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AFRICAN DEVELOPMENT BANK GROUP SIERRA LEONE COUNTRY STRATEGY PAPER 2013-2017 Preparation Team Mr. F. PERRAULT Mr. Y. BALDEH Mr. J. WAHOME Mr. J. ZAYID Director, ORWB Resident Representative , SLFO Officer-in-Charge, OSFU Principal Country Economist, ORWB ORWB/SLFO/OSFU/DEPARTMENT August 2013 ACRONYMS AND ABBREVIATIONS CURRENCY EQUIVALENTS, WTS/MEASURES AND FY EXECUTIVE SUMMARY I INTRODUCTION II COUNTRY CONTEXT AND PROSPECTS 2.1 Political, Economic and Social Context 2.1.1 Political Context 2.1.2 Economic Context 2.1.3 Social Context 2.2 Environment and Climate Change 2.3 Strategic Options 2.3.1 Country Strategic Framework 2.3.2 Strengths and Opportunities 2.3.3 Weaknesses and Challenges 2.4 Aid Coordination and Bank Group Positioning in Sierra Leone 2.4.1 Aid Coordination: Harmonization and Alignment of DPs 2.4.2 Bank Group Positioning in Sierra Leone 2.5 Lessons Learned from the Implementation of the Previous CSP (JAS) III BANK GROUP STRATEGY FOR SIERRA LEONE 3.1 Rationale for Bank Group Intervention 3.2 Deliverables and Targets 3.3 Monitoring and Evaluation 3.4 Country Dialogue Issues 3.5 Potential Risks and Mitigation Measures IV CONCLUSION AND RECOMMENDATION 4.1 Conclusion 4.2 Recommendation List of Graphs Graph 1 Political Context (2011) Graph 2 Real GDP Growth (%) Graph 3 GDP by Sector (%), 2011 Graph 4 Consumer Price Index, Inflation (Average %) List of Boxes Box 1 Transitioning Towards Green Growth Box 2 Evolution of Role of SLFO Box 3 Guiding Principles for Selectivity and Prioritization in the CSP List of Tables Table 1 Doing Business Indicators Table 2 Potential Risks and Mitigation Measures ANNEXES Annex 1 Selected Macro Indicators: Charts and Figures Annex 2 Comparative Development Indicators Annex 3 Progress towards achieving the MDGs Annex 4 Summary of 2012 Fragility Assessment Annex 5 2013 Fiduciary Risk Assessment Annex 6 Portfolio Status (as of end-May 2013) Annex 7 2013 Country Portfolio Improvement Plan Annex 8 Indicative Donor Division of Labor in support of Agenda for Prosperity (2013 – 2018) Annex 9 CSP Results Framework (2013 – 2017) Annex 10 Indicative Resource Allocation (2013 – 2017) Annex 11 Indicative Non-Lending Program (2013 – 2017) i ii iii 1 1 1 1 2 6 7 8 8 8 9 10 10 11 12 12 12 14 17 18 18 19 19 19 1 3 3 4 7 10 12 5 18 ACRONYMS AND ABBREVIATIONS A4P AAA ACC ADF AfC AfDB AWF CCVI CEDAW CLSG CPI CPIA CPIP CPPR CSO CSP DACO DFID DP DSA ECOWAS EIB EITI EPA ESW ESW EU FDI FHI FSF FY GDP GG GIZ GST GTF HDI HIPC IDA IFC IFMIS IIAG IMF JAS KfW MAF MCC MDAs MDBS MDG Agenda For Prosperity (2013 – 2017) Accra Agenda for Action Anti-corruption Commission African Development Fund Agenda for Change (2008 – 2012) African Development Bank Africa Water Facility Climate Change Vulnerability index Convention on the Elimination of all forms of Discrimination Against Women Ivory Coast –Liberia - Sierra Leone – Guinea Corruption Perception Index Country Policy Institutional Assessment Country Portfolio Improvement Plan Country Portfolio Performance Review Civil Society Organisation Country Strategy Paper Development Assistance Coordination Office Department for International Development Development Partners Debt Sustainability Analysis Economic Community of West African States European Investment Bank Extractive Industry Transparency International Environmental Protection Agency Economic Sector Work Economic Sector Work European Union Foreign Direct Investment Free Health Care Initiative Fragile State Facility Financial Year Gross Domestic Product Green Growth German International Cooperation Goods and Services Tax Governance Trust Fund Human Development Index Heavily Indebted poor Countries Initiatives International Development Association International Finance Cooperation Integrated Financial Management Information systems Mo Ibrahim Index of African Governance International Monetary Fund Joint Assistance Strategy Kreditanstalt für Wiederaufbau (German Development Bank) Mutual Accountability Framework Millennium Challenge Corporation Ministries, Departments and Agencies Multi Donor Budget Support Millennium Development Goals i MIC MRU MW NRS OECD PAD PAF PBA PEFA PFM PIP PPP PRSP PSG RISP RMC RWSSI SL SLFO SLIHS SME SSA TA TDF TI UA UN UNIPSIL USAID WAPP WB Middle Income Country Mano River Union Mega Watts National Recovery Strategy Organization of Economic Cooperation and Development Project Appraisal Document Performance Assessment Framework Performance Based Allocation Public Expenditure and Fiduciary Assessment Public Financial Management Public Investment Program Public Private Partnerships Poverty Reduction strategy Paper Peace-and State-Building Goal Regional Integrated Strategy Paper Regional Member Country Rural Water Supply and Sanitation Initiative Sierra Leone Sierra Leone Field Office Sierra Leone Integrated Household Survey Small and Medium Enterprises Sub-Saharan Africa Technical Assistance Transformation Development Fund Transparency International Units of Accounts United Nations United Nations Integrated Peace – Sierra Leone United States Agency for International Development West Africa Power Pool World Bank CURRENCY EQUIVALENTS (As at end May 2013) Currency Unit Leone (SLL) 1 UA = 1 SDR 1 UA = 6481.82 SLL 1 UA = 1.49877 USD 1 USD = 4324.8 SLL WEIGHTS AND MEASURES Metric System 1metric ton 1 kilogram (kg) 1 meter (m) 1 millimeter (mm) 1 kilometer (km) 1 hectare (ha) = = = = = = 2204 pounds (lbs) 2.200 lbs 3.28 feet (ft) 0.03937 inch 0.62 mile 2.471 acres GOVERNMENT FISCAL YEAR January 1 - December 31 ii EXECUTIVE SUMMARY 1. This Country Strategy Paper (CSP) outlines the African Development Bank Group’s (AfDB) programmatic support in pursuance of Sierra Leone’s (SL) development efforts over the 2013 – 2017 Period. The strategy was formulated in a participatory manner, guided by selectivity, and alignment with Government’s Agenda for Prosperity (A4P) for the period 2013 – 2018 and key policies and strategies of the Bank Group, as well as the evolving New Deal for Engagement in Fragile States for which SL is a pilot country. In this context, the CSP reflects on the Bank’s mandate and comparative advantage, and potential to leverage regional operations, co-financing and public private partnerships. 2. Since the end of the internal conflict in 2002, Sierra Leone has made significant progress in consolidating peace and security country-wide and in rebuilding its economy that was nearly destroyed by the decade long conflict. The country has successfully implemented two medium term development strategies that invested in peace and state-building mainly through consolidation and infrastructure enhancement and strengthening macroeconomic foundations by qualifying for debt relief under Highly Indebt Poor Countries Initiative. The country is now classified as one of the world’s top ten business reformers and is a net recipient of millions of dollars in foreign direct investment. Sierra Leone has exhibited high robust economic growth rates, ranging from 6% to 15% annually per year. However, the growth is significantly driven by the extractive industry and is largely non-inclusive and undiversified. As a result, poverty rates are still high despite reducing between 2003 (66%) and 2011 (53%). 3. Despite this notable progress, the underlying drivers of fragility continue to pose significant downside risks for the country’s development. High rates of youth unemployment, at 70%, gender inequality, high levels of perceived and real corruption, weak human and institutional capacities and poor economic governance systems, especially public financial management (PFM) and revenue management systems, constrain the Government’s capacity to implement its development agenda. Limited physical infrastructure, especially in energy, water supply and roads, inhibit inclusive and sustainable growth and limits the country’s ability to implement its transformation agenda. 4. In responding to these critical challenges, the Bank proposes a CSP that supports key elements of the A4P, based on broad consultations and selectivity principles. For these reasons, the proposed strategy will focus on two pillars that are designed to deepen Sierra Leone’s transformation and transitioning towards a more resilient development path. Pillar 1: Enhancing Economic Governance and Transparent Management of Natural Resources Revenue will build on existing public financial management (PFM) reforms and promote the transparent management of natural resource revenues; and Pillar 2: Supporting Transformational and Sustainable Infrastructure Development in energy, roads and water will facilitate inclusive green growth, foster regional integration and enhance private sector development and competitiveness. Support to these critical areas would also seek to diversify the economy into areas that are employment driven and inclusive in nature across demographic, gender and geographic groupings. The regional dimension of fragility is also considered in the formulation of the strategy as this would contribute to addressing the spillover effects of conflict. 5. The CSP places special emphasis on the following strategic themes: (1) private sector development; (2) public sector capacity development; (3) gender equality and women’s empowerment; (4) sensitivity to regional and social fragility through inclusion of vulnerable groups, especially youth; (5) green growth and enhanced resilience to climate change; and (6) regional integration and trade. The role of SLFO in policy dialogue and advisory support, portfolio management and resource mobilization will be critical for the successful implementation of this strategy. 6. The Boards of Directors are invited to consider and approve the proposed CSP for Sierra Leone covering 2013 – 2017. iii I. INTRODUCTION: 1. Following the decade long civil conflict which destroyed the social and physical fabric of the country, Sierra Leone is making remarkable progress in recovery and transitioning into a stable democratic and resilient state. The country however continues to experience some challenges stemming from the root causes of fragility over the decade-long conflict that need to be persistently addressed over the long-term. Some of these challenges are well captured in the Government’s medium term development plan – “The Agenda for Prosperity, 2013-2018” (A4P) that builds on the achievements of the Agenda for Change (AfC), and supports the country’s long-term vision of becoming a middleincome country by 2035. The proposed new Country Strategy Paper (CSP) for Sierra Leone covers the period 2013-2017 and selectively supports the country’s A4P objectives. The CSP is fully aligned with the Bank Group’s Strategy (2013-2022) and the Regional Integration Strategy Paper (RISP) for West Africa.1 The CSP is also underpinned by the relevant results of extensive economic and sector work (ESW) carried out by the Government, Bank and other DPs2, while taking a participatory approach in seeking inputs from diverse stakeholders. II. COUNTRY CONTEXT AND PROSPECTS 2.1 Political, Economic, and Social Context 2.1.1 Political Context Since the cessation of hostilities in 2002, Sierra Leone has registered remarkable progress in its peace- and state-building process, with an enduring peace, shared political power and constitutional rule manifested by three national peaceful elections and democratic transitions.3 This relatively smooth transition continues to deliver peace dividends to citizens in the form of economic growth, restoration of the rule of law, improved service delivery, and citizen participation in governance through enhanced voice and accountability (see Graph 1). Sierra Leone has made good progress in consolidating peace and strengthening security country-wide. The country once hosted the largest peacekeeping mission in the world4 (18,000 UN troops), and is now a net contributor of security personnel (Police and Armed Forces) to UN peacekeeping missions in other conflict-affected countries. However, critical challenges in the security sector remain. These include very slow response time, the perceived increase in crime rates and porous borders that facilitate transnational crime. Additional challenges in the judicial system include limited access to representation and weak support to vulnerable victims. Support for justice and security sector reforms is therefore critical. 1 2 3 4 For example, the CSP aims to: promote the twin objectives of inclusive and green growth; greater emphasis on selectivity; enhanced innovative approaches to getting results, supported by a strengthened operational results framework; highlighting the regional dimension of fragility and promoting regional integration. Some of the key studies underpinning the CSP include:: (i) AfDB: Sierra Leone Infrastructure and Growth Flagship report; Green Growth Stocktaking report; Gender Profile; (ii) DFID: Growth Diagnostics study; Fragility Assessment; (iii) WB: TA support to Sierra Leone Integrated Household Survey; Growth Poles Diagnostics study. This includes three successful presidential elections meeting international credibility standards with relatively peaceful post-election transitions. The recently concluded 2012 elections were multitier – Presidential, Parliamentary and Local Councils. Year 2000-2001 1 3. Fragility Status and Evolution: Sierra Leone continues to be classified as a ‘fragile state’ based on several assessments, including the Multilateral Development Bank’s framework for assessing fragility as well as the country-led fragility assessment (see Annex 4) undertaken in 2012 as part of implementing the New Deal for Engagement in Fragile States that was endorsed by partner countries and donors at the Fourth High Level Forum on Aid Effectiveness held in Busan in 2011. Sierra Leone has also been active in the International Dialogue for Peace and State-building, is one of the g7+ countries, and a signatory to the New Deal. As a pilot country for the New Deal, Sierra Leone was one of the first countries to conduct a fragility assessment, which confirmed that the country has made considerable progress in moving out of fragility though critical challenges remain going forward. The country is also developing country systems and procedures and strengthening skills to enable the structures to function. Two key indicators that point to the country’s positive transition from fragility are: i) the expected winding down of UNIPSIL in March 2014, and ii) the steady rise in Country Policy Institutional Assessment (CPIA) scores over the last few years. Given this context, there is emerging consensus among the international development community that Sierra Leone has turned the corner and is now in a positive trajectory towards transforming into a resilient stable country. However, there is also evidence showing the persistence of some of the underlying drivers of fragility, suggesting the need to carefully assess and manage Sierra Leone’s transition in order to comprehensively address the root causes of fragility. For example, one of the fundamental socio-economic challenges is ensuring that the country’s growth dividend is inclusive and spreads across different segments of society, irrespective of age, sex or region. The Gini coefficient is still high 5 with 50% of income attributable to the top 20% of the population. Rapid economic growth has had limited impact on poverty reduction and employment generation, creating resentment and limited trust in the Government. 2.1.2 Economic Context 4. Structure of the Economy and Growth Drivers: The economy is driven by primary commodities, mainly agriculture and mineral production. The economy is presently undergoing a shift in the size of its major components as informed by movements in the sizes of their contributions to gross domestic product (GDP) – see Graphs 2 and 3. The mining sector contribution to GDP is projected to substantially increase from 4% in 2011 to 22% in 2013 and is anticipated to reach 30% in 2017 due largely to the expansion in existing large scale iron ore operations. Agriculture including forestry and fisheries still accounts for the largest GDP share but that share is declining - reducing from 52% in 2011 to an estimated 42% in 2013. Despite this declining trend, the agriculture sector is still the largest employer, and accounts for over 70% of the current labor force. The mining sector, the current driver of growth in the economy, accounts for less than 3% of total formal labor force, due mainly to the capitalintensive and enclave nature of mining operations and reliance on highly skilled labor. The service sector, which is led by banking, retail, transport and tourism, has a 28% share of GDP in 2013, having slipped downwards from 35% in 2011. The manufacturing sector, mainly driven by cement and light scale consumer products is still relatively incipient and weak, and accounts for only 2% of GDP due to limitations in energy supply, weak infrastructure and poorly developed markets. Off shore oil and gas exploration is ongoing with additional block concessions contracted to renowned oil companies in October 2012. While the prospects of oil discoveries are imminent, commercial viability is expected to be achieved after 2017. 5 The Gini coefficient was at .37 in 2003. 