Document of The World Bank FOR OFFICIAL USE ONLY Report No: 82529-GW INTERNATIONAL DEVELOPMENT ASSOCIATION INTERNATIONAL FINANCE CORPORATION AND MULTILATERAL INVESTMENT GUARANTEE AGENCY COUNTRY ENGAGEMENT NOTE FY2015-2016 FOR THE REPUBLIC OF GUINEA-BISSAU March 19, 2015 Country Department AFCF1 Africa Region International Development Association Africa Region International Finance Corporation Africa Region Multilateral Investment Guarantee Agency This document has a restricted distribution and may be used by recipient only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. Guinea-Bissau World Bank Group Country Engagement Note (CEN) For the Period of FY 2015-2016 CURRENCY EQUIVALENTS (Exchange Rate Effective December 17, 2014) Currency Unit = CFA Franc (CFAF) US$1 = CFAF 531 US$1 = SDR 0.69 FISCAL YEAR January 1 – December 31 ABBREVIATIONS AND ACRONYMS MDG Millennium Development Goal AAA Analytical and Advisory Activities MIGA Multilateral Investment Guarantee Agency AU African Union NGO Non-Governmental Organization BOAD Banque Ouest Africaine de Développement (West African Development Bank) OMVG Organisation Pour La Mise En Valeur Du Fleuve Gambie (The Gambia River Basin Development CDD Community-Driven Development Organization) CEM Country Economic Memorandum PAIGC Partido Africano para a Indepêndencia de Guiné eCabo Verde (African Party for the Independence of CNPCE National Commission for Planning and Strategic Guinea-Bissau and Cabo Verde) Coordination PEFA Public Expenditure and Financial Accountability CPLP Community of Portuguese-Speaking Countries PFM Public Financial Management DSSR Defense and Security Sector Reform PER Public Expenditure Review EAGB Energia e Agua de Guinea-Bissau (Electricity and Water Utility of Guinea-Bissau) PPP Public Private Partnership ECOWAS Economic Community of West African States PPP Purchasing Power Parity EITI Extractive Industries Transparency Initiative PRS Partido para a Renovação Social (Party for Social Renewal) EU European Union SPF State and Peace-Building Fund FAO Food and Agriculture Organization TA Technical Assistance FCS Fragile and Conflict-affected States TF Trust Fund GDP Gross Domestic Product UNDP United Nations Development Program GEF Global Environmental Facility UNICEF United Nations Children’s Fund HDI Human Development Index UNIOGBIS United Nations Integrated Peace Building Office in HIPC Heavily Indebted Poor Country Guinea-Bissau HIV/AIDS Human Immunodeficiency Virus/Acquired Immune UNODC United Nations Office on Drugs and Crime Deficiency Syndrome WAEMU West African Economic and Monetary Union IDA International Development Association WBG World Bank Group IFC International Finance Corporation WDR World Development Report IMF International Monetary Fund WFP World Food Program INEC Instituto Nacional de Estatistica e Censos (National Institute of Statistics and Census) WHO World Health Organization i IDA Vice President: Makhtar Diop (AFRVP) Country Director: Vera Songwe (AFCF1) Task Team Leaders: Liang Wang (LLIVP) Marie-Chantal Uwanyiligira (AFTSN) IFC Vice President: Karin Finkelston (GPAVP) Regional Director: Saran Kebet-Koulibaly (CAFWO) Principal Country Officer: Jerome P. Cretegny (CAFW3) MIGA Vice President: Keiko Honda Director: Ravi Vish (MIGES) Task Team Leader: Conor Healy (MIGES) ACKNOWLEDGEMENTS The following World Bank Group staff contributed to the preparation of the Country Engagement Note: Isabella Micali Drossos, Upulee Iresha Dasanayake, Anta Loum Lo, Nancy Mensah, Marek Hanusch, Javier Baez, Fernando Blanco, Philip English, Demetrios Papathanasiou, Eric Brintet, Jean Michel N. Marchat, Francisco Moraes Leitao Campos, Tanya Lisa Yudelman, Linda English, Raja Bentaouet Kattan, Carmen Maria Pereira, Berengere P. C. Prince, Pierre Boulenger, Leopold Sedogo, Aniceto Timoteo Bila, Ramatulay Heloysa Barbosa, Ndeye Aissatou Diagne Diouf, Mademba Ndiaye, Philippe Auffret, Sidy Diop, Fily Sissoko, Gary McMahon; colleagues from Global Center on Conflict, Security and Development: Nicola Pontara, Stephen N. Ndegwa, Ozong Agborsangaya- Fiteu, and Alexandre Marc; colleagues from IFC: Jerome P. Cretegny, Elan Cusiac-Barr; Boris Divjak, Samuel Dzotefe, Michel Botzung, Frank Douamba; and Conor Healy from MIGA. The team worked under the overall guidance of Vera Songwe, the Country Director. i TABLE OF CONTENTS Executive Summary ............................................................................................................................... iii  I.  Introduction ....................................................................................................................... 1  II.  Country Diagnostic ........................................................................................................... 1  A.  Poverty Profile................................................................................................................................ 1  B.  Guinea-Bissau’s Fragility and Case for Support ........................................................................ 2  C.  Development Challenges ............................................................................................................... 4  - Inadequate Basic Services Delivery ................................................................................................. 4  - Shortage of Water and Electricity Supply ........................................................................................ 5  - Agriculture, Fishery and Private Sector Development .................................................................... 6  - Weak Institutions.............................................................................................................................. 8  - An Uncertain Macroeconomic Policy Environment ........................................................................ 9  III.  The World Bank Group Engagement (FY15-16) ......................................................... 10  A.  Government Programs ................................................................................................................ 10  B.  Recent World Bank Group Engagements and Current Portfolio ........................................... 10  C.  The World Bank Group Country Engagement FY15-16 ......................................................... 12  D.  Financing Envelope and Implementation .................................................................................. 16  E.  Risk Management ........................................................................................................................ 17  List of Tables Table 1: Guinea-Bissau Main Social Indicator Trends (2000–2010) ............................................. 5  Table 2: Current Active WBG Portfolio in Guinea-Bissau .......................................................... 11  Table 3: Proposed FY15-16 Program of Enhanced Support for Guinea-Bissau .......................... 13  List of Boxes Box 1: IDA 17 Support to Fragile and Conflict Affected States and the “Turn-Around” Regime ....................................................................................................................................................... 15  List of Figures Figure 1: Poverty and Extreme Poverty (%), 2002, 2010, and 2013 (unofficial) ........................... 1  Figure 2: Agriculture and services have been driving growth (real GDP growth and its sectoral contributions) (left) and the primary sector dominates GDP (percent of nominal GDP in 2013) (right) .............................................................................................................................................. 7  List of Annexes Annex 1: Monitoring Framework ................................................................................................. 18  Annex 2: Progress on Defense and Security Sector Reform (DSSR) ........................................... 21  Annex 3: Drug Trafficking in Guinea-Bissau ............................................................................... 22  Annex 4: Addressing poverty and fragility via private sector development opportunities .......... 23  Annex 5: Untapped opportunity in the cashew sector .................................................................. 25  Annex 6: Statistical Development in Guinea-Bissau .................................................................... 27  Annex 7: Initial Mapping of Selected Donor Activities in Guinea-Bissau .................................. 29  Annex 8: Selected Economic Indicators – Guinea-Bissau ........................................................... 30  ii EXECUTIVE SUMMARY i. Guinea-Bissau is a small West African island nation that exemplifies the challenges of a fragile state whose institutions have been weakened by prolonged political instability. A long and destructive war of independence had destroyed many of the already severely limited investments in physical infrastructure and human capital made by the colonial administration. The country gained independence in 1974, but building the foundations for a functioning state was hindered by the absence of basic institutions from which to create a state, continued conflict, including political assassinations, military coups, and a civil war in 1998/99. The resulting paralysis of government stunted the delivery of public services for the country’s population of 1.6 million, and political clashes often affected economic activity, preventing a vibrant private sector from emerging and diversifying away from the country’s only significant export commodity—raw cashew nuts. Since the civil war, economic growth has barely exceeded population growth. Gross National Income per capita in 2013 stood at US$590 (Atlas method). Poverty has increased to 70 percent at the national poverty line of US$2 per day, compared to 65 percent in 2002. Most Millennium Development Goals (MDGs) are out of reach for Guinea- Bissau. ii. Guinea-Bissau is now at a crossroads in its development and has a unique opportunity to turn the page on fragility and poverty. A fresh start is possible. The 2012 military coup was a setback. Yet there is now a window of opportunity to build on the achievements of the pre-coup period. General elections in 2014—described by many observers as the freest and fairest in the country’s history—paved the way for the formation of a democratic Government in June 2014. The new Government has been quick to regain popular legitimacy by forming a government of national unity, including parties from across the political spectrum, and swiftly passing a budget for both 2014 and 2015. In its early days in office, the Government already succeeded in avoiding the cancellation of the 2014 school year by ensuring the timely payment of teachers, and by restoring a limited supply of electricity and water, both with support of the World Bank Group (WBG). Notably, the new Government has managed to make a decisive step toward army reform by nominating a new head of the armed forces who appears determined to implement a comprehensive security sector reform. With adequate support, a fresh start is possible. Guinea-Bissau’s development partners are joining forces with the Government in this effort, including the WBG through this Country Engagement Note (CEN). iii. A successful transition towards a less fragile and more prosperous future will depend on the Government’s ability to regain popular legitimacy by restoring basic state functions and providing key public services, and creating the basic conditions for shared economic growth. According to the 2011 World Development Report (WDR), there is a critical need for development partners to respond early and robustly in support of this inclusive political process. All major donors are re-engaging in Guinea Bissau to support this process. The 2015 CEM outlines the basic conceptual framework for launching a virtuous cycle of increasing political stability and economic activity. This CEN takes a first step toward establishing this virtuous cycle, while a Systematic Country Diagnostic is being prepared to pave the way for a more comprehensive engagement under a full-fledged Country Partnership Framework. iii iv. The proposed WBG engagement for FY15-16 is designed to provide immediate short-term support to the country, in order to consolidate the transition and restore basic services while assisting the government to design a more sustainable strategy for long term poverty reduction and greater shared prosperity. The WBG engagement in Guinea-Bissau during the transition and after the election has been largely guided by the 2011 WDR, the 2012/13 Fragility Assessment, and the 2015 CEM. The proposed WBG approach carries substantial risks, including the residual political risks and the challenge to work with weak institutions. However, this risk needs to be weighed against missing a window of opportunity to help Guinea-Bissau’s turn-around and breakaway from its low equilibrium trap. Together with other development partners, the WBG’s strong engagement can offer a much-needed peace dividend to the Government and population of Guinea-Bissau by focusing on two key areas: • Building institutions and strengthening public sector capacity, to