public disclosure authorized - world...

Document o f The World Bank

FOR OFFICIAL USE ONLY

Report No: 38814 - CV

PROJECT PAPER

ON A

PROPOSED ADDITIONAL FINANCING CREDIT

IN THE AMOUNT OF SDR 2 MILLION (US$3 MILLION EQUIVALENT)

TO THE

REPUBLIC OF CAPE VERDE

FOR THE

GROWTH AND COMPETITIVENESS PROJECT

June 7,2007

Finance and Private Sector Department Country Department AFCFl Afkica Region

This document has a restricted distribution and may be used by recipients only in the performance o f their official duties. I ts contents may not otherwise be disclosed without Wor ld Bank authorization.

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CURRENCY EQUIVALENTS

A A C A N A C

AP ARE ARFA

A T M B C V BOT CAS C I D C A ENAPOR

F A I M O

FIAS FMR GDP GTRBAI

G&CP I C T I N C V IDA INPS

(Exchange Rate Effective M a y 22,2007)

Current Unit = Cape Verde Escudos (Esc)

U S $ 1= Esc 82.018

FISCAL YEAR January 1 - December 31

ABBREVIATIONS AND ACRONYMS

Agencia de Aviaqio Civil (Civi l Aviation Agency) Agencia Nacional de Communicaqoes (National Agency for Communications) Administrlio Pziblico (Public Administration) Agencia de Regulaqio Econdmica (Agency for Economic Regulation) Agkncia de Regulaqio e Supewislio de Produtos Farmaceuticos e Alimentares (Food and Pharmaceuticals Regulatory Agency) Automated Teller Machine Banco de Cabo Verde (Cape Verde Central Bank) Build, Operate and Transfer Country Assistance Strategy Cabo Verde Investimentos (Cape Verde Investment Agency) Development Credit Agreement Empresa Nacional de Administraqio de Portos (Port Management

Frentes da Alta Intensidada da Mi0 de Obra (labor intensive work

Foreign Investment Advisory Services Financial Monitoring Report Gross Domestic Product Grupo de Trabalho para a Reduqao das Barreiras Administrativas ao Investimento (Working Group for the Reduction in Administrative B a m ers) Growth and Competitiveness Project Information and Communication Technology Imprensa Nacional do Cabo Verde (National Printing Office) International Development Association Instituto Nacional de Previdencia Social (National Social Security Institution)

Company)

program)

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FOR OFFICIAL USE ONLY

ISDS KPI M C C MDG MFPA MGF M o J MSRA NOSi

NPL PAD PAGE

P C U PDO POS PRCBP PRSP PSI SME SOE T A C V VAT W T O

Integrated Safeguards Data Sheet Key Performance Indicator Millennium Challenge Corporation Millennium Development Goal Ministry o f Finance and Public Administration Matching Grant Facility Ministry o f Justice Multi-Sector Regulatory Agency Nucleo Operacional Para a Sociedade de Inforrnaqa"o (Government Department responsible for information technology) Non-performing Loans Project Appraisal Document Plano de Ac~a"o para a Governap?o Electrdnica (E-Governance Action Plan) Project Coordination Unit Project Development Objective Point o f Sale Machine Privatization and Regulatory Capacity Building Project Poverty Reduction Strategy Paper Program Support to Institutions Small and Medium-Size Enterprise Statement o f Expense Transportes Ae'reos de Cab0 Verde (National airline) Value-added Tax World Trade Organization

Vice President: Obiageli K. Ezekwesili Country Director: Madani M. Tal l

Task Team Leader: Sherri Archondo Act ing Sector Manager: Dileep Wagle

This document has a restricted distribution and may be used by recipients only in the performance o f their off icial duties. I t s contents may not be otherwise disclosed without Wor ld Bank authorization.


GROWTH AND COMPETITIVENESS PROJECT ADDITIONAL FINANCING

TABLE OF CONTENTS

Page

A . INTRODUCTION ......................................................................................................... 6

B . BACKGROUND AND RATIONALE FOR ADDITIONAL FINANCING ................ 6

C . PROPOSED CHANGES ............................................................................................... 9

D . CONSISTENCY WITH THE CAS ............................................................................. 10

E . APPRAISAL OF ADDITIONAL ACTIVITIES ......................................................... 11

F . EXPECTED OUTCOMES .......................................................................................... 11

G . BENEFITS AND R I S K S ............................................................................................. 12

H . TERMS AND CONDITIONS FOR ADDITIONAL FINANCING ........................... 13

TECHNICAL ANNEX ............................................................................................................ 14

ANNEX I : TIMETABLE OF KEY PROCESSING EVENTS AND STAFF INVOLVED .. 18

ANNEX 11: DETAILED REVIEW OF ORIGINAL PROJECT PERFORMANCE .............. 19

ANNEX 111: THE MATCHING GRANT FACILITY SUCCESS STORIES ........................ 26

ANNEX IV: DETAILED PROJECT COSTS ........................................................................ 28

ANNEX V: MONITORING INDICATORS .......................................................................... 29

IBRD MAP 33383 ................................................................................................................... 33

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GROWTH AND COMPETITIVENESS PROJECT ADDITIONAL FINANCING

PROJECT PAPER DATA SHEET

Date: June 7,2007 Country: Republic o f Cape Verde Project Name: Growth and Competitiveness Project Project ID: P103329 Borrower: Government o f Cape Verde

Team Leader: Sherri Archondo Acting Sector Manager: Dileep Wagle Director: Madani M. Tall Environmental Category: C

Current Closing Date: February 28,2008

been revised.

[ 3 Loan [XI Credit [ ]Grant [ ]Guarantee [ 3 Other:

For Loans/Credits/Others: Total Bank financing (US$m.): 3.00 Proposed terms: Standard Credit terms o f IDA, with ,a maturity o f 40 years including a grace period o f ten years

P - Financing Plan (US$m)

Source 1 Local I Foreign I Total BORROWER/RECIPIENT/BENEFICIARIES 0.79 I 0.79

Borrower: Government o f Cape Verde Responsible Agency: Ministry o f the Economy, Growth and Competitiveness Project Coordination Unit (PCU) Contact Person : Mr. Rui Santos, Project Coordinator Tel: (238) 2614 748 Email: Coordeiiudor@ zIc'P.gov. CI' - P

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A. INTRODUCTION

1. This Project Paper seeks the approval o f the Executive Directors to provide Additional Financing in an amount o f SDR 2 mi l l ion (US$3 mi l l ion equivalent) to the Republic o f Cape Verde for the Growth and Competitiveness Project (G&CP, Cr. 3755- CV). The proposed Additional Financing would help finance the costs associated with: (i) consultant services to prepare the privatization o f Transportes Ae‘reos de Cabo Verde (TACV, the national airline) and Empresa Nacional de Administrapi‘o de Portos (ENAPOR, the port management company); (ii) consultant services to establish a Data Center for the E-Government initiative (Casu do CidadGo, Citizen’s House); (iii) scaling- up o f the Matching Grant Facility (MGF) which provides direct support to the national private sector, particularly small and medium-size enterprises (SMEs); (iv) financing the program to digitalize the Off icial Gazette database; and (v) financing the partial liabilities incurred by Government to the Instituto Nacional de Previdencia Social (INPS, the National Social Security Institute).

2. N o changes are being proposed to the project development objective (PDO) or to i t s general design underlying objectives or implementation modalities. The Additional Financing wil l support priority activities that have advanced beyond what was initially envisioned and are pivotal to the Government’s economic reform agenda. Support for the additional and scaled-up activities wil l enhance the project’s impact and development effectiveness.

