PROGRAM INFORMATION DOCUMENT (PID) APPRAISAL STAGE February 14, 2013 Report No.: AB7255 (The report # is automatically generated by IDU and should not be changed) Operation Name Second Shared Growth Credit Region AFRICA Country Niger Sector Central government administration (50%);Public administration- Industry and trade (20%);Irrigation and drainage (10%);Agricultural extension and research (10%);Vocational training (10%) Operation ID P132757 Lending Instrument Development Policy Lending Borrower(s) REPUBLIC OF NIGER Implementing Agency Ministry of Planning, Regional, and Community Development Niger Tel: (227-9) 696-6613 yacoubousani@yahoo.fr Date PID Prepared February 14, 2013 Estimated Date of Appraisal March 4, 2013 Estimated Date of Board April 30, 2013 Approval Corporate Review Decision Following the corporate review, the decision was taken to proceed with the preparation of the operation. Other Decision {Optional} Teams can add more if they wish or delete this row if no other decisions are added Country and Sector Background Niger is one of the world’s poorest countries. About 80 percent of the population derives their livelihoods from agriculture and livestock. A harsh climate, frequent droughts, and poor soils, but also poorly performing agricultural institutions contribute to the low productivity of these activities in Niger. The extractive industries, especially uranium mining and since November 2011 the production of oil, play an important role in Niger’s economy. With large ongoing investments to expand the capacity of the uranium sector as well as other natural resources such as gold and oil underway, the importance of natural resource extraction for the economy and its contribution to government revenue is set to increase substantially in the coming years. Unfortunately, the contribution of the mining and petrol sector to employment generation is likely to remain modest, although certainly not insignificant. The formal sector is small and much of Niger’s economic activity takes place in the informal sector. Niger’s business environment is one of the most difficult worldwide, reflecting both Niger’s geographic situation, but also a weak regulatory regime, a poorly developed financial sector, and very limited infrastructure services. Niger’s dependence on agriculture and mining make it highly vulnerable to climatic shocks and changes in international demand for Niger’s natural resources. To reduce this vulnerability and to accelerate growth, strengthening the agriculture sector and private sector led diversification of the economy beyond agriculture and mining are critical. With the likely increase in government revenue from the mining sector, strengthened public expenditure and financial management are also key to ensure that public resources are used efficiently and effectively in pursuit of the implementation of Niger’s ambitious development program. Operation Objectives The overall development objective is to help improve the business environment for investment and trade, increase agricultural productivity, and strengthen public financial management. The operation supports the implementation of Niger’s Plan for Economic and Social Development 2012- 2015 which was adopted in August 2012. The proposed SGC-2 focuses on reforms to foster shared economic growth and to enhance the efficacy of public spending. Specifically, the credit supports reforms in four priority policy areas:  Establishing a competitive and diversified economy for accelerated and inclusive growth  Food Security and Sustainable Agricultural Development  Efficacy of Public Spending Specific measures supported by the credit target: Establishing a competitive and diversified economy for accelerated and inclusive growth: 1. The Recipient has issued a circular with instructions for the selection and execution of tax audits and inspections, which contains provisions to reduce multiple firm visits as well as a coherent procedure for the selection of cases that will be examined. 2. The Recipient has issued regulations concerning road blocks and controls, which define the type of controls, location of road blocks, and recourse mechanisms, in order to minimize the risk of abusive practices for merchandise transport in the Recipient’s territory. 3. The Recipient has adopted a new Labor Code, which contains the legal framework for dual apprenticeships. Food Security and Sustainable Agricultural Development: 4. The Recipient has established and implements mechanisms for the competitive financing of agricultural research and the adaptation of technologies to strengthen the link between agricultural research and the needs of producers. Efficacy of Public Spending: 5. The Recipient transposes the WAEMU directives on the General Regulations governing Public Accounting (RGCP), budget nomenclature, government accounting, the chart of accounts and the government financial operations table (TOFE) into national regulation. 6. The Recipient’s ministry responsible for finance has created a directorate to supervise state- owned enterprises. 7. The Recipient has issued regulations for the implementation of the new Procurement Code, including on: (i) the creation, responsibilities and organization of regional representations of the Public Procurement Regulatory Agency; (ii) the creation, responsibilities, composition, and functioning of ad hoc commissions for bid opening and evaluation of parastatal enterprises and organizations; (iii) the creation, responsibilities, composition, and functioning of ad hoc commissions for bid opening and evaluation of local authorities; (iv) procurement thresholds; (v) responsibilities of procurement units; (vi) the creation, responsibilities, composition, and functioning of ad hoc commissions for bid opening and evaluation of the central government; and (vii) procurement deadlines. 