Burkina Faso - Private Sector Assistance Project

Document of The World Bank FOR OFFICIAL USE ONLY REPORT No 21548 IMPLEMENTATION COMPLETION REPORT (IDA-24720) ONA CREDIT IN THE AMOUNT OF SDR 5.1 MILLION (US$7.0 MILLION EQUIVALENT) TO BURKINA FASO FOR A PRIVATE SECTOR ASSISTANCE PROJECT December 21, 2000 Private Sector Group Africa Region This document has a restricted distribution and may be used by recipients only in the perfonnance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS (Exchange Rate Effective June 2000) Currency Uiiit = (CAF Franc (CFAF) CFAF 697 = US$ I US$ I = SDR 0.752 FISCAL YEAR January I December 31 ABBREVIATIONS AND ACRONYMS BCEAO Banque Centrale des Etats dAfrique de l'Ouest CBC Burkinabe Shipping Council MICM Ministry of Industy, Commerce and Mining ONAC National Office for External Trade OHADA Organisation en Afrique pour l'Harmonisation du Droit des Affaires UEMOA West African Economic and Monetaxy Union Vice President: Callisto Madavo Country Director: Hasan Tuluy Sector Manager: Demba Ba Task Team Leader: Marie-Ange Saraka-Yao  FOR OFFICIAL USE ONLY CONTENTS Page No. 1. Project Data 1 2. Principal Performance Ratings 1 3. Assessment of Development Objective and Design, and of Quality at Entry 2 4. Achievement of Objective and Outputs 5 5. Major Factors Affecting Implementation and Outcome 10 6. Sustainability I1 7. Bank and Borrower Performance 11 8. Lessons Learned 13 9. Partner Comments 13 10. Additional Information 23 Annex 1. Key Performance Indicators/Log Frame Matrix 27 Annex 2. Project Costs and Financing 29 Annex 3. Economic Costs and Benefits 31 Annex 4. Bank Inputs 32 Annex 5. Ratings for Achievement of Objectives/Outputs of Components 34 Annex 6. Ratings of Bank and Borrower Performance 3 5 Annex 7. List of Supporting Documents 36 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not be otherwise disclosed without World Bank authorization.   Project ID: P000289 Project Name: PRIVATE SECTOR ASSIS Team Leader: Marie-Ange Saraka-Yao TL Unit: PFG ICR Type: Core ICR Report Date: December 21, 2000 1. Project Data Name: PRIVATE SECTOR ASSIS L/C/TF Number: IDA-24720 Country/Department. BURKINA FASO Region: Africa Regional Office Sector/subsector: DB - Business Environment KEY DATES Original Revised/Actual PCD: 03/30/90 Effective: 10/13/93 01/31/94 Appraisal. 06/19/92 MTR. 06/30/95 06/30/97 Approval: 03/18/93 Closing: 12/31/97 06/30/2000 Borrower/lImplementingAgency: BURKINA FASO/MINISTRY OF COMMERCE; BURKINA FASO/INDUSTRY Other Partners: STAFF Current At Appraisal Vice President: Callisto Madavo Edward Jaycox Country Manager: Hasan A. Tuluy Katherine Marshall Sector Manager: Demba Ba Silvia Sagari Team Leader at ICR: Marie-Ange Saraka-Yao ICR Primary Author: Gabrielle Rooz; Jerome Chevallier 2. Principal Performance Ratings (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUJN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible) Outcome: S Sustainability: L Institutional Development Impact: M Bank Performance: S Borrower Performance: U QAG (if available) ICR Quality at Entry: U Project at Risk at Any Time: Yes  3. Assessment of Development Objective and Design, and of Quality at Entry 3.1 Original Objective: The objective of the project was to help create an institutional environment capable of providing support to sustainable growth of the private sector. The project was designed to help implement a Government economic reform program to respond to increased macroeconomic imbalances resulting from large expansion in public consumption and investment in the 1980s, the result of the country's socialist orientation. Increased macroeconomic imbalances led Burkina Faso to seek assistance from the Bank and the IMF. A Policy Framework Paper (PFP) was agreed in 1991 and the Bank extended a first Structural Adjustment Credit. The objectives of the adjustrnent credit were to improve public resource management and create incentives for private sector development. To achieve the latter, the program included actions in the areas of public enterprise divestiture, banking sector restructuring, trade and price liberalization, and regulatory reform. Two technical assistance projects were designed to help the Government carry out its reform program, the Public Institutional Development Project approved in June 1992, and the project under review. Assessment of Project Objective. The project objective was in line with the country assistance strategy to help the Government create a policy and regulatory environment supportive of the private sector. It was also consistent with the Government's economic liberalization program. The objective was too narrowly defined, however. Focusing on institution building without clear indication of a purpose is a recipe for disappointment. The program lacked an overall private sector development strategy providing long-term objectives for the sector and the necessary tools for implementation. 3.2 Revised Objective: The original objective of the project was not revised but project design was modified. 3.3 Original Components: The project included three components: (i) assistance to the Ministry of Industry, Commerce and Mining (MICM) to implement the divestiture program and streamline administrative procedures related to external trade and the establishment of new enterprises; (ii) reorganization, privatization, and strengthening of the institutional support structure for private sector development; and (iii) support to the Ministry of Finance and Planning to complete the privatization of the banking sector and strengthen financial intermediation. 1. Assistance to the MICM (US$3.17 million). (a) Streamlining the Ministry's procedures relating to private sector activities. This sub-component was designed to help the two one-stop windows established under the SAL (one for external trade and one for investment) to improve their organization and procedures. (b) Support to the Privatization Commission This sub-component was to finance one year of operating costs of the Privatization Commission, established in 1992 under a PPF and PHRD grant, and consulting services to assist in the implementation of the Government's divestiture program, also for one year. Government's budgetary allocations were to support the Commission's operating costs starting in mid- 1994. Technical assistance was to be financed afterwards by proceeds from sale of public enterprises. 