enable the Government to provide a sound macro-fiscal environment and the infrastructure and legal and regulatory framework necessary to promote shared growth and attract investment. • Strengthening the provision of basic services to the poor in health, education, electricity and water with a view toward providing people with the services, resources, and skills they need to create and take advantage of economic opportunities. This will be complemented by a program to support economic recovery through support for key infrastructure and productive sectors in the outer years. iv I. Introduction 1. In the absence of a Government strategy, this Country Engagement Note (CEN) is intended to guide the WBG’s engagement in Guinea-Bissau in the short term (FY15-16), with a focus on restoring basic services and strengthening basic institutions, while laying the groundwork for medium-term development. This initial engagement will be followed by a Systematic Country Diagnostic (SCD), the preparation of which has started, and supported through the subsequent Country Partnership Framework (CPF), to be delivered in FY16. The CEN is guided by the findings of the 2011 World Development Report (WDR) on Conflict, Security and Development, which make it clear that international support is crucial for countries recovering from fragility and conflict, in order to prevent further deterioration of human capital, help to restart the economy, and strengthen core public institutions and support the new Government. The CEN will allow for relevant analytical work that will inform the SCD and CPF. II. Country Diagnostic A. POVERTY PROFILE 2. Guinea-Bissau has one of the highest poverty rates in the world, largely due to anemic growth performance and limited economic opportunities caused by many years of conflicts. Official estimates for 2010 place moderate poverty (US$2 PPP) close to 70 percent, higher than poverty in 2002, which was measured at 65 percent. Extreme poverty (US$1 PPP) is also among the highest in the world, reaching 33 percent in 2010, up from 21 percent in 2002 (see Figure 1). Economic opportunities for poor households are limited. Three out of four households living in extreme poverty rely almost entirely on agriculture for income, consumption and barter. The cashew nut sector employs more than 80 percent of the poor, who trade cashew for rice. The combination of a 35 percent fall in the international price of cashew nuts and inadequate cashew export campaigns in 2012 and 2013 because of the coup, resulted in a 59 percent decrease in farm-gate prices and dramatically reduced farmers’ main source of income, further worsening poverty and threatening food security. Unofficial estimates for 2013 suggest that extreme poverty increased to around 45 percent in 2013 and moderate poverty reached 75 percent. Figure 1: Poverty and Extreme Poverty (%), 2002, 2010, and 2013 (unofficial)  80 Poverty Extreme Poverty 70 60 50 40 30 20 10 0 2002 2010 2013 3. Poverty is more severe in rural areas. There is spatial variation in the incidence of poverty across regions. The poverty rate is relatively lower in the capital city of Bissau, home to about one fourth of the country’s population, but where 54 percent of its residents still have incomes under US$2/day. In contrast, poverty is deeper in the most rural regions of Quinara (86 percent), Gabu (85 percent) and Oio (83 percent). Poverty mapping analysis shows that geographic differences in poverty are also evident across administrative sectors within regions. 1 Five out of the 39 regions record poverty levels near 90 percent, almost twice the rate seen in Bissau. Similarly, a third of all sectors (also predominantly rural) exhibit extreme poverty rates above or near 50 percent, in contrast with a rate of 17 percent in Bissau. 4. Poverty is associated with age, education, gender, household size and labor market engagement. The poor are mostly young (80 percent are between the ages of 15 and 35) and have lower levels of education than the non-poor. Households headed by women tend to be poorer, as do those with more members. Poverty in urban centers is driven by a high unemployment rate and low participation in the labor market.1 Unemployment in the capital, Bissau, is about 13 percent (higher among the young), while less than 49 percent of the working- age population participates in the labor force. In contrast, in rural areas, unemployment is low (1.2 percent) and participation in the labor force is high (74 percent), reflecting low productivity in the agriculture sector, which is associated with the massive exodus of youth from rural areas to the city. 5. Non-monetary poverty measures depict other multiple deprivations faced by the population that limit their ability to earn higher incomes. Indicators to measure access to basic services (water, sanitation, electricity, education, health care) and key endowments (such as basic household and productive assets, school attainment) reveal low standards of living, lack of education, poor health, scarce and inefficient risk coping mechanisms, and limited economic opportunities. Non-monetary poverty rates are near 80 percent in more than half of the 39 regions in the country, and over 40 percent in Bissau. A strong association between monetary and non-monetary poverty across geographic areas suggests that many Bissau-Guineans are likely trapped in chronic (persistent) poverty due to their limited capacity to generate incomes beyond subsistence levels. 6. Severe poverty is further compounded by few and unproductive economic opportunities, and underdeveloped markets. Thirty percent of the extreme poor self-report as unemployed. Even for the economically active, incomes are low and uncertain. While the primary sector accounts for over 40 percent of GDP and more than 80 percent of the population is employed in this sector, per capita incomes from agriculture have stagnated at a level close to subsistence. With insufficient incomes for farmers to invest their own resources, and extremely limited access to credit (less than 2 percent of the population have bank accounts), there is very little investment in agribusiness and related activities. The non-agricultural segments of the economy are mostly informal. The majority of non-agricultural work is in services, commerce and transport, mostly small informal micro-enterprises or self-employed. Only a small fraction of the labor force—about 10 percent—has salaried employment, half in a small private urban services sector, and half in the public sector. B. GUINEA-BISSAU’S FRAGILITY AND CASE FOR SUPPORT 7. Guinea-Bissau’s fragility is deeply rooted in the country’s colonial history and subsequent political instability. During colonial times, Guinea-Bissau was a largely neglected territory. Independence was achieved in 1974 after a protracted and violent struggle of more than a decade, well after the wave of independence in neighboring countries. The fierce struggle destroyed much of Guinea-Bissau’s already weak institutional and physical infrastructure, and adversely affected its economic potential and human capital. At the time of independence, Guinea-Bissau’s literacy rate was barely one percent, and the entire country had only about 60 1 Labor force participation rate is defined as the ratio between the active population above the age of 15 years and the overall size of their cohort (national population of the same age range). 2 kilometers of paved road. Because of the long war of independence, the military became extraordinarily large and assumed many state functions, including providing health care and basic food supplies to the population. Amílcar Cabral, who led the independence movement, was assassinated a few months before the end of the war leaving a critical leadership void and a revolutionary cadre not well equipped to manage the challenging transition to statehood. 8. The military played a predominant role in the exercise of political power immediately following independence. In the single-party political regime led by the independence party, PAIGC,2 there was no clear distinction between the party and its armed wing (the military), and the State. The absence of a clear separation between the military and civilian political leaders was engrained in the constitution of 1984. This failure to redefine the military’s role and reform the army enabled the military’s continued involvement in politics. Between 1974 and 2013, Guinea-Bissau had four coup d’états, with additional coup attempts and other forms of political violence.3 The need for security sector reform to redefine the role of the military and deal with the veterans of the struggle for independence remains one of the key binding constraints to stability in Guinea-Bissau (Annex 2). 9. After independence, ethnically based politics polarized successive Governments and worsened the quality of public administration. Following the establishment of a multi-party electoral system in 1994, many more political actors started using the country’s undisciplined and fragmented army to promote their political agendas, further exacerbating the link between politics and the army. Successful elections in 1994, 1999, 2004 and 2008 did not prevent the country from falling back into instability. Between 2000 and 2009, for example, eight prime ministers were appointed to lead what turned out to be short-lived Governments focused on day- to-day crisis management and with no opportunity to formulate and implement a growth strategy. More recent sources of fragility include international drug trafficking along the coast, which has steadily worsened since the mid-2000s. Guinea-Bissau has become a transit point for narcotics smuggling from South America to European markets, made possible by its offshore archipelago and weak institutions. The UN Secretary General reported in December 2012 that the estimated amount of cocaine entering Guinea-Bissau each week is valued at US$10-20 million, and this has become a regional and global challenge (Annex 3). 10. The latest coup of April 2012 has been among the most costly for Guinea-Bissau. Disruptions following the coup paralyzed the country and led to a deep economic slowdown, a fiscal crisis, and aggravation of poverty. GDP contracted by 2.2 percent in 2012 and recovered only very modestly by 0.3 percent in 2013. Fiscal balances, expenditure composition, and the debt profile deteriorated abruptly, and some early gains in public finance management were reversed. The drop in international cashew nut prices and poor management of the cashew marketing campaign led to a dramatic fall in farm-gate prices, worsening poverty and triggering a food crisis. Basic service delivery was interrupted. A cholera outbreak posed a serious threat to public health because water and sanitation facilities operated below capacity—partly due to the collapse of the national electricity system. There has also been a surge in illegal natural resource exploitation, most notably in the forest sector. In this crisis, the poor and the most vulnerable have been disproportionately affected. 2 PAIGC: Partido Africano para a Indepêndencia de Guiné e Cabo Verde (African Party for the Independence of Guinea-Bissau and Cabo Verde) 3 No elected president has ever completed a term in office. All but one have been deposed by the military. One was assassinated by soldiers in 2009. Among the previous five chiefs of staff of the armed forces, three were murdered and one was forced into exile by a rival officer. 3 11. There is consensus among the international community on the success of the transition and the urgent need to support the new Government’s efforts to establish lasting peace and economic growth. The period of relative calm between 2009-2011 offers a promising indication that with stability and good leadership, the country can reduce poverty and increase incomes even in a difficult external environment. During that period, a rare balance of power created a level of political stability not seen since the multiparty political system was instituted, and led to significant economic and social development. Guinea-Bissau sustained an average annual growth rate of 5.6 percent between 2009 and 2011 (despite the global financial and food crises), and as a result, reached the HIPC Completion Point in December 2010. Now, after the latest crisis and a mostly peaceful transition, the newly elected inclusive Government is determined to restore stability. It has continued the national peace and reconciliation process, including reform of the security sector, with strong support from the Economic Community of West African States (ECOWAS) and the United Nations (UN). With stability, support from the international community is needed to address the significant development challenges faced by Guinea-Bissau. Rapid donor support is essential to reinforce efforts made by the new Government. C. DEVELOPMENT CHALLENGES 12. Economic growth, stronger institutions, improved public services and basic infrastructure are preconditions for addressing poverty and generating wealth. The country’s deep and widespread poverty increased between 2002 and 2010, with 7 out of 10 inhabitants living with incomes below the poverty line. Inadequate Basic Services Delivery 13. Poor basic service delivery in Guinea-Bissau has hampered human development, and the recent crisis has brought the provision of basic services to the brink of collapse. Guinea-Bissau ranked 177th out of 187 countries in human development indicators (HDIs) in 2013, and human development outcomes are well below the Sub-Saharan African average. Some improvements in access to education and health services have been observed in the past decade, but the quality of these services remains low. 14. Education and health indicators are weak (Table 1). While primary and secondary education enrollment has increased by more than 20 percent over the last decade, repetition and dropout rates are high, and only 62 percent of children completed primary education in 2010.4 This is despite the fact that 74 percent of ten year olds reported that they were currently attending school. Due to the acute fiscal problems since 2012, 35 percent of teachers, mainly new contractual teachers, have not been paid on a regular basis, and strikes organized by teachers’ unions have compromised the 2012-13 and 2013-14 school years. In the health sector, the disease burden is high, mainly due to communicable diseases including malaria, tuberculosis, respiratory infections, diarrhea, and HIV/AIDS. Given current trends, Guinea-Bissau is unlikely to reach any of the MDGs by 2015. 