i Document of The World Bank FOR OFFICIAL USE ONLY Report No: ICR00003490 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA 4101-MAG, 4399-MAG) ON A CREDIT IN THE AMOUNT OF SDR107.6 MILLION (US$165 MILLION EQUIVALENT) TO THE REPUBLIC OF MADAGASCAR FOR THE INTEGRATED GROWTH POLES PROJECT JUNE 15, 2015 Trade & Competitiveness Global Practice Eastern and Southern Africa Department Africa Region 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. Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized
Transcript
i
Document of
The World Bank
FOR OFFICIAL USE ONLY
Report No: ICR00003490
IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA 4101-MAG, 4399-MAG)
ON A
CREDIT
IN THE AMOUNT OF SDR107.6 MILLION (US$165 MILLION EQUIVALENT)
TO THE
REPUBLIC OF MADAGASCAR
FOR THE
INTEGRATED GROWTH POLES PROJECT
JUNE 15, 2015
Trade & Competitiveness Global Practice Eastern and Southern Africa Department Africa Region
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.
Aéroports de Madagascar Agence Française de Développement
AfDB African Development Bank AGOA APMF BDS BOO
African Growth and Opportunity Act Agence Portuaire Maritime et Fluviale Business Development Services Build, Own, Operate
CAS CCI CGA CMU CNaPS
Country Assistance Strategy Chamber of Commerce and Industry Centre de Gestion Agréé Country Management Unit Caisse Nationale de Prévoyance Sociale
CRDA CTHT DBI EDBM ERR
Commission pour la Réforme du Droit des Affaires Centre de Technique Horticole de Tamatave Doing Business Indicators Economic Development Board of Madagascar Economic Rate of Return
EOI ESMF EU
Expression of Interest Environmental and Social Management Framework European Union
FDI GDP GoM
Foreign Direct Investment Gross Domestic Product Government of Madagascar
GP IC ICT IDA
Global Practice Investment Climate Information and Communication Technology International Development Association
IFC IG2P
International Finance Corporation Madagascar Integrated Growth Poles Project
IMF INSTAT IPF IRR ISN ISO M&E
International Monetary Fund Institut National de la Statistique de Madagascar Investment Project Financing Internal Rate of Return Interim Strategy Note International Organization for Standardization Monitoring and Evaluation
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MFI MNP
Micro Finance Institutions National Parks of Madagascar
MSME NGO
Micro, Small and Medium-sized Enterprise Non-Governmental Organization
NPV OCAI OFID
Net Present Value Opération Communale d’Appui Intégré OPEC Fund for International Development
ONTM OP/BP ORT
Madagascar National Tourism Office Operational Policy/Bank Procedure Regional Tourism Office
OSS PAD PCGS PCN PDO
One Stop Shop Project Appraisal Document Partial Credit Guarantee Scheme Project Concept Note Project Development Objective
Second Integrated Growth Poles and Corridors Project Project Implementation Unit Public Private Dialogue Pest Management Plan Public Private Partnership Purchasing Power Parity Poverty Reduction Strategy Paper QIT Madagascar Minerals Resettlement Action Plan National Road Southern African Development Community Special Drawing Rights Small and Medium-Sized Enterprise Technical Assistance Value Chain Tourism Master Plan Technical and Vocation Education and Training World Bank Group
Regional Vice President: Makhtar Diop Country Director: Mark R. Lundell
Senior Global Practice Director: Anabel Gonzalez Practice Manager: David Bridgman
Project Team Leader:ICR Team Leader:
Michael Olavi Engman Nikola Kojucharov
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MADAGASCAR INTEGRATED GROWTH POLES PROJECT
CONTENTS
Data Sheet A. Basic Information B. Key Dates C. Ratings Summary D. Sector and Theme Codes E. Bank Staff F. Results Framework Analysis G. Ratings of Project Performance in ISRs H. Restructuring I. Disbursement Graph
1. Project Context, Development Objectives and Design ................................................................12. Key Factors Affecting Implementation and Outcomes ...............................................................83. Assessment of Outcomes ...........................................................................................................154. Assessment of Risk to Development Outcome ..........................................................................275. Assessment of Bank and Borrower Performance ......................................................................296. Lessons Learned.........................................................................................................................327. Comments on Issues Raised by Borrower/Implementing Agencies/Partners ............................35Annex 1. Project Costs and Financing ...........................................................................................36Annex 2. Outputs and Outcomes by Component ...........................................................................39Annex 3. Economic and Financial Analysis ..................................................................................58Annex 4. Bank Lending and Implementation Support/Supervision Processes ..............................71Annex 5. Beneficiary Survey Results ............................................................................................74Annex 6. Results Framework and Outcome Indicators .................................................................77Annex 7. Summary of Rio Tinto/QMM’s Development Impacts in Fort Dauphin .......................82Annex 8. Summary of Borrower’s ICR and/or Comments on Draft ICR .....................................86Annex 9. List of Supporting Documents .......................................................................................88MAP
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A. Basic Information
Country: Madagascar Project Name: Integrated Growth Poles
Closing: 12/31/2010 12/31/2014 C. Ratings Summary C.1 Performance Rating by ICR
Outcomes: Moderately Satisfactory
Risk to Development Outcome: Moderate
Bank Performance: Satisfactory
Borrower Performance: Moderately Satisfactory
C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings
Quality at Entry: Moderately Satisfactory Government: Moderately Unsatisfactory
Quality of Supervision: Satisfactory Implementing Agency/Agencies:
Highly Satisfactory
Overall Bank Satisfactory Overall Borrower Moderately Satisfactory
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Performance: Performance: C.3 Quality at Entry and Implementation Performance Indicators
Implementation Performance
Indicators QAG Assessments (if
any) Rating
Potential Problem Project at any time (Yes/No):
Yes Quality at Entry (QEA):
None
Problem Project at any time (Yes/No):
Yes Quality of Supervision (QSA):
None
DO rating before Closing/Inactive status:
Satisfactory
D. Sector and Theme Codes
Original Actual
Sector Code (as % of total Bank financing)
General energy sector 10 10
General industry and trade sector 20 20
General public administration sector 25 25
General transportation sector 20 20
Other industry 25 25
Theme Code (as % of total Bank financing)
Infrastructure services for private sector development 40 40
Micro, Small and Medium Enterprise support 40 40
Other urban development 20 20 E. Bank Staff
Positions At ICR At Approval
Vice President: Makhtar Diop Gobind T. Nankani
Country Director: Mark R. Lundell James P. Bond
Senior Global Practice Director: Anabel Gonzalez
Practice Manager/Manager: David Bridgman Demba Ba
Project Team Leader: Michael Olavi Engman Ivan Rossignol
ICR Team Leader: Nikola Kojucharov
ICR Primary Author: Nikola Kojucharov
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F. Results Framework Analysis
Project Development Objectives (from Project Appraisal Document)The overall purpose of the proposed project is to help provide the adequate business environment to stimulate and lead economic growth in three selected regional poles. The specific objectives are to assist the GOM to: (i) construct and rehabilitate critical infrastructure essential for sustained economic activity in the tourism, manufacturing, agribusiness and mining sectors; (ii) put in place appropriate incentive measures to achieve rapid growth; (iii) develop the instruments to ensure equitable, sustainable growth; and (iv) strengthen the capacity of local authorities to formulate, prepare, implement, and manage medium- and long-term integrated regional development projects in the future. Revised Project Development Objectives (as approved by original approving authority) The project development objective is to increase business and formal job creation in particular in the mining, tourism and agribusiness sectors in the Nosy Be and Taolagnaro regions. (a) PDO Indicator(s)
Indicator Baseline Value
Original Target Values (from
approval documents)
Formally Revised
Target Values
Actual Value Achieved at
Completion or Target Years
Indicator 1 : Number of businesses registered in Nosy Be (cumulative) Value quantitative or Qualitative)
400 650 1,800 1,933 at end-2012; 2,957 at end-2014
Date achieved 07/12/2005 12/31/2012 12/31/2014 12/31/2014 Comments (incl. % achievement)
Achieved: original target exceeded by 197% and upwardly revised target by 64%.
Indicator 2 : Number of businesses registered in Fort Dauphin (cumulative) Value quantitative or Qualitative)
82 450 1,700 1,603 at end-2012; 2,514 at end-2014
Date achieved 07/12/2005 12/31/2012 12/31/2014 12/31/2014 Comments (incl. % achievement)
Achieved: original target exceeded by 256% and upwardly revised target by 49%.
Indicator 3 : Number of formal jobs created in Nosy Be (cumulative) Value quantitative or Qualitative)
1,400 6,500 5,700 5,005 at end-2012; 6,948 at end-2014
Date achieved 07/12/2005 12/31/2012 12/31/2014 12/31/2014 Comments (incl. % achievement)
Original target missed but revised target exceeded by 22%.
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Indicator 4 : Number of formal jobs created in Fort Dauphin (cumulative) Value quantitative or Qualitative)
1,015 5,000 8,200 7,560 at end-2012; 9,385 at end-2014
Date achieved 07/12/2005 12/31/2012 12/31/2014 12/31/2014 Comments (incl. % achievement)
Achieved: original target exceeded by 51% and upwardly revised target by 14%.
Indicator 5 : Direct project beneficiaries Value quantitative or Qualitative)
0 N/A (indicator added in 2012)
217,300 220,199
Date achieved 07/12/2005 12/31/2014 12/31/2014 Comments (incl. % achievement)
Target achieved (exceeded by 1%).
Indicator 6 : Female percentage of direct project beneficiaries Value quantitative or Qualitative)
0 N/A (indicator added in 2012)
50.6 50.6
Date achieved 07/12/2005 12/31/2014 12/31/2014 Comments (incl. % achievement)
Targets achieved.
(b) Intermediate Outcome Indicator(s) See Annex 6.
Reallocation of project funds to cover shortfall in government funding and provide 100 percent financing for eligible expenditures
09/29/2010 N MU MU 124.50 Extension of closing date for original credit (4101-MAG) to December 2011
12/09/2011 N MS MS 134.56 Extension of closing date for original credit (4101-MAG) to October 2012.
12/04/2012 Y MS S 137.17
PDO revised to establish clearer linkages to results indicators; components re-adjusted to better reflect post-crisis and post-OP/BP 7.30 implementation realities
If PDO and/or Key Outcome Targets were formally revised (approved by the original approving body) enter ratings below: Outcome Ratings Against Original PDO/Targets Moderately Satisfactory Against Formally Revised PDO/Targets Moderately Satisfactory Overall (weighted) rating Moderately Satisfactory
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I. Disbursement Profile
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1. PROJECT CONTEXT, DEVELOPMENT OBJECTIVES AND DESIGN
1.1 Context at appraisal
1. Country context. After three decades of declining GDP per capita, Madagascar’s economy turned the corner in the late 1990s on the back of structural reforms, achieving steady real GDP growth in the range of 3.7 to 10 percent between 1997 and 2004 (among the highest in Africa at the time), interrupted only by the political crisis in 2002. However, this resurgent growth had a comparatively low impact on poverty reduction and exacerbated regional disparities: except for the Antananarivo province, all of the country’s five provinces became poorer over this period, with the gap widening most in rural areas. The sustainability of growth was also in question, as preferential trade agreements for Madagascar’s garment exports were likely to be phased out and private investment was low and stagnating. In addition, firms were struggling with poor cost competitiveness: the 2005 investment climate assessment indicated that indirect costs on Malagasy firms exceeded a third of their total operating costs (compared to 20 percent in China), attributable to the poor physical infrastructure, deficient power supply, high telecommunication costs and tax and policy inefficiencies. At the same time, key sources of growth had yet to be tapped: tourism, a high-potential sector given the country’s numerous beaches and unique flora and fauna, was relatively under-developed, while the mining sector had yet to take advantage of the large and high-grade ilmenite deposits in the southern Taolagnaro region.
2. Government Strategy. Madagascar’s experience up to that point with traditional cross-cutting business environment and investment climate reforms had been disappointing: they had failed to kick-start private sector growth or instill investor confidence in longer-term investments, as evidenced by the massive private capital flight during the 2002 crisis. The new government coming into power after the crisis was committed to exploring new approaches that could both leverage Madagascar’s potential in specific sectors and address the growing regional disparities. Building on regional planning processes that had begun in the late 1990s, and through consultations with the private sector and donors, the government identified three regions where appropriate market conditions could be created to catalyze private sector growth in the tourism, mining and manufacturing sectors. These regions, selected for this sector potential as well as the geographic balance they represented, were: (i) Antananarivo-Antsirabe, the central capital city region and the economy’s main export processing hub; (ii) Taolagnaro (Fort Dauphin), the extremely poor southeastern region plagued by recurrent famines; and (iii) Nosy Be, the small island in the north with a declining sugar industry but burgeoning tourist activity.
3. Rationale for World Bank involvement. The Government of Madagascar’s (GoM) desire to develop high-potential sectors in these regions into “magnets” for sustained private sector investment and growth necessitated a set of integrated interventions that could simultaneously address both hard and soft infrastructure constraints. At the time, no private financier had the sufficient capacity and resources to take on such a multi-dimensional project, while Madagascar’s other key donors preferred more sector-specific initiatives or were operating under different intervention timelines. This made the Bank uniquely placed to provide the breadth of technical and financial assistance required. The context was fertile ground for the Bank to venture into its first ever “growth poles” operation, harnessing its multi-sector expertise (and that of IFC) into a single project that could serve both as the key delivery vehicle for the GoM’s growth agenda and as a new model for engagement on private sector development issues.
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4. Higher-level objectives to which the project contributed. The GoM’s 2004 Poverty Reduction Strategy Paper (PRSP) aimed to cut poverty in half in ten years by: (i) improving governance; (ii) promoting broad-based growth; and (iii) providing security financing. The Integrated Growth Poles Project (IG2P) supported this strategy and the Bank’s overarching CAS goals to foster growth through a focus on export processing zones (Antananarivo-Antsirabe), the tourism and agribusiness sectors (Nosy Be and Taolagnaro), and the mining sector (Taolagnaro). It was designed to complement ongoing reforms in the telecommunications, power, and transport sectors, and to address constraints in human capital formation, governance, the business environment, institutional capacity and enterprise development.
1.2 Original PDO and outcome indicators
5. The project development objective (PDO) was to provide a business environment adequate to stimulate and lead economic growth in three regional poles in the areas of Antananarivo-Antsirabe, Nosy Be and Taolagnaro, and in particular to: (i) construct and rehabilitate critical infrastructure essential for sustained economic activity in the tourism, manufacturing, agribusiness and mining sectors; (ii) put in place appropriate incentive measures to achieve rapid growth; (iii) develop the instruments to ensure equitable, sustainable growth; and (iv) strengthen the capacity of local authorities to formulate, prepare, implement, and manage medium- and long-term integrated regional development projects in the future.
6. The project results chain was rooted in the theory of fostering private sector development through a set of integrated investments. By simultaneously intervening along multiple dimensions of the growth nexus (business environment, key infrastructure, access to basic services, local governance), the project aimed to remove key constraints to business formation and strengthen the platform for growth in high-potential sectors within the regional poles. The private sector could then use this platform to leverage its own investments and reduce its cost of doing business, helping to spur business and job creation and the expansion of value added in the targeted sectors. This causal chain is illustrated in Figure 1.
Figure 1: Theory of change and results for IG2P
Source: Author’s conceptualization based on PAD.
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7. Due to the lack of GDP data for the regional poles, the impact of project interventions on economic growth had to be monitored and measured indirectly through proxy indicators. The key PDO outcome indicators chosen to proxy growth in targeted sectors (tourism, mining, manufacturing, and agribusiness) across the three regional poles were:
The increase in the number of tourists arriving at Nosy Be and Taolagnaro airports and ports (as a proxy for growth in the tourism sector)
The volume of merchandise and minerals shipped through the Taolagnaro and Tamatave ports and Ivato airport1 (proxy for growth in agriculture, mining and manufacturing in Taolagnaro and Antsirabe-Antananarivo)
The number of jobs created in the three poles (a proxy for the shared content of growth)
8. Intermediate results indicators for each project component focused on tracking the outputs and outcomes along each dimension of the growth nexus targeted by the project. These included the progress in strengthening the enabling conditions for private sector entry (e.g. credit extended to MSMEs), improving key infrastructure (e.g. length of roads built or rehabilitated) and access to basic services (e.g. percent of population with potable water), and enhancing local governance capacity (e.g. level of municipal revenues generated). The full list of these indicators is detailed in Annex 6.
1.3 Revised PDO and outcome indicators
9. The results framework was revised in 2007-08 as part of the project’s first level one restructuring and provision of additional financing, although the PDO remained unchanged. The rate of annual private investment flows was added as a PDO outcome indicator to reflect the project’s support for the creation of the Economic Development Board of Madagascar (EDBM), a new agency dedicated to investment promotion and facilitation at the national level. Indicators to monitor the operationalization of the EDBM, the implementation of regional development plans, and the enactment of Investment and Free Zone Laws were also added. Furthermore, baseline values and targets, which were missing for many indicators at the time of appraisal, were formally specified.
10. Following an unconstitutional transfer of power in early 2009 that plunged Madagascar into political crisis, project implementation halted in February 2009 and the Bank suspended disbursements in the context of OP/BP 7.30 (Dealings with De Facto Governments).2 Partial disbursements were authorized only under exceptions to OP/BP 7.30 in December 2009 to manage safeguards-related activities.3 It was not until May 2011 that Bank management
1 Ivato airport is the country’s major international airport near the capital city of Antananarivo; Tamatave Port, located 215km east of Antananarivo in the Atsinanana region, is the country’s largest seaport. 2 OP/BP 7.30 lays out the conditions under which the Bank can suspend disbursements for existing loans due to the accession to power by a de facto government by means not provided for in the country's constitution, such as a coup d'état, revolution, usurpation, abrogation or suspension of the constitution. 3 In Nosy Be, these included: the Tidal gate at Marodokany, the landfill site, management for Nosy Tanikely and Lake Amparihibe, and closure of quarries and road maintenance. In Fort Dauphin, they included: implementation of RAPs for the QMM’s mining facility and Ehoala Port, water supply and sanitation schemes for PAPs, retraining of retrenched workers from the old port, road maintenance, and vocational training at select centers.
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approved the full resumption of disbursements, with the understanding that the project would need to be restructured to adapt to the evolving political and economic realities.
11. In this context, the project was formally restructured and the Development Credit Agreement (DCA) amended on December 26, 2012, with the PDO revised to make it more closely attributable to project activities and to provide clearer guidance for results-oriented implementation. The Antananarivo-Antsirabe pole was also dropped entirely due to a lack of private sector participation and difficulty in establishing clear implementation arrangements, and project interventions re-focused on the two other growth poles, where it was judged that conditions were in place to achieve development objectives within the remaining timeframe. The revised PDO was to increase business and formal job creation in particular in the mining, tourism and agribusiness sectors in the Nosy Be and Taolagnaro regions.
12. The results framework was also revised and the outcome indicators updated to reflect the dropping of the Antananarivo-Antsirabe pole and the activities that could no longer be supported under the new country circumstances. In particular, the PDO indicator for annual private investment flows was dropped due to its poor regional attribution and a new core indicator on direct project beneficiaries (including gender balance) was introduced. Target values for all indicators were re-aligned to a 2011 baseline and extended through 2014 to reflect the project’s new closing date. These and other changes to the key PDO-level outcome indicators are summarized in Table A6 of Annex 2, while the complete description of revisions to all outcome indicators, including intermediate indicators by project component, is provided in Annex 6.
1.4 Main Beneficiaries
13. While the PAD did not identify specific beneficiaries, the project directly targeted private firms in the three growth pole regions as well as poor and underserved communities. Current and prospective micro, small and medium size enterprises (MSMEs) would benefit from the project’s hard infrastructure investments (roads, ports, water and electricity supply, sanitation systems) via a reduction in the transaction costs of starting and operating a business, especially in rural areas where physical access to markets was most constrained. Poor households would also benefit from the improved access to basic services (e.g. electricity, water, solid waste management) resulting from this new infrastructure. Furthermore, the project’s various training programs and access to finance schemes (i.e. soft infrastructure) would help equip local entrepreneurs with the skills necessary to develop their business ideas and the financial capital to pursue investments that would otherwise have been prohibitively expensive. Finally, as the new private activity spurred by the project in these sectors reached a critical mass, it would generate multiplier effects on other sectors, thus benefiting the overall economies of the three regional poles and neighboring regions with supply chain linkages.
14. The other key beneficiaries were the local governments, who would leverage the technical assistance and equipment and software provided by the project to improve their administrative capacity. The boost in fiscal revenue resulting from increased private sector activity would also improve their financial capacity to sustain and build on IG2P’s investments.
1.5 Original components
15. The project consisted of five components. One corresponded to transversal activities supporting the MSME sector more broadly, and three corresponded to the regional growth poles,
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which included a combination of hard and soft infrastructure investments. The fifth component encompassed all activities related to project implementation, evaluation and monitoring.
Component A: Strengthening the Business Environment
16. The objective of this component was to support MSMEs across the three poles through increased access to finance opportunities, capacity building, and targeted improvements to the business and regulatory environment. It was therefore the umbrella component for “soft” infrastructure delivery to promote higher private sector investment and job creation.
17. Specific activities (subcomponents) undertaken, several designed and administered in coordination with the International Finance Corporation (IFC) included:
improving MSMEs' access to finance through a joint IDA-IFC risk sharing facility to provide credit guarantees to commercial banks;
MSME capacity building to develop value chains; tourism capacity building; supporting the restructuring of the state-owned water and electricity company JIRAMA; supporting regulatory and policy reforms and investment promotion agencies
Component B: Supporting export-led growth in Antananarivo-Antsirabe
18. This component aimed to develop off-site investments for the creation of an ICT business park in Antananarivo (Antanetibe site) and to provide technical assistance for industrial and agribusiness zones in Antananarivo and Antsirabe. These investments intended to reduce the various costs faced by firms in export processing zones (EPZ) and garment/textile and ICT sectors and to boost their productivity and competitiveness, resulting in a better investment climate for higher output and increased employment, and directly contributing to the PDO outcomes of manufacturing sector growth and job creation in the region.
19. The main activities included:
Technical assistance to relevant ministries and EPZ authorities to develop a new regulatory framework, one or more industrial parks in Antananarivo and Antsirabe, and a skills development program(s) and on the issue of trade negotiations;
Supporting the development of an ICT Business park in Antanetibe; Supporting the municipalities of Antananarivo and Antsirabe through technical assistance
(TA), training, and rehabilitation of existing facilities. Component C: Supporting tourism-led growth in Nosy Be
20. The goal of this component was to help build an infrastructure platform and regulatory environment conducive to the rapid growth of the tourism industry in Nosy Be, with a target of accommodating a demand of 2,000 international-level hotel rooms by 2010.
21. Core activities under this component included:
Design and adoption of Nosy Be tourism and urban development master plans
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Upgrading the road network to enable access to the isolated eastern part of the island and improve travel conditions between the airport, the main city (Hellville) and tourism sites;
Upgrading the Hellville and Ankify ports; Upgrading the public utilities system by: (i) supporting power generation and
distribution, (ii) upgrading the water and sewerage system, (iii) upgrading urban solid and liquid waste management, and (iv) upgrading telecommunications;
Upgrading urban infrastructure in Hellville and adding a surgery block to its hospital; Providing support to the Nosy Be municipality and local tourism authorities through TA,
training, rehabilitation of existing facilities and creation of ecotourism facilities.
Component D: Mining and tourism-led growth in Taolagnaro (Fort Dauphin)
22. As in the case of Nosy Be, the activities under this component were designed to deliver the infrastructure and business environment needed to open up the economically-isolated Taolagnaro to new opportunities for tourism and agribusiness, as well as to catalyze and complement Rio Tinto’s parallel investments in ilmenite mining. This integrated platform of investments would underpin business creation and job growth in these three sectors.
23. The principal subcomponents were:
Development of tourism and urban development plan master plans; Construction (under a PPP with Rio Tinto) of a new public port on the Ehoala peninsula
to support the ilmenite mining operations and facilitate local market access; A partial rehabilitation of the existing port of Taolagnaro to provide continuity for traffic
during construction of the new port; Upgrading the access road network and the main rural roads; Upgrading the key public utilities services (power, water, sanitation, urban infrastructure
and services and solid waste management) and telecommunications; Upgrading of selected urban infrastructures including the Tsiranana hospital; Supporting the municipality of Taolagnaro and local tourism authorities through TA,
training, rehabilitation of existing facilities, and construction of basic sanitary facilities.
Component E: Program and project implementation, evaluation and monitoring
24. The funding under this component was designated to establish the Project Implementation Unit (PIU) and support, at both the central and regional levels: (i) project implementation, coordination, procurement and financial management; (ii) the preparation and implementation of the provisions of the Environmental Management Plan; and (iii) the carrying out of all environmental and social activities under the project.
1.6 Revised components
25. With the exception of the Antananarivo-Antsirabe component, which was dropped entirely in 2012, the other four headline components remained unchanged. However, modifications were made to sub-components: some were dropped and others added as the management team sought to adjust the project design to reflect evolving political and economic
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priorities, simplify a complex undertaking, and incorporate new development tools that were perceived as effective means to achieve the objectives.
26. As part of the first level one restructuring in 2007, component funds were reallocated to accommodate shortfalls in counterpart funding and a change in the institutional framework for implementation. Soon after the project became effective, the GoM’s budget constraints and other national priorities made it clear that it was not in a position to contribute its agreed share of project funding (most of which was to cover taxes and duties). In addition, the GoM requested Bank support to establish the EDBM. As a result, existing project funds were re-allocated for the EDBM and to provide 100 percent financing (i.e. inclusive of taxes) for as many components as possible. Project resources that were previously dispersed through allocations for various Ministries were consolidated and concentrated under the EDBM to provide greater focus and impact on results. The DCA was amended on December 14, 2007 to reflect these changes.
