IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD-72830) ON A LOAN IN THE AMOUNT OF EURO 35.0 MILLION (US$ MILLION EQUIVALENT) TO THE

Transcription

1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Document of The World Bank Report No: ICR IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD-72830) ON A LOAN IN THE AMOUNT OF EURO 35.0 MILLION (US$ MILLION EQUIVALENT) TO THE REPUBLIC OF CROATIA FOR A SOCIAL AND ECONOMIC RECOVERY PROJECT September 26, 2011 Sustainable Development Department Central Europe and the Baltic Countries Unit Europe and Central Asia Region

2 CURRENCY EQUIVALENTS (Exchange Rate Effective June 21, 2011) Currency Unit = Croatia Kuna (HRK) HRK 1.00 = US$ US$1.00 = HRK FISCAL YEAR ABBREVIATIONS AND ACRONYMS ASSC Areas of Special State Concern MIS Management Information System CARDS Community Assistance for Reconstruction, MoF Ministry of Finance Development and Stabilization CAS Country Assistance Strategy MRDFWM Ministry of Regional Development, Forestry and Water Management CBO Community-based Organization MSTTD Ministry of Sea, Tourism, Transport and Development CBRD Croatian Bank for Reconstruction and MTR Mid-term Review Development CCU Country Coordination Unit NC New Cooperative CPS Country Partnership Strategy NGO Non-governmental Organization CROMAC Croatian Mine Action Centre NMAP National Mine Action Plan CSERP Croatia Social and Economic Recovery NPV Net Present Value Project EC European Commission OM Operational Manual ERR Economic Rate of Return PAAN Pre-Accession Assistance Needs EU European Union PAD Project Appraisal Document FM Financial Management PCU Project Coordination Unit FMS Financial Management System PDO Project Development Objective FRR Financial Rate of Return PHARE EU Fund for Assistance to Central and Eastern European Countries in their preparation for joining the EU GDP Gross Domestic Product PMU Project Management Unit RCU Regional Coordination Unit HAMAG Croatian Agency for Small Business ROP Regional Operational Program HRK Croatian Kuna SCI Small Community Infrastructure IBRD International Bank for Reconstruction and SME Small and Medium Enterprise Development ICR Implementation Completion Report UNHCR United Nations High Commissioner for Refugees IDA International Development Association VAT Value Added Tax ISR Implementation Status and Results Report M&E Monitoring and Evaluation Vice President: Philippe Le Houerou Country Director: Peter Harrold Acting Sector Manager: Carolyn Turk Project Team Leader: Vera Dugandzic ICR Team Leader: Janis Bernstein

3 CROATIA Social and Economic Recovery Project CONTENTS Data Sheet A. Basic Information B. Key Dates C. Ratings Summary D. Sector and Theme Codes E. Bank Staff F. Results Framework Analysis G. Ratings of Project Performance in ISRs H. Restructuring I. Disbursement Graph 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. Project Components Annex 3. Outputs by Component Annex 4. Economic and Financial Analysis Annex 5. Bank Lending and Implementation Support/Supervision Processes Annex 6. Beneficiary Survey Results Annex 7. Stakeholder Workshop Report and Results Annex 8. Summary of Borrower's ICR and/or Comments on Draft ICR Annex 9. Comments of Cofinanciers and Other Partners/Stakeholders Annex 10. List of Supporting Documents MAP IBRD No

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5 A. Basic Information Country: Croatia Project Name: Social & Economic Recovery Project Project ID: P L/C/TF Number(s): IBRD ICR Date: 09/29/2011 ICR Type: Core ICR Lending Instrument: SIL Borrower: Original Total Commitment: Revised Amount: USD 45.54M Environmental Category: F GOVERNMENT OF CROATIA USD 45.68M Disbursed Amount: USD 47.85M Implementing Agencies: Ministry of Regional Development, Forestry, and Water Management Cofinanciers and Other External Partners: B. Key Dates Process Date Process Original Date Revised / Actual Date(s) Concept Review: 07/09/2002 Effectiveness: 09/30/ /30/2005 Appraisal: 11/18/2004 Restructuring(s): 07/14/ /19/ /12/ /13/2010 Approval: 03/29/2005 Mid-term Review: 03/31/ /12/2008 Closing: 06/30/ /31/2010 C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Risk to Development Outcome: Bank Performance: Borrower Performance: Moderately Satisfactory Moderate Moderately Satisfactory Moderately Satisfactory C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Moderately Satisfactory Government: Moderately Satisfactory Quality of Supervision: Moderately Satisfactory Implementing Satisfactory Agency/Agencies: Overall Bank Performance: Moderately Satisfactory Overall Borrower Performance: Moderately Satisfactory i

