Document of The World Bank FOR OFFICIAL USE ONLY Report No: 71713-CG INTERNATIONAL DEVELOPMENT ASSOCIATION COUNTRY PARTNERSHIP STRATEGY FOR THE REPUBLIC OF CONGO FOR THE PERIOD FY13–FY16 September 24, 2012 Central Africa Country Cluster 2 (AFCC2) Africa Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. THE LAST COUNTRY PARTNERSHIP STRATEGY: May 13, 2009 (Report No: 48404-CG) CURRENCY EQUIVALENTS (Exchange Rate Effective May 31, 2012) US$1.00 = 529.47 FCFA (Central African Francs) FISCAL YEAR: January 1–December 31 ABREVIATIONS AND ACRONYMS AfDB African Development Bank AFD Agence Française de Développent (French Development Agency) BADEA Arab Bank for Economic Development in Africa BEAC Banque des Etats de l'Afrique Centrale (Bank for Central African States) BDEAC Banque de Développement des Etats de l‘Afrique Centrale (Central African Development Bank) CEEAC Communauté Economique des Etats de l'Afrique Centrale (Economic Community for Central African States) CEMAC Communauté Economique et Monétaire de l'Afrique Centrale (Central African Economic and Monetary Community) CFCO Chemin de Fer Congo Océan (Congolese Railway) CFE Centre de Formalités des Entreprises CNSS Caisse Nationale de Sécurité Sociale (National Social Security Fund) CPS Country Partnership Strategy CRF Caisse de Retraite des Fonctionnaires (Civil Service Retirement Fund) CSO Civil Society Organization DIME Development Impact Evaluation DO Development Objective DRC Democratic Republic of Congo EITI Extractive Industries Transparency Initiative EU European Union FCFA Central African Franc FDI Foreign Direct Investment FSC Forest Stewardship Council FY Fiscal Year GDP Gross Domestic Product GEF Global Environment Facility GNI Gross National Income HiA Health in Africa Initiative HIPC Heavily Indebted Poor Countries HIV/AIDS Human Immunodeficiency Virus/Acquired Immune Deficiency Syndrome IBRD International Bank for Reconstruction and Development ICT Information and Communications Technology IDA International Development Agency IFC International Finance Corporation IP Implementation Performance IMF International Monetary Fund MEC Maison de l‘Entreprise MIGA Multilateral Investment Guarantee Agency MSMEs Micro, Small and Medium Enterprises MTEF Medium Term Expenditure Framework OHADA Organisation pour l‘Harmonisation en Afrique du Droit des Affaires PCT Parti Congolais du Travail (Congolese Labour Party) PER Public Expenditure Review PMI Public Investment Management Index PRSP Poverty Reduction Strategy Paper PV Present Value RBF Results-Based Financing REDD Reducing Emissions from Deforestation and Forest Degradation SDR Special Drawing Rights SEZ Special Economic Zone SME Small and Medium Enterprise SNDE Société Nationale de Distribution d‘Eau (National Water Distribution Company, Congo) SNPC Société Nationale des Pétroles du Congo (National Petroleum Company of Congo) SSA Sub-Saharan Africa TBD To Be Determined Vice President: Makhtar Diop Country Director: Eustache Ouayoro Team Leader: Sylvie Dossou Kouamé The core team was composed of: Sylvie Dossou Kouamé, Olivier Godron, Eustacius Betubiza, Johannes Herderschee, Monthe Bienvenu Biyoudi, Milaine Rossanaly. Support was provided by Nadege Bicoumou and Alicia Hetzner. Substantive inputs were received from: Abderrahim Fraiji, Amadou Dem, Amadou Oumar Ba, Antoine Lema, Bella Diallo, Bourama Diaite, Brian Pinto, Carole Baker (IMF), Chiara Bronchi, Christophe Rockmore, Clement Tukeba, Enias Baganizi, Etaki Wa Dzon, Jean Jacques Frere, Linda Carole Tiemoko, Mahine Diop, Michel Duret, Mohamadou Hayatou, Mohamat Goadi Louani, Nicolette DeWitt, OPCS, Rachidi Radji, Remi Pelon, SDN, Silvana Tordo, and Simon Rietbergen. REPUBLIC OF CONGO COUNTRY PARTNERSHIP STRATEGY CONTENTS Page EXECUTIVE SUMMARY ....................................................................................................... i I. INTRODUCTION .................................................................................................................... 1 II. COUNTRY CONTEXT............................................................................................................ 1 A. Political and Institutional Context ...................................................................................... 1 B. Poverty Profile, Progress toward Millennium Development Goals, and Gender ............... 2 C. Recent Economic Developments and Medium-Term Prospects ........................................ 3 III. COUNTRY OPPORTUNITIES, CHALLENGES, AND STRATEGIC PRIORITIES ........... 5 A. Main Growth Opportunities and Challenges ...................................................................... 5 B. Government‘s Strategic Priorities and Programs ............................................................. 11 IV. WORLD BANK GROUP PARTNERSHIP STRATEGY ..................................................... 15 A. Performance of the FY10–FY12 CPS and Lessons Learned ........................................... 15 B. Proposed Country Partnership Strategy for FY13–FY16 ................................................. 17 C. Partnerships …………………………………………………………………………….. 29 V. MANAGING RISKS .............................................................................................................. 30 Tables Table 1. Proposed New Lending Activities for FY13–FY16 ........................................................ 25 Table 2. Activities under the Lending Program, Categorized as Ongoing or New ....................... 26 Table 3. Analytical and Advisory Activities ................................................................................. 27 Figure Figure 1. Fiscal Revenues and Expenditures by Category, 2007–12 .............................................. 4 Annexes Annex 1: Results Framework for the Congo CPS (FY13–FY16) ................................................. 32 Annex 2: IFC Program Summary…..……………………………………………………..…….. 39 Annex 3: Progress Toward Millennium Development Goals ....................................................... 40 Annex 4: Government Programs in Transportation Infrastructure ................................................ 41 Annex 5: Doing Business Indicators ............................................................................................. 42 Annex 6: IBRD/IDA Program Summary ...................................................................................... 43 Annex 7: Performance Assessment of the Country Partnership Strategy FY10-FY12 ................. 44 Annex 8: Summary of Consultations ............................................................................................ 64 Annex 9: Country at a Glance ....................................................................................................... 65 Annex 10: Selected Indicators of Bank Portfolio Performance and Management ........................ 66 Annex 11: Selected Social Indicators ............................................................................................ 67 Annex 12: International Partners ................................................................................................... 68 Annex 13: Selected Macroeconomic Indicators ............................................................................ 69 Map of the Republic of Congo No. IBRD 33390……………………………………………….. 70 REPUBLIC OF CONGO COUNTRY PARTNERSHIP STRATEGY EXECUTIVE SUMMARY i. As the effects of civil strife of the 1990s fade, Congo continues to rebuild its state institutions. In 2009, the second post-war presidential election was held peacefully. Parliamentary elections were held in July and August 2012, and the Congolese Labor Party (PCT), obtained 89 seats out of 136 in the National Assembly, maintaining a parliamentary majority. ii. With a population of 4.1 million, located primarily in the three largest urban centers, Congo is poised to become an emerging economy over the next 15 years. In the last five years, economic growth rates were high, and on the back of rising oil production in 2010 the country posted the second fastest rate of economic growth in Sub-Saharan Africa (SSA). The fiscal situation remains strong following HIPC debt cancelation in 2010 and large oil windfalls. However, the country remains fragile. The high poverty rate, unemployment, and inequality remain significant threats to the country‘s nascent peace. The country‘s principal challenge is how to use its large oil revenues to stimulate broad-based non-oil growth that would generate employment and reduce poverty. Similarly, much needs to be done to improve the country‘s social outcomes. iii. Opportunities for non-oil growth include: (a) light manufacturing to take advantage of the huge regional market; (b) agriculture given the country‘s large reserves of arable land; (c) transit services buttressed on Congo‘s deep sea port of Pointe Noire; (d) mining; and (e) forestry, including environmental services. iv. The country has many opportunities for growing without jeopardizing environmental goals, provided environmental aspects are addressed in a timely and considered manner. Spatial planning and other public investment decisions that the country will take in the coming decade will be instrumental in either furthering––or hindering––socially inclusive, environmentally sustainable growth for present and future generations. v. However, progress on these non-oil growth opportunities remains hampered by multiple factors. They include limited government capacity and effectiveness in managing a growing public investment program; poor infrastructure, especially energy and transportation; a poor business climate (Congo was ranked 181st of 183 countries in ease-of-doing-business ahead of Central African Republic and Chad); inadequate skills that need to be adapted to meet private sector needs; and weak governance. vi. The Government is aware of these weaknesses and has produced a new PRSP for 2012–2016 to address these challenges. The objective of the government‘s strategy paper is to stimulate inclusive economic growth aimed at diversifying the economy from its oil dependence. The PRSP emphasizes governance (political and economic), diversification of the economy, infrastructure development, social inclusion, and equity. i vii. To achieve these objectives, the government has initiated a massive public investment program. Overall, the Government‘s capital expenditure increased from 7.6 percent of GDP during 2001–2005, to 9.9 percent of GDP during 2006–2010. Furthermore, the 2012 investment budget, revised in order to reflect reconstruction expenses following the March 4, 2012 ammunitions depot explosions in Brazzaville, is up by 94 percent over the previous year. However, efficiency in public investment spending remains a challenge. viii. In view of the above, the objective of the Bank‘s partnership with the Republic of Congo for FY13–FY16 is to help Congo use its large oil revenues to diversify its economy and improve its social outcomes. The Bank‘s support is aimed at creating a dynamic that will set the stage for a sustainable and inclusive green growth trajectory that should increase equality of opportunities and spread the benefits of growth, while safeguarding the environment. The ultimate goal of the Bank‘s support is to contribute to propelling Congo from a low middle-income country to a medium middle-income country. ix. The Bank will play largely a catalytic role in helping Congo to: a. Better target its public investment program and increase its efficiency and effectiveness; b. Improve the performance of key infrastructure to better serve the population as well as private sector needs; c. Strengthen the investment climate to accelerate domestic investments and attract foreign direct investment; d. Develop key primary sectors such as agriculture and sustainable forestry; e. Promote regional integration to exploit the vast regional market opportunities; f. Strengthen human capital; and g. Strengthen governance and government capacity. x. Implementing this strategy will build on lessons drawn from executing the Bank‘s FY10–FY12 partnership strategy with Congo. These lessons include the need to: a. Improve the quality of the government‘s investment spending; b. Sustain the reform momentum, especially regarding the procurement code, the business climate, transparency and governance in oil, and the human development sectors; c. Build the capacity of the public administration, including putting in place performance-based mechanisms; and d. Deepen the knowledge agenda. xi. On the operational level, lessons learned include: a. Finding a lasting solution to the irregular and arduous release of counterpart funding; b. Emphasizing early project restructuring to avoid prolonged stays in problem status; and ii c. Focusing on implementation readiness. xii. Implementing this new strategy faces some risks. As a catalyst, the Bank will be contributing limited financing to largely government-funded programs. In the past, this arrangement has been a source of implementation delays due to slow releases of government funding. Efforts to find a lasting solution are underway. Delays to rapid implementation after effectiveness will be addressed with better project preparation. However, lengthy delays in government ratification remain a challenge. Restructurings will be carried out at early signs of stalled implementation. xiii. Also, World-Bank-funded projects still face some fiduciary risks. An April 2012 fiduciary assessment mission identified internal controls as well as accounting issues in some projects. Efforts will be stepped up to address these issues, including ensuring full implementation of the internal and external auditors‘ recommendations, and strict adherence to fiduciary procedures and processes. xiii. Other risks include possible political instability arising from disaffection over lack of jobs, a sense of growing inequality, and limited access to basic services as a result of weak governance. xiv. Finally, the Government‘s ongoing attention to the reconstruction efforts following the March 4, 2012 multiple explosions in a munitions depot in Brazzaville could exert macroeconomic pressures as well as create opportunities for poor governance practices, while detracting officials from other urgent policy and development program imperatives. iii COUNTRY PARTNERSHIP STRATEGY FOR THE REPUBLIC OF CONGO I. INTRODUCTION 1. The Republic of Congo is classified as a low middle-income country, largely due to its large oil revenues and small population of 4.1 million. However, Congo still faces challenges in stimulating a broad-based, diversified economy that generates jobs, especially for the youth. It also continues to face challenges in improving social outcomes, most especially in health, but also in education. The FY10–FY12 Country Partnership Strategy (CPS) between the Bank and the Republic of Congo was based on the Government‘s 2008–2012 Poverty Reduction Strategy Paper (PRSP). The latter put a greater emphasis on laying the foundation for broad-based growth and better service delivery. The Government has elaborated a new PRSP for 2012–2016. Its objectives are to consolidate the gains in governance reforms and intensify Congo‘s efforts toward economic diversification and better service delivery. It is against this backdrop that the following FY13–FY16 Bank-Congo partnership strategy has been formulated (the expected outcomes of which are summarized in Annex 1). II. COUNTRY CONTEXT A. POLITICAL AND INSTITUTIONAL CONTEXT Since the cessation of active civil conflict in 2000, the political climate in the country has stabilized significantly. The second post-conflict presidential elections, which were held in 2009, were largely peaceful and it is now possible to freely access the whole country. The results of the second round of legislative elections were published on August 7, 2012 and the Congolese Labor Party (PCT), obtained the majority. However, the low voter turnout witnessed could be a worrisome signal requiring close monitoring. 2. Indeed, the country remains fragile. High youth unemployment, inequality, or events, such as the March 4, 2012 deadly explosions that killed hundreds of people, could easily trigger widespread discontent and possible social unrest. 3. The country is also characterized by weak institutions, which have slowed progress on social and economic transformation. The many years of conflict and unstable governments have severely weakened the country‘s administration, eroded public accountability, and undercut publicly funded services. Similarly, Congo‘s administration has been historically centralized. This tradition has, so far, limited the benefits of decentralization as well as the role of local communities in improving service delivery. 1 B. POVERTY PROFILE, PROGRESS TOWARD MILLENNIUM DEVELOPMENT GOALS, AND GENDER Poverty Profile 4. Preliminary data from the 2011 Household Survey (ECOM 2011) reveal that over the 2005-11 period, the poverty rate has dropped by 4 percentage points to 46.5 percent. The average decline masks important regional differences; urban poverty declined rapidly and is now below 30 percent in the main urban centers of Brazzaville and Pointe Noire. In contrast, rural poverty increased by 10 percentage points to almost three quarters of the rural population, as explained by the high and rising poverty levels among subsistence farmers. Poverty rates declined for those engaged in the modern sectors as well as for female-headed households. 5. The absence of comprehensive and final poverty information remains a major concern as well as the lack of updated data on unemployment, earnings and the quality of public services, especially in education and health. For instance, a 2009 survey put general unemployment at 16.1 percent. However, when discouraged job seekers were included, it reached 26.6 percent for the general population and 42.2 percent among the youth. In addition, the economy is characterized by low earnings, with the situation particularly dire for those in the informal sector, where monthly earnings are barely over US$100 a month, in a country with a high cost of living. Furthermore, with a Gini coefficient of 0.39, Congo remains a country where the differences in wealth among rich and poor are still significant.1 Although primary education enrollment indicators are high and trending upward, quality remains a deep concern. In the health sector, there has been little improvement in access rates, and child malnutrition remains high. 6. The above assessment highlights priority areas for Government policy and poverty alleviation programs moving forward. These include, among other things: (a) addressing the issue of gainful employment, especially among the youth; and (b) improving the quality and equity of services in human development sectors, especially through a results-focused approach. Progress toward Millennium Development Goals 7. Congo has made some progress in primary education enrollment and the reduction of under-five and maternal mortality rates. The country may be able to meet MDG4 if it continues to improve the reduction of under-five mortality at this pace. However, significant challenges remain in utilizing its significant oil revenues to stimulate broad-based, inclusive growth, and to improve the delivery of basic social services. As a result, progress on reducing poverty and improving access to safe water has been particularly slow (see Annex 3 for details). Government is beginning to focus its attention on these critical issues, but this focus will need to be sustained for several years to make significant progress. 1 Preliminary data from ECOM 2011. A Gini coefficient is an equality measure that ranges from 0 for perfect equality to 1 for perfect inequality. 2 Gender 8. Congo has a high gender inequality index of 0.628 in 20112. The high gender inequality mirrors the existing challenges for women, especially in reproductive health, such as high maternal mortality; and relatively low women empowerment, including inadequate political representation and unequal access to economic opportunities. 9. Maternal mortality remains high, at 426 per 100,000 live births, according to DHS 2011/ 2012 preliminary data. Similarly, the adolescent fertility rate for 15–19 year olds remains high (27 percent), and HIV-AIDS prevalence among young women (15–24) is more than three times higher than prevalence among males of the same age. In addition, there are gender inequalities in access to education, especially at higher levels. For instance, although the female-to-male index for primary-level enrollment is approximately 0.97, it is only 0.53 at the tertiary level. 10. Similarly, huge disparities remain regarding women representation in administrative and political life, and access to economic opportunities. For instance, women hold only 9.5 percent of the seats in the newly elected National Assembly. In the same vein, women have less access to credit and new technology than men, despite their active involvement in economic activities, particularly in the informal sector. 11. The Government is making efforts toward gender equality but more needs to be done. The Government adopted the National Gender Policy and Plan of Action for 2009–2013. The plan‘s overall objective is to reduce gender inequalities by giving women greater economic, social, cultural, and political power. Ongoing programs include ensuring a high percentage of births attended by a trained attendant3, promoting prenatal care, providing free malaria treatment and free caesareans, distributing insecticide-treated mosquito nets to mothers, and carrying out systematic vaccination of pregnant women and children. However, to maximize impact, policies, programs, and projects need to be mainstreamed across a wider spectrum of Government agencies. C. RECENT ECONOMIC DEVELOPMENTS AND MEDIUM-TERM PROSPECTS 12. Congo has realized sustained growth with modest inflation and achieved its HIPC completion point in 2010. After reaching middle-income country status in 2006, the country‘s growth continued, averaging 4.7 percent during 2006–11. During this period, oil output grew by 2 percent a year, compared to almost 6 percent for the non-oil sector, which was led by the construction and public works sector. However, the share of the oil sector in nominal GDP remained stable as international oil prices increased by an average of 10 percent per year. The fall in the oil price in the wake of the international financial crisis reduced fiscal revenues but Congo‘s existing buffers were sufficient to absorb the shock. HIPC debt relief in January 2010 further supported Congo‘s strong 2 UNDP, 2011 Human Development Report. A scale of ―0‖ denotes total equality, and ―1‖ denotes total inequality. 3 A trained attendant refers to a doctor, nurse, midwife, health assistant, matron, or community health agent. 3 fiscal position. Inflation remained subdued thanks to the fixed FCFA/Euro exchange rate, an open trade regime, and appropriate fiscal policies. 