World Bank Document · 2016. 7. 11. · KPI Key Project Indicators M&E Monitoring and Evaluation...

Document of

The World Bank

Report No: ICR00002005

IMPLEMENTATION COMPLETION AND RESULTS REPORT

(IDA-35670, IDA-3567A)

ON A

CREDIT

IN THE AMOUNT OF SDR 19 MILLION

(US$23.8 MILLION EQUIVALENT

TO THE

REPUBLIC OF MADAGASCAR

FOR THE

SECOND PRIVATE SECTOR DEVELOPMENT PROJECT

June 30, 2011

Finance and Private Sector Development

AFCS4

Africa Region

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CURRENCY EQUIVALENTS

(Exchange Rate Effective December 31, 2010

Currency Unit = Malagasy Ariary (MGA)

US$1.00 = MGA 2,174

FISCAL YEAR

January 1 – December 31

ABBREVIATIONS AND ACRONYMS

ACM Aviation Civile de Madagascar / Civil Aviation Authority

ADEMA Aéroports de Madagascar / Madagascar Airports

ADF Airport Development Fund

AGOA African Growth and Opportunity Act

ATI African Trading Insurance

BPI Business Partners International

CAPE Comité d‘Appui au Pilotage de la relance de l‘Entreprise / Support

Committee for Enterprise Relaunch Pilot

CAS Country Assistance Strategy

CFEC Center for Facilitation of Enterprise Creation

CP Comité de Privatisation / Interministerial Privatization Committee

CRC Comité de Réflexion pour la Compétitivité / Competitiveness Review

Committee

DCA Development Credit Agreement

EDBM Economic Development Board of Madagascar

EMP Environmental Management Plan

EPZ Export Processing Zone

FASP Fonds d'Appui au Secteur Privé / Private Sector Support Fund

FDI Foreign Direct Investment

FIAS Foreign Investment Advisory Services

FMI Financial Management Initiative

FSADR Fond Social d'Appui au Développement Régional / Social and Regional

Development Fund

GDP Gross Domestic Product

GOTICOM Groupement des Opérateurs des Technologies de l'Information et

Communication / Private Sector Association of ICT Operations

GOM Government of Madagascar

GUIDE Guichet Unique des Investissements et du Développement des Entreprises /

One-Stop Shop for Business Development and Investment Promotion

HASYMA Hasy Malagasy / Cotton Company

HIPC Heavily Indebted Poor Country

ICB International Competitive Bidding

ICR Implementation Completion and Results

ICT Information and Communication Technology

IDA International Development Agency

IFC International Finance Corporation

IMF International Monetary Fund

IMS Information Management System

IPP Independent Power Producer

I-PRSP Interim Poverty Reduction Strategy Paper

IVATO International Airport of Antananarivo

JIRAMA Jiro Sy Rano Malagasy / Power and Water Company

KPI Key Project Indicators

M&E Monitoring and Evaluation

MAP Madagascar Action Plan

MDSPP Ministère du Développement du Secteur Privé et de la Privatisation /

Ministry of Private Sector Development and Privatization

MSE Micro and Small Enterprises

NBC National Competitive Bidding

NPV Net Present Value

OECD Organisation for Economic Cooperation and Development

ONE Office National de 1'Environnement / National Environment Agency

OMERT Office Malgache pour l'Etude et la Régulation des Télécommunications /

Telecoms Regulator

OMH Office Malgache des Hydrocarbures / Petroleum Regulator

OPCS Operations Policy and Country Services

PAD Project Appraisal Document

PASERP Programme d'Appui Social et Economique pour la Réinsertion

Professionnelle /

Retraining Program

PATESP Private Sector and Capacity Building Project

PCU Program Coordination Unit

PDO Project Development Objective

PIU Project Implementation Unit

PMR Project Monitoring Reports

PNSP Programme National d'Appui au Secteur Privé / Private Sector Support

National Program

PPP Public Private Partnership or Purchasing Power Parity

PSD Private Sector Development

PSDP2 Second Private Sector Development Project

PTF / FPP Privatization Trust Fund / Fonds de Portage et de Privatisation

SADC Southern Africa Development Community

SIRAMA Siramamy Malagasy / Sugar Company

SME Small and Medium-sized Enterprises

SODIP Société pour le Développement Industriel des Plantes de Madagascar /

Madagascar Company for the Industrial Development of Plants

SOE State-Owned Enterprise

SOLIMA Solitany Malagasy / National Oil company of Madagascar

STP Secrétariat Technique à la Privatisation / Privatization Secretariat

TELMA Telecom Malagasy

TOR Terms of Reference

UCP Unité de Coordination du Projet / Project Implementation Unit

USF Universal Service Fund

VOIP Voice over Internet Protocol

Vice President: Obiageli Katryn Ezekewesili

Country Director: Haleh Bridi

Sector Manager: Michael J. Fuchs

Task Team Leader: Josiane V. Raveloarison

ICR Team Leader: Michael O. Engman

MADAGASCAR

SECOND PRIVATE SECTOR DEVELOPMENT PROJECT

CONTENTS

Data Sheet

A. Basic Information

B. Key Dates

C. Ratings Summary

D. Sector and Theme Codes

E. Bank Staff

F. Results Framework Analysis

G. Ratings of Project Performance in ISRs

H. Restructuring

I. Disbursement Graph

Contents

1. Project Context, Development Objectives and Design ............................................................... 1

2. Key Factors Affecting Implementation and Outcomes .............................................................. 9

3. Assessment of Outcomes .......................................................................................................... 17

4. Assessment of Risk to Development Outcome ......................................................................... 23

5. Assessment of Bank and Borrower Performance ..................................................................... 24

6. Lessons Learned........................................................................................................................ 27

Annex 1. Project Costs and Financing .......................................................................................... 30

Annex 2. Outcome by Component................................................................................................ 32

Annex 3. Economic and Financial Analysis ................................................................................. 58

Annex 4. Bank Lending and Implementation Support/Supervision Processes ............................. 61

Annex 5. Beneficiary Survey Results ........................................................................................... 64

Annex 6. Privatization transactions supported by the Project in 2002-2010 ................................ 66

Annex 7. Summary of Borrower‘s ICR and/or Comments on Draft ICR .................................... 69

Annex 8. Comments of Co-financiers and Other Partners/Stakeholders ...................................... 78

Annex 9. List of Supporting Documents ...................................................................................... 79

Annex 10. Map of Madagascar ..................................................................................................... 80

A. Basic Information

Country: Madagascar Project Name: MG - Prviate Sector

Development II

Project ID: P072160 L/C/TF Number(s): IDA-35670,IDA-3567A

ICR Date: 06/30/2011 ICR Type: Core ICR

Lending Instrument: SIL Borrower: REPUBLIC OF

MADAGASCAR

Original Total

Commitment: XDR 19.0M Disbursed Amount: XDR 15.7M

Revised Amount: XDR 15.7M

Environmental Category: B

Implementing Agencies:

Secretariat Technique a la Privatisation (STP)

Cofinanciers and Other External Partners:

B. Key Dates

Process Date Process Original Date Revised / Actual

Date(s)

Concept Review: 08/07/2000 Effectiveness: 11/12/2002 11/12/2002

Appraisal: 01/12/2001 Restructuring(s):

11/12/2002

03/06/2003

04/28/2005

06/14/2006

12/21/2007

05/03/2010

Approval: 08/28/2001 Mid-term Review: 07/18/2005 07/25/2005

Closing: 06/30/2006 12/31/2010

C. Ratings Summary

C.1 Performance Rating by ICR

Outcomes: Moderately Unsatisfactory

Risk to Development Outcome: Moderate

Bank Performance: Moderately Unsatisfactory

Borrower Performance: Moderately Unsatisfactory

C.2 Detailed Ratings of Bank and Borrower Performance (by ICR)

Bank Ratings Borrower Ratings

Quality at Entry: Moderately Satisfactory Government: Moderately

Unsatisfactory

Quality of Supervision: Moderately

Unsatisfactory

Implementing

Agency/Agencies: Moderately Satisfactory

Overall Bank

Performance:

