Document of The World Bank FOR OFFICIAL USE ONLY Report No. 52521-KE THE INTERNATIONAL DEVELOPMENT ASSOCIATION THE INTERNATIONAL FINANCE CORPORATION THE MULTILATERAL INVESTMENT GUARANTEE AGENCY COUNTRY PARTNERSHIP STRATEGY FOR THE REPUBLIC OF KENYA FOR THE PERIOD FY2010-13 March 23, 2010 Eastern Africa Country Cluster 2 Africa Region International Finance Corporation Sub-Saharan Africa Department Multilateral Investment Guarantee Agency Sub-Saharan Africa Department       ACRONYMS AND ABBREVIATIONS The last Country Assistance Strategy Progress Report for Kenya was discussed by the Executive Directors on March 27, 2007. CURRENCY EQUIVALENTS US$1 = Ksh 75 (as of December 31, 2009) FISCAL YEAR July 1 – June 30 AAA Analytical and Advisory Activities IGAD Intergovernmental Authority on AFD Agence Française de Développement Development AfDB African Development Bank ILO International Labor Organization AIDS Acquired Immunodeficiency INT Institutional Integrity Syndrome JSAN Joint Staff Advisory Note APL Adaptable Program Loan KEPSA Kenya Private Sector Alliance ARD Agriculture and Rural Development KESMA Kenya Medical Supply Agency CAS Country Assistance Strategy KESSP Kenya Education Sector Support CPIA Country Policy and Institutional Project Assessment COMESA Common Market KJAS Kenya Joint Assistance Strategy for East and Southern Africa KNASP Kenya National HIV/AIDS Strategic DANIDA Danish Agency for International Plan Development KNBS Kenya National Bureau of Statistics DfID Department for International KPLC Kenya Power and Lighting Company Development MDG Millennium Development Goals DIR Detailed Implementation Review MIGA Multilateral Investment Guarantee DSA Debt Sustainability Analysis Agency EAAPP East Africa Agricultural Productivity MSMEs Micro, Small and Medium Enterprises Project NARC National Rainbow Coalition EAC East Africa Common Market NDRA National Dialogue and Reconciliation EIB European Investment Bank Agreement EMIS Education Management System OVC Orphans and Vulnerable Children ESMID Efficient Securities Markets Institute PRG Partial Risk Guarantee ESRP Energy Sector Recovery Project STATCAP Statistical Capacity Building Project EU European Union TIVET Technical Industrial, Vocational and FIAS Foreign Investment Advisory Service Entrepreneurship Training GDC German Development Cooperation TOWA Total War against HIV and AIDS GDLN Global Development Learning TJRC Truth, Justice, and Reconciliation Network Commission GDP Gross Domestic Product UNEP United Nations Environment GEF Global Environment Facility Program HAI Health in Africa Initiative USAID United States Agency for International HIV Human Immunodeficiency Virus Development IC Investment Climate WBI World Bank Institute IDA International Development WSP Water and Sanitation Program Association IDF Institutional Development Fund IFC International Finance Corporation IDA IFC MIGA Vice President Obiageli K. Ezekwesili Thierry Tanoh Izumi Kobayashi Country Director Johannes Zutt Jean Philippe Prosper James Bond Task Team Leader Marie-Hélène Bricknell Aida Kimemia Thomas Vis KENYA: Country Partnership Strategy 2010-2013 Contents Executive Summary ....................................................................................................................... i  I.  Country Context................................................................................................................ 1  A.  Political Developments ....................................................................................................... 1  B.  Social and Poverty Trends .................................................................................................. 2  C.  Recent Economic Developments ........................................................................................ 8  II.  Country Development Program and Issues .................................................................. 12  A.  Country Priorities and Agenda.......................................................................................... 12  B.  Key structural and sectoral issues ..................................................................................... 14  III.  Country Partnership Strategy for Kenya ..................................................................... 17  A.  Lessons Learned from FY04-08 CAS) and Stakeholder Feedback .................................. 17  B.  Proposed World Bank Group Partnership Strategy .......................................................... 18  Objective 1: Unleashing Kenya’s growth potential ......................................................... 20  Objective 2: Reducing inequality and social exclusion ................................................... 25  Objective 3: Managing resource constraints and environmental challenges .................... 27  IV.  Implementing the Country Partnership Strategy for FY10-13 .................................. 28  V.  Managing Risks ............................................................................................................... 36  VI.  Conclusion ....................................................................................................................... 38  List of Tables: Table 1: Poverty and Inequality in Selected Countries ......................................................................... 3 Table 2: Selected Governance Indicators for EAC Countries .............................................................. 5 Table 3: Macroeconomic Indicators: Medium Term Outlook ............................................................ 12 Table 4: Alignment of Lending and Knowledge Program with CPS Objectives ............................... 30 Table 5: IEG Evaluations…………………………………………………………………………...117  Table 6: Select Indicators of Portfolio Performance………………………………………………..117  List of Figures: Figure 1: CPIA Ratings for Kenya and for Sub-Saharan Africa …………………………… ............. 6 Figure 2: Selected social and Economic Indicators ............................................................................. 8 Figure 3: Growth Projections ............................................................................................................. 11   Figure 4: Approvals and Commitments FY1990-2009……………………………………………...78  Figure 5: Yearly Commitments versus Disbursements 1990-2009………………………………….80  Figure 6: Highest Disbursing Sectors 1990-2009……………………………………………………81  Figure 7: Highest Disbursing Sectors per Fiscal Year……………………………………………….81  Figure 8: Disbursement Shares by Sector and Outcomes (FY04-09)……………………………….83   Figure 9: Summary of CAS CR Results Framework………………………………………………...85  Figure 10: Planned versus actual Lending Commitments………………………………………….115  Figure 11: Planned versus actual Nonlending Activities…………………………………………...116 List of Boxes: Box 1: Grand Corruption in Kenya: what has been done? ................................................................... 7 Box 2: Kenya in the East Africa Community .................................................................................... 21 Box 3: Gender Mainstreaming in the Agriculture Sector ................................................................... 24 Box 4: Land reform in Kenya, and the role of the Bank .................................................................... 28 Box 5: Indicative Reform Areas and Indicators for a First Development Policy Loan ..................... 31 Box 6: Bank and Government Performance during CAS Implementation………………………….76  Box 7: The 2006 Detailed Implementation Review…………………………………………………79  Box 8: Output based aid under the Microfinance for Water Services Project……………………….84  Box 9: Highlights of CAS Outcomes by Theme…………………………………………………….87    List of Annexes: Annex 1: Results Framework for the Kenya CPS FY 2010-2013 ...................................................... 39 Annex 2: Summary of the Kenya Portfolio (existing and proposed portfolio) ................................... 48 Annex 3: Matrix of Donor Interventions ............................................................................................ 49 Annex 4: World Bank Group Program Integration ............................................................................. 50 Annex 5: Progress toward Millennium Development Goals .............................................................. 51 Annex 6: Kenya at a Glance ............................................................................................................... 52 Annex 7: IRBD/IDA Program Summary ........................................................................................... 54 Annex 8: Summary of Non-lending Services ..................................................................................... 55 Annex 9: Operations Portfolio (IBRD/IDA and Grants) .................................................................... 56 Annex 10: IFC Committed and Disbursed Outstanding Investment Portfolio ................................... 57 Annex 11: Kenya IFC Investment Operations Program .................................................................... 58 Annex 12: Country Financing Parameters ......................................................................................... 59 ii Annex 13: Key Economic Indicators .................................................................................................. 60 Annex 14: Key Exposure Indicators ................................................................................................... 62     Annex 15: FY09-FY10 Client Survey/CPS Multi-Stakeholder Consultations ................................... 63 Annex 16: Kenya CAS Completion Report (FY04-09) ...................................................................... 73 Annex 17: CAS Completion Report Results Framework ................................................................. 118 Annex 18: Planned and Actual Financing FY04-08 (US$ million) .................................................. 143 Annex 19: Planned and Actual Non-lending FY04-08 ..................................................................... 144   Map: IBRD 332426R   iii Executive Summary Country Partnership Strategy for Kenya 2010-13 i. Kenya’s Development Challenges. Since 2003, Kenya has shown that it can make significant development progress, but also that longstanding challenges continue to hold it back. Following peaceful elections in 2002, the Government introduced free primary education, achieved sustained economic growth, reduced poverty, and eliminated a lot of red tape, but at the same time it failed to deal decisively with corruption, inequality, political disruption, and the vulnerabilities that hold it back. In 2007-08, the disputed outcome of presidential elections triggered widespread violence, resulting in about 1,100 deaths and the formation of a coalition government. Post-election violence, together with drought, high global food and fuel prices, and the global financial crisis, brought per capita growth below zero in both 2008 and 2009. Kenya is now recovering from these setbacks, but once again the principal goal of its government and its people—sustained high rates of per capita growth—is elusive. In addition, progress in achieving the MDGs remains mixed (Kenya will miss the poverty and health MDGs, but may reach the education one); about 50 percent of the population still lives in poverty; inequality is high, with access to services varying widely by region and by gender; and poverty, inequality and social exclusion have fueled crime and violence. Governance also remains a key challenge, with Kenya scoring well on voice, regulatory quality, revenue mobilization, public administration, and macroeconomic management, but very poorly on rule of law and control of corruption. ii. The.Government’s Program. In mid-2008, the Government prepared a long-term development strategy, Vision 2030, which aims to transform Kenya into a globally-competitive middle-income country by 2030. The strategy has three pillars: an economic pillar that aims to achieve GDP growth of 10 percent per annum; a social pillar that aims to build a just society enjoying equitable social development in a clean and secure environment; and a political pillar that aims to build a people-centered, results-oriented, accountable democratic political system. To operationalize Vision 2030, the Government also prepared a Medium-Term Plan (MTP) for 2008 to 2012. The CPS aims to support government efforts to implement the MTP and achieve Vision 2030, building on stakeholder feedback and lessons learned in implementing the Country Assistance Strategy for FY04-08. To do so, the Bank will bring knowledge and best practices to help find practical solutions to Kenyan problems, working with local partners. It will also seek to ensure that all Bank activities help to improve governance by building responsive, capable and accountable state agencies. Concretely, this implies that the Bank Group will seek to understand sector-wide governance challenges; improve supply-side accountability in fiscal management, public procurement, government auditing, and the civil service; expand demand-side accountability, particularly for beneficiaries of public services; set and enforce high standards for managing Bank resources; and build coalitions for addressing governance and anti-corruption challenges at the country level. iii. World Bank Group Strategy With this CPS, the Bank Group intends to make a catalytic contribution to Kenya’s continuing transformation to a middle-income country. Over the CPS period, the World Bank Group will contribute to achieving more inclusive growth by supporting activities aiming to (i) unleash Kenya’s growth potential, (ii) reduce inequality and social exclusion, and (iii) address resource constraints and environmental challenges. Unleashing Kenya’s growth potential will involve efforts to improve the business environment;   expand core infrastructure, especially in roads, water and electricity (with a view to deepening regional integration); enhance agricultural productivity, with a focus on food security; and strengthen public sector management and sub-national governance. Reducing inequality and social exclusion will involve increasing the access of the poor to basic education, health services and water and sanitation, and improving social safety nets, given Kenya’s history of unequally shared development. In addition, the Bank Group will help the Government to improve the management of land and water resources, especially in key water catchment areas, and to address climate-change risks and opportunities, given Kenya’s high dependence on rainfed agriculture and its vulnerability to climate change. In line with the Bank’s governance and anti-corruption framework, the Bank will promote good governance as a cross cutting theme by helping to build more capable and accountable government at the national, local and agency level and to strengthen core governance systems in procurement and public financial management. iv. The World Bank Group Program. The bulk of IDA financing to Kenya over the CPS period will be in the form of investment lending, but a development policy lending series focused on public financial management, business regulation, financial sector reform and demand-side accountability is also under consideration. Over the CPS period, the Bank will consolidate smaller projects into larger programs which the Government could scale-up with its own financing. Average annual IDA and IFC commitments are expected to amount to about US$400 million (assuming that IDA16 commitment authority is at least the same as IDA15) and US$100 million respectively. The Bank will continue to work closely with other development partners in the context of the Kenya Joint Assistance Strategy, as well as with civil society, the media and other stakeholders. Strategic communications will seek to provide information to all stakeholders, provoke constructive debate, and strengthen the hand of reformers as well as beneficiaries seeking to hold service providers to account. v. Implementing the Program. The World Bank Group will organize its program along the lines of eight core result areas. For each of these, the CPS anticipates plans to design, budget and monitor an integrated program of AAA, lending, trust funds and partnership activities, including through SWAps. The Bank will adjust its program depending on opportunities and progress in the core results areas, integrating IFC and MIGA resources in areas that will be jointly pursued. The Bank Group will also strengthen partnership activities through the Development Partner Forum, which the World Bank co-chairs. In delivering the program, the Bank Group will pay particular attention to strengthening portfolio implementation, furthering the knowledge agenda, and leveraging resources through strategic partnerships and trust funds. vi. Managing Risks. The CPS strategy has risks, including political tensions as the referendum on the constitution in mid-2010 and the 2012 elections approach; reversal of macroeconomic achievements, particularly near the next elections; vulnerability to external shocks and to climate change; terrorism; and project management and fiduciary risks, including corruption. The CPS proposes actions to mitigate all of these risks—recognizing that failure to engage effectively constitutes the biggest risk of all. ii Staff would appreciate views from Executive Directors on the following matters:  Do the three objectives of the CPS, and proposed activities, adequately reflect Kenya’s development challenges?  Are the programs of the IFC, IDA and IBRD well integrated and mutually supportive?  Does the results framework provide for sufficient accountability?  Is there room for development policy lending in Kenya? iii KENYA: Country Partnership Strategy 2010-2013 I. Country Context A. Political Developments 1. Kenya enjoyed decades of relative peace following independence in 1963, but political differences have often caused growth to slow and ethnic conflicts to flare. Multiparty elections have taken place since 1992. While elections in 2002 were peaceful, free and fair, the most recent polls in December 2007 involved intense political rivalry, disappointed expectations on the part of some, and sharply disputed presidential results. Widespread ethnic- based violence ensued, leading to about 1,100 deaths and 350,000 internally displaced people (IDPs). In February 2008, the opposing coalitions came together through a national dialogue and reconciliation process led by former UN Secretary General Kofi Annan. This process resulted inter alia in a grand coalition government and the creation of an office of the Prime Minister. President Kibaki (who leads the Party of National Unity, PNU) retained the presidency while his key rival, Raila Odinga (who leads the Orange Democratic Movement, ODM), became the Prime Minister. While ethnic tensions still run through social and political life in Kenya, often beneath the surface, a fragile stability had been maintained since the coalition government was formed. 2. The national dialogue and reconciliation process continues to frame political discussion in Kenya today. Progress has been made in addressing its four agenda items but much remains to be done:  Agenda Item 1 involved immediate action to stop violence and restore fundamental rights. It urged the Government to disarm militias, the police to act impartially, and the media to adhere to a code of conduct. After the coalition government was agreed, the violence largely stopped, but since then new forms have arisen; criminal gangs are extending their activities; some communities are forming vigilante groups, arousing fear and division; and resource-based conflicts remain a deep concern.  Agenda Item 2 involved immediate measures to address the humanitarian crisis and promote healing and reconciliation. It aimed to have IDPs return home; political leaders to encourage reconciliation; and the Government to establish peace committees as well as a Truth, Justice, and Reconciliation Commission (TJRC). While the Government has helped to resettle IDPs, about 20,000 IDP households remain in transit camps, fearing to return home. At the same time, reconciliation processes remain ad hoc and incomplete. A TJRC was appointed in July 2009, but its work has progressed slowly.  Agenda Item 3 involved resolution of the political crisis. While the coalition government has held together, a proliferation of ministries and districts has raised costs and inefficiencies. Moreover, because the coalition was formed to resolve political deadlock rather than to implement a common vision, it has been hard for it to develop enough trust and cohesion to agree on fundamental reforms: ethnic alliances often drive debate and political opposition is weak.    Agenda Item 4 involved the resolution of long-standing issues, including land reform; constitutional reform; poverty, inequality, and youth unemployment; transparency and accountability; and national unity and cohesion. The challenges are enormous, given the complexity of the issues, and progress has been mixed. On the recommendation of the Kriegler Commission (September 2008), which found that the election was mishandled by the political parties as well as the electoral commission, an interim electoral commission was established in May 2009. Police and judiciary reforms have been initiated, but they are modest in scope, and implementation lags. A National Land Policy was approved by Parliament in December 2009. A new constitution is being drafted, and in early 2010 the coalition partners agreed common positions with respect to the powers of the executive and the level of decentralization; a referendum is expected in mid-2010. Finally, there has been no progress in prosecuting the perpetrators of post-election violence: although the Waki Commission (October 2008) found that specific individuals, named in a sealed letter, organized the violence, Parliament refused to establish a local tribunal to prosecute the suspects, and the matter is now before the International Criminal Court (which received the sealed letter in mid-2009). 3. Kenya is also influenced by events in neighboring countries, of which several are experiencing instability. Somalia has not had an effective government for 19 years; low-grade war continues to displace Somalis in south-central Somalia, and by January 2010 had driven about 350,000 across the border into Kenya, which now hosts one of the largest refugee camps in the world near Dadaab. In addition, some 50,000 refugees have crossed into Kenya from southern Ethiopia and Sudan—where instability may grow with the approach of the 2010 Ethiopian elections as well as the 2011 referendum on southern Sudan’s independence. Destabilizing spill-over effects from the region, including particularly from terrorist organizations believed to be based in Somalia, remain a concern. B. Social and Poverty Trends 4. Rapid population growth, urbanization and demographic transition will shape Kenya’s development prospects for the next decades. This transformation will also affect Kenya’s social stability, which remains fragile after the 2007-08 post-election violence. The 2009 census shows that Kenya’s population is growing by one million people every year, and may reach 85 million by 2050. Starting in 2000, working-age Kenyans exceeded dependents for the first time, and from 2020 to 2050 Kenya will benefit from a “demographic bonus”, as the working-age population increases much more sharply than dependents. This provides an opportunity to Kenya, provided that job creation keeps pace. 5. Kenya is on track to achieve some MDGs, but not all. It is not likely to eradicate extreme poverty and hunger (MDG 1), as per capita GDP growth rates have been too low and erratic to reduce sharply the proportion of people living in poverty. Free primary education, introduced in 2003, dramatically improved access and completion rates,1 so Kenya may reach MDG 2, but there are still about one million primary school age children out of school and many                                                              1 The net primary enrollment rate increased from 84 percent for boys and 83 percent for girls in 2006 to 95 percent for boys and 91 percent for girls; the primary completion rate from 67 percent to 80 percent; and the transition rate to secondary school from 60 percent in 2008 to 64 percent in 2009. 2 school leavers still have very low levels of learning achievements. With improved gender parity in education, Kenya may also achieve one target of MDG 3. Although preliminary results from the 2008-09 Demographic and Health Survey indicate that the child mortality rate fell from 115 in 2003 to 74 in 2007, and the infant mortality rate from 77 to 52, Kenya is still unlikely to achieve MDG 4. The prevalence of underweight, stunting and wasting has not changed much during the last 15 years, and malnutrition remains a key contributor to half of child and infant deaths in Kenya. Maternal mortality did not improve significantly in the 2000s, and so MDG 5 remains out of reach. By contrast, Kenya is likely to achieve MDG 6, as it has been able to sharply reduce its adult HIV prevalence rate, due in part to successful awareness-raising efforts that have led to less risky behavior. 6. The Bank’s 2009 Poverty Assessment for Kenya showed that the overall headcount poverty rate, using the country’s official national poverty line, fell from 51 percent in 1997 to 47 percent in 2005-06. The poverty rate was much higher in rural areas (50 percent) than in urban areas (34 percent). Available poverty estimates predate the post-election instability and recent food and international economic crises and consequently do not reflect their impact. Over the decade to 2007, overall rural poverty fell, but more than half of households experienced poverty at some point. Shocks appear to be an important driver of households falling into poverty, or deeper into existing poverty. The most common shocks over the period 2000-05 were, in order of importance, food price inflation, droughts and floods, illness, and death in the family, followed by the death of livestock. The Poverty Assessment also shows that the main correlates of poverty are low income diversification, low access to credit, inequality in land ownership, and poor infrastructure. Key drivers out of poverty are diversification of household activities and access to roads that connect lagging rural areas to urban markets and urban slum dwellers to opportunities elsewhere within their cities. Geographically, the main urban areas have above average per capita income and faster declines in the poverty headcount. Per capita income in the poorest regions is just 50-60 percent of the national average. 7. Inequality is high in Kenya. Kenya’s Gini coefficient of 48 (2005-06) is similar to Rwanda and Uganda, above Tanzania and Ethiopia (see Table 1), and higher than the 42.5 Kenya registered in 1997. Rates of inequality are even higher for reported earnings and land ownership. Table 1: Poverty and Inequality in Selected Countries Country (years) Population <$1/day Gini coefficient Kenya (2005) 20% 48 Ethiopia (2005) 39% 30 Malawi (2004-05) 74% 39 Rwanda (2000) 77% 47.8 Tanzania (2000-01) 89% 35.6 Uganda (2002) 52% 43 Source: World Development Indicators 8. Access to services varies widely across Kenya and is exceptionally poor in urban slums. Nairobi and Central province generally fare better in access to social services, and so human development outcomes. For example, the risk of infant death in Nyanza is six times greater than in Central province; educational attainment in Coast, Northeastern and Western provinces lags behind the center, very significantly at the secondary level; and while school 3 enrolment nationally is near gender parity, Northeastern province in 2008 enrolled 750,000 boys but only 400,000 girls. Infrastructure services are also unevenly distributed. Recent gains in electricity, sanitation and telephone ownership were concentrated in Nairobi and Central provinces, though in Nairobi’s slums, for example, only 19 percent of households have access to a private piped water connection, 22 percent to electricity, and 25 percent to a working drain outside their house. Central, Eastern and Nyanza provinces saw gains in access to safe water, but Western and Rift Valley experienced losses. While access to electricity nationally increased by 50 percent over the last decade, Western and Nyanza provinces experienced drops in coverage rates. Improvements in roads have been more widespread. 9. Poverty, rising inequality and the social and economic exclusion of rural populations also contribute to higher levels of crime and violence in Kenya. In the 1980s and 1990s, rural livelihoods were sharply eroded, due to lack of access to land, declining human capital (due largely to HIV/AIDS), and the corruption or collapse of formal institutions (especially for agricultural marketing and services). Rural households responded by migrating into urban slums or diversifying into off-farm and non-farm activities, though limited assets restricted options and forced some into marginal activities such as squatting, charcoal production, and illicit brewing. These livelihood shifts dramatically impacted the relations between household members. New demands and opportunities arose in areas dominated by women, such as food crop production, petty trade, informal services, beer brewing, casual labor, domestic service, home care for the sick, and gathering forest products and firewood. By contrast, livelihoods dominated by men, such as pastoralism and cash crop production, were eroded, and many men began to feel disempowered and responded to these adverse developments by diversifying their activities off the farm and increasing reliance on community organizations. At the same time, youth with more education than their parents found themselves without jobs or assets, and were forced to remain in their parent’s households well into adulthood, resulting in intergenerational conflict over land, income, and family property. These shifts also contributed to higher levels of crime and violence. Kenya’s homicide rate, at three to six per 100,000 people, is basically unchanged since 1987, and lower than in many sub-Saharan African countries, but offenses against people (assault and causing disturbance) and property (theft, burglary, and robbery) are pervasive, constituting 60 percent of all crimes reported to the police. While crime and violence remain concentrated in Nairobi and other large urban centers, in recent years they have also permeated rural areas, reducing mobility, school attendance, economic activity, quality of life, and trust within communities and in public institutions. Moreover, it is the poor who are most affected by crime and violence, having fewer means to cope. 10. Gender inequality also remains a key issue in Kenya. Women account for only 30 percent of wage employment and 24 percent of civil service employment, mostly in lower cadres. A woman is less likely to be employed, especially if young, and her income is typically significantly lower than a man’s in the same job. Only 10 percent of parliamentarians and 17 percent of ministers are women, and female representation in productive organizations and parastatals is small. While women contribute most agricultural labor, their access to land is limited, and consequently they have less access to farm inputs, credit, and extension advice, and limited involvement in cash-crop production. Women are also mainly responsible for household duties, which can be onerous: indeed HIV/AIDS, climate change, and other livelihood stresses are increasingly requiring women to spend more time to collect water and fuel wood and care for 4 the sick. Given these circumstances, it is not surprising that poverty among female-headed households is about five percentage points higher than among male-headed households, and is especially widespread in urban households headed by widows. Girls and women also suffer from practices such as female genital mutilation, early marriage, and gender-based violence. While temporary measures to improve girls’ access have improved gender parity in education since 2003, gender disparity persists in rural and poor areas and in higher education, and female literacy remains markedly lower than male literacy, especially in rural areas and urban slums. 11. High levels of inequality explain why Kenya’s growth translates into limited poverty reduction. While average consumption per capita increased between 1997 and 2006, it fell 0.7 percent for the poorest 20 percent of the population. If inequality had not worsened, the poverty headcount would have fallen by almost 20 percent nationally (and 15 percent in rural areas), instead of 5.5 percent nationally (and 3 percent in rural areas), as actually occurred. Governance 12. Kenya has a mixed record on governance. In comparison to its peers, it scores well on voice, regulatory quality, revenue mobilization, public administration, and macroeconomic and budgetary management. By contrast, Kenya scores well below the norm for lower-income countries and for sub-Saharan Africa on rule of law and control of corruption. 2 Table 2: Selected Governance Indicators for EAC Countries-2008 Measure Burundi Kenya Rwanda Tanzania Uganda LICs CPIA 3.0 3.6 3.7 3.9 3.8 TI CPI 1.8/168 2.2/146 3.3/89 2.6/126 2.5/130 WGI Voice and Accountability 28 44 13 45 33 28 Regulatory Quality 12 51 33 38 50 Control of Corruption 16 14 59 36 23 23 Open Budget n/a 57 0 35 51 24 Doing Business 176 95 67 131 112 Sources: CPIA WGI and DBI 13. On the positive side, public financial management (PFM) has been improved. The government’s audit capacity has been strengthened, the macroeconomic framework linked with fiscal planning, and an integrated payroll and personnel database introduced. That said, the Government needs to do more work to roll out the Integrated Financial Management Information System (IFMIS) and to improve cash management, achieve program-based budgeting, and consolidate procurement reforms. There has also been some progress in public sector reform, as the Results for Kenyans Reform Program (2004) introduced results-based management (RBM) into the public service and contributed to significantly more openness and transparency in the                                                              2 See Kenya’s Actionable Governance Indicators (AGIs), which draw on the Bank’s CPIA ratings, the Worldwide Governance Indicators, Doing Business, PEFA indicators and other sources. 5 public sector as well as improved performance through innovations such as manager performance contracts and rapid results initiatives. Nonetheless, much more needs to be done to inculcate public service values across all parts of government. 14. This mixed story – of solid progress in economic policy-making and halting progress on governance issues – is captured in Kenya’s Country Policy and Institutional Assessment (CPIA) ratings. Figure 2 compares Kenya’s CPIA ratings with IDA countries in sub-Saharan Africa. Particularly notable is Kenya’s success with fiscal stabilization, budget management, financial sector reforms and openness to the private sector. In terms of policies and management, Kenya is one of the strongest macroeconomic performers in the region. Yet there are also some important areas where Kenya lags, particularly in property rights, and to a lesser degree gender equality and public resources supporting pro-poor programs. These are areas where government leadership supported by external partners can begin to make a difference. Finally, governance and transparency remain issues for Kenya, as they are for most of the countries in the region. Overall, Kenya scores better than its peers because it has in place a strengthening legal and institutional framework designed to enhance government accountability. While many of these programs have yet to gain traction, an independent media and strong civil society are seen as important partners in developing a culture of accountability. Figure 1: CPIA Ratings for Kenya and for Sub-Saharan Africa (2008) Macroeconomic management Public sector transparency, 4.5 Fiscal policy accountability and corruption Quality of public 4.0 Debt policy administration 3.5 Efficiency of revenue 3.0 Trade mobilization 2.5 Quality of budgetary and 2.0 Financial sector financial management Property rights and rule-based Business regulatory governance environment Environmental sustainability Gender equality Social protection and labor Equity of public resource use Building human resources KENYA SSA countries 15. Poor governance, and particularly corruption, remains a source of risk for any investment in Kenya. Two episodes of grand corruption in the last two decades illustrate the difficulties that elite capture presents in Kenya (see Box 1). On the positive side, the ongoing national dialogue and reconciliation process has created opportunity and some momentum for 6 needed governance reforms, and many entities have been established to address key issues and have begun their technical work.3 In addition, the Government has made progress in past years in several areas. Key legislation has been passed,4 including an anti-money laundering law but not including a much needed freedom of information bill. In addition, administrative reforms have been implemented to outlaw political fundraising events, reform tax administration, and simplify business licensing. Box 1: Grand Corruption cases in Kenya: what has been done? When observers discuss corruption in Kenya, the Goldenberg and Anglo Leasing scandals remain prominent. What has happened since these scandals became known? The Goldenberg scandal was exposed in 1993 by a whistleblower in the central bank. Goldenberg International allegedly smuggled gold into Kenya from Zaire to take advantage of an export- promotion scheme that allowed exporters who deposited US dollars with the central bank to receive the equivalent in Kenya shillings, plus 20 percent. It is widely believed that a significant portion of the exported gold was fictitious; that the local currency mark-up was 35 percent; and that the scheme netted as much as US$600 million. This scheme was not probed until 2005-06, when a report prepared by Justice Bosire recommended that the then Vice President and Minister for Finance be charged and the then President investigated. The former Vice President, who was in 2006 the Minister for Education, resigned, but the High Court ruled in July 2006 that he should not be charged and he was reinstated in November 2006. The former President was not investigated. The Anglo Leasing scandal has its origin in a Government effort in 2002 to obtain passport printing equipment and forensic laboratories from Europe. A €6 million contract was originally to be awarded to a French firm, but later a €31.9 million supplier-credit contract was awarded on a single- source basis to a UK firm, Anglo Leasing, to do the same work. A 2004-05 investigation initiated by a Permanent Secretary in the Office of the President found that Anglo Leasing was one of many ghost companies (linked through directors’ names, addresses, and shareholders) that Government officials were using to divert public money, through overpricing or non-delivery of goods and services; the associated lease and supplier-credit contracts totaled about US$650 million. When the investigation’s findings were made public, the implicated Ministers for Finance and for Justice resigned, but both were subsequently reappointed; later, another implicated Minister was demoted and he and the previous Minister for Finance lost their bids for re-election. In addition, three Permanent Secretaries who were implicated have been charged and removed from office. The Anglo Leasing scandal was also the subject of special audits by the Auditor General and the Parliamentary Accounts Committee.                                                              3 These include the Committee of Experts on the Constitution, the Truth Justice and Reconciliation Commission, the Independent Interim Electoral Commission, the Independent Interim Boundaries Review Commission, and the National Cohesion and Integration Commission. 4 These include the 2003 Public Officer Ethics Act, which introduced a code of conduct and asset declaration for public officers; the 2003 Anti-Corruption and Economic Crimes Act, which established the Kenya Anti-Corruption Commission; the 2004 Government Financial Management Act; the 2004 Public Audit Act; the 2005 Privatization Act, which increased accountability and transparency in the privatization process; the 2006 Statistics Act, which established an independent statistics bureau; the 2005 Public Procurement and Disposal Act, which established the Public Procurement Oversight Authority; and the 2009 Proceeds of Crime and Anti-Money Laundering Act. 7 The Economic Context C. Recent Economic Developments 16. Like much of Africa, Kenya began the 21st century with a decade of relatively strong growth. From 2000-09, it averaged 3.7 percent. For the first time since the 1970s, most Kenyans saw their incomes rising, albeit by only 1.0 percent per annum (although the poorest groups saw relatively little change). Over 2002 to 2007, growth picked up in all key sectors of the economy, including agriculture, industry and services, with tourism achieving a remarkable 22 percent growth per annum (measured in US$ receipts). This remarkable growth performance has been attributed to the successful presidential transition of December 2002, which produced a large economic dividend. Starting in 2003-04, there was a perceptible change for the better in Kenya’s economic outcomes. Interest rates declined, external assistance started flowing in, investor confidence jumped, and growth prospects improved. This positive outcome coupled with a favorable external environment, macroeconomic stability and strong fiscal adjustment, and a strong revenue effort combined with a remarkable reduction in debt as a share of GDP. During this period of high growth, Kenya further strengthened its fiscal position and brought its public debt down from 60 percent of GDP in 2000 to 40 percent in 2008. As a result of this strong growth performance, incomes per capita increased and poverty declined from 53 percent in 1997 to 47 percent in 2005-06. Nonetheless, unemployment remains a major concern, especially among the urban youth (see Figure 3). Figure 2: Selected Social and Economic Indicators   700 GNI Per Capita US$ (Atlas method) 650 600 550 500 450 400 350 2002 2003 2004 2005 2006 2007 2008 60 Poverty Head Count 1997 & 2005/06 50 Unemployment in Kenya 2005-06 urban unemployment % 50 40 40 30 30 20 total 20 10 10 0 0 National Rural Urban 1997 Age Group 8 17. Unlike most countries in sub-Saharan Africa, Kenya’s growth does not depend principally on agriculture. About 55 percent of GDP comes from services (transport, finance, tourism, ICT, and trade), where the private sector has been especially entrepreneurial in exploiting the country’s geographical advantages (particularly access to the sea through the port of Mombasa and proximity to inland markets for its manufactures). Kenya also gained from the introduction of the East African Community (EAC) customs union, with exports to the EAC doubling over 2002 to 2007 (from about US$650 million to US$1.3 billion) and imports quadrupling over 2004 and 2007. Nevertheless, limitations on access to credit, unreliable and expensive electricity supply, logistical constraints (for example, inefficiency in and around the port of Mombasa, dilapidated road infrastructure, and poor performance of the rail concession), and high costs of doing business (due to taxes, corruption, insecurity, and local licensing costs) also prevented Kenya from maximizing its potential for private sector-led growth. 18. In 2008 and 2009, growth decelerated sharply, due to four major shocks. These included the violence following the Presidential elections of December 2007, high international food and fuel prices in 2008, the global financial crisis in 2008-09, and four consecutive failures in seasonal rains, resulting in widespread drought. Kenya’s economy was projected to grow at 8.3 percent and to attain a 10 percent growth by 2012 in line with Vision 2030. Instead, the post election violence brought growth to a low of 1.7 percent in 2008 and, combined with external shocks, 2.5 percent in 2009. 19. Kenya has been strongly affected by the domestic shocks over the last few years, but it managed the international shocks very well. Kenya entered the global crisis from a relatively strong macroeconomic position, benefitting from reforms in the banking sector and budget management in the preceding years. To cushion the economy from a further downturn, the government adopted an expansionary fiscal policy. The FY09-10 budget includes a fiscal stimulus package and the budget deficit is projected at 6.6 percent of GDP (US$2.1 billion). Total public debt will increase from 42 percent of GDP to 44 percent during the fiscal year, still within sustainable limits. That said, post-election violence in 2008 markedly hurt both the tourism industry (down 35 percent) and agriculture (down 5 percent). While tourism recovered in 2009, agriculture continued to contract in 2009 (by about 2.5 percent). Due to Kenya’s heavy reliance on hydropower, the drought also resulted in shortages in the electricity and water sectors (down 10 percent), which in turn hit manufacturing. 20. During the global financial crisis Kenya’s current account deficit increased from 4.5 percent (2008) to 7.5 percent of GDP (2009). The overall balance of payments turned negative as the trade balance widened further and service exports leveled off. To help Kenya cope with the situation, the IMF provided US$200 million from the rapid access component of its Exogenous Shock Facility in June 2009, and Kenya later received US$350 million from the special and general allocation of SDRs that was made available to all IMF member nations. 21. Kenya has managed its debt burden well. Keeping debt levels below HIPC Initiative thresholds, Kenya never qualified to receive HIPC debt relief. Moreover, since 2003, strong economic growth, prudent fiscal policies, and lower interest rates brought debt levels down from 60 percent of GDP in 2000 to 42 percent in 2009. As of end-2008, Kenya’s net domestic debt stood at Ksh 340.4 billion, or 16.1 percent of GDP, and its nominal public external debt was estimated at US$6.2 billion (20.4 percent of GDP). A debt sustainability analysis (DSA) 9 undertaken jointly by the Bank and the IMF in May 2009 found that Kenya would remain under its indicative debt stock and debt service thresholds, under all alternative scenarios and stress tests considered. While comforting, this does not provide grounds for complacency, as the DSA also found debt sustainability to be particularly vulnerable to low GDP growth. 22. There have also been notable improvements in strengthening the institutional framework for debt management and the development of debt markets. A Debt Management Department (DMD) was established at the Ministry of Finance in 2007 and a wide- ranging debt database has been installed and made operational. In June 2009, Kenya also formulated a Medium Term Debt Strategy (MTDS), with a target debt-to-GDP ratio of 40 percent. The MTDS is vulnerable to two risks: (i) that GDP growth is lower than projected; and (ii) that potential unreported contingent liabilities are realized. Kenya’s medium-term prospects 23. Kenya is expected to grow by about 3.5 to 4.0 percent in 2010, continuing its recovery since 2008 and resulting in a modest increase in income per capita. This would be close to the projected average of 4.1 percent for sub-Saharan Africa, but significantly below projections for its EAC neighbors and below the 5 percent growth achieved before the crisis. The recovery will be driven by services (especially transport, communication, tourism and trade) and to a lesser degree industry, with the overall growth rate highly dependent on favorable rainfall (supporting agriculture) and the speed of the global economic recovery (supporting Kenyan export and tourism markets in Europe). Although consumer prices spiked sharply upward in 2008 and 2009, the Government has continued to manage inflation effectively.5 Assuming normal rainfall, drought impacts will end in early 2010, permitting a recovery for agriculture and greater reliability in electricity and water supply. This in turn should enable manufacturing to grow in line with domestic demand and regional growth (as the EAC and COMESA are Kenya’s main markets). Industry, which has been led by construction in recent years, should continue to receive some support from the stimulus package. Assuming that oil, fertilizer and commodity prices remain stable at 2009 levels (and therefore that no significant gains in terms of trade should be expected), but that exports and private remittances will expand, the current account should also improve, though it will remain in deficit below 6.0 percent of GDP in 2010. 24. In addition, Kenya’s private sector should benefit from Kenya’s participation in regional trading blocs. An EAC Common Market protocol signed in November 2009 will allow for the free movement of goods, people and services and should open up significant trade and investment opportunities in the region; monetary union, scheduled for 2012, would also provide a boost. Kenya is also a member of the Common Market for East and Southern Africa (COMESA) and the Intergovernmental Authority on Development (IGAD). The EAC-SADC- COMESA tripartite is working intensively to increase collaboration and launch a new East and                                                              5 In October 2009, the Government also changed the methodology, which has been endorsed by the IMF, for calculating inflation, to bring it into line with international best practice. This more accurate assessment of price changes brought inflation from 18.7 percent in September to 6.6 percent in October, which is near the Central Bank’s target of 5 percent. The new methodology also removes the upward bias of the previous one, creating more certainty for business and labor and adding credibility to the Central Bank’s monetary policy. 10 Southern African Free Trade Area. IGAD, which covers the Horn countries, has to date focused mainly on climate change and conflict resolution and is looking to increase its focus on economic development. 25. In the medium term, Kenya’s real growth is projected at 5.0 percent in 2011 and 6.3 percent in 2012, assuming full recovery (see Figure 4 and Table 3). For the period 2011-12, agriculture is projected to expand at 3.0 percent annually and industry at 5.0 percent, mainly driven by construction (given that the high cost of doing business for manufacturing will continue to constrain that sector). Continuing with the recovery from 2010, robust growth is projected for services, notably tourism, transport and telecommunications, trending with the global recovery. Tourism performance will be boosted by aggressive source market diversification under implementation by the key sector players; overall the sector is expected to grow 6.0 percent in 2011 and 8.0 percent in 2012. 8 Figure 3: Growth Projections 7 6 5 4 3 2 1 0 2002 2003 2004 2005 2006 2007 2008 2009* 2010* 2011* 2012* 2013* Base Case Conservative   26. While Kenya has demonstrated that it can grow, it also remains vulnerable to both external and domestic shocks, which constitute significant risks to its projected growth path. The performance of the agriculture sector remains dependent on weather patterns and the political cycle influences private sector expectations and investment decisions. Factoring in low rainfalls and an uncertain political process leading to the elections in 2012, GDP growth is likely to be much lower. In this conservative estimate, growth is projected at 4.5 percent in 2011 and 4.0 percent in 2012 (an election year), with a full recovery after 2013 (see Table 3). 27. The government’s debt strategy has a target of 40 percent debt to GDP, and it reached this target in 2008. Responding to the global financial crisis and other shocks, the Government has enacted a fiscal stimulus which will increase debt levels temporarily. The budget deficit increased to 6.3 percent in 2009 and is expected to decline again to 4.8 percent by 2011. Under the base case growth assumptions, these budget deficits would translate into a renewed decline of debt levels to 41 percent by 2013 (see Table 3). 11 Table 3: Macroeconomic indicators: medium-term outlook Actual Estimate Projected Indicator 2007 2008 2009 2010 2011 2012 2013 Real GDP Growth (base case) 7.1 1.7 2.2 4.0 5.0 6.3 6.5 Real GDP Growth (conservative 7.1 1.7 2.2 3.5 4.5 4.0 5.0 projection, assuming shocks) Real GDP per capita growth 4.0 -1.2 0.0 1.1 2.1 3.4 3.5 Current account balance % of GDP -3.2 -5.8 -7.5 -6.2 -5.3 -5.0 -4.1 Budget Deficit % of GDP -2.4 -4.5 -6.3 -5.6 -4.9 -4.8 -4.3 Debt % of GDP 41.5 40.4 43.8 42.6 42.2 42.0 41.0 CPI 4.7 16.2 9.2 5.5 5.2 5.0 5.0 Source: World Bank staff estimates. Note: The table is based on the base-case growth scenario. II. Country Development Program and Issues A. Country Priorities and Agenda Vision 2030 and the Medium-Term Plan 28. In mid-2008, the Government prepared a new long-term development strategy, Vision 2030, which aims to transform Kenya into a globally-competitive, prosperous, middle-income country within 22 years. The strategy has three pillars: an economic pillar that aims to achieve economic growth of 10 percent per annum; a social pillar that aims to build a just and cohesive society enjoying equitable social development in a clean and secure environment; and a political pillar that aims to build an issue-based, people-centered, result-oriented and accountable democratic political system. 