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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Finance and Private Sector Development Country Department AFCC1 Africa Region Document of The World Bank FOR OFFICIAL USE ONLY PROJECT APPRAISAL DOCUMENT ON A PROPOSED CREDIT IN THE AMOUNT OF SDR 19.9 MILLION (US$30 MILLION EQUIVALENT) TO THE REPUBLIC OF CAMEROON FOR A COMPETITIVE VALUE CHAINS PROJECT May 27, 2010 Report No: CM 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.

2 CURRENCY EQUIVALENTS (Exchange Rate Effective April 30, 2010) Currency Unit = CFA Franc (CFAF) CFAF 493 = US$1 US$1 = SDR FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS APL BCA CAA CAS CBF CEMAC CIFOR CTB DA EA EMP EPC ESIA ESMF EU FAC FEDEC FLEGT FM GDP GEF GESP GoC GTZ HIPC HIV/AIDS ICA Adaptable Program Loan Benefit Cost Analysis Caisse Autonome d'amortissement (Autonomous Amortization Fund) Country Assistance Strategy Cameroon Business Forum Communauté Economique et Monétaire de l'afrique Centrale (Economic and Monetary Community of Central Africa) Center For International Forestry Research Cameroon Tourism Board Designated Account Environmental Assessment Environmental Management Plan Engineering Procurement and Construction Management Environmental and Social Impact Assessment Environmental and Social Management Framework European Union Fonds d'appui à la Compétitivité (Competitiveness Support Fund) Foundation for Environment and Development in Cameroon Forest Law Enforcement, Governance and Trade Financial Management Gross Domestic Product Global Environment Facility Growth and Employment Strategy Paper Government of Cameroon German Technical Cooperation Agency Heavily Indebted Poor Countries Human Immunodeficiency Virus / Acquired Immune Deficiency Syndrome Investment Climate Assessment

3 ICB ICT IDA IFC IPA IPDP IPP KFW M&E MAGZI MINEPAT MINFOF MINTOUR MIS MSME MtCEO MTR NCB OTF NGO PARCEC PASAPE PCFC PCU PDO PNG POM PPA PPP PPPGPR PRSP PSC PSFE RAP RPF SDR International Competitive Bidding Information and Communication Technology International Development Association International Finance Corporation Investment Promotion Agency Indigenous Peoples Development Plan Indigenous Peoples Plan Kreditanstalt für Wiederaufbau (Reconstruction Credit Institute) Monitoring and Evaluation Mission d'aménagement et de Gestion des Zones Industrielles (Industrial Zone Planning and Management Mission) Ministry of Economy, Planning and Regional Development Ministry of Forests and Fauna Ministry of Tourism Management Information System Micro, Small and Medium Enterprise Mount Cameroun Ecotourism Organization Mid-Term Review National Competitive Bidding On The Frontier (consultancy company) Non-Governmental Organization Planned National Competitiveness Innovation Grant Fund Programme d'appui et de Soutien à l'accord de Partenariat Économique entre l'union Européenne et l'afrique Centrale (Support Program to Economic Partnership Agreement between European Union and Central Africa) Projet de Competitivité de Filières de Croissance (Competitive Value Chains Project) Project Coordination Unit Project Development Objective Programme National de Gouvernance (National Governance Project) Project Operational Manual Project Preparation Advance Public Private Partnership Public-Private Partnership for Growth and Poverty Reduction Poverty Reduction Strategy Paper Project Steering Committee Programme Sectoriel Forêt Environnement (Forest and Environment Development Program) Resettlement Action Plan Resettlement Policy Framework Special Drawing Rights

4 SIL SME SNV SOE STD T&T UNIDO WTTC WWF Specific Investment Loan Small and Medium Enterprise Netherlands Development Organization Statement of Expenditure Sexually Transmitted Diseases Travel and Tourism United Nations Industrial Development Organization World Travel and Tourism Council World Wildlife Fund Vice President: Country Director: Sector Director: Acting Sector Manager: Task Team Leader: Obiageli Katryn Ezekwesili Mary Barton-Dock Marilou Jane Uy Peter Mousley Vincent Palmade

5 REPUBLIC OF CAMEROON Cameroon - Competitive Value Chains CONTENTS Page I. STRATEGIC CONTEXT AND RATIONALE... 1 A. Country and sector issues... 1 B. Rationale for Bank involvement... 4 C. Higher level objectives to which the project contributes... 5 II. PROJECT DESCRIPTION... 6 A. Lending instrument... 6 B. Project development objective and key indicators... 6 C. Project components... 7 D. Lessons learned and reflected in the project design E. Alternatives considered and reasons for rejection III. IMPLEMENTATION A. Partnership arrangements B. Institutional and implementation arrangements C. Monitoring and evaluation of outcomes/results D. Sustainability E. Critical risks and possible controversial aspects F. Loan/credit conditions and covenants IV. APPRAISAL SUMMARY A. Economic and financial analyses B. Technical C. Fiduciary D. Social E. Environment F. Safeguard policies G. Policy Exceptions and Readiness... 35

6 Annex 1: Country and Sector or Program Background Annex 2: Major Related Projects Financed by the Bank and/or other Agencies Annex 3: Results Framework and Monitoring Annex 4: Detailed Project Description Annex 5: Project Costs Annex 6: Implementation Arrangements Annex 7: Financial Management and Disbursement Arrangements Annex 8: Procurement Arrangements Annex 9: Economic and Financial Analysis Annex 10: Safeguard Policy Issues Annex 11: Project Preparation and Supervision Annex 12: Documents in the Project File Annex 13: Statement of Loans and Credits Annex 14: Country at a Glance Annex 15: Map

7 REPUBLIC OF CAMEROON CAMEROON - COMPETITIVE VALUE CHAINS PROJECT APPRAISAL DOCUMENT AFRICA AFTFW Date: May 27, 2010 Team Leader: Vincent Palmade Country Director: Mary A. Barton-Dock Sectors: General industry and trade sector Sector Manager/Director: Peter (100%) Mousley/Marilou Uy Themes: Export development and competitiveness (100%) Project ID: P Environmental category: A Lending Instrument: Specific Investment Loan Safeguard screening category: [] Project Financing Data [ ] Loan [X] Credit [ ] Grant [ ] Guarantee [ ] Other: For Loans/Credits/Others: Total Bank financing (US$ m.): Proposed terms: Financing Plan (US$m) Source Local Foreign Total BORROWER/RECIPIENT International Development Association (IDA) Total: Borrower: Republic of Cameroon Yaoundé Cameroon Tel: (237) Fax: (237) Responsible Agency: Ministry of Economic Affairs, Programming and Regional Development Yaoundé Cameroon Tel: (237) Fax: (237) prctg@yahoo.fr

8 Estimated disbursements (Bank FY/US$m) FY Annual Cumulative Project implementation period: Start: June 24, 2010 End: March 30, 2016 Expected effectiveness date: November 30, 2010 Expected closing date: March 30, 2016 Does the project depart from the CAS in content or other significant respects? Ref. PAD I.B. Does the project require any exceptions from Bank policies? Ref. PAD IV.G. Have these been approved by Bank management? Is approval for any policy exception sought from the Board? Does the project include any critical risks rated substantial or high? Ref. PAD III.E. Does the project meet the Regional criteria for readiness for implementation? Ref. PAD IV.G. Project development objective. Ref. PAD II.B., Technical Annex 3 [ ] Yes [X] No [ ] Yes [X] No [ ] Yes [ ] No [ ] Yes [X] No [X] Yes [ ] No [X] Yes [ ] No The Project Development Objective (PDO) is to contribute to the growth of the wood and tourism value chains in Cameroon by improving their competitiveness and the investment climate. The project will support specialized infrastructure investments, vocational training, policy reforms and direct support to firms through an innovation grant. Project description. Ref. PAD II.A., Technical Annex 4 The project includes the following four components: Component 1: Sustainable wood processing. The objective of this component is to increase, sustainably, the economic value added of the wood value chain in Cameroon (second and third stage processing). The project will support a critical mass of interventions in the wood value chain to trigger productive private investments and job creation. Although the project will promote wood products, the net environmental impact should be positive because it will promote the use of certified wood (coming from sustainable forestry exploitations), productive cutting techniques (allowing much more wood to be used from a given tree), secondary species (left abandoned today) and drying techniques (allowing the wood products to have a much longer shelf life). Component 2: Ecotourism. This component, together with the third component tackling the cross-cutting investment climate issues, aims at addressing a critical mass of the constraints preventing the growth of the tourism industry in Cameroon. The core of the proposed tourism development strategy is to focus on Cameroon s world class touristic assets to constitute a few and compelling touristic packages.

9 Component 3: Cross-cutting interventions to support competitiveness and investment. This component includes the following two subcomponents: (i) support to investment climate reforms; and ii) an innovation grant to help increase the competitiveness of small and medium enterprises in the wood and tourism value chains. Component 4: Project coordination, monitoring and evaluation. The component will support the establishment, equipment and operations of a dedicated team (to be hired competitively by a specialized firm also selected competitively) within the Ministry of Economy, Planning and Regional Development (MINEPAT) reporting to a high level Steering Committee. The team will be responsible for overall project implementation, procurement, financial management and M&E. Which safeguard policies are triggered, if any? Ref. PAD IV.F., Technical Annex Environmental Assessment 4.04 Natural Habitats 4.36 Forests 4.11 Physical Cultural Resources 4.10 Indigenous Peoples 4.12 Involuntary Resettlement Significant, non-standard conditions, if any, for: Ref. PAD III.F. Board presentation: None. Loan/credit effectiveness: The Recipient has legally established the PCU within MINEPAT pursuant to the Project Implementation Legislation, in a manner and with functions and resources satisfactory to the Association, and with the following qualified staff of the PCU, proposed by a specialized recruiting firm, all competitively recruited: a national coordinator, seconded by: (i) wood and tourism value chain experts; (ii) an environment and social expert; (iii) a procurement expert; and (iv) an administrative and financial manager. The Recipient has adopted a Project Operational Manual, in form and substance satisfactory to the Association.

10 Covenants applicable to project implementation: Not later than 3 months after the Effective Date, the Recipient shall recruit a financial management specialist, transversal issue expert, monitoring and evaluations expert, infrastructure expert, within the PCU and under terms of reference and conditions acceptable to the Association. Not later than 4 months after the Effective Date, the Recipient shall recruit the external auditors for the Project in accordance of this Agreement and pursuant to terms of reference and with qualifications acceptable to the Association. Not later than 4 months after the Effective Date, the Recipient shall have established a specialized procurement Tender Board in form and substance satisfactory to the Association and nominated all of its members. Not later than 4 months after the Effective Date, the Recipient shall install an integrated financial management system within the PCU and provide relevant training to the PCU staff for its use. The Recipient shall ensure that the staff of the PCU and the members of the Tender Board shall undergo appropriate procurement training throughout Project implementation. The Recipient shall ensure that the staff of the PCU and other stakeholders undergo appropriate safeguards training throughout Project implementation. Prior to, or as part of, the final adoption and implementation of each of the Campo Ma an Management Plan and the Mount Cameroon Management Plan, the Recipient shall adopt a plan of action in relation to such management plan, acceptable to the Association, describing the specific mitigation measures to be undertaken to assist any Displaced Persons and processes to address restriction of access of eligible Displaced Persons to the natural resources of the Campo Ma'an and Mount Cameroon National Parks. Not later than 10 months after the Effective Date, the Recipient shall recruit an independent technical auditor to perform, inter alia, on-site technical audits of the activities financed under the innovation grants of the Project. The Recipient shall carry out such Technical Audits on a yearly basis. The Recipient and IDA shall carry out Mid-Term Review 24 months after Project effectiveness, or such later dates as may be agreed upon by the Recipient and the Association. The Recipient shall submit annual work plans by January 15 of each year.

11 Disbursement conditions: Retroactive financing of up to an aggregate amount not to exceed US$1 million equivalent may be made for payments made prior to the legal agreement date but on or after May 1, 2010, for eligible project expenditures. For the hard investments (works) inside the Mont Cameroon National Park and promotion activities related to the National Park Adoption and publication of the Mount Cameroon Management Plan in form and substance satisfactory to the Association; Establishment of a park management structure in form and substance satisfactory to the Association; Completion, adoption and disclosure, in a manner satisfactory to the Association, of the Supplemental Social and Environmental Safeguard Instruments, all in form and substance satisfactory to the Association, for the proposed investments. For the hard investments (works) inside the Campo Ma an National Park and promotion activities related to the National Park Update and publication of the Campo Ma an Management Plan in form and substance satisfactory to the Association; Strengthening of the park management structure in form and substance satisfactory to the Association; Completion, adoption and disclosure, in a manner satisfactory to the Association, of the supplemental social and environmental safeguard instruments, all in form and substance satisfactory to the Association, for the proposed investments. For the Competitiveness Support Fund (FAC) The Recipient has legally established the FAC, the FAC Management Unit and the FAC Review Committee pursuant to the FAC Legislation, in a manner and with functions and resources satisfactory to the Association; Recruited within the FAC Management Unit, under terms of reference and conditions acceptable to the Association, an administrator and two technical experts and a social and environment expert; Appointed within the FAC Review Committee, under conditions acceptable to the Association, the national coordinator of the Project, two recognized private sector representatives of the wood sector and two recognized private sector representatives of the tourism sector; An innovation grant agreement has been signed for the relevant sub-project.

12 I. STRATEGIC CONTEXT AND RATIONALE A. Country and sector issues Recent economic developments 1. Cameroon is a linguistically and ethnically diverse country whose geography ranges from Sahelian semi-desert in the north through grassland to equatorial forest in the south. This diversity favors varied economic and agricultural activities, though 70 percent of the population depends on agriculture and pastoral activities for their livelihood. Cameroon has one of the highest proportions of land area devoted to conservation in Africa, with some 14 percent of the country s territory designated as national parks, reserves, sanctuaries and conservation concessions. Cameroon also has significant natural resources, including oil, high-value timber species, agricultural products including coffee, cotton, and cocoa, and as yet untapped natural gas, iron, bauxite, and cobalt. Its human capital is acknowledged as being well educated and a resource that could be further developed. 2. Despite wide ranging economic reforms since the 1990s, starting with an ambitious privatization program including all the major infrastructure and agricultural sectors and later reaching its Heavily Indebted Poor Countries (HIPC) completion point in 2006, Cameroon has remained a lower middle income country. In 2007, per capita income reached US$1,050, less than a 1 percent increase annually on average from 2004 to The 2007 household survey estimated that 39.9 percent of the country s population still lives in poverty, almost unchanged from its 40.2 percent level recorded in Cameroon s economy has performed below its potential over the last decades. Between 1997 and 2007, Cameroon s per capita GDP growth averaged a modest 1.5 percent per annum (while this represented a modest recovery from the negative 4.6 percent per annum per capita GDP growth in the decade that reflected external shocks and poor policy choices). 4. As a result of declining oil production and revenue, the budget ran a deficit during most of the 1990s, leading to a rapid accumulation of public debt. In addition, public spending was highly sensitive to electoral cycles, leading to periodic fiscal slippages. However, Cameroon s poor record of fiscal management has shown signs of improvement since 2005, when the Government adopted a medium-term fiscal strategy. 5. There have been improvements in fiscal performance and public finance management, as well as the preservation of macroeconomic stability. Nonetheless, structural reform implementation was uneven and economic growth was below expectations. In light of Cameroon s recent mixed growth performance and the ongoing global economic slowdown, the recent policy documents have reiterated the Government of Cameroon s (GoC s) commitment to reinvigorate growth-oriented policies. 1

13 Table 1: Selected Macroeconomic Indicators ( ) Cameroon: Selected Macroeconomic Indicators, (Units indicated) Prog. 1 Act. Prog. 1 Act. Prog. 1 Act. Prog. 1 Proj. Real and external sectors Nonoil real GDP Consumer prices (period average) Current account (excl. grants) Fiscal aggregates 3 Total revenue (excl. grants) Of which : nonoil Total expenditure Of which: capital Overall budget balance (excl. grants) Of which : nonoil primary 4, Sources: Cameroonian authorities; and IMF staff estimates and projections. 1 Based on CR/08/ Percentage change. 3 Percent of GDP. 4 Percent of nonoil GDP. 5 Excluding foreign-financed and debt-relief-financed investment and restructuring spending. 6. Economic activity in 2008 showed some resilience in the face of the global slowdown (Table 1). Real GDP is expected to have grown by 4.6 percent in 2008 despite a projected contraction in oil output driven by the continued pickup in nonoil economic activity. The global crisis has, however, increased downside risks. Slower world demand has lowered timber exports. Sustained high oil prices for most of the year nevertheless improved the current account balance in 2008, despite increased imports resulting from high food prices and reduced taxation of staples. Recent government statistics forecast a modest impact of the crisis in 2009 (with GDP growth contracting from 3.4 percent in 2008 to 3.0 percent in 2009), with a rebound to 5.7 percent growth in Cameroon s Vision for Growth and Development 7. The Government of Cameroon has strong ambitions for its future, as reflected in its Vision This policy document serves as the anchor for the new Poverty Reduction Strategy Paper (PRSP) and the Growth and Employment Strategy Paper (GESP) and envisions Cameroon as an emerging nation, democratic and united in its diversity by Its main objectives include: (i) reducing poverty to a socially acceptable level; (ii) becoming a middleincome country; (iii) acquiring the status of a Newly Industrialized Country; and (iv) reinforcing national unity and the democratic process. 8. The Growth and Employment Strategy will cover the first ten years of the long-term development vision and will focus on accelerating growth, creating formal employment and reducing property, consequently, it aims to (i) increase the average annual growth rate to 5.5 percent over the period ; (ii) reduce the underemployment rate from 75.8 percent to less than 50 percent in 2020 with the creation of tens of thousands of formal positions per annum 1 Contrasted by the IMF estimate of 2.4 percent growth in 2009 and 2.6 percent in

14 over the next ten years; and (iii) reducing the income poverty rate from 39.9 percent in 2007 to 28.7 percent in The Growth and Employment Strategy identifies weak productivity, a looming energy crisis and effects of the financial crisis, food insecurity, stagnating poverty, and high unemployment as key challenges facing the period in question ( ). It envisions significant investment in infrastructure to stimulate growth, notably in energy, roads, port infrastructure, water supply, and information technology. Productive increases are sought in agriculture and livestock farming, mining (notably in bauxite, iron, and cobalt), key value chains (timber, information and communication technology (ICT), tourism), and in the business climate. It seeks to strengthen human development and develop more robust formal sector employment. The GESP also places important emphasis on regional integration, and envisions strengthened partnerships with non-traditional donors. Finally, it stresses the need to improve governance, including specific initiatives related to corruption, public procurement, business climate, and civic participation. 10. Cameroon s economy presents a paradox, whereby it possesses a massive resource base, but does not catalyze this into sustained economic growth or poverty reduction. Improving Cameroon s competitiveness requires that all sectors of the economy become more productive and efficient which, in turn, requires an improved investment climate. In the 2010 Doing Business report, Cameroon is ranked at position 171 (out of 183 countries). Developing competitive value chains 11. Recognizing that past reform attempts have been uneven and spread too broadly, the Government is centering its new strategy on the most promising value chains to accelerate growth and job creation through private investments and diversified high value exports. The value chain opportunities are clustered around the manufacturing, mining, forestry, agribusiness, tourism and ICT industries. In these industries, Cameroon has yet to take advantage of its natural and human resource riches e.g. little industrial processing of raw materials, world-class ecotourism sites not accessible, little mining production outside oil and vast underemployment of relatively skilled labor. The proposed project chose to focus on two key value chains with high potential: sustainable wood processing and ecotourism (a detailed analysis of these two key value chains is presented in Annex 1). 12. With 20 million hectares, Cameroon has the second largest forest in Africa (behind the Democratic Republic of Congo). It is also among the most varied with more than 300 species of wood. With around US$500 million of exports in 2007, wood is the second most important export for Cameroon, behind oil. The industry accounts for around 9 percent of Cameroon s GDP. The industry is segmented. The vast majority of wood product exports consist of precious wood having gone only through the first stage of wood processing (sawing, rotary cutting, slicing). This precious wood, about 2 million cubic meters a year, comes from around 90 active large-scale logging operations (most of these relying on selective sustainable logging). The vast majority of the wood products sold in the domestic and regional markets consist of non precious wood processed by small (most often informal) operators (estimated at around 40,000 workers) relying on wasteful second and third stage processing techniques. This wood, estimated at 3

15 662,000 cubic meters a year (CIFOR, 2010), comes from non sustainable, wasteful and often illegal logging operations. The market segmentation comes from the fact that the precious wood exported is beyond the means of the domestic/regional markets. The main constraints to sustainable wood processing in Cameroon are: Lack of policies to encourage the development of a domestic market for legal sustainably managed wood. The most important source for such wood will be community forests which produces the types of wood in demand in the domestic market (e.g. affordable non precious wood) and are much closer to these markets (e.g. large urban centers) than the large scale precious wood logging operations which are mostly located in the east of Cameroon; Lack of voice by the small second and third stage wood processors and community forests in terms of market access and participation; Lack of knowledge and skills of the small second and third stage wood processors in the use of dry wood (which extends the quality and life expectancy of the wood products considerably) and efficient wood processing techniques; Lack of affordable financing for SMEs to invest in the skills and equipment required, and Significant cross-cutting investment climate constraints e.g. heavy regulatory and fiscal burden, high costs and poor quality of energy and transportation, difficulties to access financing and poor governance e.g. the all in cost of a machine is twice what it is in Europe or Asia (On the Frontier (OTF) analysis). 13. Cameroon has a number of world-class nature and culture based touristic assets. Cameroon is among a handful of countries with a large population of gorillas in the wild, it has one of the largest volcanoes in the world (Mont Cameroon) and a multitude of traditional kingdoms in the West and North, each with their own culture. Yet, these assets are under leveraged, less than 15,000 tourists a year choose Cameroon most of Cameroon s 500,000 international visitors come for business or family reasons. Tourism in Cameroon is mostly limited to week-ends and vacations resulting in very low occupancy rates (around 30 percent). Although very underdeveloped, the tourism industry in Cameroon already accounts for 2.5 percent of GDP and 55,000 jobs in hotels and restaurants alone. The main constraints to a rapid development of the sector are: Poorly managed world-class touristic assets due to lack of investments and professional management; Insufficient/inadequate promotion of tourism products; Poorly trained workers in the industry; Remaining security and harassment issues; Significant cross-cutting investment climate constraints: high transportation and telecom costs, fiscal and regulatory burdens, limited access to finance and governance issues. B. Rationale for Bank involvement 4

16 14. The proposed Competitive Value Chains Project aims at stimulating private investments in high potential value chains by providing a critical mass of infrastructure investments, policy reforms and support to firms. To ensure focus and results, the project will cover a limited number of value chains with proven potential wood processing and tourism and will leverage other International Development Association (IDA) projects in the forestry, transport and energy sectors. Other high potential value chains are being supported by complementary World Bank projects (e.g. the Agriculture Competitiveness and Central African Backbone projects, as well as the mining sector project under preparation). The project aims to have a demonstration effect, with the possibility to replicate the proposed approach on other value chains with a high potential. 15. The project builds on a number of diagnostic reports, including the 2004 Competitiveness Diagnostic Study which assessed the potential of all the main local industries, the 2006 Investment Climate Assessment (ICA), the 2007 Development Policy Review, the 2008 Cost of Factors Study and the 2008 Private Sector Development Study. Project preparation also benefited from a number of specially designed studies (see Section IV. B below). 16. The proposed project is part of a wider government program to improve Cameroon s competitiveness and has been prepared with the support of the Competitiveness Committee, within the Ministry of Economy, Planning and Regional Development. 17. Both the Government and private sector have shown great interest in the project, with IDA financing geared towards accelerating implementation of the Government s strategy and leveraging other partners and the private sector. 18. Strategic fit with Growth and Employment Strategy and Country Assistance Strategy (CAS). As highlighted in the section above, increasing the competitiveness of the Cameroonian economy is at the center of the Growth and Employment Strategy Paper. The project is central to the new CAS (discussed by the Board of Directors of the World Bank on March 30, 2010) since improving Cameroon s competitiveness is the first of the two strategic themes. In addition, the updated 2007 Africa Action Plan emphasizes the need for export competitiveness expansion and economic diversification. C. Higher level objectives to which the project contributes 19. The project would contribute to achieve the Government s goals spelled out in the Growth and Employment Strategy: (a) Increasing growth. The support to the development of two value chains with high potential (wood and tourism) aims at increasing private investments and developing the national private sector, thus diversifying the Cameroonian economy and creating additional sources of growth; (b) Reducing unemployment. The project aims at creating new economic opportunities for the abundant workforce in the targeted sectors and geographical areas; 5

17 (c) Reducing poverty. The project aims at supporting enterprises (with special attention given to businesses managed by women) and at increasing the skills of workers (including artisans) in the value chains. II. PROJECT DESCRIPTION A. Lending instrument 20. The project will be a Specific Investment Loan (SIL). The project would span six years, with an IDA allocation of US$30 million equivalent. The amount is exclusive of taxes with the exception of the Innovation Grant sub-component (Component 3.2) which will be inclusive of taxes which will be provided in the form of tax exemptions through the Government s national compensation mechanism. B. Project development objective and key indicators 21. The Project Development Objective (PDO) is to contribute to the growth of the wood and tourism value chains in Cameroon by improving their competitiveness and the investment climate. The project will support specialized infrastructure investments, vocational training, policy reforms and direct support to firms through an innovation grant. 22. Key outcome indicators include: Number of artisans and formal workers in the wood value chain; Value of wood product exports for the third stage processing; Number of hospitality workers in the tourism value chain; Increase in the number of international visitors to Cameroon; 23. Key intermediate outcomes include: Number of formal firms in the wood value chain; Number of workers trained in the wood value chain by programs supported by the project; Number of visitors to the Mont Cameroun National Park; Number of visitors to the Chiefdoms in the Western and North Western regions supported by the project; Number of visitors to the Campo Ma an National Park Number of workers trained in the tourism value chain by programs supported by the project; Number of hits in the e-tourism platform; Number of registered hotel nights; Number of days to register a business; Number of hours to pay taxes; Taxes and tariffs levied on imported equipment; Number of business taxes and licenses; Average annual increase in turnover of firms which benefited from the innovation grant (Competitiveness Support Fund - FAC); 6

18 Number of firms benefiting from the FAC (core FPD indicator); and Share of firms benefiting from the FAC managed by women. C. Project components Component 1: Sustainable wood processing (US$2.2 million) 24. The objective of this component is to increase, sustainably, the economic added value of the wood value chain in Cameroon (second and third stage processing). The project will support a critical mass of interventions in the wood value chain to trigger productive private investments and job creation. Although the project will promote wood products, the net environmental impact should be positive because it will contribute to reducing waste and illegal/unsustainable logging by promoting the use of wood coming from legal and sustainably managed forests (mostly community forests), efficient second and third stage wood processing techniques (allowing much more wood to be used from a given tree), use of secondary species (left abandoned today) and drying techniques (allowing to save on transportation cost and to increase dramatically the quality and shelf life of the wood). This project is not providing support to any kind of logging activities and it should not result in an increase in large-scale logging as the wood coming out of large scale logging operations is too precious and/or too remote for the markets served by most of the companies supported by this project (i. e. SMEs and artisans only involved in second and third stage wood processing activities). 25. This component includes the following three subcomponents: (i) improvement of the policy framework; (ii) promotion of sustainable wood processing techniques and vocational training; and (iii) preparation studies for the creation of a wood cluster in Yaoundé. These subcomponents are further detailed below. Subcomponent 1.1. Reforms to promote the processing of certified dry wood (US$0.4 million) 26. The project will finance studies and technical assistance to improve the institutional, policy and regulatory framework along the wood value chain in support of: (i) the development of a domestic market for competitive legal/certified dry wood (mostly coming out of sustainably managed community forests the project will not finance the development of tracking/certification systems); (ii) the drying and processing of wood to increase the competitiveness of second and third stage wood processors and reduce wood wastage; and (iii) formalization of the wood artisans. (US$0.3 million). 27. The project will finance technical assistance to improve the coordination of private operators in the wood value chain. This would entail in particular the creation of the Wood Federation regrouping private operators all along the value chain this will give a stronger voice to the small wood processors and community foresters (US$0.1 million). Subcomponent 1.2. Promotion of sustainable wood processing techniques and vocational training (US$1.1 million) 28. The project will finance a study and an information campaign to promote to the small second and third stage wood processors and domestic consumers the use of dried wood cut along standard dimensions using high yield cutting techniques. This will document the best possible uses for 7

19 various types of wood together with the standards, norms and construction techniques that should be applied highlighting to both producers and consumers their economic and quality advantages. The detailed technical information on wood products and processing techniques will be made available through a web site that will be managed by the Ministry of Forestry (US$0.4 million). 29. The project will finance a study to develop specific recommendations as to how to improve the provision of vocational training by both the public and private sector (US$0.1 million). 30. The project will finance specific pilot programs as recommended by the above-mentioned study e.g. inviting world-class technical experts to spend several months in Cameroon training large numbers of artisans as it was done successfully by the Capacity Building Center in Vietnam (US$0.6 million). Subcomponent 1.3. Preparatory studies for creating a wood cluster in Yaoundé (US$0.7 million) 31. The project will finance the economic feasibility, technical design, environmental, and social studies necessary for the preparation and creation of a wood cluster in Yaoundé, as a center for legally supplied wood processing. These studies will include in particular a detailed description on how it will be ensured that the cluster will be supplied with legal wood. Future financing (e.g. through a possible additional financing) would possibly be available subject to specific conditions and approval by the Board of Directors of the World Bank. 32. The project will also support under component 3.2 (innovation grant) small second and third stage wood processors users of high yield and eco-friendly equipment and private providers of vocational training. The innovation grant will not finance logging equipment. Innovation grants for wood cutting and processing equipment for the possible future wood cluster would only be available once the wood cluster in Yaoundé has been created in full compliance with IDA safeguards requirements, including the establishment of a proper wood certification scheme. Innovation grants for wood cutting and processing equipment could also be available for financing once the enabling environment for wood processing in Cameroon is improved (PSFE and FLEGT processes). The confirmation of satisfaction of these conditions will require prior written IDA approval. Component 2: Ecotourism (US$8.7 million) 33. This component, together with the third component, tackling the cross-cutting investment climate issues, aims at addressing a critical mass of the constraints preventing the growth of the tourism industry in Cameroon. The core of the proposed tourism development strategy is to focus on Cameroon s world-class touristic assets to constitute a few and compelling touristic packages. This component includes the following two subcomponents: (i) investments to upgrade and preserve world-class tourism assets; and (ii) technical assistance to improve the regulatory and institutional framework of the tourism sector. Subcomponent 2.1. Upgrading of tourism sites (US$6.7 million) 8