15. The low coverage and poor quality of service delivery in both sectors are caused by insufficient funding, understaffing, and institutional and managerial inefficiencies. While both sectors are large in terms of public sector employment and payroll, both are considered relatively understaffed and underpaid. In education, the Government had to resort to employing temporary teachers to cope with the substantial increase in enrollment in recent years. In the 4 For further details, see the 2009 Education Country Status Report, and the results of the 2010 Multiple-Indicators Clusters Survey (MICS). 4 health sector, the ratio of one physician and two nurses per 10,000 inhabitants is extremely low, and far below the needs of the country. Table 1: Guinea-Bissau Main Social Indicator Trends (2000–2010) 2000 2005 2010 Education Net enrollment rate primary ed. (%) 45.3 63.0 67.0 Gross enrollment rate secondary ed. (%) 19.6 36.20 44.8 % of primary school students who are girls 41 43.8 48.2 Health Infant mortality rate 124 138 104 Under-5 mortality rate 205 223 116 % of deliveries assisted by qualified personnel 18 na 43 Maternal mortality rate 1200 1100 1000 HIV incidence 15-44 years (%) 2.6 2.5 2.5 Access to Water % of population with access to improved water sources 44 47 61.5 Social Protection Number of people covered by government transfer programs 2,500 % of orphans and vulnerable receiving social assistance 7.5 16. To address problems of service provision in these two sectors, the Government needs, in the short term, support for the payment of salaries, and in the medium term, support for critical institutional and managerial reforms. Given the low revenues and continued pressures on the national budget, the Government urgently needs support to avoid the accumulation of further arrears for teachers and health workers. Efforts are also needed to enhance the efficiency and transparency of service delivery by strengthening capacity at the central ministries and at local schools and health clinics. The proposed CEN program is designed to help protect and strengthen health and education service delivery. Shortage of Water and Electricity Supply 17. The disease epidemics in Guinea-Bissau are directly linked to the shortage of water supply. In the capital city of Bissau (about 400,000 inhabitants), there have been increasing and recurring episodes of cholera outbreaks because of water shortage. The status of water services in the city is especially alarming and has continuously deteriorated over the past decade. With only about 31 percent of households having intermittent access to private water connections, the majority of the population relies on traditional shallow wells, which are at high risk of pollution from pit latrines. Water service in Bissau is poor and intermittent because of: (a) frequent interruptions in pumping operations due to electricity shortages; (b) insufficient water storage capacity; and (c) the inadequate distribution system. In the months after the coup, clean water supply was often interrupted for several days at a time. Today, it is generally limited to three or four hours a day. The situation with water supply especially affects the lives of women and girls, who are traditionally occupied with household activities that require water. 18. The shortage of water is directly associated with the supply and distribution of electricity, which, like water, is handled by EAGB, the Electricity and Water Utility of Guinea- Bissau (Energia e Agua de Guinea-Bissau), established in 1983. Over the years, its provision of electricity has deteriorated from about 25MW installed capacity to 5MW available for generation today. Frequent civil disturbances have discouraged private sector involvement in the power sector and have constrained the mobilization of investment resources from development partners. 5 Successive Governments have generally lacked the capital necessary to invest in the expansion of electricity generation capacity. Over the years, some assistance to the sector has been provided by the French Development Agency (AFD), the West African Development Bank (BOAD), and the Government of China, but these interventions were disrupted by successive coups. The WBG’s involvement has faced similar challenges.5 In the months following the coup, the lack of funds for fuel supplies resulted in extended power outages. 19. Improving service provision in the water and power sectors will require interventions over the short and medium term. In the short term, improving water quality through targeted emergency investments is necessary to address the health risks. The country’s power supply will remain dependent on oil-based generation, and the challenge is to increase lower-cost heavy fuel oil use, rather than the more expensive diesel currently in use. In the medium-term, improving water access will require replacement and expansion of the distribution network, combined with additional upstream investments and further storage capacity. The power sector will also benefit from the planned regional transmission network and increased generation capacity. Agriculture, Fishery and Private Sector Development 20. Addressing the fragility and poverty spiral will require a strong private sector response which can generate income, provide jobs and increased shared prosperity. Improving the regulatory environment is a necessary building block for private sector investment. Efforts should be focused on both the general environment and targeted areas that can attract investments into core sectors such as cashew and rice. The agriculture sector forms the bedrock of the country’s development trajectory (see Figure 2), and is fundamental to addressing the food security challenges faced by the poor, especially in rural areas, it is also the most vibrant private sector activity. Private sector-led agriculture could be the main driver of the country’s economic growth and play a central role in poverty reduction (Annex 4). 21. The cashew sector in particular has considerable growth potential and income generating abilities. Cashew is the country’s most important agricultural product, grown by close to 55 percent of all agricultural households, and represents about 90 percent of the country’s exports. Cashew production increased from 30,000 tons in the early 1990s to around 200,000 tons in 2014, making Guinea-Bissau the fifth largest producer of raw cashew nuts in the world. But cashew farmers are trapped in a low-income and low-opportunity environment (see Annex 5). Producers largely depend on a once-yearly sale to meet their needs, and trade cashew for rice at harvest time to feed their families. Due to limited processing capacity, most of Guinea- Bissau’s cashew crop is exported as raw nuts. This translates to high dependence on buyers and substantial foregone value added and export earnings (Annex 5). 5 IDA’s involvement began with an Energy Project approved in 1991. Implementation of the project whose objective was to address medium-term supply of electricity and petroleum products was hampered by the political instability. A Water and Energy Project was prepared and was supposed to be presented to IDA’s Board in 1998, but was canceled due to the national conflict. The Private Sector Rehabilitation and Development Project, which was approved by the Board on March 2002, prepared substantive analytical, policy and operational work for the infrastructure sectors, including the preparation of the Multi-sector Infrastructure Rehabilitation Project (MEW), which was originally scheduled for Board presentation in fiscal year 2004 (Energy and Water Project), but its delivery was delayed until 2006 due to conditions in the country. 6 Figure 2: Agriculture and services have been driving growth (real GDP growth and its sectoral contributions) (left) and the  primary sector dominates GDP (percent of nominal GDP in 2013) (right)  22. Developing the cashew sector value chain requires a two-pronged approach: (a) immediate emergency intervention to address the failure of the most recent marketing campaign in order to allow farmers to sell their cashews and buy rice; and (b) structural reforms over the medium term to create jobs and grow the agro-processing sector. Cashew agro-processing is an area where international operators and the development finance institutions are looking at for future investments. The sector creates about one full-time job for every three tons of processed raw nuts. Processing 30,000 tons of nuts a year could potentially create around 10,000 jobs, mostly in rural areas and especially for women, who make up the majority of factory workers. Organizing rural communities and increasing agro processing is essential to raise incomes, address the food security problem, and enhance the voice of women in households. 23. Complementary to expanding the cashew value chain, it is critical to increase the production of rice, the main staple in the population’s diet. Rice production is heavily dependent on rainfall, and therefore extremely volatile. Domestic production meets only about 60 percent of domestic consumption needs, making rice the country’s second most important imported commodity after petroleum products. Increasing rice productivity and production can directly affect food shortages and poverty in rural communities. Recent studies confirm that the production of both mangrove and lowland rice in Guinea-Bissau can be competitive, and that irrigation investment is needed to increase productivity and production. Furthermore, addressing the country’s rice processing capacity by improving the conditions for financing to the sector is critical in the medium term. 24. Finally, development of more local fishing activities could create jobs and income along the coast. Guinea-Bissau is endowed with valuable marine fish resources. The sector contributes 7 to 10 percent of GDP, and as much as 40 percent of the Government’s budget comes from access fees or rents paid by foreign vessels. The country needs to reform the governance of the fishery sector, reduce illegal fishing, and impose higher rents to increase public revenues. Through its ongoing regional fisheries program, the WBG can help improve the governance of the fishery sector and its longer-term development. 25. Closely linked to agriculture and other development challenges, Guinea-Bissau, while a low-emission country, is highly vulnerable to the impact of global climate change. There is already evidence of increasing rainfall variability, late onset of the rainy 7 season, and increases in temperature, as well as a rise in sea level and tidal surges. Projections suggest that these trends are likely to be exacerbated going forward. These changes have profound implications for poverty alleviation and economic growth, through their potential effect on the physical well-being of the population, (80 percent of whom reside in coastal areas), natural resource productivity (agriculture, fisheries, forests), and infrastructure and urbanization. These concerns need to be embedded into national, sectorial and project planning and decision- making upfront, otherwise they risk undermining future development progress. The country’s National Adaptation Program of Action (2011) clearly identifies the country’s vulnerability and the importance of tackling these issues, which will be further analyzed in the context of the SCD and CPF. Weak Institutions 26. In the medium to long term, to fundamentally tackle its development challenges, Guinea-Bissau will need to address its underlying institutional weaknesses. State formation and institutional development are difficult and time consuming. It is nonetheless important to start taking concrete actions to build sustainable institutions. 