Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No: PAD1998

INTERNATIONAL DEVELOPMENT ASSOCIATION

PROJECT PAPER

ON A

PROPOSED ADDITIONAL GRANT

FROM THE SECOND TRADE DEVELOPMENT FACILITY MULTI-DONOR TRUST FUND

IN THE AMOUNT OF USD2.5 MILLION

AND A PROPOSED RESTRUCTURING

TO THE

LAO PEOPLE’S DEMOCRATIC REPUBLIC

FOR THE SECOND TRADE DEVELOPMENT FACILITY PROJECT

December 7, 2016

Trade and Competitiveness Global Practice

East Asia and Pacific Region

This document has a restricted distribution and may be used by recipients only in the

performance of their official duties. Its contents may not otherwise be disclosed without

World Bank authorization [will be disclosed after approval].

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CURRENCY EQUIVALENTS

(Exchange Rate Effective November 16, 2016)

Currency Unit = LAK (Lao Kip)

LAK 8,150 = US$1

US$ = SDR 1

FISCAL YEAR

October 1, 2015 – December 31, 2016

then

January 1 – December 31

ABBREVIATIONS AND ACRONYMS

AEC ASEAN Economic Community

AF Additional Financing

ASEAN Association of South East Asian Nations

CPS

DIMEX

DTIS

Country Partnership Strategy

Department of Imports and Exports

Diagnostic Trade Integration Study

FM Financial Management

FTPD

GDP

Foreign Trade and Policy Department

Gross Domestic Product

GRS Grievance Redress Service

IDA International Development Association

IFC International Finance Corporation

IP Implementation Progress

LBF Lao Business Forum

LNCCI Lao National Chamber of Commerce and Industry

LTP

MDTF

Lao Trade Portal

Multi-Donor Trust Fund

MOIC Ministry of Industry and Commerce

MPI Ministry of Planning and Investment

MTR Mid-Term Review

NIU National Implementation Unit

NSEDP National Socio-Economic Development Plan

NTM Non-Tariff Measures

PDO Project Development Objective

SCD Systematic Country Diagnostic

SME Small and Medium-Sized Enterprise

STIP Services Trade and Investment Portal

TDF-2 Trade Development Facility 2

TFA

TFS

WTO

Trade Facilitation Agreements

Trade Facilitation Secretariat

World Trade Organization

ii

Vice President: Victoria Kwakwa

Country Director: Ulrich Zachau

Country Manager: Sally Burningham

Senior Global Practice Director:

Practice Manager/Manager:

Anabel Gonzalez

Mona Haddad

Task Team Leader: Mombert Hoppe

iii

LAO PDR

ADDITIONAL FINANCING TO THE SECOND TRADE DEVELOPMENT FACILITY PROJECT

CONTENTS

Additional Financing Data Sheet ............................................................................................................... iv

I. Introduction ............................................................................................................................................ 1

II. Background and Rationale for Additional Financing and Restructuring ............................................... 2

Country Context ...................................................................................................................................... 2

Project Background ................................................................................................................................. 4

III. Proposed Changes ................................................................................................................................. 6

Summary of Proposed Changes .............................................................................................................. 8

IV. Appraisal Summary ............................................................................................................................ 10

V. World Bank Grievance Redress .......................................................................................................... 12

ANNEXES 1: Revised Results Framework and Monitoring Indicators .................................................. 13

ANNEX 2: Detailed Description of Modified or New Project Activities .............................................. 20

ANNEX 3: Revised Estimate of Project Costs ....................................................................................... 26

ANNEX 4: Division of Labor: TDF-2 Additional Financing & IFC Investment Climate Project ......... 27

ANNEX 5: Procurement Arrangement ................................................................................................... 28

iv

Additional Financing Data Sheet

Lao People's Democratic Republic

AF - SECOND TRADE DEVELOPMENT FACILITY PROJECT ( P159060 )

EAST ASIA AND PACIFIC

GTC02

Basic Information – Parent

Parent Project ID: P130512 Original EA Category: C - Not Required

Current Closing Date: 31-Mar-2017

Basic Information – Additional Financing (AF)

Project ID: P159060 Additional Financing

Type (from AUS): Scale Up

Regional Vice President: Victoria Kwakwa Proposed EA Category: C

Country Director: Ulrich Zachau Expected Effectiveness

Date: December 20, 2016

Senior Global Practice

Director: Anabel Gonzalez Expected Closing Date: 30-Sep-2018

Practice

Manager/Manager: Mona E. Haddad Report No: PAD1998

Team Leader(s): Mombert Hoppe

Borrower

Organization Name Contact Title Telephone Email

Ministry of Finance

H.E. Mme.

Thipphakone

Chanthavongsa

Vice

Minister

(MoF)

856-21-412142 thip61@yahoo.com

Project Financing Data - Parent ( Lao PDR Second Trade Development Facility Project-

P130512 ) (in USD Million)

Key Dates

Project Ln/Cr/TF Status Approval Date Signing Date Effectiveness

Date

Original

Closing Date

Revised

Closing Date

P130512 IDA-H8190 Effective 04-Dec-2012 28-Mar-2013 08-May-2013 31-Mar-2017 31-Mar-2017

P130512 TF-14189 Effective 28-Mar-2013 28-Mar-2013 08-May-2013 31-Mar-2017 31-Mar-2017

Disbursements

Project Ln/Cr/TF Status Currency Original Revised Cancelled Disbursed Un-

disbursed

%

Disbursed

P130512 IDA-H8190 Effective USD 4.00 4.00 0.00 2.87 0.83 72

P130512 TF-14189 Effective USD 9.90 9.90 0.00 6.80 3.10 69

Project Financing Data - Additional Financing AF - SECOND TRADE DEVELOPMENT

v

FACILITY PROJECT ( P159060 )(in USD Million)

[ ] Loan [X] Grant [ ] IDA Grant

[ ] Credit [ ] Guarantee [ ] Other

Total Project Cost: 2.50 Total Bank Financing: 0.00

Financing Gap: 0.00

Financing Source – Additional Financing (AF) Amount

Borrower 0.00

Multi-Donor Trust Fund for the Second Trade Development Facility 2.50

Total 2.50

Policy Waivers

Does the project depart from the CAS in content or in other significant

respects? No

Does the project require any policy waiver(s)? No

Bank Staff

Name Role Title Specialization Unit

Mombert Hoppe Team Leader

(ADM

Responsible)

Senior Economist Task Team Leader -

Trade and

Competitiveness

GTC02

Latharo Lor Procurement

Specialist (ADM

Responsible)

Procurement

Specialist

Procurement GGO08

Reaksmey Keo Sok Financial

Management

Specialist

Consultant Financial

Management

GGODR

Asya Akhlaque Team Member Lead Economist Trade and

Competitiveness

GTC02

Gerard McLinden Team Member Lead Private Sector

Specialist

Private Sector

Development

GTC09

Khampao Nanthavong Team Member Private Sector

Specialist

Private Sector

Development

GTCEA

Konesawang

Nghardsaysone

Team Member Economist Trade and

Competitiveness

GTC02

Manush A. Hristov Team Member Senior Counsel Legal LEGES

Phet Udom Mainolath Team Member Program Assistant Administration and

client services

EACLF

Locations

Country First Administrative

Division

Location Planned Actual Comments

Lao People's

Democratic

Republic

Khoueng Viangchan Khoueng Viangchan X

vi

Institutional Data

Parent ( Lao PDR Second Trade Development Facility Project-P130512 )

Practice Area (Lead)

Trade & Competitiveness

Additional Financing AF - SECOND TRADE DEVELOPMENT FACILITY PROJECT ( P159060 )

Practice Area (Lead)

Trade & Competitiveness

1

I. Introduction

1. This Project Paper seeks the approval of the Regional Vice President for an Additional Financing

(AF) grant in the amount of USD 2.5 million to the Lao People’s Democratic Republic’s Second

Trade Development Facility Project (P130512, IDA grant No. H8190 and MDTF grant No.

TF014189).1 The AF involves restructuring as the revision of the results framework is being

proposed, and the closing date of the project will be extended for a period of 18 months to September

30, 2018. The Project performance is progressing well, with the Project Development Objective

(PDO), and Implementation Progress (IP) rated consistently as “Satisfactory” over the last 12 months.

Disbursements under the current project (P130512) stood at 70 per cent on December 7, 2016. There

is compliance with key legal covenants, including audit and financial management reporting

requirements.

2. The proposed AF grant and restructuring builds on the significant progress made so far

under the project and would primarily finance costs associated with scaling up of components

aimed at improving trade facilitation and business environment. The support in the additional

areas will critically complement support provided thus far to ensure that private enterprises will

benefit more effectively from improvements made in the areas of trade facilitation, trade policy and

regulations, and efforts made to support diversification and competitiveness. It will support increased

transparency of the business enabling environment, streamlining of procedures, and an increase in

predictability in the application of existing rules, regulations, and procedures. In addition, the

proposed AF will support improving, and making more inclusive, the dialogue and coordination

between the Government and the private sector to increase demand for reforms and its follow-

through.

3. The PDO remains to support the implementation of Government's trade and integration

priorities outlined in the 2012 DTIS Roadmap, and in particular to contribute to improved

competitiveness and diversification, focusing outside the natural resource sectors. There is no

change in the PDO. The AF will not change the fiduciary, safeguards or implementation

arrangements that are currently in place for the original project. Government staff, however, would be

increasingly involved with Financial Management to ensure sustainability beyond the project end-

date. No additional safeguard policies will be triggered, and there will be no change in the safeguards

category.

