MULTINATIONAL WAMZ PAYMENT SYSTEM DEVELOPMENT PROJECT …

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AFRICAN DEVELOPMENT FUND

MULTINATIONAL

WAMZ PAYMENT SYSTEM DEVELOPMENT PROJECT (THE GAMBIA, GUINEA AND SIERRA LEONE)

APPRAISAL REPORT

SECTOR OPERATIONS GOVERNANCE, ECONOMIC AND FINANCIAL MANAGEMENT DEPARTMENT APRIL 2008

TABLE OF CONTENTS

SUMMARY, CONCLUSION AND RECOMMENDATION ..................................................................................................... IX

1. PROJECT ORIGIN AND BACKGROUND ......................................................................................................................... 1

2. THE PROJECT......................................................................................................................................................................... 2 2.1 PROJECT CONCEPT AND RATIONALE ................................................................................................................................. 2 2.2 PROJECT AREA AND BENEFICIARIES.................................................................................................................................. 3 2.3 STRATEGIC CONTEXT ........................................................................................................................................................ 3 2.4 PROJECT OBJECTIVES......................................................................................................................................................... 4 2.5 DETAILED DESCRIPTION OF PROJECT COMPONENTS......................................................................................................... 4 2.6 PROJECT COSTS.................................................................................................................................................................. 8 2.7 SOURCES OF FINANCE AND EXPENDITURE SCHEDULE ...................................................................................................... 9 2.8 ENVIRONMENTAL IMPACT ............................................................................................................................................... 10

3. PROJECT IMPLEMENTATION ........................................................................................................................................ 10 3.1 EXECUTING AGENCY ............................................................................................................................................................ 10 3.2 IMPLEMENTATION ARRANGEMENTS................................................................................................................................ 11 3.3 PROCUREMENT ARRANGEMENTS..................................................................................................................................... 11 3.4 SUPERVISION AND IMPLEMENTATION SCHEDULE ........................................................................................................... 13 3.5 DISBURSEMENT ARRANGEMENTS.................................................................................................................................... 14 3.6 FINANCIAL REPORTING AND AUDITING........................................................................................................................... 14 3.7 MONITORING AND EVALUATION ..................................................................................................................................... 14

4. PROJECT SUSTAINABILITY AND RISKS ..................................................................................................................... 15 4.1 PROJECT SUSTAINABILITY ............................................................................................................................................... 15 4.2 CRITICAL RISKS AND MITIGATING MEASURES ............................................................................................................... 15

5. PROJECT BENEFITS........................................................................................................................................................... 16 5.1 ECONOMIC BENEFITS ....................................................................................................................................................... 16 5.2 SOCIAL BENEFITS............................................................................................................................................................. 17

6. CONCLUSION AND RECOMMENDATION ................................................................................................................... 17 6.1 CONCLUSION.................................................................................................................................................................... 17 6.2 RECOMMENDATION.......................................................................................................................................................... 17

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LIST OF TABLES Table 1: Project Cost Estimate by Component .................................................................................................................................... 8 Table 2: Project Cost Estimate by Category of Expenditure .............................................................................................................. 8 Table 3: Project Costs by Country ....................................................................................................................................................... 9 Table 4: Project Financing Plan by Source of Finance ...................................................................................................................... 9 Table 5: Project Financing Plan by Component ................................................................................................................................. 9 Table 6: Expenditure Schedule by Source of Finance ....................................................................................................................... 10 Table 7: Expenditure Schedule by Component .................................................................................................................................. 10 Table 8: Procurement Arrangement................................................................................................................................................... 12 Table 9: WAMZ Country Share in Total WAMZ Trade....................................................................................................... Annex II/1 Table 10: Number of Licensed Financial Institutions in WAMZ, end 2006......................................................................... Annex II/2

LIST OF FIGURES

Figure 1: Share of intra-trade of total trade in ECOWAS ................................................................................................... Annex II/2

LIST OF ANNEXES ANNEX 1: WAMZ PAYMENT SYSTEMS DEVELOPMENT PROJECT ............................................................................................ 1 ANNEX 2: THE ECONOMIC ENVIRONMENT, BANKING AND FINANCIAL SECTOR IN WAMZ.............................................. 1 ANNEX 3: WAMZ ECONOMIC CONVERGENCE CRITERIA .......................................................................................................... 4 ANNEX 4: DETAILED PROJECT COST ESTIMATE......................................................................................................................... 5 ANNEX 5: THE WEST AFRICAN MONETARY INSTITUTE’S ORGANISATION CHART .............................................................. 6 ANNEX 6: ORGANISATIONAL CHART FOR PROJECT IMPLEMENTATION............................................................................... 7 ANNEX 7: PROJECT IMPLEMENTATION SCHEDULE .................................................................................................................. 8

This Appraisal Report has been prepared by Mr. Taiwo Adeniji, Chief Financial Analyst, OSGE.2, Mr. Jonathan Simwami, Principal Systems Analyst, CIMM.1 (Ext. 2337), and Mr. Damoni Kitabire, Lead Economist, OSGE.0 (Ext. 2174) following their appraisal mission to WAMI headquarters in Accra, Ghana, in July/August 2007. Any questions on the report may be referred to the authors, to Ms. Marlène Kanga, Manager, OSGE.2 (Ext. 2251) or Mr. G. Negatu, Director, OSGE (Ext. 2077)

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AFRICAN DEVELOPMENT FUND B. P. 323 TUNIS

Tel: (216) 71-102-351 Fax: (216) 71-333-680

PROJECT INFORMATION The information given hereunder is intended to provide some guidance to prospective suppliers, contractors, consultants and all persons interested in the procurement of goods and services for projects approved by the Boards of Directors of the Bank Group. More detailed information and guidance should be obtained from the Beneficiary. 1. COUNTRY AND NAME

OF PROJECT : Multinational: WAMZ Payment System Development Project (The Gambia, Guinea and Sierra Leone)

2. RECIPIENT : West African Monetary Institute (WAMI) 3. EXECUTING AGENCY : West African Monetary Institute (WAMI) Premier Towers, PMB CT 75 Accra, Ghana Telephone (233-21) 676901/2 Fax (233-21) 676903 4. PROJECT DESCRIPTION : The proposed project involves the improvement of the

payment systems in The Gambia, Guinea and Sierra Leone. The main component of the system improvement process is the development of Real Time Gross Settlement (RTGS) payment system in the three countries. RTGS is a large value funds transfer system whereby financial intermediaries can settle interbank transfers for their own account as well as for the account of their customers. It interfaces to SWIFT for sending and receiving payment messages. In addition to the RTGS, the project would also assist the three countries in automating their retail payments through the development of an Automated Clearing House (ACH) and Automated Check Processing (ACP). The project would upgrade the Banking Application systems, incorporating Scriptless Securities Settlement System (SSSS). The project would also finance the upgrade of telecommunication and power facilities to operate the systems.

6. PROCUREMENT : All procurement of goods, works and acquisition of consulting services financed by the Bank will be in accordance with the Bank Group’s Rules of Procedure for the Procurement of Goods and Works, January Edition 2000 or, as appropriate, Rules of Procedure for the Use of Consultants, using the relevant Bank Standard Bidding Documents (SBD). Goods will be procured through national competitive bidding and Limited International Competition.

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7. TOTAL PROJECT COST : UA 17.56 million 8. ADF GRANT : UA 14.00 million 9. OTHER FINANCIERS

The Central Banks of Gambia, Guinea and Sierra Leone : UA 1.62 million Commercial Banks : UA 1.94 million

10. DATE OF APPROVAL : April 2008 11. ESTIMATED PROJECT STARTING DATE

AND DURATION : May 2008 for a period of 3 years 12. CONSULTANCY SERVICES REQUIRED : YES

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ABBREVIATIONS ACH = Automated Clearing House ACP = Automated Check Processing ADB or Bank = African Development Bank ADF or Fund = African Development Fund ATM = Automated Teller Machine BCP = Basle Core Principles (of Banking Supervision) BCRG = Banque Centrale de la République de Guinée BoSL = Bank of Sierra Leone CBG = Central Bank of Gambia CBN = Central Bank of Nigeria CET = Common External Tariff CSP = Country Strategy Paper ECOWAS = Economic Community of West African States EMCP = ECOWAS Monetary Cooperation Program ETLS = ECOWAS Trade Liberalization Scheme FSSA = Financial Sector Stability Assessment GDP = Gross Domestic Product IMF = International Monetary Fund LAN = Local Area Network MAN = Metropolitan Area Network MFI = Microfinance Institution MPC = Monetary Policy Committee NBFI = Non-Bank Financial Institutions NCB = National Central Bank NFA = Net Foreign Assets NPSC = National Payment System Committee OFI = Other Financial Institutions OMO = Open Market Operations PCR = Project Completion Report PMU = Project Management Unit POS = Point of Sale PSDC = Payment System Development Committee PSTN = Public Switched Telephone Network REC = Regional Economic Community RTGS = Real Time Gross Settlement SBD = Standard Bidding Documents SCF = Stabilization and Cooperation Fund SSSS = Scriptless Securities Settlement System UA = Unit of Account UEMOA = Union Economique et Monétaire Ouest-Africaine UTREL = Technical Unit for Legal Reform WACB = West African Central Bank WAFSA = West African Financial Supervisory Agency WAMI = West African Monetary Institute WAMZ = West African Monetary Zone WB = World Bank

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CURRENCY AND MEASURES CURRENCY EQUIVALENT

(April 2008) Currency Unit = Gambian Dalasi (GMD) = Guinean Francs (GNF) = S. Leonean Leone (SLL) 1 UA = 35.2396 GMD 1 UA = 8283.20 GNF 1 UA = 4770.3 SLL 1 UA = 1.6445 USD

FINANCIAL YEAR

January 01 to December 31

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Multinational: WAMZ Payment System Development Project Project Matrix

Hierarchy of Objectives Expected Results Reach (Target

Population) Objectively Verifiable Indicators Means of Verification Important Assumptions

(to be monitored) SECTOR GOAL Achieve full economic and monetary union of WAMZ countries

LONGER-TERM OUTCOMES Full economic and financial integration of WAMZ countries

National populations of the five member countries of WAMZ

1. The share of intra trade to total trade among WAMZ

countries doubles from about 2.35% in 2005 to 5% within three years of achieving monetary union1

1. WAMZ Economic Surveillance

Reports 2. ECOWAS Reports 3. Reports of National Central

Banks

OBJECTIVE To improve the basic infrastructure of the financial sector in WAMZ through the upgrade of the payment systems in three member countries.