13. Oil dominates exports and investment income, while also financing imports. Congo is the fourth largest oil producer in Sub-Saharan Africa, with an annual output of over 100 million barrels. Nominal oil export revenues are over 80 percent of GDP, providing financing for imports of goods and services (50 percent of GDP), investment income (25 percent of GDP), and a healthy balance of payment surplus (5 percent of GDP). As the wealth stored in its natural resources is being extracted, Congo is accumulating net foreign assets. Gross reserves are now at US$5.8 billion at end 2011, equivalent to 9.1 months of imports and 40 percent of GDP. At the same time, imports are rising rapidly, being pulled in by a sharp increase in public investment (up by 6 percentage points of GDP during 2006–11) that more than offsets a modest decline in private investment (down by 3 percentage points of GDP). Figure 1. Fiscal Revenues and Expenditures by Category, 2007–12 (FCFA, mil.) Revenues Expenditures 4,000 4,000 Budget surplus 3,500 Other revenues 3,500 Investment 3,000 Oil revenue 3,000 Current expenditures 2,500 2,500 2,000 2,000 1,500 1,500 1,000 1,000 500 500 0 0 2007 2008 2009 2010 2011 2012 2007 2008 2009 2010 2011 2012 (proj.) (proj.) 14. Fiscal policy has been prudent during recent years, with fiscal surpluses approximately 16 percent of GDP in 2010–11. Revenues are dominated by oil; and non-oil revenues, are below 10 percent of GDP. Expenditures were contained over the years but were expanded recently to address poor infrastructure and social indicators, areas in which Congo is lagging its peers. As a result, public investment represented 16 percent of GDP in 2011 and is projected to rise to 25 percent in 2012. Public spending contributes to economic growth, but the immediate impact on poverty is yet to be seen. Over the years, sound fiscal policies have been abetted by prudent monetary policy in the context of the Central African Economic and Monetary Community (Communauté Economique et Monétaire de l'Afrique Centrale - CEMAC). 4 15. The medium-term prospects for Congo are good based on mining and gas projects to come on stream and sustained non-oil economic activities. According to conservative macroeconomic forecasts, non-oil GDP growth is projected to grow by almost 8.4 percent between 2012 and 2015, driven by accelerated momentum resulting from both private and public investments. The completion of several ongoing public investment projects is projected to ease transport and supply bottlenecks. Notably, improved transport conditions will help ease the supply of basic products in local markets, complemented by additional efficiency gains as a result of better trade facilitation procedures. The same conservative forecasts project oil sector growth to slow down by 2.9 percent due to a projected decline in oil production, which is partly offset by an uptake in gas production. Inflation is expected to remain low and consistent with the three percent annual inflation fixed by the CEMAC convergence criterion. 16. The main policy challenge is to address (a) human capital shortages to support private sector competitiveness and (b) cost-effective implementation of the public investment program. The available training and education does not match the needs of the growing private sector. Similarly, in the public sector, skills required to manage the massive public investment program are scarce. At the policy level, the challenge will be to design policies that quickly develop human capital.4 III. COUNTRY OPPORTUNITIES, CHALLENGES, AND STRATEGIC PRIORITIES A. MAIN GROWTH OPPORTUNITIES AND CHALLENGES (1) Opportunities for Non-Oil Growth 17. Congo has the potential to diversify its oil-dominated economy into additional non-oil sectors. Non-oil opportunities with high growth potential include light manufacturing and construction, services, agriculture, mining and forestry. (a) Light manufacturing and construction. The manufacturing and construction sectors remain small, although construction is picking up, buoyed in part by the Government‘s large capital spending. Manufacturing potential is mainly in the light consumer goods (including agro-based products), taking advantage of the regional market. Growth in light manufacturing is critical for Congo to rise from its current low middle-income status to a medium middle-income status and beyond. Light manufacturing could be developed in the new Special Economic Zones (SEZ), taking advantage of the increasing availability of electric power, and learning from the experience of countries such as Ethiopia. (b) Services. Over the last decade (2001–10), the services sector experienced an average growth rate of 10 percent, driven mainly by transport and 4 World Bank, Republic of Congo, Employment and Growth Study from Jobless to Inclusive Growth, Report No. 61999-CG, Washington, DC, 2011. 5 telecommunications. There is still room for growth, especially in regional transit services, by tapping on the existence of the deep sea port of Pointe Noire. In addition, the installation of the fiber optical cable, which is expected to be completed within the next two years, will provide access to high speed internet, creating opportunities for the development of new ICT companies, products, services, and employment. There also is room for growth in the financial service sector, which is still very small, by building on the opportunities offered by a sizeable regional market. (c) Agriculture. Congo has between 10 million and 12 million hectares of land with good agricultural potential. However, less than 10 percent of it is farmed, mostly with rudimentary tools. The country imports up to 85 percent of its food needs. There is great potential to address not only the local needs but also those of neighboring countries, including the Democratic Republic of Congo (DRC). Agricultural intensification also is essential to enable Congo to reap the benefits of the Government‘s REDD (―Reducing Emissions from Deforestation and Forest Degradation‖) program under preparation. The agricultural sector is also beginning to attract foreign investors. For instance, in early 2012, some South African farmers were reported to be already producing maize on 1,200 hectares in the Niari and Bouenza Departments. Congo‘s framework agreement with Singapore regarding SEZ includes developing agribusiness in high potential zones. While these developments are encouraging, it is important for the Government to ensure that current and future arrangements are consistent with emerging norms of responsible investments that respect traditional rights to land. (d) Mining. Congo's industrial mining potential consists mainly of potassium, iron ore, copper, lead, and zinc. Artisanal mining of gold, diamonds, and industrial minerals is present in several regions and has potential for growth. Since the promulgation of the 2005 Mining code, mining exploration has increased. Several major investors have demonstrated interest. A selected number of projects have gone through the feasibility stage. Congo should also take advantage of the fact that many international mining companies have made commitments to enhance biodiversity in the countries in which they work. Such ―biodiversity offsets‖ could give a major boost to Congo‘s poorly funded National Parks network. (e) Forestry. Congo‘s forests cover over 22 million ha, or 65 percent of the country‘s land area. In 2010, the forestry sector contributed 10 percent to the country‘s exports. Logs constitute over 60 percent of export value. The Government aims to increase to 85 percent the proportion of harvested timber that is processed locally for the growing construction industry and other uses, especially by taking advantage of the regional market. There also are opportunities to develop plantations in deforested or severely degraded areas closer to transport hubs and consumer centers and increase the sustainability of forestry operations. Many forestry sector investments are likely to generate carbon credits. The country is also trying to position its forests as providers of global ecosystem services, especially greenhouse gas emission reductions (under the REDD mechanism) and biodiversity. 6 (2) Principal Constraints to Non-Oil Growth 18. Tapping into the above potential will take a concerted effort to address a number of constraints. These include: (i) lack of reliable infrastructure, especially for electricity and transportation; (ii) an unfavorable business environment; (iii) a shallow financial sector; and (iv) weak human capital. (i) Poor Infrastructure 19. Over the past decade, the contribution of infrastructure to Congo’s per capita growth averaged a mere 0.5 percentage points. This average is considerably lower than in other countries in the region, and in Sub-Saharan Africa in general, in which infrastructure contributes 0.99 percentage points on average. In fact, in the future, infrastructure could contribute more than 3 percentage points a year to per capita GDP growth, if access to, and quality of, infrastructure services were improved to the level seen in Mauritius, a lead performer in Africa5. The main challenges are in energy and transportation. (a) Energy. According to the World Bank 2009 Investment Climate Policy Note for Congo, more than 70 percent of companies report lack of reliable electricity as a major constraint. The system suffers from frequent power cuts that cost some 19 percent of firms‘ turnover. Approximately 82 percent of firms have to rely on generators, a costly alternative, making them uncompetitive. There are many ongoing efforts by the Government to improve the production, transmission, and distribution of electricity (see Annex 4 for details), although the sector‘s management remains a challenge. (b) Transportation. Surfaced roads constitute less than 10 percent of the total road network, including urban roads. The 500 km road between Pointe Noire and Brazzaville is still under construction, with completion expected in 2016. Freight transport between the two cities is largely by rail, but often by costly air cargo (even for heavy construction materials such as cement). Congo‘s rail network is among the worst performers in Africa in terms of service quality and safety, and tariffs are among the highest (for instance, three times those of South Africa). Poor performance is due to insufficient rehabilitation and maintenance of tracks, outdated and insufficient rolling stock, weak internal supervision, and human resource limitations. River transportation is vital for communication and trade along the Congo River and its tributaries, and is much used by the poor. However, the current deterioration of the river‘s infrastructure and equipment undermines its fluidity, creating significant delays and inefficiencies in the trade of timber and fish products. 5 Nataliya Pushak and Cecilia M. Briceno-Garmendia, ―The Republic of Congo‘s Infrastructure: A Continental Perspective,‖ World Bank Africa Region, October 2011. 7 (ii) Poor Business Climate 20. Congo has one of the most difficult business operating environments in the world. It was ranked 181st of 183 countries in the 2012 Doing Business Report. The particularly problematic areas are: (a) the difficulties associated with paying taxes and the large amounts involved, especially the numerous fees (parafiscalité)6; (b) the challenges of trading across borders; (c) the numerous procedures and the cost of starting a business; (d) poor and onerous enforcement of contracts; and (e) inadequate protection of investors. A list of Congo‘s 2012 doing business performance is presented in Annex 5. (iii) Weak Financial Sector 21. Access to financing for entrepreneurial activity remains poor. Although commercial bank deposits have been growing fast over the past years, access to financial services including credit (particularly for SMEs) is still limited. A large number of SME projects are deemed non-bankable by the banks (e.g. lack of suitable collateral or business plans), explaining the high liquidity in the banking sector. Otherwise, all commercial banks are broadly in compliance with the prudential ratios set by the regional regulatory body. In 2009, Congo‘s banking sector was rated by the Central African Banking Commission as one of the best in the CEMAC zone. A few microfinance activities also have been initiated. (iv) Limited Technical and Managerial Skills 22. In a recent survey, 51 percent of the surveyed firms consider inadequate workforce skills a major obstacle. There is a significant mismatch between the skills offered by skills training institutions and the skills required by the private sector. Similarly, a number of local enterprises lack adequate managerial skills for business planning and financial management. (3) Other Key Challenges to Congo’s Development (v) Human Development 23. Health. Access to health and the overall performance of the health sector remains relatively poor. Access to health services has virtually remained unchanged at 65.8 percent in 2011, compared to 68.7 percent in 2005, and the utilization rate declined from 26.7 percent in 2005 to 23.8 percent in 2011. The quality of health services provided in the rural areas remains of concern due to weak staff motivation and low accountability. Problems associated with the pyramidal organization of the health care system, weak capacity, inadequate human resource management, weak governance and inefficiency in drug procurement and distribution continue to constrain the sector‘s performance. In addition, Congo suffers from a general chronic malnutrition prevalence of 24.4 percent (stunting), including areas in which 38.6 percent of all children less than 5 6 Parafiscalité refers to taxes and fees not levied by the State but by various state entities with autonomous accounting. These taxes and fees tend to constitute an undue burden on businesses. 8 years old are chronically malnourished. The private sector offers opportunities for complementing public sector efforts, but this sector is poorly regulated and insufficiently involved in the provision of health services. 24. Education. Performance indicators for Congo’s education system have trended upward since the end of the civil conflict in 2000. In 2011, the gross enrollment rate at the primary level was 117 percent. However, improving internal efficiency and the quality of education remains a challenge. Repetition rates are holding at 23 percent, and student learning remains low. The effectiveness of service delivery continues to be limited by capacity and governance issues. The 2010 budget allocation of 3.4 percent of GDP (or 12.7 percent of the total budget) remains low and needs to be increased. To maximize the impact of education outcomes, greater attention to spending efficiency will be critical. This includes better human resource management as well as a more balanced allocation of resources among the various education levels. 25. Social Protection. Awareness about social protection issues has increased in recent years, but the scope and content of social protection programs remain limited. The main programs target civil service workers and private sector employees in the form of contributory social insurance schemes (Caisse de Retraite des Fonctionnaires, or CRF, and Caisse Nationale de Sécurité Sociale, or CNSS). In the past, these agencies have been characterized by low and irregular payments of benefits and, more generally, cover only a small part of the population. Other programs are sponsored and funded mostly by the Ministry of Social Affairs. Because of the ministry‘s very small budget (only 0.63 percent of the 2012 national budget), the scope and content of the existing programs are limited and insufficiently developed to respond to the needs of the poor and vulnerable population (the elderly and those afflicted with specific post-conflict vulnerabilities, stigmas, and traumas). There is limited knowledge of the efficacy and impact of existing programs. (vi) Limited Government Effectiveness 26. The Government has shown limited effectiveness at the national, sub- national and sectoral level. After the conflicts of the 1990s, the administration‘s capacity to handle public affairs was considerably weakened. This decline is reflected in the inability of the administration to transform its fast-paced economic growth into better and increased access to basic services for the majority of the population. In addition, policy implementation suffers from low capacity at the local level (deconcentration). Mindful of the need to modernize public administration and its human resources, the Government of Congo has initiated a civil service reform and has allocated more resources to the civil service apparatus. Improving the sectoral coherence of programs and activities, establishing agencies to combat corruption and increasing local staff capabilities have been at the heart of the renewed attention to civil service reform. Despite these efforts, public administration continues to show serious dysfunctions partly due to outdated laws and regulations, unclear and confusing institutional mandates and structures, skills mismatch, low managerial capacity of resources and staff, and inadequate remuneration. These dysfunctions manifest themselves in several ways, 9 including: (i) inefficient government programs; (ii) poor public financial management; and (iii) inability to evaluate government policy/program outcomes, among other things. (a) Efficiency of Government programs. Public investment management in Congo remains highly inefficient due to poor planning and implementation. According to the Public Investment Management Index (PMI), developed by the International Monetary Fund, the Republic of Congo ranked 70th of 71 countries surveyed. The PMI measures public investment management performance in four areas: appraisal, selection, implementation, and evaluation. Congo fared particularly badly in the appraisal and evaluation categories. According to some estimates, an appropriately modulated pace of investments, with a greater focus on improving the efficiency of investment spending, could add 1.3 percent to GDP growth while relieving pressures on domestic prices. (b) Public financial management. A series of public financial management (PFM) reforms have been implemented. The 2008 Public Financial Management action plan and the 2009 Public Investment Management Improvement action plan set the stage for the elaboration of a medium-term expenditure framework (MTEF) for budget preparation and the design and implementation of the Financial Management Information System. A new Procurement Code was adopted in 2009 and the institutions responsible for its implementation established. There has been significant progress in its implementation, although the audits of past procurement activities have not taken place yet. However, the MTEF for budget preparation has stalled. (c) Measuring investment outcomes. The performance of the national statistical system, whether for routine data or periodic surveys/censuses is a major constraint to the Government‘s ability to assess the impact of its programs and policy interventions and to move to a results-based management culture. The current system severely falls short on four quality dimensions, namely timeliness, relevance, accuracy, and interpretability, with additional concerns about accountability and inefficiency of resource use (such as uncoordinated surveys). Although the Government finances statistics, it is still not doing enough to ensure systematic use of the resulting information. (vii) Governance 27. Corruption. Allegations of widespread corruption, including in the award of Government contracts and in customs administration are common. According to the 2011 Ibrahim Index of African Governance, Congo ranks 40th of 53 African countries. Transparency International‘s 2011 Corruption Perception Index places Congo in the 154th position of 178 countries worldwide and in the 35th position of 47 Sub-Saharan African countries. 28. Congolese organizations engaged in the fight against corruption are generally weak. The Independent Governance Observatory is an independent structure created in 2007 with a mission to monitor and evaluate progress made by the Government 10 in the implementation of anti-corruption measures. The Anti-Corruption Commission, created in 2004 and restructured in 2007, is a government technical organ in charge of implementing the Government‘s anti-corruption policy. Both of these structures are funded by the Government budget. Their activities are often constrained by inadequate resources. Civil society also is still very weak, and the poor availability of public information on government activities and programs hampers the effectiveness of civil society organizations (CSOs). 29. Transparency in the oil and forestry sectors. Whereas a series of transparency and governance measures were initiated during the HIPC process, more and sustained progress is still needed. Some of the measures that were implemented included reforming the accounting system of the Congolese National Petroleum Company (SNPC), quarterly certification of oil revenues, improving oil commercialization procedures, implementing the Extractive Industries Transparency Initiative (EITI), and conducting and publishing on time the annual audits of SNPC‘s financial reports. These reforms were adopted, and implementation generally has been improving. However, conducting and publishing on time the annual audits of the financial reports of the SNPC group has been particularly slow. The latest reports (2010 and 2011) are not yet available. The Independent Observer in the Forestry Sector, supported by the European Union (EU), also has been making progress but has a long way to go. On June 9, 2011, the EITI International Board decided to renew Congo‘s EITI Candidate status for 18 months (until 9 December 2012), by which time Congo will be required to have completed an EITI Validation that demonstrates compliance with the 2011 edition of the EITI Rules. B. GOVERNMENT’S STRATEGIC PRIORITIES AND PROGRAMS 30. The Government’s objective is to reduce poverty from the 2005 rate of 50.7 percent to 35 percent by 2015. To do so, the Government‘s new PRSP for 2012–16 is organized around five pillars: (a) improved governance/government effectiveness characterized by strong state institutions and a good investment climate; (b) economic diversification through industrialization (based on existing primary commodities) and regional integration; (c) improved infrastructure; (d) human development; and (e) territorial development and environmental protection. (a) Governance/State Effectiveness 31. Government Capacity. In addition to state functions of maintaining order and peace, the Government wants to restore state capacity. Actions envisaged include: (a) improving human resource management; (b) improving staff capacity; (c) developing results-focused management tools; (d) putting in place a remuneration system that will encourage performance and improve efficiency in public service; and (e) putting in place the decentralized civil service. 