4. The additional funding will be funded from an additional contribution of Australia to the

Second Trade Development Facility Multi-Donor Trust Fund. Around half of Australia’s

contribution has already been received, and an amount exceeding the full appraised amount has been

legally committed by Australia through an MDTF Administration Arrangement. The initial

amendment to the recipient-executed grant agreement of US$1.3 million will reflect contributions

already received by the MDTF, while the remaining US$1.2 million of the appraised US$2.5 million

will be added to the recipient-executed grant through subsequent amendment(s) to the GA without the

need to process another AF package, as and when we receive the additional contributions. None of

1 While the total amount of the additional grant is US$2.5 million, the initial amendment to the grant agreement of US$1.3

million reflects the contribution already received by the MDTF. The remaining amount will be added to the grant through

subsequent amendment(s) to the GA without the need to process another AF package.

2

the other partners is currently planning to contribute additional funding to the MDTF, and no

additional IDA resources will contribute to the Additional Financing.

II. Background and Rationale for Additional Financing and Restructuring

Country Context

5. The economy of Lao PDR has been expanding at an average of 7.5 percent per annum for

the past 15 years, enabling the country to reduce poverty rates significantly and multiply per

capita incomes. Growth has been boosted by the resource sector and by accommodative

macroeconomic policies on both the fiscal and monetary fronts, Lao PDR attained lower middle-

income country status in 2012 and real GDP is expected to grow at average annual rate of 7 percent

from 2016-2020. However, while high economic growth increased per capita GNI to US$ 1,730 in

2015,2 it has been accompanied by a less than proportionate decline in poverty and rising inequality.

While poverty declined from 33.5 percent in 2002/03 to 23.2 percent in 2012/13, the elasticity of

poverty reduction to economy growth is less than unity. For every 1 percent increase in GDP, poverty

has fallen by approximately 0.47 percent. This uneven trend suggests that the benefits of economic

growth are not translating into shared benefits for all and in some cases may have widened inequality.

6. As part of this strong growth, the Lao economy has gone through a rapid structural shift

from agriculture to natural-resource based economy. The share of natural resource-based sectors

to GDP almost tripled between 1998 and 2010, increasing from 5.9 percent in 1998 to 16.1 percent in

2010. The share of non-tradables (services) to GDP grew more moderately, driven by increases in

tourism and trade in recent years as well as an expansion in infrastructure construction. Similarly,

manufacturing (garments, wood and wood products, construction materials, light manufacturing,

handicrafts, and, increasingly, food, beverages and related processing) as a share of GDP has also

expanded, but at a relatively slower rate. These non-resource sectors remain critical to creating more

job opportunities and moving people out of poverty. However, growth in these sectors has been

modest relative to potential largely due to a complex business environment that hampers private

sector operations. According to the Investment Climate Assessment from 2014, deeper investment

climate reforms will be necessary to unlock the full potential of the Lao economy, to attract higher

quality private sector investment in a wider range of diversified sectors, and to benefit more fully

from natural resource development spillovers.

7. The country is located within a region that includes some of the most dynamic and fastest

growing economies in the world, and it has benefited significantly from growing external demand

for goods and services as well as increased inflows of foreign direct investment. However, to more

strongly benefit from these regional market opportunities, a number of challenges in the business

environment will still have to be addressed. Given its small size, investments into Lao PDR (outside

the natural resource sector) will be largely efficiency seeking. For this type of investment investors

are particularly looking for a transparent, dynamic and streamlined business environment (and trade

environment) as they compare alternative investment locations. It will therefore be particularly

important for Lao PDR to improve the business environment to compensate for the natural

disadvantages the country faces as a land-locked economy.

2 Lao PDR Economic Monitor 2016, The World Bank.

3

8. In fact, Lao PDR’s growing dependence on the natural resource sector has tended to erode

national competitiveness in sectors that have the potential to create jobs and reduce poverty in

the long term. While the natural resource sector has been the key driver of economic growth in

recent years and has led to high rates of foreign investment, the positive spillovers from this growth

have largely been limited to an expansion in the services and constructions sectors. While important,

these sectors will not generate the kind of employment growth needed to absorb the estimated

900,000 new job seekers joining the workforce in the next decade3. This suggests that urgent attention

needs to be directed toward reforms that have the potential to support growth in the non-natural

resources sector, particularly in agriculture and manufacturing but also the services sectors. It is in

these sectors where most employment is likely to be generated over the short to medium term that

could contribute to broad-based income growth and contribute to achieving the twin goals.

Agriculture alone currently accounts for 75 percent of Lao PDR’s entire workforce.

9. Importantly, strong economic growth has tended to mask the costs and constraints imposed

on business of a still largely unreformed business and investment environment. The difficult

business environment in Lao PDR (ranked 134th

out of 189 economies on the 2016 Ease of Doing

Business ranking) generates significant costs for new investments as well as the expansion of existing

ones. The overall ranking, and a particularly low ranking for ‘starting a business’ (153) and ‘paying

taxes’ (127) directly affecting business operations, further suggests that the few improvements made

have resulted in an overall pace of reform far too slow to make a meaningful difference. The 2016

Enterprise Survey data further points to the challenges in the business environment. While trade

indicators continue to improve the time to obtain operating licenses in the manufacturing sector has

been increasing since 2009 and now takes longest for small enterprises. External reform

commitments (under the WTO and ASEAN) have driven reforms in some areas, such as tariff and

service trade liberalization, rationalization of non-tariff measures (NTMs), as well as improvements

in trade facilitation and border management systems. As a result, constraints in the business

environment have become relatively more important for the private sector.

10. Available analytical work, consultations with the private sector, and data indicate that the

business environment remains complex and risky, negatively affecting investment flows into the

non-resource sectors. Laws and secondary legislation on regulatory requirements is frequently

unavailable despite recent modernization in many areas (notably as part of the WTO accession), and

clear procedures on how to meet such requirements are absent. Business licensing is still largely

manual and paper-based, transactions are not standardized and require face-to-face interactions.

Coordination among Ministries is not fully formalized, generating high transaction costs and drawn-

out processes. Together with a broadening gap between the “law in the books” and the “law in

practice” (de jure/de facto gap) as well as a lack of predictability (resulting from significant

divergence in the interpretation and enforcement of the same rules by different line ministries and by

provincial authorities), this regulatory uncertainty function as barriers to business entry and

operation—and undermine the confidence of the private sector. Anecdotal evidence indicates that

compliance with regulations can be avoided, or processes be accelerated, by informal means. While

large companies might be able to navigate such an environment (characterized by negotiation and

discretionary decisions), it particularly places burden on smaller, including women-owned,

companies and new entrants that might not have established relationships, complicating new entry

3 Lao PDR Systematic Country Diagnostic, The World Bank, forthcoming 2016.

4

and reducing competition in the market.4 Business registration as well as complex and opaque sector-

specific business licensing requirements are frequently reported as key constraints facing SMEs.

11. Improving the business and investment regime will require consistent and comprehensive

reforms and will be critical to diversifying sources of growth and facilitating investment,

especially in the context of the ASEAN Economic Community (AEC). Improving the environment

for starting and operating businesses would have to consist of increasing transparency (including

regarding taxation), simplification of regulatory requirements, reducing policy restrictions on market

entry, and increasing consistency and predictability of how existing rules and procedures are applied

in practice. It would remove restrictions on market entry and levelling the playing field between new,

existing, formal, and (often large) informal businesses, encouraging competition through new

business entry and the formalization of existing economic activity. Addressing the business

environment will be critical if Lao PDR wants to use the private sector as an engine for poverty

reduction and job creation. The fact that a number of new investments focusing on the assembly of

parts have recently come in, concentrated in Special Economic Zones, indicates that simplifying the

business environment and putting the right conditions in place can lead to increased investment in

labor-intensive sectors.

Rationale for Bank Involvement

12. The proposed AF and restructuring supports the Government’s priorities outlined under

the eighth National Socio-Economic Development Plan (8th

NSEDP), aiming at continued strong

growth, increased productivity and widened regional and international integration, and graduation

from LDC status. To that end, the Plan stresses the need to enhance productivity and to diversify the

economy beyond the extractive, natural resource-based industries. To achieve this, Lao PDR will

need to focus on creating a positive enabling business and investment environment that supports the

development of the non-resource sectors by attracting and retaining quality investment and lowering

the cost of doing business. The proposed AF also forms a major part of efforts to achieve the World

Bank Group’s Country Partnership Strategy (CPS – Report No. 66692, March 8, 2012) Strategic

Objective 1: "Improving competitiveness and connectivity", and in particular the CPS Outcome 1.1:

"Strengthening government capacity to support growth diversification and competitiveness",

providing important complements to the activities already funded under the TDF-2. The objectives of

TDF-2 and proposed AF to support the Government’s trade and integration priorities aim at improved

competitiveness and diversification, especially outside the natural resource sectors, and are therefore

still highly relevant to the current CPS. As these efforts are expected to contribute to increased job

creation and productivity growth, the objectives of the TDF-2 and proposed AF are also aligned with

the World Bank Group’s twin goals.