6 C.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments (if Indicators Performance any) Potential Problem Project at any time (Yes/No): Problem Project at any time (Yes/No): DO rating before Closing/Inactive status: No Yes 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) General agriculture, fishing and forestry sector General industry and trade sector General public administration sector Other social services Theme Code (as % of total Bank financing) Conflict prevention and post-conflict reconstruction Micro, Small and Medium Enterprise support Participation and civic engagement Regional integration Rural non-farm income generation E. Bank Staff Positions At ICR At Approval Vice President: Philippe H. Le Houerou Shigeo Katsu Country Director: Peter C. Harrold Anand K. Seth Acting Sector Manager: Carolyn Turk Maninder S. Gill Project Team Leader: Vera Dugandzic Gloria La Cava ICR Team Leader: ICR Primary Author: Vera Dugandzic Janis Bernstein ii

7 F. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) Support the economic and social revitalization of disadvantaged and war-affected areas as a way to increase social cohesion. Revised Project Development Objectives (as approved by original approving authority) Indicator 1: Number of jobs created through project activities and subprojects; Indicator 2: Total additional Revenue generated through grant-supported subprojects for SMEs/Coops; and Indicator 3: Number of direct project beneficiaries including inter-ethnic, vulnerable, and war-effected. (a) PDO Indicator(s) Indicator Baseline Value Original Target Values (from approval documents) Formally Revised Target Values Actual Value Achieved at Completion or Target Years Indicator 1 : Number of jobs created through project activities and subprojects Value quantitative or 0 0 1,000 1,359 Qualitative) Date achieved 03/29/ /02/ /14/ /15/2010 Comments (incl. % The end target indicator was surpassed by 36 percent achievement) Indicator 2 : Total additional Revenue generated through grant-supported subprojects for SMEs/Coops Value quantitative or 0 NA 100,000,000 81,286,112 HRK Qualitative) Date achieved 03/29/ /02/ /14/ /15/2010 Comments (incl. % achievement) While the end of project revenue target was not met due to the financial crisis, this is about 82% of the target and still a very substantial achievement under the circumstances. Indicator 3 : Number of direct project beneficiaries including inter-ethnic, vulnerable, and wareffected Value quantitative or ,000 84,173 Qualitative) Date achieved 03/29/ /02/ /31/ /15/2010 Comments (incl. % achievement) 84,000 beneficiaries residing in the ASSC concern were reached: 98 percent of the target. iii

8 (b) Intermediate Outcome Indicator(s) Indicator Baseline Value Original Target Values (from approval documents) Formally Revised Target Values Actual Value Achieved at Completion or Target Years Indicator 1 : Number of beneficiaries of social inclusion subprojects Value (quantitative 0 NA 45,000 41,639 or Qualitative) Date achieved 03/29/ /14/ /31/ /15/2010 Comments The actual number of beneficiaries, all of which were considered vulnerable, was (incl. % 93 percent of the target. achievement) Indicator 2 : Percentage of local stakeholders expressing satisfaction with infrastructure subprojects Value (quantitative 0 80% 95% 100% or Qualitative) Date achieved 03/29/ /14/ /31/ /15/2010 Comments (incl. % achievement) Indicator 3 : Value (quantitative or Qualitative) 69 small infrastructure sub-projects were completed and the satisfaction rate by the beneficiaries was 100 percent. Number of jobs created through grant-supported subprojects for SMEs/Coops 0 NA Date achieved 03/29/ /14/ /31/ /15/2010 Comments (incl. % The number of jobs exceeded the target by 32 percent. achievement) Indicator 4 : Number of SME/Coop grants successfully implemented Value (quantitative 0 NA or Qualitative) Date achieved 03/29/ /14/ /31/ /15/2010 Comments (incl. % achievement) The number of grants was 88 percent of the target. Due to the financial crisis, some of the SMEs could not meet the pre-requirements for obtaining the complementary financing from private banks. Indicator 5 : Average additional revenue generated per SME/Coop Value (quantitative or Qualitative) 0 NA 370,000 HRK 385,242 HRK Date achieved 07/14/ /14/ /31/ /15/2010 Comments (incl. % The average additional revenue exceeded the target by 4%. achievement) iv

9 Indicator 6 : Number of small community infrastructure subprojects completed Value (quantitative 0 NA or Qualitative) Date achieved 03/29/ /14/ /31/ /15/2010 Comments (incl. % The number exceeded the target by three percent. achievement) Indicator 7 : Square meters (m2) of land cleared of landmines Value 12,000,000 (quantitative 0 NA (m2) or Qualitative) 12,185,445 (m2) Date achieved 03/29/ /02/ /31/ /15/2010 Comments (incl. % The actual amount of land cleared exceeded the target by 1.5 percent. achievement) Indicator 8 : Percentage of trained government staff using new skills learned through the CSERP Project Value (quantitative 0 NA 90% 90% or Qualitative) Date achieved 03/29/ /02/ /31/ /15/2010 Comments (incl. % achievement) The target was fully achieved equivalent to 675 of the total number of trained staff (750) reporting active use of upgraded skills. Indicator 9 : Number of individuals, including civil society members and local self government staff, trained through CSERP supported activities Value (quantitative 0 NA or Qualitative) Date achieved 03/29/ /02/ /31/ /15/2010 Comments (incl. % The target for this indicator was exceeded by 25 percent. achievement) Indicator 10 : Number of social inclusion subprojects successfully implemented Value (quantitative 0 NA or Qualitative) Date achieved 03/29/ /02/ /31/ /15/2010 Comments (incl. % The target was exceeded by 4 percent. achievement) v