29. To operationalize Vision 2030, the Government prepared a more detailed Medium- Term Plan (MTP) for the first five-year phase, covering 2008 to 2012.6 The MTP aimed at a quick recovery from the economic setback of 2008, by implementing macroeconomic and structural policies that would accelerate real GDP growth from 7 percent in 2007 to 10 percent by 2012. Fiscal policy would aim to reduce the fiscal imbalance and anchor debt at 20.4 percent of GDP throughout the period; monetary policy to ensure low inflation; public financial management reform to strengthen macroeconomic stability and improve public sector performance and service delivery; and financial sector reform to increase national savings to sustain growth. External sector policy would focus on increasing capital inflows to finance growth and foreign reserve accumulation to buffer potential vulnerabilities. These policies would facilitate the achievement of an increase in the level of investment by about 10 percentage points over the medium term, of which about 40 percent would come from the public sector. The MTP acknowledged that higher growth would require increased total factor productivity which, in turn, could only be achieved through structural reform. Accordingly, it examined the constraints to growth sector by sector; identified policy, legal and institutional reforms for completion in the medium term; and proposed “flagship projects” to be implemented in key                                                              6 “First Medium Term Plan, 2008-2012” Kenya Vision 2030; Office of the Prime Minister; Government of the Republic of Kenya 2008. 12 sectors. It also identified several cross-cutting governance issues that adversely affect growth in many sectors, noting inter alia the need to fight corruption and simplify business procedures. 30. A Bank-Fund joint staff assessment note (JSAN)—discussed by the Board on March 23, 2010—found that the MTP presents a reasonable program on a sector-by-sector basis, but also that it is weak in setting priorities and too optimistic in light of past experience and the shocks that occurred after it was developed. While the sector-specific plans are compatible with the government’s other planning documents, many goals and programs lack prioritization. In addition, most headline targets are unlikely to be met and so cannot serve as measures to hold the Government accountable for success or failure; they are best seen as expectations. 31. A critical thrust of Vision 2030 and the MTP is to accelerate growth through increased investment in infrastructure. The vision is to build modern, high-quality and efficient infrastructure facilities to expand access to markets. Areas of emphasis include rehabilitating the road network; upgrading the railways; transforming ports and airports to create hubs for a modern economy; improving urban public transport; and expanding access to electricity and safe water. To this end, total investments are expected to increase from about 23 percent of GDP in 2007-08 to more than 32 percent by 2012. For this to occur, private sector funds will need to be mobilized, and the strategy aims to leverage Kenya’s robust private sector to develop flagship projects in agriculture, finance, manufacturing, and business process outsourcing. (The JSAN notes that interventionist capital-intensive approaches of this kind can misfire, and that Kenya’s private sector may respond more fully to a level playing field that supports more broad-based and sustained growth with potentially a wider spread of benefits.) 32. Another key MTP objective is more equitable development through accelerated rural development. Agriculture remains a key sector, due to its large economic contribution, potential to create jobs, and proven competitiveness on world markets. The MTP and the newly formulated sector strategy appropriately focus on policies and programs for enhancing food security, productivity and value addition; developing arid and semi-arid lands (ASALs); and strengthening producer organizations and their linkages with markets. Investments in irrigation and livestock marketing infrastructure will be needed to unleash ASAL potential, and reform and privatization of agricultural parastatals (e.g., for sugar and livestock) should be fast-tracked. Unfortunately, as the JSAN notes, the MTP does not adequately accommodate downside risks from the external environment, including weather-related shocks. Bringing 2008-09 performance and downside risks into the MTP targets would bring projected average agriculture growth to around 6.5 percent, assuming targets for 2010-12 are achieved. 33. As the JSAN notes, the MTP’s discussion of financing could be strengthened. It projects only a modest rise in domestic financing, since the target on the debt-to-GDP ratio puts an upper bound on debt accumulation, and assumes that the budget can be reallocated to accommodate spending on the flagship projects. Public-private partnerships (PPPs) are to be explored, but these will require due consideration to costs, financing, and tax obligations (under certain circumstances long-term financial leases could be equivalent to non-concessional financing) as well as further strengthening of the institutional framework (initiated with the establishment of a PPP unit in the Ministry of Finance). The MTP also assumes a small increase 13 in aid and a large increase in private sector and commercial financing, with the introduction of a sovereign bond in international markets expected to increase private inflows into the economy. 34. The MTP also sets out appropriate goals for the education and health sectors. With increased primary school enrollment achieved by the elimination of school fees, the MTP rightly stresses steps to improve efficiency at all levels of the education sector. In the health sector, the MTP aims to provide affordable high-quality health care to all Kenyans, to reduce the incidence of HIV/AIDS, malaria, and tuberculosis, and to lower infant, child and maternal mortality rates by rehabilitating health facilities, strengthening procurement and distribution of essential medicines and supplies, and developing equitable healthcare financing mechanisms. Unfortunately, detailed plans are lacking, and more thinking is needed to link actions and reforms to the MTP’s laudable aims. 35. Finally, while the MTP includes institutional arrangements for monitoring and evaluating implementation, this will require strengthening the Kenya National Bureau of Statistics (KNBS), which heads the National Statistical System (NSS). Reforms within KNBS have been encouraging but remain incomplete; in particular, the agency has not made sufficient progress in aspects of national accounts and external sector data, which are within its primary responsibility. That said, key sources of information such as the 2008-09 Demographic and Health Survey, the 2009 national population census, and a new round of the Integrated Household Budget survey in 2010-11, should help to expand near- and medium-term analysis. B. Key structural and sectoral issues 36. The proposed CPS will support the government’s efforts to achieve growth with equity and environmental sustainability, in line with Vision 2030 and the MTP. Private- sector led growth will reduce poverty through creating jobs and generating the tax revenues needed to support service delivery. But in Kenya growth also needs to be spread equitably so that the poor can participate; and it needs to be environmentally-sustainable, given the enormous pressures that a rapidly growing population is already exerting on Kenya’s fragile ecosystems. 37. For a strong economic recovery and sustained per capita growth over the medium term, Kenya needs to sustain and complete key structural reforms in a number of areas:  Macroeconomic management (including financial sector stability): Going forward, the Government needs to maintain its strong record and ensure that future borrowing does not compromise macroeconomic stability or crowd out lending to the private sector.  Cost of doing business: Kenya needs to resume efforts to reduce these costs. In the 2008 Investment Climate Assessment (ICA), Kenyan firms reported an adverse business environment due to taxes, corruption, insecurity, low access to credit, poor infrastructure7 and burdensome licensing requirements. Trade competitiveness is hindered by costs, procedures and product standards. Lack of sustained reform also caused Kenya’s rank in the Doing Business survey to fall from 72 in 2008 to 95 in 2010 (of 183 countries), with                                                              7 For example, total losses incurred by Kenyan business in 2007 due to power outages, theft and breakage during transport, payment of bribes and protection payments at 20 percent are much higher than total losses experienced by middle income countries in Africa and by China and India. 14 weaknesses especially notable for paying taxes, trading across borders, enforcing contracts, registering property and starting a business—particularly in Nairobi, which generates 50 percent of Kenya’s GDP. (If Kenya were to adopt nationally the best practices already found in its cities, it would rank better than Italy or China.) Improving the policy and regulatory framework, including in the financial sector, will provide opportunities to enhance productivity and ensure sustainable and broad-based longer- term growth.  Infrastructure: Underinvestment in infrastructure, including maintenance, increases the cost of doing business, undermines competitiveness, and adversely affects trade. The 2008-09 multi-donor infrastructure diagnostic for Kenya found that GDP growth would expand by 2 percentage points with infrastructure similar to Mauritius, and that investment in road rehabilitation, electricity generation, and water operations and maintenance would provide the highest medium-term returns. In addition, the Poverty Assessment found that improved infrastructure is associated with movements out of poverty, and that improved water supply and sanitation would dramatically improve human health, the environment, and the economy. Enhancing Kenya’s ability to raise infrastructure finance from private sources, including through PPPs and corporate bonds, is crucial to addressing underinvestment in infrastructure. While the PPP Regulations of 2009 created a PPP unit and established a Steering Committee responsible for ensuring the quality of proposed PPPs and determining their liabilities to the Government, the Committee needs to be made operational and a pipeline of pilot PPPs remains to be identified.  Agriculture: There is an urgent need to achieve stalled policy reforms, clarify the mandates of the sector ministries, and reform the commodity-based parastatals. The Government’s high maize price policy needs review: it aims to support domestic production, but in doing so enriches the 2 percent of households that realize half of maize sales while impoverishing the 61 percent of households that are net maize buyers. More can also be done to expand engagement with the private sector, promote off-farm and non-farm (agribusiness) sources of growth, and improve fiduciary management in the sector, including procurement. 38. To sustain high growth, Kenya will also need to maximize the benefits from regional integration. This involves ensuring that regional commitments are fully implemented, so that non-tariff barriers cease to impede the free trade of goods, EAC citizens know their rights and opportunities, and public officials on the front line (police and border post officials) adapt to the new laws and regulations. Accelerating efforts to enhance financial sector integration, including for payments systems and clearance and settlement systems, will also be important. The renewed commitment to regional integration will boost trade, investment and economic activity. 39. For poverty reduction to occur in Kenya, growth is not enough; it must also be growth that reaches the poor. Only about 2 million people participate in the formal economy (800,000 in the public sector and 1.2 million in the private sector) and enjoy the legal protections and safety nets that such status confers. This group also tends to be vocal, politically connected, and able to protect and expand its interests. By contrast, the remaining 20 million workers in Kenya are in the informal economy; they are much less able to defend their interests, and with 15 limited savings and access to social security they are much more vulnerable to shocks. To help ensure that growth is equitably distributed, attention needs to be paid to the following issues:  Access to basic services: Even before independence, Kenya struggled to control elite capture, social exclusion, and skewed resource distribution. Equalizing investments in health and education can help to correct this legacy. Free primary and secondary day education constitute a good start in education, but further effort is needed to ensure higher learning achievements. There are also challenges to increasing access to tertiary education for youth. In health, much more can be done to strengthen health systems, particularly in the three lowest tiers of Kenya’s six-tier system, and to ensure that financial transfers are appropriately allocated among the tiers and across Kenya’s diverse communities. In infrastructure, a special effort is required to connect the rural and urban poor to basic services such as electricity, water, and sanitation.  Social protection: A comprehensive social protection system is needed as part of a balanced growth strategy to help address both chronic and transitory deprivation. At the same time, effective targeting and strong monitoring and evaluation must be part of that system, to help ensure that scarce resources reach the most needy and that programs are as effective as possible. Work also needs to be done to develop a comprehensive safety net strategy to address program fragmentation and strengthen systems. 40. For growth in Kenya to be sustainable, it must also address resource scarcity and environmental challenges. Natural resources are critical to the livelihoods of the 65 percent of Kenyans who live in rural areas and also to the urban poor, who use wood and charcoal for their fuel. But Kenya’s natural resource base is under stress. Population pressure, deforestation, coastal modification, ongoing ecosystem degradation, unsustainable resource use and corruption threaten vulnerable habitats and biodiversity and continue to contribute to landlessness, poverty, social conflict and food insecurity. In the absence of an effective mitigation and adaptation strategy, the impacts of climate change are likely to exacerbate the stress already experienced. To this end, Kenyans need to focus on issues like:  Environment policy and management: Sustainable growth calls for policies that address the economic, environmental and social principles of development. These policies need to be agreed and implemented on a cross-sectoral basis, with a spatial focus where possible.  Energy security: Improving energy security while also securing higher levels of development will require maintaining energy prices at cost-reflective levels, taking into account environmental aspects; adopting higher standards of energy efficiency; and promoting greater regional electricity trade and expansion of renewable energy generation.  Water security: Increasing water scarcity results in reduced water supplies and hydroelectricity, growing competition, and potential conflicts over available water. This threatens the country’s developmental goals, which are based on rapid economic growth and urbanization, which in turn demand increased water. Moreover, losses from flood and droughts are estimated at over 2 percent of GDP per year, constituting a serious impact on Kenya’s competitiveness. Hence, comprehensive development and 16 management of water resources is a priority. This will require adequate management of the catchment areas, improved water harvesting and storage, and more expanded and efficient water services, taking into consideration land uses and resource-dependent communities. 41. Finally, growth with equity and environmental sustainability will require good governance. The Government has undertaken some governance reforms, but many challenges remain. In addition to improving PFM and the public service, Kenyans expect the Government to prepare a new constitution and to reform, in fundamental ways, the electoral system, the security sector (including the police) and the judiciary, with a view to restoring efficiency and popular trust and confidence in these degraded institutions. Kenyans also expect the Government to contain insecurity and significantly reduce youth unemployment, which is believed to contribute to criminal gang activity. III. Country Partnership Strategy for Kenya A. Lessons Learned from FY04-08 CAS and Stakeholder Feedback 42. The Board discussed the last CAS (FY04-07) in June 2004 and a Progress Report (FY07-08) in February 2007. The CAS Completion Report (Annex 16) provides an assessment of that strategy’s success. The CAS objective was to promote “growth with equity and poverty reduction”. The CAS Progress Report retained the objective and added a pillar to address governance. From the Bank’s experience in implementing these strategies, we have learned the following lessons:  The overall strategic direction of the CAS was appropriate. Macroeconomic stability, infrastructure investments, improved health and education, and good governance are key to growth and poverty reduction. In addition, the CPS will pay more attention to structural inequalities and vulnerabilities.  Corruption remains a major portfolio risk. Between 2005 and 2009, INT and the Government’s Internal Audit Department found evidence of corruption in Bank-financed infrastructure contracts and local-level contracts (where elite capture is problematic). To address this issue effectively, the Bank needs to work with the Government to limit opportunities for corruption, remain vigilant for corrupt practices, and deal with them effectively if found.  The Bank needs to improve its understanding of the political economy, particularly in sectors where it finances operations and offers policy advice. While the Bank has a good understanding of the formal laws, regulations and institutions related to its activities, it often has less knowledge about informal relationships and institutions that can influence reforms, thereby limiting its effectiveness as a change agent. Where the Bank’s work suggests that reform will be strongly resisted, it needs to be patient and work to change the circumstances, with a view to creating an opportunity for effective intervention.  Continued strategic engagement is critical for success. The Bank has had a history of on/off engagement, with withdrawal often prompted by corruption or political scandal. 17 This unpredictability has strained an otherwise productive 50-year relationship, pushed project implementation off-track (often raising costs), and required repeated efforts on both sides to rebuild trust. Criteria need to be developed to manage expectations on both sides.  The Bank can help to improve economic governance, at national and sector levels. Bank advice and policy dialogue has helped to improve PFM, including particularly in energy, roads and urban water supply, helping service delivery entities to improve profitability and create the fiscal space for investments in infrastructure rehabilitation and expansion.  The Bank should focus on fewer sectors or sub-sectors and agree a sharper division of labor with other development partners. Given current commitments and the Bank’s own resource constraints, the Bank needs to consolidate activities and decide jointly with Government and other development partners how to be more strategic and selective, including particularly when, where and how to disengage.  Better monitoring and evaluation is needed to ensure that projects remain on track. Closer implementation support, annual audits and annual flow-of-funds reviews are needed.  More attention to knowledge transfer is required. AAA needs to be better aligned with government analytical priorities, and it should precede the development of sector operations to ensure that interventions target sectors where the Bank has a comparative advantage.  The Bank’s results framework needs to be more clearly focused. The FY04-08 results framework, with more than 60 outcomes, was not useful in monitoring CAS impact. A more streamlined framework, with measurable time-bound indicators and outcomes that are under the Bank’s direct control, would be better. The FY10 Client Survey and multi-stakeholder consultations 43. The proposed CPS is based on broad-based consultations with central and local government officials, parliamentarians, development partners, and representatives of civil society and the private sector. As co-chair of the Development Partner Coordination Group, the Bank continuously consults with the Government and other stakeholders on the details of its programming. Together with other development partners, the Bank will contribute to efforts to update the Kenya Joint Assistance Strategy (KJAS). In addition, the Bank undertook specialized consultations for this CPS and a Client Survey to understand perceptions of the Bank in Kenya. (For further details on CPS consultations, see Annex 15). B. Proposed World Bank Group Partnership Strategy 44. This new CPS will result in a number of adjustments to the World Bank program. Specifically these include:  Increasing knowledge generation, in partnership with Kenyan research institutions and think tanks, with the Bank bringing global best practice to bear on local issues. In seeking to generate knowledge and help solve Kenya’s development problems, the Bank 18 Group will aim to provide timely and interactive advice on issues arising within the policy dialogue, both at the sector and national levels.  Putting an even stronger emphasis on governance, through structured dialogue, political economy analysis, technical assistance to improve Government-wide systems and practices, and focused attention on governance issues at the sector levels. This will build on significant institutional improvements already achieved, for example, in the roads, water and energy sectors.  Ensuring that measures to promote growth take due account of equity, e.g., by focusing on job creation for the poor, underserved areas, and equitable funding across regions.  Addressing resource scarcities and environmental challenges, including adaptation to climate change, in all projects and activities.  Initiating an urban development program to upgrade slums, improve urban service delivery, and help generate agglomeration economies.  Fine-tuning our business model so that our program is delivered by a fully-decentralized client-focused team that engages with the client on a regular basis to ensure effective implementation and greater development impact of the IDA portfolio. 45. Kenya’s complex political agenda and global economic uncertainty imply that the Bank Group needs to be flexible and ready to adapt to changing circumstances. In this context, the Group’s investment and AAA program will be reviewed annually, on a rolling basis, in structured discussions with the Government, with a view to defining medium-term objectives, outputs, and outcomes in light of changing circumstances. Accordingly, while the CPS sets out a detailed investment program for the remainder of IDA15, the program for IDA16 is indicative, with details to be determined in consultation with the Government and recorded in a CPS Progress Report planned for FY12. 46. The CPS is a Bank Group strategy, integrating the activities of IBRD, IDA, IFC and MIGA. The CPS assumes that Kenya will absorb its full IDA15 allocation and about one-third of its IDA16 allocation in each of FY12 and FY13. Kenya’s allocation in FY10 is SDR 312 million (US$475 million equivalent), including additional resources made available through a pilot IDA Crisis Response Window, and its allocation for FY11-13 is estimated to be about SDR 259 million (US$395 million) per year.8 IFC’s private sector strategy will complement IDA’s public-sector work. As of February 2010, IFC had committed US$18.3 million in five projects; it expects to commit about US$140 million for FY10 in more than 10 projects and to achieve a committed and outstanding investment portfolio of about US$300 million by 2011. MIGA will continue to offer its guarantee products. Given Kenya’s strong macroeconomic performance and its large infrastructure needs, various guarantee instruments and the possibility of IBRD enclave financing is also under consideration. While the CPS does not present low, base or high case scenarios, any serious erosion of the policy environment or of macroeconomic management will cause the Bank Group to adjust its strategy, including its investment levels; this adjustment                                                              8 The FY11-13 allocations are indicative only and can change depending on: (i) total IDA resources available; (ii) Kenya’s performance rating; (iii) the performance and assistance terms of other IDA borrowers; (iv) the terms of IDA’s assistance to Kenya (grants or credits); and (v) the number of IDA-eligible countries. FY12 and FY13 indicative allocations assume a similar level of replenishment in IDA16 as occurred in IDA15. 19 would be discussed with the Government in the annual lending discussion, and the results of that discussion would be communicated to the Board in a Progress Report (which would be accelerated, if necessary). Objective 1: Unleashing Kenya’s growth potential 47. In Vision 2030 and the MTP, the Government aims to maintain macroeconomic stability, ensure good public sector management, encourage private sector development and improve core infrastructure. The Bank fully supports these objectives. Macroeconomic management has been strong, resulting in relatively low inflation, a stable exchange rate, and low interest rates. It is likely that this macroeconomic stability will continue. Objective 1: Unleashing Kenya’s growth potential Outcome 1.1: Improving Kenya’s business environment and competitiveness. Outcome 1.2: Improving core infrastructure, especially in roads, electricity, and water supply, with a view to deepening regional integration. Outcome 1.3: Enhancing agricultural productivity, with a special focus on food security. Outcome 1.4: Strengthening public sector management and improving sub-national governance, especially in urban areas (where most of Kenya’s GDP is generated). 48. Outcome 1.1: Improving the business environment and competitiveness. Kenya has done a lot since 2002 to improve the business environment, including preparing and enacting many laws. Business licenses were reduced; an e-registry launched; incorporation and property registration costs decreased; the financial and commercial judicial framework was improved; and, most significantly, a new land policy was approved. Public-private dialogue also improved greatly: regular meetings now take place between the Kenya Private Sector Alliance (KEPSA) and the President, the Prime Minister, Parliament, and line ministries, and the industrialization and competitiveness agendas are now firmly anchored in discussion in the National Economic and Social Council. That said, Kenya’s rank in Doing Business fell as reform in Kenya stalled while other countries moved ahead, and more can be done to link MSEs with larger enterprises and to exploit regional markets as the EAC forms a common market. 49. Reform also enabled the financial sector to grow rapidly -- it is the third largest in Africa -- and improved access and stability, though vulnerabilities remain. Surging mobile financial transfers, a growing banking sector, and expanding microfinance and lending to SMEs dramatically increased the population served by formal financial services (from 26.4 percent in 2006 to 40.5 percent in 2009). At the same time, financial system stability increased significantly and key reforms were passed, modernizing the sector’s institutional, regulatory and operational framework. Kenya is now well-placed to exploit opportunities in regional financial integration. That said, further reform can help to improve access to finance for underserved sectors and also sustain sector stability. To overcome delays in enacting reforms, capacity constraints in regulatory and supervisory institutions and bottlenecks in the Attorney General’s office and in parliament also need to be addressed. The Bank Group will help Kenya in these areas through: 20  Improving Kenya’s overall investment competitiveness, through reforms that will reduce the cost of doing business. At the municipal level, this will include IDA support to improving municipal management and competitiveness, with strong municipal performers rewarded with financing for larger-scale investments—in part to demonstrate what stronger performance can achieve. In addition, IFC will continue to help improve firm competitiveness, particularly of MSMEs.  Accelerating reforms to strengthen the financial sector and make it more responsive to Kenya’s business needs. The focus will be AAA informing crisis preparedness, mobile banking, prudential regulation and supervision, operational infrastructure, and regional integration. The Bank is also supporting demutualization of the stock exchange.  Improving logistics, trade across borders, and regional integration. The Bank Group is helping to address major constraints such as weak ICT infrastructure, border controls, traffic congestion in Nairobi and Mombasa, airport security, and standards and certification issues—so that Kenya can participate more cheaply, easily and fully in larger markets. Box 2: Kenya in the East Africa Community Kenya is the dominant economy in East Africa. It has the third largest financial sector in Africa, a strong manufacturing base, and is critical for transportation and communications. What happens in Kenya strongly influences the wider region. A Common Market protocol for the EAC was signed in November 2009, on the EAC’s 10th anniversary. Allowing for the free movement of goods, people, and services, this protocol should open up significant trade and investment opportunities in the region. Monetary union is currently scheduled for 2012. Achieving the benefits of economic integration requires Kenya and other EAC members to address numerous challenges. A wide array of non-tariff barriers continues to impede free trade in goods and add to the costs of doing business; an effective national monitoring committee and timetable for their removal are essential. Transport costs remain high, due in part to the poor performance of the Kenya- Uganda rail concession, inefficiency at the port of Mombasa, and dilapidated highways and congestion around Nairobi on the northern road corridor. The Bank Group is helping to address many of these challenges, including through regional IDA projects. IFC has been helping to restructure the Uganda-Kenya Railway concession. Through trade facilitation projects, IDA has helped to establish the Africa Trade Insurance Agency and to rehabilitate key infrastructure at the port of Mombasa and at border posts linking Kenya to its neighbors; and it is also upgrading the northern road corridor in Kenya. An IDA-supported regional communications project has supported the construction of a landing station for international undersea fibre optic cables and regional backhaul infrastructure; and a new agricultural productivity program is helping to strengthen regional centers of excellence in agricultural research and technologies, while a proposed regional health project will test innovative cross-border approaches to communicable disease control. In addition, IDA is supporting environmental management around Lake Victoria, through strengthening the Lake Victoria Basin Commission, improving watershed management and strengthening point-source pollution control and prevention. Finally, IDA investments in Kenya’s financial, energy and transportation sectors, though not strictly regional, aim to ensure that regional impacts are fully taken into account—in recognition that regional economic integration remains a promising gateway to improved prosperity. 21 Outcome 1.2: Improving core infrastructure, especially in roads, electricity, and water supply. 50. Transport: Efficient transport interconnection through a network of roads, railways, airports, and ports is essential to support economic growth. Recent investments have upgraded trade corridors, reduced urban traffic congestion, and modernized sector governance (through establishing autonomous road authorities and a fuel levy to fund road maintenance), but more needs to be done to complete the reforms underway, clear the backlog in road rehabilitation, ensure value for money and improve road safety. In aviation, the Government is expanding the Nairobi and Kisumu airports to support trade and tourism. Efficiency at the port of Mombasa is improving through the introduction of 24-hour operations and construction of a new container terminal, but transformation is unlikely until Mombasa becomes a landlord port and stakeholders focus more strongly on strategic development of the port and its surroundings. The port’s performance will also improve if the railway improves: currently the railway operates at less than 50 percent of capacity and the concessionaire introduced in 2006 has not brought the management expertise or additional capital needed. The Bank has supported Kenya’s transport sector for many years and established an excellent sector dialogue, and it can continue to contribute to knowledge with technical assistance and AAA focused on strengthening the capacity of sector institutions in regulation, planning and operations. The Bank Group will help Kenya to achieve the transport infrastructure it needs for 2030 by:  Continuing to help rehabilitate the northern road corridor, strengthen road sector institutions, and develop opportunities for private sector financing. This will include a model PPP transaction to finance tolled bypasses for Nairobi, using guarantees and possibly IBRD enclave financing. Besides enabling truck traffic to avoid downtown Nairobi, tolling will help to develop new road-financing options which, through time, may enable some road companies to list on the stock exchange (opening up other financing possibilities).  Helping to expand private sector participation in the port of Mombasa, with a view to establishing it as a world-class landlord port. The objective is to reduce port dwell times from seven days at present (from 17 several years ago) to just a few days, while also managing the higher volumes that a growing region needs.  Continuing to support the expansion of JKIA, to strengthen its position as a regional aviation hub. This will help both tourism and trade (e.g., of fresh produce to Europe).  Helping to restructure the railway concession. IFC led the effort to concession the railway, and both IFC and MIGA may be involved in the restructuring. 51. Electricity: Adequate and reliable supply of affordable electricity is key to economic growth, security, and delivery of social services. The comprehensive reform program initiated in 2004 has reached farther than programs in most other Sub-Saharan countries. The sector has been unbundled and the main public sector companies have significant private ownership. Key oversight entities have been established which have good track records (e.g., on adjusting tariffs and concluding power purchase agreements between public generation and distribution companies). But it is clear that power-sector development cannot be achieved through public 22 investment alone. Large-scale private sector investments in generation and transmission will be needed as well. Government policy and the regulatory environment strongly support private sector participation, both in large scale and distributed generation projects. In addition, procurement oversight mechanisms have been invoked on several major contract awards, leading to greater confidence in the processes. Many positive outcomes have resulted, including 200,000 new connections annually; the addition of five IPPs to the grid by 2010 (25 percent of installed capacity); the establishment of KenGen and KPLC as financially-viable public companies; and significant reductions in system losses. The Government is committed to completing sector reforms while addressing remaining challenges, including limited generation capacity (about 1,600 MW), high international energy prices, hydrological uncertainty, limited private sector interest following the global financial crisis, and a poor record of timely execution of capital investment programs by the public companies. The Bank Group will help by:  Mobilizing concessional and private sector financing to expand electricity generation, with a preference for renewables and IPPs, as well as transmission and distribution. This will help to meet the Government’s ambitious on- and off-grid connection targets. In all areas, guarantees and IBRD enclave financing will be considered. In addition, the Bank will seek to advance the interconnection of the power systems of the East African countries.  Further strengthening key sector institutions. 52. Water: Kenya is a water-scarce country, with rapidly-growing water demand. Its per capita water endowment is about 600m3 per year; its storage capacity about 5m3; and only 55 percent of Kenyans have access to safe drinking water. Severe degradation of its five water catchment areas has contributed to this water crisis. To meet rising demand, Kenya needs to promote sustainable water development along with efficient water services management. To this end, the Government has created new institutions that separate responsibilities for legislation and policy making, regulation, asset ownership, and service provision, but these new institutions need further strengthening for decentralized management to work. In addition, investments in water services, watershed management and hydraulic infrastructure are needed. The Bank can help Kenya by:  Identifying and developing a new water supply source for Nairobi. The city’s population has doubled since the last reservoir was built in the 1980s, and water shortages are common.  Further clarifying roles and responsibilities within the water sector by helping to transfer water and sanitation assets to the water services boards.  Identifying private sector financing for small-scale municipal water supply systems. An ongoing Water is Life program uses output-based aid for small-scale systems targeting the poor and will be scaled-up.  Expanding irrigation, including through innovative demand-driven financing mechanisms for small- and large-scale irrigation, involving PPPs to maximize leverage and increase coverage. 53. Outcome 1.3: Enhanced agricultural productivity, with a focus on food security. Work is underway to improve productivity; expand irrigation, fish farming, and disease-free 23 zones; and provide smallholders with access to cheaper farm inputs. There has been some progress in implementing sector reforms but some important ones, like eliminating the maize producer price support, meet effective resistance from vocal losers. The fragmentation of sector ministries in the coalition government has resulted in inefficiency, and procurement is still associated with low expenditures and high corruption, especially in maize, sugar, meat and fertilizer. Finally, budgetary allocations to agriculture remain low and tend to go to operations and maintenance, reducing investments and spreading them thinly over the many ministries and districts. The Bank has been active in the sector for many years, with mixed success. Ongoing support aims at:  Reactivating stalled policy reforms, clarifying the mandates of the sector ministries, and reforming the commodity-based parastatals (sugar, livestock and cereals). Government intervention in the maize and seeds markets needs to be reduced, in order to enhance the value of existing and encourage future private investment. Improvements are also needed in the provision of services such as research and extension and inputs such as seeds and fertilizers, including through private service providers.  Promoting farm and non-farm (agribusiness) sources of growth. To this end, IDA and IFC will work together to promote market-based approaches.  Supporting investments in arid and semi-arid lands. Ongoing IDA and GEF interventions will seek to promote adaptation to climate change and sustainable land management. Box 3: Gender Mainstreaming in the Agriculture Sector Experience shows that gender issues are most effectively addressed early in project design and that incorporating gender enhances the quality of operations and contributes to poverty reduction and good governance. One example in the Kenya portfolio is the Kenya Agricultural Productivity and Agribusiness Project (KAPAP), which integrates gender concerns in design, implementation, and monitoring and evaluation frameworks. Gender strategies are developed for each project component, targets are set for the participation of women in project activities, responsibilities for gender mainstreaming are clearly specified, and sex-disaggregated information is gathered. The project also includes specific investments aiming to strengthen women’s economic empowerment and participation in decision-making processes, so that women can retain control of their income. Other capacity-building initiatives include investing in participation and leadership skills training of women in higher-level decision-making structures, and a mentorship program specifically targeted to enabling successful agribusiness entrepreneurs among young women and men to reach out within their communities. In collaboration with other development partners, KAPAP is establishing a robust and systematic set of gender-disaggregated baseline data in agriculture and related sectors. This data will provide input to the agricultural sector gender policy, and the Bank is maintaining a close dialogue with the gender policy task force, to ensure that data meet the client’s needs. The Bank will use the lessons learned from this experience in the agricultural sector to assist other sectors as well. 54. Outcome 1.4: Strengthening public sector management, including at sub-national levels. Vision 2030 and the MTP specify that the Government will promote results-based management in the public service. In fact, service delivery and accountability have been improving since the 2006 launch of public sector and public financial management reforms. Public servants are beginning to focus on citizen-centered services and improved partnership 24 with other actors (e.g., civil society and unions). But much more remains to be done. The Bank aims to help Kenya to improve its performance by:  Continuing to enhance transparency and accountability in PFM. At the national level, the Bank will help to complete the roll-out of IFMIS, and it may help to roll-out a financial management system for local authorities.  Improving public procurement, including through undertaking a procurement assessment review to strengthen the institutional framework and management capacity, enhance competitiveness, and improve system integrity and transparency.  Strengthening the capacity of selected oversight institutions. IDA will deepen work already underway to strengthen the capacity of the Internal Audit Department (IAD) to complete forensic audits. Where opportunities exist, it will also seek to strengthen the capacity and professionalism of parliament and of the judiciary.  Transitioning the public service from a process to a results orientation and focus on citizens’ satisfaction with service delivery, including through third-party monitoring. Objective 2: Reducing inequality and social exclusion 55. Vision 2030 and the MTP rightly emphasize the need for Kenya to reduce inequality and social exclusion. CPIA ratings show that Kenya lags its EAC peers most visibly in the indicators that measure policies for equity and social inclusion It is also in this area where the MDGs (for health) are most off-track. The Government recognizes a need to improve access to good-quality basic services in education, health, water and sanitation. It has also initiated efforts to improve social safety nets, particularly for the under-covered urban poor, in light of the vulnerabilities exposed by the 2008-09 crises. Objective 2: Reducing inequality and social exclusion Outcome 2.1: Improving access to health care, education and basic infrastructure services. Outcome 2.2: Establishing comprehensive and scalable social protection mechanisms. Outcome 2.1: Improving access to health care, education and basic infrastructure services. 56. While progress in education has been good, the provision of health care and water and sanitation services are lagging behind. The 2003 introduction of free primary education dramatically lifted national education indicators, though large regional disparities remain. The key issues now are teacher quality and distribution at the primary level, and access to secondary and tertiary education, especially for girls. By contrast, the track record on health care is mixed. Recent data show significant improvements in infant and child mortality rates, probably due to increased child immunization and use of anti-malarial bed nets, but contraceptive prevalence, though increasing, remains far below the MDG target, and skilled attendance at birth (44 percent) is largely unchanged since 1993. In addition, overall adult HIV prevalence increased slightly over 2003 to 2007, indicating a need to strengthen preventative measures. Water and sanitation remain seriously off-track. Only about half of Kenyans have access to safe water and basic sanitation facilities, with the situation worse in slums and rural areas. Ensuring greater equity in access to basic services is vital to poorer Kenyans, as it will help to enable them to exploit opportunities to improve their livelihoods. The Bank Group will help Kenya by: 25  Supporting the Kenya Education Sector Support Program (KESSP). IDA will continue to play a key role in strengthening financial management and accountability and addressing issues such as access, the quality of instruction, and efficiency of education spending. AAA will focus on making education and training more responsive to businesses, with a focus on youth employment and entrepreneurship and higher access to higher education.  Strengthening health systems. IDA is a key player in preparing a sector-wide approach (SWAp) focused on strengthening health systems and will also prepare a regional project to test innovative cross-border approaches to communicable disease control. In addition, IFC will catalyze improvements in access to health-related goods and services in Kenya, with an emphasis on the underserved.  Expanding access to water, in slums and in arid and semi-arid areas, as well as access to sanitation in slums. A proposed slum-upgrading program will support infrastructure investments in drainage, water and sanitation—but also access roads, electricity and street lighting (with positive impacts on security). 57. Outcome 2.2: Establishing comprehensive and scalable social protection mechanisms. Kenya needs to have systems in place to mitigate the impact of shocks, particularly on the poor. Temporary shocks can have long-term consequences, both within a family and across an economy. Social protection systems that help address these shocks are an important part of developing a balanced growth strategy. To this end, Kenya has developed an early warning system in the ASALs that allows assistance to be rapidly targeted in response to weather-related food insecurity. It also recently developed cash transfer programs for orphans and vulnerable children, the elderly, and the chronically food-insecure in the arid lands and in urban slums as well as targeted programs for the disabled and unemployed youth. A low-cost health insurance scheme is also being piloted. Scaled-up and coordinated, these programs can provide a comprehensive system of social protection, and also lower the risk that destitute people will resort to crime and violence to secure their needs. The Bank supports this important agenda by working with the Government in the following key areas:  Developing and implementing a comprehensive social protection policy. This will need to define priority target groups and a clear institutional framework with the capacity to deliver social protection programming. It should also consolidate existing government and donor investments in the sector and support increasing harmonization around a government-led and financed program.  Supporting selected social protection systems. This includes support for the ASAL drought management system, cash transfers for orphans and vulnerable children, and the Kazi kwa Vijana (Work for Youth) program. In each area, IDA’s focus is on establishing strong accountability frameworks, targeting mechanisms, and monitoring and evaluation systems. The overall aim is to show that it is possible to target the poorest households, even in challenging environments such as urban slums and in the ASALs, in partnership with NGOs and local communities, and also that transfers improve household welfare, contribute to human capital formation, and generate local multiplier effects. 26 Objective 3: Managing resource constraints and environmental challenges   58. The third CPS objective focuses on improving natural resources, with a special focus on climate change and disaster responsiveness. Kenya needs to improve climate-related disaster preparedness and response and adapt its institutions and policies to climate variability and uncertainty—including rising sea-levels, increasing aridity and more unpredictable rainfall and flooding. Attention will need to be given particularly to the arid and semi-arid lands, coastal ecosystems, and agriculture-dependent communities on more marginal lands. Flexibility in the face of a dynamic and uncertain environment will be key. Objective 3: Managing resource constraints and environmental challenges Outcome 3.1: Improving management of key natural resources. Outcome 3.2: Adapting to climate change. 59. Outcome 3.1: Managing land and water resources, especially in key water catchment areas. The challenge is acute for Kenya, as 80 percent of its land is arid or semi-arid and the population is growing by about one million people each year, in a context where the land use patterns are not adequately sensitive to the ecosystem fragility. The Bank will help by:  Supporting the development and implementation of a comprehensive environment and natural resources management policy that prioritizes these issues in national planning and budgets and engages responsible agencies in a cross-sectoral manner, with a focus on agricultural technology; infrastructure investment; energy, water, and transportation policy and pricing; and management of the “water towers”—the Mau, Aberdare and Cherangani Forests, Mount Kenya and Mount Elgin. It will also include creating urban plans that demarcate environmental assets and sensitive sites and provide support for improved urban environmental and land use management.  Providing technical assistance to land tenure reform and land administration systems, with a particular focus on tenure regularization in urban slums.  Supporting investments that reduce vulnerability of farmers and pastoralists to weather shocks through income diversification, livestock irrigation, and improved soil and water conservation. 27 Box 4: Land Reform in Kenya, and the role of the Bank Land use and tenure have been contentious issues in Kenya, which is characterized by high levels of inequality and landlessness, illegal and irregular allocation of public land, and inefficiencies and corruption in land administration and management. These issues are particularly vexing in the 20 percent of the land that is arable. In 1960, as Kenya prepared for independence, seven million acres (or about half of cultivated land) was in the hands of European settlers. A post-independence land reform program transferred land from Europeans to Africans, but did not return land to all of those who were landless or had been dispossessed. The resulting landlessness and concentrated land ownership were exacerbated by political patronage and corruption, especially through illegal and irregular allocation of public land. As a result, about 15 million people in rural parts of the country are landless or own less than two acres of land. In early December 2009, Parliament adopted a new land policy. The policy inter alia seeks to restore the historic claims of indigenous communities; develop new land tenure systems and laws; recognize community, indigenous and customary land rights; and introduce land banking to ensure that the state has land for emergency services. The Bank has provided some assistance to land reform efforts in Kenya, including in preparation of the new land policy. It also provided financial support to safeguarding, improving and computerizing land records, developing a National Resettlement Policy, and sharing international experience in land redistribution and restitution. In addition, a project is being prepared to support formalizing the land rights of urban slum dwellers, with a view to upgrading their infrastructure and social services. Given the complexity of land issues in Kenya, and the powerful vested interests in the status quo, land reform is likely to take decades to accomplish. 60. Outcome 3.2: Kenya faces many climate change risks and opportunities, which could have profound consequences for its development. The Government has developed a national climate change response strategy that sets out both adaptation and mitigation measures to address: (i) climate variability stresses on agricultural and natural ecosystems; (ii) increasing water shortages and regional differences in water availability; (iii) shortening growing periods; and (iv) intensifying rainfall, which may increase the magnitude and frequency of flooding and the destruction of infrastructure. Bank assistance under this CPS will help Kenya to promote “climate-smart” development by:  Integrating climate risk management into national and local development planning in agriculture and natural resource management in the ASALs (with GEF support).  