32. Investment Climate. In November 2009, the Government adopted an action plan to improve the investment climate. The plan includes carrying out institutional and regulatory reforms; establishing a platform for public-private dialogue; and taking 11 measures to improve access to finance, professional training, and the promotion of entrepreneurship. (b) Diversification 33. Industrialization. The Government intends to promote industrialization based on a set of primary activities. This includes promoting: (i) agricultural production by increasing smallholder productivity and promoting commercial production; (ii) the oil sector by increasing refining capacity; (iii) the mining sector by carrying out geological surveys, and constructing the needed basic infrastructure; and (iv) the forestry sector by enforcing the country‘s legal and regulatory frameworks, and promoting environmental services and local processing. Finally, in collaboration with Singapore and other foreign partners, the Government intends to develop four Special Economic Zones: (a) the Pointe Noire SEZ focusing on petrochemicals, iron, steel, and minerals; (b) the Brazzaville SEZ focusing on transportation and other services (finance, commerce, hotels); (c) the Oyo- Ollombo SEZ dedicated to agro-food industry, services, transport and agriculture; and (d) the Ouesso SEZ dedicated to agricultural activities, forestry, mining, and ecotourism. 34. Regional Integration. Congo’s exports to other Sub-Saharan countries represent only three percent of its exports. However, Congo recognizes that its future prosperity will largely depend on its ability to tap into regional markets. As a result, the country is looking at a series of strategic investments, including in the port of Pointe Noire, to serve as a gateway to the sub-region. Similarly, the Government is investing in the railway and road link between Pointe Noire and Brazzaville. Discussions have been initiated among Congo, DRC, and Central African Republic on possible joint programs to improve the performance of the Pointe Noire–Brazzaville/Kinshasa transport corridor, and onward to Bangui along the Congo River to revitalize the transportation connection that thrived during the colonial period. Congo also is investing in a national optical fiber telecommunication network, which will be linked to the regional network through Gabon, the Central African Republic, and Cameroun. The Government plays an active role in regional bodies, such as the Organization for Harmonization of Business Law in Africa (Organisation pour l‘Harmonisation en Afrique du Droit des Affaires - OHADA), the Economic Community for Central African States (Communauté Economique des Etats de l'Afrique Centrale - CEEAC), and CEMAC; and Brazzaville hosts the headquarters of the Central African Regional Development Bank and the Central African Power Pool. However, implementation of the regional commitments under these institutions has often been slow. (c) Infrastructure 35. The Government has embarked on an ambitious program to improve the infrastructure in the country. This program includes major investments in power generation, transmission, and distribution, and transport infrastructure, mostly rail, port, and roads (see Annex 4 for details). Overall, the Government‘s capital expenditure increased from 7.6 percent of GDP during 2001–05, to 9.9 percent of GDP during 2006–10. Public investment represented 16 percent of GDP in 2011 and is projected to rise to 25 percent in 2012. 12 The most recent upward adjustment to the investment budget reflects reconstruction expenses associated with the March 4, 2012 ammunitions depot explosions in Brazzaville. The rapid rise in these investments could also pose a big challenge to the country‘s limited absorptive capacity and, therefore, could compromise the efficiency of the Government‘s public investment program. In addition, increased investments in infrastructure could also exert upward pressures on prices, especially those pertaining to construction materials. Furthermore, most infrastructure investments require land acquisition, thus, induce environmental and social impacts. Adverse environmental and social impacts of the accelerated investment program, could impair, not only immediate social gains, but also compromise lasting benefits and trigger long term environmental and social challenges; unless addressed systematically. In this context, the use of the new procurement code, including annual audit requirements, and capacity building in environmental and social safeguards needs to be scaled up. (d) Human Development 36. Health. The Government has declared 2012 the Year of Health, underpinned by doubling the amount for health in the investment budget, from US$96 million in 2011 to US$197.6 million in 2012. The Government‘s strategy for the sector has six priorities: (a) strengthening the management and overall leadership of the health sector; (b) improving quality of health services and geographic coverage; (c) addressing issues of access, especially for vulnerable members of society and pregnant mothers; (d) undertaking a communication campaign on health issues; (e) improving the management of medical drugs, including better coordination of drug distribution; and (f) intensifying the fight against communicable diseases, especially among mothers and children. 37. Education. Regarding pre-primary, primary, and secondary education, the Government will focus its attention on equity and outcomes. Its strategy includes: (a) improving access and the quality of education; (b) addressing the problem of the unequal geographic distribution of education staff; (c) encouraging girls to enter fields in which they are poorly represented; and (d) intensifying the campaign to fight HIV/AIDS. Technical and professional training will be strengthened by, among other things, modernizing the infrastructure and curriculum, including working very closely with the private sector through dynamic partnerships. Higher education reforms will include aligning programs with national development needs and providing scholarships to women. 38. Social Protection. The Government is running some social safety net programs for vulnerable groups, although much still needs to be done. These programs include provision of school kits to orphans and children from vulnerable families, and scholarships to the most vulnerable students for higher education. The Government has prepared a strategy to guide its various social protection interventions. The strategy will be an opportunity to, among other things, define specific outcomes/results and prioritize interventions to achieve those outcomes/results to maximize the impact of Government programs. In addition, the Government has initiated reforms for CNSS and CRF, although this work is still in progress. 13 39. Indigenous People. In early 2010, Congo adopted a new law on the rights of indigenous people, but the country needs help to implement it. Indigenous people make up a sizeable minority, at least 10 percent of the overall population––and as much as 50 percent of the population living in the north of the country. It will not be possible for Congo to achieve several of the Millennium Development Goals, especially in health and education, without investing in effective strategies for indigenous people. These strategies would entail matching ―modern‖ services with their (semi-) traditional lifestyles. Some of the Latin American countries with large indigenous forest-dwelling populations, such as Brazil, have made significant headway with service delivery to indigenous people in remote areas. Brazil‘s experience demonstrates the great potential for South-South exchange and learning to support indigenous groups in Congo. (e) Equitable Growth and Sustainable Development 40. Territorial Development. The Government policy is to improve territorial development, especially under the “accelerated municipalization” program. Envisaged actions include, among other things, improving transport access, especially in areas of high production potential, as well as improving sanitation and the quality of public services. 41. Forestry Management and Climate Change. The Republic of Congo is a leader in a number of indicators related to sustainable forest management. At only 0.07 percent per annum, the country‘s deforestation rate is among the lowest in Africa. Over 50 percent of forestry concessions in Congo have approved management plans. It is estimated that, by the end of 2012, approximately 75 percent of Congo‘s 13.5 million ha of production forests will have approved plans. By February 2012, approximately 2.5 million ha had been certified by the Forest Stewardship Council (FSC), accounting for nearly half of all FSC-certified forests in the Congo Basin. FSC certification provides improved access to European markets, whose customers increasingly are demanding timber from sustainably managed forests. In addition to continuing and scaling up these programs, the Government‘s strategy is to consolidate these gains by improving benefits derived by local communities from forest concessions, strengthening the National Forest Inventory, forest management planning, timber traceability, and timber tracking. 42. The Republic of Congo also intends to position itself as a provider of environmental services in emerging global markets. It is participating in the Forest Carbon Partnership Facility to facilitate access to funds under REDD+, an emerging program that will enable developing countries to be paid for conserving or restoring forests that store carbon and mitigate the impact of climate change. Congo views forest management as a major tool in climate change adaptation. Congo also has a substantial system of protected areas. Over 12 percent of its land area has been classified as national parks. The Government also intends to develop sectoral strategies, review its legal and regulatory framework, and put in place effective coordination mechanisms in its comprehensive approach to climate change. 14 IV. WORLD BANK GROUP PARTNERSHIP STRATEGY A. PERFORMANCE OF THE FY10–FY12 CPS AND LESSONS LEARNED 43. The Bank’s partnership with Congo over the past three years has been largely focused on economic diversification and service delivery. The goal was to lay the foundation for the long-term process of creating a broad-based economy, and improving service delivery, especially in the health and education sectors, while consolidating governance—including in the oil sector. The Partnership Strategy was implemented through a series of operations (Annex 6), as well as technical assistance and country dialogue. 44. Congo has experienced mixed progress toward attaining the CPS global objectives. On economic diversification, it was previously indicated that the non-oil sector had grown by almost 6 percent per annum in recent years, led by construction and public works. Indeed, the share of the non-oil sector in GDP, which was 3.9 percent in 2009, was estimated at 6.5 percent in 2010, and has been preliminarily estimated at 7.4 percent for 2011. However, the non-oil sector remains narrow. Its growth is hampered by many factors such as infrastructure, as discussed earlier, although major efforts are underway to alleviate these constraints. Regarding service delivery, the education enrollments are improving, although quality remains a concern. The biggest challenges remain in health, in which access and quality remain poor. 45. Similarly, there has been mixed progress toward attaining the specific CPS outcomes. On the positive side, a series of reforms were undertaken, especially in the final drive to attain the Completion Point under the HIPC initiative in January 2010. These reforms covered public expenditure management, particularly on procurement reforms; the legal and regulatory framework for improving forestry sector transparency and social and environmental performance; and liberalization of the telecommunications sector. Likewise, a Bank-supported platform for Public-Private Dialogue was created to help drive the reform process, which will support private sector development and investment promotion. 46. On the other hand, implementation of the investment program had some setbacks. Most challenges were related to slow institutional reforms (Health Project), slow release of counterpart funding (Agriculture Project), and long effectiveness delays (Economic Diversification Project). These setbacks curtailed the progress anticipated for these activities. Similarly, less progress was achieved in public investment management, improving the business climate and health, and strengthening oil governance and transparency. 47. A series of measures to accelerate project implementation has been undertaken. For instance, (a) the health and agriculture projects have been restructured to simplify implementation, adapt scope, and sharpen focus on easily measurable outcomes; (b) budget monitoring has been intensified to ensure that the Government‘s counterpart funding is included in the annual budget and that funds are released in a timely manner, including examining the possibility of transferring the full year‘s 15 contribution to the project accounts instead of making quarterly releases; (c) bi-monthly meetings are held with Project Coordinators to quickly address implementation issues as they arise; and (d) project performance reviews are held annually to address generic issues. Almost all the Task Team Leaders are field-based, in either Brazzaville or Kinshasa, to facilitate on-time support to Government project teams. The Country Manager, and the Kinshasa-based Country Director have identified improvement in implementation performance as a top priority and, to this effect, have intensified dialogue with the Government. 48. As a result of these efforts, the portfolio has registered good improvement in recent months. Congo has a strong portfolio with no unsatisfactory projects; proactivity stands at 100 percent; and the disbursement ratio of 35.6 percent as of June 30, 2012, is among the highest in the Africa Region.7 Moreover, there are no overdue audits reports. 49. Several lessons that were learned from the implementation of the FY10– FY12 CPS (including those drawn from Analytical and Advisory Activities) will be taken into account in the new CPS. On the strategic level, key lessons include (a) intensifying support for improving the quality of the Government‘s investment spending is a long-term endeavor; (b) sustaining the reform momentum, especially regarding the procurement code, the business climate, oil governance and transparency, and the human development sectors, requires a continuous engagement and real champions on the Government side and the involvement of civil society; (c) building the capacity of the public administration is critical and could be deepened and implemented at a faster pace if linked to performance-based mechanisms; and (d) knowledge is essential to support evidence-based policy reforms if they are to have transformational impacts. 50. On the operational level, lessons include (a) finding a lasting solution to the irregular and arduous release of counterpart funding, which had caused enormous implementation delays in some projects; (b) emphasizing early project restructuring to avoid prolonged stays in problem status; and (c) focusing on implementation readiness regarding new projects. See Annex 7 for more details on the evaluation of the performance of the FY10-12 CPS. 7 Against the Regional average of 16%. 16 B. PROPOSED COUNTRY PARTNERSHIP STRATEGY FOR FY13–FY16 (i) Consultations 51. Starting in March 2011, and more recently in February 2012, the Bank held extensive consultations with all stakeholders to prepare the new CPS. These consultations included academics, civil society organizations, parliamentarians, the private sector, development partners, and Government officials. The goal was to solicit their views on the key challenges facing the country and to identify areas in which the Bank‘s contribution could have greater impact. The consultations, which were well attended and characterized by candid discussions, covered a range of issues and suggestions (Annex 8). 52. Participants affirmed the need for a sustained focus on economic diversification, greater transparency, and accountability. They: (a) emphasized the role of the private sector in generating employment; (b) called for concerted efforts to promote a better investment climate; (c) stressed the need for suitable skills on the local market and for addressing the managerial capacity weaknesses of private operators; (d) underscored the importance of timely and credible statistics to inform public debate and scrutiny; and (e) underlined the need for supporting civil society in their fight against corruption. Participants appreciated the usefulness of this dialogue with the Bank and called for more frequent interactions. (ii) Objective of the New CPS and Its Major Themes 53. The overall strategy of the Bank in Congo will be to support the Congolese Government to diversify its economy away from oil domination, focusing on private- sector-led growth and employment generation. Equally, the strategy also aims at assisting the country achieve better outcomes in basic public services, especially in health and education. The strategy will set the stage for a firm, rapid and sustainable growth trajectory that, ultimately, should propel Congo from low middle-income country to medium middle-income status. Achieving this breakthrough will require a competitive economy that is driven more and more by a manufacturing sector that takes full advantage of the larger regional market. The vision is of an economy whose benefits are widely shared and whose opportunities are available to the majority of the population. 54. The Bank will support the Government to better target its public investment program while increasing its efficiency in a context of improved governance. This will entail supporting the Government in (a) improving investment programming and management; (b) strengthening the investment climate to accelerate domestic investments and attract foreign direct investment (FDI); (c) promoting regional integration to exploit the vast regional market opportunities; (d) supporting selected sectors with high potential for growth and poverty reduction; (e) strengthening human development; and (f) strengthening governance and Government capacity. 17 (iii) Main Themes of the CPS 55. This support will be organized around the two pillars and the foundation of the new World Bank Strategy for Africa. These two pillars are competitiveness and employment, vulnerability and resilience. Good governance and capacity building is the foundation. Although framed slightly differently, the Government PRSP deals with virtually the same themes. A) Pillar 1: Competitiveness and Employment 56. Under this pillar, the Bank will provide support toward (a) improving the investment climate; (b) facilitating regional integration; and (c) promoting agriculture. 57. Improving the Investment Climate. The Bank will continue its ongoing support, which is aimed at both promoting the local private sector and creating the conditions to attract FDI. Specifically, the Bank, under the ongoing Support to Economic Diversification Project, which has been prepared and is being implemented jointly with IFC (see Annex 2), is assisting Government in: (a) carrying out critical doing-business reforms; (b) promoting Public-Private dialogue; (c) putting in place the needed legal and regulatory framework for Special Economic Zones, and carrying out investment promotion activities, with particular focus on the Pointe Noire SEZ; and (d) strengthening SME managerial capacity. A Diagnostic Trade Integration Study (DTIS) is ongoing to underpin the Bank‘s support for improved cross-border trade. A financial sector study also will be prepared to identify credit access issues facing SMEs in Congo and develop an action plan. Additionally, the Bank will support the development of skills that are relevant to the needs of current and potential employers. This support is meant to respond to the growing demand by the private sector for suitable skills and to improve the employability of the active population in certain specific sectors with high potential (oil, mining, forestry). 58. Promoting regional integration. The Bank will continue to support Congo in preparing itself to take full advantage of the regional market. In this regard, the Bank will continue to encourage the Congolese Government to invest in regional activities through targeted infrastructure, improved logistics, and dismantling of non-tariff trade barriers. In addition to country dialogue, the Bank will continue to support these efforts through the (a) ongoing Regional Telecommunication Project, which is aimed at creating an enabling policy and regulatory environment for growth in Information and Communications Technology (ICT), facilitating connectivity, and promoting a local ICT sector; and (b) the ongoing Global Environment Facility (GEF)-funded activity aimed at enhancing institutional capacities on REDD issues for sustainable forest management in the Congo Basin. The Bank also will continue to facilitate the discussions among the Republic of Congo, DRC, and the Central African Republic on how to develop the Congo Basin-Atlantic Growth Corridor. 59. Supporting Agriculture. The Bank will continue its support for agriculture, given its great potential for green growth and poverty reduction, especially in rural areas. The Bank‘s current support to the agricultural sector under the ongoing 18 Agricultural Development and Rural Roads Rehabilitation Project entails (a) strengthening the capacity of the Ministry of Agriculture, Livestock and Fisheries in policy formulation, budgeting and public expenditure management, (b) rehabilitating rural roads, and constructing or rehabilitating rural market infrastructure in selected high potential areas; (c) supporting the generation and dissemination of improved production technologies and market information; and (d) strengthening the capacity of selected producer organizations. The Bank will support a follow-up operation to consolidate these gains and allow a scaling up based on the lessons learned. The current operation targets smallholders. The new operation will target both subsistence-oriented farmers who require assistance in making the transition to commercial farming, and commercial farmers and agribusiness firms that require assistance in increasing productivity and competitiveness in domestic, regional, and eventually international markets, with a target on specific, high-potential value chains and/or specific locations (growth poles approach). B) Pillar 2: Vulnerability and Resilience 60. Strengthening Health Service Delivery. In recognition of the seriousness of the country’s health situation, the Bank will strengthen its support for the sector. First, the ongoing Health Project has been restructured to focus on high-impact services, particularly on malaria, renovating and equipping some health centers, and training health workers, such as midwives in rural areas. The restructured project also will focus on supporting a pilot on results-based financing (RBF) to improve outputs and outcomes. Lessons learned from this experience will inform the design of the planned follow-up health operation. This new operation will be preceded by a Public Expenditure Tracking Survey to be carried out during the project‘s preparation to help improve the allocative and operational efficiency of the health system. 