10 G. Ratings of Project Performance in ISRs No. Date ISR Archived DO IP Actual Disbursements (USD millions) 1 04/25/2005 Satisfactory Satisfactory /15/2005 Unsatisfactory Unsatisfactory /11/2006 Unsatisfactory Unsatisfactory /10/2006 Unsatisfactory Unsatisfactory /17/2006 Moderately Unsatisfactory Moderately Unsatisfactory /30/2006 Moderately Satisfactory Moderately Satisfactory /16/2007 Moderately Satisfactory Moderately Satisfactory /26/2007 Moderately Satisfactory Moderately Satisfactory /20/2008 Moderately Satisfactory Moderately Satisfactory /29/2008 Satisfactory Satisfactory /01/2009 Satisfactory Satisfactory /31/2009 Satisfactory Satisfactory /21/2009 Satisfactory Satisfactory /29/2010 Satisfactory Satisfactory /08/2011 Satisfactory Satisfactory H. Restructuring (if any) Restructuring Date(s) Board Approved PDO Change ISR Ratings at Restructuring DO IP Amount Disbursed at Restructuring in USD millions Reason for Restructuring & Key Changes Made 07/14/2009 N S S The first order restructuring involved: changes in the project outcome indicators; reallocation of Euro 1.5 million; extension of loan closing date to June 30, 2010 to facilitate completion of project and increase project's chances for fully achieving PDO. Reallocating the Euro 1.5 million to the economic revitalization grants would allow a larger number of beneficiaries to carry out sub projects targeted for economic revitalization. 02/19/2010 N S S Reallocation of loan funds and extension of loan closing date. 07/12/2010 N S S Reallocation of loan funds. 07/13/2010 N S S Extension of loan closing date. vi

11 I. Disbursement Profile vii

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13 1. Project Context, Development Objectives and Design 1.1 Context at Appraisal 1. Country and sector issues Country and sector background. In the beginning of 2000, five years after the hostilities ended, war affected areas in Croatia continued to suffer from lack of social cohesion and inadequate economic recovery. Both the national government and international donors focused on emergency relief and physical reconstruction of damaged housing and infrastructure. Local administrations from the war-torn parts of the country, referred to as Areas of Special State Concern (ASSC), were weak and had insufficient funds to support the affected communities. The establishment of ASSC through the 1996 Law on Areas of Special State Concern was motivated by the need for physical reconstruction and economic development in war-torn areas, and for enabling the return and reintegration of internally displaced persons and refugees. In 2002, the legal definition of ASSC was modified to include other areas such as those with certain structural difficulties, the border and mountainous parts of the country, and mined areas. A World Bank Post Conflict Fund Grant launched in late 2000 was among the first operations to pilot regional development and community-based approaches to assist in the recovery of ASSC, and to serve as a bridge between short-term relief efforts and mediumterm social and economic development. Financing from the grant was also used to establish a dialogue with the European Union (EU) in conjunction with a Regional Development Vision workshop in two counties, Šibenik-Knin and Zadar. Following the workshop, the EU Community Assistance for Reconstruction, Development, and Stabilization (CARDS) program began to support the preparation of Regional Operational Programs (ROPs) in these two pilot counties, and later in other parts of Croatia. Following two evaluations of the Post Conflict Fund Grant demonstrating positive results, the Government of Croatia, with Bank assistance, initiated the design of the Croatia Social and Economic Recovery Project (CSERP) which would build on the lessons of the grant. In June 2004, as project preparation proceeded, the European Commission (EC) designated Croatia as a candidate country for EU accession and scheduled negotiations to begin in early In July 2004, the Government adopted the Pre-Accession Assistance Needs (PAAN) coordinated by the Ministry of European Integration. Among other topics, the PAAN document analyzes the country s sector needs and priorities for foreign assistance. These included: (a) initiating economic development programs in the ASSC through, for example, SME and employment support; and development of family farms; as well as (b) design and implementation of alternative models for providing improved access to social services. The PAAN also stated that the Government would also develop the necessary capacity and mechanisms for effective use and absorption of EU structural funds. At appraisal, the project s design was fully consistent with the priorities of the PAAN and the objectives of both the previous and proposed FY05-08 CAS. The project strategically 1

