Document of The World Bank FOR OFFICIAL USE ONLY Report No. 71884-ET INTERNATIONAL DEVELOPMENT ASSOCIATION and INTERNATIONAL FINANCE CORPORATION and MULTILATERAL INVESTMENT GUARANTEE AGENCY COUNTRY PARTNERSHIP STRATEGY FOR THE FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA August 29, 2012 Ethiopia Country Management Unit Africa Region This document has a restricted distribution and may be used by recipients only in the performance of their official Duties. Its contents may not otherwise be disclosed without World Bank authorization. THE DATE OF THE LAST COUTRY ASSISTANCE STRATEGY April 2, 2008 GOVERNMENT FISCAL YEAR July 8 – July 7 CURRENCY EQUIVALENTS US$1.00 = Ethiopia Birr 17.8697 (as of August 16, 2012) ABBREVIATIONS AND ACRONYMS AAA Analytical and Advisory Activities ERA Ethiopian Roads Authority ADLI Agricultural Development-Led ESW Economic and Social Work Industrialization ETB Ethiopian Birr AGP Agricultural Growth Program ETC Ethiopian Telecom Company AICR Africa Infrastructure Country EU European Union Diagnostic FAO Food and Agriculture Organization AMP Aid Management Platform FDI Foreign Direct Investment EAPP Eastern Africa Power Pool Project FEACC Federal Ethics and Anti-corruption ATA Agricultural Transformation Agency Commission of Ethiopia CAD China Africa Development Fund FTA Financial Transparency and CAS Country Assistance Strategy Accountability CAS CR CAS Completion Report GAC Governance and Anti-Corruption CAS PR CAS Progress Report GAP Gender Action Plan CBE Commercial Bank of Ethiopia GAVI Global Alliance for Vaccines and COMESA Common Market for Eastern and Immunization Southern Africa GDP Gross Domestic Product CPAR Country Procurement Assessment GEF Global Environment Facility Report GEQIP General Education Quality CPIA Country Policy and Institutional Improvement Program Assessment GER Gross Enrollment Rate CPS Country Partnership Strategy GHG Green-House Gases CPPR Country Portfolio Performance Review GoE Government of Ethiopia CPR Country Performance Rating GPI Gender Parity Index CRGE Climate Resilient Growth Economy GTP Growth and Transformation Plan CSA Central Statistical Agency HIPC Heavily Indebted Poor Countries CSO Civil Society Organizations HIV/AIDS Human Immunodeficiency Virus/ DAG Development Assistance Group Acquired Immune-deficiency DBE Development Bank of Ethiopia Syndrome DFID Department for International HSDP Health Sector Development Program Development IBEX Integrated Budget and Expenditure DHS Demographic and Health Survey Management System) DPO Development Policy Operation ICT Information and Communication DRM Disaster Risk Management Technology DSA Debt Sustainability Analysis ICT4D National ICT for Development Action EAC East African Community Plan EAPP East Africa Power Pool IDA International Development Association ECX Ethiopia Commodity Exchange IEG Independent Evaluation Group EDRI Ethiopia Development and Research IFC International Finance Corporation Institute IFPRI International Food Policy Research EEPCO Ethiopian Electric Power Corporation Institute ESW Economic Sector Works IHP+ International Health Partnership EPRDF Ethiopian People’s Revolutionary IMF International Monetary Fund Democratic Front LMS Light Manufacturing in Africa LSMS Living Standards Measurement Study RF Results Framework MDG Millennium Development Goals RIMsys Results Integration and Management MDTF Multi-Donor Trust Fund System MFI Micro-Finance Institutions ROSC Report On The Observance of MIC Middle-Income Country Standards and Codes MIGA Multilateral Investment Guarantee SDR Special Drawing Rights Agency SGI Schulze Global Investments MoE Mministry of Education SIL Specific Investment Loan MoFED Ministry of Finance and Economic SIP Small Investment Product Development SME Small and Medium Enterprises MSE Micro and Small Enterprises SOE State-Owned Enterprises MSME Micro, Small and Medium Enterprise SEZ Special Economic Zones M&E Monitoring and Evaluation SRF Statistics for Results Facility NAP National Action Plan for Gender SSA Sub-Saharan Africa NBE National Bank of Ethiopia SWG Sector and Technical Working Groups NER Net Enrollment Rate TA Technical Assistance NGO Non-Governmental Organization T-Bill Treasury Bill OECD Organisation for Economic Co- TF Trust Fund operation and Development ToR Terms of Reference ODA Official Development Assistance TVET Vocational Education and Training ODI Overseas Development Institute TWG Technical Working Groups OFAG Offices of the Federal Auditor General ULGDP Urban Local Governance Development PASDEP Plan for Accelerated and Sustained Project Development to End Poverty UN United Nations PBS Provision of Basic Services Program UNDP United Nations Development Program PEFA Public Expenditure and Financial UNFPA United Nations Population Fund Accountability URRAP Universal Rural Road Access Program PFM Public Financial Management VAT Value Added Tax PPDF Ethiopian Public Private Dialogue WASH Water Supply, Sanitation and Hygiene Forum WEDP Women Entrepreneurship PPP Purchasing Power Parity Development Program PPPs Public-Private Partnerships WFP World Food Program PSCAP Public Sector Capacity Building WHR Warehouse Receipts Project WDI World Development Indicators PSNP Productive Safety Nets Program WDR World Development Report PforR Program-for-Results Instrument WB World Bank RSDP Road Sector Development Program WBG World Bank Group REMSEDA Regional State Micro & Small Enterprises Development Agency Vice President: Makhtar Diop Director: Guang Z. Chen IDA Task Team Leader: Agata E. Pawlowska IFC Task Team Leader: Mamo Esmelealem Mihretu MIGA Task Team Leader: Conor Healy TABLE OF CONTENTS Executive Summary ....................................................................................................................................... i Introduction ................................................................................................................................................... 