lessons learnt from the original PSCP but also lessons learned globally. These lessons are particularly vital for addressing social and institutional challenges of land administration reform under the proposed project. Lessons Learned from Land Projects Implemented Globally  A thorough review of the legal, policy, and institutional framework is essential for providing the basis for any World Bank-financed land administration project/component.  Success and sustainability of land administration reforms require a long-term perspective, political commitment, and concerted support from development partners as was clearly demonstrated in Thailand’s successful 20-Year Land Titling Program; in Tanzania, the 10-year LSSP has proven to be an effective vehicle for mobilizing political commitment and donor support for land administration reforms.  Computerization of re-engineered land administration systems and work flows has proven effective in increasing efficiency (reducing transaction time and costs) and transparency in land administration in Uganda under PSCP II following global trends as documented in various series of World Bank’s Doing Business Reports.  Global experience, especially in Mexico and Tanzania, suggests that communal lands can be registered quickly and cost-effectively although experience in Mozambique also indicates that organizing communities into formal entities can be a time consuming exercise.  Individual land rights can be registered effectively, quickly, and inexpensively using a base map, as in Rwanda, or without a base map, as in Ethiopia. These and other lessons have been reflected in the design of the land administration reform component of this project.  The newly published World Bank study, Securing Africa’s Land for Shared Prosperity (2013), suggests the following steps may help to revolutionize agricultural production and eradicate poverty in Africa: improving tenure security over individual and communal lands, increasing land access and tenure for poor and vulnerable families, resolving land disputes, managing better public land, and increasing efficiency and transparency in land administration services. Challenges Faced by PSCP and Lessons Learned  Progress Monitoring. The original project experienced challenges in monitoring progress of performance in land administration, including delivery of services to the customers. Under the Additional Financing, the challenge will be addressed by the establishment of an ILMIS which will be used not only to harmonize and share information but also to track efficiency and transparency in delivering land administration services.  Office administration. There were changes in institutional arrangements for PSCP (from President’s Office to Prime Minister’s Office), lack of technical capacity in procurement and contract management and lastly lack of baseline data for a proper M&E system. Within the period of implementing the original PSCP – Land Reform Program, these 45 challenges were dealt with by capacity building and at times the implementers customized themselves within the changes, and operations became smooth. Capacity- building initiatives have been incorporated in the Additional Financing design in order to ensure smooth implementation. 12. International experience demonstrates that there are social and institutional challenges to implementing land administration reforms in Sub-Saharan Africa. These include corruption, weaknesses in capacity, discrimination against women in land ownership and a growing trend toward what is termed “land grabs”. Tanzania is not insulated from these global trends. 13. The design of the PSCP-AF includes activities which facilitate overall transparency and good governance in land administration. Project activities will contribute to improving tenure security over individual and communal lands in urban areas, increasing land access and tenure for poor and vulnerable families, resolving land disputes, and increasing efficiency and transparency in land administration services. Land use planning and regularization of tenure rights activities will incorporate awareness-building and robust consultative processes with stakeholders. Moreover, the project will support strengthening of land tribunals to strengthen dispute resolution mechanisms, building upon the progress of PSCP in this area. 14. A series of studies are planned to generate measures to meet potential challenges. The studies will include a Social Diagnostic Study to explore opportunities to maximize positive social impacts and develop approaches to address any issues during implementation. The project will also develop a detailed Gender Strategy to promote gender equity in land registration. Detailed Design of Additional Financing 15. The land component of PSCP-AF supports the continuation and scale-up of the land reform process carried out under the PSCP through five activities: (i) infrastructural interventions including work on survey and mapping, land use planning, and implementing ILMIS; (ii) strengthening legal and regulatory framework; (iii) work on land use planning in urban areas and regularization of tenure rights; (iv) technical assistance to Government to prepare guidelines to do inventories on government land; and (v) regulatory simplification of land administration process. I. Infrastructural interventions (US$25.5 million): a. Conversion of old survey and mapping data to fit the new geodetic surveying infrastructure, and awareness-raising of the professionals about using the new system (~ US$6.5 million). b. Implementation of a new surveying and mapping policy in line with the modernized infrastructure (~ US$2 million). c. Strengthening of land use planning through strengthening the collection, storage and dissemination of geospatial data and improving the use of land and resource data for land use planning (~US$2 million) d. Implementing the ILMIS and re-engineering the business process (~US$15 million). This would include development