AFRICAN DEVELOPMENT FUND

AFRICAN DEVELOPMENT FUND REGIONAL GRANT SUPPORT TO THE AFRICAN CAPACITY BUILDING FOUNDATION (ACBF) FOR THE STRATEGIC MEDIUM TERM PLAN (SMTP) III EADI/GECL February 2014

TABLE OF CONTENTS I STRATEGIC THRUST & RATIONALE... 1 1.1. Project linkages with country strategy and objectives... 1 1.2. Rationale for Bank s involvement... 2 1.3. Donors coordination... 3 II PROJECT DESCRIPTION... 4 2.1. Project rational....4 2.2. Project objectives and components....6 2.3. Technical solution retained and other alternatives explored... 9 2.4. Project type... 10 2.5. Project cost and financing arrangements... 10 2.6. Project s target area and population... 12 2.7. Participatory process for project identification, design and implementation... 12 2.8. Bank Group experience, lessons reflected in project design... 12 2.9. Key performance indicators... 13 III PROJECT FEASIBILITY... 13 3.1. Economic and financial performance... 13 3.2. Specific required feasibility and technical studies.13 3.3. Expected/design cross-cutting focus/benefits...13 IV IMPLEMENTATION... 14 4.1. Implementation arrangements... 14 4.2. Procurement and financial management arrangements....14 4.3. Monitoring... 15 4.4. Governance..16 4.5. Sustainability... 16 4.6. Risk management... 17 4.7. Knowledge building... 17 V LEGAL INSTRUMENTS AND AUTHORITY... 18 5.1. Legal instrument... 18 5.2. Conditions associated with Bank s intervention... 18 5.3. Compliance with Bank Policies... 18 VI RECOMMENDATION... 18 ANNEXES Annex I - Map of the Project Area. Annex II - Key lessons learned in implementing AFDB/in partnership with ACBF Annex III - Implementation, Monitoring and Evaluation of SMTP III Annex IV- Financial Management, Disbursement and Audit Arrangements,Accounting, Recording, Reporting and Internal Countrol Systems Annex V - Procurement Arrangements Annex VI - List of Confirmed Pledges for ACBF SMTP III Implementation Annex VII - Summary of Pledges to SMTP III (2012-2016) as of July 2013 Annex VIII - Project Timeframe

Currency Equivalents As of July, 2013 1 United States Dollars (USD) = 0.64471 Unit of Account (UA) 1 Unit of Account (UA) = 1.5413 United States Dollars (USD) Fiscal Year January 1 - December 31 Weights and Measures 1metric tonne = 2204 Pounds (lbs) 1 Kilogramme (kg) = 2.200 lbs 1 metre (m) = 3.28 feet (ft.) 1 millimetre (mm) = 0.03937 inch ( ) 1 kilometre (km) = 0.62 mile 1 hectare (ha) = 2.471 acres i

Acronyms and Abbreviations ACBF ECA ACI /ACIR ADF AfDB AFREXIM AGO AUC AusAID CDS CEMAC CPI COMESA EADI ECAS ECOWAS IDRC IMF KMDS KPI MAP MDGs MEFMI M&E MTS NEPAD NILS NPCA PAR PAFTRAC PCR PEFA REC RIT RMC RMF SMTP RPG STI TTI UNDP UNECA African Capacity Building Foundation Economic Commission for Africa Africa Capacity Indicators / Report African Development Fund African Development Bank Group Africa Export-Import Bank African Governance Outlook African Union Commission Austria AID Capacity Development Strategy Communautés Economique et Monétaire des Etats de l Afrique Centrale Corruption Perception Index Common Market for Eastern and Southern African Countries African Development Institute Economic Community if Central African States Economic Community of West African States International Development Research Center International Monetary Fund Knowledge Management and Development Strategy Key Performance Indicator Management Action Plan Millennium Development Goals Macroeconomic and Financial Management Institute Monitoring and Evaluation Medium Term Strategy New Partnership for Africa s Development Nigeria Institute for Legislative Studies NEPAD Planning and Coordinating Agency Project Appraisal Report Pan African Private Sector Trade Policy Committee (iii) Project Completion Report Public Expenditure and Financial Accountability assessments Regional Economic Community Regional Integration and Trade Regional Member Country Results Measurement Framework Strategic Medium Term Plan Regional Public Goods Science, Technology and Innovation Think Tank Initiative United Nations Development Program United Nations Economic Commission for Africa ii

Grant Information Client s information BORROWER: EXECUTING AGENCY: Financing plan (2013-2014) African Capacity Building Foundation (ACBF) African Capacity Building Foundation (ACBF) Source Amount (UA) Instrument ADF 3 million Grant World Bank 25.95 million Grant African Governments 6.70 million Grant Sweden 2.59 million Grant Uus AID**/ 0.078 million Grant Financing Gap* TOTAL COST 6.45 million 44.77 million Total pledged for the 5 years: World Bank UA 64.88 million; African Governments: UA 16.77 million; Sweden UA 6.48 million; Austria AID UA 2.00 million. * Other bilateral partners have confirmed their intention to pledge to SMTP III for 2013 and 2014. ** Austria AID ADB s key financing information Grant currency Interest type Interest rate spread Commitment fee Other fees Tenor Grace period FIRR, NPV (base case) UA NA NA NA EIRR (base case) NA Timeframe - Main Milestones (expected) Concept Note approval November 2012 NA NA NA NA Project approval December 2013 Effectiveness December 2013 Last Disbursement November 2014 Completion December 2014 Last repayment Not applicable iii

Project Summary 1. Project Overview: The project constitutes the Bank Group s contribution to the core functions of the African Capacity Building Foundation (ACBF) in implementing its third Strategic Medium- Term Plan (SMTP III) (2012-2016), and for the Foundation to serve as an Implementing Agency on capacity building programs for various Bank Group Departments. The overall goal of SMTP III is to build capacity of regional member countries (RMCs) and regional economic communities (RECs) for effective governance systems, which translate into poverty reduction. The expected outcomes are: (i) improved economic and financial integration policy formulation and implementation; (ii) improved transparency and accountability in the management of public resources in Africa; and (iii) improved intra-regional trade and share of African economies in global trade. 2. The African Development Fund (ADF) Regional Public Goods grant will support achievement of the overall objectives of ACBF/SMTP III. The project will enable ACBF assist in promoting stability and good governance across RMCs by: scaling up transformative change in reformer states; providing targeted support to countries emerging from conflict; helping RMCs and RECs improve policies and regulations concerning the productive sector, and regional integration. The project cost is UA 3 million (USD 4.6 million) as Bank Group s contribution for the 18-month of the five-year SMTP III implementation period. 3. Beneficiary Participation / Needs Assessment: The SMTP III builds on the two previous fiveyear rolling strategic plans (SMTP I and II) and is therefore designed based on lessons learned in ACBF s capacity building activities in Africa over the past 20 years. ACBF also conducted extensive public consultations among key stakeholders of the region s development agenda, namely: African governments, regional institutions and the private sector; development agencies such as the Bank Group, the World Bank, the International Monetary Fund (IMF) and the United Nations Development Program (UNDP) that are the multilateral partners of the Foundation; and non-african governments and bilateral donors. 4. Project Rationale: SMTP III focuses on capacity building in areas such as stability and good governance environment for an inclusive growth, performance of productive sectors and regional integration, which are critical for transforming African economies. The project will help improve ability of RMCs to sustain recent rapid economic growth, democratic gains and social stability even in periods of uncertainty, through sound policy formulation. These areas are important for achieving the objectives of the Bank Group s Capacity Development Strategy (CDS), particularly its Pillar 2, i.e., Strengthen RMCs capacity for policy dialogue on key development issues. The project advances the CDS by partnering with ACBF to deliver high quality interventions on its behalf, in assisting RMCs and RECs on their capacity building programs. The grant will also enable the Bank strengthen its partnership and collaboration with ACBF to help develop regional public goods on capacity building. 5. Bank s Value-Added: The project is one of the ways in which the Bank Group is practising some of the donor-agreed frameworks for delivering development assistance, such as donor harmonization. In delivering capacity building programs through a regional institution like ACBF, Bank Group s contribution will be leveraged with funding from other members of the Foundation, including several African and non-african Governments and multilateral development and finance institutions. The project will also enable the Bank Group to share its experience with key regional institutions through partnerships and financing because no individual institution is in a position of providing the full capacity building support that RMCs and RECs need to make transformative change. The Bank Group, through EADI, will supervise the project and bring its knowledge, expertise and experience to improve the iv

implementation capacity of ACBF. The Bank Group is also a member of the Executive and Governing Boards of ACBF and can use these positions to improve implementation of the project, beyond routine Bank Group project supervision approaches. 6. Knowledge Management: The project will generate knowledge in form of implementation reports, evaluation reports, quarterly project review reports, completion reports, analytical studies and associated reports, and case studies. These documents and knowledge will be disseminated at national, regional, and international levels through seminars and discussion forums as well as presented within the Bank Group as good practices. Based on lessons learned, ACBF and the Bank Group will improve design and implementation of its financed capacity building projects. v