2 5. Macroeconomic Performance: Sierra Leone’s economic growth performance has been robust during the past ten years, with growth rates consistently higher than the Sub-Saharan Africa (SSA) average. After successful post conflict economic recovery with growth rates averaging 6% between 2002 and 2007, the post 2008 financial crises saw growth rates slumping to 3.2% in 2009 and rebounding to 5.5% in 2010/2011. In 2012 however, there was a one-off phenomenal growth rate of 16.7 %, driven mainly by first-time iron ore exports6 from two large-scale operations. The non-iron ore growth driven by agriculture, construction and services was around 6%. Implementation of the International Monetary Fund’s (IMF) program with the Government7 (ECF 2010-2013) came to an end during the fourth and final review in May 2013. Program implementation was challenging but satisfactory as the Government met most of the program’s critical structural benchmarks and quantitative performance criteria. Assessment of the current macro-economic framework pointed to improved stability with some risks that need to be consistently addressed. A successor program is currently being developed for the next three-year cycle and will be presented to the IMF Board in September 2013. 6. Fiscal policy has been largely restrictive during the past two years preceded by post recovery expansionary fiscal policy. Expenditure tightening was supported with tax policy reforms to enhance revenue performance. One key structural tax reform was to broaden the tax base by introducing the Goods and Services Tax (GST) in early 2009. This was partly responsible for the increased revenue-toGDP ratio moving from 10% to 13% of GDP between 2009 and 2011. However, despite these modest gains form ongoing tax policy reforms there is significant backlog of tax reforms required to improve revenue performance, which is currently assessed as sub-optimal and far below its actual potential. The revenue-to-GDP ratio is below the SSA average and even below fragile state comparator countries. Expenditure performance on the other hand has been pro-cyclical during the past ten years, expanding from US$ 133 million in 2002 to US$ 530 million in 2012. The rate of expenditure expansion in the past two years has declined due to fiscal consolidation measures. However, capital expenditure has been on the increase due to the Government’s extensive roads rehabilitation and reconstruction programs. Total expenditure, including lending, has gradually declined, moving from 21% (of GDP) in 2011 to 19.4 % in 2012. The estimate for 2013 indicates a further modest decline to 18.8%. The restrictive fiscal policy has improved the fiscal deficit position, moving from 4.6% percent of GDP in 2011 to 1.2% of GDP in 2012. 7. Debt: The joint WB-IMF staff debt sustainability analysis (DSA) for low-income countries indicates that the risk of debt distress continues to be moderate with an external debt to GDP ratio of 29% in 2012 having declined from 142% in 2005 just before achieving HIPC status in October 2006. Domestic debt to GDP ratio declined from 18.4% in 2007 to 11.1% in 2012 due mainly to reforms in capping domestic debt and declining domestic interest rates. The structural initiatives to consolidate 6 7 African Minerals Ltd and London Mining Ltd commenced industrial production and Exports Extended Credit Facility 2010 -2013 3 and sustain long term debt include passing a comprehensive national debt law, capping Central Bank borrowing to 5% of previous year’s revenue, adopting a procedures manual in 2010, and a debt reduction program for external commercial creditors. Based on the DSA, the country is at a low risk of future debt distress but remains vulnerable to adverse external shocks. This is important for achieving sustainable debt consistent with macro-economic growth and stability. Government, in collaboration with the WB and the IMF, will develop a medium term debt strategy that will help guide Government borrowing and overall debt management. 8. Monetary policy has been focused on a clear objective of targeting single digit inflation which is achieved by mopping up excess liquidity and maintaining price stability that is consistent with the country’s macro-economic fundamentals. Inflation reached a peak of 18.4% in 2010 due largely to food and fuel price hikes during the 2008 financial crises, one-off GST effects and pro-cyclical fiscal policies. The Government targeted end-year inflation rate of 11% in pursuit of the single digit inflation objective (13.7% year-on-year) for 2012 was largely achieved. The exchange rate has also been very stable during the past three years supported strongly by sizable capital inflows into mining and agriculture. 9. The current account deficit including grants increased in 2011 to 52.3% of GDP due to importation of machinery for mining and construction, and declined to 44.0% in 2012 due to the commencement of iron ore exports. The current account deficit is projected to shrink to 11.6% in 2013 as mining firms transition from mobilization to production thereby reducing imports and increasing exports (exports creased by 110% in 2012 over 2011). 10. Medium Term Economic Outlook: Economic prospects for the period of 2014-2016 remain promising, with growth rate forecast at 12% to 14%, doubling the average growth rates for SSA, mainly driven by mining production8, with non-mining growth (driven by agriculture and construction) remaining buoyant at around 6%. Downside risks to the outlook are expected to be exogenous shocks on iron-ore prices and demand and to a lesser extent diamonds. The period is also expected to witness investments in large-scale agriculture that would maintain the sector’s status as the main employer and a key driver of economic activity. 11. Governance: In the past decade, the country has made significant progress in Good Governance. According to the Mo Ibrahim Index of African Governance, Sierra Leone improved in ranking from 48th (2011) to 30th (2012) out of 52 countries. The 2011 Worldwide Governance Indicators also reflect Sierra Leone performing well on the six dimensions of governance. While it has maintained performance in terms of voice and accountability and political stability in recent years, major challenges continue in the areas of government effectiveness (9.95 on a scale of 0 to 100), rule of law (22.54), and control of corruption (26.54). On the PFM front, based on the 2010 Public Expenditure and Financial Accountability (PEFA) assessment and the CSP team’s 2013 field review, most of the PFM indicators recorded a positive trajectory (see Annex 5 for detailed Fiduciary Risk Assessment). The major improvements were recorded in external scrutiny, and aspects of financial reporting. Financial reporting has especially 12. 8 Iron-Ore production and exports is expected to increase from 5,500 mt to 12,500 mt between 2012 and 2015. 4 benefitted from the implementation of the Integrated Financial Management Information System (IFMIS) which currently covers about 60% of the budget, with ongoing roll out to ensure eventual full accounting through IFMIS. The Auditor General’s Office (Audit Services Sierra Leone) has been strengthened and has been able to complete the statutory audit within the stipulated time. 13. While the country has made some progress in structural and regulatory governance reform, there continues to be significant gaps between PFM policies, and procedures and their actual implementation in practice in MDAs and at local level. Sierra Leone’s temporary suspension from the Extractive Industry Transparency International (EITI) Board in February 2013 due to failure in meeting 4 of the 21 EITI benchmarks manifests systemic governance challenges in managing revenues from the extractives sector. Moreover, corruption continues to be a serious challenge for country’s public and private sectors. In 2012, Sierra Leone scored 31 on a scale of 0 (highly corrupt) to 100 (highly clean) in the Corruption Perception Index, ranking 123 out of 176 countries. Anti-corruption institutions lack adequate resources, staff and expertise to effectively combat corruption despite the extension of power for the Anti-Corruption Commission to prosecute cases.9 The fight against corruption will remain critical in the medium term, especially in the wake of anticipated revenues from its minerals sector and weak PFM capacities at central and local council levels. 14. Business Environment: Sierra Leone’s formal business sector is relatively small and gradually evolving but the country is rated as one of the world’s top ten business reformers, moving from 176/185 countries to 140/185 within a five-year period. Notable business reforms include starting a business (ranking 76/185); it takes 12 days (improved from 300 days) to start a business. The country has witnessed significant private sector inflows as foreign direct investment (FDI) has increased threefold during the past five (5) years. However, despite these gains, the MCC growth diagnostics study concludes that the most binding constraints for Sierra Leone’s growth are linked to the critical infrastructure gaps in energy and roads transport, which if not addressed adequately, will severely limit private sector growth. This assessment was supported by the Bank’s flagship Infrastructure study on Sierra Leone (2011) and is consistent with its position in the Africa Infrastructure Index, where the country remains constant at 49/52 countries (between 2006 and 2009). Even though substantial infrastructure investments have occurred between 2009 and now, the gaps are still huge. . 15. Financial Sector: The financial sector has seen significant expansion during the past five years with strong growth in the number of banking and financial institutions in response to the significant increases in FDI. There has also been a corresponding increase in the number financial services and products. The depth of the financial sector is also quite shallow with the absence of a viable stock market and the lack of a sovereign credit rating. Much progress has been made in bringing prudential guidelines in line with the Banking Act of 2011, with supervision and oversight by the Bank of Sierra Leone. Access to credit is low, especially for the rural poor including small holder farmers and SMEs due to high interest rates. Commercial banks have a limited capacity to assess credit risk. Property rights are weak with few legal means to enforce debt repayment, and there is limited collateral information on creditors. Interest rates for commercial loans have however been steadily declining from 22% in 2010 to 15% in 2013 as a result of Government’s recent policy to limit borrowing in the 9 Out of 273 cases investigated in 2012, only 22 led to convictions. 5 financial market. The limitations on long term financing are severe and this sets barriers to domestic business growth and regional FDI. 16. Regional Integration and Trade: Sierra Leone is an active member of the Economic Community of West African States (ECOWAS). The Government’s regional integration objective is to increase trade volumes across borders with neighboring countries especially the Mano River Union (MRU) and ECOWAS region. Intra-regional trade is weak across the MRU region and accounts for less than 1% of total trade volumes. Regional integration would be enhanced by connecting borders and towns across neighboring countries within the MRU region and creating free economic zones and trade hubs in strategic border towns. Such support is expected to enhance intra-Africa trade and provide gainful and productive employment opportunities to the youth and women. Strengthening regional integration would pay off in terms of reducing the risks of spillover of conflict and improving crossborder trade. 2.1.3 Social Context 17. Poverty and Inequality: Sierra Leone has made substantial progress in its socio-economic indicators since the end of the war, moving 10 places upwards from the unenviable human development position it held a few years ago. Despite these improvements, there are significant challenges in socio-economic development characterized by its continued fragile status. Results from the 2011 Sierra Leone Integrated Household Survey (SLIHS) indicate a decrease in the poverty rates, from 66% in 2003 to 52.9% in 2011, with the decline being more in urban relative to rural areas. Underlying this poverty reduction was an annualized 1.6% per capita increase in real household expenditure from 2003 to 2011. Urban poverty declined from 46.9% in 2003 to 31.2% in 2011. District level poverty analysis showed that by 2011 most districts had converged to poverty levels between 50 and 60%, with the exceptions being Freetown at 20.7%; and 64% percent of households in the top two quintiles were found in the western urban areas. 18. Progress on MDGs and Other Social Indicators: On a comparative basis, Sierra Leone ranks below most African countries for many social well-being indicators. As is the case with other fragile states, progress towards meeting the MDGs remains a critical challenge (see Annex 3). The country has, however, improved its position in the Human Development Index (HDI), moving from 0.252 in 2000 (ranking 187/187 countries, reflecting the war torn status) to 0.359 in 2012 (ranking 177 out of 187 countries). Despite the achievement of moving 30% upward in the index during the twelve-year period, the country lags behind the Sub-Saharan Africa HDI average of 0.475. The country ranks poorly with its neighbors, even at the MRU level: only 40% of the rural population has access to an improved water source; Guinea has 59% of its rural population accessing water; while in Ivory Coast the figure is 66%. For sanitation, Sierra Leone has only 13% of its population having access to improved sanitation compared to Guinea, which has 19%, Liberia 32%, and Ivory Coast 24%. The Sub Saharan Africa’s average for sanitation access is 39%. The figures are similar for urban water supply. 19. Youth Challenges: Sierra Leone has a youthful population, with 63% of the population below the age of 25 years. Due to the civil war, a large proportion of this population has limited education or vocational skill levels, thereby adding further challenges to their absorption into the small formal labor market in Sierra Leone. With youth unemployment projected to reach over 70%, during the next five years there is a need to create over 300,000 jobs to engage different categories of unskilled and skilled youths. Creating such jobs shall certainly require a more robust economic growth rates than the current rate that is sustained over the long-time. The A4P outlines multi-sectoral strategies for generating the required employment opportunities, with a strong youth orientation, and driven by inclusive private sector development. 6 20. Gender Equality: The Government of Sierra Leone has enacted various laws to ensure the protection and promotion of the rights of women and children. The National Policy on the Advancement of Women and the National Policy on Gender Mainstreaming – were adopted in 2009 to guide the government’s gender-equality aspirations. 21. In spite of the efforts made to close the gender gaps, considerable disparities still exist. Sierra Leone ranked 139 out of 148 countries in the 2013 Human Development Report’s gender inequality index. In Sierra Leone, only 9.5% of adult women have reached a secondary or higher level of education compared to 20.4% of their male counterparts. For every 100,000 live births, 890 women die from pregnancy related causes; and the infant mortality rate is 104.2 per 1000 live births. Women continue to suffer from significant inequalities in terms of literacy rates, access to land, and legal protection. According to a CEDAW survey in 2009, 63% of women in urban areas and 84% in rural areas are engaged in the informal sector, hampered from reaching their potential by poor and unequal access to land (based on customary practices), skills training, appropriate technology, functional literacy and information on markets and finance. Female participation in the labor market is 66.3% compared to 69.1% for males. Women have made strides to attain gender equality in key decisionmaking positions; they currently occupy 12.9% of parliamentary seats. An affirmative action bill allocating 30% of leadership positions to women is pending a constitutional review. The Government (through Bank support) has prioritized gender issues in its A4P, by having a dedicated pillar for gender and women’s empowerment, as well as mainstreaming these themes in the other pillars. 2.2 Environment and Climate Change 22. Sierra Leone has serious environmental challenges. The 2010 Environmental Performance Index ranks Sierra Leone at the bottom (163rd out of 163 countries), and registers some significant regressions since the end of the civil war. Therefore, managing natural resources more sustainably is critical in Sierra Leone, both from environmental and economic perspectives, since key development sectors (mining and agriculture) rely on sound natural resources management. Sierra Leone’s environmental challenges will be compounded with the effects of climate change. Recent projections indicate that the mean annual temperature may increase by 1.0 to 2.6°C by the 2060s. Considering its low level of development and capacity to cope with extreme events, the country is considered as very vulnerable to the adverse effects of climate variability. Box 1: Transitioning Towards Green Growth As part of its broader effort to support RMCs in transitioning towards a greener economy in line with the Bank’s Strategy 2013 – 2022, the Bank provided technical assistance to the Government of Sierra Leone to mainstream Green Growth in the A4P. In the A4P, Sierra Leone has articulated a pathway for inclusive green growth and has taken a leadership role among African countries in its commitment to this pathway. The work done in Sierra Leone has been showcased in global and regional fora on Green Growth organized by OECD and the Bank. The Government of Sierra Leone and the Bank share the belief that green growth can bring high-quality growth to all Sierra Leoneans, with more jobs, greater resilience and better infrastructure. Sierra Leone recognizes that natural resources are the foundation of growth and economic diversification for the country. As the revenues generated by extractive industries are expected to increase substantially, it becomes critical to further improve governance, revenue management and equitable sharing of the benefits for all Sierra Leoneans. A4P also emphasizes that improved infrastructure - transport and energy are especially vital to inclusive green growth and enhanced competiveness. This is essential for Sierra Leone as it transitions from fragility to a more resilient and stable development track. 