IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA-4717) ON A CREDIT IN THE AMOUNT OF SDR 3 MILLION (US$4.5 MILLION EQUIVALENT) TO THE

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1 Public Disclosure Authorized Document of The World Bank Report No: ICR Public Disclosure Authorized Public Disclosure Authorized IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA-4717) ON A CREDIT IN THE AMOUNT OF SDR 3 MILLION (US$4.5 MILLION EQUIVALENT) TO THE REPUBLIC OF CABO VERDE FOR A SMALL AND MEDIUM ENTERPRISE CAPACITY BUILDING AND ECONOMIC GOVERNANCE PROJECT July 31, 2015 Public Disclosure Authorized Trade & Competitiveness Global Practice Cabo Verde Country Management Unit Africa Region

2 CURRENCY EQUIVALENTS (Exchange Rate Effective July 30, 2015) Currency Unit = SDR 1.00 = US$ US$1.00 = SDR FISCAL YEAR (Cabo Verde): January 1 December 31, 2015 ABBREVIATIONS AND ACRONYMS ADEI AfDB ARAP BCV BDS CBPPSP CCIASB CCISS CFAA CI CPIA CPIP CPS CVE DA DB DGPCP DGPOG ELECTRA ENAPOR ETS EU FDI FSAP G&CP Agency for Entrepreneurial Development and Innovation (Agência para o Desenvolvimento Empresarial e Innovação) African Development Bank Regulatory Agency for Public Procurement (Agência de Regulamentação das Aquisições Públicas) Central Bank of Cabo Verde (Banco de Cabo Verde) Business Development Services Capacity Building Project for Private Sector Promotion Chamber of Commerce of Barlovento (Câmara de Comércio, Indústria, Agricultura e Serviços de Barlavento) Chamber of Commerce of Sotavento (Câmara de Comércio, Indústria e Serviços de Sotavento) Country Financial Accountability Assessment Cabo Verde Investment Promotion Agency (Agência Caboverdiana de Promoção de Investimentos) Country Policy and Institutional Assessment Country Procurement Issues Paper Country Partnership Strategy Cabo Verde Escudos Designated Account Doing Business Procurement Directorate (Direcção-Geral do Patrimonio e da Contratação Pública) Directorate for Planning Budget and Management (Direcção-Geral de Planeamento, Orçamento e Gestão) Water and Electricity Company (Empresa de Electricidade e Agua) Cabo Verdean Port Authority (Empresa Nacional de Administração dos Portos) Economic Transformation Strategy European Union Foreign Direct Investment Financial Sector Assessment Program Growth and Competitiveness Project ii

3 GDP Gross Domestic Product GNI Gross National Income GoCV Government of Cabo Verde GPN General Procurement Notice GPRSP Growth and Poverty Reduction Strategy Paper IBRD International Bank for Reconstruction and Development ICA Investment Climate Assessment ICB International Competitive Bidding ICR Implementation Completion and Results Report ICT Information and Communications Technology IDA International Development Association IFC International Finance Corporation IFI International Financial Institution IFR Interim Financial Report IFRS International Financial Reporting Standards IMF International Monetary Fund INE National Statistics Institute (Instituto Nacional de Estatística) ISA International Standards on Auditing LDC Least Developed Country M&E Monitoring and Evaluation MCA Millennium Challenge Account MDGs Millennium Development Goals MGF Matching Grant Fund MGPG Matching Grant Procedures and Guidelines MIC Middle Income Country MIGA Multilateral Investment Guarantee Agency MECG Ministry of Economy, Competitiveness and Growth MIT Ministry of Infrastructure and Transport MoF Ministry of Finance MOU Memorandum of Understanding MTEF Medium-Term Expenditure Framework NCB National Competitive Bidding NOSi Operational Nucleus of the Information Society (Núcleo Operacional da Sociedade de Informação) NPV Net Present Value OECD/DAC Organization for Economic Cooperation and Development/Development Assistance Committee PCU Project Coordination Unit PDO Project Development Objective PEFA Public Expenditure and Financial Accountability Program PER Public Expenditure Review iii

4 PFM POM PRSC PSC PSI PU QCBS QUIBB RFP SBD SDR SIL SME SOE SPN TA TAL TACV TdC TVET UGA UGAC UCRE UNOTUR VAT WA WTO Public Financial Management Project Operational Manual Poverty Reduction Strategy Credit Project Steering Committee Policy Support Instrument Project Unit Quality- and Cost-Based Selection Unified Questionnaire of Basic Wellbeing Indicators (Questionário Unificado de Indicadores Básicos de Bem-Estar) Request for Proposal Standard Bidding Document Special Drawing Rights Specific Investment Loan Small and Medium Enterprise Statement of Expenditures Specific Procurement Notice Technical Assistance Technical Assistance Loan National Airline of Cabo Verde (Transportes Aéreos de Cabo Verde) Court of Auditors (Tribunal das Contas) Technical, Vocational and Educational Training Procurement Management Unit (Unidade de Gestão Administrativa) Procurement Directorate (Unidade de Gestão de Aquisições Centralizadas) State Reform Coordination Unit (Unidade de Coordenação e Reforma do Estado) National Union of Tourism Operators of Cabo Verde (União Nacional dos Operadores Turísticos de Cabo Verde) Value Added Tax Withdrawal Application World Trade Organization Vice President: Makhtar Diop Country Director: Vera Songwe Senior Global Practice Director Anabel Gonzalez Sector Manager: John F. Speakman Project Team Leader: Kofi Boateng-Agyen ICR Team Leader: Penelope Demetra Fidas iv

5 REPUBLIC OF CABO VERDE SMALL AND MEDIUM ENTERPRISE CAPACITY BUILDING AND ECONOMIC GOVERNANCE PROJECT Contents A. Basic Information... vi B. Key Dates... vi C. Ratings Summary... vi D. Sector and Theme Codes... vii E. Bank Staff... vii F. Results Framework Analysis... viii G. Ratings of Project Performance in ISRs... x H. Restructuring (if any)... xi I. Disbursement Profile... xi 1. Project Context, Development Objectives and Design Key Factors Affecting Implementation and Outcomes Assessment of Outcomes Assessment of Risk to Development Outcome Assessment of Bank and Borrower Performance Lessons Learned Comments on Issues Raised by Borrower/Implementing Agencies/Partners Annex 1. Project Costs and Financing Annex 2. Achievement of PDO outcomes in detail Annex 3. Economic and Financial Analysis Annex 4. Bank Lending and Implementation Support/Supervision Processes Annex 5a. Summary of Borrower's ICR Annex 5b: Borrower s comments on the ICR Annex 6: Report of the M&E Specialist engaged to review the M&E framework Annex 7. List of Supporting Documents Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders MAP v

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7 A. Basic Information Country: Cabo Verde Project Name: CV-SME Capacity Building and Economic Governance Project ID: P L/C/TF Number(s): IDA ICR Date: 07/28/2015 ICR Type: Core ICR Lending Instrument: SIL Borrower: Original Total Commitment: Revised Amount: XDR 2.96M Environmental Category: C Implementing Agencies: Ministry of Finance Cofinanciers and Other External Partners: REPUBLIC OF CAPE VERDE XDR 3.00M Disbursed Amount: XDR 2.96M B. Key Dates Process Date Process Original Date Revised / Actual Date(s) Concept Review: 05/20/2009 Effectiveness: 11/30/ /30/2010 Appraisal: 10/20/2009 Restructuring(s): 11/29/ /17/2014 Approval: 04/29/2010 Mid-term Review: 05/28/ /26/2013 Closing: 07/31/ /31/2015 C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Risk to Development Outcome: Bank Performance: Borrower Performance: Moderately Satisfactory Low Moderately Satisfactory Satisfactory C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Moderately Satisfactory Government: Satisfactory Quality of Supervision: Moderately Satisfactory Implementing Agency/Agencies: Satisfactory Overall Bank Overall Borrower Moderately Satisfactory Performance: Performance: Satisfactory vi

8 C.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments Indicators Performance (if any) Potential Problem Project at any time (Yes/No): Problem Project at any time (Yes/No): DO rating before Closing/Inactive status: No Yes Moderately Satisfactory Quality at Entry (QEA): Quality of Supervision (QSA): None None Rating D. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Central government administration Public administration- Financial Sector SME Finance Theme Code (as % of total Bank financing) Micro, Small and Medium Enterprise support Other Private Sector Development Other economic management Public expenditure, financial management and procurement Regulation and competition policy 9 9 E. Bank Staff Positions At ICR At Approval Vice President: Makhtar Diop Obiageli Katryn Ezekwesili Country Director: Louise J. Cord Habib M. Fetini Practice Manager/Manager: John F. Speakman Iradj A. Alikhani Project Team Leader: Kofi-Boateng Agyen Alvaro S. Gonzalez ICR Team Leader: ICR Primary Author: Kofi-Boateng Agyen Penelope Demetra Fidas vii

9 F. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) The project's overall objective is to assist the Government in its efforts to reduce the cost of doing business, diversify the target regions receiving foreign investments and enhance opportunities of small and medium enterprises to access public procurement. Revised Project Development Objectives (as approved by original approving authority) N/A (a) PDO Indicator(s) Indicator Baseline Value Original Target Values (from approval documents) viii Formally Revised Target Values Actual Value Achieved at Completion or Target Years Indicator 1 : Reduce the number of days it takes to receive a business license from 24 to 7 Value quantitative or Qualitative) Date achieved 4/30/10 4/30/10 4/30/10 1/31/15 Comments (incl. % The target was to reduce the time by 71%. The project reduced the time by 67%. achievement) Indicator 2 : Reduce the cost of registering property (as % of property value) by 40% Value quantitative or 7.7% 4.6% 4.6% 3.7% Qualitative) Date achieved 4/30/10 4/30/10 4/30/10 1/31/15 Comments The target was to reduce the cost by 40%. The project surpassed this and achieved a (incl. % 52% reduction. achievement) Indicator 3 : Increase the # of SMEs that compete for contracts through the public procurement process from 15 to 80 over the lifetime of the project. Value quantitative or Qualitative) Date achieved 4/30/10 4/30/10 11/29/12 1/31/15 Comments (incl. % 1,480% achieved. achievement) Indicator 4 : Create a one-stop shop for foreign investments. Value quantitative or 0 N/A 1 1 Qualitative) Date achieved 4/30/10 4/30/10 4/30/10 1/31/15 Comments (incl. % 100% achieved.

10 achievement) Indicator 5 : Value quantitative or Qualitative) Diversify the points of destination of foreign investments in tourism and other sectors in Cape Verde, as measured by a 5% decline in the Herfindahl index (HHI) of concentration of foreign direct investment (FDI) N/A 5% decline in HHI ix 5% decline in HHI Date achieved 4/30/10 4/30/10 4/30/10 1/31/15 Comments (incl. % achievement) This indicator was never measured and dropped through discussions with the GoCV approximately one year before project close. It was later replaced with indicator 4 above. (b) Intermediate Outcome Indicator(s) Indicator Baseline Value Original Target Values (from approval documents) Formally Revised Target Values N/A Actual Value Achieved at Completion or Target Years Indicator 1 : Indirect project beneficiaries (people gainfully employed) Value (quantitative or Qualitative) Date achieved 4/30/10 4/30/10 4/30/10 1/31/15 Comments (incl. % N/A achievement) Indicator 2 : Reduce number of steps (to obtain a business license) Value (quantitative or Qualitative) Date achieved 4/30/10 4/30/10 4/30/10 1/31/15 Comments The target was to reduce the steps by 66%. The project reduced the steps by (incl. % 11%. achievement) Indicator 3 : Reduce number of steps (to register property) by 50% Value (quantitative or Qualitative) Date achieved 4/30/10 4/30/10 4/30/10 1/31/15 Comments (incl. % N/A achievement) Indicator 4 : Reduce number of days to register property by 90% Value (quantitative or Qualitative) Date achieved 4/30/10 4/30/10 4/30/10 1/31/15 Comments The target was to reduce the time by 90%. The project reduced the time by 70%.

11 (incl. % achievement) Indicator 5 : Value (quantitative or Qualitative) Higher average one year growth in sales revenue of Matching Grant beneficiaries against control group No Data 7.5% above control group 7.5% above control group 43% Date achieved 4/30/10 4/30/10 4/30/10 1/31/15 Comments (incl. % The project achieved 573% of the target. achievement) Indicator 6 : Number of beneficiaries of the Matching Grant Fund. Value (quantitative or Qualitative) Date achieved 4/30/10 4/30/10 4/30/10 1/31/15 Comments (incl. % The project surpassed the target by 36%. achievement) Indicator 7 : Direct project beneficiaries, number (of which female %)[Matching Grant Fund] Number Date achieved 4/30/10 4/30/10 4/30/10 1/31/15 Comments (incl. % The project surpassed the target by 73%. achievement) Indicator 8 : Indirect project beneficiaries, of which female (% of labor force) Value (quantitative or Qualitative) 45% 45% 45% 45.8% Date achieved 4/30/10 4/30/10 4/30/10 1/31/15 Comments (incl. % N/A achievement) G. Ratings of Project Performance in ISRs No. Actual Date ISR DO IP Disbursements Archived (USD millions) 1 06/30/2010 Satisfactory Satisfactory /25/2011 Moderately Unsatisfactory Unsatisfactory /05/2011 Moderately Satisfactory Moderately Satisfactory /18/2012 Moderately Satisfactory Moderately Satisfactory /28/2012 Moderately Satisfactory Moderately Satisfactory /22/2013 Satisfactory Satisfactory 2.76 x

12 7 12/23/2013 Satisfactory Satisfactory /29/2014 Moderately Satisfactory Moderately Satisfactory /14/2015 Moderately Satisfactory Satisfactory 4.38 H. Restructuring (if any) Restructuring Date(s) Board Approved PDO Change ISR Ratings at Restructuring DO IP Amount Disbursed at Restructuring in USD millions 11/29/2012 N MS MS /17/2014 N S S 3.05 I. Disbursement Profile Reason for Restructuring & Key Changes Made Decrease of target of one PDO indicator; reallocation of funding of several expenditure categories (less than 15% of the original amounts) to adapt to changing needs of the GoCV. Closing date extended by six months to January 31, 2015 from July 31, 2014 to allow for completion of key activities towards achievement of the PDO. I.i. Actual disbursement amounts, by Component Component 1: US$ 1,865,284 Component 2: US$ 1,706,281 Component 3: US$ 679,011 xi

13 1. Project Context, Development Objectives and Design 1.1 Context at Appraisal Country and Sector issues 1. Cabo Verde is an archipelago of approximately 500,000 inhabitants located nearly 300 miles from the western coast of Senegal. Its economy is small; at the time of project appraisal, gross domestic product (GDP) was just under US$1.4 billion. The islands possess limited mineral resources and barely 10 percent of the land is arable. 2. In spite of these geographical and natural resource disadvantages, in the period leading up to the project, Cabo Verde had grown relatively rapidly and poverty had fallen significantly. Growth in averaged 7.2 percent per year, driven largely by: (i) strong public and private investment, with significant participation of foreign direct investment (FDI), directed largely towards the development of infrastructure and tourism; and (ii) exports, primarily tourism. As a result of this growth, incomes rose and poverty fell dramatically. By 2008, gross national income (GNI) per capita reached US$3, The global economic crisis resulted in a decline in Cabo Verde s GDP growth rate to 3.5 percent in The adverse effects of the crisis were felt particularly in relation to FDI, private consumption and external demand. Foreign direct investment was 54 percent lower in the first semester of 2009 than in the first semester of 2008, for various crisisrelated reasons such as tighter credit in countries of origin. The global economic slowdown also affected private consumption and external demand, especially tourism. While tourism grew 7.8 percent in 2008, it declined by approximately 33 percent in the first semester of 2009 compared to the first semester of 2008, as a result of the recession in the Euro area (home of the vast majority of tourists to Cabo Verde.) 4. External shocks from the global crisis reinforced the need for Cabo Verde to continue the reform program embodied in its Economic Transformation Strategy (ETS). The ETS was developed in 2001 and grounded in extensive dialogue at the national level, and constituted the foundation for Cabo Verde s first Growth and Poverty Reduction Strategy Program (GPRSP) for and its current GPRSP II for The ETS sought to take advantage of Cabo Verde s geo-strategic position and its natural and cultural assets by promoting Cabo Verde as a multi-purpose service center, with a combination of hub services for transshipment and distribution, fish processing and financial services, in addition to building on its growing tourism business especially to serve the European market in light of Cabo Verde s favorable location for this market. The strategy, therefore, focused on ensuring consistent broad-based growth by expanding and diversifying the nation s productive base and deepening reforms and investments that would serve to build a more competitive economy. 5. In order to promote economic transformation, the Government of Cabo Verde (GoCV) intended to create a first-class business-enabling environment. There was 1

14 recognition that transforming the economy meant reinvigorating new sectors, incorporating new regions of the country, and integrating groups within society that had been largely left out of the previous economic gains. The GoCV also acknowledged that the best way to get unincorporated sectors, regions and social groups to benefit from this growth was to undertake business environment reforms designed to reduce or eliminate barriers that: (i) held back workers from participating in the labor force; (ii) prevented new businesses from emerging; and (iii) kept unexploited resources and lands from being used in productive economic activity. 6. Despite specific improvements, progress was still needed in key aspects of the business environment. Cabo Verde ranked 146 out of 183 countries in the World Bank s 2010 Doing Business report. While these overarching indicators did not reflect several well-functioning aspects of the business environment (for example, Cabo Verde ranked 38th out of 183 countries on the ease of enforcing contracts), continued efforts to improve were still required. These included: (i) reducing the costs of starting and licensing a business, (ii) making it easier and less costly to register property that can be used as collateral, and (iii) introducing insolvency procedures. During the design stage, and using these strategy documents as a roadmap the Fifth Poverty Reduction Strategy Credit (PRSC V) approved in December 2009, the Economic Transformation Strategy, and the Investment Climate Assessment of 2006 the team found these to be most prescient external and internal constraints to Caboverdean SMEs: Small and Medium Enterprises (SMEs) relatively poor access to finance required attention, though it was perhaps not a supply-side problem. The effects of a relatively burdensome property registry system and the lack of well-established and clear insolvency procedures were important factors in constraining access to credit for SMEs. The business development service market in Cabo Verde was relatively small, not sufficiently sophisticated, and not well adapted to the more modest needs of SMEs. The responsibility for planning and organizing markets so that they function for SMEs largely rested with a key set of public sector institutions that were not prepared to fulfill this mandate, particularly the Directorate of Tourism in the Ministry of Economy, Competitiveness and Growth (MECG) and the investment promotion agency, Agência Caboverdiana de Promoção de Investimentos (CI), among others. Procurement by the public sector offered room for improvement in terms of providing more opportunities to SMEs, even as the procurement reform agenda continued to enhance efficiency and transparency. Rationale for Bank Involvement 7. In requesting this project, the GoCV invited IDA to continue its long-standing partnership with Cabo Verde in private sector development. At the request of the GoCV, the Bank program became more focused on competitiveness issues, which were at the core of the next three policy-based operations, starting with the Fifth Poverty Reduction 2

15 Strategy Credit (PRSC V) approved in December The PRSC series was to continue to be IDA s main instrument for supporting reforms in public financial management and strengthening public administration, as in the previous series, but the new series was to include an increased emphasis on improving the business environment. This operation was to provide technical assistance accompanying the new PRSC series and would address a key concern of the authorities, namely to improve access to opportunities for SMEs by addressing constraints to accessing financial sector resources and stimulating the growth of a market for business development services. 1.2 Original Project Development Objectives (PDO) and Key Indicators (as approved) 8. The objective of the project was to assist the Government in its efforts to reduce the cost of doing business, diversify the target regions receiving foreign investments and enhance opportunities of small and medium enterprises to access public procurement, as noted in both the approved PAD and the financing agreement. 9. The outcome indicators at the time of appraisal were: 1. Reduce the number of days it takes to receive a business license from 24 to 7; 2. Reduce the cost of registering property (as percent of property value) by 40 percent; 3. Diversify the points of destination of foreign investments in tourism and other sectors in Cabo Verde, as measured by a 5 percent decline in the Herfindahl index (HHI) of concentration of FDI; and 4. Increase the number of SMEs that bid in the public procurement process, as a result of the adoption of new procurement policies, from 15 (estimated) to 80, over the life of the project. 1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification 10. The project's overall objective as agreed in the PAD and the legal agreement was maintained throughout the two Level 2 restructurings, and never formally revised. 11. However, it should be noted that a different version of the PDO was stated in every Implementation Status Report and in both Restructuring Papers, notably, The project's overall objective is to improve the performance of small and medium enterprises (SMEs) and the transparency and efficiency of public sector governance. It seems that this change occurred inadvertently based on informal discussions. It is notable that the two versions of the PDO differ in terms of their specificity of objectives (the first being more specific and having measurable results, while the second is more general and does not lend itself to accurate measurement.). In fact, both versions of the PDO are supported by the components and activities of this project. This ICR evaluates the Project against the original. 12. As far as PDO indicators are concerned, three out of four remained the same as originally approved. The indicator, Diversify the points of destination of foreign 3

16 investments in tourism and other sectors in Cabo Verde, as measured by a 5 percent decline in the Herfindahl index (HHI) of concentration of FDI was discontinued (without formal elimination) during the implementation period as it was deemed to be insufficiently attributable to the project. In the last year of implementation, through discussions with the GoCV, a new indicator was informally introduced, i.e., creation of a one-stop shop for foreign investments. Furthermore, the target for the indicator increase the number of SMEs that bid in the public procurement process, from 15 (estimated) to 80, over the life of the project was eventually lowered to 30 at the first project restructuring in May The target to attract that many SMEs to participate in the public procurement process - a new and unfamiliar activity for most SMEs - turned out to be overly ambitious. Therefore, the PCU and ARAP, with the team s support, took advantage of the opportunity provided by the first restructuring to make this target more realistic, based on initial baseline reports. 1.4 Main Beneficiaries 13. The main beneficiaries of the project were Cabo Verdean SMEs; additional beneficiaries included: the remainder of the universe of local firms, foreign firms interested in investing in Cabo Verde, and selected direct beneficiaries of project support within the GoCV (i.e., ARAP, CI, Chambers of Commerce, the Directorate of Tourism in the MECG; the MoF; NOSi; and later ADEI was also included.) 1.5 Original Components (as approved) 14. The project was envisaged to be implemented over four years to assist the Government in its efforts to reduce the cost of doing business, diversify the target regions receiving foreign investments and enhance opportunities of small and medium enterprises to access public procurement. The components and specific activities put in place to achieve this PDO also contributed towards the achievement of the PDO that is stated in the ISRs to improve the performance of small and medium enterprises (SMEs) and the transparency and efficiency of public sector governance. The components, their original allocations and actual disbursements are as follows: Component 1: Enhancing SME business opportunities (US$ 1.85 million allocated; US$ million disbursed) Support investment climate reforms and help improve small and medium enterprise access to services. This component included a matching grants program. Component 2: Improving Government Capacity (US$ 2.15 million allocated; US$ 1.7 million disbursed) Support selected reforms and institutions which are critical to improving the transparency, efficiency and investment planning of the public sector. Component 3: Supporting Project Implementation (US$ 0.5 million allocated; US$ disbursed) Finance consulting services as required for project monitoring and evaluation; project audits and assistance to implementing agencies in technical matters. 4