1 I. Country Context and Recent Developments ......................................................................................... 1 A. Political Context................................................................................................................................ 1 B. Recent Economic Developments ...................................................................................................... 2 Macroeconomic Trends ........................................................................................................................ 3 Governance and Public Sector Management ........................................................................................ 7 Agriculture and Rural Development ..................................................................................................... 9 Industry and Services .......................................................................................................................... 10 Financial Sector .................................................................................................................................. 11 Infrastructure ...................................................................................................................................... 12 Climate Variability.............................................................................................................................. 14 C. Poverty and Human Development Trends ...................................................................................... 14 D. Gender ............................................................................................................................................. 17 II. Development Challenges and the Government Agenda ..................................................................... 18 A. Job Creation through Increased Productivity and Competitiveness................................................ 21 B. Transformation to Modern and Productive Agriculture .................................................................. 29 C. Strengthened Systems to Better Respond to Shocks and Increase Resilience ................................ 31 D. Increasing Government Effectiveness ............................................................................................ 33 III. Review of the Past WBG Assistance .................................................................................................. 35 IV. New Partnership FY13-FY16 ............................................................................................................. 40 A. Key Principles ................................................................................................................................. 40 B. CPS Design: Pillars and Outcomes ................................................................................................. 41 C. Existing Portfolio and New Program .............................................................................................. 43 D. IFC and MIGA Programs ................................................................................................................ 49 E. Partnerships ..................................................................................................................................... 51 F. Results-based Monitoring and Evaluation ...................................................................................... 52 G. Managing Risks .............................................................................................................................. 53 Appendix 1: GTP – Vision, Pillars and Selected Targets ........................................................................... 57 Appendix 2: CPS Results Chain ................................................................................................................. 59 Appendix 3: CPS Results Framework ........................................................................................................ 61 Appendix 4: CAS Completion Report (CAS CR) ...................................................................................... 71 Appendix 5: Joint World Bank/IMF Debt Sustainability Analysis (DSA) ............................................... 105 Appendix 6: Analysis of Gender Inequalities and Opportunities in Ethiopia ........................................... 109 Appendix 7: Mainstreaming Climate Change into WB Program ............................................................. 114 Appendix 8: Mapping of the Development Partners in Ethiopia .............................................................. 116 Annex 1: Ethiopia at a glance ................................................................................................................... 120 Annex 2: Progress Towards Achieving the MDGs ................................................................................... 122 Annex 3: Key Economic Indicators .......................................................................................................... 123 Annex 4: Key Social Indicators ................................................................................................................ 125 Annex 5: Key Exposure Indicators ........................................................................................................... 126 Annex 6: Ethiopia Country Financing Parameters.................................................................................... 