Improving energy efficiency and ensuring energy security while also protecting investments that aim to achieve higher levels of development. This will require diversifying the sources of energy away from thermal sources to renewables; achieving greater energy efficiency; developing high-density cities with good public transportation; and supporting the traditional biomass sector (such that, e.g., charcoal exploitation is sustainable). IV. Implementing the Country Partnership Strategy for FY10-13 61. Experience shows that the economic, social and political circumstances of Kenya may change unexpectedly and the Bank Group should respond with an appropriate adjustment in the balance of instruments it deploys to assist the development agenda. The CPS envisages a broad engagement in Kenya, with investment lending, DPLs, technical assistance and AAA. If political instability or corruption were to undermine the management of 28 the IDA portfolio, it may be necessary to shift the balance of Bank Group support more towards AAA and technical assistance, especially in areas where the Bank Group can effectively advance a knowledge strategy. Knowledge strategy 62. In a rapidly-evolving global environment, the Bank’s relevance to Kenya will increasingly depend on its ability to mobilize global knowledge and to connect it to local networks. Sustained efforts to provide neutral and disinterested advocacy in Kenya’s best interests have enabled the Bank more recently to emerge as a trusted, committed and pragmatic partner. The Bank Group will strive to generate and use knowledge not only through its analytical research but also through its lending—which offers a unique combination of financing and technical knowledge in a product that is available from few other partners, public or private. Moreover, all Bank Group activities, whether lending or non-lending, will aim to scale-up policy and institutional reform, technological innovation, and improved project management. 63. The Bank cannot confine itself to being an “expert”, but must operate in partnership with the many Kenyan researchers and agencies that are bringing global practices to bear in Kenya. Partnerships with the private sector could provide ways of using cutting-edge global technology for development purposes. For example, the Bank plans to partner with the mobile-phone industry and benefit from Kenya’s high mobile phone density (up to 80 percent of Kenyans above 15 years old are projected to own a mobile phone in 2010), exploiting opportunities to target cash transfers and collect just-in-time data on local conditions. 64. The World Bank wants to be engaged in Kenya’s vibrant knowledge sector and has the potential to play an important leadership role. The following three principles will shape the nature of the Bank’s knowledge program:  The Bank will work as much as possible with local partners, inside and outside of Government, including academia, think tanks and others. Over the medium term, the Bank’s role will become one of adviser – particularly on international practices and quality improvements – rather than taking the lead in doing the research directly.  Knowledge with impact involves strategic communication. In-depth studies will be complemented with “just-in-time” policy advice and shorter and more frequent analyses that are designed to inform local debate. Interactive dissemination (including blogs, videos, and an interactive website) will be used more actively. The Bank Group’s knowledge products will be evaluated by website traffic, media exposure and uptake in official policy discussions.  Knowledge will inform lending, and lending will generate knowledge as well as provide opportunities for experimentation. Our future knowledge products will be organized around the three core engagements of the CPS: (i) unleashing growth; (ii) ensuring equity; and (iii) improving environmental sustainability (see Table 4 and Annex 2), with improving governance as an overall objective. 29 Table 4: Alignment of Lending and Knowledge Program with CPS Objectives Improving Governance Unleashing Kenya’s Growth Potential Equity Environmental Sustainability Knowledge  Public Expenditure Review Program  Poverty, spatial  Land Reform TA Program  Sub-national benchmarking knowledge  Water Storage (selection of  Political Economy studies program Needs engagements)  Bi-annual Kenya Economic Updates  Health, Assessment  Tourism Education and  Doing Business Social Protection  Financial Sector diagnostics PERs Lending 65. The bulk of IDA financing to Kenya over the CPS period is expected to be in the form of investment lending. This is appropriate, given the heavy concentration of proposed lending in large-scale infrastructure, where IDA support to contract-level procurement and financial management will help to leverage significant concessional and private sector financing. In some of the social sectors—e.g., health and education—the Bank will develop and maintain SWAps that involve sector-level budget support. Investments in water services, watershed management are planned to help reduce the impact of climate change on water availability. In general, in a climate of flat real budgets within the Bank Group, the country team will aim to prepare fewer but larger projects to ensure that the Bank’s administrative budget adequately covers all project preparation and implementation costs, while also supporting the policy dialogue, technical assistance, and analytic work needed to maintain and expand our knowledge base. 66. While Kenya continues to face a number of governance challenges, a well designed development policy lending program (DPL) can help address them. As in many other countries with weak governance, DPLs can help the Government to plan its financing needs, establish a framework for policy reform dialogue, and help reform-minded counterparts to identify and implement key reforms, complemented by knowledge products and TA operations. With the support of the Bank, the Government has embarked on a number of important reforms—in public financial management, financial and private sector development, and service delivery—that could be supported through DPLs. These reforms include upgrading the audit system, rolling out IFMIS, passing an anti-money laundering law, reducing business start-up times, and establishing a targeted transfer system. 67. While continuing to adhere to strong macroeconomic policies, the Government has also made important progress in public financial management, investment climate reform, and service delivery in recent years. In particular, Kenya has established a strong track record in the financial sector, which has increased access and improved stability. A first DPL series would build on these ongoing reforms and a growing policy dialogue in these areas. If the government continues to make substantial progress in these areas, the Bank, in consultation with its development partners, may prepare a DPL during the CPS period (see Box 5). 30 Box 5: Indicative Reform Areas and Indicators for a First Development Policy Loan Governance and anticorruption  Implementation of the Integrated Financial Management Information System (IFMIS).  Further upgrading of the Internal Audit Department.  Action plan in place for the implementation of the anti-money laundering law. Investment Climate  Passing of key laws and regulations to support the private sector (e.g., companies act, revisions to the banking act).  Deepening financial sector governance through broadening ownership of the Nairobi Stock Exchange and strengthening of the Capital Markets Authority.  Improved trade facilitation, especially reducing the dwell time in the port of Mombasa. Service Delivery  Strengthening selected social protection systems, especially their targeting and monitoring and evaluation.  Developing and implementing a comprehensive social protection strategy.   68. A number of completed and ongoing analyses could inform a future DPL program. In 2009, the Government of Kenya, development partners and the World Bank launched a joint program of public expenditure analysis which will result in a first joint public expenditure review in 2010. In addition, public expenditure and financial accountability (PEFA) assessments have been carried out twice (2006 and 2008) and a country procurement assessment review is planned for FY11. In addition, the Bank has already completed a poverty assessment (2009), an investment climate assessment (2008), and a country economic memorandum (2008), and it recently launched a program of bi-annual Economic Updates. Mainstreaming governance 69. The Bank Group will seek to build responsive, capable and accountable state agencies through all of its activities. In keeping with the Bank’s 2007 governance and anti- corruption strategy, the Bank Group will remain engaged in sectors that are vital to Kenya’s development. With Bank Group disbursements less than 2 percent of government spending, the Group’s impact will derive mainly from its ability to influence and improve public spending, so that it creates opportunities for poor people, provides better services, and improves development outcomes. Concretely, this implies Bank Group work to:  Understand sector-wide issues: Where the Bank chooses to engage in a sector, it will: (i) undertake sector-based political-economy analytical work to understand more precisely the governance impediments to achieving each sector’s development objectives and (ii) work closely with the Bank’s technical specialists to devise options to address these impediments, drawing on global experiences of the strengths and weaknesses of different approaches. Such studies are already underway in the areas of land, agriculture, and transportation.  Continue supporting improved “supply side” accountability by pursuing reforms in fiscal management, public procurement, government accounting and auditing, and the 31 civil service. This work remains at the heart of the Bank’s partnership with the Government of Kenya, and would be supported in any development policy loan (see Outcome 1.4).  Expand “demand side” accountability mechanisms, both in Bank-funded and Government programs. This will involve support to devolve and decentralize services (e.g., through the planned municipal program); strengthen oversight agencies; and promote transparency, participation and third-party monitoring of government activities. A two- pronged approach will be pursued: (i) the Government will be encouraged to enhance information flows and ensure private sector representation on key oversight entities; and (ii) the Bank will help build the capacity of stakeholders to use this information to review government and private sector activities, including especially in service delivery, to assess performance and demand accountability. Where the Bank is supporting policy or institutional reform, it will also seek to ensure that the reform brings visible improvements in service delivery and so creates a new set of stakeholders that will help to prevent backsliding.  Undertake political economy work to determine where there are real reform opportunities—which the Bank will support aggressively—and where opportunities do not exist. The Bank will attempt to achieve difficult reforms only if there is a politically- capable group of champions supporting the reforms as well as an environment that will enable their achievement. Where the Bank pilots new approaches, the pilots will be scalable, so that successful ones can achieve transformative impacts.  Set and enforce high standards for managing Bank resources. The Bank Group will work with others -- in and outside government -- to fight fraud, corruption and poor administration. Where corruption risks are high, it is important for the Bank to set high standards, remain vigilant, investigate evidence of wrongdoing and take decisive action when wrongdoing is found.9  Build coalitions for addressing governance and anti-corruption challenges at the country level, through partnering with other donors, stakeholders such as parliament, and organizations like Transparency International and the Kenya Private Sector Alliance (KEPSA). In Kenya, the Bank will also work with the media, which has been very effective in exposing wrongdoing and holding public agencies accountable, including at high levels of government. Mainstreaming gender 70. The CPS intends to help the Government to reach its Vision 2030 objective of achieving gender equity in power and resource distribution and meet its commitment under the MDGs. The main challenge is to ensure that existing and new development programs support recent positive trends. The Bank will continue to promote women’s empowerment in productive economic sectors such as agriculture, water, and energy. In addition, it will continue to work with the Government to establish the evidence base regarding the effects of gender equality in poverty reduction operations, build the gender-mainstreaming capacity of its clients, and partner with other stakeholders on gender equality and women’s economic empowerment.                                                              9 This was done in September 2009, when the Government’s own Internal Audit Department found evidence of fraud and corruption in two Bank-funded projects: implicated staff were dismissed, project finances were frozen pending a thorough, misspent funds were identified for reimbursement to the Bank, and an action plan was formulated—in consultation with INT—to open the path to a resumption of operations. 32 Supporting implementation 71. The CPS transforms the Bank’s partnership with Kenya by explicitly recognizing that the Bank’s service delivery model needs to become even more client-focused. From an organizational viewpoint, the Bank Group is well-positioned to deliver the CPS program, which stresses constant implementation support rather than episodic supervision efforts. Both IDA and IFC are largely decentralized to Nairobi, and the supervision of almost all operations is currently led from the field. In the case of IDA, 20 of 21 tasks are managed from the field in comparison to just one task in 2004. Budgets are broadly adequate, though the flat budget environment is forcing increasing concentration in fewer larger operations, with some loss in the Bank Group’s ability to provide full-service cross-sectoral advisory support. While individual sector teams remain responsible for their outputs, the core Country Team, represented by the sector leaders, is managing for key results using a cross-sectoral approach. IDA, IFC and MIGA results are integrated into the CPS results matrix, notably in infrastructure, agribusiness and the financial sector, ensuring that the Bank Group works together to leverage private sector financing wherever possible. 72. IDA begins this new CPS cycle with a large ongoing portfolio, consisting of 21 projects (16 national and five regional) and a total commitment of about US$1.75 billion (30 percent disbursed). Three credits exited and ten new credits entered the portfolio over FY05- 09. Low disbursement levels partly reflect inactivity due to the 2008 post-election violence as well as a slow start for large infrastructure projects (with long lead times, from design to contract award and then to payment of the contractor), but delays also result from complex project design, cumbersome Bank and government procedures, and limited capacity in the responsible Treasury department. A portfolio review in June 2009 helped to identify some of the issues slowing implementation, and the Government subsequently agreed an action plan that includes closer supervision, additional technical assistance, real-time problem-solving, and short-term disbursement targets (to be tracked jointly by the Bank and the Government) to ensure more rapid and effective absorption of Bank funds. The decentralization of the portfolio management function and high level attention given by the Nairobi Country Office as well as Treasury also supports this focus. 73. The Bank Group will actively engage in efforts to build the technical capacity of implementing agencies, including measures to improve quality at entry and project implementation. This will focus particularly on projects in problem status, so that mitigating measures can be taken in a timely manner. The Bank is also providing technical assistance to government agencies to strengthen fiduciary and audit functions, and will attempt to be more strategic, engaging only in areas where the Bank has a definite comparative advantage, strong partners, and joint commitments to deliver results. Where operations have been successful, teams will continue to pursue additional financing, reducing transaction costs and accelerating the delivery of needed investment resources. Teams will also be allocated modest resources to develop project ideas and to make the business case for new operations. 74. Project supervision will remain intensive, with enhanced implementation support. Infrastructure investments and CDD projects represent a higher share of the portfolio, requiring more focused supervision to address quality issues and corruption risks. Supervision will be enhanced through: (i) introduction of risk-based approaches; (ii) more resources for risky 33 projects; (iii) better physical verification of works through on-site visits and focus on GAC aspects of the project; and (iv) a greater reliance on civil society organizations in monitoring and implementation. Results will be monitored through a series of Portfolio Performance Reviews, to be conducted regularly with the government. Given the corruption risks that exist, implementation support will also extend to post-procurement contract management to ensure that goods and services represent value-for-money and are properly delivered and installed. Greater emphasis will be placed on compliance audits and on effective handling of complaints. In addition, business and civil society organizations will be actively engaged to identify and marginalize companies that are known to underperform. 75. The Bank will use results-based monitoring and evaluation (M&E) to assess how Bank activities are contributing to results on the ground. Monitoring progress will also enable corresponding adjustments in the Bank’s lending and non-lending programs. The Bank will also contribute to Kenya’s own capacity to manage for results. The Bank will support this through: (i) Strengthening project supervision, including: incorporating lessons learned from the CAS CR in the design of new projects (particularly in PFM and agriculture), physically verifying works, and making full use of the Nairobi-based team; (ii) Undertaking analytical work on the impact of public policies and investments, for example, in roads; (iii) Monitoring CPS results, using the Country Program Monitoring Tool and annual CPPRs; (iv) Using evidence-based analysis, including benchmarking from international surveys (BEEPS, Doing Business) and performance ratings (CPA, PEFA); and (v) Improving multimedia efforts to raise awareness about results through stories of successful impact. 76. In line with the Bank’s overall strategic directions, it will also be important to continue progressively to move towards the use of country systems in Kenya, recognizing that it will take time. Bank projects will now shift to using the Treasury system for maintaining designated accounts (the Treasury system has been assessed and complies with basic Bank requirements). Other financial management responsibilities are handled through regular Bank procedures, and project implementing agencies have overall satisfactory financial management arrangements. As the Government improves its financial management systems, including auditing, the Bank will assess its ability to utilize them. Fostering stronger partnerships 77. The Bank has established strong partnerships with Kenya’s development partners. The key donors, in terms of financial transfers, are the US Government (mostly off budget), followed by the World Bank, the African Development Bank, DFID and the European Union, though some donors who do not publish their aid, like China, are thought also to be within this group. 78. The Bank plays a key role in government-development partner coordination. The Donor Coordination Group (DCG), jointly chaired by the World Bank and a bilateral 34 Ambassador, meets monthly to discuss political and economic developments and to reach consensus for addressing them. In addition to these high-level fora, about a dozen sector groups coordinate development partner support in specific areas behind the government’s program. Currently, the Bank leads or co-leads four of the groups (urban and local government, health and HIV/AIDS, private sector development, and gender). Most groups meet quarterly with government counterparts, in a gathering chaired by a Permanent Secretary. In addition, the Bank is organizing a twice-yearly meeting of a Partnership Forum, which brings together key government officials and all development partners (including the UN and non-traditional partners such as China, India and various Arab states) to discuss Kenya’s development challenges and opportunities (the first such meeting was held in November 2009). 79. A major achievement in the effort to harmonize development partner support was the launch of the Kenya Joint Assistance Strategy (KJAS) in September 2007. This is a joint strategy of 17 major development partners, including the World Bank, for 2007-12.10 It aims to align development partner assistance with country objectives and facilitate common implementation mechanisms. It also contains targets for harmonization, in line with those set out in the Paris Declaration on Aid Effectiveness. The KJAS partners have signed partnership principles with the Government, which form part of the KJAS. In light of the significant changes in Kenya’s circumstances since the KJAS was finalized, it will be revised and updated in 2010. 80. A fundamental goal of the KJAS is to improve the development impact of available resources by promoting a more effective division of labor among development partners, better aligning assistance with government programs, and coordinating assistance more effectively among the partners themselves. KJAS partners have agreed to rationalize their engagement in sectors, and some have decided to delegate management of their funds to another partner. This has reduced the burden on government of dealing with multiple development partners. In tandem, partners have consistently sought new modalities for delivering aid more effectively. They are increasingly coordinating sector support through SWAps, including for public financial management reform and education, and are trying to form a SWAp in health as well. In addition, they have adopted joint financing arrangements for government institutions such as the National Environmental Management Authority and the Agriculture Sector Coordination Unit. Development partners have also committed increasingly to use government systems to manage their development aid, in step with improvements with the quality of public financial management, and they are also increasingly carrying out analytical work jointly. In light of these commitments, and as KJAS integration strengthens, the Bank Group will seek ways to exit, in an orderly fashion, from sectors where it does not take the lead or its contribution is more marginal, so that it can be more selective and consolidate its support in areas where it can be transformative. Civil Society Organizations (CSOs) 81. Kenya has an active and vibrant CSO sector, with over 1,000 registered CSOs and thousands of other welfare groups and associations that cut across many sectors and issues.                                                              10 The KJAS partners are Canada, Denmark, the European Commission (EC), Finland, France, Germany, Italy, Japan, the Netherlands, Norway, Spain, Sweden, the United Kingdom, the United States, the African Development Bank, and the United Nations. 35 The most active ones are focused on governance, human rights and impunity, democracy, media, land issues, public sector performance, human development, HIV/AIDS, women rights and the environment. A few are particularly vocal on budget issues, corruption and abuse of office, the constitutional review, post-election violence, and the rights of displaced persons. Some of the CSOs are established, with good governance structures, and have developed strong partnerships with local and international institutions in their field of operations. 82. The Bank regularly and extensively engages CSO leaders in dialogue and consultations, including consultations for the CPS and pipeline projects. A wide cross section of CSOs was involved in the many rounds of consultations during the preparation of this CPS in late 2009 and early 2010. This active engagement focuses on sharing knowledge, enhancing dialogue and receiving feedback on critical development issues. The consultations have most recently focused on the relevance of the three strategic themes of the CPS to Kenya’s development challenges. Future work will seek to enable CSOs, professional organizations and other non-state actors such as the media and the private sector, effectively to demand accountability, including through making innovative use of Kenya’s growing proficiency in information and communications technology. Strategic Communications 83. The communication function lies at the heart of the CPS. Carefully and completely carried out, a strategic communication plan to accompany CPS implementation will provide information for all stakeholders, inspire their curiosity to know more, and provoke debate. To this end, many of the Bank’s projects will support increased stakeholder feedback and involvement in order to improve development outcomes. Further, many policies (for example, in social and health sector reforms) would benefit from transparency and public participation on how they are being implemented and how citizens can make the most use of them. Therefore, the Bank will scale up its communications strategy on its own work, and assist the Government in doing so more broadly. This could, for example, include working with the Government and other donors to regularly host workshops and seminars around key policy issues for a wide audience. The Bank Group will also use a wide range of interactive dissemination techniques which will include blogs, texts, videos, and an interactive website to promote its analytical work, including the bi-annual Economic Updates. The Bank’s knowledge products will be evaluated by website traffic, media exposure, messaging, and uptake in official policy discussions. V. Managing Risks   84. The CPS will be implemented during a period of considerable risks and uncertainty. Political risks feature most prominently. The 2012 elections as well as a referendum on the constitution, expected in 2010, are two important political milestones that could, if poorly managed, inflame tensions, jeopardize peace and security, and derail the ability of the Bank Group to deliver on the CPS program. While most observers believe that the current coalition government will survive until the next elections, they also believe that tension, infighting, and conflict will become more pronounced as the referendum and election approach, with the result that deep reform will become increasingly difficult to accomplish. Under these circumstances, it is important for the Bank to focus on what is possible, help sustain momentum within the government’s economic development program, build support for reforms across all parts of the 36 coalition government as well as with civil society and the private sector, and remain flexible in its own programming so that it can adjust its approach in response to changing circumstances. In the unlikely circumstance that the Government becomes unable to function normally—for example, due to widespread violence associated with the constitutional referendum or the 2012 elections or a collapse of the coalition government—the CPS Progress Report would be accelerated and a new strategy articulated in light of that development. 85. There is also a risk that macroeconomic achievements will be reversed, particularly as new elections approach in 2012. Public officials may opt to support lower-priority projects that are believed to have electoral benefits, in a context of relaxed fiscal discipline. Working closely with the Treasury, the IMF and other donors, the Bank will seek to ensure that cost- benefit analyses are undertaken and applied and that appropriate macroeconomic policies remain in place throughout the pre-election period and beyond. 86. With an economy that is relatively integrated into the EAC and the global economy, Kenya is vulnerable to external shocks. The global financial crisis depressed the prices of Kenyan commodity exports and negatively impacted growth, especially in tourism. At the same time, Kenya in 2008-09 felt the full impact of a global increase in oil and fertilizer prices, which greatly exacerbated already serious shortages of maize. While Kenya should not (and is unlikely to) abandon its efforts to integrate more fully into the global economy, prudent macroeconomic management, such as it practiced in the early and mid-2000s, will remain key to providing the fiscal space for the Government to adjust appropriately to external shocks when they occur. 87. Kenya is also vulnerable to climate change, due in particular to its reliance on rainfall both for agricultural growth and energy production. Extremes of drought and flooding are becoming increasingly common, and Kenya’s high historical reliance on hydroelectric power concentrated on a single river course (the Tana) needs to be reduced. To help Kenya to adapt to the destructive impacts of climate change, the Bank Group will strengthen its support for government efforts to manage the environment, adapt economic and social structures that better accommodate changing environmental circumstances, and diversify electricity generation away from hydroelectricity to other green sources such as geothermal. 88. Another external shock that may impact Kenya is terrorism—given its history of past terrorist attacks, the significant presence of international agencies that have been terrorist targets in other countries, and its proximity to countries believed to harbor terrorist organizations. To help mitigate the risks of terrorist attacks, the Government is working closely with international intelligence agencies to monitor terrorist movements and take appropriate action as needed. 89. The Kenya program also remains subject to project management and fiduciary risks. In the current environment of political uncertainty and corruption, program-specific risks assume even greater prominence. To mitigate these risks, the Bank plans to provide training and undertake risk-based supervision missions to help build capacity and ensure adequate controls are in place for financial transactions and accuracy in financial reporting, audit and disbursement. In addition, the Bank will apply lessons learned from the CAS Completion Report on the risks to implementing agricultural and PFM projects, in particular. Steps to mitigate these risks are discussed in the sections on the portfolio and on governance. In the event that political 37 or fiduciary risks seriously undermine the integrity of the portfolio, the program may have to be cut back or otherwise revised. VI. Conclusion   90. Kenya did well over 2003-07, and it can do better still. Starting in 2003-04, Kenya embarked on reforms that brought about the first sustained period of per capita economic growth in three decades, reduced poverty significantly, reduced infant and child mortality rates, introduced free primary education, and eliminated a lot of bureaucratic red tape, thus enabling businesses to invest, grow and create jobs. But, as the setbacks of 2008-09 show, past success is no guarantee of future success: many countries have done well for a period only to stagnate later. For Kenya to continue to grow and reduce poverty, it will need to secure the passage of a new constitution with the checks and balances that Kenya needs; continue to make the infrastructure investments needed to secure future growth; and establish a stronger business environment, inter alia by dealing decisively with corruption (the issue that, for many stakeholders inside and outside of Kenya, is the key for Kenya’s prospects). It will also need to ensure that growth is equitably distributed and environmentally sustainable. In many of these areas, no one knows exactly what sort of policy and institutional reforms will work best in Kenya. Research remains a crucial input into the Government’s policy debates, and the Bank Group—by embedding global knowledge and experience in its research, technical assistance, lending projects and transactions—is better positioned than most of Kenya’s development partners to introduce innovative solutions to Kenya’s development problems and evaluate the results so that Kenya can learn what reforms are successful and should be scaled-up. The World Bank Group is pleased to support Kenya’s development and will work hard with the Government to bring lasting prosperity to all Kenyans, including particularly the poor. 38 Annex 1: Results Framework for the Kenya CPS FY 2010-2013 1 (As of 3/26/2010) Vision 2030 Objectives CPS Outcomes Major Issues and Obstacles CPS Milestones Bank Program and Key Indicators and Indicators CPS Pillar 1: Kenya’s Growth Potential Private Sector Development MTP Objective: A vibrant and  Penetration level of banking CPS Outcome: Improved  Time to issue and register Ongoing: globally competitive financial business environment and FLSTAP, MSME, FIRST construction permits falls. services is limited, esp. in rural sector driving high levels of competitiveness Baseline (2009): 120 Shelter Afrique, Kenya areas, and does not link with savings and Kenya’s investment Investment Climate Program, days, Target (2013): 90 production activities in  Kenya’s Doing Business need days in pilot AMSME, WIN and ESMID. agriculture and small industrial ranking improves. Baseline  Drive increases in efficiency and business investment (2009): 95, Target (2013) 78. municipalities. Source: Pipeline: and depth through selected Municipal Program (FY10); Doing Business surveys. Source: Doing Business reforms  Inadequate legal and regulatory Nairobi Metro Services Project surveys.  Time to register property  Broaden access to financial framework in some sectors (FY11+), Infrastructure Finance  Access to finance increases drops. Baseline (2009): 64 services, including formalizing (FY11+), IFC investment in  Weaknesses in the insurance and days, Target (2013): 45 informal finance and extend Baseline (2009): 40.5%, Target financial institutions and MFIs pensions sectors, worsened by days. Source: Doing access to microfinance (2013) 55%. Source: Biennial (e.g. Faulu Kenya and KWFT); inadequate supervision Business surveys.  Deepen capital markets by FinAccess surveys. issuance of IFC bond. raising institutional capital and  Non-government bond markets  Outstanding issues in the expanding bond and equity insufficiently developed. corporate bond market AAA: markets increase. Baseline (2009): PER (FY10–12); Governance  Improve the business less than 1% of GDP, target ESW, Growth Diagnostic Notes, environment in critical areas, (2013): 3% of GDP. FSAP update (FY10), PRSP such as licensing and security Source: Capital Markets (FY10), Unleashing Kenya’s  Implement efficiency- Authority data. Growth Potential (FY10), enhancing reforms in the sector. Tourism (FY10), FPD Policy  Volume of Bank support: notes (FY10–11), Doing institutional development– Business Report (FY11–13), microfinance rises Integrated Growth Poles (amount). Baseline (June 3, (FY11), Subnational Doing 2009): US$491,319, target Business: Crisis simulation (June 2012): US$5,750,000. (FIRST), Kenya Investment Source: MSME Project Climate Program (FY13). data. Regional: Regional Tourism ESW, Regional Study on SME Financing.                                                              1  Note: Data collection instruments and specific definitions (ie project areas and target areas) are further described in applicable project PADs.  39 Vision 2030 Objectives CPS Outcomes Major Issues and Obstacles CPS Milestones Bank Program and Key Indicators and Indicators Infrastructure MTP Objective: Deploying CPS Outcome: Improved core world class infrastructure infrastructure, with deeper facilities and services regional integration Transport: Roads: Transport: Transport: Ongoing:  Strengthen the institutional and  Huge maintenance backlog  Northern Corridor road in  Roads rehabilitated and Northern Corridor Transport regulatory framework for Improvement Project (FY04, Kenya in fair or good constructed (km). infrastructure development  Low domestic construction and FY09), East Africa Trade and condition rises (percentage).  Raise efficiency and quality of supervision capacity  Security arrangements at Transport Facilitation Project Baseline (2009): 54%, target transport infrastructure and the port of Mombasa put (Regional FY06), Regional  Inadequate planning and (2013): 80%. Source: services into place and the one- Trade Facilitation Project coordination of inter-modal University of Nairobi  Enhance private sector stop-shop operational. (supporting ATI) (Regional transport systems Enterprises and Services data, participation in the provision of Source: East Africa Trade FY03), Kenya Investment reported in NCTIP reports. infrastructure facilities and  Weak systems for governance and Transport Facilitation Climate Program, Rift Valley services. and integrity enhancement high  Average time to travel by Project reports. Railways (IFC Portfolio). rates of fatalities on roads road from the port of  Direct flights between Mombasa to Malaba (border Pipeline: Nairobi and the United Aviation, ports and inland water of Uganda) falls. Baseline Nairobi Urban Toll Road Project States in operation. transport: (2009): annual average 18 (FY11), East Africa Regional Source: data on airlines hours, target (2013) 12 hours. Transport Links Project  Inadequate safety and security schedules available on the Source: University of Nairobi (Regional FY11). internet.  Inadequate capacity Enterprises and Services data, reported in NCTIP reports.  National Construction  Need for increase private Authority established and participation and regulatory  Annual freight carried by functional. Source: reform Kenya-Uganda railway rises. Northern Corridor project Baseline (2009): 1.56 million reports. Railways: tons, target (2013) more than 2.3 million tons. Source:  Kenya-Uganda railway  Weak railway authority Kenya Railway concession functioning (regulator) Corporation/Rift Valley Source: East African  Kenya-Uganda railway Railways. Trade and Transport concession in distress. Facilitation Project  Time of cross-border trade reports. declines (baseline (2009): 27 days to export a container, 25 days to import a container Target (2013): 21 days to export a container, 20 days to import a container. Source: Doing Business surveys). 40 Vision 2030 Objectives CPS Outcomes Major Issues and Obstacles CPS Milestones Bank Program and Key Indicators and Indicators Energy: Energy: Energy: Ongoing: Energy Sector Recovery Project  Rural electrification  Inadequate electricity generation  Number of electricity  Transmission lines (FY05, FY09), Lighting Africa capacity to meet the economy’s connections rises. Baseline constructed or rehabilitated  Energy access scale-up. (TA) (FY09), IFC Tsavo Power electricity needs (June 2009): 1,267,198 under the Electricity Project. connections, target (June 2013): Expansion Project. Baseline  Over-reliance on hydropower Pipeline: additional 30,000 (Electricity (2010): 0, target (2013): 40 limits availability and reliability Electricity Expansion Project Expansion Project) and 250,000 km. Source: Project reports. of power supply (FY10), Power System (Energy Sector Recovery  Distribution lines (66kV, 33 Development Project (FY12+);  Enormous financing Project).2 Source: KPLC kV, 11kV) constructed or KPLC and Gulf Power (IFC). requirements for power system Reports. rehabilitated under the expansion and upgrading to meet  Transmission and distribution Energy Sector Recovery AAA: Vision 2030 medium-term losses per year declines. Project and Electricity TA portfolio to strengthen the Targets through 2015 Baseline (June 2009): 16.3% of Expansion Project. capacity of sector entities for  Frequent power interruptions energy purchased, target Baseline (Dec. 31, 2009): improved sector regulation, and system losses. (2013): 15.2%. Source: KPLC 515, target (2013): 1,775 planning, and operation. Reports. km. Source: Projects’ reports. Water and sanitation: Water: Ongoing: Water and Sanitation Services  Upgrade water supply systems  Water scarcity and regional  Number of people in project  Transfer of water and Improvement Project (FY08) in all urban areas and imbalances in water availability area with access to improved sanitation assets from the NRM project; Kenya augment/expand rural water and utilization water sources (baseline (June ministry and local Microfinance for Water Project supplies 2009): 8 million, target (2012) authorities to the eight  Water in security (Water and Sanitation Program 9.5 million. Source: Water water services boards  Expand sewage coverage. and Global Partnership on  Water quality deteriorated by Regulation Information completed. Source: Output-Based Aid) increased farming , System, with data reported in WaSSIP reports. Pipeline: industrialization, and lax law the WaSSIP reports).  Number of new piped Water and Sanitation Services enforcement  Percentage of people in project household water Improvement Project II (with area with access to adequate connections that are output-based aid approaches sewerage services or safe resulting from the project where applicable) (FY12+). sanitation rises (baseline intervention (baseline (2007): 10%, target (2012): (2010): 0, Target (mid- AAA: 30%. Source: with data 2013): 42,300. Source: ESW on Enhancing Women’s reported in the WaSSIP Water and Sanitation Participation in Water reports). Project data. Governance structures (proposal                                                              2 The Electricity Expansion Project expects to provide 150,000 additional people with access to electricity. Assuming five people per household, the project expects to provide 30,000 new connections. 41 Vision 2030 Objectives CPS Outcomes Major Issues and Obstacles CPS Milestones Bank Program and Key Indicators and Indicators developed for TF funding).  Area under irrigation in project area rises. Baseline (2007): 270 hectares, target (mid- 2013): 3,500 hectares. Source: NRM project surveys. Information and ICT Ongoing:  Lack of a framework to implement automated services,  Access to Internet services Communication Technology Regional Communications  Undersea cable completed. rises (number of subscribers). Infrastructure Project, IFC  Lay under-sea fiber optic cable including electronic transactions Target: June 2010. Baseline (2007): 1.25 KMIP (IFC Special Economic  Offer government services  Lack of standardization of million, target: 3 million. Zone Project) ; EASSy Cable online. components and systems across Source: Communications (IFC Portfolio project). government Commission of Kenya data.  High costs of ICT utilization and maintenance. Agriculture CPS Outcome: Enhanced Ongoing:  High cost of inputs  A harmonized MTP Objective: Innovative, agricultural productivity, with KAPAP (FY09), Arid and Semi- agricultural sector commercially-oriented,  Limited application of a focus on food security Arid Lands 2, WKCDD, GEF development strategy and competitive, and modern agricultural technology and Kenya adaptation to climate  Average yields of selected its implementation agricultural sector innovation change in the Arid Lands NRMP agricultural products in framework completed and (FY07), East Africa Agricultural  Increase productivity  Weak farmer institutions smallholder farming systems strategy being Productivity (Regional FY09), in project area rise. Baseline implemented. Source:  ASAL development.  Dependence on rain fed IFC Project, GEF-Western (2009): maize yields increase KAPAP reports. agriculture Indian Ocean Marine Highway by annual average of 3%;  Farmers’ access to loans Dev and Coastal and Marine  Inadequate exploitation of target (2013): 5%. Source: opportunities for value addition KAPAP-specific surveys from IFC-supported Contamination Prevention. financial institutions rises Pipeline: carried out at mid-term and  Women’s limited access to (number of farmers), ASAL SWAp (FY11+) end of project). agricultural resources (extension (baseline (2009): 0. services, credit, inputs,  Earnings from small holder Source: IFC project AAA: technologies, market agricultural activities in reports). Land TA (FY08–10), information). project area rise. Baseline Agriculture Policy Review,  Agribusinesses access to (2009): net annual income: ESW-Rural gender methodology loans from IFC-supported male Ksh 128,270, female Ksh and baseline data (co-financed projects (three) or 98,748, target (2013): male by the Gender Action Plan), through wholesale 20% increase, female: 25% Western Indian Ocean Fisheries funding facility rises. increase. Source: KAPAP- TA. Baseline (2009): 0. IFC specific surveys. project reports). 42 Vision 2030 Objectives CPS Outcomes Major Issues and Obstacles CPS Milestones Bank Program and Key Indicators and Indicators Public Sector Governance CPS Outcome: Strengthening Ongoing: MTP Objective: A citizen- public sector management Institutional Reform and  Inadequate capacity for urban  Annual procurement audits focused and results-oriented and improving sub-national Capacity Building project and regional planning indicate improvement in institution governance, especially in (FY06), Communications compliance with  Insufficient serviced land urban areas Infrastructure Project  Promote transparency, procurement regulations. accountability, participation,  Outstanding legal and  Financial statements Baseline (2005): (Regional). prepared on time in Pipeline: and the rule of law. administrative reforms procurement not covered as accordance with acceptable Kenya Municipal Program a focus area for internal  Limited supply of affordable accounting standards (FY10), Nairobi Metropolitan audit, target (end 2013): finance for mortgages and through IFMIS (central Services Project (FY11+). internal audit on property development government) and LAIFOMS procurement carried out in  Lack of adequate construction (local government). Central AAA: 90% of ministries. Source: baseline (2005): 0. Source: Country Procurement capacity Inst. Reform Capacity Institutional Reform Capacity Assessment Review. Building Project reports).  Disconnect between national Building Project reports. economic planning process and Municipal baseline (2009): 0  Municipalities have physical planning. Target (2013): 6. Source: prioritized capital Municipal Program reports). investment plans linked to  PEFA scores of A/B rise. strategic plans. Baseline: Baseline (2008): 12 of 28, 0, target: 6. Source: target (2013): 15 of 28. Municipal Program reports. Source: Biennial PEFA surveys). External audit reports prepared and published in a timely fashion in accordance with Public Audit Act 2003. Baseline (2009): xx, target xx Institutional Reform Capacity Building Project reports). CPS Pillar 2: Reducing Inequality and Social Exclusion Social and Infrastructure CPS Outcome: Better access to Services health care, education, and basic infrastructure services Health Health Ongoing:  Health facilities constructed  Facilities (level 2–3) Vision 2030 Objective: Equitable Pro-poor components of through Constituency  People with access to a basic receiving drugs and and affordable healthcare system WASSIP, WKCDD, Arid Lands, Development Fund face package of health, nutrition, or medical supplies on time of the highest possible quality Total War Against HIV/AIDS challenges of staffing and population services rises (%). (%). Target (2013) 20% (FY07), OVC Cash Transfer  Provide a functional, efficient medical supplies Baseline (2009): xx%, target increase from baseline. Project (FY09), JSDF grant for 43 Vision 2030 Objectives CPS Outcomes Major Issues and Obstacles CPS Milestones Bank Program and Key Indicators and Indicators and sustainable health (2013): xx%. Source: Health Source: Health SWAp traditional medicine, IFC Health  Insufficient and mal-distribution infrastructure network SWAp reports.3 data. in Africa Initiative. of human health resources Pipeline:  Reduce health inequalities and  Health facilities (level 2–3)  Health personnel receiving  Weak health management Youth Empowerment (FY10), reverse downward trends. without tracer drugs for more training in financial information systems do not Health Swap (FY11+), East than 2 weeks declines (%). management and provide timely and Africa Public Health Laboratory Baseline: 23%, target (2013): procurement (number). comprehensive data. Networking Project (FY10). 5%. 4 Source: KEMSA Baseline (2010): 0, target Navison data, presented in the (2013): 2,000. Source: AAA: Health SWAp Reports. Health SWAp data. Health PER (FY11), Health  Eligible children aged 12–23  Number of people Financing (FY11) months fully immunized benefiting from health nationwide and in Northeast services from 30 IFC- Province rises (%). National supported private baseline (2008): 73%, Target healthcare companies rises. (2013): 80%. Northeast Baseline (2009): 0. Source: baseline: 47%, target: 55%. IFC project reports. Source: Kenya Demographic and Health Surveys.  Facilities meeting financial management requirements rises. Baseline (2010): 0, target (2013): 50%. Source: Health Sector Services Fund. Education Education MTP Objective: Improve access  Quality of education degraded  Primary completion rate rises  Net enrollment rate in Ongoing: and equity to education at all primary education rises Kenya Education Sector Support with rapid enrollment and (percent). Baseline (2008): levels (disaggregated by gender). project (FY07). overstretched facilities 79.5%, target (2012): 85%; and  Raise enrollment and transition in Northeastern, baseline Baseline (2006): 83% Pipeline:  Low transition rates due to high 2006, target: 95%. Source: KESSP 2 (FY11), Fast Track rates 36.5%, target, 45%. Source: cost of secondary education Ministry of Education. Initiative (FY11), IFC-Bank Ministry of Education.  Improve quality of education at project to support the  Poor access and equity with high  TIVET Authority all levels.  Primary to secondary establishment of a Regional regional disparities, particularly functioning. Source: education transition rate rises University. in ASAL districts and urban KESSP reports. (percent). Baseline (2008) slums                                                              3 The Health SWAp is currently under preparation. The baseline and target values will be added to the results framework as soon as they are agreed with the government. 4 The team is in the process of verifying the data and the baseline may change once the assessment is complete. 44 Vision 2030 Objectives CPS Outcomes Major Issues and Obstacles CPS Milestones Bank Program and Key Indicators and Indicators 60%, target (2012), 75%. AAA:  Gender disparity, particularly in  Sector governance and Source: Ministry of Education. Education PER (FY10), remote rural areas, urban slums, management strengthened. School to work transition (FY11). and marginalized areas.  University education gross Source: KESSP enrollment rate rises (percent). Governance and Anti- Baseline (2008): 3%, target Corruption and Risk Policy (2012): 5% (reaching Sub- Management Action Plan. Saharan Africa average). Source: Ministry of Education. Slum Upgrading Slum upgrading Ongoing: MTP Objective: Adequate and  Urban centers characterized by  Urban slum residents who  Citywide slum upgrading Pro-poor component of decent housing in a sustainable spontaneous growth and WASSIP, FIRST Shelter gain access to improved initiatives commence in environment haphazard development Afrique, ESMID, FLSTAP. infrastructure services under five cities. Source: Kenya  Facilitate the development and  Wide discrepancies in level of the Urban Slum Upgrading Slum Upgrading Project Pipeline: urbanization and distribution of Kenya Slum Upgrading access to affordable and Project (number of people). reports. urban centers across regions (FY12+). adequate housing Baseline: 0, Target: 100,000. Source: project surveys. AAA: Housing Finance (FIRST, TBD FY11); FPD Dialogue, FSAP update (FY10). Vulnerable Groups CPS Outcome: Ongoing: MTP Objective: Gender equity Establishing comprehensive Orphans and Vulnerable Children  Women’s limited access to  Integrated social protection in power and resource scalable social protection Cash Transfer Project (FY09). economic and productive policy approved by cabinet distribution, improved mechanisms Pipeline: resources and employment and related action plan livelihoods for vulnerable  Interns employed or self- Youth Empowerment (FY10), opportunities under implementation. groups, and a responsible, ASAL SWAP (FY11+) employed immediately after Source: OVC Cash globally competitive and  Rapidly increasing number of AAA: internship, and a year after Transfer Project reports. prosperous youth unemployed youth, constituting internship completion rises Social protection targeting review the majority of the total (percent, to be disaggregated  Beneficiaries of public and social protection PER  Increase opportunity unemployed by gender). Baseline (2010): works programs supported (FY11–12), School to Work  Provide financial support to all 0, Target: 35% (2013). under the Youth Transition (FY10).  Increasing number of OVC and vulnerable groups. Source: Project-specific Empowerment Project relatively high levels of child surveys. (number, to be labor. disaggregated by gender).  