14 targeted the ASSC and aimed to reduce regional development disparities and to strengthen social cohesion. CSERP also was designed to help strengthen the capacity of public institutions and local self government to generate project proposals for EU financing. Rationale for Bank Involvement. The Bank would build on its comparative advantage as the leading donor since the mid-1990s for complex multi-sectoral projects aimed at reconstruction of war-affected countries in South East Europe. These included three projects in Croatia: the Emergency Reconstruction Project (closed in December 1999), Emergency Transport and Mine Clearing Project (closed in December 2001), and the Reconstruction Project for Eastern Slavonia, Baranja, and Western Srijem (closed in June 1998). Because the Bank also had piloted the means for bridging the gap between shortterm relief and longer-term regional development through the Post-Conflict Fund Grant, and had been supporting the process of EU accession, it was considered well placed to link post-war reconstruction and EU accession in Croatia. 1.2 Original Project Development Objectives (PDO) and Key Indicators (as approved) The PDO was to support the economic and social revitalization of disadvantaged and waraffected areas as a way to increase social cohesion. The original main outcome indicators to measure progress towards achieving the PDO were: percentage of community investment subprojects with participation of inter-ethnic and war affected groups; and increase over time of inter-municipal and inter-county subprojects as defined by absolute numbers of projects. 1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification The PDO was not revised. As implementation progressed, however, both the Bank and client recognized the inherent difficulties in capturing project results through the outcome indicators. Thus, as part of a project restructuring approved in June 2009, the results framework was revised to improve the outcome indicators so as to allow the Bank and Borrower to adequately measure progress in meeting the PDO. The original outcome indicators were replaced by three new ones: (a) number of jobs created through project activities and subprojects; (b) additional revenue generated by grant-supported subprojects for SMEs and cooperatives; and (c) number of direct project beneficiaries, including interethnic, vulnerable, and war-affected. The first two indicators would determine the extent to which the project supported economic revitalization for the beneficiaries. The third indicator would determine how many people living in the ASSC received the benefits of the project investments. Although this indicator specifically mentions three categories of beneficiaries, determining the numbers of beneficiaries in each category presented challenges. It was not meaningful to report on the number of war-affected beneficiaries because all of the direct project beneficiaries living in the ASSC were by definition war-affected. Although beneficiaries may have belonged to various ethnic groups, there was both official and household reluctance to report on ethnic background. Most beneficiaries were reported as Croatian nationals and not disaggregated according to ethnicity. However, it was possible to report 2

15 on the number of vulnerable beneficiaries through the social inclusion subprojects designed to address the needs of specific vulnerable sub-groups. 1.4 Main Beneficiaries The PAD identifies the following as the primary target group for CSERP assistance: waraffected groups (persons who remained, settlers, returnees, and internally displaced persons), which still confront barriers to their social and economic integration; and (ii) local administrations. Among the war-affected, the PAD highlights young people, unemployed, women, and other vulnerable individuals. It also identifies central, regional, and local institutions responsible for participatory regional development planning and absorption of pre-accession funds as another target group. 1.5 Original Components (as approved) The project had four components, which remained the same throughout implementation: (a) Community Investment; (b) Demining; (c) Institutional Development; and (d) Project Management (see Annex 2 for a more detailed description): Component 1-Community Investment (total 36.50m/ IBRD 23.0m). This component financed works, goods, and services for three types of demand-driven subprojects: social inclusion, economic revitalization, and small community infrastructure. (a) Social Inclusion Subprojects aimed to improve access primarily to vulnerable to community-based services and activities. Subprojects would include: (i) youth centers and non-formal education programs; (ii) psycho-social support to vulnerable groups, especially for families of ex-combatants, displaced people, women and children suffering from domestic violence, and rural women's selfsupport groups; (iii) legal counseling; (iv) multimedia, communication, and cultural centers; (v) parents-school association programs; (vi) programs to support the disabled; and (vii) capacity building and institutional development for local government (county and municipal levels), civil society, and personnel responsible for delivering social integration services. (b) Economic Revitalization Subprojects supported a wide range of economic activities throughout the ASSC communities. They would contribute to increased opportunities for small businesses and cooperatives, and would enhance social cohesion by creating a more secure base for community revitalization. Three types of activities were envisaged: (i) building the productive capacity of existing cooperatives and SMEs, (ii) supporting the start-up of new co-operatives, and (iii) capacity-building for co-operative development and SME support services. (c) Small Community Infrastructure Subprojects aimed at improving the living conditions of communities by expanding access to services and public utilities through rehabilitation of small-scale social and economic infrastructure. They would contribute to social cohesion and economic revitalization by involving communities in identifying local priorities and implementing the rehabilitation of 3

16 small community and economic infrastructure such as health and cultural facilities, markets, feeder roads, small bridges, water supply, irrigation and drainage systems, reforestation, and liquid waste treatment. Component 2 Demining (total 17.0m/IBRD 8.50m). This component financed goods and services for mine removal on a demand-driven basis, involving two types of activities: (a) provision of equipment to Croatian Mine Action Centre (CROMAC) to help reinforce their capacity, and (b) physical demining activities within ASSC. The component was seen as critical to and closely linked with the Community Investment component as land mine risk was often a constraint to provision of basic local services and infrastructure, and restoration of livelihoods for local population including returnees. Component 3 Institutional Development (total 3.5m/IBRD 2.5m). This component financed consultants, equipment, and goods for building capacity for central, regional, and local authorities. It would support regional development approaches by central and local administrations for/within the ASSC, and establish participatory and technically sound practices in territorial planning, decision-making, and implementation in line with EU principles. Activities would include: (a) capacity building at the central level; (b) development of five county Regional Operational Programs (ROPs); and (c) training and technical assistance for municipalities and organizations initiating subproject preparation. Component 4 Program Management (total 3.0m/IBRD 1.0m). This component financed coordination inputs such as financial management, procurement, beneficiary outreach, technical support, and monitoring and evaluation. It covered incremental operating costs, goods, technical assistance, and training. 1.6 Revised Components The components were not revised. 1.7 Other significant changes There were no changes in the project design, scope, or scale. During the latter part of project implementation, however, there were the following changes. Change in Implementation Arrangements. As part of the government s restructuring in early 2008, the management of the project was transferred from the Ministry of Sea, Tourism, Transport and Development (MSTTD) to the Ministry of Regional Development, Forestry and Water Management (MRDFWM). Major Revisions to the Operational Manual. Early in project implementation, based on follow-up discussion with EU counterparts, a strategic decision was taken to revise the operational manual to fully align subproject application procedures with requirements that beneficiaries would face when applying for pre and post-accession EU funding. An intensive collaborative process ensued among the client and Bank teams to integrate both global and EU approaches to subproject evaluation and appraisals, and to harmonize the capacity building needed by localities and non-governmental beneficiaries. The process also enhanced the role of regional selection committees to strengthen both stakeholder participation and the governance and oversight of project selection. 4