61. Deepening Reforms in the Education Sector. Ongoing Bank support is aimed at improving efficiency, quality, and equity in the provision of basic education in Congo. This support, provided under the ongoing Support to Basic Education Project, includes (a) helping the Ministry of Primary and Secondary Education in charge of Literacy in better planning, human resource management, and fiduciary and budget management; (b) strengthening the capacity of the regional departments of education to provide support to their school systems; (c) promoting equity by providing free textbooks and supporting infrastructure expansion efforts in underserved areas; (d) improving the quality of education by training teachers, schools directors, and inspectors, improving curricula, and introducing standardized tests; and (e) providing support to out-of-school youth and excluded populations––such as indigenous peoples. The Bank envisages a follow-up operation to sustain the reform momentum in this critical sector and consolidate the gains already achieved. 62. Strengthening Social Protection. The Bank envisages providing advisory assistance to the Ministry of Social Affairs with implementing its newly developed social policy strategy, in close cooperation with partners already working in this sector. The goal is to support the Government in laying the foundation to strengthen its social protection system as well as to devise effective targeting mechanisms to cater to each of the identified priority vulnerable groups. In particular, opportunities for South- 19 South learning within the continent will be facilitated to enable Congo to learn from other countries‘ experiences and strengthen its capacity to design, implement, and monitor social protection programs to enhance their efficiency and effectiveness. C) Foundation: Strengthening Government Capacity and Governance Strengthening Public Sector Management 63. Strengthening Public Finance and Human Resource Management. Support will be provided to strengthen Government institutions to better manage public finances and human resources. Support, under the ongoing Transparency and Governance Capacity Building Project, will be provided for, among other things, (a) budget management by completing the computerization of the financial management information system, and facilitating progressive decentralization of public expenditure management; (b) updating macroeconomic data for all sectors to prepare a suitable medium-term expenditure framework (MTEF); (c) rolling out application of the new procurement code; (d) completing the integration of the payroll with the human resource management system; and (e) extending the results-based management approach to other ministries.8 64. Improving Investment Programming and Management. The Bank will continue its ongoing assistance to the Government in two ways: (a) improving the efficiency of its investment programs through much more targeted selection and better programming and management; and (b) improving the operational performance of the energy and water utilities, and of the railway company, given their critical importance for economic diversification and non-oil growth. 65. Strengthening Government Statistics. Support also will be provided for production and dissemination of reliable and timely data. This assistance, to be provided under the planned Statistical Development Project, includes strengthening the Government‘s capacity to generate and use statistics, particularly gender informed data for analysis, policy, as well as monitoring and evaluation; improve coordination and develop sector statistical development strategies. Quality and timely data is important for: (a) enabling the Government to better target its interventions (for instance, addressing pockets of poverty and gender inequalities) and make informed policy and investment decisions; (b) measuring the impact of its programs, and more generally, adopt a results- based culture; (c) nurturing public debates on matters of national or local interest; and (d) ensuring transparency and accountability. Promoting Demand for Good Governance 66. Strengthening Public Accountability Structures. The Bank will continue to support the Independent Governance Observatory and the Anti-Corruption Commission. This support, to be provided under the ongoing Transparency and Governance Capacity Building Project, will enhance their capacity to monitor 8 This was successfully piloted in the Ministry of Civil Service and will be extended to another set of ministries: Planning, Finance, Health, Transport, Energy, Trade, and Small and Medium Enterprises. 20 governance and anticorruption measures, especially regarding budget execution and procurement of public contracts. The Bank also will promote synergies with transparency initiatives supported by other development partners, such as the Independent Observatory for the Forestry Sector, supported by the European Union. In addition, technical assistance is envisaged for public accountability structures, such as the Economic and Finance Commission of Parliament, the Supreme Audit Authority, and the State Inspector General, to enhance their capacity to monitor and evaluate implementation of key public reforms and programs. 67. Engaging Parliament and Civil Society. Bank support will aim at reinforcing capacity of Parliament, selected CSOs, and the media, to exercise greater public scrutiny. This support, to be provided under the Transparency and Governance Capacity Building Project, will allow them to, among other things, (a) monitor governance reforms and public finances––including procurement; (b) gather feedback on quality of public services; (c) articulate local economic and social development needs and priorities in the development of national budgets and monitor budget execution; and (d) collaborate with the existing anticorruption structures to establish an effective coalition to pursue transparency, accountability, and integrity in public administration. Efforts that have been initiated to involve civil society in monitoring projects financed by the Bank with government‘s counterpart funding, will be extended and systematized. 68. Stimulating Open Debates on Development Issues. The Bank will leverage its capacity to produce major knowledge products and its convening power to stimulate in-country debates on challenges and opportunities facing the country, and to promote coalitions for change. In this regard, the Bank will continue to produce its bi- monthly information bulletin, Tosolola (―Let‘s Discuss‖). The Bank also will launch the Congo Development Dialogue Series intended to be a platform for exchanging knowledge and discussing results by bringing together World Bank staff, national policymakers, academics, the media, and other stakeholders. Improving Sector-Level Governance 69. The Bank will provide more focused support for improved governance in selected sectors. The principal focus for this sectoral effort will be the human development (health and education) and forestry sectors. Some support also will be provided to the mining and oil and gas sectors. 70. Human Development Sectors (Health and Education). The Bank is supporting a Public Expenditure Review (PER) of the health and education sectors. This review will assess: (a) the alignment of budget allocations to sectoral priorities; (b) spending efficiency; (c) equity, especially with respect to gender, geographic location, and inclusion (such as for indigenous peoples); and (d) institutional aspects of service delivery. The results of this analysis will complement the outcomes of the other ongoing analyses, such as the Demographic and Health Survey (DHS), in guiding policy and planned operations in the health and education sectors. 21 71. Forestry. The Bank is supporting reforms in the forestry sector. Specifically, Bank support, to be provided under the ongoing Forest and Economic Diversification Project, is aimed at: (a) institutional strengthening of the Ministry of Sustainable Development, Forest Economy and Environment; (b) improving the enabling environment for private sector and smallholder activities in the forestry sector; and (c) enhancing the participation of local communities in forest management. 72. Mining. The Bank will provide some advisory assistance to the Government on how to manage this nascent industry. The Bank has completed a major study of the Congolese mining sector, which has enormous potential but is a sector in which Congo does not have much experience or many skills. The Bank will provide advice to the Government in its efforts to: (a) enlarge the knowledge base about the country‘s mineral potential; (b) strengthen the legal and regulatory framework and its capacity to manage the growing mining sector; and (c) tighten the environmental and social safeguards associated with mining. 73. Oil and Gas. The Bank will advise the Government on implementing key reforms to improve transparency and efficiency of revenue collection and management. These reforms relate to an appropriate fiscal regime for petroleum activities, accounting rules and intercompany transfers, the licensing of petroleum exploration and production rights, the management of oil revenue, and the preparation of a fiscal responsibility law (the last being among the reforms financed by the recently signed Grant Agreement funded under the Multi-donor Trust Fund for the Extractive Industries Transparency Initiative (EITI). The Bank will continue to encourage timely publication of SNPC audits. (iv) Principles of Bank Engagement 74. The Bank will pursue the following basic principles of engagement with Congo over the FY13–16 period: (a) Playing a Catalytic Role. The Bank recognizes its limited allocation in comparison to the Government‘s large revenues. Consequently, the Bank‘s role in the country will mostly relate to helping the country use its significant oil revenues for economic transformation and poverty alleviation. Bank-financed projects and programs will be designed to maximize synergy, clearly demonstrate best practices in the country setting, and encourage knowledge transfer. More broadly, the Bank will endeavor to promote a culture of results within government programs and policies. Finally, the Bank will accentuate the global knowledge dimension of its support (b) Acting Flexibly. In keeping with a dynamic relationship, the Bank will seek to maximize flexibility in its relationship with Congo. Thus, the Bank will stand ready to support the Government in new ways as the need arises during the CPS‘ implementation. In addition, the Bank will endeavor to discern early any project implementation difficulties and act boldly and swiftly to undertake 22 corrective actions, including early project restructuring to avoid prolonged stays of projects in problem status. (c) Use of Country structures. All new activities supported by the World Bank in Congo will be implemented through government structures, that is, there will be no stand-alone project implementation units. Similarly, the Government will continue, consistent with the World Bank‘s Procurement and Consultant Guidelines, to use the national procurement institutions and the national procurement code for those contracts that are not advertised internationally. Use of these procurement arrangements under Bank-funded projects would, however, be contingent upon receipt of acceptable audits of ongoing procurement under this code and will continue to be subject to adaptations, to ensure that the procedures and bidding documents are consistent with the World Bank‘s Procurement and Consultant Guidelines. In addition, the Bank is assessing the public financial management system to provide a solid basis for increased use of financial management country systems in investment projects, in the future. By focusing on the use of country structures and institutions, the Bank expects to help improve the efficiency of the bulk of government expenditures, increase country ownership and facilitate harmonization. Ultimately, using this approach would lead to improvements of the country‘s institutional capacity and facilitate the reduction of the country‘s transaction costs related to program funding. An appropriate level of technical assistance and support will be provided, especially for budgeting, accounting, asset management, and internal and external audits. All these interventions will be closely coordinated with other reforms in areas that are relevant to the public sector, such as the judiciary and civil service transformation. (d) Using the “Program for Results‖ (PforR) Instrument. In view of the current weak governance and public financial management context, the use of the PforR instrument is not deemed suitable in the short run, until significant progress is made in both areas. The Bank will continue to work with the Government to improve the quality of existing systems in order to prepare the country for eventually taking advantage of this new instrument. (e) Promoting South-South Cooperation. The Bank has already facilitated South- South cooperation in different sectors, such as energy and water. This cooperation will be extended to other areas, especially those related to employment generation and social safety nets. (f) Mainstreaming Gender. To close the gender gap, the Bank will put a particular focus on gender in its policy advice, in all Bank-supported activities, and its overall dialogue with the country. All lending or ESW/TA activity proposed in this CPS will systematically consider and address gender inequalities in the underlying analysis, in the actions proposed, and/or in the monitoring and evaluation arrangements. Gender will be not only a cross-cutting theme but also a specific area of analysis, covering such topics as access to opportunities, vulnerability (such as an HIV/AIDS rate twice as high for women as men), and 23 poverty. The information generated will help the Government in developing suitably adapted policies and in implementing its National Gender Action Plan. (v) CPS Funding Lending Activities 75. The World Bank will support the new strategy mainly through its existing portfolio. At the end of FY12, there are seven ―national‖ projects to which the Bank is contributing, for a total US$170 million in commitments, of which 58 percent has been disbursed (Annex 5) as of May 31, 2012. There also are two ongoing regional projects with some, or all, of their activities within Congo, one of which is GEF-funded. Five new or follow-up lending activities will be funded over the next 4 years (Tables 1 and 2). 76. The first two years of the CPS period fall under IDA16, namely FY13 and FY14. From the IDA16 envelope9 of about SDR 27.5 million (approximately US$41.2 million) allocated to the Republic of Congo, US$15 million have already been committed to the governance (US$5 million) and Forestry projects (US$10 million), which have been approved in FY12. Approximately, US$26 million remains available to support IDA assistance in FY13-14. This amount will be applied to the following new activities: (a) a Skills Development Project to respond to the strong need that has been expressed by all stakeholders in Congo and has been corroborated by the Bank‘s analytical work; (b) a Statistics Development Project to respond to a major constraint to inform policymaking and to the need for a results-oriented culture; and (c) a Health Project to address the country‘s poor health situation. Although the Bank‘s financial contribution to these programs would be limited, IDA can leverage its knowledge and expertise to assist the country and help utilize the substantial Government counterpart funding (which is still under discussion) to deliver results more effectively. Indeed, the approach used for these projects is to catalyze more efficient use of the government‘s important resources. 9 The IDA16 resource envelope is provided for the 3-year replenishment cycle of FY12-14. As of July 1, 2012, the FY12-13 allocations are firm while the FY14 allocation is indicative and can change depending on: (i) total IDA resources available in FY14; (ii) the country‘s performance rating; (iii) the terms of IDA's assistance to the country (grants or credits) based on its debt sustainability position; (iv) MDRI debt relief amount and the redistribution of the MDRI compensatory resources as applicable; (v) the performance and assistance terms of other IDA borrowers; and (vi) the number of IDA-eligible countries. Also, IDA envelope is provided in SDR terms, and the US dollar equivalent amounts are converted using the IDA16 replenishment rate of 1 SDR=US$1.50233; however, the exchange rate for each IDA operation depends on the applicable prevailing rate at the time of project approval. 24 Table 1. Proposed New Lending Activities for FY13–FY16 (US$ mil.) IDA16 Est. Govt. fin.* FY Project IDA-16 tentative numbers Total FY13 Skills Development Project 10 22 32 FY14 Statistics Project 6 30 36 FY14 Health Project 10 100 110 Total 26 152 178 Outer Years FY15 Education -- FY16 Agriculture -- Note: * = These amounts are still under discussion with Government. 77. The Bank’s contribution to the programs for FY15 and FY16 will be determined at the strategy’s mid-term review, when country allocations will be known. The strategy proposes an Education Project to consolidate gains in this important sector, and an Agriculture Project, given the importance of this sector in poverty alleviation and economic diversification. 78. The Bank’s contribution to the post-explosion rehabilitation in Brazzaville will be “funding-neutral.” The Bank has been requested by the Government to assist in the rehabilitation of the infrastructure caused by the March 4, 2012 explosion in Brazzaville. Savings from the recently closed HIV/AIDS project will be applied to the Urban-Water-Electricity project to carry out activities that are consistent with the objectives of the receiving project, which already operates in Brazzaville. 25 Table 2. Activities under the Lending Program, Categorized as Ongoing or New Ongoing New I. COMPETITIVENESS AND EMPLOYMENT A. Improving the Investment Climate 1. Carrying out Doing Business reforms, promoting stakeholder dialogue, x promoting Special Economic Zones, strengthening SME managerial capacity (Support to Economic Diversification Project) 2. Promoting labor skills development (Skills Development Project) x B. Supporting Regional Integration 1. Telecommunications (Central African Backbone Project) x 2. REDD Preparedness (Enhancing institutional capacities on REDD x Project) C. Promoting Key Primary Sectors Agriculture (Agriculture Development and Rural Roads Rehabilitation x x Project) II. VULNERABILITY AND RESILIENCE A. Education Sector (ongoing Support to Basic Education Project and new x x Education Project) B. Health Sector (ongoing Health Sector Services Development Project and new x x Health Project) GOVERNMENT CAPACITY AND GOVERNANCE* 1. Public Financial Management, Human Resource Management, Public x Investment Management, Demand for Good Governance, Sector-Level Governance (Transparency and Governance Capacity Building Project II) 2. Forestry (Forestry and Economic Diversification Project) x 3. Statistics (Statistics Project) x Note: * = Advisory support to mining and the oil sector are not included in this list, which pertains to investment lending activities only. Analytical and Advisory Activities 79. Analytical activities. The strategy proposes a limited set of analytical activities to underpin the Bank’s policy advice to Government and lending program. The FY10–FY12 CPS supported four seminal analytical pieces that were critical in either informing government policy or Bank-funded activities. These are: (a) a spatial infrastructure development analysis that greatly enriched the discourse on transport corridor development by providing empirical data on the economic gains from various infrastructure development alternatives; (b) an economy-wide PER that sharpened the focus on the need for greater efficiency in the Government‘s public investment program; the results of this analysis informed the preparation of the Governance and Capacity Building Project that is supporting the Government in improving the efficiency of public investments; (c) a growth and employment study, which culminated in the Skills Development Project, which is under preparation for support by the Bank in FY13; and (d) a mining sector review that will serve as the basis for the Bank‘s technical assistance to the Government, regarding this nascent industry. 26 Table 3. Analytical and Advisory Activities Estimated Cost A. Analytical Activities (US$) FY13 Trade Policy and Facilitation (DTIS) 50,000 FY13 Social Sector Policy Operationalization 100,000 FY13–FY16 Series of Short Policy Notes (combined est. over 4 years) 100,000 FY14 HD Public Expenditure Review (over 2years, FY13 and FY14) 200,000 FY13 Gender Study 50,000 FY14 Financial Sector Study 60,000 FY16 TBD 90,000 Total 650,000 B. Advisory Activities FY13–FY14 Mining Sector Management (for 2 years) 150,000 FY13–FY14 Oil Sector Management (for 2 years) 100,000 FY14 Social Protection Policy Implementation Support 100,000 FY15 TBD 100,000 FY16 TBD 100,000 Total 550,000 80. However, knowledge gaps remain, especially in: (a) understanding the key constraints to regional trade and proposing ways to eliminate them; this knowledge is crucial in our dialogue with Congo to help the country tap into the immense regional market; this knowledge is also needed in the implementation of the ongoing Economic Diversification Project which is promoting private sector development, including creating a conducive business climate, of which easing cross border trade is a critical element; (b) ascertaining effective ways of supporting the Government in operationalizing its fledgling, but otherwise badly needed, social protection framework; this is related to the CPS objective of promoting the delivery of basic social services, especially to the poor; (c) determining ways of enhancing private sector access to credit to boost non-oil growth, as a complement to the ongoing Bank-financed activities, which is in line with the economic diversification objective of the CPS; (d) establishing ways of improving resource use efficiency in the human development sectors, whose improved performance is a major CPS objective; and (e) coming up with practical and effective ways, not only, of informing Government‘s gender policies and programs, but also, of informing Bank teams and their Congolese counterparts on how to more adequately integrate gender activities in Bank-funded projects, which is also a principal IDA-16 objective. To that effect, the Gender Assessment envisaged in FY13 will provide the country gender profile and recommend a set of prioritized policy reforms or operational interventions. Following the study, a review of the country portfolio including ongoing and planned activities will be carried out to ensure that increased attention is given to the key gender issues and gaps identified. The FY13–FY16 CPS will support these analytical activities (which are summarized in Table 3) as well as several policy notes on various topical issues such as political economy analysis surrounding governance issues, fragility, etc. Additional areas of analytical support will be determined at the strategy‘s mid-term review. These activities will be financed through a combination of the Bank‘s administrative budget and trust funds, when available. 