Document of The World Bank Group FOR OFFICIAL USE ONLY Report No. 121912-AFR INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION INTERNATIONAL FINANCE CORPORATION MULTILATERAL INVESTMENT GUARANTEE AGENCY SUPPORTING AFRICA’S TRANSFORMATION: REGIONAL INTEGRATION AND COOPERATION ASSISTANCE STRATEGY FOR THE PERIOD FY18-FY23 December 15, 2017 Africa Region, World Bank Africa Region, International Finance Corporation The Multilateral Investment Guarantee Agency This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank Group authorization. The date of the last Africa Regional Integration Strategy Progress Report was March 21, 2011 Abbreviations and Acronyms AFR Africa Region of World Bank ICCON International Consortium for Cooperation on the Nile AfDB African Development Bank IDA International Development Association AU African Union IEG Independent Evaluation Group ASEAN Association of Southeast Asian Nations IFC International Finance Corporation BEAC Banque des Etats de l’Afrique Centrale IMF International Monetary Fund CEMAC Central African Economic and Monetary IPCC Intergovernmental Panel on Climate Community Change CFTA Continental Free Trade Area IPF Investment Project Financing COMESA Common Market for Eastern and LIC Low Income Country Southern Africa CPF Country Partnership Framework MDG Millennium Development Goal CRW Crisis Response Window in IDA MIGA Multilateral Investment Guarantee Agency DPO Development Policy Operation MIS Management Information System EAC East African Community NAFTA North American Free Trade Agreement EAPP Eastern Africa Power Pool NBI Nile Basin Initiative ECCAS Economic Community of Central African OAU Organization of African States States ECOWAS Economic Community of West African ODA Overseas Development Assistance States EEZ Exclusive Economic Zone OECD Organization for Economic Co- operation and Development EU European Union PEF Pandemic Emergency Facility FCS Fragile and Conflict-Affected States PforR Program for Results FDI Foreign Direct Investment PIDA Program for Infrastructure Development in Africa GDP Gross Domestic Product PLR Performance and Learning Review GW Giga Watt PPPs Public Private Partnerships IBRD International Bank for Reconstruction PSW Private Sector Window in IDA and Development ICA Infrastructure Consortium for Africa Regional Economic Community REC ICT Information Communication Technology Regional Integration RI R&D Research and Development Regional Integration Assistance RIAS Strategy SADC Southern African Development WAEMU West African Economic and Community Monetary Union (UEMOA) SAPP Southern Africa Power Pool WAPP West Africa Power Pool SCD Systematic Country Diagnosis WB World Bank SME Small and Medium Enterprises WBG World Bank Group SOE State-Owned Enterprises WDI World Development Indicators SSA Sub-Saharan Africa WDR World Development Report STEM Science, Technology, Engineering and WEF World Economic Forum Math SUF Scale-Up Facility in IDA WTO World Trade Organization UNECA United Nations Economic Commission for Africa World Bank IFC MIGA Vice President: Makhtar Diop Stephanie von Friedeburg Keiko Honda Director: Rachid Benmessaoud Cheikh Oumar Seydi Merli Baroudi Sarvesh Suri Task Team Leader: Vijay Pillai Jumoke Jagun-Dokunmu Hoda Moustafa Frank Douamba Paul Barbour Africa: Regional Integration & Cooperation Assistance Strategy (RICAS) SECTION I: INTRODUCTION ........................................................................................................................... 1 Context of Regional Integration in Africa ................................................................................................. 1 Context for this Strategy ........................................................................................................................... 2 SECTION II: THE SETTING: AFRICA REGIONAL CONTEXT ............................................................................... 4 Economic Context ..................................................................................................................................... 4 Demography, Poverty, Development and Environment........................................................................... 7 Fragility and Resilience ............................................................................................................................. 9 Trade and Factor Markets....................................................................................................................... 10 Political Context for Integration.............................................................................................................. 13 Key Emerging Issues ................................................................................................................................ 14 SECTION III: STATE OF PLAY AND MAKING THE CASE FOR 21ST CENTURY: INTEGRATION IN AFRICA ........ 14 Global Perspective on Integration .......................................................................................................... 14 African Vision for Integration.................................................................................................................. 15 Progress with Regional Integration......................................................................................................... 16 Revisiting the Case for Integration in Africa ........................................................................................... 19 SECTION IV: LOOKING BACK: ACHIEVEMENTS AND LESSONS LEARNT FROM WORLD BANK GROUP ENGAGMENT ............................................................................................................................................... 21 Growth and Evolution of WBG’s RI Program in Africa ............................................................................ 21 Existing WBG Programs and Results ....................................................................................................... 22 Portfolio Analytics ................................................................................................................................... 26 Key Issues and Lessons Learnt ................................................................................................................ 27 SECTION V: STRATEGIC FRAMEWORK FOR WBG’s SUPPORT FOR REGIONAL INTEGRATION IN AFRICA: ‘WHAT’ WILL WE DO? ................................................................................................................................. 30 Distilling Key Issues – ‘Accelerators’ and ‘Inhibitors’ of Integration....................................................... 30 Possible Future Scenarios of Integration in Africa .................................................................................. 31 Theory of Change’ for WBG Support ...................................................................................................... 32 WBG’s Strategic Priorities for Africa Region ........................................................................................... 32 Strategic Priorities for WBG’s Support for Regional Integration ............................................................ 33 M&E and Results Framework ................................................................................................................. 38 Positioning the WBG – knowledge, financing, collective action and partnerships ................................ 39 External Consultation.............................................................................................................................. 40 SECTION VI: IMPLEMENTING THE STRATEGY AND RISK ASSESSMENT ....................................................... 41 Connecting the Strategy to Country Priorities and Lending ................................................................... 41 Retrofitting the Strategy Priorities with Existing Lending Commitments ............................................... 41 Selectivity and Prioritization Criteria ...................................................................................................... 41 Stepping-Up Engagement on Facilitating Collective Action.................................................................... 42 Immediate Implementation Priorities for FY18 / FY19 ........................................................................... 42 Progress Report....................................................................................................................................... 42 Risks and Mitigation ................................................................................................................................ 43 List of Tables Table 1: Economic Growth Performance by Sub-Regions ............................................................................ 5 Table 2: Domestic & External Flows by Regional Economic Community (Average 1990-2012 % of GDP) . 11 Table 3: Five Dimensions of Regional Integration: How does Africa Perform? .......................................... 17 Table 4: Sample of Results from the Bank’s Regional Integration Program ............................................... 23 List of Boxes Box 1: What is Regional Integration?............................................................................................................ 2 Box 2: IDA Regional Window – From Pilot to Co-Pilot .................................................................................. 3 Box 3: Public Perceptions Matter: How do People in Africa Look at Integration? ..................................... 18 Box 4: WBG Coordinated Approach to Creating, Connecting and Growing Markets : Case of Regional Housing Finance in WAEMU ....................................................................................................................... 24 Box 5: Seeking Regional Solutions for Gender Equality – It Works! ........................................................... 25 Box 6: Reaching Across Waters – This is Patient Capital ............................................................................ 26 Box 7: Operating Regionally in the Security – Humanitarian – Development Axis .................................... 27 Box 8: Six Ways this Strategy Aims to Reshape the WBG’s Integration Work in Africa ............................. 40 List of Figures Figure 1: Overview of Major Regional Economic Communities in Africa ..................................................... 6 Figure 2: Conflict Fatalities Hotspots and Imports and Exports from EAC ................................................. 11 Figure 3: Migrant Stocks within and from Sub-Saharan Africa ................................................................... 13 Figure 4: Story of Global Cashew Market ................................................................................................... 20 Figure 5: What Would Success Look Like? Steps to Develop a Regional Power Market ............................ 21 Figure 6: WBG Together in Regional Integration ........................................................................................ 30 Figure 7: Regional Integration Strategy: What and How? .......................................................................... 38 Figure 8: Prioritization Framework for RI Lending Pipeline ........................................................................ 43 Annexes Annex I. Results Framework ....................................................................................................................... 45 Annex II: World Bank’s Africa Regional Integration Program: Portfolio Analysis ...................................... 55 Annex III: AFR Regional Integration Portfolio Trends (IBRD/IDA) ............................................................... 72 Annex IV: IFC Statement of Investment and Advisory Portfolio (as of October 31st, 2017) ...................... 74 Annex V: MIGA Statement of Outstanding RI Guarantee Portfolio (as of November 30th, 2017) ............ 77 Annex VI: Key Issues from WBG External Consultations on RICAS ............................................................. 78 Annex VII: Continental and Regional Economic Community (REC) Priorities ............................................. 81 Annex VIII: Sub-Regional Systematic Assessment of Development Constraints and Opportunities: Outline Concept Note .............................................................................................................................................. 85 Annex IX: Bibliography ................................................................................................................................ 89 Annex X: Map of Africa ............................................................................................................................... 92 SECTION I: INTRODUCTION Context of Regional Integration in Africa 1. Regional integration has remained a political and economic priority for Africa since the dawn of independence in the continent. In the summer of 1963, thirty newly independent countries came together to establish the Organization of African Unity (OAU), the precursor to the current day African Union. Its mandate included promoting unity and solidarity and to strengthen cooperation for development amongst African nations. Successive efforts since then have reinforced this commitment. The Lagos Action Plan of 1980 and the Abuja Treaty signed by OAU Heads of State and Government in 1991 laid out an ambitious vision of integration covering economic, social and political convergence. Most of the currently active regional organizations in Africa were formed or re-established in two waves – the first wave from the mid-1970s to the early 1980s and the second during the first half of the 1990s. These waves were clearly inspired by positions taken by African countries in the post-independence period as well as important integration initiatives in the rest of the world 1. Most recently, regional integration (RI) agenda is a prominent aspect of the African Union’s Vision 2063, with an aspiration of being an ‘integrated continent with free movement of people, goods, capital and services and infrastructure connections’. 2. The case for integration in Africa rests on several premises and these have largely remained the same over the years (please see Box 1). The political geography of Africa was mostly determined by the colonial powers and in many cases, national borders have little relationship with ethnic and cultural homogeneity. The small size of many countries and fragmentation of domestic markets results in various diseconomies of scale which pulls down the economic potential of the entire continent. Over 70 percent of Sub-Saharan African countries have a population of less than 20 million, and about half the countries have a GDP of less than $10bn in 2016 (nominal terms). About one-third of Sub-Saharan African countries are landlocked and crucially dependent on their neighbors for access to global markets. The fact that the resource base may often be in countries far removed from where the markets are makes it imperative to seek regional solutions to some of the common challenges. There are over fifty trans-boundary river basins and several regional sub-surface aquifers in Africa, which again demonstrates the need for collective action in management of these natural resources. There are also the ‘global public bads’ like conflicts, natural disasters and epidemics which do not respect national borders. 3. The African experience of integration does not demonstrate a clear sequential process but shows a diversity of approaches and attempts. The classical thinking on regional integration sets out a sequence of having common markets and customs unions before moving to common currency and full integration of factor markets, eventually leading to a possible political union. Despite any rhetoric, the experience in Africa bears little resemblance to this classical model. There are long-established monetary unions, like Central African Economic and Monetary Community (CEMAC), that have not become real customs unions. In fact, there have been numerous attempts towards creating common markets which have not borne fruit – the outcome of ongoing discussions on establishing a Continental Free Trade Area (CFTA) are awaited. Then there is the long-standing issue of overlapping membership and mandates of Regional Economic Communities (RECs) which makes it impossible for them to function like true regional communities in its classical form (some countries are members of multiple RECs). All this shows that a flexible and opportunistic approach towards integration has been the practical reality in Africa. Whether this remains the approach going forward would depend on the resolve of African countries to address 1 A fuller description of the history of regional integration efforts is available in: ‘Regionalism and the Global Economy: The Case for Africa, FONDAD, The Hague (1996); Reconsidering Regional Integration in SSA: Colin McCarthy (2010); ECDPM: ‘Africa’s Regional Integration Arrangements: History and Challenges’ (2007). 1 deeper issues around the balance between sovereignty and integration, and recognizing that there would be short or medium-term winners and losers from integration and addressing these differentiated impacts. Box 1: What is Regional Integration? At the turn of the 20th century there were 100 international borders around the world. The wave of independence in many countries across continents meant that at the turn of the 21st century there were 600 international borders. Borders are necessary for nation states to survive, govern and grow. Sovereign states make political and economic choices in terms of the levels of integration they would want to have with other sovereign states. Countries that have integrated regionally benefit from growth spillovers, larger markets, and scale economies in production – benefiting producers, investors and consumers. However, as current global debates indicate that trade and integration can be unpopular and these concerns need to be recognized and addressed 2. Regional integration is the integration of factor and goods market and coordination of policy across sovereign jurisdictions within a region and can range in depth (the degree of sovereignty surrendered) and scope (focused on one issue or across several topics). Integration could be at a sub-regional or continental level. In very practical terms, successful regional integration requires the effective management by countries of relevant “border crossers” in order to accelerate the development process. Meet the important ‘border crossers’ in Africa – people, animals, commodities, money, electrons, water, germs, conflicts, technology, internet, and institutions. As experience from other regions shows, regional integration complements global integration. Countries that struggle to trade with their neighbors could typically find it harder to integrate with global value chains. 4. Africa has some useful lessons from wider global experiences with integration. The World Development Report 2009 ‘Reshaping Economic Geography’ provides an interesting conceptual framework for regional integration. It distinguishes between how integration can happen in three typologies of countries: those which are close to global markets; those in regions distant from world markets, but with some large home markets; and those in regions that are divided, are distant from world markets and lack the economic density provided by a large local economy. For the most part, Africa would fall into the last category. Nevertheless, experiences with integration in the other two types of countries would be relevant to Africa. The past two decades of global growth have been underpinned by broad consensus and established policies promoting globalization and economic integration. However, recent political debates and developments in Europe and North America have brought to the fore differences in how integration and convergence should work in future. These debates have revolved around sovereignty of nation states, inequality within and between nations, perceived loss of domestic jobs, immigration and border control, and a diminished sense of inter-dependency amongst nations. These are important issues for Africa as well and could bubble up to the top as the levels of regional integration in the continent increase. Context for this Strategy 5. Going forward, the nature and pace of integration in Africa would also be defined by wider economic opportunities and challenges. In particular, there are likely to be four key economic drivers of regional integration. First, nature of economic growth and macroeconomic stability. The past decade has 2 IMF, World Bank and WTO: Making Trade an Engine of Growth for All (2017). 2 seen the continent grow largely on the back of a commodity price boom and largely sustainable debt levels. With the commodity super-cycle now in retreat 3, there is an opportunity to push ahead with greater intra-African trade as a potential driver for increasing productivity and economic diversification. Secondly, the ongoing demographic boom and rapid urbanization could be another important factor for integration. For instance, how is Africa going to take advantage of its burgeoning youth cohorts to meet the growing food needs and purchasing power of its urban population? Thirdly, an accelerated pace of structural reforms which leads to improvements in competitiveness and consequent opportunities for agglomeration and specialization amongst countries could be another driver for integration. Finally, advances in technology and its falling costs are likely to be another driver of integration – e.g. falling costs of renewables could benefit all countries equally if diseconomies of scale are addressed or availability of improved internet connectivity could potentially revolutionize distance education and help address such chronic challenges like poor quality of teachers. 6. The World Bank Group (WBG) has considerable experience and understanding of regional integration in Africa 4, which provides the bedrock for future engagement. The World Bank’s dedicated support for regional integration in Africa began around 2005, when the regional window started as a pilot in IDA13 (please see Box 2). From the initial level of lending commitments of around $200m in FY05, the RI program in Africa has grown rapidly to around $10bn of lending commitments by end-FY17. This represents a little under one-fifth of current total commitments of IDA/IBRD in the Africa region. IFC commitments for regional programs represents about one-quarter of its commitments. MIGA is facilitating cross-country investments, through supporting cross-border power sales, facilitating regional import-export, supporting cross-border finance and regional transportation. So, the WBG has a large portfolio of active operations as well as a large body of analytical work on regional integration. With the proposed scale-up of the regional window under IDA18, there is an excellent opportunity to set out clear priorities for the future of the regional integration program. Thus, the preparation of this new WBG Regional Integration & Cooperation Assistance Strategy (RICAS) for Africa covering FY18 – FY23 (the IDA18 and IDA19 periods). Box 2: IDA Regional Window – From Pilot to Co-Pilot The regional window within IDA is a good example of how IDA responds to changing context and client demand through innovation, trialing, mainstreaming and scaling-up. The regional window started as a ‘pilot’ program in IDA13. It allowed leverage of national IDA with additional IDA resources as an incentive for countries to address regional challenges. As a ‘pilot’, it went through a trial period and has since been mainstreamed and scaled-up. In response to chronic excess demand, IDA18 will see a near doubling of the size of regional window. The Africa Region of the Bank now sees the regional program as a ‘co-pilot’ sitting alongside country programs to help clients achieve strong development results. As the IDA architecture becomes more sophisticated, there is much to learn from its regional window! 7. It is important to situate this new Strategy within the wider ecosystem of strategy and diagnostic tools in the WBG. The 2008 RI Assistance Strategy for Africa 5 set out several priorities which have served the Bank well so far 6. This WBG strategy builds upon the considerable experience gained 3 IMF: WEO (2017): it projects only a slight increase in commodity prices by 2022 from the low prices now. 4 Africa in this report refers to the Africa Region of the World Bank (or Sub-Saharan Africa). 5 https://siteresources.worldbank.org/INTAFRREGINICOO/Resources/1587517-1271810608103/RIAS-Paper-Final- Approved-Oct2010.pdf 6 The 2008 Strategy was a World Bank strategy. 3 over the past decade while also recognizing the significant changes in context in Africa. It sets out a pathway for developing the next generation of WBG’s engagement in regional integration. How will this new RI strategy sit within the existing diagnostic and strategy formulation processes within the WBG? The Systematic Country Diagnostics (SCD) and Country Partnership Framework (CPF) remain core part of existing processes to define priority areas of country engagement for the WBG. These products are also expected to reflect priority areas of engagement on regional integration issues in different countries. This new strategy sets out the priority areas for WBG engagement on regional integration, while the specific RI lending opportunities would be identified in the various CPFs. In essence, this strategy does three things: identifies lessons learnt and assesses the changes in the wider context; repositions the WBG’s RI work and sets out strategic priorities; and, identifies improvements in the WBG’s engagement to strengthen the impact of the RI work. 8. This document consists of six sections. The next section provides an overview of the context in Africa in terms of economic and development challenges and looks at wider links between Africa and rest of the world. The third section takes stock of progress with regional integration in Africa and makes a forward-looking case. Section Four looks back at the performance, achievements and lessons learnt within the WBG’s RI program in Africa. Section Five sets out a strategic framework for the future, while the last section sets out key aspects of implementing the strategy. SECTION II: THE SETTING: AFRICA REGIONAL CONTEXT 9. This section looks at the broader economic and development context in Africa with relevance to regional integration. In particular, it looks at the economic context, performance on poverty reduction and human development, infrastructure provision, fragility and sustainability, trade and financial flows and the political context for integration. Economic Context 10. After a decade of strong economic growth, Africa witnessed its lowest growth rate in 2016 in nearly two decades 7. During 2004-14, the real GDP growth rate in the region was an average of 5.3 percent, before falling to 3.4 percent in 2015 and 1.4 percent in 2016. In fact, the region’s average per capita GDP contracted in 2016, for the first time in 22 years, reversing a period of improvements in living standards. Beneath these headline numbers, there is a sharp divergence in economic performance in some of the non-commodity exporting countries (some of which continue to see 6 percent growth), while the commodity exporters have been severely affected by the fall in global commodity prices. In sub- regional terms, East Africa has shown the highest economic growth in recent years, followed by west, central and southern Africa (Table 1). A comparative picture of the Regional Economic Communities (RECs) is in Figure 1. Besides global factors, there are domestic economic and political headwinds and rising security concerns in some countries that are undermining short to medium-term economic prospects. The unlikely return of very high commodity prices points to the need for undertaking crucial macroeconomic adjustments, deepening of structural reforms and economic diversification as key measures for reigniting economic growth. 11. The decline in growth rates is playing through in other aspects of Africa’s overall macroeconomic performance and the near-term growth prospects remain modest. In 2017, two-thirds of Sub-Saharan African countries are running fiscal deficits which are above their average 2010-13 levels. 7 This section uses data from some recent analytical reports by the World Bank and IMF, including IMF’s Regional Economic Outlook and World Bank’s Africa Pulse. 4 One-half of the region’s economies do not meet the traditional benchmark for reserves of less than three months’ worth of imports. At the same time, there was a sharp decline in the number of countries accessing private external financing in 2016 – at its peak, a dozen countries had Eurobond issuances during 2013 – 15. With the prospects of a rise in interest rates and continuing global uncertainty, investors are likely to seek higher yields and look more closely at domestic economic fundamentals – posing some uncertainty over availability of cheap private capital. Deterioration in the fiscal position in many countries is also being reflected in the deteriorating debt situation, amongst both the commodity exporters and non-exporters. Public debt rose above 50 percent of GDP in 22 countries at end-2016, a sharp increase within a short 3-4-year period. While a modest growth rebound is expected in 2017, the short-term growth prospects for the continent tend towards moderate recovery due to continuing regional and global uncertainty. Growth is expected to pick-up to 2.6 percent in 2017 and 3.4 percent in 2018-19 8. Overall, growth is likely to rise only slightly above the population growth, a pace that is unlikely to make a big dent in creating employment and supporting poverty reduction. While the recent strengthening of global growth, particularly in key trading partners, is a positive development for Africa’s prospects, but the buildup of domestic vulnerabilities is a cause for concern. Table 1: Economic Growth Performance by Sub-Regions Real GDP growth (%) 2008-12 2013 2014 2015 2016(e) Central Africa 4.9 4.0 6.0 3.6 0.8 East Africa 5.6 7.2 5.9 6.5 5.3 Southern Africa 3.1 3.7 2.8 1.9 1.1 West Africa 6.2 5.7 6.1 3.3 0.4 Sub-Saharan Africa 4.9 5.2 5.0 3.5 1.7 Source: African Economic Outlook, 2017 12. There are two monetary unions in Sub-Saharan Africa and more are proposed. The WAEMU and CEMAC cover 13 countries between them. More proposals are on the table, including in EAC and the intention of having a West Africa Monetary Zone currency, Eco, by 2020. The stated objectives of existing unions, like WAEMU, is to provide monetary and fiscal stability and trade and financial sector integration. The performance of monetary unions has been a subject of recent discussions, particularly in light of the macroeconomic difficulties facing CEMAC countries – where international reserves stood at around two months of imports in December 2016. Monetary easing by BEAC is perceived as having delayed much- needed adjustment 9, but more recently there are improved prospects of the zone addressing these challenges. In WAEMU, the nominal exchange rate anchor and the Union’s rules have generally contributed to supporting fiscal discipline and macroeconomic stability in the zone. However, the convergence criteria has been repeatedly missed by countries in the WAEMU and it remains to be seen if the convergence criteria agreed for 2019 is likely to be met. Overall, economic integration within these monetary zones remains limited. 13. Slow structural transformation and low productivity levels across sectors remain big challenges. Agriculture continues to employ over 50 percent of the region’s workforce, but the sector’s share in GDP has declined from 34 percent in 1965 to just over 20 percent in 2010. This decline has been largely offset by an expanding services sector, accounting for over 50 percent of GDP. There are ongoing debates 10 whether Africa can bypass manufacturing sector development and rely more heavily on the services sector to drive future growth. In any case, movement of labor from low-productivity agriculture to low- 8 World Bank Group: Global Economic Prospects, June 2017. 9 IMF: CEMAC Staff Report (2016) contains more analysis on CEMAC macroeconomic challenges. 10 AfDB, OECD, WB and WEF: Africa Competitiveness Report 2015. 5 productivity informal trade services is unlikely to dent the current across-the-board low-productivity in various sectors. Take agriculture – Africa imports food staples valued at $25 billion annually, essentially because food production, supply and consumption systems are fragmented and not functioning optimally. The level of value addition and processing is low, and post-harvest losses average 30 percent of total production. In the 1960s, cereal yield levels were comparable between Africa and South Asia (around 1,000 kilogram / hectare), while it has reached nearly 3,000 kilogram / hectare in South Asia, it has almost remained stagnant in Africa. Only 4 percent of crop area in the continent is irrigated. This despite the huge potential in the agriculture sector as the continent is home to one-half of the world’s uncultivated but arable land and it taps into only 2 percent of its renewable water resources compared to 5 percent globally. Figure 1: Overview of Major Regional Economic Communities in Africa 14. In the midst of global uncertainty and prospects for modest growth in Africa, greater regional integration remains an untapped driver of growth. Africa needs to transform from what the Africa Competitiveness Report (2015) calls the ‘first stage of development’ where economies are factor-driven and their competitiveness is based on factor endowments (unskilled labor and natural resources) to the second ‘efficiency driven’ stage. In the latter stage, competitiveness depends on higher education, frictionless labor markets, better developed financial markets, adoption of new technology, and larger 6 size markets being available to firms. The potential benefits of regional integration run through each of these themes, by making markets bigger and addressing diseconomies of scale. Quality of governance, rule of law, a harmonized business environment and policy consistency are also critical for the private sector to be a driver of regional integration. Demography, Poverty, Development and Environment 15. Africa’s population grew from around 640 million in 2000 to 960 million in 2015 – a 50 percent increase in fifteen years. It is projected to increase to around 1.4 billion by 2030. Between 1970 and 2010, the population of China, India and Sub-Saharan Africa grew in similar numbers, by some 550 – 650 million people. Over the next 50 years, however, the projections look very different. Sub-Saharan Africa’s population will grow at 200 percent of the growth seen during 1970 and 2010, compared with 70 percent in India, while China will level off and start to fall. The continent’s workforce is expected to increase by over 800 million people between 2010 and 2050. Africa will each year add 25 million people to its workforce – highlighting the staggering challenge of jobs, food security and infrastructure needs. The rising population and urbanization could also see an emerging middle class – in 2008, Africa’s combined consumer spending was around $680 billion and it is projected to increase to $2.2 trillion in 2030. As in other regions, an expanding middle class will likely result in changing household spending patterns and concomitant changes in the economic production, supply and trading systems. 