127 Annex 7: IDA and IFC Program Summary .............................................................................................. 128 Annex 8: Status of WBG Operations (Operations Portfolio).................................................................... 129 Annex 9: Selected Indicators of IDA Portfolio Performance and Management (end-June 2012) ............ 130 Annex 10: IFC and MIGA Program and Portfolio ................................................................................... 131 Annex 11: Indicative IDA and IFC Lending and Non-Lending Program under the CPS FY13-FY16 .... 133 Annex 12: Ethiopia Trust Fund (TF) Portfolio ......................................................................................... 135 Map. .......................................................................................................................................................... 141 LIST OF TABLES Table 1: Key Macroeconomic Indicators (2010/11-2016/17) ....................................................................... 6 Table 2: Regional financial sector comparison ........................................................................................... 12 Table 3: Population below the national poverty line .................................................................................. 14 Table 4: Structural constraints to light-manufacturing sectors in Ethiopia to grow and create jobs .......... 23 Table 5: Challenges and opportunities in infrastructure ............................................................................. 28 Table 6: Existing lending program and its impact on CPS Strategic Objectives ........................................ 44 Table 7: Indicative new lending program and its impact on CPS Strategic Objectives .............................. 45 Table 8: Selected proposed CPS non-lending activities and their impact on CPS Strategic Objectives .... 48 LIST OF FIGURES Figure 1: GDP growth rates – comparison between Ethiopia and Sub-Saharan Africa, 2004-11 ................ 3 Figure 2: Inflation rate in Ethiopia, January 2005 to April 2012 .................................................................. 5 Figure 3: Doing Business in Ethiopia (2012).............................................................................................. 11 Figure 4: Food-insecure people assisted by PSNP or relief ........................................................................ 19 Figure 5: Contribution to job creation and employment by firm size in Ethiopia ...................................... 22 Figure 6: Translating GTP into the CPS Framework .................................................................................. 59 Figure 7: Ethiopia CPS Results Chain ........................................................................................................ 60 Figure 8: Dialogue Structure between the Government of Ethiopia and Development Partners.............. 118 LIST OF BOXES Box 1: Entry and operation constraints to MSMEs .................................................................................... 25 Box 2: Tourism sector – an untapped source of jobs .................................................................................. 26 Box 3: Selected projects under 2008-12 CAS ............................................................................................ 39 Box 4: The Women Entrepreneurship Development Program – unleashing the growth potential of urban women entrepreneurs .................................................................................................................................. 42 Box 5: IFC initiatives to improve business environment in Ethiopia ......................................................... 50 Executive Summary i. Since the early 1990s Ethiopia has pursued a “developmental state� model with a strong role for the Government of Ethiopia (GoE) in many aspects of the economy. This approach, based on high levels of public investment, has been associated with strong economic growth and delivered notable progress towards the attainment of many Millennium Development Goals (MDGs). During 2004-11 Ethiopia experienced strong and generally broad-based real economic growth averaging around 10.6 percent a year; industry and the service sector grew on average 10 percent a year, and foreign direct investment increased from US$0.5 billion in 2007 to US$1.2 billion in 2011. The growth of goods and services exports reached close to 10 percent annually during 2000-10, and Ethiopia made good progress in diversifying processed exports. Significant improvements have been made in access to and, to a lesser extent, the quality of infrastructure. The average distance to an all- weather road decreased to 3.5 hours in 2011 from 4.5 hours in 2007. By 2010, the proportion of the rural population with access to potable water had risen to 65.8 percent, from 46 percent in 2006, with about five percent of Ethiopia’s population gaining access to improved water every year. By 2011, 41 percent of rural towns and villages were connected to the grid and the number of consumers connected grew from 800,000, in 2005, to more than 2 million in 2011. Going forward, the hydropower sector holds great promise for Ethiopia as a source of investments and closer regional integration. ii. There has been similar progress on poverty, human development and capacity. Poverty in both urban and rural areas has been reduced substantially from 39 percent of Ethiopians living below the national poverty line (US$0.6 per day) in 2004/05, to less than 30 percent six years later. Ethiopia is on track to achieve MDGs related to gender parity in primary education, child mortality, HIV/AIDS, and malaria. Good progress has been