17 1.6 Revised Components 15. The components remained the same throughout the project lifetime; however, some activities were modified therein. These are described in Section 2.2 below. 1.7 Other significant changes 16. The activities in Components 1 and 2 were modified, though not significantly; the target of a key performance indicator was lowered as described above. The project was also granted a 6-month extension. These are described in further detail in the implementation Section Key Factors Affecting Implementation and Outcomes 2.1 Project Preparation, Design and Quality at Entry 17. Project preparation was mostly sound: design quality considered WBG previous work, studies, strategies, as well as the priorities of the GoCV at the time specifically, to address competitiveness issues by improving the business environment and supporting SMEs access to finance. Several shortcomings occurred that are described in Section 3.1 under design. Nevertheless, the team took into account lessons of earlier operations; they identified the risks and devised plans or provided information to ensure they were mitigated; and they supported a participatory process to ensure the design responded to its intended beneficiaries. Importantly, the team used well-adapted and contextually sound approaches in the design of the matching grants system that contributed to its success (as measured by its results, see Section 3). 18. The project built on previous WBG private sector development projects since 1992 and more recently over the preceding twelve years provided by IDA via two technical assistance operations: the Privatization and Regulatory Capacity Building Project of 1998 (CV-Cr ), and the concurrent Growth and Competitiveness Project of 2003 (G&CP), (CV-Cr ), for which supplemental financing was approved in 2007 (CV-Cr ). These two operations assisted the Government with investment climate reforms, technical support to CI and its predecessor (PROMEX, the Center for the Promotion of Tourism Investment and Exports) related to investment promotion, direct support to the private sector through the Chambers of Commerce (which are the primary interlocutors between the private sector and the Government), and assistance to promote a well-functioning financial sector. 19. Moreover, the technical assistance (TA) in this project was underpinned by an Investment Climate Assessment (ICA) conducted in 2006 that helped to define the business climate reform agenda, and a 2008 Financial Sector Assessment Program (FSAP) prepared together with the IMF, that provided a diagnosis and agenda of reforms in the financial sector. 5

18 Incorporation of lessons learned from previous projects 20. The project incorporated important lessons from previous WBG projects as well as the operational context of Cabo Verde: Complementarities in interventions: Project components should be complementary so that the impact of the project can be enhanced and efficiencies realized. Minimizing complexity: Experience with private sector projects in Africa pointed to the importance of a simple design, considering the implementation capacity of the agencies involved. Building capacity for reforms: The project design reflected the experience that for policy reforms to have an impact, they should be properly implemented. Therefore, the focus of the business environment component was on strengthening public sector capacity in pivotal institutions to implement investment climate reforms. Donor coordination: To minimize the possibility of overlapping or duplication, and to benefit from synergies where possible, the team coordinated its work with key donors involved in the PRSC series and competitiveness issues, including the European Union (EU), as well as Portugal and Spain, and finally the Millennium Challenge Account (MCA) of the United States. SMEs as the appropriate target group: The team considered lessons from literature, demonstrating that SMEs not only report higher financing obstacles than large firms, but the effect of these financing constraints is stronger for SMEs than for large firms. Features of a successful Matching Grant program: The project considered best practices in matching grants programs previously supported by the WBG, such as the 50 percent subsidy to firms and the placement of the program outside of the public sector in order to be seen as independent and commercial in its approach. Quality of risk assessment 21. The overall risk to the project was appropriately deemed moderate at the approval stage. This assessment was composed of eight separate risks identified to the project, all of them moderate. In some cases, the team devised mitigation plans for each of these risks, mainly focused on capacity building, consultations with key stakeholders, and a plan of action in case such measures were ineffective. In other cases, additional information was provided to demonstrate that the risk was not as high as perceived. For example, the risks of procurement and financial management were rated as moderate. The team proposed to mitigate these risks from several angles. Firstly, the Government was encouraged to use experienced PCU staff of the concurrent project (Growth and Competitiveness) and to provide training to project staff in WB procedures. In addition, the project proposed support to make fully operational the new procurement institutional framework and ensure that the 6

19 national public procurement training program would be implemented to strengthen the capacity of ministries and procurement control units, including the Tribunal das Contas. Adequacy of participatory processes 22. The team further mitigated the overall risk through adequate stakeholder consultations. With the aim of informing the preparation of the project design, the team consulted other donors working in the private sector development space, all proposed public sector beneficiary entities, as well as a number of private sector representatives. Donors included the African Development Bank, the European Union, the bilateral aid agencies of Spain and Portugal, as well as the Millennium Challenge Account (MCA.) Public sector agencies included: CI, the Directorate of Tourism in the MECG and the MoF; the property registry; the Casa da Cidadao; and the customs administration and port authority. Together these entities identified the key constraints to the business environment in Cabo Verde and suggested appropriate remedies that would be included in the project activities. These included: (i) reducing the costs of starting and licensing a business, (ii) making it easier and less costly to register property that could be used as collateral, and (iii) introducing formal insolvency procedures. Other specific agencies were consulted indepth to identify the key capacity constraints to fulfilling their mandate for example, CI, the Directorate of Tourism and ARAP. Corresponding support was then included in the project to release these constraints. The Chambers of Commerce of Sotovento and Barlavento, which together effectively represent the Caboverdean private sector, were consulted for the overall project design, as well as specific inputs to plan the eligibility criteria and implementation of the matching grants program (Growth and Competitiveness Fund, FCC.) Through the general consultations, the Chambers provided feedback on the most prescient constraints to Caboverdean SMEs. Access to finance, the lack of business skills of SMEs, and moreover the dearth of business development services for SMEs available in the country arose as some of the most important issues that could be addressed by the project. 2.2 Implementation 23. While the WBG Board had approved the project on April 30, 2010, seven months passed before the GoCV fully complied with the conditions of effectiveness and the project became effective on November 30, Further delays occurred as a result of an election that occupied the Government's attention, as well as internal GoCV discussions on the staffing of the Project Unit. Due to these issues, the project was flagged as a problem project in The GoCV later complied with all dated covenants, disbursement and withdrawal conditions by November The team and the PCU worked together to adjust the project after these delays had occurred in order to continue progress towards implementation and achieving the PDO. By November 2011, the GoCV requested a Level-2 restructuring of the project to adjust the activities, while maintaining the PDO and original components, as well as the results framework. Furthermore, the midterm review was delayed by over one year, from May 2012 to August 2013, due to these implementation challenges at the outset. Finally, a 7

20 second Level-2 restructuring took place, at the request of the GoCV, to extend the project by six months from a closing date of July 31, 2014 to January 31, In view of the delayed implementation of the project, the GoCV had already financed a number of activities so as not to impede its national development agenda. Project activities were therefore adjusted to fund follow-on activities to those referred to in the original PAD. Furthermore, the elections that contributed to delays in the full implementation of the project led to a change in leadership in many of the agencies that were project beneficiaries; namely, CI and the DGT installed a new president and general director, respectively. Changes to the activities supported by the Project for these two implementing agencies were modified by the GoCV. Note that the Project Steering Committee carefully reviewed all proposed changes to be included in the restructuring. The changes made in order to resolve the implementation issues are described below, by component. 26. Component 1: a. The adjusted support to the property registration and insolvency systems included (i) scanning, indexing and digitization of paper-based archives of property registries; and (ii) development of information systems software, deployment and hardware acquisition (US$0.54 million). The above activities replaced the originally envisaged reforms of insolvency and property registry regimes, and the establishment of an electronic system to register property, which the GoCV had already financed with other non-credit resources. Training of staff responsible for the implementation of such reforms and members of the judiciary continued to be supported. b. Provision of support through and to ADEI, for the management of business development services and deepening incubation under the ongoing National Incubation Network program, included consultancy services, training, and outreach. c. Finally, additional support was provided to the Chambers of Commerce to coordinate assistance to SMEs that required certification services but were unable to access assistance under the Matching Grants Program (US$0.24 million). 27. Component 2: a. The modifications to Component 2 aimed to improve the GoCV s capacity for investment planning by selected public sector institutions. The provision of studies and advice through the project were complemented by the establishment of a functional One-Stop-shop in the Caboverdean Investment Promotion Agency (CI). At the Directorate of Tourism (DGT), rather than technical assistance, support was redirected towards capacity-building for staff of the DGT, as well as training and tourism promotion in collaboration with municipal governments, Chambers of Commerce and other entities linked to tourism promotion (US$0.350 million). 8

21 b. The M&E of the Matching Grant Facility was modified. Given the number of applications received during this first phase, the agreed randomized control trials (RCT) were deemed infeasible by the Ministry of Finance (MoF.) Instead the MoF proposed a different impact evaluation method to assess the results of the Facility, based on data provided by the National Institute of Statistics (INE) that would compare beneficiary with non-beneficiary firms. 28. Component 3: a. Limited civil works were provided within the PCU s premises to enhance its ability to manage the project effectively. 2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization 29. The M&E design focused on tracking of project activities and their intended results, with the outcome being a nearly sufficient quantitative account of the project s achievements. Reporting formats were defined by the project s targets and indicators. In addition to routine data collection by the PCU and the project team, INE was engaged to provide detailed data on the firm-level outcomes of the matching grants program, both on the beneficiaries as well as non-beneficiaries for comparison. Regarding the business environment reforms, UCRE was particularly proactive in maintaining updates on progress and provided extensive data (mostly from published indicators such as Doing Business and the Heritage Foundation, among others), descriptions and presentations to the PCU and project team. The PCU was generally consistent in obtaining regular reports from each beneficiary agency in addition to INE data on individual beneficiaries in Component 1 and systematically provided a summary of progress across all indicators to the team. 30. Note that while an impact evaluation was suggested at the start of the project to rigorously assess the impact of the matching grants program, the idea was later scrapped due to the insufficient number of grant applicants with which to conduct a randomized control trial. 1 In place of an impact evaluation, the GoCV opted for rigorous data collection by INE, on both beneficiary and a comparable group of non-beneficiary firms, to serve as a second-best counterfactual to assess the program s impact. As INE did not have the capacity to collect information on job creation and other MG outcomes at the firm level, the teams opted to include economy-level indicators on jobs and women s participation in the labor force, even though these were less attributable to the project. 31. Nevertheless, the PCU and the project team collaborated closely to monitor the regular data reports on the progress of the activities. The PCU and team proactively shared 1 The impact evaluation was indeed considered and supported at the outset by DEC in the World Bank. The failure to realize this impact evaluation later served as a source of lessons learned in the published paper: Campos, Francisco; Coville, Aidan; Fernandes, Ana M.; Goldstein, Markus; McKenzie, David. Learning from the Experiments that Never Happened : Lessons from Trying to Conduct Randomized Evaluations of Matching Grant Programs in Africa World Bank, published in the Journal of the Japanese and International Economies(2014) CC By-NC-ND 3.0 IGO 9

22 this data and collaborated with WBG internal as well as external stakeholders to ensure that it was used to further inform policy and encourage reforms. For example, the progress reports were regularly shared with the Cabo Verde Budget Support Group, in particular the DPO team. The DPO later incorporated triggers based on this data, such as the establishment of a one-stop shop for investment at CI. Externally, the data was shared with the Millennium Challenge Account (MCA.) Once the MCA saw the positive results attained through the digitization of the Praia and Sal property registries, it decided to extend support to roll out the system to all other islands. 32. There were two important shortcomings in the M&E framework. Three indicators were included that in retrospect cannot be attributed to the project; and the lack of accurate baseline data for one indicator led to a miscalculated target. The PDO indicator Diversify the points of destination of foreign investments in tourism and other sectors in Cabo Verde as measured by a 5-point decline in the Herfindahl Index (HHI) of foreign direct investment (FDI) was originally included to reflect the intended results of support to Cabo Verde Investimentos (CI). During the design stage, it was expected that support to CI would assist the GoCV to achieve its goal to diversify FDI entering the country, in terms of both sectors and islands. However, after discussions with the GoCV, this indicator was informally scrapped within four months of project close, when the GoCV, the team and the PCU realized that the link between the Project s input and this intended outcome was too tenuous to form the basis for a PDO indicator. Indeed, FDI depends on too many factors beyond the influence of the project or the GoCV, such as global macroeconomic trends, the resources and labor available in the local economy, and moreover, the size and location of the Caboverdean market. In the last ISR document from January 2015, a new indicator was (informally) introduced, measuring the establishment a one-stop shop for international investment, to fill the gap. 33. Two intermediate indicators were also found to be too weakly linked to the project s inputs: Indirect project beneficiaries (people gainfully employed) and Indirect project beneficiaries of which female (% of labor force.) As mentioned above, these were included in the absence of an impact evaluation and meant as a second-best solution to reflect the expected job creation particularly for women as a result of the matching grants program, FDI promotion, and business environment reforms to ease firm entry and operations. However, national employment figures can be considered aggregate indicators of a number of factors, many of which are beyond the project s inputs. Firstly, the matching grants program reached 136 beneficiary SMEs, which is just 1.5 percent of the total SME population. Moreover, job creation data was not collected on these 136 firms. Secondly, the link between business environment reforms and job creation is subject to a number of factors outside of the project s scope, as is the link between support for investment promotion and realized investments, and the jobs expected to be created from them. Finally, the national level of female employment could be expected to be minimally impacted by the project, insofar as 26 of the matching grant beneficiaries were women and given the hypothesis that a complex business environment disproportionally affects women because 10

23 they are more time-poor than men. 2 Hence, reforms should encourage more women to enter the formal sector (and labor market.) However, many factors unrelated to the project ranging from education to fertility rates, to labor regulations, availability of childcare, and others are more likely to impact the national level of female participation in the labor market. Therefore these indicators were not sufficiently attributable to the project and will not be evaluated nor discussed further. 34. The second shortcoming in the M&E framework was the miscalculation of the target of the PDO indicator Increase the number of SMEs that compete for contracts through the public procurement process from 15 to 80 over the life of the project due to the lack of readiness to set an accurate baseline. The team and PCU expected that upon project implementation, there would be accurate baseline data on which to establish a target in the M&E framework. However, the estimate differed during implementation: the baseline was estimated to be 15 and the target was first set at 80, then decreased to 30 at the first restructuring, yet the final aggregate number achieved was 444. In retrospect, the team and the PCU stated that the baseline was underestimated and the target should therefore have been more ambitious. 2.4 Safeguard and Fiduciary Compliance 35. Safeguards: The project financed consulting services, training and equipment, materials and supplies, the provision which were not expected to have negative environmental or social effects and therefore did not trigger any of the Bank s safeguard policies. The project was designated a Category C. Nevertheless, the team and the implementation agencies followed the standard IDA guidelines on project-financed activities to avoid any negative social or environmental impacts of the project. Beyond these requirements, the team and PCU paid particular attention to the inclusion of women as project beneficiaries in Component Social: Benefits of the project were extended particularly to women and entrepreneurs on the more remote and poorer islands. To track the progress on gender inclusion, an indicator was included in the results framework to target a minimum percentage of women-led beneficiary firms (originally 10 percent in the PAD, later revised to 20 percent.) These targets were (and are) in line with the trend of women s participation in firm management in Cabo Verde, which according to the World Economic Forum is 17 percent. 3 The Chambers of Commerce, particularly that of Barlavento, were instrumental in reaching out to entrepreneurs on the more remote and poor islands of Cabo Verde to promote social inclusion in the matching grants program. They conducted face-to-face dissemination and application support, particularly in the less-developed islands such as 2 Ellis, Amanda, with Claire Manuel, and C. Mark Blackden. Gender and Economic Growth in Uganda: Unleashing the Power of Women. World Bank, Washington, DC World Economic Forum. Gender Gap Index Country Profile Cabo Verde

24 Santo Antao. Consequently, 67 percent of matching grant beneficiaries were located in the four islands of Barlavento, compared to 33 percent in the two islands of Sotovento. 37. Environmental: The counterparts and the Bank team followed the standard IDA safeguards typically used in matching grants programs to prevent any adverse environmental effects of the project. A negative list of activities was included in the financing agreement to ensure that activities supported by the project would have neutral or positive environmental impacts. 38. Fiduciary compliance: The financial management (FM) and procurement arrangements at the PCU were considered a moderate risk at the time of project approval, as both procurement capacity in the ministries and a fully operational procurement institutional framework were lacking. However, through efforts made by the GoCV and support from the project, these arrangements improved over time. Both a financial management specialist and a procurement specialist were hired in the MoF with project support. Furthermore, the project specifically targeted the efficiency of the national procurement system, aiming to decrease the time to conduct a public procurement process from 10 months to 6 months, which it indeed achieved. Moreover, once the project became fully effective and implementation was underway, the procurement, accounting, financial reporting, budgeting, staffing, external auditing and funds flow became acceptable for the implementation and closing of the project. While minor procurement issues arose over the project s lifetime, they were quickly resolved in a satisfactory manner. Internal controls were sufficient, and periodic external audits and reports to the WB were satisfactory and on time in all cases. According to the last ISR, by the project s end both financial management and procurement were rated as satisfactory and fiduciary risk was rated as low. 2.5 Post-completion Operation/Next Phase 39. Sustainability is expected at three levels: (i) the improved performance of beneficiary firms; (ii) the technical and administrative abilities of the MoF and other beneficiary agencies; and (iii) continuation of several project activities under a new project currently under preparation. Points (i) and (ii) are discussed further in section Additionally, having been at the center of the efforts to implement digital and online systems, NOSi (Operational Nucleus for the Information Society), the GoCV s hub for e- government, is prepared to continue supporting and maintaining these systems. In fact, thanks to project support, NOSi has developed systems that are commercially viable, and has begun selling these to other governments (e.g., Angola, Equatorial Guinea, and Mozambique) as well as the local private sector. With these revenues, NOSi its capacity to be self-sustaining and enjoy the resources required to maintain the above-mentioned systems within the beneficiary agencies of the GoCV. 12

25 41. Finally, several of the project activities will continue to be supported through the upcoming WBG project, Competitiveness for Tourism Development (P ) The matching grants program will continue, with some modifications; and CI will continue to be supported to increase its capacity to attract and manage investments, and this support will also be extended to the SDTIBM (Society for Development of Tourism and Investment in Boa Vista and Maio), responsible for similar tasks in Boa Vista and Maio. 3. Assessment of Outcomes 3.1 Relevance of Objectives, Design and Implementation Objectives: High 42. The project objectives were highly relevant to Cabo Verde s priorities and the Bank assistance strategies at the time of preparation and today. The three outcomes included into the PDO: i) reduction of the cost of doing business, ii) diversification of the target regions receiving foreign investments, and iii) enhanced opportunities of small and medium enterprises to access public procurement, were and are highly relevant to the WBG and GoCV priorities. The PDO that appeared in the ISRs and RPs took these outcomes a step higher in the hierarchy of results, aiming at (iv) improved performance of SMEs, and (v) transparency and efficiency of public sector governance. In fact both versions of the PDO responded to three of the five strategic pillars of Cabo Verde s GPRSP II; namely Pillar 1 to promote government reform by modernizing public administration, Pillar 3 to enhance competitiveness through reforms and investments, and Pillar 5 to strengthen social cohesion. The project was also fully consistent with the higher-level objectives identified in all three pillars of the Country Partnership Strategy for FY09-12, namely to: (a) promote good governance and public sector capacity; (b) improve competitiveness and the investment climate for private sector-led growth, and (c) strengthen human capital and social inclusion. By improving the business environment, strengthening private firms (particularly SMEs); thereby, the project contributed to increased competitiveness. Through its outreach efforts to less-developed islands and women-led firms, the project also promoted inclusive growth through technical assistance and access to finance. In addition, the project contributed immensely to achieving the GoCV s objective to modernize the public administration, particularly through the digitization and online platforms carried out by NOSi. The objective remains relevant to the current GPRSP III, which identifies the private sector as the economy's main engine of growth, and the public sector as a catalyst and facilitator of an investment and business-fostering environment. Further, it continues to be relevant to the current Country Partnership Strategy FY15-17, whose second pillar emphasizes the importance of improving competitiveness and private sector development. Design: Modest 43. The design is rated as modest because while the overall design and theory of change responded aptly to the GoCV s priorities at the time and its stated partnership strategy with the WBG, it was also marked by four flaws. These were: insufficient support 13

26 to achieve part of the original PDO; inclusion of several M&E indicators that could not be attributed to the project; and inadequate readiness for effectiveness and disbursement. 44. The overall design was based on a theory of change that a combined effort to address both the external and internal constraints to SME competitiveness would contribute to sustainable and inclusive growth vis-à-vis both versions of the PDO. The external constraints were identified as the regulatory and institutional frameworks that raised the cost to do business, keeping many firms out of the market and maintaining high operating costs (and hence uncompetitive) for existing SMEs. Internally, Caboverdean SMEs were found to lack both the necessary skills and access to finance to be competitive. The project therefore designed a series of activities - business environment reform, enhanced capacity for the GoCV, and matching grants - aiming at the above-mentioned outcomes on different levels in response to these constraints, thereby paving the way for the growth anticipated by the GoCV and the WBG. 45. However, the goal to diversify the target regions receiving foreign investments was not sufficiently reflected in the level and scope of support to the GoCV, specifically to Cabo Verde Investimentos (CVI.) 46. Secondly, and following on the above-mentioned, it should be noted that the design of the M&E framework exhibited some shortcomings. These are described in detail in section 2.3. In sum, the inclusion of one PDO-level indicator as well as two intermediate indicators which could not be reasonably attributed to project support has made it difficult to demonstrate several key impacts of the project. These indicators were: diversify the points of destination of foreign investments in tourism and other sectors in Cabo Verde; indirect project beneficiaries (people gainfully employed); and indirect project beneficiaries of which female (% of the labor force.) Furthermore, the miscalculation of the target of the PDO indicator, Increase the number of SMEs that compete for contracts through the public procurement process from 15 to 80 over the life of the project did not have an accurate baseline at the design stage. 47. Thirdly, the project did not include any effectiveness or disbursement condition requiring that the project implementation unit be fully established (i.e., with a project coordinator, a finance specialist and procurement specialist.) Rather, a condition for effectiveness was The Government has recruited a financial management specialist for the PIU, with experience and qualifications satisfactory to the Association while a dated covenant was put in place that stated The Government shall appoint the Project administrator and procurement specialist in a manner satisfactory to the Association, no later than June 30, At the time, this condition was set as a dated covenant because the project expected to inherit the PIU of the previous private sector development project, without any undue delay or discussion with the GoCV. Furthermore, the WBG had a good relationship with the GoCV and did not expect to have any issues with setting up this PIU. That is, given the conditions at the time, the decision process was sound. Still, consequently from this delay in fully staffing the PIU, the first withdrawal application for the initial deposit took place only in September 2011, while the first withdrawal application for funds actually disbursed only in February 2012, 14 months after effectiveness. As the project was 14

27 approved in April 2010 and went until February 2012 to make its first disbursement, this long delay hindered a number of envisaged activities. In view of the delayed implementation of the project, the GoCV had already financed a number of activities so as not to impede its national development agenda. 48. Overall, the project team successfully mitigated these delays and other flaws through the restructurings: the first to shift some activities to follow on the initiatives already started by the GoCV, and the second to extend the project by six months in order to complete all activities. The project concluded having disbursed over 98 percent of the funds. Implementation: Substantial 49. The implementation of the designed activities was substantial, with two shortcomings in the proactive identification of opportunities and resolution of threats. The WBG team together with the PCU endeavored to continuously assure that the project activities were relevant to the PDO and therefore the overarching goals of the WBG and the GoCV, and in most cases adjusted these activities as necessary. Adjustments were made based on close collaboration and a frank dialogue between the team and the GoCV. To this end, the project was also restructured twice in order to maintain its relevance, respond to changing priorities of the GoCV and provide ample time to implement the project to achieve the PDO. 50. Two shortcoming marked the implementation stage in which the team could have attempted to correct some of the design flaws mentioned above. The adherence to the original PDO, while informally dropping a critical PDO indicator on diversification of FDI, left the project with a handicap in staying on course to achieve the full (original) PDO. The formal changing of the PDO would have been further justified by the fact that some activities planned to support diversification of FDI, such as having dedicated staff in CI to promote this diversification, were not pursued. While there were two restructurings opportunities to reformulate the PDO accordingly these were not used to change the PDO or formally drop the corresponding indicator. Secondly, as it came to light that the macroeconomic indicators in the M&E framework would not be attributable to the project, it would have been possible to use the restructurings to delete and/or replace these with more appropriate indicators. 3.2 Achievement of Project Development Objectives 51. The Project aimed to assist the Government in its efforts to reduce cost of doing business, diversify target regions receiving foreign investments and enhance opportunity of small and medium enterprises to access public procurement. To achieve this, the Project addressed both external and internal constraints to the growth of Caboverdean SMEs, while also addressing the GoCV s institutional capacity to manage and strategize for private sector development. The project improved the country s business climate and the competitiveness of 136 beneficiary firms or 1.5 percent of the universe of SMEs as of 15