16. Two decades of sustained economic growth has delivered modest reduction in poverty. The share of population in extreme poverty declined from 57 percent in 1990 to 43 percent in 2012 11. However, rapid population growth has meant that the number of people living in extreme poverty increased by 100 million during the period. Across all countries, the levels of rural poverty are significantly higher (46 percent) than in urban areas (18 percent). Africa also has very high levels of inequality – of the 10 most unequal countries in the world today, 7 are in Africa. However, excluding these very unequal countries, the levels of inequality in Africa are largely comparable to the average of the developing world. Therefore, the success of future growth endeavors would be measured not just in terms of the levels of growth achieved (realizing a steady 6+ percent growth would be critical), but also the poverty elasticity of this growth and how the continent does on inequality indicators. Additionally, the need for regular and comparable household surveys in order to allow cross-country comparisons has been highlighted in a recent Bank report on poverty (see footnote 11). 17. Despite good progress across the board, Africa only met three of the seven MDGs and challenges remain on the 21st century priorities in the social sectors. The following MDGs were achieved – universal primary education; gender equality and women’s empowerment; and combat HIV / AIDS, malaria and other diseases. The remaining four MDGs were ‘off-track’: eradicate extreme poverty and hunger; reduce child mortality; improve maternal health; and ensure environmental sustainability. Among the lessons learnt 12 from implementation of MDGs in Africa is the need to better balance the ‘brick and mortar’ investments in schools and hospitals with the need for increased recurrent spending and addressing quality of service provision. While the tertiary enrollment ratio reached only 8 percent in 2010, but the good news is that university enrollment has doubled during the last decade. This is putting tremendous pressure on a vast majority of public universities in Africa, with an estimated 50 percent more students per professor in the continent compared to the global average. The region needs more capacity and better quality tertiary education across universities, polytechnics and technical institutions and innovative regional approaches could be part of the solution. Within the health sector, cross-border 11 World Bank: Poverty in a Rising Africa (2016). 12 UNDP: MDG Report for Africa (2015). 7 challenges come from recurring epidemics of cholera, malaria, meningitis, measles and zoonotic diseases. The Ebola epidemic in west Africa during 2012-13 starkly brought to the forefront the risks posed by weak health systems, poor surveillance and inadequate response to outbreaks. At the same time, the rising burden of Non-Communicable Diseases is exposing weak capacities in screening and treatment at different levels of the medical system. In sum, the continent would need to look at radically different ways of delivering on the human development challenges, including greater use of possible regional approaches where they can strongly complement national efforts. 18. Infrastructure deficits continue to cripple long-term competitiveness of African economies, but the impressive penetration of the telecom sector serves as a beacon for the future. The region’s current electricity generation installed capacity is 90 GW, half of which is located in one country, South Africa. Electricity consumption in Spain (population 47 million) exceeds that of the whole of Sub-Saharan Africa (population 1 billion). Internet penetration in Sub-Saharan Africa is also about one-third that of other developing economies 13. Access to basic infrastructure remains a key challenge – with only 35 percent of people having access to energy and 30 percent of the population having access to improved sanitation services. And the needle has been moving slowly – e.g. access to energy has only increased from 23 percent in 1990 to 35 percent in 2015. Over 600 million people currently lack energy access. However, the performance of the telecom and ICT sector, especially in terms of the rapid increase in mobile penetration, has been nothing short of impressive. Nearly half of the population in Africa subscribed to mobile services in 2015. Continuing with such technology leapfrogging will be important in other sectors. 19. Despite progress in provision of regional infrastructure, critical gaps remain and progress has been uneven across sub-regions. There are no recent assessments of the level of infrastructure financing deficit, but in 2010 14 it was estimated that the region needed $93 billion per year to fill the infrastructure gap. While data comparability may be an issue, some estimates show that overall financing for infrastructure in Sub-Saharan Africa has tripled between 2004 and 2012. There has been growth across various financing sources, with domestic public financing being the single largest source of infrastructure financing, contributing over 60 percent of total infrastructure financing. At their 18th African Union Assembly in 2011, African Heads of State and Government formally adopted the Program for Infrastructure Development in Africa (PIDA), which identifies priority continental projects in trans- boundary water, energy, transport and ICT to be realized by 2040. There has been steady progress in the provision of regional infrastructure. In the energy sector, Southern Africa Power Pool (SAPP) created by the 12 member countries of SADC is the most developed power pool in Africa. The SAPP largely has a sound governance structure, with its key establishing agreements and operating guidelines signed by both members’ governments and utilities. The West Africa Power Pool (WAPP) and East Africa Power Pool (EAPP) are also making rapid progress towards connecting all national power grids. Progress has been limited in establishing a regional power pool for the central African countries. On the ICT side, internet connectivity through submarine cable has been largely successful, but initiatives connecting East-West corridors are lacking, putting land-locked countries at a disadvantage. Even when there have been improvements in regional road infrastructure, the impact on greater regional trade has not been realized due to a variety of non-tariff barriers and other market failure which exist in those corridors. This points to the need for paying greater attention to ‘soft’ policy reform issues alongside filling gaps in ‘hard’ infrastructure. Regional infrastructure projects can sometimes suffer from lack of strong champions at country-level, outside of concerned Ministries, due to competing national investment priorities. 13 ITU & the UN Broadband Commission – The State of Broadband 2016 14 World Bank: Africa Infrastructure Country Diagnostics (2010). 8 20. Unless effective collective action is forthcoming, there is a risk that regionally shared natural resources could face the ‘tragedy of the commons’. Africa has many shared natural resources – there are over 50 trans-boundary river basins; coastal zones that are much bigger than the Exclusive Economic Zone (EEZ) of the United States; drylands which cover multiple countries, and rich forest and biodiversity resources. At least three of Africa’s eight biodiversity hotspots have cross-country coverage. The coastline of Africa stretches to over 45,000 km and there are around 300 coastal cities – highlighting the importance of sustainable management of marine resources and coastal erosion, which would have important medium to long-term dividends. Better management of natural resources and ensuring environmental sustainability requires collective action by countries, more so in the context of rapid population growth and expected pressures on natural resources. But experience also shows that addressing the ‘free rider’ problem and optimizing the ‘transaction costs' of collaboration should be an important part of promoting collective action amongst countries 15. This, in turn, requires close examination of the incentives and disincentives for meaningful cooperation amongst countries – going beyond traditional methods of providing Technical Assistance and institutional capacity building support. Fragility and Resilience 21. Many of today’s fragility risks in Africa have an increasing cross-border dimension. Cross-border fragility risks could take multiple forms: violent conflict; forced displacement; spread of epidemics; and un-coordinated management of shared natural resources. Some of these risks have materialized in recent years. The conflict and unrest caused by Boko Haram in countries of west and central Africa show that conflicts quickly spillover across borders pointing to the drivers of fragility having a cross-country dimension. These conflicts come at tremendous economic, environmental, social and human costs. For instance, estimates show that the Boko Haram crisis has come at a huge economic cost of nearly $9bn just in North East Nigeria 16. The Lake Chad region is now an unfortunate theater of conflict and environmental stress feeding into each other. Figure 2 shows the cross-border conflict hotspots that have resulted in major fatalities. Some of the regional conflicts are long-standing – for example, in the Great Lakes region, conflict and resulting forced displacement has been playing out over five decades and has left over 3 million displaced people. Additionally, regional conflicts vitiate the climate for cooperation among countries and undermine prospects of private investments. These, in turn, affect the prospects for regional integration. Since the drivers and impacts of regional conflicts are cross-border in nature, tackling them requires strong political consensus amongst countries. The Peace, Security and Cooperation Framework Agreement for the Great Lakes signed by ten countries in 2013 illustrates the potential of how countries can come together with political resolve, but it also points to the need for effective implementation of such agreements. 22. Climate change poses a significant risk to Africa. The projected climate change impacts range from reduction in precipitation, damage to land and coastal ecosystems, increasing vulnerability for agriculture and food systems and climate-relevant health risks. At a global mean temperature increase of 4-degree C, risks for Africa’s food security are “assessed as very high, with limited potential for risk reduction through adaptation” 17. No region has contributed as little as Africa to the increase in global greenhouse gas emissions, yet Africa could face the brunt of climate change impacts. The continent’s existing climate adaptation deficit poses ‘medium to high risks’ in dealing with multiple climate challenges: shift in biome distribution, loss of coral reefs, reduced crop productivity, adverse effects on livestock, vector and water-borne diseases, malnutrition, and migration. High poverty levels, dependence on 15 OECD: ‘Managing Agri-environmental Commons through Collective action: Lessons from OECD Countries’. 16 World Bank: North East Nigeria – Recovery and Peace Building Assessment (2016). 17 Inter-Governmental Panel on Climate Change(IPCC): Africa Report (2014). 9 rainfed subsistence farming, poor management of natural resources and limited provision of safety nets combine to make climate change a major risk for the continent. Climate change impacts are not going to stop at national borders, pointing to the need for effective collaborative action amongst countries to address or mitigate these impacts. Trade and Factor Markets 23. Africa’s share in global trade continues to be very small, but destinations of African exports have changed. The comparison with East Asia’s trade performance is illustrative. In 1970, Africa’s share of global exports was around 5 percent – twice that of East Asia and by 2010 Africa’s share had fallen to 3.3 percent, while East Asia had galloped ahead to 18 percent share of global trade. That said, there has been a fivefold increase in the real value of sub-Saharan Africa’s exports over 1995–2013 (deflated by U.S. GDP deflator) – which is explained by both a 2.5-fold increase in volumes and a two-fold increase in the relative price of exports. Almost three-fourth of Africa’s exports were extractives, and manufactures formed just 18 percent of Africa’s exports in 2013 (compared to a world average of 65 percent). Trade flows between Africa and China have increased significantly in recent years. In 1995, around 90 percent of Africa’s trade was with advanced economies, now China is the single largest market for African exports. While Africa’s export mix to China is narrowly focused on the primary sector, its imports from China are much diversified 18. There are ongoing initiatives for promoting trade and investments with Africa, including the African Growth and Opportunity Act of the United States and the Economic Partnership Agreements that the European Union is negotiating with some RECs. An increase in global trade integration may be accompanied by greater volatility from external shocks – as the current economic difficulties for some resource exporters demonstrates. Regarding services, Africa has become an increasing net importer of services with a trade deficit of nearly $50bn in 2013 for services, raising the question if this deficit could grow further with rising urbanization? 24. Intra-African trade continues to be small, but if done right could open up huge economic potential. About 16 percent of total trade in 2013, and only 12 percent of Africa’s imported intermediates is sourced from the region. Recent literature 19 reinforces the need for the continent to address five priority areas to increase intra-regional trade: bringing infrastructure to global average quality could improve intra-regional trade by 42 percent; address non-tariff barriers and investment climate; further financial deepening and access to credit could increase intra-regional trade by 28 percent; lowering of tariffs, which would need to be done with other measures to increase domestic revenue mobilization; and deepening the integration in existing customs unions. Figure 2 illustrates the limited intra-regional trade by illustrating the trade flow data for EAC countries. Reliable and comparable data on large levels of informal trade between countries is hard to come by, but estimates put the level of informal trade in the SADC region to be one-third of total intra-SADC trade. Many of the cross-border traders across the continent are women, who often face hardships and personal risks. 18 Pigato and Tang: China and Africa – Expanding Economic Ties in an Evolving Global Context; World Bank (2015) 19 IMF: Trade Integration & Global Value Chains in Sub-Saharan Africa (2016) 10 Figure 2: Conflict Fatalities Hotspots and Imports and Exports from EAC 25. The external flow of finances into Africa has been in the range of 10 – 12 percent of GDP during the past decade, but is concentrated in a few countries. The external flows have averaged $190bn per year during the period 20. While at the same time, domestic revenue collections have increased from $281 billion during 2004-08 to $461 billion in 2014. FDI and portfolio investments have formed the largest share of external flows in recent years in the range of $50bn to $80bn annually. Remittances form the next category ranging between $37 billion in 2004-08 to $64 billion in 2015. ODA has largely remained steady in the range of $40 billion to $50 billion per year. Table 2 shows the distribution of external flows and government revenues for the RECs. The EAC has been the largest recipient of ODA, while SADC is largest recipient of private capital flows as a share of GDP. Resource-rich countries are getting two-thirds of FDI flows in the extractive sectors, while ICT and services also show an increased share. The geographical concentration of FDI flows is striking. From 1990 to 2000, one-half of total FDI flows into Sub-Saharan Africa went to two countries – South Africa and Nigeria. This trend has not changed much – between 2001 and 2012, the top 10 recipient countries received 85 percent of FDI flows into the region. The relatively smaller countries and those with weaker investment climate were at the bottom of the table on levels of external financing. This points to the likely ‘neighborhood effect’ in determining the destination of investment flows and thus the need for greater convergence in the investment climate at a sub-regional level so that more countries are likely to benefit from these investments. Table 2: Domestic & External Flows by Regional Economic Community (Average 1990-2012 % of GDP) ODA Private capital flows Government revenue Remittances SADC 5.9 6.2 28.5 4.6 ECOWAS 7.9 4.8 20.1 5.0 EAC 8.7 4.1 21.8 1.7 CEMAC 3.1 2.3 25.7 0.4 WAEMU 6.1 2.0 20.0 4.2 SSA 6.8 4.9 24.8 3.9 Source: Brookings Institution, 2015 20 AfDB, OECD, UNDP: African Economic Outlook, 2016 11 26. There has been progress with financial sector development but the capital market is at an early stage of development. There is now a strong presence of pan-African banks across many countries in Africa – these represent the potential for African businesses to grow within a conducive policy environment. About 20 national stock exchanges are currently active in the continent. With the exception of the Johannesburg stock exchange, all other stock exchanges are small. There is one functioning regional stock exchange covering the WAEMU group of countries. While the case for larger regional exchanges is strong, but there are several constraints to the development of regional stock exchanges – smaller exchanges may be concerned that they would get overshadowed by the bigger counterparts, and there may be an inclination for countries to view stock exchanges as national assets with pride. The financial sector faces challenges with undertaking financial intermediation and faces diseconomies of scale in accessing private financing, due to high risk perceptions, lack of ‘bankable’ projects and projects individually seen to be too small to warrant the high transaction costs for larger investors. 27. As regards movement of people, there is a large stock of migrants who have moved within Africa. As Figure 3 shows, about 13 million people have moved between countries within Africa – representing two-thirds of total number of Sub-Saharan Africans living outside their country 21. With rapid urbanization and growth of the services sector and other non-agricultural jobs, it is likely that there would be further impetus towards economic migration in both the skilled and semi-skilled occupations within the region. It is hard to predict the levels and nature of cross country migration in future, but if the story of other continents is anything to go by, economic migration between countries in the region could remain an important factor in Africa’s future. This is only likely to enhance the need for managing remittances, allowing cross-national banking and insurance products, greater reliance on mutual recognition systems of education degrees, and convergence of remuneration levels in the job market – all of which require collective facilitation at a regional level. In addition, forced displacement due to economic, social or environmental factors has been an underlying cause for displacement both within and outside the region. Challenging rural conditions have also contributed to past migrations from Africa’s Sahel drylands and the Horn region, underscoring the link between water supply variability, food insecurity, the potential for unrest and mass migration.” 22 28. Rapid technological change and entrepreneurship is likely to affect Africa in profound, but previously unknown, ways. Apart from changing the landscape of the job market, technology advancements could impact the future of multiple sectors - food, energy, medicine, transportation and logistics, construction, healthcare, telecom and digital economy, shared economy and the financial sector, among others. It could also dramatically change the future of innovation and domestic entrepreneurship and existing service-delivery mechanisms. Insufficient attention is being paid to technological developments that respond to Africa’s challenges and to innovative financing arrangements to facilitate development and application of technological solutions at a large enough scale. Additionally, some of the ‘future ready’ strategies for Africa to take full advantage of the technology revolution could include 23 : providing robust technical and vocational education and training; ensuring the ‘future-readiness’ of curricula; and investing in digital fluency and ICT literacy skills. Such efforts could prevent further gaps in the ‘digital divide’. 21 IMF: Sub-Saharan African Migration: Patterns and Spillovers, 2016 22 Stockholm International Water Institute: The Water Report (2016). 23 World Economic Forum (WEF): The Future of Jobs and Skills in Africa (2017) 12 Figure 3: Migrant Stocks within and from Sub-Saharan Africa Political Context for Integration 29. Effective cooperation amongst countries to achieve mutually shared objectives is a critical determinant of regional integration. ‘Pan-Africanism’ and ‘African solidarity’ have remained important ideals for leaders to articulate the benefits of integration. Nevertheless, translating these ideals into reality has been often fraught with political economy and sovereignty considerations. For very legitimate reasons, countries could compete as preferred destinations for private investments or strive to protect their market share for key products. Countries are not unitary entities and there are stakeholders within countries who make different assessments of the costs and benefits of greater integration. How these different domestic interest groups along with historical, diplomatic and other factors plays out at a sub- regional level has been an important factor for the success of integration efforts. Political economy issues are obviously important in achieving development results at the country level, but with regional integration there is the added factor around national sovereignty issues, which can complicate things. A stronger engagement on political economy issues will be critical in shaping the integration agenda and making sure it does not move at the pace of the slowest mover. There is also sometimes a trust deficit between countries which could result in reliance on more expensive domestic solutions. The hurdles in moving to a single common market is an example of the trade-offs to be made between integration and domestic sovereignty considerations. 30. The role of the AU and the RECs becomes particularly important in this context of political economy issues around integration. There is reason for optimism in recent efforts by these regional bodies. For example, ECOWAS has played an increasingly critical role in ensuring electoral outcomes are respected in member countries – a recent instance being in The Gambia in early-2017 following the contentious elections in the country. The AU and RECs have been playing an important role in addressing terrorism and potential risks of conflicts – these are critical in ensuring that Africa gets the full benefits of rapid economic growth. However, political economy issues in integration extend beyond provision of regional stability and security, and here the record has been patchy. With the creation of a large number 13 of RECs and other regional entities, it is apparent that there is a heavy structure of supra-national institutions with mixed performance on efficiency and effectiveness standards 24. The overlapping membership of the RECs has been an important inhibitor for successful integration. Commitment to regional bodies or regional projects could sometimes arise out of a historical sense of African solidarity amongst leaders but there are little costs associated with non-compliance by member states of regional agreements 25. This could be an important explanation for the wide gap between rhetoric and reality of integration. Several efforts are underway to provide capacity development support to the regional institutions, and these are likely to be more effective once there is clarity on the respective roles of these institutions and how they can effectively support countries to implement various regional agreements. Ongoing efforts on reforms of the African Union acquire important relevance in this regard, particularly the recent ‘Report on the Proposed Recommendations for the Institutional Reforms of the African Union’ 26. Annex VII has more information on continental and REC priorities. Key Emerging Issues 31. Three main issues arise from the foregoing analysis which are closely intertwined with regional integration. Firstly, Africa needs to restart its growth engine and strengthen the poverty elasticity of growth within a context of global uncertainties and modest prospects for commodity price boom. Deepening of integration could be a timely and effective way of reigniting the growth engine. This requires economic diversification, improving the competitiveness of countries and promoting greater regional trade. Continued attention to filling critical regional infrastructure gaps along with ‘soft’ policy and regulatory reforms would be critical. Secondly, there are some big opportunities that lie ahead, including the demographic boom, rising urbanization and the likely prospects of technological improvements. These factors could fundamentally redefine production, trading and consumption patterns in the continent. All of these, if optimally realized, could become the 21st century drivers of greater integration in the continent, but if not well-harnessed could risk bypassing the integration efforts. Finally, several fragility and environmental risks which have a cross-border dimension require effective collective action by multiple countries – again pointing to the need for strong and meaningful regional cooperation. But such efforts need to go beyond narrow efforts of building institutional capacity of regional bodies and should help establish clear incentives and disincentives for countries to comply with regulatory improvements. There is thus a strong case that deepening of integration and cooperation in Africa could be an effective way of responding to Africa’s short and medium-term challenges and opportunities. The subsequent section looks into the constraints and opportunities in unleashing the full potential of integration to chart the next course of Africa’s development story. SECTION III: STATE OF PLAY AND MAKING THE CASE FOR 21ST CENTURY: INTEGRATION IN AFRICA Global Perspective on Integration 32. There are rich experiences with regional integration in the developing world, but there is no ‘blueprint’ here. Intra-regional trade in Asia and the Pacific is currently at 57 percent, compared to 63 percent in the European Union and 20 percent in Latin America. The ASEAN, which is now in its fifth decade of existence, is perhaps the most successful regional grouping outside the European Union and in 24 There has not been an independent review of the 2008 General Protocol of Relations between AUC and RECs. 25 ECDPM: Political Economy of Regional Integration in Africa (2016). 26 http://www.gsdpp.uct.ac.za/sites/default/files/image_tool/images/78/News/FInal%20AU%20Reform%20Combin ed%20report_28012017.pdf 14 the developing world. Four broad characteristics have defined ASEAN 27: there is great degree of economic, political, cultural and linguistic diversity; most member countries have achieved rapid economic growth – the economic dynamism and steadily expanding regional integration have created a virtuous cycle, with increased regional harmony providing an enabling business environment – although it may be difficult to pinpoint the direction of causality between greater integration and high levels of economic dynamism; ASEAN diplomacy and cooperation have been characterized by caution, pragmatism, and consensus-based decision making, with a focus on avoiding creation of strong supra- national institutions; ASEAN has not been an EU type organization or even a NAFTA-type economic bloc. In fact, ASEAN despite its obvious successes in promoting integration, remains quite different from any classical definitions of integration – in that it only partly allows free trade in goods and services, does not address labor mobility and has not aspired to be a monetary union. ASEAN presents a pragmatic, market- oriented approach with little focus on building regional institutions – an alternative model with relevant lessons as Africa looks ahead to deepening its integration. 33. The success of East Asia with regional integration is rekindling interest in Latin America, where integration efforts are much more incipient. Since at least the 1960s, Latin America has experimented with various forms of regional integration with the hope that fostering regional economic ties can yield economic success, but actual performance has been mixed. The region has long practiced “open regionalism” – viewing regional integration as a stepping stone to the goal of global integration. Recent analysis shows that Latin America’s push towards greater integration is based on the argument that part of the region’s low-growth problem is its low levels of intraregional economic integration and embracing domestic structural reforms can “raise the economic efficiency of the Americas as a whole” 28. Again, relevant for Africa given the ongoing slowdown in economic growth. But it is also true that some of Africa’s own efforts and successes with integration could be relevant to other regions such as Latin America and South Asia. African Vision for Integration 34. The AU’s Vision 2063 sets out five ‘African aspirations’, and regional integration is fundamental to them. The aspirations are: (i) a prosperous Africa based on inclusive growth and sustainable development; (ii) an integrated continent, politically united, based on the ideals of Pan-Africanism and the vision for Africa’s Renaissance; (iii) an Africa of good governance, democracy, respect for human rights, justice and the rule of law; (iv) a peaceful and secure Africa’ and (v) an Africa with strong cultural identity, common heritage, values and ethics. It sets out an ambitious target that as a result of greater integration, intra-African trade would grow from less than 12 percent in 2013 to approaching 50 percent by 2045. Similar priorities and aspirations are set out in several vision and strategy documents prepared by the RECs (please refer to Annex VII for a brief analysis of continental and sub-regional strategic priorities). A review of the strategic priorities of the six official Regional Economic Communities (RECs) in Sub-Saharan Africa shows a lot of common ground with due emphasis on moving towards a common market, customs union, monetary union and political federation. In specific terms, they all emphasize improved regional infrastructure, greater regional / sub-regional trade, agricultural development and industrialization. Some of these strategies also highlight areas such as ensuring regional peace and security, human development and skills transfer, and effective management of shared resources. 27 ADB: ASEAN Economic Integration, 2010 28 World Bank: Better Neighbors: Toward a Renewal of Economic Integration in Latin America (2017). 15 Progress with Regional Integration 35. The case for integration has been clear and well-articulated. This Section does not repeat the assessment provided in Section II above. At one level, it is remarkable that regional integration has remained central to the African political priorities through periods of economic booms and down cycles, during peace and conflict periods, through domestic electoral and governance challenges and through the second-generation of post-independence leaders. It is also remarkable that in different ways all types of countries, many key sectors and economic actors see potential benefits from greater integration – implicitly pointing to a likely broad-based support for the agenda. Countries, small and large, resource- rich and resource-poor, landlocked and coastal, post-conflict and others could all benefit in different ways from deeper integration. It also remains truly relevant for most sectors, whether infrastructure, productive sectors or human development. Integration is also an important agenda for the main economic actors - governments, private sector and the general public. 36. Over the past decade, there has been progress with integration, but it remains a complex agenda. In regional infrastructure development, many sub-regions have seen commissioning of several regional projects. For example, in the road transport sector, work is underway on some of the priority regional projects identified under the Program for Infrastructure Development in Africa (PIDA), including the Abidjan – Lagos Corridor, North-South Multi-Modal Corridor connecting South Africa, Zambia, Malawi and the Central Corridor connecting Tanzania, Uganda, Rwanda, Burundi and DRC. A few priority regional projects have successfully secured private sector financing, including the multi-modal Maputo corridor connecting South Africa and Mozambique and recently the Nacala corridor rail and port development connecting Mozambique and Malawi and extending to Zambia. ECOWAS has to a large extent effectively implemented its policy allowing free movement of ECOWAS nationals, but has not yet done the same about movement of goods between member countries. Elsewhere, there has been progress in EAC with elimination of tariff barriers and some sub-regions are also moving to Common External Tariff. Nevertheless, the experiences of integration in Africa and in other continents points to the complexity, time required and the gestation period to successfully realize the full benefits of deeper integration – in some ways it is like patient capital. 37. Work is underway in establishing a Continental Free Trade Area (CFTA). A number of meetings have been held on the modalities of tariff liberalization and trade in services, with some indications that it could be signed by Heads of State in early-2018. The stated aim is to see a 50 percent increase in intra- Africa trade within five years of establishment of CFTA. The exact modalities and realism of the proposals are awaited, but the real test would be in agreeing a strong text and effective implementation of the proposals once agreed. It would require considerable political and bureaucratic commitment given that previous FTAs have not been fully realized. If successful, CFTA could be hugely transformational for Africa. 38. The overall performance of Africa on regional integration has been mixed. The 2016 Regional Integration Index for Africa 29 (Table 3) prepared by African Union and others provides a composite picture of the relative level of integration across five dimensions: productive integration (share of intra-regional intermediate goods exports and imports); trade integration (levels of customs duties, share of intra- regional goods imports and exports); regional infrastructure (Infrastructure Development Index, Intra- regional flights, regional electricity trade, and average cost of roaming); financial and macroeconomic integration (convertibility of currencies and inflation rate differential); and free movement of people (visa on arrival for REC nationals, ratification of protocol on free movement, and REC nationals who do not require visa for entry). The average relative score for the six Sub-Saharan African RECs on a scale of 0 to 29 AU, AfDB, UNECA: Africa Regional Integration Index Report 2016. 