Project Background

13. The proposed AF and proposed restructuring for the TDF-2 will complement the

components already funded, ensuring that benefits to the private sector and the economy can be

maximized through the TDF-2. The original TDF-2, in the amount of US$14m, was approved in

November 2012, became effective in May 2013, and is scheduled to close in March 2017. The total

amount is funded through IDA grant No. H8190 and MDTF grant No. TF014189. It is being

4 The increased use of concession agreements (case by case negotiation of discretionary package of incentives) in multiple

sectors and by multiple agencies also raises concerns regarding transparency and competition.

5

implemented by the Ministry of Industry and Commerce (MOIC). The AF is designed to deepen and

broaden the reform agenda led by MOIC under TDF-2, to further strengthen the coordinating role of

the Ministry and build additional capacity for the implementation of trade and business-environment

related reforms.

Summary of Project’s Results

14. The Mid-Term Review (MTR) of the current TDF-2 in June 2015 considered progress

towards the achievement of the Project Development Objective and Implementation Progress to

be ‘Satisfactory’ and this was confirmed during the last Implementation Support Mission in

May 2016. Overall, the MTR found that project implementation is proceeding at an encouraging

pace, with significant progress being made right across TDF-2 components and sub-components. The

latest implementation support mission particularly highlighted progress regarding regulatory reform

in services sectors and implementation of the Business Assistance Facility. Lessons learned from

TDF-1 have been incorporated into TDF-2 and have resulted in attention to the early launch of

procurement for major consultancy packages and the establishment of key frameworks to support

implementation, which have led to effective implementation progress during the early stages of the

project.

15. Complementing these positive findings, the MTR found that some activities that would

benefit from some additional time to fully complete and to maximize impact and results. In

addition, the MTR found that including complementary activities and scaling up of some existing

components would further support key elements of the Government’s priorities. It particularly

identified improving the complex business environment and supporting MOIC’s new high-profile

coordination responsibilities for the Lao Business Forum.

16. The proposed AF will focus on improving the existing regulatory environment, an actual

improvement in the implementation of existing laws and regulations, and improving the

coordination between Government and the private sector to increase demand for reforms. It

will first support increasing the transparency regarding procedures and processes relating to

registering businesses as well as obtaining operating licenses, and increase regulatory predictability

by reducing the scope for discretionary decisions. Second, the proposed AF will support the review

and streamlining of particularly burdensome regulations. To identify the most pressing challenges the

private sector is facing, the proposed AF will also support the MOIC’s leadership of the Lao Business

Forum to make it an inclusive and effective body for discussing challenges and follow-up actions by

Government. Effective follow-up by Government is expected to generate increased private sector

participation in the forum and increased demand for further reforms. To ensure an inclusive impact of

the reforms supported under this AF, a particular focus will be put on the participation of emerging,

rural, and women-led enterprises and SMEs in consultations and (where possible) focusing on

addressing barriers that particularly affect such businesses. In addition, the AF will scale up support

under some of the existing components. Annex 2 describes proposed activities under this additional

financing in more detail, while Annex 4 presents a short overview regarding the division of labor in

this area between the proposed AF and the IFC-Investment Climate project that is in pre-

implementation.

17. To reflect the proposed changes and in line with recommendations from the MTR to update

the results framework, the AF also proposes a restructuring and updated results framework. It

reflects the additional areas of support and proposes to adjust some of the indicators for more accurate

measurement towards the PDO.

6

18. Implementation modalities will not be changed, building on the strong implementation

capacity already built under the TDF-1 and the current TDF-2 projects.

III. Proposed Changes

19. The proposed AF and proposed restructuring will not alter the overall project design nor its

Development Objective, but it will introduce additional sub-components under the existing

three components. As a result of these modifications, and in response to the recommendations made

during the MTR, the results framework will also be updated (see Annex 1).

20. Component A: Trade Facilitation, Trade Policy, and Regulations (US$5,800,000 including

additional financing of US$200,000): As a result of the small market size of Lao PDR, continued

economic integration with neighbors will be important to allow future investments to benefit from

economies of scale and reduce the current dis-incentives for investment (domestic and foreign) in Lao

PDR. Trade facilitation support under the Second Trade Development Facility has supported Lao

PDR in reducing the cost related to accessing imported inputs (goods and services) and bringing

goods to markets (including capacity building) and the Additional Financing aims to continue that

support, particularly regarding the implementation of the Trade Facilitation Agreement (which Lao

PDR ratified as 18th

WTO member) under the existing sub-component. As Lao PDR has already

ratified Category A commitments, focus would be on Category C. Likewise, support to reviewing and

streamlining non-tariff measures and procedures will be strengthened while support to FTPD in

developing their capacity for trade negotiations and domestic policy coordination around trade in

services will be continued. Support to establishing and maintaining the Services Trade and

Investment Portal (STIP), and maintaining the Lao Trade Portal, will continue.

21. Component B: Diversification and Competitiveness (US$5,200,000 including additional

financing of US$1,100,000). Improving the overall business environment remains critical to increase

competitiveness of the private sector and support diversification. To allow the private sector to

benefit from improvements in the trade policy environment, component B will be broadened to

include one additional sub-component (B3 - Business regulations review and rationalization) to

support rationalization of business regulations related to entry and operations of enterprises,

particularly in non-resource sector. The new sub-component will aim to 1) increase transparency and

predictability of obtaining business registration certificates and key operating licenses by mapping

out related regulations, procedures, and processes, making such information publicly available; and

supporting capacity building of relevant government officials. It will further assist the Government to

2) review and streamline selected regulations affecting the setting up and operating environment for

private businesses, based on the process mapping. Other sub-component under this component

(Business Assistance Facility and Labour Standards and manufacturing productivity) will be

concluded as planned.

22. Component C: Mainstreaming Aid-for-Trade (US$5,500,000 including additional financing

of US$1,200,000): The degree of mainstreaming trade into policy making in Lao PDR has been

significantly supported by this component of the TDF-2. However, discussions among the private and

public sector remain limited and need to be further strengthened if demand for policy reforms by

national stakeholders is to translate into real impact on the ground, particularly now that MOIC is

taking over the leadership of the Lao Business Forum (LBF) from the Ministry of Planning and

Investment (MPI) amid renewed Government interest. While the LBF had been a forum for

7

consultation between Government and the private sector in the past (led by the Lao National Chamber

of Commerce and Industry (LNCCI)), the forum had been effectively discontinued over the last

years. Aiming to strengthen the natural coordinating role of the MOIC for trade and private sector-

related questions, a sub-component C4 (Public-private dialogue) will be added. It will support 1)

MOIC in improving and making more inclusive the design of the LBF, improving coordination and

feed-back between the public and private sector, and leading the LBF politically to ensure decisions

are followed-up by relevant Ministries. The component will also 2) support LNCCI technically to

implement the LBF and making it more inclusive by supporting small and women-led enterprises in

formulating their concerns in an actionable manner. This sub-component will also benefit from the

reforms being proposed under Sub-Component B3. The Government’s capacity to flexibly respond to

emerging priority areas will also further strengthened by allocating additional funds to the DTIS

challenge facility and continuing support to the NIU and its ability to coordinate implementation of

the TDF-2. Additional focus would be put on fiduciary capacity building and Financial Management

(FM) system strengthening of implementing agencies, and Government staff at the NIU would be

involved increasingly with FM to ensure sustainability.

23. To reflect the change in relative financing of the overall project from IDA and MDTF

resources, the current 70-30% MDTF-IDA disbursement percentages will be adjusted. As a

result, the project expenditures will shared among three sources of funds, namely, IDA, the original

TF and the new (parallel) TF. Once IDA funds are fully utilized, expenditures will be shared among

the two TFs until one TF is fully utilized.

24. In order to allow for the implementation of these activities, the project will be extended for a

period of 18 months. The closing date for the AF will be September 30, 2018 and the closing date

for the original financing agreement and grant agreement will also be extended to September 30,

2018.

8

Summary of Proposed Changes

The proposed Additional Financing operation will extend support to existing sub-components and add two

additional sub-components. In addition to scaling up some of the existing components, it will focus on

improving the existing business environment and improving the coordination between Government and the

private sector to increase demand for reforms.

Change in Implementing Agency Yes [ ] No [ X ]

Change in Project's Development Objectives Yes [ ] No [ X ]

Change in Results Framework Yes [ X ] No [ ]

Change in Safeguard Policies Triggered Yes [ ] No [ X ]

Change of EA category Yes [ ] No [ X ]

Other Changes to Safeguards Yes [ ] No [ X ]

Change in Legal Covenants Yes [ ] No [ X ]

Change in Loan Closing Date(s) Yes [ X ] No [ ]

Cancellations Proposed Yes [ ] No [ X ]

Change in Disbursement Arrangements Yes [ X ] No [ ]

Reallocation between Disbursement Categories Yes [ ] No [ X ]

Change in Disbursement Estimates Yes [ X ] No [ ]

Change to Components and Cost Yes [ X ] No [ ]

Change in Institutional Arrangements Yes [ ] No [ X ]

Change in Financial Management Yes [ ] No [ X ]

Change in Procurement Yes [ ] No [ X ]

Change in Implementation Schedule Yes [ X ] No [ ]

Other Change(s) Yes [ ] No [ X ]

Development Objective/Results PHHHDO

Project’s Development Objectives

Original PDO

The project development objective is to support the implementation of government's trade and integration

priorities outlined in the2012 DTIS Roadmap, and in particular to contribute to improved competitiveness

and diversification, focusing outside the natural resource sectors.