Beneficiary households Baseline: 0, Target: receiving predictable cash 190,000. Source: Project transfers rises under the Cash reports. Transfer for OVC (number). Baseline (2009): 0, target (end- 2013): 50,000. Source: OVC 45 Vision 2030 Objectives CPS Outcomes Major Issues and Obstacles CPS Milestones Bank Program and Key Indicators and Indicators Project specific surveys. CPS Pillar 3: Managing Resource Constraints and Environmental Challenges Environment CPS Outcome: Improved Ongoing: Arid Lands Resource  National Drought MTP Objective: Enhancing management of key natural Management Project (FY07),  Lack of infrastructure to manage Contingency Fund access to clean, secure, and resources GEF Adaptation to Climate hydrologic variability, resulting established and disbursing sustainable environment, water Change in Arid Lands, WKCDD in insecure water availability to  Area of forests managed funding to address and sanitation (FY07), Natural Resources most sectors of the economy according to approved plans emergencies. Source: Arid Management Project (FY07),  Increase fresh water availability rises. Baseline (end 2009): Lands 2 project reports.  Water insecurity GEF Western Kenya Integrated and establish a monitoring 21,000 hectares, target  Drought management Ecosystem Management Project program for water  Deforestation and poor land (2011): 300,000 hectares. system in place and (FY05), Lake Victoria management leading to soil Source: NRM Project  Improve water storage capacity functioning at the district Environmental Management erosion and loss of natural buffer surveys. and national level. Source: Phase II (Regional FY09).  Conserve strategic natural capacity of water catchments  Cumulative percentage Arid Lands 2 project resources in a sustainable  Water quality deteriorated by reduction in untreated reports. Pipeline: manner without compromising increased farming , effluent disposed by Targeted Kenya Water Resources economic growth  Basin-wide water and industrialization, and lax law municipalities into three Development Project (FY12+), fisheries management  Map ASAL and high risk enforcement hotspots of Lake Victoria ASAL SWAp (FY11+), Kenya frameworks adopted. disaster zones. (percentage). Baseline Coastal Development Project  Deforestation and degradation of Baseline (2009): 0, target (2009): 0%, target (2013): (FY11) existing forests (2013): 100. Source: 10%. Source: Lake Victoria Lake Victoria  Trees on farmlands have been Environment Management 2 AAA: Environment Management over exploited, and there is a Project surveys. Water Resources Assessment 2 Project surveys. widening gap between the (FY11) supply and demand for forest products. 46 Vision 2030 Objectives CPS Outcomes Major Issues and Obstacles CPS Milestones Bank Program and Key Indicators and Indicators MTP Objective: Reduce losses CPS Outcome: Adapting to Ongoing: IFC PEP Africa due to floods, droughts, climate climate change Lighting Africa Program, IFC  Weak institutional capacity  Volume of sustainable change, and desertification PEP Africa Climate investment  Climate change analysis and energy investments by  Establish national trends and  Inadequate capacity to adopt Program. specific climate adaptation banks participating in IFC impacts of climate change on new technologies to detect the measures developed and program rises. Baseline sensitive sectors impact of resource exploitation. Pipeline: GEF Kenya tested in selected ASAL (2009) US$1 million,  Reduce vulnerability of energy Adaptation to Climate Change  Assessment and monitoring of districts. Baseline (2009): 0, target US$15 million. shortages arising from over- in Arid Lands (FY10), Kenya strategic environmental target (2013): 5 measures reliance on hydropower.  Efficiency and Agricultural Carbon Project resources remains a challenge. tested. Source: GEF profitability of sustainable (FY10), Electricity Expansion Adaptation to Climate energy clients of three Project (FY10). Change in Arid Lands Project financial institutions reports. supported by the IFC AAA: Various Global Facility  Geothermal generation rises. Source: IFC project for Disaster Reduction and capacity expands, reports. Recovery grants (Regional diversifying Kenya’s power FY07, 08, 09, Recipient sources. Baseline (2009): Executed). 158 MW, target (end 2013): 193 MW.5 Source: KPLC annual report.                                                              5 Effective installed capacity in June 2009 included Olkaria I (44 MW), Olkaria II (66 MW), and independent power producer OrPower 4 (48 MW). The Bank is supporting installation of Olkaria II third unit (35 MW) under the Energy Sector Recovery Project. The Bank is supported installation of additional geothermal capacity under the Electricity Expansion Project, but capacity is not expected to come onstream until 2015. 47 Annex 2: Summary of the Kenya portfolio (existing and proposed portfolio) Fiscal Year and amount (US$m)     Project  Ongoing  FY10  FY11+ Total  Result 1:  Improving the business enviroment   186  0  200 386   MSME Competitiveness  22          Financial and Legal Sector Technical Assistance 18          Nairobi Metropolitan Services     100   DPL     100   East Africa Trade and Transport Facilitation (regional project) 121          Regional Trade Facilitation (regional project) 25        Result 2:  Improving core infrastructure  884  350  280 1514 Growth with equity    Northern Corridor Transport Improvement 460          Energy Sector Recovery  160          Water and Sanitation Service Improvement 150          Electricity Expansion   350       Nairobi Urban Toll Road   180   Infrastructure Finance     100   Regional Communications Infrastructure (regional project) 114        Result 3:  Enhanced agricultural productivity  112  0  0 112   Agricultural Productivity and Agribusiness 82          Eastern Africa Agricultural Productivity (regional project) 30        Result 4:  Strengthening public sector mgt and governance  46  100  0 146   National Statcap Development  21          Institutional Reform and Capacity Building Technical Assistance 25          Municipal Program  100       TOTAL:  Strategic Objective 1           2158 Result 5:  Improving access to basic  services  163   0  300 463     Reducing inequality    and social exclusion    Total War Against AIDS  80          Education Sector Support  80     100   Development Learning Center  3          Health SWAp     100   Slum Upgrading     100 Result 6:  Establishing social protection mechanisms  50  60  0 110   Cash Transfers for Orphans and Vulnerable Children 50          Youth Empowerment  60       TOTAL:  Strategic Objective 2           573 Result 7:  Improving management of key natural resources  309  35  200 544 Managing  environmental    Natural Resource Management  69          Arid Lands  120     100 challenges    Western Kenya Community‐Driven Development 86          Western Kenya International Ecosystems Management 4          Coastal Development  35       Water Resources Development     100   Lake Victoria Management 2 (regional project) 30        Result 8:  Adapting to climate change  6  0  0 6   GEF Adaption to Climate Change in Arid Lands 6        TOTAL:  Strategic Objective 3           550    GRAND TOTAL (with all FY11+ amounts notional):   1756   545   980 3281 48 Annex 3: Matrix of donor interventions Projected Development Partner Engagement in KJAS sectors (FY09-12) KJAS Sectors Can- Den- EC Fin- France Ger- Italy Japan Nether- Nor- Spain Sweden UK US UN AFD IDA ada mark land many lands way Agriculture + X X X X X X X X X X Rural Development Democratic X X X X X X X X X X X X X Governance Education X X X X X X X X X X Energy X X X X X X X Environment, X X X X X X X X X X X and Climate Change Gender X X X X X X X X Health and X X X X X X X X X X X HIV/AIDS Land X X X X X X Private Sector X X X X X X X X X X Development Transport X X X X X X X Social X X X X X X X X X Protection Urban and Local X X X X X X X Government Water and X X X X X X X X X X X X Sanitation 49 Annex 4: World Bank Group Program Integration IBRD, IDA, IFC and MIGA are working together to respond to the challenges Kenya faces in implementing its development program. The Bank Group is more effective when its constituent parts focus on their comparative advantages in delivering both public and private goods and program innovation through a mix of instruments and funding. Cooperation will focus on: The financial sector: The joint framework includes increasing access to financial services, furthering regulatory reform, and developing capital and local securities markets (including ongoing ESMID efforts), with a goal of supporting key economic and social development needs, including infrastructure and housing development, and investments for pension and insurance funds. In addition to addressing the cross-cutting issues, specific operations will provide access to finance to SMEs, energy, and bond market transactions, including an IFC local currency bond. Business and investment climate: IDA and IFC, including through FIAS, will continue to deepen support in these areas, particularly relating to sub-national doing business, trade logistics and tax management. Infrastructure: IFC interventions will complement ongoing IDA operations, and PPIAF will increase its role in improving PPPs in infrastructure. Priority sectors will include road transportation (completing transactions in the sector and procuring and implementing PPS within the existing legal framework) and the electricity sector (working with sector institutions to expand geothermal generation as well as transmission). Significant improvements in program delivery as well as better allocation of risks and division of labor between public and private sectors will contribute to overall program effectiveness. Health: The focus will be on improving the enabling environment and creating opportunities for private-public partnerships in health care provision, as part of the broader Health in Africa Initiative (HAI), which provides integrated investment and advisory services to support private health institutions and governments interested in leveraging the private sector to achieve national health goals. An Equity Vehicle for Health in Africa, which is being managed by Aureos Capital, was recently launched to increase access to equity finance for health businesses. Kenya is one of the priority countries for the investments by the US$57 million fund. In education: IFC will continue to work in the education sector, alongside IDA. It will support the development of student loan schemes, as well as invest in the private secondary education sector. IFC would enter into individual risk participation agreements with banks in respect of portfolios of education loans, to provide much needed support to schools serving low and middle-income populations which, due to their relatively small funding needs, IFC cannot reach through its direct lending instruments. Agribusiness: IFC will scale up its agribusiness operations (including food processing and distribution), complementing IDA’s efforts to increase domestic food production. IFC is developing new approaches, including wholesaling through banks with financial markets, to help extend its reach to smaller producers, and support short term finance extended by commercial banks, and it is contemplating development of a Global Food Fund to address short- and medium-term constraints in the global food-supply chain. □ MIGA will also continue to offer its guarantee products. During the CPS period, MIGA will initially focus on public-private partnerships infrastructure such as the Nairobi toll road project; several energy generation and distribution projects in cooperation with KPLC and KenGen; and the restructuring of the Kenya/Uganda railway that links Kampala to Mombasa.   50 Annex 5: Progress toward Millennium Development Goals Millennium Dev elopment Goals 1990 1995 2000 2005 2008 Goal 1: Eradicate extreme pov erty and hunger Employment to population ratio, 15+, total (%) 72 72 73 73 73 Employment to population ratio, ages 15-24, total (%) 61 60 61 59 59 GDP per person employed (annual % growth) -5 1 -3 3 -1 Income share held by lowest 20% 3.4 5.6 .. 4.7 .. Malnutrition prevalence, weight for age (% of children under 5) .. 20.1 17.5 16.5 .. Poverty gap at $1.25 a day (PPP) (%) 15 9 .. 6 .. Poverty headcount ratio at $1.25 a day (PPP) (% of population) 38 29 .. 20 .. Prevalence of undernourishment (% of population) 33 30 .. 32 .. Vulnerable employment, total (% of total employment) .. .. .. .. .. Goal 2: Achiev e univ ersal primary education Literacy rate, youth female (% of females ages 15-24) .. .. 81 .. .. Literacy rate, youth male (% of males ages 15-24) .. .. 80 .. .. Persistence to last grade of primary, total (% of cohort) .. .. .. 84 .. Primary completion rate, total (% of relevant age group) .. .. .. 93 .. Total enrollment, primary (% net) .. .. 67 76 87 Goal 3: Promote gender equality and empower women Proportion of seats held by women in national parliaments (%) 1 3 4 7 9 Ratio of female to male enrollments in tertiary education .. .. 54 61 57 Ratio of female to male primary enrollment 97 98 99 96 99 Ratio of female to male secondary enrollment 85 .. 95 95 88 Share of women employed in the nonagricultural sector (% of total 21.4 26.6 .. .. .. nonagricultural employment) Goal 4: Reduce child mortality Immunization, measles (% of children ages 12-23 months) 78 83 75 69 80 Mortality rate, infant (per 1,000 live births) 64 72 77 79 80 Mortality rate, under-5 (per 1,000) 97 111 117 120 121 Goal 5: Improv e maternal health Adolescent fertility rate (births per 1,000 women ages 15-19) .. 106 105 104 104 Births attended by skilled health staff (% of total) 50 45 44 42 .. C ontraceptive prevalence (% of women ages 15-49) 27 33 39 39 .. Maternal mortality ratio (modeled estimate, per 100,000 live births) .. .. .. 560 .. Pregnant women receiving prenatal care (%) 77 95 76 88 .. Unmet need for contraception (% of married women ages 15-49) .. 36 24 25 .. Goal 6: Combat HIV/AIDS, malaria, and other diseases C hildren with fever receiving antimalarial drugs (% of children under .. .. 65 27 .. age 5 with fever) C ondom use, population ages 15-24, female (% of females ages 15- .. .. 7 9 .. 24) C ondom use, population ages 15-24, male (% of males ages 15-24) .. .. 39 39 .. Incidence of tuberculosis (per 100,000 people) 112 224 405 406 353 Prevalence of HIV, female (% ages 15-24) .. .. .. .. .. Prevalence of HIV, male (% ages 15-24) .. .. .. .. .. Prevalence of HIV, total (% of population ages 15-49) .. .. .. .. .. Tuberculosis cases detected under DOTS (%) .. 58 53 70 72 Goal 7: Ensure env ironmental sustainability C O2 emissions (kg per PPP $ of GDP) 0.2 0.3 0.3 0.2 .. C O2 emissions (metric tons per capita) 0.2 0.3 0.3 0.3 .. Forest area (% of land area) 7 6 6 6 .. Improved sanitation facilities (% of population with access) 39 40 41 42 42 Improved water source (% of population with access) 41 46 51 57 57 Marine protected areas, (% of surface area) .. .. .. 1 .. Nationally protected areas (% of total land area) .. .. .. 12.1 12.1 Goal 8: Dev elop a global partnership for dev elopment Aid per capita (current US$) 50 27 16 22 34 Debt service (PPG and IMF only, % of exports, excluding workers' 29 21 17 9 6 remittances) Internet users (per 100 people) 0.0 0.0 0.3 3.1 8.7 Mobile cellular subscriptions (per 100 people) 0 0 0 13 42 Telephone lines (per 100 people) 1 1 1 1 1 Other Fertility rate, total (births per woman) 5.8 5.2 5.0 5.0 5.0 GNI per capita, Atlas method (current US$) 360 270 420 520 770 GNI, Atlas method (current US$) (billions) 8.4 7.5 13.2 18.6 29.5 Gross capital formation (% of GDP) 24.2 21.8 17.4 16.9 24.7 Life expectancy at birth, total (years) 59 56 52 53 54 Literacy rate, adult total (% of people ages 15 and above) .. .. 74 .. .. Population, total (millions) 23.4 27.4 31.3 35.6 38.5 Trade (% of GDP) 57.0 71.7 53.3 64.4 63.9 Source: World Dev elopment Indicators database 51 Annex 6: Kenya at a Glance Kenya at a glance 2/25/10 Sub- Ke y D e v e lo pm e nt Indic a t o rs Saharan Lo w Kenya A frica inco me Age distribution, 2008 (2008) Male Female P o pulatio n, mid-year (millio ns) 38.5 81 8 973 75-79 Surface area (tho usand sq. km) 580 24,242 19,310 60-64 P o pulatio n gro wth (%) 2.7 2.5 2.1 Urban po pulatio n (% o f to tal po pulatio n) 22 36 29 45-49 30-34 GNI (A tlas metho d, US$ billio ns) 28.4 885 510 15-19 GNI per capita (A tlas metho d, US$ ) 740 1,082 524 GNI per capita (P P P , internatio nal $ ) 1,580 1 ,991 1,407 0-4 10 5 0 5 10 GDP gro wth (%) 1.7 5.0 6.4 percent of total population GDP per capita gro wth (%) -1.0 2.5 4.2 ( m o s t re c e nt e s t im a t e , 2 0 0 3 – 2 0 0 8 ) P o verty headco unt ratio at $ 1 .25 a day (P P P , %) 20 51 .. Under-5 mortality rate (per 1,000) P o verty headco unt ratio at $ 2.00 a day (P P P , %) 40 73 .. Life expectancy at birth (years) 54 52 59 200 Infant mo rtality (per 1,000 live births) 80 89 78 Child malnutritio n (% o f children under 5) 17 27 28 150 A dult literacy, male (% o f ages 15 and o lder) .. 71 72 100 A dult literacy, female (% o f ages 15 and o lder) .. 54 55 Gro ss primary enro llment, male (% o f age gro up) 113 103 102 Gro ss primary enro llment, female (% o f age gro up) 112 93 95 50 0 A ccess to an impro ved water so urce (% o f po pulatio n) 57 58 67 A ccess to impro ved sanitatio n facilities (% o f po pulatio n) 42 31 38 1990 1995 2000 2007 Kenya Sub-Saharan Africa N e t A id F lo ws 19 8 0 19 9 0 2000 2008 a (US$ millio ns) Net ODA and o fficial aid 393 1,181 510 1,275 Growth of GDP and GDP per capita (%) To p 3 do no rs (in 2007): United States 39 95 46 325 9 Euro pean Co mmissio n 14 40 19 114 6 United Kingdo m 39 67 73 1 11 3 A id (% o f GNI) 5.6 14.4 4.1 4.7 0 A id per capita (US$ ) 24 50 16 34 -3 Lo ng- T e rm E c o no m ic T re nds -6 95 05 Co nsumer prices (annual % change) 13.9 17.8 10.0 25.1 GDP implicit deflato r (annual % change) 9.6 10.6 6.1 13.1 GDP GDP per capita Exchange rate (annual average, lo cal per US$ ) 7.4 22.9 76.3 69.2 Terms o f trade index (2000 = 100) 86 85 100 116 19 8 0 – 9 0 19 9 0 – 2 0 0 0 2000–08 (average annual gro wth %) P o pulatio n, mid-year (millio ns) 16.3 23.4 31.3 38.5 3.6 2.9 2.6 GDP (US$ millio ns) 7,265 8,591 12,691 30,355 4.2 2.2 4.5 (% o f GDP ) A griculture 32.6 29.5 32.4 27.0 3.3 1.9 2.7 Industry 20.8 19.0 16.9 18.8 3.9 1.2 4.9 M anufacturing 12.8 11.7 11.6 12.1 4.9 1.3 4.4 Services 46.6 51 .4 50.7 54.2 4.9 3.2 4.4 Ho useho ld final co nsumptio n expenditure 62.1 62.8 77.7 77.7 4.5 3.6 4.8 General go v't final co nsumptio n expenditure 19.8 18.6 15.1 17.2 2.6 6.9 2.6 Gro ss capital fo rmatio n 24.5 24.2 17.4 19.2 0.4 6.1 8.5 Expo rts o f go o ds and services 29.5 25.7 21.6 27.3 4.4 1.0 7.0 Impo rts o f go o ds and services 35.9 31.3 31.7 41.4 1.9 9.4 8.4 Gro ss savings 15.4 18.6 13.0 12.8 No te: Figures in italics are fo r years o ther than tho se specified. 2008 data are preliminary. .. indicates data are no t available. a. A id data are fo r 2007. Develo pment Eco no mics, Develo pment Data Gro up (DECDG).   52 Kenya B a la nc e o f P a ym e nt s a nd T ra de 2000 2008 Governance indicators, 2000 and 2008 (US$ millio ns) To tal merchandise expo rts (fo b) 1,773 4,665 To tal merchandise impo rts (cif) 3,306 9,726 Voice and accountability Net trade in go o ds and services -1,288 -4,114 Political stability Current acco unt balance -557 -2,069 as a % o f GDP -4.4 -6.8 Regulatory quality Rule of law Wo rkers' remittances and co mpensatio n o f emplo yees (receipts) 538 1,692 Control of corruption Reserves, including go ld 897 2,928 0 25 50 75 100 2008 Country's percentile rank (0-100) C e nt ra l G o v e rnm e nt F ina nc e higher values imply better ratings 2000 (% o f GDP ) Current revenue (including grants) 18.8 25.3 Source: Kaufmann-Kraay-Mastruzzi, World Bank Tax revenue 15.8 20.6 Current expenditure 16.3 28.7 T e c hno lo gy a nd Inf ra s t ruc t ure 2000 2008 Overall surplus/deficit 0.6 -8.0 P aved ro ads (% o f to tal) 12.1 14.1 Highest marginal tax rate (%) Fixed line and mo bile pho ne Individual 30 30 subscribers (per 1 00 peo ple) 1 43 Co rpo rate 30 30 High techno lo gy expo rts (% o f manufactured expo rts) 3.9 5.4 E xt e rna l D e bt a nd R e s o urc e F lo ws E nv iro nm e nt (US$ millio ns) To tal debt o utstanding and disbursed 6,141 7,441 A gricultural land (% o f land area) 47 47 To tal debt service 591 409 Fo rest area (% o f land area) 6.3 6.2 Debt relief (HIP C, M DRI) – – Natio nally pro tected areas (% o f land area) .. 12.1 To tal debt (% o f GDP ) 48.4 24.5 Freshwater reso urces per capita (cu. meters) 629 552 To tal debt service (% o f expo rts) 21.2 4.3 Freshwater withdrawal (billio n cubic meters) 1.6 2.7 Fo reign direct investment (net inflo ws) 111 96 CO2 emissio ns per capita (mt) 0.33 0.31 P o rtfo lio equity (net inflo ws) -6 5 GDP per unit o f energy use (2005 P P P $ per kg o f o il equivalent) 2.7 2.8 Composition of total external debt, 2008 Energy use per capita (kg o f o il equivalent) 481 491 IBRD, 0 Short-term, 921 Private, 302 Wo rld B a nk G ro up po rt f o lio 2000 2008 IDA, 3,050 (US$ millio ns) IB RD Bilateral, 2,278 To tal debt o utstanding and disbursed 47 0 Disbursements 0 0 P rincipal repayments 40 0 IMF, 252 Interest payments 7 0 Other multi- lateral, 638 US$ millions IDA To tal debt o utstanding and disbursed 2,262 3,050 Disbursements 170 178 P riv a t e S e c t o r D e v e lo pm e nt 2000 2008 To tal debt service 45 99 Time required to start a business (days) – 30 IFC (fiscal year) Co st to start a business (% o f GNI per capita) – 39.7 To tal disbursed and o utstanding po rtfo lio 99 104 Time required to register pro perty (days) – 64 o f which IFC o wn acco unt 99 94 Disbursements fo r IFC o wn acco unt 40 11 Ranked as a majo r co nstraint to business 2000 2008 P o rtfo lio sales, prepayments and (% o f managers surveyed who agreed) repayments fo r IFC o wn acco unt 14 31 A ccess to /co st o f financing .. 72.5 Co rruptio n .. 72.5 M IGA Gro ss expo sure 42 102 Sto ck market capitalizatio n (% o f GDP ) 1 0.1 36.0 New guarantees 37 95 B ank capital to asset ratio (%) 12.9 12.4 No te: Figures in italics are fo r years o ther than tho se specified. 2008 data are preliminary. 2/25/10 .. indicates data are no t available. – indicates o bservatio n is no t applicable. Develo pment Eco no mics, Develo pment Data Gro up (DECDG).   53 Annex 7: IBRD/IDA Program Summary     Proposed IBRD/IDA Base-Case Lending Program a Fiscal Proj ID US$(M) Strategic Implementation b year Rewards b Risks (H/M/L) (H/M/L) 2010 Municipal Program 100 H M Electricity SIL 300.7 H M Youth Empowerment Program 60 H M Coastal CD SIL 30 H M Result 490.7 2011 Nairobi Urban Toll Road 180 H M Infrastructure Finance 100 H M KESSP II 100 H M DPL 100 H M Result 480 2012+ Health SWAP 100 H M    Nairobi Metropolitan Services 100 H M    Slum Upgrading 100 H M ASAL SWAP 100 H M Kenya Water Resources Development Project 100 H M Result 500 Overall Result 1,470.70 54 Annex 8: Summary of Non-lending Services CAS Annex B4 - Summary of Nonlending Services –Kenya As of Date 3-23-10 a b Product Completion FY Cost (US$000) Audience Objective Recent completions KE-Jobs in Kenya (FY07) FY07 281 G,B,P K,P KE-Forestry Reform Options (FY07) FY07 163 G,B,P K,P KE-Pension Reform Dialogue (FY07) FY07 167 G,B,P K,P KE Budget/CIFA notes (FY07) FY07 0 G,B,P K,P KE- Accelerating Growth (FY08) FY08 821 G,B,P K,P KE-Poverty Assessment (FY08) FY08 582 G,B,P K,P KE-Investment Climate Assessment (FY08) FY08 419 G,B,P K,P KE-Police Oversight Mechanism (FY08) FY08 69 G,B,P K,P SIS - SEA of the Kenya Forests Act FY08 2 G,B,P K,P CCGPP: Kenya Country Assessment FY08 132 G,B,P K,P KE Economic Impact Assessment Note FY08 59 G,B,P K,P KE-Agriculture Policy Rev. (FY07) + PSIA FY09 922 G,B,P K,P KE-Vision 2030 Growth with Equity FY09 349 G,B,P K,P KE-Parliament's Role in Gov (FY08) FY09 141 G,B,P K,P KE-Judicial Sector Assessment (FY08) FY09 63 G,B,P K,P KE-Five Largest Cities (FY09) FY09 50 G,B,P K,P Underway Budget Report - Lessons from Crisis FY10 50 G,B,P K,P Unleashing Kenya's Growth Potential FY10 100 G,B,P K,P GAP Women Rights in Kenya-LEGJR FY10 99 G,B,P K,P KE gender data FY10 15 G,B,P K,P Generating Data on gender and water FY10 48.5 G,B,P K,P Strengthening mainstreaming of gender capacity in the water sector FY10 35 G,B,P K,P MTDS - Kenya FY10 90 G,B,P K,P KE-Health Sector Dialogue FY10 147 G,B,P K,P Review ENV safeguards FY10 65 G,B,P K,P KE-Tourism in Kenya FY10 309 G,B,P K,P FSAP Update Kenya FY10 251 G,B,P K,P Doing Business Report FY10-11 100 G,B,P K,P FPD policy notes ( FY10-11) FY10-11 50 G,B,P K,P Planned CPS Period FSAP Follow up- Crisis Simulation/Housing Finance (FIRST) /Study on FY10 150 G,B,P K,P Access to Finance Land Reform TA FY11 100 G,B,P K,P Rural Gender Methodology and baseline data, (KAPAP Gender Action FY11 300 G,B,P K,P Plan , GAP) KE: Pro-Poor Notes FY11 100 G,B,P K,P KE-Water Resources Assessment FY11 75 G,B,P K,P Country procurement assessment review FY11 30 G,B,P K,P Governance ESW FY11 50 G,B,P K,P Health, Education, and SP PERs FY11 200 G,B,P K,P School to work transition F11 75 G,B,P K,P Health Financing FY11 75 G,B,P K,P Growth Diagnostics FY11 100 G,B,P K,P Integrated Growth Poles (FY11) FY11 75 G,B,P K,P EAC Regional Integration FY11 50 G,B,P K,P IAD Capacity Building FY11-12 100 G,B,P K,P Social Protection Targeting FY11-12 75 G,B,P K,P ESW on enhancing women's participation in water governance FY12 50 G,B,P K,P structures Maize Policy Review FY12 150 G,B,P K,P Kenya Investment Climate Program FY13 200 G,B,P K,P FPD Dialogue FY13 100 G,B,P K,P KE- PER FY13 250 G,B,P K,P 55 Annex 9: Operations Portfolio (IBRD/IDA and Grants) CAS Annex B8 - Kenya Operations Portfolio (IBRD/IDA and Grants) As Of Date 3/3/2010 Closed Projects 128 IBRD/IDA * Total Disbursed (Active) 491.46 of which has been repaid 0.00 Total Disbursed (Closed) 332.12 of which has been repaid 482.56 Total Disbursed (Active + Closed) 823.58 of which has been repaid 482.56 Total Undisbursed (Active) 1,013.52 Total Undisbursed (Closed) 0.00 Total Undisbursed (Active + Closed) 1,013.52 Difference Between Active Projects Last PSR Expected and Actual Supervision Rating Original Amount in US$ Millions Disbursements a/ Development Implementation Fiscal Frm Project ID Project Name Objectives Progress Year IBRD IDA GRANT Cancel Undisb. Orig. Rev'd P083250 KE-Financial & Legal Sec TA (FY05) S MS 2005 18 14.2453 13.595559 13.59556 P078058 KE-Arid Lands 2 SIL (FY03) S S 2003 120 17.1942 -52.2814 -5.96348 P111545 KE-Cash Transfer for OVC (FY09) MS MS 2009 50 50.8725 -1.83733 P078209 KE-Dev Learning Centre LIL MS S 2004 2.7 0.67438 0.3223227 P087479 KE-Edu Sec Sup Project (FY07) S MU 2007 80 26.2554 23.152798 P083131 KE-Energy Sec Recovery Prj (FY05) S S 2005 160 116.732 30.061366 -11.1045 KE-GEF W KE Int Ecosys Mgmt SIL P072981 (FY05) S S 2005 4.1 0.69985 0.6998503 P090567 KE-Inst Reform & CB TA (FY06) MS MS 2006 25 18.0291 16.521786 P095050 KE-NRM SIL (FY07) MU MU 2007 68.5 56.3788 4.019484 17.58726 P085414 KE-Natl STATCAP Dev S S 2007 20.5 17.9378 14.341158 P082615 KE-Northern Corridor Trnsprt SIL (FY04) S S 2004 460 348.418 63.585984 16.75253 KE-Tot War Against HIV/AIDS-TOWA P081712 (FY07 MS MS 2007 80 60.6489 72.841229 P074106 KE-W Kenya CDD/Flood Mitigation (FY07) MS MS 2007 86 71.4203 5.5018032 P096367 KE-Water & Sanitation Srv Impr (FY08) S S 2008 150 114.085 19.434751 P109683 Kenya Agric Productivity & Agribusiness S MU 2009 82 85.4486 P085007 MSME Competitiveness MS MS 2005 22 15.183 13.696745 Overall Result 1425 4.1 1014.22 223.65611 30.8674   56 Annex 10: IFC Committed and Disbursed Outstanding Investment Portfolio  Amounts in US Dollar Millions  As at February 23, 2010  Committed Disbursed Outstanding **Quasi **Quasi FY Commitment Company Loan Equity Equity *GT/M Loan Equity Equity *GT/RM 2007 ABE-Kenya 6.00 0.48 - - - 0.48 - - 1999 AEF Deras Ltd. 1.00 - - - 1.00 - - - 2006/7/8/9/10 Barclays Bank - - - 0.28 - - - 0.28 2007 BP Kenya - 5.00 - - - 3.10 - - CfC Stanbic - - 10.00 - - - 10.00 - 1982/93/2007/8/9/10 Diamond Trust 10.00 4.45 15.00 0.76 10.00 4.45 15.00 - 2009 Faulu Kenya - - - 4.75 - - - 4.75 2005/6/7/8/9/10 I & M Bank 0.90 - - 11.54 0.90 - - 11.54 1987/93 IPS(K)-Allpack - 0.36 - - - 0.36 - - 1987 IPS(K)-Frigoken - 0.06 - - - 0.06 - - 19987 IPS(K)-Prem food - 0.11 - - - 0.11 - - 1997/2000/9 K-Rep Bank - 3.94 - - - 1.51 - - 2008/9/10 KCB - - 0.16 - - - 0.16 - 2007/8 Kenya Schools - - 0.78 - - - 0.78 - 2006 Kingdom hotel 20.00 - - - - - - - 2005 Kongoni 1.07 - - - 1.07 - - - 2000 Mabati 5.00 - - - - - - - 2005 Magadi Soda Co. - - - 3.23 - - - 1.30 2007/8/9/10 Prime Kenya - - - 3.06 - - - 3.06 2007 RVR 22.00 - 10.00 - - - 10.00 - 2008/9 Strathmore - - 1.75 - - - 1.75 - 2009 TEL 7.00 - - - - - - - 1990 TPS EA Ltd. - 0.04 1.98 - - 0.04 1.98 - 2000/1 Tsavo Power 4.12 0.83 0.39 0.03 4.12 0.83 0.39 - Total Portfolio: 77.09 15.27 37.37 26.32 17.09 10.94 37.37 21.90 * Denotes Guarantee and Risk Management Products. ** Quasi Equity includes both loan and equity types. 57 Annex 11: IFC Investment Operations Program   2007 2008 2009 2010* Commitments (US$m) Gross 72.84 92.53 64.19 140.00 Net** 72.84 92.53 64.19 140.00 Net Commitments by Investment Instrument (%) Equity 8.35 2.59 6.06 10.00 Guarantee 32.62 70.4 83.04 50.00 Loan 40.50 10.81 10.90 40.00 Quasi loan 17.85 16.21 Risk product 0.69 Total 100.00 100.00 100.00 100.00 * * FY10 Estimate ** IFC's Own Account only         58 Annex 12: Country Financing Parameters Date: December 21, 2007 The country financing parameters for Kenya set out below have been approved by the Regional Vice President for Africa and will be posted on the Bank's internal website. Item Parameter Remarks/Explanation Cost Sharing Up to 100 The Bank may finance up to 100 percent of the Limit on the proportion of percent costs of individual projects, but will only do so after individual project costs that the considering the context of these operations, the extent to which counterpart finds are available, and Bank may finance. the implications for the overall portfolio. In general, Bank financing is expected to be below 100 percent, especially in sector wide approaches (SWAps). More specifically, the Bank could finance up to 100 percent for social sector projects. The Bank may also finance up to 100 percent of project costs where no other sources of financing are readily available. The Bank may also finance 100 percent of projects aimed at policy reform and capacity building. Recurrent Cost Financing No country- The Bank will continue to monitor the overall fiscal Any limits that would apply to level situation, and the Government's continued the overall amount of recurrent limit. demonstration of commitment to sound fiscal management, and its implications for recurrent cost expenditures that the Bank may financing. In determining Bank financing of finance. recurrent costs in individual projects, the Bank will take into account sustainability issues at the sector and project levels, including demonstration of the temporary nature of financing needs; and the Government's ability to sustain recurrent costs once Bank financing is complete. Local Cost Financing Yes Kenya meets the two requirements for local cost financing. The Bank may therefore finance local Are the requirements for Bank costs in the proportions needed in individual financing of local expenditures projects. met, namely that: (a) financing requirements for the country's development program would exceed the public sector's own resources (for example, from taxation and other revenues) and expected domestic borrowing; and (b) the financing of foreign expenditures alone would not enable the Bank to assist in the financing of individual projects Taxes and Duties None The Bank considers taxes and duties do not Are there any taxes and duties constitute an excessively high share of project costs. that the Bank would not If Kenya's tax and customs regime changes finance? significantly during project implementation, this parameter will be reviewed and revised as needed. 59 Annex 13: Key Economic Indicators Actual Estimat Projected Indicator 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 National accounts (as % of GDP) a Gross domestic product 100 100 100 100 100 100 100 100 100 100 100 100 Agriculture 31 29 29 28 27 27 25 27 28 27 28 27 Industry 17 17 18 18 19 18 19 19 20 20 21 20 Services 51 53 53 54 54 55 56 54 52 53 52 52 Total Consumption 91 90 89 89 91 92 92 95 91 92 92 91 Gross domestic fixed investment 18 17 16 16 19 19 19 19 19 19 19 21 Government investment 0 0 0 0 0 5 5 5 5 5 5 5 Private investment 18 17 16 16 19 14 15 15 14 14 15 16 b Exports (GNFS) 23 25 24 27 29 26 26 27 24 23 24 24 Imports (GNFS) 33 30 30 33 36 36 37 41 34 35 36 36 Gross domestic savings 9 10 11 11 9 8 8 5 9 8 8 9 c Gross national savings 13 13 13 16 16 16 16 13 15 14 13 15 Memorandum items Gross domestic product 12987 13149 14904 16096 18738 22502 27124 30355 32360 35898 38756 42359 (US$ million at current prices) GNI per capita (US$, Atlas method) 410 400 420 470 510 560 650 660 810 870 920 990 Real annual growth rates (%, calculated from 2001 prices) Gross domestic product at market prices 3.8 0.5 2.9 5.1 5.9 6.3 7.1 1.7 3.0 4.0 5.0 6.3 Gross Domestic Income 7.5 0.2 0.6 5.2 6.7 7.9 7.5 0.5 5.2 3.1 4.9 6.3 Real annual per capita growth rates (%, calculated from 2001 prices) Gross domestic product at market prices 0.1 -2.3 0.0 2.0 3.0 3.4 4.0 -1.2 2.8 1.1 2.1 3.4 Total consumption 3.5 -3.9 -3.1 1.8 3.8 5.7 4.1 -1.9 2.4 1.4 1.8 1.2 Private consumption 4.5 -4.4 -4.5 2.8 5.4 7.1 4.0 -2.4 -2.2 2.9 1.8 1.7 Balance of Payments (US$ millions) b Exports (GNFS) 2978 3274 3590 4283 5342 5945 7062 8291 7654 8410 9276 10263 Merchandise FOB 1891 2162 2426 2726 3462 3516 4132 5040 4562 4990 5530 6134 b Imports (GNFS) 4287 3981 4478 5290 6740 8171 10059 12559 11013 12581 13842 15336 Merchandise CIF 3462 3319 3791 4632 5950 7333 9069 11493 9795 11276 12471 13884 Resource balance -1309 -707 -888 -1007 -1398 -2226 -2997 -4268 -3359 -4170 -4566 -5073 Net current transfers 719 577 609 1002 1253 1786 2107 2336 2149 2255 2402 2565 Current account balance -738 -252 -445 -147 -151 -402 -786 -1747 -1288 -2024 -2361 -2782 Net private foreign direct investment -18 -42 55 -7 -55 -11 438 153 456 460 576 580 Long-term loans (net) -195 -64 75 -79 -379 -256 387 511 192 571 851 1148 Official 0 45 -24 41 -173 -106 6 35 164 199 76 -20 Private -195 -109 99 -120 -206 -149 381 476 28 372 774 1168 Other capital (net, incl. errors & ommissions) 1142 380 531 546 1082 1327 344 604 731 1439 1550 2120 d Change in reserves -190 -22 -216 -313 -497 -658 -384 479 -92 -446 -616 -1066 Memorandum items Resource balance (% of GDP) -10.1 -5.4 -6.0 -6.3 -7.5 -9.9 -11.0 -14.1 -10.4 -11.6 -11.8 -12.0 Real annual growth rates ( YR01 prices) Merchandise exports (FOB) 3.8 10.9 18.9 9.2 19.8 -21.0 9.3 7.9 2.7 8.0 8.3 8.9 Primary .. .. .. .. .. .. .. .. .. .. .. .. Manufactures -21.5 18.7 4.1 22.3 31.3 -22.0 21.6 21.8 5.0 8.3 13.0 12.0 Merchandise imports (CIF) -4.1 -8.7 27.0 13.0 12.4 -4.4 59.5 -1.7 2.7 7.8 8.2 8.9 (Continued)   60 Kenya - Key Economic Indicators (Continued) Actual Estimate Projected Indicator 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 e Public finance (as % of GDP at market prices) Current revenues 20.1 21.2 21.4 21.4 21.1 20.8 22.0 22.7 23.2 23.3 23.3 23.4 Current expenditures 19.7 26.2 27.1 25.3 24.4 23.3 23.3 23.4 23.2 22.8 22.9 22.6 Current account surplus (+) or deficit (-) 0.5 -5.0 -5.7 -4.0 -3.3 -2.5 -1.3 -0.7 0.0 0.5 0.4 0.7 Capital expenditure 3.2 2.4 3.8 2.5 4.8 4.9 4.8 4.8 5.9 5.8 5.7 5.7 Foreign financing 1.2 -1.1 -0.9 -0.7 -0.9 3.2 -0.7 -0.6 1.1 1.4 1.9 2.2 Monetary indicators M2/GDP 31.6 33.9 34.9 33.9 33.5 34.1 36.5 36.5 33.3 33.5 33.5 33.5 Growth of M2 (%) 2.4 8.8 12.7 9.5 9.8 16.6 20.4 14.9 10.1 17.0 10.3 11.6 Private sector credit growth / 1585.3 56.7 41.6 113.3 104.4 68.7 102.7 85.1 61.3 93.9 88.6 92.4 total credit growth (%) Price indices( YR01 =100) Merchandise export price index 100.0 103.1 97.3 100.1 106.2 136.5 146.8 165.8 146.2 148.1 151.5 154.4 Merchandise import price index 100.0 105.0 94.4 102.1 116.7 150.6 116.7 150.6 125.0 133.5 136.4 139.5 Merchandise terms of trade index 100.0 98.2 103.1 98.1 90.9 90.7 125.7 110.1 117.0 110.9 111.1 110.6 f Real exchange rate (US$/LCU) 100.0 99.7 101.2 98.9 110.2 128.2 125.1 122.1 122.1 122.1 122.1 122.1 Real interest rates Consumer price index (% change) 5.7 2.0 9.8 11.6 10.3 14.5 2.8 23.5 12.3 13.2 5.2 4.9 GDP deflator (% change) 1.6 0.9 6.2 7.1 4.9 7.8 5.1 13.1 17.0 12.0 5.0 5.0 a. GDP at factor cost b. "GNFS" denotes "goods and nonfactor services." c. Includes net unrequited transfers excluding official capital grants. d. Includes use of IMF resources. e. Consolidated central government. f. "LCU" denotes "local currency units." An increase in US$/LCU denotes appreciation.                     61 Annex 14: Key Exposure Indicators   Actual EstimateProjected Indicator 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Total debt outstanding and 4379 4861 5449 5490 5101 5205 5860 5910 5989 6167 6223 6176 a disbursed (TDO) (US$m) a Net disbursements (US$m) .. .. .. .. .. .. 0 -76 -92 98 161 188 Total debt service (TDS) .. .. .. .. .. .. 86 338 304 307 312 352 a (US$m) Debt and debt service indicators (%) b TDO/XGS 145.0 146.9 149.8 126.9 94.2 86.1 81.7 69.7 71.6 67.2 61.3 54.8 TDO/GDP 33.7 37.0 36.6 34.1 27.2 23.1 21.6 19.5 18.5 17.2 16.1 14.6 TDS/XGS .. .. .. .. .. .. 1.2 4.0 3.6 3.3 3.1 3.1 Concessional/TDO 74.1 75.7 74.1 77.7 76.8 78.1 75.7 77.5 79.0 79.8 80.4 80.9 IBRD exposure indicators (%) IBRD DS/public DS 6.8 3.0 1.6 1.6 0.2 0.0 .. .. .. .. .. .. Preferred creditor DS/public 39.4 29.3 29.7 43.4 75.2 66.8 63.2 38.8 40.7 44.0 43.0 44.4 c DS (%) IBRD DS/XGS 0.7 0.3 0.2 0.1 0.0 0.0 .. .. .. .. .. .. d IBRD TDO (US$m) 19 10 5 1 0 0 0 .. .. .. .. .. Of which present value of guarantees (US$m) Share of IBRD portfolio (%) .. .. .. .. .. .. .. .. .. .. .. .. d IDA TDO (US$m) 1798 1944 2173 2289 2115 2196 2358 2423 2507 2600 2663 2688 IFC (US$m) Loans Equity and quasi-equity /c MIGA MIGA guarantees (US$m) a. Includes public and publicly guaranteed debt, private nonguaranteed, use of IMF credits and net short- term capital. b. "XGS" denotes exports of goods and services, including workers' remittances. c. Preferred creditors are defined as IBRD, IDA, the regional multilateral development banks, the IMF, and the Bank for International Settlements. d. Includes present value of guarantees. e. Includes equity and quasi-equity types of both loan and equity instruments. 62 Annex 15: FY09-10 Client Survey/CPS Multi-Stakeholder Consultations   1. Background. A Client Survey was conducted in September 2009, which was timed to provide some initial client perceptions prior to the face-to-face stakeholder consultations on the CPS. The survey was designed to assist the World Bank in gaining a better understanding of how stakeholders in Kenya view the Bank, as well as use the data to inform the CPS consultations process that the Country Team was about to embark on. The survey asked about: overall attitudes towards the Bank; the importance of specific areas of the Bank’s work and the Bank’s effectiveness in those areas; the respondents’ level of agreement with the way the World Bank does business; general issues facing Kenya; and the Bank’s communication and outreach efforts in Kenya. 2. Process. A wide sample of stakeholders of the World Bank in Kenya was invited, through mailed questionnaires, to provide their opinions of the Bank’s assistance to their country. Participants in the survey were drawn from among national government officials or staff, local government officials or staff, members of Parliament or staff, government-owned corporations or financial institutions, agencies implementing Bank-supported projects, bilateral and multilateral development agencies, private sector organizations or businesses, civil society organizations, the media, and members of academe or research institutes. A total of 250 stakeholders participated in the Client Survey (25 percent response rate), mostly from the Government. The analysis of the results was conducted by the World Bank team at headquarters which supports client surveys globally. 3. Results. The FY09 Client Survey results in Kenya indicate that overall: (i) the Bank was well regarded in Kenya; the Bank’s work in the country was valued; and that stakeholders were eager for the Bank to be involved in the most critical development challenges facing the country. The Bank was assessed as being relevant, obtaining results and working in close relationship with other partners to align its program, aligning its work with stakeholders’ development priorities and for its work on poverty. The Bank was valued mostly for its work on poverty. The Bank was considered responsive and collaborative with other donors. 4. Areas of Focus. In terms of areas of focus, the stakeholders ranked poverty and corruption as the two most critical development priorities in Kenya. Stakeholders clearly recognized the linkages between corruption and poverty. In their view, corruption and jobs emerged at the top of the list of interventions that would contribute most to poverty reduction. The results of the Client Survey demonstrated that the Bank has a clear role to play through knowledge, research in supporting efforts to reduce corruption and poverty. 5. Value to the Client. The Bank is most valued for providing resources to finance development projects. The Bank’s knowledge is highly valued but more needs to be done to disseminate to a wide range of stakeholders. The Bank’s greatest weakness is a lack of understanding of the political economy context in which it has to operate and its bureaucratic way of conducting business that leads to many delays. The Bank’s inability to communicate its decisions on the program to the Client was also noted as an important area of weakness. 63 CPS Formulation and Consultation Process   6. The CPS process was launched in Nairobi through a retreat of the members of the Country Team who formed the CPS Core Team in April 2009. The discussions on the CPS went through various stages of brainstorming, debating, working group discussions, government and external consultations and internal reviews. A CPS leadership team and core team served as the focal point for the work, which at times, involved a larger selection of the Country Team. 7. Following is a summary of the key milestones throughout the 10 month CPS consultation and formulation process. In addition to the key activities mentioned below, several meetings were held in Nairobi in September, November 2009 and January 2010. External consultations were carried out on a bilateral basis with development partners and other stakeholders, as well as internal consultations on the results matrix through virtual meetings. These are not captured below. Main CPS Preparations Highlights April 1, 2009 – Country Team Core CPS Discussed: Team Retreat: Resource persons from - Aftermath of the 2007 election crisis academe provided outside perspectives on the political economy, corruption, impunity - Agenda 4 reform agenda and poverty - Corruption and the culture of impunity - Prospects in light of the heavy political agenda (referendum on constitutional reform in 2010 and elections in 2012) September 15, 2009 – 1st round of Multiple Reviewed the CPS Story Line and vetted stakeholder consultations in Nairobi and proposed objective themes; Eastern Province (Kitui) Discussed the story line and got feedback on the strategic themes as well as the risks and uncertain environment in which the CPS will be implemented November 23, 2009 – VP visits Kenya and Reviewed the CPS Story Line; meets with Sr. Government officials (PM Discussed corruption, weak governance and President, the Cabinet, Parliament, structures at the highest level; stakeholders from public and private sectors, youth groups and academia, think tanks as part of a high level consultation process January 20, 2010 – 2nd round of Held focused discussion on the post- consultations with Heads of Agencies, civil Upstream document and obtained the society, human rights organizations, private endorsement of Heads of Agencies on how sector, academia and think tanks the CPS was shaping up 64 Multistakeholder CPS Consultations - Kitui September 2009 - Nairobi September 2009, November 2009 and January 2010 - Garissa January 2010 - Kisumu January 2010 8. The multi-stakeholder consultations were the main instrument for early consultations about the key challenges and possible CPS themes. Building on the experience in the past CPS period and on its regular outreach and dialogue activities, the Bank Group organized multi- stakeholder consultation workshops across the country in September, November 2009 and January 2010. These workshops involved national and local governments, civil society, the business community/private sector, academia, labor groups, human rights organizations, think tanks, youth groups and other development partners.   9. Discussions were guided by focus questions intended at drawing participants’ views, observations and feedback regarding the previous CAS. Feedback was also sought with regard to their opinion of the tentatively proposed three strategic themes of the next CPS 2010 – 2013 below: i. Unleashing Kenya’s growth potential; ii. Reducing poverty, inequality and social exclusion; and iii. Managing resource constraints and environmental challenges. Background 10. Process. Three separate consultations were organized with Nairobi-based NGOs, academia, think tanks, civil society, private sector and other development partners. Consultations were held with local government representatives, local NGOs, local business community in Garissa (Northeastern Kenya) and Kisumu (Nyanza Province). 11. The consultations provided a venue for a meaningful exchange of views with government and various stakeholders on the critical development challenges as well as policy options and programs that would address these challenges. They also helped increase government’s and stakeholders’ understanding of the Bank’s work in Kenya. Questions were discussed with the full group of participants and referred to the political economy environment, the causes of worsening poverty, the adequacy of the proposed strategic themes for Kenya’s development challenges and the impact of a weak governance environment. A consultant organization facilitated the workshop, and key staff from the World Bank participated in the discussions. 12. Results. The issue of governance surfaced throughout all three consultations. In the discussion on poverty, two causes were identified: bad governance, and lack of livelihood and employment opportunities. In the discussion of the failure to deliver public services, impact of 65 the 2007 post election crisis, food insecurity due to the maize scandal, corruption, and weak citizen participation. A wide range of solutions were recommended, including electoral reforms, strengthening local governments, streamlining the bureaucracy, decentralization and better mechanisms to monitor community development funds (CDF), and increased investment in human capital. The priority areas recommended for the new CPS were along the same theme of governance: electoral reforms, transparency, and improving local governance. Also identified as priority areas were education, health, and social protection. The Bank, the participants said, should not engage in any form of political intervention. Summary of Stakeholders’ Views Perception of the Bank: 13. The perception of the Bank among the ordinary Kenyan worker is still that of a patronizing entity with a tendency for conditional lending. Results/Impact: Perspective from Stakeholders under key themes.  Stimulation of regular consultations between Government and private sector. There has been progress in formal consultations between the Government and the private sector. The quarterly Prime Minister’s Roundtable and the related ministerial stakeholders’ forums as well the Speaker’s forum and the envisaged forum with the Judiciary were singled out as critical avenues that have recently emerged as a result of the Bank’s emphasis on accountability in governance and resource utilization.  Success of Free Primary Education. The Bank’s support of free primary education (FPE), particularly provision of an effective mechanism for tracking expenditure and reducing avenues for corruption has had a strong positive impact. In addition to enhancing accountability, it had resulted in better technical capacity in financial management at school level by requiring schools to publicly display breakdowns of how FPE funds are utilized.  Support of energy has had positive multiplier effect. In the energy sector, the planned expansion of the OlKaria Geothermal project is a critical catalyst for boosting private sector production. Emphasis on geothermal power as opposed to hydropower is responsive to the country’s urgent need to expand its supply of clean energy while moving away from the current over-reliance of hydro-power, which has resulted in frequent power rationing, disrupting economic activity.  Infrastructure development has spurred growth. Ongoing support for infrastructure including the transformation of the Mombasa Port into a 24-hour Port and the rehabilitation of the Northern Transport Corridor are having a huge positive potential to boost not only Kenya’s but also regional economies particularly in the Great Lakes region.  Support for water sector has boosted efficiency. Technical support to the water sector has provided a framework for managing the entire water resource management and provision. It has also improved efficiency in management of water as a utility service.  Gains are evident in health sector. In health, support through the ongoing Total War Against Aids (TOWA) has provided resources to grassroots organizations. 66 Challenges and opportunities 14. Political uncertainty Post-election violence, uncertain politics, a deteriorating environment and the prevailing drought that has led to a huge threat of famine constitute challenges for the Bank’s work in Kenya.  Labor standards slacken as rural electrification escalates demand. In the labor sector the ongoing rural electrification is bringing about tangible benefits in the improvement of livelihoods around the country, the need to decentralize has resulted in engagement of a multiplicity of contractors some of whose hiring practices are not up to acceptable standards. As a result, there have been instances of exploitation of the Kenyan worker that the Bank needs to be conscious about within its projects.  Closer monitoring and evaluation could enhance impact of anti-poverty work. After more than 40 years of lending, poverty levels in Kenya have remained stubbornly high raising questions as to the effectiveness of the Bank’s monitoring and evaluation mechanisms.  Focus on materials could strain schools and teachers implementing Free Primary Education. The Bank’s emphasis on provision of learning materials and technical support for financial accountability has not kept pace with the need to focus on issues of staffing, therefore leading to situations of over burdened teachers in many public schools. This could compromise quality and undermine the aspirations of achieving FPE.  Private sector seeks better structured consultations around laws and policies Though the institutionalization of a consultative approach at the Prime Ministers’ Office, ministerial, legislative and judicial levels had achieved marked success, there is still room to create additional avenues for the involvement of the private sector towards influencing laws and policies that would favor the business community.  Governance/Civil Society. Consultation with actors in the Governance and Civil society Sector took place between September 2009 and January 2010. Represented institutions included universities, human rights organizations, the media, NGOs and faith-based organizations. The focus was on the impact of the World Bank’s work on governance from their respective perspectives.  Fragile coalition. At the outset, it was noted that the consultations were taking place against a backdrop of national fragility occasioned by the post-election violence. Additionally, the resulting coalition government appears indecisive in its fight against corruption, tackling the sensitive issue of regional imbalances, uncoordinated management of devolved funds and a slow pace of reforms, particularly regarding Agenda 4 of the national accord. Yet, the Government in its Medium Term Plan and in Vision 2030 is targeting to reduce social exclusion generally and poverty levels from 46 percent in 2006 to 28 percent in 2012. 15. Perception of the Bank: the Bank was perceived by this group of stakeholders as being over reliant on the “technocratic approach” as opposed to policy support and institutional strengthening. Yet, in Kenya, reforms tend to be anchored on incumbent individuals as opposed to being anchored in policy and institutions, leading to a situation where exit of individuals often leads to the abandoning of desirable initiatives that they were spearheading. 67 16. It was also observed that the Bank:  Is apparently struggling with its own governance issues in terms of representation of developing countries on its Board of Directors.  Appears to be supporting too many reforms in a country whose capacity to successfully complete required reforms may be overstretched.  Might not be taking a holistic approach in its support of certain sectors. In energy for example, it was observed that though support of generation and distribution is very timely, the cost of energy has gone up hence compromising gains achieved in poverty reduction projects supported by the Bank.  There appears to be lack of consensus about what social exclusion means. 17. Results/Impact:  The Bank can better harness its strong capacity for research and analysis. The Bank’s strong capacity in research and analysis which it has integrated into it projects has resulted in more efficient use of available resources.  The community driven approach is bearing fruit. Innovative and successful approaches in the Bank’s work have achieved the desired impact. Notable is the emphasis on community-driven development as demonstrated in the Western Kenya Community Driven Development and Flood Mitigation Project (Western Kenya CDD and FMP), the Arid Lands Resource Management Project (ALRMP) and work to support development of community foundations.  