27. Given that the security breakdown has been an important source of Guinea- Bissau’s fragility, the need for reform of the country’s security sector—army, police, and other armed forces—is critical to restore state credibility and citizen security. Three goals have been set by the authorities and the international community: restore the State’s legitimate control of and accountability for the use of force; address the fiscal burden of an oversized security sector; and respond to the demands of armed personnel for improved living conditions. A roadmap for reform has been designed, and the previous Government (2009-2011) was able to lay the foundation for a potentially meaningful process of reform. ECOWAS is currently financing the reform, including financing a pension fund, which is critical for peacefully retiring security personnel. Pension reform is an area of strength for the Bank and could be the Bank’s contribution to a decisive and comprehensive security reform program that helps Guinea-Bissau rebuild a credible state and overcome the history of insecurity from its own security agents. 28. Accountable institutions are essential for delivering basic functions of and building confidence in government, especially in fiduciary matters. Before the coup, Guinea-Bissau had made some progress in public administration and public finance management (PFM). To take stock of the PFM situation before re-engagement, the Bank carried out a joint Public Expenditure and Financial Accountability (PEFA) assessment with the EU in September-October 2013. The main finding from the assessment was that while the political and security crisis had a negative impact on the performance of the PFM system, some of the investments made prior to the crisis in improving PFM processes and systems were not completely lost. Basic administrative structures have remained in place, and the financial management information system, although not fully functional and systematically bypassed, could be reactivated with some technical assistance. 29. Improved governance and transparency in the management of natural resources will be critical for increasing trust and confidence in government and the political leadership. An important undertaking is the Government’s effort to create a regulatory system to control access to fisheries and forest resources, with the aim of preventing illegal fishing and forest extraction. Such regulations are becoming more important as deforestation activities increase. Further, given the potential of the mining sector, a new Mining Law was adopted in May 2013. The Law was designed to attract investors, but further improvements can be made to the requirements for community development and stakeholder consultations. 8 An Uncertain Macroeconomic Policy Environment 30. Political unrest has taken a toll on growth, which averaged 3.1 percent over the past ten years—just over half of the average 5 percent growth for Sub-Saharan Africa. As explained in detail in the 2015 CEM, Guinea-Bissau’s economy is undiversified, and almost entirely dependent on the export of raw cashew nuts, its single cash crop. Following the 2012 military coup, GDP plummeted by 2.2 percent, stagnated in 2013 at 0.3 percent growth, and only picked up modestly again in 2014, growing at an estimated 2.5 percent. Farm-gate prices plummeted in 2012, and poverty (at the national poverty line of US$ 2 per day), by some estimates, increased by up to 5 percentage points over 2010. The military coup affected economic performance through two main channels: the withdrawal of donor finance and domestic policy choices. 31. Most donors withdrew their financial support in response to the coup. The international community strongly condemned the military intervention and reacted by suspending most activities. Official grants almost halved between 2011 and 2013, from 6.6 percent of GDP to only 3.7 percent. Accordingly, expenditure had to be cut. Capital expenditure, which was almost entirely financed by donors, fell by 80.4 percent in 2012, and current expenditure also fell by 20.1 percent in 2013. The overall deficit was financed by depleting treasury resources at the central bank, through financial support from non-traditional donors (generally at non-concessional terms), and through the accumulation of arrears. As the transition period came to an end, the World Bank stepped in to provide temporary support by financing wages in the education and health sectors, alleviating some pressure on the budget. 32. Poor policy options have compounded the economic difficulties. The lack of donor support and associated low investment negatively affected sectors such as construction and energy. The lack of energy affected the provision of clean water—especially in the capital city, Bissau—posing serious risks to public health, in addition to having an adverse effect on businesses. In addition, an additional tax on cashew exports levied prior to the coup to finance a fund for agro-industrialization (FUNPI), has not delivered the expected results.6 A 2014 World Bank study suggests that FUNPI has increased the gap between international prices and farm- gate prices, and is borne mostly - 80 percent - by farmers, most of whom are poor. The FUNPI tax has encouraged greater smuggling of cashew, with attendant losses of government revenue. The new Government has suspended FUNPI, and its future is uncertain. 33. In 2014, the economy began to recover as donors re-engaged and the annual cashew campaign experienced fewer disruptions. All major donors are re-engaging with Guinea-Bissau, and the country’s suspension by the African Union has been lifted. An estimated fiscal gap of about 9 percent of GDP in mid-2014 was financed with support of the World Bank (paying salaries for teachers and health workers) and other multilaterals, the European Union, and bilateral partners, including Timor-Leste. The IMF approved a Rapid Credit Facility in November 2014, and local and regional commercial banks, with renewed faith in the democratic Government, began acquiring a total of CFAF 15 billion in government bonds, which has helped to pay salaries and reduce arrears. EU and Timor-Leste provided budget support in 2014. Both the EU and AfDB are resuming budget support. In addition, the economic recovery was supported by a more successful cashew campaign in 2014. While the volume of cashew exports remained relatively flat, an increase in international prices resulted in more revenue than in prior years. The estimate for real economic growth for 2014 is thus about 2.5 percent, with 6G. Porto and W. Cont (2014), “Measuring the Impact of a Change in the Price of Cashew Received by Exporters on Farm-gate Prices and Poverty in Guinea-Bissau,” World Bank Policy Research Working Paper 7036. 9 expectations of acceleration to 4.0 percent in 2015. If further gains are made on restoring macro- fiscal stability, continuing the state building process, raising fiscal revenue, increasing expenditure efficiency, and investing in national infrastructure, while also enabling private enterprise, a more dynamic economy can be expected in the medium to longer term. III. The World Bank Group Engagement (FY15-16) A. GOVERNMENT PROGRAMS 34. The new Government has the opportunity to turn the page on anemic growth and entrenched poverty, and it has shown leadership in sustaining peace and restarting development. It has been quick in passing a budget for both 2014 and 2015. In its early days in office, the Government already succeeded in avoiding the annulation of the 2014 school year by ensuring the timely payment of teachers, and in restoring a limited supply of electricity and water provision (both with support of the WBG). Notably, the new Government has managed to make a decisive step toward army reform by dismissing the head of the armed forces. The Government is preparing a comprehensive development program, with a medium-term vision to 2025, which focuses on six strategic areas—governance, agro-industrialization, biodiversity, human development, infrastructure and urban development—to be anchored by a strategic list of priority investment programs. The emerging program is broadly supported by the WBG’s CEM analysis and recommendations, and will be presented at a donor’s roundtable, to be hosted by the EU, UNDP and the WBG, in Brussels on March 25, 2015. 35. The international community has been mobilized to support the Government’s plans, and this CEN will be part of a coordinated effort of all development partners on behalf of Guinea-Bissau. The WBG has remained engaged in Guinea-Bissau even during the transition, and this has set the stage for others to re-engage following the return to the constitutional order. In June 2014, the AU lifted its suspension on Guinea-Bissau. The IMF’s Rapid Credit Facility, was approved in November 2014, and support by a coalition of donors (payment of salaries by the Bank, budget support from the EU and Timor-Leste) helped ensure that the 2014 budget was funded. A 2015 budget (equivalent US$184 million) was prepared and approved on time in December 2014, although its full financing is yet to be confirmed. The African Development Bank has approved its interim strategy for Guinea-Bissau, paving the way for it to resume its full program, including the provision of budget support. In January 2015, the EU lifted its suspension on Guinea-Bissau, paving the way for Guinea-Bissau to access European Development Fund financing. On February 18 in New York, the Security Council approved a 12- month renewal of the mandate of the United Nations Integrated Peacebuilding Office for Guinea- Bissau (UNIOGBIS), which was to expire on February 28, 2015. Other regional institutions (AU, ECOWAS and the Community of Portuguese-Speaking Countries, CPLP) are active, and most of the bilateral partners have resumed their cooperation. For Guinea-Bissau to continue the progress toward better public services and strengthen the social compact between the State and its citizens, significant support from development partners, including the WBG, will be required. B. RECENT WORLD BANK GROUP ENGAGEMENTS AND CURRENT PORTFOLIO 36. The WBG’s decision to stay engaged in Guinea-Bissau has had an important impact on protecting the poor during the crisis. Since the coup, the WBG has been actively monitoring the situation in Guinea-Bissau and has been adjusting its engagement accordingly. Following the coup, the Bank immediately triggered OP/BP 7.30, suspended all missions, and halted all lending activities. On August 2012, a Bank mission assessed the OP/BP 7.30 application, which led to a Senior Management decision in December to resume disbursements for the ongoing portfolio. In February 2013, a fiduciary assessment mission confirmed that 10 proper fiduciary systems are in place for Bank projects. In May 2013, a Bank mission joined the IMF Article IV consultations to assess the macro-economic situation. In June 2013, a joint WBG mission assessed the latest developments in Guinea-Bissau and conditions for further support. In October 2013, the WBG management authorized the approval of selected new operations in critical areas to respond to the emergency in the country, while Guinea-Bissau remained under OP/BP 7.30. Since the return to constitutional order in June 2014, Guinea-Bissau is no longer under OP/BP 7.30. 37. In FY14 in particular, the WB acted swiftly to protect basic services and address food insecurity during the crisis. Through three emergency response interventions with additional IDA allocations, the WB was able to help prevent a total collapse of service provision to the population, especially the poor, in education, health, energy and water. In FY14, Guinea- Bissau was able to fully use its IDA 16 allocation, augmented by an additional US$20 million in IDA resources allocated exceptionally in recognition of the urgent needs during the crisis. The Bank also provided emergency support to the agriculture sector, especially cashew and rice, to improve food security and revive growth. As part of this emergency response effort, the Bank also began the process of helping build institutions to underpin infrastructure for basic service delivery, and providing support to the productive sectors for economic growth. These interventions have been crucial to ensure the existence of an organized structure on which the new Government can rely to formulate and implement policy. 