OUTCOMES IMPACT Result-based Logical Framework Country and project name: Regional ADF Grant Support to the African Capacity Building Foundation (ACBF) for the Third Strategic Medium Term Plan (SMTP III, 2012-2016) Purpose of the project: Capacity building of African countries and regional institutions on effective governance for real poverty reduction on the continent PERFORMANCE INDICATORS RESULTS CHAIN MEANS OF VERIFICATION RISKS/MITIGATION MEASURES Indicator (including CSI) Baseline (Sept 2012) Target (2016) Impact Effective governance in regional member countries and regional institutions that translates into real poverty reduction in Africa 1. Average real GDP growth rate for the region 2. MDG 1.a: Reduce Income Poverty 5% 44.0% 7% Reduced to 41.0% 1. AfDB/IMF/World Bank data 2. UNDP MDG Country Reports Risk: Funding volatility and insufficiency Mitigation: Commitments and pledges have been secured; Additional co-financing to be sourced for individual projects Outcome 1 Improved economic and financial integration policy formulation and implementation 1. Improved Africa Capacity Indicators (ACI) to track policy impact on development outcomes 1ACIR 4ACIR 1. ACBF Annual Reports Risks: 1. SMTP III in fragile and post-conflict states will be constrained by several factors, including weak human resources. Outcome 2 Improved transparency and accountability in the management of public resources in Africa No. of countries rated with more than 3.9 on the Corruption Perception Index (CPI) for transparency, accountability and corruption in public sector 7 10 Transparency International Corruption Perception Index (CPI) 2. ACBF is headquartered in Harare, Zimbabwe. This may pose some risk due to political uncertainty in the country. Mitigation: 1. Project implementation will draw lessons from the growing body of work on doing business in fragile states. 2. The project will be implemented in partnership with national and other regional institutions, which will ensure sustained program delivery and devolution of management during crisis. RESULTS CHAIN PERFORMANCE INDICATORS MEANS OF RISKS/MITIGATION MEASURES vi

KEY ACTIVITIES OUTPUTS Output 1: 1.1: Economic and financial analysis, forecasting, and results-based management for improved regional integration Indicator (including CSI) 1.1.1 No. of institutions trained on regional integration policy modelling and forecasting, including using gender-sensitive parameters Baseline (2012) 0 Target (by 2014) 12 VERIFICATION ACBF Data / Reports Risks: Programming areas may be too many, requiring a high level of funding in a difficult economic environment of donor partners. Output 2 2.1: Regional policy frameworks developed for the management of public-private partnerships, especially for complex cross-border infrastructure Output 3 3.1 Financial governance systems strengthened for financial integration 2.1.1 No of RECs assisted to develop policy frameworks for the management of publicprivate partnerships 3.1.1 No. of published Africa Governance Outlook (AGO) country reports 0 0 2 10 ACBF Data / Reports Reports published Capacity to deliver robust political economy analysis and ensure reports of the highest quality. Mitigation: If necessary, ACBF will make further prioritization and reallocation of resources to key deliverables and reduction of overhead cost without affecting the project development outcomes. 3.1.12 Publication of consolidated report summarizing findings from the 10 AGO country reports 0 1 Report published Develop a detailed work plan/budget to deliver the AGO reports. In addition, it is recommended that ACBF work with AfDB field offices to identify strong consultants who are able to guide Teams undertaking the political economy analysis. COMPONENTS Component 1: Improving economic and financial governance in support of regional integration policy formulation and implementation Component 2: Improved transparency and accountability in the management of public resources in Africa INPUTS ACBF capacity building support to RMCs and RECs will aim at strengthening the enabling environment and make it prone to the formulation and implementation of regional integration policies. Activities will include: 1.1. Improving macro-economic policy modelling and forecasting at sub-regional level (MEFMI) 1.2. Supporting the formulation of policy options for sub-regional economic analysis and governance reforms (NILS) 1.3. Strengthening policy formulation and implementation capacity of RECs on regional integration and trade (RIT) (MEFMI &NILS) 1.4. Supporting research on innovative methods of financing sub-regional infrastructure development especially in energy and transport (MEFMI) 1.5. Supporting the development of regional policy frameworks for public-private partnerships (MEFMI) Working with the RECs, ACBF will support RMCs in improving their governance systems thus paving the way for effective financial integration of African economies through the implementation of the AGO in 10 countries to uncover financial governance needs in RMCs. * The projected increased GDP (PPP) growth rate from 5% to 7% is according to global statistical economy institutions, for example, Economy Watch: From 2012 to 2016, Africa's GDP (PPP) for Africa will grow by an average of 7% annually. By 2016, the continent's GDP (PPP) will be US$4.88 trillion, an overall growth of 45.5 % over 5 years. <http://www.economywatch.com/world_economy/africa/economic-forecast.html> <http://www.economywatch.com/economic-statistics/year/2016/>. Baseline figure obtained for Africa s intra-regional trade as a percentage of the continent s total trade was obtained: Mwangi S. Kimenyi, Zenia A. Lewis and Brandon Routman, Introduction: Intra-African Trade in Context. Brookings Africa Growth Initiative. vii

ADF PUBLIC GOODS GRANT SUPPORT THE AFRICAN CAPACITY BUILDING FOUNDATION FOR THE THIRD STRATEGIC MEDIUM TERM PLAN (SMTP III) Management submits the following Report and Recommendation on a proposed grant for UA 3.00 million (USD 4.6 million) to the African Capacity Building Foundation (ACBF, or the Foundation) for implementing the first two years of the Third Strategic Medium Term Plan (SMTP III): 2012-2016. The grant will also enable ACBF serve as Implementing Agency in capacity building programs with various Departments of the Bank Group over the 18-month period of the project. I STRATEGIC THRUST & RATIONALE 1.1 Project linkages with Bank Group strategy and objectives 1.1.1 Support to ACBF s SMTP III implementation is in alignment with Bank Group s Capacity Development Strategy (CDS): 2010-2014. The Bank Group places emphasis on capacity building of RMCs/RECs, as the CDS noted that, no matter the amount of financial resources mobilized for Africa s development, such funds would yield only limited or modest results if countries do not have the human, organizational and institutional capacity to absorb and effectively utilize them. Bank Group s strategy to address the region s capacity deficit places emphasis on programs that help Strengthen RMCs capacity for policy dialogue on key development issues, which constitutes the second pillar of the CDS. 1.1.2 The Bank Group also emphasizes that, no individual institution is capable of providing the extent of capacity building support required by RMCs and RECs to sustainably undergo the necessary transformations. In implementing the CDS, Bank Group therefore aims to build partnership with national and regional capacity development institutions, which are able to deliver high quality interventions on its behalf, and do so more quickly, have greater impact, reach a larger target audience and in a more cost-effective manner than the Bank Group could achieve on its own. The Bank Group is a founding member of ACBF and has supported the Foundation in implementing the preceding SMTPs I and II, which have helped build capacity of regional member countries (RMCs), regional economic communities (RECs) and other organizations in Africa over the past 20 years. 1.1.3 SMTP III focuses on capacity building areas that are in line with the Bank Group s Long-Term Strategy (LTS) (20013-2022) and critical for transforming African economies. Some of the key areas SMTP III will address include stability and good governance for inclusive growth, performance of productive sectors and youth employment, and regional integration and Africa s participation in world trade. Capacity building is also in line with the Bank Group s Regional Integration Strategy (RIS): 2009-2013. The Bank is developing a new RIS for the period 2013-2022 aligned to the Bank Group s Ten year Development Strategy and capacity building is likely to be a core part of the new RIS. 1.1.4 Regional integration is deepening and maturing across Africa led by the Regional Economic communities (RECs) such as CEN-SAD, ECA, ECCAS, ECOWAS, COMESA, IGAD, SADC, and UMA, resulting in the creation of a large more integrated cross-border regional markets for goods, services and labour through initiatives such as the Tripartite Free Trade Area involving COMESA, ECA and SADC and the larger Continental Free Trade Area (CFTA). This requires creation capacities at various levels to enable countries better manage the new economic arrangement as well 1