8. Independent audits of public procurement in 2009 and 2010 have been completed and the Recipient has published: (i) the audit reports on its web site, and (ii) a summary of the auditors’ findings in the Le Sahel newspaper. Rationale for Bank Involvement IDA has a long standing involvement in Niger, providing assistance to government in implementing reforms that aim at accelerating growth, diversification and strengthened public financial management. In recent years, key pieces of analytic work have been prepared by the Bank in partnership with the authorities to assist them in the identification and prioritization of reforms in these areas. This includes a country economic memorandum that examined ways to accelerate growth and progress towards the Millennium Development Goals, a Diagnostic Trade Integration Study that laid out an agenda for enhancing Niger’s competitiveness and provided the basis for the preparation and adoption of an action plan by the authorities, and a Public Expenditure Management and Accountability Review, which underpins the government’s preparation of an action plan for public financial management reform. IDA has been providing budget support to Niger since the early 2000’s, supporting key policy reforms and providing resources for the implementation of Niger’s PRSP. The proposed new series of three development policy operations (DPOs) continues the focus of the preceding series of two DPOs on economic growth and public financial management. Even though Niger is seen significant political change and the election of the former opposition party into power in recent years, there is a broad consensus on the critical challenges for Niger which include fostering economic growth, food security, and progress towards the MDGs. Over the past decade, Niger has developed a strong track record for macro-economic stability. A new IMF/ECF supported program was approved by the IMF Board on March 16, 2012 and its first Board review is scheduled for March 18, 2013. The proposed operation is harmonized with budget support provided by other donors, including the European Union, the African Development Bank, and France. A shared performance assessment framework and a joint review process are being developed to further strengthen harmonization and alignment of budget support and to reduce transaction cost for government. Tentative financing Source: ($m.) BORROWER/RECIPIENT 0 IDA Grant 50 Borrower/Recipient IBRD Others (specifiy) Total Tranches (if applicable) ($m.) First Tranche Second Tranche Etc. Total Institutional and Implementation Arrangements The reform program under the SGC-2 is coordinated by the Ministry of Planning, Regional, and Community Development, working closely with the Ministry of Finance and line ministries and other stakeholders. A harmonized process for review of progress and regular dialogue between Government and budget support donors is being developed. In September 2012, the Ministry of Planning, Regional and Community Development established an institutional framework for the coordination of economic and financial programs. It includes an interministerial committee chaired by the Minister of Planning and co-chaired by the Minister of Finance as well as a technical committee chaired by the Secretary General of the Ministry of Planning and co-chaired by the Secretary General of the Ministry of Finance. The interministerial committee has the following responsibilities with regard to economic and financial programs and budget support: review and endorsement prior to submission to development partners, determination of budget support programs, conduct of consultations and negotiations with development partners, oversight of program implementation, and review of evaluation reports. The technical committee supports the work of the interministerial committee and reviews periodically progress in the implementation of economic and financial programs and budget support and of the agreed reforms. Monitoring indicators are mainly drawn from results frameworks of the PRSP and ongoing government programs and draw on administrative data sources and surveys. A Living Standards Measurement Survey supported by the Bank will be an important instrument to monitor progress over the SGC period. Its first round was carried out in 2011 to provide baseline data for SGC monitoring and the second round will be implemented in 2014 to provide information on progress achieved during the SGC period. Risks and Risk Mitigation The main risks and mitigation measures associated with SGC-2 are as follows: Security risks. Conflict in Libya, Mali, and Nigeria creates additional risks in an environment fraught with tensions over resource rents, terrorist activities, and expanding criminal activities such as drug trafficking and smuggling across the Sahara. Government seeks to contain these risks through close security cooperation with regional and international partners, increased spending on security, and the design and implementation of a plan for development and security in the Sahelo-Saharan zone of the country. External shocks. Niger’s economy remains highly vulnerable to weather related shocks to agriculture and livestock and to changes in global demand for its exports of uranium. The expanding extractive industries sector exposes Niger further to fluctuations in commodity markets the