made in increasing access to primary education (currently 85 percent coverage), but it may not be enough to reach the MDG on universal primary education. Limited progress has been made in reducing maternal mortality, which remains 676 per 100,000 live births. Finally, during the past decade Ethiopia has made impressive progress in decentralizing authority and service delivery. Capacity and institution building efforts at decentralized levels have contributed to improved access to basic services and to more effective decision-making bodies. There have been a series of modernization efforts across the public service, including Public Financial Management reforms. The legislative and regulatory framework for the business environment has undergone significant strengthening although more remains to be done. iii. Notwithstanding these positive developments, important challenges have emerged during the last few years that may require GoE to adjust some of its policies. Enabling the country to move to a higher growth trajectory may require attention to several challenges, including: ensuring macroeconomic stability; addressing the persistently high numbers of the poor and food-insecure; the lagging quality of social services; and the weak capacity of the public sector. iv. With the recent death of the Prime Minister, GoE needs to ensure a smooth transition in coming months. GoE has embarked on a constitutional process of transition, has i confirmed that government continues to work as usual, and has expressed confidence that the existing public institutions will continue to function normally. GoE has also confirmed its commitment to the vision and goals stated in the GTP, which remains the centerpiece of the country's development strategy. v. The development model adopted by GoE relies heavily on high levels of largely government-led investments (like the Asian model of development), but faces low saving rates and limited availability of domestic resources (unlike the Asian model). Given the high investment requirements of the GTP, public investments, which in past years have been one of the major drivers of economic growth in Ethiopia, will not be sufficient to maintain high growth performance going forward. While private sector participation in industry and services could greatly contribute to the Government’s export-led job creation agenda, significantly leverage public sector financing and foster technology and knowledge transfer, realizing this potential will require enhancing opportunities for domestic and foreign private sector participation. There are also serious concerns that bouts of high inflation may reverse some of these positive poverty trends and, while inflation is currently showing a decreasing trend, keeping it down will be a major challenge for monetary policy. vi. Despite double-digit economic growth and substantial decreases in the percentage of the population below the national poverty line, the absolute number of poor is almost the same as 15 years ago and a significant proportion of the population remains just above the poverty line and vulnerable to shocks. Similarly the number of people living under the food poverty line has increased and dependence on appeals for emergency relief remains persistently high. Further, although access to basic social services and infrastructure has considerably improved, the quality of those services has not kept pace. Delivering quality would require continued efforts to deepen the implementation of decentralization and to build the capacity of the public service, both its institutions and its human resource. Finally, continuing efforts to promote an open and transparent environment, through, inter alia, creating more space for active engagement of non-government actors, facilitating increased participation of all citizens in decision making process at all levels of the government, and strengthening of fiduciary systems and oversight institutions, are important elements in transforming the Ethiopian economy and society and achieving middle-income status by 2020-23. vii. The vision of the Growth and Transformation Plan (GTP, 2009/10-2014/15) is for Ethiopia to “extricate itself from poverty to reach the level of a middle-income economy as of 2020-23.� This is to be achieved through strong economic growth within a stable macroeconomic framework with agriculture and industry as the main drivers; provision of quality infrastructure and social services (particularly health and education); and good governance and democratization. There is a large measure of overlap between these priorities and the challenges Ethiopia faces (paragraph iii above). Development partners have therefore broadly endorsed the GTP as an appropriate, and GoE-owned, agenda for the coming years. viii. To succeed in meeting the GTP goals and sustaining high economic growth, a structural transformation will need to take place. It would cover the following four dimensions: ii  Increased productivity and competitiveness of the industrial and services sectors for rapid and sustained job creation;  Transformation to modern and productive agriculture;  Strengthened systems to better respond to shocks and increase resilience; and,  Improved government effectiveness. ix. These objectives need to be pursued concurrently, as strong synergies exist between them. New and diverse job opportunities in urban, peri-urban and rural areas could draw the unemployed and underemployed population (mostly youth) from overpopulated rural settings to where their skills can be utilized more productively. Complementary efforts (e.g., provision of key public infrastructure, stable regulatory framework, private sector engagement, leveraging mobile technologies to enhance