as providing platforms for result-driven public-private dialogue and partnership to create the enabling environment for competitive and inclusive economic growth. 1.2 Rationale for Bank Group s involvement 1.2.1 This proposal seeks to secure an ADF grant of UA 3 million from the Regional Public Goods (RPG) instrument to support the ACBF in implementing its SMTP III over the first 18-months. In addition, the grant, which is in response to a request from the Foundation, will enable ACBF to serve as an Implementing Agency on capacity building programs of various Bank Group Departments for the benefit of ADF-eligible countries. For all of the cases where ADF RPG resources are used under the proposed project, activities in non-adf countries will be financed from ACBF resources contributed by other donors, such as bilateral development agencies and African Governments. Although the request for support by ACBF is based on a five-year program, the detailed breakdown for the requested support from the Bank Group and other donors is based on 18 months. The SMTP III was approved in February 2011 by ACBF s Board of Governors, which includes the Bank Group as a founding member of the Foundation. The project is aligned to Bank Group s CDS, and the KMDS. The Bank Group has contributed UA 25.25 million in support of ACBF s capacity building activities in RMCs and RECs over the past 20 years, including funds for implementing SMTP II (UA 7.54 million in 2010) and SMTP I (UA 10.29 million). 1.2.2 The Bank Group has completed the Project Completion Report (PCR) concerning SMTP I and found that the funds were fully disbursed by ACBF. Bank Group s grant to ACBF for SMTP II implementation closed at the end of December 2011, and the PCR is completed. Implementation and resource utilization were on track to achieve project objectives. The PCRs covering SMTP I and II rated overall achievement of outcomes as good. The report observed that, ACBF succeeded in improving policy-making processes, particularly through establishment of 35 policy think tanks, and this impact went beyond the core public sector to non-state actors. The think tanks have helped improve evidence-based policy-making and deepened dialogue among government, donors, civil society and the private sector. Seven of the think tanks supported by ACBF were among 24 African institutions that received the William and Flora Hewlett Foundation and the Bill and Melinda Gates Foundation Think Tank Initiative (TTI) Grant totalling US$ 30 million in 2009. The PCRs also reported that ACBF was successful in building capacity of institutions for financial management and accountability, which has allowed key ministries, central banks and agencies to improve the skills and competencies of their staff and even helped to transform some into centres of excellence that produced qualified economists for the continent. ACBF was also given a good outcome rating on enhancing its visibility and convening power, and that clients recognize its importance, as reflected in its ability to attract funding from several donors. 1.2.3 The Foundation, through SMTP III, is important to the Bank Group s capacity building strategies and the region s development amid intensifying globalization and complexity in world trade. The project will enable Bank Group strengthen its partnership with a reputable regional institution that can deliver high quality interventions on its behalf, thereby enabling Bank Group move away from a retail to partial wholesale approach of capacity building in RMCs and RECs. ACBF has received Bank Group s technical assistance to improve on its internal organizational capacity and has implemented previous stages of the SMTP (I and II) to the satisfaction of the Bank Group, as captured in the PCR of SMTP I and SMTP II. The requested level of financing is premised on fact that: (i) Scaled-up capacity in Africa will undoubtedly enhance effectiveness of Bank Group portfolios in RMCs; (ii) Capacity development needs to be scaled up to cater for the growing needs of African countries for the knowledge and skills development that will allow them to transform their 2

economies; (iii) ACBF is a pan-african regional organization contributing to public goods in Bank Group s RMCs; and (iv) African countries and institutions need to play an increasing role in the financing of African regional organizations and African governments have already set the tone in that direction by making funding pledges to the Foundation s SMTP III that are in some cases six-fold their previous levels. 1.2.4 ACBF s specialization, objectives for the SMTP III, outputs, products, services and the approaches to be used reinforce and add value to the Bank Group s focus areas and mechanisms for capacity building in RMCs and RECs. For example, the Foundation s flagship report, Africa Capacity Indicators Report (ACIR), which is in its third year of production, is contributing to more effective measurements of capacity and policy impacts in key sectors, such as natural resource (ACIR 2013), agriculture (2012) and governance (ACIR 2011) in several RMCs. 1.2.5 The Foundation has also adopted innovative models for human and institutional capacity building in Africa. The core models involve: (a) Provision of grants and technical assistance to build capacity of government and non-state actors at national and regional levels; and (b) Knowledge and learning activities under which ACBF conducts research activities on emerging development issues and publishes results through Occasional Papers and books. Under the provision of grants and technical assistance, ACBF s competencies are: (i) economic policy analysis and management; (ii) financial management and accountability; (iii) public administration management; (iv) strengthening national statistical capacity; (v) strengthening policy analysis of national parliaments; and (vi) professionalization of the voices of the civil society and the private sector. The later intervention includes professionalization of the voices of civil society include the early support given to the African Peer Review Mechanism process through technical advice and advocacy to mobilize the voices of civil society. ACBF also organizes high-level forums as part of the knowledge and learning activities, which bring together decision-makers, researchers, academics and other development actors to find solutions to emerging development issues. 1.2.6 In addition, ACBF will serve as an Implementing Partner for several capacity building programs of Bank Group Departments, such as : (i) development of results tracking methodologies and management of the knowledge sharing component of the African Communities of Practice (AfCoP) program; (ii) the African Governance Outlook (AGO) program; (iii) policies on regional integration and trade, taking the Communautés Economique et Monetaire des Etats de l Afrique Centrale (CEMAC) countries as pilot, with the potential for expansion to other sub-regions; (iv) policy formulation and implementation in support of Bank Group s new Human Capacity Strategy (science, technology and innovation capacity and youth employment creation); and, (v) other Bank Group s capacity building activities, in collaboration with or on behalf of EADI. 1.3 Donors coordination 1.3.1 ACBF is effective in coordinating and leveraging donor resources. Various donors contributed UA 102.91 million for implementation of SMTP II (2007-2011) of which the Bank Group s UA 7.54 million amounted to 3.43% of the total amount. The Foundation was established in 1991 as a partnership between African governments and the international donors community to provide longterm support for capacity building. The Bank Group, the United Nations Development Program (UNDP) and the World Bank constitute ACBF s sponsoring agencies. The other multilateral partner is the International Monetary Fund (IMF). Other members of the ACBF partnership include 38 African governments and 13 non-african governments. The members provide grants, technical 3

