99688 Mozambique Country Program Evaluation Report No. _____ March 26, 2010 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. Abbreviations and Acronyms AAA Analytic and advisory activities AfDF African Development Fund AfDB African Development Bank AIDS Acquired immune-deficiency syndrome APL Adaptable Program Loan AS Advisory Services ATM Autoridade Tributaria de Moçambique (Mozambican Tax Authority) BPES Balanço do PES CAS Country Assistance Strategy CASPR CAS Progress Report CASCR CAS Completion Report CEM Country Economic Memorandum CFAA Country Financial Accountability Assessment CFM Portos e Caminhos de Ferro de Moçambique (Mozambique Ports and Railways Corporation) CNCS Conselho Nacional de Combate Ao HIV/SIDA (National Commission to Combat HIV/AIDS) CNELEC Conselho Nacional de Electricidade (electricity regulatory agency) CPAR Country Procurement Assessment Review CPE Country Program Evaluation CPS Country Partnership Strategy CRA Conselho de Regulação do Abastecimento de Agua (Water Supply Regulatory Board) CUT Conta Único do Tesouro (Treasury Single Account) DAC Development Assistance Committee (OECD) DNA Direcção Nacional de Àguas (National Directorate of Water Affairs) DPL Development Policy Loan EDM Electricidade de Moçambique (National electricity company) EDP Enterprise Development Project EMPSO Economic Management and Private Sector Operation e-SISTAFE Financial management information system (see SISTAFE) ESSP Education Sector Strategy Program ESW Economic and sector work FDI Foreign direct investment FIPAG Fundo de Investimento e Património do Abastecimento de Água (Water Supply Investment and Asset Fund) FRELIMO Frente de Libertação de Moçambique (Front for the Liberation of Mozambique) FSD Financial sector development FTI-CF Fast-Track Initiative–Catalytic Fund FYDP Five-Year Development Plan GCCC Gabinete Central de Combate a Corrupção (Central Anti-Corruption Office) GDP Gross domestic product GEF Global Environment Facility GNI Gross national income HIPC Heavily Indebted Poor Countries Initiative HIV Human immunodeficiency virus HSRP Health Sector Recovery Program IBRD International Bank for Reconstruction and Development ICA Investment Climate Assessment ICR Implementation Completion Report IDA International Development Association IEG Independent Evaluation Group IFC International Finance Corporation IFI International financial institution IMF International Monetary Fund M&E Monitoring and evaluation MDG Millennium Development Goal MDRI Multilateral Debt Relief Initiative MIGA Multilateral Investment Guarantee Agency MOU Memorandum of Understanding MSI Mozambique SME Initiative MSME Micro, small, and medium enterprise MTEF Medium-Term Expenditure Framework ODA Official development assistance OECD Organization for Economic Cooperation and Development PAF Performance Assessment Framework PARPA Plano de Acção para a Redução da Pobreza Absoluta (Action Plan for the Reduction of Absolute Poverty, the Portuguese acronym for PRSP) PEFA Public Expenditure Framework Assessment PER Public Expenditure Review PES Plano Económico e Social (Economic and Social Plan) PFM Public financial management PIU Project implementation unit PO Poverty Observatory PPAR Project Performance Assessment Report PROAGRI Agricultural Sector Public Expenditure Program PRSC Poverty Reduction Support Credit PRSP Poverty Reduction Strategy Paper PSD Private sector development PSIA Poverty and Social Impact Analysis QAG Quality Assurance Group SEF Small Enterprise Fund SIL Specific Investment Loan SISTAFE Sistema de Administração Financeira do Estado (State Financial Administration System) SMEs Small and medium-sized enterprises SSA Sub-Saharan Africa SWAp Sectorwide Approach TA Technical assistance TFCA Transfrontier Conservation Area WB World Bank WBG World Bank Group The World Bank Washington, D.C. 20433 U.S.A. Vinod Thomas Director-General Evaluation March 26, 2010 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: M OZAMBIQUE C OUNTRY P ROGRAM E VALUATION Mozambique emerged from the 1990s with impressive economic growth to become an example of successful post-conflict reconstruction and development. During the evaluation period (2001-2008), the World Bank Group helped further this agenda, aligning its support with the government’s poverty reduction strategy, which focused on three pillars: economic growth, poverty reduction and human development, and governance. Overall macroeconomic performance remained strong during 2001-2008, bolstered by large Overseas Development Assistance flows, agricultural sector recovery (until about 2003), and private investment, notably in megaprojects. Transfers under World Bank PRSCs helped fund the budget, in turn stabilizing the real economy. Bank assistance was also effective in contributing to improved budget management, infrastructure development, and access to basic services in health care, education, and urban water. Poverty declined from 69 percent in 1997 to 54 percent in 2003, but its rate of decline may since have slowed, with the benefits of economic growth unevenly distributed. Bank support to agriculture did not have a significant impact on the productivity of small-scale farmers in rural areas, where about 70 percent of Mozambique’s population live. Progress in Bank support to the SME sector has also been slow owing to limited access to finance. The Bank’s program also fell short of intended results in improving the quality of social services, countering the perception of increasing corruption, strengthening the judicial system, and stemming the spread of HIV/AIDS. During 2001-2008, IFC’s portfolio was dominated by investments in two foreign-owned, capital- intensive megaprojects (aluminum smelting and natural gas), with IDA participation. The projects contributed to growth through increased exports and helped enhance foreign investors’ perception of the investment climate. However, the extent of their development impact has been limited due to weak linkages with the local economy and limited employment generation. IEG has three recommendations for the WBG. First, help make credit more accessible to SMEs, assist to improve business procedures and regulations, and ensure a firm basis for increased agricultural productivity. This would help Mozambique sustain high growth while reshaping its pattern to facilitate greater employment creation and poverty reduction. Second, focus analytic work on infrastructure strategy, agricultural productivity, education quality, and HIV/AIDS. Third, support more efficient public expenditures with emphasis on high-quality social services. Finally, the Bank advanced the harmonization and alignment agenda through joint efforts with 18 other development partners to provide budget support under a reform agenda commonly agreed with the government. This helped to structure the dialogue and improved predictability of resource transfers, but also limited the Bank’s flexibility and increased its transaction costs—issues that need to be addressed going forward. Contents Evaluation Managers  Vinod Thomas Director-General, Evaluation PREFACE ..................................................................................................................VII  Cheryl W. Gray Director, Independent MOZAMBIQUE: SUMMARY OF BANK PROGRAM OUTCOME RATINGS .............IX Evaluation Group-World Bank  Ali Khadr EVALUATION SUMMARY ....................................................................................... XV Senior Manager, IEGCR  Fareed M.A. Hassan and Tim L. de Vaan MANAGEMENT ACTION RECORD...................................................................... XXIII Task Managers, IEGCR 1. COUNTRY BACKGROUND .................................................................................... 1 Political Developments ............................................................................................... 1 Economic and Social Developments .......................................................................... 2 Development Challenges and Constraints ................................................................. 3 Organization of the Report ......................................................................................... 5 2. THE BANK’S STRATEGY AND PROGRAM .......................................................... 7 Summary and Assessment of Prior World Bank Support (1987-2000) ...................... 7 The World Bank‘s Assistance Strategy (FY01-08) and Mozambique‘s Poverty Reduction Strategy ..................................................................................................... 8 Strategic Relevance of Bank Assistance ................................................................... 9 The World Bank‘s Assistance Program .................................................................... 11 Overview of Strategy Implementation ...................................................................... 13 Portfolio Performance .............................................................................................. 14 3. PILLAR I — STABILIZATION AND GROWTH ..................................................... 17 Macroeconomic Management, Financial, and Private Sector Development ............ 17 Rural Development and Sustainable Management of Natural Resources ............... 23 Improved Delivery of Infrastructure Services ........................................................... 29 Energy and Mining .......................................................................................................... 29 Transport ........................................................................................................................ 32 Overall Evaluation of Pillar I ..................................................................................... 35 4. PILLAR II — POVERTY REDUCTION AND HUMAN DEVELOPMENT ............... 37 Poverty Reduction .................................................................................................... 37 Human Capital Development ................................................................................... 42 Education ................................................................................................................. 42 Health and HIV/AIDS ............................................................................................... 46 Water and Sanitation ................................................................................................ 50 Overall Rating for Pillar II ......................................................................................... 53 5. PILLAR III — GOVERNANCE ............................................................................... 55 Context ..................................................................................................................... 55 The Bank Strategy and Program .................................................................................... 55 Relevance of the Objective and Instruments .................................................................. 57 i CONTENTS Improved Budget Allocation and Execution ............................................................. 58 Stronger Government Monitoring and Evaluation Capacity ..................................... 63 Reduced Corruption ................................................................................................. 65 Increase Efficiency in the Provision of Services by the Justice System .................. 67 Overall Rating for Pillar III ........................................................................................ 68 6. EVALUATION OF IFC ACTIVITIES IN MOZAMBIQUE, FY01-08 ........................ 69 Developments Relating to the Private Sector .......................................................... 69 IFC Objectives in Mozambique ................................................................................ 70 IFC Activities during the CAS Period ....................................................................... 70 Investment Operations ................................................................................................... 70 Advisory Services Operations ........................................................................................ 71 Investment Outcomes .............................................................................................. 72 IFC‘s Contributions to Private Sector Development ................................................ 73 Enhancing Support to Small and Medium Enterprises ................................................... 74 Promoting Tourism ......................................................................................................... 75 Developing Infrastructure and Mining ............................................................................. 76 Building and Strengthening Financial Markets ............................................................... 77 Other Sectors.................................................................................................................. 77 IFC Additionality and Performance .......................................................................... 77 Lessons and Challenges ......................................................................................... 78 7. PARTNERSHIP AND HARMONIZATION ............................................................. 81 Aid Flows and Modalities ......................................................................................... 81 The Paris Declaration Dimensions: Ownership, Alignment, Harmonization, Managing for Results, and Mutual Accountability .................................................... 83 Cooperation with the IMF ......................................................................................... 87 Cooperation with the African Development Bank .................................................... 87 8. CONCLUSIONS, LESSONS, AND RECOMMENDATIONS ................................. 90 Overall Assessment ................................................................................................. 90 Risk to Development Outcome ................................................................................ 91 Lessons ................................................................................................................... 92 Recommendations ................................................................................................... 93 NOTES ....................................................................................................................... 97 ANNEX A: STATISTICAL SUPPLEMENT .............................................................. 107 ANNEX B: GUIDE TO IEGWB’S COUNTRY PROGRAM EVALUATION METHODOLOGY..................................................................................................... 133 ANNEX C: LIST OF PEOPLE MET ........................................................................ 137 ANNEX D: GOVERNMENT COMMENTS ............................................................... 141 REFERENCES ......................................................................................................... 143 II CONTENTS Boxes Box 1. Overall Agricultural Growth and Productivity ................................................. 26 Box 2. Results from the Poverty and Vulnerability Survey ........................................ 41 Box 3. The Perception of corruption Remains High ................................................... 66 Box 4. Perceptions of World Bank Effectiveness ....................................................... 84 Tables Table 1. Poverty Indicators ......................................................................................... 2 Table 2. Selected Social Indicators, 2007 or Nearest Year ........................................ 3 Table 3. FY01 and FY04 CAS-Proposed versus Actual Commitments .................... 12 Table 4. World Bank Lending by Major Groups, FY01-08 ........................................ 12 Table 5. Summary Evaluation of Outcome Findings (Exit Year FY01-08) ................ 15 Table 6. World Bank Interventions under the Macroeconomic Management, Financial, and Private Sector Subpillars .................................................................... 18 Table 7. Key Macroeconomic Indicators, 2001-08 .................................................... 19 Table 8. Rural Development and Sustainable Management of Natural Resources Projects ...................................................................................................................... 24 Table 9. Estimated Actual and Potential Yields for Major Crops ............................... 27 Table 10. Electricity Consumption and Installed Capacity ........................................ 30 Table 11. Electricity Coverage and Tariffs (around 1999) ......................................... 30 Table 12. Energy and Mining Projects ...................................................................... 30 Table 13. Density of Paved Roads Relative to Arable Land ..................................... 33 Table 14. Access to Rural Roads ............................................................................. 33 Table 15. Transport Projects ..................................................................................... 34 Table 16. Concessions of Rail and Port Systems ..................................................... 35 Table 17. Incidence of Poverty and Poverty Gap by Urban and Rural Areas, 1997 and 2003 .................................................................................................................... 39 Table 18. Education Projects .................................................................................... 43 Table 19. Trends in the Number of Schools at Primary and Secondary Levels, 2000- 08 ............................................................................................................................... 44 Table 20. MDGs for Education for Mozambique, Zambia, and Sub-Saharan Africa . 45 Table 21. Health and HIV/AIDS Projects .................................................................. 47 Table 22. MDGs for Health for Mozambique, Zambia, and Sub-Saharan Africa ...... 48 Table 23. Water and Sanitation Projects................................................................... 50 Table 24. MDGs for Water and Sanitation for Mozambique, Zambia, and Sub- Saharan Africa ........................................................................................................... 52 Table 25. Governance-Related Bank Projects .......................................................... 56 Table 26. Outcomes and Indicators for Comprehensiveness and Transparency (Off- Budget Transactions) ................................................................................................. 59 Table 27. Outcomes and Indicators for Budget Formulation and Evaluation ............ 60 Table 28. Outcomes and Indicators for Credibility of the Budget and Budget Execution ................................................................................................................... 61 Table 29. Outcomes and Indicators for Creating Organizations and Building Capacity ................................................................................................................................... 62 iii CONTENTS Table 30. Outcomes and Indicators for Stronger Monitoring and Evaluation Capacity in Government........................................................................................................... 64 Table 31. Outcomes and Indicators for Reduced Corruption ................................... 65 Table 32. Outcomes and Indicators for Increase Efficiency in Provision of Services by the Justice System ............................................................................................... 68 Table 33. New Investments Benchmarked against Comparator Countries, FY01-08 .................................................................................................................................. 71 Table 34. Health of IFC‘s Portfolio ........................................................................... 73 Table 35. Bank Credit to Private Sector as a Ratio to GDP (%)............................... 74 Table 36. ODA and Budget Support (US$ million) ................................................... 82 Table 37. Mozambique Debt Relief under HIPC and MDRI ..................................... 88 Table 38. Projects Cofinanced or financed in parallel with the AfDB ....................... 88 Figures Figure 1. GDP Growth Rates ..................................................................................... 2 Figure 2. Government Expenditure Composition ....................................................... 4 Figure 3. Percentage of Projects at Risk, FY01-08 .................................................. 15 Figure 4. GDP Trends for Major Sectors, 1992-2007 ............................................... 26 Figure 5. Trends in Average Maize Yields, 2000–07 ............................................... 26 Figure 6. Maize Yields in Mozambique and Neighboring Countries, 1962- 2003 (kg/ha) ....................................................................................................................... 27 Figure 7. Public Expenditures Directed at Priority Sectors (% of total budget)......... 38 Figure 8. Population and Poverty by Provinces and for Maputo City ....................... 40 Figure 9. Investments by Year, FY01-08.................................................................. 71 Figure 10. Investments by Sector, FY01-08 ............................................................. 71 Figure 11. Investment Success Results ................................................................... 73 Figure 12. Total Bilateral and Multilateral Net ODA Disbursements (in US$ million) 81 Figure 13. Trends in the Share of IDA Investments in Social and Infrastructure Sectors (percent)....................................................................................................... 82 Figure 14. Trends in the share of Investments by all Development Partners in Social and Infrastructure Sectors (percent).......................................................................... 82 Annex A: Statistical Supplement Annex Table 1. Mozambique at a Glance ................................................................109 Annex Table 2. Economic and Social Indicators, 2000-2008 ...................................112 Annex Table 3. Approved Projects, FY2000-08 .......................................................113 Annex Table 4. World Bank Commitments by Sector Board (US$ million) ..............114 Annex Table 5. FY01 and FY04 CAS-Proposed Nonlending Program and Actual Deliveries .................................................................................................................115 Annex Table 6. Project Ratings by IEG, Exit FY01-08 .............................................116 Annex Table 7. IEG Project Ratings.........................................................................116 Annex Table 8. Portfolio Status Indicators (US$ million) ..........................................117 Annex Table 9. Disbursements (US$ million) ...........................................................118 Annex Table 10. External Assistance, Total Net ODA Disbursements (US$ Million) .................................................................................................................................119 IV CONTENTS Annex Table 11. World Bank Lending for Macroeconomic Management, Financial Sector Development, and Private Sector Development ........................................... 120 Annex Table 12. Poverty Observatories .................................................................. 121 Annex Table 13. Poverty Measures for Urban and Rural Areas (1997 and 2003) ... 122 Annex Table 14. Primary Schools Enrollment and Retention – Impact of School Fees (2005) ...................................................................................................................... 123 Annex Table 15. Health: Country Status Report (2004) and Better Spending to Reach the Millennium Development Goals (2006) .............................................................. 124 Annex Table 16. Country Water Resources Assistance Strategy: Making Water Work for Sustainable Growth and Poverty Reduction (2007) ............................................ 125 Annex Table 17. World Bank Governance Indicators .............................................. 126 Annex Table 18. Transparency International Corruption Perception Index.............. 126 Annex Table 19. Governance Pillar III-Objective 1: Improved Budget Allocation and Budget Execution—Results Indicators ..................................................................... 127 Annex Table 20. World Bank Assistance Program for Governance Pillar (FY01-08) ................................................................................................................................. 128 Annex Table 21. Mozambique and Comparators—Cost of Operations, FY01-08 (US$ 000s) ........................................................................................................................ 129 Annex Table 22. IFC‘s Areas of Support and Objectives ......................................... 129 Annex Table 23. Bilateral and Multilateral Development Agencies 2001-08 Portfolio in Mozambique ............................................................................................................ 130 Annex Table 24. List of IFC Investments in Mozambique, FY01–FY08 (US$000) .. 130 Annex Table 25. List of IFC Advisory Services in Mozambique, FY01–FY08 (US$000) ................................................................................................................................. 131 Annex Table 26. Formal Private Sector Employment .............................................. 131 v Preface The work on this Country Program Evaluation (CPE) was conducted in collaboration with the Operations Evaluation Department (OPEV) of the African Development Bank. The two institutions carried out a joint assessment of Mozambique‘s socioeconomic development, the challenges facing the country, and the effectiveness of World Bank (WB)-African Development Bank (AfDB) coordination. For other aspects, the IEG and OPEV assessments of their respective institutions‘ assistance programs were done in parallel, but coverage and methods differ. The evaluation results are therefore presented in different reports. The CPE reviews the World Bank‘s assistance to Mozambique over the period from FY01 to FY08. The evaluation builds on Independent Evaluation Group (IEG) background papers covering the main building blocks of Bank support to Mozambique. It also draws on Bank documents and on interviews with senior government officials, representatives of the private sector and civil society, nongovernmental organizations, bilateral and multilateral development partners, and Bank and International Monetary Fund (IMF) staff in Washington and in Mozambique. A list of those interviewed is in Annex C. A joint AfDB OPEV-WB IEG mission visited Mozambique in February 2009. This evaluation was led by Fareed M. A. Hassan (Task Manager, IEGCR, through August 2009), with background papers and other substantive inputs from Tim L. de Vaan (covering partnership and harmonization, and beginning September 2009, Task Manager, IEGCR), Jorge Garcia-Garcia (governance), Adil Kanaan (macro, private, and financial sector development), Hernan Levy (transport, urban development, energy, and mining), and Jack van Holst Pellekaan (poverty reduction, social service delivery, and rural development). Chapter 6, which assesses the IFC program, was written by Izlem Yenice (CEXEG). Administrative assistance was provided by Cecilia Tan, Agnes Santos, and Vikki Taaka (IEGCR). Peer reviewers were James Sackey (Consultant) and Anjali Kumar (IEGCG). This evaluation also drew upon a background paper on Mozambique prepared by Brendan Horton for the Evaluation of Poverty Reduction Support Credits (led by Anjali Kumar, IEGCG) as an important input to this CPE. William Hurlbut (IEGWB) provided editorial support. Comments from the government are included in the report as Annex D. vii Mozambique: Summary of Bank Program Outcome Ratings IEG‘s Country Program Evaluations (CPEs) assess and rate the outcomes (loosely speaking, the ―results‖) of a given World Bank country program relative to its objectives. This differs from rating country outcomes or Bank or client government performance. The central question underlying the table that follows is ―to what extent did the World Bank program achieve the outcomes that it set out to achieve?‖ Distinct ratings and subratings are typically assigned to each ―pillar‖ or set of strategic goals set out in the relevant Bank strategy document(s) (see Annex B). BANK BANK ACHIEVEMENT OF MAIN BANK INSTRUMENTS TO PROGRAM STRATEGIC ASSOCIATED CAS OUTCOMES HELP CAS OUTCOMES OUTCOME GOALS1 OR RESULTS MATERIALIZE RATINGS2 There were positive outcomes in macroeconomic management, growth, financial 1. Macroeco- sector development, and infrastructure development. Results in private sector Moderately nomic stabiliza- development and agriculture and natural satisfactory tion and growth resources management fell short of objectives. Hence overall performance under this pillar merits a rating of moderately satisfactory. The review period was characterized by strong Transfers under the PRSC series helped fund the macroeconomic management, with the budget, in turn stabilizing the real economy. Prior following caveats: (i) the growth achieved was actions ensured some increased domestic revenue not evenly distributed or employment- mobilization, and those aimed at public expenditure generating; and (ii) the pace of growth was management helped improve government capacity fueled to a large extent by ODA, and the in this area. In addition, the PRSCs allowed the Macroeconomic sustainability of this support is somewhat Bank to participate in the dialogue on macro Satisfactory management uncertain given recent global financial management, even though the IMF took the lead. developments. The macroeconomic stability component of the Economic Management and Private Sector Adjustment Credit (EMPSO) expected the government to keep within the targets for selected macroeconomic indicators under an IMF program. That was achieved. The central bank‘s balance sheet was A component of the Enterprise Development Project strengthened as was its supervision of the (EDP) tried to facilitate access to investment finance banking system. The overall soundness of the through lines of credit, with disappointing results, banking system steadily improved. Progress in particularly for SMEs. The Financial Sector TA expanding access to credit, particularly by Project helped improve the central bank‘s balance Financial sector Moderately SMEs, was very limited. sheet and its capacity to regulate and supervise reform financial institutions. It also assisted in the adoption satisfactory of international accounting reporting standards, a modest increase in competition within the banking system, and some improvement in the overall environment of the financial system. 1. The goals of Bank assistance may be distinct from those of the client country ‘s own development objectives, although the two are usually consistent. 2. The Bank program outcome subratings and overall rating assess the extent to which the Bank program achieved the results targeted in the relevant strategy document(s) and/or the documents for individual operations. They do not attempt to assess the extent to which the client country was satisfied with the Bank‘s program, nor do they try to measure the extent (in an absolute sense) to which the program contributed to the country‘s development. Equally, they are not synonymous with Bank performance. ix SUMMARY OF BANK PROGRAM OUTCOME RATINGS BANK BANK ACHIEVEMENT OF MAIN BANK INSTRUMENTS TO PROGRAM STRATEGIC ASSOCIATED CAS OUTCOMES HELP CAS OUTCOMES OUTCOME GOALS1 OR RESULTS MATERIALIZE RATINGS2 Results fell below expectations. Progress in The EDP provided useful business extension services, development of the SME sector was slow. While helped strengthen three government agencies that the enclave mega-projects may have done well deal directly with business development. It tried to because of their special circumstances, the facilitate access to investment finance through lines of performance of the broader-based, smaller credit, with disappointing results. EMPSO helped Private sector domestic businesses remains sluggish. Hence, liberalize the telecommunications and air transport Moderately development the contribution of PSD to generating sectors. The PRSC series supported procedural unsatisfactory employment and spreading the benefits of measures to improve the business environment, which growth was modest. helped to reduce the time needed to register land and businesses and to facilitate visas for foreign workers. Less progress was made in moving forward with legislation for judicial courts and for a Notary Code. Bank assistance achieved a number of its PROAGRI provided significant institutional support objectives, such as decentralization of the to the ministry, but it was not successful in achieving Ministry of Agriculture and Rural Development; other core objectives, such as increased agricultural improvements in the financial, procurement, productivity. The Market-Led Smallholder and audit management systems; and Development Project aims to improve the strengthening of the agricultural research development of small-scale farming and sustainable program and connecting it with extension land management, but is experiencing delays. Rural develop- programs. The assistance has had very limited PRSC triggers related to agriculture have ment and impact on agricultural service delivery and contributed modestly to progress on policies and sustainable farm-level productivity, which were core productivity and extension. The PRSCs have so far Moderately management of objectives of the Bank‘s program. Progress in not provided an effective platform for dialogue on the unsatisfactory natural natural resource management has so far been agricultural sector as originally intended. The resources limited. Coastal and Marine Biodiversity Management project yielded some positive achievements, such as biological monitoring of marine ecosystems and strengthened capacity for environmental management by communities. But several prominent objectives, notably the protection of coastal habitats and private sector tourist development, were not achieved. Progress was achieved in getting more With Bank and IFC support, the Gas Engineering households connected to the electrical grid and project aimed to assess prospects for a commercial in introducing solar electric panels for some joint venture between the government, the 300 schools and health centers. A Bank- Mozambique National Oil Company, and the private supported pilot expansion of electricity in sector in the Pande gas field. The project‘s capacity isolated rural areas did not succeed. Progress building was not timely. The Energy Reform and was achieved in integrating the Southern Africa Access project aimed to increase use of electricity energy market through successful construction for economic growth and social services in peri- Improved and operation of a gas pipeline exporting gas urban and rural areas, and to strengthen capacity to from Mozambique to South Africa. However, use modern energy. Progress toward objectives at Moderately access to the Bank‘s approach to unbundling the the end of 2009 was moderately satisfactory. The satisfactory energy electricity sector as a way to bring in the Southern Africa Regional Gas project aims to private sector proved inappropriate for stimulate development and export of natural gas Mozambique and was replaced by and, with IFC and MIGA, to raise capital and strengthening existing institutions. commercial financing for private sector development. Progress toward objectives at mid 2009 was satisfactory. The Mineral Resources Management Capacity Building project helped provide institutional development that provided a platform for planning mining investments. The condition of the road network has improved, By rehabilitating priority roads, improving maintenance, Improved and the Road Fund is better financed and and continuing regulatory reform and institution building, Moderately access to allocating resources more efficiently and more the Second Road and Coastal project helped to remove satisfactory transport transparently via a Road Board that includes bottlenecks, particularly for agricultural production and private sector representation. But, much distribution. The Railway and Road Restructuring x SUMMARY OF BANK PROGRAM OUTCOME RATINGS BANK BANK ACHIEVEMENT OF MAIN BANK INSTRUMENTS TO PROGRAM STRATEGIC ASSOCIATED CAS OUTCOMES HELP CAS OUTCOMES OUTCOME GOALS1 OR RESULTS MATERIALIZE RATINGS2 improvement is still needed to enhance rural project objective of increasing the operational efficiency population access. The objective of increasing of main railway lines, measured by increased freight, international traffic at ports and on railways has was partly achieved. The Roads and Bridges project been partially achieved. Progress on port made progress on road and bridge rehabilitation and the development is satisfactory, but in rail establishment of road maintenance funds, although the development there is a gap between expected institutional capacity to administer the road sector was and actual performance. not improved. The closing date of the Beira Railway project was extended to 2011, but work on the Sena railway line was successfully completed. Roads and Bridges II aims to stimulate growth and reduce poverty through improved road infrastructure, better sector policies, and enhanced roads sector management. Based on progress so far, this project is likely to meet its development objectives. The incidence of poverty declined, but it remains predominantly rural, and there is concern that the rate of decline in absolute poverty may be slowing down, with the benefits 2. Poverty of economic growth unevenly distributed. reduction and Quality concerns affected interventions in Moderately human education, though access improved. Design satisfactory development limitations, weak government capacity, and coordination problems affected outcomes for Bank support for HIV/AIDS. Bank support to increase access to water and sanitation was successful in urban areas. Poverty incidence fell from 69 percent in 1997 to Poverty reduction is the outcome of many 54 percent in 2003, driven by rapid GDP growth. interventions, often with lags, including actions by Other actions to alleviate poverty, such as both the government and its development partners. access to social services, have improved. The The Bank‘s PRSCs and investment projects were government met its commitment, made in all the main contributions for stimulating growth, PRSCs, to maintain budget allocations to six employment and income generation, and hence PARPA priority sectors/social services at 65 poverty reduction. The PRSCs also required the Poverty Moderately percent of total. However, the budget could allocation of 65 percent of the budget to the six reduction have been more deliberate in allocating PARPA priority sectors: health, education, rural satisfactory expenditures to activities that would translate development, basic infrastructure, good governance, directly into a strong impact on poor households and sound macroeconomic and financial or at the smallholder farm level. Despite management. substantial progress over the past decade, the incidence of poverty is still higher in rural areas than in urban areas. Results were significant for building capacity The Education Sector Strategy Program helped and improving access, especially at the basic substantially increase access to primary education, level, but quality weaknesses persisted. Bank but did not adequately address quality of primary Improve access support to higher education assisted in the education. In the context of the Higher Education achievement of key performance indicators project Bank objectives for improving higher education and quality of Moderately related to internal efficiency rates, annual were achieved through an increased enrollment education number of graduates, increased regional efficiency ratio, a higher number of graduating satisfactory services distribution of enrollments, and the introduction students, development of new curricula and degree of new degrees. programs, and higher intake of students from the north. The 2006 Technical and Vocational Education and Training project is too recent to evaluate. Improve Key health indicators at the national level, such Through the Health Sector Recovery Program the as infant and maternal mortality have improved Bank and other partners financed the construction of Moderately coverage of significantly. Government capacity constraints, health facilities in rural areas, improved a number of satisfactory health services design limitations, and weak coordination institutions, and trained many health professionals. xi SUMMARY OF BANK PROGRAM OUTCOME RATINGS BANK BANK ACHIEVEMENT OF MAIN BANK INSTRUMENTS TO PROGRAM STRATEGIC ASSOCIATED CAS OUTCOMES HELP CAS OUTCOMES OUTCOME GOALS1 OR RESULTS MATERIALIZE RATINGS2 limited the effectiveness of Bank support to While attribution is difficult to establish, official data reduce the incidence of HIV/AIDS. show that during the period of HSRP implementation, population per health center, infant mortality, and intrahospital maternal mortality all fell considerably. Progress under the HIV/AIDS Response Project has so far been minimal due to government capacity constraints, weak coordination, and design limitations. Bank assistance to increase access to water The National Water Development Project I and II and sanitation was largely institutional, assisted in substantial institutional reforms, which supporting the privatization of service delivery provided the framework for the public regulatory role in five major cities. Although Bank intervention and the private service delivery role that together Improve assisted in achieving substantial institutional improved and expanded urban water supplies in coverage of reforms, it had a narrow urban coverage. Mozambique‘s major cities. The five cities targeted Satisfactory water supply Access to potable water at the national level now receive a minimum of 20 hours of water supply and sanitation increased only marginally but is expected to per day. The Water Services and Institutional increase significantly in the five targeted cities. Support Project continues to deepen the reforms There was little evidence of significant from the previous two projects, but it is too early to improvement in sanitation services at the evaluate its likely outcome. national level. While support for budget management was satisfactory, support for governance reforms, including reducing corruption and improving the justice system, was not sufficiently focused. There were weaknesses in government capacity, and many agreed upon reforms were Moderately 3. Governance not implemented. The overall outcome of Bank satisfactory assistance is rated moderately satisfactory because of the importance of better budget institutions for resource allocation and accountability in a country where the size of government relative to total revenues is large. Results relevant to the Bank‘s assistance PRSC triggers covered spending in priority sectors include sustaining poverty-reducing (poverty-reducing expenditures), implementing an expenditures, decreasing funds managed off- electronic account system (e- SISTAFE) that permitted Improved budget budget, establishing a public financial full control and up-to-date information on expenditures management system (e-SISTAFE), and and revenues, approving a new procurement decree, allocation and Satisfactory operating a Treasury Single Account for most and concluding the study on ―off-budgets‖ in the health execution goods and services. However, there is room to sector and initiate implementation of its further improve the efficiency of public recommendations. To a lesser extent, EMPSO and expenditures. the Public Sector Reform project contributed to this subpillar. The objective was partially achieved. Bank As a member of the budget support partners group the assistance helped the government improve its Bank participates in twice-yearly meetings with the capacity to monitor programs and plans. government that constitute a monitoring exercise rather Strengthening Despite advances in budget management, than an evaluation of plans and programs. The government planning, and monitoring, little seems to have meetings use reference documents the government Moderately monitoring and been achieved on improving the quality of prepares, including an MTEF, budget execution reports, evaluation. and other documents relevant for the discussion. The satisfactory evaluation capacity exercise, which started in 2004, has helped the government improve its monitoring skills, which is evident in the government documents used as monitoring tools. Reducing The objective of reducing corruption was not PRSC 1 and PRSC 2 supported the adoption of an achieved. The survey for 2004/05 was anticorruption law, and the increase of resources for Unsatisfactory corruption conducted, but no other governance survey has anti-corruption work, respectively. Apart from xii SUMMARY OF BANK PROGRAM OUTCOME RATINGS BANK BANK ACHIEVEMENT OF MAIN BANK INSTRUMENTS TO PROGRAM STRATEGIC ASSOCIATED CAS OUTCOMES HELP CAS OUTCOMES OUTCOME GOALS1 OR RESULTS MATERIALIZE RATINGS2 been carried out since 2005, contrary to what assistance with the one survey, the Bank did not Bank assistance expected. There are some produce separate AAA on anti corruption. data available for 2008 and 2009, pointing at an acceleration in the number of proceedings related to cases of corruption, and to date few trials have started. The results fell short of expectations. The EMPSO supported the completion of a strategic plan of government did not create judicial sections for legal and judicial reform that incorporated the strategic commercial disputes on schedule and did not plans of the four branches (Ministry of Justice, revise all the codes, but the number of cases Attorney-General, Supreme Court, and Administrative Improving justice sentenced increased. Neither the legal Court). It also supported revisions of some codes and Unsatisfactory system framework nor the efficiency of courts to solve set as a second tranche condition adoption of the business disputes improved. The evaluation completed Strategic Integrated Plan for the Legal and lacks information to conclude that access to Judicial Sector 2002-06. The Public Sector Reform justice increased. project contains a component on improving access to justice and information but has suffered from delays. This CPE rates the overall outcomes against the Bank’s strategic objectives in Mozambique during the evaluation period as moderately satisfactory. This reflects results achieved under each of the three pillars that can plausibly be attributed, at least in part, to the Bank’s program. This is consistent with the rating of moderately satisfactory that each pillar received, although results varied across subpillars. In particular, this CPE identifies macroeconomic management and budget allocation and Overall execution as subpillars that stood out positively and are rated satisfactory. On the other Moderately rating hand, in four subpillars the outcomes of Bank assistance were below expectations. satisfactory Under the first pillar these were private sector development and rural development including sustainable management of natural resources—both are rated moderately unsatisfactory. Under the third pillar, reducing corruption and improving the justice system are both rated unsatisfactory. In sum, although outcomes and the accompanying ratings on the level of pillars and the overall level were balanced and positive, this evaluation points to the indicated subpillars as areas of concern. xiii Evaluation Summary Mozambique Country Program Evaluation During the period FY01-08, the World Bank was Mozambique’s largest development partner, providing over $1.3 billion in International Development Association (IDA) funds. The Bank’s strategy, which was aligned with and sought to support the government’s poverty reduction strategy, focused on three pillars: economic growth, including macroeconomic management, financial and private sector development, rural development, and infrastructure; poverty reduction and human development; and governance. The evaluation finds that the Bank’s strategy for Mozambique and its program were relevant to the country’s development needs. The Bank’s program was generally aligned with those of other development partners that provide general budget support, especially after FY05. Harmonization of procedures with other development partners also progressed, although there is scope for further improvement. The Bank’s program was substantially effective in supporting macroeconomic management, infrastructure development, access to education and health care, urban water, and some areas of governance (such as budget management and execution). However, the program fell short of its intended results with respect to the inclusiveness of growth, stimulating private sector development, improving agricultural productivity, achieving better quality of social services, countering the perception of increasing corruption, improvements in the judiciary system, and stemming the spread of HIV/AIDS. Going forward, IEG recommends that the Bank help Mozambique sustain high growth and reshape its pattern to make additional gains in poverty reduction; give priority in analytic work to infrastructure, agricultural productivity, education quality, and HIV/AIDS; and support improvements in the efficiency of public expenditures. M ozambique is a country of over 20 mil- lion people, has a per capita income of $370 (GNI, Atlas method), and occu- pies an area of 800 thousand square kilometers in southeast Africa. About 70 percent of the popu- Mozambique achieved impressive economic growth (albeit from a low base) and has become an example of successful post-conflict reconstruc- tion and development. Mozambique’s develop- ment has been strongly supported by official de- lation live and work in rural areas. Following velopment assistance (ODA) with average annual years of conflict, the economy was in shambles by disbursements amounting to $1 billion (12 percent the mid-1980s when the country, in the midst of of GDP). civil war, joined the World Bank. The civil war ended in 1992, and the first democratic elections World Bank Assistance were held in 1994. Since then elections have been Bank strategy. The reduction of poverty and im- held regularly. After the cessation of conflict, provements in social services has been, and still is, xv EVALUATION SUMMARY the most important objective for Mozambique’s Analytical work. Overall, the analytical work deli- development strategy. The Bank has supported the vered by the Bank was relevant, of high quality, and government’s Action Plan for the Reduction of connected with the lending program. Some of the Absolute Poverty (PARPA—the Portuguese Bank’s analytical pieces were essential inputs to acronym for PRSP), and the FY01 and FY04 establishing the reform agenda. The candor and Country Assistance Strategies (CASs) shared the technical expertise in the analytical work were ap- same strategic objectives and pillars and covered the preciated by the client and development partners, same policy areas. The overall intent was to help who would like to see the Bank prepare more of Mozambique promote growth to improve the such work. There were, however, important country’s standard of living and to reduce poverty, knowledge gaps in certain areas, which the Bank primarily through maintaining macroeconomic sta- could have addressed in its analytical and advisory bility and promoting private sector initiative, partic- work. These areas include improving the yields of ularly for small and medium-sized domestic enter- smallholder agriculture, improving the quality of prises (SMEs) as well as in agriculture and basic education, constraints in the battle against the infrastructure. To this end, human resources spread of HIV infections, priority actions to im- needed to be developed through the provision of prove rural water supply, and problems with elec- improved education, water, and health services; and tricity reform and railway concessions. Similarly, public sector performance needed to be improved no public expenditure review (PER) was conducted through capacity-building measures and better go- after 2003. vernance. Close coordination among the govern- ment and the development partners, including the Findings Bank, was to help mobilize the needed assistance Pillar I: Stabilization, Reform, and Growth and increase the chances of its efficient use. Macroeconomic stability. Mozambique’s macroeco- Relevance of strategy. Overall, the Bank’s assistance nomic performance has been generally good or strategy during the review period was relevant and improving when measured by aggregate indicators closely aligned with the government’s plan out- like growth, inflation, balance of payments, external lined in the PARPA. The strategic alignment with debt, and the budget. Transfers under the PRSC the PARPA enabled the Bank to be selective and series helped fund the budget, in turn stabilizing the to capitalize on its comparative advantage under real economy. Prior actions ensured some increased each of the three pillars—growth, social services, domestic revenue mobilization, and those aimed at and governance. Harmonization and alignment public expenditure management helped improve were advanced as the Bank agreed with the gov- government capacity in this area. In addition, the ernment and other development partners to PRSCs allowed the Bank to participate in the support a common reform agenda and select dialogue on macroeconomic-management, even triggers for Poverty Reduction Support Credits though the IMF took the lead. The external debt (PRSCs) from a commonly agreed-upon set. position of the country also improved appreciably, largely due to the Heavily Indebted Poor Countries Bank program. Support as delivered was broadly in (HIPC) Initiative and the Multilateral Debt Relief line with the strategy. Most of the proposed lending Initiative (MDRI) arrangements. The economy also program was implemented, and the credits that were responded positively to reforms. Maintaining not foreseen were consistent with the areas of Bank annual growth that averaged 7-8 percent for almost focus and within lending targets. The Bank also 15 years was a commendable achievement. participated in Sectorwide Approaches (SWAps) in agriculture and health, but moved away from them Nevertheless, despite the positive performance of to PRSCs as the core of its assistance program. growth and overall macroeconomic performance, However, the primary focus of prior actions in a number of concerns have remained. First, al- PRSCs during the evaluation period was on public though inflation was reduced significantly from financial management (PFM) and macroeconomic the early days after independence, it fluctuated policy, while at the sector level several of the prior during the period reviewed and averaged 11.5 per- actions for agriculture were not met and there were cent. The risk of macroeconomic instability no prior actions in health. lingers, especially in view of swings in the global food prices and the uncertainty surrounding global xvi EVALUATION SUMMARY developments in petroleum and other primary centralization of the Ministry of Agriculture; im- commodities markets. Second, the pace of growth provements in the financial, procurement, and audit has been fueled to a large extent by ODA, but the management systems; and some improvement in sustainability of this support is unclear given agricultural research planning. However, the pro- recent global financial developments. In addition, gram did not have a significant impact on the growth has been driven by agricultural catch-up productivity of smallholders. While eight develop- (until about 2003), and private investment in ment partners continued their support to the physical capital (for example, through mega- second phase of PROAGRI, the Bank withdrew. projects) that has not yet substantially addressed Instead, the Bank’s broad sector objectives were the challenge of creating more jobs and making subsumed under the PRSC series. However, the growth more evenly distributed. PRSCs have so far not provided an effective platform for dialogue on the agricultural sector, and Financial sector development. The main objectives of PRSC triggers have made only very modest financial sector development (FSD) reforms were contributions to progress on either policies or met. The Bank’s technical assistance followed up technical issues in the sector. In addition, the Bank on the findings of the Financial Sector Assessment completed but did not publish the Agricultural Program and helped to strengthen the central Development Strategy. The Bank resumed support bank’s balance sheet, as well as its supervision of to agriculture in 2006, and financed the Market-Led the banking system. These Bank efforts Smallholder Development project, but it has so far contributed to a steady improvement in the overall experienced delays. In natural resource soundness of the banking system as reflected in management, the Coastal and Marine Biodiversity improvements in a number of indicators, such as Management yielded some positive achievements, the proportion of nonperforming loans, capital such as biological monitoring of marine ecosystems adequacy ratios, and increased competition among and strengthened capacity for environmental banks. In contrast, progress in financial management by communities. However, several intermediation, access to finance (particularly by prominent project objectives, notably the SMEs), and the development of the non-bank protection of coastal habitats and private sector financial sector remains a challenge. tourist development, were not achieved. Private sector development. The results achieved in Energy. The Bank’s initial strategy of improving the PSD fell below expectations. Progress in the de- energy sector through the unbundling of genera- velopment of the SME sector was slow. The tion, transmission, and distribution into separate Bank program successfully provided some busi- companies to facilitate bringing in private operators ness extension services to SMEs and some tech- proved inappropriate for conditions in nical assistance (TA) to strengthen a couple of Mozambique and was replaced by a strategy to government agencies, but the Bank-supported line strengthen existing institutions. With Bank of credit faltered and had to be altered to allow support, access to electricity was expanded through larger firms to borrow. While the enclave mega- cost-effective grid intensification. Solar electric projects may have done well because of their spe- panels for some 300 schools and health centers cial circumstances, the performance of smaller were introduced, but Bank-supported pilot domestic businesses remained sluggish. Hence, expansion of electricity service by creating the contribution of PSD to generating independent, private electrical grids in isolated rural employment and spreading the benefits of growth areas did not succeed. With World Bank was limited. (WB)/International Finance Corporation (IFC)/Multilateral Investment Guarantee Agency Rural development and sustainable management of natural (MIGA) support, a new 865-kilometer pipeline was resources. Results of the Bank’s interventions in agri- constructed and is operational, exporting natural culture, rural development, and natural resource gas from Mozambique to South Africa, management were also below expectations. Bank representing a major demonstration of the potential assistance through the Agricultural Sector Public for