28 that raised their average revenues by 43 percent 5. The three key indicators were (i) Reduce the number of days it takes to receive a business license from 24 to 7; (ii) Reduce the cost of registering property (as percent of property value) by 40 percent; (iii) Increase the number of SMEs that bid in the public procurement process, as a result of the adoption of new procurement policies, from 15 (estimated) to 30, over the life of the project. Having complied with the latter two out of these three measures, the project nearly met its objective and is therefore rated as moderately satisfactory. 52. PDO 1: Reduce the cost of doing business Substantial: The cost of doing business was significantly decreased thanks to the project s support, despite the fact that not all related PDO indicators were achieved. The project supported improvement to the investment climate from two key angles: 1) electronic platforms and process re-engineering to decrease the time and cost for firms to complete key transactions with the administration; and 2) capacity-building for key institutions within the GoCV responsible for the policies and strategies to increase private investment. From the first angle, firms are expected to benefit directly from a decrease in the cost of compliance with administrative tasks. For example, the processes to obtain business licenses, registrations and property registration were simplified and made more efficient. Moreover, the mkonekta electronic interface between the administration and individuals/firms has produced a meaningful shift in the level of transparency and efficiency in 84 different types of procedures. From the second angle, capacity support released constraints within the GoCV that were preventing it from formulating and administering its policies efficiently especially those that affect firms and their cost of business. Thereby, these capacity-building reforms also contribute indirectly to reducing the cost of doing business. Electronic platforms and process re-engineering 53. UCRE (State Reform Coordinating Unit) and NOSi (Operational Unit for the Information Society) were responsible for implementing the first set of activities, with the objective of increasing the transparency and efficiency of business-government interactions. The project contributed to the improvement of the investment climate in Cabo Verde as measured by the PDO indicators, intermediate results indicators, and additional relevant outcomes beyond the monitoring and evaluation plan. The first PDO indicator targeted a reduction in the time to obtain a business license from 24 days to 7; the actual time at project s end (as measured by the Doing Business in 2015 report) was 8 days, equivalent to a 70 percent reduction in time. To achieve this, the project supported the development of the electronic platform to obtain licenses at the municipal level. At the Property Registry, the project supported similar activities, as well as the digitization of property records and the automation of internal procedures, which together reduced the cost and time to complete registration in Praia and Sal. The second PDO indicator was to reduce the cost of registering property (as a percent of property value) by 40 percent. 4 Source: National Institute of Statistics (INE.) Data as of The total universe of SMEs as of 2012 was 9,177. Therefore 136 beneficiary firms constitute 1.5 percent of that total. 5 Source: National Institute of Statistics (INE.) Data as of 2013, since firms submit their tax returns for the preceding year only in May. At the time of writing this ICR, this data was not yet available. 16

29 According to the original M&E plan from the appraisal stage, the baseline was quoted as 7.7 percent of property value, while the end target was 4.6 percent. The actual cost at the end of the project was 3.7 percent thereby surpassing the target by 20 percent. However, it must be noted that the biggest drop in cost from 7.7 to 3.9 percent, as result of switching from percentage-based to fixed rate fees for property registration happened before the project became effective. That is, the Doing Business in 2011 report recorded this reform; however, this report was published in September 2010, two months before the project became effective in November Still, this reform was at least partially attributed to the project insofar as it was included in the design and continued to be supported after the GoCV made initial efforts to make this change. 54. The project also supported the reduction in time and the simplification of the process to register property, as well as the simplification of the process to obtain a business license. The time to register a transfer of property fell from a baseline of 73 days down to just 22, according to the latest Doing Business in 2015 report (published in October 2014.) The General Directorate for Registry and Notary reports that a deed of compliance is now completed within hours and that the issuance of a Public Deed takes just 48 hours. At the same time though without attributing the increase directly to the project the number of acquisitions registered is greater today than before the reform: from 2006 to 2009, the annual registrations averaged 1,118; from 2011 to 2014, this average jumped by 66 percent to 1,965. In fact, the electronic platform was so successful in Praia and Sal that the Millennium Challenge Account (MCA) decided to fund the roll-out of the same system across the remaining islands. Although the result of 22 days fell short of the target of 7 days, it still represents a significant reduction of 70 percent from the baseline. The process to effect transfers was also simplified; although, due to differences between the Doing Business methodology and the GoCV s internal evaluation, the indicator fell short of its target to reduce the number of steps from 6 to 3 (according to Doing Business, the number of steps remained at 6.) Similarly, the process to obtain a business license was simplified thanks to electronic records and an online platform, but for the same reasons fell short of its target to reduce the number of steps from 9 to 3 (though still decreased to 8.) 55. The establishment of an electronic platform to facilitate business registration, business licensing and property registration has led to a reduction in the time and cost to both firms and individuals in undertaking these activities, as well as a reduction in the administrative costs for the GoCV. The electronic platforms supported by this project were so successful that NOSi has been able to market them both domestically and internationally, selling both the systems as well as their technical expertise to install and administer them. 56. In addition, the project supported an innovative mobile phone platform, mkonekta ( to allow individuals and businesses to interface with the government with even greater ease, as well as for public functionaries to perform their duties. The program has developed 84 different types of services so far, ranging from payments for taxes and business licenses, to tracking shipments through customs, and even making doctor s appointments, among many others. These have facilitated the decrease of the time and number of procedures required to complete both commercial and individual transactions vis-à-vis the government. 17

30 Capacity-building for key institutions within the GoCV 57. The project aimed to strengthen the capacity of the agencies within the GoCV tasked with devising policies, strategies and managing the private sector, particularly SMEs, to increase its competitiveness. With such enhanced capacity it is expected that the beneficiary agencies would be enabled to formulate more efficient and business-friendly policies that would lower the cost of complying with administrative tasks for firms. To attain this, the project supported the Agency for Entrepreneurial Development and Innovation (ADEI), Directorate General of Public Heritage and Contracts (DGPCP), Cabo Verde Investments (CI), Directorate General for Tourism (DGT), Directorate for Planning (DNP), and the Ministry of Finance and Planning (MFP.) The specific support is described below, as well as a qualitative account of its expected impacts. 58. ADEI: ADEI is responsible the promotion of competitiveness and the development of MSMEs, including policies that affect them. Furthermore, its mandate includes the promotion of innovation and capacity building among entrepreneurs, as well as the improvement of the investment climate. As ADEI was established during the project s design period, once the agency began fully operating, the project was able to support several key activities to help it to fulfill its mandate. The project therefore funded a study on national entrepreneurship and a coordinator to help implement the national entrepreneur incubator system. The study on entrepreneurship was an important contribution to the GoCV s knowledge of the SME sector and will serve as a reference for its policymaking in this area. Furthermore, after the Coordinator was installed, the number of incubators increased from one to five, with a sixth incubator in progress. Among these, two are specialized in Tourism and two in Agribusiness, in line with the GoCV s goal to increase SMEs participation in the tourism value chain. The establishment of these incubators also contributes to SME capacity building and the development of the business development service market in Cabo Verde, which was missing at the appraisal stage. 59. DGIC: To further increase transparency and improve economic governance, the project financed the development by NOSi of software designed to monitor import/export operations and enable the online trade permit, TCE. This was a critical addition, as the previous DGIC system that monitored customs and commercial operations lacked the component to monitor the exchange operation. 60. DGT: The project supported the DGT to increase its capacity to strategize and manage the tourism sector with greater efficiency and transparency. The project financed the following activities to this end: a survey of the tourism resources available in Santiago Island; training on sustainable tourism development; as well as office equipment and a vehicle for these surveys to be used by the DGT. In order to support the development of a new structure within the GoCV to manage the tourism sector, the project funded the DGT s participation in a study tour to the Seychelles. As a result of these activities, the DGT s capacity was improved and allowed the recently established Ministry of Tourism, Investment and Enterprise Development (MTIDE) to design a new National Tourism Institute within the GoCV. 18

31 61. DNP: The project supported the DNP s capacity to strategize for improved economic governance. To that end, it funded TA to prepare the GPRSP III as well as a new planning and budgeting system, including the Basic Law on National Planning System. These are critical inputs to the GoCV s capacity to formulate policy. The GPRSP is the basic planning document for the GoCV s strategy to reduce poverty, stimulate growth and determine the related economic and social policies to achieve its objectives and targets. The Basic Law on Planning System legally formalizes a new system of strategic planning, and as an important step towards improved transparency and good economic governance, identifies and integrates all public entities involved in the planning and budgeting process. 62. MFP: The project supported the Ministry of Finance and Planning to conduct a valuation of the State-Owned Enterprises (SOEs), Enapor and Cabnave. These two entities had been previously targeted for privatization under the Privatization and Regulatory Capacity Building Project (PRCBP) of 2003, although it did not materialize. The inclusion of this support was made after the mid-term review, in light of its relevance to the investment climate and economic governance and the fact that the GoCV stood at a major disadvantage vis-à-vis potential investors without an accurate assessment of the value of these two SOEs. The continued operation of these SOEs would imply further losses to the GoCV, worsening its macroeconomic situation and investors perceptions. Furthermore, an eventual privatization of these port and shipyard facilities is expected to increase efficiency therein, particular for SMEs that import and export. 63. To put these institutional reforms in context without specifically claiming attribution to this project it is worth highlighting the progression of Cabo Verde s ranks on relevant indicators from the Heritage Foundation s Index of Economic Freedom during the project period. Cabo Verde s overall score has been on a steady incline since the first year of the project in 2010 with a baseline of 61.8, rising to 66.4 in Individual indicators related to the project s activities trade freedom, property rights, investment freedom, freedom from corruption, and financial freedom also rose steadily during this period. See figure 1 below. 19

32 Figure 1: Cabo Verde s institutional and regulatory improvements have been validated by published indicators Cabo Verde improved in select Heritage Foundation indicators over the lifetime of the project overall score property rights freedom from corruption trade freedom investment freedom financial freedom 64. Similarly, anecdotal evidence points to improving investor perceptions of Cabo Verde (as well as many other factors beyond the scope of this project). Two major foreign direct investments have been recently announced in the tourism sector: the Canary Islands Government intends to invest 110m EUR in Cabo Verde, while a new resort, Perola Negra, will be opened in the island of Sao Vicente and is expected to create 1,380 jobs. PDO 2: Diversify target regions receiving foreign investments Modest 65. During the design stage, this was included as part of the PDO as it was intended that the project would contribute to diversifying FDI towards the less favored islands at the time, that is, those outside of Sal and Boa Vista, and towards sectors other than tourism. The support to achieve this goal was mainly directed to Cabo Verde Investimentos (CI.) To measure this part of the objective, a fourth PDO indicator was originally included: the diversification of the points of destination of foreign investments in tourism and other sectors in Cabo Verde, as measured by a 5 percent decline in the Herfindahl index (HHI) of concentration of FDI. However, in January 2014 (one year before project close) the GoCV entered into discussions with the WB team on the replacement of this indicator with the following output measure: creation of an electronic one-stop shop for international investments. 6 This indicator was achieved. The former indicator on HHI persisted in all official documentation (the second restructuring agreement, subsequent ISRs) until January 2015, when the new indicator was entered in the last ISR. By this new indicator, 6 The M&E specialist s report that documents this discussion on the change of the PDO indicator is found in Annex 9. 20

33 the project indeed achieved or nearly achieved all 3 PDO indicators. It is expected that the support to create the electronic one-stop shop for international investments at CI has contributed to its capacity to attract FDI, handle investor queries, host visits and eventually convert expressions of interest into actual commitments and investments in the country. 7 Eventually, this strengthened capacity could lead to enhanced ability to diversify target regions receiving FDI. 66. CI: Cabo Verde Investments is the national investment promotion agency. It is responsible for promotion, marketing and investor handling for the country. The purpose of the project s support to CI was to help CI fulfill the GoCV s goal of diversifying the sectors and geography of incoming FDI, and improve CI s capacity to realize its mandate. The PDO indicator associated with measuring these expected results was originally Diversify the points of destination of foreign investments in tourism and other sectors in Cabo Verde, as measured by a 5 percent decline in the Herfindahl index (HHI) of concentration of FDI, though this was later scrapped during the project s lifetime as an inadequate and non-attributable indicator for the project. As mentioned above, it was later replaced with the output indicator create an electronic one-stop shop for international investments. The project continued to support CI to improve its investment promotion capacity through the following activities: the establishment of a one-stop shop (OSS) for investments; the launch of a new website, including on-line marketing; and a marketing plan to attract investment in the garment and shoe industries. The activities were completed through various technical assistance, goods and services. The OSS benefited from a new regulatory framework and the design of its digital platform. Furthermore, hardware, software, furniture and an improved workspace were financed, in addition to manuals and training for the staff. Technical assistance and IT support allowed the launch of the new website and online marketing tools, as well as the specific marketing plan to attract investment in the garment and shoe industries geared towards Portuguese investors. 67. Thanks to this support, the performance of CI in terms of investor handling has improved from a baseline of six to nine months, as measured in 2011 by the World Bank Global Investment Promotion Benchmarking report, down to 60 to 75 days today. Furthermore, the specific support to the OSS and online platform has allowed CI to respond immediately to investor queries, thereby improving its ability to attract and manage FDI. 68. Anecdotally, and without claiming any correlation to the project, the trend of FDI inflows to Cabo Verde should be noted: in fact, Cabo Verde has suffered a decline in FDI since 2008, when net inflows reached 12 percent of GDP. It decreased sharply in 2009 to 2010 to 7 percent, to 5 percent in 2011, 4 percent in 2012, and a mere 2 percent in The trend is not surprising, given the exposure Cabo Verde had to the financial and economic crisis through its principally European investors and tourists. Official data for 2014 is not available, although, in terms of attempting to diversify its incoming FDI 7 While CI expects that its conversion rate from queries to visits to commitments will improve with the capacity building provided by this project, they do not yet have the data to demonstrate such an improvement. However with the implementation of the one-stop shop for investments, they expect to be able to electronically track this data from now on. 21

34 geographically and sectorally, CI reports that four investors expressed interest in manufacturing projects, although only two of these have been realized so far, and both are Cabo Verdean in origin. In 2015, nine manufacturing projects have been approved to take place in Fogo, Sal and Santiago islands amounting to a total value of 6.5 million euros. PDO 3: Enhance opportunity of small and medium enterprises to access public procurement High 69. The matching grants 8 program aimed to address the internal constraints preventing Caboverdean SMEs 9 from being competitive, particularly their lack of technical skills and access to finance, while the support to ARAP aimed to address the external constraints to SMEs access to public procurement. To this effect, the firm-level targets set in the intermediate results indicators were exceeded. Matching grants amounting to US$ 700,845 were provided to 136 SMEs, of which 26 of which were led by women, surpassing the targets of 100 firms with 20 led by women. Matching grants were provided across all eligible sectors (as per IDA rules) and in nine inhabited islands. Twenty-six percent of beneficiaries were located outside of the main urban centers of Praia (Santiago Island) and Mindelo (Sao Vicente Island); in the first year of the program, 2012, 36 percent of the universe of Caboverdean firms were found outside of these two islands. 10 Finally, the target of the PDO indicator to increase the number of SMEs that compete for contracts in the public procurement system was far surpassed (444 over the lifetime of the project, compared to the target of 30.) 70. ARAP: In Cabo Verde, the State is one of the largest domestic procurers of goods and services. The substantial support provided to improve public procurement was included in this project as it was expected that improving SMEs access to this market would allow them the opportunity to expand their business, derive steady income from longer-term contracts, and improve their chances of access to finance. On the one hand, this support was on the supply side that is, legal, regulatory and institutional support to ARAP and the UGAs, responsible for public procurement within the GoCV. On the other hand, this support was directed to improving SMEs demand to access public procurement contracts by providing specific training on procurement through ARAP, as well as by improving their overall competitiveness through the MG program. 71. Specifically, ARAP is the agency responsible for making and administering national policies on procurement. It regulates, supervises and resolves and conflicts related to public procurement on behalf of the GoCV. Importantly, each independent agency of the GoCV is responsible for conducting its own procurement, according to the regulations set by ARAP. In order to fulfill the project s objective of enhancing opportunities of SMEs to access public procurement, the third PDO indicator was to increase the number of 8 The MG activity was managed by the two Chambers of Commerce of Barlavento (Northern islands) and Sotovento (Southern islands.) 10 National Institute of Statistics (INE.) Annual Survey of Firms

35 SMEs that compete for contracts through the public procurement process from 15 to 80, over the lifetime of the project. While this target was later revised downward to 30, the intent to encourage more SMEs to participate in public procurement remained. This target was far surpassed: by the end of the project, 444 SMEs had competed for contracts through the public procurement process. Additional SMEs were trained in public procurement in order to improve their ability to compete for contracts. 72. Moreover, a monumental shift in the GoCV s relationship vis-à-vis SMEs has occurred in the area of public procurement, largely thanks to this project. The surpassing of the PDO target is one indication, though additional structural reforms have taken place that will continue to encourage SMEs to compete for public contracts and track their participation making this shift sustainable. The project made public procurement more transparent and efficient by strengthening the legal and institutional framework, training staff and purchasing goods and services. The project supported the modernization of the national procurement system, addressing remaining issues in the legal and institutional framework with a view to fostering competition, avoiding conflict of interest and improving internal controls of procurement transactions handled by the contracting authorities. 73. The project also helped ARAP to become fully operational, as well as the procurement services (UGAs and UGAC) of contracting authorities. These UGAs are the responsible teams in each ministry for procurement. They now enjoy an online procurement platform that allows them to track and therefore encourage SMEs participation. To achieve this goal, the project supported the institutional strengthening of ARAP, including a Strategic and Operational Plan that would install a new organizational design, define objectives in the management process, adopt performance indicators and a M&E system, and install new technology to manage and track the processes. Secondly, the project financed the introduction of ISO 9001into the procurement system in order to promote improved quality of the management system, introduce internal audits, and other quality controls to conform to the ISO 9001 norms. The project also financed hardware, software and furniture to equip the central service and the UGAs; audits of systems and processes; and an extensive revision and modification of the legal and regulatory framework for public procurement. 74. In terms of the regulatory framework, the project supported: (i) an update of the existing procurement law and regulations, as well as new implementing regulations to promote efficiency and eliminate provisions that result in reduced competition or a lack of transparency. Specifically, the project addressed: (i) the numerous sole source provisions that allowed an abusive use of this method of selection; (ii) the restrictive mandatory certification provisions for international bidders; (iii) the restrictive eligibility practices for national competitive bidding that limited participation among local bidders; (iv) practices that led to conflicts of interest at the level of procurement regulatory authority (ARAP); (v) clarification of ARAP s certification role in relation to UGA; (vi) the need for private sector representation ARAP s board of directors, and (vii) the absence of the implementing rules and regulations for handling complaints from bidders. The project also supported the establishment of a Procurement directorate, under DGPCP, at the level of the Ministry of 23

36 Finance, in order to ensure effective internal controls of procurement transactions handled by the UGAs and UGAC (under the DGPOG of the Ministry of Finance). 75. Capacity was strengthened through the implementation of the national procurement capacity building program. This included civil service staff responsible for the operation of the procurement system, firms (especially SMEs), suppliers and contractors participating in bidding. The capacity building program ensured that training was extended not only to larger firms but in particular to SMEs that were less knowledgeable about public procurement procedures but were interested in bidding for public contracts. 76. DGPCP: Complementary to the support provided to ARAP, the WB also financed a new website for the DGPCP to better disseminate information on public procurement, thereby further increasing transparency and efficiency of the system, and allowing administrators to accurately track the number of SMEs competing for public contracts. This support was channeled through NOSi, which designed and installed the platform for DGPCP. 77. Matching grants program (FCC): In order to achieve the beneficiaries objectives as laid out in their applications, the grants were put towards technical assistance that included training to introduce new technology, diversify products, improve their management, marketing, business plans and train their employees. During the program s implementation from 2012 to January , the beneficiaries raised their average oneyear growth in sales revenue by 43 percent over and above a comparable group of Caboverdean SMEs, compared to the target of 7.5 percent, although both groups experienced negative growth over the time period. Even though they were not part of the project s indicators, the team and PCU requested that INE collect additional data on the beneficiaries and their comparable counterparts in the economy 12 (See Annex 7b for the entire report and its methodology.) For example, a survey found that 56 percent of Caboverdean SMEs were aware of the matching grants program, pointing to the relative success of the outreach efforts by the Chambers of Commerce (also funded by the project.) Of these, it was found that the most effective means of outreach were, in order: workshops organized by the Chambers of Commerce; radio; television, internet, and lastly newspapers. 13 The data further demonstrated that among the beneficiary firms, 32 percent launched firm-level new products, compared to 13 percent of non-beneficiaries during the same period; 57 percent undertook training for their employees, compared to 26 percent of non-beneficiaries; and 68 percent adopted new technology, compared to 27 percent of nonbeneficiaries. A difference-in-difference analysis is conducted in Table 1 below, using this data. To put these results in context, 61.5 percent of a representative sample of 11 The duration of the matching grants program was from 2012 to January However, the data presented here is only through the year 2013 because INE collects data from tax records, which are only reported by May 31 of the subsequent year. Hence at the time of writing this ICR, such data is not available for the year 2014 as INE is still analyzing it. 12 The INE methodology compared a representative sample of 39 beneficiary firms with a stratified random sample of 497 comparable SMEs in Cabo Verde over the same time period: September 2013 to April National Institute of Statistics (INE.) Study n. º 2 on the Impact of the Fund for Growth and Competitiveness (FCC.) 24

37 Caboverdean entrepreneurs report that they have no technological innovation to offer their clients. This compares favorably to much higher proportions of similar samples of entrepreneurs in the Caribbean that report the same lack of innovation: 67.8 percent in Barbados; 75.5 in Jamaica; 76.5 in Suriname; and 82.8 in Trinidad & Tobago These results were measured during the effective implementation period of Component 1b. These were confirmed through self-reporting, with verification by INE. 79. Further to the indicators tracked by the project, supplementary data collected by INE demonstrate the extensive results associated with this project and the beneficiary SMEs compared to a similar group of non-beneficiary firms in Cabo Verde. These are summarized in Table 1 below. Table 1: Indicative difference-in-difference analysis of FCC impact on beneficiary firms 15 Supplementary indicator Non-beneficiary result in 2012 Beneficiary result in 2012 Non-beneficiary result in 2013 Beneficiary result in 2013 Assumed treatment effect of the FCC (difference-indifference) Average annual growth of turnover compared to previous year (%) Firms that Launched a new advertising campaign for their products (%) Introduced a new product (%) Invested in employee training (%) Participated in a domestic trade fair in the last 3 years (%) Participated in a trade fair abroad ADEI. Elaboração de um inquerito às pequenas e médias empresas relativo às atitudes sobre o empreendedorismo. [Entrepreneurship study final draft report, funded by the Project.] These values are noted as indicative because INE did not provide firm-level data, but only the aggregate values for each group of beneficiaries and non-beneficiaries. Therefore it is not possible to calculate the standard deviation and hence the statistical significance of the difference-in-difference results. 25