assistance and other forms of support to ACBF to deliver capacity building activities in RMCs and RECs. ACBF has operations in at least 45 African countries, but reaches all other countries in the region through its knowledge-sharing platform and advisory services. Table 1 : Donor commitments and expected pledges to ACBF for SMTP III implementation for the period 2012-2016 (US$ millions) As of July 2013 Donor category Planned Commitments 2012 2016 Total % African Development Fund (ADF)* 50.160 23.0 Other AFDB financing** 11.573 5.3 World Bank 100.000 45.9 Sweden 10.000 4.6 AusAID 3.069 1.4 African Governments 25.850 11.9 Other Sources (Financing Gap)*** 17.347 7.9 Total **** 218.000 100.0 Source: ACBF. * ACBF request to the Bank Group for a five-year support in implementing the SMTP III (Annex 3). ** AFDB/Nigeria Trust Fund (650.000); AfCOP (2.860.000); Zimbabwe Program (8.063.000). *** Based on confirmed pledges as at end of April, 2013. ****Based on the base case scenario. 1.3.2 As of July 2013, the members of Foundation have pledged USD 200.652 million to the ACBF Trust Fund toward implementing the current five-year SMTP III, and several members have indicated their intentions to make additional or new contributions. The pledges / contributions for SMTP III so far include USD 100 million from the World Bank, USD 10 million from Government of Sweden and USD 25.850 million from African Governments. ACBF will hold further pledging sessions to attract additional contribution to SMTP III from non-african countries. The Foundation has undergone significant institutional and management changes to improve upon performance and adherence to internationally reputable fiduciary oversight regimes, after weaknesses were discovered through 2008 Executive Board-commissioned audits. AfDB technical assistance contributed to revamping the Foundation s fiduciary and governance systems. II PROJECT DESCRIPTION 2.1 Project rational 2.1.1 PRSP and CSPs priorities, key development issue(s) the project is aiming to address. The project focuses on capacity building of RMCs and regional institutions. It will contribute to improvements in a wide array of areas that are relevant to Africa s regional integration and participation in global trade. The project seeks to enhance human resource quality and availability, strengthen organizational arrangements and institutional policy-making, which are key for transforming African economies, for example through: (i) an improved economic and financial governance in support of regional integration policy formulation and implementation; and (ii) an enhanced legitimacy and accountability of the governance system for greater financial integration of African economies. These areas are important to achievement of Bank Group s CDS and are well aligned to Bank Group s long Term Strategy for the continent s development. 2.1.2 The project is grounded on the Guiding Principles and Pillar 2 of the CDS (Strengthen Regional Member Countries Capacity for Policy Dialogue on Key Development Issues), in which the Bank Group recognizes that no individual institution is in the position of providing capacity building support to the extent required by RMCs and RECs for undergoing the necessary transformations. The 4

objectives of the CDS are to: (a) enhance development effectiveness of AfDB-funded operations; (b) strengthen RMCs capacity for policy dialogue on key development issues; and, (c) build internal Bank Group s capacity. In implementing the CDS, Bank Group aims to build partnership with national and regional capacity development institutions, which are able to deliver high quality interventions on its behalf. Use of such institutions is to help build capacity more quickly, achieve greater impact on a larger target audience in a more cost-effective and cost-sharing manner than Bank Group alone could achieve. The project is also anchored on Pillar 2 of the KMDS, which emphasizes building partnerships and increasing collaboration with relevant external institutions, universities, and think tanks. The KMDS also calls for greater focus on regional research and capacity building institutions, such as ACBF, that produce knowledge-based regional public goods. 2.1.3 The project aims to strengthen regional integration, and is in line with Bank Group s regional integration strategy, which emphasizes harmonized policy, capacity building, and dissemination of good practices within RECs, increasing competitiveness and productivity, enlarging trade, pooling resources for investment and achieving economies of scale to promote industrialization. The project meets the eligibility criteria as a regional public good, such as non-rivalry, non-exclusivity and aggregation of contributions. The project is therefore in line with Bank Group s engagement in regional operations, which is guided by the Strategic and Operational Framework and the Criteria for Cost Sharing Exemption when Financing Eligible Regional Public Goods adopted by the Board in 2008, the Regional Integration, and the Selection and Prioritization Framework adopted in January 2011. 2.1.4 In addition, the collaboration with the Bank Group will help strengthen capacity of ACBF in several sector and thematic areas where the Bank Group has comparative advantage, and facilitate building RECs capacity to implement AfDB-financed development projects. ACBF s ability to leverage and coordinate donor resources will also help the Bank Group make progress in meeting agreed protocols for aid harmonization. Taken together, the project will help improve Bank Group portfolio performance and effectiveness, contribute to progress on RECs outcomes and their capacity to manage for Results and to make progress on their Development Effectiveness Agenda. 2.1.5 ACBF meets Bank Group s criteria for selecting regional institutions to partner with, including: (i) human and organizational capacity and track record; (ii) relevance of the entity s specialization to Bank Group s capacity building priorities; (iii) regional considerations; and (iv) sustainability. 2.1.6 The project strengthens Bank Group partnership with other regional institutions as ACBF coordinates its activities with the African Union Commission (AUC), the New Partnership for Africa s Development (NEPAD) Agency (NPCA) and the United Nations Economic Commission for Africa (UNECA). Such partnership is important in delivering unmatched capacity building support to state and non-state institutions. The collaboration among these regional institutions will help strengthen policy formulation capacity of RECs so that they can manage periods of crises and uncertainty; sustain recent rapid economic growth, democratic gains and social stability; and translate growth into dividends, such as greater employment opportunities. 2.1.7 The project will extend the reach of Bank Group resources as ACBF can leverage AfDB resources with contributions by other donor partners such as the World Bank, IMF, UNDP and African and non-african Governments. ACBF s close relationship with RECs, and collaboration with Bank Group Departments to build capacity will help feed knowledge outputs into RECs strategies and improve outcomes of regional integration and poverty reduction strategies. The SMTP III also 5

takes a long-term financing view of capacity building of RECs, which will enable ACBF provide sustained support through a range of activities including individual training and technical assistance. The organization contributes to recurrent and overhead costs of project beneficiaries including RECs, which will enable Bank Group to devote its resources to core project activities and thus achieve better results of capacity building interventions. 2.1.8 The Bank Group can provide significant oversight of the project beyond regular supervisory missions, as it is represented on both the Executive Board and the Board of Governors of ACBF, which meet at least twice a year and once a year, respectively. Furthermore, ACBF has received Bank Group s technical assistance to improve its internal organizational capacity and has implemented previous SMTPs to AfDB s and donor partner satisfaction. 2.2 Project objectives and components 2.2.1 The grant will contribute to ACBF s pool of resources for implementing the SMTP III over the period of 2013-2014. The overall goal of the project and SMTP III is to build capacity of regional institutions for governance that is effective and translates into real poverty reduction. The activities to be implemented under this project have been selected in such a way that, even where they are implemented at country level, they contribute to regional integration. A number of sub-regional dissemination of key conclusions and recommendations are planned to ensure sharing of critical knowledge and experience. The activities associated with the components are as follows: 2.2.2 Component 1: Improving economic and financial governance in support of regional integration policy formulation and implementation. ACBF capacity building support to RMCs and RECs will aim at strengthening the enabling environment and make it prone to an improved formulation and implementation of regional integration policies. Operations support will be provided for the following objectives and activities: Improved macro-economic policy modeling and forecasting at sub-regional level. Supporting the formulation of policy options for sub-regional economic analysis and governance reforms. Strengthening policy formulation and implementation capacity of RECs on regional integration and trade (RIT). Enhanced research on innovative methods of financing sub-regional infrastructure development especially in energy and transport in line with priority continental infrastructure initiatives such as the programme for Infrastructure Development in Africa (PIDA). Enhanced development of regional policy frameworks for public-private partnerships. 2.2.3 The component will be implemented through the Macroeconomic and Financial Management institute (MEFMI) of Eastern and Southern Africa; and the Nigeria Institute for Legislative Studies (NILS). The MEFMI (13 member countries comprising Angola, Botswana, Kenya, Lesotho, Malawi, Mozambique, Namibia, Rwanda, Swaziland, Tanzania, Uganda, Zambia and Zimbabwe) past interventions have improved policy coordination and macroeconomic analysis in member countries; and increased issuance of government bonds and non-cash transactions in the region and the countries that have institutionalized Debt Sustainability Analysis as indicated in the World Bank and AfDB CPIA indices and the IMF s Debt sustainability and risk analysis reports. 6

