Mauritius - Private Sector Competitiveness Development Policy Loan (PSC - DPL) Project

 PROGRAM INFORMATION DOCUMENT (PID) CONCEPT STAGE <Date> Report No.: AB6866 (The report # is automatically generated by IDU and should not be changed) Operation Name Mauritius - Private Sector Competitiveness Development Policy Loan (PSC - DPL) Region AFRICA Country Mauritius Sector Finance and Private Sector (100%) Operation ID P126903 Lending Instrument Development Policy Lending Borrower(s) Government of Mauritius Implementing Agency Ministry of Finance and Economic Development Date PID Prepared November 9, 2011 Estimated Date of Appraisal January 10, 2012 Estimated Date of Board Approval March 29, 2012 Corporate Review Decision Following the corporate review, the decision was taken to proceed with the preparation of the operation. I. Key development issues and rationale for Bank involvement 1. Mauritius has an impressive development record. Only a handful of countries have defied the odds, transformed their economies, sustained growth acceleration over decades and joined the ranks of middle income economies. Maintaining the status requires keeping up to the pace of reforms set by its competitors. Mauritius' ambitions are far greater as it envisions moving up the ladder and joining the ranks of upper middle-income countries. In addition the competitiveness of the Mauritian economy is at risk amid fears of another global downturn fueled by the crisis in Europe. Accelerating reforms is the best response to emerging global uncertainties. These reforms will facilitate the nation's economic recovery in case the expected global downturn unfolds. The combination of these lagging and risk factors represent a strong case for a reinforced engagement on the competitiveness agenda in Mauritius. 2. The Government of Mauritius is aware of the challenge for the economy to stay competitive, and appears to be accelerating reforms aimed at strengthening competitiveness in an open and uncertain global operating environment. Following its impressive recovery in the aftermath of the international economic and financial down-turn, the country is now addressing second and third generation policy and institutional issues. To pursue its vision of making Mauritius a higher value added, more diversified, skill and knowledge intensive economy (CPS update, 2011), the Government is continuing to strengthen the institutional and policy environment for business growth while developing an overarching strategic policy framework for knowledge  development and technology, and investing in human capital to harness the use of advanced technologies at enterprise level. 3. Recent reconfiguration of the portfolio and instruments in line with the changing demands of a middle income client. The Bank till very recently was supporting the Government on the competitiveness agenda through the Mauritius Economic Transition Project and the Manufacturing and Services Development and Competitiveness Project. In March 2011, these two investment loans (SILs), that were still at an early state of implementation were cancelled at the request of the Government. The SILs instruments did not entail the necessary flexibility to adjust in accordance to the new and deepening challenges to help make inroads on the competitiveness agenda. While acknowledging the value of Bank's knowledge services that were being provided as part of the implementation dialogue, the Government requested the Bank to continue its support on in the area of competitiveness and enterprise development by reallocating the undisbursed funds into a sector DPL operation. 4. A programmatic approach would help achieve milestones required to make concrete advances in engendering a competitiveness environment. While a sector DPL loan was not originally envisaged in the CPS Progress Report (2011) it was recognized that in a middle income country like Mauritius, the Bank had to maintain the flexibility to respond to the Government's evolving priorities. The CPS had proposed an annual business plan and Budget Speech as a way of aligning the Bank program with Government priorities. This has been followed through and is also proving a useful mechanism for donor coordination. As a consequence the lending program has been re-designed in order to prepare two DPLs. II. Proposed Objective(s) 5. The development objective of the DPL programmatic operation is to strengthen the policy and institutional environment in Mauritius to support competitiveness and enterprise development. The operation will achieve this by: (i) facilitating competitiveness of enterprises; (ii) improving access to finance; and (iii) promoting ICT and e-Gov for enhancing competitiveness and transparency. 