Mali - Private Sector Assistance Project

Document of The World Bank FOR OFC1AL USE ONLY MICROFICHE COPY Report No. :P- 5748 MLI Type: (PM) Title: PRIVATE SECTOR DEVELOPMENT PRO. ReportNo. P-5748-MLI Author: ADOTEYE. P. Ext. :35509 Rooin:J9 065 Dept. :AF5IE MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT IN THE AMOUNT OF SDR 8.2 MILLION TO THE REPUBLIC OF MALI FOR A PRIVATE SECTOR ASSISTANCE PROJECT OCTOBER 16, 1992 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.  CURRENCY EOUIVALENTS Currency Unit = CFA Franc (CFAF)" US$1.00 = CFAF 250 V CFAF 1 million = US$4,000 FISCAL YEAR January 1 - December 31 ABBREVIATIONS APBEF - Association Professionnelle des Banques et des Etablissements Financiers (Professional Association of Banks and Financial Establishments) APEP - Association de Promotion de l'Entreprise Privde ASAP - Agricultural Sechoir Adjustment Program/Project BCEAO - Banque Centrale des Etats de i'Afrique de l'Ouest REP - Bureau des Entreprises Publiques (Public Enterprises Bureau) BDM - Banque de Developpement du Mali (Development Bank of Mali) CCIM - Chambre de Commerce et d'Industrie du Mali (Chamber of Commerce and Industry of Mali) CI - Chambre d'Industrie (Chamber of Industry) DNAE - Direction Nationale des Affaires Economiques PE - Public Enterprise PESAP - Public Enterprises Sechoir Adjustment Program/Project SCPCE - SociMt des Cheques Postaux et de la Caisse d 'Epargne (Postal Checking and Savings Company) SME - Small and Medium Enterprise UMOA - Union Monetaire Ouest Africaine (West African Monetary Union) ' The CFA Franc (CFAF) is tied to the French Franc (FF) in the ratio of FF 1.0 to CFAF 50.0. The French Franc is currently floating. v Exchange rate of September 30, 1992.  FOR OMCIAL USE ONLY REPUBUC OF MAU PRIVATE SCOtASSrNE PROJECr Crdt and Proect 5 _MM Borrower: Republic of Mali Beneficiaries: Private enteaprises, professional associations, commercial banks, 'vernment agencies. Ammnt: SDR 8.2 million (US$12 million equivalent) Ternis Standard, with 40 years maturity Onlemndin TIM: Not applicable Mnancing Plan: IDA US$12.00 million Beneficiaries ISS1.94 million TOTAL US$13.94 milion Enomic Rate of Retwrn: Not applicable Staff Apgrabl Rq t: Report No. 10459-MLI 1ag: IIBRD No. 23669 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.  MMORANDUM AND RECOMMENDA3ION OF THE PRESIDENT OF IDA TO TH EXECUTIVE DIRECTORS ON A PROPOSED CRT TO MAU JO A PRIVATE SECTOR ASSISTANCE PROJECT 1. I submit for your approval the following memorandum and recommationto a proposed development credit to Mali for SDR 8.2 million, the equivalen of US$12 million, on standard IMA terms with a marity of 40 years to help finance a project for private sector assistance. Part I: Country Policies and Bank Grom's Assistance StatY' Backeround and Rscent RageODMM 2. Mali is a vast, land-locked, resource-poor country located in the Sahelian zone of Western Africa. Only about a quarter of its 1.2 million square kilometers is arable. Nearly 90% of the population, estimated at 8.5 millon in 1990, is dependent on the agricultural sector. Per capita income was US$280 in 1991 and social indicators, such as life expectq and literacy rate, are among the lowest in the world. Population growth is estimated at 2.5% per annum (see para. 12). This County Assistance Strategy Statement h an update of the one discussed by the Board on May 26, 992 in the context of tho Natu Resource Management Project. -3. Maxm-mic Trends. Mali's economic performance is highly consrained by a narrow hilman and physical resource base, variable climate, and the legacy of inappropriate past policies. Although per capita income has risen slowly over the 1980s, it remains one of the lowest in the world. Real growth has averaged about 3.4% p.a. since 1985, but population growth has absorbed most of this growth. The average GDP growth also mask large anl variations (see Table 1 below), which are directy linked to cdimac condidons and Mali's dependence on agriculture. Agriculture genates just under half of Malis GDP, with cereals and livestock production alone contributing more than one ird to total value added. Mali's industrial sector, mainly agro-bas, has remained small (about 6% of GDP). A proming mining potential exists, but it has been litt1e exploited yet. The trade subsector, develoied out of the traditional commercial activities, has become increasingly vibnt, but Is sdll domiwted by infonral sctor activity. 4. The adjusmt and stabilization efforts pursued by the Governm since 1982 have contributed to major improvement in macroeconomic magement. Tight fiscal policy, together with the stuctural adjustment me described below, and efforts to strengthen tax administration and curtail tax vasion butd to a sharp reduction in the overall fial deficit (excluding exten grants) from its peak of 13.9% of GDP in 1985 to 7.7% in 1990. The curre fiscal balace has shown a surplus since 1986. On the expendiure side, the wage bil has increased by about 2% per amnum in real terms since 1985, whie allocations for material, supplies and mantenace expenditure, as well as for priority sectos, such as ed on and healdth, have increased relative to GDP. 5. Mali's external acounts have also improved significantiy since the mid-1980s. The deficit F 7bb Country Aubtaice Strategy St8cea Is an update of the one dicussed by the Board on May 26, 1992 in the contex of the Natura Resource M gement Project.  -2 - in the current account (excluding offlcia transfers) fe;l from a peak of 28.5% of GDP in 1985 to 13.9% in 1990. Export values - the main export commodities are coton, livestock and gold - Lave increased by 7.4% per annum, while non-ereal imports hav, rie by only 2.6% per annum. Capa inflows, largely official deveopment assistance (equivalent to 23% of GDP or US$57 per capia in 1989) to finance the public investment program, have increased steadily, and the balance of payment has recorded supluses since 1988, after more than a decade of consecutive deficits. 6. Total public debt outstanding and disbursed was 97% of GDP at end-1990. Ihe debt service ratio, bef debt relief (excluding debt service to China and the former USSR), rose rapidly from the early 1980s, peaked at 31% in 1986, and subsequently declined to 17.3% in 1991. External arrears accumulated in the mid-1980s were totaly cleared by end-1989, primarily thrcugh debt relief from the Paris Club and other bilateral credits. 7. Inflation has been kept at less than 2% on average over the past five years. This has, given the fixed exchange rate regime within the West Afican Monetary Union (WAMU), caused a slight improvement in Mali's competkiveness relative to France. However, Mali's compettiveness vis-a-vis its trading partners and competitos deteiorated in the second half of the 1980s. TAME I MUL: KU ncRiECa nc IWICATUS (IN X) 99 im m5 in i nM7 1m 18 19 Wk OWTH RATES GDP 2.4 16.1 -2.4 0.2 7.5 2.4 -0.2 5.9 4.0 4.3 GOP/Capita -0.1 13.3 -4.6 -2.3 4.7 -0.4 -2.9 3.0 1.2 1.5 GDP Deflator 3.2 -3.1 5.1 2.3 -0.2 0.7 1.4 1.5 2.5 2.5 DEBT SERVICE Debt Servie&/XGNS (a) 21.0 30.9 27.5 28.3 27.3 21.8 17.3 21.4 21.1 21.6 RATIOS TO GDP Gross Investment 17.9 20.7 21.9 20.1 21.0 22.2 22.5 22.4 22.5 22.5 Domestic Savings -13.0 -1.1 5.9 2.4 4.9 5.6 6.0 6.4 8.0 9.2 Current Budbet Deficit -0.2 1.7 1.0 0.0 2.3 1.? 2.0 0.6 2.9 3.1 Overall Budget Deficit (b) .13.9 -11.3 -10.2 -9.9 -9.6 -7.7 -11.7 -10.3 -6.8 -6.0 EXTERNAL SECTOR Export Volu.m Growth Rate -22.8 9.1 6.1 -2.9 17.7 3.7 15.1 3.0 4.8 9.4 Import Volume Srowth Rate 19.1 -0.3 -0.3 8.0 3.9 7.8 8.S -0.1 0.8 1.8 Current Accosmnt/DP -28.5 -20.4 -14.9 -16.1 -14.1 -13.9 -13.7 -13.3 -12.0 -10.9 (a) Excluding Chine and the USSR; ncluding estiteos for interest on new disbursements. (b) Excluding grants.  - 3 - 8. . Mali followed a 'stop-and-go policy' on economic reform measures through 1987, but it has implemented a sustained adjustment progrm for the past 4 years, since the approval of the fist PFP (1988-90). Its macroeconmic targets were largely met and the Implemenion of the progam was supported by the Bank, the PFld, and other donors. Major structural reforms have been implement during this time that are fully consistent with the frst and second (1990-92) PFPs, in particular on the regulatory framework, the tax system, foreign trade, the public enterprise -ector, and the agricultural secor. All prices have been liberaized. All export and most import monopolies were eliminated, export taxation was abolished and import taxation greaty simplified, and all quantitative trade restrictions were abandoned. A value-added tax was successfully introduced and new investment, commercial and labor codes were adopted. 9. 'he public enterprise sector, which despite its small contbution to GDP, used to incur anmual losses of about $ 30 million, was largely restructured; this has included the effective privatizaton of the main development bank and the postal checking system, the liquidation of the largest unprofitable enterprises and the diveste of others. In the agricultural sector, cereals pricing and markeing were liberalized, and in the cotton sector, which generates 50% of Mali's export eains, institutional, pricing and taxation reforms were undertaken to increase efficiency and thus maintain its intrnadonal competitiveness. To improve revenue collection and maragement of public expenditure, measures were also taken to stregthen investment budgeting, integrate former annexed budgets and special funds into the normal budgetary process, and start the restructuring of recurrent spending. Contiued reduction in the number of government employees will reduce the weight of the wage bill and increase that of recurrent spenig in priority areas. 