27 81. Advisory Activities. The strategy also proposes a limited advisory program, especially on natural resource management and social protection. The proposed activities include providing advice on (a) the mining sector to assist the Government in managing a rapidly growing new sector, a potential source of economic diversification (b) the oil sector to improve its management, which is the principal source of government revenue and without which little public investment will take place; (c) and social protection to enhance government programs in this sector and address poverty reduction issues, especially for the most vulnerable members of Congolese society. (vi) Monitoring CPS Implementation and Outcomes 82. Monitoring Implementation Progress. There will be a very strong focus on monitoring implementation progress. As indicated earlier, the field-based staff and Country Management Unit are monitoring very closely the portfolio of activities and will maintain heightened attention to the quality of the dialogue with the authorities. This monitoring includes bi-monthly meetings with Project Coordinators and annual portfolio performance reviews for early detection of implementation challenges; a strong focus on implementation readiness for new projects; and timely restructuring for projects encountering implementation difficulties. A mid-term review is planned for early in FY15 to assess progress, determine corrective actions, and define the activities for the remaining period. 83. Evaluating Strategy Outcomes. Congo’s statistical system does not allow for timely and reliable statistics on Government policy and program outcomes. The proposed project to support the statistical system, while not a panacea, will go a long way in laying a foundation for a functional statistical system. Indeed, evaluating the outcomes of this strategy will largely depend on the monitoring arrangements in the projects supported under this strategy. These projects have defined monitoring and evaluation (M&E) arrangements and have set aside funding for them. The strategy‘s performance indicators are presented in Annex 1. In addition, the team will work closely with the Development Impact Evaluation (DIME) initiative to assess the impact of the health, education, and water programs. (vii) Congo’s Transition to Middle-Income Country Status 84. Congo’s elevated level of budget resources, its current GNI per capita, and the low IDA allocation for Congo create opportunities for exploring other financing arrangements for the country. These opportunities include examining possibilities of cost-sharing as well as preparing for the transition from IDA to the International Bank for Reconstruction and Development (IBRD). (a) Exploring the use of fee-based services. Up to now, the Bank‘s analytical and advisory (AAA) support to Congo has been funded largely from the Bank‘s own administrative resources. However, due to the Bank‘s limited administrative budget, and in view of the country‘s growing level of resources, the Government has shown openness to the notion of fee-based Bank advice in certain situations. These discussions are ongoing and will be intensified during the course of 28 implementing this partnership strategy. The relevant experience accumulated in Africa and elsewhere will be drawn from. (b) Transition from IDA to IBRD. With a GNI per capita of US$2,310, Congo is rated as a low middle-income country and has had this status for the last four years. Given the expectation that this income level will likely be maintained or increased in the future, Congo will move progressively toward graduating from IDA. The Government has expressed interest in tapping into IBRD resources. The transition to IBRD, however, is a long process and will require the country to meet clear eligibility criteria (including debt sustainability) to ensure that it is creditworthy. In this regard, IBRD will undertake an assessment mission early on in the period of this CPS. In the event that Congo becomes eligible for IBRD resources, the CPS program will be adjusted at mid-term review to take into consideration this opportunity. C. PARTNERSHIPS 85. Generally, external financial support to Congo is small. The Government itself finances most public spending. Apart from the World Bank, Congo‘s main international partners include the European Union (EU), the French Development Agency (AFD), the African Development Bank (AfDB), India, Singapore and China. The United Nations, the Central Africa Regional Development Bank (BDEAC), and the Arab Bank for Economic Development in Africa (BADEA) also are active and have initiated programs in Congo. The Bank works very closely with the AfDB, AFD, EU, and UN in promoting economic diversification, as well as in the health and education sectors (see Annex 12). 86. IFC has become increasingly more active in the development of Congo’s private sector, and in doing so, is closely collaborating with the Bank (see Annex 2). IFC investment services as well as its advisory services are in increasing demand in Congo. IFC is working on prospective investments with companies in the agribusiness, mining, forestry, infrastructure and financial sectors. Advisory services currently deployed include Business Edge in the agribusiness sector. IFC is also exploring ways to facilitate SMEs access to finance in partnership with local banks that have the liquidity and are willing to extend financing to SMEs. IFC is collaborating with the Bank through an existing bank-financed operation, the Support to Economic Diversification Project (SEDP), which is designed to drive non-oil private sector investment by improving the business climate. The project aims also at building both the public and private sector capabilities, to absorb and realize these job creating investments. 87. The Multilateral Investment Guarantee Agency (MIGA) has a limited exposure in Congo. On June 30, 2011, the first MIGA-supported project in Republic of Congo was signed with a private company. The project objective is to contribute to trade facilitation, to the development of the private sector, by speeding up the customs clearance of goods and to secure government revenues through the elimination of opportunities for fraud and fiscal evasion. This project complements the Bank and IFC programs to support the economic diversification agenda. Congo has been a MIGA 29 member since 1991 and contributed to the General Capital Increase in March 2003. During the course of implementing the CPS, the Bank will work closely with MIGA to explore opportunities for the agency‘s further involvement in Congo. 88. The Bank will enhance its collaboration with China in Congo. China has strengthened its partnership with Congo in recent years, especially in infrastructure and energy. The Bank will endeavor to collaborate with China, especially in promoting the development of transport corridors. V. MANAGING RISKS 89. A new global economic crisis could affect Congo (Low). The impact of the 2008–09 global financial crisis on Congo was mild and short-lived. However, oil prices and forestry activities rebounded sooner than expected. Given the weak trade channels and low integration of Congo‘s economy into the rest of the world, the risk of contagion in the event of a new global crisis is low. In addition, Congo has built up considerable reserves to fall back on to in case of a deep and prolonged crisis. According to IMF analysis, the price of oil would have to fall well below $50 per barrel on average, and remain there for at least two years (that is, a massive and persistent oil shock) for Congo to be deeply affected. A massive oil shock is assumed not very likely. Nevertheless, the Congolese economy‘s overdependence on extractive industries keeps it exposed to fluctuations in international commodity prices over the long term. Thus, the Bank will continue to support the country‘s diversification agenda. In addition, the Bank, together with the Government, will continue to monitor very closely for signs of any global contagion. 90. Disaffection over jobs and the political dispensation could cause political instability (Medium). While Congo has come a long way in consolidating peace and rebuilding public institutions, the situation is still fragile. Nevertheless, the high rate of youth unemployment in a country without effective social protection mechanisms and perceived inequality could trigger disaffection and possibly unrest. 91. The ongoing attention to the reconstruction efforts following March 4, 2012 could exert macroeconomic pressures, while detracting from other urgent policy and program imperatives and could open avenues for misuse of public funds and poor governance (High). In addition to the many deaths, the March 4, 2012 ammunitions explosion caused extensive property damage in Brazzaville. The Government has launched a major reconstruction effort. As a result, public investment, which represented 16 percent of GDP in 2011, is projected to rise to 25 percent in 2012. One unfortunate outcome of these efforts could be upward pressure on prices, especially on construction-related materials and services. Moreover, the urgency of the situation could undermine efforts to promote resource use efficiency since regular procurement procedures and oversight might not be adhered to. In addition, the Government‘s attention to handling the aftermath of this event might slow progress on other policy fronts. The Bank and the Fund will continue monitoring the macroeconomic situation with a view to advising the Government as needed. 30 92. Irregular/inadequate counterpart funding will continue to cause major implementation delays (High). However, the Government‘s irregular release of its contributions has disrupted the smooth implementation of project activities. Project coordinators and task teams have been sensitized to understand how the budget process works and to monitor the funding cycle very closely. The bi-monthly meetings with Project coordinators will provide the opportunity to know where any delays are occurring for a given project and take up the matter immediately with the authorities. 93. Inadequate project preparation and slow parliamentary approval could slow projects’ start-up (Medium). In the past, projects have experienced delays in effectiveness and disbursements. Delays are associated largely with: (a) the need for time to complete key project documentation, procurement, and staffing; and (b) very slow parliamentary ratification processes. The first risk will be mitigated through thorough project preparation and implementation readiness. The second risk will be mitigated by frequently briefing parliamentarians during project preparation, and coordinating better Bank‘s processing schedules with those of the Parliament. 94. The reform process could slow down or be derailed due to political economy factors and weak leverage (High). The pace of reforms in sectors such as energy, transportation (CFCO), and oil management could be much slower than anticipated because of vested interests. The Bank will intensify dialogue on these reforms. In addition, sector-specific political economy analysis will be conducted to understand the various forces and possible entry points for sustaining reforms. Finally, the private sector will be particularly enlisted in the dialogue on reforms in sectors critical to them, such as energy and transportation. 95. Although some progress has been made in improving public financial management, World-Bank-funded projects still face some fiduciary risks (Medium). An April 2012 fiduciary assessment mission identified some internal controls as well as accounting issues in some projects. These issues related to (a) lack of supporting documents for missions and workshops, (b) absence of non objection by the Bank to some transactions, and (c) delays in bookkeeping and improper filing. Efforts will be stepped up to address these issues, including ensuring full implementation of the internal and external auditors‘ recommendations, and strict adherence to fiduciary procedures and processes. 31 Annex 1. Results Framework for the Congo CPS (FY13–FY16) Country Issues and Obstacles CPS Outcomes and Indicators (FY13-FY16) Milestones Bank Program and Development Unless otherwise stated, the baseline is end-2011 Partners Goals data; the target is end-2015. I. WBG Pillar: Competitiveness and Employment Outcome 1.1: Improved Investment Programming and Infrastructure Management 1) Administrative 1) (a) Low efficiency (i) Better Project Selection. At least 50% of - Fonds d’études is fully operational Transparency and governance, in the management Government projects, each in excess of FCFA and the capacity of Government Governance Capacity infrastructure of Government‘s 250 million, have a feasibility study prior to staff responsible for project Building Project II development public investment incorporation into the budget appraisal is reinforced program - Training program for staff Other Partners: involved in public procurement French Cooperation process is in place and implemented. (ii) Better Budget Planning. The - Strategies for key sectors are Transparency and global/government-wide MTEF is fully updated Governance Capacity operational - Macroeconomic data for all building Project II sectors are updated in order to prepare a suitable medium term Other Partners: expenditure framework starting with - European Union 2013 budget - French Cooperation (b) Poor (i) Improved Operational and Financial Action Plan for the reform of the Water, Electricity and performance of key Performance of Energy Utility. Revenue power utility (Société Nationale Urban Development economic collected per kilowatt hour delivered to the d’Electricité) is completed and Project Infrastructure Brazzaville distribution network increases by approved by the Government (Energy, Water, 10% from 2012 levels Railway) (ii) Improved Operational and Financial Performance of Water Utility: - Connections with operating water meter in New water legal and regulatory Water, Electricity and Brazzaville up from 4% to 30%; and in framework fully defined and Urban Development Pointe Noire from 37% to 53% enforced Project 32 - Collection ratio (cash income per billed Water service contract in place Water, Electricity and revenue) increases from 47% to 70% Urban Development Project (iii) Increase in Railway Traffic. CFCO traffic CFCO 5 year business plan Support to Economic increases from 0.8 million tons to 1.0 million approved by Management Diversification Project tons Other Partners: AFD Outcome 1.2: Improved Business Climate 2) Growth and 2) Weak Business Diversification Climate characterized by: (i) Bureaucratic (i) Faster Business Registration. Number of The one-stop window is effective ) Support to Economic delays in procedures to start a business reduced from with an information technology Diversification Project business 10 to 5 system designed and implemented registration to interconnect the five (5) Other Partners: nationwide CFE agencies among AfDB (PACADEC themselves and with all contributing Project) government agencies to streamline European Union the business registration process (PRCCE Project) (ii) Long export (ii) Reduced time to export goods. The time to The import and export one stop Support to Economic delays export goods reduced from 50 to 20 days shop is operational Diversification Project Other Partners: European Union (PRCCE Project) BDEAC AFD (iii) Long import (iii) Reduced time to import goods. The time to The import and export one stop Support to Economic delays import goods reduced from 62 days to 30 shop is operational Diversification Project days Other Partners: European Union 33 (PRCCE Project) BDEAC AFD (iv) Complex and (iv) Streamlined Tax System. The number of tax Streamlined tax framework adopted Support to Economic unevenly payments reduced from 61 to below the Sub- Diversification Project applied tax Saharan average of 30 system Other Partners: AfDB (PACADEC Project) European Union (PRCCE Project) (v) Institutional (v) Supported MSEs. Support the development A ―train the trainer‖ program is set Support to Economic weakness in of national database of nonfinancial services up to help build the capabilities and Diversification Project supporting providers accessible by SMEs nationwide help professionalize 120-150 of SMEs through the CFE and ultimately the MEC. these non financial services Other Partners: providers. AfDB (PACADEC Project) European Union (PRCCE Project) (vi) Investment is (vi) Attracted investment in others potential 2–4 investment promotion activities Support to Economic mostly oriented sectors. Increased investments in a year organized for the next 3 years Diversification Project in the oil sector agribusiness, transit related services, wood to educate and attract potential transformation and mining investors in key priority value Other Partners: chains. 12-15 anchor investors AfDB (PACADEC (from project inception to Project) realization) in the agribusiness value European Union chains including palm oil, (PRCCE Project) horticulture, corn and cassava supported. (vii) Deficit of non (vii) Broadened the types of support to private 250-300 SMEs supported with Support to Economic financial enterprises. Improved SME access to non- capacity building programs to Diversification Project services to financial services improve managerial capabilities and support SME productivity in the agribusiness, Other Partners: development transit, and wood transformation AfDB (PACADEC and growth sectors. The development of Project) domestic non financial services European Union supported with training programs (PRCCE Project) 34 for 120-150 services providers with the development of a national database . 3) Infrastructure 3) Weak Regional Outcome 1.3: Improved Regional Development, Integration Telecommunications Growth and Diversification (i) Higher volume of international telecomm Regional and international optical Central African traffic (international internet bandwidth). fiber connections installed Backbone project - Bits per second increase from 75 to 200 APL3 4) Growth and 4) Weak performance Outcome 1.4: Improved agricultural Diversification in key primary production sectors: Poor market linkages (i) Improved market access. Transportation time -1000 km of priority roads Agriculture in zones with high in areas with rehabilitated rural roads reduced rehabilitated Development and Rural agricultural potential by at least 30% - Market access improved in areas Roads Rehabilitation with built market infrastructure (18 Project markets with the ongoing project) Agriculture Limited access to (ii) Increase Food Production. Increase food 30% of farmers in targeted zones Development and Rural agricultural production in targeted zones by 20% adopt improved technologies Roads Rehabilitation technologies (mainly (seeds). Project improved seeds and seedlings) to develop Other Partners: the high agricultural IFAD (PRODERs) zones to improve food AFD (under preparation) security and revenues for rural populations II. WGB Pillar: Vulnerability and Resilience Social 1) High child and Outcome 2.1: Better Health Outcomes Development and maternal mortality Inclusion due to: Malaria (i) Better protection against malaria. %age of Insecticide and treated nets Health Sector Services children under five years of age sleeping distribution to households Development Project, - under an insecticide-treated net the previous Transparency and --- 35 night increases from 67% in 2011 to 80% in Governance Capacity 2015 Building Project II Other Partners: UN agencies, French Development Agency, European Union Low immunization (ii) Higher immunization rates.% of children Capacity building for immunization Health Sector Services fully immunized for Penta3 (DTP, Hep. B, carried out, and the vaccine Development Project, and Hemovirus) increases from 65% to 75% distribution system operational and Transparency and approved. Governance Capacity Building Project II Other Partners: UN agencies, French Development Agency, European Union Unsafe motherhood (iii) Higher professionally aided delivery.