integrating energy markets in the region. Expenditure Program (PROAGRI), a SWAp sup- ported by many bilateral development partners, achieved a number of its objectives, including de- xvii EVALUATION SUMMARY Transport. With Bank and other development part- expenditures on activities that would translate ners’ support, the conditions of the roads have directly into a strong positive impact on poor improved. An independent Road Board, with ma- households or at the smallholder farm level. jority representation from the private sector, was established to guide allocation and monitor use of Education. The Bank and 14 other development funds. However, more needs to be done to further partners contributed to the formulation and improve access for the rural population, by im- implementation of the government’s 1999 proving or building feeder roads. Bank-supported Education Sector Strategy Program (ESSP) to concessioning of Mozambique’s three main port- improve access to and the quality of education. A railway systems achieved partial progress toward large number of schools and related infrastructure increasing traffic on the country’s railways and was rehabilitated or constructed, enrollment through its ports. While international port traffic increased substantially, and access for the poor and had by 2008 reached 11.1 million tons, surpassing in rural areas improved markedly. However, there the target; traffic on the railways reached 3.5 million were concerns about the program’s lack of progress tons, half the target level. An Infrastructure in enhancing the quality of education. In 2003, the Assessment planned for FY07 was dropped, which Bank decided not to engage in the second phase of meant that no formal analytical work was carried this program. The Bank subsequently agreed in out during the evaluation period. FY09 to contribute $79 million from the Fast Track Initiative for the improvement of basic education. Based on the elements presented above, the Bank support to higher education assisted in the overall outcome of the first pillar of Bank achievement of key performance indicators related assistance is rated moderately satisfactory. to internal efficiency rates, annual number of gra- duates, increased regional distribution of enroll- Pillar II: Poverty Reduction and Human ments, and the introduction of new degrees. The Development Bank is now moving most of its attention to Poverty reduction. The incidence of poverty declined supporting vocational and tertiary education and impressively from 69 percent in 1997 to 54 percent outcomes so far are encouraging. in 2003, while poverty remained higher in rural areas (55 percent) than in urban areas (52 percent). Health. The health system was in disarray at the end The results of the 2009 household income and of the civil war. As in the education sector, the Bank expenditure survey were not available to this chose to follow the government’s strategy for the evaluation. There is, however, concern that the rate development of the health sector and started its sup- of decline in absolute poverty may be slowing port with a SWAp—the Health Sector Recovery down. Although overall growth was impressive Program. Together with other development part- during the review period and the underlying ners, the Bank successfully supported the construc- macroeconomic performance was satisfactory, it tion of numerous health facilities, improved a num- was not evenly distributed with the benefits of ber of institutions, trained many health professionals, growth not reaching the majority of the population, and contributed to increased health service access. particularly those in rural areas. Average growth This contributed to improvements in key health rates in the agricultural sector were lower than the indicators, including infant and maternal mortality rapidly growing industrial sector dominated by rates. In contrast, the HIV/AIDS program has not capital-intensive mega-projects. Furthermore, progressed well due to government capacity con- agricultural growth was driven by catch-up straints, design limitation, and weak coordination. (compensatory) gains and expansion into new areas This raises a serious concern as HIV/AIDS poses rather than productivity improvements. one of Mozambique’s most daunting challenges. All PRSCs carried a government commitment to Access to safe water and sanitation. With the maintain budget allocations to six PARPA priority agreement of development partners, Bank support sectors (health, education, rural development, to increase access to water and sanitation was basic infrastructure, good governance, and sound directed at developing sustainable institutions in macroeconomic and financial management) at 65 urban areas. Through these, the Bank supported percent of the total, which was met. However, the the privatization of water service delivery in five budget could have better focused the allocation of cities under the umbrella of a government xviii EVALUATION SUMMARY parastatal responsible for managing Mozambique’s International indicators show that the levels of water resources. Bank assistance was successful, perceived corruption changed little. The but its urban focus meant that Bank projects had government prepared an anticorruption strategy for negligible impact on access to potable water in 2006-10 but has not advanced much in rural areas. There was also little evidence of implementing it. Despite the fact that many significant improvement in average access to corruption cases were brought to court in the last sanitation in rural towns. years of the evaluation period, the fight against corruption was not complemented by an increased On the above basis, the outcome of the second number of high-profile judgments. pillar of Bank assistance is rated moderately satisfactory. The justice system. Bank assistance intended to rein- force the capacity of the judiciary but had little influ- Pillar III: Governance ence. Judicial sections for commercial disputes were Budget allocation and execution. The main objectives in not established as scheduled under the Bank’s this area were achieved. With Bank and other strategy. Neither the legal framework nor the development partners’ support, the government efficiency of courts in resolving business disputes introduced reforms that have changed the face of improved. The government did not revise all the the budget system in Mozambique. While in 2001 codes, but the number of cases sentenced increased. the country did not have the elements of a budget The evaluation could not ascertain whether access system, today it has: almost complete budget to justice has improved. coverage, improved budget classification, a consolidated single treasury account (for most The overall outcome of the third pillar of Bank goods and services), adequate budget controls, and assistance—governance—is rated moderately satisfac- fiscal transparency. Although the system has tory. In reaching this conclusion, the evaluation substantially improved, the government is still placed greater weight on the results for the objec- working on including all wage and salary tive of improved budget allocation and execution expenditures in its newly introduced financial for two reasons: first, this pillar directly covers an management information system, e-SISTAFE. On important part of the Bank’s assistance, provided the other hand, the Bank’s assistance paid as direct budget support, and second, the budget insufficient attention to significantly improving the is relatively large, representing about 30 percent of efficiency of public expenditures that the analytical GDP, substantially above the norm for developing work identified as problematic. countries. Therefore, improvements in budget management and allocation constitute an impor- Monitoring and evaluation capacity. The objectives in tant step in strengthening accountability and M&E capacity building were partially achieved. capacity in the public sector. Eventually these Two important tools have helped create the improvements should also lead to a reduction in conditions for a better monitoring and evaluation corruption through better control of the accounts (M&E) system: the PARPA and the overhauling and better tracking of where resources are spent. of the PFM system. With Bank support, the government’s ability to monitor programs and plans IFC’s Assistance were enhanced, although there is room for Between FY01 and FY08, IFC’s objectives, as ar- improvement. However, the advances in ticulated in the CASs, were to enhance support to managing and monitoring the budget have not yet SMEs, including improving the enabling environ- translated into better government evaluation ment for private sector participation; promote capacity. tourism; develop infrastructure and mining; build Reducing corruption. This objective was not achieved. and strengthen financial markets; and support The Bank expected that as a result of the assistance health, education, and the agribusiness sectors. IFC the government would carry out governance sur- invested $56 million in nine projects in four sectors: veys. A survey for 2004/05 was conducted, but no industrial, financial markets, agribusiness, and other survey has been carried out after 2005. extractive industries. The active portfolio was Dealing with corruption requires better tools and dominated by two mega-projects: the Mozal alu- creativity than the Bank displayed in its assistance. minum smelter plant and development of the xix EVALUATION SUMMARY Pande and Temane gas fields that deliver natural have included greater predictability of resource gas to South Africa. IFC also implemented 20 transfers in line with an agreed schedule, and a more advisory services projects for a total funding of $11 structured dialogue with the Mozambican authori- million. These projects supported privatizations, ties through coordination and alignment of the SME linkages, SME capacity building, access to general budget support partners with the finance for SMEs, and the tourism sector. government’s PARPA. At the same time, the main efforts which centered on the Memorandum of IFC promoted private sector development by Understanding (MOU) regarding coordinated helping improve foreign investors’ perception of budget support also restricted flexibility. For Mozambique through mega-projects that led to instance, the Bank was not always able to embrace follow-on projects; improving capacity of some relevant policy issues (and include these as prior SME firms; advising on privatization efforts to actions in budget support operations) if these were support private ownership; helping improve the not foreseen when the Performance Assessment business enabling environment in the tourism Framework (PAF) indicators were agreed. sector; and supporting SME linkages with large projects (although on a limited scale). IFC’s ef- In addition, the Bank’s participation in a high forts to help develop the private sector were less number of (sector) working groups involves successful in increasing access to finance for significant transaction costs. A more streamlined SMEs; improving corporate governance of some and prioritized approach to these could improve enterprises; expanding the positive investment efficiency of the policy dialogue. At the same time, climate that was created for mega-projects to the some hold the view that a mechanism needs to be entire economy; helping improve overall business found to give voice to a broader range of enabling environment; and supporting agribusi- development partners. However, any move to ness, health, and education. increase voice among non-budget support partners should be considered against the need for higher IFC’s strategy remains relevant in the country efficiency in the conduct of policy dialogue. context. Mozambique faces the challenge of broadening its growth base. IFC can play a role in Overall Rating this area through greater focus on improving the overall business environment, increasing its sup- This CPE rates the overall outcomes against the port to indigenous SMEs, and ensuring the sustai- Bank’s strategic objectives in Mozambique during nability of its SME linkages programs. the evaluation period as moderately satisfactory. This reflects results achieved under each of the three The evaluation of IFC activities addresses evalua- pillars that can plausibly be attributed, at least in tion questions that are somewhat distinct from part, to the Bank’s program. This is consistent with those underlying the evaluation of the Bank’s pro- the rating of moderately satisfactory that each pillar gram (see Annex B for an outline of the latter). received, although results varied across subpillars. Accordingly, there is imperfect integration between In particular, this CPE identifies macroeconomic the two, and the outcome ratings refer exclusively management and budget allocation and execution as to the Bank’s program and not IFC’s. IEG is, of subpillars that stood out positively, and are rated course, well aware of the desirability of aligning the satisfactory. On the other hand, in four subpillars evaluation approaches, and is currently working on the outcomes of Bank assistance were below a test case—the Country Program Evaluation for expectations. Under the first pillar, these were Peru—that pilots an evaluation of the World Bank private sector development and rural development Group’s consolidated program. including sustainable management of natural resources—both are rated moderately The Bank’s Role in Partnership and unsatisfactory. Under the third pillar, reducing Harmonization corruption and improving the justice system are both rated unsatisfactory. In sum, although The Bank’s efforts to roll out the main provisions of outcomes and the accompanying ratings on the level the Paris Declaration in Mozambique have yielded of pillars and the overall level were balanced and several favorable results, as well as some notable positive, this CPE does point to the indicated limitations. On the favorable side, the main gains subpillars as areas of concern. xx EVALUATION SUMMARY Recommendations to improve production, incomes, and employment. Based on the findings of this evaluation, IEG re- commends that the Bank: 2. Strengthen the Bank’s knowledge of the infrastructure and social sectors. The fact that no formal economic 1. Help the country sustain high growth but modify its pat- and sector work on infrastructure was conducted tern to make significant gains in employment and poverty over the past decade and that the proposed reduction. Although Mozambique has experienced infrastructure review was dropped is worrisome, strong growth, poverty and inequality remain high. especially given that the Bank is one of the major A key strategic objective of the country and its de- lenders in this sector. The problems with electricity velopment partners is to promote more sustainable, sector reform and with railway concessions employment-generating growth. However, growth illustrate the need for in-depth analysis. This CPE stemming from the foreign-owned, capital also found that for projects in the social sectors and intensive, export-oriented mega-projects, had water supply there was only a modest amount of limited impact on employment creation and analytical work by the Bank, including some on productivity spillovers. At the other end are the education conducted in collaboration with the vast majority of firms, primarily SMEs, which sell government. There were knowledge gaps in crucial mostly to the local market, face severe resource areas such as improving the quality of basic constraints, and contribute only modestly to education, constraints in the battle against the economic growth and exports. Sustained and spread of HIV infections, and priority actions to broad-based growth in output requires improve rural water supply. In collaboration with diversification of production and exports, and the the government and other stakeholders, areas of creation of a better business environment for a focus would include: greater participation of these parts of the private sector in the country’s economic activity. The  Reinstating the infrastructure review, cov- evaluation recommends that the Bank give even ering sectors that are likely to continue higher priority to assisting the country’s efforts to receiving assistance from the Bank. modify its growth pattern and make it more evenly  Conducting analysis of constraints to im- distributed, employment-generating, and poverty- proving the quality of basic education, in- reducing. This suggests a need to focus on: cluding examining the training, incentives for and accountability of teachers and  Making credit more accessible to SMEs school administrators, reducing the waste and the agricultural/rural sector by devel- of instruction time, and increasing availa- oping financial intermediation in these bility of textbooks, particularly in rural areas, including through the promotion of areas. nonbanking institutions and systems like  Designing improved technical and institu- the network of traders that had operated tional strategies to reduce the incidence before independence. and spread of HIV infection as well as the  Assisting improvements in business treatment and mitigation of AIDS. procedures and regulations to create a  Exploring technical solutions to find the better business environment for the most cost-effective improvements in the broader-based, smaller domestic domestic water system for poor rural - businesses and to deal more creatively households and helping the government with the problem of collateral. formulate a strategy that will create in-  Ensuring a firm basis for increased centives for major private manufacturing, productivity in the agriculture sector, as industrial, and service industries to invest well as supporting services, and better in rural areas to reduce the pressure on market access to smallholders in poor urban water supplies and diversify the re- rain-fed rural areas. Strategic options source base for rural water supplies. need to be explored on how to sustainably improve yields and markets 3. Help the government improve public expenditure effi- for crops produced by small-scale farmers ciency. The Bank’s assistance strategy did not explicitly state the need to improve the efficiency of xxi EVALUATION SUMMARY government expenditures as an objective, although  Helping to improve the efficiency of pub- the Bank’s analytic work identified sectors lic expenditures through analytic work (including education, health, roads, and water) and follow-up lending. The government where efficiency could be enhanced. Enhancing allocates a high share (65 percent) of its efficiency is critical because: government budget to PARPA priority sectors, but the expenditure is high at about 30 percent of GDP. high level of absolute poverty and low le- Despite the increase in domestic revenues vels of social indicators necessitate further supported by the Bank and other development improvements in the efficiency of partners, government revenues remained at half the expenditures to make room for improved level of public expenditures. In addition, grants quality of social services, particularly in from the development partner community finance rural areas. Reinstating PERs alongside about one-third of public expenditure, but the the PFM work would help serve the sustainability of the high level of grants is unclear, objective of rationalizing public given recent global financial developments. Gains expenditures. in the efficiency of public expenditure can help improve the quality of social services. These factors suggest a need to focus on: xxii Management Action Record Major Monitorable IEG Recommendation Management Response Requiring a Response Help the country sustain high growth but modify its Management agrees that more PSD is pattern to make significant gains in employment and necessary to turn high growth into a more poverty reduction. This suggests need to focus on: powerful instrument for job creation and inclusion. We note that this requires refining  Making credit more accessible to SMEs and the analysis of local political economy and its agricultural/rural sector by developing financial evolution. intermediation in these areas, including through  Management agrees with the need to the promotion of nonbanking institutions and make credit more accessible to SMEs. systems like the network of traders that had Among the initiatives being undertaken operated before independence. for this effect is support under the  Assisting improvements in business procedures recently approved PSD project to and regulations to create a better business strengthening the accounting and environment for the broader-based, smaller auditing profession and to promote the domestic businesses and to deal more creatively preparation of financial statements and with the problem of collateral. business plans by SMEs. Additionally  Ensuring a firm basis for increased productivity in the IFC is supporting the establishment the agriculture sector, as well as supporting of a privately run credit reference services, and better market access to smallholders bureau which would provide in poor rain-fed rural areas. Strategic options need information on all clients, whether large to be explored on how to sustainably improve or small. The Bank and the IFC have yields and markets for crops produced by small- explored the feasibility of introducing a scale farmers to improve production, incomes, guarantee scheme though this was not and employment. currently pursued since the IFC has the Africa MSME Finance initiative with one of the leading banks in the country. The initiative aims to increase the portfolio of SME loans by the bank.  Management agrees on the importance of improving the business environment to promote Private Sector Development. To this effect, the Bank Group has been working in a coordinated fashion over the past two years, including specialists from FIAS, Doing Business, and the region‘s PSD department to identify, advocate, and assist in passage of reforms. The Bank has closely coordinated its efforts in this area with the other donor partners. Progress has been made but remains modest and the Bank‘s efforts are ongoing. These include using investment operations (such as the PSD project to improve licensing reform and trade facilitation), xxiii CHAPTER 1 COUNTRY BACKGROUND Major Monitorable IEG Recommendation Management Response Requiring a Response policy lending (such as the PRSC series), technical assistance missions from Doing Business /FIAS teams, and policy advocacy through studies and participation in debates and forums. This is a difficult and challenging area since it involves many different Ministries and also often results in the loss of income or incentives for government departments. It also requires a high level and sustained political commitment which while seemingly present needs to be followed with an empowered and capable implementation mechanism to carry out the needed reforms.  Agriculture productivity is being address by PROIRRI project (FY11) which development objective is to enhance agricultural productivity and profitability of smallholders farms in targeted new or improved irrigation schemes along the Beira Corridor. Furthermore Mozambique is one of the countries being studies evaluating if support to agricultural production needs to focus on the institutional arrangements that will maintain the initial higher profitability created by the reforms. Strengthen the Bank‘s knowledge of the infrastructure Management agrees that more analytical and social sectors. In collaboration with the work in infrastructure and social sectors are government and other stakeholders, the areas of focus necessary to help government and other would include: stakeholders identify strong  Reinstating the infrastructure review, covering projects/policies. Management has also to sectors that are likely to continue receiving consider the Bank‘s stronger expertise in assistance from the Bank. infrastructure and that developing partners  Conducting analysis of constraints to improving are more active in health and education. the quality of basic education, including  Special strategic attention will be paid examining the training, incentives for and to infrastructure, including corridors, accountability of teachers and school role of private sector, regional projects, administrators, reducing the waste of instruction etc. time, and increasing availability of textbooks,  The Bank has concentrated on analytical particularly in rural areas. works such as the recent study on  Designing improved technical and institutional Modes of Transmission of the Epidemic strategies to reduce the incidence and spread of (2009) which led to a new government HIV infection as well as the treatment and strategy that is more focused on mitigation of AIDS. prevention and is better aligned to the  Exploring technical solutions to find the most main modes of transmission. xxiv MANAGEMENT ACTION RECORD Major Monitorable IEG Recommendation Management Response Requiring a Response cost-effective improvements in the domestic water  The Bank financed HIV/AIDS project system for poor rural households and helping the has been restructure and extended to government formulate a strategy that will create support this new strategy and to also incentives for major private manufacturing, cover the cost of treatment. industrial, and service industries to invest in rural  Considering the aid effectives on the areas to reduce the pressure on urban water Education sector and given the supplies and diversity the resource base for rural bilateral‘s procliveties on basic water supplies. education, the Bank is concentrating on vocational training and tertiary education.  Water Services and Institutional Development project addresses the increase water service coverage in the cities of Beira, Nampula, Quelimane, and Pemba under the delegated management framework and to establish an institutional and regulatory framework for smaller cities and towns. Additionally, in FY11, a new water project will build on the recently completed Mozambique Country Water Resources Assistance Strategy will supporting the Government of Mozambique to ensure the security of bulk water sources for the greater Maputo area through partially financing the completion of the Corumana Dam, supporting the implementation of the National Water Resources Management Strategy, particularly in improving management and development of water resources for urban and rural productive purposes on a catchment basis and supporting the development of small and medium scale water sources to support rural development. Help to improve the efficiency of public expenditures Management agrees that a key policy through analytic work and follow-up lending. The challenge is the efficiency of public government allocates a high share (65 percent) of its expenditures to be addressed through both budget to priority/social sectors, but the high level of analytic work and adequate projects. The absolute poverty and low levels of social indicators Bank will examine the most appropriate necessitate further improvements in the efficiency of analytical vehicle (e.g., PERs, PETS, Poverty expenditures to make room for improved quality of maps, etc.) to improve targeting of public social services, particularly in rural areas. Reinstating spending. The Bank has been actively PERs alongside the PFM work would help serve the engaged in the public financial management objective of rationalizing public expenditures. not only in the capital city with the APL Pro-Maputo (FY07). A proposed second phase (FY10) focus on consolidation of the institutional and financial reforms by the xxv CHAPTER 1 COUNTRY BACKGROUND Major Monitorable IEG Recommendation Management Response Requiring a Response municipal mayor, council, and assembly who assume office in early 2009; investment in infrastructure and service delivery improvements on a larger scale; and support to decentralized governance, planning, land management, and service delivery at the level of municipal districts and neighborhoods, with a focus on poor peri-urban communities. The Bank in close collaboration with multiple bilateral donors is also focusing on the district level by delivering a National Decentralization Planning and Finance project (FY10) to improve the capacity of local government to manage public financial resources for district development in a participatory and transparent manner. The project focus on strengthening the capacity of the district governments. However, it now incorporates an increased focus on better integrating district planning and budgeting into the national systems and the scaling-up, institutionalization and mainstreaming of best practices. xxvi 1. Country Background 1.1 Mozambique is a country of over 20 million people, has a per capita income of $370 (GNI, Atlas method), and occupies an area of 800 thousand square kilometers in southeast Africa. About 70 percent of the population live and work in rural areas. Following years of internal conflict, the economy was in a shambles by the mid-1980s when the country, in the midst of civil war, joined the World Bank. The civil war ended in 1992, and the first democratic elections were held in 1994. Since then elections have been held regularly. Since the cessation of conflict, Mozambique has achieved impressive economic growth (albeit from a low base) and has become an example of successful post-conflict reconstruction and development, while moving from a one-party state to a multiparty democracy and from a socialist, command economy to a market-based economy. Mozambique‘s development has been strongly supported by foreign aid, and since 2001 average annual disbursements of official development assistance (ODA) have amounted to over $1 billion, or 12 percent of GDP (Annex Table 10). Political Developments 1.2 Mozambique acquired independence from Portugal in 1975, after 10 years of a guerilla campaign led by the Front for the Liberation of Mozambique—FRELIMO (Frente de Libertação de Moçambique). The first national government, led by FRELIMO, was soon faced by a military opponent (Resistançia Nacional do Moçambique—RENAMO), and a violent civil war ensued. About one million people were killed, close to two million took refuge in neighboring countries, several million were internally displaced, and an already poor infrastructure was further weakened. 1.3 The first national government adopted a policy of radical changes. Ties were established with the USSR and East Germany. Private land ownership was replaced with state farms and peasant cooperatives. The government adopted a command-and-control approach to economic management and put in place a vast nationalization program. By the mid-1980s, Mozambique was virtually bankrupt, and the country turned to the West, including the IMF and the World Bank, for financial aid to help transform it into a market economy. 1.4 Following 17 years of internal conflict, a peace accord was signed in 1992, and since then there has been an uninterrupted process of political competition, democratization, and elections every five years. The first elections were held in 1994. FRELIMO won the presidential and legislative elections with more than 60 percent of the popular vote in December 2004, and with over 70 percent in October 2009. 1 CHAPTER 1 COUNTRY BACKGROUND Economic and Social Developments 1.5 Real GDP growth has hovered about 7- 8 percent since 1996, higher than the previous decade, when growth averaged 4 percent per annum (Figure 1). Strong growth can be attributed to macroeconomic stability and policy reforms, growth in agriculture, postwar infrastructure rehabilitation, and increases in exports aided by mega-projects in the manufacturing sector. Part of this growth can be attributed to a post-conflict catch-up effect that cannot last indefinitely. Sustaining the more ―permanent‖ component of growth remains a challenge necessitating a deepening of reforms, including governance reforms, improvements in the business environment, and strengthening of human and institutional capacity as well as increased investment. Figure 1. GDP Growth Rates 14% 12% 10% 8% 6% 4% 2% 0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 Source: World Bank (World Development indicators, September 2009) 1.6 Strong economic growth has contributed to a decline in income poverty, but the level of poverty remains high (Table 1). However, there are major differences in poverty across regions in Mozambique, ranging from 45 percent in the center of the country, where the greatest reduction took place over the period, to 66 percent in the south. There are also differences across provinces, ranging from 36 percent in Sofala (in the center) to 81 percent in Inhambane (in the South), partially reflecting provinces‘ differing access to markets and economic opportunities. Successive governments have shown strong concern for social equity and poverty reduction. The government prepared an Action Plan for the Reduction of Absolute poverty (PARPA, the Portuguese acronym for PRSP) in 1999 and PARPA II in 2006. Table 1. Poverty Indicators 1997 2003 (%) (%) National poverty data (using a cost of basic needs approach) 69 54 World Bank data (poverty incidence at international poverty line) People living on less than US$1 per day 38 20 People living on less than US$2 per day 78 59 Source: World Bank (World Development Indicators 2004) and National Statistics Institute (National Survey on Living Conditions [IAF], 2003). 2 CHAPTER 1 COUNTRY BACKGROUND 1.7 Despite impressive growth, Mozambique remains one of the poorest countries in the world, with high levels of absolute poverty and malnutrition and low levels of social indicators (Table 2). The Human Development Index for 2008 ranks the country 175th out of 179 countries. Mozambique‘s per capita income is less than half the Sub-Saharan average, and many of the key social indicators are also below the Sub-Saharan average. Improvements in the quality of life have not been evenly distributed between females and males, and between urban and rural areas, with lowest access to social services in rural areas. Under-five mortality and maternal mortality are higher in the rural northern and central provinces, where the lack of health facilities limits access to care. Girls‘ enrollment, at the post-primary levels, lags significantly behind that of boys. Adult literacy is only 45 percent. There is an acute shortage of highly educated workers and the quality and relevance of education continues to be a concern. Table 2. Selected Social Indicators, 2007 or Nearest Year Sub-Saharan Mozambique Africa GNI per capita, Atlas method (current US$) 370 696 Immunization, measles (percent of children ages 12 to 23 months) 77 73 Improved sanitation facilities, urban (percent of urban population with 53 42 access) Improved water source (percent of population with access) 42 57 Improved water source (percent of urban population with access) 71 81 Improved water source (percent of rural population with access) 26 46 Mortality rate, infant (per 1,000 live births) 115 92 Mortality rate, under 5 (per 1,000) 169 146 Life expectancy at birth (years) 42 51 Source: World Bank (World Development Indicators, September 2009). 1.8 Mozambique has received large flows of external assistance (including debt relief), typically accounting for about 12 percent of GDP. Among some 40 development partners, IDA is the single largest financier, accounting for 14 percent of all development partner contributions (Annex Table 10). The high volume of aid from a large number of development partners brings with it difficulties in effective coordination and maintaining coherence of strategic resource allocation within and between sectors, as well as issues related to aid alignment and harmonization. Development Challenges and Constraints 1.9 Sustaining broadly shared economic growth to reduce poverty remains a top challenge. The overall growth performance of the economy over the past decade was commendable, although since 1999 much of it has been driven by capital-intensive mega- projects that generate relatively minor benefits for employment and linkages with the rest of the economy. In view of the very low income base from which growth had started, the standard of living in Mozambique remains low. Therefore, sustaining growth and 3 CHAPTER 1 COUNTRY BACKGROUND reshaping its pattern to make significant gains in employment and poverty reduction remains a top priority for the government. In addition to sustaining a high growth rate, poverty targeting and improvements in the quality and pattern of growth to ensure broader participation are needed. 1.10 A high level of aid dependency is an area of concern. These aid inflows, however, helped the government pay for larger levels of expenditure and welfare than would have been possible otherwise (Figure 2). Domestic revenues increased by almost 3 percentage points of GDP, from 13.1% of GDP in 2004 to 16.0% in 2008. Reforming the public sector, improving public expenditures efficiency, increasing revenues, and enhancing the level/quality of public services to better position Mozambique to attract investment are important priorities. Without these, domestic savings and investment will remain low, with adverse effects on economic growth and its quality. Figure 2. Government Expenditure Composition Figure 1.2 Mozambique: Government Expenditures Composition as % of GDP 35 30 % of GDP 25 20 15 10 5 0 2001 2002 2003 2004 2005 2006 2007 Year Total Govt Expenditures Capital Expenditures Total Revenues Source: Government of Mozambique‘s Budget Execution Reports, 2000-07 for budget data, and IMF for GDP. 1.11 Public sector reform and governance issues remain high on the agenda. Support to public sector reform and key institutional development is stressed and repeated by all stakeholders as a critical aspect in association with the various pooled and government-led financing arrangements. Central and decentralized institutional reform, financial management reform, judicial reform, and anticorruption efforts are among the key aspects of public sector performance where there is a need for continued country and development partner focus. Mozambique‘s PARPA emphasized the need for reform of public institutions at the central level as well as for capacity development in decentralized institutions, which are important for actual service delivery. However, public sector reform and capacity development are not moving rapidly. 1.12 HIV/AIDS poses one of the most serious socioeconomic challenges for Mozambique. The country has the seventh highest prevalence rate in the world—15 percent of Mozambicans live with HIV/AIDS (almost twice the Sub-Saharan average of 7.2 percent). Mozambique is surrounded by countries that have some of the highest prevalence rates in the world. The AIDS epidemic has devastating socioeconomic effects. The high prevalence rate may reduce Mozambique‘s economic growth by as much as 1 percentage point annually (World Bank 2008a). The Food and Agriculture Organization (FAO) 4 CHAPTER 1 COUNTRY BACKGROUND estimates that Mozambique may lose more than 20 percent of its agricultural labor force by 2020 because of the epidemic. Mozambique‘s life expectancy is expected to drop to 37 years by 2010, in contrast to 50 years without HIV/AIDS (World Bank 2008a). The government and development partners have devoted significant efforts to dealing with the epidemic, but these are still not commensurate with the need. Organization of the Report 1.13 This CPE focuses on the Bank‘s program for FY01-08, looking at: Did the Bank correctly assess the problems Mozambique faced? Was the Bank‘s strategy appropriate for meeting the country‘s development needs? How effective was Bank assistance in implementing those strategies? What were the outcomes of the assistance? To what extent did the Bank, other development partners, the government, or exogenous forces contribute to outcomes? 1.14 The CPE is organized as follows: Chapter 1 assesses Mozambique‘s economic and social development and identifies major development priorities and constraints facing the country. This chapter is common to the evaluation reports of both the World Bank and the African Development Bank (AfDB). Chapter 2 is an overview of the Bank‘s program of lending and analytic and advisory activities (AAA). Chapters 3, 4, and 5 cover thematic aspects: stabilization and growth (including infrastructure and agriculture development), poverty reduction and human development, and governance (Annex B describes the methodology). Chapter 6 covers IFC activities in Mozambique, and chapter 7 assesses partnership and harmonization. The last chapter contains conclusions, lessons, and recommendations. 1.15 As the reader will ascertain, the evaluation of IFC activities addresses evaluation questions that are somewhat different from those underlying the evaluation of the Bank‘s program (see Annex B for an outline of the latter). Accordingly, the two are imperfectly matched, and the outcome ratings (also summarized in the table at the start of this report) refer exclusively to the Bank‘s program and not IFC‘s. IEG is, of course, well aware of the desirability of aligning the evaluation approaches, and is currently working on a test case— the Country Program Evaluation for Peru—that pilots an evaluation of the World Bank Group‘s consolidated program. 5 2. The Bank’s Strategy and Program 2.1 Since Mozambique joined the World Bank in 1984, the Bank has prepared five Country Assistance Strategies (CASs), lent $3.6 billion, and carried out a number of analytic and advisory activities (AAA). During the period reviewed (FY01-08) Mozambique received 22 credits from the Bank for a total of over $1.3 billion. This chapter presents the strategic context, for both Mozambique and the Bank‘s assistance to the country for the period reviewed, with a brief review of previous Bank support, providing the basis for subsequent design of Bank strategy. Summary and Assessment of Prior World Bank Support (1987-2000) 2.2 Bank assistance to Mozambique during the period 1987-2000 had three overarching aims: (i) rehabilitate and recover from the devastating effects of the civil war; (ii) set up and strengthen institutions and processes required for nation building; and (iii) start the transition from a command to a market economy, in an effort to promote higher growth and alleviate poverty. The Bank approved 29 operations (totaling more than $2 billion) and prepared a number of analytic and advisory services. Lending operations focused on general rehabilitation projects (two operations by 1987 and a third in 1989); a wide range of infrastructure projects in various sectors (urban facilities, roads and bridges, energy and power, and railways and ports); a number of operations in social services (mainly basic education and health services); a few projects in agriculture and rural rehabilitation; and a number of freestanding and technical assistance and capacity-building operations in a range of sectors (such as finance and economic management, public sector, and legal institutions), in addition to a wide range of technical assistance (TA) components in investment operations. With the end of the civil war, a series of three Economic Recovery Credits was initiated during 1992-97. 2.3 In 1998, IEG (then OED) completed a Country Assistance Review (CAR) covering the period 1987-98, which highlighted the critical role of the Bank in Mozambique’s recovery in helping to assess problems and opportunities, designing the evolving policy agenda, and mobilizing IDA and other resources. The CAR noted that development partners continue to look to the Bank to deliver advisory and analytical services for sectoral and thematic programs, particularly in economic governance (for example, fiscal management, public sector reform, trade policy, and financial sector development). The CAR also found that the availability of grant financing in some sectors, and the government‘s preference not to incur debt, may limit the scope for IDA financing. A further finding was that development effectiveness has also been limited by weaknesses in aid coordination and excessive focus on traditional investment and technical assistance projects rather than results-based interventions. 7 CHAPTER 2 THE BANK’S STRATEGY AND PROGRAM 2.4 The CAR recommended that the Bank (i) be more selective and cede leadership to other development partners where they have a comparative advantage or substantial financial presence; (ii) use country dialogue and aid coordination mechanisms to nurture policy reform and capacity building; (iii) enhance partnerships among development partners and civil so- ciety to improve results for sector programs; (iv) support the Mozambican authorities‘ in- creased leadership in development and aid coordination; and (v) increase the responsiveness and effectiveness of Bank assistance by further decentralizing authority to the field. The World Bank’s Assistance Strategy (FY01-08) and Mozambique’s Poverty Reduction Strategy 2.5 This evaluation reviews the period July 1, 2000, through June 30, 2008 (that is, World Bank fiscal years 2001-08). During this time, Bank assistance was guided by a 2000 CAS for fiscal years 2001-03, a 2003 CAS for fiscal 2004-07, and a 2006 CAS Progress Report (CASPR). A self-assessment of the FY04-07 CAS program (a CAS Completion Report, or CASCR) was prepared as part of the fiscal years 2008-11 Country Partnership Strategy (CPS), which became effective on July 1, 2008. 2.6 The Bank has supported Mozambique’s poverty reduction strategy, and the two CASs maintained the same objectives but with some minor variations. In 1999, the government had prepared an Action Plan for the Reduction of Absolute Poverty, which served as the basis for its Poverty Reduction Strategy Paper (PRSP), completed in 2001. The PARPA was part of the government‘s five-year program (2000–04), whose poverty reduction strategy was based on three pillars: (i) economic development (increasing economic opportunities in the 2000 CAS) through maintaining a sound macroeconomic environment, developing the financial sector, and strengthening the private sector; (ii) social development (improving human capabilities in the 2000 CAS) through improvements in health and education; and (iii) organization of the state (improved governance and empowerment in the 2000 CAS) through improvements in public service delivery, law and order, and transparency and accountability. 2.7 The FY01–03 CAS, which supported the government’s poverty reduction strategy, focused on three pillars or objectives that were further broken down into intermediate objectives as follows:  Increasing economic opportunities by: ◦ Strengthening the private sector environment and the financial sector; ◦ Developing infrastructure; ◦ Promoting rural development and agriculture; and ◦ Ensuring sound environmental management.  Improving human capabilities by: ◦ Preventing and reducing the impact of HIV/AIDS; ◦ Improving health; and ◦ Improving education. 8 CHAPTER 2 THE BANK’S STRATEGY AND PROGRAM  Improving governance and empowerment by: ◦ Reforming the public sector; and ◦ Improving the rule of law. 2.8 The FY04-07 CAS constituted a continuation of the previous CAS by supporting the government’s poverty reduction strategy. The Bank support was mainstreamed across three similar pillars:  Improving the investment climate and sustaining GDP growth by: ◦ Improving business environment for the private sector; ◦ Reinforcing the regulation and supervision of financial systems; ◦ Sustainable management of natural resources; and ◦ Improving delivery of infrastructure services.  Expanding service delivery by: ◦ Reducing the incidence of HIV/AIDS; ◦ Improving coverage of health services; ◦ Increasing access and quality of primary education system; and ◦ Increasing access to safe water and sanitation.  Building public sector capacity and improving governance by: ◦ Improving budget allocation, execution and monitoring; and ◦ Improving governance, reforming the judicial system, reducing corruption, and enhancing accountability. 2.9 The 2006 CASPR, an assessment of the Bank‘s program during the first two years of implementing the FY04-07 CAS, retained the three pillars of the 2003 CAS but proposed harmonization of the outcome indicators in the CAS with the retrofitted Performance Assessment Framework (PAF) of the PRSP undertaken in 2006. The PAF is a matrix of policy and institutional reforms with results-focused monitoring indicators and progress benchmarks for which the government is prepared to be held to account and against which development partners would agree to provide budget support in more predictable ways (FY04 CAS, Box 7, page 22). Strategic Relevance of Bank Assistance 2.10 Overall, the Bank’s strategy was relevant to and consistent with Mozambique’s development priorities outlined in the five-year development plan, which incorporated the government’s interim Action Plan for the Reduction of Absolute Poverty. The FY01 CAS, by design and in agreement with the government, adopted the three pillars of the government‘s Five-Year Development Plan, 2000-04 (FYDP): increasing economic opportunities, improving human capabilities, and improving governance and empowerment. In fact, the FY01 CAS incorporated the main substantive content of the FYDP by stating how each of the major program objectives was to be assisted by specific 9 CHAPTER 2 THE BANK’S STRATEGY AND PROGRAM Bank operations or services. The CAS went further and harmonized its targets and performance indicators with the monitoring plan of the FYDP and the PARPA.1 2.11 The FY04 CAS, a continuation of the FY01 CAS, also supported the development objectives of the government as outlined in the PARPA. The three pillars of the FY04 CAS were essentially the same as those of the FY01 CAS but with some minor variations, including in program components.2 2.12 The FY04 CAS also evaluated progress under the FY01 CAS. The main lessons learned from this evaluation were: (i) the Bank needed to be more strategic and selective in its support; (ii) the design of Bank-supported projects should be simple, in line with the country‘s limited implementation capacity; (iii) recurring cross-cutting implementation risks needed to be realistically and consistently addressed; (iv) the Bank needed to improve monitoring of its own results and its assistance to the government in monitoring its PARPA results; and (v) the development partners needed to make a greater effort to improve the alignment of their support with the PARPA and to assist the government in improving its implementation capacity.3 These findings were largely in line with the earlier IEG CAR recommendations (paragraph 2.4). 2.13 In particular, the main improvements sought in the FY04 CAS, based on the experience with the previous CAS, were to embed this CAS in a more coordinated framework among the government and the large group of development partners, and to put more emphasis on the accountability of all concerned through the PAF and its process. In substance, the intent was to deepen and broaden the ongoing reforms that had been started under previous CASs. 2.14 It is noteworthy that a new Poverty Reduction Support Credit (PRSC) series was introduced in the FY04 CAS as a group of operations that would be ideal for promoting the desired improvement in coordination efforts among the government and the development partners (the Group of 11, in 2003; which subsequently grew into the G19).4 This coordination took on a very practical shape when it was agreed in September 2003 that the government would develop the PAF. 2.15 The alignment with the PARPA enabled the Bank to be selective and to capitalize on its comparative advantage under each of the three pillars. Under Pillar I (growth), the Bank supported the government‘s long-term goal of sustaining GDP growth by improving the investment climate and facilitating infrastructure development. Under Pillar II (expanding social service), the Bank supported the government‘s effort in the area of human development and on improving quality of life through interventions to control HIV/AIDS prevalence, reduce child mortality, improve access to safe water in urban areas, and increase access to basic and higher education. Under Pillar III (governance), the Bank helped the government to improve public expenditure management. The Bank also sought to help strengthen the rule of law, including systems supporting contract enforcement, and to enhance the government‘s monitoring and evaluation (M&E) capacity. 2.16 In sum, this CPE will show that the Bank’s assistance strategy over the review period (FY01-08) was relevant and closely aligned with the government’s own overall economic development strategy and plans. This alignment became even closer throughout the period reviewed, as implementation matrices and benchmarks were also harmonized among the G19. 10 CHAPTER 2 THE BANK’S STRATEGY AND PROGRAM The two CASs essentially shared the same strategic objectives/pillars and covered the same policy areas. The overall intent was to assist the government in its efforts to promote growth in order to improve the country‘s standard of living and to reduce poverty. The vision was that this could be achieved primarily through maintaining a stable macroeconomic environment and through promoting private sector initiative, particularly for small and medium-sized domestic enterprises and in agriculture. To that end, public sector performance needed to be improved through capacity-building measures and better governance, and human resources needed to be developed through the provision of improved education, health services, and water and sanitation. Very close coordination among the government and the development partners, including the Bank, helped mobilize the needed levels of financial assistance and increased the chances of its efficient use. The World Bank’s Assistance Program 2.17 The proposed assistance program in support of the Bank’s strategy was generally consistent with the pillars of focus of the Bank and with Mozambique’s poverty reduction strategy objectives. The Bank‘s proposed program aimed to help the government achieve these objectives by providing $1.14 million in 23 operations and producing a number of analytic and advisory services. The proposed lending program is shown in Table 3, with an indication of the pillar the project was meant to support as well as which project was implemented, delayed, or replaced. While most of the proposed lending program was implemented, the Bank introduced credits not envisioned in the proposed lending program (though generally consistent with the areas of Bank focus) and met lending targets (see following section). The Bank‘s analytic work was relevant, of high quality, and well connected with the lending program. However, a number of gaps in the Bank‘s analytic work were identified and are discussed throughout the report (particularly chapters 3, 4, and 5). 2.18 Lending by the Bank has been broadly consistent with the Bank’s strategy of helping the government address poverty through the three strategic pillars. Table 4 indicates that, to a large extent, the Bank‘s commitments captured the three pillars. Since 1998, IFC‘s committed portfolio has reached $495 million, covering mining, power, and manufacturing. MIGA‘s guarantees have totaled $311 million. 2.19 Bank lending to Mozambique has been mainly in the form of investment credits and recently through direct budget support. During FY01-08, Mozambique received 22 credits from IDA for a total of over $1.3 billion. Investment projects targeted infrastructure (Beira Railway Specific Investment Loan, Roads and Bridges Adaptable Program Loan); institutional development and capacity-building (Decentralized Planning and Finance Project, Financial Sector Capacity Project); and human development (Education Sector Strategy Project, the Technical and Vocational Education and Training Project). In line with the effort to implement the Paris Declaration on development partner alignment and harmonization (A&H) and development effectiveness, direct budget support was introduced in FY05. The Bank also participated in sectorwide approaches (SWAps) in the agricultural sector (Agricultural Sector Public Expenditure Program, or PROAGRI) and education (Education Sector Strategy Program, or ESSP). 11 CHAPTER 2 THE BANK’S STRATEGY AND PROGRAM Table 3. FY01 and FY04 CAS-Proposed versus Actual Commitments Status/Actual CAS proposal/new US$ million (US$ million) Purpose a FY01 Roads and Bridges APL CAS 80.0 delayed to FY02 162.0 1 Municipal development CAS 30.0 delayed to FY02 33.6 1, 2 Natural resource management CAS 10.0 18.0 1 FY02 Energy reform CAS 20.0 delayed to FY04 40.3 1 Economic management/private sector CAS 100.0 delayed to FY03 120.0 1, 2 Rural action CAS 40.0 dropped 1, 2 Higher education new 60.0 replaces Skills Dev. 60.0 3 Communications new 14.9 14.9 1 FY03 Skills development CAS 80.0 to FY02 1, 3 Health SWAp CAS 40.0 dropped 3 Public sector/legal reform b CAS 54.0 25.6 1, 2 HIV/AIDS b new 55.0 55.0 3 FY04 Decentralized Planning and Finance CAS 42.0 42.0 1 Southern Africa Power APL2 (regional) CAS 13.0 30.0/18.5 1 National Water Development Project II Supplemental CAS 15.0 15.0 1 PRSC 1 CAS 60.0 delayed to FY05 60.0 1, 2, 3 Energy Reform and Access new 40.3 40.3 1 FY05 Beira Railway SIL CAS 70.0 110.0 1 Sustainable Rural Development CAS 20.0 dropped 20.0 1 Financial Sector Capacity CAS 10.0 delayed to FY06 10.5 1 Legal Sector Capacity CAS 5.0 dropped PRSC 2 CAS 60.0 delayed to FY06 120.0 1, 2, 3 FY06 Roads and Bridges 2 APL CAS 85.0 delayed to FY07 85 1 Technical and Vocational Education CAS 20.0 30.0 3 PRSC 3 CAS 70.0 delayed to FY07 70.0 1, 2, 3 Market-Led Smallholder Development new 20.0 20.0 1 Transfrontier Conservation new 20.0 20.0 1 FY07 Public Sector Reform 2 CAS 20 dropped PRSC 4 CAS 70.0 delayed to FY08 120.0 1, 2, 3 Maputo Municipal Development new 30.0 30.0 1 Market-Led Smallholder Development (GEF) new 6.5 6.5 1 Water Sercives and Institutional Support CAS 15.0 15.0 3 Notes: a. In support of pillar # 1 economic opportunity, 2 governance, or 3 human capabilities; b. Grant APL = Adaptable Program Loan, SIL = Specific Investment Loan Source: FY01 CAS, FY04 CAS; for Actual Loans, World Bank data (Comptroller Web site). Table 4. World Bank Lending by Major Groups, FY01-08 Commitments (US$ m) Share (%) Infrastructurea 445 36 PRSCs 310 25 Education/Health, Nutrition, Population/social protection 160 13 Economic policy b 131 11 Public sector governance 68 5 Urban development 64 5 Water 30 2 Environment 20 2 Agriculture and rural development 20 2 Total 1,247 100 a. Transport, energy and mining, and communications. b. Includes financial and private sector development. 12 CHAPTER 2 THE BANK’S STRATEGY AND PROGRAM Source: World Bank Business Warehouse as of November 2008. 2.20 The Bank’s analytical and advisory work was relevant and of high quality, underpinning its operational program and its policy dialogue with the government. For example, Country Economic Memoranda (CEMs of 2001 and 2005) provided the analytical underpinning for the Bank‘s support for the growth pillar of the respective CASs. The 2002 Financial Sector Assessment (FSA) and the Investment Climate Assessment (ICA) analyzed main issues in financial sector and private sector development and provided recommenda- tions for the operational work in these areas. The Public Expenditure and Management Re- views addressed issues of expenditure priorities within a defined budget envelope. The original idea to carry on with public expenditure reviews (PERs) was abandoned after 2003 in favor of focusing on public financial management (PFM) under the PRSC series. The quality of policy dialogue was good. The client and development partners appreciated the candor and technical expertise in the Bank‘s analytical work. However, some important analytic stu- dies pertinent to the objectives of the CAS were dropped. These included the Poverty and Social Impact Analysis (PSIA) on agriculture, the Country Procurement Assessment Review, and the HIV/AIDS Retrospective Review proposed under the FY04 CAS (Annex Table 5).5 On the other hand, the Bank delivered 13 additional unprogrammed economic and sector work (ESW) reports (not foreseen in the FY04 CAS). 