Benin - Economic Management Project

The World Bank FOR OFFCIAL USE ONLY R.umt NM P-6182-IER IMEORANDU ANl ECNT OF TEE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXCTIVE DIRECTORS ON A PROPOSED CREDIT OF SDR 3.7 MIION TO TE REBLIC OF BEN FM m ECONOMIC M UAIGEMT PROJECT OCTOBER 21, 1993 MICROGRAPHICS Report No: P- 6182 BEN Type: PR This document has a restricted dtbution and may be ased by recipients only in the performance of dteir official duties. Its contents may not otherwise be dischlosed without World Bank authorization.  CURRENCY EOUIVALENTS Currency Unit - CFAF Franc (CFA) US$1 - CFAF 291 (July 1993) CFAF I Million - US$3,636 SDR I - US$1.39 US$1 - SDR.179 ABBREVIATIONS AND ACRONYMS ACBF Africa Capacity Building Foundation AfDB African Development Bank CAA Caisse Autonome d'Amortissement (Debt Management Unit) CEPAG Centre de Perfectionnement et d'Assistance en Gestion des Entreprises (Magement Training Center) CPC Cellule de Programnation et de Coordination (Programming and Coordination Unit) CNPG Centre National de Perfectionnement I la Gestion (National Management Training Center) DANIDA Danish International Development Agency EMP Economic Management Project IMF International Monetary Fund INSAE Institut National des Statistiques et de I'Analyse Economique (National Imstitut for Statistics and Economic Analysis) PCR Project Completion Report PIP Public Investment Program PPF Project Preparation Facility SAL Structural Adjustement Loan SOE Statement of Expenditures TA Technical Assistance UNDP United Nations Development Programme FISCAL AND PROJECT YEAR January 1 - December 31  FOR OMCIL USE ONLY ECC)NOMIC SN MENT PROJEC lBomwer: Republic of Benin hoin Beneficiaries: Ministry of Planning and Economic Restructuring, Ministry of Finance, Centre de Perfectionnement et d'Assistance en Gestion des Entreprises (CEPAG), Amount: SDR 3.7 million (US$5.2 million equivalent) I-rms: Standard with 40 years maturity, including 10 years of grace Eijnning Plan: Government: US$0.8 million ACBF: US$2.0 million DANUDA: US$4.0 million IDA: US$5.2 million Total: US$12.0 million Econmic m of return: Not applicable Staf Anraisal Not applicable MaR: Not applicable This document has a restricted distribution and may be used by recipients only in the performance or their otfcial duties Its contents may not otherwise be disclosed without World Dank authoriution.  MEMORANDUM AND RECOMMNDATION OF THE PRESIDENT OFIE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDff TO THE REPUBLIC OF BENIN FOR AN ECONOMIC MANAGEMENT PROJECT 1. I submit for your approval the following memorandum and recommendation on a proposed credit to the Republic of Benin of US$ 5.2 million equivalent to help finance an Economic Management project (EMP). The credit would be granted on IDA terms with 40 years maturity. BACKGROUND 2. Since Benin adopted its first structural adjustment program in mid-1989, the country has undergone a profound change in its economic and political institutions. Widespread popular discontent with the political system and the mismanagement of the economy led to a sweeping change in the country's political structure culminating in the National Conference in February 1990. The Conference reaffirmed and urged the strengthening of the structu adjustment sategy tbrough a restoration of public finances, government divestiture from the public enterprise sector, and the provision of incentives for private sector-led growth of investment and output. 'he former pervasive control system was to be disaded and steps taW to complete the libcalization of the economy. An interim Prime Minister was appointed to implement the program and a new democratically elected Govenment and parliament took office in 1991. 3. The second strucural adjustment program adopted in 1991 aimed at deepening and expanding the reforms initiued during the first phase through reforms in the fiscal system to improve resource mobilization and expenditure management; administrative restructuring of key mkinstries; pursWit of financial system restructuring and establishing an appropriate judicial and supervisory framewotk for sound financial intermediation; rationalization of the public enterprise sector with a view to further reducing the public sector's role in the ptoductive sectors and improving the financial performance of the enterprises remainig in the Govaernment portfolio; further improvement in the trade regime and the incentive structure for private investment; and meaes to protect vulnerable groups. 