%age Equipment of Health centers and Health Sector Services births attended by skilled health personnel retraining staff are completed. Development Project, increases from 93.6% in 2011 to 97% by Transparency and 2015 Governance Capacity Building Project II Other Partners: UN Agencies, French Development Agency, European Union 2) Need to sustain Outcome 2.2: Better Education Outcomes gains in primary education while improving quality (i) Maintain or increase high primary -Action plans to improve school Support to Basic completion Rates. Increase primary access and retention for children Education Project (on- completion from 83% in 2010/2011 school living in under-served and going and its successor year to 90% by 2015/16 disadvantaged areas are developed in FY16); (2013) and implemented. Annual Transparency and reviews are completed. Governance Capacity -Learning assessment is organized Building Project II 36 periodically and actions developed to address observed shortcomings Other Partners: (as of 2013) UN Agencies, French Development Agency (ii) Improved girl-boy ratio. Increase in girl-boy -Targeted programs for girl‘s Support to Basic ratio of primary school enrollment from education put in place in 2014 Education Project 0.97% in 2010/11 to 100% in 2015/16 -Performance-based management system introduced and gradually Other Partners: extended (as of 2014) UN agencies, French Development Agency III. WGB Pillar: Capacity Building and Governance Economic Outcome 3.1: Improved Transparency and Governance Accountability i) Improving but still (i) More Competitive Procurement. At least - Annual Training programs of Transparency and weak procurement 80% of public contracts in excess of FCFA procurement staff in the ministries Governance Capacity management 250 million are subjected to competitive are completed on time. Building Project II bidding (from the current 60%) - Production of annual procurement audit reports six (6) months after the Other Partners: end of the budget year. European Union IMF Transparency and ii) Weak budget (ii) Better budget management. Deviation Automatic budget execution system Governance Capacity control resulting in between actual and budgeted expenditure by with habilitation to reject all Building Project II overruns targeted ministries reduced from 40% to less overruns in place and functioning. than 10% Staff trained in the use of this Other Partners: system. IMF iii) Inadequate (iii) Greater government transparency. Annual Annual Training program developed Transparency and information to report of the Supreme Audit Authority and and implemented. Governance Capacity allow civil society the State General Inspectorate are publicly Building Project II to effectively available engage in fighting corruption iv) Inadequacies in the (iv) Improvement in petroleum revenue - Attain EITI Validation Transparency and management and transparency and governance of sector - Timely publication of SNPC audit Governance Capacity transparency of the institutions. Attain EITI compliance and reports Building Project II petroleum sector remain compliant - Timely publication of quarterly oil 37 revenue reports v) Limited capacity in (v) Better mining sector management. A modern - Analytical work on mining code Other sources to be managing the mining cadastre is in place. and advice on geo-data management explored: (i) trust fund nascent mining provided (e.g. Extractive sector - Legal and institutional frameworks Industries Technical strengthened Advisory Facility); (ii) - Guidelines to optimize mining fee-based service benefits and social safeguards adopted vi) Poor statistical (vi) Better statistical system management. Key - National Statistics Institute Statistics Project and quality data produced in a timely manner evaluation of capacity made in 2013 continued dialogue - Preparation of two key sectors data development strategies in 2014 vii) Poor forestry (vii) Better timber export management. - Revised forest law incorporating Forestry and Economic sector management Percentage of timber exports covered by a FLEGT regulatory framework Diversification Project. Forest Law Enforcement Governance and adopted Trade (FLEGT) legality license increased to - National timber tracking and Other Partners: 70%. legality verification systems fully European Union operational 38 Annex 2. IFC Program Summary IFC retains a multi-sector approach in Congo and its current activities are as follows: (i) Support the improvement of the country’s business environment; as Congo stands as one of the most difficult environments for businesses (ranked 181 out of 183 in the 2012 Doing Business Report), IFC is working with the Bank as part of the response of the World Bank Group to the request from the Government of the Republic of Congo (GoC) to improve the investment climate in the country, in particular in the areas measured by the Doing Business report of the World Bank Group. (ii) Provide integrated support to SMEs; IFC has held ongoing discussions with two of the leading commercial banks to help them put in place dedicated units for SME Banking. A Trade finance line of up to US$10 million has been signed in April 2012 for Credit du Congo, a subsidiary of the Moroccan Attijariwafa Bank Group (AWB), under the IFC Global Trade Finance Program (GTFP). To facilitate access to finance for MSMEs, IFC is in discussion with another commercial bank which currently serves corporate clients and aims to grow its SME Banking franchise in Congo. IFC may offer Advisory support under the Africa MSME program, in combination with an equity investment in the bank. (iii) Proactively engage in the financial, forestry & manufacturing and mining sector development to identify bankable opportunities. In the Mining sector specifically IFC is willing to complement the World Bank work aiming at (i) addressing sector governance issues; and (ii) helping with contract negotiation and capacity building. IFC efforts would be at firm level, with the prospective investees. IFC is also considering direct investments in the Forestry and Manufacturing sectors. (iv) Develop high development impact Advisory Services programs a) Implement the Health in Africa Initiative (HiA) in Congo: through this joint initiative, IFC and the World Bank aim at reaching the following objectives (i) assist the Congolese government in revising the legal and regulatory framework for the health sector and reform the current inspection regime; (ii) Promote Public Private contracting; (iii) develop financing opportunities for health businesses; and (iv) improve health policy and ensure the sustainability of the newly-created Public Private Dialogue Platform for the health sector during the period 2012-2015. b) Business Edge projects: In line with its strategy to stimulate private sector growth, IFC is implementing the Business Edge training to improve the performance of SMEs by providing them access to practical training solutions. Business Edge aims to improve the business performance and competitiveness of firms and individuals, and to create jobs in developing countries. A first project is currently being implemented with Minoteries du Congo. c) Focus on OHADA Business Law Reform Program – Under the umbrella of the Investment Climate Advisory Services Program, the WBG has been supporting OHADA member countries since 2007 in modernizing the OHADA laws ("Uniform Acts") and developing registries for companies and secured transactions. IFC offered its assistance to take the necessary measures, both on the regulatory and the operational sides, to translate into concrete improvements on the ground for the private sector the recent reform of the OHADA General Commercial Law and Secured Transactions Law. 39 Annex 3. Progress toward Millennium Development Goals 1990 Millennium Likelihood of Millennium Development Development Goal Current status achieving Goals benchmark (year) target by 2015 1. Poverty and Hunger - Eliminate extreme poverty. 40% (est.) 50.7 (2005) Low 2. Achieve universal primary education - Increase completion rate to 100%. 59% 83% (2010–11) Medium 3. Promote gender equality - Raise ratio of girls/boys in primary school to 100%. 0.85 0.97 (2010–11) Medium 4. Reduce child mortality - Reduce child mortality in children under 5 by two- 103/1,000 live births 68 /1000 live births Medium thirds. (2011) 5. Improve maternal health - Reduce the rate of maternal mortality by three- 390/100,000 live births 426/100,000 live Low fourths. (est.) births (2011) 6. Combat HIV/AIDS, malaria, and other diseases 3.8% 3.2% among 15–49- - Fight against HIV/AIDS. year-olds; 1.7% Low among 15–24-year- olds (2009) 7. Ensure environmental sustainability 90% urban 50% urban - Halve the proportion of individuals without access Low to safe water. 75% rural 16% rural Sources: Enquête sur la Consommation des Ménages; Enquête démographique et de santé du Congo (2011); Rapport d’Etat d’un Système Educatif National. 40 Annex 4. Government Programs in Transportation Infrastructure Power The Government has constructed or renovated a number of power facilities including a 350-megawatt gas-fired power plant in Pointe Noire, a 120-megawatt hydro power plant at Imboulou, a 70-megawatt hydropower facility at Moukoukoulou, and a 32.5 megawatt thermal plant in Brazzaville. A high-voltage power transmission line is under construction from Pointe Noire to Brazzaville. A US$45 million rehabilitation program of the Brazzaville and Pointe Noire distribution networks is underway. Over the next few years, the Government plans to invest US$320 million to modernize the electricity supply networks in Brazzaville and Pointe Noire. The key challenge is to maintain this infrastructure, which will require strengthening the technical and managerial capacity of the Société Nationale d'Electricité, the national power utility. Rail The Government has put in place a stabilization plan of FCFA 80 billion (US$160 million) for the state-owned railroad company (CFCO), which is under implementation. Beyond stabilization, CFCO needs a long-term plan for its development in addition to a better management of the company. Port A priority investment program for the deep sea Port of Pointe Noire of approximately FCFA 500 billion (US$1 billion) is underway to improve the operational performance of the port and expand it. Roads The Government has embarked on a major program for developing the country‘s road network over the next five years. The program includes (a) asphalting 1,500 kilometers of roads at the rate of 300 km per year, and building 2,500 linear meters of bridges at the rate of 500 linear meters per year, for a total amount of FCFA 1,620 billion (US$3.25 billion); (b) rehabilitating 750 km of asphalted roads at the rate of 200 km per year, rehabilitating earth roads interconnecting various districts at the rate of 700 km per year, and replacing old bridges, for a total of FCFA 750 billion (US$1.50 billion); and (c) maintaining the asphalted roads network for an amount of FCFA 122.4 billion (US$0.25 billion). 41 Annex 5. Doing Business Indicators Republic of Congo Congo CEEAC Rwanda Congo CEEAC Rwanda Ease of doing business (rank) 181 170 45 Protecting investors 155 129 29 (rank) Starting a business (rank) 175 151 8 Extent of disclosure index 6 6 7 (0-10) Procedures (number) 10 9 2 Extent of director liability 1 2 9 index (0-10) Time (days) 160 61 3 Ease of shareholder suits 3 4 3 index (0-10) Cost (% of income per capita) 85.2 144.5 4.7 Strength of investor 3.3 4.0 6.3 protection index (0-10) Minimum capital (% of income per 88.0 147.1 0.0 capita) Dealing with construction permits 103 110 84 Paying taxes (rank) 182 157 19 (rank) Procedures (number) 14 14 12 Payments (number per 61 41 18 year) Time (days) 186 184 164 Time (hours per year) 606 479 148 Cost (% of income per capita) 157.7 1374.8 312.0 Total tax rate (% of profit) 65.9 79.6 31.3 Getting electricity (rank) 152 121 50 Trading across borders 181 156 155 (rank) Procedures (number) 5 5 4 Documents to export 11 9 8 (number) Time (days) 129 101 30 Time to export (days) 50 40 29 Cost (% of income per capita) 5,224.0 9930.2 4,696.8 Cost to export (US$ per 3,818 2,851 3,275 container) Documents to import 10 10 8 (number) Time to import (days) 62 51 31 Cost to import (US$ per 7,709 3,873 4,990 container) Registering property (rank) 156 132 61 Enforcing contracts 159 160 39 (rank) Procedures (number) 6 6 5 Procedures (number) 44 43 24 Time (days) 55 72 25 Time (days) 560 802 230 Cost (% of property value) 20.6 11.0 6.3 Cost (% of claim) 53.2 56.6 78.7 Getting credit (rank) 98 123 8 Resolving insolvency 134 164 165 (rank) Strength of legal rights index (0-10) 6 5 8 Time (years) 3.3 4.7 3.0 Depth of credit information index (0- 2 2 6 Cost (% of estate) 25 35 50 6) Public registry coverage (% of adults) 8.2 4.5 1.4 Recovery rate (cents on the 17.9 6.2 3.2 dollar) Private bureau coverage (% of adults) 0.0 0.0 0.0 42 Annex 6. IBRD/IDA Program Summary Republic of Congo as of 05/31/2012 Closed Projects 27 IBRD/IDA * Total Disbursed (Active) 93.95 of w hich has been repaid 0.00 Total Disbursed (Closed) 128.54 of w hich has been repaid 50.38 Total Disbursed (Active + Closed) 222.49 of w hich has been repaid 50.38 Total Undisbursed (Active) 72.00 Total Undisbursed (Closed) 0.00 Total Undisbursed (Active + Closed) 72.00 Active Projects Difference Between Last PSR Expected and Actual Supervision Rating Original Amount in US$ Millions Disbursements a/ Approv. Project ID Project Name DO IP IBRD IDA GRANT Cancel. Undisb. Orig. Frm Rev'd FY P118561 CG-Econ. Diversification MS MS 2011 10 8.9 2.5 P095251 CG-Agr Rehab SIL (FY07) MS MS 2007 20 7.8 5.6 P084317 CG-Basic Education (FY05) MS MS 2005 35 0.69 5.6 -10.4 4.4 P106851 CG-Health Sector (FY08) MS S 2008 40 13.4 15 P077513 CG-HIV/AIDS & Health (FY04) S S 2004 24 2.5 -3.1 1.9 P106975 CG-Water, Elect., & Urban Dev S S 2010 25.5 18.5 3.6 P122990 CG-Transparency & Governance # # 2012 5 5.1 P124085 CG-Forestry Sector (FY12) # # 2012 10 10 Overall Result 169.5 0.69 72 13.2 6.3 43 Annex 7. Performance Assessment of the Country Partnership Strategy FY10-FY12 I. INTRODUCTION 1. This report assesses the performance of the Country Partnership Strategy (CPS) for the Republic of Congo for FY10–FY12, which was discussed at the Board on May 13, 2009. This CPS completion report (CR) describes an integrated package of financial support and knowledge services; evaluates the strategy‘s outcomes and the Bank‘s performance, and draws lessons for the new FY13–FY16 CPS. The May 2, 2011 CPS Progress Report slightly adjusted the original CPS program and strengthened the CPS results matrix. This completion report uses the updated results matrix as the reference for assessing the CPS program‘s performance. A. Key Drivers of the FY10-FY12 CPS 2. When the CPS was formulated in late FY09, its driving forces included (a) Congo‘s excessive dependence on highly volatile oil revenues to fund its budget; (b) social indicators that were significantly lower than those of comparator countries at similar per capita income levels; and (b) a huge infrastructure gap, especially in transportation, energy, and telecommunications. The CPS also recognized Congo‘s immense potential, especially (a) providing regional transit services thanks to its deep sea port at Pointe-Noire; (b) significantly increasing agricultural production due to its vast arable land and suitable climate; and (b) adding value to its forestry and mineral resources through managing them judiciously. B. World Bank’s Program Support 3. In view of the above, the CPS‘ primary objectives were to make a critical contribution to promote diversified and inclusive economic growth and to improve social outcomes. The cross-cutting themes were improved governance and institutional capacity building. In addition to analytical and advisory activities (AAA), this strategy was implemented via three pathways: a. An investment lending program for education, health, HIV/AIDS, governance, agriculture, private sector development, and urban infrastructure/water/energy development b. A regional program to support the telecommunications and the financial sectors c. Support to Congo‘s preparedness for the Reduced Emissions from Deforestation and Degradation (REDD) initiative, a GEF-funded activity. The strategy was adapted at mid-term on the basis of the analytical work undertaken during the CPS‘ implementation,10 the country context (such as persistent youth unemployment) and lessons drawn from the program‘s implementation. The changes are reported below. 10 ―Prioritizing Infrastructure Investments: A Spatial Approach‖; Public Expenditure Review, Mining Sector Review; and Growth and Employment Study. 44 4. Under the lending program, a new professional skills development project was added, and civil society involvement in monitoring World-Bank-funded projects was scaled up. Under the analytical program, a mining sector review and a public expenditure review of the human development sectors were added. The advisory services program was strengthened with an activity to facilitate the dialogue among Congo, Democratic Republic of Congo (DRC), and the Central African Republic (CAR) concerning the development of the Congo Basin-Atlantic growth corridor. II. CPS PROGRAM PERFORMANCE A. Overview of Principles of Engagement 5. In developing its relationship with Congo, the Bank followed three basic principles of engagement. These were to: (a) move away from a conditionality-based relationship, which had characterized the Interim Strategy Note preceding this CPS (particularly in the context of fulfilling the triggers for obtaining debt relief under the Highly Indebted Poor Countries, or HIPC, initiative), to a relationship that focused on knowledge transfer and technical assistance; (b) in view of the country‘s rapid pace of events and to be more in keeping with a dynamic relationship, act flexibly in implementing the CPS; and (c) given the Government‘s large oil revenues relative to the Bank‘s limited allocation, recognize that the Bank’s role in the country would be largely that of a “catalyst” for change. The Bank would leverage its relatively small allocation for Congo to help the country use its significant oil revenues for economic transformation and poverty alleviation. This recognition also implied greater selectivity and leveraging Bank resources with the Government‘s own resources, as well as the Bank‘s reinforcing the global knowledge dimension of its support. B. Progress toward CPS Outcomes, by CPS Pillars 6. Progress toward attaining the CPS global objectives has been moderately satisfactory. Regarding economic diversification, in recent years, the non-oil sector has grown by almost 6 percent per annum, led by construction and public works. Indeed, the non-oil sector‘s share of GDP, which was 3.9 percent in 2009, was estimated at 6.5 percent in 2010 and had preliminary estimates of 7.4 percent in 2011. However, the non-oil sector remains narrow. Its growth was hampered by many factors such as infrastructure, although major efforts are underway to alleviate these constraints. Regarding service delivery, education enrollments are increasing, although quality remains a concern. However, the biggest challenge remains in health, for which access is limited and quality remains poor. 7. Similarly, progress toward attaining the specific CPS outcomes is partially satisfactory. On the positive side, the Bank supported the Government to undertake a series of reforms, especially in the final drive to attain the HIPC Completion Point in January 2010. As a result, progress was good on oil commercialization and public expenditure management, particularly on procurement reforms and liberalization of the telecommunications sector. The education sector also demonstrated improvement in some indicators. 45 8. However, less progress was achieved in improving the business climate, agriculture, and health. Project implementation was particularly constrained by long effectiveness delays, slow and inadequate releases of counterpart funding, and low implementation capacity. The following is a succinct summary of the progress attained for each CPS outcome. B.1. CPS Theme 1: Economic diversification and growth agenda Outcome 1.1: Rendering more effective the management of oil revenue and public expenditure As set out under the CPS, the goals for rendering the management of oil revenue more effective were mostly achieved, although challenges remain. The Bank‘s role was to advise the Government on carrying out a series of reforms to improve oil commercialization and oil revenue management. Oil commercialization practices were improved by (a) increasing competition through a larger number of clients, (b) ending prepayments for petroleum cargo shipments, and (c) transferring receipts to the Treasury within 15 days. A new set of procedures that met international standards was adopted; an oil commercialization database was established; and COTRADE (the oil marketing subsidiary) was integrated in Société Nationale des Petrole du Congo (SNPC) (Congolese National Oil Company) to streamline operations. A statistical analysis of data showed that prices received by Congo for oil sales were broadly in line with those received by international oil companies selling similar oil on their own behalf. There also was some progress toward Extractive Industries Transparency Initiative (EITI) validation. However, the SNPC‘s new accounting system still needs to be fully implemented. Furthermore, since the completion date of the HIPC initiative, problems remain in the timely production of independent financial audits and the certification of oil revenue by a firm of international reputation. 9. As set out, to render public expenditure more effective, the CPS targets were, for the most part, although not entirely, achieved. These targets were to (a) eliminate ex-post regularizations of payments from the Treasury, apart from exceptions stipulated in the budget law and (b) introduce competitive tendering of large public contracts. The introduction of quarterly budget plans and improved budget commitment control drastically reduced ex-post regularizations. Regarding procurement, approximately 60 percent of large contracts are tendered publicly. Although this share is less than the CPS target of 80 percent, it is a major improvement over the sole-source practices that prevailed at the beginning of the CPS period. Outcome 1.2: Enhancing agricultural production and productivity in high potential zones 10. The set objectives have not been achieved. The CPS targets were to (a) increase the yield of selected crops by 10 percent in selected high agricultural potential zones and (b) reduce transportation time on rehabilitated roads by 30 percent. First, it is not yet possible to measure incremental yield because the baseline was only established in October 2011. Second, similarly, although 559 km of 1050 km of feeder roads were rehabilitated by May 31, 2012, the impact analysis of rehabilitated roads has not yet been carried out. Third, the Agriculture Project has suffered severe implementation delays due to the Government‘s slow release of counterpart funding. As large Government contributions to projects have become the norm (sometimes multiple times the Bank‘s contribution), the 46 issue of timely release of the Government‘s contributions will be a key determinant of whether a project attains its objectives. Outcome 1.3: Putting in place tools for improved forestry management 11. The objectives as set out were not achieved. Bank support was aimed at assisting the Government to (a) establish a new transparent and competitive system for awarding forest concessions; (b) operationalize the revised forest taxation system; (c) operationalize the new environmental impact assessment regulations; and (d) end the indiscriminate expansion of mining into national parks and other protected forest areas. Although the Government adopted the relevant legal and regulatory instruments to improve sector transparency, and social and environmental performance, implementation either has not started or is still uneven. Outcome 1.4: Laying the foundation for the growth of micro, small, and medium enterprises 12. The set objectives were partially achieved. Bank support was aimed at (a) ensuring that banks accounting for 80 percent of the banking sector‘s assets comply with regionally agreed financial norms; (b) reducing the total tax rate on total profits of small and medium enterprises (SMEs) from 65 percent to 30 percent; and (c) reducing the average time to set up a business from 37 days to 7 days. On the positive side, all commercial banks are broadly in compliance with the prudential ratios, in particular, those pertaining to liquidity, risk coverage, and the ceiling on risks. Congo‘s banking sector was rated by the Banking Commission for Central Africa as one of the best in the Economic and Monetary Community for Central Africa (CEMAC) zone in 2009 and 2010. The market is highly liquid. Moving forward, the challenge is to help businesses, particularly SMEs, become ―bankable‖ and take advantage of this liquidity. 