MEDIUM-TERM OUTCOMES 1. Deeper integration of the

financial systems in WAMZ achieved

2. The efficiency of funds

transfers across WAMZ countries enhanced

3. The quality and effectiveness

of banking supervision in WAMZ countries enhanced

4. Increased participation of the

citizens of WAMZ in the formal financial sector.

1. Private sector

businesses and individuals using banking services

2. Citizens of WAMZ

currently excluded from the formal financial sector

3. Citizens of WAMZ

engaged in cross border trade

4. National Central Banks

of WAMZ countries 5. National Central Banks

and commercial banks in WAMZ

6. Citizens of WAMZ

currently excluded from the formal financial system

1.1 Member countries of WAMZ implement the new

check standards by end 2009

1.2 Harmonized rules and regulations for RTGS approved by the Convergence Council of WAMZ by end 2008

1.3 New harmonized Payment System Law approved by the Convergence Council of WAMZ by end 2009

2.1 Same day funds transfers within WAMZ achieved

by 2011 The harmonization of banking supervision rules in WAMZ achieved by 2011

4.1 The percentage of the citizens of WAMZ with access to the formal financial sector increases from about 8% to 12% by 2011, of which a great percentage are expected to be women.

1. WAMZ Economic Surveillance

Reports 2. ECOWAS Reports 3. Reports of the National Central

Banks

4. Reports of commercial banks in the countries

5. Project Progress Reports

6. ADB Supervision Reports

Continued commitment to the monetary union and single currency program by the member countries of WAMZ.

1 The projection of 5% is based on the full implementation of the ECOWAS trade-related protocols, and an efficient payment system in the WAMZ is part of the infrastructural requirements that will facilitate intra-trade in the WAMZ.

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(to be monitored) ACTIVITIES Inputs 1. Non-Consulting Services

procured to implement the following project activities:

A. Development of Real Time

Gross Settlement (RTGS) System

(UA 4.44 million)

SHORT-TERM OUTPUTS RTGS systems installed and operational in The Gambia, Guinea and Sierra Leone.

1. The Central Banks of The Gambia (CBG), Guinea (BCRG) and Sierra Leone (BoSL) 2. Commercial Banks in the three countries 3. Users of banking services in the three countries.

1. High value funds transfers in The Gambia, Guinea and Sierra Leone effected through RTGS systems and not by bank checks as from 2010. 2. Volume of high value funds transfers in the three countries increases by 45% from 1,370 in 2007 to 2,000 by 2011

1. Reports of the National Central

Banks




Strong commitment to the project by the commercial banks in the recipient countries

B. Development of Automated

Clearing House (ACH) (UA 2.27 million)

ACH systems installed and operational in The Gambia, Guinea and Sierra Leone.

1. The CBG, BCRG, and BoSL. 2. Commercial Banks in the three countries 3. Users of banking services in the three countries

1. Clearing House operations in the Gambia, Guinea and Sierra Leone completely automated by 2011

2. The clearing cycle in number of days of local and upcountry checks in the three countries reduced by up to 50% by 2011


Banks





C. Development of Automated

Check Processing System (ACP)

(UA 2.41 million)

ACP systems installed and operational in The Gambia, Guinea and Sierra Leone.

1. The CBG, BCRG, and BoSL. 2. Commercial Banks in the three countries 3. Users of banking services in the three countries

1. Check Processing operations in the Gambia, Guinea and Sierra Leone completely automated by 2011

2. The volume of low value transactions, usually done by checks, increases by 45% from 3,514 in 2007 to 5,145 by 2011.


Banks





D. Development of Scriptless

Securities Settlement System (SSSS)

(UA 1.09 million)

SSSS systems installed and operational in The Gambia, Guinea and Sierra Leone

The Central Banks of The Gambia, Guinea and Sierra Leone

1. Issuance of Government securities automated in the Gambia, Guinea and Sierra Leone by 2011


Banks



Strong commitment to the project by the Central Banks in the recipient countries

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(to be monitored) E. Upgrade of the Banking

Application software of the Central Banks of The Gambia, Guinea and Sierra Leone

(UA 2.20 million)

Improved IT systems installed and operational at the Central Banks of The Gambia, Guinea and Sierra Leone .

The CBG, BCRG, and BoSL.

The CBG, BCRG and BoSL disposed of modern information technology systems capable of interfacing with the new payment systems.


Banks



2. Equipment procured for the upgrade of the infrastructural facilities of the CBG, BCRG, and BoSL (UA 3.17 million)

Improved infrastructure facilities provided to the CBG, BCRG and BoSL

The CBG, BCRG and BoSL

Telecommunication infrastructure for the new payment system installed, and standby generating sets installed for supplementary power supply.


Banks 2. Project Progress Reports 3. ADB Supervision Reports

Project Cost UA 17.56 million

ADF Grant: UA 14.00 million NCBs: UA 1.62 million Comm. Banks: UA 1.94 million

1. Reports of the National Central Banks



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SUMMARY, CONCLUSION AND RECOMMENDATION

1. INTRODUCTION

WAMZ was created in 2000 by five (5) West African countries with the primary objective of promoting economic integration and trade among their countries. The goal was to create a single economic space in the Zone by December 2009 through the establishment of a monetary union and adoption of a single currency. The establishment of WAMZ was in line with the broader goal of creating a single monetary zone in the whole of West Africa as proposed in the ECOWAS Monetary Cooperation Program (EMCP) adopted in 1987.

2 OBJECTIVES OF THE PROJECT

The primary objective of the project is to create a Regional Public Good (RPG) by improving and standardizing the payment systems in The Gambia, Guinea and Sierra Leone so as to improve the performance of the financial systems in these countries, thereby improving their general economic efficiency. The project would assist the harmonization of the payment systems in the five (5) member countries of WAMZ, in order to facilitate the process of the launching a Monetary Union in the Zone. The main aim of the Monetary Union is to stimulate increased economic and trade relations among the member countries. The project entails upgrading of the payment systems in the three (3) countries which would enable them meet important regional and national objectives by improving: (i) the efficiency of financial intermediation, (ii) the management of systemic risks in the financial systems; and (iii) liquidity management, monetary policy implementation, and the general deepening of the financial sectors. Two (2) WAMZ’ member states, Ghana and Nigeria, already have invested in improving their financial systems. As such, it is imperative that systems be enhanced in the remaining three states for a successful launch of the regional monetary zone2. This project is considered a RPG on ground that it will assist the upgrade of the payment systems in The Gambia, Guinea and Sierra Leone to the same level as those in Ghana and Nigeria, thus harmonizing the payment systems in all the five (5) of the six (6) member countries of WAMZ. The Bank’s involvement in the project will catalyze the process of WAMZ coming into being and the eventual introduction of a regional single currency through the provision of grant resources to finance a harmonized payments system. Each country benefiting from the project will contribute to the financing of the project; the contributions will be made by both National Central Banks and commercial banks in the respective countries. WAMI would be the recipient of the grant and the Executing Agency of the project on behalf of the three (3) countries. 3 PROJECT DESCRIPTION The main component of the project is the development of Real Time Gross Settlement (RTGS) in the three (3) countries. RTGS is a large value funds transfer system whereby financial intermediaries can settle interbank transfers continuously and in real time for their own account as well as for the accounts of their customers. The implementation of RTGS in the three (3) countries will enhance the establishment of the proposed West African Central

2 Liberia, the sixth member of WAMZ is not participating in this project owing to other priorities arising from conflicts in the recent past.

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Bank (WACB). Upon its establishment, the WACB would implement a regional RTGS system that would link the national RTGSs in its member countries in a “system of systems”. The zonal RTGS would make possible the efficient and safe transfer of funds among the member countries of WAMZ thereby stimulating the trade in goods and services and the free movement of capital within the Zone. It interfaces to SWIFT for sending and receiving payment messages. Apart from the RTGS, the project would assist the three (3) countries to automate their check processing, their clearing house operations, the purchase and sale of government securities, and the upgrade of the backbone IT systems of their Central Banks. 4 PROJECT COST AND SOURCES OF FINANCE The estimated cost of the project is UA 17.56 million, of which the foreign cost is UA 14.89 million or 84.79% and the local cost element is UA 2.67 million or 15.21%. The project will be financed by the ADF, the Central Banks of the three countries, and commercial banks in the countries. The ADF will contribute UA 14.00 million to the project financing, representing about 79.7% of the total project cost. The three (3) Central Banks would together contribute UA 1.62 million or 9.2% to the project’s cost in local currency, while the estimated contribution of the commercial banks in the three (3) countries is UA 1.94 million or 11.1%. The commercial banks’ contribution represents the investments that they would be required to make in order for the new payment systems to operate effectively.

5. PROCUREMENT OF GOODS AND SERVICES All procurement of goods, works and acquisition of consulting services financed by the Bank will be in accordance with the Bank Group’s Rules of Procedure for the Procurement of Goods and Works January Edition 2000 or, as appropriate, Rules of Procedure for the Use of Consultants, using the relevant Bank Standard Bidding Documents (SBD). Largely for reasons of compatibility and interface, but also for efficiency, it was agreed that the RTGS and RPA components would be tendered together as one package for all the three countries. The components would also be tendered as “complete packages”, whereby the supplier would provide both the core software and the hardware requirements, undertake the customization and installation of the programs, and provide extensive training for the staff of the NCBs and the commercial banks that would operate the systems. It was further agreed that the tendering for the CBA and Infrastructure components would be done separately for each of the countries. 6 DISBURSEMENT Disbursement of funds for consulting and non-consulting services and for the payment of goods and equipment would be by direct payment in accordance with Bank’s Handbook on Disbursement. A Special Account shall be opened by WAMI to receive funds designated for financing project implementation activities as well as some training activities. The size of the initial advance into the special account shall be as per the Bank’s disbursement rules. The opening of the Special Account will be a condition of first disbursement of the grant.