6. The proposed DPL is consistent with the CPS objectives presented to the Board in October 2006 and the CPS Progress Report of April 2011. The proposed DPL is aligned with four CPS pillars, in particular improving competitiveness and investment climate along with inclusion and fiscal consolidation. The DPL operation is well aligned to the new Africa Strategy that focuses on competitiveness and employment as one of its two themes. III. Preliminary Description 7. The proposed DPL, in an amount of US$15 million is the first in a series of two annual programmatic operations in support of the Government’s medium-term reform program. The development objective of the programmatic series is to strengthen the policy and institutional environment in Mauritius to support competitiveness and enterprise development. The operation will achieve this by supporting reforms in around three integrated and mutually reinforcing pillars (i) improving competitiveness and growth of enterprises; (ii) improving access to finance; and (iii) promoting ICT and e-Gov for enhancing competitiveness and transparency. 8. For each of these pillars, prior actions have been identified that create the underpinnings to support the reform processes. The specific measures that have been agreed as prior actions for the first DPL are presented in Annex 1. 9. The proposed First PSC-DPL to Mauritius will be presented to the Board, in tandem with the First Public Sector Performance Development Policy Loan (PSP-DPL), as the beginning of a complementary new series of two specifically focused annual single-tranche DPLs to support the Government’s reform program that is underpinned by the overarching themes of competitiveness and equity. The PSP-DPL primarily focuses on improving the performance of the public sector in Mauritius so as to more effectively support inclusion and empower the vulnerable, while the PSC-DPL focuses on supporting competitiveness and enterprise growth agenda of the Government. IV. Poverty and Social Impacts and Environment Aspects Poverty and Social Impacts 10. The DPL prior actions are unlikely to harm the poor, while several prior actions have the potential to deliver positive impacts on poverty over the medium term. Both the improvement of investment climate, strengthening of SME programs and improving access to finance are expected to have significant, if indirect, poverty and social benefits. The measures aimed at raising private sector competitiveness and increasing investment, including foreign direct investment (FDI), are designed to support a virtuous cycle of growth, employment generation and productivity gains. Reform measures supported by the three pillars are targeted at decreasing business costs and creating better conditions for private local and foreign investments and ultimately leading to job creation. Environment Aspects 11. This operation does not pose any significant direct environmental risk. Few if any of the reforms supported by the DPL series is likely to have significant  direct effects on the environment, natural resources, and forestry. Beyond the immediate focus of the DPL, other Government policies and development objectives such as increasing tourist arrivals by 2015, expanding the port and airport, relieving traffic congestion, and making the business climate more investor friendly may have an environmental impact. Historically, the record of environmental management, though not perfect, has been relatively good. The Safeguard Diagnosis Review carried out in October 2010 shows that some of Mauritius' environmental policies are sufficiently robust and are being implemented satisfactorily. The Bank will support the GoM in strengthening its environmental institutions under the proposed Piloting of Country Systems for Safeguards through project-specific environmental management plans for the next SIL to be prepared. All development partners recognize the strategic importance of environmental protection, and the AFD, the UNDP, and the EC are actively providing technical support in this area. V. Tentative financing Source: ($m.) Borrower 0 International Bank for Reconstruction and Development 12 Borrower/Recipient Others (specifiy) Total 12 VI. Contact point World Bank Contact: Asya Akhlaque Title: Senior Economist Tel: (202) 458-8780 Fax: (202) 614-8780 Email: aakhlaque@worldbank.org Borrower Contact: Ali Mansoor Title: Financial Secretary Tel: +230 201 2339 Email: amansoor@mail.gov.mu VII. For more information contact: The InfoShop The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 458-4500 Fax: (202) 522-1500  Web: http://www.worldbank.org/infoshop Annex 1: Proposed Prior Actions for DPL1 and Triggers for DPL2 Constraint Objective Prior Actions Indicative Triggers (DPL1) DPL2 Pillar 1: Improving Competitiveness and Growth of Enterprises Fragmented BDS A single consolidated Cabinet approval of Establish and make assistance programs to entity will coordinate rationalization of functional a merged SMEs raise overall cost assistance programs to SME programs under SME support Entity and reduce quality and small enterprises to the Ministry of effectiveness of the achieve financial Business and programs efficiency gains and Enterprises improved service delivery. Despite the enactment of Facilitating, through Ministerial approval • Establishment of the Insolvency Act in the implementation of & publication of • internal procedures 2009, there has been existing legislation, regulations of the to deal with the little or no enactment of firm exit by providing Insolvency Act registration, implementing rules and the framework for the suspension and