2. Assistance to the Chamber of Commerce, the Burkinabe Shipping Council (CBC), and the National Office for External Trade (ONAC) (US$2.75 million). (a) Reorganization of the institutional support structure. This component was designed to reorganize, privatize, and strengthen the support structure of the Chamber of Commerce, CBC and ONAC. It was to transfer to the Government all tasks of an administrative nature performed by the agencies, and to the Chamber of Commerce those providing extension services to private businesses. It was to rationalize the management of warehouses and shipping equipment that was under the control of the Chamber of Commerce and CBC. (b) Assistance to the -2-  Chamber of Commerce This component was to strengthen the Chamber of Commerce's ability to assist private businesses obtain the support they needed. It was to strengthen the Chamber's capacity to evaluate private firms' needs for technical assistance, follow-up and assess results of this assistance. It was to establish a data base to record all available local and foreign sources of assistance to private enterprises' operations. It was to help private firms carry out feasibility studies and provide financial start-up support. 3. Financial sector component (US$0.81 million). (a) Assistance to the Ministry of Finance and Planning. This component was to finance technical assistance to help the Ministry manage the privatization process of financial institutions and improve the management of the Agency for Debt Recovery. (b) Strengthening of financial intermediation. This component was to finance: audits of the commercial banks prior to their privatization; a study to convert the Postal Services Agency and the National Savings Agency into an independent financial institution within the postal system; a review of the legal system to improve bad debt recovery; and a study to create long-term financing instruments and the necessary legal and regulatory framework for their establishment. Assessment of Components: The project was a complex operation involving a large number of institutions (10 in total), most of which with little experience with Bank procedures. The Government was ambivalent on private sector development and reluctant to reduce its involvement in the management of the economy. Under these circumstances, providing a large package of technical assistance (a total of 400 man/months was envisaged) was not the most appropriate approach. The strategic focus of the privatization program was short-term, targeting primarily a reduction of state subsidies to loss-making public enterprises in the public sector. The institutional arrangements of the privatization component were also deficient. The Privatization Commission was established as part of the Ministry of Commerce. This resulted in a slow and overly centralized decision-making process, with negative consequences on the Commission's decision-making ability. The combined effect of the slow and cumbersome decision-making process and lack of Government's commitment was a significant obstacle in moving forward the divestiture program. The objectives of the institutional reforms were relevant and consistent with the project's overall objective insofar as they sought to address bureaucratic bottlenecks to improve the business environment. However, private sector participation was not actively promoted during the design stage and remained limited during implementation. As a result, the reforms did not fully address the sector's needs. Measures under the financial sector component were relevant to the project's objective and supported the development of the private sector. The project over-estimated local capacity to implement the various components and placed unrealistic expectations on the pace of the privatization program. Shortfalls in counterpart funding substantially slowed down implementation of that component. Furthermore, during project preparation, insufficient attention was given to the country's economic and social background, which was shifting from a centrally planned to a more market-oriented economy, and the time lag required for the Government to adjust to the changes and buy into the reform process. This underestimation had a negative impact on the pace of project execution-particularly the privatization program, and was reflected in the Government's initial lack of commitment. The SAR correctly identified the slow pace of the privatization program as a risk but did not recommend adequate mitigating measures. 3.4 Revised Components. Project implementation was slow, and two months before the initial closing date of December 31, 1997, only US$2.2 million (about 30 percent) had been disbursed under the credit. Following the project's - 3 -  mid-term review of June 1997, the Government, with intensive assistance from the newly-appointed Bank resident representative, launched the preparation of a private sector workshop to discuss private sector development issues with representatives of the public and private sectors and the donor community. The workshop took place in October 1997. It gave the private sector an opportunity to make a number of concrete recommendations for improving the business environment. The Government gave encouraging signs that it was ready to follow up on them. The Government and the Bank concluded that the project could be an effective instrument for implementing these recommendations, and more generally, the reforms agreed under the highly indebted and poor countries (HIPC) initiative. The project was restructured on the basis of an action plan based on the workshop proceedings, and the credit was extended by two years to December 31, 1999. An amendment was presented to the Board in April 1998. The amendment involved changes in the project description to include a new component relating to the telecommunications sector and to modify the component on business laws. It also involved a modification of Credit allocation. Project restructuring was as follows: The telecommunications reform component (US$0.4 million) was added to open up the sector and encourage private sector participation in the development of services. The reform component was to develop policies and strategies