20 Mount Cameroon (US$2 million) 34. The project will finance technical assistance and investments to develop ecotourism in the Mount Cameroon area, through: (i) the physical demarcation of the park; (ii) the finalization and adoption of the Mount Cameroon Management Plan and the provision of technical assistance and equipment for park management; (iii) the provision of technical assistance, equipment and training to Mount CEO; (iv) the establishment of a reception, tourist services and parking areas; (v) the rehabilitation and construction of intermediate camps, shelters and cookhouses, trails, signaling and communication systems; and (vi) the implementation of local promotional campaigns. The objective is for Mount Cameroon (4,095 m) to emulate Mount Kilimanjaro (5,825 m) which welcomes more than 40,000 tourists a year (compared to 1,000 for Mount Cameroon). Mount Cameroon has unique faunal and animal diversity (including mountain elephants) and is close to attractive beaches (Limbé), cultural centers (Buea) and a large cosmopolitan city with an international airport (Douala). The project will finance: (i) the remaining 80 km (out of 120 km) of physical demarcation left to be completed around the park; (ii) the finalization and adoption of the Mount Cameroon Management Plan (Mount Cameroon has been declared a National Park on December 18, 2009) and technical assistance to build the capacity of the Park Management (in partnership with the German Reconstruction Credit Institute (KFW); (iii) technical assistance to build the capacity and leadership of Mt CEO. Mt CEO is the successful inter-communal offering ecotourism services on Mont Cameroon with a revenue sharing agreement with local communities. Mt CEO will also federate, coordinate and provide technical support to other accredited actors (e.g. training and equipping of guides and porters); (iv) the establishment of a proper reception and parking area in Buéa; (v) the rehabilitation and construction of intermediate camps, shelters and cookhouses as well as trails, signaling and communication systems; and (vi) local promotion activities. Hard investments within the park and promotion activities will be financed only after the Mount Cameroon Management Plan has been adopted and the park management has been put in place. The project will also support as part of component 3.2 (innovation grant) private investments in eco-lodges and restaurants in and around the park. Chiefdoms in the Western and North Western Regions (US$1.5 million) 35. The project will finance: (i) the rehabilitation of historical buildings, creation of museums and the development of areas for artisanal activities in ten Chiefdoms (to be selected following a competitive process); (ii) the provision of equipment and technical assistance to help protect precious artifacts from fire and theft (on the basis of a code of good conduct); (iii) the setting up of a road signaling system around the two Regions; and (iv) local promotional campaigns and technical assistance to help strengthen and create tourism offices ( Offices du Tourisme ). The project will also support as part of component 3.2 (innovation grant) private investments (e.g. hotels and restaurants). Kribi (US$1.5 million) 36. The project will finance: (i) the upgrading of Kribi s beaches and city centre, and (ii) technical assistance and equipment to the tourism office. With its attractive beaches and city center, Kribi is a 9

21 key tourism destination. The project will finance the upgrading of three beaches north of Kribi s city center (Ngoyé, Mpala and Londji). This will include rehabilitation of access roads, parking areas, sanitation, and surveillance facilities. The project will also finance the development of a commercial/artisanal area at Ngoyé beach (the beach closest to Kribi s center), fish conservation for the benefit of local fishermen at Mpala beach as well as the rehabilitation of Kribi s public lighting. These supports are based on the urban development plan being finalized. The project will also provide technical assistance to the tourism office Office Intercommunal du Tourisme (e.g office equipment, training and local promotion) the private sector is represented on the board of the Office. Private investments (e.g. in hotels and restaurants) will be supported as part of component 3.2 (innovation grant). Campo Ma an (US$1.7 million) 37. The project will finance: (i) the updating of the Campo Ma an Management Plan, (ii) the provision of technical assistance to strengthen the capacity of the park management with respect to eco-tourism activities, (iii) activities in support of local indigenous populations, (iv) the completion of the habituation program of Gorillas, (v) the rehabilitation of roads, trails and signaling within the park and (vi) the carrying out of local promotional campaigns. Campo Ma an is a National Park with very strong eco-tourism potential (e.g. gorillas, drills and elephants) 70 km south of Kribi. The coastal road from Kribi to the park is being rehabilitated (without financing from the World Bank). The park has benefited from offsets from the Chad- Cameroun Pipeline through FEDEC (Foundation for Environment and Development in Cameroon). 2 The park also benefited from technical assistance provided by World Wildlife Fund (WWF). A park management plan was completed in 2006, the area is secured and the habituation of gorillas has started. Hard investments within the park and promotion activities will be financed only after the updated Campo Ma an Management Plan has been published and the ecotourism capacity of the park management has been strengthened. Key private investments (e.g. ecolodges) will be supported as part of component 3.2 (innovation grant). Subcomponent 2.2. Reforms of the tourism institutional framework, promotion and vocational training (US$2 million) 38. The project will finance a feasibility study for the creation of a new dedicated institutional set up for the management of protected areas and tourism sites inspired by relevant international good practices (US$0.3 million). 39. The project will finance technical assistance to improve the coordination of private operators in the tourism sector. This would entail in particular the creation of the Cameroon Tourism Federation regrouping private operators (US$0.1 million). 40. The project will support the development of an e-tourism portal to promote Cameroon as a tourism destination, with on-line reservation facilities accessible to small hotels such as World Hotel Link. This portal will be managed by the Cameroon Tourism Federation (US$0.3 million). 2 FEDEC is in the process of identifying new sources of funding. 10

22 41. The project will finance national and international campaigns to promote the sites rehabilitated by the project. The content and format of these campaigns will be decided in partnership with the Cameroon Tourism Federation and the Ministry of Tourism (US$0.4 million). 42. The project will finance a study to develop specific recommendations as to how to improve the provision of vocational training by both the public and private sector in the tourism sector (US$0.1 million). 43. The project will finance the implementation of recommendations from the above mentioned study on vocational training (US$0.8 million). 44. The project will also support through component 3.2 (innovation grant) private providers of vocational training. Component 3: Cross-cutting actions to support competitiveness and investment (US$9.2 million) 45. This component includes the following two subcomponents: (i) support to investment climate reforms; and ii) innovation grant mechanism to help increase the competitiveness of small and medium enterprises in the wood and tourism value chains. Subcomponent 3.1. Investment climate reforms (US$4.7 million) Support to the Cameroon Business Forum (US$1.0 million) 46. The project will finance the provision of expert technical assistance to the Permanent Secretariat of the Cameroon Business Forum (CBF) and the General Directorate of Economy within MINEPAT, as well as technical studies to support selected investment climate reforms. The CBF has been set up as the main platform for public private dialogue on investment climate issues. The Permanent Secretariat of the CBF plays a key role it is responsible for the organization of the forums (e.g. high level meeting every six months), prepares the agenda, leads the technical work (carried out by working groups) and crucially, follows-up on the reforms decided upon at the meeting. The project will complement the support which is being provided by the International Finance Corporation (IFC). The project will finance three dedicated staff of the Permanent Secretariat as consultants (one economist, one communication specialist and one senior assistant). The project will finance technical assistance to the General Directorate of Economy within MINEPAT targeted at the implementation of the reforms enacted by the CBF. The project will also finance three consulting contracts to support: (i) business registration reforms; (ii) electronic payment of taxes; and (iii) the generation of new investment opportunities in collaboration with the Investment Promotion Agency (IPA). Support to a business taxes and licenses guillotine (US$1.4 million) 47. The project will finance technical assistance to support to the simplification, consolidation and elimination of certain taxes and licenses through the setting up of an on-line inventory of all legal 11

23 business taxes and licenses followed by a systematic review and assessment thereof. This will enable to reduce the large number of taxes and licenses burdening the life of enterprises and affecting competition. This will entail a consulting contract to set up an on-line inventory of all business taxes and a systematic review to simplify, consolidate and eliminate business taxes and licenses. It will be followed by targeted technical assistance to support the implementation of the reforms. Support to the Competitiveness Committee (US$2.3 million) 48. The project will finance: (i) review of investment regimes including taxes and tariffs levied on imported equipment; (ii) benchmarking studies on key factor costs (transportation, financial services, telecom, cement, fertilizers and land); (iii) elaboration of strategies for export driven agribusiness value chains; (iv) a study to develop the ecotourism potential of the Dja biosphere reserve and Rhumsiki; (v) the carrying out of feasibility studies for wood processing clusters in the Eastern Region of Cameroon; (vi) elaboration of a master plan to develop Cameroon s Maritime Growth Pole; (vii) a study and workshop to support the design of a national competitiveness fund - the planned National Competitiveness Innovation Grant Fund (PARCEC); and (viii) capacity building of the Competitiveness Committee (e.g. upgraded web site, vehicles, support staff and training of staff). Subcomponent 3.2. Innovation grant to support key private investments in the wood and tourism value chains - «Fonds d Appui à la Compétitivité» (FAC) - (US$4.5 million) 49. The objective of the Fonds d Appui à la Competitivité (FAC Competitiveness Support Fund) is to kick-start key private investments by small and medium enterprises (SMEs) in the wood and tourism value chains in a context where access to finance is very difficult and the cost of imported equipment very high due to import taxes and tariffs (as discussed in component 3.1 above). The innovation grant will focus on investments which have strong positive externalities on the other actors of the value chain. A positive list has been developed to that effect. It will include (not exhaustive and to be refined during the course of the project): vocational training, creation and diffusion of key information (e.g. through business associations), business development services, equipment for drying plants and SMEs using certified wood, equipment for eco-lodges and restaurants next to or within the two National Parks supported by the project. The innovation grant will not finance logging equipment and large scale logging companies will not be eligible since they are well above the size limits (e.g. they have hundreds of employees while the size limit on the number of employees is fifty). Innovation grants for wood cutting and processing equipment for the possible future wood cluster would only be available once the wood cluster in Yaoundé has been created in full compliance with IDA safeguards requirements, including the establishment of a proper wood certification scheme. Innovation grants for wood cutting and processing equipment could also be available for financing once the enabling environment for wood processing in Cameroon is improved (PSFE and FLEGT processes). The confirmation of satisfaction of these conditions will require prior written IDA approval. Support for the main hard investments on this positive list will be obtained through a competitive process (through calls for expression of interest) and will be subjected to specific terms of reference, with an important emphasis on innovation and learning spillovers. Twenty percent of the fund will not 12

24 be subjected to the positive list to provide the flexibility to support unanticipated projects with strong positive externalities in the two value chains. 50. The FAC will contribute 50 percent of the beneficiary investment costs. The minimum subsidy amount is CFAF 5 million (US$0.01 million) and the maximum is CFAF 50 million (US$0.11 million). 51. Applicants must meet the following eligibility criteria: Legal status allowing commercial activities in Cameroon; Structure created and operating in Cameroon, under Cameroonian law; In operation for over three years; SMEs: maximum of 50 employees, annual turnover under CFAF 500 million, capital assets under CFAF 200 million; Must show their capacity to finance the remaining 50 percent of the investment; Cannot have any direct or indirect link with any member of the Steering Committee, Management Unit or Review Committee (either through capital participation, service provision or direct family relation). 52. The governance and selection process will be subject to very strict rules to ensure independence, integrity and competency. They are described in detail in Annex 6: Implementation Arrangements. At least, once every quarter the FAC Management Unit publishes an Expression of Interest inviting interested firms to apply to the FAC. A first screening of applications is then completed by the FAC Management Unit, based on the eligibility criteria. The Management Unit then undertakes a detailed analysis of the applications that meet the eligibility criteria and rates them. It then submits the detailed analysis, with the ratings, to the Review Committee for final decision. Once the application is selected, a Financing Agreement is established between the beneficiary and the FAC Manager; the Financing Agreement describes the different funding conditions. The Financing Agreement will stipulate that the beneficiary will need to submit information to the FAC Management Unit for the next three years for monitoring and evaluation (M&E) purposes. 53. Special efforts will be made to seek out and support businesses managed by women. The third quarterly Expression of Interest will be reserved to businesses managed by women and the FAC will have as one of its objectives to continuously increase the share of firms benefiting from the FAC which are managed by women (see Annex 3). Component 4: Project coordination (US$6 million) 54. The component will support the establishment, equipment and operations of a dedicated team (to be hired competitively by a specialized firm, also selected competitively) within the Ministry of Economy, Planning and Regional Development (MINEPAT) reporting to a high level Steering Committee. The team will be responsible for overall project implementation, procurement, financial management and M&E. The team will include the FAC Management Unit responsible for the day to day operation of the FAC. The component will also support the 13

25 establishment of an M&E system and impact evaluation studies. Annex 6 provides further details on the project implementation mechanism. Reimbursement of Project Preparation Advance (US$2.9 million) and non allocated funds (US$1 million) 14

26 Table 2: Overall Budget: Summary Project Cost By Component Total US$ million Component 1: Sustainable wood processing Reforms to promote the processing of certified dry wood Promotion of sustainable wood processing techniques and products Preparatory studies for creating a wood cluster in Yaoundé 0.7 Component 2: Ecotourism Upgrading of tourism sites Reforms of the tourism institutional framework, promotion and vocational 2.0 training Component 3: Cross-cutting actions to support competitiveness and 9.2 investment 3.1 Investment climate reforms 3.2 Innovation grant to support key private investments in the wood and tourism value chains Component 4: Project coordination 6.0 PPA reimbursement 2.9 Total Baseline Cost 29.0 Physical Contingencies 0.5 Price Contingencies 0.5 Total Project Costs 30.0 D. Lessons learned and reflected in the project design 55. The proposed project design draws on the past and on-going World Bank and other donor operations in the private sector development sector in Cameroon and other countries and regions. The most relevant applicable lessons reflected in the proposed project design are: Need to focus on value chains and locations with clear competitiveness potential 56. Becoming competitive requires resolving a combination of policy (both cross-cutting as well as industry specific), infrastructure, market failure (e.g. coordination) and skills issues. Governments have fallen in the trap of scattering scarce resources around locations and industries as a result of political pressure. This project will help Cameroon focus its limited capacity and resources on the industries and locations of highest potential while preserving some geographical equity. Need to provide a critical mass of complementary interventions to trigger a strong private sector response 57. The project draws on the successful approach followed by Asian countries which consists of combining infrastructure investments with policy reforms and targeted support to firms to empower producers to reach a superior level of productivity

27 Need to complement and leverage other projects, including from other development partners 58. The project will leverage two closely related projects supported by the World Bank: the Forestry and Environment Sector Program, and the Agricultural Competitiveness project. It will also leverage the European Commission initiatives on investment climate, the African Development Bank project on land reform and IFC s investments and initiatives to help improve the investment climate (see Annex 2 for more details). Need to simplify the project design and avoid Christmas tree projects 59. The need to simplify the project design and avoid a Christmas tree approach was also recognized. The project focuses on two key value chains and does not attempt to solve all investment climate constraints in Cameroon. Clearly defined rules of the game 60. In a context characterized by weak governance, it is crucial to design and implement clear mechanisms and transparent processes in order to reduce the possibility of misallocation of resources. Need to ensure and build full client ownership and capacity to implement 61. The design of the project is the result of intense and comprehensive discussions with the Government of Cameroon. A Project Preparation Advance (PPA) of US$2.9 million was secured to ensure careful preparation and build up of implementation capacity and project ownership by the client. The Government preparation team has been fully engaged in the project preparation: it has provided critical technical inputs in the project design and has helped ensure a broad government and private sector buy-in of the project design. E. Alternatives considered and reasons for rejection 62. The project was initially conceived as a growth poles project, where investments would focus on selected geographical areas with high growth potential. Following in-depth consultation with the Government, the concept shifted from a regional to a sector focus. It was thus proposed that the project should focus on selected value chains with a high potential. 63. The scope of the project was narrowed during the preparation. It was therefore decided to focus on two key value chains (wood and tourism), instead of dividing investments on multiple value chains which would have diminished the investments impact. 64. The construction of the pilot wood cluster in Yaoundé 3 would be financed in the future through a possible additional financing subject to meeting specific conditions and approval by the Board of Directors of the World Bank. This approach was chosen to give enough time to the Government to choose the location and conduct the necessary studies which will be financed by this project without delaying the implementation of the other components. Two other 3 See Component 1.3, p

28 alternatives were considered to enable this phased approach: (i) Adaptable Program Loan (APL) rejected because we were not in the context of a large multi phase program; and (ii) separate Specific Investment Loan (SIL) rejected because it would have generated high additional transaction costs as compared to the possible additional financing. Since this possible additional financing would be a category A, it was decided that this initial project should also be classified as a category A project (see discussion of safeguards in section IV.E below). III. IMPLEMENTATION A. Partnership arrangements 65. The project has been prepared in close coordination with other projects financed by the World Bank and other development partners. The development partner thematic group Economy and Commerce has allowed the project team to regularly inform development partners about the project preparation. 66. Internal partnerships. The project will collaborate closely with the Forest and Environment Development Program, in the context of the wood value chain. The project will involve sensitive issues (legality of wood used in the wood value chain) and guidance from the Forest and Environment Development Program will be sought. 67. The project will also work closely with IFC. The project will aim at encouraging IFC investments in private operators in the wood and tourism value chains. The project will also collaborate with IFC on investment climate issues. In particular, the project will leverage the Cameroon Business Forum and will advocate for key investment climate reforms. The project will also leverage the Africa micro, small and medium enterprises (MSMEs) initiative which supports two commercial banks operating in Cameroon to develop SME lending through the provision of technical assistance and lines of credit. The project will refer SMEs in the wood and tourism value chains to this facility. 68. External partnerships. The project will ensure close coordination with initiatives financed by the European Commission which aim at improving competitiveness (in particular, the Support Program to Economic Partnership Agreement PASAPE between the European Union and Central Africa). One component of PASAPE, implemented by the United Nations Industrial Development Organization (UNIDO), aims at strengthening the capacity of enterprises along selected value chains, including the wood value chain. 69. The project will also work closely with development partners active in the two value chains; in particular the Netherlands Development Organization (SNV) and the Center for International Forestry Research (CIFOR) in the wood value chain, and the German cooperation agencies (KFW and GTZ) in the tourism value chain. 70. Annex 2 highlights the different relevant projects financed by the World Bank and other development partners. 17

29 B. Institutional and implementation arrangements 71. The project implementation structure will comprise: (i) a Project Steering Committee (PSC); and (ii) a Project Coordination Unit (PCU). The project will be under the main responsibility of the Ministry of Economy, Planning and Regional Development. It would be coordinated by a dedicated team reporting to a multi-ministerial steering committee (Project Steering Committee) presided by the Ministry of Economy, Planning and Regional Development and with private sector participation. 72. The Project Steering Committee (PSC) will be the Steering Committee of the Programme d Appui à la Compétitivité des Filières de Croissance (established by Decree of the Prime Minister on May 12, 2009). This Committee, presided over by the Minister of MINEPAT, or his representative, will be responsible for the strategic guidance of the project. It will reflect the multi sectoral nature of the project, and will include representatives of, inter alia: (i) ministries in charge of Forestry, Tourism, Industry and Finance; and (ii) the private sector. The PSC will be responsible for: (i) approving the project s annual work plan and budget prepared by the Project Coordination Unit; (ii) providing overall coordination and policy guidance; and (iii) approving subsequent updates of the Project Operational Manual. The PSC will meet at least twice a year. The Project Operational Manual will further detail the role of the PSC. The Competitiveness Committee, acting as the Technical Secretariat of the Steering Committee of the Programme d Appui à la Compétitivité des Filières de Croissance, will be responsible for the strategic supervision of the project activities. 73. The Project Coordination Unit (PCU) will include a coordinator and several technical staff as well as support staff, as described below. The coordinator and the main technical staff will be working full time on the project and will be recruited competitively through a specialized firm which will also be recruited competitively. 18

30 Figure 1: Organization chart of the Project Coordination Unit Coordinator Technical assistance Wood Expert Tourism expert Transversal issues expert FAC administrator Monitoring and evaluation expert Environment and social expert Procurement expert Administrative and Financial manager Infrastructure expert (reporting to wood and tourism experts) Wood FAC expert Accountant Tourism FAC expert Support staff Env. and social expert Admin and financial assistant 74. Project Operations Manual (POM). The POM gathers the following three manuals: (i) the administrative, accounting and financial procedures manual; (ii) the project implementation manual; and (iii) the FAC procedures manual. The project implementation manual will describe the implementation mechanism of the project, including the role of the Project Steering Committee and of the Project Coordination Unit. It will include the Terms of Reference for the staff of the Project Coordination Unit. It will also detail the coordination mechanism between the different ministries, the private sector and the thematic groups. 75. Annex 6 provides further detail about the project implementation mechanism. C. Monitoring and evaluation of outcomes/results 76. The Results Framework in Annex 3 defines performance indicators for each component and subcomponent. The PCU will be responsible for overall monitoring and evaluation (M&E) and for meeting the agreed reporting requirements. The PCU will include a dedicated M&E expert. 77. M&E systems will be put in place within the different components of the project (wood value chain, tourism value chain and Competitiveness Support Fund) to ensure that the required M&E data is regularly generated and tracked. The set up of such M&E system will be the responsibility of the M&E expert. The PCU will report on progress towards meeting the targeted results to the PSC and to IDA. 19

31 78. Semi-annual joint implementation support missions with the World Bank, the Government and implementation partner staff will assess the status of key project outcomes and update legal covenant compliance. The Mid-Term Review (MTR) would be conducted no later than three years after the first disbursement. A final independent evaluation will be conducted in the last semester of project execution to assess overall achievement of expected project results. D. Sustainability 79. Project sustainability is based on the following: High government ownership. Project preparation has been jointly undertaken by the Government and the World Bank team. The Project Preparation Advance has allowed to build the nucleus of the PCU and to ensure full ownership of the project by the government team. This project is part of a wider government initiative, led by the Competitiveness Committee, to increase the Cameroonian economy s competitiveness. This project aims to have a demonstration effect and to be replicated along other value chains. Sustainable value chain development. The project aims to catalyze the development of the targeted value chains through addressing regulatory and infrastructure constraints. Such approach aims at ensuring a sustainable development of the value chain: following this catalytic support, the value chain will be able to further develop beyond the project life. Sustainable mechanisms for the operation and maintenance of infrastructure financed by the project. The project will ensure that sustainable mechanisms for the operation and maintenance of infrastructure financed by the project are put in place. For example, the wood cluster will be established as a Public Private Partnership (PPP) and will be managed by the private sector. The wood cluster business plan shows that the wood cluster should break even after three years of operations, which should ensure its sustainability. Strong private sector participation in the two selected value chains. The strong participation of the private sector during project implementation aims at ensuring that the project is demand driven and meets the needs of the private operators along the two value chains. E. Critical risks and possible controversial aspects 80. The table below highlights the main risks of the project and the mitigation measures. 20

32 Risks Weak demand for processed wood and tourism products due to prolonged global economic crisis Weak political will for investment climate reforms Weak coordination across ministries Elite capture of innovation grant mechanism Limited experience of MINEPAT in conducting IDA financed operations Risk of degradation of protected areas by tourism related activities. Limited experience of MINEPAT in safeguards management Table 3: Main Risks and Mitigation Measures Risk Rating Substantial Substantial Substantial Substantial Substantial Substantial Risk Mitigation Measures The project will help develop high quality products based on raw materials for which Cameroon has a comparative advantage. The project will strive to support the development of products and services catering to the local/regional demand The project will leverage the investments in the wood and tourism value chains to advocate for selected investment climate reforms that have a direct impact on these two value chains The project will rely on a high level Steering Committee which will include all relevant sector ministries. Important consensus building efforts have been undertaken during the preparation of the project (through thematic groups ) The innovation grant will include thorough internal and external control mechanisms and will build on established best practices. A dedicated project coordination unit will be set up within the MINEPAT with competitively recruited technical staff. A core project team has already been constituted during project preparation An Environmental and Social Management Framework (ESMF), a Resettlement Policy Framework (RPF) and an Indigenous Population Framework (IPF) have been prepared and published. The project will support the completion of the Mont Cameroun Management plan and update the 2008 management plan for the Campo Ma an National Park. The project will not finance hard investments unless there are strong management plans and management structures in the Mont Cameroun and Campo Ma an National Parks. The project is hiring a full time environmental expert. Rating after Mitigation Moderate Moderate Moderate Moderate Moderate Moderate Overall risk rating Substantial Moderate F. Loan/credit conditions and covenants 81. Effectiveness conditions The Recipient has legally established the PCU within MINEPAT pursuant to the Project Implementation Legislation, in a manner and with functions and resources 21

33 satisfactory to the Association, and with the following qualified staff of the PCU, proposed by a specialized recruiting firm, all competitively recruited: a national coordinator, seconded by: (i) wood and tourism value chain experts; (ii) an environment and social expert; (iii) a procurement expert; and (iv) an administrative and financial manager. The Recipient has adopted a Project Operational Manual, in form and substance satisfactory to the Association. The Project Operational Manual includes three submanuals: the administrative, financial and accounting manual, the implementation manual and the innovation grant (FAC) manual (a draft FAC manual is already available). 82. Dated Covenants Not later than 3 months after the Effective Date, the Recipient shall recruit a financial management specialist, transversal issue expert, monitoring and evaluations expert, infrastructure expert, within the PCU and under terms of reference and conditions acceptable to the Association. Not later than 4 months after the Effective Date, the Recipient shall recruit the external auditors for the Project in accordance of this Agreement and pursuant to terms of reference and with qualifications acceptable to the Association. Not later than 4 months after the Effective Date, the Recipient shall have established a specialized procurement Tender Board in form and substance satisfactory to the Association and nominated all of its members. Not later than 4 months after the Effective Date, the Recipient shall install an integrated financial management system within the PCU and provide relevant training to the PCU staff for its use. The Recipient shall ensure that the staff of the PCU and the members of the Tender Board shall undergo appropriate procurement training throughout Project implementation. The Recipient shall ensure that the staff of the PCU and other stakeholders undergo appropriate safeguards training throughout Project implementation. Prior to, or as part of, the final adoption and implementation of each of the Campo Ma an Management Plan and the Mount Cameroon Management Plan, the Recipient shall adopt a plan of action in relation to such management plan, acceptable to the Association, describing the specific mitigation measures to be undertaken to assist any Displaced Persons and processes to address restriction of access of eligible Displaced Persons to the natural resources of the Campo Ma'an and Mount Cameroon National Parks. 22

34 Not later than 10 months after the Effective Date, the Recipient shall recruit an independent technical auditor to perform, inter alia, on-site technical audits of the activities financed under the innovation grant of the Project. The Recipient shall carry out such Technical Audits on a yearly basis. The Recipient and IDA shall carry out Mid-Term Review within 24 months after project effectiveness, or such later dates as may be agreed upon by the Recipient and the Association. The Recipient shall submit annual work plans by January 15 of each year. 83. Disbursement conditions Retroactive financing of up to an aggregate amount not to exceed US$1 million equivalent may be made for payments made prior to the legal agreement date but on or after May 1, 2010, for eligible project expenditures. For the hard investments (works) inside the Mont Cameroon National Park and promotion activities related to the National Park Adoption and publication of the Mount Cameroon Management Plan in form and substance satisfactory to the Association; Establishment of a park management structure in form and substance satisfactory to the Association; Completion, adoption and disclosure, in a manner satisfactory to the Association, of the Supplemental Social and Environmental Safeguard Instruments, all in form and substance satisfactory to the Association, for the proposed investments. For the hard investments (works) inside the Campo Ma an National Park and promotion activities related to the National Park Update and publication of the Campo Ma an Management Plan in form and substance satisfactory to the Association; Strengthening of the park management structure in form and substance satisfactory to the Association; Completion, adoption and disclosure, in a manner satisfactory to the Association, of the supplemental social and environmental safeguard instruments, all in form and substance satisfactory to the Association, for the proposed investments. For the Competitiveness Support Fund (FAC) The Recipient has legally established the FAC, the FAC Management Unit and the FAC Review Committee pursuant to the FAC Legislation, in a manner and with functions and resources satisfactory to the Association; Recruited within the FAC Management Unit, under terms of reference and conditions acceptable to the 23

35 Association, an administrator and two technical experts and a social and environment expert; Appointed within the FAC Review Committee, under conditions acceptable to the Association, the national coordinator of the Project, two recognized private sector representatives of the wood sector and two recognized private sector representatives of the tourism sector; An innovation grant agreement has been signed for the relevant sub-project. IV. APPRAISAL SUMMARY A. Economic and financial analyses 84. The Benefit Cost Analysis (BCA) establishes that the project is technically sound. In other words, the mixture of hard and soft infrastructures is the right one to achieve the components objectives such that the value of benefits will exceed the costs. The analysis shows that the project is expected to contribute about US$100 million of economic benefits compared to about US$25 million in economic costs (net present values over 25 years). The detailed analysis is presented in Annex 9. Basis of the economic analysis The project costs are divided into five categories: (i) hard investments (e.g. in physical infrastructure); ii) soft investments (e.g. in training and promotion); (iii) soft investments related to the cross cutting actions to support competitiveness (e.g. innovation grant and reforms to the business environment); (iv) project management cost; and (v) the recurrent costs that occur only on physical infrastructure after project completion (most hard investments should be completed by 2013). The costs of the cross-cutting actions (component 3) and project management (component 4) have been allocated equally between the first (sustainable wood processing) and second components of the project (ecotourism). The provisions for mitigating negative environmental externalities have been included as part of the hard investment costs. The economic benefits of the project s investments will derive from a net increase in economic value added. A net increase in economic value added will occur as a result of the new/improved activities being carried out at a higher productivity level than the national average. Higher productivity activities will primarily translate into higher wages (on both the new and existing jobs impacted by the project) as well as higher profits for firms (which can be re-invested) and higher taxes paid to the Government. Additional benefits would accrue through economic linkages in related sectors (although most likely significant, these benefits are very hard to estimate and have not been included as part of the economic analysis). Other significant economic benefits should be derived from the cross-cutting investment climate reforms (sub-component 3.1). The benefits of such reforms are also very difficult to estimate ex ante and are thus not included in this analysis. The net present value calculations assume a real discount rate of 10 percent over a 25 year period corresponding to the estimated average total life of hard investments. 24