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7 CONCLUSION The upgrade of the payment systems in The Gambia, Guinea and Sierra Leone is one of the critical regional financial infrastructural requirements for the successful launch of the monetary union and the single currency as contained in the Action Plan of WAMZ. The project will create a public good that will contribute towards meeting ECOWAS’ strategic objective of increasing economic integration and regional trade in West Africa through: (i) harmonization of the monetary, financial and payment policies and infrastructure within the sub-region; (ii) liberalization of intra-region payment transactions; and (iii) promotion of the role of regional commercial banks in intra-community trade financing. At the national level, the project will enhance the efficiency of monetary policy implementation in the countries, promote financial deepening and stability, and facilitate more efficient cash management. The improved economic efficiency from all these would lead to higher growth and lower levels of poverty. The project is technically sound and economically desirable. It is in line with the national development strategies of the three countries, and the regional economic strategy of ECOWAS. It is also in line with the Bank’s Financial Sector Policy, and in line with the Bank’s regional operations policy given its direct impact on promoting regional economic integration in West Africa. The project can be seen as a regional public good that enhances integration and financial governance. 8. RECOMMENDATION In view of the above, it is recommended that an ADF grant not exceeding UA 14 million be provided to the West African Monetary Institute (WAMI) to finance the WAMZ Payment System Development Project subject to the conditions stated in this report.

1. PROJECT ORIGIN AND BACKGROUND 1.1 The Economic Community of West African States (ECOWAS)’ Monetary Cooperation Program (EMCP), adopted in 1987, provided the blueprint for the economic integration of the countries of West Africa. Among other measures, the EMCP called for the creation of a single monetary zone in the sub-region. As part of their efforts to implement the EMCP, the Heads of States of six ECOWAS countries decided in 2000 to establish a second monetary zone in the sub-region known as the West African Monetary Zone (WAMZ). The WAMZ comprises mostly the Anglophone countries (Nigeria, Ghana, Sierra Leone, The Gambia, and Liberia) plus Guinea, who are not members of the current monetary zone in the sub-region, the Union Economique et Monétaire Ouest-Africaine (UEMOA). The latter comprises mainly francophone countries (Côte d’Ivoire, Sénégal, Mali, Niger, Burkina Faso, Togo, and Benin) plus Guinea Bissau. 1.2 The primary objective of creating the WAMZ was to promote economic integration among the member countries. The process is expected to lead to the creation of a common central bank, to be known as the West African Central Bank (WACB), and the introduction of a single currency, already named Eco, for the member countries of WAMZ. Ultimately, the Eco is expected to be merged with the CFA franc, the common currency for UEMOA countries, thereby establishing a single currency for the whole of West Africa, and fulfilling the ultimate objective of the EMCP. 1.3 The West African Monetary Institute (WAMI) was established in 2001 by the WAMZ and given the responsibility of undertaking the technical preparations for the establishment of the WACB. At their summit meeting in The Gambia on May 6 2005, the Heads of States of WAMZ issued the Banjul Declaration, which established 1 December 2009 as the commencement date of the monetary zone and the launch date of the Eco. Further to this declaration, WAMI prepared a comprehensive Work Program and Action Plan (2005 – 2009) that will ensure that the countries are all ready for the takeoff of the monetary zone on the established date. One of the items of the Action Plan was the development of a zonal payment and settlement system for cross-border transactions among the member countries anchored on the Real Time Gross Settlement (RTGS) platform. Two of WAMZ’ member states, Ghana and Nigeria, already have the RTGS. It then became imperative that the system be developed in the remaining three states for a successful launch of the monetary zone3. The UEMOA started RTGS in 2004, which is a centralised system. All the participating institutions are linked to it. The WAMZ Programme will interface with the UEMOA system in the future when the two monetary systems merge. 1.4 Since its establishment, WAMI has been involved in efforts to upgrade and harmonize the payment systems of its member countries. In 2004, it engaged consultants to carry out a Payment Systems Study in the five countries. The study produced two reports: a Stock taking report and a Strategy & Policy Framework report. The two reports were very well prepared, and the current project has been designed based on their findings. WAMI submitted, in June 2006, a request to the Bank for assistance in the development of RTGS in three of its member countries: The Gambia, Guinea and Sierra Leone. Following the request, a Bank identification/preparation mission visited WAMI headquarters in Accra, Ghana, as well as

3 Liberia, the sixth member of WAMZ is not participating in this project owing to other priorities arising from conflicts in the recent past.

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some of the member countries, in January 2007. Based on the positive findings of this mission, a full project appraisal mission was undertaken during July/August, 2007. The present Appraisal Report has been prepared based on the findings of the two missions, and different reports and studies provided to the missions by WAMI and the Central Banks of WAMZ countries. The project document has since been updated. 2. THE PROJECT

2.1 Project Concept and Rationale 2.1.1 The proposed Payment Systems Development Project is an important regional financial infrastructural requirement for actualizing the WAMZ. By assisting the upgrade of the payment systems in The Gambia, Guinea and Sierra Leone to the same level as those in Ghana and Nigeria, it would facilitate the harmonization of the payment systems in all the five of the six member countries of WAMZ. The availability of RTGS and the other elements of a modern payment system in all the countries would greatly enhance the efficiency of cross border funds transfers and facilitate the conduct of regional monetary policy across the Zone. 2.1.2 In each of the countries, the new payment systems would greatly increase the efficiency of financial intermediation and the conduct of monetary policy. It would assist in reducing systemic risks, and enhance the ability of the central banks to monitor and supervise commercial banks. 2.1.3 This project is considered a Regional Public Good (RPG) as it will yield direct utility by improving the payments systems in the WAMZ sub-region. The project will upgrade the payment systems in three countries, namely The Gambia, Guinea and Sierra Leone to the same level as those in Ghana and Nigeria, thus harmonizing the payment systems in all the five of the six member countries in the WAMZ sub-region. The harmonization of the payments systems will reduce costs and enhance the efficiency of cross border funds transfer which will facilitate regional trade and also augment the conduct of regional monetary policy across the sub-region. Further, the proposed Project is an important regional financial infrastructural requirement for actualizing the WAMZ. Therefore, the Bank’s involvement in the project will catalyze the process of WAMZ coming into being and the eventual introduction of a regional single currency through the provision of resources to finance a harmonized payments system. The project is therefore of broad public interest and benefit. Each country benefiting from the project will contribute to the financing of the project; the contributions will be made by both National Central Banks and commercial banks in the respective countries. WAMI would be the recipient of the grant and the Executing Agency of the project on behalf of the three countries. WAMI was established in 2001 by the WAMZ as a regional institution to facilitate the establishment of the West African Central Bank. WAMI is supervised by a Governing Board comprising the Governors of the five Central Banks in the region, while the general implementation of the Monetary Zone program is under the direction of the WAMZ Convergence Council, which comprises the Ministers directly responsible for implementing the WAMZ single currency program in addition to the Central Banks’ Governors. The Convergence Council is expected to formally approve the project, particularly the automatic transfer of the obligations of WAMI under the project to the WACB when the latter is established.

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2.2 Project Area and Beneficiaries The project will be implemented in the territories of the Republics of The Gambia, Guinea and Sierra Leone. The direct beneficiaries of the project include the central banks of the three countries, the commercial banks and other financial institutions, and government revenue agencies such as tax authorities and the customs agencies. However, given the expected improvements to the efficiency of payments processing and funds transfers in the countries, the ultimate beneficiaries would be businesses and all users of banking services. The efficiency and reliability to be brought to financial intermediation as a result of the upgrade of the national payment systems in the three countries would also encourage more people to move into the formal financial system. The project would also create an enabling environment for the private sector. As a regional public good, it will enhance integration and financial governance.

2.3 Strategic Context

2.3.1 The revised ECOWAS Treaty of 1993 correctly stressed the need to deepen cooperation and integration among the member countries, as a means of maintaining and enhancing economic stability and growth within the Community, and raising the standards of living of its peoples. The ultimate goal of the Community is to create a single economic space in West Africa by the establishment of an economic union through the adoption of common policies in the economic, financial, social and cultural sectors, and the creation of a monetary union. The member states of ECOWAS fully subscribe to the goal of a monetary union in the sub-region, and are pursuing policies and strategies to actualize the goal. The monetary union would be achieved in 3 phases namely: Phase 1: Meeting convergence criteria; putting in place a regional single market for goods, services and factors; undertaking other relevant structural reforms; Phase 2: Reducing the fluctuation margins of the exchange rate mechanism Phase 3: Irrevocably fixing parities and passage to a single currency managed by the single central bank for WAMZ, to be followed by a merger with WAEMU 2.3.2 In 2000, WAMZ members initially set a timetable for completing the three phases by 2003, provided the convergence criteria were achieved. Since the criteria were not achieved, the timetable was pushed back first to 2005 and then to 2009. The WAMI remains a forerunner to the WACB and enjoys legal personality. As a forerunner to the WACB, the WAMI shall carry out functions leading to the establishment of the WACB. The institute in collaboration with the technical Committee, comprising largely the central banks, shall have the responsibilities of managing the stages of implementation of the WAMZ up to the commencement of the WACB, including undertaking all the preparations necessary for the take off of the WACB. The creation of a monetary union in West Africa will be facilitated through the implementation of programs and projects that would: (i) harmonize the monetary, financial and payment policies and infrastructure within the

sub-region; (ii) facilitate the liberalization of intra-region payment transactions;

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(iii) ensure the convertibility of member countries currencies and promote the role of regional commercial banks in intra-community trade financing; and

(iv) gradually move towards a bilateral rather than a multilateral system for clearing

payment transactions among member countries. 2.3.3 The proposed project is designed to assist the achievement of the above strategic objectives of ECOWAS with respect to the processing of payments within the sub-region. As part of WAMZ’s payment systems development program, new common standards for automated cheque processing were recently adopted, and member states have been directed to migrate their systems towards the new standards. Also, a new Payment Systems Law in WAMZ has been finalized and is awaiting the approval of the WAMZ Convergence Council. Work is also ongoing on the preparation of common rules and regulations for RTGS in the member countries. The proposed project, which would provide the physical infrastructure for actualizing the objective of harmonizing the processing of payments within the Zone, is consistent with, and supports the Zone’s overall payment system development strategy. By assisting the development of a key element of financial system infrastructure in the region, the project is in line with the Bank’s Financial Sector Policy. Finally, given its direct impact on promoting regional economic integration in West Africa, the project is also in line with the Bank’s regional operations policy.