Change in Results Framework PHHCRF

Explanation:

In line with discussions during the MTR, some indicators will be reformulated and some indicators will be

added to reflect new sub-activities.

9

Risk PHHHRISKS

Risk Category Rating (H, S, M, L)

1. Political and Governance Moderate

2. Macroeconomic Moderate

3. Sector Strategies and Policies Moderate

4. Technical Design of Project or Program Moderate

5. Institutional Capacity for Implementation and Sustainability Moderate

6. Fiduciary Moderate

7. Environment and Social Low

8. Stakeholders Low

9. Other Moderate

OVERALL Moderate

Finance

Loan Closing Date - Additional Financing ( AF - SECOND TRADE DEVELOPMENT

FACILITY PROJECT - P159060 )

Source of Funds Proposed Additional Financing Loan Closing Date

Trade Development Facility in Lao 30-Sep-2018

Loan Closing Date(s) - Parent ( Lao PDR Second Trade Development Facility Project

- P130512 )

PHHCLCD

Explanation:

The closing date of the overall project will be extended by 18 months to allow the completion of original

and additional activities under the Additional Financing.

Ln/Cr/TF Status Original Closing

Date

Current Closing

Date

Proposed Closing

Date

Previous Closing

Date(s)

IDA-

H8190 Effective 31-Mar-2017 31-Mar-2017 30-Sep-2018 31-Mar-2017

TF-14189 Effective 31-Mar-2017 31-Mar-2017 30-Sep-2018

TF-0A3946 Pending 30-Sep-2018

Change in Disbursement Estimates (including all sources of Financing)PHHCDE

Explanation:

Changes made to reflect the Additional Financing

Expected Disbursements (in USD Million)(including all Sources of Financing)

Fiscal Year 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Annual 0.50 1.30 0.70 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Cumulative 0.50 1.80 2.50 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Allocations - Additional Financing ( AF - SECOND TRADE DEVELOPMENT

FACILITY PROJECT - P159060 )

10

Source of

Fund Currency

Category of

Expenditure

Allocation Disbursement %(Type

Total)

Proposed Proposed

LAPR

Goods, non-consulting

services, consultant

services, Incremental Op

Costs, and Training for

the Project except under

Part B1.b

2.50 100.00

Total: 2.50

Components

Change to Components and Cost PHHCCC

Explanation:

The AF is designed to deepen and broaden the reform agenda led by MOIC under TDF-2, to further

strengthen the coordinating role of the Ministry and build additional capacity for the implementation of

trade and business-environment related reforms. The Additional Financing is therefore scaling up the three

components.

Current Component

Name

Proposed Component

Name

Current Cost

(US$M)

Proposed

Cost (US$M) Action

Trade facilitation, trade

policy and regulations Trade facilitation, trade

policy and regulations 5.60 5.80 Revised

Diversification and

competitiveness Diversification and

competitiveness 4.10 5.20 Revised

Mainstreaming aid for

trade Mainstreaming aid for

trade 4.30 5.50 Revised

Total: 14.00 16.50

IV. Appraisal Summary

Economic and Financial Analysis PHHASEFA

Explanation:

As outlined above the economic benefits of increased transparency in the area of business entry and

operating licenses are likely to attract additional investment and increase competition, leading to lower

consumer prices and increased competitiveness. However, the size of the benefits are difficult to quantify

ex-ante as they will play out through various channels in the economy.

The project has no outstanding audit report or IFR and the FM performance rating of the current project

is satisfactory. The FM risk is rated as moderate. This rating will be updated during the implementation.

The financial management arrangements under the current project will continue to be used for the AF. The

service of the International FM consultant is currently focused on day-to-day operations of FM functions

and some capacity building in the form of daily coaching to the national FM consultants. Under AF, the

main role of the International FM consultant will be to provide advisory services with regard to policies,

analysis of financial information, budgeting and planning, and to continue providing capacity building to

11

enhance capacity of NIU staff and other implementing units in all areas of project financial management.

Moreover, NIU or MoIC staff will be assigned to work on financial management and disbursement of the

AF to enable FM knowledge to transfer from the International and national FM consultants to the

institution. This is an important aspect of sustainability and for filing the gap in FM resources during the

project's grace period when services of all FM consultants finish by the closing date of AF.

The project expenditure will be 100% financed and shared by the three sources of funds, namely, IDA, the

original TF and the new TF. Once IDA funds are fully utilized, expenditures will be shared 100% by the

two TFs and then 100% by either TF when one TF is fully utilized. The combined ceiling for the three

sources of funds is increased to US$800,000 and the minimum application value for the combined sources

of funds is US$100,000.

Procurement Analysis

The procurement arrangements under the current project will continue to be used for the AF. The NIU

within the Department of Planning and Cooperation at the Ministry of Industry and Commerce is in-charge

of day-to-day project management. An assessment of the NIU procurement capacity was carried out and it

concluded that the overall procurement risk remains moderate. The detail procurement arrangement for the

AF will be in Annex 5.

Technical Analysis PHHASTA

Explanation:

The World Bank completed a preparation mission between June 27, 2016 and July 15, 2016, discussing

and agreeing on the proposed additional financing operation. The government is strongly committed to the

proposed additional financing grant and has the necessary capacity to implement the additional activities to

be covered by the project. In technical terms, the additional financing to new subcomponents will

complement reforms already undertaken, linking an increased and more inclusive public-private dialogue

with support to implement identified reforms regarding business registration and business licensing.

Social Analysis PHHASSA

Explanation:

The TDF-2 does not trigger any safeguards and is category C. The AF to the project will not trigger any

additional safeguard issues and policies and therefore there will not affect the safeguards category of the

project

Environmental Analysis PHHASEnvA

Explanation:

The TDF-2 does not trigger any safeguards and is category C. The AF to the project will not trigger any

additional safeguard issues and policies and therefore there will not affect the safeguards category of the

project

Risk PHHASRisk

Explanation:

Overall moderate implementation risks for the Second Trade Development Facility (including the AF)

primarily result from the complexity of the reforms supported. Implementation of the project so far has

mitigated these risks, on the whole, successfully despite a few challenges. Overall, Political and

Governance risks result from the fact that increasing the transparency of the trade and business

environment will affect rents of those benefitting from the current environment through direct payments or

through increased protection of existing business activities. Strong support for the reforms at the MOIC,

where priority reforms will be implemented, and the planned inclusive consultations with a broader private

12

sector are expected to mitigate this risk. Second, the Technical Design and Institutional Capacity for

Implementation and Sustainability generate some risks as the program covers complex issues relating to

improved regulation of economic sectors as well as consumer goods. To mitigate related risks and to

ensure that proposed changes will be in line with international good practices, the project will continue to

draw on support from sector experts, while continuing to build national capacity through training. To

mitigate risks specifically relating to the complex coordination issues around Non-Tariff Measures

(NTMs), the government is working on operationalizing a technical working group to discuss and review

NTMs. In addition, while most implementing agencies have been part of TDF-2 for some time, two new

implementing agencies might require some time to fully familiarize themselves with processes to be

followed under a World Bank funded project. This risk is being mitigated by having continuity in the NIU

who will be working closely with these new agencies, which are also part of the main implementing

ministry (MoIC). Keeping in mind the broader fiduciary risks present in Lao PDR, including a weak

country procurement environment, the overall project procurement risk is currently Substantial. The risk

will be managed and mitigated through the action plan that will be incorporated in the project design.

V. World Bank Grievance Redress

25. Communities and individuals who believe that they are adversely affected by a World Bank (WB)

supported project may submit complaints to existing project-level grievance redress mechanisms or

the WB’s Grievance Redress Service (GRS). The GRS ensures that complaints received are promptly

reviewed in order to address project-related concerns. Project affected communities and individuals

may submit their complaint to the WB’s independent Inspection Panel which determines whether

harm occurred, or could occur, as a result of WB non-compliance with its policies and procedures.

Complaints may be submitted at any time after concerns have been brought directly to the World

Bank's attention, and Bank Management has been given an opportunity to respond. For information

on how to submit complaints to the World Bank’s corporate Grievance Redress Service (GRS),

please visit http://www.worldbank.org/GRS. For information on how to submit complaints to the

World Bank Inspection Panel, please visit www.inspectionpanel.org.

13

ANNEXES 1: Revised Results Framework and Monitoring Indicators

Project Name: Second Trade Development Facility Project Project Stage: Additional Financing Status :Final

Team Lead: Mombert Hoppe Requesting Unit: EACTF Created by: Mombert Hoppe

Product Line: Recipient Executed Activities Responsible Unit: GTC02 Modified by: Mombert Hoppe

Country: Lao PDR Approval FY:

Region: EAP Lending Instrument: Investment Project Financing

Parent Project

ID: P130512 Parent Project Name: Second Trade Development Facility Project

Project Development Objectives

Original Project Development Objective – Parent: To support the implementation of Government's trade and integration priorities outlined in the 2012

DTIS Roadmap, and in particular to contribute to improved competitiveness and diversification, focusing outside the natural resource sectors.

Current Project Development Objective – Parent: To support the implementation of Government's trade and integration priorities outlined in the 2012

DTIS Roadmap, and in particular to contribute to improved competitiveness and diversification, focusing outside the natural resource sectors.

Proposed Project Development Objective – Additional Financing (AF): NO CHANGE – To support the implementation of Government's trade and

integration priorities outlined in the 2012 DTIS Roadmap, and in particular to contribute to improved competitiveness and diversification, focusing

outside the natural resource sectors.