27. In parallel to this restructuring, an additional financing credit (4399-MAG) was provided in May 2008. The loss of government counterpart funding combined with the shift to 100 percent Bank financing for various components reduced the net available IDA allocation after taxes from $130 million to $114 million, meaning some originally-planned activities could not be financed. Many of the project’s infrastructure works also suffered from cost overruns due to inflation and local currency appreciation. To plug this financing gap, the government requested SDR 25 million ($40 million) in additional financing. The additional credit was approved by the Bank board in April 2008 and the financing agreement signed on May 8, 2008.
28. Finally, as part of second level one restructuring in 2012 when the PDO was revised, several subcomponents were dropped, some new ones added, and others modified to better reflect the post-crisis implementation realities. These changes were recorded in the amendments to the DCA in December 2012. Table A4 in Annex 2 presents and explains the various changes made to individual subcomponents during the course of the project.
1.7 Other significant changes
29. Institutional arrangements were decentralized in the aftermath of the political crisis. The National Steering Committee was effectively inoperative during the political crisis years when a transitional government was in place. As part of the amendment to the DCA in 2012, the legal requirement for the maintenance of this Committee was removed, and implementation guidance and supervision transferred to regional development committees in each of the poles.
30. A portion of the original project credit (MAG-4101) was cancelled and unused funds from the Partial Credit Guarantee Scheme (PCGS) refunded to IDA by IFC. In December 2011, the undisbursed balance of $2.3 million in the two IFC trust funds administering the PCGS was transferred back to IDA, in accordance with the conditions of the DCA. Then, in March 2012, $5 million (SDR 3.25 million equivalent) was cancelled from the original project credit as a result of port works that could not be completed and in order to reallocate funds to other Bank projects in Madagascar with pressing needs.
31. The project closing date was also extended three times, first from December 2010 to December 2011 to allow for implementation to catch up following the suspension of the project under OP/BP 7.30, then to October 2012 to disburse remaining funds under the original credit (MAG-4101), and finally to December in 2014 as part of the second project restructuring.
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2. KEY FACTORS AFFECTING IMPLEMENTATION AND OUTCOMES 2.1 Project preparation, design, and quality at entry
32. The background analysis was sound and robust. Lessons from shortcomings of projects that had opted for sector-specific investments rather than an integrated approach were stressed in the project design, extensive private sector consultations were organized and recorded, and the rationale for the Bank’s intervention was clear. The economic and financial analysis was thorough and rigorous4, correctly emphasizing the incremental benefits of the project, and was used to inform the design of the project components: infrastructure elements that did not contribute to a better economic rate of return were excluded, while those making the cut were dimensioned to fit their expected benefits. Most notably, the estimate that a co-investment in the Ehoala Port larger than $35 million would prove uneconomical for the government justified the capping of the project contribution to the Port at this amount.
33. Private partnerships and parallel financing were leveraged in the project framework. Given Madagascar’s over-dependence on public funding at the time—private capital inflows represented only 10 percent of official development aid—IG2P was designed to be leveraged by private sector investments and to create a context for public-private partnerships (PPPs). These PPPs, in addition to enlarging the scale of support to the three growth poles, would help distribute risk among stakeholders, and place some ownership and responsibility for the sustainability of the project with its main beneficiary—the private sector. At the time of appraisal, however, the only partner committed on a large scale was Rio Tinto (for the mining investment in Fort Dauphin). Although discussions were underway with a range of donors—including the EU, AfDB, AFD, and the Millennium Challenge account—the full amount financing needed for IG2P, estimated at $304 million, had not yet been identified, leaving the project at risk of not being able to deliver on its promised investments.5
34. The GoM was actively involved in project preparation and displayed strong ownership. The Vice Prime Minister in charge of the GoM’s economic programs, in particular, was IG2Ps key champion and facilitated the appraisal team’s access to government counterparts (including the President). The project’s National Steering Committee was set up as planned, chaired by the Minister of Finance and Budget, and the President maintained a keen interest in project and became an important convener of Cabinet ministries and private sector leaders.
35. Although innovative in design, the project was arguably too complex, placing undue strains on implementation capacity. Relative to traditional multi-sector investment projects, IG2P’s approach of a “minimum infrastructure platform” that could service a range of sectors was innovative and new to World Bank operations in the Africa region at the time, as was the use of a multi-sectoral project team to lead the effort. Understandably, this integrated approach necessitated a large number of simultaneous investments, but with five components and around
4 The variables to which the results were most sensitive were candidly disclosed and discussed. 5 The PAD committed to securing full program financing by the time the project became effective, but in reality the financing gap still stood at around $21 million by then, and continued to grow in the first few years of the project, eventually necessitating the provision of additional financing via a new IDA credit in 2008.
9
87 activities spread across three regions, IG2P was arguably too ambitious in scope, especially because all these activities fell under the remit of a single PIU.6
36. Furthermore, political influences led to the inclusion of components and activities that were not fully justified on economic grounds. Antananarivo-Antsirabe, already one of the richer areas of the country, was included as a growth pole in IG2P on the government’s insistence despite analysis suggesting a tenuous economic return of proposed investments.7 The appraisal team compensated for this by underfunding the pole in the project design—activities directly related to the pole (component B) amounted to only 5 percent of the original project budget. Another low-return component included as a GoM precondition for agreeing to IG2P was a $5 million transfer to JIRAMA—the state-owned water and electricity provider—to help pay for its petroleum purchases. This one-off transfer, justified as a first step towards a “restructuring” and “recovery plan” for JIRAMA, was de facto a subsidy that promised minimal longer-term return given JIRAMA’s weak financial position at the time.
37. The limited strategic sequencing of activities further complicated project management at the outset, although it allowed some flexibility during later stages. Some of the ambiguity in priorities was by design since the National Steering Committee was mandated to provide guidance on national and local priorities and monitor the extent to which IG2P activities were achieving intended development objectives. The PIU, in retrospect, also benefitted from the flexibility to tweak components to better suit implementation capacities. At the outset, however, pressure to launch all project activities simultaneously it difficult for the PIU to manage the large number of contracts involved and prioritize its time and human resources.
38. The project’s broad range of infrastructure investments also introduced a constellation of social and environmental safeguards challenges. Six of the Bank’s eight safeguard policies at the time were directly triggered by the project’s proposed activities: Environmental Assessment, Natural Habitats, Pest Management, Cultural Property, Involuntary Resettlement, and Forests. Because of the project’s financing contribution to Ehoala Port, which represented an associated investment in support of Rio Tinto’s mining activities in Fort Dauphin, Rio Tinto also had to consider and comply with a variety of other Bank safeguard policies. To its credit, the IG2P project team addressed each of these challenges diligently, conducting extensive consultations with project stakeholders and potential persons affected by the project (PAPs), adapting the project design accordingly, and providing a comprehensive list of mitigating measures in the PAD. As this was a Category A environmental risk project, an independent expert advisory panel (ESAP) was also commissioned to monitor compliance with safeguards during project preparation and implementation and recommend corrective measures.
6 There were a total of 24 activities in Component A, 12 in Component B, 24 in Component C, 25 in Component D, and 2 in Component E. Concerns about this complexity jeopardizing implementation were raised at both the concept and quality enhancement review (QER) stages of project preparation, especially since prior experience with adaptable program loan (APL) transport projects in Madagascar had revealed weaknesses in the government’s implementation capacity. However, the final project design was not simplified on the grounds that the implementation risks could be mitigated by holding the PIU to strict performance metrics and subcontracting major infrastructure works to specialized implementing agencies recruited through service contracts (CCOP). 7 Although the potential for EPZ clustering and manufacturing growth there was legitimate, the economic analysis demonstrated that the NPV of the IG2P’s proposed investments was highly sensitive to the number of jobs stimulated in the region, and would turn negative if annual job creation was less than 1,000.
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39. Key risks were assessed thoroughly and proved to be prescient. The overall risk level of IG2P was rated as high at appraisal, reflecting a candid and realistic assessment of key risks, including: shortfalls in partner funding, a lack of follow-through by Rio Tinto on its mining investment, insufficient regulatory reform to support the infrastructure platforms, slow/stalled implementation due to capacity constraints and/or political interference, and weak capacity of local accountants to carry out fiduciary duties. While these were mostly mitigated through prudent institutional and legal arrangements, the few that were beyond the direct control of the appraisal team—the shortage of counterpart funding and lack of key regulatory reform to support infrastructure platforms—ultimately materialized over the course of implementation.
2.2 Implementation
40. Over its first 3½ years, the project was marked by accelerating implementation momentum as well as strong government ownership and private sector participation. By late 2008, a critical mass of IG2P’s trainings and hard infrastructure works were either underway or completed, and government and stakeholder engagement was high, with quarterly meetings hosted by the World Bank and PIU that were attended by almost half the Cabinet (including the President) and key leaders of private sector organizations. Private partnerships critical to project implementation were also materializing as planned. Two of Madagascar’s largest banks—BNI-Madagascar and BFV-Société General—successfully partnered with IG2P to launch the partial credit guarantee scheme (PCGS) in June 2006, which ran through mid-2008. In August 2005, Rio Tinto also took the formal decision to invest in Madagascar, signing a 40-year mining concession with the GoM to develop the ilmenite deposits in Fort Dauphin. The agreement paved the way for construction of a vast mining facility and a PPP for the construction, operation and management of Ehoala Port.
41. The breakout of political crisis in early 2009 severely curtailed project activities and donor support for Madagascar. The suspension of World Bank disbursements under OP/BP 7.30 brought implementation to a standstill from March 17, 2009 until the project’s original closing date of December 31, 2010. The curtailment in funding also forced the PIU to significantly reduce its staff count. During this crisis, the country lost financing support from key public donors and was suspended by the African Union (then the Organization of African Unity) and the Southern African Development Community (SADC).
42. The political turmoil also plunged the economy into recession, shattering investor confidence in Madagascar and deterring supporting private investments that were critical to project outcomes. Real GDP contracted by 4.0 percent in 2009 and recovered at only a subdued pace in the years thereafter, held back by high political and economic uncertainty that deterred domestic and foreign investment. This loss of financing and confidence was particularly detrimental to the Antananarivo-Antsirabe pole, where IG2P’s engagement relied heavily on private partnerships to realize plans for industrial zones and an ICT business park.
43. Although OP/BP 7.30 was lifted in May 2011, the lingering political and economic fragility prevented the project from running at full speed thereafter. With the second project restructuring in December 2012, the focus therefore shifted to protecting and sustaining critical infrastructure and institutional capacity put in place during the pre-crisis phases of the project. Elections in December 2013 paved the way for the formation of a new government in early 2014, bringing an end to five years of political uncertainty. The World Bank normalized its relations
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with Madagascar on March 12, 2014. The economy remained fragile through the end of the project, however, with many investors continuing to perceive significant risks to governance.
44. Key enabling policy and regulatory reforms also failed to be completed, further impeding the full realization of project outcomes. Although an Open Air Skies Policy was legally adopted early in the project (2006), it was never implemented in practice, leaving Air Madagascar as the de facto monopoly carrier in the domestic market, with its erratic schedules and high prices deterring visitors and constraining the growth of tourism. The delayed and insufficient reform to JIRAMA and its overly-centralized management also continue to impede the adequate provision of water and electricity to the population, particularly to more remote regions, while the outdated legal framework for punishing electricity theft prevents meaningful reductions in JIRAMA’s commercial losses and undermines its financial sustainability.
45. High volatility at the institutional level also hampered the project’s governance capacity building efforts. In total, the project persisted through 3 different Presidents, 6 Ministers of Finance, 5 Chiefs of Region, and 8 Mayors. In the regional poles, the frequent reshuffling of officials, each coming into office with a different set of campaign promises, complicated Bank and PIU efforts to manage public expectations and keep implementation focused on previously-agreed priorities. It also led to high turnover in municipal staff, undermining the administrative capacity that the project was helping to build.
46. In addition, several region-specific factors created setbacks to project objectives and dampened the environment for investment and growth in targeted sectors:
In Nosy Be, the closure of the island’s two biggest employers—the state-owned sugar company SIRAMA in 2008 and the fish and shrimp producer UNIMA in 2011—led to around 2,800 formal job losses.8 This event was a setback to IG2P’s job creation objectives, although with some silver lining because it facilitated the reorientation of the economy towards the growing tourism sector.9 Another major disruption came in September 2013, when the murder of 3 people (including two foreigners) by a local mob on a beach near a tourist village led the French Embassy to issue a travel warning (orange alert) to its nationals, who traditionally make up half of all tourists to Nosy Be. This resulted in mass cancellations for the 2014 season and a sharp drop in tourist arrivals. While reservations have begun to recover since the warning was lifted in May 2014, the disruption prevented the level of tourist arrivals from reaching final project targets (see Annex 6), and also dampened municipal revenue intake, which depends in large part on the level of local tourism activity.
8 At the time of project appraisal, SIRAMA was already suffering from chronic mismanagement and volatile sugar prices, and was on the verge of bankruptcy. A tender was launched in 2008 to privatize a few of the company’s sites in Madagascar; private operators were found for some locations but not for Nosy Be, and SIRAMA closed its Nosy Be plant in 2008 and laid off all its employees. UNIMA (the fish and shrimp company), on the other hand, started having financial problems unexpectedly in 2006‐07 due to adverse trends in the global markets for shrimp, and eventually shut down its Nosy Be plant in 2011. Neither company closure was related to IG2P. 9 Indeed, many of the workers laid off from SIRAMA and UNIMA found new jobs in tourism and became key seekers and recipients of IG2P’s business development services, with many going on to start their own businesses.
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In Fort Dauphin, agricultural activity during the political crisis was disrupted by the intensification of zebu conflicts10 in rural areas of the Anosy region following the relocation of regional military troops to Antananarivo (to contain crisis-related rioting). Investment in and around Fort Dauphin also suffered as a result of this increased violence. Meanwhile, in the mining sector, Rio/Tinto QMM’s ilmenite production (which began in 2009) has been hampered by technical setbacks11 and a lower-than-expected price of ilmenite in global markets in recent years. This has led to financial losses for the company and reduced its mining royalties and tax payments to the Fort Dauphin municipality.
In Antananarivo-Antsirabe, Madagascar’s loss of eligibility in January 2010 (as a consequence of its undemocratic transfer of power) for the U.S. trade preferences offered in the African Growth and Opportunity Act (AGOA)—from which the country had benefitted since October 200012—undermined the competitiveness of its textile industry and led to mass layoffs and firm closures in the region. The broader manufacturing sector also suffered from the rapid appreciation of the Ariary (20 percent between 2006 and 2008) and Madagascar’s suspension from the SADC (preventing duty free access to the South African market).
Figure 2: Project timeline
2.3 Monitoring and Evaluation (M&E) Design, Implementation, and Utilization
47. Design: The design of the M&E framework was weak on several fronts. First, the key indicators—jobs, tourist arrivals, volume of sea and air cargo—chosen as proxy measures for the “economic growth” PDO objective were not precisely specified (e.g. did they refer to gross or net jobs created, direct or indirect, etc.) and were also subject to various external influences and
10 The zebu (cow) thefts are motivated by a Malagasy tradition in the southern region where men are seen to prove their courage and worth by stealing cows. 11 Production was initially constrained by the selection of wet mining as the primary extraction method, which proved ill‐suited to the conditions in Fort Dauphin, and required QMM to make technical adjustments and shift to a combination of wet and dry mining before it could ramp up its production volume. 12 The country’s eligibility of AGOA preferences, starting October 2000, helped it establish a significant textiles and clothing sector—export processing zone (EPZ) exports were worth US$0.82 billion in 2008 (EIU, 2010).
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cyclical factors that made establishing causal linkages to project activities especially difficult.13 Second, baselines and targets for many indicators were not established at the time of appraisal, nor was the timeframe for data collection and the institutions responsible. Finally, although the systems for monitoring social and environmental impacts were strong—IG2P was classified as a category A project and would undergo regular internal safeguard reviews as well as periodic inspections by an independent and external Advisory Panel—feedback mechanisms for assessing the economic impact of project interventions on the private sector were not institutionalized, particularly for MSME support activities such as TVET, BDS, and access to finance (e.g. business survival rates, profitability, average wage increase, etc). In this regard, the project could have benefited from allocating some resources at the outset to conduct an enterprise survey,14 both to better understand factors constraining firm growth and to establish baselines for tracking progress along these various dimensions.
48. Implementation. It took over two years to develop baselines and collection systems for many outcome indicators. For Fort Dauphin, the implementation team was able to leverage the significant resources of Rio Tinto to gather key data on jobs and mining and port activity. The establishment of the EDBM also provided a new institutional structure for monitoring business creation in the regional poles, although not necessarily for evaluating the subsequent performance of these registered firms. To incorporate these new data sources and reflect other data collection capacity improvements at the municipal level, the results framework was revised at the time of the first project restructuring in 2007, although attribution for certain indicators remained weak.15 It was not until the second restructuring of the project in 2012 that the PDO was formally revised to allow for a clearer and more direct mapping of project objectives to measured outcomes. In 2014, a comprehensive enterprise survey was administered to more than 2100 formal and informal Malagasy firms over 8 different regions, helping to: (1) plug some of the information gaps on firms’ financial performance and key infrastructure and business environment constraints; (2) facilitate comparisons across the regions and aid in the analysis of IG2P’s specific impacts; and (3) establish baselines for IG2P’s successor project, PIC2.
49. Utilization: Outputs across components were carefully tracked, delays and complications addressed in a timely manner, and adjustments made based on the results of ongoing feasibility studies and evolving national and local priorities. Social and environmental impacts were also regularly assessed and remedial actions taken, drawing on the expertise and recommendations of the various Independent Advisory Panel reports. With respect to assessing economic outcomes, however, the project (due to its weak initial M&E framework) was relying primarily on anecdotal evidence during the first few years of implementation, which limited the ability to conduct a proper impact evaluation at the mid-term review in 2008 and re-allocate project resources accordingly. The Bank ultimately commissioned an ex-post impact evaluation of IG2P in 2014 (as well as of the PARC matching grant scheme), but these evaluations came too late in project cycle to have any bearing on implementation or resource allocations decisions.
13 To the project’s defense, this vagueness and weak attribution of results indicators was characteristic of many of the World Bank’s investment projects at the time. Nonetheless, this does not excuse the fact that, in project of this multi‐sectoral nature and complexity, more consideration should have been given to these issues at the outset. 14 An enterprise survey had been administered in 2005 with the assistance of the World Bank, but it was for broader statistical purposes and not linked to IG2P. As such, it did not cover firms in the IG2P regions. 15 The most notable was the newly‐introduced PDO indicator on the volume of private investment flows, which was measured only at the aggregated national level and subject to fluctuations in external financing conditions.
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2.4 Safeguard and Fiduciary Compliance Safeguards
50. Over the course of implementation, compliance with safeguards policies was closely monitored and remedial measures taken promptly and decisively. The World Bank safeguards team carried out a comprehensive Social Impact Audit for the Project mid-term review in January 2008 and responded to its findings and recommendations accordingly. In addition, the inputs from the Independent Advisory Panel, which produced three comprehensive reports during the course of project implementation, helped the IG2P team keep a pulse on local impacts and social safeguards issues and implement midcourse corrections.
Fort Dauphin
51. While QMM’s mining investment unlocked a new source of growth for Fort Dauphin, it also created significant safeguards challenges in the mining communes. The income and livelihood restoration program implemented by QMM for residents of the mining communes was marked by recurring disputes over the prices the company paid to buy their land and the employment policy at its mining facility. This prompted local residents at various times to roadblock QMM construction sites and facilities, with the most recent flare up in early 2013 when they blocked the mine compound entrance, trapping more than 200 staff inside. The grievance redress mechanisms set up by the World Bank during the project and QMM’s various social assistance programs (see Annex 7) helped to manage these disputes and prevent violent escalations. Some tensions linger, however, requiring ongoing monitoring and engagement by QMM with residents who still feel they were unfairly compensated.16
52. Beyond the complications with mining operations, IG2P also had to manage several other unintended and adverse social impacts. These included an acute bout of consumer price inflation during the construction of the mine and Ehoala Port, and declining employment opportunities after the construction period, as well as increased risk of HIV/AIDS in light of the growing incidence of STDs.
Nosy Be
53. In Nosy Be, environmental and social adversities were milder than in Fort Dauphin, and promptly addressed throughout project implementation. The implementation of the RAPs in Nosy Be has been largely satisfactory and there are no major issues pending. Threats to the environmental degradation of Nosy Be’s prime ecotourism sites—Nosy Tanikely and Mont Passot—have also been largely addressed through their preservation and dedicated site management. In addition, the safety issues related to recurrent flooding at Dalot Marodoka have been remedied through the construction of reinforced river banks, as have the safety concerns related to Hellville Port, which was assessed by several port experts to be on the verge of structural collapse prior to its rehabilitation in 2013-14. However, efforts to deal with socially-adverse impacts of tourism, particularly sex tourism, could arguably still be enhanced.
16 An independent audit of the project’s Resettlement Action Plan (RAP) was launched in 2014 to examine project compliance with Para.24 of OP 4.12 and Para.16 of BP 4.12. In response, QMM also recently developed a Strategic Social Approach to help local communities benefit from its social and economic programs. PAPs that have yet to obtain compensation at agreed levels following the RAP Audit could potentially gain from this new program.
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Fiduciary management
54. No major issues in fiduciary management were encountered during the project. Project financial statements and audit reports were generally submitted on time and in compliance with Bank standards. The final audit report was submitted to the Bank in May 2015.
Procurement
55. Compliance with procurement rules was satisfactory throughout the project. There were some difficulties, however, in adhering to procurement plans in the early stages when the government failed to deliver on its financial commitments to the project. This necessitated frequent revisions to the procurement plans to compensate for shortfalls relative to budgeted amounts. After the project was first restructured in late 2007 to provide 100 percent Bank financing to all eligible expenditure categories, this issue was no longer a problem.
2.5 Post-completion operation
56. The Second Madagascar Integrated Growth Poles and Corridors Project (PIC2) will help sustain and build on the outcomes of IG2P. PIC2 will continue to provide technical assistance in Fort Dauphin and Nosy Be in areas such as solid waste collection, standpipe management, local governance, and the management of natural assets. This will ensure that knowledge and capacity transfers continue to take place over time and help protect IG2P’s legacy. PIC2 will also broaden IG2P’s geographic reach from Nosy Be to the the 250 km northern corridor from Ambanja to Antsiranana in the Diana Region, and add a new growth corridor along RN9 in the Atsimo-Andrefana Region to support tourism and agribusiness development and improve delivery of services in one of Madagascar’s other poorest regions (see map in Annex 10). Finally, PIC2 will support reforms to regulations and policies that constrained sectors targeted by IG2P from realizing their full growth potential: entire sub-components will be dedicated to TA for reforming national air access policies and strategies, and support to JIRAMA to improve its bill processing and collection, technical efficiency, and quality of services.
57. PIC2 will also ensure adequate budget, staffing and management for continued focus on IG2P’s development objectives and integration of lessons learned from its implementation. As in the case of IG2P, an entire component in PIC2 is devoted to project management, monitoring, and evaluation. On account of his strong performance, the head of the PIU for IG2P was reappointed to lead the PIU for PIC2. PIC2’s specific interventions will also be led by WBG technical staff and various PIU staff involved in IG2P who will draw on their experiences to seamlessly transition to the new geographical areas.
58. An impact evaluation of IG2P and continued monitoring of its outcomes will be aided by the recent Enterprise Survey. The data are being used to prepare an impact assessment of IG2P and an investment climate assessment benchmarking Madagascar with other countries. The survey also helped inform the technical design of PIC2 and provide baselines for its key outcome indicators, many of which are the same as in IG2P (e.g. job and business creation) and will thus promote continuity in tracking the ongoing impacts of IG2P.
3. ASSESSMENT OF OUTCOMES 3.1 Relevance of objectives, design, and implementation
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Rating: Substantial
59. Objectives [High]. At the project’s inception, the PDO of stimulating equitable and sustainable growth across high-potential regions was a central element of the government’s development strategy, and remains highly relevant at project completion (as does the narrower revised PDO formulation targeting job and business creation more specifically). The government’s 2003 Poverty Reduction Strategy Paper (PRSP) and the 2004-2006 Country Assistance Strategy (CAS) set out three major priorities: (i) improving governance; (ii) promoting broad-based growth (with a focus on reducing rural poverty); and (iii) providing human and material security. IG2P’s multi-region focus directly advanced the second priority and indirectly supported the other two priorities through capacity building for local authorities and improved access to basic services (e.g. water, electricity, sanitation). In the same vein, the project continued to build on the most recent Country Assistance Strategy (CAS) for FY07-11,17 which aimed at removing bottlenecks to sustainable and shared growth and improving service delivery. At completion, the project was firmly anchored within the GoM’s current National Development Plan and the policy agenda to boost the tourism and agriculture sectors, which since the beginning were supported by IGP2’s activities in Fort Dauphin and Nosy Be.
60. Design [Substantial]. The project design (rated substantial under both the original and revised PDO) recognized that single-sector approaches were unlikely to provide the necessary platform for broad-based and inclusive growth in the targeted regional poles. For this reason, each regional pole component was designed with a set of integrated activities that simultaneously touched on multiple dimensions of the growth platform (e.g. infrastructure, human capital formation, governance capacity, etc.). Meanwhile, activities aimed at relieving business environment constraints common to all three poles were aggregated under the project’s cross-cutting component (component A) to capture implementation synergies. In this sense, the results chain to the ultimate PDO of improved regional growth was clear and relevant, even if the M&E framework for measuring and tracking the impact of these interventions was fairly weak at the outset (this is reflected in a lower quality of entry rating in section 5). The design also recognized the importance of partnerships with the private sector and other donors, as reflected in the PCGS run through Madagascar’s two largest private banks and the partnership with Rio Tinto in Fort Dauphin to crowd in nearly $1 billion of private investment. That said, the overall complexity of the design and multiplicity of subcomponents deprived the project of focus, and made attribution of outcomes to specific activities difficult to disentangle.18 Furthermore, the inclusion of the Antananarivo-Antsirabe as a regional pole was poorly aligned with the strategic priority of narrowing regional income gaps, as this region was already among the richest in Madagascar.