2.4 Project Objectives 2.4.1 The primary objective of the project is to augment the payment systems in The Gambia, Guinea and Sierra Leone in order to enhance the performance of their financial systems. In addition the project will assist the harmonization of the payment systems in the five of the six member countries of WAMZ, thereby facilitating the process for the launch of a monetary union in the Zone and stimulate increased economic and trade relations in the region. The Ghanaian RTGS is already compatible with the system proposed. The original Nigerian system is not completely compatible but since the WAMZ initiative started, Nigeria has embarked on a programme to ensure their RTGS system will also be compatible. All systems will be SWIFT enabled. 2.4.2 The improvement of the payment systems in the three countries would also meet important national objectives. For each of the countries, the development of RTGS and the other components of the project would improve the efficiency of financial intermediation, enhance the management of systemic risks, and improve liquidity management, monetary policy implementation, and the general deepening of their financial sectors.

2.5 Detailed Description of Project Components

2.5.1 The proposed project comprises the following key components:

A Real Time Gross Settlement (RTGS) B Retail Payments Automation (RPA) C Central Banking Application (CPA) D Infrastructure Upgrade E Project management

Provided below are detailed descriptions of each of the components.

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COMPONENT A: REAL TIME GROSS SETTLEMENT (RTGS) 2.5.2 RTGS is a large value funds transfer and settlement system. It interfaces to SWIFT for sending and receiving payment messages. It enables payment instructions between banks to be processed and settled individually and continuously in real time. The system provides for immediate settlement of all payments provided that there are enough funds or overdraft facilities for participants. The RTGS system is usually owned by the Central Bank, which acts as the settlement agent. A key feature of RTGS systems is that it ensures payee banks and their customers receive funds with certainty, or finality, enabling them to use the funds immediately without exposing themselves to risk. The use of RTGS is a growing trend with more than two thirds of African countries either having or putting RTGS systems in place. This trend is significant because it lays the foundation for further financial infrastructure upgrading such as linking of automated clearing houses and securities depositories, in so doing providing the ability for countries to meet the core principles of important payment systems as defined by the Bank for International Settlements (BIS)4. Meeting the BIS benchmark fosters investor confidence in a country’s ability to manage its economy and to guarantee certainty of payment. 2.5.3 The project will finance the acquisition of “off-the-shelf” RTGS Payment Systems for the central banks of The Gambia, Guinea and Sierra Leone. It will include related vendor services for customization, implementation and training. The project will finance improvements to existing LANs and Metropolitan Area Networks (MANs) for each of the three central banks to widen access and enhance security. In each central bank, the project will finance host server machines in the primary production environment for transaction processing and in the secondary production environment for databases. The project will also finance servers for the remote back-up site and servers for the internal test & development environment including core workstations and printers. COMPONENT B: RETAIL PAYMENTS AUTOMATION (RPA) 2.5.4 The objective of automating retail payments is to replace the paper instruments with electronic transactions thereby reducing greatly the time taken to clear each transaction. The RPA component would involve the development of ACP and ACH systems. The ACP system is a check scanning, imaging, truncation and clearing system. It is a set of hardware, software, standards and processes working together to automate delivery of the required services. All checks must conform to the check design standard so that they are machine readable. Magnetic Ink Character Recognition (MICR) and Optical Character Recognition (OCR) are the two most popular technologies for reading checks. Typically, a check will be scanned and both check image and the data transmitted electronically from the commercial bank to the clearing house. At the clearing house, the system will electronically sort and distribute all the check image and data files to the paying banks for validation to determine the fate of each instrument. Items that fail the validation are returned to originating banks. The system performs multi-lateral netting of accepted items before settlement in the RTGS via ACH. 2.5.5 The project will finance the cost of the core software and the hardware required to host the system in the central bank together with vendor services necessary to implement the system and prepare the IT staff of each central bank to manage the system thereafter. The

4 See Annex 1 for a summary of the Core Principles

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hardware is composed of servers, printers, scanners and workstations. Commercial banks will be required to supply their own check scanners chosen according to the correct specifications required by the core software. 2.5.6 The ACH provides services for clearing low value, high volume (bulky) interbank payments. Participating commercial banks submit batches of debit and credit payments via electronic means in a predefined format. The clearing engine of the ACH captures the transactions originating from commercial banks, prints transaction reports, extracts/merges transactions of the value date and performs multi-lateral netting. 2.5.7 The project will finance the core software of the ACH system and the related vendor services for the implementation of the system and knowledge transfer. The hardware to be financed will include the application host servers, workstations and printers. COMPONENT C: CENTRAL BANKING APPLICATION (CBA) 2.5.8 Central banks all over the world require appropriate and modern banking software in order to effectively service their customers (the financial community and government agencies). The interlinked world of technology and finance has seen a major revolution in products, processes and markets over the last decade. Unfortunately, the central banks of Guinea and Sierra Leone have not been part of this revolution. The few applications currently in the two central banks were built in-house at a time when the fashion was to have a dedicated system for each task. They were built around simple automation of manual processes and can therefore no longer keep up with modern business requirements for information systems that help decision making through aggregation of data across different activities of the banks. The need therefore is for integrated commercial software that incorporates use of business best practices. Beyond offering all the core business functions of the central bank, the software would have analytical capabilities. It would have an audit trail, be flexible, scalable, use open technology, offer a clear and constant architecture and be able to interface with the payment systems. While the Central Bank of Gambia has a more modern banking application than those of Guinea and Sierra Leone, it would also require some upgrade in order to be able to interface fully with the new payment systems. 2.5.9 The new CBA would have a scriptless securities settlement system (SSSS). Settlement involves the delivery of securities from one party to another, usually against payment. A manual system has inherent risks, inasmuch as paper instruments, certificates, and transfer forms are relatively easy to lose, steal or forge. Settlement delays also become significant as the volume of trades increase. The SSSS is an electronic depository or registry for scriptless securities. It serves as the depository for Participation paper, Government bills, Notes, Bonds and commercial banks Certificates of Deposit. Securities accounts for participating banks are maintained in the central bank to register ownership of securities in scriptless form. The banks can transfer securities to each others accounts. They also provide this service to their customers by acting as custodians or settlement agents. The system enhances the facility for settlement of securities on a real-time basis or in a Delivery Versus Payment (DvP) manner by linking the SSSS to the RTGS. Using this linkage, SSSS will also provide intraday liquidity to RTGS through the use of collateralized credit by means of intraday repurchase transactions in the SSSS.

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2.5.10 The project will finance the core banking application software for the Central Banks of Guinea and Sierra Leone, as well as the upgrade of the banking software for Central Bank of Gambia. The banking application must provide for future linkages of the SSSS to the stock exchange. The project would also finance the related services of the vendor to customize and install the systems, and training of the staff of the central banks to operate the systems. COMPONENT D. INFRASTRUCTURE UPGRADE 2.5.11 The RTGS is the hub of all other payment systems in the central bank. It is considered as a mission critical application that must always be up and running. All other applications supported by this project interchange data with the RTGS in real-time. Participating commercial banks connect to the central bank systems via a secure interbank message interchange system for sending and receiving payment messages. A second connection is necessary to provide full account inquiry capability in real-time to all participants for specific transactions or all transactions. This connection must use a web interface to allow participants to view the balance and movement details for their accounts at the central bank at any time during the day. It also allows them to make payment inquiries and to carry out some management activities on their accounts. 2.5.12 To adequately support these activities, the infrastructure of the central banks should be upgraded to the state-of-the-art IP-based data communication networks and to reliable uninterrupted power supply. The project will finance stand-by power generators and the upgrade of the LAN and the MAN in line with the needs identified for each central bank. The LANs will be extended where necessary to cater for increased online users requiring connection to the host servers of the payment systems components. The backbone of the LANs will be upgraded where necessary to be based on high-speed optic fiber and gigabit core switches with redundant configurations. The MAN at the capital city where the central bank head office is located must provide reliable high-speed inter-connection with financial institutions’ head offices within the city. The project will finance upgrade of the extranet which will be based on physical links such as the optic fiber, radio link or microwave link suitable within city distances. The connection between the primary data centre and the Disaster Recovery site through the MAN will also be financed by the project. 2.5.13 Other important public networks provided by the international and local carriers/organizations exist in the project countries. It is important that users of the payment systems are capable of connecting to these public networks via the MAN. Such public networks include the SWIFT network used to send secure payment messages, PSTN network through which customers perform ATM transactions and payments at a POS terminal, credit cards networks such as Visa and MasterCard and the internet. COMPONENT E: PROJECT MANAGEMENT 2.5.14 The management of the project’s implementation would be the primary responsibility of WAMI and the three national central banks, with the assistance of an international consulting firm as project supervision consultants. The project consultants would provide assistance in the review of technical specifications and the finalization of the bidding documents for the different project components. They would assist in the evaluation of proposals received from service providers, and supervise the implementation of the project. They would also assist in providing training to the staff of the NCBs as well as those of commercial banks that would operate the different systems.

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2.5.15 This component will finance the cost of the project consultants. It will also finance the operational costs of the special project teams to be set up in WAMI and the NCBs, as well as logistical support for the National Payment Systems Committees. It would also finance the cost of the annual audits of project expenditures during implementation. Finally, it would finance training and skills improvement activities at the NCBs, as well as seminars and workshops that might be necessary in order to explain the new payment systems to all the stakeholders.