Results

.Core sector indicators are considered: No Results reporting level: Project Level

Project Development Objective Indicators

Status Indicator Name Core Unit of Measure Baseline Actual(Current) End Target

No change

1. Reduced mean

number of days to

clear imports

Days Value 10.6 3.3 5.3

Date 2009 2012 9/30/2018

Comments

No change 2. Reduced mean

number of days to

clear exports

Days Value 7.5 5.6 3.8

Date 2009 2012 9/30/2018

Comments

14

Marked for

deletion 3. Improved

logistics

performance score

Number Value 2.5 2.39 3.0

Date 2012 2014 9/30/2018

Comments The indicator is

perception based and its

scope is considerably

larger than what can be

impacted by the project

New 3. Number of

products at 6-digit

level of the

Harmonized System

with exports

exceeding USD

100,000 in a year

Number per year

Value 282 290 300

Date 2012 2014 9/30/2018

Comments Data source

COMTRADE mirror

data (import data

from all countries)

Not all countries

have reported data

for 2015 yet

Intermediate Results Indicators

Component A: Trade Facilitation, trade policy and regulations

Status Indicator Name Core Unit of Measure Baseline Actual(Current) End Target

No change

1. Reduction in

percentage of firms

identifying customs

and trade

regulations as a

major constraint

Value 6.8 12.4 2.8

% Date 2009 2012 9/30/2018

Comments

Revised

Current: 2. Increase

in usage statistics

for Lao PDR Trade

Portal

% increase in

number of hits

Value 7,179 4,319 percent 50 percent

Date 2012 2015 9/30/2018

Comments Number of hits Increase in % Increase in %

Proposed: 2.

Number per year Value 7,179 310,072 200,000

15

Increase in number

of hits for Lao PDR

Trade Portal

Date 2012 2015 9/30/2018

Comments Adjusted target: Initial

target was 10,769 per

year

Revised

Current: 3.

Successful

completion rates for

Trade Facilitation

capacity building

program

% of graduations Value 0 90 100

Date 2012 2015 9/30/2018

Comments

Proposed: 3.

Successful

completion rates for

Trade Facilitation

capacity building

program

% of graduations Value 0 90 90

Date 2012 2015 9/30/2018

Comments No capacity building

program has a 100%

success rate. We are

aiming to maintain what

has been achieved to

date.

Revised

Current: 4.

Frequency and

participation of

National Trade

Facilitation

Secretariat meetings

to resolve trade

facilitation issues,

with decisions

documented and

follow up actions

prioritized

Number per year Value 4 2 4

Date 2012 2015 9/30/2018

Comments

Proposed: 4.

Frequency and

participation of

National Trade

Number per year Value 4 2 2

Date 2012 2015 9/30/2018

Comments According to official

16

Facilitation

Secretariat meetings

to resolve trade

facilitation issues,

with decisions

documented and

follow up actions

prioritized

agreement, the TFS

should meet twice per

year, but could meet

more frequently

No change

5. Reduction in the

mean number of

days required to

obtain import

licenses

Days Value 20.7 14.2 9

Date 2009 2012 9/30/2018

Comments

No change

6. Reduction in the

mean number of

days required for

services firms to

obtain operating

licenses

Days Value 14.7 12.6 10.1

Date 2009 2012 9/30/2018

Comments

New

6a. Cumulative

number of new

regulations adopted

affecting the telecom

sector / insurance

sector / professional

services

Number Value 0 6 8

Date 2012 2016 9/30/2018

Comments Five regulations in

the telecoms sector

and one affecting

insurance

Component B: Diversification and Competitiveness

No change

7. Sales growth in

BAF supported

firms compared to

non-supported firm

% Value 0 0 20

Date 2012 2015 9/30/2018

Comments No survey done yet

to measure sales

growth. Will be

available early 2017

Revised Current: 8.

Number Value 0 168 150

17

Cumulative number

of businesses

supported using

BAF advisory

services

Date 2012 2016 9/30/2018

Comments

Proposed: 8.

Cumulative number

of BAF grant

approvals

Number Value 0 168 150

Date 2012 2016 9/30/2018

Comments

Revised

Current: 8a. Increase

in share of female

owned/managed

businesses

supported using

advisory services

% Value 0 30 40

Date 2012 2015 9/30/2018

Comments

Proposed: 8a.

Average percentage

of female owned

businesses among

approved

applications by

BAF.

Number Value 0 30 30

Date 2012 2015 9/30/2018

Comments Revised indicator can

more accurately be

measured,

corresponding change

in target

No change

Current: 8b. Within

those businesses,

percentage of

women employed.

% Value 0 51 30

Date 2012 2015 9/30/2018

Comments

Revised

Current: 9.

Garment factory

labor standards

monitored and

reported to

international

standards

Number of

monitored factories

Value 0 0 20

Date 2012 2015 9/30/2018

Comments Due to delay in

contracting ILO, too

early for results

Proposed: 9.

Number Value 0 0 5

18

Cumulative number

of garment factory

labor standards

assessed

Date 2012 2015 9/30/2018

Comments To clarify the indicator

and adjust target to

limited participation of

private companies

Marked for

deletion

Current: 10.

Cumulative number

of garment

enterprises using

GSC advisory

services

Number of user

factories

Value 3 N/A 10

Date 2012 2015 9/30/2018

Comments No further support in

this area

New

10. Number of new

company

registrations per year

in non-resource

sectors

Number Value 4,353 4,353 7% increase

Date 2015 2015 9/30/2018

Comments Increased transparency

leading to more

registrations

Component C: Mainstreaming aid-for-trade

No change

Current: 11.

Improved aid for

trade governance

moving towards a

program based

approach operating

under the TPSWG

Descriptive Value Fragmented

standalone work

programs

Coordinated, joint

work planning and

results monitoring

supervised by the

TPSWG

Coordinated joint work

planning and results

monitoring supervised

by TPSWG

Date 2012 2016 9/30/2018

Comments 8 TRTA projects

currently under the

single project

governance structure

Marked for

deletion

Current:

12.Increased focus

in government

Descriptive Value Limited focus Substantive focus

with poverty, social

and gender impact

Substantive focus with

poverty, social and

gender impact

19

planning documents

on the poverty,

social and gender

impact of increased

trade and

integration

mainstreamed. mainstreamed

Date 2012 2015 9/30/2018

Comments Gender has been

included in 5 year

Industry and Trade

Development Plan of

MoIC

New

12. Perception of

Lao Business

Forum’s

effectiveness

increased

Qualitative Value Somewhat effective

40% and very

effective 10%

0 60% perceive LBF as at

least somewhat

effective

Date 2014 2015 9/30/2018

Comments This data would be

obtained by adding a

relevant question to the

existing Lao economic

“sentiment survey”

New

12a. Cumulative

number of issues

and concerns raised

by small and

women-led

enterprises captured

and actioned

through the Lao

Business Forum

Number Value 0 0 10

Date 2015 2015 9/30/2018

Comments This data would be

collected by the LBF

No change

13. Increased share

of firms with female

management /

ownership

participation

% Value 39 41.9 47

Date 2009 2012 9/30/2018

Comments

20

ANNEX 2: Detailed Description of Modified or New Project Activities

Lao PDR: Trade Development Facility Project – Additional Financing

1. The support in the additional areas will critically complement support provided thus far to ensure

that private enterprises will benefit more strongly from improvements made in the areas of trade

facilitation, trade policy and regulations, and efforts made to support diversification and

competitiveness. It will support increased transparency of the business enabling environment,

streamlining of procedures, and an increase in predictability in the application of existing rules,

regulations, and procedures.

2. The proposed additional financing and proposed restructuring will not alter the overall

project design nor its Development Objective, but it will introduce additional sub-components

under the existing three components. As a result of these modifications, and in response to the

recommendations made during the MTR, the results framework will also be updated.

COMPONENT A: TRADE FACILITATION, TRADE POLICY AND REGULATIONS

3. Work under component A has advanced well, but additional work remains to be done. The

Additional Financing under this component will therefore continue work already undertaken and

deepen the work, including making use of remaining funds as costs for some activities had been

overestimated.

Subcomponent A1: Trade facilitation support (US$ 100,000 to existing subcomponent)

4. Provision of support to, inter alia: (a) the Trade Facilitation Secretariat in the

implementation of the secretariat’s action plan; (b) enhance the capacity of management

starting at the middle level of the Recipient’s civil servants in trade related agencies; and (c)

enhance and operate the Recipient’s trade portal. The Additional Financing will support

DIMEX/Trade Facilitation Secretariat (TFS) to coordinate and address trade facilitation issues facing

the trading community. While trade facilitation agencies have made good efforts under the TFS since

establishment in 2010 for inter-agency cooperation, there is a capacity gap in collating, analyzing and

articulating trade facilitation issues and providing timely resolution to address the reported problems.

This subcomponent will finance a technical support of a part-time trade facilitation advisor (12 man

months over the period of additional financing) to help prioritize and implement the commitments

made by Lao PDR as part of the WTO’s Trade Facilitation Agreement (TFA). This sub-component

will also provide additional support to DIMEX to evaluate and expand the training on trade

facilitation issues based on the curricula developed under TDF-2. This will permit the trainers who

were trained to deliver additional workshops and reach a broader audience in the trade facilitation

agencies. It will continue support public dissemination around TF issues and continue support to the

Lao Trade Portal (LTP) through a full-time Content Coordinator, trade portal maintenance, and

updating of the portal to include tariffs that Lao PDR is granting imports from preferential trading

partners.

