Mauritius - First and Second Private Sector Competitiveness Development Policy Loan Projects

IEG Report Number: ICRR14870 ICR Review Independent Evaluation Group 1. Project Data: Date Posted: 12/02/2015 Country: Mauritius Is this Review for a Programmatic Series ? Yes No How many operations were planned for the 2 series? How many were approved ? 2 Series ID: S132510 First Project ID : P126903 Appraisal Actual Project Name: Mauritius - Priv Sec Project Costs (US$M): 15 15 Competitiveness Development Policy Loa L/C Number: Loan/Credit (US$M): 15 15 Sector Board: Financial and Private Cofinancing (US$M): 0 0 Sector Development Cofinanciers: Board Approval Date : 03/27/2012 Closing Date: 12/31/2012 12/31/2012 Sector(s): Credit Reporting and Secured Transactions (38%); Telecommunications (25%); Central government administration (13%); General industry and trade sector (12%); SME Finance (12%) Theme(s): Education for the knowledge economy (30%); Rural markets (20%); Micro; Small and Medium Enterprise support (20%); e-Services (15%); Regulation and competition policy (15%) Second Project ID :P132510 Appraisal Actual Project Name: Mauritius Second Project Costs (US$M): 15 15 Private Sector Competitiveness Dpl L/C Number: Loan/Credit (US$M): 15 15 Sector Board: Investment Climate Cofinancing (US$M): 0 0 Practice Board Approval Date : 03/27/2013 Cofinancers: Closing Date: 12/31/2014 12/31/2014 Sector(s): Credit Reporting and Secured Transactions (38%), General information and communications sector (30%), SME Finance (20%), Banking (12%) Theme(s): e-Government (38%), Micro, Small and Medium Enterprise support (25%), Other Private Sector Development (13%), State-owned enterprise restructuring and privatization (12%), Other Financial Sector Development (12%) Evaluator: Panel Reviewer: ICR Review Group: Coordinator: Chad Leechor Robert Mark Lacey Christopher David IEGPS1 Nelson 2. Project Objectives and Components: a. Objectives: This is a programmatic series of two annual single-tranche development policy loans (DPL). According to the program document for DPL 1 (p. ii and p. 24), the development objective of the programmatic  series is to strengthen the policy and institutional environment in Mauritius to support competitiveness and enterprise development. The operations were to support three integrated and mutually reinforcing objectives: Objective I: Improving competitiveness and growth of enterprises; Objective II: Improving access to finance; and Objective III: Promoting information and communication technology (ICT) and electronic government services (e-Gov) for enhancing competitiveness and transparency. b. If this is a single DPL operation (not part of a series), were the project objectives/ key associated outcome targets revised during implementation? No c. Policy Areas: Policy areas under the program (including both DPLs in the series) are: Pillar I Improving competitiveness and growth of enterprises  Improve outreach and quality of business development services (BDS) targeted towards SMEs.  Facilitate, through implementation of existing legislation, firm exits by providing the framework for the rehabilitation of distressed enterprises with temporary protection from creditors without forcing them into bankruptcy. Pillar II Improving access to finance  Provision of suitable menu of financial products/services for SMEs through the restructuring of DBM into a sustainable MSME financial institution.  Increase access to credit through reforming land titling procedures and secured transactions laws and registries.  Facilitate enhanced access to finance by reducing the risks associated with limited information on potential borrowers. Pillar III Promoting ICT and e -Gov for enhancing competitiveness and transparency  Promote investments in affordable and ubiquitous broadband networks by signaling the Government‘s long-term policy intentions clearly, credibly and convincingly.  To reform regulation so that is applied only in markets where it is necessary and allows competition where possible.  To promote widespread adoption and use Public Key Infrastructure (PKI) so that secure electronic transactions can take place. d. Comments on Project Cost, Financing, Borrower Contribution, and Dates: Project Cost: This programmatic series included two annual single-tranche DPLs, each with a commitment amount of US$15 million. Financing: The program was financed by two IBRD loans of US$15 million equivalent each. Dates: The first DPL was approved on 3/27/2012 and fully disbursed on 10/28/2012. The second DPL was approved on 3/27/2013 and fully disbursed on 6/11/2014. Both DPL closed on schedule, the first on December 31, 2012 and the second on December 31, 2014. 3. Relevance of Objectives & Design: a. Relevance of Objectives: The program’s development objectives were well aligned with those of the country. Under the initiative “Moving the Nation Forward (MNF) 2012 - 2015”, the Government articulated a vision of the economy that was to be globally competitive and trading more actively with emerging markets around the world, including the BRICS (Brazil, Russia, India, China and South Africa). The initiative called for further progress in all of the areas covered by the program, including enterprise development, financial services and connectivity. The objectives also accorded well with those of the Government at the time of appraisal, since the DPLs were put together at the request of the Government to pursued the goals envisaged by the Government with the modality preferred by the  Government (as DPLs.) The objectives were also consistent with the Country Partnership Strategies (CPS) of the World Bank Group (WBG). According to the May 