23. The Government has realized that strong economic growth will require that environmental and sustainable management of natural resources policies be effectively formulated and implemented to avoid the risk of irreversible damage. The Government, with support from the Bank, is 7 committed to pursuing a Green Growth path, as already reflected in its A4P (see Box 1). The establishment of the Environmental Protection Agency has strengthened the national capability to monitor and reinforce policies for addressing environmental issues appropriately. 2.3 Strategic Options 2.3.1 Country Strategic Framework 24. Government’s Development Strategy: The Government has built on the relevant lessons from 10 the AfC to finalize the A4P. Its goal is to reduce poverty through promoting sustainable inclusive green growth to achieve middle-income country (MIC) status by 2035. This ambitious long-term vision requires a sustained average economic growth rate of 7% annually and a structural transformation from dependency on primary products to a value addition (agriculture and mining) oriented economy that is economically diversified and sustainable. This also requires Sierra Leone consolidating its peace- and state-building gains and effectively managing its transition towards a resilient stable country. 25. The A4P has eight complementary pillars, comprised of 33 strategic sectors and themes, key outcomes and targets, and prioritized interventions. These are intended to reflect the aspirations and priorities arising from extensive multi-stakeholder consultations in all regions of the country. The pillars are: 1) Economic Diversification; 2) Managing Natural Resources; 3) Human Development; 4) International Competitiveness; 5) Employment and Labor; 6) Social Protection; 7) Governance and Public Sector Capacity; and 8) Gender and Women’s Empowerment. 2.3.2 Strengths and Opportunities 26. Peaceful and Stable Political and Economic Environment: Sierra Leone has made good progress in consolidating peace and enhancing security country-wide. This positive trend, coupled with sound management has enabled macro-economic performance to be sound and robust, creating a solid foundation for resilience as it transitions out of fragility. 27. Extensive Natural Resource Endowment: Sierra Leone is well endowed with both renewable and non-renewable resources. These include: i) for renewables: marine resources, forestry, fertile land and water resources; and ii) for non-renewables: rutile, diamond, bauxite, iron ore, gold, and potentials in oil and gas. Managing these resources sustainably and transparently will not only generate significant revenues for the country but could also potentially stimulate rapid expansion of a diversified economy creating more jobs, especially for the youth. This would be critical in addressing the drivers of fragility and maintaining inclusive green growth during the A4P period and beyond. 10 The A4P highlights and takes into account the following key lessons from the AfC: (i) the urgent need to strengthen effective interministerial collaboration and coordination; (ii) importance of managing effectively external shocks; (iii) need for flexibility to enable new strategic and unforeseen initiatives; (iv) importance of strengthening monitoring and implementation arrangements and functionality; (v) importance of predictability and timely disbursement of funds; and (vi) greater attention to effective capacity building. 8 28. Strong Reform Environment and Momentum: Over the years, Sierra Leone has pursued a strong reform agenda whose emerging outcomes are enabling the country to transition progressively out of fragility, to a sustainable development and resilient state. Continued strong leadership will be critical to consolidate and deepen the compendium of governance related reforms. 2.3.3 Weaknesses and Challenges 29. Weak Human and Institutional Public Sector Capacity and Governance: One of Sierra Leone’s binding constraints to rapid and sustainable development is the weak human capacity (as reflected by low education indicators) and limited public sector institutional capacity, at all levels and regions. The public sector is facing major effectiveness and efficiency challenges, especially in PFM, human resources, strategic institutional coordination, management of natural resource contracts, and monitoring and evaluation systems. Despite improvements in CPIA scores, relatively good PEFA assessments, and other governance indices, the challenges in economic governance and achieving adequate levels of transparency and accountability remain high. For example, the failure to meet EITI compliance status after two successive attempts reflects the depth of these public sector challenges. 30. Limited Physical Infrastructure: Recent diagnostic studies demonstrate that Sierra Leone’s poor infrastructure, especially of roads, water supply, and energy11, pose serious development challenges and are the key binding constraints to the productive sector (e.g. agricultural value chain development, fisheries, tourism, small scale manufacturing, etc.) for growth and employment. During the period of the Bank’s CSP, there is need to ensure that the implementation of the A4P addresses adequately the most relevant policy, institutional, regulatory and investment constraints, including public private partnership (PPP) opportunities to close the significant infrastructure financing gap. 31. High Youth Unemployment: Youth unemployment (over 70%), coupled with limited levels of education and vocational skills, poses serious challenges. This key driver of fragility has the potential to undermine stability and reverse peace gains. Despite the adoption of a Local Content Policy and an appropriate strategy in the A4P, there are challenges, including limited access to finance, which need to be addressed effectively in order to stimulate small and medium-sized enterprises (SMEs) development that could potentially bolster economic growth and diversification, thereby creating much needed employment opportunities. Also, appropriate vocational/skill training opportunities need to target young men and women. 32. Low Domestic Resource Mobilization Efforts: There has been significant improvement in domestic revenue collection during the past 10 years, however, domestic revenue to GDP ratio is still far below its potential and still low compared to the SSA average and even for post conflict countries. For instance, Liberia’s Revenue to GDP ratio is 18% compared to Sierra Leone’s 12.6%. This has resulted in budget overruns financed largely from borrowing in domestic banking system which tend to crowd out the domestic private sector as a result of high interest rates. Effective collection and efficient management of domestic revenues generated by the extractives sector would increase domestic revenues to SSA levels and limit financing of the budget from domestic debt. 33. Weak Regional Integration: The MRU is endowed with resources that stretch across borders but its member countries continue to be fragile and face challenges of integration and trade, particularly in the areas of hard infrastructure (road transport, ports, energy) as well as soft infrastructure (financial 11 For example, (i) only 9% of the country’s population has access to grid-based power supply; (ii) only 8% of the total road network is paved and only 21% of the rural population resides within 2km of all-weather road; and (iii) only 57% has access to improved water supply, and only 13% has access to non-shared sanitation. 9 markets, investment and business regulation and procedures, border management, and policy harmonization). Given the region’s history of conflict spillovers across borders, this regional fragility continues to pose security threats to all 4 member countries including Sierra Leone. To this effect, it is imperative to adopt a regional perspective in addressing the drivers of fragility and the binding constraints of the respective MRU member states. The Bank’s proposed Mano River Union Initiative12 seeks to achieve this. 34. Commodity Price Shocks: As the undiversified and non-competitive economy is largely driven by mining revenues, at least in the medium term, its fundamentals would be exposed to global commodity price fluctuations and possible shocks. Accordingly, the economy and Government’s purchasing power and potential revenues for funding its A4P would be vulnerable to volatile movements of mineral prices. This scenario could adversely affect economic stability and Government’s ability to fund A4P priority interventions. The proposed setting up of a Transformation Development Fund (TDF)13 will help in mitigating the effects of these shocks to some extent. 2.4 Aid Coordination and Bank Group Positioning in Sierra Leone 2.4.1 Aid Coordination: Harmonization and Alignment of Development Partners Box 2: Evolving Role of SLFO The opening of the Sierra Leone office in 2007 and its progressive technical staffing (both international and national staff), has enabled deepened and continuous country dialogue on substantive issues, improved monitoring and portfolio management and resulting better performance, provision of timely implementation assistance to Bank supported project teams, and more effective coordination with DPs. 35. Aid Coordination: Sierra Leone has a high dependency on donor assistance (ODA received/disbursed as a percentage of GNI amounted to 14.6%, 2011). Major Development Partners (DPs) include: DFID, the EU, WB, the The Bank is an active member of the Development Partners UN family, and the Bank. DFID is the major Group (DPG), Multi Donor Budget Support (MDBS) Group, bilateral donor and Germany, USAID, China, and the United Nations Country Team. The Bank, through Japan and Ireland also have a strong presence. SLFO, will continue to play leadership roles in the thematic areas of Gender and Green Growth. With the recent transfer of Within the context of the Busan New Deal, an international water sector specialist from Tunis to SLFO, Government and DPs have made a firm the Bank is expected to play a lead role in the Water Sector commitment to establish a Mutual Working Group. The Bank will also assume joint leadership of the Roads Working Group, together with the EU. Accountability Framework (MAF) between the Government and the donor community. The The Bank through SLFO has also proactively used Trust Funds and the Bank’s Fragile State Facility Pillar III to proposed MAF is expected to set the terms of respond to urgent TA requests from the Government (e.g. the partnership required for the successful MCC Compact Development and setting up the PPP unit) implementation of the A4P, including steps towards enhanced alignment and harmonization, and increased use of country systems, which will be strengthened with support from the Bank and other DPs. Indicators for the MAF will be composite, and derived from existing frameworks such as the New Deal Peace- and State-Building Goals, CPIA, PAF, MCC Compact, and aligned with the Results Framework of the A4P. The Government has several instruments to manage aid coordination, including a Development Partners Group, which meets quarterly. The Government through its Development Assistance Coordination Office (DACO) oversees 12 13 This initiative proposes a major effort to address the region’s infrastructure gap in road transportation and energy, which would connect people within and between these countries, promote trade and private sector development, with a view to assisting the region transition out of fragility and instability. The A4P proposes the establishment of a Transformation Development Fund, through which receipts from natural resources would initially be placed and earmarked for transformative public investments. The Fund would also be used for stabilization purposes to help cushion the effects of volatility of global market prices and slow-down on demand. 10 donor coordination and promotes a division of labor amongst DPs which reflects comparative advantages and which guides the closing of strategic funding gaps. See Annex 8 for a preliminary indicative division of labor, which appears to be emerging to support the A4P funding requirements. Box 2 highlights ways by which SLFO has enabled the Bank to play a more active role in supporting Government’s leadership role in strengthening donor coordination and effectiveness, while also enabling the Bank to forge stronger partnerships with a wider range of DPs. 2.4.2 Bank Group Positioning in Sierra Leone 36. Bank Group Portfolio and Assessment: As of 31 May 2013, the Bank Group’s active portfolio for Sierra Leone comprised ten (10) on-going operations at different stages of implementation; with a total commitment of UA 116.1 million (see Annex 6 for details). The Bank Group’s assistance spans across different sectors. Infrastructure, private and Governance sectors are among the Bank’s priority sectors and constitute 88.5% of the Bank’s total commitments. The other sectors in the Bank’s portfolio include agriculture, social and financial sectors. The Bank’s portfolio also includes two multinational operations - the West Africa Monetary Zone Payments System Project and the Capacity Building and Technical Assistance to the Mano River Union Secretariat. The average portfolio age is 2.2 years, including one ageing project which is closing at the end of 2013. 37. Portfolio Performance: The overall performance of the Bank’s portfolio is satisfactory, with a rating of 2.4 (scale of 0 - 3). The projects at risk (PAR) has declined from 50% in 2011 to 14.3% in 2012 and has been maintained at that level in 2013, while the commitment-at-risk increased from 8.4% to 18% between 2012 and 2013 due to the current rating of the Addax Bioenergy Project (which accounts for 18.7% of the portfolio) as a problematic project (PP). However, the cost overrun issue which threatened the project’s implementation in recent months has been addressed and the project is now on course. Typical portfolio challenges include delays experienced in project start-up activities, in fulfilling loan/grant conditions for disbursement effectiveness and capacity constraints of contractors and consultants/supervising engineers to complete projects in a timely manner. Bank’s training in contract management planned for implementation units, is aimed at addressing these challenges going forward. The cumulative disbursement amounted to UA 46 million, representing a cumulative disbursement rate of 40%. The disbursement rate is projected to significantly increase as some projects within the portfolio are expected to start disbursing by September 2013. 38. Country Portfolio Improvement Plan and Continued Key Challenges: The CSP preparation mission included a full day Country Portfolio Performance Review (CPPR) workshop to review implementation progress and update the action plan of the Country Portfolio Improvement Plan (CPIP) developed in 2012 (see Annex 7). The CPIP highlights challenges in three broad areas: (i) Project Design/Appraisal (including M&E aspects), (ii) Civil Works (including contract management); and (iii) Fiduciary Issues (Procurement, Disbursement, Financial Management and Audits). Overall progress in addressing the specific issues has been positive. Special attention was paid to updating key actions which will address: delays in execution of civil works that generally result in cost overruns; ways to continue strengthening and adopting country systems especially for procurement and financial management and the need to enhance the operational functionality of the M&E systems and results frameworks for each of the projects/operations. The steady improvement of the portfolio is partially attributed to the proactive role of the SLFO team in working closely with the Government and providing timely support to the project teams. 11 2.5 Lessons Learned from the implementation of the Previous CSP (JAS) 39. The design of the new CSP is informed by lessons drawn from the implementation of the JAS (2008-2012), as reflected by the JAS Completion Report (2012). These lessons include: i) although the JAS provided the WB and the Bank an opportunity to work together in a more coordinated manner, for the benefits of such collaboration to be optimized, there is a strong need for Government to take the lead role in donor coordination activities especially at the sector levels; ii) maintaining selectivity has helped the Bank to be more focused in its interventions during the JAS period and also increased the average size of the operations leading to increased efficiency in project implementation; iii) as a fragile state, Bank support to Sierra Leone would require a combination of instruments geared towards project financing, technical assistance and advisory services through focused knowledge products; iv) fiduciary risks both in terms of procurement and financial management continue to be an area of concern in the portfolio; and v) maintaining a pro-active approach to portfolio management both on the side of the Bank and the Government would yield positive results on portfolio performance. These lessons have informed the preparation of the proposed CSP by ensuring the use of “fragility lens” in the analysis and design of the strategy, maintaining selectivity in the prioritization of focus areas, putting emphasis on capacity development and donor coordination, especially at the delivery levels. The Bank and WB are preparing separate CSPs in close collaboration and with a renewed focus and emphasis on joint programming at the sector/delivery level. III. BANK GROUP STRATEGY FOR SIERRA LEONE 3.1 Rationale for Bank Group Intervention 40. Sierra Leone has registered remarkable progress in its peace-and state-building, with an enduring peace, shared political power and constitutional rule manifested by peaceful elections and democratic transitions. The country’s emerging and relatively strengthened institutional environment is beginning to deliver peace dividends to its citizens in the form of economic growth, improved services and citizen participation in governance. Significant inflows of FDI have improved confidence of private sector participation in the economy, especially in the mining and agricultural sectors. 