for the sector, promote national consensus-building for the Government's policy strategy, establish a legal and regulatory framework to foster competition as well as a regulatory agency, and introduce competition in mobile telephone market. The business laws component (US$0.3 million) was designed to help disseminate the new business laws expected to become effective in January 1998 under the OHADA treaty, provide training to judges and private operators to facilitate enforcement of the laws, and revise national laws to ensure their consistency with the new framework. The OHADA treaty signed by Burkina Faso and a number of francophone countries in 1993 aimed to streamline and update business legislation for member states through a uniform set of laws, and to strengthen the legal and judicial security for enterprises through effective settlement of disputes. Another objective was the promotion of arbitration as a means of settling contractual disputes and facilitation of regional and international trade. The matching fund within the Chamber of Commerce was canceled because of the Chamber's weak capacity to execute it and because of the existence of a number of other similar funds managed by multiple institutions. The study to review existing legislation on bad debt recovery was canceled because regulations to deal with this issue were being adopted under the West African Economic and Monetary Union (UEMOA) of which Burkina Faso is a member. Two additional activities were added towards the end of the project: support for an agribusiness strategy and a competitiveness study. The agribusiness strategy was to help restructure the fruit and vegetable industry and identify entry points for potential sources of growth. The competitiveness study was the result of a joint collaboration between the Bank and the Government that started in late 1998, at a time of difficult dialogue between the Bank and the Government on the appropriate reforrn agenda for the country. The private sector development project was not going well because of resistance by various parties to major institutional reform, privatization and liberalization, which were perceived as World Bank dogma. As a way of moving forward and generating ideas, the Government agreed in October 1998 to carry out a comprehensive economic competitiveness study and analysis of sources of growth for Burkina Faso. The closing date was extended a second time from December 31, 1999 to June 30, 2000 to allow the Government to complete three specific ongoing activities in the areas of telecommunications reform, privatization and support to the private sector. - 4 -  Component Cost (US$ million) 1. Assistance to the MICM 3.17 2. Assistance to the Chamber of Commerce, 2.75 CBC and ONAC 3. Financial Sector Component 0.81 4. Telecoms Reforms 0.40 5. Implementation of the OHADA Laws 0.30 Total 7.43 3.5 Quality at Entry: Quality at entry is rated "unsatisfactory" because of poor project design and deficient risk analysis. The project was complex in view of limited implementation capacity and weak Government commitment to private sector development. When the project was approved, the adjustment program was not implemented at a satisfactory pace. Performance indicators were detailed for each sub-component in the SAR, but they were mostly to measure outputs instead of outcomes. The risk section did not provide a thorough analysis of potential problems. Two main risks were identified. The first risk-- slow progress in privatizing public enterprises and banks--was considered low because of the Government's commitment to the reform program. The second risk was the business community's slow response to play an active role in the institutional system to support private entrepreneurs. This risk was also considered low because of the active participation of the Government and the private sector during preparation. The project pre-dates the QAG review process. 4. Achievement of Objective and Outputs 4.1 Outcome/achievement of objective: The project's outcome is rated satisfactory. The main achievement of the project is its contribution to a major shift in the Government's understanding of the strategic and development issues it is facing as the new century begins. This shift was initiated towards the end of the project through the highly participatory competitiveness study mentioned above. The study highlighted the need for the country to adopt a more aggressive reform program if it were to make a significant impact on poverty. The Government used the results to articulate a new development program that formned the basis for the Poverty Reduction Strategy Paper (PRSP) presented to the Board in June 2000. The project also helped the Government implement its divestiture program, thereby reducing state subsidies and increasing firms' productivity and doubling employment. Through lessons leamed from the divestiture program, the Government decided to extend the privatization process to the infrastructure sectors--telecommunications, energy and air transport. The project was instrumental in initiating reforms in the telecommunications sector and opening it up to competition. Finally, the project was instrumental in strengthening the financial sector. The banking sector was restructured, leading to increased competition with the entry of five new financial institutions. The project was less successful in restructuring the institutional support structure to private entrepreneurs and streamlining the administrative procedures for private sector activities. 