Subcomponent A2: Non-tariff measures review and rationalization (US$ 0 to existing

subcomponent)

21

5. Streamline, simplify and harmonize non-customs border agency measures through, inter

alia: (a) the classification, review and streamlining of domestic non tariff measures; and (b) the

conduct of a survey and related activities to identify and assess non tariff measures faced by

Lao exporters. This AF component will continue to support DIMEX, focus on rationalizing,

streamlining and where possible removing the most burdensome measures. All non-tariff measures

(NTMs) in Lao PDR were collected, classified and published in the Lao Trade Portal with the

implementation of the original financing –TDF-2. Efforts to rationalize, streamline and remove

burdensome NTMs have started under the original financing, but political and coordination

constraints within the NTMs working group have limited progress made to date. Establishing at least

a functioning technical NTM Review Working Group remains a high priority and precondition for

effective implementation of this component across Ministries as DIMEX would otherwise have to

focus on NTMs within MOIC with strong Ministerial support. As part of the increased support to

improving the business environment, the additional financing will continue to fund a part-time

international NTM advisor to strengthen consultations with the private sector around NTMs, to

support and build capacity within DIMEX to undertake impact assessments, and to review and

streamline NTMs. A national NTM specialist could further support NTM with implementing these

activities. Consultation with private sector should be inclusive (in terms of size, location, and

ownership characteristics), allowing issues for a variety of stakeholders to inform the reform process.

This would allow the Government to ensure regulatory measure meet sound policy objectives without

generating unnecessary costs to businesses. Due to the challenges of inter-agency coordination, this

additional support could also focus on assisting MOIC in revising two or three NTMs relating to

processes fully under MOIC control. If progress with the institutional coordination allows, the project

will also review measures under the control of other agencies and ministries.

Subcomponent A3: Trade in services (US$ 100,000 to existing subcomponent)

6. Strengthen the governance of the regulatory environment affecting trade in services

through, inter alia: (a) the conduct of regulatory assessments to, inter alia, compile the existing

measures affecting trade in services, review the performance in their implementation, and

identify gaps in the existing trade in services regulatory framework; and, (b) the improvement

of access to the regulatory framework affecting trade in services. The Additional Financing to this

subcomponent will continue support to the trade in services agenda by supporting FTPD in

developing their capacity for trade negotiations and funding a term part-time International Trade in

Services Policy Advisor as well as a part time National Consultant for Trade in services under

subcomponent A3-1. Both consultants will support FTPD in their efforts further assist other

departments and Ministries to effectively implement key recommendations made in the analytical

studies funded by the original project which covered horizontal barriers as well as the telecoms and

insurance sectors. Support from the consultants could also assist FTPD to engage in additional

priority sectors such as transport/logistics and to continue support implementation of ASEAN MRAs

that started under the original project. Similar to the support provided to the LTP, the project will

support, under sub-component A3-2, a full-time Content Coordinator and trade portal maintenance

for the Trade in Services Portal (STIP) who will closely coordinate with the Content Coordinator for

the LTP. Resources will also be provided to publish (and maintain) information made public under

subcomponent B3.

Subcomponent A4: Trade in goods

22

7. Support to activities associated with the implementation of the Recipient’s trade obligations

to, inter alia, WTO and ASEAN, through, inter alia: (a) strengthening trade policy coordination

mechanisms to ensure trade policy coherence; (b) disseminating the Recipient’s trade

commitments and strengthening capacity on trade remedies; and (c) strengthening the legal

framework for sanitary and phytosanitary measures. No additional financing.

COMPONENT B: DIVERSIFICATION AND COMPETITIVENESS

8. Component B of the additional financing to the TDF-2 aims to complement the work undertaken

in the area of trade policy, trade facilitation, and regulations with efforts to improve the business

environment to foster diversification and strengthen competitiveness of companies. This

complementary work will allow companies to more easily benefit from an improved trading

environment by reducing other constraints to business growth. This will be critical if Lao PDR wants

to use the private sector as an engine for poverty reduction and job creation.

9. The difficult business environment in Lao PDR (ranked 134th

out of 189 economies on the 2016

Ease of Doing Business ranking – against an ASEAN average of 88) continues to generate significant

costs for new investments (and the expansion of existing investments), and key challenges are

confirmed in the 2014 Investment Climate Assessment. Available data and opinions among the

private sector support the view that the business remains complex and risky, and investors tend to

seek quick return, low quality investments while forgoing investment in skills and productivity.

Challenges in the business environment result partially from a lack of transparency and complex

regulations, but also from a consistent discrepancy between de-jure laws and guidelines on the one

hand and their de-facto application on the other. The additional financing will support the

Government’s efforts to improve the business environment by increasing transparency of existing

regulations, reviewing regulatory objectives and efficiency (including streamlining), and more

consistent and predictable implementation of laws and regulations in place that undermine the

confidence of the private sector and are not conducive to greater investment flows.

Component B1: Business assistance facility

10. Establish a Business Assistance Facility to inter alia: (a) advise firms on business growth

plans; (b) provide Matching Grants to assist firms in purchasing specialized business

development services in support of growth plans; and (c) conduct impact evaluation of services

provided. No additional financing.

Component B2: Labor standards and manufacturing productivity

11. Improve productivity, competitiveness and labor standards of the garments manufacturing

sector, by, inter alia: (a) strengthening the supervision of the Recipient’s labor standards and

developing a scheme to improve said standards; and (b) supporting the transition of the

Garment Skills Development Centre towards financial and operational independence. No

additional financing.

Component B3: Business regulations review and rationalization (US$ 750,000 to new

subcomponent)

12. Support transparency and rationalization of business regulations related to entry and

operations of enterprises, by, inter alia: (a) mapping out related regulations, procedures, and

23

processes, making such information publicly available; and (b) reviewing and streamlining

selected regulations affecting the setting up and operating environment for private businesses.

As part of the horizontal regulatory assessment of laws, regulation and administrative practices

affecting services that has been undertaken through TDF-2, a number of regulatory and administrative

measures pertaining to the Enterprise Law, among others, were found to affect service providers, and

more broadly the business environment. The horizontal assessment also recommended a further

regulatory impact assessment be conducted to identify additional measures that would have to be

addressed to improve the business environment. The additional financing under this new

subcomponent will support the Enterprise Registration and Management Department (ERMD) at

MOIC to take a leadership role in improving the business environment for general business activities

in Lao PDR. To strengthen the diversification and competitiveness agenda, the support will focus on

increasing transparency regarding laws and regulations, the rationalization of business regulations

related to entry and operations of enterprises, and dissemination as well as capacity building activities

to increase the predictability of application.

13. The additional financing will support the ERMD in increasing transparency regarding business

registration and obtaining operating licenses, to review existing legal provisions, regulations, and

procedures, increase predictability in application and streamline the most burdensome processes.

With the resources provided, ERMD would be able to hire a full-time Business Process Specialist to

work with the department, as well as a domestic consultant counterpart to support the Specialist and

ERMD. Under guidance of ERMD, the Specialist would first work with all departments within the

mandate of the MOIC (ERMD, DoIH, DIMEX, and Domestic Trade) to collect all laws, regulations,

procedures, forms, process maps, and fees related to obtaining the Business Registration Certificate

(particularly relating to the ‘negative list’) and operating licenses operations (for example for setting

up a production facility, hiring workers, importing or buying intermediate inputs, or relating to the

sale of raw materials and final products). Once completed for all MOIC agencies and piloting the

methodology, the Specialist would then replicate the work across all relevant departments in other

line Ministries. Subject to need, the project could fund sectoral short-term experts to contribute to

that exercise at more technical line Ministries. The experts will present the stocktaking of processes

and list of all operating licenses to government stakeholders for verification. The detailed information

will be prepared and uploaded in an accessible and searchable database linked to the Services Trade

and Investment Portal.

14. Based on this stocktaking, the Additional Financing would allow the Specialists to review

collected documents for internal consistency and to identify inconsistencies among them and Lao

PDR’s international commitments, and would permit ERMD to organize inclusive consultations with

the private sector to identify those measures that most negatively affect private sector operators (in

terms of time, discretion and costs involved) for obtaining the Business Registration Certificate and

operating licenses, identifying those that disproportionally affect women entrepreneurs. To ensure

inclusiveness, an international Communication and Engagement Specialist would support ERDM in

organizing these consultations. Following these consultations, the Specialist would undertake a

detailed business process mapping for around 40 of the identified priority licenses. The detailed

process maps as well as documents, procedures, and downloadable forms would also be made

publicly available in the public domain. To improve the predictability of application, the Additional

Financing would fund selective capacity building activities such as training and dissemination

workshops for ERMD and line ministries, as well as information dissemination of existing laws and

regulations.

24

15. Following the detailed business process mapping, the Specialists would propose priority

regulations for reform to address the inconsistencies that have been identified. With support from a

lawyer funded under the Additional Funding, ERMD and the Specialist would work with relevant

departments/agencies to change relevant regulations to make them consistent in line with existing

laws where possible. Revisions would start with those processes under control of MOIC before

expanding to processes in line Ministries. As part of this review, the Specialist would also assist

ERMD in reviewing the negative list in an effort to simplify and streamline it. Support under the

additional financing will be closely coordinated with other projects to ensure that initiatives build on

each other and avoid duplication. In particular, work will be closely coordinated with the IFC/WB-led

Investment Climate Project (see Annex 4 for more information), support provided by other

development partners (such as the Mekong Business Initiative and ADB’s support to ERMD focusing

on processes within ERMD only as well as data connection between central and provincial offices),

and support by various partners to MPI in revising the Investment Promotion Law.