2.21 A Quality Assurance Group (QAG) program review of the FY01 CAS AAA concluded that the quality of studies was generally satisfactory, but critical tasks were delayed. The QAG report notes, ―several important pieces of high strategic relevance were postponed or dropped. These decisions, which affected more heavily the sectoral component of the AAA program, probably weakened Bank support to the country and left critical elements of the development strategy unattended.‖ The last agriculture sector review was carried out in 1997, and the FY01 CAS proposed rural development strategy study was delayed to FY05. Although it was discussed with the government, it was not published.6 Overview of Strategy Implementation 2.22 The implemented assistance program was broadly consistent with the Bank’s strategy. While most of the prepared lending program was implemented, the Bank introduced credits not foreseen in the proposed lending program, but they were generally consistent with the areas of Bank focus (Table 3). Of the nine credits proposed in the FY01 CAS, three were postponed to other CAS periods, but IDA still gave six credits and two grants for a total of $489 million, compared to a planned amount of $584 million. Similarly, the implementation of the FY04 CAS slightly diverged from plan. The Bank delivered 14 credits, including three additional investment operations and one Global Environment Facility (GEF) credit that were not originally programmed. Total commitments were $659 million, compared to the proposed CAS amount of $560 million. In sum, of the 23 projects proposed in the CASs, only 16 were approved and 7 were dropped, while 6 new projects not foreseen in the CASs were prepared and approved (through fiscal 2007), bringing total approvals close to target. 2.23 Delays were common. Most operations were approved during the latter part of the CAS period, reflecting slippages in preparation. However, most of the proposed program 13 CHAPTER 2 THE BANK’S STRATEGY AND PROGRAM was implemented. The main exceptions were projects in support of improving human capabilities under FY01 CAS: the Skills Development Project (tertiary, technical, and vocational training) was replaced by a Higher Education project and the proposed Health SWAp was delayed because of slow implementation of the previous health project. Similarly, the scheduling of the PRSCs encountered problems with respect to the preparedness of government, which limited the timeliness of the sequence. The midterm CASPR of 2006 noted additional projects added to the portfolio (Table 3) and midstream changes made to enhance the implementation of the FY04 CAS (including retrofitting of the Results Matrix), as well as aligning the PRSC with the budget cycle. 2.24 Similarly, the Bank delivered fewer pieces of analytic work than proposed in its assistance strategy, but additional unprogrammed activities were delivered to make for the shortfall. Of the 11 ESW reports promised in the FY01 CAS, the Bank delivered 3 plus 2 unscheduled reports—a Country Procurement Assessment Review (CPAR) and a Country Financial Accountability Assessment (CFAA). The FY01 CAS explicitly included 6 formal pieces of ESW, of which 3 (a PER, a legal reform, and constraints to private sector) were concluded. Another 5 pieces were promised in the text of the CAS, none of which were completed. Four unprogrammed core diagnostic activities were added, but significantly less ESW was done than proposed in the FY01 CAS. Similarly, only 10 of the 18 pieces of ESW planned in the FY04 CAS were completed, although an additional 13 unprogrammed ESW products were delivered. 2.25 The 2007 CAS Completion Report (World Bank 2007a, Annex 6), a self-assessment of FY04 CAS program, did not explain the factors behind the choice of the unprogrammed ESW or why a number of important studies were dropped, but it did highlight problems with planning, coordination, funding, and dissemination. Analytic work was generally consistent with the areas of focus of the Bank, and the quality of studies was generally high, although it could have benefited from better programming, as well as more demand-driven and better coordinated with other development partners, as will be discussed in later chapters. Portfolio Performance 2.26 IEG ratings of projects outcomes that closed between FY01 and FY08 were generally satisfactory. During this period, IEG reviewed 19 closed Bank-financed projects in Mozambique, representing about $1.1 billion in commitments (Table 5). Of the 19 projects that exited the portfolio during FY01-08, 10 had satisfactory outcome ratings, 7 had moderately satisfactory, and the remainder had moderately unsatisfactory ratings. Therefore, nearly 90 percent (by number) of Bank-financed projects in Mozambique that closed between FY01 and FY08 had a satisfactory outcome, higher than the Bank average of 77 percent and the Africa Region average of 67 percent. Mozambique also performed better than both the Africa Region and the Bank on institutional development impact and sustainability. 14 CHAPTER 2 THE BANK’S STRATEGY AND PROGRAM Table 5. Summary Evaluation of Outcome Findings (Exit Year FY01-08) Outcome Outcome Total evaluated Total evaluated % satisfactory % satisfactory (US$M) (no.) (US$M) (no.) Mozambique 1,117 19 97 90 Africa Region 22,000 514 72 67 Bank-wide 149,375 2,142 83 77 Source: World Bank Business Warehouse as of March 2010. 2.27 Nevertheless, portfolio quality has seen some volatility. The performance of the portfolio implementation was mixed during the FY01-08 review period. It was rated low risk during FY03-04 but deteriorated substantially in FY05 and improved marginally during FY06-07 (Figure 3). There were two reasons for the deterioration in the portfolio: slow project start-up and slow disbursement that could be traced to problems with procurement, financial management, and counterpart funding. Figure 3. Percentage of Projects at Risk, FY01-08 30 25 20 15 10 5 0 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 Mozam bique AFR Bankwide Source: World Bank Business Warehouse as of March 2010. 2.28 In sum, the Bank‘s strategy was relevant, but implementation somewhat diverged from plan. Of the 23 projects proposed in the two CASs, only 16 were approved and 7 were dropped, while 6 new projects not foreseen in the CASs were prepared and approved (through fiscal 2007), bringing total approvals close to target. The credits that were not foreseen in the original lending program were consistent with the areas of Bank focus and within lending targets. Similarly, of the 29 ESW reports promised, the Bank delivered 13 plus 15 unprogrammed reports. An important aspect of the Bank‘s operational programs is that there have been significant delays in project preparation, effectiveness, and implementation. Disbursements on several infrastructure projects were slow, and closing dates were extended for several projects. 15 3. Pillar I — Stabilization and Growth 3.1 Under this pillar, Bank assistance emphasized macroeconomic management and financial and private sector development, rural development and sustainable management of natural resources, and improved delivery of infrastructure services. The bulk of the Bank‘s activity, especially its lending, was directed toward this pillar. In particular, the development policy lending, the PRSC series, and the Enterprise Development Project, complemented by analytic work in the CEM, the PER, Doing Business Surveys, and targeted sector studies, such as the Poverty, Gender, and Social Assessment, were the main instruments through which the Bank sought to achieve its strategic objectives and the associated outcomes or results. This chapter examines progress toward achieving CAS objectives under this pillar. Macroeconomic Management, Financial, and Private Sector Development 3.2 The Bank’s assistance strategy. The Bank‘s assistance, as reflected in the two CASs that framed Bank support during the evaluation period, was directed at a number of policy and institutional development areas: maintaining a stable macroeconomic environment, improving financial sector performance, promoting a better climate for private investment through legal and regulatory reform, extending business services and lines of credit to enterprises, and providing technical assistance to key institutions involved in financial sector development (FSD) and private sector development (PSD). 3.3 The Bank’s program. The Bank‘s program in macroeconomic management, FSD, and PSD consisted of six operations approved during FY01-08 (Table 6): the Economic Management and Private Sector Operation (EMPSO) and the Financial Sector Technical Assistance Project, as well as four PRSCs. In addition, the Enterprise Development Project was approved in 2000 and active during the evaluation period. The Bank‘s program also included seven major pieces of analytical work (Annex A Table 11), in addition to policy and operational dialogue with the government that often also involved other stakeholders such as development partners and civil society in Mozambique.1 3.4 Macroeconomic performance. Mozambique’s overall macroeconomic performance was strong when measured by standard aggregate indicators like growth, fiscal balance, inflation, balance of payments, and external debt. Over the past 15 years Mozambique‘s GDP growth has averaged 7-8 percent per year, to a large extent the result of political stability and economic policies that supported growth and low inflation (Table 7). With population growth at about 2 percent, average annual per capita GDP growth over the review period stood at about 6 percent. The largest share of this growth originated in the industrial sector, followed by services and agriculture. However, despite this growth, given the low base from which it had started, Mozambique remained among the poorest countries 17 CHAPTER 3 PILLAR I – STABILIZATION AND GROWTH in the world, with an average per capita income that, in 2007, ranked 195 out of 209 rated countries, using the World Bank Atlas method. Inflation was reduced considerably, and the fiscal balance improved in response to some revenue-raising measures supported by the Bank. The performance of exports and the external account was good, due mainly to exports by the mega-projects. Table 6. World Bank Interventions under the Macroeconomic Management, Financial, and Private Sector Subpillars World Bank interventions Date, Measures/actions supported FY Macro Management Economic Management and 2003 The EMPSO component that covered macroeconomic stability expected the Private Sector Adjustment government to keep within the overall targets for selected macroeconomic Credit (EMPSO) indicators under an IMF program, which was achieved. PRSCs 1-4 05- Transfers under the PRSC series helped fund the budget, stabilizing the real 08 economy. Prior actions ensured some increased domestic revenue mobilization, and those aimed at public expenditure management helped improve government capacity in this area. In addition, the PRSCs allowed the Bank to be an active participant in the dialogue on macro management, even though the IMF took the lead. Financial Sector Development Enterprise Development Project 2000 A component of EDP tried to facilitate access to investment finance through (EDP) lines of credit, with disappointing results, particularly with regard to utilization by small and medium enterprises (SMEs). Financial Sector TA Project 2006 Helped improve the balance sheet of the central bank and its capacity to regulate and supervise financial institutions. It also aided in the adoption of international accounting reporting standards, which have helped to improve the assessments of financial performance; a modest increase in competition within the banking system; and some improvement in the overall environment of the financial system. PRSCs 1-4 05- A small selection of prior actions supported by the series related to FSD, and 08 helped spur, for instance, presentation of a new Financial Institutions Law to the National Assembly. Private Sector Development Enterprise Development Project 2000 Provided useful business extension services, helped strengthen three government agencies that deal directly with business development. It tried to facilitate access to investment finance through lines of credit, with disappointing results (see above). Economic Management and 2003 Helped liberalize the telecommunications and air transport sectors. Private Sector Adjustment Credit (EMPSO) PRSCs 1-4 05- These series supported a number of procedural measures to improve the 08 business environment, which helped to reduce the time needed to register land and businesses and to facilitate visas for foreign workers. Less progress was posted in moving forward with legislation for judicial courts and for a Notary Code. 3.5 Macroeconomic stability as a precondition for sustained growth has been a major policy objective of the Bank’s, the IMF’s, and the government’s programs. Substantial quick-disbursing assistance from IDA (through DPLs and PRSCs) helped stabilize the economy making the financing of a given deficit level easier, making the Bank one of the largest providers of budget support. That said, there is general agreement that the Fund has 18 CHAPTER 3 PILLAR I – STABILIZATION AND GROWTH been the leader on macroeconomic policy. Nevertheless, the Bank was centrally involved, both in the general dialogue and in supporting specific measures (for example, as in the PRSC series, where prior actions ensured consistency with ongoing IMF-supported programs). Together with the IMF and the AfDB, therefore, the Bank helped Mozambique improve its external debt position and enhance macroeconomic stability. The country‘s ratios of total debt outstanding and debt service-to-GDP improved appreciably during the evaluation period, in large part owing to the effects of the debt relief provided under the Heavily Indebted Poor Countries Initiative (HIPC) and Multilateral Debt Relief Initiative (MDRI) (see chapter 7). Table 7. Key Macroeconomic Indicators, 2001-08 Indicator 2001 2002 2003 2004 2005 2006 2007 2008 GDP growth (%) 11.9 8.8 6.0 7.9 8.4 8.7 7.0 6.5 GNI per capita (US$) 230 230 230 260 290 310 340 370 Population growth (%) 2.5 2.5 2.5 2.4 2.2 2.1 1.9 1.9 GDP per capita growth (%) 9.1 6.1 3.5 5.4 6.4 6.4 5.0 4.5 Agriculture, value added (Annual % 9.7 11.1 5.4 4.8 6.5 10.9 6.6 7.0 growth) Industry, value added (Annual % 23.6 9.8 14.5 12.3 6.4 9.1 6.6 8.4 growth) Services, value added (Annual % 11.5 5.4 -1.6 8.5 11.4 7.9 6.4 6.4 growth) Inflation (CPI, %) 9.0 16.8 13.4 12.7 7.2 13.2 8.2 10.3 Gross investment (% of GDP) 20.0 30.0 22.3 18.7 18.7 19.0 19.2 (Public) (14.0) (12.2) (10.5) (9.7) (8.6) (11.8) (12.7) (Private) (6.0) (17.7) (11.8) 8.9 (10.4) (6.9) (7.1) Exports (% of GDP) 24.6 28.3 29.0 32.1 32.9 39.9 37.6 32.0 Imports (% of GDP) 40.9 43.4 45.2 40.7 42.3 45.7 44.3 42.0 Current account balance (% of -16.1 -20.7 -17.5 -10.7 -11.6 -10.9 -9.8 -10.0 GDP) External debt (% of GNI) 129.3 125.0 86.9 89.8 73.9 47.5 44.0 Debt service (% of GNI) 2.4 1.9 1.9 1.4 1.4 0.8 0.6 Budget deficit (including grants, -6.1 -7.0 -4.5 -4.4 -2.3 -1.7 -3.9 %GDP) Budget deficit (excluding grants, -19.9 -17.3 -14.0 -11.7 -8.9 -12.5 -13.5 % GDP) Current revenues (excluding 12.4 12.4 12.9 12.6 13.6 14.0 16.4 grants, % GDP) Total expenditures (% of GDP) 32.1 30.0 26.5 24.5 22.0 25.1 29.7 Capital expenditures (% of GDP) 18.6 16.1 12.2 10.2 8.6 11.9 11.9 Source: World Bank (World Development Indicators and Live Database working database, March 2010). 3.6 Despite the country’s strong growth and positive macroeconomic performance, however, several concerns remain. Although inflation was significantly reduced from its high level of over 30 percent during 1994-98, it fluctuated during the review period, averaging 12 percent. Thus the threat of some level of macroeconomic instability lingered, especially in the face of the sharp increases in global food and fuel prices in 2007-08, as well 19 CHAPTER 3 PILLAR I – STABILIZATION AND GROWTH as of the overall uncertainty surrounding global developments in primary commodities markets. Second, the pace of growth has been fueled to a large extent by ODA, the sustainability of which is unclear, particularly in the wake of the global financial crisis and recession. In addition, growth has been driven by agricultural catch-up (until about 2003) and by private investment in physical capital, but has not been evenly distributed and had limited impact on employment creation. 3.7 Financial sector development. The Bank‘s assistance program in FSD consisted of the Financial Sector Capacity Building Project (which closed in FY01), the 2006 Financial Sector TA Project, as well as a selection of prior actions in the PRSC series. These interventions aimed to improve the soundness and efficiency of the banking system, broaden the base of financial intermediation, and improve access to credit, particularly by small and medium enterprises (SMEs) and micro-borrowers, at lower cost. The programs dealt primarily with strengthening the capacity of the central bank to develop better prudential regulations and supervise their implementation, withdrawing the state from the banking system by privatizing the two large state banks, and adoption of a new Financial Institutions Law. Key nonlending deliveries included the 2001 Financial Sector Advice and the 2004 Financial Sector Assessment Program (FSAP). IFC support to strengthen financial markets is discussed in paragraph 6.24. 3.8 Some of the main intermediate outcomes that were achieved, and can plausibly be linked to these measures, included increased capacity on the part of the central bank to regulate and supervise financial institutions, including banks, and the adoption of international accounting reporting standards, which have helped to improve assessments of financial performance. These results can reasonably be assumed to have contributed to higher-level outcomes, such as a modest increase in competition within the banking system and some improvement in the overall environment of the financial system. 3.9 The balance sheet of the central bank showed significant improvement following the Bank’s FSD assistance program. This program was also associated with steady improvement in the soundness of the banking system after 2001. For example: nonperforming loans dropped dramatically from over 50 percent of gross loans in the mid- 1990s to less than 6 percent by 2004, and further to about 3.3 percent by 2006; the average return on equity within the banking system improved significantly; and the capital adequacy ratio increased from 2 percent in 2000 to 14 percent in 2008. Thus the main objectives of FSD reforms were largely met during a period when, according to a senior manager in the central bank, Mozambique had spent around five years at the turn of the millennium cleaning up the positions of the two largest privatized banks and avoiding a major financial crisis. Against this backdrop, the Bank‘s support was relevant and substantive. 3.10 This good overall performance notwithstanding, some shortcomings and major challenges remain. Topping this list of concerns are the relatively high cost of borrowing (interest rate spreads in early 2009 were still around 11 percent, and interest rates to SMEs exceeded 30 percent) and the very limited access to credit, particularly for SMEs and micro- borrowers. In fact, according to the most recent Investment Climate Assessment (ICA) of 2008/09, the proportion of SMEs (defined in the ICA as enterprises with 11 to 100 employees) that have accessed credit dropped from 35 percent in 2002 to 13 percent in 2008.2 20 CHAPTER 3 PILLAR I – STABILIZATION AND GROWTH An even more pronounced problem has been the absence of any significant amount of credit for the smallest business ventures, particularly for start-ups, especially in rural areas.3 3.11 In addition to the relatively high cost of borrowing, factors that contributed to the limited access to credit by SMEs include: (i) the banks‘ requirement that SMEs submit audited accounts with their loan applications, a major stumbling block for most SMEs in a country with very few chartered accountants; (ii) the application process itself is bureaucratic and burdened with considerable paperwork; (iii) the scale of operations of SMEs in the country is small for the minimum size of the loans that the banks are willing to consider ($50,000 equivalent, whereas in Mozambique most SMEs normally require loans in the range of about $2,000-3,000 equivalent); (iv) banks in the country tend to be very conservative and highly risk-averse, preferring to invest in established, larger businesses, treasury bills, or to deposit their funds outside the country; (v) the modest level of rural infrastructure makes it difficult for the banks to extend their business to the countryside (the number of districts covered by banking services increased from 28 in 2007 to 45 in early 2009, out of a total of 128 districts, and there were 14 banks, the top 4 of which accounted for about 80-85 percent of total assets of the banking system); and perhaps most importantly (vi) collateral represents a major obstacle; it is not possible to use land or land-use rights as collateral.4 3.12 Private sector development. The Bank‘s assistance program emphasized growth through greater private sector investment. Key measures implemented in the context of the Enterprise Development Project (EDP), the Economic Management and Private Sector Adjustment Credit (EMPSO), and the PRSCs included a number of procedural, legal, and regulatory measures to improve the business environment for the private sector; the provision of business extension services, lines of credit to develop the SME sector, and technical support to improve the capacity of some relevant government agencies; privatization and liberalization of two sectors (telecommunication and air transport); and, to further increase competition, a marginal reduction of the top duty on the import of consumer goods over what had been provided in previous periods. Key nonlending deliveries included the 2003 Constraints to Private Sector Development and the 2005 Private Sector Competitiveness. IFC support to PSD is discussed in chapter 6. 3.13 Some of the main intermediate outcomes that can plausibly be linked to these measures included: a reduction of the time it takes to register businesses (which fell just short of the 40 percent decline projected in the CAS); increased competition in the telecommunications, air transport, and banking sectors; and a very modest improvement in the governance environment, whereby businesses could resort to the courts to arbitrate matters related to commercial practice, labor relations, or corruption (although the commercial courts continue to suffer from a long backlog of unattended cases (see chapter 5 for more details). 5 3.14 On balance, however, the Bank’s objective of improving the business environment for the private sector was partially achieved. The reduction of the time required to register a business was not accompanied by similar improvements in the other aspects of the business environment. Now it takes more than 1,000 days to resolve a business dispute, twice as long as in 2004, and businesses have to wait longer to deal with 21 CHAPTER 3 PILLAR I – STABILIZATION AND GROWTH licenses, 364 instead of 212 days. Closing a business today takes as long as it took in 2004 (5 years). According to the Doing Business Indicators, in 2008 Mozambique ranked about 140 out of 181 countries listed. According to a survey conducted in the course of preparing the 2008/09 ICA, the most significant obstacles to a better business environment were, in rank order: practices of competitors from the informal sector; access to finance; tax rates; crime, theft, and disorder; transportation; electricity; and corruption. It is both interesting and revealing that corruption was at the bottom of this list, while practices of competitors from the informal sector (such as avoiding bureaucratic red tape and taxation, since such firms typically are not registered) topped the list. Access to finance ranked a close second. Access to finance had topped the list in the similar 2003 survey, and corruption had ranked third. 3.15 Progress in the development of the SME sector, a major objective of Bank support, has also been slow, after the dramatic initial strides during the 1990s when most public enterprises were privatized, prices and external trade liberalized, and the overall macroeconomic and policy environment transformed to be supportive of private sector growth. The Bank-supported Enterprise Development Project (EDP) appears to have successfully provided some business extension services to SMEs and some TA to strengthen several government agencies working in this field. However, its credit line component for small borrowers faltered and had to be modified to allow larger firms to borrow so that the credit line could be disbursed. With hindsight, the Bank‘s assumption that lending to SMEs would increase if banks gained access to term lending proved too optimistic as it underestimated the banks‘ risk-averse nature and the SMEs‘ limited managerial and technical capacity in the process of loan application (see paragraph 3.11). 3.16 On balance, the outcome of the Bank’s interventions to support the subpillar objective of improving PSD fell short of the target. While the large export-oriented and capital-intensive mega-projects may have done well because of their special negotiated conditions and ability to circumvent many of the administrative barriers faced by local investors, domestic enterprises (especially SMEs) face sharper resource constraints and administrative barriers to doing business and only contributed modestly to exports and growth. In turn, the contribution of PSD to generating employment and spreading the benefits of growth has been small. 3.17 The question arises of whether Bank support in this area could have been more effective if it had taken a different form or used different instruments. One reason cited for the relative success of the Bank‘s assistance in FSD was that PRSCs incorporating FSD- related prior actions were accompanied by a dedicated technical assistance operation (Financial Sector Technical Assistance Project [FSTAP]). This could be a partial explanation. However, the EDP, which just preceded the beginning of the PRSC series, included two TA components the implementation of which was relatively successful (it was the line of credit component that faltered, and that was associated at least as much with the FSD area as with the PSD area). An alternative or additional explanation for the relatively lackluster results in PSD may simply be that it is inherently difficult to succeed in this complex, multidimensional area. For instance, in both macroeconomic management and FSD, there are significantly fewer ―players‖ that need to be involved to implement reform measures: a few key economic ministries (such as Finance, Planning and Development, Trade), the central bank, and a few others. For PSD-related reform measures, the number of players is 22 CHAPTER 3 PILLAR I – STABILIZATION AND GROWTH much larger, and not as much within the control of government. By their nature, matters related to governance, the judicial and regulatory environment, widespread petty corruption, dealing with a business community with diverse views, training a labor force in a country with a generally low level of education, and penetrating a very large and underdeveloped rural sector are daunting objectives. Moreover, entrepreneurship is a very important ingredient for PSD—and that cannot be legislated, forced, or created rapidly. 3.18 In sum, the outcome of Bank support for macroeconomic management merits a rating of satisfactory, although it is clear that the success of the program cannot be reasonably attributed solely to the Bank. The country‘s ability to maintain an annual growth rate that averaged 7 to 8 percent for almost 15 years was a commendable achievement, keeping in mind the dire conditions that had prevailed at independence. The Bank and the Fund supported this outcome. The main objectives of Bank assistance for FSD reforms largely met, except to progress in the extent of financial intermediation and access to finance, particularly by SMEs. The overall outcome of the Bank’s support to FSD merits a rating of moderately satisfactory. In comparison to the results achieved in macroeconomic and FSD areas, the PSD results have been below expectations. As an enclave, the mega-projects may have done well because of their special circumstances, but they have so far generated relatively minor benefits in terms of employment and linkages with the rest of the economy. The performance of the broader-based, smaller domestic businesses remains very sluggish. Hence, the overall contribution of PSD to generating employment and spreading the benefits of growth has not been significant. The overall outcome of the Bank’s support to PSD to date is judged moderately unsatisfactory. Rural Development and Sustainable Management of Natural Resources 3.19 The Bank’s assistance strategy. Strong growth in the agricultural sector was a core strategic objective of the FY01 CAS, reflecting the government‘s priorities in the PARPA. The basis for this objective was that since ―most of the poor are subsistence farmers, promoting agricultural growth and rural development is critical to reducing poverty over the short to medium term.‖6 A necessary condition for growth was improved capacity of small-scale farmers to generate surplus production as well as access to markets for these surpluses. The FY04 CAS focused considerable attention on the agricultural sector as a source of growth and poverty reduction, aimed to support an increase the use of new farm technologies, and emphasized the importance of improving productivity in the smallholder subsector. 3.20 In 1997 the Bank prepared a comprehensive overview of the agricultural sector that described its important characteristics and strengths, analyzed these characteristics, reviewed the constraints to growth, drew conclusions about the sector’s potential for future development, and suggested an agricultural development strategy.7 The proposed strategy emphasized the improvement of incentives for small-scale farmers to produce a surplus and the role of government to provide support services such as extension. Both the FY01 and FY04 CAS planned to deliver a rural development study that would update the 1997 sector overview and would be a critical input into the country‘s rural development strategy and PARPA.8 This study was eventually completed as a draft agricultural development strategy and discussed with the government in a formal workshop on September 27, 2005. Although the report was subsequently revised, a final report was not published, and only a draft is available.9 23 CHAPTER 3 PILLAR I – STABILIZATION AND GROWTH 3.21 The Bank’s strategy for natural resource management is, in collaboration with the government, the Global Environment Facility (GEF), and the private sector, to develop frameworks for forestry and wildlife management in the Transfrontier Conservation Areas (TFCAs) and in the Maputo Corridor, which provides wildlife with access to their migration routes. These frameworks were to take into account Mozambique‘s wide diversity of mountainous, woodland, wetland, and coastal marine ecosystems. These large areas are important both for their biodiversity and because they contain traditional corridors for large-scale animal movements. Many of Mozambique‘s national parks are adjacent to South Africa‘s Kruger National Park and represent valuable tourism assets. However, the FY04 CAS planned no analytical work on Mozambique‘s natural resources. 3.22 The Bank’s program. When the FY01 CAS was prepared, a SWAp for the agricultural sector (Agricultural Sector Public Expenditure Program, PROAGRI, with IDA financing of $30 million and cofinancing from development partners of $162 million) had already been approved in 1999 and was being implemented (Table 8). PROAGRI covered many core activities in the Ministry of Agriculture and Rural Development (MADER), such as research, extension, crop production, livestock, forestry and wildlife, irrigation, and land management. The main objective was to improve the impact of public expenditures in the sector by strengthening the decentralized management of the ministry, improving support services to agriculture at the provincial and district level, and ultimately improving farmers‘ productivity, increasing their incomes, and reducing poverty. A related objective of PROAGRI was to harmonize the financial contributions of all development partners to the agricultural sector and strengthen a central ministerial capacity. These objectives reflected the government‘s strategic objectives. Table 8. Rural Development and Sustainable Management of Natural Resources Projects World Bank interventions Date, Measures/actions supported FY Rural Development Agricultural Sector Public 1999 While PROAGRI provided significant institutional support to the Ministry Expenditure Program (PROAGRI) of Agriculture and Rural Development, it was not successful in achieving a number of other objectives, such as ―increases in agricultural production and productivity‖—one of the main impact indicators for PROAGRI and the CASs. Market-Led Smallholder 2006 This project aimed to increase the average income small-scale farmers Development and achieve sustainable land management. It experienced delays. PRSCs 1-4 05-08 The triggers related to agriculture have been very modest in their contributions to progress on either policies or technical issues in the sector. The PRSCs have so far not provided a platform for dialogue on the agricultural sector as originally intended. Natural Resource Management Coastal and Marine Biodiversity 2000 While there were some positive achievements, such as biological Management monitoring of marine ecosystems and strengthened capacity for environmental management by communities, several prominent project objectives, notably the protection of coastal habitats and private sector tourist development, were not achieved. Transfrontier Conservation Areas 2006 The aim is to achieve growth in community-private sector led and Tourism Development Project sustainable tourism in the TFCAs and to increase the area and sustainability of biodiversity. It is under implementation (expected to close by 2013), and it is still too early to assess its outcome. 24 CHAPTER 3 PILLAR I – STABILIZATION AND GROWTH 3.23 It was anticipated that the Bank would continue its support for a second phase of PROAGRI, but because it was not successful in achieving several objectives, the FY04 CAS announced that instead further IDA support for agriculture will consist of ―policy dialogue and analytical work provided to MADER through the Bank‘s PRSC missions, with financing provided through the PRSC‖ (FY04 CAS, page 27). 3.24 The FY04 CAS also indicated that a Sustainable Rural Development project was being prepared (possibly as a follow up to the Rural Rehabilitation project), but it was not listed in the base case lending program.10 That project did not emerge, but following discussions with the government, the Bank agreed to finance the 2006 Market-Led Smallholder Development Project in the Zambezi Valley, to which IDA contributed $20 million and the GEF contributed $6.5 million, to address the development of small-scale farming and sustainable land management. The project‘s development objective is to increase the incomes of small-scale farms as measured by a target of a 30 percent increase in the average agricultural incomes of 20,000 project beneficiaries over six years by using improved technologies introduced through the project with the aid of improved extension, market access, and investment for rural development. It is a difficult operation, to be implemented by an institution that is gradually gaining capacity in project management, with many components aimed at increasing the incomes of smallholders in the Zambezi Valley. These smallholders are caught in a low-level subsistence trap with few current prospects for marketing a surplus and therefore have weak incentives to use improved technology. The project is relevant to the government‘s strategic objectives and the CAS. 3.25 In natural resource management the Bank first assisted the Coastal and Marine Biodiversity Management Project ($5.6 million) in association with the GEF ($4.1 million) in 2000. This pilot project was also intended to be the first phase of a two-part series of projects in the TFCAs. The objectives were to test a strategic integration of conservation measures with regional economic development, to establish protection and conservation areas including community conservation activities, and to build stakeholder capacities and build public awareness of biodiversity. They were relevant to the government‘s strategic objectives and the CAS. The second project, financed by the Bank in 2006, was the Transfrontier Conservation and Tourism Development Project ($13.9 million), cofinanced with the GEF ($10 million), which was based on the experience and lessons of the first project. Its aim is to achieve growth in community-private sector led sustainable tourism in the TFCAs and to increase the area and sustainability of biodiversity. 3.26 Progress toward achieving Bank objectives. While PROAGRI provided significant institutional support to the Ministry of Agriculture and Rural Development, it was not successful in achieving several other objectives, such as ―increases in agricultural production and productivity‖—one of the impact indicators for PROAGRI and the CASs.11 Box 1 discusses overall agricultural growth and productivity. This evaluation agrees with the IEG Implementation Completion Report Review of PROAGRI that rated its outcome moderately unsatisfactory based on the incomplete reorganization of the Ministry of Agriculture and Rural Development as well as the insignificant impact of the ministry‘s institutions and support services, such as extension, on agricultural productivity and land policy. In addition, the monitoring and evaluation (M&E) program for the project was weak 25 CHAPTER 3 PILLAR I – STABILIZATION AND GROWTH and offered ―very little evidence on outcome and impact.‖12 PROAGRI did, however, establish a new vision for the ministry, which has been supported during the second phase of PROAGRI. To the extent that it continues to be supported by the government and a number of development partners, the risk to development outcome is considered moderate. The coordination of development partner assistance to the agricultural sector had improved during PROAGRI and development partners were therefore dismayed when the Bank decided not to support the second phase of PROAGRI and to continue policy dialogue and analytical work under the auspices of PRSCs instead. Box 1. Overall Agricultural Growth and Productivity From the mid-1990s, average growth rates in the agricultural sector were substantially lower than those for the industrial sector, but the sector held its own against the growth of the large service sector (Figure 4). Although agriculture employs at least 60 percent of the nation‘s labor force, it has the lowest labor productivity of any sector in the economy. It also has the highest incidence of poverty because, with only 20 percent of GDP, it supports about 70 percent of all of Mozambique ‘s households, and hence public and private investments in the sector are critical to reducing poverty. It has been widely accepted that achieving a high sustained growth rate in agriculture will depend heavily on a major increase in productivity rather than increases in area harvested, which result from the regular expansion of agricultural production by many small-scale farmers into virgin forests.13 Low productivity in maize production (the most important grain crop in Mozambique) 14 illustrates the challenges for achieving growth.15 Figure 5 shows how poorly the yields of maize compare with those in neighboring countries where maize is grown under similar agronomic conditions. Looking at the situation in the context of the two CAS programs, both of which emphasized improved agricultural support services, average yields for maize between 2000 and 2003 declined slightly by 1 percent per annum. This occurred despite a production increase by an average rate of about 5 percent per annum, which was driven by a 6 percent annual increase in the area of maize harvested. Subsequently, average yield did rise in 2004 and 2005 during two drought years as area harvested declined, only to drop back again in 2006 and 2007 to about the same level as in 2000 (Figure 6). Figure 5. Trends in Average Maize Yields, Figure 4. GDP Trends for Major Sectors, 1992-2007 2000–07 4000 1.2 3500 3000 1 2.5% pa 5.0% pa tons per hectare 2500 0.8 FY01 CAS period $ million 2000 0.6 1500 0.4 6.0% pa 1000 0.2 13.5% pa 500 0 0 2000 2001 2002 2003 2004 2005 2006 2007 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 Agriculture Industry Services Source: IEG estimates using World Development Report data. Source: FAOSTAT database. Table 9 shows substantial gaps between average actual yields for all the major crops produced in Mozambique compared with their potential. Technologies to increase yields are already available for many crops, but the constraints to increasing agricultural productivity in Mozambique are substantial Continued on next page> 26 CHAPTER 3 PILLAR I – STABILIZATION AND GROWTH >Continued from preceding page because support services remain weak and access to markets for increased production is very limited. Farmers are highly unlikely to use improved technologies to produce a surplus without assured markets. Even if increased productivity in agriculture is achieved, marketing facilities and access to markets and transport systems in Mozambique will need to improve. These improvements mainly will need to be structural and institutional with a balance of responsibility for action between the role of the public sector (transport infrastructure) and the private sector (progressive farmers, marketing facilities, and transport services). To illustrate the possibilities for improved access to markets, Zimbabwe and Zambia currently have significant maize deficits on a regular basis and are therefore important international markets for Mozambique‘s surplus maize, but much of the trading activity is rudimentary. There is inadequate information on market prices, and on in the largely informal trade that frequently uses bicycles to transport maize long distances from farms to border areas. Figure 6. Maize Yields in Mozambique and Neighboring Table 9. Estimated Actual and Potential Countries, 1962- 2003 (kg/ha) Yields for Major Crops 2500 Estimated Estimated 2000 Average Crop Potential Yields Actual Yield (tons per hectare) 1500 Maize 0.9 5.0 – 6.5 Sorghum 0.4 0.8 – 2.0 1000 Rice 1.0 2.5 – 6.0 Beans 0.5 0.5 – 2.5 Cassava 6.0 5.0 – 10.0 500 Cotton 0.5 1.0 – 2.0 0 0 2 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 '0 '0 Mozambique Zambia Malawi Tanzania Zimbabwe Source: World Bank 2006b and Perumalpillai-Essex, et al. 2005 based on FAOSTAT Source: Perumalpillai-Essex, et al. 2005 based on data database, three-year moving averages. See also Jacob Kampen and Daniel Da Cruz from Aviso Previo, Ministry of Agriculture and Fisheries Sousa 2008. and Howard et al. (1998). 3.27 The PRSCs have thus far not provided an effective platform for dialogue on the agricultural sector, as foreshadowed in the FY04 CAS (see paragraph 3.23). This dialogue, which took place within the context of the donor working group on agriculture, formulated PRSC triggers that have made only modest contributions to progress on either policies or technical issues in the sector. In addition, because of the weak monitoring and evaluation of the PRSCs‘ outcomes, it is difficult to evaluate the impact of the few actions that have been completed. For example, under PRSC 2, the trigger on the commercialization of grain production (maize, sorghum, and rice) by the formal sector was met, but the target was only 16 percent. For the same PRSC, the proportion of poultry farmers assisted by public extension and vaccination to combat Newcastle disease, and the proportion of cattle producers whose animals were vaccinated against anthrax and black leg, fell short of targets. PRSC 3 provided support for increased access of small-scale farmers to improved agricultural technologies through extension services, to be measured by the proportion of farmers who had adopted at 27 CHAPTER 3 PILLAR I – STABILIZATION AND GROWTH least one new technology in 2006, which was in line with the CAS objective. This condition was not met by the end of 2006, and the issue was referred to the highest level of government. Action was taken, and in the course of a mid-year review in September 2007 it was concluded that this condition would be met by the end of 2007. To date, however, there is no evidence that the improved extension service has any net impact. 3.28 A number of PRSCs required the rehabilitation of specified areas of irrigated land, but there is no evidence on the net benefits of the rehabilitation or new development. Under PRSCs, irrigation schemes that were rehabilitated or constructed reached 2,524 hectares against the target of 2,900 hectares.16 PRSCs 3 and 4 included support for the construction or rehabilitation of 3,200 and 4,000 hectares of irrigation schemes, which were triggers for the release of PRSC 4 and 5, respectively.17 It is unclear why the rehabilitation and construction of irrigation schemes were included as triggers for the PRSCs because they involved substantial capital expenditures for the government with uncertain payoffs.18 It is also unclear whether there was any net impact from the rehabilitation and construction of irrigation areas, whether that work benefited the poor in rural areas, or whether maintenance programs were in place. 3.29 The Bank’s objective of fostering ―policy dialogue and analytical work‖ noted in paragraph 3 was only partly achieved. The Bank completed but did not publish the Agricultural Development Strategy. This is unfortunate, because it is well known that the Bank‘s analytical work is usually valued by stakeholders, and not completing and disclosing the work publicly has likely weakened the Bank‘s agriculture sector dialogue. More importantly, strategy options need to be explored on how to improve the productivity and market access for crops produced by small-scale farmers so that incentives for increased production are clear (see Box 1 for more details). 3.30 In that regard, it is too early to be certain about the outcome of the Bank‘s support for increasing smallholders‘ income, as the Bank-supported Market-Led Smallholder Development Project (MSDP) is ongoing. There were substantial delays in establishing the institutional arrangements for the project. Because of these delays, the chances of the objectives being achieved by the current closing date were rated moderately unlikely by the Quality Assurance Group.19 This evaluation agrees with the QAG assessment. 3.31 In addition to implementation delays, that the final outcome will depend critically on future markets for surpluses of the focus crops produced in the project area. Market prospects for maize are currently extraordinarily strong in neighboring Zambia and Zimbabwe, although this is in part due to current economic and political circumstances there. Sesame has recently emerged as a profitable crop with a sustainable domestic and export market. On the other hand, for some of the focus crops like cassava there is usually already an abundant supply relative to domestic and international demand. Cotton is also potentially tradable, but past analysis shows that Mozambique has no comparative advantage in its traditional export markets unless yields can be increased substantially to make production profitable for smallholders.20 The MSDP is also exploring the technical and economic prospects for some new crops such as soybeans and groundnuts. 3.32 The outcome of the Coastal and Marine Biodiversity Management Project was marred by several implementation difficulties that were foreshadowed when QAG rated the project unsatisfactory at entry. The major issues facing project components were as follows: 28 CHAPTER 3 PILLAR I – STABILIZATION AND GROWTH (a) the preparation of spatial development plans was considerably delayed and not completed until three months before the project‘s amended closing date; (b) no progress was made on a core objective of protecting coastal habitats; and (c) the private sector tourist development objective was dropped because it could not proceed without the spatial development plans. While there were some positive achievements, such as biological monitoring of marine ecosystems and strengthened capacity of environmental management by communities, a number of prominent project objectives were not achieved.21 The IEG Implementation Completion Report Review downgraded the overall outcome rating of the project relative to the ICR self-evaluation to moderately unsatisfactory, and this evaluation supports that conclusion. The Transfrontier Conservation and Tourism Development Project is under implementation (expected to close by 2013), and it is still too early to assess its outcome. 3.33 In summary, despite efforts through PROAGRI and the Market-Led Smallholder Development Project, the Bank’s assistance has not yet substantially contributed to the CAS objective of increasing agricultural productivity. PROAGRI partly achieved its project objective of supporting a reorganization of the Ministry of Agriculture and Rural Development because it resulted in improvements in managerial efficiency and financial management of the ministry at the regional level. Although the Bank‘s subsequent assistance supported the CAS objective of increasing the use of new farm technologies, this was only partially met by the end of the evaluation period, and Bank support has not yet been successful in achieving significant and sustained increases in yields. This shortcoming has probably been due to inadequate attention to the most important issue, namely the incentive structure that would lead small-scale farmers to use improved technologies to produce a surplus and raise agricultural incomes as anticipated. With respect to natural resource management, there were positive achievements on biological monitoring of marine ecosystems and strengthened capacity for environmental management, but several prominent objectives, such as the protection of coastal habitats and private sector tourist development, were not achieved. On balance, therefore, overall outcome of Bank assistance under the rural development and natural resource management subpillar merits a rating of moderately unsatisfactory. Improved Delivery of Infrastructure Services ENERGY AND MINING 3.34 The Bank’s assistance strategy. The Bank pursued three objectives: improvement of regulatory and legal frameworks for energy and mining, to help bring in the private sector; expanding electricity service to households; and developing an integrated Southern African Development Community energy market. These objectives were in line with the country‘s needs, notably because very few households have access to electricity (the estimate for 1999 stood at 6 percent) and Mozambique has potential for large exports of energy (gas, hydro) to South Africa. Table 10 and Table 11 show Mozambique‘s large energy consumption per capita to its neighbors, which is the result of high industrial consumption (mega-projects and exports to South Africa) and not of the actual use of electricity by households. In 1995, in an attempt to improve the operations of national electricity company (EDM), it was converted from a state monopoly to a public enterprise, but this did not yield significant improvements in household access. Consequently, the FY01 and FY04 CASs had similar 29 CHAPTER 3 PILLAR I – STABILIZATION AND GROWTH objectives for the energy sector: improvement of the legal and regulatory frameworks and increase in household access to electricity. The objective of developing and exporting gas and minerals was relevant given the potential of these resources as a contributor to Mozambique‘s economic growth. Table 11. Electricity Coverage and Table 10. Electricity Consumption and Installed Capacity Tariffs (around 1999) Consumption Net per capita Electricity Electric consumption (billion Installed coverage (% power Population (billion of kwh/million capacity of population tariffs Country (million) kwh) population) (GW) Country covered) (US$/kwh) Mozambique 20.4 9.1 0.45 2.34 Mozambique 6 0.12-0.14 Malawi 13.1 1.3 0.10 0.31 Sub-Saharan Africa 16 0.02-0.46 (average) Uganda 30.9 1.7 0.06 0.32 Other low-income 41 0.05-0.01 Tanzania 38.5 1.2 0.03 0.88 Source: Various Internet sources, including World Bank Source: This report is based on U.S. statistics, Official Energy Information 1999. Infrastructure stock. Administration (2005) and various Internet sources for population 2007-09). http://econ.worldbank.org/docs/512pdf 3.35 The Bank’s program. The lending program during the evaluation period consisted of four operations (Table 12): the 2004 Energy Reform and Access (ERAP, $40.3 million), the 2001 Mineral Resources Management Capacity Building ($19.2 million), and two gas projects—the 1994 Gas Engineering ($30 million) that closed in 2003 and the 2004 Southern Africa Regional Gas ($30 million). The Southern Africa Regional Gas project involved three Bank Group entities, with IBRD providing a Partial Risk Guarantee, MIGA an equity guarantee rolled into a debt guarantee, and IFC an equity investment. ERAP required coordination with AfDB and with Norway, which cofinanced the project. No ESW was carried out in this area during the review period. The regional energy study by the Energy Sector Management Assistance Program (ESMAP, financed by the Bank, the UK, and other countries), completed prior to 2000, was integrated into the Maputo Corridor study (IEG 2003 Review of the CASCR, Annex Table 5). Table 12. Energy and Mining Projects World Bank interventions Date Measures/actions supported Gas Engineering 1994 The objective of this project, which closed in 2003, was to assess prospects for a commercial joint venture between the Government, the Mozambique National Oil Company, and the private sector in the Pande gas field. Gas reserves in Pande and nearby justified commercial development, which was supported by the IFC and the Bank. Capacity building was not timely. Mineral Resources 2001 Objectives were to provide technical assistance to achieve institutional Management Capacity development and regulatory reform to attract private sector sustainable mining Building investment, as well as poverty alleviation in small-scale and artisanal mining areas. Institutional development successfully provided a platform for planning mining investments. Poverty reduction in small-scale and artisanal mining was partly achieved through legal and social measures, including an HIV/AIDS strategy and demonstration sites for ceramics production and gold mining. Energy Reform and Access 2004 Objective is to increase use of electricity for economic growth and social services in peri-urban and rural areas, as well as strengthening the capacity of Mozambicans to use modern energy. The project has been restructured, which included cancellation of the independent grid electrification component. Progress 30 CHAPTER 3 PILLAR I – STABILIZATION AND GROWTH toward objectives at the end of 2009 was moderately satisfactory. Southern Africa Regional 2004 Main objective is to stimulate development and export of natural gas while Gas ensuring environmental sustainability and poverty reduction, and with other IFC and MIGA support to raise capital and commercial financing for private sector development. Progress toward objectives at mid-2009 was satisfactory. 3.36 Progress toward achieving Bank objectives. As with many of its client countries, the Bank’s aim of helping to strengthen the institutional setup in the energy sector, notably by unbundling generation, transmission, and distribution into separate companies to facilitate the entry of private operators proved misguided. The effort had to be abandoned and replaced by steps intended to strengthen the existing electric company (EDM) and creating a regulatory agency (CNELEC). The reasons for the failure of the original plan were: the energy sector was inefficiently operated and not a good candidate for unbundling, and the scale of production was too small. Together these factors discouraged reputable private operators from getting involved.22 Access to electricity is being expanded, however. Contracts for grid intensification (connecting clients that are reachable from the existing grid) are currently underway in several areas: in Central and Northern Mozambique, financed by the AfDB; in Maputo province, financed by the Nordic Development Fund (NDF); and in Southern Mozambique and Maputo City, financed by IDA. With the help of these development partners, some 9,000 new households were connected to the grid in 2008, and when the ongoing contracts for 2009 are completed, an additional 48,000 households will be connected.23 The increase in 2008-09 represent about a 10 percent increase in the overall number of EDM customers. These efforts notwithstanding, access to electricity is still low by regional standards. Of the joint 2009 goal of 48,000 additional connected households, the Bank itself targeted 2,500. New grid connections aside, solar electric panels are being installed for some 300 schools and health centers. Bank-supported pilots to expand electricity service by creating independent, private, electrical grids in isolated areas did not succeed.24 With WB/IFC/MIGA support, a new 865-kilometer pipeline was constructed and is operational, delivering gas from gas fields in Mozambique to a petrochemical plant in South Africa. The pipeline demonstrates the potential for integrating power markets in Southern Africa. At the same time, the capacity of Mozambique to manage gas sector operations was not strengthened as much as was expected. 3.37 Mining. With IFC support a series of laws were passed between 2002 and 2006, leading to major reforms in the legal, regulatory, and fiscal framework of the mining sector. At the same time, institutions were strengthened and key tools for managing and promoting the sector, including up-to-date geological maps, a state-of-the-art cadastre, and a decentralized mineral license application and granting system were developed and made operational. Such reforms were key to increasing the number of private mining operations in Mozambique, which more than doubled (from 10 to 22) during 2000-07, and helped pave the way for agreements for two very large private investments (MOMA Sands and Moatize coal mine). 3.38 The role of the Bank Group and the financial engineering of the Southern Africa Regional Gas project merits special attention. It was a complex financing package, with different partners in the upstream and downstream components. Designing the project‘s financial structure required detailed analysis and finding the right balance between providing assistance to ensure that the project would proceed smoothly and avoiding intervening in 31 CHAPTER 3 PILLAR I – STABILIZATION AND GROWTH areas where the private sector was more qualified. This implied, for example, that IBRD/IDA did not provide direct lending but, instead, provided a partial risk guarantee of debt for syndicated commercial loans, while IFC provided equity (see paragraph 6.23) and MIGA complemented the Bank‘s guarantee. Bank participation in the guarantee was essential, as this would entail a counter-guarantee from the government and provide a ―breach of contract‖ guarantee, all of which MIGA could not do. Overall, the Bank Group‘s role was to catalyze the mobilization of private capital as well as commercial debt financing. The project was the first large-scale, privately financed energy export project in the gas subsector, providing a framework for future private sector projects and facilitating further investments in gas exploration and other gas-related industries. The project was also the first greenfield cross-border infrastructure project of significant size in Southern Africa. A Social Development Fund that is helping to finance school and healthcare infrastructure in Mozambique has been established. Finally, the project created the opportunity for development of domestic gas markets, thanks to the creation of five offtake points on the Mozambique side of the pipeline. 