36 85. Sustainable wood processing value chain. Cumulatively, the present value of the wood component s economic cost is estimated at US$8.2 million. 86. The increase in the economic value added and productivity of wood processing activities have been estimated as follows: Increase in the cutting yield from 10 to 15 percent over 25 years (20 percent currently in the Ivory Coast) as a result of policy reforms that will be supported by the project: about US$50 million in net present value attributable to the project; Increase in the third step processing and the doubling of productivity of about 3,000 artisans as a result of the promotion of new products and techniques as well as the development of vocational training: about US$15 million in net present value attributable to the project. 87. The net benefits (about US$65 million of net present value which would be attributable to the project) would thus far exceed the net present value of the total project investment costs (US$8.2 million). It should be noted that a large share of this economic value will depend on policy reforms to be supported by the Programme Sectoriel Forêt Environnement (PFSE). 88. Ecotourism value chain. Cumulatively, the present value of the tourism component s economic cost is estimated at US$16.9 million, largely composed of investments in physical infrastructure. Recurrent costs with a present value of US$2.9 million are not negligible and will weigh on the fiscal impact of the project. 89. Combining the increase in number of tourists with the increase in average spending per visit, results in an increase of total tourism spending in the sites targeted by the project from US$9 to US$26 million in 25 years (in real terms). 90. With the assumption that these new activities are at double the productivity level, the net economic benefit in year 25 is thus estimated to be US$8.5 million. The net present value of the net benefit accrued over the first 25 years is about US$40 million. The net economic benefits are thus more than double the total economic costs (with relatively conservative assumptions). B. Technical 91. The following analytical steps have been taken to prepare the project: Choice of conceptual analytical approach. The economic value chain approach enables to directly and completely apprehend the main challenge and opportunity faced by the Cameroon economy: how to better leverage its natural and social resources to develop higher value economic activities. This was also the analytical approach retained by the Agriculture Competitiveness Project which has been developed in parallel. This approach enables to identify the main bottlenecks to competitiveness in a given industry/value chain, and thus to define the critical mass of interventions which will be required to markedly improve its competitiveness. These interventions are of three types: (i) investments in hard infrastructure as public goods; (ii) investments in soft infrastructure in the form of better 25

37 public policies and institutions; and (iii) direct support to the workers and firms (following a competitive and demand driven approach). We equate increasing competitiveness to increasing (total factor) productivity and reducing (factor and transaction) costs. The project also relies on the concept of economic clusters as a main driver of competitiveness. As shown by Michael Porter in his 1990 book The Competitive Advantage of Nations, the clustering of economic activities around an industry and/or along a value chain entails multiple benefits such as: cooperation and competition between firms, efficient use of common public infrastructure, access to a common pool of skilled labor, broad choice of inputs and large offering to customers and capacity to lobby the Government to improve the business environment. The economic geographic growth poles approach, consisting in developing synergies between different industries in a given location, was considered initially but not retained as it was felt that it was not politically feasible in Cameroon at this time. The economic geographic growth poles approach will nevertheless be essential to support the development of economic activities around the emerging growth poles of Kribi (mining, tourism and agribusiness) and Limbé (agribusiness, oil and tourism) the third component of the project includes a provision to conduct the necessary analytical work. Choice of the economic value chains. A short list of economic value chains was first established on the basis of Cameroon s economic performance, natural endowments as well as the performance achieved by other successful developing countries with similar characteristics (e.g. Ghana, Ivory Coast, Madagascar and Senegal). This first short list included: agribusiness, wood processing, mining, cotton/textiles/apparel, ICT and tourism. Agribusiness and mining were not retained as they are supported by other World Bank operations. ICT was not retained because telecom prices and services are not sufficiently competitive (as highlighted in the 2007 study on factor costs) the situation will hopefully improve upon completion of the Central African Backbone supported by the World Bank. The cotton/textiles/apparel value chain was not selected for the initial phase because of limited short term prospects for Cameroon to become competitive (as demonstrated by the initial results of a study on the potential of this value chain, undertaken during project preparation) and the limited IDA envelope for the project. It was thus decided that the project will focus on the sustainable wood processing and ecotourism value chains. Choice of the activities to be supported by the project within each value chain. Extensive consultations with the private sector together with studies conducted by worldclass experts have been relied upon to identify and specify the activities that will be financed by the project: o Main market opportunities and related constraints along the wood value chain; o Preparatory studies for a possible pilot wood cluster in Cameroon leveraging lessons learned from other countries; o Main market opportunities and related constraints to develop competitive ecotourism products in Cameroon; o Economic feasibility of rehabilitating the Waza national park as a Public Private Partnership (this study led to the decision not to include Waza as part of the project). o Economic feasibility of developing a competitive apparel value chain (this study contributed to the decision not to include the apparel value chain as part of the project). 26

38 o Comparative analysis of the Mengamé Sanctuary and the Campo Ma an National Park for the development of gorilla-related eco-tourism. This led to the choice of Campo Ma an as the site to be supported by the project. Determination of measures to mitigate the environmental and social impacts. In parallel to the technical studies mentioned above, the following environment and social studies have been conducted: o Detailed environmental and social impact framework was published on December 23, 2009; o Resettlement Policy Framework was published on January 19, 2010); o Indigenous Population Plan was published on January 19, 2010); o A management plan for the Campo Ma an National Park was published in The project will finance its update; o A draft process framework (acceptable to IDA) for Campo Ma an National Park was published on May 3, 2010; o A management plan for Mont Cameroon, declared a National Park in December 2009, is under development with the support of KFW. The project will support its completion; o A draft process framework (acceptable to IDA) for Mount Cameroon National Park was published on April 20, Development of the Government s technical capacity to prepare and implement the project. The preparation of the project also benefited from the hiring of technical experts as part of the government project preparation team: o International value chains expert; o National value chains expert; o National expert for the wood value chain o National expert for the tourism value chain o National expert on infrastructure o Short term experts on social and environmental issues o International expert for the cross-cutting interventions in support of competitiveness o Financial management specialist o Procurement specialist Development of broad ownership across the public and private sector. Finally, the preparation of the project relied extensively on technical working groups representing the key stakeholders from the public and private sector: o Sustainable wood processing working group o Ecotourism working group o Cotton/textiles/apparel working group o Innovation grant working group (this group held a two day workshop in November 2009 in Kribi) o Investment climate working group 27

39 C. Fiduciary 92. The PCU relies on experienced procurement and financial management experts, hired under the Project Preparation Advance, with previous World Bank experience. During project preparation, the fiduciary staff of the PCU satisfactorily managed a US$2.9 million Project Preparation Advance. Two action plans have however been developed to ensure sound financial management and procurement upon effectiveness. 93. The following action plan is proposed to ensure sound financial management: Actions Completed by Responsible body 1 Robust financial management and accounting procedures will be included in the POM. This will include non-audited Interim Financial Report (IFR) format, the annual project financial statements format, and the TOR for external auditors for the project. The POM will have to be in form and substance satisfactory to IDA. 2 Acquire, install an integrated financial management system and train the staff in its use. Condition of effectiveness 120 days (4 months) after effectiveness 3 Selection of independent auditors 120 days (4 months) after effectiveness 4 Competitively recruit a Financial Manager 90 days (3 months) in the PCU (an accountant has already been after effectiveness recruited for the PPA). Train relevant PCU staff on the use of the computerized accounting system in PCU. 94. The following action plan is proposed for procurement. The procurement plan for the first 18 months of the project was carefully reviewed at appraisal. The final version has been discussed and validated during negotiations. PCU PCU PCU PCU Action to be undertaken Time-frame Responsible body Elaborate and submit to IDA a satisfactorily version of the operation manual Monitoring and following up the MINEPAT tenders board performance before moving to an alternative Elaborate and submit a procurement plan to IDA Condition of effectiveness As needed during project life before the establishment of the project specialized tender project Final version discussed and validated during PCU World Bank procurement staff with information collected by the PCU procurement specialist PCU 28

40 Action to be undertaken Time-frame Responsible body Establish a specialized procurement Tender Board, in form and substance satisfactory to IDA, and to be approved through a Prime Minister decree, as well as all of the tender boards members nominated. The text shall define the procurement arrangements and approvals authorities in order to mitigate the lack of provisions in the code for delegation of authority by the presidents of tender boards and by the procuring entities (the 2 major potential bottlenecks for project implementation and budget execution) Prepare and submit to IDA a specific operations manual for the management of the innovation grants Strengthen capacity building for the key staff of the PCU and the tenders board and the specialized tenders board members Set up a record-keeping and filing system at PCU negotiations Four months after effectiveness Condition of effectiveness Four months after Credit effectiveness and as needed during project life Condition of effectiveness PCU PCU PCU through its procurement specialist, with as needed the participation of the World Bank procurement staff The PCU procurement specialist 95. In addition, an operating manual for the FAC has been drafted which explains in detail how the innovation grant mechanism will operate and the different controls in place (see Annex 6 for further details). 96. Financial Management and Disbursement Arrangements. The overall responsibility for the financial management will remain with the Project Coordination Unit (PCU). The project will have an accounting unit within the PCU headed by a Financial Manager to be recruited competitively who will be responsible for keeping IDA / project related accounts. The Financial Manager will be assisted by a Project Accountant to also be recruited competitively (it should be noted that an accountant has already been recruited for the PPA). The coordination and reporting mechanisms between the agencies involved in the project and the PCU are to ensure that arrangements in place will allow smooth implementation of the project activities and that the funds are used only for the purposes for which they are granted, with due regard to economy, efficiency, and sustainable achievement of the project s development objectives. The PCU will have to maintain the consolidated budget and accounts. To this end, the PCU will acquire and install integrated financial management software. Robust financial management and accounting procedures will be included in the POM. This will include non-audited Interim Financial Report (IFR) format, the annual project financial statements format, and the TORs for external auditors for the project. The POM will have to be in form and substance satisfactory to IDA. The 29

41 project s consolidated financial statements would be audited each fiscal year by an independent auditor accepted by IDA. Detailed terms of reference for the selection of the project auditor would be formulated and agreed with IDA. Furthermore, for the FAC, a technical audit will be conducted on an annual basis to ensure that activities were completed pursuant to the Innovation Grant Agreement and that funds were used for the purposes intended by the Financing Agreement. All relevant documentation must be retained by the project and made available to technical auditors and financial auditors. The overall residual financial management risk is substantial. Following this assessment, an action plan (presented in Annex 7), indicates the actions to be undertaken to strengthen financial management of the project and due completion dates. The World Bank will devote an estimate of 30 staff weeks per year for project supervision. During the first two years, supervision will focus on performance of the PCU in procurement and financial management, as well as in completing the agreed work plan. During the following years supervision will focus on progress in reaching planed results. Social and environment issues will be closely monitored. 97. As of the time of project negotiations (May 19, 2010), there were no outstanding/overdue audits for any project being implemented by the Project Implementing Entity (MINEPAT). 98. Disbursements. The project will disburse 100 percent of eligible expenditures inclusive of taxes for subcomponent 3.2 (Innovation Grant), but exclusive of taxes for all other project components as these will benefit from the government s tax exemption authorized by Circulaire number 002/C/MINEPAT/DGEP/DPI of December 29, Disbursements will be supported with Statements of Expenditures (SOE) for amounts below SOE documentation thresholds. To accelerate implementation, two designated accounts (DAs) will be opened in a commercial bank acceptable to IDA and credit proceeds will be advanced into these DAs up to their respective ceiling amounts at effectiveness. Subsequent advances will be made upon receiving SOEs reporting on the use of the previous advance. Approval is being sought for retroactive financing of up to an aggregate amount not to exceed US$1 million equivalent for payments made prior to the Financing Agreement date but on or after May 1, 2010, for eligible project expenditures under component 4 (Project coordination). (Annex 7 provides for more details on FM and disbursement arrangements). D. Social 99. The Environmental and Social Management Framework (ESMF) has identified positive impacts that generally concern: (i) job opportunities, especially for women and disabled persons; (ii) better working conditions in project areas; (iii) mixing of populations and improvement of the living environment of local people following the installation of various types of infrastructure; and (iv) capacity building of stakeholders in each sector for greater competitiveness It has also identified the potential negative social impacts of the project, which could include: (i) risk of conflicts over land expropriation and risks related to the acquisition of land for the purpose of infrastructure building, e.g. pilot wood cluster in Yaoundé (to be financed through a possible additional financing) and ecolodges; (ii) risk of increased prevalence of sexuallytransmitted diseases (STDs) and HIV/AIDS; (iii) increased risk of lung disease affecting workers 30

42 and employees due to air pollution by industrial wastes (e.g. sawdust, chemical products, etc.); (iv) risk of overcrowding, especially with the saturation of infrastructure and basic services (housing, education services and health) in project areas; and (v) risk of deteriorating archaeological and cultural heritage linked to the destruction of cultural and archaeological relics (e.g. tombs, sacred sites, archaeological sites, etc.) and disruption of traditional customs and practices The innovation grant (subcomponent 3.2) will support key private investments in the wood and tourism value chains. It will focus on soft and hard investments which have strong positive externalities and positive social impacts on the actors in the value chains. In particular, it will support vocational training as well as business development services, for both men and women. Gender development will be a critical focus of this sub-component in order to enable women to benefit more from this support. The innovation grant will include competition rounds for women only to ensure that some of the recipients will be women. E. Environment 102. The ESMF also identifies the various potential environmental impact of the project. The potential negative impact broadly focus on the following: (i) soil, surface water and groundwater pollution risks due to the renovated accommodation facilities; (ii) loss of vegetation and landscape processing following the installation of tourism facilities), which will enhance the risks of destroying the habitat of threatened species and the ecologically fragile areas; and (iii) risk of disturbance to wildlife by noise during works and by the influx of tourists The project also offers potential environmental benefits. These include the promotion of the use of legal/certified wood (cut from sustainable forests), the promotion of dry wood (much more durable than wet wood), the promotion of high yield cutting techniques and the generation of additional sources of revenues (from paying visitors) for the protection of natural and cultural assets. Sanitation and solid waste management facilities and services will reduce land and water pollution, if correctly designed, sited and operated in the national parks where tourism activities will be promoted. The improvement of the road system inside national parks and sanctuary will improve the quality of the control by those in charge to facilitate the access to the sites The current phase will concentrate on providing technical assistance to anticipate and define the best way to support efficiently the creation of a possible wood cluster under a possible additional financing. Many of the other potential direct adverse environmental impacts are manageable, though some of the social impacts will need to be carefully addressed (e.g. the resettlement of the wood artisans). The tourism facilities in the national parks will be newly built, while works to the road network will consist mostly of rehabilitation; hence, most of the impact is expected to be moderate and can be mitigated. The loss of biodiversity in the national parks will be adequately managed through a strong management plan and increasing staff numbers to ensure control against poaching activities and agriculture encroachments in these sensitive areas. Specific Environmental Assessments (EAs) and Environmental Management Plans (EMPs) will be prepared prior to permitting any investments in the national parks and cultural sites, and mitigation measures implemented in full consistency with Cameroonian law and World Bank environmental and social safeguards policies. 31

43 105. Avoidance of indirect impact such as that which could result from poorly-sited identification depends on following sound planning principles and enforcing standards and guidelines. The predictable pressures on natural resources and ambient environmental quality that can result from a combination of intended and unintended developments surrounding tourism facilities include: increase of employment seekers, increase in productive economic activity, and growth in tourist arrivals. In the absence of effective controls, this could lead to more rapid deforestation, depletion and deterioration of water supplies, accumulation of solid waste, decline in water and air quality, and destruction of scenic and cultural amenities To ensure the satisfactory implementation of environmental and social concerns through the project, the Government has decided to create an Environmental and Social Unit, headed by an Environmental and Social Specialist (ESS) who will be hired by project effectiveness under terms of reference found satisfactory by IDA. The ESS will work closely with the representatives of several ministries, including: the Ministry of Environment and Nature Protection, the Ministry of Social Affairs, the Ministry of Tourism, and local communities and NGOs. The ESS will also be responsible for preparing all reports related to environmental and social issues and ensuring that an environmental and social section is included in the project status report. F. Safeguard policies 107. The proposed activities trigger six safeguards policies, as highlighted in the table above. The Project is classified Category A because it will finance all the key preparation studies for the creation of a wood cluster in Yaoundé that could possibly be financed through a possible additional financing subject to specific conditions and approval by the Board of Directors of the World Bank. Also, this project is expected to possibly finance wood processing equipment for such wood cluster in Yaoundé once such wood cluster has been set up in full compliance with IDA safeguards requirements, including the establishment of a proper wood certification scheme. 4 The project also involves technical assistance for two important national parks (Campo Ma an and Mount Cameroon) for ecotourism activities. Campo Ma an National Park is an offset for the Chad Cameroon Pipeline Project and Mount Cameroon National park hosts the most important biodiversity in the Congo Basin sub-region. The following safeguards policies are triggered in the project: 4 The Innovation Grants will not finance logging equipment. Innovation grants for wood cutting and processing equipment for the possible future wood cluster would only be available once the wood cluster in Yaoundé has been created in full compliance with IDA safeguards requirements, including the establishment of a proper wood certification scheme. Innovation grants for wood cutting and processing equipment could also be available for financing once the enabling environment for wood processing in Cameroon is improved (PSFE and FLEGT processes). The confirmation of satisfaction of these conditions will require prior written IDA approval. 32

44 Safeguard Policies Triggered by the Project Yes No Environmental Assessment (OP/BP 4.01) [X] [ ] Natural Habitats (OP/BP 4.04) [X] [ ] Pest Management (OP 4.09) [ ] [X] Physical Cultural Resources (OP/BP 4.11) [X] [ ] Involuntary Resettlement (OP/BP 4.12) [X] [ ] Indigenous Peoples (OP/BP 4.10) [X] [ ] Forests (OP/BP 4.36) [X] [ ] Safety of Dams (OP/BP 4.37) [ ] [X] Projects in Disputed Areas (OP/BP 7.60) * [ ] [X] Projects on International Waterways (OP/BP 7.50) [ ] [X] 108. OP 4.01 Environmental Assessment. The Borrower has prepared an Environmental and Social Management Framework (ESMF), which was disclosed on December 23, 2009 (Report E2326), as the location of the sites for the wood processing and ecotourism components (and their related investments) were not known during project preparation. The ESMF will guide the screening, analysis, and safeguards approval of future activities, The ESMF also presents sample terms of reference for activities eligible for an EA and also the environmental guidelines for contractors (roads rehabilitation and buildings). An Environmental and Social Impact Assessment (ESIA) will be prepared for each activity planned for implementation during the first year of the project and will include environmental and social management and monitoring plans (ESMPs). The EA will include an in-depth analysis of the subproject alternatives and possible cumulative impacts. The EA and EMP preparation process will be consistent with national environmental policies, laws and regulations and comply with World Bank environmental and social safeguard policies OP 4.04 Natural Habitat. No critical natural habitat is being converted as such, but, with the sole purpose of promoting ecotourism, facilities will be built inside national parks, and roads and other support infrastructure will be constructed/rehabilitated. Impacts on natural habitats will thus have to be monitored and mitigated to require compliance with the natural habitat policy and traffic within the Parks will be regulated to protect such habitats. While the specific location of the roads and trails to be constructed or rehabilitated under the project in the two National Parks have not yet been identified, such works will focus on those areas of the National Parks that would not be susceptible to pass-through traffic from loggers operating in the region OP Cultural Property. As the project expects to promote cultural tourism mostly in the western region of the country, the ESMF includes a specific section on the management of risks related to cultural assets. Specific mitigation measures related to cultural property will be introduced in the sub-contractor s contracts. A social assessment will be prepared prior to the commencement of physical works. The World Bank s safeguards policies will also be applied under the innovative grant subcomponent and relevant mitigation measures defined and applied when needed. * By supporting the proposed project, the Bank does not intend to prejudice the final determination of the parties' claims on the disputed areas 33

45 111. OP Indigenous Peoples. As the project will be implemented in Campo Ma an National Park, an area where there are indigenous peoples, it will be critical to ensure that pygmy communities share in the benefits of the project and minimize the risk of marginalization. An Indigenous Peoples Plan (IPP) has been prepared and disclosed on January 19, 2010 (Report IPP401). The indicative budget for the IPP is US$300,000 and will be implemented in close collaboration with other partners working with IPs in this region OP 4.12 Involuntary Resettlement. Components 1 and 2 of the project will support the preparation of studies for the sustainability of wood processing and development of ecotourism in Cameroon through the following activities: the investment to upgrade and preserve worldclass tourism assets in the area around Mount Cameroon, Campo Ma an; the upgrading of Kribi s beach and city center, and chiefdoms. Some or all of these activities may involve land acquisition and, in some cases, involuntary resettlement. Any land acquisition would be financed by the GoC. A Resettlement Policy Framework was prepared and disclosed on January 19, 2010 (Report RP903) to guide resettlement and land acquisition planning and implementation in future subprojects. Resettlement Action Plans will also be prepared, as appropriate. Resettlement issues are also likely to arise in the context of the wood cluster in Yaoundé prepared under this project and which would be financed by a possible additional financing subject to specific conditions and approval by the World Bank Board of Directors A draft Process Framework (acceptable to IDA) has been developed for the Mount Cameroon National Park and disclosed in Cameroon on April 20, 2010 and in the InfoShop on April 22, 2010 to enable neighboring communities to participate in the conception of the different components of the project, the management of natural resources, and in the overall decision-making process. The project will finance the preparation of a Management Plan for the Mount Cameroon National Park. For the Campo Ma an National Park, a draft Process Framework (acceptable to IDA) has been prepared and disclosed on May 3, It will be finalized once the park s Management Plan, prepared in 2006, is updated OP 4.36 Forests. The project will stimulate increased demand for the wood coming out of sustainably managed community forests (these are small-scale logging operations which are mostly on previously exploited secondary forests) at the expense of illegal/non sustainably logging operations it should not lead to increased large-scale logging of natural forests. This is because the wood coming out of large scale logging operations is too expensive (e.g. too precious and/or too remote) for most of the markets of the companies supported by the project (SMEs and artisans involved in the second and third stage wood processing activities). Most of the increased demand for wood is thus expected to benefit sustainably managed community forests. Already 255 Community forests have developed management plans and more than 20 NGOs are helping them to implement these. This alone represents a potential of around 500,000 cubic meters a year, which overtime should substitute the estimated 662,000 cubic meters of wood coming out of unsustainable, mostly wasteful and often illegal logging operations (CIFOR, 2010). Furthermore, the promotion of wood drying and efficient second and third stage wood processing techniques will result in cutting much fewer trees for a given level of consumer demand. The project will not support the financing of any logging equipment and will only support the acquisitions by SMEs of (high yield) second and third stage wood processing equipment under the condition that they use legal/certified wood coming from sustainably 34

46 managed forests. As in the last years, Cameroon has not successfully addressed illegal logging activities throughout the country, such financing will only be available once enabling/controlling environment for wood processing has been improved or when the Yaoundé wood cluster has been established (this project will only finance the preparatory studies). The preparation and design of the wood cluster in Yaoundé will need to address concerns about illegal logging to avoid any use of illegal timber by the cluster. To prevent such risk, the project envisions (through close collaboration with the ongoing Forest and Environment Sector Development Policy Credit, PSFE) to ensure that only timber coming from official allocated titles, which are legal and sustainably managed, is used by the cluster. A control system for timber origin will be put into place with a regular checking by an independent observer. The Government of Cameroon is in the process of signing with the European Commission a voluntary partnership agreement that will promote better forest law enforcement (FLEGT). These two tools (PSFE and FLEGT) will be used to prevent the use of illegal timber by the cluster. The wood cluster EMP will place a strong emphasis on the best control of wood origin and a third party control mechanism. The confirmation of satisfaction of these conditions will require prior written IDA approval Consultation and Disclosure. Extensive consultations at the national and local level were carried out as the safeguards documents were prepared. The key development challenges affecting pygmies raised during the consultation of the fourteen pygmy campements include: (i) restriction of access to forest and fauna resources; (ii) shrinking resources; (iii) lack of access to basic infrastructure and social services (health and education); (iv) marginalization from decision-making; and (v) difficulty in adapting to modern production systems and loss of identity. These issues were integrated as an action plan in the IPP and will be implemented by the project team The ESMF, RPFs and IPP were publicly disclosed in country as well as in the World Bank s Infoshop. The draft ESMF was made available for review and comment to the Ministry of Environment and Protection of Nature, Ministry of Social Affairs, prior to its publication. Disclosure at the InfoShop occurred on December 23, 2009 for the ESMF (disclosed in Cameroon also on December 23, 2009), on January 19, 2010 for the RPF and IPP (both were disclosed in Cameroon on January 18, 2010). A draft Process Framework (acceptable to IDA) for Mount Cameroon was disclosed in Cameroon on April 20, A draft Process Framework (acceptable for IDA) for Campo Ma an was disclosed on May 3, An update of the Campo Ma an Management Plan and finalization of the Process Framework and preparation of the Mount Cameroon Management Plan will be among the project outputs. It should be noted that KFW will be an important partner in the Mount Cameroon Management Plan preparation process. The first outputs are expected to be delivered no later than six months after project effectiveness. The project will comply with national and World Bank policies on consultation and disclosure during the preparation of the above mentioned documents. G. Policy Exceptions and Readiness 117. No policy exceptions. Readiness for implementation is on track Project readiness will benefit from the fact that the project preparation has leveraged a US$2.9 million PPA which enabled the hiring of key experts and the completion of in-depth 35

47 analytical studies. The PPA is also being used to help the government meet the two conditions of effectiveness: (a) the recruitment of the project implementation team (terms of reference for the recruiting firm are being finalized), and (b) completion of the POM (recruitment of the consultant is being finalized the FAC manual is almost completed). 36

48 Annex 1: Country and Sector or Program Background 1. Recent economic developments Cameroon - Competitive Value Chains Project 1. Cameroon is a linguistically and ethnically diverse country whose geography ranges from Sahelian semi-desert in the north through grassland to equatorial forest in the south. This diversity favors varied economic and agricultural activities, though 70 percent of the population depends on agriculture and pastoral activities for their livelihood. Cameroon has one of the highest proportions of land area devoted to conservation in Africa, with some 14 percent of the country s territory designated as national parks, reserves, sanctuaries and conservation concessions. Cameroon also has significant natural resources, including oil, high-value timber species, agricultural products including coffee, cotton, and cocoa, and as yet untapped natural gas, iron, bauxite, and cobalt. Its human capital is acknowledged as being well educated and a resource that could be further developed. 2. Despite wide ranging economic reforms since the 1990s, starting with an ambitious privatization program including all the major infrastructure and agricultural sectors and later reaching its HIPC completion point in 2006, Cameroon has remained a lower middle income country. In 2007, per capita income reached US$1,050, less than a 1 percent increase annually on average from 2004 to The 2007 household survey estimated that 39.9 percent of the country s population still lives in poverty, almost unchanged from its 40.2 percent level recorded in Cameroon s economy has performed below its potential over the last decades. Between 1997 and 2007, Cameroon s per capita GDP growth averaged a modest 1.5 percent per annum (while this represented a modest recovery from the negative 4.6 percent per annum per capita GDP growth in the decade that reflected external shocks and poor policy choices). 4. As a result of declining oil production and revenue, the budget ran a deficit during most of the 1990s, leading to a rapid accumulation of public debt. In addition, public spending was highly sensitive to electoral cycles, leading to periodic fiscal slippages. However, Cameroon s poor record of fiscal management has shown signs of improvement since 2005, when the Government adopted a medium-term fiscal strategy. 5. There have been improvements in fiscal performance and public finance management, as well as the preservation of macroeconomic stability. Nonetheless, structural reform implementation was uneven and economic growth was below expectations. In light of Cameroon s recent mixed growth performance and the ongoing global economic slowdown, the recent policy documents have reiterated GoC s commitment to reinvigorate growth-oriented policies. 37

49 Table 1: Selected Macroeconomic Indicators ( ) Cameroon: Selected Macroeconomic Indicators, (Units indicated) Prog. 1 Act. Prog. 1 Act. Prog. 1 Act. Prog. 1 Proj. Real and external sectors Nonoil real GDP Consumer prices (period average) Current account (excl. grants) Fiscal aggregates 3 Total revenue (excl. grants) Of which : nonoil Total expenditure Of which: capital Overall budget balance (excl. grants) Of which : nonoil primary 4, Sources: Cameroonian authorities; and IMF staff estimates and projections. 1 Based on CR/08/ Percentage change. 3 Percent of GDP. 4 Percent of nonoil GDP. 5 Excluding foreign-financed and debt-relief-financed investment and restructuring spending. 6. Economic activity in 2008 showed some resilience in the face of the global slowdown (Tables 1 and 2). Real GDP is expected to have grown by 4.6 percent in 2008 despite a projected contraction in oil output driven by the continued pickup in nonoil economic activity. The global crisis has, however, increased downside risks. Slower world demand has lowered timber exports. Sustained high oil prices for most of the year nevertheless improved the current account balance in 2008, despite increased imports resulting from high food prices and reduced taxation of staples. Recent government statistics forecast a modest impact of the crisis in 2009 (with GDP growth contracting from 3.4 percent in 2008 to 3.0 percent in 2009), with a rebound to 5.7 percent growth in Contrasted by the IMF estimate of 2.4 percent growth in 2009 and 2.6 percent in