4. It was clear from the outset that, following the new political opening, not only would economic institutions have to be restructured, but the legacy of almost two decades of inappropriate policies and inadequate human resource development would have to be overcome. Accordingly, the new Governmentes adjustment program placed great emphasis on the administrative reorganiation of the key policy-making ministries and on thoroughly reforming the education and training system. The program received substantial donor support, under the overall coorinaion of the World Bank as it was considered one of the first test cases where the successful transition to democracy was accompanied by a far reaching economic and social reform program. 5. Implementation of reform measures under SAL I and the on-going SAL 11 have contributed to a major improvement in macroeconomic and public finance performance. After having declined substantially during 1989, real GDP rebounded, rising by 3.7 percent in 1990 and 4.7 percent in 1991. Despite slower progress than anticipated, the Government has successfully pursued the reform  -2- of the banking, public enterprise and trade sectors. With the establishment of four .ew private commercW banks since 1990, the banking system is now better positioned to fulflil its role of sound financial intermediation. Through privadzation and liquidations, the Government's public enterprise portfolio has been reduced from 40 commercial and industrial enterprises in 1989 to 25 in late 1992. With the exception, however, of the brewery, La Beninoise, which was privaized in 1992, the privatization/liquidation of the major loss-making enterprises has only recently been initiated. In the area of trade policy reform, the bulk of import licensing requirements was removed and the tariff structure was simplified. The incentive framework for private sector activity was substantially improved through the liberalization of prices, the adoption of a new investment code and revised labor and commercial regulations. 6. Notwitstandlng these achievements, implementation of the reform program has underscored the human resources and insdtutional weaknesses of the Beninese admintion as key longer term issues which would have to be addressed in the adjustment process. A streamlined government would be required to provide public services efficiently and to develop the capacity to analyze, design, implement and monitor development programs and policies, beginning with the adjustment program already underway. Internalization of the program by the staff in charge of its implementation is hampered by widespread deflciencies in the economic concepts which are required for the maemen of a market economy (see Technical Annex, para. 5). Weaknesses in economic management will have to be overcome in such areas as macroeconomic programming, policy analysis, investment programming and public finance management. 7. The proposed project responds to the above shortcomings. It contributes to the reorganizatior. of the public sector initiated under SAL II and supported by the donor community. During project preparation, close consultations with the different donors have been undake to ensure complementarity in institutional restructuring and capacity building efforts (see Technical Annex, paras. 1, 14, and 23). The project has been developed in close coordination with the IMA funded Pre- investment project (Credit 2286-BEN) approved in FY91 (see Technical Annex, para. 21). 8. Project Objectves. The proposed project is designed to improve economic management capabilities in Benin. In particular the project alms at: (i) strengthening the preparation and management of the Public lnvestment Program (PIP), the Budget, and improving the quality of the Nationa Accounts; (ii) stengthening staff capabilities in economic and financial management, and establishing a pemanent Government capability to train its own staff; and (ii) supporting the Government's overall economic reform program. 9. Project Description and iancing. To achieve these objectives, the project would: Ci) provide support for the development of a training program to be carried out in a national training center; and (ii) provide support to the preparation and execution of the PIP and the budget through technical assistance to the Ministry of Planning, the Ministry of Finance and the sectoral ministries. The project will also finance studies and consultant services to support the implementation of the Government's economic reform program. The project's estimated cost over a four-year period is USS 12.0 million equivalent (US$ 10.7 million, excluding contingencies). The project would finance the following components: (a) support to a training center, Centre de Perfectionnement et d'Assistance en Gestion des Entreprises (CEPAG), US$ 5.0 million (Technical Annex, paras. 3-13) through provision of an expert to assist in managing the center and developing a new program of short and long-term taining in economic and finacia management. Two other experts, in addition to teaching at the center, will provide the sectoral ministries with operational and pedagogical support for programming and executing the PIP and the budgeL The project will also finance short-tem  - 3 - internaional and national advisory services, training of trainers, equipment, supplies and operating costs; (b) support to the Mimisty of Planning (US$ 3.1 million) (Technical Annex, paras. 