61. Implementation [High]. The World Bank’s implementation support adapted swiftly to changing economic and political circumstances, with IG2P undergoing two major and several minor restructurings, helping to ensure its objectives and activities remained relevant. The first restructuring arose out of a proactive effort to re-align the project to the government’s updated poverty reduction strategy for 2007-12—the Madagascar Action Plan (MAP)—primarily by supporting the creation of the EDBM as a vehicle for the heightened priority to promote foreign investment in the country. During the acute period of political crisis (2009-2011) when formal 17 A more recent CAS has yet to be prepared due to the effective suspension of Bank engagement with Madagascar’s central government during the 2009‐2014 political crisis period. 18 It is difficult to make a case that all 87 project activities were essential to the achievement of the PDO and could not be rationalized to some degree, but this is more an issue of design efficiency as opposed to design relevance.
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World Bank relations with the central government were suspended, the project continued to provide emergency support for critical infrastructure works (whose termination would pose safeguards risks), and to remain engaged and attuned to the needs of the regional poles amidst the power vacuum and loss of development focus at the central government level. Finally, with the second level one restructuring in 2012, the project re-focused on activities that remained feasible in the post-crisis environment, and entirely dropped support for the Antananarivo-Antsirabe component, which had been undermined by the loss of private sector interest in the wake of the crisis and the cancellation of key trade agreements for Madagascar’s exports.
3.2 Achievement of Project Development Objectives Rating: Substantial
62. The core element of the original PDO was to “stimulate and lead economic growth in the three selected regional poles.” This broad nature of this objective means it must be assessed on the basis of the outcome indicators used as proxy measures for this growth, some of which changed during the project but the core three of which were: (i) job creation, (ii) business creation, and (iii) private investment. This economic growth was to be achieved by way of “providing an adequate business environment,” an intermediate outcome that was further clarified through the four sub-objectives in the original PDO, each corresponding to a key dimension of this growth platform that IG2P aimed to put in place.19 Therefore, these sub-elements are treated as intermediate rather than PDO outcomes, and the chain of inputs and outputs in each project component leading to their achievement is detailed in Annex 2.
63. The revised PDO was a narrower reformulation of the original PDO, focusing specifically on two dimensions of the original economic growth objective: “business and formal job creation, in particular in the mining, tourism, and agribusiness sectors.” The revised PDO also limited its geographical focus to the two growth pole regions remaining in the project after the second level one restructuring—Nosy Be and Fort Dauphin. Because these job and business creation objectives and their corresponding outcome indicators are the same as two of the outcome indicators measuring the achievement of the original PDO, there is an inherent continuity in the project’s original and revised objectives.
64. Therefore, for presentational purposes, the efficacy assessment below is organized around the three core PDO elements that collectively cover both the original and revised PDO: (i) job creation, (ii) business creation, and (iii) private investment. The efficacy ratings (overall, and relative to both original and revised PDO) are then derived on the basis of the achievement of outcome indicators linked to these PDO elements (and the strength of attribution to project interventions). This indicator-driven rating approach is necessary to account for the change in outcome indicator targets at the time the PDO was revised. Note that the two outcome indicators for the original PDO (volume of port/airport traffic and tourist arrivals) that were dropped or reclassified early in the project are not discussed here for the sake of brevity, but they factor partially into the overall efficacy assessment and are explained and assessed in Annex 2.
19 These sub‐objectives included: (1) “…put in place appropriate incentive measures to achieve rapid growth” (Business environment); (2) “…construct and rehabilitate critical infrastructure essential for sustained economic activity in the tourism, manufacturing, agribusiness and mining sectors” (Enabling infrastructure); (3) “…develop the instruments to ensure equitable, sustainable growth” (Access to basic services); and (4 “…strengthen the capacity of local authorities to formulate, prepare, implement, and manage medium‐ and long‐term integrated regional development projects in the future” (Local governance).
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65. The achievement of both the original and revised PDOs must be viewed in the context of the economic malaise in Madagascar during most of the project. Therefore, outcomes must be assessed not only in relation to their respective targets, but also relative to trends in other areas of the country where there were no IG2P interventions. In other words, if economic underperformance during the crisis in IG2P regions was less severe than in non-IG2P regions, this would suggest the project positively impacted the resilience of its targeted regions.
(i) Key outcome #1: Job creation Rating: Substantial Achievement of outcome and associated indicators
66. Outcome indicators on job creation in the three regional poles were partially achieved relative to original targets, and outperformed revised targets.20 By 2012, the cumulative number of new jobs created since the beginning of the project was running below-target in Antananarivo-Antsirabe and Nosy Be (owing largely to the crisis), but well ahead of pace in Fort Dauphin (where the booming mining activity was providing some offset). Expectations were therefore adjusted during 2012 restructuring—revised down slightly for Nosy Be and revised up for Fort Dauphin—and were ultimately exceeded by a large margin in both poles. The story was similar for sector-specific job indicators: tourism job creation in Nosy Be fell short of original targets but exceeded the revised ones; in Fort Dauphin, job creation in tourism achieved original targets and underperformed revised targets, but exceeded both original and revised targets in the mining, construction, and agribusiness sectors. Because all these indicators refer to gross job creation, it is also important to look at job flows on a net basis to account for employment losses during various phases of the project.21 These net job creation figures reveal a similar trend—around 4,600 net jobs created in Nosy Be since 2008 and 4,050 in Fort Dauphin—reaffirming the positive employment generation impact of the project.22
67. This jobs data (from CNaPS) does not factor in growth in informal employment, as it is based on a sample of firms as opposed to an exhaustive census and tracks only formally-registered jobs. As a result, the level of overall job creation is likely to have been considerably higher than the results framework indicators suggest, although it is difficult to say by how much.
Attribution
68. In Nosy Be, the impacts of IG2P support on job creation are traceable on both the supply and demand side. From a demand perspective, increased employment opportunities arose from the investment in hotels and tourism services that IG2P’s growth platform helped to crowd in, the activities financed through matching grants, the valorization of ecotourist sites such as Nosy Tanikely and Mont Passot, and the improved connectivity to markets for farmers along the island’s northern V1 and V2 roads. On the supply side, the project’s financing of the CTHT hotel school and other dedicated vocational programs trained boat captains, cooks, and other hotel and tourism professionals. This support in matching the island’s labor supply to the 20 There were no revised job creation targets for the Antananarivo‐Antsirabe pole since it was dropped as a project component as part of the second project restructuring in 2012. 21 These include: (i) the economic downturn during the political crisis; (ii) the aforementioned closure of Nosy Be’s two largest employers—SIRAMA in 2009 and UNIMA in 2011; and (iii) QMM’s sharp reduction in employees in 2009 following the end of the construction phase of its mining facility and Ehoala Port in Fort Dauphin. 22 This net job creation data is only available since 2008.
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growing needs of the tourism sector proved critical, both as a countercyclical cushion during the crisis and closing of SIRAMA and UNIMA, and as a longer-term enabler for tourism to take over as the key job-generating sector in Nosy Be (it accounted for 62 percent of net jobs created between 2008 and 2014, and its share in total employment rose from 4 to 18 percent).
69. In Fort Dauphin, IG2Ps supply and demand causal chain to employment was similar. The project helped unlock the mining sector as a major employer in the local economy, supported improved agribusiness job opportunities in Amboasary and along the RIP118, and helped establish vocational training and employment support institutions to match workers to these activities. Further benefits can be traced to the partnership with Rio Tinto/QMM, both for the various elements of the growth platform the company helped to finance (electricity and water infrastructure, training institutions such as CARA) and for the local workers it directly employed at its mining and port facilities—around 4,500 during the construction of the mine and Ehoala port, and 600 regular staff since 2009. QMM also estimates that its mining and port operations indirectly created around 1,000 jobs in other sectors along the supply chain, which (along with its direct employment) induced around 11,000 additional jobs (see Annex 7 for details).
70. The weakest link between IG2Ps interventions and job outcomes was in Antananarivo-Antsirabe. Job creation in the capital city was robust over the project period, but IG2P support there was limited to the credit guarantee scheme, which generated significant new lending but did not document the job impacts of this improved access to finance. The same is true of Antsirabe, where manufacturing employment grew by 36 percent (4,980 workers) between 2008 and 2014, but cannot be reasonably attributed to IG2P, which trained only a few hundred workers and students in the garment and IT industries, and failed to deliver on its big-ticket job-generating items: the establishment of an ICT Business Park and agro techno-pole.
(ii) Key outcome #2: Business creation Rating: High Achievement of outcome and associated indicators
71. Both the initial and revised targets for formal business creation were exceeded by a significant margin in all three regional poles. The outperformance relative to end-project targets was around 1,000 firms in Antananarivo-Antsirabe, 1,200 firms in Nosy Be, and 800 in Fort Dauphin. Considering that this data refers only to fully formal firms (those that have completed a three-step registration process with the Registry of Trade and Companies, INSTAT, and the Fiscal Center) the magnitude of firm creation was in reality even higher—since 2005, an additional 3,452 firms that had only partially completed the formalization process were created in Nosy Be and 873 in Fort Dauphin. However, this is tempered somewhat by the fact that these figures measure gross business creation; data on business failures and closings are not available on a consistent basis, so the net impact is likely somewhere in between.23
72. Fiscal data suggest that these new firms have generated significant additional economic output. The number of firms created is only part of the story as it does not reveal anything about
23 There is some data on business destruction, but it is incomplete as it only captures businesses that voluntarily report their termination of activities to public authorities. In realigning the business creation indicator targets during the second project restructuring in 2012, the project’s M&E team incorporated an estimate of business destruction between 2009 and 2011 into the outcome indicator, but these figures are not official.
20
their size and economic contribution. While firm-level output and turnover data is not available in the regional poles, the taxes paid by firms can serve as a reasonable proxy of their activity growth.24 In Fort Dauphin, corporate income tax (IR/IS) paid grew at an average annual rate of 85 percent during the project, increasing by a factor of 60 from its 2005 value (Figure 4). Similar data exist for the other regional poles but were not available for analysis at the time of the ICR.
Figure 4: Corporate Income tax paid by Fort Dauphin Firms
Figure 5: Cumulative firm creation since 2005 by region
Source: Fort Dauphin fiscal center Source: EDBM
Attribution
73. A comparison across regions reveals that gross firm creation in Nosy Be and Fort Dauphin over the project period was significantly faster than in regions that did not receive IG2P support (Figure 5), suggesting the project played an important role in promoting business formation. Furthermore, it is likely that many informal firms were also created in the process, but as in the case of jobs, the magnitude of this informal activity is difficult to verify empirically. The case for such project impacts is weaker in the Antananarivo-Antsirabe pole, where business creation did not differ significantly from non-IG2P regions.
74. The BDS institutions established through IG2P directly stimulated business creation in the regional poles. In Fort Dauphin, CARA’s business skills and entrepreneurship training led to formation of 196 small businesses over the project period. Meanwhile, the establishment of the CGA in all three regional poles was critical in bringing many informal entrepreneurs into the formal sector: firms could become eligible for the tax benefits associated with CGA membership only if they formalized. By 2014, CGA had amassed 150 members in Fort Dauphin, 70 in Nosy Be, and 148 in Antsirabe, firms which are all reflected in IG2Ps formal business creation indicator. Furthermore, CGA regularly monitors these member firms and provides them with ongoing training and business services, supporting their future growth and development.
24 The proxy is imperfect in the sense that changes in tax policy or collection capacity also affect the amount of tax ultimately paid by firms, but it is the best indicator available at the regional level in Madagascar.
0
100
200
300
400
500
600
700
800
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
million Ariary
0
500
1,000
1,500
2,000
2,500
3,000
3,500
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Antananarivo
Antsirabe
Nosy Be
Fort Dauphin
Antsiranana
Mahajanga
Toamasina
Fianarantsoa
Toliara
number of firms
21
(iii) Key outcome #3: Private investment Rating: Substantial Achievement of outcome and associated indicators
75. The results indicator for private investment flows was on track with targets through 2009, but then experienced a sharp drop with the onset of the political crisis, missing its end-project target. In any case, the indicator was problematic as it reported total investment at the national level and did not allow for precise tracking of developments in the regional poles; it was dropped as part of second project restructuring due to this and other attribution issues.
76. The ultimate impact on private investment in the poles over the project period therefore has to be estimated piecemeal from other sources:
In Fort Dauphin, the vast majority came through IG2P’s partnership with QMM, which crowded in around $900 million of private capital: $221 million for the Ehoala Port, $675 million for the mining facility, and $4 million for water and electricity supply infrastructure.
In Nosy Be, private investment was in concentrated in hotels and tourism services. Around 130 new hotels were built during the project period and many others upgraded, more than doubling the island’s room capacity and raising the overall quality of the hotel stock—the share of hotels with a 3- and 4-star rating rose from only 11 percent in 2005 to 33 percent in 2014. A number of sizeable new privately-owned recreation facilities and tourist parks were also opened, such as the $1 million Pearls golf course, and the Lemurialand animal park.
Across these two regional poles, IG2P’s matching grant scheme (PARC) also mobilized around $1.8 million co-investment by private beneficiaries across a range of sectors (but primarily in agriculture and tourism). Before its closing, PARC was also supporting two large investment projects in Fort Dauphin that were on the verge of materializing: (1) BOVIMA, an $8-11 million export-oriented abattoir project aiming to operate out of Ehoala Park; and (2) a fruit processing plant by a domestic investor.
77. The main shortcomings in private investment related to Antananarivo-Antsirabe, where planned private investments in a $60 million ICT Business Park and an agro techno-pole were never realized due to the political crisis and the associated collapse in investor sentiment.25
Attribution
78. In Nosy Be, the shared infrastructure upgraded by IG2P helped reduce entry costs for investors in tourism and the sustainability of their operations (through more reliable electricity and water supply). The completion of the island’s Ring Road was particularly important, as it improved connectivity to the northern and western parts of the island and made investments in these areas (such as the Pearls golf course and Lemurialand) economically viable.26
25 Another factor was the failure to secure the land designated for the ICT business park (it became occupied by local residents). 26 Less consequential were IG2P’s interventions to facilitate land access for private investors through designated tourism reserve lands (RFTs). The process of securing tenure rights and concession contracts for the 7 designated lands dragged on for most of the project; in the end, only the 3 lands formerly owned by SIRAMA attracted
22
79. In Fort Dauphin, IG2P not only brought forward the timeline of Rio Tinto/QMM’s mine and port investments (which in retrospect would likely have been delayed significantly27), but also mobilized the company to undertake many socially-oriented investments that were not originally planned (e.g. upgrading of public infrastructure, TVET institutions, etc.). Indirectly, IG2P’s partnership with QMM has also had a demonstrative effect for other foreign mining companies considering investing in Madagascar, giving them the precedent and confidence to move ahead with their projects.28
80. In Antananarivo-Antsirabe, private investment occurring throughout the project cannot be convincingly attributed to IG2P interventions, which were limited and suspended in 2009.
Overall efficacy
81. The project’s overall efficacy in achieving its PDO is rated as substantial. This is based on the above assessment of outcomes (and their attribution to project interventions) relative to both the original and revised PDO and their indicator targets, weighted by the amount of disbursements between each phase of revisions. The breakdown of outcome ratings and their weighted aggregation is derived in detail in Table A7 of Annex 2. The analysis demonstrates a substantial efficacy rating against the original PDO (dampened by the shortfall in job growth relative to initial targets in Nosy Be and the poor attribution of project activities to measured results in the Antananarivo-Antsirabe pole) and a high efficacy rating against the revised PDO (reflecting the strong outperformance of targets for job and business creation objectives), the weighted sum of which results in an overall substantial efficacy rating.
3.3 Efficiency Rating: Modest
82. The economic rate of return (ERR) of IG2P fell short of initial projections. Based on the update of the economic analysis (detailed in Annex 3), the project’s ERR at the time of this ICR is estimated at 9.3 percent, lower than the 14.5 percent projected at the time of appraisal (Table 1). For the Antananarivo-Antsirabe regional pole which was dropped from the project in 2012, this “ex-post” ERR is estimated to be negative as the interventions there were largely a sunk cost, delivering few measureable returns. The estimated ERR is positive in both Nosy Be and Fort Dauphin, but exceeds the 10 percent opportunity cost of capital used for the valuation only in the latter, implying Fort Dauphin is the only regional pole where IG2P delivered positive gains on a net present value (NPV) basis.29
legitimate private interest. Meanwhile, investment in non‐designated areas continued to flow in regardless, as private investors proved more effective at sorting out land access issues on their own. 27 Had Rio Tinto waited another 4‐5 years to undertake its mining investment (i.e. until 2009), as was originally assumed at the time of IG2P appraisal, it would have been faced with the outbreak of the political crisis and then by depressed global prices for ilmenite. In this environment, it is likely the company would have waited a further 10‐15 years to invest in Madagascar, if at all. 28 Recent examples include the $7 billion Ambotavy nickel mining investment at Moramanga (80km east of Antananarivo), which represents the largest foreign investment in the history of Madagascar. 29 While this economic analysis framework can never fully capture all the ex‐post benefits (and indirect costs) of the project, it nevertheless provides a useful basis comparing efficiency relative to estimates at appraisal.
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Table 1: Estimates of IG2P economic rate of return (ERR)
Regional pole
ERR (at 10 percent real discount rate) Share of project costs**
Appraisal stage ICR ICR (adjusted for OP/BP 7.30)
period*
Nosy Be 17.9% 7.7% 9.1% 41%
Fort Dauphin 12.9% 12.0% 14.4% 55%
Antananarivo-Antsirabe 10.5% Negative Negative 4%
TOTAL 14.5% 9.3% 11.1% 100%
* This alternative scenario is based on the following assumptions. On the cost side, project expenditures in each pole between 2011 and 2014 are brought forward by two years and spread out evenly so that full disbursement is achieved by end-2012. On the benefit side, it is assumed (conservatively) that benefit flows between 2009 and 2012 would have been roughly 1/4th higher than the baseline case in each regional pole. For 2013 onwards, benefits evolve in the same manner as after 2014 in the baseline scenario. In other words, since the project’s investments would have been completed in 2012 as opposed to 2014, the post-project benefit flows begin 2 years earlier. **Assumes a regional distribution of costs in component E (Project management and M&E) as follows: 50% in Fort Dauphin, 30% in Nosy Be, and 20% in Antananarivo-Antsirabe prior to 2009, and 60% in Fort Dauphin and 40% in Nosy Be after 2009. For component A (Strengthening the Business Environment), the assumed distribution is: 25% in Fort Dauphin, 45% in Nosy Be, and 25% in Antananarivo-Antsirabe prior to 2009, and 35% in Fort Dauphin and 65% in Nosy Be after 2009.
83. Several key factors on both the cost and benefit side, many outside the direct control of the project, underpin this shortfall in the ERR relative to initial estimates:
A longer project timeframe than originally planned: The extension of the project for 4 years beyond its original closing date (2010) delayed the realization of benefits and their net present value, but had a relatively smaller temporal impact on the project’s expenditures, 70 percent of which still occurred before 2010.30 However, these delays should not be seen as a failure of project implementation, per se, as disbursements were involuntarily reduced during the 28 months of the OP/BP 7.30 period and constrained the project’s ability to complete critical works on time and generate associated benefits. Had the project been able to fully disburse by 2012 as planned, and assuming that these investments had been able to mitigate some of the fallout from the crisis, the estimated overall ERR would have been almost 2 percentage points higher and above the cut-off discount rate of 10 percent (see Table 1).
Cost overruns and additional financing. The project encountered significant cost overruns during the first few years of implementation (2006-07) in many of its infrastructure works (roads, ports, and water supply) and in the implementation of resettlement action plans for PAPs. While these overruns were largely due to exogenous macroeconomic factors such as increased local inflation and currency appreciation (which raised the USD cost of local purchases),31 they also reflected the preliminary nature of engineering design plans during
30 The estimated NPV of total project benefits fell from $179 million at appraisal to $108 million in the ICR estimate, whereas the NPV of project costs declined much less (from $132 million to $117 million). 31 The Ariary appreciated 20 percent against the dollar between 2006 and 2008.
24
project appraisal, many of which proved more costly once they were finalized and bid out to contractors.32 The $40 million in additional project financing to compensate for these cost overruns and plug other project financing gaps ultimately shaved around 2 percentage points off the estimated ex-post ERR of the project. This negative impact was not larger because $17 million of the additional financing was to replace the shortfall in the government’s contribution to the project, which was already part of the project’s financing framework. In the end, the total project cost was around $140 million higher-than-estimated at the time of appraisal (mostly on account of the Ehoala Port cost overrun), of which $23 million was absorbed by the additional IDA credit, and the rest by the private sector (see Annex 1).
Dampening effects of the political and economic crisis. The crisis depressed economic activity across a range of sectors targeted by IG2P, but hit tourism—which was expected to account for the entirety of economic rents generated by the project in Nosy Be, and about a third of those projected for Fort Dauphin—particularly hard. The annual rate of tourist arrivals rose to only 64,500 by 2014 in Nosy Be compared to the 90,500 assumed in the original economic analysis, and to 33,330 in Fort Dauphin compared to the 50,960 originally projected. This shortfall depressed a range of associated benefits factored into the economic analysis, including visa fees and hotel taxes collected by government, tourist spending on local goods, services, and attractions (such as national parks), and employment income for jobs directly and indirectly created by the expansion of tourist activity.33
The cancellation of the Antananarivo-Antsirabe regional pole. The economic return of this pole hinged on its ability to generate at least 1,000 jobs per year in EPZ zones and in the planned ICT Business Park and agro techno-pole, both of which failed to materialize. In the end, the $6.8 million invested in the pole (inclusive of component A and project management costs) can hardly be credited for subsequent job growth in the region (as discussed in section 3.2). Fortunately, because this amount was a fraction of the $17 million originally budgeted for the pole, it had only a marginal impact on the overall project ERR.
Other adverse region-specific developments. In Fort Dauphin, QMM’s delayed ramp-up of ilmenite production and declining global prices for the ore resulted in lower-than-expected revenues for the company and a $20 million (inflation-adjusted) shortfall in taxes and royalties paid to the GoM. In addition, many agricultural products expected to be exported on a larger scale due the new Ehoala port (such as lychee and rosy periwinkle) remained primarily for domestic consumption, meaning the associated rents from selling abroad at higher prices could not be fully captured. In Nosy Be, delays in rehabilitating the Hellville and Ankify ports (they were not completed until late 2014) had a similar dampening effect on agriculture and fishing rents, and also delayed the boost in tourist arrivals that was expected from the capacity of the port to accommodate larger cruise ships.
84. The project’s cost overruns also exposed key inefficiencies in the project design and the distribution of expenditures between components. In some activities, the inefficient use
32 A pertinent example is the construction of Ehoala Port, which encountered costly technical complications after appraisal, such as the need to modify the breakwater design to withstand the cyclonic wind speeds in southeastern Madagascar, and stabilize the sand dune foundation on which the road from the Port to the mine had to be built. 33 The shortfall in visa‐related revenues was further compounded the government’s decision in 2009 to abolish the visa fee for tourists staying in Madagascar for less than 30 days. Statistics show that tourists spend an average of 21 days in Madagascar, meaning a large majority are now exempt from visa fees.
25
project funds was glaring, such as the $5 million subsidy to JIRAMA for emergency fuel purchases that brought no longer-term economic return. In other cases such as the Ehoala Port, the value added of IG2P financing was more debatable. Although IG2P was instrumental in catalyzing and negotiating Rio Tinto’s investment in Fort Dauphin, one wonders whether this could have been achieved with a smaller financial contribution to the Ehoala Port (the $35 million spent was 21 percent of the initial IDA allocation), especially since QMM was willing to shoulder the full burden of the port’s cost overruns—it ultimately invested $221 million compared to the $50 million originally planned.
85. In this context, overall efficiency is rated modest. This assessment is based on the low ex-post project ERR relative to initial estimates and the assumed opportunity cost of capital, which reflects the fact that additional money was put into the project for an ultimately lower amount of estimated benefits (in NPV terms). The rating is not lower because it recognizes that much of the shortfall in benefits relates to factors outside the project’s direct control. Moreover, while there was some scope for improved efficiency in the project design, it is not clear how much else could have been done to correct for this during implementation. The cancellation of the Antananarivo-Antsirabe pole helped to cut losses associated with the non-performance of this component, and other low-return activities were rationalized as part of the project’s various restructurings.
3.4. Justification of overall outcome rating Rating: Moderately satisfactory
86. The overall project outcome is rated moderately satisfactory. Under the original PDO, relevance is rated substantial, efficacy is rated substantial, and efficiency is modest. Under the revised PDO, relevance is rated substantial, efficacy is rated high, and efficiency is modest. In both cases, the OPCS guidelines on aggregating these three main assessment categories result in an overall outcome rating of moderately satisfactory (implying no need to perform a disbursement-weighted sum despite the split evaluation). First and foremost, this overall outcome rating recognizes the difficult political and economic environment in which IG2P operated for the majority of its duration, which makes its achievements even more impressive. The relevance of objectives and design were maintained throughout owing to the proactive mid-course adjustments by the implementation team and the project’s two formal restructurings. Although the PDO was revised, the essence of the project’s objectives—stimulating economic growth in high-potential sectors—remained unchanged, and the two primary outcome indicators measuring this growth progress (job creation and business formation) were both achieved. The reformulation of the PDO to link it more explicitly to these two outcome indicators also reflects favorably in the project’s overall rating. Counterbalancing these positive aspects is the poor performance of the Antananarivo-Antsirabe pole, although the small share of project resources ultimately devoted to this component limit its impact on the overall assessment. Finally, shortcomings in efficiency related to a lower-than-projected ERR and the provision of additional financing are also a negative drag on the project’s value-for-money, leading to an overall outcome rating of moderately satisfactory.
