PROJECT PAPER DATA SHEET

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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Country: Burkina Faso Project Name: Competitiveness & Enterprise Development Project Board approved - RVP approved 3- PROJECT PAPER DATA SHEET Sector Director/Manager: Marilou Uy / Does the restructured project require any exceptions to Bank policies? Have these been approved by Bank management? Is approval for any policy exception sought from the Board? - Y es-x-no - YesNo - YesNo While the project development objective remains unchanged, its wording has been refined to read as follows: The project objective is to assist Burkina Faso create conditions for improved competitiveness and more dynamic enterprise development. Total Bank financing (US$m.):

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3 Restructuring of the Burkina Faso - Competitiveness and Enterprise Development Project (Cr BUR and H022-BUR) Project Paper I. INTRODUCTORY STATEMENT 1. This Project Paper seeks the approval of the Regional Vice President for Africa to introduce the following changes in the Burkina Faso Competitiveness and Enterprise Development Project, Cr.3733-BUR and H022-BUR (P07143) and any accompanying amendments to the project s legal documents. 2. The proposed changes will support a faster realization of the project development objective, enhanced response to the current needs of the country s investment climate improvement, export development and diversification, and efficient utilization of the undisbursed balance of the IDA Credit and Grant. The restructuring measures propose to: Strengthen the support provided under the project for the investment climate reforms, which have become a prominent priority for the Government and the private sector; Expand the support to the Ministry of Energy and Mining for management of the mining sub-sector by providing assistance for capacity enhancement and transparency strengthening, as the Government views the mining sector as a major pillar of its economic diversification; Refocus the content of the enterprise development activities with a particular emphasis on support to export-oriented firms and micro-entrepreneurs through the Maison de 1 Entreprise du Burkina Faso (MEBF); Reduce the scope of some activities that are no longer as relevant as originally envisioned; Reallocate funds in order to adequately finance the expanded focus on investment climate, enterprise development and mining sub-sector, and apply the Country Financing Parameters approved on January 25, 2005 to take into consideration the Borrower s fragile financial situation and reform efforts; Increase Special Accounts ceilings to meet the needs of increased activity levels, particularly under the enterprise development component executed by the MEBF; Strengthen the implementation arrangements by introducing a steering committee that will oversee the activities of the coordination unit and ensure that all interested stakeholders are adequately involved in the project operations; Improve the results framework by making the project development objective consistent in the PAD and DFA documentation, by refining the formulation of some outcome indicators to enhance measurability of project outcomes, and by 2

4 removing indicators which cannot realistically be measured in the project timefi-ame or attributed to it; Align the project with the latest procurement guidelines for the selection and employment of consultants and increase Bank prior review thresholds ; and Extend the closing date of the project by 2.5 years from June 30, 2008 to December 31, 2010 to allow more time for implementation and maximize developmental impact. 4. The project description is amended to reflect the above proposed changes which are further detailed in section I11 below. 11. BACKGROUND AND REASONS FOR RESTRUCTURING Project background and development objective 5. The project was approved on March 4, 2003, the Development Financing Agreement was signed on March 19,2003 and it became effective on December 8, The original amount of the Credit was SDR18,700,000 and the original amount of the Grant was SDR4,100,000. Of the total amount of SDR22,800,000, an amount of SDR3,640,000 was allocated to the Maison de 1 Entreprise du Burkina Faso (MEBF), a private sector association created in the context of the project to provide information, advocacy services and targeted business development services to firms. The public sector part of the project executed by the Project Coordination Unit (PCU) under the Ministry of Commerce, Enterprise Promotion and Crafts, has slowly disbursed whereas the portion executed by the MEBF has disbursed more rapidly. The total undisbursed and uncommitted balance is about SDR 11,000,000, representing almost 50 percent of the original amount, which reflects the delay in effectiveness at the beginning, the slow learning curve and cumbersome procurement processes on both the Borrower and the Bank sides, and the impact of difficulties experienced in the area of utility reform (e.g. energy and rural telecommunications). 6. The project s original objective was to assist Burkina Faso improve the competitiveness of its economy through privatization and utility reform, investment climate improvement and private sector institutional development, and mitigation of constraints to small and medium enterprise development. To achieve these objectives, the project would provide support to: (i) roll back government involvement in the market s domain through privatization and actions to foster competition; (ii) carry out utility reform, particularly the telecommunications and energy sectors; and (iii) promote the development of a strong and competitive private sector by improving the business environment and reducing systemic risk through the provision of effective business development services (BDS), and of microfinance services to micro, small and medium enterprises (SMEs). It was also anticipated that the project would contribute to the implementation of the Government s poverty reduction strategy, with respect in particular to SME development for job creation and income generation. 3