Moderately

Unsatisfactory Overall Borrower

Performance:

Moderately

Unsatisfactory

C.3 Quality at Entry and Implementation Performance Indicators

Implementation

Performance Indicators

QAG Assessments (if

any) Rating

Potential Problem Project

at any time (Yes/No): No

Quality at Entry

(QEA): None

Problem Project at any time

(Yes/No): Yes

Quality of Supervision

(QSA): None

DO rating before

Closing/Inactive status:

Moderately

Satisfactory

D. Sector and Theme Codes

Original Actual

Sector Code (as % of total Bank financing)

Central government administration 95 67

General finance sector 2 5

General industry and trade sector 2 26

Micro- and SME finance 1 2

Theme Code (as % of total Bank financing)

Regulation and competition policy 40 17

Small and medium enterprise support 20 33

State enterprise/bank restructuring and privatization 40 50

E. Bank Staff

Positions At ICR At Approval

Vice President: Obiageli Katryn Ezekwesili Callisto E. Madavo

Country Director: Haleh Z. Bridi Hafez M. H. Ghanem

Sector Manager: Michael J. Fuchs Demba Ba

Project Team Leader: Josiane V. Raveloarison Marie-Ange Saraka-Yao

ICR Team Leader: Michael Olavi Engman

ICR Primary Author: Michael Olavi Engman

F. Results Framework Analysis

Project Development Objectives (from Project Appraisal Document)

The objective of the project is to assist the Borrower to improve access, reliability and

affordability of key utilities, through completion of the divestiture program of key state-owned

enterprises, and capacity building initiatives to strengthen the capacity of autonomous regulators

and privatization agencies, and facilitate entry of new operators in the deregulated sectors.

(DCA).

To enable the Government of Madagascar (GOM) to improve access, reliability, and

affordability of key utilities, including transport (PAD).

Revised Project Development Objectives (as approved by original approving authority)

The objective of the Project is to assist the Borrower to improve access, reliability and


enterprises, and capacity building initiatives to strengthen the capacity of autonomous regulators

and privatization agencies, and facilitate entry of new operators in the deregulated sectors and

increase the competitiveness of Malagasy companies. (as approved by the Board in November

2002)

(a) PDO Indicator(s)

Indicator Baseline Value

Original Target

Values (from

approval

documents)

Formally

Revised

Target Values

Actual Value

Achieved at

Completion or

Target Years

Indicator 1 : Private investment in the targeted sectors increased by US$100 million annually from

2004 to 2007

Value

quantitative or

Qualitative)

NA Annual increase by

$100 million

Private investment in

telecoms increased

from $13 million in

2004 to $120 million

in 2007. Data for

private investment in

the petroleum sector

were not available

but anecdotal

evidence indicates

that the target was

not reached.

Date achieved 08/01/2001 12/31/2007 12/31/2010

Comments

(incl. %

achievement)

Political uncertainty made investment a poor indicator of success. Roughly one-third of

the target was achieved in telecoms. Team monitored FDI/GDP but there was

insufficient causality between this measure and project for it to be considered in ICR.

Indicator 2 : Improve access to reliable, affordable, and quality services for key utilities

Value

quantitative or

Qualitative)

# of telephone lines (mobile

+ fixed) per 100 inhabitants:

0.8 percent in 2000.

# of Internet users 10,000 in

# of telephone lines

(mobile + fixed) per

100 inhabitants: 1.5

percent in 2004

# of telephone lines

per 100 inhabitants:

2.3 percent in 2004,

26.2 percent in 2008.


Original Target

Values (from

approval

documents)

Formally

Revised

Target Values

Actual Value

Achieved at

Completion or

Target Years

2000

Telecom services rates as

for 2000

# of Internet users

60,000 in 2005

Telecom services

rates reduced by

2006 in line with the

average rate of

telecom services of

other countries in

region

# of internet users

100,000 in 2005 and

316,000 in 2008.

Price of a 3-min local

call in 2006

(Mada/SSA):

$045/0.68 for mobile

and $0.18/0.09 for

fixed, down from

$3.19/

Date achieved 08/01/2001 12/31/2006 12/31/2009 12/31/2010

Comments

(incl. %

achievement)

Access: targets exceeded - 100%.

Affordability: achieved for mobile but nor fixed services.

Indicator 3 : Strengthen the capacity of autonomous regulators and privatization agencies and

facilitate entry of new operators

Value

quantitative or

Qualitative)

Insufficient capacity of

Privatization Secretariat

(STP) and Telecom

regulator (OMERT)

Capacity building of

Privatization

Secretariat (STP)

and Telecom

regulator (OMERT)

The STP was

strengthened

significantly during

the course of the

project and became

the de facto PIU in

2006. OMERT

received training.

Date achieved 08/01/2001 12/31/2010

Comments

(incl. %

achievement)

STP was dismantled upon project closing. Industry insiders and civil servants argue that

the technical capacity of OMERT is rather good but it lacks meaningful autonomy.

Indicator 4 : Complete divestiture program of key state-owned enterprises

Value

quantitative or

Qualitative)

Complete/Implement

divestiture strategy for

TELMA, HASYMA,

JIRAMA and SIRAMA

Privatize TELMA

by 2002;

SIRAMA by 2002;

International Airport

of Antananarivo

(IVATO) by 2003;

HASYMA by 2003

The

Government

made several

changes to the

list, including

dropping and

adding

companies.

TELMA and

HASYMA privatized

in 2004. JIRAMA

partly under private

management

contract. SIRAMA:

no

launch of

privatization

process; 15 public

enterprises liquidated

and 12 partly

liquidated.

Date achieved 08/01/2001 12/31/2010

Comments

(incl. %

The work of preparing and executing this process was satisfactory but the lack of

commitment by the Government made it impossible to complete the agenda.


Original Target

Values (from

approval

documents)

Formally

Revised

Target Values

Actual Value

Achieved at

Completion or

Target Years

achievement) Significant achievements still made.

Indicator 5 : Increase competitiveness of Malagasy companies

Value

quantitative or

Qualitative)

None (Total value of

investments. Job

created. Job sustained

Number of MSMEs assisted

- were mentioned)

Number of

investments in

SMEs: Year 1

(2007): 15 Year 2:

18; Year 3: 18 Year

4 24 and Year 5: 27)

There is little

evidence that the

activities helped

increase the

competitiveness of

Malagasy companies.

EDBM helped to

significantly reduce

the transaction costs

of starting a business

and obtaining

permits. It is

impossible to

establish any causal

link

Date achieved 11/12/2002 12/31/2010

Comments

(incl. %

achievement)

The indicators for this sub-section of the PDO were ill-defined and causality unclear.

Data were often not available or collected.

(b) Intermediate Outcome Indicator(s)


Original Target

Values (from

approval

documents)

Formally

Revised Target

Values

Actual Value

Achieved at

Completion or

Target Years

Indicator 1 :

Carry out environmental audit of petroleum sites in order to assess environmental

impact, identify risk sharing arrangements, and propose a remedial action plan and risk

mitigation measures

Value

(quantitative

or Qualitative)

No baseline audit available

Core team of trained

qualified individuals

in place at OMH

(petroleum

regulator). Establish

procedures to

monitor

environmental

hazards

Target partly

achieved. 2005:

environmental audit

for phase I delivered.

2006: committee

decides to develop an

action plan to protect

and minimize risk.

2007: 79% of service

stations cleaned up.

2008: Galana

Refinery terminal is

renovated.

Date achieved 08/01/2001 12/31/2004 12/31/2010


Original Target

Values (from

approval

documents)

Formally

Revised Target

Values

Actual Value

Achieved at

Completion or

Target Years

Comments

(incl. %

achievement)

The output targets were largely met but the Government did not adequately address all

the recommendations of the audit.

Indicator 2 : Reduce the steps to create a firm (60 days and 10 steps at mid term review)

Value

(quantitative

or Qualitative)

157 days and 17 steps in

2002

Ease of doing

business ranking in

2010 report is better

than 144th (in DB

report 2009)

The project was

catalytic in achieving

these results during

the first years when it

established the one

stop shop (GUIDE)

that was later

incorporated into

EDBM, which

reformed the process

significantly.