3. The proposed Credit wi l l be executed as a Specific Investment Loan. Although there were init ial ly no co-financing arrangements, the Mil lennium Challenge Corporation (MCC) approved, on July 4, 2005, a grant program totaling U S $ l l O mi l l ion equivalent for infrastructure development o f the port and road sectors, technical assistance to support Cape Verde’s growth and competitiveness agenda and rural development activities. The M C C program complements and works closely with the current project.

B. BACKGROUND AND RATIONALE FOR ADDITIONAL FINANCING

4. The original Development Credit Agreement (DCA) in the amount o f SDR 8.5 mi l l ion (US$11.5 mi l l ion equivalent) was presented to the World Bank Board o f Directors on M a y 13, 2003, and became effective on October 31, 2003. The closing date i s February 28, 2008. As o f M a y 22, 2007, 73 percent o f the original Credit had been disbursed.

Original Credit.

5. Original Project Objective. The original PDO as stated in the Project Appraisal Document (PAD) and in the original D C A is to broaden the base o f private participation in Cape Verde’s economic growth and enhance private sector competitiveness, as wel l as further develop i t s financial sector. The project consists o f two main components: (a) Modernizing, Strengthening and Restructuring the Financial Sector, and (b) Enhancing Private Sector Competitiveness. The intermediate outcomes (on the level o f these components) wil l be achieved through a series o f actions (or sub-components) supported

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by the project, notably: (a) financial sector reform, including pension reform; (b) investment climate reform, including, but not limited to: (i) tax reform; (ii) alleviation o f administrative barriers; (iii) improved supply chains; and (iv) legal reform; (c) post- privatization and divestiture reforms; and (d) private sector and institutional capacity building.

6. Project Performance. The project has a well-balanced approach to improving private sector development, the engine o f growth, through the actions noted in paragraph four. Project implementation was upgraded to “highly satisfactory” and meeting the PDO i s also considered “highly satisfactory”. These ratings are justified by the fact that Government and Project beneficiaries have already exceeded certain project completion expectations and are extrapolating from project-generated reforms to proceed to the next stage o f a growth agenda. In addition, project management has substantially improved with the development o f an excel-based system which integrates project activities with project procurement processes and financial management. This managerial process provides a more structured relationship with beneficiaries and enables a more meaningful dialogue to improve project implementation.

7. Project Achievements. There have been several notable achievements resulting from the project which are described in detail in Annex 11. The f i rst i s a substantial deepening o f the financial sector, creating increased access to financial services through new financial instruments. For example: (i) Automatic Teller Machines (ATM) and Point o f Sale (POS) Machines are available on al l o f the islands, which include debit and credit card transactions; (ii) E-banking and payment transfers have evolved; (iii) the public and private social security schemes have merged, enabling greater efficiencies in social security in the future and encouraging an increase in the availability o f long-term resources needed for investment; and (iv) accountability in the social pension system has improved with the introduction o f identification cards.

8. Other important achievements stems from the Government’s actions to reduce administrative barriers, to improve the business environment and reduce opportunities for fraud and corruption. In addition, the E-Government initiative is an ambitious effort to improve the Government systems using Information and Communications Technology (ICT). This initiative strives to change the public service mentality to better serve the private citizen and improve Cape Verde’s business climate. The initiative has been adapted to the needs o f the private sector and c iv i l society and the results are already visible to the average citizen. Some examples include: (a) reduction in time to complete notary transactions; (b) reduction in time to register and license businesses; (c) greater transparency in tax collection; and (d) improved fiscal management. The fruits o f these efforts are already being seen in the recent growth o f tourism and real estate development with more than US$SOO mi l l ion investment already underway on the island o f SAL.

9. The MGF (see Annex I11 for details) has helped more than 100 local businesses to improve their productivity and efficiency, enabling them to become more competitive. The MGF was also instrumental in providing support to private businesses during the introduction o f the value-added tax (VAT), which necessitated the upgrading o f financial management systems.

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10. During the past decade, the Government has undertaken an ambitious privatization program. Although i t has performed unevenly, there have been many success stories because the private sector stood ready to fill the vacuum created by the privatization. As a result, some sectors experienced increased efficiencies which resulted in lower costs to the public (the bus company and the telecommunication company are just two examples).

11. Strategic Direction. Two high level Steering Committees, which wil l remain in place for the duration o f the project, provide the strategic direction for project activities and reforms. The first Steering Committee i s chaired joint ly by the Minister o f Finance and Public Administration and the Minister o f the Economy Growth and Competitiveness. I t i s comprised o f high-level government officials and private sector representatives. In addition to overall strategic direction and ministerial coordination, i t provides oversight o f the project by monitoring project implementation on a quarterly basis, including work programs and budgets. The second Steering Committee i s co- chaired by the Minister o f Finance and Public Administration and the Minister o f Labor and i s comprised o f various ministries and representatives o f the private sector. It is responsible for the strategic direction o f pension reform, including the recent merger o f the two pension schemes (Administraqao Publico and INPS). For the past two years, the Committee has also been supported by an internationally recruited pension specialist, who provides on and off-site support, including technical advice and training.

12. Compliance with jduc iary , procurement and environmental safeguards has been satisfactory. The original project has an environmental category o f “C” and the proposed new activities wi l l not change this. An updated Integrated Safeguards Data Sheet (ISDS) was disclosed at the World Bank’s InfoShop in March 2007. All audits have been carried out in a timely manner and are unqualified. A procurement assessment made during the M a y 2007 supervision mission determined that project beneficiaries fol low World Bank Guidelines. The Government is fully committed to the project and has complied with al l covenants specified in the DCA. The P C U has established an acceptable accounting and reporting system for the project that i t wil l also apply to the Additional Financing.

13. Rationale for the Additional Financing. Cape Verde is a good performer and Government has a proven track record o f taking difficult decisions to successfully implement i t s economic reform program. The Additional Financing, which i s in compliance with OP/BP 13.20, wil l support the government’s efforts to advance i t s reforms, which started under the original project. The project’s activities which have contributed to the initial achievements and outcomes have been pivotal in improving Cape Verde’s competitiveness and ease o f doing business, as well as improving transparency in the judicial system. These programs have been applauded and Cape Verde’s experience is being shared in developing countries world-wide. I t i s anticipated that their impact wil l result in an increase in the country’s ranking in the annual “Doing Business” report. The highly satisfactory performance o f the project was instrumental in Cape Verde’s efforts to secure M C C funding for the development o f port and road infrastructure, as wel l as for a growth and competitiveness component.

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14. Given the current rate o f implementation, there wil l be insufficient funds to finish and/or scale up well-deserved activities. Almost 73 percent o f the funds have already been disbursed. IDA has successfully supported the Government’s previous efforts in these areas covered by the project through pol icy dialogue and various technical assistance projects. IDA’S support through the Additional Financing wil l further help the Government to implement key policies and carry out capacity building activities, which are essential to the country’s macroeconomic stability and sustainable development.

C. PROPOSED CHANGES

15. The proposed Additional Financing as described in paragraph 16 supports the original PDO and will finance the activities in three areas. These include: (a) ongoing activities that lack sufficient funds to complete; (b) scaling up three activities which have had a positive impact on the economy and should continue or advance to the next stage o f implementation; and (c) payment o f liabilities incurred by Government during a transition period for c iv i l servants transferred to the private pension scheme from the Government’s pension scheme. The payment o f these liabilities had been agreed between INPS and Government during the initial project appraisal and included in the original PAD, but was inadvertently dropped from the DCA.