41. Nonetheless, the 2012 Fragility Assessment, recent growth diagnostics studies and consultations during the CSP mission, revealed important information and evidence that Sierra Leone’s underlying drivers of fragility have not been fully eradicated and efforts should be intensified in the coming CSP period to support the Government in comprehensively addressing the root causes of fragility so that the gains achieved are adequately consolidated and deepened. Box 3: Guiding Principles for Selectivity and Prioritization in the CSP Alignment with the A4P (2013 – 2018) Alignment with the Bank Group’s Strategy (2013 – 2022) Regional Integration Strategy Paper (RISP) for West Africa Bank Group Framework for Engagement in Fragile States Lessons from the Bank’s past and on-going strategies and portfolio performance; Relevant findings from key Economic and Sector Work; Bank’s comparative advantages and scope for leveraging regional operations and co-financing, and synergies; Division of labor between DPs, coordinated/led by GoSL; Multi-stakeholder/client feedback and consultative dialogues. 42. The New Deal proposes five key Peace- and Sate-Building Goals (PSGs) which seek to identify where countries are within the fragility continuum as they transition out of fragility. These are: i) Legitimate Politics; ii) Security; iii) Justice; iv) Economic Foundations; and v) Revenue and Services. The Government has led in the country’s fragility assessment, which concluded that SL is at the ‘Transition’ stage in all the five PSGs (see Annex 4) and identified the main development gaps. Taking 12 into account the Bank’s comparative advantages, Bank interventions will focus on PSGs 4 and 5 – Economic Foundations; and Revenue and Services, respectively and these interventions are tightly linked to the development gaps identified in the country-led fragility assessment (see Table 2 of Annex 4). Furthermore, in recognition of the regional implications of fragility, and the history of conflict spillovers in the MRU, Bank support will adopt a regional dimension, where appropriate, in addressing the drivers of fragility. The Bank and the Government will work with the DPs to ensure that the other PSGs (Legitimate Politics, Security, and Justice) are addressed by the relevant partners whose mandate and expertise match the required interventions (see Annex 8: Indicative Donor Division of Labor in Support of A4P). 43. Consequently, the proposed CSP seeks to promote and emphasize a private-sector led inclusive and green growth; enhanced economic diversification; expanded regional integration; and stronger economic governance, especially with regards to building robust and resilient institutional and PFM systems, focusing on transparent and efficient management of revenue from natural resources. The Bank strategy (2013-2017), which is more selective than the previous JAS, is guided by the principles of selectivity and prioritization outlined under Box 3, and extensive consultations14 held during the CSP preparation mission. Accordingly, the CSP is focused on two core pillars. 44. Pillar 1: Enhancing Economic Governance and Transparent Management of Natural Resources Revenue: The pillar will enhance economic governance by supporting targeted capacity building and institutional development. It will deepen on-going Bank support to accelerate PFM reforms for transparency, accountability, and efficiency in managing the country’s abundant natural resources and revenues. This in turn will enable the economy to generate the resources needed for expanded public expenditures toward inclusive growth while minimizing aid-dependency, especially with the likelihood of Sierra Leone being phased out of FSF support after ADF 13. The Bank will also promote broad-based private sector development by improving the business environment through structural and regulatory reforms, and SME development, which will be the engine for generating sustainable jobs, thereby addressing some of the drivers of fragility. 45. Pillar 2: Supporting Transformational and Sustainable Infrastructure Development: This pillar is aligned with the overarching objective of the A4P on promoting an inclusive, diversified and competitive economic growth by helping to remove the most binding development constraints of Sierra Leone involving key infrastructure – energy, roads and water – to which the vast majority of the population, especially the poor, irrespective of age, gender and geographic location lacks access. Bank support to such strategic socio-economic infrastructure will therefore generate widespread benefits with a strong poverty focus. Emphasis will be on inclusive employment creating opportunities, increasing regional and national integration, promoting cross-border trade, and ensuring green growth and climate resilience in all of the Bank’s interventions. 46. The two pillars are complementary and mutually reinforcing. In this regard, Pillar 1 (Economic Governance) will help ensure efficient, transparent and accountable expenditures for the proposed Pillar 2 interventions. There will be special focus on building capacity to strengthen the institutional and regulatory environment for enhanced infrastructure services in energy, roads and water, which is critical in ensuring sustainable and cost-effective delivery of core services benefiting all population groups. In addition, special emphasis will be placed on the following strategic themes, in 14 There were three stakeholder consultative events: with all ongoing project implementing teams to update the CPIP; diverse stakeholders including government, private sector and civil society based in Freetown and the provinces/regions. In addition, there were separate consultations with each of the major DPs, which were very helpful in gauging comparative niches and possible areas of collaboration. 13 both pillars: 1) private sector development; 2) capacity development; 3) gender and women’s empowerment; 4) sensitivity to social fragility through inclusion of vulnerable groups, especially youth; 5) climate change, green and sustainable growth; and 6) regional integration and trade (especially within the MRU). 47. Accordingly, the proposed CSP strategic pillars selectively support the following core A4P pillars: Pillar 1: Economic Diversification; Pillar 2: Managing Natural Resources; Pillar 4: International Competiveness; Pillar 5: Employment and Labor; Pillar 7: Governance and Public Sector Reform; and Pillar 8 – Gender and Women’s Empowerment. 3.2 Deliverables and Targets 48. The prioritized interventions and envisaged results for the two focus pillars are described below. Annex 9 shows the CSP Results Framework which underpins the results chain; and Annexes 10 and 11 highlight the proposed lending and non-lending activities to achieve the envisaged results. Pillar 1: Enhancing Economic Governance and Transparent Management of Natural Resources Revenue 49. Pillar 1: Sub-Pillar 1: Public Financial Management & Transparency: The objective is to increase efficiency, transparency and accountability of public institutions by strengthening capacity systems and processes in order to ensure that public budgets, revenues, expenditures and government resources are effectively and efficiently managed. Bank Group priority interventions would contribute to the following three expected key outcomes: (i) increased transparency and predictability in the budgeting, revenues, and expenditure outturns, through enhanced financial reporting; (ii) enhanced legislative scrutiny and follow up on audit reports; and (iii) improved value for money in procurement through compliance with procurement procedures. Priority Bank interventions would include: (i) continued multi-sectoral budget support program (in partnership with other key DPs); (ii) capacity building projects to enhance budget support reforms; and (iii) enhanced technical advisory support and dialogue on PFM issues through SLFO in close coordination with other DPs who are also active in supporting PFM reforms. 50. Pillar 1: Sub-Pillar 2: Natural Resource Governance: The objective is to enhance natural resource governance, and thereby contribute to sustainable resource development and increased public revenues. Bank Group priority interventions would contribute to the following expected key outcomes: i) enhanced domestic revenue mobilization in the mining and non-mining sectors; and ii) strengthened participation of civil society in policy dialogue and monitoring of Government revenues . Potential priority Bank interventions would include: i) a targeted capacity building support to the NRA in collaboration with other DPs; ii) coordinated support with other DPs to the newly established National Minerals Agency to effectively carry out its mandate in monitoring compliance of mining contracts and optimizing Government’s share of mining revenue; iii) supporting the setting up of the governance framework for the TDF; and iv) providing support to the EITI process. 51. Pillar 1: Sub-Pillar 3: Improving Business Enabling Environment: The objective is to improve business enabling environment for inclusive and green private-sector development. Bank Group priority interventions would contribute to the following expected key outcomes: i) improved business environment; and ii) increased number of viable and diversified enterprises, especially SMEs. The priority interventions include the completion of the ongoing PFM and Business Enabling Support Project (which will run through to 2014) and which will seek to develop an SME policy for the Government and provide targeted capacity building support to selected SMEs and private sector 14 support agencies such as the Chamber of Commerce, Sierra Leone Investment Promotion Agency and the Sierra Leone Business Forum. The multi-sector budget support will also seek to promote sustained business reforms. Pillar 2: Supporting Transformational and Sustainable Infrastructure Development 52. Pillar 2: Sub-Pillar 1: Expanded and Lower Cost Energy Supply and Access: Investments in energy would seek to address critical energy challenges that limit barriers to private sector investments and inclusive growth. High and uncompetitive tariff rates (32c Kw/h) coupled with weak transmission and distribution capacity (40% electricity losses due to poor network) make energy provision a priority in the A4P. The country has one of the lowest per capita electricity consumption of 30.5 Kw/h, far below the ECOWAS benchmark of 88 Kw/h. Priority interventions would seek to contribute to the following outcomes: i) increased reliability of energy supply (reduced time of power outage); ii) increased electricity access rate (by households and enterprises – including on grid and off grid); iii) increased supply of electricity, with at least 10% sourced from renewable sources; iv) reduced production cost of electricity; and v) improved capacity of the Ministry for negotiating contracts, and building a pipeline of investments. 53. The West Africa Power Pool (WAPP) project, co-financed with the World Bank, EIB, and KfW, will lay foundation for energy trade across the MRU region and develop the energy transmission mechanism that enhances the sub-region’s future energy supply. This project would promote the regional energy market, and increase energy access in rural areas (through the integrated rural electrification component) for local economic development and improved delivery of social services reliant on access to energy (e.g. health facilities; ICT in schools). 54. The Bank would further fund feasibility studies for other hydro potentials with national and regional benefits. These are expected to be designed and implemented in line with the Bank’s Green Growth agenda, including opportunities in defining the optimal and sustainable energy mix for the country. The focus would be on producing clean energy with more hydro, bio-mass energy and solar and less of thermal production. For example, the Bank will provide a Partial Risk Guarantee facility to the Government for ADDAX Bioenergy Ltd to supply 15 MW of its excess biomass energy to the National grid line. The Bank, through the private sector window, will also seek to invest in the panned Bumbuna Hydro Phase II project that would more than triple the country’s present generation capacity. 55. Pillar 2: Sub-Pillar 2: Expanded Transport/ Roads Infrastructure and Enhanced O&M: The objective is to support improved road accessibility and connectivity that will contribute to inclusive green growth, promote national and regional integration and trade facilitation. Inclusive growth will be harnessed through project designs that ensure that improvements in transport infrastructure incorporate i) rehabilitation/construction of other social infrastructure, for example, selected markets in the project area of influence to benefit farmers and traders (predominantly women); and ii) enhanced accessibility with the main corridor improvements, augmented with improvement of connecting feeder roads. Bank interventions would contribute to the following key outcomes: i) improved core road network conditions (primary and secondary class roads); ii) increased share of paved road network; and iii) enhanced national and regional integration and interconnectivity between Sierra Leone, Guinea and Liberia for increased trade. 56. Priority interventions would include completion of the ongoing Matotoka–Yiye Road and Lungi–Port Loko Road projects. Proposed interventions include upgrading of the Bandajuma-Zimmi Road project in collaboration with the EU, which will link Freetown to Monrovia. The proposed Medium Case Scenario, assuming increased funding levels, would create financing space for an 15 additional road project (Kenema–Zimmi) to be undertaken with similar regional integration opportunities with its link to the Trans-West African Coastal Highway. All road transport projects would ensure sustainability from a Green Growth perspective (looking at maintenance and road safety aspects) and designed to be climate resilient. 57. Pillar 2: Sub-Pillar 3: Expanded Access to and Sustainability of Water Supply and Sanitation Infrastructure and Services: The objective is to support sustainable and equitable access to water supply and sanitation for all uses. Bank Group priority interventions would contribute to two expected core outcomes: i) improved access to sustainable water supply and sanitation services (with targets for rural and urban areas); and ii) reduced incidence of water borne diseases (e.g. cholera and diarrhea). 58. Priority interventions would include completion of the Three Towns Water Sanitation Project (Bo, Makeni and Kenema cities) and the proposed Rural Water Sanitation Project to be funded by ADF-12 (PBA and FSF) resources with co-financing GEF and RWSSI. Both projects will also contribute towards improved governance of the with embedded targeted technical assistance and capacity building support. Supply and Supply and from DFID, water sector 59. Non-Lending Interventions: will develop the knowledge base to strategically support operations and provide an input to Government policy making. For example, the ongoing flagship Skills Gap Analysis will inform decision making and policy direction in the area of TVET and labor and employment and also guide both Government and private sector actors on the role each should play to promote skills development for employment. This analytical work will also complement and inform other donors with direct skills development investments in the country. Similarly, the Green Growth (GG) study has already informed the mainstreaming of GG in the A4P and is expected to also guide the Government in pursuing its Green Growth path during the implementation of the A4P. A regional study on Minerals Fiscal and Licensing Regime Harmonization for MRU countries is also planned with a view to increasing the mining contracts negotiating powers of member countries and also decreasing the incentives for smuggling across borders. Other studies proposed include: i) Domestic Resource Mobilization study to inform Government of better revenue mobilization, especially in the Mining, Oil & Gas sectors; and ii) a Port Master Plan study with a view to improving port operations and performance in the country. Other areas of study will be determined during the MTR of the CSP in 2015. Annex 11 provides an indicative list of the envisaged ESWs under the CSP period. 