2011 CPS Progress Report, which remained effective through 2015, the WBG continued to support the Government’s four pillars of reforms, including improving trade competitiveness and improving the investment climate of the country. At the time of appraisal (01/2012), this same CPS was also in effect, thereby ensuring the consistency between the objectives and WBG strategies then. The relevance of objective is rated High. b. Relevance of Design: Clarity of objectives . The development objectives were ambitious, including structural reform measures that were technically advanced and politically demanding, but they were not unrealistic, given the track record of the Government. The objectives were also well defined, with clearly stated outputs and desired outcomes, delineated into three separate pillars, according to the programs of inter-related actions to be taken under each pillar. The results framework is deemed adequate. The causal chains linking the actions supported by the program to the desired outputs and outcomes were clear and straight-forward. The relationships between the outcomes envisaged and the activities supported by the program are well established by international experience and consistent with local conditions. There were, however, some shortcomings. One subset of indicators, primarily those under Pillar I (like the number of firms making use of business development services), could be considered outputs of the program activities, rather than outcomes that emerged endogenously from program implementation. As such, they might obscure the logic and rationale of the underlying program. In addition, as far as this subset of indicators is concerned, it is not clear that meeting the targets would be equivalent to achieving the objectives. For example, even if a great deal of enterprises are getting business development services and many insolvency practitioners are actively at work restructuring weak companies, it does not necessarily follow that these enterprises are growing and becoming more competitive. It would have been more convincing to use indicators involving sales, profitability or exports of firms that benefited from the program. External factors. Some of the exogenous factors were taken into account, including the risk of protracted slowdown in the European export markets and possible erosion of political support for the reform program. Appropriate mitigation measures were adopted, as discussed in Section 7 below. The program, however, did not fully acknowledge the contributions of the private sector (including foreign investors) that helped advance the supply response following reforms, especially under Pillar III (promoting ICT and e-Gov services). The macroeconomic framework of Mauritius was satisfactory when the DPLs were prepared and approved. According to the International Monetary Fund (Mauritius: Staff Report for the 2013 Article IV Consultation, March 19, 2013), growth, at about 3.5% per annum, was resilient. The Authorities carried out a fiscal consolidation to reduce debt vulnerabilities and external imbalances, and rebuild policy buffers. Consequently, Mauritius appeared well-placed to meet its statutory debt ceiling target of less than 50 percent of GDP by 2018. The monetary policy stance delivered low and stable inflation, and stress tests indicated that the banking system was well-capitalized and resilient against a range of shocks. External shocks were the largest risk to the outlook, but could be managed with appropriate policy responses, including measures to improve competitiveness through structural reforms and investments in human capital, also supported by the DPLs. Overall, the relevance of design is rated substantial. 4. Achievement of Objectives (Efficacy): Objective 1: Improving competitiveness and growth of enterprises . Substantial. Among the activities supported by the DPLs were: 1. Establishing an inter-agency strategic coordination mechanism on the small and medium scale enterprise (SME) program; 2. Developing a framework that set up guidelines for business development services on target SME groups and criteria, types of services, and where applicable, cost-sharing rules; 3. Setting up a robust M&E system that monitors performance and results of the SME program; 4. Implementing new registration guidelines for insolvency practitioners; 5. Establishment of procedures for disqualifying insolvency practitioners; 6. Publication of code of ethics for insolvency practitioners. Activities 1, 2 and 3 helped the Government refocus its support for small and medium-sized enterprises (SMEs), resulting in key improvements such as a) an M&E system for business development services (BDS) to ensure quality and value for money for the government; b) better flows of information and coordination for service providers of BDS and SMEs who needed the services. The number of enterprises that make use of BDS, both of the generic and specialized variety, rose significantly, exceeding the targets set for the operations. The results are shown as Indicators 1 and 2 in Table 1 below. Activities 4, 5 and 6 were necessary to operationalize the Insolvency Act of 2009. The Act was a breakthrough in principle for dealing with financial distress of viable enterprises, but it was also difficult to implement. DPL 1 assisted the government in issuing clarifying regulations. In addition, DPL 2 supported the establishment of professional qualifications for insolvency practitioners, rules for admitting and disqualifying them, as well as a code of conduct to guide their practices. All of these outputs were successfully delivered as expected. As a result of these measures taken together, the country’s