the productivity of farmers and businesses) would be needed to diversify livelihoods and to catalyze a structural transformation from subsistence agriculture into a more modern and productive agriculture. Improving the effectiveness of GoE support would also be critical so that it can effectively and efficiently promote the transformation process through direct and indirect interventions. GoE also has a key role to play in providing basic social services (e.g., health and education), which would underpin people’s ability to respond positively to new opportunities. Broad- based economic growth in all sectors of the economy will, in the long term, be the key driver for sustainable reduction in vulnerability and increased resilience, however, there is also a need for a comprehensive social protection system that allows GoE to manage risks, respond to disasters and provide social transfers to the chronically poor. x. This Country Partnership Strategy (CPS, FY13-16) builds on the progress achieved by Ethiopia during the past five years and aims to help the Government of Ethiopia address this structural transformation and assist in the implementation of Ethiopia’s GTP. It also builds on the findings of the Completion Report on the last Country Assistance Strategy, the Country Portfolio Performance Review, and consultations with a wide range of Ethiopian stakeholders. The CPS is results-based, well aligned with the World Bank Strategy for Africa and selective, based on WBG’s comparative advantage. The CPS framework includes two pillars with governance as foundation and two cross cutting themes. Pillar One, “Fostering competitiveness and employment�, aims to support Ethiopia in achieving the following strategic objectives: (i) a stable macroeconomic environment; (ii) increased competitiveness and productivity; (iii) increased and improved delivery of infrastructure; and (iv) enhanced regional integration. Pillar Two, “Enhancing resilience and reducing vulnerabilities�, aims to support Ethiopia in improving the delivery of social services and developing a comprehensive approach to social protection and risk management. Good governance and state building form the foundation of the CPS. In line with the GTP, gender and climate change have been included as cross-cutting issues in the CPS to strengthen their mainstreaming across the portfolio. The programs of IFC and MIGA are well aligned with the CPS framework, contributing mainly to the strategic objectives under Pillar 1. xi. WBG engagement, provided as a combination of partnerships, knowledge and finance, will be driven by the principle of partnering with GoE to look for pragmatic solutions. The CPS builds on what has been achieved so far and continues its support in areas where there is strong government ownership (e.g., infrastructure and social protection). In order to iii for the WBG to more effectively support GoE’s medium to long term development agenda, there are three elements in the CPS that are new. First, the WBG will seek stronger engagement with the Government on macroeconomic issues, the job creation agenda, and improving Government capacity to deliver results. Second, in addition to strengthening already good collaboration with existing development partners, WBG will endeavor to reach out to non-traditional partners. Third, WBG will deploy to a larger extent than previously its analytical work and look to provide budget support (most likely starting with sectoral development policy lending) to deepen policy dialogue, foster the use of country systems and increase the predictability of Bank support. xii. This CPS sets out a proposed IDA program, which will span the last two years of IDA 16 (FY13-14) and the first two years of the expected 17th replenishment of IDA (FY15-16). In FY12 IDA’s new commitments to Ethiopia amounted to US$1.12 billion. The lending program for the first two years of the CPS (FY13-14) has been designed with a buffer of about 19 percent (US$1.5bn in FY13 and US$1.2bn in FY14) to allow for possible delays on individual operations. A specific IDA allocation for the two outer years of the CPS (FY15- 16) is not available, since it will depend on the outcome of IDA 17 negotiations and Ethiopia’s progress on CPIA indicators. The CPS program is therefore indicative and will have to be reconfirmed based on Ethiopia’s allocation under IDA 17, and discussions with the Government. xiii. Ethiopia faces a range of external and internal risks, the potential impacts of some of which can be mitigated in part by WBG. Among the key risks identified is the possibility of external economic shocks, including the negative impact from a protracted slowdown in the EU and other high income economies, as well as natural disasters, of which droughts have been the most frequent occurrence in Ethiopia. There is a potential trade-off between economic growth and overall debt sustainability, especially for a development model which relies on large public investment in an environment of low levels of domestic savings. For a number of years Ethiopia has been perceived as having a culture that inhibited corruption, however, there is a risk that perception will be undermined by the challenges from rapid economic growth coupled with significant government intervention in the management of the economy. There is a continuous challenge related to the capacity to deliver results and the probity of the public service, which may not be able to keep pace with the broader reform agenda. High turn-over within the public service and the expansion of the number of woredas will exacerbate this challenge. Among the risks of which WBG needs to be aware, but the mitigation of which depends on close coordination with development