16 1, is 0.484. EAC and SADC score the highest relative scores amongst the RECs in terms of the levels of integration. Interestingly, the single highest score across all dimensions is 0.800 for ECOWAS on free movement of people, which allows ECOWAS citizens to travel to member countries without a visa. This indicator shows that a combination of political leadership and bureaucratic follow-through can deliver huge returns. As per the 2016 Index, Cote d’Ivoire, Kenya and South Africa are the most ‘deeply and broadly’ integrated countries. And there is strong, but yet unrealized potential, for the following countries to integrate more within their RECs by steering their economies towards the region – Angola, DRC, Ethiopia, Nigeria, Sudan and Tanzania. These six countries are among the top 10 largest economies in the region, perhaps reflecting the distance the continent has to go in deepening integration. Table 3: Five Dimensions of Regional Integration: How does Africa Perform? REC Trade Regional Productive Free Financial and Average Integration Infrastructure Integration movement macroeconomic Score of people integration COMESA 0.572 0.439 0.452 0.268 0.343 0.415 EAC 0.780 0.496 0.553 0.715 0.156 0.540 ECCAS 0.526 0.451 0.293 0.400 0.599 0.454 ECOWAS 0.442 0.426 0.265 0.800 0.611 0.509 IGAD 0.505 0.630 0.434 0.454 0.221 0.457 SADC 0.508 0.502 0.350 0.530 0.397 0.531 Average of 0.555 0.490 0.391 0.528 0.388 0.484 six RECs Source: Africa Regional Integration Index, 2016 39. A clear priority is to address the large implementation gap between the political rhetoric on integration and the reality on the ground. There has been no lack of regional agreements and political commitments on closer integration, but these have not always been followed through by effective implementation – e.g. by 2013, ECOWAS member countries had not ratified 16 of the 51 texts adopted by ECOWAS. None of its member states had fully complied with the payment of ‘Community Levy’ to finance ECOWAS30. This picture is illustrative of most of the RECs. SADC had set itself the following targets – free trade area by 2008; customs union by 2010; common market by 2015; monetary union by 2016; and single currency by 2018 – all of these targets would be missed. There could be a number of reasons for this implementation gap, including misalignment between domestic sovereignty and regional benefits and limited consensus amongst countries to move in a coordinated manner towards dismantling some of the barriers. 40. Specialized regional institutions and regional development banks face significant challenges in fulfilling their mandates. The sub-regional development banks were established with the purpose of raising financing for infrastructure and other regional programs. To varying degrees, they have been making progress in fulfilling their mandates. There are six sub-regional development banks in Africa, and a recent study found that their combined assets were modest, only about $6.2bn 31. One of these banks, BOAD (Banque Ouest-Africaine de Développement - West African Development Bank), has a relatively strong financial position and is rated investment grade stable by Moody’s and Fitch (Baa1/BBB) – a rating much higher than any individual sovereign in WAEMU region. Most of the other regional development 30 ECOWAS and UNECA: An Assessment of Progress towards Regional Integration in ECOWAS (2015) 31 AfDB and ICA: Assessment of African Sub-Regional Development Banks’ Contribution to Infrastructure Development (2015). 17 banks have struggled to mobilize sufficient levels of long-term financing, are mostly under-capitalized, need stronger governance oversight, have skills and capacity constraints and some confusion exists around their mandates vis-à-vis the national development banks. 41. The public and private sectors, as key stakeholders, should be providing for popular participation in regional integration efforts. Issues of globalization and integration have been central to recent election debates in several countries, indicating that ultimately the people would have a say on the end objectives and pace of integration efforts. As Box 3 shows, recent public surveys in Africa have indicated that a majority of people support freer movement of goods and people. This is a strong basis on which to deliver tangible benefits of integration to the people, otherwise public perceptions could rapidly deteriorate and reinforce a ‘sense of disbelief’ around the regional integration agenda. The private sector needs to, and wants to, be a bigger voice in the policy debates on integration – but perhaps there has been some sort of ‘crowding out’ of the private sector from these discussions (please see subsequent sections on key issues arising from external consultations conducted by the WBG). This must change. For instance, in the Northern Corridor Initiative in east Africa there are signs that transport sector efficiency is improving, in large part due to private transporters and traders putting pressure on the governments to improve port efficiency 32. This is a strong pointer that providing effective platforms for the private sector and for citizen engagement would be critical in taking forward the integration agenda. Box 3: Public Perceptions Matter: How do People in Africa Look at Integration? Perhaps the only recent public survey of what Africans think about regional integration is available in the Afrobarometer survey of 2016. The survey conducted in 36 African countries shows that a majority of the people (58 percent of the respondents 33) support free movement of people and commodities across borders. In western and eastern Africa, this figure is higher, representing two in three people being aligned towards closer integration. The figures are lower in southern (51 percent) and central (44 percent) Africa. It is noteworthy that about one-third of the respondents in the continent take an opposite view – they would like governments to restrict cross-border movement of people and goods in order to protect their citizens from foreign migrants who are perceived to take away jobs and foreign traders who sell goods at low prices. As experience from other regions shows, public support for integration could swiftly change, especially when there are perceptions that it has increased inequality, that trade agreements have taken away jobs, and immigration and sovereignty considerations overshadow other benefits from integration. But the Afrobarometer survey shows that, handled with care, it should be possible to build upon the existing strong support for integration in Africa. And for political leaders in all countries to continue to effectively communicate the benefits of integration to the people in a manner that resonates with them. Source: Afrobarometer 2016 42. Overall, the assessment of state of play with regional integration could best be described as a “glass half full”. On the positive front, the integration agenda has remained a core political priority for Africa through good and bad times and through passing the ‘leadership torch’ from the first generation of post-independence leaders. There is also a lot of public support for integration although as recent experience from other parts of the world shows that unless there are tangible benefits to show from integration, public support could rapidly change. There has been considerable progress with building up 32 World Bank: Political Economy of Regional Integration in Sub-Saharan Africa (2016) 33 The Afrobarometer survey covered countries in Northern Africa as well. The figures used here refer more to eastern, western, central and southern Africa – which more closely align with the Bank’s Africa region. 18 regional infrastructure, but gaps remain. Other regions have chosen different pathways towards regional integration, which could hold useful lessons for the African model of integration 34. This approach taken so far has not proven to be both necessary and sufficient for promoting integration. It remains for Africa to chart the way forward for the integration agenda and articulate a realistic end result from this. This would allow development partners and private sector to play a more effective role. This process of articulating a realistic agenda ought to also systematically address the issue of winners and losers from integration in order to get more traction for the agenda. In addition, Africa also needs to be explicit on how countries could strike a balance between “sovereignty” and “regionalism”. 43. Regional integration is essentially a political choice being made by countries and the rationale for it must be redefined per changing contexts. The origins of the European Union go back to the collective suffering caused by the wars and the affirmation that closer economic integration could be an antidote to war and conflict. But, even though it remains important, that is not the most compelling rationale for the EU today. As African leaders look at shaping the future of integration, it is important to focus particularly on three issues from recent global experience: (i) for Africa to be realistic about the end game of integration – is it complete or partial integration of factor markets? Is it a currency union? Is it political integration? (ii) there will be ‘losers’ from the process both in terms of countries or groups within countries – what domestic policies are needed to carry them along in economic and social terms; and (iii) how to continue to redefine the purpose of integration in political terms so that it resonates with views of the changing demography in the continent. These are not small challenges for African leaders and their people, but global experience points to the need to address these issues head-on. Revisiting the Case for Integration in Africa 44. There is a need to renew the rationale for regional integration in Africa to take account of the 21st century context. Some of the traditional arguments for integration continue to be relevant, while the good progress in some areas warrants addressing the next generation of challenges. Given the ‘implementation gap’ between commitments and follow-through, it is important for the integration agenda to be strongly embedded in the priority goals for African countries. Looking ahead, here are some key arguments for closer integration in Africa: Geography and imbalance in resource endowments: About one-third of African countries are either land- locked or sea-locked, making them more distant from global and regional markets. Additionally, resource endowments vary widely across countries. For instance, much of the hydropower potential in the continent is located in a handful of countries and for these to be commercially exploited it is necessary for these projects to have access to larger energy markets, often distant from the source of supply. Some estimates suggest that increasing integration in the power sector could save about $40 billion in capital spending and save African countries nearly $10 billion per year by 2040 35 (a more modest estimate of such savings is $2.7 billion per year 36). Diseconomies of scale: The small size of domestic economies (one-half of countries have a GDP of less than $10bn) entails higher costs in accessing regional and global markets. The scale arguments become relevant in multiple areas, from attracting private financing to developing a regional skills markets, among others. There is evidence from the World Bank’s work that there are tangible benefits from economies 34 El-Agraa, Ali (2004): The Enigma of African Economic Integration; Journal of Economic Integration. 35 McKinsey and Co: Brighter Africa: The Growth Potential of Sub-Saharan Africa’s Electricity Sector (2015). 36 World Bank: Africa’s Power Infrastructure: Investment, Integration, Efficiency (2011). 19 of scale – e.g. in the energy sector, regional approaches to procurement have helped reduce the costs of transmission lines. Addressing growth, diversification and jobs: As Africa is faced with prospects of sluggish medium-term growth, it is important that integration is seen to provide short and medium-term benefits for the priorities of economic diversification and creating jobs. Greater regional trade is likely to drive diversification, improvements in productivity and help attract private investments – all important factors for reigniting the continent’s economy. Regional integration as a stepping-stone to global value chains: Figure 4 illustrates this point for the cashew sector and a similar story exists in cocoa and other sectors. Even though Africa produces 51 percent of global cashew, it only processes 5 percent of that. Raw produce is shipped all the way to Asia for processing before it hits supermarket shelves worldwide. Strengthening regional value chains could be a stepping stone to global value chains in some important products for the region. Tapping into opportunities from urbanization and technology changes: The urban population in Africa is projected to double to over 800 million in the next 25 years. Among other things, this could potentially transform agricultural and food systems and reduce the reliance on food imports. It is estimated (World Bank calculations) that currently about 60 million people live in African cities which are within 100 kilometers of an international border – with increases in their population it is very likely that these cities would exercise a sphere of influence which goes beyond its national borders. At another level, the rapid transformation in technology and progress towards a “flat world” could be a driver for greater integration within Africa and help with the ‘last mile’ agenda on service delivery (e.g. use of drones for provision of blood in Rwanda). Figure 4: Story of Global Cashew Market Bringing the integration agenda to the 21st century: Take regional physical infrastructure. Much of the focus so far has rightly been on building physical connectivity. But it now needs to have a strong infrastructure ‘plus’ approach. Figure 5 shows what success could look like on this ‘plus’ agenda by illustrating it for one sector – regional power market. This would require building physical connectivity as well as taking simultaneous policy, regulatory and institutional steps in order to deliver on the 21st century agenda of integration through functioning regional markets. There is also the ‘last mile’ agenda where 20 regional solutions could be a strong complement. This is also a strong case for applying the Maximizing Finance for Development (MFD) approaches - a well-functioning power pool could trigger private investments in power generation to feed the regional market, currently unrealized. Need for collective action: This continues to remain a key rationale for regional cooperation – countries often need to act collectively for the good of everyone. This is required with the public goods agenda – which include non-rivalry and non-excludability factors – and deal with positive externalities from sustainable management of a trans-national water resource and productive landscapes or negative externalities from conflict or epidemics or preventing natural disasters and adapting to climate change. Maximizing Finance for Development (MFD): Africa needs to be able to attract private financing at unprecedented levels. WBG’s approach to MFD involves starting with seeking to mobilize commercial finance, enabled by upstream reforms to address market failures and use all instruments to address constraints to private sector investments 37. This approach is as true for regional initiatives, including in infrastructure. Figure 5: What Would Success Look Like? Steps to Develop a Regional Power Market Step 1: Transmission Step 2: Regional Step 3: Trading Step 4: Nord interconnections and bilateral frameworks: regional arrangements: Pool today: trade. Current status of EAPP, regulators, operators, system rules and Interconnectivit WAPP, and SAPP. harmonized standards. procedures ensure y: multi-buyer high quality and and multi-seller supply reliability. markets. SECTION IV: LOOKING BACK: ACHIEVEMENTS AND LESSONS LEARNT FROM WORLD BANK GROUP ENGAGMENT Growth and Evolution of WBG’s RI Program in Africa 45. The Bank’s Regional Integration program in Africa has seen impressive growth from modest beginnings. During the period 1979–2002, the Bank provided assistance to 10 regional projects in Africa totaling US$315 million. The establishment of the Regional IDA window under IDA13 provided additional incentives for scaling-up regional integration programs. It addressed a disincentive for countries to use their limited national IDA allocations for regional projects by providing leveraging of additional resources from the regional IDA pot for projects which met the eligibility requirements. Since the establishment of the regional window, regional projects worth $1.9bn were added to the portfolio during FY04-08. In FY08, the RI commitments in Africa were $2.1bn consisting of 30 projects. Energy, transport and 37 World Bank Group: Forward Look (2017). 21 communications made up two-thirds of this commitment at that time. In FY11, financial commitments for RI in Africa increased to around $4bn. At the end of FY15, this rose to $7bn and at the end of FY17, the Bank’s RI financial commitments were at $10bn. Thus, between FY08 and FY17, there has been a five- fold increase in the Bank’s financial commitments for the RI program in Africa. 46. The size of regional window in IDA replenishments has increased substantially, and so has the sophistication in designing regional interventions. In IDA14, the Pilot Regional Window allocation was SDR 600 million, doubling to SDR 1.2 billion under IDA15. It rose further to SDR 2bn in IDA16 and SDR 2bn in IDA17. In response to strong client demand, the regional window under IDA18 has been increased by two-third to SDR 3.6bn. Over the course of these IDA cycles, the Africa Region has been getting about three-fourth of the regional window pot. In addition, regional pipeline projects can tap into the other windows under IDA18, including the Scale-Up Facility (SUF), Crisis Response Window (CRW), Refugee Sub- Window and the Private Sector Window (PSW). IBRD and Trust Fund resources have also supported regional integration programs in Africa, though commitments have been modest. The thinking behind intervening regionally is also evolving, and Box 1 in Annex II provides the current rationale for Bank support for regional projects. 47. IFC and MIGA support for regional projects has been rising steadily. To date, projects with a regional angle represent about 25 percent of IFC’s advisory and investment engagements, both for new and portfolio projects in Africa. IFC’s projects that have a regional scope represent its second or third largest exposure from a portfolio perspective. For MIGA, projects with a regional angle represent about 27 percent of all projects supported in Africa. In addition, IFC is currently engaged with the World Bank in supporting three regional initiatives – Great Lakes, Sahel, and Horn of Africa – with an aim to encourage entrepreneurship, transform infrastructure and agribusiness, as well as improve investment climate within the humanitarian – security – development nexus (see also Box 7). 48. The 2008 RI Assistance Strategy (RIAS) laid out broad strategic objectives for the RI program and this has generally provided a reasonable framework for guiding the program so far. The three priority areas laid out in the 2008 strategy were: (a) regional infrastructure, (b) institutional cooperation for economic integration, and (c) coordinated interventions to provide regional public goods. The 2011 RIAS Progress Report recorded good progress in implementation and made modest adjustments to the priorities. It identified three areas where progress had been limited: capacity building of regional organizations – the opening of provision of IDA grants to these organizations was meant to address this; quality of the project portfolio being uneven, with delays in implementation and low disbursements; and the preparation of sub-regional implementation plans envisioned under RIAS had been delayed, but reiterated a commitment to completing these plans. Existing WBG Programs and Results 49. While the RI portfolio is young, there are signs of good results being achieved. Annex VII shows how the existing and pipeline RI support of the WBG is contributing to the achievement of the continental priorities, including for PIDA priority projects. A more detailed analysis of the Bank RI portfolio and results is in Annex II. In the transport sector, the Bank is supporting programs in seven critical corridors all across the continent. The ‘percentage of trunk corridors in good or fair condition’ along Bank-financed sections in many of these corridors has increased from under 50 percent to over 90 percent. The implementation of transit and trade facilitation measures have significantly reduced transit and transport time – e.g. average transit time for container imports from Mombasa to Kigali has gone down from 19 days in 2008 to 5 days in 2015. Around 60 percent of commitments in the active RI portfolio are comprised of projects which have been under implementation for less than four years, indicating that it would be premature to 22 talk of impact and results. Aggregating results from individual operations is also complicated due to the lack of consistent indicators which measure regional benefits across projects (this shortcoming is being addressed in the new strategy). Table 4 provides an overview of some of the results achieved from ongoing projects and the expected targets by project closing – it uses the Bank’s Core Sector Indicators. This is based on a sample of projects under advanced implementation and does not correspond to the expected results from the entire RI portfolio. Table 4: Sample of Results from the Bank’s Regional Integration Program Core Sector Indicators Current Indicators End Targets Clients who have adopted an improved agricultural 140,579 185,000 technology promoted by the project Transmission lines constructed or rehabilitated under the 4,563 7,243 project (km) Generation capacity of hydropower constructed or 455 940 rehabilitated under the project (MW) Freight volume measured in TEU in targeted corridor 35,000 70,000 (number) Average time from ship readiness to unload to final 6 (average) 7.5 (average) destination for an imported container, on the corridor (already met) targeted by the project (Days) Average Baseline: 10 days Roads rehabilitated, non-rural (km) 548 1,174 Roads constructed, non-rural (km) 38 138 Number of internet connections (Custom indicator) 52,075 71,155 Number of localities with broadband access (Custom 685 1,055 indicator) Total Number of Fixed and Mobile Internet Subscriptions 176,545 66,030 (already (Custom Indicator) met) 50. Energy and ICT sectors have seen considerable WBG investments and are showing good results. On the Bank side, in the energy sector, about 4,500 km of transmission lines have been constructed or rehabilitated. Specifically, through Bank and other partner financing, the West Africa Power Pool (WAPP) will soon be expected to connect the grids of 15 countries in ECOWAS. This could potentially have a transformative impact on increasing generation, power trade and access to energy across the sub-region. Similarly, there has been progress with power interconnections in the eastern and southern Africa power pools. Regional operations are also exploiting the hydropower generation potential in transboundary shared waters, with nearly 500MW of new generation capacity that has been added. In ICT, Bank support has connected 24 countries to the internet opening the doors to the future of a digital economy and reducing the costs of international bandwidth by 75 percent to 90 percent. On the IFC side, over US$3.4 billion have been invested during the last 25 years to deploy mobile networks across Sub-Saharan Africa, helping connect over 200 million people. This has helped increase connectivity by improving efficiency of telecommunications networks, lowering the barriers to entry / expansion for new and existing telecom operators and driving down prices – all of which has increased affordability, connectivity and reliability. MIGA has supported Senegal’s largest telecommunications provider, Sonatel, in its expansion into West Africa, including coverage for its operations in Guinea, Guinea-Bissau, and Sierra Leone. 51. In the financial sector, WBG support is helping deepen integration. IFC has developed strategic partnerships with several regional Financial Institutions (FI) which facilitate integration by: fostering 23 financial sector development; sustaining regional trade and capital flows; promoting responsible financing in strategic sectors; and championing job creation. As of CY2016, IFC portfolio commitment to the FI 38was US$24.7 million, and the FIs had an aggregate outstanding SME portfolio of $255m. This has been accompanied by advisory service activities to support financial infrastructure development, such as Credit Bureaus, Collateral Registry and leasing. The Bank has been supporting financial sector integration in EAC and CEMAC, and is looking at deepening the support further. A successful use of regional IDA was the technical and financial support provided to set up the Africa Trade Insurance Agency (ATI), which has grown into an effective regional institution having facilitated trade and investments worth $20 billion into its member states. A recent case of WBG joint effort in financial sector deepening is in the WAEMU zone (see Box 4). MIGA has supported the Development Bank of South Africa (DBSA) as a regional development bank for the Southern African sub-region. Box 4: WBG Coordinated Approach to Creating, Connecting and Growing Markets : Case of Regional Housing Finance in WAEMU The IFC and World Bank came together in 2014 to develop the WBG Housing Strategy for SSA to address the growing housing deficit, made worse by the continent’s rapid urbanization. One of the first projects under the new strategy is the support being provided for Caisse Régionale de Refinancement Hypothécaire (CRRH), the regional mortgage refinancing company of the WAEMU. CRRH became an IFC client following a $2 million IFC equity investment for a 14.9 percent shareholding in the company committed and disbursed in FY17. For FY18, IFC is proposing to invest up to $18 million in CRRH’s regional bond program with the support of the IDA18 Private Sector Window’s Local Currency Facility. CRRH is also the main recipient of the IDA WAEMU Affordable Housing Finance project, approved and signed in FY18. The IDA project is financed by IDA Scale-Up Financing window (SUF) of $130 million to strengthen the capital base of CRRH and encourage the institution to support lower income households and a $25 million regional IDA grant to support enabling environment work in areas such as micro- housing, home construction and the development of a regional guarantee fund. This is an excellent example of WBG coming together to create, connect and grow regional markets (see Figure 6). 52. In the human development sector, progress has been made in building tertiary education, strengthening disease surveillance systems and promoting gender equality. Around 40 Africa Centers for Excellence spread across 20 countries are at various stages of establishment and functioning – these are expected to help increase the quantity and quality of technical graduates in STEM disciplines from African institutions. This project is an innovative use of a regional approach – since it would be hard for all countries to raise the capacity of technical institutions in a range of disciplines, a regional approach helps strengthen specialization and collaboration so that all countries between them get to benefit from access to quality education across disciplines. In the health sector, following the devastation caused by the Ebola virus, the Bank has worked with clients in a dozen countries in west Africa to strengthen a coordinated approach to disease surveillance, recognizing that the strength of any surveillance system is as good as the weakest link in the chain. The recently established Pandemic Emergency Financing Facility (PEF) 39 using regional IDA resources is another innovative use of regional approaches for disaster risk insurance arising from epidemics. Additionally, progress in harmonizing lab standards across countries is bearing fruit in terms of strengthening testing for diseases. The WBG’s RI program is helping address the 38 In the Cameroon, Central African Republic, Chad, Ghana, Guinea, Kenya, Liberia, Mali, and Nigeria banks. 39 In June 2017, the World Bank launched the First-Ever Pandemic Bonds to Support $500 Million Pandemic Emergency Financing Facility. 24 gender equality agenda in its various dimensions and complementing numerous country-level efforts – please see Box 5. Box 5: Seeking Regional Solutions for Gender Equality – It Works! The WBG RI program has been addressing gender equality issues in its various dimensions. Jobs and Livelihoods: Regional projects in agriculture, fisheries and informal trade (sectors which predominantly employ women) are helping women use new technology to improve their incomes and address security issues. For example, the West Africa Agricultural Productivity Program has helped about 3 million women to improve their livelihoods. Skilled workforce: The Africa Centers for Excellence Project has already helped enroll hundreds of women in STEM technical education. This is an important step towards reversing the lack of women in technical disciplines to build a diverse future workforce of Africa. Access to finance: IFC’s Banking on Women program is playing an important role to profitably and sustainably serve women-owned businesses. The objective is to increase access to finance for women entrepreneurs by leveraging IFC’s extensive global network of financial institutions. Reproductive rights: The Sahel Demographics and Women’s Empowerment Project is expected to provide women with access to critical reproductive facilities in countries with some of the highest fertility rates in the world. Gender-based violence: Women often bear the brunt of violence during conflicts. The Great Lakes Emergency Sexual and Gender-Based Violence Project is helping heal some of the physical and mental wounds of thousands of women who underwent trauma during the prolonged conflict. 53. The RI program is fostering collective action to manage shared natural resources and improve productivity in key sectors. The program is working on the management of important trans-boundary river basins – i.e. Senegal River Basin, Lake Chad Basin, Niger River Basin, Lake Victoria, Zambezi Basin and Nile River Basin. This work is complex and requires long-term engagement in order to deliver results – see Box 6 regarding the long-standing engagement in the Nile Basin dealing with a complicated set of issues. With off-shore fishery resources, regional projects are delivering significant impact in over a dozen countries all along Africa’s vast coast to address deep-seated governance and transparency issues. Elsewhere, regional pastoralism projects in the Sahel and the Horn are helping secure vulnerable livelihoods and facilitate collective management by countries of pastoral ranges. The regional agricultural projects across the continent have delivered hundreds of new technologies which are helping farmers to increase productivity and undertake value addition. Engagement with regionally relevant and mandated organizations, such as the Permanent Interstate Committee for Drought Control in the Sahel (CILSS) has been an important part of WBG engagement in the Sahel. 