38 in the last 3 years (%) Improved their production technology in the last 3 years Contracted local consultancy services in the last 3 years At the firm level, the results seen here, in terms of increased turnover, use of improved technology and improved production processes, among others, indicate an increased level of competitiveness among the beneficiary firms, compared to a similar sample of domestic firms. At the economy level, improved competitiveness among firms is expected to lead to sustained long-term growth. 81. These impacts are generally positive. While comparison with the trends among non-beneficiary firms in Cabo Verde point to a potential causal relationship between the project s intervention and the reported impacts, since the project did not include a rigorous impact evaluation, it is impossible to determine any stronger attribution than what is presented here using an indicative difference-in-difference analysis. However, it is notable that these results are broadly in line with those seen in 36 rigorous studies on similar matching programs across 18 countries (14 in Latin America, 4 in Sub-Saharan Africa). A meta-analysis of the data from these studies found that matching grants programs tend to lead to positive effects on firm performance, employment and investment In terms of social impact, the program also benefited Cabo Verde s rural firms on the more remote islands outside of Sao Vicente and Santiago, counting 26 percent of beneficiaries on such islands. Together these firms in more remote islands comprised 36 percent of the population of all firms in the first year of the matching grants program, However, the Chambers of Commerce particularly Barlavento made a concerted effort to include them in this program as they tend to suffer disproportionally from poverty and unemployment. 83. In terms of gender, 28 percent of the beneficiary firms were led by women, exceeding the project s target of 20 percent. According to the Enterprise Surveys of 2009, during the design phase of this project only 16.7 percent of Caboverdean firms had a female top manager. In this light, the target of 20 percent and the attainment of 28 percent of female-led beneficiaries are notable. However, the same data showed that 33.1 percent of firms had full or partial female ownership; similarly, data published by INE for 2013 showed that the average rate of women-led firms across the country was 34 percent. Compared to these INE data, the target and result for gender inclusion may appear modest. 16 Caio Piza, Lauro Gonzalez, Linnet Taylor, Tulio Antonio Cravo, Samer Abdelnour, Isabel Musse, Isabela Furtado, Ana Cristina Sierra. The Impact of Business Support Services for Small and Medium Enterprises on Firm Performance in Low- and Middle-Income Countries: A Systematic Review. Campbell Systematic Reviews 20xx:x. DOI: /csr.200x.x. As of May 29, 2015, this paper is still in draft. 26

39 Lack of attribution of two intermediate outcome indicators 84. Two intermediate outcome indicators were included in the M&E framework that, in retrospect, and perhaps at the design stage, cannot be reasonably attributed to the project due to the many factors affecting them that were outside the scope of influence of the project and even the GoCV. These indicators are: Indirect project beneficiaries (people gainfully employed) and indirect project beneficiaries (number) of which female (% of labor force.) While the first indicator failed to reach the target (185,486 employed people compared to the target 196,000), the second one surpassed it (45.8 percent compared to the target 45 percent.) Neither of these results can be plausibly credited to the project, however. Their inclusion in the M&E framework is a point of discussion in Section Efficiency 85. The project appraisal document included a quantitative analysis for the matching grant subcomponent 1.b, estimating a NPV of US$1.9 million and an ERR of 43 percent. For Component 1.a, business environment reform support, a qualitative analysis was conducted, based on a review of the literature related to business environment reforms in general as well as the specific ones related to business entry, property registration and the insolvency framework. The support for these three types of reforms were expected to, respectively: yield increased firm registrations and higher productivity among existing firms; facilitate the use of land as collateral; and improve debt collection and therefore ease lending. The economic analysis refrained from any formal ex-ante evaluation of the institutional reforms in the absence of any accepted methodology for the same. 86. For Component 1.a, indeed, the average annual number of new business registrations during the project s lifetime was 43 percent higher than in the years prior. 17 However, in the absence of any rigorous impact evaluation, it is not possible to directly attribute this increase to the eased business entry procedures supported by the project. Rather, market dynamics are more likely to have affected the increase, among other factors. Still, it is possible to calculate the direct cost compliance savings for the firms that registered and benefitted from the decreased time to obtain a license. Measured as such, from 2011 to 2014, firms that registered and applied for a license saved a total of US$ 427,706, based on the average national wage (US$ 6.87/day) 18, the number of firm registrations per year, and the days required to obtain a license (from a baseline of 24, decreasing to 11 days in 2011, to 8 days from 2012 onwards.) If the time to register remains steady at 8 days, and the trend of registrations remains the same, then it can be expected that the annual savings to firms will continue to average US$108,601. Five years post- 17 Data sourced from the Casa do Cidadão. Annual average business registrations from was 718 firms, while from it was 1,026, although note that these time periods differ for lack of additional data. 18 Cabo Verde instituted its first minimum wage in January 2014 at 11,000 escudos per month. Dividing this by 20 working days and using the exchange rate at the time, the daily wage was US$ 6.87 per day. Source: 27

40 completion, firms will have potentially saved US$ 543,005, in addition to the US$ 427,706 that has already been saved (US$ 820,711.) As a net present value, subject to a discount rate of 12 percent, this savings is US$ 376,793. See Table 1 in Annex 3. This savings compares favorably to the US$ 150,000 of project funds dedicated to technical assistance to improve the efficiency of these licenses. 87. Secondly, while the number of registered property acquisitions increased by 66 percent during the project compared to the years prior, this was likely influenced by other factors in addition to project support to ease the process. Finally, as the envisaged support to the insolvency framework was not fully realized (only the digital platform to register business closings), and data was not collected on improved debt collection nor increased lending, it is not possible to determine the economic impact of this particular support. 88. The ex-post analysis of the results of subcomponent 1.b demonstrate a number of positive effects of the matching grants program on its 136 beneficiaries, the most quantifiable being their increase in turnover. While turnover numbers were only available for a sample of 39 of the beneficiaries for the years , if the trend of growth is assumed to be the same for the entire group of beneficiaries, they increased their average turnover by 60 percent in 2012 (over the baseline of 2011) and by 18 percent the following year. Data on turnover from the third and final round of the FCC in 2014 was not available at the time of writing this ICR. In total, the 68 beneficiaries of the first two rounds of the FCC can be assumed to have generated a total of US$ 63 million in turnover from To look at project implementation efficiency, it can be measured by operating costs as a proportion of total disbursements. This is measured at the project level as well as at the subcomponent level in terms of the matching grants program. For the entire project, US$ 679,011 was spent on Component 3, supporting project implementation. This is 32 percent of the total amount disbursed from the project (US$ 2,107,668.) For (imperfect) comparison, the previous Growth & Competitiveness Project in Cabo Verde (P074055, US$ 12.45m) spent 18.2 percent on project implementation; the St. Lucia OECS Skills for Inclusive Growth Project spent 35 percent of the total project cost on implementation (P097141, US$ 5.52m 20 ); in the Maldives, the Mobile Phone Banking Project (P107981, US$ 5.86m) dedicated 26 percent to project implementation; while the Timor L Este Second Small Enterprise Development Project (P072654, US$ 7.4m) provided 24 percent of its financing for project implementation support. 21 It should be noted that each of these projects were larger than this project in Cabo Verde. 19 Data is sourced from INE on the sample of 39 firms. If it is assumed that the average annual turnover is consistent across the entire group of 136 beneficiaries, then the first round of 38 firms generated US$ 27m, while the second round of 30 firms generated US$26m. Data for the third round is not available at the time of writing this ICR. 20 Note that in St. Lucia, US$ 3.69 was disbursed from IDA, although additional financing from the GoStL and the private sector raised the total funds of the project to US$ 5.52m. 21 This data is gathered from the ICR of each respective project. Project implementation support refers in each case to the total amount dedicated to the project implementation unit, or otherwise referred to as the project coordination unit. 28

41 90. For the matching grants program, the cost of management (US$ 299,155) was 29.9 percent of the total disbursed for that subcomponent, US$ 1,000,000. This compares favorably to similar programs around the world: Argentina, 36 percent; Indonesia, 47 percent; Kenya, 57 percent; and Mauritius, 19 percent. The Efficiency rating is substantial. 3.4 Justification of Overall Outcome Rating Rating: Moderately satisfactory 91. Despite that its relevance of design was modest and that one of the PDO was modestly achieved (Diversify target regions receiving foreign investments), given that the achievement of two of its PDOs (Reduce the cost of doing business and Enhance opportunity of small and medium enterprises to access public procurement) was substantial to high; and that the project was implemented with substantial efficiency and that its objectives were highly relevant to both the GoCV s current objectives and World Bank current assistance strategy; and that its implementation was substantial to achieve the objectives, the overall outcome rating is Moderately satisfactory. The outcomes associated with the first objective of the project resulted an improved business environment, as indicated by the decrease in the time to obtain a business license from 24 to just 8 days and the decrease in the cost to register property by 52 percent. Moreover, 444 SMEs competed for contracts through the public procurement system, as opposed to the target of 30. Furthermore, the project effected a total disbursement of matching grants to 136 beneficiary firms, who raised their average one-year growth in sales revenue by 43 percent over and above a comparable group of Caboverdean SMEs, against the target of 7.5 percent. 3.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development 92. Poverty impacts: The project directly supported the improved competitiveness of 136 SMEs over its lifetime, as found in numerous follow-up visits and surveys by the PCU on the beneficiary firms. Given that Cabo Verde has a national poverty rate of 61.9 percent, with even higher rates among women and people in more remote islands, these improved firms will allow many people an opportunity to increase and receive a steady income for themselves and their families. Furthermore, the increased sales among the beneficiary firms has a direct impact on raising the income of the business owners, while also increasing their demand for local inputs, thereby producing positive multiplier effects in the economy. Their introduction of new products and processes is also expected to raise their productivity and therefore their earning potential. 93. Gender aspects: The project had positive impacts on women entrepreneurs. Component 1 facilitated business start-up and operations procedures, while providing matching grants to 25 SMEs led by women. Complex business regulations typically pose a heavier burden to female vs. male-owned firms because women are more time-poor, 29

42 dedicating more time than men to both earning a living as well as taking care of their families. Therefore women entrepreneurs are more likely to operate in the informal sector and remain small businesses, as they lack the time to navigate a complex business environment. They are also found to be more likely to be subject to bribe-seeking by officials. 22 Component 1 is therefore expected to have made the processes of business entry and operations more accessible to women, thereby encouraging them to operate in the formal sector, and utilize these services to enhance the productivity of their firms. The matching grants provided to the women-led firms also mitigates the increased difficulties faced by female entrepreneurs. 94. Social development: In terms of social impact, the program also benefited Cabo Verde s rural firms on the more remote islands outside of Sao Vicente and Santiago, counting 26 percent of beneficiaries on such islands. Together these firms in more remote islands comprised 36 percent of the population of all firms in the first year of the matching grants program, (b) Institutional Change/Strengthening) 95. The institutional changes and capacity support are described fully above in Section 3.2. (c) Other Unintended Outcomes and Impacts (positive or negative) 96. Among the 136 beneficiary firms, the effects of the global economic and financial crisis were cushioned. Financing equivalent to US$ 700,845 was provided to these firms during a time when overall credit to the private sector was contracting. This credit allowed the recipient firms to create new products and processes, which is expected to contribute to their increased competitiveness, and the overall sustainable growth of the economy. This contribution is also important, given that during the crisis, GDP growth rates dipped to percent in 2009, from an average of 9.2 percent from 2005 to Growth rates recovered somewhat, rising again to an average of 1.8 percent from 2010 to Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops 97. N/A. No beneficiary surveys nor stakeholder workshops were conducted on the project s results. 22 Amanda Ellis, Claire Manuel, and C. Mark Blackden. Gender and Economic Growth in Uganda: Unleashing the Power of Women. World Bank, Washington, DC World Bank. World Development Indicators for Cabo Verde. 30

43 4. Assessment of Risk to Development Outcome Rating: Low 98. There does not appear to be any imminent risk that technical, economic or political factors could reverse or decrease the effectiveness of the development outcome as it has been achieved by the project. The policies of the GoCV that provided the framework for the design of this project are still relevant and promoted by the current administration. Both the beneficiary agencies of Components 1 and 2 and the beneficiary firms of Component 1 have received capacity support and enhanced skills that are difficult to remove. Furthermore, the support provided to the beneficiary firms is self-sustaining, in that their enhanced competitiveness has provided them with increased income and improved opportunities to access finance, which will allow them to grow. One minor risk to the sustainability of the development outcome, for the agency-level beneficiaries, is that they may not have access to the funds or the suppliers to make repairs and maintain the equipment that were financed by the project. However, this risk is significantly mitigated by the fact that the national e-government body, NOSi, has conducted the digitization and created the online systems in these agencies and has the resources to maintain them. 5. Assessment of Bank and Borrower Performance 5.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Moderately satisfactory 99. The Bank presented a team of experts with ample experience in the main areas of the project: investment climate reform, matching grants for SMEs and institutional strengthening. The team analyzed the key constraints based on the information available at that time to increasing the competitiveness of Caboverdean SMEs both external (the investment climate and its policymaking institutions) and internal (business skills and access to finance) and designed a project to address these. They also took lessons from the previous project (Growth and Competitiveness Project of 2003, CV-Cr ), that supported similar activities and designed a project to continue some of these while also improving upon their design and implementation. The design incorporated the GoCV s vision for poverty reduction and SME development. The focus was on development impact: the team supported the GoCV to set up an ambitious M&E system with targets that would be linked to economic impact. The design process was moderately satisfactory in setting up a relevant and well-structured project, with adequate stakeholder consultations Several flaws at entry were fully or at least principally the responsibility of the WBG and could have been done better, therefore detracting from a rating of satisfactory. These shortcomings are described in detail in Section

44 (b) Quality of Supervision (including of fiduciary and safeguards policies) Rating: Moderately satisfactory 101. The WB team provided close supervision and support to the borrower team. The WB team made themselves available for any questions or concerns from the borrower team, and usually responded to their queries in a timely manner. They provided thoughtful guidance to the borrower team, backed up by analysis and presented with examples of international good practices. They were particularly careful to inform the borrower of the procedures of the WBG so that they could plan their activities and expenditures accordingly. Supervision of overall project 102. The WB team was transparent in their assessments and advice for moving forward, as well as flexible in adapting to the changing circumstances of the project and the needs of the clients. In the first instance, when the project faced delays in becoming effective, the WB team provided very frank and candid Aide Memoires of the missions during that period, as well as ISRs, that assessed the reasons for delays and made suggestions to advance the project. Following that period, and given the seven month-delay between the project s approval and effectiveness and the fact that the GoCV self-financed its planned activities in the meantime, the project team supported the restructuring of the project to finance complementary activities. In another instance, when preliminary results from the matching grants program found that the Chamber of Commerce of Barlavento was disbursing more grants than that of Sotovento, the project supported a reallocation of grant resources to Barlavento. Furthermore, the supervision missions assessed the status of the project in situ, as the team met with all implementing agencies to discuss progress and address any lags. Before departing Cabo Verde, the team would always hold a closing meeting in which they conferred on the proposed content of the AM, including project status, any pending issues, next steps and deadlines. Between missions, the team would follow up with conference calls and s. This approach allowed the WB-GoCV to jointly track objectives and reach targets, thereby galvanizing the development of the project Several moderate shortcomings were noted during the implementation phase. These were the missed opportunities to correct some of the design flaws through the two restructurings that occurred, as described in Section 2.1 and 2.2. Supervision of fiduciary and safeguards 104. The WBG provided sufficient support overall to the GoCV to comply with fiduciary and safeguard requirements. Training on procurement forms and the accompanying materials provided were helpful for the GoCV team Financial management support was equally satisfactory. The GoCV team received fast and adequate responses from the WB FM team in Dakar. 32

45 Role in ensuring adequate transition arrangements after closing 106. The closing arrangements were sufficient. The WB team presented a clear plan to close the project, including WB rules regarding final disbursements and the post-project grace period. (c) Justification of Rating for Overall Bank Performance Rating: Moderately satisfactory 107. The Bank contributed to the success of the project through its global knowledge and experience, as well as sensitivity to the local context. It therefore ensured a moderately satisfactory design that empowered the GoCV to nearly achieve its own development objective to reduce the cost of doing business, diversify the target regions receiving foreign investments and enhance opportunities of small and medium enterprises to access public procurement. The team provided diligent supervision and responded in a timely manner to most requests, questions and changes to the priorities of the counterparts. There were several moderate shortcomings in both the design and implementation that justify a rating of moderately satisfactory, as noted above. 5.2 Borrower Performance (a) Government Performance Rating: Satisfactory 108. The GoCV was satisfactory in providing an environment in which the project could be appropriately designed and implemented. The key counterpart of the project, the Ministry of Finance, provided exemplary leadership, decisiveness and substantive involvement in the design and implementation of the project, as well as its adjustment to maintain relevance. For example, the GoCV was instrumental in ensuring coordination among donors working in the area of private sector development in order to consolidate meaningful reforms. Furthermore, the GoCV encouraged the cooperation among the PCU, UCRE and NOSi to streamline business environment reforms and avoid duplication of efforts within the GoCV. There were a few minor impediments posed by GoCV functions and decision processes during the lifetime of the project that could have been improved. These were: (i) the vacillation among candidates to serve as the PCU coordinator and the eventual approval resulted in a delay of seven months between approval and effectiveness; (ii) the delays (10 months after effectiveness) in negotiation between the GoCV and the Chambers of Commerce to sign the required memoranda of understanding (MOUs) that governed the policy and management of the matching grants; and (iii) the Steering Committee meant to oversee coordination among GoCV implementing agencies, the MoF and PCU, as well as project implementation, held only three out of its expected nine biannual meetings. Furthermore, as noted above under section 5.1, there were several shortcomings whose responsibility is shared between both the WB team and the GoCV. These included deficiencies and some delays in the communication of priorities and decisions between both parties, especially with regard to the first restructuring, and specifically the activities associated with the Directorate of Tourism (DGT.) 33

46 (b) Implementing Agency or Agencies Performance Rating: Satisfactory 109. The PCU and most of the implementing agencies were fully committed to achieving the PDO and demonstrated this through their ownership of the project and diligence in carrying out the activities. The PCU made efforts to solve problems as they occurred, mediate and negotiate among the various stakeholders (PCU, MoF, implementing agencies and the WB team) in order to keep project implementation on track. A comprehensive M&E system, including both project-level and intermediate indicators, as well as complementary data collection by INE, allowed it to closely monitor activities and make adjustments when needed. Financial management was sound, with all audits taking place as planned and submitted on time. Borrower procurement processes and contract administration were of generally good quality, reliability, timeliness, and transparency with minor corrective actions needed by the WBG team. Procurement practices were followed correctly, though some delays occurred due to the initial turnover of the procurement specialist position within the PCU. Once the procurement specialist was on board, however, the PCU and implementing agencies took charge of the project activities, owned them and implemented them to achieve two out of the three PDO indicators as well as half of the intermediate indicators. (c) Justification of Rating for Overall Borrower Performance Rating: Satisfactory 110. The GoCV, together with the PCU and implementing agencies, made satisfactory efforts to complete a moderately successful project that met two of the three PDO indicators and half of its intermediate targets. The partial achievement of the PDO to enhance the competitiveness of SMEs and improve the business environment affecting them is likely to be sustained and contribute to the overall competitiveness of the economy. 6. Lessons Learned Technical 111. To encourage take-up of matching grants programs, conduct a communications campaign with accessible messaging and means of communication for SMEs and ensure that eligibility criteria are inclusive. Such campaigns should consider local conditions and the most commonly used modes of communications. For example, in Cabo Verde, the most effective means of raising SMEs awareness of the matching grants program were face-to-face workshops and radio, while newspapers and the Internet were found to be least effective. Such concerted outreach ensures that MG programs are as inclusive as possible, reaching the poorest and those in remote areas, as well as other disadvantaged entrepreneurs, such as women. Eligibility criteria should be equally inclusive, encouraging as many SMEs to apply and qualify as possible. 34

47 112. The implementing agency of a matching grants program is well positioned to gather key data directly from beneficiaries on the program s impact. Not all projects, much less matching grants programs, can or should implement an impact evaluation. Political reasons, lack of commitment, sample sizes, and other obstacles may render such an evaluation impossible or undesirable. In the absence of an impact evaluation, other monitoring and evaluation methods exist that can substantiate claims of impact. In the case of matching grants, the implementing agency is one of the best positioned parties to gather impact data directly from beneficiaries both the basic data required in the M&E matrix as well as additional quantitative and qualitative data. Teams can refer to the experience of the recently closed MSME project in Nicaragua to see the nature of the additional data collected by the implementing agency on the matching grants program there (P ) 113. Public procurement is an area of potential joint T&C/Governance support, beset with opportunities to positively impact SMEs market reach. This project demonstrated the extensive potential to affect SMEs access to public procurement by addressing both the supply side ie, the legal, regulatory and institutional frameworks for procurement that can either encourage or exclude SMEs as well as the demand side, by addressing the ability of SMEs to compete for such contracts. The T&C practice should explore opportunities to incorporate such activities into future operations, and leverage the knowledge and experience of the Governance practice in this area. This is especially prescient in Sub-Saharan Africa, where the State typically represents the largest share of contracts and business opportunities. Operational 114. Use caution when including macroeconomic indicators for a project that supports limited microeconomic reforms. Attribution will be extremely difficult. Starting at the design stage, the theory of change should clearly state the links between the project s inputs and each of the outcome indicators and the project should be demonstrated to have a significant impact on the indicator. The monitoring and evaluation plan should explain how this link will be measured and attributed directly to the project. If there are many factors outside the scope of the project that are likely to affect an outcome indicator, it should probably not be included. In such cases, it may be more appropriate to simply include a concrete output indicator (such as training completed, or the establishment of an agency or electronic platform) rather than aiming for outcomes that are not sufficiently attributable. Engaging an M&E specialist early on can help to improve the M&E framework and avoid the pitfalls of inappropriate indicators Establish the implementation unit by the time of effectiveness. This may seem to be an obvious lesson, but it bears repeating based on the experience of this project. It is critical to have a small team responsible to implement a project from the day it becomes effective. The size of the team would be project specific. However, the core team needs to include at least a project coordinator, a procurement specialist and a financial management specialist. 35

48 116. Prioritize impact studies of innovative interventions. Besides the MG outcomes, some intermediate outcomes are very interesting and could be even more informative with beneficiary surveys. In Cabo Verde, the significant support and innovative approach to increasing SMEs access to public procurement, as well as the 84 new services provided by the mkonekta platform, would have merited additional study in order to render lessons for future operations Conduct operational training for all PCU and implementing agency staff involved in project implementation even if they already have experience with WB projects. World Bank procedures and guidelines are regularly updated and new operational knowledge comes online constantly. It would behoove the PCU and primary staff in implementing agencies to keep abreast of these developments. World Bank project teams should therefore encourage and organize such trainings on a regular basis. 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies 118. The Borrower commented that the support of the WB was important to the success of the project and there were no major issues raised. They rated overall WB performance as moderately satisfactory. The Borrower s comments on the ICR are found in Annex 7b. (b) Cofinanciers: N/A (c) Other partners and stakeholders. [See comments from MCA in Annex 8] 36

49 Annex 1. Project Costs and Financing (a) Project Cost by Component (in US$ Million equivalent) Components Appraisal Estimate (US$ millions) Actual/Latest Estimate (US$ millions) Percentage of Appraisal Component % Component % Component % Total Baseline Cost % Physical Contingencies Price Contingencies Total Project Costs % Front-end fee PPF Front-end fee IBRD Total Financing Required % (b) Financing Borrower Source of Funds International Development Association (IDA) Type of Cofinancing Matching grant contribution Appraisal Estimate (US$ m) Actual/Latest Percentage of Estimate Appraisal (US$ m) % Credit % 37