3.5. Overarching themes, outcomes, and other impacts
(a) Poverty, gender and social
87. IG2P’s interventions contributed to poverty reduction through four key channels:
26
Improved access to basic services. Through infrastructure upgrading and institutional support, IG2P helped boost access to potable water from 13 to 74 percent of the population in Nosy Be and 50 to 95 percent in Fort Dauphin; access to solid waste collection services from 43 to 80 percent in Nosy Be and 26 to essentially 100 percent in Fort Dauphin; and access to electricity from 20 to 35 percent in Nosy Be and to nearly the entire population in Fort Dauphin. The longer-term impacts of this improved access have yet to be felt, but generally manifest themselves in a reduced mortality rates and higher workforce productivity.
Skills formation and promotion of entrepreneurship. IG2P’s various TVET and BDS programs helped poor residents improve their employability for formal wage jobs and their capacity to generate higher paid self-employment. The trainings and the confidence they instilled in recipients also helped foster a culture of entrepreneurship that did not previously exist in the two regions—around 90 percent of firms created since 2005 were self-owned.
Economic connectivity through improved infrastructure. The strongest impacts have been for rural farmers previously disconnected from markets for their goods, such as those along V1 and V2 roads in the remote northern part of Nosy Be, and along the RIP118 outside Fort Dauphin. IG2P’s road improvements have also cut transportation time to urban areas for farmers by half, reduced the cost of acquiring non-local input, and improved market opportunities for their goods (particularly quickly-perishing items).
Knowledge transfer in commercial agriculture. The most material impact came from IG2P’s partnership with CARE International to promote contract farming in the Amboasary district of Anosy region, which helped around 2,700 households across 7 communes in the district to increase production and commercialization of staple commodities such as maize and legumes, and raise their average income by $164 over the one year life of the scheme.
88. In all these areas, women represented a significant share of the beneficiaries. Around 50 percent of the project’s direct beneficiaries were women, notably in the Amboasary contract farming scheme and in CARA’s TVET and BDS initiatives in Fort Dauphin. IG2Ps support to basic services delivery also empowered women to self-organize and contribute to the effort in their local communities (fokontany): in Fort Dauphin, for example, women formed associations to collect household contributions for the management of solid waste pre-collection services.
(b) Institutional strengthening
89. The project financed the establishment of the EDBM, the country’s premier institution for investment promotion and facilitation. The EDBM was a critical institutional underpinning for the project’s efforts to crowd in private investment. Despite the central government’s neglect of the EDBM during the political crisis years, IG2P continued to provide it with financial and technical support and has helped nurture it to a position of financial autonomy.34
90. IG2P support to the Nosy Be and Fort Dauphin Municipalities also strengthened their revenue generation capacity. The combination of equipment, software, and technical assistance has led to noticeable improvements in the quality of public services as a result of progressive
34 The “Loi de Finance Rectificative” was passed by the Parliament in August 2014, paving the way for a Decree (N°2014‐1822) adopted on December 5, 2014 that revised the EDBM’s statutes. EDBM will from now on report directly to the Presidency and collect and manage its own financial resources rather than relying on IG2P support.
27
computerization and reengineering of key municipal procedures. As an example, it now takes only 7 days to issue a construction permit in both regions compared to over 50 days in 2005. The improved administrative capacity has underpinned the doubling of Nosy Be’s municipal revenues since 2005, and a five-fold increase of revenues in Fort Dauphin.
(c) Other unintended outcomes
91. Inflation. During the peak of QMM’s construction of Ehoala port and its mining facility (2006-2009), CPI inflation in Fort Dauphin soared as the demand for local inputs strained local supply capacity. Although this inflation subsided by 2010-11, it negatively impacted perceptions of the local benefits of QMM’s mining operations, particularly in the mining communes where discontent over the adequacy of compensation provided by QMM was already high.
92. Countercyclical stabilization during the political crisis. Even with its severely limited activities during the OP/BP 7.30 period, IG2P represented a key stabilizing force in Nosy Be and Fort Dauphin at a time when the central government largely neglected these regions, helping to a absorb unemployed workers into project activities, supporting the Municipalities in managing the fallout from the crisis, and protecting against breaches in environmental and social safeguards.
3.6 Summary of Beneficiary and Stakeholders workshops
93. A series of roundtable discussions with project stakeholders and beneficiaries was organized during the December 2014 ICR mission to solicit views on the project’s achievements, shortcomings, and lessons learned. The groups consulted during the roundtables included: recipients of business development services (BDS) in Fort Dauphin and Nosy Be; representatives of private sector associations (e.g. Chambers of Commerce) in Antananarivo and Fort Dauphin; private and public representatives from the tourism industry in Nosy Be; staff of the Fort Dauphin municipal government; and farmers in Ifarantsa and Mandiso villages along the RIP118 near Fort Dauphin. The issues discussed are documented in detail in Annex 5. In summary, there was consistency across the groups on: the success of the project in achieving its objectives; the importance of its decentralized design and its ability to reach and affect communities; the appreciation of the World Bank’s rigor in supervising and guiding the project and in building capacity; concerns about the sustainability of project achievements. This last point is taken up in the following section. While some criticisms were inevitably raised, most of them related less to the project’s failures and more to wishes that the project had done even more given the perceived effectiveness of its interventions and delivery platform.
4. ASSESSMENT OF RISKS TO DEVELOPMENT OUTCOME Rating: Moderate
94. The risks to IG2P’s development outcomes not being maintained (summarized in annex table A8) are rated moderate, on average, and relate primarily to the local financial and institutional capacity to sustain the project’s achievements. Key vulnerabilities relate to: (i) the maintenance of critical infrastructure (roads, ports, water and electricity supply); (ii) the financial sustainability of institutions providing basic services; and (iii) the durability of human capital improvements supported by the project (e.g. training for MSMEs and municipality staff).
95. Throughout the course of implementation, IG2P was able to develop partnerships and institutional structures and mechanisms to mitigate some of these sustainability risks:
28
Dedicated national funding for municipal infrastructure. In 2014, the central government designated Nosy Be’s Ring Road a national road, making its future maintenance eligible to be funded out of the National Road Fund. Local Nosy Be authorities also recently reached an agreement with the Ministry of Transportation which will now be in charge of the maintenance of the V1 and V2 roads in the northern part of the island.
Participatory budgeting. By 2009, both Nosy Be and Fort Dauphin had adopted systems of participatory budgeting, whereby information about Municipality resources is made public and decisions for their use taken collectively with citizens through deliberative forums such as town halls. This has enhanced the community’s voice in local governance and increased the likelihood that funds used will be used towards shared priorities rather than vested interests. IG2P supported these participatory budgeting processes by providing training for meeting moderators and financing equipment and facilities for the community meetings.
Delegation of some public services to private operators. In Nosy Be, management of the nearly all community water standpipes has been transferred to the private operator SERT-RANO, which has a sustainable fee structure in place. The ecotourist sites of Nosy Tanikely and Mont Passot are also now managed by financially independent non-profit associations. In Fort Dauphin, management of the landfill site has been contracted out to the private operator Nepenthes. Provision of water and electricity is also secure in the medium-term owing to JIRAMA’s partnership with QMM, who helps maintain water and electricity infrastructure.
Autonomous management of JIRAMA’s Nosy Be office. A new management structure was finally approved by JIRAMA’s Board on December 15, 2014, granting the Nosy Be branch the autonomy to undertake investments necessary to secure the island’s future power supply and set a tariff structure conducive to financial sustainability.
Expanded financial resources for TVET institutions. CARA is currently finalizing its reincorporation as an NGO, which will open it up to new sources of funding. Meanwhile, CGA (which already has a membership fee structure in place), is actively expanding its member base and is close to or has already exceeded cost-recovery levels in Nosy Be, Fort Dauphin, and even Antsirabe. IG2P also helped these institutions conduct “training of trainers” to promote continuity and boost capacity to service future trainee demand.
96. Going forward, PIC2 will provide continued support in many of these areas to promote sustainability, but project outcomes remain exposed to several other risks that have yet to be adequately addressed:
Regulatory barriers to growth of sectors supported by IG2P. The country’s rigid air access policy, coupled with the poor governance and performance of the de facto monopoly national carrier (Air Madagascar), remain the most pressing constraint to the growth of tourism and for export activity more generally. The weak legal framework for punishing electricity theft prevents meaningful reductions in JIRAMA’s commercial losses.
Social tensions in mining communes. An effective and transparent mechanism for distributing and managing QMM’s royalty payments to the rural communes near its mining
29
facility was never fully implemented.35 This has left many commune residents with lingering resentment that they have not fairly benefited from the mining operations, as evidenced by their ongoing disputes with QMM about their appropriate level of income restoration. With mining royalties on the decline in light of QMM’s recent financial hardships and depressed mining activity, the risk that these frustrations escalate remains high.
Renewed political instability. Madagascar has a history of recurring political crisis, and barely a year has passed since a democratically-elected government was restored. Tensions between the ruling and opposition parties remain elevated in the aftermath of the five-year political standoff—as evidenced by impeachment attempt against the new president in May 2015—and the risk of future flare-ups is non-negligible. These could halt and potentially reverse the tentative recovery in foreign investment, undermine government commitment to maintain the infrastructure and institutions put in place during IG2P, and impede the implementation of PIC2.
5. ASSESSMENT OF BANK AND BORROWER PERFORMANCE
5.1. Bank performance Rating: Satisfactory (a) Quality at entry Rating: Moderately satisfactory
97. The section (2.1) on “Project Preparation, Design and Quality at Entry” provides details demonstrating moderately satisfactory quality at entry, but key issues are summarized here from an assessment perspective.
98. The Project’s objectives were aligned with high-priority issues in the CAS and PRSP and the preparation process leveraged the input and collaboration from the highest levels of government. The selection of growth pole sites was carefully aligned with the government’s regional development priorities and supportive of its overarching agenda to promote broad-based growth. The support of the Vice Prime Minister and the President, in particular, helped to foster government-wide ownership of the project.
99. Technical design aspects were grounded in sound economic analysis, but the sheer multiplicity of activities constrained the ability to perform full due diligence, and inadequate consideration was given to sequencing. A thorough appraisal of all 87 project subcomponents was simply not possible under the preparation timeline, and implementation could have benefited from greater simplicity and focus in the design. Furthermore, there was inadequate consideration of the potential benefits from strategically sequencing activities.
100. Given the complexity of the project, the appraisal team dedicated significant attention to the risk assessment. In particular, the Bank team hedged the risk of delays in Rio Tinto’s Ehoala Port investment by making IG2P disbursements for this component conditional on the signing of the mining concession agreement between Rio Tinto and the GoM, and helped the
35 The Ministry of Decentralization rejected a proposal back in 2009 for an independently managed community development fund (Comm Dev), and instead opted for a royalty distribution formula that allocated 30 percent to the four mining communes (Ampasy Nahampoina, Mahatalaky, Mandromodromotra and Soanierana).
30
GoM navigate these complex negotiations. The project’s numerous social and environmental safeguards issues were also anticipated in great detail and mitigating measures proposed. Fiduciary aspects were well prepared, based on thorough assessments of procurement and financial management capabilities, and capacity building arrangements and interventions were put into place to ensure readiness for implementation.
101. The main weaknesses at entry related to the results chain and M&E systems. As discussed in detail in section 2.3, although the logic behind the PDO and the integrated approach were clear, the causal chain between specific activities and outcomes could have been better specified. The selected results indicators were also not formulated as precisely as they could have been, and baseline values and arrangements for future data collection were missing. Furthermore, mechanisms for private sector feedback about the impact of the project’s interventions were not properly institutionalized.
(b) Quality of supervision Rating: Satisfactory
102. The Bank’s supervision was strongly focused on the project’s development impact. Aide memoires and internal reporting kept the development outcomes in the forefront, and delays or weaknesses in implementation were proactively addressed, and the team was candid in adjusting ISR ratings accordingly. The project also benefited greatly from the fact that the first TTL after project effectiveness was based in Antananarivo for most of the time, enabling close interaction between the World Bank team and the PIU.
103. Given the design weaknesses in the initial M&E framework, the supervision team also usually included an M&E expert to support the PIU in improving outcome indicators and the quality of source data. This M&E support was also essential in reformulating key results indicators and updating their targets as part of project’s second level one restructuring in 2012.
104. The Bank team proved proactive and resilient in the face of adverse political and economic developments. The first project restructuring and additional financing credit were initiatives by the supervision team to compensate for funding shortfalls and adjust component activities to accommodate changing national and local priorities. The mid-term review was also used as an opportunity to implement important mid-course corrections. During the OP/BP 7.30 period when intensity of supervision had to be reduced, the Bank team negotiated an exception to the policy to keep the project disbursing for safeguards-related activities. This helped maintain the core functions of the PIU, preserve continuity in implementation, and enable the project to resume disbursing quickly once OP/BP 7.30 was lifted in 2011.
105. Supervision of fiduciary and safeguards aspects was also strong. Procurement missions and reviews were carried out as scheduled and their findings reflected in the overall supervision reporting. The Bank team closely supervised environmental safeguards aspects of the Project, provided detailed reports and recommendations in the Aide Memoires, and adjusted the ISR ratings to reflect compliance performance.
(c) Justification of Rating for Overall Bank performance Rating: Satisfactory
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106. The rating is justified on the basis of the Bank’s strong development outcome focus and adaptability in a difficult political and economic environment. The Project was technically well-prepared and the supervision team reacted swiftly to changing conditions. The initially under-designed M&E framework was improved considerably during the course of implementation and the PDO sharpened to promote stronger linkages to the results indicators.
5.2 Borrower performance (a) Government performance Rating: Moderately unsatisfactory
107. While five years of political crisis and relative neglect of IG2P by central authorities would suggest otherwise, overall government ownership was actually reasonably strong throughout most of the project. The GoM was closely involved in project preparation and repeatedly supported the PIU during implementation when issues or problems arose and intervention from higher authorities was needed to get things moving. Meanwhile, the Steering Committee effectively facilitated coordination between key Ministries (including the President) and involved local authorities and private sector representatives in key strategic decisions. During the 2009-2014 crisis period, when central government focus on IG2P waned and responsibility for high-level “steering” shifted to regional development committees, ownership was arguably even strengthened due to the greater proximity to day-to-day implementation.
108. Political interference in project activities was a recurring problem, however, as was the high rate of politically-motivated local government staff turnover. Despite a strong commitment to IG2P’s overall strategic vision and development objectives, central and local authorities repeatedly struggled in adhering to the scope of activities laid out in the DCA. The popularity and visibility of IG2P in the regional poles tempted central and local officials to use it as a political tool, promising interventions or public works that were either different or above and beyond what was agreed at the time of project approval. The frequent reshuffling of local officials throughout the project only served to reinforce this tendency.
109. Although legal covenants were met for the most part, follow-through on key regulatory reforms fell short of what was necessary to maximize project effectiveness. This includes the resistance to implementing the Open Skies Policy after having adopted it as one of the project’s legal covenants in 2006, and the delays in adopting an autonomous management framework for JIRAMA’s regional offices (the legal covenant was not met until 2014).
110. Finally, the government failed to deliver on its agreed financial contribution to IG2P. The original financing plan called for a $39 million government contribution to cover taxes and import duties related to project procurements. Shortly after project effectiveness, however, it became clear the GoM would be unable to provide this amount on account of budget difficulties and reallocation of expenditures to other national priorities. This financing shortfall was a key reason for project’s first level one restructuring and the provision of additional financing.
111. This funding shortfall, coupled with the insufficient enabling regulatory reforms, ultimately justify a moderately unsatisfactory rating of the government’s performance despite its strong overall ownership of the project and productive engagement at the local level.
(b) Implementing agency performance
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Rating: Highly Satisfactory
112. The PIU was deeply committed to the achievement of the project development objectives and motivated to work hard and efficiently. Both the Head of the PIU and the regional pole directors remained in their positions for the full 9 years of the project. Even after around half of the technical and administrative staff was laid off during the OP/BP 7.30 period due to budget cuts, many eventually returned to their roles, underlining their long-term commitment to the project and their determination to see it through to the end.
113. On a technical and managerial level, the PIU displayed strong competence and adaptability, helping the project to earn the World Bank regional excellence award in August 2007. Once the project was underway, the PIU quickly realized the complexity of coordinating stakeholders and contracted works in the regional poles, and expanded its local staff to more effectively manage implementation. It also resisted political interference that was counterproductive to project objectives. On the fiduciary front, the project accounts were kept in good order and financial reports were generally submitted on time and in accordance with Bank standards. Compliance with environmental and social safeguards was also assured through dedicated regional staff. Perhaps the only notable criticism relates to the lack of M&E experience and capacity in the early stages of the project, leaving the PIU to rely primarily on Bank M&E support until a local expert was hired in 2011 when post-OP 7.30 implementation resumed.
114. The PIU also served as a crucial stabilizing entity for the project during the crisis. Since the Bank could not have a formal relationship with central government during the OP/BP 7.30 period, the PIU was essential in maintaining project engagement at the local level. It also pro-actively took advantage of the lull in activity to explore new approaches towards achieving project outcomes (by conducting various feasibility studies), engage in retrospective impact evaluation, and improve strategies for implementation going forward.
115. The high visibility of IG2P and its success in mobilizing partnerships also owe in large part to the PIU’s local outreach efforts. The PIU fostered an active dialogue with project stakeholders and involved and leveraged local institutions and communities in project implementation. It also ran various promotional campaigns to raise awareness of the project and encourage potential beneficiaries to take advantage of the project’s training programs and other services. By the end of implementation, IG2P had a larger-than-life presence in Nosy Be and Fort Dauphin, with the PIU regional delegates becoming key public figures.
(c) Justification of Rating for Overall Borrower performance Rating: Moderately satisfactory
116. This rating is justified on the basis of the shortcomings in government performance, which were counterbalanced by the exceptional performance of the PIU. As per Operations Policy and Country Service (OPCS) guidelines, overall borrower performance is rated on the basis of the moderately unsatisfactory rating of government performance, the highly satisfactory rating of Implementing Agency (PIU) performance, and the satisfactory outcomes of the Project.
6. LESSONS LEARNED
Project Design
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117. A flexible and modular design is critical for complex, multi-sectoral projects where activities are being undertaken in an integrated manner. The complexity of IG2P arose not only from the multi-dimensionality and multiplicity of its interventions, but also from its reliance on the private sector to provide key complementary infrastructure links, especially in Fort Dauphin and Antananarivo-Antsirabe. In this case, the project design must remain flexible to potential delays in specific components, changing implementation realities, and to the response of private sector supply and demand. It should allow for subcomponents to be removed or amended without compromising the overall project framework and the causal chain of activities.
118. Concentrating investments in spatially-limited areas with lean governance structures can help mitigate the risks associated with a complex design, weak implementation capacity, and the thin spreading of resources. Both Nosy Be and Fort Dauphin had small populations of around 60,000 at the start of the project and simple one-tier municipal governance structures, making coordination of stakeholders and project activities relatively more manageable. IG2P’s interventions also represented the largest inflow of investments these regions had ever experienced, giving the project high visibility among local residents and helping to mobilize public support and promote ownership. In determining the appropriate complexity of project design (i.e. number of activities) and the scale of investments in a regional growth pole, the size of the local economy and number of stakeholders should therefore be key considerations.
119. The balance between hard and soft infrastructure investments in regional growth poles has important political economy implications. IG2P’s interventions in both Nosy Be and Fort Dauphin were high in hard infrastructure content, helping to produce visible outputs early on and sustain local support for the project during the lengthy political crisis, when its activities were curtailed and its impacts no longer so easily detectable. This stands in contrast to the Antananarivo-Antsirabe pole, which was anchored exclusively in “soft infrastructure” investments (e.g. training, feasibility studies, etc.), and struggled to retain support once political turmoil ensued and essential complementary private investments failed to materialize. Some minimum threshold of hard infrastructure content could therefore be considered as a means of helping growth poles gain political and social traction during the initial stages of implementation.
120. Whether or not a growth pole is anchored around a single large investment or investor also materially shapes its risk structure. IG2P served as a case study of two growth pole models, one in Fort Dauphin anchored around a single major investor (Rio Tinto), and another in Nosy Be with a broader set of private sector stakeholders and greater risk sharing. The first model benefits from leveraging the resources of an established anchor investor but also exposes it to greater sustainability risk if this investor experiences hardships (as has proven to be the case with Rio Tinto). In the second model, the broader distribution of activity among firms—as in Nosy Be’s multi-faceted tourism economy (hotels, restaurants, ecotourist parks)—gives the private sector potentially more resilience, and also spreads out the burden of maintaining the shared infrastructure put in place by the project. This trade-off must be carefully considered in project design to determine which growth pole model is warranted for the specific circumstances.
Project implementation
121. Although an integrated growth poles approach relies on simultaneous interventions, effectiveness can suffer if components are not properly sequenced. The project initially encountered difficulties implementing its infrastructure activities in a simultaneous and bundled
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manner, and could have benefited from more strategic sequencing to prioritize those construction works with greater implementation “readiness.” Improper sequencing also diminished the effectiveness of IG2P’s Partial Credit Guarantee Scheme (PCGS), which had limited uptake in Nosy Be and Fort Dauphin36 because it was launched well before the rollout of key TVET and entrepreneurship development programs in these regions and before local systems for land titling had been strengthened (meaning a limited the supply of eligible loan collateral). The implied lesson is that the greater the number of project activities, the greater the need to consider strategic sequencing and prioritization to maximize effectiveness.
122. A weak initial M&E framework can constrain the ability to make important mid-course corrections. Due to its poorly-formulated outcome indicators and missing baseline values at the outset, IG2P struggled to gauge the economic impacts of its interventions during the first few years of implementation, limiting the ability to assess the effectiveness of specific components and re-allocate project resources accordingly. This illustrates an important pitfall of treating M&E as a secondary project design priority and waiting to develop it during the course of implementation, and highlights the potential benefits of designing ex-ante impact evaluation mechanisms (if a project budget permits) rather than IG2P’s ex-post approach.
123. The private sector’s ability to leverage infrastructure platforms for growth can be undermined by missing or incomplete supporting policy reforms. The vested interests and chronic mismanagement of SOEs such as Air Madagascar and JIRAMA continue to impede enabling reforms for the tourism sector (i.e. the full implementation of an open air access policy) and the provision of reliable and affordable public utilities to the population. These examples demonstrate that when infrastructure and regulatory and/or legal issues are both binding business environment constraints, policy reforms need to be implemented in parallel or prior to the provision of infrastructure to maximize the private sector’s ability to leverage these investments. This is also a caution against relying too heavily on one large project to achieve a much broader private sector development agenda, which must be supported both by the government and potentially by other Bank projects targeting specific policy issues and/or sectors.
Partnerships and collaboration
124. Collaborative and multi-sector Bank projects can be useful in development contexts where there are multi-dimensional constraints, provided there is a uniform standard of quality in project design and implementation among the different participating units. IG2P was one of the Bank’s earliest attempts at truly multi-sector package of interventions within one project, each component having a technical lead from a different sector department. It also represented one of the first collaborations with both the investment and advisory services sides of IFC, giving rise to the PCGS risk-sharing facility that has since been replicated in many other countries. While this collaborative model allowed the project to benefit from the best technical expertise in each area (e.g. roads, ports, business training services, etc.)—in many ways foreshadowing the Global Practice model the Bank has now adopted—it inevitably created coordination and quality-control difficulties. Not every component was designed and executed to the same standard, emphasizing the need for systems to ensure uniform quality if this engagement model is to be used on a more regular basis going forward.
36 Around 90 percent of borrowers in the scheme were from the Antananarivo‐Antsirabe region.
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125. PPPs can leverage modest public resources not only to bridge infrastructure gaps but also to improve public services and achieve broader social objectives. The PPP with Rio Tinto began as a vehicle to crowd in Rio Tinto’s mining investment and provide a new multi-use port for Fort Dauphin. Over time, however, the partnership evolved to mobilize private investment towards the improvement of public services (water, electricity, and sanitation) and human capital (TVET institutions). Through this, IG2P was able to create shared infrastructure and achieve increases in the quality and coverage of basic services beyond what the project’s initial budget envelope would have allowed.
126. Partnership-driven implementation can also enhance sustainability by promoting shared responsibility for project outcomes. From as early as the design stage, IG2P had a focus on mobilizing private participation, not only to expand the scale of possible investments, but also to protect against the burden of sustainability falling exclusively on the governments of the regional poles. The integrated design of the project was itself a catalyst for this partnership-building effort. It forced the Bank team and the PIU to touch on multiple dimensions of the business environment, build relationships at different levels of government, and promote linkages across implementing entities and institutions. Towards the end, these efforts enabled the project to transfer or share responsibility for the maintenance of infrastructure, service delivery systems and institutions that it helped to finance. This notion of fostering sustainability through partnerships and cross-institutional linkages is a critical lesson for all development projects.
Government ownership and capacity
127. In the absence of stability, leadership and ownership at the central government level, project implementation can still be effective if engagement at local government levels is high and there is strong project management. Despite prolonged political crisis within the central government, the Project was able to maintain focus and implementation momentum through regional steering committees and a strong PIU. The local PIU teams were especially crucial: given the frequent turnover in local government leadership and staff, they served as the institutional memory of the project and the steward of its development goals. This suggests that, for agglomeration-oriented investment projects with geographic specificity, local rather central government ownership is the more relevant ingredient for effective implementation, and even more so when there is institutional instability and shifting priorities at the central level.
128. Sufficient institutional support and governance capacity building should be integrated into growth poles projects to promote their durability and replicability. IG2P had subcomponents in each regional pole dedicated to strengthening the capacity of the local governments, although much of this was ultimately undermined by the frequent political turnover in municipal staff and the nationwide political crisis. Growth pole projects should maintain a strong emphasis on building the longer-term capacity of government to carry out such multi-sectoral initiatives on its own instead of relying on the Bank to provide this coordination role. Although PIC2 was justified on the basis of helping the GoM preserve and build on the development impacts of IG2P in the aftermath of a disruptive political crisis, any successor growth pole projects should ideally be designed and managed independently by the government.