2.2.4 The ultimate goal is to bring all countries at the same level of policy coordination and macroeconomic analysis in order to facilitate the harmonization and implementation of regional policies and programmes in these areas. In addition to these country specific interventions, MEFMI will carry out a number of activities that have a regional scope. Specifically, the Macroeconomic Programme Department will carry activities aiming at: (i) improving macro-economic policy modelling and forecasting at sub-regional level; (ii) supporting the development of regional policy frameworks for public-private partnerships, especially for complex cross-border infrastructure development; and (iii) strengthening policy formulation and implementation capacity of RECs on Regional integration and trade. The Financial Management Programme Department will carry out research studies on innovative methods of financing sub-regional infrastructure development especially in energy and transport sector and promote collaboration between public and private sector at sub-regional level on financial and banking sector reforms. 2.2.5 The NILS is a national capacity building institution which contributes to the implementation of good governance processes in Nigeria as well as in the ECOWAS region. The project will enable NILS to deepen its on-going capacity building programs in Nigeria and also for the ECOWAS Parliament. It allows ACBF to build on successes achieved by replicating its strategic entry beyond the Nigerian National Assembly. At present, NILS has a standing partnership arrangement with the ECOWAS Parliament to support capacity building activities of the regional parliament. 2.2.6 Component 2: Improved transparency and accountability in the management of public resources in Africa. Financial integration is necessary to facilitate exchanges between African countries and often proves to be a key driver for wider regional integration. Working with the RECs, ACBF will support RMCs in improving their governance systems thus paving the way for effective financial integration of African economies through: Implementation of the African Government Outlook (AGO) in 10 countries to uncover financial governance needs in RMCs Supporting skills and institutional development to address the gaps uncovered in financial governance at country and regional levels. 2.2.7 There is now a general consensus on the role that good governance plays in achieving equitable and sustainable development in Africa. Countries with better governance profiles tend to attract higher levels of foreign direct investment which contributes to economic growth. In addition, evidence also suggests a link between good governance, the decline in absolute poverty levels, and improvements in overall development outcomes, e.g. in areas such as education and health. 2.2.8 A robust knowledge base is critical to assessing and improving the quality of public financial governance in Africa. A number of instruments are already used to assess progress in financial governance, e.g. Public Expenditure and Financial Accountability Assessments (PEFA); the Global Integrity Index (GI); and the Open Budget Index (OBI). However, in the past decade, governance assessments have tended to focus on numerical ratings, thereby neglecting the qualitative dimension. Limited consideration has been given to the impact of economic, social and political factors that support or impede reforms. In 2011, the AfDB developed the AGO to address this gap 1. The AGO aims to provide an overview of public financial governance reforms in Africa as well as offer deeper insights on underlying reasons for recent trends in such reforms. It examines interest group dynamics and 1 NB: the new generation of governance assessments integrates political economy dimensions of financial governance and combines quantitative and qualitative analyses. 7

identifies drivers of, and obstacles to change, by analyzing stakeholder incentives, capacity, and institutional constraints. 2.2.9 The AGO has a specific capacity building dimension and focuses on country ownership and wide stakeholder participation. Data compilation and analytical work are undertaken by local research institutes; analytical work involves local participation through surveys, focus groups and expert panel discussions; and national stakeholder groups are formed which provide a formal platform for consultation. The AGO places emphasis on moving from a situation where data is compiled and analyzed externally to one where data systems reflect national priorities and where national agencies are closely involved. This requires focusing attention, not only on the short term needs for information, but also on long term investments in national capacity to independently generate, analyze and disseminate information on financial governance. 2.2.10 The tool carves out its niche by focusing on a financial governance assessment and complements existing efforts by other development partners in Africa. It consolidates existing partnerships with key African institutions to strengthen the capacity of national and regional institutions to collect and analyse financial governance data. Figure 1: AGO's mission and strategic objective AGO s mission is to contribute to the overarching goal of poverty reduction and sustainable development in Africa. AGO s strategic objective is to contribute to increasing the level of accountability and transparency in the administration and management of public financial resources in Africa by: 2.2.13 AfDB Providing in a collaboration platform for better understanding with ACBF of the and processes national of public partners financial policies launched and practices the AGO thereby helping 2011. to set To the date region s governance agenda; much work Integrating has been information done from to different build sources partnerships through the and development capacity of a coherent in each organizational of the pilot framework countries: and analytical Burkina tools; Faso, Ethiopia, Developing Ghana, analytical Kenya, space for evidence Mali, based Mozambique, policy dialogue; Rwanda, Senegal, Tanzania and Uganda. In Sharing best practices on institutional reforms; and addition, the pilot provided the opportunity to consolidate learning and refine the Informing the Bank s policies, country and sector strategies and operations. 2.2.11 The Bank Group in collaboration with the ACBF and national partners launched the AGO in 2011. To date much work has been done to build partnerships and capacity in each of the pilot countries: Burkina Faso, Ethiopia, Ghana, Kenya, Mali, Mozambique, Rwanda, Senegal, Tanzania and Uganda. In addition, the pilot provided the opportunity to consolidate learning and refine the methodology in preparation for the roll out of the AGO to other countries in Africa. Ten draft country reports were produced. In addition, a consolidated publication, entitled the Preliminary Findings of the AGO Pilot Phase was produced and disseminated at AfDB s Annual Meetings since 2011. 2.2.12 This component aims to build upon the substantial learning from the pilot phase to produce final reports for each of the 10 pilot countries. This will require updating the data and the political economy analysis in the existing reports to reflect the current position (2014). A consolidated report will be produced summarizing the main findings in the ten countries. In addition there may be opportunities to address some of the issues identified in the 10 reports through piloting a limited range capacity building initiatives. Figure 2: Lessons learned from the implementation of the pilot - Based on lessons learned from the pilot, clarify the guidelines for implementing the AGO,. This would help to ensure that the application of the methodology is consistent across all countries. - Provide additional support to teams undertaking the political economy analysis, which was identified as an area of weakness in the pilot reports. - Identify strong international and national consultants to lead teams undertaking the political economy analysis at the country level. AfDB field offices may be able to provide recommendations in this regard. - Employ a data auditor to verify the robustness of the data collected. This would ensure that teams focus on capturing the value add of the AGO, i.e. the explanation of why scores have changed, rather than focusing on the accuracy of the underlying data. - Ensure closer co-ordination between AfDB HQ/field offices and ACBF to monitor implementation. 8

2.3 Technical solution retained and other alternatives explored The technical approach advances Bank Group s strategy to build capacity of RMCs and key regional institutions for developing and implementing policies that are effective, and to do so in partnership with other since no individual institution is capable of providing the extent of capacity building support required by RMCs and RECs to sustainably undergo the necessary transformations. The solution retained builds on Bank Group s support for preceding SMTPs, successful implementation of past projects by ACBF, and Bank Group s commitments to the Foundation as the region s premier development agency. The alternatives explored included (i) providing direct capacity building support to RMCs and RECs; (ii) using Bank Group s CDS as sole instrument for delivering all of its capacity building interventions; and (iii) providing grants to ACBF to only act as Implementing Partner for Bank Group Departments. However, those options were discarded in favour of Bank Group working through ACBF and other donor partners and regional governments to address aspects of capacity building that Bank Group cannot undertake as an individual institution, as elaborated in Table 3 below. Table 2: Project alternatives considered and reasons for rejection Alternative name Provide direct capacity building support to RMCs and RECs Bank Group s Capacity Development Strategy as Sole Instrument ACBF only as Implementing Partner for Bank Group Departments Brief description Bank Group will develop and implement in-house all of its capacity building support to RMCs and RECs without ACBF as a devolved partner institution All of the Bank Group s capacity building programs will be based on the Capacity Development Strategy (CDS) Provide support to ACBF to implement only projects that are sponsored by Bank Group Departments Reasons for rejection A significant part of Bank Group capacity building support to RMCs/RECs are developed and implemented directly by various AfDB Departments, as part of the integrated project mechanism. However, devolving some aspects of capacity building programing through partnership with ACBF allows Bank Group to extend its capacity building funds as ACBF leverages Bank Group contributions ACBF handles overhead and administrative costs of delivering country and regional programs, which enables Bank Group to maximize its capacity building resources. By delivering some capacity building programs in partnership with ACBF, Bank Group is helping to build an experienced regional institution that is respected by African Governments and so can be requested to help address capacity issues that may be too sensitive for Bank Group, such as dialoguing and managing political conflicts. The CDS is primed on strengthening selected regional institutions to which Bank Group s interventions will be devolved as part of moving away from retail to partial wholesale approach ACBF has gained sound experience through its SMTP I and II, with Bank Group support, and supporting the Foundation to implement SMTP III will allow ACBF to use the lessons learned to enrich capacity building methodology and also build on projects successfully carried out over the 10 years of SMTP I and II. The Bank Group, the World Bank, UNDP, IMF, several African and non-african Governments are members of ACBF and have agreed to work together in supporting capacity building activities through the Foundation. ACBF serves as a forum of coordinating regional capacity building interventions agreed by its members, which provides a rich opportunity to cross-fertilize ideas, methodologies and resources. The bank group s ability and flexibility to respond to specific demands given the changing environment and needs across Africa may be limited 9