50 Annex 2. Achievement of PDO outcomes in detail 1. The Project aimed to assist the Government in its efforts to reduce the cost of doing business, diversify the target regions receiving foreign investments and enhance opportunities of small and medium enterprises to access public procurement. To achieve this, the Project addressed both external (regulatory and institutional environment) and internal constraints (skills and access to finance) to the competiveness of Caboverdean SMEs. The three key indicators were (i) Reduce the number of days it takes to receive a business license from 24 to 7; (ii) Reduce the cost of registering property (as percent of property value) by 40 percent; (iii) Increase the number of SMEs that bid in the public procurement process, as a result of the adoption of new procurement policies, from 15 (estimated) to 30, over the life of the project. Having complied with the latter two out of these three measures, the project nearly met its objective. See Table 2.1 below. Table 2.1 Project Development Objective Indicators PDO indicator/ Results Baseline Target Final Result Reduce the number of days it takes to receive a business license from 24 to 7 Reduce the cost of registering property (as % of property value) by 40% Increase the # of SMEs that compete for contracts through the public procurement process from 15 to 80 over the lifetime of the project % 4.6% 3.7% Deconstructing the PDO into three parts, the next table (2.2) demonstrates how each project input contributed to the overall development objective and the corresponding results. The table is followed by a detailed explanation of each observation. 27

51 Table 2.2 Achieving the PDO inputs & results Beneficiary agency Project inputs Corresponding indicators Part 1 of PDO: Reduce the cost of doing business NOSi/Casa do Cidadão NOSi/SIRP -Software for electronic platform for firms to obtain business licenses from the Casa do Cidadão. Licenses include: retail, wholesale, industrial, construction, real estate and touristic. -Digitization of the property registries of Sal and Praia -Software of the new electronic transaction system -Reduce the number of days it takes to receive a business license from 24 to 7 -Reduce the cost of registering property (as % of property value) by 40% -Reduce the number of steps by 50% -Reduce the number of days to complete the transaction by 90% Results Time reduced to 8 days 42 licenses issued from Cost reduced by 52% Steps reduced by 0% Days reduced by 70% 170% increase in the average annual number of registered property acquisitions in Praia, postreform 25 NOSi/DGIC NOSi/mkonekta ADEI -Software to monitor imports and exports -Enabling of online trade permit (TCE titulo de comercio externo) -Software to permit the use of mobile phones to conduct individual and firm-level transactions vis-à-vis the GoCV -Study on national entrepreneurship n/a n/a n/a 53% increase of usage of online TCE 45% decrease in usage of paper TCE different services have been established for the mkonekta mobile platform. Reference for policies on the SME sector 24 Data is sourced from the Casa do Cidadão, Praia. 25 Between 2005 and 2009, the average annual number of registered acquisitions in Praia was 995. From 2011 to 2014, the same was 1,695, representing an increase of 170 percent. Note that it is not possible to demonstrate attribution to project support, as market forces have likely influenced this increase, among other factors. Data is sourced from the property registry of Praia. Time periods differ as data from 2010 was not available. 26 In 2011, 12,526 TCEs were filed online, while in 2014 this number rose to 19,177, representing an increase of 53%. Simultaneously, the number of TCEs filed on paper declined, from 13,519 in 2011 to 7,390 in 2014, representing a decrease of 45%. Data is sourced from the Directorate of Industry and Commerce (DGIC) within the Ministry of Tourism, Investment and Business Development (MTIE.) 28

52 DNP MFP CI DGT -Coordinator of the national entrepreneur incubator system -TA to prepare the GPRSP III, including the Basic Law on National Planning System -Valuation of the SOEs, Enapor and Cabnave Part 2 of PDO: Diversify the target regions receiving foreign investments -Establishment of a one-stop n/a shop (OSS) for investments -New website, including online marketing -Marketing plan to attract investment in the garment and shoe industries -Survey of the tourism resources available in Santiago Island -Training on sustainable tourism development -Office equipment and a vehicle for these surveys to be used by the DGT -Study tour to the Seychelles n/a n/a n/a Establishment of 5 incubators with a 6 th in process Improved capacity of the DNP to formulate policy to reduce poverty and stimulate growth, including through private sector development Increased efficiency at the port and shipyard to be privatized, especially for SMEs that import and export Reduction of time to handle investor interests from 6 to 9 months (baseline in 2011) down to days today Increased capacity to formulate strategy for the tourism sector, including diversification of investments beyond Sal and Boa Vista Part 3 of PDO: Enhance opportunities of SMEs to access public procurement NOSi/DGPCP -Website to disseminate information on public procurement and track the number of SMEs competing for public contracts ARAP -Strategic and Operational Plan, audit of processes -Electronic platform to manage and track procurement processes -Introduction of ISO 9001 into the procurement system -Hardware, software and furniture for the central service and the UGAs -Revision and modification of the legal and regulatory -Increase the number of SMEs that compete for contracts through the public procurement process from 15 to 30, over the lifetime of the project 444 SMEs competed for contracts through the public procurement process by the end of the project Shift in overall relationship between the GoCV vis-à-vis SMEs in the area of public procurement, increasing transparency and sustainability of their participation. 29

53 FCC framework for public procurement -Capacity building for public and private sector actors involved in procurement -Matching grants awarded to 136 firms to finance technical assistance -Higher average one year growth in sales revenue of Matching Grant beneficiaries against control group -Number of beneficiaries of the Matching Grant Fund -Direct project beneficiaries, number (of which female %) -See Table 2.4 for additional indicators -43% higher average one year growth in sales revenue of Matching Grant beneficiaries -136 beneficiaries of the Matching Grant Fund -26 female beneficiaries -See Table 2.4 for additional results 2. Reduce the cost of doing business: The cost of doing business was significantly decreased thanks to the project s support, despite the fact that not all related PDO indicators were achieved. The project supported improvement to the investment climate from two key angles: 1) electronic platforms and process re-engineering to decrease the time and cost for firms to complete key transactions with the administration; and 2) capacity-building for key institutions within the GoCV responsible for the policies and strategies to increase private investment. From the first angle, firms are expected to benefit directly from a decrease in the cost of compliance with administrative tasks. For example, the processes to obtain business licenses, registrations and property registration were simplified and made more efficient. Moreover, the mkonekta electronic interface between the administration and individuals/firms has produced a meaningful shift in the level of transparency and efficiency in 84 different types of procedures. From the second angle, capacity support released constraints within the GoCV that were preventing it from formulating and administering its policies efficiently especially those that affect firms and their cost of business. Thereby, these capacity-building reforms also contribute indirectly to reducing the cost of doing business. Electronic platforms and process re-engineering 3. UCRE (State Reform Coordinating Unit) and NOSi (Operational Unit for the Information Society) were responsible for implementing the first set of activities, with the objective of increasing the transparency and efficiency of business-government interactions. The project contributed to the improvement of the investment climate in Cabo Verde as measured by the PDO indicators, intermediate results indicators, and additional relevant outcomes beyond the monitoring and evaluation plan. The first PDO indicator targeted a reduction in the time to obtain a business license from 24 days to 7; the actual time at project s end (as measured by the Doing Business in 2015 report) was 8 days, equivalent to a 70 percent reduction in time. To achieve this, the project supported the development of the electronic platform to obtain licenses at the municipal level. At the Property Registry, the project supported similar activities, as well as the digitization of property records and the automation of internal procedures, which together reduced the 30

54 cost and time to complete registration in Praia and Sal. The second PDO indicator was to reduce the cost of registering property (as a percent of property value) by 40 percent. According to the original M&E plan from the appraisal stage, the baseline was quoted as 7.7 percent of property value, while the end target was 4.6 percent. The actual cost at the end of the project was 3.7 percent thereby surpassing the target by 20 percent. However, it must be noted that the biggest drop in cost from 7.7 to 3.9 percent, as result of switching from percentage-based to fixed rate fees for property registration happened before the project became effective. That is, the Doing Business in 2011 report recorded this reform; however, this report was published in September 2010, two months before the project became effective in November Still, this reform was at least partially attributed to the project insofar as it was included in the design and continued to be supported after the GoCV made initial efforts to make this change. 4. The project also supported the reduction in time and the simplification of the process to register property, as well as the simplification of the process to obtain a business license. The time to register a transfer of property fell from a baseline of 73 days down to just 22, according to the latest Doing Business in 2015 report (published in October 2014.) The General Directorate for Registry and Notary reports that a deed of compliance is now completed within hours and that the issuance of a Public Deed takes just 48 hours. At the same time though without attributing the increase directly to the project the number of acquisitions registered is greater today than before the reform: from 2005 to 2009, the annual registrations averaged 995; from 2011 to 2014, this average jumped by 170 percent to 1,965. In fact, the electronic platform was so successful in Praia and Sal that the Millennium Challenge Account (MCA) decided to fund the roll-out of the same system across the remaining islands. Although the result of 22 days fell short of the target of 7 days, it still represents a significant reduction of 70 percent from the baseline. The process to effect transfers was also simplified; although, due to differences between the Doing Business methodology and the GoCV s internal evaluation, the indicator fell short of its target to reduce the number of steps from 6 to 3 (according to Doing Business, the number of steps remained at 6.) Similarly, the process to obtain a business license was simplified thanks to electronic records and an online platform, but for the same reasons fell short of its target to reduce the number of steps from 9 to 3 (though still decreased to 8.) 5. Finally, the project supported the DGIC with the installation of software and the operationalization of an online trade permit system (TCE online) that allows exporters and importers to conduct this procedure electronically, rather than using the previous paperbased system. This has reduced the time and cost to traders to obtain this permit, and relieved them of the obligation to travel to government offices for this purpose. From the perspective of the Government, the new system provides greater security, control and accuracy of export/import data; statistical information in real time; greater efficiency of public services; and less time spent attending to public queries by the DGIC administration. 6. The establishment of an electronic platform to facilitate business registration, business licensing, property registration and trade permits has led to a reduction in the time and cost to both firms and individuals in undertaking these activities, as well as a reduction in the administrative costs for the GoCV. The electronic platforms supported by this project 31

55 were so successful that NOSi has been able to market them both domestically and internationally, selling both the systems as well as their technical expertise to install and administer them. 7. In addition, the project supported an innovative mobile phone platform, mkonekta ( to allow individuals and businesses to interface with the government with even greater ease, as well as for public functionaries to perform their duties. The program has developed 84 different types of services so far, ranging from payments for taxes and business licenses, to tracking shipments through customs, and even making doctor s appointments, among many others. These have facilitated the decrease of the time and number of procedures required to complete both commercial and individual transactions vis-à-vis the government. Capacity-building for key institutions within the GoCV 8. The project aimed to strengthen the capacity of the agencies within the GoCV tasked with devising policies, strategies and managing the private sector, particularly SMEs, to increase its competitiveness. With such enhanced capacity it is expected that the beneficiary agencies would be enabled to formulate more efficient and business-friendly policies that would lower the cost of complying with administrative tasks for firms. To attain this, the project supported the Agency for Entrepreneurial Development and Innovation (ADEI), Directorate General of Public Heritage and Contracts (DGPCP), Cabo Verde Investments (CI), Directorate General for Tourism (DGT), Directorate for Planning (DNP), and the Ministry of Finance and Planning (MFP.) The specific support is described below, as well as a qualitative account of its expected impacts. 9. ADEI: ADEI is responsible the promotion of competitiveness and the development of MSMEs, including policies that affect them. Furthermore, its mandate includes the promotion of innovation and capacity building among entrepreneurs, as well as the improvement of the investment climate. As ADEI was established during the project s design period, once the agency began fully operating, the project was able to support several key activities to help it to fulfill its mandate. The project therefore funded a study on national entrepreneurship and a coordinator to help implement the national entrepreneur incubator system. The study on entrepreneurship was an important contribution to the GoCV s knowledge of the SME sector and will serve as a reference for its policymaking in this area. Furthermore, after the Coordinator was installed, the number of incubators increased from one to five, with a sixth incubator in progress. Among these, two are specialized in Tourism and two in Agribusiness, in line with the GoCV s goal to increase SMEs participation in the tourism value chain. The establishment of these incubators also contributes to SME capacity building and the development of the business development service market in Cabo Verde, which was missing at the appraisal stage. 10. DGIC: To further increase transparency and improve economic governance, the project financed the development by NOSi of software designed to monitor import/export operations and enable the trade permit (TCE) to be obtained online. This was a critical addition, as the previous DGIC system that monitored customs and commercial operations lacked the component to monitor the exchange operation. 32

56 11. DGPCP: Complementary to the support provided to ARAP, the WB also financed a new website for the DGPCP to better disseminate information on public procurement, thereby further increasing transparency and efficiency of the system, and allowing administrators to accurately track the number of SMEs competing for public contracts. This support was channeled through NOSi, which designed and installed the platform for DGPCP. 12. DNP: The project supported the DNP s capacity to strategize for improved economic governance. To that end, it funded TA to prepare the GPRSP III as well as a new planning and budgeting system, including the Basic Law on National Planning System. These are critical inputs to the GoCV s capacity to formulate policy. The GPRSP is the basic planning document for the GoCV s strategy to reduce poverty, stimulate growth and determine the related economic and social policies to achieve its objectives and targets. The Basic Law on Planning System legally formalizes a new system of strategic planning, and as an important step towards improved transparency and good economic governance, identifies and integrates all public entities involved in the planning and budgeting process. 13. MFP: The project supported the Ministry of Finance and Planning to conduct a valuation of the State-Owned Enterprises (SOEs), Enapor and Cabnave. These two entities had been previously targeted for privatization under the Privatization and Regulatory Capacity Building Project (PRCBP) of 2003, although it did not materialize. The inclusion of this support was made after the mid-term review, in light of its relevance to the investment climate and economic governance and the fact that the GoCV stood at a major disadvantage vis-à-vis potential investors without an accurate assessment of the value of these two SOEs. The continued operation of these SOEs would imply further losses to the GoCV, worsening its macroeconomic situation and investors perceptions. Furthermore, an eventual privatization of these port and shipyard facilities is expected to increase efficiency therein, particularly for SMEs that import and export. 14. To put these institutional reforms in context without specifically claiming attribution to this project it is worth highlighting the progression of Cabo Verde s ranks on relevant indicators from the Heritage Foundation s Index of Economic Freedom during the project period. Cabo Verde s overall score has been on a steady incline since the first year of the project in 2010 with a baseline of 61.8, rising to 66.4 in Individual indicators related to the project s activities trade freedom, property rights, investment freedom, freedom from corruption, and financial freedom also rose steadily during this period. See figure 2.1 below. 33

57 Figure 2.1: Cabo Verde improved in select Heritage Foundation indicators over the lifetime of the project overall score property rights freedom from corruption trade freedom investment freedom financial freedom Diversify target regions receiving foreign investments 15. During the design stage, this was included as part of the PDO as it was intended that the project would contribute to diversifying FDI towards the less favored islands at the time, that is, those outside of Sal and Boa Vista, and towards sectors other than tourism. The support to achieve this goal was mainly directed to Cabo Verde Investimentos (CI.) To measure this part of the objective, a fourth PDO indicator was originally included: the diversification of the points of destination of foreign investments in tourism and other sectors in Cabo Verde, as measured by a 5 percent decline in the Herfindahl index (HHI) of concentration of FDI. However, in January 2014 (one year before project close) the GoCV entered into discussions with the WB team on the replacement of this indicator with the following output measure: creation of an electronic one-stop shop for international investments. 27 This indicator was achieved. The former indicator on HHI persisted in all official documentation (the second restructuring agreement, subsequent ISRs) until January 2015, when the new indicator was entered in the last ISR. By this new indicator, the project indeed achieved or nearly achieved all 3 PDO indicators. It is expected that the support to create the electronic one-stop shop for international investments at CI has contributed to its capacity to attract FDI, handle investor queries, host visits and eventually convert expressions of interest into actual commitments and investments in the country The M&E specialist s report that documents this discussion on the change of the PDO indicator is found in Annex While CI expects that its conversion rate from queries to visits to commitments will improve with the capacity building provided by this project, they do not yet have the data to demonstrate such an 34

58 Project inputs to CI and the DGT led to increased capacity to diversify the target regions receiving foreign investments, as described in Table 2.2 and below: 16. CI: Cabo Verde Investments is the national investment promotion agency. It is responsible for promotion, marketing and investor handling for the country. The purpose of the project s support to CI was to help CI fulfill the GoCV s goal of diversifying the sectors and geography of incoming FDI, and improve CI s capacity to realize its mandate. The PDO indicator associated with measuring these expected results was originally Diversify the points of destination of foreign investments in tourism and other sectors in Cabo Verde, as measured by a 5 percent decline in the Herfindahl index (HHI) of concentration of FDI, though this was later scrapped during the project s lifetime as an inadequate and non-attributable indicator for the project. As mentioned above, it was later replaced with the output indicator create an electronic one-stop shop for international investments. The project continued to support CI to improve its investment promotion capacity through the following activities: the establishment of a one-stop shop (OSS) for investments; the launch of a new website, including on-line marketing; and a marketing plan to attract investment in the garment and shoe industries. The activities were completed through various technical assistance, goods and services. The OSS benefited from a new regulatory framework and the design of its digital platform. Furthermore, hardware, software, furniture and an improved workspace were financed, in addition to manuals and training for the staff. Technical assistance and IT support allowed the launch of the new website and online marketing tools, as well as the specific marketing plan to attract investment in the garment and shoe industries geared towards Portuguese investors. 17. Thanks to this support, the performance of CI in terms of investor handling has improved from a baseline of six to nine months, as measured in 2011 by the World Bank Global Investment Promotion Benchmarking report, down to 60 to 75 days today. Furthermore, the specific support to the OSS and online platform has allowed CI to respond immediately to investor queries, thereby improving its ability to attract and manage FDI. 18. Anecdotally, and without claiming any correlation to the project, the trend of FDI inflows to Cabo Verde should be noted: in fact, Cabo Verde has suffered a decline in FDI since 2008, when net inflows reached 12 percent of GDP. It decreased sharply in 2009 to 2010 to 7 percent, to 5 percent in 2011, 4 percent in 2012, and a mere 2 percent in The trend is not surprising, given the exposure Cabo Verde had to the financial and economic crisis through its principally European investors and tourists. Official data for 2014 is not available, although, in terms of attempting to diversify its incoming FDI geographically and sectorally, CI reports that four investors expressed interest in manufacturing projects, although only two of these have been realized so far, and both are Cabo Verdean in origin. In 2015, nine manufacturing projects have been approved to take place in Fogo, Sal and Santiago islands amounting to a total value of 6.5 million euros. improvement. However with the implementation of the one-stop shop for investments, they expect to be able to electronically track this data from now on. 35

59 19. DGT: The project supported the DGT to increase its capacity to strategize and manage the tourism sector with greater efficiency and transparency. The project financed the following activities to this end: a survey of the tourism resources available in Santiago Island; training on sustainable tourism development; as well as office equipment and a vehicle for these surveys to be used by the DGT. In order to support the development of a new structure within the GoCV to manage the tourism sector, the project funded the DGT s participation in a study tour to the Seychelles. As a result of these activities, the DGT s capacity was improved and allowed the recently established Ministry of Tourism, Investment and Business Development (MTIE) to design a new National Tourism Institute within the GoCV. 20. Similarly, anecdotal evidence points to improving investor perceptions of Cabo Verde (as well as many other factors beyond the scope of this project). Two major foreign direct investments have been recently announced: the Canary Islands Government intends to invest 110m EUR in Cabo Verde, while a new resort, Perola Negra, will be opened in the island of Sao Vicente and is expected to create 1,380 jobs. Despite the positive signals brought about by these impending investments, it is not possible to identify the project s contribution to them nor measure their effect on the HHI. Enhance opportunity of small and medium enterprises to access public procurement 21. The matching grants 29 program aimed to address the internal constraints preventing Caboverdean SMEs 30 from being competitive, particularly their lack of technical skills and access to finance, while the support to ARAP (described above) aimed to address the external constraints to SMEs access to public procurement. To this effect, the firm-level targets set in the intermediate results indicators were exceeded. Matching grants amounting to US$ 700,845 were provided to 136 SMEs, of which 25 were led by women, surpassing the targets of 100 firms with 20 percent led by women. Matching grants were provided across all eligible sectors (as per IDA rules) and in nine inhabited islands. Twenty-six percent of beneficiaries were located outside of the main urban centers of Praia (Santiago Island) and Mindelo (Sao Vicente Island); in the first year of the program, 2012, 36 percent of the universe of Caboverdean firms were found outside of these two islands. 31 Finally, the target of the PDO indicator to increase the number of SMEs that compete for contracts in the public procurement system was far surpassed (444 over the lifetime of the project, compared to the target of 30.) 22. ARAP: In Cabo Verde, the State is one of the largest domestic procurers of goods and services. The substantial support provided to improve public procurement was included in this project as it was expected that improving SMEs access to this market would allow them the opportunity to expand their business, derive steady income from 29 The MG activity was managed by the two Chambers of Commerce of Barlavento (Northern islands) and Sotovento (Southern islands.) 31 National Institute of Statistics (INE.) Annual Survey of Firms

60 longer-term contracts, and improve their chances of access to finance. On the one hand, this support was on the supply side that is, legal, regulatory and institutional support to ARAP and the UGAs, responsible for public procurement within the GoCV. On the other hand, this support was directed to improving SMEs demand to access public procurement contracts by providing specific training on procurement through ARAP, as well as by improving their overall competitiveness through the MG program. 23. Specifically, ARAP is the agency responsible for making and administering national policies on procurement. It regulates, supervises and resolves and conflicts related to public procurement on behalf of the GoCV. Importantly, each independent agency of the GoCV is responsible for conducting its own procurement, according to the regulations set by ARAP. In order to fulfill the project s objective of enhancing opportunities of SMEs to access public procurement, the third PDO indicator was to increase the number of SMEs that compete for contracts through the public procurement process from 15 to 80, over the lifetime of the project. While this target was later revised downward to 30, the intent to encourage more SMEs to participate in public procurement remained. This target was far surpassed: by the end of the project, 444 SMEs had competed for contracts through the public procurement process. Additional SMEs were trained in public procurement in order to improve their ability to compete for contracts. 24. Moreover, a monumental shift in the GoCV s relationship vis-à-vis SMEs has occurred in the area of public procurement, largely thanks to this project. The surpassing of the PDO target is one indication, though additional structural reforms have taken place that will continue to encourage SMEs to compete for public contracts and track their participation making this shift sustainable. The project made public procurement more transparent and efficient by strengthening the legal and institutional framework, training staff and purchasing goods and services. The project supported the modernization of the national procurement system, addressing remaining issues in the legal and institutional framework with a view to fostering competition, avoiding conflict of interest and improving internal controls of procurement transactions handled by the contracting authorities. 25. The project also helped ARAP to become fully operational, as well as the procurement services (UGAs and UGAC) of contracting authorities. These UGAs are the responsible teams in each ministry for procurement. They now enjoy an online procurement platform that allows them to track and therefore encourage SMEs participation. To achieve this goal, the project supported the institutional strengthening of ARAP, including a Strategic and Operational Plan that would install a new organizational design, define objectives in the management process, adopt performance indicators and a M&E system, and install new technology to manage and track the processes. Secondly, the project financed the introduction of ISO 9001into the procurement system in order to promote improved quality of the management system, introduce internal audits, and other quality controls to conform to the ISO 9001 norms. The project also financed hardware, software and furniture to equip the central service and the UGAs; audits of systems and processes; and an extensive revision and modification of the legal and regulatory framework for public procurement. 37