partners in Ethiopia, are the regional security risks linked to relations with Eritrea, ongoing tensions between Sudan and South Sudan, and instability fed by Islamic fundamentalists in Somalia. There is also a risk associated with the death of the Prime Minster and ensuring a smooth transition in the coming months as described in paragraph iv above. Finally, in the longer term there is also a risk associated with the next elections scheduled for 2015. iv Introduction 1. The last World Bank Country Assistance Strategy (CAS) for Ethiopia originally covering FY2008-11 was discussed by the Board of Directors on April 29, 2008 (Report No. 43051-ET). In 2010, at the time of the CAS Progress Report (CAS PR, Report No. 55931-ET), that CAS was extended by one year, to include FY12, due to slower than expected implementation of CAS activities as well as to allow more time to undertake a necessary poverty diagnostic. While some adjustments to the lending program were made by the CAS PR, mainly to help mitigate the risks related to the global food, fuel and financial crises, the key objectives of the CAS were retained. 2. This Country Partnership Strategy (CPS) builds on the progress achieved by Ethiopia during the past five years. It also aims to help the Government of Ethiopia (GoE) address ongoing challenges and assist in the implementation of Ethiopia’s Growth and Transformation Plan (GTP, 2010-15). It covers the period from FY2013 to FY2016, one year beyond the GTP’s implementation timeframe. As with the previous CAS it is a result-based strategy firmly anchored in the Government’s program as well as the World Bank Strategy for Africa.1 3. This paper is organized into four chapters. Chapter I provides a brief political and economic context followed by a summary of achievements in key areas of economic and human development over the past decade. Chapter II presents the ongoing challenges faced by Ethiopia and the approach the Government is taking, as outlined in the GTP, to address them in the coming years. Chapter III and IV focus on the World Bank Group (WBG) role in Ethiopia starting with a review of the past WBG assistance followed by a description of the key areas of the new partnership, its implementation and risks. Appendices and annexes provide additional information and statistics. I. Country Context and Recent Developments A. Political Context 4. Ethiopia is a large, diverse and complex country with political dynamics resulting from its unique history. Up to 1991, the country had seen a century of increasing state centralization, underpinned by a political culture reflecting strong hierarchies and social stratification that have deep social roots. The current government, led by the Ethiopian People’s Revolutionary Democratic Front (EPRDF), came to power in 1991 after almost two decades of armed struggle, overthrowing the repressive military Dergue regime. EPRDF introduced three key reform processes: federal decentralization of the previously socialist state; market liberalization of a command economy; and democratization under a multi-party constitution. Each of these reform processes has progressed to different degrees and enjoyed some notable successes, but also faced significant constraints. 5. A phased approach to federal decentralization has been pursued since 1995. While the Constitution is premised on the philosophy of devolution of authority, practice often tends 1 Africa’s Future and the World Bank’s Support to It, World Bank, March 2011. Page 1 more towards the deconcentration of responsibility: dominance of the EPRDF and its allies continuing to administer all levels of government seems to underpin strong de facto national uniformity. EPRDF’s dominance has allowed it to establish a strongly interventionist “developmental state� system, which is often perceived as limiting the space and role of non- government social, political and economic actors in economic growth, promotion of liberal democracy and pluralism. These include non-governmental organizations (NGOs) and civil society organizations (CSOs), whose role is limited largely to service delivery under recent legislation; private media outlets, whose activities are also regulated by strict legislation and a tough judicial approach to editorial freedom; and private sector investors, who also often feel their interests are neglected by a government determined to curb what it sees as anti-development “rent-seeking�. Weak opposition groups have struggled for space in this context, with Ethiopia’s most competitive elections to date concluding in 2005 in bitter post-election contestation and violence, followed by the reconsolidation of the position of EPRDF. The May 2010 parliamentary elections resulted in a 99.6 percent victory for the ruling EPRDF and its allies, reducing the opposition from 174 to only two seats in the 547 member lower house. This weakening of the opposition and marginal role that other non-state actors are playing has created a polarized dialogue on many key political and economic issues outside Ethiopia, as well as within.2 6. Ethiopia occupies a difficult position in the Horn of Africa sandwiched between war- torn Somalia, Eritrea, and the newly divided Sudan and South Sudan. All of these neighbors generate difficult cross-border problems, often involving cross-border communities. Ethiopia’s lowland peripheries have long been affected by instability, and its relatively strong state, security and military systems are regularly deployed domestically - and sometimes also regionally - to promote GoE interests in national stability and security. However, Ethiopia’s central and important strategic position in the Horn of Africa also offers important potential for regional cooperation and collaboration (especially in the water and energy sectors), which could contribute to a growing inter-dependence between the countries and lead to promote peace and stability in the region. 