16. Financing Credit:

In detail, the fol lowing activities wil l be carried out through the Additional

(a) Ongoing activities that lack sufficient funds to complete:

Completion o f ongoing consultant services to prepare T A C V and ENAPOR for privatization. Only residual activities had been foreseen in the init ial project design. As this activity had not begun under the previous project as anticipated the current project i s not sufficient to fully finance the requisite contracts.

(b) Scaling up three activities which have had a positive impact on the economy and should continue or advance to the next stage o f implementation:

(i) Implementation o f requisite consultant services and purchase o f equipment to establish a Data Center that will house the information technology systems for the E- Government initiative. This activity supports Government’s ongoing efforts to improve the investment climate by alleviating administrative barriers thereby reducing the time and cost o f starting a business.

(ii) Participation o f an increased number o f enterprises in the MGF, enabling them to purchase technical assistance and training services on a cost-sharing basis. The MGF has demonstrated a positive effect on national private sector enterprises, particularly the SMEs, both in terms o f increased productivity and revenues.

(iii) Extension o f the program to digitalize legislation published in the Official Gazette prior to August 2006. The digitalization o f legislation published after August 2006 was completed under the initial project. The Additional Financing thus supports Government’s ongoing efforts to improve transparency and good governance, in

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particular by improving the legal environment for business through the dissemination o f legal information. I t wi l l give users access to al l legislation published and to selective searches for a particular piece o f legislation, or legislation regarding a particular subject.

Activity IDA

(c) Payment o f liabilities incurred by Government during a transition period for c iv i l servants transferred to the private pension scheme from the Government’s pension scheme

Beneficiaries Total

17. The above activities wil l be implemented using the same institutional framework and the same procurement and disbursement arrangements as the original project. Activities financed under the Additional Financing are expected to be completed by June 30, 2009. Therefore the Closing Date o f the Additional Financing has been extended to December 3 1 , 2009 and an amendment to the D C A o f the Original Credit wi l l be made to enable both credits to close on the same date. The financing plan for the Additional Financing i s presented in the Table below and also in Annex IV. The total cost, based on actualized unit costs, i s estimated at US$3.79 million, o f which IDA financing o f US$3.0 mi l l ion i s proposed. The beneficiaries’ contribution is estimated at US$790,000 million, representing about 21 percent o f the total project costs. Retroactive financing for activities under the MGF up to an aggregate amount o f SDR 200 000 equivalent may be made for payments in respect o f Eligible Expenditures made June 1, 2007. This wil l enable the Government to start the implementation o f this component without any delays.

I b. Studies and Equipment to support the creation o f a Data Center

d. Matching grant for institutional support to Chambers o f Commerce e. Digitalizing Off ic ia l Gazette

c. Marching grant to beneficiaries

0.50 0.03 .53

0.50 0.50 1 .oo 0.20 0.20 0.40

0.50 0.02 .52

I I I I a. Consultant Services (TACV and ENAPOR) I 0.40 1 0 I 0.40 I

f. INPS debt repayment g. Operating costs

0.50 0 0.50 0.40 0.04 0.44

I Total costs I 3.00 I 0.79 I 3.79 I

D. CONSISTENCY WITH THE CAS

18. The current Country Assistance Strategy (CAS) covers the four-year period from FY05 to FY08. I t sets out planned lending and non-lending activities o f the World Bank Group in support o f Cape Verde’s Poverty Reduction Strategy Paper (PRSP). Their intended results are in l ine with the country’s Mi l lennium Development Goals (MDG).

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The proposed Additional Financing wil l help implement: (a) the first pillar o f the CAS, i.e. ensuring macroeconomic stability and sound public finance and budget systems by supporting the development o f an appropriate investment climate through simplified Government procedures; and (b) the second pillar, i.e. supporting private-sector-led growth through an enhanced investment climate and increased competitiveness through public-private partnerships in infrastructure by seeking to: (i) broaden the base o f private participation in Cape Verde’s economic growth; (ii) enhance private sector competitiveness; (iii) hrther develop the financial sector; and (iv) strengthen the legal system. As requested by Government, a new CAS covering FY08-11 i s under preparation and would further re-orient IDA support towards the shared growth agenda. The Additional Financing i s also in line with the thrust o f the proposed new CAS.

E. APPRAISAL OF ADDITIONAL ACTIVITIES

19. Although additional activities have been included, the project remains as originally designed and appraised. These activities, a l l o f which began under the original project, had been discussed in detail during the mid-term review in M a y 2006 and the supervision mission in November 2006, and they are reflected in the respective aide mkmoires. The economic, financial, technical, institutional, fiduciary, environmental and social aspects o f the activities to be undertaken with the Additional Financing remain the same as in the original project.

F. EXPECTED OUTCOMES

20. enhance the impact o f the original development objectives. monitored wil l cover the following (included in Annex 11):

The proposed activities as described in paragraph 16 above wil l strengthen and The indicators to be

(9

(ii)

(iii)

(iii)

(W

the Investment Memorandum for the privatization o f T A C V and ENAPOR have been advertised internationally and an offer has been launched;

the investment climate has improved (measured by a reduction in the cost o f starting a business, and by a percentage o f income per capita and the time (number o f days) to start a business (which has been) reduced by at least 10 percent);

those companies benefiting from the MGF have experienced an increase o f 5 percent in their efficiency as defined by the ratio o f operating costs over revenue generated;

al l legislation published by the Off icial Gazette prior to August 3 1,2006, has been made publicly available online; and

a reduction in Government liabilities by US$500,000.

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G. BENEFITS AND R I S K S

21. In December 2004, a United Nations General Assembly resolution announced that Cape Verde would graduate to middle income status in January 2008. With i t s graduation to a middle income country, Cape Verde’s development aid paradigm i s assumed to head in new directions. Consequently, Cape Verde faces structural challenges that imply a redefinition o f i t s growth model. The Additional Financing wil l support Cape Verde’s efforts to improve i t s external competitiveness and to ensure self- sustained growth by building i t s capacity to compete in a highly competitive global economy. This self-sustained growth should result in a reduction o f unemployment, poverty and dependence on external aid and remittances. The Government will undertake i t s growth strategy by: (a) promoting a favorable climate for the development o f the private sector (national and foreign); (b) strengthening i t s technical capacities through specialized training; and (c) developing infrastructure, such as power plants, (including renewable energy), ports, airports, roads, desalination plants, water distribution and sanitation, fish processing facilities and cooling systems for f i sh conservation, gas, fue l and jet fue l storage facilities.

Benefits.

22. Notwithstanding some delays in the current program, Cape Verde i s a good performer and has made substantial strides in i t s economic reform program. IDA has an opportunity to support a program which has been successful and merits continuation. These efforts wil l assist Government to ensure that the reforms are built upon a solid foundation and will be sustainable. The Additional Financing will aim to address the development o f public-private partnerships and thus improve Cape Verde’s competitiveness in the infrastructure sector. I t should be noted that port reform is linked with M C C financing for port infrastructure. Although Government and c iv i l society are already seeing results from the E-Government initiative, most benefits are yet to be harnessed, as different units in the public sector are learning to exploit the information generated by the new systems and redefine the way they do business. The next step is to establish the Data Center, which will be the “heart” o f the program. Continued funding to the private sector through the MGF will permit additional national entrepreneurs to gain further efficiencies and productivity to be able to compete in international markets. Technical assistance to the Ministry o f Justice (MoJ) and the Off icial Gazette to digitalize legal information wil l support Government’s continued efforts to improve transparency and good governance. Greater availability o f information wil l make a significant contribution towards easing the way business i s conducted, particularly in speeding up the business creation timeframe, and most importantly, in bringing pertinent legislation to al l citizens in an expeditious and efficient manner. Finally, pensions represent an important element o f the social safety net put in place by the Government. They also represent an important source for long-term resources for investment financing. Support to Government in its effort to create a sustainable pension scheme would encourage voluntary private funds to play a role in the overall system. Financial assistance to reduce the Government’s liabilities during this period wil l help sustain INPS’ financial position, while incurring additional costs associated with enhancing the required information infrastructure.