3.39 In sum, in the energy sector, the Bank’s objective of improving the institutional structure of the market by unbundling the national electricity company (EDM) into separate generation, transmission, and distribution companies, and concessioning the distribution company to private operators, proved misguided. The approach was redirected toward strengthening EDM and creating a regulator (CNELEC), a task that continues. Access to electricity is being expanded with Bank support (some 57,000 new households are being connected) through cost-effective grid intensification (connecting households where a main grid already exists). The Bank‘s efforts to pilot expansion of electricity service by creating independent, private, electrical grids in isolated areas did not succeed. Solar electric panels for some 300 schools and health centers in remote areas are being installed. With Bank/IFC/MIGA support, a new 865-kilometer pipeline was constructed and has been operational for five years, exporting gas from Mozambique to South Africa. Bank institutional support to improve the legal, regulatory, and fiscal framework of the sector was a key factor behind the increase in the number of private mining operations in Mozambique. Based on the foregoing, the outcome of Bank assistance for energy and mining is rated moderately satisfactory. TRANSPORT 3.40 The Bank’s assistance strategy. All CASs during the review period underlined the role of transport within the growth objective. Key CAS objectives were maintaining and expanding main roads and increasing international traffic on Mozambique‘s railway and port system. These objectives were in line with the country‘s needs. While Mozambique was historically well connected to its neighbors (most of which are landlocked) because of the country‘s privileged location in Southern Africa, domestic transport infrastructure is poorly integrated (both the three railway lines running East-West linking key ports and the national road network). Mozambique‘s road system compares poorly with those of neighboring Tanzania and Malawi in terms of the density of the network relative to the arable land area and access by the rural population to all-season rural roads (Table 13 and Table 14). All transport infrastructure, but especially the roads and railways, were severely damaged during the civil war, and rehabilitating those facilities became the first priority. The Bank and other development partners provided significant support to this end. 32 CHAPTER 3 PILLAR I – STABILIZATION AND GROWTH Table 13. Density of Paved Roads Relative to Arable Land Table 14. Access to Rural Roads Percentage of rural population with access Ratio of paved roads (kilometers) Country Country (less than 2 kilometers) to an all-season to arable land (million hectares) rural road Mozambique 156 Mozambique 12 Malawi 125 Malawi 38 Uganda 442 Tanzania 38 Tanzania 625 Ethiopia 17 Sources: Roberts et al. 2006 and Mozambique‘s highway agency. 3.41 The Bank’s program. The transport lending program approved during the evaluation period was consistent with the CASs’ objectives. The program was about equally divided between two subsectors (Table 15): ports and railways (two Bank operations, $210 million) and roads (two Bank operations, $262 million). The ports and railways, as revenue-earning entities, were obvious candidates for the introduction of public-private partnerships, although experience in Africa and elsewhere suggested that ports were easier to concession to private operators than railways. The Railway and Port Restructuring and the Beira Railway SIL both had as a primary objective concessioning of these utilities to private operators and restructuring the Mozambique Ports and Railways Corporation (known as CFM).25 The road projects aimed mainly at strengthening the management and financing of the road sector, while also improving the condition of the country‘s road network and expanding it. However, most of the funding went for rehabilitation and maintenance of existing roads, with smaller amounts going to expand the geographical coverage of the road network. Under the two earlier Bank-financed Roads and Coastal Shipping Projects (approved in 1992 and 1994), over 3,000 kilometers (or about 14 percent) of the primary, secondary, and tertiary roads were rehabilitated, in addition to the support provided for periodic maintenance. An Infrastructure Assessment, planned for FY07, was dropped (2007 IEG CASCR Review, Annexes, page 16), which meant that no formal analytical work was carried out during the evaluation period. This is a significant shortcoming in the Bank‘s activities in transport, a major sector that received $472 million in Bank funding during FY00-FY08.26 The problems with electricity sector reforms (noted earlier) and with railway concessions (discussed in paragraph 3.43) illustrate the need for in-depth analysis. 3.42 Progress toward achieving Bank objectives. The road network improved considerably. The most recent survey, in 2008, found 72 percent of the country‘s classified network in good or fair condition, compared to 56 percent in 2003 and 10 percent in 1994. Better roads have gradually increased access by the rural population to all-season road, from close to zero some 10-15 years ago to about 12 percent now (Table 14). With Bank support, a Road Fund was established and is helping secure better funding for maintenance as well as improved allocation of resources. The fund is independent from the road agency and has a board led by private sector representatives, Resources allocated to the Road Fund in 2009, mainly for maintenance, reached $250 million (including $60 million from fuel tax, $40 million from the Ministry of Finance Investment Fund, and the rest mostly from development partners), some four times the level in 2002, enhancing sustainability prospects. A major north-south route was due to be completed when a bridge over the Zambezi, financed by the European Union (EU), is completed in 2009. Looking forward, it would be desirable to examine the need for additional north-south connections, and to do 33 CHAPTER 3 PILLAR I – STABILIZATION AND GROWTH more to improve access by the rural population by improving and/or expanding feeder roads. Procurement and implementation capacity for road works also requires further enhancement. Table 15. Transport Projects World Bank Date Measures/actions supported interventions Second Road and 1994 The main objective is to contribute to economic growth through (i) rehabilitating priority Coastal roads and eliminating backlog of deferred maintenance as well as resuming regular maintenance; and (ii) continuing regulatory reform and institution building to ensure effective planning and monitoring by the government and the development of private sector contractors and operators. Key performance indicators show that targets were substantially achieved. The project has helped to remove bottlenecks, particularly for agricultural production and distribution. The Road Fund will ensure that there is a continuous funding stream to help sustain this initiative. Railway and Road 2000 The objective was to increase the operating efficiency of the three major port-rail transport Restructuring systems through concessioning and to enable them to increase their international freight market share. In 2007, the project was restructured by dropping rehabilitation of small ports and rehabilitating jetties in three larger ports, purchase of new ferries and other vessels at these ports, support for the rehabilitation of a railway line and some other matters. Concessioning at three port-rail complexes was achieved with 70 percent of the project funds meeting the cost of staff retrenchment to support concessioning. The project objective of increasing the operational efficiency of main railway lines, measured by increased freight, was partly achieved with port traffic 16 percent above the project target but rail traffic almost 40 percent below target. Roads and Bridges 2002 Twelve development partners cofinanced this project, which was estimated to cost $704 million, including IDA contribution of $162 million. The main objectives were to improve roads and bridges, strengthen institutional capacity to administer the roads sector, and establish financing mechanisms for road maintenance. The project made progress on road and bridge rehabilitation and the establishment of road maintenance funds, although the institutional capacity to administer the road sector was not improved. Beira Railway 2005 The objectives were to provide cost-effective transport to the Zambezi Valley to accelerate growth and reduce poverty, increase international traffic through the Beira Railway System, and ensure its sustainability. Its closing date was extended to 2011, but work on the Sena railway line (by far the major component in the project) has been completed and is rated satisfactory. Based on progress so far this project is likely to achieve its development objectives. Roads and Bridges II 2007 This project is cofinanced by 13 other donors with a total cost of $1.043 billion, to which IDA is contributing $100 million. The project‘s main objective is to stimulate growth and reduce poverty through improved road infrastructure, better sector policies, and enhanced roads sector management. On the basis of progress so far, this project is likely to meet its development objectives. PRSC 4 2008 Measures were included to expand the construction, rehabilitation, and maintenance of roads. 3.43 The Bank’s CAS objective of increasing international traffic on Mozambique’s ports and railways through Bank-supported concessioning was partially achieved. A concessioning program did take place, with Bank support directed at consulting advice for the program and funding for key investments. The country‘s three main ports (Maputo, Beira, and Nacala) are concessioned to private operators, as are the two railways (Sena and Machigo) in the Beira corridor, and the railway in the Nacala corridor (Table 16). However, while international port traffic reached 11.1 million tons, surpassing the target for 2008, 34 CHAPTER 3 PILLAR I – STABILIZATION AND GROWTH traffic on the railways reached only 3.5 million tons, half the 2008 target. Some service improvements were brought about by the concessions.27 The achievements reflect the difference in quality and success of the concessions as between the two modes, where the concessioning of railways has been especially difficult. Railways are normally loss-makers and require large investments and government subsidies, which severely limit the number of potential concessionaires. A further problem with the design of the railway concessions is the conflict of interest created by having CFM, the country‘s port and railways company and de facto regulator, as a 49 percent partner in the concessions.28 In addition, it would be desirable to strengthen operational efficiency and financial indicators in the design of concessions. The absence of efficiency indicators in the concession agreements hampers analysis of service quality and costs to clients offered by the private operators. Table 16. Concessions of Rail and Port Systems System Year concession Concessionaire/comment started Port of Beira (general cargo and 1998 Cornelder de Moçambique (Netherlands) container terminals) Beira rail system 2004 Companhia Dos Caminhos De Ferro Da Beira (India) Port of Maputo 2003 Maputo Port Development Company (UK, Sweden) Maputo line Ressano-Garcia Concession agreement signed in 2002, never became operational, and was terminated in 2005 Port of Nacala 2005 Corredor de Desenvolvimento do Norte (US), until 2008, when it sold its share Nacala rail system 2005 Corredor de Desenvolvimento do Norte (US), until 2008, when it sold its share Port of Quelimane 2005 Cornelder de Moçambique (Netherlands) Source: IEG mission findings. 3.44 In summary, owing to improved routine and periodic maintenance as well as to rehabilitation of deteriorated roads, almost three-quarters of the classified road system is in good or fair condition compared with about half in 2003, and the Bank’s contribution has been substantial. While funding for road maintenance has also improved and enhanced sustainability prospects, more effort is needed to improve access by the rural population to markets and services. Port concessioning was successful and international port traffic surpassed the Bank‘s target for 2008. The concessioning of the railways has been more complex and results are less favorable, with traffic in 2008 well below the Bank‘s target and barely above the level in 2000. On balance, the outcome of Bank assistance in the transport sector is rated moderately satisfactory. Overall Evaluation of Pillar I 3.45 The breadth of objectives, the number of projects, the size of the Bank‘s lending, and the number of development partners and their financial contributions were all much larger under Pillar I than for either of the other pillars in the Bank‘s assistance strategy in Mozambique. This evaluation concludes that the large set of programs in Pillar I was relevant to achieving stabilization and growth. 35 CHAPTER 3 PILLAR I – STABILIZATION AND GROWTH 3.46 The Bank provided general budget support through DPLs and PRSCs to which development partners also made substantial contributions. Complemented by Bank analytic work, general budget support programs were key instruments for stimulating policy and institutional reforms that, inter alia, generated revenues and supported the budget, thereby helping to achieve macroeconomic stability. Whereas the achievement of sustained stabilization is most plausibly characterized as the joint effect of government and contributions of all development partners, including the IMF, it is plausible to assert that the coordinated implementation of budget support to the government might not have occurred had the Bank not provided the leadership for these programs. Since the Bank has been closely associated with a dialogue on macroeconomic policy, this evaluation judges that, even acknowledging the impossibility of clearly attributing the Bank‘ individual impact compared with other stakeholders and the government itself, the Bank can with reasonable justification claim a substantial contribution to the outcome in this area. 3.47 During the period reviewed, GDP growth averaged between 7 and 8 percent per year and the Bank‘s support for the government‘s macroeconomic policy, financial sector reform, rural development, energy development, and mining as well as transport all contributed to this growth in different ways. At the same progress on private sector development, a crucial engine of growth was slow. Results were also below expectations in rural development and the sustainable management of natural resources. The overall outcome rating for Bank support under Pillar I (Stabilization and Growth) is judged moderately satisfactory. 36 4. Pillar II — Poverty Reduction and Human Development 4.1 Social development is the core of Pillar II in the PARPA, but it was relabeled ―human development‖ in the World Bank‘s CAS of 2000. This chapter, however, begins with a review of the incidence and depth of poverty because of its direct impact on the ability of close to half of all Mozambicans to access education, health, and related services that can contribute to personal development. It also evaluates the extent to which the Bank has been able to contribute to a core CAS objective, namely to reduce the proportion of the population estimated as living below the poverty line. The chapter then reviews the outcomes of the Bank‘s programs and projects that have supported education and health services, the lowering of the incidence of HIV/AIDS, as well as access to improved domestic water supplies and sanitation facilities, all of which were important CAS objectives. Poverty Reduction 4.2 The Bank’s strategy and program. The Bank‘s strategy for poverty reduction was to contribute to economic growth and improved social services. The Bank‘s PRSCs became the flagship instruments for supporting growth. However, the PRSCs did not include an explicit target for poverty reduction, presumably because it was expected that growth and improved social services would lead to the Mozambique government‘s broad-based poverty reduction objective. All PRSCs were conditioned on a government commitment to allocate and maintain 65 percent of the total annual government budget to the six PARPA priority sectors. 4.3 Progress toward strategic objectives. The government commitment to allocate 65 percent of the budget to PARPA priority sectors—education, health, agriculture, water, infrastructure and governance—was met overall since it was already close to that level when the PRSCs started (Figure 7).1 In other words, maintaining the relative importance of budget allocations to PARPA priority sectors was the main objective. Performance indicators used for the PRSCs changed from one PRSC to the next so that there was no long- term perspective on the trend in these measures of progress. The indicators typically did not distinguish between urban and rural areas. In addition, in some sectors, the benefits of improved social services were focused on urban areas rather than rural areas where most of the poor and inadequate social services are located.2 It should be noted that agriculture and rural development received a very low share of total budget expenditures (Figure 7). 4.4 As indicated earlier, the PRSCs were more focused on macroeconomic policy and public financial management (PFM) than the PARPA priority sectors. For example, up to the end of 2008, PFM, with 20 out of 43 prior actions, was the primary focus of four PRSCs. The Joint Bank-Fund Staff Assessment,3 in reviewing PARPA II, noted similar areas for priority 37 CHAPTER 4 PILLAR II – POVERTY REDUCTION AND HUMAN DEVELOPMENT action by the government, including: (i) budgeting should be more deliberate in the allocation of expenditures to activities that would result in poverty reduction; (ii) pay more attention to economic development in rural areas (for example, SMEs and increase the provision of public and private agricultural and financial services); (iii) maximize benefits from natural resources; (iv) accelerate HIV/AIDS prevention; and (v) establish an anticorruption monitoring system. Figure 7. Public Expenditures Directed at Priority Sectors (% of total budget) 80 percent of total budget 60 40 20 0 1999 2000 2001 2002 2003 2004 2005 2006 PARPA priority areas (calculated) Education Health Water, sanitation, and public works Agriculture and rural development Source: Government of Mozambique, PARPA I and II, Ministry of Finance, Budget Execution Reports 4.5 Midway through PARPA I, the government established Poverty Observatories (POs) with the objective of involving civil society in the review of progress on poverty reduction. They were primarily focused on observation and process issues with no actions. This gave rise to a number of concerns among PO members. The Bank reviewed the role of POs and recommended actions to enhance their effectiveness and legal standing (Annex Table 12). 4.6 Trends in poverty. The main source of evidence for the trends in poverty is the 2003 household income and expenditure survey, as the results of the 2009 survey were not available to this evaluation. The average incidence of poverty, as measured by expenditures revealed in household surveys compared with a minimum consumption basket, declined nationally from 67 percent in 1997 to 54 percent in 2003 (Table 17). In rural areas the decline was 23 percent compared with 19 percent in urban areas—yet the incidence of poverty was still higher in rural areas (55 percent) than in urban areas (52 percent). The table also shows that the poverty gap, which measures the depth of poverty, also declined substantially between 1997 and 2003, which meant that those still below the poverty line were, on average, not as far below that line in 2003 as they were in 1997. The decline in the incidence of poverty up to the end of 2003 has been attributed to a rapid growth of GDP, increased employment opportunities, and hence higher incomes, as well as a decline in the growth rate of the population. This was all good news midway through PARPA I (2001-05). 4.7 Reductions in poverty in rural areas did not mean a major change for the traditional subsistence small-scale farmers. Even if they are above the poverty line, they may still be in a low-level subsistence trap with few opportunities to trade their production surplus and hence little incentive to improve productivity. Inequality (measured by the 38 CHAPTER 4 PILLAR II – POVERTY REDUCTION AND HUMAN DEVELOPMENT Gini coefficient) increased slightly from 0.40 to 0.42 between 1997 and 2003. Moreover, it is generally accepted that inequality (while comparable with neighboring countries) has continued to remain relatively high and may have increased in Mozambique since 2003 as higher-income groups have gained and the real income of the typical poor subsistence farmers has stagnated. Consequently, assuming that the poverty gap is still high, there is concern that the rate of decline in the incidence of absolute poverty in rural areas may be slowing despite strong economic growth. Table 17. Incidence of Poverty and Poverty Gap by Urban and Rural Areas, 1997 and 2003 Incidence of poverty a Poverty gap b Region/province 1997 2003 Change 1997 2003 Change (percent) Mozambique 69.4 54.1 -22.0 29.2 19.9 -31.8 Area Urban 63.9 51.6 -19.2 27.2 18.9 -30.5 Rural 71.6 55.2 -22.9 30.0 20.4 -32.0 Note: Urban and rural definitions as at 2003. See Annex Table 13 for a more detailed presentation of the incidence and depth of poverty in Mozambique in 1997 and 2003. a. Proportion of the population below the poverty line. b. Aggregate poverty deficit of the poor relative to the poverty line. Source: National Survey on Living Conditions (IAF) data for 1997 and 2003. 4.8 Geographical distribution of poverty. The rural averages mask considerable variation among provinces in the changes in the incidence and depth of poverty between 1997 and 2003, as well as the current incidence and depth of poverty. The reductions in poverty were much higher in the northern and central provinces than in southern provinces with three major exceptions. In Maputo province and Maputo City in the south the incidence of poverty increased 12.5 percent and 9.6 percent respectively.4 These increases, along with a very small change in poverty in Inhambane province, resulted in the high levels of incidence and depth of poverty in the south compared with northern and central provinces in 2003, as shown in Figure 8. The northern provinces of Zambezia and Nampula, however, have by far the highest population (about 3.5 million people each compared with other provinces that have less than 1.5 million) and hence the highest absolute number of poor, respectively about 1.6 and 1.8 million. On the other hand, the depth of poverty in 2003 in these two provinces was lower than the national average. 39 CHAPTER 4 PILLAR II – POVERTY REDUCTION AND HUMAN DEVELOPMENT Figure 8. Population and Poverty by Provinces and for Maputo City 4 Millions 3 Population 2 1 0 ne id do la v e a a ca a a ro et zi C az ss al pu ba ga i P be an T of to ia G am m el to S am N M u D ha ap u N ap Z o In M ab M C Pr ovince Poor Non-Poor Source: National Survey on Living Conditions (IAF) for 2003. 4.9 The pattern of growth and poverty reduction. The incidence of poverty in different provinces in 2003 reflected the pattern of growth. That pattern largely compensated for the low growth during the 20-year civil war. After the peace agreement, poverty reduction was spurred by ―the ability of family farmers and family-owned small businesses (where more than 90 percent of the labor force in Mozambique works) to raise their incomes‖ but ―overall, households with diversified sources of income tended to be less poor in 2003 than those that did not diversify.‖5 Usually diversification meant gaining off-farm employment compared with farm employment. In addition, there was considerable growth of private and public services in urban areas, which resulted in direct and indirect generation of employment. Beginning in 1999, growth was also driven by public and private capital accumulation (including a number of FDI-financed mega-projects that aimed at harvesting natural resources) but these have not yet substantially addressed the challenge of creating more jobs and making growth more evenly distributed. 4.10 More recent indicators of changes in poverty. The Bank‘s 2008 report Beating the Odds: Sustaining Inclusion in Mozambique’s Growing Economy included results from a small 2006 Poverty and Vulnerability Survey, which collected perception-based data from households in selected areas in the provinces of Gaza, Nampula, Niassa, and Zambezia.6 The results, summarized in Box 2, indicate an overall perception of worsening poverty in these areas. While differences in methodology and coverage dictate caution when making a comparison with the 2003 household survey results, a preliminary interpretation could be that growth after 2003 has not been trickling down to the poor to the same extent as in the earlier period. 4.11 This CPE found general agreement with these conclusions among the policymakers and resident community of development partners. Aggregate growth has been impressive during the review period, and the underlying macroeconomic performance satisfactory, but the benefits of growth have not reached the majority of the population, particularly those in poor rural areas. According to ―Beating the Odds‖, ―Rural income inequality seems to be growing, and already high urban inequality persists, so fast growth may now have less of a poverty-reducing effect.‖ Thus, while the draft 2009 CEM concluded that continued interest in mega-projects by foreign investors in new areas like coal and pipelines for natural gas and possibly petroleum is likely to be very beneficial for the economy, particularly if 40 CHAPTER 4 PILLAR II – POVERTY REDUCTION AND HUMAN DEVELOPMENT backward linkages to the domestic economy are strengthened as intended; the major challenge remains to create a significant volume of new employment in the ―smaller‖ economy; in urban areas and particularly in rural areas. Box 2. Results from the Poverty and Vulnerability Survey The following observations stood out as reflecting credible concerns about the future prospects for reducing poverty in Mozambique:  The survey identified six realities of poverty: (i) lack of income and employment and hence the instability of livelihoods; (ii) lack of assets such as land, labor, livestock, and agricultural inputs with which to develop and sustain livelihoods; (iii) lack of household and personal amenities, such as food, clothing, and housing; (iv) inadequate infrastructure that would usually be supplied by the public sector, such as water supply, sanitation, roads, energy, and markets; (v) poor access to education and health facilities; (vi) lack of social capital that could provide reinforcement for local efforts to achieve social change.  Inequality was perceived as a pervasive attribute of poverty, underlining the significant possibility that inequality is rising, as is its social impact and impact on the incidence of poverty. Poverty was blamed for the unequal access to services and other resources needed for survival.  An overall perception that poverty has worsened rather than fallen, which was reflected in declining feelings of well-being and deteriorating living standards.  Households remain hopeful about their future well-being. A higher percentage of households in urban areas expected poverty to decrease or remain the same in the near to medium term. While the optimism of the urban areas was not necessarily shared in rural areas, a much lower percentage in both rural and urban areas was pessimistic about the future than was pessimistic about the past. Source: Poverty and Vulnerability Survey, 2006. This survey collected data based on purposive cluster sampling from households using participative survey techniques in the provinces of Gaza, Nampula, Niassa, and Zambezia. The survey methodology is described in World Bank 2008d, Annex B, page 103. 4.12 To summarize, the CASs were aligned with PARPA I and II and focused on poverty reduction. The incidence of poverty declined markedly between 1997 and 2003, following rapid GDP growth, but estimates of poverty beyond 2003 will not available until the results of the 2009 national household expenditure survey are made public. The 2006 Poverty and Vulnerability Survey indicated that the overall perception of poverty in a selection of four provinces (including two with by far the largest population) had worsened. This result needs to be interpreted with caution because data were not obtained from a random sample, but it could be an indication of a slowdown in the rate of poverty reduction—even in times of strong growth. Poverty reduction is the outcome of many interventions, often with lags, by both the government and its development partners. The PRSCs played a substantial role in this process, through financing and prior actions, such as allocating 65 percent of the budget to PARPA priority sectors. The budget could have been more pro-poor in the allocation of expenditures to activities that would translate directly into benefiting poor households. On balance, based on the data available, the outcome of Bank assistance for poverty reduction is rated moderately satisfactory.7 4.13 How much of Mozambique‘s future pattern of growth will be employment- generating and poverty-reducing? If Mozambique continues to be characterized by low agricultural productivity, slower growth in the employment-intensive service sectors, and 41 CHAPTER 4 PILLAR II – POVERTY REDUCTION AND HUMAN DEVELOPMENT generally fewer opportunities for off-farm employment, are there strong prospects for the reduction of poverty? If this future scenario of lower employment opportunities plays out, then the role of the other leg of poverty reduction—improved human capital development— will become even more crucial than it is today. This evaluation therefore now turns to the Bank‘s assistance to Mozambique for human capital development. Human Capital Development 4.14 PARPA I established the ―Fundamental Areas of Action‖ for sectors that merited ―special attention due to the critical role they play in their impact on its multidimensional perspective on poverty reduction, socio-economic development and inclusive, broad-based economic growth.‖8 Education, health, and water supply, the focus of this section of the CPE, were included in the list of PARPA priority focus areas.9 PARPA I emphasized that human capacity is the primary contributing factor to the initiatives and actions of all citizens and all social institutions. PARPA II (2006-09) built on these objectives, emphasizing that human capability is a fundamental asset for the initiative and actions of citizens and all of society‘s institutions. Education 4.15 Government policy and Bank Strategy. The government‘s objectives in education were embodied in its Education Sector Strategic Plan, to which the Bank had made a number of contributions. The Bank‘s strategy was aligned with the government‘s strategy. The plan was to develop not only primary school education but also post-primary and higher education in order to improve the quality of human resources. The benefits of education, especially the education of girls, were seen to extend beyond the individual because it had a multiplier effect on the entire society. It was regarded as urgent to ensure the recruitment of well-qualified teachers and literacy of workers in sufficient numbers to support economic growth. Invest- ment was to be directed toward the least-favored regions and oriented toward education for all. Investment in education also needed to serve persons with disabilities so that all citizens might take a more active part in reducing poverty. Efforts needed to be continued to ensure the internal efficiency of the sector and the effectiveness of outside assistance.10 4.16 When the civil war ended in 1992, the education sector was in parlous condition. Even seven years later, when the Education Sector Strategic Plan was launched, gross primary school enrollment and completion rates were estimated at only 67 and 50 percent in grades 1-5, and 15 and 37 percent in grades 6-7. Secondary education was even weaker, for lack of both facilities and teachers, with enrollment rates well below 10 percent and completion rates reported at only 33 percent.11 The urgent need for vocational and higher education was underlined in PARPA I, which noted that in 1998 less than 3 percent of the national staff for the whole public administration in Mozambique had a higher education. PARPA I made detailed suggestions for an investment program in education. 4.17 At the time the peace agreement was signed in 1992, one university (Eduardo Mondlane University) accounted for about 75 percent of total higher education enrollment, and this university still has the most students. Although a number of institutions of higher 42 CHAPTER 4 PILLAR II – POVERTY REDUCTION AND HUMAN DEVELOPMENT education have been established since 1992, Mozambique continues to face a substantial shortage of the high-level skills that are required for development and growth. In addition, a related problem is that there is a shortage of teachers at the 10 institutions currently providing higher education and a shortage of teachers at institutions that train teachers. 4.18 The Bank’s program. The Bank financed three education projects (Table 18): the Education Sector Strategy Program ($71.8 million), the Higher Education Project ($60 million) and Supplementary financing ($15 million) for the project, and the Technical and Vocational Education and Training Project ($30 million). The Education Sector Strategy Program (ESSP) aimed at supporting the government‘s basic education sector program. Its objective was to provide increased and equitable access to higher quality education. The project used a sectorwide approach (SWAp), which included substantial support from 14 development partners (planned at about $120 million), including the AfDB, for different components of the whole $717 million program of which the Bank financed 10 percent ($71 million) through the SWAp. The government contributed $445 million (62 percent). There were, however, no legal agreements to define the nature or extent of development partner financing, and in the course of project implementation development partner support varied significantly.12 Table 18. Education Projects World Bank interventions Date Measures/actions supported Education Sector Strategy 1999 This SWAp, which included support from 14 development partners, helped Program (ESSP) substantially increase access to primary education, but quality of primary education was not adequately addressed. Higher Education 2002 Under this project, Bank objectives for improving higher education were achieved through an increased enrollment efficiency ratio, a higher number of graduating students, development of new curricula and degree programs, and a higher intake of students from the north. Technical and Vocational 2006 It is too early to evaluate the outcome of this project, but recent Bank Education and Training supervision mission reports indicate that after a delayed start the project is on track to meet its development objectives of facilitating a demand-led training program and provide beneficiaries with more market-relevant skills and improved economic opportunities after graduation. 4.19 All the projects were relevant to the government’s and the Bank’s strategy for the education sector. ESSP provided resources to plan a Higher Education Project, which was approved in 2002. Its objectives were to enhance the internal efficiency of higher education and expand the output of graduates; to improve equitable access to higher education; and to improve the quality of the teaching/learning process and the relevance of the curriculum. Targets were established for enrollment efficiency ratio, number of graduating students, new curricula and degree programs, and intake of students from the north. The 2006 Technical and Vocational Education and Training Project aimed to facilitate a demand-led training program and provide beneficiaries with more market-relevant skills and improved economic opportunities after graduation. In addition, in FY09 the Education for All Fast Track Initiative–Catalytic Fund (FTI-CF) allocated $79 million to a pool fund used to implement the government‘s ESSP to further support the development of primary education.13 To provide additional support to the education sector, the Bank undertook a useful analysis of the impact of fees on primary school enrollment and repetition rates, 43 CHAPTER 4 PILLAR II – POVERTY REDUCTION AND HUMAN DEVELOPMENT which resulted in the abolition by the national government of formal fees for primary education in 2005 (Annex 15). 4.20 Progress toward achieving objectives. The objective of improving access to basic education (primary and secondary) under ESSP was met. Table 19 shows that over the past decade access to primary and secondary education (measured by the availability of schools) increased substantially as the government, with the assistance of the Bank and its other development partners, constructed numerous primary schools (EP1 and EP2 levels) and secondary schools (ESG1 and ESG2 levels)—most in rural areas. An indication of the relative status of Mozambique‘s education system is shown in Table 20, which compares three education Millennium Development Goal (MDG) indicators for Mozambique, Zambia, and Sub-Saharan Africa (SSA). Mozambique‘s education indicators lag behind Zambia and SSA, except for net primary school enrollment rates where the Mozambique and SSA averages are currently comparable. Table 19. Trends in the Number of Schools at Primary and Secondary Levels, 2000-08 EP1 EP2 ESG1 ESG2 Year (grades 1-5) (grades 6-7) (grades 8-10) (Grades 11-12) (number) 2000 7,072 522 92 20 2001 7,480 685 105 23 2002 7,788 823 116 27 2003 8,077 950 125 29 2004 8,373 1,116 140 30 2005 8,696 1,320 156 35 2006 8,954 1,514 190 49 2007 9,303 1,842 255 58 2008 9,649 2,210 285 76 Growth rate 3.8% pa 17.2 pa 14.0 pa 15.8 pa Note: Basic education is defined as levels EP1, EP2, and ESG1. Source: Ministry of Education and Culture. 4.21 However, data from the Ministry of Education indicate that the enrollment rate for EP1 reached 95 percent in 2007, far short of the FY03-07 CAS target of 128 percent. A recent Multiple Indicator Cluster Survey (MICS) provides more accurate information on primary school completion rates.14 It found that only 15 percent of children of primary school age in Mozambique completed the final primary school year (level EP2). This is far below the World Development Report estimate of 45 percent in 2007 in Table 20 and substantially below the CAS target of 59 percent for EP1 level graduating percentage. In rural areas the MICS found completion rates of only 7 percent, compared with 31 percent in urban areas. A related conclusion from the MICS was that completion rates of primary school children increased as the education level of the mother increased. Table 20 also shows that the indicators for girls have improved, but that the difference with boys persists. 4.22 The ICR for ESSP evaluated its outcome as moderately satisfactory, which was endorsed by IEG‘s ICR Review. The main driver for these evaluations was the substantial increase in access to primary education, although it is acknowledged that primary education quality has lagged considerably. On the other hand, the subsequent Project Performance Assessment Report (PPAR) concluded that ―This was an overly ambitious and complex 44 CHAPTER 4 PILLAR II – POVERTY REDUCTION AND HUMAN DEVELOPMENT objective that could not be attained efficiently. Few activities actually aimed at improving management; to the contrary, financing was diverted from quality inputs into civil works. And while most ‗hardware‘ activities were completed, activities for girls‘ scholarships and for special education were not implemented. Little attention was given to adult literacy and secondary education, as well as to instructional issues at any level. Reductions in repetition rates were attained through semi-automatic promotion rather than improved learning outcomes. This promotion policy risks creating cohorts of students who graduate without literacy or other skills associated with schooling and for whom education funds have essentially been wasted. Not coincidentally perhaps, primary-school pass rates increased across the board in the year that ESSP ended, but the improvements were difficult to explain. Overall, relevance was substantial, but efficacy and efficiency were modest.‖ For these reasons, the PPAR rated the project‘s outcome moderately unsatisfactory.15 Table 20. MDGs for Education for Mozambique, Zambia, and Sub-Saharan Africa Mozambique Sub-Saharan MDG Indicator Units 2000 2007 Zambia 2007 Africa 2007 Persistence to last grade of primary school % of cohort 32 45 75 n.a. -female % of cohort 29 41 67 n.a. -male % of cohort 34 48 83 n.a. Primary school completion rate % of relevant age group 16 46 88 63 -female % of relevant age group 13 39 83 58 -male % of relevant age group 20 53 94 69 Net primary school enrollment % or age group 56 76 94 72 -female % or age group 50 73 94 70 -male % or age group 62 79 94 75 Source: World Development Report database and Annex B covering all MDGs. 4.23 Of course, questions about the quality of primary education are a major concern in the Ministry of Education and Culture and among development partners. It is known that attendance is less than enrollment, and recent data indicate that 78 percent of primary school-age children attend school in rural areas and close to 90 percent in urban areas.16 The quality of teachers is also known to be low, with about 60 percent of teachers unqualified. The Bank‘s 2008 report Beating the Odds: Sustaining Inclusion in Mozambique’s Growing Economy suggests that the average quality of education (measured by pupil-to-teacher ratios, numbers of unqualified teachers, and rising dropout rates) appears to be getting worse, particularly in the underserved areas. Northern areas of Mozambique have the lowest completion rates and the widest gender gaps. It should be noted, however, that the Bank‘s own performance was sometimes less than satisfactory during the formulation and implementation of the ESSP, which may have contributed to shortcomings in the outcome of the project. For example, QAG identified the shortcomings of an ―unsound design‖ and found fault with the Bank‘s failure to pay attention to content.17 4.24 Despite the ESSP‘s successful performance on improving access to primary education and undoubtedly aware of the serious deficiencies in the quality of instruction, the Bank decided not to finance a second phase of the ESSP. This meant that, after mid-2006, the Bank‘s only financial involvement in the primary education program took place through the PRSCs‘ prior actions that required a 65 percent budget allocation to PARPA priority sectors, which included education. However, it was unlikely that the serious problems of 45 CHAPTER 4 PILLAR II – POVERTY REDUCTION AND HUMAN DEVELOPMENT nonattendance, lack of text books, and the need for increased and improved teacher training would have been solved through a general budget allocation to the Ministry of Education and Culture by way of a PRSC. A second ESSP could have addressed the quality issues head on using the Education Sector Pool Fund to which development partners continued to contribute, but the Bank decided to redirect its support to higher education because there were already many donors supporting basic education. Nevertheless, after protracted negotiations with the government and development partners on issues such as procurement, the Bank renewed its direct support to primary education through the FY09 FTI-CF grant. 4.25 Bank objectives for improving higher education have been achieved. During implementation of the Bank-supported Higher Education Project the following were noted: (i) the enrollment efficiency ratio (new admissions over total enrollment) is approaching 50 percent compared with the target of 22 percent for the project; (ii) the absolute number of graduating students was 4,164 in 2007 compared to the target of 4,000; (iii) new curricula and degree programs are being implemented as intended; and (iv) a greater proportion of students at institutions of higher learning are now from the north compared with the proportion in 2002. A large part of the project was associated with new construction and rehabilitation, but the Bank supervision mission reports note that maintenance has not kept pace with the improvements in infrastructure. This is an issue that needs to be addressed to ensure sustainability. 4.26 The Technical and Vocational Education and Training Project will not close until the end of October 2009. It is too early to evaluate the outcome of this project, but recent Bank supervision mission reports indicate that after a delayed start the project is on track to meet its development objectives. 4.27 In summary, the Bank’s strategic commitment to support all levels of education through rehabilitating and constructing infrastructure has contributed, together with support from other partners, to increased access to education. However, future Bank assistance needs an enhanced focus on improving the quality of education. This can be achieved using funds allocated to ESSP from the Fast Track Initiative-Catalytic Fund, or through the Bank‘s analytical and advisory support. The PPAR prepared by IEG on the ESSP suggests ways to improve education quality, such as reducing the waste of instruction time, increase the availability of text books, as well as better training, incentives and accountability for teachers and school administrators, particularly in rural areas.18 On balance, the outcome of Bank assistance to education is rated moderately satisfactory. Health and HIV/AIDS 4.28 Government policy and Bank strategy. Following a series of postwar reconstruction planning documents prepared in 1991 and subsequent deliberations, which included the legalization of private healthcare providers, a government health policy emerged. This policy was contained in the government‘s Letter of Sector Policy to the World Bank in 1995 in support of its request for the proposed World Bank credit for the Health Sector Recovery Program. The core features of the policy were: (i) an emphasis on primary healthcare; (ii) inclusion of the National Health Service as well as nonprofit and nongovernmental organizations in the health reconstruction program and rehabilitation of the health infrastructure and their services at all 46 CHAPTER 4 PILLAR II – POVERTY REDUCTION AND HUMAN DEVELOPMENT geographical levels; (iii) improvement of human resources; and (iv) strengthening of management and financial resources in the national health system and cost recovery. The Bank adopted this strategy, and it remained largely unchanged during the period of this evaluation until 2006 when the Bank suggested a four-point strategy for scaling up healthcare services: (i) improve population-based preventive services; (ii) scale up community-based services; (iii) improve facility-based care; and (iv) provide outreach healthcare services in remote areas. It is understood that elements of this strategy provide the organizing framework for the next Bank- financed healthcare project in Mozambique. 4.29 For HIV/AIDS the challenge for government strategy, as described in PARPA II, was to make the nation aware that there was an urgent problem and that an effective and multisectoral response would not only slow new infections but prolong the life expectancy of people living with HIV/AIDS by providing appropriate care and treatment. This urgent problem attracted the attention of the government and all development partners. However, the institutions charged with taking action were overwhelmed by the magnitude of the task and needed to be strengthened. The challenge of poverty reduction in Mozambique becomes all the more daunting when one considers the need to eliminate the risky behavior patterns of the sexually active, overcome the spread of HIV infections, and treat the increasing number of AIDS patients.19 4.30 The Bank’s program. The Bank financed only two health-related projects during the review period (Table 21): the Health Sector Recovery Program (HSRP, $98.7 million) and the HIV/AIDS Response Project ($55 million).20 The HSRP was approved as a SWAp in 1996 and focused on health service delivery, institutional support, and human resources development with the objective of improving the health status of the population in general and of decreasing infant and child mortality in particular.21 The total funding for the HSRP was $355.7 million, of which $116.5 million was contributed by the government, $140.5 million by the development partners, and $98.7 million by the Bank. The 2003 HIV/AIDS Response Project, which had not been identified in the CAS as part of the lending program, aimed at supporting communities, civil society, and NGO initiatives to address HIV/AIDS problems; to finance grants for research and studies to investigate and address HIV/AIDS- related problems; and to strengthen and scale up health services for HIV/AIDS programs implemented by the Ministry of Health. Both projects were relevant to government and Bank health sector and HIV/AIDS strategies. Additional support was provided in the form of two health sector reports—Health: Country Status Report in 2004 and ―Better Health Spending to Reach the Millennium Development Goals‖ in 2006 (Annex 16). Table 21. Health and HIV/AIDS Projects World Bank interventions Date Measures/actions supported Health Sector Recovery Program 1996 HSRP financed the construction of numerous health facilities in rural (SWAp) areas, improved a number of institutions, and trained many health professionals. While attribution is always difficult to establish with improved social services, official data show that during the period of HSRP implementation, population per health center, infant mortality, and intrahospital maternal mortality all fell considerably. HIV/AIDS Response Project 2003 This project aimed at supporting communities, civil society, and NGO initiatives to address HIV/AIDS problems; to finance grants for research and studies to investigate and address HIV/AIDS-related problems; and 47 CHAPTER 4 PILLAR II – POVERTY REDUCTION AND HUMAN DEVELOPMENT to strengthen and scale up health services for HIV/AIDS programs implemented by the National Commission to Combat AIDS and Ministry of Health. Progress has so far been minimal due to capacity constraints within the government, weak coordination, and design limitations. 4.31 Progress toward achieving objectives. There was no monitoring of the HSRP’s main objective during implementation of the program, namely the aim to increase coverage of basic health services from 40 to 60 percent of the population. Nevertheless, it was estimated that the population per health center was reduced from 85,000 in 1995 to 42,000 in 2003. HSRP financed the construction of numerous health facilities in rural areas, improved a number of institutions, and trained many health professionals. While attribution is always difficult to establish with improved social services, official data show that during the project implementation period infant mortality decreased from 162 per 1,000 in 1996 to 101 in 2003. In addition, the intrahospital maternal mortality rate fell from 186 per 100,000 live births in 1995 to 160 in 2002. Table 22 provides recent data and shows that, based on five MDG indicators, Mozambique‘s health status is roughly comparable to neighboring Zambia while generally behind Sub-Saharan Africa as a whole in 2007 based on World Development Report data. 4.32 More recent data show that average infant and under-five mortality rates have declined over the past 10 years but remain at 105 and 154, respectively, for urban and rural areas, although rural rates have declined most rapidly. While the current burden of communicable diseases is serious, vaccination coverage among children under one year of age has improved. For example, immunization against polio increased from 54 to 70 percent between 1997 and 2008. This was the largest increase in preventive action, but in general the vaccination rates in urban and rural areas are improving even though the coverage in rural areas lags behind urban areas by between 3 and 10 percentage points.22 Table 22. MDGs for Health for Mozambique, Zambia, and Sub-Saharan Africa Mozambique Zambia Sub-Saharan MDG Indicator Units 2000 2007 2007 Africa 2007 Infant mortality rate number per 1000 live births 124 115 103 89 Under 5 mortality rate number per 1000 184 168 170 146 Measles immunization rate % children aged 12 to 23 months 71 77 85 73 Incidence of tuberculosis number per 100.000 people 377 431 506 369 Prevalence of HIV infection % of population aged 15-49 n.a. 15 15 5 Note: Indicators for maternal mortality are not shown because of doubts about the accuracy of their measurement over time. Source: World Development Report database. 4.33 Despite these positive aspects of health sector performance, several issues need to be addressed in order to attain the MDGs. First, in 2006, the overall amount of health spending was not enough to address the country‘s health problems. National health expenditure amounting to $8.30 per capita per year represented a meager amount of money devoted to health programs when compared with neighboring countries and with the average for Sub-Saharan Africa. It also fell short of the World Health Organization target of $10 per capita. Second, the allocation of existing resources in the health sector has not been optimal. Specifically: (i) the poor, while suffering from worse health problems, benefited 48 CHAPTER 4 PILLAR II – POVERTY REDUCTION AND HUMAN DEVELOPMENT least from public health expenditures; (ii) rural households have suffered from the declining financial support to rural primary healthcare services, which constitute their main source of healthcare; and (iii) a regional imbalance remains because the northern regions, although having the worst health status, receive less help compared with other regions, particularly the better-off southern region.23 4.34 The 2006 ―Better Health‖ report concluded that to reach the MDGs, Mozambique needs not only to increase expenditures in the health sector but also to ensure more effective public spending to achieve better results. More effective spending, the report concluded, required clarifying outcome objectives, prioritizing a high-impact service package, linking inputs to outputs, and establishing an effective service delivery system. 4.35 Progress toward achieving the objectives of the HIV/AIDS project has so far been minimal owing to government capacity constraints, weak coordination, and design limitations. The National Commission to Combat HIV/AIDS (CNCS) is responsible for project management and for building capacity in the provinces for grant-making programs. These are difficult tasks to implement at a time when the capacity of CNCS has been weakened by high staff turnover.24 In addition, the CNCS claims that there was unsatisfactory communication with the Bank on issues such as procurement. In June 2007, in the wake of accumulated implementation delays, the project objective was reduced in scope to ―contribute to slow the spread of HIV/AIDS in Mozambique and mitigate the effects of the epidemic through prevention and care treatment.‖ The change in project design was meant to indicate that the outcome of the project would be measured by the success of ―its contribution to slowing the spread of HIV/AIDS‖ and would not address ―treatment and mitigation,‖ which were previously part of the development objective. The project‘s closing date was also extended to December 2009. However, except for the Ministry of Health component, the pace of implementation did not improve, and recently it was agreed to reallocate $20 million among various components to put financial resources into the hands of those (such as the Ministry of Health) who are likely to use them effectively before the project‘s revised closing date. The latest report on these adjustments indicates that procurement plans for half of the $20 million reallocation had already been agreed. 4.36 In sum, the Bank financed the construction of numerous health facilities in rural areas, improved a number of institutions, and trained many health professionals, contributing to increased health service access and improvement in key health indicators. However, Bank assistance to address HIV/AIDS was based on strategies aimed at strengthening the institution responsible for leading Mozambique‘s campaign against the spread of HIV infections and at supporting research work on HIV/AIDS, but these strategies have so far not been successful. This does not mean that there has been no progress on addressing factors that cause HIV/AIDS and affect transmission of HIV. The data from the Multiple Indicator Cluster Survey show a substantial increase in knowledge among women about common misconceptions about HIV and AIDS, but knowledge on how to prevent the transmission of HIV is still very weak. The survey also showed a substantial increase in the use of condoms.25 While this progress is encouraging, none of it can be plausibly attributed to the Bank‘s HIV/AIDS project.26 In future, it would be desirable for the Bank to support Mozambique‘s HIV/AIDS programs more directly through an intensive collaborative analysis of effective strategies and actions that could lead 49 CHAPTER 4 PILLAR II – POVERTY REDUCTION AND HUMAN DEVELOPMENT to reducing the incidence of HIV infections and the sustained treatment of AIDS. The overall outcome of Bank assistance to the health sector and for HIV/AIDS is rated moderately satisfactory. Water and Sanitation 4.37 Government policy and Bank strategy. The government had already formulated a National Water Policy (NWP) when the Bank started its assistance to this sector in 1998. That policy committed the government to recognize water as an economic and social good; decentralize autonomous and financially self-sustaining water supply and sanitation services; phasing out its direct service provision role; integrated water management taking environmental impacts into account; multi-objective investment planning with greater focus on capacity building; and an increased role for the private sector. 