17 Change in Results Framework. The original two outcome indicators were eliminated because both proved to be difficult to measure and not well tailored to capturing the contribution of project activities to achieving the PDO. With regard to the first indicator, data on inter-ethnic participation was difficult to obtain given the lack of official statistics disaggregated according to ethnicity and beneficiary reluctance to report formally on their ethnicity. With regard to the second indicator, the first few calls for proposals revealed that few applications were inter-county or even inter-municipal. Except for the demining component, most subprojects were small demand-driven activities. The funding ceiling for sub-projects needed to be considerably higher to create incentives for complex intermunicipal cost sharing arrangements for long-term operational and maintenance. During a first order project restructuring on July 14, 2009, three new indicators were selected to better capture the contribution of the subprojects to social and economic recovery in the ASSC: (a) number of jobs created through project activities and subprojects; (b) additional revenue generated by grant-supported subprojects for SMEs and cooperatives; and (c) number of direct project beneficiaries, including inter-ethnic, vulnerable, and war-affected. Project Extensions. The project s original closing date of June 30, 2009 was extended three times. Due to the initial slow start to project implementation, in December 2008, the Borrower requested a one year extension to allow sufficient time for successful completion of approved subprojects, full utilization of available loan proceeds, and achievement of the PDO. The Bank agreed to a phased and conditional extension. The first phase extension to January 15, 2010 was granted almost immediately on the basis of the project s performance having significantly improved since mid-term; strong ownership on the part of the new implementing ministry MRDFWM; and recognition that these important changes had substantially improved the likelihood that the project could fully achieve its PDO with additional time. The Bank also indicated that it would consider a second sixmonth extension if the Borrower met the following conditions by June 15, 2009: (i) continued satisfactory project performance; (ii) completion of an independent technical audit confirming the satisfactory quality of civil works; and (iii) adoption of a revised results framework including revised PDO outcome indicators. The Borrower met these conditions, and on July 14, 2009 the Bank s Board approved the first order restructuring that included the second six-month extension to June 30, In June 2010, the Borrower requested another six-month extension to finalize the ongoing Community Investment sub-projects and to finalize the project s planned beneficiary assessment. On June 29, 2010, the Bank approved the extension to December 31, Funding Reallocations. There were four reallocations of loan proceeds, resulting in the transfer of funds originally to be used for operating costs or consultant services and training, to other important project components (grants, de-mining equipment). The Funds were not needed for the purpose for which they were originally intended because (a) other donors were already providing easy access to funds to be used for capacity building, and (b) local authorities did not need assistance in preparing subproject proposals. 5

18 2. Key Factors Affecting Implementation and Outcomes 2.1 Project Preparation, Design and Quality at Entry Project preparation responded directly to the social and economic needs of the ASSC. The design benefitted from (a) the experience gained from the implementation and two evaluations of the Post Conflict Fund Grant which successfully applied demand-driven mechanisms for social and economic revitalization with territorial cohesion; (b) the EU CARDS experience in Regional Operational Programs (ROPs) and in SME and cooperative development; (c) the experience with the Government of Croatia s policies and investments designed to promote socioeconomic development; (d) international best practice in cooperative and SME development; and (e) the findings of a Territorial, Socio- Economic, and Institutional Assessment carried out during project preparation. The design of the Demining component built on the lessons learned from two previous Bank-financed projects in Croatia, the Emergency Transport and Mine Clearing Project and the Emergency Reconstruction Project. The participatory processes carried out during project preparation and design were appropriate for a demand-driven project with collaboration among national, regional, and local stakeholders. Preparation involved extensive consultations with a wide range of actors; during the pre-appraisal and appraisal missions, for example, a pre-appraisal consultative workshop was held with approximately 50 county and local authorities to discuss the project's concept, scope, and proposed institutional arrangements. The Bank and Borrower considered alternative designs (rural credit, support only to large previously state-owned facilities, and a traditional social fund approach) that were justifiably rejected. The chosen design was best for building local capacity for implementation of pre and post-accession EU-supported operational programs, and for supporting local cooperatives and SMEs facing constraints on access to credit. The decision to finance capacity building for regional development in ASSC was forwardlooking given Croatia s status as an EU candidate country. Because both the Bank and the Borrower recognized that the demand-driven nature of the project would require a bottom-up approach, the Operational Manual (OM) detailed measures to ensure local participation throughout the subproject cycle, and incorporated multi-stakeholder Regional Approval Committees. Subproject selection procedures included calls for proposals and weighted selection criteria to encourage inclusion of disadvantaged groups in both economic and social subprojects. To guarantee buy in" from beneficiaries, as learned during implementation of the Post-Conflict Fund Grant, the OM also specifies requirements for beneficiary contributions. Project implementation was coordinated by the PCU and involved multiple partners that ultimately strengthened project performance. They included: (a) UNCHR which provided key information on potential beneficiaries and supported the subproject selection process by serving as observers in the regional approval committees for the selection of grantees; (b) CROMAC, which implemented the de-mining component; and (c) three Regional Coordination Units (RCUs), which were responsible for promoting and then supervising 6