COMPONENT C: MAINSTREAMING AID-FOR-TRADE

Component C1: National Implementation Unit, and Trade and Private Sector Development

Working Group (US$ 300,000 to existing subcomponent)

16. Support the Recipient’s aid-for-trade governance framework through, inter alia, the

strengthening of the capacity of the National Implementation Unit and the Trade and Private

Sector Development Working Group. The additional financing will support maintenance of a

satisfactory project management arrangement of the project. It will permit to keep the current team in

place, allowing the additional financing to build on well-established and efficient management

experience and processes. The additional financing to this subcomponent will support further capacity

building and transfer of responsibilities to Government staff within the NIU and permitting the NIU

to increase their coordination role. The additional financing will also assist NIU to continue

administering the DTIS roadmap challenge facility, further strengthening of policy dialogue on trade

and private sector development and AfT governance framework in the country, and provide practical

policy advice on trade and private sector development issues.

Component C2: DTIS action matrix/roadmap challenge facility (US$ 500,000 to existing

subcomponent)

17. Establish a challenge facility to support implementation of smaller priority activities

identified within the DTIS Roadmap on a demand-driven basis. Progress of implementing

projects under the DTIS challenge facility has been strong and as of July 18, 2016, 81% of the

originally allocated funds have been committed to eight proposals and 70% of the commitments have

been disbursed. The additional financing will allocate additional resources to the DTIS challenge

facility to continue support implementation of smaller priority activities identified within the DTIS

Action Matrix/Roadmap on a demand-driven basis. As part of this additional allocation, stronger

focus will be put on working with non-MOIC agencies to access the funds of the challenge facility.

At the same time, the maximum size for proposals will be increased to US$ 150,000.

Component C3: Research and policy analysis

25

18. Support to the Recipient’s trade policy research capacity by, inter alia: (a) research

methodology and capacity building; and (b) development of policy relevant research on issues

related to trade and private sector development. No additional financing.

Component C4: Public-Private Dialogue (US$ 400,000 to new subcomponent)

19. Strengthen the Recipient’s mechanisms for discussions among the private and public sector

by, inter alia: enhancing the capacity, inclusivity and effectiveness of the Lao Business Forum. Complementary to the activities to improving the business environment supported under component

B3, the additional financing will support the public-private dialogue with a view to making it more

effective and inclusive. This component will support the MOIC in its newly transferred high-profile

coordination responsibilities for the Lao PDR Business Forum (LBF), allowing MOIC to strengthen

LBF operations and the Lao private sector to raise their concerns with high-level Government

officials. This sub-component will support 1) MOIC in improving and making more inclusive the

design of the LBF, improving coordination and feed-back between the public and private sector, and

leading the LBF politically to ensure decisions are followed-up by relevant Ministries. The

component will also 2) support LNCCI technically to implement the LBF and making it more

inclusive by supporting small and women-led enterprises in formulating their concerns in an

actionable manner.

20. To support MOIC, the component would fund the appointment of a part-time senior international

Strategy and Priority Advisor at MOIC to assist MOIC in ensuring that the LBF will be inclusive and

effective. Together with a national consultant/staff, his/her role would be to design a mechanism

allowing MOIC to effectively follow up with line Ministries on decisions taken at the LBF, to design

a M&E framework, and to design and implement a mechanism to obtain frequent feedback from the

private sector on the functioning of the LBF, allowing such feedback to improve the design of the

LBF making the LBF an effective ‘sounding board’ generating reform success. To support LNCCI,

the additional financing would continue to fund the full-time local PSD consultant and an

administrative assistant that have been funded under the challenge facility proposal under TDF-2 to

support the LBF and to feed information generated and challenges identified under component B3

into discussions at the LBF. The Additional Financing would further fund a full-time national

Inclusiveness Advisor who would work with smaller companies, women-led enterprises, new start-

ups and companies in the regions (using the regional offices of the LNCCI) to work with such

companies to help them formulate their concerns in a manner that would allow that input to feed into

the LBF process. This would ensure increased inclusiveness of the Public-Private dialogue.

26

ANNEX 3: Revised Estimate of Project Costs

Project component Original

Costs

(USD$)

Additional

Financing Revised Total

Component A: Trade Facilitation, Trade Policy and Regulations 5,600,000 200,000 5,800,000

A1 Trade Facilitation Support 1,300,000 100,000 1,400,000

A2 Non Tariff Measures review and rationalization 1,300,000 0 1,300,000

A3 Trade in services 1,700,000 100,000 1,800,000

A4 Trade in goods 1,300,000

1,300,000

Component B: Diversification and Competitiveness 4,100,000 1,100,000 5,200,000

B1. Business Assistance Unit (BAU) 2,500,000 0 2,500,000

B2. Labour standards and manufacturing productivity 1,600,000 0 1,600,000

B3. Business Regulations Review and Rationalization

750,000 750,000

contingency

350,000 350,000

Component C: Mainstreaming Aid-for-Trade 4,300,000 1,200,000 5,500,000

C1.

National Implementation Unit, and Trade and Private Sector Development

Working Group 2,500,000 300,000 2,800,000

C2. DTIS action matrix/roadmap challenge facility 1,000,000 500,000 1,500,000

C3. Research and policy analysis 800,000 0 800,000

C4. Public-Private Dialogue

400,000 400,000

Total investment costs 14,000,000 2,500,000 16,500,000

27

ANNEX 4: Division of Labor: TDF-2 Additional Financing & IFC Investment Climate Project

Area TDF-2 Additional Financing Investment Climate Project

Mapping of

licenses/

permits

Process mapping for obtaining Enterprise

Registration Certificates, covering

processes at all involved agencies

Stocktaking of existing operating licenses in

all sectors of the economy to create a

licensing inventory

Clarification of sectors included on the

negative list of businesses requiring line

Ministry approval for registration

Detailed process mapping of around 30

processes to obtain operating licenses,

focusing on those within MOIC

Testing of methodology for taking

stock of operating licenses in key

sectors (tourism, logistics, agriculture)

Assessing overall burden, costs and

time involved in complying with

selected priority procedures

Streamline/

revise legal

documents

Identify inconsistencies between laws and

regulations, conflicting regulations, or de

jure vs de facto implementation

Consultant team to proposed regulatory

changes to address existing inconsistencies

Identify unnecessary steps in procedures (or

procedures themselves)

Review/streamline negative list of

businesses requiring line Ministry approval

for registration

Continued support to the Doing

Business Task Force to complement

licensing reforms at MPI. Support will

be under leadership of the MPI and

focus on other Ministries than MOIC

Testing of methodology for detailed

process mapping of six procedures

(outside MOIC)

Access to

Information

Include collected information on new

website developed by ADB in close

collaboration.

Publication of findings and process

maps developed will be undertaken

through the AF

Private

Sector

engagement

Strong linkages with the LBF to identify

priority constraints, agree on solutions, and

ensure follow up

Follow-up primarily through the Task

Force at MPI to build support for

reforms and use the LBF as discussion

forum for prioritizing and agreeing on

reforms

Gender Particular focus on gender impact of

existing regulations processes and approach

to streamlining

No specific focus on gender impact

Enforcement Capacity building for ERD at central and

provincial level to ensure consistent

application of rules/regulations

Establish an appeals mechanism

Note: work in this area will also be closely coordinated with ADB’s support to ERMD, focusing on processes

within ERMD only as well as data connection between central and provincial offices

28

ANNEX 5: Procurement Arrangement

Procurement

1. Procurement for the proposed Additional Financing project will be carried out in accordance with the World

Bank’s Procurement and Consultant Guidelines, dated January 2011 and revised July, 2014, and the provisions

stipulated in the Grant/Financing Agreement and in agreed Procurement Plans.

2. It is expected that there will not be any procurement of works under this proposed AF.

Procurement of goods

3. Goods to be procured under this AF will be less primarily include, office equipment. Value of procurement of

goods is generally less than USD 600,000 per contract ant it will be procured through National Competitive

Bidding (NCB) and shopping methods.

Selection of consultants

4. It is expected that some new individual consultants will be hired under this proposed AF and some consultants

under the on-going TDF2- project will be continued under the AF. A few consulting firms will be also

employed.

Assessment of the agency’s capacity to carry out procurement

5. Procurement activities will be carried out by the NIU established in the Department of Planning and

Cooperation at the Ministry of Industry and Commerce. An updated assessment of the capacity of the NIU to

implement procurement under the AF was carried out and the NIU, the designated implementing agency, has

adequate and qualified officers and staff and also has experiences in handling the Bank-financed projects.

However, there are risks of conflict of interest and corrupt practices and the NIU will continue to implement

the measures to mitigate against risks of conflict of interest and corrupt practices and strengthen integrity and

transparency in the procurement process which is applying under on going project.