4.2 Outputs by components: Component 1. Assistance to the MICM. (a) Streamlining of the Ministry's procedures relating to external trade and establishment of new private businesses. This sub-component did not achieve its objective to improve the organization and procedures of the two windows. Expected output for this sub-component was a reduction in the processing time for investment code applications. A one-stop agency was created in 1994 to screen applications for investment code benefits and register new enterprises. It became operational in 1997. Although service standards were established to speed up the approval process, procedures remain cumbersome. The project - 5 -  financed a study to recommend ways to eliminate unnecessary steps in setting up new businesses and ensure that procedures are consistent with the new OHADA regulations. The FIAS study has highlighted that, despite progress in streamlining the administrative procedures to better respond to the needs of new businesses, these procedures could be further streamlined. Private enterprises still have to go through several public agencies, six in total, to register their new business, despite the existence of the one-stop agency. Since the majority of these new businesses are small enterprises, these successive administrative steps represent a high cost to them, estimated to average 17 percent of their capital base. It is the Government's intention to transfer the one-stop agency to the proposed "Maison de l'Entrepreneur". The concept of the "Maison de I 'Entrepreneur" emerged during the national workshop of October 1997 as a one-stop center to provide information to entrepreneurs and streamline administrative procedures. The center will liaise with all existing agencies dealing with private entrepreneurs and provide support to their associations. The project financed a feasibility study to define the center's activities, its structure, and financing. The center is expected to become operational by the end of 2000. This sub-component is rated unsatisfactory because its main institution-building objective was not achieved. (b) Support to the Privatization Commission This sub-component has achieved its overall objective to complete the divestiture program encompassing the privatization or liquidation of 39 enterprises out of a total of 44 in the initial program. Seven laws and decrees were enacted from 1991 to 1999 to authorize the divestiture of these companies and to empower the privatization agency. The physical targets set at appraisal have been met. In the first phase of the privatization program from 1991 to 1994, out of 22 enterprises to be privatized or liquidated, 13 were privatized and two research centers were transferred back to their line Ministries because they had no profit orientation. Of the seven remaining from the first phase, five were privatized and two liquidated. Out of 22 companies from the second phase, 12 were privatized and 10 liquidated. In terms of impact, the program contributed significantly to the reduction of state subsidies to firms from CFAF 20 billion in 1991 to CFAF I billion in 1999. As of end-1999, privatization receipts and new investments amounted to CFAF I I billion and CFAF 20 billion, or US$16 million and US$29 million equivalent respectively. The program also resulted in an increase in employment despite some retrenchment due to liquidations and downsizing in the railway company. Gross value added of the privatized firms increased by more than 68 percent during the period. The program's largest impact might be assessed against the Government's decision to extend privatization to the so-called strategic infrastructure sectors (telecommunications, energy and air transport). Without the exposure and gradual learning experience gained throughout the current program execution, expansion to these sectors would not have taken place. A study to formulate a divestiture strategy for the remaining public enterprises, including the remaining utilities and a number of small-scale enterprises, has been completed. The study served as the basis for the preparation of a new privatization program in the infrastructure sector. Implementation of the divestiture program has taken much longer than initially expected, however. The strategy formulation phase, from recruiting the advisor to Government selection of a final sale strategy, took an average of 501 days. The centralized decision-making process with frequent cabinet involvement resulted in the privatization of an average of three companies per year, compared to a regional average of seven. The length of the process was detrimental to the financial situation of some of the companies to be privatized, which needed urgent capital inflows. A new decree was enacted in 1998 to improve the process -6 -  but resulted only in marginal changes with little impact. Moreover, the privatization strategy adopted by the Government was not best practice from an economic standpoint. Bidders were guaranteed special import protections without any indication on the phasing out of such a protection. On the other hand, bidders were expected to retain all employees from firms to be privatized. Privatization of SOSUCO, the sugar company (by far the largest transaction) raised serious doubt on the integrity of the entire privatization program. The Government changed the rules of the game during the process and, eventually, selected the lowest bidder (a price difference of 11 percent with the best offer) based on the investor's promise to launch an ambitious investment program. On the capacity building front, despite the shortcomings mentioned above, technical staff in the privatization agency and in line ministries have considerably learned from the process. They have familiarized themselves with best practices through technical assistance and study tours abroad. They are now better equipped to handle the remaining transactions to be implemented under the new program. This sub-component is rated satisfactory because it has achieved its quantitative targets and helped develop capacity in the privatization commission. The privatization process is rated unsatisfactory, however, because of its lengthiness and the inadequate handling of the largest transaction in the program. Component 2. Institutional support: assistance to the Chamber of Commerce, the Burkinabe Shipping Council (CBC) and the National Office for External Trade (ONAC). This component has partially realized its objective to reorganize, privatize, and strengthen the institutional support structure. Although the Chamber of Commerce has been privatized, it has kept some of its previous functions, but more importantly it still operates as a public-sector institution. A new general assembly with representatives from the private sector and sectoral commissions were established. In 1996, a new Board of Directors was established by the general assembly, and a new general manager appointed by the Board of Directors. This new structure brought a clearer definition of responsibilities among the agencies and a