19 and monitoring implementation of project components in their respective regions (the 3 RCUs covered all 13 counties included in the ASSC). A County Coordinator (CC) was hired for each of the 13 counties and was responsible for community outreach and beneficiary support. They provided a crucial interface between the PCU/RCUs and beneficiaries throughout the subproject cycle. The project design was consistent with the Bank s safeguard policies. In terms of environmental impact, the project was classified as Category F (Financial Intermediary Assessment) and triggered OP 4.12 (Involuntary Resettlement) so that a resettlement policy framework would be in place in the event any of the investments involved land acquisition. The PAD also realistically appraised most risks the project would face, and incorporated appropriate risk reduction measures. Notwithstanding the above, the design had some weaknesses. Among them, the original PDO was not well articulated and the results framework did not include outcome indicators that could be realistically measured. Another weakness that ultimately undermined the effective project monitoring and evaluation was the lack of baseline data. 2.2 Implementation Overall project implementation. The 35 million loan for the CSERP was approved by the World Bank Board on March 29, 2005, and became effective on September 30, The project closed on December 31, 2010 with disbursement of 99.7%. Project performance under the MSTTD lagged during the early years of implementation due to several factors: delays in hiring full-time PCU staff, changes in the project director, delays in establishing a monitoring and evaluation (M&E) framework and building adequate capacity for a properly functioning MIS, the time needed to raise awareness about the project in the ASSC so that a pipeline of eligible subprojects could be developed (this would be expected for any demand-driven project where subprojects could not be identified prior to implementation), and some procurement deviations from the loan agreement. Other less significant factors included the need to provide guidance to the PCU on how to be more proactive in using the loan, and delays associated with improving the OM (for example, early in 2006, it was agreed that the OM should be revised to incorporate relevant EU modules and more stringent procedures for ensuring transparency in sub-project selection). Another factor affecting the pace of implementation was that the ministry staff involved in project preparation was not part of the team that initiated project implementation. Thus, all of the capacity-building during project preparation had to be repeated for the new team. The combination of these factors led to the project having disbursed only 12% of the available funds after 2.5 years of implementation. However, given the demand-driven, participatory nature of the project, it would not have been realistic to expect considerably higher disbursement rates after two years, even if some of these factors did not exist. Mid-term review. The MTR took place during the period May 12-21, 2008, just before MRDFWM officially assumed responsibility for the project. The Bank team worked 7

20 closely with MRDFWM to implement the critical steps needed to enhance project performance: streamlining implementation of the demining component, clarifying financial management and disbursement arrangements to be more responsive to subproject needs, and developing realistic implementation time-lines and disbursement projections. Progress was being made in the implementation of social inclusion and small community infrastructure sub-projects, but was expected to accelerate once the MRDFWM acted on the following MTR recommendations: Significantly increase disbursement. The Bank s expected that once the PCU understood that the Community Grants were eligible to be financed 100% from loan proceeds (as long as the overall financing for project investments did not exceed 85%), disbursement would increase by 40% by December 31, Appoint a full-time project director. The Bank recognized Government s strong support but urged the MRDFWM to appoint a new full-time PCU Director. Meet the newly agreed timelines and set benchmarks. These would aim at accelerating implementation of all project components. Revise composition of the Project Steering Committee and National Approval Committee. Both committees had principal roles in the economic revitalization subprojects and would need to reflect MRDFWM leadership. After the MTR, changes in project management had a dramatic impact on project performance. In June 2008, the project was officially transferred from the MSTTD to the MRDFWM. The subsequent appointment of a new full-time PCU Director, who remained in her position until project closing, also had a positive impact. As noted in the December 20, 2008 ISR, all recommendations made during the MTR were addressed in a fully satisfactory manner, and disbursement rose to 42%, higher than anticipated. Project restructuring and extension. As discussed in section 1.7, the project was restructured four times and the closing date was extended three times. 2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization Design. Although an M&E framework was developed at appraisal, it was the weakest part of project design. The original outcome indicators and the inter-ethnic aspect of one of the revised indicators could not be used for measuring progress in meeting the PDO given the challenges outlined previously. Moreover a formal baseline was never established, nor was the MIS system fully operational. This would later complicate the task of fully capturing project results. Implementation. Despite efforts on the part of the Bank team to support M&E, it was not assigned priority by the Borrower until late Moreover, until relatively late in the project implementation period, the original outcome indicators would not be used for measuring progress in meeting the PDO due to several factors. First, by the time CSERP became effective, social integration for members of war-affected minority groups had progressed in some parts of the ASSC. As project implementation proceeded, the RCU M&E staff reported that beneficiaries were reluctant to identify their ethnicity, a factor that prevented monitoring of the original indicators or full disaggregation of one of the revised 8