4.38 The Bank’s program. In light of this policy, the Bank agreed to support the government in : (i) reorienting the management arrangements for the sector away from direct service delivery toward strategic sector direction-setting, regulation, and financial planning and management and further support to the implementation of the NWP; (ii) reforming the management of the water companies in Beira, Maputo, Nampula, Pemba, and Quelimane by placing them under private sector management; (iii) reforming tariffs, aiming at full cost recovery; (iv) embarking on a program of investment to bring water services in the five cities to an acceptable level of service and coverage; (v) reform the provision of rural water supply services with the objective of implementing a demand-oriented approach; (vi) develop a strategy for water resources management and the management of bulk water for irrigation and other purposes; and (vii) developing human resource capacities. These strategies occupied the government and the Bank for many years.27 4.39 The Bank financed three projects in the water sector (Table 23): the National Water Development Project I ($36 million), the National Water Development Project II ($75 million) and Supplementary ($15 million),28 and the Water Services and Institutional Support Project ($15 million). The last project became effective in March 2008 and it is therefore too early to judge its efficacy or outcome. All three projects were aligned with the government and Bank strategies. In 2007 the Bank, in collaboration with the National Water Department of the Ministry of Public Works, prepared a ―Country Water Resource Assistance Strategy: Making Water Work for Sustainable Growth and Poverty Reduction‖ (Annex 17). Table 23. Water and Sanitation Projects World Bank interventions Date Measures/actions supported National Water Development 1998 and These Bank interventions supported substantial institutional reforms that Project I and II 1999 provided the framework for the public regulatory role and the private service delivery role that together achieved improved and expanded urban water supplies in Mozambique‘s major cities. In terms of service delivery, the five cities targeted receive a minimum of 20 hours of water supply per day. Water Services and Institutional 2008 Continues to deepen the reforms from the previous two projects, but it is Support Project too early to evaluate its likely outcome. 50 CHAPTER 4 PILLAR II – POVERTY REDUCTION AND HUMAN DEVELOPMENT 4.40 The core objectives for each of the Bank financed projects were similar, namely, to support the privatization of water service delivery in urban areas (five major cities) under the umbrella of a government parastatal that is responsible for managing Mozambique‘s water resources and the contracting of urban water distribution to the private sector. The first National Water Development Project included a rural water supply component, but it was relatively small compared to the total needs for water supplies in rural areas where access to safe water supplies were, and still are, much worse than in urban areas. In contrast, the Second National Water Development Project was completely dedicated to urban water supplies in the five cities and gave no attention to rural domestic water supplies. Also, little attention was given to sanitation, particularly in rural areas. 4.41 The issue for the Bank is whether to focus on urban water supplies for all domestic (including slum areas) and industrial water users or to expand the availability of safe water supplies to agricultural areas and small rural towns with the possibility of decentralizing heavy water-using enterprises to rural areas. Constraining factors are the lack of available government funds and the increase in projected water demand in Maputo (Annex Table 16). It is suggested that a more balanced urban/rural assistance strategy could be considered that includes incentives for water-using industries to locate to rural areas, thus reducing the stress on the water supplies in cities like Maputo and also providing incentives for a substantial development of rural water supplies and promote the government‘s decentralization policy. From that perspective, the Bank‘s strategy of focusing only on urban areas, while leaving the expansion of rural water supplies to the African Development Bank and other development partners, could be reassessed with the aim of forging a closer partnership with the AfDB to accelerate the pace of improvement in rural water supply while reducing its investment in urban water supplies where the private sector could likely play an increasing role. 4.42 Progress toward achieving objectives. Bank interventions assisted with substantial institutional reforms. Strengthening the managerial and technical capacity of the National Directorate of Water Affairs (DNA) was an important institutional achievement. This effort included improvements to DNA‘s existing facilities, the provision of equipment, and construction of the first phase of a new DNA building. In addition, the former state water companies have ceased to exist, their roles taken over by the Water Supply Investment and Asset Fund (FIPAG). The Water Supply Regulatory Board (CRA) was also established. These institutions are very important to the development and management of water resources as well as the efficient delivery of domestic water supplies in Mozambique. 4.43 In terms of service delivery, the targeted five cities receive a minimum of 20 hours of water supply per day. FIPAG has, with some contract adjustments, successfully implemented the delegated management strategy of urban water supply services. On the other hand, one of FIPAG‘s objectives was put in jeopardy. In October 2008, FIPAG was close to achieving the objective of reaching a financial break-even point, but this was not possible because the government, for social reasons, requested a delay in well-justified domestic water tariff increases. This has had a negative impact on the suppliers of water, as well as on FIPAG‘s cash flow. At the time of the CPE mission, this matter was being addressed with the Ministry of Finance. The Bank‘s contribution to sanitation was minor: a pilot of the rural water supply and sanitation plan was implemented in one province, 51 CHAPTER 4 PILLAR II – POVERTY REDUCTION AND HUMAN DEVELOPMENT including training and participatory planning at the community level, as well as implementation of three small piped schemes in some small towns.29 4.44 There remains considerable scope for improvement of access to potable water and sanitation in Mozambique. Average access to water improved only slightly, from 41 percent in 2000 to 42 percent in 2007, which is behind Zambia and the SSA average, which are both 58 percent (Table 24). In addition, Mozambique‘s national average hides a very uneven distribution of water supplies between rural and urban areas. In rural areas there are only rudimentary safe water supplies for 30 percent of the population and small rural towns where surface and underground water is distributed at pumps located at strategic points. In contrast, high-income urban areas are now well served in most cities and major towns where an average 70 percent of the population has access to potable water—typically distributed through pipes. Access to sanitation improved from 27 percent in 2000 to 31 percent in 2007, on par with the SSA average but considerably behind the 52 percent access in Zambia (Table 24). The focus of local governments is almost entirely on improving urban sanitation programs where adequate water supplies are available. Apart from private solutions in rural towns, in rural areas outside the towns sanitation is typically rudimentary and based on pit latrines. Table 24. MDGs for Water and Sanitation for Mozambique, Zambia, and Sub-Saharan Africa Mozambique Zambia Sub-Saharan MDG Indicator Units 2000 2007 2007 Africa 2007 Improved sanitation facilities % of population with access 27 31 52 31 Improved water source % of population with access 41 42 58 58 Source: World Development Report database. 4.45 Mozambique is committed to meeting the MDGs on water supply and sanitation to more than 7 million people in rural areas and 3 million in urban areas by 2015. To assist the government, this CPE considers that the Bank should play an active role on this difficult issue by undertaking an assessment with the government and other stakeholders of the most cost-effective way of achieving major improvements in access of the rural population (including small-scale farmers) to potable water supply and sanitation. 4.46 In sum, Bank assistance to increase access to potable water and sanitation was largely institutional, supporting the privatization of service delivery in five major cities. Although Bank interventions resulted in successful institutional reforms and substantial improvement of water supplies, the program had a narrow, mostly urban, coverage. Because about 70 percent of the population live in rural areas, average access to potable water improved only marginally, while there was little evidence of significant improvement in average access to sanitation. On balance, the outcome of Bank assistance is rated satisfactory, but it would be advisable for future programs to consider a broader perspective on water supply projects which, if extended to rural areas, could support the decentralization of some industries and relieve the pressure on water supplies in major cities such as Maputo. 52 CHAPTER 4 PILLAR II – POVERTY REDUCTION AND HUMAN DEVELOPMENT Overall Rating for Pillar II 4.47 Under the second pillar (poverty and human development) quantitative measures show progress over the review period, including a substantial reduction in poverty during the first three years and improved access to health and education services, all to some extent attributable to the Bank’s assistance program. Although the incidence of poverty has probably continued to decline because of sustained high growth rates in the economy, it remains high in many rural areas and in parts of most cities. There is also concern that the rate of decline in absolute poverty may be slowing. While Bank assistance in collaboration with other donors increased access to education over the review period, little progress was made on education quality, which remains an important challenge. The Bank‘s program in conjunction with other donors improved access to and the quality of health sector services. On the other hand, design limitations and weak government capacity undermined the effectiveness of Bank support for HIV/AIDS. Bank-assisted projects to improve water supply and sanitation through the development of effective public institutions and the involvement of the private sector in retail water distribution in large cities were successful, although the strategy focused mainly on urban areas. The overall outcome of Bank assistance under Pillar II is rated moderately satisfactory. 53 5. Pillar III — Governance Context 5.1 This pillar focused on the interrelated CAS objectives of improving governance and empowering people though an effective judiciary. Hence, this chapter evaluates the extent to which the Bank‘s program achieved reform of the public sector that was aimed at enhancing the management of government institutions. It then evaluates the progress made under another objective in the Bank‘s CAS, improved effectiveness and equity of the rule of law. To begin, however, it is necessary to understand the strategies and programs designed to achieve these objectives. THE BANK STRATEGY AND PROGRAM 5.2 Assistance under this pillar sought to help the government to: (i) improve budget allocation and execution; (ii) enhance the government‘s monitoring and evaluation (M&E) capacity; (iii) reduce corruption; and (iv) increase the efficiency in the provision of services in the justice system. The objective of improving budget allocation and execution was further broken down into five subobjectives: (a) enhance budget comprehensiveness and transparency; (b) improve budget formulation and evaluation; (c) enhance the credibility of the budget; (d) create organizations and build capacity; and (e) allocate 65 percent of the total budget to the six PARPA expenditure priorities (examined in chapter 4). However, Bank strategies lacked well-defined indicators for outcomes and intermediate results, especially under the 2000 CAS (Annex Table 19). This shortcoming becomes evident when the analysis below attempts to establish what happened following the assistance. To assess achievements of objectives this evaluation used assistance indicators where they were available and, where they were not, it used a group of relevant indicators (proxies). In particular, the evaluation benefited from 2004 and 2006 Public Expenditure Framework Assessment (PEFA) reports about budget practices in Mozambique. 5.3 The program consisted of six lending operations, mainly PRSCs, and eight analytical reports (Table 25 and Annex Table 20). The PRSCs covered spending in priority sectors (poverty-reducing expenditures), implementing an electronic account system (e-SISTAFE) that permitted full control and up-to-date information on expenditures and revenues, approving a new procurement decree, rolling out the e-SISTAFE to more ministries and state organs (the CAS Progress Report names seven ministries and organs), and concluding the study on ―off-budgets‖ in the health sector and initiating implementation of its recommendations as evidenced by the inclusion in its 2006 budgetary proposal. A component of the 2002 Economic Management and Private Sector Operation (EMPSO) sought to increase the budget coverage of various ministerial own receipts and expected that expenditures funded by development partners and classified by function would be reflected in the budget execution reports. The PRSCs and 2003 Public Sector Reform Project 55 CHAPTER 5 PILLAR III — GOVERNANCE included measures to enhance government M&E and improve the judiciary system. Bank assistance sought to reduce corruption with the support of governance surveys, a Public Sector Reform Project, and indirectly via general budget support with the PRSCs. Last, the strategy identified as an intervention a Decentralized Planning and Financing project that focused on capacity building on the local level, but the country assistance strategies did not list specific indicators in the results-frameworks on governance on a decentralized level.1 Table 25. Governance-Related Bank Projects World Bank interventions Date Measures/actions supported Improved budget allocation and execution Economic Management and Private 2003 One of EMPSO‘s three components sought to increase the budget coverage of the Sector Adjustment Project (EMPSO) various ministerial own receipts and to standardize the modalities of donor flows. The credit did not achieve its objective of reflecting all off-budget funds in the budget or in their execution, but the government started to include some off-budget revenues in the budget and to report in the quarterly budget execution report some of the expenditures financed with donor funding. Public Sector Reform 2003 This project supported restructuring of the public sector, professionalization of public servants, and governance. After two and half years, the project had advanced little and its design and implementation problems had become evident, and a restructuring took place. PRSCs 1-4 2005-08 Relevant PRSC triggers covered spending in priority sectors (poverty-reducing expenditures), implementing an electronic account system (e-SISTAFE) that permitted full control and up-to-date information on expenditures and revenues, approving a new procurement decree, and concluding the study on ―off-budgets‖ in the health sector as well as initiating implementation of its recommendations as evidenced by the 2006 budgetary proposal. Government monitoring and evaluation capacity PRSCs 1-4 2005-08 As a member of the budget support partners group the Bank participates in twice- yearly meetings with the government that constitute a monitoring exercise rather than an evaluation of plans and programs. The meetings use reference documents prepared by the government, which include the Medium-Term Expenditure Framework (MTEF), Economic and Social Plan (PES), Balanço do PES (BPES), budget execution reports, and other relevant documents. The exercise, which started in 2004, has helped the government improve its monitoring skills, which is evident in the government documents used as monitoring tools. Reduced corruption PRSCs 1-4 2005-08 PRSC1 and PRSC2 supported the adoption of an anticorruption law, and the increase of resources for anti-corruption work, respectively. Efficiency in the provision of services by the justice system Economic Management and Private 2003 EMPSO supported completion of a strategic plan for legal and judicial reform that Sector Adjustment Project (EMPSO) incorporated the strategic plans of the four branches (Ministry of Justice, Attorney- General, Supreme Court, and Administrative Court). It also supported revisions of some codes and set as a second tranche condition adoption of the completed Strategic Integrated Plan for the Legal and Judicial Sector 2002-2006. Public Sector Reform 2003 This project contains a component on improving access to justice and information but has suffered from delays. 5.4 Among the analytical support, Public Expenditure and Management Reviews (PER, 2001 and 2003) dealt with issues of budget formulation, execution, evaluation, audit, and government expenditure in education, health, roads, and water, and directly supported the objectives of improving budget allocation and execution and M&E capacity. The Country Financial Accountability Assessment (CFAA, 2001) examined the strength of financial accountability processes and indicated the level of financial accountability risk in Mozambique. It found that public sector financial management systems were weak and that there was no professional institute, association, or board of accountants in Mozambique. The 56 CHAPTER 5 PILLAR III — GOVERNANCE CFAA and the PERs, together with the work of other development partners, especially the IMF, contributed to creating a blueprint for financial management and public expenditure reform, an important objective of development partner assistance throughout the years. The judicial assessment (2004, not published) provided a sectoral overview and an analysis of the judiciary, the legal profession, legal education, and access to justice. The Bank did not conduct analytical work on corruption, but it expected that as a result of the assistance the government would carry out governance surveys to diagnose the situation. RELEVANCE OF THE OBJECTIVE AND INSTRUMENTS 5.5 This evaluation finds that the strategy’s selection of its four objectives under Pillar III was relevant. First, taxpayers in Mozambique and in donor countries knew little about how the government used their resources, which amounted to about 30 percent of GDP. The government could not formulate and execute the budget properly, nor could it evaluate and audit expenditures. Second, to account for the good use of resources, the government had to build its capacity to monitor expenditures and to evaluate whether it provided services to taxpayers at a reasonable cost. Third, a 2001 corruption survey indicated that most citizens had to pay under the table for government services (such as education and health), or were extorted by government employees for services not rendered or to avoid a larger punishment for alleged violations of rules and regulations (such as traffic police).2 Most of the corruption was petty, but the levels of extortion were large. A 2006 study on enterprise development found that in 2002-05 about 27 percent of firms paid bribes that cost 5.7 percent of annual sales.3 Fourth, regarding the judicial system, the Bank‘s strategy rightly pointed out that it was neither effective nor efficient nor independent, and citizens had little access to it. These observations coincide broadly with those in the 2006 report ―Mozambique: The Justice Sector and the Rule of Law.‖4 The four objectives were in line with the government priorities identified in the PARPA. 5.6 Bank assistance paid insufficient attention to the efficiency of public expenditures that the analytical work identified as problematic. The 2001 PER identified cash management and accounting and reporting as areas for potential gains in efficiency, but the assistance did not make such gains an explicit objective. The 2003 PER identified inefficiencies in the education, health, roads, and water sectors and proposed an action plan to address those inefficiencies. Among the specific actions called for were: investigating ―ghost teachers‖ and removing them from the payroll, linking performance in health with compensation, conducting regular beneficiary assessments in health, providing full funding for routine and periodic road maintenance, and reducing nonfunctioning water points. However, Bank assistance did not mention these in its objective of improving budget allocation and execution. The 2006 ―Better Health‖ report called for effective public health spending. Neither the indicators for the Bank strategies nor those for the Performance Assessment Framework looked at net benefits or cost effectiveness of expenditures. The assistance could have demanded a regular review of the efficiency of expenditures in the priority sectors that account for 65 percent of total expenditures and consequently revise the 65 percent targets to reflect gains in efficiency. However, the originally planned annual PER series was discontinued after 2003. This was reportedly done to allow for more emphasis on improving the budgeting process and accounting, through the PFM work in the context of the PRSC series. Maintaining the PERs alongside the PFM work might have better served the objective of rationalizing public expenditures. 57 CHAPTER 5 PILLAR III — GOVERNANCE 5.7 In addition, Bank assistance did not include sufficient appropriate instruments to deal with corruption and the inefficiencies in the judiciary. Therefore, the design of the assistance in these areas was less relevant than it might have been to the problems it tried to deal with, which in turn reduced the efficacy of the assistance. While a governance survey can be informative about the status of corruption in Mozambique, it cannot in itself reduce corruption. In lending, for example, the Economic Management and Private Sector Operation (EMPSO) covered little that could help reduce corruption during the period of CAS implementation, and its legal reform component was limited to the preparation of a strategic plan for legal and judicial reform. The PERs dealt with issues that pertained to improving government management of public spending, but it did not deal specifically with corruption. Improved Budget Allocation and Execution 5.8 This objective was achieved. Compared to 2001 when Mozambique did not have the elements of a budget system, the government introduced reforms—with the support of the Bank and other development partners—that led to: (i) a decrease in funds managed off- budget; (ii) improved budget classification; (iii) introduction of a consolidated single treasury account for most goods and services; (iv) adoption of adequate budget controls; and (v) improved fiscal transparency. The funds disbursed under the PRSCs have made the Bank one of the largest contributors among the development partners that provide funds for budget support (G19), using Mozambican instruments of planning, budgeting, monitoring, and evaluation. The following paragraphs examine in detail progress made under each objective. Despite the gains, much remains to be done, as two recent reviews of the system note. A 2006 report from Global Integrity gives low marks to budget processes and civil service regulations but higher ones to audit institutions and taxes and customs.5 A second report, by the IMF‘s Fiscal Affairs Department (2008), points out how much the country has advanced but also how much remains to be done. The report notes that the country has made significant progress on fiscal transparency over the last few years, as a result of a wide range of relevant legislative reforms in line with international good practices. These reforms have strengthened Mozambique‘s fiscal management and, in particular, led to the emergence of a relatively well- structured planning and budgeting mechanism and budget reporting system and a well- defined coordination mechanism of development partner activities. Nonetheless, further improvements are needed to bring Mozambique‘s practices in line with the IMF Code of Good Practices on Fiscal Transparency. The main shortcomings identified included the still- limited coverage of the budget and incomplete use of the e-SISTAFE, which impairs the quality of budget reporting; lack of fully effective external controls; insufficient human and technical resources; and scant use of the Ministry of Finance Web site in particular and the Internet in general to disseminate fiscal information.6 (a) Enhance budget comprehensiveness and transparency (off-budget transactions) 5.9 The evidence on this subobjective (Table 26) shows that budget comprehensiveness and transparency have improved, but not as much as originally intended. Main results achieved include the following. The government now incorporates in the budget revenues from more than 25 ministries and state organs (well over the seven listed in the 2006 CAS CASPR) and more than 291 budget management and execution agencies. The Treasury Single Account now handles the accounts for 10 external funds, 58 CHAPTER 5 PILLAR III — GOVERNANCE exceeding the target of at least one major external fund established in the 2006 CASPR. The funds managed off budget have decreased, but there is room for improvement on domestic7 and external resources. Although the proportion of ODA funds from Program Aid Partners (the G19) going into the budget increased from nil in 2001 to 98 percent in 2007, about 50 percent of projects funded with external resources are still outside the budget. Data from two PEFA reports show similar results. Table 26. Outcomes and Indicators for Comprehensiveness and Transparency (Off-Budget Transactions) CAS Baseline CAS Results Outcomes and intermediate indicators 2003? Met? Period Value goal Period Value 1. Off-budget revenues reported to Ministry of Yes Yes 2004 not Planning and Finance by ministries, and development defined partner funding also reported a. Own receipts appear in budget law No 2004 No 2008 0 b. Own receipts reported in CGE (% of GDP) Yes 2002-04 No 2005 0.5 c. Projects funded with external resources outside the 2007 50% a budget d. Share of program aid partners‘ ODA in the budget No Yes 2004 38% b 2007 98% b 2. Off-budget transactions eliminated Yes No 2004 0% 2007 > 0% a. PI-7 (i) Level of extrabudgetary expenditures that is No Yes 2004 Cc 2006 B unreported b. Off-budget expenditure from own resources No No 2004 > 5% d 0% 2007 1% - <5% d (percent) 3. Data on development partner financing collected, Yes No 2004 e e reported a. PI-7 (ii) Income/expenditure information on No 2004 C 2006 C development partner-funded projects included in fiscal reports a. D-2 (ii) Frequency and coverage of reporting by No 2004 D 2006 D development partners on actual development partner flows for project support 4. Increased government revenues included in the budget CPR Yes 2006 7 2007 25 ministries (PAF 28 – Ministries of Education and Culture, Health, 2006 and organs, Agriculture, Public Works, Tourism, Mineral Resources, and > 291 Youth and Sport, included in Budget for 2007) UGE 5. Increase number of external funds that are on CUT (PAF CPR Yes 2006 0 >=1 2007 10 f 29 – at least one major common fund in CUT) 2006 a. IMF, Report on Observance of Standards and Codes: Mozambique —Fiscal Transparency Module, IMF Country Report No. 08/152, May 2008, p. 22, par. 28. b. For 2004 SCANTEAM, Mozambique, Public Finance Management, Assessment 2004, Final Report, Oslo, September 2004, p. 13, and it refers to information captured in the budget execution reports; for 2007, Institute for Social and Economic Studies (IESE), Programme Aid Partners Performance Review 2007, Final Report, Version 02/04, April 5, 2008, Table 2.1. c. Score for 2004 revised from B to C in PEFA Report 2006, p. 38. d. PEFA Report 2006, p. 39. e. PEFA Secretariat, Public Financial Management-Performance Measurement Framework (World Bank, Washington, DC, May 2006) recommends not to aggregate scores across all or subsets of indicators; see p. 10. f. IESE, Mozambique Program Aid Partners Performance Review 2007, Final Report, Version 02/04, April 5, 2008, p. 63. g. Tribunal Administrativo, Relatorio e Parecer Conta Geral do Estado de 2005 (Nov. 2006), Table III-1 Acronyms: CGE – Conta Geral do Estado, a report prepared by the Administrative Tribunal; CUT – Conta Único do Tesouro (Treasury Single Account); UGE – Unidad Gestora Executora (budget management and executing agency) Source: For PEFA ratings,PEFA Report 2006 (Lawson et al. 2006). This report rates the results for 2006 and covers trends in 2007. 59 CHAPTER 5 PILLAR III — GOVERNANCE (b) Improve budget formulation and evaluation 5.10 This subobjective largely has been achieved (Table 27). The integrated financial management information system (e-SISTAFE) was established in 2004 and has been supporting budget execution since 2005. Almost all transactions of goods and services are managed through e-SISTAFE. These transactions take place in real time and can be organized by main budget categories and sectors. The government is still working on including all wage and salary expenditures in e-SISTAFE. The budget directorate has a well-established system of budget classification, but little has been done to introduce subfunctional classifiers. The PEFA 2006 report notes that since 2003 when the new (Government Finance Statistics-compatible) budget classification system was introduced there have been significant improvements but no specific initiative to introduce subfunctional classifiers was attempted. That is, the system classifies the budget along 10 principal functions despite having the possibility of using 69 subfunctions. The government uses the budget classification system to track the budget and has improved the quality of information in the budget reports. The PEFA score for the quality of information in budget reports improved (Table 27). Table 27. Outcomes and Indicators for Budget Formulation and Evaluation Baseline CAS Results Outcomes and intermediate indicators CAS 2003? Met? Period Value goal Period Value 1. SISTAFE introduced in 2004/05, with functional Yes Yes 2003 No SISTAFE Sept. Supports classification system operating 2005- budget present execution 2. Classification of budget transactions done Yes No 2004 a. PI-5 Classification of the budget No No 2004 B* 2006 B b. PI-8 (iii) Extent to which consolidated No No 2004 D 2006 D fiscal data are collected and reported for general government according to sectoral categories 3. Classification used for budget tracking Yes Yes 2004 PI-24 Quality and timeliness of in-year budget No No 2004 C+ 2006 C+ reports of which (iii) Quality of information No Yes 2004 C 2006 B *PEFA Report 2006, p. 34. Source: For PEFA ratings, PEFA Report 2006 (Lawson et al. 2006). This report rates the results for 2006 but covers trends up to 2007. (c) Enhance credibility of the budget 5.11 This sub-objective has largely been achieved. The assistance sought to increase the credibility of the budget by making the outturn of the budget as close as possible to the original budget plan and by making the transactions of the budget more reliable (Table 28). The evaluation concludes that the intermediate indicator ―outturn close to budget‖ shows improvement. This is because the scores for two PEFA proxy indicators rose, one stayed unchanged, and one fell. Moreover, the change in scores suggests that the gain from those that improved (that is, aggregate revenue outturn compared to original approved budget and stock and monitoring of expenditure payment arrears) exceed the loss from the one that regressed (that is, composition of expenditure outturn compared to that in the original approved budget). 60 CHAPTER 5 PILLAR III — GOVERNANCE The reliability of budget transactions has also improved as the availability of funds to pay for committed expenditures is more predictable and the government records and manages better its cash balances, debts, and guarantees. The government needs to improve further its record on collecting tax payments, which it could do by collecting with more vigor its tax arrears. Its collection rates for arrears were 3.93 and 3.94 percent in 2005 and 2006, well below the benchmark of 60 percent required to receive a score of C in this dimension of the PEFA (PI-15). Table 28. Outcomes and Indicators for Credibility of the Budget and Budget Execution CAS Baseline Results CAS Outcomes and intermediate indicators 2003? Met? Period Value goal Period Value 1. Outturn close to budget (e.g., measured by budget Yes Yes 2004 See 2006-07 deviation index, i.e., sum of shortfalls and overruns as col. 1 percent of budget) a. PI-1 Aggregate expenditure outturn compared to No No 2004 Ba 2006-07 B original approved budget b. PI-2 Composition of expenditure outturn compared to No No 2004 B 2006 C original approved budget c. PI-3 Aggregate revenue outturn compared to original No Yes 2004 B 2007 Ab approved budget d. PI-4 Stock and monitoring of expenditure payment No Yes 2004 D+ 2006 B+ arrears 2. Reliability of budget transactions improved Yes Yes 2004 2006 a. PI-15 Effectiveness in collection of tax payments No No 2004 D+ 2006 D+ c b. PI-16 Predictability in the availability of funds for No Yes 2004 D+ 2006 C+ commitment of expenditures c. PI-17 Recording and management of cash balances, No Yes 2004 B+ 2006 A debt and guarantees a. The 2004 PEFA review gave a score of A to this dimension, but the 2006 PEFA review says it would have scored it B (see p. 30 of the 2006 PEFA report). For 2004 this review uses a score of B. b. The 2006 PEFA report gave a C to this indicator but notes that ―if collections in excess of 97% of estimates were again to be achieved in 2007, the score for this indicator would be an ‗A‘ if a PEFA assessment were to be undertaken in 2008.‖ Because in 2007 actual collection exceeded the estimated collection (ratio was 102 percent) this review increased the rating to A as the 2006 assessment suggested. c. The PI-15 rating is pulled down by the low collection rate for tax arrears, 3.93 percent in 2005 and 3.94 percent in 2006. At end of 2006 tax arrears amounted to Mts1.4 million, comprising around 219,000 cases. Source: For PEFA ratings, PEFA Report 2006 (Lawson et al. 2006). (d) Create organizations and build capacity 5.12 This subobjective has largely been achieved (Table 29). The three intermediate indicators identified in the Bank’s strategy were met. First, the government merged the agencies that collected internal and external revenues and created the Mozambican Tax Authority. Second, the government implemented the Treasury Single Account to manage revenues and expenditures. Third, the government developed its accounting and auditing capacity, which has led to improvements in this field. The PEFA review provided additional insights, pointing to improvements in the internal controls for nonsalary expenditures as well as to increased effectiveness of internal auditing. No change has taken place in the scope, nature, and follow-up of external audits. The number of audits increased from 53 in 2005 to 102 in 2006; although this indicates an improvement in the capacity to produce and deliver audits, the number in 2006 falls short of the 208 planned for that year. 61 CHAPTER 5 PILLAR III — GOVERNANCE Last, the Administrative Tribunal audited about 25 percent of government accounts in 2007, possibly an improvement over 2004, but below the international norm of 75 percent. Table 29. Outcomes and Indicators for Creating Organizations and Building Capacity Outcomes and intermediate CAS Baseline Results indicators 2003? Met/Up? Period Value CAS goal Period Value 1. Revenue authority created Yes Yes 2004 DGA & DGI One 2008 ATM operating authority operating: operating 2. Treasury Single Account (CUT) Yes Yes 2003 No CUT 2004- CUT in implemented (no indicator defined) 08 place 3. Accounting, auditing capacity Yes Yes 2004 No 2006- developed (no indicators defined) 07 a. PI-20 Effectiveness of internal No Yes 2004 D+ 2006- B controls for non-salary expenditures 07 b. PI-21 Effectiveness of internal No Yes 2004 C+ 2006- B audits 07 c. PI-26 Scope, nature, and follow- No No 2004 D+ 2006- D+ up of external audit 07 d. Audit reports prepared No No 2005 53 2006 102 e. Government accounts verified by No Inconclusive 2004 2007 25% * Tribunal Administrativo (percent) Note: Individual ratings of separate PEFA categories cannot be combined into one single rating (that is the case of the indicators in rows 3a-3c) * IMF, Report on Observance of Standards and Codes: Mozambique —Fiscal Transparency Module, IMF Country Report No. 08/152, May 2008, page 37, par. 63. The international norm is 75 percent, but Mozambique started only recently to produce these reports, so that goal may be too high at this point. Acronyms: DGA – General Directorate of Customs (Direccao Geral de Alfandegas); DGI – General Directorate of Taxes (Deireccao Geral de Impostos); ATM – Mozambican Tax Authority (Autoridade Tributaria de Mozambique); and CUT – Treasury Single Account (Conta Único do Tesouro). Source: For PEFA ratings, PEFA Report 2006 (Lawson et al. 2006). 5.13 Contribution of Bank Assistance to Improved Budget Allocation and Execution. Bank assistance supported this objective with AAA and lending. The CFAA and the PERs, produced in 2001-03, identified the main problems in financial management and in public expenditure management at the global and sector level. They also helped to identify possible solutions to the problems. Together with the work of other donors—especially the IMF—the reports contributed to creating a blueprint for financial management and public expenditure reform, which has been an important objective of donor assistance throughout the years. Because the Joint Reviews pay attention to public expenditure management issues, the reports helped build the foundation for the reviews and for the actions that donors support and monitor with the reviews. 5.14 The EPMSO credit (FY03) had three components, one of which had to do with public sector management. The component sought to increase the budget coverage of the various ministerial own receipts and to standardize the modalities of donor flows. The credit did not achieve its objective of reflecting all off-budget funds in the budget or in its execution, but the government started to include some off-budget revenues in the budget and to report in the quarterly budget execution report some of the expenditures financed with donor funding. 62 CHAPTER 5 PILLAR III — GOVERNANCE 5.15 Actions under the PRSCs covered spending in priority sectors, implementing SISTAFE, approving a new procurement decree, rolling out the e-SISTAFE to the Ministry of Education and Culture, and concluding the study on ―off-budgets‖ in the health sector and initiation of implementation of its recommendations as evidenced by the 2006 budgetary proposal. As a result, the funds from PRSCs, as well of other donors that provided general budget support, helped to improve budget allocation and budget execution. 5.16 The Public Sector Reform Project that started in early 2003 aimed to support the restructuring of the public sector, professionalization of public servants, and governance. After two and half years, the project had advanced little and its design and implementation problems had become evident. The project was (a) extremely ambitious and lacking in realism; (b) key priorities were diffuse; (c) intended outcomes were unclear; and (d) champions were missing. Disbursements fell far behind plans, and it became evident that the project was overfunded. The expected results of the project are not there yet. 5.17 In sum, the Bank has achieved its objective of improving budget allocation and execution. The authorities have improved the budget system. Reforms of the system started with the introduction of the Sistema de Administraço Financeira do Estado (SISTAFE) after parliamentary approval of a new Public Finance Management Law in 2002. Later, the government installed e-SISTAFE, an electronic accounts system that provides full control and up-to-date information about expenditures and revenues. Three main results from the changes introduced are relevant for the assistance. First, the funds managed off budget have decreased. The proportion of funds from Program Aid Partners going into the budget increased from nil in 2001 to 98 percent in 2007, and the proportion of the partners‘ ODA disbursed using government budget execution procedures increased from nil in 2001 to 61 percent in 2007. Second, all transactions of goods and services are now managed with e-SISTAFE. These transactions take place in real time and can be organized by main budget categories and sectors. Third, a Treasury Single Account (CUT) is operating for most goods and services. Despite progress, further improvements are needed to extend the coverage of e-SISTAFE to include funds managed off budget and enhancing public expenditures efficiency. The outcome of Bank assistance in this area is judged satisfactory. Stronger Government Monitoring and Evaluation Capacity 5.18 The evaluation finds that the government has made progress in improving its monitoring capacity, but little has been achieved in enhancing its evaluation capacity (Table 30). The government produces several documents that constitute a planning and monitoring tool: an Economic and Social Plan (PES), a report on results of the PES known as Balanço do PES (BPES), the Budget, the Medium-Term Expenditure Framework (MTEF), and the PAF. These documents lay the foundations for meeting the goals established in the PARPA. The PARPA has been an important tool for the government, setting priorities, areas for intervention, and monitoring indicators (through the PAF), imposing some discipline to monitor and, eventually, evaluate the programs. The government participates in two annual reviews (Joint Review and Mid-year Review) with its Program Aid Partners (G19) that provide direct budget support. The Bank, as a member of the group, participates in these meetings. During the reviews, development partners and government agree on future annual targets for the PAF, analyze the government‘s performance in implementing the PARPA, and 63 CHAPTER 5 PILLAR III — GOVERNANCE discuss other issues that development partners want the government pay attention to. The exercise, which started in 2004, has helped the government improve its monitoring capability. 5.19 The numerous documents and the number of indicators in the PAF (52 for 2006 and 40 that are changed frequently for the 2007-09 PAF) suggest that the monitoring effort is probably overdone/not efficient, and that both development partners and government need to consider whether the intensity of monitoring is necessary and useful.8 Development partners use these documents extensively and demand a lot from the government on reporting requirements. The focus on various aspects of monitoring and the frequent change of indicators appear to have undermined the role of evaluation and the importance of enhancing the government‘s capacity to evaluate its programs. This evaluation suggests that development partners and the government consider settling for a smaller number of indicators, perhaps one or two per element of the program, and agreeing on the result that they expect to achieve in the medium term. Doing so may lead to more effective monitoring and at the same time to the creation of the evaluation capacity that the country needs. Table 30. Outcomes and Indicators for Stronger Monitoring and Evaluation Capacity in Government Results CAS Baseline Outcomes and intermediate indicators 2003? Met? period Period Value 1. Intermediate indicators a. Annual Balanço do PES made principal PARPA Yes Yes 2004 2005-08 annual monitoring tool reports b. PAF matrix regularly updated, to keep PARPA Yes Yes 2004 2005- annual relevant 007 updates 2. Outcome indicators a. PES better integrated with PARPA and MTEF Yes Yes (planning documents) b. Improved consistency between PARPA, MTEF, CASPR Inconclusive PES, and Budget (PAF #36) 2006 Source: CAS 2003, October 20, 2003, Table 7 and Annex 1, pp. 24 and 51, and CASPR 2006 February 21, 2006, Annex II. 5.20 Little appears to have been achieved in terms of improving evaluation. The 2009 BPES, an annual evaluation of the Economic and Social Plan, exemplifies the advances made in monitoring, but it also shows how little the government has been able to do to evaluate programs and policies. The BPES lists actions taken and outputs produced but does not establish if the programs improve the standard of living of Mozambicans or if the resources devoted to the programs generate net benefits to the country. Still, there is room to improve the consistency between the PARPA, the MTEF, the PES, and the budget.9 Despite the effort to reduce the gap between plans and actions there are discrepancies between proposed and actual expenditure in priority sectors in 2007 and 2008. According to the BPES, the execution rate of the budget for priority sectors fell from 83.4 percent in 2007 to 70.4 percent in 2008, and the actual increase in expenditure was 11.7 percent and not the proposed budget increase of 31.7 percent.10 5.21 The advances in planning, managing, and monitoring the budget have not yet translated into better government capacity to prepare and evaluate projects and programs. Although the assistance did not envision e-SISTAFE as an M&E tool, this system may constitute the most significant step for improving the government‘s capacity to monitor and 64 CHAPTER 5 PILLAR III — GOVERNANCE evaluate the impact of its programs and the foreign assistance received. E-SISTAFE does not yet cover all the budget accounts, but it has already sufficient coverage of expenditures to use it as an M&E tool. The Bank‘s influence on improving government monitoring and evaluation capacity took place largely through participation in the annual reviews that the government and the G19 conduct. This has helped the government improve its monitoring skills, which is evident in the government documents used as monitoring tools. The Bank‘s two PERs, produced in 2002 and 2003, helped to identify the problems in public expenditure management and possible solutions to these problems. Because the annual reviews pay attention to public expenditure management issues, the two reports helped to lay the foundation for these reviews and, indirectly, the government‘s monitoring capacity. The outcome of Bank assistance is rated moderately satisfactory. Reduced Corruption 5.22 The objective of reducing corruption was not achieved, whether measured by intermediate or outcome indicators. For the intermediate indicators, the survey for 2004/05 was completed, but no other governance and anticorruption survey has been carried out since 2005 (Table 31).11 In April 2006, the government prepared an anticorruption strategy for 2006-10, but it has not advanced much in carrying it out. The government replaced the anticorruption unit in the attorney general‘s office with a Central Anti-Corruption Office and opened provincial offices. But ―several factors…made it difficult to analyze the present stage of the implementation of the national and sector strategies in the fight against corruption, compromising the effectiveness of the established mechanisms.‖12 An anticorruption strategy was formulated, but—owing largely to the lack of political will—has yet to be implemented. In terms of outcome indicators, the number of cases of corruption reported to the Gabinete Centraol de Anti-Corrupcao (GCCC) in the period up to 2007 was not reported in the 2008 Program Aid Partners Joint Review (Table 31). There are some data available for 2008 and 2009, pointing at an acceleration in the number of proceedings related to cases of corruption, and to date a few trials have started. Table 31. Outcomes and Indicators for Reduced Corruption Baseline Results CAS Outcomes and intermediate indicators 2003? Met? Period Value CAS goal Period Value 1. Intermediate indicators No a. Governance surveys completed and anticorruption Yes No 2004 Surveys in 2005 one in action plan implemented by 2006 2004, 2005 2005 b. Improvement in the scores for the government of Yes 2004 none 21 over the governance survey (in 2004 and 2005) 100 a 2. Outcome indicators No a. Proportion of cases of corruption reported to the CPR No 2004 0 2007 0b Gabinete Central de Anti-Corrupçao (GCCC) that are 2006 brought to a conclusion (PAF # 42) b. Higher government capacity to identify and Yes No 2004 address corruption issues evidence Notes: a. Austral Consultoria e Projectos Ltda, Governance and Anti-Corruption Diagnostic Survey (2005), Box 4A in page 127. The maximum value is 100, and this value measures the worst case of corruption. b. Republic of Mozambique-Program Aid Partners, Joint Review 2008, Aide Memoire, 30 April 2008, p. 6, par. 22. PAF 42 states the result as ―A significant increase in the number of serious cases that the GCCC has brought to a conclusion ‖ (=fully investigated and, when relevant, judged). Source: CAS 2003, October 20, 2003, pp. 24 and 51, and CASPR, February 21, 2006, Annex II, pp. 41-42 for intermediate and outcome indicators. 65 CHAPTER 5 PILLAR III — GOVERNANCE 5.23 The evidence presented suggests that corruption is still a serious issue (see Box 3. The Perception of corruption Remains High ), and that dealing with it requires better tools and greater creativity than the Bank displayed in its assistance.13 The governance survey was a necessary step in learning about the status of corruption in Mozambique, but it cannot by itself reduce corruption. The indicators the strategy identified are vaguely linked to solving problems (for example, prosecuting cases by the anticorruption office) in a country where petty corruption is widespread. The outcome of Bank assistance is rated unsatisfactory. Box 3. The Perception of corruption Remains High The 2004/05 governance survey found that many people considered corruption widespread. More than 30 percent of households believe there is corruption in the public sector; 60 percent of government officials believe there is; and more than 40 percent of those interviewed in enterprises think so. The cost of bribes was high. Expressed as a proportion of the reference salary for each group, low-income households paid 11 percent, average income households paid 7 percent, and high-income households paid 9 percent. Expressed in GDP per capita these numbers are higher because the reference salaries of the survey exceeded per capita GDP in 2004. Because the government carried out only one governance survey, there is no national data series to establish whether the scores on corruption improved. However, observers of corruption in Mozambique tend to agree that corruption is widespread and the levels of corruption have changed little over a decade. The table below summarizes indicators of corruption gathered by four different agencies showing levels and trends since 2000. According to the World Bank Institute, the control of corruption has shown some improvement since 2005 (though the change is not statistically significant). Conversely, the Ibrahim Index of Governance for African countries shows that Mozambique fell in terms of its index rating in 2008. The Corruption Perception Index of Transparency International shows little change in the absolute level of its index. Finally, the Political Risk Services International Country Risk Guide shows deterioration early in the decade and improvement since 2007, but no change between 2003 and 2007. Corruption Indicators, 2000-08 2000 2002 2003 2004 2005 2006 2007 2008 1. Control of Corruption (World Bank Institute) a. Level of indicator ( -2.5 most corrupt; 2.5 least corrupt) -0.68 -0.72 -0.69 -0.74 -0.67 -0.66 -0.62 -0.55 b. Percentile rank 29.6 31.1 31.1 27.2 32.0 30.6 32.9 34.3 2. Ibrahim Index of Governance a. Rank among 48 countries 16 16 17 16 18 20 22 26 b. Total index for Mozambique (0 lowest, 100 highest) 53 53.3 53.3 53.8 53.4 53.8 53.8 52.4 i. index for safety and rule of law, accountability and corruption 44.5 44.5 47.0 47.4 47.0 46.9 50.2 50.3 3. Corruption Perception Index -Transparency International a. CPI score (0 highly corrupt, 10 highly clean) 2.7 2.8 2.8 2.8 2.8 2.6 b. Ranking 86 90 97 99 111 126 c. Countries in ranking 133 145 158 163 179 180 d. Percentile rank 35% 38% 39% 39% 38% 30% 4. International Country Risk Group Corruption Rating (1-6; 1 most corrupt) 2.0 1.75 1.5 1.5 1.5 1.5 1.75 2.0 Source: 1. WB control of corruption from http://info.worldbank.org/governance/wgi/index.asp; 2. The Ibrahim Index of Governance from http://www.moibrahimfoundation.org/; 3. Corruption perception index from http://www.transparency.org/ 66 CHAPTER 5 PILLAR III — GOVERNANCE Increase Efficiency in the Provision of Services by the Justice System 5.24 The Bank assistance did not achieve what it expected, whether measured by intermediate or outcome indicators. For the intermediate indicators, the government was unable to meet the schedule for the creation of judicial sections for commercial disputes and did not revise all the codes the assistance expected, but the number of cases resulting in sentencing increased over its base period of 2002, indicating some productivity improvement. In terms of outcome indicators, neither the legal framework nor the efficiency of courts to solve business disputes improved. The evaluation cannot ascertain if the number of citizens with knowledge of their rights increased. The evaluation also lacks information to conclude that access to justice has increased (Table 32). 5.25 In the area of the legal framework, the Bank sought to help bring about revisions to the Penal, Civil Procedure, and Civil Registry and Notary Codes would strengthen the legal framework for businesses, but only the Civil Registry and Notary Codes were revised.14 The evidence on outcomes dealing with the legal framework points to deterioration in the business environment as measured by time required to complete certain business processes (for example, dealing with licenses and closing a business, as shown in Table 32). This finding suggests that the revisions in the codes did not produce the expected results or that some other factors offset the expected benefit from the revisions. 5.26 For the resolution of business disputes, the Bank sought to help create judicial sections for commercial disputes created in Maputo, Nampula, and Sofala would lead to a reduction in the time required to resolve them. None of the PRSCs supported the creation of dedicated judicial sections for solving business disputes. PRSC 2 listed as a trigger for PRSC 3 the creation of the special section in the court of Nampula, but PRSC 3 dropped this as a prior action.15 Moreover, the evidence on outcomes shows that the number of days required for enforcing contracts—the proxy indicator for the expected outcome of the assistance—almost doubled. 5.27 Regarding the productivity of the courts, the only part of the assistance that could be associated with it comes through the budget support via the PRSCs and the condition on a minimum budget for priority sectors.16 Neither the strategies nor the PRSCs linked budget support to increases in productivity because the Bank‘s programmatic aid was not geared to support judicial aspects.17 Regarding the Judicial Component of the Public Sector Reform Project, none of the results in Table 32 can be associated with the project. This component, which closed at the end of 2009, disbursed only $1.1 million of the $4.9 million allocated to it. In summary, the project has not produced any significant results.18 Therefore, it can be argued that Bank assistance, which sought to help reinforce the capacity of the judiciary, has had little influence. Overall, the outcome of the assistance is rated unsatisfactory. 67 CHAPTER 5 PILLAR III — GOVERNANCE Table 32. Outcomes and Indicators for Increase Efficiency in Provision of Services by the Justice System Baseline Results Outcomes and intermediate indicators CAS 2003? Met/Up? CAS goal Period Value Period Value 1. Intermediate indicators a. Dedicated judicial sections for commercial disputes created in Maputo and Sofala by 2005 Yes Yesc a and Nampula by 2006 b. Codes revised by 2005: Penal, Civil Civil, Notary Yes No 2006 Procedure, Registry and Notary b c. Increase in the number of cases 50% over CPS 2006 Yes 2002 2006 109% sentenced/closed (PAF # 45) 2002 d. Increase in the number of citizens with No CPS 2006 knowledge of their rights and responsibilities. evidence 2. Outcome indicators a. Time required for judicial resolution of 540 Yes No 2004 2007 1010 business disputes reduced days Days required for enforcing contracts 2005 580 2007 1010 b. Legal framework for business strengthened Yes No i. Days to start a business 2004 153 2007 113 ii. Days to deal with licenses 2006 212 2007 364 iii. Closing a business (years) 2005 5 2007 5 c. Increase the productivity of the courts and CPS 2006 Yes prosecutor‘s office. i. Processes judged (Procesos juzgados) 2005 2007 20% -average growth rate- ii. Processes completed (Procesos 2005 20,323 2007 25,905 despachados) d. Increase the number of judicial verdicts See row CPS 2006 Yes See row 1c. reached 1c. e. Increase access to justice for citizens through No improved communications, information, and CPS 2006 evidence technology a. PRSC 1 program matrix reduced the scope of this indicator and restricted it to the creation of a commercial dispute resolution in Nampula. The matrix set it as a trigger measure for PRSC 3, but PRSC 3 did not take it as a prior action. b. Identified in PRSC 1 as a trigger for PRSC 2, and taken in PRSC 2 as prior action (PAF indicator # 49). c. As of September 2009 (outside of the evaluation period of this CPE), courts have been established in the main cities of Maputo, Beira, and Nampula, financed by the Bank‘s FSTAP projec t, see also footnote 16. Sources: For a list of intermediate and outcome indicators (col. 1) CAS 2003, October 20, 2003, pp. 24 and 51; CASPR, February 21, 2006, Annex II, pp. 41-42. For processes judged and completed (rows 2di. and 2dii), Ministerio da Justiça, Programa Quinquenal do Governo 2004-2009, Balanço Intermedio, December 2008, p. 5. For indicators of business climate (rows 2a. and 2b), The World Bank, Doing Business, several years. Overall Rating for Pillar III 5.28 In sum, the evaluation rates the overall outcome of Bank assistance under the governance pillar moderately satisfactory. In reaching this conclusion, the evaluation placed greater weight on the results for the objective of improved budget allocation and execution for two reasons. First, this pillar directly covers an important part of the Bank‘s assistance, provided as budget support. Second, the budget represents about 28 percent of GDP, substantially above the norm for developing countries. Therefore, improvements in budget management and allocation constitute an important step in strengthening accountability and capacity in the public sector. Eventually these improvements will also lead to a reduction in corruption through better control of the accounts and better tracking of where the budgetary resources are spent. In other words, this evaluation stresses the importance of better budget institutions for resource allocation and accountability. 68 6. Evaluation of IFC Activities in Mozambique, FY01-08 Developments Relating to the Private Sector 6.1 Foreign-owned mega-projects have been important contributors to economic growth, but private sector growth in other sectors has been limited. The Mozambican economy has made impressive progress since the conflict ended in 1992. As indicated in Table 7 (chapter 3), GDP growth has averaged around 8 percent per year over the past decade, substantially above the SSA average (5 percent).1 Growth has been export-led with export of goods and services increasing from 17.5 percent of GDP in 2000 to 39 percent in 2007. Over the same period, net foreign direct investment (FDI) increased from 3.3 percent of GDP to 5.4 percent. However, several mega-projects account for most of the growth in output, exports, and FDI—four mega- projects account for about 13 percent of GDP, 71 percent of exports, and 0.4 percent of employment.2,3 The rest of the private sector has seen modest growth. The incidence of poverty remains high, and private sector capacity is low. 6.2 Private sector development has been severely constrained by a weak business enabling environment. Mozambique has considerable natural and mineral resources and is close to South Africa, the largest market in Africa. The country‘s natural endowments offer potential for growth in the tourism, agriculture, transportation, mineral, and mining sectors. A major challenge to realizing the country‘s growth potential is the poor investment climate, including rigid labor laws, limited access to finance, and excessively bureaucratic procedures to establishing and operating businesses.4 As discussed in chapter 3, access to finance, particularly for small and medium enterprises (SMEs) has been limited and costly. There have been some reforms to improve the investment climate, but these have not yet resulted in significant improvement in the business regulatory environment. According to the Institutional Investor Country Credit Risk Ratings, the country is rated high risk, although its rating has improved in recent years. Much remains to be done on the investment climate to improve the conditions for private-sector growth. 