7. COMMENTS ON ISSUES RAISED BY BORROWER/IMPLEMENTING AGENCY
See Annex 8 for full set of Borrower’s comments.
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ANNEX 1: PROJECT COSTS AND FINANCING
Table A1: Project costs by component (USD million)
Appraisal
estimate (2005)
Estimate at first
restructuring, incl.
additional financing
(2008)
Estimate at
second
restructuring
(2012)
ActualPercentage of
appraisal
Component A: Strengthening the business environment
A1 Improving access to finance 39.5 29.3 26.3 26.3 66%
A2 MSME capacity building and
Matching Grant Scheme
4.4 3.7 2.7 4.0 92%
A3 Country‐wide tourism
development initiatives
3.1 3.2 1.4 1.9 62%
A4 Improving the business
environment
7.7 14.1 10.0 8.6 112%
Subtotal Component A 54.7 50.3 40.5 40.8 75%
Component B: Export led growth in Antananarivo‐Antsirabe
D2 Social and Sanitary Infrastructure 0.0 3.8 0.0 0.0 0.0 3.8
D3 Local Institutions Strengthening 0.0 2.9 0.0 0.0 0.0 2.9
Subtotal Component D 0.0 75.9 0.0 225.0 0.0 300.9
Component E: Program and Project Implementation, Evaluation and Monitoring
E1 Support to project monitoring and evaluation 0.0 2.2 0.0 0.0 0.0 2.2
E2 Support to project management and training 0.0 7.7 0.0 0.0 0.0 7.6
E3 Technical assistance for project management
& monitoring
0.0 1.1 0.0 0.0 0.0 1.1
E4 Operating expenses for project management
(incl. safeguards)
0.0 5.3 0.0 4.9 0.0 10.2
E5 Reimbursing PPF 0.5 1.9 0.0 0.0 0.0 2.3
Subtotal Component E 0.4 18.2 0.0 4.9 0.0 23.5
0.4 166.0 7.7 268.7 1.0 443.8
Component
TOTAL PROJECT FINANCING
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ANNEX 2: OUTPUTS AND OUTCOMES BY COMPONENT
Over the life of the project, many of subcomponents were either added, dropped or modified as the management team sought to adjust the project design to reflect evolving political and economic priorities, simplify a complex undertaking, and incorporate new development tools that were perceived as effective means to achieve the objectives. Table A4 below summarizes these changes.
Table A4: Revisions to Project Components
Original components First project restructuring + additional financing (2007-08)
Second project restructuring (2012)
A: STRENGTHENING THE BUSINESS ENVIRONMENT
A1. Access to finance
(i) Leasing/factoring
(ii) Partial credit guarantee scheme
Item (i) dropped
A2. MSME capacity building
(i) Technical and vocational training (TVET)
(ii) Matching grants
Item (i) expanded to include provision of business development services (BDS)
Support for developing agribusiness value chains added
A3. Tourism development initiatives
(i) TA for design and implementation of tourism plans and strategies
(ii) Tourism promotion
(iii) TA and training for NIHTT
Item (i) expanded to include provision of goods
Recipient of TA in item (iii) changed from National Institute for Hotel and Tourism Training (NIHTT) to Ministry of Tourism and Transport and Ministry of Education
Support for reserve lands (RFTs) under item (i) dropped
Support added under item (ii) for analytical work on air access
A4. Improving the business environment
(i) Development of leasing registry
(ii) Support to investment promotion agencies
(iii) Support for policy and regulatory reforms
(iv) Support to JIRAMA
Funding for item (ii) directed exclusively to newly-created EDBM
B: EXPORT-LED GROWTH IN ANTANANARIVO-ANTSIRABE
B1.Enhancing EPZ/manufacturing competitiveness
(i) TA to EPZ authorities
Item (iii) amended to refer explicitly to use of public-private partnerships
Entire subcomponent dropped
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(ii) Enterprise skills development
(iii) Development of industrial zones
B2. Development of ICT business park in Antanetibe
Entire subcomponent dropped
B3. Support to Antananarivo and Antsirabe municipalities
(i) Administrative capacity building
(ii) Building rehabilitation and equipment
Support for Antananarivo dropped and support for Vakinankaratra region added
Entire subcomponent dropped
C: TOURISM-LED GROWTH IN NOSY BE
C1. Infrastructure upgrading
(i) Nosy Be ports
(ii) Urban and feeder roads
(iii) Electricity system
(iv) Telecommunications network
Item (iii) broadened to include support for renewable energy
Provisions of works for item (iv) dropped and support limited to TA only
Comprehensive upgrading of ports under item (i) scaled back to rehabilitation and modest expansion
Support under item (iv) dropped
C2. Social and sanitary infrastructure
(i) Water and sewerage system
(ii) Solid waste management
(iii) Hospital upgrading
Item (iii) expanded to include support for malaria eradication program
Support for item (iii) dropped due to containment of malaria outbreak and lack of government support for management and operation of the hospital
C3. Support to Nosy Be Municipality
(i) Development of tourism and urban master plans
(ii) Administrative capacity building
(iii) Building rehabilitation and equipment
Support expanded to broader Diana region
Support for the Centre de Gestion Agréé (CGA) and private business associations added
D: MINING AND TOURISM-LED GROWTH IN TAOLAGNARO (FORT DAUPHIN)
D1. Infrastructure upgrading
(i) Construction of new Ehoala Port and rehabilitation of old port
(ii) Urban and rural roads
(iii) Electricity system
(iv) Telecommunications network
Support for rehabilitation of old port under item (i) dropped
Provisions of works for item (iv) dropped and support limited to TA only
TA for development of Ehoala Park (adjacent to Ehoala Port) added under item (i)
Support under item (iv) dropped
Upgrading of roads to select tourism sites under item (ii) dropped given the difficulties in addressing the issues of land access.
D2. Social and sanitary infrastructure
Support for further hospital rehabilitation under item (iii) dropped due to lack of government
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(i) Water and sewerage
(ii) Solid waste management
(iii) Hospital upgrading
support for management and operation of the hospital
D3. Support to Fort Dauphin Municipality
(i) Development of tourism and urban master plans
(ii) Administrative capacity building
(iii) Building rehabilitation and equipment
Support expanded to broader Anosy region
Added: support to the Centre de Gestion Agréé (CGA), Centred’Affaire Régional d’Anosy (CARA) and private business associations; and
Added: support for environmental protection activities including coastal erosion mitigation and deforestation.
E: PROJECT IMPLEMENTATION, EVALUATION AND MONITORING
(i) TA, training, and goods and works for fiduciary and M&E activities
(ii) Support for regional development plans and environmental and social activities
Support under item (i) expanded to include communications activities
Added: firm-level survey for employment and enterprise growth impact assessments under item (i) Item (ii) amended to explicitly include protection and development of environmental assets such as Nosy Tanikely, Lake Amparihibe, Mont Passot and Lokobe National Park.
In light of these various changes to project components, the description below of project outputs and outcomes is not exhaustive, but meant to capture the key achievements under each component.
Component A: Strengthening the Business Environment
A1. Access to Finance
1. Partial credit guarantee scheme (PCGS). Between the launch of the IDA-IFC sponsored PCGS in June 2006 and the peak of its ramp-up period in May 2008, the two participating banks (BNI-Madagascar and BFV-Société General) extended 1206 loans to MSMEs totaling $30.3 million. This significantly expanded MSMEs access to credit—the MSME portfolio of the two banks grew from 2 percent of total loans to 10 percent during the PCGS period—and helped to lower MSMEs cost of borrowing. Training provided to around 450 commercial bank staff also helped to streamline procedures for MSME lending and reduce the time taken to process loans. However, the regional distribution of beneficiaries was ultimately highly asymmetric, with nearly 90 percent of MSME borrowers located in the Antananarivo-Antsirabe region. The low uptake in Nosy Be and Fort Dauphin related primarily to absence of reliable land titles at the time in these two regions, resulting in the rejection of numerous loan applications. After the outbreak of the crisis in early 2009 and the ensuing economic downturn, performance of the loans originated through the PCGS deteriorated and default rates increased sharply. The PCGS was terminated in 2009.
A2. MSME capacity building
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2. Technical and vocation training (TVET). With the support of local governments and through various private partnerships with QMM, NGOs and other foundations, IG2P helped establishe several TVET institutions targeting a variety of sectors and disciplines (tourism, agribusiness, entrepreneurship, etc), including the Anosy Vocational Training Center in Fort Dauphin (CFPTA), the tourism training school in Nosy Be (CFTH), CARA, and CGA. Since the start of the project, over 5200 individuals and MSMEs have received subsidized business development services (BDS) through these institutions and other forms of organized training. Towards the end of the project implementation period, some of these institutions also engaged in training of trainers to promote continuity and sustainability of their programs in the aftermath of IG2P support.
3. Matching grants scheme (PARC). PARC was initially launched in June 2008 and ran for around a year before being suspended due to the political crisis, supporting 65 projects and disbursing $430,000 in grants during this period. It was restarted in 2012 and since then has approved $920,000 in new grants for 49 projects (disbursing $850,000 by end-2014), mostly in agricultural and tourism activities, and mobilized $1.36 million in co-investment by beneficiaries (well above a 1:1 ratio). It is ending on particularly high note by supporting two highly-promising investment projects in Fort Dauphin that are close to materializing: (1) BOVIMA, an $8-11 million export-oriented abattoir project that would directly employ an estimated 5,000 people (many living in extreme poverty) and; (2) a fruit processing plant by a domestic investor. The recently-completed external evaluation of PARC estimates that the activities supported by the program’s grants have helped to train 576 people in Nosy Be and Fort Dauphin, and contributed to the creation of 161 permanent jobs and an annual revenue growth for recipients of 33 percent between 2012 and 2013. However, as is generally the case with many matching grant programs, beneficiaries complained about the burdensome documentation requirements of the scheme and the heavy up-front cash flow requirements associated with having to complete agreed activities before receiving PARC disbursements. This structure was seen as favoring the already well-established businesses rather than the poorer liquidity-strapped small entrepreneurs and MSMEs. As a tool for relieving financial constraints to MSMEs, it was therefore relatively less effective, although it did ultimately support the establishment of microfinance institutions as CECAM and MICROCRED in Fort Dauphin, and SIPEM and MICROCRED Nosy Be, with the latter two helping 661 beneficiaries to access new bank credit services with an outstanding balance of $1.2 million at end of October 2014. Furthermore, since the PARC only engaged with formal businesses, it also encouraged firms to formalize themselves to gain eligibility.
4. Development of select value chains. In its final two years, IG2P financed the compilation of an agricultural output database and value chain analysis (including feasibility and market studies) for several commodities in the Anosy region—cassava, maize, pink peppercorn, lychee and other fruits—to help farmers and potential investors identify agribusiness opportunities along the targeted roads RIP 118, RIP 107 and RN12. This has led to several expressions of interest by private operators to set up processing plants (notably in lychee) in the region and spurred the launch of new training programs for farmers. The most material impact came from IG2P’s partnership with CARE International to promote contract farming in the Amboasary district of Anosy. Through its provision of agricultural training, equipment, seeds, and irrigation systems, as well as assistance in linking farmers to markets and negotiating contract prices, the scheme has helped around 2,700 households across 7 communes in the district to increase production of staple commodities such as maize and legumes by 2,057 tons and to commercialize 1,004 tons. These increases in agricultural productivity and market sales have
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boosted the average income of households in these communes by $164 over the one-year life of the scheme.
A3. Tourism development initiatives
5. Maritime and air access. Although an Open Skies Policy was legally adopted very early in the project (2006), it was never really implemented in practice, and poor air access continues to be the most pressing constraint to tourism development. The national carrier, Air Madagascar, remains the de facto monopoly operator in the domestic market, and offers international passengers limited domestic connectivity. Lack of punctuality and inconsistent flight schedules negatively affect the willingness of foreign tour operators to bring tourists to the regions. In the later stages of implementation (2013-14), IG2P helped to finance a comprehensive study on air access at the national and regional levels, which has been presented at several workshops throughout the country, generated extensive debate, and should provide the GoM with the necessary data, benchmarks and policy advice to take an informed decision on the future of the market. The discussions around the study have also led to the inclusion of a comprehensive air transport component in PIC2 given the urgency of reforming the country’s air access policy. However, it remains to be seen whether the GoM is ready to take drastic action to improve governance of the struggling national airline.
6. Tourism promotion. While the project supported the development of regional tourism strategies and plans, most tourism representatives from the private sector (and the National Tourism Board) argued that, in retrospect, the higher priority should have been the design and implementation of an integrated national tourism strategy. This could have aimed to market Madagascar as a circuit-based destination, both through multi-destination national packages or a “Vanilla Islands” package incorporating visits to the neighboring islands of Seychelles, Comoros, Réunion, and Mauritius. From a promotional perspective, IG2P nevertheless succeeded in signing some MOUs with the regional tourism councils (ORTs) in Fort Dauphin and Nosy Be as well as with ONTM, enabling implementation of targeted promotion and training activities. Some completed activities include: (i) preparation of brochures, sales manuals and participation in regional and international shows/tourism events; (ii) training of 12 trainers and 162 professionals in hotel and tourism, 88 cooks and 487 boat captains; and (iii) upgrading of tourism sites including the Musée Flacourt in Fort Dauphin and Mont Passot and Lokobe National Park in Nosy Be. In its early years, the project also facilitated the listing of Nosy Be and Fort Dauphin’s hotels on the Worldhotel.link (WHL) online reservation portal. Although repeated technical programs were encountered with WHL, the experience helped many hotels transition to more mainstream booking platforms such as TripAdvisor and Hotels.com.
A4. Improving the business environment
7. Creation of Economic Development Board of Madagascar (EDBM). The EDBM was established through IG2P support in 2007 as the premier agency for investment promotion and facilitation in Madagascar and to take over the functions of GUIDE, the previous one-stop shop for business registration. In its role as a one-stop shop, the EDBM was instrumental in simplifying and expediting business registration procedures, particularly in Nosy Be and Fort Dauphin, where the establishment of regional EDBM offices allowed local business access to registration services that were previously only available in Antananarivo. By the end of the project, the days required to start a business had been reduced from 21 to 8 in the capital, and
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from over 30 days to 7 days in the regions. However, recurrent delays in staffing the EDBM and setting its management team and governance framework, coupled with its loss of project funding during the political crisis period, prevented it from executing its investment promotion and facilitation functions in a dedicated and coherent manner. The EDBM also expanded its mandate in 2013 to include conducting economic intelligence and leading the country’s public-private partnerships dialogue, which further overstretched its administrative capacity.
Component B: Export-led growth in Antananarivo-Antsirabe (cancelled in 2012)
8. While some planned activities under this component were completed, adverse political and economic developments and weak private sector support constrained any significant progress in the Antananarivo-Antsirabe growth pole. Given the project’s relatively minor financial contribution to this pole (around 4 percent of total IG2P financing) and the predominantly “soft” infrastructure activities, Antananarivo-Antsirabe relied on the private sector for complementary “hard” investments to realize capital-intensive initiatives such as the ICT Business Park. With the outbreak of the political and economic crisis in 2009, however, whatever tentative private investment interest that existed during the first few years of implementation quickly disappeared, as did the support of many public donors. Madagascar’s eligibility as a beneficiary of U.S. trade preferences offered in the African Growth and Opportunity Act (AGOA) was also terminated in 2010 as a result, undermining the competitiveness of the textile industry and leading to mass layoffs and firm closures in the Antananarivo-Antsirabe region. Against this backdrop, support for component activities effectively ceased in 2010, but the pole was not officially dropped until the 2012 restructuring.
B1. Enhance EPZ/manufacturing competitiveness
9. Enterprise-based skills development. The project successfully partnered with local institutions such as the ORANGE business school and the University of Athénée Saint Joseph in Antsirabe to deliver supervisory and middle management training for employees in the garments industry and students pursuing degrees in textile engineering and IT. However, in light of increasing difficulties facing the manufacturing the industry due to the rapid appreciation of the Ariary during that period and a delay in SADC accession by Madagascar (preventing duty free access to the South African market), these human capital improvements could do little in the short term to offset the downward trend in Madagascar’s export competitiveness.
10. Agro techno-pole. While the feasibility study for the agro techno-pole (agricultural produce processing/agro-testing/calibration facility) was completed in 2008 and a facility design and investment plan proposed, the contract bidding process received only two offers and a generally lukewarm reception from private investors. There was no attempt to re-launch the tender once the crisis broke out.
B2. ICT Business Park Development
11. As was the case with the agro techno-pole, the feasibility study for the ICT Business Park was completed and proposed an ambitious design with a $63 million investment cost and the need for subsidized financing and tax exemptions to make it a viable investment. However, it was never clear how the Government would provide such financial incentives. Moreover, neither the value of the public assets nor the external (off-site) infrastructure investment costs were properly assessed, nor was the lack of high-quality and affordable communications infrastructure
45
considered. In light of these gaps in the assessment and lack of interest from private investors (notably telecommunications companies), a call for proposals was never launched.
B3. Support to Antsirabe Municipality and Vakinakaratra Region
12. In both the Antsirabe Municipality and Vakinakaratra Region, ad-hoc technical assistance was provided in the areas of urban and regional economic planning, monitoring and evaluation, and land management, but there was never a clear action plan or record of outcomes and achievements. IG2P also provided support to install three “hangars” in the Asabotsy marketplace on the understanding that the Municipality would open the first phase of the market, but this was ultimately postponed and a proper business plan was not developed. Arguably the only major lasting contribution but was the establishment of the local Business Support Center (CGA) in 2008, which continues to operate to this day under private management, providing training to businesses in accounting and financial management.
Component C: Tourism-led growth in Nosy Be
13. In Nosy Be, IG2P support came at a time of sectoral transition for the local economy and was instrumental in cushioning the disruptive impacts of this structural shift. The closure of the state-owned sugar company SIRAMA in 2008 and the fishing company UNIMA in 2011 led to around 2,800 employee layoffs and a significant decline in the island’s two largest productive sectors, leaving the burgeoning tourism sector to pick up the slack. While IG2P could arguably have done more to limit this fallout (e.g. through interventions supporting agribusiness activities more closely linked to the existing skills sets of these sugar farmers and fishermen), many of the unemployed workers from SIRAMA and UNIMA nevertheless found refuge in tourism jobs that the project was helping to create, while much of the remainder started their own small businesses. In turn, they ultimately became the key seekers and recipients of IG2P’s business development services, and their nascent businesses benefitted from the basic infrastructure the project was providing, which previously was available predominantly to the big companies like SIRAMA and UNIMA on their own lands and facilities.
14. Overall, tourism in Nosy Be is now a significantly more upscale market than it was before IG2P. Through its own interventions and the various private investments it catalyzed, IG2P facilitated the transformation of the island from a rural backwater with low quality hotels and services and a high incidence of sex tourism to much more upscale tourist destination. Around 130 new hotels were built during the project period and many others upgraded, more than doubling the island’s room capacity and raising the overall quality of the hotel stock—the share of hotels with a 3- and 4-star rating rose from only 11 percent in 2005 to 33 percent in 2014. The variety of tourist attractions was also expanded beyond Nosy Be’s traditional ecotourist sites to include a number of new privately-owned recreation facilities and tourist parks such as the 18-hole Pearls golf course and the Lemurialand animal park. By 2014, Nosy Be was on Lonely Planet’s top ten list of islands in the world, and Andilana Beach Resort a top-15 full board hotel worldwide according to TripAdvisor. Amidst the island’s rising popularity, several commercial air carriers had started direct flights from France, Italy, and South Africa; these were suspended during the 2009 crisis and have yet to be resumed, but many family tourism companies in Italy and France still provide direct connections through charter flights. While sex tourism remains a problem (as in other tourist destinations in Madagascar), it is nowhere as prevalent as it was before IG2P.
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C1. Infrastructure upgrading
15. Nosy Be ports. After repeated delays in agreeing on the port management structure, as well as resettlement issues in Ankify, rehabilitation of the Hellville and Ankify ports finally began 2013 and was completed only towards the very of end of the project in late 2014. As such, it is still too early to assess the economic impacts of these upgrades. However, the strengthening and extension of the berths in both port compounds has significantly improved their organization, safety and sanitation, helping to relieve congestion and allow for a greater volume of cargo and tourist traffic, which should pay economic dividends going forward.
16. Urban and feeder roads. The project financed the rehabilitation of 15km of urban roads in Hellville, Ambatolaoka, Dzamandzar and Ville Andoany, as well as another 45km of feeder roads that dramatically improved access to key tourist sites such as Mont Passot and rural communes in the northern parts of the island (which were previously economically isolated from the urban areas). The completion of the Ring Road, in particular, encouraged a large number of investments in new hotels and tourist facilities (such as Lemurialand) that would arguably not have been economically viable otherwise. Travelers along these roads now report a reduced incidence of accidents and crime (e.g. attacks and robberies), which has enhanced the tourism image of the island. In addition, for residents and farmers along the northern V1 and V2 roads, transportation time to urban areas has been cut from as long as several days to only 1-2 hours, reducing travel costs and improving market opportunities for their goods (particularly quickly-perishing items).
17. Electricity supply. Prior to IG2P in 2005, Nosy Be faced a tenuous electricity situation: demand growth was beginning to outpace JIRAMA’s declining local generation capacity, and JIRAMA’s unprofitable tariff structure (a selling price that was roughly half of supply costs), coupled with its poor billing and revenue management practices, were forcing the company to implement rolling blackouts. The project’s partnership with JIRAMA has helped improve the supply situation significantly for the time being: JIRAMA constructed a new thermal power plant at Diego Hely and installed three new generators providing 4.8 MW of additional capacity, while IG2P contributed an additional two generators supplying 4.0MW. Effective production is now roughly 8MW and should be sufficient to meet demand (currently around 5.2MW) for the next few years. As a result, the number of blackouts has been noticeably reduced (to around 2 per day compared to more than 4 previously) and their duration shortened. Around 60km of the electricity distribution network has also been constructed or rehabilitated, helping to expand electricity coverage to 6,250 households (around 35 percent of the population) compared to 2,500 households (or 20 percent of the population) at the beginning of the project. In pursuit of longer-term solutions to the island’s growing power needs, the project has also partnered with AfDB to study options for renewable energy in Nosy Be, including wind, solar, and hydro. Despite these achievements, many of the institutional challenges to the sustainability of Nosy Be’s power supply remain, as JIRAMA has yet to implement a cost recovery tariff structure or demonstrate significant progress in reducing grid losses and customer non-payments (arrears).
C2. Social and sanitary infrastructure
18. Solid waste management. Following a protracted process of agreeing on the institutional framework for solid waste management and selecting an appropriate site for the landfill facility, the Municipality established a new public solid waste management entity (EGEDEN) in 2013
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and IG2P financed the construction of the landfill as well as equipment for collection services. EGDEN, which is in charge of all stages of waste management (collection, discharge, and treatment) currently covers 7 fokontany and is set to expand to several more. Its operations have helped secure access to regular solid waste management services for 75,573 of Nosy Be’s inhabitants, a significant increase from the baseline of 25,540 in 2005.
19. Water supply and sanitation. The project, in partnership with JIRAMA, financed the rehabilitation of the water intake/pump station at Amparibe Lake, the expansion of the treatment facilities, and the construction of new reservoirs at Dzamandzar and at Maroankatsaka. It has also funded new direct water connections for 1,177 households, the rehabilitation of 86 old standpipes, and the construction of 80 new standpipes. As a result, 68,520 inhabitants (or around 75 percent of the population) have access to safe drinking water compared 8,010 (13 percent of population) in 2005. Separately, IG2P partnered with EGEDEN and helped set up a revolving fund to facilitate the purchase of latrine sets by the population and encourage a transition away from the traditional unsanitary practice of open-air defecation. Since its launch in 2013, the latrine program (managed by EGEDEN) has conducted several public awareness campaigns and helped install 29 household latrines covering 145 people, with 230 more requests still pending.
C3. Support to Nosy Be Municipality
20. Administrative capacity building. Around 166 Municipal staff in Nosy Be were trained through IG2P support since 2005, and the combination of equipment, software, and technical assistance provided has led to noticeable improvements in the Municipality’s quality of services as a result of progressive computerization and reengineering of key municipal procedures (e.g. installation of new software for construction permit management, roll out of land management software, renewal of office and IT equipment, continuous capacity building of municipal agents, etc.). As an example, it now takes only 7 days to issue a construction permit compared to 50 days in 2005. The improved capacity for revenue collection and financial management has underpinned the doubling of Nosy Be’s municipal revenues since 2005, particularly property taxes which grew 15 percent in 2012-13 on the back of the topographical imaging software that has endowed the Municipality with a spatial database of taxpayers to better determine the property tax base (i.e. area of the property, type of housing, etc.). In the later stages of the project, these various forms of technical assistance with governance were also extended to the rural commune of Ambohimena (6,064 inhabitants) to support communities affected by the Ankify Port works.
21. Creation of ecotourism facilities. Prior to IG2P, Nosy Tanikely and Mont Passot— Nosy Be’s two premier tourist sites—lacked adequate management structures and an environmental protection status, and were in serious danger of anthropogenic degradation, especially Mont Passot where the incidence of slash and burn cultivation activities and illegal logging were on the rise. IG2P helped to mobilize partnerships and coalitions between the Nosy Be municipality and non-profit associations dedicated to the management and preservation of these two ecological sites, and provided assistance in the design and institutionalization of management structures and financing mechanisms, the acquisition of the Articles of environmental protection, land security, and tourism marketing. In addition, IG2P funded the rehabilitation of the access road to Mont Passot, and the construction of other supporting infrastructure at the both sites (visitor centers, souvenir shops, etc.) as well as the provision of various equipment and materials. These two sites are now a key source of tourism revenue and employment for the local private sector: Nosy
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Tanikely officially opened in March 2010 and draws around 22,000 visitors a year (employing around 200 local workers), while Mont Passot was inaugurated in early 2014 and has attracted over 12,000 visitors thus far.