14-22) where two experts wili provide operational and pedagogical support, one to the PIP and the other to the national accounts. In addition, the project will finance equipment and studies; (c) support to the Ministry of Finance (US$ 1.1 million) (Technical Annex, paras. 23-29), where one expert will provide operational and pedagogical support to the staff involved in the preparation and execution of the budget; (d) support to the economic reform process through studies, short term expertise, and implementtion of acdon plans in the areas of competitiveness, banking, tariff and judiciary reforms (US$ 1.5 mUlion) (Technical Annex, pam. 30 and 31). 10. The project is to be co-financed by the Government, IDA, the Danish International Development Agency (DANIDA), and the Africa Capacity Building Foundation (ACBF). The Government's contribution amounts to US$ 0.8 million or 7 percent of project cost. An IDA credit of approximately USS 5.2 million equivalent will finance 43 percent of project cost. A DANIDA grant of US$ 4.0 million will finace 33 percent of project cost. An ACBF grant of US$2.0 million will finance 17 percent of project cost. DANIDA and ACBF contributions will be managed by IDA under joint- financing arrangements. 11. The project is expected to strngthen public invesment progi and montoring, budget preparation and execution, and the national accounts. Staff competence will be enhanced throug a combination of: (i) formal training in economic concepts and techniques in the national training center; and (ii) on-the-job training of national staff by the experts financed by the project. In the context of the ongoing Goverment effort of administrative restructring undertaken under SAL II, the proposed EMP's Project Preparation Facility (PPF) financed stuies in support of a reorganization of the Ministry of Planning and the debt management unit (CAA) of the Ministry of Finance. The reorganization aims at clealy defining the respective responsibilities of the different administrative units, and establishing functional relationships as well as related information systens and procedures. In addition, the project will support the Govermment reform program by fnancing studies, deploying high aly consulta in specific areas, preparing ad implemendng action plans to meet specific needs of the economic adjustment process as well as organizing workshops for discussion, conus building and internalon of proposed reforms. 12. Project Implementation. The Ministry of Planning, which is already the implementation agency for the IDA-funded Pre-investment project, will have overall responsibility for the proposed project as well. Given the complementary nature of the two operations (see Technical Annex, para. 21), the administrator of the Pre-investment Project will also administer the proposed EMP. The administration team of both projects has been strengthened by the recruitment of an assistant to the administor and an accuanta. A technical coordination committee will be set up to monitor the establishment and implementation of the new economic management procedures and systems to be introduced under the project. The committee members are the directors of the majr economic management directorates/units (Technical Annex, para. 35). A commitee for the monitoring of capacity building actions will also be set up. It will include the members of the technical committee as wen as the directr of CEPAG and the director of personnel in the Ministry of Administrative Refom (Teccal Annex, para. 36). The PIP and national accounts epetts wfll report to tle M ster of Planning, while the budget expert will report to the Minister of Finance, and the exper in the training center to the director of CEPAG (echnical Annex, para. 37).  * -~~~~~~~~~4- 13. Project Sustainabillty. The project aims at developing an effective and low cost domestic training capacity in economic management and restricting future foreign-financed training costs to the finacing of the training of national trainers. In order to achieve this objective, a methodology of skills transfer from the eVpatriate experts to the national trainers In CEPAG will be established and closely monitored. The methodology involves transfer of expatriate's pedagogical material to the center, organization of co-teaching sessions, and pedagogical discussion sessions after classes. The project also provides resources for training of CEPAG trainers. 