The Bank’s approach has stimulated some level of positive institutional reform The Bank’s emphasis on accountability has led to some progress in efficient delivery of resources and services. It has resulted in some level of desired institutional reforms. 18. Challenges and opportunities  The Bank is limited on extent to which it can influence the political realm. Fragility of the country itself constitutes a challenge to the Bank but the Bank is limited by its mandate not to engage in the political sphere and is encouraged not to interfere. Coordination of activities with bilaterals who face no such constraints is one way to keep some programs moving when the political environment poses a constraint to Bank activities.  The Bank can bring its global experience to bear in delivery of devolved funds. Despite the apparent poor coordination of devolved funds such as the Constituency Development Fund and the Kazi Kwa Vijana (Work for Youth) initiative, the Bank, because of its experiences in supporting the delivery of similar initiatives elsewhere can provide information and learning that can help inform the improved delivery of these initiatives. In effect, such initiatives would have higher chances of bringing about the desired impact towards combating youth unemployment and its associated repercussions such as rising insecurity (both urban and rural) and other social ills. 68  The Bank can utilize civil society networks more in order to extend its reach Stakeholders noted that civil society, including faith-based organizations such as the National Council of Churches of Kenya (NCCK), has vast infrastructure that can be used to reach out to and support the youth. The Bank can explore how it can better partner with civil society and churches to provide information and other forms of empowerment to young people.  Innovative ways of using the media to support youth programming are needed A notable challenge was the observation that the power of the media has not been used well enough to empower young people. Young people have unique ways of accessing and utilizing information. For example, support for televised sports can be one such avenue because experience has shown that media that transmit popular sports such as the English Premier League (including communally supported subscription to Satellite pay TV in rural and urban informal settlements) provide forums through which young people can be engaged.  Dearth of accurate data for more focused interventions to support youth. Another key challenge regarding youth programming has been the dearth of data to determine the scale of the problem of unemployed and unskilled young people. Rough figures show that more than 300,000 young people fail to proceed to secondary schools. In four years, this translates to more than 1.2 million young people who are virtually unemployable. At the same time, the needs of young people living in different parts of the country are not similar. Without this information, it is difficult to plan effective interventions. An opportunity for the Bank might be supporting development research, possibly through universities, as means of collecting accurate data regarding the status of youth unemployment and attrition as a basis for formulating effective interventions. Donors/Development Partners 19. Consultations with donors represented in Kenya were held in between September 2009 and January 2010 at the Bank’s Nairobi office. All of them expressed their appreciation of the Bank’s “new” consultative approach, which they urged the Bank to institutionalize. Among the donors represented were the European Union, the Canadian International Development Agency, the Netherlands Embassy, Embassy of Finland, USAID, DFID, AfDB, Embassy of Norway, Embassy of Italy, Embassy of Germany, and UNDP. Perception 20. The donors perceive the Bank as having a higher capacity for research and analysis than the rest of them. They also think it has a higher convening power and more clout than other donors. Results/Impact- as perceived 21. The Bank’s participation in health and education, particularly through injection of mechanisms for increasing accountability for funding has had a tremendous positive impact. 69 The Bank’s support of infrastructure development: The Port, Roads and in energy (Olkaria Geothermal Project and the planned second water dam) has made wideranging positive impact in boosting the country’s capacity for growth. The Bank is crowding out donors in some sectors (health, education) given the large portfolio. The Bank should focus its activities where other donors do not have a comparative advantage, e.g. infrastructure. Challenges and opportunities 22. Given the Bank’s superior capacity for research and analysis, the Bank has the opportunity to share information with other donors in order to help them leverage resources available to Kenya and ensure that the competitive advantage of each donor is harnessed. Case Study of Kitui District 23. The issue of preservation of Nzambani Water Project water catchment and expansion of the The Project is a partnership between ALRMP and Nzambani forest cover has proved to be Secondary School. It was completed in 2007 and is located particularly fraught with constraints in Kyanika Sub-Location, Nzambani Location, Chuluni Division in Mutitu Constituency. It entailed the for all actors. Given its well rehabilitation of borehole and the construction of a pipeline acknowledged convening power, to enable water to be pumped to an elevated reservoir. The there is an opportunity for the Bank water then flows to two water kiosks located within a radius to help facilitate a joint process to of 5 km from the school. The World Bank’s investment was conserve not only the Mau but other Ksh 2,835,031.50 (about US$40,000) and the local community has contributed an estimated Ksh. 759,000.00 water catchment areas around the (about US$10,120). country. Impact: The project serves 1,000 households (6,000 people) including two secondary schools with 440 pupils. During Implications of the Stakeholders drought, it serves 1,500 households totaling 9,000 people. Feedback for the World Bank The mean score for Nzambani Secondary School in national examinations has gone up and water borne diseases in the 24. Aligning the new CPS with a community have gone down. supportive external communication strategy. The Bank should make a Kyambezi Shallow Well more proactive effort to change the The project was completed in 2006 and is located in old perception of it as being too Kyanika Sub-Location, Chuluni Sub-location in Mutito strongly bent on giving conditional Constituency. Its objectives are two-fold: to improve availability and access to water for domestic and livestock lending to countries. This perception, use and; growing vegetables and raising forest seedlings. which dates back to the 1980s when The World Bank’s contribution was Ksh. 105,600 (about the Bank advocated structural US$1,400) while the community’s contribution was adjustment in developing countries to estimated at Ksh. 100,000 about US$1,300). make them more competitive, is not Impact: the project supports approximately 50 households relevant today and is an inaccurate (300 people) and has reduced the distance of drawing water description of the Bank’s current from 5 km to 1 km. The water is used domestically, for work in these countries. However, to growing vegetables and raising seedlings. change that perception, it is important The above projects provided a snapshot impression of the that the Bank adopt a impact of the World Bank-supported Arid Lands Resource Management Project (ALRMP) whose impact in Kitui was communications strategy that evidently very high. emphasizes outreach and sustained 70 external communication of the Bank’s approach of consultative engagement in defining a program for a particular country. As such, the new CPS for Kenya can benefit from a supportive communication strategy in order to enhance the public’s appreciation of the Bank’s work and the unique circumstances under which it engages with countries. Harnessing the Bank’s clout/convening power   25. All the stakeholders, including importantly other donors, are in agreement that the Bank has exceptional clout and convening power that the others on their own cannot master. This is a feature that presents a huge opportunity for the Bank as it prepares the next CPS. 26. More specifically, donors feel that the Bank needs to have a clear strategy for engaging with other donors which could be built into the next CPS in order to ensure that donors leverage each other and that their respective competitive advantages get harnessed. Research and analysis 27. The Bank’s documented record of accomplishment and emphasis in research and analysis (the three As) was roundly acknowledged by all the stakeholders as a critical tool for leveraging available resources so that all the actors: the Government, donors, private sector, civil society and even the media can take more informed decisions with regard to development decisions. Signaling 28. Related to the capacity for research and analysis is the ability to signal other actors on the best areas of development to which resources ought to be directed at any given time. The Bank can also help signal or raise “red flags” whenever it encounters evidence of financial malpractices and corruption. Opportunity for more holistic support of auxiliary institutions 29. The support offered by the World Bank to make the Port of Mombasa a 24-hour Port is getting undermined by the fact that other auxiliary support services such as security and banking services are not themselves in the 24-hour frame of operation. 30. This could be an opportunity for the Bank to explore ways of strengthening these services in order to enhance the pace of doing business at the Port. It would be a good opportunity for the Bank to familiarize itself with institutions that could be impediments to its efforts in this regard and explore how they can be appropriately supported. The Bank can explore work with civil society actors with regard to youth programming 31. Civil society, academicians and other actors in the governance sector expressed a strong view that the World Bank’s interest in supporting youth programming could be better advanced by the use of existing civil society networks, including those belonging to faith-based organizations such the NCCK. 71 32. These efforts would supplement work that is already being done with other actors such as the Ministry of Youth Affairs. Global experience and local presence 33. The Bank has a unique opportunity as a multilateral donor, to bring its vast global experiences to bear towards resolving local challenges. The need to build capacity of Parliament 34. Feedback from the private sector indicated that there is an opportunity for the World Bank to support Parliament, possibly through training of MPs on how to analyze bills that come before them in order to ensure quality debate before laws are enacted and that new laws are supportive of efficiency in the business environment. The Bank could exert positive influence on Parliament by providing TA to support these activities. Support of social research 35. The Bank can support research possibly through universities aimed at generating data regarding the extent of youth unemployment, attrition from the educational system and other impediments to youth participation in development. This data would then inform interventions aimed at supporting young people who constitute more than 60 percent of the Kenyan population. 36. In the same vein, research can be supported to explore how the media, including new media such as mobile phones, the internet and satellite TV could be better used to reach out to young people and women as distinct groups and to give them voice. Second Round - World Bank CPS Consultations – January 2010 37. Additional consultations were carried out with the following groups: Donors, media, Nyanza Economic Forum, Private Sector, Think Tanks and Academics, Youth Groups, Civil Society, Faith-Based Organizations and Women Leaders. Results 38. All the groups placed governance, accountability and transparency at the top of their lists. They also saw the connection between food insecurity and leakages in maize marketing. They observed that the Bank has a comparative advantage to help in reforming the sector to limit opportunities for corruption. Some of the groups (faith-based organizations) want the Bank to be more involved in shaping policies that will help Kenya meet the challenge of a growing population with one million youth expected to enter the labor force every year with few relevant skills. There is a need to place greater emphasis on practical training and better education to equip the youth to be competitive for the labor market. The KKV, a government-sponsored program set up to provide jobs to the youth needs to be redesigned and the Bank can help. Some noted that ethnic politics is at the heart of the lack of governance in Kenya and is partly 72 responsible for the unbridled population growth in the country. Ensuring greater accountability and governance requires better public financial management. A summary of the issues raised by each group is summarized below: Civil Society 39. Ensure strong links Ensure strong links between the MDGs (particularly those that are off track) and the Bank program; - Support institutions that are demanding accountability from political parties, including following up on their manifestos; - Support green energy; - Ensure greater governance and transparency; - Understand risks of ongoing reforms (constitutional reforms) and take step to mitigate these; - Help push for reforms of the National Cereals Marketing Board to ensure greater food security and reduce leakages in maize marketing; and - Improve the functioning of CDF funds (CDF, Kazi Kwa Vijana). 40. Womens’ Groups want to see direct involvement of beneficiaries in projects and asks that the Bank better focus its programs and study results prior to moving on to the next project, e.g. if engaged in slum upgrading, complete the project, evaluate the results prior to designing a follow-up operation; set standards for road building, i.e. use international procurement standards to control costs; focus on strengthening accountability mechanisms; review relevance of education – there are too many school leavers who are unemployed because they do not have the skills set in demand by the private sector; focus in delivering higher levels of investments to the arid and semi-arid lands that make up 85 percent of Kenya’s land mass. The Bank is not sufficiently active in those regions and does not sufficiently contribute to poverty reduction and reducing inequalities at the regional level. Faith-Based Organizations 41. The discussion centered around population growth and its impact on the future prospects of Kenya, young people and their need for jobs, an education system that yields a high dropout rates with drop outs not having access to more practical training that would prepare them for the labor market. This fuels high rates of criminality among the youth. Core infrastructure is perceived as key to job creation and growth and the Bank’s role is critical in mobilizing the financial resources needed to fund such a large investment program. The Bank needs to demand greater accountability from the Government for the financial resources it receives. Private Sector/Think Tanks 42. The Bank needs to find approaches that will yield better results in strengthening public financial management. Kenya needs to move ahead on business regulatory reforms and not slide backwards as it has been doing. In agriculture, it is important to shift emphasis from production to marketing given the critical importance of the value chain. Finding a way to encourage private sector investment in infrastructure is important but how to assign risks is an issue. 73 Agriculture and SMEs are key to poverty reduction. It is important that the Bank ensures that gains made in macroeconomic management in the 80s/90s are not reversed. On infrastructure, Kenyans may not be willing to pay for a toll road. The Bank needs to better understand the political dimensions of the projects it finances. 74 Annex 16: Kenya CAS Completion Report (FY04-09) Date of CAS: May 19, 2004 Date of CAS Progress Report: February 16, 2007 Time covered by CAS CR: FY04-09 Executive Summary 1. The CAS Completion Report covers the Country Assistance Strategy (CAS) period FY04-07 and the CAS Progress Report (CAS PR) period FY07-09, which was aligned with the Government of Kenya’s medium- and long-term development strategies. The program was built along four basic themes: (i) strengthening public sector management and accountability; (ii) reducing the cost of doing business; (iii) reducing vulnerability and strengthening communities; and (iv) investing in people. Within each theme, the CAS aligned Bank support to the three pillars of the Economic Recovery Strategy for Wealth and Employment Creation (ERSWEC), i.e. economic growth, poverty reduction, and governance and identified outcomes to which Bank assistance was designed to contribute. 2. Overall, CAS achievement is regarded as moderately unsatisfactory, with 45 percent of CAS outcomes achieved, 10 percent not achieved, and 45 percent partially achieved. The CAS program was ambitious to begin with, originally with 50 CAS outcomes and 68 progress indicators, aligned with an average of 14 active projects per year. Despite a large portfolio of spanning all major sectors with average commitments of about US$860 million, the Bank disbursed only about US$90 million – or 10 percent of the portfolio envelope – per year. Some of the highest disbursing sectors, e.g. agriculture, transport, and health, only showed mixed outcome achievements with the exception of education where most outcomes have been achieved. Other sectors, e.g. water, finance and private sector, and energy, show satisfactory outcomes despite relative low levels of disbursements. 3. Project approval was subject to periodic interruptions associated with negative events in the country, often governance issues not related to any Bank project, and the program was under- delivered in nearly every year. The largest fluctuations in planned lending resulted from three development policy operations, which all reached relatively advanced stages of design but were not delivered. Quality of the portfolio was relatively low with an average of about 3 problem projects per year. 4. The CAS CR has found three central lessons: (i) increased participation of both men and women (on the local and constituent level) leads to better results; (ii) implementation of programs must be comprehensive and multi-faceted in design and monitoring, and be resistant to external interruptions; and (iii) increased involvement of the private sector can help to drive development outcomes. Areas of improvement for the future include increased engagement with stakeholders, better alignment of indicators, outcomes, and projects with CAS objectives, and reinforced policy dialogue including greater flexibility to ensure a consistent lending program. Box 6 provides a broad assessment of Bank and Government performance during the CAS/CAS PR period. 75 Box 6: Bank and Government Performance during CAS Implementation What did the Bank do well?  Sector Dialogue: In many sectors, the Bank has been able to build trusting relationships and improve reporting mechanisms, which allowed it to lead comprehensive sector reforms. The Bank did not shy away from solutions such as strengthening reform efforts and project administration based on country systems. The Bank successfully managed to operationalize already advanced reform processes and managed to support implementation prepared and assisted by others. The Bank provided timely analysis and real time feedback on important government efforts.  Donor Coordination: The Bank has generally been able to enhance donor coordination by playing a lead role in key sectors. The Bank engaged in various pooling arrangements with donors and successfully leveraged donor financing on top of Bank resources. Project preparation and supervision were carried out in consultation with co-financiers.  Bank Assistance: The Bank demonstrated some flexibility in addressing implementation bottlenecks and carried out timely project restructurings when needed to enhance the impact of Bank assistance. The Bank generally ensured thorough project preparation and supervision, which was facilitated by effective decentralization of key technical staff. What did the Bank not do well?  Overall portfolio performance was low and the Bank’s projects did not disburse on time. Disbursement forecasts have generally been too optimistic and implementation often slower than expected. The Bank’s standard processes, including the need for prior review of procurement decisions, contract price adjustments and other contract changes are burdensome and cause significant delays. In some cases, Board approval was obtained before completion of design studies and bidding documents. What did the Government do well?  Reform Efforts: Government generally agreed on comprehensive reform efforts rather than piecemeal approaches. It successfully advanced policy and institutional reforms with a very positive track record in some sectors including in areas with modest external support.  Results Focus: Government in many sectors accomplished increased openness and results-orientation. It introduced fundamental elements of results-based management and demonstrated its commitment to the rapid results approach to improve outcomes in service delivery.  Partnerships: Government committed to donor arrangements to support its reform agenda.  Implementation: Government increased financial management and procurement capacities at key implementing agencies. It committed to coordination across ministries despite difficulties. What did the Government not do well?  While reform efforts have been impressive, there has been a lack of consistency between sector policies. There is still need to make sure there is no contradiction between the overall policy framework and individual sector policies. Policy leadership at the top levels of government need to improve. Government expectations with respect to development targets still need to be more realistic. While implementation capacity improved, some project units were initially not familiar enough with Bank procurement processes causing slow implementation and disbursement. However, project teams have become more experienced and coordination difficulties between implementation agencies and Treasury are beginning to fade.      76 Introduction 5. The Bank’s Board endorsed a Country Assistance Strategy (CAS) for Kenya in June 2004 for the period FY04-07. A CAS Progress Report (CAS PR) of February 2007 had the dual function of evaluating progress and also extending the CAS period until end FY08. A new CAS was planned for June 2008, but it was delayed as the implementation of the country program suffered delays due to the political crisis of late-2007/early-2008. However, project preparations and implementation during FY09 did continue roughly in line with the CAS/CAS PR. This CAS Completion Report (CAS CR) therefore covers FY04-09 which is referred to as the “review period” throughout the document. Overview 6. This CAS CR assesses results along the lines of the CAS/CAS PR framework. Individual CAS outcomes are assessed in the context of four themes and along three IP-ERS pillar. The complete framework is presented in Annex 17 and summarized in Figure 9. The next section will highlight government goals, CAS objectives, and IDA lending trends followed by and assessment of overall results and lessons. This is followed by a more detailed assessment of progress under each CAS outcome by theme and strategic long-term country outcome. The last section discusses portfolio performance and delivery of the CAS/CAS PR program. Government Goals 7. In 2002, the Kenyan Government launched a five-year development plan, the Economic Recovery Strategy for Wealth and Employment Creation (ERS), followed by a complementary Investment Program (IP-ERS) in March 2004. The IP-ERS centered on three interlinked pillars: (i) accelerating sustained economic growth underpinned by a stable macro-economic environment; (ii) enhancing equity and poverty reduction to improve the welfare of Kenyans; and (iii) improving governance to ensure efficiency and effectiveness of public service delivery and to create an enabling environment for sustainable business growth and development. The IP-ERS also contained a comprehensive results framework aligning priority programs with Kenya’s longer-term development targets, including the Millennium Development Goals (MDGs). In 2007, Government launched a long-term development plan, Vision 2030. Vision 2030 continues the ERS focus on economic, social and governance/political development. To implement Vision 2030, Government prepared the first of a series of five year rolling Medium Term Plans, covering 2008-12. 8. In addition to their medium-term and long-term development plans, the Government prepared the “Governance Strategy for Building a Prosperous Kenya” (GSPK) in 2006. The GSPK introduced a new approach to tackling governance in Kenya by accepting two fundamental lessons. First, refinements in legal drafting, anticorruption campaigns or new commissions and committees do not achieve positive results unless they are backed by a broader governance framework with broad participation by, and support from, the Kenyan public. Second, in this broader framework, emphasis on the cross-cutting theme of transparency could make significant progress in many dimensions of governance and anticorruption and may be more consistent with prevailing political realities. In January 2007, the Government announced a one-year Government Action Plan (GAP). GAP measures covered public sector management reforms, increased transparency and accountability, access to information, reducing the cost of doing business, and increased community participation. 77 Bank Strategic Objectives and CAS Outcomes (FY04-09) 9. The 2004 CAS was closely aligned with the IP-ERS including a detailed results framework with CAS outcomes that drew selectively from the IP-ERS. The CAS focused on four basic “themes”: (i) strengthening public sector management and accountability, parastatal reform, and monitoring and evaluation capacity; (ii) reducing the cost of doing business and improving the investment climate, including support for restructuring the financial sector, promoting private sector development, improving infrastructure, and reducing barriers to trade; (iii) reducing vulnerability and strengthening communities, including support for increased agricultural productivity and competitiveness, improved environmental management, strengthened local governments, and reducing poverty in the poorest rural areas and urban slums; and (iv) investing in people, including support for an improved understanding of poverty, the health sector, the education sector, and the national fight against HIV/AIDS. Within each theme, the CAS aligned Bank support to the three pillars of the IP-ERS, i.e. growth, poverty reduction and governance. 10. The Bank strategy was updated in the 2007 CAS PR and aligned with Vision 2030 and the governance objectives as outlined in the Governance Strategy for Building a Prosperous Kenya/Governance Action Plan (GSPK/GAP). The CAS objectives remained unchanged but attention to equity and governance was significantly enhanced. Reflecting greater attention to equity, the support program was aimed at targeting more directly the poorest people. Lending was given a more geographic focus with analytic work providing the basis for activities to target areas with reduced access to development resources. Regarding governance, emphasis was placed on supporting a subset of shorter-term priority actions in the GAP while maintaining a longer-term focus. Areas included government transparency, greater access to information, more stakeholder involvement, improvements in public financial management, strengthening the regulatory framework of parastatals, reducing the cost of doing business and improving governance in various government programs. The CAS PR continued the results framework of the CAS at the same time adjusting it to the new priorities and strengthening the use of indicators. For example, the CAS PR introduced a range of targeted results on governance to be in line with the GSPK/GAP. Some less relevant indicators were “retired”. IDA Lending Trends Figure 4: Approvals and Commitments FY1990-2009 1998 2000 2002 2003 CG 2004 2005 2006 2008 1991 CG meeting 1992 1993 IDA 1994 ●Due to poor IDA resumes ●Election - meeting Anglo Voters ●“Githongo Dossier” – ●Post election postponed new aid IDA cancels approves only 3 ●IDA returns to implementation of commitments. first stressing Leasing reject graft allegations of violence disrupts pledges due to poor second tranche core projects due a “base” lending structural reforms, IDA democratic donor Scandal Constit- ministers and civil planned CAS and macroeconomic and of second to poor program of closed SAC without transfer of coordination utional servants many projects. governance agriculture macroeconomic $630 million for releasing $87 million. power. Amend- ●DIR – corruption ●Regency performance adjustment management and FY95-97 ●Goldendberg trial ● Kenya ment indicators in two health Scandal operation due to closes projects no Goldenberg halted Urban and one transport project government longer consistent Scandal Transport ●Standard Newspaper reversal on maize with CAS ●Goldenberg Infrastructure Raid liberalization Scandal Project Kenya (KUTIP) Timeline Scandal 500 7 450 94 CAS 96 CAS 98 CAS 07 CASPR 6 400 CAS N/A 04 CAS 350 5 300 US $ M 4 250 200 3 150 2 100 1 50 0 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 # of Projects Lending Amt 202 287 339 115 64 65 314 232 18 40 0 350 16 111 265 120 25 395 150 463 # of new projects 5 4 5 3 1 2 4 4 0 1 0 4 1 2 4 3 1 6 1 4 78 11. As Figure 4 highlights, the Kenya program has a tradition of stop and go based on external factors, such as political development and governance issues, and their impact on the delivery of the lending program. During the review period, the 2002 elections and democratic transfer of power followed by a 2003 Consultative Group meeting led to relatively consistent delivery and higher levels of lending, albeit still lower than during some previous years. Delivery of the lending program reached a new low during 2006, when the Bank decided to put new lending on hold following various corruption charges during previous years including the 2004 Anglo Leasing affair and the 2005 “Githongo Dossier” revealing the involvement of government officials in the scandal. The Government of Kenya agreed to Bank’s regional and country managements’ suggestion to request a Detailed Implementation Review (DIR) carried out by the Bank’s independent Department of Institutional Integrity (INT) in early 2006, which Box 7: The 2006 Detailed Implementation Review In October 2005, the Africa Region management and the Kenya country unit agreed with the Kenya Ministry of Finance to ask INT to carry out a Detailed Implementation Review of key Bank-financed projects. The DIR was discussed with ministries in late-2005 and eventually launched in January 2006. The review came on the heels of a governance review of three Bank projects issued by Deloitte and Touche in July 2005 and was considered one exercise in a broader effort to launch a more intensive and rolling governance review of the Bank’s portfolio. The review focused on four operations: (i) Free Primary Education Support Project (FPESP) including an assessment of the fraud and corruption safeguards in its successor project, the Kenya Education Sector Support Program (KESSP); (ii) Kenya HIV/AIDS Disaster Response Project (KHADREP); (iii) Kenya Decentralized Reproductive Health and HIV/AIDS Project (DARE); and (iv) Northern Corridor Transport Improvement Project (NCTIP). A first draft of the DIR was issued by INT in July 2006 with a finalized report issued in August 2006. A redacted version of the report was shared with the Government of Kenya in September 2006. The DIR findings under each project were as follows:  FPESP: A satisfactory level of accountability from the local communities to the national ministry contributed to the proper use of funds under FPESP. Key elements were the transparent provision of comprehensive information, the use of efficient systems for flow of funds and strong local accountability mechanisms.  KESSP: Governance was found to be generally acceptable with strong risk mitigating measures, which allowed IDA support to progress without further delay. However, fiduciary safeguards in KESSP could be strengthened.  KHADREP: Irregularity indicators exhibited in the contracts related to internal procurement conducted by the National AIDS Control Council (NACC) included fraud, corruption and collusion.  DARE: Credible information and evidence of widespread corruption was found throughout the project that implicated the Ministry of Health.  NCTIP: Multiple indicators of collusion identified under the project suggest that collusion may have taken place, but no evidence of collusion was found. The Bank team prepared a management action plan in response to the DIR, highlighting several immediate and intermediate actions to address the issues raised. In addition, the CAS PR’s focus on governance aimed to support Government’s efforts to establish better risk management controls system-wide and at project level. Key achieved governance actions include: (i) putting in place of effective risk mitigation measures under the new HIVD/AIDS project (TOWA) including a complete restructuring and governance reform of the NACC; (ii) anticorruption strengthening at the ministry of health including significant improvements in procurement and financial management; (iii) governance improvements in the road sector, including setting up of three autonomous road agency to streamline ownership, management, accountability, and financing of all road networks; (iv) in-depth review of procurement and financial management arrangement in planned and ongoing operations; (v) external expert panel of sector specialists to provide independent review on the quality of the Bank's governance and anti-corruption measures in recently prepared projects; and (vi) engaging INT in project design. 79 found irregularities in some projects (see Box 7). The eruption of violence after the December 2007 elections resulted in another significant stop in the lending program with new lending on hold until March 2009. Within the last months of FY2009, the Bank successfully managed to defy this trend with record new lending of US$463 million, the highest level of new commitments in 20 years. Figure 5: Yearly Commitments versus Disbursements 1990-2009   Comm Amt (IDA) Disb in FY Comm. Amt. Avg. by CAS Period Undisb Bal at FY 1,600.0 1,400.0 1,200.0 CAS 04- CAS 96-98 09 Avg 1,000.0 Avg Comm Comm CAS 99- US$ M 800.0 01 Avg Comm 600.0 400.0 200.0 0.0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Comm Amt (IDA) 838.9 1,031.0 1,003.6 1,011.0 1,043.0 686.9 844.8 1,056.7 661.5 542.8 494.1 804.3 708.8 762.7 629.7 619.7 594.7 914.7 999.7 1,422.7 Disb in FY 189.3 235.1 106.9 157.1 160.4 45.9 160.3 77.7 45.0 59.1 76.0 191.2 70.6 55.3 76.7 55.7 47.0 65.0 150.0 140.0 # Proj 21 21 24 25 22 19 19 22 14 12 10 14 13 12 11 12 12 15 14 15 % Disbursed 23% 23% 11% 16% 15% 7% 19% 7% 7% 11% 15% 24% 10% 7% 12% 9% 8% 7% 15% 10% Comm. Amt. Avg. by CAS Period 854.3 613.8 863.5 Undisb Bal at FY 406.9 407.9 434.1 692.4 586.2 399.9 434.2 539.3 510.0 400.6 370.9 275.2 405.6 349.4 248.9 397.8 464.3 440.7 793.0 745.5   12. While there has been great fluctuation in new commitments, there has also been a trend of decreasing disbursements. As shown in Figure 5, the share of disbursements over commitments declined steadily from 23 percent in the early 1990s to only 7 percent by the end of the decade. In 2001, the year before the first multi-party elections, disbursements reached a record high of 24 percent disbursements over commitments, only to decline to new record lows after the new government was in place. Disbursement shares were in the single digits for three out of six years during the review period. 80 Figure 6: Highest Disbursing Sectors 1990-2009   120 100 80 60 U S $M 40 20 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 13. In addition to an overall decrease in disbursement levels, the past decades saw a relative shift in the sectors with the highest levels of disbursements. While the beginning of the 1990s was dominated by the finance/private sector, economic policy, education and agriculture were the more dominant sectors during the rest of the decade. Since 2004, there has been a shift to infrastructure (transport and energy) and agriculture together with relative high levels of disbursements in human development (health and education). Figure 7: Highest Disbursing Sectors per Fiscal Year Top 3 Highest Disbursing Sectors Per FY Through CAS Period 70.0 60.0 50.0 US $ M 40.0 30.0 20.0 10.0 0.0 Education Education Education Education Water Transport Transport Transport Transport Health Health Health Agriculture Agriculture Agriculture Agriculture Agriculture Agriculture 2004 2005 2006 2007 2008 2009 81 14. As shown in Figure 7, health and education were the highest disbursing sectors during the beginning of the CAS period (FY04-07), with transport and agriculture leading disbursements during the end of the CAS period and throughout the period of the CAS PR (FY07-09). Agriculture has been the dominant sector in terms of level of disbursements throughout the entire review period. The sector ranked among the top three disbursing sectors during each of the past six years. Education and transport came in second both featuring among the top three disbursing sectors for four out of six years. Overall Results and Lessons Learned 15. Overall achievement of CAS outcomes is regarded as moderately unsatisfactory. The CAS identified 50 outcomes11, of which only 45 percent were achieved, 10 percent were not achieved, and 45 percent were partially achieved. The CAS contribution to IP-ERS pillars and themes is shown in Figure 9. The only CAS theme that achieved more than 50 percent of CAS outcomes is Theme 2 (Reducing the Cost of Doing Business), and as such, is the only theme that may be rated as satisfactory. All other themes should be rated unsatisfactory since less than half of their outcomes were achieved. Theme 4 (Investing in People) has the second highest percentage of outcomes achieved and a relatively high percentage of partially achieved outcomes, due to strong results in the education sector and mixed results in the health sector; Theme 1 (Strengthening Public Sector Management and Accountability) shows the highest percentage of partially achieved CAS outcomes due to moderate results in public sector governance, but also has the lowest percentage of achieved outcomes; and Theme 3 (Reducing Vulnerabilities and Strengthening Communities) shows the highest percentage of outcomes not achieved due to mixed performance in the agriculture sector. 16. Regarding IP-ERS Pillars, Pillar 3 (Governance), has the highest percentage of outcomes achieved at 50 percent, and only six percent of the outcomes were not achieved. Pillar 2 (Poverty Reduction) has the second highest percentage of outcomes achieved, but also has the highest percentage of outcomes not achieved at 18 percent. Pillar 1 (Economic Growth) has only 40 percent of outcomes were achieved, but has the highest percentage of partially achieved outcomes.                                                              11 To facilitate this analysis some outcomes were merged to reach a total of 42 CAS outcomes. 82 Figure 8: Disbursement Shares by Sector and Outcomes (FY04-09) Water 5% Outcomes: A: 67% Transport 21% PA: 33% Outcomes: Education 21% NA: 0% A: 25% Outcomes: PA: 75% A: 67% NA: 0% PA: 33% Public Sector NA: 0% Governance 2% Outcomes: A: 29% PA: 57% NA: 14% Finance and Private Health 12% Sector 3% Outcomes: Outcomes: A: 25% A: 43% PA: 50% PA:57% NA: 25% NA: 0% Energy 5% Outcomes: A: 80% PA:20% Economic Policy Agriculture NA: 0% (Statistics) 1% 30% Outcomes: Outcomes: A: 50% A: 43% PA:50% PA: 29% NA: 0% NA: 29% Results Key:  A = Achieved  PA = Partially Achieved  NA = Not Achieved 17. As Figure 8 demonstrates, there is no necessary correlation between high levels of disbursements and outcome achievements on the sector level. Agriculture has the highest level of disbursements over the review period with 30 percent of the total share. However, the sector only achieved under half of its outcomes, with another third remaining not achieved (the highest of all sectors). Transport and education are the next two highest disbursing sectors, both equally disbursing 21 percent. While the transport sector had mixed performance and only achieved one quarter of its outcomes (one of the lowest of all sectors) with the remainder of outcomes partially achieved (the highest of all sectors), the education sector showed strong performance and managed to achieve over two thirds of its outcomes without any outcomes not achieved. Health, the fourth highest disbursing sector, showed poor results with 25 percent achieved outcomes (one of the lowest of all sectors) and 25 percent outcomes not achieved (second highest of all the sectors). The best performing sector is energy with only 5 percent of overall disbursements, but 80 percent of outcomes achieved and zero outcomes not achieved. Water also managed to combine relatively low levels of disbursements of about 5 percent with a strong performance achieving two thirds of sector outcomes with zero outcomes not achieved (same as in education). The lowest overall disbursements are in finance/private sector, public sector and economic policy – all sectors with a focus on policy dialogue and quality analytics rather than major capital investments. These sectors all performed on similar levels with about 50 percent of outcomes partially achieved. 83 Box 8: Output based aid under the Microfinance for Water Services Project The FY07 CAS Progress Report profiled innovative programs aimed at improving access to financing to be evaluated during the CAS period for impact, lessons learned, and scope and modalities for scaling up. Through collaboration from Global Partnership on Output-Based Aid (GPOBA) and other partners, Kenya piloted an output-based microfinance program for community-managed water projects with the purpose of increasing sustainability and funding predictability. The project aims at developing an alternative financing mechanism for water supply and rural infrastructure to contribute towards the realization of the Millennium Development Goals and the global agenda for poverty alleviation. In the project, subsidies were given to approximately 21 Ceramic Water Purifier (CWPs) in rural and peri-urban areas to increase access and efficiency of water supply services. Each CWP sub-project is pre-financed through a combination of its own resources (20 percent) and a loan from the K-Rep Bank, a local micro-finance bank. Upon successful completion of the project and certification of the delivery of outputs by an independent auditor, a partial subsidy of 40 percent of total project cost is made to the CWP to repay a part of the loan from the K-Rep Bank. K-Rep Bank has hired staff to closely monitor the implementation of sub-projects. It has also negotiated discounts of 35 percent to 60 percent for bulk supply of materials for subsidized sub-projects, helping to mitigate the construction cost increase. The total cost of the project is US$2.15 million and is expected to reach about 60,000 people. Disbursements have been made to 12 out of 21 water supply projects, reaching 34,000 beneficiaries. The project is currently being scaled up to target a total of 55 projects (representing a total investment of US$5.6 million) with funds from the EU Water Facility. The Water and Sanitation Program (WSP) also provides capacity building support and overall supervision of the project and the Public Private Infrastructure Advisory Facility (PPIAF) has provided project development grants to communities wishing to apply for loans from K-Rep bank. OBA minimizes fiduciary risks by: (i) transferring the performance and operational risk to the service provider, and (ii) paying the pre-agreed subsidy after the outputs have been independently verified, providing assurance and evidence that funds have been used for the intended purpose, and an incentive to the utility to perform efficiently and transparently. The project demonstrates that microfinance has an innovative and beneficial role to play in financing small water infrastructure in the country by recognizing that: Increasing the sustainability of small community-managed water supply projects through improved system efficiency, effective management, and improved accountability and good governance. It aims to develop a business product to be used to leverage entry into other rural infrastructure sectors (e.g. electricity, private schools). Expanding project outreach to provide further customer growth through financial products linked to the project (e.g. agricultural inputs, housing improvements, etc.). 84 Figure 9: Summary of CAS CR Results Framework Overall Growth with Equity and Poverty Reduction Objective Strengthening Public Reducing the Cost of Doing Reducing Vulnerability and Investing in People Sector Management and Business and Improving Accountability Strengthening Communities Result: Unsatisfactory Investment Climate Themes Result: Unsatisfactory Result: Unsatisfactory Result: Satisfactory CAS OUTCOMES Overall Pillar Results: RESULTS RESULTS RESULTS RESULTS •Deepening financial intermediation • Systems for agricultural • Improve access to • Significantly reduce net A PA PA A technology development and Pillar 1 – domestic borrowing • Telecom costs reduced PA health services A= 40% PA transfer are improved A Economic • Improved environment for private sector • Improve educational • Reduce fiscal burden of A NA PA =53% Growth investment • Tourism related to wildlife transfer to parastatals attainment •Enhance Kenya’s role as regional trade hub increases NA = 7% PA • Annual PRSP progress PA and strengthen links to international markets • Improve service delivery to reports produced that are of •Reduce costs and improve reliability of A PA targeted rural and urban poor increasingly good quality energy services areas • Reduce costs and improve reliability of A water services in Nairobi • Strengthen regional links PA • Agricultural market reforms • Increase access to NA • Expanded access to financial services A are implemented to increase basic health care NA • Generate employment in formal sector proportion of end market value A A= 45% PA • Prevalence of Pillar 2 – • Ensure increased access to modern received by smallholders HIV/AIDS falls • Improve poverty and growth PA PA= 36% Poverty energy services A effectiveness of public • Increased development • Increase access to Reduction • Enhance water security in water scarce PA NA= 18% spending A prospects in one of the poorest PA education for the poor communities regions and reduce regional •Strengthen emergency A disparities in education responses • Enhanced economic governance and reduce state control in banking sector and PA • Enhance health thereby contingent liabilities PA • Establish the framework and procurement systems Pillar 3 – PA •Strengthen institutional and regulatory A PA A= 50% • Improve transparency in framework to improve maintenance of regulations for improved water • Strengthen reporting Governance budget reporting infrastructure resource management mechanisms A PA= 44% •Greater access to information PA • Improve (roads) sector management PA • Strengthen capacity of NA= 6% through private sector participation targeted local governments •Greater stakeholder PA A • Improve institutional and regulatory A (predictable flow of resources, Results Key: involvement framework for effective (energy) service and downward and upward • Improvement in PFM NA provisions accountability) A = Achieved • Establish fiduciary accountability in PA = Partially • Strengthen regulatory A generation and distribution of electricity A Achieved framework • Establish conducive institutional and regulatory environment to ensure financial A NA = Not Achieved • Access to public information A and quality of data increased viability of future investments in sustainable water service delivery Overall A= 30% A= 59% A= 38% A= 43% Theme PA = 60% PA= 41% PA= 38% PA= 43% Results: NA= 10% NA= 0% NA= 25% NA= 14% 85 18. Based on a detailed review on CAS outcomes, the following lessons emerge:  Community participation not only helps to achieve results, it also provides strong governance support and reduces the negative impact of national crisis on beneficiary communities. In addition, taking proactive measures to address the priorities of both women and men have further enhanced the relevance of the Bank’s programs. For example, during the implementation of the Arid Lands Project, elite captures at the community level became clear. Improved participatory methodologies were adopted to address this issue. Moreover, the project's community orientation contributed to resolving inter-ethnic conflicts, increasing voice and advocacy for the beneficiaries, and deepening national political awareness of the extreme problems faced in the arid and semi arid regions of Kenya. Another experience is evident in the water sector. In 2006, a range of locally based stakeholders launched a Citizen Report Card (CRC) initiative in Nairobi, Mombasa and Kisumu to assess citizens’ experiences with water supply, sanitation and solid waste services. The CRC drew attention to problems, facilitated corrective action, promoted exchange of ideas and approaches, and helped identify good practices. Finally, transfer of funds to schools supported improved efficiency and ownership. Funds received by schools have been correctly recorded and properly used. A large majority of the schools have put in place systems that ensure transparency and value for money.  Strong constituencies helped secure good results in sensitive areas. For example, important progress has been made in reducing private sector costs in the area of international trade: the transit time from Mombasa to Kigali has gone from 19 days to nine. This is strongly supported by the business community. In 2005 Kenya legalized the Voice over Internet Protocol (VoIP) which resulted in a drop of international phone traffic and some reduction in international call prices. This eliminated telecommunications services as major constraints faced by the private sector according to surveys.  Concerted actions by the international community do assist to find positive responses. Therefore, joint actions could help advance the development agenda. For example, the substantial improvement in the institutional performance of the National AIDS Control Council (NACC) has been confirmed by evidence. This positive institutional impact was partly due to the active Bank engagement and support working together with other donors.  Further dialogue to involve the private sector in large investment capital for infrastructure should emphasize steps to improving the legal framework for privatization and ensuring that the overall political, macro and business environment are not perceived by the private sector as unduly high risk. This is crucial to advance private participation in the energy sector, in ports operations, including container operations at Mombasa and in the telecommunications sector.  Periodic interruptions in lending associated with negative events in the country, not necessarily related to the project, delay implementation and prevent from achieving CAS outcomes on time. This is the case even if projects are subsequently implemented with some measure of success. There is a need to minimize such interruptions by reinforcing the policy dialogue and by avoiding, to the extent possible, that specific events impact the whole lending program. These interruptions explain, to a large extent, why so many outcomes have been (only) partially achieved. The proposed Judicial Performance Improvement Project was originally planned for FY07. It is now scheduled for FY09, a delay that negatively affected the achievement of a CAS objective. Also, activities under the Northern Corridor project were delayed and the Additional Financing covering cost increases had been planned for FY08 but was not approved until the third quarter of FY09. 86  Monitoring and reporting on results indicators improved during the CAS period. However, there is still the need to better align projects and CAS indicators and to monitor all CAS outcomes. For example, there were no sufficient indicators to measure the effectiveness of public spending. Similarly, in the Decentralized Reproductive Health and HIV/AIDS Project no systematic monitoring of project indicators had taken place making it difficult to assess progress. Box 9: Highlights of CAS Outcomes by Theme CAS Theme 1: Strengthening Public Sector Management and Accountability [Unsatisfactory]  The fiscal framework has been improved; domestic borrowing and the fiscal deficit were reduced. There is some evidence for improvements in the poverty effectiveness of public spending.  There is more access to information and some progress in disclosing court proceedings and reducing backlog despite delay in Bank support. Notably, there was an improvement in access to legal information on prior cases within 24 hours which potentially increases speed and transparency of court proceedings.  