60. Strategy Implementation Instruments: The Bank Group will use the most appropriate instruments to support the proposed strategy, including budget and institutional support, project loans and grants, trust funds, economic and sector work and policy/country dialogue. These instruments will be used in a complementary manner to maximize synergies and in close partnership with other development partners, also encouraging the active engagement of the private sector and civil society. The proposed multi-sectoral programmatic budget support will enable the Bank to i) support a comprehensive approach to broad-based policy dialogue on strategic macro and sectoral issues involving both pillars, while supporting the country’s transition from a state of fragility to a more resilient development path; and ii) provide predictable medium term financing, while working with other DPs (especially IMF, WB, DFID and the EU) to strengthen enhanced tools such as the medium term expenditure framework and the Public Investment Program (PIP). Given the country’s low Sustainable Lending Limit and high risk status, indirect investments through equity funds and/or regional initiatives such as the Africa Guarantee Fund and Africa SME Program could be used as channels for private sector investment. In addition, Partial Risk Guarantees in priority sectors such as energy will be supported to facilitate public-private partnerships. 16 61. Resource Mobilization Strategy: Given the huge financing needs of the country and the relatively small size of its ADF allocation and variability of PBA and FSF funds, the Bank’s financing strategy will be to use its available resources in a catalytic manner to leverage and prioritize regional funding, co-financing, and public-private partnerships. Emphasis will also be on supporting the country’s broader domestic resource mobilization efforts, coupled with enhanced economic governance, especially from its huge mineral endowment and oil and gas potentials. The Bank will also support Sierra Leone in accessing some of the climate change funds, AWF, and RWSSI resources that would be available to co-finance targeted investments, in addition to tapping the private sector window. Efforts would be made to access Trust Funds and the Africa Legal Support Facility which could support strategic TA and non-lending interventions, in support of the proposed priority activities. 62. Bank’s Indicative Resources and Work Program: The CSP period will cover three ADF cycles: the final year of ADF-12 (2013), the full ADF-13 cycle covering 2014-2016, and the first year of ADF-14 (2017). This strategy will complete remaining tasks in ADF-12 and provide a roadmap for ADF-13. The Mid-Term Review to assess progress would be conducted in 2015 where the ADF-13 pipeline would be firmed up and to prepare the ground work for ADF-14. A significant level of funding was leveraged from the FSF supplemental support window (Pillar I) during the ADF11(UA42.8 million) and to some extent ADF-12 (UA28.7 million) funding cycles and this financing window potentially could be available for ADF-13 but phased out in ADF-14. 63. Due to the level of funding available in the midst of many competing priority needs, ADF-13 projects will be identified and prioritized in close consultation with Government and stakeholders. Given the uncertainty on the level of funds to be available under ADF-13 and 14 (first year), three different scenarios are proposed for Bank Group support: (1) Base-Case Scenario assumes that Sierra Leone receives UA36 million from ADF-13 PBA and First Year of ADF-14 with no FSF allocation in ADF-13. (2) Medium-Case Scenario assumes that Sierra Leone will receive an ADF-13 FSF allocation of UA15 million in addition to the UA36 million PBA allocation. This would provide an additional financing space for another critical road project, the Kenema – Zimmi road. (3) High-Case Scenario assumes that Sierra Leone will receive a significant ADF-13 FSF allocation of UA30 million (almost the same as the FSF allocation they received under ADF-12) in addition to the UA36 million PBA allocation. This scenario would allow increasing the amount allocated towards the Kenema – Zimmi Road Project, especially if the regional envelope resources or co-financing are not secured. 64. The Bank will hold consultations with the Government of Sierra Leone and prepare an addendum to this CSP after the resource envelope for the country in ADF 13 is determined and approved by the Boards of Directors in early 2014. 3.3 Monitoring and Evaluation 65. The Bank, in collaboration with the Government, will conduct monitoring and evaluation of the CSP results framework (see Annex 9), which is aligned with the results framework for the A4P. The Bank will endeavor to carry out the M&E in the context of Government’s proposed enhanced national M&E system expected to track activities and results of the A4P. A CSP Mid-Term Review will be conducted in 2015 to assess the progress made and the emerging outputs and outcomes, using the RF as the main tool for assessment. In addition, SLFO will carry out annual portfolio performance 17 reviews geared towards strengthening alignment with the A4P outcome indicators. SLFO would also take an active role in participating with other DPs and civil society in joint monitoring of the Bank’s contribution towards the objectives of the A4P. 3.4 Country Dialogue Issues 66. The Bank, especially through SLFO, will focus its country dialogue on the following strategic issues which would enhance the effectiveness of implementing the CSP for 2013 – 2017, while being responsive to other key issues which may arise: i) portfolio quality and performance; ii) natural resource governance, especially in pursuing EITI Compliant status and the adoption of international best practice in natural resource management; iii) gender equality, especially with regards to access to finance and property rights for women; iv) ongoing institutional and regulatory reforms under the energy, transport, water supply sectors; and v) regional integration and private sector development issues, particularly to ensure that required supporting policies and complementary investments are in place, including the proposed MRU Initiative and public-private partnerships. 3.5 Potential Risks and Mitigation Measures 67. Table 2 below shows the mitigating measures for each of the risks envisaged under the implementation of the proposed CSP. Table 2 Potential Risks and Mitigating Measures Continued Drivers of Fragility Probability of Risk: Moderate Mitigation Measures and Impact: Moderate While SL is making good progress in its transition from its war and Increased and coordinated dialogue will help ensure emerging fragility, there is evidence that the underlying drivers of fragility security needs are managed and an UNIPSIL withdrawal is not persist (e.g. economic exclusion, delays in meeting the MDGs, disorderly. The proposed Mutual Accountability Framework will limited trust of Government, high unemployment, especially of promote a results-driven dialogue with Government on all youth, high perceived and real corruption levels). A prolonged dimensions critical for its transition to a resilient state. Addressing delay in reversing and stabilizing these drivers can jeopardize physical infrastructure constraints and increased emphasis on achieving the development objectives of A4P. strengthening the role of an inclusive private sector, especially SMEs, to diversify the economy and generate increased jobs will be critical. Public Sector Capacity and Coordination and Implementation Risks Probability of Risk: Moderate to High Mitigation Measures and Impact: Moderate Public institutional capacity, coordination and design and Capacity building will be an integral part of Bank-funded projects. implementation weaknesses at central and local council levels, and FSF-Pillar III resources will also be instrumental in providing hence risks, are relatively high. The limited human and targeted technical and capacity building support. Pro-active institutional capacity of implementing agencies, the inadequate management of the portfolio will be adopted (regular portfolio coordination effectiveness of central entities will be stretched reviews and tracking of the CPIP; sector dialogue, joint programming and action with other DPs, etc.). Economic Governance in the light of Substantial Extractive Industry Resource Revenues Probability of Risk: Moderate Mitigation Measures and Impact: Moderate PFM systems and processes are in the early stages of being There will be systematic and well-targeted measures to further strengthened, at both central and local council levels. Expected strengthen the PFM systems and processes at both central and local substantial inflows of revenues from mineral and other resources, council levels. Civil society engagement in the monitoring of and weak CSOs for third party monitoring, will add challenges to increased revenues from the extractive industry will foster ensuring adequate PFM transparency and accountability, and to transparency and accountability. These efforts will be closely minimize perceived and/or actual corruption levels. coordinated with other DPs. Vulnerability to Shocks: International and Natural Disaster/Climate Change Probability of Risk: Moderate Mitigation Measures and Impact: Moderate International shocks, including lower commodity demand and There will be strengthened: capacities and systems for better prices, could affect the implementation and funding of A4P, monitoring of relevant macro-economic variables to better forecast especially with the economy largely undiversified. In addition, external price and market fluctuations which could impact the SL climate change could affect the implementation of the A4P and economy; regular dialogue on possible scenarios which can impact increase the vulnerability of the infrastructure and other aspects of public revenues and expenditures, to ensure timely adjustments. the economy. Setting up of the TDF will be helpful. Projects will be designed to be climate resilient. 18 IV. CONCLUSION AND RECOMMENDATION 4.1 Conclusion 68. Since the end of its conflict, Sierra Leone has exhibited robust economic growth. However, the economy will need to be diversified and growth made more inclusive and sustainable. The Government has prepared its A4P to address considerable socioeconomic challenges for the period 2013 to 2018. Accordingly, the Bank proposes a selective CSP strategy to support key elements of the A4P, based on an explicit selection and prioritization criteria. This strategy and supporting interventions would focus on helping Sierra Leone transition to a more resilient and inclusive sustainable development path. The strategy also highlights the role of SLFO in policy dialogue and advisory support, portfolio management, donor coordination and resource mobilization. 4.2 Recommendation 69. The Boards of Directors are invited to consider and endorse the proposed Results-Based Country Strategy Paper for Sierra Leone for the period of 2013-2017. 19 ANNEX 1 SELECTED MACRO INDICATORS: CHARTS AND FIGURES Growth, Inflation and Revenue Performance 25 20 15 Growth 10 Inflation Rev/GDP 5 0 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 SL - Growth and Inflation 09-14 25 20 15 Growth 10 Inflation 5 0 FY 2009 25 20 15 10 5 0 FY 2010 FY 2011 FY 2012 FY 2013 SL Growth Rates The mining-led growth is gradually changing the structure of the economy as the sector’s share to GDP is gradually increasing, moving from 4% in 2011 to an estimated 22% in 2013, while agricultural GDP share is declining moving from 52% in 2011 to a projected 42% in 2013. There is great scope for improving productivity, reducing losses and enhancing value chains in agriculture. Growth Rates (%) Sub Saharan Afr Source: IMF, ADB and GOSL I FY 2014 ANNEX 2 COMPARATIVE DEVELOPMENT INDICATORS Develo- Developing ped Countries Countries 2011 2012 2011 Life Expectancy at Birth (years) 71 61 51 41 31 21 11 1 2011 2012 2011 2012 106.6 102.8 101.5 101.4 80.0 98.3 98.7 97.9 5.2 2010 103.1 105.1 66.3 65.0 58.6 80.8 86.4 75.5 3.9 Africa 2010 101.9 98.4 42.3 38.5 43.2 67.0 75.8 58.4 5.3 2010 124.7 120.1 27.6 22.5 25.1 42.1 53.6 31.4 3.6 2010-2012 2010-2012 2001-2012 2001-2012 2011 2010 2010 2010 2008-2011 2009 Education Indicators Gross Enrolment Ratio (%) Primary School - Total Primary School - Female Secondary School - Total Secondary School - Female Primary School Female Teaching Staff (% of Total) Adult literacy Rate - Total (%) Adult literacy Rate - Male (%) Adult literacy Rate - Female (%) Percentage of GDP Spent on Education Sierr a Leone 2009 276.2 730.7 ... 99.5 100.0 99.9 0.4 14.0 95.4 93.0 1.7 3 285 8.2 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 2009 112.2 187.6 65.4 86.4 80.0 56.2 0.9 146.0 83.9 83.7 17.4 2 675 2.9 2008 49.2 134.7 53.7 67.3 65.2 39.8 4.6 234.6 81.6 76.5 19.8 2 481 5.9 Population Growth Rate (%) 2008 1.6 16.8 42.4 55.0 38.0 13.0 1.6 723.0 96.0 80.0 21.3 2 162 13.1 Africa 2008 Health & Nutrition Indicators Phy sicians (per 100,000 people) 2004-2010 Nurses (per 100,000 people)* 2004-2009 Births attended by Trained Health Personnel (%) 2008-2010 Access to Safe Water (% of Population) 2010 Access to Health Serv ices (% of Population) 2000 Access to Sanitation (% of Population) 2010 Percent. of Adults (aged 15-49) Liv ing w ith HIV/AIDS 2011 Incidence of Tuberculosis (per 100,000) 2011 Child Immunization Against Tuberculosis (%) 2011 Child Immunization Against Measles (%) 2011 Underw eight Children (% of children under 5 y ears) 2008-2011 Daily Calorie Supply per Capita 2009 Public Ex penditure on Health (as % of GDP) 2010 2007 0.3 0.7 16.6 16.5 49.3 94.7 45.5 77.9 81.2 11.4 10.1 6.0 7.8 1.7 13.7 71.4 2007 1.3 2.3 28.5 6.0 52.5 103.4 53.2 67.3 69.2 20.9 7.8 46.4 66.7 2.6 230.0 62.4 2007 2.3 3.4 40.0 3.6 77.3 100.0 49.8 58.1 59.1 33.3 10.9 71.4 111.3 4.2 417.8 31.6 2006 2.1 3.1 42.8 1.9 80.8 95.7 24.8 48.1 48.8 37.0 15.0 104.0 157.9 4.8 890.0 21.5 2006 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2012 2010 2012 Sierra Leone 2006 Dem ographic Indicators Population Grow th Rate - Total (%) Population Grow th Rate - Urban (%) Population < 15 y ears (%) Population >= 65 y ears (%) Dependency Ratio (%) Sex Ratio (per 100 female) Female Population 15-49 y ears (% of total population) Life Ex pectancy at Birth - Total (y ears) Life Ex pectancy at Birth - Female (y ears) Crude Birth Rate (per 1,000) Crude Death Rate (per 1,000) Infant Mortality Rate (per 1,000) Child Mortality Rate (per 1,000) Total Fertility Rate (per w oman) Maternal Mortality Rate (per 100,000) Women Using Contraception (%) GNI Per Capita US $ 1800 1600 1400 1200 1000 800 600 400 200 0 2005 35,811 1,244.6 75.7 23.4 38 657 71.7 43.9 0.911 ... ... 2005 98,458 5,807.6 46.0 70.0 3 304 68.7 39.1 0.694 ... 22.4 2004 30,323 1,070.1 40.8 34.5 1 609 37.8 42.5 0.502 ... 40.0 2005 72 6.1 39.1 83.6 340 38.0 50.9 0.354 177 53.4 2004 Basic Indicators Area ( '000 Km²) 2011 Total Population (millions) 2012 Urban Population (% of Total) 2012 Population Density (per Km²) 2012 GNI per Capita (US $) 2011 Labor Force Participation - Total (%) 2012 Labor Force Participation - Female (%) 2012 Gender -Related Dev elopment Index Value 2007-2011 Human Dev elop. Index (Rank among 186 countries) 2012 Popul. Liv ing Below $ 1.25 a Day (% of Population) 2003-2011 2004 Africa 2003 Sierra Leone Year Sierra Leone Africa Infant Mortality Rate ( Per 1000 ) 140 120 100 80 60 40 20 0 last update : 2010 II Sierra Leone 2009 Sources : AfDB Statistics Department Databases; World Bank: World Development Indicators; UNAIDS; UNSD; WHO, UNICEF, WRI, UNDP; Country Reports. Note : n.a. : Not Applicable ; … : Data Not Available. 10.8 -0.2 40.4 11.4 2008 10.7 0.4 28.7 3.1 2007 7.6 0.6 23.0 1.2 2006 15.4 2.9 37.8 0.2 2005 2011 2000-2009 2011 2009 2004 Environm ental Indicators Land Use (Arable Land as % of Total Land Area) Annual Rate of Deforestation (%) Forest (As % of Land Area) Per Capita CO2 Emissions (metric tons) Africa May 2013 ANNEX 3 PROGRESS TOWARDS ACHIEVING THE MDGS 19901 Goal 1: Eradicate extreme poverty and hunger 20002 20123 Employment to population ratio, 15+, total (%) 63.5 64.7 65.3 Malnutrition prevalence, weight for age (% of children under 5) Poverty headcount ratio at $1,25 a day (PPP) (% of population) 25.4 62.8 24.7 53.4 21.3 ... Prevalence of undernourishment (% of population) 36.2 37.3 28.8 Goal 2: Achieve universal primary education Literacy rate, youth female (% of females ages 15-24) Literacy rate, adult total (% of people ages 15 and above) ... ... 37.4 34.8 50.1 42.1 Primary completion rate, total (% of relevant age group) Total enrollment, primary (% net) ... ... ... ... 74.4 ... ... 14.5 12.9 67.2 54.3 67.5 68.2 92.8 ... 76.0 80.0 Goal 3: Promote gender equality and empower women Proportion of seats held by women in national parliaments (%) Ratio of female to male primary enrollment Ratio of female to male secondary enrollment Goal 4: Reduce child mortality Immunization, measles (% of children ages 12-23 months) ... Mortality rate, infant (per 1,000 live births) Mortality rate, under-5 (per 1,000) 163.9 279.8 Goal 5: Improve maternal health Births attended by skilled health staff (% of total) ... Contraceptive prevalence (% of women ages 15-49) Maternal mortality ratio (modeled estimate, per 100,000 live births) 126.7 104.0 200.7 157.9 41.7 42.4 6.5 12.3 21.5 1300.0 1300.0 890.0 Goal 6: Combat HIV/AIDS, malaria, and other diseases Incidence of tuberculosis (per 100,000 people) 279.0 Prevalence of HIV, female (% ages 15-24) Prevalence of HIV, male (% ages 15-24) 479.0 723.0 ... ... ... ... 1.3 0.5 0.2 1.4 1.6 Goal 7: Ensure environmental sustainability CO2 emissions (kg per PPP $ of GDP) Improved sanitation facilities (% of population with access) 0.6 11.0 0.8 12.0 0.7 13.0 Improved water source (% of population with access) 42.0 50.0 55.0 Goal 8: Develop a global partnership for development Net total ODA/OA per capita (current US$) Internet users (per 1000 people) 54.5 ... 76.0 2.0 71.5 2.6 Prevalence of HIV, total (% of population ages 15-49) Mobile cellular subscriptions (per 1000 people) Telephone lines (per 1000 people) ... 