disengagement from the Government. All enterprises are de facto members but do not pay membership fees. Most of the Chamber's resources originate from fees collected for the use of its warehouses and market facilities. The Chamber of Commerce provides market information to enterprises and support in preparing investment code applications. It operates three professional training institutions. The project also financed a study on reorganizing its human resources structure. Recommendations have been implemented. ONAC and CBC have not been privatized and continue to operate as public institutions. Their statutes however were changed to allow representation of the private sector on their boards. They also continue to be funded by the Government. Both institutions still need to define their respective role and position themselves to achieve credibility with the private operators. This is particularly the case for ONAC which is now attempting to position itself in the area of establishing and monitoring quality standards. On the other hand, private operators do see a role for CBC, in particular in providing assistance in handling products for small shippers. The agency needs however to move to a more privately oriented modus operandi and improve its performance to also establish credibility with private operators. This component is rated unsatisfactory because its main institution-building objective was not achieved. Component 3. Financial sector component. This component has achieved its overall objective to strengthen the financial sector. (i) Support to the Ministry of Finance -7 -  (a) Privatization of banks. The banking sector was restructured, with the privatization and recapitalization of the main banks. Final agreements for the privatization of the Banque pour le Financement du Commerce et des Investissements au Burkina was reached in 1997, and the bank was renamed Societe Generale des Banques au Burkina. The Banque Nationale de Developpement was liquidated in January 1998. The Banque Arabe Libyenne Burkinabe was taken over by the Banque du Commerce du Burkina. Two new foreign banks (Ecobank and Bank of Africa) and three non-bank financial institutions entered into operation in 1997-98. All banks are observing the capital adequacy ratio of 4 percent currently in force, and five banks are already observing the revised ratio target of 8 percent established by BCEAO, the regional central bank, in mid-1999. All banks should be in compliance with the new target by end of 2001. The restructuring of the banking sector has also led to increased competition. (b) Restructuring of the Postal Services Agency and the National Savings Agency. The restructuring of the Postal Agency and the National Savings Agency was completed in April 2000, with separation of accounts from Treasury. Agreements have been reached on the compensation of debt between the Treasury and Sonapost. (c) Creation of new financial instruments for long-term lending Several new institutions were created including two leasing companies. (d) Support to Microfinance Sector. In January 1997 the Government and other micro-finance institutions adopted the PARMEC law that regulates micro credit financial institutions in the UEMOA countries. A micro-finance supervision unit was established within the Ministry of Finance. The unit was strengthened to enforce the PARMEC law. The project financed equipment and training for the microfinance unit in the Ministry of Finance. The project also financed a study to help the Government define a strategy for the sustainable development of the microfinance sector. The conclusions of the study will be discussed during a workshop which the Government will hold in the first quarter of 2001 to formulate such a strategy. (ii) Strengthening of the Agency for Debt Recovery. The objective of this component was achieved. The Agency for Debt Recovery has so far recovered 17 percent of the total amount of bad debt transferred during the period 1991-1999, corresponding to about CFAF 10.9 billion out of CFAF 64 billion. Of the total amount of bad debt, the proportion of private debt amounted to CFAF 27 billion, of which CFAF 9.7 billion was recovered, or 36 percent, which is a commendable result. The proportion of public debt was CFAF 19 billion, of which CFAF 1.2 billion was recovered, or 6 percent. It is not expected that the remaining balance on the total amount of bad debt will be recovered. The financial audit of the Agency was completed. Training of agency staff was also completed, as was the purchase of 12 computers. Given the Agency's positive performance, it was proposed to create a more permanent, privately oriented structure for bad debt recovery beyond the project. The Bank will assist the Government in exploring experiences with a similar agency in Cameroon to evaluate the possibility for the agency to continue operating on a private basis. (iii) Revise laws governing bad checks and delinquent debtors. This component was dropped because of adoption of a new law at the regional level. The overall project impact on the financial sector is considered highly positive. The project also helped establish an institutional framework that will be used to monitor the microfinance institutions and formulate - 8 -  a broad policy for that sector. A note on the financial sector was prepared to define the next interventions to further develop the financial sector. Consequently, this component is rated satisfactory. Telecommunications Reform Component. This component has achieved its objective to initiate reforms in the telecommunications sector by implementing a sector strategy and a regulatory framework. The sector's restructuring program was successfully launched and has achieved tangible results on the ground. The Government adopted a sector policy to open up the sector to competition. To this end, two laws were also adopted by the Government: one to establish the legal and regulatory framework of the sector, the other to authorize the privatization of ONATEL, the public telephone company. The Government has agreed to transfer management control of ONATEL to a private operator. The studies on the regulatory framework were completed, and basic regulations were adopted by the Council of Ministers in February 2000. A regulatory authority was established