Date achieved 12/01/2003 12/31/2009 12/31/2010

Comments

(incl. %

achievement)

Indicator 3 : Reduce the steps to create a firm (60 days and 10 steps at mid term review)

Value

(quantitative

or Qualitative)

157 days and 17 steps in

2002

Ease of doing

business ranking in

2010 report is better

than 144th (in DB

report 2009)

Date achieved 12/01/2003 12/31/2009 12/31/2010

Comments

(incl. %

achievement)

Sources: Doing Business report and EDBM

Indicator 4 : Facilitate growth exports through setting up EPZ. Implementation of the pilot zone in

Tsarakofafa - Tamatave

Value

(quantitative

or Qualitative)

Off-site infrastructure

investments are completed:

electricity, water and

telecommunication network

Partnership

agreement between

GoM and developer

concluded

Date achieved 08/01/2005 12/31/2009 12/31/2010

Comments

(incl. %

achievement)

Sources: Ministry of Economy and Industry. FILATEX

Indicator 5 : Encourage participation of nationals in the privatization process

Value

(quantitative

or Qualitative)

Shares not shared.

a) 10% of shares of

the targeted private

enterprises have

been transferred to

the Privatization

This activity did

neither achieve

significant results not

its targets


Original Target

Values (from

approval

documents)

Formally

Revised Target

Values

Actual Value

Achieved at

Completion or

Target Years

Trust Fund (PTF) at

the closing of each

transaction;

b) PTF has offered

these shares for sale

to local small

investors.

Date achieved 08/01/2001 12/31/2010

Comments

(incl. %

achievement)

Privatization Trust Fund was created, and staffed with a Fund Manager. Although

GOM took years to make progress on this activity, since its creation a few Government

shares in privatized companies have been transferred to PTF.

Indicator 6 : Increase ROI of the targeted companies: ADEMA. HASYMA, SIRAMA and TELMA

Value

(quantitative

or Qualitative)

None None

Unclear. ISR:

HASYMA ROI: -

0.2% in 2004; -

55.5% in 2005; -

3426% in 2006; 1.3%

in 2007 and -31.7%

in June 2008.

TELMA ROI: -

84.2% in 2004;

10.5% in 2005; 2.8%

in 2006; 1.2% in

2007; -5.4% in 2008

and 0.6% in 2009.

Date achieved 12/31/2010

Comments

(incl. %

achievement)

This indicator was insufficiently estimated and monitored

G. Ratings of Project Performance in ISRs

No. Date ISR

Archived DO IP

Actual Disbursements

(USD millions)

1 01/29/2002 Satisfactory Satisfactory 0.00

2 05/20/2002 Satisfactory Unsatisfactory 0.00

3 12/19/2002 Unsatisfactory Unsatisfactory 0.00


5 11/25/2003 Satisfactory Unsatisfactory 3.00
















21 12/23/2009 Moderately Satisfactory Moderately Satisfactory 24.47

22 06/30/2010 Moderately Satisfactory Moderately Satisfactory 24.47

23 01/11/2011 Moderately Unsatisfactory Moderately Unsatisfactory 24.84

H. Restructuring (if any)

Restructuring

Date(s)

Board

Approved PDO

Change

ISR Ratings at

Restructuring

Amount

Disbursed at

Restructuring

in USD millions

Reason for Restructuring & Key

Changes Made DO IP

11/12/2002 Y S U 0.00

03/06/2003 N U U 0.75

Second order restructuring for

amending project description,

allocation of funds to credit

components, and the financial and

institutional arrangements

governing project implementation

04/28/2005 N S S 11.69


utilizing project savings to fund a

technical assistance facility

targeting local SMEs, to finance

an insurance facility component of

the Project, following

Madagascar# s admission as

member of ATI, and amending

various procurement thresholds

06/14/2006 S S 16.79


extending the closing date of the

Project to December 31, 2007, and

reallocating some project funds

12/21/2007 N S S 22.20



Project to December 31, 2009, and

reallocating project funds

05/03/2010 MS MS 24.47



Project to December 31, 2010

within the framework of OP 7.30

Dealing with de facto government.

If PDO and/or Key Outcome Targets were formally revised (approved by the original approving body)

enter ratings below:

Outcome Ratings

Against Original PDO/Targets Unsatisfactory

Against Formally Revised PDO/Targets Moderately Unsatisfactory

Overall (weighted) rating Moderately Unsatisfactory

I. Disbursement Profile

1

1. Project Context, Development Objectives and Design

1.1 Context at Appraisal

1. Country context: Madagascar was one of the poorest countries in the world at the turn of the century. In 2001, the country‘s gross domestic product (GDP) per capita at purchasing

power parity (PPP) was US$848; or 59 percent of the average value in Sub-Saharan Africa.1

Following Board approval of the Second Private Sector Development project (PSDP2) (or, the

Project), on August 28, 2001, the economy has mostly expanded, partly as a result of increased

exports of agricultural and garments products, debt service relief under the enhanced Heavily

Indebted Poor Countries (HIPC) Initiative, and two major investments in the mining industry.2 In

the past decade, the Malagasy economy stood up reasonably well to environmental and economic

shocks, such as devastating cyclones and deteriorating terms of trade, as well as currency

volatility. In 2002-2008, the country embarked on an ambitious reform path that brought

improvements in social, economic and governance indicators. However, the Malagasy economy

contracted in 2002 and 2009 due to political turmoil.

2. Rationale for Bank assistance: The Project‘s interventions aimed to lock in earlier achievements and to strengthen the reform process embarked upon by the country in the second

half of the 1990s. An earlier reform program, supported by the (first) Private Sector

Development and Capacity Building Project (PATESP, CR.2956, 1997-2002), encouraged

private sector development through changes in the legal business environment. Markets were

liberalized and some 50 companies privatized, including eight of the largest state-owned

enterprises (SOEs) and two financial institutions, and the Government of Madagascar (GOM)

established regulatory agencies before the transactions of the privatization process were

concluded. Hence, the Project was prepared and designed in a positive environment categorized

by expectations that the Second Private Sector Development Project would be able to capitalize

on the momentum enjoyed by the Private Sector Development and Capacity Building Project.

3. The Project‘s interventions were designed to support the objectives of the Country Assistance Strategy (CAS) (16249-MAG), of January 17, 1997, which aimed to reduce poverty

through high growth and ―quantum leaps in investment‖. According to the Interim Poverty

Reduction Strategy Paper (I-PRSP), of November 28, 2000, economic performance was expected

to improve by completing the GOM‘s ongoing financial and economic reform program. It

included the implementation of a new legal framework that would promote transparent business

rules, private investment, and local enterprise development in sectors with high growth potential

such as tourism, mining, manufacturing, telecommunications and seafood. It also covered the

finalization of the privatization program and the expansion of infrastructure. The Project

supported these goals and aimed to improve efficiency and expansion of key infrastructure

services that were identified in the I-PRSP as the main constraints to potential sources of growth.

1 World Bank (2011a).

2 IMF (2000), IMF (2004).

2

1.2 Original Project Development Objectives (PDO) and Key Indicators (as approved)

4. According to the Project Appraisal Document (PAD), the principal objective of the project was ―to enable the Government of Madagascar to improve access, reliability, and

affordability of key utilities, including transport‖. The Development Credit Agreement (DCA)

dated October 5, 2001, was somewhat more comprehensive in definition and stated that the PDO

was ―to assist the Borrower to improve access, reliability and affordability of key utilities,

through completion of the divestiture program of key state-owned enterprises, and capacity

building initiatives to strengthen the capacity of autonomous regulators and privatization

agencies, and facilitate entry of new operators in the deregulated sectors.‖

5. The Project was designed to achieve two specific goals. The first goal was to complete the divestiture of four key state-owned enterprises (SOEs) and 30 small and medium-sized

enterprises (SMEs) as well as to liberalize the agro-industry, air transport, energy, finance, and

telecommunications markets. This was meant to improve efficiency of the companies and create

opportunities for new private entry and investment. The second goal was to strengthen the

capacity of GOM to regulate privatized sectors. See Table 1 for the original key indicators to

assess the achievement of the development objectives.

1.3 Revised PDO and Key Outcome Indicators

6. Shortly after the Project was approved by the Board of Directors on August 28, 2001, a lengthy political crisis erupted that paralyzed the public sector, plunged the economy into

decline, and delayed Project effectiveness. Following the installation of a new Government and

upon its request to the World Bank, on October 22, 2002, the President of the World Bank called

for the Board of Executive Directors to approve several proposed changes to the World Bank

portfolio in the post-conflict environment, including the DCA of the Project, through the

approval of the Regional Vice President.3

7. The Project‘s DCA was thus amended on November 12, 2002 to better reflect the priorities of the new Government. The amendment led to Project effectiveness and was the actual

starting point for the Project as no disbursements had been made prior to the restructuring. The

Project Development Objective (PDO) was amended with a slight addition to the original PDO

with the final words in bold: ―to assist the Borrower to improve access, reliability and


enterprises, and capacity building initiatives to strengthen the capacity of autonomous

regulators and privatization agencies, and facilitate entry of new operators in the deregulated

sectors and increase the competitiveness of Malagasy companies‖. In addition, the outcome

indicator on ‗transport‘ was dropped from the Project at the restructuring mission and this change

was thereafter reflected in the second amendment to the DCA.

8. On May 6, 2003, the Country Director and the Government agreed to amend the DCA a second time with modifications to introduce miscellaneous changes to the project description, the

allocation of funds to credit components, and financial and institutional arrangements governing

project implementation. These amendments were not resubmitted to the Board but they followed

3 World Bank (2002).

3

the requests outlined by the World Bank President and that had been submitted to the Board of

Directors in the fall of 2002.

Table 1. Key performance indicators

Outcome indicators

Private investment in the targeted sectors increased by US$100 million annually from 2004 to 2007

Telecommunications

The number of telephone lines (fixed line + mobile) per 100 inhabitants (penetration rate) increased from 0.8

percent in 2000 to 1.5 percent in 2004;

Internet users increased from 10,000 in 2000 to 40,000 in 2004, and 60,000 in 2005;

Telecom services rates will be reduced by end 2006 in line with the average rate of telecom services of

countries in the region facing a level of competition in their telecom sector similar to that of Madagascar

Transport

Cost of international and regional airline tickets reduced in line with published economy and charter fares for

competing destinations (such as Reunion) by 2004;

Ground handling fees will be reduced by 8 to 10% by 2004

Output Indicators

Regulatory framework

The regulatory framework for the insurance sector comprising of application decrees mentioned in the

insurance code has been adopted in 2003

Capacity Building

The regulatory agencies responsible for civil aviation, petroleum, and telecommunications are fully

operational by December 2003 and have established monitoring procedures to ensure compliance with

technical and economic regulations and national environmental norms and World Bank Group (WBG)

policies;

The council of insurance and the authority in charge of oversight and monitoring of the insurance sector are

fully operational in 2004, have established yearly procedures to ensure compliance of insurance institutions

to international standards and are disclosing a yearly statistics report on the sector's activities by Dec. 2004;

The Center for Facilitation of Enterprise Creation (CFEC) is adequately funded, staffed and fully operational

by December 2003

Privatization

Privatization transactions are completed in the time-frame below, in compliance with transparency and competition

rules acceptable to the WBG:

Telecoms Malagasy (TELMA) completed by 2002;

Sugar Company (SIRAMA) completed by 2002;

International Airport of Antananarivo (IVATO) completed by 2003;

Cotton Company (HASYMA) completed by 2003;

Ten percent of shares of the targeted private enterprises have been transferred to the Privatization

Trust Fund (PTF) at the closing of each transaction; and

PTF has offered these shares for sale to local small investors

New PSD activities

New strategies in priority sectors identified by Government adopted by 2003;

The Center for the promotion of micro and small enterprises (OMPE) is fully operational in 2003, adequately

staffed and has established adequate procedures to support MSEs;

Product development and training services provided to ten local start-ups by 2005

4

1.4 Main Beneficiaries

9. The PAD did not identify specific beneficiaries. The rationale was that the Project would benefit the overall economy through increased competition, adoption of productivity enhancing

initiatives by the private sector, and investments boosting access and lowering prices of utility

services. The ceding of control of loss-making companies to the private sector was expected to

generate cost savings that could be reinvested to expand basic services. For the local private

sector, benefits were expected to be significant as the reforms would facilitate the development

of local entrepreneurship. By targeting backbone services, such as transport and telecoms, the

PAD explicitly assumed that the benefits of improved access and competitive rates would spill

over into other sectors, thereby giving rise to a significant multiplier effect. Simplified

procedures for enterprise registration, and easier and cheaper access to key business services,

would benefit entrepreneurship.

1.5 Original Components

10. The PAD outlined three broad project components: (i) regulatory capacity building; (ii) transaction implementation; and (iii) ‗new Private Sector Development (PSD) activities‘. These

project components are summarized below with a brief assessment of the causal linkages

between component activities and PDO outcomes.

(i) Regulatory Capacity Building

11. The first component would strengthen the regulatory capacity of autonomous sector regulators for air transport, petroleum and telecoms, and in particular: (i) improve their

efficiency in undertaking technical and economic regulation; and (ii) monitor environmental

hazards in compliance with national legislation, sector standards and World Bank Group (WBG)

policies. In addition, it would build in-house capacity of the Center for Facilitation of Enterprise

Creation (CFEC), and strengthen the insurance sector.

12. From a causality perspective, strengthening regulatory capacity to enhance competition, improve policy and monitor markets was an essential requirement in order to achieve the PDOs

of enhancing access, reliability and affordability of targeted utility sectors. It was also a key pre-

condition for a successful outcome from the privatization and reform program of public

enterprises. The CFEC was a worthwhile initiative to support market entry in the newly

liberalized and other sectors.

(ii) Transaction Implementation

13. The second component would provide support for institutional capacity building, a local ownership development scheme, and privatization implementation. First, it would strengthen the

Privatization Secretariat (STP) through technical assistance, including for environmental

screening and auditing, retraining through the Programme d'Appui Social et Economique pour la

Réinsertion Professionnelle (PASERP), and through arbitration. Second, it would help divest of

Privatization Trust Fund (PTF) shares to local investors, provide financial advisory services to

PTF to implement regulations and safeguards, hire a private fund manager to oversee and

manage the fund, create a registry for shares, explore the feasibility of developing mutual funds,

and launch a communications campaign. Third, it would support completion of the remaining

5

key companies and small and medium-size enterprises (SMEs) of the ongoing privatization

program (telecoms, the main airports, sugar and cotton). It would also provide financing to assist

in the structuring and closing of the transactions, including legal advisory support to resolve land

and title issues pertaining to ownership transfers, and carry out environmental audits of select

companies.

14. The successful implementation of the activities in this component was essential in boosting competition, freeing up GOM time and resources wasted on mostly unproductive and/or

failing enterprises to be invested elsewhere, and in allowing for the restructuring of these

businesses. By attacking some of the vested interests, including between civil servants,

politicians and executives, and imperfect markets, the proposed activities were likely to reduce

inefficiencies and waste, boost competition, provide a fairer and more conducive investment

climate, and strengthen the Malagasy economy in the long-term.

(iii) Developing new PSD activities

15. The third and final component would: (i) provide support to the operational set up and efficient development of a center (OMPE) created to coordinate activities of micro and small

enterprises (MSE); and (ii) develop strategies to support the implementation of activities

identified in the I-PRSP. In addition, it would provide advisory services to develop a strategy to

promote MSEs and use OMPE to allow MSEs to access market information and technology. It

was also expected to help jump-start the development of priority sectors identified by GOM

using pilot projects, including by assisting GOM in developing new PSD strategies, and provide

assistance to new local business start-ups.

16. The causal link between the activities in this third component and in facilitating entry of new operators in the deregulated sectors—the relevant part of the PDO—was clear. Yet the

anticipated reduction of transaction and information costs would have benefited in particular

MSEs. The large investments and expertise generally required to enter utility markets indicate

that the activities in component 3 were insufficient to have any significant contribution to

achieving the PDO.

17. In summary, successful implementation of the activities would have improved access and reliability to services critical in achieving higher growth (CAS objective).

4 It is also highly likely

that they would have helped reduce poverty through private sector-led growth (CAS goal) in the

long-term. The link to affordability was not obvious, however. Effective regulation—a high

priority in the PAD—would help alleviate some of the potentially negative effects and so would

the training program aimed at facilitating the transfer of retrenched workers into new productive

activities. The activities and selected outputs are therefore likely to have had a positive impact on

achieving some of the PDO outcomes, as analyzed in detail below. Causality for the

interventions of the transport component and its associated outcome indicators were not

convincing given the limited investment and technical assistance interventions as well as

ambitious price reduction targets (see Table 1 for indicators and Annex 1 for budget allocation).

This component was cancelled before implementation begun; thus it is not explored in this

report.


6

1.6 Revised Components

18. The three headline components remained unchanged during the course of the Project. However, modifications were made to sub-components: some were dropped and others added as

the management team sought to adjust the project design to reflect evolving political and

economic priorities, simplify a comprehensive and complex undertaking, and incorporate new

development tools that were perceived as effective means to achieve the objectives. The

restructuring in November 2002 was initiated by a formal letter sent by the President of the

World Bank in which he requested approval for a number of modifications, as noted in the

previous section. These and some other modifications were then recorded in the amended DCA

of May 2003. The amendment to the DCA at the mid-term review in 2005 was minor and added

two sub-components to the third component. Table 2 presents and explains the changes made to

individual subcomponents during the course of the Project. Table 3 then presents a summary of

the three components and the changes in their sub-components.

Table 2. Revised project components

Original component New component and nature of

modification [year]

Comment

1 – REGULATORY AND CAPACITY BUILDING

Telecoms:

(i) technical assistance to OMERT to strengthen

its regulatory capacity (training and advisory

assistance),

(ii) acquisition of frequency spectrum

management equipment, and

(iii) advisory services to design a rural telecom

policy and funding mechanism

Item (ii) dropped [2002]

A TF (PPIAF) financed most of

the TA identified for (i).

(ii) was to be self-financed by

OMERT. (iii) Project financed the

rural telecom strategy. DCA

amendment in 2002. Requested

by WBG President.

Air transport:

(i) technical assistance for designing and

implementing an information management

system to improve monitoring/regulatory

capacity and

(ii) training for the utilization of the IMS and

enhancement of the regulatory capability of the

personnel.

Component dropped [2003]

The decision by GOM to

restructure Air Madagascar via a

management contract with

Lufthansa Consulting made this

component irrelevant.

Center for facilitating enterprise creation:

(i) advisory services for training of staff,

(ii) purchases of equipment for center set-up

One stop shop for business development

and investment promotion [2002]:

(i) recruitment of staff;

(ii) technical assistance for design of most

adequate structure,

(iii) equipment for center set-up,

(iv) promotion to companies

Creation of GUIDE, one stop

shop for business facilitation.

Strengthening the financial system

Provision of TA and other material support to

establish a regulatory framework governing the

insurance sector, strengthen capacity to control

and supervise the insurance sector, and

undertake reform of the CNaPS

Component dropped [2002]

Requested by WBG President

Sequence of events: (i) decision

made to undertake first the joint

Bank IMF FSAP (2004) and (ii)

launch the financial sector reform

with the current Financial

Services Project.

7

Original component New component and nature of

modification [year]

Comment

2 – TRANSACTION IMPLEMENTATION / PRIVATIZATION5

Privatization capacity building:

(i) TA for streamlining procedures of PA

capacity building to carry out complex

transactions,

(ii) TA for legal assistance,

(iii) international environmental expert for in

the field training at STP, and

(iv) liaison environmental expert at ONE.

Supporting the privatization process

[2002]:

(i) operating expenses of STP,

(ii) TA for legal assistance,

(iii) TA for environmental assistance,

(iv) communication campaign on

privatization.

Original component had budgeted

too much for the privatization unit

while ignoring public

communication. Requested by

WBG President

3 – DEVELOPING NEW PSD ACTIVITIES

OPME is operational

Component dropped [2002] Support to micro enterprises is

done through existing and

separate projects. Requested by

WBG President.

Strategies to support PRSP and incubators in

place

Component dropped [2002] Activities to support business

incubators were not considered a

priority. Strategy work was

considered part of CAPE (below).

Requested by WBG President.

New component: Developing Export

Processing Zones [2002]:

(i) feasibility studies,

(ii) TA to implement strategy on EPZs,

(iii) infrastructure investments

The objective was to support the

Malagasy export industry

following the crisis that had a

negative effect on investment,

including some 80,000 lost jobs in

EPZs and build an industrial zone

close to the country‘ s main port.


New component: Strengthening

Madagascar’s image to attract FDI

[2002]:

(i) hiring of an international expert to

represent Malagasy interests abroad,

(ii) marketing and promotion actions,

(iii) set-up of an internet based database


New component: Supporting the tourism

industry [2002]: design and implementation

of a tourism master plan.


New component: Developing a long-term

strategy on PSD issues [2002]:

(i) assistance to CAPE,

(ii) animation of a private/public sector

dialogue forum.

CAPE was a forum established by

GOM to articulate reform

strategies within the framework of

a public private dialogue.


New component: Insurance facility [2005]:

Provision of support for an insurance

facility against Covered Risks that will be

implemented by ATI in accordance with the

Agreement Establishing ATI

As approved by the Board and

recorded in DCA amendment

letter dated May 18, 2005.

New component: SME Risk Capital Fund

[2005]:

Provision of support to the Risk Capital

Fund through provision of TA Loans to the

Fund‘s SME beneficiaries

As approved by the Board and

recorded in DCA amendment

letter dated May 18, 2005.

5 In the WBG President‘s request for Project restructuring in October 2002, it was suggested that section (iii) ‗TA

for executing a large communication campaign‘ under the ‗Local ownership development scheme (PTF)‘ sub-

component would be dropped; however, this activity was kept.

8

1.7 Other significant changes

19. In addition to the Project restructuring in November 2002, the DCA was amended on: (i) May 6, 2003, by the Country Director for amending project description, allocation of funds to

credit components, and the financial and institutional arrangements governing project

implementation; (ii) April 18, 2005, by the Board for utilizing project savings to fund a technical

assistance facility targeting local SMEs, to finance an insurance facility component of the

Project, following Madagascar‘s admission as member of Africa Trading Insurance (ATI), and

amending various procurement thresholds; (iii) June 14, 2006, by the Country Director for

extending the closing date of the Project to December 31, 2007, and reallocating some project

funds; (iv) December 21, 2007 by the Regional Vice-President for extending the closing date of

the Project to December 31, 2009, and reallocating project funds; and (v) May 3, 2010, by the

Vice President of Operations for extending the closing date of the Project to December 31, 2010

within the framework of OP 7.30 Dealing with de facto government. The extensions of the

closing dates were requested by the Government to lend support to ongoing activities (see Figure

1).

Table 3. Summary table of changes to sub-components

Project

Appraisal

Project

restructuring

12/11/2002

Mid-term

review

18/04/2005

1 - Regulatory capacity building

Petroleum regulator (OMH) X X X

Telecoms regulator (OMERT) X X X

Civil aviation authority X - -

CFEC X - -

Strengthening of the financial system X - -

2 - Transaction implementation

Institutional capacity (STP) X X X

Local ownership scheme (PTF) X X X

Privatization transactions X X X

3 - New PSD Activities

Center for the promotion of micro and

small enterprises (OMPE)

X - -

PSD Strategies in support of PRSP X - -

One Stop Shop (GUIDE) - X X

Develop EPZs - X X

Trade and Investment promotion - X X

Support to the tourism sector - X X

CAPE / PPD forum - X X

African Trading Insurance (ATI) - - X

SME support (BPI) - - X

Note: ‗X‘ implies that the sub-component was included and ‗-‗ implies that the sub-component was excluded.

9

Figure 1. Project timeline

2. Key Factors Affecting Implementation and Outcomes

2.1 Project Preparation, Design and Quality at Entry

20. The background analysis was sound, lessons learned from the first project were stressed in project design, private sector consultations were organized and recorded, and the rationale for

the Bank‘s intervention was clear. The Government had prior to project design developed a

strategic vision for private sector development as part of its National Support Program for the

Private Sector. Project preparation and design also benefitted from the extensive expertise

developed in the PATESP Project that was approved by the Board on May 29, 1997, which

closed on December 31, 2002.6 The Project focused on deepening the market deregulation and

divestiture activities that were undertaken in PATESP. Concerns and priorities were well

identified, and several analytical reports underpinned the project, including on environmental

safeguard issues.7 The volatile political context and the fragility of local institutions were

prominently acknowledged in the PAD as political turmoil had affected PATESP.

21. The PAD stressed the importance of ensuring improved transparency and increased local participation in the privatization process but also highlighted the significant risk associated with

political instability and limited capacity of local institutions. The PAD dedicated significant

attention to improving transparency in the reform process: for example by proposing separation

of the policy-making and regulatory functions of public agencies, by providing modern

management information systems, by moving toward financial autonomy of the regulatory

agencies, and by applying best practices in the privatization process. The Project also intended to

scale up local private participation in the divestiture program to make necessary reforms

palatable to a public audience who too often associated privatization with foreign takeovers of

domestic assets. It proposed that local investors would be invited to bid in a joint venture with

foreign equity and technical partners. It also aimed at establishing procedures for distributing

shares or mutual funds which would contain a stipulated share of each divested firm. Finally, it

would facilitate the expansion of indigenous local firms, in particular micro-enterprises which

would be provided start-up services. These initiatives were taken amid great political uncertainty

and with acknowledged weaknesses in governance.



2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Board

approval

1st political

crisis erupts

Restructuring

& Project

effectiveness

DCA

amendment

Mid-term

review

DCA

amendment

and PIU

restructuring

DCA

amendment

DCA

amendment

Project

closing

2nd political

crisis erupts:

OP/BP 7.30

10

22. The high complexity and comprehensive scope of the Project coupled with its sensitive nature required a high level of government commitment and collaboration between several

public institutions. The project was highly demanding of the Government and the

implementation team and it came at a high political cost. The privatization agenda was unpopular

among many stakeholders and the Government was concerned about the loss of labor. The

incumbent Government was committed at least on paper at the time of project preparation and

project design but reform pressure was also applied by the International Monetary Fund (IMF)

through its programs. Project documentation highlighted the high risk associated with reform

fatigue. Key issues such as political fragility, political economy concerns, and limited

government capacity to build solid institutions within tight deadlines were indicators that the

risks were high. The significant complexity of the Project could have been reduced if the new

PSD activities component had been left out at the design stage and left aside for another Project

that focused on SME support. The project did not include external partners and co-financiers

outside of GOM and the attention to environmental and social safeguards was high.

23. The PDO of improving access, reliability and affordability of key utilities was highly relevant for private sector development, investment promotion and shared growth. The

regulatory capacity building and privatization components were both essential building blocks in

GOM‘s development agenda. Market liberalization, competition and effective regulation are

necessary components to improve market performance. By focusing on key factor markets

(finance, telecoms, transport) as well as inefficient monopolies (airports, cotton, sugar), GOM

would have been well placed to achieve its development objectives if reforms were properly

implemented with attention to competition and effective regulation. Significant progress had

already been made in the 1990s, particularly through the PATESP project, to prepare and start

the liberalization process. Thus, the main objective was consistent with the prevailing economic

priorities of the Government.

24. The ‗new PSD activities‘ component was not closely associated with the PDO before it was restructured in November 2002. The title of the third component, ‗New PSD Activities‘, was

somewhat misleading: ‗SME promotion‘ could have been more appropriate. One of the three

sub-components—‗New strategies in priority sectors identified by Government‘—for ‗New PSD

Activities‘ was not defined at the start. While the establishment of the one stop shop (GUIDE)

was a targeted and practical sub-component that benefited all prospective entrepreneurs, the aim

to train only ten local startups was largely irrelevant and the aim to support future priority sectors

of the Government offered flexibility but limited guidance to the team. While this added

flexibility to adapt part of the Project to GOM‘s evolving agenda may have been appreciated by

the client, this component that performed particularly poorly as the new activities were weak

either in design or implementation. The initial resources allocated for the third component were

less than 6 percent of total resources. In addition, the limited resource allocation (US$0.28

million) for the transport sub-component covering some narrow technical assistance

interventions was unlikely to achieve the ambitious outcome indicators on transport prices. In

transport, it would also have been difficult to determine causality between identified

interventions and the two outcome indicators (Table 1).

11

25. Some targets should have been more specific and performance indicators more comprehensive. The combined targets of improving access, lowering prices and improving

quality/reliability were ambitious despite the lack of quality and poor access as well as relatively

high prices of services. While the experiences from many other countries show that access and

quality often improve substantially as a result of market liberalization, absolute price changes are

often marginal. Large improvements in access, choice, and quality raise the utility for

consumers. Competition facilitates price segmentation which by extension can result in both

lower and higher prices depending on the service in question. Price is also closely related to

taxation as illustrated in the petroleum sector. Potential efficiency gains can therefore be

captured by increased rents and increased taxes can neutralize any efficiency gains and even

raise the overall price. The retail price is therefore an imperfect target. There was furthermore no

performance indicator defined for reliability. In addition, the outcome indicator of significantly

increasing private investment in targeted sectors was not a useful measurement of the successful

reforms because political uncertainty scared off investors for years following each crisis.

26. Proactive measures to ensure competitive markets could have been more prominent in project design. Market liberalization and privatization do not necessarily ensure competitive

markets. Proper phasing and sequencing of reform measures are critical and so is the autonomy

of regulatory bodies. The existing literature on market liberalization does pay much attention to

ensuring a healthy dose of competition in order to boost reliability and affordability. While an

important body of this literature was developed in the years subsequent to project launch, the

project could have highlighted these issues more upfront in the design. The PAD mentioned

competition as a byproduct resulting from a strengthened regulator; however, ensuring autonomy

was arguably just as important as building technical expertise in order to induce a higher level of

market competition. In addition, the design of the privatization process could have promoted the

breakup of national monopolies into two or more providers in order to stimulate competition.

Transparency clauses could have conditioned transaction support: openness and simplicity would

have been the key principles in an approach that particularly stressed competitive markets. Clear

rules and punishments would have been established. Price caps could have been considered for

some sectors. These types of initiatives are often necessary but not sufficient to promote

competition.

2.2 Implementation

27. Political developments beyond the control of the Project team had serious implications for the Project. Project implementation was severely delayed at the start due to the unraveling of

a political crisis that paralyzed the Government and the civil service; and at the end due to a

similar political crisis. In December 2001, shortly after the Project was approved by the Board of

Directors and the signing of the Credit Agreement, the incumbent President (Didier Ratsiraka)

and his main opponent (Marc Ravalomanana) both claimed victory in the presidential elections.

In April 2002, after months of sporadic violence and considerable economic disruption, the High

Constitutional Court pronounced Ravalomanana as President following a recount of votes. In

July 2002, Ratsiraka left the country and Ravalomanana effectively gained control of power. The

new political context and harsh economic environment left the new Government unwilling to

implement painful new reforms and divest politically sensitive enterprises.

12

28. In November 2002, soon after the new cabinet had been installed, the country project portfolio was restructured, including the Project, to better reflect the priorities of the new

administration. This was a necessary step to enhance Project ownership in the new

administration. Significant reallocation of funds was made and some components were dropped

and others introduced. The outcome was a project that better responded to the priorities in the

aftermath of the crisis with a less ambitious agenda on privatization and a more ambitious

agenda on rebuilding the private sector and promoting business. At the time, these initiatives

must have been regarded as rather drastic but it would turn out that these amendments did not go

far enough to reflect the evolving priorities of the new administration. In particular the

Government‘s commitment to the privatization agenda was weak.

29. The supervision reports reveal a sense of frustration of progress: on privatization in general and on New PSD Activities in particular. The project faced significant challenges in

building new institutions such as the One Stop Shop for Investment and Business Development

(GUIDE) and CAPE (see Annex 2, component 3); in strengthening the existing implementation

units; and in creating an environment conducive to collaboration between public agencies. The

willingness by the Government to take difficult decisions was often lacking. The new

Government hesitated over further privatization and supervision records raise questions of

ownership in this process. No doubt, the privatization of enterprises took longer than anticipated

and Madagascar Airports (Aéroports de Madagascar, ADEMA), Madagascar Power and Water

Company (Jiro Sy Rano Malagasy, JIRAMA) and Madagascar Sugar Industry (Siramamy

Malagasy, SIRAMA) were never privatized. The fact that several of the public enterprises were

poorly managed did not help. For example, SIRAMA was already bankrupt, many companies did

not have accounts, environmental audits had to be done, assets identified and recorded, etc. In

addition, a combination of insufficiently allocated counterpart funding and bureaucratic

procurement procedures adopted by the Project Implementation Unit (PIU) led to significant

arrears that slowed down progress as contractors and consultants faced great uncertainty about

remuneration. The economic crisis left the Government short of funds and the International

Development Association (IDA) credit was therefore increased to 100 percent.

30. To regain momentum, the Client and the World Bank developed a short-term action plan to closely monitor progress and new staff was recruited to accelerate implementation. The results

achieved under this plan in six months were to decide the future of the Project and in December

2003, the supervision team concluded that this initiative had brought significant improvements.

The supervision reports indicate that several experts were hired to help alleviate shortages of

manpower and guidance was provided in action plans, including several recommendations to

establish frequent meetings and bring all parties to the table. The initiatives to enhance the

institutional capacity of the Privatization Secretariat (Secrétariat Technique à la Privatisation,

STP) in the fall of 2003—following resignations of key staff members transferred from PATESP

to PSDP2 due to salary reductions—were decisive to complete the privatization of the Cotton

Company (Hasy Malagasy, HASYMA) and the Telephone Company (Telecom Malagasy,

TELMA). A program of staff training in privatization and public-private partnerships (PPPs) was

launched and study tours organized with focus on practical aspects of implementing programs

and divestiture. The capacity building activities at STP was later key for the success of the public

enterprise reform program.

13

31. Project implementation was impeded by the organizational structure during the first half of the Project. The initial project management structure could have been more supportive to

effectively address the multitude of challenges that the complex project posed to the team. The

Government official who was appointed head of the Implementation Agency (or Unité de

Coordination du Projet, UCP) could have been more proactive and results oriented (PIU = UCP

+ STP + PSD units). The first professional who was hired to be in charge of the crucial

monitoring and evaluation (M&E) activities did not have the training and experience for the role.

The two advisory and implementation units—STP for components 1-2 and the PSD unit for

component 3—that the UCP oversaw did not communicate and coordinate as necessary (see

Figure 2). STP, a ministry unit, was more responsive to the Ministry of Finance and Budget than

to the head of PIU. It worked closely with the ministries in charge of the state-owned enterprises

(SOEs) during divestiture preparation. The PSD unit—an implementation unit created inside the

Project—was more responsive to the Ministry of Economy and Industry (previously Ministry of

Industry, Trade and Private Sector Development) than UCP. This organizational structure was

implemented to strengthen the commitment of various ministries but it also imposed high

coordination costs, as highlighted in the government Report in Annex 7.

32. The PIU was initially over staffed and bureaucratic and the organization was drastically restructured to a slimmer and more efficient implementation unit in June 2006. Each unit (UCP,

STP, PSD) in the PIU had its own procurement and accounting team; and the PIU counted 69

staff on renewable one-year contracts by the end of 2005. Many of these staff members were

government officials transferred to the new institutions originally hosted under the PIU umbrella.

They were not paid by the PIU and performed public services, such as issuing work permits and

business licenses at the GUIDE. This arrangement was meant to offer flexibility in future staff

decisions. While the supervision records highlight organizational weaknesses, and there was

some trimming of unnecessary staff that was transferred from PATESP to PSDP2 and more

reliance was transferred to World Bank staff, decisive action to correct the situation would take

until early 2006. As the Project was heading towards closing in December 2005, and there was

significant uncertainty whether the Project would be extended or not, some high-level officials

left the PIU, including the head of UCP. Many staff members also left as a natural result of the

completion of sub-components such as the Support Committee for the Enterprise Relaunch Pilot

(Comité d‘Appui au Pilotage de la Relance de l‘Entreprise, CAPE) (11 staff) and GUIDE (13

staff). The PSD unit (AGEX B in Figure 2) was removed from the organizational chart and the

government-sponsored civil servants at UCP were transferred back to the Ministry of Finance

and Budget. The team took this opportunity to significantly restructure the organization, which

resulted in a much slimmer organization (see Figure 2). Several sub-components in the PSD unit

were also removed and none of the Project staff associated with this unit had their contracts

renewed. The number of staff was thus cut from 69 to 11.

14

Figure 2: Organizational structure in 2002-2006 (left) vs. 2006-2010 (right)

Source: STP Director‘s report (2011).

33. The mid-term review was used to add two new sub-components and provide advice on how to reactivate some non-performing sub-components. It offered an opportunity to the Project

to disassociate itself from some sub-components that were not progressing and focus support on

those that were more promising. However, no sub-component was removed and the opportunity

to cut losses was not seized at this time. Instead, the supervision records of the mission following

the mid-term review (January 2006) were more candid, emphasizing disappointments and lack of

achievements, and suggesting more drastic measures to address existing problems. For example,

the Privatization Trust Fund (PTF) was a non-performing sub-component and the supervision

mission in January 2006 recommended dropping this sub-component from the project. The same

held for the privatization of SIRAMA. It also recommended GOM to cancel the contract with the

Export Processing Zone (EPZ) property developer (GETIM) given a number of irregularities and

weaknesses in performance (see Annex 2, component 3). It advised that EDBM would take over

GUIDE and implicitly adopt the role of CAPE, which had exhausted its effort in enhancing

public private dialogue.

34. The most recent political crisis and the ensuing non-replenishment of the project special account under OP/BP 7.30 led to a standstill of the project‘s implementation from March 17,

2009, to the project closing date of December 31, 2010. This development led to a freeze of most

Project activities and necessary action to conclude ongoing initiatives could not be taken. During

this crisis, the country was suspended by the African Union (AU, then the Organisation of

African Unity) and the Southern African Development Community (SADC). Another outcome

was that as of January 1, 2010, Madagascar is no longer designated as beneficiary of U.S. trade

preferences offered in the African Growth and Opportunity Act (AGOA).8 The country‘s

eligibility of AGOA preferences, starting October 2000, helped it establish a significant textiles

and clothing sector—export processing zone (EPZ) exports were worth US$0.82 billion in 2008

(EIU, 2010)—that has been seriously damaged in the last two years. As of April 2011, the

international community including several governments, bilateral and multilateral donors still

does not recognize the current de facto Government (i.e. Haute Autorité de la Transition).

8 U.S. Government (2009).

15

2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization

35. The design of the M&E framework should have been better tailored to the PDO and to existing baseline data sources. While performance in the telecom sector was adequately

measured, outcome indicators for other sectors were left out from the M&E framework,

including the petroleum sector. To measure progress on access, reliability and affordability of

key utility services, a more comprehensive set of indicators would have been required and more

independent data collection would have been necessary. The restructuring in November 2002

partly addressed this issue as a number of new performance indicators were added to the

monitoring framework and others modified. The PIU also modified the M&E framework to keep

it more relevant and easier to monitor. The M&E framework remained weak, however, and the

supervision teams struggled with the M&E function. Most aide-memoires of supervision

missions did not measure performance according to the pre-defined performance indicators.

36. The M&E framework could have been used more extensively during the first half of the Project. Data for several of the key project indicators (KPIs) were not systematically collected,

partly due to the fact that they were not easily accessible in standard databases. For example, one

of the KPIs was sector specific inflows of private investment. While these variables are reported

in central World Bank databases and by the Central Bank, the information is not available for all

years and it is particularly lacking for Madagascar. Many KPIs were output indicators and to

measure progress on competitiveness, the project could have made more use of indicators on

enterprise creation and private sector productivity. The first person who was hired for the M&E

activities had no prior experience or training in monitoring or evaluation. The M&E function

suffered as a result. It was not until a new person was recruited in the mid-term of the Project

that the PIU became more proactive in collecting data and monitoring project performance

according to the indicators. But it was then too late to retrieve some of the historical data and the

complexity of some of the existing indicators and a general lack of data left the M&E function

underutilized.

2.4 Safeguard and Fiduciary Compliance

37. The respect of safeguard issues is rated satisfactory. The Project was originally rated as environmental category B (partial assessment). Three main provisions were incorporated in

Project design to ensure compliance with safeguards. First, the Project would prepare

environmental partial and full audits for listed candidates. Second, the project would offer

capacity building to the privatization agency and the national environmental agency. Third, the

project would support public involvement through comprehensive consultations and a

communications campaign. Safeguard policies were deemed applicable only to environmental

assessment (OP 4.01, BP 4.01, GP 4.01). An environmental pre-audit was conducted for each

listed privatization candidate following a comprehensive consultation process.

38. Environmental audits were conducted for ADEMA, HASYMA, SIRAMA and the National Oil Company of Madagascar (Solitany Malagasy, SOLIMA) (post-audit) as planned in

project design. They were approved by World Bank teams with technical assessments provided

by the World Bank‘s Environment and Natural Resource Management Unit for the Africa

Region (AFTEN) and publicly discussed and disclosed. These environmental audits were very

16

large undertakings that recorded and assessed the situation in reports several hundred pages long.

For example, the SOLIMA report was 833 pages long not including addendums. In the

privatization of SOLIMA, which had by far the most critical environmental impact, the

environmental cleanup was assigned to the new private companies, in particular by Galana,

which was required to take care of the issues linked to the main pipeline and old refinery and this

was arguably a good solution.

39. The PAD dedicated significant attention in assessing the client‘s procurement and financial management capacity, and in providing recommendations to boost this capacity.

Procurement is rated satisfactory because the PIU followed the rules, procedures and guidelines

according to the World Bank‘s Procurement Specialist. Financial Management is rated

moderately satisfactory because payment schedules were not adequately respected for parts of

the Project; in particular during the first years when the inflow of counterpart funding was

irregular and the PIU organization contained two layers of procurement and financial

management personnel. The PIU cleared outstanding arrears during the last two years of the

Project and it also expediently produced detailed and exhaustive accounts requested by the

Implementation Completion and Results (ICR) Report author. Disbursement lagged due to the

political crises of 2001/2002 and 2009/2010 but disbursement caught up rapidly once the Project

was allowed to operate.

2.5 Post-completion Operation/Next Phase

40. There is no proposal to implement a third PSD project. The World Bank‘s Finance and Private Sector Development Department in the Africa Region is implementing a US$170 million

Integrated Growth Poles Project (effective September 28, 2005; closing December 31, 2012) that

is covering several activities that both complement and sustain some of the Project‘s previous

activities (e.g. EDBM). A second Growth Poles Project would be particularly relevant given the

priorities of private sector-led growth. The Government still holds a portfolio of poorly

performing public enterprises that would benefit from initiatives that would strengthen

management. Some of them need to be financially restructured or closed down. Developing a

stronger public private partnership framework is a high priority that the World Bank currently is

being drafted into providing support for.

41. Continuing efforts to strengthen the regulatory capacity of key sectors would be useful to lock in the Project‘s achievements in building institutions. Capacity building of the telecom

regulator is part of the IDA financed Madagascar Communications Infrastructure Project

(PICOM). Future activities may benefit from conditions that regulators are made meaningfully

independent, that competition plays a greater role in its objectives, and that revenues are

accounted for transparently. The establishment of the EDBM, which incorporated GUIDE and

role of CAPE, is an institution that has achieved very positive results and sustaining this

institution through permanent staff and a financial commitment by GOM is essential for

promoting entrepreneurship and investment.

17

3. Assessment of Outcomes

3.1 Relevance of Objectives, Design and Implementation

42. The relevance of objectives, design and implementation is rated moderately satisfactory.

43. The PDO of improving access and reliability of key utilities was highly relevant for private sector development, investment promotion and shared growth. It remains highly relevant

until this day. Market liberalization, competition and effective regulation are necessary

components to improve market performance. By focusing on key factor markets (energy,

finance, telecoms, transport) as well as inefficient monopolies (airports, cotton, sugar), GOM

would have been well placed to achieve its development objectives in case reforms were

properly implemented. The current CAS (2007-2011)9 is organized around two main pillars:

activities that will help remove constraints to investment; and activities geared toward improving

the scope and quality of service delivery. Both pillars were the focus of the Project. In addition,

the CAS supports the Government‘s Madagascar Action Plan (MAP) 2007-2012, which was

prepared through extensive dialogue with the private sector and civil society, and includes eight

commitments of which the second commitment ―connected infrastructure‖ and sixth

commitment ―high growth economy‖ commensurate with the Project. Significantly increasing

investment to promote high growth is one of the key priority areas in this plan.10

Finally, the

World Bank Country Economist noted in April 2011 that achieving this PDO will remain a high

priority in the years to come.

44. The original design of focusing primarily on strengthening regulatory capacity and divesting of poorly performing public enterprises was also highly relevant but the case for

including the new PSD activities component was less apparent to achieve the PDO. These first

two components were essential for achieving the PDO and the project design reflected proper

diagnosis of a development priority that remains relevant. The design could have included more

concrete provisions for mechanisms controlling for market competition and ensuring that

regulatory agencies gained sufficient autonomy. The third component, in the PAD, ―New PSD

activities‖, was a weak and vaguely designed component. While establishing a center for the

promotion of MSEs (GUIDE) was useful in general, the design of the enlarged ‗New PSD

Activities‘ component following both the 2002 restructuring and the 2005 mid-term review

lacked in terms of demand analysis and few interventions did effectively address the

―competitiveness‖ of Malagasy companies. The redesign of this component affected the Project

negatively during implementation. In addition, the causality of some activities and PDO

achievement was vague and the PAD lacked an economic and financial analysis section.

45. The actions taken in the implementation process were proactive and flexible but some difficult decisions could have been taken earlier. The World Bank‘s implementation assistance

was adaptive to change, as the Project underwent one major and several minor restructurings,

and it was responsive to the needs of the country, as the priority of private sector competitiveness

was elevated. However, the willingness to add sub-components resulted in a Project that lost


10 Government of Madagascar (2006).

18

some focus and covered too many activities. The focus on output indicators and limited

usefulness of the M&E framework led to lenient ratings of progress

3.2 Achievement of Project Development Objectives

46. The achievement of the PDO, as summarized and derived in Tables 4-5, and analyzed in detail in Annex 2, is rated moderately unsatisfactory. This rating is in line with the final

Implementation Status Report (ISR) rating that stressed that no progress towards PDO

achievement had been recorded following the implementation of OP/BP 7.30 in March 2009.

Table 4 presents a summary of achievements of the PDO based on the lengthy analysis in Annex

2. The first column divides the PDO up into five separate sections and presents the perceived

level of importance. The second column presents the achievement of key indicators while the

third column summarizes the achievement of PDOs and the ICR author‘s ratings.

Table 4. Summary of ratings and achievements of PDOs

PDO Achievement of indicators (see

Annex 2 for details)

Achievement of PDO (see Annex 2 for details)

1. Assist the

Borrower to improve

access, reliability

and affordability of

key utilities

[High relative

importance]

1.) Telecoms

The KPI targets on access and

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