50 Table 2: Selected Macroeconomic Indicators ( ) 2007 Baseline 1 Updated Scenario Est Economic growth and prices Nonoil real GDP growth Consumer prices (period average) Oil price (U.S. dollars per barrel) Fiscal aggregates 3 Total revenue (excl. grants) Of which : non oil Total expenditure Of which : non interest current capital Nonoil primary fiscal balance Overall budget balance (incl. grants) External sector Current account (incl. grants) Terms of trade Sources: Cameroonian authorities; and IMF staff estimates and projections. 1 Based on CR/08/ Percentage change. 3 Percent of nonoil GDP. 4 Projected levels in the updated scenario includes additional revenues stemming from the elimination of some tax expenditure in 2008 (0.5 percent of nonoil GDP). 5 Excluding grants, foreign-financed capital and C2D-financed expenditures. 6 Percent of GDP. Cameroon: Selected Macroeconomic Indicators, (Units indicated) 2. Cameroon s Vision for Growth and Development 7. The Government of Cameroon has strong ambitions for its future, as reflected in its Vision This policy document serves as the anchor for the new PRSP (Growth and Employment Strategy Paper) and envisions Cameroon as an emerging nation, democratic and united in its diversity by Its main objectives include: (i) reducing poverty to a socially acceptable level; (ii) becoming a middle-income country; (iii) acquiring the status of a Newly Industrialized Country; and (iv) reinforcing national unity and the democratic process. 8. The Growth and Employment Strategy will cover the first ten years of the long-term development vision and will focus on accelerating growth, creating formal employment and reducing property, consequently, it aims to (i) increase the average annual growth rate to 5.5 percent over the period ; (ii) reduce the underemployment rate from 75.8 percent to less than 50 percent in 2020 with the creation of tens of thousands of formal positions per annum over the next ten years; (iii) reducing the income poverty rate from 39.9 percent in 2007 to 28.7 percent in The Growth and Employment Strategy identifies weak productivity, a looming energy crisis and effects of the financial crisis, food insecurity, stagnating poverty, and high unemployment as key challenges facing the period in question ( ). It envisions significant investment in infrastructure to stimulate growth, notably in energy, roads, port infrastructure, water supply, and information technology. Productive increases are sought in 39

51 agriculture and livestock farming, mining (notably in bauxite, iron, and cobalt), key value chains (timber, ICT, tourism), and in the business climate. It seeks to strengthen human development and develop more robust formal sector employment. The GESP also places important emphasis on regional integration, and envisions strengthened partnerships with non-traditional donors. Finally, it stresses the need to improve governance, including specific initiatives related to corruption, public procurement, business climate, and civic participation. Stimulating growth through increased competitiveness 10. Cameroon s central development challenge is to stimulate a robust rate of growth, and to ensure this is equitably shared amongst the population in order to reduce poverty. Cameroon s economy must become more robust and competitive, both through investment in infrastructure and structural changes to unlock the economy s competitive potential. 11. Stimulating growth. Cameroon needs to kick-start growth that strongly surpasses performance of 4.2 percent over the last 5 years. In fact, Cameroon s Vision 2035 estimates that growth needs reach 10 percent by The economy must therefore be diversified, moving away from its dependence on oil, which currently represents over one-third of its total revenue. Growth is principally constrained by two factors 6. First, investment levels are low relative to comparator countries, reflecting low levels of public investment, low ratios of foreign direct investment to GDP and a low aggregate savings rate. Low investment levels have created severe shortages of electricity and transport, thus further undermining growth. Second, despite improvements in Cameroon s cost competitiveness since the 1980s, competitiveness in many sectors is disappointing. Domestic Resource Cost analysis by sectors suggests that while Cameroon is competitive in wood and beverages, there are a large number of sectors that are only marginally competitive which would benefit from lower marketing costs, particularly transportation costs, and governance reforms that would reduce their cost structure. Increasing competitiveness would require to identify and exploit new value chains that represent comparative advantage in local, regional, and international markets. 12. Increasing competitiveness. Cameroon s economy presents a paradox, whereby it possesses a massive resource base, but does not catalyze this into sustained economic growth or poverty reduction. Improving Cameroon s competitiveness requires that all sectors of the economy become more productive and efficient which, in turn, requires an improved investment climate. 13. A 2006 Enterprise Survey 7 demonstrated that firms principal concerns were tax regulations (83 percent of firms surveyed), tax rates (74 percent), lack of electricity (66 percent) corruption (53 percent), customs and trade regulations (40 percent), transportation (35 percent). The cost of corruption, ranging from 4.3 percent to 6.5 percent of a firms annual turnover, was a significant factor in adversely affecting competitiveness. Across sectors, some percent of managers considered the interpretation and application of regulations by civil servants as unpredictable. Almost 76 percent considered the judiciary to be unfair, partial and corrupt. In 6 This analysis draws on the World Bank s Development Policy Review of 2006 whose findings remain relevant today. 7 The survey conducted by the World Bank Group covered 207 firms and 95 informal sector enterprises. 40

52 terms of infrastructure, electrical connections take 79 days as against 38 for Sub-Saharan Africa; water supply fails for 13 days each month as against 9 in Sub-Saharan Africa. A third of firms list transport as their principal concern, as against a quarter for Sub-Saharan Africa and 15.7 percent for lower middle income countries The World Bank 2010 Doing Business report indicators tell much the same story. Cameroon ranks 171 st out of 183 countries. However, a number of African countries have demonstrated that it is possible to make significant improvement in the private sector regulatory environment, as highlighted by table 3 below. Table 3: Doing Business in Cameroon, Ghana, Rwanda and Mauritius (2010) Ease of... Cameroon Ghana Rwanda Mauritius Doing Business Starting a business Dealing with construction permits Employing workers Registering property Getting credit Protecting investors Paying taxes Trading across borders Enforcing contracts Closing a business Cameroon s ranking in the World Economic Forum s Global Competitiveness Index for is 114 (out of 134 countries). 9 Among indicators measuring basic requirements for competitiveness, Cameroon is ranked 34 th for macro-economic stability, 116 th for institutions and 117 th for infrastructure. 3. Developing competitive value chains 16. Developing competitive value chains. Recognizing that past reform attempts have been uneven and spread too broadly, the Government is centering its new strategy on the most promising value chains to accelerate growth and job creation through private investments and diversified high value exports. The value chain opportunities are clustered around the manufacturing, mining, forestry, agribusiness, tourism and ICT industries. In these industries, Cameroon has yet to take advantage of its natural and human resource riches e.g. little industrial processing of raw materials, world-class ecotourism sites not accessible, little mining production outside oil and vast underemployment of relatively skilled labor. The proposed project chose to focus on two key value chains with high potential: sustainable wood processing and ecotourism Investment Climate Survey. 9 World Economic Forum, The Global Competitiveness Report ,

53 A. Sustainable wood processing 17. Forests account for 20 million ha. in Cameroon, which represent 40 percent of Cameroon s territory. Wood exports represent the second source of revenue of the country (US$491 million in 2007), after oil. The industry accounts for around 9 percent of Cameroon s GDP. Forests count over 300 species, but only around 60 species are commercialized, with a high variation among these species: 19 species account for over 90 percent of the exploited volume. The five species with the highest exploitation are: Ayous, Sapelli, Tali, Iroko and Fraké. These five essences represent 43 percent of the exploited volume. Table 4: Evolution of timber exports Exports (fob) US$m % US$m % US$m % US$m % US$m % Crude oil % 1, % 1, % 1, % 2, % Timber % % % % % Cocoa beans & products % % % % % Cotton % % % % % Total exports (including others) 2, , , , ,049.9 Source: Economist Intelligence Unit 18. As demonstrated by the graphs below, Cameroon exports are strongly focused on the European markets, while Ghana has managed to diversify its export market, with significant exports geared towards the Africa market. The wood sector has been deeply affected by the recent international crisis, as demonstrated by the table 5 below. Table 5: Recent evolution of timber and wood exports, in million CFAF ( ) Raw products Jan-June 2008 Jan-June 2009 Variation Fresh bananas 18,641 16,766-10% Coffee 17,801 14,569-18% Palm oil 3,815 2,676-30% Cocoa beans 43,628 44,604 2% Rubber 12,797 10,116-21% Timber (logs) 34,193 11,390-67% Raw cotton 20,760 27,583 33% Aluminium 27,475 14,757-46% Manufactured products Cocoa paste 4,309 8,267 92% Cocoa butter 2,234 5, % Beers 1,981 1,846-7% Cement 1, % Sawn wood 107,289 69,199-36% Plywood 16,538 8,438-49% Cardboard 1, % Aluminium roofing sheets 3,127 2,525-19% Source: Cameroonian authorities and World Bank 42

54 19. Less than 7 percent of exploited timber is exported without processing. However, 90 percent of the exported timber is only lightly transformed (as demonstrated by the table 5 above). The table below shows the different stages of wood processing. Table 6: Three stages in wood processing Processing First stage processing Second stage processing Third stage processing Description (examples) Sawing, rotary cutting, slicing Drying and conditioning, parquetry, laminated, plywood Furniture, parquetry (off the shelf), woodwork for construction 20. The industry is segmented. The vast majority of wood product exports consist of precious wood having gone only through the first stage of wood processing (sawing, rotary cutting, slicing). This precious wood, about 2 million cubic meters a year, comes from around 90 active large-scale logging operations (most of these relying on selective sustainable logging). The vast majority of the wood products sold in the domestic and regional markets consist of non precious wood processed by small (most often informal) operators (estimated at around 40,000 workers) relying on wasteful second and third stage processing techniques. This wood, about 662,000 cubic meters a year (CIFOR, 2010), comes from non sustainable, wasteful and often illegal logging operations. The market segmentation comes from the fact that the precious wood exported is beyond the means of the domestic/regional markets. The main constraints to sustainable wood processing in Cameroon are: Lack of policies to encourage the development of a domestic market for legal sustainably managed wood. The most important source for such wood will be community forests which produces the types of wood in demand in the domestic market (e.g. affordable non precious wood) and are much closer to these markets (e.g. large urban centers) than the large scale precious wood logging operations which are mostly located in the east of Cameroon; Lack of voice by the small second and third stage wood processors and community forests in terms of market access and participation; Lack of knowledge and skills of the small second and third stage wood processors in the use of dry wood (which extends the quality and life expectancy of the wood products considerably) and efficient wood processing techniques; Lack of affordable financing for SMEs to invest in the skills and equipment required, and Significant cross-cutting investment climate constraints e.g. heavy regulatory and fiscal burden, high costs and poor quality of energy and transportation, difficulties to access financing and poor governance e.g. the all in cost of a machine is twice what it is in Europe or Asia (OTF analysis). 21. It is therefore proposed to carry out the necessary studies for the possible creation of a pilot wood cluster to address these constraints and contribute to the development of sustainable 43

55 wood processing (see Section IV. B. Technical Appraisal and Annex 4. Detailed Project Description). B. Ecotourism Cameroon competitiveness in the tourism sector 22. The number of tourists coming to Cameroon is below 500,000. Tourist arrivals appear to have peaked at 487,000 in 2007 with the vast majority visiting Cameroon for business and/or family reasons. The number of arrivals of international tourists in Africa was estimated at 33 million in Cameroon captures around 1.5 percent of the African tourism. Countries such as South Africa or Tunisia respectively capture 21 percent and 18 percent of African tourism. 23. According to the World Travel and Tourism Council 10 (WTTC), it is expected that in 2009 Travel and Tourism (T&T) will represent 4 percent of Cameroon GDP (US$977 million) and 142,000 jobs (or 3.4 percent of formal employment). Export earnings from international visitors and tourism goods are expected to generate 9.1 percent of total exports (US$489 million) in The real GDP growth of T&T between 2008 and 2009 is expected at 1.9 percent. It is however expected that this growth rate will average 4.9 percent over the next 10 years. The WTTC estimated that Cameroon share of Sub-Saharan Africa T&T economic activity represents 1.38 percent. 24. The tables, on the next page, show the ranking of Cameroon among 181 countries on different indicators. 25. The Travel and Tourism Competitiveness Report (2009) also provides interesting information on Cameroon performance in T&T. Overall, Cameroon is ranked at the 125 th position, out of 133 countries. In the Middle East and Africa, Cameroon is ranked at the 33 rd position, out of 40 countries. Table 7: Cameroon detailed ranking in Travel and Tourism Competitiveness Report (2009) T&T regulatory framework Policy rules and regulations Environmental sustainability Safety and security Health and hygiene Prioritization of T&T T&T business environment and infrastructure Air transport infrastructure Ground transport infrastructure Tourism infrastructure ICT infrastructure Price competitiveness in the T&T industry T&T human, cultural and natural Human resources Affinity for T&T 10 Natural resources Cultural resources 44

56 resources

57 Table 8: WTTC League Tables, 2009 Cameroon World Ranking (out of 181 countries) Absolute (size) Relative (contribution to national economy) Growth (forecast) Ranking in Sub-Saharan Africa (out of 42 countries) # Country T&T as a % of GDP # Country T&T as a % of total employment 33 Gambia Namibia Tunisia Tunisia Morocco Gambia Egypt Morocco Namibia Egypt Tanzania South Africa Kenya Tanzania South Africa Kenya Senegal Senegal Cameroon Cameroon 3.4 # Country Real growth of T&T (%) # Country T&T visitor exports (% of total exports) 5 Tanzania Gambia Namibia Tanzania Senegal Morocco Cameroon Egypt South Africa Kenya Tunisia Namibia Morocco Tunisia Egypt Senegal Kenya South Africa Gambia Cameroon

58 Table 9: Travel and Tourism Competitiveness Index for Cameroon (details) 1 st pillar: Policy rules and regulations Rank / th pillar: Tourism infrastructure Rank / Prevalence of foreign ownership 59 - Hotel rooms 88 - Property rights Presence of major car rental companies 95 - Business impact of rules on FDI ATMs accepting Visa cards Visa requirements Openness of bilateral Air Service Agreements 62-9 th pillar: - ICT infrastructure Transparency of government policy making 53 - Extent of business internet use Time required to start a business 96 - Internet users Cost to start a business Telephone lines Broadband internet subscribers nd pillar: Mobile telephone subscribers Environment sustainability Stringency of environmental regulation Enforcement of environmental regulation th pillar: Price competitiveness in the T&T industry Sustainability of T&T industry development Ticket taxes and airport charges Carbon dioxide emissions 15 + Purchasing power parity 55 - Particulate matter concentration 98 - Extent and effect of taxation Threatened species Fuel price levels 86 - Environmental treaty ratification 81 - Hotel price index 65-3 rd pillar: Safety and security 11 th pillar: Human resources Business cost of terrorism 63 - Primary education enrollment n/a - Reliability of police services 68 - Secondary education enrollment Business costs of crime and violence 98 - Quality of education system 85 - Road traffic accidents 93 - Local availability of research and training centers 94 - Extent of staff training th pillar: Hiring and firing practices 56 - Health and hygiene Physician density Ease of hiring foreign labor 45 + Access to improved sanitation 99 - HIV prevalence 122 Access to improved drinking water Business impact of HIV/AIDS Hospital beds 92 - Life expectancy th pillar: Prioritization of Travel and Tourism 12 th pillar: Affinity for Travel and Tourism Government prioritization of the T&T industry Tourism openness 72 - T&T government expenditure Attitude of population toward foreign visitors Effectiveness of marketing and branding Extension of business trips recommended 96 - T&T fair attendance th pillar: Natural resources 6 th pillar: Number of World Heritage natural sites 40 + Air transport infrastructure Quality of air transport infrastructure Protected areas 61 - Available seats kilometers, domestic 89 - Quality of the natural environment 95 - Available seat kilometers, international 99 - Total known species 15 + Departures per 1,000 population Airport density th pillar: Cultural resources Number of operating airlines 99 - Number of World Heritage cultural sites International air transport network Sports stadiums 93 - Number of international fairs and exhibitions 83-7 th pillar: Creative industries exports 96 - Ground transport infrastructure Quality of roads Quality of railroad infrastructure 71 - Quality of port infrastructure Quality of ground transport network 97 - Road density

59 26. The report highlights that African countries are most hampered from a regulatory point of view. Burundi, Cameroon, Chad, and Lesotho are the countries that record the lowest in term of T&T regulatory framework. For these countries, the report estimated the impact of improving the T&T Competitiveness Index (TTCI) ranking by improving the policy rules and regulations pillar. It finds that a TTCI score of 7 for Cameroon (instead of the current 3.09) would result in 21 percent increase in air travel passengers. 27. As demonstrated by the detailed analysis of the Travel and Tourism index for Cameroon (see table 9), Cameroon has a few key competitive advantages, notably: number of World Heritage natural site, total know species (with 1,400 recognized mammals, birds and amphibian species), low carbon dioxide emissions and ease of hiring foreign labor. 28. The Government of Cameroon could also unlock its tourism potential in addressing a number of key constraints, such as increasing the prioritization of Travel and Tourism and easing visa restrictions for entry into Cameroon (see table below). Table 10: Number of countries whose citizens are exempt from obtaining a visa The potential of ecotourism Ranking Country Number of countries whose citizens are exempt for visa 126 Cameroon India Burundi China Ethiopia Nepal Madagascar Syria Previously a neglected sector, tourism has become a higher priority for the Government in order to boost and diversify economic growth. The Government of Cameroon is marketing Cameroon as one of the most culturally diverse countries in Africa ( Africa in miniature ), as well as promoting its eco-tourism attractions. Their strategy is based on diversifying tourism products and improving infrastructure. Efforts have been directed toward promoting eco-tourism in protected sites and areas. 30. Cameroon's tourist destinations are in four general areas: the coast, the major cities, the Western highlands, and the north. The coast offers two major beach resort towns: Limbe with black, volcanic sand; and Kribi, with white-sand beaches. Mount Cameroon on the coast is the highest mountain in Central and West Africa and attracts hikers and climbers. Bamenda is the main city in the western highlands, and is the capital of the Northwest province. This area is known for its traditional culture and crafts. The city of Bafoussam is famous for its wood-carving culture and artifacts. The West is also home to traditional chiefdoms and fondoms such as the 48

60 sultanate of Foumban. Cameroon's north has several wildlife reserves, including the Waza National Park, which shelters cheetahs, elephants, giraffes, hippopotami and rhinoceroses. The Adamawa, East and South provinces offer a new front for expansion of the tourist industry, but poor transport conditions keep the industry small in these regions. Forest reserves in the South have little tourist-oriented infrastructure, these reserves include chimpanzees, elephants, gorillas and other rainforest fauna. 31. Cameroon has a number of world-class nature and culture based touristic assets e.g. one of the two significant gorillas reserve in the world (the other one being at the border between Rwanda, the Democratic Republic of Congo and Uganda), one of the largest active volcanoes in the world (Mont Cameroon), unique lunar landscape in Rhumsiki and a multitude of traditional kingdoms in the West and North, each with their own culture. 32. Yet, these assets are under leveraged, less than 15,000 tourists a year choose Cameroon most of Cameroon s 500,000 international visitors come for business or family reasons. Tourism in Cameroon is mostly limited to week-ends and vacations resulting in very low occupancy rates (around 30 percent). 33. The main constraints to a rapid development of the sector are: Poorly managed world-class touristic assets due to lack of investments and professional management; Difficult access to many sites because of poor road conditions (unsealed road limiting access during the rainy season); Insufficient/inadequate promotion of tourism products; Poorly trained workers in the industry; Remaining security (conflicts in neighboring Chad and the Central African Republic) and tourist harassment issues; Significant cross-cutting investment climate constraints: high transportation and telecom costs, fiscal and regulatory burden, limited access to finance and governance issues. The high cost of air travel to the country is also a major hindrance, making Cameroon a less attractive destination than many African competitors. Compounding the problem of expensive air travel is the high cost of tourist visas. A tourist visa for up to three months, including administrative fees, costs US$141 for US citizens and around US$125 for EU citizens. Most rival tourist destinations in Africa charge considerably less for visas or do not require them at all of visitors from developed countries The main tourism sites to be supported through the project are further described 12 below. Limbe/Buea/Mount Cameroon 35. Limbe is a seaside city in the South West Region of Cameroon, on the southern slopes of Mount Cameroon. Limbe is located on a beautiful bay against the backdrop of a major mountain 11 Economist Intelligence Unit, Cameroon Country Report, November Most background information comes from Wikipedia. 49

61 range. Black sand beaches make Limbe one of two coastal towns (Kribi being the other) that are popular among tourists. The Limbe Wildlife Centre and Limbe Botanical Gardens are notable attractions, in addition to a Bismarck tower, built by the Germans. 36. Buea is the capital of the South West Province of Cameroon and is located on the eastern slopes of Mount Cameroon. Buea was the colonial capital of the German Kamerun from 1901 to 1919 and the capital of the Southern Cameroon from 1949 until The city still has a handful of colonial era buildings, notably the palatial former residence of the German governor, Jesko von Puttkamer. Other German colonial buildings are still standing, but some of them suffer from lack of maintenance and old age. Tea growing is an important local industry, especially in Tole. 37. Mount Cameroon is an active volcano, also known by its native name Mongo ma Ndemi ("Mountain of Greatness"). The mountain is part of the area of volcanic activity known as the Cameroon Volcanic Line, which also includes Lake Nyos, the site of a disaster in The most recent eruptions occurred on March 28, 1999 and May 28, Mount Cameroon is one of Africa's largest volcanoes, rising to 4,040 meters (13,255 feet) above the coast of west Cameroon. It rises from the coast through tropical rainforest to a bare summit which is cold, windy, and occasionally brushed with snow. 38. The massive steep-sided volcano of dominantly basaltic-to-trachybasaltic composition forms a volcanic horst constructed above a basement of Precambrian metamorphic rocks covered with Cretaceous to Quaternary sediments. A large satellite peak, Etinde (also known as Little Mount Cameroon), is located on the southern flank near the coast. Mount Cameroon has the most frequent eruptions of any West and Central African volcanoes. The first written observation of Mount Cameroon volcanic activity is estimated to date from the 5 th century BC. Moderate explosive and effusive eruptions have occurred throughout history. A 1922 eruption on the southwestern flank produced a lava flow that reached the Atlantic coast, and a lava flow from a 1999 south-flank eruption stopped only 200 meters (660 feet) from the sea, cutting the coastal highway. Chiefdoms around Bafoussam / Bamenda / Foumban 39. Bafoussam is the capital of the West Province of Cameroon, in the Bamboutos Mountains. The city is the region's center of trade. The main agricultural production of the area is coffee, tobacco and tea. It is the main city of the Bamiléké people and is home to a chief's palace. The city of Bafoussam has grown to now include the three traditional "chefferies" (chieftaincy, or fon) of Baleng, Fusap and Bamougoum. 40. Bamenda is the capital of the North West Province. Bamenda is known for its cool climate and scenic hilly location. The main industries are the processing of agricultural produce such as coffee. Bamenda has a number of cultural sites, such as the Mankon Fon's Palace and the Bali Fon's palace with its ancient architectural structures. Bamenda was subjected to German colonialism in the late 19th century, and evidence of Germany's former occupation of Bamenda can still be seen today in structures such as the Fort at the Bamenda station. The Bamenda ring 13 On August 21, 1986, possibly triggered by a landslide, Lake Nyos suddenly emitted a large cloud of CO 2, which suffocated 1,700 people and 3,500 livestock in nearby villages. 50

62 road is a 367 km (228 miles) circular route through some of Cameroon's most spectacular mountains. Along this road is Mount Oku (3,000 meters, 9,800 feet), the Kimbi River Game Reserve, the Menchum River waterfalls, an impressive chief's palace at Bafut, and a pyramidal thatched shrine at Akum (also known as Bagangu). 41. Foumban lies north east of Bafoussam. Foumban is one of Cameroon's major attractions and an important centre of traditional African art. It includes the Palais Royal, seat of power for the Bamoun people. The ruler of the Bamoun is known as the sultan, and the Bamoun can trace the lineage of their sultan back to Kribi 42. Kribi is a beach resort and sea port, easily accessible from Douala and Yaoundé. It is the largest beachfront town in the South. It is located at the mouth of the Kienké River and near the Lobé Waterfalls. It also lies near the terminus of the Chad-Cameroon pipeline. Lobé, only a few kilometres south of Kribi, is another popular spot with tourists due to its even more isolated beaches and the picturesque Lobé Falls, where the Lobé River empties into the Atlantic. A number of pygmy villages are located nearby Kribi. Campo Ma an National Park 43. Located in the southwestern corner of Cameroon, bordering on Equatorial Guinea to the south and the Atlantic Ocean to the west, the Campo-Ma an National Park and its buffer zone cover an area of approximately 700,000 ha. The Campo-Ma an landscape features a national park (264,064 ha), 2 logging concessions, an agro-industrial belt made up of rubber and palm oil plantations and community agro-forestry zones. Current inventories show that the Campo-Ma an landscape is a miniature reflection of the rich diversity of plant and animal species of Central Africa s rainforest. Here, one finds 80 species of mammals, such forest elephants, leopards and gorillas, as well as 302 bird species, 122 reptile species and 250 fish species. The 70 km coastal road between Kribi and the Park is being rehabilitated. 51

63 Annex 2: Major Related Projects Financed by the Bank and/or other Agencies Cameroon - Competitive Value Chains Project 1. Past involvement of the World Bank in private sector development includes the Public- Private Partnership for Growth and Poverty Reduction Project (PPPGPR) approved in 1998 and closed in June Two on-going operations are closely related to the Competitive Value Chains Project: the Agricultural Competitiveness Project, which focuses on selected agricultural value chains, and the Forestry and Environment Sector Program, which provide critical support to forest sector policy reforms. The European Union also finances a related project, Support Program to Economic Partnership Agreement between EU and Cameroun, which also focuses on increasing Cameroon s competitiveness. Projects Description Period Financing (US$) Agricultural Competitiveness The project aims increase the competitiveness of eligible producer organizations working on target value chains. FY09-FY Forestry & Environment Sector Program Public Private Partnership & Growth Reduction (CLOSED) Implementation Progress rating: Satisfactory Development Objective rating: Satisfactory The program will help consolidate and scale up recent successful forest sector policy reforms, support capacity-building, and strengthen forest and environment institution by expanding their work programs in the fields of environmental monitoring, policy oversight, law enforcement, forest management, biodiversity conservation, and community-based forest activities. Implementation Progress rating: Moderately Unsatisfactory Development Objective rating: Moderately Unsatisfactory The project aimed at supporting the Government's efforts to grow out of poverty through private sector led growth and financial reform, together with a heightened emphasis on poverty alleviation. The key development objectives were to: (a) improve business environment and competitiveness through privatization and effective public/partnership with the view to increase private investment; and (b) strengthen the poverty alleviation focus in GoC's economic management. FY06-FY FY00-FY Outcome: Unsatisfactory (IEG rating) Other development partners European Union (EU) The objective of the project is to strengthen the competitiveness of PASAPE (Support the Cameroonian economy and to facilitate its integration in the Program to Economic regional and international economy through the sustainable implementation of the Economic Partnership Agreement between Partnership Agreement EU and Cameroun, through support to negotiations, upgrading of between EU and firms and quality mechanisms. Cameroun) FY08-FY

64 Annex 3: Results Framework and Monitoring Cameroon - Competitive Value Chains Project The Project Development Objective (PDO) is to contribute to the growth of the wood and tourism value chains in Cameroon by improving their competitiveness and the investment climate. Results Framework PDO Project Outcome Indicators Use of Project Outcome Information Number of artisans and If targets are not met, formal workers in the wood components 1, 2, and/or 3 value chain needs adjustments Value of wood product exports for the third stage processing (US$) Number of hospitality workers in the tourism value chain Number of international visitors in Cameroon Intermediate Outcomes Component 1: Sustainable wood processing 1.1 Reforms to promote the processing of certified dry wood 1.2 Promotion of sustainable wood processing techniques and vocational training Intermediate Outcome Indicators Number of formal firms in the wood value chain Number of workers trained in the wood value chain by programs supported by the project Use of Intermediate Outcome Monitoring If no increase noticed, review partnership strategies with dryers 1.3 Preparatory studies for creating a wood cluster in Yaoundé 53

65 Intermediate Outcomes Component 2: Ecotourism Intermediate Outcome Indicators 2.1 Upgrading of tourism sites Number of visitors to the Mount Cameroon National Park 2.2 Reforms of the tourism institutional framework and vocational training Number of visitors to the Chiefdoms supported by the project Number of visitors to the Campo Ma an National Park Number of workers trained in the tourism value chain by programs supported by the project Number of hits on the Cameroon tourism e- platform Number of registered hotel nights Use of Intermediate Outcome Monitoring If the number of visitors does not meet target, implementation arrangements and/or a new economic feasibility study will be carried out If number of hits remains too low, review design of tourism e-platform Component 3: Cross-cutting interventions to support competitiveness and investment 3.1 Investment climate reforms 3.2 Innovation grant to support key private investments in the wood and tourism value chains (FAC) Number of days to register a business Number of hours to pay taxes Taxes and tariffs levied on imported equipment (%) excluding VAT Number of business taxes and licenses Average annual increase in turnover of firms benefiting from the FAC (%) Number of firms benefiting from the FAC (core FPD indicator) Share of firms benefiting from the FAC managed by women (%) If no investment climate reforms, review institutional set up for reforming the investment climate If no increase in turnover, review operating principles of the FAC 54

66 Arrangements for results monitoring Project Outcome Indicators Number of artisans and formal workers in the wood value chain Value of wood products of the third stage processing (US$) Number of hospitality workers in the tourism value chain Number of international arrivals in Cameroon Baseline Target Values YR1 YR2 YR3 YR4 YR5 Frequency and Reports Data Collection and Reporting Data Collection Instruments 40,000 40,000 42,000 46,000 50,000 55,000 Annual National statistics, artisan business associations $1,000,000 $1,000,000 $2,000,000 $4,000,000 $7,000,000 $10,000,000 Annual National statistics/wits (S3-8215) Responsibility for Data Collection Project M&E specialist Project M&E specialist 55,000 55,000 58,000 61,000 65,000 70,000 Annual National statistics Project M&E specialist 487, , , , , ,000 Annual National statistics (MINTOUR) Project M&E specialist Intermediate Outcome Indicators Component 1: Sustainable wood processing Number of formal firms in the wood value chain Number of workers trained in the wood value chain by programs supported by the project Component 2: Ecotourism Annual National statistics and MINFI Annual Training programs supported by the project Project M&E specialist Project M&E specialist Number of visitors to the Mount Cameroon National Park Number of visitors to the Chiefdoms supported by the project Number of visitors to the Campo Ma an National Park 1,000 1,000 2,000 3,000 4,000 5,000 Annual Entry tickets Mount Cameroon National Park 125, , , , , ,000 Annual Entry tickets Chiefdoms supported by the project ,000 1,500 2,500 Annual Entry tickets Campo Ma an National Park 55