in November 1999. Calls for bids were issued in December 1999, and two mobile telephone licenses were granted in May 2000, which brought in a total of US$19 million in license fees for the Government, i.e. more than the proceeds of all privatizations supported by the project (US$16 million). The privatization of ONATEL has been launched. Advisory services are currently being recruited to prepare the sale. More importantly, ONATEL has rebalanced its tariffs: a reduction of more than 50 percent on international traffic and more than 30 percent on long-distance traffic became effective on May 1, 2000. This component is rated satisfactory with respect to sectoral policies and physical targets. Business laws. This component has achieved its objectives. After a slow start, dissemination efforts were successfully completed with the information component. The training program for judges and private operators was completed. The new court register has been set up in the two largest cities. Harmonization of national laws with OHADA laws is underway. Studies to simplify administrative procedures to set up new businesses in keeping with new OHADA laws have been completed. Consequently, this component is rated satisfactory. Support to a new agribusiness strategy. At Government's request, the Bank has provided support to the restructuring of the fruit and vegetable industry. Given the structure of the Burkinabe economy and the identification of untapped potential in the production and export of non-traditional products, it was agreed that the analysis of the value chain for the horticultural sector could be a good entry point to analyze the sources of growth for the country. The project financed study tours for Government staff and private exporters to gain better understanding of success stories (such as in Kenya) and a workshop to disseminate findings. An action plan has been agreed with private operators to improve the sector's competitiveness. Competitiveness study. The project financed a competitiveness study that has triggered a significant turnaround in the dialogue between the Government and the Bank on the appropriate reform agenda for the country. Since its completion in April 1999, workshops and cabinet-level meetings provided a forum for discussions between the Government, the Bank, donors and civil society that have led to heightened awareness and consensus-building on how to move forward on the country's development program. As discussed above, the study has set the stage for Burkina Faso's new development program and put in place a more participatory process between the Government and the Bank in developing a new private sector development strategy, the Poverty Reduction Strategy Paper, and the CAS under preparation. The Governnent is preparing a private sector development program to implement its new strategy. Summary rating of output -9-  In the initial program, one major component (the financial sector) is rated satisfactory, one minor component (institutional support) is rated unsatisfactory and the rating for the other component (assistance to the Ministry of Commerce, including privatization) is mixed. The three new components are rated satisfactory. Overall, the program is rated satisfactory. 4.3 Net Present Value/Economic rate of return: n.a. 4.4 Financial rate of return: n.a. 4.5 Institutional development impact: The project helped develop or strengthen the following institutions, as discussed above: the privatization agency, the loan recovery agency, the postal services agency, and the national savings agency. Training under the project was substantial and helped build capacity in best practices in privatization in line ministries and technical staff of the privatization unit. The project also helped the Government move from a cautious to a more engaged position in opening up sectors to competition and divesting itself of the more critical utility sectors. On the other hand, the project was partially successful in building the capacity of the Chamber of Commerce, the CBC and ONAC to better respond to the needs of the private sector. Accordingly, the overall rating on the institutional development impact of the project is rated partially satisfactory. 5. Major Factors Affecting Implementation and Outcome 5.1 Factors outside the control of government or implementing agency: The 1994 devaluation of the CFA franc re-established the competitiveness of the economy and triggered strong growth. The devaluation provided a more favorable environment for some of the project's activities, such as divestiture of public enterprises and restructuring of the financial sector. It also increased the initial IDA credit allocation in local currency, which allowed the Government to achieve more than initially expected. On the other hand, the availability of large donor resources for private sector development made it difficult for the Government to adequately coordinate a variety of programs that were not always consistent among themselves. Another factor was the difficulty to attract private partners willing to invest in the banking sector, which slowed down the restructuring of the financial sector. In general, it has been difficult to attract solid domestic investors with the financial capacity required to meet investment needs to rehabilitate the privatized companies. 5.2 Factors generally subject to government control: Weak Governnent commitment to private sector development in the early phase delayed project implementation. A waiver on two conditions of effectiveness (to revise the statutes of the Chamber of Commerce and elections of the members of its executive bodies) had to be granted to avoid a further extension beyond the January 31, 1994 deadline, more than 10 months after Board approval. Insufficient counterpart funding was a recurrent problem throughout project implementation. Cumbersome procedures for public enterprise divestiture, requiring ministerial decisions at each step of the process, considerably delayed the divestiture program. - 10 -  5.3 Factors generally subject to implementing agency control: The project unit has provided weak leadership during most of the implementation period. 