13. On the other hand, there was little progress on Doing Business reforms, including streamlining business taxation and accelerating business registration. In fact, time to register a business increased from 37 days to 160 days. Taxes on SMEs are at 65.9 percent (2012 Doing Business report). The Government has developed an action plan to address these issues. The principal vehicle for the Bank‘s support was the Economic Diversification Project, whose effective date was delayed (the project is now effective). 47 Outcome 1.5: Improving the services from the Government’s ongoing/planned infrastructure program 14. Performance was mixed. Bank support was aimed at (a) modernizing the telecommunications sector by, among other things, setting up an autonomous, functional regulator; (b) increasing road maintenance by at least 10 percent annually; and (c) improving the operational and financial performance of the energy utility, as manifested by an increase of at least 10 percent in its revenue. On the positive side, the Government carried out the agreed critical reforms in the telecommunications sector, including the liberalization of the international gateway and establishment of an independent telecommunications regulatory authority. Similarly, road maintenance increased by 22 percent in 2010 and by 27 percent in 2011. However, as indicated by the last available information, during 2009–10, the energy utility was able to raise its revenue by only 5 percent. The needed capacity building has not yet taken place, except for some South- South exchanges that have been facilitated. Outcome 1.6: Laying the foundation for increasing Congo’s market share in regional transit services 15. The foundation for transit was partially achieved. The primary result to be achieved was the Government‘s adoption of action plans for principal transport corridors. In this regard, the Bank‘s role was, first, to support the underlying analytical work that would endow Congo with a prioritization framework for investments along the principal transportation corridors. This task was achieved through a seminal study, ―Prioritizing Infrastructure Investments: A Spatial Approach,‖ completed in October 2009. A key result of this analysis was the importance of the Pointe Noire-Brazzaville railway. The Government has formulated a short-term stabilization plan for the railway company. However, a long-term ―action plan‖ is not yet in place, and the process generally has been very slow. The Bank is assisting the Government‘s efforts with this plan through the Economic Diversification Project. The Bank also is facilitating the dialogue among the Republic of Congo, the Democratic Republic of Congo, and the Central African Republic to examine options for developing the Congo Basin-Atlantic corridor. B.2. CPS Theme 2: Basic service delivery agenda Outcome 2.1: Improving the delivery of basic services 16. Overall, the CPS‘ human development targets were partially achieved. On the positive side, in the education sector, performance reached close to or surpassed targets. The CPS‘ education targets were to (a) increase primary-education completion rates from 73 percent to 85 percent and (b) increase the girl-boy ratio from 0.90 to 0.95. As of 2011, the actual primary education completion rate was 83 percent, and the girl-boy ratio stood at 0.97. The remaining challenges in the sector relate to improving the quality of learning, and addressing geographic and social disparities in access and performance. 17. Performance in the health sector was generally mixed, with good progress on the fight against HIV/AIDS but unclear outcomes on other health indicators. Bank support was 48 meant to culminate in (a) a reduction in the under-5 mortality rate from 126 per 1,000 to 105 per 1,000 and (b) a 20 percent increase in the use of condoms and anti-retroviral in the fight against HIV/AIDS. Infant mortality rate estimates are not yet known because the Demographic and Health Survey (DHS) is still ongoing. Generally, the health sector is still beset by inefficiency in the use of its financial and human resources, and a lack of reliable statistics. The Government is concerned about this poor performance of the health sector and has declared 2012 the Year of Health to give it a sharper focus. The health sector will need sustained Bank support to improve service delivery. 18. Regarding HIV/AIDS, condom use among men engaged in casual sex increased from 29 percent in 2009 to 33.3 percent by September 2011. During the same two years, women reported an increase from 21.0 percent to 38.7 percent. In 2011, sex workers reported a condom use rate of 81 percent (females) and a 64 percent (males). There was no baseline in 2009, although the rates were believed to be much lower then. From 2009 to 2011, the number of children using anti-retroviral increased by 2.5 times, while the number of adults increased by almost two times. During the same period, pregnant women living with HIV who receive anti-retroviral to reduce the risk of mother-to child transmission increased from 47.6 percent to 64 percent. III. WORLD BANK GROUP PERFORMANCE 19. The World Bank‘s performance is rated moderately satisfactory. The reasons are linked to the challenges in sustaining the reform momentum after the HIPC completion point in January 2010, and the slow implementation progress on some activities such as the Economic Diversification, the Agriculture, and the Health Projects. As indicated earlier, project implementation was particularly constrained by long effectiveness delays, slow and inadequate releases of counterpart funding, and low implementation capacity. In some cases, effectiveness delays were compounded by complicated project design and the inability to carry out early restructuring to simplify design. As a result, there have been a series of project extensions. On the positive side, in the last year, project performance improved markedly resulting from stepped-up portfolio monitoring, project restructuring, and implementation support. 20. The FY10–13 CPS was relevant. It addressed the critical issues facing the country, particularly oil management, economic diversification, and a push to improve social outcomes that reflect the country‘s growing income level. The CPS‘ design was appropriate, although slow Government processes and difficulties with disbursements of counterpart funds hamstrung implementation. 21. CPS implementation also was well coordinated with other development partners, especially the AfDB, European Union, French Cooperation, IFC, and IMF. IFC helped the Government to define the Doing Business action plan. The Bank, AfDB, and EU are assisting the Government to implement the action plan. The Bank also worked very closely with the French Cooperation, European Union, and IMF to support governance and public financial management (including procurement) reforms. The Bank also worked with French Cooperation in education, and with the European Union and other UN agencies in health. 49 A. CPS Design 22. The CPS was fully in line with the Government‘s Poverty Reduction Strategy Paper (PRSP). The design also recognized the Bank‘s limited country allocation and the growing Government revenues and sought to maximize selectivity and leverage the Bank‘s resources to raise counterpart funds. In some cases, the Government‘s contribution has been up to five times the IDA contribution. Overall, this arrangement is a very good development and will be the modus operandi moving forward. 23. However, this arrangement has not been without risks. In certain situations, extended delays in the Government‘s release of its contribution have hampered faster implementation. The recent Country Portfolio Performance Review (CPPR) sought to resolve this persistent problem, including by ensuring adequate budgeting for project activities during budget preparation, and proper and timely fund requisitions and releases during disbursements. 24. The CPS‘ flexibility allowed for timely adaptation to changing circumstances and priorities. For instance, at one point, it became clear that the management of the energy sector was going to be a hindrance to fully benefiting from the massive government investments in power generation capacity. A technical assistance activity quickly was introduced in the Urban and Water Development Project to help the energy utility look at ways to improve its performance, although subsequent progress has been slow. Similarly, the analytical work on growth and employment and country consultations highlighted the critical importance of skills development as part of the fight against youth unemployment. A project to address skills development shortcomings readily was introduced into the program. 25. Most of the indicators in the Results Matrix correlated directly with the Bank‘s program of support. However, some indicators did not––a lesson for the next CPS. In addition, three years to implement the CPS seem to have been rather too short. The next CPS should consider four years. B. Implementing the Strategy 26. The Bank laid a strong emphasis on improving portfolio quality through various mechanisms: a. Country Portfolio Performance Reviews (CPPR). These reviews were held annually and very collaboratively with the Government, including jointly preparing the background materials as well as managing the event‘s proceedings. The goal was to cement country ownership and to make all the parties accountable for the outcomes. b. Bi-monthly portfolio reviews. These reviews were held with Government counterparts, project coordinators, and task team leaders (TTLs). They were an 50 opportunity to follow up on the CPPR recommendations, identify key constraints affecting the performance of the projects, and take corrective decisions. c. Field-Based Team Leadership. Almost all team leaders are based either in Brazzaville, or across the river in Kinshasa (Democratic Republic of Congo). This proximity has facilitated country dialogue and close project monitoring. d. Adoption of e-signature Disbursement Arrangements. E-signature has greatly facilitated disbursements and is greatly appreciated by the client. 27. Because of all these efforts, the portfolio‘s disbursements have begun to pick up. This movement has taken place despite initial challenges due largely to delayed effectiveness caused primarily by slow parliamentary ratification processes and slow release of counterpart funding. The portfolio does not have unsatisfactory projects; pro- activity is at 100 percent; and, as of June 30, 2012, a disbursement ratio of 35.9 percent. This rate is among the highest in the Africa Region against the Regional average of 16 percent. There are no overdue audits or interim financial reports. Partnership with IFC and MIGA 28. While capitalizing on each institution‘s comparative advantage and mandate, the Bank worked very collaboratively with IFC to ensure synergy. MIGA had no exposure in Congo during the CPS period.  IFC. The Bank is working closely with the IFC in the field. IFC continues to pursue prospects for involvement in projects/programs in Congo in the following strategic areas: (a) agribusiness and manufacturing; (b) information communication technology; (c) access to finance for micro, small, and medium enterprises (MSMEs); and (d) infrastructure (through public-private partnerships). On the advisory side, IFC is engaged in (a) providing support to the Government to improve key areas of the business climate as measured by the Doing Business report; (b) the OHADA Business Law Reform Program, aimed at supporting OHADA's efforts to modernize its business law framework and improve the effectiveness of its implementation11; (c) implementing a capacity building program in partnership with a local flour mill (Minoterie du Congo) to provide Business Edge training to 150 bakeries in Pointe Noire and Brazzaville; and (d) the Health in Africa Initiative in Congo, aimed at improving the health sector in the country. The Bank coordinated with IFC on these issues.  MIGA. Congo has been a MIGA member since 1991, and contributed to the General Capital Increase in March 2003. MIGA has no exposure in Congo, and there is no active application. 11 Organisation pour l'Harmonisation en Afrique du Droit des Affaires (OHADA) is an organization to harmonize business law in the 17 African countries that are signatories to the OHADA treaty. 51 C. Managing the Risks 29. The CPS (including updates at mid-term review) had defined six risks: (a) possible fallout from the 2008–09 global financial crisis; (b) breakdown in the fragile peace, especially arising from the 2009 presidential elections; (c) social tensions from growing unemployment; (d) vested interests undermining reforms; (e) environmental concerns arising from the Government‘s massive infrastructure program; and (f) fiduciary issues in Bank-supported projects. 30. The risks as identified were appropriate, although some of the assigned probabilities of occurrence were higher than turned out to be the case. Just as predicted at mid-term review, the fallout from the global crisis was mild, and the aftermath of the 2009 presidential elections remained peaceful. Fortunately, the predicted medium-high likelihood of unemployment-related social unrest, willfully orchestrated resistance to reforms by vested interests, and reports of major environmental breaches associated with the Government‘s infrastructure program did not materialize as feared. On the other hand, concerns over fiduciary issues in Bank-supported projects did materialize as feared.  Global financial crisis. The impact of the 2008–09 global financial crisis was mild and short-lived, because oil prices and forestry activities rebounded sooner than expected. In the long term, the Congolese economy‘s over-dependence on extractive industries keeps it exposed to fluctuations in international commodity prices.  Fallout from presidential elections. The concern of possible fallout from the general elections held in July 2009 did not materialize. The remaining belligerents were integrated in the Government in late 2009. Legislative elections took place in July 2012.  Tensions from high unemployment and inequality. No violent expressions of social discontent occurred arising from the large number of unemployed youth and the high levels of income inequality. The Government is cognizant of this challenge and is increasing its focus on stimulating non-oil growth and improving access to employment. Several programs, including the Economic Diversification Program, the development of Special Economic Zones (SEZs), and skills training, are aimed at creating employment opportunities. The World Bank will continue to support the Government in these efforts.  Pace of reform process. The pace of reforms has been mixed but generally positive, aided by the push toward the HIPC completion point in January 2010. There have been no signs of resistance willfully orchestrated by vested interests. The pace of reforms has been dictated largely by the complexity of the reforms and/or insufficient capacity for their implementation but at times, delays in moving forward have been experienced as a result of resistance to full transparency in the oil sector. 52  Environmental concerns. Although no major risks manifested themselves during the CPS period, the concern that the Government‘s ambitious infrastructure investment program could pose social and environmental challenges remains. Support to the Government to strengthen environmental management will continue. Environmental opportunities, such as biodiversity offsets, watershed protection programs linked to hydropower developments and carbon credits that can be gained from adopting low greenhouse gas emissions practices, also should be explored.  Fiduciary issues. Although fiduciary performance at the project level remained good during most of the CPS period, an April 2012 fiduciary assessment mission identified some internal controls as well as accounting issues in some projects. These issues related to (a) lack of supporting documents for missions and workshops, (b) absence of non objection by the Bank to some transactions, and (c) delays in bookkeeping and improper filing. These issues are currently being addressed, including ensuring full implementation of the internal and external auditors‘ recommendations, and strict adherence to fiduciary procedures and processes. IV. LESSONS LEARNED AND RECOMMENDATIONS At the strategic level 31. Intensifying support for improving the quality of the Government’s investment spending. From 2009–11, the Government‘s investment spending grew at an average annual rate of 30 percent. The management of this investment program could overwhelm the country‘s limited absorptive capacity. In addition to public procurement, future World Bank support needs to focus on project planning, preparation, and selection, as well as ensure adequate provisions for proper operation and maintenance of this infrastructure. 32. Accentuating the Bank’s knowledge agenda. Analytical work carried out during the CPS period significantly facilitated informed decisions on policy options including the (a) ―Prioritizing Infrastructure Investments: A Spatial Approach,‖ (b) Public Expenditure Review, (c) Mining Sector Review, and (d) Growth and Employment Study. Such seminal analytical pieces should remain one of the tools to guide policy choice, particularly when dealing with issues including ensuring greater selectivity and efficiency in investment spending, and youth unemployment. Knowledge sharing, including fostering South-South cooperation, also will be critical in capacity building efforts for both the public and private sectors. In view of the declining IDA allocation to Congo and the Bank‘s limited operating budget, some of this support will have to be provided on a fee basis. 33. Continuing the focus on improving the capacity and working conditions for the public administration. Capacity in the public administration continues to be a constraint to the conception, execution, and monitoring of government programs. As the Government moves toward a results-based approach, it will need more performing statistical systems to better evaluate outcomes, which currently is not the case. In addition, the Bank‘s 53 progressive move from a project approach to sectoral support, with no more project implementation units (PIUs), will necessitate stronger government capacity. 34. Maintaining the reform momentum. Significant progress was achieved in areas such as public procurement and oil commercialization. Nevertheless, a great deal of support is still needed in these and in other areas, such as improving the business climate, in which little progress has been registered so far. At the operational level 35. Finding a lasting solution to counterpart funding. Largely due to the phasing out of the special post-conflict allocation, the IDA allocation to the Republic of Congo has been reduced drastically from approximately US$65 million under the IDA-15 three-year cycle to approximately US$35 million under the IDA-16 cycle. On the other hand, government investment spending is growing rapidly as indicated above. Consequently, the IDA contribution toward jointly funded government programs is far lower than the Government‘s contribution. The main challenge of this otherwise very welcome development is the disruption caused to project implementation by belated releases of the government contributions. Moving forward, it is critical that a lasting solution be obtained to ensure a smooth flow of funds to jointly funded programs. 36. Focusing on implementation readiness. The Water, Electricity, and Urban Development Project was able to start disbursing immediately upon effectiveness because of the significant procurement work done during project preparation. This result underscores the need to focus on implementation readiness during project preparation to avoid lengthy effectiveness delays (especially those of a technical nature), as well as to facilitate early implementation and disbursement. However, an additional significant cause of the effectiveness delays was slow parliamentary ratification of credit agreements. To alleviate this constraint, it is important that parliamentarians be briefed frequently during project preparation and that parliamentary session cycles are coordinated with projects processing schedules. 37. Early project restructuring to avoid prolonged stay in problem status. The health project had a particularly extended stay in problem status. This delay was due to, among other things, the complexity of the project and the absence of a project coordinator. The project was restructured––but belatedly––to simplify the design, target interventions, and expedite implementation. Other projects also experienced disbursement delays and have had to be extended past their original closing dates. More generally, it is critical that project implementation difficulties be discerned early and corrective actions taken as quickly as possible. The Country Management Unit (CMU) and the concerned Sector Management Units should be bolder in taking corrective actions. 38. Establishing a clear linkage between the CPS Program and the CPS Outcomes. For instance, strong support was envisaged and eventually provided for improving oil management, but no associated indicators had been defined in the CPS Results Matrix. Conversely, an indicator was defined in the CPS Results Matrix to reduce the primary non- 54 oil deficit, although accomplishing this depended on many factors, some of which were beyond the influence of the Bank. 39. Building synergies within the WB group. IFC and the Bank worked very collaboratively on improving Doing Business in Congo, with IFC preparing a reform memo that served as a basis for the Government to prepare a Doing Business action plan. The Bank supported the implementation of this action plan through the Economic Diversification Project. This level of collaboration needs to be enhanced, especially in strengthening SME capacity. This collaboration also could be extended to MIGA in attracting investment, especially in the proposed SEZs. 55 Attachment 1. Summary of CPS Program Self-Evaluation CPS expected WBG outcomes and instruments outcome indicators Status and evaluation summary used Lessons and suggestions for new CPS CPS Theme 1. Diversifying the economy to spur broad-based growth AAA There is need for establishing a clear linkage between CPS Outcome 1.1 : More Outcome 1.1: Partially achieved. a) Oil Revenue CPS Program and CPS Outcomes. For instance, strong effective management of oil There were significant improvements in oil Management Review support was envisaged and eventually provided for revenue and public commercialization and public expenditure management, (FY08–09) improving oil management, but no associated indicators expenditure with several reforms implemented in lead-up to HIPC had been defined in CPS Results Matrix. completion point in January 2010. However, non-oil b) Policy dialogue on Conversely, an indicator was defined in CPS Results deficit and performance in public procurement fell short oil revenue Matrix to reduce primary nonoil deficit. Accomplishing of their targets. management this indicator depended on many factors, some of which were beyond influence of Bank. 1. Nonoil primary deficit 1. Partially Achieved. Nonoil primary deficit as c) Public reduced from 45% in 2008 percent of nonoil GDP declined to 36% in 2009 but Expenditure Review AAA can underpin dialogue in tough sectors. AAA was to 30% of nonoil GDP. then remained stable at 35% in 2010 and 34% in (FY10) essential in providing elements for a constructive and 2011. well-informed dialogue on oil management that facilitated progress in an otherwise difficult sector with many vested interests. 