and installation of software and 46 associated hardware over 6 zones, conversion of text data and maps into digital form and populating it into the system, training and capacity building to operate and sustain the system and improving the operating environment including re- engineering of processes and workflows to increase efficiency and transparency. II. Strengthening of legal and regulatory framework: review, preparation, and processing of legislative pieces (e.g., Land Acquisition and Compensation Bill, Property Valuation Bill, and Regulations for the above), strengthening of land tribunals (US$3 million) III. Land use planning and regularization of tenure rights: Support to the implementation of participatory land use planning approaches in urban areas and regularization of land tenure in urban informal settlements including Mwanza and Dar es Salaam where work has already been undertaken (US$4 million) IV. Technical assistance to advise the government on guidelines in undertaking inventories of government land (US$0.2 million). Funding would be provided to hire consultants to review past experiences in undertaking government land inventories including in Ghana and Botswana and to draw lessons and good practices that could guide preparation of guidelines for similar exercises in Tanzania. The Government will use its own funds to contract out the surveying activities and the collection of current land use data. V. Regulatory simplification of land administration process (US$2.5 million): a. Regulatory changes: i. Eliminate the requirement to obtain a Tax Clearance Certificate. The certificate may not be necessary if selling parties are simply allowed to supply their latest tax payment receipts to prove that there are no unpaid debts or, if there are, to at least inform the buyer of them. ii. Streamlining the process to obtain the Land Commissioner's approval for the transfer. Property transfer is an administrative process, not tied to political or judicial decisions. Tanzania requires approval from the Commissioner of Lands for every transaction, in addition to registration, and this step adds 2 - 3 weeks to the process. The GoT could re-examine the roles of the Notary, the Land Commissioner and the Registry in the property transfer process, identifying the legal liability and added value of each one, and then eliminating or combining redundant checks and approvals. For example, it is possible that the procedure for obtaining the Commissioner's approval could be either eliminated or combined with registration at the Registry. iii. Streamline the procedure of Notarization and execution of the sale agreement and preparation of the transfer deed. The main problem with this procedure is the cost: 3% of the property value. It is one of the 47 highest legal fees in the world, comparable to Honduras in which the notary's fee is similar. The cost as a percentage of the transaction value seems unjustified, given that the services rendered by the lawyer are similar for a large or small transaction. Several reform recommendations should be considered, including: elimination of the requirement; capping notary fees at a fixed cost rather than a percentage-based one; offering of notarization services at the Registry; and/or introduction of standardized contracts for simple property transactions. If parties use the standardized contracts, they should be free to sign and present them directly to the Registry for processing (i.e., the standard contracts are pre-approved legal documents created by local lawyers and approved in principle by the Commissioner and the Registry.) iv. Eliminate Inspection to value the property. This procedure can be eliminated with the implementation of a fully functional land registry and cadastre that has updated information on the existing properties in Dar es Salam. With an updated cadastre and property registry, the cadastre will not need to send surveyors each time that a transfer of property takes place and the tax administration will not need to inspect the land in order to evaluate the property. This will also allow the tax administration to calculate the taxes in a much more efficient manner. b. Reorganization of the workflow processes of the land registry to reduce the time to register a property. Currently it takes 14 days to record a property transfer. With the implementation of a fully functional land registry and cadaster in addition to a reorganization of the existing workflows the time to complete this procedure could be further reduced. For example, the process can be expedited by authorizing more staff of the registry to sign and authorize documents. Furthermore, it will be important for the time limits to register a property to be enforced. 48 Annex 8: Team Composition United Republic of Tanzania: Additional Financing – Private Sector Competitiveness Project Team Composition Bank Staff Name Title Specialization Unit UPI Moses Kibirige Senior Private Sector Team Lead AFTSE 155331 Development Specialist Valeriya Goffe Young Professional Co-TTL AFTFE 301421 Andrea Mario Dall’Olio Lead Economist Sector Leader AFTFE 280156 Frank Byamugisha Operations Adviser Land Specialist AFTAR 15155 Andreja Marusic Senior Operations Officer Investment CAFIC 267532 Climate Smita Wagh Financial Sector Specialist Financial Sector AFTFE 341049 Esther Loening Infrastructure Specialist Urban GBOBA 173464 Development Luis Schwarz Senior Finance Officer Disbursement CTRLA 82804 Donald Mneney Sr. Procurement Specialist Procurement AFTPE 248792 Michael Okuny Financial Management Financial AFTME 331341 Specialist Management Jane Kibbassa Senior Environment Environment AFTN3 267250 Specialist, Helen Shahriari Senior Social Scientist Social AFTCS 88064 Mei Wang Senior Counsel Legal LEGAM 229123 Evarist Baimu Senior Counsel Legal LEGAM 266692 Evelyne Kapya Program Assistant Team Support AFCE1 84972 Puja Guha Consultant Economic Analysis AFTFE 410711 Non-Bank Staff Name Title Office Phone City . 49