10. V. Economic performance in 1991 was weakened by political events. Pressure for the introduction of a multi-party political system culminated in March 1991 with the overthrow of the former government and the nomination of a transition government to organize multi- party municipal, legisative and preside elections. These elections were held between January 12 and April 26, 1992 and the elected government took office in June 1992. The disruption of economic actvities and destruction of some idusal and adminigive fecilities durng riots in early 1991, as well as the armed conflict between government and the ethnic Tuaregs in the North of Mali throughout the year. partily explain the weaker economic indicators for 1991. Poorer weadter conditions also contrbuted to a fal in GDP. The transition goverment did, however, qukly develop a new macroeconomic framework, geared toward reestablishing macroeconomic balances, which was supported by the Bank, the IMP and other donors. During the political transition, the adjustment program remained essentially on track, with the important exception of the education sector (see below), and the revised 1991 targets were largely met. In July 1992, negotiations of a new PFP were finalized with the new Govemment and the PPF was approved by the Bank and the Fund in late August 1992. Overall progress on structural reforms continued to be satisftry in 1992. However, slippage in the financial program occurred during the first half of 1992; as of June 1992, over CFAF S billion in extena arrears were accumuated and financing through the bankig system had increased by more than CFAF 10 billion over the progm target This slippage was caused by extra-budgetary ouWs (notably related to public works) as well as malversation by the Treasury. Faced with these unexpected setbacks, the new Govenmen took quick ad decisive actions to stop the illegal activities and to recover part of the losses and is comited to the condnuation of the adjustment program and the temination of fraud and corruption in the administion. The economic oudook for 1992 is relatively favorable with a good harvest expected this year and real GDP growth projected to increase by 5.9%, while the curreT account defick is expected to derease slighlly to 13.3% of GDP.  -4- 11. SgI Indig=. Lack of progress in the sodal sectors contrasts with the progress regarding macroeconomic managemet Despte heavy investment by the Bank and other donors, Mali's indicators for health and education are among the lowest in the world. In education, oveal prmarr school enrollment has dropped to 31% (imcluding koanic schools) and 23% for girls. Ihe adult literacy rate is 17%. Resources have been available to the education sector: in addition to donor funding of sector investments, over one quarter of the govenmen's recurrent budget is spent on education. Inappropriate sector policies, inclung overemphasis on expenditure for secondary and terty education, explain the poor performance. Due to political pressure from vocal students, Government has not reallocated education spenig towards primary educaton, an objective under the ongoing adjustment program. Instead, it has increased scholarships for high school and university students. As a result, govemment resources are insufficient to supply primay education to the rapidly growing popuion of children. 12. Despite relatively high total private and public spending on health services, only 45% of the population has access to health services. Life expectancy is only 45 years. Infat mortality i high compared to African averages: 1 out of every 6 chldren dies in the first year of life and one out of 4 before the age of 5. Furthermore, chfld birth is the leading cause of death for women at child bearing age. Although litdo is known about AIDS prevalence, it has not yet reached the alarming proportion of some African countries, but AIDS could well spread rapidly without intervention, especialy given the apparent growth of prostitution in Bamako. Effective preventive measures still need to be implemented. Given a naturad population growth rate of 3.7%, and a net growth of about 2.5%, accouing for outmigration (mostly to coastal countries and Europe), Mali's social indicators will worsen fiuther unless concerted acdon contains population growth and tefocuses socia sector spending. 13. Pvet Despite rapid population growth, per capita income growth has been positive over the past decade. As income growth has in large part been generated by the agriculural sector which occupies 80% of the population, and by trading activity, concentrated in urban areas, t is estmated that it has not geeated a wide disparity in incomes. There is, however, currently little knowledge about income disibutin Mal, and surveys are underway. Soci services, while generally inadequate, are paticuay poor in the sparsely populated aes of the North, whih were also most severely affected by the drughts of the early 1980s and recendy by conflict between govenment forces and the Tuaregs. While agricultural areas have probably benefitted from some of the adjustment measures, such as the liberalization of agricultura prices and marketng, urban areas have suffered from a combination of population growth of roughly double the national average and the reduction in public employmen due to the closing down of non-viable public enterprises and downsizing of an Inflated bureaucracy. The private sector has at the same time not grown rapidly enough to absorb the growing unemployed work force. Ihe government has put In place, with donor assistance, s3fety nets to protect social groups dtat are, at least temporarily adversely affectod by the adjustm program, namely laid-off government and public enterprise employees. 14. m= A crucial issue regarding Mls future development is the ongoing degradation of its natural resources. Lad degradation, caued by a combination of factors, including expson of farming to margina lands, overgrazing, inappropriate laws and regulations, and population presre, is te most serous among the enviromental problems and has already led tO losses in soil fertility in some areas, thus reducing agrical producdvity. Other serious problems are the degradation of water resources and the reduction in bio-diversity. Whfle the Malian government has elaborated a national plan to fight desertfication and launched many pilot schemes to improve natural resource mnagement, t has not yet developed a fidl National Environmental Action Program (N") (see para 19).  Meh-LTe Policies aRd Io 1S. The Govenment strategy, as speled out in its recent PFP, aims at achieving susnable growth in Mali's per capita Income and improvemet in its social conditions. It reogizes that central reirments to reah these objectives will be (a) fouther improvements in incentives for private sector development; (b) strengthening of public resource manaeent; (c) development of Mali's human resources; and (d) betr management of its natural resources. The strategy is expected to lead to an average real GDP growth of 4.6% per amnum during 199295, while inflation would remain low (2.5% per amnnm) and a viable batance of payments would be obtained by 1995. Over the PFP tme frame, the share of gross domestic investment in GDP would be maintaiaed at about 22% and domestic savings would increase from 6.4% of GDP in 1992 to 10.3% in 1995. The fiscal deficit (excluding grants) would be gradually reduced to 3.9% of GDP in 1995. 16. Although Mail's physical resource base is limited, this growth is possible, even over the medium-term dme horizon, with the implemenaion of reforms in the above four areas. Ihese reforms will also lay the foundation for long-term growth, which is possible in Mali if it uses its exisfing resource potei in a more effective and sustainable way. Mali's resource base for agricultural growth includes the irrigation potential of the Niger river and its tributaries, relatively large areas suitable for rain-fed agriculture and natural pastur ^ for livestock. Mali also has exploitable mineral reserves, in particular gold. There is some prospect for growth in the artisanal sector and for industrial growth linked to the agricultural sector, although prospects are limited by the small domestic market. Accelerated growth in the secondary sector will, however, depend on progress towards regional integration, and on the ext of improvement in Mali's international competitiveness. Future growth in any sector wil crtically depend on the development of Mali's human resources through primary education and basic health care. 11. 1mP.of Extem al R mAm=. Given the importance of agriculture and of gold mining to the Malian economy (output of both sectors contributed over 50% to GDP while cotton and gold eort accted for about 63% of total exports in 1991), external factors that are likely to have a significant impact on Mali's futre economic performance, are the downward trend in cotton and gold prices on world makets and the increased desertication of the Sahel. The continuation of both trends could adversely dfect agricultura output, exports and overall growth. Maceco nomic balances, particularly fiscal and exten sector balances could also be ewpected to deteriorate. This underscores the importance of approprate naural resources management policies as well as domestic macro-economic and sectoral policies in the ace of these eternal constraints. 