14. The project aims at strengthening the capacity of staff involved in economic management by closely linking training and technical assistance efforts. For each of the economic management tasks that the project targets, the resident expert will define the chain of required activities. Those activities will be further broken down into a list of specific sub-task classified by degree of operational and conceptual difficulty. The list of activities will be the basis upon which staff weaknesses will be identified and resolved through training plans to be set up by the resident experts and the training center. The training program will address the operational and conceptual difficulties that staff face in performing their tasks. It will be designed with a view to improving knowledge as well as know-how. By focusing on the performance of day-to-day tasks, the approach will help complement the academic training of high level staff with a focused and operational upgrading of skills. Moreover, the identification of staff weaknesses on the basis of the specific activities and sub-tasks assigned to staff would allow the Beninese managers and Bank staff monitoring the project to better assess the relevance of the training provided. Finally, such taining should improve the performance of day-to-day tasks within a reasonable time-frame. The above approach should improve the monitoring of the progress achieved in upgrading staff sklls, introduce transparency in staff achievement/failures, and facilitate skill transfer management and monitoring. 15. The reorganization of the Ministry of Planning will proceed in three phases. The first phase, currendy financed under the PPF, consists of an operational audit and involves: (i) an assessment of the existing sittation in terms of organization, human resources and materal supply; (i) a diagnosis of the current deficiencies; and (iii) proposals for new functions, systems and procedures. In order to encourage awareness and acceptance by staff of their new roles and responsibilities, workshops will be held during the second phase which will start at credit effectiveness. The purpose of the workshops is to discuss with staff the mandates, work program and outputs of each unit as well as functional relationships and information flow between units. The third phase Involves the actual reorganization and staff redeployment around the defined work program. Luring the unplementation of the reorganization, the expets provided under the project will assist in the establishment of new procedures and working methods, and will help organize the traiing needed to ensure internalization by staff. 16. Lessons From Previous IDA Involvement. Since 1977, IDA has financed three technical assistance (TA) projects in Benin. The first (rural development) and second (petroleum) TA projects, approved in 1977 and 1982 respectively, were limited to sectoral ministries. the objective of the Rural Development TA (Credit 0716-BEN) project was to assist In planning and implementing agricultura development policy. The project had 14 stated components or sub-components, some only distantly related to others. By and large the execution of the project was not successful. The Petroleum Sector TA project (Credit 1207-BEN) supported the construction, furnishing and equipment of a traing center; establishment and implementation of a program for formal and on-the-job training for local oil field workers; and professional training. T'he results of the trahiing for oil field workers, technicians and professionals have been satsfactory. The overall dropout rate of trained professionals has been minmal. 17. The Third TA project (Credit 1530-BEN), approved in 1984, responded to the Government's interest in expanding TA to the area of economic nmagement. It aimd at correcdtng deficiencies in macroeconomic planning (policy analysis and investment programming), project preparadon, and public finance management (budgeting, budget execution and debt management); poor  data and information base and the lack of staff appropriately qualified to undertake the various task. TA m also contributed signiftcandy to the design, coatent, and implementation of SAL I (Credit 2023-BEN), approved In FY89 and SAL II (Credit 2283-BEN), approved In FY91. While TA m was Instrumental in successfully addressing ad-hoc needs emerging during the adjustment process, and improving economic management, it fell short of achieving sustained resuJts in capacity building due to a combination of factors. After a long period of mismanagement and centralized planung, not only were staff poorly trained and prepared for the new functions, but they were also highly demotivated. Furthermore, the major change in the system of government and its leadership in 1990 induced administrative instability and a high level of staff turnover at the same time as -he national leadeship's energies were absorbed by the political transition. Following the stabilization of the political and administrative situation in 1991, capacity building and institutional strengthening have become a priority on the Government agenda. 