21 indicators. Second, the project tended to highlight support for improving economic conditions in ASSC communities. Another factor was that most of the RCU M&E specialists did not have the necessary expertise in M&E and relied on the leadership from the central PCU which itself lacked adequate M&E capacity until a suitably qualified expert was hired in 2008 following a staffing change. The system also was affected by ongoing changes in the central M&E staff. Despite pressure exerted by the Bank team during the project s early years to prompt the PCU to intensify its efforts to revise the results framework and define meaningful monitoring indicators, it was not until the PCU hired the M&E specialist in 2008 that the Bank and PCU agreed on new outcome indicators, and the PCU and RCUs proceeded with data collection. The revision of the outcome indicators also followed the main recommendation of the FY2009 Joint Portfolio Review that the Borrower should improve the outcome indicators as one of the steps needed to improve quantification of the project s results. Nonetheless, the absence of a properly functioning MIS did not allow the central M&E staff to assemble and evaluate trends and results. Utilization. Although the revised outcome indicators significantly improved the project s results framework, their introduction came too late to fully meet expectations for ongoing project evaluation. Nonetheless, by project completion, the PCU was able to collect adequate regional and subproject level data to assess the project s progress in meeting its targets by component. The data collection strategy included extensive field visits to beneficiaries as part of both project monitoring and supervision, and a beneficiary assessment (involving both qualitative and quantitative methods) was completed in September 2010 to supplement the M&E data gathering. 2.4 Safeguard and Fiduciary Compliance Supervision missions routinely monitored project fiduciary compliance. The project s FM arrangements had been rated Unsatisfactory or Marginally Unsatisfactory during the early years of project implementation, and the Bank team and the Borrower agreed on an action plan to improve their FM arrangements. By August 2007, the FM rating was upgraded to Moderately Satisfactory, but deficiencies continued until July 2009 when the rating was upgraded to Moderately Satisfactory, and later to Satisfactory. The ratings for procurement were the same as those for FM. Throughout project implementation, the PCU procurement staff benefitted from the ongoing support from the Bank s procurement specialist based in the field office as they enhanced their knowledge of Bank procedures, and increased the PCU s overall capacity to support beneficiaries on procurement. The team fielded periodic reviews of the implementation of OP 4.01 (Environmental Assessment), including one safeguard review that specifically focused on the demining component. With regard to the latter, however, the review found that while existing regulations on demining works are well defined and implemented, the Government had not yet passed legislation on handling waste from destroyed mines. The team could have advanced this issue with the relevant authorities to agree on acceptable procedures for residue waste management. 9

22 Although OP 4.12 (Involuntary Resettlement) was triggered, project implementation ultimately did not involve land acquisition or restrict access. The team checked numerous infrastructure and demining subprojects and confirmed that none of the subprojects visited involved land acquisition and noted that there were no cases or complaints related to land acquisition brought to the attention of the Bank. 2.5 Post-completion Operation/Next Phase As noted in the PAD, to ensure that CSERP would have a sustained impact, the project was structured to be entirely implemented through existing ministerial and local governmental structures. It was envisioned that the PCU and its RCUs would become part of the MSTTD s Directorate for Regional Development, and staff to be hired would eventually be incorporated into the civil service or county and municipal administration. At the time of project closing, most staff from the PCU and the original project team had been incorporated into either MSTTD or MRDFWM. This has facilitated a transfer of knowledge from the project to these ministries on how to set up the institutional framework for bottom-up implementation of local demand-driven investments in a postproject, pre and post EU accession context. To ensure sustainable O&M arrangements, all grant proposals were required to describe how the proposed services, facilities, and infrastructure would be maintained after project closing. The technical audit carried out in June 2009 confirmed that these arrangements were being implemented as planned. Annex 4 presents a sample of completed social inclusion subprojects that were initiated in 2009 and continue to provide community services post project support. Moreover, all of the SMEs assisted by the project were still operating and generating income at project closing. Also at the time of project closing, there were a large number of subprojects in the pipeline that could not be funded due to a lack of funds and time. For example, only every seventh request for small community infrastructure sub-project could be financed. Given the strong pipeline and demand, the Government of Croatia has been able to secure funding to support completion of additional community investment subprojects. 3. Assessment of Outcomes 3.1 Relevance of Objectives, Design and Implementation The project was and continues to be relevant to the country context as suggested by its consistency with the CAS at the time of project approval and the FY09-FY12 Country Partnership Strategy (CPS). According to UNCHR, moreover, returnees continue to need assistance in business development and social integration. While medium-sized enterprises currently may be in a stronger position to obtain financing than small enterprises and agricultural cooperatives, grant support for business development had a strong and catalytic effect across all SMEs, and successful applicants were able to use project grants to leverage additional funding and increase average annual revenues. By project closing, 10