Component D: Tourism and mining-led growth in Fort Dauphin
22. Much like Nosy Be, Fort Dauphin was fundamentally transformed by IG2P and its mutually-reinforcing partnership with Rio Tinto/QMM. In 2005, the city’s 50,000 inhabitants were effectively cut off from the rest of the country due to the abysmal condition of the connecting national roads, plagued by recurring famines, and among the poorest in the country. The region’s main wealth was generated through rice, sisal, coffee, and lychee, exports of which were severely constrained by the deteriorating capacity of the old port. Solid waste collection covered 15 percent of households and only 24,000 inhabitants had some form of access to potable water sources. Today, Fort Dauphin is dramatically improved on all these fronts. The nearly $1 billion Rio Tinto/QMM mining and port investment catalyzed by IG2P (the largest foreign investment in Madagascar at the time) unlocked the mining sector as new source of local employment growth economic growth. QMM’s involvement also brought significant additional financial resources to the table to complement IG2P’s interventions and enable infrastructure works that were otherwise beyond scope of the project’s budget envelope. As a result, Fort Dauphin now has the second largest seaport in Madagascar, vastly improved roads and water, electricity and sanitation infrastructure, and greater access to basic services, all contributing to new economic opportunities for the local population..
D1. Infrastructure upgrading
23. Ehoala port. The construction of the new multi-use port, with its three berths and two large storage warehouses, was completed in 2009 (funded by a $35 million contribution from IG2P and $221 million from QMM) and became the new commercial gateway for Fort Dauphin and the broader Anosy region, which was previously cut off from key markets for its agricultural goods. Since the opening of the port, nearly 2.3 million tons of QMM’s ilmenite have been exported, along with over 185,000 tons of Fort Dauphin’s other domestic products, including sisal, lychee, fish and lobsters. An unplanned outcome was that the port also opened up Fort Dauphin’s tourism industry to cruise ships, and 28,000 tourists have come to Fort Dauphin via this mode of transport since 2009.
24. Urban and rural roads. Through IG2P’s support, around 75 percent of Fort Dauphin’s urban roads (31km) have been rehabilitated. The project also financed the rehabilitation of 67km of the rural RIP 118 road connecting Fort Dauphin to the agriculture-producing communes in Ranomafana and the broader Anosy Region. This upgrade has helped cut the transportation time for residents and farmers along RIP118 in half, enabled them to use the road even during the worst of the wet season,37 and reduced the cost of goods brought in from Fort Dauphin (due to lower transportation expenses). Similar improvements have also been observed as a result of the IG2P’s the rehabilitation of 18 km of rural road in Analapatsy-Ranopiso, which provides access to key agricultural and tourism areas, and the partial rehabilitation of 7 km between Ankarefo and Fort Dauphin on the RN13. QMM, as part of its mining investment, also constructed a
37 Although beneficial from an access perspective, use of the road during the rainy season has actually accelerated its deterioration since it was rehabilitated.
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modern tarmac road connecting its mine to the Ehoala Port, which helped link the previously-isolated mining communes to the Fort Dauphin municipality.
25. Electricity supply. The project itself provided only $2.7 million for purchases of electrical equipment and public lighting units (cables, transformers, switches, etc.) to be installed by JIRAMA through its internal budget. However, through the broader partnership between QMM and JIRAMA that IG2P helped to foster, a total 23.7 MW in new generation capacity was installed (predominantly through QMM’s heavy fuel generating plant at its mine site in Mandena), 13.8km of new electricity distribution networks were constructed, and another 138km rehabilitated. These upgrades have helped Fort Dauphin secure its medium-to-long term power supply and extend electricity access to virtually all its residents. It is now the only city in Madagascar where there are effectively no blackouts.
D2. Social and sanitary infrastructure
26. Water supply and sanitation systems. As a result of the 500 new household water connections financed by the project and the 149 community standpipes that were either newly-constructed or rehabilitated, roughly 95 percent of Fort Dauphin’s population now has access to safe drinking water compared to around 50 percent in 2005. As in Nosy Be, IG2P also helped to set up a latrine program in April 2013 (co-funded by QMM and managed by the VAGNOMASY platform) which has constructed 49 new latrines out of 237 requests. The institutional framework and sustainability of the program remain fragile, however, and the cost of latrines is still prohibitively expensive for many households.
27. Solid waste management. Under its partnership with IG2P, QMM financed the construction of a new landfill site for Fort Dauphin at Ankarefo, which will be operated by a financially independent private operator beginning in 2015. With the additional revenues generated from increased economic activity since the start of the project, the Fort Dauphin Municipality has also been able to procure new waste management equipment (trucks, collections bins, etc.) and strengthen its waste pre-collection and collection services. As a result, the number of urban dwellers with access to regular solid waste management services has increased from 13,500 at the start of the project (around 25 percent of the urban population) to 68,033 (essentially the entire population).
D3. Support to Fort Dauphin municipality and rural communes
28. Fiscal and administrative capacity building. The project has delivered technical assistance—in the form of coaching, provision of equipment and software, and job-specific skills training—to 231 Municipal staff since 2005, helping to improve capacity over a range of municipal functions such as general administration, revenue collection, land management, and issuance of licenses and permits. The impacts on the land tenure office are exemplary: training and new equipment helped the office transition from an outdated paper records system to a more secure and modern computerized archive, while a new digital land mapping software has improved the enforcement of land titles and the levying of appropriate property taxes. The time it takes for the office to issue construction permits has also fallen from up to 90 days at the start of the project to around 17 days at present. In the civil registry office, similar improvements have been observed, with basic documents such as birth, death and marriage certificates that used to take 2-3 days to issue now being delivered in as little as 15-20 minutes. All told, the increased
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fee collection from greater efficiency of these services and from improved financial management has contributed to a roughly five-fold increase in Fort Dauphin’s municipal revenues since 2005.
Table A5: Summary of project chain of outputs and intermediate outcomes
COMPONENT MAJOR OUTPUTS INTERMEDIATE OUTCOMES
A: Strengthening the business environment 1. Access to finance • PCGS: From June 2006 to program
peak in 2008, the two participating banks (BNI-Madagascar and BFV Societé General) had granted 1206 loans to MSMEs totaling $30.3 million
• Participating banks' MSME portfolio increased from 2% of total loans to a peak of 10% • Cost of borrowing for beneficiaries reduced
• 240 bank staff trained in MSME lending & procedures
2. MSME capacity building
(i) TVET training and business development services (BDS)
• Subsidized BDS services provided to over 5200 individuals/firms through TVET programs such as Anosy Vocational Training center in Fort Dauphin (CFPTA), CFTH privately-managed hotel training school in Nosy-Be, CARA, CGA, AMPF, MERA/OMEF
(ii) Matching grants scheme (PARC)
• Since PARC’s re-launch in 2012, $850,000 in grants disbursed, mostly in agricultural and tourism activities, mobilizing $1.36 million in co-investment by beneficiaries.
(iii) Value chain development
• Crop production across 7 communes in Amboasary boosted by 2,075 tons as a result of contract farming scheme run in partnership with CARE International
• Average household income in 7 communes has increased by $164 over the one year of the scheme
3. Tourism development initiatives
• Completion of air transport and access study
• Promotional materials and training
4. Improving the business environment
• Creation of EDBM • Days required to start a business reduced from 30 days to 7 days in regions (in line with targets), and from 21 to 8 days in capital (slightly short of targets)
B: Export-led growth in Antananrivo-Antsirabe (cancelled in 2012)
1. Enhance EPZ/manufacturing competitiveness
• Training of managers in textile and garments industries, and postgraduate training in IT systems
No traceable impacts
(i) Skills development • Feasbility study completed on cold chain (refrigerated transportation)
(ii) Agro-technopole • Completion of feasibility study for agro techno-pole in Antsirabe
No impacts since private interest in the pole dissipated with onset of crisis
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2. ICT business park development • Completion of feasibility studies for
ICT Business park in Antanetibe
No impacts: call for investor proposals was never launched
3. Support to Vakinakaratra region and Antsirabe municipality
• TA for urban and regional economic planning, M&E, and land management; establishment of CGA
No traceable impacts due to lack of clear action plan and record of achievements
C: Tourism-led growth in Nosy Be 1. Infrastructure upgrading
(i) Roads and urban infrastructure
• 60km of urban and access roads rehabilitated (exceeding results targets)
• Improved access to key tourist sites • Transportation/shipping time from remote northern part of island to center reduced dramatically (from several days to 1-2 hours)
(ii) Hellville and Ankify ports
• Strengthening and extension of port berths (results target achieved)
• Increased capacity for cargo and tourist cruise ships
(iii) Electricity system • New generators installed adding 4MW of capacity*
• Number of blackouts reduced (to average of 2 per/day compared 4+ previously) and duration shortened
• 29.7 km of distribution lines constructed (below target) and 69km rehabilitated (almost 3x amount targeted)
• Electricity coverage increased from 2,500 households (roughly 20% of population) to 6,250 households (around 35% of population)
2. Social and Sanitary infrastructure
(i) Water and sanitation systems
• Construction of 2 new reservoirs and rehabilitation of pump stations and treatment facilities • 80 standpipes constructed and 86 rehabilitated • 1177 new household water connections
• Targets on potable water access exceeded: 68,520 inhabitants (75% of population) have access to safe drinking water compared 8,010 (13% of population) in 2005
(ii) Solid waste management
• New waste management entity (EGEDEN) established, covering 7 fokontany • New landfill site constructed and equipment for collection provided
• Target on solid waste services coverage exceeded: Increase in access to solid waste management services (from 25,540 to 75,573 urban dwellers)
3. Support to Nosy Be Municipality
• Conservation of Mont Passot and Nosy Tanikely
• Nosy Tanikely now generates 22,000 visitors per year (and employs 200 locals), and Mont Passot 12,000 since opening in April 2014
• 166 staff trained and provided with new software and equipment • Tourism and urban master plans completed
• Processing time for construction permit reduced from 50 to 7 days (even more than targeted) • Adoption of participatory budgeting
D: Tourism and mining-led growth in Fort Dauphin
1. Infrastructure upgrading
(i) Construction of Ehoala Port
• Multi-use port with three wharfs and two warehouses
• 2.3 million tons of ilmenite exported since 2009, and 185,000 tons of other cargo (including sisal, lychee, fish and lobsters) • 31 new cruise ship arrivals carrying over 28,000 passengers
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(ii) Roads and urban infrastructure
• Rehabilitation of 31km of urban roads (75% of total) and 92 km rural roads
• Transportation/shipping time for agricultural producers along RIP118 reduced by 50%
(ii) Electricity system • 23.7MW of new generation capacity installed** • 13.8km of new distribution networks constructed and 138km rehabilitated
• Power supply in medium term is secure; Fort Dauphin is only city in Madagascar with virtually no blackouts
2. Social and Sanitary infrastructure
(i) Water and sanitation systems
• 500 new household water connections • 115 standpipes constructed and 34 rehabilitated
• Targets on potable water access exceeded: Access to safe drinking water increased from 50% of population to 95%.
(ii) Solid waste management
• New landfill site constructed at Ankarefo
• Target on solid waste services coverage exceeded: Urban dwellers with access to regular solid waste management services increased from 13,500 to 68,033 (essentially covering entire population)
(iii) Fort Dauphin hospital • Rehabilitation of hospital building, including surgery block
• Higher quality treatment for emergency cases
3. Support to Fort Dauphin Municipality
• 231 staff trained and new software and equipment provided for various Municipality functions: land tenure, construction permit issuance, general administration and revenue management
• Processing time for construction permit reduced from 90 to 17 days (exceeding target) • Adoption of participatory budgeting
• Regional urban and tourism master plans designed and endorsed by local authorities
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Additional information on PDO-level outcomes
Table A6: Revisions to key PDO-level outcome indicators Note: shaded rows denote indicators in place at close of project
Original indicators (from PAD)
Revisions at first restructuring (2007)
Revisions at second restructuring (2012)
Rationale/comments
1.1 Number of tourists arriving at Nosy Be and Taolagnaro airports and ports
(Moved to intermediate outcome indicators for Components C and D)
Number of tourist arrivals by air and sea per annum to Nosy Be and Taolagnaro
Revised: (i) clarification by adding “by air and sea” to facilitate interpretation of results. Tourists arriving by road are not counted.
1.2 Volume of merchandise and minerals shipped through the Taolagnaro and Tamatave ports and Ivato airport
Indicator for Tamatave and Ivato airport dropped; indicator for Taolagnaro revised and moved to intermediate results for Component D (Volume of traffic handled through Ehoala Port)
Poor attribution to project activities in Antananarivo-Antsirabe and subject to multiple external influences; focus shifted to traffic in newly-constructed Ehoala Port
(Added) 1.3: Annual private investment flows
Dropped Poor attribution since indicator tracked investment at the national level rather than in regional poles
(Added) 1.4 Number of new businesses registered in the three poles: Antananarivo-Antsirabe, Nosy Be, Fort Dauphin
(Revised) 1.4: Number of businesses registered in the two poles: Nosy Be; Fort Dauphin
Revisions include: (i) dropping reference to Antananarivo-Antsirabe; (ii) removing word “new” to clarify that figures refer to cumulative stock, not annual change; (iii) aligning 2012-14 targets with 2011 baseline.
2. Number of new jobs created in the three poles: Antananarivo- Antsirabe, Nosy Be, Fort Dauphin
No change (Revised) 2: Number of formal jobs in the two poles: Nosy Be; Fort Dauphin
Revisions include: (i) dropping reference to Antananarivo-Antsirabe; (ii) dropping reference to “new” and “created” and adding “formal”; (iii) aligning 2012-14 targets with 2011 baseline.
(Added) 3.1: Direct project beneficiaries (number), of which female (percentage)
New mandatory core indicator. Baseline was planned to be estimated in household survey.
(Added) 4. EDBM fully staffed and operational
(Moved to Component A)
Achieved in 2007
(Added) 5. Adoption and implementation of regional development plans
(Moved to Component A and revised) Adoption of regional development plans
Reference to “implementation” dropped; achieved in 2006.
(Added) 6. Adoption by National Assembly of a new Investment Law and amended Free Zone law
(Moved to Component A)
PDO outcome indicator achieved and moved to Component A intermediate results indicator.
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0
50
100
150
200
250
300
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Rest of Madagascar
Nosy Be
Fort Dauphin
Index (2005=100)
Source: INSTAT
Figure 3: Tourist arrivals
Derivation of overall PDO efficacy rating
129. The PDO outcome indicator for the Antananarivo-Antisrabe pole which tracked cargo shipped through Tamatave port and Ivato airport was dropped before the first project restructuring in 2007 and thus factors minimally into the assessment. This indicator was broadly on track with targets in 2007, but as discussed earlier, it was a poor measure of growth in Antananarivo-Antsirabe: since Ivato airport and Tamatave port were central gateways for the entire country, their volume of traffic was subject to a variety of external influences and cyclical factors that made establishing causal linkages to project activities especially difficult. In this sense, the indicator’s removal from the project arguably improved the quality of the M&E framework.
130. Meanwhile, the PDO outcome indicator on tourist arrivals in Nosy Be and Fort Dauphin was reclassified as an intermediate results indicator. This more accurately reflected that increased tourist arrivals were only an intermediate step in the chain to increased growth, and not guaranteed to translate into sustained local benefits. In any case, tourist arrivals were running ahead of targets in 2007 in both Nosy Be and Fort Dauphin. Momentum turned south with the onset of the political crisis, leading arrivals to ultimately fall short of original end-2012 targets, but they have recovered over the past 3 years. Relative to revised targets, the indicator has been achieved in Fort Dauphin and fallen slightly short in Nosy Be on account of the security incident in late 2013 (see section 2.2). More importantly, the trajectory of arrivals in the two poles since 2005 has been higher than in the rest of country, declining less in 2009 and recovering more rapidly since, suggesting IG2P helped stave off some of the negative impacts of the crisis (Figure 3). For the purposes of the efficacy rating, however, the focus is on the pre-2008 period during which tourist arrivals were formally a PDO outcome indicator.
131. Similarly, the PDO indicator on direct project beneficiaries (added during the second project restructuring in 2012) is discounted due to its low project-specific relevance. This “core” indicator was added in accordance with new Bank requirements for results frameworks and is not unique to the IG2P results chain. It is therefore not explicitly considered in this assessment even though its targets were met by a comfortable margin.
132. The core of the efficacy assessment is therefore based on PDO indicators in place throughout the entire project or since the first restructuring. These include: (1) job creation, present for the entire project; (2) business creation, in place since the first restructuring and covering 70 percent of disbursements; and (3) private investment, introduced during the first restructuring but dropped at the second restructuring, thus covering 53 percent disbursements.
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Table A7: Summary of achievement of PDO-level outcomes (efficacy)
PDO indicator Achievement vs. original PDO and indicator targets Achievement vs. revised PDO and targets
Overall efficacy rating Prior to first
restructuring (2005-2007, 30% of disbursements)
Indicator weight
Between first and second restructurings (2008-2012, 53% of disbursements)
Indicator weight
After second restructuring (2013-2014, 17% of disbursements)
Indicator weight
1. Volume of cargo shipped through Tamatave port and Ivato airport
Substantial (3) On track with targets, but poor attribution to project activities
Negligible (1) Private investments linked to project never materialized
1.3%
Nosy Be Substantial (3) Significant hotel and tourist site investment
13.7%
Fort Dauphin Substantial (3) Large mining and agribusiness investments
18.3%
4. Job creation High (3.9) 33% Substantial (3.1) 33% High (4) 50% 3.5 Antananarivo-Antsirabe
Modest (2) On track with targets but weak attribution to project activities
1.3% Negligible (1) Fell short of targets; weak attribution as support for pole effectively stopped in 2010
1.3%
Nosy Be High (4) Ahead of targets
13.7% Modest (2) Targets not met
13.7% High (4) Targets exceeded
25%
Fort Dauphin High (4) Ahead of targets
18.3% High (4) Targets exceeded
18.3% High (4) Targets exceeded
25%
5. Business creation High (3.9) 33% High (4) 50% 3.9 Antananarivo-Antsirabe
Modest (2) Targets exceeded targets but poor attribution to project activities
1.3%
Nosy Be High (4) 13.7% High (4)
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Original targets exceeded
Revised targets exceeded
Fort Dauphin High (4) Original targets exceeded
18.3% High (4) Revised targets exceeded
Weighted total (rating x indicator weight)
3.3 (Substa-
ntial)
3.3 (Substa-
ntial)
4.0 (High)
Overall efficacy rating (disbursement-weighted)
3.3 x 30%
1.0
3.3 x 53%
1.7
4.0 x 17%
0.7
Substa-ntial 3.4
Note: The following values were assigned to efficacy ratings for the purposes of this analysis: High=4; Substantial=3; Modest=2; Negligible=1. Within each indicator, weights for each regional pole are assigned according to the share of total actual (not budgeted) project spending on each pole: 4 percent in Antananarivo-Antsirabe, 41 percent in Nosy Be, and 55 percent in Fort Dauphin.
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Table A8: Summary of key risks to development outcome
Risk Probability Impact Mitigation measures Overall risk assessment
1. Technical/financial Maintenance of critical infrastructure (e.g. roads, ports, electricity and water systems)
Significant Increased transaction/logistics costs for private firms and constraints on expansion; future private investment deterred
Earmarked funding from central government budget for road maintenance in Nosy Be Participatory budgeting
Moderate
Financial sustainability of local institutions providing basic services
Moderate Increases in access to electricity, clean water, and solid waste services are reversed
Delegation of public services to private operators; Autonomous management of JIRAMA in Nosy Be
Moderate
2. Governance Retention of human capital and administrative capacity
Moderate Weakened municipal revenue collection; deterioration in skills of new labor market entrants
Diversification of funding sources for TVET institutions
Moderate
3. Social Social unrest in mining communes
Significant Increased local violence and disruption of QMM mining operations
Significant
4. Economic Weak private investment (both domestic and foreign)
Moderate Integrated growth platform supported by IG2P is not fully leveraged to stimulate future growth in high-potential sectors
Decree supporting EDBM’s financial sustainability and its capacity to promote and facilitate investment
Moderate
5. Political Renewed outbreak of political crisis
Moderate Flight of foreign capital; reduced maintenance of IG2P infrastructure and institutions; interrupted implementation of PIC2
Moderate
6. Legal/regulatory Lack to reform to air access policy
Significant Tourism industry unable to realize its full growth potential
PIC2 sub-component supporting improved competitiveness in air transport sector
Moderate
OVERALL MODERATE
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ANNEX 3: ECONOMIC AND FINANCIAL ANALYSIS This economic and financial analysis of IG2P in the Project Appraisal Document (PAD) was conducted on the basis of a cost-benefit flow model for each regional pole over a 25-year projection horizon—from the start of the project in 2005 to 2030, the assumed terminal period of economic flows. Benefits were modeled as economic rents in the relevant economic sectors targeted by the project in each regional pole, while costs were based solely on the IDA credit expenditures for the project (i.e. they did not include spending by private sector partners such as Rio Tinto). Net present values (NPV) and economic rates of return in this model were calculated under the assumption of a 10 percent real discount rate,38 broadly in line with yields on Madagascar’s government bonds at the time and the perceived risk level of the project. The parameters and assumptions underlying this analysis were updated at the time of project’s mid-term review in 2008 based on outcomes in the first two years of project implementation. At that time, the cost-benefit model was also enriched with several new sources of benefits and economic linkages not explicitly considered in the PAD. This annex builds on the mid-term update, preserving the initial methodology of the PAD (for comparability purposes) but also considering a wider range of potential impacts from IG2P’s interventions. Parameters which were simply assumptions at the time of appraisal are updated using actual outcome data through the closing of the project in 2014, with the projections for the post-project forecast horizon adjusted accordingly. The 10 real percent discount rate for estimating NPVs and economic rates of return is retained in light of numerous risks identified at the time of appraisal that ultimately materialized (political crisis, shortfall in counterpart funding, etc). Given these and other adverse developments during the course of implementation, this risk rate could arguably have been even higher. Antananarivo-Antsirabe The main objective of the Antananarivo-Antsirabe Pole was to attract new FDI in the garment/textile and information/communication industries and create jobs in the existing export processing zones (EPZs) in Antsirabe and Antananarivo and the planned new (ICT) business park in Antananarivo. By investing in supporting off-site physical and social infrastructure (water and sanitation, electricity, roads, telecommunications), improving EPZ administration and customs procedures, and developing labor skill and services to MSMEs, IG2P was supposed to reduce the various costs faced by existing garment/textile and emerging ICT firms, resulting in a better investment climate for higher output and increased employment.
38 Note that present values in the PAD’s economic analysis tables were calculated using 2006 as the first year of cost and benefit flows. Since some project costs were ultimately incurred in 2005, however, the present value of flows estimated in the PAD are recalculated here using 2005 as the starting year to allow comparability with the ICR present value estimates. They therefore differ slightly from those in the PAD economic analysis tables. However, because this temporal adjustment affects both costs and benefits in the same manner, the ERR estimates remain unchanged from those presented in the PAD.
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Under this framework, the key benefit of IG2P support was the incremental economic rent arising from new jobs stimulated by the project.39 In the cost-benefit analysis of the PAD, this rent was modeled as the incremental wages (over and above the social opportunity cost of labor) paid to domestic workers associated with activity in the EPZs and ICT Park. At the time of appraisal, this wage premium was assumed to be $1 per additional job. The total economic return of the Antananarivo-Antsirabe pole hinged on IG2P’s interventions stimulating at least 1,000 new jobs per year (starting in the 4th year of the project). Under this baseline scenario, the NPV of the pole was estimated at $0.9 million, corresponding to an ERR of 10.5 percent. Any shortfall in annual job creation relative to this threshold level or a lower-than-expected wage premium would result in a negative economic return for the pole. In reality, the bulk of IG2Ps planned interventions in Antananarivo-Antsirabe never materialized. Feasibility studies for both the ICT Business Park and agro techno-pole were completed, but there was insufficient private investor interest to get these projects off the ground, and even less so after the crisis hit in 2009. Some training was administered with IG2P funds between 2006 and 2008—around 300 workers in textile sector, and around 70 students in postgraduate IT studies—but this was simply too limited to impact employment on the scale projected at appraisal (1,000 new jobs per year). Moreover, the envisioned employment payoffs were set to kick in beginning in 2009, but by then job growth in EPZs and the ICT sector was stagnating amidst the breakout of the crisis and the termination of Madagascar’s AGAO benefits (the latter of which led to mass layoffs of textile workers). By the time Madagascar emerged from crisis in 2014, IG2P support for the Antananarivo-Antsirabe pole had long been abandoned. For all intents and purposes, therefore, the ex-post economic benefits of pole were essentially zero, while a total of $6.7 million was invested in the pole (inclusive of component A and project management and safeguards mitigation costs), resulting in an NPV of –$5.3 million and thus a negative economic rate of return. Fortunately, thanks to the reduction in funding for the pole during the first project restructuring and the subsequent dropping of the component entirely once its lack of feasibility became clear, this expenditure proved to be much smaller than the $17 million originally budgeted for the pole,40 and thus had only a marginal impact on the overall return of the project.
39 Other potential benefits, such as fiscal gains from increased EPZ activity and employment, were not considered on the grounds that they would be too negligible—firms locating in EPZs, for example, were exempt from corporate, trade, and duty taxes. 40 The PAD assumed that 0.6 million in annual recurrent costs (5 percent of total investment in the pole) would be needed after 2010 (the original project closing date) to maintain the infrastructure put in place by the project. However, since none of this infrastructure in the Antananarivo‐Antsirabe actually materialized, recurrent costs were reduced to zero in the ICR update of the cost‐benefit model.