5 7. The original project was comprised of the following components: (i) Privatization and utility reform; (ii) Enterprise development; and (iii) Project management/coordination. Project performance. 8. The major project outcomes have been: (i) the reduction of the involvement of the State in commercial activities through divestiture and an increased role for the private sector; (ii) improved quality of and access to telecommunications services; (iii) increased utilization of ICT services; (iii) an acceleration of business creation resulting from streamlined business start up procedures and services; (iv) an improvement in contract enforcement owing to the support provided to the ministry of Justice; (v) increased dynamism and competitiveness of firms supported through the matching grant; (vi) stronger private sector institutions, particularly the Maison de 1 Entreprise and the Chamber of Commerce of Burkina Faso which is housing the Arbitration and Mediation Center; and (vii) a healthier microfinance industry with lower non performing loans. A summary of achievements under each component is provided below. Component 1 : Privatization and Utility Reform. 9. This component sought to support the Government in the implementation of its privatization program and to deepen the reforms in areas including telecommunications, energy, and air transport. In the area of privatization specifically, the project aimed to support: (i) the Privatization Commission in the Ministry of Commerce to better manage the privatization program; (ii) specific transactions through the provision of transaction advisors; and (iii) communication effort to build consensus around the privatization program. With respect to utility reform, the project would support: (i) the privatization of Office National des Te le communications (ONATEL);(ii) strengthening of the regulator Autorite Nationale de Re gulation des Te le communications (ARTEL) and the ministry s capacity; (iii) the development and implementation of a rural telecommunication strategy and hding mechanisms to improve access in rural areas; (iv) the development of ICT; (v) the set up of a regulator for the energy sector and related capacity building; and (vi) capacity strengthening for the national civil aviation, including the modernization of the sector code. 10. Most of the above activities were carried out or are underway. Technical assistance has been provided to the privatization commission in the areas of transactions management and communication, and the original state divestiture of at least 15 enterprises out of 2 1 slated for privatization will likely be reached. The flagship transaction in the area of privatization has been the national telecommunications company, ONATEL, which was awarded to Maroc Telecom in December The The Government passed a law in 2001 authorizing the privatization of 21 enterprises, of which 6 were minority shareholdings. The Government started with an option to sell 34 percent of the shares to a strategic investor and the first privatization attempt failed in As earlier advised by the Bank, the strategy was subsequently adjusted to sell 5 1 percent of the shares, and this allowed a successful transaction which yielded the equivalent of 4 percent of the GDP in revenues. 4

6 Government is in the process of divesting further by selling an additional 20 percent of the shares to the private sector3 and 6 percent to the company employees. Owing to the competition introduced in the telecommunications sector and the strengthening of the regulator provided under the project (e.g. interconnection, regulatory procedures, training, etc), the quality of and access to telecommunications and ICT services have increased dramatically over the last four years. The outcome indicator on teledensity has been achieved and exceeded more than three fold, i.e. 9.8 lines per 100 inhabitants instead of 3 lines per 100 inhabitants that were initially expected. Progress was much slower in the energy sector because the process of passing a satisfactory sector law was lengthy as the first law enacted by the Government in 2005 had to be revised to meet the sector needs and, as a result, the new law was only adopted in November However, the strategic decision to have a lease contract for the electricity company, the Socie te Nationale BurkinabB d Electricite (SONABEL), was already made; and the process to hire a private sector partner is under way, as is the opening of the hydrocarbon company, Socie te Nationale BurkinabB des Hydrocarbures (S0NABHY) s shareholding to private investors. The set up of a regulation agency in the energy sector could not proceed before a sector law could be enacted; and the process is now set in motion. A new civil aviation code is being drafted. Component 2: Enterprise Development. 11. Under this component, the project sought to assist the Government in: (i) the improvement of the business environment and the deepening of the legal reform; (ii) the provision of non-financial business development services; and (iii) the development of microfinance services. 12. Originally, the project intended to assist Burkina Faso carry out a study on administrative barriers to investment and then work on their reduction. This approach however was overtaken by the publication of the annual Doing Business report since It was recognized that the global benchmarking exercise was particularly relevant and called for action in areas that would help private sector development. The project then supported several activities aimed at facilitating investment climate reforms in areas such as business registration, licensing, contract enforcement, etc. The Investment Climate Assessment carried out by the Bank in 2006 helped sharpen the relevance and expand the scope of the support in this area. 13. A Competitiveness Committee was set up to serve as a think-tank that would provide inputs into the Government policy making process. However, the focus of the competitiveness committee, particularly the key people, shifted to the investment climate reform issues discussed above. The Competitiveness Committee commissioned studies and held one national conference related to business environment ((Doing Business))) as well as two workshops to disseminate the findings of the reports on factor costs and the business environment in the West African Economic and Monetary Union (WAEMU). The conclusions reached had little impact on Government policy making. At the same time, the project provided support to an ad-hoc working group on investment climate It should be noted that IFC has also decided to become a shareholder in the new company. 5