2.4 Project type The project is a stand-alone regional operation that meets the requirements of RPG as shown in Table 4 below. Table 3: Project s Compliance with Regional Public Goods Criteria Criterion Non-rivalry Non-excludability Public interest and ownership Multi-country involvement Strategic alignment Catalytic and upstream role Higher Developmental Impact in Cooperating Grant resources outside the PBA Allocation Justification Stage I ACBF capacity building programs target 45 RMCs but all RMCs and RECs can access the products and services of the projects to be financed by the grant. Any RMC or other countries around the world can access the project s outputs and lessons learned, for example through intraregional consultative forums and South-South knowledge sharing forum, and apply them in their own capacity building strategies. ACBF organized a high-level forum during the Bank Group s Annual Meetings in 2012, as part of the project s activities. The Foundation also regularly convenes other high-level meetings involving its members (RMCs, bilateral and multilateral donors). ACBF s Web site is a major information gateway on capacity building. The Foundation s products, such as the African Capacity Indicators and Results Measurement Framework, can be used by the broader development community for improving outcomes of interventions on the ground. These and several features of the grant and ACBF will ensure that nonparticipating countries/communities can also benefit from the project. ACBF is a regional institution supported by several RMCs and donor agencies to coordinate and deliver regional public goods across Africa. As such, it coordinates capacity building resource mobilization and activities with key regional bodies such as the African Union Commission and UNECA, and national institutions that are charged with capacity building responsibility. The Foundation has created and/or strengthened existing policy think tanks that help anchor its activities at country level, and works with RECs to address issues deemed important by the RMCs. Stage II ACBF and the SMTP III respond to the regional need to address capacity of African states. The ADF grant support will include core programs of ACBF, which are delivered for the benefit of more than 45 RMCs, several RECs, etc. The project focus of SMTP III includes building capacity of RMCs and RECs to increase intra-regional trade and Africa s share of the world market. The project is anchored on Pillar 2 of the 2008 Board-approved KMDS, which emphasizes building partnerships and increasing collaboration with relevant external institutions, universities, and think tanks. The KMDS also calls for greater focus on regional research and capacity building institutions, such as ACBF, that produce knowledge-based regional public goods. The project is also consistent with the Bank s Medium Term Strategy and important to achieving the objectives of Bank Group s Capacity Development Strategy (CDS), particularly it s Pillar 2, i.e., Strengthen RMCs capacity for policy dialogue on key development issues. The project advances the CDS by partnering with ACBF to deliver high quality interventions on its behalf, and in so doing enabling Bank Group move away from a retail to partial wholesale approach while leveraging Bank Group resources, in assisting RMCs and RECs on their capacity building programs. The grant will also enable the Bank Group fulfil its sponsoring membership role to the Foundation, along with the World Bank, UNDP, IMF and other members. It is also in line with the Bank s regional integration strategy that emphasizes harmonized policy, capacity building, dissemination of good practices within RECs and cross-cutting issues like knowledge management. The project is also consistent with the Bank s roadmap on aid effectiveness and donor harmonization. The project responds to underlying principles of Bank Group s strategies. For example, the CDS, recognizes that, no matter the amount of financial resources mobilized for Africa s development, such funds would yield only limited or modest results if countries do not have the human, organizational and institutional capacity to absorb and effectively utilize them. While African countries have made progress in economic growth rates and poverty reduction targets, the dearth of capacity critically limits the pace of growth that can translate the rich natural resources into economic dividends such as jobs for the large youth segment, usher in an industrialization and value-added dimension of exploiting these resources or sustain growth and development. The project focuses on capacity building in areas such as stability and good governance environment for an inclusive growth, performance of productive sectors and youth employment, regional integration and Africa s participation in world trade, which are critical for transforming African economies. The project will help improve ability of RMCs to sustain recent rapid economic growth, democratic gains and social stability even in periods of uncertainty, through sound policy formulation. Eligibility to cost-sharing exemption ACBF is not entitled to the PBA system. It is a regional organization founded by the Bank Group and partners, who continue to provide resources for its operations. ACBF leverages Bank Group resources to a great extent, and includes contributions by RMCs, and Bank Group partners. 2.5 Project cost and financing arrangements The current proposal is for eighteen months ADF Regional public goods contribution of UA 3 million (USD 4.6 million) in support to the implementation of ACBF SMTP III. The total cost of SMTP III over its five-year span is estimated at UA141.44 million (US$ 218.00 million) and its equivalent for the 18-month implementation period that this project concerns is UA 44.77 million (US$ 69.00 million). The high case scenario of US$ 345.00 million over 5 years (2012-2016) which was the target of the Foundation was revised with the approval of the Executive Board to the base case scenario of US $ 218.00 million, in view of the financial crisis facing the Partners in the OECD 10

countries. To date, various members, such as the World Bank (US$ 100.00 million), African countries (US$ 25.850 million), Sweden (US$ 10.00 million), UusAID (US$ 3.06 million) have pledged or committed UA130.18 (US$ 200.65 million), covering about 92% of the funds needed under the base case scenario. ACBF has requested Bank Group contribution of US$ 4.6 million for the first two years span of SMTP III. As a co-sponsor of ACBF, the Bank Group has contributed UA 25.25 million to the Foundation s four phases of capacity building programming over the past 20 years. Table 4: Project cost estimates by component (in million) for the period 2013-2014 Components USD UA % Total Component 1: Improving economic and financial governance in support of regional integration policy formulation and implementation Improving economic and financial governance in support of regional integration policy formulation and implementation. ACBF capacity building support to RMCs and RECs will aim at strengthening the enabling environment and make it prone to an improved formulation and implementation of regional integration policies. Operations support will be provided for the following objectives and activities: Improved macro-economic policy modeling and forecasting at sub-regional level. Supporting the formulation of policy options for sub-regional economic analysis and governance reforms. 2.10 1.38 46.00 Mainstreaming gender in regional economic opportunity and inclusive growth strategies. Strengthening policy formulation and implementation capacity of RECs on regional integration and trade (RIT). Enhanced research on innovative methods of financing sub-regional infrastructure development especially in energy and transport. Enhanced development of regional policy frameworks for public-private partnerships. Component 2: Improved transparency and accountability in the management of public resources in Africa. Financial integration is necessary to facilitate exchanges between African countries and often proves to be a key driver for wider regional integration. Working with the RECs, ACBF will support RMCs in improving their governance systems thus paving the way for effective financial integration of African economies through: 0.798 0.52 17.33 Implementation of the AGO in 10 countries to uncover financial governance needs in RMCs Production of 10 final AGO reports and a consolidated report summarizing findings from all 10 countries. Project Implementation and Supervision 1.383 0.88 29.34 Total base cost 4.281 2.78 92.66 Operational contingency 0.319 0.22 7.33 Total project cost 4.56 3.00 100.0 Table 5: Sources of financing (2013-.2014) Sources of financing US$ (million) UA (million) % Total cost ADB Group* 4.56 3.00 6.7 World Bank 40.00 25.95 57.9 African Governments 10.32 6.70 15.1 Sweden 3.99 2.59 5.8 Uus AID 1.12 0.078 0.01 Total Commitments 59.99 38.32 85.59 Financing Gap** 6.92 4.49 1.00 Total Cost 66.91 44.77 100.00 Source: ACBF. The estimated cost of SMTP III is US$ 345 million under the high case scenario and US$218.00 million under the base case scenario over its five-year duration. *The Grant amount being requested in the current proposal. ** Other bilateral partners have confirmed their intention to pledge to SMTP III for 2013 and 2014. Table 6: Project Cost by Categories of Expenditure Categories of Expenditure UA US$ Total % Consultancies 0.287 0.443 9.65 Workshops/Trainings 1.852 2.455 53.37 Project Implementation and Supervision 0.897 1.383 30.06 Total Base Cost 2.830 4.281 93.08 Physical Contingency 0.103 0.159 3.46 Price contingency 0.103 0.159 3.46 Total Project Cost 3.037 4.600 100.00 11