54. An important area which was prioritized during IDA17 was cross-border conflict and violence in response to its rising prevalence on the continent and its increasing regional nature. The WBG along with other regional and international partners identified three flagship initiatives which work on a continuum of conflict, security, humanitarian and development axis. These initiatives in the Great Lakes, Sahel and the Horn of Africa have resulted in new WBG lending of over $3 billion for regional projects covering multiple sectors, which are at early stages of implementation – please see Box 7. These initiatives have also included the first wave of regional forced displacement projects in Africa, which provide a solid 25 bedrock for implementation of the Refugees sub-window under IDA18. There is a strong justification for such regional efforts in FCS settings, but the challenge would be to see tangible progress on the security and political aspects in order for the development efforts to deliver its full benefits. Rolling back progress on security and political challenges could undermine these development efforts. Box 6: Reaching Across Waters – This is Patient Capital In 1996, the Nile Council of Ministers of Water Resources approached the World Bank for investment assistance for the Nile, but without full agreement on specific projects to be financed. Recognizing the untapped development potential in the region and associated risk of increased competition over already-scarce water resources, the Bank supported the countries to prepare a shared vision for the Nile. In 2001, the Nile Basin governments and international partners convened for the International Consortium for Cooperation on the Nile (ICCON) in Geneva, and the World Bank was entrusted with the role of facilitator and administrator of a $200 million trust fund for the Nile Basin Initiative (NBI). By the time it closed in 2015, the NBI had established institutional norms and rules of procedure for its work, as well as provided tools and analysis to help countries plan and manage their water resources. The NBI had also worked with countries to prepare an investment project pipeline of $US6 billion. Projects include the Rusumo Falls Hydroelectric project for Burundi, Rwanda and Tanzania, which has since received regional IDA funding. The path towards increased cooperation has not been linear--with certain members freezing participation in regional activities; with continued unilateral development; and with larger questions on water sharing in the Nile still unresolved. All the while, the Nile cooperative process has yielded significant steps in providing norms and processes for dialogue, as well as greater integration through shared investments. The Nile experience has also contributed to the establishment of a larger program to support transboundary cooperation across Africa, the Cooperation in International Waters in Africa Program (CIWA); and has informed the design of similar regional trust funded programs in Central Asia, South Asia, and Middle East and North Africa. Portfolio Analytics 55. Regional projects remain an important element of the WBG’s work in Africa, with a positive bias to FCS and landlocked states. Annex II has a detailed analysis of the Bank’s RI portfolio. Few important points in order to put this discussion in perspective – the Bank’s RI portfolio grew five-fold in the last 10 years; it is currently around 15 percent of the Africa region’s total financial commitments, which would make it the single largest ‘country’ program in the region; there are around 70 active projects and a similar number of analytical tasks. There is a positive bias toward FCS and landlocked countries in the RI program. About 30 percent of RI commitments are in landlocked countries and 30 percent are in FCS. The RI portfolio comprises a range of participating countries in each project, with single country projects at the one end and eight country projects at the other end. About 40 percent of the projects have 1-2 countries and another 30 percent of projects have 3-4 participating countries. In addition, many projects involve support to regional institutions. In one-half of countries in the region, at least 20 percent of the Bank’s financial commitments are for regional projects. In a handful of countries, RI forms over 50 percent of total Bank financial commitments in those countries. When it comes to sectoral distribution of RI commitments, four sectors make up more than 85 percent of commitments (i.e. Energy, Transport & ICT, Health and Agriculture). The heavy share of infrastructure projects in energy and transport has been a long-standing feature of the RI portfolio, with the 2011 RIAS Progress Report also referring to it. The limited commitment in sectors like finance and trade perhaps reflects the need for strengthening coordinated action by countries in the ‘soft’ areas of policy and regulatory reforms. Energy and transport 26 sectors have one-third the number of projects in the RI portfolio but between them have two-thirds of the total RI commitments, indicating the scope for greater consolidation in other sectors of the portfolio. Box 7: Operating Regionally in the Security – Humanitarian – Development Axis During IDA17, the WBG along with UN and other regional and international partners launched three flagship initiatives in Africa to address the cross-border conflict and fragility risks. These initiatives were in the Great Lakes, Sahel and the Horn of Africa – long standing theaters of regional conflict and associated human misery. It was an opportunity to bring together the security, humanitarian and development issues and it responded to the growing recognition that the world no longer needs to make false choices between humanitarian and development issues. Some of the humanitarian crises have been so long-drawn that they get intertwined with local and regional development challenges. The initiatives brought together national and international leadership on the understanding that locking-in domestic political commitment for conflict prevention with substantial development resources could help create a more virtuous development cycle. Consequently, the WBG has committed over $3 billion in regional programs under the three initiatives addressing challenges such as restoring livelihoods, improving pastoralism, boosting economic activity and trade, improving investment climate, addressing long-neglected health challenges, and improving the well-being of refugees and their host communities. Effective implementation of these new regional projects in low- capacity and often insecure areas will remain a priority going forward. In order to deliver the full benefits of these regional operations in fragile situations, it is important to see concomitant progress on political, governance and security issues – if there is backsliding on these areas it would be difficult for these operations to deliver meaningful impact. This is an important area where the Bank’s partnership work with other players would continue to play a vital role. 56. The RI portfolio implementation is complex and shows mixed portfolio performance. During IDA17, 28 countries participated in new RI commitments with 22 of them committing less than $50 million from their national IDA allocations for RI projects. The average size of projects in the RI portfolio is $110 million, only slightly higher than the average project size for the Africa region. Both these data reflect some degree of fragmentation in the portfolio. A comparison of RI portfolio quality indicators with other large country programs in Africa shows a mixed performance (Annex II). Nonetheless, portfolio reviews show significant implementation challenges in many RI projects which operate in multiple countries (this is not universally true, as Box 2 in Annex II points out). The weak client implementation capacity at a country level gets magnified when a project operates in multiple countries. Another issue from the portfolio reviews is that the Disbursement Ratios of RI projects tends to do poorly when compared with national projects in the same countries, indicating the need to pay greater attention to mainstreaming RI projects within country programs. This agenda of ‘closing the gap’ between the performance of country and regional projects in the same country is being addressed through greater use of Country Portfolio Performance Reviews (CPPRs) and effective country-level dialogue. The regional analytical work has been an important part of the RI program and in several cases has helped shape both the policy dialogue and lending work, e.g. recent reports like ‘Africa can Feed Africa’; ‘Poverty in a Rising Africa’; and ‘Africa’s Unexplored Potential for Trade in Services’. Key Issues and Lessons Learnt 57. Seven main lessons from the existing RI program have been identified through consultations, portfolio reviews, ‘deep-dives’ and from review of project Implementation Completion Reviews and Implementation Support Reviews. The last major Independent Evaluation Group (IEG) evaluation of the 27 regional integration program was carried out in 2007 40. IEG is currently planning an evaluation of WBG regional integration program across regions for delivery in FY19. The Independent Evaluation Department of the African Development Bank (AfDB) has recently carried out an evaluation of AfDB’s regional programs in east Africa 41. Some findings from these independent evaluations are relevant but others not so much. The seven main issues and lessons from the WBG’s RI work in Africa are captured below – they focus on areas where further attention would be required going forward. i. Operating at scale, but need to strengthen the WBG strategic approach to drive the operational work. Clearly, the Africa RI program has grown rapidly and constitutes a sizeable share of the Region’s lending. The program has rightly taken advantage of opportunities in critical areas for potential lending activities, which has served the purpose during the initial growth phase in the program. In preparing for the next phase of WBG’s RI program, it is pertinent to consider if a more strategic approach can be adopted to guide the overall direction of the program? There are limited sub-regional or sector-level assessments which provide an overall picture of regional challenges and opportunities which could help clients and the WBG to prepare a list of binding constraints and identify regional financing programs. Some plans have been prepared by RECs and others, but not all of these plans are robust and meet the requirements for concessional and non-concessional financing. Recent Systematic Country Diagnostics (SCDs) completed by the WBG in Africa have paid variable attention to the identification of regional binding constraints and opportunities. While each individual operation in the RI portfolio has a clear regional rationale, it is important to show how the WBG’s collective effort is helping move the needle on the integration agenda. This requires a clear line of sight between strategic priorities, financial viability criteria, WBG lending / convening / analytical work, and the delivery of results in the RI program. ii. Country commitment is key but in order to get true regional benefits it is necessary to get the commitment of multiple countries which requires high-level ‘sector / development diplomacy’. Previous sections show that a greater challenge with integration is for countries to effectively implement important regional commitments. This indicates the importance of greater country-level traction to continue to be a key factor in shaping the Bank’s RI program. The Africa Region’s decision to change the leverage ratio for accessing regional IDA has also helped strengthen country demand (during IDA17, the Africa Region moved from a 1:2 leverage ratio across the board between national and regional IDA contributions for regional projects to a two-tier arrangement with LICs with smaller IDA allocations retaining the 1:2 leverage, while others were moved to 1:1 ratio). The availability of other windows under IDA18 which allow countries to add to their PBA allocations provide an opportunity to meet the demand for financing regional interventions. However, moving the needle on the integration challenges requires multiple countries to show commitment by enhancing their focus on implementation of projects. This requires active engagement on political economy issues and engaging with “sector / development diplomacy”. The WBG’s convening function would now need to take on a more explicit and calibrated approach to support the deepening of integration. In many countries, regional integration and cooperation issues fall under the purview of Ministries of Foreign Affairs and Integration. Bringing the various parties together requires high quality analytical work to better understand the potential costs and benefits of integration efforts and how to ‘compensate’ potential losers. This would become more important as the RI program takes on ‘soft’ reforms (next point). The weak capacity of RECs has been a constraint here, and the Bank needs to work with other partners to clarify a coordinated approach to engaging with the RECs and supporting capacity building efforts. 40 IEG: Development Potential of Regional Programs – An Evaluation of WB Support of Multi-Country Operations (2007). 41 AfDB: Independent Evaluation of Bank’s Eastern Africa Regional Integration Strategy Paper (2017). 28 iii. Need to balance infrastructure financing with deeper policy and ‘soft’ reforms which require instruments fit for purpose. Regional infrastructure gaps continue to be a binding constraint for deepening integration in Africa, but these must now be accompanied by policy, regulatory and institutional reforms. Several regional infrastructure projects prepared by RECs ostensibly for PPP financing do not meet the requirements for private financing and hence do not attract private capital. Along with points (i) and (ii) above, tackling the ‘soft’ agenda would require the use of all appropriate and eligible instruments in the WBG toolkit. The Bank’s RI program currently rests primarily on Investment Lending (IPF) instrument, when supported by the IDA regional window. Going forward, the program needs to focus on an important leverage – how much private financing is being leveraged by the WBG for regional projects. This would be important in order to deliver on the WBG’s commitments on Maximizing Financing for Development (MFD). iv. Project design and portfolio quality needs a step change. Portfolio reviews in the RI program have underscored the challenges with complex project design, inadequate project preparation leading to poor readiness for implementation, weak capacity in national and regional institutions, procurement and disbursement delays. The lead time required in preparing regional projects needs to be addressed systemically – the Project Development Facility created with Southern Africa Power Pool provides a good example of financing the preparation of feasibility studies for large regional infrastructure projects. The average project size in the Bank’s RI program is currently around $110m – while, there should be no bias against smaller innovative projects, but the need for having fewer and larger transformative projects in the RI program has been well-recognized. The fragmentation of lending and analytical portfolio comes with opportunity costs, in terms of Bank staff and budget resources. Increasing the project size would allow Bank administrative budgets to be utilized in a more efficient manner. Project implementation performance needs continued attention and the need for mainstreaming portfolio management of RI within country programs has been recognized, and needs to be reinforced. v. Results and impact need to be clear and evident. There is recognition of the need for a strong overall M&E framework which links the overall strategy with operations, and clearly communicates the ‘theory of change’ in the RI program. There has been some tension between retaining a single project with all participating countries and the need to be pragmatic about countries being ready at different times and to manage the load of large number of participating countries in a project. This can result in some diffusion in articulating the regional benefits. The use of Series of Project approach, with attendant pros and cons 42, has been highlighted in the reviews. The lack of accompanying analytics on likely impact of regional projects on poverty and shared prosperity needs to be addressed. There has been a recent improvement in the communication and outreach efforts in the RI program, and this needs to continue. vi. Internal issues which need to be addressed. RI program continues to receive significant share of the Bank’s administrative budget resources. However, portfolio reviews have highlighted a need for more allocation of budget for preparation and supervision of regional projects. The FY18 budget allocations for RI have been increased. Having a more consolidated portfolio would go a long way in ensuring adequate funding within existing budget resources. While RECs have sought direct lending to them, but the RI program has been operating within existing IDA policies and has used regional grant mechanism as the principal means of supporting the RECs (although in recent cases, waivers have been sought to provide selected regional institutions with support under other IDA instruments, including SUF). The need for using a range of appropriate and eligible WBG instruments to deliver on the next set of integration challenges has been highlighted in the reviews. There are some policy issues that could be improved in 42 The recent announcement by the Bank to undertake Multiphase Programmatic Approach (MPA) to lending opens up new possibilities to address some specific needs of the RI program. 29 delivering on the new agenda for the RI program, in terms of feasibility to use regional IDA for Development Policy Operations (DPOs) and the type of lending to be given to regional organizations. Progress is also being made in ensuring that relevant internal Bank information systems (e.g. Operations Portal) are responding to the specific needs for information on the RI program. Bank task teams are also actively looking at the ‘simplification agenda’ in the RI program, including using ‘Agile Bank’ principles, but more work is required here. In terms of staff skills, there are three cross-cutting areas where the RI program is currently not well resourced – poverty, M&E and political economy specialists – and these skills would need to be available in order to deliver on the emerging RI priorities. vii. The program would benefit from greater collaboration within the WBG. An important step in this direction is that while the earlier RI strategy was a WB strategy this one is a WBG strategy. In order to implement the MFD approach, WBG would need to jointly assess bottlenecks in four priority sectors (energy, ICT, agriculture and finance and competition) and develop Joint Implementation Plans to facilitate the mobilization of the private sector in the regional integration space. This would allow the full use of appropriate WBG instruments to deepen the levels of integration. Figure 6 shows the possibilities of WBG working together in RI by creating, connecting and helping grow regional markets, building on the recent work in deepening financial integration in WAEMU (see also Box 4). Figure 6: WBG Together in Regional Integration SECTION V: STRATEGIC FRAMEWORK FOR WBG’s SUPPORT FOR REGIONAL INTEGRATION IN AFRICA: ‘WHAT’ WILL WE DO? Distilling Key Issues – ‘Accelerators’ and ‘Inhibitors’ of Integration 58. While Africa’s economic growth is slowly starting to recover, if strong policy actions are forthcoming the medium-term potential for the continent is enormous43. In an aging world, Africa could potentially reap the benefits of both demographic dividend and high rates of urbanization. These factors along with rising urban incomes are expected to almost double private consumption to over $2 trillion by 2025. The continent is blessed with a vast untapped resource base, including tracts of unused but arable cropland and rich mineral resources. Manufacturing sector, starting on a low-base, could increase its 43 McKinsey (2016): Lions on the Move II 30 output and increasingly cater to rising domestic demand within Africa. Recent analysis points to the potential of greater intra-regional trade as a launching pad for deeper global integration, including in higher value products 44. In an increasingly interconnected global manufacturing and services sectors, Africa could find a place by boosting its domestic and regional value chains and closing the infrastructure deficit. 59. What are likely to be some of the “accelerators” and “inhibitors” for integration in Africa? The economic downturn and increasing realization that Africa cannot wait for the next commodity boom to drive its growth has led to calls for economic diversification and improving the competitiveness of African economies 45. If properly managed, the two forces of restarting economic growth engines and dealing with demographic changes could come together as a trigger for greater integration and more intra- regional trade. In addition, the rapid technological changes and its falling prices could benefit African consumers if the diseconomies of scale are fully addressed. For example, can smaller countries get the full benefits of rapidly falling off-grid solar costs by harmonizing their standards and protocols so that private providers could get the benefit of bigger markets? Another factor for deepening integration could be greater convergence of interests among countries, through any ‘fund of funds’ type arrangements for infrastructure financing and pressures to improve the investment climate within sub-regions (the ‘neighborhood effect’ - being an island of excellence is unlikely to deliver large private investments if the neighbors are not keeping pace). The main ‘inhibitors’ for deeper integration are likely to come from inability of countries to see national benefits of integration, perceived loss of domestic sovereignty, limited role of private sector and weak capacity of regional institutions in promoting genuine collective actions. Furthermore, in order to secure continued public commitment for integration it is important that the general population can see tangible short-term and medium-term benefits from integration. Possible Future Scenarios of Integration in Africa 60. While it is hard to predict the pace of regional integration going forward, but it is very likely to remain in positive territory. Three possible scenarios for the status and depth of integration in Africa during the next decade can be identified: (i) the integration agenda gets into high-gear, inter alia, with a strong agreement and effective implementation of the Continental Free Trade Area, and a rapid scale-up of regional infrastructure through leveraging private financing; (ii) a more likely scenario of continuation of selective approach to integration where collective and sovereign interests overlap, but with greater engagement of the private sector and deepening in certain sectors like power trade, financial integration and removal of some barriers to trade; and (iii) an unlikely downturn in the overall climate and support for integration due to rising domestic sovereignty considerations and a growing disbelief among people and policy makers about achieving tangible benefits from integration. Consultations during preparation of the strategy brought out a shared positive assessment of the benefits to be had from deeper integration, but stakeholder views on the prospects of realizing these benefits ranged from some very optimistic to rather pessimistic assessments. Neither of those extremes are realistic and / or warranted, but most feedback was in line with systematically working through the barriers to integration. This WBG strategy has been drafted on the basis that Scenario (ii), i.e. continuation of an opportunistic approach with pockets of deepening of integration, is more likely to play out over the coming years. Strong and meaningful results are possible under this scenario. But the WBG will continue to support willing 44 World Bank Group, OECD, IDE, UIBE, WTO (2017): Global Value Chain Development Report 2017: Measuring and Analyzing the Impact of GVCs on Economic Development. 45 IMF: Regional Economic Outlook for Sub-Saharan Africa (2017). 31 governments and regional organizations to push the boundaries and move into a possible high-gear phase reflected under Scenario (i) above. Theory of Change’ for WBG Support 61. The proposed ‘theory of change’ for the next phase of WBG support for RI envisages both external and internal considerations. First, regional integration cannot be a purely top-down or supply- driven agenda and in order to be successful it requires the support and commitment of groupings of countries. Thus, the WBG needs to operate both at a continental / sub-regional level to help shape the overall agenda but also engage effectively at the country-level to build greater traction for the RI agenda. There is an important balance to be struck here and engaging at both levels can only be mutually- reinforcing. Second, the pace of integration ought not to be set by the slowest mover. The WBG must look at supporting ‘coalition of the willing’, providing and demonstrating ‘early-mover’ advantage and fostering more measured risk-taking as some important avenues for accelerating the pace of integration. Third, it is important for the WBG to take a more holistic approach to promoting integration, combining public and private financing and having a good balance in the support for infrastructure and ‘soft’ policy reforms. It may not always be possible to have all these elements lined up, and that may require some sequencing of efforts and activities. Finally, having a strategically-oriented, innovative and well- performing WBG RI portfolio is critical for delivering strong impact from the scaling-up of WBG support envisaged in this strategy. WBG’s Strategic Priorities for Africa Region 62. In order to strengthen the strategic orientation of the RI program, it is imperative that the program is closely intertwined with WBG’s twin goals and Africa Region priorities. As mentioned in previous sections, the RI agenda could be a big driver for achieving the goals of poverty reduction and promoting shared prosperity in Africa. The WBG’s Africa Region priorities are an important segue for the RI program to contribute to the twin goals. Closer alignment of the RI and country programs would be an important vehicle for helping achieve the full potential of country development efforts. The Africa Regional Updates for the Board in recent years have prioritized the following areas for WBG engagement. These areas also resonate with the IDA18 priorities and special themes of jobs, economic transformation, climate and fragility: i. Macroeconomic stability: Priority would be attached to supporting macroeconomic stability, debt stability, strengthening domestic revenue mobilization, investment climate reforms and greater private sector financing. ii. Boost competitiveness and economic diversification: As part of promoting rapid economic diversification, the WBG support would focus on improving agricultural productivity, strengthening value chains, reforming policy areas on land tenure, subsidies and access to finance. Provide support to infrastructure through SOE and regulatory reforms, expanding private sector solutions and de-risking strategies as a way of implementing the MFD agenda. iii. Improve human capital and access to basic services: The priorities here include improving quality of education, investing in early years and stunting, realize demographic dividends through policies in health and nutrition, and investing in ICT and STEM education to prepare a skilled workforce. Additionally, given the backlog of unmet provision of basic services, efforts would be made to scale-up delivery of basic services including in drinking water and sanitation and energy access. Social inclusion issues would also be addressed. 32 iv. Resilience to shocks: This area would include strengthening the continent’s resilience to climate change impacts on its natural and physical capital, as well as human and social capital. Address fragility risks including support to Internally Displaced People (IDPs), refugees and their host communities. Strategic Priorities for WBG’s Support for Regional Integration 63. There are compelling reasons for having an ambitious Africa Regional Integration Strategy for the WBG. As outlined in the previous sections, deeper integration can be an important part of Africa’s development story going forward – it can help reignite the growth engine by promoting trade and improving competitiveness and it can address the diseconomies of scale facing the continent. The WBG’s RI program helps advance the climate objectives – e.g. promoting regional energy generation and transmission will essentially chart out a low-carbon trajectory and some of the continent’s climate adaptation challenges are best dealt at a regional level. RI can make an important contribution to implementing the Africa Climate Business Plan prepared by the Bank in 2015. The private sector remains a significant, but as yet underutilized, stakeholder and leveraging private sector advocacy groups into mainstream policy platforms could help deepen the integration process. Besides raising private financing for regional infrastructure, there is scope for a more leveraged financial sector and a developed capital market playing an instrumental role in financing Africa’s development needs. The regional fragility and public goods element of regional cooperation remain vital for the continent. Finally, the level of ambition of the strategy is based on the scale-up in IDA18 financing for regional programs, including the possibilities available through other IDA18 windows, especially CRW, SUF, PSW and Refugee sub-window. 64. Consultations during preparation of this document have helped identify key criteria for formulating the WBG’s strategic priorities for RI and these provide a line of sight with higher-level objectives. In particular, four criteria were identified as useful filters: (i) identify how best regional integration can help deliver on the economic transformation agenda for Africa while reflecting upon key lessons learnt from Africa’s progress with integration as well as from WBG’s support for the agenda; (ii) operate within a ‘spatial – sectoral – temporal’ axis. Identify the ideal spatial axis where specific elements of integration could be best promoted – these could be either at continental or sub-regional level or indeed along corridors connecting countries. A greater sector-wide approach could require looking at specific sectors where deepening of integration is possible and systematically addressing the infrastructure, policy, financing and institutional issues at a sector-level. The temporal aspect would require balancing more medium-term benefits of integration with clear short-term benefits so as to keep up the support for RI among the public and policy makers; (iii) areas where further strengthening of partnerships is possible with private sector, regional bodies and development partners; and (iv) recognize that regional integration across 40+ Sub-Saharan African countries necessarily has to be a ‘broad tent’ – different sectors and themes would be important for different countries and restricting priorities at the continental level would not respond to the specifics of different sub-regions. However, selectivity in terms of WBG RI engagement remains key and needs to be exercised at the level of individual WBG country strategy and programming. 65. Four strategic priorities for the WBG’s Regional Integration program are being proposed for FY18 – FY23 (also the IDA18 and IDA19 periods). These priorities have been guided by the criteria mentioned in the previous paragraph, continental priorities and feedback from external consultations. African countries and regional institutions (i.e. AU and RECs) will continue to set the overall framework for regional integration and determine its pace and sequencing. The WBG support will be within that overall framework and prioritized based on the following strategic priorities (please also see Figure 7): 33 i. Generate economic dynamism along regional economic corridors; ii. Develop functioning regional markets in four priority sectors; iii. Scale-up access to quality public services and entrepreneurship through complementary regional solutions; iv. Promote collective action to address risks of regional economic contagion, fragility, epidemic and climate ‘hot spots’. Strategic Priority 1: Generate Economic Dynamism Along Regional Economic Corridors. What is the rationale? The rationale for this strategic priority rests on three arguments: (i) the continent is in need of economic dynamism to reverse the current downturn. There is a close relationship between growing the economic pie and deeper regional integration – if the pie doesn’t grow then there is little to integrate. East Asia grew and integrated at the same time. Africa has the same opportunity now. This priority uses the ‘spatial’ prioritization criteria by focusing on selected trans-national economic corridors where integration could be realized; (ii) this would build upon WBG’s ongoing and anticipated financing for regional physical infrastructure connectivity, and would complement that with additional focus on addressing policy and other barriers to value addition and facilitating greater trade on these corridors. It would include creating an enabling environment for private sector to invest along these corridors; and (iii) it responds to the regional integration priorities of the RECs and countries and the expectations of the private sector in terms of connecting and growing markets. What will we do? Identify 8-10 economic corridors during FY18-FY20 – either along transport trunk routes or along production centers for major agricultural commodities (e.g. maize, rice, livestock or cash crops). Along these corridors, use a combination of WBG instruments to support countries to address policy issues (including standardization of norms and regulations) which affect productivity, promote trade and private investments, along with financing the remaining infrastructure gaps and promoting skills development to take up the job opportunities. Together, this support is expected to make these corridors more dynamic and deepen regional integration. It would also involve using WBG financing and advisory services for leveraging further private investments for improving regional connectivity and developing sub-regional infrastructure, using appropriate WBG instruments to support policy change to address the ‘soft’ areas and use higher-level convening functions to bring multiple countries to take coordinated actions and attract private investments. Success would be measured by increases in productivity, value addition, intra-regional trade volumes, and job creation. Objective 1.1: Develop regional infrastructure along economically important trunk routes. Objective 1.2: Leverage private sector for financing infrastructure and investing in regional value chains in agriculture and allied sectors along these economic corridors. Objective 1.3: Harmonize policy and reduce non-tariff barriers to promote trade and improve productivity along these economic corridors. Objective 1.4: Build effective stakeholder coalitions to deepen integration along these economic corridors. Some near-term flagships: WB: Economic Transformation Program Along 6-8 Corridors; Development of 4-6 Regional Value Chains. IFC: support to regional ICT and broadband operators; Investment in securing and increasing supply of strategic agricultural commodities to ensure sustainable development impact through support of irrigated value chains. WBG: Development and finance of sub-regional and Cross- country Infrastructure; Regulatory harmonization of policy and regulation for PPPs and Private Sector Participation; 34 Strategic Priority 2: Develop Functioning Regional Markets in Identified Priority Sectors. What is the rationale? The rationale for this strategic priority rests on three arguments: (i) true integration involves having functioning regional markets where producers, suppliers and consumers benefit through cross-border investments and trade; (ii) some sectors are more ripe for taking a sector-wide approach to integration. WBG’s prior engagement and consultations shows that energy, telecom / ICT, financial sector and technical skills are four areas where opportunities for deepening integration exists; and (iii) this priority builds upon WBG’s ongoing support and the priorities of the RECs and private sector. Unless there are functioning regional markets, some of the regional infrastructure investments and commitments made by countries would be sub-optimally utilized. To illustrate, currently there are pending payment obligations by power purchasing countries to power selling countries, which if left unaddressed, could undermine the regional power pools. What will we do? In the initial years of the strategy, work will focus on laying the foundations of regional markets in five priority sectors – agriculture; energy; digital and telecom markets; financial sector; and technical skilled labor. In these areas, the focus would be to increase supply and quality of the product or service, address regulatory, policy and institutional barriers towards development of functioning regional markets. For example, improving agricultural productivity requires scaling-up regional solutions, especially to address training, equipment, technical support, as well as access to finance needs. Regional approaches are particularly critical for the introduction of irrigation and integration of development interventions between permanently located agriculturalists and migratory pastoralists. The WBG would continue to align its ongoing programs such as Sahel Regional Pastoralism Support Project (PRAPS) and the Sahel Irrigation initiative (SIIP) to mitigate internal and cross-border conflicts. The objective is to develop regional migration corridors of livestock to reduce the risks associated with competition for water and land resources. In addition, in the West Africa Power Pool, completion of all planned cross-border interconnectors is expected by 2021, making it possible to have a ‘seamless flow’ of electricity between the 14 members of WAPP. Going forward, the physical infrastructure investments would be complemented by building trust in power trade through payment securitization and addressing off-taker risks. The power trade should eventually lead to a regional spot market. In the area of regional market for skills, WBG support would involve features like increasing the supply of trained skilled labor from technical and vocational institutions in order to meet the requirements of the evolving job market, allowing mutual recognition of degrees and addressing other barriers to labor market movement (where countries are committed to such labor movement). Within the financial sector, it would involve developing trade finance and financial infrastructure as well as long-term financing through capital market development and deepening the market in areas such as SME finance, agriculture finance and housing finance. In the telecom / ICT sector, there are opportunities for sub-regional harmonization of telecom regulations and roaming policies, cross-border digital payment integration, e-trade, and examining options for regional data centers and ‘cloud platforms’ and for multi-currency, multi-country settlement platforms for cross-border financial transactions to facilitate ease of intra-regional trade including for SMEs. In the real sectors, the WBG will support the integration of supply chains across countries/sub- regions, including through the emergence of regional champions and capacity building and product upgrading solutions. Success would be measured by progress made in laying the foundations of these markets, increase in supply, reduction in cost and improved quality of supply, all of which should ultimately benefit the end-users. 