7 issues, whose key members are also members of the Competitiveness Committee. Going forward, it has been agreed to transform the Competitiveness Committee into an Investment Climate Reform Committee. 14. The support to the legal and judicial reform sought to improve contract enforcement and improve property rights. Toward this end, the project would provide support through (i) training of judges in the area of business law, particularly the regional legal framework (Organisation pour 1 Harmonisation du Droit des Affaires en Afrique, OHADA); (ii) set up of a legal information system at the Maison de 1 Entreprise ;(iii) training of the staff of the commercial registry and its computerization; (iv) set up and capacity building of an arbitration center; (v) support to the competition commission; and (vi) labor law reform. 15. The training of magistrates was carried out as planned and the original target was exceeded. This effort will be sustained during the rest of the project life in order to further develop a business-friendly judiciary system. The legal information system is operational within the MEBF. The computerization of the commercial registry is still awaiting the completion of the new offices of the MEBF where it will be housed, and this is expected to happen in the course of An arbitration and mediation center was set up within the Chamber of Commerce; and the project is supporting capacity building efforts. The project provided training for the competition commission, but the leadership of the commission and its effectiveness have remained an issue. This activity will be closed as its contribution to the achievement of the development objective is negligible. A new labor law was passed in The project was not involved in the preparation of the law as the draft had already been completed when the project became effective. Subsequent dialogue focused on the content to give to implementation decrees. Some flexibility has been introduced in the labor legislation, particularly as regards the hours worked. However, to address more systematically labor market flexibility issues, there will be a need to revise the law, Given that the International Finance Corporation (IFC) s Private Enterprise Partnerships (PEP) Africa has been providing assistance for the preparation of a new law, this activity will no longer be supported by the project. 16. The provision of non-financial services was done through the MEBF. A matching grant scheme was set up to strengthen the capacity and the competitiveness of firms. Two types of cost sharing grants were provided to local businesses: one for consultancy services to encourage productivity improvements, and another for trainers and training institutions to deliver existing training courses and develop new training courses for which demand could be demonstrated. This sub-component has performed satisfactorily. There were 154 businesses accredited as business service providers, 376 applications for consultancy and training were financed, and 4,3 86 persons had received counseling, information and training services. Areas of capacity building that were the most sought for included management skills, marketing, market information and research (e.g. prospection trips), and development of feasibility studies and business plans. In terms of impact, it is estimated that interventions of the MEBF had contributed to the creation of at least 1,224 new jobs by In addition to the above, the MEBF also carried out advocacy activities for the private sector including periodic seminars on targeted topics, and more importantly, participation in the investment climate reform effort. Under this 6

8 component in particular, the MEBF is managing the one stop shop center for business creation, Centre de Formalitks des Entreprises (CEFORE). 17. The support to the microfinance industry was provided through two channels: the regulatory body within the Ministry of Finance and the umbrella organization - Association Professionnelle de MicroJinance du Burkina Faso (APIM-BF)-. The frequency and quality of inspections have increased, and the rate of non-performing loans has dropped to 5.3 percent. Component 3: Project managementkoordination. 1 8, The project management/coordination component provides the overall project implementation infrastructure. The arrangements are that the public sector component would be handled by a project coordination team, composed of a Project Coordinator, a Procurement Specialist, a Financial Management Specialist, an Accountant, and an Administrative Assistant, in order to handle issues pertaining to fiduciary, safeguards, monitoring and evaluation, and general reporting aspects. For the private sector component, the implementation responsibility is assumed by the MEBF, which has a Board of Directors and a small technical team supported by the project. 19. The effectiveness of the project management has been uneven between the PCU and the MEBF, with the latter delivering more significant results and adjusting better to evolving circumstances such as the increasing focus on investment climate reforms. The PCU has had a longer learning curve, and has not displayed enough leadership to effectively engage all participating ministries. To overcome this challenge, it is proposed to set up a Steering Committee that will ensure a high level of involvement in each participating ministry and private sector institution. In the area of fiduciary aspects, actions have been taken to strengthen both the procurement and the financial management, both in terms of staffing and systems. Both the procurement and the financial management hnctions are handled by experienced staff. Issues of work load on the procurement side and weaknesses of the financial management side are being addressed. The 2007 qualified audit (accounts of CY2006) for example has led to the development of an action plan that the PCU is currently implementing. The project is a category B for environmental aspects, an environmental pre-audit was performed during project preparation, and no environmental issues have arisen during project implementation. 20. Overall, the project performance is rated unsatisfactory on the ground that it has a disbursement lag due to implementation delays. Some delays, particularly in the energy sector, were due to the fact that there were severe slippages in the adoption of the necessary legal and regulatory framework that was needed to trigger the implementation of activities initially envisaged. Others were related to weak implementation capacity of the various institutions involved and particularly the PCU whose leadership did not rise to the challenge of a multisectoral project. The restructuring seeks to address the above issues in order to allow the project to achieve its development objective. The Government s increased commitment to improving the project performance has already been materialized through the set up of a Steering Committee and the submission of a 7