insolvency regime became fully operational and approached international standards. The results are summarized in Indicators 3 and 4 of Table 1 and Indicators 4 and 5 of Table 2 of the attached below. As discussed in Section 3 above, it would have been desirable to see more direct evidence of enterprise competitiveness and growth, including such indicators as firm profits, revenue or exports. Nonetheless, the results achieved are significant, putting Mauritius well ahead of regional peers and above average among global competitors. (Doing Business 2015 ranked Mauritius 28 among 189 countries reviewed.) Objective 2: Improving access to finance . Modest. Among the activities facilitated by the program were: 1. Amending the Transcription and Mortgage Act in order to prescribe a time limit consistent with business standards to register property; 2. Enacting legislative amendments to the Civil Code and any other relevant laws to allow the setting up of a modern movable collateral registry; 3. Restructure the Development Bank of Mauritius (DBM) and turn it into a full-fledged commercial bank with a focus on the MSME segment of the market; 4. Expanding the coverage of the credit information bureau to include non-banking institutions; 5. Establishing and publishing eligibility criteria for setting up private credit information; and 6. Ensuring the billing accuracy so that the name of the actual end user is reflected on utility bills. This set of activities attempted to help SMEs get more credit by creating a legal basis for collateral lending, by making borrowers’ credit history available to lenders and, most importantly, by restructuring the Development Bank of Mauritius (DBM) which had failed to fulfill its mandate. Much progress was made. It became easier to register property, with the required time dropping from 15 days when the program began (March 2012) to 2 days when the program closed (end of 2014). The coverage of the Credit Information Bureau expanded significantly. (The results of these indicators are presented in Table 1 and Table 2 below.) In addition, the DBM was restructured and reconstituted as a commercial bank. However, it was not operational by the closure of the program. Furthermore, the law governing the movable collateral registry was approved by Cabinet and submitted to Parliament. However, Parliament had not voted on it by the time the program closed. As a result, most targets were not met. A change of Government in December 2014 resulted in further delays in the passage of the legislative amendment. According to the task team, the current finance minister expects the amendment to be approved during the parliamentary session of February 2016. Objective 3: Promoting Information and Communications Technology (ICT) and e-Government (e-Gov) services . High. Among the activities assisted by the DPLs were: 1. Cabinet approval of a National Broadband Policy; 2. Establishing protocols to strengthen the independence of the Information Communication Technology Authority (ICTA); 3. Amendment of the Information and Communications Technology Act of 2001 that would give ICTA the required authority to regulate markets where an operator was deemed to have Significant Market Power (SMP); 4. Cabinet approval of an action plan to ensure wider adoption of the public key infrastructure (PKI) technology. This set of activities sent a strong signal to private investors and service providers in the country. The National Broadband Policy made it clear to market participants as to the priority the Government attaches to the industry and the Government’s intent to upgrade the business environment to global standards. The amendment to the ICT Act of 2001 clarified the rights of different classes of licensees and created a framework for spectrum management and trading, a major step forward for service providers. The adoption of public key infrastructure (PKI) – an encryption procedure – made online transactions more secure. Critically, the recognition of the ICT Authority as an independent regulator with the power to enforce market competition was a significant move to bring confidence to the market. The supply response of the private sector was strong with a broad range of new ICT services coming to the local market along with new service providers. The number of subscriptions to broadband services rose sharply beyond expectations, while prices declined significantly especially with respect to mobile broadband services, as shown in Table 1 below. At the same time, a broad range of e-Gov services were introduced, including applications and payments for company registration, annual fees and leases of state properties. While the number of e-Gove services fell short of the ambitious targets of 10 services, it was clear that online public services were feasible and set to grow rapidly. Table 1: Achievement of Results Indicator/Result Baseline Actual Value Original Target New Target Objective I: ENTERPRISE GROWTH AND COMPETITIVENESS -- SUBSTANTIAL Indicator 1: Target Met Number of Enterprises accessing generic BDS increases. Value 200 250 555 Indicator 2: Target Met Number of Enterprises accessing specialized BDS increases. Value 80 120 247 Indicator 3: Target Met Development of an M&E Framework for BDS Schemes Value No Yes Achieved Indicator 4: Target Met Number of insolvency practitioners registered Value 0 50 61 Indicator 5: Target Partly Met Number of banks using Out of Court Workout guidelines Value 0 4 2 Objective 2: IMPROVING ACCESS TO FINANCE -- MODEST Indicator 6: Target Partly Met DBM restructured by the sale of its non-banking assets Value No Yes In Progress Indicator 7: Target Partly Met A new commercial Bank with a focus on MSME established Value No Yes In progress Indicator 8: Target Met Reduction in time taken to register property Value 15 days 2 days 2 days Indicator 9: Target Partly Met Completion of legal amendments for secured lending Value No Yes In progress. Indicator 10: Target Met Increase in coverage of the Credit Information Bureau Value 50% 70% 74.56% Objective 3: PROMOTING ICT AND E -GOV SUPPORT -- HIGH Indicator 11: Target Met Increase in broadband subscriptions with speeds of 10 Mbit/s Value 300200 15.00 % 115.9% Indicator 12: Target Met Decrease in the rate for 1Mbps of fixed broadband service Value USD 27.83 10.00% 10.0% Indicator 13: Target Partly Met Number of public online services Value 0 15 10 7 Note: Indicators have been renumbered and do not correspond to those in the ICR . 