2. No ex-post regularization Projects 2. Achieved. Incidence of ex-post regularization of of payments apart from Transparency and payments, apart from exceptions as defined by exceptions as defined by Governance Capacity budget law, have significantly declined since 2009 budget law. Building Project due to establishment of quarterly budget execution (FY04–12; Rated S plan as well as improved budget commitment‘s at closing). control. New Governance and Capacity Building 3. At least 80% of public 3. Partially Achieved. Percentage of contracts over Project was approved contracts in excess of FCFA 250 million that were subjected to in January 2012. FCFA 250 million subject competitive bidding was estimated at 60% in 2011. to competitive bidding. Various bids came in at well below original (Currently, most contracts estimate, resulting in Government savings are sole-sourced.) compared to direct contracting. This progress is significant given fact that most contracts had been sole-sourced before the new Code came into effect. 56 Projects There is a strong need to improve release of counterpart CPS Outcome 1.2: Enhanced Outcome 1.2: Not Achieved. Some farm inputs and Agricultural funding. Plans have been put in place for better agricultural productivity and training were provided, and some feeder roads Development and monitoring of budget planning and execution. marketing rehabilitated. However, project implementation was Rural Roads slow, mainly due to delays in releasing counterpart Rehabilitation To ascertain impact of government programs, it is funding. Low Government capacity also a factor. Project (FY07–13; necessary to continue strengthening government Rated MS) capacity, including for M&E. 1. Average yields for 1. Not Rated. Survey launched in 2009 to obtain cassava, maize, banana, baseline indicators was completed only in October and groundnuts among 2011. Therefore, it is not yet possible to measure farmers benefiting from comparative changes in yields. First such measurements project interventions will be conducted later in 2012. increased by 10% over 2009 levels. 2. Transportation time in 2. Not Achieved. So far, only 559 km out of 1050 km of areas with rehabilitated planned priority rural roads are rehabilitated under rural roads is reduced by Bank-funded Agriculture Project. It is assumed that 30%. transportation cost and time have been reduced, but no survey has been done yet to assess impact. CPS Outcome 1.3: Tools put Outcome 1.3: Partially Achieved. AAA in place for improved forestry New tools to improve forestry management were Strong advisory Instituting major reforms is a long process that requires management adopted in 2009 by Government and Parliament in support was provided sustained support. As a follow-up to the strong advisory context of HIPC initiative, but implementation remains in drive to HIPC support provided to the Government to enact the a challenge. point. Putting in forestry reforms, a new Forestry Project was approved place a forestry legal in May 2012 to support the implementation of the 1. New transparent and 1. Partially Achieved. Decree on forest concessions and regulatory reforms. competitive award system that allows greater competition and transparency in framework was one for forest concessions is their award was adopted in Sept. 2009. trigger. established. Transparency in concession awards has improved, but application is not yet consistent. 2. Revised forest taxation 2. Partially Achieved. Parliament adopted a legal system is operational. package on forest taxation (passed as an amendment to the Forest Law), but implementation is not yet effective. 3. New Environmental 3. Not Achieved. Decree on social and EIA, which 57 Impact Assessment (EIA) provides full environmental and social assessment regulations are operational. of projects to be implemented in forest areas, was adopted in Sept 2009 but it is not yet operational. 4. Indiscriminate expansion 4. Partially Achieved. Decree on contradictory use of mining into national of forest lands, which helps address cases in which parks and other protected concessions or other permits have been issued for forest areas ended. conflicting use of forest lands (that is, cases in which mining permits were awarded in national parks) was adopted in Sept 2009. However, the Commission for resolving conflicts regarding forest land use is not yet operational. Effective implementation of the decree requires a strong coordination within the Government. CPS Outcome 1.4: Outcome 1.4: Not Achieved. Projects Foundation laid for MSME Although the banking sector‘s compliance with banking Support to Economic growth regulations is generally good, Congo‘s ranking in Doing Diversification Business has deteriorated from 178 of 181 to countries Project (FY11–16; in 2009 (fourth position from bottom) to 181 of 183 Rated MS) became economies in 2012 (third from bottom). The effective in Nov Government recently adopted a comprehensive Doing 2011 and is Business action plan, which will be supported by Bank‘s supporting key ongoing Economic Diversification Project. Doing Business reforms. 1. Banks accounting for 80% 1. Achieved. All commercial banks are broadly in of sector assets comply compliance with prudential ratios and Congo‘s AAA with regionally agreed banking sector was rated by Commision Bancaire IFC prepared a financial norms. pour l’Afrique Centrale (COBAC) as one of the Doing Business best in the Communauté Economique et Monétaire reform memo that de l’Afrique Centrale (CEMAC) zone in 2009 and highlighted key 2010. Market is highly liquid. reform areas. Growth and Employment study (FY12) underscored importance of nonoil growth. 58 2. Total tax rate as a 2. Not Achieved. Total tax rate as a percentage of percentage of total profits total profits is estimated at 65% in Doing Business is reduced from current 2012. Congo has declined by 2 positions in paying 65% to 30%. taxes indicator from 180 in Doing Business 2011 to 182 in 2012. 3. Not Achieved. Average time required to start a 3. Average time required to business is 160 days in the 2012 Doing Business start a business is reduced report compared to 37 days in 2008. Increase in from 37 days to 7 days. time to start a business is due to inefficiencies in process to start a business since 2008 reform. Time to deliver the carte de commercant from the Centre des Formalités des Entreprises increased to 3 months and time to register with social security and for taxes increased to 1 month each. Projects In view of government‘s growing investment program CPS Outcome 1.5: Improved Outcome 1.5: Partially Achieved. Regional Telecom and considering its weak implementation capacity, infrastructure services Although road maintenance is improving and Project (FY12–14; there is need to support it in investment planning and delivery telecommunications sector is growing, the energy sector Rated S) management. (and the energy utility in particular) still is performing poorly and is a major focus of government attention. Water, Electricity and Urban development Project 1. Achieved. Independent telecommunications (FY10–16; Rated S) 1. Existence of a functional autonomous regulatory authority was established and is fully telecommunications operational. AAA regulator. Policy dialogue on Telecom sector 2. Revenue collected per 2. Not Achieved. Revenue collected per kWh kWh delivered to the delivered to the Brazzaville distribution network Brazzaville distribution increased by 5% between 2009 and 2010, latest network increases by 10% figures available. In 2010 total revenue collected from 2009 levels (additional increases to increased by 9% from CFAF 8,499 million to occur beyond CPS period). CFAF 9,226 million, partly explained by the increase in the number of subscribers from 79,144 in 2009 to 82,482 in 2010. 59 3. Km of roads maintained 3. Achieved. Number of km of roads maintained annually increase by 10% increased by 22% from 450 km in 2009 to 550 km over 2009 levels. in 2010 and more than 700 km in 2011. Projects CAS Outcome 1.6: Congo lays Outcome 1.6: Partially Achieved. Support to Economic foundation for increasing its While a Corridor study completed in 2009 shed light on Diversification market share in regional prioritization and sequencing issues of infrastructure Project (SEDP) transit services investments, reforms for some of the critical (FY11–16; Rated infrastructure, especially the Brazzaville-Pointe Noire MS) Railway (Chemin de Fer Congo Océan, or CFCO) have been very slow. AAA Corridor study, 1. Action plans for the 1. Achieved. In 2009 completed corridor study, ―Prioritizing principal corridors ―Prioritizing Infrastructure Investments: A Spatial Infrastructure identified in the analysis Approach,‖ which shed light on the prioritization Investments: A are adopted (their and sequencing issues of infrastructure Spatial Approach‖ implementation falls investments. (FY09) beyond this CPS period) CPS Theme 2: Improving public service delivery, particularly to most vulnerable groups Generally, there is need to consolidate gains in human CPS Outcome 2.1: Basic Outcome 2.1: Partially Achieved. Projects development sectors, especially focusing on spending services delivery improved Whereas some progress has been made in improving Support to Basic efficiency and equity issues, particularly health, in service delivery in the education sector, the health sector Education which progress has been slower. remains a challenge. Project (FY05– 12; Rated MS) 1. Partially Achieved. Primary education completion 1. Increase in primary education completion from rate has increased from 73 in the 2006–07 school Health Sector 73 in the 2006–07 school year to 83% in the 2010–11 school year. Services year to 85% in the 2011– Development 12 school year. (FY09–12; Rated S) 2. Achieved. Girl-boy ratio of primary school 2. The girl-boy ratio of primary school enrollment enrollment has increased from 0.90 in the 2006–07 Water, Electricity has increased from 0.90 in school year to 0.97 in the 2010–11 school year. and Urban the 2006–07 school year to Development 0.95 in the 2010–11 school Project (FY10– years. 15; Rated S) 60 3. Not Rated. Data are not available to measure HIV/AIDS and 3. Under-5 mortality rate Health Project progress made since 2007 (Demographic and Health from 126/1,000 (2007) to (FY04–12; Rated Survey is underway, with data expected later in 105/1,000. S at closing) 2012). However, according to the 2010 Millennium Development Goals report, Congo is unlikely to meet the 2015 targets in the health sector. 4. Percentage of (a) women 4. Not Achieved. Condom use is up from 29% in 2009 and men aged 15–49 years to 33.3% among men, and from 21% to 38.7% who have had more than among women. one sexual partner in the past 12 months reporting the use of a condom during their last sexual intercourse increased by 20% (against a 2009 baseline); (b) female and male sex workers who report using a condom with their most recent client (of those surveyed having sex with any clients during the last 12 months) increased by 20% (against a 2009 baseline). 5. Percentage of (a) adults and 5. Achieved. Number of children on anti-retroviral children diagnosed with increased by 2.5 times between 2009 and 2011, advanced HIV infection while the number of adults doubled. receiving antiretroviral combination therapy increased by 20% (against a 2009 baseline); (b) pregnant women living with HIV who receive antiretroviral to reduce risk of mother-to- child transmission is increased by 20% (against a 2009 baseline). 61 Attachment 2. Planned Lending Program and Actual Deliveries (FY10-FY12) CPS PLAN Status US$mil. US$mil. IBRD IDA IBRD IDA 2010 Economic Diversification 10.0 Actual 10.0 Support Project Urban, Water, and Energy 22.5 Actual 25.0 Subtotal 32.5 Subtotal 35.0 2011 Regional 15.0 Actual 15.0 Telecommunications Project Subtotal 15.0 Subtotal 15.0 Total FY2010–2011 47.5 50.0 PROGRESS REPORT PLAN (April 12, 2011) STATUS 2012 Forestry Project 20.0 Actual 10.0 Supplemental to Governance 5.0 Actual (was 5.0 Project converted into a standalone project) Subtotal 25.0 Subtotal 15.0 Total FY 2010–2012 72.5 65.0 62 Attachment 3: Planned Non-Lending Services and Actual Deliveries (FY10-FY12) CPS Plan Status 2010 HIPC Completion Report Completed in January 2010 Support to the Forestry Sector Completed in January 2010 Public Expenditure Review Completed in May 2010 Support for Preparation of a Completed in June 2012 National Statistical Development Strategy Oil Revenue Management Ongoing (to be completed in August 2012) Support Additional actual products: Support for the development of the strategy on the Technologies of Information and Communication (ICT), completed in 2010 Corridor study, ―Prioritizing Infrastructure Investments: A Spatial Approach,‖ completed in October 2009 2011 Growth and Employment Completed in October 2011 Study 2012 None Additional actual products: Trade Policy and Facilitation (DTIS): Ongoing (to be completed in March 2013) Additional product added at mid-term: PER in HD Sectors: Ongoing (to be completed in April 2013) 63 Annex 8. Summary of Consultations Country Partnership Strategy Promoting SME Development  Strengthening managerial and finance capacity for existing SMEs.  Promoting access to credit, especially mid- to long term, the lack of which is exacerbated by the paucity of bankable projects and concerns about SMEs‘ low managerial capacity.  Streamlining the tax system, specifically, the multiple levels of taxation as well as the large number of administrative units with which companies must contend, both of which are operational and cost burdens.  Addressing lack of suitable skills in the labor market because current training programs not suitably adapted.  Strengthening industry associations and professional societies.  Promoting sectors with a significant potential, such as agribusiness and construction. Improving Oversight of Government Programs  Strengthening the monitoring and evaluation of government programs, including (a) regular production of credible statistical data to establish sound baselines, and improve budget planning and monitoring; (b) consulting direct beneficiaries especially by leveraging cell phone technology.  Promoting transparency by making available to the public greater access to information, including publication of budget reports, natural resource contracts (such as for mining) and the related social and environmental studies, and government revenue, including the oil stabilization account.  Enhancing student employability by aligning training curricula with private sector needs. Participants cited the paucity of skills on mining and oil as a case in point.  Prioritizing gender equity, particularly regarding access to education and jobs. Other Key Strategic Considerations  Ensuring access to electricity and water.  Promoting regional integration, especially through cross border trade.  Improving urban sanitation, a critical health issue.  Promoting decentralization for better conception, implementation, and monitoring of programs.  Fighting against corruption by strengthening the capacity of those involved in fighting corruption. Strengthening Collaboration with the Bank  Consulting more through exchanging views more often with civil society, academics, and parliamentarians.  Communicating more by explaining more about the Bank‘s activities in the country.  Partnering more through involving local think thanks more in Bank-funded activities such as ESWs.  Strengthening civil society to enable them play a bigger role in Congo‘s development. 64 Annex 9. Country at a Glance Republic of Congo - As of 03/29/12 65 Annex 10. Selected Indicators of World Bank Portfolio Performance and Management Republic of Congo As of 05/31/ 2012 Indicator 2009 2010 2011 2012 Portfolio Assessment a Number of Projects Under Implementation 5 6 6 7 4.1 4.3 3.8 4.1 a, c Percent of Problem Projects by Number 20.0 33.3 33.3 0.0 a, c Percent of Problem Projects by Amount 14.2 36.1 39.0 0.0 a, d Percent of Projects at Risk by Number 20.0 50.0 33.3 57.1 a, d Percent of Projects at Risk by Amount 14.2 49.4 39.0 65.7 e Disbursement Ratio (%) 20.7 14.9 22.9 31.8 Portfolio Management CPPR during the year (yes/no) Supervision Resources (total US$) Average Supervision (US$/project) Memorandum Item Since FY 80 Last Five FYs Proj Eval by OED by Number 20 1 Proj Eval by OED by Amt (US$ millions) 475.0 39.7 % of OED Projects Rated U or HU by Number 73.7 0.0 % of OED Projects Rated U or HU by Amt 86.2 0.0 Notes: a. As shown in the Annual Report on Portfolio Performance (except for current FY). b. Average age of projects in the Bank's country portfolio. c. Percent of projects rated U or HU on development objectives (DO) and/or implementation progress (IP). d. As defined under the Portfolio Improvement Program. e. Ratio of disbursements during the year to the undisbursed balance of the Bank's portfolio at the beginning of the year: Investment projects only. * All indicators are for projects active in the Portfolio, with the exception of Disbursement Ratio, which includes all active projects as well as projects which exited during the fiscal year. 66 Annex 11 Selected Social Indicators Republic of Congo As of 04/17/2012 Latest single year Same region/income group Sub- Low er- Saharan m iddle- 1980-85 1990-95 2004-10 Africa incom e POPULATION Total population, mid-year (millions) 2.1 2.7 4.0 853.4 2,518.7 Grow th rate (% annual average for period) 2.9 2.7 2.7 2.5 1.6 Urban population (% of population) 52.2 56.4 62.1 37.4 39.4 Total fertility rate (births per w oman) 5.8 5.1 4.5 4.9 2.9 POVERTY (% of population) National headcount index .. .. 50.1 Urban headcount index .. .. .. Rural headcount index .. .. 57.7 INCOME GNI per capita (US$) 980 430 2,240 1,188 1,623 Consumer price index (2005=100) 43 70 123 147 140 INCOME/CONSUMPTION DISTRIBUTION Gini index .. .. 47.3 Low est quintile (% of income or consumption) .. .. 5.0 Highest quintile (% of income or consumption) .. .. 53.1 SOCIAL INDICATORS Public expenditure Health (% of GDP) .. 1.9 1.6 2.9 1.7 Education (% of GDP) 4.6 .. 6.2 5.0 4.0 Net prim ary school enrollm ent rate (% of age group) Total 89 .. 91 75 85 Male 90 .. 92 77 87 Female 88 .. 89 73 83 Access to an im proved w ater source (% of population) Total .. .. 71 61 87 Urban .. 95 95 83 93 Rural .. .. 32 49 83 Im m unization rate (% of children ages 12-23 months) Measles 67 38 76 75 80 DPT 54 50 90 77 79 Child malnutrition (% under 5 years) .. .. 12 22 25 Life expectancy at birth (years) Total 57 55 57 54 65 Male 56 54 56 53 64 Female 59 56 58 55 67 Mortality Infant (per 1,000 live births) 77 70 61 76 50 Under 5 (per 1,000) 122 110 93 121 69 Adult (15-59) Male (per 1,000 population) .. .. 335 379 244 Female (per 1,000 population) .. .. 301 346 175 Maternal (modeled, per 100,000 live births) .. 520 580 650 300 Births attended by skilled health staff (%) .. .. 83 46 57 Note: 0 or 0.0 means zero or less than half the unit show n. Net enrollment rate: break in series betw een 1997 and 1998 due to change from ISCED76 to ISCED97. Immunization: refers to children ages 12-23 months w ho received vaccinations before one year of age or at any time before the survey. World Development Indicators database, World Bank - 17 April 2012. 67 Annex 12. International Partners Ongoing and Planned Activities Activities VI. Agency AFD Infrastructure (mostly the port of Pointe Noire), primary and professional education, environment/forestry/biodiversity, health, and, to a limited extent, support to the private and banking sectors. In addition, since 2011, a specific initiative named ‗Debt-Cleaning Development Contract‖ is being implemented. It includes a large infrastructure component for Brazzaville (run-off management, solid waste management, and roads). AfDB Drinking water and sanitation, energy, economic management, and improving business climate. BDEAC Private sector development support planned in 2012, particularly in entrepreneurship, business creation, and vocational training. China Transportation, energy and water sectors, among others. EU Regional integration (mainly transport infrastructure), governance (public finance management), economic diversification (improving business climate, forestry management), health, and the judiciary. FAO Food security, covering natural resource management, agricultural intensification, diversification of production systems, and early warning systems, among others. India Rural electrification. UNDP Governance, energy and environment, climate change (―UN-REDD‖ with FAO and UNEP), crisis prevention, women‘s empowerment, and general poverty reduction. UNICEF Malnutrition, immunization programs, especially against polio, social protection among other issues. 68 Annex 13. Selected Macroeconomic Indicators 2007 2008 2009 2010 2011 2012* 2013* 2014* 2015* (Percent annual changes) GDP growth -1.6 5.6 7.5 8.8 3.4 5.7 5.6 5.4 4.7 Oil -17.2 6.1 16.2 13.8 -4.8 -3.4 -0.6 -1.2 -6.3 Non-oil 6.6 5.4 3.9 6.5 7.4 9.7 8.0 7.8 8.2 Inflation 2.6 6.0 4.3 5.0 1.8 5.1 4.5 3.0 2.9 (in percent of GDP) Gross national savings 15.3 20.6 15.1 25.5 30.8 34.8 31.9 30.2 29.3 Gross investment 21.8 18.3 22.5 20.5 25.4 34.7 29.7 29.1 28.9 Public investment 10.4 8.9 10.8 10.0 16.0 25.7 20.6 19.6 18.8 Private investment 11.4 9.4 11.7 10.5 9.3 9.0 9.1 9.5 10.0 Current account balance -6.5 2.3 -7.4 5.1 5.5 0.1 2.2 1.1 0.4 (in US$ million) Exports, merchandise 6,287 8,549 6,400 9,800 12,092 12,479 13,028 13,007 12,375 Imports, merchandise 2,165 2,919 2,453 3,525 4,934 6,187 5,852 6,094 6,124 Non-factor services, balance (2,020) (2,276) (2,003) (2,614) (2,633) (2,760) (2,934) (2,974) (2,867) Income, investment and labor (2,620) (3,091) (2,615) (2,985) (3,716) (3,791) (3,879) (3,700) (3,246) Gross international reserves 2,163 3,791 3,874 4,433 5,776 8,536 11,624 14,351 16,768 GDP 8,407 11,915 9,618 12,030 14,440 15,301 16,485 17,094 17,039 (*) Projections as of April 2012. Source: Congolese authorities, IMF and Bank staff calculations. 69 Map of the Republic of Congo No. IBRD 33390 70