61 26. In terms of the regulatory framework, the project supported: (i) an update of the existing procurement law and regulations, as well as new implementing regulations to promote efficiency and eliminate provisions that result in reduced competition or a lack of transparency. Specifically, the project addressed: (i) the numerous sole source provisions that allowed an abusive use of this method of selection; (ii) the restrictive mandatory certification provisions for international bidders; (iii) the restrictive eligibility practices for national competitive bidding that limited participation among local bidders; (iv) practices that led to conflicts of interest at the level of procurement regulatory authority (ARAP); (v) clarification of ARAP s certification role in relation to UGA; (vi) the need for private sector representation ARAP s board of directors, and (vii) the absence of the implementing rules and regulations for handling complaints from bidders. The project also supported the establishment of a Procurement directorate, under DGPCP, at the level of the Ministry of Finance, in order to ensure effective internal controls of procurement transactions handled by the UGAs and UGAC (under the DGPOG of the Ministry of Finance). 27. Capacity was strengthened through the implementation of the national procurement capacity building program. This included civil service staff responsible for the operation of the procurement system, firms (especially SMEs), suppliers and contractors participating in bidding. The capacity building program ensured that training was extended not only to larger firms but in particular to SMEs that were less knowledgeable about public procurement procedures but were interested in bidding for public contracts. 28. DGPCP: Complementary to the support provided to ARAP, the WB also financed a new website for the DGPCP to better disseminate information on public procurement, thereby further increasing transparency and efficiency of the system, and allowing administrators to accurately track the number of SMEs competing for public contracts. This support was channeled through NOSi, which designed and installed the platform for DGPCP. Table 2.3: Summary data on the FCC beneficiary firms Type of company FCC Year Round Number of Cofinanced projects MSME SME Group of MSMEs Business association Total beneficiaries in this round Total Percentage of total 100% 15% 66% 11% 7% 100% 18% Female beneficiaries in this round 29. Matching grants program (FCC): In order to achieve the beneficiaries objectives as laid out in their applications, the grants were put towards technical assistance that included training to introduce new technology, diversify products, improve their management, marketing, business plans and train their employees. During the program s 38

62 implementation from 2012 to January , the beneficiaries raised their average oneyear growth in sales revenue by 43 percent over and above a comparable group of Caboverdean SMEs, compared to the target of 7.5 percent. Even though they were not part of the project s indicators, the team and PCU requested that INE collect additional data on the beneficiaries and their comparable counterparts in the economy (See Annex 7b for the entire report and its methodology.) For example, a survey found that 56 percent of Caboverdean SMEs were aware of the matching grants program, pointing to the relative success of the outreach efforts by the Chambers of Commerce (also funded by the project.) Of these, it was found that the most effective means of outreach were, in order: workshops organized by the Chambers of Commerce; radio; television, internet, and lastly newspapers. 33 The data further demonstrated that among the beneficiary firms, 32 percent launched firm-level new products, compared to 13 percent of non-beneficiaries during the same period; 57 percent undertook training for their employees, compared to 26 percent of non-beneficiaries; and 68 percent adopted new technology, compared to 27 percent of nonbeneficiaries. A difference-in-difference analysis is conducted in Table 2.4 below, using this data. To put these results in context, 61.5 percent of a representative sample of Caboverdean entrepreneurs report that they have no technological innovation to offer their clients. This compares favorably to much higher proportions of similar samples of entrepreneurs in the Caribbean that report the same lack of innovation: 67.8 percent in Barbados; 75.5 in Jamaica; 76.5 in Suriname; and 82.8 in Trinidad & Tobago These results were measured during the effective implementation period of Component 1b. These were confirmed through self-reporting, with verification by INE. 31. Further to the indicators tracked by the project, supplementary data collected by INE demonstrate the extensive results associated with this project and the beneficiary SMEs compared to a similar group of non-beneficiary firms in Cabo Verde. These are summarized in Table 2.4 below. 32 The duration of the matching grants program was from 2012 to January However, the data presented here is only through the year 2013 because INE collects data from tax records, which are only reported by May 31 of the subsequent year. Hence at the time of writing this ICR, such data is not available for the year National Institute of Statistics (INE.) Study n.º 2 on the Impact of the Fund for Growth and Competitiveness (FCC.) 34 ADEI. Elaboração de um inquerito às pequenas e médias empresas relativo às atitudes sobre o empreendedorismo. [Entrepreneurship study final draft report, funded by the Project.]

63 Table 2.4: Indicative difference-in-difference analysis of FCC impact on beneficiary firms 35 Supplementary indicator Non-beneficiary result in 2012 Beneficiary result in 2012 Non-beneficiary result in 2013 Beneficiary result in 2013 Assumed treatment effect of the FCC (difference-indifference) Average annual growth of turnover compared to previous year (%) Firms that Launched a new advertising campaign for their products (%) Introduced a new product (%) Invested in employee training (%) Participated in a domestic trade fair in the last 3 years (%) Participated in a trade fair abroad in the last 3 years (%) Improved their production technology in the last 3 years Contracted local consultancy services in the last 3 years At the firm level, the results seen here, in terms of increased turnover, use of improved technology and improved production processes, among others, indicate an increased level of competitiveness among the beneficiary firms, compared to a similar sample of domestic firms. At the economy level, improved competitiveness among firms is expected to lead to sustained long-term growth. 35 These values are noted as indicative because INE did not provide firm-level data, but only the aggregate values for each group of beneficiaries and non-beneficiaries. Therefore it is not possible to calculate the standard deviation and hence the statistical significance of the difference-in-difference results. 40

64 33. These impacts are generally positive. While comparison with the trends among non-beneficiary firms in Cabo Verde point to a potential causal relationship between the project s intervention and the reported impacts, since the project did not include a rigorous impact evaluation, it is impossible to determine any stronger attribution than what is presented here using an indicative difference-in-difference analysis. However, it is notable that these results are broadly in line with those seen in 36 rigorous studies on similar matching programs across 18 countries (14 in Latin America, 4 in Sub-Saharan Africa). A meta-analysis of the data from these studies found that matching grants programs tend to lead to positive effects on firm performance, employment and investment In terms of social impact, the program also benefited Cabo Verde s rural firms on the more remote islands outside of Sao Vicente and Santiago, counting 26 percent of beneficiaries on such islands. Together these firms in more remote islands comprised 36 percent of the population of all firms in the first year of the matching grants program, However, the Chambers of Commerce particularly Barlavento made a concerted effort to include them in this program as they tend to suffer disproportionally from poverty and unemployment. 35. In terms of gender, 26 of the beneficiary firms were led by women, exceeding the project s target of 20 firms. According to the Enterprise Surveys of 2009, during the design phase of this project only 16.7 percent of Caboverdean firms had a female top manager. In this light, the target of 20 and the attainment of 26 female-led beneficiaries (18 percent of the 136 total) are notable. However, the same data showed that 33.1 percent of firms had full or partial female ownership; similarly, data published by INE for 2013 showed that the average rate of women-led firms across the country was 34 percent. Compared to these INE data, the target and result for gender inclusion may appear modest. 36. While the aggregate statistics give the broad-stroke picture of the impact of the FCC, it is also useful to delve into the details to understand how the project affected individual firms. Several illustrative stories follow, based on data and interviews with selected beneficiaries during the ICR mission in February Puragua. Founded in 2003, Puragua is a bottled-water processor located on the island of Sao Vicente, managed by Mr. Mario Mariano. 37 Puragua is rather unique in the Cabo Verde, as the market for bottled water has been dominated by Portuguese brands. Yet thanks to the FCC, Puragua has become more competitive. With FCC-funded assistance, Puragua received its ISO certification as well as training on good food safety practices, from the bottling phase to delivery to the consumer. With this certification, it has been able to expand its business and as a result, hired two additional employees. 36 Caio Piza, Lauro Gonzalez, Linnet Taylor, Tulio Antonio Cravo, Samer Abdelnour, Isabel Musse, Isabela Furtado, Ana Cristina Sierra. The Impact of Business Support Services for Small and Medium Enterprises on Firm Performance in Low- and Middle-Income Countries: A Systematic Review. Campbell Systematic Reviews 20xx:x. DOI: /csr.200x.x. As of May 29, 2015, this paper is still in draft. 37 For more information, see this related article on Puragua: 41

65 38. Clinica Medicentro. Medicentro is a private medical clinic, also in Mindelo, Sao Vicente. It was founded by Andres Fidalgo, a doctor from Cuba. 38 Medicentro was a client of both the first FCC program, as well as the second program funded by this project. The first FCC funded Dr. Fidalgo s feasibility study for the clinic, without which he would not have been able to obtain a bank loan. The second FCC supported the usage of new medical software in the clinic. As a result of this support, the quality of Medicentro s services improved. In part thanks to this improvement, and also as a result of the clinic s expanding business, they have grown from a staff of seven doctors and one nurse, to 23 doctors and nine nurses today. 39. Fabrica de Gabioes SPGR. SPGR, managed by Ana Cristina Pereira Silva and her husband, is a producer of wire-mesh gabions that prevent erosion and rockslides along the roads in Cabo Verde. These products also serve to encase rocks to make durable and environmentally-friendly walls. Ana Cristina took advantage of FCC support to obtain training for her staff in new production techniques. Similar to the case of Puragua, the market for gabions has been dominated by Portuguese and other international firms that enjoy higher levels of technology and automatic production, while SPGR makes their products by hand. FCC support has therefore been vital in increasing the competitiveness of SPGR. Lack of attribution of two intermediate outcome indicators 40. Two intermediate outcome indicators were included in the M&E framework that, in retrospect, and perhaps at the design stage, cannot be reasonably attributed to the project due to the many factors affecting them that were outside the scope of influence of the project and even the GoCV. These indicators are: Indirect project beneficiaries (people gainfully employed) and indirect project beneficiaries (number) of which female (% of labor force.) While the first indicator failed to reach the target (185,486 employed people compared to the target 196,000), the second one surpassed it (45.8 percent compared to the target 45 percent.) Neither of these results can be plausibly credited to the project, however. Their inclusion in the M&E framework is a point of discussion in Section 2.3 in the main text. 38 For more information, see this related article on Medicentro: 42

66 Annex 3. Economic and Financial Analysis 1. The project appraisal document included a quantitative analysis for the matching grant subcomponent 1.b, estimating a NPV of US$1.9 million and an ERR of 43 percent. The remaining activities focused on regulatory and institutional reforms were justified based on the expected effects as found in the literature, as well as cost-effectiveness. For Component 1.a, business environment reform support, a qualitative analysis was conducted, based on a review of the literature related to business environment reforms in general as well as the specific ones related to business entry, property registration and the insolvency framework. The support for these three types of reforms were expected to, respectively: yield increased firm registrations and higher productivity among existing firms; facilitate the use of land as collateral; and improve debt collection and therefore ease lending. The economic analysis refrained from any formal ex-ante evaluation of the institutional reforms in the absence of any accepted methodology for the same. 2. For Component 1.a, indeed, the average annual number of new business registrations during the project s lifetime was 43 percent higher than in the years prior. 39 However, in the absence of any rigorous impact evaluation, it is not possible to directly attribute this increase to the eased business entry procedures supported by the project. Rather, market dynamics are more likely to have affected the increase, among other factors. Still, it is possible to calculate the direct cost compliance savings for the firms that registered and benefitted from the decreased time to obtain a license. Measured as such, from 2011 to 2014, firms that registered and applied for a license saved a total of US$ 427,706, based on the average national wage (US$ 6.87/day) 40, the number of firm registrations per year, and the days required to obtain a license (from a baseline of 24, decreasing to 11 days in 2011, to 8 days from 2012 onwards.) If the time to register remains steady at 8 days, and the trend of registrations remains the same, then it can be expected that the annual savings to firms will continue to average US$108,601. Five years post-completion, firms will have potentially saved US$ 543,005, in addition to the US$ 427,706 that has already been saved (US$ 820,711.) As a net present value, subject to a discount rate of 12 percent, this savings is US$ 376,793. See Table 2 below. This savings compares favorably to the US$ 150,000 of project funds dedicated to technical assistance to improve the efficiency of these licenses. Table 2: Cost savings to firms from decreased time to obtain a license Year Registrations Days to get a license Daily wage Cost to the firms that registered Cost savings $76,175 $ $128,936 $ $149,876 $0 39 Data sourced from the Casa do Cidadão. Annual average business registrations from was 718 firms, while from it was 1,026, although note that these time periods differ for lack of additional data. 40 Cabo Verde instituted its first minimum wage in January 2014 at 11,000 escudos per month. Dividing this by 20 working days and using the exchange rate at the time, the daily wage was US$ 6.87 per day. Source: 44

67 $86,225 $101, $51,882 $103, $55,070 $110, $55,949 $111,899 Total US$ cost savings for these firms $427,706 (Average annual cost savings once time reached 8 days $108,601) Expected savings for 5 years post-completion $543,005 Project financing to support licenses reforms -$150,000 Total net cost compliance savings during the project + 5 years post-completion $820,711 Total net present value of cost compliance savings (discount rate 12%) $376,793 Data on registrations sourced from the Casa do Cidadão 3. Secondly, while the number of registered property acquisitions increased by 66 percent during the project compared to the years prior, this was likely influenced by other factors in addition to project support to ease the process. Finally, as the envisaged support to the insolvency framework was not fully realized (only the digital platform to register business closings), and data was not collected on improved debt collection nor increased lending, it is not possible to determine the economic impact of this particular support. 4. The ex-post analysis of the results of subcomponent 1.b demonstrate a number of positive effects of the matching grants program on its 136 beneficiaries, the most quantifiable being their increase in turnover. While turnover numbers were only available for a sample of 39 of the beneficiaries for the years , if the trend of growth is assumed to be the same for the entire group of beneficiaries, they increased their average turnover by 60 percent in 2012 (over the baseline of 2011) and by 18 percent the following year. Data on turnover from the third and final round of the FCC in 2014 was not available at the time of writing this ICR. In total, the 68 beneficiaries of the first two rounds of the FCC can be assumed to have generated a total of US$ 63 million in turnover from Efficiency is also measured by operating costs as a proportion of total disbursements. This is measured at the project level as well as at the subcomponent level in terms of the matching grants program. For the entire project, US$ 679,011 was spent on Component 3, supporting project implementation. This is 32 percent of the total amount disbursed from the project (US$ 2,107,668.) For (imperfect) comparison, the previous Growth & Competitiveness Project in Cabo Verde 41 Data is sourced from INE on the sample of 39 firms. If it is assumed that the average annual turnover is consistent across the entire group of 136 beneficiaries, then the first round of 38 firms generated US$ 27m, while the second round of 30 firms generated US$26m. Data for the third round is not available at the time of writing this ICR. 45

68 (P074055, US$ 12.45m) spent 18.2 percent on project implementation; the St. Lucia OECS Skills for Inclusive Growth Project spent 35 percent of the total project cost on implementation (P097141, US$ 5.52m 42 ); in the Maldives, the Mobile Phone Banking Project (P107981, US$ 5.86m) dedicated 26 percent to project implementation; while the Timor L Este Second Small Enterprise Development Project (P072654, US$ 7.4m) provided 24 percent of its financing for project implementation support. 43 It should be noted that each of these projects were larger than this project in Cabo Verde. 6. For the matching grants program, the cost of management (US$ 299,155) was 29.9 percent of the total disbursed for that subcomponent, US$ 1,000,000. This compares favorably to similar programs around the world: Argentina, 36 percent; Indonesia, 47 percent; Kenya, 57 percent; and Mauritius, 19 percent. 7. While the project did not include an ex-ante economic analysis, based on a literature review, it was expected to yield a positive ERR. An ex-post analysis confirmed this expectation, based on the results of Components 1 and 2 only, in the absence of generally accepted methods to quantify the effects of the types of regulatory and institutional reforms supported by Component 4. A partial NPV is calculated for the job creation results of the beneficiaries of Component 2 only, as a proxy for the overall effects of the program: US$ 4.6 million. 8. Regulatory and institutional support is justified based on cost-effectiveness. Although a formal quantitative analysis was not done at appraisal and is not possible now, due to the capacitybuilding nature of most activities, it is possible to compare the level of investment in each activity with the positive results attained. In all cases, investments coincided with increased participation of firms in the formal sector whether as first-time registrants of their business or property, candidates for public procurement contracts, or beneficiaries of more efficient trade logistics procedures. These outcomes are also expected to lead to indirect economic impacts, such as job creation, increased productivity of firms, and improved competitiveness. These are described in detail in Table 3.1 below. 42 Note that in St. Lucia, US$ 3.69 was disbursed from IDA, although additional financing from the GoStL and the private sector raised the total funds of the project to US$ 5.52m. 43 This data is gathered from the ICR of each respective project. Project implementation support refers in each case to the total amount dedicated to the project implementation unit, or otherwise referred to as the project coordination unit. 46

69 Table 3.1: Support to regulatory and institutional frameworks: inputs, direct and indirect outcomes Beneficiary agency Project inputs Direct outcomes Indirect outcomes Part 1 of PDO: Reduce the cost of doing business NOSi/Casa do Cidadão NOSi/SIRP -Software for electronic platform for firms to obtain registration and licenses from the Casa do Cidadão. Licenses include: retail, wholesale, industrial, construction, real estate and touristic. -Digitization of the property registries of Sal and Praia -Software of the new electronic transaction system Time to obtain a license reduced to 8 days 42 licenses issued from % increase in business registrations Cost reduced by 52% Steps reduced by 0% Days reduced by 70% 170% increase in the average annual number of registered property acquisitions in Praia, post-reform 45 New firm registrations lead to a broadened tax base and are associated with increased productivity and job creation Registration of property titles increases access to finance as these can be used as collateral NOSi/DGIC NOSi/mkonekta -Software to monitor imports and exports -Enabling of online trade permit (TCE titulo de comercio externo) -Software to permit the use of mobile phones to conduct individual and firm-level transactions vis-à-vis the GoCV 53% increase of usage of online TCE 45% decrease in usage of paper TCE different services have been established for the mkonekta mobile platform. Lower time to trade is associated with higher volumes of trade, especially export of timesensitive goods (such as agricultural products) Fewer interactions between the private sector and Government administration decreases opportunities for 44 Data is sourced from the Casa do Cidadão, Praia. 45 Between 2005 and 2009, the average annual number of registered acquisitions in Praia was 995. From 2011 to 2014, the same was 1,695, representing an increase of 170 percent. Note that it is not possible to demonstrate attribution to project support, as market forces have likely influenced this increase, among other factors. Data is sourced from the property registry of Praia. 46 In 2011, 12,526 TCEs were filed online, while in 2014 this number rose to 19,177, representing an increase of 53%. Simultaneously, the number of TCEs filed on paper declined, from 13,519 in 2011 to 7,390 in 2014, representing a decrease of 45%. Data is sourced from the Directorate of Industry and Commerce (DGIC) within the Ministry of Tourism, Investment and Business Development (MTIE.) 47

70 ADEI DNP MFP CI DGT -Study on national entrepreneurship -Coordinator of the national entrepreneur incubator system -TA to prepare the GPRSP III, including the Basic Law on National Planning System -Evaluation of the SOEs, Enapor and Cabnave Reference for policies on the SME sector Establishment of 5 incubators with a 6 th in process Improved capacity of the DNP to formulate policy to reduce poverty and stimulate growth, including through private sector development Increased efficiency at the port and shipyard to be privatized, especially for SMEs that import and export corruption, increases transparency Increased churning and therefore competitiveness of the SME population 47 Poverty reduction, private sector development and growth Lower time to trade is associated with higher volumes of trade, especially export of timesensitive goods (such as agricultural products) Part 2 of PDO: Diversify the target regions receiving foreign investments -Establishment of a one-stop Reduction of time to Increase in FDI 48 shop (OSS) for investments handle investor -New website, including online interests from 6 to 9 marketing months (baseline in -Marketing plan to attract 2011) down to 60- investment in the garment 75 days today and shoe industries -Survey of the tourism resources available in Santiago Island -Training on sustainable tourism development -Office equipment and a vehicle for these surveys to be used by the DGT -Study tour to the Seychelles Increased capacity to formulate strategy for the tourism sector, including diversification of investments beyond Sal and Boa Vista Part 3 of PDO: Enhance opportunities of SMEs to access public procurement (regulatory and institutional support) Tourism strategy is expected to feed into investment promotion strategy, thereby increasing the potential for FDI into this sector 47 Nicola Dee, David Gill, Robert Lacher, Finbarr Livesey and Tim Minshall. A review of research on the role and effectiveness of business incubation for high-growth start-ups. No: 2012/01, January Institute for Manufacturing, University of Cambridge, UK. Found on: 48 Morisset, Jacques. World Bank Policy Research Working Paper Does a country need a promotion agency to attract foreign direct investment? A small analytical model applied to 58 countries. See: ndered/pdf/multi0page.pdf 48

71 NOSi/DGPCP ARAP -Website to disseminate information on public procurement and track the number of SMEs competing for public contracts -Strategic and Operational Plan, audit of processes -Electronic platform to manage and track procurement processes -Introduction of ISO 9001 into the procurement system -Hardware, software and furniture for the central service and the UGAs -Revision and modification of the legal and regulatory framework for public procurement 444 SMEs competed for contracts through the public procurement process by the end of the project SMEs that win such contracts expand their business and then may create jobs 9. It should be noted, however, that the relationship between inputs, direct and indirect outcomes is not linear market forces, rather than streamlined procedures, are more likely to have determined the demand for licenses and registrations, for example. An improved business environment is a key contributing factor to such increased economic activity, though not the only determinant. 10. The direct support to firms provided through Component 1.b, the FCC matching grants program, is also justified based on cost-effectiveness. As with the other components, a full quantitative analysis is not possible now, due to data constraints as well as the positive externalities generated by training and technical assistance to firms. However, it is possible to partially report on the effects of the intervention, using increased turnover as a proxy. The 68 project beneficiaries in rounds 1 and 2 of the FCC generated US$ 63 million in turnover in the years 2012 and The matching grants mechanism ensured that participating firms were committed to the improvements supported by the project and made efficient use of the training and equipment. However, it should be emphasized that the economic benefits of the matching grants program goes far beyond the increased turnover generated. The program supported a high-level of competitiveness among the beneficiary firms, as marked by their greater likelihood to launch new products and participate in trade fairs. Competitiveness is also related to overall sustainable growth of the economy. Likewise, investment in training is associated with higher firm-level productivity. As these outcomes are intertwined (e.g., innovation is associated with higher productivity, sales and job creation), the change in turnover of the beneficiaries compared to the non-beneficiaries stands as a proxy for the overall effect of the program. 49

72 Table 3.2: Support to firms: inputs, direct and indirect outcomes Part 3 of PDO: Enhance opportunities of SMEs to access public procurement (firm-level support through the FCC matching grants) Input Direct outcome of beneficiaries compared to non-beneficiaries Indirect outcome Matching grants to finance training, technical assistance, international certifications, management and financial skills over the period % greater average annual growth of turnover 3% more launched a new advertising campaign for their products 4% more introduced a new product 5% more invested in employee training 2% more participated in a domestic trade fair in the last 3 years 19% more participated in a trade fair abroad in the last 3 years (%) 19% less improved their production technology in the last 3 years 3% more contracted local consultancy services in the last 3 years Greater revenue is expected to lead to job creation Advertising is expected to lead to increased sales Introduction of new product is associated with higher productivity Investment in training is associated with higher productivity Advertising is expected to lead to increased sales Advertising abroad could lead to greater exports Improved standards of products increase their competitiveness and potential to trade and export Investment in business skills is associated with higher productivity 11. Lastly, it is important to note that the matching grants component achieved these impacts with good value for money, as is evident when comparing the management costs of the program with similar programs in Argentina, Indonesia, Kenya and Mauritius. This program had the second lowest operating costs as portion of matching grants funds, while the cost per business plan was lower than the average among these programs (US$ 3,052 compared to US$3,157.) See Table 3.3 below. 49 Calculated as a difference-in-difference effect, as presented above in Table