9 detailed procurement plan indicating that all activities would be completed by the new proposed closing date of December 31,2010. Reasons for restructuring 21. The need to restructure the project comes from a combination of factors ranging from the changing country context and sector policies to institutional and capacity issues. 22. The Government s strategy toward private sector development has now put an emphasis on investment climate and strengthening of related institutions. The original project put an emphasis on administrative barriers to investment. In the meantime, the publication of the annual Doing Business report, the completion of an Investment Climate Assessment in 2006, and the Government s decision to set up a Presidential Investor Council have contributed to clarifying broader areas where the project can provide assistance that is needed to foster private sector development. 23. The Government has requested support for management of the mining sector, in line with its increased commitment to export development and diversification. While there is an increasing private sector activity in the mining sector, there is limited institutional capacity in the Ministry in charge of mining. Given the important role of mining in private sector development and the fact that this project i s already supporting the Ministry of Energy and Mining to reform and regulate the electricity sector, it is also the natural conduit for assistance to the mining sector focusing on policies, licenses, revenue management and sector governance. Even though the activities entailed were not explicitly envisioned in the original project, they fall within the scope of the project development objective and implementing partners, and will reinforce the overall economic competitiveness and diversification agenda. 24. The need to adjust the scope of the activities to the changing context. The implementation experience has shown that support in some areas is no longer as much needed as it was anticipated (e.g. rural telecommunications, air transport regulation, competition commission), whereas others need more fimding (e.g. investment climate, firm-level capacity building led by the Maison de Z Entreprise ). In the case of the rural telecommunications sub-component in particular, the project has provided sufficient technical assistance to the regulatory agency to design and carry out output-based projects to expand the network. The regulatory agency itself has accumulated enough resources to finance these projects without relying on project resources initially set aside. Moreover, in light of the expansion of the cellular telephone network, the Ministry of Telecommunications has indicated that it would not rely on the same approach for the expansion of rural telephony because the coverage has already significantly increased. Therefore, most resources originally allocated to these activities will be redeployed to other uses. 25. The need to address institutional and capacity issues. Due to the weakness of the project coordination team and the limited engagement of participating ministries, implementation suffered major delays. Procurement processes took a long time, not only because of lengthy processes, but also the adequacy of human resources needed to handle 8

10 the high number of activities to be implemented. Moreover, the ability to collect detailed information about project results remained limited. These issues called for the strengthening of project oversight through a Steering Committee (see annex 1) so as to increase ownership by all relevant ministries and the provision of additional human resources to handle project coordination, particularly in the areas of procurement and monitoring and evaluation. 26. The need to make adjustments to the results framework. Inconsistencies in the PDO formulation exist between the Project Appraisal Document (PAD) and the Development Financing Agreement (DFA), and need to be made consistent. In addition, some indicators, such as the contribution of the private sector to GDP growth or harmonization of national laws with the Organisation pour 1 Harmonisation en Afrique du Droit des Affaires (OHADA), proved hard to measure on a regular basis as well as to attribute to the project. In other cases, circumstances have changed and the indicator(s) may have become irrelevant as is the case of the number of villages with new access to rural telecommunications services or the reduction in administrative barriers. Finally, others needed to be rephrased to be more results than process-oriented: e.g. national conferences on competitiveness issues. Detailed explanations of the changes introduced in the results framework are provided in annex Unforeseen events and risk factors included (i) the frequent changes in the leadership of the Ministry of Commerce and the Privatization Commission where the incumbents changed three times since effectiveness; (ii) the increased emphasis on mining and investment climate; (iii) the purely centralized administrative approach to project coordination, thus failing to engage effectively all participating ministries; and (iv) the flaws in some pieces of legislation, namely the energy sector law and the labor code, due to insufficient consultations PROPOSED CHANGES 28. In light of some discrepancies identified in the wording of the project development objective in the PAD and in the DFA respectively, the Project Development Objective (PDO) statement has been refined to read as follows: The project objective is to assist Burkina Faso create conditions for improved competitiveness and more dynamic enterprise development. This refinement does not represent a change in the PDO, nor is it associated with significant changes in outcome targets. 29. The main proposed changes in the project and their impact on outputs, institutional arrangements, and closing date are discussed below; and annex 1 provides a revised project description. 30. Strengthening investment climate activities. Burkina Faso has embarked on a path of ambitious reforms that require more support that initially envisioned under the project. The project will help Burkina expand the scope of its reforms and implement a wide range of actions aimed at re-aligning and strengthening institutions required for a sound investment climate. These areas include, but are not limited to, business start-up, property registration, licensing, labor market flexibility, corporate taxation, and international trade. 9