2.6 Project Costs 2.6.1 The estimated cost of the project is UA 17.56 million, of which the foreign cost is UA 14.89 million or 84.79% and the local cost element is UA 2.67 million or 15.21%. The costs were based on the estimates contained in the Payment System Study reports prepared for WAMI by Consultancy Associates Ltd (as well as the costs of similar developments recently carried out in Nigeria and Ghana. A summary of the cost estimates of the project by component is presented in Table 1 below, while more details are provided in Annex 4. In preparing the estimates, provision was made for price contingencies at 3% and 7% respectively for foreign and local cost components. Contingency provisions were also made to accommodate possible changes in the scope of the different services after the terms of references are finalized. Table 2 presents the cost estimates for the project by category of expenditure.

Table 1: Project Cost Estimate by Component

(‘000 USD) (‘000 UA) Components FC LC Total FC LC Total A. RTGS 5,641 474 6,115 3,722 313 4,035 B. RPA 5,940 499 6,439 3,919 329 4,249 C. CBA 4,170 350 4,520 2,751 231 2,983 D. Infrastructure Upgrade 2,400 1,964 4,364 1,584 1,296 2,879 E. Project Management 2,125 629 2,754 1,402 415 1,817 Total Base Cost

Contingencies Grand Total

20,276

2,028

22,304

3,916

392

4,308

24,192

2,419

26,611

13,378

1,338

14,716

2,584

258

2,842

15,962

1,596

17,558

Table 2: Project Cost Estimate by Category of Expenditure

(‘000 USD) (‘000 UA) Category FC LC Total FC LC Total % Goods 18,151 3,287 21,438 11,976 2,169 14,145 81 Services 1,575 132 1,707 1,039 87 1,126 6 Operating Expenses 550 497 1,047 363 327 690 4 Total Base Cost


20,276

2,028

22,304

3,916

392

4,308

24,192

2,419

26,611

13,378

1,338

14,716

2,584

258

2,842

15,962

1,596

17,558

91

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100.00 2.6.2 The above costs are spread fairly evenly among the three countries. Guinea and Sierra Leone would implement exactly the same components, and therefore have exactly the same costs at US$ 9.42 million each. The cost for The Gambia is slightly lower, at US$ 7.78 million. The reason for the slightly lower cost is due to smaller requirements by the Central

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Bank of The Gambia for the upgrade of its backbone IT infrastructure, as well as lower infrastructure upgrade requirement in the country. Table 3 below gives a summary of the project costs by country.

Table 3: Project Costs by Country

(‘000 USD) Component The

Gambia Guinea Sierra Leone Total

A. RTGS 2,038 2,038 2,038 6,114 B. RPA 2,146 2,146 2,146 6,439 C. CBA 802 1,859 1,859 4,520 D. Infrastructure Upgrade 1,273 1,545 1,545 4,364 E. Project Management 815 970 970 2,754 Total Base Cost


7,075

707

7,783

8,559

856

9,415

8,559

856

9,415

24,192

2,419

26,611 2.7 Sources of Finance and Expenditure Schedule

2.7.1 The project will be financed by a grant from the ADF, the Central Banks of the three countries, and commercial banks in the countries. The project’s financing plan by source of finance and by project components are provided in Table 4 and Table 5 below. The ADF will be contributing UA 14.00 million to the project financing, representing about 79.7% of the total project cost. The three central banks would together contribute UA 1.62 million or 9.2% to the project’s cost in local currency, while the estimated contribution of the commercial banks in the three countries is UA 1.9 million or 11.1%. The commercial banks’ contribution represents the investments that they would be required to make in their respective offices in order for the new payment systems to operate effectively.

Table 4: Project Financing Plan by Source of Finance

(‘000 USD) (‘000 UA) Source of Finance FC LC Total FC LC Total % ADF 20,224 994 21,218 13,344 656 14,000 79.7 National Central Banks 0 2,449 2,449 0 1,616 1,616 9.2 Commercial Banks 2,080 865 2,945 1,372 570 1,943 11.1 Total 22,304 4,308 26,611 14,716

2,842

17,559

100.0

Table 5: Project Financing Plan by Component

(‘000 USD) Component ADF NCBs Comm.

Banks Total

A. RTGS 6,205 521 0 6,726 B. RPA 4,851 549 1,683 7,083 C. CBA 4,587 385 0 4,972 D. Infrastructure Upgrade 2,520 540 1,261 4,321 E. Project Management 3,055 454 0 3,509 Total 21,218 2,449

2,944 26,611

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2.7.2 The expenditure schedule for the project is shown in Tables 6 and 7 below by source of funds and by project components respectively.

Table 6: Expenditure Schedule by Source of Finance

(UA ‘000) Source of Finance 2008 2009 2010 2011 Total ADF 4,035 5,926 2,599 1,440 14,000 National Central Banks 466 684 300 166 1,616 Commercial Banks 546 851 314 232 1,943 Total 5,047 7,461 3,213

1,838 17,559

Table 7: Expenditure Schedule by Component

(UA ‘000) Components 2008 2009 2010 2011 Total A. RTGS 1,775 2,219 444 0 4,438 B. RPA 1,063 2,232 701 467 4,462 C. CBA 1,312 1,640 328 0 3,280 D. Infrastructure Upgrade 317 792 1,162 792 3,063 E. Project Management 579 579 579 579 2,316 Total 5,046 7,462 3,214

1,838 17,559

2.8 Environmental Impact

The project is categorized as Category 3 in line with the Bank’s Environmental and Social Assessment Procedures. Being principally an information technology operation, the project has very little physical intervention on the environment, and will induce no adverse environmental or social impact. 3. PROJECT IMPLEMENTATION

3.1 Executing Agency 3.1.1 WAMI would be the recipient of the grant and the Executing Agency of the project on behalf of the three countries. WAMI was established in 2001 by the WAMZ as an interim institution to facilitate the establishment of the West African Central Bank. The members of WAMI are the Central Banks of WAMZ member countries. The institute would be assisted in this assignment by an international consulting firm to be recruited under the project as supervision consultants. WAMI is charged with undertaking the technical preparations for the establishment of the WACB. It has the responsibility of managing the stages of implementation of the WAMZ up to the commencement of WACB. WAMI is supervised by a Governing Board comprising the Governors of the five Central Banks, while the general implementation of the Monetary Zone program is under the direction of the WAMZ Convergence Council, which comprises the Ministers directly responsible for implementing the WAMZ single currency program in addition to the Central Banks’ Governors. The Convergence Council would be required to formally approve the project, particularly the automatic transfer of the obligations of WAMI under the project to the WACB when the latter is established.

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3.1.2 The members of WAMI have provided the institute with the human and material resources needed to effectively discharge its responsibilities. As at August 2007, the institute has 49 staff members, made up of 28 professionals and 21 support staff. It is headed by a Director General, who supervises seven departments (see Annex 5 for WAMI Organizational Chart). The Operations Department of WAMI, which will be directly responsible for the proposed project, is headed by an experienced professional, who used to be the Deputy Director in charge of payment system at the CBN, and was closely involved with the modernization of the Nigerian payment system, including the implementation of RTGS. The head of the Payment System Division in the department is also an experienced professional, who used to head the Research and Development Unit of the Payment System Office of the Bank of Ghana, and was also closely involved with the development of the country’s payment systems. WAMI has a Finance & Administration department staffed with qualified accountants, and an Internal Audit department headed by a Chartered Accountant. The institute has standard and well managed financial management and control procedures that indicate that it would be able to keep proper accounts of project funds. WAMI therefore has the requisite expertise and knowledge to successfully implement the project.

3.2 Implementation Arrangements 3.2.1 As agreed by WAMZ, the project’s implementation arrangements would be at two levels: the zonal level and the country level (see Annex 6). At the zonal level, a Project Implementation Team (PIT) would be constituted at WAMZ headquarters. The PIT will be responsible for the overall coordination of project implementation. The PIT will be headed by WAMI’s Director of Operations as the Project Director. He would be responsible for providing general oversight of project implementation activities, and effective interface with the senior management of WAMI and the NCBs. The Chief of the Payment System Division of WAMI would serve as the Project Manager, with responsibilities for managing day-to-day project activities. The PIT would also include a technical staff from the ICT department of WAMI, while other staff members may be co-opted into its activities as may be required. 3.2.2 At the country level, the NCBs would be required to establish core project teams with the head of Banking Operations at the central bank as the Project Coordinator, and including experts for each of the project components. The NCBs’ project teams would be responsible for actual project implementation at the national level. Furthermore, if not already existing, the NCBs would be required to facilitate the establishment of National Payment Systems Committees (NPSC), to comprise representatives of the NCBs, commercial banks, and other stakeholders such as revenue authorities. The NPSC would be regularly consulted during the course of project implementation, and would provide inputs from the users’ perspective. The establishment of the PIT and national Project Teams by WAMI and the NCBs is a condition of first disbursement of the grant resources, while the establishment of the NPSC is also a condition of the grant.

3.3 Procurement Arrangements 3.3.1 Procurement arrangements are summarized in Table 8 below. All procurement of goods, works and acquisition of consulting services financed by the Bank will be in accordance with the Bank Group’s Rules of Procedure for the Procurement of Goods and Works January Edition 2000 or, as appropriate, Rules of Procedure for the Use of Consultants, using the relevant Bank Standard Bidding Documents (SBD).