18. Agriculture wiUl remain the mainstay of the economy for the foreseeable future, and the epected economic growth thus needs to be in la:ge part generated by the agricultura sector. Growth in agriculture will require improvements in productivity, diversification of production and improved naual resource manag The agicltb sector should benefit from already implemented reform measures, including the liberalization of pricing and marketig and the restucuring of the coton and cereals secetors, all of which have contributed to increasing e incentves for farmers to raise producdvity and tO improving the competitiveness of exports. The Government realizes that it wil be Important for further growth to encourage the greater participation of fiamers, especially women, and village associations in decisions regarding agricultural production and in the design and implemeIn of agricultural policies. This in turn will require better information, traming, and extension, as well as changes in land tenure legslation. The Govemment has already started to include famers directly in  -6 - negotiations with the cotton company and the major rice producing paratatal. 19. Ihe Govenment allso recognizes the need to improve the management of public resources in the sector, by (i) streaming government services provided by rura development orgaons, (U) strengtheing the management of the Office du Niger, Mali's main rice producer, (il) mainting exitn igation fcidities rather than extendig the network, (iv) imprving eension services to frmers and herders across the country to enable them to inrease and diversify their producdon, (v) pursuing a policy of decentralization of government services, which has already started with the granting of geater autonomy to the northern Malian regions, and (vi) reorganizing research services to make them more responsive to firmers' and herders' needs. Mali has been selected as a case study for the Special Program for African Agricultura Research (SPAAR) initiative, aimed at promoting collaboratn in research within the region, as well as speciization according to each muntry's comparative advantage. Given that women perform a large share of farming activities in Mali, the Government noeds to develop a strategy to better target its services L diem. 20. NaW ura Managemnt. Direcdy linked to govrnmen's agricultural strategy is its objective to fight enviromental degradation, in particular the most urgent problem of soil degradation. Realizing the threat natural resource degradation poses for long-term growdt in production, the Malian governmet has shon a serious commitnt to tackling this problem. To reverse the process of degradation, measures will be needed on many fronts, including the development of new solutions to land tenure leslaton, training on more appropriate firming practices, the development of economic and technological alternatives to current agricultura and livestock activities, information and awareness building, iuton , and a population policy. Having prepared a plan for desrtfication control in the lae 1980s, which includes separate programs for the most important sectors, goverment is now developing an itegrated natural resource management program for the agricultural, pastoral and forestry sectors. This program ams at enabling and responsibilizing local communities to better manage their own natr resources. Government has also expressed an interest in preparing, as a net step, a full NEAP, incorporatg, but going beyond natural resource management. It has already accepted the prnciple of etabling at the ministry of agriculture, livestock and environment a unit that could monitor the development of a national enviromnta strategy. 21. Hmn Resces. Mali's long-tem development prospects depend critically on substan icreases in the level of leracy and a healthy population. Governme is now putting in place, an emergency program for primary education, developed together with IDA, to increase schcol enrollment and thereby the liteacy rate. Thi program wmi include the extension of double shift teaching to increase cost effectiveness, an increase in the number of multi-grade classes in rural areas, limitation of class repetition to 10%, and re-deployment of teaching personnel. From 1993 on, enrollment in secondary and higher education will be limited depenin on budgetary resources and the capacity of the educatonal system, in order to raise quaiity. Following the 1991/92 increase, scholarship expendue will be reduced grdually over the next three years through greater selectivity in attribution, thus freeig resources to increase support to prmay education. By 1994, 45% of the education sector budget should be spent on primary educaion. Govenment will at the same time revise curricula and improve teacher training. 22. To Improve health services, Goverment has already liberalized the setftig up of pharmacies and medical practies. It has also liberaized the import and distrbution of phamaceutical products, in order to reduce costs and thus improve the utilization of available fnancial resources. A policy to encourage for the fitst time the import of essential drugs in generic form was introduced last year. The  - 7 - government's future strategy in the health sector aims at fostering greater decetralization in health care provision, letting local communities manage their own health centers, in close collaboration with the private sector. Government efforts will be concentated on overall sector policy and support services rather than on direct service provision. At the same time, t'he share of the govemnment's recurrent budget going to health cdre is to be gradually increased, while cost recovery will be further encouraged. 23. Realizing that rapid population growth poses severe constraints to raising living standards, threatens to cause further deterioration of the country's fagile natural resources, and already endangers the lives of many women and children, the Government has drafted a population policy. This policy, which includes actions regarding the availability and quality of family planning services and the protection of women and children, will be put in place shortly. The Government will also work closely with women's associations in designig action programs to integrate women more fully in all economic activities, including legal reforms, training, education, as well as access to services and credit. 24. Private Sector Development. A key determinant of Mali's future growth, short- and long- term, wfll be a policy framework fostering private sector activity, not only in the agricultural sector, but increasingly in the currendy small industrial sector. Considerable progress has been made on rationalizing economic incentives for private sector activity in the context of Mali's ongoing adjustment program. To make the Malian economy more adaptable to market deielopmens thus improving its competitiveness in the long-run, effort is now required to maintain and refine started reform measures, and to assure that they are effectively applied. In particular, the Government intends to remove the remaining constraints in the regulatory framework with a view to encouraging not only formal sector economic activity but also the integration of the large informal sector. Important efforts include: making commercal courts fiuly operaional in al regions of the country; harmonizing business laws and other regulations among the countries of the monetary union in the context of the ongoing regional integration efforts; pursuing more actively the disseminaion of information about recent reforms among economic actors to make them more aware of and responsive to recent policy improvements; and undertaking the instiutional reforms and strengthening necessary to ensure that the public minison carries out its new role of faciliatg rather than controlling economic activity. All of these measures will be particularly important for the minig sector, given this sector's potental for future growth. They need to be complemtd by sector-specific regulatory and institutional reforms, which are currendy being developed. 25. Public Igm= M _U . Improvements in the efficiency with which public resources are mobilized and public services are delivered will be an important determinant of the responsiveness of private economic operators to an improved incentive structure. After the relative success in dealing with the sources of important past imbalances (largest public enterpries, the financial sector, poor financial management), government's focus will now be on more efficient resource mobilization and on the composition of public expenditure. The latter is key to dealing with longer-erm issues, particularly human resources development, the provision of basic support services and the maintenance of public infastructure, all needed to foster private sector growth. At the same tima, the restructuring 4-d divestiture of the remaining public enterprises wi1l contimue. Regarding resource mobilization, there wilU be a need for reform in direct taxation, for extension of the coverage of the recenty introduced value adc id tax and for furter cost recovery. 26. Ihe measures planned to adjust the composition of public expenditure aim at: (i) reducing the relative share of the wage bill, currently still over 50% of total recurrent expenditure, to allow for more adequate allocations to the priority expenditure categories; and (ii) increasing the share of spending on  -8- health, primary education, matrial and supplies, and road maintenance. This can be achieved through, among other meaes, a reduction In the number of government employees, by implementing voluntary departure and early redrement programs. To increase the efficiency in public investment expendit and better provide the infrastructure required for faster private sector growth and hulman resource development, Government is aware of the need to strengthen the process of planning and monitoring investment spending, which Is overwhelmingly financed by foreign donora. This will require in particular strengthening of the capacity of the concered Institutions. 