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23. Risks. The level o f risk associated with the Additional Financing is relatively low. The Government has already demonstrated i t s commitment to make difficult decisions to ensure a sustainable pension scheme. Likewise, concrete steps have been taken to modernize Government through the E-Government initiative and substantially improve i t s governance structure. The Chambers o f Commerce have demonstrated their commitment to bringing high-level services to i t s members, including executing the MGF in a transparent and equitable manner; they have also been instrumental in working with the commercial banks to create linkages between access to finance and support by the matching grant. A proposed partnership for creating a supplier credit database i s underway, including development o f the legal framework.

24. There is a moderate risk that Government will slow down the pace o f infrastructure reforms. Nevertheless, main divestiture actions related to the liquidation o f EMPA (public trading enterprise - import/export), A R C A Verde (shipping company) and TRANSCOR (municipal transport enterprise) have been completed. Government recognizes, however, that private sector involvement i s seen as key to relieving an over- extended Government that would increasingly play the role o f regulator and facilitator, and tackle remaining sector issues. There i s a new transport development strategy, which is part o f the growth agenda (making the ports a regional hub), and the Government has taken major steps towards preparing the two remaining large public institutions (TACV and ENAPOR) for privatization. Government is working with IDA and M C C in this area. The international consultants (one team for T A C V and another for ENAPOR) have already begun their work and have agreed with Government on an action plan, which i s already being implemented. A monitoring and evaluation system, including a task force, i s in place that would ensure that delays in reforms are identified and addressed promptly.

H. TERMS AND CONDITIONS FOR ADDITIONAL FINANCING

25. The Additional Financing o f US$3 mi l l ion equivalent wil l be provided as an IDA Credit on the same terms and conditions as the original credit. The Additional Financing wil l become effective when the original Project Implementation Manual has been amended in form and substance satisfactory to the Association.

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CAPE VERDE GROWTH AND COMPETITIVENESS PROJECT

ADDITIONAL FINANCING .......................

TECHNICAL ANNEX

1. Detailed description of the Additional Financing

Consultant Services for the Privatization of TACV and ENAPOR (IDA, US$400,000). This activity wil l support outstanding privatization and regulatory capacity building efforts that began under the Privatization and Regulation Capacity Building Project (PRCBP) and continued under the G&CP. The init ial budget o f US$1.3 mi l l ion was based on the assumption that the G&CP would only finance residual work. There had been significant delays in this program, however, and many o f these activities did not begin under PRCBP as envisioned. These activities are now on track. The consultants have been recruited and are already implementing the action plan. However, the initial budget envisioned in the G&CP is not adequate to meet the projected costs o f the two contracts which began under the original project.

Consultant Services to Establish the Data Center for E-Government Initiative (IDA, US$500,000). The framework o f E-Government in Cape Verde i s based on the strategy and plans laid out by the Global Strategy for Public Administration and State Institutions Electronic Capacity Building and the E-Governance Action Plan. Based on this strategy, a Data Center will house the equipment systems, databases and applications that wi l l govern and manage this E-Government initiative, including the transactions between the public institutions and the citizens.

The Data Center wi l l be located in an unused public administration building, which wil l undergo architectural and construction modifications to adequately house the systems and services. The Data Center project is estimated at over US$2,000,000, and the first phase wil l be funded with the Additional Financing. The Credit wil l finance the design o f an encompassing project that looks at a l l the aspects o f establishing such center including an architectural assessment o f the building as wel l as specifications o f al l requirements for the acquisition and installation o f a "safe room".

Scaling-up of the MGF (US$500,000) and Support to the Chambers of Commerce (IDA, US$200,000). Given its success (see Annex 111), the Additional Financing would provide additional funds to support the national private sector through a 50:50 matching- grant to purchase consultant services or find training and workshops. The approach and procedures to access the MGF will remain the same as those provided in the operational manual that had been agreed with IDA.

The two Chambers o f Commerce who represent the private sector, administer the MGF. In l ieu o f a fixed administration fee, they would also benefit from the credit to strengthen their capacity to deliver services to their members. The project would finance, as needed:

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(a) specialized technical assistance; (b) equipment; (c) training for the Chambers and their members; and (iv) dissemination o f business related-information that would: (i) widen the dialogue on business environment reforms; (ii) help to raise awareness among the business community as well as policynakers; and (iii) educate and build consensus among the concerned actors.

Support for Digitalization of the Official Gazette (IDA, US$500,000). I t is essential that business laws be more thoroughly disseminated among Cape Verde’s legal profession and the business community more generally. In this respect, the MoJ had, for some years, ensured public access to i t s online database o f al l Cape Verde’s laws and regulations, but access has been restricted solely to the MoJ following the intervention o f Nzicleo Operacional Para a Sociedade de Informa@io (NOSi, Government Department responsible for information technology) some 18 months ago. There has been very good collaboration between NOSi, the MoJ and the Off icial Gazette regarding the establishment o f a national legal information website which would be managed by a private sector concessionaire.

Imprensa Nacional do Cabo Verde (INCV, National Printing Office) i s charged, by law, with the exclusive responsibility to print and distribute the Off icial Gazette, which is the Government’s official medium for publishing the Republic o f Cape Verde’s normative acts. As part o f the E-Government initiative, I N C V has begun, o n an experimental basis, the digitalization process o f its Official Gazette paperback collection and publishing i t on the Internet. At the same time, i t has been publishing the new issues, from August 2006 on, directly on the Internet. The project i s estimated to cost around US$500,000. This effort dovetails with the overall E-Government effort, in particular with the Casu do Cidadio. Once the system i s operational i t will be possible, for example, to publish the statutes o f newly created enterprises, as required by law, directly to Internet. The database o f al l legislation published through the Off icial Gazette is searchable, thus making it possible for users to have rapid access to al l legislation published about a specific issue, or a particular piece o f legislation. The implication o f this wil l be important. I t wi l l make a significant contribution towards easing the way business i s conducted, particularly in speeding up the business creation timeframe, and, most importantly, in bringing pertinent legislation to al l citizens in an expeditious and efficient manner.

Payment of Partial Liabilities of INPS (IDA, US$500,000). During project preparation (in 2003), I N P S claimed that Government owed i t 2.6 bi l l ion escudos (approximately US$26 million) including interest and penalties. There were three sources o f arrears. First, when early retirement was used to shed excess labor during the privatization, the Government agreed to transfer funds to cover the incremental liability o f the INPS. Second, contributions for approximately 1,000 employees at institutes and decentralized entities have not been made to the INPS. The situation was made worse by the fact that the Government apparently deducted the eight percent contribution from the employee before making the budget transfer to these entities. Thus, the net wage o f the employee was reduced without any payment being made to the INPS account. Thirdly, for c iv i l servants who move to the private sector from the Government pension system, the law states that they wil l be credited with the same number o f years in the INPS as they would

15

have had in their previous scheme, and that the Government should make a transfer to cover this liability. The Government has since made substantial progress in pension reform and the payment o f these remaining liabilities wil l help INPS offset some o f the additional costs during the merger o f c iv i l servants into the private pension system which i s ongoing. There remains a shortfall, which had been initially expected to be filled by the project, but had been mistakenly dropped from the DCA.