18. According to the PCR of the first TA project in Benin, factors related to project formulation which contributed to implementation difficulties or partial failure are: (i) too many components; (ii) poor idendfication of some project activities; and (iii) over-optimistic targets. The proposed project has opted for a simple and focused design. The proposed training component benefits from lessons drawn from experiences in the sub-region. In particular, it draws from the design and implementation of the first TA project in Benin and the second economic management project in Guinea (Credit 1963-GUI). Both projects involve the development of national training centers and provision of long and short-term training and signal the importance of addressing both kinds of training needs. This combination proved useful in improving overall staff performance over a relatively short pedod of time for the Benin TA II. In the case of Guinea, the two-year part-time training course at the national training center (CNPG) was successful n providing staff with the concepts and techniques needed for the management of a market oriented economy. In addition, the methodology used by the training center's magement for skills transfer from the foreign experts to the national trainers achieved the tsfer objective. The PCR of SAL I and the experience with SAL II indicate that TA m was instrumena in the design and implemeation of both adjustment credits, and pinpoint the need for a component to support the adjustment process. 19. Rationale For IDA Involvement. IDA's strategy in supporting Benin's development aims at restoring growth within an acceptable social framework and enhancing the sustainability of the Government's adjustment and development efforts. A Country Assistance Strategy was presend to the Board in FY92. A new Country Assistance Stmegy will be presented and discussed with the Community Based Food Security Project, scheduled for March 1994. Through capacity building in the area of economic management and the support it provides to the on-going adjustment program, the proposed project will help achieve these objectives. Given its long-standing and privileged position in the dialogue with Government on economic policy, and Its long-term view of capacity building, IDA is well positioned to be involved in further strengthening of the country's economic management funcdons. 20. Agreed Actions. The Government agreed to proceed with identification and selection of suitable Beninese trainers for the taining center. They will be formally assigned to CEPAG nrior to credit effectiveness. The Government has launched, under the PPF, the studies for the reorganization of the Ministry of Planning and the CAA. The studies should be completed and agreement should be reached with Govemment for the implementation of the recomendations as a condition of credit effectiveness. Also, the Government should agree to fill the following key positions: directors of the planning division and the statistical Instte (INSAE) in the Ministry of Planing, the debt management unit (CAA) and the budget division in the Ministry of Finance, and the heads of the planning units in the sectoral ministries. Finally, the government will formally establish the technical coordination committee and the capacity building monitoring committee. As a condition of negotiations, the Government has submitted to IDA a letter formally indicating its commitment to: (i) implement agreed recommendations of the organizational audits of the Ministry of Planning and of the CAA; and (ii) define the modalities  - 6 - for the Inclusion of all relevant information on staff training in personnel files so that such Information is readily available and used for decisions on promotions and career deavelopment. 21. Enfromnental Aspects. 'Me project is a C-classificadon. Benin recently completed a National Environmunal Action Plan. The technical assistance and trainuig envisaged under the project will take this into account in the program of capacity building for public investment planning and management. 22. Project Objective Category. The project is a capacity-building vehicle for public sector management in Benin. 23. Project Benefit. By strengthening the capacity of the civil service to manage the economy, the project wili address one of the major constaint to the implementation and monitoring of the economic reform process and to long term development. 