The regulatory frameworks for parastatals improved. There has been some progress on privatization, but parastatals remain a fiscal burden. CAS Theme 2: Reducing the Cost of Doing Business and Improving the Investment Climate [Satisfactory]  Financial intermediation deepened; credit provided to the private sector increased. Access to financial services reached increased segments of the population. Regulatory and institutional framework for the financial sector also improved, including setting up of key regulations for microfinance, credit cooperatives, which benefit in particular lower segments of the population.  Regulatory and institutional frameworks for roads, energy and water have been strengthened. Access to modern energy services increased, electricity became more reliable and is being used by more customers. Water services in Nairobi are more reliable and less costly and water security in water-scarce communities was enhanced. Travel time along the Northern Corridor road reduced.  Competition in the telecommunications markets was expanded and costs reduced making telecommunications no longer a major obstacle for doing business. There has been a reduction in the cost and time to start a business, to obtain construction permits and to complete exports. As a result of government-wide licensing reforms supported by FIAS, the investment climate advisory service of the World Bank Group, the burden imposed by licenses on businesses has been reduced.  There is evidence for some increase and sustainment of formal employment.  There is evidence that women face more severe barriers to starting and running businesses than do their male counterparts. CAS Theme 3: Reducing Vulnerability and Strengthening Communities [Unsatisfactory]  There has been slow progress on environmental management.  An effective drought early warning and response system was put in place and capacity of communities in drought affected districts was strengthened.  An institutional framework and pilot activities for agriculture reach and extension was set 87 up. Agriculture market reforms were supported, but there is no clear impact on smallholder incomes. CAS Theme 4: Investing in People [Unsatisfactory]  Health indicators improved with decreases in child- and infant-mortality, although not necessarily all through Bank support. However, there is evidence of high maternal mortality which was badly affected by the post-election violence and institutional problems in the health sector.  There has been progress in education achievements: increase in primary completion (especially for girls), transition rates and some progress in the quality of education. Unlike other sectors, outcomes in the education sector typically involve long gestation periods and extended timetables for results.  The fight against AIDS is benefitting from better governance in implementing institutions and overall prevalence fell during the review period. Detailed Results Theme I: Strengthening Public Sector Management and Accountability Public Sector Management CAS Outcome: Significantly reduce net domestic borrowing [Achieved] 19. The country’s net stock of domestic debt was reduced from 21.4 percent of GDP in 2003/04 to 18.4 percent in 2006-07 meeting the Government’s fiscal and policy targets for net domestic borrowing. Despite the global crisis, the net domestic borrowing would be limited to 1.6 percent of GDP in 2007-08. Therefore, the stock of domestic borrowing is unlikely to grow as a percentage of GDP. Other indicators that the CAS aligned with this outcome were also achieved. These include integration of the Medium Term Expenditure Framework (MTEF) process with the annual budget process, which, in turn, has resulted in improved alignment of the MTEF with the IP-ERS as well as an increase in the share of the budget allocated for capital expenditures. Development expenditures increased from 3 percent of GDP in 2003-04 to 4.4 percent in 2006-07. All these appear to have impacted positively the country’s longer-term goals to which these outcomes were aligned, especially with respect to the goal of reduction in the country’s fiscal deficit. In fact, the overall fiscal deficit has been reduced from 3.7 percent of GDP in 2002-03 to 1.7 percent in 2006-07. However, the budget deficit did increase as a result of the sharp increase in expenditures in 2007-08 to an estimated 4.8 percent of GDP for 2007-08, still lower than originally thought for the year. The global crisis is likely to have impacted these results. 20. The Bank contributed significantly to improvements in Kenya’s fiscal framework through technical assistance and innovative analytical support. The Institutional Reform Capacity Building TA (FY06), among other things, focuses on strengthening public financial management systems, strengthening oversight institutions and improving responsiveness to public expenditure policy priorities. Core analyses became increasingly sophisticated and tailored to the country environment. A Public Expenditure Review (FY04), focusing on strengthening the medium- 88 term perspective in budget-making, was followed by Bank participation in the Public Expenditure Financial Accountability Assessment (PEFA-FY06), which reviewed financial management systems, processes and institutions. The Country Integrated Fiduciary Assessment (FY06) provided a joint assessment of budgeting, public financial management and procurement to improve expenditure management. There has also been strong support from the Financial and Legal Sector TA (FY05) to strengthen the public debt management office at the Ministry of Finance (now officially a unit), with major results thus far and others ongoing. This office has benefitted as well from support from the World Bank Treasury in the context of the supervision of this operation. CAS Outcome: Improve poverty and growth effectiveness of public spending [Partially Achieved] 21. Since the introduction of the ERS in 2002, a major economic policy objective included refocusing public spending from non-productive to productive purposes oriented toward growth and poverty-reduction. Priority sectors include agriculture, infrastructure, health and education. Spending in infrastructure as percentage of GDP increased significantly during the review period followed by a minor increase in agriculture spending. Health and education spending on the other hand decreased slightly. Combined spending on ERS priority sectors increased at the same rate as total public expenditure in 2002-03 and 2006-07, remaining at about 58 percent. More recent estimates are not yet available. 22. The CAS indicator to measure progress under this outcome was for budget allocation to “poverty targeted programs” not to fall below 4 percent of GDP. The CAS did not specify the exact measure for this indicator but the concept of ‘core poverty programs’ (CPPs) introduced in 2002 aims at protecting poverty-friendly spending. Revised CPP criteria from 2003-04 seek to cover pro-poor programs that increase incomes of the poor, improve their quality of life, security, and promote equality. CPPs share of overall budget increased from 10 percent to 14 percent during 2003-07. The CAS did not include other specific monitoring indicators but the less than desired transparency in the procurement process is bound to have affected the effectiveness of public spending at central level (see below). However, a more positive picture emerges in partial assessments. For example, reporting mechanism strengthened the quality of expenditures in education. Transfer of funds to schools did improve efficiency and ownership. According to an audit report, in most cases, funds received by schools have been correctly recorded and used for intended purposes. A large majority of the schools have put in place systems that ensure transparency and value for money. 23. The Bank’s analytical work contributed positively to poverty-friendly and growth effectiveness of public spending. The Country Economic Memorandum (CEM; FY08) discussed the allocation of fiscal resources to infrastructure and social spending in health and education. The Poverty mapping exercise (FY06) combined census information with household survey data to estimate poverty and inequality with detailed geographic precision. The Kenya Poverty and Inequality Assessment (FY08) was originally planned for FY06 in anticipation of the 2005-06 Kenya Integrated Household Budget Survey (KIHBS) and Participatory Poverty Assessment (PPA). Over the period 2005 through 2008, the Bank together with DFID, USAID and GTZ provided technical support to the data collection, compilation and analysis of KIHBS and PPA by the Kenya National Bureau of Statistics. The official KIHBS and PPA final reports were 89 published in 2007, including the release of KIHBS micro-data for use by research and academic institutions. CAS Outcome: Improve transparency in budget reporting [Partially Achieved] 24. Transparency in budget reporting remains a challenge but has improved over the period, which was confirmed in the recent PEFA (October 2008). The assessment found a trend towards better political involvement and openness of the budget. Key reforms to provide an enabling environment were laid during the review period, including: (i) the 2003 Public Officers Acts, which introduced a code of conduct and compulsory filing of annual declarations of assets and income for public officers; (ii) the 2003 Anti-Corruption and Economic Crimes Act, which established the Kenya Anti-Corruption Commission (KACC); (iii) the 2005 Privatization Act, which helps to increase accountability and transparency in the privatization of parastatals; (iv) the 2006 Statistics Act, which established and independent statistics bureau. In addition, various administrative reforms have been implemented including outlawing harambees (political fund raising events), establishing the ministerial code of conduct, introducing performance contracts, reforming tax administration and simplifying business licensing regimes. 25. The key CAS indicator under this outcome was an improvement in ratings under the Public Expenditure Management Assessment and Action Plan, which increased from meeting 3 to 6 out of 15 indicators in 2003-06. In addition, the CAS aimed for an introduction of the Integrated Financial Management System (IFMIS) in at least two ministries and IFMIS has since been introduced in all but two ministries. According to the 2008 PEFA, “the roll-out of the system is a tremendous improvement in terms of data integration and access as compared to the previous situation”. However, the payroll system (IPPD) is currently not integrated in IFMIS.12 Nevertheless, the IPPD provides most other data expected from a personnel database. The payroll and personnel databases are regarded to be fully integrated in IPPD. A risk-based internal audit approach, including establishment of ministerial audit committees, has been adopted by all ministries. Internal and external payroll audits have been undertaken for several ministries and entities, e.g. the Ministry of Health. The internal auditors have performed payroll audits on the IPPD system. Errors and anomalies in the records relating to earlier omissions are now easier to identify. Relevant information generated by the IPPD is used by the IFMIS and could not otherwise been captured. 26. Nevertheless, the civil service payroll contains some allowances including a weak link between job performance and remuneration, which reduce transparency and effectiveness in budget reporting. The lack of transparency will require more training and a thorough management review, areas which call for strong political commitment. While all these factors are observed, it must be acknowledged that some steps are being taken to improve the civil service. Over the past four years, Kenya has introduced some of the key elements of a results- based management (RBM) system, such as Service Charters and Performance Contracts (PCs). Kenya received a UN reward primarily for the implementation of PCs in the civil service (2007) and a recent evaluation report, commissioned by the public sector reform donor group concluded                                                              12 The IPPD is not integrated with IFMIS since it has a different and centralized database structure. The systems are also built on different technical platforms: IPPD is a tailor-made system while IFMIS is an adjusted standard package solution on an Oracle database structure. Payroll data is entered manually into IFMIS following printouts from IPPD. 90 that progress had been made in moving towards a RBM system in the public service. These reforms have initially largely focused on institutions, rather than civil servants, but the reforms are clearly a prerequisite for a performance based remuneration system. 27. Progress in key aspects of procurement transparency remains slow but important institutional reforms, e.g. the new procurement legislation and the Public Procurement Oversight Authority (PPOA) established in 2007 are in place. Over the past year PPOA has produced a number of reports and reviews shedding light on procurement practices and that are posted on the PPOA website. The new legislation and publications have enabled non-state actors to inform themselves about public procurement, including a recent report from the National Taxpayers Association on the use of CDF funds. Moreover, the PPOA working in cooperation with stakeholders in the private sector at an advanced stage on the introduction of e-procurement. The Banks has provided ICT support to this process. However, there remains limited progress in: (i) increasing the share of pre-qualified companies doing business with Government; (ii) publishing of information on government procurement contracts; and (iii) blacklisting of companies found to be involved in corrupt practices. CAS Outcome: Greater Access to Information [Partially Achieved] 28. Some limited progress towards this outcome has been achieved. There is greater access to information and an independent statistical system has been established. Partial progress had been achieved in connection with the disclosure of court proceedings. 29. The Transparency and Communications Infrastructure Project (FY07), a Kenya component of a wider regional communications infrastructure program, contributed to an increase in internet user penetration to 1.7 million with tele-density reaching about 12 million (or 35 percent of the population). However, no progress been made on electronic recording of events originating with e-government applications. The modest target for 2012 is to process 100,000 applications. While the project contributes to building communications infrastructure with an impact on overall access to information, it does not necessarily affect freedom of information. In fact, the Statistics Act of 2006, while promoting some degree of transparency, includes a controversial provision for censoring private opinion polls. Public access to declarations of assets by public officials remains an unmet objective. The Financial and Legal Sector TA Project (FY05) and the Financial Sector Deepening Trust (FSDT, established under the MSME Competitiveness project) have supported periodic surveys of financial services (Finscope/FinAccess), first carried out in 2006 and recently updated in 2009. The Central Bank has institutionalized these surveys as of 2008, which are now going to be part of its regular reporting services. In addition to the latter, the Central Bank with initial FSDT support has been reporting quarterly reports on bank charges and lending rates for each of the banks in the system improving transparency, which arguably, would also helped lower interest rates through increased transparency and competition amongst banks. 30. Progress has taken place in disclosing proceedings in the High Court and Court of Appeals. Disclosing these proceedings is important for setting jurisprudence in Kenya. The proceedings are published on hard copy and on-line by the National Council of Law Reporting, an independent agency affiliated with the Judiciary of Kenya. There has been no progress on disclosing proceedings at the magistrate level although some work in that regard is being done. While disclosing the High Court of Court of Appeals court proceedings is important for the legal 91 profession, disclosing magistrates’ proceedings is even more important for the “clients” of judicial services (the public at large) since the majority of the cases are filed and resolved at the magistrates court level. The majority of the citizens who do not go to appeal need to be informed on judicial processing and adjudications. A Norwegian grant administered by the World Bank was supposed to automate the recording of court proceedings thereby expedite the disclosure of information, however it experienced implementation obstacles partly due to procurement constraints and also due to the administrative arrangements of the grant. The Trust Fund has since closed, but the related activities have been taken over by the FLSTAP. 31. Very preliminary steps have been reported regarding the establishment of new courts and/or the introduction of improved procedures to reduce the backlog of cases. There were one million cases pending at the end of 2006. The World Bank provided support to two of the judiciary's committees, the Expeditious Disposal of Cases Committee, and the Rules Committee. The Rules Committee prepared draft rules and amendments to the Civil Procedure Rules have been submitted to the Chief Justice for approval. These rules, once administratively approved by the Chief Justice, will provide ways to expedite cases and timelines for resolving litigation. Some minor amendments to the rules require a constitutional amendment and legislative reforms (which are likely to create some complications). However, these amendments have been submitted to the Attorney General for final review and submission to parliament for approval. The proposed Judicial Performance Improvement Project (JPIP) currently under preparation will continue with steps to reduce the backlog of cases. Reducing the backlog will also demand more efficient process-management. The JPIP will forward this objective by fully implementing a case management system, by providing training to judges and by carrying-out additional programs to “clean” pending cases (some may have now expired due to the time elapsed). Meanwhile, a pilot case is being developed to facilitate full implementation of the case management system as part of the Financial and Legal Sector TA (FY05). Also, the Federation of Women Lawyers Kenya (FIDA), with assistance from the World Bank, has promoted gender- responsive legal reforms and developed a self-representation manual on matters pertaining to land, child custody, and alimony specifically targeted to women who have limited access to the legal sector. 32. Corruption in the judiciary does not appear to be as big a problem as once thought and there are indications that the judiciary in Kenya is not perceived with the same contempt than other national institutions. The stature that judges enjoy was implicitly acknowledged in the appointment of the Supreme Court Justices to the Commission investigating the latest instance of political and ethnic turmoil. However, the lack of resources does affect the quality of judicial services which nevertheless seem to be in high public demand. Judicial decisions are not overturned on appeal in large numbers, suggesting that the quality of the lower courts’ judicial decisions is less arbitrary. On the other hand, people in the informal and rural sectors do not always appreciate the intervention of judges in criminal cases because they tend to limit their decisions to imposing penalties without awarding economic restitution, which is often at the core of the demands. Additional guidance and training offered by the judicial training institute partly set up with assistance judiciary resources, FLSTAP and the project preparation funds of the proposed JPIP will remedy this situation. 92 CAS Outcome: Greater stakeholder involvement [Partially Achieved] 33. Government has over the past year enabled a very inclusive budget process welcoming comments from key stakeholders during regular budget hearings usually in March. New legislation will change the time-table for the budget process (and the budget format) to allow for more timely and effective parliament contribution. 34. Despite some isolated efforts, no substantive progress can be reported regarding the creation and use of community-level mechanisms and involvement in monitoring public procurement. There were some important initiatives implemented while several other initiatives by the Bank in association with other donors’ did not materialize. The Freedom of Information legislation with whistle blower protection has not been enacted yet. 35. Some initiatives for information sharing and feedback modalities have started in the water sector with the “Citizen’s Report Card on Urban Water, Sanitation and Solid Waste Services in Kenya”. They reinforced some success in the sector while facilitating policy management. In 2006, a range of locally based stakeholders launched a Citizen Report Card (CRC) initiative in Nairobi, Mombasa and Kisumu to assess citizens’ experiences with water supply, sanitation and solid waste services. The CRC draws attention to problems, facilitates corrective action, promotes exchange of ideas and approaches, and helps identify good practices. The Kenya Alliance of Residents Associations (KARA), a locally based organization, coordinates this initiative on behalf of a wider, multi-stakeholder forum called the Nairobi City Consortium.13 In Nairobi, corruption in provision of water services between those directly connected to mains and utility staff was reported at only 5 percent in this survey. However, at focus group discussions held before the survey, many participants reported that petty corruption was occurring. Where payments are made by landlords, the possibility that bribery is occurring at the interface between landlord and water company staff opens up. All these involvements, while important, are restricted to the informative stage so far. CAS Outcome: Improvement in Public Financial Management [Not Achieved] 36. PFM improvement has been unsatisfactory during the CAS period since the main PFM Reform program has stalled for the last four years, due to major implementation challenges within government relating to the effectiveness of the PFM Reform secretariat and also due to weak coordination and leadership on the part of donors. The National Audit Office (KENAO) is operational as established within the Constitution and the Public Audit Act. The Office reports to Parliament and is responsible for auditing all public sector entities, including Bank-funded projects. Audit reports are current and published on the KENAO website. However, the impact of these audits seems minimal. The audit for the year ended June 2006, for example, includes details of inaccurate appropriations, unauthorized reallocation of funds, irregularities in procurement, equipment being used for ineligible purposes and irregular disbursements of certain funds. Due to a number of unexplained discrepancies, omissions of expenditures from the accounts and lack of documentation to support some of the figures, the auditor was not able to express an opinion on the financial statement. Something similar happened with the FY07 audit.                                                              13 The survey reported high satisfaction with respect to: (i) water supply (67 percent); and (ii) availability and cleanliness of public toilets (66 percent). Satisfaction was low with respect to (i) water kiosks (45 percent); (ii) sewerage services (45 percent); (iii) rubbish collection services (30 percent). 93 While the information is posted on the Internet, it is unclear how much debate or action to eradicate improper practices they actually prompt. Lack of action on these matters seems to reinforce a sense of impunity. 37. The CAS also called for implementation of government’s Business Licensing Report, a program championed by Ministry of Finance and other center-of-government institutions, and supported by FIAS, the investment climate advisory service of the World Bank Group (joint WB-IFC). In 2006-07 the government launched an ambitious licensing reform program, which quickly led to the elimination of 110 business licenses and the simplification of a further eight, reducing the time and cost of obtaining building licenses, registering a company and obtaining various general and sector licenses. Recent ongoing reforms (in late 2008) include the adoption of laws simplifying the Single Business Permit imposed at the local authority level. At the end of the multi-year program, it is anticipated that more than 600 of the existing 1,300 licenses will be simplified or eliminated. As a result of the licensing reforms, the burden imposed by licenses on businesses has been reduced by 19 percent from a 2006 baseline of US$327 million to US$265 million in 2008. It is expected that by 2012, full implementation of the licensing reforms will streamline the licensing system and reduce the costs imposed on the private sector by 48 percent from the baseline in 2006, at no cost to public policy goals. In addition, introducing competition among land assessment officers (allowing private practitioners) has cut the time needed to complete land valuation from one month to one week. The licensing reform program is still far from complete, but the promising initial stages undertaken during the CAS period have led to the setting up of a broader multi-year FIAS investment climate (IC) program, managed out of the IFC Nairobi office and in close cooperation with Treasury, Office of the Prime Minister, Ministry of Local Government and other key public and private sector stakeholders. The IC Program will continue to support the ongoing implementation of the licensing reforms, support the adoption of a regulatory reform strategy, introduce targeted Doing Business reforms at the national and subnational levels, operationalize an electronic registry of licenses, and tackle other areas identified by stakeholders as priority areas for regulatory streamlining as well as improving investment generation (investment policy and promotion and special economic zones) and trade logistics. The 2008 Doing Business report recognized Kenya among the top reformers worldwide for this effort. An ambitious ongoing initiative (the rapid results initiative) has been contributing for further reforms with marked success. Some additional progress has been achieved regarding the average cost of complying with business start-up regulations (which should not exceed US$100 and two weeks by 2010). Costs as a percentage of income per capita declined from 46.1 percent to 39.7 percent between 2008 and 2009. The Bank contributed in this area through policy dialogue linked to the Micro, Small, and Medium Enterprise Competitiveness Project (FY04) and the Pension Reform Dialogue (FY07). Parastatal and Regulatory Reform CAS Outcome: Reduce fiscal burden of transfer to parastatals [Partially Achieved] 38. Parastatals continued to be a fiscal burden although some successful privatizations provided fiscal relief. While the privatization bill was enacted already in 2005, the privatization program was discussed by Cabinet only in December 2008 and a Privatization Commission, making the privatization act operational, was not established until January 2009. Government issued a Kenya Shilling (KSh) 20 billion bond to the National Bank of Kenya in June 2007 to offset the insolvency of the bank relating to accumulated non-performing loans (NPLs). Another 94 Ksh 8 billion bond was issued in December 2007 to offset Telkom Kenya Limited (TKL) liabilities (including pension fund) in preparation of privatization of the company. Initial public offerings (IPO) have been achieved in the energy and telecommunication sectors including: (i) sale of a 30 percent share in Kenya Electricity Generating Company (KenGen) in May 2006 raising US$108 million; (ii) sale of 51 percent of government shares in TKL to France Telecom in November 2006 raising US$390 million; and (iii) 25 percent of the government’s stake in Safaricom14 in June 2008 generally considered a success15 with about 750,000 subscribers and raising approximately US$800 million. Privatization moved slower in the banking sector with a strategy to initiate the sale of government shares (in addition to shares held by the national social security fund) in the National Bank of Kenya submitted to cabinet only by November 2008 (see also sector specific discussions below). However, this privatization is going on a fast track pace (exempted by law from additional procedural steps in the new framework), with the Government in the process of hiring transaction advisers. 39. The Financial and Legal Sector TA (FY05) provided extensive reports supporting these efforts. The FY08 CEM analyzed the institutional framework for public private participation in infrastructure, liquidity in the market for these projects and other issues related to infrastructure finance. Ongoing policy notes are further detailing this analysis. In addition, the Public Private Infrastructure Advisory Facility (PPIAF) provides further support (noted below) in addition to work by the IFC’s Efficient Securities Markets Institutional Development (ESMID) program supporting development of local corporate bond markets for east African countries, but also strengthening of capital markets in general. Strengthen Regulatory Framework of Parastatals [Achieved] 40. Outcomes in this area seem moderately satisfactory. Important gains have been made in the water sector and in the abolition of the Tea Development Authority. As discussed in more detail below, improved policies were implemented in some marketing boards and they may have had a positive impact on misappropriations. However, no audit on marketing boards appeared have been published by the National Audit Office. There is no evidence that governance has improved. Some legal amendments are still needed for channeling private participation into roads and energy. For more detailed discussions on progress in strengthening the regulatory framework for transport, energy and water sector-specific discussions under Theme II. Monitoring and Evaluation CAS Outcome: Annual PRSP progress reports of increasingly good quality [Partially Achieved] 41. Only two Annual PRSP progress reports were produced with an increase in quality but limited effect on policy decisions. According to the CAS, indicators to measure PRSP progress were supposed to be specific, measurable, achievable, relevant and time-bound (SMART). The Government’s first IP-ERS Annual Progress Report (APR) for the period FY04 was submitted to the Bank/IMF staff in July 2005. A second APR, covering FY05, was submitted in September                                                              14 Safaricom used to be jointly owned by TKL and Vodafone Kenya with 60 percent respectively 40 percent of shares. TKL’s stake was transferred to the treasury after the privatization of the company. 15 Share prices initially rose from a KSh 5 offer price to about KSh 6.5 but plunged recently to about KSh 3.25. 95 2006. A Joint Staff Advisory Note (JSAN) covering both APRs was issued in February 2007. The JSAN noted progress in monitoring and evaluation between the two reports and pointed out the focus on results reporting. Indicators were identified to facilitate assessments by government, civil society, and development partners. In addition, it highlighted that the targets for performance indicators in the second report were better defined and more realistic than in the first report. However, the JSAN also regretted delays in issuing of the both reports by government (without, however, explaining the delay in issuing of the JSAN). This limited their role and impact on setting the policy agenda. No JSAN has been issued lately. CAS Outcome: Access to public information and quality of data improved [Achieved] 42. The Development of the National Statistical System (NSS) Project (FY07) is contributing to the CAS objectives, although it is still in its initial stage. A fairly adequate institutional framework is in place with the establishment of the Kenya National Bureau of Statistics (KNBS) which legally enjoys some independence, with responsibility of establishing linkages among statistical data producers and users. Through the project, official statistical agencies within NSS have been provided with appropriate computer hardware and software, and staff members from these agencies have been trained in data collection and the use of statistical software programs. As a result, KNBS publications are increasingly being released to the public through the media, and their findings and recommendations are published by the media, and they form part of the public debate on poverty and economic trends in the country. More policy-makers and researchers beginning to use statistics from NSS agencies for operational purposes. (See also the section on access to information above.) Of particular importance was the noticeable contribution of StatCap towards building capacity in the collection of sex-disaggregated data resulting in the National Gender Data Sheet (2009) which contained an updated and comprehensive set of sex-disaggregated data in key sectors. Theme II: Reducing the Cost of Doing Business and Improving Investment Climate Restructuring Financial Services CAS Outcome: Deepened financial intermediation [Achieved] 43. Progress under this CAS outcome has been positive as evidenced by increased access to finance by the private sector. Overall credit to the private sector increased from 23 percent of GDP to about 27 percent to date. In addition, there has been significant progress in solving the issue of NPL, which decreased from 26 percent during the time of the CAS preparation to about 7 percent in 2008. It is worth noting that a large part of the fall in NPLs can be attributed to the government’s recapitalization of the National Bank, see above. This allowed the bank to write- off its large portfolio of NPLs. While the privatization of the bank remains in limbo, the danger remains that the bank will accumulate NPLs again. Both indicators – private credit and the size of the impaired loan book – were part of and closely aligned with the Financial and Legal Sector TA (FY05), which aims among other things at ensuring broad access to financial and related legal services (see also below). The project was also expected to contribute to major improvements in the payments systems, which eventually took place without the support of the project, but significantly improved the modernization of the system. This was achieved with the introduction of real time gross settlement systems for large payments. Another supported aspect is related to regulations for mobile banking. 96 44. A major component of the Micro, Small, and Medium Enterprise (MSME) Competitiveness Project (FY05) focuses on strengthening financial and non-financial markets to meet the demands of MSMEs. While progress in the improving the business environment component continues to be unsatisfactory (see further below), there has been substantial progress in the access to finance component and the enterprise skills and market linkages component. The component co-finances: (i) a Financial Sector Deepening (FSD) Trust, created in the context of the loan design, aimed at deepening and expanding the reach of financial services and products that are available to MSMEs; and (ii) a risk capital fund in Kenya and associated TA facility aimed at catalyzing new risk capital instruments (mix of debt, equity and quasi-equity) tailored for SMEs. Both subcomponents show positive progress with currently 60-70 percent of financial institutions receiving grants from the FSD Trust meeting or exceeding their business plan targets for MSME outreach and portfolio quality. The risk capital fund has supported 32 deals as of June 2009, for a total investment portfolio of approximately US$3.6 million at a zero loan loss rate. 45. Kenya’s financial system also proved to be resilient to the 2007-08 post-election crisis, which had very little impact on bank NPLs. The availability of credit provided through other providers, such as savings and credit cooperatives and micro finance institutions (MFIs), is significant, and good progress has been made during the CAS period in establishing legal and regulatory frameworks for both these sub-sectors. Laws have been enacted for both sub-sectors, the regulatory frameworks for deposit-taking and non-deposit-taking MFIs have been established and the Ministry of Cooperatives is working towards establishing a regulatory framework for at least the larger SACCOs. The FLSTAP and MSME Competitiveness (through FSDT) projects played a key role in the drafting and passing of the SACCO Societies Act 2008 and the Microfinance Act 2008 - including direct support to two MFIs which became the first two deposit taking MFIs to get conditional licensing under the new regulations - and the official publishing of new regulations guiding the licensing and operations of Credit Bureaus. Other efforts towards implementation of these Acts are underway with FLSTAP support. The FSAP update will start in September 2009 and will cover key related issues as well further build a knowledge base to design further reforms as needed. 46. As relates to latest developments on the financial markets – both internationally and locally – Kenya’s economy is witnessing a significant slowdown as the fall-out from domestic developments – residual effect of Kenya’s post-election conflict early in 2008 and the ongoing food crisis – has been exacerbated by the direct and indirect impacts of global financial crisis. GDP growth in 2009 is now projected at 3.6 percent, from an earlier estimate of 5.8 percent. The current account deficit has almost doubled to US$2.1 billion and the capital account has suffered. These factors combined with a slowdown in tourism earnings and heightened risk aversion caused significant depreciation of the Kenyan shilling against the US dollar during the third and fourth quarter of 2008. 47. The Kenyan financial system was able to withstand the immediate significant deterioration in exchange rate as the crisis unfolded. The continuing decline in equity prices reflects concerns about the governance of the market, and the failure hitherto of the authorities to address these. However the second round effects are proving to be more pronounced. The banking system appears to be well capitalized based on reported soundness indicators. Increases 97 in the level of NPLs are likely on account of further slowdown in economic activity, with particular concerns for tourism and construction. 48. While the net foreign exposure of the banking system is low, as in other countries banks are increasingly facing difficulty and higher costs in funding themselves abroad, particularly with longer maturities. Conditions for corporate funding in the local market have also tightened. CAS Outcome: Expanded access to financial services [Achieved] 49. There has been good progress toward this CAS outcome evidenced by an increase in the proportion of adults using financial services. The CAS interpreted this outcome in terms of access to financial services by the general population, beyond established entrepreneurs. Data from the last survey on demand of financial services (FINACCESS/FINSCOPE) show a significant expansion in the proportion of adults that uses financial services provided by formal financial service providers from 16 percent in 2006 (as the baseline provided in the CAS) to about 33 percent in 2008. This result implies a banking penetration to lower income sectors, in addition to a substantive contribution by M-PESA, a popular Safaricom service, which allows transfers of money using a mobile phone. This indicator is part of the results framework for the Financial and Legal Sector TA (FLSTA) (FY05), although it has to be acknowledged that the direct impact of the activities funded by the project on the impressive improvements in Kenya’s financial outreach have been quite modest. The project’s results framework anticipated a 20 percent increase of accounts in the financial sector. In reality, the amount of accounts in the Kenyan banking sector increased by about 180 percent (from about 2.2 to 6.1 million). Despite significant progress on outcomes, the FLSTA project has faced various shortcomings during the review period. Initial problems with project management have been resolved, although challenges remain with respect to procurement processing and disbursements, which are being addressed under the ongoing preparation for restructuring. CAS Outcome: Enhanced economic governance in banking sector [Partially Achieved] 50. Bank assistance to achieve the CAS outcomes has given mixed results. Some restructuring of financial services has taken place with a view to enhancing economic governance in the banking sector. The FLSTA (FY05) contributed to progress, including providing assistance to drafting of revised legislation in a number of key areas, which still remains to be presented and approved by Parliament, given back-log in legal drafting at the Attorney General’s office. Risk-based supervision has been initiated at the Central Bank and the Insurance Act has been amended to establish an autonomous Insurance Regulatory. Amendments to the Banking Act, Building Societies Act, and a Companies Bill have been drafted but not yet submitted to the Attorney General's office. The Proceeds of Crime and Anti- Money Laundering Bill, 2008 has been drafted but parliamentary approval is still pending. The legal framework for Credit information sharing among the banks has been established and the authorities issued regulations in September 2008 for credit bureaus, with the licensing process underway. An autonomous insurance regulator, the Insurance Regulatory Authority (IRA) was established, including support from the project with further strengthening ongoing. A significant agenda remains outstanding as regards reform of the governance and investment management practices of the National Social Security Fund and establishing a fiscally sustainable public sector pension scheme. 98 Private Sector Development CAS Outcome: Telecom costs reduced. [Partially Achieved] 51. There has been considerable success in liberalizing the telecom sector, but costs remain relatively high. Liberalization accelerated during the review period with the partial privatization of the fixed-line incumbent TKL as well as the IPO for Safaricom Limited (see above), the first licensed mobile operator.16 Since 2004, additional competition to provide telecommunications services has been generated by the licensing of four Internet backbone suppliers, seven public data operators, and five commercial Very Small Aperture Terminal (VSAT) operators. In 2005, Kenya was among the first African countries to legalize the Voice over Internet Protocol (VoIP), which actually resulted in a drop of international phone traffic (both outgoing and incoming) due to the increased use of VoIP. However, costs of international calls on a mobile phone decreased only marginally from an average of Ksh 99.79 per international call in 2004 to Ksh 93.95 in 2007. While the 2003 Investment Climate Assessment (ICA) cited telecommunications services as one of the major constraints faced by the private sector, the 2007 ICA did no longer cite them as a major obstacle for doing business. CAS Outcome: Improved environment for private sector investment. [Achieved] 52. The Cost of Doing Business Report did record several improvements over the review period, notably the reduction in the cost and time it takes to start a business. It also recorded a reduction in the cost of dealing with construction permits and a reduction in the time for exports. Cost of starting a business has fallen from 54 percent of income per capita in 2004 to 40 percent in 2008; time to start a business reduced from 60 days in 2004 to 30 days in 2008, leading to recognition of Kenya as a “global Top-10 reformer” in 2008. The 2008 ICA provides further insights into key reforms needed, which has been informing both the authorities and the Bank on the design of policy actions. 53. However, the Bank’s contribution to these outcomes is not obvious. The MSME project has a business environment component geared at reducing the cost of compliance with business regulations for the formal sector and creating incentives for informal MSMEs to graduate to higher levels of formality. Implementation of this component was considerably delayed and rated unsatisfactory. In addition, the project’s results framework uses different indicators than the ones suggested in the CAS PR which makes it further difficult to assess the Bank’s contribution. 54. As mentioned before, key recommendations of the Business Licensing Report were implemented with some substantive progress achieved. Further progress is underway through a multi-year Investment Climate Program by FIAS, in close cooperation with related Bank projects and key government and private sector stakeholders. Introducing competition among land assessment officers (allowing private practitioners) has cut the time needed to complete land                                                              16 More licenses were issued to Celtel in 2000 and Econet Wireless Kenya in 2003. 99 valuation from one month to one week. Progress is yet to be achieved regarding the average cost of complying with business start-up regulations (which should not exceed US$100 and two weeks by 2010). The Bank contributed to achieving these objectives through the MSME Project and the Pension Reform Dialogue (FY07). CAS Outcome: Generate employment in formal sector [Partially Achieved] 55. No data or evidence suggests that this outcome was achieved. Nevertheless, the number of formally registered MSMEs may have increased by at least 25 percent by 2007 over 2004 level. Important progress has been made in reducing private sector costs in the area of international trade: the transit time from Mombasa to Kigali has gone from 19 days to nine, exceeding the target set under the Regional Project (Africa Trade and Transport Facilitation of 2005). Given the importance of regional trade, this increases job demand and is strongly supported by the business community. There has been some progress, too, in establishing Community Based Systems (CBS) in the Port of Mombasa although the system is not in operation yet. Implementation of the business environment component that was designed to contribute to the creation of a one-stop shop to facilitate business registration and to create a unified tax system for MSMEs of the relevant MSME Project was delayed, but was undertaken by other laws or initiatives beyond the Ministry of Industrialization. The MSME Competitiveness project has supported formal employment directly through the risk capital fund (929 jobs created and/or sustained as of June 2009) and indirectly through skills development activities aimed at increasing productivity and production in the leather, cotton, coffee and pyrethrum sectors in the value chain subcomponent. There is also evidence of improvements in terms of acreage, better investments, better prices etc. on the value chain sub-component (especially for coffee and cotton). Infrastructure CAS Outcome: Enhance Kenya’s role as regional trade hub and strengthen Kenya’s links to international markets [Partially Achieved] 56. This CAS outcome can be considered partially achieved based on progress on some monitoring indicators. Bank contributions have been mixed as operations have not achieved substantive results. Tons of freight handled by the Mombasa port as well as the numbers of passengers passing through Nairobi international airport increased steadily during the review period. However, activities under the Northern Corridor project were delayed and the Additional Financing, which covers key cost increases, originally planned for FY08 was not approved until the third quarter of FY09. This delayed Bank contribution to these outcomes. Another key milestone was for Kenya Civil Aviation Authority (KCAA) clearance by International Aviation Safety Assessment (IASA) and Jomo Kenyatta International Airport (JKIA) obtaining Category 1 clearance by the US Transportation Security Administration for direct flights to and from the United States by 2007. This was delayed but finally achieved in April 2009 with facilitation of the Bank and the Safe Skies for Africa program (USA) through the Northern Corridor Project. Among other things a common regulatory framework for aviation safety and security has been adopted at the East African Community level and the joint Civil Aviation Safety and Security Oversight Agency (CASSOA) has been established. Arrangements are under way for its full implementation. The Northern Corridor project aims at reducing travel times between Mombasa 100 and Malaba (at Ugandan border) by 25 percent, but work under the four major contracts of the project is not yet completed. However, the improvement of the Maji ya Chumvi – Miritini road section, financed by the Nordic Development Fund (NDF) and Lanet-Njoro Turnoff funded by IDA under the project, already resulted in a significant reduction in travel time from Nakuru to Mombasa from about eleven hours to less than eight hours. In addition, FIAS, the investment climate advisory service, will be providing technical assistance on Trade Logistics. The objective of the activities supported under this program is to enhance East Africa regional trade and growth through increasing the efficiency of intra-regional trade, and the reduction of regulatory risks and costs for businesses. Interventions will take place both at the regional level (EAC) as well as at the national level. Results would be measured in higher intra regional trade and investment, but also through reduced costs of individual business regulatory transactions. Interventions fall along core BEE product areas: Regulatory Simplification (including Trade Logistics, Business Licensing, Doing Business, Tax Simplification) and Investment Generation (Special Economic Zones and Investment Policy). CAS Outcome: Strengthen institutional and regulatory framework to improve maintenance of road infrastructure [Achieved] 57. The government has adopted a comprehensive roads policy and approved the new Kenya Roads Act, 2007, which, inter alia, allows the setting up of three autonomous roads authorities to streamline ownership, management, accountability and financing (National Highways Authority, Rural Roads Authority, and Urban Roads Authority). The government has also advanced the establishment of these roads authorities with the appointment of the members to their respective Boards and their chairpersons. Chief Executives and senior managers are also on board and the authorities have begun functioning. The Bank contributed to this institutional objective through the Northern Corridor Transport SIL (FY04). Air transport has also benefitted from institutional improvement. The KCAA has been staffed with adequate personnel. KCAA is now nearly fully staffed for safety and airworthiness inspections. It has needed licensing specialists, although retaining qualified and experienced local staff is difficult because of the high demand and better pay in the private sector. 58. Institutional capacity, operational, and governance milestones have been achieved in the recent past in the road sub-sector service delivery, including: (i) establishment of the Kenya Roads Board which provides the opportunity for major improvements in policy direction, expenditure priorities and accountability; (ii) introduction of a fuel levy into the Road Fund as a means of mobilizing domestic resources for road maintenance - generating nearly US$230 million annually; (iii) decentralization of disbursement of road maintenance funds, decision making and implementation through the District Road Committees which empowers local communities through local decision making; (iv) introduction of a rural roads strategy and labor based technologies under the Roads 2000 Program which is having a major positive impact on rural accessibility, employment and poverty reduction; (v) local production and training of well qualified engineers in the public and private sector; (vi) prevalence of an established construction and consulting industry with small contractors throughout most of the country and a dynamic private sector; and (vii) reduction of vehicle overloading on Kenyan roads which was widespread until the recent Administrative Order banning the use of four axle trucks and a move by government to privatize management of weigh stations. 101 CAS Outcome: Improve road sector management through private sector participation [Partially Achieved] 59. The new Kenya Roads Act 2007 allows for private sector participation in the road sector. There are no restrictions on public-private partnership under the existing laws of Kenya. However, as suggested in the PPIAF study, some amendments are needed in parts of the regulatory framework in order to promote private investment. Among such would be amendments to the Public Procurement and Disposal Act, the Government Contracts Act, and the Permanent Secretary to the Treasury (Incorporated) Act, as well as to subsidiary legislation in the form of regulations. The proposed amendments will clarify the legality of public private partnerships (PPP) and the regulations needed to define the responsibilities and obligations of the Public Procurement Oversight Authority, the Privatization Commission, line ministries, state corporations, and local government vis-à-vis the Ministry of Finance. The objective of offering one segment of the Northern Corridor road for private sector financing and management was achieved. Bids for tolling of the Nairobi Urban Toll Road were invited. Negotiations for the award of a 30-year concession to the private sector to build and operate an urban toll road, including a fly-over through the city of Nairobi along the Northern Corridor, are at an advanced stage. Meanwhile the members to the Boards of the new road authorities have representation from the private sector including road users. CAS Outcome: Reduce costs and improve reliability of energy services [Partially Achieved] 60. The Bank’s support was directly aligned with the CAS outcome. Reliability of electricity services has improved with the support of the Energy Sector Recovery Project (ESRP) (FY04). The indicators measuring quality and reliability of electricity services have improved over the CAS period – voltage fluctuations reduced and temporary interruptions of electricity supply decreased from about 11,000 annual incidents in 2004 (prior to the project) to 4,253 incidents in 2008. Moreover, the average time to restore power supply after an interruption fell from about 8 hours to 6 hours. 