Policies have already been put in place to assure regular payments to INPS. With the integration o f c iv i l servants into INPS, the Government designated that the fund budgeted for social contributions wil l go solely to INPS. This measure, which had been implemented in August 2006, has been efficient in ensuring regular monthly payments o f the social contributions.

Operating Costs (IDA, US$400,000). The project wil l continue to be implemented by the current P C U and overseen by a Steering Committee. Operating costs for the additional period wil l be funded with the Additional Financing.

2. Implementation Arrangements

Implementation arrangements wil l remain the same as for the original project. The project will, in substance, be implemented by the beneficiaries. The P C U wil l coordinate and monitor implementation o f the Additional Financing. The P C U will report to a Steering Committee, comprised o f high-level public and private sector professionals. The P C U wil l oversee the financial management, procurement, reporting, monitoring and evaluation, audit, public information and related functions, as well as manage several cross-cutting sector issues such as pensions.

Project implementation period. The closing date o f the original credit i s February 28, 2008. However, an extension o f the credit closing date to December 3 1 , 2009 would be justified to allow sufficient time to implement additional activities. The D C A for the original credit wil l be amended to reflect the new closing date in l ine with the additional financing.

Capacity of the Borrower to execute the project. The Borrower has performed satisfactorily under the original project. In fact, many o f the end-of-project key performance indicators have already been met and in some cases have been exceeded. This Additional Financing wil l enable the Borrower to take the reforms to the next level, which is important in the scope o f national priori ty actions. N o additional implementation capacity beyond what i s already in place i s required.

Procurement and Disbursement. Procurement procedures wil l follow the new Bank guidelines. The procurement section o f the original D C A wil l be amended to reflect the prior review thresholds as agreed during the previous procurement review and subsequently requested by Government. The P C U has prepared a comprehensive procurement plan, which covers the additional activities. According to this plan, al l activities should be completed before project closing on December 31, 2009. The

16

disbursement arrangements under the Additional Financing will remain the same as those under the original credit.

3. Accounting, financial reporting and auditing arrangements.

The following objectives o f the project’s financial management system remain the same for the Additional Financing. These objectives are to: (i) ensure that funds are used only for their intended purposes in an efficient and economical way while implementing agreed activities; (ii) enable the preparation o f financial reports that show costs budgeted and incurred for the current period and the total budget and cost o f the project to date; (iii) enable the P C U to monitor efficiently the implementation o f the project; and (iv) safeguard the project’s assets and resources.

Given that the project’s accounting and reporting system to date, including arrangements for audits, has been satisfactory overall, there i s no proposal to make changes in the implementation arrangements for the Additional Financing. An action plan was agreed during the supervision mission o f November 2006 to further strengthen financial management. I t was agreed that the financial management staff and the computerized financial management system in place should continue to be used to support implementation o f the additional activities. Particular attention wil l be paid to regular financial reporting, such as Financial Monitoring Reports (FMR). Special Account, Statement o f Expenses (SOEs) and annual accounts o f the P C U wil l continue to be subject to annual audits by private independent auditors. In addition, the new Anti- Corruption Guidelines wil l apply to the Additional Financing.

4. Environmental and social aspects

The proposed activities do not trigger any new safeguard policies or raise the environmental category o f the project. During appraisal, i t was confirmed that activities proposed under the Additional Financing are the same as were proposed in the original project (Category C). However, an updated Institutional Safeguards Data Sheet was disclosed at the World Bank InfoShop in March 2007.

17


ADDITIONAL FINANCING

Name Title

ANNEX I : TIMETABLE OF KEY PROCESSING EVENTS AND STAFF INVOLVED

Unit

I Negotiations

Sherri Archondo

Lorenzo Bertolini

I May21,2007

Sr. Operations Officer (Task Team Leader) AFTFS

Regional Program Leader (Dakar) P P W

Board Presentation I July 3,2007 I

Eric Haythorne

Pierre Pozzo di Borgo

I Date o f Planned Effectiveness

Lead Counsel LEGPS

Sr. Transport Specialist AFTTR

I August 13,2007

Aida der Hovanessian

Wilfred Bernard Drum

Bourama Diaite

Osval Romao

I Credit Closing

Country Manager, IFC (Dakar) cAFw3 Lead Private Sector Specialist (peer reviewer) AFTPS

Sr. Procurement Specialist AFTPC

Financial Management Specialist AFTFM

I December 3 1,2009

Suzanne Morris

Sidonie Jocktane

World Bank staf f who worked on the project included:

Sr. Finance Officer LOAG2

Program Assistant AFTPS

I Monserrat Pallares-Miralles I Social Protection Specialist I HDNSP I

I Luz Meza-Bartrina I Sr. Counsel I LEGAF I

18

ANNEX 11: DETAILED REVIEW OF ORIGINAL PROJECT PERFORMANCE

A comprehensive review was made o f the status o f the project implementation in December 2006. The results are the following:

1. Financial sector reform has achieved substantial success. The objective o f these reforms i s to strengthen Cape Verde’s financial sector by: (i) improving the quality o f the loan portfolios o f i t s commercial banks; (ii) increasing the availability o f foreign exchange in the country as a result o f a global payment system (Automated Teller Machines <ATM>, Point o f Sale Machines < P O D debt transactions and electronic credit card transactions; and (iii) strengthening the insurance sector to be able to provide long-term resources. Through the combined efforts o f the Government, Banco de Cabo Verde (BCV, the Central Bank o f Cape Verde), the commercial banks and the Chambers o f Commerce, substantial strengthening o f the financial system has occurred, available financial products have expanded and the financial market has significantly deepened.

2. Many o f the end-project K P I s have already been surpassed. The first financial sector KPI was that “commercial banks see a reduction in non- performing loans (NPL) to 8 percent o f their total portfolio by the mid-term review and 7 percent by end-project”. As a result o f improved supervision efforts by the B C V including at least one on-site visit, accelerated collection efforts and increased write-offs o f bad loans by commercial banks, the credit portfolio o f commercial banks has steadily improved. NPL dropped to 7.23 percent in 2004 and to 6.31 percent in 2005, surpassing the end-of-Project performance target o f 7 percent. In addition, al l banks are in compliance with prudential norms.

3. The second KPI i s that “it was anticipated that by mid-term review six o f Cape Verde’s nine populated islands would be linked with credit card and generate at least 950 transactions totaling US$8 mi l l ion equivalent”. As o f December 2006, all o f the islands have access to credit cards through the ATM or POS and more than 66,670 transactions have taken place totaling some US$10 mi l l ion equivalent. During the latter ha l f o f 2006, some 3,900 transactions totaling Euros 0.463 mi l l ion (approximately US$0.587 mi l l ion equivalent) have occurred, on average, each month. Government expanded the program to take a more strategic view o f the sector which includes strengthening the payment system, developing a credit risk system and re-launching the stock market which had not been part o f the World Bank-financed Project. Electronic banking is also becoming quite successfbl, as demonstrated by the measurable increase in the volume o f transactions through ATM and POS and has changed

19

the manner in which enterprises and private individuals operate within the financi a1 s ys tern.