5. Efficiency (not applicable to DPLs): 6. Outcome: This programmatic series of two DPLs pursued relevant development objectives with an adequate design. The achievements of two (out of three) objectives (enterprise growth and competitiveness; and promoting ICT and e-Gov services) were substantial. The program was less successful, however, in achieving the third objective (improving access to finance). Nonetheless, even here progress was made, and it appears likely that the remaining outcomes will be achieved. Overall, the policy and institutional environment was strengthened substantially as envisaged. a. Outcome Rating: Satisfactory 7. Rationale for Risk to Development Outcome Rating: Among the risks that could jeopardize the development outcomes is that of backsliding due to a loss of political support, capacity constraints and corruption. To counter the risk of backsliding, the World Bank Group has engaged the Government in new Strategic Country Diagnostics in partnership with local stakeholders and foreign investors. The risk of capacity constraint has been addressed during the program implementation. Capacity has been much improved and is more adequate than it was at the beginning of the programmatic series. Corruption has been moderated by the presence of an Independent Commission against Corruption (ICAC) which enjoyed the support of the Government and the public. Risks related to macro-economic management are considered moderate as the country has weathered the aftermath of the global financial crisis with continued growth, supported in part by strong foreign direct investment. a. Risk to Development Outcome Rating : Moderate 8. Assessment of Bank Performance: a. Quality at entry: The task team facilitated the achievement of desired outcomes by ensuring the Borrower’s ownership of the program. Moreover, the program agenda built on a large volume of analytical work, including the 2009 Investment Climate Assessment, the 2004 Financial Sector Assessment Program, the Report on the Observance of Standards and Codes (ROSC) and on lessons drawn from the experience of two cancelled investment projects with similar objectives as well as the previous DPL series of 2006-2009. These experiences indicated that lending operations must include only reforms that are aligned with Government priorities and Government leadership and that are owned by the line ministries responsible for implementation. Flexibility to adjust and respond to Government’s evolving agenda is a further determinant of success. The readiness of the institutional, structural, financial and macro-economic environment was adequately evaluated during the preparation phase. Risk assessment and mitigation was reasonable. Measures adopted to mitigate risks included: a) scheduling the necessary actions to be taken within the term of the incumbent administration to limit the risk of losing political support; b) dialogue on fiscal consolidation to address the issue of fiscal deficits; c) providing non-lending technical assistance for participating agencies as needed; and d) the creation of a Sector Ministry Support Team in the MFED to address capacity issues among participating agencies. The ICR reports (p. 26) that coordination with other development partners to support government priorities was strong. Quality-at-Entry Rating: Satisfactory b. Quality of supervision:  The task team provided adequate supervision with timely actions to address emerging issues. Monitoring was undertaken both by local and Washington-based staff. There was one formal supervision mission for DPL 1 which benefited from the presence of Bank staff working on the preparation of DPL 2. Revision was made promptly to the results framework as some of the indicators under DPL 1 were found to be inadequate. New indicators were adopted and applied under DPL 2. Three supervision missions were conducted under DPL 2. Quality of Supervision Rating : Satisfactory Overall Bank Performance Rating : Satisfactory 9. Assessment of Borrower Performance: a. Government Performance: Under this program, Government was represented by the Ministry of Finance and Economic Development, which was also the Implementing Agency. The Government consistently showed strong ownership -- through pro-active measures to address emerging issues, through constant engagements with stakeholders across the board, including development partners, and through transparency in carrying out its fiduciary functions. One indication of the commitment is the Government’s willingness to take on deep structural reforms, including insolvency regulations, national broadband policy and ICT Act, as indicated under DPL 1. Another indication is the way in which the Government deepened the reforms by restructuring the DBM and launching a privatization effort under DPL 2. Despite the political sensitivity of some of the reform measures, the Government was