67 Project Outcome Indicators Number of workers trained in the tourism value chain by programs supported by the project Number of hits on the e- tourism platform Number of registered hotel nights Baseline 1,800,000 (1,537,000 in 2005) Target Values YR1 YR2 YR3 YR4 YR5 Frequency and Reports Data Collection and Reporting Data Collection Instruments Annual Training programs supported by the project Responsibility for Data Collection Project M&E specialist 0 0 1,000 3,000 5,000 10,000 Annual Hit counting device Cameroon Tourism Federation 1,800,000 1,900,000 2,000,000 2,100,000 2,200,000 Annual National statistics (MINTOUR) Project M&E specialist Component 3: Cross-cutting actions to support competitiveness and investment Number of days to register a business Number of hours to pay taxes Amount of taxes and tariffs levied on imported equipment (%) excluding VAT Number of business taxes and licenses Average annual increase in turnover of firms benefiting from the FAC (%) Number of firms benefiting from the FAC (cumulative) Share of firms benefiting from the FAC managed by women (percentage on the cumulative) X (to be determined during the first step of the guillotine) Y (to be determined following the first two quarterly rounds) Annual Doing Business Indicator Annual Doing Business Indicator Annual Ministry of Finance tax and tariff nomenclature X X X*0.7 X*06 X*0.5 Annual Data generated through guillotine process Annual Data generated by FAC Management Unit Annual Data generated by FAC Management Unit Y + 1 Y + 2 Y + 3 Y + 4 Y + 5 Annual Data generated by FAC Management Unit World Bank World Bank Project M&E specialist Project M&E specialist Project M&E specialist Project M&E specialist Project M&E specialist 56

68 Annex 4: Detailed Project Description Cameroon - Competitive Value Chains Project 1. The project includes four components, which are further described below. Component 1: Sustainable wood processing Component 2: Ecotourism Component 3: Cross-cutting interventions to support competitiveness and investment Component 4: Project coordination Component 1: Sustainable wood processing (US$2.2 million) 2. The objective of this component is to increase, sustainably, the economic added value of the wood value chain in Cameroon (second and third processing). The project will support a critical mass of interventions in the wood value chain to trigger productive private investments and job creation. Although the project will promote wood products, the net environmental impact should be positive because it will contribute to reducing waste and illegal/unsustainable logging by promoting the use of wood coming from legal and sustainably managed forests (mostly community forests), efficient second and third stage wood processing techniques (allowing much more wood to be used from a given tree), use of secondary species (left abandoned today) and drying techniques (allowing to save on transportation cost and to increase dramatically the quality and shelf life of the wood). This project is not providing direct support to any kind of logging activities and it should not result in an increase in large-scale logging as the wood coming out of large scale logging operations is too precious and/or too remote for the markets served by most of the companies supported by this project (i.e. SMEs and artisans only involved in second and third stage wood processing activities). 3. This component includes the following three subcomponents: (i) improvement of the policy framework; (ii) promotion of sustainable wood processing techniques and vocational training; and (iii) preparation studies for the creation of a wood cluster in Yaoundé. These subcomponents are further detailed below. Subcomponent 1.1. Reforms to promote the processing of certified dry wood (US$0.4 million) 4. There is very little legal wood coming out of sustainably managed logging operations which is being used for the domestic market. This is because of the combination of numerous taxes on legal sources of wood and poor controls over illegal sources of wood (see figure below). 57

69 Figure 1 5. The project will finance studies and technical assistance to improve the institutional, policy and regulatory framework along the wood value chain in support of: (i) the development of a domestic market for competitive legal/certified dry wood (mostly coming out of sustainably managed community forests the project will not finance the development of tracking/certification systems); (ii) the drying and processing of wood to increase the competitiveness of second and third stage wood processors and reduce wood wastage; and (iii) formalization of the wood artisans. (US$0.3 million). 6. The project will finance technical assistance to improve the coordination of private operators in the wood value chain. This would entail in particular the creation of the Wood Federation regrouping private operators all along the value chain this will give a stronger voice to the small wood processors and community foresters (US$0.1 million). Subcomponent 1.2. Promotion of sustainable wood processing techniques and vocational training (US$1.1 million) 7. The project will finance a study and an information campaign to promote to the small second and third stage wood producers and domestic consumers the use of dried wood cut along standard dimensions using high yield cutting techniques. This will document the best possible uses for various types of wood together with the standards, norms and construction techniques that should be applied highlighting to both producers and consumers their economic and quality advantages. The detailed technical information on wood products and processing techniques will be made available through a web site that will be managed by the Ministry of Forestry (US$0.4 million). 58

70 8. The project will finance a study to develop specific recommendations as to how to improve the provision of vocational training by both the public and private sector. Around 75 percent of industry players have mentioned the lack of technical skills as a major constraint to competitiveness (OTF analysis). In fact, companies which invested in developing the technical skills of their workers have managed to become globally competitive in high value wood products (e.g. speakers). The lack (and importance) of technical skills is also confirmed by the large wage premium earned by workers with technical skills (an unskilled worker earns $3 a day compared with $12 a day for a skilled one) (US$0.1 million). 9. The project will finance specific pilot programs as recommended by the above-mentioned study e.g. inviting world-class technical experts to spend several months in Cameroon training large numbers of artisans as it was done successfully by the Capacity Building Center in Vietnam (US$0.6 million). Subcomponent 1.3. Preparatory studies for creating a wood cluster in Yaoundé (US$0.7 million) 10. The project will finance the economic feasibility, technical design, environmental and social studies necessary for the preparation and creation of a wood cluster in Yaoundé, as a center for legally supplied wood processing. These studies will include in particular a detailed description on how it will be ensured that the cluster will be supplied with legal wood. Future financing (e.g. through a possible additional financing) would be available subject to specific conditions and approval by the Board of Directors of the World Bank. 11. The project will also support under component 3.2 (innovation grant) small second and third stage wood processors users of high yield and eco-friendly equipment and private providers of vocational training. The innovation grant will not finance logging equipment. Innovation grants for wood cutting and processing equipment for the possible future wood cluster would only be available once the wood cluster in Yaoundé has been created in full compliance with IDA safeguards requirements, including the establishment of a proper wood certification scheme. Innovation grants for wood cutting and processing equipment could also be available for financing once the enabling environment for wood processing in Cameroon is improved (PSFE and FLEGT processes). The confirmation of satisfaction of these conditions will require prior written IDA approval. Component 2: Ecotourism (US$8.7 million) 12. This component, together with the third component, tackling the cross-cutting investment climate issues, aims at addressing a critical mass of the constraints preventing the growth of the tourism industry in Cameroon. The core of the proposed tourism development strategy is to focus on Cameroon s world-class touristic assets to constitute a few and compelling touristic packages. This component includes the following two subcomponents: (i) investments to upgrade and preserve world-class tourism assets; and (ii) technical assistance to improve the regulatory and institutional framework of the tourism sector. Subcomponent 2.1. Upgrading of tourism sites (US$6.7 million) 59

71 Mount Cameroon (US$2 million) 13. The project will finance technical assistance and investments to develop ecotourism in the Mount Cameroon area, through: (i) the physical demarcation of the park; (ii) the finalization and adoption of the Mount Cameroon Management Plan and the provision of technical assistance and equipment for park management; (iii) the provision of technical assistance, equipment and training to Mount CEO; (iv) the establishment of a reception, tourist services and parking areas; (v) the rehabilitation and construction of intermediate camps, shelters and cookhouses, trails, signaling and communication systems; and (vi) the implementation of local promotional campaigns. The objective is for Mount Cameroon (4,095 m) to emulate Mount Kilimanjaro (5,825 m) which welcomes more than 40,000 tourists a year (compared to 1,000 for Mount Cameroon). Mount Cameroon has unique faunal and animal diversity (including mountain elephants) and is close to attractive beaches (Limbé), cultural centers (Buea) and a large cosmopolitan city with an international airport (Douala). The project will finance: (i) the remaining 80 km (out of 120 km) of physical demarcation left to be completed around the park; (ii) the finalization and adoption of the Mount Cameroon Management Plan (Mount Cameroon has been declared a National Park on December 18, 2009) and technical assistance to build the capacity of the Park Management (in partnership with the German Reconstruction Credit Institute (KFW); (iii) technical assistance to build the capacity and leadership of Mt CEO. Mt CEO is the successful inter-communal offering ecotourism services on Mont Cameroon with a revenue sharing agreement with local communities. Mt CEO will also federate, coordinate and provide technical support to other accredited actors (e.g. training and equipping of guides and porters); (iv) the establishment of a proper reception and parking area in Buéa; (v) the rehabilitation and construction of intermediate camps, shelters and cookhouses as well as trails, signaling and communication systems; and (vi) local promotion activities. Hard investments within the park and promotion activities will be financed only after the Mount Cameroon Management Plan has been adopted and the park management has been put in place. The project will also support as part of component 3.2 (innovation grant) private investments in eco-lodges and restaurants in and around the park. Chiefdoms in the Western and North Western Regions (US$1.5 million) 14. The project will finance: (i) the rehabilitation of historical buildings, creation of museums and the development of areas for artisanal activities in ten Chiefdoms (to be selected following a competitive process); (ii) the provision of equipment and technical assistance to help protect precious artifacts from fire and theft (on the basis of a code of good conduct); (iii) the setting up of a road signaling system around the two regions; and (iv) local promotional campaigns and technical assistance and equipment to help strengthen and create tourism offices ( Offices du Tourisme ). The project will also support as part of component 3.2 (innovation grant) private investments (e.g. hotels and restaurants). Kribi (US$1.5 million) 15. The project will finance: (i) the upgrading of Kribi s beaches and city centre, and (ii) technical assistance to the tourism office. With its attractive beaches and city center, Kribi is a key tourism 60

72 destination. The project will finance the upgrading of three beaches north of Kribi s city center (Ngoyé, Mpala and Londji). This will include rehabilitation of access roads, parking areas, sanitation, and surveillance facilities. The project will also finance the development of a commercial/artisanal area at Ngoyé beach (the beach closest to Kribi s center), fish conservation for the benefit of local fishermen at Mpala beach as well as the rehabilitation of Kribi s public lighting. These supports are based on the urban development plan being finalized. The project will also provide technical assistance and equipement to the tourism office Office Intercommunal du Tourisme (e.g office equipment, training and local promotion) the private sector is represented on the board of the Office. Private investments (e.g. in hotels and restaurants) will be supported as part of component 3.2 (innovation grant). Campo Ma an (US$1.7 million) 16. The project will finance: (i) the updating of the Campo Ma an Management Plan, (ii) the provision of technical assistance to strengthen the capacity of the park management with respect to eco-tourism activities; (iii) activities in support of local indigenous populations; (iv) the completion of the habituation program of Gorillas; (v) the rehabilitation of roads, trails and signaling within the park; and (vi) the carrying out of local promotional campaigns. Campo Ma an is a National Park with very strong eco-tourism potential (e.g. gorillas, drills and elephants) 70 km south of Kribi. The coastal road from Kribi to the park is being rehabilitated (without financing from the World Bank). The park has benefited from offsets from the Chad- Cameroun Pipeline through FEDEC (Foundation for Environment and Development in Cameroon). 14 The park also benefited from technical assistance provided by World Wildlife Fund (WWF). A park management plan was completed in 2006, the area is secured and the habituation of gorillas has started. Hard investments within the park and promotion activities will be financed only after the updated Campo Ma an Management Plan has been published and the ecotourism capacity of the park management has been strengthened. Key private investments (e.g. ecolodges) will be supported as part of component 3.2 (innovation grant). Subcomponent 2.2. Reforms of the tourism institutional framework, promotion and vocational training (US$2 million) 17. The project will finance a feasibility study for the creation of a new dedicated institutional set up for the management of protected areas and tourism sites inspired by relevant international good practices (US$0.3 million). 18. The project will finance technical assistance to improve the coordination of private operators in the tourism sector. This would entail in particular the creation of the Cameroon Tourism Federation regrouping private operators (US$0.1 million). 19. The project will support the development of an e-tourism portal to promote Cameroon as a tourism destination, with on-line reservation facilities accessible to small hotels such as World Hotel Link. This portal will be managed by the Cameroon Tourism Federation (US$0.3 million). The portal will include: 14 FEDEC is in the process of identifying new sources of funding. 61

73 The setup of a simple and bilingual electronic platform as the primary tool for communication and collaboration amongst all industry stakeholders, including sectoral ministries, industry professionals, municipal authorities, donors and civil society representatives; An integrated online reservation system including electronic maps focusing on the core tourism regions and products supported under the current project; An e-visa application and other administrative requirements for international travelers; A destination promotion tool, that would allow for trip planning from visitors, while linking tourism areas to local and international hospitality/tourism providers; and An integrated statistics, M&E and knowledge information system for Cameroonian stakeholders Figure 2: E-tourism platform Online reservation system (E-marketplace) E-visa and administrative requirements Collaboration tool for industry stakeholders Destination promotion (regions, products, SMEs) Statistics / M&E, knowledge information system 20. The project will finance national and international campaigns to promote the sites rehabilitated by the project. The content and format of these campaigns will be decided in partnership with the Cameroon Tourism Federation and the Ministry of Tourism (US$0.4 million). 21. The project will finance a study to develop specific recommendations as to how to improve the provision of vocational training by both the public and private sector in the tourism sector (US$0.1 million). 22. The project will finance the implementation of recommendations from the above mentioned study on vocational training (US$0.8 million). 62

74 23. The project will also support through component 3.2 (innovation grant) private providers of vocational training. Component 3: Cross-cutting actions to support competitiveness and investment (US$9.2 million) 24. This component includes the following two subcomponents: (i) support to investment climate reforms; and ii) innovation grant mechanism to help increase the competitiveness of small and medium enterprises in the wood and tourism value chains. Subcomponent 3.1. Investment climate reforms (US$4.7 million) Support to the Cameroon Business Forum (US$1.0 million) 25. The project will finance the provision of expert technical assistance to the Permanent Secretariat of the Cameroon Business Forum (CBF) and the General Directorate of Economy within MINEPAT, as well as technical studies to support selected investment climate reforms. The CBF has been set up as the main platform for public private dialogue on investment climate issues. The Permanent Secretariat of the CBF plays a key role it is responsible for the organization of the forums (e.g. high level meeting every six months), prepares the agenda, leads the technical work (carried out by working groups) and crucially, follows-up on the reforms decided upon at the meeting. The project will complement the support which is being provided by the International Finance Corporation (IFC). The project will finance three dedicated staff of the Permanent Secretariat as consultants (one economist, one communication specialist and one senior assistant). The project will finance technical assistance to the General Directorate of Economy within MINEPAT targeted at the implementation of the reforms enacted by the CBF. The project will also finance three consulting contracts to support: (i) business registration reforms; (ii) electronic payment of taxes; and (iii) the generation of new investment opportunities in collaboration with the Investment Promotion Agency (IPA). Support to a business taxes and licenses guillotine (US$1.4 million) 26. The project will finance technical assistance to support to the simplification, consolidation and elimination of certain taxes and licenses through the setting up of an on-line inventory of all legal business taxes and licenses followed by a systematic review and assessment thereof. This will enable to reduce the large number of taxes and licenses burdening the life of enterprises and affecting competition. This will entail a consulting contract to set up an on-line inventory of all business taxes and a systematic review to simplify, consolidate and eliminate business taxes and licenses. It will be followed by targeted technical assistance to support the implementation of the reforms. Support to the Competitiveness Committee (US$2.3 million) 27. The project will finance: (i) review of investment regimes including taxes and tariffs levied on imported equipment; (ii) benchmarking studies on key factor costs (transportation, 63

75 financial services, telecom, cement, fertilizers and land); (iii) elaboration of strategies for export driven agribusiness value chains; (iv) a study to develop the ecotourism potential of the Dja biosphere reserve and Rhumsiki; (v) the carrying out of feasibility studies for wood processing clusters in the Eastern Region of Cameroon; (vi) elaboration of a master plan to develop Cameroon s Maritime Growth Pole; (vii) a study and workshop to support the design of a national competitiveness fund - the planned National Competitiveness Innovation Grant Fund (PARCEC); and (viii) capacity building of the Competitiveness Committee (e.g. upgraded web site, vehicles, support staff and training of staff). Subcomponent 3.2. Innovation grant to support key private investments in the wood and tourism value chains - «Fonds d Appui à la Compétitivité» (FAC) - (US$4.5 million) 28. The objective of the Fonds d Appui à la Competitivité (FAC Competitiveness Support Fund) is to kick-start key private investments by small and medium enterprises (SMEs) in the wood and tourism value chains in a context where access to finance is very difficult and the cost of imported equipment very high due to import taxes and tariffs (as discussed in component 3.1 above). The innovation grant will focus on investments which have strong positive externalities on the other actors of the value chain. A positive list has been developed to that effect. It will include (not exhaustive and to be refined during the course of the project): vocational training, creation and diffusion of key information (e.g. through business associations), business development services, equipment for drying plants and SMEs using certified wood, equipment for eco-lodges and restaurants next or within the two National Parks supported by the project. The innovation grant will not finance logging equipment and large-scale logging companies will not be eligible since they are well above the size limits (e.g. they have hundreds of employees while the size limit on number of employees is fifty). Innovation grants for wood cutting and processing equipment for the possible future wood cluster would only be available once the wood cluster in Yaoundé has been created in full compliance with IDA safeguards requirements, including the establishment of a proper wood certification scheme. Innovation grants for wood cutting and processing equipment could also be available for financing once the enabling environment for wood processing in Cameroon is improved (PSFE and FLEGT processes). The confirmation of satisfaction of these conditions will require prior written IDA approval. Support for the main hard investments on this positive list will be obtained through a competitive process (through calls for expression of interest) and will be subjected to specific terms of reference, with an important emphasis on innovation and learning spillovers. Twenty percent of the fund will not be subjected to the positive list to provide the flexibility to support unanticipated projects with strong positive externalities in the two value chains. 29. The FAC will contribute 50 percent of the beneficiary investment costs. The minimum subsidy amount is CFAF 5 million (US$0.01 million) and the maximum is CFAF 50 million (US$0.11 million). 30. Applicants must meet the following eligibility criteria: Legal status allowing commercial activities in Cameroon; Structure created and operating in Cameroon, under Cameroonian law; In operation for over three years; 64

76 SMEs: maximum of 50 employees, annual turnover under CFAF 500 million, capital assets under CFAF 200 million; Must show their capacity to finance the remaining 50 percent of the investment; Cannot have any direct or indirect link with any member of the Steering Committee, Management Unit or Review Committee (either through capital participation, service provision or direct family relation). 31. The governance and selection process will be subject to very strict rules to ensure independence, integrity and competency. They are described in detail in Annex 6: Implementation Arrangements. At least, once every quarter the FAC Management Unit publishes an Expression of Interest inviting interested firms to apply to the FAC. A first screening of applications is then completed by the FAC Management Unit, based on the eligibility criteria. The Management Unit then undertakes a detailed analysis of the applications that meet the eligibility criteria and rates them. It then submits the detailed analysis, with the ratings, to the Review Committee for final decision. Once the application is selected, a Financing Agreement is established between the beneficiary and the FAC Manager; the Financing Agreement describes the different funding conditions. The Financing Agreement will stipulate that the beneficiary will need to submit information to the FAC Management Unit for the next three years for monitoring and evaluation (M&E) purposes. 32. Special efforts will be made to seek out and support businesses managed by women. The third quarterly Expression of Interest will be reserved to businesses managed by women and the FAC will have as one of its objectives to continuously increase the share of firms benefiting from the FAC which are managed by women (see Annex 3). Component 4: Project coordination (US$6 million) 33. The component will support the establishment, equipment and operations of a dedicated team (to be hired competitively by a specialized firm, also selected competitively) within the Ministry of Economy, Planning and Regional Development (MINEPAT) reporting to a high level Steering Committee. The team will be responsible for overall project implementation, procurement, financial management and M&E. The team will include the FAC Management Unit responsible for the day to day operation of the FAC. The component will also support the establishment of an M&E system and impact evaluation studies. Annex 6 provides further details on the project implementation mechanism. Reimbursement of Project Preparation Advance (US$2.9 million) and non allocated funds (US$1 million) 65

77 Annex 5: Project Costs Cameroon - Competitive Value Chains Project Project Cost By Component and/or Activity Local US$ millions Foreign US$ millions Total US$ millions Component 1: Sustainable wood processing Reforms to promote the processing of certified dry wood 1.2 Promotion of sustainable wood processing techniques and vocational training 1.3 Preparatory studies for creating a wood cluster in Yaoundé Component 2: Ecotourism Upgrading of tourism sites Reforms of the tourism institutional framework and vocational training Component 3: Cross-cutting actions to support 9.2 competitiveness and investment 3.1. Investment climate reforms Innovation grant to support key private investments in the wood and tourism value chains Component 4: Project coordination PPA reimbursement Total Baseline Cost 29.0 Physical Contingencies Price Contingencies Total Project Costs Total Financing Required Taxes will be borne by the Borrower (through a national compensation mechanism) except for component 3.2 for which the project will also finance taxes 66

78 Annex 6: Implementation Arrangements Cameroon - Competitive Value Chains Project A. Implementation structure 1. Project Oversight: The Borrower is represented by its Ministry of Economy, Planning and Regional Development (MINEPAT). The Caisse Autonome d Amortissement (CAA) will manage the Designated Account (DA) and will submit withdrawal applications to IDA on behalf of the project. Overall responsibility for project implementation will also be assumed by the Ministry of Economy, Planning and Regional Development. 2. The project implementation structure will comprise: (i) a Project Steering Committee (PSC); and (ii) a Project Coordination Unit (PCU). 3. Project Steering Committee. The Project Steering Committee (PSC) will be the Steering Committee of the Programme d Appui à la Compétitivité des Filières de Croissance (established by Decree of the Prime Minister on May 12, 2009). This Committee, presided over by the Minister of MINEPAT, or his representative, will be responsible for the strategic guidance of the project. It will reflect the multi sectoral nature of the project, and will include representatives of, inter alia: (i) ministries in charge of Forestry, Tourism, Industry and Finance; and (ii) the private sector. The PSC will be responsible for: (i) approving the project s annual work plan and budget prepared by the Project Coordination Unit; (ii) providing overall coordination and policy guidance; and (iii) approving subsequent updates of the Project Operational Manual. The PSC will meet at least twice a year. The Project Operational Manual will further detail the role of the PSC. The Competitiveness Committee, acting as the Technical Secretariat of the Steering Committee of the Programme d Appui à la Compétitivité des Filières de Croissance, will be responsible for the strategic supervision of the project activities. 4. Project Coordination Unit. The PCU will implement all activities and would be in charge of day-to-day overall project coordination, contracting and supervision. More specifically, the PCU would: (i) prepare and implement annual operating plans and budgets; (ii) undertake M&E of the project; (iii) consolidate project financial, operational and M&E reporting quarterly and annually; (iv) establish and maintain the Project Management Information System (MIS); (v) maintain records and accounts for all transactions (vi) manage project fiduciary matters in collaboration with the CAA. 5. The PCU shall be headed by a national coordinator selected by the MINEPAT under terms of reference and conditions acceptable to the Association. The coordinator will be supported by suitably qualified and experienced staff in adequate numbers, including the following key technical staff: (i) an operations manager; (ii) a value chain experts in wood and tourism; (iii) an environment and social expert; (iv) a procurement expert; and (v) an administrative and financial manager. These key technical staff, including the project coordinator, will be full time and recruited competitively following proposals by a specialized firm which will also be recruited competitively. The PCU will be staffed as indicated in the figure below: 67

79 Figure 1: Organization chart of the Project Coordination Unit Coordinator Technical assistance Wood Expert Tourism expert Transversal issues expert FAC administrator Monitoring and evaluation expert Environment and social expert Procurement expert Administrative and Financial manager Infrastructure expert (reporting to wood and tourism experts) Wood FAC expert Accountant Tourism FAC expert Support staff Env. and social expert Admin and financial assistant 6. Project Operations Manual (POM): The POM gathers the following three manuals: (i) the administrative, accounting and financial procedures manual, (ii) the project implementation manual and (iii) the FAC procedures manual. The project implementation manual will describe the implementation mechanism of the project, including the role of the Project Steering Committee and of the Project Coordination Unit. It will include the Terms of Reference for the staff of the Project Coordination Unit. It will also detail the coordination mechanism between the different ministries, the private sector and the thematic groups. 7. The graph below presents the overall institutional set-up of the project. 68

80 Figure 2: Organization chart of the Project Coordination Unit Project Steering Committee Presided by MINEPAT With representatives of Ministry of Forest, Environment, Tourism, Mining and Industry and Finance With representatives of the private sector in the wood and tourism value chains Sectoral Group: Sectoral Group: Sectoral Group: Sectoral Group: Wood Tourism FAC Investment Climate Project Coordination Unit Innovation Grant (FAC) 69

81 Monitoring and evaluation arrangements 8. Supervision. The World Bank will devote an estimate of 30 staff weeks per year for project supervision. During the first two years, supervision will focus on performance of the PCU in procurement and financial management, as well as in completing the agreed work plan. During the following years supervision will focus on progress in reaching planed results. Social and environment issues will be closely monitoring. 9. Monitoring. Overall project monitoring is the results framework included in Annex 3. Monitoring will be carried out by the PCU, which will report to the PSC on results achieved. Progress reports will be prepared by the PCU every six months, commencing in December 2010, and submitted to the World Bank within one month thereafter. A final independent evaluation will be conducted in the last semester of project execution to assess overall achievement of expected project results. 10. Reviews. In addition to continuous supervision by World Bank staff, reviews by the World Bank, together with the GOC and other stakeholders, to assess progress in implementing the agreed activities will be carried out twice a year. 11. Mid-term review. A mid-term review will be carried out 24 months after the Effective Date, or such later dates as may be agreed upon by the Recipient and the Association, together with the GOC and other stakeholders. In addition to covering all areas included in annual reviews, the mid-term review will assess the implementation status of each component, institutional and fiduciary arrangements. The review will evaluate progress in reaching the project development objectives and identify measures needed to reach objectives. Careful attention will be paid to: (i) the sustainability of investments; ii) the performance of the PCU in addressing environmental and social issues in design and implementation of the different components; (iii) the performance of the FAC; and (iv) the performance of the PCU in addressing fiduciary responsibilities. This will involve visits by specialists to selected sites for first-hand assessment results achieved. They will assess the environmental and social impacts of investments, both individually and cumulatively, and the adequacy of safeguard procedures agreed for the project. 12. Prior to the mid-term review, the Borrower will contract an independent consultant (to be financed by the project) to review and assess the implementation progress and prepare the necessary documentation for the review. 70

82 Appendix: Competitiveness Support Fund (FAC) 1. The Competitive Value Chains Project includes an innovation grant mechanism entitled Competitiveness Support Fund (Fonds d Appui à la Compétitivité, FAC). A draft operating manual has been developed. This manual highlights the operating principles and procedures of the fund, as well as the governance and internal control mechanisms. This Appendix provides a summary of the main operating principles of the FAC. 2. Objective of the FAC. The objective of the Fonds d Appui à la Competitivité (FAC) is to kick-start key private investments by SMEs in the wood and tourism value chains in a context where access to finance if very difficult and the cost of imported equipment very high due to import taxes and tariffs. The innovation grant will focus on investments which have strong positive externalities on the other actors of the value chain. A positive list has been developed to that effect. It will include (not exhaustive and to be refined during the course of the project): vocational training, creation and diffusion of key information (e.g. through business associations), business development services, equipment for drying plants and second and third processing of wood, equipment for ecolodges and restaurants next or within the two National Parks supported by the project. The innovation grant will not finance logging equipment. Innovation grants for wood cutting and processing equipment for the possible future wood cluster would only be available once the wood cluster in Yaoundé has been created in full compliance with IDA safeguards requirements, including the establishment of a proper wood certification scheme. Innovation grants for wood cutting and processing equipment could also be available for financing once the enabling environment for wood processing in Cameroon is improved (PSFE and FLEGT processes). The confirmation of satisfaction of these conditions will require prior written IDA approval. Support for the main hard investments on this positive list will be obtained through a competitive process and will be subjected to specific terms of reference, with an important emphasis on innovation and learning spillovers. 20% of the fund will not be subjected to the positive list to provide the flexibility to support unanticipated projects with strong positive externalities in the two value chains. 3. Governance structure. The FAC includes three main structures: (i) the Steering Committee (which is the Steering Committee of the Competitive Value Chains Project); (ii) the FAC Management Unit; and (iii) the Review Committee. The Steering Committee is responsible for the strategic direction of the FAC; it decides upon the quarterly budget allocation of the FAC available to selected SMEs 15 and upon the annual FAC operating budget; it reviews the performance of the FAC and ensure that resources are used as intended in the operation manual. It is also responsible to validate changes to the FAC operating manual. 4. The FAC Management Unit is responsible for the day to day operation of the FAC. It includes a Manager, two technical experts (in the wood and tourism sectors), an environment and social expert, and one administrative and financial assistant. The FAC Management Unit is responsible for the pre-selection of beneficiaries and for the submission of selected applications 15 For the next six months, as the Steering Committee meets twice a year. 71