4. I n the area of pension reform, the WI i s “to establish a sustainable pension system by: (i) gradually unifying the two existing systems; (ii) clearly defining criteria o f benefits for the labor-intensive work program; and (iii) implementing a series o f changes to the structure o f the INPS. Important social security reforms have been implemented during the last three years and have already reached end-project K P I s . Pension reform i s well underway and, by end- project, measures will be adopted to ensure the pension system i s likely to be sustainable. The integration o f the TNPS and AdministrGo Publico (AP, Public Administration) programs effectively started in August 2006. To date more than 11,000 workers have been transferred and/or integrated into INPS.

5. Criteria o f benefits for the labor-intensive work program have been clearly defined. Changes in parameters have been made to the structure o f the INPS. Some o f these reforms are aimed at combating extreme poverty and vulnerability o f older people, as i s the case o f the non-contributory pension scheme. Other reforms not only seek to guarantee the future sustainability o f the contributory pension scheme and the efficiency o f i t s management, but also intend to create options to make complementary savings for retirement.

6. The improvement o f the INPS information system i s one o f the important targets o f the pension reform program. This system was assessed in 2004 and is currently being upgraded with the support o f an international expert. To date, the system has seen the following improvements: (i) the INPS national intranet connection was reestablished; (ii) the databases located in different islands (Santiago, S. Vicente and Sal) were connected to the network; (iii) new servers were installed and system software (Windows NT) was updated; (iv) database servers were installed; (v) an Intranet was established; (vi) al l workstations were reconfigured; (vii) data backup systems were improved; (viii) technical specification o f a l l hardware to be acquired were set; and (ix) a proposal to increase bandwidth was made to allow the databases to be merged.

7. The Government’s public sector reform program for reduction of administrative barriers and improvement of public administration used FIAS (Foreign Investment Advisory Services) recommendations (study completed in early 2003) as a baseline took the program to the next level. The performance indicator is that “an action plan including measures for reducing administrative barriers wil l be adopted”. N o t only was an action plan adopted, but a large number o f measures with respect to customs, taxes and the way Government does business have been implemented or are on the verge o f being launched. In February 2005 the “Grupo de Trabalho para a Reduqao das Barreiras Administrativas ao Investimento (GTRBAI, the Working Group for the Reduction o f Administrative Barriers o f Investment) was created. This group i s led by the Prime Minister and includes representatives from al l o f the l ine ministries, BCV, Cabo Verde Investimentos (CI, Cape Verde Investment

20

Agency), ENAPOR, the Chambers o f Commerce and the PCU. Government converged a number o f red-tape reduction and public administration reforms into a comprehensive E-Government reform package. Cape Verde’s E- Government program wil l revolutionize the way Government and Cape Verde’s private sector interact.

8. The nucleus o f the public administration reform program revolves around the Casa do Cidad6o (Citizen’s House) spearheaded by the Nticleo Operacional Para a Sociedade de Informaq6o (NOSi, the Government Department responsible for information technology) and the Public Administration Reforms General Directorate. Government i s using I C T and i t s impact for creating an information society to promote sustainable development for Cape Verde. The program i s trying to change the c iv i l service administration from a “control” function to a “facilitation” function, making it more efficient and effective, more transparent, more participatory and less onerous. This system will: (i) help promote good governance, by improving the f low o f resources and reporting, thus minimizing possibilities for rent seeking; (ii) promote entrepreneurial capacity, competitiveness and growth by increasing the competitiveness o f the economy through ICTs and stimulating electronic commerce; and (iii) bring Government closer to the population. One o f the major expected outcomes i s that the number o f days to start a business and get a license wil l be substantially reduced.

9. Working in parallel with the E-Government initiative, the Government has implemented substantial tax and custom reforms to improve services and ensure timely delivery o f goods. In 2004, Cape Verde concluded the implementation o f the largest fiscal reform in i t s history. In January o f that year, both the Value Added Tax (VAT) and the Special Consumption Items Tax were introduced. The latter applies to items considered to be luxuries or which cause h a r m h l effects to health or to the environment. The International Monetary Fund’s (IMF) Fiscal Affairs Department carried out an init ial “Study on the Economic Impact o f the Fiscal Incentives”. This led to a compilation o f legislation relating to the incentive structure. Work i s now underway to prepare a new legislation for a “single incentives law”. This i s also an IMF condition for the Program Support to Institutions and should be enacted by mid-2007. Simultaneously, import fees and taxes were significantly modified and lowered.

10. At the same time, customs taxes were streamlined with the elimination o f various import taxes and fees. The new taxes led to an increase o f the fiscal base, while securing consistent revenue flows. Following upon these reforms, a new Customs Code has been submitted to Government for approval and publication. This wil l provide progressive liberalization o f import rules and procedures in compliance with the World Trade Organization (WTO) rules. Introduction o f customs software in February 2003 has enabled Customs to process cargo faster. While the recent Investment Climate Survey completed in June 2006 indicated that eight days, on average, are needed to get goods through customs, customs has recently upgraded its technology and introduced new

21

procedures to reduce delivery times o f cargo. Some improvements include, but are not limited to, additional offices being opened on the various islands so that the client does not have to travel to Mindelo or Praia, and the introduction o f container seals which means that merchandise in domestic transit no longer require customs' agents to physically accompany the containers to their final destination.

11. Regulations and procedures for the labor code have been adopted, and a draft arbitration legislation as an alternative means for commercial disputes has been completed. The new Labor Code was validated by the High Social Council (Conselho de ConcertaGtio Social), made up o f Line Ministers, Workers Unions and Business Representatives, in their December 2005 meeting. The new arbitration law and its accompanying regulations have been approved and workshops carried out to discuss the organizational structures, ru les and procedures. Nineteen arbitrator trainers have been trained. The arbitration centers wil l be physically located at the two Chambers o f Commerce; this space has already been allocated and equipment i s being purchased.

12. The post-privatization and regulatory reform has been much slower than anticipated but is advancing. Cape Verde has greatly benefited from economic liberalization and divestitures undertaken during the past decade. The main theme i s that while Government has adopted a broad policy framework, implementation in certain areas, especially when institutional building is needed, has been slower than expected, for example in the area o f economic regulation. Recognizing this, the Government has given it special attention since late 2003, and positive results are now being achieved. IDA'S assistance wil l further contribute through i t s analytical work, notably the infrastructure and investment climate studies, as well as through this investment operation.

13. Some o f the privatization and regulatory activities did not begin under PRCBP as envisioned. However, the reforms which are being funded are back on track and the program i s attaining results. A privatization impact study indicates that, since December 2005, gross revenues resulting from privatizations have amounted to E C V 254.110 mi l l ion (approximately US$3 million). Ne t revenues are in the order o f E C V 183.293 (approximately US$2.16 million), considering administrative costs, taxes paid on the sale o f assets in the United States, and some compensation paid to ex-workers as a result o f court settlements.

14. The K P I s are that: (a) a new telecom regulatory framework has been adopted; (b) at least one value added service has been developed; and (c) a draft strategy for private participation in infrastructure in relation to airport management, had been prepared. These indicators have been attained. A transport sector pol icy and strategy document was adopted in April 2005 which includes clear sector development goals. A new sector law for electronic communication was adopted in November 2005. The Government has taken steps to liberalize the telecom sector and a second mobile license was awarded

22

in 2005', as were two cable TV licenses. With respect to the airport, the airport i s under private sector management.