61. However, progress fell slightly short of meeting the CAS target of reduction in system losses to 15 percent by FY07 (from about 19 percent in FY04). This target proved too ambitious and most recent figures estimate system losses at about 17 percent. Improvements in system reliability and losses are related to the private management from 2006-08 of the Kenya Power and Lighting Company Ltd. (KPLC), which resulted in marked improvements of operational and financial performance of the company. However, delays in investments in distribution rehabilitation and government’s aggressive expansion of the electricity network to rural areas, which was not anticipated when the CAS was prepared slowed-down the achievement of the loss reduction target. 62. KPLC’s commercial performance during the CAS period improved. The number of days it takes for KPLC to collect its receivables dropped from 70 days to 58 in 2004-08 (exceeding the target set) and the operating efficiency ratio improved from 35 percent to 31 percent in 2006- 08.17                                                              17 Operating Efficiency ratio is measured as KPLC’s operating expenses divided by its operating revenue. 102 63. Notwithstanding these improvements, according to the 2008 ICA, electricity is still one of the main infrastructure bottlenecks affecting Kenyan enterprises (together with transport) resulting in 70 percent of firms owning generators that are adding to their operation costs. Close to 80 percent of firms in Kenya are experiencing losses due to power interruptions, which costs firms about 7 percent of sales. This compares unfavorably with countries at similar levels of development. Additional Financing for the Energy Sector Recovery Project (approved in April 2009) is investing in increased distribution rehabilitation, which will help reduce losses and supply interruptions. In addition, access to energy contributes to gains in women’s economic empowerment as it reduces the burden of unproductive domestic chores, increases their access to markets, provides safety in public spaces, and promotes SMEs. CAS Outcome: Ensure increased access to modern energy services to reduce household cost and time associated with traditional forms of energy [Achieved] 64. The CAS outcome is achieved evidenced by a significant increase in new electricity customers. The Energy Sector Recovery Project (FY04) reports an increase in the rate of connecting new customers between 2004 and 2008 from 40,000 to 180,000 per year significantly surpassing the CAS target for 80,000 new customers per year. While the yearly connections increased, electrification rate in Kenya remains low at around 18 percent. Government’s target is to reach an electrification rate of 40 percent by 2020, which would require more than a doubling of the current customer base. To meet this target, the Government, with Bank support, is currently developing an ambitious least-cost investment program, aimed at electrifying one million households in five years. Additional Financing to the Energy Sector Recovery Project planned for late-FY09 is expected to contribute to further increase of electricity access in Kenya’s urban and peri-urban areas. The CAS also aimed at an increase in the consumption of liquefied petroleum gas (LPG) aligned with Government’s efforts to promote expansion of LPG use in the rural areas (away from fuel wood and/or kerosene). The Energy Sector Recovery Project provided support in this area albeit at a much smaller scale, mainly supporting a feasibility study for a new LPG storage and distribution facility, which is now being constructed by a private company. Furthermore the ESRP helped the Kenya Bureau of Standards to improve its capacity for setting and monitoring of standards for petroleum products. CAS Outcome: Improve institutional and regulatory framework for effective energy service provision [Achieved] 65. Progress was made in strengthening the institutional and regulatory framework of the energy sector. The Bank’s contribution was channeled through the Energy Sector Recovery Project (FY04) as the latest in the series of IDA-financed energy projects that supported the successful transformation of the Kenyan energy sector for more than a decade. Major achievements include: (i) unbundling of a failing integrated utility into two corporatized commercially-oriented generation and distribution companies (KenGen and KPLC respectively); (ii) introduction of competition (in generation) and private sector participation in both generation and distribution; (iii) adoption of a comprehensive energy policy in 2004 and promulgation of a new Energy Law in 2006 to support the implementation of the policy; (iv) establishment of an autonomous regulatory agency, which is fully operational; (v) transfer of rural electrification planning and implementation from the Ministry of Energy and KPLC to a special purpose Rural 103 Electrification Authority to improve accountability and transparency; and (vi) establishment of a new tariff structure and tariff review process that was implemented in 2008 (a tariff increase of 24 percent accompanied the measures). The Bank has also produced an Energy Sector Strategy Note (FY05) and a Rural Electrification Study (FY06); both feed into ongoing work in the sector. As a result of the capacity building activities under the Energy Sector Recovery project, the institutional capacity of the Ministry of Energy, the regulator, and other sector entities to implement the new regulatory framework improved. CAS Outcome: Establish fiduciary accountability in generation and distribution of electricity [Achieved] 66. With the enactment and promulgation of the Energy Act and the separation of accounts and tariffs for transmission and distribution at KPLC, this outcome was substantially achieved. Moreover, a new cost-reflective tariff structure and a tariff review process were implemented in 2008. CAS Outcome: Reduce costs and improve reliability of water services in Nairobi [Achieved] 67. The key CAS outcome was achieved with significant Bank contribution. Key indicators for the water supply objective were aligned with the Nairobi Water and Sewerage Institutional Restructuring Project (FY04-08), which directly contributed to the increase in the annual volume of water delivered to Nairobi consumers from 75 million m3 per year in 2003 to 94 million m3 by 2007 (above the CAS target). Another indicator reported by the project, is a reduction in unaccounted for water, which went from 50 percent to 43 percent in 2004-07. The contribution by the project seems evident given that the improvements took place during the project’s implementation period and the fact that other water service providers in Kenya that were not covered by the project did not achieve similar results. One milestone included as a “revised indicator” in the CAS PR was the establishment of new institutions as called for in the 2002 Water Act. These new institutions included new water services boards which contract out the delivery of services to various water service providers. These institutions contributed significantly to major progress in the sector (see below). In order to expand further water access, the Water and Sanitation Service Improvement Project is under implementation since FY08. CAS Outcome: Enhance water security in water-scarce communities [Achieved] 68. Despite a lack of direct reporting on this indicator, sufficient evidence indicates satisfactory progress. The second phase of the Arid Lands Resource Management Project (ARLMP) (FY03; Additional Financing FY07) emphasizes the importance of access to water resources for development in the arid lands. The project concentrates its support on strategic investment in water sources for development or drought preparedness, rehabilitating existing sources where possible, and ensuring that new sources of development be properly planned in the context of the natural resource management framework. The project also supports the creation of river water user associations on a pilot basis with a view to strengthening community based water resource management as well as the prevention and resolution of conflicts over access to and use of water resources. The CAS indicator asked for the implementation of 44 community-based projects. A progress report for 2007-08 points out that during that year about 104 44 water projects were supported. The most recent progress report indicates that over half of the investments made to date under the project enhanced community access to water. It is estimated that the average distance to the nearest water point has been reduced by more than half. Over 200 boreholes, 500 pans and dams and over 500 shallow wells have been constructed, rehabilitated or improved over the life of the project. CAS Outcome: Establish conducive institutional and regulatory environment to ensure financial viability of future investments in sustainable water service delivery [Achieved] 69. The Nairobi Water and Sewerage Institutional Restructuring Project (FY04-08) assisted on strengthening the institutional and service delivery framework for delivering efficient and sustainable services to the population. The Nairobi City Water and Sewerage Company (NWSC) is fully ring-fenced and legally separated from the City Council. Progress seems in line with objectives as agreements setting up the framework for service delivery are being respected by all signatory parties. This framework provides for the autonomy of institutions, including clear roles, responsibilities and contractual arrangements/relationships between institutions. The framework provided stability to Nairobi water services. At the NWSC, collection efficiency as an expression of better governance, increased from 65 percent to 74 percent during 2004-07. The FY08 Water and Sanitation Service Improvement Project aims at improving this indicator to over 90 percent in Nairobi and other cities across Kenya. Billing efficiency at NWSC is relatively high, over 90 percent. The indicator actually decreased during the project implementation but this actually reflects improvement in the company’s billing policy which includes not billing unverified accounts while aggressively reducing such accounts. Late billing declined from six months to zero in 2004-07. Revenues increased from Ksh 1.5 billion to Ksh 3.2 billion during 2004-07. Regional Integration and Trade CAS Outcome: Strengthen regional links [Partially Achieved] 70. Important milestones where reached during the review period on establishing the East African Community (EAC) as the critical regional trade agreement for Kenya. The EAC customs was established in 2005, with considerable medium-to long term impact on Kenya's regional trade, overall market access and hence growth potential. Nominal rate of protection declined from 16 percent in 2004 to about 13 percent at present. The marketing for coffee is being liberalized with direct coffee sales allowed, but liberalization is still pending. The pyrethrum marketing board also is yet to be privatized but a bill has been tabled (see below). 71. As the EAC's most important manufacturing base and largest market, the region provided Kenya with a (almost) free goods market (with tariff barriers almost gone, a short sensitive product list, and preparation underway to bring down non tariff measures) with the potential to transform its goods trade to higher levels of value-added. Kenya is leading the region in developing integrated supply chains not only within the country, but across the region. It is now an important source of machinery, transport equipment and chemicals needed, significantly moving up from agriculture and agro-processed products and crude raw materials. Beyond the region, Kenya was able to ensure its favored access into the EU, which currently absorbs about one third of Kenya’s exports. 105 72. During the review period, the Bank supported a request by the EAC to help the region analyze and move forward with various difficult policy issues. This support is reflected in various Economic and Sector Work and Technical Assistance, e.g. an October 2008 Synthesis Report on Non-Tariff Measures on Goods Trade in the East African Community (for Burundi, Rwanda, Kenya, Tanzania and Uganda); and a September 2007 report on options for Strengthening EAC’s Trade Integration. These reports positively influenced the joint signing of an Economic Partnership Agreement between the EAC and the European Union,18 the discussion of NTMs in the EAC Council of Ministers for moving forward the Common Market agenda, the development of a work program for the Kenya National Monitoring Committee on NTMs, etc. Further support to this agenda is ongoing and will continue during the next CAS. Theme III: Reducing Vulnerability and Strengthening Communities Agricultural Competitiveness CAS Outcome: Systems for agricultural technology development and transfers are improved [Partially Achieved] 73. This CAS objective was closely aligned with the Agriculture Productivity Project (FY04- 09), which aimed to support the generation, dissemination, and adoption of agriculture technology. Overall, the project contributed to setting-up of an institutional framework and pilot activities for agriculture research and extension. The National Agricultural Sector Extension Policy was approved by Cabinet in June 2008 and four extension approaches have been tested in 20 districts. Additional progress took place with respect to a national livestock and dairy policy, a draft agriculture research policy, as well as some reforms in the coffee subsector. The project also facilitated carrying-out of agriculture research, training of researchers, capacity building of research institutions, empowerment of farmers and strengthening of demand services as well as piloting of PPPs in provision and financing of extension services. Despite this progress, the project fell short of reporting on many tangible outcomes, including the opportunities generated for both women and men. For example, it did not record the increase in yields of targeted crops under the project as suggested by the CAS (which expected yields to rise by 5 percent per year). Outcomes that the project did record include implementation of 1,100 enterprise development plans by 1,115 farmer groups in 20 districts, with 980 service providers. On a national level, there has been a considerable improvement in wheat yields, which increased by about 21 percent during 1990-2006. However, maize yields stagnated over the last years despite considerable efforts in terms of price support, research and agricultural extension (see more below). 74. The MSME Competitiveness project has achieved some significant results in the cotton, coffee, pyrethrum and leather sectors through targeted BDS services provided under the value chain subcomponent. This US$4 million subcomponent of the project currently has 41 ongoing projects in the four sectors. In the coffee sector, the most developed value-chain being supported,                                                              18 Kenya, as a non-LDC, would have reverted to EU’s less favorable General System of Preferences (GSP) in January 2008, following the expiration of the Cotonou Agreement. It would have faced significant losses of market access compared to the immediate duty-free quota-free access for 100 percent of its EU exports granted under the interim EPA. 106 key achievements include: assistance to two coffee cooperative societies to get certification (resulting in an estimated 8,732 farmers getting product certification), a reduction of the payment lag for coffee farmers and progress on work to develop local standards for Kenyan coffee. CAS Outcome: Agricultural market reforms are implemented to increase proportion of end market value received by smallholders [Not Achieved] 75. There has been a slow and uneven progress on agriculture market reforms in the different sub-sectors. Markets reforms impacted individual agriculture sub-sectors to different degrees. Wheat, horticulture (fruits and vegetables), and dairy have done well. On the other hand, coffee production declined sharply, while other major crops such as maize and sugar have stagnated or grown only slowly. There is a strong correlation between the agriculture performances and the policy, institutional and regulatory framework in which they operate. Generally, agriculture sub- sectors with a high level of market-led evolution are performing well. During the period under review, the following reform efforts were undertaken: (i) coffee: a new coffee act from 2002 devolves marketing functions to marketing agents and, among other things, allows freedom in choosing auctioneers. A 2006 amendment allowed for direct selling of coffee. Nevertheless, the coffee sector continues to suffer from politicized smallholder marketing arrangements; (ii) pyrethrum: Direct intervention in the pyrethrum sector has resulted in disenchantment of smallholders with a sector in which Kenya had been a world leader. A draft policy on liberalization that would separate regulation and marketing functions of the Pyrethrum Board of Kenya through the creation of a new trading company was tabled in 2006. The MSME Competitiveness project has been contributing to policy discussions on reforming the Pyrethrum Board of Kenya through its APEX committee on pyrethrum that brings together various actors along the pyrethrum value chain, including the Pyrethrum Board of Kenya; (iii) cotton: in the cotton sector the MSME Competitiveness project was instrumental in the creation of the Kenyan Cotton Development Authority and the cotton-pricing model currently in use; (iv) dairy: dairy production was boosted by opening up the traditional cooperative marketing structures to competitive forces and a more commercial outlook. The 2007 Dairy Development Policy intended to legalize small-scale traders and the separation of regulation and promotion functions at the Kenya Dairy Board; (v) sugar: while the only privatized sugar factory performs well, the other five publicly owned sugar factories continued to make losses.19 76. The Bank continued to emphasize the importance of agriculture reforms on smallholders’ wellbeing, but with only limited impact. The Bank conducted a Poverty and Social Impact Assessment PSIA (FY05-07) on the impact of reforms on the maize sector20 on smallholders’ welfare. Specifically, the PSIA analyzed the effects of a potential withdrawal of the National Cereals and Produce Board (NCPB) from direct operations in the domestic maize market on household income levels. The findings suggested that NCPB activities raise market prices for maize, transferring income from urban consumers and the majority of small-scale farm households. The findings of the PSIA were picked up by a detailed Agriculture Policy Review: Current Trends and Future Options for Pro-Poor Agricultural Growth (FY08). As the review                                                              19 Sugar is an important cash crop for a large number of smallholder famers in a poor region in Western Kenya, and reforms in the sector need to be considered carefully. 20 Reforms in the maize market are seen as having an impact on 98 percent of smallholders. 107 found, Government used the NCPB to intervene in the maize market with limited impact on the stated objective of stabilizing prices. Issues emerging from an analysis of the various links in the value chain highlighted the need to: (i) invest in rural roads and marketing infrastructure; and (ii) develop an institutional framework for agriculture marketing to shorten supply chains by helping build more trust and efficiency in the system. The findings are in line with the pipeline Kenya Agriculture Productivity and Agribusiness Project (FY09), which, among other things will focus on agribusiness and market development to support value chains aiming at value-addition and linking producers to input and output markets, incorporating a strong gender dimension. Environmental Management CAS Outcome: Tourism related to wildlife increases [Not Achieved] 77. Tourism in Kenya increased during the period under review and almost doubled between 2000 and 2007. Tourism arrivals were down about 35 percent in 2008 compared with 2007, probably due to the impact of the election crisis in addition to the global economic downturn. It would be a stretch, however, to suggest the Bank’s program would have contributed to tourism increase. There is almost no relationship between this CAS outcome and the Bank’s actual activities, except maybe for a small GEF project which is aiming at improving wildlife conservation in Nairobi National Park. The National Resource Management Project (FY07) aims to enhance the institutional capacity to manage water and forest resources. The project start-up was severely affected by the post-election crisis, and implementation has slowed-down substantially. Only recently have project activities accelerated. CAS Outcome: Increase development prospects in one of the poorest regions [Partially Achieved] 78. The Western Kenya CDD and Flood Mitigation Project (FY07) covers ten districts in Western Province and two (Siaya and Bondo) in the Nyanza Province, which are among the poorest regions in Kenya. The focus of this project demonstrated Government’s commitment to reduce poverty through direct targeting of communities of poor and vulnerable men and women, and was directly aligned with the added attention on equity of the CAS PR. Government further agreed to a decentralized delivery system for a more efficient use of resources. Budgetary resources were allocated and a multi-sector approach agreed, which necessitated anchoring the project at the Office of the President. Although the project is in its early stages, there are indications that community investments, youth development initiatives, malaria interventions and flood mitigation aspects of this project will have a positive impact on these poor communities. It is notable that the early warning system resulted in increased preparedness during October/November 2008 flooding as communities rescued themselves and secured their assets. 79. The CAS fell short of providing sufficient elements for a comprehensive evaluation or to capture all the activities aligned with this outcome. The only indicator was the development of a regional framework for improving fisheries management did not achieve expected results as yet. In the area of the Lake Victoria, the cross-country coordination for resource development achieved only partial results. The Western Kenya Integrated Environmental Management Project, despite some initial delays during FY06, produced encouraging results in providing 108 sustainable livelihood options for up-scaling. Some select results include the development of a number of participatory action plans, the delineation of micro catchment/land management units, organization of mobilization meetings, etc. However, the pilot character of this relatively small (US$4.1 million) GEF financed project has been limiting its contribution. On a more positive note, the second phase of the Arid Lands Resource Management Project (FY03; Additional Financing FY07) has achieved its stated objective of decreasing the vulnerability of the drought prone areas of Kenya by: (i) increasing access to key social services through district level and community level investments in water, education and health, halving the distance the population has to travel to these facilities; (ii) reducing response time to drought from six months to one month, and improving the targeting and quality of response; and (iii) mainstreaming the issues most relevant to pastoral communities in key national policy frameworks such as Vision 2030, the Land Policy, Gender Policy and other national policies. CAS Outcome: Establish the framework and regulations for improved water resource management [Partially Achieved] 80. The Bank supported the establishment of the Water Resource Management Authority in 2002, as a water resources regulator. Supported by the first Lake Victoria Environmental Project (LVEMP I; FY02-06), there was several progress with respect to this outcome. First, Kenya was the only country that developed water quality standards, which govern domestic and industrial effluents discharged into river and sewerage systems. The standards were approved by the National Environmental Management Authority, gazetted, and are supposed to be enforced by the water authorities water resources department. Second, there was substantial progress in establishing cooperative management mechanisms for water resources management with the Lake Victoria Basin Commission (LVBC) established by the three countries in July 2005.21 Third, the ICR for Kenya LVEMP I rated the institutional development impact as substantial, partly due to the mainstreaming of project implementation in the Kenya Agricultural Research Institute (KARI), and partly because of the capacity built at various institutions.22 Fourth, while there was a failure to exchange harmonized fisheries data at regional level it was not due to weak planning, but rather structural. As sovereign countries, with no legal framework for sharing data, it was difficult for countries to do so. The Protocol now requires all partner states to share data through the LVBC, not only for fisheries, but also water resources data. Finally, while the project is falling short on reporting more tangible outcomes, the LVEMP I did not have Logframe when it was originally prepared and approved. However, the M&E improved after the task team retrofitted the Logframe and monitoring indicators in 2003, following a stocktaking exercise. 81. The Western Kenya Integrated Environmental Management Project GEF (FY05) promotes a set of integrated ecosystem management interventions. The project successfully supports improving government capacity to conserve critical ecosystems to reduce water shocks in catchment areas. This objective remains highly relevant taking into consideration the continued deterioration of the natural resource base and its critical importance for water supply                                                              21 The LVBC is mandated by protocol on Sustainable Lake Victoria Development ratified by the three countries in November 2004. LVEMP I played a key role in the establishment of this regional institution mandated to oversee/coordinate sustainable utilization of the shared transboundary water resources. 22 4 Ph.D.s and 28 MSc degrees, plus many short courses. 109 and power generation. The project piloted relevant show cases of integrated land management approaches, which can easily be upscaled elsewhere. Specifically, the project showed that continued involvement of local communities in the decision making, subsequent training and exchange visits leads to greater community empowerment and environmental problem solving including higher uptake of new technologies. Within three years, the project contributed the raising and subsequent plantation of about one million tree seedlings of assorted species by the communities. Strengthen Communities and Local Governments CAS Outcome: Improve service delivery to targeted rural areas [Achieved] 82. There has been progress towards this CAS outcome in the Districts targeted by the second phase of the Arid Lands Resource Management Project. The key indicator, increase in access to rural water in targeted areas has been achieved. The Bank contributed to the achievement through the broadening of the scope and level of investment through the FY07 additional financing, originally focused on reducing livelihood vulnerability and enhanced food security. The original project objective was expanded to take into account scaled up activities focused on the provision of basic services such as water, education and health. Distance to water, schools and health centers have been halved. In addition, the project supported a successful mobile school initiative with thirty mobile schools function in six districts allowing 1,139 boys and 956 girls to attend school. The model and financing of the schools is now being provided by the Ministry of Education. Under the community driven development component, 430,312 beneficiaries received improved access to water for domestic consumption and livestock through water kiosks, water pans, boreholes, shallow wells and water tanks. Under the drought management component, investments in water development have resulted in the construction, improvement and rehabilitation of well over 500 boreholes, water supply systems, dams, shallow wells, spring protection, pans and tanks. CAS Outcome: Strengthen emergency response [Achieved] 83. The key indicator for this outcome was the operationalization of a drought and disaster management system with all evidence indicating successful achievement through support from the Arid Lands Project, which contributed to putting in place a drought contingency fund for nonfood drought-related expenditures. The Independent Evaluation Group (IEG) credited the first phase of the project for having “established a drought early warning and response system recognized by all stakeholders as successful in the eleven districts most adversely affected by drought”. The second phase expanded the system, which is managed by the Bank and co- financed by the European Commission,23 across 22 districts and evidence suggests that this expansion allowed for the response to the drought emergencies quick and on well targeted basis. The system allowed for the response to the 2005/06 drought to be faster and better targeted compared to previous years. The Bank reacted expeditiously to the 2005/06 drought and expanded the project’s reach from 22 to 28 districts through additional financing approved in July 2006. One of the achievements of the drought emergency response was stocking and                                                              23 Efforts are underway to put in place a multi-donor fund. 110 restocking which particularly benefitted women who would otherwise be destitute after they lose their stock. 84. The Western Kenya CDD and Flood Mitigation Project (FY07) is also aligned with this CAS outcome. The project aims to empower local communities to engage in sustainable and wealth creating livelihood activities and reduce their vulnerability to flooding. It seems to be on track, but still fails to report on any tangible progress indicators. The project was specifically mentioned by the CAS PR as a pilot to test mechanisms “[…] that would measure what changes in poverty can be attributed specifically to a given project.” Baseline and follow-up household survey samples were supposed to show the project’s contribution to outcomes and provide feedback to improve implementation. However, a household and community survey is still being analyzed and plans for community and youth investment projects are being reviewed. Some rehabilitation work on the dykes in the Budalangi plain, aiming at ultimately reducing the cost of floods in this flood-prone area, has been completed. CAS Outcome: Strengthen capacity of targeted local governments (predictable flow of resources, and downward and upward accountability) [Achieved] 85. The Agricultural Productivity Project (FY04-09) included components to build consensus for the reform of extension services and the empowerment of farmers and to implement pilot interventions in 20 districts for testing innovative and decentralized extension/research/education activities. According to recent assessments, pluralistic extension approaches and client empowerment support activities have already been tested in 20 pilot districts. Therefore, the target of 20 client forums functioning at district and divisional level appears to have been achieved. However, there is a need to improve on the collection of sex- disaggregated data and this will redressed by the KAPAP. 86. The Bank contributed to increasing the capacity of communities in arid lands to deal with drought cycles in an effective way in order to protect and develop their livelihoods. The Bank has, with substantial community co-financing (30 percent), financed micro-projects throughout the several phases of the Arid Lands Project. During the implementation of these projects, elite capture at the community level became clear and was acknowledged. Subsequently, improved participatory methodologies were adopted to address this issue. Substantial institutional development was brought about participation and strong co-financing yielded positive results. The project's community orientation contributed to resolving inter-ethnic conflicts, increasing voice and advocacy for the beneficiaries, and deepening national political awareness of the extreme problems faced in the Northeast, including the dramatic inequalities in terms of resource access of women and men. Some participatory process shortcomings were identified and corrected in timely fashion. For this reason the proportion of people in each ASAL district assessed as needing free food aid actually decreased (even if one factors-in the severity of the drought). In fact, from the 2000-01 drought to the 2004-06 drought five percent fewer people were assessed as needing and receiving food aid. The voice of people from project districts in local and national development has been louder. This was reflected in the completion of the draft on Arid Land Policies, now before Cabinet. The draft includes policies on pastoral land issues. Locating project management under the Office of the President proved to be an effective way of getting the attention of public servants and facilitating success. 111 Theme IV: Investing in People Health: Expanded Basic Health Care CAS Outcome: Improve access to health services [Partially Achieved] 87. This CAS outcome is considered partially achieved based on positive progress on selected indicators as well as unsatisfactory project performance. New evidence shows that the child mortality rate decreased from 115 per 1,000 in 2003 to 74 per 1,000 in 2008-09. Infant mortality also decreased from 77 per 1,000 in 2003 to 52 per 1000 in 2008-09. The rational for the improvement of these indicators may be attributed to various improvements in other health factors: improvement in the vaccination program (particularly measles), malaria interventions (especially bed nets), progress with the HIV/AIDS program (increase in use of ARVs and pediatric care), as well as the effects of positive economic growth. However, successful improvements in the access to health services may not necessarily be credited solely to Bank activities. There is also evidence that suggests that the maternal mortality rate has increased due to post election violence, with particularly high rates in the Central and Eastern Provinces. 88. The Decentralized Reproductive Health and HIV/AIDS Project (FY00-FY07) was directly aligned with this CAS outcome and included infant mortality as a key PDO indicator notwithstanding, as the project’s ICR pointed out, that this indicator is affected by a plethora of factors beyond Bank activities. The project attempted to expand the number of districts implementing integrated district work-plans and to promote rural and NGOs participation, including participation in contract service delivery. The project did not, however, ensure the establishment of the necessary institutional framework to empower districts to improve their plans, establish budgets and manage programs. According to a review by IEG, while key parts of the project design were considered appropriate, the risk mitigation strategy vis-à-vis the risks related to decentralized health care service delivery was considered “inadequate and overly optimistic”. No systematic monitoring of project indicators has taken place making it difficult to assess progress. In addition, some of the project components were cancelled. Nevertheless, some project outputs were achieved, including training of health workers in Integrated Management of Childhood Illnesses (IMCI), reaching 55 of 77 districts through training, etc. About 90 percent of users were satisfied with provision of health services by the end of the project. The CAS planned the delivery of a health SWAp in FY06, which was postponed to FY08 in the CAS PR and is now scheduled for FY10. CAS Outcome: Increase access to basic health care [Not Achieved] 89. The CAS used this as a separate CAS outcome, despite its strong relationship with the previous outcome. As with the previous outcome, key indicators performed below the targets set in the CAS. First, according to government data the percentage of children fully immunized increased to only about 72 percent in 2006-07 (the CAS target was 85 percent). Second, births attended by physician decreased from 44 percent in 2000 to 42 percent in 2006 (the CAS targeted an unspecified increase in this indicator). However, spending in rural health services did increase as percentage of the total health expenditures. 112 CAS Outcome: Enhance health procurement systems [Partially Achieved] 90. There is some evidence of improvements in procurement and financial management at the Ministry of Health. This was accompanied by the strengthening of the Kenya Medical Supplies Agency which increased efficiency in the sector. This assessment does not include AIDS-related products which are assessed below. The Bank contributed to both achievements. However, as explained before, the overall procurement system is very weak as the Public Procurement Authority is not yet fully operational and implementation of the existing law and procedures is a major issue. HIV/AIDS: Halt and Reduce Spread of HIV/AIDS CAS Outcome: Prevalence of HIV/AIDS Falls [Achieved] 91. Overall prevalence rates in Kenya are falling. The epidemic peaked in 1997-98 with an overall HIV prevalence of around 10 percent in adults. The most recent data indicates that adult prevalence has declined to about 5 percent in 2006, although the rates of infection are still almost twice as high among women, especially the young compared to those of men. ARV therapy increased from an estimated 24,000 in 2004 to an estimated 166,000 in 2007 in both the private and public sectors. Governance in the sector has improved and the reputation of the national institutions involved in the fight against AIDS has been enhanced and their programs are set to achieve better results in the near future. There is still need to mainstream HIV/AIDS in educational program. 92. The Total War against AIDS (TOWA, 2007) aims to improve the institutional performance of the National AIDS Control Council (NACC) and supports the implementation of the Kenya National AIDS Strategic Plan (KNASP). It is showing some progress. Firstly, the NACC “composite score” on the annual independent performance evaluation was assessed at a fairly high level in 2006. The goal of TOWA is to maintain this level of capacity and, so far, it has attained that goal. Secondly, the numbers of people undergoing testing and receiving counseling is on track, having increased from 750,000 in May 2007 to over 814,000 in December of the same year. It is supposed to reach 900,000 by 2010. Thirdly, HIV/AIDS and life skills education curriculum has not been mainstreamed yet but efforts continued in this regard. In order to sensitize the population, efforts by Ministry of Education and other organizations at district level continued. Stigma is still high. 93. The HIV/AIDS Disaster Response Project (FY00-FY07) tried to “achieve, with the active and broad participation of communities, the multi-sectoral HIV/AIDS primary targets set out in the Strategic National Plan". Despite several challenges with implementation, the project set the stage for further progress under TOWA. NACC was completely restructured and transformed from an institution plagued by fraud and corruption into one that is significantly more effective and where management staff is now competitively hired under principles of skill-based recruitment and selection. The perception of NACC by civil society organizations – who have been the most vocal critics of mismanagement and fraud – has recently changed dramatically. For example, in recent Global Fund negotiations, civil society suggested that “the new NACC” should become the principle recipient of Global Fund grants. Recent work, led by NACC, to mainstream HIV/AIDS in the Government budget cycle and the MTEF has increased the profile for HIV/AIDS in core governance processes. The substantial improvement in the institutional 113 performance of the NACC has been confirmed by the annual performance evaluation which is carried out by the Inspectorate of State Corporations. The significant improvement in NACC governance and capacity over the past year (2005-06) is reflected in the NACC being attributed a score of 2.4 (“very good”). This positive institutional impact was partly due to the active Bank engagement and support working together with other donors. The management of stocks and medical supplies continues to be very poor, resulting in losses (expiration, damages, obsolescence) and higher than needed stocks in the districts. Education: Achieve Universal Primary Education CAS Outcome: Improve educational attainment [Achieved] 94. There has been satisfactory progress on several indicators and significant Bank contribution. The targets selected by the CAS were mostly surpassed, including an increase in primary completion rates to 81 percent (above the 70 percent CAS target) and an impressive increase in transition rates to secondary to currently 70 percent (above the CAS target of 50 percent). The CAS also aimed at a decrease of the primary repetition rate to 5 percent, but fell slightly short of the target reaching 6 percent. 95. The Free Primary Education Project (FY03-FY07) was squarely aligned with the CAS framework. The main objective was to support implementation of the governments’ free primary policy (see below). The focus on improving educational attainment was continued with the Education Sector Support Program (FY07), which records improvements in learning achievements. For instance, during 2005-06, mean scores of the national learning survey (in English) increased from 42 to 46 percent; in Math from 47 to 54 percent and in Science from 51 to 53 percent. Local school management committees, parents and children increasingly rate their school as satisfactory or above for the learning process. These outcomes capture the impact of improvement in the pupil to textbook ratios. In 2003, the pupil-textbook ratio across Kenya was highly uneven ranging from 5:1 to 40:1 (Standard 1); 4:1 to 25:1 (Standard 5) and 3:1 to 34:1 (Standard 8). By 2007, sharing rates improved in 90 percent of schools in the country with an average pupil-textbook ratio of 3:1. CAS Outcome: Increase access to education for the poor/Reduce regional disparities in education [Partially Achieved] 96. The introduction of free primary education resulted in a considerable increase in education enrollments and access to education by the poor. However, regional disparities remain. Free primary education was introduced before the CAS, in January 2003, effectively abolishing primary school fees and levies charged to parents. National primary enrollment increased from 80 percent in 2003 to about 92 percent in 2007 (the CAS target was 85 percent) as children who had previously dropped out or never attended school returned to the classrooms. However, female enrollment still lacks behind overall enrollment rates (89 percent against an average of 92 percent). In addition, the CAS was aware of significant regional disparities and therefore aimed at an increase in enrollment rates in the Northeast from 17 percent to 35 percent. All indications are that, even though the CAS’s baseline indicator of 17 percent seems to have been too low (according to UNDP enrollment was 26 percent in 2003), progress in the Northeast remained disappointing with current total enrollment at only about 28 percent including only about 21 percent female enrollment. 114 CAS Outcome: Strengthen reporting mechanisms [Achieved] 97. A 2006 Report by independent auditors/consultants on expenditure tracking concluded that transfer of funds to schools did improve efficiency and ownership. In most cases, funds received by schools have been correctly recorded and used for intended purposes, according to the report. The report concluded that a large majority of the schools have put in place systems that ensure transparency and value for money. Delivery of CAS Program 98. Delivery of the country program as envisaged by the CAS/CAS PR was unsatisfactory. As demonstrated in Figure 10, the only time the lending program was exactly delivered as planned was FY04, the year the CAS was written. The only other year the Bank program was more or less in line with its strategy was in FY07 during the drafting of the CAS PR. Any other year, the Bank’s program was under-delivered. In FY05-FY06 and FY08, the Bank’s program delivered on average less than 50 percent of IDA commitments planned in the CAS/CAS PR. The worst year was FY06 when the actual delivery of US$65 million, 70 percent below planned commitments of US$205 million. In FY08, which was interrupted by the election crisis, the program only delivered US$150 million instead of the US$397 million anticipated by the CAS PR. As indicated above, project approval was subject to periodic interruptions associated with negative events in the country, sometimes governance issues not related to any Bank-financed project. Figure 10: Planned versus actual Lending Commitments 500 463 450 433 410 397 400 350 US$ Million 300 265 265 250 210 205 200 175 150 150 120 100 65 50 0 2004 2005 2006 2007 2008 2009 Fiscal Year * Includes regional projects FY04 CAS Planned Actual Delivered FY07 CASPR Planned 99. Annex 18 provides detail of planned versus actual deliveries. Delays in project delivery have been common. The largest impact on fluctuations in commitments came from three planned development policy operations. The FY05 Programmatic Structural Adjustment Credit; 115 the FY06 Financial Sector Adjustment Credit and the FY07 Poverty Reduction Support Credit all reached relatively advanced stages of design but have never been delivered. A major credit for an Economic and Social Empowerment Program was planned for FY08, but ultimately was split into three smaller projects, e.g. the Cash Transfer for Orphans and Vulnerable Children Project delivered in FY09 and a Youth Empowerment program currently planned for FY10. Many projects continued to slip, but nevertheless managed to stay within the pipeline for several years. For example, the Health SWAp was first planned for delivery in FY05; it is currently planned for FY11. Lake Victoria 2, a regional project with a large Kenya component, was supposed to be delivered in FY06. It has finally been delivered in FY09. The Judicial Performance Improvement TA originally planned for FY07 has been substantially delayed awaiting results of the Constitution Reform process. 100. A similar picture of over-promising versus under-delivery emerges with regard to non- lending services. As Figure 11 shows, the Bank tended to plan more analytic and advisory activities than it ultimately managed to deliver. However, in some years, additional non-lending that was not originally planned in the CAS/CAS PR period was completed. The details are provided in Annex 19. Assessing actual delivery is difficult in a large, highly active and complex country program as Kenya. Many informal studies are being carried-out often funded through trust funds and other channels outside the Bank’s budget. Some economic and sector work is delivered as comprehensive “drafts”, but never formally finalized. There is no conclusive evidence that the under-delivery of non-lending services have affected the quality and/or design of projects, albeit they tend to impact in a much longer period. Figure 11: Planned versus actual Non-lending Activities 12 11 10 9 8 8 8 8 7 7 6 6 5 5 4 4 2 0 2004 2005 2006 2007 2008 Fiscal Ye ar CAS Planned Actual Delivered CAS PR Planned Portfolio Performance 101. The Bank’s Kenya program ranked below the regions as well as the Bank-wide average on outcomes rated satisfactory by IEG throughout the entire review period. Notwithstanding that the number of projects rated by IEG is small. Paradoxically, the portfolio’s ratings with respect 116 to sustainability and institutional development impact remained above the regions’ and the Bank- wide averages for most of the time except FY05. Table 5: IEG Evaluations Kenya Selected Indicators of Bank Portfolio Performance and Managem ent FY04-FY09 Indicators FY04 FY05 FY06 FY07 FY08 FY09 Average FY04-09 Average FY99-01 Portfolio Size 11 12 12 15 14 15 13 13 Total Comm . Amount (US$M) 629.7 619.7 594.7 914.7 999.7 1422.7 863.5 625.7 IEGEvaluations Number of Projects 4 2 2 … 1 … 2 2 Total Evaluated (US $M ) 274.5 92.1 95.6 … 36.0 … 124.5 78.2 Outcom e %Satisfactory 50 0 50 … 0 … 33 17 Sustainability % Likely 100 50 100 … … … 86 17 Inst. Deve. Impact % Substantial 50 0 100 … … … 50 17 AFR Outcom e %Satisfactory 68 72 66 60 76 … 68 57 Sustainability % Likely 65 71 67 100 … 68 47 Inst. Deve. Impact % Substantial 47 52 44 100 … … 49 34 Bank Outcom e %Satisfactory 77 81 83 76 79 100 79 73 Sustainability % Likely 79 82 83 86 … 100 81 66 Inst. Deve. Impact % Substantial 56 55 55 86 … 100 56 44 *IDA projects only … = N/A 102. There have been on average 2.7 problem projects during the CAS period. The highest number of problem projects was 4, in FY06. Most projects faced problems with respect to implementation performance. M&E issues improved somewhat during the CAS period responding to concerted efforts. However, no specific measurement of outcomes was provided while monitoring components in several projects. By FY04 only 9 percent of projects were managed in the field. By FY09, a quarter of the projects were field managed. Table 6: Select Indicators of Portfolio Performance Kenya Selected Indicators of Bank Portfolio Performance and Management FY04-FY09 Indicators FY04 FY05 FY06 FY07 FY08 FY09 Average FY04-09 Average FY99-01 Number of Projects Under Implementation 11 12 12 15 14 15 13 12 Total Commitment Amount (US $ M) 629.7 619.7 594.7 914.7 999.7 1422.7 863.5 613.8 Total Disbursed in FY 76.7 55.7 47.0 65.0 150.0 140.0 89.1 108.7 Average of Age (Yrs) 2.3 2.1 2.6 2.3 2.8 3.3 2.6 3.6 Total # of Projects At Risk 5 2 4 2 2 4 3.2 6.0 Total # of Problem Projects 3 1 4 3 2 3 2.7 3.7 # of IP Problem Projects 3 1 4 2 2 3 2.5 3.3 # of DO Problem Projects 2 1 3 2 1 2 1.8 2.7 M&E (%) 27.3 16.7 8.3 6.7 7.1 7.0 10.0 11.0 Realism (%) 60.0 50.0 100.0 100.0 100.0 75.0 78.9 56.3 Proactivity (%) 100.0 66.7 0.0 75.0 100.0 0.0 69.0 69.0 Field Managed (%) 9.1 8.3 8.3 20.0 21.4 28.6 16.7 0.0 BB Supervision Effort ($ ' 000) 1207 1676 1332 1942 2505 1666 1721 1491         117 Annex 17: CAS Completion Report Results Framework LONG-TERM DEVELOPMENT PRIORITIES FOR WORLD BANK DURING CAS PERIOD GOALS Strategic and long-term Desired outcomes during Outcome indicators during country outcomes and Progress indicators Bank Group assistance CAS period CAS period indicators OVERALL OBJECTIVE: Growth with Equity and Poverty Reduction INDICATORS: GDP growth from 1.2% in 2002 to 4.5% in 2006/07 – Achieved (Outcome 6.9% in 2007; Source: WDI September 2008) Proportion of people below absolute poverty line reduced by 10 percentage points in 2006 from 57% in 1997 (MDG1) – Achieved (Outcome 47%; Source: 2005/06 KIHBS) THEME I: Strengthening Public Sector Management and Accountability Public sector management Pillar 1 Economic Growth Pillar 1 Economic Growth  MTEF process integrated with Portfolio annual budget process. –  Fiscal deficit contained  Significantly reduce net  Government meets fiscal and Achieved (Outcome MTEF PSM TA – (FY02- FY05) sought to achieve around 3-4% of GDP. – domestic borrowing. – policy targets for net and annual budget process more effective and efficient utilization of public Achieved (Outcome 1.7% Achieved domestic borrowing. – have been integrated and time resources; Implementation and outcomes of GDP overall deficit Achieved (Outcome 18.4% of tables combined. Source: unsatisfactory including grants in GDP net stock of domestic CIFA) 2006/07 from 3.7% in debt in 2006/07 from 21.4% 2002/03; Source: IMF in 2003/04. Source: IMF, PSAC; PRSC/ERSSC – not delivered. and MOF) MOF )  Realistic annual budgeting  Alignment of MTEF, IP-ERS Institutional Reform Capacity Building and medium-term and budget improves. – (IRCB) TA – (FY06) seeks to strengthen public projections. [Indicators Achieved (Budget is aligned financial management systems and not defined] – Not with the Policy Framework of responsiveness to public expenditure policy Achieved (16.7% Vision 2030; Source: IRCB priorities; Implementation satisfactory disconnect between TA) budget intent and actual  Share of the budget allocated spending—actual for capital expenditure AAA spending below budget increases significantly. – estimates—in 2006/07 Achieved (Outcome 4.4% of Public Expenditure Review (FY04) – helped from average 13.4% in GDP development strengthen medium-term perspective in budget 2000/01-2005/06; Source: expenditure in 2006/07 from making. Staff calculations; MOF 3% in 2003/04. Source: IMF Strengthening Public Expenditure data) and MOF) Management (FY05) – not delivered.  