35 Objective 2.1: Support priority regional energy generation and transmission links. Objective 2.2: Transform sub-regional power pools into effective commercially-run entities actively enhancing power trade between countries. Objective 2.3: Address market fragmentation in financial sector and ICT/telecom sector by promoting harmonization of standards and policies and by expanding access and reducing costs to consumers. Objective 2.4: Support regional skill development initiatives and facilitate country-led measures for promoting cross-border movement of skilled labor and opportunities for integration in services sector. Some near-term flagships: WB: Closing the transmission / interconnection gaps in the power pools; Implementation of road map towards power trade through WBG confidence-building measures; Scale-up regional skills development programs; Single Digital Market Initiative. IFC: Support the supply chain integration across countries/sub-regions through (1) Regional champions; (2) Capacity building and product upgrading; (3) support to regional financial institutions; (4) Financial Infrastructure and Capital Market development; (5) Trade Finance; (6) Market creation, support and scale up of climate resilient agricultural systems through advisory. Strategic Priority 3: Scale-up Access to Quality Public Services and Entrepreneurship through Complementary Regional Solutions. What is the rationale? The rationale for this strategic priority rests on three arguments: (i) Africa still suffers from poor access to basic services in multiple sectors. Clearly, these are country-level challenges. However, it is possible to address some of these challenges through complementary regional actions which allows scale-up of new technology and innovative approaches to improved targeting across a larger geographic area and to drive down costs of services; (ii) R&D activities for new agricultural technology or new drugs or to rapidly scale-up innovations are best provided at a regional level taking advantage of scale benefits; and (iii) unleash the spirit of enterprise which is very prevalent in Africa, but is constrained by limits of size of markets and financing. This would help promote the jobs agenda, including for women and other marginalized groups. This is a relatively new area of focus in the RI program and the private sector will be a big driver of this agenda. Care would be taken in ensuring that specific areas chosen for support have a clear rationale for engaging at the regional level and complement ongoing national efforts. What will we do? In areas like off-grid energy access and small-scale irrigation there are economies of scale benefits that are possible by harmonizing standards and regulations and providing regional lines of credit to scale-up access. Opportunities would be explored for facilitating greater uptake of improved technologies, including through private sector channels. In areas, which have multiplier regional benefits like through R&D support, technology adoption, provision of identity systems (ID4D), building institutional capacity, or promoting entrepreneurship, complementary regional solutions would be explored. In parallel, the WBG will contribute to the dynamism of regional entrepreneurship with dedicated disruptive technology solutions and investment funds. Objective 3.1: Support targeted R&D efforts and innovations in areas like agricultural technology development and drug development for priority African diseases. Objective 3.2: Promote entrepreneurship and technology adoption for improving access to services, including in energy and irrigation. Objective 3.3: Promote harmonized development of information systems / statistics and national identity systems to improve provision of services. Objective 3.4: Support targeted regional capacity building efforts which result in improving national public sector delivery systems. 36 Some near-term flagships: WB: Scaling-up Solar in Sahel; Regional ID4D Program covering 12 countries; Regional Capacity Building Program. IFC: Replicate regional access to finance programs such as the East Africa Smallholder Irrigation Program; Support the emergence of disruptive technology solutions and regionally focused investment funds for entrepreneurship. WBG: Scaling Solar and Sahel Irrigation Initiative. Strategic Priority 4: Promote Collective Action to Address Risks of Regional Economic Contagion, Fragility, Epidemic and Climate ‘Hot Spots’. What is the rationale? The rationale for this strategic priority rests on three arguments: (i) some of Africa’s development challenges and potential risks do not stop at national borders and require collective effort on the part of multiple countries (Sections II and III contain a deeper analysis of this); (ii) ensuring effective collective action requires clear understanding of the pros and cons of addressing these risks, addressing possible asymmetry of benefits for the parties involved and ensuring strong regional platforms which bring together key stakeholders; and (iii) over time, it would be important to make such collective action efforts more sustainable from a financing and institutional point of view and less reliant only on development financing. This strategic priority responds to sub-regional, regional or global risks which could impact the continent and compromise the development gains made so far. What will we do? There is a large body of existing WBG operational engagement in this area. Many of the regional priorities in the Bank’s Africa Climate Business Plan (ACBP) 46 would be pursued further. As mentioned elsewhere, this area of work would require long-term engagement. The focus going forward would be in deepening the cooperation and collective action efforts, making them more sustainable both institutionally and financially. There are also opportunities for innovation and developing the next generation of regional solutions in complex areas of providing public goods. Objective 4.1: Address cross-country risks from macroeconomic and financial sector crisis. Objective 4.2: Support sustainable management and financing of trans-boundary water, coastal and marine resources. Objective 4.3: Support communities affected by regional forced displacement and help countries to deal with underlying regional conflict prevention measures. Objective 4.4: Support prevention of and set-up insurance or innovative financing for potential regional epidemic outbreaks and cross-border natural disasters. Some near-term flagships: WB: Multi-Sector Approach to CEMAC crisis (coordinated approach between the Bank, IMF, AfDB and other development partners; West Africa Coastal Resilience Project; Forced Displacement Projects; Regional Hydromet Program. IFC: Build capacity at the regional level with advisory services; Adopt conflict sensitive and programmatic approaches at the regional level; Address rural conflict around migratory and stationary systems of agriculture and livestock production through the development of fodder banks. 46 World Bank: Accelerating Climate-Resilient and Low-Carbon Development, the Africa Climate Business Plan (2015). 37 Figure 7: Regional Integration Strategy: What and How? M&E and Results Framework 66. The Results Framework (Annex 1) provides an overall basis for monitoring the implementation of the strategy alongside results which are tracked under individual CPFs. The Results Framework (RF) is positioned at three levels: (i) monitor progress with integration at the continental and sub-regional levels. This would be done in collaboration with other partners, building upon existing work (including what is shown in Table 3). WBG RI support will contribute to progress against these high-level indicators, but direct attribution may not be always possible; (ii) provide a menu of indicators to measure results from the RI program. Here, it is important to note that the RI strategy sits within a wider ecosystem of existing diagnostic and strategy formulation processes within the WBG (see paragraph 7). The Country 38 Partnership Framework (CPF) documents will identify both national and regional interventions being supported by the WBG for each country, and the RI strategy does not do that. The CPF RFs are also expected to increasingly capture precise baseline figures and future targets for regional benefits. Having the indicators in Annex 1 would also better guide the identification of specific project-level indicators, and help address the inconsistent use of indicators in existing RI operations. So, the full impact of WBG support will be better measured at the project and country level and aggregated at the RI portfolio level using Annex 1; (iii) at a third-level, Annex 1 provides a set of indicators to measure the performance of the RI portfolio and these would be tracked as part of implementing this strategy. 67. Further steps are being proposed to strengthen the M&E systems in the RI program. The following steps are planned to take forward the M&E work in the RI program by end of FY18 / early FY19: strengthen M&E capacity within the RI program; based on the RI pipeline agreed with clients, develop a customized RF for each sub-region; and ensure that forthcoming RI operations reflect all relevant indicators proposed in Annex 1. Additionally, there would be close monitoring of the performance of the monetary unions in conjunction with IMF and other partners. The household poverty survey results would also be analyzed to understand if there are any implications for the integration agenda for respective countries. Positioning the WBG – knowledge, financing, collective action and partnerships 68. Delivering the strategy would require a much higher-level of WBG engagement on all fronts – knowledge, financing, facilitating collective action and promoting partnerships. On the knowledge side, there would be more focus on strengthening the strategic orientation and getting policy leverage from analytical work, while at the same time reducing the volume of analytical products being undertaken – ‘fewer and more effective’ analytical work. The analytical work program will include an early flagship report on taking stock of Africa’s regional integration efforts and charting out the next set of policy agenda for deepening integration. Taking into account the regional envelope for Africa – along with national IDA and other windows (CRW, SUF and PSW), it is expected that a substantial Bank RI program would be delivered during IDA18. This would represent a significant ramp-up in lending and will need to be done alongside improving the strategic orientation and quality of project design and implementation. There will be more strategic use of Trust Funds, particularly to support the preparation of feasibility studies for bankable regional projects and for facilitating the anticipated stepping-up in efforts towards promoting collective action. IFC and MIGA instruments, including under PSW, would be mobilized to support regional initiatives as per the strategic priorities and viability criteria. As appropriate, the full suite of relevant and eligible WBG instruments would be utilized. Possible use of some Bank instruments, which are currently not used under the IDA Regional program is being explored. Any adjustments to the IDA Regional Window policy framework will need to be discussed with IDA Deputies and approved by the IDA Board. 69. Delivering the ambition of this strategy requires facilitating collective action and promoting partnerships. The WBG has played an effective role in promoting collective action on several aspects of regional integration, but with the level of ambition and financing envisaged in this strategy it would be necessary to step-up such efforts. This could entail even closer engagement with national and regional leadership and with the private sector on integration issues. Facilitative approaches, such as the ‘championing’ process of RI tried out by the Bank in South Asia 47, and through better understanding of the realpolitik of integration would be used. The WBG would help facilitate creation of platforms for public and private sector dialogue to address bottlenecks to deepening integration. The partnership agenda remains critical and there are strong existing partnerships with several bilateral and multilateral 47 World Bank (internal document): Technical Briefing on Regional Integration in South Asia Region (2015). 39 institutions, including AfDB, EU and other bilaterals, which would be strengthened further through ongoing strategic dialogue. In particular, WB and AfDB are actively collaborating on preparing a Joint Plan to coordinate the implementation of the new RI strategies of both institutions. At the same time, new partnerships would be explored especially with private sector bodies inside and outside of Africa and with key think tanks in the region. The WBG will continue to work closely with key existing and new international engagements with Africa, including the recently established G20 Compact with Africa 48. Box 8: Six Ways this Strategy Aims to Reshape the WBG’s Integration Work in Africa Greater strategic orientation: rebalance individual transaction driven approach with greater strategic orientation in identifying lending pipelines and engagement opportunities. This would involve undertaking diagnostic work for specific sectors and specific sub-regions and preparing WBG Joint Implementation Plans in key sectors. Combining ‘hard’ and ‘soft’: some sectors are more ready for deepening the integration agenda going beyond building infrastructure. These would be prioritized along with identifying the next generation of lending to deepen the integration process. Scaling-up: this would be done by having bigger programs in order to have more transformative impact and by taking to scale what is currently working on a smaller scale Leveraging / MFD: thus far, the main leverage that has been sought within the RI program is the leverage of regional IDA. Going forward and based on the MFD approach, WBG resources would be actively used to leverage private finance, as this remains central to Africa’s development ambitions. ‘Development diplomacy’: To some extent, lack of collective action has been seen as an external risk to the WBG operations, but this strategy proposes a calibrated approach to stepping up facilitation of collective action in close collaboration with key stakeholders. Monitoring and Evaluation: Regional operations would be required to select from agreed regional integration indicators (see Annex I), and incorporate them in the project Results Framework in order to facilitate measurement of results in this strategy. External Consultation 70. Focused and high-quality external consultations have contributed to shaping some aspects of the strategy and confirmed other priorities and approaches. Please see Annex VI for a detailed note. The consultations reached six stakeholder groups: selected IDA client countries; African Union Commission (AUC) and Regional Economic Communities (RECs); Regional development banks / financial institutions; private sector; general public through online consultations; and development partners. Four broad questions framed these consultations: (i) is Africa realizing its full potential from regional integration? If not, why not? (ii) what are the big opportunities available in priority sectors and sub- regions to deepen integration? (iii) do the lessons learnt from WBG work so far resonate with the stakeholders? and, (iv) do the proposed WBG priorities and approaches resonate with the stakeholders? Across stakeholder groups, there was strong recognition of the benefits to be had for the continent from deeper integration. But, there was also a strong feeling that Africa isn’t realizing its full potential from integration and there is a gap between the pronouncements and implementation. There are important domestic sovereignty considerations which have not aligned with considerations of regional benefits. Therefore, efforts are needed in getting further traction at the country-level for the RI agenda. Effective implementation of some of the regional agreements was seen to be a good starting point for translating 48 Under the German Presidency of G20, the July 2017 Summit established a ‘Compact with Africa’. http://www.bundesfinanzministerium.de/Content/EN/Standardartikel/Topics/Featured/G20/2017-03-30-g20- compact-with-africa.html 40 political agreements into action. The need for stronger private sector voice in policy formulation around integration was underscored by both the private sector and public sector stakeholders. Strong calls for WBG to further deepen the integration process and get more traction for addressing the policy hurdles through use of knowledge and dialogue platforms and innovative financing arrangements. On the whole, across key stakeholder groups there was widespread confirmation and resonance of the proposed strategic priorities for WBG support. SECTION VI: IMPLEMENTING THE STRATEGY AND RISK ASSESSMENT Connecting the Strategy to Country Priorities and Lending 71. Two key mechanisms for implementing the strategy will be through existing regional and country-driven processes and through strategic use of diagnostic and planning work. As mentioned in Section I, the RI strategy will be delivered through the collective effort of the various country strategy processes. The CPFs and PLRs will identify specific regional lending possibilities in the respective countries alongside country-level lending pipeline. This would be based on dialogue with country clients and using lending prioritization criteria informed by this strategy. The additional diagnostic work being proposed will be in the form of preparing high-level roadmaps on integration opportunities in key sectors and in terms of doing a light-touch sub-regional diagnostic assessment to help identify sub-regional challenges and opportunities for integration (please see Annex VIII for scope of such diagnostics). The proposed diagnostics are expected to promote the strategic orientation in the RI program as set out in this document – they would be a bridge through which this Strategy document will connect with the priorities laid out in the CPFs and PLRs. The need for preparing sub-regional plans for the RI program have been identified previously – including in the IEG evaluation of 2007 and in the RI Strategy of 2008, but were never delivered (the proposal now is not to prepare sub-regional action plans in order to keep the sanctity of the CPF processes, but to undertake sub-regional diagnostic work to better inform the country strategies). The proposed sub-regional diagnostics work would also be a useful input for the regional convening role of the WBG. Retrofitting the Strategy Priorities with Existing Lending Commitments 72. It is important that the priorities in this Strategy inform not just new lending but also existing commitments in the RI program. Over 50 percent of current WB commitments are yet to be disbursed and it allows an opportunity to identify any additional support which would strengthen the alignment of the existing portfolio with the new strategy. During FY18/FY19, work would be undertaken to review the fit of the Bank’s current RI portfolio with the new strategy and propose any project-level restructuring and Additional Financing to help address the broader agenda outlined in the strategy. This exercise is expected to be limited in scope, and would for instance, result in new opportunities where current commitments for physical road infrastructure could be complemented with Additional Financing to facilitate greater trade or value addition along those routes. Such opportunities would be prioritized in agreement with country clients in order to have high impact from the existing Bank lending commitments. Selectivity and Prioritization Criteria 73. Reducing fragmentation and strengthening the strategic orientation in the RI program are key considerations in implementing the new strategy. Selectivity would be taken seriously with a view to consolidating the number of active Bank operations in the RI portfolio and increase the average project size to $150m by end of IDA18. Each CPF would prioritize regional lending opportunities most relevant for the country. Since this strategy covers the entire continent, it is necessarily a ‘broad tent’ – since the 41 specific integration priorities of each country / sub-region could differ substantially from others. Selectivity considerations would be informed by the proposed Sub-Regional Diagnostics Assessment and in the CPFs. It is very likely that the Bank lending pipeline for RI projects during IDA18 could again outstrip the available regional IDA resources. The Prioritization Framework provided in Figure 8 would be used as guidance to inform prioritization of the Bank RI lending pipeline. The prioritization framework responds to Lessons Learnt from the ongoing program (Section IV) – specifically, strengthening the sub-regional and sectoral context of operations, ensuring sufficient traction exists for collective action efforts by countries and to have a more balanced approach to support for infrastructure and ‘soft’ reforms. This framework is intended to support the prioritization process and is not intended as a rigid template. Stepping-Up Engagement on Facilitating Collective Action 74. Effective collective action by stakeholders for promoting integration is a lynchpin for the Strategy. Delivering on this objective requires the WBG to have a better assessment of key political economy issues which are likely to be a stumbling block for promoting integration. The WBG, along with other partners, would also need to facilitate a dialogue process which brings together various stakeholders and practitioners to strengthen awareness around regional approaches and to identify possible ‘win-win’ opportunities for participating countries. The Bank’s South Asia region has used such ‘championing’ approaches with good outcome, including in reaching agreement on regional power trading agreements between South Asian countries. As an initial part of implementing this Strategy, the WB Africa region will look to pilot similar approaches jointly with IFC and MIGA for specific regional integration priorities. This would be done in collaboration with other key partners who are interested in the integration agenda. Based on the experience with the proposed pilot, it would be rolled out to the other parts of the RI program in Africa. Immediate Implementation Priorities for FY18 / FY19 75. As immediate follow-up to the Board discussion of this strategy, several key activities would be undertaken in FY18 / FY19 to start implementation. In no particular order, these activities would include: undertake a pilot sub-regional diagnostic assessment (Annex VIII); prepare WBG corridor development plans for 2-3 corridors (Strategic Priority 1); prepare WBG sector plans for identified sectors to allow deepening of integration (Strategic Priority 2); prepare for a pilot of using ‘sector / development diplomacy’ to facilitate collective action amongst countries where such action has been proving difficult; finalize the Bank’s RI lending pipeline for the remainder of IDA18; undertake a portfolio review to look at the ‘fit’ of the current RI portfolio with the strategic objectives laid out here; take forward discussions on IDA policy issues in the regional program; use the M&E framework to inform the result indicators for new pipeline projects; take forward operational simplification measures to benefit RI task teams; and ensure greater mainstreaming of the RI program with country programs in two selected CMUs. Progress Report 76. A Progress Report on this Strategy would be prepared in the last year of IDA18 (i.e. FY20). The Progress Report will reflect the status of implementing the strategy, take account of important external developments and also any additional evidence available on the impact of the RI program, including from the upcoming IEG evaluation of the WBG RI program. The Progress Report will also identify any adjustments to be made in the Strategy for the remainder of the period, i.e. during IDA19. 42 Figure 8: Prioritization Framework for RI Lending Pipeline Risks and Mitigation 77. The following are some of the key risks for successful implementation of the strategy. i. Macroeconomic shocks: If the Africa region faces severe economic downturns, it may vitiate the overall environment for deepening the integration agenda. Though there may be economic shocks in particular countries, the chances of a major economic downturn at the 43 continental level is considered low. Moreover, regional integration could be seen as part of the solution during any downturns. ii. Regional / sub-regional cooperation failures: The risk that domestic sovereignty considerations could sometimes overshadow wider regional cooperation is a key risk in deepening the integration agenda. This strategy considers such a risk could be significant in specific areas, but if it is more widespread it could affect achievement of the stated objectives. Part of the mitigation effort focuses on more effective use of WBG’s convening power alongside other partners, greater use of private sector platforms for advocacy, use of appropriate instruments to support the formulation and implementation of ‘soft’ reforms, and a greater examination of strategic pros and cons before identifying individual lending operations. iii. Regional fragility risks: Cross-border fragility risks, either due to epidemics, conflict or large- scale disasters could set back the appetite for closer integration (e.g. barriers to food exports during severe droughts). The WBG’s overall policy and country dialogue with Africa would be critical in addressing such risks. iv. The deepening of integration agenda does not materialize and the RI program remains largely focused on financing a regional public infrastructure program with limited leveraging of the private sector: There is a risk that the ‘new generation’ of regional projects envisaged in this Strategy do not materialize, and the focus remains only on supporting regional infrastructure. Or the level of ambition of MFD in the RI space as outlined in the strategy does not materialize due to regulatory barriers or investment climate risks or lack of ‘bankable’ projects. Managing this risk would require high-level WBG engagement at the country and regional levels, address the lack of bankable projects and to continue to strongly articulate the case for integration. v. Internal WBG processes and policies need to be adjusted to support this Strategy. This is an internal risk that could be well managed by ensuring sufficient senior management attention remains on the RI work, and the processes and resource allocation decisions continue to prioritize the needs of the RI program. Some of the potential policy adjustments with the IDA regional program mentioned earlier would need to be discussed with IDA Deputies and approved by the IDA Board. 44 Annex I. Results Framework Regional indicators: Regional operations would be encouraged to select from the regional integration indicators below (see Annex I), similar to the Bank’s corporate indicators, and incorporate them in the project to facilitate measurement of results along this Strategy Level 1: Measuring Africa’s Progress with Regional Integration: Progress being made by Africa on regional integration would be measured along the following six dimensions. There are existing periodic assessments by the African Union and others for most of these dimensions, and these would be supplemented by other available data, including qualitative assessments. Bank’s overall support under this strategy would contribute to these wider objectives. The six dimensions for assessing Africa’s progress with regional integration are: • Trade Integration (levels of customs duties; share of intra-regional goods imports and exports; share of total intra-regional goods trade). • Regional Infrastructure (Infrastructure Development Index: transport, electricity, ICT, water & sanitation; Intra-regional flights; Total regional electricity trade; Average cost of roaming). • Productive Integration (share of intra-regional intermediate goods exports and imports; Merchandize Trade Complementarity Index). • Free Movement of People (Visa on arrival for REC nationals; Ratification of protocol on free movement of people; REC nationals who do not require visa for entry). • Financial and Macroeconomic Integration (Regional convertibility of national currencies; Inflation rate differential). • Management of ‘Public Goods’ and ‘Public Bads’ (Enforcement of agreements on management of shared natural resources; conflict prevention measures; Coordinated efforts towards managing cross-border epidemic and natural disasters). Level 2: Measuring Progress with Implementing the WBG Strategy: (the last column is based on internal WBG assessment) Strategic Priority 1: Generate Economic Dynamism Along Regional Economic Corridors This Strategic Priority contributes to wider Africa objectives of economic diversification, improving productivity, promoting intra-regional trade and leveraging private investments. The proposed four objectives under this priority reflect how regional integration could contribute to these broader continental priorities. Rationale The rationale for this strategic priority rests on three arguments: (i) the continent is in need of economic dynamism to reverse the current downturn. There is a close relationship between growing the economic pie and deeper regional integration – if the pie doesn’t grow then there is little to integrate. East Asia grew and integrated at the same time. Africa has the same opportunity now; (ii) this would build upon WBG’s ongoing and anticipated financing for regional physical infrastructure connectivity, and would complement it with additional focus on addressing policy and other barriers to value addition and greater trade on these corridors. It would include creating an enabling environment for the private sector to invest along these corridors; and (iii) it responds to the regional integration priorities of the RECs and countries and the expectations of the private sector in terms of connecting and growing markets. 45 Objective 1.1: Develop regional infrastructure along economically important trunk routes. Outcomes Indicators Intermediate Progress Continental / REC Priorities & Level of Indicators Difficulty Trunk road and rail infrastructure Roads / rail constructed or Economic corridors identified. Priority: High gaps reduced. rehabilitated. Financing secured for transport Difficulty: Moderate Improved physical connectivity, Travel time/cost reduction. infrastructure gaps. including for landlocked countries. Objective 1.2: Leverage private sector for financing infrastructure and regional value chains in agriculture and allied sectors along these economic corridors. Outcomes Indicators Intermediate Progress Continental / REC Priorities & Level of Indicators Difficulty Increased private investment in Private investment in Regional infrastructure with regional infrastructure and infrastructure and regional potential for private investment Priority: High regional value chains in agriculture value chains (% of total identified. and allied sectors. financing). Areas for harmonization of policies and standards across Difficulty: High Policy coordination and countries identified. harmonization of standards. Outreach to private investors Increase in levels of value addition Value addition ($). to selected primary products. Products with potential for Established and supported value addition identified. regional value chains (#). Promote skills development. 46 Objective 1.3: Harmonize policy and reduce non-tariff barriers to promote trade and improve productivity along these economic corridors. Outcomes Indicators Intermediate Progress Continental / REC Priorities Indicators Increased productivity and trade Cross-border trade volume (% Norms and regulations Priority: High along economic corridors. increase). harmonized. Identified Non-Tariff Barriers Trade Logistics Performance Dialogue with stakeholders on Difficulty: High (NTB) addressed in coordinated Index. removing identified NTBs. manner. NTBs removed (#). Objective 1.4: Build effective stakeholder coalitions to deepen integration along these economic corridors. Outcomes Indicators Intermediate Progress Continental / REC Priorities Indicators Active cross-country policy Number of formal and informal Targeted support provided to coordination efforts. regional platforms supported. aid these efforts. RECs actively involved in addressing barriers to trade. Private sector survey Higher-level convening functions Private sector actively involved in respondents show uptick in to bring together multiple dialogue. engagement on trade issues. stakeholders. Strategic Priority 2: Develop Functioning Regional Markets in Identified Priority Sectors This Strategic Priority contributes to wider Africa objectives of deepening integration in priority sectors. It reflects a broader sectoral approach (infrastructure + regional regulatory issues) in dealing with integration in four priority sectors – energy, telecom / ICT, financial sector and skills. Rationale: The rationale for this strategic priority rests on three arguments: (i) true integration involves having functioning regional markets where producers, suppliers and consumers benefit through cross-border investments and trade; (ii) some sectors are more ripe for taking a sector-wide approach to integration. WBG’s prior engagement and consultations shows that energy, telecom / ICT, financial sector and technical skills are four areas where opportunities for deepening integration exists; and (iii) this priority builds upon WBG’s ongoing support and the priorities of the RECs and private sector. Unless there are functioning regional markets, some of the regional infrastructure investments and commitments made by countries would be sub-optimally utilized. To illustrate, currently there are pending payment obligations by power purchasing countries to power selling countries, which if left unaddressed, could undermine the regional power pools. 