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Table 8: Procurement Arrangement

Million UA Category Shortlist NCB Others* Total

1. Goods 1.1 RTGS/RPA 1.2 CBA 1.3 Stand-by Generator 1.4 Telecom Equipment

0.49 (0.36) 2.68 (1.31)

8.90 (8.10) 3.28 (2.15)

8.90 (8.10) 3.28 (2.15) 0.49 (0.36) 2.68 (1.31)

2. Consulting Services 2.1 Project Supervision 2.2 Project Audit

1.50 (1.50) 0.04 (0.04)

1.50 (1.50) 0.04 (0.04)

3. Miscellaneous 3.1 Operational Expenses

0.66 (0.52)

0.66 (0.52)

Total 13.72 (11.79) 3.17 (1.67) 0.67 (0.52) 17.55 (14.00) *Others include International Shopping for Goods and Operational Expenses procured using WAMI’s procurement procedures. Goods 3.3.2 Contracts relating to the infrastructure upgrade component, viz. telecommunication equipment and power standby generators valued in aggregate at UA 1.67 million will be awarded under National Competitive Bidding (NCB) procedures. Six contracts, three for power and three for telecommunications, are valued in average per contract at about UA 278,000. The procurement method of NCB is proposed in view of the relatively small values of the contracts, and the need to have a local agent for after sales services. 3.3.3 Other goods, such as the RTGS/RPA systems and the CBA (hardware, software, standards/processes, vendor services), estimated to cost less than UA 2.05 million per contract and not more than UA 10.25 million in aggregate, will be procured through Limited International Competition (LIC). Even though the goods to be procured are standard and readily available off-the-shelf items, the vendor services for appropriate customization, implementation and training are provided only by a limited number of suppliers. 3.3.4 Largely for reasons of compatibility and interface, but also for efficiency, it was agreed that the RTGS and RPA components would be tendered together as one package for all the three countries. The components would also be tendered as “complete packages”, whereby the supplier would provide both the core software and the hardware requirements, undertake the customization and installation of the programs, and provide extensive training for the staff of the NCBs and the commercial banks that would operate the systems. It was further agreed that the tendering for the CBA and Infrastructure components would be done separately for each of the countries. Consulting Services 3.3.5 Procurement of consulting services, as detailed in Table 8 above, will be undertaken in accordance with the Bank’s Rules of Procedure for the Use of Consultants. Two consulting service contracts are envisaged under the project, for the project supervision consultants and project auditors, at total contract price of UA 1.56 million. The procurement will be through shortlists of suitably qualified consulting firms/audit firms on the basis of combined technical quality and price consideration.

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3.3.6 As the amount of the contract for the project supervision is above UA 350 000, the Recipient shall publish an advertisement in the ¨Development Business¨ issued by the United Nations and in the national or regional press to attract the interest of consultants. For the contract of the project auditors (amounts below UA 0.35 million), the Recipient can limit the advertisement to national and regional newspapers. However, any eligible consultant, being regional or not, may express his desire to be short-listed. Miscellaneous 3.3.7 Procurements of goods and services for the project’s operational expenses (UA 0.52 million) will be in accordance with WAMI’s procurement procedures, which have been reviewed and determined to be acceptable for the Bank. Executing Agency 3.3.8 WAMI, supported by the project consultants and the NCBs would undertake the procurement of goods and services to be financed by the ADF under the project. The resources, capacity, expertise and experience of WAMI are adequate to carry out the procurement. The NCBs and commercial banks would procure the goods and services to be financed by them in line with their respective procurement rules. WAMI would ensure that all procurement activities are synchronized and properly phased in order to ensure the effective implementation of the project. General Procurement Notice 3.3.9 The text of a General Procurement Notice will be agreed with the Recipient during project negotiations, and issued for publication in the UN Development Business as soon as the Fund’s Board of Directors approves the grant. Procurement Review Procedures 3.3.10 The following documents will be subject to the Fund’s review and approval: (i) specific procurement notice; (ii) Letter of Invitation to consultants or tender documents; (iii) evaluation reports of bids by service providers and consultants including recommendations for contract award; and (iv) draft contracts, if those included in the tender documents have been amended.

3.4 Supervision and Implementation Schedule 3.4.1 The implementation schedule of the project is provided in Annex 7. The project is expected to be approved in June 2008, and come into effect during the second quarter of 2008. The staff of WAMI is already working on the bidding documents for the project consultants, and it is expected that this would be issued immediately after project approval, with the consultants expected to commence their assignment during the third quarter of 2008. Actual project activities are also expected to commence during the third quarter of 2008. The priority activity would be the RTGS, which is expected to be fully implemented by the end of 2009. The project is expected to be fully implemented by the end of 2011.

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3.4.2 A launching mission would be undertaken after project approval to review with the Executing Agency and the PIT project implementation arrangements, and assist with the steps that they need to take in order to ensure that actual project activities commence as soon as possible. Given the nature of the project, close monitoring of its implementation would be very essential to ensure its success. The project would be supervised at least twice a year.

3.5 Disbursement Arrangements 3.5.1 Disbursement of funds for consulting and non-consulting services and for the payment of goods and equipment would be by direct payment in accordance with Bank’s Handbook on Disbursement. A special account shall be opened by WAMI to receive funds designated for financing project implementation activities as well as some training activities. The size of the initial advance into the special account shall be as per the Bank’s disbursement rules. The special account would be opened at a commercial bank acceptable to the Bank. The bank chosen would give an undertaking to the Bank regarding the proper management of the account. The opening of the special account will be a condition precedent of first disbursement of the grant. 3.5.2 While the special account would be opened and managed by WAMI, it might be necessary, for ease of project implementation, for sub-accounts to be opened in the recipient countries by each of the NCBs. WAMI would be authorized to transfer reasonable amounts of money, based on estimated project requirements, to the sub-accounts opened in the countries. All payments into the special account together with any transfers to the sub-accounts must be fully justified before the replenishment of the special account.

3.6 Financial Reporting and Auditing The monitoring of the implementation of the project would be the responsibility of the management of WAMI. The PIT, assisted by the project consultants, would prepare quarterly reports on the progress of implementation of the project, clearly indicating the progress achieved in each of the countries and any special difficulties encountered. The progress reports should also clearly show the utilization of grant funds. A private audit firm, selected through shortlist procurement method, shall be engaged to carry out the annual audit of project accounts. WAMI would ensure that the audit reports are submitted within six months of the end of the accounting year. The cost of the audit has been provided for under the project.

3.7 Monitoring and Evaluation Monitoring and evaluation (M&E) activities will be considered crucial for the successful implementation of the project. In addition to regular supervision by the Bank, the Field Offices in Accra and Freetown would also assist in the ongoing monitoring of project implementation. In the first six months of the project, an M&E methodology and program including key indicators will be developed to guide the project implementation process. The project outputs by component, will serve as basis for the M&E activities. The offices will assist the PIT on matters relating to procurement and disbursements, as well as project reporting. The PIT will be responsible for submission to the ADF of quarterly progress reports, in conformity with ADF requirements. At the end of project implementation, the PIT will prepare and send to the Fund a Project Completion Report (PCR) that will provide an overview of the project’s implementation, the project outputs achieved vis-à-vis the estimates and the lessons learned from the implementation. A Bank PCR would also be prepared to evaluate the achievements of the project and the lessons learned from its implementation.

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4. PROJECT SUSTAINABILITY AND RISKS

4.1 Project Sustainability 4.1.1 Several key elements underlie the sustainability of the proposed project. One is the stability and continued growth of the financial systems in the recipient countries. Appropriate policy measures and actions are being taken at various levels to ensure macroeconomic stability and the continued efficient functioning of the financial systems in WAMZ countries. A second element is the level of commitment of the key stakeholders to the project, particularly the NCBs and commercial banks in the countries. The commitment of these stakeholders to the project is very strong, demonstrated by the NCBs and commercial banks having been in the forefront of the efforts to improve the payment systems in the countries. The NPSCs in the countries would continue to monitor and support the investments made under the project. 4.1.2 As regards technical sustainability, the technology to be employed for each of the project components are standard industry technologies that have been well tested and deployed in several countries, including in the other members of WAMZ: Ghana and Nigeria. The scope of work of the service providers for the new systems would require them to provide extensive training for the personnel of the NCBs and the commercial banks that would operate the systems. Capacity building is incorporated as a key component of the project, whereby the solution provider will ensure that the participating banks' staff are adequately trained and receive regular skills upgrading, as necessary. 4.1.3 Lastly, an important issue in sustainability is the availability of resources for project operational and recurrent costs post implementation. The operating costs, including maintenance and upgrades, of the new systems would be recovered from the users of the systems. The projected transaction fees and annual maintenance fees recoverable from the users for systems maintenance are US$ 2.28 million, US$1.30 million and US$0.77 million for The Gambia, Guinea and Sierra Leone respectively, in year five of operation. The NCBs would charge the commercial banks, on a pro rata basis, for the use of the RTGS, ACP and ACH. The commercial banks would recover the resulting charges through the normal banking fees charged to their customers. Any additional charges to customers would be very small, as the systems are volume-driven businesses. Furthermore, the increased efficiency that the new systems would bring to the users would offset any additional charges.

4.2 Critical Risks and Mitigating Measures 4.2.1 A major risk to the proposed project is the commitment of the WAMZ member countries to the monetary union and single currency program, which is a key rationale for implementing the project. However, recent statements and actions by the member countries point to continued strong commitment to the program. The countries have implemented or are implementing many of the key intermediate policies/measures that would lead to the monetary union, including the convertibility of members’ currencies to one another, the approval of common check standards across the Zone, and the implementation of the ETLS and CET. Member countries are also striving to meet the convergence criteria, with significant progress being reported on this front in the last two years. In addition, member countries have made major financial commitments to the WAMZ program. These include the financing of WAMZ institutions such as WAMI, and contributions to the seed capital of the

16

WACB and to a Stabilization and Cooperation Fund (SCF) established under the program. As at 31 December 2006, a total of US$ 27.5 million has been contributed to the WACB seed capital and US$ 30.8 million to the SCF. The contributions were made in accordance with the ECOWAS budgetary contribution formula, with Nigeria having the highest percentage contribution of 60%, and Sierra Leone having the lowest at 4.9%. All these point to strong commitment to the program on the part of the member states. 4.2.2 Given the key roles of the commercial banks in the implementation and operation of the project, a risk to the project is the possible lack of commitment of the banks to the new payment systems. This risk is mitigated given the commercial benefits that the new systems would provide to the commercial banks. As mentioned earlier in the report, the commercial banks have been placing demand on the NCBs regarding the need to modernize the national payment systems. Most of them have also initiated investments to upgrade their infrastructure in anticipation of the new payment systems. The arrangements for implementing the project also ensure that the commercial banks are fully involved in its implementation as members of the project core teams and the NPSC. 4.2.3 A third risk to the project is the fact that it introduces a new way of doing business in the concerned commercial and central banks. Thus, certain risks may arise with regard to difficulties that operators of the system may have in mastering new methods and technologies. To mitigate this risk, the project has made provisions for skills development and training of central and commercial banks’ staff. 5. PROJECT BENEFITS

5.1 Economic Benefits 5.1.1 The project will provide the region with the following benefits: (i) enhancing the capacity of the central banks in monetary policy management; (ii) improving financial deepening as more people are encouraged to move from the informal to the formal economy as financial services become less onerous and more reliable; (iii) increasing financial system stability as float is eliminated or reduced, and fraud associated with high value sums paid through checks is avoided by the usage of RTGS; and (iv) reducing immobilized cash flows and settlement delays by banks and their customers thus making cash management more efficient. The combined effect of all the above is improved efficiency in the economy, leading to higher GDP growth. 5.1.2 The project will facilitate the move to a common currency and boost integration to an economic and monetary union in WAMZ, resulting in a larger regional market. An improved payment system in the three (3) countries would enhance financial transactions and greatly improve intra-trade in the WAMZ, which currently lags behind UEMOA in the ECOWAS. The creation of a larger regional market will also boost regional cross-border trade and attract higher local and foreign direct investments. In addition, the project will create an enabling environment for private sector operations and also enhance regional integration and financial governance. 5.1.3 The introduction of a single currency that would be facilitated by the project would further enhance macro-economic performance, due to price convergence within the WAMZ, with the associated benefits of a stable macroeconomic environment. The improved macro-economic performance would be an enabling environment for investment and economic growth which would translate into welfare gains for the people of the Zone.