6.3 Although the financial crisis has not had a direct impact on Mozambique, secondary effects may be significant. Based on the latest Global Development Finance estimates, Mozambique‘s GDP growth is likely to drop by two percentage points in 2009 (from 6.4 percent to 4.5 percent) and then increase to 4.9 percent in 2010. However, owing to the sharp decrease in private capital flows to developing countries as well as, possible decrease in donor support, and weakened export markets, GDP growth prospects for the country are highly uncertain. 69 CHAPTER 6 EVALUATION OF IFC ACTIVITIES IN MOZAMBIQUE, FY01-08 IFC Objectives in Mozambique 6.4 As indicated in chapter 2, three joint CASs and two CASCRs have been presented to the Board since 2000. As explained in chapter 1, all CASs articulated similar broad strategic objectives. During the review period, IFC mainly sought to support Pillar I, which has already been covered from the World Bank program perspective in chapter 3 particularly through the private sector development component. Its stated objectives were to: (i) enhance support to SMEs, including improving the enabling environment for private sector participation; (ii) promote tourism; (iii) develop infrastructure and mining; (iv) build and strengthen financial markets; (v) support health and education; and (vi) support agribusiness. Annex A, Table 22, presents IFC‘s specific objectives and areas of support.5 6.5 The IFC objectives identified in the CASs were relevant to country needs and in line with IFC’s Africa Strategy.6 IFC‘s strategy not only sought to address Mozambique‘s weak private sector, particularly for SMEs, it also targeted sectors with clear growth and export potential, such as tourism and mining, but where impediments in the business enabling environment were preventing this potential from being realized. Despite some progress, the country‘s business enabling environment has been weak. The government‘s action plan for the reduction of absolute poverty (PARPAs I and II) identified increasing economic opportunities by generating poverty-reducing and employment-creating growth through the private sector as one of its main priorities. Thus, IFC‘s areas of support and objectives were aligned with country needs and government strategy. IFC Activities during the CAS Period INVESTMENT OPERATIONS 6.6 Between FY01 and FY08, IFC invested $56 million in nine projects in Mozambique (see Figure 9). Three of these (16 percent by volume) were in financial markets, including a trade finance facility, a right issue, and a credit line to a Mozambican bank under the Africa MSME (micro, small, and medium enterprise) program; three projects (27 percent by volume) were in agribusiness, supporting grain milling and storage; one Small Enterprise Fund (SEF) project (1 percent by volume) was in the industrial sector (see Figure 10).7 The two other projects (57 percent by volume) were mega-projects in extractive industries. Additionally, IFC invested in a regional project, the Eastern African submarine cable system, which covers Mozambican coastal areas. In FY09, IFC made one investment in the mining sector. 6.7 Besides the nine new projects between FY01 and FY08, IFC had 18 other active investments ($129 million net commitments) during the review period. These investments were in agribusiness, tourism, metals, extractive, and financial markets. Out of 27 total active investments during the review period, 11 were under the SEF and Africa Enterprise Funds (AEF).8 The active portfolio was dominated by two mega-projects: (i) a $121 million investment in the Mozal aluminum smelter plant—the single largest private sector investment in the country at the time; and (ii) an $18.5 million equity investment in the development of the Pande and Temane gas fields that delivers natural gas to South Africa. 70 CHAPTER 6 EVALUATION OF IFC ACTIVITIES IN MOZAMBIQUE, FY01-08 Figure 9. Investments by Year, FY01-08 Figure 10. Investments by Sector, FY01-08 20 35 Investment (net, US$ million) 18 Investment (net, US$ million) 16 30 14 25 12 20 10 8 15 6 10 4 5 2 0 0 Agribusi Extracti Industri 2001 2002 2003 2004 2005 2006 2007 2008 Finance (n=2) (n=0) (n=1) (n=2) (n=1) (n=0) (n=0) (n=3) ness ve al Investment 13.5 0 0.2 19.6 0.1 0 0 22.5 Investment 15.1 31.8 8.8 0.3 Source: IFC database as of July 2009. Note: Extractive industries include metals. Source: IFC database as of July 2009. 6.8 During the FY01-08 period, the size of IFC‘s investments ranged from $200,000 to $18.5 million, with an average investment size of $6.2 million. The investment volume, average commitment size, and IFC‘s investment commitment per capita in Mozambique were similar to IFC‘s experience in comparable regional countries, with the exception of Uganda (see Table 33). During the review period, IFC had a total of 9 projects but IFC could generate new investments only in three years. Comparable countries like Madagascar and Uganda also faced the same challenge. Table 33. New Investments Benchmarked against Comparator Countries, FY01-08 Mozambique Madagascar Tanzania Uganda* SSA Net IFC commitment volume (US$000) 56,014 35,373 78,309 163,351 4,376,840 Number of IFC projects committed 9 8 9 7 246 Average IFC commitment size (US$000) 6,222 4,421 8,700 23,335 17,792 Share of IFC commitments/FDI (%) 3 2 2 8 4 IFC investment commitments per capita FY01-08 2.01 1.95 2.09 5.83 (US$) *The high volume in Uganda is due to the Bujagali hydropower project, without it IFC‘s investment in Uganda drops to just $1.7 per capita. Source: IFC and World Bank Development Data Platform database as of July 2009. 6.9 IFC was among several international financial institutions (IFIs) active in PSD in Mozambique during FY01-FY08. Among the others, the European Investment Bank (EIB) had the highest share of PSD investments in the country, followed by IFC (see Annex A, Table 22). EIB‘s portfolio, like that of IFC, was dominated by mega-projects, including Mozal and Pande and Temane gas fields, which were cofinanced with IFC. The IFIs‘ portfolio was around $600 million, concentrating on energy, industry, business enabling environment, SME development, and agriculture. ADVISORY SERVICES OPERATIONS 6.10 IFC provided programmatic Advisory Services (AS) in SME linkages, SME capacity building, and tourism. The projects implemented were in line with IFC‘s strategy for Mozam- bique. Twenty AS projects were implemented through APDF (African Project Development 71 CHAPTER 6 EVALUATION OF IFC ACTIVITIES IN MOZAMBIQUE, FY01-08 Facility), PEP (Private Enterprise Partnership) Africa, and the Mozambique SME Initiative (MSI) for total funding of $11 million during the review period.9 The operations were provided mainly to SME companies in the paper, food and beverages, manufacturing, and tourism sec- tors and to the government. More than half of these projects were programmatic and included: developing linkages between mega-projects (Mozal) and local SMEs; capacity building to SMEs under MSI; and two advisory programs in the tourism sector. IFC advised the government of Mozambique in the Petromoc privatization effort and the selection of a developer for the Moat- ize coal mine. Additionally, IFC provided financing for a feasibility study in the leasing sector; capacity building to a local bank on SME lending; advice on tax and administrative barriers; and the installation of pumps in primary schools in rural areas. In terms of coverage, one (5 percent) AS was economywide; four (21 percent) were sectorwide; four (21 percent) were connected to investments; seven (37 percent) were under MSI; and three (16 percent) were one-off projects. Although some progress was made through the achievement of short and mid-term targets in some of the advisory services provided, none of these projects achieved real long-term impact yet. Details of achievements of these projects are explained below in the contributions to private sector development. Investment Outcomes 6.11 IFC’s investment results in Mozambique were mostly below the market bench- mark for financial rates of return. Thirty-three percent (92 percent by volume) of the 18 mature projects (including AEF/SEF projects) had satisfactory or better investment out- comes. The combination of low investment outcomes by number of projects with high in- vestment outcomes by volume indicates that most of the unsuccessful project outcomes were in small projects. The projects with successful investment outcomes had an average commitment of $24 million, while unsuccessful investments had an average commitment of $1 million. Small investments tend to be correlated with high risk factors. The low out- comes were mainly AEF/SEF project loans, none of which were equity investments. Eight out of 10 AEF/SEF projects failed. The reasons for the low investment outcomes of these projects were weak sponsor, poor management, and inadequate IFC appraisal and supervi- sion.10 Given the high risk profile of these investments, a more appropriate instrument could have been equity rather than loan. IFC has since changed its approach and no longer invests in AEF/SEF-type small projects and instead reaches SMEs through financial inter- mediaries. The investment outcomes of the rest of the projects were somewhat lower than SSA results (see Figure 11). 72 CHAPTER 6 EVALUATION OF IFC ACTIVITIES IN MOZAMBIQUE, FY01-08 Figure 11. Investment Success Results 60 57 Percent of projects rated satisfactort 50 50 40 33 or better 30 20 20 10 0 Mozambique(all-18)) AEF/SEF(10) Mozambique(excluding SSA(excluding AEF/SEF-8) Mozambique-53) Source: IEG-IFC. 6.12 Compared to the past years, IFC’s portfolio quality has improved. As of June 2009, the quality of IFC‘s investment portfolio in Mozambique remained mostly healthy. IFC‘s loan and equity credit risk ratings as of June 2009 indicated that the Mozambique portfolio had a low risk of loss compared to comparator countries (see Table 34).11 There is a contrast between the investment outcomes over the review period and the current quality of the portfolio. The current portfolio has improved since most of the unsuccessful projects have been closed and the current portfolio includes bigger and less risky investments. Table 34. Health of IFC’s Portfolio Loan/equity risk type Mozambique Madagascar Tanzania Uganda Good 7 3 7 4 Poor 3 6 5 3 Watch list 15 4 2 Total # of investments 10 24 16 9 Note: Good – low risk of loss; Poor – high risk of loss; Watch list – medium risk of loss. Source: IFC database as of July 2009. IFC’s Contributions to Private Sector Development 6.13 In Mozambique, IFC, together with IBRD and MIGA, promoted PSD by helping improve foreign investors‘ perception of Mozambique through mega-projects that led to follow-on projects; improving capacity of some SME firms; advising on privatization efforts to support private ownership; helping improve the business enabling environment in the tourism sector; and supporting SME linkages with large projects (although on a narrow basis). IFC‘s efforts to help develop the private sector were not as effective as intended in increasing access to finance for SMEs; improving corporate governance of some enterprises; expanding the positive investment climate that was created for mega-projects to the entire economy; helping improve overall enabling environment for private business; and supporting agribusiness, health, and education. 73 CHAPTER 6 EVALUATION OF IFC ACTIVITIES IN MOZAMBIQUE, FY01-08 ENHANCING SUPPORT TO SMALL AND MEDIUM ENTERPRISES 6.14 The Mozambican investment climate remains one of the most difficult in the world. In Mozambique, nearly 90 percent of the companies are small enterprises.12 However, they accounted for just one-third of total sales (see Annex A, Table 23). Despite some Table 35. Bank Credit to Private Sector as a government and donor efforts, access to finance Ratio to GDP (%) remains a major constraint for SME growth. For Country 2000 2007 example, bank credit to the private sector has not Mozambique 1.5 1.2 improved over time and has been far below levels Madagascar 8.1 9 in neighboring countries (see Table 35). Some of Tanzania 3.9 12.4 the factors behind this low reach of the banking Uganda 5.5 9.6 sector are discussed in chapter 3. Source: www.imfstatistics.org. 6.15 IFC supported SMEs substantially through direct financing, SME linkages, the Mozambique SME initiative (MSI), and the Africa MSME initiative (AMSME) during the period, but outcomes have been below target. IFC‘s direct support to SMEs was unsuccessful in most cases, and IFC reached a greater number of SMEs through indirect support. 6.16 Direct Support to SMEs: Direct financing of SMEs was an important element of IFC‘s investments in the Africa region in the 1990s. During the review period, IFC supported local SMEs with loan and equity investments through AEF and SEF.13 These investments were mainly in the agribusiness, tourism, and industrial sectors. Even though the projects had promising investment and development prospects at appraisal, the results were disappointing.14 In 2004, IFC, along with other donors (Swiss Economic Co-operation and the government of Finland), established the MSI, which sought to provide both SME financing and AS. The program is about to close. Eighteen companies received AS, but only a few received both financing and AS through the program. Overall, the program‘s achievements have been below target; it has not been cost-efficient; it faced significant delays in implementation; and it dropped some of its originally planned activities. Among the reasons for low achievements were (i) constant changes of the program team; (ii) a shortage of qualified consultants; (iii) clients‘ weak financial and accounting systems; and (iv) the small number of firms who received AS that eventually received investment financing as well. IFC now plans to transfer management of the program to BPI international. 6.17 Indirect Support to SMEs: In 2001, in addition to providing financing for the expansion of Mozal, IFC launched an SME linkages program to improve linkages between Mozal and local SMEs. Twenty-five contracts worth over $5.0 million in total were awarded to SMEs through the first Mozal SME linkages program.15 In addition, the program facilitated training for 33 SMEs. However, the program‘s sustainability remained a challenge as skill transfer was limited. The program provided AS to a relatively small number of firms, and in some cases the same firm received several contracts for goods and services. As a result, only a limited number of suppliers were supported rather than capacity developed among a larger group of local SMEs.16 In 2007, IFC launched a new SME linkages program, Mozlink II, to increase the level of SME particpation in the procurement supply chain of large industries. The program also included a ―wellness‖ component (malaria, tuberculosis, and HIV/AIDS) integrated as 74 CHAPTER 6 EVALUATION OF IFC ACTIVITIES IN MOZAMBIQUE, FY01-08 part of the program. Instead of one partner, as in previous programs, the program has had four big corporate partners. So far the program has provided some training and mentoring services to 45 SMEs. Some components of the project are on target, while access to finance, the number of trainers trained, the value of SME contracts signed, and some HIV/AIDS-related components are below target levels. In sum, it appears that strengthening the linkages between large companies and local SMEs in the country through capacity building is a challenging, long-term task requiring sustained involvement. In FY08, IFC extended a loan to a bank under the AMSME program that targets the growth of credit availability to MSMEs in Mozambique. However, it is too early to discuss program results. 6.18 WB-IFC-IDA Support to SMEs: As mentioned in earlier chapters, the World Bank also supported SMEs during the review period. There have been some efforts to increase the collaboration on SMEs between two institutions in the past couple years. During the period, the financial sector and Private Sector Development Group (a joint IFC-WB unit) conducted two enterprise surveys that focused on the factors that shape firms‘ decisions to invest. In FY09, IDA/IFC initiated a project to improve the business environment and enhance the competiveness of SMEs. PROMOTING TOURISM 6.19 Although Mozambique has valuable tourism assets, such as coastal and marine resources, biodiversity, and cultural sites, the tourism sector has not developed as expected. In 2004, 20 percent of all arrivals to Mozambique were for tourism while in neighboring countries the average was around 70 percent. In 2003, tourism accounted for 1.2 percent of the country‘s GDP, far below the Sub-Saharan average of 6.9 percent. Difficulty with land acquisition and the lengthy and often opaque land application and licensing procedures have been important impediments to development of the sector. 6.20 IFC’s approach to advisory services in the tourism sector has evolved but has yet to bear fruit. In the 1990s, IFC invested in several tourism projects, but starting in the early 2000s, it shifted its involvement in the sector from investment operations to advisory services. IFC‘s first program, South East African Tourism Investment Program (SEATIP), was launched in 2003. The program was one of the first donor-supported programs in Mozambique to focus entirely on the development of tourism. It analyzed the enabling environment for tourism and identified the issues and complexities in the sector. However, the program did not deliver any tangible outcomes, and there were no investments through the program. In 2006, at the request of the Ministry of Tourism, IFC launched the Mozambique Tourism Anchor Investment Program, a project development facility aimed at creating investment opportunities. The program has achieved many of its objectives, such as identifying and securing anchor investment sites, conducting an international tourism investment promotion program, and drafting new legislation. However, no investments have been generated in anchor sites as originally intended and as a result no SME linkages and local community capacity-building program were realized since these activities were designed around the new investments. The current global crisis and upcoming elections have contributed to delays in program implementation. In addition to these two investment programs, the Foreign Investment Advisory Service (FIAS) prepared a value chain analysis in the tourism sector and presented the findings and recommendations for policy reforms to the government in a workshop. IFC activities helped the tourism sector to understand the 75 CHAPTER 6 EVALUATION OF IFC ACTIVITIES IN MOZAMBIQUE, FY01-08 issues impeding its development and to address some of the issues identified, but the programs could not reach their main objective of stimulating new investments in the sector. DEVELOPING INFRASTRUCTURE AND MINING 6.21 IFC supported two government privatization efforts, one of which reached financial closure. During the review period, the government requested IFC assistance with the privatization of Petromoc (the state-owned petroleum distributor) and awarding of the Moatize coal mine to a coal developer. In the Petromoc privatization, IFC was responsible for defining the transaction structure, marketing the transaction, and advising the government up to the closing of the transaction. IFC prepared four studies—legal, technical, environmental, and accounting due diligence—and recommended strategies for the divestiture. However, the privatization did not proceed since the government never passed the resolution for privatization. In the case of Moatize coal, IFC helped select a coal developer, and the transaction was concluded successfully. The coal mine is located in one of the least developed and most densely populated regions of the country. If the expected investment, development, and social programs are realized, the project has potential to make a significant impact on the region and the country. 6.22 IFC participated in enclave projects that generated significant growth, but the extent of their development impact has been limited. The Mozal aluminum smelter was the largest private sector industrial project to ever be implemented in Africa, outside South Africa, and one of the largest investments ever approved by IFC for a single country at that time. The project tripled the country‘s total exports and contributed to the country‘s industrialization. It complies with applicable World Bank Group environmental and social safeguard policies and guidelines. The project helped enhance foreign investors‘ perception of Mozambique, created some employment, generated government revenues, and contributed to social and development programs. At the same time, preferential treatment and weak linkages with local enterprises have limited the project‘s contribution to the domestic economy. 6.23 IFC also had an equity investment in the development of the Pande and Temane gas fields and the construction of the central processing facility through the Southern Africa Regional Gas Project. The project created an opportunity for the development of Mozambique‘s domestic gas market. It has generated revenues for the government, had minimal environmental and social impact, and has a social development fund that has sponsored numerous local initiatives. The development impact of the project could be enhanced further by supporting value-added activities based on domestic processing of the gas from the fields. Recently the operator started to collaborate with IFC on an Against HIV/AIDS program and SME linkages. IFC also supported the efforts of CMH, a subsidiary of the Mozambican national oil company, to obtain financing to exercise its 25 percent equity option in ROMPCO, the gas pipeline company holding the pipeline portion of the assets of the Southern Africa Regional Gas Project. Overall, while the mega-projects have had a significant impact on the growth of the economy, they have not generated as many domestic benefits as expected due to generous incentive packages and weak linkages with the local economy. 76 CHAPTER 6 EVALUATION OF IFC ACTIVITIES IN MOZAMBIQUE, FY01-08 BUILDING AND STRENGTHENING FINANCIAL MARKETS 6.24 IFC had a limited role and impact in the financial markets. During the review period, IFC played a limited role in the development of financial markets—it provided financing to three banks. IFC made an equity investment in the first microfinance bank in the country. However, the bank could not survive financially by lending exclusively to micro-enterprises so it started to lend to SMEs and up-scale commercial businesses. IFC also provided a global trade finance facility to a bank. However, the partner bank found IFC‘s pricing high and did not use the facility. As indicated above, IFC recently provided a subordinated loan to a bank under the Africa MSME program. With IFC‘s combined financing and advisory services support, the bank intends to expand its MSME business. On the advisory services side, IFC conducted a leasing study to evaluate the current status of the leasing industry in Mozambique and its development potential to increase access to finance for local SMEs. The study found that any IFC efforts would have limited impact in the leasing sector—specifically the increase to access to finance options for SMEs—due to the current legal and market environment. Although overall the financial sector improved in the country during the period, IFC‘s contribution to the development was limited. OTHER SECTORS 6.25 There was no investment in the health and education sectors. Although the 2000 and 2003 CASs indicated that IFC would support the expansion of private medical services and support private education, focusing on the tertiary level, in the event it did not provide any financing or advisory services in either sector. 6.26 Agribusiness. As indicated in chapter 3, agriculture, mostly private, is a key sector for Mozambique‘s growth. Toward the end of FY08, IFC made two investments, in flour milling and wheat milling companies. Although IFC contributed to the agribusiness sector with these investments by supporting expansion of an existing client in the national market—and a south-south investment that increased the wheat storage capacity—it did not realize its intended CAS objective in agribusiness, which had sought to help agricultural firms with export potential gain access to export markets. IFC Additionality and Performance 6.27 IFC contributed to the development of the private sector as a long-term finance provider, catalyst, and honest broker. IFC, together with MIGA and IDA, participated in the Mozal project. IFC‘s role in Mozal was to provide long-term financing, thus sending a positive signal to potential investors. The project was the largest investment in the country at the time of approval. Besides providing financing, IFC played a coordinating role for lenders in the structuring and financing of the project. Mozal had minimal linkages with local SMEs during the first phase, so IFC helped initiate an SME linkages program in the expansion phase. While the project has its weaknesses, it was effective in generating some linkages between Mozal and local enterprises. Although further improvements can be made, this program had a demonstration effect in the country and has been replicated in other parts of Africa.17 IFC‘s latest SME linkages program went beyond Mozal and included other big companies, such as Sasol, Cervejas de Moçambique (CDM), and Coca Cola. In the Southern African Regional Gas project, the WBG (IFC, MIGA, and IBRD) played a catalytic 77 CHAPTER 6 EVALUATION OF IFC ACTIVITIES IN MOZAMBIQUE, FY01-08 role in helping Mozambique establish a record of private sector participation. The WBG has effectively deployed its multiproduct capabilities in support of the project and continues to coordinate on project monitoring. IFC also made an important contribution as an ―honest broker‖ in the awarding of the Moatize coal mine concession (see paragraph 6.21). 6.28 IFC financed small, high-risk AEF/SEF projects in an environment where financing was not available, but impact in this area was limited. Better coordinated IFC and IDA support to SMEs could increase WBG‘s additionality. During the FY04-07 CAS period, the WBG did not meet government expectations with respect to SME support.18 IFC and IDA recently improved their coordinated efforts to support SME development. In tourism, IFC improved its assistance by becoming more focused and selective. It undertook substantial advisory services, although there have not been any investments through these AS projects as yet. Going forward, considering the low access to finance, high-risk business climate, and IFC‘s familiarity and experience with Mozambique‘s SME, tourism, infrastructure, and metals sectors, there appears to be a significant continued role for IFC in the country. Lessons and Challenges 6.29 Broadening the benefits of growth is a challenge in Mozambique. While the Mozambican economy has grown significantly in the past 10 years, growth has been substantially driven by aid inflows and mega-projects in the extractive industries sectors. The role and contribution of the indigenous private sector and other sectors of the economy has been limited. Expanding the role of the indigenous private sector and stimulate growth in other areas of the economy remains a critical challenge for sustained, broad-based growth. 6.30 IFC needs to place more focus on improving the overall business enabling environment (BEE) in Mozambique. IFC strategy has identified improving the business enabling environment as one of its objectives and tried to improve BEE through industry- specific projects. However, during the period reviewed, IFC provided just one AS to help improve the BEE. The country still has a weak business environment, which limits IFC‘s potential contributions through further investments. In addition to industry-specific BEE support, IFC would do well to provide AS that aims to improve the overall business environment in Mozambique. 6.31 IFC’s several experiences supporting SMEs showed that even among the most promising of them, lack of capacity and know-how are critical constraints to SME growth. Several AEF/SEF-financed projects failed due to lack of management capacity. The MSI program has been unable to realize its original targets partly because of the low financial and accounting capacity of enterprises. When dealing with SMEs in frontier and post- conflict countries where small businesses are not developed, IFC would benefit from maximizing its advisory services presence. 6.32 IFC should seek to build broader partnerships with relevant stakeholders to enhance the impact of its advisory services. IFC‘s first tourism sector program was very comprehensive by design. The original concept addressed broad issues such as marketing, institutional coordination, planning, investment promotion, and community participation and proposed 78 CHAPTER 6 EVALUATION OF IFC ACTIVITIES IN MOZAMBIQUE, FY01-08 programs to address weaknesses. However, many of the activities originally targeted were outside IFC‘s core competencies. In such cases, IFC could benefit from building partnerships to help address broader issues that are beyond its capacity and strengths. 6.33 IFC should seek to attain long-term sustainability of linkages programs in the country. IFC developed an appropriate programmatic approach to support SME linkages in a low-income country, where the challenges are deep and require sustained, long-term engagements. To date, the approach has improved local linkages between Mozal and local SMEs. However, substantial challenges remain in expanding linkages to a broader range of SMEs, building capacity in SMEs, and ensuring the financial sustainability of relationships to ensure the linkages can continue without IFC assistance. 79 7. Partnership and Harmonization Aid Flows and Modalities 7.1 Net ODA disbursement to Mozambique almost doubled from $963 million in 2001 to $1,772 million in 2007, making the country highly aid-dependent. More than 40 development partners provide assistance to Mozambique, including more than 25 bilateral and 16 multilateral agencies. During the evaluation period, the bilateral partners provided about two-thirds of the funds, multilaterals one-third (Figure 12). IDA is the single largest development partner, providing about 14 percent of total ODA disbursements during the review period. Other major development partners include the European Commission, the United States, and AfDB.1 Figure 12. Total Bilateral and Multilateral Net ODA Disbursements (in US$ million) 1800 1600 1400 1200 1000 Total Bilateral 800 Donors 600 Total Multilateral 400 IDA 200 0 AfDF 00 01 02 03 04 05 06 07 20 20 20 20 20 20 20 20 Source: OECD Development Assistance Committee (DAC), IDA, AfDB, March 2009. 7.2 The volume of IDA lending for infrastructure dominated the social sectors. Looking at the sectoral composition of IDA‘s funds to Mozambique, this emphasis became more pronounced after FY03 (Figure 13). On the other hand, total development assistance from all partners showed an increasing share of support going to the social sectors and a declining share to infrastructure starting in 2003 (Figure 14). This latter pattern is typical of trends across Sub-Saharan Africa and reflects the greater capacity of the Bank to finance large infrastructure projects and the capacity of other development partners to support smaller social sector projects.2 7.3 As there is a large and increasing number of development partners, with a substantially increased aid flow, there are several different aid modalities (tied and untied aid) being used (for example, project, sector, SWAp, and general budget support). At the same time, since the late 1990s, the World Bank and other development partners have made substantial changes to the way external development assistance is provided to Mozambique, with shifts toward direct 81 CHAPTER 7 PARTNERSHIP AND HARMONIZATION budget support and greater harmonization between development partners as well as alignment of development partner plans with government priorities. Figure 13. Trends in the Share of IDA Investments Figure 14. Trends in the share of Investments by all IDA Sectors (percent) in Social and Infrastructure Development Partners in Social and Infrastructure All partners Sectors (percent) 45 35 40 30 35 30 25 25 Social 20 Social 20 Infra 15 Infra 15 10 10 5 5 0 0 95 997 999 001 003 005 007 95 97 99 01 03 05 07 19 FY FY FY FY FY FY FY 1 1 2 2 2 2 Source: BW and OECD DAC.3 7.4 General budget support to Mozambique from all sources is increasing, although project support remains dominant. Budget support has its roots in the import/balance of payments support programs that began in the early 1990s and has increased, particularly over the past five years, since the development of Mozambique‘s PARPA. The number of development partners providing budget support has gradually increased to the current 19, and the total amount provided has also increased. An MOU was signed between all budget support partners and the government and sets out the framework, obligations, and mechanisms for budget support. The Bank signed the MOU in 2004, committing itself to harmonizing PRSC support with budget support provided by the other development part- ners. In 2000, the share of ODA going to general budget support was 3 percent, while in 2007 it was 23 percent (equivalent to about $400 million), as shown in Table 36. Table 36. ODA and Budget Support (US$ million) 2000 2001 2002 2003 2004 2005 2006 2007 2008* ODA net flows 905.8 962.5 2,217.9 1,048.8 1,243.4 1,289.9 1,604.7 1,772.4 G19 total net flows 662.3 771.5 1,932.3 801.6 1,035.8 1,136.2 1,300.3 1,459.3 IDA disbursements 97.5 51.6 297.6 160.1 197.0 247.1 251.9 251.7 280.0 AfDB disbursements 13.3 56.5 73.1 31.9 91.4 73.4 162.1 79.6 General budget support (GBS) total 29.5 88.2 100.7 153.7 215.9 277.4 352.3 403.2 435.1 PRSCs 60 60 60 70 70 PRSCs as % of IDA disbursements 30.5 24.3 23.8 27.8 25.0 PRSCs as % of GBS total 27.8 21.6 17.0 17.4 16.1 GBS as % of ODA net flows 3.3 9.2 4.5 14.7 17.4 21.5 22.0 22.7 GBS as % of G19 total net flows 4.5 11.4 5.2 19.2 20.8 24.4 27.1 27.6 Note: *Figures for 2008 are commitments rather than actual disbursements. Source: PEFA 2006, 2007, Ministry of Finance Budget Execution Reports, OECD-DAC Development Database, and Client Connection. 82 CHAPTER 7 PARTNERSHIP AND HARMONIZATION 7.5 However, the move toward more coordinated funding is not consistent across development partners and coexists alongside a continued reliance on project financing. While the Netherlands provides around 74 percent of its support to Mozambique through coordinated modalities, the equivalent share for Japan is zero. Some of the major development partners, including Japan (JICA) and the United States (USAID) prefer to use project support modalities. Even for the 19 principal direct budget support development partners (G19), the overall share of project support in total disbursements is substantial (estimated at some 40 percent in 2006).4 7.6 While the Bank was the largest provider of budget support in 2004, and 2008 its relative importance in providing budget support in financial terms has gradually decreased from 28 percent of general budget support in 2004 to 16 percent in 2008—reflecting an increase in the contribution by other development partners (Table 36). The Paris Declaration Dimensions: Ownership, Alignment, Harmonization, Managing for Results, and Mutual Accountability 7.7 Ownership. Under the Paris Declaration, ownership refers to the extent to which a country has an operational development strategy with which development partners can align their assistance. Mozambique has made progress toward ownership in this respect because the PARPA is widely accepted as a sound framework for collaboration. There is agreement on the general relevance of the PARPA and on the logic of using it as Mozambique‘s own over-arching framework for its development efforts. Hence its use as point of departure for joint collaboration is widespread and generally accepted as the most effective way of supporting sustainable poverty reduction. By aligning its strategy and assistance with the PARPA, the Bank responded ensured ownership. Although the PARPA has become the accepted framework for development partner collaboration, its broad perspective is not ideal for the prioritization of practical guidance and strategic choices for development partner support to various programs. 7.8 Alignment. The Paris Declaration also aims at greater alignment of aid with national development strategies and plans, greater predictability of aid, and greater use of national systems (and support of capacity building for those systems). The Bank‘s assistance strategies adopted PARPA‘s pillars focusing on growth, social development, and governance. This strategy was reinforced through the alignment of the outcome indicators in the FY04 CAS with the Performance Assessment Framework (PAF) of the Memorandum of Understanding (MOU) agreed among budget support development partners and the government. Further alignment took place through the choice of prior actions and triggers in the Bank‘s budget support through PRSCs, all of which were aligned with the PARPA results matrix. Since PRSC 2, all prior actions and triggers have been drawn from the PAF. 7.9 Disbursements from PRSCs are more regular and predictable. Starting with the second tranche of PRSC 2, disbursements from PRSCs were made in the first quarter of the budget year, as preferred by the government. This is an improvement from disbursements under the adjustment operations, which were not planned in line with the government‘s budget cycle. Moreover, these were seriously delayed in a number of instances owing to 83 CHAPTER 7 PARTNERSHIP AND HARMONIZATION delays in obtaining tranche release authorizations caused by difficulties in complying with the Bank‘s conditionalities for adjustment operations. 7.10 The use of country systems is linked to PRSCs; however, the proportion of develop- ment assistance channeled through budget support, SWAps, or other such arrangements was less than 50 percent of total aid in 2008.5 The perception of the government and development partners of the Bank‘s use of country systems is discussed in Box 4. Box 4. Perceptions of World Bank Effectiveness A recent survey by the Multilateral Organization Performance Assessment Network (MOPAN) assessed the perception of the government (the client) and donors of the work of the World Bank in Mozambique in 2009.a In summary the assessment concluded that the World Bank was on average perceived to perform strongly or adequately on most of the 15 key performance indicators by the client and donors. This average hides the fact that the scores for 4 out of 6 indicators which focused on the Bank‘s operational management were the highest scores from the survey. In addition, the government had a uniformly more favorable perception of the Bank‘s performance than the donors although an average of 16 percent of the time donors claimed not to know the answers to specific questions about Bank activities. There were, however, three indicators against which on average the Bank was perceived to perform inadequately – namely delegating decision making, using country systems and adjusting procedures. Donors‘ perceived the Bank as weak on ―delegating decision-making‖ authority on projects and project management to the country office. On the other hand the government respondents rated the decision-making power of the country office significantly higher than donors and scored it as adequate. This evaluation notes that, while the country office is a core decision making unit for most operational activities (which received generally high scores in the MOPAD survey) most policy decisions with substantial financial implications are typically made in Washington. It was the perception of clients and donors alike that on a range of issues from procurement to auditing to mutual accountability that the Bank does not use ―country systems‖. This report notes that in the light of the Bank‘s responsibility for good stewardship of IDA resources and this report‘s evaluation that corruption and the justice system in Mozambique are serious weaknesses, there is substantial justification for caution on the Bank‘s side in the use of country systems. At the same time the facts about the Bank‘s use of country systems for procurement may not be well known. First, general budget support, which accounts for just above 20 percent of IDA net flows, is all disbursed using country systems. Second, the Bank has recently made substantial changes to procurement guidelines for projects in Mozambique allowing a much greater use of national competitive bidding (country systems) for procurement in investment projects. For auditing the Bank allows national independent auditors and for mutual accountability this report has already referred in this chapter to the use of the PAF as a joint monitoring system between the government and development partners. The perception of clients and donors are different with respect to ―adjusting procedures‖. According to the survey, clients are notably more confident that the Bank uses procedures that can be easily understood and followed, and that the time taken to complete these procedures does not negatively affect implementation. On the other hand donors are critical of the Bank‘s lack of flexibility although this criticism may be mainly directed at investment lending since there was an acknowledgment that for PRSCs the Bank had shown its ability to adjust quickly a: Multilateral Organization Performance Assessment Network, MOPAN Common Approach, World Bank in Mozambique 2009, February 2010. There were 13 government (client) respondents (69 percent of whom claimed to interact with the WB either daily or weekly) and 17 donor respondents (59 percent of whom claimed to interact with the WB either daily or weekly) who participated in the survey. 84 CHAPTER 7 PARTNERSHIP AND HARMONIZATION 7.11 Harmonization. In accordance with the Paris Declaration, harmonization refers to the existence of common arrangements, as well as the coordination of missions and country analysis. As a common arrangement, the MOU among the G19 encouraged harmonization of fast-disbursing support around a common set of principles. It is based on several key principles, including (i) a three-year Performance Assessment Framework (PAF) subscribed to by all budget support financiers and the government, consisting of a collection of target indicators the government is expected to meet in the PARPA; (ii) joint monitoring of progress against the agreed upon PAF and unified reporting to all development partners; (iii) alignment with domestic processes; (iv) predictability of financing; and (v) a table of in- dicators against which donors‘ performance will be measured. In addition to the PRSCs, the Bank collaborated in a number of other program support activities such as SWAps that involved several development partners, for instance the PROAGRI that involved 16 bilateral and multilateral partners and which included harmonized performance targets. 7.12 By avoiding a separate policy dialogue with each development partner and working through the G19 processes and its (sector) working groups, the established budget support framework has effectively helped the government focus its efforts on operationalizing the implementation of the PARPA. The framework has allowed for strong coordination and alignment of general budget support partners with the government‘s program as outlined in the PARPA strategic indicators matrix. Government officials interviewed during the mission unanimously supported the alignment of the Bank‘s PRSCs with the G19 budget support system, pointing out that the Bank‘s convening power provides credibility to the programs. 7.13 For the government, general budget support is the preferred aid modality. Govern- ment counterparts indicated unequivocally that they prefer the PRSCs to adjustment opera- tions for three reasons. First, the prior actions and triggers are derived from the PAF matrix, which is the government‘s document, derived from the PARPA, even though the measures se- lected for inclusion in the PAF are the result of negotiation with all MOU participants. Second, the conditionalities are generally more process oriented and more manageable than those included in the World Bank‘s adjustment operations. Third, government officials praised the greater predictability and regularity of disbursements for budget support. 7.14 The Bank‘s harmonization and close collaboration with other budget support development partners was facilitated by the presence of the PRSC task team leaders in the Country Office since 2004. According to Bank staff in Maputo, the G19 process, and embedding the PRSC therein, has helped bring government counterparts together across sectors in ways that would not have occurred in the absence of the PRSCs. Still, much remains to be done to improve the dialogue and collaboration between sector ministries and the Ministries of Finance and Planning, which (in the words of one former senior government official) still ―speak different languages.‖ 7.15 Within the Bank, the PRSC process appears to be strengthening cooperation within the country team. Initially, PRSCs were essentially viewed as PREM/PSD instruments, focusing on macroeconomic, public financial management, private sector development, and investment climate issues.6 While sector specialists at first felt marginalized, they have come to appreciate that the PRSCs and the national policy dialogue has in a number of cases 85 CHAPTER 7 PARTNERSHIP AND HARMONIZATION generated more effective sector policy dialogue with the government and development partners—particularly in relation to the allocation of public expenditures. 7.16 However, the integration of the PRSCs into the general budget support structure has also entailed some costs, mainly restricted flexibility. The need to reach agreement among G19 partners to align the PAF with the PARPA matrix may have resulted in compromises by development partners around the lowest common denominator. In addition, the PRSCs lost the ability to flexibly embrace emerging core policy issues that had not already been identified in the three-year PAF when it was negotiated. The main flexibility under the PRSC is adjustment of specific PAF targets over time, in the context of annual midterm reviews, rather than embracing and specifying policy measures as the dialogue develops. As a result of these constraints, some of the Bank‘s dialogue and actions on policy issues occurs outside the PRSC through sector-specific operations, and the Bank even relied on the IMF to integrate contemporary policy concerns into its program.7 7.17 In addition, it is not clear whether the harmonized framework has reduced overall transaction costs for government. Some government officials pointed out that the working group arrangement and the semi-annual reviews require substantial time commitments, even if the overall processes are relatively well aligned with the government‘s internal reporting and budget preparation processes. Currently, the policy dialogue takes place through 71 separate working groups, 29 of which require government participation. This arrangement requires substantial time commitments from general budget support partners, including Bank staff. A more streamlined and prioritized approach to the (sector) working groups could decrease transaction costs and improve efficiency. Moreover, the requirement to be a general budget support partner to earn ―a seat at the table‖ and thereby exercise some leverage in the country‘s reform agenda, may be too constraining. Any move to increase voice among non- budget support partners should be thus considered against the need for higher efficiency in the conduct of policy dialogue. 7.18 Managing for results. The Paris Declaration calls for the establishment of a cost-effec- tive, results-oriented assessment of a country‘s development and poverty reduction program. This evaluation finds that the government and the G19 improved the national monitoring capacity but fell short of achieving improvements in evaluation capacity (see paragraphs 5.10- 5.13). 7.19 The PARPA sets priorities, areas for intervention, and monitoring indicators (through the PAF), imposing some discipline on the monitoring and, eventually, evaluating of the programs. In addition, the government and the G19 participate in two annual reviews (the Joint Review and Mid-year Review) that focus on, for example, setting future annual targets for the PAF and assessing the progress in implementing the PARPA. These consultations have helped the government to improve its monitoring skills. The current monitoring structure meets several of its objectives, including increasing transparency and communication, but it does not fully achieve its goal of reducing transaction costs as the intensity of monitoring places a burden on the government and its partners (see also paragraphs 5.18-5.21). 7.20 The BPES, the annual evaluation of the preceding year‘s annual plan (the PES), lists actions taken and outputs produced, but does not attempt to assess whether the programs help to improve the standard of living of Mozambicans or if the resources devoted to the 86 CHAPTER 7 PARTNERSHIP AND HARMONIZATION program generate net benefits to the country. The Poverty Observatories (POs) aim to involve civil society in the review of progress on poverty reduction, but concerns remain, such as the POs‘ relation to other monitoring and evaluation institutions and the absence of a clearly delineated legal standing for the POs (paragraph 4.5 and Annex table 12). 7.21 Mutual Accountability. The Paris Declaration calls for development partners and partner countries to jointly assess (through existing country-level mechanisms) progress in implementing agreed commitments on aid effectiveness. While the government and the G19 regularly review progress on budget support, using the PAF as the main mutual assessment tool, the exercise has not yet engaged all development partners or covered all aid modalities. This evaluation considers that Mozambique has a well-developed system of mutual accountability. Cooperation with the IMF 7.22 Of particular note has been the cooperation between the Bank and the IMF, which has been described as ―excellent‖ by staff of their respective offices in Maputo. The IMF‘s operational program consisted of two Poverty Reduction and Growth Facility (PRGF) arrangements during the periods July 1999-June 2003 and June 2004-June 2007. In addition, a Policy Support Instrument (PSI) was approved in June 2007. By mutual consent with the Bank, the IMF has taken the lead on monetary, fiscal, and foreign exchange policies and has played a major role in other areas of macroeconomic policy, as well as in financial sector development. The Bank has provided support in some key areas (such as trade, public expenditures, and some public revenue-enhancing measures). The cooperation has been particularly close and fruitful in FSD, with the Bank and the IMF conducting joint Financial Sector Assessments, providing technical assistance, and using policy conditionality in programs to support mutual objectives. Finally, the IMF encourages the Bank to focus more on large public enterprises over which the government does not have sufficient oversight and that could be a liability to the budget. Cooperation with the African Development Bank 7.23 The World Bank and AfDB assisted Mozambique with external debt consolidation and reduction. The World Bank provided technical support for Mozambique‘s Paris Club debt-rescheduling agreements (the fifth such agreement was concluded in November 1996) and started work that led to the approval of a HIPC debt- reduction package that achieved its completion point in June 1999. The completion point for debt relief under the enhanced HIPC debt reduction package was reached in 2001 and Mozambique also qualified for the MDRI in 2006. Between 2004 and 2007 Mozambique HIPC and MDRI debt relief totaled more than $2.4 billion (Table 37), including more than $1.3 billion from IDA and about $450 million from AfDB. In particular, all outstanding debt to the IMF, the World Bank, and the AfDB was cancelled under the MDRI initiative. 87 CHAPTER 7 PARTNERSHIP AND HARMONIZATION Table 37. Mozambique Debt Relief under HIPC and MDRI 2004 2005 2006 2007 Total HIPC, total 135.2 135.8 130.9 130.0 532.0 Of which IDA 8.9 9.7 9.8 10.6 39 Of which AfDB 2.6 2.5 2.6 2.9 10.6 MDRI, total 1,916.8 1,916.8 Of which IDA 1,319.0 1,319.0 Of which AfDB 447.8 447.8 Total HIPC and MDRI 135.2 135.8 2,047.7 130.0 2,448.8 Source: World Bank data (2007 CPS). 7.24 During the evaluation period, the World Bank and AfDB participated in three closely coordinated sector programs: the Health Sector Recovery Program, the Education Sector Strategic Program, and PROAGRI (Table 38). These were sectorwide approaches, although some exceptions on, for example, procurement kept some of these from being ―classic‖ SWAps.8 Unlike IDA, which withdrew from the second phase of these programs, AfDB continued support through this modality in agriculture and education. In investment projects, the World Bank and AfDB complemented each other in several sectors, including energy and domestic water supply. In the energy sector, contracts for grid intensification are currently underway in Central and Northern Mozambique, financed by the AfDB, and in Southern Mozambique and Maputo City, financed by IDA. In water and sanitation, where the World Bank has a heavy urban bias, the AfDB focuses on rural areas. Table 38. Projects Cofinanced or financed in parallel with the AfDB FY Project number Project AfDB amount WB commitment 1992 P001790 First Road and Coastal Shipping 21.5 74.3 1994 P001804 Road and Coastal 2 35.5 188.0 1996 P001792 Health Sector Recovery SIL 10.8 98.7 1999 P001786 Education Sector Strategic Program 16.4 71.0 1999 P001799 PROAGRI 18.0 30.0 1999 P052240 National Water 2 29.0 75.0 2001 P001808 Mineral Resources Management Capacity Development 3.5 18.0 2004 P069183 Energy Reform and Access APL-1 15.2 40.3 2006 P086169 Financial Sector TA Project 10.2 10.5 2007 P083325 Roads and Bridges APL-2 45.0 100.0 Source: WB Business Warehouse, March 2009, and AfDB databases. 7.25 The two Banks provided budget support that is monitored though the MOU, and in both cases their strategies are aligned with the PARPA. However, no joint country assistance strategy exists, unlike in Tanzania and Uganda.9 The 2007 CPS indicates that development partners had considered preparing joint strategies but believed that— provided they each supported the PARPA and took into account the peer review recommendations, especially on areas of development partner concentration and collaboration—this was as significant a degree of harmonization as could reasonably be expected of a joint strategy. It was also considered achievable with considerably less bureaucracy, time, and effort. 88 CHAPTER 7 PARTNERSHIP AND HARMONIZATION 7.26 During IEG’s mission to Maputo, some government officials voiced concern about the difficulty of having to adhere to the AfDB’s and World Bank’s different procurement guidelines. According to OECD‘s 2008 Survey on monitoring the Paris Declaration, the amount of total funding from development partners using country procurement systems rose from 38 to 54 percent between 2005 and 2007, while AfDB‘s use went from 38 percent in 2005 to 44 percent in 2007, and the World Bank‘s figures actually fell from 28 to 26 percent in the same period. However, these numbers do not capture the use of National Competitive Bidding (NCB) that occurs through the Bank‘s investment lending projects. In addition to their contributions to budget support, the AfDB and World Bank have made increasing use of country systems. The World Bank assisted the government in preparing the 2005 procurement code with the aim of aligning it with international norms. In the light of improvements to the code, the World Bank agreed in mid-2009 to the greater use of NCB by substantially increasing the threshold for International Competitive Bidding (ICB) for all new World Bank financed projects as well as for selected existing projects in Mozambique. 7.27 Differences between national and the World Bank‘s procurement guidelines have remained, however, particularly in the areas of anticorruption guidance, debarment policy, sanctions policy, the right to audit, and the approach to obstructive practices. These make it difficult for the Bank to enter into arrangements such as pooled fund projects that use national procurement procedures. The World Bank continues to work with other multilateral development banks and the OECD to harmonize procurement guidelines. It should also be noted that in 2009, the AfDB Board of Governors adopted a resolution to remove the requirement to restrict procurement to only its member countries for African Development Fund (AfDF)-financed projects and programs, effective March 2009. 7.28 In sum, the Bank’s efforts to roll out the main provisions of the Paris Declaration in Mozambique have yielded several favorable results, as well as some notable limitations for the Bank. On the favorable side, the main gains have included greater predictability of resource transfers in line with an agreed schedule and a more structured dialogue with the Mozambican authorities through coordination and alignment of the general budget support partners with the government‘s PARPA. At the same time, the current donor harmonization centered on the MOU has restricted flexibility. For instance, the Bank (and other development partners) has not always been able to embrace relevant policy issues (and include these as prior actions in budget support operations) if these were not foreseen when the PAF indicators were agreed. In addition, the Bank‘s participation in the high number of (sector) working groups involves significant transaction costs. A more streamlined and prioritized approach to these could improve efficiency of the policy dialogue. At the same time, some hold the view that a mechanism needs to be found to give voice to a broader range of development partners. However, any move to increase voice among non-budget support partners should be considered against the need for higher efficiency in the conduct of policy dialogue. 89 8. Conclusions, Lessons, and Recommendations Overall Assessment 8.1 The Bank’s assistance strategy was relevant and consistent with the development priorities outlined in Mozambique’s PRSPs. The Bank focused initially on economic growth and the social sectors: it sought to maintain a stable macroeconomic environment, promote financial and private sector development, enhance agriculture and infrastructure development, and it provided support for education, health, and water services. The increased focus on public sector reform and governance in the latter part of the period evaluated was also appropriate. Analytical work delivered by the Bank laid the foundation for the CASs covering the review period and provided the analytical underpinnings for the operational work. 8.2 The outcome of Bank assistance under the stabilization and growth pillar has been moderately satisfactory. Overall growth has been impressive and underlying macroeconomic performance satisfactory. A significant part of the strong growth is being driven by foreign-financed mega-projects and foreign aid inflows. The continued interest in mega-projects in new areas like coal, a pipeline for natural gas, and possibly petroleum is likely to be beneficial for the economy, particularly if backward linkages to the domestic economy are strengthened as planned. But creating a significant volume of new employment in SMEs, in both urban areas and the rural hinterland (but particularly the latter), remains a major challenge. This emphasizes the importance of PSD as the foundation for future sustained growth and employment generation. Despite continued challenges like access to credit for smaller borrowers and the need to geographically spread and diversify the range of financial services, there was good overall performance and results in financial sector development. In contrast, partial and limited progress and associated results were attained in PSD. Results were also below expectations in rural development and the sustainable management of natural resources. 