47 Objective 2.1: Support priority regional energy generation and transmission links. Outcomes Indicators Intermediate Progress Continental / REC Priorities & Level of Indicators Difficulty Regional energy generation Energy generated (GW). Feasibility studies for regional Priority: High increased. projects completed. Private investments in energy Difficulty: Moderate (public); High (private) Increased energy supply. generation, transmission Generation capacity constructed and/or distribution($) under the project (MW). Progress with interconnection of national grids. Unit cost of electricity in the Transmission lines constructed power pools. or rehabilitated under the Regional energy transmission project (Km). increased. Households with new/ improved electricity services. Objective 2.2: Transform sub-regional power pools into strong commercially-run entities actively enhancing power trade between countries. Outcomes Indicators Intermediate Progress Continental / REC Priorities & Level of Indicators Difficulty Regional power pools show Energy trade between Establishment of adequate Priority: High stronger performance. countries (GW). operating and regulatory framework including Difficulty: High Improved power trade between Financial performance of enforceable commercial countries. regional power pools. arrangements for cross-border power trade. Cross country arrears to power- selling countries ($). Variation in power supply from agreed power trade agreements (MgWT) 48 Objective 2.3: Address market fragmentation in financial sector and ICT/telecom sector by promoting harmonization of standards and policies and by expanding access and reducing costs to consumers. Outcomes Indicators Intermediate Progress Continental / REC Priorities & Level of Indicators Difficulty Availability of long-term financing Lending volume ($) and costs Financial sector reforms laying Priority: High / Moderate through capital markets (%) by priority instrument ($). the foundations for these markets or Legal, regulatory and Difficulty: High Available financing in SME and Beneficiaries accessing formal institutional arrangements for housing finance. financial services. functioning regional markets made. Harmonization of standards Number of countries with common standards in priority areas. Improved coverage/access to the People provided with access to Sub-regional harmonization of digital and internet services. the Internet (number of telecom regulations and subscriber per 100 people). roaming policies, cross-border digital payment integration, Increased use of digital/ internet Volume of digital cross-border establishment of regional data services. payments and e-trade. centers and clouds. Reduced cost and better quality of Retail price of internet services Additional providers of digital digital/ internet services. (per Mbit/s per Month, in US$) and telecom services. Objective 2.4: Support regional skill development initiatives and facilitate country-led measures for promoting cross-border movement of skilled labor and integration in services sector. Outcomes Indicators Intermediate Progress Continental / REC Priority & Level of Indicators Difficulty Increase in trained graduates from Supply of trained skilled labor Progress in mutual recognition Priority: High regional technical and vocational from technical and vocational of degrees; institutions. institutions (#). Difficulty: Moderate (Supply); High Progress in addressing other (Mobility) Improved cross-country mobility barriers to labor market of skilled labor. movement, including provisions 49 Implementation of cross- for allowing cross-country border agreements on labor mobility of skilled labor. movements. Regional institutions for technical and vocational training supported. Strategic Priority 3: Scale-up Access to Quality Services and Entrepreneurship through Complementary Regional Solutions. This strategic priority helps the RI agenda tap into new opportunities available due to rapid developments in technology and innovation. It caters to two types of actions that could be supported at a regional level: activities like supporting R&D which is better done at a regional level given all countries could potentially benefit; or innovations which are currently happening at a local level but could be scaled-up to have a much larger geographical reach. Rationale The rationale for this strategic priority rests on three arguments: (i) Africa still suffers from poor access to basic services in multiple sectors. Clearly, these are country-level challenges. However, it is possible to address some of these challenges through complementary regional actions which allows scale- up of new technology and innovative approaches to improved targeting across a larger geographic area and drive down costs of services; (ii) R&D activities for new agricultural technology or new drugs or to rapidly scale-up innovations are best provided at a regional level taking advantage of scale benefits; and (iii) unleash the spirit of enterprise which is very prevalent in Africa, but is constrained by limits of size of markets and financing. This would help promote the jobs agenda, including for women and other marginalized groups. This is a relatively new area of focus in the RI program and the private sector will be a big driver of this agenda. Care would be taken in ensuring that specific areas chosen for support have a clear rationale for engaging at the regional level and complement ongoing national efforts. Objective 3.1: Support targeted R&D efforts and innovations in areas such as agricultural technology development and pharmaceutical development for priority diseases in Africa. Outcomes Indicators Intermediate Progress Indicators Continental / REC Priorities & Level of Difficulty Increased uptake of Farmers adopting improved Identification of opportunities for new Priority: Medium improved agricultural agricultural technology. technology development. technology. Difficulty: High Producer incomes and/or Farmers reached with agricultural assets Commercialization of sales associated with newly and services. technologies adopted technologies. Reduction in the incidence of Countries adopting and Africa’s neglected diseases. implementing agreed 50 Development and regional regional treatment Identification, and assessment of harmonization of treatment protocols. neglected diseases/conditions protocols for selected appropriate for regional solutions diseases/conditions. Financial and human resources in R&D efforts for addressing key diseases/conditions. Objective 3.2: Promote entrepreneurship and technology adoption for improving access to services, including in energy and water/irrigation. Outcomes Indicators Intermediate Progress Indicators Continental / REC Priority & Level of Difficulty Cross-country spread of Intra-regional FDI flows ($) Provision of regional lines of credit for Priority: Medium entrepreneurship. entrepreneurs. Intra-regional venture Difficulty: High Improved access to selected capital flows ($) Provision of other support (training, services, including energy, R&D, etc.) to entrepreneurs. water/irrigation. New business registrations. Introduction of new Beneficiaries (households, Introduction of new regionally- regionally-supported farms, firms) provided with supported technologies for national technologies for national selected improved services public service delivery public service delivery Objective 3.3: Promote harmonized development of information systems / statistics and national ID systems to improve provision of basic services. Outcomes Indicators Intermediate Progress Indicators Continental Priority & Level of Difficulty Harmonized statistics with Quality and comparability of Regional coordination mechanisms for Priority: Medium cross-country comparisons. statistics – key parameters producing comparable statistics and comparable across country inter-operable ID systems. Difficulty: Moderate Increase in coverage of systems (GDP, CA, etc.) national ID systems resulting Steps and elements needed to develop in better targeting of basic Coverage of people with IDs national ID systems – legislation, services. (% change). regulation, institutional base. 51 Objective 3.4: Support targeted regional capacity building efforts which result in improving national public sector delivery systems. Outcomes Indicators Intermediate Progress Indicators Continental / REC Priority & Level of Difficulty Specialized regional Capacity of selected Identification of institutions for targeted Priority: Medium institutions which serve as institutions in priority capacity building. service providers for national sectors – civil servants entities. trained per country and Difficulty: Moderate thematic area. Strategic Priority 4: Promote Collective Action to Address Regional Economic Contagion, Fragility, Epidemic and Climate ‘Hot Spots’. Rationale The rationale for this strategic priority rests on three arguments: (i) some of Africa’s development challenges and potential risks do not stop at national borders and require collective effort on the part of multiple countries (Sections II and III contain a deeper analysis of this); (ii) ensuring effective collective action requires clear understanding of the pros and cons of addressing these risks, addressing possible asymmetry of benefits for the parties involved and ensuring strong regional platforms which bring together key stakeholders; and (iii) over time, it would be important to make such collective action efforts more sustainable from a financing and institutional point of view and less reliant only on development financing. This strategic priority responds to sub-regional, regional or global risks which could impact the continent and compromise the development gains made so far. Objective 4.1: Address cross-country risks from macroeconomic and financial sector crisis. Outcomes Indicators Intermediate Progress Indicators Continental / REC Priority & Level of Difficulty Improvements in the Macroeconomic stability – Dialogue with identified monetary Priority: High (for monetary unions) macroeconomic conditions of debt to GDP ratio, current unions stepped up, in partnership with monetary zones and other account. IMF and others. financially integrated sub- Difficulty: High regions. Financial sector stability Progress towards meeting convergence [indicator] - NPLs, capital criteria for monetary unions. adequacy, liquidity ratio 52 Objective 4.2: Support sustainable management and financing of trans-boundary water, coastal and marine resources. Outcomes Indicators Intermediate Progress Indicators Continental & REC Priority & Level of Difficulty More collective management Number of countries Further institutional development for Priority: High (for some) of marine fish resources. implementing regionally- sub-regional fisheries management. informed fisheries Broader efforts to address management plans. Regional platform(s) in place for tackling Difficulty: High coastal erosion. coastal erosion established Numbers of countries Improved coordination implementing coastal Implementation of institutional systems for identified river erosion plans. development and planning systems in basins trans-country river basins. Objective 4.3: Support communities affected by regional forced displacement and help countries to deal with underlying regional conflict prevention measures. Outcomes Indicators Intermediate Progress Indicators Continental / REC Priority & Level of Difficulty Improved coordination of Quality of dialogue on the Broader stakeholder (countries and Priority: Medium conflict prevention measures security-humanitarian- other entities) engagement with across the region. development issues. regional platforms on fragility and forced displacement. Difficulty: High Number of IDPs, refugees Better support to those and/or host communities Regional fragility assessments in ‘hot affected by forced supported. . spots’ completed. displacement (displaced and host communities). Number of direct conflict- affected people to whom benefits have been delivered (number). 53 Objective 4.4: Support prevention and set-up innovative financing of potential regional epidemic outbreaks and cross-border natural disasters. Outcomes Indicators Intermediate Progress Indicators Continental / REC Priorities & Level of Difficulty Lower human and financial Human and financial costs Effective regional epidemic and disaster Priority: Medium cost of epidemics and natural of regional epidemic or response measures in place. disasters natural disaster incidents. Difficulty: Moderate Innovative risk-reduction Beneficiaries covered by Regional/national capacities built for financing (including innovative risk-reduction implementing innovative risk-reduction insurance) available financial services (including financial services (including insurance) insurance). Level 3: Portfolio Quality Indicators in the RI Program 1. Full commitment of regional IDA resources in line with strategy. 2. Portfolio quality indicators are at least equal to Africa-region averages. 3. Average Bank project size increases to $150m by end of IDA18. 4. List of analytical products is optimized and feedback indicates good uptake. 5. IEG exits are at least similar to Africa-region averages. 6. Implementation of 4 Joint WBG Implementation Plans. 54 Annex II: World Bank’s Africa Regional Integration Program: Portfolio Analysis Trends and Distribution of Commitments 49 1. The Bank commitments for regional integration in Africa has grown rapidly. During the period 1979–2002, the Bank provided assistance to 10 regional projects in Africa totaling US$315 million. The establishment of the Regional IDA window under IDA14 provided additional incentive for scaling-up regional integration programs – it addressed the disincentive for countries to use their limited national IDA allocations for regional projects by providing leveraging of additional resources from the regional IDA pot for projects meeting the eligibility requirements. During FY04-08, regional projects worth $1.9bn were added to the portfolio. In FY08, the RI commitments in Africa were $2.1bn consisting of 30 projects. In FY11, financial commitments to RI in Africa increased to around $4bn. At the end of FY15, this rose to $7bn and at the end of FY17, the RI financial commitments are at $10bn. So, between FY08 and FY17, there has been a five-fold increase in financial commitments for the RI program in Africa (Figure 1). Figure 1: Lending Commitments for RI FY08-FY17 ($bn) 12 10 8 6 4 2 0 FY08 FY11 FY15 FY17 2. The project size in the portfolio shows a wide range – the largest project in the portfolio is $680m while the smallest is $2m, with an average project size of $111m. Large projects with funding of more than $250m represent less than 10 percent of the number of projects but, in fact, account for 40 percent of the total commitments. About 60 percent of the projects in the portfolio are less than $100m (Table 1). Smaller projects can sometimes be very effective in laying out a broader enabling environment for integration – e.g. the OHADA project has been supporting with harmonization of business laws, which can be an important trigger for attracting private investments. Table 1: Distribution of Projects by Amount of IDA Commitment Size of project Credits and Credits and Av. Proj. No. of No. of grants grants size projs projs U$m % U$m (No.) (%) over U$250m 3,312 39% 473 7 9% Between U$200m and 1,742 21% 218 8 11% Between U$100m and 1,524 18% 152 10 13% Between U$50 and U$100m 1,201 14% 80 15 20% Between U$25m and 398 5% 40 10 13% Less than U$25m 287 3% 11 26 34% 49 Unless otherwise mentioned, this Annex is largely about the Bank’s RI portfolio. 55 Sector Distribution 3. The RI portfolio currently covers most key sectors. Over 90 percent of the portfolio is concentrated in five sectors – transport & ICT; energy; agriculture; health and water (Table 2). In fact, over 60 percent of the commitments are in two sectors – energy and transport & ICT. The ‘lumpiness’ of commitments could also be seen by the average size of commitments in different sectors – with a ratio of 1:10 between sectors with the smallest and largest project size. Historically, the sector distribution in the RI portfolio has not changed significantly – in FY08, energy and transport/ICT made up two-third of the total commitments. Three sectors which have entered the RI portfolio during IDA17 in a relatively big way are health, education and forced displacement. Figure 2 provides a perspective on the sectoral distribution of the ‘Big Five’ in the Africa portfolio (the largest programs who between them account of nearly 60 percent of total Africa commitments). The sectoral distribution, and the infrastructure dominance, in the RI portfolio is broadly similar to some of the country portfolios, especially Kenya. Table 2: Distribution of RI Portfolio by Sector / Global Practice No. of % of Commitment % of total Average % average Global Practice projs. projs. amount U$m commitment commitment commitment U$m Energy & 10 13% 2,720 31% 272 232% Transport and ICT 18 24% 2,694 30% 150 128% Heath & Nutrition 7 9% 967 11% 138 118% Agriculture 11 14% 953 11% 87 74% Water 10 13% 795 9% 80 68% Environment &Nat. 13 17% 350 4% 27 23% Education 2 3% 310 3% 165 141% Governance 2 3% 115 1% 58 49% Trade & Compet 2 3% 94 1% 47 40% Finance & Markets 2 3% 66 1% 33 28% SURR 3 3% 300 3% 100 Poverty 1 2% 40 0.5% 40 56 Figure 2: Sector Composition of RI and other ‘Big Five’ in Africa Portfolio % Commitment by sector 100% 3 15 9 14 90% 16 24 25 80% 19 70% 25 60% 43 24 24 50% 70 40% 68 40 52 30% 33 49 20% 10% 11 9 12 5 9 0% 2 RI Nigeria Ethiopia Kenya Tanzania Total Agri Infra HD Others Country Distribution 4. This section examines the regional spread of the RI portfolio – by looking at distribution of the portfolio by sub-regions, number of countries involved in RI projects and by commitments in different countries. Figure 3 shows the sub-regional distribution in the portfolio. About 45 percent of the projects are in the west – perhaps a reflection of the large number of countries in the sub-region. Eastern Africa has about 30 percent of the projects in the portfolio, followed by central Africa. With few borrowing clients (especially IDA countries) in the south, the sub-region’s share is fairly small. There is a strong focus in the RI portfolio on FCS countries, with the share of FCS countries in the RI portfolio commitments at 30 percent – which is higher than the share of FCS commitments in the overall Africa region commitments which is at 12 percent (Figure 4). 5. The RI portfolio has a mix of projects with varying number of participating countries. Table 3 shows that 12 percent of projects have over 5 participating countries. Nearly 30 percent of the projects have three or four participating countries. About 30 percent of RI commitments go to a dozen landlocked countries (including DRC) – Table 4. Table 3: Distribution of projects by Table 4: Commitments for Landlocked Number of participating countries countries (incl. DRC) (% of total Number of countries commitments) % of projects in the project 5 or more 12% 30 percent 3 or 4 29% 1 or 2 39% Regional 20% 57 Figure 3: Distribution of RI Figure 4: Share of FCS Commitments in Projects by Sub-Region (% of RI and AFR Portfolios (%) projects) 100 90 80 70 60 50 40 30 20 10 0 RI AFR Central East Southern West Multiple FCS Non-FCS 6. RI commitments are at least 30 percent of total Bank commitments in 13 countries (Table 5). For about another 10 countries, RI commitments are more than 20 percent of Bank commitments in their countries. This shows that for one-half of countries in the region, RI commitments are at least 20 percent of total Bank commitments in those countries. Table 5: What is the share of RI in Total Bank Commitments to Countries? Share of RI commitments in total Bank List of IDA Countries commitments RI is at least 45 percent of Bank commitments The Gambia, Sierra Leone, Mauritania, Guinea, Comoros. RI is between 30 percent and 45 percent of Bank Cameroon, CAR, DRC, Burundi, Chad, Niger, commitments Liberia Togo. RI is between 15 percent and 30 percent of Bank Kenya, Rwanda, Tanzania, Senegal, Burkina Faso, commitments Cote d’Ivoire, Mali, Benin, Zambia, Malawi, South Sudan. RI is less than 15 percent of Bank commitments Uganda, Ethiopia, Madagascar, Mozambique, Ghana, Nigeria, Cabo Verde, Guinea Bissau. Portfolio Performance 7. Figure 5 compares the Disbursement Ratios of RI and the ‘Big Five’ portfolios in Africa – which together make up about 60 percent of the Bank’s total commitments in the Africa Region. Table 6 compares the portfolio performance of the RI portfolio among the ‘Big Five’ and the Africa average at the end of FY17 on six key indicators: Disbursement Ratio; percentage of High or Substantial risk projects; Problem Projects; Commitments at Risk; Candor Gap; and Proactivity Index. RI has the lowest Disbursement Ratio among the ‘Big Five’ and in comparison to the Africa region average at the end of FY17 and even when comparing the average for FY16 and FY17. The RI’s share of problem projects and commitments at risk is also higher than the Africa average and higher than most other country programs 58 among the ‘Big Five’. However, RI’s performance on two indicators – candor gap and proactivity index is better than many of the comparators. Figure 5: RI and ‘Big Five’ Disbursement Ratio FY15-FY17 Disb Ratio (%) 35.0 32.8 30.0 27.2 24.5 24.9 25.0 21.7 21.7 21.5 20.8 18.7 19.0 19.6 19.3 18.1 20.0 15.5 13.7 13.0 15.0 12.2 10.8 10.0 5.0 0.0 FY15 FY16 FY17 RI Nigeria Ethiopia Kenya Tanzania AFR Table 6: Portfolio Quality Indicators for the ‘Big Five’ (at end-FY17) Country Disbursement High or Problem Commitments Candor gap Proactivity Ratio (%) Substantial projects at Risk (%) index Risk Project (%) (%) Africa 21.5 74.1 17.8 33.0 20 70.5 RI 15.5 69.9 26.9 39.0 6 87.5 Nigeria 21.7 96.2 18.5 27.0 0 50.0 Ethiopia 24.9 79.3 13.3 10.5 10 66.7 Kenya 19.3 87.5 32.0 38.3 0 40.0 Tanzania 18.1 79.2 25.0 27.6 30 71.4 8. Table 7 compares the Disbursement Ratios for RI projects in specific countries with the respective Disbursement Ratios for their national projects. This information has been provided for both selected FCS and non-FCS countries (the sample comprises of countries where RI commitments are at least 20 percent of total Bank commitments in those countries). This analysis is particularly useful since it compares the disbursement performance of country and regional programs within the same countries. There are some caveats to this analysis – the comparisons do not take into account differences in the size of commitments between country and regional programs in each country (it may be possible that there are very few regional projects in a country while there may be several national projects) and nor does it take account of any differences in the age of projects in the national and regional portfolios (it may be possible that country projects have been under implementation for longer than regional projects or vice versa, which impact upon their disbursement profiles). The table shows that in most cases (for both FCS and non-FCS), the Disbursement Ratios for RI projects is lower than that for national projects operating in the same countries. This points to the need for closer attention to the implementation performance of regional programs and mainstreaming them within country program dialogue – steps that could help ‘close the gap’ between the performance of regional and national projects at the country-level. 59 Table 7: Disbursement Ratios for Country and RI Projects in Selected Countries Program Disbursement Ratio for Country Disbursement Ratio for RI Projects in Program (FY15-FY16 average) these Countries (FY15-FY16 average) Non-FCS Cameroon 23.0 11.4 Kenya 15.5 5.5 Mauritania 33.5 7.2 Senegal 24.2 15.8 Benin 33.6 60.0 Cote d’Ivoire 37.5 16.0 Guinea 25.8 14.6 Zambia 13.3 11.1 Niger 22.5 6.3 FCS CAR 65.3 5.8 DRC 21.6 14.6 Burundi 11.9 11.4 South Sudan 32.0 3.0 Gambia 31.3 10.8 Liberia 25.2 55.0 Chad 22.8 9.0 Togo 33.9 18.0 Mali 21.7 15.7 9. Steps are underway to simplify design of RI projects in order to ensure more effective implementation. One cause for project complexity has been the poor articulation of the regional rationale for projects. Box 1 provides a more nuanced articulation of the rationale for regional projects. New projects are expected to use this framework so sharpen the rationale for regional projects – it may be possible that some projects may meet multiple criteria. Another factor contributing to project complexity could be the different asks of participating countries. While responding to client demand is an important way of getting multiple clients on board with regional initiatives, but project preparation and review processes are expected to help multiple clients to come to a shared understanding of the project purpose and key components for support. 60 Box 1: What is the Rationale for Regional Projects? Bank regional projects are expected to respond to one of more of the following rationale: Physical connectivity: The project promotes physical or virtual connectivity between the countries or with the rest of the world. Manage movement of people, goods, money across borders: The project helps in better management of movement of people, transhumance, goods and money across borders. Country specialization and collaboration: The project helps promote specialization amongst countries and collaboration between them, so that between them they have helped shift the collective production function. Trans-boundary shared resource management: When there are trans-boundary shared resources (typically hydropower in shared waters, river basin, productive landscapes, forests etc.) it is important for countries to have a well-coordinated process for managing the resources. Regional solutions to constraints facing multiple countries: When several countries face a similar challenge, it may be possible to find a regional solution which benefits all countries. Regional platform and harmonization: Often, there is a need for collective action by countries to realize an integration benefit. The project can help create a regional platform to facilitate countries to come together, negotiate and harmonize approaches and share lessons. Cross-border fragility and resilience: One of the threats to securing development gains is to ensure peace, reduce the threat of cross-border conflicts and address external shocks that affect multiple countries. The rationale here is that the benefit accrues to all countries and no country by itself can unilaterally deal with the problem. Attract private capital: One of the challenges that Africa faces in attracting private investments is its fragmentation and small size markets. Sometimes, operating regionally could address this constraint and make it more attractive for the private sector to come in. Regional institution strengthening: Regional institutions have a critical role to play in integration. Targeted support for such institutions could help serve this regional benefit. Agglomeration benefits: One of the challenges facing Africa is its small size and the consequent diseconomies of scale. Harmonizing norms and standards could expand markets and help bring about benefits of agglomeration – increased competition amongst providers, lower costs and enhance quality. Results Achieved in Two Key Sectors 10. Tables 8 and 9 provide a detailed review of the results achieved / likely to be achieved from RI projects in energy and transport sectors. 61 Table 8: Results from RI Transport Projects 1. IMPROVEMENT OF THE QUALITY OF TRUNK CORRIDORS As a share of the Tema (GH) – Ouagadougou (BF) section: from 50% (2008) to 75% (2015) P079749 As a share of the Heremako – Bamako (MA) section: from 40% (2008) to 85% (2015) As a share of Douala (CM) – Bangui (CAR) corridor: from 53% (2007) to 69% (2016); to increase to 77% (2019) P079736 As a share of Douala (CM) -N’Djamena (CH) corridor: from 40% (2007) % of trunk corridor in to 71% (2016); to increase to 90% (2019) good or fair condition As a share of the Dar Corridor length in Tanzania: to increase from 77% P120370 (2012) to 92% (2018) As a share of Abidjan-Lagos corridor: to increase from 71% (2010) to P096407 77% (2018); as a share of the corridor length in Cote d'Ivoire: to P116323 increase from 71% (2012) to 74% (2018) As a share of the Juba (SU) - Mombasa (KE) corridor: to increase from P148853 45% (2015) to 64% (2021) 2. REDUCTION IN TRANSPORT TIMES AND TIME UNCERTAINTY Mombasa (KE) to Malaba and Busia (border with Uganda): from 24 P082615 hours (2004) to 21 hours (2015) by truck Mombasa (KE) to Kigali (RW): from 19 days (2005) to 5 days (2015) P079734 From ship readiness to unload at Mombasa Port (KE) along the P079734 Northern Corridor: from 9 days (2011) to 5 days (2015) From ship readiness to unload at Port of Tema (GH) to Ouagadougou (BF): from 7 days (2008) to 5.6 days (2015) P079749 From ship readiness to unload at Port of Tema (GH) to Bamako (MA): from 15 days (2008) to 5.6 days (2015) From ship readiness to unload at Douala (CM) to N’Djamena (CH): from Travel time by road (days, 15 days (2007) to 7 days (2016) P079736 hours) From ship readiness to unload at Douala (CM) to Bangui (CAR): from 10 days (2007) to 5 days (2016) Abidjan (CI) - Ouagadougou (BF): to decrease from 140 hours (Oct P129282 2015) to 100 hours (Oct 2017) Nadapal/Nakodok (KE/SU border) - Lokichar (KE): to decrease from 2 P148853 days (2015) to 1 day (2021) Juba (SU) - Mombasa (KE): to decrease from 8 days (2014) to 7 days P131426 (2019) Songwe/Kasumulu border (MW/TZ) to Lilongwe (MW) on the North- P145566 South corridor: to decrease from 6 hours (2015) to 5 hours (2021) From ship readiness to unload at Port of Dar es Salaam (TZ) along the P120370 Dar Corridor: to decrease from 7 days (2012) to 5 days (2018) Through Northern Corridor: from 14 days (2005) to 2 days (2015) P079734 62 Tema Port (GH)–Ouagadougou (BF): from 3 days (2008) to 2.4 days (2015) P079749 Variance in transit time Tema Port (GH) – Bamako (MA): from 6 days (2008) to 3 days (2015) (days) Douala Port (CM) – N’Djamena (CH): from 8.6 days (2007) to 5 days (2016) P079736 Douala Port (CM) – Bangui (CAR): from 6.4 days (2007) to 4 days (2016) Port of Dar es Salaam (TZ): from 18 days (2005) to 8 days (2014) P079734 Port of Mombasa (KE): from 13 days (2005) to 3 days (2015) Port dwell time (days) Port of Cotonou (BE): from 19 days (2009) to 14 days (2017) P096407 Port of Lomé (TO): from 18 days (2009) to 9 days (2017) P116323 Port of Abidjan (CI): from 14 days (2012) to 11 days (2017) 3. INCREASE IN CROSS-BORDER TRADE Freight volume between Kenya and South Sudan to increase by 20% P148853 between 2015 and 2021 Freight volume Freight volume on Dar Corridor (TZ) to increase from 35,000 TEU (2012) P120370 to 70,000 TEU (2018) 4. IMPROVEMENT IN COUNTRY LOGISTICS PERFORMANCE INDEX (LPI) RANKING The average ranking for all African countries ranked in both 2010 and 2016 improved from 116 (2010) i to 108 (2016). Performance in countries where the Bank has implemented RI projects improved particularly significantly: - East Africa: Tanzania from 95 to 61, Kenya from 99 to 42, Rwanda from 151 to 62, Uganda from 66 to 58; - West Africa: Mali from 139 to 109, Burkina Faso from 145 to 81, Cote d’Ivoire from 109 to 95, Ghana from 117 to 88 5. REGIONAL HARMONIZATION OF TRANSPORT REGULATIONS The EAC Customs Union was established in 2011 and EAC Customs Management Law was P079734 implemented in the EAC region. The Burkinabe and the Ivorian Customs administrations signed an agreement to interconnect their respective Customs information systems, and the two countries’ Chambers of Commerce signed an agreement to allow single payment of the inter-state road transit (ISRT) guarantee, which should lead P129282 to a cost reduction of 0.25% of the CIF value of goods in transit at the border between the two countries. Southern One Stop Border Post are expected to be established on the Songwe-Kasumulu P120370 (Tanzania/Malawi) border by 2018. KE – Kenya, TZ – Tanzania, UG – Uganda, RW – Rwanda, MW – Malawi, MA – Mali, CI – Cote d’Ivoire, BE – Benin, TO – Togo, CM – Cameroon, CH – Chad, CAR – Central African Republic, GH – Ghana, BF – Burkina Faso, SU – South Sudan, DRC – Democratic Republic of Congo In 2010, LPI ranked a total of 155 countries; in 2016 it ranked 160 63 Table 9: Results from RI Energy Projects 1. INCREASE IN AVAILABILITY OF CROSS BORDER TRANSMISSION NETWORKS Transmission lines OMVS: Transmission lines constructed/rehabilitated: 288km (December constructed/ P147921 2020 target) rehabilitated Rusumo Falls Project: 378 km transmission lines built (119 in Rwanda, 161 in Burundi and 98 in Tanzania) [with AfDB parallel financing] P075941 (August 2019 target) Kafue-Musume-Victoria Falls Project: Transmission lines constructed P124351 under the Project: 277 km (August 2017) to 348km (June 2018 target) Kafue-Musume-Victoria Falls Project: Transmission line capacity between Kaftu Town and Livingstone substations from 220,000 V P124351 (baseline) to 330,000 V (June 2018 target) WAPP CLSG: Transmission lines constructed or rehabilitated under the P113266 project: 1,349kms (December 2020 target) Eastern electricity highway Project: Transmission lines constructed: P126579 1,000km between Ethiopia and Kenya (June 2019 target) WAPP First Phase of the Inter-Zonal Transmission Hub Project: Annual P094919 total hours of operations of the line: 7,884 (December 2018 target) OMVG: Transmission lines constructed: 1,677 Km (June 2022 target) P146830 OMVS; Construction of a SCADA system; Decrease in average annual Quality of service duration of power outages in the RMA: from 72 to 60 hours/year P147921 (December 2020 target) Kafue-Musume-Victoria Falls Project: average frequency of interruption per year in the project area: from 5 to 4 (achieved in December 2016) to 3 (June 2018 target); average unplanned transmission line interruption P124351 duration: from 33.54 to 1.54 hours (achieved in December 2016) vs 12 hours (June 2018 target) WAPP First Phase of the Inter-Zonal Transmission Hub Project: Annual duration of outages in Burkina Faso from 130 (2010) to 200 (September P094919 2017) to 8 (December 2018 target) 2. INCREASE IN GENERATION CAPACITY OMVS: Additional yearly electricity traded between Mali and Mauritania: 147GWh; Additional yearly electricity traded between Mali P147921 and Senegal: 147GWh (December 2020 targets) OMVG: Electricity Trade (Export/Import) Capacity of Guinea: 340,000 Capacity/energy KVA; Guinea Bissau: 170,000 KVA; the Gambia: 180,000 KVA (all June P146830 available for regional 2022 targets). trade Kafue-Musume-Victoria Falls Project: Power transmission capacity between Kafue Town and Livingstone from 230,000 KVA to 700,000 P124351 (June 2018 target) WAPP CLSG: Annual electricity supply from CLSG imports at utility level: P113266 300GWh (December 2020 target) 64 WAPP First Phase of the Inter-Zonal Transmission Hub Project: Annual quantity of energy exported from Ghana to Burkina Faso 158 GWh (June P094919 2018 target) Capacity/energy Rusumo Falls Project: 80MW of hydro generation capacity installed; 448 P075941 available for regional GWh/ year energy generated (August 2019 targets) trade – renewable Eastern electricity highway Project: Electricity exported to Kenya: P126579 energy 2,970GWh (June 2019 target- hydro) 3. COST EFFICIENCY Eastern electricity highway Project Electricity yearly cost saving: USD 39 Cost savings P126579 million for Kenya (June 2019 target) WAPP First Phase of the Inter-Zonal Transmission Hub Project: Average Weighted annual costs weighted annual cost of electricity supply in Burkina Faso from 0.26 P094919 (2010) to 0.28 (September 2017) to 0.25 (December 2018 target) 4. IMPROVEMENT IN REGULATORY/CONTRACTUAL FRAMEWORKS CLSG WAPP 50: (i) international Treaty between the four countries, with an annex on Tax P113266 exemptions, (ii) PPAs and TSA signed. OMVG: Creation of an Asset Management Agency (AMA) to contract a qualified company for the operations and maintenance (O&M) of the transmission infrastructure; project management firm is P146830 providing support to OMVG’s project management unit; preparation and signature of contracts for the extension of WAPP transmission network. 5. STRENGTHENING ENABLING ENVIRONMENT EASTERN ELECTRICITY HIGHWAY PROJECT: Technical assistance and capacity building activities are part of the project to support EEP and KETRACO to improve transmission system operation, promote P126579 financial sustainability, and enhance staff and institutional capacity in transmission planning, design, operation, financial management etc. OMVS: TA TO assist (SOGEM, asset holding company of OMVS) in implementing the project, and consultancy services to strengthen SOGEM’s capabilities to implement the Environmental and Social Management Plan (ESMP), Environmental and Social Impact Assessment (ESIA), Resettlement Policy Framework (RPF), and Resettlement Action Plans (RAPs) as well as operating costs. SAPP-Program for Accelerating Transformational Energy Projects (AREP): Currently, the SAPP AREP portfolio comprises 4 projects where preparation activities have commenced and further requests are expected: (i) Luapula HPP, development of feasibility and ESIA studies – jointly funded by the Bank and DBSA; (ii) Zambia-DRC, development of feasibility and ESIA studies – funded by AfDB NEPAD IPPF; (iii) Zambia-Mozambique, development of feasibility and ESIA studies – funded by AfDB NEPAD P126661 IPPF; and (iv) SAPP-EAPP Interconnection (on the case of Tanzania-Zambia Interconnector). Furthermore, SAPP PAU continues to provide support on an as-needed basis to address long-standing structuring issues for projects funded by the Development Bank of Southern Africa: (i) ZIZABONA, restructuring and ESIA; (ii) MOZISA, restructuring and renegotiating contractual arrangements; (iii) Angola-Namibia, concept review; and (iv) Botswana-South Africa, concept review. AREP-Multi-Donor Trust Fund (MDTF): Support to preparation of projects (SAPP), as well as TA for P126661 strengthening of regulatory/technical/planning frameworks of both SAPP and EAPP. 50 The CLSG will also contribute to the access agenda, because it will allow not only to connect more people from the new or expanded substations, but also because it includes the use of low cost shield wire technology. Electrification projects are associated with the CLSG Line in all the four participating countries, but they are handled separately. (hence not included in the results framework). 