17

5.2 Social Benefits 5.2.1 The project would have positive social impact on the population in the WAMZ, especially women, who are the most active participants in regional trade, particularly at the retail level. The availability of modern and harmonized payment systems among the countries of WAMZ, particularly the easing of interbank fund transfers within the Zone, would reduce the necessity for carrying large amounts of physical cash by traders, which exposes them to risks of theft and harm. A boost in regional trade that would be facilitated by the project would most likely also increase the income of the retail women active in the trade, and improve their economic and social well being. 5.2.2 The improvement in the payment system would assist the efforts of governments and economic agents in the countries to improve saving rates by bringing more people into the formal financial sector. The improved level of savings and the increased participation of the populace in the formal financial system would engender higher economic intensity and growth, which would ultimately lead to reduction in unemployment, increased income to the people, and lower levels of poverty. 6. CONCLUSION AND RECOMMENDATION

6.1 Conclusion 6.1.1 The project would create a regional public good by enabling the three member countries of WAMZ (The Gambia, Guinea and Sierra Leone) to upgrade their payment systems, and thereby improve the performance of their economies, leading to higher economic growth and poverty reduction. In addition, the project will assist the harmonization of the payment systems in the five member countries of WAMZ, in so doing facilitate the process for the launch of a regional monetary union in the Zone. The project will contribute towards meeting ECOWAS’ strategic objective of increasing economic integration and regional trade in West Africa through: (i) harmonization of the monetary, financial and payment policies and infrastructure within the sub-region; (ii) liberalization of intra-region payment transactions; and (iii) promotion of the role of regional commercial banks in intra-community trade financing. 6.1.2 The project is technically sound and economically desirable. It is in line with the national development strategies of the three countries, and the regional economic strategy of ECOWAS. It is also in line with the Bank’s Financial Sector Policy, and the policy on regional operations given its direct impact on promoting private sector operations and regional economic integration in West Africa.

6.2 Recommendation In view of the above, it is recommended that an ADF grant not exceeding UA 14 million be provided to the West African Monetary Institute (WAMI) to finance the activities discussed in this report. The grant will be subject to the following conditions:

18

A. Conditions Precedent to Entry into Force The Protocol of Agreement shall enter into force upon its signature by WAMI and the Fund. B. Conditions Precedent to First Disbursement The obligations of the Fund to make the first disbursement of the Grant shall be conditional upon the entry into force of the Protocol of Agreement and the Recipient having provided evidence satisfactory to the Fund of the fulfilment of the following conditions. (i) The formal approval of the Protocol of Agreement by WAMZ Convergence Council

(paragraph 3.1.1); (ii) The constitution of the Project Implementation Team (PIT) at WAMI, and the Project

Core Teams at the Central Bank of Gambia, The Central Bank of Guinea and the Bank of Sierra Leone with personnel and terms of reference acceptable to the Fund (paragraph 3.2.2);

(iii) The opening by WAMI, in a bank acceptable to the Fund, of a Special Account into

which the proceeds of the grant shall be disbursed (paragraph 3.5). (iv) At the country level, the NCBs would be required to establish core project teams with

the head of Banking Operations at the Central Bank as the Project Coordinator, and including experts for each of the project components (paragraph 3.2.2) and evidence provided to the Fund.

C. Other Conditions

i. WAMI will provide evidence satisfactory to the Fund that the National Payment System Committees (NPSC) in The Gambia, Guinea and Sierra Leone are established with members and terms of reference approved by the Fund (paragraph 3.2.2).

MULTINATIONAL WAMZ PAYMENT SYSTEM DEVELOPMENT PROJECT

(THE GAMBIA, GUINEA AND SIERRA LEONE) APPRAISAL REPORT

ANNEX 1 WAMZ PAYMENT SYSTEMS DEVELOPMENT PROJECT

Summary of the Core Principles for

Important Payment systems Below is a summary of the 10 core principles for important payment systems as propounded by the Bank for International Settlements (BIS), Basel, Switzerland. 1. The system should have a well-founded basis under all relevant jurisdictions.

2. The system’s rules and procedures should enable participants to have a clear understanding of the system’s impact on each of the financial risks they incur through participation in it.

3. The system should have clearly defined procedures for the management of credit risks and liquidity risks, which specify the respective responsibilities of the system operator and the participants and which provide appropriate incentives to manage and contain those risks.

4. The system should provide prompt and final settlement on the day of value, preferably during the day and at a minimum at the end of the day.

5. A system in which multilateral netting takes place should, at a minimum, be capable of ensuring the timely completion of daily settlements in the event of an inability to settle by the participant with the largest single settlement obligation.

6. Assets used for settlement should preferably be a claim on the central bank, where other assets are used, they should carry little or no credit risk.

7. The system should ensure a high degree of security and operational reliability and should have contingency arrangements for timely completion of daily processing.

8. The system should provide a means of making payments which is practical for is users and efficient for the economy.

9. The system should have objective and publicly disclosed criteria for participation, which permit fair and open access.

10. The system’s governance arrangements should be effective, accountable and transparent.



ANNEX 2 Page 1 of 3

THE ECONOMIC ENVIRONMENT, BANKING AND FINANCIAL SECTOR IN WAMZ 1 The Economic Environment: Overview The WAMZ area has a population of 188 million distributed as follows: The Gambia, 1.7 million; Ghana, 23.5 million; Guinea, 9.4 million; Nigeria, 148 million, and Sierra Leone, 5.9 million. The WAMZ as a whole had a nominal GDP of about US$ 133 billion as at the end of 2006. The Zone enjoyed relatively good economic performance in the period 2001 to 2007, with real GDP growth rate averaging about 5.5 percent per annum for the area as a whole. Inflationary pressures moderated with an average end year inflation rate of about 12.5 percent, while the fiscal deficit was a low of 2.4 percent of GDP over the period. The external sector viability of the Zone strengthened considerably with gross international reserves growing from 7.4 months of imports in 2001 to 17 months by end June 2007. The Zone’s economy is dominated by Nigeria, which accounted for 85% of total GDP and 40% of total external reserves. 2 Economic Convergence in WAMZ WAMZ authorities have established economic convergence criteria to be achieved by the member countries of the Zone within the convergence period (2000 – 2009) in order to ensure the harmonization of their economic policies and promote economic growth and stability within the Zone. Four primary convergence criteria and six secondary convergence criteria were established (see Annex 3 for details of the convergence criteria). As at the end June 2007, the WAMZ member countries made good progress in their performance on the primary convergence scale: two countries, The Gambia, and Nigeria met all the four primary convergence criteria. Guinea and Sierra Leone met 2 out of the 4 primary criteria, while Ghana met 1. 3 Status and Prospects for Economic Integration in WAMZ

Trade relations among WAMZ member countries remain very small. The average share of WAMZ intra-trade in total trade stood at 2.76 percent in the period 2001 to 2005, with a peak of 3.22 per cent in 2003 (Table 9 below). The main reasons for this minuscule level of trade relations include the use of multiple currencies within the Zone, the narrowness of tradable products in many member countries, existence of tariff and non-tariff barriers to trade, multiple borders among the countries, and poor regional transportation infrastructure. One of the main objectives of creating the WAMZ is to promote trade among the members. Apart from the single currency agenda, other important elements of the program include the removal of tariff and non-tariff barriers to trade through the implementation of the ECOWAS Trade Liberalization Scheme (ETLS), the adoption of a Common External Tariff (CET), and the implementation of the Interstate Road Transit Convention by the member states.

Table 9: WAMZ Country Share in Total WAMZ Trade

2001 2002 2003 2004 2005 Average The Gambia 0.41 0.29 0.42 0.42 0.37 0.38 Ghana 10.32 11.87 13.97 7.67 9.73 10.71 Guinea 0.25 0.35 0.40 0.76 0.34 0.42 Nigeria 0.20 0.19 0.30 0.36 0.36 0.28 Sierra Leone 4.16 2.96 1.01 1.07 0.94 2.03 Total: WAMZ intra-trade to total trade 3.07 3.13 3.22 2.06 2.35 2.76

Source: WAMI



ANNEX 2 Page 2 of 3

The implementation of the above measures, together with the creation of a single economic space in the Zone through the monetary union and single currency, are expected to significantly increase the volume of intra-trade in the Zone. A comparison of the level of intra-trade in WAMZ and UEMOA shows that while the average ratio of intra-trade to total trade in WAMZ (2001 – 2005) was 2.76%, the ratio was almost five times higher, at 12.84%, in UEMOA (Figure 1). While UEMOA has other advantages over WAMZ, including the better contiguity of its states, the single currency of UEMOA is about the most important factor in the higher trade relations among its member states. It is therefore expected that a successful launch of the Eco would significantly improve intra-trade relations in WAMZ.