4.3 22.9 340.9 5.4 2.4 Sources : ADB Statistics Department Databases; World Bank: World Development Indicators; UNAIDS; UNSD; WHO, UNICEF, WRI, UNDP; Country Reports, Note : n,a, : Not Applicable ; … : Data Not Available, 1 Latest year available in the period 1990-1995; 2 Latest year available in the period 2000-2004; 2005-2012 III last update : May , 2013 3 Latest year available in the period ANNEX 4 Page IV/5 SUMMARY OF 2012 FRAGILITY ASSESSMENT Fragility Assessment Framework – The Sierra Leone Case Background and Objectives The New Deal is an enhanced development framework for engaging with fragile states and forms part of the fourth high level forum on Aid Effectiveness held in Busan in November 2011.The New Deal created global awareness on the need for new ways of working in fragile states and established consensus on a core set of priorities and governance reforms. The New Deal focuses on a set of Peace and State Building Goals (PSGs) that identify where countries are within the fragility continuum as they transition out of fragility. As a founding member of the g7+ Group of Fragile States, Sierra Leone was chosen as one of seven countries to pilot the New Deal by conducting a comprehensive country led fragility assessment based on the five PSGs. The PSGs focus on areas were simple reforms can greatly improve development outcomes. The fragility assessment identifies drivers of fragility and priority actions for overcoming the fragility sources. The five PSGs assessed were: (i) Legitimate Politics; (ii) Security; (iii) Justice; (iv) Economic Foundations; and (v) Revenue and Services. The objectives of this fragility assessment were: 1. 2. Develop a clear understanding of how Sierra Leoneans view fragility and resilience; and Generate consensus regarding Sierra Leone’s fragility trajectory and for its citizens to identify country led milestones for transitioning out of fragility. Table 1: Summary of 2012 Fragility Assessment Results Matrix Rebuild and Goal/Dimension Crises Transition Transformation Reform PSG 1: Legitimate Politics X Political Settlement Political Processes and Institutions X Societal Relations PSG 2: Security X Security Conditions Security Sector Capacity X Security Sector Performance PSG 3: Justice X Justice conditions X Justice sector capacity X Justice sector performance PSG 4: Economic Foundation X Economic conditions Jobs, Livelihoods and Private Sector Exploitation of Natural Resources PSG 5: Revenue and Services X Revenue Generation X Public Administration X X X X IV Resilience ANNEX 4 Page V/5 Service Delivery Table 1: Summary of 2012 Fragility Assessment Results Matrix X Outcome of Fragility Assessment Sierra Leone’s current position in the fragility spectrum indicates that the country has made considerable progress from its lowest point of crisis toward greater resilience. Even though the country is well situated in the ‘transition’ trajectory there are still challenges in some socio-economic fragility indicators. Since the crisis, key achievements have been made in relation to institutional reform, and the appropriate structures, laws, policies and processes to enable development results. Sierra Leonean’s feel that the necessary foundation for transformation and resilience has now been built. However, the critical challenge going forward is for the development of critical infrastructure, systems and skills to enable these structures to function effectively. There is need to enhance the implementation and coordination of policies, enforcement of laws and compliance with processes to ensure that the structures that have been built are effective. The table above provides a summary of the assessment results for each of the dimensions under each PSG. Highlights of Assessment Results for each PSG 1. Legitimate Politics A stable and resilient Sierra Leone requires the development of legitimate political systems for resolving and managing conflict, inclusive political settlements, and a committed and able leadership. The country has made substantial progress in managing political stability which includes: leaders democratically elected and accountable to the electorate; multi-party state and political pluralism established with constructive dialogue between political parties and precedence of peaceful transfer of power. However, despite these accomplishments, the assessment identified critical socio-political challenges that would affect the country’s successful transition out of fragility. These include regional and ethic polarization of political appointments, failure to pass constitutional amendment to address gender imbalances, weak parliamentary oversight capacity, perceptions of high level of corruption, delays in reconciliation and dispute resolution. 2. Security Human and physical security is critical to the transition away from fragility, and the assessment manifest that significant progress has been made since the cessation of hostilities in 2002. The challenge for Sierra Leone is to build on the achievements made so far and improve the behavior, effectiveness and accountability of a broad range of security actors. The accomplishments range from well-disciplined armed forces (that participate in peace keeping missions) to greater control of arms trafficking. The key challenges include slow response time, porous borders, poor accountability apparatus for the security sector and relatively weak performance of sector institutions. 3. Justice Justice is fundamental for peace building and state building. Grievances mechanisms and addressing injustice is essential to building resilient societies and nations. Formal justice mechanisms should be accessible, affordable and seen to be fair by citizens. While progress made during the peace consolidation period has been satisfactory, there are fundamental challenges to ensure a smooth transition out of fragility. Highlights of progress made include: passing of the Local Court Act (2011) which made access to informal justice more timely and affordable; efforts made to decentralize formal system with circuit court sittings and increased accessibility to paralegals and increasing confidence in formal and informal justice systems with rights of individuals being increasingly protected. Challenges include very limited access to representation, especially for vulnerable groups such as women. V ANNEX 4 Page VI/5 4. Economic Foundation In the assessment, economic foundation is defined as a function of investments that create economic opportunities that increase well-being, confidence in government, and can help reduce violence and conflict in the future. Strong economic foundations require economic diversification, an educated workforce and strong regulatory frameworks. The fragility assessment indicates that progress has been made in several areas including: key institutions have been rebuilt to enable good economic management and steady growth; transparency and accountability systems are in place and are operational albeit with some weaknesses; and passing of several Acts to better regulate the extractive industry. Critical challenges include: poor distribution of natural resource benefits; basic infrastructure modestly available in urban areas and absent in the rural areas; limited economic diversification; low value addition; porous borders (high incidence of illegal smuggling); high unemployment particularly among the youth and lack of appropriate skills; and weak property rights for women. 5. Revenue and Services: This goal assesses the extent to which the Government is successfully managing revenue and building capacity for effective and efficient service delivery. Increasingly, the Government of Sierra Leone is managing its revenue base despite teething challenges and using it to deliver services to the population. For instance, the Government’s investment in road infrastructure is largely driven by increased domestic revenue inflows. On the expenditure side, a sound public financial management system is essential in instilling confidence in citizens to pay taxes, donors to contribute aid, and businesses to invest. The assessment identified the following as key accomplishments under this PSG: National Revenue Authority established and working to diversify and consolidate domestic revenue generation; improved tax administration, enforcement, accountability and audit capacity; Goods and Services Tax introduced; and increased tax awareness among the population. However despite these accomplishments, there are deep seated challenges that serve as threats to the gains made. These include: narrow tax base and large informal sector; too many concessional duty waivers and tax exemptions for mining companies; limited enforcement of border taxes that facilitate smuggling; low capacity of tax workers and high corruption rates. On the expenditure side, challenges include weak procurement challenges that are complex and inefficient; significant inequality and regional imbalances in core service delivery. As could be deduced from the matrix, the Service Delivery dimension remains a big challenge and is still at a recovery stage. Bank’s CSP response to Downside Risks/Challenges identified in the Fragility Assessment Table 2 below shows how the Bank’s CSP seeks to address some of the downside risks/challenges identified in the fragility assessment: Table 2: Core areas of the Bank’s CSP linked to addressing the remaining downside risks stemming from the root causes of fragility as identified in Sierra Leone’s country-led fragility assessment Peace & StateBuilding Goal (PSG) PSG 4: Economic Foundations Dimension Economic conditions Proposed Bank Group interventions during the CSP period, 2013-2017 Downside risks stemming from the root causes of fragility a) Limited economic diversification b) Low value addition c) Porous borders (high incidence of illegal smuggling) d) Weak property rights for women e) Basic infrastructure modestly VI a) Enhanced economic diversification, e.g., SME policy for the Government, support to selected SMEs and private sector support agencies such as Chamber of Commerce, Investment Promotion Agency and the Business Forum; b) Infrastructure (e.g. roads) geared towards facilitating market linkages and trade. SME capacity building. c) Regional study on Minerals Fiscal and ANNEX 4 Page VII/5 Table 2: Core areas of the Bank’s CSP linked to addressing the remaining downside risks stemming from the root causes of fragility as identified in Sierra Leone’s country-led fragility assessment Peace & StateBuilding Goal (PSG) Dimension Proposed Bank Group interventions during the CSP period, 2013-2017 Downside risks stemming from the root causes of fragility available in urban areas and absent in the rural areas d) e) PSG 5: Revenue and Services Jobs, Livelihoods and Private Sector a) Exploitation of Natural Resources a) Revenue Generation High unemployment particularly among the youth b) Lack of appropriate skills a) b) Poor distribution of natural resource benefits a) b) a) Narrow tax base; b) Large informal sector; c) Too many concessional duty waivers and tax exemptions for mining companies; d) Limited enforcement of border taxes that facilitate smuggling a) b) c) d) VII Licensing Regime Harmonization for MRU countries with a view to decreasing incentives for smuggling across borders Gender & women’s empowerment mainstreamed in the investments and also part of the dialogue issues with Government. Key infrastructure – energy, roads and water – of which the vast majority of the population lacks access. E.G., Pillar 2, sub-pillar 1: Investments in energy to address energy challenges that limit barriers to private sector investments & inclusive growth – rural electrification component included Creating enabling business environment, structural & regulatory reforms, SME development as engine for generating sustainable jobs Flagship Skills Gap Analysis to inform decision making and policy direction on TVET, labor and employment; guide Government & private sector roles in skills development Transparent, efficient management of revenue from the natural resources, e.g., support to National Mineral Agency, EITI, etc. Pragmatic inclusive green growth investments in both pillars Enhanced domestic revenue mobilization in the mining & non-mining sectors; Domestic Resource Mobilization study to inform Government of better revenue mobilization, especially in the Mining, Oil & Gas sectors (Non-lending ac; and a Port Master Plan study with a view to improving port operations and performance in the country Rural electrification component of WAPP and the capacity building of SMEs Support to the National Minerals Agency and setting up of a Mining Tax Unit under the NRA Regional study on Minerals Fiscal and Licensing Regime Harmonization for MRU countries with a view to decreasing incentives for smuggling across borders ANNEX 4 Page VIII/5 Table 2: Core areas of the Bank’s CSP linked to addressing the remaining downside risks stemming from the root causes of fragility as identified in Sierra Leone’s country-led fragility assessment Peace & StateBuilding Goal (PSG) Dimension Proposed Bank Group interventions during the CSP period, 2013-2017 Downside risks stemming from the root causes of fragility a) Low capacity of tax workers a) Public and high corruption rates Administration b) Weak procurement challenges that are complex and inefficient Stronger economic governance, especially building robust & resilient institutional & PFM systems. Also strengthened participation of civil society in policy dialogue and monitoring of Government revenues) b) Efficient, transparent & accountable expenditures Strengthen institutional & regulatory environment for enhanced infrastructure services in energy, roads and water, critical for sustainable & cost-effective delivery of core services benefiting all population groups across all regions Rural water supply project and rural electrification project seek to address regional imbalances in service delivery in these sectors Note: The Bank and the Government of Sierra Leone will work with the other development partners to address the other PSGs (Legitimate Politics, Security and Justice) based on their core expertise and mandate. Service Delivery a) Service Delivery (which areas?) a) remains a big challenge and is still at a recovery stage b) Significant inequality and regional imbalances in core service delivery b) VIII ANNEX 5 Page IX/5 2013 FIDUCIARY RISK ASSESSMENT 1. Executive Summary 1.1. A fiduciary risk assessment for Sierra Leone was carried out as part of the Country Strategy Paper (2013-17) preparations. The assessment was a combination of a review of documents (the 2010 central level PEFA), interviews with key public financial management (PFM) officials in the country, discussions with development partners and other field work as deemed appropriate by Bank staff. The objective is to provide a coherent assessment of the key potential risks associated with the country PFM system, and recommend suitable mitigating measures to minimize the impact of any risks identified. The consultations also served to update the status of the PFM reform process subsequent to the 2010 PEFA. In general, most indicators showed a positive trajectory, with major improvements recorded in external scrutiny and aspects of financial reporting as a result of the implementation the new IFMIS. The assessment concluded that the fiduciary risk of Sierra Leone is still substantial, but in light of the positive trajectory relating to the overall PFM performance, and the series of mitigation measures proposed herein, the assessment rated the residual fiduciary risk as “moderate”, and the country could thus be a candidate for budget support if required. 2. Overall level of risk Table 1 below summarizes the overall risk in The Sierra Leone. Table 1. - Summary of Overall Risk Elements Average Development Capacity Rating (based on 2010 PEFA Indicators) Average Development Capacity Rating (based on 2013 Field Review) Risk Assessment Trajectory 1.1 The Budget sub-system capacity is adequate to plan 1.5 1.5 2.0 1.8 Moderate Moderate ↑ ↑ 1.5 1.0 1.8 1.0 Moderate Substantial ↑ - 1.5 1.8 Moderate ↑ 2.3 0.0 2.5 0.0 Moderate High ↑ - 1.5 1.2 1.8 1.5 Moderate Substantial ↑ ↑ 0.8 1.2 Substantial ↑ 1.3 1.5 Substantial ↑ 0.6 0.9 Substantial ↑ 1. 1.2 2. 2.1 2.2 3. 3.1 3.2 3.3 3.4 3.5 4. 4.1 4.2 Budget (formulate) budgets for the programs and projects The Budget sub-system capacity is adequate to execute budgetary control of programs or projects Treasury The Treasury sub-system capacity is adequate to manage the inflow of resources and disbursements of aid funds. The Single Account is an appropriate and reliable way to administer aid funds Accounting Recording and Reporting The Financial Accounting sub-system is sound and capacity is adequate to record programme and/or project transactions and account for their progress and financial status. Financial Management information systems have flexibility to accommodate specific reporting requirements of programmes and projects and have procedures in place to ensure timeliness and quality of information produced. The Financial Accounting sub-system has an integrated Fixed Assets module for the proper recording and control of assets purchased with programme / project funds. The Accounting sub-system maintains up to date records of the country’s borrowings. The Accounting systems are secure against deliberate manipulation of data and/or accidental loss of or corruption of data. Internal Control The Internal Control sub-system capacity is adequate to control the financial operations of programs and projects. Competition, value for money and controls in procurement are adequate IX ANNEX 5 Page X/5 4.3 The Internal Audit function capacity is adequate 5. External Scrutiny and Audit 5.1 The SAI has the level of “independence” needed to enable it to effectively fulfill its functions. 