11 Moreover, the project would support the activities of a Presidential Investor Council which is being considered. The project will specifically finance the operations of the Secretariat, the Council s meetings, working groups and capacity building activities. 31. Support for management of the mining sector. A set of activities, entailing an estimated cost of about $4 million equivalent, will be carried out in order to: (i) strengthen the capacity of the ministry of mining, particularly the national directorate of mining and geology and the national laboratory; and (ii) increasing transparency in the sector through the support to the extractive industries transparency initiative (EITI). More specifically, the project will provide financing for: (i) the assessment of the mining sector in Burkina Faso; (ii) the update of the mining sector policy framework, including the revisions of relevant mining code articles and regulations; (iii) a revision of the mining sector guide; (iv) the elaboration of a policy for sustainable development of mining communities; (v) management and monitoring system for mining concessions and titles granted to private operators, (vi) sector staff training, including scholarships, workshops, etc.; (vii) support to the EITI; and (ix) provision of equipment to relevant units within the Ministry of Mining. As for the laboratory -BUMIGEB--, the project will provide financing for: (i) laboratory (technical and scientific) equipment to carry out the necessary analyses; (ii) staff training and capacity enhancement; and (iii) international technical assistance, including training, for the laboratory accreditation process. 32. Expansion of the business development services, with a special emphasis on export-oriented activities, and support to micro-entrepreneurs: in addition to the existing applications of the matching grant, the latter will co-finance more specifically the development and implementation of export development plans for firms; the Support Training and Entrepreneurship Program (STEP) will provide support to microentrepreneurs; support to Business Plan Competition, designed to help create new businesses that have a high innovation content and the potential to better respond to new market conditions. For export-oriented firms, support will be provided to better manage quality, enhance their skills, link better to international markets. The expected outcomes are increased readiness for exports, with some firms securing certification for compliance with quality and standards certification, job creation by the firms using the matching grant facility. An amount of US$4 million has been allocated to the MEBF to cover the cost of civil works entailed by the construction of its offices and to support the expanded menu of business development services. 33. Transformation of the competitiveness committee into an investment climate reform task force. While the competitiveness committee has commissioned a number of studies over the last three years, its effectiveness has remained limited because the leadership has remained weak and there were no specific proposals developed for Government consideration as initially envisaged. However, the key people in the competitiveness committee have been involved in the investment climate reform, a key element of the competitiveness sought. Key areas of focus will be business creation, property registration, trading across borders, and contract enforcement. The investment climate reform task force will work closely with the Presidential Investor Council s Secretariat. 10

12 34. Strengthening of project implementation capacity by introducing a steering committee, adapting operational human resources, and increasing procurement prior review thresholds. The leadership and ability of the PCU to bring together the large number of ministries involved in project implementation has proven to be rather weak. Ministries tended to delegate the implementation responsibilities to low level officials who didn t have strategic vision and could not mobilize the necessary contributions. This resulted in delays and the erosion of responsibility by participating ministries. To address these issues, a Steering Committee, chaired by the Secretary General of the Ministry of Commerce, Enterprise Development and Crafts, has been set up (see institutional arrangements chart in annex 1). The private sector component of the project is operating properly and the Board of Directors of the MEBF has played an effective role in the operation of the project. At the operational level, implementation capacity is being strengthened by recruiting a procurement assistant for the PCU in order to address the issue of heavy work load and to speed up implementation activities. The PCU procurement staff will also be involved in the procurement of all major procurement activities under the MEBF. The restructured project will be governed by the May 2004 procurement guidelines as revised in October IDA prior review thresholds will be increased for goods (from US$lOO,OOO to US$200,000) and consultant firms (from US$lOO,OOO to US$150,000), and there will be no more prior review required for individual consultants except for particular assignments indicated in the revised procurement plan (see annex 4). Further capacity building will be provided in the area of financial management to ensure that the project be managed at the highest standard. Finally, the project will hire, under the PCU s responsibility, a Monitoring and Evaluation specialist to keep track of the overall project results on the ground. 35. Reallocation of hnds to better-performing components and increase of IDA costshare to 100 percent. In light of the historical project performance to date which indicates that public sector-led activities have lagged, whereas the program implemented by the private sector has been adequately implemented and has yielded results, funds are being reallocated to be put to more productive use so as to achieve desirable outcomes. For instance, the financial allocation for rural telecommunication has been significantly scaled back to reflect the new financing plan for rural telephony, and a nominal amount of US$500,000 has been retained for technical assistance, in case it is needed. In addition, US$1.1 million from the unallocated category has been transferred to the civil works category to cover substantial increases in costs caused by: (i) technical issues encountered in the rehabilitation of the building that the Government had granted to the Maison de Z Entreprise ; and (ii) the need for additional space for new investment climate improvement services such as those pertaining to business registration and licensing. Allocations for operational costs have also been increased to meet the needs related to increased administrative implementation support, extended duration of the project period, and the price escalation of goods and services, The details of the proposed reallocations are provided in annex 4 (costs by component) and in annex 5 (expenditure allocations by disbursement category). Moreover, it is proposed that IDA finance 100 percent of the cost of the restructured project, as permitted by the Country Financing Parameters for Burkina Faso approved on January 25, 2005, given the country s fragile financial situation and the fact this project supports a wide range of reform efforts. While the overall project financing envelope will shrink as a result of the elimination of the 11