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Nosy Be In Nosy Be, the cost-economic analysis in the PAD focused exclusively on IG2Ps impacts on the tourism sector. The potential benefits to agriculture and fishing (from cost savings related to the project’s road and port improvements) were acknowledged but not explicitly modeled at the time of appraisal. As part of the update to the economic analysis during the project mid-term review, estimates of the potential economic rents to these two sectors were developed, but were relatively small in magnitude compared to tourism rents, and stemmed primarily from the planned rehabilitation of the Nosy Be ports (Helville and Ankify), which was originally set to be completed by 2009. Ultimately, the upgrading of these ports was not completed until late 2014, reducing the present value of the associated benefits. The estimated agriculture and fishing rents in the ICR model are therefore quite small.41 In the PAD’s cost-benefit model, incremental rents associated with the additional tourist arrivals and activity stimulated by IG2P’s investments fell into four key categories: (i) fiscal revenue from tourists, collected via visa fees and hotel taxes; (ii) the local component of tourist expenditures during their stay, referred to as “backward linkages”; (iii) the additional wage earnings from employment generated in the tourism sector; and (iv) excursion site entrance fees. At the time of appraisal, the combined present value of these various benefit streams was estimated at $77.6 million (assuming a 10 percent discount rate), with the largest contributions coming from visa fees, backward linkages, and excursion site entrance fees (Figure A). When netted against the investment and recurrent costs associated with the pole ($45.2 million in PV terms), this gave a baseline economic rate of return of 17.9 percent. The key assumptions underpinning this estimate were: 17 percent annual growth in tourist arrivals and 15 percent growth in hotel rooms for the first 7 years of the project, and 7 percent and 5 percent thereafter, respectively; an average stay of 5 nights per tourist; a 2 percent annual increase in the hotel occupancy rate; 2.5 jobs created in the tourism sector per additional hotel room, with a $1 daily wage premium above the social opportunity cost of labor for these workers; daily expenditures of $60 per tourist (excluding hotel expenses), of which 20 percent
41 Estimated rents from fishing are also dampened by the closure of the island’s main industrial fishing company UNIMA in 2011, which has resulted in declining export volumes for fish and shrimp.
Estimated flows of benefits and costs: Antananarivo‐Antsirabe pole (2005‐2030)
accrued as rent locally42; and an $8 entrance fee for Nosy Be’s land and marine eco-tourist parks (with each tourist visiting two parks per stay). Of these, the number of tourist arrivals was the most critical variable, as all incremental tourism rents were ultimately derived from each additional visitor to Nosy Be. To give some sense of the inherent sensitivity, for every 5,000 fewer cumulative tourist arrivals over the project period (2006-2014) compared to the baseline, the estimated present value of expected benefits from IG2P would be reduced by $3 million, and the economic rate of return of the Nosy Be pole by 0.7 percentage points. The assumption on entrance fees to eco-tourist sites was also particularly important in this case, since at the time of project approval, the Government did not charge any fees to visit these publicly-owned sites, meaning any fee increase would be captured in its entirety as domestic rent.
Figure A: Estimated present value of tourism benefits in Nosy Be, by category (PAD vs. ICR)
In reality, the number of tourist arrivals to Nosy Be though 2014 (nearly half of the 2005-2030 projection period covered by cost-benefit model) has grown at a much lower rate than envisioned in the PAD, reflecting both the dampening effect of the political crisis on tourism to Madagascar, and, more recently, the security concerns surrounding the murder of three people at a beach near Ambatoloaka tourist village. In total, the annual rate of tourist arrivals has risen by around only 25,000 since the inception of the project in 2005, compared to the roughly 64,000 increase assumed at the time of appraisal. The growth of hotel rooms on the island has also been more muted as a result, with the number of rooms reaching only 2,150 by 2014, compared to the 2,550 assumed in the PAD. The underperformance in these two factors alone accounts for slightly over
42 A large portion of these expenditures, assumed to be 80 percent in the case of Nosy Be, falls on goods and services which are imported (such as vehicles and fuel used for transportation), and thus cannot be counted as domestic tourism rent.
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half of the estimated reduction (relative to the PAD) in IG2P’s expected benefits in the Nosy Be pole. In the individual benefit categories, the updating of the PAD’s assumptions to reflect actual data and other developments has furthered lowered the present value of expected benefits: Phasing out of tourist visa fees. The shortfall in visa-related revenues was further
compounded the government’s decision in 2009 to abolish the visa fee for tourists staying in Madagascar for less than 30 days. Statistics show that tourists spend an average of 21 days in Madagascar, meaning a large majority are now exempt from visa fees.
Partial capture of eco-tourist entrance fees. The PAD over-estimated the rents from entrance fees on several dimensions. First, only a handful of Nosy Be’s ecotourist parks were actually valorized (i.e. set up to charge fees) during the project period, and in only two of these cases (Nosy Tanikely and Mont Passot) was the valorization a direct result of IG2P interventions, meaning only a portion of the incremental rents can be counted as benefits related to the project.43 Moreover, sites such as Mont Passot were valorized only in 2014, a much later timeline than envisioned in the PAD (lowering the present value of the associated rents). Second, the 10,000 Ariary (around $5) entrance fee set by the government for most these sites was slightly lower than the $8 assumed in the PAD. Finally, the assumption of each tourist visiting two parks per stay in Nosy Be proved overly optimistic, as actual visitor data shows that only 5 to 40 percent of tourists visited a park during their stay in Nosy Be.44
On the other hand, survey data collected at several stages of project implementation45 suggested that the average daily wage in the tourism sector was closer to $2 compared to the $1 assumed in the PAD, which helped offset the reduction in local salary benefits from lower-than-expected tourist arrivals and a lower direct job multiplier,46 thus keeping the estimated present value of local wage benefits broadly unchanged ($11.6 million compared to $10.5 million estimated in the PAD).
43 For the sites where valorization was a direct result of IG2P support, entrance fees collected from ALL visiting tourists can be counted as economic rent. On the other hand, for those sites where valorization was unrelated to IG2P (e.g. Lokobe National Park), only the entrance fees paid by incremental tourists (i.e. the additional number since 2005 stimulated by IG2P’s interventions) are counted as rent. Since the PAD assumed the project would be responsible for all valorization of existing eco‐tourist parks, entrance fee rents were obviously overestimated. However, several new eco‐tourist sites that were not originally envisioned at the time of appraisal were arguably created as a result of the project, such as Lemurialand, which was made economically viable due to IG2P’s extension of the Ring Road to the Western part of the island. These rents from newly‐created sites attributable to the project help to counterbalance the shortfall in rents from the existing sites. 44 The visitor rate varies from as low as 5 of every 100 tourists for Lokobe National Park, to 40 of every 100 for Nosy Tanikely. 45 “Analysis of Strategic Value Chains in Madagascar,” Global Development Solutions LLC, 2007; Mid‐term Economic Analysis, 2008; and Madagascar Enterprise Survey 2014. 46 Based on the observed growth in hotel rooms through 2014 and the cumulative direct formal jobs created in the tourism sector over this period (3,700), the implied job multiplier per hotel room is only 2, slightly lower than the 2.5 assumed in the PAD. It should be noted that this calculation does not consider the informal tourism jobs generated as a result of IG2P’s interventions, but since there is no indication the job multiplier in the PAD incorporated informal employment effects, the two parameters are comparable.
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In total, the present value of benefits in Nosy Be at the time of the ICR is estimated at $41.1 million, around than half of the amount projected at the time of appraisal. On the other hand, the present value of IG2P’s expenditures in Nosy Be (including recurrent costs and a portion of component A and component E costs) remains largely unchanged ($49.1 million compared to $45.2 million in the PAD) despite the $23.8 million of new IG2P investment added to the Nosy Be pole as part of the additional financing credit in 2008.47 This is due to the extension of the project by 4 years and the severe curtailment of disbursements during the OP/BP 7.30 period, which spread project expenditures out over a much longer timeframe than envisioned in the PAD, thus reducing their present value. All told, this brings the estimated economic rate of return of the Nosy Be pole down to only 7.7 percent, considerably below the assumed real discount rate of 10 percent, implying that it was ultimately not cost-effective to undertake IG2P’s investments in Nosy Be.
Fort Dauphin In Fort Dauphin, the economic cost-benefit analysis in the PAD was organized around the three key sectors expected to be impacted by IG2P’s interventions: tourism, agriculture, and mining. The key benefit categories were therefore: (i) agricultural rent associated with additional crop production and exports; (ii) tourism rent associated with additional visitors, and (iii) anticipated mining rent captured by the country from the Rio Tinto ilmenite project compared with a situation where the mining investment would be delayed for another five years. 47 This includes $18.9 million of dedicated new funding to the Nosy Be component, as well 65 percent of new funds for component A (strengthening the business environment) and 40 percent of component E (Project management and M&E).
Estimated flows of benefits and costs: Nosy Be pole ($US million), 2005‐2030
Tourism For tourism, as in the case of Nosy Be, the expected benefits to the domestic economy were projected to come in the form of additional rents captured through visa fees and hotel taxes, visitors’ local expenditures, excursion site entrance fees, and wages for local hotel workers. At the time of appraisal, the combined present value of these various tourism rents was estimated at $28.6 million. The assumptions for the key parameters underpinning this estimate were identical to those for Nosy Be, with the exception of: (i) average daily tourist expenditures, which were assumed to be $20 lower in Fort Dauphin, reflecting the lower cost-of-living in this poor southeastern region of Madagascar; and (ii) the average duration of a tourist’s stay, estimated to be two nights shorter in Fort Dauphin based on hotel data collected at the time. As was the case in Nosy Be, tourist arrivals to Fort Dauphin ultimately fell short of the level assumed at the time of appraisal, although to a lesser extent: through 2014, the annual rate of tourist arrivals in Fort Dauphin was 20,300 higher than at the beginning of the project, compared to the 36,000 increase assumed in the PAD. Hotel capacity also expanded at a lower-than-projected rate: there were only 536 hotel rooms in Fort Dauphin in 2014 compared to the 862 expected. While the political crisis had some role to play in this shortfall, the assumptions in the PAD also failed to take into account the predominantly business-related nature of tourism during the construction phase of Rio Tinto’s mining facility and Ehoala Port (2006-2008), and the fact that this business tourism would drop off considerably thereafter as Rio Tinto’s reduced its headcount from around 4,500 employees at the peak of construction to the roughly 500 staff needed for the longer-term operation of its facilities.48 The tourism dynamics associated with the port and mine construction also changed the expected composition of tourism rents. While rents from visa fees, hotel taxes, entrance fees to tourist sites, and backward linkages all dropped in magnitude relative to the PAD projections due to the lower-than-anticipated volume of tourist arrivals, the employment stimulated in the tourism sector by Rio Tinto’s activities proved to be much higher than expected. A cumulative total of 1,880 jobs were created in the sector over the IG2P period (compared to the 1,400 projected in the PAD), with the bulk coming towards the end of the construction phase in 2008 and 2009—implying a multiplier as high as 7 tourism jobs per additional hotel room during this peak period. As a result, the present value of expected wage rents jumped to $14.2 million, nearly four times the amount estimated at the time of appraisal (Figure B).49 In the end, however, these increased local salary rents were not sufficient to offset declines in other rent categories, leaving the estimated present value of tourism benefits in Fort Dauphin at $23.5 million, around $5 million lower than the PAD estimate.
48 In fact, several hotels that were primarily housing Rio Tinto contractors and their families closed in 2009 in anticipation of the drop‐off in business. 49 As in the case of Nosy Be, survey data showed that the local wage for tourism employees was higher than assumed in the PAD (around $1.6 per day compared $1). This always contributed to the higher tourism wage rents estimated at the time of the ICR.
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Figure B: Estimated present value of tourism benefits in Fort Dauphin, by category (PAD vs. ICR)
Agriculture For agriculture, incremental economic rents associated with IG2P support arose from: (i) road improvements, which reduced farm-to-market transportation costs; (ii) the new Ehoala Port, which lowered the cost of imported inputs for local producers (via a lower international freight rate) and also expanded their opportunities to export and capture rents from selling abroad at prices higher than those prevailing on the local market; and (iv) the additional demand for local food products by hotels and restaurants due to increased tourist activity and QMM’s operations. At the time of appraisal, the agricultural production and export capacity projected to be unlocked through road rehabilitation and the construction of Ehoala Port was significant. Around 2,000 additional tons of sisal (Fort Dauphin’s main export at the time) was expected to be exported through the new port, as well as 1,500 tons each of rosy periwinkle and lychee—two crops which were in excess supply domestically and had yet to be commercialized for export. Additional benefits from the reductions in road transport and international freight costs were expected for other key local products, such as onions, cloves, pink peppers, and crayfish, but these were not included in the PAD analysis on the grounds that the timeframe for their increased production was uncertain and would only be realized through additional investments in farmer organization. Although the Ehoala Port opened up for business in 2009 as planned, the expected export growth in the three high-potential crops (sisal, periwinkle, and lychee) has thus far failed to materialize, owing in large part to the financial strains of local producers amidst the prolonged domestic political/economic crisis, as well as the broader global economic downturn around this period, which depressed external demand for Madagascar’s exports. While sisal exports have recovered from their declining trajectory in the years prior to opening of Ehoala Port (reflecting the deteriorating capacity of the old port), they have yet to surpass their average levels in the pre-IG2P period (2000-2005). Commercial exports of lychee and periwinkle, meanwhile, have still not commenced at all on any significant scale. With the economic environment in Madagascar and abroad now on an upswing, the ICR projections assume that exports of these three products
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will begin to increase starting in 2015, but the delay relative to PAD assumptions reduces the present value of economic rents from these products noticeably (to $15.4 million in the ICR projection compared to $18.2 million in the PAD). Despite the underperformance in these three main rent-generating crops, IG2P has nevertheless generated positive developments in the crops that were excluded from agricultural rent calculations at the time of the PAD. Production of local vegetables, legumes, and cereals has expanded as a result of increased local demand from Rio Tinto’s facilities and the restaurants and hotels servicing the increased tourism activity, as well as from the direct contract farming support in Amboasary through the IG2P/Care International partnership.50 Meanwhile, the rehabilitation of the RIP118 has proved critical in unlocking market access for pink pepper farmers along this road, who have boosted their production from only 6 tons before the project to an estimated 45 tons in 2014. Crayfish exports have also benefited from cost savings associated with Ehoala Port, and doubled since 2009. Although the combined incremental rents from these various products are estimated to be small in the grand scheme (around $3 million in present value terms), they nevertheless represent an important contribution of IG2P and help to partially offset the lower-than-expected rents from sisal, periwinkle, and lychees. Mining In the mining sector, the economic rents to Madagascar modeled in the PAD’s cost-benefit analysis derived from: (i) the mining royalties and various taxes paid by Rio Tinto to the local authorities and the central government; (ii) the incremental increase in wages paid to Rio Tinto’s local employees; (iii) Rio Tinto’s local purchases for the construction and operation of the mining and facility and Ehoala Port; and (iv) the spending on local products by its employees (both local and expatriates). Since the contribution of IG2P to the mining sector was in bringing forward the timeline of Rio Tinto’s investment, the incremental rents attributable to IG2P in each of these categories were calculated relative to a counterfactual scenario where Rio Tinto’s investment was delayed for another 5 years. The PAD assumed a fairly rapid ramp-up of ilmenite production by Rio Tinto, with 320,000 tons being exported in the first year of operation (2009), rising to 750,000 tons (the maximum estimated production potential) by 2016. At the sale price path assumed for ilmenite—$88 per ton at the outset, rising to $225 per ton by 2013, before falling to a long-term average of around $120—these exports amounts were projected to generate around $360 million in cumulative revenue for Rio Tinto between 2009 and 2014. Combined with another $55 million in proceeds from zirsill exports over this period, 51 this revenue path was expected to generate positive annual net income for the company as early as 2010, and therefore a steady stream of dividend payments to its shareholders (including the Madagascar government, which owned a 20 percent equity stake). Under this financial scenario, the incremental taxes and mining royalties owed by Rio Tinto/QMM were projected to total $26 million between 2006 and 2014. The largest payment
50 CARE estimates that the contract farming scheme has benefitted 2,635 farmers in the Amboasary region and increased their annual profits by $437,200 (around $166 per farmer). 51 Zirsill tonnage was not explicitly projected in the PAD; the revenues generated from its export can be implied by subtracting ilmenite revenue from the total projected revenue for Rio Tinto/QMM.
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categories were expected to be corporate income taxes, even though the company was exempt from paying these until 2015 in accordance with the mining concession agreement,52 and taxes on dividend distributions. In addition, the government was expected to collect a further $16 million from personal income taxes by Rio Tinto’s employees (both local and expatriate) over this period. In total, the present value of these various tax payments on an incremental basis (i.e. compared to a scenario where mining operations started 5 years later) was estimated at $23.1 million over the full projection period (2005-2030). Additional incremental benefits stemming from the wage earnings of local Rio Tinto workers, the local share of expenditures by these employees (and expatriates), and the local purchases of the company during the construction phase (2006-2008) and to maintain its operations thereafter, were expected to add another $15.2 million in present value terms, bringing the total mining rent from IG2P to $38.3 million.
Figure C: Evolution of Rio Tinto/QMM ilmenite price and revenues, 2009-2014
* Estimate Source: Rio Tinto
The actual experience through 2014 has fallen short of these expectations for a variety of reasons. First, unanticipated technical challenges53 in the mining process constrained Rio Tinto’s ilmenite production volumes during the first few years of operations,54 and also raised the costs of production beyond what was initially expected. Ilmenite prices on global markets also never reached the peak of $225 expected during the first 6 years of exports; instead, they have averaged around $140 instead over this period, and been on a downward trajectory since 2012 52 The corporate income tax rate was set at 0 percent for the first 9 years of the mining project (2006‐2015), 10 percent for the subsequent 10 years, and 15 percent thereafter. 53 QMM’s ilmenite production was initially constrained by the selection of wet mining as the primary extraction method, which proved ill‐suited to the conditions in Fort Dauphin, and required QMM to make technical adjustments and shift to a combination of wet and dry mining before it could ramp up its production volume. 54 After the initial technical delays, ilmenite production actually increased quicker than expected, so that the cumulative export volume through 2014 (around 2.3 million tons) is actually on par with expectations at the time of the PAD.
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amidst weak global demand for ilmenite and high inventory volumes elsewhere in the world (Figure C). As a result, QMM’s combined revenues from ilmenite and zirsill through 2014 have fallen short of expectations: a cumulative $354 million on an inflation-adjusted basis compared to $415 million projected at the time of the PAD.55 With operating expenses also running higher-than-expected, the company has recorded net losses in every year of operation thus far, and thus been unable to pay out any dividends. At current ilmenite production levels and prices, the ICR model projects that these losses would continue indefinitely. Rio Tinto’s financial underperformance has directly translated into lower-than-expected fiscal contributions. Through 2014, the company has paid a total of only $14 million in taxes and royalties in inflation-adjusted terms (compared to the $32 million initially expected). Moreover, assuming the company continues to accumulate losses, future corporate income and dividend tax payments will also not materialize as planned, reducing the present value of benefits from these two items considerably. Personal income tax collection from Rio Tinto workers, on the other hand, has exceeded projections due to the high employment levels during the construction phase (over 4,500 workers), as has the wage rents and local spending by these employees (Figure D). The local content of purchases during the construction of the mining facility and Ehoala Port was also considerably higher-than-expected—around $80 million was spent by Rio Tinto on local goods and services and on social and community development programs (see Annex 7). These latter two sources of economic rent have helped offset the significant shortfall in QMM’s tax payments.
Figure D: Estimated present value of mining rents in Fort Dauphin (PAD vs. ICR)
In total, the present value of incremental mining rents from IG2P at the time of the ICR is estimated at $30.6 million, compared to $38.3 million in the PAD. Note that for comparability purposes, these figures do not factor in benefits from the increased export of other local minerals such as mica, as these were not considered in the PAD analysis. These are estimated to be
55 The comparison must be done on a real (i.e. inflation‐adjusted) basis since the cost‐benefit analysis is all in real terms and NPV’s are calculated using a real discount rate.
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significant, as the opening of Ehoala Port boosted local mica exports from an average of around 1,000 tons in 2005-2008 to nearly in 14,000 tons in 2013. Summary Aggregating across the three sectors, the total estimated benefits in Fort Dauphin from IG2P interventions amount to $69.5 million in present value terms. The shortfall relative to the PAD projection of $85.1 million is spreads across the three sectors, but stems predominantly from lower mining rents. As in the case of Nosy Be, however, the present value of costs (investment and recurrent costs) is slightly reduced compared to the PAD due to the longer period over which they were ultimately realized. This limits the decline in the estimated NPV of the Fort Dauphin pole and keeps its economic rate of return at 12.0 percent, below the 12.9 percent estimated in the PAD but above the cut-off discount rate of 10 percent.
It is important to note that, unlike in the Antananarivo-Antsirabe and Nosy Be poles, the majority of estimated benefits from IG2P in Fort Dauphin could not be realized without the private sector contribution to the Ehoala Port. Given that the cost overruns in the construction of the port ($256 million compared to the $85 million initially estimated) were absorbed entirely by Rio Tinto, the relevance of this complementary financing to the benefit flows of the pole is even more critical. The economic analysis here presents the economic return on the IDA contribution to IG2P in order to maintain consistency and comparability with the PAD methodology. However, the more appropriate metric in the Fort Dauphin case would be the economic return on total investments (public and private). Since the present value of these combined public and private costs would be considerably higher, the economic rate of return would be significantly lower.
Estimated flows of benefits and costs: Fort Dauphin pole ($US million), 2005‐2030
Overall project Combining the costs and benefits across the three regional poles, the total ERR of IG2P at the time of the ICR is estimated at 9.3 percent. This is lower than both the 14.5 percent projected at the time of the PAD and the more optimistic 20.2 percent estimated during the mid-term review in 2008—right before the crisis hit when project performance was on an upswing and many assumptions were upgraded. More importantly, it is also below the 10 percent cut-off discount rate, implying a negative overall NPV for IG2P, consistent with the fact that two of the regional poles (Antananarivo-Antsirabe and Nosy Be) significantly underperformed initial expectations, and only one (Fort Dauphin) delivered an ERR above the assumed 10 percent cost of capital. Even if the most poorly-performing pole (Antananarivo-Antsirabe) is excluded from the aggregate calculation (given its ultimate cancellation and small share of final project costs), the total ERR is still only 9.6 percent, below the 10 percent cut-off.
A series of roundtable discussions and workshops with project stakeholders and beneficiaries was organized during the December 2014 ICR mission to allow these groups to share their views on the project’s achievements, shortcomings, and lessons learned. The groups consulted during the workshops included: recipients of business development services (BDS) in Fort Dauphin and Nosy Be; representatives of key private sector associations in Antananarivo and Fort Dauphin; private and public representatives from the tourism industry in Nosy Be; staff of the Fort Dauphin municipal government; and farmers in Ifarantsa and Mandiso villages along the RIP118 near Fort Dauphin.
Private sector associations and representatives Antananarivo: The roundtable discussion included representatives from RCL Conseil, the Federation of Chambers of Industry and Commerce, the Syndicate of Industries, and the Groupement du Patronat Malagasy, and focused on the impacts and effectiveness of IG2P’s cross-cutting business environment component (Component A). All participants commended the partial credit guarantee scheme (PCGS) sponsored by the project, and the importance of relieving access to finance constraints in the regional poles to promote growth. In retrospect, however, they lamented the timing of the scheme, as the outbreak of political and economic crisis shortly after the end of PCGS’ ramp-up period undid many of the gains in SMEs improved access to finance: default rates for borrowers spiked and collateral values plummeted. The recovery since has been slow and participants’ sentiment was that access to finance remains an acute constraint. Part of this is because the PCGS was a one-off intervention and there has yet to be a permanent facility to continue its legacy. Nonetheless, participants recognized the usefulness of IG2P in training commercial bank staff to manage MSME loan operations and assess credit risk. With regards to IG2P’s MSME training activities, participants’ sentiment was positive although they emphasized the importance of following up with firms to see how they are performing and what additional support they might need. Fort Dauphin: Participants included the owners of several high-end hotels, the head of a local microcredit institution, and representatives from the new private company set to operate the local landfill site and from the local chamber of commerce. The objective was to solicit views regarding the project’s integrated interventions in Fort Dauphin (component D), and the extent to which observable changes in the local private sector since 2005 were attributable to QMM rather than IG2P. Most participants agreed that QMM’s operations were the key engine of growth in Fort Dauphin—creating demand for jobs and trainings, as well as for business tourism—but that this demand could not have been captured and serviced without IG2P support. Most of the commentary, however, focused less on past achievements of IG2P in Fort Dauphin, and more on what still needs to be done going forward. In this context, the key concern was that it would be difficult for the local government to maintain the various infrastructure that the project helped to put in place. Criticisms emerged that IG2P did not place sufficient focus on promoting and developing Ehoala Park, which participants viewed as the key vehicle for Fort Dauphin’s future growth and job creation. Factors cited as continuing to deter investors in Ehoala Park include:
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security concerns, political instability, land disputes between the local government and QMM, and the lack of a clear vision and strategy for the Park. Recipients of Business development services in Fort Dauphin The roundtable included staff of CARA and CGA and a group of current and former beneficiaries of training and BDS from these two institutions, with the discussion focusing on the MSME capacity building component of IG2P (Component A2). The key message from participants was that IG2P was crucial in bridging the gap between the labor demanded by QMM in Fort Dauphin and the scarce supply of local workers with the desired skills. Beyond this, however, they felt that the project helped to promote an entrepreneurial culture that did not previously exist in Fort Dauphin and in the broader Anosy region, especially among young people who largely defaulted to working in their family businesses. They believe that this culture shift will truly be the lasting impact of the project, even if the various investments in water supply, waste management, roads, etc. cannot ultimately be maintained. Staff of Fort Dauphin Municipality
The municipal staff consulted represented a variety of departments, including revenue and land management, donor coordination, licensing, and general administration. The objective was to understand the impacts of IG2Ps technical assistance and other financial support to the municipality (component D3). Representatives highlighted the computerization of municipal functions as the key transformation supported by the project (through provision of software and training). It has been instrumental in improving record keeping, data collection and processing, and resource mobilization and management, thus helping the government to advance its rapid-results program, which aims to: (1) improve property tax collection; (2) streamline construction permit and licensing procedures; (3) develop new sources of revenue (such as public property rental fees), and (4) boost customs revenue (which is ultimately earmarked for road and infrastructure maintenance). They also noted that local communities have been particularly pleased with the introduction of participatory budgeting, which IG2P supported by training regional delegates, organizing and hosting workshops, and providing necessary equipment and furniture. In addition, participants were thankful for the rehabilitation of their office buildings that IG2P financed, claiming it has greatly improved the quality and safety of their working environment.