8.3 The overall outcome under the poverty and human development pillar is rated moderately satisfactory. Quantitative measures show progress over the review period. A substantial reduction in poverty during the first three years and improved access to health and education services, are to some extent attributable to the Bank‘s assistance program. Nevertheless, although the incidence of poverty declined, it remains high and predominantly rural, and the rate of decline in absolute poverty may be slowing. Although access to education improved, concerns accumulated regarding its quality. Design limitations and weak government capacity affected outcomes for Bank support for HIV/AIDS. Bank-assisted projects to improve water supply and sanitation focused mainly 90 on urban areas. Efforts to develop effective public institutions and to involve the private sector in retail water distribution in large cities were successful. 8.4 Governance. Under the governance pillar the outcome of Bank support has been moderately satisfactory. With Bank support, reforms have been carried out to improve budget allocation and execution and to strengthen government capacity to monitor programs and, to a lesser extent, its capacity to evaluate them. Limited progress has been made on reducing corruption and improving the justice system. Because of the large size of the Mozambican public sector and the importance of good budget institutions for resource allocation and accountability, the evaluation assigns a large weight to the budget allocation and execution objective (an important part of the Bank‘s assistance). 8.5 Overall rating. This CPE rates the overall outcomes against the Bank’s strategic objectives in Mozambique during the evaluation period as moderately satisfactory. This reflects results achieved under each of the three pillars that can plausibly be attributed, at least in part, to the Bank‘s program. This is consistent with the ratings of moderately satisfactory that each pillar received. However, results varied across subpillars. In particular, this CPE identifies macroeconomic management and budget allocation and execution as subpillars that stood out positively and are rated satisfactory. However, in four subpillars the outcomes of Bank assistance were below expectations. Under the first pillar, private sector development and rural development including sustainable management of natural resources are both rated moderately unsatisfactory. Under the third pillar, reducing corruption and improving the justice system are rated unsatisfactory. In sum, although outcomes and the accompanying ratings on the level of pillars and the overall level were balanced and positive, the indicated subpillars are areas of concern. Risk to Development Outcome 8.6 There are a number of moderate risks to the development outcome of the Bank’s and other development partners’ programs. For instance, there is some potential for macroeconomic instability as a result of exogenous factors, the fragile performance so far of the financial sector, or an unsustainable accumulation of new external debt. While serious exogenous shocks cannot be ruled out, particularly since the recent swings in the global price of foodstuffs, as well as the global financial crisis of 2008/09, the country had been able to weather some of these shocks in previous years and is likely to remain capable to do so, at least for moderate shocks. As for the financial sector, prudential and other measures implemented under Bank and IMF support have already reduced the share of poorly performing loans in bank portfolios and moderated the risk of accumulating high shares in the future. Regarding external debt, the IMF and the Bank continue to assist the government in conducting annual debt sustainability analyses, designed to forewarn of any adverse developments and take remedial action, as well provide direct debt relief under the HIPC and MDRI initiatives. 8.7 In addition, disbursements by development partners may become unpredictable, particularly in view of the global financial crisis. This risk has been significantly mitigated by the strong degree of development partner coordination and harmonization achieved 91 through the Memorandum of Understanding and the regular Joint Reviews and Mid-Year Reviews. The development partners have welcomed the government‘s increase ownership since April 2005, which has also consolidated mutual trust. The government has recently improved domestic resource mobilization by raising domestic revenues. Moreover, weak capacity to implement reforms may end up delaying the reform process or compromising its development impact. To mitigate this risk, the government and the development partners agreed to develop an integrated strategy for capacity development in public financial management and to strengthen the management of reforms. Finally, there is a distinct potential for deterioration in governance that could compromise economic reforms, growth, and efforts to reduce poverty. For example, legal and judicial reforms have not kept up with their intended pace. Still, the G19 continues to support the government in its efforts to improve governance and to press it to keep up the pace. On the overall strategic and policy level: (i) the government has demonstrated its commitment to following through with reforms in its policy dialogue with, and to the satisfaction of, its development partners; (ii) the political climate has been stable and is likely to remain so for the foreseeable future; and (iii) a number of key pieces of legislation have been passed and institutions, processes, and frameworks set up which are unlikely to be reversed. On balance, therefore, the overall risk to development outcome is considered moderate. Lessons 8.8 Macroeconomic policy. The very good macroeconomic performance sustained by Mozambique over the past two decades suggests that as long as the country is following prudent and effective macroeconomic stabilization and management policies in the context of ongoing IMF programs, it is sufficient for the Bank‘s assistance program to base its assessment of macroeconomic developments on the IMF‘s assessment. This has been done in the context of the budget support or DPL-type operations, and in ancillary support (such as in trade policy, public expenditure allocation, and some specific revenue-enhancing measures), without devoting major extra efforts across the whole spectrum within this policy area. 8.9 Bringing in the private sector. The main lesson from the infrastructure sector is that transfer to Mozambique of policies that have proved successful in other developing and emerging countries cannot be done uncritically (without ensuring that the local conditions are appropriate for the application of the policy). This is clear from the experience with rail concessions and with unbundling the energy sector to bring in private operators. As long as Mozambique‘s electricity system is small-scale and inefficiently operated, it will not be a good candidate for unbundling. Strengthening existing operators and improving their efficiency through closely monitored corporatization and performance contracts and setting up a well- run regulatory agency, while waiting for a substantial increase in the size of the market, are necessary before attempting again to unbundle the electricity sector. Regarding railways, although a concession is better than continuing state-operated services, more effort is needed to research experiences in countries with similar conditions and to sharpen the design of the concession. Thus ample time and analysis should be dedicated to the preparation for concessioning railway systems as they are significantly more difficult and prone to failure. 92 8.10 Urban focus. In several sectors, the use of private sector contracts to provide services led to a focus on Mozambique‘s urban areas, where consumers are highly concentrated. Whether intentionally or not, this has been the pattern for power supply, water, transport, and telecommunications. This meant that these services in rural areas—the establishment of which is difficult and less profitable than in urban areas—received less attention than those in urban areas. The lesson is that, in these sectors, there is scope for the Bank to refocus its strategy to include the analysis of cost-effective options for improving services in rural areas, where the majority of the population resides. 8.11 Monitoring and evaluation and a results-based approach to Bank assistance. There were many occasions in Bank programs when M&E systems were weak or nonexistent, which made it difficult to evaluate results. For example, the M&E system for the agricultural SWAp (PROAGRI) was weak and offered very little evidence on outcome and impact. Bank programs under the governance pillar lacked well-defined indicators for outcomes, especially under the 2000 CAS. The PRSCs‘ impact on poverty reduction is far from clear because specific indicators to monitor poverty reduction were not defined, and when they were defined they were often changed from one PRSC to the next. The lesson is that quality M&E continues to be a vital part of program implementation and the core basis for a results- based approach to Bank assistance. 8.12 The Bank’s efforts to roll out the main provisions of the Paris Declaration in Mozambique have yielded several favorable results, as well as some notable limitations for the Bank. The main gains have included greater predictability of resource transfers in line with an agreed schedule and a more structured dialogue with the Mozambican authorities through coordination and alignment of the general budget support partners with the government‘s PARPA. At the same time, the current donor harmonization centered on the MOU has restricted flexibility. For instance, the Bank and other development partners have not always been able to embrace relevant policy issues (and include these as prior actions in budget support operations) if these were not foreseen when the PAF indicators were agreed. In addition, the Bank‘s participation in the high number of (sector) working groups involves significant transaction costs. A more streamlined and prioritized approach to these could improve efficiency of the policy dialogue. At the same time, some hold the view that a mechanism needs to be found to give voice to a broader range of development partners. However, any move to increase voice among non-budget support partners should be considered against the need for higher efficiency in the conduct of policy dialogue. Recommendations 8.13 Based on the findings of this evaluation, IEG recommends that the Bank:  Help the country sustain high growth but modify its pattern to make significant gains in employment and poverty reduction. Although Mozambique has experienced strong growth, poverty and inequality remain high. A key strategic objective of the country and its development partners is to promote more sustainable, employment-generating growth. However, growth in the past decade has been concentrated at one end of the productive spectrum: foreign-owned, capital 93 intensive, export-oriented mega-projects, which have had limited impact on employment creation and productivity spillovers. At the other end are the vast majority of firms, primarily SMEs, which sell mostly to the local market, face severe resource constraints, and contribute only modestly to economic growth and exports. Sustained and broad-based growth in output requires diversification of production and exports, and the creation of a better business environment for greater participation of this part of the private sector in the country‘s economic activity. The evaluation recommends that the Bank give even higher priority to assisting the country‗s efforts to modify its growth pattern and make it more evenly distributed, employment-generating, and poverty-reducing. This suggests a need to focus on:  Making credit more accessible to SMEs and the agricultural/rural sector by developing financial intermediation in these areas, including through the promotion of non-banking institutions and systems like the network of traders that had operated before independence.  Simplifying and streamlining business procedures and regulations to create a better business environment for the broader-based, smaller domestic businesses and to deal more creatively with the problem of collateral.  Ensuring a firm basis for increased productivity in the agriculture sector, as well as to supporting services, and better market access to smallholders in poor rain-fed rural areas. Strategic options need to be explored on how to sustainably improve yields and markets for crops produced by small-scale farmers to improve production, incomes, and employment.  Strengthen its knowledge of the infrastructure and social sectors. The fact that no formal ESW on infrastructure was conducted over the past decade, and that the proposed infrastructure review was dropped, is worrisome, especially given that the Bank is one of the major lenders in this sector. The problems with electricity sector reform and railway concessions illustrate the need for in-depth analysis. This evaluation also found that for projects in the social sectors and water supply the Bank had conducted only a modest amount of analytical work, including some on education conducted in collaboration with the government. There were knowledge gaps in crucial areas such as improving the quality of basic education, constraints in the battle against the spread of HIV infections, and priority actions to improve rural water supply. In collaboration with the government and other stakeholders, areas of focus would include:  Reinstating the infrastructure review, covering sectors that are likely to continue receiving assistance from the Bank.  Analyzing constraints to improving the quality of basic education, including examining the training, incentives for, and accountability of teachers and 94 school administrators, reducing the waste of instruction time, and increasing availability of textbooks, particularly in rural areas.  Designing improved technical and institutional strategies to reduce the incidence and spread of HIV infection as well as the treatment and mitigation of AIDS.  Exploring technical solutions to find the most cost-effective improvements in the domestic water system for poor rural households and helping the government to formulate a strategy that will create incentives for major private manufacturing, industrial, and service industries to invest in rural areas to reduce the pressure on urban water supplies and diversify the resource base for rural water supplies.  Help the government improve public expenditure efficiency. The Bank‘s assistance strategy did not explicitly state the need to improve the efficiency of government expenditures as an objective, although the Bank‘s analytic work identified sectors (including education, health, roads, and water) where efficiency could be enhanced. Enhancing efficiency is critical because: government expenditure is high at about 30 percent of GDP. Despite the increase in domestic revenues supported by the Bank and other development partners, government revenues remained at half the level of public expenditures. In addition, grants from the development partner community finance about one-third of public expenditure, but the sustainability of the high level of grants is unclear, given recent global financial developments. Gains in the efficiency of public expenditure can help improve the quality of social services. These factors suggest a need to focus on:  Supporting improvement in the efficiency of public expenditures that analytic work has identified as areas where efficiency could be enhanced. The government allocates a high share (65 percent) of its budget to priority/social sectors, but despite progress in the social front, the high level of absolute poverty and low levels of social indicators indicate a need to further improve the efficiency of expenditures to make room for improved quality of social services, particularly in rural areas. Reinstating PERs alongside the PFM work would help serve the objective of rationalizing public expenditures. 95 Notes CHAPTER 2 1. The PARPA was endorsed by the Boards of the Bank and Fund and w as accepted as the country‘s PRSP. 2. The similarity between the pillars of the two CASs was openly acknowledged in the FY04 CAS. 3. In line with the last lesson listed in paragraph 2.12, the FY04 CAS detailed the elaborate consultative process involved in its preparation, which included a wide range of stakeholders: the government, development partners, NGOs, private sector, and opinion leaders. Several lengthy meetings were also held among the Bank, IFC, and MIGA to coordinate and align their respective and joint assistance. The CAS also highlighted areas in which it disagreed with the government on how some issues should be handled. These included labor regulations, land use, the divestiture of state-owned enterprises, and the pace of legal and regulatory reform. 4. The G19 development partners are: African Development Bank, Austria, Belgium, Canada, Denmark, EU, Finland, France, Germany, Ireland, Italy, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, United Kingdom, and the World Bank. The IMF, United States, Japan, and UN are not members. Instead, the IMF is an ―ex officio member‖, and the US and UN are ―associate members‖. 5 A CPAR was eventually delivered in FY09, beyond the period of this evaluation. 6. A number of unprogrammed studies (not included in the CAS) were carried out during FY05-07, including the FY05 ―Impacts of Extension Services,‖ FY05 ―Contract Farming and Supply Chain Financing,‖ and FY07 ―Horticulture Development Sector Study.‖ CHAPTER 3 1. The Bank also approved the 2002 Communication Sector Reform project that closed in 2009. The project aimed to improve access to and quality of communications services in Mozambique by creating a competitive environment, with private participation in the telecommunications, postal, and air transport infrastructure, and services. As of December 2009, the ICR is still pending. Preliminary results indicate substantial changes in the structure of the telecommunications sector, while the air transport component yielded results below expectations. In addition, not all privatizations and concessions were fully implemented. 2. The 2008/09 ICA indicated a number of possible reasons for this development. These included the effects of a recent regulation (Aviso 5/2005) that discouraged foreign currency loans, which were cheaper, in favor of domestic currency loans. 3. According to a high-ranking officer of a major commercial bank, ―There is hardly any micro - finance available to farmers. It is not easy for commercial banks to go into rural areas where the risk is too high. We simply don‘t know the people there, and banking is a business based on confidence. 97 Unfortunately, the network of traders that had existed in the rural areas before the civil war, and used to know the farmers and provide them with some credit, has disappeared.‖ 4. A joint Bank-Fund Financial Sector Assessment started in 2009 is expected to address these and other issues in the financial sector. 5 In addition, EDP financed the establishment of the only functioning industrial zone in Mozambique (the Beluluane Industrial Zone), which hosts 22 investments employing up to 1000 workers. 6. World Bank 2000, page 19. 7. World Bank 1997. 8. FY01 CAS, page 19, and FY04 CAS, page 30. 9. World Bank 2006b. While this report has not been published, the material in the draft has been used for many purposes, including formulation of a project aimed at improving smallholder productivity. 10. Prior to PROAGRI, the Bank supported several rural projects, the most prominent of which was the 1993 Rural Rehabilitation Project. Its objectives were to ―to undertake, on a pilot basis, activities to achieve decentralized economic recovery while creating the capacity and procedures necessary to address the broader post-war situation.‖ Although the original project components were decentralization, improved land tenure, land use mapping, crop production support packages for smallholders returning from the war, and better rural water supply, in 1997 land tenure was moved to another agricultural project, and production support packages were abandoned. Since total cost was not changed, more funds were allocated to decentralization, which was essentially the financing of numerous micro projects, including schools. The ICR Review rated the project moderately satisfactory but noted that the project had not institutionalized decentralization and that M&E was very weak. 11. World Bank 1999, page 1. 12. Project ID P001799, ―IEG ICR Review of the Agricultural Sector Public Expenditure Program,‖ September 17, 2007. Weak M&E was also a shortcoming of the preceding Agricultural Rehabilitation project. 13. Although the ―slash and burn‖ approach to increasing area harvested results in a relatively small temporary improvement in productivity, it is not a sustainable system in the medium to long run. Most of the agricultural land is managed by small-scale subsistence farmers (less than 10 hectares) and medium-sized farms (10-50 hectares). See World Bank 2006b, page 3. 14. Food and Agriculture Organization data show that of the total area of cereals in Mozambique in 2007—1.98 million hectares—maize accounted for 1.51 million hectares. 15. The other issues facing smallholder agriculture include the availability and cost of short-term and long-term credit, government policy that precluded the use of land as collateral for loans, quality of rural infrastructure, and access to local and international markets. 16. Implementation Completion Report (IDA4111) for the Second Poverty Reduction Support Credit, January 17, 2007, page 18. 17. For example, the rehabilitation or construction of 4,000 hectares of irrigated land would have had only a marginal impact on growth in the agricultural sector because this area represents only 3.4 percent of the area in Mozambique equipped with irrigation, close to 80 percent of which consists of schemes larger than 500 hectares, of which at least 60 percent are likely to be sugar plantations. This information is based on data in the Project Concept Note for the Sustainable Irrigation Development 98 Project (PROIRRI). World Bank, November 2008. Some of the sugar plantations have ―outgrower‖ schemes involving smallholders. 18. With irrigation rehabilitation or construction costing about $10,000 per hectare, the 9,700 hectares rehabilitated or newly constructed under the PRSCs could have cost $97 million. Regardless of the source of these funds, it was a high cost for the government, and there may have been more beneficial uses of such a large financial resource. 19. The Quality Assurance Group (QAG) reviewed this project in the context of a Quality Assessment of the Lending Portfolio review in late 2008 and concluded that the project was moderately unlikely to achieve its development objectives by the current closing date. 20. World Bank 2006b. 21. After an extension of two years the project closed in June 2007. The ICR rated it as moderately satisfactory, although a subsequent review by IEG considered it moderately unsatisfactory. The major issue facing the project at closure was that new tourist concessions established by the private sector (but not as part of the project) were not in compliance with district Spatial Development Plans that were subsequently developed. 22. Besant-Jones 2006 and Gratwick and Eberhard, 2008. 23. Grid intensification has lowered the cost of a connection from about $2,500 equivalent per household a few years ago to $700 per household today. 24. Private operators did not find it profitable to get involved in such ventures, since investments required to build new independent grids (sometimes expanding and rehabilitating existing small grids) would not generate satisfactory returns in thin markets with regulated tariffs. The thin market is probably related to a very low load density and because households are too poor to afford such power. 25. For several years after independence, Mozambique‘s transport system, and especially its revenue - earning entities, ports and railways, was managed as part of a government department, with no financial autonomy and highly inefficient operations. A first attempt to modernize and improve the efficiency of the system was made in 1990, when the Mozambique Railways was merged with the ports Beira, Maputo, and Nacala into a new, (theoretically) financially accountable corporation Mozambique Ports and Railways, known as CFM. This did not produce a significant improvement. By 1999, CFM‘s revenues were insufficient to cover long-term replacement of its infrastructure and operating assets, and arrears in maintenance of CFM‘s facilities were mounting. Yet it was estimated that the revenue generation was about half of the real potential of the three main port-railway systems. Key causes for the shortfall in revenue were poor operating and management systems, poor condition of infrastructure, too much staff (about two-thirds of CFM‘s staff of 19,200 were estimated to be a surplus). 26. The appraisal reports for most transport projects show that significant dialogue was carried out with the country and a reasonable level of understanding about the sector prior to formulating the individual projects. However, the problems with the railway concessions illustrate the need for in- depth analysis. Mozambique was also included in a World Bank study on Africa transport costs and prices carried out during 2007/08. Significant analysis and recommendations of Mozambique‘s logistics were part of the study and were included in the 2008 CEM. 27. Available information for the Nacala port shows that since the start of the concession in 2004, vessel time awaiting berthing has been reduced by more than two-thirds, productivity for handling containers has nearly tripled, and other efficiency indicators show similar results. It is likely that the other two concessioned ports have realized similar improvements. In the country‘s railway system, 99 during 2000-07 derailments have been cut in half, but locomotive availability remains below 50 percent. 28. CFM argues that their partner role is necessary in case a railway concession fails and they need to take over. This is a weak argument. Government shareholding in other countries, when it exists, is limited to a small percentage to guarantee the government a seat on the Board, allowing it to monitor concession operations. In contrast, the Mozambique approach has been a partnership with the private operator plus a concession fee (consisting of a fixed and a variable fee). CHAPTER 4 1. For the completion point for HIPC, the government undertook to increase its current spending on education and health compared with 1998. Those expenditures for 1999 and 2000 in the Completion Document for the Enhanced HIPC for Mozambique dated September 6, 2001, were consistent with PARPA priority expenditures. 2. Some examples that illustrate the difference between service delivery in urban and rural areas: in rural areas net attendance ratios in primary schools are 11 percent lower than in urban areas, children in rural areas are less likely to be vaccinated against childhood diseases, and although the rate at which under five mortality has declined in rural areas over the past 10 years was more rapid than in urban areas, the average level of under five mortality in rural areas is still 20 percent higher than in urban areas. See Instituto Nacional de Estatistica, Preliminary Report on the Multiple Indicator Cluster Survey, 2008, National Institute of Statistics, Mozambique, 2009, pages 3, 6, and 13. 3. World Bank 2008a and ―Joint World Bank-IMF Staff Advisory Note on the Annual Progress Report.‖ 4. There was also a 10.6 percent increase in the incidence of poverty in Cabo Delgado, but questions have been raised about the accuracy of the data for both years because of poor sampling and the underestimation of consumption in 1997 (World Bank 2008d). 5. World Bank 2008d, page 23. 6. The survey, though not based on a statistical sample, was implemented using participatory survey techniques during 2006 to bring some contemporary information on poverty into the report. Although the results of this survey need to be treated with caution, they suggest many interesting perceptions of poverty in the selected provinces of Mozambique that need to be considered potentially valid information. The methodology for this survey is explained in Annex B of the Appendices to World Bank 2008d, page 103. 7. The Country Management Unit expects, because of strong growth since 2003 —when the last measured data on poverty were available--that the rate of poverty reduction has been sustained in recent years. 8. Republic of Mozambique, ―Action Plan for the Reduction of Absolute Poverty (2001 -2005),‖ April 21, 2001, page 40. 9. The fundamental areas for action were education, health, infrastructure (roads, energy, and water), agriculture and rural development, good governance, law and justice, and macroeconomic and financial policies. 10. Republic of Mozambique, ―Action Plan for the Reduction of Absolute Poverty (2006 -2009),‖ May 2, 2006, pages 89 and 90. 11. Subsequent data in World Bank 2008d puts enrollment rates for EP1 and EP2 in 1999 at 85 and 22 percent. In the same report, the enrollment rates for ESG1 and ESG2 in 1999 were 6.3 and 1.4 percent. 100 12. As a result, during implementation several adjustments were made to the scope of ESSP, and its components and development partner contributions were amended. Also, there was no legal framework for development partner contributions to the pooled funds for the program, hence its implementation was a hybrid between an investment project and a SWAp. The project design included the mainstreaming of a project implementation unit (PIU) that had been established for earlier Bank-financed education projects. The hybrid nature of the project design attracted a negative response from a 2002 QAG Quality of Supervision Assessment. Nevertheless, QAG concluded that supervision was satisfactory in 2002 after project implementation had been rated unsatisfactory from 2000 to 2002. The separate contributions of the various participants to the project made it somewhat easier to attribute the project‘s success to the Bank. 13. The FTI-CF grant became effective in September 2008 after protracted negotiations between the Bank, the government, and the development partners on amendments to the Memorandum of Understanding for the Education Sector Pool Fund on procurement arrangements to make them consistent with Bank guidelines. 14. Instituto Nacional de Estatistica, ―Preliminary Report on the Multiple Indicator Cluster Survey,‖ 2008, National Institute of Statistics, Mozambique, 2009, page 15. 15. World Bank 2008b, page 21. 16. Instituto Nacional de Estatistica, ―Preliminary Report on the Multiple Indicator Cluster Survey,‖ op. cit., page 13. 17. World Bank 2008b, page 23. 18. World Bank 2008b, pages 25 to 30. 19. In 2003, the incidence of HIV infection in Mozambique was estimated at 12 percent among women of child-bearing age. In 2007, it was estimated to be much higher, about 16 percent, which is above the average for SSA but still less than or comparable to the rate in neighboring countries such as Swaziland and Zimbabwe where it is over 25 percent, and Malawi, Zambia, and South Africa where it is approaching 14, 17, and 20 percent respectively. Source: World Development Report database and Ministry of Health in Mozambique. 20. An IDA credit of $44.6 million for a Health Service Delivery project was approved in FY09. 21. The program‘s structure was not a full-fledged SWAp, however, because the SWAp concept was new and untested. As a result, development partners were reticent to fully embrace all its typical characteristics. The elements of a SWAp invoked in this operation were: (i) joint planning by the Ministry of Health and development partners; (ii) funding of the national health strategy rather than freestanding projects; and (iii) annual MOH-development partner reviews with resetting of targets; and (iv) consolidation of all budgets, planning, and information in the MOH. 22. Instituto Nacional de Estatistica, ―Preliminary Report on the Multiple Indicator Cluster Survey,‖ 2008, Mozambique, 2009, pages 3 and 5, and Tables CM.2.3.2, 2.4.1 and 2.4.2. 23. World Bank 2006a, page 5. 24. To address the difficulty that CNCS was experiencing with the grant-making component, an agent was eventually contacted. This was not successful, and the contractor withdrew after a conflict with CNCS. 25. For example between 2003 and 2008 close to 72 percent of women between ages 15 and 49 were correct when asked standard questions about misconceptions surrounding HIV/AIDS compared with about 50 percent in 2003. Only about 13 percent of women aged 15 to 49 in 2008 could answer correctly three core questions about how to prevent the transmission of HIV. Knowledge about 101 HIV/AIDS is weakest in rural areas and in northern provinces. The percentage of women aged between 15 and 24 who used condoms in their last sexual encounter with an occasional partner rose from 29 to 44 percent between 2003 and 2008. While condom use increased in rural areas between 2003 and 2008 for the same age group, their use is about half as frequent as the average for Mozambique. 26. Mozambique has received considerable financial support from the Global Fund to Fight AIDS, Tuberculosis, and Malaria and the United States President‘s Emergency Plan for AIDS Relief (PEPFAR). 27. World Bank 1998, page 5. 28. The supplementary credit was approved by the Board on February 26, 2004. 29. Other components of the Bank program include rehabilitation of the Corumana dam, including a feasibility study for raising the dam‘s height and support for the establishment of a Flood Emergency Commission, which included the repair of piped water supply schemes in four towns damaged by floods in early 2000. CHAPTER 5 1. The ICR Review outcome rating for the Decentralized Planning and Finance Project is satisfactory. In the five selected provinces, the project met and often exceeded its outcome indicators--where monitorable. Training provided through DPFP resulted in increased capacity in planning, budgeting, financial management, and contracts management at provincial and district level administrations. Capacity building of the Tribunal Administrativo allowed it to carry out audits at the district level and institutionalized upward accountability. Downward accountability systems were set up through the establishment of consultative councils, preparation of district plans through participatory processes, and dissemination of information about the plans and their execution. The learning-by- doing approach using small Local Investment Grants (LIGs) in socio-economic infrastructure resulted in about 800 completed small projects--although the development impact of these in terms of enhanced service delivery at the local level was not monitored (no LIGs were used in the province of Maputo). Results are likely to be sustained as relevant laws, regulations, and guidelines were adopted by the government, key civil servants were mainstreamed into the district level, and training courses were institutionalized in national training institutions. Although no decentralization policy framework was implemented by the government, its pending National Decentralized Planning and Finance Program, and the associated Bank project that will follow, are expected to sustain results achieved under DPFP and further the decentralization agenda in Mozambique that is currently still in a relatively early stage. The 2002 Municipal Development SIL and the 2007 Maputo Municipal Development Program also have objectives on the local level that do not directly translate into the four subpillars under the governance pillar. 2. In 2001, Etica Mozambique, a consulting and research company, commissioned a survey to establish the extent and depth of corruption. The survey, carried out between March 7 and July 30 in three provinces (Manica Maputo, and Sofala), sought to evaluate the experience of corruption and its effect on the confidence of citizens in their social institutions and the state. 3. Ministry of Planning and Development, National Directorate of Studies and Policy Analysis, Enterprise Development in Mozambique: Results Based on Manufacturing Surveys Conducted in 2002 and 102 2006, Discussion papers No. 33E, October 2006, revised January 2007 (Maputo, Mozambique), Tables 3.20-3.22. 4. Monteiro et al. 2006. 5. Marcelo Mosse, Reporter‘s Notebook: Mozambique, in Global Integrity‘s 2006 Country Reports Web site (www.GlobalIntegrity.org) printed February 18, 2009. The index is based on response to questions that deal with accountability and oversight rather than processes of budget formulation and execution. The full list of questions and responses can be found in Global Integrity, 2006 Country Report, Mozambique, Corruption Notebook, Corruption Timeline, Integrity Scorecard, Country Facts. The report can be downloaded from the above link. 6. IMF, Report on the Observance and Standards and Codes (ROSC) Fiscal Transparency Module, IMF Country Report No. 08/152, May 2008, page 1. 7. In the CGE 2005, the last report of the Tribunal Administrativo (Administrative Tribunal) available in the Web, these resources appear as ―receitas propias‖ or own receipts (see the Tribunal‘s Web site at http://www.ta.gov.mz/plan.php3). The Budget Law does not produce estimates for own receipts, despite the National Budget Directorate having in its instructions for preparing the state budget separate categories for own receipts of the central, provincial, and district administrations (codes 123001, 2 and 3). The Web site http://www.dno.gov.mz/docs.html publishes the budget laws and the instructions. 8. Carlos Castel-Branco, The Mozambique Performance Assessment Framework for Donors: Lessons Learned, High-Level Symposium ―Country-Level Experience in Coordinating and Managing Development Cooperation,‖ UN Office in Vienna, April 19 -20, 2007 (presentation). 9. The government recognized the limitations of PES and BPES for monitoring and evaluation in PARPA II. The report noted the need to improve ―the existing Monitoring and Evaluation tools (PES/BdPES) and implementing tools that are still missing (example: the Annual Impact Report (Relatório de Avaliação de Impacto - RAI)‖ and ―Making certain that the indicators selected for the Monitoring and Evaluation reflect the priorities of the government, expressed in national policies (the Government Program, PARPA, PES, and sectoral plans). Such policies must determine the indicators within the operational and strategic matrices, which must be used for the various M&E exercises (BdPES, PAF, MDGs).‖ See Republic of Mozambique, Action Plan for the Reduction of Absolute Poverty, 2006-2009 (PARPA II), Final Version Approved by the Council of Ministers on May 2, 2006 (Maputo May 2, 2006), pages 153 and 154. 10. Ministry of Planning, Balanço do Plano Economico e Social de 2008 (Maputo, February 2009), table on p. 231. 11. A second anti-corruption survey in which the Bank is involved is under preparation (as of January 2010), but is experiencing serious delays. With the benefit of hindsight, some Bank staff expressed the view that a follow up to the anti-corruption study should have been mandated as part of the Bank‘s assistance, either as part of the PRSC series, or through the inclusion of a legal covenant during the restructuring of the Public Sector Reform project. 12. Republic of Mozambique-Program Aid Partners, Joint Review 2008, Aide-Memoire, April 30, 2008. 13. Bank assistance sought to reduce corruption with the support of governance surveys, a Public Sector Reform Project, and indirectly via general budget support with the PRSCs. PRSC 1 and PRSC 2 supported the anticorruption surveys, but the government carried out only one of two planned surveys. The Public Sector Reform Project, which started in early 2003, supported restructuring of the public sector, professionalization of public servants, and governance. This review cannot tell whether these actions might reduce corruption because the project did not explain how the actions would change the 103 incentives for corruption. Even so, the review can conclude that the project did not affect corruption because its main components were not implemented on time and its design had to be modified drastically in 2007 due to the problems in its execution discussed in the section on Objective 1. The expected results of the project do not exist yet. Last, PRSC 2 supported elements of the performance assessment framework 2005-07, but not the one that was listed as an outcome indicator in the CAS: the proportion of cases of corruption reported to the Gabinete Central de Anti-Corrupçao brought to conclusion. This action was taken by PRSC 3, but not one case has been brought to conclusion. 14. Other legal codes were revised during the period, notably the commercial and labor code. 15. As of September 2009 (outside of the evaluation period of this CPE), courts have been established in the main cities of Maputo, Beira, and Nampula, financed by the Bank‘s FSTAP project along with the AfDB. However, according to some Bank staff, the establishment of these courts had more to do with meeting the Bank‘s HIPC requirements than addressing perceived in-country needs. The fact that these sections have low demand from users underscores the fact that the Bank did little to consult with stakeholders during the preparation phase. (Furthermore, the Centro de Arbitragem e Mediacao (CACM) was created with USAID financing precisely to provide low cost, out of court arbitration and mediation for commercial issues.) In addition, according to Bank staff, delinking the creation of new commercial sections and the training of new judges from the justice component of the PSR project created confusion and resentment within the judiciary toward the Bank. As noted more generally in the literature on the justice sector, specialized courts often siphon off the best and brightest and command much needed resources. This has been the case in Mozambique, which diverted significant resources away from being used in shoring up the general justice system. 16. Between 2003 and 2007 the budget for the sector more than doubled, from Mt 1.7 billion to Mt 3.5 billion, and its execution rate hovered around 95 percent (Embassy of Denmark, Relatorio de Projecto, Versão Final, Avaliação Financeira da Versão Preliminar do Plano Estratégico Integrado do Sector da Justiça & Diagnóstico do Sistema de Gestão Financeira num conjunto seleccionado de Instituições do Sector da Justiça , report prepared by Sal & Caldeira, November 2008, Figura 2, p. 15 of 80. 17. Reports on Program Aid Partner Performance by the Institute for Social and Economic Studies show that the Bank‘s programmatic aid was assigned to support the Technical Unit for the Reform of the Public Sector (UTRESP) and HIV/AIDS. See, for example, IESE 2008, pages 52 and 53. 18. The information in this paragraph comes from Ministerio da Justiça, Reforço da Capacidade do Judiciário, Memorando No. 23, Maputo, January 13, 2009. CHAPTER 6 1. Average FDI 2000-07 was 4.8 percent. 2. World Bank CEM 2008. 3. Four established mega-projects are Mozal, CVRD, Moma, and Corridor Sands. 4. The Africa Competitiveness Report 2009 and WBG‘s Doing Business Indicators rate Mozambique‘s business climate among the least competitive in the world. 5. This analysis in this chapter is based on a desk review of IFC activities and supplemented by several Mozambique project field evaluations done in 2008 for other IEG-IFC evaluations. The chapter evaluates IFC‘s activities in the country along several dimensions and according to the following criteria: 104 Assessing the relevance of IFC’s activities: Consistency of IFC‘s objectives, activities, and programs with the country conditions, IFC‘s priorities and experience, and the World Bank and other IFIs‘ focus in the country. Assessing the outcomes of IFC’s activities: The results of the operations relative to the market benchmarks of financial rate of return and region/comparator countries, credit risk rating, etc. Assessing IFC’s contribution to private sector development: Role and contributions of IFC at the project and sector level and how these are linked to the overall development of the private sector development (top-down and bottom-up approach). Assessing IFC’s additionality and performance: Additionality of IFC‘s operations in terms of innovation, best practice standards, resource mobilization, and riskiness (too big or risky for anyone else to do). The extent to which the outcomes of IFC‘s activities can be attributed to IFC performance. 6. IFC‘s Africa strategy is improving business enabling environment, enhancing SME support, and proactive investment. 7. A rights issue is a stock offering by a company that provides each existing shareholder a right of first refusal to purchase, usually at a discount from market value, a portion of the stock offering equated with the shareholder's current percentage shareholding. 8. The Africa Enterprise Fund (AEF) was established in 1988 to make direct investments in SMEs due to the failure of local financial markets in providing long-term funding for SME projects. The Small Enterprise Fund (SEF) was established in FY97 under the ―Extending IFC‘s Reach‖ initiative. The SEF was used to invest in projects with total costs between $250,000 and $5 million. 9. Mozambique SME Initiative (MSI) reports directly to the IFC Africa Region, with no formal relationship with IFC PEP Africa. 10. A 2001 IEG evaluation of AEF recommended phasing out its direct financing of SMEs in more developed markets and maintaining its reach in less developed frontier markets. Eventually, AEF was abandoned. 11. Credit Risk Ratings (CRR) summarizes the credit health of specific investments. When aggregated, the CRRs are a useful indicator of the overall health and quality of IFC‘s portfolio at a point in time, and of rating trends when periods are compared. 12. Small enterprise is defined as number of workers is less than 10 in the company. 13. The Africa Enterprise Fund (AEF) was established in 1988 to make direct investments in SMEs due to the failure of local financial markets in providing long-term funding for SME projects. Small Enterprise Fund (SEF) was established in FY97 under the ―Extending IFC‘s Reach‖ initiative. 14. The following example illustrates some of the difficulties faced by a representative project: IFC financed a fisheries company for the purchase of fish rigs. Due to the bad management and difficult work environment (bandits, malaria, etc.), business did not go as planned. Fishing rigs and equipment became seriously depleted either through removal, theft, or lack of maintenance. As a result, the business collapsed. 15. Based on experiences of Mozal, IFC published ―Developing SME‘s through Business Linkages: The Mozlink Experience (A Manual for Companies, NGOs and Government Entities, 2007).‖ 16. Linkage Programs to Develop Small and Medium Enterprises, Monitor, IFC. 17. BHP Billiton replicated the program in two sites: the Mozal Smelter by MOT and the Hillside Expansion Project in Richards Bay, South Africa. 18. 2007 Mozambique CASCR. 105 CHAPTER 7 1. This CPE acknowledges Brendan Horton‘s background paper on Mozambique, prepared for IEG‘s evaluation of PRSCs (op. cit.), as an important input to this chapter. 2. ―Building Africa‘s Development Bank: Six Recommendations for the AfDB and Its Shareholders,‖ Report of the AfDB Working Group, Center for Global Development, August 2006. 3. Figure 10 and 11 represent the shares of the sectors (in percentages) out of the total. In Figure 10, the social sector consists of: Education and Health & Social Services. Infrastructure is made up of: Information & Communication, Energy & Mining, Electricity Power & Energy, and Transportation. Years are fiscal years, and disbursements are used. In Figure 11, the social sector consists of: Education, Health, and Population. Infrastructure is made up of: Communication, Energy, and Transport. Years are calendar years, and commitments are used. 4. Danish Ministry of Foreign Affairs Evaluation Department, ―A synthesis of Existing Evaluations and Related Studies on Aid and Development in Mozambique‖ Final Synthesis Paper, September 2007. 5. This is below Mozambique‘s 2010 target for using common arrangements set at 66 percent (OECD - DAC Study, 2008). 6. Bank-supported PRSCs have privileged cross-cutting issues such as PFM and economic development, at the expense of sector development issues. Out of the total 43 prior actions in PRSCs I-IV, nearly half were PFM-related. However, PRSC series II (PRSC III-IV) diversified somewhat by introducing some prior actions for particular sectors, for example, PRSC III-IV introduced prior actions on the agriculture and transport sectors. 7. A case in point is the reforms linked to natural resource extraction. While the Bank provided much valued technical advice on reforming the concessions system, it had to rely on the IMF program to include implementation of key policy actions in this area in its program, as the PAF and the PARPA matrix on which it draws did not foresee any measures in this area, although the PARPA itself spells out the need for improved transparency and governance in the area of natural resource extraction. 8. For an example, see the discussion of the Bank‘s program in Education in paragraph 4.18, and in particular the associated footnote 13. 9. It is interesting to note the difference in approach between Uganda and Mozambique: in the former the Bank participates in a joint country assistance strategy though there is no joint budget support; in the latter there is no joint strategy but there is a joint effort on budget support through the binding MOU. 106 Annex A: Statistical Supplement 107 ANNEX A STATISTICAL SUPPLEMENT Annex Table 1. Mozambique at a Glance Sub- Key Development Indicators Saharan Low Age distribution, 2008 Mozambique Africa income (2008) Male Female Population, mid-year (millions) 21.8 818 973 75-79 Surface area (thousand sq. km) 799 24,242 19,310 60-64 Population growth (%) 1.9 2.5 2.1 45-49 Urban population (% of total population) 37 36 29 30-34 GNI (Atlas method, US$ billions) 8.4 885 510 15-19 GNI per capita (Atlas method, US$) 390 1,082 524 GNI per capita (PPP, international $) 770 1 ,991 1,407 0-4 10 5 0 5 10 GDP growth (%) 6.8 5.0 6.4 percent of total population GDP per capita growth (%) 4.8 2.5 4.2 (most recent estimate, 2003–2008) Poverty headcount ratio at $1 .25 a day (PPP, %) 75 51 .. Under-5 mortality rate (per 1,000) Poverty headcount ratio at $2.00 a day (PPP, %) 90 73 .. Life expectancy at birth (years) 42 52 59 250 Infant mortality (per 1,000 live births) 115 89 78 Child malnutrition (% of children under 5) 21 27 28 200 150 Adult literacy, male (% of ages 15 and older) 57 71 72 Adult literacy, female (% of ages 15 and older) 33 54 55 100 Gross primary enrollment, male (% of age group) 119 103 102 Gross primary enrollment, female (% of age group) 103 93 95 50 0 Access to an improved water source (% of population) 42 58 67 1990 1995 2000 2007 Access to improved sanitation facilities (% of population) 31 31 38 Mozambique Sub-Saharan Africa a Net Aid Flows 1980 1990 2000 2008 (US$ millions) Net ODA and official aid 167 998 906 1,777 Growth of GDP and GDP per capita (%) Top 3 donors (in 2007): European Commission 7 81 79 240 15 United States 9 62 116 153 10 United Kingdom 11 43 83 116 5 Aid (% of GNI) 4.7 43.0 22.5 24.2 0 Aid per capita (US$) 14 74 50 83 -5 Long-T erm Economic T rends -10 95 05 Consumer prices (annual % change) 4.2 43.7 12.7 10.3 GDP implicit deflator (annual % change) 4.1 34.1 12.0 7.7 GDP GDP per capita Exchange rate (annual average, local per US$) 0.0 0.9 15.4 24.3 Terms of trade index (2000 = 100) 87 112 1 00 119 1980–90 1990–2000 2000–08 (average annual growth %) Population, mid-year (millions) 12.1 13.5 18.2 21.8 1.1 3.0 2.2 GDP (US$ millions) 3,526 2,463 4,249 9,846 -0.1 6.1 8.0 (% of GDP) Agriculture 37.1 37.1 24.0 28.6 6.6 5.2 7.8 Industry 34.4 18.4 24.5 24.3 -4.5 12.3 10.1 Manufacturing .. 10.2 12.2 13.9 .. 10.2 9.4 Services 28.5 44.5 51.5 47.1 6.5 5.0 7.2 Household final consumption expenditure 96.7 92.3 79.5 81.7 -1.1 5.8 7.6 General gov't final consumption expenditure 12.2 13.5 9.0 12.1 -6.7 3.2 -7.0 Gross capital formation 7.6 22.1 31.0 18.5 4.1 8.6 3.3 Exports of goods and services 10.9 8.2 17.5 33.3 -6.8 13.1 16.5 Imports of goods and services 27.4 36.1 37.0 45.7 -3.8 7.6 6.7 Gross savings .. .. .. .. Note: Figures in italics are for years other than those specified. 2008 data are preliminary. .. indicates data are not available. a. Aid data are for 2007. Development Economics, Development Data Group (DECDG). 2/25/201 0 109 ANNEX A STATISTICAL SUPPLEMENT Annex Table 1: Mozambique at a Glance (continued) Mozambique Balance of Payments and T rade 2000 2008 Governance indicators, 2000 and 2008 (US$ millions) Total merchandise exports (fob) 364 2,653 Voice and accountability Total merchandise imports (cif) 1,163 3,804 Net trade in goods and services -81 5 -1,223 Political stability Current account balance -1,042 -2,021 Regulatory quality as a % of GDP -24.5 -20.5 Rule of law Workers' remittances and compensation of employees (receipts) 37 116 Control of corruption Reserves, including gold 745 1,605 0 25 50 75 100 2008 Country's percentile rank (0-100) Central Government Finance higher values imply better ratings 2000 (% of GDP) Source: Kaufmann-Kraay-Mastruzzi, World Bank Current revenue (including grants) 15.2 19.7 Tax revenue 10.5 14.2 Current expenditure 11.7 15.7 T echnology and Infrastructure 2000 2008 Overall surplus/deficit -8.4 -7.9 Paved roads (% of total) 18.7 .. Highest marginal tax rate (%) Fixed line and mobile phone Individual 20 32 subscribers (per 100 people) 1 21 Corporate 35 32 High technology exports (% of manufactured exports) 9.3 2.3 External Debt and Resource Flows Environment (US$ millions) Total debt outstanding and disbursed 7,247 3,432 Agricultural land (% of land area) 61 62 Total debt service 96 43 Forest area (% of land area) 24.8 24.5 Debt relief (HIPC, MDRI) 2,992 1,057 Nationally protected areas (% of land area) .. 5.8 Total debt (% of GDP) 170.6 34.9 Freshwater resources per capita (cu. meters) 5,242 4,693 Total debt service (% of exports) 12.5 1.3 Freshwater withdrawal (billion cubic meters) 0.6 .. Foreign direct investment (net inflows) 139 587 CO2 emissions per capita (mt) 0.07 0.09 Portfolio equity (net inflows) 0 0 GDP per unit of energy use (2005 PPP $ per kg of oil equivalent) 1.3 1.7 Composition of total external debt, 2008 Energy use per capita (kg of oil equivalent) 397 420 IBRD, 0 Short-term, 629 IDA, 1,149 W orld Bank Group portfolio 2000 2008 Private, 7 (US$ millions) IMF, 15 IBRD Total debt outstanding and disbursed 0 0 Bilateral, 1,120 Disbursements 0 0 Principal repayments 0 0 Other multi- lateral, 512 Interest payments 0 0 US$ millions IDA Total debt outstanding and disbursed 760 1,149 Disbursements 97 255 Private Sector Development 2000 2008 Total debt service 6 8 Time required to start a business (days) – 26 IFC (fiscal year) Cost to start a business (% of GNI per capita) – 22.9 Total disbursed and outstanding portfolio 99 84 Time required to register property (days) – 42 of which IFC own account 99 84 Disbursements for IFC own account 49 -2 Ranked as a major constraint to business 2000 2008 Portfolio sales, prepayments and (% of managers surveyed who agreed) repayments for IFC own account 3 18 n.a. .. .. n.a. .. .. MIGA Gross exposure 114 228 Stock market capitalization (% of GDP) .. .. New guarantees 74 50 Bank capital to asset ratio (%) 8.2 6.4 Note: Figures in italics are for years other than those specified. 2008 data are preliminary. 2/25/10 .. indicates data are not available. – indicates observation is not applicable. Development Economics, Development Data Group (DECDG). 110 ANNEX A STATISTICAL SUPPLEMENT Annex Table 1: Millennium Development Goals With selected targets to achieve between 1990 and 2015 (estimate closest to date shown, +/- 2 years) Mozambique Goal 1: halve the rates for extreme poverty and malnutrition 1990 1995 2000 2008 Poverty headcount ratio at $1.25 a day (PPP, % of population) .. 81.3 .. 74.7 Poverty headcount ratio at national poverty line (% of population) .. 69.4 .. 54.1 Share of income or consumption to the poorest qunitile (%) .. 5.6 .. 5.4 Prevalence of malnutrition (% of children under 5) .. 28.1 .. 21.2 Goal 2: ensure that children are able to complete primary schooling Primary school enrollment (net, %) 42 .. 56 76 Primary completion rate (% of relevant age group) 26 26 16 46 Secondary school enrollment (gross, %) 7 7 6 18 Youth literacy rate (% of people ages 15-24) .. 47 .. 53 Goal 3: eliminate gender disparity in education and empower women Ratio of girls to boys in primary and secondary education (%) 71 .. 75 85 Women employed in the nonagricultural sector (% of nonagricultural employment) 11 .. .. .. Proportion of seats held by women in national parliament (%) 16 25 30 35 Goal 4: reduce under-5 mortality by two-thirds Under-5 mortality rate (per 1 ,000) 201 190 184 168 Infant mortality rate (per 1,000 live births) 135 128 125 115 Measles immunization (proportion of one-year olds immunized, %) 59 71 71 77 Goal 5: reduce maternal mortality by three-fourths Maternal mortality ratio (modeled estimate, per 1 00,000 live births) .. .. .. 520 Births attended by skilled health staff (% of total) .. 44 .. 48 Contraceptive prevalence (% of women ages 1 5-49) .. 6 .. 17 Goal 6: halt and begin to reverse the spread of HIV/AIDS and other major diseases Prevalence of HIV (% of population ages 1 5-49) 1.4 4.5 9.5 12.5 Incidence of tuberculosis (per 100,000 people) 181 262 378 431 Tuberculosis cases detected under DOTS (%) .. 59 47 49 Goal 7: halve the proportion of people without sustainable access to basic needs Access to an improved water source (% of population) 36 39 41 42 Access to improved sanitation facilities (% of population) 20 22 27 31 Forest area (% of total land area) 25.4 25.1 24.8 24.5 Nationally protected areas (% of total land area) .. .. .. 5.8 CO2 emissions (metric tons per capita) 0.1 0.1 0.1 0.1 GDP per unit of energy use (constant 2005 PPP $ per kg of oil equivalent) 0.9 1.0 1 .3 1.7 Goal 8: develop a global partnership for development Telephone mainlines (per 1 00 people) 0.4 0.4 0.5 0.4 Mobile phone subscribers (per 1 00 people) 0.0 0.0 0.3 20.2 Internet users (per 100 people) 0.0 0.0 0.1 1.6 Personal computers (per 1 00 people) .. 0.1 0.3 1.4 Education indicators (%) Measles immunization (% of 1-year olds) ICT indicators (per 100 people) 100 100 30 75 75 20 50 50 25 10 25 0 2000 2002 2004 2006 2008 0 0 1990 1995 2000 2007 2000 2002 2004 2006 2008 Primary net enrollment ratio Ratio of girls to boys in primary & secondary Mozambique Sub-Saharan Africa Fixed + mobile subscribers Internet users education Note: Figures in italics are for years other than those specified. .. indicates data are not available. 2/25/10 Development Economics, Development Data Group (DECDG). 