13 Government s counterpart financing contribution, the project is expected to perform satisfactorily within the financing available and attain its objectives. 36. Results framework improvement. In order to better capture the results achieved by the project, refinements have been made to the performance indicators to improve their clarity and measurability. Indicators for which there is a clear problem of attribution to the project or which are hard to measure have been dropped. To measure results deriving from the proposed support for strengthening management of the mining sector, three intermediate results indicators have been added. To facilitate the monitoring and evaluation of the project performance, baseline and mid-term review data for performance indicators, as well as targets for the period of project extension, are provided in annex In light of past and anticipated activity levels as well as needs of the Maison de l Entreprise, the amount of the authorized allocation in respect of Special Account C pertaining to goods, consultants, training and workshops, and Special Account D related to the matching grant facility would be doubled to avoid timely availability of funds, thus allowing smooth project implementation. 38. Project execution will be done in accordance with the latest World Bank guidelines for the selection and employment of consultants by World Bank Borrowers (dated May 2004 and revised in October 2006). In addition, in light of the procurement capacity on the ground, the prior review thresholds will be revised as follows: (a) US$200,000 (up from the current level of US$lOO,OOO) for goods, (b) US$150,000 (currently US$lOO,OOO) for consultant firms; and (c) no prior review will be revised for individual consultants except for special assignments that are specifically indicated in the procurement plan. 39. Extension of the project Closing Date: per Government request, the closing date will be extended for two and a half additional years from June 30,2008 to December 30, 2010, to allow consolidation of investment climate reforms, the set up of a regulatory agency in the energy sector and implementation of related capacity building activities, the strengthening of the capacity needed for the management of the mining sector, and the support to micro-enterprises, and to compensate for the delay in project effectiveness at the beginning of implementation. In light of the progress made to date, the satisfactory performance of the MEBF and the Borrower s action to set up a Steering Committee to improve the performance of the PCU, the project objective remains achievable. Moreover, the Borrower has prepared a satisfactory procurement plan and action plan to allow effective project implementation until the proposed closing date. Project audits have been submitted in a timely manner. 12

14 IV. ANALYSIS 40. The proposed changes have no major effect on the original economic, financial, technical, institutional, or social aspects of the project as appraised. However, they substantially increase the likelihood of improved developmental impact. 41. The restructuring brings to the project two particular aspects that will significantly enhance the benefits of the project for the Borrower: the increased focus on investment climate issues will help increase the formalization of firms, private investment and job creation. 42. The economic analysis of the original project concluded that the project would have an economic rate of return (ERR) of 28.2 percent. At the same time, a scenario of delays in disbursements has been run, showing that the net present value (NPV) would decline from US$19.8 million to US$14.5 million, and the ERR would be reduced to 22.1 percent. NPV Matching Matching Institutional Privatization/ Other Overall grants/ grants/training Development Telecoms and privati Project consultancies (including (including Energy zation STEP) mining) ($mn> ERR 41.4% 32% 16.5% 33% 27% 30.3% 44. The proposed changes will not raise the environmental category (B) of the project or trigger new safeguard policies, nor would involve any exceptions to Bank policies. V. EXPECTED OUTCOMES 45. The PDO and its indicators have been refined to match better the outcomes attributable to the project. The refined PDO-level outcome indicators are the following: 13