Table 7: Expenditure Schedule by Component Components 2013 2014 Total US$ UA US$ UA US$ UA Component 1: Improving economic and financial governance in support 1.40 0.91 0.70 0.45 2.10 1.38 of regional integration policy formulation and implementation Components 2: Enhancing accountability of the governance system for 0.532 0.34 0.266 0.17 0.798 0.518 greater financial integration of African economies Project Implementation and Supervision 0.922 0.598 0.461 0.99 1.383 0.89 Total Base Cost 2.854 1.848 1.427 1.61 4.281 2.788 2.6 Project s target area and population The SMTP III activities and deliverables will benefit most of the RMCs, RECs and other regional institutions as follows: (i) directly through ACBF s capacity building programs RMCs and RECS, and non-state institutions; and (ii) indirectly through the Foundation s knowledge sharing programs and access to ACBF-funded policy documents, high-level forums, useful guidelines, practices and procedures disseminated by ACBF or other partners. The target groups include economic and management institutions of RMCs, RECs, Government officials, African professionals and academics, parliamentarians and their networks, civil society organizations, and staff of ACBF and other regional organizations. 2.7 Participatory process for project identification and design The project is to support ACBF s SMTP III, which follows the Foundation s previous two fiveyear rolling strategic plans. SMTP III is therefore a product coming out of extensive public consultations among stakeholders of Africa s development agenda, namely: (i) African governments; (ii) African regional institutions; (iii) Africa s donor partners, including the Bank Group, the World Bank, IMF and United Nations organizations; (iv) non-african governments and bilateral donors, among others; these stakeholders also happen to be members of ACBF. As part of the consultations, ACBF organized a number of forums in 2011. 2.8 Bank Group experience, lessons reflected in project design 2.8.1 The project reflects Bank Group s experience that capacity building must be a strong component of its development assistance to clients because no amount of development finance can lead to the growth needed in RMCs to uplift the majority of their populations out of poverty. Emphasis must be placed on building capable institutions, organizations and human resources to champion economic and social transformation. While certain African countries have made commendable progress in economic growth rates and poverty reduction targets, dearth of capacity continues to hamper the pace of growth needed to translate the continent s rich natural resources into economic dividends such as job creation for the large youth segment, usher in an industrialization and value-added phase of exploitation of these resources, or to sustain growth and development. The Bank Group has also learned in its long capacity building experience that no single institution can provide the level of support needed to strengthen institutions, organizations and human resources in RMCs and RECs for the region to make progress in economic and social transformations. 2.8.2 In supporting ACBF and the SMTP, Bank Group is demonstrating its support for the Paris Declaration on donor harmonization and the Accra Agenda for Aid Effectiveness, as the Foundation pools resources from other donors, African and non-african Governments to deliver programs that impact a large number of RMCs and regional institutions. More importantly, ACBF enables Bank Group s capacity building envelope to be optimized and to deliver value for its money. 12

2.9 Key performance indicators The performance indicators are set out in the results-based logical framework at the beginning of this report. At the impact level, the key performance indicators to be measured in RMCs that will benefit from the project are: real GDP growth rate; and MDG 1.A (Reduction of income Poverty). These would provide effective monitoring of project s impact on inclusive growth, beyond GDP growth that may result from performance of only a few sectors such as extractive industries. The project outcome indicators are: (i) improvements in Africa Capacity Indicators (ACI) to track policy impact on development outcomes; (ii) changes in gender equalities of economic and social opportunities as measured by UN Gender Related Development Index; and (iii) number of countries rated with more than 3.9 on the Corruption Perception Index (CPI) for transparency, accountability and corruption in public sector. III PROJECT FEASIBILITY 3.1 Economic and financial performance The program is not amenable to a cost-benefit analysis since the benefits are not directly quantifiable in monetary terms. However, improving capacity of RMCs and RECs to formulate and implement effective policies will lead to targeted socio-economic development interventions particularly in the project s focus areas of governance, regional integration and participation in global trade. 3.2 Specific required feasibility/technical studies The Foundation has conducted the necessary studies leading to preparation of the SMTP III document that was approved in February 2011 by its Board of Governors, which includes the Bank Group; the project activities for the ADF support are contained in the SMTP III program areas and have been approved by the foundation s Board of Directors. The lessons from implementation of SMTP I and II, requests from African governments, and several roundtables organized by the Foundation have led to the design of SMTP III. The ACBF has undertaken a process of analysis to zero-in on a set of strategic pillars for focused attention in its strategy for 2012-2016. Choices have been made entailing assessment of activities, their link to strategic drivers of transformational change, institutions with which the Foundation should partner, and the focus of capacity building interventions. 3.3 Expected/designed cross-cutting focus/benefits 3.3.1 Economic Development: ADF-eligible RMCs will benefit from the project directly by improving their human resources, organizational and institutional strengths, analytical skills for policymaking, better targeting of development resources, and tracking of budget allocations and results on the ground. Together, improvements in those areas will enhance regional integration, trade, and economic development, job creation, global economic competitiveness, business investment atmosphere, the tax base and mobilization of funds for upgrading infrastructure and delivering on socio-economic programs. The impact indicators associated with the project include economic dividends as will be captured in GDP growth rate and improvements in the millennium development goal (MDG 1 A:income poverty). 3.3.2 ACBF capacity building activities for RMCs, RECs, private sector and non-state actors encompass cross-cutting issues of gender, climate change mitigation, the environment, agricultural productivity and youth, which are important in the Bank Group s MTS. 13

3.3.3 Gender: ACBF has developed several operational documents to improve awareness and integrate policies and strategies for promoting gender equality in development programming of RMCs. Raising the level of gender sensitivity in public policies and programs was a key activity during SMTP II. Those strategies, programs and lessons learned will be used to further strengthen gender as a cross-cutting feature during SMTP III. Gender equalities in economic and social opportunities are therefore output indicators for the strategic objective of improved economic and financial governance for effective regional integration; another output indicator is number of public institutions responsible for economic financial management and planning trained on resource allocation and disbursement, including using gender-sensitive parameters. 3.3.4 Environment and Climate Change: The project activities include capacity building for integrating climate change in economic policy analysis and planning, and policies for environmental management while transforming agriculture and other productive sectors. The thrust of the project is enabling RMCs and regional institutions to be competent in making relevant policies and implementing strategies for managing increasingly complex risks of globalization and economic development. The main policy issues to be addressed will help RMCs achieve a balance between productivity (for example in the agricultural sector) and adaptation to climate change. 3.3.5 Social Impact: SMTP III aims to contribute to building capacity of state and non-state actors for greater political and social stability, and in causing transformational change in RMCs. The project places emphasis on improving education policy toward better prospects for youth employment, and to strengthen governance systems for enhanced integration among regional economies. Regional integration impacts are therefore emphasized in the outcome indicators. IV IMPLEMENTATION 4.1 Implementation arrangements The project funds will be used for ACBF Grant Making to capacity building institutions in ADF-eligible RMCs and RECs to support operations in areas of the Foundation's SMTP III. All Grants advanced by the Foundation to ADF-eligible RMCs/RECs, and other entities will be approved by the ACBF s Executive Board on basis of requests by RMCs; a Grant Agreement will be signed outlining the obligations of all parties; and ACBF will supervise implementation of the programs to ensure that the objectives of Grantees are achieved within set timeframes. All activities in non-adfeligible countries will be financed using the contributions of bilateral and African Government contributions to ACBF. 4.2 Procurement and financial management arrangements 4.2.1 All procurements financed by the ADF will be in accordance with the Bank's Rules and Procedures for Procurement of Goods and Works or, as appropriate, Rules and Procedures for the Use of Consultants. The Procurement of service contracts (acquisition of training manuals, venues for meetings and events, translation, workshop materials) will be carried out through shopping. Consultants (firms or individuals where needed and as approved by the Bank Group) shall be engaged through a competitive process in accordance with the Bank Rules. 4.2.2 Procurement of goods and services could be carried out in accordance with the Procurement Guidelines for ACBF Grant Recipients dated July 2011, as was the case in the previous support to ACBF on SMTP II. The ACBF procurement guidelines take into account the harmonized rules of 14