6. The overall project risk for procurement is Moderate.

Procurement plan

Period covered by this procurement plan: 24 months (Oct 2016 to Sep 2018)

I. Procurement of Goods

1. Prior Review Threshold: Procurement Decisions subject to Prior Review by the Bank as stated

in Appendix 1 to the Guidelines for Procurement:

Procurement Method Procurement Method

Threshold

Prior Review

Threshold

Comments

1. ICB (Goods) >=US$ 600,000 All

2. NCB (Goods) <US$ 600,000 First contract

3. Shopping (Goods) <US$ 100,000

4. Direct Contracting (Goods) - All Where justified and

subject to IDA’s prior

agreement

29

2. Procurement of all contracts for Goods financed wholly or partially by IDA, including through

the Multi-Trust Fund, will be carried out through the applicable procurement methods in

accordance with the thresholds in the above table and as defined against each contract package in

the procurement plan. Procurement using NCB or shopping procedures will use procedures, set

forth in the Decree 03/PM dated January 9, 2004, and the Implementing Rules and Regulations

(IRR) dated March 12, 2004, including national standard bidding document with IDA’s prior

concurrence, will be followed subject to the improvements listed in the NCB-Annex to the Legal

Agreement.

3. Procurement Packages with Methods and Time Schedule

1 2 3 4 5 6 7 8 9 10 11 12

Ref.

No.

Contract

(De-

scription)

Estimated

Cost

(US$)

Procure

ment

Method

Pre-

qualifi-

cation

(yes/no)

Domestic

Preference

(yes/no)

Review

by Bank

(Prior /

Post)

Start

Bidding /

Selection

Process

Expected

Bid-

Opening

Date

Contract

signed

Contract

Finished

Com

ments

GS.1

Office

equipme

nt for

B3.

40,000 Shoppin

g

No No Post Jan

2017

Jan

2017

Feb

2017

Mar

2017

II. Selection of Consultants

1. Prior Review Threshold: Selection decisions subject to Prior Review by Bank as stated in Appendix 1 to

the Guidelines Selection and Employment of Consultants:

Selection Method Procurement

Method Threshold

Prior Review

Threshold

Comment

1. QCBS, QBS (Firms) >US$ 300,000 >US$ 100,000

2 CQS (Firms) <US$ 300,000 First Contract

3. Single Source (Firms) - All Where justified and

subject to IDA’s prior

agreement

4 Least Cost Selection - >= US$ 100,000 For Auditors

5 Individual Consultants - Fiduciary

Consultants and

>US$ 10,000 for

SSS

Comparison of

qualifications of at least

three candidates. SSS

may be used where

justified and subject to

IDA’s prior agreement

2. Short list comprising entirely of national consultants: Short list of consultants for services, estimated to

cost less than US$ 200,000 equivalent per contract, may comprise entirely of national consultants in

accordance with the provisions of paragraph 2.7 of the Consultant Guidelines.

30

3. Consultancy Assignments with Selection Methods and Time Schedule

1 2 3 4 5 6 7 8 9 10

Ref. No. Contract

(Description)

Estimate

d

Cost

(US$)

Selectio

n

Method

Review

by Bank

(Prior /

Post )

Start

Bidding /

Selection

Process

Expected

Proposal

Submission

Date

Contract

signed

Contract

Finished

Comment

Component A1 & A2 – Trade Facilitation Support and NTMs

A1.1 International Trade Facilitation

Specialist

100,000 IC Prior Mar 2017 Contin-n Mar 2017 Mar 2018 Input is 12 months

over 18 months

A1.2 National Trade facilitation

Specialist

50,000 IC Prior Mar 2017 Contin-n Mar 2017 Mar 2018 Contract extension

A1.3 International NTM Specialist 120,000 IC Post Mar 2017 Contin-n Mar 2017 June 2018 Input is 12 months

over 18 months

A1.4 National NTM Specialist 30,000 IC Post Mar 2017 Contin-n Mar 2017 June 2018 Contract extension

A1.5 National PSD Coordinator 32,000 IC Post Mar 2017 Contin-n Mar 2017 Sep 2018 Contract extension

A1.6 Lao Trade Portal Content

Coordinator

31,000 IC Post Mar 2017 Contin-n Mar 2017 Sep 2018 Contract extension

A1.7 Administrative Officer 13,000 IC Post Mar 2017 Contin-n Mar 2017 Sep 2018 Contract extension

A1.8 Maintenance contract with IT firm 30,000 Firm Post Mar 2017 Contin-n Mar 2017 Sep 2018 Contract extension

Component A3 – Trade in Services

A3.1 International Trade Policy

Advisor

120,000 IC Prior Mar 2017 Contin-n Mar 2017 Sep 2018 Input is 12 months

over 18 months

A3.2 STIP Content coordinator 30,000 IC Post Mar 2017 Contin-n Mar 2017 Sep 2018 Contract extension

A3.3 Maintenance contract with IT firm 30,000 Firm Post Mar 2017 Contin-n Mar 2017 Sep 2018 Contract extension

A3.4 Trade Analyst 30,000 IC Post Mar 2017 Contin-n Mar 2017 Sep 2018 Contract extension

A3.5 National Project Coordinator 30,000 IC Post Mar 2017 Contin-n Mar 2017 Sep 2018 Contract extension

A3.6 Public Relations Officer 30,000 IC Post Mar 2017 Contin-n Mar 2017 Sep 2018 Contract extension

A3.7 Administrative Officer 12,000 IC Post Mar 2017 Contin-n Mar 2017 Sep 2018 Contract extension

Component B3 - Business Regulations Review and Rationalization

31

1 2 3 4 5 6 7 8 9 10

Ref. No. Contract

(Description)

Estimate

d

Cost

(US$)

Selectio

n

Method

Review

by Bank

(Prior /

Post )

Start

Bidding /

Selection

Process

Expected

Proposal

Submission

Date

Contract

signed

Contract

Finished

Comment

B3.1 Business Regulation Review and

Rationalization –Firm (Business

Regulation Expert, National

Regulatory Expert, Sectoral

regulatory experts, International

& National Legal expert)

500,000 QCBS Prior Sep,2016 Nov,2017 March ,

2017

March ,

2018

The input is 12

months

B3.2 National Coordinator 30,000 IC Post Oct 2016 Nov 2016 Dec 2016 Sep. 2018 The input is 18

months

B3.3 Data preparation and uploading –

Firm

40,000 CQS Post Feb 2017 Mar 2017 May

2017

May 2018 The input is 12

months

Component C1. National Implementation Unit, and Trade and Private Sector Development Working Group

C1.1 National Procurement Officer 45,000 IC Prior Mar 2017 Contin-n Mar 2017 May 2018 Contract extension

C1.2

Inter Procurement Advisor

38,000 IC Prior Mar 2017 Contin-n Mar 2017 Sep 2018 Contract extension (3

months over 18

months period)

C1.3 Procurement assistant 18,000 IC Prior Oct 2017 Contin-n Oct 2017 Mar 2017 Contract extension

C1.4 National Finance Officer 36,000 IC Prior Mar 2017 Contin-n Mar 2017 Sep 2018 Contract extension

C1.5

International Financial

Management Specialist

75,000 IC Prior Mar 2017 Contin-n Mar 2017 Sep 2018 Contract extension (6

months over 18

months period)

C1.6 Finance assistant 13,000 IC Post Mar 2017 Contin-n Mar 2017 Sep 2018 Contract extension

C1.7 Audit firm 10,000 SSS Prior Mar 2017 Contin-n Mar 2017 Sep 2018 Contract amendment

C1.8 M&E Officer 60,000 IC Post Mar 2017 Contin-n Mar 2017 Sep 2018 Contract extension

C1.9 National Trade Analyst 35,000 IC Post Mar 2017 Contin-n Mar 2017 Sep 2018 Contract extension

C1.10 National Trade and Private Sector

Development Advisor

120,000 IC Post Mar 2017 Contin-n Mar 2017 Sep 2018 Contract extension

C1.11 Public Relation Assistant 15,000 IC Post Mar 2017 Contin-n Mar 2017 Sep 2018 Contract extension

C1.12 Administrative Officer 10,000 IC Post Mar 2017 Contin-n Mar 2017 Sep 2018 Contract extension

32

1 2 3 4 5 6 7 8 9 10

Ref. No. Contract

(Description)

Estimate

d

Cost

(US$)

Selectio

n

Method

Review

by Bank

(Prior /

Post )

Start

Bidding /

Selection

Process

Expected

Proposal

Submission

Date

Contract

signed

Contract

Finished

Comment

Component C4. Public - Private Dialogue

C4.1 Part time International technical

assistance for Strategy and

Inclusiveness

240,000 IC Prior Oct 2016 Nov 2016 Jan 2017 Jan 2018 Initial contract for 6

months

C4.2 National Senior PSD consultant to

support MOIC

72,000 IC Post Oct 2016 Nov 2016 Jan 2017 Sep 2018 The input is 18

months

C4.3 National consultant for inclusive

engagement

54,000 IC Post Oct 2016 Nov 2016 Jan 2017 Sep 2018 The input is 18

months

C4.4 National PSD consultant to

LNCCI

30,000 IC Post Mar 2017 Contin-n Mar 2017 Sep 2018 Contract extension

C4.5 Administrative assistance to

LNCCI

12,000 IC Post Mar 2017 Contin-n Mar 2017 Sep 2018 Contract extension

Frequency of Procurement Supervision

In addition to any prior reviews to be carried out by the World Bank, the procurement capacity assessment of the project’s implementing agency

has recommended one implementation support mission every six months during the implementation period of the project. The procurement ex-

post review will be conducted at least one per year and the percentage of the post review is 20%.