15 Number of jobs created by enterprises supported by the project; Average increase in sales of the matching grant beneficiaries; Number of enterprises registered with assistance from the project/year; 0 Number of state enterprises divested; Number of telephone lines per inhabitants. 46. Annex 2 provides the detailed changes to the performance indicators, the results framework, the monitoring and evaluation data matrix, and schedule 7 of the DFA. VI. BENEFITS AND RISKS 47. Benefits expected from the restructured project include: (i) the strengthening of a business climate that is conducive to private investment and job creation on the one hand; (ii) the increased focus of the state on its core role of regulation rather than operator through privatization; (iii) the improved performance of the telecommunications and energy sectors leading to better access to and quality of services; (iv) an increase in exports from firms supported by the matching grant facility; and (v) higher economic diversification driven by the mining sector. Moreover, it is expected that the learning and demonstration effect of the matching grant will also spread and benefit to other firms and sectors not directly supported. Finally, the proposed changes will contribute to increasing the likelihood of achieving or surpassing the original economic analysis target. 48. More specifically, it is expected that the restructured project will yield the following results: 0 Spill-over effects of the matching grants supporting export-oriented firms: the increased focus of the matching grants on export development will have not only contributed to increasing exports but will also produce a positive demonstration impact for all exporting firms. This will be reinforced by the implementation of an export development strategy, leveraging the trade diagnostic study (DTIS), that the Government is currently developing. 0 More measurable outcomes: the changes to the results framework bring more clarity and realism to the performance indicators. This will result into an improved monitoring and evaluation system. 0 Improved implementation arrangements: the introduction of a steering committee into the institutional arrangements will help increase the engagement of all relevant ministries, thus accelerate project implementation. 49. Risks and the way they will be mitigated. The original project s risk assessment was candid. Substantial risks were foreseen in the insufficient response from the private sector, the insufficient technical capacity to implement the privatization program and lack of market response for the privatization of the electricity company. To the extent possible, these risks were mitigated through the broadening of the menu of services provided by 14

16 the Maison de I Entreprise and the provision of technical assistance to the Privatization Commission. The case of the electricity company remains untested because of the delays in getting the sector law in place. The high risk that was associated with the C6te d Ivoire crisis has now become rather modest as adaptation mechanisms, such the diversification of import routes, have taken place. Risks associated with rural telecommunications services (capital subsidy and operator default on the license) are no longer applicable since the project will not contribute to the universal access find. With an increased alignment of the restructured project with current Government priorities, the risks will become rather modest. Additional technical assistance will be provided as needed in areas where it may help better manage the risks. 50. While remedial action has been taken to strengthen implementation arrangements in light of lessons learned so far, weak institutional capacity, particularly for the public sector component, remains a risk for project effective implementation. Government s increased attention to high standard in procurement, financial management and monitoring and evaluation will be essential. To this end, World Bank s sustained implementation support will be needed. 15

17 ANNEX 1: REVISED PROJECT DESCRIPTION The project objective is to assist Burkina Faso create conditions for improved competitiveness and more dynamic enterprise development. Part A: Privatization and Utility Reform Component 1. Privatization Support to Privatization Commission (PC) for: (a) strategic planning and implementation of specific privatization transactions envisaged in the Borrower s privatization program, including the privatization of ONATEL, the preparation of a lease contract for SONABEL, and the introduction of private investor into SONABHY s shareholding; (b) carrying out of a privatization communication campaign; and (c) strengthening of the PC to implement the Borrower s privatization policy. 2. Utility Reform (a) Support to the tairection Ge ne rale de I Aviation Civile et de la Me tkorologie)) (DGACM) for streamlining the Civil Aeronautic Code. (b) Support to Ministry of Energy for: (i) devising a new regulatory framework for the energy sector; (ii) establishing and building up the capacity of a regulatory body for the sector; and (iii) opening the sector to private investors. (c) Strengthening of the capacity of the Autorite Nationale de Re gulation des Te le communications (ARTEL) to regulate the telecommunications sector, including streamlining of the telecommunications regulatory framework. (d) Strengthening of the capacity of the Ministry of Posts and Telecommunications (MPT) to implement a rural telecommunications development strategy and to develop funding mechanisms to improve telecommunications access in rural areas. (e) Support to the De le gation Ge ne rale ci l lnformatique (DELGI) for: (i) formulating and implementing policies for the development of information and communications technologies (ICT); and (ii) designing a legal framework for ICT. Part B: Enterprise Development Component 1. Business Environment and institutional development (a) Support to the Ministry of Justice (MOJ) for: (i) educating magistrates and court administrators on the implementation of OHADA and business laws; (ii) strengthening the commercial courts; (iii) developing a mechanism for the referral of commercial court cases to arbitration, and establishing an arbitration center, including the preparation of arbitration rules, the provision of equipment and reference materials, the training of arbitrators and the holding of public outreach campaigns; and (iv) strengthening the capacity of the Register of Commercial and Personal Property Transactions (RCCM) personnel and reorganizing and computerizing 16