27. Improved public resources managment will be cruciao w assure the availability of basic infrastructure necessary for the projected growth of Mali's p 'vate sector. Key will be the adequate maintenance of the existing transport, electricity, and telecommunications networks, and of other basic Inastructure such as irrigation or sewerage systems, complemented by targeted new investments to directly support the private sector stFategy. BnRk G AssitnStU=y 28. Ps IDA astanc. !DA assistance for Mali became increasingly policy oriented over the 1980s, first through the inclusion of reform measures in investment projects, and since 1988, through two adjustment operations and two "hybrid" operations in agriculture and education. At the same time, IDA continued to fiace investment operations in support of the major sectors, in particular agriculture and human resources. The lending volume averaged US$76 million over the past five years for an average of two projects per year. Adjustment was supporied by 37% of total committed resources over that period. Agriculture received 39% of total resources, human resources 14%, industry/energy 23%, and infrastructure 5% (see Table 2). There are 16 projects currently under implementation (12 of which were approved over the past five years) with an undisbursed balance of US$312 million. Performance in these operations has been mixed. While performance on adjustment has generally been satisfactory, with the exception of the education sector, implementation of investment operations often suffered from long delays in procurement, non-compliance with project covenants, and weak implementation capacity. The disbursement ratio has baen about 23% on average over the past five years. TABLE 2 MALI lDA LNDING FY88-FY92 Amount Share of Number of olw Adjustment support (in USSM) Total Projec (in US$M) Agriculture 146.6 39% 4 25.0 hdustry and Energ 88.5 23% 4 40.0 Human Resources 52.6 14% 2 3.0 Infrastructure 20.0 5% 1 - Strucural Adjustment 70.0 19% 1 70.0 TOTAL 377.7 100% 12 138.0  -9 - 29. Priorities for IOA. The overriding objective of IDA's strategy in Mali is the alleviation of poverty through growth in per capita income and improvement in social services. Given Mali's progress in short-tem economic management over the past few years, IDA's co ;ntry strategy is now to focus on key issues for longterm development, fully consistent with the Goverament's objectives as expressad in the recent PFP, and to support government's efforts to: (a) foster private sector growth, (b) improve public resource management and (c) alleviate long-term piiysi'al and human resource constraints to growth. This will require paricar assistance to strengthening Mali's relatively weak institutional capacity across sectors, and to promoting the contribution of women to economic activity. IDA is also working with the Central Bank of WAMU (BCEAO) to promote regional economic integration in the sub- region. Aware of the limited margin of maneuver remaining within a purely national framework, Mali has always fully participated in the efforts aiming at establishing an economic union in the context of the strengthening of regional integration, notably bet-ween the WAMU countries. In this context, the Government is contributing to the ongoing reflections to improve economic policy coordination, to rationalize the institutious performing similar functions in the different countries of the Union, and to harmonize the legal framework, particularly in the area of commercial law. Mali's constitution makes specific reference to the possibility of giving up national sovereignty to achieve African unity. 30. Egyrq. Given Mali's current low per capita income and the lack of reliable data on income distribution, IDA's overall strategy aims at promoting broad based growth in production to alleviate po:erty and improving the standard of living. To fill the information gap on income distribution, household budget surveys will be carried out under the ongoing SAL and a monitoring system of welfare will be set up. This will facilitate the development of a poverty strategy and the identification of targeted programs in support of the poorest and most vulnerable groups among the generally poor populadon. 31. Several IDA operations already have a particular focus on poverty alleviation. The policies promoted through operations in the agricultural sector, including better extension services and research to promote agricutural diversification, and incentives for farmers to increase food production, should have a direct positive effect on food security, a key determinant of prverty. Policy reforms in the context of the adjustment program and support from many donors and a very active NGO sector attempt to generate employment and hs income through the creation of small-scale private enteprises. The ongoing programs in the education and health sectors direcdy support the most vulnerable groups such as women and children. The implion of a population policy in the context of the ongoing Health Project should contribute to poverty alleviation in the long-run. In the short-tm, IDA is supporting the government in reducing the social costs associated with certain adjustment measures: departing civil servants and laid-off workers from public enterprises will continue to receive separation packages and assistance in findig or creating private sector employment (project preparation, trainig and guarantee funds); and the recent Public Works and E .-loyment Project will help absorb, at least temporarily, part of the unemployed urban work force by means of labor-inensive technologies. 32. To foser private sector growth, IDA's strategy is to support: (a) fiurher regulatory reforms, through the ongoing SAL and the proposed Private Sector Assistance Project; (b) strengthening of insutions that support the private sector, includig banks, through the present Project and the recent Miinig Sector Capacty Building Project, (c) infrstructure invesnt to reduce transport costs and increase the efficiency in urban areas so as to enhance Mali's competitiveness, through the recent Public Works Project and a proposed Transport Sector Operation; (d) agriculturaw production growth through investment in and reorganiztion of extension and research services through an ongoing sector hybrid adjustmenti oestment operation and a planned Agricultural Research Project, and promotion of private irigation schemes through a planned Irrigation Promotion Project, (e) develoPment of the agro-industria  - 10- sector through a study on the agro-processing potential and a planned future project; (f) greater access for women to all support services in the agricultural and industrial sectors, through specific components in future projects based on findings of ongoing sector work; and (g) the promotion of greater regional integration through ongoing sector work and assistance to WAMU institutions. 33. To help Government design and implement a new strategy for this promising sector with potential for rapid growth, a Mining Sector Capacity Building Project is focussing on the legislative, economic, fiscal, institutional, artisanal and environmental aspects of the mining sector, restructuring of the institutional framework, revision of legislation and procedures, and promotion of specific mineralized areas to potential investors through, among other things, better availability of data on the sector (organized and synthesized geological data on prospective mining areas). 34. To improve public resources management, IDA's assistance will concentrate on: (a) further reforms in taxation in the context of the ongoing SAL; (b) budget restructuring under the SAL, the ongoing education sector operations, and an upcoming public expenditure review; (c) strengthening of public investment budgeting through a public expenditure review and a planned Institutional Capacity Building Project; (d) civil service reform aimed at limiting its cost while increasing its performance through the SAL and the planned Ilstitutional Development Project; and (e? promoting more efficient use of sectoral resources through all sector projects. 35. To improve urban infrastructure facilities, a new Public Works and Employment Creation Project is helping to absorb temporarily part of the unemployed work force by means of labor-intensive technologies and should contribute to private sector development and employment creation and thus poverty alleviation in the long-run. The Project will at the same time increase the productivity of operations in Bamak and its vicinity by means of a program of urgently needed small-scale public works. It should also demonstrate the feasibility of less cumbersome and more transparent procurement procedures and contract administration thus making the use of public resource more efficient. 36. To alleviate long-term human resources constraints, IDA' emphasis will be on: (a) the promotion of primary education and more efficiency in techbical, secondary, and highet education through the ongoing Education Sector Project and a future Education/Training Project; and (b) better provision of basic health care and implementation of a population policy through the ongoing Health, Popula:on and Rural Water Supply Project. 