15. While progress on the privatization o f T A C V and ENAPOR has been slower than expected, the Government remains committed to BOT (build, operate and transfer) privatization. Financed by the project, the Government has recruited an international management team to prepare T A C V for privatization. The team has already started the streamlining process, including retrenchment o f staff working at the national airlines. With respect to the privatization o f ENAPOR, the Government is working with the IDA and the M C C to complete the process as quickly as feasible, as MCC's financing o f Port0 do Praia i s contingent upon the privatization o f ENAPOR.

16. Efforts are ongoing to develop effective regulatory rules and institutions in key sectors o f Cape Verde's economy such as telecommunications, transport, water and electricity. However, progress on this front has been uneven, with some important activities remaining behind schedule, but others advancing well. For example, the Agencia de Aviap7o Civil (AAC, C iv i l Aviation Agency), formally established in March 2005, has moved forward with the adoption o f regulatory instruments (e.g., with regard to air safety). A A C i s also actively engaged in negotiating bilateral agreements (e.g., with Ireland, and the UK) to f ir ther support the development o f the sector.

17. The newly established economic regulatory agency (ARE) i s now technically capable o f reviewing and adopting regulatory methodologies and making decisions; it i s now receiving regular contributions from the sector operators to support its operating costs. During 2005 and 2006, ARE took steps aimed at building a better understanding o f regulation by the public, as we l l as ensuring coordination with other sector institutions and operators.

18. However, considerable regulatory challenges remain to be met, for example regarding the regulation o f the electricity and water utility (this task i s being led by ARE), the liberalization o f the telecom sector (regulations in support o f the telecom liberalization pol icy are being developed by the Agencia Nacional de Communicacoes (ANAC, the National Agency for Communications), and the institutional start-up o f the regulatory agency for the oversight o f the food and pharmaceuticals sector ( M A ) .

19. The M o J has recently completed a painstakingly detailed definition o f a project for the modernization and automation o f al l o f Cape Verde's commercial, property and civ i l registries, as well as al l notarial finctions, including such essential related issues as document management, security, archiving, human resources and

Government's judicial reform is also well advanced.

' Award of the second telecom license was overturned by the Supreme Court of Cape Verde because it violated Government's agreement with CV-Telecom. Steps are being taken to renegotiate the contract.

23

quality control. Government recognizes the importance that business laws be thoroughly disseminated among Cape Verde’s legal profession and the business community. In this respect, the M o J had, for some years, ensured public access to i t s online database o f all o f Cape Verde laws and regulations, but access has been restricted solely to the M o J following the intervention o f NOSi some 18 months ago. There has been very good collaboration between NOSi, the M o J and the Off icial Gazette regarding the establishment o f a national legal information website to be managed by a private sector concessionaire.

20. The Imprensa Nacional do Cabo Verde (INCV, the National Printing Office o f Cape Verde) i s charged, by law, with the exclusive responsibility to print and distribute the Official Gazette, which i s the Government’s official medium to publish the Republic o f Cape Verde’s normative acts. As part o f the E-Government initiative, I N C V has begun, on an experimental basis, to digitalize the Off icial Gazette paperback collection and i s publishing it on the Internet. New issues (from August 2006) are now published directly on the Web (www.incv. gov.cv). This effort dovetails with the overall E-Government effort. Once the system i s established and operational, i t wil l be possible to publish, as required by law, directly to the Internet, the statutes o f enterprises created in one day through the Casu do Cidadgo. The database o f al l legislation published through the Off icial Gazette i s searchable, thus making it possible for users to have rapid access to al l legislation published about a specific issue, or about a particular piece o f legislation. This wil l make a significant contribution towards easing the way business i s conducted, particularly in speeding up the business creation timefi-ame, and most importantly, in bringing pertinent legislation to all citizens in an expeditious and efficient manner.

21. Support to the private sector, which includes a matching grant facility (MGF), is part o f a broader program o f pro-private sector reforms. The program supports private sector capacity building, on a 50-50 basis, and has been wel l utilized. This component, which is h l ly disbursed (US$950,000), has helped more than 100 Cape Verde enterprises improve their competitiveness by providing access to supporting services external to the firm and addressing the constraints in staff training. An impact study indicated that the program was successful and subsequent visits by World Bank staff, as part o f routine supervision missions to MGF recipients, confirmed the program’s achievements. Several enterprises (and Associations) have experienced the impact o f the efforts (taxi drivers getting English classes; tourist guides being trained for the f i rst time; institutional capacity strengthening in one company led to a US$40 mi l l ion investment). The results indicated that the funds are being managed in a transparent manner. The MGF has played an important role in creating jobs and has made an immediate economic impact on some o f the enterprises. In most cases, the MGF provided support to help the company “maintain its competitiveness” and not necessarily increase its rate o f return or employee count (although in some instances this did happen). There have also been subsequent secondary benefits to this program, namely a memorandum o f understanding signed between the commercial banks and the Chambers o f

24

Commerce t o create a supplier credit database and an agreement for better terms for those enterprises that used the MGF to strengthen inst i tut ional capacity. Annex I11 provides some o f the success stories o f the MGF.

25



ANNEX 111: THE MATCHING GRANT FACILITY SUCCESS STONES

During 2004, when Government was first implementing the VAT, a substantial number o f enterprises used the MGF to develop accounting systems capable o f providing reliable financial information.

G&B Communications, a radio broadcasting network, had been losing market share, largely because other radios entering the system were backed by communities, religious groups, etc., and were self-funding. They bought some new technology and used the MGF funds to train staff; they have subsequently regained their leading position in the market.

A printing company bought a printer with i t s own resources and used the MGF to train staff on the new equipment. This equipment enabled the company to improve i t s work quality. As a result, the company increased the number o f i t s staff trained on the equipment.

A company that sold steel rods used the MGF to finance a feasibilityhiability study. Based on the study, the company expanded from a “trading company” to a “service company” and opened a body shop that also paints cars. Given the success o f the new initiative, the company increased its staff to 22 employees (up from 14), and has tripled i t s income.

A photoshop that was a net purchaser o f services for i ts pictures (developing, printing, etc.) used i t s own resources to purchase some printing equipment from Japan and the MGF to recruit a specialist from the Japanese Company to train i t s staff. As a result, i t is now a net seller o f services.

Following the removal o f the European Union embargo, Frescocamar, a fish processing company, began to prepare i t se l f for a projected increase in demand for i t s product. The MGF funds were used to train staff, particularly in safety measures. Previously Frescomar was operating at 33 percent capacity and now operates at almost 65 percent - due to the improvement in the market as well as increased staff productivity.

The Taxi Association brought together taxi drivers on several islands and used the MGF to develop an English program for the drivers. This has helped them to better communicate with tourists and businessmen, Cape Verde’s image as a tourist and business destination.

Flor de Lakakan, a landscaping company, was just breaking even when i t used the MGF to help finance a marketing program that resulted in a three-fold

26

increase in sales. The company hired two additional staff and, for the f i rst time in its five year history, made a profit and was able to pay bonuses to staff.