5.4 Costs andfinancing: Detailed project costs and financing tables are presented in Annex 2. The disbursement profile reflects the project's slow pace of implementation, compounded by recurrent shortages of local counterpart funding. Over the period 1994-97, the project disbursed US$2.22 million (31%) of the total credit, and US$3.87 million (55%) between project restructuring and the end of the project, representing a total disbursement of US$6.09 million (86%). 6. Sustainability 6.1 Rationale for sustainability rating: Project sustainability is likely. It hinges on the broad dissemination of the analyses and conclusions of the competitiveness study. Recent Bank/Government dialogue on the country's competitiveness has demonstrated the Government's commitment to accelerating the reforms supported by the project. The Government is likely to continue implementing the divestiture program at an accelerated pace and to complete reforms in the telecommunications sector. Increased competition in the financial sector is likely to lead to improved services and lower costs. The OHADA business legislation has been disseminated, but basic weaknesses in the judiciary system remain to be corrected, including through increased funding for operating expenses. The institutional support structure for private sector development remains to be streamlined and fully privatized. Govemment's direct or indirect allocations to the Chamber of Commerce, ONAC and CBC should be discontinued. 6.2 Transition arrangement to regular operations: The Bank is considering a new private sector development operation as a follow-up project in the following areas: e Support to divestiture program. The Government carried out a strategic analysis of the State portfolio of some 53 PEs. Based on the analysis, it will determine which companies will be part of the divestiture program. The project will support the implementation of the additional program; 3 Telecommunications reform The program will build on the initial results of the telecommunications reform successfully launched under this project to continue providing assistance in: (i) building capacity of policy makers and telecommunications regulators; (ii) establishing a rural telecommunications strategy and funding mechanisms and undertaking initial implementation; and (iii) completing the privatization of ONATEL. * Information and new technology to (i) establish a strategy on building an enabling environment for developing a country-wide Information Infrastructure; (ii) develop detailed policy on key building blocks of readiness of Internet and E-commerce throughout the country; and (iii) implement priority actions and applications. * Further reforms in the financial sector will be executed at the regional level, under regional programs. The BCEAO project currently in preparation will strengthen the regulatory framework at the regional level and develop new payments systems. The Bank will continue assisting the Government in finalizing the microfinance strategy to subsequently define specific areas of intervention in the implementation phase. 7. Bank and Borrower Performance Bank 7. 1 Lending: The Bank's performance in the identification, preparation and appraisal of the project is rated - 11 -  unsatisfactory. The project was complex and poorly designed, including a large number of studies with little relevance to private sector development. The objective of the project was too narrowly focused on creating an institutional environment, and not enough on the purpose of this effort. Given the Government's weak commitment to privatization, the SAR was optimistic as to the pace of the program. Contrary to what was stated in the SAR risk section, there was insufficient dialogue between the Government and the private sector during project preparation. The project included too many conditions of credit effectiveness, resulting in a ten-month lag between approval and effectiveness. If these conditions were deemed critical for the success of the project, they should have been fulfilled before negotiations. It is not clear, however, whether these conditions were critical to justify delay in credit effectiveness: elections by private entrepreneurs of members of the Chamber of Commerce, bid issuance for the reorganization of the institutional structure, or Government adoption of appropriate legislation conferring collection privileges of tax services to the Agency for Debt Recovery. 7.2 Supervision: During the early years of project implementation supervision was unsatisfactory. However, despite delays in meeting effectiveness conditions and difficulties with critical institutional aspects, serious problems in counterpart funding and procurement, implementation progress was consistently rated satisfactory. Follow-up letters did not raise any substantive issues. Missions did not follow up on previous recommendations and agreed actions. Moreover, the project suffered from a series of changes in the organization of the Africa Region. Project management was transferred to a small trade unit created in 1995 in the Africa Region. The unit was later dismantled during the 1996 re-organization and the project remained unsupervised for a year during the transition period. From mid-1997 to credit closing, supervision has been highly satisfactory. During that period, the project has been supervised by the same task manager and essentially the same team members. Thorough supervision and continued commitment from the team helped the Government move on its reform agenda. The resident representative was closely involved in day-to-day problem solving. The Country Director provided the necessary resources and quality support needed to the team, which resulted in establishing a better policy dialogue with the Borrower. Approval of the two extensions enabled the Government to initiate a series of new activities that have helped create a new environment for private sector development. 7.3 Overall Bank performance: Overall, Bank performance is rated marginally satisfactory. It was unsatisfactory in the early years because of poor quality at entry and inadequate supervision. In the past three years, however, the Bank sharply focused its supervision effort and used the project as an instrument for a significant turnaround in its policy dialogue with the Government. Borrower 7.4 Preparation: The Borrower's commitment to the reform program and to the project objectives was lacking. Its involvement in preparation was minimal. Governmenfs ownership of the project was also minimal. 