24. Risks. The main risks associated with the project lie in the quality of the advice and training offered, a continued high rate of turnover of high level staff and inadequate use by Government of trained personnel as competence is developed. Government has shown itself committed to strengthening economic management capabilities and making optimal use of staff. To ensure that adequate consideration is given to staff training and competence in career development during the design of the up-coming phase of the administrative reform (see Technical Annex, para. 36), Government has formally indicated in a letter to IDA, before negotiations, its commitment to define the modalities for the Inclusion of all relevant Information on staff training and qualifications in persel files with a view to liking training and competence to career development (see para. 20). Furthermore, the project provides for the committee that will be set up to monitor the project's capacity building actions to include a represettive of the Miistry of Civil Service and Administrative Reform. Finally, in order to ensure quality of expertise provided under the project, the contas with resident eets and ainers would (i) specify skill transfer modalities and performance indicators: and (ii) indicate that renewal of contract is dependent upon performance. Government would be expected to cancel the contracts of non-performers. 25. Recommendation. I am satisfied that the proposed credit would comply with the Articles of Agreement of the Association and recommend that the Executive Directors approve it. Lewis T. Preston President Atachmens Washington D.C. October 21, 1993  r SCHODULE A ............ BENI# ECOMWIC MANAGEMNT PRWJECT PROJECT COST ANO FINANCING PLAN ........ .............. .................... .. x OF PROJECT COST FOREIGN LOCAL TOTAL TOTAL .... ............. ... .... ..... . ..... . .. ..... .... ........... ----(USS mitlion equivalent)- .... TrainIng Center 4.1 0.9 5.0 47X Ministry of Planning 2.7 0.4 3.1 29X Ministry of Finance 1.0 0.0 1.1 10X Adjustment Support 1.5 0.0 1.5 14X Bose Cost 9.4 1.3 10.7 1002 Total Contingencies 1.0 0.3 1.3 12X TOTAL PROJECT COST *s 10.4 1.6 12.0 1122 2 OF FINANCING PLAN FOREIGN LOCAL TOTAL TOTAL -----.- -------. .. ............ ........ .... ..... . -. -(USS million equivalent).---- Goverrnent 0.0 0.8 0.8 7X tOA 4.7 0.5 5.2 432 ACBF 1.9 0.1 2.0 172 DANIDA 3.8 0.2 4.0 33X TOTAL 10.4 1.6 12.0 1002 al Includes PPF totalling USS 300,000.  8 SC110ULE a BENIN ECOWNIC IIAIEliT PROJECT PROCUREMENT METHOD ..v................ USS million equivalent) TOTAL PROJECT LC8 OTHER N.S.F. COST 1. SERVICES Technical Assistance - Resident Experts 2.59 3.2V 5.86 (2.59) (2.59) Technical Asssatance - Consultants 1.60 2.12 3.72 (1.60) (1.60) 2. GOODS Equipmnt & Supplies 0.38 0.10 0.51 0.99 (0.38) (0.10) (0.48) S. Operatirn Costs 0.29 0.77 1.06 (0.29) (0.29) 4. PPF Refinancitn 0.30 0.30 (0.30) (0.30) S. Unaltocated 0.20 0.20 (0.20) (0.20) , _.... ....... ..... ......... TOTAL 0.38 5.08 6.68 12.14 (0.38) (5.07) 0.00 (S.45) Note: figures In parentheses are the respective anouts financed by the IDA credit. Nwbers may not add up due to rcndirng *.8.F.: Not Bank-Financed (Goveriment, ACF, DANIDA) IDA DISBURSBNENTS .................. CAIEGORY USS! ULLI08 PERCEMTAGE Technical Assistance Resident Experts / Consultants 4.19 100 X Operating Costs 0.29 100 Z Equipment & Supplies 0.48 90 X PPF Refinancing 0.30 Unallocated 0.20 100 5.45 ESTINAMED IDA DISSURSEMENTS FY94 FY95 F996 FY97 FY9B .. ................................. .... . .... . .. .... . .... . ... .... CUSS oillion) Annual 1.61 bf 1.20 1.03 1.09 0.52 Cu"t.at /e 2.81 3.84 4.93 5.45 bl Includes PPF refinanfng totalling US$ 300,000. NOTE: N i*ere may not add up due to roundino.  .9- SCHEDULE C identification Nission February 9942 pre -ppraisM April 1992 Awpreisatj/ Jurae 199 Nago. fat imns Septemter 1993 seerd Prsontatf on Moverber 1993 Anticipated Effectiveness Cate March 19943/ Relevent PCR and PPAR2 1. ProJect Completion Report, Benin, SAL t (Credit 2023-8ER) Country Operations Division, Occidental and Central Africa Department, July 1992, (Report No. 10844). 2. ProJect Coptetfmn Report, Benin, Technical Assistance Project on Petroleum Sector (Credit 120t-BEN) Africa Technical Department, Industry and Energy Division, February 199M (Report No. 8377). 3. Project Perfor e Audit Report, 8enfn, Technical Assistance Project (Credit 0716-BEN) Operations Evaluation Department, November 1982t (Rport No 4192). j/Bnk staff respcnsibte Let la Ztaoul (task Manager), Eduardo Locatelit (wenin Resident Rissimn) &MThis Is to allow for the completion of th reorganization studfes of the Ninfstry of Plavnfn, of tho CA and agreement an the recom.endatfons whfch Is one of the conditfons of eradft effectiveness (sea Technical. Amew, para. 45).  SCHEDULE ) - 10- IPUIUC OF O9tW, SrATUS OF aWK OROUP OPGRATOns SUMMARY OF CRI8lS (AS OF C08708 15, ISO3M Ase.<4 In UII niltia (I... c*ae.4. I *ai en.) C,i m. Y.a. 11gow.me. Puaea ZSan OA b.a.'.4 Oat. ______ ___ _______ _,... . ... ---- ......__. . .. .__.... .. ..... ..... C-0; 40 27 Ce.d1sa(g) <nqd 249.45 N) 0s1 a0w4 it" Rfte.JLC 3D 04t?# ?SC0ZAL. AS:SrANCSZ $.00 t. O3IS1.t, c=72Q0-906 1104 REtUOt.:C OF 004N WeAtOP tl 1S.0S t.20 t211i.493 c:or1o-mm 1407 *AaVUI.c OP OeZti Pug4O: twI4MPsu 1S.O . t. T @ f: