world bank document · objectives have been greatly exceeded with respect to the teledensity and...

Document of The World Bank

Report No: ICR00001347

IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA-36220)

ON A

CREDIT

IN THE AMOUNT OF SDR 21.0 MILLION (US$26.6 MILLION EQUIVALENT

TO THE

REPUBLIC OF GUINEA-BISSAU

FOR A

PRIVATE SECTOR REHABILITATION AND DEVELOPMENT PROJECT

March 30, 2010

Finance and Private Sector Development AFCF1 Africa Region

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CURRENCY EQUIVALENTS

(Exchange Rate Effective March 29, 2010

Currency Unit = C.F.A. Franc BCEAO US$ 1.00 = CFAF 487

FISCAL YEAR

January 1 – December 31

ABBREVIATIONS AND ACRONYMS

ADR Alternative Dispute Resolution APGB Administração Dos Portos da Guiné-Bissau (Administration of

Guinea-Bissau Ports) BCEAO Banque Centrale des États de l'Afrique de l'Ouest (Central

Bank of West African States) BIGB Banco Internacional da Guiné-Bissau SARL (International

Bank of Guinea-Bissau) BOT Build, Operate and Transfer CACI Câmara da Agricultura, Comercio e Industria da Guiné-

Bissau (Agriculture, Trade and Industry Chamber of Guinea-Bissau)

CCIA Câmara de Comercio, Industria e Agricultura da Guiné-Bissau (Trade, Industry and Agriculture Chamber of Guinea-Bissau)

CCJA Common Court of Justice and of Arbitration CFAF C.F.A. Franc BCEAO DBFO Design, Build, Finance and Operate DCA Development Credit Agreement DM Decision Meeting DO DPO

Development Objective Development Policy Operation

ECOWAS Economic Community of West African States EFF Equity Financing Facility ERRC Economic Rehabilitation and Recovery Credit ERSUMA École Régionale Supérieure de la Magistrature (Regional

School of Superior Judicial and Legal Training) FIAS Foreign Investment Advisory Service FM Financial Management GB Guinea-Bissau GDP Gross Domestic Product

HIPC Heavily Indebted Poor Country Debt Initiative IBRD International Bank for Reconstruction and Development ICAO International Civil Aviation Organization ICGB Instituto das Comunicações da Guiné-Bissau (Institute of

Communications of Guinea-Bissau) ICR Implementation Completion Report IDA International Development Association IP Implementation Progress I-PRSP Interim Poverty Reduction Strategy Paper ISN Interim Strategy Note ISR Implementation Status and Results Report KPI Key Performance Indicator LICUS Low-Income Country Under Stress Initiative M&E Monitoring and Evaluation MOE Ministry of Economy MOJ Ministry of Justice MTN South African GSM Cellular Network Operator MTR Mid-Term Review NGO Non-Governmental Organization OHADA Organisation pour l’Harmonisation du Droit des Affaires en

Afrique (Organization for the Harmonization of Business Law in Africa)

PAD Project Appraisal Document PCU Project Coordination Unit PDO Project Development Objective PE Public Enterprises PIU Project Implementation Unit PPF Project Preparation Fund PPIF Private Provision of Infrastructure Fund Facility PPP PRSP

Public Private Partnership Poverty Reduction Strategy Paper

PSD Private Sector Development PSRDP Private Sector Rehabilitation and Development Project PT Portugal Telecom QAE QAG

Quality at Entry Quality Assessment Group

QSA Quality of Supervision Assessment SOE SONATEL

State Owned Entreprise Societé Nationale des Télécommunications du Sénégal (Senegal Telecom National)

SSA Sub-Saharan Africa TACV Transportes Aéreos de Cabo Verde (Air Transports of Cape-

Verde)

TAP Transportes Aéreos de Portugal (Air Transports of Portugal) TTL Task Team Leader UEMOA Union Économique et Monétaire Ouest Africaine (West

African Economic and Monetary Union) UN United Nations XDR International Monetary Fund Special Drawing Rights

Vice President: Obiageli Katryn Ezekwesili Country Director: Habib M. Fetini

Sector Director: Marilou Jane D. Uy Sector Manager: Peter Mousley, Acting

Project Team Leader: Andrés D. Jaime ICR Team Leader: Leonardo Iacovone

COUNTRY Project Name

CONTENTS

Data Sheet A. Basic Information

B. Key Dates C. Ratings Summary D. Sector and Theme Codes E. Bank Staff F. Results Framework Analysis G. Ratings of Project Performance in ISRs H. Restructuring I. Disbursement Graph

1. Project Context, Development Objectives and Design...............................................12. Key Factors Affecting Implementation and Outcomes ..............................................63. Assessment of Outcomes ..........................................................................................134. Assessment of Risk to Development Outcome.........................................................235. Assessment of Bank and Borrower Performance .....................................................246. Lessons Learned........................................................................................................267. Comments on Issues Raised by Borrower/Implementing Agencies/Partners...........28Annex 1. Project Costs and Financing..........................................................................29Annex 2. Outputs by Component..................................................................................29Annex 3. Economic and Financial Analysis .................................................................53Annex 4. Bank Lending and Implementation Support/Supervision Processes.............57Annex 5. Beneficiary Survey Results ...........................................................................59Annex 6. Stakeholder Workshop Report and Results...................................................60Annex 7. Summary of Borrower’s ICR and/or Comments on Draft ICR.....................61Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders .......................62Annex 9. List of Supporting Documents ......................................................................63MAP

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A. Basic Information

Country: Guinea-Bissau Project Name: Private Sector Rehabilitation and Development Project

Project ID: P001001 L/C/TF Number(s): IDA-36220

ICR Date: 03/31/2010 ICR Type: Core ICR

Lending Instrument: SIL Borrower: GOVERNMENT OF GUINEA-BISSAU

Original Total Commitment:

XDR 21.0M Disbursed Amount: XDR 20.3M

Revised Amount: XDR 21.0M

Environmental Category: B

Implementing Agencies: Ministry of Finance Ministry of Economy PCU PSRDP

Cofinanciers and Other External Partners: B. Key Dates

Process Date Process Original Date Revised / Actual

Date(s)

Concept Review: 11/18/1997 Effectiveness: 10/22/2002 10/22/2002

Appraisal: 02/08/2002 Restructuring(s): 08/13/2003 07/18/2006

Approval: 03/26/2002 Mid-term Review: 06/02/2005 04/25/2005

Closing: 03/31/2008 09/30/2009 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: Unsatisfactory

Quality of Supervision: Moderately Unsatisfactory

Implementing Agency/Agencies:

Satisfactory

Overall Bank Moderately Overall Borrower Moderately

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Performance: Unsatisfactory Performance: 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):

Satisfactory

DO rating before Closing/Inactive status:

Moderately Unsatisfactory

D. Sector and Theme Codes

Original Actual

Sector Code (as % of total Bank financing)

Central government administration 60 60

General energy sector 10 10

General industry and trade sector 10 10

General transportation sector 10 10

General water, sanitation and flood protection sector 10 10

Theme Code (as % of total Bank financing)

Infrastructure services for private sector development 33 33

Legal institutions for a market economy 17 17

Regulation and competition policy 17 17

State enterprise/bank restructuring and privatization 33 33 E. Bank Staff

Positions At ICR At Approval

Vice President: Obiageli Katryn Ezekwesili Callisto E. Madavo

Country Director: Habib M. Fetini John McIntire

Sector Manager: Peter J. Mousley Demba Ba

Project Team Leader: Andres D. Jaime Iradj A. Alikhani

ICR Team Leader: Leonardo Iacovone

ICR Primary Author: Leonardo Iacovone

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F. Results Framework Analysis

Project Development Objectives (from Project Appraisal Document) The project#s development objective is to support increased investment, competitiveness and participation of the private sector in economic activity. This objective will be achieved by implementing the Government's divestiture program, reforming the infrastructure and commercial banking sectors, outsourcing certain Government services, stimulating private investment, undertaking legal reform, improving the fiscal and regulatory aspects of the business environment and strengthening supply chains. The project would thus contribute to Government#s poverty alleviation strategy and sustained, high GDP growth. Revised Project Development Objectives (as approved by original approving authority) (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 : Infrastructure Sector: (a) Reforms implemented & institutional capacities strengthened. Privatization program implemented. (b) Sector strategies/policies approved and implementation started. (c) Appropriate legislation enacted

Value quantitative or Qualitative)

Only one telecom (fixed) company in GB;Only 3,000 lines

n/a n/a

Date achieved 02/28/2002 03/31/2008 03/15/2010 Comments (incl. % achievement)

This indicator has met in a very limited manner. Privatization program, civil aviation and telecom reforms are the most advanced (even if telecom law has been just approved in March 2010 and not yet enacted nor implemented).

Indicator 2 :

Telecommunications: (a) Competition & capacity of regulator enhanced. (b) Revised concession contract in place. (c)Two cellular licenses issued. (d) Legal and regulatory framework established; (e) teledensity increased (16,000 fixed and 20,000 cell).


Only one telecom (fixed) company in GB; only 3,000 lines, absent or weak regulation

Revised concession contract in place; two cellular licenses issued; legal and regulatory framework established; and teledensity increased (16,000 fixed and 20,000

(1) Revised contract & exclusivity over international gateway terminated on Dec 31, 2005; (2) 3 cell licenses issued; (3) regulatory framework approved but not implemented (4)

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cell. teledensity increased (more than 300,000 for cell and 4,000 for fixed).

Date achieved 02/28/2002 03/31/2008 03/15/2010

Comments (incl. % achievement)

Objectives have been greatly exceeded with respect to the teledensity and number of cellular licenses issued, less progress on the regulatory side. The regulatory framework has just been approved by the Parliament (03/2010) but not yet implemented.

Indicator 3 :

Civil aviation: (a) Revised civil aviation code in place by mid-term review. (b)Civil Aviation authority fully operational by 2006. (c) Bissau airport facilities and safety improved. (d) Evidence that frequency of flights and number of passengers increase


No CAA; airport facilities destroyed by war , outdated Civil aviation code; security standards sub-optimal, low flights frequency (462 in 2002)

(1) revised civil aviation code in place; (2) CAA be fully operational & safety standards met by 2006; (3) frequency of flights increased (was 462 in 2002) number of passengers doubled. (4) Bissau airport facilities improved

(1) Revisions to the civil aviation code not carried out, (2) CAA fully operational, safety standards improved but still lower than international norms (3) flights (364 flights in 2009) and passengers decreased, (4) Bissau airport facilities improved


Insecurity in recent decades is a large exogenous factor in determining shortfall on flights and failure to complete revisions to the code. This indicator has registered important progress but was not fully met.

Indicator 4 : Water and Energy: Bidding documents for the Water and Energy sectors prepared by 2003


No bidding documents

Bidding documents for the water and energy sectors prepared by 2003.

Increase in the level of collected electricity bills from 40% to 80%

(1) No bidding documents prepared (at the moment of restructuring nor today), (2) Level of electricity bills still at 40% if not lower

Date achieved 02/28/2002 03/31/2008 07/18/2006 03/15/2010 Comments (incl. % achievement)

This indicator has not been met.

Indicator 5 : Port: Port master plan for the Port prepared and adopted by 2005 Value quantitative or Qualitative)

No master plan Port master plan prepared and adopted by 2005

Indicator dropped in 2006

Plan not prepared nor adopted at the moment of revision

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(2006) nor today. Date achieved 02/28/2002 03/31/2009 07/18/2006 03/15/2010 Comments (incl. % achievement)


Indicator 6 : Regulatory Institution: Multi-sectoral regulatory agency established and operational by mid-term review


Multi-sector regulatory agency absent

Multi-sector regulatory agency established and fully operational

Multi-sector regulatory agency not in place



Indicator 7 :

Privatization: Contracts signed & payments received. Benefits for retrenched workers paid. Privatization/liquidation of 33 PE#s by June 2007: (i)BIGB by June 2003; (ii) 18 PE#s by mid-term review; (iii)others by June 2007.Environmental audits done


Agreement to privatize

33 PEs. (i) BIGB by June 03; (ii) 18 PEs by MTR; and (iii) remaining PEs by June 07. (iv) Environmental audits carried out. Full audits for 6 PEs; partial audits for 4 PEs, (v) End-of-service benefits for retrenched workers paid

30 PEs liquidated or privatized & program continues. Some companies renovated and operational (e..g Afripeche, Hotel 24 de Setembro, etc.) others not. BIGB liquidated. Environmental audits done. End-of-service benefits for retrenched workers paid


This indicator has been largely met.

Indicator 8 : EFF: Fifteen viable private investments financed


Enterprises destroyed by the conflict

Fifteen viable private investments will be financed through the equity financing facility (EFF)

11 Financed projects, detailed data on jobs not available but certainly below the 400 permanent jobs target

Date achieved 02/28/2002 03/31/2008 03/15/2010 Comments (incl. %

This indicator has been only partly met.

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achievement)

Indicator 9 : Legal reforms: (a) National laws modernized and revised. (b) Legal institutional capacity strengthened and judges trained.


National laws not fully compatible with OHADA, OHADA act not translated, judges untrained, slow functioning of tribunal with disputes taking long to be solved

National laws compatible with OHADA, OHADA act translated, at least 70% of judges & legal staff trained, improvements in performance of tribunal in Bissau, reduction of 50% in the time for issuing judgments for commercial cases by 2007

OHADA laws translated, national laws revised but not approved yet by Parliament nor enacted by President; Baseline non-available. 4 judges trained to apply OHADA law; Baseline unavailable, commercial tribunal open 04/09 not fully operational


Despite some achievements progress on this indicator has been limited and this indicator is considered largely unmet.

Indicator 10 : Investment climate: (a) Action plans. (b) Supply response and competitiveness stimulated.


(1) Action plans not existing. (2) Low supply response and competitiveness

(1) Action plans resulting from administrative barrier and tax studies implemented by mid-term review, (2) Supply response and competitiveness stimulated in six key sub-sectors or entry points (increase in domestic value-added of 50 percent).

(1) Investment code approved 12/09. Some recommendations implemented: corporate income tax (from 39 to 25 %),personal income tax (from 20 to 12 %) property transfers tax (from 10 to 2 %)(2) Supply response unchanged except increase cashew production


Progress on this indicator has been very limited (especially with respect to supply response and competitiveness).

Indicator 11 : Footnote (under comments section) Value quantitative or Qualitative)

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Date achieved

Comments (incl. % achievement)

Note: PDO KPI from ISRs differ from the PDO KPI used in the DCA as well as from the PDO KPI of the PAD. The PDO indicators listed here have been taken from the DCA and overlap with the output indicators reported I the PAD Annex 1.

(b) Intermediate Outcome 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 : No indicators (Footnote under comments section) Value (quantitative or Qualitative)

Date achieved Comments (incl. % achievement)

Intermediate outcome indicators as reported in the ISR are largely similar to the PDO indicators from DCA, used also above, and for this reason are not repeated here

G. Ratings of Project Performance in ISRs

No. Date ISR Archived

DO IP Actual

Disbursements (USD millions)

1 05/17/2002 Satisfactory Satisfactory 0.00 2 12/12/2002 Satisfactory Satisfactory 0.00 3 05/28/2003 Satisfactory Satisfactory 4.52 4 12/11/2003 Satisfactory Satisfactory 5.22 5 05/26/2004 Satisfactory Satisfactory 7.94 6 12/16/2004 Satisfactory Satisfactory 9.47 7 06/24/2005 Satisfactory Satisfactory 12.32 8 12/28/2005 Moderately Satisfactory Moderately Satisfactory 14.97 9 05/02/2006 Moderately Satisfactory Moderately Satisfactory 16.28

10 12/18/2006 Moderately SatisfactoryModerately

Unsatisfactory 19.05

11 06/26/2007 Moderately Satisfactory Moderately Satisfactory 23.79 12 12/20/2007 Moderately Satisfactory Moderately Satisfactory 26.96 13 06/18/2008 Moderately Satisfactory Moderately Satisfactory 27.95 14 12/30/2008 Moderately Satisfactory Moderately Satisfactory 30.27 15 06/28/2009 Moderately Satisfactory Moderately Satisfactory 30.90

16 09/29/2009 Moderately

Unsatisfactory Moderately

Unsatisfactory 30.90

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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

08/13/2003 S S 5.10 07/18/2006 MS MS 18.22

I. Disbursement Profile

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1. Project Context, Development Objectives and Design

1.1 Context at Appraisal Country context. Guinea-Bissau was of the poorest countries in the world coming out of an extremely destructive conflict. Guinea-Bissau is and has been one of the poorest countries in the world, with inadequate infrastructure and low social indicators, the result of state-controlled development strategies pursued until the mid-1980s, endemic institutional fragility, and political instability. The authorities embarked on a reform program from 1987 . In 1997, the country joined the West African Economic and Monetary Union (Union Economique et Monetaire Ouest Africaine, UEMOA). Progress was interrupted by an armed conflict that broke out in June 1998 and lasted 11 months. War-related losses were estimated at approximately 50 percent of 1997 GDP. Following a transitional government in 2000, a democratically-elected government took office in 2001, although continuing insecurity and political challenges generated persistent risks to government efforts to resume the reform agenda. Rationale for Bank assistance. The project was in line with the Bank’s strategy for Guinea-Bissau: to support the Government’s reform program which centered around three pillars, one of them being to promote rapid broad-based growth led by the private sector. In the pre-conflict context, the Bank’s Country Assistance Strategy for Guinea-Bissau, approved by the Board in June 1997, sought to support the Government’s reform program and focused on sustainable economic and social development. Consistent with this rationale, the project initially focused on three components: (a) privatization, (b) agribusiness development, and (c) improving the regulatory environment. Following the armed conflict, cognizant of the magnitude of the developmental challenges, the Government’s Interim Poverty Reduction Strategy Paper (I-PRSP) targeted rapid broad-based private sector-led GDP growth of at least 5 percent with widely distributed benefits to reduce poverty. Consistently with the Government priorities, a transitional strategy was prepared and is summarized in the President's Report of the Economic Rehabilitation and Recovery Credit (ERRC, Cr. 3349-GUB), approved by the Board on May 16, 2000. It addressed the country’s post-conflict needs by financing urgent social sector and infrastructure needs. This entailed (i) redirecting IDA-financed credits to support education and health programs; (ii) providing quick-disbursing assistance through the ERRC to contribute to macroeconomic stability, reducing domestic debt and promoting inclusive policies; and (iii) improving the business environment and expanding private sector participation in service delivery. In the aftermath of the conflict, the country was starved for resources and in dire need of reigniting growth, which explains the strategic rationale for why typical alternatives adopted in other post-conflict contexts, such as community development driven projects, were not pursued. To respond to the challenges of the post-conflict scenario, the project evolved from the original design prepared during 1997-1998 into a more ambitious structure as discussed in Section 2.1. 1.2 Original Project Development Objectives (PDO) and Key Indicators (as approved)The project’s development objective is to support increased investment, competitiveness, and private sector participation in economic activity. This objective will be achieved by implementing the Government's divestiture program, reforming the infrastructure and commercial banking sectors, outsourcing certain Government services, stimulating private

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investment, undertaking legal reform, improving the fiscal and regulatory aspects of the business environment, and strengthening supply chains. The project would thus contribute to the Government’s poverty alleviation strategy and sustained, high GDP growth. PDO (Project Development Objectives) indicators in the PAD (Project Appraisal Document) differ from the PDO indicators in the Development Credit Agreement (DCA). Instead, the DCA indicators fundamentally coincide with the PAD output indicators. The PAD PDO indicators were high objectives that were hard to measure, for this reason we focus on the indicators as in the Schedule 6 of the DCA. 1

Infrastructure Sector a. Reforms implemented and institutional capacity to regulate private participation strengthened. Privatization program implemented and private investments implemented. b. Sector strategies/policies approved by Borrower and implementation started. c. Appropriate legislation enacted for telecommunications, civil aviation, water and energy sectors Telecommunications a. Competition in sector and capacity of regulator enhanced b. Revised concession contract in place (by mid-term review). c. Two cellular licenses issued (one prior to mid-term review). d. Legal and regulatory framework established (by mid-term review). e. Teledensity increased (16,000 fixed lines and 20,000 cellular customers by 2007) Civil aviation a. Revised civil aviation code in place by mid-term review. b. Civil Aviation authority fully operational by 2006. c. Bissau airport facilities and safety improved. d. Evidence that frequency of flights and number of passengers increased Water and Energy, Port a. Bidding documents for the water and energy sectors prepared by 2003

1 There are discrepancies between the PDO KPI in the DCA and the ones used in the ISRs. This ICR will focus on the PDO KPI as listed in the DCA. The following KPI present in the PAD and DCA were not included in the ISR:

i. In the civil aviation component: Number of passengers doubled ii. In the divestiture sub-component: Environmental audits carried out for all identified PEs before

completion of each transaction iii. In the legal reform sub-component: At least 70 percent of judges, lawyers and other legal staff have been

trained. iv. In the business environment sub-component (present in the PAD but not the DCA): Tax, customs and

other inter-regulatory agencies interface with the private sector more effectively. Four private associations established.

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b. Port master plan for the port prepared and adopted by 2005. Regulatory institution and privatization of remaining industrial and commercial PE’s, and EFF a. Multi-sectoral regulatory agency established and operational by mid-term review b. Sale contracts signed and payments received for divested PE’s c. End-of-service benefits for retrenched workers paid in time in accordance with Government policy d. Privatization/liquidation of 33 PE’s by June 2007: (i) BIGB (liquidation) by June 2003; (ii) 18 PE’s by mid-term review; and (iii) remaining PE’s by June 2007 e. Environmental audits carried out for all identified PEs before completion of each transaction f. Full audits for 6 PEs; partial audits for 4 PEs g. 15 viable private investments financed2

Legal Reform a. National laws modernized and revised to be compatible with OHADA. Publication of new laws and regulations. b. Legal institutional capacity strengthened. At least 70 percent of judges, lawyers and other legal staff have been trained. Improvements in the performance of the tribunal in Bissau (50 percent reduction in time for issuing judgment) Investment Climate a. Action plans from administrative barrier and tax studies implemented by mid-term review. b. Supply response and competitiveness stimulated in six key sub-sectors or entry points (increase in domestic value-added of 50 percent) by 2007.

1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification The project development objective was not changed but the project was amended3 twice.The first modification, in August 2003, was part of a country-wide portfolio restructuring and did not imply any change in the PDO nor in the indicators.4 At the time of the second amendment, in August 2006, the electricity component was expanded and modified to cover additional activities in the energy sector.5 Accordingly, the PDO indicator for this component (“Bidding documents for the water and energy sectors prepared by 2003”) was replaced with “Increase the collection of electricity bills from 40 percent to 80 percent”. Additionally, this second amendment led to dropping the port component and, with it, its PDO indicator “Port master plan for the port prepared and adopted by 2005”. (For details, see Section 1.7) 1.4 Main Beneficiaries, The project beneficiaries included a large set of stakeholders. The PAD noted that the project was designed to benefit the population at large through better services from more efficient public utilities, including telecommunications and transport services. An effective

2 In the PDO KPI of the DCA there is no reference to jobs creation while in the Output KPI of the PAD the target includes 400 jobs created. 3 Only the first amendment is considered a formal restructuring because, following the ICR Guidelines (Appendix B), the project is not considered formally revised unless the amendments are submitted to the Board for approval (“through approval of the Bank authority that approved the original loan”). 4 Refer to Section 1.6 for more details on the content of the change. 5 Originally, it was envisaged that the PIU would have provided limited technical advisory services and goods while a proposed Energy and Water Project was prepared. However, as the preparation of the new Energy and Water Project took longer than expected, and this was approved only in 2006, the Borrower requested the addition of more activities to this component. This consequently led to a change of the relevant KPI.

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judiciary would contribute to social welfare by guaranteeing the basic property rights of citizens and businesses. The project would have also benefited entrepreneurs, most of whom are small, by reducing uncertainties and transaction costs of doing business by, among others: (a) providing transparent commercial legislation and effective property rights, and improving the functioning of the judiciary; and (b) reducing production costs through improved efficiency and availability of utility and infrastructure services. The project’s emphasis on rural entrepreneurship and agribusiness would benefit rural communities. Lastly, the project aimed to help Government by enhancing public revenue collection.

1.5 Original Components (as approved)

The original project components as described in the PAD (Part C1) Project Component 1: Building Partnerships and Private Participation (US$16.3 million). This component aimed to help the Government address a key bottleneck to private sector participation in economic activity, namely poor utility and infrastructure services. The project was to support and/or prepare the reform of the telecommunications, air transport, port, water, and energy sectors, by attracting private investments, implementing necessary legal and regulatory reforms, and funding related capacity building, especially in a multi-sector regulatory agency. In addition, the project aimed to support the withdrawal of the overextended public sector from areas best handled by the private sector, via support for divestiture from public enterprises, liquidation of a bankrupt commercial bank and outsourcing of custodial public services. In this context, the project would finance the costs of retrenching redundant workers. This project component also aimed to kick-start private sector activities by providing an EFF (Equity Financing Facility) that matched resources mobilized by private entrepreneurs for viable productive investments. Access to the EFF would be limited to existing private firms whose assets were damaged during the conflict and to divested private enterprises. Project Component 2: Improving the Investment Climate (US$5.6 million). The first aim of this component was to support legal reforms by modernizing business laws and improving access to justice for individuals and private enterprises. Activities included improving institutional capacity in the main tribunal of Bissau, which handles most of the business cases; harmonization of national laws with OHADA; and training and technical assistance to strengthen the judicial system and the legal profession. The other thrust of this component was to improve the business environment, first by supporting the progressive alleviation of administrative barriers and the rationalization of tax-induced investment incentives, as well as the elimination of associated distortions. These initiatives were also to be supported by FIAS. Second, the component aimed to support the assessment of policy and institutional constraints to develop six key subsectors regarded as promising entry points for private investment. Institutional support to four emerging private organizations (e.g. Chamber of commerce, association of small entrepreneurs, etc.), as well as public agencies, would have also been provided through this component. Project Component 3: Supporting Implementation and Capacity Building (US$3.7 million). In view of the country’s weak institutional capacity, project implementation capacity was deemed crucial. Stakeholders recognized this problem early on and assembled a strong team even before effectiveness with funding from a Project Preparation Facility (PPF). This component also supported monitoring and evaluation.

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1.6 Revised Components In 2003, the Credit documents were amended to allow for financing of the management of a trust-funded program for reintegration of demobilized combatants, and also changed the financing percentage under the Credit. The amendment to the PSRDP was part of an overall portfolio restructuring for Guinea-Bissau approved by the Board in August 2003 (IDA/R2003-172) which aimed to respond to a Government request addressing urgent needs. In order to free resources for the demobilization and reintegration program, then left with only US$2.9 million available from the multi-donor trust fund, the new activity absorbed the cost of the contract with the International Organization for Migration managing the program for approximately US$1.8 million. As a result, the outsourcing sub-component was dropped from the PSRDP. In addition, the 2003 amendment changed the financing percentage under the Credit from 85 to 100 percent of expenditures to alleviate counterpart funding problems 1.7 Other significant changes Following the Mid-Term Review, a second amendment approved by the Country Director (letter of June 22, 2006 to the Minister of Finance) expanded support for the electricity authority under the infrastructure reform sub-component of the project. The Mid-Term Review, in April 2005, led to various revisions. First, due to a lack of IDA resources and delay in the preparation of a new energy project, various activities and investments were included in the energy sub-component. Paragraph A1 (c) of Schedule 2 of the agreement dealing with the Water and Electricity Sectors was replaced in its entirety. The activities included in the revised sub-component were: (i) technical assistance to the Electricity Authority to design an efficient tariff structure; (ii) engineering studies and preparation of bidding documents for the contracting of a power generation system, the rehabilitation of the distribution network, and the establishment of a pre-payment metering and billing system; (iii) acquisition of goods to address urgent generation needs; (vi) rehabilitation and improvement of the commercial management of the Electricity Authority through the establishment of an independent private sector commercial management operation for a period of three to five years. Second, the paragraph dealing with the port was not changed in the DCA, but the cover memorandum for the amendment noted that additional activities for the port would not be financed because of difficulties arising from the dispute between the Government and the former concessionaire (Tertir). This is discussed in greater detail in Section 3.2 and Annex 2. Third, the rules of the EFF were amended in response to the situation on the ground (see Section 1.7 for details). The cost-sharing arrangement under the equity finance facility was amended to allow half of the 50 percent contribution by beneficiaries to be in assets (with cash was still required for the other half). During the Mid-Term Review the supervision team noted that despite a large interest in the equity finance facility, indicated by 49 projects applying for funds— 8 of which were considered eligible— in only 11 months, no funds could be disbursed because of the restrictive rules governing the counterpart funds. The cost-sharing arrangement under the equity finance facility was amended to allow half of the 50 percent contribution from by the beneficiaries to be in assets. The closing date was extended twice. First, from March 31, 2008 to March 31, 2009 and then to September 30, 2009.

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2. Key Factors Affecting Implementation and Outcomes

2.1 Project Preparation, Design and Quality at Entry Project preparation and implementation must be seen through the lens of a fragile and highly volatile political context. The fragility of the post-conflict situation influenced the design of the project and later amendments and modifications. The following table sets the project timeline in the context of the highly volatile environment. Table 1: A fragile context characterized by continuous instability

Date Country timeline

Sequence of Prime Ministers and

Government Changes since 2001

Project timeline

Sep-97 Project Concept Document review

Jun-98 to May-99 Armed conflict

Jan-00 Election of Kumba Yala as President

Mar-01 Caetano Ntchama Dec-01 Alamara Intchia Inhasse Feb-02 ROC review meeting Mar-02 Board approval Oct-02 Project effectiveness Nov-02 Mario Pires

Feb-03 Official project launch in Bissau

Aug-03 Country portfolio restructuring and project revised

Sep-03

Military coup deposing Kumba Yala Antonio Artur Sanha

Mar-04 New legislative elections

May-04 Carlos Gomes Junior

Jun-05

Presidential elections – João Vieira elected.

Nov-05 Aristide Gomes Aug-06 Project revision following MTR Apr-07 Martinho Dafa Cabi Mar-08 1st Extension Aug-08 Carlos Correia Jan-09 Carlos Gomes Junior

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Mar-09

Assasination of Chief of Army and President 2nd Extension

Jun-09

Presidential elections – Malam Bacai Sanha elected

Sep-09 Project closure

Project design evolved through a long preparation period that was interrupted by the armed conflict. Project preparation started in 1997 but was interrupted by the conflict in 1998-1999. When preparations were resumed,6 the design was reviewed in the post-conflict context and while the overall thrust remained unchanged, i.e. introducing essential reforms to boost private investment in Guinea-Bissau, the project became more ambitious and multi-sectoral to address new needs. In particular, much stronger emphasis was put on infrastructure and the regulatory environment, together with an innovative matching grant scheme. The project was technically well prepared and appraised by a team with the required technical skills. The project benefitted from extensive analytical work carried out before the conflict, and built upon the groundwork of a previous USAID project (TIPS – Trade and Investment Promotion Support) that had prepared a large set of studies. In addition, preparatory work included studies on legal reform, the telecommunications sector, and the establishment of a project implementation unit. When preparation resumed after the conflict, additional studies were carried out and missions undertaken with a strong team that included specialists in privatization, infrastructure, telecommunications, resettlement issues, and supply chain analysis. The implementation arrangements were appropriate and instrumental in achieving the successes the project was able to attain. The project implementation arrangements, which relied on a capable project implementation unit, were appropriate7 given the shortage of skilled staff in the implementing agencies and the need to coordinate among agencies.8

In hindsight, the project’s scope could have been less ambitious, but there are various reasons that justify the approach that was adopted. The project included infrastructure reform, divestiture, and support for the private sector through an equity fund, legal reform, and business environment reform. The breadth of the project was justified directly in the PAD, which noted the need to ensure a critical mass of reforms, and the absence of alternative sources of financing. In addition, this design was a proactive response in a post-conflict context where the project was the first, and largest, Bank intervention. 9 During project design it

6 The decision not to do a new concept note review when the preparation was resumed was made by the team and supported by the Country Director on the basis of the careful preparation documented by extensive aide memoire and additional studies (i.e. two FIAS studies, on the regulatory environment and the simplification of the tax regime, and one study of the financial sector). 7 In addition to the purposeful effort of the team designing the project, two contextual factors helped in setting up such high level PIU: (a) a transparent and effective recruitment process, (b) the reduced pool of attractive alternative jobs for high-level technical staff. 8 More details on the importance of the PIU are given in Sections 2.2 and 5.2(b). 9 This was explicitly discussed in Section D.1. of the PAD.

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was moreover assumed that in a fragile context it a multi-pronged approach was preferable, with an evaluation of progress at the Mid-Term Review, where sub-components that were not working could be dropped and more successful ones expanded.10 Moreover, projects in small countries tend to include a range of components as there are few operations for the country. As will be discussed in Section 2.2, the restructuring at the Mid-Term review in the end did not reduce the complexity of the project. In retrospect, while the importance of a pragmatic approach in the context of a fragile state is important, as discussed in Section 6, this ICR believes that a slightly less ambitious approach could still have helped to bring in desperately needed private investment while allowing the Government to concentrate its political capital in the highest priority activities. . The indicators were incomplete and not always appropriate. Indicators, some of them inputs and outputs, were not always appropriate for measuring progress in the implementation of various sub-components. In addition, the baseline data were not collected for various sub-components (i.e. retrenched workers, companies financed by EFF). The PDO indicators listed in the Financing Agreement were listed as output indicators in the PAD, while the PAD’s outcome indicators were generally unwieldy. The Government and a key set of stakeholders who supported the project preparation were committed to the reform agenda promoted by the project, but the volatility of the political environment reduced buy-in with respect to expectations at appraisal. These parties were actively involved in defining the project content during both preparation and implementation, which helps to explain why some important objectives were met despite the political instability during the implementation period. However, the political instability, combined with high turnover of senior policy makers, eroded this commitment and slowed progress. In retrospect, some of the reforms envisaged, particularly the multi-sectoral regulatory authority, had less buy-in in the end than assumed at appraisal. The PAD spelled out most of the risks, including the high risk of political instability and governance issues. The appraisal document correctly noted that political and security issues were beyond the scope of the project, and the appraisal team did not attempt to provide mitigation measures. The risk of weak implementation capacity in the country was addressed in the project design by establishing a strong project implementation unit, which proved effective throughout the political changes of the implementation period. Technically competent staff helped to ensure government engagement and maintain a fair degree of commitment to reforms despite the numerous changes. The appraisal document also notes that the team sought to mitigate the risk of complexity by involving stakeholders during preparation and by outsourcing technical work to professionals. One key risk was left out, which affected the achievement of the PDO. It was assumed that the domestic debt problem would have been solved and the private sector repaid, but this did not happen and the private sector remained seriously under-capitalized. This reduced private sector support for regulatory and doing business reforms and affected the adoption of the equity

10 This evaluation largely coincides with the two Quality of Supervision Assessments detailed in Section 2.2.

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financing facility as entrepreneurs were unable to raise their fifty percent “matching” contribution. 11

Lessons were drawn from other projects and incorporated into project design. The project took into account lessons on the importance of strong implementation capacity in a post-conflict context, financing the social costs of reforms, and making investment capital available for reconstruction in post-conflict countries. The lesson that the regulatory agency should be independent from political influence and financially sustainable was built into the project design, and emerged from similar experience in other countries in the region (e.g. Cape-Verde), although the potential for economies of scale and optimizing limited capacities via a multi-sectoral regulatory agency was not realized (see section on implementation). A Quality at Entry assessment was not prepared by the Quality Assurance Group, but two Quality of Supervision assessments were carried out, both of which assessed as satisfactory the quality at entry. These were carried out in FY06 and FY07 (see Section 5.1). 2.2 Implementation The overriding factor affecting project implementation was the political instability that prevailed in Guinea Bissau during that entire period. As shown in Table 1 above, political instability was the single most important factor affecting the project. After the project became effective in the second half of 2002, a coup in 2003 and the legislative elections in 2004 were followed by widespread unrest until a new president was elected in 2005 and progress was resumed in the reform agenda. In 2008, there was an armed attack on the presidency, which led to another period of unrest which culminated in the assassination of the President and the Army Chief of Staff in 2009, and to new Presidential elections. On average, there was one Government per year during seven years of the implementation period. The political instability and governance issues were not unexpected but are not subject to easy mitigation. The project put emphasis on building a strong and high level PIU to try to minimize the risks posed by the project’s technical complexity and the need to maintain a high level policy dialogue with the Government. However, the political nature of some of the obstacles went beyond the competencies of a very capable PIU, and progress could be achieved only during those windows of opportunity when the Government was more open to dialogue and reforms. The staff continuity on the Bank side and in the PIU explain a large part of the project’s achievements, facilitating the dialogue with successive Governments. On the Bank side, one TTL prepared the project and brought it to the board. Shortly after approval, one of the team members, who had been involved since appraisal, became the task manager and remained in charge for the entire implementation period excluding the last nine months. Similarly, once the project became effective the PIU coordinator remained in charge for the entire period excluding the last few months (January 2009-September 2009). This stability helped to maintain some continuity in the policy dialogue despite the frequent changes in the Government.

11 A fundamentally cash-strapped private sector was unable to provide strong support or to voice the need to improve the regulatory environment.

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The high quality of the PIU was also critical. In order to mitigate the risks posed by the complexity of this project, the task team purposefully set up a competitively selected, high quality PIU. In the context of endemic instability, the project implementation unit remained an apolitical technical body upon which the Government could rely (e.g. the PIU became the unit in charge of the privatization process which was successfully accomplished ahead of schedule). The Bank team proactively engaged with successive Governments to address technical problems as they arose. The Bank team adopted a proactive and pragmatic approach by responding to needs as they arose. The project was restructured in 2003 and revised in 2006. The first restructuring freed resources to finance the management of the reintegration program for demobilized soldiers, a key priority to reduce instability in a post-conflict context. Similarly, following the mid-term review in 2006, further adjustments were made to the credit, including expansion of the support for electricity reform and increased allocations for severance payments to facilitate divestiture. Reforms in electricity are still ongoing, although the timely intervention of the project probably averted greater problems. Timely financing of severance payments facilitated divestiture and contributed to meeting the basic needs of former workers of state enterprises, who had not been paid for several months. The amendments also facilitated project implementation by eliminating counterpart funding requirements, which could not be met given the fiscal crisis, resulting in problems with suppliers. Similarly, reduced matching funds requirements for the private sector facilitated the use of the equity fund at a time when the private sector was deeply undercapitalized.12 These responses highlight a pragmatic approach by the Bank in a fragile context where this project was often “the only game in town” and had to deal with unforeseen, urgent needs for Bank support. During implementation, the absence of other projects and the limited involvement of other donors led this project to shoulder even more responsibility and therefore complexity. Because of the political instability during this period, Guinea-Bissau received limited support from other donors. The performance-based IDA allocation system and the fact that, because of the nature of its conflict, Guinea-Bissau did not fall into IDA’s formal definition of a post-conflict state made this project the main vehicle to address a large set of problems that were not foreseen at appraisal. Being the “only game in town” also made it harder for the PRDSP to exploit complementarities with other donors’ support. At the same time, during implementation some opportunities to narrow the complexity of the project were missed. The weak institutional context and the overall political fragility should have inspired more pressure to attempt to simplify the project. In particular, the mid-term review was a missed opportunity to substantially restructure project activities and indicators, e.g. in relation to the port.. Structural factors outside the reach of the project adversely affected the achievements of the project objectives. The conflict of 1998/1999 left the economy starved of capital. Private companies lost a large part of their assets and were unable to undertake the required investment given the extremely weak financial system. This was compounded by the fact that the

12In the post-conflict context where companies had experienced deep capital losses, the pending debts owed by the Government to the companies were largely unpaid, and the underdeveloped system unable to provide the required financial support to private companies, so entrepreneurs were unable to match the EFF contribution with 50 percent in cash. Addressing this constraint unlocked access to the EFF for eligible companies

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Government’s payment of its domestic debt to the private sector was not solved during this period. Additionally, rates of return on private investments were affected by the poor state of infrastructure and the high operating costs due to structural constraints. The principal constraints were the high cost and scarcity of electricity, as a result of the power company’s problems, and the high cost and inefficiency of the port, where reforms and investments were delayed because of protracted discussions about the concession contract. The Quality of Supervision was rated in two occasions, and in both cases it was rated satisfactory; however both QAG reports emphasized the need to improve the KPIs. The first Quality of Supervision Assessment (QSA6), done in 2004, rated the quality of supervision overall satisfactory. The review also “found the supervision of Fiduciary/Safeguards Aspects and the Adequacy of Supervision Inputs and processes to be Satisfactory, but gave Moderately Satisfactory rating to the Focus on Development Effectiveness and to the Realism of Performance Ratings”. The review noted that “to further enhance the effectiveness of the supervision effort, the review recommends to pay more attention to the monitoring of project outputs and outcomes”. A second Quality of Supervision Assessment (QSA7), done in 2006, rated the quality of supervision overall satisfactory; however, the review noted that “The supervision missions have had opportunities, for example at MTR, to convert from input/output to impact/outcome indicators, but mainly because of data constraints in the country, have retained the indicators”. As a consequence, the review recommended that the team “attempt to convert some of the KPI to impact/outcome measures, if possible, in preparation for the ICR”. 2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization The complexity of the project is reflected in the large number of indicators. The PAD and DCA, with some minor formal differences, contain 24 indicators clearly linked to each one of the sub-components. Many KPIs are input and output type indicators. As raised by the FY06 and FY07 QAG reports, the results framework of the PAD and the corresponding Schedule IV of the DCA are mostly input and output-based. Most KPIs were not revised during the mid-term review, apart from two indicators associated with the restructuring.13

The PIU reports were detailed but focus mostly on inputs. The limited attention given to collecting data is reflected in the PIU reports which are very extensive and detailed but mostly narratives of actions and inputs with very limited information on outcomes and impacts. The limitations of the KPI coupled with the lack of a baseline data weaken the possibility of rigorous evaluation during the ICR. Baseline data (e.g. data on judges, length of commercial disputes, value added in key sectors, etc.) were not collected during the first phase of the implementation.. Additionally, during the implementation, data and monitoring were not emphasized and only in 2006 did some gathering of monitoring information begin. 2.4 Safeguard and Fiduciary Compliance

13 The supervision team decided not to revise most of the KPIs because it considered it unrealistic to expect “outcome/impact”. The best case scenario would have been impact during second generation reforms.

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Safeguard policies were related to the environmental assessment of the EFF beneficiary companies and retrenchment of workers: both were successfully tackled during the project implementation. All of the required environmental audits were carried out for the companies benefiting from the EFF. The workers’ retrenchment was carried out in a transparent manner, and no complaints were recorded among workers regarding retrenchment payments.

Financial management is rated satisfactory. Project accounts were kept in line with Bank requirements and audits were conducted on time. Problems encountered during the January 2006 supervisory mission related to the format of the financial reports, the accuracy of budgets and the accounting system were addressed quickly, and the reporting budgeting and accounting systems have been rated acceptable since that time. The project accounts were audited annually and audits were received on time. Audits were unqualified except for the first one. Supervision reports record that the recommendations of auditors were taken into account by the PIU. Financial management was always rated satisfactory.

Procurement is rated satisfactory. Supervision reports noted that the procurement process tended to be slow and the mid-term review recommended that the PIU be more proactive in accelerating the procurement process. At the same time, the reports noted that procurement documents were well organized. Since the mid-term review, supervisory reports have not reported on procurement (the January 2006 supervision records again the findings of the mid-term review). Procurement was rated satisfactory throughout the life of the project, except for the ISR of December 2006 (#10). The procurement rating was raised back to satisfactory in the following ISR.

Disbursements lagged with respect to estimates, which is not surprising given country conditions. Disbursement delays were in part due to the slow procurement process. There was only one procurement specialist in spite of the complexity of the project. Supervision reports do not note any particular issue with respect to disbursements.

2.5 Post-completion Operation/Next Phase Support to private sector development is presently being continued via budget support rather than investment lending. Given the limited resources in the current IDA allocation and interim nature of its strategy for Guinea-Bissau, no decision has been made yet on a follow-up investment operation in support of the private sector. At the same time, a series of two DPOs, the first approved in June 2009 and the second currently under preparation, prioritizes private sector development as one of its two pillars. In particular, the DPOs aim to continue improving the investment climate (i.e. simplification of business registration regulations) and support enactment of various legal packages designed under this project (e.g. investment code, telecoms law). The Government is committed to approving various items of legislation over the next few months, taking advantage of the relative political stability following last year’s Presidential elections.14 With respect to investment climate reforms, following a recent request, the Bank is providing support to the Ministry of Economy to make the “one stop shop” operational and to simplify the requirements to register new companies.

14 Shortly after the ICR mission, in December 2009, the President enacted a new investment code developed under the PSRDP, while the telecoms law was approved in March 2010.

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A new study financed under the PPIAF has recently been launched to evaluate options to revitalize the Port of Bissau to support the Government’s efforts. The study assumes that there will not be further constraints to the recruitment of an operator and the dispute with Tertir is solved. Additionally, a multi-sectoral infrastructure rehabilitation project (a follow-up of the “water and energy component”) was approved in June 2006 with the objective of increasing the availability of urban power, water and roads infrastructure services, and additional financing is currently being prepared for this project.

3. Assessment of Outcomes

3.1 Relevance of Objectives, Design and Implementation The overall relevance of objectives, design and implementation is high. The relevance of the objectives is high. Project objectives at appraisal were aligned with Bank strategy and highly relevant, in that they sought to lay essential foundations to be able to attract desperately needed private investment to Guinea-Bissau. The objectives remain relevant to Bank strategy as spelled out in the recent ISN (Interim Strategy Note, May 12 2009), which prioritizes promoting private investment, strengthening the business climate, reducing red tape and strengthening contract enforcement. Similarly, objectives related to addressing key infrastructure needs such as telecommunications, port, aviation, energy, and water are well aligned with current priorities and Bank strategy. Finally, the project objectives are clearly consistent with two of the four pillars of the Guinea-Bissau PRSP of September 2006: (a) fostering growth and job creation, (b) increasing access to social services and basic infrastructure.

The relevance of design is rated satisfactory. The project design reflects a substantial amount of preparatory work. The design incorporates some innovative components such as the EFF, which aimed to provide solutions to the private sector tailored to the country’s context. Nevertheless, it is important to flag a design shortcoming with respect to the M&E framework. The reason why the project design is rated satisfactory, even though the KPIs needed improvement, is because it is understood that the emphasis was on getting the components right and articulating the appropriate implementation system, while the possible revision of the KPIs was left for the implementation phase when the project would hit the ground. The relevance of implementation is rated satisfactory. The Bank’s implementation assistance was flexible, adaptive and responsive to the needs of the country, as shown by the many revisions made to the project content and modalities. For several years this project represented the main channel of policy dialogue to promote reforms in Guinea-Bissau. The assessment of the relevance of this project should also consider that, given the limited IDA resources and the absence of a DPO, this project served as the main channel of policy dialogue with the Government of Guinea-Bissau and set the basis for future operations of the Bank in Bissau. 3.2 Achievement of Project Development Objectives

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Given the breadth and complexity of the project, this section will describe the achievements in the various sub-components in some detail, and provide provide additional background analysis and information in the appendix. Given the significant shortcomings in the achievement of objectives, the overall outcome is rated moderately unsatisfactory.15 Despite a number of valuable outcomes arising from the project, including some major accomplishments, the majority of the intended objectives, as measured by the KPI, were not accomplished. The major accomplishments of the project lay in telecom liberalization and the privatization process. Additionally, the project generated a number of valuable outcomes in terms of legal reforms and institutional strengthening. However, largely because of political instability and institutional fragility, most of the legal and regulatory reforms could not be finalized and are still pending approval by the Parliament and the President. Progress is clearly under way on this, but too late to be factored into this review. Component 1: Building Partnerships and Private Participation

This component was the largest one, as it absorbed approximately 60 percent of the overall resources. Despite some remarkable achievements, particularly in telecom and privatization, overall this component was hampered by significant shortcomings. These shortcomings particularly affected the civil aviation, port, water and energy, regulatory institution, and EFF sub-components. For this reason the component is rated moderately unsatisfactory.

This component was expected to support the achievement of the project’s objective by implementing the Government’s divestiture program, reforming the infrastructure and commercial banking sectors, outsourcing certain Government services, and stimulating private investment. However, the outsourcing sub-component was dropped a few months after the project became effective, in response to changing needs and the Government’s request (see Section 1.6). A. Infrastructure

A1. Telecommunications: The results of telecommunications reform are satisfactory.Starting from an extremely low base, with only one telecom company (landline) and 3,000 fixed line users in 2002, the goal was to have two additional concessions, 16,000 fixed line users, and 20,000 cellular phone users. The liberalization of the sector led to the entry of three new mobile phone companies, two of them international investors (Orange, MTN) and one a

15Based on the ICR Guidelines for formally revised projects, the evaluation of the PDO should be broken down into phases distinguishing between pre- and post- revision. For the purpose of the ICR, as discussed in section 1.6, only the 2003 amendment is considered a formal revision because only this amendment was approved by the Board. This revision occurred just a few months after the project was declared effective, and for this reason no concrete objective was achieved during such a short period (the project was declared effective in October 2002, formally launched in Bissau in February 2003, and formally restructured in August 2003). For this reason we do not discuss the achievement of the objectives by splitting the time period into pre- and post-restructuring. Additionally, this restructuring did not change the PDO or any of the KPI. The 2006 amendment, approved not by the Board but by the Africa Region Vice-President, only affected the two KPIs, not the PDO. All of the remaining KPIs and the overall project evaluation remained unchanged. Only the two sub-components affected (i.e. energy and water, port) are evaluated with respect to both the new and the old KPIs, as KPIs were unchanged for the other sub-components (see Appendix 2 for further details).

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consortium of Guinea Bissau SOE (Guiné Telecom) and its Portuguese ally (PT). The revenues from the initial licensing fees amount to 9 million euros16, and estimates of the three companies’ revenues during 2005-2009 are approximately US$122 million. The liberalization ended Guiné Telecom’s exclusive control over the international gateway, with a substantial price reduction for international calls. At the time of the ICR, the number of cellular phone users is estimated at close to 400,000, and land-line users at 4,000, for an overall total that vastly exceeded appraisal expectations of the number of beneficiaries. Although the “explosion” in the number of the users is a worldwide phenomenon helped along by exogenous technological changes, the liberalization and the entry of the three new companies in the sector are direct results of the project engagement. Moreover, a comparison of the growth rate of the number of users and the prices charged for cellular phone calls shows that Guinea-Bissau started from a low base in 2002 and improved much faster than the average in SSA and, based on available data, is now in line with SSA average.17 In the context of a fragile state such as Guinea-Bissau, the telecom sector provides an example of a successful liberalization that has attracted investments,18 with enormous benefits in terms of expanded access and reduced costs for consumers.19 At the same time, it should be noted that the regulatory framework is not fully in place. While a robust legal package was prepared by the project, approved by the Council of Ministers in April 2008, they have only been approved by Parliament very recently and now need to be implemented.. Additionally, the regulatory authority remains weak and highly politicized with its President changing, on average, once per year. This situation creates some risks for the sector, and the lack of an adequate regulatory framework adversely affects consumers. Despite these problems with the regulatory framework, improvements in access and reductions in prices have been so large as to justify the satisfactory rating. A2. Civil aviation: Substantial progress has been achieved with the improvement of airports and the establishment and strengthening of the civil aviation authority, although shortcomings remain; the outcome of this sub-component is moderately satisfactory. The project had four targets in this area: (i) With regard to revision of the civil aviation code, the very weak regulatory situation Was addressed by creating the civil aviation authority in January 2007 and furnishing it with adequate infrastructure, office equipment and capacity building. (ii) With regard to the creation of a fully operational civil aviation authority able to fulfill adequate safety standards, the airport began the project with extremely poor safety conditions, dilapidated infrastructure and did not meet minimal standards such as fencing and runway lighting. Airport safety improved with the construction of the perimeter wall and the repair of fire trucks and related equipment, however, a recent ICAO report (April 2009) still highlighted safety issues that led the European Commission to request the Civil Aviation Authority to provide an action plan to improve safety regulations and standards in order to avoid being blacklisted. The Civil Aviation Authority responded proactively by developing a plan and is awaiting financing to implement it. (iii) With regard to improving the Bissau airport

16 MTN and Guinetel each paid 2.2 million euros in 2004, Sonatel paid 4.6 million euros in 2007. 17 In the appendix, see the comparison of prices and users in Guinea-Bissau with the rest of SSA. 18 Complete data on investments were not available. However, data obtained from interviews give an idea of the importance of the investments in the sector. MTN, the market leader, estimates its investment in 2009 at US$20 million and anticipates investing an additional US$10 million in 2010. Similarly, in order to recover lost ground after four years of no investments, Guinetel (the cellular company jointly owned by Portuguese PT and the Government of Guinea-Bissau) is expecting to invest approximately 3.3 million euros in 2010. 19 Prices for international calls have decreased by more than 85 percent in nominal terms, from around CFAF 1200 per minute in 2004 to around CFAF 150 per minute in 2009, which implies an even larger decrease in real terms.

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facilities, project investments clearly improved the infrastructure and conditions of the airport—for example, with investments in lighting and generators, night landings became possible. (iv) With regard to increasing the number of flights and doubling number of passengers, this target is arguably a highly imperfect measures of the project outcome. The number of flights decreased from 462 in 2002 to 36420 in 2009 and the number of passengers fell accordingly, for reasons that cannot be attributed to the project. In particular, Air Senegal’s financial problems led it to suspend its flights, while political instability reduced the demand for flights and influenced TAP’s decision to reduce the number and capacity of flights to Bissau. , A3. Port: This sub-component was dropped, together with its KPI, after the Mid-Term Review. When the sub-component was dropped, it was affected by major shortcomings and is rated unsatisfactory.21 The support to the port authority consisted of technical assistance through various studies which would have set the basis for a badly needed re-launching of the port. However, since the Government could not reach an agreement with the former concessionaire, Tertir, developing a master plan, as foreseen in the KPI, would not have supported a rehabilitation of the port. The port is still in a dire situation: its infrastructure is dilapidated, management is turned over annually, it is overstaffed with more than 800 workers, and the regulatory authority overlaps with the management authority (both of which are extremely weak). Nevertheless, a hard-to-quantify contribution of this sub-component is that it served as a channel of policy dialogue and helped to avoid decisions such as sole-sourcing the management of the port. A4. Water and energy: Although resources for this sub-component increased after the second restructuring, outcomes were modest and the sub-component is rated unsatisfactory. This sub-component was introduced as a “bridge” to finance urgently needed works and goods while a larger infrastructure project was being designed and appraised. The original KPI, namely Bidding documents prepared by mid-2003”, which was consistent with the objective of privatizing the water and energy companies, was changed to “Increase the collection of electricity bills from 40% to 80%”, which was consistent with expanded support and investment in additional production capacity. At the time that the sub-component was amended it was unsatisfactory, because the original KPI related to preparing the bidding documents for the privatization had not been achieved. With respect to the amended KPI there is limited reliable data on collections, but interviews with stakeholders suggest that electricity bills collections remain at around 40 percent or less, so that amended KPI is also rated unsatisfactory. Moreover, the energy company is still publicly owned and in serious financial distress, overburdened by an excessive number of workers and able to operate less than one-third of its installed capacity of 5.5 MW. Based on the recent Investment Climate Policy Note (2009), 80 percent of companies in Bissau own a private generator (the highest in SSA), and face on average between 8 and 22 power outages per year, even with private generation capacity. However, even if the outcome was unsatisfactory, at critical moments the project intervention prevented a total collapse and allowed a limited delivery of electricity for basic services such as the hospital.

20 Seven weekly flights, two of them with TAP carrying a maximum of 120 passengers and 5 with TACV carrying an average of 70 passengers. 21 The original KPI - Port master plan for the Port prepared and adopted by 2005 – had not been achieved by the time when the component was dropped.

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A5. Regulatory institution: The Multi-Sector Regulatory Agency was not created and this sub-component is rated unsatisfactory. At the outset of the project, the situation in Guinea-Bissau was characterized by multiple sectoral regulatory agencies with weak capacity and high exposure to political influences and capture. In this context, with a small economy and limited resources, following the example of Cape-Verde the project took a gradual, pragmatic approach toward building a multi-sector regulatory agency. During the first phase, the development of the agency would primarily consist of strengthening the existing (but very weak) telecom regulator, addressing pressing issues faced by a sector undergoing very rapid transformation. Only gradually, once sufficient capacity had been built and other sectors had implemented reforms, would the functional purview of the agency be expanded to other sectors. The project strengthened the capacities of the various regulatory authorities, notably telecommunications and aviation, but did not achieve the objective of creating a single multi-sectoral regulatory agency. The strengthening of the Aviation Authority was relatively successful, but the telecommunications authority22 (ICGB) was less so, and the port authority was not improved. Two key factors underlie these unsatisfactory outcomes. First, political instability permeated the regulatory authorities, with frequent turnover in senior management. Second, the weakness of the central government and its budget constraints created incentives at the sectoral level to hold onto existing resources and the unbundling of existing vested interests proved too complex in the country’s fragile political context. Resistance to the proposed reform appears to have been largely driven by resistance to adopting a transparent regulatory framework in a sector such as telecom that is a key source of revenue generation, rather than by a rejection of the multi-sector concept. B. Divestiture and outsourcing

B1. The objectives of the divestiture sub-component were achieved satisfactorily with only minor shortcomings. The initial target for this sub-component was the privatization/liquidation of 33 public enterprises. As of October 2009, 32 companies had been divested or were at an advanced state of privatization/liquidation, including the International Bank of Guinea-Bissau (BIGB). Payments to retrenched workers were processed in a transparent manner and without complaints. However, due to adverse economic conditions in Guinea-Bissau and earlier over-staffing, most of these workers were not hired by the new owners as the workforce was substantially reduced. No data were collected about the labor outcomes of retrenched workers, but during interviews it was suggested that most of them did not find other formal employment. On the other hand, these workers were already not being paid because they were working for companies that were in deep financial distress. Two other shortcomings could be identified in this process, even if they are unintended consequences of the Government’s instability and lack of resources. First, the Government, in certain cases, did not comply with the payment of salary arrears. Second, the new owners of the privatized companies were often denied promised tax exemptions (e.g. import duties on materials for physical rehabilitation of the privatized establishments), which has slowed the rehabilitation of some of these companies. These problems, coupled with the high cost of doing business and

22 The amount of preparatory work though should be emphasized because this formed the basis for the future progress of the sector. In fact, various important pieces of legislation have been prepared, some of which went through the Council of Ministers such as the “Telecom Law” which would grant independence to the telecom authority and introduce a more transparent system for recruitment of senior management. This law was approved by the Assembly on March 15, 2010 and is now awaiting the promulgation by the President.

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adverse economic environment in Guinea-Bissau, explain why most privatized companies are still operating far below capacity, and why no buyers could be found for nine additional companies for which the privatization process was launched and will need to be re-launched. Even so, the objectives of this sub-component were satisfactorily achieved, since the Government benefitted from the trimming of its bloated payroll, it earned revenues of US$6 million dollars from the sales of these companies, and privatization stimulated both domestic and foreign private investments. One example is the “Hotel 24 de Setembro”, previously the main hotel in Bissau, which was acquired by a regional consortium and is currently under rehabilitation with an investment of approximately US$4 million—and a similar story applies to the Hotel Bissau. Another successful case is Afripeche, a fisheries company acquired by a consortium of local and international investors, which is now rehabilitated and employs approximately 200 workers. These achievements are particularly remarkable in the context of high political instability, where changing Governments sometimes questioned their predecessors’ decisions regarding politically sensitive issues. The pressure from the project and the continuous engagement of the PIU must be credited for the resolution of these political obstacles, which is a remarkable achievement in a fragile state. Banking sector. The liquidation of BIGB, whose CFAF 21 billion in assets represented 51 percent of banking sector assets, was completed with financing under the credit. Depositors were repaid and workers were paid their severance. This restored financial credibility and stability to the sector, enabling the second bank in Guinea-Bissau to expand operations and three new banks to enter the country. The economy is now receiving basic banking services even if the financial system is still largely underdeveloped. B2. Outsourcing: As discussed in Section 1.6, the outsourcing sub-component was eliminated at an early stage with the first restructuring before any activities had begun. Additionally, no KPIs were associated with this sub-component, so it cannot be rated for the purpose of the ICR. C. Equity Financing Facility

This sub-component is rated moderately unsatisfactory, despite important achievements and the learning associated with this pilot fund, because there were significant shortcomings in the achievement of the original objectives. The initial target of financing 15 projects and creating 400 jobs was not achieved, and only 11 projects were financed. Of those, three are not operational and two are considered high risk. Nevertheless, there were some very successful investments such as the ones in Agripeche, Ascon and Guerauto.23 Based on interviews with entrepreneurs and other stakeholders, the EFF was considered a positive experience in post-conflict Guinea-Bissau, where companies had been badly damaged by the conflict and lost a large part of their assets, so that potential entrepreneurial capacities were idle. The lack of assets for use as collateral and an underdeveloped financial system also reduced the chances of recovery for existing entrepreneurs, leaving the private sector in a low equilibrium trap. Four elements undermined the success of the EFF. First, the instability and high costs of doing business in Bissau reduced returns on private investments and shrunk the pool of potentially viable investments. Second, the initial requirement that entrepreneurs’ 50 percent contributions be in cash proved unduly restrictive given difficulties in accessing external finance. This requirement was duly relaxed in the second restructuring of the project,

23 For more details see Annex 1.

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but time was lost at the beginning. Third, the long-standing issue of government arrears to the private sector was not solved, limiting companies’ capacity to invest. Fourth, certain eligibility criteria sought to reduce the scope of the fund by targeting firms affected by the war and excluding new companies, but this proved to be too restrictive in Guinea-Bissau’s post-conflict context, where the difference between start-ups and existing firms badly affected by the conflict was much less clear than in a normal situation.24

D. Reintegration of Demobilized Ex-combatants

As discussed in Section 1.6, the project financed part of the costs of the reintegration program. However, a KPI was not added to measure the impact of this activity, nor was the impact of this activity tracked, so it is not possible to formally evaluate it for the purpose of this ICR. Component 2: Improving the Investment Climate

Despite some achievements, especially in the legal sub-component, major shortcomings hampered the achievement of the expected objectives. Therefore, this component is rated unsatisfactory. This component was expected to support the undertaking of legal reform, as well as improving the fiscal and regulatory aspects of the business environment and creating value chains. A. Legal reform

Despite important achievements, this sub-component is rated moderately unsatisfactory because of significant shortcomings in achieving the objective of implementing legal reforms to modernize national laws consistent with OHADA legislation. There were three KPIs for this sub-component, none of which was fully met: (i) National laws modernized and revised to be compatible with OHADA: The project ensured that Portuguese translations were available for the first time for all eight OHADA Uniform Acts in force in Guinea-Bissau, although these Acts have not been widely disseminated.25 As a result of the translations, legal experts financed by the project drafted legislation to amend or repeal GB legislation that contradicted the OHADA legislation. The revisions were approved by the Council of Ministers in February 2008 and are pending approval by the Parliament. Drafts were also prepared of laws such as the Civil Code, Code of Civil Process, Commercial Code, Law of Arbitration, Reform of the Judicial System to Simplify Process of Collection and Execution, Law for the Notary, Law to Approve Code of Commercial Companies, and Reform of the Judicial System relative to Guarantees. This work was completed in May 2007. These drafts are pending approval by the Council of Ministers and the Parliament.

24 This issue had been discussed during preparation, but the possibility of including greenfield investment was dropped at the request of the IFC on the basis that this would have distorted the capital markets.

25 The Portuguese translations of all OHADA Uniform Laws were published in the Official Gazette (Boletim Oficial) from 21 to 23 September 2005, but with a restricted print-run, only 100 copies were printed separately.

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(ii) 70 percent of judges, lawyers and other legal staff trained: There was no baseline survey to identify the total numbers of judges, lawyers, and other legal staff and therefore this indicator cannot be fully evaluated. However, Four judges also received training on the OHADA legislation in a year-long program in Dakar before returning to Bissau to take up positions as commercial law judges in the new Commercial Court, and they are well placed to properly apply the OHADA law to commercial disputes. Other short term courses were attended by some 100 judges and lawyers at the beginning of the project. Also, at the Government’s request, an assessment was made of GB’s judicial system which could be used as a basis for future reforms. (iii) Improvements in the performance of the tribunal in Bissau, specifically a 50 percent reduction in the time to issue judgments in commercial cases: The country’s first commercial tribunal in Bissau was opened in a refurbished government building in April 2009, much later than expected in part because the Ministry of Justice wanted to ensure it would be able to retain a revenue collecting function. However, the infrastructure and office equipment had been ready for several months.26 The commercial tribunal is still not fully operational because it lacks administrative services, but the judges have started to review existing pending cases even if none have been closed yet. Because the commercial tribunal is not yet fully operational, and based on interviews with judges and other stakeholders, this target is considered not to have been achieved. There is no baseline information against which to assess whether or not there was a decline in the time elapsed for issuing judgments. B. Improving the business environment and creating value chains

Despite substantial work, the achievements of this sub-component were limited by major shortcomings and therefore the outcome is rated unsatisfactory. There were two main KPI for this sub-component: (i) Action plans resulting from administrative barrier and tax studies implemented. (ii) Supply response and competitiveness stimulated in six key sub-sectors or entry points (increase in domestic value-added of 50 percent). With respect to the first KPI, the investment code was drafted but has not yet been approved. Some recommendations from the FIAS studies that were implemented include a reduction in the corporate income tax rate (from 39 to 25 percent), the personal income tax rate (from 20 to 12 percent), and the tax on property transfers (from 10 to 2 percent). However, regulations for ongoing businesses remain burdensome, as shown by the ranking in the 2010 Doing Business indicators. The process of opening and running a business takes 213 days27, and the country is ranked 114th and 175th,respectively, for the ease of dealing with construction permits and employing workers. The ranking for the ease of registering property indicator deteriorated further, from 170th in 2008 to 177th in 2010. The trading across borders ranking deteriorated from 111th to 116th. It is estimated that it takes six different documents and 23 days to export a 20 ft container. With respect to the second KPI, despite substantial preparatory work and studies to promote different value chains, the supply response and competitiveness of the four sub-sectors that were

26 Initial steps were also taken by the county’s two Chambers of Commerce to establish a Centre of Alternative Dispute Resolution focused on the arbitration of commercial disputes, and some potential arbitrators received initial training. The offices of the official notary and the commercial registry were to have been transferred from the Ministry of Justice to the new courthouse, but this has not happened due to the disagreement between the Ministry of Justice and the Supreme Court.

27 Doing Business 2010 report

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eventually prioritized28 has been very weak in a context of endemic instability, poor infrastructure and high transaction costs. 3.3 Efficiency The original economic analysis could not be replicated because some of the assumptions made during the preparation could not be tracked clearly, such as the “assumed” productivity gains from investment climate and legal reforms. Similarly, the assumptions made with respect to the retrenched workers could not be verified because data were not collected and could not be collected during the ICR. For this reason, the efficiency analysis focuses on the sub-components for which it was possible to obtain detailed data: (a) privatization, (b) telecom, and (c) EFF. All these sub-components are part of Component 1, “Building Partnerships and Private Participation,” which accounts for almost 60 percent of total resources allocation. In terms of economic efficiency and cost-effectiveness, the telecom sub-component was an enormous success. The rate of return is over 1000 percent and drives the overall rate of return of the project. The benefits of the telecom sub-component included welfare gains for the consumers due to the substantial reduction in prices, revenues for the Government, new investments attracted, and the very high revenues of the new telecom companies. Privatization also has a positive rate of return on the order of 60 percent. In contrast, the EFF rate of return is negative, driven by high administrative costs and the fact that many of the companies benefitting from the grants have not yet started their operations (for details refer to Annex 3). 3.4 Justification of Overall Outcome Rating (combining relevance, achievement of PDOs, and efficiency)

The overall project outcome is rated moderately unsatisfactory. The project addressed urgent needs and remains relevant today. Project outcomes were less successful than expected, although some very important outcomes with high returns were attained, and this justifies the overall moderately unsatisfactory rating. Telecommunications services were improved and the divestiture of state enterprises was accomplished. The liquidation of unprofitable state-owned enterprises not only eliminates future liabilities but provides a clean slate for investment in new enterprises once the political situation is clarified. The banking sector is providing basic banking services, which it was not able to do before the project because the larger of the two banks in the country was bankrupt, discouraging investment in the sector. Three new banks were established and one expanded operations following the liquidation of the bankrupt bank, with the result that the economy has limited but improved access to basic financial services. Although legal reform was not achieved, considerable progress was made in preparing legislation which will be the basis for the needed legislative reform expected to be started this year—e.g. the telecom law was approved by Parliament on March 15, 2010. Economic efficiency is difficult to measure. The positive returns resulting from the telecom and, to a lesser extent, the privatization sub-component, which together account for approximately one

28 Cashew, rice, vegetables, fishery.

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third of project costs, indicate important economic gains resulting from the project, especially in relation to the IDA financing of SDR 21 million. 3.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development

Poverty, gender and social impacts are not easily attributable. The absence of baseline data and the indirect nature of much of the project’s impact makes it particularly difficult to identify the impact on poverty, gender, and social issues.

Based on qualitative evidence and interviews, it is possible to identify some positive, direct impacts on poverty through employment generation. The employment generating effects of the EFF and of some privatizations, such as those of the Hotel 24 de Setembro and Afripeche,had some positive effect on poverty. More indirectly, it could be argued that the telecom liberalization positively affected the welfare of the population at large, and potentially helped the poor through expanded access to information and communication services at substantially cheaper prices. However, these effects are rather indirect and hard to quantify. Additionally, it is possible to argue that the retrenched workers were positively affected in the short-run by the retrenchments payments. The fact that most of these workers could not be hired by the new owners and that most of them remained unemployed could be considered an adverse result. However, these workers were duly compensated and, prior to being released they were not being paid and, given the status of the companies, were unlikely to be paid. (b) Institutional Change/Strengthening Institutional development and long-term capacity building was a key goal of the project and there were some important achievements, even if limited due to general instability and institutional fragility . The reform and strengthening of the civil aviation authority and telecom regulatory agency left these institutions much more developed that when the project began. However, the process is far from complete. Despite Parliament’s approval of the telecom law, the regulatory agency in still in a weak position with high turnover rates among its senior management, who are often appointed based on political criteria. Similarly, the civil aviation authority became operational, its infrastructure was rehabilitated and its offices equipped, and its capacity was strengthened thanks to the project, but the recent ICAO report highlighted serious weaknesses in the aviation authority that need to be addressed in order to meet internationally acceptable safety standards. The use of an external PIU did not hamper the strengthening of domestic institutions. On the contrary, a strong and well equipped PIU served as a training ground for staff who later became like-minded, reform-oriented policymakers. The core activities carried out by the project aimed at improving these capacities, as discussed in the paragraph above and, in greater detail, in Section 3.2. The creation of the high quality and well equipped PIU transformed this into a de facto laboratory for capacity building. The first coordinator of the project went on to become Minister of Finance and then a lawmaker. The second coordinator became, during the last few months before the project’s closure, Secretary of State for the Budget. Other technical advisors went on to important roles as policymakers (e.g. customs). Whereas the standard argument against PIUs is that they are transitory relative to public

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institutions, in the turbulent post-conflict setting of Guinea-Bissau, the high quality PIU provided an oasis of continuity and institutional memory in a context of continuous turnover of senior officials in the Ministries and public agencies. The legal sub-component achieved important results in the modernization and development of the existing judicial system, although the process is not yet complete. The translation of the OHADA code, drafting of new and compatible regulations, and reinforcement of the capacities of four judges are important outcomes for modernizing the judicial system, even though the system is still fragile and not yet fully operational. For example, the lack of administrative services does not allow the commercial tribunal to be fully operational and the newly drafted laws have not yet been approved or enacted. The institutional development of the banking sector was crucially enhanced by the liquidation of BIGB . The liquidation of BIGB, which was the largest bank in the country and dominated the banking sector, and the payment of depositors permitted the second bank in the country to expand operations. It also encouraged three other banks to enter Guinea-Bissau. As a result, the economy has access to banking services, which was not the case prior to the BIGB liquidation. (c) Other Unintended Outcomes and Impacts (positive or negative)

3. The project yielded a range of unintended outcomes. On the negative side, workers retrenched from the privatized companies were not able to find employment because of the weak economy, and project financing of severance payments for retrenched workers became more important than it would have been in a normal environment. On the positive side, the PIU became a center for learning and of knowledge about the implementation of reforms and of investment programs, which was not necessarily planned. Moreover, it became a springboard for various “like-minded” policy reformers who went on to assume important political positions within Government. Additionally, the capacity of the PIU Unit was drawn on by four other projects at various stages of preparation or implementation, which was not planned at the outset of the project. Finally, the telecom liberalization both dramatically increased the number of users (as measured by the relevant KPI) and lowered prices substantially, with the prices of international call falling by almost 90 percent. While this cannot be called unintentional, it certainly is an important outcome with a tremendous impact that is not measured by the KPI.

3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops Not applicable 4. Assessment of Risk to Development Outcome Rating: Moderate

The project’s accomplishments in areas such as divestiture, telecom, OHADA, and banking are considered largely irreversible and are stepping stones for future reforms. However, the risks are high for other components such as civil aviation, energy, regulatory institution, ports, and investment climate. Overall, given the political situation, the risks are moderate that the outcomes which have been achieved will not be maintained.

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5. Assessment of Bank and Borrower Performance 5.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Moderately Satisfactory The Bank’s performance in ensuring quality at entry is rated moderately satisfactory.The project’s objectives addressed high-priority issues after the conflict, and the operation was prepared to quickly address the Government’s urgent needs. The technical underpinning of the project was very solid, and the appraisal team included staff with the appropriate skills. The project incorporated innovative components such as the EFF which, despite limited results, was considered by most stakeholders to be particularly relevant as it sought to provide emergency funding for the private sector, which had lost much of its capital. Additionally, the project design is such that most of the agenda is still relevant today. As discussed in Section 2.1, there were two Quality of Supervision Assessments carried out in 2004 and 2006. Both evaluated the design at entry as generally sound and satisfactory, except for the weakness of the results framework, which needed to be revised.

The appraisal team appropriately identified the key risks, the most important of which was the Government’s weakness, and established an institutional structure which ensured the implementation of many components of the project in spite of the extremely adverse political environment. This structure, with its continuity of skilled staff, also helped to mitigate down-side risks in terms of shifts in ownership of an essential reform agenda, which is a risk that is particularly acute and intractable in a turbulent post-conflict political environment with high turnover among key policy makers. With hindsight, the project should have been narrower in scope, considering the political risks of an operation in Guinea-Bissau, but the team’s decision to include many components is understandable given the need to address a range of constraints in order to successfully stimulate private investment, and the perspective at appraisal that the project was to be considered an evolving mechanism to address the key constraints of the private sector, and the MTR was expected to thoroughly review and restructure each component as needed. Two further assumptions made at appraisal that would have helped the project did not materialize. First, it was assumed that the long-standing issue of public arrears to the private sector would have been solved, alleviating the private sector’s financial constraints and encouraging new investments. Second, it was assumed that the project would be closely followed by a budget support operation that would strengthen political support for reforms financed by the project, but this did not materialize until much later. Finally, the project indicators were detailed but focused mostly on outputs rather than outcomes, the PAD and Financing Agreement were inconsistent on this, and key baseline data was not collected. During interviews for the preparation of this ICR, it emerged that during preparation and appraisal the team focused on defining the components and the outputs in the expectation that the indicators would have been reviewed along the way, and substantially revised by the MTR. (b) Quality of Supervision Rating: Moderately unsatisfactory

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Supervision was generally continuous and proactive. During the first five years of implementation, there were semi-annual field supervisions and, in one case when it was not possible to visit the country, the PIU team visited Washington for discussions. However, supervision was less intense than would have been desirable during the final year of the project due to changes of TTLs. The team was proactive and pragmatic in responding to the country’s needs as they emerged. This was exemplified by two revisions to the project’s scope, one to include financing for demobilization and the second to include support for urgently needed reforms. The two Quality of Supervision Assessments rated supervision satisfactory, but opportunities were probably missed to narrow the scope of this project and instead expand the envelope of support for Guinea-Bissau. In particular, in hindsight and based on this ICR’s findings, it is fair to say that the restructuring at the MTR was not as deep as needed (e.g. in relation to the ports or the multi-sector regulatory agency). It can be argued that this was potentially a missed opportunity, because a deeper restructuring could have had an impact on the project’s achievements. Bearing in mind that supervision involves not only the immediate project or country team but also more senior management decisions, a critical strategic decision was that of expanding the range of activities supported by this project, rather than financing other operations in Guinea-Bissau and narrowing the scope of this particular project to heighten chances of success. Because of the IDA performance-based allocation system and the fact that Guinea-Bissau was not formally defined as a post-conflict state due to the nature of its conflict, the IDA envelope fell far short of what is required in a post-conflict setting. Thus the project was not accompanied by the foreseen parallel DPO and was for a long period, “the only game in town”, which undermined the “corrections at mid-term review” strategy envisaged at appraisal and complicated the achievement of the project development outcomes. A further shortcoming more closely related to the project level was the lack of data collection in areas such as legal reforms, privatization, workers retrenchment, and the fact that indicators were not improved as had been suggested by the two Quality of Supervision Assessments. These factors made the project evaluation particularly difficult and contribute to the overall Moderately Unsatisfactory rating for supervision. (c) Justification of Rating for Overall Bank Performance Rating: Moderately unsatisfactory

Overall, the Bank’s performance is rated moderately unsatisfactory. The project addressed strategic needs of the country at a difficult time, was technically well prepared, and acted quickly and flexibly during implementation to respond to urgent needs. The scope of the project could have been narrower and the indicators better developed, but these flaws are explained by the urgency of the operation and the (growing) extent of the needs, and the project assumed that these elements would be adjusted during implementation when the project would have been streamlined by dropping less feasible elements. More importantly, some key assumptions made during the preparation and appraisal did not materialize and this crucially affected the project. Supervision was adequate in intensity but did not take advantage of the MTR to more substantially restructure and to reduce the complexity of the project. Finally, appropriate indicators were not developed or quantified and detailed baseline data for various sub-components was not collected, which made it difficult to assess the project’s impact.

5.2 Borrower Performance

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(a) Government Performance Rating: Unsatisfactory

Government performance is rated unsatisfactory. The political instability that prevailed during implementation resulted in frequent turnover of government officials, changes in policies relevant to key project issues, and changes in the levels of commitment to specific issues. Governments often questioned the decisions made by their predecessors. Throughout implementation, the Government did not emphasize monitoring of the project. Government officials often did not participate in the steering committee because they wanted to receive a special stipend which the government was not able to pay. (b) Implementing Agency or Agencies Performance Rating: Satisfactory The implementing agency’s performance is rated satisfactory. As noted elsewhere in the report, the PIU’s staff was competent, characterized by limited turnover, well paid, and committed to the reform agenda supported by the project. Given the shortcomings at the Government level, the PIU was able to advance reforms in spite of the lack of durable champions in the Government. The Unit was well managed and had strong administrative procedures, which made it possible for it to assume responsibility for the implementation of four other Bank projects. (c) Justification of Rating for Overall Borrower Performance Rating: Moderately Unsatisfactory In this rating. greater weight is given to the Government’s performance than to the implementing agency because of the former’s importance in implementing the required reforms to achieve the PDO. In spite of the vast amount of work done by the PIU and advances in reforms in some important areas (i.e. telecom and privatizations), the political instability critically undermined the achievement of the PDO. In sum, the PIU is considered a necessary but not sufficient condition for the successful achievement of the PDO, as exemplified by various legislative packages completed but not yet approved (see Annex 2, Component 2.A, for details). 6. Lessons Learned In a context of fragile institutions, special attention should be paid to the political economy and “second best” solutions should be explored. One of the key elements of reform that was emphasized throughout the project was the development of a multi-sectoral regulatory agency. Such an agency never became operational and was possibly rarely considered seriously by the changing Governments. As discussed above, the political instability and the complexity of unbundling the existing vested interests at the level of individual Ministries (which were sensitive to the resources generated through the sectoral regulatory agencies) are the key reasons behind this outcome. Early recognition of the strength of these vested interests could potentially have allowed for the exploration of alternative, more politically feasible, routes of reform.

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In a fragile state, understanding the political economy and institutional operations may lead to solutions that would not be optimal in a normal context. For the implementation of this project a steering committee was set up, including all of the relevant Ministries and stakeholders. This would certainly be a good idea in a normal context, however in this specific case it slowed down the project implementation because the size of the committee was such that reaching a quorum for making decisions was often problematic. The principal difficulty of getting the steering committee to meet was the result of continuous changes due to political instability. Additionally, consistent with World Bank rules, members of this Committee could not be paid for their work because they were already paid for their jobs as civil servants. This greatly affected their incentives to meet and take decisions. In such a context, it may have been more effective to have a smaller committee and draw in specific sectoral representatives and stakeholders only as needed depending on the topic being discussed, even if this is sub-optimal in its level of representation. Another lesson for projects where the existing institutions are fragile and unstable is the importance of building a strong PIU. A key reason for the achievements of this project was the capacity and quality of the PIU. Implementation in a context of weak capacity needs to account for details that may be second order in a normal context. The legal reform sub-component aimed to modernize the legal system by making commercial regulations compatible with the OHADA laws and building capacity to apply these revised laws. For this reason, the project involved “soft activities” such as the translation of OHADA laws, the revision of the commercial code, intensive training for the relevant judges, and “hard investment” such as the renovation of buildings to accommodate the new commercial tribunal. All of these activities were carried out as planned, but the commercial tribunal is still not fully operative because of a lack of administrative services. For instance, annual discussions between the project unit and the supervision mission about necessary changes could have perhaps revealed the training requirements of the administration staff. There are strong complementarities between investment operations and Development Policy Operations that should be exploited in order to move the reform agenda forward.Investment operations and technical assistance are instrumental in setting the stage and doing the preparatory work to support the reforms, however the DPO becomes crucial when the time comes to accelerate and enact the reforms. In the case of Guinea-Bissau, these complementarities could not be exploited as there was no DPO to accompany the investment operation. A related consideration is that legislative reforms take considerable time to implement, and this should be accounted for in project design. Designing ambitious and multi-pronged projects can be appropriate in a fragile institutional context, especially in the case of small countries, however in these situations an aggressive restructuring should be proactively pursued during implementation. The evaluation of this project should not lead to the conclusion that ambitious and multi-pronged projects should not be designed in the context of fragile institutional environments. In fact, in such contexts the needs are often numerous and the project design has to be responsive to client needs. This may lead to the design of ambitious and multi-sectoral projects, especially in the case of small countries where the limited number of projects creates strong pressure to define multi-sectoral interventions (“the only game in town” situation). In these situations, where

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political volatility is an issue, a pragmatic approach that focuses on multiple goals can have a high payoff. However, when such a strategy is adopted the implementation should be especially aggressive in exploiting every available opportunity to revise, restructure and retain only the sub-components with the highest potential. The case of this project in Guinea-Bissau, a small country with a limited IDA allocation and a fragile institutional context, raises some questions about the limits of the current IDA engagement model with a performance-based allocation system. When the IDA allocation is limited by country size and reduced even further by weak institutional performance, especially after an adverse shock, this may generate a vicious cycle. Because needs are many, the few projects in the portfolio become especially ambitious to be able to attain minimum conditions for achieving investment, growth, institutional development or access to services, which increases the probability of unsatisfactory results, thereby feeding back into lower performance-based allocations of IDA. The M&E framework should receive greater priority even in a weak institutional setting in order to support both a quantitatively sound evaluation and project implementation.The lack of a satisfactory M&E framework makes it difficult to adequately assess the impact of the project, and therefore limits the ability to make corrections or draw lessons for future projects. The lack of adequate M&E doubtless limited the ability to measure the degree to which specific components achieved the desired goals or should have been modified in order to accomplish those goals. 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies.

(b) Cofinanciers

There was no co-financing for this project. (c) Other partners and stakeholders (e.g. NGOs/private sector/civil society) Not applicable.

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Annex 1. Project Costs and Financing

(a) Project Cost by Component (in USD Million equivalent)

Components Appraisal

Estimate (USD millions)

Estimate at Restructuring* (USD millions)

Actual/Latest Estimate (USD

millions)

Percentage of Appraisal

1. BUILDING PARTNERSHIPS AND PRIVATE PARTICIPATION

16.3

21.0 20.39 97.24

2. IMPROVING THE INVESTMENT CLIMATE

5.6 3.8

3.65 97.14

3. SUPPORTING IMPLEMENTATION AND CAPACITY BUILDING

3.7

6.8 7.21 105.96

4. REINTEGRATION OF DEMOBILIZED EX-COMBATTANTS

1.8 1.78

Total Baseline Cost 29.5 33.3 33.03 100.08

Physical Contingencies 0.4

0.00 0.00

Price Contingencies 1.5

0.00 0.00

Total Project Costs 31.4 33.03 100.08 PPF Reimbursement 3.9 0.00 0.00 Front-end fee IBRD 0.0 0.00 0.00

Total Financing Required 31.4 33.03 100.08

Note: * Restructuring in 2003

(b) Financing

Source of Funds Type of Cofinancing

Appraisal Estimate

(USD millions)

Actual/Latest Estimate

(USD millions)

Percentage of Appraisal

Borrower 1.00 0.00 .00 International Development Association (IDA)

26.00 0.00 .00

Local Sources of Borrowing Country 2.00 1.5429 76.83 FOREIGN SOURCES (UNIDENTIFIED)

2.40 0.00 0.00

Annex 2. Outputs by Component

29 Local sources borrowing include: (i) Government exemptions for companies benefiting from the EFF, (ii) own resources invested by the entrepreneurs benefiting from the EFF, (iii) fixed assets representing the counterpart funds of the entrepreneurs benefiting from the EFF.

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Component 1 Building Partnerships and Private Participation

A1. Telecom Sector

History and evolution During the last two decades the Telecom sector in Guinea-Bissau has been going through some important changes. The most relevant, before the PRDSP was declared operative, was the partnership in 1989 between Guinetelecom and Portugal Telecom with the objective to promote private investments and improvements in the quality, and access, to telecom services. In the light of the radical changes influencing the telecom sector, during the late 90s, the Government started negotiating with Guinetelcom, and its partner PT, possibility to restrict the exclusivity condition consistently with a world-wide process of liberalization in the telecom sector. In 1999 a new regulatory framework was approved that amended the basic telecom law, the regime of access to the gateway, revised the status of the ICGB, and defined the sectoral objectives for the telecom sector. This process of reforms was interrupted by the conflict and, in 2001-2002 a new round of negotiations restarted with the objective of modifying the conditions of the concession contract of Guinetelecom. During this period the World Bank, through the PPF started providing technical assistance in this process of negotiations with the objectives of guaranteeing the respect of private investors’ right, on one side, and supporting the process of liberalization of the sector at the moment far behind the Sub-Saharan average in terms of quality and access to telecom services. In 2003 the Government decided to unilaterally rescind the concession contract and a new contract was signed in 2004. The latter limited the monopoly of Guinetelecom, granted two new licenses to Guinetel (owned by Guinetelecom and PT), Spacetel (company owned by the MTN group). A third license contract would be granted in 2007 to Sonatel (Societé Nationale des Telecommunications du Sénégal – which is 43% owned by France Telecom). In 2005 the process of liberalization of the telecom sector was reinforced by the declaration of the Government will to liberalize the telecom sector by promoting competition and investment within a transparent and fair legal framework. The 2005 also signed the termination of the exclusivity over the international gateway of Guinetelecom. Since 2007 the PRDSP has been supporting the reinforcement of the technical and regulatory capacity of the telecom authority (ICGB), and at the same time the process to improve the legal and regulatory framework in line with CEDEAO and UEMOA directives. As a result a set of legal documents including laws, decrees and regulations has been prepared (see list below)

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Telecom Status What is needed before it becomes applicable

Lei de Base das Telecomunicações

Approved by Council of Ministers (April 2008) and approved by the National Assembly (March 2010)

Promulgation by President and publication in the official bulletin

Decreto Relativo à Regulamentação de Fiscalização, Sanções e Resolução de Conflitos

Approved by Council of Ministers on April 18, 2008

Promulgation by President and publication in the official bulletin.

Decreto Relativo à Interligação



Decreto relativo à Regulamentação de Oferta de Redes e Serviços de Telecomunicações



Regulamento de Procedimento da Consulta Pública



Decreto de Criação da Agência de Regulação Multisectorial

Draft prepared Approval by Council of Ministers. Promulgation by President and publication in the official bulletin.

Achievements The results of this liberalization have been remarkable with the number of cel-phone users exploding from zero in 2002 to about 350,000-400,00030 with Guinea-Bissau getting at the same level of other Sub-Saharan countries in terms of cell phone subscriptions.

Mobile cellular subscriptions (per 100 people) 2002 2003 2004 2005 2006 2007

Sub-Saharan Africa 3.559767 5.004887 7.339898 11.98698 17.55132 22.97554

Guinea-Bissau 0 0.084899 2.54691 6.18844 9.561059 17.47986

Source: WDI, World Bank

Similarly remarkable are the results in terms of costs reduction and consequent welfare gains for consumers, particularly marked has been the reduction of prices of international call after the elimination of the international gateway, the prices of international calls felt from 1200 CFAF per minute in 2004 to about 150 CFAF per minute in 2009 . (See table below for information on the evolution of price basket for mobile calls in Guinea-Bissau). One adverse outcome of the explosion of the cell subscriptions is the reduction in the number of subscribers of landline which, coupled with mismanagement and lack of investments, has

30 There are some difficulties with exactly quantifying the number of users because the available number of contracts (SIM cards) is an upper bound of the number of user in a context where users often tend to carry multiple SIM cards and use one or the other depending on the time of the day/tariffs.

32

generated a very difficult situation for Guinetelecom that is today unable to pay the wages of its workforce nor able to find resources for the required for its revitalization, as a matter of fact the company is in financial distress with its revenues unable to cover its operative costs and provide a service of adequate quality.

Price basket for mobile service (US$ per month) 2004 2005 2006 2007

Sub-Saharan Africa 13.52256 12.2945 12.275 11.56379

Guinea-Bissau 21.92722 21.93 11.28592

S WDI Source: WDI, World Bank

Present weaknesses and future agenda Despite the remarkable improvements (especially when compared with the extremely poor initial situation) it is important to underline that the reform agenda and the evolution of the telecom sector is still an unfinished agenda. First, it is crucial that the legal package prepared during the last 3 years is approved in order to provide the required regulatory framework for a sector that has evolved substantially during the last years. Second, related to the previous point, it is crucial to transform the ICGB into a truly independent body and provide it with the adequate human, technical and financial resources. Often, in the past the ICGB has been influenced by political changes as proved by the fact that its president has been changed on average once per year. The new telecom law, pending its approval in the Parliament over the next Assembly session (February-March 2010) grants ICGB the needed independence and a system where its president and high-level technicians are recruited based on their competencies through a public process. The situation of Guinetelecom is very difficult and negatively affects the whole sector, starting from the diffusion of internet services. It is crucial to review the options available weighting the interests of all stakeholders, in particular the consumers in Guinea-Bissau. Finally, a special review of the elements affecting the expansion of ICT services in general, and internet in particular, should be done with the objective of identifying the policies needed to promote a sector that is crucial for the overall competitiveness of Guinea-Bissau. Section 3.2 of this ICR contains a detailed description of the outputs and outcomes by components. The description is included in the text to facilitate reading of the report given the diversity of activities included in the project. This Annex includes data to support the discussion in the text. In addition a brief summary of developments in the port, an activity which was dropped from the project at the mid-term review is also given in this annex.

33

A.3 Port of Bissau

Background.

Since 1999, the port of Bissau has been managed by the public-sector Port Authority of GB (APGB). For the last 11 years, APGB’s results have been disappointing since it has been unable to deal with the most urgent issues that have continuously impacted the port’s operations. These include:

1. the removal of ship wrecks along the port access channel; 2. the removal of a sunken ship at an important berth; 3. the regular dredging of the port and access channels to allow large vessels to

service the port; 4. the significant reduction in the number port employees of 2006, APGB had

accrued unfunded pension liabilities of some CFAF 700 million and was adding another US$35,000 or so monthly to that liability.

5. the repair or replacement of most hauling, loading and related equipment; and APGB’s inability to deal with these important problems is partially attributable to financial problems as it does not control the use of port revenues. The Project was unable to support needed reforms in part because there was a disagreement with a concessionaire which has not been resolved as expected. Following the signing of the Portugal-Guinea Bissau investment treaty in 1991, TERTIR, a Portuguese company, and Guinea-Bissau (GB) signed a 15-year concession contract for the management and operation of the port of Bissau. By the terms of this contract, the concession was then assigned to GUIPORT, a joint venture between TERTIR and GB, with TERTIR the major shareholder. Following allegations by GB of breaches of the concession contract on the part of GUIPORT, GB rescinded the contract in 1999. Following a long procedure involving both the GB courts and an International Arbitration panel, the dispute remains unresolved.

The Project. Under the project it was envisaged that the Bank would support the reform of the port, assist in attracting private investment and help fund technical assistance for the formulation and implementation of appropriate legal and regulatory reforms. An assessment of the port’s competitiveness was to have been undertaken, with the identification of priority investment needs, as part of a port sector master plan study financed under Part A: 1. (d) of the Project. In addition, under the same sub-component, a monitoring system was to have been created to improve the performance of customs and port operations through the provision of technical assistance, training and equipment for the customs office. None of these goals, was achieved under the Project. From the outset, the working assumption was that the private sector should be involved in port operations, whether as the manager, lessee or owner of all port assets. Project teams note that the Bank gave at least verbal encouragement to the stated GB desire to resolve the dispute quickly on an amicable basis since it was generally accepted that eventual expressions of interest from competent private operators would inevitably prove few unless a settlement with TERTIR could be arrived at first. However, by mid-term review in 2005, no serious settlement

34

effort had been initiated to settle the TERTIR dispute, and the component was dropped from the project. Following the mid-term review, the Bank made several informal proposals to government to help find solutions to the concession issue but these did not result in a solution to the outstanding problems. In 2007, with support from a World Bank-managed PPIAF financing, a highly-qualified Portuguese law firm was retained to work with the GB Government counterparts in preparing a proposed PPP law covering such matters as (a) how to select a private contractor; (b) what to do with unsolicited bids, (c) the respective obligations of the private contractor and of the State; and (d) what must be included in any PPP contract. Under the World Bank Legal Vice-Presidency supervision, draft legislation was ready for review by the Government early in 2008 and, following workshops in Guinea-Bissau attended by senior government officials including relevant Ministers, the draft Law on Public-Private Partnerships was finalized in October 2008. This law is based on best international practice, as well as the recommendations of the United Nations on Public Procurement and Public-Private Partnerships, while taking into consideration the special circumstances of Guinea-Bissau. On 3 April 2009, the Guinea-Bissau government announced the approval of this Law by the Council of Ministers. To allow for the implementation of PPP projects in Guinea-Bissau, the government has announced its commitment to overhaul it administrative legislation dealing with domestic public tenders. In the meantime, the PPP law awaits promulgation by the President.

B. Divestiture and outsourcing

Privatization Component

Below a detailed list of the privatized companies, the year of privatization, their operative status (i.e. the company is operative or not?), and their status in terms of the privatization process.

35

GUINEA-BISSAU: PUBLIC COMPANY PRIVATISATION, LQUIDATION and

RESTRUCTURING

PRIVATISATION, LIQUIDATION, RESTRUCTURING PORTFOLIO

N. YEAR

OPERATIVE STATUS

COMPANY NAME

CURRENT STATUS

NEW PRIVATE OWNER

INDUSTRY STATUS AT COMPLETION

1 2006 Yes Semapesca Privatised Afripêche Lda Fishing Privatised

2 2008 No Complexo Frigorifico de Bolola Bolola

Privatised InvestmentCompany Lda

Fishing, Privatised

3 2007 No Pescarte de Bubaque

Privatised Mokato Bijagós Lda Fishing Privatised

4 2005/8

No Pescarte de Cacheu

Renunciation of the Contract

SGPI Group Fishing To be relaunched

Waiting for government decision

5 No Rodofluvial On hold Sea transportn

Decision

6 2005 Yes Pesca Semi-industrial

Restructuring ongoing

Fishing Waiting for govemment decision

7 2005 No Estrela do Mar

Asset evaluation ongoimg

Fishing Reprivatisation ongoing

8 2005 No Navipesca Liquidated Fishing Liquidated

9 2005 Fretamar Liquidated Fishing Liquidated

10

2005 No Bissau Hotel Privatised Libia Hotels Hotels and Tourism

Privatised

11

2007 Yes Hotel 24 de Setembro

Privatised Azalai Group Hotels and Tourism

Privatised

12

2008 No Estancia Balnear de Bubaque

Contract signed

Investcom Sagaz Lda Hotels and Tourism

13

2007 Yes Complexo Hoteleiro Ilha de Maio

Privatised Arezky Hotel Group Hotels and Tourism

Privatised

14

No Montagem de Veículos Nhaé

Liquidated Car assembly Liquidated

15

2005 Yes Socotram Privatised Djaby e Filhos Wood processing Privatised

16

2005 Yes Maca Privatised Balcar Lda Wood processing Privatised

17

2005 No Gemsa Liquidated Wood processing Liquidated

18

2006 Yes Fábrica de Bandas de Bolama

Liquidated Licaju Lda Cashew processing

Liquidated

36

19

2006 Yes Fábrica de Compota Titina Sila

Liquidated Licaju Lda Fruit processing Privatised

20

2005 No Socaju Liquidated Cashew processinq

Liquidated

21 2005 Yes Guinave Privatised Arezkv Construction Group

Shipyard Privatised

22 2006 Yes Guimetal Privatised Ecoma Group Metalomechanic Privatised

23 2006 No Ometal Bafata

Contract no siqned

Ecoma Group Metalomechanic Privatization to be relaunched

24 2005 Yes Cerâmica de Bafata

Privatised

Belinca Group Construction Privatised

25 Yes Sociedade Algodoeira de Guiné-Bissau

Contract to be siqned

Berruto Giovani Group

Cotton Advanced stage

26 2007 No Guiné-Bissau Airlmess

Contract to be negotiated

Aviation Corporation Airlines transportation

Advanced stage

27 2005 No Silo Diata Liquidated Bus Transportation

Liquidated

28 No Transter Instalation ocupied by army

Bus Transportation

Waiting for government decision

29 2006 No Banco Internacional de Guiné-Bissau (BIGB)

Liquidation ongoing

Banking Advanced stage

30 Yes Folbi Liquidated Wood processing Privatised

31 No Fabrica de Espuma

Liquidated Household furniture

Liquidated

32 2005 Yes Fábrica de Plástico

Liquidated Plastics Liquidated

33 No Fábrica de Leite Blufo

Liquidated Milk Liquidated

34 Yes CICER Privatised ABC Butle Company Beer and Softdrink

Privatised

35 Yes Armazéns de Povo

Liquidated Food Liquidated

36 No Centro de manutenção de Veiculo (CMV)

Liquidated Automobile repairshop

Liquidated

37 Yes DICOL Privatised CLC-GB Fuel storage terminal

Privatised

Yes GUINEGAS Privatised Petromar Gas storage terminal

Privatised

37

Below a table with details of companies still public, for these companies the privatization process has to be re-launched.

REMAINING PUBLIC COMPANIES ON THE PRIVATIZATION AND LIQUIDATION PORTFOLIO

No Complexo Industrial de Cumere (CAIC)

to be relaunched Food processing

2005 No Silos de Xíme (CAIC)


No Silos de Gabu (CAIC)


No Cerâmica de Pluba

to be relaunched Housing construction

No Complexo Hoteleiro de Varela

to be relaunched Hotels and Tourism

2007 No Guialp to be relaunched Fishing

No Pescarte de Biombo

to be relaunched Fishing

Finally, below a list of companies under restructuring for which privatization has not been decided yet.

STRATEGIC PUBLIC COMPANIES UNDER RESTRUCTURING PORTFOLIO

Yes Guinetelecom Restructuring ongoing

Jointventures Capital Telecomunication

Yes Guinetel Restructuring ongoing

Jointventures Capital Telecomunication

Yes EAGB Restructuring ongoing

100% State Ownership

Electricíty&Water

ENAFUR Restructuring ongoing


Waterwels drilling

Yes GUIPORT Restructuring ongoing


Port terminal

Yes RDN Restructuring ongoing


Media

Yes TGB Restructuring ongoing


Media

Yes ANG Restructuring ongoing


Media

Yes Jornal Nopincha Restructuring ongoing

100% State Ownershíp Media

38

C. Equity Financing Facility

Summary: Main issues and lessons learned This note summarizes the findings of the ICR team during a field visit where it met with the local staff charged with the component as well as with beneficiary institutions. This was a very innovative sub-component and it has been reviewed with particular attention because it was a pilot initiative potentially replicable in the future. Eleven projects were financed and a total of CFAF 750,482,892 disbursed from the project under the EFF component. These funds mobilized investments, financed by either by the firms’ own resources or by bank credits, amounting to 397,229,936 CFAF (for a detailed breakdown of investments see Table 3 below).31

The results of the EFF are summarized below the original target of 15 projects financed and 400 jobs created were not met. Furthermore, among the 11 financed projects:

Three projects (Mabi, Dias y Dias, Suinave) are not operational yet and two of them (Mabi and Dias y Dias) are considered high risk in terms of their implementation32

One project (Chez Ami) is a micro investment and a small restaurant with less than 7 employees

One (SGD Lenox) is a gas station with only 12 employees

Nevertheless it is important to underscore some very successful investments such as the one in Agripeche, a privatized fisheries company today completely renovated and with the potential of becoming a successful exporter, the investment in Ascon, a large construction company well structured and active in Guinea Bissau and in the region. Guerauto proved a successful investment and helped to transform a small mechanic workshop into a well-respected mechanic company able to supply larger organizations (i.e. embassies, UN) and NGOs. Lessons learned Interviews with most of the companies financed through the EFF and the two managers of the fund point to the following lessons. EFF was a good idea in a post-conflict context. There is little doubt that in a post-conflict context, such as that of Guinea-Bissau, where companies have been badly affected by the conflict and lost a large part of their assets an equity fund is a very promising idea and can make an important difference. The principal reasons why such an intervention can be appropriate in this context are two. First, because of the war, potential entrepreneurial capacities are idle. Second, the firms’ lack of assets usable as collateral, coupled with an underdeveloped financial system, reduces the chances of existing entrepreneurs to recover leaving the private sector in a low equilibrium.

31 For a list of the companies visited see annex 1 32 See “Relatorio Final de Execucao do Fundo Compatricipacao Pos Conflito”

39

The instability and cost of doing business hampered the success of the fund. When evaluating the results of the EFF it is important to bear in mind two key variables that negatively affected any investment returns: first the extremely high instability and consequent high risk, second the high cost of doing business and scarcity of complementary inputs (i.e. electricity). These two factors contributed to drastically reduce any private investment returns and therefore raised the bar for the EFF to be absorbed by the private sector and complement private investments. The initial condition of 50 percent cash as counterpart funds was problematic. When initially launched the fund had as condition for disbursement that the entrepreneur had to make available counterpart (50 percent) in cash. This was contentious point because entrepreneurs did not have the required liquidity and were not able to raise the funds from local banks. Eventually this requirement was relaxed and the beneficiaries were able to put upfront 25 percent cash and the remaining 25 percent in assets. This change increased the flexibility of the EFF and allowed more companies to become eligible. Need for creating partnerships with banks. One clear lesson learned is that in a post-conflict context it is unlikely that entrepreneurs have cash in hand out of existing profits because of the capital losses undergone during the conflict. Furthermore, it may be difficult for entrepreneurs to deal one by one with commercial banks. In this context a partnership of the EFF with local (or international) banks may prove successful as it would help to generate businesses for the banks as well as help unlock access to EFF funds. Complementing equity with debt is a usual strategy in venture capital type interventions Procurement rules could be streamlined. One of the important lessons for operations of the project refers to the procurement rules. In the case of the EFF it was agreed that the beneficiary companies would have followed the same procurement rules of the WB which imply that for any acquisition three pro forma invoices are presented and no payment can be done before the good is delivered. This proved complex and costly in a context where local market is very thin (and in certain cases is hard to find three potential suppliers) and for the acquisition of machineries when often an account is required by the suppliers. The criteria of focusing only on existing firms proved too restrictive. For being eligible a company had to be either already existing or damaged during the conflict or be a privatized company.33 For instance, if an entrepreneur had a company that was destroyed during the conflict but wanted to start a new business this would not be eligible. Similarly, start-ups were not eligible under the EFF. Such criteria reduced the pool of potential investments and proved, with hindsight, too restrictive. It is possible that investing in start-ups may require a different screening but it is also important to note that in a post-conflict context even existing firms are akin to a start-up in a normal context.

Evaluation of impact

33 The possibility of making startups as eligible was discussed during preparation but was excluded especially because of the opinion of IFC that this would have crowded out other type of financial instruments to support startups.

40

Based on the field visits and the discussions with various stakeholders (in particular the companies that benefited under the EFF) we can highlight the impact of the fund investments. However, it is important to note the problems with this evaluation. First, there are no baseline data that we can use to track improvements over the period. Second, we have no information on counterfactual or firms similar to the ones financed that did not receive any support. Third, several of the companies that benefited from the EFF did not start their operations. Fourth, this is an extremely small sample so our conclusions are much more alike to a case study than to a rigorous impact evaluation. Nevertheless we can highlight four main results. 1. Positive impact on investment: this is a clear impact as the EFF support not only generated direct investments but allowed various companies to access external financial resources such as Banks. In particular, overall for each dollar of the EFF the entrepreneurs were able to access and invest $0.5 dollars from financial institutions (this varies from company to company). It is hard to assess the question of additionality or “would have the companies invested anyway if the EFF was not there? “Based on the interviews this is unlikely for most companies given their poor capitalization. Overall we can conclude that the EFF stimulated directly investments of an amount equivalent to CFAF 397,229,936 CFAF (close to US$800,000)

2. Positive impact on production capacities and scale of production. We found that some of the companies were completely non operative and others were operating at a much lower scale before the support of the EFF. Examples of this situation are LENOX, GUERAUTO, GUIMETAL and SOAPEC. Therefore it is evident that the EFF had a positive impact on production capacities and scale of production.

3. Unclear impact on employment. For those companies that were non operative before the support of the EFF and became operational after, it is clear the funds had a positive impact on job creation. However this was not necessarily the case for existing companies and the impact on employment was certainly below the target objective of 400 new jobs created.

4. Very high administrative costs. Having discussed the benefits of the fund it is also important to outline the costs of this intervention, in particular the administration costs. These costs proved to be very high in particular as a percentage of the total investments done. If we sum up operating costs, consultants services and audits, training and workshops and purchased goods this is equal to about 327 millions CFAF, which reaches about 43% of the total investments done (CFAF 752 million).

41

ICR Mission: List of companies visited

Name of company Activity Visited on

Lenox Distribution of gasoline 19 October 2009 Guerauto Mechanic work 19 October 2009 Guimetal Metal products 20 October 2009 Stenaks Production and distribution of

electricity 20 October 2009

Ascon Construction company 20 October 2009 Mabi Production of construction

materials (bricks) 21 October 2009

Suinave Production of eggs and chicken 22 October 2009 Afripeche Fish processing 22 October 2009 Soapec Production of paints 22 October 2009 Note: Dias & Dias could not be visited because it is still under construction/rehabilitation, and Chez Ami was not visited given the small relevance of this investment

42

EFF – Disbursements (CFAF millions)

Projects 2005 2006 2007 2008 2009 TOTAL

002 CHEZ AMY 0 5.4 0 0 0 5.4

003 MABI ltda. 0 0 35.0 12.6 18.1 65.5

004 GUERAUTO 0 0 39.5 2.7 0 42.2

005 SGD LENOX 0 0 50.1 45.1 1.3 96.5

006 SOAPEC 0 0 95.0 3.8 0 98.8

007 AFRIPECHE 0 0 1.8 94.1 0 95.9

008 ASCON 0 0 93.5 1.5 0 94.9

009 GUIMETAL 0 0 34.2 26.2 2.3 62.7

010 SUINAVE 0 0 0 93.4 0 93.4

011 DIAS&DIAS 0 0 0 0 85.3 85.2

012 STENAKS TRADING 0 0 0 0 9.4 9.4

Total 0 5.4 349.0 279.6 116.4 750.5

43

EEF: Detailed breakdown of investments (CFAF millions)

BENEFICIARIES COUNTERPART FUNDS GOVERNMENT RESOURCESOwn resources

(cash) Fixed assets Bank funds EEF FundsGovernmentexemptions

TOTAL BYPROJECT

CHEZ AMY

MABI Ltda.

GUERAUTO

SGD LENOX

SOAPEC

AFRIPECHE

ASCON

GUIMETAL

SUINAVE

DIAS& DIAS

STENAKSTRADING

TOTAL

44

Component 2: Improving the Investment Climate

A. Legal Reforms Outcomes The project’s legal reform component aimed to make GB’s legal and judicial system more secure, predictable and responsive, especially in respect of the creation of businesses, private sector investments and business contracts. components were loosely defined at appraisal and the specific activities to be carried out were spelled out in the DCA. These activities are summarized in the paragraphs that follow. Harmonizing GB’s business laws with its OHADA Uniform Acts, as well as drafting additional laws to support private sector investment

By March 2007, an omnibus law was prepared with Project-funded TA amending and repealing, as appropriate, existing legislation to bring it in line with the eight OHADA Uniform Laws. In addition, recommendations were made for the up-dating of colonial laws which were still in force. The same legal consultants led two, three-day workshops in Bissau for lawyers, judges, law professors and students to explain their work. The task of reviewing and analyzing the experts’ recommendations fell to GB’s OHADA National Commission which met infrequently. It took eleven months before the various relevant statutes were reviewed and approved by the Council of Ministers in February 2008. These have not been enacted yet (see list of laws and regulations drafted with the support of the project and not yet enacted). In addition the Government employed with Project financing, legal experts to assist in the drafting of a Land Law, an Investment Code, amendments to the Privatization Law and laws and decrees regarding the Telecommunications Laws and decrees were available for approval by the Council of Ministers in May 2007 for approval by the council of Ministers and subsequent approval of the Parliament. To the date only the Invesmtent code has been approved by the Assebly and enacted by the President (on December 2009). Developing a legal information system, including the translation of OHADA laws, creating a computerized database, posting laws and regulations on GB web sites, and strengthening GB’s Official Gazette

The translation of OHADA laws: The eight OHADA Uniform Laws in force in Guinea-Bissau were translated and some 100 copies of the relevant Official Gazettes with these translations were printed and made available. The initial publication and dissemination of the eight OHADA Uniform Laws in Portuguese was necessary for the harmonization work referred to above, as well as for any general understanding in Government and GB’s private sector of the various provisions of these laws Creation of a computerized legal database. Efforts to establish a legal information system faltered within the Ministry of Justice. The need for such a system remains acute,

45

as the cost of obtaining hard-copies and copying all the laws in force in Guinea-Bissau is high. In 2007, without Project support, the Faculty of Law of Bissau published an index of the titles of all laws enacted in Guinea-Bissau between 1975 and 2005 which lay the ground-work for a subsequent computerized database to be housed at the Faculty. In March 2008, the Faculty put forth proposals to the PIU for databases on colonial and modern legislation to be carried out mostly by local consultants however at this stage the resources allocated to the legal component had been virtually exhausted and this project could not be financed. Posting of all laws and regulations on one or more GB web sites and strengthening of the Official Gazette. The Ministry of Justice successfully initiated its website which can be viewed at www.mj-gb.org. Not all legislation is included in the website at this time..Project assistance consisted of the purchase of computer equipment for the office of the Official Gazette which was helpful in its production, among other things, of copies, in Portuguese, of all OHADA Uniform Laws. Strengthening enterprise registration, including the official commercial notary and the commercial registrar

The PAD specifically spells out the computerization of the commercial registries. By Mid-term Review in 2005, Project-funded computerization was well underway in the commercial registry housed in the Ministry of Justice building in Bissau. The Project also funded the purchase of computers for the office of the commercial notary in the Ministry of Justice, which is the sole notary in the country and has acted as a monopoly, as well as computer-training for officials in both the commercial registry and the notary’s offices. There were physical problems in building legal capacity due to the lack of reliable electric power, as the Ministry of Justice had no back-up generator, with the result that the officials were only able to operate computers and air conditioners on a sporadic basis. In 2006, the Project financed the purchase and installation of a back-up generator at the Ministry. With a view to the eventual harmonization of the commercial registry and the notary services with OHADA requirements, a Project-financed study was completed in December 2005 by a competitively selected firm in Dakar which was eventually disseminated in Portuguese. Also, with encouragement from World Bank missions, a series of Ministers of Justice considered privatizing the notary service maintained as a public service. A Ministerial decree to privatize the only notary service in the country was prepared for the Justice Minister’s signature in 2006, although it has not been promulgated. Despite the intentions expressed, all recent Ministers of Justice have, in the end, been persuaded that preventing the loss of income generated for the Ministry by the existing notary service is a priority. Developing modern code of conduct for judges; court case management, and judicial performance standards and evaluation systems; developing an alternative dispute resolution system for commercial cases

46

Code of conduct, case management and evaluation system. No progress was achieved in these areas. Alternative Dispute Resolution (ADR) for commercial cases. The component was not clearly defined at appraisal and there were no interlocutors which could have facilitated the discussion during supervision. GB’s two Chambers of Commerce appeared interested in promoting a jointly owned Commercial Arbitration Centre in Bissau but disagreements between these Chambers delayed making a Center operational. In l March 2007 a joint commission established by the two Chambers (CCIA and CACI) put in place the beginnings of an organizational structure for a “Commercial Arbitration, Mediation and Conciliation Center”. For some time thereafter, controversy surrounded the contract of appointment of the Center’s Permanent Secretary who was to be in charge of the Center’s day-to-day operations. The initial Permanent Secretary’s contract expired in May 2008 when it became necessary to find a replacement. These disputes have not been solved yet and the Centre lays non operative. In the latter half of 2007, a Brazilian legal consultant funded under the project carried out initial training of fifteen potential arbitrators from the ranks of volunteer lawyers, law faculty teachers and judges in Bissau. The consultant also provided a useful 77-page Report assessing ADR possibilities in Guinea-Bissau, as well as helpful power point slides on Arbitration in Guinea-Bissau. By Project completion, however, there had been no effective follow-up in terms of further training. A preliminary public awareness campaign was prepared in 2007 to inform the public of the existence of the Center and how its services were going to be offered, the Centre had undertaken only 1 of these successfully concluded by October 2010 and 2 have been reviewed but still pending resolution. Diagnostic Analysis of the Judicial System. At the suggestion of the Government, IDA agreed to the use of Project funds to carry out a thorough diagnostic analysis of the judicial system. Completed in a preliminary version in December 2007 by a team led by a respected Bissau lawyer, this analysis has highlighted a wide range of issues that Guinea-Bissau must address in the short-, medium- and long-term in order to establish a legal and judicial system which is well understood, applied and enforced objectively, predictably and transparently. Also with Project funding, a two-day workshop was organized in mid-March 2008 for representatives of the Supreme Court, appellate court, trial courts, and the legal profession, as well as the Ministry of Justice to discuss the study.