37. With the aim of helping Mali cope better with its environmental problems, its most important physical resource constraint, IDA staff has reviewed environmental strategies relevant for Mali and incorporated some of its findings in the design of a multi-sectoral Natural Resource Management Project to introduce a rational land use system which will halt, and then reverse, the process of degradation of the natural resource tbse. The Project will do this by building up the capacity of local communities to manage their own natural resources and the capacity of the Ministry of Agriculture, Livestock and Environment to advise villagers on these maters. It will also establish an environmental information system for coordinating and guiding the diverse initiatives underway throughout the country, and incorporate the lessons of those field experiences into a national resource management strategy. A household energy stae was also recently prepared and could be implemented in the context of an ongoing Power Project. IDA would also be ready to help Mali, together with other donors, prepare a full NEAP once Government requests the assistance. Other physical constraints to growth are the botdenecks in Mall's infrastructure. IDA's assistance in this area will concentrate on: (a) improving long- term planning in the transport sector through an ongoing sector study and a planned operation; and (b)  - 11 - increasing the efficiency of urban areas through the implemeDtation of the ongoing Public Works Program and a future Urban Project. Pinaly, to help Government address the ever-present tireat of drought, IDA will contribute to the preparation of a drought-preparedness plan and to the monhoring of rain-fil during the growing season. 38. Crossutin issus in IDA's strategy. To reach the above strategic objectives, two issues that cut across all sectors and operations, in addition to those that are already described above as focal points of our strategy - poverty alleviadon, food security and the environment - will receive particular attention in IDA's future lending operations and sector work: Qt) the promodon of women's activities, and (ii) capacity building and greater focus on information, education and comnication (IEC). 39. WDm. Mali's future development will critically depead on better integration and promotion of women in all economic activities. While they contribute significantly to economic growth, their effectiveness is constrained by several factors: lower than average school enrollment, poor maten health, limited access to contraceptives, shortage of female extension agents. litde attention to women's needs in agricultural research, and laws restricting women's rights. A Women in Development assessment has been prepared to help develop an IDA strategy for women and to share WID strategies with the Malian government and other donors. Several ongoing and planned projects are designed to target women specifically, in particular all operations in the human resources sector, the agricultura services project and the Natural Resource Management Project. 40. Cajnit g building and Ej C. While Mali's overall economic performance has been good, the effectiveness and susainbility of operations and reform measures has remained constrained by two factors: a weak instiutional capacity and a lack of adequate information of economic actors. Govemment staff often lacks the capacity for steady project execution, civil serans as well as new influential groups outside Government often do not have sufficient analytical capabilities to shape the dialogue on economic reforms, and conication between government and the civil society on econmmic issues has been poor. TIis has contributed to slow disbursement of project funds and sometimes incomplete implemention of formally adopted policy reforms. These weaknesses need to be taken into account both in the Bank's institutional development strategy and in the speed at which new lending to Mali is increased. 41. WhRe most ongoing IDA operations already contain components focusing on training and institutional strengthening, this area will receive more emphasis in IDA's future lending and ESW program. A instituonal development note will be prepared, to develop a more comprehensive strategy for institutional development. It will be followed up by a cross-sectoral Institional Capacity Building Project. Recently prepared projects, such as the natral resource management, mining capacity building and Public Works Projects, already focus on the setting up of a sustainable institutional framework, emphasize the importance of direct participation of the local village-level population in project design and execution, and include specific information dissemination componens to ensure the population's awareness of projects' rationale and on benefits to be gained from their implementation and policy reforms. The Nat Resource Manageme Project wil also help Mali build the capacity to design a national stregy. All other future projects wiUl pay equa attention to capacity building, including through training and well monitored technical assistance, and to sufficient information dissemination throu the Project cycle. Ihe hlman resources strategy will complement these efforts. Mali is proposed u a focal point for an ACBF sponsored action program to support the development of policy-capaciq in non-governmentl organizations which play a key role in the policy debate. A training program for Sahelian journaists is also under preparation in collaboration with EDI. This will be paticularly important In the new political framework of a democratic government. Finally, a policy  - 12 - agenda has been prepared for the new goverment, covering all important sectors and communicatin concise form major issues and policy options in IDA's current dialogue with Mali. 42. PrEd leding rom. In addition to direct financing, IDA lending to Mali has traditionally played an important catalytic role in mobilizing external support. IDA resources will thus contnue to be programmed to have a maximum impact on total sector resource use, with sectoral investment projects supporting firther policy reforms. The Mali lending program foresees a total allocation of about US$380 million for FY93-97 (about US$76 million p.a.). 43. The agricultural sector remains a priority. Ihe operations under preparation include: an Agricultural lmuke Project which would aim at increasing environmenally sustainable agricultural production by improving the responsiveness of research to farmers' and pastoralist' needs and establishing a more effective linhkge to extension services. Given Mali's large irrigaticn potential, a second operation in this area (after the FY88 Office du Niger Consolidation Project) would aim at exploiting this potential more fully by promotng the development of small-scale private irrigation schemes. The strateg to give priority to rehabilitation and to limit new construction to viable schemes would remain unchanged. An iigatin gtio go would further strengthen Mali's planning and managerial capacity for irigationdevelopment; improve extension and training to increase the productivity of existing irrigation perimeters and thus agricutural production and farmers' incomes; encourage double cropping and crop diversification raise the return on irrigation investment; and promote domestic and foreign private investment An ing operation would encourage private investment in this most important part of Mali's small industial sector and at the same time increase the value of agricultural production. Finally, a second Project would extend the program started under the first project which became effective last year and has already demonstrated its positive effect on agricutural yields. 44. In infucture, two operations are planned over the next five years. A ort set operation, and te future Urb; P will aim at alleviating long-term constraints to economic growth by improving transport plaming and management and the efficiency of urban areas. The future transport sector opeation would aim at reducig the cost of providing and maintining transport infrastucture, ensuring a regulatory environment that encourages transport service provision at reduced cost, improving the quality of sectoral investment planning, and loweing the cost of infrastructure constuction through greater competion. The future Urban Project could focus on municipal finance, looking at tax collection and cost recovery, more efficieat municipal service provision, and the development of financial instruments for medium and long-term housing finance. 45. Given that two large operations are currently ongoing in the human resources sector (one became effective only earlier this year), and that they will require intensive supervision over the next five years, only one additional operation is currendy planned in this sector. The goal of the future Eion and Irainig Project is to extent the ongoing program in the educational sector in order to further expand and improve primary educatio It would also focus on raising the quality, relevance and efficiency of technical and vocational education and training and on the cost-effectiveness of overall sectoral resource use. 46. Two projects are designed to promote the development of Mali's private sector directly. This Pate Sedor AssistancProject will continue regulatory reforms, provide insional support directy tc private eterpris, banks and agencies that support privaization and the private sector and disnat information to key economic agents. This project is descibed in the latter part of this report. The second, a Sector operation will bufld on the results of variou8 sector studies which would explore  - 13 - ways to deepen Mali's financial system and the institutional support to Mai's banking system. 