73 Table 3.3: Component 2 cost-effectiveness comparison Argentina Indonesia Kenya Mauritius Cabo Verde Type of matching grant program Export promotion Export promotion Export promotion Competitiveness Competitiveness (FCC) Operating Costs /Matching Grant (%) Operating Costs/ # plans US$ 51 6,047 3,518 1,326 1,842 3, The operating costs are calculated as a proportion of the total grant monies from. 51 The cost per plan includes only the 98 successful plans in Cabo Verde. 51

74 Annex 4. Bank Lending and Implementation Support/Supervision Processes (a) Task Team members Names Title Unit Responsibility/ Specialty Lending Alvaro Gonzalez Lead Private Sector Development Specialist GTCDR First TTL Kofi Boateng-Agyen Senior Private Sector Development Specialist GTCDR Second TTL I. Chacon (no longer Team member at WB) Dorothy N. Judkins Program Assistant (no longer Team member at WB) Andrea Vasquez-Sanchez Senior Program Assistant GFMDR Administrative Jacqueline Beatriz Veloz Lockward Program Assistant LEGLE Team member Rekha Reddy Senior Economist GFMDR Team member Herminia Martinez Consultant AFCF2 Team member Sidy Diop Senior Procurement Specialist GGODR Procurement Eric Jean Yoboue (no longer Team member at WB) Thomas Jeffrey Ramin Senior Operations Officer DFGPE Team member Ronnie Hammad Senior Operations Officer GPSOS Team member Osval Rocha Andrade Romao Financial Management Specialist (no longer Team member at WB) Fily Sissoko Practice Manager GGODR Procurement Nathalie S. Munzberg Senior Counsel LEGEN Team member D. Junqueria (no longer Team member at WB) Wolfgang M. T. Chadab (no longer Team member at WB) Supervision/ICR Alvaro Gonzalez Lead Private Sector Development Specialist GTCDR First TTL Kofi Boateng-Agyen Senior Private Sector Development Specialist GTCDR Second TTL Africa Eshogba Olojoba Lead Environmental Specialist GENDR Safeguards Cheikh A. T. Sagna Senior Social Development Specialist GSURR Safeguards Sidy Diop Senior Procurement Specialist GGODR Procurement Warren Waters Consultant GSURR Safeguards Jacqueline Beatriz Veloz Lockward Program Assistant LEGLE Team member Rekha Reddy Senior Economist GFMDR Team member Herminia Martinez Consultant AFCF2 Team member Nathalie S. Munzberg Senior Counsel LEGEN Team member Penelope Demetra Fidas Senior Private Sector Development Specialist GTCDR ICR author 52

75 (b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage of Project Cycle US$ (including travel and No. of staff weeks consultant costs) Lending FY10 FY15 US$ 691,812 Total: US$ 691,812 Supervision/ICR US$ 20,000 Total: US$ 711,812 Annex 5a. Summary of Borrower's ICR Assessing the Design PDO: Considering the macroeconomic and sector context, the past Government and Bank s collaborative efforts to develop the private sector as surveyed above and the policies reforms outlined in the PRSP II of , the overall original PDO can be considered consistent with the country necessity to improve the business climate environment and economic governance. Project Components The design of the components revealed appropriated, and subsequent changes motivated by the Amendment to the Financing Agreement of June of 2012 and of May of 2014, did not altered the design, despite changes in activities adopted. All the new activities were easily consistent with original objectives and components stated in the PAD. M&E The original M&E framework and key project indicators are related to the PDO at the time of the PAD. However it must be noted that: (i) (ii) The Herfindahal Index (HHI) proposed for result monitoring in PAD to measure the diversification index of FDI. This indicator was adopted in the Project Logic Framework in line with tourism regional planning activities planned but successively restructured and not completed. The rational was that, as the tourism is the most targeted sector for FDI, the regional planning would contribute to attract investments outside the main tourism destination of Sal and Boa Vista. This indicator was eliminated during the implementation and was not replaced. The baseline of 15 SMEs (Intermediate Outcome) competing for contracts through public procurement has no realistic basis, as demonstrated further ahead by the Outcome Assessment. In fact this number is vastly understated and no criterion was presented for its adoption. The Procurement Website, through which data on SME s competing for public procurement were supposed to be collected, was not developed by the Government at the early stage of the Project 53

76 implementation as was expected. The website was completed only by the end of the Project. The PCU acted to remedy the situation hiring a consultant to manually collect, compile and produce statistics on the SMEs competing for contracts. The data collected under this procedure, which may not be as reliable as the ones that could be obtained through an electronic system, are considered appropriate and adopted in the M&E to measure the outcome. (iii) (iv) The indicator adopted to measure the outcome of the DGT activities, percent of regional tourism plans prepared, was adequate originally. But, the lack of definitively approved restructured activities for DGT interfered to impede a timely adoption of a consistent indicator. The critical activity to design the instrument to measure the outcomes of the MGF was not undertaken. The consultant, contracted by the Bank to do so, realized that the firm s methodology was not adequate to Cape Verde and MGF circumstances, and therefore requested the termination of the contract. The difficulties arising from the procurement rules, heavily conditioning the contracting of a government entity to perform remunerated work for Bank funded projects, made it difficult to negotiate and finally to agree with the INE, the Government statistic agency, to make surveys that would provide data adequate to the measurement of indicators for MGF. The data collected compiled and analyzed in 2014, by INE contracted by the PCU, adjusted to all the intermediate outcome adopted and provided non designed indicators, such as innovations and products diversification that proved to be very adequate to support qualitative assessment of the MGF outcomes. Changes during Implementation Project Development Objectives: The PDO was not formally revised in the course of the implementation. However, the introduction of a single activity after the MTR, the Evaluation of the SE s Enapor and Cabnave, both entities targeted for privatization under the Privatization and Regulatory Capacity Building Project (PRCBP) of 2003, which did not happen, may suggest otherwise. In fact the introduction, which was made in view of a new divesture program planned after the MTR and to be implemented in short term, may suggest a revision of the PDO at first sight, since both SE s are not SME s, and divesture s activities were not foreseen in the Design, neither as activities to improve investment climate or to support reforms in the economic governance. The linkages with the core design and PDO of such introduction is not immediately identifiable. However, a closer look clearly indicates that the new activity could and should support both the investment climate and economic governance since the impact of the SE s money losing in the macroeconomic situation, through the worsening of fiscal conditions, is highly counterproductive. The negative macroeconomic environment, which has been deteriorating in the last five years, highly recommends the end of funneling public financial resources to SE s money losing. 54

77 Additionally it is reasonable to expect that the privatization of ports and the shipyard, bringing more efficiency and scale to the operations, will increase business opportunities for SME s, as suppliers of good and services to the two entities. Moreover, as will be demonstrated in the chapter on the Assessments of Outcome and Activities,, there were clear risks of unused financial resources by DGT and other beneficiaries, that required prompt action to relocate money to other identified activities relevant to PDO.. In conclusion, the activity did not infringe the PDO and Project Design, did not required additional financial resources and, above all, has an important discernible linkage with the PDO, in the context of prevailing macroeconomic conditions. Changes in Activities and Beneficiaries: The project s activities and beneficiaries were restructured under two arrangements achieved in the course of implementation: (a) The Amendment of the Financing Agreement reached between the Bank and the GOCV in December of 2012, which incorporated the Project/UCRE Protocol an interim measure agreed upon by the Bank; (b) The Restructuring Letter of May 2014, which extended the end date to January. The Protocol enabled certain new activities to be implemented in a timely fashion with the understanding that it would be included in the Restructuring that was already being negotiated and developed, which, in fact, occurred in December 2012 Restructuring. Component I (A): Of particular importance, as other donor concurrent project that made redundant most of project activities related to business registering and licensing foreseen in the PAD, is the Improvement of Business Life-cycle Services (IBLCS) funded by the Investment Climate Facility for Africa (ICF) in an amount of US 2.35 million. The IBLCS funded and implemented all business licensing activities, but those under responsibility of municipalities. The referred UCRE Protocol adopted a package related to (i) Property Registry Modernization, through the use of information technology systems and electronic systems to register property; (ii) the business closing hardware support; (iii) business licensing regime at municipal level. The Protocol suppressed the important activity included in the PAD, the design, codification and adoption of bankruptcies procedures. The exclusion was due to the fact that the Project available financial resource (USD ) was considered insufficient by the Government which took measures to identify and use alternative resources outside the Project. The bankruptcy legal framework was only recently prepared and is in process of being approved after four years and half of Project s live. This new UCRE package also created a strong synergy with Millennium Challenge Account (MCA) project on Property Registration Modernization. This very positive linkage is emphasized in the MTR: The UCRE s package basically consists of the digitization and indexation of paper archives in Praia and Sal, the two most demanded Registries, the design and development 55

78 of a computer information technology system, the establishment of an electronic system of registry and training of users in the two registries. The MCA will therefore benefit from the software designed which will serve the remaining islands and will build upon the capacity instituted in Praia and Sal to expand the digitalization and indexation of the books and the electronic registration system to all remaining islands. Therefore the completion of the Land Registry system, which obviously includes others undertakings by the MCA project, will be smoother, easier and faster, considering the work developed under the SME& EG Project. The Protocol gave sequence to the IBLCS project, completing it and closing the cycle of improvement in business licensing. Additionally it permitted the funding by the Project of hardware supports to complete the efficient implementation of the Decree Law 22/11 on business closing, a necessary step for the preparation of the new bankruptcy legislation, under the Ministry of Justice, funded by diverse source. In addition to the above mentioned Protocol subsequently to the MTR, three other activities were introduced under this Component: (1) ADEI, the GOCV s agency in charge of SME development, was not included as beneficiary of the Project until the first Restructuring, despite the representation of the supervising ministry in the project preparation, as stated in the PAD. The Restructuring adopted new activities related to incubators development for business services provision to SME s. The new activities complement both the Matching Grant Program and an African Development Bank (ADB) project conceived to finance the procurement of business services and under implementation at the Completion. Another important activity adopted under ADEI is the Entrepreneurship Study, using the Global Entrepreneurship Model (GEM). (2) The Project funded the development of a Mobile Platform mkonekta - by NOSI under the request of UCRE and agreed upon by the Bank and the Government, to facilitate service access provided by public institutions and financial sector to individuals and business, through the use of mobile telephone. (3) The Project funded in collaboration with other international partners such as the ADB, the NEPAD and the WIPO, the Africa Innovation Summit held in Cape Verde, in February of The Summit agenda was to build platforms to engage all key stakeholders in an ongoing dialogue in issues of promoting Innovation and making Innovation a crucial element of Africa Development Agenda. The request for Project sponsoring was made by the Government and agreed upon by the Bank. Component I (B): In addition to the MGF adopted in the PAD, there were three new activities adopted, all consistent with PDO and MGF related. (i) The CC S s Certification Program is an autonomous CC S initiative, neither actually designed by the project, nor entirely funded by it. This activity was adopted 56

79 and an agreement for cost sharing between the PCU and the CCISS, respectively 56% and 44%, was achieved. Unfortunately, as will be analyzed further ahead, this important activity in the context of SME s development was not implemented. (ii) The Management Support is conceived as a fund to support the CCS s managements of the MGF, as happened in the previous MGF, under the precedent Growth and Competitiveness Financing Agreement. (iii)the MSE s Support is directed solely to Micro Enterprises and is conceived to help them build capacity in financial management through training and coaching. The activity is conceived outside the MGF because several micro enterprises, in need of support to improve financial management, cannot be eligible for the MGF support, given their irregular position concerning tax and social security payments, which are eligibility requirements. The MSE s Support was planned to start in 2013 and to function throughout the project life. Component II: All the activities planned in the PAD were restructured and four more were added, after the MTR. (i) The restructuring of the DGT activities: The issue deserves some elaboration, both in view of the significant importance of the tourism sector for the economy and as evidence of lack of coordination between the Government and the Bank in the related policy discussion. At the PAD, the regional planning was assessed as a key policy objective and accordingly regional planning activities were adopted. Afterwards, the DGT, whose supervising ministry is mentioned in the PAD as taking part in the Preparation, objected to the activities which subsequently were revised by the Restructuring of December The new activities agreed were planned to give sequence to the activities started with Government funding and regarding Tourism Attraction Inventory and Accessibility/Signaling/Tourism Site. However, procurement issues related to the selected proposal exceeding available financial resources did not allow for the completion of these activities. Subsequently, the Project agreed to finance the preparation of a TOR proposing a program to integrate new activities centered on regional planning, with focus in the Municipality of Tarrafal, Island of Santiago. The TOR was submitted by mid-september to the DGT for acceptance and until completion by January 31, 2015, no answer was given by DGT. The non-answer resulted in impossibility to implement activities and the DGT ended up with no new activities performed after the MTR. The management of this process may suggest lack of articulation between the Government and the Bank in the preparation, and more likely limited institutional capacity of DGT, already identified in the PAD. According to the view of the Project Coordinator, which is subscribed by this ICR, the under staffing of PCU, which did not have program officers that could support beneficiaries in planning and designing activities, is not strange to what 57

80 happened. Besides, and very importantly, it was clear that an understaffed and overloaded DGT with line activities did not prioritize the activities of the Project, as the non-answer to the TOR funded by PCU reveals. The relative limitation in capacity of DGT, despite the improvements of three last years, has been documented by some key studies on tourism sector in Cape Verde. (ii) The restructuring of activities of Cape Verde Investment: Three new activities were added to benefit Cape Verde Investment, under the restructuring and MTR: (a) design of an One Stop Shop (OSS) and its supportive software to enhance the institution s efficiency to provide services to investors, acting as the sole interlocutor in the investment evaluation, licensing and incentives negotiation and contracting; (b) New Website and On line marketing system; (c) export promotion targeting garment and shoes industry. The two first activities were conceived to strengthen the institutional development and sustainability improving its competencies, credibility and planning capacity to perform its institutional functions. The third one was conceived to support government marketing effort to attract labor intensive investments to S. Vicente Island, in order to alleviate the particularly high unemployment prevailing in the Island of S. Vicente and to contribute to SME s development. (iii)restructured activities of ARAP: The restructured ARAP s activities were referred to in the MTR. The OECD Compliance Assessment/TA was initially an ADB project and the Bank agreed to finance it but restructured under a new activity more in line with the quality enhancement for a new organization. Under the project, the planned activity is TA to implement quality management in order to achieve conformity with ISO 9001 standard. Another changed activity is the replacement of a Regional/International Specialist to provide technical assistance in the setting up of the ARAP, whose recruitment process was undermining the implementation, by a new activity, the Strategic and Operational Plan, a key activity to support the institutional development of ARAP. (iv) DNP: TA for preparation of GPRSD III: The Project funded a TA to support the Government in the preparation of GPRSD III. A preparation manual, an econometric model and a Logical Framework for evaluation monitoring were prepared not only for the MFP but also for the others implementing agencies and delivered. DNP: Hiring of a Specialist: The Project funded the hiring of a Specialist to support the Government to design and adopt legally a new National Planning System through a Base Law on National Planning System. The adopted legislation captures into a national law many instruments and processes typical of strategic planning already used in the planning and budgeting exercises by the Government, but lacking proper legal framework. (v) Development of information software: The Project funded the development by NOSI of information software designed to complete the digital system in use by the DGIC to monitor the import/export operations. The system which already monitored the customs and commercial operations was lacking the component to monitor the 58

81 exchange operation. The Bank funded precisely the exchange component to complete the monitoring activities of the DGIC, regarding international trade. Assessing Changes during Implementation The above described changes occurred during implementation, were opportune, adequate and substantially linked to the PDO. In fact, they brought highly satisfactory impact on investment climate and institutional development of concerned public sector agencies, but tourism: (i) The new Mobile Platform is expected, similarly to what is happening in many African countries, to greatly improve access to services particularly by MSE, through the use of mobile. The MSE access to desktop computers is still relatively limited in Cape Verde, while the penetration of mobile telephones is one of the highest in Africa (90.5% in First Semester of 2013, according to ANAC, the Cape Verde Communications Regulator). The Platform is designed to facilitate access to various services such as the municipal and government licensing, customs, social security, land registry, investment information and tracking through the OSS, taxes status and payment, banking services, among others. This activity is clearly consistent with the PDO. (ii) The Study on Entrepreneurship, new ADEI s activity funded by the Project, is well in line with the design of the Component I and responds to perceived need to measure and assess, with support of empirical data, the level of entrepreneurship in the country, as well as to set guidelines for its development in Cape Verde. The Study provides the government a strong data base to design policies towards SME, completing the annual statistics surveys of INE, focusing more on enterprises rather than on entrepreneurship. This activity is clearly consistent with the PDO. (iii) The support by the Project to the development of incubators, to supplement the BAD s intervention, is another new activity under ADEI and funded by the Bank. The Bank participated funding the remuneration of the National Incubator Network Project Coordinator, the acquisition of equipment and hardware and the remodeling of new facilities. This last activity was considered very risky in the MTR due to difficulties arising from judicial process opposing the Government and a private entity regarding to the use of the selected physical facility. Consequently the Bank suppressed the funding required for the remodeling of the facility. The visible positive impact of the Bank s intervention is revealed by the fact that, after the hiring the Coordinator, the number of incubators increased from one to five with a new one to complete six under progress. Among the new incubators, four are specialized in Tourism (2) and Agribusiness (2), in line with government policy to increase the participation of Cape Verdean producers and service providers in the value chain of the tourism sector. (iv) The design and the implementation of One Stop Shop System for CI, grounded on an IT platform and the related introduction of a new Website and On Line marketing, could 59

82 represent deep change in the way of doing business in the institution, if adequately implemented. CI was scored 15% in 2012 by Global Investment Promotion Benchmarking (GIPB), a World Bank Benchmarking instrument for Investment Promotion Intermediaries (IPI) compared to 25% average of Sub Saharan Africa and 89% of the ones best in the world. The Project funding is contributing to improve the two main components of GIPB s scoring, the Website Design and the Investment Handling. The Investment Handling, under the new OSS, is timed to last mandatory a 60 to 75 days, a vast improvement over the previous delays that lasted 6 to 9 months, and more. (v) The new activity related to the Introduction of ISO 9001 standard in the Procurement Regulatory System was conceived to enhance quality standard of the regulation of public procurement, to enhance quality of management system and introduce the practices of internal audits and other requirement to conform to ISO9001 norms. The activity is in line with the objective of the Component to increase transparency and efficiency in the system and the participation of the SME s in the public procurement processes. The introduction of Strategic/Operational Plan as management tool of ARAP is aimed at the enhancement of independence, transparency and market friendliness of the public procurement regulator, namely through new organization design, the definition of objectives in the management processes, the adoption of performance indicators and M&E system, new technology architecture, among other features typical of a Strategic/Operational Plan for a performing public procurement regulator. Specifically, regarding the governing body DGPCP, there was in fact no change in the activity, rather in the procurement method. The Website was developed and is functioning. As the case of CI s new IT system, if sustainability risks issues are well addressed and cautioned, the new Website will prove to be a tremendous innovation of State Procurement Management as will be described in the Chapter of assessment of Component s activities. All ARAP/DGPAP activities are clearly consistent with the PDO on Economic Governance. (vi) The activities introduced under the DNP are all of high relevance to Economic Governance. The GPRSP is the basic planning document stating the government strategy to reduce poverty and stimulate grow and the related economic and social policies to achieve the objectives and targets adopted for the period of implementation. 8. Assessing Outcomes and Activities Performance 8.1. Project Outcomes The first necessary observation, which will be discussed further in the report, in the chapter assessing the Bank and Government performance, has to do with the adequacy of some adopted indicators, particularly the intermediate ones, to measure the real impact of the project. As mentioned in the MTR, some of the indicators are clearly inadequate, insofar as the values reached have a marginal connection with the project s development. This is true, for example, of indirect beneficiaries of the project, which measures the total number 60

83 of people employed in the country, which practically does not depend on the project, given its very small size. The universe of MSME in Cape Verde is enterprises as per The MGF s beneficiaries are 136 enterprises. A more beneficiary focused indicators, such as innovation and technology indicators for example, in which Cape Verde performs poorly in the Global Competitiveness Report, would be more adequate. The National Statistics Institute (INE) Study, contracted by the PCU to measure the MGF, focused on innovation and technology performance of the beneficiaries, among other more enterprise focused indicators. Also relevant for the purpose of project evaluation is the failure to construct and survey from Project start up or at appraisal a "control group," which would permit the assessment of the revenues growth of companies benefiting from the Matching Grant Fund against similarly natured business. The referred statistical data obtained through the INE, contracted by the PCU, are an alternative option to support the comparative measurement of average yearly growth of non-beneficiary and beneficiary companies. Finally, the baseline constructed to measure the number of SME s with access to the public procurement process, was vastly underestimated at the appraisal. Recent survey undertaken by the PCU, whose results were adopted by this ICR, evidences this underestimation. An analysis of the Table V above, bearing in mind the observations made, shows that the project exceeded two of the Project Indicators and fell short of one, as shown below. 1st Indicator: "Reduce the number of days it takes to receive a business license from 24 to 7" According to the DB 2015, the number of days it takes to obtain a license is 8, one more day than the planned target, revealing a gap of about 14%. Despite this gap, it can be said that the developments were very positive, since the required number of days decreased 67% compared to the baseline. 2nd Indicator: "Reduce the cost of registering property (as percent of property value) by 40 percent." According to the same source, the current cost to register property corresponds to 3.7% of the property value, exceeding the target set (4.6%) by about 20%. The figure reached represents a 52% reduction in registration cost relative to the baseline. 3rd Indicator: "Increase the number of SMEs that compete for contracts through the public procurement process, from 15 (estimate) to 80, over the life of the project" The figure for this 2014 indicator, 114 companies, of which 45 micro and small enterprises and 69 medium-sized enterprises, far exceeds the stated objective for the same year (30 companies). The final figure for the indicator, that is the number of SMEs that compete for contacts through the public procurement process over the life of the project, reached 444 companies. Intermediate Outcome Indicators 61

84 Indirect project beneficiaries As mentioned, this indicator does not measure the project s impact in terms of jobs created. In fact the used baseline refers to the total number of employment in the country, and obviously the size of the project does not allow it to significantly influence the volume of employment in the country. The latest data published by INE show a volume of employment of individuals, that is, 3% more than the baseline, but 7% less than the planned by the Project for the same year. Component 1: Enhancing SME business opportunities Subcomponent A: Supporting SME investment climate reforms Facilitate business licensing & Reduce number of steps The project set the goal of reducing the number of steps involved in getting a business license from 9 to 3. In reality, the indicator remained unchanged (at 8 steps) since the first year of project implementation. Facilitate property registration 1. Reduce number of steps by 50 percent : The ultimate goal was to reduce the number of steps required for registering a property from 6 to 3. In reality, there was no change during project implementation. The goal seems somewhat unrealistic, as compared to the number of steps in the OECD (4.7). In any case, the gap is 100%. 2. Reduce number of days to complete transaction by 90 percent : Also in this case the target, a reduction from 73 days to 7 days, seems somewhat excessive and was not achieved since the indicator stood at 22 days; that is, a gap of 214%. This indicator is 24 days in the OECD, which is higher than the number of days reached in Cape Verde. In any case relative to the baseline, there was a significant reduction (70%). Subcomponent B: Improving SME access to services Higher average one year growth in sales revenue of Matching Grant beneficiaries against control group : This indicator can be assessed by the results of the referred INE Study. These results reveal that the increase in sale revenues was very strong and far exceeded the stated goal, as shown below. From a sample of 432/437 SME, medium turnover for not beneficiaries firms increased by 29% in 2012 and decreased 25% in 2013, a global decrease of 4%. Beneficiary companies have much stronger performance, 60% increase in 2012 and 18% in 2013, a global increase of 88% from 2011 to As for the indicator (table below), beneficiaries SME showed very strong performance relative to non-beneficiaries companies. The outcome largely exceeds the final goal (7.5%). It was not possible to collect and assess data for 2014, since the submission deadline for 62