83 to the Review Committee. It is also responsible for the preparation of quarterly activity reports on FAC operations. 5. The Review Committee meets quarterly to approve the applications submitted by the Management Unit. It is composed of 5 members: (i) the Coordinator of the Competitive Value Chains Project; (ii) two recognized private sector representatives of the wood value chain; and (ii) two recognized private sector representatives of the tourism value chain. 6. FAC support. The FAC is an innovation grant mechanism. It aims at complementing (and not substituting for) microfinance institutions and commercial banks. As such, it focuses on the missing middle, funding requests too high for microfinance institutions and too low for commercial banks. In addition, the FAC support the financing of investments (versus the financing of working capital). 7. FAC support is provided through a competitive mechanism: calls for expression of interests will be launched and interested entrepreneurs will need to compete to obtain the grant. There will be both general and specific call for expression of interests. Thus, there will be specific calls for expressions of interest for the construction of eco-lodges in the national parks or the establishment of dryers in the wood cluster. 8. Special efforts will be made to seek out and support businesses managed by women. The third quarterly Expression of Interest will be reserved to businesses managed by women and the FAC will have as one of its objectives to continuously increase the share of firms benefiting from the FAC which are managed by women (see Appendix 3). 9. The FAC will co-finance 50 percent of the beneficiary investment costs. The minimum subsidy amount is CFAF 5 million (US$0.01 million) and the maximum is CFAF 50 million (US$0.1 million). 10. Eligibility conditions. Applicants must meet the following eligibility criteria: Legal status allowing commercial activities in Cameroon; Structure created and operating in Cameroon, under Cameroonian law; In operation for over 3 years; Financial management capacity SMEs: maximum of 50 employees, annual turnover under CFAF 500 million, capital assets under CFAF 200 million; Must show their capacity to finance the remaining 50 percent of the investment; Cannot have any direct or indirect link with any member of the Steering Committee, Management Unit or Review Committee (either through capital participation, service provision or direct family relation). 11. Selection process. The graph next page summarizes the selection process. At least, once every quarter the FAC Management Unit publishes an Expression of Interest inviting interested firms to apply to the FAC. A first screening of applications is then completed by the FAC Management Unit, based on the eligibility criteria. The Management Unit then undertakes a 72

84 detailed analysis of the applications that meet the eligibility criteria and rates them. It then submits the detailed analysis, with the ratings, to the Review Committee for final decision. 12. Fund Disbursement. Once the application is selected, an Innovation Grant Agreement is established between the beneficiary and the FAC; the Innovation Grant Agreement describes the different funding conditions. The funds are provided to the beneficiary once the services, equipments of works have been received or completed. The funds are disbursed from the CAA Project Account to the beneficiary bank account. The funds are disbursed from the special CAA Designated Account DA-FAC to the suppliers of equipment, works and services bank accounts (see Annex 7 for more details). 13. Fraud mitigation. It should be highlighted that grant will only be provided following a thorough due diligence on the application and the underlying project undertaken by the FAC management team. In addition, a two-pronged approach will be applied: ex-ante (i.e. before the innovation grant is provided) and ex-post verifications. Ex-ante, the applicant must demonstrate that s/he has a profitable business and that it has a sound business plan. The applicant must have been running his/her business for three years. The applicant will also have to show that s/he has sufficient funds in his/her bank account before the applicant is selected. In addition (and as an ex-post verification mechanism), the innovation grant will be provided directly to the supplier only once the equipment has been delivered (or once the technical assistance has been mobilized and deliverables have been produced, or once the training has been partly provided) which would have shown that the supplier has already received part of the payment owed (the effective delivery is checked by the FAC management team). 14. Audits and controls. The FAC activities will be audited in the context of the wider financial audit of the Competitive Value Chains Project. In addition a yearly independent evaluation of the FAC will be undertaken. This independent evaluation will review randomly selected beneficiaries and will also randomly review the applications received, the rejected applications and the ranking of the pre-selected applications. Furthermore, this technical audit will ensure that activities were completed pursuant to the Innovation Grant Agreement and that funds were used for the purposes intended by the Financing Agreement. All relevant documentation must be retained by the project and made available to technical auditors and financial auditors. 15. Monitoring and evaluation (M&E). The Innovation Grant Agreement will stipulate that the beneficiary will need to submit information to the FAC Management Unit for the next 3 years for M&E purpose. 73

85 Figure 1: Selection process Expression of Interest Month (n-1) Receipt of applications Month (n) Checking of eligibility Pre-selection Month (n+1) Inform applicant about rejection In-depth analysis of preselected applications* Month (n+2) Rating of applications and submission to Review Committee Final selection by Review Committee Month (n+3) Month (n+3) Inform applicant about rejection Signature of the Innovation Grant Agreement Month (n+4) * For applications requiring a subsidy over CFAF 10 million, the application must provide a 5 year business plan (the Management Unit can help develop the business plan). 16. FAC operating manual. The draft operating manual includes the following sections: a) Objectives b) Governance c) FAC support d) Eligibility criteria e) Selection process f) Management Unit role and responsibility g) Disbursement process h) Audit and control i) Monitoring and Evaluation j) Reporting 74

86 17. In addition, the operating manual includes the following documents: a) Draft Expression of Interest b) TOR for the FAC Management Unit staff c) Application formal d) Evaluation guidelines of pre-selected applications e) Draft Grant Agreement for subsidies under CFAF 10 million f) Draft Grant Agreement for subsidies above CFAF 10 million 75

87 Annex 7: Financial Management and Disbursement Arrangements Cameroon - Competitive Value Chains Project Summary of the Financial Management Assessment 1. The Ministry of Economy, Planning and Regional Development (MINEPAT) will implement the project as presented in Annex 6: Implementation arrangements. 2. Based on project implementation arrangements, the overall responsibility for the financial management will remain with the Project Coordination Unit (PCU), and the day-to-day management would be carried out by the Coordinator and the financial manager. The coordination and reporting mechanisms between the agencies involved in the project and the PCU are to ensure that arrangements in place will allow smooth implementation of the project activities and that the funds are used only for the purposes for which they are granted, with due regard to economy, efficiency, and sustainable achievement of the project s development objectives. 3. The objective of financial management arrangements for this project is to ensure that the systems used are sufficiently robust to permit adequate use of funds in an economic and efficient way and that all transactions are duly accounted for reported and audited. 4. Financial management capacity of the project. The capacity of the project s PCU should be acceptable to IDA as outlined in this annex. The FM staff of the PCU (a financial manager and an accountant) will be recruited on a competitive basis under the supervision of the MINEPAT. Under the supervision of the Coordinator, the financial manager will have the responsibility for the management and accounting of the project. Specifically, s/he will be responsible for (a) preparing activity plans, monthly Designated Accounts (DA) reconciliation statements, and statements of expenditures, withdrawals schedules, quarterly Interim Financial Reports and annual project s financial Statements; and (b) ensuring that the project financial management arrangements are acceptable to the Government and IDA. S/he will be responsible for forwarding reports to the Government and IDA within the allotted timeframe. 5. Financial management. The Project Coordination Unit will have the responsibility of the project financial management. The PCU will have to maintain the consolidated budget and accounts. To this end, the PCU will acquire and install an integrated financial management software. The computerized management system shall ensure the recording and drafting of reports by geographical locations, components, activities, expenditure categories and the origin of funds. The computerized management system includes the following, integrated modules: general accounting, cost accounting, budgetary accounting, monitoring and evaluation, and assets management, and modules for preparing withdrawal applications and tracking disbursements by donors, production of reports, including Interim Financial Reports (IFR) and annual project s Financial statements. 6. Country issues: Cameroon has formulated a PFM Reform Strategy supported by various development partners. The overall objective of the PFM Reform Strategy is to improve the 76

88 efficiency and effectiveness of central and local government PFM and accountability processes, including an increase in transparency in the use of public funds and reduced opportunities for corruption. A PEMFAR was conducted and issued in June The PEMFAR (incorporating PER, CFAA and CPAR) recognized that substantial fiduciary risks remain in the following areas: (a) absence of controls of the materiality of expenditures in the administrative phase of spending; (b) adequate controls are not implemented at the payment phase of spending; (c) recurrent risk related to the payroll; (d) excessive use of exceptional procedures in budget expenditures. In addition, the combination of weak internal control and weak financial reporting leads to a high fiduciary risk. The risk is systemic on treasury management since there is not independent and effective internal control. Conversely, progress has been registered with the implementation of Medium- term Expenditure Framework (MTEF) in some key ministries during the last decade. 7. On governance and corruption issues, the Government has initiated a series of initiatives to strengthen Governance through the adoption of a five year National Governance Program (PNG). The Government has established anticorruption units in all ministries and in some public agencies. Their activities are coordinated by a national Anticorruption Observatory under the authority of the Prime Minister office. Moreover, various anti-corruption institutions have been set-up in the framework of the HIPC program completion. Cameroon continues to undertake steps to overcome corruption and improve governance as well as PFM. 8. Despite these ongoing efforts, the country PFM remains weak and cannot be relied upon entirely to manage the proposed project. 9. Financial Risk Assessment and Mitigation. The geographical spread of the project contributes to increasing financial management risks. The financial management risks are related to: (a) inexperience of the staff with regard to the procedures of the program; (b) weak implication of staff in internal control; (c) delays in accounting and reporting; (d) poor linkage between physical progress and financial outcomes; (e) poor governance in the selection process of the innovation grant beneficiaries; (f) poor quality of data generated by the management information system, and (g) slowness in the justification of expenditure of supporting documents. 10. Table 1 shows the results of the risk assessment from the Risk Rating Summary conducted for the project. This identifies the key risks the project management may face in attempting to achieve project objectives, and it provides a basis for determining how management should address these risks. 77

89 Table 1: Detailed FM risks identified and mitigating measures agreed upon. Risk Preliminary / Residual Risk Rating Risk Mitigating Measures Incorporated into Project Design Residual Risk Condition of Negotiations or Effectiveness (Y/N?) Inherent Risk Country Level Governance may not be adequately addressed. H The Cameroon 2006 Interim Strategy Note (ISN), which proposes a support strategy in FY07-08, is primarily focusing in addressing issues, including corruption. Governance is also a key pillar of the recently finalized CAS. H NO Entity Level The risk of poor coordination among several technical ministries involved in the project coupled with Lack of capacity of MINEPAT to manage fiduciary aspects of the project Project Level Project funds including the innovation grants may be fall prey to the elite capture. H S The PRSP adopted in July 2003, and later updated, was structured into seven pillars including improving institutional framework, administrative management and governance. Nonetheless, it is unlikely that the CAS governance measures would reasonably bear fruit to mitigate significantly the risks during the project implementation timeframe. Create a multi-sectoral steering committee and define clear mechanisms, monitoring and decision making process. Design clear implementation arrangements for the project delineating responsibilities between each and all of the actors and entities. The Bank is helping to ensure effective financial management of the PCU is entrusted with the overall financial management responsibility. The FAC procedures manual ensure a sound financial management for the innovation grant component. Overall inherent risk H S M M NO NO Control Risk Budgeting: Committing expenditures outside the budget. Lack of variance analysis may increase the detection risks. S Annual work program and budget would be realistic and timely agreed, recorded and monitored through the financial integrated system. The project budget will be prepared and managed under the responsibility of the M NO 78

90 Risk Accounting: No accounting system in place (only manual accounting for the PPA); delay in maintaining reliable accounting records and issuing reliable financial statements might occur. Internal Control: Insufficient safeguards and controls may result in misuse of funds and impede the execution of the project. Funds Flow: The lack of exposure in WB disbursement procedures may cause delay in disbursement processing and ineligible expenditures Financial Reporting: The lack of exposure in WB disbursement procedures may cause delays) in submitting the reports. Auditing: The national audit capacity is weak. Fraud and Corruption Innovation grant may fall prey to the elite capture Preliminary / Residual Risk Rating S H S S S H Risk Mitigating Measures Incorporated into Project Design MINEPAT (PSC).Quarterly IFR reports will provide variance analysis on the budget execution. Accounting management at the PCU of the MINEPAT will be carried out by a recruited project financial manager and an accountant with TORs acceptable to the Bank. Manager will (i) file the supporting documents at PCU level; (ii) record accounting information and issue on a timely basis financial statements and IFRs. Install integrated financial management software and train relevant staff in its use. Sound financial management and Administrative procedures are included in a Project Operations Manual (POM) (which includes, inter alia, a Financial Management Manual, and the FAC operating manual). Adherence to the internal controls will be monitored through close follow-up of the audit recommendations during supervision missions The project would benefit from the experience of an accountant who is already familiarized with Bank fiduciary procedures. Besides FM/disbursement training opportunities and implementation support will be provided to PCU in order to be acquainted with Bank s procedures. The integrated financial management software including an adequate accounting system would help in achieving reporting requirements by implementing agencies. Timely production of IFR would be adequately monitored. An independent external audit firm will be recruited on TOR acceptable to the Bank to perform annual audits in accordance with the international standards on auditing. Besides the strong fiduciary arrangements above, random audits of FAC beneficiaries will be conducted on Residual Risk M S M M M S Condition of Negotiations or Effectiveness (Y/N?) NO Dated covenant (three months after effectiveness) YES Condition of effectiveness NO NO Dated covenant (4 months after effectiveness) NO 79

91 Risk Preliminary / Residual Risk Rating Risk Mitigating Measures Incorporated into Project Design TOR acceptable to the Bank. FAC procedures will define criteria for the selection of the grant beneficiaries and performance monitoring. Residual Risk Overall control risk S S Condition of Negotiations or Effectiveness (Y/N?) Overall Risk Rating S S H High S Substantial M Modest L Low 11. The overall residual FM risk is substantial. 12. Following the assessment, an action plan presented below, indicates the actions to be undertaken to strengthen financial management of the project and due completion dates. Financial Management Action Plan Effectiveness Actions Completed by Responsible 1 Robust financial management and accounting Condition of PCU procedures will be included in the POM. This will effectiveness include non-audited Interim Financial Report (IFR) format, the annual project financial statements format, and the TOR for external auditors for the project. The POM will have to be in form and substance satisfactory to IDA. 2 Acquire, install an integrated financial management 4 months after PCU system and train the staff in its use. effectiveness 3 Selection of independent auditors 4 months after PCU 4 Competitively recruit a Financial Manager and an accountant in the PCU (note that an accountant has already been recruited for the PPA). Train relevant PCU staff on the use of the computerized accounting system in PCU. Detailed financial management arrangements Effectiveness 3 months after effectiveness 13. Staffing Arrangements. To ensure effective implementation, the project will need to ensure appropriate staffing arrangements for its entire duration. The project will have an accounting unit within the PCU headed by a Financial Manager to be recruited competitively who will be responsible for keeping IDA / project related accounts. The Financial Manager will PCU 80

92 be assisted by a Project Accountant to also be recruited competitively. Terms of reference for the project staff, recruited on a competitive selection, will be prepared and agreed upon with IDA. 14. Budgeting Arrangements. The overall responsibility to prepare the annual work program lies with the PCU under the supervision of the Project Steering Committee. The project s budgeting arrangements shall be acceptable to IDA. The PCU will prepare the overall budgets on an annual basis. The budgeting system needs to forecast for each fiscal year the origin and use of funds under the project. Only budgeted expenditures would be committed and incurred. The annual budget will be monitored during project implementation to ensure that the resources are used within the agreed upon allocations and for the intended purposes. The different steps of budget management (preparation, revision, adoption and execution/monitoring) will be briefly detailed in the POM. It is agreed that the budget will be closely monitored and execution reports reflected in each quarterly interim financial report through variance analysis. 15. The PCU will apply the SYSCOHADA accounting standards and policies and maintain accounting system similar of those for other IDA projects. The project specific accounting books have to encompass: a cash book, ledgers, journal vouchers, fixed assets register, and contracts register. 16. This accounting book will be updated electronically with a computerized accounting system, to be established before effectiveness. A specific chart of accounts will be developed in the POM and integrated in the computerized accounting system. This should match with the classification of expenditures and sources and application of funds indicated in the Financing Agreement. The chart of accounts should be developed in a way that allows project costs to be directly related to specific work activities and outputs of the project. The chart of accounts and the Accounting books to be used for the project need to be completed in accordance with the requirements of the Financing Agreement. 17. Information systems. In order to fulfill the project s requirements the PCU would need to acquire accounting software. Specific staff training should be carried out to optimize the use of the accounting software. A fully functioning financial management system satisfactory to the Bank in the PCU is considered a condition of effectiveness. 18. Reporting. Formats of the various periodic financial monitoring reports to be generated from the financial management system would be developed. It is agreed that the project would prepare and submit to IDA quarterly IFR not later than 45 days after the end of each calendar quarter. The content of these reports should, at a minimum, include the following: sources and uses of funds by project activity/component, statement of actual and budget expenditures, both cumulatively and for the period covered by the said report, showing separately funds provided under the IDA, other financiers and counterpart funding, and explanation of the variances between the actual and planned uses of such funds and the fund balance supported by bank statements and reconciliations. Formats of IFRs and annual statements would be prepared by the PCU and agreed during the negotiations with IDA. There would be clear linkages between the information in these reports and accounting data. The IFR would be designed to provide quality and timely information to project management, implementing agencies, and various stakeholders on project performance. 81

93 19. Project financial statements. The project financial statements would comprise of: (a) a Balance sheet, reflecting the assets, liabilities and the funding of the project; (b) a Statement of sources and uses of funds/cash Receipts and payments which recognizes all cash, receipts, cash payments and cash balances and separately identifies payments to third parties on behalf of the entities (if any); (c) the Accounting Policies adopted and Explanatory Notes, cross-referenced to the sources and uses statement, etc.; and (d) a Management Assertion that project funds have been expended for the intended purposes as specified in the relevant financing agreements. 20. Project financial statements shall be prepared in accordance with: (a) International Public Sector Accounting Standards (IPSAS), which inter alia includes the application of the cash basis of recognition of transactions; or (b) International Financial Reporting Standards for entities applying the accrual basis of accounting. Indicative formats of statements would be agreed within six months following effectiveness. 21. It has equally been agreed that the project would produce separate reports with information on the project s physical progress and on the physical progress of contract execution. 22. Financial audits. The World Bank requires that the audit scope and terms of reference, the auditor, and the audit standards applied be acceptable to it. The responsibility of the presentation of consolidated financial statements and audit preparation remain to the PCU. The project s consolidated financial statements would be audited each fiscal year by an independent auditor accepted by IDA. Detailed terms of reference for the selection of project auditor would be formulated and agreed with IDA. The scope of the audit would vary according to the risks associated to the project, in accordance with the Bank s requirements and accepted by the Borrower. 23. The auditor would provide: (a) a unique opinion of financial statements, which may include a special opinion on the statements of expenditures or interim reports and Designated account; (b) a management letter containing the auditor s assessment on the internal controls, accounting system relating to the project and compliance with financial covenant in the project Financing Agreement; and (c) suggestions for improvement, which would be submitted to management for follow-up. 24. Reports and audit details including the management letter would be submitted to the IDA within six months from the end of the audit period after the end of each fiscal year. The tentative due dates of the audit report would be as follow: June 30, 2011; June 30, 2012; June 30, 2013; June 30, 2014; June 30, 2015; June 30, The audit of the PPF will be due with the first audit of the project, tentatively due on June 30, As of the time of project negotiations (May 19, 2010), there were no outstanding/overdue audits for any project being implemented by the Project Implementing Entity (MINEPAT). 26. Fraud and Corruption: To mitigate the high risk of fraud and corruption, technical audits would be carried out, on terms and conditions acceptable to IDA, on contracts on the basis of a sample to be agreed upon and annexed to the POM. The scope of these technical audits will 82

94 include the review enterprises that benefited from innovation grants. This will complement the financial audits which include anti-corruption provisions. 27. Flow of funds arrangements. The overall project funding will consists of US$30 million. To facilitate project implementation, two Designated Accounts (DA- Others & DA- FAC) will be opened in a commercial bank on terms and conditions acceptable to IDA by CAA (Caisse Autonome d Amortissement) into which credit proceeds would be disbursed. DA FAC will receive proceeds allocated to the Innovation grant subcomponent and DA Others will receive proceeds allocated to all other project components A project account will also be opened in a commercial bank on terms and conditions acceptable to IDA by CAA to account for GoC counterpart funds. The ceiling of the IDA is established respectively at CFAF 600 and 200 million for DA-Others and DA-FAC equivalent to four (4) months forecast of eligible expenditures. Figure 1: Flow of Funds Arrangements IDA GoC Designated Account - Others Designated Account - FAC Project Account FCFA Project Activities FAC Services Providers Project Activities Disbursements arrangements and methods 28. Disbursements from IDA to borrower: would be initially made on the basis of incurred expenditures (transaction- based disbursements) until such time when the project FM arrangements meet the requirements for report-based disbursement. Four disbursement methods will be available for this project: the Advance, Reimbursement, Direct Payment and Special Commitment methods, all described in the Disbursement Guidelines Applicable to projects (May 2006). In order to minimize transaction costs, the minimum value for applications for reimbursement, direct payment, and special commitment is twenty (20) percent of the IDA ceiling. 29. To move from transaction based disbursements to report based disbursements where six monthly expenditure forecast are quarterly made available on the DA, the project would have to: (a) sustain satisfactory FM rating during the project s supervision; (b) submit Interim Financial 83

95 Reports (IFRs) consistent with the agreed form and content within 45 days of the end of each reporting period; and (c) submits the expected Audits Reports by the due date, namely the report on Financial statements and the management letter. In the event or when the conditions are met. The DA ceiling of the DA would be base on six months cash forecast as provided in the quarterly IFR. Supporting documentation would be retained by the PCU for review by the Bank. 30. An initial advance up to the ceiling of the DA will be disbursed upon the Government s request and after effectiveness. Subsequent advances of funds from IDA to the Designated Account would be made upon evidence of satisfactory utilization of the advance, reflected in Statement of Expenditures (SOEs) and/or on full documentation for payments above SOE documentation thresholds. If ineligible expenditures are found to have been made from the DA, the Borrower would be obligated to refund them. If the Designated Account remains inactive for more than six months, the DA ceiling would be deemed excessive and would be reduced through a recovery of the outstanding advance. 31. For the innovation grant component, a Customized SOE, in the form attached to the disbursement letter, would be used. The Customized SOE would reflect payments made by the PCU to beneficiaries pursuant to the terms and conditions of the use of the innovation grant and consistent with the innovation grant manual. The Customized SOE would be signed by the PCU coordinator based on site supervision missions completed by project staff, certifying the completion of subproject milestones pursuant to the terms of the Innovation Grant Agreement. A technical audit will be conducted on an annual basis to ensure that activities were completed pursuant to the Innovation Grant Agreement and that funds were used for the purposes intended by the Financing Agreement. All relevant documentation must be retained by the project made available to technical auditors and financial auditors. 32. Transfer of funds from the DA to the beneficiaries of the innovation grant would be done based on a specific document whose content is specified in the procedure manual. The funds are provided to the beneficiary once the services equipments of works have been received or completed. The PCU innovation grant staff will be required to verify progress in order to authorize payments. Once the application is selected, an Innovation Grant Agreement is established between the beneficiary and the FAC; the Innovation Agreement describes the different funding conditions. The funds are provided to the beneficiary once the services, equipments of works have been received or completed. The funds are disbursed from the DA- FAC to the suppliers of goods and services bank accounts. 33. Retroactive Financing. Approval is being sought for retroactive financing of up to an aggregate amount not to exceed US$1 million equivalent for payments made prior to the legal agreement date but on or after May 1, 2010, for eligible project expenditures under component 4 (Project Coordination). 34. Taxes. Funds would be disbursed in accordance with project categories of expenditures, as shown in the Financing Agreement. Financing of each category of expenditures would be authorized at 100 percent exclusive of taxes for all activities, except for those of the innovation grant, which will be inclusive of taxes. Taxes will be borne by the Borrower through a national compensation mechanism as currently in practice in Cameroon. Application for withdrawal of 84

96 funds would be submitted to IDA net of taxes, with the exception of applications related to the innovation grant (Category 4). In this regard, the Project Manuals, including the Innovation Grant Manual, will provide clear procedures on the preparation of applications of withdrawal of proceeds. Disbursements by Category Category (1) Goods, Training, Operating Costs and Consultant services for the sustainable wood processing component; the Mount Cameroon, Chiefdoms, Kribi, Campo Ma an, the reforms of the tourism institutional framework and vocational training, and investment climate reforms subcomponents; and for the project implementation (which includes the FAC management unit) component; and Amount of the Credit Allocated (in US$ millions) Percentage of Expenditures to be Financed (exclusive of taxes) % Works for the sustainable wood processing component (vocational training); the Chiefdoms, Kribi and the reforms of the tourism institutional framework and vocational training sub components. (2) Works and promotion activities for the % subcomponent on Mount Cameroon (3) Works and promotion activities for the % subcomponent on Campo Ma an (4) Innovation grants % of amounts disbursed through sub-grants (5) Refund of Project Preparation Advance 2.9 Amount payable pursuant to Section 2.07 of the General Conditions (6) Unallocated 1.0 TOTAL AMOUNT 30.0 Financial covenants 35. Financial covenants are the standard ones as described in the legal documents and are comprised of maintaining project accounts in accordance with sound accounting practices, audit requirements and records well kept and secured. 85

97 Supervision plan 36. Based on the residual financial management risk determined above, considered Substantial at entry, the project will be supervised twice a year. A review of transactions will be included to check at random the specific operations encountered in sub-accounts in favor of service providers. The Bank s supervision will ensure that funds are used for the intended purposes in an economic and efficient manner and that the agreed FM arrangements continue to perform well and help the project reach its development objectives in a satisfactory manner. The supervision output will comprise: (i) a financial management supervision report documenting findings and recommendations; (ii) an update of the financial management risk; and (iii) a financial management contribution to ISR risk rating. 86

98 Annex 8: Procurement Arrangements Cameroon - Competitive Value Chains Project A. General Procurement Environment 1. The adoption of the new procurement code approved on 24 September 2004, has improved the legal and institutional frameworks of the said system. No special exceptions, permits or licenses need to be specified in the Financial Agreement since the new procurement code allows IDA procedures to take precedence over any contrary provisions in local regulations. However, the latest audits of public contracts by independent experts revealed persistent weaknesses in procurement planning operations and practices. 2. The Country Procurement Assessment Review (CPAR) conducted in 2005 indicates significant achievements in the procurement reform undertaken over the past five years. The four pillars of the system have now been put in place (in 2005 the rating of the Baseline Indicators System is 69 percent). Government s priority has been to develop capacities and strengthen the monitoring and evaluation of performance of the system in the public and private sectors. To that end, the Government, at the end of 2005, adopted an action plan whose main yardsticks include: (i) the preparation and adoption of a program to develop procurement capacities; (ii) the setting up of a computerized contract award system aimed at improving the planning, execution, monitoring and evaluation of operations; (iii) developing contract supervision and execution monitoring capacities; and (iv) the implementation of specific measures to ensure regulation, the strengthening of contract award rules and the sanctions mechanism. 3. A recent Bank procurement mission carried out during the period of December 7-12, 2009 has identified some potential bottlenecks for project implementation and budget execution, which are laid out below: a) Lack of provisions in the Code for delegation of authority by the Presidents of Tender Boards and by Ministers/procuring entities. In their absence, meetings of the Tender Board cannot be held and no one is authorized to sign off on procurement documents and contracts. b) Incentives for Tender Board members to maximize the number of meetings as, according to the Code, they are paid by meeting rather than by contract. c) Delays in the award of the contract by the Minister/Head of the procuring agency after the Tender Board recommendation (there is no time limit defined in the Code for the Minister s sign off on the contract award). d) Abuse of direct contracting and slicing of contracts that increases the transaction costs and the lead time for procurement. e) Weak technical support not always available in house and the need to outsource it. f) Poor procurement planning and record management system and the need to address it in the project design. 87

99 4. Based on the discussions with the Government/ARMP (Autorité de Régulation des Marchés Publics, Public Procurement Regulatory Authority) it has been agreed that while waiting for the Code to be revised, the above risks (see bullets a-c) can be mitigated through the Legal and project documents for World Bank financed project with the establishment of the specialized tenders board by defining the procurement arrangements and approvals authorities and providing adequate technical support to projects. The enforcement of the procurement plan can address the risk of slicing to avoid more competitive methods and abuse of direct contracting. 5. It was further agreed to work in partnership with the Government for difficult systemic issues, to engage the government institutions (Ministry, Secretariat of the Prime Minister, ARMP) as they are equally interested in reducing their cost of borrowing and obtaining results on the ground. Guidelines 6. A procurement code, currently under revision, has been elaborated and got approved by the President of the Republic in September However, this procurement code does not fully comply to International Standards regarding the domestic preferences, the eligibility for NCBs and the selection and recruitment of Consultants, as it appears among others that (i) there is an absence of precision on the recruitment of NGOs and individual consultants, (ii) the short list of consultants is unlimited, (iii) there is a requirement for consultants to submit a bid security and performance guarantee. These issues are being discussed as part of the procurement reform dialogue with the Government and are under review by authorities, as reported in the action plan of the workshop on the assessment of the procurement system held by ARMP in Yaoundé from November 27 to 28, A draft revised procurement code, based on the action plan of November s workshop, has been discussed with stakeholders involved in public procurement during the period June 2-4, 2009 at a national workshop. In the mean time, these shortcomings will be addressed within the framework of this project by the POM (including the procurement, administrative, accounting and financial procedures). 7. Procurement for this project would be carried out in accordance with the World Bank Guidelines: Procurement under IBRD Loans and IDA Credits dated May 2004 and revised in October 2006 and May 2010; and Guidelines: Selection and Employment of Consultants by World Bank Borrowers, dated May 2004 and revised in October 2006 and May 2010, and the provisions stipulated in the Development Credit Agreement. The general description of various items under different expenditure category is described below. For each contract to be financed by the credit, the different procurement (works, goods and non-consulting services) methods or consultant selection methods, prequalification, estimated costs, prior review requirements, and time-frame would be agreed between the Recipient and the Bank Task Team in the procurement plan. The procurement plan will be updated at least annually or as required to reflect the actual project implementation needs and improvements in institutional capacity. To the extent practicable The Bank s Standard Bidding Documents for goods and Standard Requests for Proposals for Proposals as well as all standard evaluation forms would be used throughout project implementation. 88