Refurbishment of the Commercial Court of Bissau. At the request of the Government, IDA funded under the Credit the refurbishing of existing government premises for Bissau’s first Commercial Court Although the 2002 Law on the Courts( Law No. 3/2002 of 20 November 2002) established a Commercial Court, no such court was then operational. Also, by the latter half of the Project period, the Government had made clear its intention to transfer and consolidate all commercial registry functions to this new Court, as well to transfer the office of the notary to this same Court. The initial stages of the civil works were completed in December 2007. Secondly, the Project-funded training

47

of four GB judges in Dakar in the substantive texts of the OHADA Uniform Laws and in commercial matters more generally was completed in August 2007. Required equipment was provided although training of court administrative personnel has not been completed.

Training of Judges. The Project funded a Government organized three-day program of judicial ethics and good governance attended by judges and legal professionals in Bissau in 2005. In addition, the Project sponsored a course in Bissau on the Rule of Law and legal and judicial ethics in October 2006. This latter program was led by four Portuguese judges and attracted over 100 judges and lawyers each day for 11 days of seminars and training. Other courses which would have been helpful, such as general administration, substantive business and procedural law, and case management, the writing of judgments were not carried out. Training under the subcomponent was focused on the training of four judges to become the initial judges of GB’s new Commercial Court. In August 2006, these four judges began four months of intensive legal French language immersion in Dakar, Senegal immediately prior to receiving general judicial, as well as commercial law, training, including in respect of the OHADA Uniform Laws and matters of commercial procedure. Training of Court Personnel. It was agreed in early 2008 that urgent short-term legal and administrative training be undertaken as soon as possible in Dakar on a staggered basis for all court clerks (greffiers) employed in the new Commercial Court. This was an important step to make the commercial tribunal operative, unfortunately at this late stage the resources allocated under this sub-component were exhausted and this activity could not be completed. Education and training programs for legal professionals, law teachers an students on business laws and regulations

Project-funded books were received in mid-2007. In addition, the Project funded the preparation of two booklets; on OHADA simplified recovery procedures and execution measures, and on OHADA secured interests. The Project funded the cost of classes in basic French in the latter half of 2006 (21 individuals from the Bissau Law School, 13 from the GB Bar Association, 13 from GB's Supreme Court, 10 from GB's Ministry of Justice and 3 from GB's OHADA National Commission). Attendance was less than anticipated and the course was cut short; the same was true of locally-based French language training at the French Cultural Center with sessions in September and December 2007 for some 15 judges, lawyers and law students each. The Project financed a television program devoted to OHADA in September 2006. Although was not possible to ascertain the extent of the viewing public nor was a survey undertaken. Although the project unit proposed other public information campaigns, these were never approved by the successive ministers of justice.

48

LIST OF LAWS AND REGULATIONS PREPARED UNDER THE PROJECT

DOCUMENTS STATUS PENDING STEPSINFRA-ESTRUTURASTelecomLei de Base das Telecomunicações Approved by Council of Ministers on

April 18, 2008. Approved by theNational Assembly on March 2010.

Promulgation by Presidentand publication in theofficial bulletin.

Decreto Relativo à Regulamentação de Fiscalização,Sanções e Resolução de Conflitos

Approved by Council of Ministers onApril 18, 2008


Decreto Relativo à Interligação Approved by Council of Ministers onApril 18, 2008


Decreto relativo à Regulamentação de Oferta de Redes eServiços de Telecomunicações



Regulamento de Procedimento da Consulta Pública Approved by Council of Ministers onApril 18, 2008


Decreto de Criação da Agência de RegulaçãoMultisectorial

Draft prepared Approval by Council ofMinisters, promulgation byPresident and publication inthe official bulletin.

Por tosProtocolo de Acordo entre o Governo da Guiné-Bissau ea TERTIR, S.A.


49

REFORMA LEGALRegime Jurídico do Transporte Rodoviário Nacional deMercadorias



Lei da Arbitragem Voluntária Approved by Council of Ministers onApril 2, 2009


Reforma do Regime Jurídico relativo aos ProcessosSimplificados de Cobrança e de Execução



Regime Jurídico dos Processos Colectivos deApuramento do Passivo



Reforma do regime Jurídico relativo às Garantias dasObrigações



Agrupamento de Interesse Económico – Lei n.º X Approved by Council of Ministers onApril 2, 2009


Lei de Aprovação do Código das Sociedades Comerciais Approved by Council of Ministers onApril 2, 2009


Lei sobre o Notariado Draft prepared Approval by Council ofMinisters, promulgation byPresident and publication inthe official bulletin.

Código Civil, Código de Processo Civil e CódigoComercial

Drafts prepared Approval by Council ofMinisters, promulgation byPresident and publication in

50

theofficial bulletin.

PRIVATIZAÇÕESRevisão do Decreto-lei Quadro das privatizações n.º5/92 de 10 de Agosto


Decreto de Liquidação da companhia Guiné-BissauAirlines


Decreto de Privatização da participação do Estado naSociedade Algodoeira


Revisão da Legislação dos Órgãos de ComunicaçãoSocial

Approved by Council of Ministers Promulgation by Presidentand publication in theofficial bulletin.

Lei da Parceria Público Privada Approved by Council of Ministers onApril 2, 2009


AMBIENTE DE NEGÓCIOSRegulamento Geral da Lei daTerra Approved by Council of Ministers Revision required, after

revision requires anewapproval by theCouncil ofMinisters, promulgation byPresident and publication intheofficial bulletin.

Código de Investimento Approved by Council of Ministers on Promulgation by President

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September 18, 2008 and publication in theofficial bulletin.

Regulamento Geral do Código de Investimento Draft prepared Approval by Council ofMinisters, promulgation byPresident and publication inthe official bulletin.

Código do Trabalho Draft prepared Approval by Council ofMinisters, promulgation byPresident and publication inthe official bulletin.

52

Annex to Appendix 1: Political Instability

53

Annex 3. Economic and Financial Analysis (including assumptions in the analysis) The original economic analysis could not be replicated because some of the assumptions done during the preparation could not be tracked clearly, for example the “assumed” productivity gains deriving from the reforms of the investment climate and legal reforms. Similarly, the assumptions done with respect to the retrenched workers could not be verified because data were not collected and could not be collected during the ICR. For this reason the efficiency analysis focuses on those components for which it was possible to obtain detailed data: (a) privatization, (b) EFF, (c) telecom. (a) Privatization: The final cost of the privatization component was 6.838 million US dollars. For this component we can clearly identified three types of benefits. First, the fiscal revenues for the Government which, based on data available for some of the privatized/liquidated, companies amount to close to 6 million US dollars. Second, the privatization of these companies attracted some fresh investments and, even if data could only be obtained for the two hotels privatized and the fishery company Afripeche, these investments alone are in the order of 5 million US dollars. Third, before the privatization most of these companies were fundamentally paralyzed and the revenues extremely low if not zero. After the privatization, and the new investments, the companies restarted their operations; unfortunately data on their revenues could not be collected. Concluding, for the privatization component, a very conservative estimate of its benefits can be put at around 11 million US dollars. N G R R US

C F B FCFA I M FCFA

MACA USD S USD

P B FCFA E B B FCFA

C B FCFA H S FCFA

G USD B H USD G USD

TN E CFA

(b) The total cost of the EFF, both the administration costs and the value of the grants, is equal to 2.342 million US dollars. In order to calculate the benefits of this sub-component during the ICR mission data on sales were collected for some of the companies (data were obtained only from 3 companies, namely Guerauto, Afripeche and Guimetal – with the respect to other operating companies data could not be obtained from Ascon, SGD

54

Lenox and Stenaks34). Comparing pre-grant sales and post-grant sales, if we make the assumption that the entire35 increase in sales is due to the EFF grant (which obviously over-estimates the impact of the grant), we obtain that the net benefits of the EFF are equal to 731 thousands US dollar. Two key reasons are behind this result. First, only few of the companies benefiting from the EFF are currently operative. Second, the administration costs of the EFF have been particularly high.

CFA USSS

FF

B

C

USN IC EFF C EFF O

(c) Telecom: Overall the total cost for the component “infrastructure reform”, which included telecom sub-components among others, is 4.566 million US dollars. With respect to the benefits we can identify four set of benefits. First, government revenues from the license fees equal to 9 million US dollars. Second, investments done by the companies that had obtained the licenses in the order of 30 million US dollars36. Third, the company revenues during the entire period are equivalent to 111 million US dollars37. Fourth, consumers benefits due to the price reduction. The latter are quantified in the following manner. Based on the data available from WDI the price basket for mobile service in Guinea-Bissau dropped by 50% between 2005 and 200738. Additionally based on studies for other developing countries we assume that the share of household expenditures for communication costs is around 3 percent (around 10 dollars per year for individuals with

34 The lack of information on sales from these companies is negatively biasing the calculation of the benefits from the EFF. 35 It is impossible to correctly estimate what would have been the value of sales without the EFF, not surprisingly the companies were unable to provide this information, nor baseline data on similar companies, not benefiting from the EFF, were collected. 36 These are not official figures but could be obtained during interviews with the CEOs respectively of MTN and Guinetel. Unfortunately the CEO of Sonatel could not be interviewed which leaves some uncertainty on the exact figures. 37 Just in 2009 the total revenues for the three companies were equivalent to 39 million US dollars. This implies, assuming a number of users equal to 350,000, expenditures in the order of 112 dollars per user/year. 38 This is certainly a lower bound in terms of phone call costs as the costs of international calls dropped by 90 percent.

55

average income per capita) this is equivalent, in a static model, to about 1.5 percent the income per capita (about 5 dollars), which, for an estimated number of 300,000 consumers, is equivalent to 1.5 million US dollars per year. Only focusing on 3 years, 2007-2009, this would be equivalent to 4.5 million US dollars (nominal current values) in terms consumer benefits. Summing up, a rather conservative back on the envelop estimate suggest that the overall benefits of the telecom liberalization are in the order of about 154 million US dollars.

Telecom Prices (Mobile Services)

Price basket for mobile service (US$ per month) 2004 2005 2006 2007

Sub-Saharan Africa 13.52256 12.2945 12.275 11.56379

Guinea-Bissau 21.92722 21.93 11.28592

Source: WDI

Overall the rate of return of the project is extremely high as it is fundamentally driven by the returns to the telecom sub-component. The EFF has a negative rate of returns, and the privatization dose have a positive and high rate of return (see table below)

CB

NR

CB

NR

CB

NR

CB

NR

EFF

T

P

O

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Project costs

P C C D USD

A I R 4,566,948

A P D O 6,838,594

A EFF G P A 2,342,196

A W E PMRI 6,642,559

B L R 1,804,368

B B E 1,843,190

C PIU 7,211,319

D R O D E C PDRRI 1,782,246

TOTAL COSTS 33,031,420

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Annex 4. Bank Lending and Implementation Support/Supervision Processes

(a) Task Team members

Names Title Unit Responsibility/ Specialty

Lending

Supervision/ICR Lorenzo Bertolini Sr Private Sector Development AFTFWTelecom, PPP Eduardo Brito Sr Counsel LEGAFLegal Laurent Mehdi Brito Procurement Specialist AFTPCProcurement Bourama Diaite Senior Procurement Specialist AFTPCProcurement Eric G. Haythorne Consultant QAG Legal and port Leonardo Iacovone Young Professional YPP ICR author Sidonie Jocktane Executive Assistant AFMGAAdministrative Luz Meza-Bartrina Sr Counsel LEGAFLegal Pierre A. Pozzo di Borgo Lead Transport Specialist AFTTRPort and aviation

Osval Rocha Andrade RomaoFinancial Management Specialis AFTFMFinancial Management

Robert G. Stephens Consultant LCSTRTelecom Cheick Traore Senior Procurement Specialist AFTPCProcurement Dorothy Judkins Program Assistant (Temporary) AFTFE Administrative

(b) Staff Time and Cost Staff Time and Cost (Bank Budget Only)

Stage of Project Cycle No. of staff weeks USD Thousands (including

travel and consultant costs)Lending

FY91 82.29 FY92 23.91 FY93 64.28 FY94 2.06 FY95 50.34 FY96 34.34 FY97 25.08 FY98 139.96 FY99 19.98 FY00 4 12.24 FY01 20 80.31 FY02 22 100.75 FY03 0.00 FY04 0.00 FY05 0.00 FY06 0.00

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FY07 0.00 FY08 0.00

Total: 46 635.54 Supervision/ICR

FY91 0.00 FY92 0.00 FY93 0.00 FY94 0.00 FY95 0.00 FY96 0.00 FY97 0.00 FY98 0.00 FY99 0.00 FY00 0.00 FY01 0.00 FY02 1 7.22 FY03 27 114.39 FY04 25 82.84 FY05 22 99.19 FY06 20 100.53 FY07 18 105.67 FY08 15 74.62 FY09 9 0.00

Total: 137 584.46

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Annex 5. Beneficiary Survey Results (if any) N/A

60

Annex 6. Stakeholder Workshop Report and Results (if any) N/A

61

Annex 7. Summary of Borrower’s ICR and/or Comments on Draft ICR An audio-conference was organized on March 17, 2010 with Bissau in order to obtain comments of the Borrower on the Draft ICR. The participants in Bissau included: Carmen Pereira (World Bank), Filomena Miranda (former PIU), Ema Dias (former PIU), Gilmar Danif (former PIU), Amarildo Correia (former PIU), Fortes Injai (Ministry of Economy), Cherno Jalo (Ministry of Justice) In Washington D.C: Leonardo Iacovone (World Bank). The meeting generated a very rich discussion and the comments of the Borrower can be summarized as follows.

1. It was recognized that the ICR is well developed and clearly described the achievements and shortcomings of the project

2. The project was indeed considered very ambitious but it was emphasized that it is important to contextualize it. In 2002, the country was in a situation where needs were many and the project addressed key complementary areas to support the development of private sector.

3. It was recognized that the project did not satisfactorily achieve the objective of uplifting the private sector in Guinea-Bissau as hoped at the outset of this project.

4. It was underscored that in a context where resources are limited it is very important to be strategic and proactive in terms of concentrating the limited resources on those sub-components that work better. This is especially important in ambitious projects that span across multiple sectors and components such as the PSRDP

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Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders N/A

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Annex 9. List of Supporting Documents

EIU (various years). Country Profile, 2001,2002,2003,2004,2005,2006,2007,2008 EIU (2009). Country Reports, January, April, July PIU (various years). Yearly Reports of Activities and Results PIU (2009). EFF Final Report of Activities, September 2009 World Bank (2002). Project Appraisal Document, February 2002 World Bank (2009). Interim Strategy Note for the Republic of Guinea-Bissau for the Period FY09-FY10, May 2009 World Bank (2009). Guinea-Bissau Diagnostic Trade Integration Study for the Enhanced Integrated Framework for Trade-related Technical Assistance, May 2009 World Bank (2009). Guinea-Bissau Investment Climate Policy Note, October 2009 World Bank (various years). Aide Memoires World Bank (various years). ISRs