47. To improve project implementation and the effectiveness of economic management across sectors, IDA wil prepare an Insttutional Development Project that wfll focus on key areas where the potendal impact of capacity strengtening appears high, based on the findings of the upcoming institutional development note. Ihese areas will most likely include: (1) public investment budgeting, which remains exuamely weak in terms of institutional setup and staff training; (lH) civil service reform, for which the ongoing SAL is laying the foundation through retrenchment and beginning management improvement; (i) procurement reform, which has started with the enactment of a new procurement law; (iv) further strengthening of the legal and judicial framework; and (v) building the capacity for policy analysis. 48. Furhermore, a Regional Energy Project involving the OMVS (Organisation de Mise en Valeur du Fleuve Senegal) is now under active preparation. 49. The lending strategy balances the needs for investment and is predicated upon the continuation of the current performance on the macro-economic front. Current projections indicate that, baring unforeseen developments, Mali wil not require new commitments for adjustment lending. In the context of the Special Program of Assistance for Africa (SPA), the Bank witl continue to monitor developments closely and will adjust its strateg accordingly. In the unlikely event of a policy reversal (i.e. PFP process off-track), IDA would revert to a program of scaled-back investmens focussing on essential needs for the next generation. 50. Economic and r he planned economic and sector work wil support is lending strate. Several sector studies, on the transport sector, Mali's agro-procesing potential, urban mutual credit, housing finance, and youth employment, and the sittional development study will be carried out before the start-up of preparation of respective projects. Studies on poverty, and the private sector are aimed at developing well-fcused IDA strategies including specific action programs for each of those areas, to complement a country strategy paper to be prepared in FY93. A public expenditure review (PER) will take stock of the current problems regarding inter-and intra sectoral resource allocation and public expenditure management, with particular attention to investment programming, social sector spending and the instiuional dimension of resource management issues which cut across sectors. Studies are also underway at the regional level to promote greater economic integration. 51. IFC and GA. IFC is actively supporting IDA's strategy to promote the development of Mali's private sector. But Mali, as a land-ocked country, offers comparatvely few opportunities for projects beyond the small-scale size, except in the mining sector, which has a significant potentia. IFC's Board recently approved a US$23.2 million investment (JS$1.5 million in equity and US$21.7 million in shareholders' advances) to help BHP Mineras of Australia ecpand a gold mme, which started production in 1990. Gold production, currendy at about 100,(00 oz p.a. is epected to increase by 1994 to an average of 190,000 oz. p.a. Other gold projects are being considered and IFC participation will likely be sought once the concessions have been granted. 52. IFC's strategy in Mali will focus on the development of small and medium-scale enterpises through the African Project Development Facility (APDF) and the Afica Enteprse Fund (AEF). Two AEF Projects (Labo-Mali and Bank of Africa-Mali (BOAM)) were approved in 1991. IFC's investment in Labo-Mali consists of a loan to help a Malian pharmacist/biologist set up the first privately-owned medical laboratory in Bamalo. IFC's investment in BOAM consists of an equity participation of  - 14- US$250,000 to help BOAM strengthen its financial structure and improve management and control mechanisms. IFC could also provide assistance in the privatization of remaining state-owned companies. 53. Mali's membership in MIGA was ratified in 1990. However, Mali has not yet completed paymt of its capital subscription. MIGA's Board has so far approved the issuance of one guaranee (to a Canadian gold mining company), subject to Mali fulfilling its membership requiremens. Discussions with govment officials regarding these requirements are ongoing. Once all membership requirements are met, M1GA could begin to play a more active role in facilitating foreign investment in Mali. MIGA has received one other Preliminary Application for a Mining Project. Advisory services have already been provided to Mali by FIAS, the joint IFC/MGA Foreig Investment Advisory Services group, which undertook a diagnostic study on Mali's investment legislation and contributed to the design of regulatory reforms implemented under the structural adjustment program. 54. CoQodinat with the BE and Donors. The ongoing IDA structural and sector adjustment operations are part of Mali's overall adjustment program that i also supported by the IM and multilateral and bilateral donors. Iheir support has been coordinated through the SPA process. All IDA adjustment oations have been co-financed by several donors, including the African Development Bank, the European Community, France, the Saudi Fund, the OPEC Fund, Japan, the Netherlands, Germany, Belgium Switzerland, Canada and Norway. Mali has benefiKed fom several standby, two annual SAP arrangements, and recently from a first drawing under an ESAF arrangement. Most recendy, a new PFP was agreed between the Govermnent, the Bank and the IMF establishing the basic macroeconomic framework for fiture donor assistance. The Bank wil contnue to work closely with the IM in providing policy recom ons to maintain macroeconomic stability and ensure consistency in policy reforms. 55. Given the importance of foreign assisnce to finance the majority of Mali's public investments, aid coordination efforts regarding non-adjustment lendig wfll contnue to receive high priority. Aid coordinaon will focus on reaching agreement with the donors on priorities for public instment programs ad on building consensus for addressing long-term issues. In addition to informal donor meetings orgized around specific sector operations, and continued close contact by the resident mission and visiting Bank missions with local donor representatives, public expenditure reviews wil in &ture be used to assure close coordination among donors. (Mali is one of the pilot SPA countries for joint PER work). Criteia for MoQitoft 56. Ihe coming year will be critical to lay the foundation for long-term economic growth and the alleviation of poverty in Mali. The political context, with a new democratically elected government in office, also provides a unique oppormnity. Ihe Bank group strategy has been designed to respond to the political openness and the mobilization of the civil society to support fimdamental changes that could significanldy improve Mali's prospects for future development. 57. The objectives of the IDA strategy, as descibed in paragraph 28, are central to Govanment's reety negoted PFP for 1992-95. Satisfactory progress in meetng these objectives would be reflected in periodic reviews of this policy framework (including fiscal, balance of payments and monetary performance), as well as in successful reviews for 'upcoming tranche releases for the ongoing SAL, agriculur sector adjustment/investment operation (AGSECAL) and Education Sector Consolidation Project. More specificaly, to measure progress with regard to the objective of fostering private sector  - 15 - growth, review missions would consider: whether the financial sector is operating satisforly, business women have equal rights and practice, the economic chambers are playing their rightfid roles, and the commercial courts have become operational. 58. With regard to the goal of improving public resources management, sufficient progress would require, in particular, agreement on the annual government budgets (including both recurrent and investment expenditue), which would respect targets established under ongoing sector operations for provisions to the halh and primary education sectors. It would also require that the Government maintain the wage bill at the level agreed in the PFP, continue implementation of the voluntary departure program from the civil service to meet the respective condition for release of the SAL second and third tanches, and divest from additional public entetprises. In the agricutural sector, we expect that a performance conttract will be concluded with the main rice producing agency, and that the specific conditions for release of the last tranche of the AGSECAL be fidfilled before end-1992, which will irmply, in particular, the representation of farmers in decision making regarding the cotton sector. 59. To start effectively alleviatg long-term human resources constaints, it will be crucial that implementation of the agreed emergency plan for primary education begin in the 1992193 school year, that redeployment of teachers, limitation of class repetition, extension of double-hif teacihing and multi- grade classes, and the planned reduction of scholarship spending be effectively carried out, and that mplementation of the multi-donor health, population, and Rural Water Supply Project effectively start. To reduce long-term physical resource constraints, the first steps will be to start the implementation of the Naturl Resource Management Project and to strengten the institutonal framework for implementation of a national evironm strategy. 