regulations. rehabilitation of Ministerial approval removal of stressed enterprises to and publication of the insolvency This has significantly seek temporary registration guidelines practitioners limited the ability of the protection from its for Insolvency • Drafting and new Act to create an creditors without Practitioners to implementation of a efficient, orderly and forcing them into regulate the practice code of ethics for transparent liquidation bankruptcy. of insolvency in insolvency and rehabilitation Mauritius. practitioners, and process. the possible amendment of the Regulations to include provisions for the enforcement thereof. Pillar 2: Improving Access to Finance Lack of specialized Approval of cabinet Cabinet approval of Implementation of an financial instruments for decision satisfactory to Restructuring Action Action Plan for the SMEs the Bank to bring Plan for DBM. restructuring of DBM. DBM under the preview of the central bank and turn it into a MSME bank Inadequate collateral Increase access to Amend the Legal and regulatory (movable and credit through Transaction and framework to enable immovable assets) reforming land titling Mortgage Act to movable assets to be procedures and reduce the time taken effectively used as  secured transactions to register property collateral. laws and registries from 15 days to 48 hours . Limited credit bureau Extending coverage of Establish and publish Policy decision to coverage credit information eligibility criteria and ensure accuracy of the bureau licensing guidelines information held in the for the setting up of registry of the utility private credit companies information bureaus Pillar3: ICT and e-Gov reform for There are two broad Promote investments Cabinet approval of (i) Implementation of challenges: in affordable and the National mechanisms to (i) to promote continued ubiquitous broadband Broadband Policy monitoring policy goal investment in high fixed networks by signaling progress; cost broadband the government’s networks in an long-term policy (ii) Initiation of environment where the intentions clearly, institutional review to policy environment is credibly and establish an independent unclear; and (ii) to convincingly. ICT regulator. promote competition in markets where the dominant player has a near monopoly market in some markets but there is nascent competition in others. The National Broadband To reform regulation Cabinet approval to Policy provides a set of so that is applied in amend the goals and targets but only markets where Information and does not give ICTA the necessary and allows Communication regulatory tools to competition where Technologies Act achieve some of these. possible. (ICTA) of 2001 to provide ICTA the mandate to regulate markets where operator(s) are deemed to exert significant market power ICTA’s approach to To promote market- Cabinet approval to allocates spectrum by based licensing to amend ICTAct of policy formulated on a providers of wireless 2001 to provide ICTA band-by-band, service- ICT services, the licensing by-service basis, removing regulatory authority to allocate responding to specific discretion and adding and re-allocate requests for service the predictability of an spectrum using allocations or station open market. market mechanisms. assignments. This approach is ad hoc, overly prescriptive, unresponsive to changing market needs, and brings uncertainty to potential entrants’ chances on getting the spectrum they needed. Due to some systemic To promote Cabinet approval of Implementation of weaknesses, such as widespread adoption ICTA’s plan to ensure ICTA plan on PKI absence of compliance and use PKI so that the widest adoption of adoption. or enforceability the private sector can the PKI technology, mechanisms, coupled execute secure security audits, and with a shortage of funds electronic transactions. obtaining ISO 27001 for recruiting additional certification. staff, the National Information Security Strategy has not gained momentum and its final steps not completed, not yet allowing for secure online transactions to be executed. There are two broad To streamline under a Set up a National IT To initiate an challenges: (i) progress single Information Security Committee institutional review of in providing seamless, Technology (IT) as an umbrella body public institutions end-to-end secured security window for coordination and designing, transactions on a system whereby all the implementation of all implementing, uniform e-Government IT security related IT security related promoting and setting system is hindered by guidelines, policies, issues and to look standards and decentralized and and standards are after the IT Security interoperability of all IT uncoordinated monitored, and aspects at all levels. security platforms and institutional harmonized, and services to determine arrangements; and (ii) coordinated. how to best organize e- because efforts have Government been uncoordinated and implementation. decentralized, agencies have seldom thought of Initiate a demand survey their users when for e-Government deploying e- services. Government services, making these services not demand-oriented.