65 PA for Facilitating Regional Power Trade: includes TA to sector stakeholders (WAPP, SAPP) on P164011 regional cross-border payment securitization; engagement strategies for each pool. Key Issues from RI Portfolio Reviews 11. The portfolio analysis and in-depth reviews have identified a number of areas which need attention in order to strengthen the overall performance and impact of the RI portfolio. Some of the key issues are listed below. Box 2 provides a perspective of a Bank Task Team Leader managing an RI project. a. Capacity and capability of regional coordinating agency: One of the more important features contributing to the overall success of RI projects is the quality and capacity of the regional agency being used to manage the regional aspects of the project. There is a difference here between the energy and other sectors, as the former has more competent regional institutions compared to the non-energy sectors. Energy sector companies are able to manage both the regional and national components of the projects and so internalize the project implementation issues. Perhaps the river basin authorities are among the weakest regional institutions. This weakness is exacerbated by the large number of sectors over which they need to exercise responsibility, including agriculture, agro-forestry, water supply and drainage, energy, health and transport. b. Budgetary, human and time resources: Although there are some economies of scale when the project includes multiple countries, portfolio reviews have brought out the need for additional provision of bank administrative budgets. At the same time, proliferation and fragmentation of projects in the RI portfolio results in rationing the limited budget across a larger number of projects. c. Participation of other aid agencies/institutions: Participation of multiple donor agencies in an RI project is sometimes necessary, also for reasons of meeting the financing gap in projects. Sometimes, the requirement to coordinate between the procurement and other processes of various agencies could add to the complexity of implementation. These are best addressed through upfront discussions and regular troubleshooting jointly by all parties when problems arise. d. Lack of sufficient guidance on design and implementation of RI projects: New task tasks would benefit from additional support in managing the complexities of preparing regional projects. . In this regard, additional resources and guidance for task teams would be useful. Having effective learning platforms for RI task teams could be a good way of ensuring cross-learning and avoiding reinventing the wheel multiple times. e. Some participating countries more ready to participate than others: In some cases, this issue has resulted in the project having fewer than anticipated number of countries, at least at the start of the project. There have been a few instances of other countries joining the project later on (e.g. Burkina Faso joined the Sahel Women’s Empowerment and Demographic Dividend project once the political situation in the country was resolved). On the other hand, when a country that was less prepared was actually included in the project from the outset, it was able to take advantage of the challenge presented by working alongside colleagues from better prepared countries. The latter group could often be very willing to support the less prepared countries, if for no other reason, than for the improved prospects for a satisfactory outcome of the project. f. Financing arrangements for regional integration projects are complex. The regional nature of the projects requires additional financial conditions to be met to ensure that regional IDA funding is available 66 for strictly regional activities. The relatively straightforward use of grant funds to support the regional agency is used where possible. The larger number of financing agreements that need to be prepared for regional integration projects adds substantially to the projects’ complexity. g. The preparation time for regional integration projects is invariably longer than for a single county project. The need for additional preparation time and the need for having good project feasibility studies, especially for infrastructure projects, has been recognized. Over time, the use of effectiveness conditions for regional projects has been reduced, but the slow start of implementation for some recent projects points to the need for better readiness for implementation. h. Complexity of coordination of regional components: Most RI projects have to ensure that there is compatibility in progress on project components that involve coordinated actions and investments by more than one country. Ensuring that this coordination takes place is usually the role of a regional agency. Weak capacity / mandate of these agencies could limit the effectiveness of such coordination efforts. Box 2: What is it Like to be Task Team Leader of a Regional Integration Project? Contributed by Christian Berger, Task Team Leader for Regional Sahel Pastoralism Project On the difference between being a Task Team Leader (TTL) for a country project and a regional project. A regional project is in some ways a collection of national projects plus regional coordination – all of which is meant to serve a shared regional and country objective. Seizing the regional dimension makes the difference and is the beauty of it! During preparation, this means bringing all countries together around a shared goal and ironing out any differences – which can be quite hard work. At implementation stage, it means keeping an eye on the regional and national benefits. It is this combination that makes regional projects unique! On the workload of a TTL of an RI project. Day to day TTL work may not be very different from being the TTL of a national project: reviewing documents, providing “no objection” to plans and activities, securing procurement, organizing and reporting implementation support…among others. In the case of the Sahel Regional Pastoralism Support Project (PRAPS), we are talking about keeping activities and disbursements in the range of $ 1 million per week. This might translate into spending a couple of hours a day on average for managing each individual country project under PRAPS. Multiply this by the number of country projects bundled together and add the regional coordination which need management … and one will understand why RI projects need more than a single TTL to be successful. A good practice has been to devote one co-TTL to each country project, all collaborating with the “regional TTL”. On what is really the hard part and what is the easy part of managing an RI project. Successful projects are hard work in general, and successful RI projects are no different. Indeed, maybe a bit harder work. In some part, some of the WBG systems are still not designed to accommodate large RI projects, but we are making progress. During preparation stage, regional projects may prove harder, mainly due to the number of national and regional stakeholders we have to deal with. These are sovereign states and there can be asymmetrical benefits between countries. Getting them onto a regional platform is the first step and then getting them to agree on a common regional program is the next step. Then we have practical problems to worry about – elections in one country, civil unrest in another, change of country personnel…but we try not to move the agenda at the pace of the slowest mover. However, contrary to what most people think, business could get easier at implementation stage! Our experience with PRAPS shows that country teams network together, sharing methodologies, and experts, and draft 67 manuals, and bidding documents …. On the other hand, implementation support in the field might come harder as far as logistics are concerned, since there are a lot of individual country projects to review in the same period of time, and also due to insufficient BB allocation. On what gives you most satisfaction to be a TTL for an RI project? I consider that being TTL of a RI project at the Bank is a real treat as it is both challenging and rewarding. Task teams help with building efficient professional networks between countries, linking people who hardly knew each other, and contributing effectively to regional economic and political integration. Bringing these often disparate groups together is the cherry on the cake for an RI TTL. i. Excessive supervision load: With a minimum of two and up to six or more participating countries, and sometimes with components in several different sectors to be supervised, together with supervision of the activities of the regional coordination agency, the supervision load for RI projects can be excessive. Scheduling and planning of supervision missions of single country projects can be difficult enough, but when demands of two or more countries plus a regional coordination agency have to be accommodated the task is several times complicated. Each mission can take several weeks and include travel to a large number of places. j. Projects that impact on more than one sector are more difficult to implement: This is not specifically a regional integration issue, but is one that is exacerbated in RI projects since activities in multiple sectors are replicated in each country. k. Projects with many small contracts have extra supervision burden: This issue is highly correlated with that of multiple sectors and countries in an RI project. Projects which include many small contracts are time consuming to supervise. l. Simplification agenda: Some internal Bank requirements need to be addressed: things like Project Preparation Advance (PPA) are required to be processed separately for each country and institution involved in the project; need for multiplicity of safeguard documents; the Operations Portal does not provide disaggregated data on country-level performance of regional projects, and country-level operations data does not reflect regional projects operating in each country; ISR formats do not provide disaggregated country-level progress reporting. m. Mainstreaming of RI in country programs: There is continuing work in mainstreaming RI programs into country operations. For instance, Country Portfolio Reviews need to always include discussions on RI projects operating in the countries. n. Poor M&E frameworks: A review of the Results Frameworks of selected RI projects indicated that it is not easy to see the consistency in results indicators across Series of Projects or the previous arrangement of Adaptable Program Loans. There was also inconsistent use of indicators to capture regional benefits of projects addressing similar challenges, making aggregation of results at the program level more difficult. Conclusions 12. Seven main lessons from the existing RI program have been identified through consultations, portfolio reviews, ‘deep-dives’ and from review of project Implementation Completion Reviews and Implementation Support Reviews. The last major Independent Evaluation Group (IEG) evaluation of the 68 regional integration program was carried out in 2007 51. IEG is currently planning an evaluation of WBG regional integration program across regions for delivery in FY19. The Independent Evaluation Department of the African Development Bank (AfDB) has recently carried out an evaluation of AfDB’s regional programs in east Africa 52. Some findings from these independent evaluations are relevant but others not so much. The seven main issues and lessons from the WBG’s RI work in Africa are captured below – they focus on areas where further attention would be required going forward. i. Operating at scale, but need to strengthen the WBG strategic approach to drive the operational work. Clearly, the Africa RI program has grown rapidly and constitutes a sizeable share of the Region’s lending. The program has rightly taken advantage of opportunities in critical areas for potential lending activities, which has served the purpose during the initial growth phase in the program. In preparing for the next phase of WBG’s RI program, it is pertinent to consider if a more strategic approach can be adopted to guide the overall direction of the program? There are limited sub-regional or sector-level assessments which provide an overall picture of regional challenges and opportunities which could help clients and the WBG to prepare a list of binding constraints and identify regional financing programs. Some plans have been prepared by RECs and others, but not all of these plans are robust and meet the requirements for concessional and non-concessional financing. Recent Systematic Country Diagnostics (SCDs) completed by the WBG in Africa have paid variable attention to the identification of regional binding constraints and opportunities. While each individual operation in the RI portfolio has a clear regional rationale, it is important to show how the WBG’s collective effort is helping move the needle on the integration agenda. This requires a clear line of sight between strategic priorities, financial viability criteria, WBG lending / convening / analytical work, and the delivery of results in the RI program. ii. Country commitment is key but in order to get true regional benefits it is necessary to get the commitment of multiple countries which requires high-level ‘sector / development diplomacy’. Previous sections show that a greater challenge with integration is for countries to effectively implement important regional commitments. This indicates the importance of greater country-level traction to continue to be a key factor in shaping the Bank’s RI program. The Africa Region’s decision to change the leverage ratio for accessing regional IDA has also helped strengthen country demand (during IDA17, the Africa Region moved from a 1:2 leverage ratio across the board between national and regional IDA contributions for regional projects to a two-tier arrangement with LICs with smaller IDA allocations retaining the 1:2 leverage, while others were moved to 1:1 ratio). The availability of other windows under IDA18 which allow countries to add to their PBA allocations provide an opportunity to meet the demand for financing regional interventions. However, moving the needle on the integration challenges requires multiple countries to show commitment by enhancing their focus on implementation of projects. This requires active engagement on political economy issues and engaging with “sector / development diplomacy”. The WBG’s convening function would now need to take on a more explicit and calibrated approach to supporting deepening of integration. In many countries, regional integration and cooperation issues fall under the purview of Ministries of Foreign Affairs and Integration. Bringing the various parties together requires analytics to better understand the potential costs and benefits of integration efforts and how to ‘compensate’ potential losers. This would become more important as the RI program takes on ‘soft’ reforms (next point). The weak capacity of RECs has been a constraint here, and the Bank needs to work with other partners to clarify a coordinated approach to engaging with the RECs and supporting capacity building efforts. 51 IEG: Development Potential of Regional Programs – An Evaluation of WB Support of Multi-Country Operations (2007). 52 AfDB: Independent Evaluation of Bank’s Eastern Africa Regional Integration Strategy Paper (2017). 69 iii. Need to balance infrastructure financing with deeper policy and ‘soft’ reforms and require instruments which are fit for purpose. Regional infrastructure gaps continue to be a binding constraint for deepening integration in Africa, but these must now be accompanied by policy, regulatory and institutional reforms. Several regional infrastructure projects prepared by RECs ostensibly for PPP financing do not meet the requirements for private financing and hence do not attract private capital. Along with points (i) and (ii) above, tackling the ‘soft’ agenda would require the use of all appropriate and eligible instruments in the WBG toolkit. The Bank’s RI program currently rests primarily on Investment Lending (IPF) instrument, when supported by the IDA regional window. Going forward, the program needs to focus on an important leverage – how much private financing is being leveraged by the WBG for regional projects. This would be important in order to deliver on the WBG’s commitments on Maximizing Financing for Development (MFD). iv. Project design and portfolio quality needs a step change. Portfolio reviews in the RI program have underscored the challenges with complex project design, inadequate project preparation leading to poor readiness for implementation, weak capacity in national and regional institutions, procurement and disbursement delays. The lead time required in preparing regional projects needs to be addressed systemically – the Project Development Facility created with Southern Africa Power Pool provides a good example of financing the preparation of feasibility studies for large regional infrastructure projects. The average project size in the Bank’s RI program is currently around $110m – while, there should be no bias against smaller innovative projects, but the need for having fewer and larger transformative projects in the RI program has been well-recognized. The fragmentation of lending and analytical portfolio comes with opportunity costs, in terms of Bank staff and budget resources. Increasing the project size would allow Bank administrative budgets to be utilized in a more efficient manner. Project implementation performance needs continued attention and the need for mainstreaming portfolio management of RI within country programs has been recognized, and needs to be reinforced. v. Results and impact need to be clear and evident. There is recognition of the need for a strong overall M&E framework which links the overall strategy with operations, and clearly communicates the ‘theory of change’ in the RI program. There has been some tension between retaining a single project with all participating countries and the need to be pragmatic about countries being ready at different times and to manage the load of large number of participating countries in a project. This can result in some diffusion in articulating the regional benefits. The use of Series of Project approach, with attendant pros and cons 53, has been highlighted in the reviews. The lack of accompanying analytics on likely impact of regional projects on poverty and shared prosperity needs to be addressed. There has been a recent improvement in the communication and outreach efforts in the RI program, and this needs to continue. vi. Internal issues which need to be addressed. RI program continues to receive significant share of the Bank’s administrative budget resources. However, portfolio reviews have highlighted a need for more allocation of budget for preparation and supervision of regional projects. The FY18 budget allocations for RI have been increased. Having a more consolidated portfolio would go a long way in ensuring adequate funding within existing budget resources. While RECs have sought direct lending to them, but the RI program has been operating within existing IDA policies and has used regional grant mechanism as the principal means of supporting the RECs (although in recent cases, waivers have been sought to provide selected regional institutions with support under other IDA instruments, including SUF). The need for using a range of appropriate and eligible WBG instruments to deliver on the next set of integration 53 The recent announcement by the Bank to undertake Multiphase Programmatic Approach (MPA) to lending opens up new possibilities to address some specific needs of the RI program. 70 challenges has been highlighted in the reviews. There are some policy issues that can be improved in delivering on the new agenda for the RI program, in terms of feasibility to use regional IDA for DPOs and the type of lending to be given to regional organizations. Progress is also being made in ensuring that relevant internal Bank information systems (e.g. Operations Portal) are responding to the specific needs for information on the RI program. Bank task teams are also actively looking at the ‘simplification agenda’ in the RI program, including using ‘Agile Bank’ principles, but more work is required. In terms of staff skills, there are three cross-cutting areas where the RI program is currently not well resourced – poverty, M&E and political economy specialists – and these skills would need to be available in order to deliver on the emerging RI priorities. vii. The program would benefit from greater collaboration within the WBG. An important step in this direction is that while the earlier RI strategy was a WB strategy this one is a WBG strategy. In order to implement the MFD approach, WBG would need to jointly assess bottlenecks in four priority sectors (energy, ICT, agriculture and finance and competition) and develop Joint Implementation Plans to facilitate the mobilization of the private sector in the regional integration space. This would allow the full use of appropriate WBG instruments to deepen the levels of integration. Figure 6 shows the possibilities of WBG working together in RI by creating, connecting and helping grow regional markets, building on the recent work in deepening financial integration in WAEMU (see also Box 4). 71 Annex III: AFR Regional Integration Portfolio Trends (IBRD/IDA) Annex III: AFR Regional Integration Portfolio Trends (IBRD/IDA) FY18 @ Data as of FY11 FY12 FY13 FY14 FY15 FY16 FY17 Nov 30 PORTFOLIO AND DISBURSEMENTS Active Projects # 40 43 44 50 59 61 61 62 Net Commitments Amt $m 4,495.00 5,101.36 6,351.48 7,460.01 9,352.26 9,589.92 8,884.13 9,163.51 Total Disbursements $m 918.49 1,401.82 1,928.43 2,687.43 3,348.10 3,744.01 3,083.03 3,356.01 Total Undisbursed Balance $m 3,726.02 3,669.39 4,356.82 4,800.49 5,604.52 5,433.44 5,324.50 5,461.44 Disbursements in FY $m 403.08 572.10 659.77 840.16 988.33 818.70 727.86 277.88 Disbursement Ratio for IPF only % 13.0 16.1 18.5 18.9 22.7 15.1 13.7 5.1 Slow Disbursements % 15.0 14.0 6.8 10.0 10.2 9.8 13.1 14.5 PORTFOLIO RISKINESS Actual Problem Project # 7 5 7 11 11 7 14 13 Problem Project % 17.5 11.6 15.9 22.0 18.6 11.5 23.0 21.0 Potential Problem Project # 4 3 1 1 2 4 5 2 Projects At Risk # 11 8 8 12 13 11 19 15 Projects At Risk % 27.5 18.6 18.2 24.0 22.0 18.0 31.1 24.2 Commitments At Risk $m 1,221.12 537.90 1,592.30 3,478.84 3,568.54 2,842.28 3,414.79 3,463.19 Commitments at Risk % 27.2 10.5 25.1 46.6 38.2 29.6 38.4 37.8 Proactivity % 62.5 71.4 80.0 57.1 54.5 72.7 85.7 75 IEG RATINGS (FY11 - FY17) # of Exits 3 2 4 2 4 5 9 No. of Projects Evaluated by IEG 3 2 3 2 4 5 2 IEG MS+ Outcome Sat % 66.7 100.0 66.7 100.0 50.0 60.0 100.0 ICR Quality Sat % 100.0 100.0 75.0 100.0 25.0 0.0 0.0 Net Disconnect % 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Bank Perf. MS+ @ Entry (%) 100.0 50.0 25.0 50.0 50.0 40.0 50.0 Bank Perf. MS+ @ SPN (%) 33.3 50.0 75.0 100.0 100.0 60.0 50.0 M&E Quality % 0.0 50.0 33.3 50.0 75.0 20.0 50.0 Borrower Overall Performance % Sa 66.7 100.0 25.0 100.0 50.0 60.0 100.0 72 AFR Regional Integration Active IBRD/IDA Projects (Dec 4, 2017) Board Net Comm. Age Closing Total Disb. Undisb. Bal. GP Project ID Project Name Approval Amt. - Total % Disb. (Yrs) Date ($M) ($M) Date ($M) AGR P094183 AFCC2/RI Agricultural Productivity Program for Southern Africa (APPSA) 4.7 14-Mar-2013 31-Jan-2020 89.99 52.54 30.43 63.3 AGR P122065 West Africa Agricultural Productivity Program APL (WAAPP-1C) 6.7 24-Mar-2011 31-Dec-2019 151.80 93.36 58.63 61.4 AGR P129408 AFCC2/RI-Regional Pastoral Livelihoods Resilience Project 3.7 18-Mar-2014 31-Dec-2019 197.00 40.66 139.76 22.5 AGR P129565 West Africa Agricultural Productivity Program 2A 5.5 22-May-2012 31-Dec-2018 200.00 181.60 5.87 96.9 AGR P143307 AFCC2/RI-Regional Great Lakes Integrated Agriculture Development Project 1.5 21-Jun-2016 30-Nov-2022 225.00 0.00 227.59 0 AGR P147674 Regional Sahel Pastoralism Support Project 2.5 26-May-2015 31-Dec-2021 248.00 63.82 189.59 25.2 AGR P161781 Great Lakes Regional Integrated Agriculture Development Project 0.6 5-May-2017 25.00 0.00 0.00 0 EDU P126974 Africa Higher Education Centers of Excellence Project 3.6 15-Apr-2014 31-Dec-2019 165.00 73.34 78.62 48.3 EDU P151847 Eastern and Southern Africa Higher Education Centers of Excellence 1.5 26-May-2016 31-Dec-2022 148.00 26.74 122.72 17.9 E&E P075941 AFCC2/RI-Regional Rusumo Falls Hydroelectric Project 4.3 6-Aug-2013 31-Dec-2020 339.90 51.90 268.72 16.2 WAPP: The First Phase of the Inter-Zonal Transmission Hub Project of the WAPP E&E P094919 (APL3) Program 6.4 29-Jun-2011 31-Dec-2018 41.90 23.11 13.32 63.4 AFCC2/RI-Regional and Domestic Power Markets Development Project (Southern E&E P097201 Africa Power Market Project: APL-1b) 10.5 29-May-2007 30-Jun-2018 579.70 461.72 79.29 85.3 WAPP APL4 (Phase 1) - Côte d'Ivoire, Sierra Leone, Liberia, and Guinea Power E&E P113266 System Re-development 5.5 31-May-2012 15-Dec-2020 298.38 50.52 231.92 17.9 E&E P124351 Kafue-Muzuma-Victoria Falls Regional Transmission Line Reinforcement Project 5.6 15-May-2012 29-Jun-2018 60.00 51.92 0.66 98.7 AFCC2/RI-The Eastern Electricity Highway Project under the First Phase of the E&E P126579 Eastern Africa Power Integration Program 5.4 12-Jul-2012 30-Jun-2019 684.00 114.15 505.03 18.4 E&E P126661 AFCC2/RI-SAPP-Program for Accelerating Regional Energy/Transformational Projects 3.1 11-Nov-2014 30-Nov-2019 20.00 3.71 14.85 20 E&E P146830 OMVG Interconnection Project 2.6 29-Apr-2015 30-Jun-2022 200.00 20.75 181.15 10.3 E&E P147921 OMVS - TRANSMISSION EXPANSION PROJECT 0.6 12-May-2017 31-Dec-2020 97.00 0.00 109.32 0 ENV P100406 AFCC2/RI-Lake Victoria Environmental Management Project Phase II 8.8 3-Mar-2009 31-Dec-2017 112.00 106.12 2.28 97.9 ENV P118316 AFCC2/RI-Lake Victoria Environmental Management Project (Burundi and Rwanda) 6.5 13-Jun-2011 31-Dec-2017 30.00 22.24 4.09 84.5 ENV P126773 West Africa Regional Fisheries Program SOP-C1 - Mauritania & Guinea 2.7 16-Mar-2015 15-Dec-2020 22.00 5.58 16.46 25.3 AFCC2/RI-South West Indian Ocean Fisheries Governance and Shared Growth Project ENV P132123 1 2.8 27-Feb-2015 30-Sep-2021 75.50 21.64 50.02 30.2 ENV P153370 Second South West Indian Ocean Fisheries Governance and Shared Growth Project 0.7 28-Mar-2017 29-Sep-2023 74.00 0.00 77.17 0 Third South West Indian Ocean Fisheries Governance and Shared Growth Project ENV P155642 (SWIOFish3) 0.2 29-Sep-2017 30-Jun-2023 5.00 0.00 5.00 0 F&M P121611 Financial Sector Development & Regionalization Project I (FSDRP I) 6.8 31-Jan-2011 30-Sep-2019 26.50 16.96 9.19 64.8 F&M P161658 WAEMU Affordable Housing Finance 0.2 28-Sep-2017 31-Dec-2022 155.00 0.00 155.50 0 GOV P122478 AFCC2/RI-ACBF Regional Capacity Building Project 6.7 17-Mar-2011 31-Dec-2017 90.00 88.09 0.03 100 GOV P126848 Support for Capacity Dev't of the AUC and other African Union Organs 3.6 6-May-2014 31-Dec-2018 25.00 18.70 3.85 82.9 HNP P111556 AFCC2/RI-East Africa Public Health Laboratory Networking Project 7.5 25-May-2010 30-Mar-2020 127.78 86.23 40.08 68.3 AFCC2/RI- Great Lakes Emergency Sexual and Gender Based Violence & Women's HNP P147489 Health Project 3.4 26-Jun-2014 30-Jun-2018 106.96 38.59 59.05 39.5 HNP P149526 Sahel Malaria and Neglected Tropical Diseases 2.5 11-Jun-2015 31-Dec-2019 121.00 34.44 88.56 28 HNP P150080 Sahel Women's Empowerment and Demographics Project 3.0 18-Dec-2014 31-Dec-2019 205.00 43.87 153.23 22.3 HNP P152359 Ebola Emergency Response Project 3.2 16-Sep-2014 31-Mar-2021 390.00 329.97 46.12 87.7 HNP P154807 Regional Disease Surveillance Systems Enhancement (REDISSE) 1.4 28-Jun-2016 31-Jan-2023 110.00 8.97 101.83 8.1 HNP P155658 AFCC2/RI-Southern Africa Tuberculosis and Health Systems Support Project 1.5 26-May-2016 31-Dec-2021 122.00 18.75 102.95 15.4 HNP P159040 Regional Disease Surveillance Systems Enhancement (REDISSE) Phase II 0.8 2-Mar-2017 31-Aug-2023 147.00 1.24 148.55 0.8 REGIONAL PROGRAM TO HARMONIZE AND MODERNIZE LIVING CONDITIONS POV P153702 SURVEYS 1.7 6-Apr-2016 31-Dec-2021 40.50 2.55 38.00 6.3 SURR P152821 AFCC2/RI-GLR: Displaced Persons & Border Communities 1.5 27-May-2016 31-Dec-2021 23.00 0.00 23.20 0 SURR P152822 Development Response to Displacement Impacts Project in the HoA 1.5 31-May-2016 31-Dec-2021 175.00 11.16 163.72 6.4 Development Response to Displacement Impacts Project (DRDIP) in the Horn of SURR P161067 Africa 0.6 26-Apr-2017 29-Apr-2022 103.00 0.00 108.08 0 SURR P163830 Somalia Emergency Drought Response and Recovery Project 0.5 30-May-2017 29-Jun-2018 50.00 41.93 8.79 82.7 Improved Investment Climate within the Organization for the Harmonization of T&C P126663 Business Law in Africa (OHADA) 5.4 26-Jun-2012 31-Dec-2018 15.00 12.21 1.48 89.2 T&C P151083 AFCC2/RI-Great Lakes Trade Facilitation 2.2 25-Sep-2015 31-Dec-2020 79.00 8.56 71.50 10.7 T&I P079736 CEMAC - Transport-Transit Facilitation 10.4 26-Jun-2007 31-Jan-2019 655.00 370.98 252.53 59.5 T&I P111432 AFCC2/RI-RCIP3 - Regional Communications Infrastructure Program - Phase 3 8.4 25-Jun-2009 31-Dec-2017 151.00 123.20 22.92 84.3 T&I P116323 Abidjan-Lagos Trade and Transport Facilitation Program - APL-2 5.5 31-May-2012 30-Jun-2018 90.00 64.09 18.33 77.8 T&I P118213 RCIP4 - Regional Communications Infrastructure Program - APL 4 (RI) 4.2 10-Sep-2013 30-Jun-2018 22.00 15.98 4.20 79.2 T&I P120370 Southern Africa Trade and Transport Facilitation Project 4.5 21-May-2013 31-Dec-2018 213.00 112.31 84.22 57.2 T&I P122398 AFCC2/RI-Central African Backbone - APL3 - Republic of Congo 6.5 25-May-2011 31-Dec-2019 20.00 13.28 5.47 70.8 T&I P122402 West Africa Regional Communications Infrastructure Project - APL-1B 6.5 21-Jun-2011 31-Dec-2017 91.63 80.68 3.69 95.6 T&I P123093 West Africa Regional Communications Infrastructure Project - APL 2 4.5 30-May-2013 30-Nov-2018 60.00 9.89 47.06 17.4 T&I P130871 Regional Communications Infrastructure Program Phase 5 - Uganda 2.5 22-May-2015 28-Feb-2022 75.00 10.25 65.97 13.4 South Sudan- Eastern Africa Regional Transport , Trade and Development Facilitation T&I P131426 Program (Phase One) 3.5 20-May-2014 30-Dec-2019 80.00 1.79 71.96 2.4 T&I P132821 AFCC2/RI-Central African Backbone SOP5 3.4 16-Jul-2014 31-Dec-2019 92.10 10.13 73.60 12.1 T&I P145566 Southern Africa Trade and Transport Facilitation Program - SOP2 2.6 29-Apr-2015 31-Dec-2021 69.00 21.06 47.63 30.7 EA Regional Transport , Trade and Development Facilitation Project (Second Phase of T&I P148853 Program) 2.5 11-Jun-2015 31-Dec-2021 500.00 47.26 463.12 9.3 T&I P155876 West Africa Regional Communications Infrastructure Project - SOP3 0.7 24-Mar-2017 31-May-2022 35.00 0.00 35.88 0 T&I P160488 LAKE VICTORIA TRANSPORT PROGRAM - SOP1, RWANDA 0.5 25-May-2017 31-Dec-2023 81.00 0.00 88.03 0 Niger Basin Water Resources Development and Sustainable Ecosystems Management WAT P093806 Project 10.4 3-Jul-2007 31-Dec-2017 182.17 177.16 1.97 98.9 First Part of the Second Phase of the Niger Basin Water Resources Development and WAT P130174 Sustainable Ecosystems Management Program - APL 2A 5.2 2-Oct-2012 1-Apr-2021 258.20 18.06 221.49 7.5 WAT P131323 Senegal River Basin Climate Change Resilience Development Project 4.0 5-Dec-2013 30-Jun-2021 212.50 50.29 144.26 25.8 WAT P146515 Kariba Dam Rehabilitation Project (RI) 3.0 9-Dec-2014 28-Feb-2025 75.00 1.98 69.42 2.8 73 Annex IV: IFC Statement of Investment and Advisory Portfolio (as of October 31st, 2017) Investment Portfolio Committed Client Product Type Industry Group Sector Portfolio (US$ m) Africa Region 8 Miles Equity Collective Investment Vehicles 30.0 Africa Region Abraaj AfricaIII Equity Collective Investment Vehicles 50.0 Tourism, Retail, Construction & Africa Region Actis ARE Fund 2 Equity 35.0 Real Estates (TRP) Africa Region Actis ARE Fund 3 Equity Other MAS Sectors 40.0 Africa Region Actis Energy Fund 4 Equity Other Infra Sectors 50.0 Africa Region Adenia II Equity Collective Investment Vehicles 0.5 Africa Region Adenia IV Equity Collective Investment Vehicles 23.2 Africa Region Advans Holding Equity Financial Markets 11.6 Africa Region AFIG Fund II Equity Collective Investment Vehicles 15.0 Africa Region Africa Dvpt I Equity Collective Investment Vehicles 7.5 Africa Region Africa Dvpt II Equity Collective Investment Vehicles 39.9 Telecom, Media, and Africa Region Africell Hld Ltd Debt 28.0 Technology Africa Region AfricInvest II Equity Collective Investment Vehicles 0.8 Africa Region Africinvest III Equity Collective Investment Vehicles 18.2 Africa Region AIIF 2 Partnership Equity Other Infra Sectors 96.0 Africa Region AKFED SA Debt Infrastructure 3.1 Africa Region Andela Equity Other CTT Sectors 0.7 Tourism, Retail, Construction & Africa Region AREP Equity 40.5 Real Estates (TRP) Africa Region Aureos Africa II Equity Collective Investment Vehicles 3.3 Africa Region Brait IV LP Equity Collective Investment Vehicles 22.8 Africa Region CAPE II Equity Collective Investment Vehicles 0.9 Africa Region Ciel Healthcare Equity Health, Education, Life Sciences 4.3 CITICC Africa Holding Tourism, Retail, Construction & Africa Region Debt 58.0 Limited Real Estates (TRP) CITICC Africa Holding Tourism, Retail, Construction & Africa Region Equity 2.0 Limited Real Estates (TRP) Africa Region Convergence Fund Equity Collective Investment Vehicles 35.0 Africa Region CRRH-UEMOA Equity Financial Markets 2.0 Africa Region Delonex Energy Equity Oil, Gas & Mining 54.1 Telecom, Media, and Africa Region DiViNetworks Equity 1.4 Technology Telecom, Media, and Africa Region EASSy SPV Debt 6.8 Technology Africa Region ECP Africa III Equity Collective Investment Vehicles 22.1 Africa Region ETC Group Debt Agribusiness & Forestry 50.0 Africa Region Ethos VI Equity Collective Investment Vehicles 22.7 Africa Region GEF Africa Fund Equity Other MAS Sectors 19.9 Africa Region GroFin AF Equity Collective Investment Vehicles 18.9 Africa Region GWFP Nedbank Guarantee/RM Other MAS Sectors 50.0 Africa Region Helios Fund I Equity Collective Investment Vehicles 0.8 Africa Region Helios Fund II Equity Collective Investment Vehicles 51.4 74 Africa Region Helios Fund III Equity Collective Investment Vehicles 25.0 Telecom, Media, and Africa Region Helios Towers AF Equity 58.8 Technology Africa Region IFHA Equity Other MAS Sectors 2.4 Africa Region IFHA II Equity Health, Education, Life Sciences 24.0 Telecom, Media, and Africa Region IHS Holding Ltd Equity 124.0 Technology Africa Region Investec II Equity Collective Investment Vehicles 29.4 Africa Region MRPAH Equity Infrastructure 22.5 Africa Region NAMF II Equity Other Infra Sectors 4.8 Africa Region PanAfrican I Equity Collective Investment Vehicles 2.7 Africa Region PanAfrican II Equity Collective Investment Vehicles 4.9 Africa Region RMB Westport II Equity Other MAS Sectors 40.0 Africa Region ALCB Fund Ltd Debt Financial Markets 20.0 Telecom, Media, and Africa Region CSquared Holdings Equity 15.0 Technology Africa Region GBfoods Africa Equity Other CTT Sectors 15.5 Africa Region IHS SSA Equity Other MAS Sectors 3.8 Africa Region Aureos Afr Healt Equity Other MAS Sectors 16.5 Central Africa Region African Rivers Equity Collective Investment Vehicles 10.0 Central Africa Region Ventures CASF Equity Collective Investment Vehicles 7.2 Eastern Africa Region AAR Healthcare Equity Health, Education, Life Sciences 4.0 Eastern Africa Region BPI EA Equity Financial Markets 6.0 Eastern Africa Region Catalyst Afr I Equity Collective Investment Vehicles 8.8 Eastern Africa Region Catalyst Afr II Equity Collective Investment Vehicles 15.0 Telecom, Media, and Eastern Africa Region EASSy SPV Debt 20.0 Technology Eastern Africa Region Fanisi Fund I Equity Collective Investment Vehicles 7.1 Eastern Africa Region IPS(K) Equity Other MAS Sectors 2.8 Eastern Africa Region Kibo Fund II Equity Collective Investment Vehicles 11.5 Eastern Africa Region Mobisol Equity Other CTT Sectors 6.1 Eastern Africa Region NSIF Debt Agribusiness & Forestry 2.4 Eastern Africa Region Fanisi Fund II Equity Collective Investment Vehicles 7.5 Southern Africa Region Agri-Vie Equity Other MAS Sectors 6.9 Southern Africa Region BP Southern Afri Equity Collective Investment Vehicles 8.0 Southern Africa Region Evolution One Equity Collective Investment Vehicles 5.5 Southern Africa Region Lereko Metier Equity Collective Investment Vehicles 13.8 Western Africa Region ACTIVA. Equity Financial Markets 7.7 Western Africa Region AFIG Fund I Equity Collective Investment Vehicles 16.5 Western Africa Region CAPE III Equity Collective Investment Vehicles 21.8 Western Africa Region Cauris II Equity Collective Investment Vehicles 4.9 Western Africa Region Oasis AfricaFund Equity