Farmers and village communities along RIP118
Two roundtables were organized: one with local community leaders and in Ifarantsa village, and another with a group of 12 pink pepper farmers in Mandiso village. The goal was to solicit views regarding the effectiveness of IG2P’s agribusiness support in the Anosy region and the impacts of the project’s rehabilitation of the RIP118. In Ifarantsa, participants identified four key benefits from the improved road: (i) a reduction in the price of staple goods transported from Fort Dauphin; (ii) expanded consumption possibilities (due to more people being able to travel to Fort Dauphin and shop there); (iii) improved education opportunities since children can now commute back and forth to schools in Fort Dauphin within a reasonable time; and (iv) improved market access for local producers. One participant estimated that the latter benefit in particular has been a key factor behind the near doubling of the average monthly household income in Ifaranstsa (from 80,000 Ariary to 140,000) over the project period. In Mandiso, participants highlighted IG2P’s training programs in crop planting and rural entrepreneurship (e.g.
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accounting skills, business plans, demand analysis, agriculture strategies, etc.) as being critical to their business development. They also noted that, without the 21 new pink pepper plants that IG2P supplied, they could not have scaled up production on their own. Prior to this assistance the village was only growing rice, so the project helped to diversify the local agricultural base, although this has come with the tradeoff of having to reduce rice production due the limited cultivated land.
Tourism industry representatives in Nosy Be
The roundtable consisted of representatives from the Nosy Be tourism office and the Interprofessional Group for Tourism, the owner of a local 4-star hotel, and several tour operators. Discussions centered around the effectiveness of IG2P in stimulating tourism activity on the island beyond what was already happening without the project. In this regard, the consensus was that the infrastructure and training provided by IG2P certainly put the tourism sector on a higher trajectory. However, the complaint was that the full potential of the project was not realized because the government did not do its part in reforming air access policies and strengthening the health care system, two factors which were identified as the key binding constraints to tourism growth. There were also concerns that the hospitality and tourism services training administered by IG2P (for hotel employees, boat captains, etc.) could not be sustained without continued external support. As far as shortcomings in project-specific activities, the panel of participants unanimously criticized the matching grant scheme (PARC) as having had overly-burdensome documentation requirements, which made it unappealing for many intended beneficiaries and thus reduced its potential reach and effectiveness.
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ANNEX 6: RESULTS FRAMEWORK AND OUTCOME INDICATORS
Project Development Objective: To increase business and formal job creation in particular in the mining, tourism and agribusiness sectors in the Nosy Be and Taolagnaro regions.
PDO LEVEL RESULTS INDICATORS Unit of Measure
Baseline
2005
Original target values
Actual results
New Baseline
Original target values
Revised target values
Actual results
2006 2007 2008 2009 2010 2011 2012 2013 2014
1: Number of businesses registered in the regional poles:
Antananarivo‐Antsirabe (Dropped in 2012) No. 1703 1,610
1,630
1,700
1,955
1,800
2,091
1,900
2,227
2,000
3,188
2,100
4,362
Nosy Be No. 400
400
352
450
430
500
563
550
740
600
1,517
650
1,600
1,933
1,700
2,420
1,800
2,957
Fort Dauphin No. 82
82
171
250
200
300
539
350
802
400
1,268
450
1,400
1,603
1,550
2,138
1,700
2,514
2:Number of formal jobs in the regional poles:
Antananarivo‐Antsirabe (Dropped in 2012) No. 850
970
1,035
2,100
1,908
3,000
2,583
4,300
3,429
5,000
4,164
5,000
5,361
Nosy Be No. 1,400
1,800
2,100
2,500
2,817
5,550
3,360
6,000
3,836
6,300
4,631
6,500
4,900
5,005
5,300
5,700
5,700
6,948
Fort Dauphin No. 1,015
1,500
3,200
3,500
4,916
4,200
5,524
4,600
6,222
4,800
7,343
5,000
7,600
7,560
7,900
8,758
8,200
9,385
3. Direct project beneficiaries (added in 2012) No. 0
200,000
205,600
205,600
211,350
211,530
217,300
220,199
of which female % 0
50.6
50.6 50.6
50.6 50.6
50.6 50.6
4. Annual private investment flows (dropped in 2012) Million
US$ 87
313
1,045
1,100
1,180
1,200
1,295
1,300
808
1,400
809
1,500
812
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5: Volume of cargo shipped through:
5.1. Tamatave port (dropped in 2007) Tons 2 million
2.4 million
─
2.6 million
3.2 million
5.2. Ivato airport (dropped in 2007) Tons 7,341
7,535
6,266
8,800
INTERMEDIATE RESULTS
Intermediate Result (Component A): Strengthening the business environment
1: Partial Credit Guarantee Scheme (GPP) (closed in 2008)
1.1 Value of new loans disbursed to MSMEs by participating banks through the GPP
Million US$
0 ─ 22.3
18.2
25.1
26.7 ─ ─ ─ ─ ─ ─
1.2. Number of new loans disbursed by participating banks through the GPP
No. 0 ─ 390
1,004
439
1,878 ─ ─ ─ ─ ─ ─
2: Days required to start a business
Capital Days 21
5
7
5
5
4
4
4
4
4
4
3
4
3
4
7
3
7
3
8
Regions Days >30
>30
>30
>30
>30
15
25
15
25
7
25
7
7
7
7
7
7
7
7
7
3: Number of individual recipients of subsidized BDS services
No. 0
─
250
207
300
1,730
500
2,030
700
2,167
800
2,167
900
2,167
3,374
2,500
4,567
2,600
5,252
4: Annual sales value of assisted firms in selected value chains (cum.’(‐)
% 0
0
0
0
0
0
0
2
─
7
─
15
0
15
5
29
10
89
15
N.A
PDO 3.1: EDBM is fully staffed and operational Yes/No No
Yes
PDO 3.2: Adoption of regional development plans Yes/No No
Yes
PDO 4: Adoption by National Assembly of a new Investment Law and amended Free Zone law
Yes/No No
Yes
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Intermediate Result (Component B): Export led growth in Antananarivo‐Antsirabe
1. Number of workers trained in the textile industry (cumulative) (dropped in 2012)
No. 0 100
150
150
213
200
257
350
285
550
313
800
313
900
313
2. Volume of products handled in the agro techno pole (dropped in 2012)
Tons 0 ─ ─ 100 200 300 400 500
3. Percent of regional MAP activities supported by the project completed (dropped in 2012)
% 0 ─ ─ 50 70 90 95 100
Intermediate Result (Component C): Tourism led growth in Nosy Be
1.1: Number of tourist arrivals by air or sea per annum No. 39,376
35,000
42,353
37,500
42,392
68,376
59,133
70,000
43,894
78,376
62,786
80,000
65,187
85,000
68,000
62,950
72,000
58,454
76,000
64,502
1.2: Number of formal and direct tourism related jobs in Nosy Be
No. 1,386
2,000
1,519
2,250
1,718
3,300
2,015
4,500
2,622
5,300
2,687
5,600
2,752
5,900
2,950
2,963
3,200
3,220
3,500
3,701
1.3: Increase in hotel rooms (cumulative) % 0
15
15
20
20
30
20
40
31
50
43
60
78
70
85
104
95
113
105
128
2.1: People provided with access to “Improved Water Sources” under the project
No.
8,010
8,400
12,089
17,000
20,532
24,500
25,062
34,000
28,025
43,300
31,193
46,375
41,100
49,700
47,690
63,900
51,440
65,800
68,520
2.2: Roads rehabilitated
Urban km 0
0
0
9.1
9.1
9.1
9.2
11.2
12.7
14.6
14.2
14.6
15.0
Rural km 0
0
0
35.1
35.1
35.1
39.8
42.3
39.8
43.3
45.3
44.8
45.3
2.3: Completion of upgrading works of Hellville and Ankify ports
Yes/No No
No
No
No
No
No
No
‐
No
Yes
ongoing
‐
YES
2.4: Time required to issue a construction permit by the municipality of Nosy Be
Days 50
45
40
30
30
32
30
25
40
25
45
20
45
20
40
10
35
7
30
7
2.5: Value of additional Municipal revenue generated % 0
20
30
30
35
40
98
50
41
80
56
120
75
150
85
25
100
92.1
125
132.2
80
2.6: Additional generation capacity installed – conventional (added in 2012)
MW 0
5.1
5.9
5.1
6.7
5.1
7.6
9.0
2.7: Existing electricity networks rehabilitated (added in 2012)
Constructed Km of
distribution lines
‐
0 4
0
46
27.0
46
29.72
Rehabilitated Km of
distribution lines
‐
0 0
0
27
5.1
27
68.69
2.8: People in urban areas provided with access to regular solid waste collection under the project (added in 2012)
No. 25,450
58,735
66,700
66,180
68,700
68,882
70,700
75,573
2.9: Percent of regional MAP activities supported by the project completed (dropped in 2012)
% 0 ─
15
40 70 90 95 100
Intermediate Result (Component D): Mining and Tourism led growth in Tolagnaro
1.1: Number of tourist arrivals in Taolagnaro per annum
No. 13,011
13,500
14,838
15,000
18,329
20,000
19,958
25,000
11,855
31,000
14,688
35,000
22,300
45,000
25,000
26,690
27,500
25,668
30,000
33,330
1.2: Number of formal and direct tourism related jobs in Taolagnaro (cumulative)
No. 111
250
239
350
243
800
693
1,000
1,195
1,600
1,694
1,700
1,759
1,800
1,820
1,811
1,920
1,847
2,000
1,880
1.3: Increase in hotel rooms (cumulative) % 0
10
15
15
20
20
67
20
90
25
98
30
97
35
97
103
97
103
100
103
2.1: People provided with access to “Improved Water Sources” under the project
No.
24,635
26,500
28,060
30,500
40,880
35,500
41,560
40,500
42,070
47,500
42,620
47,500
56,360
58,900
57,270
61,150
61,080
63,400
64,830
2.2: Roads rehabilitated
Urban Km 0
0
0
4.5
7.9
7.9
12.2
24
24.8
30.8
25.4
30.8
31.1
Rural km 0
0
0
0
0
67
67
67
67
92
67
92
92.5
2.3: Time required to issue a construction permit by the Municipality of Taolagnaro
Days
42
30
25
23
20
18
20
17
30
15
45
15
45
15
40
25
35
20
30
17
81
2.4: Value of additional Municipal revenue generated % ‐
20
40
30
50
60
540
120
216
180
313
300
432
300
475
571
525
658.5
575
568
2.5: Additional generation capacity installed – conventional (added in 2012)
MW 0
23.7
23.7
23.7
23.7
23.7
23.7
23.7
2.6: Existing electricity networks rehabilitated (added in 2012)
Constructed Km of
distribution lines
0
0 12
13.8
12
13.8
12
13.8
Rehabilitated Km of
distribution lines
0
0 87
57.8
87
138
87
138
2.7: People in urban areas provided with access to regular solid waste collection under the project (added in 2012)
No.
13,500
23,340
33,140
33,679
51,180
58,567
61,320
68,033
3: Volume of traffic handled by Ehoala Port ‘000
tonnes
0
750
137
750
352
750
525
750
600
677
675
648
750
461
4: Number of formal jobs in mining, construction, agribusiness and in Ehoala Park/Port
No.
904
1,000
2,800
3,000
3,750
3,900
4,673
2,000
2,337
2,000
2,334
2,000
2,498
2,000
2,700
2,784
2,900
3,700
3,100
3,849
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ANNEX 7: Summary of Rio Tinto/QMM’s development impacts in Fort Dauphin
In August 2005, after decades of exploration and scientific assessments of the mineral resources in the southeast of Madagascar, Rio Tinto finally took the decision to invest in mining extraction in Fort Dauphin 2005 as part of the IG2P project framework, signing a 40-year concession agreement with the Government of Madagascar (GoM). The agreement paved the way for construction of a vast mining facility in the Mandena commune (10km outside of the city of the Fort Dauphin) and a new multi-use port on the edge of the Ehoala Peninsula that would allow for the export of up to 750,000 tons of ilmenite annually over the next 40 years. Both the mine and the Ehoala port would be operated by Rio Tinto’s local subsidiary, QIT Madagascar Minerals (QMM), which would have 80 percent equity ownership of the venture, with the GoM holding the remaining 20 percent.
As it the case with many resource extraction projects by large multinational companies around the world, Rio Tinto’s involvement brought its fair share of concerns over the social and environmental impacts on the local community and skepticism over the extent to which the economic benefits would be shared with the citizens of Fort Dauphin (and Madagascar more broadly). Although not without occasional controversy, the experience thus far has been generally positive, as Rio Tinto has proven an essential partner to the World Bank and the GoM in transforming Fort Dauphin from a poor famine-stricken outpost to a budding tourist destination and a source of significant natural resource revenue for the GoM. Since 2006, Rio Tinto’s investments and operations have contributed positively to Fort Dauphin’s development on several economic and social dimensions:
Infrastructure:
Mining facilities: QMM invested around $675 million in the massive mining facility at Mandena, an access road connecting it to the new Ehoala Port, and a residential camp for the employees of QMM and their families.
Ehoala Port: The new deep-water port, with its three berths and two large storage warehouses, was completed in 2009 (funded by a $35 million contribution from IG2P and $221 million from QMM) and became the new commercial gateway for Fort Dauphin and the broader Anosy region, which was previously cut off from key markets for its agricultural goods. Since the opening of the port, nearly 2.3 million tons of QMM’s ilmenite have been exported, along with over 185,000 tons of Fort Dauphin’s other domestic products, including sisal, lychee, fish and lobsters. An unplanned outcome was that the port also opened up Fort Dauphin’s tourism industry to cruise ships, and 28,000 tourists have come to Fort Dauphin via this mode of transport since 2009.
Water and power supply: In partnership with JIRAMA, QMM contributed $2 million towards the rehabilitation of Fort Dauphin’s aging potable water treatment plant and the construction of a new water plant (including a sewage collection system). It also financed the construction of 20 water wells throughout Fort Dauphin’s communes. Furthermore, it provided another $2 million for the purchase of a new electricity generator for the city, which
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has added 3.8MW of electricity supply and helped virtually eliminate blackouts in Fort Dauphin.56
Solid waste management: QMM financed the construction of a new landfill site for Fort Dauphin at Ankarefo, which will be operated by a financially independent private company beginning in 2015. This site will be crucial in sustaining and expanding the local population’s access to solid waste collection services, which has already increased from around 23 percent of the local population in 2005 to nearly 100 percent in 2014.
Employment:
Direct employment: Around 4,500 people were employed by QMM and its contractors during the construction phase of the mining facility and Ehoala Port (2006-2008), 61 percent of which were Malagasy nationals from the local Anosy region, 22 percent migrant Malagasy workers from other parts of the country, and only 17 percent expatriates. This high local labor content was achieved through extensive aptitude testing prior to the start of construction to screen and identify qualified candidates and compile a database of workers from which contractors could hire. After the construction phase, QMM has continued to maintain very high levels of local employment, with Malagasy nationals accounting for around 97 percent of its permanent staff of 600-700 workers. Moreover, the local staff are not limited to low-skill roles: in 2014, 9 Malagasy were promoted to superintendent positions previously held by expatriates.
Indirect and induced jobs: QMM has estimated that its investments and operations have helped to create more than 1,000 indirect jobs in the Fort Dauphin region, across multiple spheres of economic activity, including catering accommodation and services, building and business support services, banking and microfinance, property leasing, and equipment supply. The induced employment (i.e. the new jobs created as a result of the increased income and spending of the 5,500 workers directly and indirectly employed by QMM during the project) is estimated at around 11,000.
Fiscal contributions:
Mining royalties: Under the concession agreement with the GoM, QMM is required to pay annual royalties equivalent to 2 percent of its revenue from ilmenite exports. 30 percent of these royalties accrue to the central government, while the other 70 percent are distributed among the Fort Dauphin municipality, the Anosy regional government, and the 4 communes around QMM’s mining site. Since the start of ilmenite production in 2009, QMM has paid a total of $8.2 million in such royalties.
56 Under the arrangement with JIRAMA, QMM provided advance financing for the purchase of the generator and its transportation and installation costs with the agreement that JIRAMA would reimburse this expense over the course of 10 years. QMM maintains the facilities and supplies the generator with fuel, but JIRAMA pays for fuel costs. In addition, QMM constructed a separate 22.8MW power plant onsite at its mine to provide electricity for its mining operations.
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Other taxes and fees: Since the start of construction of its mine and port facilities in 2006, QMM has also been liable for a variety of income and dividend taxes, VAT, customs duties, and other administrative fees. In total, these taxes and fees have amounted to roughly $37 million through 2014.
Business development initiatives:
Training and entrepreneurial support. In partnership with IG2P, the Anosy regional government, and the local Chamber of Commerce, QMM helped establish the Business Center for the Anosy Region (CARA), which aimed to develop entrepreneurial activity in Fort Dauphin through various trainings, conferences, trade fairs, open house, contests, etc. Since its establishment, CARA has delivered trainings to over 4,317 people, aided in the direct creation of 196 small businesses, and has 145 permanent members.
Social programs:
To maximize the positive impact of the project on the local community, QMM has also been spending several million dollars each year on a variety of social and environmental programs, detailed in Table A9 below.
Table A9: Rio Tinto’s social development programs and partnerships
Project Category Details Partners Local Beneficiaries HIMO (high intensity of workforce) Activities with short-term impact for the population)
Operations: street-cleaning, earth removal, reforestation, channel cleaning, gardening, market and nursery rehabilitation, Mandena development planning
Education Implementation of the Professional training Institute of Anosy; Creation of the Private French High School (Clairefontaine); higher education scholarship; Educational facilities rehabilitation High school, CEG, EPP
Ministry of Education, Region, CARE, PNUD, CISCO, BCS, PIC, Clairefontaine, Employment Service FTD
Regional population, holders of the Baccalaureate and QMM employees Clairefontaine
Health Cinemobile, Top Network Centre, STI/AIDS prevention
CNLS, PSI, USAID, CISCO, Ministry of Education, Ministry of Health
Urban and suburbs Population, Young pupils, project employees
Safety Building of a police station, telecommunication equipment and Moto, support to public and road safety, signalling panels
Urban municipality, Police, ALF
FTD urban municipalities
Migration monitoring Implementation of a migration Urban municipality , FTD urban municipalities
85
monitoring system Health facilities
Principal areas
Inflation Inflation monitoring; Storage silo rehabilitation business in rice marketing; Support to market and apiculture culture development
Ministry of Trade, Ministry of Economy and Finance, INSTAT, Municipalities, Region, DRDR, CARE, ASOS, USAID, AGRISUD, PACT, Operators, Village Association
Region, FTD urban municipality and surrounding (Mandromondromotra and Ampasy Nahampoana)
Sports and leisure Katrehaky, Football school; Cultural centre; stadium rehabilitation; Equipment allocation to the National Volleyball Team Equipment allocation to the students of the EPP Amparihy for a national examination
Tourism, Ministry for youth and sports, Ministry of Mining, Volley Ball Federation, Colas, Star, celtel, SRSBO, AIR MAD, Operators
FTD urban municipalities , FTD youth, National Volleyball Team
Sustainable Management of Natural Resources and promotion of alternative activities
Vetiver production; Development of the craft industry; Support to fishermen through the allocation of fishery ground; Fishermen training; Compensation to the fishermen; Development of agricultural businesses
Ministry of fisheries, Region, Municipality, Aquaculture Service Conseil, Villages Andrakaraka and Evatraha, Mandena management committee, Fivoy…
People from villages surrounding Mandena Populations surrounding lagoons: Lanirano, AKK, Ambavarano. Evatraha… Population of Ambinanibe, Lohalovoka and Ilafitsinana
Environmental Protection and Conservation
Monitoring of the ecotourism zone of Mandena; Materialisation of the limits of the Ambatoantsinana conservation zone; Implementation of conservation zones; Reforestation on 1,000 ha
Ministry of Environment, Birdlife, WCS, CI, USAID, Jariala, Mandena and Ste Luce management committee, village association…
Coastal population and users of Mandena and Ste Luce
Support to the populations affected by the resettlement scheme (PAP’s)
Monetary compensation and restitution in kind; Houses rehabilitation; PAP's Support measures
Ministry of Mining, Ministry of Finances, Ministry of Public Works, Municipality, Region, World Bank, PIC, ACT, FAFAFI, Hai tsinjo
Resettled population Ilafitsinana PAP's, villagers from Lohalovoka and Ambinanibe
Water and Electricity Water and electricity supply for the town of FTD: construction of a new water treatment and pumping plant; Energy supply of 3,8 MGW for the town of Fort Dauphin
Ministry of Energy, JIRAMA, World Bank, PIC
FTD urban municipality
Source: Rio Tinto, “Results and Perspectives of Ilmenite Project in Fort Dauphin”, Information Report, 2009.
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ANNEX 8: SUMMARY OF BORROWER’S ICR AND/OR COMMENTS ON DRAFT ICR
The Borrower’s ICR—Evaluation du Projet Pôles lntégrés de Croissance 1 (PIC1)—was prepared by the Ministry of Finance and Budget in March 2015 and formally submitted to the Bank on April 23, 2015. The report was accompanied by an evaluation sheet rating the project along the three key dimensions used in this ICR (relevance, efficacy, and efficiency), including an assessment of the project’s value added to its targeted local communities. The report presents an accurate overview of project objectives and components, broadly in line with this ICR’s presentation. It notes the innovativeness of the project design and the importance of its integrated multi-dimensional approach, which helped promote growth in the high-potential sectors (tourism, mining, and agribusiness) of the targeted regional poles. It also highlights the project’s role in establishing Madagascar’s first large-scale Public-Private Partnership (PPP) for the construction of Ehoala Port. For each project component except component B (the Antananarivo-Antsirabe pole, dropped in 2012), the report itemizes original and actual costs, the main elements of project support, and outcomes. These highlights are not repeated here because they are in line with the presentation of project components in this ICR (Main Text and Annex 2). Based on project and program data supplied by the PIU, the Borrower’s report also provides an annotated table of actual data outturns (as of December 2014) against the revised targets for each key performance indicator. Again, because the same outcome data was used in the ICR and documented in detail in the main text and in Annexes 2 and 6, it will not be repeated here. This report does not comment on compliance with social and environmental safeguards, procurement, or financial management. In terms of the three key ICR evaluation criteria: Relevance: the report rates the project as highly satisfactory on this front, stating only that
works in regions that were selected on the basis of their “high potentialities,” supporting promising sectors such as tourism, mining, and agribusiness.
Efficacy: the report gives a highly satisfactory rating, highlighting the creation of various MSME support structures and the construction and rehabilitation of critical infrastructure. It cites these as contributing to the seven-fold increase in formal enterprises and five-fold increase in formal jobs in Nosy Be, and the thirty-fold increase in formal enterprises and nine-fold increase in formal jobs in Fort Dauphin.
Efficiency: the report gives a satisfactory rating. No other justification is given other than that the project succeeded in committing 99 percent of its allocated funds and disbursing 95 percent.
The report also rates the project’s “community value added” as satisfactory, highlighting the high number of individuals that benefitted from the project’s various entrepreneurship trainings, helping to boost their productivity and incomes, particularly in agribusiness. It also notes the
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success of the project’s matching grant scheme (PARC) in generating 161 permanent jobs and improving the annual turnover of participating MSMEs.
The Borrower’s ICR concludes by stating that the project’s objectives have been achieved, as evidenced by the improved living conditions of local communities, the jobs created in targeted sectors, and the increased revenues of municipalities in Nosy Be and Fort Dauphin. In this spirit, the report welcomes the World Bank’s follow-on Second Integrated Growth Poles and Corridors Project (PIC2) and its expansion of similar activities to other regions of Madagascar.
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ANNEX 9: LIST OF SUPPORTING DOCUMENTS
Care International and Projet Pôles Intégrés de Croissance (PIC), “Projet d’appui aux producteurs pour le développement de lágriculture contractuelle,” presentation to the World Bank ICR mission, December 2014.
Gelb, A., Ramachandran, V., Rossignol, I., and G. Tata, “When Agglomeration Theory Meets Development Reality: Preliminary Lessons from Twenty World Bank Private Sector Projects,” Center for Global Development, February 2015.
Koivisto, M. and J. Speakman, “Growth Poles: Raising Competitiveness and Deepening Regional Integration,” The Africa Competitiveness Report 2013, 2013.
Habiyarimana, J. “Impact Assessment of the Madagascar Growth Poles Project,” Preliminary Report, May 2015.
International Advisory Panel, “Report of the International Advisory Panel: Integrated Growth Poles Project,” various years (2011, 2012, and 2014)”.
QIT Madagascar Minerals SA (QMM), “Rapport du Développement Durable”, various years (2010, 2011, 2012, and 2013).
QIT Madagascar Minerals SA (QMM), Annual financial statements, various years (2009, 2010, 2011, 2012, 2013)
Ratsimiahy, H., “Evaluation du programme d’appui au renforcement des capacités (PARC),” Projet Pôles Intégrés de Croissance (PIC), December 2014.
Rio Tinto, “Tracking Development: A Collection of QIT Madagascar Minerals’ (QMM) Socioeconomic Contributions,” December 2011.
Rokotovao, A. “Evaluation économique à miparcours du Projet Pôles Intégrés de Croissance,” Projet Pôles Intégrés de Croissance (PIC), May 2008.
Rakotoarison T., “Smart Lessons,” Working papers, June 2014.
World Bank, “Madagascar: Back to the future and on the road to sustained and balanced growth,” Country Economic Memorandum, Volume 1, December 2008.
World Bank, Second Madagascar Integrated Growth Poles and Corridors Project (PIC2), Project Appraisal Document, November 2014.
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