18 the RCCM filing system as well as ensuring the interconnection between the computerized filing systems of the RCCM and the Chamber of Commerce. (b) Support to Ministry of Commerce for formulating policies for: (i) strengthening its capacity to increase its effectiveness through the provision of technical advisory services, training of its personnel and equipment; and (ii) promoting competitiveness and enterprise development in its various fields of responsibilities. (c) Support to the Ministry of Energy and Mining for: (i) updating the mining sector legislation; (ii) staff training and equipment for the ministry and the laboratory; (iii) sector promotion; (iv) community development framework; and (v) the implementation of the extractive industries transparency initiative (EITI). (d) Support to the investment climate reform team and the Presidential Investor Council for: (i) formulating and making recommendations to appropriate bodies for implementation of measures aimed at improving the competitiveness of the Borrower s economy; and (ii) defining and implementing policy proposals and an action plan for removing regulatory barriers to investment and streamlining procedures affecting enterprise registration and operation. 2. Enterprise Development Services (a) Support to MEBF for: (i) building its capacity as an information and orientation center for entrepreneurs; and (ii) providing non-financial services to SMEs such as feasibility studies, technical and business plans, business and financial management, training and effective mobilization of resources. (b) Support to MEBF for: (i) providing Matching Grants to Beneficiaries, particularly those with export orientation, for the following types of activities: 0 provision of expert consultancies to Beneficiaries by suppliers of business services; and 0 development and delivery of training courses for Beneficiaries by qualified trainers and training institutions. (ii) providing support to micro-entrepreneurs through the training and coaching; and (iii) organizing at least one national business competition by 2010 to foster entrepreneurship. 3. Micro finance Support to regulatory agency (Ministry of Finance) and the Association Professionnelle des Institutions de Microfinance du Burkina Faso (APIM-BF) for: (i) improving the supervision of the microfinance sector; (ii) developing and implementing a national policy and strategy for the financing of the rural sector and for SMEs development; and (iii) designing and implementing a program to strengthen capacity within the main segments of the microfinance industry. 17

19 Part C: Proiect Implementation and Audit Component Provision of technical assistance and financing to the Project Coordination Unit to implement, coordinate, monitor, evaluate and audit the Project. 18

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21 ANNEX 2: REVISED PERFORMANCE INDICATORS AND RESULTS FRAMEWORK. PDO Private sector development Indicators Access and cost of infrastructure services indicators PDO Statements and Indicators from the PAD and Legal Agreement The project objective is to assist Burkina Faso to improve the competitiveness of its economy through privatization and utility reform, investment climate improvement and private sector institutional development and mitigation of constraints to small and medium enterprise development. (PAD text page 2 & ISR) Improve the competitiveness of the economy through private sector development and mitigation of SME constraints. (PAD Annex 1) The objective of the Project is to assist the Borrower to improve the competitiveness of its economy through private sector development, mitigation of constraints to SMEs development, and improved producer to market linkages. (Development Financing Agreement - DFA) Private sector contribution to the Borrower s Gross Domestic Product of 8 points of percentage over the life of the Project. (DFA) Formal private sector contribution to GDP growth increased by at least 8 percentage points by the end of the project. (PAD text page 2) Increase in valued added and employment generated by the private sector, notably beneficiary enterprises: 8 points of percentage increase in the formal private sector contribution to GDP. (PAD Annex 1) This is a PDO level KPI Increase private sector investment to GDP (bigger private sector share o f productive and commercial activities) (PAD Annex 1) This is a PDO level KPI At least 2000 new jobs created in the private PAD Annex 1) This is a PDO level KPI Improved access to infrastructure services, particularly in the telecommunications sector by increasing the current teledensity from 1.5 to 3 lines per 100 inhabitants by the end of the Project. (DFA) (PAD text page 2) (PAD Annex 1) 20 Comments and Proposed Changes There are different wordings of the PDO in the PAD and the legal text. As part of the restructuring, the PDO is clarified and simplified to be : To assist Burkina Faso create conditions for improved competitiveness and more dynamic enterprise development. Measuring private sector contribution to GDP on a regular basis has proven difficult. Progress on this indicator is also not easy to attribute to the project interventions. This indicator has therefore been dropped. Similarly, it is difficult to measure and attribute progress on this indicator to the project interventions. This indicator has therefore been dropped. This indicator is being clarified to : number of jobs created by enterprises supported by the project The target of 2000 jobs is unchanged Data on number of mobile and fixed telephone customers i s available. This indicator is kept since it provides a mean to assess the impact of the reforms in the telecom sector,