38. The World Bank program amounts to about US$81.3 million of which 54 percent has been disbursed (Table 2). The program includes five national IDA projects (US$67.5 million), and one regional fisheries program (US$6 million) complemented by two Trust Funds (US$7.8 million). Portfolio implementation is overall satisfactory, with a disbursement rate of 26 percent at end January 2015, higher than the regional average and among the highest in SSA. Table 2: Current Active WBG Portfolio in Guinea-Bissau   PROJECT Funding IDA Trust Fund (US$ million) (US$ million) Rural Community-Driven Development Project (RCDD) 5 5 (SPF) RCDD Project - Additional Financing 15 Emergency Electricity and Water Rehabilitation Project, 14.9 incl. Additional Financing Emergency Water and Electricity Services Upgrading 22.5 Project Private Sector Rehabilitation and Agribusiness 8.2 Development Project Biodiversity Conservation Project 1.95 West Africa Regional Fisheries Program (regional IDA) 6 Extractive Industries Sectors Technical Assistance 2.8 (SPF) Project Total 73.55 7.8 Total (IDA+TFs) 81.3 39. IFC is ready to re-engage swiftly as part of the WBG effort through a combination of advisory and investment. IFC had three joint projects with the Bank prior to the coup: (a) an uncommitted warehouse financing line with Ecobank Guinea-Bissau to facilitate export of cashews; (b) a public-private partnership (PPP) project with Empresa de Eletricidade e Águas da Guiné-Bissau (EAGB); the public electricity and water utility, and (c) an investment climate reform program. All three projects were suspended following the coup and IFC currently has no 11 direct exposure in Guinea-Bissau. Under this CEN, IFC will focus on (i) advising the Government on PPPs to improve service delivery in key infrastructure sectors such as water, electricity and port, (ii) direct financing to private sector projects which have a demonstration role for other investors, (iii) supporting local SMEs through increasing their access to finance (small investment vehicle, warehouse financing leasing and credit information) and providing capacity building with an emphasis on increasing SMEs' performance in corporate value chains, (iv) collaborating with the Bank to assist the Government to develop its PPP framework, and (v) improving jointly with the Bank the investment climate with a view to enhancing Guinea Bissau's Doing Business ranking. IFC will specifically work together with the Bank to improve the cashew value chain especially by promoting local processing by potential investors and developing warehouse receipts in the country. 40. MIGA is also looking to further capitalize on its existing engagement in Guinea- Bissau as part of the WBG response. Engagement in Guinea-Bissau is in line with MIGA’s overarching strategic objectives in supporting IDA countries and post-conflict and fragile states. Currently, MIGA has two active projects in Guinea-Bissau, representing a gross exposure of US$11.9 million, in support of the telecom and tourism sectors. MIGA is ready to re-deploy its guarantee services in Guinea-Bissau across its core traditional political risk insurance product lines. Its engagement can be further supported by the dedicated Conflict-Affected and Fragile Economies Facility. C. THE WORLD BANK GROUP COUNTRY ENGAGEMENT FY15-16 41. The proposed WBG engagement for FY15-16 under the CEN is designed to help address the immediate critical needs of the country over the next two years, and lay the foundation for it to move from a post-crisis situation to sustained peace and development. The engagement is aimed at assisting the Government by providing short-term stability, ensuring that basic services are protected, and starting to build core institutions. The new Government currently enjoys popular legitimacy, but must rapidly deliver basic services in order to win the confidence of the population. A peace dividend in the form of robust financial assistance to quickly address some of the basic needs of the people could substantially restore trust in the State. The CEN also takes into account the emerging stresses and risks that may reverse the recent positive developments in Guinea-Bissau. For example, more recently, in the health sector, the Bank team, in coordination with the World Health Organization, has acted very quickly to put in place a US$750,000 facility to provide Ebola prevention and emergency response in Bissau. Together with the Government and other partners, the Bank will continue to monitor the situation closely. 42. The focus of the WBG program is aligned with the twin goals of the WBG of ending extreme poverty and boosting shared prosperity and with IDA17’s focus on fragile states. In Guinea-Bissau, where the level of extreme poverty is estimated to be close to 45 percent (2013), the WBG’s two goals converge to one clear focus on poverty eradication. To that end, the CEN targets selected key drivers of poverty reduction, especially among the extreme poor, through support to service delivery in critical sectors. 43. The WBG program will build on the ongoing portfolio, and focus on two key areas that can have a visible impact:  Building institutions, to strengthen public sector capacity and enable the Government to fulfill its core functions of providing a sound macro-fiscal environment and public service delivery. 12  Strengthening the provision of basic services to the poor in health and education, electricity and water, and with a view toward establishing a social assistance system that equips people with the endowments necessary to create and take up economic opportunities. 44. This will be complemented by a program to support economic recovery through the support of key infrastructure and productive sectors, which could include energy, port and agriculture. With proper prioritization and sequencing, such a comprehensive effort could provide a strong boost to the economy. 45. To support these efforts, the Bank proposes a firm program for FY15 and a tentative program for FY16 (Table 3). The program for FY16 depends in part on whether Guinea-Bissau becomes eligible for enhanced support under IDA’s “turn-around regime” (Box 1). Should the additional resources not materialize, the program for FY16 would be scaled down to focus only on a reduced program for social protection. Table 3: Proposed FY15-16 Program of Enhanced Support for Guinea-Bissau Fiscal Program IDA Others AAA Year US$m US$m Building core public sector  2015 CEM institutions  Pension review note The Public Sector  Preparation of the EITI FY 15 Strengthening Project 5  Public Expenditure Review (PER) Supporting basic service  2015 CEM provision  Poverty mapping FY15 Second CDD Additional  T&C Advisory services on Investment Climate Financing 15 $0.49(b) reforms  Health/Education sector diagnostic Regional OMVG(a) Energy Project 2.8 68.3 FY15 Total 22.8 68.7 Supporting basic service provision  Systemic Country Diagnostic Social Safety Net Project FY 16 8  Fragility and Conflict Assessment, focus on Water/Energy Sector equity and inclusion Rehabilitation & Port  Country Gender Assessment Improvements tbd PPIAF  Public Private Participation in Energy and Water (tbd) and/or Port (with support from IFC Advisory and the Public Private Infrastructure Advisory Supporting the productive Facility) sectors of the economy FY16 (esp. Agriculture) tbd FY 16 Total 8+tbd tbd a OMVG: Notes: Gambia River Basin Development Organization. b from Rapid Social Response Multi-Donor Trust Fund. 46. The program to build core public sector institutions will focus on strengthening the ability of the State to deliver effective services. In FY15, the Public Sector Strengthening Project will reinstate controls needed for fiscal discipline, transparency and accountability, while building a framework for sustained PFM reform, including institutional strengthening. The project will build on the joint EU-WB PEFA assessment to re-establish basic systems for public financial management. The project will help (a) achieve better governance, transparency, 13 accountability and overall strong PFM systems for effective service delivery; (b) use external and internal funds to ensure achievement of the project development objective; and (c) commit development partners to increase the amount of external assistance flowing through the country’s PFM systems, in order to ensure the country’s sustainable development. The program will also provide “just in time” technical assistance, procurement support, including in situ advisors to assist the newly elected authorities in designing and implementing reforms aimed at improving service delivery. This program may be complemented by selected analytical work and follow-up support, depending on additional funding in FY16. 47. The program to support service delivery to the poor will focus on building human capital and enhancing electricity supply. In FY15, the Second Additional Financing in the amount of US$15.0 million to the Rural Community Development Project will finance the costs associated with the expansion of the project’s activities to increase access to basic social services. Specifically, the project would: (a) scale up coverage of the project’s community-driven development activities to cover all 9 regions of Guinea-Bissau; (b) scale up payments of teachers’ and health workers’ salaries for a six-month period in 2015; and (c) pilot a Labor- Intensive Public Works program to provide temporary income to targeted vulnerable households. The IDA operation will leverage additional grant resources from the Rapid Social Response Multi-Donor Trust Fund. The grant will seek to support the Government of Guinea-Bissau in laying the foundations of a social safety net system capable of effectively responding to current crises and future shocks. In the energy sector, building on the recently approved Emergency Electricity and Water Services Upgrading Project, the regional OMVG Energy Project will significantly enhance electricity supply by interconnecting Guinea-Bissau with Guinea and Senegal, thereby reducing costs and increasing opportunities to expand electrification of the country. 48. In FY16, the social service delivery support will be scaled up through a Social Safety Net Project, which will seek to provide income support and access to basic services to the poorest of the poor and food insecure households through cash-for-work. The project will also aim at establishing the building blocks for a national safety net system in Guinea-Bissau, the core part of which will be to improve access to schools and health facilities. The project would help to build the assets of the poor in order to make them active members of society. 49. In FY16, the core program would focus on social protection; if additional resources become available, these resources would be focused on support to the infrastructure (including energy and port) and productive sectors. On infrastructure, the World Bank would seek to work with IFC to improve electricity and water supply and the operation of the Bissau port through PPPs, potentially leveraging support from the Public Private Infrastructure Advisory Facility (PPIAF). In addition, the World Bank could help accelerate the rehabilitation of agriculture perimeters, including supporting agro-processing in the cashew (jointly with IFC) and rice sectors. The proposed WBG operation could contribute to reducing the need for imported rice, currently at 55,000 tons per year through enhanced production and productivity, and also to improving the business climate and integration into global value chain investments in the cashew sector. 14 Box 1: IDA 17 Support to Fragile and Conflict Affected States and the “Turn-Around” Regime Fragile and Conflict-affected States (FCSs) is one of the three “special themes” of IDA 17, which is committed to enhanced financing for FCSs to ensure better targeting of IDA’s exceptional support. IDA 17 has established an exceptional allocation regime for countries facing “turn-around” situations. A “turn-around” situation is defined as a critical juncture in a country’s development trajectory that provides a significant opportunity for building stability and resilience to accelerate its transition out of fragility. Such a situation is marked by: (a) the cessation of an ongoing conflict (interstate warfare, civil war or other cycles of violence, and/or partial state collapse that significantly disrupt a country's development prospects); or (b) the commitment to a major change in the policy environment following a prolonged period of disengagement from IDA lending; or (c) a major shift in a country’s policy priorities addressing critical elements of fragility. Support under the exceptional turn-around situation regime will be based on country performance and be informed by country-specific factors. Allocation will be determined in three steps: (a) assessing the country’s performance—in the case of Guinea-Bissau, the assessment will be done after the elections in the first year of the CEN, (b) the determination of the per capita support to the country, based on the performance assessment and country-specific factors, and (c) the per capita support multiplied by the country’s population, which is 1.7 million in Guinea-Bissau. Under IDA 17, the duration of the exceptional turn-around regime is expected to be around two to three years. Source: Implementation Arrangements for Allocating IDA Resources to Countries Facing “Turn-Around” Situations: Background Note. IDA Resource Mobilization Department. October 2013. 