mostly able to secure the passage of necessary legislation by working closely with the National Parliament to find solutions, although Parliament had not voted on the law governing collateral registry by program closure. The Government was also able to overcome delays and uneven capacity across agencies by creating a Sector Ministry Support Team in the MFED to address implementation issues. Government Performance Rating : Satisfactory b. Implementing Agency Performance: See Part a of this Section. Implementing Agency Performance Rating : Satisfactory Overall Borrower Performance Rating : Satisfactory 10. M&E Design, Implementation, & Utilization: a. M&E Design: Design of the M&E system was generally adequate. The indicators were empirically observable, with data being compiled and measured by independent parties. They also broadly corresponded to the results envisaged, with a few exceptions under Pillar I. The responsibility for data collection and oversight was well defined and distributed across participating agencies. As questions arose with respect to some of the indicators, the M&E design was promptly revised during the preparation of the second DPL. b. M&E Implementation: The M&E design was implemented as planned under the supervision of the Ministry of Finance and Economic  Development, with the support of the Bank task team based in the country and also from Washington. Progress was continuously monitored on all output and outcomes indicators, as established under the program documents. The information generated was made available in a timely manner. c. M&E Utilization: The M&E information was widely used by implementing agencies to track progress and identify lagging areas. The Bank task team relied on the M&E system in the preparation of the Implementation Status and Results Reports and the Implementation Completion and Results Report. There were indications that the M&E culture was internalized, as the Government decided under DPL 2 to create a separate and distinct M&E system to track the progress of the business development service (BDS) program for small and medium scale enterprises. M&E Quality Rating: Substantial 11. Other Issues a. Safeguards: No safeguards policies were triggered by the series. b. Fiduciary Compliance: Program funds were disbursed directly into the government’s budget. No fiduciary issues were identified. c. Unintended Impacts (positive or negative): None. d. Other: 12. Ratings: ICR IEG Review Reason for Disagreement/Comments Outcome: Satisfactory Satisfactory Risk to Development Moderate Moderate Outcome: Bank Performance: Satisfactory Satisfactory Borrower Performance : Satisfactory Satisfactory Quality of ICR: Satisfactory NOTES: - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006. - The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate. 13. Lessons: Among the lessons highlighted in the ICR are: Built-in flexibility allows the government to adapt the reform program as needed over time. The programmatic  series acknowledged areas where the country made significant efforts beyond what was expected. In the lagging areas, the necessary building blocks were put in place to ensure that the reforms take place progressively as in the case of the restructuring of the Development Bank of Mauritius where consensus for reform existed but the timeline was extended to take into consideration negotiations with another government on the selection of a strategic advisor. The knowledge package accompanying the DPL contributes to reform planning and implementation . The Mauritian Government had recently cancelled two Investment Loans but continued to request the Bank for technical assistance, analytics and policy dialogue. This brings to the forefront the issue of Middle Income Countries that can raise finds on the open market but still wish to maximize access to the Bank’s advisory services, analytics and technical assistance without the associated administrative requirements of lending instruments. This calls for continuous improvement of Bank lending instruments to suit the requirements of this ‘emerging’ client segment. Collaboration facilitates learning . The programmatic DPL series was prepared in tandem with the Public Sector Performance (PSP) DPL series and led to an integrated dialogue with the client and joint internal processing and targeting for better results. This program involved the tripartite collaboration among WBG sectors – FPD, HDN and PREM - under a tight time line. According to the ICR, “simultaneous preparation and processing of the two operations allowed the teams to cross-fertilize ideas and foster partnership in the interest of a higher quality product for the client.” 14. Assessment Recommended? Yes No Why? An assessment of this series, together with the previous DPL series and the two cancelled investment projects (Manufacturing and Services Development and Competitiveness, and Economic Transition Technical Assistance), would cast light on why the DPLs largely achieved their objectives while the investment projects did not. Other issues that could be highlighted are the tradeoff (if any) between quality and speed and the benefits accruing from the presence of a number of Bank units (in this case FPD, HDN and PREM) working on the same program. 15. Comments on Quality of ICR: The evidence presented is accurate and reliable, accompanied where possible by information about sources and definition of data. The analysis is clear, methodical and well organized, and free of unnecessary jargon and technicality. The ratings are evidence-based and objective. The lessons are useful and applicable to many middle-income countries. a.Quality of ICR Rating : Satisfactory