7.5 Government implementation performance: Insufficient counterpart funding of project institutions and inadequate qualifications of key project staff were a perennial problem. Procedures for project implementation were slow and cumbersome. Expected changes in the institutional framework for private sector development have not taken place. Instruments for - 12 -  an effective dialogue between the Government and the private sector have not been used. It is important to note that towards the end of the project, new Government leadership demonstrated strong interest to use the project to move the reform agenda, as illustrated by the approach used to implement the competitiveness study. 7.6 Implementing Agency: Performance of the implementation unit was inadequate for most of the project's life. 7.7 Overall Borrower performance: Overall, the Borrower's performance is rated unsatisfactory. Government commitment to private sector development has been weak until recently. Project implementation suffered from inadequate funding and lack of leadership. 8. Lessons Learned Technical assistance is not a substitute for weak Government commitment. In the absence of a shared vision among all stakeholders on what a project is expected to achieve, little change can be expected. Other instruments than a large technical assisfance project should have been used to develop this shared vision. The private sector should have been more actively involved at all stages. The Government did not seem committed to really change the institutional framework for private sector development, and despite a number of studies financed by the project, little was achieved in this respect. Capacity building is incremental and part of a long-term process. It requires strong motivation for change in recipient institutions. To be effective, privatization should be part of a clear strategic vision, shared by all stakeholders. Emphasis on transactions for short-term gain is not appropriate. Transactions should be embedded in clear sector policies. Close donor coordination is essential in countries such as Burkina Faso, which are highly dependent on external assistance. The Bank, in close consultation with interested donors, should support a government program, based on a common approach. Special conditions for credit effectiveness should be avoided as much as possible. If a condition is critical for project success, it should be a condition of negotiations. Supervision should be systematic and issues-oriented. Continuity is essential. Close attention of Bank management is essential. The contrast between the quality of supervision during the first and second parts of project implementation is striking. Extending the closing date when performance is unsatisfactory is a difficult call. In this case, the two extensions served Burkina Faso well, if only for the competitiveness study, which was instrumental in changing deeply entrenched mentalities, and laying the ground for a much energized reform program. The Bank team sensed that the Govemnment was ready to provide a stronger leadership for moving the reform agenda. 9. Partner Comments (a) Borrower/implementing agency: - 13 -  This is the summarized version of the Borroweres contribution to the ICR. DESCRIPTION DU PROJET Titre Projet d'Assistance au Secteur Prive (PASP) Credit IDA NO 2472-BUR Date d'entree en vigueur 31 Janvier 1994 Date de cloture 30 juin 2000 Couit neuf millions de dollars US (4 milliards FCFA) (sept millions en pret IDA, Deux millions en contrepartie nationale) Bailleurs de fonds Banque Mondiale Localisation du Projet Envergure nationale Organisme de tutelle Ministere du Commerce, de l'Industrie et de l'Artisanat (MCIA) Organe de mise en muvre Cellule de coordination Personnel implique 06 agents (3 cadres + 3 agents d'execution) Duree contractuelle 3 ans (1994-1997) lere prorogation accordee 2 ans (1997-1999) 2eme prorogation - 6 mois (janv. a juin 2000) PREFACE Le present document constitue le rapport de fin d'execution du Projet d'Assistance au Secteur Prive (PASP) au Burkina Faso qui a fait l'objet du credit NO 2472-BUR du 15 juillet 1993 d'un montant equivalant A cinq millions cent mille (5.100.000) Droits de Tirages Speciaux, soit quatre (04) milliards de F CFA. Le credit sera clos le 30 juin 2000 au lieu du 31 decembre 1997 prevu initialement dans l'accord de credit. Ce rapport est base sur les differents documents du Projet et les informations foumies par les composantes et le secteur prive. C'est ici le lieu de remercier le secteur prive, la Banque Mondiale, les composantes, le Premier Ministere et les departements ministeriels pour tous les appuis apportes lors de l'execution de ce Projet. INTRODUCTION Dans le cadre du Programme d'Ajustement Structurel (PAS) mis en ceuvre depuis 1991 avec l'appui du Fonds Monetaire International (FMI) et de la Banque Mondiale, le Burkina Faso a entrepris une serie de reformes economiques visant le desengagement de l'Etat des secteurs concurrentiels et une liberalisation de l'dconomie nationale. Le secteur prive est desormais reconnu comme le moteur de la croissance economique. Afin de creer un environnement propice A son developpement, les autorites burkinabe et la Banque Mondiale ont e1abore le Projet d'Assistance au Secteur Prive (PASP). L'objectif principal du Projet etait de permettre le developpement institutionnel des organismes d' etat qui assurent des services administratifs au secteur prive et des intermediaires financiers A travers cinq (05) composantes: * composante secteur prive * composante secteur financier * composante Privatisation - 14 -  * composante juridique * composante secteur telecommunications Au demarrage du projet, seulement trois (03) volets etaient prevus. Il s'agit des appuis au Ministere du Commerce, au secteur financier, et a la restructuration des institutions d'appui au secteur prive. Suite A la prorogation du projet deux (02) autres volets ont e ajoutes; il s'agit des secteurs juridique et des telecommunications. EVALUATION DES OBJECTIFS PAR COMPOSANTE 4.1. Resultats acquis 4.1.1 Composante secteur prive * La Commission de Concertation Etat Secteur Prive sur les reformes du systeme d'appui au secteur prive par arrete N