111 ANNEX A STATISTICAL SUPPLEMENT Annex Table 2. Economic and Social Indicators, 2000-2008 Mozam Low bique Uganda Zambia Tanzania Rwanda Cambodia SSA Income 2000 2001 2002 2003 2004 2005 2006 2007 2008 2000-2008 average Growth and Inflation GDP growth (annual %) 1.1 11.9 8.8 6.0 7.9 8.4 8.7 7.0 6.5 7.4 7.3 5.1 6.6 7.4 9.1 4.8 5.6 GDP per capita growth (annual %) -1.4 9.1 6.1 3.5 5.4 6.0 6.4 5.0 4.5 4.9 3.9 2.6 3.8 4.3 7.2 2.3 3.3 GNI per capita, Atlas method (current US$) 230.0 230.0 230.0 230.0 260.0 290.0 310.0 340.0 370.0 276.7 301.1 496.7 327.8 265.6 415.6 695.5 366.4 GNI per capita, PPP (current international $) 420.0 460.0 520.0 550.0 580.0 630.0 670.0 730.0 770.0 592.2 865.6 1,008.9 964.4 756.7 1,285.6 1,595.9 1,082.8 Inflation, consumer prices (annual %) 12.7 9.0 16.8 13.4 12.7 7.2 13.2 8.2 10.3 11.5 5.7 17.7 5.7 7.9 5.8 .. .. Composition of GDP Agriculture, value added (% of GDP) 24.0 22.5 27.8 28.0 27.4 27.0 27.6 27.6 28.3 26.7 26.2 22.0 45.3 38.0 33.4 16.8 29.2 Industry, value added (% of GDP) 24.5 25.8 23.1 26.1 27.4 25.3 26.6 25.7 25.6 25.6 24.4 30.9 16.5 13.5 25.8 30.6 25.7 Services, etc., value added (% of GDP) 51.5 51.7 49.0 45.9 45.2 47.7 45.8 46.7 46.1 47.7 49.4 47.1 38.3 48.5 40.8 52.6 45.1 External Accounts Exports of goods and services (% of GDP) 17.5 24.6 28.3 29.0 32.1 32.9 39.9 37.6 32.0 30.4 13.3 33.6 19.2 9.1 59.5 32.8 28.7 Imports of goods and services (% of GDP) 37.0 40.9 43.4 45.2 40.7 42.3 45.7 44.3 42.0 42.4 26.6 38.7 26.2 26.6 68.3 34.0 37.3 Current account balance (% of GDP) -18.0 -16.1 -20.7 -17.5 -10.7 -11.6 -10.9 -9.8 -10.0 -13.9 -4.7 -10.8 -5.0 -4.9 -4.7 .. .. Total debt service (% of GNI) 2.4 2.4 1.9 1.9 1.4 1.4 0.8 0.6 .. 1.6 1.2 5.9 1.1 1.2 0.5 3.3 2.4 Total reserves in months of imports 5.1 4.6 3.7 4.7 5.0 4.0 3.5 4.1 .. 4.3 6.4 2.0 6.4 6.2 3.3 7.0 4.9 Other Macroeconomic Indicators Gross domestic savings (% of GDP) 11.5 3.7 14.9 6.1 10.0 9.3 12.8 11.9 13.0 10.4 7.7 17.2 10.6 2.3 10.0 16.6 14.5 Gross fixed capital formation (% of GDP) 31.0 20.0 30.0 22.3 18.7 18.7 18.6 18.7 23.0 22.3 20.8 21.4 17.5 19.7 18.5 18.2 22.7 Fiscal Accounts Revenue, excluding grants (% of GDP) .. .. .. .. .. .. .. .. .. .. 11.4 17.8 .. .. 9.8 .. .. General government final consumption expenditure (% of GDP) 9.0 9.1 9.4 10.2 10.8 10.4 10.7 11.8 12.3 10.4 14.4 11.5 13.8 11.7 4.6 16.1 10.2 Gross national expenditure (% of GDP) 119.5 116.2 115.1 116.2 108.6 109.4 105.8 106.7 110.0 112.0 113.3 105.1 107.0 117.5 108.8 .. .. Cash surplus/deficit (% of GDP) .. .. .. .. .. .. .. .. .. .. -1.9 0.0 .. .. -2.3 .. .. Social Indicators Health Life expectancy at birth, total (years) 44.9 .. 44.0 .. .. 42.8 42.5 42.1 .. 43.3 50.4 43.9 53.9 47.7 58.0 50.8 57.2 Immunization, DPT (% of children ages 12-23 months) 68.0 70.0 72.0 72.0 72.0 72.0 72.0 72.0 .. 71.3 60.9 79.8 88.3 91.4 71.4 63.0 72.9 Impr. water source (% of population with access) 41.0 .. .. .. .. .. 42.0 .. .. 41.5 60.0 56.0 54.0 65.0 51.5 56.5 64.6 Impr. sanitation facilities, rural (% of rural pop. with access) 16.0 .. .. .. .. .. 19.0 .. .. 17.5 33.0 49.0 34.5 22.0 14.0 23.4 30.9 Mortality rate, infant (per 1,000 live births) 124.9 .. .. .. .. 119.0 117.1 115.4 .. 119.1 86.1 105.3 80.1 110.7 73.5 92.3 81.9 Education School enrollment, preprimary (% gross) .. .. .. .. .. .. .. .. .. .. 3.2 .. 28.5 2.5 8.7 15.0 14.4 School enrollment, primary (% gross) 74.9 81.3 84.7 .. 95.0 102.0 104.8 111.0 .. 93.4 123.9 99.5 97.5 115.9 119.6 88.7 90.4 School enrollment, secondary (% gross) 6.1 6.8 8.4 .. 10.8 13.2 15.5 18.3 .. 11.3 18.5 29.5 .. 13.4 27.7 28.9 39.2 Population Population growth (annual %) 2.5 2.5 2.5 2.5 2.4 2.2 2.1 1.9 1.9 2.3 3.2 2.4 2.7 3.0 1.8 2.5 2.2 Population, total (million) 18.2 18.7 19.1 19.6 20.1 20.5 21.0 21.4 21.8 20.0 27.9 11.5 38.1 8.9 13.7 742.9 895.0 Urban population (% of total) 30.7 31.5 32.2 33.0 33.7 34.5 35.3 36.1 36.8 33.8 12.5 35.0 23.9 16.5 19.2 34.6 27.2 Note 1: Some of these indicators are not available on an annual basis, so some averages are based on fewer observations. Note 2: Some data for recent years are still estimates. Source: WB World Development Indicators (September 2009) 112 ANNEX A STATISTICAL SUPPLEMENT Annex Table 3. Approved Projects, FY2000-08 Project Approval FY IDA amount (US$) Mineral Resources Management Capacity Building 2001 18.0 Roads and Bridges Management and Maintenance 2002 162.0 Municipal Development SIL 2002 33.6 Higher Education SIM 2002 60.0 Communications Sector Reform 2002 14.9 Economic Management and Private Sector Operation (EMPSO) 2003 120.0 Public Sector Reform 2003 25.6 HIV/AIDS Response SIL 2003 55.0 Decentralized Planning and Finance SIL 2004 42.0 Energy Reform and Access APL-1 2004 40.3 National Water Development Project II - Supplemental Credit 2004 15.0 PRSC 2005 60.0 Beira Railway SIL 2005 110.0 PRSC 2 2006 120.0 Transfrontier Conservation Area and Tourism Development 2006 20.0 Financial Sector TA Project 2006 10.5 Technical and Vocational Education and Training 2006 30.0 Market-Led Smallholder Development 2006 20.0 Roads and Bridges APL2 2007 100.0 PRSC 3 DPL - 1st in new series 2007 70.0 Maputo Municipal Development Program 2007 30.0 PRSC 4 - intermediate 2008 60.0 Water Services and Institutional Support 2008 15.0 Higher Education SIL - Additional Financing 2008 15.0 Total 1,246.9 Notes: In FY2004, the Southern African Regional Gas Project was approved, with partial risk guarantees of up to US$30 million, and IFC equity investment of up to US$18.5 million. APL – Adaptable Program Loan; SIL – Specific Investment Loan; SIM – Sector Investment and Maintenance Loan; TA – technical assistance; DPL – Development Program Loan 113 ANNEX A STATISTICAL SUPPLEMENT Annex Table 4. World Bank Commitments by Sector Board (US$ million) Sector FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY01-08 Agriculture and Rural Development 20.0 20.0 Education 60.0 30.0 15.0 105.0 Energy and Mining 18.0 40.3 58.3 Environment 20.0 20.0 Economic Policy 120.0 60.0 180.0 Financial and Private Sector Development 10.5 10.5 Global Info/Communications Technology 14.9 14.9 Health, Nutrition, and Population 55.0 55.0 Public Sector Governance 25.6 42.0 67.6 Poverty Reduction 60.0 120.0 70.0 250.0 Transport 162.0 110.0 100.0 372.0 Urban Development 33.6 30.0 63.6 Water 15.0 15.0 30.0 Total Commitments 18.0 270.5 200.6 97.3 170.0 200.5 200.0 90.0 1,246.9 Source: Business Warehouse 2a.1 as of March 2010. 114 ANNEX A STATISTICAL SUPPLEMENT Annex Table 5. FY01 and FY04 CAS-Proposed Nonlending Program and Actual Deliveries Programmed Planned FY Delivered FY Rural Development Strategy Ongoing at time of CAS dropped Growth Prospects (CEM) Ongoing at time of CAS 2000 Financial Sector Study Ongoing at time of CAS 2001 PRSP Support n.a. 2002 Enhanced HIPC Completion Report 2001 n.a. Public Expenditure Review (2 volumes) 2001 2003-04 Public Sector Reform Study 2001 2000 Environment Critical Pressures 2002 n.a. Constraints to Private Sector Development 2002 2003 Legal and Judicial Assessment 2002 2003 HIV/AIDS and Growth Linkages Ongoing at time of CAS 2003 Private Sector Competitiveness Ongoing at time of CAS 2004 Private Sector Conference TA Ongoing at time of CAS 2000-02 Financial Sector Advice Ongoing at time of CAS 2001 Regional Energy and Megaprojects Advice (integrated in Maputo Corridor) Ongoing at time of CAS n.a. Maputo Corridor Ongoing at time of CAS n.a. Regional Trade Ongoing at time of CAS Dropped Environmental Framework Assessment 2001 Not completed Disaster Mitigation and Management Ongoing at time of CAS Not completed HIV/AIDS Ongoing at time of CAS n.a. Agriculture Poverty and Social Impact Analysis (PSIA) 2004 dropped Country Status Report on Health 2004 2005 Public expenditure review (PER) 2004 dropped Country Procurement Assessment Review (CPAR) 2004 dropped Legal and Judicial Assessment 2004 2003 Rural/Agriculture Strategy 2005 2005 Private Sector Competitiveness 2005 2005 Labor Markets and Technical and Vocational Education 2005 2004 Poverty Update 2005 dropped Institutional Governance Review 2005 2005 PER 2005 2005 Country Economic Memorandum (CEM) 2006 2006 HIV/AIDS Retrospective Review 2006 dropped Water Management 2006 2005 PER TA 2006 2006 Infrastructure Assessment 2007 dropped PER 2007 dropped Pay reform PSIA 2007 dropped Actual (not included in the CAS) Planned FY Delivered FY Cost and Financing of Education 2002 Country Procurement Assessment Review (CPAR) 2000 Country Financial Accountability Assessment (CFAA) 2002 Country Portfolio Performance Review (CPPR) 2001,2003 Financial Sector Assessment Program 2003 Technical and Vocational Education 2004 Contract Farming and Supply Chain Financing 2005 Impacts of Extension Services 2005 PSIA Reducing Primary School Fees in Mozambique 2005 Natural Resources in Mozambique 2005 Marginal Budgeting through Bottlenecks TA 2006 Achieving the Health MDGs (Health Status Report) 2006 Public Financial Management Assessment (PEFA) 2006 Decentralization and Local Service Delivery Policy Note 2006 Mining Policy TA 2006 Country Environmental Assessment/Country Social Assessment 2007 Value Chain Analyses 2007 Rural Strategy (Horticulture Development Sector Study) 2007 Sources: Mozambique CAS 2001, 2003, WB Business Warehouse, IRIS, and Integrated Controller‘s Systems, as of April 23rd, 2007. 115 ANNEX A STATISTICAL SUPPLEMENT Annex Table 6. Project Ratings by IEG, Exit FY01-08 IEG institutional IEG risk to Exit Approval IEG IEG outcome development development FY FY sustainability* impact* objective* Moderately 2001 1993 Rural Rehabilitation Likely Modest # satisfactory 1994 Finance Sector Capacity Satisfactory Likely Substantial # Capacity Building Human Development 2002 1993 Satisfactory Likely Substantial # Project 2000 Flood Emergency Recovery Project Satisfactory Non-evaluable Negligible # Moderately 2003 1994 Gas Engineering (Energy) Likely Modest # satisfactory 1994 Road and Coastal 2 Satisfactory Likely Substantial # Global Environment Facility (GEF) Moderately 2004 1997 Unlikely Modest # Transborder Parks SIL (FY97) satisfactory 1996 Health Sector Recovery SIL (FY96) Satisfactory Likely Substantial # Moderately 2003 EMPSO Likely Modest # satisfactory 2005 2005 PRSC (FY05) Satisfactory Likely Substantial # Education Sector Strategy Program Moderately 2006 1999 # # Moderate (ESSP) TAL (FY99) satisfactory 1998 National Water 1 (FY98) Satisfactory Likely Substantial # Moderately 2000 Enterprise Development (FY00) # # Moderate satisfactory 2006 PRSC 2 (FY06) Satisfactory Likely Substantial # Roads & Bridges Management and 2007 2002 Satisfactory # # Moderate Maintenance (FY02) Moderately 1999 Agriculture Sector PEP (FY99) # # Moderate unsatisfactory Moderately 2002 Municipal Development SIL (FY02) # # Significant satisfactory Mineral Resources Management 2001 Satisfactory # # Moderate Capacity Development (FY01) Coastal and Marine Biodiversity Moderately 2000 # # High Management (FY00) unsatisfactory Annex Table 7. IEG Project Ratings 2001-08 2001-06 2006-08 Institutional Risk to development development outcome % Total Outcome impact Sustainability moderate or lower evaluated % satisfactory % substantial * % likely * satisfactory* ($m) (No.) ($m) (No.) ($m (No.) ($m) (No.) ($m) (No.) Mozambique 1,117.2 19 97.0 89.5 72 58.3 100.0 90.9 88.3 71.4 Africa Region 22,000.0 514 72.3 67.3 43 43.6 68.7 63.0 53.3 52.6 Bank wide 149,375.0 2,142 82.4 77.4 56 52.2 82.5 77.0 76.3 66.7 *Sustainability and Impact were rated until around FY06. Risk to Development Objective is rated in projects from FY07 onwards. Source: WB Business Warehouse tables 4a.5 and 4a.6 as of March, 2010. 116 ANNEX A STATISTICAL SUPPLEMENT Annex Table 8. Portfolio Status Indicators (US$ million) Country 2001 2002 2003 2004 2005 2006 2007 2008 Mozambique Number of projects 14 15 16 16 17 18 15 16 Net commitment amount 756.9 943.7 931.4 810.0 920.0 867.5 748.3 778.3 Number of projects at risk 1 3 2 1 5 3 3 1 Percent at risk 7.1 20.0 12.5 6.3 29.4 16.7 20.0 6.3 Commitment at risk 71.0 151.6 80.6 55.0 161.8 100.9 85.9 55.0 Percent of commitment at risk 9.4 16.1 8.7 6.8 17.6 11.6 11.5 7.1 Uganda Number of projects 24 23 21 19 20 21 18 17 Net commitment amount 1,209.6 864.5 961.2 886.9 1,030.5 1,113.9 1,292.8 1,224.2 Number of projects at risk 1 2 1 6 7 1 2 6 Percent at risk 4.2 8.7 4.8 31.6 35.0 4.8 11.1 35.3 Commitment at risk 158.0 95.0 20.0 260.6 336.1 91.0 161.0 326.2 Percent of commitment at risk 13.1 11.0 2.1 29.4 32.6 8.2 12.5 26.6 Zambia Number of projects 16 12 14 14 12 9 9 11 Net commitment amount 779.5 463.2 567.7 604.9 498.1 287.4 320.4 363.4 Number of projects at risk 5 9 2 1 6 1 2 0 Percent at risk 31.3 75.0 14.3 7.1 50.0 11.1 22.2 0.0 Commitment at risk 241.6 341.2 27.8 25.0 255.9 28.2 51.2 0.0 Percent of commitment at risk 31.0 73.7 4.9 4.1 51.4 9.8 16.0 0.0 Tanzania Number of projects 18 22 24 23 21 26 23 23 Net commitment amount 907.0 1,233.0 1,418.7 1,444.5 1,333.0 1,894.5 1,893.6 1,984.9 Number of projects at risk 1 2 2 0 4 4 1 2 Percent at risk 5.6 9.1 8.3 0.0 19.0 15.4 4.3 8.7 Commitment at risk 41.2 71.1 17.0 0.0 133.4 425.6 31.1 103.5 Percent of commitment at risk 4.5 5.8 1.2 0.0 10.0 22.5 1.6 5.2 Rwanda Number of projects 10 8 9 9 10 11 11 11 Net commitment amount 291.9 186.3 296.8 311.8 271.8 290.2 302.6 286.6 Number of projects at risk 0 1 0 2 1 2 0 0 Percent at risk 0.0 12.5 0.0 22.2 10.0 18.2 0.0 0.0 Commitment at risk 0.0 48.0 0.0 68.0 48.0 40.9 0.0 0.0 Percent of commitment at risk 0.0 25.8 0.0 21.8 17.7 14.1 0.0 0.0 Cambodia Number of projects 12 14 16 14 13 12 11 14 Net commitment amount 267.4 298.6 337.1 314.7 270.5 256.2 229.1 333.0 Number of projects at risk 2 3 4 3 2 3 5 3 Percent at risk 16.7 21.4 25.0 21.4 15.4 25.0 45.5 21.4 Commitment at risk 47.4 78.8 80.2 22.4 26.6 62.6 79.7 86.4 Percent of commitment at risk 17.7 26.4 23.8 7.1 9.8 24.4 34.8 25.9 Africa Region Number of projects 359 355 343 334 334 351 364 388 Net commitment amount 14,408.9 15,182.1 15,793.2 16,387.7 16,364.8 18,310.4 20,737.7 22,896.6 Number of projects at risk 53 93 65 76 97 77 77 87 Percent at risk 14.8 26.2 19.0 22.8 29.0 21.9 21.2 22.4 Commitment at risk 2,429.8 4,088.2 2,937.3 3,174.5 4,300.9 3,241.0 3,881.6 5,827.3 Percent of commitment at risk 16.9 26.9 18.6 19.4 26.3 17.7 18.7 25.5 Bank-wide Number of projects 1457 1428 1395 1346 1,332 1,345 1,347 1,384 Net commitment amount 106,640.7 102,601.3 94,772.5 92,554.3 93,211.7 92,888.8 97,790.5 104,145.2 Number of projects at risk 184 272 218 228 224 188 224 250 Percent at risk 12.6 19.0 15.6 16.9 16.8 14.0 16.6 18.1 Commitment at risk 12,539.2 17,385.4 14,141.5 14,742.1 12,552.7 10,849.8 15,175.6 18,179.3 Percent of commitment at risk 11.8 16.9 14.9 15.9 13.5 11.7 15.5 17.5 Source: WB Business Warehouse Table 3a.4 as of March, 2010. 117 ANNEX A STATISTICAL SUPPLEMENT Annex Table 9. Disbursements (US$ million) 2001 2002 2003 2004 2005 2006 2007 2008 Number of projects 14 15 16 16 17 18 15 16 Commitment amount 756.9 948.8 931.4 810.0 920.0 867.5 748.3 778.3 Commitment at risk 71.0 151.6 80.6 55.0 161.8 100.9 85.9 55.0 Commitment IP/DO problem 71.0 151.6 5.6 55.0 130.6 100.9 85.9 55.0 Undisbursed balance at FY 461.9 407.7 625.9 661.6 662.5 578.9 431.9 465.2 Total undisbursed balance 392.3 617.0 708.5 666.4 609.8 503.6 438.3 365.3 Total disbursed 3,173.8 3,139.2 2,582.1 2,148.0 3,778.63 4,360.9 3,611.0 4,933.2 Disbursed in FY 86.9 67.5 133.8 97.6 163.0 157.6 124.4 132.2 Total cancelled 0.0 5.1 0.0 0.0 0.0 0.0 0.0 0.0 Cancelled in FY 0.0 5.1 0.0 0.0 0.0 0.0 0.0 0.0 Source: WB Business Warehouse 3a.9 as of March 2010. 118 ANNEX A STATISTICAL SUPPLEMENT Annex Table 10. External Assistance, Total Net ODA Disbursements (US$ Million) 2000 2001 2002 2003 2004 2005 2006 2007 2008 Total %Total Australia 9.5 5.8 6.8 4.6 2.0 0.7 1.7 2.8 2.9 36.9 0.3 Austria 5.1 2.0 21.4 3.4 5.2 4.3 7.0 3.8 12.7 64.8 0.5 Belgium 2.5 9.5 2.8 8.7 10.6 12.2 12.8 23.4 25.9 108.4 0.8 Canada 8.0 13.9 9.0 26.7 27.3 56.2 49.4 57.3 77.2 325.1 2.5 Czech Republic .. .. .. 0.01 0.01 0.01 0.01 0.06 0.01 0.1 0.0 Denmark 46.85 48.32 51.93 66.43 67.42 64.87 71.07 92.39 87.28 596.6 4.6 Finland 11.6 10.6 11.8 22.0 25.7 24.8 28.4 32.9 40.2 207.9 1.6 France 16.1 15.3 431.6 16.6 14.6 13.7 9.0 25.7 12.3 554.9 4.3 Germany 47.8 40.7 156.9 37.9 38.7 42.6 64.9 61.8 74.9 566.2 4.3 Greece .. .. .. .. .. .. .. .. 0.04 0.0 0.0 Hungary .. .. .. .. .. .. .. 17.7 .. 17.7 0.1 Iceland 1.16 1.3 1.07 1.02 1.24 1.56 2.52 3.33 3.57 16.8 0.1 Ireland 15.39 18.7 29.37 39.9 48.69 48.31 53.81 68.72 74.18 397.1 3.0 Italy 13.09 13.08 446.46 15.09 26.99 21.56 30.24 42.58 34.55 643.6 4.9 Japan 20.0 33.5 69.7 35.3 19.4 14.8 106.8 27.8 23.7 350.9 2.7 Korea 0.05 0.06 0.04 0.1 0.05 0.16 0.13 0.21 0.98 1.8 0.0 Luxembourg 1.5 0.3 0.4 0.7 0.4 1.4 1.5 0.7 0.2 7.0 0.1 Netherlands 61.6 86.6 52.0 47.3 54.7 64.5 59.7 80.7 105.7 612.7 4.7 New Zealand 0.58 0.42 0.19 0.61 0.43 0.48 0.23 0.21 0.2 3.4 0.0 Norway 38.2 32.6 38.7 54.1 61.1 67.9 64.3 80.1 96.7 533.7 4.1 Poland 0.03 0 0.02 .. .. .. .. .. .. 0.1 0.0 Portugal 32.8 34.3 23.9 19.1 24.3 22.6 21.7 21.6 25.1 225.3 1.7 Slovak Republic .. .. .. 0.18 0.2 0.1 0.2 0.14 0.15 1.0 0.0 Spain 23.5 11.7 33.5 22.6 32.5 29.4 33.6 53.8 78.5 318.9 2.4 Sweden 46.3 42.6 45.3 56.5 67.9 79.3 91.8 103.6 119.6 652.8 5.0 Switzerland 25.09 23.37 21.64 20.82 27.65 24.61 22.43 24.23 23.85 213.7 1.6 Turkey 0.07 .. .. .. .. .. .. 0.05 0.15 0.3 0.0 United Kingdom 82.7 185.2 48.0 63.4 65.9 80.8 99.4 115.7 197.9 938.8 7.2 United States 115.52 91.84 159.68 135.4 109.96 85.36 108.85 153.38 226.66 1,186.7 9.1 Arab countries -1.3 2.9 1.2 1.6 2.4 -0.4 0.3 -0.7 -0.9 4.9 0.0 Other donor countries 0.0 0.0 .. .. .. .. 0.2 1.6 0.0 1.8 0.0 Total Bilateral Donors 623.5 724.5 1,663.3 700.0 735.1 761.7 941.6 1,095.6 1,344.2 8,589.4 65.8 AfDF (African Dev. Fund) 13.3 56.5 73.1 31.9 91.4 73.4 162.1 79.6 67.4 648.7 5.0 Arab agencies 5.4 12.9 1.4 11.6 15.6 14.7 1.9 8.7 13.7 85.9 0.7 EC 78.81 73.62 137.76 90.17 151.1 162.57 174.58 235.4 161.39 1,265.4 9.7 GEF .. .. 3.7 .. 0.2 10.4 .. 7.5 6.9 28.6 0.2 Global Fund (GFATM) .. .. .. .. 16.4 .. 23.4 42.3 53.7 135.8 1.0 IDA 93.7 53.0 297.2 159.1 194.2 242.7 244.4 251.7 279.7 1,815.7 13.9 IFAD 4.3 4.9 6.6 6.0 7.0 6.2 8.5 5.2 4.3 53.0 0.4 SAF+ESAF+PRGF (IMF) 60.1 11.0 5.9 3.1 -6.7 -9.8 4.8 5.0 .. 73.4 0.6 Nordic Dev. Fund 1.2 0.1 4.1 7.0 7.8 5.4 9.1 7.5 13.1 55.4 0.4 UNAIDS .. .. .. .. .. 0.7 0.9 1.5 0.6 3.7 0.0 UNDP 5.5 6.5 4.0 8.9 8.5 7.4 7.0 8.1 9.1 65.0 0.5 UNFPA 3.4 5.8 5.9 9.0 3.8 2.9 3.0 3.8 5.9 43.6 0.3 UNHCR 0.8 1.1 1.9 1.5 2.2 0.7 0.6 1.0 1.0 10.9 0.1 UNICEF 7.1 8.4 6.5 7.8 8.5 8.7 9.5 14.3 15.7 86.5 0.7 UNTA 2.2 1.3 2.8 2.9 2.4 2.8 1.3 2.4 0.8 18.9 0.1 WFP 3.4 2.3 5.7 8.8 5.2 6.4 8.5 8.4 10.1 58.7 0.5 DAC Countries, Total 623.5 720.2 1,661.0 697.1 731.3 760.2 938.3 1,073.2 1,340.3 8,545.0 65.5 G7, Total 303.0 393.5 1,321.4 330.3 302.9 315.0 468.5 484.3 647.3 4,566.1 35.0 DAC EU Members, Total 406.7 518.8 1,355.3 419.6 483.4 510.1 584.7 727.3 889.0 5,894.9 45.2 Multilateral, Total 279.3 237.3 556.5 347.9 507.6 535.3 659.5 682.4 649.6 4,455.4 34.2 All Donors, Total 902.8 961.8 2,219.8 1,047.9 1,242.7 1,297.0 1,601.0 1,778.0 1,993.8 13,044.8 100.0 Source: OECD DAC 2a as of March 2010. 119 ANNEX A STATISTICAL SUPPLEMENT Annex Table 11. World Bank Lending for Macroeconomic Management, Financial Sector Development, and Private Sector Development FY01-08 Board Approval Date US$ million Enterprise Development Project 11/27/00 26 Economic Management and Private Sector Operation 08/29/02 120 PRSC 1 07/06/04 60 PRSC 2 09/13/05 120 Financial Sector TA Project 11/03/05 10.5 PRSC 3 01/25/07 70 PRSC 4 03/31/08 60 FY09 PRSC 5 11/04/08 100 Competitiveness and PSD Project 02/12/09 25 120 ANNEX A STATISTICAL SUPPLEMENT Annex Table 12. Poverty Observatories On April 28, 2003, the Government of Mozambique formally established the Poverty Observatory ( Observatorio da Pobreza) with advice and financial support from UNDP. It was established because of concern that PARPA I had not been developed with adequate consultations. The main goal for the Poverty Observatory (PO) was to monitor and evaluate PARPA‘s implementation performance of consultations between the government, the private sector, trade union confederations, civil society, and development partners. The PO was expected to make suggestions to the government to maximize the impact of PARPA implementation, to ensure transparent interaction between the government and its partners, and effective dissemination of information on the poverty reduction process. The PO has an ad hoc advisory group of 60 (the Opinion Council) with equal representation from central government, international development partners, and civil society. Provincial POs (or their equivalent) were established in all provinces, and six national consultations have been held. A number of concerns have been raised about the POs. Civil society has raised questions about the definition of PO roles and responsibilities, their relation to other monitoring and evaluation systems and to the development partnership architecture, and the inclusiveness of civil society participation. Others have questioned the clarity of the guidelines for the PO and whether there is any feedback between the PO and the government. In addition, the provincial POs have felt that their concerns have not been adequately accommodated by the central PO. A broader and practical issue overhanging these concerns is that government allocation of budget resources to PARPA priorities emerges from the annual development partner-focused Joint Review of the Performance Assessment Framework (PAF) organized through the joint government-development partner sector working groups. PARPA II was approved by the national assembly making the legal connection between PARPA and the national budget. In contrast, the POs have no legal standing and no mechanism for feeding their recommendations into the government ‘s poverty planning and programming cycle. The World Bank‘s poverty, gender, and social assessment (Beating the Odds: Sustaining Inclusion in Mozambique’s Growing Economy) recommended two main actions: (a) increasing the effectiveness of the POs through the greater and deeper involvement of civil society; and (b) legalizing the PO as a formal institution supporting PARPA to ensure that PARPA principles of accountability and transparency can be adhered to. Source: World Bank 2008d, pages 168 to 178. 121 ANNEX A STATISTICAL SUPPLEMENT Annex Table 13. Poverty Measures for Urban and Rural Areas (1997 and 2003) Area/Province Incidence of Poverty a/ Poverty Gap b/ Squared Poverty Gapc/ 1997 2003 Change 1997 2003 Change 1997 2003 Change (percent) Mozambique 69.4 54.1 -22.0 29.2 19.9 31.8 15.5 9.9 -36.1 Area Urban 63.9 51.6 -19.2 27.2 18.9 -30.5 14.8 9.0 39.1 Rural 71.6 55.2 -22.9 30.0 20.4 -32.0 15.8 10.3 -34.8 Province Niassa 69.9 49.5 -29.2 29.1 14.5 -50.2 15.3 6.2 -59.5 Cabo Delgado 56.8 62.8 10.6 19.2 20.8 8.3 8.8 8.9 1.1 Nampula 68.7 53.6 -22.0 28.0 18.7 -33.2 14.7 8.6 -41.5 Zambezia 68.0 45.0 -33.8 25.2 13.4 -46.8 11.7 5.6 -52.1 Tete 80.3 58.7 -26.9 38.5 25.7 -33.2 22.2 14.9 -32.0 Manica 62.3 44.4 -28.7 23.3 16.8 -27.9 11.1 9.1 -18.0 Sofala 88.2 34.1 -61.2 49.9 10.1 -79.3 31.8 4.1 -87.1 Inhambane 83.8 81.1 -3.2 37.4 42.1 12.6 20.2 25.8 27.7 Gaza 65.4 59.7 -8.7 23.2 19.9 -14.2 11.1 8.8 -20.7 Maputo 64.8 71 9.6 27.4 30.9 12.8 14.5 16.9 16.6 Maputo City 47.3 53.2 12.5 12.5 15.7 20.1 28.0 7.3 9.8 Notes: urban and rural definitions as at 2003 a/ Proportion of the population below the poverty line. b/ Aggregate poverty deficit of the poor relative to the poverty line. c/ Severity of poverty. The detailed definitions for these money-metric poverty measures and a discussion of their usefulness can be found in Martin Ravallion, ―Poverty Comparisons,” Fundamentals of Pure and Applied Economics 56, Harwood Academic Publishers, 1994. Source: IAF data for 1997 and 2003. 122 ANNEX A STATISTICAL SUPPLEMENT Annex Table 14. Primary Schools Enrollment and Retention – Impact of School Fees (2005) The core of this report, based on a number of surveys of education staff, communities, and households, was an econometric analysis of the impact of fees on the enrollments and drop-outs of children at the EP1 level (lower primary school; grades 1-5). The report found that, as overall enrollment rates at this level are already close to 100 percent, school fees alone (which in any case are very low and do not include unrecorded costs such in-kind fees, extra payments, and personal favors to teachers) had a limited statistically significant impact on either enrollments or drop-outs. On the other hand, in urban areas in the center of the country, such as the poor province of Zambezia, higher school fees would be expected to lower enrollments. While the wealth of a district as a whole did not seem to affect the enrollment and drop-out rate, for large families the total cost of schooling is an important issue since the data showed that families sending two of three students to school would only be more likely to send the third student to school if average fees were reduced by 200 percent. The impact of the cost of informal payments and other incidental costs associated with attending school at the EP1 level could not be assessed because of the lack of data about these costs in the surveys. On the other hand, information obtained showed that the cost of uniforms was associated with a positive effect on enrollments in EP1 because the use of uniforms had an important egalitarian impact masking differences in social status. It was clear from the data that the greater the distance from school the more likely a child will not attend school. Finally, the personal characteristics of a child (age, sex, and vulnerability status) affect the probability of enrollment and dropping out. For example, the probability that a child will attend EP1 increases with age, but at a declining rate. Also, a child‘s gender will affect enrollment and drop-outs, with girls less likely to be enrolled than boys. Following the availability of the evidence of the impact of fees on the enrollments and drop-outs of primary school children the government decided to abolish the need for parents to pay contributions, fees, and levies for primary school education as of the start of the 2005 academic year. While the decree allowed parents and communities to contribute to the cost of schooling, all payments should be voluntary. The report, therefore, had an impact on government school fee policy. Source: World Bank 2005a. 123 ANNEX A STATISTICAL SUPPLEMENT Annex Table 15. Health: Country Status Report (2004) and Better Spending to Reach the Millennium Development Goals (2006) The purpose of the status report was to provide an up-to-date overview of the status of Mozambique‘s health sector, with a focus on sector performance. The report on the MDGs reviewed public expenditures on health programs in the context of the challenges facing health services in Mozambique. The first report was written in the context of the preparation for the first Poverty Reduction Strategy Credit. Because of budget and time constraints it was not possible to do a deep analysis of socioeconomic and bio-demographic factors for health, nutrition, and population outcomes in Mozambique. The report was therefore largely descriptive. It listed several key policy issues facing the health sector: (a) lack of household knowledge about health issues; (b) low efficiency and equity in the health sector; (c) financial constraints that resulted in limited sustainability, efficiency, and little protection of the poor; and (d) lack of an overall strategy. The report did not attempt to craft a health strategy because available data were inadequate for in-depth analysis of the issues. On balance this seemed like a missed opportunity to propose a strategy, but the pressures to deliver information for the PRSC probably overwhelmed any attempt to undertake data collection and substantial analysis. Nevertheless, the first PRSC did include targets for the health sector and they were achieved. The second report, having reviewed the public expenditures on health services, focused on four options for scaling up healthcare services and estimated their costs and impact. The options were (a) strengthen outreach mechanisms to further improve population-based preventive services; (b) scale up community-based services; (c) improve facility-based care; (d) provide healthcare services through an outreach strategy. The report concluded that implementation of these service delivery options would require the following reforms in Mozambique‘s health system: (a) integrate isolated vertical service programs to create horizontal collaboration at both the facility and community levels; (b) establish measures to improve the efficiency and effectiveness of service delivery; (c) establish strategic and decentralized planning and financing mechanisms to provide resources to implement service delivery; and (d) upgrade and train professionals so they have the right skills to deliver health services. The report also does not reflect any discussions with the government on the issues covered. Nevertheless, it drew attention to the need for increased and more strategic public health expenditures as an important start to tackling the substantial challenges of meeting the MDGs. Source: World Bank, Health: Country Status Report, unpublished, 2004; and World Bank 2006a. 124 ANNEX A STATISTICAL SUPPLEMENT Annex Table 16. Country Water Resources Assistance Strategy: Making Water Work for Sustainable Growth and Poverty Reduction (2007) The Bank prepared this report in consultation with the National Water Department of the Ministry of Public Works and in collaboration with water supply institutions such as the Water Supply Investment and Asset Fund (FIPAG). The objectives of the report were to review Mozambique‘s water resources, analyze water-related challenges, identify measures to mitigate negative and enhance the positive impacts of water on growth and poverty reduction, and recommend priority interventions for all development partners for the period 2008-11. More than half of Mozambique‘s water resources originate outside its borders since it is a downstream riparian on eight of the country‘s nine major rivers. These rivers have a ―torrential regime.‖ and Mozambique has no control of the flow of rivers that originate outside its borders (except for the Cahora Bassa Dam on the Zambezi river, which is used generation). These rivers, along with substantial variations in annual rainfall in Mozambique‘s watersheds, cause extensive and damaging floods, particularly in the south. Analysis by the Bank has concluded that between 1981 and 2003 annual GDP growth was typically reduced by 5.6 percent as a result of major water shocks. Further development of hydropower planned by the government will lead to substantial water supply potential for multipurpose dams, which could supply controlled amounts of water to urban areas and to agriculture. In the case of agriculture only 4 percent of a potential 2.7 million hectares of arable land have been developed for irrigation, but there are plans for irrigation development through a Bank-financed project. On the other hand, as the report notes, there is no culture of irrigation in Mozambique, so additional irrigation development will probably be an arduous undertaking. The broader issue facing the water development sector is the uneven distribution and quality of water supplies between rural and urban areas. Rural areas have only rudimentary safe water supplies for 30 percent of the population where surface and underground water is distributed at pumps located at strategic points in towns and villages. On the other hand, about 70 percent of high income urban areas in major cities and large towns are well served with water. The policy issue has been framed as a choice between improving water supplies in rural areas, and thereby enhancing social welfare and supporting decentralized development and increasing the availability of water in urban areas and providing a higher coverage for urban households to support the development of industry, manufacturing, and services. Choosing between these priorities is complicated by the conclusion in this report that the current water supply capacity for Maputo is inadequate to meet projected demand beyond 2012. Source: World Bank 2007b. 125 ANNEX A STATISTICAL SUPPLEMENT Annex Table 17. World Bank Governance Indicators Governance Indicator Sources Year Percentile Rank Governance Score Standard Error (0-100) (-2.5 to +2.5) 16 2008 47.6 -0.02 0.11 Voice and Accountability 9 2003 44.2 -0.1 0.17 5 2000 44.2 -0.2 0.22 10 2008 55.5 0.29 0.21 Political Stability 8 2003 48.6 0.04 0.22 5 2000 45.7 -0.02 0.3 13 2008 42.7 -0.38 0.17 Government Effectiveness 11 2003 34.1 -0.56 0.15 5 2000 42.7 -0.36 0.2 12 2008 35.3 -0.47 0.15 Regulatory Quality 11 2003 39 -0.39 0.17 6 2000 42 -0.19 0.24 19 2008 28.2 -0.66 0.13 Rule of Law 13 2003 23.8 -0.86 0.14 8 2000 25.2 -0.81 0.16 16 2008 34.3 -0.55 0.14 Control of Corruption 10 2003 31.1 -0.69 0.17 6 2000 29.6 -0.68 0.23 Note: The governance indicators presented here aggregate the views on the quality of governance provided by a large number of enterprise, citizen, and expert survey respondents in industrial and developing countries. These data are gathered from a number of survey institutes, think tanks, nongovernmental organizations, and international organizations. The aggregate indicators do not reflect the official views of the World Bank, its Executive Directors, or the countries they represent. The indicators are not used by the World Bank Group to allocate resources or for any other official purpose. Source: D. Kaufmann, A. Kraay, and M. Mastruzzi 2008, Governance Matters VII: Governance Indicators for 2000-2008. Annex Table 18. Transparency International Corruption Perception Index 2003 2004 2005 2006 2007 2008 CPI score 2.7 2.8 2.8 2.8 2.8 2.6 Rank/total 86/133 90/145 97/158 99/163 111/174 126/180 Surveys used 5 7 5 7 8 7 Confidence range 2.0-3.1 2.4-3.1 2.4-3.1 2.5-3.0 2.5-3.1 2.4-2.9 Source: Transparency International. 126 ANNEX A STATISTICAL SUPPLEMENT Annex Table 19. Governance Pillar III-Objective 1: Improved Budget Allocation and Budget Execution— Results Indicators Intermediate Indicators (in CAS 2003 and CPS 2006 ) Outcomes/indicators CAS 2000 CAS 2003 CASPR 2006 1. Poverty-Reducing Expenditures Pro-poor spending 67% of budget Identification of poverty- Budget allocation and budget reducing expenditures done execution of PARPA priority areas in accordance with targets set by PARPA (PAF 25) Sustained poverty-reducing Budget execution rates for recurrent expenditure maintained expenditure on goods and services in priority sectors greater than rate in non-priority sectors (PAF 26) 2. Off-budget Transactions Off-budget revenues reported to Ministry of Off-budget transactions Increased government revenues Planning and Finance by ministries, and eliminated included in the budget (PAF 28) development partner funding also reported Data on development Increase number of external funds that partner financing are on CUT (PAF 29) collected/reported 3. Budget Formulation and Evaluation SISTAFE introduced in 2004/05, with Classification of budget functional classification transactions done Classification used for budget tracking 4. Budget Execution Outturn close to budget (e.g., measured by Reliability of budget budget deviation index, i.e., sum of shortfalls transactions improved and overruns as % of budget) 5. Creating Organizations and Building Capacity Revenue authority created Conta unica de tesouro fisica implemented Accounting, auditing capacity developed Source: CAS 2003, October 20, 2003, Table 7 and Annex 1, pp. 24 and 51, and CASPR 2006 February 21, 2006, Annex II. The CAS 2000 did not define results indicators. 127 ANNEX A STATISTICAL SUPPLEMENT Annex Table 20. World Bank Assistance Program for Governance Pillar (FY01-08) US$ Million Dates (Board, year of report) A. Lending Economic Management Reform Operation (ID #P001767) 150 12/10/1998 Economic Management and Private Sector Operation (ID #P049878) 120 08/29/2002 Public Sector Reform Project (ID # P072080) 25.6 03/18/2003 Decentralized Planning and Financing Project (ID# P001807) 42 11/20/2003 PRSC 1 (ID # P075805) 60 07/06/2004 PRSC 2 (ID # P056201) 120 09/13/2005 B. Analytical Work CEM: Growth Prospects and Reform Agenda 2001 Public Expenditures Management Review (Phase I) 2001 Financial Accountability Assessment 2002 Country Procurement Assessment 2002 Public Expenditures Management Review (Phase II) 2003 Legal and Judicial Sector Assessment 2004 CEM: Sustaining Growth and Reducing Poverty 2005 Beating the Odds: Sustaining Inclusion in Mozambique‘s Growing 2008 Economy Source: WB Business Warehouse 3a.9 as of March 2010. 128 ANNEX A STATISTICAL SUPPLEMENT Annex Table 21. Mozambique and Comparators—Cost of Operations, FY01-08 (US$ 000s) AAA Project Other country Total country supervision Lending ESW TA Other Total services services Mozambique 17,863.9 12,215.6 4,904.9 1,617.2 304.5 6,826.6 4,468.4 41,374.5 Uganda 19,886.0 14,418.4 8,910.6 824.9 158.7 9,894.2 2,558.8 46,757.3 Zambia 14,294.1 8,819.1 5,317.0 2,477.8 437.8 8,232.6 4,012.5 35,358.4 Tanzania 21,910.0 16,317.7 10,779.6 891.5 89.9 11,761.1 3,634.1 53,622.8 Rwanda 9,959.1 7,626.5 2,884.4 534.5 32.5 3,451.4 1,607.5 22,644.6 Cambodia 10,683.0 11,330.5 6,298.1 1,711.7 431.3 8,441.1 4,075.4 34,530.0 Africa Region 373,087.1 300,567.8 188,195.8 80,590.2 9,332.6 278,118.6 236,577.6 1,188,351.1 Bank-wide 1,428,377.7 1,123,334.4 868,241.7 331,817.1 18,556.0 1,218,614.8 806,349.0 4,576,676.0 Notes: AAA = analytic and advisory activities, ESW = economic and sector work, TA = technical assistance Source: WB Business Warehouse, Loaded costs by service, Bank budget, actuals, as of June 10, 2009. Annex Table 22. IFC’s Areas of Support and Objectives Areas of support Objectives Enhance support to small and medium enterprises  Provide advisory assistance, capacity building, and financing support to SMEs, concentrating in agribusiness and tourism sector.  Support Mozambique through new joint IDA-IFC initiative for MSME development.  Work with IDA on the assistance to SMEs with HIV/AIDS education programs. Promote tourism sector  Ensure that tourism and conservation area initiatives would be bankable for private sector participation.  Promote conservation tourism of Mozambique through public and private investment, facilitated by IDA, IFC, and MIGA, in high-quality tourism infrastructure. Develop infrastructure and mining  Selectively review megaprojects with IDA and MIGA for their viability and potential support from the Bank Group.  Examine further financing of Mozal for its expansion.  Seek opportunities to finance private infrastructure projects, including development of industrial parks and transport corridors.  Support the privatization of Petromoc (the state-owned petroleum distributor).  Explore opportunities to provide assistance to the government on the Sena railway concession.  Review strategic options for the future development of the Moatize coal mine.  Address the energy needs of the mega-projects with IDA, including those connected with the Moatize coal project.  Support government with policy advice to find strategic investors for airports and the national airline.  Discuss with the national telecommunications company possibly to support its privatization. Build and strengthen financial markets  Provide additional equity investments, term resources, and institution building for banks.  Stimulate competition and intermediation through the establishment of new non-bank financial institutions, particularly in leasing, insurance, housing finance, and microfinance, which would help increase access to financial services for the poor. Support health and education  Support the expansion of private medical services.  Support private education, focusing on the tertiary level. Support agribusiness  Help agricultural firms with export potential to gain access to export markets through adopting modern farming techniques and ensuring high-quality handling along the entire supply chain. 129 ANNEX A STATISTICAL SUPPLEMENT Annex Table 23. Bilateral and Multilateral Development Agencies 2001-08 Portfolio in Mozambique AFD/Proparco, 5% EIB, 30% KFW/DEG, 6% AFD/Proparco AFDB, 16% KFW/DEG AFDB IFC IFC, 21% EIB Source: IFI Web pages. Annex Table 24. List of IFC Investments in Mozambique, FY01–FY08 (US$000) Project Approval Commitment Project Original Net Net Total net Project name Sector ID FY FY status commitment loan equity commitment IFC INVESTMENTS MADE IN FY01-08 10323 Mozal II 2001 2001 Active Metals 25,000 13,321 - 13,321 10692 SEF Grand Prix 2001 2003 Closed Industrial 444 250 - 250 ENH Eqty Finance 2004 2004 Active Extractive - 18,500 18,500 Southern Africa Regional 10983 Gas Project) 18,500 20980 SEF Merec II 2004 2004 Active Agribusiness 1,195 1,136 - 1,136 21074 Novobanco RI 2003 2003 Closed Finance 200 - 200 200 25207 GTFP BDC 2005 2006 Closed Finance 107 107 - 107 25610 AMSME BCI 2008 2009 Active Finance 8,500 8,500 - 8,500 25934 Merec Expansion 2008 2009 Active Agribusiness 7,000 7,000 - 7,000 27398 BGM Mozambique 2008 2009 Active Agribusiness 7,000 7,000 - 7,000 PRIOR INVESTMENTS ACTIVE DURING FY01-08 864 Lomaco Farming 1986 1987 Closed Agribusiness 2,743 2,743 - 2,743 3157 Polana Hotel 1992 1993 Closed Tourism 3,500 3,500 - 3,500 5094 AEF-Bonar 1995 1996 Closed Agribusiness 300 300 - 300 7473 AEF Cahora Bassa 1996 1996 Closed Agribusiness 205 205 - 205 7524 BIM 1996 1998 Closed Finance 5,000 - 5,000 5,000 7616 Agrimo 1997 1997 Closed Agribusiness 2,000 2,000 - 2,000 7764 MOZAL 1997 1998 Active Metals ###### ###### - ###### 7881 SEF CTOX 1997 1998 Closed Tourism 726 726 - 726 8021 SEF CPZ 1997 1998 Active Agribusiness 1,000 1,000 - 1,000 8529 SEF Joao Jamal 1998 1999 Closed Metals 242 - - - 8901 SEF Robeira 1999 1999 Closed Infrastructure 227 227 - 227 9081 BIM-Invest 1998 1999 Closed Finance 300 - 300 300 9115 Maragra Sugar 1999 2000 Closed Agribusiness 10,300 - - - 9636 SEF Cabo Caju 2000 2000 Closed Agribusiness 576 506 - 506 9997 SEF Ausmoz 2000 2001 Active Agribusiness 715 715 - 715 10069 NovoBanco 2000 2001 Closed Finance 200 - 200 200 10119 BIM-RI 2000 2000 Closed Finance 2,555 - 2,555 2,555 10185 SEF Merec 2000 2001 Closed Agribusiness 1,300 1,300 - 1,300 Source: MIS as of July, 2009. 130 ANNEX A STATISTICAL SUPPLEMENT Annex Table 25. List of IFC Advisory Services in Mozambique, FY01–FY08 (US$000) Project Name IFC 1st Level Sector Primary Business Line Total Funding SGL-Printing Shop HIV/AIDS J - Pulp & Paper Corporate Advice 9,530 MSI programme-New Tintas 2000 G - Chemicals Corporate Advice 88,000 AMSMETA BCI O - Finance & Insurance Access To Finance 1,000,000 Mozambique Leasing Study O - Finance & Insurance Access To Finance 80,000 South East African Tourism U - Accommodation & Business Enabling Investment Program (SEATIP) Tourism Services Environment 358,750 ENH/CMG Pipeline B - Oil, Gas and Mining Infrastructure 101,552 Mozambique SME Linkage Development Programme - MozLink II B - Oil, Gas and Mining Corporate Advice 1,179,424 MOZ Impact of tax on business and X - Other (For Non-Investment Business Enabling Admin barriers Projects) Environment 151,000 U - Accommodation & MSI- Program Nkwichi Lodge Tourism Services Corporate Advice 89,250 Mozambique Tourism Anchor U - Accommodation & Business Enabling Investment Program Tourism Services Environment 2,002,201 MSI Program - DEJA VU F - Food & Beverages Corporate Advice 160,000 MSI Program - TCT Industrias M - Industrial & Consumer Florestais, Lda Products Corporate Advice 140,000 MSI Pre Investment Technical X - Other (For Non-Investment Assistance FY 07-09 Projects) Corporate Advice 1,725,000 X - Other (For Non-Investment Business Enabling Tourism Sector Study Projects) Environment 226,355 MSI Pre-Investment Technical X - Other (For Non-Investment Assistance FY05-06 Projects) Corporate Advice 52,794 LKG:MOZAL I - Primary Metals Corporate Advice 1,295,000 MSI Program - Spectrum Graphics Limitada (Printing Shop) J - Pulp & Paper Corporate Advice 70,000 Rndabt Playpumps C - Utilities Infrastructure 1,558,877 Petromoc B - Oil, Gas and Mining Infrastructure 220,000 Moatize B - Oil, Gas and Mining Infrastructure 700,000 Annex Table 26. Formal Private Sector Employment # of Sales Billions Size companies % MT % Large 396 1.4 38843 58.5 Medium 2621 9.1 11649 17.5 Small 25853 89.5 15952 24 Total 28870 100 66444 100 Source: INE, CEMPRE 2004. 131 Annex B: Guide to IEGWB’s Country Program Evaluation Methodology 1. This methodological note describes the key elements of IEGWB‘s Country Program 1 evaluation (CPE) methodology. CPEs rate the outcomes of Bank assistance programs, not the Clients’ overall development progress 2. A Bank assistance program needs to be assessed on how well it met its particular objectives, which are typically a subset of the Client‘s development objectives. If a Bank assistance program is large in relation to the Client‘s total development effort, the program outcome will be similar to the Client‘s overall development progress. However, most Bank assistance programs provide only a fraction of the total resources devoted to a Client‘s development by development partners, stakeholders, and the government itself. In CPEs, IEGWB rates only the outcome of the Bank‘s program, not the Client‘s overall development outcome, although the latter is clearly relevant for judging the program‘s outcome. 3. The experience gained in CPEs confirms that Bank program outcomes sometimes diverge significantly from the Client‘s overall development progress. CPEs have identified Bank assistance programs which had:  satisfactory outcomes matched by good Client development;  unsatisfactory outcomes in Clients which achieved good overall development results, notwithstanding the weak Bank program; and,  satisfactory outcomes in Clients which did not achieve satisfactory overall results during the period of program implementation. Assessments of assistance program outcome and Bank performance are not the same 4. By the same token, an unsatisfactory Bank assistance program outcome does not always mean that Bank performance was also unsatisfactory, and vice-versa. This becomes clearer once we consider that the Bank‘s contribution to the outcome of its assistance program is only part of the story. The assistance program‘s outcome is determined by the joint impact of four agents: (a) the Client; (b) the Bank; (c) partners and other stakeholders; and (d) exogenous forces (e.g., events of nature, international economic shocks, etc.). Under the right circumstances, a negative contribution from any one agent might overwhelm the positive contributions from the other three, and lead to an unsatisfactory outcome. 5. IEGWB measures Bank performance primarily on the basis of contributory actions the Bank directly controlled. Judgments regarding Bank performance typically consider the relevance and implementation of the strategy, the design and supervision of the Bank‘s lending interventions, the scope, quality and follow-up of diagnostic work and other analytic and advisory activities (AAA), the consistency of the Bank‘s lending with its nonlending work and with its safeguard policies, and the Bank‘s partnership activities. 133 ANNEX B GUIDE TO IEGWB’S COUNTRY PROGRAM EVALUATION METHODOLOGY Rating Assistance Program Outcome 6. In rating the outcome (expected development impact) of an assistance program, IEGWB gauges the extent to which major strategic objectives were relevant and achieved, without any shortcomings. In other words, did the Bank do the right thing, and did it do it right. Programs typically express their goals in terms of higher-order objectives, such as poverty reduction. The Country assistance strategy (CAS) may also establish intermediate goals, such as improved targeting of social services or promotion of integrated rural development, and specify how they are expected to contribute toward achieving the higher- order objective. IEGWB‘s task is then to validate whether the intermediate objectives were the right ones and whether they produced satisfactory net benefits, and whether the results chain specified in the CAS was valid. Where causal linkages were not fully specified in the CAS, it is the evaluator‘s task to reconstruct this causal chain from the available evidence, and assess relevance, efficacy, and outcome with reference to the intermediate and higher-order objectives. 7. For each of the main objectives, the CPE evaluates the relevance of the objective, the relevance of the Bank‘s strategy toward meeting the objective, including the balance between lending and nonlending instruments, the efficacy with which the strategy was implemented and the results achieved. This is done in two steps. The first is a top-down review of whether the Bank‘s program achieved a particular Bank objective or planned outcome and had a substantive impact on the country‘s development. The second step is a bottom-up review of the Bank‘s products and services (lending, analytical and advisory services, and aid coordination) used to achieve the objective. Together these two steps test the consistency of findings from the products and services and the development impact dimensions. Subsequently, an assessment is made of the relative contribution to the results achieved by the Bank, other development partners, the government and exogenous factors. 8. Evaluators also assess the degree of Client ownership of international development priorities, such as the Millennium Development Goals, and Bank corporate advocacy priorities, such as safeguards. Ideally, any differences on dealing with these issues would be identified and resolved by the CAS, enabling the evaluator to focus on whether the trade- offs adopted were appropriate. However, in other instances, the strategy may be found to have glossed over certain conflicts, or avoided addressing key Client development constraints. In either case, the consequences could include a diminution of program relevance, a loss of Client ownership, and/or unwelcome side-effects, such as safeguard violations, all of which must be taken into account in judging program outcome. Ratings Scale 9. IEGWB utilizes six rating categories for outcome, ranging from highly satisfactory to highly unsatisfactory: Highly Satisfactory: The assistance program achieved at least acceptable progress toward all major relevant objectives, and had best practice development impact on one or more of them. No major shortcomings were identified. 134 ANNEX B GUIDE TO IEGWB’S COUNTRY PROGRAM EVALUATION METHODOLOGY Satisfactory: The assistance program achieved acceptable progress toward all major relevant objectives. No best practice achievements or major shortcomings were identified. Moderately Satisfactory: The assistance program achieved acceptable progress toward most of its major relevant objectives. No major shortcomings were identified. Moderately Unsatisfactory: The assistance program did not make acceptable progress toward most of its major relevant objectives, or made acceptable progress on all of them, but either (a) did not take into adequate account a key development constraint or (b) produced a major shortcoming, such as a safeguard violation. Unsatisfactory: The assistance program did not make acceptable progress toward most of its major relevant objectives, and either (a) did not take into adequate account a key development constraint or (b) produced a major shortcoming, such as a safeguard violation. Highly Unsatisfactory: The assistance program did not make acceptable progress toward any of its major relevant objectives and did not take into adequate account a key development constraint, while also producing at least one major shortcoming, such as a safeguard violation. 10. The institutional development impact (IDI) can be rated at the project level as: high, substantial, modest, or negligible. IDI measures the extent to which the program bolstered the Client‘s ability to make more efficient, equitable and sustainable use of its human, financial, and natural resources. Examples of areas included in judging the institutional development impact of the program are:  the soundness of economic management;  the structure of the public sector, and, in particular, the civil service;  the institutional soundness of the financial sector;  the soundness of legal, regulatory, and judicial systems;  the extent of monitoring and evaluation systems;  the effectiveness of aid coordination;  the degree of financial accountability;  the extent of building capacity in nongovernmental organizations; and,  the level of social and environmental capital. IEG is, however, increasingly factoring IDI impact ratings into program outcome ratings, rather than rating them separately. 11. Sustainability can be rated at the project level as highly likely, likely, unlikely, highly unlikely, or, if available information is insufficient, non-evaluable. Sustainability measures the resilience to risk of the development benefits of the country program over time, taking into account eight factors:  technical resilience;  financial resilience (including policies on cost recovery); 135 ANNEX B GUIDE TO IEGWB’S COUNTRY PROGRAM EVALUATION METHODOLOGY  economic resilience;  social support (including conditions subject to safeguard policies);  environmental resilience;  ownership by governments and other key stakeholders;  institutional support (including a supportive legal/regulatory framework, and organizational and management effectiveness); and, resilience to exogenous effects, such as international economic shocks or changes in the political and security environments. At the program level, IEG is increasingly factoring sustainability into program outcome ratings, rather than rating them separately. 12. Risk to Development Outcome. According to the 2006 harmonized guidelines, sustainability has been replaced with a ―risk to development outcome,‖ defined as the risk, at the time of evaluation, that development outcomes (or expected outcomes) will not be maintained (or realized). The risk to development outcome can be rated at the project level as high, significant, moderate, negligible to low, non-evaluable. 1. In this note, assistance program refers to products and services generated in support of the economic development of a Client country over a specified period of time, and client refers to the country that receives the benefits of that program. 136 Annex C: List of People Met Ministry of Finance Mr. Augusto Sumburane National Director, Research Unit Mrs. Isabel Maria Sumar Deputy National Director, Research Unit H.E. Mr. Paolo Manique Permanent Undersecretary Ministry of Agriculture (MINAG) Mr. Soares B. Nhaca Minister of Agriculture Mr. Victorino Xavier Director of Agriculture – Economics Mr. Ventura Macamo Adviser of the Minister Mrs. Florencia Cipriano Director, Veterinary Services Mrs. Albertina Alage Deputy Director Ministry of Mineral Resources (MIREM) Mr. Mario Marques Advice to the Minister Mr. Elias Daudi Direcção Nacional de Geologia Mr. Carlos Zacarias National Petroleum Institute Mr. António Cumbane Mines National Directorate Mr. Luis Jossene Adviser to the Minister Mr. Pedro Langa Directorate of Planning and Development H.E. Esperança Bias Minister of Mineral Resources Ministry of Public Works and Housing Mr. Julião Alferes National Directorate of Water Mr. Nelson Beete Fundo de Investimento e Património do Abastecimento de. Água (FIPAG) Mr. Mateus Jaksson ANE Ministry of Higher Education & Science and Technology Mr. Aires B. B Ali Minister of Education and Culture Ms. Estrela Chungana Ms. Helena Fernandes Mr. Domingos Colasso Mr. Rafique Cassamo Mr. Nadir Hassane Mr. Anastacio Maheche Ministry of State Administration H.E. Lucas Chomera Minister Lourenço Chipenembe Permanent Secretary Mr. Casimiro Macumbi Director of Autarkic (Autarquico) Development Mr. Carlos Buchil Deputy Director – Directorate of Institutional Development Planning Dr. Basa Novela Technician Dr. Abel Saul Technician Ministry of Energy Mr. Jaime Himede Vice Minister Ms. Telma Matavel Lawyer, International Relations Department Ms. Laura Nhacale Head of Department, International Relations Department Mr. Nazario Meguigy National Director of Planning and Studies Mr. Ernesto Zandamela Procurement Officer Mr. Inicêncio Bouene Account Officer 137 ANNEX C LIST OF PEOPLE MET Ministry of Planning and Development Mr. Adriano Ubisse Director, Directorate of Investment and Cooperation Mrs. Ester José Deputy Director of Investment and Cooperation Mr. Luis Tabela Technician of International Cooperation H.E. Mr. Victor Bernardo Deputy Minister Central Bank (Banco de Mozambique) Waldemar F. De Sousa General Manager, Banco de Moçambique Leonardo M. Simbine Head of Service, Foreign Department, Banco de Moçambique Ms. Maria Esperanca Majimeja Economist Ministry of Justice Gaspar Moniquela Advisor to the Minister PROMAPUTO Adelino Jaime da Cruz Coordinator of PROMAPUTO Also met in Mozambique Mario Batsana Economist, Fundo de Energia (FUNAE) Jose Manuel Catine Economist, Fundo de Estradas Larry Herman Advisor, Fundo de Estradas Ron Herman CEO, Maputo Port Development Corporation Nazario Meguigy Director National de Estudos e Planificacao, Ministry of Energy Adelino Mesquita Director of Executive Board, Portos e Caminhos de Ferro (CFM) Joao Mutombene Economist, Fundo de Estradas Nelson Nunes Director General, Administracion Nacional de Estradas (ANE) Arun Pai Advisor to the Board, CFM Francisco Pereira Chairman, Fundo de Estradas Private Sector Raymond Banda Manager, Coca Cola East & Central Africa Mr. Mario da Graca Machungo Chairman, Millennium (BIM) Bank, ex-Prime Minister, ex-Minister of Finance Aly Nosrat Consultant, Intl. Business Development Amb. Segun Apata Mr. Yann Groeger Director General, ProCredit Bank Civil Society Manuel Rodrigues Metier Consultoria & Desenvolvimento Narciso Matos Foundation of Development of Community (FDC) Dipac Jaliantal Cruzeiro do Sul Researchers & Consultants Oscar Monteiro Lexterra (former Minister of Justice) African Development Bank Alice Hamer Resident Representative, African Dev. Bank Foday Turay Principal Evaluation Officer Development partners Andrew Maclean Infrastructure Adviser, DFID Mozambique Bengt Johansson Chief of Cooperation, Embassy of Sweden Jane Rintoul Head, DFID Mozambique Jose Luis Macamo Governance Programme Manager, UNDP 138 ANNEX C LIST OF PEOPLE MET Ms. Habiba Rodolfo UNDP Ms. Fatima Amade UNDP Kevin Armstrong Deputy Mission Director Lotta Karlsson Counselor, Embassy of Finland Lotta Valtonen Counsellor, Embassy of Finland Marit Strand Counselor – Economist, Embassy of Norway Patrick Empey Head of Cooperation, Embassy of Ireland Bridget Walker Muiambo Economic Advisor, Embassy of Ireland Niels Richter Counselor - Deputy Head of Mission, Embassy of Denmark Sylvie Tabesse Counselor, European Union Todd H. Amani Director, USAID, Mozambique Luisa Capelao USAID International Finance Corporation (IFC) Tunde Onitiri Country Manager, Angola and Mozambique International Monetary Fund (IMF) Felix Fischer Resident Representative Emmy Boster Technical Assistance Coordinator Jose Sulemane Advisor to the Executive Director The World Bank Mr. Anil Bhandari Sr. Adviser Mr. Antonio Chamuco Procurement Specialist Ms. Irina Luca Lead Procurement Specialist Ms. Patricia de Baquero Senior Procurement Specialist Mr. Seyoum Solomon Consultant Mr. Michael Baxter Country Director Ms. Susan Hume Country Program Manager Mr. Peter Nicholas Lead Operations Officer Mr. Charles Husband Consultant Mr. Daniel Sousa Senior Agriculture Services Specialist Mr. Gregory Binkert Senior Economist (on leave from the World Bank) Mr. Aniceto Bila Senior Operations Officer Mr. Pedro Arlindo Agriculture Economist Mr. Patrick Verissimo Senior Sector Economist Mr. Humberto Albino Cossa Senior Health Specialist Ms. Ana Menezes Education Specialist Ms. Jyoti Bisbey Operations Analyst Mr. Carlos Rojas Senior Education Specialist Mr. Samuel Munzele Maimbo Senior Financial Sector Specialist Mr. Young-Chul Kim Senior Economist Mr. Ali Alwahti Urban Specialist Mr. Antonio Nucifora Senior Economist Ms. Maria Benitto-Spinetto Research Analyst Mr. Reto Thoenen Jr. Professional Officer Mr. Rob Mills Economist Mr. Rui Benfica Economist Mr. Subhash Seth Consultant Ms. Anne Louise Grinsted Consultant Mr. Mazen Bouri PSD Specialist Mr. Peter Moll Senior Economist Mr. Uri Raich Urban Specialist Mr. Yash Pash Kedia Consultant Ms. Monica Sawyer Country Officer 139 ANNEX C LIST OF PEOPLE MET Ms. Paola Ridolfi Senior Country Officer Ms. Maria Claudia Pachon Consultant Mr. Rafael Saute Communications Officer Mr. Boris Utria Sector Leader, Energy Mr. Luiz Tavares Lead Water and Sanitation Specialist 140 Annex D: Government Comments 141 References Besant-Jones, John E. 2006. 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