50. The lending program will be complemented by analytical work to inform Government policymaking and guide WBG engagement. The recently completed Country Economic Memorandum, the poverty mapping, the proposed education and health sector diagnosis and the 2012/2013 fragility assessment will inform the Systemic Country Diagnostic (SCD) to be carried out in FY16. The poverty mapping and the Poverty and Social Impact Analysis (PSIA) of the cashew sector will inform the design of programs for poverty reduction and inclusive growth. The Bank’s dialogue on macro-economic policy, in coordination with the IMF and other partners, will build the macro-platform for WBG engagement. Linked to the Public Expenditure Review (PER), the Bank team will work with ECOWAS, which is leading the security sector reform effort, and other partners such as the EU, to explore areas where the WBG’s expertise on public expenditure and the design of pension funds could contribute to the implementation of comprehensive public sector pension reform. In light of the threats presented by global climate change, the SCD will also explicitly mainstream climate change risks into planning and decision making. 51. The proposed WBG engagement will further mainstream gender equality in all WBG engagements. The Bank’s 2012 Gender Portfolio Review for Guinea-Bissau found that 82 percent of all portfolio activities are gender informed. In FY16, as part of the SCD, a Country Gender Assessment will be carried out. 52. The WBG engagement will adopt a realistic monitoring framework. Given the short- term nature of the program, the measurement will be done mainly through project milestones that will help assess progress achieved. (Annex 1). 15 D. FINANCING ENVELOPE AND IMPLEMENTATION 53. Under IDA17, Guinea-Bissau’s allocation is SDR 7 million for FY15, and indicative SDR 7.1 million for FY16 and SDR 6.6 million for FY17, for a total of SDR 20.7 million. To respond to the pressing needs of the country, the WBG proposes to frontload IDA17 resources with FY15 utilization expected to be SDR 15.2 million (US$22 million equivalent). This would leave a balance of SDR 5.5 million (US$8 million equivalent) for FY16-17. 54. In FY16 and onwards, as indicated above, the Bank may seek additional resources under the IDA17 turn-around regime. In FY16, the situation in Guinea-Bissau would be assessed to determine its eligibility for support under the exceptional turn-around regime, in consultation with the Executive Directors7. Over the last year, the availability of a scaled up envelope helped address the most pressing needs. A similar level of investments would be needed to help the new government credibly restore trust in the government and fulfill its role as a provider of public goods. For example, in FY14, with an additional US$25 million in emergency response to the water and electricity sectors, the number of people with access to water and electricity increased significantly. Guinea-Bissau has never had enough resources to build core institutions well and comprehensively. Enhanced IDA resources would accelerate, deepen and broaden the scope and impact of existing programs that have delivered tangible results. 55. The WBG programs will be implemented through existing independent implementing agencies. Their proven experience in project management and solid fiduciary mechanisms was confirmed by the WBG’s fiduciary assessment mission of February 2013. Progress on implementation will be monitored and analyzed closely through enhanced supervision by sector and country teams, supported by a country-based project officer and through annual portfolio reviews. 56. The CEN has been developed following a series of consultations with all stakeholders, including the Government, members of civil society, the private sector, and development partners. Consultations on the CEN have been ongoing for over a year. In February 2015, the WBG facilitated a retreat with the Cabinet of the new Government, led by the Prime Minister, where a wide range of development challenges and Government priorities were discussed. The discussions were informed by the CEM and the Government’s emerging program, as well as the proposed program in this CEN. The close coordination with multiple stakeholders will continue during implementation. 57. This CEN is part of a coordinated effort with other development partners that will continue during implementation. The WBG is coordinating closely with the IMF, UN, EU, AfDB and other bilaterals in the areas of public finance and strengthening institutions; and with the EU and AfDB in the areas of agribusiness and private sector. The upcoming Roundtable will further enhance donor coordination, including during project/program implementation. The WBG will also support Guinea-Bissau as a member of the g7+ group that was established to redefine the partnership between fragile states and donors,8 and will strengthen its engagement 7 Subject to a determination that Guinea Bissau would meet the criteria for support under IDA’s turnaround regime, management would prepare a note setting out the relevant aspects of country eligibility, which would be the basis for a consultation with the Executive Directors. 8 The g7+ is a voluntary association of countries that are or have been affected by conflict and are now in transition to the next stage of development. The main objective of the g7+ is to share experiences and learning, and to reform and reinvent a new paradigm for international engagement with fragile states. Guinea-Bissau became a member of the g7+ in July 2010. 16 with civil society organizations and citizen beneficiaries to promote governance and accountability and service delivery. E. RISK MANAGEMENT Risk Categories Rating (H, S, M or L) 1. Political and governance H 2. Macroeconomic H 3. Sector strategies and policies M 4. Technical design of project or program S 5. Institutional capacity for implementation and sustainability H 6. Fiduciary S 7. Environment and social S 8. Stakeholders S 9. Other Overall H 58. The proposed WBG engagement program with Guinea-Bissau carries some important risks, primarily the underlying fragility, political instability and governance risks. In spite of progress on the political transition and formation of an inclusive Government, concerns persist about possible deterioration of the political environment, including involvement of the military. The WBG will work closely with the international community on the ground to closely monitor the political situation, and adjust its engagement accordingly, including possible scale-back if stability is threatened. As in the past, the WBG adjustments will be carried out as part of the international response to domestic instability. 59. The uncertain macroeconomic environment will continue to pose a high risk to Guinea-Bissau’s recovery and WBG engagement. As discussed earlier, the country’s macroeconomic prospects will largely depend on political developments, and relatedly, on cashew exports and the level of donor assistance. Macroeconomic prospects are also linked to the country’s vulnerability to exogenous shocks, access to finance, and the possibility of an Ebola or other health crisis. Cashew production is also subject to changing weather patterns and climate risks, and can impact the WBG program. To manage the risks, the WBG engagement strategy takes into account the evolving situation in the country, and the Bank, in partnership with IMF, will monitor macroeconomic developments, including exogenous shocks, closely and adjust programming if necessary. On preventing a health crisis, the WBG will continue to work with the Government and partners such as the WHO to strengthen the country’s emergency response capacity and monitor the situation very closely. Emergency support, including a restructuring of existing programs (as the Bank did recently to support the country’s contingency plan for Ebola), is envisioned should a crisis erupt that undermines the country’s economic and social stability. 60. There are also important implementation and sustainability risks due to weak institutional capacity. Institutional risks, particularly with respect to accountability and transparency in the management of resources, could undermine WBG programs. Close monitoring by project and country teams, including more frequent implementation support missions are envisioned. To address the environmental risks linked to climate change, the country team will seek to mainstream consideration of climate change vulnerability and disaster risk management into its dialogue with the Government, and activities in the portfolio will be screened for these aspects. 17 Annex 1: Monitoring Framework Strategic Area Issues and Challenges Proposed Bank/Other Milestones Development Partner Instruments Program 1: Core Public Sector Institutional Building Improve public The public financial management Public Sector Strengthening Project sector management is weak, resulting in poor budget Technical assistance delivered through training and PER and procurement management operational support Preparation of the EITI and misallocation of resources. Guinea-Bissau Biodiversity Revenue and expenditure administrations restored and Conservation Project and GEF Trust functioning Fund Closure of most government accounts opened in commercial banks. National Public Procurement Office Re-equipped and functioning Management of Effectiveness Tracking Tool for existing National Parks Program 2: Basic Services Provision Improve water There has been persistent Improved water delivery Emergency Electricity and Water supply breakdown of water supply Rehabilitation Project (ongoing which has resulted in outbreak of People in project areas with access to improved water financing) water-borne diseases such as source (rural) from 19,775 (2013) to 23,500 (2015). Community Driven Development cholera among the population. Project (Ongoing financing) and Planned Second Additional Financing Poverty Mapping Country Gender Assessment Improve electricity There is currently a chronic Improved electricity supply Emergency Electricity and Water supply shortage of power supply in the Number of people benefitting from enhanced electricity Rehabilitation Project (Ongoing 18 Strategic Area Issues and Challenges Proposed Bank/Other Milestones Development Partner Instruments capital Bissau due to the inability services under the Bank funded Emergency Water and financing) of both EAGB and GoGB to Electricity Upgrading Project from 0 (2013) to 90,000 purchase fuel on a regular basis (2015) Emergency Water and Electricity to operate power plants, which in Services Upgrading Project turn results in the inability to pump water through the Country Gender Assessment distribution system. This situation is exacerbated by the inability of EAGB to recover sufficient funds to cover its operating cost, including fuel, due to years of mismanagement. Enhance basic Low fiscal revenues have limited Community Driven Development primary education the government’s ability to pay Project (Ongoing financing) and Improved basic (primary) education at community level teachers on a regular basis. Planned Second Additional Strikes by unpaid teachers have At least 30 additional classrooms built or rehabilitated at Financing affected school years. the primary level Planned Social Safety nets Project Health/Sector Diagnostic No interruption of 2014/15 school year due to non- Pension Reform payment of current salaries from project effectiveness until end of the 2014/15 school year respectively with Poverty Mapping graduations Country Gender Assessment Teachers’ salaries are paid. Improve health Quality of health care has Health workers’ salaries paid Community Driven Development delivery reduced considerably due to Project (12/31/2014) US$25million insufficient funding and absence (Ongoing Financing) and Planned of health care providers due to Second Additional Financing lack of remuneration Program 3: Supporting Productive Sectors Improve food Instability has resulted in severe Rations distributed in food for work activities i.e. Private Sector Rehabilitation and security by food insecurity, especially in the rehabilitation of rice land (supported by WB funded Agri-Business Development Project strengthening agri- consumption of rice. projects) 19 Strategic Area Issues and Challenges Proposed Bank/Other Milestones Development Partner Instruments business, especially Baseline (2013): 0 Second Emergency Food Security the cashew and rice Mismanagement of the cashew Target (2015): 250,000 Support Project sectors nuts sector during the political crisis delayed investment across Smallholder rice farmers who have adopted improved IFC Advisory services in Access to the value chain, impacting technology (supported by WB funded projects) Finance (Africa Leasing Facility 2, producers’ food security and Baseline (2013) 0 warehouse receipts, UEMOA opportunities to promote agro- Target (2016) 4,000 regional Credit Bureau) processing. Smallholder cashew farmers organized and receiving IFC Global Warehouse Facility technical support from WB funded projects Program Baseline (2013):0 Target (2016): 1,500 Investment Climate Advisory Note Procurement of raw cashew nuts from farmers to be used in existing processing plants; Support in starting cashew community-based processors, building warehouses, and preparing business cases for investors; Implementation of food for work program; Provision of improved agricultural inputs and services; 20 Annex 2: Progress on Defense and Security Sector Reform (DSSR) Guinea-Bissau’s military consists of about 3,100 officers and 1,400 soldiers. Before the coup, the Government had planned to reduce and restructure the force through retirement and demobilization, reducing permanent officers to no more than 30 percent and the rest drafted military personnel. The 2011 roadmap for the reform, designed with the assistance of the UN, ECOWAS, and CPLP, set out plans to gradually retire up to 2,500 military personnel between 2012 and 2015 by providing an attractive pension scheme. After the coup, given the re-insertion of the military into civilian politics and the suspended international assistance, progress on DSSR was disrupted. The process was revived in November 2012 when an MOU was signed with ECOWAS on a new DSSR program consisting of three pillars: Justice, Security, and Defense. A total budget of US$63 million was included to fund activities in the following areas: Reintegration and Reconversion (US$4.5 million), Training US$4.3 million), Demobilization (US$3.5 million), Pension Fund (US$45.9 million), Institutional Support (US$0.67 million), and Barracks Renovation (US$ 3.9 million). The program is being institutionally supported by the Ministry of National Defense and Freedom Fighters, Ministry of Interior, and Ministry of Justice, and by an Inter-ministerial Committee, a Steering Committee, and a Permanent Secretariat. The Government is currently implementing the security sector reform with ECOWAS support. There has been some progress, but more efforts are needed for the critical part of the path to peace to be completed. Initial implementation has started involving barracks rehabilitation and other infrastructure work. Disbursements from the Pension Fund are conditioned on the demobilization process. Reconversion through vocational training will apply to personnel with fewer than 30 years of service. Those with more than 30 years of service will be retired with a pension. 