risk of Dutch disease which needs to be carefully managed. In the short term, these risks are managed by preserving sufficient fiscal flexibility for expenditure adjustments. In the medium to long term, these risks require the diversification of the economy to reduce the vulnerability to such shocks. Fiscal risks. The implementation of the ambitious government program requires significant domestic and external resource mobilization efforts and could create pressures for access to unsustainable sources of financing, especially if resource mobilization efforts do not achieve the targeted results. Implementation of the IMF supported program and intensified budget dialogue by the Bank and other budget support donors are the key means to mitigate this risk. In addition, the Bank will support the authorities in their resource mobilization efforts. Weak governance and capacities. These weaknesses may slow down implementation of the reform agenda and could undermine the achievement of results. To manage these risks, capacity building measures are an integral part of the Bank’s portfolio in Niger. A dedicated capacity building program for the Ministries of Finance and Planning became effective in 2010. The Bank also supports Government in the design and implementation of fiduciary reforms and provides technical assistance for the development of a governance and anti-corruption strategy to enhance public resource management and service delivery. Poverty and Social Impacts and Environment Aspects Poverty and Social Impacts SGC-2 provides incremental resources to finance Government PRSP priorities, specifically around the themes of shared economic growth and enhanced public finance efficacy. The expected impact of individual prior actions on poverty and social development is as follows: Promoting private sector growth. Improvements in the business environment supported by the SGC series are expected to facilitate the diversification of the economy beyond uranium and agriculture. This is expected to translate into higher economic growth and, particularly important for Niger, into less volatile growth. The poverty assessment highlights the imperative of achieving higher growth for progress in poverty reduction and with many other social indicators. The poverty assessment also suggests that during 2005 and 2007/8, growth was pro-poor as the poor have benefitted more from growth than the non-poor, which underlines the adequacy of the focus on economic growth in order to achieve poverty reduction. The poverty assessment also demonstrates the devastating impact of economic volatility on poor households, and the high welfare cost of economic volatility for the poor. With about 80 percent of all Nigeriens deriving their livelihoods from agriculture and livestock, poor harvests and changes in agricultural prices are the dominant shocks experienced by households and result in the loss of assets and reduced consumption. Broadening economic opportunities for the poor through the diversification of the economy can thus be expected to have a significant impact on poverty reduction. Support to agriculture sector development. As agriculture provides the livelihood for about 80 percent of Niger’s population and about 90 percent of Niger’s poor, increasing agricultural productivity and incomes has potentially the biggest impact on poverty reduction in the short to medium term. Improving access to appropriate technologies through improved extension services and irrigation will further boost productivity with the potential to increasing rural household income earned from traditional agriculture and from more high-valued production supply chains. At the same time, these reforms would help to build resilience to external shocks. It is anticipated that increased agricultural incomes and resilience to external shocks will translate into reduced poverty and improved human capital outcomes in education, nutrition, and other dimensions of health. Public financial management. Reforms to increase the transparency of the budget, ensure that public resources are more effectively used, and that funding for PRSP related expenditures is appropriately prioritized are expected to support the implementation of PDES priorities. Budget reforms are likely to improve the efficiency of public spending on PDES priorities, and thus likely improve its impact on programmatic outcomes. Environment Aspects The specific reforms supported by the proposed development policy credit are not likely to have significant negative effects on the country’s environment, forests and other natural resources. The reforms supported aim primarily to strengthen regulatory, institutional and public finance management at the national, regional and local government level. Nevertheless, the SGC-2 covers certain aspects of improving the policy environment for infrastructure and private investment, including in the agriculture sector. These sectors may have significant associated environmental risks. The areas covered by the SGC-2 are benefitting from Bank financed investment operations for which specific Environmental and Social Impact Assessments have been prepared. Contact point World Bank Contact: Robert Johann Utz Title: Senior Economist Tel: 5790+2468 / 33-4-9199-2468 Fax: Email: Rutz1@worldbank.org Location: Marseille, France (IBRD) Borrower Contact: Abdou Souley Title: Secretaire Generale Tel: (227-20) 723-258 Email: abdou.souley2@yahoo.fr For more information contact: The InfoShop The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 458-4500 Fax: (202) 522-1500 Web: http://www.worldbank.org/infoshop