7. Ato Meles Zenawi, the Prime Minister who had led Ethiopia since 1991, died in late August 2012. Since his death, GoE has embarked on a constitutional process for the transition to a new Government. The incoming Prime Minister and the Government have reconfirmed their commitment to political stability, to hold national elections in 2015 (as previously planned), and to continued implementation of the GTP and other key GoE strategies and policies. B. Recent Economic Developments 8. Since the early 1990s Ethiopia has pursued a “developmental state� model with a strong role for GoE in many aspects of the economy. This approach, based on high levels of public sector investment, has been associated with strong rates of broad-based economic growth since 2001, albeit from a very low base and, since 2010, a particularly ambitious program for 2 The most visible examples of this polarized dialogue include the often critical position taken by parts of the Ethiopian Diaspora, and the high profile some international NGOs, such as Human Rights Watch and the Committee to Protect Journalists give to publicizing their concerns about governance in Ethiopia. Page 2 state, infrastructure, and economic transformation. Notable progress has been made towards many MDGs including those for poverty, access to education and health. Important improvements have been made in basic infrastructure, and in strengthening executive capacity, and Ethiopia presents a relatively positive picture, particularly at the federal level. It has a track record of successful management of reform at the higher tiers of government, and there is clear evidence of a strong and consistent vision guiding policies, which are strongly pro-poor. Macroeconomic Trends 9. From 2004-11 Ethiopia experienced strong and generally broad-based real economic growth of around 10.6 percent a year on average, i.e., more than double the annual average of countries in Sub-Saharan Africa (SSA), which reached 5.2 percent (Figure 1). Growth came from a mix of GoE-led development investments, strong global commodity demand, and the development of new export sectors. More recently annual growth rates have declined slightly, but still remain at high single-digit levels. The economy is expected to stabilize at around 8 percent in 2012, largely owing to improved performance in the agriculture sector. The Gross Domestic Product (GDP) annual growth is likely to remain around 8 percent until 2016, driven by rising foreign investment and exports (EIU, 2012). In addition, despite high population growth of 2.2 percent a year, GDP per capita (at PPP) has increased from US$965 in 2007/08 to US$1,196 in 2010/11. Nonetheless, Ethiopia’s GDP per capita remains among the lowest in the world (169th out of 181 countries, assessed by the World Bank).3 Figure 1: GDP growth rates – comparison between Ethiopia and Sub-Saharan Africa, 2004-11 16% 14% 12% 10% 8% 6% 4% 2% 0% 2004 2005 2006 2007 2008 2009 2010 2011 -2% Ethiopia real GDP growth (annual %) Ethiopia real GDP per capita growth (annual %) SSA real GDP growth (annual %) SSA real GDP per capita growth (annual %) Source: World Bank, World Development Indicators (2012); and IMF, World Economic Outlook (2011). Note: World Bank staff estimate for SSA real GDP per capita growth in 2011. 10. Export growth of goods and services has been strong, averaging close to 10 percent annually during 2000-10. Agriculture remains a major earner of foreign exchange, accounting on average for about 90 percent of Ethiopia’s exports over the past decade. Ethiopia has made good progress in growing and diversifying processed exports, with double digit growth volumes 3 Data refer mostly to the year 2010; World Development Indicators (WDI) database, accessed on 18 April 2012. Page 3 in export categories such as leather and leather products, and meat and meat products over recent years. The economy, however, remains dependent on primary products (principally coffee) to a larger extent than other African and Asian comparators.4 This may change in coming years, if Ethiopia is successful in maintaining recent growth of foreign direct investment (FDI), which increased from US$0.5 billion in 2007 to US$1.2 billion in 2011 (National Bank of Ethiopia - NBE).5 In addition, the mining and energy (hydropower) sectors hold great promise for Ethiopia as a source of investments and as important catalysts for the Government’s export-orientated development strategy. Other sectors which appear to have scope for continued export growth and development include floriculture, hides and leather products. 11. During 2000-10 imports grew annually by around 15 percent on average due to a major emphasis on the import of capital goods as part of the government-led growth strategy. As a result, the trade balance has been in deficit. Likewise, the current account balance has been negative, even though it improved temporarily in 2010/11, when it recorded a small surplus resulting from a temporary slowing of investment activities. Yet, consumer goods imports have recovered since to earlier, albeit low levels. Thus, the current account is expected to turn into deficit again, and likely to stay there given the import requirements of the GTP and increasing demand for imported consumer goods. 