5.2 The SAI has the capacity to meet its audit mandate Risk assessment key: Below 0.75 = High Risk, Between 0.76-1.50 = Substantial Risk, Substantial Risk 1.0 1.5 Substantial ↑ 1.0 2.0 Moderate ↑ Between 1.51-2.50 = Moderate Risk, 3. Performance of PFM Systems and Risk Rating 3.1. Budgeting Sub-System: Fiduciary Risk Rating: Moderate Between 0.76-1.50 = 3.1.1. Budgeting is governed by the Sierra Leone’s Government Budgeting and Accountability Act (GBAA) of 2005 (under review). The Act strengthened the institutional and legislative framework for budgeting at central government level, as well as specifying practices for planning, execution and in-year monitoring and control. The budget classifications are the same as expenditure codes, which facilitates easy tracking of government expenditure against budget. There have been significant improvements to the budget classification/chart of accounts over the years, and the current 27 digit chart of accounts used for financial reporting has 8 segments which are aligned to the IMF’s Government Financial Statistics (GFS) 2001 standards. 3.1.2. Current Risk – The main risk relates to the non-inclusion of donor funded projects in IFMIS reporting as well as the supplementary budget processing not ratified by parliament. The non-inclusion of donor financing in IFMIS is not in line with the dictates of the Paris Declaration. Failure to submit supplementary budgets for legislative scrutiny and approval means that parliament’s carefully determined appropriations can be subverted using the supplementary allocation system, which affects the integrity of the whole process. 3.1.3. Mitigation – The GBAA 2005 is currently being revised to address areas of weaknesses in PFM and budget executions. The guidelines of MTEF budgeting have been revised to improve the robustness of the budgeting process, and ensure all government resources, including donor financing, will be captured in the budget and onto IFMIS. Efforts will also be made to tighten and follow the legislative supplementary budgeting process. Although more still needs to done in this area, the proposed revision of the GBAA is expected to address the key existing PFM weaknesses identified. The assessment in May 2013 rated the sub-system risk as Moderate. 3.2. The Treasury Sub-System : Fiduciary Risk Rating: Substantial 3.2.1. The GBAA 2005 also governs the treasury sub-component. Majority of MDAs and Sub-vented Institutions (SIs) maintain their bank accounts with the Central Bank of Sierra Leone (CBSL). However, they are also allowed to operate accounts, including project accounts with the Commercial Banks approved by the minister, MoFED and Accountant General. The Debt Management Department of MoFED manages both domestic and external debts and reconciles with Debt Services Department of the CBSL on daily and weekly basis. 3.2.2. Current Risk – The main risk currently relates to non-inclusion of a large number of bank accounts (including donor financing) from the CRF. This poses inherent challenges to overall treasury management, as well as the timeliness of cash/bank reconciliations. 3.2.3. Mitigation – The Bank funded WAMZ payment systems project is at an advance stage and will facilitate additional banks linkages and connectivity between SL banks and with CBSL. The CBSL and commercial banks in Sierra Leone are expected to go live with real time banking by July 2013. There is also a program for the eventual deployment of IFIMIS to all MDAs and SIs to improve the efficiency and accuracy in financial reporting. MoFED has taken stock of all bank accounts being operated by MDAs and SIs (outside the CRF), including donor funded projects, for periodic monitoring with a view to the establishment of a functional STA in the future. The mitigating strategies are expected to bring about significant improvements to both treasury management and control, including in the near term. However, the overall risk associated with the treasury sub-system as assessed in May 2013 continues to be Substantial. X ANNEX 5 Page XI/5 3.3. Accounting Sub-System: Fiduciary Risk Rating: Moderate 3.3.1. The GBAA 2005 Act forms the basis of all government accounting. According to Section 10(1) & (2) the Accountant-General is responsible for keeping, rendering and publishing statements of the public accounts. The government has indicated its intentions to adopt IPSAS, and AG’s accounting policies and procedures manual will be revised in line with the IPSAS and take into account the newly installed IFMIS facility. However, the Auditor General’s report on the financial statements notes that IPSAS accrual was not consistently complied within the preparation of the latest financial statements. 3.3.2. Current Risk – The current main risk relates to approximately 40% of the government budget that is still accounted for manually (outside IFMIS). This leads to issues of data integrity that are associated with such transitions to a computerized environment. In addition, both the internal and external audit functions are not connected to IFMIS, which has implications on their ability to audit IFMIS generated data effectively and in a timely manner. 3.3.3. Mitigation Measures – The reform unit and AG are committed to extending the deployment of IFMIS to the bigger spending MDAs which constitute about 90% of government expenditure within the shortest possible time, although this is currently on hold due to suspension of the vendor (Freebalance). The financial reporting requirements of the smaller units constituting the remaining 10% will be handled directly by the AG’s department to ensure all expenditure goes through the IFMIS. In addition, an Internal Audit Act is in the process of being enacted to guide and strengthen the operations of the IA. The IA will be connected to IFMIS and adequately resourced to help strengthen the internal control environment. Due to the fact that 60% of the budget is already accounted for using a safe a reliable IFMIS, with positive steps for bringing the remaining 40% online in the shortest possible time, the residual risk associated with the accounting sub-system was rated Moderate as at May 2013. 3.4. Internal Control Sub-System: Fiduciary Risk Rating: Substantial 3.4.1. The introduction of the IFMIS has enhanced the accuracy and timelines of financial reporting and some key aspects of the internal control system, including the automation of bank reconciliation statements where possible, and more timely public debt reconciliation and verification. However, as noted earlier, a number of MDAs accounting systems are still manual; the internal audit function is inadequately resourced, not backed by a substantive Act, and lacks the required independence. 3.4.2. Current Risk – The Internal Audit unit is not regulated by an Act as dictated by good practice, is under staffed and lacks qualified and experienced. The unit is not autonomous and lacks appropriate independence. 3.4.3. Mitigation measure – A draft IA act has been prepared for consideration and to be passed into an Act to govern its operations and also give it the necessary independence to operate. The unit through the support of GoSL is in the process of developing an Internal Audit Charter, which will further govern its operations and provides professional development support for staff. However, both the IA Act and Charter are still too far from completion to positively impact the risk rating for the sub-system. Consequently, the assessment concluded that the sub-system risk is still Substantial at May 2013. 3.5. The External Scrutiny Sub-System: Fiduciary Risk Rating: Moderate 3.5.1. The establishment of the office and functions of the Auditor General (AuG) are governed by section 119 of the constitution, GBAA 2005 and the Audit Service Act 1998. The President appoints and removes the Auditor General. Section 119 (6), states that the autonomy of the AuG in the exercise of duties and shall not be subject to the direction or control of any person or authority. However, in terms of good practice, the provision relating to the unconditional powers of the President to terminate the Auditor General’s appointment is generally considered as a limitation of the independence and powers of the AuG. Financially, both the constitution and the Audit Service Act give adequate autonomy to the AuG’s Office. In practice however the budget allocations of the Audit Service are usually constrained by limited government resources and the AuG’s office is thus subject to strict budget ceilings of MoFED, which again acts against the unit’s independence. AuG’s audit reports and recommendations submitted to Parliament are now given the attention they deserve. The reports are given wide press coverage and include discussions involving civil society, Ant-Corruption Commission and other interest groups. 3.5.2. Current Risk- the key risk relates to impediments to the AuG’s independence occasioned by MoFED’s control of the budget, as well as the risk of arbitrary termination of office. 3.5.3. Mitigation measure - This will require some modifications to the enabling legislation as part of the on-going PFM reforms so that the AuG’s independence can be expressed in terms of both the law and the practice. As a result, the current residual risk for the sub-system has been rated Moderate as at May 2013. XI ANNEX 5 Page XII/5 4. Procurement: Fiduciary Risk Rating: Substantial 4.1. The public procurement system in Sierra Leone comprises of a 2004 Public Procurement Act, the Regulation, Manual and Standard Bidding Documents for goods, works and services all adopted in 2006 and developed in line with internationally recognized best practices. In 2005, the Act allowed for the creation of the National Public Procurement Authority, Procurement Committees, Procurement Units, Bid Evaluation Committees and the Independent Procurement Review Panel. The 2010 PFM performance assessment report, the 2012 country procurement performance review report and the Bank’s 2011 assessment of the national competitive bidding procedures report noted some inconsistencies, contradictions and ambiguities in language, procurement methods and thresholds amongst the PPA, its Regulations, procurement manual and standard bidding documents. The NPPA is currently addressing these shortcomings. 4.2. Current Risk – There is inadequate capacity at both NPPA and MDAs and this impedes the efficient and effective functioning of the procurement system. The low capacity of procurement practitioners and weak functioning of the procurement structures across the board results in a residual risk of the procurement sub-system of Substantial as at May 2013. 4.3. Risk Mitigation - The procurement Act is being revised which will take into account the inconsistencies, contradictions and ambiguities identified by various fiduciary assessment reports amongst procurement instruments. Furthermore, once the revised Act is approved, World Bank has expressed willingness to support the recruitment of a consultant to revise the regulation, manual and standard bidding documents. As part of the measures to also mitigate the inadequate human and logistical capacity of NPPA, MDA and procurement practitioners, the World Bank in support of government’s efforts has a pipeline project aimed at improving the procurement system significantly 5. Governance: Fiduciary Risk Rating: High 5.1. In the past decade, the country has made the third largest improvement in governance of any African country. According to the Mo Ibrahim Index of African Governance Sierra Leone has increased in ranking from 48 th (2011) to 30th (2012) out of 52 countries. In 2010, the DBI ranked Sierra Leone in the top 25 in the world for overall improvement in ease of doing business over the last five years, and was praised for its investor protection reforms and administrative tax compliance reforms. In 2013 improvements were made in the areas of registering property and getting credit. Since 2007, there are some indications of political will to more effectively tackle corruption. This is reflected in the 2011 Global Corruption Barometer, with an increase of respondents assessing the government’s actions in the fight against corruption as effective, from 63% in 2009 to 73% in 2011. While anti-corruption institutions lack resources, staff and expertise to effectively prevent and combat corruption, recent reforms of the Anti-Corruption Commission have extended its powers and contributed to significantly improve its capacity to investigate and prosecute corruption cases. Emerging civil society activism, an outspoken media and the support of the international community to the government’s anti-corruption efforts are promising factors accompanying this positive trend. 5.2. However, corruption permeates almost every sector of Sierra Leone’s public life. In 2012, Sierra Leone scored 31 on a scale of 0 (highly corrupt) to 100 (highly clean) in Transparency International’s (TI) Corruption Perceptions Index, ranking 123 out of 176 countries. The 2011 Worldwide Governance Indicators also reflects Sierra Leone performing well below average on the six dimensions of governance. While it has maintained performances in terms of voice and accountability and political stability in recent years, major challenges continue in the areas of government effectiveness (9.95 on a scale of 0 to 100), rule of law (22.54), and control of corruption (26.54). 5.3. More needs to be done to improve and consolidate these achievements as the country now faces significant new PFM opportunities and challenges, particularly those arising from expected streams of revenue from natural resource assets, which has not yet translated into sustainable, inclusive economic growth, and governments renewed determination to close its infrastructure deficit. More generally, there is a significant gap between PFM policies, rules and procedures and their actual implementation in practice in MDAs and at local level. The Government recognizes the need to address corruption issues and promote good governance as part of its current development strategy which identifies governance and management of natural resources as two key pillars in its strategy. The A4P supports the country’s long-term vision of becoming an inclusive and green middle-income country by 2035. This will require effective governance with set guidelines and rules supported and executed by responsible institutions. XII ANNEX 5 Page XIII/5 6. Bank’s Fiduciary Strategy during the CSP period 6.1. Financial Management Efforts to include aid on budget will continue in sync with the progress of the IFMIS roll out. All MDAs and ISs that are connected to the IFMIS will hence forth use the IFMIS for accounting and reporting for all new projects coming on stream. On-going projects that are able to migrate without causing undue disruption will be encouraged to do so, otherwise they will see out their remaining project lives using existing arrangements. Subject to a satisfactory Supreme Audit Institution (SAI) Assessment, the audit of Bank financed projects will be moved from the present private audit firms to the ASSL during the CSP period. Special Accounts, where required, will be opened through the CBSL. 6.2. Procurement The Bank should complement the existing capacity building initiatives in the country and an updated FRA should be undertaken during the appraisal of the budget support operation to determine whether the Bank could gradually adopt country procurement systems in the management of projects. As an interim measure, the Bank should use the country’s NCB procedures with exceptions on the gaps identified until the revised PPA is approved by parliament XIII ANNEX 6 Page XIV/1 PORTFOLIO STATUS (AS AT MAY 31, 2013) No. Project Name Project ID 1 PORT LOKO LUNGI ROAD P-SL-D00-004 2 MATOTOKA SEFADU ROAD REHABILITATION PROJECT P-SL-DB0-005 3 THREE TOWNS WATER SUPPLY AND SANITATION P-SL-EA0-001 4 Net Loan/Grant Financing (UA) Disb.Ratio Source Sector Name Approval Date 1st Disb. Effective Completion Date 17.06.2009 05.04.2012 05.05.2012 05.06.2012 26.10.2010 26.10.2010 26.10.2010 26.10.2010 03.03.2011 26,260,000 3,180,000 6,820,000 12,000,000 6,100,000 14,700,000 6,500,000 1,200,000 62.06 16.17 7.54 FSF ADF ADF FSF ADF ADF FSF FSF Transport 23.11.2011 23.11.2011 23.11.2011 08.09.2012 31.12.2013 30.06.2016 30.06.2016 30.06.2016 31.12.2015 31.12.2015 31.12.2015 31.12.2015 08.04.2011 02.02.2005 02.02.2005 05.03.2012 21.02.2006 09.11.2006 31.12.2023 31.12.2013 31.12.2013 21,694,421 10,000,000 2,000,000 85.15 56.14 68.30 27.03.2013 Age (yrs) Implementation Status IP** DO** 3.88 1.9 2.7 NON PP/NON PPP Transport 1.07 2.2 3.0 NON PP/NON PPP Water Supply & Sanitation 2.52 2.3 2.3 NON PP/NON PPP ADB ADF ADF Private 2.07 1.5 1.8 PP Agriculture 8.25 2.2 2.5 NON PP/NON PPP ADDAX BIOENERGY PROJECT AGRICULTURE SECTOR REHABILITATION PFM AND BUSINESS ENABLING SUPPORT PROJECT P-SL-AAG-002 P-SL-K00-006 30.09.2011 31.01.2012 31.12.2014 4,000,000 25.57 FSF Multi-Sector 1.59 3.0 3.0 NON PP/NON PPP CENTRAL BANK OF SIERRA LEONE EMERGENCY ASSISTANCE CHOLERA TECH ASSISTANCE FOR MCC CA 9 DEVELOPMENT SUPPORT TO THE PPP UNIT - OFFICE 10 OF PRESIDENT (SL) P-SL-HA0-004 P-SL-IBE-001 30.11.2011 11.10.2012 12.09.2012 21.11.2012 31.12.2013 31.10.2013 807,018 496,939 28.64 100.00 FSF ADF Finance Social 1.42 0.56 2.6 - 3.0 - NON PP/NON PPP NO SUPERVISION P-SL-KF0-006 31.03.2013 08.05.2013 31.12.2013 137,467 - FSF Multi-Sector 0.09 - - NO SUPERVISION G-SL-KF0-SUP-001 07.09.2012 24.10.2012 31.12.2013 213,447 116,109,292 40% TF Multi-Sector 0.65 2.2 - - NO SUPERVISION 5 6 7 8 P-SL-AA0-007 ** 3--> Highly Satisfactory; 2--> Satisfactory; 1--> Unsatisfactory; (-) -->No supervision XIV 2.4 ANNEX 6 Page XV/1 Sectorial Distribution Type of Instrument 3,7% 0,7% 10,3% 0,4% 18,7% 66,1% Infrastructure Private Agriculture Multi-sector Financial Social National Investm. Projects and Inst. Support 19% 81% Private Annual Disbursement 2012 Year 2011 2010 2009 2008 2007 0 20 40 60 Amount Disbursed (UA million) XV ANNEX 7 Page XVI/1 2013 COUNTRY PORTFOLIO IMPROVEMENT PLAN (CPIP) Major Issues (1.1) Ill-defined roles of PIU staff Action Required (1) Project Design/Appraisal (1.1) Develop and agree on a