Figure 1: Share of intra-trade of total trade in ECOWAS

4 Banking and Financial Sector in WAMZ Overview There are wide variations in the size and structure of the financial sectors in WAMZ countries. Whereas Nigeria’s financial sector is relatively sophisticated and very large, both in terms of asset size, and the variety and numbers of institutions, The Gambia, Guinea and Sierra Leone have small financial sectors with few financial institutions, with Ghana falling somewhere in between. The number of licensed financial institutions in is in indicated in Table 10 below. Nigeria and Ghana also have vibrant capital markets, including active stock exchanges. The Gambia and Guinea have no stock exchanges, while a nascent stock exchange was opened in Sierra Leone in June 2007.

Table 10: Number of Licensed Financial Institutions in WAMZ, end 2006

Gambia Ghana Guinea Nigeria Sierra

Leone Total

WAMZ Commercial Banks Discount Houses Community Banks Mortgage Institutions Finance Companies MFIs BdC Other

10- - 1 5

63 38

-

241

125 14 20

- 276

4

8- - - - 8

110 -

255

509 94 76 14

362 5

9 2 - 2 2 -

54 3

768

634 111 103 85

840 12

Subtotal OFIs 107 440 118 1,065 63 1,793 Insurance Companies 11 25 4 122 8 170 Total Fin. Institutions 128 488 130 1,209 80 2,039

Source: WAMI and NCBs

Share of intra-trade in ECOWAS

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

2001: 2002: 2003: 2004: 2005: Average Share intra/total trade WAMZShare intra/total trade UEMOA



ANNEX 2 Page 3 of 3

The Banking Sector The commercial banks dominate the financial sector in all the countries, accounting for 92% of total financial sector assets in WAMZ as a whole. Owing to their overwhelming importance in financial intermediation, the soundness of the banking sector is crucial for financial stability, monetary management and economic growth in the region. In the last several years, all the countries in the Zone have undertaken reforms to strengthen their banking systems focused on increasing the capital adequacy of banks, and strengthening the infrastructure of the financial system, including the regulatory and supervisory regime and the national payment systems. Table 10 below shows selected Assets and Liabilities of Commercial Banks in WAMZ as end of 2006.

Table 10: Selected Assets and Liabilities of Commercial Banks in WAMZ as end of 2006

Gambia Ghana Guinea Nigeria S. Leone WAMZ Total Assets (US$ m) Total Credit to Private Sector Total Deposits Assets/WAMZ* (%) Deposits/WAMZ* (%) Assets/GDP (%) Private Credit/GDP (%) Deposits/inhabitants ($)

243 83 78

208

0.53 0.78

27.48 8.88 138

5,147 2,738 2,235 3,454

11.28 13.05 41.10 17.85

161

405 130 129 316

0.89 1.19

12.06 3.85

32

39,591 19,160 19,160 22,289

86.79 84.23 27.90 13.50

150

229 69 67

196

0.50 0.74

17.19 5.07

35

45,616 22,180 21,671 26,461

100 100

28.51 13.54

141 * Country banking assets and deposits to WAMZ totals Source: National Central Banks Reports 5 Monetary Policy, Liquidity and Foreign Exchange Management in WAMZ Price stability is the main focus of monetary policy in WAMZ. This is of primary importance given that the attainment of single digit inflation is one of the primary convergence criteria for the Zone. There is convergence in the use of monetary policy instruments in the Zone, with most of the countries having put in place Monetary Policy Committees (MPC) which have strengthened monetary management and enhanced transparency of monetary policy. Foreign exchange management has been liberalized in all the countries in the Zone except Guinea, where the Central Bank continues with a multiple exchange rate practice. 6 Financial Sector Integration in WAMZ One of the key components of the WAMZ program is the integration of the financial systems of all the member countries. The proposed establishment of the WACB, the most important milestone in the program, presupposes the full integration of monetary policy and liquidity management in the Zone. Also proposed to be established under the program is the West African Financial Supervisory Authority (WAFSA) that will ultimately be responsible for the supervision of all financial institutions in the Zone. 7 WAMZ Payment System Development Strategy The WAMZ has set up a Payment System Development Committee (PSDC) charged with developing effective, efficient and secure modern payment, clearing and settlement systems in its member countries. The PSDC is pursuing a payment system development strategy that would overtime enable its member countries to be largely compliant with the Core Principles. The proposed project is designed to assist in meeting the above objectives of the WAMZ payment system development plan. 8 Convergence Council meeting, 6th December, 2007 At the 21st Meeting of the Convergence Council of Ministers and Governors of Central Banks of the West African Monetary Zone (WAMZ), held on 6th December 2007, in Guinea, the Council noted the improvement in the macroeconomic convergence and urged WAMI to focus on the implementation of the RTGS for the three remaining countries.



ANNEX 3

WAMZ ECONOMIC CONVERGENCE CRITERIA

WAMZ authorities have established economic convergence criteria to be achieved by the member countries of the Zone in order to ensure the harmonization of their economic policies and thereby promote economic growth and stability within the Zone. Four primary convergence criteria and six secondary convergence criteria were established. The convergence criteria are expected to be achieved by the member states within the convergence period (2000 - 2009), and sustained thereafter. Summaries of the convergence criteria are provided below: A. Primary Convergence Criteria A.1 Inflation Rate: Member countries to achieve single digit inflation rate A.2 Fiscal Deficit/GDP Excluding Grants: Member countries to achieve a ratio not higher than 4% A.3 Central Bank financing of fiscal deficit as % of previous year’s tax revenue: Member countries to

achieve a ratio of less than 10%, and A.4 Gross External reserves in months of imports: Member countries to achieve a ratio of not less

than 3 times. B. Secondary Convergence Criteria B.1 Non accumulation of new domestic arrears and clearance of old arrears: Member countries to

ensure zero domestic arrears B.2 Tax Revenue/GDP: Member countries to achieve a ratio of not less than 20% B.3 Salary Mass/Total Tax Revenue: Member countries to ensure that public sector wage bill as a

percent of tax revenue is not more than 35% B.4 Public investment from domestic receipts: Member countries to achieve a ratio above 20%.

These are public investments financed from total revenue (tax and non tax). B.5 Real Interest Rate: Member countries to achieve positive real interest rate. B.6 Exchange Rate stability: Member countries’ currency fluctuations to be within +/-15% of

WAMZ Exchange Rate Mechanism. The central parity of nominal exchange rate determined on March 31, 2002 maintained within: ±15% fluctuation band as defined by the WAMZ ERM.



ANNEX 4 DETAILED PROJECT COST ESTIMATE

ItemFC LC FC LC FC LC FC LC FC LC FC LC

Software CostCore Software 2,220 187 1,200 101 780 66 600 50 1,510 127 6,310 530Annual Recurring License Fee 300 25 360 30 360 30 360 30 240 20 1,620 136Third party software (if applicable) 75 6 120 10 120 10 120 10 70 6 505 42Vendor Services (implementation, customization, training, etc.) 1,500 126 900 76 750 63 300 25 725 61 4,175 351

Total Software 4,095 344 2,580 217 2,010 169 1,380 116 2,545 214 12,610 1,059

Hardware (including):Servers & Ancillaries, Printers, Communiation EquipmentPC and MICR Workstations and UPSTotal Hardware 701 59 300 25 1,050 88 0 0 245 21 2,296 193OthersSWIFT Closed User Group Connection 845 71 0 0 0 0 0 0 0 0 845 71

Infrastructure ServicesTelecommunication (LAN, WAN, PSTN) 1,800 1,473Supplementary Power Supply 600 491

Total Infrastructure Services 2,400 1,964

Project ManagementConsultancy Services Cost at 10% for:Review of specifications and bidding documentsEvaluation of bids receivedProject Implementation supervisionTotal Consultancy Services 564 47 288 24 306 26 138 12 279 23 2,011 329

Training and Awareness Programs 150 13 150 13 150 13 0 0 100 8 550 46Support to Project Implementation 0 390 0 0 0 0 0 0 0 0 0 390Project Audit 0 60 0 0 0 0 0 0 0 0 0 60

Total Project Management 714 510 438 37 456 38 138 12 379 32 2,561 825

Total Base Cost 6,355 984 3,318 279 3,516 295 1,518 128 3,169 266 20,516 4,112

Contingencies 635 98 332 28 352 30 152 13 317 27 2,052 411

Grand Total 6,990 1,082 3,650 307 3,868 325 1,670 140 3,486 293 22,568 4,523

DETAILED PROJECT COST ESTIMATES

Cost by Component ('000US$)

MULTINATIONALWAMZ PAYMENTS SYSTEMS DEVELOPMENT PROJECT

RTGS ACH ACPTotal

SSSS Banking App.



ANNEX 5 THE WEST AFRICAN MONETARY INSTITUTE’S ORGANISATION CHART

Director General

Research &

Statistics Department

Information & Communication

Technology Department

Operations Department

Advisor to the Director

Legal Department

Finance & Administration Department

Internal Audit Department

Research & Multilateral

Surveillance Division

Statistic Division

Monetary Strategy

Division

ICT Support

Services Division

WACB ICT Project

Division

Payment Systems Division

Financial Sector

Division

Trade, Development &

Sensitization Division

Legal Advisory & Implementation

Division

Legal Research & Drafting Division

Administration

Division

Finance Division

Translation Division

Currency

Department

Currency Issue Division

Capital Market

Integration Division



ANNEX 6 ORGANISATIONAL CHART FOR PROJECT IMPLEMENTATION

Project Consultants

Project Implementation Team (WAMI)

National Project team (Guinea)

National Project Team (Sierra Leone)

Director General (WAMI)

NPSC*

National Project Team (The Gambia)

NPSC NPSC

Project Director

Project Manager

Technical Staff

Project Coordinator

Technical Staff

CBs Reps

Resident Consultant

NCB

CBs Other Stakeholders

*NPSC : National Payment System Committee CBs: Commercial Banks



ANNEX 1: PROJECT IMPLEMENTATION SCHEDULE ANNEX 7

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