100 Advance contracting and retroactive financing 8. In order to accelerate program implementation, the borrower has expressed its intention to proceed with the initial steps of procurement before signing the related Financial Agreement. The procurement procedures, including advertising, will be done in accordance with the Bank s Guidelines in order for the eventual contracts to be eligible for Bank financing, and the normal review process by the Bank will be followed in accordance with the Procurement and Consultant Guidelines. Publicity 9. A comprehensive General Procurement Notice (GPN) will be prepared by the Borrower and published in the United Nations Development Business online (UNDB online) and in the Development Gateway Market (dgmarket) following Board Approval, to announce major consulting assignments and any ICB. 16 The GPN shall include all ICB for goods contracts and all large consulting contracts (i.e., those estimated to cost US$200,000 or more). In addition, a specific procurement notice is required for all goods to be procured under ICB in dgmarket and UNDB online. Requests for expressions of interest for consulting services expected to cost more than US$200,000 shall be advertised in UNDB online and in dgmarket. An expression of interest is required in the national gazette or a national newspaper or in an electronic portal of free access for all consulting firm services regardless of the contract amount. In the case of NCB 17, a specific procurement notice will be published in the national gazette or a national newspaper or an electronic portal of free access. Contracts awards will also be published in UNDB and dgmarket, in accordance with the Bank s Procurement Guidelines (par. 2.60) and Consultants Guidelines (par. 2.28). Works 10. Works procured under this project consist of investments under the subcomponents 1.2 and 2.1 for some key infrastructures, such as the construction of shells for 20,000 square meters of workshops, the construction of basic infrastructures (e.g. secured and leveled land, water connections, etc ), the rehabilitation and expansion of intermediate camps, shelters and cookhouses, small works at remote locations in the areas of Campo Ma an and Mount Cameroon, etc. Civil works costing more than US$5,000,000 equivalent will be procured through ICB. Civil works costing less than US$5,000,000 equivalent will be procured through NCB. Procurement will be done using the Bank s Standard Bidding Documents (SBD) for all ICB and National SBD agreed with or satisfactory to the Bank. Except for the procurement process under the subcomponent 3.2 for innovative grants, other small works estimated to cost less than US$50,000 equivalent per contract may be procured through shopping, based on price quotation obtained from at least three contractors in response to a written invitation to qualified contractors. 16 ICB: International Competitive Bidding 17 NCB: National Competitive Bidding 89

101 11. Force account, in accordance with the provisions of paragraphs 3.8 of the Procurement Guidelines, may be carried out if it is the only practical method for constructing specific works. The use of force account may be justified where: Goods (a) Quantities of work involved cannot be defined in advance; (b) Works are small and scattered or in remote locations for which qualified construction firms are unlikely to bid at reasonable prices; (c) Work is required to be carried out without disrupting ongoing operations; (d) Risks of unavoidable work interruption are better borne by the Borrower than by a Contractor; and (e) There are emergencies needing prompt attention. 12. Goods procured under this project would include equipments for pilot workshops, vehicles, IT equipment for the PCU, etc. Taking into account (level of value added) manufactured/producers capacity in the country, procurement of goods will be bulked where feasible (similar nature and need at same time period) into bid packages of at least US$500,000 valued, so that they can be procured through suitable methods to secure competitive prices. The procurement will be done using the Bank s SBD for all ICB. Goods estimated to cost $500,000 equivalent and above per contract will be procured through ICB. For any others goods contracts cost less than US$500,000 equivalent, NCB procurement method in accordance with national procedures using Standard Bidding Document acceptable to the Bank and ensuring the following: in accordance with paragraph 1.14 (e) of the Procurement Guidelines, each bidding document and contract financed out of the proceeds of the Financing shall provide that: (i) the bidders, suppliers, contractors and subcontractors shall permit the Association, at its request, to inspect their accounts and records relating to the bid submission and performance of the contract, and to have said accounts and records audited by auditors appointed by the Association; and (ii) the deliberate and material violation by the bidder, supplier, contractor or subcontractor of such provision may amount to an obstructive practice as defined in paragraph 1.14(a)(v) of the Procurement Guidelines; invitations to bid shall be advertised in national newspapers with wide circulation; bidders shall be given at least one month to submit bids from the date of the invitation to bid or the date of availability of bidding documents, whichever is later; eligible bidders, including foreign bidders, shall be allowed to participate; no domestic preference shall be given to domestic contractors and to domestically manufactured goods; 90

102 bids are awarded to the lowest evaluated bidder proven this bidder is qualified; and fees charged for the bidding documents shall be reasonable and reflect only the cost of their printing and delivery to prospective bidders, and shall not be so high as to discourage qualified bidders. 13. Except for the procurement process under the subcomponent 3.2, other procurement of goods including those of readily available off-the-shelf that cannot be grouped into bid packages of US$50,000 or more may be procured through shopping in conformity with the clause 3.5 of the procurement guidelines. At the beginning of the project implementation, vehicles whose cost is estimated at less than US$300,000 could be procured through UNOPS. Procurement of non consulting services 14. Except for the procurement process under the subcomponent 3.2, other non consulting services under this project, among others maintenance of the office electronic equipment and other services such as printing, and editing are likely not to exceed the equivalent of US$50,000 per contract. Procurement of such services will be done using prudent shopping procedures in conformity with the clause 3.5 of the procurement guidelines. Community participation in procurement 15. No community participation in procurement is foreseen during the first 18 months of project implementation. However, should the need arise during project implementation, community participation in procurement in accordance with the provisions of paragraphs 3.17 of the Procurement Guidelines, may be carried out if it s the only practical method to increased community participation in Component 2.1 "Upgrading of tourism sites". The POM will outline the procedures methods, standard documents and tools to be used according to Section D of the "Guidelines for Simplified Procurement and Disbursement for Community-Based Investments" (March 3, 1998). Selection of consultants 16. Consulting services will be needed for the following activities: (i) Technical Assistance (ii) social and environmental studies, (iii) feasibility studies, and (iv) supervision for the execution of works contracts; etc. These consulting services will be procured with the most appropriate method among the following which are allowed by Bank guidelines and included in the approved procurement plan: Quality-and Cost-Based Selection (QCBS), Quality-Based Selection (QBS), Selection under a Fixed Budget (SFB), Least-Cost Selection (LCS). Selection Based on Consultants Qualifications (CQS) will be used for assignments that shall not exceed US$200,000. Single Source selection shall also be used in accordance with the provisions of paragraphs 3.9 to 3.13 of the Consultant Guidelines, with IDA s prior agreement. All terms of reference will be subject to IDA prior review. 17. Short lists of consultants for services estimated to cost less than US$200,000 equivalent per contract may be composed entirely of national consultants in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines. 91

103 18. Assignments in excess of US$200,000, and specialized TA assignments, must be procured on the basis of international short-lists after appropriate advertisement in UNDB on line, dgmarket and in the national gazette or a national newspaper or in an electronic portal of free access. 19. Consultants for services meeting the requirements of Section V of the consultant guidelines, will be selected, under the provisions for the Selection of Individual Consultants, through comparison of qualifications among candidates expressing interest in the assignment or approached directly. Training, workshops and study tours 20. Participation in training sessions, workshops, seminars, conferences, and study tours will be subject to the approved annual programs. The latter will identify the general framework of training and similar activities for the year, including the nature of the training, study tours, workshops, number of participants, as well as estimated costs. Operating costs 21. Operational costs, which will be financed by the project, would be procured using the project s financial and administrative procedures included in the POM previously agreed on by the Bank. For efficiency purpose, operational furniture packages will be procured on the basis of 6 or 12 months need and procured competitively. For services (car maintenance, computers maintenance, etc.) to be financed through operational costs, the project will proceed by service contracting for a defined period. B. Evaluation of the Borrower s capacity to award contracts in line with guidelines 22. The PCU of this project, whose implementation will be under the main responsibility of the MINEPAT, will be responsible for the administration, coordination, monitoring of the project, and procurement activities including compliance with procurement procedures. The PCU already includes a procurement specialist recruited under a single source selection after an unsuccessful competitive recruitment process through based on an advertisement. Procurement activities of the PCU, which are costing the CFA Francs 5 million (equivalent of US$11,000) or more, will be conducted with the technical support of the tenders board placed under MINEPAT s authority by the Prime Minister through a decree, and later by a specialized tenders board. The assessment of the tenders boards of the ministries and other procuring entities so far under World Bank financed projects have revealed: (i) an unfamiliarity of the members with bank s procurement procedures and, (ii) a weakness in the interpretation of Bank procurement procedures. As a result, appropriate capacity building program will be set for tenders board and specialized tenders board members. 23. For contract amounts of less than CFA Francs five million (equivalent of US$11,000) the PCU will rely on an internal procurement committee. Details of the institutional arrangement and the responsibility of this internal procurement committee will be provided in the POM. 92

104 24. Management, including the procurement process concerning the innovation grants under the subcomponent 3.2, will be carried out by the beneficiaries (SMEs) as described in the specific section of the POM approved by the Bank. 25. Regarding the evaluation of technical proposals for consulting services assignment, all procurement sub-commissions shall evaluate proposals using a minimum of three specialists in the sector. 26. A POM including the financial administrative arrangements with a detailed section on procurement has been drafted and outlines, among others, the procurement arrangement and the relevant procedures applicable to the management of the credit. 27. To ensure that the above mentioned procurement corrective measures will be met in due time, an action plan is proposed in Table hereafter with tasks to be performed, responsible body as well as time-frame. Table 1: Schedule of actions to be carried out Action to be undertaken Time-frame Responsible body Elaborate/finalize and submit to IDA a satisfactorily version of the project operation manual including sections on (i) management of the innovation grants under subcomponent 3.2, and (ii) the procurement arrangement and the relevant procedures applicable to the management of the other components of the credit. Monitoring and following up the MINEPAT tenders board performance before moving to an alternative Elaborate and submit a procurement plan to IDA Establish a specialized procurement Tender Board, in form and substance satisfactory to IDA, and to be approved through a Prime Minister decree, as well as all of the tender boards members nominated. The text shall define the procurement arrangements and approvals Condition of effectiveness As needed during project s life before the establishment of the project specialized tender project First draft submitted and discussed at appraisal; and Final version discussed and agreed upon during negotiations Four months after effectiveness PCU World Bank procurement staff with information collected by the PCU procurement specialist, PCU PCU 93

105 Action to be undertaken Time-frame Responsible body authorities in order to mitigate the lack of provisions in the code for delegation of authority by the presidents of tender boards and by the procuring entities (the 2 major potential bottlenecks for project implementation and budget execution) Strengthen capacity building for the key staff of the PCU and the tenders board and the specialized tenders board members Set up a record keeping and filing system at PCU Four months after Credit effectiveness and as needed during project s life Prior to effectiveness PCU through its procurement specialist, with as needed the participation of the World Bank procurement staff The PCU procurement specialist 28. Procurement risk. The overall project risk for procurement is substantial because, among other factors, the PCU with procurement responsibility, which is been set up and staffed, is a completely new entity and is not familiar with procurement processes. Although procurement risk rating is presently substantial, the above well designed action plan with mitigation measures to be implemented and appropriate monitoring will reasonably bring this risk to moderate. 29. Award of contracts will be realized in due respect of the government procurement code regarding the composition and the mandates of the members of the MINEPAT s tenders board and the specialized contract control boards, later after the approval of the credit by the board and the signature of the credit agreement. It s the responsibility of the PCU to ensure that the necessary national clearances and approvals have been received, including the prior reviews by the Specialized Contracts Control Board, before the No-Objection request is transmitted to the World Bank. Procurement steps that need review or/and approval from particular tenders control boards, with respect to specific price thresholds, will be defined in the POM. Procurement plan 30. The draft procurement plan for project implementation providing the basis for the procurement methods was discussed at appraisal. The Borrower has finalized the procurement plan by negotiations. This plan, covering the first 18 months of project implementation, has been discussed and agreed upon by the Borrower and the project team at negotiations. It will be available in the project s database and a summary will be disclosed on the Bank s external website once the project is approved by IDA Board of Executive Directors. The procurement plan will be updated in agreement with the project team annually or as required to reflect the actual project implementation needs and improvement in institutional capacity. 94

106 Publication of Results and Debriefing 31. Publication of results of the bidding process is required for all ICBs, LIBs and Direct Contracting. Publication should take place as soon as the no objection is received, except for Direct Contracting which may be done quarterly and in a simplified format. Publication of results for NCB and Shopping should follow the requirements of the procurement code of Cameroon. The disclosure of results is also required for selection of consultants. All consultants competing for the assignment should be informed of the result of the technical evaluation (number of points that each firm received) before the opening of the financial proposals, and at the end of the selection process the results should be published. The publication of results in selection of consultants applies to all methods, however for CQS and SSS the publication may be done quarterly and in a simplified format. The publication may be done through Client Connection. Losing bidders/consultants shall be debriefed on the reasons why they were not awarded the contract if they request explanation. Fraud and Corruption 32. The procuring entity as well as Bidders/Suppliers/Contractors shall observe the highest standard of ethics during the procurement and execution of contracts financed under the program in accordance with paragraphs 1.14 & 1.15 of the Procurement Guidelines and paragraphs 1.22 & 1.23 of the Consultants Guidelines. Technical audits 33. Innovation grants provided will be subject to technical performance audits including post-delivery inspection and verification of completion/installation. The latter will focus on execution of grants selected at random each year by independent auditors recruited by the PCU and including at least 20 percent of completed project. Besides these technical audits, the PCU will request the conduct of unannounced controls of grants execution. During the implementation of the project and up to two years after the closing date of the Credit Agreement, all documentation with respect to each activity carried including the grants shall be kept by the borrower for review and examination. C. Frequency of procurement supervision 34. The capacity assessment recommended that supervision missions and field visits by the World Bank should take place at least twice a year to carry out among other things post review of procurement actions. D. Details of the procurement mechanism 1. Works, Goods, and Non Consulting Services (a) List of main ICB packages to be procured in the first 18 months. The project does not involve any ICB. 95

107 Review Estimated Expected Pre- Domestic by Contract Cost Bid- Method Qualification Preference Bank (Description) (US$ Opening (yes/no) (yes/no) (Prior / equivalent) Date Post) Ref. No. Roads, trails and rehabilitation works in Mount Cameroon Rehabilitation works and creation of museums in Chiefdoms Roads, trails and bridges in Campo Ma an Works in Kribi (beach and city centre upgrading) Comments / Completion Date 1,300,000 NCB No n/a Prior 04/12/11 01/31/12 900,000 NCB No n/a Prior 02/14/11 10/31/11 260,000 NCB No n/a Prior 04/12/11 01/31/12 1,050,000 NCB No n/a Prior 02/14/11 10/31/11 (b) ICB Contracts estimated to cost above US$5,000,000 for works and US$500,000 for goods per contract, the first NCB contracts for works and goods, eventually others as identified in the procurement plan and all Direct Contracting will be subject to prior review by the Bank. E. Details of the Procurement Arrangements for Consulting Services (a) List of main consulting assignments with selection methods and time schedule for the first 18 months Estimated Review Expected Description of Assignment Cost Selection by Bank Proposals (US$ Method (Prior / Submission equivalent) Post) Date Ref. No. 1 2 Study to analyze options to encourage (i) the development of a domestic market for competitive certified dry wood; (ii) the development of the woodtransformation value chain; and (iii) a new regulatory and institutional framework to increase the formalization of the wood artisans Technical assistance to establish a wood sector professional body (for Comments / Completion Date 300,000 QCBS Prior 07/05/10 02/28/11 100,000 CQS Post 10/04/10 03/01/11 96

108 Estimated Review Expected Description of Assignment Cost Selection by Bank Proposals (US$ Method (Prior / Submission equivalent) Post) Date Ref. No private sector operators) Technical assistance to analyze and promote (in construction and public procurement, in particular) the use of dried wood cut along standard dimensions using high yield cutting techniques Study to improve the provision of vocational training in the wood sector. Engineering study for the detailed design of the wood cluster in Yaounde Development of abbreviated resettlement plan Environment and social impact assessments for planned investments within the ecotourism component Technical assistance to support the completion and the approval of the Mount Cameroon management plan, with sensitization and training for stakeholders Engineering study for the design and control of the proposed works in Mount Cameroon Technical assistance to strengthen the capacity of Mount CEO Architectural design study for Chiefdoms subcomponent Technical assistance to strengthen the capacity of existing and planned tourism offices in Chiefdoms Technical assistance to update the Campo Ma an management plan, together with sensitization and training for stakeholders Technical assistance (NGO) to implement the activities targeted at indigenous population at Campo Ma an Engineering study for the design and control of the proposed works in Campo Ma an Technical assistance (WWF) for the gorilla habituation program in Campo Ma an (including the recruitment of 12 trackers) * Comments / Completion Date 400,000 QCBS Prior 07/05/10 02/28/11 100,000 CQS Post 07/12/10 11/01/10 200,000 QCBS Prior 08/16/10 10/30/10 50,000 IC Prior 08/16/10 10/30/10 150,000 CQS Prior 09/06/10 03/31/11 200,000 QCBS Prior 07/19/10 03/31/11 100,000 CQS Post 01/17/11 06/30/11 100,000 IC Prior 08/16/10 12/31/12 250,000 QCBS Prior 09/13/10 04/30/11 100,000 IC Prior 11/01/10 12/31/12 75,000 IC Prior 07/19/10 03/31/11 300,000 QCBS Prior 08/16/10 12/31/12 100,000 CQS Post 01/17/11 06/30/11 720,000 SSS Prior 10/04/10 12/31/13 97

109 Estimated Review Expected Description of Assignment Cost Selection by Bank Proposals (US$ Method (Prior / Submission equivalent) Post) Date Ref. No Engineering study for the design and control of the proposed works in Kribi Feasibility study for the creation of a national agency in charge of protected areas Technical assistance to establish a tourism sector professional body (for private sector operators) Technical assistance for the design and implementation of a e-tourism platform Study to improve the provision of vocational training in the tourism sector Technical assistance to improve the one stop shop for enterprise creation Technical assistance to support e- payment of taxes Technical assistance to review tax incentives and best practices in investment promotion Technical assistance to undertake an online inventory of all taxes and licenses Technical assistance to develop and support the implementation of an action plan to support the cotton/textile/ apparel value chain Comments / Completion Date 100,000 CQS Post 09/13/10 04/30/11 300,000 QCBS Prior 01/17/11 11/30/11 100,000 CQS Post 10/04/10 03/01/11 300,000 QCBS Prior 01/17/11 12/31/12 100,000 CQS Post 07/12/10 11/01/10 200,000 QCBS Prior 11/15/10 11/30/11 200,000 QCBS Prior 12/13/10 12/31/11 200,000 QCBS Prior 02/07/11 02/28/12 700,000 QCBS Prior 10/11/10 05/31/12 150,000 CQS Post 08/16/10 03/31/11 27 Technical assistance to elaborate a strategies to develop agribusiness 150,000 CQS Post 08/16/10 03/31/11 28 Benchmarking study on telecom costs 85,000 IC Post 12/17/10 02/28/11 29 Benchmarking study on cement costs 85,000 IC Post 12/17/10 02/28/11 30 Benchmarking study on water and electricity costs 85,000 IC Post 12/17/10 02/28/11 31 Benchmarking study on transport costs 85,000 IC Post 12/17/10 02/28/11 32 Benchmarking study on financial services costs 85,000 IC Post 12/17/10 02/28/11 33 Benchmarking study on land costs 85,000 IC Post 12/17/10 02/28/11 34 Study to develop ecotourism around Rhumsiki 100,000 IC Post 09/01/10 11/13/10 35 Study to develop ecotourism around the Dja natural reserve 100,000 IC Post 09/01/10 11/13/10 36 Feasibility study for the creation of a national competitiveness fund 150,000 CQS Prior 10/18/10 05/31/11 37 Technical assistance for the 300,000 QCBS Prior 09/06/10 06/01/11 98

110 Estimated Review Expected Description of Assignment Cost Selection by Bank Proposals (US$ Method (Prior / Submission equivalent) Post) Date Ref. No. 38 development of a master plan for the maritime growth pole Technical assistance to the Project Coordination Unit for the first 9 months of the project Comments / Completion Date 170,000 IC Prior 09/06/10 09/30/11 39 Financial audits for the project 144,300 LCS Prior 07/05/10 12/31/12 40 Technical audits for the FAC 144,300 QCBS Prior 10/04/10 12/31/12 * A sole-source selection is planned with WWF for gorillas habituation in Campo Ma an. Gorillas habituation (to humans) requires very specific and rare expertise (only 3 organizations 18 are internationally recognized gorillas experts ). Gorillas tourism has the potential to bring important revenues to the country and to the local population living near the gorillas thus contributing to conservation efforts. However, gorillas habituation must be very carefully managed, for example, to avoid bringing deadly diseases to the gorillas population. WWF has been playing an important role in Campo Ma an conservation efforts for over five years. In addition, WWF has undertaken over the last 2 years a study to analyze whether there is a potential for gorillas habituation in Campo Ma an and has initiated preliminary steps to habituate gorillas (such as census of gorillas families). The sole source with WWF would allow the project to rely on a rare and international recognized expertise in gorillas habituation and would be cost effective and efficient as WWF, through its feasibility work, is extremely familiar with the Campo Ma an context. As a result, there would be no comparative advantage to go through a competitive process as there is a risk that the cost will be significantly higher (mobilization of the teams and required familiarization process with the context). (b) (c) Consultancy services estimated to cost above US$200,000 for firms and US$100,000 for individuals per contract, and Single Source Selection of consultants (firms and individuals) will be subject to prior review by the Bank, as well as each contract for consultants services procured under Single Source Selection, all audit contracts and the first contract to be awarded in accordance with each procurement method of consultants services regardless of contract amount to be procured as well as eventually others as identified in the procurement plan. Shortlists composed entirely of national consultants: Shortlists of consultants for services estimated to cost less than US$200,000 equivalent per contract may be composed entirely of national consultants in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines. 18 Jane Goodall Institute, Wildlife Conservation Society (WCS) and World Wildlife Fund (WWF). 99

111 Annex 9: Economic and Financial Analysis Cameroon - Competitive Value Chains Project 1. The Benefit Cost Analysis (BCA) establishes that the project is technically sound. In other words, the mixture of hard and soft infrastructures is the right one to achieve the components objectives such that the value of benefits will exceed the costs. The analysis shows that the project is expected to contribute about US$100 million of economic benefits compared to about US$30 million in economic costs (net present values over twenty five years). Basis of the economic analysis The project costs are divided into five categories: (i) hard investments (e.g. in physical infrastructure); (ii) soft investments (e.g. in training and promotion); (iii) soft investments related to the cross cutting actions to support competitiveness (e.g. innovation grant and reforms to the business environment); (iv) project management cost; and (v) the recurrent costs that occur only on physical infrastructure after project completion (most hard investments should be completed by 2013). The costs of the cross-cutting actions (component 3) and project management (component 4) have been allocated equally between the first (sustainable wood processing) and second component of the project (ecotourism). The provisions for mitigating negative environmental externalities have been included as part of the hard investment costs. The economic benefits of the project s investments will derive from a net increase in economic value added. A net increase in economic value added will occur as a result of the new/improved activities being carried out at a higher productivity level than the national average. Higher productivity activities will primarily translate into higher wages (on both the new and existing jobs impacted by the project) as well as higher profits for firms (which can be re-invested) and higher taxes paid to the Government. Additional benefits would accrue through economic linkages in related sectors (although most likely significant, these benefits are very hard to estimate and have not been included as part of the economic analysis). Other significant economic benefits should be derived from the cross-cutting investment climate reforms (sub-component 3.1). The benefits of such reforms are also very difficult to estimate ex ante and are thus not included in this analysis. The net present value calculations assume a real discount rate of 10 percent over a twenty five year period corresponding to the estimated average total life of hard investments. Economic analysis for the sustainable wood processing value chain 2. Cameroun has the second largest forest in Africa and has more than 300 different species of wood. The industry accounts for at least 9 percent of GDP (US$1 billion) and is the country s second sources of exports (US$491 million in 2007) behind oil. Nevertheless, forestry activities suffer from very low productivity and there is very little value added e.g. most of the exports are in the form of roughly cut raw wet wood and most of the wood furniture produced is of very low quality because made out of wet wood. The main objective of the sustainable wood 100

112 processing component of the project is to increase the level and productivity of the wood processing activities. 3. This objective should be achieved by: (i) improving the policy framework to encourage the use of legal dry wood and facilitate formalization (in conjunction with the donor supported PFSE); (ii) promoting high yield and eco friendly wood cutting techniques as well as domestic wood drying capacity; and (iii) supporting SMEs in the sector (e.g. through the innovation grant). 4. The total net present value calculation for the investments from the project in the wood value chain is shown in the table below: Table 1: Total project costs for the wood value chain (US$ million) Type of investment ($ million/fiscal year) PV Soft investments Cross-cutting actions Project management Total Cumulatively, the present value of the wood component s economic cost is estimated at US$8.2 million. 6. The economic benefits of the project s investment in the component will derive from an increase in the economic value added and productivity of wood processing activities. This will constitute a net benefit to the economy because these new/improved activities will be carried out at a higher productivity level than the national average. 7. Additional benefits (much harder to estimate and not included in the computation) would stem from linkages with other parts of the economy, in particular the construction industry which should benefit from affordable, high quality and standardized wood construction material. 8. The increase in the economic value added and productivity of wood processing activities have been estimated as follow: 9. Increase in the processing yield (the proportion of the raw wood which is commercialized) from 30 to 45 percent over twenty five years (the level reached today by the Ivory Coast and Ghana). This will result from the creation of a formal domestic market for dry wood which will partly substitute the traditional market for wet wood cut using low productivity artisanal techniques. The project will contribute to the development of a domestic market for certified dry wood by supporting drying capacity next to the main wood cutting plants in the East as well as through policy reforms which will decrease the fiscal burden on dry legal wood and increase the risks/costs of selling illegal wood. This would enable to increase by 50 percent (e.g. more than one million cubic meters of wood a year) the quantity of wood commercialized without requiring to cut more trees. This would amount to a gross increase in economic value added of about US$200 million. The net gain (once deducted the imported equipment and 101

113 increased transportation costs) would be around US$100 million. Another way to estimate this benefit is to look at the impact on wages. It is estimated that about 100,000 workers are engaged in wood cutting activities in Cameroon. Assuming that the project help raise their productivity by 50 percent (e.g. about US$2 a day), this would translate to about US$100 million a year in additional productivity/wages. We use a conservative assumption that the project would contribute for about 10 percent of this gain (the remainder being contributed by reforms already under way with the support of the PFSE). This would amount to about US$50 million in net present value attributable to the project. 10. Increase in the third step processing. The combination of policy reforms together with the promotion of new cutting techniques and products together with the provision of vocational training should lead to an increase in the third step processing of wood for both the domestic and export markets together with an associated increase in the productivity of the wood artisans. Even with a conservative assumption that the project lead to doubling the productivity of 3,000 artisans (less than 10% of the total). This would result in an increase in additional wages of US$2.5 million a year (US$3 in additional daily wage). This would amount to about US$15 million in net present value attributable to the project. 11. The net benefits (more than US$65 million of net present value which would be attributable to the project) would thus far exceed the net present value of the total project investment costs (US$8.2 million). It should be noted that a large share of this economic value will depend on difficult policy reforms to be supported by the PFSE and this project. Economic analysis for the ecotourism value chain 12. Although it already accounts for about 2.5 percent of GDP (about US$200 million), Cameroon has yet to leverage its world-class cultural and natural assets e.g. a unique cultural heritage (Chiefdoms), the second mountain in prominence in Africa after Kilimanjaro and the second concentration of gorillas in the world. 13. By investing in basic tourism facilities and infrastructure in a few strategic sites with high potential, improving procedures and developing labor skills, it is expected that the project will attract more tourists to existing sites, improve the attractiveness of the sector as an investment opportunity for local and international investors and in a better investment climate for higher output and increased employment. 14. This objective should be achieved by (i) improving basic tourism facilities; (ii) improve physical and social infrastructures (water and sanitation, electricity, roads, telecommunications) around the target areas; (iii) simplifying the immigration administration and customs procedures; (iv) developing labor skills and services to micro, small and medium enterprises (MSMEs); (v) kick starting access to and promotion of the Cameroun tourism destination and new product developments through partnership and support to tourism associations and operators. The total net present value calculation for the investments from the project in ecotourism is shown in the table below: 102

114 Table 2: Total project costs for the ecotourism value chain (US$ million) Type of investment ($ million/fiscal year) PV Hard investments Soft investments Cross-cutting actions Project management Recurrent cost Total Cumulatively, the present value of the tourism component s economic cost is estimated at US$16.9 million, largely composed of investments in physical infrastructure. Recurrent costs with a present value of US$2.9 million or 16 percent of the component economic cost are not negligible and will weigh on the fiscal impact of the project. 16. The economic benefits of the project s investment in the component will derive from an increase in the economic value added of tourism activities. This will constitute a net benefit to the economy because these new/improved activities will be carried out at a higher productivity level than the national average. In the case of tourism, the new tourism activities are estimated to be at twice the national average based on the observation that the wages in the formal tourism sector are on average twice as high than in the informal sector. This is a conservative estimate given the fact that many of the new activities will take place in zones with very little alternative sources of employment. 17. Additional benefits (much harder to estimate) would stem from linkages with other parts of the economy (construction, retail and transportation). 18. The increase in the economic value added of tourism activities will first derive from an increase in the number of tourists to the upgraded sites. The estimates used are summarized below: Mont Cameroun: from 1,000 to 10,000 visitors a year in twenty five years (5,000 in year five). Despite being the second most preeminent mountain in Africa, only 1,000 tourists visited Mont Cameroun in 2008/9, a negligible tourist destination when compared to Kilimanjaro that attracted 42,000 tourists in 2002 after 10 years of 13 percent growth. Each tourist ascending Mont Cameroun requires 2-4 persons to assist (guide, cook and porters). Treks up to the mountain peak take at least 2 days and can be stretched to 4-5 days when tourists take extra days for altitude acclimatization. Based on the experience of Mont Kilimanjaro, porters at Mont Cameroon could earn US$10 a day while cooks could earn US$15 and guides US$20. This objective would be met through a US$2 million investment to upgrade the physical, social and sanitary infrastructure on the mountain. Kings Road: from 125,000 visitors a year to 200,000 over twenty five years (160,000 in year five). In terms of international visitors, the chiefdoms attract about 10,000 foreign tourists a year compared with the 60,000 international visitors going to the Pays Dogon in 103