Collective Investment Vehicles 7.0 Western Africa Region Synergy Equity Collective Investment Vehicles 7.5 Western Africa Region Ventures WAVF Equity Collective Investment Vehicles 12.8 Total 1,546.5 75 Active Advisory Portfolio Total Funds Primary Business Line Name Project Name Managed by IFC (US$ m) Environment, Social and Africa Corporate Governance Program - Africa Region 2.6 Governance Regional Africa Region Finance and Markets SSA Index Insurance Program 4.9 Africa Region Finance and Markets SSA Leasing II ( Africa Leasing Facility II) 6.4 Africa Region Financial Institutions Group Africa MF KM 5.0 Africa Region Financial Institutions Group Africa Microfinance AS Program Management 4.0 Africa Mobile Financial Services Knowledge Africa Region Financial Institutions Group 4.7 Management Africa Mobile Financial Services Program Africa Region Financial Institutions Group 4.9 Management Africa Region Trade and Competitiveness CASA 2 East and Southern Africa 11.2 Africa Region Trade and Competitiveness CASA 2 West and Central Africa 11.3 Africa Region Trade and Competitiveness IC Rapid Response III 2.6 Africa Region Trade and Competitiveness Indicator-Based Reform in Sub-Saharan Africa 2.1 ESMID East Africa II - Bond Market Eastern Africa Region Finance and Markets 2.8 Development Eastern Africa Region Trade and Competitiveness East African Community IC Phase 2 6.5 Investment Policy Reform for West Africa Western Africa Region Trade and Competitiveness 10.4 Regional Organizations Western Africa Region Trade and Competitiveness OHADA Uniform Acts Reform phase 2 5.2 Western Africa Region Trade and Competitiveness West Africa Trade Logistics 5.0 Total 89.5 76 Annex V: MIGA Statement of Outstanding RI Guarantee Portfolio (as of November 30th, 2017) Fiscal Contract Enterprise Host Country Investor Business Outstanding Year Country Sector Exposure ($) - Nov. 2017 FY00 Motraco-Mozambique Transmission Co. Mozambique South Africa Infrastructure 5,386,489 S.A.R.L. FY05 West African Gas Pipeline Company Ltd, Ghana Ghana Oil and Gas 56,250,000 Ghana FY12 SEGUB Benin France Services 5,847,188 FY13 Societe de Scanning du Gabon Gabon Switzerland Services 6,198,609 FY13 Sky Handling Partner Sierra Leone Sierra Leone France Services 5,066,086 Limited FY14 Cotecna Inspection, S.A., Burundi Switzerland Services 7,335,563 FY16 Eskom Holdings SOC Ltd South Africa United Infrastructure 785,195,067 Kingdom FY17 Alvima Import and Export PLC Ethiopia Djibouti Manufacturin 5,409,468 g FY17 Vitol Upstream Ghana Ltd & eni Ghana Ghana United Oil and Gas 217,103,995 Exploration & Produc Kingdom FY17 Ravinala Airports Madagascar France Infrastructure 76,545,000 FY17 Development Bank of Southern Africa South Africa United Financial 226,428,700 Limited Kingdom TOTAL 1,396,766,164 77 Annex VI: Key Issues from WBG External Consultations on RICAS During the preparation of the RI Strategy, the WBG jointly undertook an extensive outreach to various stakeholders to consult and get feedback. There was strong resonance with the issues and priorities identified in the strategy and the final strategy document has been informed by the specific feedback received. After the Board discussion, there is a plan to rollout the strategy by having focused sub-regional discussions on the specific priorities for each sub-region. Participants in the consultations: The consultations reached six stakeholder groups: (i) selected IDA client countries; (ii) African Union Commission (AUC) and Regional Economic Communities (RECs); (iii) Regional development banks / financial institutions; (iv) private sector; (v) general public through online consultations; and (vi) development partners. Purpose of the consultations: Four broad questions framed these consultations: (i) Is Africa realizing its full potential from regional integration? If not, why not? (ii) What are the big opportunities available in priority sectors and sub-regions to deepen integration? (iii) Do the lessons learnt from WBG work so far resonate with the stakeholders? and, (iv) Do the proposed WBG priorities and approaches resonate with the stakeholders? Setting / Format for the consultations: Four continent-wide consultations were held in Addis Ababa, Abidjan and Washington DC (during the WBG Annual Meetings). These continental consultations were jointly organized by WBG and AfDB, with the WBG leading on the consultations in Addis and Washington, DC, and AfDB leading the consultation in Abidjan. Around 150 participants were engaged in these continental consultations. The regional institutions involved in these consultations included: AUC, COMESA, EAC, ECOWAS, IGAD, ECCAS, SADC, BOAD, UNECA, CEMAC, BEAC, WAEMU, EBID, DBSA, AFREXIMBANK, NEPAD and East Africa Power Pool. In order to complement the continental consultations, further specific institutional consultations were also undertaken with EAC, BOAD and ECOWAS (latter planned for week of December 11th). Dedicated private sector consultations were held in Abidjan, Lagos and Dar es Salaam reaching another 150+ private sector representatives. These private sector consultations were jointly organized with the leading sub-regional / national business councils. The online consultations through social media reached 200,000 people with over 25,000 ‘likes’ and shares and over 150 online comments. Consultations with development partners have involved AfDB, EU, EIB and AFD. Overall Feedback and Key Issues from Consultations: This consolidated note highlights some of the key messages from the consultations reflecting views of different stakeholders. i. Continued strong interest across stakeholder groups in deepening integration: Policymakers, private sector and the public in different ways reinforced the strong imperative for deepening regional integration to help with rapid development and economic transformation of the continent. Some policymakers saw integration as the sine qua non for economic diversification and industrialization. The private sector sees promising opportunities to be had from a bigger common market and by reducing the high costs of poor physical connectivity, including air connectivity. Some of the feedback from the online public consultations emphasized the benefits that people see from improved cross-border trade, smoother border crossings, and ease of mobility of labor. Demonstrating tangible benefits from integration was cited as being important to secure greater political and public support for the agenda. 78 ii. Recognition that while progress has been made, but Africa isn’t realizing the full benefits from integration: Much expectation from a potential agreement on CFTA and acknowledgement of progress in improving regional infrastructure. But also concern that it is time for Africa to re-energize the integration agenda and questions around whether political momentum maybe stalling? Lot of examples given of unfulfilled promises on RI across all sub-regions. Effective implementation of some of the regional agreements could be a good start to close the gap between political agreements and the reality on the ground. The lack of value addition and missing regional value chains was consistently identified as a key manifestation of the lack of integration. When there isn’t alignment between domestic sovereignty considerations and realizing the benefits of integration, the agenda has largely fallen off the table. But it is important to address such issues and not side-step them – otherwise, Africa would not realize the benefits of integration. The security and conflict risks in some parts of the continent had vitiated the climate for cross-country collaboration. Addressing political economy issues of deepening integration in different sub-regions would be key to seeing further progress. In that regard, the need for putting in place various ‘confidence-building measures’ was identified, including better analysis and communication of the benefits of integration, specific financing arrangements for promoting cross-border investment and trade, and prompt handling at the highest political level of any restrictive trade practices by individual countries. Linguistic barriers and differences in legal and business cultures was identified as a barrier to integration in west Africa. The limited intra-regional trade, poor development of the capital markets, greater financial sector integration including the need for cross-border multi-currency settlement platforms and SWAP facilities were also highlighted. Some in the private sector also felt that there should be strong checks on countries taking unilateral measures to prevent freer movement of goods. iii. Reorienting the role of various stakeholders: Ongoing discussions on AU reforms, including clarifying division of responsibilities between AUC and RECs would be important in having a clearer institutional architecture for regional collaboration. The multiple membership of RECs by countries is seen to pull down the overall momentum for integration. The need for coordinated support by development partners for capacity building of regional institutions was also underscored. There was a general feeling that the private sector has, by and large, not been a major voice in policy discussions on integration. The private sector seems very keen to play a bigger role on this and could turn out to be a strong driver for the agenda as it sees how lack of integration is holding back entrepreneurship and investments. A clear need was identified for stronger public-private platforms to ensure greater traction exists for addressing the hurdles to integration. As integration deepens the hurdles are only likely to become more difficult. iv. Feedback on the WBG proposed strategic priorities: Strong resonance on the proposed strategic priorities. Several regional institutions and private sector confirmed that the priorities are in line with their own regional / sub-regional priorities. Strong calls for WBG to play a bigger role to further deepen the integration process and get more traction for addressing the policy hurdles. Continued support for regional infrastructure will be key, especially in energy and transport sectors. But there is support for balancing future support for physical infrastructure with ‘soft’ policy reforms. Other areas in the strategy which were identified as being important included using regional value chains as the basis for agricultural transformation, promoting integration within specific sectors including financial sector and ICT, addressing Non-Tariff Barriers, facilitating skilled labor mobility and completing the work on the power pools to lower costs and increase energy access. More support for banks through regional credit and trade lines was also identified as being important. v. Other Feedback for WBG: Lot of kudos for organizing joint WBG – AfDB consultations with AUC and RECs and call for keeping this collaboration strong during strategy implementation. Interest in seeing clearer joint WBG efforts in promoting integration, particularly in promoting private sector participation 79 in infrastructure. The private sector, especially in West Africa, made a strong plea for increased coordination and collaboration for regional integration by the multilateral development banks (“MDBs”) especially through joint financing to increase the pool of public sector financing which can leverage private capital. Feedback suggests that the WBG should be even more proactive in shaping discussions in existing platforms for promoting regional integration and to support public-private platforms. Also, for the WBG to ensure greater mainstreaming of regional integration in its ongoing country-level dialogue. And for the WBG to reduce the preparation time and bureaucracy often associated with its support. 80 Annex VII: Continental and Regional Economic Community (REC) Priorities 1. This Annex examines the priorities of regional institutions in Africa and shows the alignment of the proposed priorities of this WBG Strategy with the regional priorities. There are three types of regional institutions considered in this Annex. Continental institutions like AUC; Regional Economic Communities (RECs); and specialized sub-regional institutions. 2. AUC - Agenda 2063: It sets out the aspirational priorities for the continent. It contains seven aspirations - one of which is ‘an integrated continent, politically united based on ideals of Pan Africanism and the vision of Africa’s Renaissance’. Regional integration is quite key to Agenda 2063 and it prioritizes having an “integrative infrastructure that crisscrosses the continent; a continent with seamless borders and management of cross-border resources through dialogue; a continent where free movement of people, capital, goods and services results in intra-Africa trade growing to 50 percent by 2045”. 3. Priorities of RECs: There are six official RECs in Sub-Saharan Africa – COMESA, EAC, ECCAS, ECOWAS, IGAD and SADC. But as Figure shows, there are several regional groupings with countries having multiple memberships of these blocs. A review of the strategic priorities of the six official RECs shows a lot of common ground with due emphasis on moving towards a common market, customs union, monetary union and political federation. In specific terms, they all emphasize improved regional infrastructure, greater regional / sub-regional trade, agricultural development and industrialization. Some of these strategies also highlight areas such as ensuring regional peace and security, human development and skills transfer, and management of shared resources. 4. Specialized regional institutions: There are several specialized regional institutions which either have a continental or sub-regional focus. These include inter alia River Basin Authorities like the Niger Basin Authority; sub-regional power pools like the Southern Africa Power Pool; specialized institutions of RECs like the West Africa Health Organization of ECOWAS; and regional development banks like BOAD. 5. World Bank Group support for regional institutions: The facility under regional IDA window to provide grants to regional institutions has been an important way of supporting the AUC, RECs and some specialized institutions. In addition, Bank and IFC have Trust Fund resources which have supported several regional institutions. 6. High profile continental initiatives: There are numerous continental initiatives which have been in existence for some time and new ones are being launched. These are in response to specific challenges and priorities that have been identified. An important initiative is the Program for Infrastructure Development in Africa (PIDA). Table 1 shows the current and planned support of the WBG to several of the priority PIDA projects. 81 Table 1: Program for Infrastructure Development in Africa (PIDA) Priority Projects and World Bank Engagement (Amounts for pipeline projects are tentative and could change) PIDA Priority Project World Bank Engagement Energy 1. North-South Power Transmission Corridor covering Kenya, Existing Lending: (i) Eastern Electricity Ethiopia, Tanzania, Malawi, Mozambique, Zambia, Highway Project; $684m; approved FY13; Zimbabwe, South Africa (ii) Kafue-Mazuma-Victoria Falls Transmission Line Project: $60m; approved FY12; (iii) Feasibility studies in SAPP: $20m; approved FY15. Pipeline: Mozambique Regional Transmission; FY19 delivery; $300m; Malawi – Mozambique Interconnector: FY19 delivery; $200m; Tanzania – Zambia Interconnector; FY19 delivery; $500m. 2. West Africa Power Transmission Corridor covering Guinea, Existing Lending: (i) CLSG Project: $296m Guinea-Bissau, Gambia, Sierra Leone, Liberia, Cote d’Ivoire, (including AF); approved in FY12. (ii) OMVG Ghana Project: $200m; approved in FY15; (iii) Several other existing and pipeline projects connecting 15 countries in WAPP. 3. Batoka Hydroelectric plant covering Zambia, Zimbabwe TA: WB providing TA support for the preparation and feasibility studies. 4. Ruzizi III Hydroelectric plant covering Rwanda, DRC Pipeline: Ruzizi III; FY19 delivery. 5. Rusumo Falls Hydroelectric plant covering Burundi, Rwanda Existing Lending: Regional Rusumo Falls & Tanzania Hydroelectric Project: $340m; approved in FY14. Transport 6. Yamoussoukro Decision Implementation ASA: Report on Air Transport in Sub- Saharan Africa completed. Planned dissemination and convening upcoming. 7. Northern Multimodal Corridor covering Kenya Uganda, Existing Lending: (i) East Africa Regional Rwanda and Burundi Transport, Trade Facilitation; $500m; FY15; (ii) South Sudan Eastern Africa Regional Transport and Trade Development Facilitation Program (Phase One), $80m, FY14 8. North-South Multimodal Corridor covering DRC, Zambia, Existing Lending: (i) Southern Africa Trade Zimbabwe, South Africa, Mozambique & Transport Facilitation, Tanzania & Malawi; $292m; approved FY13/FY15. Pipeline: Southern Africa Trade & Transport Ph3, Tanzania; $300m; FY20. 9. Central Corridor covering Tanzania, Uganda, Rwanda, Existing: (i) Lake Victoria Transport and Burundi, DRC Trade Facilitation Project (Rwanda); $81m; FY17. Pipeline: (i) Lake Victoria Transport and Trade Facilitation (Uganda and Tanzania); $100 m and $205 m; FY19; (ii) Lake Tanganyika Transport Program (Tanzania, Burundi, and DRC); $400m; FY19-FY20. 82 10. Beira – Nacala Multimodal Corridors Pipeline: One of the economic corridors being considered for IDA18 support. 11. Abidjan – Lagos Corridor covering Nigeria, Benin, Togo, Existing Lending: Abidjan -Lagos Trade & Ghana, Cote d’Ivoire Transport Facilitation Project; $318m; approved FY10/ FY12; Phase 2 (Cote d’Ivoire, $90m) active 12. Dakar – Niamey Multimodal Corridor covering Senegal, Pipeline: (i) Dakar – Bamako transport and Mali, Burkina Faso, Niger logistics corridor; (ii) Cotonou-Niamey economic corridor: being considered for IDA18. 13. Praia – Dakar – Abidjan Multimodal Corridor covering Cape Pipeline: Dakar – Gambia – Casamance Verde, Senegal, Gambia, Guinea-Bissau, Guinea, Sierra (Senegal) trade and transport corridor Leone, Liberia, Cote d’Ivoire being considered for IDA18 14. Abidjan-Ouga/Bamako Corridor covering Cote d’Ivoire, Existing Lending: Transport Sector Burkina Faso, Mali Modernization and Corridor Trade Facilitation Project Cote d’Ivoire, $30m and Burkina, $20m, approved FY17, active 15. West Africa Hub Port and Rail Program ASA: Report on West Africa Ports Concession – just completed. 16. Douala – Bangui / Douala – Ndjamena Corridor covering Existing Lending: CEMAC Transport & Cameroon, Chad, CAR. Transit Facilitation; $655m; approved FY107; ICT 17. ICT Enabling Environment - continental Existing Engagement: Actively engaged in policy / regulatory reforms in telecom / ICT in over 20 countries through IPF and DPOs. 18. ICT Connectivity - continental Existing Lending: Connected 24 countries to high-speed internet connectivity / regional fiber backbones; around $1bn of WB investments. 19. Internet Exchange Program (IXP) - continental Lending and TA: Supported development of IXPs in 17 countries. 83 Figure 1: Membership of RECs 84 Annex VIII: Sub-Regional Systematic Assessment of Development Constraints and Opportunities: Outline Concept Note Context 1. Regional cooperation and integration is a key political and economic priority for many African countries. The African Union’s Vision 2063 puts regional integration and convergence as one of its core priorities. Over the past decade there has been noteworthy progress in Sub Saharan Africa on the Regional Integration (RI) agenda. This is manifest in the rising interest in creating common markets, monetary unions, power pools, trade corridors, and addressing several development challenges in a collective manner. This points to the need for sustaining political and policy focus across Africa on the unfinished business of regional integration. The good news is that the political leadership in the continent is more committed to regional cooperation than at any time in its post-independent history, but there are challenges in translating the political commitment into implementable actions and tangible results. However, there is an opportunity to use the existing political commitment to deepen the actions being taken by countries towards regional integration. 2. The process of identifying specific RI operations and regional analytical work for the Bank is not based on a rigorous analysis of the key regional binding constraints and opportunities for different groupings of countries. In some way, if the CPFs are informed by the detailed analysis in the Systematic Country Diagnostics (SCD), there is no counterpart to the SCDs at a sub-regional level. There is little by way of analysis which tells us for a particular country the biggest benefit from integration may come from cooperating on a power pool with the country on its west and / or from cooperating on an agricultural value chain with its neighbors on the east. As a result, while our RI operations seem to be the right things to be doing, but there is no way of identifying if they are also the most critical things to do. So, this note proposes that we undertake a systematic analysis of development challenges and opportunities for a grouping of countries / sub-region. It sets out the possible scope and process of undertaking such a Sub- Regional Assessment (SA). Likely Benefits of a Sub-Regional Assessment 3. There are three clear benefits of doing a Sub-Regional Assessment (SA): • Facilitate collective action amongst countries: often the benefits of regional integration / cooperation are not explicit to countries and there may be limited understanding of any likely asymmetry of benefits between countries from a regional initiative. Having an assessment of both the challenges and opportunities of regional cooperation could greatly facilitate the collective actions being taken by countries and in the dialogue between the Bank and the countries on policy and operational matters. Such an assessment is likely to more comprehensive as it is likely to cover multiple sectors in multiple countries – it could build upon existing / planned regional sector-specific analytical work. • Inform country dialogue and programming: Preparation of country strategy products (SCD, CPF, PLR) could be better informed by an assessment of what is happening in the broader neighborhood. In cases where CPFs have been recently prepared, the SA could help inform future PLRs or programming decisions. The SA could help identify if the roots of some of the binding development constraints for a country lie outside the country or indeed do the opportunities to address some of the national problems lie outside the country? The SCDs have typically focused 85 on country-level challenges and have paid insufficient attention to the wider neighborhood of the countries. An understanding of the broader neighborhood would also allow better alignment between the Bank’s country and regional programs, since it would be possible to identify how regional efforts could genuinely complement what is being done at the country level and vice versa. • Help identify RI Priority Lending and Analytical Program: The SA would also help prioritize the regional IDA lending pipeline with the benefit of understanding how these operations address the key regional binding constraints and opportunities. Given that there is chronic excess demand for regional IDA, this would allow a greater degree of objectivity in the pipeline prioritization process. It would also allow identification of knowledge gaps which need deeper analysis and could be included in the regional ASA program. Broader Parameters for this Sub-Regional Assessment 4. In order to assess the added value of such sub-regional assessments, it is proposed that the first one be carried out as a pilot. It would be important for the proposed pilot to test out the scope of work, methodology and the nature of analytical questions that an SA could address. Given the overlapping country membership of the various RECs, there would need to be flexibility in identifying countries to be included in any SA. This aspect would need further thought if the SA pilot is to proceed to cover other parts of Sub-Saharan Africa. But, for the purposes of the pilot, it is proposed that this Sub-Regional Assessment focus on the EAC countries. This is because the EAC is fairly compact with five established members and it is also a dynamic REC with strong political leadership and initiatives towards integration and convergence. It is also a sub-region where a lot of underlying analytical work already exists, including poverty assessments and SCDs, which would provide a good basis for undertaking this pilot SA. This pilot will largely be aimed at an internal audience, but based on management guidance the final output may be disseminated in the EAC sub-region. Analytical Framework for the Sub-Regional Assessment 5. Like the SCD, the SA is expected to identify the most critical regional constraints (and opportunities) facing a sub-region in accelerating progress toward the goals of ending extreme poverty and promoting shared prosperity. The distinguishing feature of the Sub-Regional Assessment (SA) will be that it will focus on the following ten ‘border crossers’ – commodities, people, animals, water, electrons, money, diseases, conflict / fragility, voice/data and institutions, prioritized based on the specifics of the sub-region covering the SA. The focus of the SA would be to identify the synergies, gaps, pressure points, obstacles and opportunities for countries to better manage the ‘border crossers’ in order to help achieve the poverty and shared prosperity goals for the sub-region. This approach would build upon existing national diagnostics and provide a sub-regional lens for identifying constraints and opportunities. 6. Specifically, the SA will undertake the following analysis: A. Key Analysis of the Sub-Regional Development Context: this part of the SA will identify the key development constraints and opportunities for countries in the sub-region as well as the constraints and opportunities for greater regional integration and convergence. More specifically, it would look at: i. Economic performance and economic structure. Nature of drivers for poverty and shared prosperity. Nature of investment financing – public and private sector. 86 Identify the characterizing features of the sub-regional economy (e.g. a large national economy which is influencing the economic trends in other countries). Identify whether the proximate causes of the key national challenges lie outside of the national borders. ii. Current levels of integration and convergence among countries in the sub-region. Assess existing regional cooperation agreements and history of social, cultural and diplomatic relations and nature of political economy issues in relations amongst the countries. B. Assessment of the ‘border crossers’ and how they are being managed: this part of the assessment would include detailed spatial / mapping and other assessment to identify how these ‘border crossers’ are currently contributing or could contribute to the further achievement of the twin goals in the countries. The focus would be to look at possible synergies, gaps, pressures points, obstacles, opportunities and likely costs and benefits in the management of these ‘border crossers’. It would specifically look at [scope of each area to be revised based on GP inputs]: i. Commodities: current levels of trading within and without the sub-region; transport corridors; cost and time issues in movement of goods; trade facilitation and non-tariff barriers; comparative advantage issues. ii. People: levels of migrants from the sub-region in the formal workforce; informal movements across borders; visa and work permit issues; recognition of degrees; and levels of forced displacement and its drivers. iii. Animals: assess the livestock and animal movement corridors across borders; issues of fodder and animal health; levels of processing of and markets for animal products. iv. Water: identify shared waters and its current status and management; issues in cross- border management of the water resources and fisheries. v. Electrons: identify current and planned power / gas generation and demand projections. Assess gaps in physical infrastructure. Assess opportunities and bottlenecks to development of regional power trading. Assess situation of energy access and scope of regional solutions. vi. Money: assess level of development of financial sector development and integration and risks. Opportunities for leveraging private financing on a regional scale. Opportunities for promoting mobile money, remittances etc. vii. Diseases: level of disease surveillance and preparedness. Financing mechanisms for dealing with outbreaks of epidemics. viii. Conflict / fragility: assess cross-border conflict and other fragility drivers. How are they being managed and what opportunities may exist for collective action by countries. Financing mechanisms for dealing with regional disasters. 87 ix. Voice / data: assess constraints and opportunities for addressing voice / data issues across borders. Regulatory and pricing harmonization. x. Institutions: examine current experiences with institutional cooperation at a sub- regional level. Role played by regional bodies (RECs) and their effectiveness in ensuring collective action amongst countries. C. Identify possible drivers and barriers to regional cooperation and integration and prioritize areas for possible WB support: based on the analysis in Sections A and B above, identify possible drivers and / or barriers to promoting further cooperation and integration amongst countries. Identify possible priority areas for WB support based on a set of criteria: likelihood of impact on the twin goals in the countries; extent of ‘regional’ benefits; fit with emerging RI strategy priorities; likelihood of political support and client interest at the country level; complementarities with other WB programs; and likely time horizons for seeing the benefits. Criteria for Assessing this ‘Pilot’ 7. As mentioned earlier, this exercise would be carried out as a ‘pilot’ for the EAC region. The pilot would be assessed based on the following criteria: (i) extent of added value to existing WB country products; (ii) relevance of scope and analytical framework used for the pilot; (iii) process adopted for the pilot; and (iv) possibility of rolling out such diagnostics for other sub-regions. 88 Annex IX: Bibliography ADB, 2016. Asian Economic Integration Report 2016: What Drives Foreign Direct Investment in Asia and The Pacific? AfDB and ICA, 2015. Assessment of African Sub-Regional Development Banks’ Contribution to Infrastructure Development. AfDB, 2017. Independent Evaluation of AfBD’s Eastern Africa Regional Integration Strategy Paper. AfDB, OECD, UNDP, 2017. African Economic Outlook 2017: Entrepreneurship and Industrialization. AfDB, World Bank, World Economic Forum, 2013. The Africa Competitiveness Report, 2013. AfDB, World Bank, World Economic Forum, 2017. The Africa Competitiveness Report, 2017: Addressing Africa’s Demographic Dividend. Africa Progress Panel, 2015. Power, People, Planet: Seizing Africa’s Energy and Climate Opportunities. African Union, Program for Infrastructure Development in Africa: Africa Energy Sector Outlook 2040. Afrobarometer, 2016. Regional Integration for Africa: Could Stronger Public Support Turn ‘Rhetoric into Reality’. AU, AfDB, UNECA, 2016. Africa Regional Integration Index Report 2016. Ayangafac, Chrysantus (ed.), 2008. Political Economy of Regionalization in Central Africa. Brookings Institution, 2015. Financing African Infrastructure: Can The World Deliver? Brookings Institution, 2015. Private Capital Flows, Official Development Assistance, and Remittances: Who Gets What? Centre for Conflict Resolution, 2014. Policy Research Seminar Report: Region-Building and Regional Integration in Africa. Department of Commerce, USA, 2006: Africa Investment Incentive Act (AGOA IV). DHL, 2016. DHL Global Connectedness Index, 2016. ECDPM, 2007. Africa’s Regional Integration Arrangements: History and Challenges. ECDPM, 2016: Political Economy of Regional Integration in Africa: What drives and constrains regional organizations? ECDPM. Regional Integration and Poverty in the EAC: What do we learn from the data and understanding the political economy? El-Agraa, Ali, 2004. The Enigma of African Economic Integration; Journal of Economic Integration. 89 FONDAD, 1996. Regionalism and the Global Economy: The Case for Africa. IEG, World Bank Group, 2007. Development Potential of Regional Programs – An Evaluation of World Bank Support of Multi-Country Operations. IMF Finance & Development, 2005. Economic Spillovers; Examining the Impact Trading Partners have on Each Other’s Growth. September 2005, Volume 42, Number 3. IMF, 2007. Stock Market Development in Sub-Saharan Africa: Critical Issues and Challenges. IMF, 2016. Sub-Saharan Africa Regional Economic Outlook 2016: Multispeed Growth. IMF, 2016. Sub-Saharan African Migration: Patterns and Spillovers. IMF, 2016. Trade Integration and Global Value Chains in Sub-Saharan Africa. IMF, 2017. Sub-Saharan Africa Regional Economic Outlook 2017: Restarting the Growth Engine. IMF, World Bank, WTO, 2017. Making Trade an Engine of Growth for All. Infrastructure Consortium for Africa (ICA), 2015. Infrastructure Financing Trends in Africa, 2015. IPCC, 2014. IPCC Report, Chapter 22 on Africa. Juma, Calestous, 2015. The New Harvest: Agricultural Innovation in Africa. Oxford University Press. McKinsey and Company, 2015. Brighter Africa: The Growth Potential of Sub-Saharan Africa’s Electricity Sector. McKinsey and Company, 2016. Lions on the Move II. SADC, 2012. Regional Infrastructure Development Master Plan. Senghor, Jeggan C et al, 2009. Going Public: How Africa’s Integration Can Work for the Poor. Tralac, 2010: Supporting Regional Integration in East and Southern Africa – Review of Select Issues: Chapter 1: Reconsidering Regional Integration in Sub-Saharan Africa by Colin McCarthy. TRALAC, 2017. WTO – Agricultural Issues for Africa. UNCTAD, 2016. Trade and Development Report 2016: Structural Transformation for Inclusive and Sustained Growth. UNCTAD, 2016: World Investment Report 2016. UNCTAD, 2017. World Investment Report 2017. UNDP, 2015. MDG Report 2015: Lesson Learned in Implementing the MDGs. UNECA and ECOWAS, 2015. An Assessment of Progress Towards Regional Integration in the ECOWAS. 90 UNECA, 2015. Economic Report on Africa 2015 – Industrializing Through Trade. UNECA, 2015. Innovative Financing for the Economic Transformation of Africa. UNEP, 2013. Africa Environment Outlook 3: Our Environment, Our Health. UNU – WIDER, 2017. Air Transport in Africa; A Portrait of Capacity and Competition in Various Market Segments. VISA, 2017: Africa Integration Index: Connecting for Growth, Economic Inclusion and Prosperity. WEF, 2017. The Future of Jobs and Skills in Africa: Preparing the Region for the Fourth Industrial Revolution. Woodrow Wilson International Center for Scholars, 2008. African Regional and Sub-Regional Organizations: Assessing Their Contributions to Economic Integration and Conflict Management. World Bank Group, 2017. Global Economic Prospects, 2017. World Bank Group, OECD, Institute of Developing Economies, University of International Business and Economics, WTO (2017): Global Value Chain Development Report 2017: Measuring and Analyzing the Impact of GVCs on Economic Development. World Bank Group, 2017. Forward Look. World Bank, 2009. World Development Report: Reshaping Economic Geography, 2009. World Bank, 2010. Africa Infrastructure Country Diagnostics. World Bank, 2015. China and Africa: Expanding Economic Ties in an Evolving Global Context. World Bank, 2016. North-East Nigeria – Recovery and Peace Building Assessment, State Reports. World Bank, 2016. Political Economy of Regional Integration in Sub-Saharan Africa. World Bank, 2016. Poverty in a Rising Africa. World Bank, 2016. Africa Pulse. World Bank, 2017. Better Neighbors: Towards a Renewal of Economic Integration in Latin America. World Economic Forum and Global Alliance for trade Facilitation, 2016. The Global Enabling Trade Report, 2016. 91 Annex X: Map of Africa 92