1L h.e Ed= $t Assis Proect 60. Rationale f JJDA The proposed Project supports both the strategies of the (3overnment and IIDA in terms of encouraging the establishment of mechanisms to support the private sector's prospects for leading the growth of Mali's economy. It would support completion of the implementaton of recent policy and regulatory reforms essent to private sector performance; provide techical assistace directly to private enterprises and to exisng agencies that support the private sector (such as the chamber of commerce and industry); improve the public enteaprise privafzation process; undertce audits and dignostic studies of Mali's banks as a basis for introducing institutional development programs and provide training to banks' staff for project evaluation, ; finance studies to explore the potenti of mutual savings and credit schemes, to examine the appropriate modalities for housing finance in Mali, and to prepare an overall fincial sector strae; and dieminate informaion on business services to frequently disadvantaged groups (women, nru businesses). IDA's financing of technical support to private enterprises and institutions would be a logical follow-up and complement to its policy-based lendg (e.g. SAL, AGSECAL, PESAP) for reform of the private sector business environment. In addiion, lIA's intervenion would complement IFC's recent and proposed investments in private banking, gold mining and leasing by imprving the institutional and technical support structures for the private sector. 61. 'Weet OWgW=. Ihe principal objective of the Project is to help foster the development of private sector enteprises, so that tey can lead the growth of Mali's economy. It aims at putfing into place the mehanisms and measmes to back up the Government's staegy of breaking fiom past reliance on the public sector. The Project proposes to achieve this by:  - 16- (a) completing Implementation of recent improvements to the regulatory emvironment; (b) assstg a private business support strucure to coordinate a program of Insdtional support to non-fincial enterprises; (c) improving the functloning of the chamber of commerce and industry, the public enterprise bureau and departments of the Government responsible for administering regulatons affecting privat enterprises; and (d) inducing instttional and financial strengtheniag of the banking sector. 62. ject. The Project has four components: (i) a regulatory component (JS$1.4 million) to complete implementaion of recent policy and regulatory reforms essential to private sector performance (enlargement of the role of the gukhet wdqe, upgrading of the national accounting plan for enterprises; modenization of legal texts on corporate rights and bankruptcy); (ii) an situdonal support component (US$8.9 million) targeted to: (1) non-financial private enterprises (technical and management assistance); (2) financial intermediaries (extern independent audits and financial and instimional development programs); (3) professional associations (assistance in revision of statutes, office t nology, management information systems, training); (4) govement agencies CincludingB1EP, DNAE, and DNI) (revamped informaton systems, legal and regulatory famework for privatization, training); (fii) a studies component (US$0.6 million) to explore options to deepen the Malian financial system in the areas of: urban mutual savi and credit schemes and housing finance, and to prepare an overall financial sector strategy; and (iv) a com cton component (US$0.2 million) to disseminate information on businss serices to frequenty disadvantaged groups (women, rural businesses) and elicit participaton by rural service suppliers. The sub-component to provide technical and management assistance to non-financial private enterprises wfll be of a pilot nature and administed by a private agency (Assocation de Promodon deI 'EntprIse Prle - APEP) under terms and conditions satisfactory to IDA. 63. Pfjt bnlet= and Overall project management would be vested in a supevseur du Projet in the Mldstre Delegud a la Promoton de 1'nlave Prhe in the Prime Minists Office. In order to insti ize implementation of such operations, the Government has designated a Project Management Unit (PMU) in this ministry to coordinate project activities and to oversee implemenaion of the parts of the Project dealing with policy, regulation, other government agencies and the financial system. Ihe PMU would also be responsible for (a) administradve/finandal matters, (b) monioring/evaluation and (c) day-to-day coordination of project acies, including satisfactory procurement, recruitment, disbursemens, management of the Special Accounts, project accuntig and auditng, reportng requiment, and liaison with IDA and other donors. Ihe Prime Minister's Office has ample experience with IDA Projects, and should be able to abide by IMA procurement and repo req . 64. Implementation of the program of instional support targeted to non-financial private enteprises and the communication component would be enusted to APEP under a convention signed with the Govnment satftory to IDA. The Stautes, Bye-laws, and Procedure Mamnu of APEP, have been reviewed and found stsfactory to IIDA. Ite Prcedures Manua, which must at all times be acceptable to the Bank1, establishes: (i) the types of enterprises that can benefit from APEP's interventions (private enterprises including service firms); (ai) the method to be used by APEP to inform poteial beneficiaries of the range of service suppliers available to them (including the maitenance and  - 17 - updating of data banis and the procedures for classifying suppliers of technical assistance services); (iii) procedures for receiving and processing tcnical assistance and training requests from beneficiary enterprises; (iv) the limits of APEP-financed assistance to any one beneficiary enterprise (at most two iterventions, with a cumulative advance of CFAF 15 million); (v) the percentage of costs to be advanced (75% for all beneficiary enterprises); (vi) the procurement procedures that APEP must follow, including the choice of service suppliers by beneficiary entrises; (vii) standard bidding documes and model contracts; (viii) procedures for supervising performance by contracted firms; (ix) APEP's staffing and financial management procedures including its accountng, inter controls and semi-annual accouning of Its use of donor funds; (x) the nature and periodicity of reporting by APEP; and (xi) the process for semi-anmnal review of its operations by the Government and donors, including IDA. The APEP- Govenment agreement for use of IDA funds will describe APEP's modus operand and include the Procedures Manual as an integral part. Use of this structure would allow for operational autonomy in day-to-day implementation of the business support sub-component, adequate interface between the private sector and policy-making bodies, maxinum participation by the private sector, and proper coordination of project activites. 65. Poect &v l&WM The Project is likely to have a sustainable effect because it will (i) help the recent regulatory reforms to take root; (i) promote and strengtien suppliers of business services and help to develop a self-sufficient consulting and training market locally; Ciii) enable Mali's economic chambers to fimction more effectively and to gradually stand on their own outside the administration's shadow; and (iv) set the stage for deepening Mali's financial system by inducing institutional improvements in commercial banks and by linking them to local communities through mutualist savings/credit ins"tions. 66. LessM fiom Pevious From 1983 to 1989, the Government implemented an IDA-fintced Industrial Development Project (Cr. 986 of FY83) in an atmosphere of distorted policies. ohe Project provided US$8 million to finance investents, technical assistance and training for small and micro-enterpris. It financed 27 small and medium scale private enterprises with moderate success. The Project suffered from poor sub-project screening by the national development bank which has since beerl restructured, ineffective technical asistance provided by a public agency which has since been liquidated, and iadequate monitoring. FurFter, it was implemented without regard to the fac t thatenses should be in business primarily for the pupose of making profits (i.e. their commercial orientation), and that such developmental objectives &s empleyment creation or even the creation of value added, while worthwhile objectives, should at best be considered as supplementary criteria or side benefits to commercial viability. The lessons from this Project were tht the prerequisites for effective private sector promotion were: (1) the existence of an appropriate policy environment including an adequate interest rate structure), (i) well-focused project screening (credit-worthiness) by bans, (iii) close supervisionk/moitoring, and iv) technical sWort prvided by efficient and business oriented private instiut . These lessons were incorporated in the design of Mali's structura and sectoral adjustment programs (SAL, PESAP, etc.) and have been taken ito account in designig the proposed operaton. 67. Experience with Imple nI of the divestiture program under the IDA-supported PESAP also revealed that the executin agency had neither the experience nor the tecnical resources to efficiently manage PE divestifures. Intances of privatzation under the PESAP were therefore charaterized by hasy dissolution of the PE concerned, arbitrary valuation, little prospection for buyers, and little competition among buyers, so ta the partners selected were often incapable of improving the pefoman of the enterprise. Ihe isutional support component of the propose Project wil, inter alia, finance restuctrng of private enteris, and the technical assistace proposed for BEP will serve  - 18 - to strengthen the two remaining areas of weakness identified: (a) valuation of the enterprise's assets in order to estimate a fair floor price as well as the extent of the liabilities to be cleared, and (b) active prospection for, and creation of competition among, partners capable of contrbuting to the enterprise's recovery or development. 