115 Mali every year. The project will invest US$1.5 million to upgrade, secure and promote historical buildings. It will also provide support to the upgrading of the existing hotel capacity (quality as opposed to quantity of room is the main issue average occupancy is less than 30 percent). Campo Ma an: from 200 to 5,000 in twenty five years (2,500 in year five). This is to be compared to 40,000 tourists a year for Rwanda s gorillas. The project will invest US$1.7 million to facilitate access to and lodging in the reserve. This will be more a medium to long term investment (e.g. it will take time to accommodate gorillas to tourists), but one which as has the potential to put Cameroon on the global ecotourism map (like Rwanda). Kribi beach resort: the project will contribute to increase the number of tourists visiting Kribi, the main beach destination in Cameroon and which will be a key source market for Campo Ma an. The project will invest US$1.5 million to upgrade Kribi s beach and city center. It will also provide support (through the innovation grant) to the upgrading of hotel offering in and around Kribi. 19. There should also be a significant increase in the amount spent per visit as a result of the upgraded sites and accommodations (e.g. gorilla tourists in Rwanda pay US$500 only to access the reserve). A conservative estimate of 30 percent increase in amount spent per visit (from about US$300 to US$400 in real terms) is used. 20. Combining the increase in number of tourists with the increase in average spending per visit, results in an increase of total tourism spending in the sites targeted by the project from US$9 to US$26 million in twenty five year (in real terms). 21. With the assumption that these new activities are at double the productivity level, the net economic benefit in year 25 is thus estimated to be US$8.5 million. The net present value of the net benefit accrued over the first twenty five years is about US$40 million. The net economic benefits are thus more than double the total economic costs (with relatively conservative assumptions). 22. Given that tourism workers earn on average about US$3 a day today (official statistics indicate $2 a day without tips) and that wages represent about half of the tourism economic value added, the project would directly contribute to the creation of relatively well paid 4,000 jobs (US$6 a day) and to the doubling in wages for another 9,000 workers. 23. Main benefiters of the investment will be local rural and urban population of tourism sites, especially unemployed young men that would find life-changing opportunities. The effect of job creation in the tourism industry goes beyond increase in income and greater stability of employment experienced by its workers. Tourism jobs offer benefits such as healthcare, paid leave and pension that previously were rarely available for these workers. They also provide a good opportunity for women, as other members of households in which one or more members work in the tourism industry are indirectly affected. It is believed that each worker affects the welfare of about 5 individuals. 104

116 Annex 10: Safeguard Policy Issues Cameroon - Competitive Value Chains Project Introduction 1. The Project Development Objective is to contribute to the growth of the wood and tourism value chains by improving their competitiveness and the investment climate. It is composed of four main components as follow: (i) Sustainable wood processing value chain; (ii) Ecotourism value chain; (iii) Cross-cutting actions to support competitiveness; and (iv) Project coordination. 2. The Project is classified Category A because it will finance all the key preparation studies for the creation of a wood cluster in Yaoundé that would be financed through a possible additional financing subject to specific conditions and approval by the Board of Directors of the World Bank. Also, this project is expected to possibly finance wood processing equipment in such wood cluster in Yaoundé once such wood cluster has been created in full compliance with IDA safeguards requirements, including the establishment of a proper wood certification scheme. 19 The project also involves technical assistance for two important national parks (Campo Ma an and Mount Cameroon) for ecotourism activities. Campo Ma an National Park is an offset for the Chad Cameroon Pipeline Project and Mount Cameroon National park hosts the most important biodiversity in the Congo Basin sub- region. As the locations of the sites for the wood processing and ecotourism components and their related investments were not known at the time of project preparation, the Borrower has prepared and disclosed an ESMF, RPF and IPP to guide safeguards work that would be required during implementation. The ESMF was disclosed in Cameroon and at the InfoShop on December 23, 2009; the RPF and IPP were both disclosed in Cameroon and at the InfoShop on the January 18, The Borrower has also prepared a draft Process Framework for Mount Cameroon National Park (acceptable to IDA), which was disclosed in Cameroon on April 20, 2010 and at InfoShop on the same day. The Management Plan for Mount Cameroon will be prepared no more than 6 months after effectiveness. For Campo Ma an National Park, which already has a Management Plan under implementation, a draft Process Framework (acceptable to IDA) has been prepared and disclosed in Cameroon and on the Infoshop on May 3, The Process Framework for Campo Ma an will be finalized, in coordination with the update of the Campo Ma an Management Plan (scheduled in 2010/2011). 4. As the project aims to promote ecotourism activities in several cultural sites (Foumban, North West Fons, etc), a framework for the preservation of natural, cultural and physical heritage was also prepared and integrated as part of the ESMF. 19 The Innovation Grants will not finance logging equipment. Innovation grants for wood cutting and processing equipment for the possible future wood cluster would only be available once the wood cluster in Yaoundé has been created in full compliance with IDA safeguards requirements, including the establishment of a proper wood certification scheme. Innovation grants for wood cutting and processing equipment could also be available for financing once the enabling environment for wood processing in Cameroon is improved (PSFE and FLEGT processes). The confirmation of satisfaction of these conditions will require prior written IDA approval. 105

117 5. Environment and Social Impact Assessments (ESIAs) and Environment Management and Monitoring Plans (EMPs) will be prepared as soon as the specific sites and activities have been determined (starting during project preparation). This process will be consistent with national environmental policies, laws and regulations and comply with the World Bank environmental and social safeguard policies. 6. As the project will provide support to private SMEs, it was agreed that all innovative grants will be subject to safeguards screening and satisfactory due diligence by the Government of Cameroon and IDA when needed. Content of the ESMF 7. The ESMF aims to provide guidelines to ensure that the selection, evaluation and approval of subprojects and their implementation is consistent with national environmental policies, laws and regulations and with the World Bank environmental and social safeguard policies In addition to its summary and introductory material, the ESMF covers the following topics: A general description of the project components and methodology approach; A general description of biophysical, socio-economical and human environment of the project; A general description of the Cameroonian environmental and social institutional and regulatory framework; A general description of the World Bank safeguards policies; Guidelines for review and approval process for subprojects; Guidelines for identification and evaluation of potential environmental and social impacts of the project; A summary of the potential impacts of each activities under the main project chains value that could be supported, and the mitigation measures that are typically applied to each impact; The institutional implementation framework of the ESMF; A description of the consultation process held during the ESMF preparation; Annexes comprising a summary of the consultation held during the ESMF preparation, draft ToRs for the wood cluster, and, environmental and social guidelines for contractors; Potential environmental and social impacts of the project 8. The ESMF includes tables summarizing the potential impacts of each type of activities that could be supported under the two main value chains identified by the project, and the mitigation measures that are typically applied to each impact. Potential environmental impact 9. The negative environmental impacts broadly focus on the following: (i) soil, surface water and groundwater pollution risks due to the industrial waste accumulation from the wood 106

118 cluster, as well as renovated accommodation facilities; (ii) loss of vegetation and landscape processing following the installation of infrastructure (tourism facilities, other civil works), which will enhance the risks of destroying the habitat of threatened species and the ecologically fragile areas; (iii) risk of disturbance to wildlife by noise during works and by the influx of tourists; and, (iv) risk of degradation of sacred forests by wood harvesting. Wood cluster (to be potentially financed through a possible additional financing): the particular issue of timber origin 10. It is widely recognized that the wood cluster will offer important benefits for the Cameroon national economy; nevertheless, it raises the issue of timber origin. The project will provide technical assistance to the Government to anticipate and define the best way to support the creation of a sustainable wood cluster in a manner that addresses timber origin. Cameroon has not yet successfully addressed illegal logging activities. With the creation of this wood cluster, it will be critical to address efforts to avoid any use of illegal timber by the cluster. To prevent such risk, the project envisions, in close collaboration with the ongoing Forest and Environment Sector Program, to ensure that only timber coming from official allocated titles, and sustainably managed concessions will be used by the wood cluster. A strict control system of timber origin will be put into place with regular checking by an independent observer. As the Government of Cameroon is about to sign with the European Commission a Voluntary Partnership Agreement which will promote better forest law enforcement, all these tools will be used to prevent the use of illegal timber by the cluster. The cluster EMP will clearly define the detailed modalities to prevent any risk of using illegal timber by the cluster s enterprises. It was also agreed that all applicable Bank safeguards policies, including OP 4.36 (Forests), will be applied under the innovative grants subcomponent, and relevant mitigation measures defined and applied as and when needed following the guidelines set out in the ESMF. 11. The project also offers potential environmental benefits. These include the promotion of the use of legal/certified wood (cut from sustainable forests), the promotion of dry wood (much more durable than wet wood), the promotion of high yield cutting techniques and the generation of additional sources of revenues (from paying visitors) for the protection of natural and cultural assets. Sanitation and solid waste management facilities and services will reduce land and water pollution, if correctly designed, sited and operated in the national parks where tourism activities will be promoted. The improvement of the road system inside national parks will improve the quality of the control by those in charge to facilitate the access to the sites. Other positive environmental impacts of the project would include: possible reduction of pollution resulting from industrial waste recovery activity (e.g. wood coal, plywood construction) following the manufacturing of various products, maintenance of biodiversity (e.g. wildlife, including elephants, lions, bush pig, etc.) within protected areas, and opportunities for biodiversity conservation with the promotion of conservation areas that are important for tourism development. Potential social impact 12. The negative impacts that may be generated by the project would broadly cover: (i) risk of conflicts over land expropriation and risks related to the acquisition of land for the purpose of 107

119 infrastructure building (e.g. tourist accommodation); (ii) risk of increased prevalence of STIs and HIV/AIDS; (iii) increased risk of lung disease affecting workers and employees due to air pollution by industrial wastes (e.g. sawdust, chemical products, etc.); (iv) risk of overcrowding, especially with the saturation of infrastructure and basic services (housing, education services and health) in project areas; and (v) risk of deteriorating archaeological and cultural heritage linked to the destruction of cultural and archaeological relics (e.g. tombs, sacred sites, archaeological sites, etc.) and disruption of traditional customs and practices. 13. Positive social impacts could include: (i) job opportunities, especially for women and disabled persons; (ii) better working conditions in project areas; (iii) mixing of populations and improvement of the living environment of local people following the installation of various types of infrastructure; and (iv) capacity building of stakeholders in each sector for greater competitiveness. 14. The ESMF outlines the mitigation measures of all these broad negative impacts and the specific EAs and EMPs will provide in-depth and site specific mitigation measures. In cases where project activities may require displacement of population, a Resettlement Policy Framework (RPF) has been prepared for this purpose, in order to clarify the procedures for compensation (see section below). The ESMF includes an Environmental and Social Management Plan (ESMP) which identifies the guiding framework for future interventions in terms of national environmental and social management priorities, taking into account the requirements of national policies and the World Bank safeguard policies. Safeguards Preparation, Review and Approval Procedure 15. The procedure defined in the ESMF incorporates the requirements from the Ministry of Environment and Protection of Nature as specified in EIA decree n 2005/0577/PM of February 23, 2005 and regulation n 0070/MINEP of March 8, 2005, and the World Bank s OP 4.01 Compliance with this procedure will constitute part of the evaluation methodology for proposed subprojects prior to approval. 16. The steps in the process are project screening, environmental studies and document preparation when needed, ESIA review and approval, and oversight of implementation. Stakeholder consultation is an integral part of the preparation process, and public disclosure and comment are necessary prior to the decision to accept or reject a proposed subproject on the basis of environmental and social information. The EAs will include an in-depth analysis of the subproject alternatives and possible cumulative impacts. The waste management plan as and when needed will be part of the mitigation measures of the EMP. 17. No proposed subproject can be approved until the environmental and social safeguards approval is completed. The Ministry of Environment and Protection of Nature and the Ministry of Social Affairs are responsible for the environmental subproject category approval after screening and also for safeguards documents approval. This approval can be obtained at local and/or central levels depending on the subproject potential or identified impacts. 108

120 Public Disclosure and Consultation 18. The procedure for consultations on subprojects should conform to OP 4.01 and the EIA decree n 2005/0577/PM. OP 4.01 requires consultation with stakeholders at least twice during EIA preparation for Category A projects once early in the environmental studies to ensure that the terms of reference reflect all issues of concern and once after the final draft has been publicly disclosed but before the approval decision is taken. 19. Extensive consultations at the national and local levels were carried out as the safeguards documents were prepared (ESMF, RPF, IPP, and Process Frameworks). These consultations involved senior officials from all relevant ministries, local authorities as well as businesses and local population from the project sites. Key issues raised by stakeholders included water pollution, industrial waste, threats to biodiversity, thefts of cultural artifacts and spread of HIV due to an increase in the number of tourists (see Chapter 9 and Appendix 3 of the ESMF for more details). The ESMF provides guidelines as to how these issues should be addressed during the course of the project. During the preparation of the IPP for Campo Ma an, 14 campements of pygmies were consulted. The key development challenges affecting pygmies raised during the consultation of the fourteen pygmy s campements include: (i) restriction of access to forest and fauna resources; (ii) shrinking resources; (iii) lack of access to basic infrastructure and social services (health and education); (iv) marginalization from decision-making; and, (v) difficulty in adapting to modern production systems and loss of identity. These issues were integrated as an action plan in the IPP and will be implemented by the project team. Institutional Capacity for Environmental Management 20. The key to ensuring sustainability of the project investment lies in the satisfactory implementation of the Environmental and Social Management Plans. 21. The Government of Cameroon has recognized the importance of strengthening national environmental and social safeguard policies and their implementation. The Ministry of Environment and Protection of Nature as such remains the only regulator of environmental issues. The Government has also recognized its lack of capacity to deal adequately with environmental and social negative impacts of the projects. Since 2009, the World Bank is providing technical assistance to the Government to improve its capacities under the Environmental and Social Capacity Building Project for the Energy Sector Project. This project involves several main governmental actors (MINEP, MINSANTE, MINAS, MINEE, MINDAF and MINCULT and Civil Society Organizations). If at the national level, the critical mass capacity is growing, in the meantime at the PIU level the environmental and social capacity to deal with environmental and social impacts remains extremely weak. 22. To ensure the satisfactory implementation of environmental and social concerns through the project, the Government has decided to create an Environmental and Social Unit headed by an Environmental and Social Specialist (ESS) who will be hired under Terms of Reference found satisfactory by the World Bank. The ESS will work closely with the representatives of several ministries, including: the Ministry of Environment and Nature Protection, the Ministry of Social 109

121 Affairs, the Ministry of Tourism, and local communities and NGOs. The ESS will also be responsible for preparing all reports related to environmental and social issues and ensuring that an environmental and social section is included in the project status report. 23. The ESMF proposes an important capacity building program that will be delivered to the PIU personnel, partner ministries and SMEs. The key themes covered by the capacity program are: information, education, communication and sensitization; environmental and social safeguards, monitoring and evaluation of safeguards measures, waste management, security, and sustainable forest management. The capacity building should be updated during the implementation of the project, taking account of new issues and requirements that may occur. The current envelope of the capacity building program is US$1.2 million (see budget table below). Indigenous Peoples Plan (IPP) 24. An Indigenous Peoples Plan was also financed under the Project Preparation Advance. OP 4.10 requires that not only the process of development of a project benefits Indigenous Peoples and that the profits be culturally and socially suitable, but also that this process does not have negative effects on the environment and the culture of Indigenous Peoples. 25. The Competitive Value Chains Project includes activities in the Campo Ma an National Park where 25 campements of indigenous people, the pygmies, are established. In addition to the Indigenous Peoples Plan (IPP), (that was disclosed in-country and at the InfoShop on January 19, 2010), the project will update the 2006 Management Plan for the Campo Ma an National Park. This Plan addresses the Indigenous Peoples for the five pygmy communities campements within the Park and the twenty other groups around the Park. Key development challenges affecting pygmies include: (i) restriction of access to forest and fauna resources; (ii) shrinking resources; (iii) lack of access to basic infrastructure and social services (health and education); (iv) marginalization from decision-making; and, (v) difficulty in adapting to modern production systems and loss of identity. 26. The Indigenous Peoples Plan (IPP) identifies various activities that could be financed under the project which could benefit the pygmy populations, including: (i) support to agroforestry production, with a focus on support to the agricultural production (extension services, as well as seeds and equipment) and on the promotion of non-ligneous forestry products; (ii) advocacy activities to ensure that indigenous populations can benefit from their users rights in the Campo Ma an National Park; (iii) ecotourism; and (iv) facilitating access to basic infrastructure and social services. 27. Such activities could bring benefits to indigenous populations, including revitalization of their culture and improvement of living conditions (through increased income and better access to basic infrastructure and social services). Some negative effects might also occur, such as the spreading of HIV/AIDS, in connection with ecotourism. Mitigation measures will be developed, such as sensitization against AIDS. In addition, regular consultations with Indigenous Peoples at every step of the project will be essential, as well as a thorough monitoring and evaluation mechanism for activities targeted at indigenous populations. 110

122 Resettlement Policy Framework 28. A Resettlement Policy Framework (RPF) has been developed in the context of the preparation of the project. The objective of the RPF, besides the identification of the impact of proposed investments on involuntary displacement, is to indicate the procedures and the institutional modalities with regard to the World Bank Involuntary Resettlement Policy (OP 4.12). 29. The Government of Cameroon initially requested that the project include the establishment of a wood cluster, which would most likely require land acquisition and involuntary resettlement of some local populations. Several sites have been pre-identified, but the final location of the cluster has not yet been decided. As such, the current project will finance only the preparatory studies necessary for the creation of a wood cluster in Yaoundé, the RPF will guide the preparation of a Resettlement Action Plan (RAP), once the site for the wood cluster has been identified. If fewer than 200 persons need to be displaced, an Abbreviated Resettlement Plan would be prepared, which would include the following elements: (i) census survey of displaced persons and valuation of assets; (ii) description of compensation and other resettlement assistance to be provided; (iii) consultations with displaced people about acceptable alternatives; (iv) institutional responsibility for implementation and procedures for grievance redress; (v) arrangements for monitoring and implementation; and, (vi) a timetable and budget. Management Plans and Process Frameworks for the National Parks 30. Process Frameworks are required since the promotion of ecotourism may restrict access to customary resources by present users. A draft Process Framework (acceptable to IDA) has been developed for the Mount Cameroon National Park and been disclosed in-country and at the InfoShop on the April 20, A Management Plan for Mount Cameroon, declared a National Park in December 2009, is under development with the support of KFW. The project will support its completion. With respect to Campo Ma an National Park, a draft Process Framework (acceptable to IDA) has been prepared and disclosed in Cameroon and at the Infoshop on May 3, It will be finalized when the park Management Plan, which was published in 2006, is updated; this will be an output of the project. The project is financing the update of the Management Plan in order to address the sustainable management of the park, as well as the rights of access by Indigenous Peoples to the park s resources. Completion of the Mount Cameroon Management Plan and the updating of the Campo Ma an Management Plan will ensure that neighboring communities (including pygmies) participate in the conception of the different components of the project, in the management of the natural resources, and in the overall decision making process. 111

123 Budget Item Cost of implementing technical measures: Environmental assessments required Cost (F CFA) Cost (Dollars) Cost of capacity building Monitoring costs PM PM TOTAL Estimate Resettlement framework costs Indigenous peoples Development Plan cost Physical cultural heritage framework measures cost Estimate implementing Process Framework measures costs for Campo-Ma an National Park Estimate implementing Process Framework measures costs for Mount Cameroun National Park Components concerned C1 : Sustainable wood processing C2 : Ecotourism C1 : Sustainable wood processing C2 : Ecotourism C2 : Ecotourism C1 : Sustainable wood processing C2 : Ecotourism C2 : Ecotourism C2 : Ecotourism Sub-Total TOTAL (St1 + St2) Observations This cost includes the cost of EIAS, and environmental audits Includes training tours and the remuneration of the Socio- Environmental specialist in the PIU Included in the salaries of the project team members Represents 1.7% of the total project cost To be updated at time of implementation Compensations are supported by the Government of Cameroon Represents 2.5% of the total project cost Represents 4.3% of the total project cost 112

124 Annex 11: Project Preparation and Supervision Cameroon - Competitive Value Chains Project Planned Actual PCN review 10/15/ /18/2008 Initial PID to PIC 10/30/ /23/2008 Initial ISDS to PIC 10/30/ /12/2009 Appraisal 05/13/ /03/2010 Negotiations 10/14/09 05/19/2010 Board/RVP approval 06/24/2010 Planned date of effectiveness 11/30/2010 Planned date of mid-term review 09/01/2013 Planned closing date 03/30/2016 Key institutions responsible for preparation of the project: Ministry of Economy, Planning and Regional Development Competitiveness Committee, Ministry of Economy, Planning and Regional Development Bank staff and consultants who worked on the project included: Name Title Unit Vincent Palmade Lead Economist AFTFP Guillemette Jaffrin Senior Financial Sector Specialist AFTFW Jean-Christophe Ngo Consultant AFTFW Ivan Rossignol Sector Leader SASFP Carole Megevand Natural Resources Management Specialist AFTEN Simon Rietbergen Senior Forestry Specialist AFTEN Lucienne M Baipor Social Development Specialist AFTCS Emeran Serge Menang Evouna Forestry Specialist AFTEN Kouami Hounsinun Messan Procurement Specialist AFTPC Sekou Keita Consultant AFTFM Aissatou Diallo Financial Officer CTRFC Nathalie Munzberg Senior Counsel LEGAF Dileep Wagle Consultant AFTFP Irene Chacon Operations Analyst AFTFW Sylvie Munchep Ndze Team Assistant AFCC1 Irene Nnomo Ayinda-Mah Team Assistant AFCC1 Jacqueline Veloz Lockward Program Assistant AFTFP Bank funds expended to date on project preparation: Bank resources: US$477,000 Estimated Approval and Supervision costs: Remaining costs to approval: US$50,000 Estimated annual supervision cost: US$150,

125 Annex 12: Documents in the Project File Cameroon - Competitive Value Chains Project World Bank Documents Country Assistance Strategy , August 14, 2003 Interim Strategy Note Implementation Completion Report, PPPGPR, November 11, 2008 Mission aide-memoires The rainforests of Southern Cameroon: Experience and evidence from a decade of reform, June 2008 Accelerating development outcomes in Africa progress and change in the Africa Action Plan (Africa Action Plan update), April 6, 2007 Government Documents MINEPAT: Growth and Employment Strategy, September 2009 MINEPAT: National Consultation on Cameroon s long-term vision (Vision 2035), March 14, 2009 MINEPAT: Étude sur les coûts des facteurs du secteur industriel au Cameroun, June 2008 MINEPAT: Étude d impact socio-économique des privatisations au Cameroun ( ), June 30, 2008 MINEPAT: Stratégie de Développement du Secteur Privé (SNDSP), Juin 2009 MINEPAT: Stratégie sectorielle de l industrie et des services - État des lieux et diagnostic, version provisoire, June 2007 MINEPAT, PCFC: Main market opportunities and related constraints along the wood value chain MINEPAT, PCFC: Developing a pilot wood cluster in Cameroon leveraging lessons learned from other countries MINEPAT, PCFC, Main market opportunities and related constraints to develop competitive ecotourism products in Cameroon MINEPAT, PCFC: Economic feasibility of rehabilitating the Waza national park as a Public Private Partnership MINEPAT, PCFC: Main market opportunities and related constraints along the cotton/textile/apparel value chain MINEPAT, PCFC: Environment and Social Management Framework for the Competitive Value Chains Project MINEPAT, PCFC: Resettlement Policy Framework for the Competitive Value Chains Project MINEPAT, PCFC: Indigenous People Planning Framework for the Competitive Value Chains Project MINTOUR: Stratégie sectorielle de développement du tourisme au Cameroun, December

126 INS : Tendances, profil et déterminants de la pauvreté au Cameroun en 2007 (ECAM- 3) Other Donors and External Agencies GTZ: PGDRN: Étude de faisabilité pour la construction d une tour d observation d éléphants sur le mont Cameroun, March 2006 GTZ: PGDRN: Analyse du développement écotouristique et des potentialités de promotion de l écotourisme dans la région de Lobeke, November 2006 GTZ: PGDRN: Acquis écotouristiques dans la région du mont Cameroun, July 2007 IMF Working Paper: What Attracts Tourists to Paradise?, December 2008 WP Euromonitor international: Travel and Tourism in Cameroon, November

127 Annex 13: Statement of Loans and Credits Cameroon - Competitive Value Chains Project Original Amount in US$ Millions Difference between expected and actual disbursements Project ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. Frm. Rev d P A-Lake Victoria Phase II APL 1 (FY09) P RCIP - Phase 2 - Rwanda Project P A-Air Transport Phase II-B APL (FY09) P RCIP - Phase P A-West Africa Biosafety P A-APL2 West &Centr Air Transp P A-Niger Basin Water Resources P A- MZ-MW Transmission Interconnection P A-W Africa Transp. & Transit Facilitat P A-Reg&Domestic Pwr Mkt Dev. (FY07) P A-Telecommunications APL (FY07) P A-W.Af Agric Prod Prgm APL WAAPP (FY07) P A-CEMAC Transp Transit Facil (FY07) P A-West &Central Afr Air Tran TAL (FY06) P A-WAPP APL 1 (CTB Phase 2) Project P A-WAPP APL 2 (OMVS Felou HEP) P A-E Afr Trade & Transp Facil (FY06) P A-SRB M. Water Res. Dvpt. APL (FY06) P A-Afr Emergency Locust Prj (FY05) P A-WAPP Phase 1 APL 1 (FY05) P A-HIV/AIDs Great Lakes Init APL (FY05) P A-ARCAN SIL (FY05) P A-Southern Afr Power Mrkt APL 1 (FY04) P A-WAEMU Capital Markets Dev FIL (FY04) P A-Trade Facil SIL (FY01) Total: , ,

128 CAMEROON STATEMENT OF IFC s Held and Disbursed Portfolio In Millions of US Dollars Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic AIF AIF (Mgmt) AIFH Afren Africa Re Africap Cape II Celtel LFI Olam Osprey PAIP SABCO SABCO Standard Bank GR Tullow Veolia Water AMI Total portfolio: Approvals Pending Commitment FY Approval Company Loan Equity Quasi Partic ARECO Brait IV BusPartners African Lakes CCS Total pending commitment:

129 Annex 14: Country at a Glance Cameroon - Competitive Value Chains Project Cameroon at a glance 4/6/09 Sub- Lower Key Development Indicators Saharan middle Cameroon Africa income (2008) Population, mid-year (millions) ,437 Surface area (thousand sq. km) ,242 35,510 Population growth (%) Urban population (% of total population) Age distribution, 2007 Male Female GNI (Atlas method, US$ billions) ,485 GNI per capita (Atlas method, US$) 1, ,887 GNI per capita (PPP, international $) 2,120 1,870 4,544 GDP growth (%) GDP per capita growth (%) percent (most recent estimate, ) Poverty headcount ratio at $1.25 a day (PPP, %) Poverty headcount ratio at $2.00 a day (PPP, %) Life expectancy at birth (years) Infant mortality (per 1,000 live births) Child malnutrition (% of children under 5) Adult literacy, male (% of ages 15 and older) Adult literacy, female (% of ages 15 and older) Gross primary enrollment, male (% of age group) Gross primary enrollment, female (% of age group) Under-5 mortality rate (per 1,000) Access to an improved water source (% of population) Access to improved sanitation facilities (% of population) Cameroon Sub-Saharan Africa Net Aid Flows a (US$ millions) Net ODA and official aid ,684 Top 3 donors (in 2006): Austria France Germany Aid (% of GNI) Aid per capita (US$) Growth of GDP and GDP per capita (%) Long-Term Economic Trends Consumer prices (annual % change) GDP implicit deflator (annual % change) Exchange rate (annual average, local per US$) Terms of trade index (2000 = 100) (average annual growth %) Population, mid-year (millions) GDP (US$ millions) 6,741 11,152 10,075 23, (% of GDP) Agriculture Industry Manufacturing Services Household final consumption expenditure General gov't final consumption expenditure Gross capital formation Exports of goods and services Imports of goods and services Gross savings GDP GDP per capita Note: Figures in italics are for years other than those specified data are preliminary... indicates data are not available. a. Aid data are for Development Economics, Development Data Group (DECDG). 118

130 Cameroon Balance of Payments and Trade (US$ millions) Total merchandise exports (fob) 2,123 5,092 Total merchandise imports (cif) 1,542 4,357 Net trade in goods and services Current account balance as a % of GDP Workers' remittances and compensation of employees (receipts).... Governance indicators, 2000 and 2007 Voice and accountability Political stability Regulatory quality Rule of law Control of corruption Reserves, including gold 38 3,088 Central Government Finance (% of GDP) Current revenue (including grants) Source: Kaufmann-Kraay-Mastruzzi, World Bank Tax revenue Current expenditure Technology and Infrastructure Overall surplus/deficit Paved roads (% of total) Highest marginal tax rate (%) Fixed line and mobile phone Individual 60.. subscribers (per 100 people) 1 18 Corporate 39.. High technology exports (% of manufactured exports) External Debt and Resource Flows Environment (US$ millions) Total debt outstanding and disbursed 10,230 3,091 Agricultural land (% of land area) Total debt service Forest area (% of land area) Debt relief (HIPC, MDRI) 1, Nationally protected areas (% of land area) Total debt (% of GDP) Freshwater resources per capita (cu. meters).. 15,341 Total debt service (% of exports) Freshwater withdrawal (% of internal resources) Foreign direct investment (net inflows) CO2 emissions per capita (mt) Portfolio equity (net inflows).... GDP per unit of energy use (2005 PPP $ per kg of oil equivalent) Composition of total external debt, 2007 Private, 669 Short-term, 234 IBRD, 40 IDA, 198 IMF, 17 Other multilateral, Energy use per capita (kg of oil equivalent) World Bank Group portfolio (US$ millions) Country's percentile rank (0-100) higher values imply better ratings Bilateral, 1,585 IBRD Total debt outstanding and disbursed Disbursements 0 0 Principal repayments 52 5 Interest payments 22 2 US$ millions IDA Total debt outstanding and disbursed Disbursements Private Sector Development Total debt service 12 2 Time required to start a business (days) 37 IFC (fiscal year) Cost to start a business (% of GNI per capita) Total disbursed and outstanding portfolio Time required to register property (days) 93 of which IFC own account Disbursements for IFC own account 3 28 Ranked as a major constraint to business Portfolio sales, prepayments and (% of managers surveyed who agreed) repayments for IFC own account Tax rates Electricity MIGA Gross exposure 0 0 Stock market capitalization (% of GDP).... New guarantees 0 0 Bank capital to asset ratio (%).... Note: Figures in italics are for years other than those specified data are preliminary. 4/6/09.. indicates data are not available. indicates observation is not applicable. Development Economics, Development Data Group (DECDG). 119

131 Annex 15: Map CAMEROON: Competitive Value Chains 120