procedures approved by multilateral development banks, and are compatible with Bank Group s rules of procedures for procurement in Bank Group-financed operations. 4.2.3 The ACBF has developed an internal audit system to perform audits of its processes and those of its Grant beneficiaries. In addition, ACBF accounts are audited annually by external auditors and a separate statement is provided to justify the use of individual donor resources. Resources from Bank Group s support will be audited the same way. The Foundation has undergone institutional and organizational reforms, and the existing management capacity, processes and governance structure are considered adequate, and have the confidence of the Foundation s Boards, whose members include Bank Group. 4.2.4 Disbursement arrangements. The total amount committed by the Bank Group will be disbursed in two tranches: the 1st tranche of UA 2.0 million upon Grant effectiveness; and, the 2 nd tranche of UA 1.0 million after the mid-term review of the project. The Bank will apply the principle of joint report to contributors on ACBF s activities, financial accounts and auditing. 4.2.5 The Bank Group will release the project Grant to ACBF in two annual tranches. The Protocol of Agreement between the ADF and the ACBF will indicate the amount of each tranche. Each tranche will be transferred to the main bank account of the ACBF. The Foundation has agreed to maintain a subsidiary ledger to show movement of the receipts for the Project. At the beginning of Project year 1, the ACBF will submit the request for first tranche, duly signed by its authorized officials, to the Bank Group. The subsequent tranche requests will be accompanied by utilization reports for the previous tranche. The Project management team in the ADF will review each of the requests and utilization reports, and pass the requests to the Bank Group Finance Department for release of the requested tranche amount. 4.2.6 Necessary steps to obtain baseline data (such as consultant study). The ACBF already has the necessary data for project appraisal. The project s baseline data will be consolidated and updated regularly to monitor implementation progress. 4.3 Monitoring Arrangements 4.3.1 The project will use ACBF s monitoring and evaluation (M&E) system and structures. A similar approach proved effective in implementing previous AfDB grants to the organization. The Foundation, in its continuous effort to enhance effectiveness of capacity building programs, has developed a Results Measurement Framework (RMF), which provides a guide to strengthening the results-orientation of its operations. The outputs and outcomes generated by ACBF operations will be aggregated to demonstrate progress towards achievement of results. Data generated during M&E will be assessed against the pre-determined set of indicators. 4.3.2 ACBF is in the process of identifying methods of capturing results in emerging areas of support, such as leadership development, policies for embedding climate change in economic policy analysis and planning, building capability to handle public private partnerships, and policies for transforming agriculture. Concerted efforts will also go into capturing the change trajectories and key results in fragile and post conflict countries. 15

Table 8 Monitoring schedule Timeframe Milestone Monitoring process / feedback loop December 2013 Board Approval ADF December 2013 Signing of Grant Letter of Agreement ADF December 2013 Signing MOU with ACBF ACBF and ADF December 2013 Grant effectiveness ADF December 2013 Disbursement of first tranche ACBF March 2014 Project Supervision ACBF November 2014 Annual progress report ADF / ACBF November 2014 Mid-Review Report ADF December 2014 Disbursement of second tranche ADF March 2014 Submission of PCR ACBF May 2015 PCR ADF 4.4 Governance 4.4.1 The ACBF recently approved leaner structure of the Executive secretariat will insure proper management and oversight of the project. The Foundation s governance structure comprises: (i) Board of Governors, (ii) Executive Board, and (iii) Secretariat. The Board of Governors has policy and oversight responsibilities while the Executive Board approves the Foundation s budget, annual work programs and projects. The Bank Group has been consistently represented on both the Board of Governors and the Executive Board. 4.4.2 ACBF s operations and management practices are regulated by a number of key guidelines and rules, including the: (i) ACBF Operations Manual; (ii) Procurement Guidelines for ACBF Grant Recipients ; (iii) Disbursement Manual for Grant Operations; (iv) Internal Audit System to perform audits of selected internal processes, as well as those of Grant beneficiaries; and (v) Code of Conduct which presents guidelines for staff conduct and highlights standards of ethical conduct. 4.4.3 The ACBF financial management systems are well developed, staffed and capable of managing the resources of the Project. The Foundation has overcome its management and oversight weaknesses that were reviewed by the World Bank s INT Department. The Bank Group has provided technical assistance to strengthen some weak practices and a new management team has in place since 2009. 4.5 Sustainability 4.5.1 There is an increasing demand by RMCs for a capable workforce and overall capacity building for institutional development. African governments are backing up their demands for ACBF capacity building support by increasing their pledges to ACBF s overall budget by about six-fold over previous levels. 4.5.2 The expected economic growth in many RMCs will lead to further demand for trained workforce. The Bank Group s support to the Foundation s SMTP III and the region s capacity building will therefore be sustainable, given the increasing awareness of RMCs, RECs and donors for capacity development and efforts to insure that the institutional environment is strengthened for economic governance and inclusive growth amidst globalization of trade and need for Africa to become more competitive. 16

4.6 Risk management The potential risks are based on the current donor economic environment, ACBF s impact countries and its organizational headquarters. The risks and associated mitigation measures are described in Table 9 below. Table 9: Risks and risk mitigation measures Risk Rating Mitigation measures Funding volatility: ACBF may not be able to M ACBF will use a long-term funding model for SMTP III. mobilize fully or in a timely manner the total resources required for SMTP III implementation. Sources of funds have already been secured on a large proportion of the required budget for the 1 st 2 years ACBF has a dedicated Resource Mobilization Unit for raising additional funds or co-financing of individual projects from project promoters, including governments and bilateral and multilateral donors. Programming areas may be too many, requiring a high level of funding in a difficult economic environment of donor partners. M ACBF will make further prioritization and reallocation or resources to key deliverable areas, if necessary without compromising the overall project development objective of the SMTP III. For example, ACBF could make reductions in its overhead budget, like many institutions around the world in a Some interventions will be in sub-regions with many fragile and post-conflict countries, which are often constrained by a number of factors, including lack of qualified and experienced local staff and inadequate oversight of governance bodies. Political risk: ACBF is headquartered in Harare, Zimbabwe. There could be some risk of political uncertainty in the country, especially as there may be impact of sanctions. 4.7 Knowledge and capacity building M M difficult financial era. The organization can draw lessons from the growing body of work on doing business in fragile states, including ACBF s own and Bank Group s work in these countries, to develop appropriate ways for implementing the project in fragile and post-conflict states. ACBF is financed by African governments and other donors, which makes it feasible that: The project will be implemented in partnership with national and regional institutions, which will ensure that program delivery will be smooth and devolved. The organization can quickly relocate to another country in an event of conflict, which causes an unsafe work environment. 4.7.1 The project will generate knowledge through the various components and pillars of the SMTP III. The knowledge generated will be in the form of implementation reports, evaluation reports, quarterly portfolio review reports, completion reports, analytical studies and associated reports, conference proceedings and working papers and case studies. These documents and knowledge will be disseminated at the national, regional, and international levels through seminars and discussion forums as well as presented within the Bank Group as good practices. The Foundation and the Bank Group will systematically apply the lessons learnt from implementing the project to improve design and implementation of other capacity building projects. The enhanced capacity that will emanate from the project will also have positive outcomes on the key sectors of Bank Group s interventions. 4.7.2 Implementation of SMTP III and ACBF s collaboration with Bank Group Departments to build capacity will help generate and feed knowledge outputs into national development strategies. For example, ACBF s collaboration with OSGE on the African Governance Outlook will help improve fiduciary standards for budget support operations. 17

V LEGAL INSTRUMENTS AND AUTHORITY 5.1 Legal instrument. The legal instrument for the ADF public goods grant of UA 3.0 million to will be a protocol of Agreement between the African Capacity Building Foundation and the ADF 5.2 Conditions associated with Bank Group s intervention (i) Entry into Force of the Protocol of Agreement The Protocol of Agreement will enter into force upon its signature by African Capacity Building Foundation and the African Development Fund. (ii) (iii) Conditions precedent to First Disbursement The obligation of the Fund to make the first disbursement of the grant shall be conditional upon the entry into force of the Protocol of Agreement and the fulfillment of the following condition, in form and substance satisfactory to the Fund. The opening of one (1) special account with a bank acceptable to the Fund to receive the proceeds of the Grant. Conditions precedent to Subsequent Disbursement The obligation of the Fund to make subsequent disbursement of the Grant shall be conditional upon the fulfilment of the following condition: The completion of a mid-term review of the project, the results of which are acceptable to the Fund. 5.3 Compliance with Bank Group Policies This project complies with all applicable Bank Group policies. VI RECOMMENDATION Management recommends that the Board of Directors approve the proposed grant of UA 3 million to the African Capacity Building Foundation for the purposes and subject to the conditions stipulated in this report. 18

Annex I ACBF Map of the Project Area Countries with ACBF Operations (2012) I