Spending increasingly 118 LONG-TERM DEVELOPMENT PRIORITIES FOR WORLD BANK DURING CAS PERIOD GOALS Strategic and long-term Desired outcomes during Outcome indicators during country outcomes and Progress indicators Bank Group assistance CAS period CAS period indicators reflects strategic priorities Public Expenditure Financial Accountability and policies. [Indicators (FY06) – assessed the performance of the public not defined] – Partially financial management system. Achieved (see below) CIFA (joint PER-CFAA-CPAR) (FY06) – Joint assessment of budgeting, public financial management and procurement to improve expenditure management. CEM (FY08) – see below. Kenya Poverty and Inequality Assessment (KPIA) (FY08) – see below. Budget/CIFA Notes (FY08) – not delivered. Public sector management Pillar 2 Poverty Reduction Pillar 2 Poverty Reduction  None specified Portfolio (cont.)  Improve poverty and  Budget allocation for poverty PSAC; PRSC/ERSSC – not delivered.  Spending increasingly growth effectiveness of targeted programs does not reflects strategic priorities public spending – fall below 4% of GDP. – IRCB TA (FY06) – see above. and policies [Indicators Partially Achieved Achieved (Increase in not defined] – Partially allocation to Core Poverty AAA Achieved (Outcome Programs increased from Increased spending in: 10% share of overall budget PER (FY04) – see above. infrastructure 3.3% of to 14% in 2003/04-2006/07; GDP in 2006/07 from Source: KPIA) Strengthening Public Expenditure 1.4% in 2002/03; Management (FY05) – not delivered. agriculture 1.2% from CIFA (joint PER-CFAA-CPAR) (FY06) – see 1.1%; Modest decline in spending in: health 1.2% above. of GDP in 2006/07 from 1.4% in 2002/03; Poverty Maps (FY06) – combines population education 5.7% from census information with household survey data 5.8%; Source: MOF) to estimate poverty and inequality at high levels 119 LONG-TERM DEVELOPMENT PRIORITIES FOR WORLD BANK DURING CAS PERIOD GOALS Strategic and long-term Desired outcomes during Outcome indicators during country outcomes and Progress indicators Bank Group assistance CAS period CAS period indicators of geographic detail. Jobs in Kenya (FY07) – not delivered. Budget/CIFA (FY08) – not delivered. KPIA (FY08) – analyzes the budget as an instrument for promoting poverty reduction and addressing inequality. CEM (FY08) – discusses the fiscal policy, i.e. the creation of fiscal space for infrastructure and social spending in health and education, required to increase growth. Public sector management Pillar 3 Governance Pillar 3 Governance  IFMIS is used in at least two Portfolio (cont.) central ministries. – Achieved  Improve transparency in  Ratings on PEM-AAP (IFMIS is operational in PSM TA – see above.  Size of the public service budget reporting – increase from 3 out of 15 in MOF, Agriculture, Trade & rationalized: wage bill to Partially Achieved 2003 to 6 out of 15 in 2006. – Industry, Local Govt, PSAC; PRSC/ERSSC – not delivered. GDP from 9.2 percent in Achieved (PEM-AAP Planning & Nat Dev; Source: 2002/03 to 8.5 percent in IRCB TA)  Improve public financial indicator improved from 3 in IRCB TA (FY06) – aims to enhance public 2005/06 – Achieved management (redundant 2003 to 6 in 2006, however, service delivery through the effective (Outcome 7% in 2007; see below) key elements of budget Source: IMF) transparency unmet) implementation of Results Based Management; Implementation satisfactory .  Improved incentive structure, including AAA wages, for public service employees adopted PER (FY04) – see above. [Indicators not defined] Not Achieved. (Average Strengthening Public Expenditure wages in the public sector (including central govt, Management (FY05) – not delivered. local govt, other govt 120 LONG-TERM DEVELOPMENT PRIORITIES FOR WORLD BANK DURING CAS PERIOD GOALS Strategic and long-term Desired outcomes during Outcome indicators during country outcomes and Progress indicators Bank Group assistance CAS period CAS period indicators bodies and teachers) have decreased from approximately 654,200 Public Expenditure Financial Accountability KSh in 2005 to 625,300 (FY06) – see above. KSh in 2007. Source: KNBS, Kenya Facts and CIFA (joint PER-CFAA-CPAR) (FY06) – see Figures 2008) above. CEM (FY08) – see above. Budget/CIFA (FY08) – not delivered. Public sector management Pillar 3 Governance Pillar 3 Governance   Portfolio (continued) (New section)  Greater access to  Freedom of Information  Improving governance information – Partially legislation under FLSTAP (FY05) – aims to strengthen the legal [Indicators not defined] Achieved implementation, with and judicial capacity that will ensure broad provision for whistle blower access to financial and related legal services; protection – Not Achieved Implementation: moderately satisfactory  E-government initiative under implementation, with public access to procurement – IRCB TA (FY06) – aims to strengthen public Partially Achieved. (Kenya financial management systems to enhance launched the Directorate of transparency, accountability, and e-Government in March responsiveness to public expenditure policy 2004. Most of the government priorities; Implementation: satisfactory online systems are not fully transactional yet. No information regarding public StatCap (FY07) – aims to establish a access to procurement. sustainable national statistical system to Source: Kenya directorate of provide reliable, timely and accurate data in e-government website) accordance with international standards.  Recording and disclosure of Implementation: satisfactory court proceedings in at least Transparency and Infrastructure 20 courts – Achieved Communications (FY07) – contributes to i)  New courts and improved 121 LONG-TERM DEVELOPMENT PRIORITIES FOR WORLD BANK DURING CAS PERIOD GOALS Strategic and long-term Desired outcomes during Outcome indicators during country outcomes and Progress indicators Bank Group assistance CAS period CAS period indicators judicial and prosecutorial lower prices for international capacity and capacity help reduce the extend the geographic reach of broadband backlog of court cases from 1 networks; and (ii) improve government million at end 2006 – efficiency and transparency through e- Achieved (Cases pending in law courts decreased by 8% government applications; Implementation: from 814,137 in 2006 to moderately satisfactory. 749,031 in 2007. Source: KNBS Economic Survey 2008 Highlights) AAA  Public access to declaration of assets made by public CEM (FY08) – see above. officers Not Achieved Budget/CIFA (FY08) – not delivered. Justice for the Poor – not delivered  Enhanced private sector participation in port operations, including container port operations in Mombasa – Not Achieved  Independence of the statistics system, including governance surveys, through establishment of National Bureau of Statistics – Partially Achieved (KNBS Board established July 2007. Board meeting regularly to discuss issues relating to transition to semi-autonomy. Source: STATCAP ISR 6/30/08)  Creation and employment of community-level oversight mechanisms and their 122 LONG-TERM DEVELOPMENT PRIORITIES FOR WORLD BANK DURING CAS PERIOD GOALS Strategic and long-term Desired outcomes during Outcome indicators during country outcomes and Progress indicators Bank Group assistance CAS period CAS period indicators involvement in monitoring of government procurement – Not Achieved (initiatives did not materialize)  Public Procurement Authority is operational –Partially Achieved (The Authority was established on 1st January, 2007 when the Public Procurement and Disposal Act, 2005 came into operation. Source: Public Procurement Oversight Authority website)  Greater stakeholder  A growing share of involvement –Partially companies doing business Achieved with the government are prequalified Not Achieved (No evidence of progress)  Information on government procurement contracts published on government websites (e.g., names, decisions, bidders/tender outcomes, and contractors’ performance) – Achieved (Procurement information available on the Kenya Public Procurement Oversight Authority website. Source: Public Procurement Oversight Authority)  Companies found to have 123 LONG-TERM DEVELOPMENT PRIORITIES FOR WORLD BANK DURING CAS PERIOD GOALS Strategic and long-term Desired outcomes during Outcome indicators during country outcomes and Progress indicators Bank Group assistance CAS period CAS period indicators been involved in corruption are blacklisted – Not Achieved (No evidence of progress)  A risk-based internal audit approach, including establishment of ministerial audit committees, is operational in at least two ministries – Achieved (The Risk Based Internal Audit Approach has been adopted and ministerial audit committees established. Source: IRCB TA ISR 6/30/08)  Key recommendations of the Business Licensing Report implemented under a time- bound plan – Partially Achieved (Key recommendations implemented, but further progress required)  Improvement in PFM – Not Achieved Parastatal and regulatory Pillar 1 Economic Growth Pillar 1 Economic Growth  Privatization bill enacted by Portfolio reform Parliament. – Achieved (The  Reduce fiscal burden of  Privatization program privatization bill was passed PSAC; PRSC/ERSSC – not delivered.  Reduce fiscal burden of transfer to parastatals – published – Partially by parliament on August 4, transfer to parastatals – Partially Achieved Achieved (Privatization 2005) SME Solutions Center (IFC) Partially Achieved (See  Reduce costs and improve program discussed by  Privatization strategy specific discussion on quality of infrastructure Cabinet in December 2008) approved by cabinet and under implementation. – AAA infrastructure below) services (See specific  Reduce costs and improve discussion on Partially Achieved (While the 124 LONG-TERM DEVELOPMENT PRIORITIES FOR WORLD BANK DURING CAS PERIOD GOALS Strategic and long-term Desired outcomes during Outcome indicators during country outcomes and Progress indicators Bank Group assistance CAS period CAS period indicators quality of infrastructure infrastructure below) privatization strategy has PER (FY04) – see above. services – Partially been approved, Achieved (See specific Pillar 3 Governance Pillar 3 Governance implementation is lacking Public Expenditure Financial Accountability discussion on with the Privatization  Regulatory framework (FY06) – see above. infrastructure below)  Strengthen regulatory Commission established in  Rationalize regulatory strengthened. – Achieved December 2008 and framework – Achieved CIFA (joint PER-CFAA-CPAR) (FY06) – see framework for energy, (The regulatory framework privatization of some water, and agricultural for roads, energy, water, and parastatals are behind above. sectors – Achieved (The agriculture has improved. schedule) regulatory framework for See below.) CEM (FY08) – see above. roads, energy, water, and agriculture has improved. FSAP (FY04) – see below. See below.) Advisory service on liberalization of telecom sector (FY06) Governance Note (FY07) – provided empirical evaluation of the governance situation and recommendations for a diagnostic framework Update Governance Note (FY08) – not delivered. State-owned Enterprise Review with IFC (FY08) Monitoring and evaluation Pillar 1 Growth Pillar 1 Growth  Plans for assessing results of Portfolio projects included in all Bank Integrated monitoring and  Annual PRSP progress  Annual PRSP progress projects taken to the Board StatCap (FY07) – see above. evaluation system delivers reports produced that are reports produced of FY05–07. – Achieved (All timely feedback into of increasingly good increasingly high quality. – projects approved during the PSAC; PRSC/ERSSC – not delivered. planning and budget quality – Partially Partially Achieved (Quality CAS/CAS PR period have functions [Indicators not Achieved of Kenya’s Annual PRSP results frameworks and defined] measurable indicators.) IRCB TA (FY06) – see above. progress reports has been increasing; however,  Key indicators for monitoring frequency to improve further implementation of IP-ERS Transparency and Communications 125 LONG-TERM DEVELOPMENT PRIORITIES FOR WORLD BANK DURING CAS PERIOD GOALS Strategic and long-term Desired outcomes during Outcome indicators during country outcomes and Progress indicators Bank Group assistance CAS period CAS period indicators Source: JSAN) identified. – Achieved (Core Infrastructure APL (FY07) indicators identified and Pillar 3 Governance tracked in the progress AAA Pillar 3 Governance reports.)  Access to public  Information sharing and information and quality of  The IMF’s General Data feedback modalities for JSAN (FY07) – actual. data (survey and Dissemination System is participatory M&E with civil administrative) increased under implementation. – society agreed. – Achieved – Achieved Achieved (Statistical system (Citizen report cards for water services.) IDF grant to strengthen M&E is being designed in line with IMF’s general data  Statistics Act enacted. – dissemination system; Achieved (The act was IDF grant for results and accountability (with Source: StatCap ISR) enacted in July 2006.) IRCB TA, FY06) – see project above.  Public information access  Public expenditure tracking policy adopted. – Achieved surveys undertaken. – Poverty Maps (FY06) – see above. (Statistics Act guarantees Achieved (PETS for public access to statistical education and health sector)  KPIA (FY08) – see above. data) Collaboration with academic institutions on impact evaluation Theme II: Reducing the Cost of Doing Business and Improving Investment Climate Financial services Pillar 1 Economic Growth Pillar 1 Economic Growth  Significant progress in Portfolio resolving the issue of Improved environment for  Deepened financial  Credit to private sector nonperforming loans from FLSTAP (FY05) – aims to strengthen the legal private savings and current level of 26 percent. intermediation –Achieved increased from 2003 level of and judicial capacity that will ensure broad investment: private credit of 23 percent of Achieved (Nonperforming access to financial and related legal services; GDP. Achieved (Credit to the loans decreased to 19.3 Implementation: moderately satisfactory  Credit to private sector private sector increased to 27 percent in 2005 and 10.4 from 27 percent to 40 percent in 2008. Source: percent in 2008.Source: ISR) percent of GDP during FLSTAP ISR)  Credit information sharing FINSRC – not delivered. 2004–07 –Achieved (see among banks established. – next column) Pillar 2 Poverty Reduction Not Achieved (Amendments Micro, Small, and Medium Enterprise  Stable and effectively Pillar 2 Poverty Reduction to the banking act but not yet (MSME) Competitiveness Project (WB/IFC) regulated financial sector. submitted to the Attorney (FY05) - aims to increase productivity and 126 LONG-TERM DEVELOPMENT PRIORITIES FOR WORLD BANK DURING CAS PERIOD GOALS Strategic and long-term Desired outcomes during Outcome indicators during country outcomes and Progress indicators Bank Group assistance CAS period CAS period indicators [no indicator]  Expanded access to  Proportion of adult General's office; Source: employment in participating MSMEs through  Stock of nonperforming financial services – population (18+) that uses FLSTAP ISR) expanding and deepening financial services loans reduced by one third Achieved financial services provided by  Capacity building program available to MSMEs among others; during 2004–2007 – formal financial service under FLSTAP implemented. Implementation: moderately satisfactory Achieved (see next providers (regulated banks (Progress, although slower column) and Postbank) rises from the than expected. Progress has 2006 baseline of 16%. been slowed due to a change AAA Achieved (About 33% of in 2006 in the implementation adult population uses arrangements. The project Post-FSAP (FY04) Capacity Enhancement financial services provided by may be restructured if Program and WBI Partnership Program formal financial services implementation does not pick including: Insolvency ROSC (new in FY05) – providers in 2008. Source: up soon) actual FLSTAP ISR) Pension Note (FY07) – actual. Pillar 3 Governance Pillar 3 Governance Update to Governance Note (FY08) – note  Central bank fully delivered.  Enhanced economic responsible for banking Urban Informal Sector ICA (FY06) governance in banking supervision. – Partially sector (merged) Achieved (Progress, but  Reduced state control in slower than expected, due to banking sector and delays in implementing thereby contingent FLSTAP) liabilities – Partially  State controlled share in the Achieved (Cabinet paper banking sector falls below on NBK privatization has current level of 20 percent. – been prepared but is not Achieved (The state’s share yet approved. Source: declined to 18.3 percent FLSTAP ISR 11/20/08) because of stronger asset growth in privately controlled banks) Private sector development Pillar 1 Economic Growth Pillar 1 Economic Growth (See financial sector, transport, Portfolio energy)  Increase private sector  Telecom costs reduced. –  Reduced cost of Energy Sector Recovery Project (FY05) – investment from 9 percent Partially Achieved international calls between  Telecom sector, including actual. of GDP in 2000–02 to 12 127 LONG-TERM DEVELOPMENT PRIORITIES FOR WORLD BANK DURING CAS PERIOD GOALS Strategic and long-term Desired outcomes during Outcome indicators during country outcomes and Progress indicators Bank Group assistance CAS period CAS period indicators percent of GDP in 2007  Improved environment 2003 and 2006. – Partially Internet, liberalized. –  500,000 jobs created for private sector Achieved (Cost of Partially Achieved (Telkom Micro, Small, and Medium Enterprise annually during 2003–06 investment. –Achieved international calls on a Kenya Limited partially (MSME) Competitiveness Project (WB/IFC) – Partially Achieved mobile phone marginally privatized in 2007; (FY05) – see above (Increase in recorded reduced from an average of Safaricom IPO selling 25% employment from 2003 to KSh 99.79 per international stakes owned by TKL in June 2004 by 487,800 jobs, call in 2004 to KSh 93.95 in 2008 Sources: CEM; Kenya from 2004 to 2005 by 2007. Source: Media Monitoring) PSAC; PRSC/ERSSC – not delivered. 505,600 jobs, from 2005 Communications to 2006 by 471,800 jobs Commission of Kenya, SME Solution Center (IFC) and 2006 to 2007 by Annual Report and 474,700 jobs. Employment Communications Statistics AAA includes wage employees, Report 2008) self-employed, and  Investment climate improves. PER (FY04) – see above. informal sector. Source: – Partially Achieved (Cost of Kenya National Bureau of starting a business has fallen Statistics) from 54 percent of income Financial Sector Assessment Program (FY04) per capita in 2004 to 40% in – actual. 2008; time to start a business reduced from 60 days in 2004 Growth and Competitiveness Study (FY04) – to 30 days in 2008; Source: not delivered. Doing Business; Reduced administrative compliance costs imposed by licenses on Investment Climate Assessment (FY04-08) – private sector; source: FIAS actual. M&E study) FIAS Administrative Barriers Study (FY06) – actual. Pillar 2 Poverty Reduction Pillar 2 Poverty Reduction FIAS Regulatory Performance and Capacity  Number of formally  Generate employment in Building Project and Investment Climate registered MSMEs increased formal sector – Partially Program (begun FY08/09) - actual by at least 25% by 2007 over Achieved 2004 level. Indicator Not Available/Not Achieved Diagnostic Trade Integration Study (FY06) – (Implementation of the actual. 128 LONG-TERM DEVELOPMENT PRIORITIES FOR WORLD BANK DURING CAS PERIOD GOALS Strategic and long-term Desired outcomes during Outcome indicators during country outcomes and Progress indicators Bank Group assistance CAS period CAS period indicators relevant project MSME Project component was TA for Improving Doing Business Indicators delayed and to date there has (FY08) been no measurement of progress.) Tourism in KE (FY08) Pillar 3 Governance (See governance indicators of Urban Informal Sector ICA (FY06) Pillar 3 Governance energy and water sectors, below)  Strengthen regulatory framework of energy and water (Redundant-see governance indicators of energy and water sectors, below.) Infrastructure Pillar 1 Economic Growth Pillar 1 Economic Growth  Number of kilometers of Portfolio roads rehabilitated according Accessibility, affordability,  Reduce costs of doing  Tons of freight handled by to plan. – Not Achieved Regional Trade Facilitation (FY03) and reliability of business (Redundant-see the port rises. – Achieved (Indicator not available, but infrastructure services above) (Total import/export cargo construction ongoing aiming Northern Corridor (FY04); Additional improved  Enhance Kenya’s role as handled has increased from to reduce road roughness of Financing (FY08; moved to FY09) regional trade hub and 1.6 million in 2002 to 16 project roads; Source: ISR) strengthen Kenya’s links million in 2008. Source:  Nairobi airport cleared for Transport direct flights to/from the US (i) increase efficiency of road transport along to international markets – Kenya Ports Authority Partially Achieved website) safety and security status by the Northern Corridor to facilitate trade and  Road transport cost 2007. – Not Achieved (Combination of  Number of passengers regional integration (58 percent weight); (ii) reduced (HDM 4) originally two outcomes) passing through Jomo (Objective was delayed but enhance aviation safety and security to meet  Road accidents in urban Kenyatta Airport rises achieved in April 2009. international standards (30 percent weight); areas decline between 2004 and 2007. – Common security regulations  Cost of road construction Achieved (International for EAC adopted, and civil (iii) promote private sector participation in the and maintenance in real passengers rose from 800,000 aviation safety organization management, financing and maintenance of terms declines with in 2002 to 4 million in 2008) has been established; Source: road assets; Implementation: satisfactory. transparent and fair Northern Corridor AF competitive processes Project Paper.) PSAC; PRSC/ERSSC – not delivered. adopted for tendering  Staff and capacity of KCAA 129 LONG-TERM DEVELOPMENT PRIORITIES FOR WORLD BANK DURING CAS PERIOD GOALS Strategic and long-term Desired outcomes during Outcome indicators during country outcomes and Progress indicators Bank Group assistance CAS period CAS period indicators Pillar 3 Governance Pillar 3 Governance is adequate to conduct Security at major airports aviation safety inspections. – Public Sector Reform TA – not delivered. enhanced  Strengthen institutional  Three autonomous road Achieved (KCAA now nearly East Africa Trade and Transport Facilitation and regulatory framework authorities established to fully staffed including flight Project (FY06) to improve maintenance streamline ownership, safety and airworthiness of infrastructure – management, accountability inspectors and licensing Achieved and financing of all road specialists; Source: Northern AAA  Improve sector network activities in the Corridor AF Project Paper.) management through country. – Achieved (Three Diagnostic Trade Integration Study (FY06) private sector road authorities, for national participation – Partially highways, urban and rural Achieved (one segment of roads, launched in September the Northern Corridor 2008 with appointment of road offered for tolling; Board members and Board members of the chairpersons by December new Road Authorities 2008; Source: Northern include representation Corridor AF Project Paper) from the private sector)  Roads Act amended to permit private participation. – Partially Achieved (Kenya Roads Bill 2007 enacted by Parliament, but key amendments missing to make framework operational. Source: Northern Corridor ISR 12/23/08) Pillar 1 Economic Growth Pillar 1 Economic Growth  Sustainable, transparent rural Portfolio Energy electrification fund and  Reduce costs and improve  System losses reduced from authority established. – Energy Sector Recovery Project (FY04) and  Reliable energy services available at least cost. [no reliability of energy about 18.7 percent in 2004 to Achieved (Rural Additional Financing (FY09) – aims to: (i) indicator] services – Partially about 15 percent FY07. – Electrification Authority enhance the policy, institutional and regulatory  Increase access of the Achieved Partially Achieved (System established in charge of rural environment for sector development and private losses were reduced but at a electrification fund; US$50 rural population from 4- sector participation; (ii) support efficient slightly lower rate remaining million distributed for rural 8% in 2004 to 20% in expansion of power generation capacity; (iii) 16.6% in FY08; source: electrification projects in 2010 and to 40% in 2020 ESRP ISR) November 2008; Source: increase access to electricity in urban and peri- 130 LONG-TERM DEVELOPMENT PRIORITIES FOR WORLD BANK DURING CAS PERIOD GOALS Strategic and long-term Desired outcomes during Outcome indicators during country outcomes and Progress indicators Bank Group assistance CAS period CAS period indicators ESRP AF Project Paper) urban areas; (iv) improve efficiency, reliability  Taxes on LPG equipment and and quality of electricity supply. Pillar 2 Poverty Reduction Pillar 2 Poverty Reduction import duties on LPG Implementation: satisfactory. reduced. – Achieved (Taxes  Ensure increased access  Number of customers rises and duties were eliminated in AAA to modern energy services from 36,000 per year in 2004 FY07) to reduce household cost to 80,000 per year at the end  Removal of restrictions for and time associated with of the Energy Sector Project. generators to sell to third Energy Sector Development Strategy Note traditional energy forms – – Achieved (180,000 new parties. – Achieved (The (FY05) Achieved customers per year as of Energy Act removes these December 2008; Source: restrictions) Additional AAA: ESRP ISR.)  Liquefied Petroleum Gas (LPG) consumption increases Kenya Investment Climate Assessment from 2004. –Achieved (Domestic consumption of LPG increased from 49,400 tons in 2005 to 77,400 tons in 2007. Source: KNBS, Kenya Facts and Figures 2008) Pillar 3 Governance Pillar 3 Governance  Improve institutional and regulatory framework for  Energy Act enacted – effective energy service Achieved (Energy Act was provision – Achieved promulgated in December  Establish fiduciary 2006) accountability in  Separate accounts and tariffs generation and established for transmission distribution of electricity and distribution in KPLC. – – Achieved Achieved (A new tariff structure and tariff review process was implemented in 2008; Source: ESRP AF PP) 131 LONG-TERM DEVELOPMENT PRIORITIES FOR WORLD BANK DURING CAS PERIOD GOALS Strategic and long-term Desired outcomes during Outcome indicators during country outcomes and Progress indicators Bank Group assistance CAS period CAS period indicators Water supply Pillar 1 Economic Growth Pillar 1 Economic Growth  New institutions established as Portfolio provided for in the 2002  Water supply and  Reduce costs and improve  Volume of water delivered to Water Act. Achieved (All new Nairobi Water and Sewerage Institutional sanitation services reliability of water Nairobi consumers increased institutions under the Water Restructuring Project (FY04; closed FY08) expanded from 60 percent services in Nairobi – from 75 million m3 per year in Act were established. to 90 percent by 2024 Achieved 2003 to 91 million m3 per year Specifically, by FY04 Water – Supported building of a governance, by 2007. Achieved (Volume Services Regulatory Board, a Water Services Trust Fund institutional and service delivery framework, of water delivered to Nairobi customers in 2007 were and seven Water Services through operationalizing and strengthening of estimated at 94 million m3 per Boards (WSB), including the new autonomous and ring-fenced service year. Source: Nairobi Water Athi (Nairobi and provision utilities, to enable the efficient and ICR) surroundings) WSB, had been sustainable delivery of water and sewerage established.) services; Implementation: satisfactory. Pillar 2 Poverty Reduction  Service agreement between Pillar 2 Poverty Reduction Nairobi Waters Services Board and service providers Nairobi-Mombasa WSS/WRM – not delivered  Enhance water security in  44 community-based signed. Achieved (Service water-scarce communities projects implemented in arid delivery agreement in Nairobi Arid Lands Resource Management Project, – Achieved and semiarid districts. – signed and being fully Phase II (and supplemental) (FY03; FY07) – Achieved (Over 200 implemented.) boreholes, 500 pans and dams Supports reduced livelihood vulnerability,  Nairobi Water and Sewerage and over 500 shallow wells enhanced food security, and improved access to Company to achieve have been constructed, basic services in 28 drought prone arid and significant increase in rehabilitated or improved from semi-arid districts; Implementation: collections. – Achieved 2004 -2009.) satisfactory. Pillar 3 Governance (Revenues increased from Ksh 1.5 billion to Ksh 3.2 billion Pillar 3 Governance during 2004-2007) Water and Sanitation Service Improvement  Establish conducive institutional and Project (FY08) – aims to increase access to regulatory environment to  Governance, institutional, and reliable, affordable and sustainable water ensure financial viability service delivery framework supply and sanitation services; and to improve of future investments in for water and sanitation services in Nairobi in place. – water and wastewater services; sustainable water service Implementation: satisfactory. delivery – Achieved Achieved (Nairobi Water Services Board in full control and autonomous from the City Council) 132 LONG-TERM DEVELOPMENT PRIORITIES FOR WORLD BANK DURING CAS PERIOD GOALS Strategic and long-term Desired outcomes during Outcome indicators during country outcomes and Progress indicators Bank Group assistance CAS period CAS period indicators AAA Watershed management (FY04) Unit Cost of Water and Sanitation in Kenya (FY06) – aims to provide reliable information for water sector planners to develop and update sector investment plans for reaching national targets and Millennium Development Goals (MDGs). Implementation: satisfactory. Regional integration and Pillar 1 Economic Growth Pillar 1 Economic Growth  Marketing systems for coffee Portfolio trade and pyrethrum liberalized. –  Strengthen regional links  Number of passengers Partially Achieved (The Regional Trade Facilitation Project (FY03)  Increase contribution of – Partially Achieved passing through Jomo marketing for coffee is being trade and tourism to the Kenyatta Airport rises liberalized with direct coffee PSAC; PRSC/ERSSC – not delivered. economy: between 2004 and 2007, sales allowed, but however, some regional liberalization is still pending. Northern Corridor Transport (FY05) – see projects have mixed reviews. The pyrethrum marketing above  Growth of trade and tourism increased from – Partially Achieved (See board also is yet to be above) privatized but a bill has been EAC Trade and Transport (FY06) 2% in 2002 to 9% in 2007 (Tourism increased tabled ) West Indian Ocean West Indian Ocean approximately doubled Marine Electronic Highway and Coastal and  Regional and international Marine Protection Project (GEF) from 1.0 million visitors in trade agreements progress. – 2002 to 2.0 million annual Achieved (EAC customs visitors in 2007. Source. AAA union has been established Kenya Ministry of and tariffs implemented) Tourism) Diagnostic trade integration study (FY06),  Share of manufacturing EAC common external tariff revenue  Nominal rate of protection implications, growth and competitiveness study exports to total exports declines from 16 percent in (FY05) increases to 20% – 2004. – Achieved Achieved (Manufacturing (Unweighted average tariff increased from an WBI capacity enhancement has come down to below 13 estimated 21.1% of total percent) exports in 2004 to an 133 LONG-TERM DEVELOPMENT PRIORITIES FOR WORLD BANK DURING CAS PERIOD GOALS Strategic and long-term Desired outcomes during Outcome indicators during country outcomes and Progress indicators Bank Group assistance CAS period CAS period indicators estimated 37.3% in 2007. Source: adapted from WTO export statistics)  Exports of textiles/garments grows by 15 percent annually from 2004–07 – Not Achieved (Estimated 43.9% increase in textile exports from 2004 to 2005, however, only a 7.5 % increase from 2005 to 2006, and 2.7% increase from 2006 to 2007. Source: adapted from WTO export statistics) Value of agricultural exports rises by 3 percent per year – Achieved (Value of Kenya agricultural exports increased from US$1.4 billion in 2004 to US$2.2 billion in 2007. Source: WTO export statistics) Theme III: Reducing Vulnerability and Strengthening Communities Agricultural Pillar 1 Economic Growth Pillar 1 Economic Growth  Demand-driven extension Portfolio competitiveness services developed. –  Systems for agricultural  Yields of major crops in Achieved (The National Agricultural Productivity (FY04; closed  Agricultural sector technology development regions targeted under the Agricultural Sector Extension 12/31/2008) – supported generation, 134 LONG-TERM DEVELOPMENT PRIORITIES FOR WORLD BANK DURING CAS PERIOD GOALS Strategic and long-term Desired outcomes during Outcome indicators during country outcomes and Progress indicators Bank Group assistance CAS period CAS period indicators becomes more and transfer are improved Agricultural Productivity Policy was approved by dissemination, and adoption of agricultural competitive globally: – Partially Achieved Project rise by 5% per year. – Cabinet in June 2008 and four technology through: (i) reforms in extension to value of agricultural Partially Achieved (Increase extension approaches have increase pluralism, responsiveness to clients, exports rises by 3% per in wheat yields of 21%, but been tested in 20 districts.) and participation by private providers; (ii) an year during 2004–07 – stagnation in maize and other Achieved (Value of Kenya crops. Source: National evolutionary change in the existing system of agricultural exports Statistics) agricultural research to improve accountability increased from US$ 1.4 and impact; and (iii) increased empowerment of Pillar 2 Poverty Reduction billion in 2004 to US$ 2.2 Pillar 2 Poverty Reduction producer organizations; ICR Outcome: billion in 2007. Source: Moderately : satisfactory WTO)  Agricultural market reforms are implemented  Incomes of smallholders in  Marketing system for to increase proportion of areas benefiting from Bank- Regional Trade Facilitation (FY04) smallholders becomes end market value received supported projects rises more efficient: small by smallholders – Not compared with the baselines EAC Transport and Trade (FY06) shareholders receive 5% Achieved specified under the projects. - greater share of end - Achieved/ (Uptake and use market value Public Sector Reform TA (IRCB TA, FY06) of improved agricultural technologies increased by PSAC; PRSC/ERSSC – not delivered. more than 20% over the baseline. Source: KAPP ICR MSME (FY05) Findings) Pillar 3 Governance AAA  Misappropriations by Pillar 3 Governance agricultural marketing PSIA Maize Policy and Poverty (FY05) boards decrease – (No  Marketing systems for coffee data available; see and pyrethrum liberalized, regulatory reforms for other agricultural boards parastatals and sector restructured. – Partially specific discussions) Achieved (see progress in the trade section above) Environmental Pillar 1 Economic Growth Pillar 1 Economic Growth  Water resources management Portfolio management policy, legislation, and  Tourism related to  Number of visitors to Kenya institutional reforms under Energy Sector Recovery (FY04) (This project  Vulnerability of economy wildlife increases. – Not for tourism increases. – Not way. – Not Achieved (Water is not aligned with the CAS objective.) to environmental and Achieved (There is only Achieved (Tourism has resource management boards water related shocks minimal relationship with increased from 1.04 million established and operational 135 LONG-TERM DEVELOPMENT PRIORITIES FOR WORLD BANK DURING CAS PERIOD GOALS Strategic and long-term Desired outcomes during Outcome indicators during country outcomes and Progress indicators Bank Group assistance CAS period CAS period indicators reduced the Bank’s program, but visitors in 2000 to an throughout the country) Lake Victoria II (FY09)  Hectares of forest general progress in estimated 2.0 million visitors remaining and reclaimed environment management in 2007. However, with little Western Kenya Integrated Environmental rises from 2004 levels is poor). Bank contribution. Source; Management Project GEF (FY05) – promotes (MDG 9) (Not Achieved. Kenya Ministry of Tourism) a set of integrated ecosystem management No change from the 6% of forest area in 2000 to Pillar 2 Poverty Reduction Pillar 2 Poverty Reduction interventions; Implementation: moderately 2007. Source: WDI  Kenya, Uganda, and Tanzania satisfactory database)  Increase development develop a framework for  Water resource prospects in one of the improving fisheries  Natural Resource Management (FY07) management improved poorest regions –Partially management. – Not Achieved  Decline in per capita Achieved Nairobi WSS (FY04) water storage reversed  Soil management in Pillar 3 Governance Western Kenya improved Water Services SWAp (FY08) Pillar 3 Governance  New regulatory framework in  Establish the framework place. – Not Achieved AAA and regulations for  Cross-country coordination improved water resource strategy for Lake Victoria Watershed Management (FY04) management –Partially resources developed. – Achieved Partially Achieved  Forest Reform Dialogue (FY07) Strengthen communities Pillar 1 Growth Pillar 1 Growth  Multidonor drought Portfolio and local governments contingency fund for nonfood  Improve service delivery Proportion of communities with drought-related expenditures Arid Lands Resource Management Project,  Improve conditions in to targeted rural and access to rural water increased established. – Achieved Phase II (and supplemental) (FY03; FY07) – targeted urban areas urban poor areas – in targeted rural areas. – (Drought Contingency Fund Supports reduced livelihood vulnerability,  Improve conditions of Achieved put in place financed by Achieved (Average distance to enhanced food security, and improved access to rural poor by increasing Government, EC, and World water, schools, and health Bank functioning; Source: basic services in 28 drought prone arid and access to safe water to 60 centers in arid lands Drought Management semi-arid districts; Implementation: percent of the population by 2006 (MDG11) (Not beneficiary districts halved. Initiative Kenya – satisfactory. Achieved. At 57% in 430,312 beneficiaries received www.dmikenya.or.ke) 2007. Source: WDI Pillar 2 Poverty Reduction improved access to water for Western Kenya CDD (FY07) – aims to database) 136 LONG-TERM DEVELOPMENT PRIORITIES FOR WORLD BANK DURING CAS PERIOD GOALS Strategic and long-term Desired outcomes during Outcome indicators during country outcomes and Progress indicators Bank Group assistance CAS period CAS period indicators  Strengthen emergency domestic consumption, and empower local communities to engage in response – Achieved livestock through water kiosks, sustainable and wealth creating livelihood water pans, boreholes, shallow activities and reduce their vulnerability to wells, and water tanks, and flooding; Implementation: satisfactory. improvement, construction, or The Economic and Social Empowerment rehabilitation of 500 water  Program (FY07) – not delivered. systems Source: Arid Lands Progress Report) AAA   Pillar 2 Poverty Reduction WBI: Community Empowerment and Civic  Drought and disaster Engagement Programs; Local Government management system Action operational as indicated by supervision reports of the Urban Poverty Issues (FY06) Arid and Semiarid Lands Poverty Maps (FY06) – see above. Project. Achieved (System PER (FY04) – see above. developed under the project has allowed for the response Nairobi Slum Upgrading (FY07) to the drought to be reduced Rural Electricity (FY07) from six months to one month Facilitating Citywide Stakeholders (FY07) ; Source: Government Disaster Management Pillar 3 Governance Reports)    Strengthen capacity of Pillar 3 Governance targeted local governments (predictable flow of resources, and  CDD approach increasingly downward and upward implemented in communities accountability) – from 2004 levels. – Achieved Achieved (An additional 600 communities have implemented CDD  microprojects since 2004)  137 LONG-TERM DEVELOPMENT PRIORITIES FOR WORLD BANK DURING CAS PERIOD GOALS Strategic and long-term Desired outcomes during Outcome indicators during country outcomes and Progress indicators Bank Group assistance CAS period CAS period indicators Health Expanded basic Pillar 1 Economic Growth Pillar 1 Economic Growth  Adoption by Ministry of Portfolio health care: Health of new health sector  Improve access to health Child mortality rate falls. – strategy. – Achieved Decentralized Reproductive Health and  Reduce under-5 child services –Partially Achieved (Under 5 mortality HIV/AIDS (FY00; closed FY07)- to improve mortality from 114 to 100 Achieved rate decreased from 115 per  Utilization of health services mother and child health through more  per 1,000 by 2013 (MDG 1,000 in 2003 to 74 per 1,000 increased – Achieved integrated delivery of child survival, 5) (Achieved. Child (Integrated survey 87.3% in 2008-09. Infant mortality reproductive health and HIV/AIDS services, and mortality decreased from satisfied with health services 115 per 1,000 births in also decreased from 77 per at end of project Source: slow the increase of HIV prevalence rates. 2003 to 74 per 1,000 1,000 in 2003 to 52 per 1,000 DARE ICR) Implementation: Unsatisfactory. births in 2008-09. in 2008-09. Source: KDHS 08- MAP 2 (FY07) – see below Source: KDHS 08-09 09 Preliminary Report)  Review of annual operational Preliminary Report) plan (New indicator. Health SWAp (FY06-F08) – not delivered Pillar 2 Poverty Reduction Pillar 2 Poverty Reduction Performance as of FY05-06  Reduce maternal mortality was reviewed by key rate from 590 to 450 per AAA stakeholders the first joint 100,000 by 2013 (MDG  Increase access to basic  Percent children fully review in October 2006) 6) (Not Achieved. health care – Not immunized from 74% in 2002 WBI Health Sector Reform Program Increased from 414 Achieved to 85% in 2008. –Not Achieved (Status unclear.  Analysis of MPER (New maternal deaths per indicator. MPER for FY05-06 PER – not delivered 100,000 live births in Increase from 57% in 2003 to 68% in 2008. Source: now under preparation 2003 to 560 in 2005. according to timetable) KDHS 08-09 Preliminary Pharmaceutical Study (FY04) – not delivered Source: DEC DDP) Report and MDG Kenya  Reduce malaria morbidity Status Report. DARE ICR Social Sector Efficiency (FY06) – actual (TA) (currently at 30 percent) estimates 80% in 2005) by 10 percent annually in 2005–2013 (MDG 8) (On  Births attended by physician track. Annual reported increases from 42 percent of malaria cases decreased total. – Not Achieved from 265,535 in Dec. (Decreased from 44% in 2005 to 208,992 in Dec. 2000 to 43.8% in 2008/09. 2006. Source: Kenya Source: UNICEF and WDI Division of Malaria database and KDHS 08-09 Control Fact Sheet) Preliminary Report.) 138 LONG-TERM DEVELOPMENT PRIORITIES FOR WORLD BANK DURING CAS PERIOD GOALS Strategic and long-term Desired outcomes during Outcome indicators during country outcomes and Progress indicators Bank Group assistance CAS period CAS period indicators  Increase in spending on rural health services rises. – Achieved (Spending on rural health services rose from 10.6% of public health expenditures in 2002-03 to an estimated 17.8% in 2005- 06). Source: 2006 Health Ministry PER) Pillar 3 Governance Pillar 3 Governance  Enhance procurement systems – Partially  Number of stockouts of key Achieved drugs at health facilities reduced. – Achieved (No stockouts from 2001-04 Source: DARE ICR)  Procurement and financial management in the Health Ministry improved, as management strengthening of the Kenya Medical Supplies Agency –Achieved HIV/AIDS  Prevalence of HIV/AIDS  Prevalence of HIV/AIDS  Prevention of mother to child Portfolio falls–Achieved falls – Achieved (HIV transmission by pregnant Halt and reduce spread of prevalence rate fell from 10% women and HIV+ mothers Restructured Decentralized Reproductive HIV/AIDS: of adults in 1997/1998 to 5% increased by 20%. – Health and HIV/AIDS (FY00-FY07) - to in 2006; Source: UNGASS Achieved (Percent of improve mother and child health through more 2008) pregnant women in need of  Reduce HIV/AIDS counseling and testing that integrated delivery of child survival, prevalence by 10%  Number of people receiving were tested increased from reproductive health and HIV/AIDS services, and annually during 2003–05 antiretroviral treatment 28% in 2005 to 42% in 2006; slow the increase of HIV prevalence rates; among youth age 15–25 rises. –Achieved (ARV Source: UNGASS 2008) Implementation: Unsatisfactory (MDG 7) (Female youth therapy increased from an  Percent of primary and 139 LONG-TERM DEVELOPMENT PRIORITIES FOR WORLD BANK DURING CAS PERIOD GOALS Strategic and long-term Desired outcomes during Outcome indicators during country outcomes and Progress indicators Bank Group assistance CAS period CAS period indicators prevalence at 5.9% in estimated 24,000 in 2004 to secondary schools delivering HIV/AIDS Disaster Response Project (FY00- 2005; male prevalence at an estimated 166,000 in HIV/ AIDS education FY07) – aimed to intensify the multi-sectoral 1.9% Source: UNICEF) 2007 in both private and increases from the levels of response to HIV/AIDS and accelerate the public sectors. Source: 2004. – Achieved (100% of process of achieving the targets as elaborated in WHO Epidemiological Fact primary schools and 100% of Sheet on HIV and AIDS secondary schools have life- the National Strategic Plan with broad 2008) skills education in the participation of communities; Implementation:  Improvement in sector curriculum.) Unsatisfactory governance (new outcome) –  Strategy coordination Achieved improved. -- Achieved TOWA (FY07) - expand the coverage of (Coordination at the national targeted HIV and AIDS prevention and level for HIV/AIDS improved mitigation intervention; Implementation: with the setting up of institutional coordinating Satisfactory structures) AAA  Staff-monitored program for reform of NACC carried out, WBI Community Radio and Capacity including dismissals, Building for Businesses to Fight AIDS restitution, fiduciary systems building, transparency/ communication strategy, etc. PER (FY04) – not delivered - Achieved Youth Development (FY05) – not delivered Social Sector Efficiency (FY06) – not delivered Education Pillar 1 Economic Growth Pillar 1 Economic Growth Education management Portfolio information system established Achieve universal primary  Improve educational  Primary completion rate and used. Partially Achieved Free Primary Education (FY03-FY07) – education: attainment –Achieved from 59% to 70 %. – (Needs assessment and design supported improvement in pupil performance Achieved (Primary completed. Procurement of goods underway. and retention through ensuring adequate supply  Primary gross enrollment completion rate increased and better use of instructional materials; rate rises from 90% to from 52% in 2003-04  Education wage bill in 100% by 2005 (Achieved. to79.5% in 2008. Source: relation to recurrent education Implementation: satisfactory. At 106% in 2004. Source: ESSP ISR 12/4/08.) spending falls from 97% to IDF grant MOE DEC EdStats). 85 %. 140 LONG-TERM DEVELOPMENT PRIORITIES FOR WORLD BANK DURING CAS PERIOD GOALS Strategic and long-term Desired outcomes during Outcome indicators during country outcomes and Progress indicators Bank Group assistance CAS period CAS period indicators  Primary net enrollment  Primary repetition rate from Education Sector Support Program (FY07) – rate rises to over 100 13% to 5%. – Not Achieved. Quality of education supports the Government's program to provide percent by 2015 (MDG 3) (Primary repetition rate maintained: keep primary basic education and improve the quality of (Not Achieved but declined from 9.8% in pupil/teacher ratio at 40:1 and education for all children by 2010; progress towards goal. At 2003/04 to an estimated secondary pupil/teacher ratio at Implementation: Satisfactory 91%t [89% female] in 6.3% in 2006 Source. 18-23:1. – Not Achieved 2007. Source: Edu. Sec. UNESCO) Support ISR 12/4/08) ((pupil/teacher ratio was at 45:1 AAA  Gender gap in access to  Transition from primary to in 2008) and secondary level primary and secondary secondary rises from 44% to (pupil/teacher ratio was at 24:1 WBI Primary Education Program education reduced (MDG 50%. –Achieved (Transition in 2008) Source: ESSP ISR 4) (Not Achieved.. Gender from primary to secondary 12/4/08). PER (FY04) Parity index, determined school increased from 47% by ratio in gross in 2003-04 to 64.1% in 2009. enrollment rate by gender, Source ESSP ISR 12/4/08). Jobs in Kenya (FY07) decreased from .99 in 2000 to .94 in 2002 and Pillar 2 Poverty Reduction Social Sector Efficiency (FY06) then increased to .97 in 2006 primary education  National primary net while the GPI decreased enrollment rate rises from from .96 in 2000 to .93 in 80% to 85% by 2007. – 2006 in secondary Achieved (National primary education. Source: DEC net enrollment rate increased EdStats). from 79.8% [78% female]) in 2003-04 to 92.5% in 2008 Pillar 2 Poverty Reduction (90% female). = Source: ESSP ISR 12/4/08)  Increase access to  Northeast primary net education for the poor and enrollment rate rises from Reduce regional 17% to 35% by 2007. – Not disparities in education – Achieved (Progress, but Partially Achieved below targets. Northeast primary net enrollment rate increased from 26.1% [16.2 % female] in 2003 to an estimated 27% [20.8% 141 LONG-TERM DEVELOPMENT PRIORITIES FOR WORLD BANK DURING CAS PERIOD GOALS Strategic and long-term Desired outcomes during Outcome indicators during country outcomes and Progress indicators Bank Group assistance CAS period CAS period indicators female] in 2007. Source: UNDP Kenya MDG Status Report 2007]. Pillar 3 Governance Pillar 3 Governance Strengthen reporting  Reporting mechanisms mechanisms - Achieved strengthened. –Achieved     142 Annex 18: Planned and Actual Financing FY04-08 (US$ million) Fiscal year Planned IDA Status IDA 2004 Kenya Northern Corridor Transport 207 Actual 207 GDLN (Development Learning Center) 3 Actual 3 Agriculture Productivity Project 40 Actual 40 Nairobi Water & Sewerage 15 Actual 15 Total FY04 265 265 2005 Programmatic Structural Adjustment Credit 75 Dropped - MSME Initiative 20 Actual 22 STATCAP 20 FY07 - Energy Sector Recovery 75 Actual 80 Financial and Legal Sector TA 20 Actual 18 Total FY05 210 120 2006 Financial Sector Adjustment Credit 65 Dropped - Education SWAP 50 FY07 - Health SWAP 30 FY10 - MAP II 20 FY07 (TOWA) - Public Sector Reform TA 40 Actual (Institutional Reform/Capacity Building) 25 Regional: EAC Trade and Transport 5 Actual 40 Regional: Lake Victoria 2 10 FY09 - Total FY06 205 65 2007 CAS Planned PRSC I 100 Dropped - Western Kenya CDD 45 Actual 86 Water (WSS/WRM) 30 FY08 - Subtotal CAS 175 Additional FY07 CASPR Planned StatCap 21 Actual 21 Natural Resource Management 69 Actual 69 Total War HIV/AIDS (TOWA) 80 Actual 80 Regional: Communications Infrastructure* 60 Actual 38 Economic and Social Empowerment Program 140 Renamed (OVC/Youth Empowerment) - Judicial Performance Improvement 40 Delayed - Additional Actuals: Education Sector Support Program 80 Subtotal CAS PR 410 Arid Lands Additional Financing 60 Total FY07 585 433 2008 Water Supply and Sanitation 120 Actual 150 Local Government 40 FY08 - Northern Corridor Additional Financing 120 FY09 253 Regional: Lake Victoria 2 10 FY09 - Nairobi Toll Road (Private Concession) 20 FY10 - Health SWAP 80 FY10 - Kenya Coastal Development 7 FY10 - Total FY08 397 403 143 Annex 19: Planned and Actual Non-lending FY04-08 FY Planned Status 2004 Public Expenditure Review (PER) Actual Watershed Management Actual Education Sector Review Actual Investment Climate Assessment Actual (FY05) Energy Sector Review Actual (FY05) Growth And Competitiveness Study Actual (FY05) Financial Sector Assessment Program Actual 2005 Public Expenditure Financial Accountability And Procurement Review Actual (FY06) Agriculture Markets & Policy Review Actual (FY09) Diagnostic Trade Integrated Study Actual (FY06) Youth Development Agenda Actual Pharmaceutical Study Actual Telecommunications Study Insolvency ROSC Actual FY05 Energy Sector Development Strategy Note EAC Common External Tariff Revenue Implications, Growth, And Competitiveness Study PSIA Maize Policy And Poverty Actual (FY07) Urban Poverty Issues Actual (FY06) 2006 PER And Decentralization Impact Study Poverty Assessment Actual (FY08) IP-ERS Monitoring Actual (FY07) Labor Markets Study Actual (FY07) Rural Service Delivery Actual (FY07) Unit Cost Of Water And Sanitation In Kenya FIAS Administrative Barriers Study Actual (FY06) WBI: Community Empowerment And Civic Engagement Programs; Local Government Action Additional Actuals: Poverty Mapping Actual Country Integrated Fiduciary Assessment (CIFA) Actual Social Sector Efficiency Actual Urban Informal Sector ICA Actual 2007 CAS Impact Evaluation Economic Impact Of East African Integration Actual (FY08) Environment And Growth Poverty And Regional Inequality (Update) CASPR Planned Joint Staff Advisory Note (JSAN) Actual (FY07) Pension Note Actual (FY07) Forest Reform Dialogue - "Follow Up Action To Strategic Environment Assessment On Implementation Of Kenya Forests Act 2005" Actual (FY07) Jobs In Kenya Actual (FY07) Additional Actuals: Governance Note Actual Gender And Economic Growth Actual Rural Electrification Study Actual 2008 CASPR Planned Economic Impact Of East African Integration Actual (FY08) Country Integrated Fiduciary Assessment (CIFA) Notes Actual (FY08) Forestry Reform Options Country Economic Memorandum Actual Tourism In Kenya Actual (FY09) TA For Improving Doing Business Indicators Actual (FY09) Updated To Governance Note Kenya Investment Climate Assessment Actual (FY09) Additional Actuals: CEM - Accelerating and Sustaining Inclusive Growth Actual (FY09) Kenya Poverty And Inequality Assessment (KPIA) Actual (FY08) 144   145