23 the MRDFWM had expressed strong interest in a follow-up project, as did all counties and municipalities that had participated in CSERP. The goal of the FY09-FY12 CPS is to support: (a) the completion of Croatia s EU accession process, (b) the rapid convergence of its income level with that of current EU member states in a fiscally, socially, and environmentally sustainable fashion, and (c) establishment of a decent quality of life for Croatia s citizens. Among other areas of support, the Bank is continuing to assign priority to strengthening private sector-led growth and accelerating convergence with the EU. Thus, CSERP s objectives and emphasis on preparing the country for EU accession remain appropriate for the current CPS. Similarly, the project s objectives, design, and implementation continue to be relevant to the needs of the Government in meeting EU requirements for pre-accession and structural funds. 3.2 Achievement of Project Development Objectives The project achieved its PDO to support the economic revitalization of disadvantaged and war-affected areas as a way to increase social cohesion. CSERP facilitated the integration of refugees and displaced persons, and improved the overall climate regarding refugees, returnees, settlers, and the domiciled population, and improving access to social services for vulnerable populations. Although the project objective is broad, which made measuring results difficult, the achievement of the PDO is based on the following. Most project targets were essentially reached or surpassed. As shown below, there were 84,173 direct beneficiaries (98% of the target) residing in the ASSC, all of whom were war-affected; 51,106 of this total were considered vulnerable (women and children, disabled, elderly, and unemployed). The project generated 1,359 new jobs (36% more than restructured target) and the SMEs and cooperatives under the Economic Revitalization subcomponent generated 11 million in additional revenue (82% of the restructured target). Additional details are presented in Annex 3. Outcome Indicator Target Actual Number of jobs created through project activities and subprojects 1,000 1,359 Additional revenue generated by SME and Cooperatives 100,000,000 HRK 81,286,112 HRK Number of direct project 86,000 84,173 beneficiaries, including interethnic, vulnerable, war-affected War-Affected: Vulnerable: 51,106 84,173 Implementation of the three sub-components under the Community Investment Component supported social and economic revitalization, and increased social cohesion. Under the following three main sub-components, 405 sub-projects were successfully completed and had a significant role in improving social cohesion throughout the ASSC. (a) Social Inclusion. Under this subcomponent, 125 subprojects were completed which exceeded the target of 120. These subprojects enabled beneficiary groups to, inter alia: participate in community organizations and undertake decision making 11

24 on priority services for vulnerable and war affected citizens; pursue training in areas that would increase their employability; expand access to pre-school, after school educational activities, libraries, and other community-based services. In many cases, these subprojects also provided new jobs in the affected communities (see Social Inclusion table in annex 3). Among the 41,639 beneficiaries of this sub-component, 21,703 were children and youth, 24,873 were elderly and disabled, and 4,530 were unemployed. (b) Community Infrastructure. A total of 69 subprojects were completed compared to the target of 60, and beneficiaries were able to improve access to a range of municipal services, such as improved roads, sewage and water supply systems. Not surprisingly the majority of applicants were municipal governments themselves, interested in expanding and upgrading local economic infrastructure as well as enhancing local conditions and creating a foundation for social and economic recovery. Twenty-two projects involved municipal and county cooperation in providing social services. (c) Economic Revitalization. The grants provided under this sub-component (211 subprojects were completed and 240 was the target) produced three main categories of benefits to the beneficiaries and surrounding communities. First, the grants helped many enterprises to jumpstart economic recovery, thus offering continued employment to their staff and creation of 661 new jobs which allowed families to remain in their ASSC communities and continue to pursue an improved quality of life. Among the completed subprojects, 151 were for existing cooperatives and SMEs, and 60 supported new cooperatives. The main sectors for the SME support were: agro-industries and food processing, construction related materials and services, metal products, wood products, and transport services. SME grants totaled million and the value of grant was 100,000 per subproject on average. On average, grant financing accounted for about 17% (ranging from 10% to the maximum of 27%) of total project financing; the beneficiaries contributed about 25 % from own resources, and the balance of around 58% came largely from commercial bank loans. The vast majority of the new cooperatives were engaged in agriculture or farm related activities. Grants totaled 2.60 million for a total of 60 subprojects for an average value of grant of about 43,300 per subproject. Grant financing accounted for about 50% (ranging from 20% to a maximum of 85%) of total project costs, the balance coming from the beneficiaries own resources or from commercial bank loans. On average, the additional sales revenue generated per SME/Coop was 385,242 HRK during the project period; overall, the project generated additional revenue of about 81,286,112 HRK. In some cases, the subprojects provided incremental employment at a time when total employment in the area was declining due to layoffs by large industrial units. Second, the grants had indirect impacts by 12