68. kAian= d. Agreement was reached with Government at nM iations on: (a) establishment of the Special Accounts; (b) the text of the covention to be signed between Government and APEP as well as the procurement and other procedures governing APEP's use of project funds; (c) semi-annual review of the performance and effectiveness of APEP as a basis for revising the business support sub-component; (d) the Letter of Private Sector Development Strategy; (e) reporting and auditing requirements including semi-annual audits of statement of expenditures (SOEs) and of APEP's operations and accounts; (f) recruitment of a firm to establish a sasctory accounting system for APEP and the Project, and a firm to audit the accounts; and (g) signature of the agreement with APEP to implement the institutional support program to private enterprises. Prior to credit effectiveness, Government would be expected to: (i) establish the Special Accounts; (ii) set-up the Project's accounting system and sign a contract with auditors, satisfactory to IDA for auditing the accounts of APEP and the Project, including the Special Accounts and SOEs; and (iii) prepare and agree with IDA on a training program for the first year of the Project. 69. Environmental MonitoringIProions. Ihe Project's components have no environmental impact. However, Mali's banks are currendy not equipped to undertake full environmental assessments of investment proposals. Therefore, in line with the recently prepared Environmental Strategy for Mali, the training to be provided to staff of the banks will include methods for idfying and flagging the potential for adverse envionmena effects in investment proposals. 70. Mnfit ad Risks. This Project specifically aims at improving the private sector's ability to respond to the policy reforms underway and enhancing its prospects for leading the growth of Mali's economy. It will improve the regulatory infrastructure for private sector operations as well as the functioning of key private sector support institutions (including both professional associations and relevant government agencies). The use by private enterprises of the business services administered by APEP should enhance teir operational capabilities. It is also expected that the Project would have a demonstration effect dth will foster the development of a dynamic and self-sufficient local consulting and training market. Ihe Project will also support the on-going PE privatizaon process by up-grading the relevant regulatory framework and providing technical assistance to BEP. Additionally, the support to the banks and the studies component have been specifically designed to achieve a double objective, namely, inducing institutional and financia strengthening of the banking sector and setting the stage for future deepening of Mali's financial system. 71. ITe principal risk relates to the sustainability of the recent political dem tion and the maitnan of a policy framework supportive of private sector development. This risk is lessened by the new Government's commitment to continued policy reform and to private sector promotion, as demonstrted by its recent signature of a Policy Framework Paper and appointment of a MlniareDftgue pour la Promoion de l'Inieow Privd in the Prime Minister's Office. To further minimize this risk, the Project team has put particular emphasis on obtaining close cooperation and intensive participation of a wide range of economic agents in Mali. The focus on capacity building and institutional development activities furter isolates the success of the Project from short-term policy uncertainties.  - 19 - 72. Another risk exists that APEP would misuse its considerable independence in administering the sub-component to provide technical and management assistance to non-financial private enterprises. This risk i reduced by: (i) prior review and approval by IDA of APEP's Prcedures Manual, which will be part of the Agreement under which APEP wil administer the sub-component; (U) agreement obtained at negotiations that the Director General's appointment and performance must be acceptable to IDA; and (Mii) the proposed supervision schedule, in particular sem-annual reviews and audits, which wlul provide for frequwent opportuities to Intervene In case of observed deficiencies In the admiistation of the sub- component. 73. . 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 Preston President Atuachments Washington D.C. October 16, 1992  -20 - Scheduile A MAUI: PRIVATE SECTOR ASSISTANCE PROIECT Etmated Proect Cost and Financg Plan (a) Not of Meidnfiable taxles and dutdes |~~~~~~~~~(SmI~ .. . . - . [~~~~~~4 i0~ 4  X a zitlA Mg fllthlMSitt " Wfl F aS15 fl 0 !Ef1J!  -22 - Schedule B (Contd) MAl: PIATE S TO ASSISTANE PROJECT Allocation and DisbMrn of the IDA Credi Qu fEeWdMAacin fE (US$million) - Civil Works 0.39 100% - Vehicles, equipment and dfit 0.36 100% - APEP supported Tecnical Assistance 3.25 75% - Other consuttan ies and Trainin 4.23 100% - Incremental Operating Expenses PMU 1.13 100% upto 12-31-95 and 80% thereafter. APEP 0.74 100% -PPF 0.75 - Unallocated 1.15 Total 1Lg0 Disbrsmen Schedule (JS$m1ig IDA Fiscal Yer 22 24 21 26 29 21 22 Anmu 1.1 1.0 1.3 1.9 2.5 2.5 1.7 Cumlative 1.1 2.1 3.4 5.3 7.8 10.3 12.0  -23 - SCEHEDIULE! C MAI: PRIVATIR SECTOR ASSISTANCE PROJECT Timetable of KUi Proect Prcssing DMs (a) Time taken to prepare Project: IEPS: 09120/89: 36 months (b) Project prepared by: Govenment with IDA assistance (c) First IDA mision: November 1989 (d) PPF: Sepember 20, 1990 (e) Appraisal mission: Februay/March 1992 (f) Negotiaons: Setember/October 1992 (g) Planned Date of Effectiveness: January 1993 (h) Relevant PCRs and PPARs: Report No. 8401 dated Februy 23, 1990 Idustril Development Project Cr. 986-MU)  -24- Schedule-D Page 1 of 2 PAGE 52 WI Tfm: 10/09/92 at 12.10.07 MALI Statau Of Gh* amp C 6rations In mIAL PFOSR2S -ADui Statett 0f Lon wd IOA Crteit (LOA date of &/3092 * mIS data as of 10C/09) .............................................................................................. By Ctatry CoLnty: MLt MM fr USs of t t tam (tls O ettatilers) Low or Fiscat ......U..is CtosIr. Credit No. Year Bo ero Ppau s I O br Osto ...... ........ ....... .... ... ...... ......... Credi ts 35 Credits(s) csed .29 CF0070*gI 1098 PALI %ATI 9UPML 1 6.30 1.15 06/30/93(R) C15970-M.L 1985 ML! etY AREA OM. 19.50 10.25 12/31/92(R) C16290-ILI 1986 mALI NitMYS v 48.60 27.31 12/31/93(R) C16540-mLt 1986 MLt FORSTY tt' 6.30 .18 12/3l/92(R) C16M-NLI 1986 PALI U8A1m It 28.00 8.07 03/31/93 C1960-LI(S) 1988 MALI OFtP l Du 5t16t3 39.80 35.46 06/30/97 C19380*-LI 1988 PALI P.1. INST ON 9.50 2.71 12/31/94 C19980-NLI 1989 MLI PR It 33.00 30.19 12/31/95 CZ0540-LtS) 1989 PALt NUI4AM UIEUS WWL 26.00 18.16 12/31/94 C21630-NLuS) 1990 MALt AG SEUL 53.00 28.02 12/31/% CR 8o-NL!(S) 1991 PALI SAL I 70.00 50.t2 06/30/9 C22170M.!t 1991 liLt NHM tN/PMUT 26.60 26.15 12/31/9? C22350*MLt 1991 ALt AG SRviw S 24.40 a.97 09/30/95 C2370O-mLt 1992 MALI lAiUWAL lS. 11 20.40 22.09 06/30/98 * CZ3710-NJ 1992 MALI PUBLIC WiC & CWM 20.00 21.65 03/31/97 C23900*MLt 1992 IoAL RMINING CAPACITy 6.00 6.48 06/0/97 TotAL nurer Credit. * 16 437.40 311.95 TOTAL* 00.69 of Aich repad 1S... T TAL ed by wk & IA ......... .. Ar.at sold of which r"id TOTAL risibrsed 312.16 Notes: ..................... Not yet effectiw Not yet sigred Total Aproved, Retwunts, ad tltstardirg btls'e rerst both ctive td Iructiw Los wd Credits. (R) irdicates fountly rcvised Closin oate. (S) irdicates SAL/SECAL Los aid Credits. The Net ApRoved and Sar'k Reperuts are historica vatl. alt others We _olut bUea. The Signifr. Effective, id Ctosuir dat$ are based W the Low DeOe t offial ta d are not taken from the Task 8bget file.  -25- Scbedule ID W 2o. MALI: PRIVATE SECTOR ASISTANCE PROJECT Of the 16 IDA Projects currently under implementation In Mali, five (Office du Niger II - Cr. 1906-MLI; Power n - Cr. 1998-MUI; Hun= Resources SECAL - Cr. 2054-MLI; SAL I - Cr. 2188- MLI; and AGSECAL - Cr. 2163-ML) have recendy experienced slow disbursement for vaious reasons: political siaion, conditions not met for tranche release and inefficient and cumbersome executive agency procedures. Ihe following actions are foreseen: (a) A disbursement mission will visit Bamako in October to hold a four-day disbursement seminar on aU Bank operations with the concerned chief accounts, project directors and financial managers; this would be followed up by workshops with each project team focussing particularly on SOEs and special account reconciliation; a meedng of aU project direcors on generic disbursement issues would also be encouraged. (b) With regard to Power I, high supervision effort over the past year has not yet led to noticeable improvements in disbursement; after the preparation of an action plan for the sector, discussions wit Government and all concned donors on a substantil set of reforms concerning the power sector are now planned in the context of a donors'meeting, which is scheduled to be held before the end of 1992. If these discussions are unsuccessful, suspension should be considered.  IBRD 23669 M A L I PRIVATE SECTOR ASSISTANCE PROJECT A L G E R I A o CER=E CAPILS REGION CAPIAS * NATIONAL CATAL CEICLE BOUNDARES| REGION 8OUNDARIES INTERNAIONAL BOUNDARIES o 5o lo 15000 20 2 I | tII TIl0MBoUCa '1 KIWMETUfl ~ ~ ~ ~ ~ ~ ~ ~ ou MW MAURITANIA / 0 V~~~~CW N U A " - , 0- 0