85 businesses Yearly Financial Statement is May 31 and, therefore, the information is yet not available. Number of beneficiaries of the Matching Grant Fund : The number of beneficiary companies (136) exceeds the target set by 36%. Note that there is no coincidence between co-financed projects and the number of beneficiary companies, which is due to the existence of business associations and a group of business with more than one company that had the opportunity to access the fund. Direct project beneficiaries, number (of which female %) [Matching Grant Fund] : The number of women-owned businesses was 25, about 18% of total beneficiary companies. From a different perspective, considering the funded projects that benefitted companies managed or owned by women, the percentage rises to 26%, against 20% baseline,(6%) more than the target (see Table VIII). Indirect project beneficiaries (number), of which female (% of labor force) : This indicator refers to the percentage of women in the domestic workforce and suffers from the same irrelevance mentioned above with regard to the indirect beneficiaries of the project. As stated before, some indicators are not up to the task, that is, there is no clear link between the indicator and the project s real impact. The Chart I on next page compares the proportion of beneficiary and non-beneficiary SME that brought new products to the market, financed staff training and improved production technology Assessing Outcomes Component I (A): Supporting SME investment climate reforms: The PDO as stated in the PAD and unchanged during the implementation is: Support policy and institutional reforms that will improve the investment climate and provide increased access to services to SME s. The reforms are aimed at opening up opportunities for new SME s to emerge and for the existing SME s to growth. Out of the three Project Indicators two are related to the Component I and one to Component II: (a) Reduce the number of days it takes to receive a business license from 24 to 7. Component I; (b) Reduce the cost of registering property (as percent of property value) by 40 percent. Component I; (c) Increase the number of SMEs that compete for contracts through the public procurement process, from 15 (estimate) to 80, over the life of the project. Component II. Two of the indicators were achieved and surpassed: (b) and (c). The number of days that it takes to receive a business license was targeted 7 from 27 in baseline. The achievement was 8. The Project target of 7 was not achieved but the reduction was substantial around 63%, during the Project life. 63

86 Component I (B): Improving SME access to services: This component relates to MGF, the Project and beneficiaries SME s shared funding of activities aimed at improving access to business services by participating enterprises. The overall performance of the MGF was highly satisfactory, since all indicators were achieved and all activities but one were also achieved. The number of beneficiaries (136) exceeded in 36% the target 100. The beneficiaries performed much better than their counterpart non-beneficiaries in average annual growth of sales revenues ( ), exceeding them in 43% and the target increase of 7.5%. The female beneficiaries owning or managing business was 28% of the total beneficiaries, exceeding in 8% the target 20%. The indirect project beneficiaries of which female (% of labor force) were higher than the target (0.8%) According to the INE survey: (i) 26% of beneficiaries were from outside main urban centers of Praia and Mindelo; (ii) 56% of the inquired MSME did know about the Project; (iii) New products: 32% of beneficiaries launched new products against 13% non-beneficiaries; (iv)training: 57% of beneficiaries undertaken training activities for employees against 26% nonbeneficiaries; (v) New technology: 68% of beneficiaries adopted new technology against 27% non-beneficiaries. The Project contributed significantly to the capacity building of the CC s, funding part of the management cost of the MGF. The outreach achieved was very much due to the management activities funded by the Project. The access to business services resulting from the MFG were critical in supporting beneficiaries SME s to thrive, in an overall negative context, by adopting technological innovation, diversifying products, improving management processes, preparing marketing and business plans, undertaking training of employees and increasing sales significantly. 64

87 Annex 5b: Borrower s comments on the ICR The following comments were submitted by Carla Cruz, Advisor to the Minister of Finance, by on July 27, 2015: In general terms the ICR correctly represents all aspects surrounding the Small and Medium Enterprise Capacity Building and Economic Governance Project design, implementation and relationships. The report provides a mostly accurate description of its design, structure, achieved results, strengths and weaknesses. However, there are some information that, to our belief and understanding, do not reflect the true nature of activities, factors affecting their nature and implementation. One case in point are the following statements regarding the Matching Grant Fund (MGF): One possible reason for the low number of applications is that the eligibility criteria effectively (though not explicitly) excluded many small firms that were not members of the Chamber. (p. 20) ; Finally, the matching grants program was eventually found to reach mostly members of the Chambers of Commerce of Sotavento and Barlavento, even though in theory it should have reached all types of firms, even non-members (p. 25). This assertion is not supported by facts. The MGF was, throughout its lifespan, widely publicized though TV and radio campaigns, meetings with prospective beneficiaries promoted by the Chambers of Commerce and several other events that involved the Chambers and the Government. The Chambers used the MGF as one of their most prized programs, and used every opportunity to publicly herald and promote it to any audience at hand. The fact that the MGF was open to all Capeverdian firms irrespective of their affiliation to the Chambers of Commerce was prominently and explicitly shown on all MGF governing documentation and promotional material. Information provided by the Chambers of Commerce show that for the Sotavento Chamber (Praia) 85% of beneficiaries were not affiliated, while 15% were members: for Barlavento Chamber (S. Vicente) 51.4% were members while 48.5% were not. These numbers disproof any allegation that nonmembers firms were discriminated against in any form, either explicit or implicitly. Furthermore, the fact that the final number of beneficiaries, which was significantly higher than the project target (136 against 100) clearly indicates that the selection criteria for eligible firms and projects were adequate in view of the available resources and nature of the MGF. It should be noted that the criteria were devised by the Chambers, the World Bank and the Government. From the beginning it was consensual that the available resources to the MGF made it imperative to restrict the type and size of businesses it could cater to. The final results, as eloquently described in the ICR, prove the correctness of its approach, target population and nature of eligible projects. There are other small discrepancies and inaccuracies with the description of some activities and factors affecting implementation. For example, the description regarding General Directorate for Tourism (DGT) (p. 41) is not completely accurate. The Tourism sites signaling study did not go ahead due to the fact that the selected firm financial proposal far 65

88 surpassed the budgeted and available resources for the activity. The negotiation with the firm failed to lower it to a level that could be supported by the Project. Additionally, and because of the time left in Project implementation and the delays made it objectively impossible to continue with the process. The lack of response and delayed response from DGT had to do with other activities. In spite of the report s explicit recognition and description of the results, in many instances far surpassing the proposed targets, when assigning the ratings, the report seems to take a very negative view and tend to over value the shortcomings at the expense of the positive and desirable factors. For example, when rating the achievement of the Project Development Objectives, the Project is assigned a Moderately Satisfactory rating. This is hard to rationalize when the Project achieved two of the three objectives. Furthermore, and when looked more closely at the results, its remarked that the missed objective was by a margin of only 6% (reduce the number of days to receive a business license from 24 to 7 (17 days)) (the attributable reduction to the project is 18 days (from 24 to 8). On the other hand the margin by which the project was able to surpass the other two objectives are, by comparison, extraordinarily great. The objective to reduce de cost of registering property (as a % of property by 40%) saw a reduction from 7.7% (baseline) to 3.4 % (the target was 4.6%), which represents a gain of 29% over the proposed target. More striking is the objective that has to do with the increase of SMEs participating in Public Procurement processes. The indicator proposed an increase from 15 to 80 firms competing over the life of project. The established number of SMEs actually competing was 444, more than 10 times the target. The ICR did an exercise of deconstructing the PDO, and the results it shows on the tables on pages 45, 46 and 47 are overwhelmingly positive. The report states on page 26 having complied with the latter two out of these three measures, the project nearly met its objectives and is therefore rated as moderately satisfactory. This phrase seems to be in contradiction, firstly, with itself, and secondly with the body of proof that the report itself portrays. The same rating logic seems to prevail at assessing the other factors and the Project overall. As we understand, the rating schedule used by the World Bank goes from Highly Satisfactory to Highly Unsatisfactory, Satisfactory being the average, while Moderately Satisfactory reflects a below par assessment. The attributed ratings do not seem to reflect how the report describes the Project, its achievements and synergies that it was able to generate and the impacts its activities have on the Government of Cape Verde Development Programs, which, after all, are for the most part described in the report itself. The ICR prepared by the Government of Cape Verde (please find attached) has a much more balanced and equitable rating of the various assessed components, in which the matching between the narrative and the rating values better represent the project achievements. We would like to request that the Project final evaluation and rating take in duly consideration the findings and assessment it reports. 66

89 Annex 6: Report of the M&E Specialist engaged to review the M&E framework Review and Retrofitting of the SME&EG Results Framework (Revised Final) 1. Introduction The SME Capacity Building and Economic and Governance project (SME&EG) totaling US4, was approved in April 2010 but encountered some delays. It became operational in June 2011 due to delays in recruiting the Project Coordinator. The project was scheduled for closure on 31 July However, the completion date has been extended to 31 January 2015 after a mid-term review and following request from the Government of Cape Verde to extend the closing date. While there has been good progress in the implementation of the interventions, current ISR PDO outcome rating is only Moderately Satisfactory (MS). A review of the PDO level results indicators point to challenges in measuring two of the four indicators. The two indicators are (a) diversify the points destination of foreign investments in tourism and other sectors in Cape Verde, as measured by a 5 percent decline in the Herfindahl index (HHI) of concentration of FD I; and (b) increase the number of SMEs that compete for contracts through the public procurement process, from 15 (estimate) to 80, over the life of the project. Due to the difficulty in measuring indicator a, namely the HHI, the Minister of Finance sought approval from the World Bank in January to replace it, which was approved. A new indicator, namely creation of an electronic one stop shop for international investments, has now replaced the HHI. The new indicator is an output measure and, therefore, it is not likely to change the PDO outcome rating in a substantive way. Indicator b is equally an output measure with a highly optimistic target of reaching 80 SMEs that can access public procurement at the end of the project. The difficulty in measuring this indicator has also been compounded by the creation of a new electronic procurement system that is yet to disaggregate companies that compete for bids by type. The M&E review aimed at improving existing arrangements for tracking and reporting on both the PDO and intermediate results indicators with the hope of moving the PDO outcome rating from Moderately Satisfactory to Satisfactory. 2. Project Design and Relevance of the Project Development Objective (PDO) The PDO is to assist the Government in its efforts to reduce the cost of doing business, diversify the target regions receiving foreign investments and enhance opportunities for small and medium enterprises (SMEs) to access public procurement. The PDO is not overly ambitious. However, two of the four PDO level results indicators as mentioned before are not fully aligned with the PDO statement. With the project closing at the end of January 2015, the PDO indicators could be strengthened through additional data from a beneficiary results assessment. 67

90 3. Program Theory of Change: Alignment of Activities, Outputs and Key Performance Indicators Establishing causal linkages between project interventions and results enable proper measurement of specific contributions the project has made to achieve the PDO level outcomes and the intermediate outcomes. As part of the proposed beneficiary results assessment, the Project Coordination Unit (PCU) may seek support to prepare a detailed project results chain-showing logical sequencing of interventions and results (showing causality). Recommendation: Prepare a project results chain linking inputs, activities, outputs and outcomes prior to initiating the beneficiary results assessment. 4. Key Performance Indicators Baseline and Target Values The targets for the first two PDO indicators have been achieved and even surpassed. However, there are challenges with the remaining two of the PDO level indicators, namely diversify the points of destination of foreign investments in tourism and other sectors in Cape Verde, as measured by a 5 percent decline in the Herfindah index (HHI) of concentration of FDI and increase the number of SMEs that compete for contracts through public procurement process, from 15 (estimate) to 80, over the life of the project. It is not likely this target will be reached. Equally, targets for some of the intermediate results indicators are not likely to be met. The annual planned targets have no bearing with the previous year s actual achievements. The targets should be cumulative and should be calculated on the achievements of the previous year. While the proposed beneficiary results assessment could help improve the data gap, efforts should be made to prepare a self-assessment study that will provide a complete picture of achievements by comparing the targets planned with the baseline values, and achievements of the previous years. Recommendation: Prepare a self-assessment review of PDO level results outcomes and intermediate level results outcomes showing achievements to date in relation to the baseline data and target values prior to project closure on 31 January Project Implementation: Arrangements for Results Tracking and Reporting The Project Coordinator doubles as the M&E Officer for the project. With multiple responsibilities, this dual role has affected systematic data collection and reporting. The project is closing by 31 January 2015, and yet there are significant gaps in tracking and reporting on key KPIs. As a short-term measure, there may be need to recruit an M&E consultant who will work along side with the Project Coordinator to prepare a 68

91 comprehensive self-assessment report prior to initiating the beneficiary results assessment of project interventions and outcomes. Recommendations: Recruit a short-term consultant to assist the Project Coordinator to prepare a selfassessment report on key project interventions and outcomes, based on the indicators in the results framework. 6. Mid-Term Review and Project Restructuring A mid-term evaluation was undertaken in the summer of 2013, more than two years after the implementation of the project. Following the review, the Minister of Finance sought and received approval to change the HHI indicator. But this change is not likely to have any significant impact on influencing the PDO outcome rating due to the limited time frame available to successfully implement interventions. 7. Progress Towards the Achievement of the PDO As the Table 1 below indicates, two of the PDO level results/outcomes have been achieved. However to maintain and even surpassed the current MS PDO outcome rating, there may need be collect more in-depth information on key project outcomes by carrying out the proposed beneficiary results assessment. Table 1: Progress Towards the Achievement of the PDO PDO Indicators Results Reduce the number of days it takes to receive a business license from 24 to 7 days Reduce the cost of registering property (as a percent of property value by 40 percent) Diversify the points of destination of foreign investments in tourism and other sectors in Cape Verde, as measured by a 5 percent decline in the Herfindahl Baseline (2010) End of Project Targets (31January 2015) Actual Value Achieved (November 2014) Explanation for Variance End of project target of 7 days will be reached by the end of the project 7.7 % 5 % 3.5 % The target has been surpassed 69

92 (HHI) of concentration of FDI Increase the number of SMEs that compete for contracts through public procurement process, from 15 (estimate) to 80, over the life of the project Beneficiary Results Assessment of Project Interventions Introduction As indicated above, only two PDO level outcomes would be fully achieved by the extended date of project completion, scheduled for 31 January These are: reduction in the number of days it takes to receive a business license from 24 to 7 and reduction in the cost of registering property (as a % of property values by 40 %). As of December 2013, the number of days it took to receive a business license had been reduced from 24 to 8. And the reduction is likely to surpass the planned end of project target of 7 days. The cost of registering a business had also been reduced from 7,7 % to 3.5 % as of December For the remaining two indicators, namely diversification of the destination of foreign investments in tourism and other sectors and increase in the number of SMEs that bid in public procurement process, as result of the adoption of new procurement policies, from 15 to 80, over the life of the project, the measure to assess its achievement is not robust enough. The use of the Herfindah Index (HHI) did not fully capture the effects of the diversification of foreign investments. It has been dropped. And to date, it has not been possible to capture the data on the number of SMEs that participate in public procurement processes because the procurement agency does not disaggregate data on SME participation. Even if there is evidence of an increase in the number of SMEs in the procurement process, it does not measure the real effects of the firms participation in terms of growth, employment generation and profitability. At the intermediate level good progress has been made. However there is a need to probe deeper beyond the monitoring data to capture the effects resulting from the full completion of activities and related outputs on key outcomes. 8.2 Purpose of the Beneficiary Results Assessment The beneficiary assessment has two main objectives. First, it will probe beyond existing PDO results and intermediate results monitoring data to show the real effects of the SME&EG project interventions on key beneficiaries and other stakeholders in terms of real economic benefits and improvement in business processes and practices. And second, it seeks to provide additional information to strengthen the current PDO outcome rating from Moderately Satisfactory (MS) to Satisfactory (S) Scope of the Assessment 70

93 The specific objectives are as follows: Review project design and objective to ascertain its continuous relevance Review project M&E implementation to determine if the activities and related outputs were aligned with the PDO outcomes and the intermediate results Collect additional data to strengthen the preparation of the final Implementation Status Report and Results (ISRs) and the Implementation Completion Reports and Results (ICRs) To collect additional data to improve the final PDO outcome rating from MS to S Methodology The consultants will provide a brief description of the methodology for the assessment. The consultants will justify the choice of the methodology. The reviewers may also explore the use of a mixed method that should lead to the collection of quantitative and qualitative data. It is expected that the scope and limitations of the methods used will be discussed. It may be useful to triangulate the information that is collected by crosschecking data from different sources. The consultants may use the following steps for data collection and reporting: questionnaire development; data collection, data management; data analysis; data interpretation and reporting Issues The assessment will focus on the following issues: Relevance The study will determine if the assumptions underlying the PDO are still valid in terms of responding to the priorities of the beneficiaries and other stakeholders. Assess if the assumptions adequately respond to the priorities of the beneficiaries and stakeholders. Project Results Chain The review should establish the causal links between project activities and outputs, between outputs and outcomes, and between outcomes and the overall effects. The assessment should also cover the assumptions and risks underpinning the interventions. And assess the appropriateness of the results framework in terms of the measurability of the PDO level results indicators and the intermediate results indicators. Efficiency Determine the extent to which the costs related to the interventions of the project are justified in terms of the results achieved while taking into account other alternatives. Effectiveness Assess the extent to which the interventions have resulted in the achievement of the PDO level results and the intermediate level results. 71

94 Case Study Prepare a case study profiling firms that have succeeded as a result of benefiting from the matching grant. Impact Document the effects of the interventions, positive or negative, intended or unintended. For example, access to procurement by SMEs, effects of matching grants and tourism training, etc. Sustainability Determine the continuation or otherwise of the achievements, from the interventions after project closure on 31 January General Questions Are the underlying assumptions of the project or its logic model still valid? How has the implementation of the interventions contributed to the achievement of the PDO outcomes? How has the intervention of the project benefited the targeted beneficiaries? How has the implementation of the interventions contributed to the achievement of the intermediate outcomes? To what extend are the key performance indicators fully aligned with the PDO results/outcomes and the intermediate outcomes? Table 1: Beneficiary Results Assessment Questions for PDO Level Results Indicators and Intermediate Level Results Indicators: Key Performance Indicators PDO level Results Indicators Reduce the number of days it takes to receive a business license from 24 to 7 days Reduce the cost of registering property (as a percent of property value by 40 percent) Beneficiary Assessment Questions Results Issues/ Provide additional data on how a reduction in the number of days it takes to receive a business license has resulted in increased domestic and foreign investment flows How has a reduction in the cost of registering a property impacted on the housing/construction sector? Additional Comments 72

95 Diversify the points of destination of foreign investments in tourism and other sectors in Cape Verde, as measured by a 5 percent decline in the Herfindahl (HHI) of concentration of FDI Increase the number of SMEs that compete for contracts through public procurement process, from 15 (estimate) to 80, over the life of the project Show how reforms initiated through project interventions have led to improved diversification of foreign investments in tourism and other sectors Document SMEs that have secured contracts through public procurement process disaggregated by sector and effects their businesses have had in terms of improved profitability and additional employment created Intermediate Results Indicators Reduce number of steps Demonstrate through additional data how a reduction in steps has resulted in improved individual businesses Reduce number of steps by 50 % Reduce number of days to complete transaction by 90 percent Higher average one year growth in sales revenue of Matching Grant Fund Number of beneficiaries of the Matching Grant Fund Number of beneficiaries of the Matching Fund Document additional benefits accrued to firms through the Matching Grant funding Ditto This indicator has been replaced by a measure on the creation of one stop electronic shop for foreign investment. The World Bank approved a request by the Minister of Finance in May 2014 to replace the original indicator. While it may be too early to document the impact of the creation of the one stop shop for investment, the beneficiary assessment should explore potential benefits of the creation of the facility on investment flows and other benefits generally Gaining access to public procurement is an output. What needs to be measured is how by gaining access to public procurement; the SMEs are improving their profitability and adding value to their services. Note that a proposed impact evaluation study using randomized controlled trails with a treatment group and a control group did not materialize 73

96 Direct project beneficiaries, (of which female %)- Matching Grant Fund Indirect project beneficiaries (number) of % of female Percent of regional tourism regional plans being implemented Improvement of the efficiency of the country s procurement system by reducing the average time of procurement process from 10 to 6 months Document specific examples of benefits through case studies Show how the implementation of regional plans has resulted in improved tourist arrivals in targeted islands Demonstrate how efficiencies in the procurement system is positively impacting on SMEs Time Frame The assessment should be completed before 31 January Conclusion Despite the delays in initiating and implementing project interventions, considerable progress has been achieved in enhancing the business environment in Cape Verde that can be attributed to specific project interventions. The proposed beneficiary assessment should unearth additional information that could improve the overall PDO outcome rating at project closure. 74

97 Annex 7. List of Supporting Documents ADEI. Elaboração de um inquerito às pequenas e médias empresas relativo às atitudes sobre o empreendedorismo. [Entrepreneurship study final draft report, funded by the Project.] Campos, Francisco; Coville, Aidan; Fernandes, Ana M.; Goldstein, Markus; McKenzie, David. Learning from the Experiments that Never Happened: Lessons from Trying to Conduct Randomized Evaluations of Matching Grant Programs in Africa World Bank, published in the Journal of the Japanese and International Economies (2014.) Ellis, Amanda, with Claire Manuel, and C. Mark Blackden. Gender and Economic Growth in Uganda: Unleashing the Power of Women. World Bank, Washington, DC Morisset, Jacques. World Bank Policy Research Working Paper Does a country need a promotion agency to attract foreign direct investment? A small analytical model applied to 58 countries. See: /Rendered/PDF/multi0page.pdf National Institute of Statistics (INE.) Annual Survey of Firms National Institute of Statistics (INE.) Study n. º 2 on the Impact of the Fund for Growth and Competitiveness (FCC.) Nicola Dee, David Gill, Robert Lacher, Finbarr Livesey and Tim Minshall. A review of research on the role and effectiveness of business incubation for high-growth start-ups. No: 2012/01, January Institute for Manufacturing, University of Cambridge, UK. Found on: Piza, Caio and Lauro Gonzalez, Linnet Taylor, Tulio Antonio Cravo, Samer Abdelnour, Isabel Musse, Isabela Furtado, Ana Cristina Sierra. The Impact of Business Support Services for Small and Medium Enterprises on Firm Performance in Low- and Middle-Income Countries: A Systematic Review. Campbell Systematic Reviews 20xx:x. DOI: /csr.200x.x. As of May 29, 2015, this paper is still in draft. World Bank Group. Doing Business in October World Bank Group. Implementation Status and Results reports, #1 9, P World Bank Group. Project Appraisal Document, P World Economic Forum. Gender Gap Index Country Profile Cabo Verde

98 Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders Millennium Challenge Account Carlos Alberto R. Varela Land Management for Investment Project, Director Millennium Challenge Account - Cabo Verde II Achada Santo António - Praia Tel.: / Fax /IP carlos.varela@mca.cv The following comments were transmitted by Dr. Varela by on May 6, 2015: In fact the World Bank project, which consisted of the elimination of paper conservatory of registration books of Praia and Sal, as well as the recuperation of and the recovery of the indices, made extraordinary gains for the property registry system. It prompted the MCA to use this principle to finance the same work in other registries around the country, ensuring their integration and interconnection with the entire public registry system. Of the various advances that this (World Bank) work made, I would like to highlight the following: a) Drastic decrease (from 30 days to 24 hours) time in the issuance of a land registration certificate; b) Ease of access to register property, which decreased the risk of having duplicate registrations, thus ensuring greater transparency in the process and more legal certainty in transactions and property registration; c) Improvement of service to users, as well as increased satisfaction of the operators of registries (assistants, administrative and conservative); d) Improved notion of the number of records and monitoring of the acts associated with the real estate transactions. 76

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