set of policy measures to clearly define the responsibilities and appropriate future role of PIUs and sustainability arrangements (including transitional roles of current PIUs). Responsibility Timeline MoFED/PIUs Immediate (1.2) Inadequate design and implementation readiness (1.2) Simplify loan conditions whilst ensuring project readiness through sound preparation work GoSL/AfDB On-going (1.3) Lack of funding for M&E training (1.3) Involve M&E Experts in project design and provide them with training during the early stages of project implementation GoSL/PIUs/AfD B Immediate (1.4) Non-operational M&E systems making it impossible to generate requisite project data (1.4) Estimate cost of M&E systems during appraisal and provide for corresponding budget PIUs/AfDB On-going (2) Civil Works (2.1) Ensure the accuracy of project cost estimates at appraisal realistic, while ensuring inclusion of contingencies. GoSL/ AfDB/PIUs On-going (2.2) Explore alternative funding options for maintenance of civil works. GoSL Immediate (2.3) Provide training for local service providers, especially civil works contractors GoSL/AfDB December 15,2013 (2.4) Reduce the number of signatories required on payment certificates GoSL Immediate (2.5) Foster policy on commercial loan acquisition for national contractors. GosL On-going (3.1.1) Provide continuous capacity building on procurement for all levels AfDB December 15,2013 (3.1.2) Provide training in contract management. Include the participation of commercial banks and contractors AfDB/MoFED March 31,2014 (3.2.1) Reduce disbursement timeline by allowing the use of special accounts for works contracts rather than direct payments AfDB On-going (3.2.2) Align payment terms with funding requirement PIUs/AfDB On-going (3.3.1) Reduce the bureaucracies in recruiting auditors. AfDB On-going (3.3.2) Capacitate Internal audit to oversee the implementation of external auditors recommendations PIUs/GoSL Immediate (3.3.3) Maintain computerized accounting systems at PIUs and train Project Accountants accordingly PIUs On-going (2.1) Lack of budget allocation to cater for cost overruns (2.2) Lack of adequate funds to maintain completed civil works facilities (2.3) Local private sector contractors often too young and inexperienced (2.4) Bureaucracy (delays in approvals at various levels of Government) (2.5) Low capacity and performance of national civil works contractors (3) Fiduciary (3.1) Procurement (3.1.1) Inadequate funds allocated by PIUs for procurement t training. (3.1.2) Poor contract management leading to delays in project implementation. (3.2) Disbursement (3.2.1) Long timeframe at each disbursement authorizing/processing stage (3.2.2) Loss to contractors due to exchange rate volatility (3.3) Financial Management and Audit (3.3.1) Bureaucracies in recruitment of auditors (3.3.2) Inadequate follow-up on project audit recommendations (3.3.3) Lack of computerized accounting systems in PIUs XVI ANNEX 8 Page XVII/1 INDICATIVE DONOR DIVISION OF LABOR IN SUPPORT OF AGENDA FOR PROSPERITY XVII ANNEX 9 Page XVIII/5 ANNEX 9: Pillar and Sub-Pillar Goals Key Constraints/Issues Impeding Achievement of Goals CSP RESULTS FRAMEWORK Final Outcomes (expected by end of CSP, 2017) Final Outputs (expected by end of CSP, 2017) Mid-Term Outcomes (expected by 2015) Mid-Term Outputs (expected by 2015) ADB Interventions Expected During CSP c/ PILLAR 1: ENHANCING ECONOMIC GOVERNANCE AND TRANSPARENT MANAGEMENT OF NATURAL RESOURCES REVENUE Sub-pillar 1: Public Financial Management & Transparency: Goal: Strengthen capacity systems and processes to increase efficiency, transparency and accountability of public institutions to ensure that public resources are effectively and efficiently managed, monitored, and accounted, free from corruption. - Weak capacities of public entities (at central and local council levels) to accurately plan, manage and monitor government budgets, ensuring transparency and accountability for government revenues, expenditures and other resources; - Weak PFM systems, processes, policies & procedures and procurement practices, at all levels, combined with ineffective implementation of policies for control of corruption. - Increased transparency and predictability in the budgeting, revenues, and expenditure outturns, through enhanced financial reporting PEFA PI 1 Baseline (2010): B Target (2017): B+ PEFA PI 24 Baseline (2010): B+ Target (2017): A PEFA PI 25 Baseline (2010): C+ Target (2017): B+ - Enhanced legislative scrutiny and follow up on audit reports Baseline (2010): PEFA PI 27-C+ and PI-28-D+ ; Target: (2017) of at B for both PI- 27 and 28. - Improved competition, value for money and controls in procurement through compliance of procurement procedures - End-year budget executions, with detailed fiscal outturns produced quarterly and published outturns and budget reports on the MOFED website and outreach areas. - In-year Budget execution reports and year-end financial statements posted to MoFED on a timely basis increasing transparency - In-year budget executions, with detailed fiscal outturns produced quarterly and year-end financial statements produced (no more than 14days after the quarter and not more than 3 months after year end) Ongoing: EGRP II 2011-2012 PFMBESP 20122014 New: FSF Support via Budget Support 2014-2017 ISP 2014/2015-2017 Partners: WB, EU, IMF, DFID - Timely public hearing of external audit reports involving TV and radio coverage by inviting ministers of state, heads of MDAs and other officers linked to audit findings as per legislation. - % of MDAs compliant with procurement procedures Baseline: 67% Target: 100% XVIII - Increased legislative scrutiny in the budget process, enforcement of audit recommendation and improved control environment through effective internal audit function. - Audit implementation plan prepared outlining recommendations and follow-up action by GoSL. - Internal audit Act enacted and operative to make IA effective. - Increased use of the country procurement system by external stakeholders - NPPA fully established in the regions to increase coverage, Procurement directorate created and operational ANNEX 9 Page XIX/5 Sub-pillar 2: Natural Resource Governance Goal: To enhance natural resource governance, and thereby contribute to sustainable resource development and increased public revenues Sub-pillar 3: Improved business enabling environment Goal: To improve business enabling environment and drivers for promoting inclusive and green private sector development - Weak revenue transparency and accountability, especially in the mining and energy sectors; and challenges to optimize revenue generation and collection resulting from large scale mineral investment - Weak capacity of public and CSO stakeholders in terms of understanding the value chain of extractive industries Challenges, include: (i) poor infrastructure (i.e. electricity, roads, & ICT); (ii) lack of access to finance especially among women; (iii) administrative barriers (legal and regulatory) such as absence of an SME policy and other regulatory frameworks for business; (iv) Weak SME linkages; (v) significant lack of entrepreneurial and vocational skills; and (vi) weak private sector capacity to forge effective business associations for enhanced advocacy of Baseline (2010): PEFA PI 20-C+ Target (2017): B+ - Enhanced domestic revenue mobilization in the mining and non-mining sectors. Baseline: 12.6% (2012) Target: 23% - Strengthened participation of civil society in policy dialogue and monitoring of Government revenues - Improved business environment Baseline (2013): 140 Target (2017): 110 (Based on Doing Business Rankings) - Increased # of viable and diversified enterprises (disaggregated to highlight green businesses like renewable energy or eco-tourism) - NRA capacity enhanced (e.g. Minerals tax unit within NRA established; taxation of large tax payers enhanced e.g. telecommunication companies; NRA able to report annually on mining revenues in a transparent way). - Number of policy reforms/recommendati ons from Civil Society approved by Government - Improved administration of taxes in the extractive sector - Strengthened participation of civil society in policy dialogue and monitoring of Government revenues - Development of accountability forums in the councils and chiefdoms - Implementation of Doing Business reforms (at least 3 per year) - Improved Access to Finance for the private sector - Increased number of regulatory frameworks formulated and functional Ongoing: - Support to policy framework for the development of SMEs - Increased number of small and mediumscale enterprises. - Increased number of female owned SMEs - A gender responsive SME Policy approved and implemented Partners: DFID, EU, IFC, WB XIX - Minerals tax unit established New Lending: ISP Budget Support New Non-Lending: - Domestic Revenue Mobilization Study - Minerals Fiscal Regime Harmonization Study (MRU) - Mapping of Natural Assets Partners: DFID, UNDP, GIZ, IMF PFM and Business Enabling Support Project ANNEX 9 Page XX/5 business environment. PILLAR 2: SUPPORTING TRANSFORMATIONAL AND SUSTAINABLE INFRASTRUCTURE DEVELOPMENT Result 1: Energy Goal: To increase access to sustainable energy services and affordable/reliable power for communities and economic prosperity - Electricity access is weak. - Access rate has improved from 2% currently to 6% - Power generation capacity is inadequate to meet demand - 26 additional communities connected to the electricity network - Access rate has improved from 2% currently to 4% Capacity of the Ministry of Energy built - Generation capacity increases from 90 MW currently to 105 MW - Inadequate transmission and distribution capacity - Improved capacity of the Ministry of Energy for negotiating contracts and building a pipeline of investments : 2 PPA contracts concluded; 4 feasibility studies completed Result 2: Transport/ Roads Sub-sector Goal: To improve road accessibility and connectivity, which will contribute to inclusive and green growth, promote national and regional integration, improved urban transport, and the - Poor road condition resulting in hindered accessibility and connectivity nationally and regionally. Suppressed economic diversification and trade opportunities due to inadequate transport infrastructure and services - Lack of axle load control regulatory framework, inadequate provisions for road - Improved core road network (CRN=primary & secondary class roads) conditions in at least “good” condition. Baseline: 36.9 % of CRN (2011) Target: 50 % of CRN (2017) - Increased share of paved road network Baseline: 8.9% (1031 km) (2012) - 70 km of road rehabilitated (between Matotoka and Yiye) - 65 km of road upgraded (between Bandajuma and Zimmi), with climate change resilience integrated - 88 km of road upgraded between Kenema and Zimmi.[Medium Scenario] XX Partial Risk Guarantee to secure the 15 MW off-take from the Addax Biofuel Energy CLSG Project: Interconnection and electrification of 26 communities along the CLSG line (additional 560GWh/year available for the grid by 2016) - Construction of 550 km 225 kV transmission line and 5 substations - Weak institutional capacity of the Ministry of Energy. New Lending: Partners: WB, JICA, DFID, KfW, EIB - Reduced travel time and enhanced road safety in completed sections. - Improved road condition and sustainability in the completed road sections - Reduced VOC in the completed road sections - Enhanced access to markets and trading - Road upgrading contracts awarded, and related services contracts. - 20% of the expected Employment generation (at least 30% for women). - Axle load control Enforcement Strategy completed. - Completed Ports Lending Ongoing: - Matotoka – Sefadu Road, Section I: Matotoka – Yiye (70 km) - Lungi – Port Loko Road (62 km) New: - Bandajuma - Zimmi road (61 km); Kenema – Zimmi road (88 km) Non-Lending ANNEX 9 Page XXI/5 socio-economic development of Sierra Leone maintenance; and poor road safety. - Institutional capacity for effective coordination of the sector Target: 10.2% (1184 km) (2017) - Enhanced national and regional integration interconnectivity along specific trade routes Baseline (2012): VOC: 0.75 USD/km – light trucks; Travel Time : Bandajuma – Zimmi: 5.25 hrs; Kenema – Zimmi: 3.75 hrs Target: VOC: 0.50 USD/km – 30% reduction (light truck);Travel Time: Bandajuma – Zimmi: 1 hr ;Kenema – Zimmi: 1.5 hrs - Employment generated during construction [100,000 person-days]. (at least 30% of jobs created for women) - Axle load control measures instituted and enforced - Gender Responsive Ports Development Master Plan opportunities within and between Sierra Leone and neighboring countries. - All legal and statutory requirements for implementation of network wide axle load control completed. - Axle load control measures rolled-out in at least 50 % of paved Core Road Network (2015); at least 95% compliance level established in rolled out areas. Development Gender Responsive Master Plan - Development of Ports Master Plan Partners: EU, China, WB, OFID, IsDB - Reduced road maintenance needs through implementation of network wide axle load control. Baseline: No axle load control (Aug 2013) Target: Axle load control measures fully rolled-out in paved Core Road Network (2017); at least 95% compliance level established. Result 3: Water Supply and - Inconsistent water and sanitation sector policies - Limited Capacity to - Increased Water - National Sector Supply Coverage from Agencies restructured 57 - 70% & Sanitation and 100% staffed with XXI - Increased Water - National Rural water Supply Coverage from Supply and Sanitation 57 - 62% & Sanitation Program developed by On-going -Three towns Water Supply and ANNEX 9 Page XXII/5 trained and equipped personnel, 30% female - Local Council Goal: - Reduced NonSector Specific staff Improve sustainable Revenue Water in positions are filled and equitable access - Limited stakeholder Urban areas for with appropriately to water supply and coordination among SALWACO from 95 trained and equipped sanitation for all national stakeholders 25%. personnel uses including the - Improved Water - Annual Sector sustainable - Limited Coverage and Point Functionality Monitoring Reports management of low functionality rate of from 65 – 85% published and Joint water resources to existing water supply Govt/Donor Sector ensure prosperity. and sanitation systems, - Reduced Water Reviews held annually exacerbating water borne Borne Disease - Flagship studies disease prevalence, prevalence: Cholera carried and at least one including frequent from 4 – 2% & Best Practices Report cholera epidemics Diarrhea from 14-7% produced & - Weak sector monitoring - Structured and regular disseminated every system CSO & CBO activity in year the sector. (5) - Increase in sector financing from 0.35% GDP to 1% GDP Sanitation deliver water and sanitation services Coverage from 13 45%. XXII Coverage from 13 25%. - Reduced Non- 2015 - National Groundwater Map produced by 2014 Revenue Water in - 75% of the required Urban areas for Sector agencies staff at SALWACO from 95 - national and local levels 50%. are trained and in post - Improved Water Point - Financing for sector Functionality from 65 – increased to 0.7% of 75% GDP - Structured and regular 3rd Annual Sector CSO & CBO activity in Monitoring Report produced and 3rd joint the sector. Sector Review held Sanitation Project (Bo, Makeni and Kenema cities) ADF 12 Lending (New) Rural Water Supply and Sanitation Project Partners: DFID, JICA, WB, UNICEF, WFP, WHO ANNEX 10 Page XXIII/1 INDICATIVE RESOURCE ALLOCATION (2013 – 2017) Project Approval Year ADF & FSF UA million Other UA million Total Allocation ADF & FSF UA million Low Scenario Rural Water and Sanitation Project WAPP Interconnection Project (multinational) FSF Pillar III Targeted Technical Assistance Trans-boundary Water Resources Management of the Manor River Basin Other UA million Total Allocation ADF & FSF UA million Medium Scenario Other UA million Total Allocation Sources of Funding High Scenario 2013 20.4** 4.6 25.0 20.4** 4.6 25.0 20.4** 4.6 25.0 2013 9.2 18.5 27.7 9.2 18.5 27.7 9.2 18.5 27.7 ADF 12 - UA 9.065 m (Loan), UA 2.854 m (Grant); FSF UA 8.468 m; RWSSI-TF UA 4.61m ADF 12 UA 9.2 ; Regional 12 UA ml; NTF USD 10 m (UA 6.5m) 2013 1.8 1.8 1.8 1.8 1.8 1.8 FSF UA 1.8 m 1.0 AWF - UA 1.0 m 2013 1.0 1.0 1.0 1.0 1.0 Budget Support Program 2014 - 16 15.0 15.0 15.0 15.0 15.0 15.0 ADF 13 - UA 15.0 m Institutional Support Project Upgrading of Zimmi – Bandajuma Road ADDAX Bioenergy Partial Risk Guarantee Bumbuna Hydroelectric Power Project II Upgrading of the Kenema Zimmi Road - 88 km linking up to Trans-West African Coastal Highway) 2014 - 17 5.0 5.0 5.0 5.0 5.0 5.0 2014 - 16 13.0 39.0 13.0 41.0 13.0 41.0 ADF 13 -UA 5.0 m ADF 13 – UA 13.0m; Regional - UA 26- 28 m 2014 - 16 3.0 3.0 3.0 3.0 3.0 3.0 ADF 13- (15 MW to NPA) 2015 - 17 26.0 100.0 100.0 2015 - 17 28.0 100.0 100.0 15.0 28.0 43.0 28.0 100.0 100.0 Private Sector 30.0 58.0 88.0 ADF 13 – UA 15 - 30 m; Regional - UA 28-58 m 31.4 24.1 55.5 31.4 24.1 55.5 31.4 24.1 55.5 36.0 126.0 162.0 51.0 156.0 207.0 66.0 186.0 252.0 TOTAL 67.4 150.1 217.5 82.4 ** Includes DFID’s co-financing of UA6.03 million to be channeled through FSF 180.1 262.5 97.4 210.1 307.5 Total ADF-12 Period (2013) Total ADF-13 Period + 1st year of ADF 14 (2014-2017) XXIII ANNEX 11 Page XXIV/1 INDICATIVE NON- LENDING PROGRAM FOR 2013-2017 2013 o Stock Taking Report on Green Growth o African Economic Outlook: Sierra Leone Chapter o Skills Gap Analysis for Private Sector Development 2014 o o o o o 2015 – 2017 o African Economic Outlook: Sierra Leone Chapter o PEFA/ PFM Review o Other ESWs TBD during the CSP period African Economic Outlook: Sierra Leone Chapter Domestic Resource Mobilization Study Country Portfolio Performance Review Minerals Fiscal and Licensing Regimes Harmonization Study (at MRU level) Port Master Plan Study XXIV