Statement by Jan Piercy at the Board meeting of January 29, 1998

International Bank for Reconstruction and Development International Development Association 86887 International Finance Corportation Multilateral Investment Guarantee Agency FOR OFFICIAL USE ONLY CONFIDENTIAL EDS98-47 January 28, 1998 Board Meeting of January 29, 1998 Statement by Jan Piercy SENEGAL- Country Assistance Strategy 1. I commend staff on a balanced analysis of the reform process in Senegal. Recent progress has been made, but there is still a large unfinished agenda. I strongly support the view that "sustainable, durable, and employment generating economic growth is essential for achieving lasting poverty reduction (emphasis added)". The Bank's strategy of support for that growth through structural reform, while at the same time pursuing improvements in social programs, is appropriate. 2. Development of a dynamic private sector is critical for achieving sustained economic growth in Senegal. The Bank has made important contributions in this area. For example, its support for the work of the private sector foundation (FSP) and the reflective group on competition and competitiveness (GRCC) has helped to focus attention and resources on solving difficulties faced by the private sector. Through continued support of these and other activities, the Bank should focus on removing overly burdensome administrative requirements and special market arrangements that favor long established and influential firms, and restrict entry of new private sector players. For example, the use of reference prices on which tariffs are applied for such products as sugar continues to have a protectionist effect and discourage new investment. 3. In strengthening the private sector, the Bank should also focus on assuring improvement in the judiciary's ability to resolve commercial disputes efficiently and fairly, and on developing alternative mechanisms of dispute resolution. The Bank can also play an essential role in stimulating reforms aimed at reducing high factor costs of production in Senegal. In particular, implementation of the energy sector reform program IS a key to success in this area. 4. Senegal is in the midst of a privatization process that, while still moving forward, has experienced numerous false starts and delays. Bringing this process to closure, either through sale or liquidation of remaining key state-owned enterprises, particularly the electric company, SENELEC, and the peanut and oil processing firm, SONACOS, is an important component of building an hospitable investment climate in Senegal. In this regard, I commend the recent passage of the new electric sector law which will pave the way for privatization of SENELEC. The privatization of SENELEC is an important component of energy sector reform. I This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  2 encourage the Bank to work with the government to ensure that privatization commitments are carried through to completion. 5. I encourage the Bank mission in Senegal to strengthen its donor coordination role. Past performance has been uneven. Experience under the Agriculture Sector Adjustment Program (PASA) demonstrated the positive effects of strong Bank coordination. Donors were able to focus their efforts in the knowledge they were not working at cross purposes. Under the PASA, USAID has been able to conduct a successful program to liberalize the rice market. Given the diverse nature of the efforts needed to support the private sector, Bank coordination is critical in effectively fitting the pieces together. 6. The Senegalese economy and the majority of its population are dependent on the agriculture sector, which, as the CAS points out, "has been stagnant for the last ten years." I encourage the Bank to assist the Senegalese government in directing the investment of scarce resources to those sectors, such as agriculture, that will provide the greatest return and fully exploit comparative advantages that Senegal might have in domestic and international markets. 7. I am disturbed by the lack of progress in the key economic indicators in Box 2. Export growth rate, GDP growth rate and foreign direct investment appear extremely low. Yet the CAS notes that a real opportunity exists for achieving a higher growth rate by liberalizing the economy and improving the investment climate. Encouraging investment that may lead to the development of non-traditional exports, tourism and information technology services should be a primary objective of the Government. To attract this investment, the GOS must address the high cost labor market, high energy costs, as well as the unfriendly environment for private investment. How does the Government intend to improve the environment for private investment? What role does the Bank and/ or other donors have in assisting them in their efforts? 8. With regard to the budget, I noted that the share of wages and salaries in total expenditures has declined from 41 percent in 1993 to 35 percent in 1997. Although there has been some progress, this level is still high. Is the Bank active in encouraging a reduction in the proportion of expenditures devoted to wages and salaries? 9. The CAS notes that in the area of procurement, progress has been impeded, in large measure by the outdated procurement code still in force. Adoption of the new procurement code is under consideration. 1 would appreciate ~taff comment on the status of the code and what the Bank is doing to encourage its adoption. 10. I noted the discussion in the CAS on education but was unable to determine what share of the budget goes to primary education versus tertiary education. I would appreciate staff comment on the breakdown of the education budget. 11. 1 greatly appreciated the discussion in the CAS on female genital mutilation (FGM) and government's efforts to reduce this practice. It was unclear to me from reading the CAS what role the Bank is playing to support the government in its efforts. I would appreciate staff comment on this point.  3 12. The benefits of the social analysis undertaken in preparing the CAS are clearly evident. I was quite interested in the section on social and political constraints to growth and hope that the approach used in this case can be duplicated elsewhere. I was also extremely pleased to see the Senegal CAS Consultation Process matrix included in Attachment V. This is an extremely useful addition to the CAS which I hope can be used as a model for CASs in other countries. 13. Another innovative feature of this CAS is the section on cross-cutting themes, i.e. gender, governance and capacity-buildin& and environment, as well as Attachment VI which discusses how these cross-cutting needs will be addressed with IDA lending instruments. 14. I commend staff on the treatment of gender issues in this CAS, particularly the proposed Social Sector/WID project. I do, however, believe that gender issues could have been treated more extensively in some of the projects outlined in Attachment VI. For example, given women's involvement in agriculture, I am surprised that the proposed Agriculture Export Promotion Project does not address gender issues. Staff comment would be welcome. 15. With regard to capacity-buildin& I was pleased to see a discussion of the Africa Capacity Building Initiative and the plans to do a national assessment and strategy. Although governance is included with capacity-building as a cross-cutting theme, it is unclear to me what the Bank will be doing to help the government address economic governance and corruption issues. ,.