21 Annex 3: Drug Trafficking in Guinea-Bissau Various factors make Guinea-Bissau attractive to international drug traffickers:  West Africa’s coastal areas are relatively close to South America, with many small and thinly populated islands in Guinea-Bissau’s Bijagós archipelago that are difficult to control by government authorities.  Small arms proliferation is widespread, with many veterans of the country’s war of independence against Portugal in the 1970s still holding AK-47 assault rifles.  The government is weak and under-resourced and unable to fully control its institutions, including the military, and regulate its own territory due to insufficient patrolling of the coast. The fact that key security personnel are underpaid and often irregularly paid contributes to their vulnerability to illegal revenues.  An inefficient law enforcement and justice system lacks sufficient resources and trained personnel to fend off illegal activities.  A correctional system that lacks adequate prison facilities and security for judges, who may refrain from passing jail sentences on offenders who might take revenge on them. Drug trafficking in Guinea-Bissau is becoming a regional and global issue. Trafficking networks are turning Guinea-Bissau into a hub for the illicit multibillion dollar trade in cocaine affecting neighboring countries in West Africa and elsewhere in Africa. Drawn by the lucrative revenues, it is reported that Al Qaeda in the Islamic Maghreb and European and African organized criminal and militant groups have also established ties to Guinea-Bissau trafficking. Some anti-drug trafficking actions have been taken with international support. Before the 2012 coup, the Government had started working in cooperation with the ECOWAS, the EU, South Africa, Brazil and US drug enforcement agencies. Both UNIOGBIS and UNODC9 have provided technical advice to national authorities. Most recently, a delegation from the West Africa Commission on Drugs visited Guinea-Bissau in August 2013 as part of a regional effort to combat drug-related problems in security, governance and public health. Civil society groups and independent media have been active in highlighting the challenge of drug trafficking in Guinea- Bissau. 9 UNIOGBIS:United Nations Integrated Peace Building Office in Guinea-Bissau; UNODC: United Nations Office on Drugs and Crime 22 Annex 4: Addressing poverty and fragility via private sector development opportunities Enabling the emergence of a dynamic private sector in Guinea-Bissau is a necessary condition to reignite economic growth, reduce poverty, improve food security, and reduce the risk of political instability. Fostering robust private-sector development in the productive sectors is critical for reducing extreme poverty and the risk of conflict resurgence. Promoting a private sector that can reach external markets can be an enabler of job creation, especially for the youth. In a small country with current limited space to expand local consumption, it is critical to diversify into nearby sub-sectors with potential to reach external markets. The country’s private sector is yet to be developed. The economy is largely informal with a considerable degree of subsistence farming. The challenge will be to enable investments that can generate value-added to the economy, more jobs, and higher wages. In a fragile state, a more vibrant private sector is important for the poor to move out of poverty where little support can be provided by the government. In addition, a stronger private sector will be in a better position to hold government accountable, resulting in partnership between the public sector and the private sector. This may, in turn, foster stability. Guinea-Bissau’s economy is very dependent on the agriculture and public sectors. The country is reliant on natural resources, principally agriculture and fisheries, and within agriculture, exports of raw cashew nuts. Agriculture represents the primary source of income for 85 percent of the population, and provides the livelihood for the overwhelming majority of the poor. Only a small fraction of the labor force - about 10 percent - is in wage employment, half in small urban services, and half in the public sector. With a small domestic market and limited export-oriented ventures, the localized private sector is highly dependent on the public sector’s consumption and investments. This factor has had significant effects on the structure and dynamism of the private sector. The challenges to private sector development in Guinea-Bissau are considerable. They can be grouped into six areas: (a) political instability; (b) poor infrastructure; (c) a poor regulatory environment; (d) limited access to finance; (e) low productivity and relatively high labor costs; and (f) the lack of economic diversification. In addition to the generic security problem, access to finance is a significant constraint. Seed capital and debt financing are fundamental resources for the development of a promising business idea. In their absence entrepreneurs cannot invest, and the business idea will not grow into a viable enterprise. The financial sector in Guinea-Bissau remains highly underdeveloped, making access to finance a key obstacle facing entrepreneurs. In fact, the latest data from the World Bank Enterprise Surveys (from 2006 for Guinea-Bissau) show that 38 percent of surveyed firms in Guinea-Bissau report access to finance as their major investment constraint. This figure is 44 percentage points higher than that observed for an average Sub-Saharan African economy, and more than 60 percentage points higher than that in neighboring Senegal and Guinea. Against the backdrop, the WBG is working towards providing the immediate conditions for driving new investment in the economy. The Government of Guinea-Bissau has requested support from the World Bank to identify reforms that will improve the conditions for business creation and growth. By implementing such reforms, the government also expects to improve Guinea-Bissau’s performance in the World Bank Doing Business report, where the country lags at 179 out of 189 countries globally. Improvements in Doing Business can have a signaling effect to investors that the government is committed to reform. 23 The WBG is providing recommendations in areas where the government can have a positive impact in the business environment through regulatory and administrative reforms. Precedents exist to build upon successful reforms that have transformed the interaction between the government and the private sector. The establishment of the Center for Enterprise Formalization (CFE), a one-stop-shop for business registration, reduced the time to start a business from 213 days in 2010 to 9 days today according to Doing Business. It also made the process cheaper, simpler and fully transparent. Other reforms, such as the implementation of SYDONIA++, could contribute to lower the costs of doing business, if properly implemented. Successful reforms, such as the CFE show that it is possible for the government to become a facilitator of private sector activity. The present moment offers a unique window of opportunity to advance a reform agenda to address constraints to private investment. Several factors contribute to this opportunity: • A new government after a peaceful transition with a strong mandate for economic recovery; • Impetus for reform from membership in regional organizations such as UEMOA and OHADA; • Donors, including the WBG, AfDB, EU, and UNDP are ready to support private sector development and strengthen access to finance; • Growing investor interest in Guinea-Bissau, for example among major buyers of processed cashew in the US and Europe. Furthermore, the WBG is providing support in mechanisms for increasing access to finance such as through the introduction of an agricultural warehouse receipts system or a leasing program. Warehouse receipts can support operators in accessing lending from financial institutions secured by commodities deposited in storage facilities. The WBG is also working towards streamlining import/export procedures, improving coordination among business license agencies, introducing small pilots that can reduce corruption at the borders, and supporting the design and implementation of a simplified MSME tax regime. In spite of the challenging environment, the IFC is seeing selected emerging opportunities in Guinea-Bissau, especially if some of the major challenges are addressed. The IFC is (i) conducting a private sector mapping to identifying potential investments (notably in the cashew sector), (ii) considering investments in core drivers of growth (eg: cement; agro processing; mining) and (iii) looking to strengthen the financial sector especially in its capacity to fund core sectors such as cashew. The work with the financial sector is being planned through risk sharing facilities, trade finance, support to a UEMOA regional Credit Reference Bureau, and capacity building. The IFC is also in discussions with the government for technical support in putting in place the PPP regulatory framework as well as various PPP contracts in state-owned companies (eg: electricity, port). 24 Annex 5: Untapped opportunity in the cashew sector The main driver of growth in the economy is the cashew sector. The industry has a critical importance for Guinea-Bissau’s poverty alleviation. Cashew is the country’s most important agricultural product, grown by close to 55 percent of all agricultural households and representing about a third of the sector’s total output. Cashew is responsible for more than 90 percent of the country‘s exports. Cashew production increased from 30,000 tons in the early 1990s to around 200,000 tons in 2013. Guinea-Bissau is currently the fourth largest producer of cashew in the world, after India, Vietnam and Cote d’Ivoire. It has recently overcome Brazil in annual production. Guinea-Bissau’s nuts are considered of relatively high quality. However, the potential value of the sector is only partially realized. In particular, its value- added could be significantly larger if the country evolved from only selling raw cashew nuts (RCN) to processing locally, thus integrating a full value chain approach. Currently, almost all of Guinea-Bissau‘s cashew crop is exported as raw nuts to India (95 percent of sales) and Vietnam (4 percent of sales). There is a small installed processing capacity for the production of cashew kernel (some 25,000 tons of RCN or about 13 percent of total production), but only a small part is operational. By exporting only raw nuts, Guinea-Bissau (a) is in a position of dependence vis- à-vis its two main buyers; and (b) is depriving itself of the value added and jobs created by the processing industry. The potential for cashew agribusiness development is significant, but various challenges have prevented the emergence of transformation in Guinea-Bissau. The cashew sector has been affected by a history of disruptive government interventions in the sector, including unrealistic “minimum” purchasing prices for RCN or new regulations on cashew trading, often on short notice and without consulting the private sector. In addition to policy instability, the development of a local processing industry faces several constraints: (a) financing constraints in establishing processing plants due to the cost of land, construction, and imported equipment; (b) constraints in accessing credit for working capital; (c) labor productivity