27



IDA (US$)

400,000

ANNEX IV: DETAILED PROJECT COSTS

Beneficiaries/Government/ (other development

partners) (US$)

Component

1. Consultant services for TACV/port divestiture process (consultant services already ongoing under original project)

2. Establish E-Government (Data Center to store computer systems)

3. Matching Grant Facility for beneficiaries

4. Support to the Chambers o f Commerce a. Equipment b. Training c. Technical Assistance (for

consultants and non-consultant services)

5. Support to Digitalize Official Gazette 6. Debt Repayment to IN'PS

7. Operating Costs TOTAL

500,000 30,000

100,000 50,000 50,000

100,000 50,000 50,000

I

500,000 I 20,000

0 5009000 I 400.000 I 40.000

3,000,000 I 790,000

Cost by Disbursement Categorv

400,000

530,000

1,000,000

200,000 100,000 100,000

520.000

500,000

440,000 3,790,000

I Category Amount Percentage



ANNEX V: MONITORING INDICATORS

PDO: participation in Cape Verde’s economic growth and enhance private sector competitiveness and further develop i t s financial sector

Out come/Imp act Indicators 1. ENAPOR and TACV are ready for privatization 2. E-Government init iative has resulted in an improvement in doing business in Cape Verde, particularly a reduction o f t ime to register and license

3. MGFshows economic benefits.

4. All laws are available on-line.

5. The merger o f the two social security systems remains o n track and liabilities are funded by Government.

Baseline April 2003

Notary services are cumbersome and take a long time. Registering businesses sometimes takes 75 days.

MGF i s ad hoc, no measurement o f benefits.

No laws were available on the Internet.

T w o separate social insurance schemes (INPS and AP)

February 2007

Management contracts are in place

*Time to start a business: 52 days; *Time to get a license 141 days

A measurement system in place and entrepreneurs have improved efficiency ratios (operating costshevenues); and increase in production. N e w laws that were published after August 2006 are available on the Internet. Merger o f the schemes has begun to take place

June 2009

Investment a Memoranda have been launched The Casa do Cidadgo has consolidated operations and T ime to start a business has been reduced to 3 days; T ime to get a license has been reduced to 5 days

Approximately 50 additional enterprises have received support and efficiency ratio has increased by at least 5 percent

All laws (those published pr ior to and after August 2006), are available o n the Internet. Systems and procedures are in place to ensure smooth transition for future entrants.

*Note: figures are taken from “Doing Business, 2007”

29

PDO Outcomes 1 .O Increase private sector participation in Cape Verde's economic growth

2.0 Increased private sector competitiveness in cv

3.0 Strengthening o f financial sector (access and efficiency)

Intermediate Outcomes by Component Component 1: Financial Sector Reforms

Strengthened the regulatoiy capacity of the Central Bank

Increased eficiency in the provision of financial services

Increased sustainability of National Pension system

Component 2: Private Sector Competitiveness

Improved efficiency in administrative processes in business registration

Modernized legal and judicial systems

Increased efficiency o f firms benefiting f rom MGF

Outcome Indicators 1.1 N e w foreign direct investment has increased as a result o f investment promotion efforts by US$lOO mi l l ion

2.1 Investment climate improves from 125th position, as judged by C V Ranking in Doing Business on Ease o f Doing Business

2.2 As a result o f the MGF, domestic entrepreneurs have increased efficiency and productivity by 5 percent (defined by

3.1 Availabil ity o f electronic financial services has expanded to al l islands;

3.2 All banks in compliance o f prudential norms and NPL decreases from 9 percent to 7 percent; and

3.3 Measures have been adopted to ensure INPS can finance i t s obligations.

Results Indicators

Proportion o f commercial complying fully with BCV prudential guidelines

Number o f Islands with hl ly functional electronic banlung services

Proportion o f pension obligations met by INPS

Cost/time/number o f processes required in business registration decreases

Number o f legislations available electronically

Percentage reduction in the ratio o f operating costs over revenue generated

30

Indicator

Component I. Financial Sector Reform Quality o f commercial bank loan portfolio has improved Proportion o f commercial complying fully wi th B C V prudential guidelines

Availabi l i ty o f electronic financial services has expanded to a l l islands; Foreign Exchange increases due to Global payment system (VISA) Government liabilities to INPS are reduced by $500,000 System in place to ensure t imely payments for c i v i l servants who move to the private sector

Component 2. Private Sector Competitiveness

Number o f legislations published by the Off icial Gazette available electronically has increased

Efficiency o f administrative processes in business registration has improved With support to Data Center proposed in addition a1 j i n ancing

Baseline, Actual & Target

Baseline Sept 2003

N P L > 10 % 50%

2 islands

0

Have not paid

N o system

0

52 days

Actual March 2007

N P L = 6 . 2 5 Yo

75%

9 islands

67,000 transactions U S $ 1 0 m i l l i on Have not pa id

No system

All legislation published after August 2006

7 days

Target February

2008

NPL < 7%

100%

9 islands

950 transactions US$8 m i l l i on

Have no paid

System i s in place and money i s being transferred as c i v i l servants are moved

All legislation published after August 2006

7 days

Revised June 2009

Paid US$SOO,OOO

All Cape Verde legislation (includes before August 2006)

48 hours *

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BCV

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B C V

INPS

INPS

MoJ

Chambers o f Commerce

31

Foreign investment in country has increase as a result o f promotional efforts by CI

0

- ENAPOR to point of sale As a result of the scaling up, MGF will be I 0

Remaining six public sector enterprises will be privatized (TACV, ENAPOR, EMPROFAC, ARCA VERDE, CABNAVE, INTERBASE) Addition a1 financing would finance consultant services to brinp T A W and

accessed by at least 150beneficiaries (an

efficiency (revenue/operating costs) o f losses beneficiaries o f the MGF will increase by 5%

0

>US$400 million

3

I 03

5 %

- million I

4 1 6

==-r disbursed)

10% entrants will have

PIUiMinistq o f Transport



32

IBRD MAP 33383

33

SSãão Domingoo Domingo

Santa CatarinaSanta Catarina

Santa MariaSanta Maria

EspargosEspargos

NorNortete

Riberia BravaRiberia Brava

PovocPovocãão Vo Velhaelha

LajesLajes(1803 m)(1803 m)

Mt. FogoMt. Fogo(2,829 m)(2,829 m)

BOA VISTA

BRAVA

MAIO

MOSTEIROS

PAÚL

PORTONOVO

PRAIA

TARRAFAL

SAL

SANTACATARINA

SANTACRUZ

SÃODOMINGOS

SÃO FILIPE

SÃO NICOLAU

SÃO VINCENTE

RIBEIRAGRANDE

Ribeira da Cruz

Ribeira GrandeVila das Pombas

Porto Novo

MadeiralCalhau

Tarrafal

Sal-Rei

Tarrafal

Santa CruzVila do Maio

São Domingo

Santa Catarina

SãoFilipe

Furna

Mosteiros Igreja

Santa Maria

Espargos

Norte

Riberia Brava

Mindelo

São Pedro

Preguica

Povocão Velha

PRAIA

AT L A N T I C O C E A N

W I N D WA R D I S L A N D S

L E E WA R D I S L A N D S

Santo Antão

São Vicente

Ilhéu BrancoIlhéu Raso

Santa Luzia

São Nicolau

Sal

Boa Vista

MaioSão Tiago

Fogo

Brava

Ilhéus DoRombo

Lajes(1803 m)

Mt. Fogo(2,829 m)

17°N

16°N

17°N

16°N

15°N

23°W24°W25°W

23°W24°W25°W

CAPEVERDE

This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other informationshown on this map do not imply, on the part of The World BankGroup, any judgment on the legal status of any territory, or anyendorsement or acceptance of such boundaries.

0 10 20

0 10 20 30 Miles

30 Kilometers IBRD 33383

DEC

EMBER 2004

CAPE VERDESELECTED CITIES AND TOWNS

NATIONAL CAPITAL

RIVERS

MAIN ROADS

COUNTY (CONCELHO) BOUNDARIES

INTERNATIONAL BOUNDARIES

public disclosure authorized - world...

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