constraints; (d) a small domestic market (small population with low purchasing power); and (e) a lack of demand for other cashew-based products such as Cashew Nut Shell Liquid (CNSL). These barriers have been amplified by limited experience in organizing the value chain and aggregating players, chiefly within rural communities. Farmers are trapped in a low income/low opportunities environment. Producers are largely dependent on the sale once a year of cashew to meet their needs and are currently trading 3kg of cashew for 1kg of rice to feed their families. This exchange deteriorated substantially for farmers in the past couple of years. The country’s 2013 cashew export campaign was one of its worst of the last decade. Lower international prices, credit and other barriers to foreign brokers imposed by the Government, as well as uncertainties related to sector tax policies, disrupted cashew exports and were responsible for the fall in farm-gate prices. The terms of exchange between cashew and rice worsened significantly from 1 kg of rice for 1 kg of cashew nuts in 2011 to 1 kg of rice for 3kg of cashew nuts in 2013. This, in turn, had a strong negative effect on farmers’ income, poverty, and food security. In 2011, when cashew prices were high, the government introduced a new surcharge on cashew for a fund intended to finance agribusiness and especially cashew processing (FUNPI). In 2014, the World Bank studied the effect of the FUNPI surcharge on farm-gate prices and poverty. The analysis modeled the relative power of agents along the cashew supply chain - from cashew farmers to traders to exporters - estimating to what extent they are likely to absorb the effect of changes in cashew prices, and to what extent they can be expected to pass on these 25 changes to other agents in the supply chain. The study found that cashew farmers bear the brunt of taxation on cashew exports. Farmers assume 80 percent of the cost of the FUNPI surcharge. This results in a fall in farm-gate prices of 20 percent and a fall in consumption of 8 percent for poor households. The results correspond to a 2 percentage point increase in the national absolute poverty rate and a 3 percentage points increase in extreme poverty. This effect is sizeable, especially in a situation where food is the largest item in the consumption basket. The FUNPI surcharge thus aggravated food insecurity in Guinea-Bissau. Partly in response to this study, the government decided to suspend the FUNPI surcharge in 2015 and committed to considering abolishing it entirely. Nonetheless, developing the cashew value chain can have major economic and social impacts. Cashew agro-processing creates about one full-time job for every three tons of processed raw nuts. Processing 30,000 annual tons of nuts would create around 10,000 jobs, mostly in rural areas. About two thirds of the jobs created would be for women, especially those with limited economic opportunities at the moment. Addressing the most binding constraints to developing agro-processing while attracting international investors would increase the value of the sector, while help tackling poverty. Furthermore, organizing rural communities could significantly reduce the risks of food insecurity. It could also support the sustainability of the value chain, which is paramount for its success. The WBG is working with the government and alongside other donors (EU, AfDB, IMF) on developing the cashew value chain. This is being done by (a) increasing the farmers productivity and diversification, while (b) improving farmers’ bargaining power. The WBG works on securing the long-term sustainability of the cashew sector by improving productivity, while seeking to smooth incomes and promote diversification, notably into rice. The work includes promoting improved cashew farming practices including addressing issues such as tree density, as well as intercropping cashew trees with staple crops such as upland rice. To improve cashew farmer’s bargaining power, the work will finance a price information system and the rental and rehabilitation costs of communal storage facilities. The storage facilities serve the double purpose of improving farmers’ bargaining power and strengthening linkages with local processors. Farmers will not be forced to sell their entire harvest at once and thus will be able to negotiate better prices. By linking with processing plants, farmers will be able to participate in the returns from those investments while securing a fair price for their raw cashew. On cashew agro-processing, the WBG will focus on (a) addressing the coordination and financial constraints in establishing community-level facilities, as well as on (b) attracting large-size investors into Guinea-Bissau. There is considerable scope for investment in both community and large scale cashew processing facilities. Concurrent investment in both levels of scale is at this stage beneficial in that it would increase visibility of Guinea-Bissau in agro- processing, and thus help establishing long-term relationships with buyers (eg: major retailers) with growing interest in the region. The WBG will support the establishment of community-level processing plants that jointly can achieve a significant scale. This will be done in sequence and in the same areas to the organization of cashew farmers. The recent experiences in establishing community-level processing plants have shown that connecting farmers with processors helps alleviate capital constraints and facilitates the development of a processing industry. In addition, preparing business cases and marketing materials and presenting them to the right investors can promote large international investment into the economy. In addition, the IFC is working with financial institutions to increase finance to the sector across the value chain, as well as it is looking at opportunities for investment in cashew processing. 26 Annex 6: Statistical Development in Guinea-Bissau Policy design and planning in Guinea-Bissau has taken place without accurate data, oftentimes with no data at all. The World Bank statistical capacity score for Guinea-Bissau is 39, much lower than the average score of 59 for SSA countries, placing Guinea-Bissau among the ten lowest countries in the world. Improving the government’s capacity to gather statistical data has depended almost exclusively on donors support. A review of the survey activity of the past ten years reveals an over-reliance on the support of development partners, which has led to a lack of capacity development and a haphazard collection of key data. Over the past decade, a significant number of statistical surveys have been conducted,10 in Guinea-Bissau, backed by donor support, both in funding and through the provision of technical assistance. Predictably, under the circumstances, the selection of topics surveyed, the calendar and implementation, and the methodologies and questionnaires of the surveys and censuses were determined by the development partners’ interest and funding availability instead of being the result of an informed strategic program aimed at providing data for development policy in a timely and relevant manner. Accordingly, while useful one-off data was produced, it has neither led to an increase in national statistical capacity, nor does it allow systematic reviews of the situation of the country over time. The preparation of the PRSP II fostered a substantial improvement in the production of statistics; however, further progress has been null. The framework of the PRSP II was grounded in a number of major statistical surveys, including the National Population Census (RGPH) of 2009, the Multiple-Indicators Clusters Survey (MICS) of 2010, the second Light Poverty Assessment Household Survey (ILAP II) of 2010, the Assessment of Non-Monetary Poverty (2010) and the Cost Estimate for Achieving the MDGs (2011). Budgetary problems in 2012 and 2013 prevented follow-up activities, and currently the National Institute of Statistics practically shut down. The Guinea-Bissau Statistical system is anchored in a solid institutional framework, but one which has yet to be fully implemented. The Statistics Law 11 of September 2007 defines the objectives and institutions of the National Statistical System (NSS – SEN), and their composition, domains of intervention, and attributions. The overall NSS is under the authority of the Prime Minister, with delegation to the Minister of Planning. The NSS includes three main institutions: the Superior Council of Statistics, the National Institute of Statistics (INE), and INE Delegated Institutions. INE is the main institution in charge of the production of statistics in Guinea-Bissau. This framework is consistent with general international practice and as such could be considered satisfactory. Yet to date, the Government has not submitted the decree of application, and as such, the law to date is not effective. Individual ministries also produce data, but the quality is poor and uneven. There are in fact 23 statistical units within ministries and agencies, each operating under the direct control of their respective ministries. The mission and objectives of these units are not well-defined and cooperation within ministries is poor. Close collaboration between the central statistical structures and the sectoral ministries (as well as between individual ministries) is essential to 10 Mainly focused on population, poverty and living conditions, health and demography, firms, etc. 11 Law N 6/2007 of 10 September 2007. 27 improve the quality and usefulness of the data, from the simple computation of an indicator to advanced statistical analysis. Data from different sources and units are needed, and they must be based on the same concepts, methods, and standards. For this reason, improving collaboration among all statistics producers in Guinea-Bissau is a priority to ensure the harmonious application of methodology and standards. Like the rest of public administration, the statistical sector, despite a significant overall level of staffing, can only draw from limited qualified capacity and few financial resources to undertake this fundamental development task. The statistical sector is composed 447 staff for the entire NSS,12 of which only a handful are considered “cadres”. Out of the 447 staff, only 4 percent have a scholastic background in statistics, demographics or computer science – well below the staffing levels needed to begin delivering quality information. The lack of trained personnel and the imbalance of skills are key factors of the low efficiency of most of the NSS. The human resource issues encountered in the NSS, including the salary and incentive structure, are comparable to those of the overall public service of Guinea-Bissau, and have to be addressed within the overall framework of public service reform. It is clear, however that presently the Government is not investing in the statistical sector, as it is only covering staff salaries. Meanwhile, the system suffers from shortages in terms of phone and internet connectivity as well as means of transportation to facilitate the collection of regular statistics. The situation in sector statistical units is even worse and varies between sectors: only 7 ministries and agencies have allocated computers to statistical operations. 12 On several occasions, attempts have been made to propose benchmarks about the number of statisticians per capita, without results. 28 Annex 7: Initial Mapping of Selected Donor Activities in Guinea-Bissau Countries and Agencies Main Activities in the Country ECOWAS Budgetary Support; Defense and Security Sector Support; General Elections Support; Rural Electrification; Regional Integration. WAEMU Energy, Vaccination, Agriculture, Budgetary Support, United Nations Peace keeping, anti-drug trafficking and crimes, and law enforcement (UNIOGBIS and UNODC), Health and Population (WHO, UNFPA), Human Rights protection (UNHCR), Food Security (WFP and FAO), Gender (UNWOMEN), Education (UNICEF), Social and Economic Development and Capacity Building, and environment (UNDP). West African Food Security; Infrastructure development including Power Plant Development Bank and Port; (BOAD) African Development Agriculture; Economic Development; Public Sector Governance. Bank European Union Solar Rural Water and Hydraulics Support; Regional Fisheries Surveillance; Support to General Elections; PFM Capacity Development; Environment. IMF Capacity Development in Customs Administration; Capacity Development in Statistics; Macro Economic Monitoring Global Fund HIV/AIDS, Malaria & Tuberculosis Nigeria Budgetary Support Spain Food Security, Health, Biodiversity France Capacity Development in Public Administration Portugal Education, Health, Public Administration. China Infrastructure for government, school, stadium, hospitals; Agriculture and rice research; Food security; Education & Scholarships; Health care and medical equipment. Japan School Construction; Artisan Fishery US Education quality; Regional Drug Control India/Brazil Rural Electrification, Mangrove rehabilitation Russia, Turkey, Morocco, Academic Scholarship for Higher Education Algeria 29 Annex 8: Selected Economic Indicators – Guinea-Bissau   30