12. Ethiopia weathered the 2008 global food-fuel-financial crises relatively well. GDP growth declined from 11.2 percent in FY2008 to around 10 percent in FY2009, representing only a marginal difference between projected and actual GDP. Nonetheless, even before the onset of the 2008 crisis, Ethiopia’s economy was already slowing down. Looking forward, there is a risk of negative economic impact from a protracted slowdown in the European Union (EU) and other high-income economies, mainly through reduced remittances and slowing demand for exports. A slowdown of remittances (standing at around 9 percent of GDP) could reduce disposable income and ultimately decrease domestic consumption. Although Ethiopian exports are only around 15 percent of GDP, they may be vulnerable due to the high concentration of commodity and primary goods and to the 50-plus percentage share of OECD as export destination. 13. Recent high inflation rates are a particular concern for Ethiopia and its economy. Inflation has a negative impact on poverty, possibly pushing poverty up by as much as 0.5 percent for each 1 percent increase in the inflation rate (World Bank Working Paper, WP3378). Further, inflation negatively affects the domestic savings rate, which for the past decade (2000- 10) has been at low single-digit levels, as well as the private investment rate, both of which are vital to finance ambitious GTP investment targets. Headline inflation rates in Ethiopia have largely been driven by developments in food price inflation and partially by the increasing global commodity prices. Since 2005, there have been two major spikes (Figure 2). In August 2008, 4 During 2005-09 share of manufactured exports as a share of total exports in Ethiopia was only 13 percent compared to China (90 percent), Cambodia (90), Bangladesh (93) and Vietnam (58). In case of light manufacturing, its share in total exports was 9 percent compared to China (91 percent), Cambodia (89), Bangladesh (91) and Vietnam (43). UNIDO, 2011 5 Currently most FDI originates from China, India and Turkey and focuses on agriculture, textile and leather. Most deals are negotiated case-by-case, generally as a result of high-level bilateral official visits. Despite growth in private FDI, it only represented 0.6 percent of GDP in 2010 (World Bank, WDI). Page 4 headline inflation (year on year) peaked at 61.6 percent, driven by 79.2 percent food price inflation; likewise, in August and September 2011 inflation was 40.7 and 40.2 percent respectively, at a time when food inflation reached almost 50 percent. Food inflation kept rising to more than 50 percent in November 2011, but by then headline inflation had started to ease slowly, driven by a tightening monetary stance (base money growth stabilized at the end of 2011). Figure 2: Inflation rate in Ethiopia, January 2005 to April 2012 100% 80% 60% 40% 20% 0% Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Apr-05 Oct-05 Apr-06 Oct-06 Apr-07 Oct-07 Apr-08 Oct-08 Apr-09 Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 -20% Food inflation Non-food inflation Headline inflation Source: Central Statistics Agency of Ethiopia (CSA) 14. Non-food inflation, a measure of core inflation, shows a relatively high persistent level, which indicates that inflation in Ethiopia is not purely a food price problem. In both spikes of 2008 and 2011 non-food inflation rose above 20 percent. In the 84 months between January 2005 and December 2011, core inflation was between 10 and 20 percent for 34 months, and above 20 percent for 25 months. Non-food inflation likely has several drivers in Ethiopia, including: relatively high overall monetary growth in the system, inflation expectations (which could be further fuelled by food price-inflation), and currency devaluation, which increases the prices for imported goods. 15. While high inflation persists, it is showing a slightly decreasing trend. Recognizing the difficulties that inflation poses for its economy and the poor, GoE has been executing stringent cash-based budgeting and negative reserve money growth. 6 As a result, headline inflation rates, which were above 33 percent on average during all of 2011, started to ease at the end of the year, and reached 20.9 percent in June 2012. However, international prices for Ethiopian food staples are now rising sharply, and this has in the past led to increased inflation in Ethiopia. 16. The exchange rate has continued to steadily depreciate since September 2010, following the 20 percent nominal deprecation in August 2010, consistent with the long-term 6 The trend to tighten monetary base was slightly reversed in December 2011 primarily due to a drawdown in government deposits at the National Bank of Ethiopia (NBE). At the same time reserve requirement ratios were lowered by 5 percentage points in January 2012. Page 5 trend. Overall the Birr has depreciated by 97 percent over the course of 5 years. This trend is largely mirrored in the Nominal Effective Exchange Rate which shows a steady path of depreciation between September 2008 and December 2011. The Real Effective Exchange Rate, however, has been on an appreciating trend since December 2010, which coincides with and largely originates in the recently observed high inflation rates.7 Table 1: Key Macroeconomic Indicators (2010/11-2016/17) 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 est. proj. proj. proj. proj. proj. proj. (Annual percentage change) GDP at constant prices (at factor cost) 7.5 7.0 6.5 6.5 6.5 6.5 6.5 Consumer prices (period average) 18.1 34.4 14.9 9.0 9.0 9.0 9.0 Exports, f.o.b. 37.1 16.9 9.0 12.6 15.2 14.7 13.2 Imports, c.i.f. -0.9 35.5 10.8 8.5 10.1 11.4 6.9 (In percent of GDP, unless otherwise indicated) Gross domestic saving 8.8 7.8 6.7 7.3 7.5 8.2 8.3 Gross domestic investment 25.5 26.4 24.5 24 23.9 24.8 24.2 Revenue 13.5 13.7 13.3 13.5 13.7 13.8 13.8 Expenditure 18.4 17.8 17.5 17.1 16.9 17.0 16.8 Fiscal balance, excl. grants (cash basis) -4.8 -4.1 -4.2 -3.6 -3.3 -3.2 -3.0 Fiscal balance, including grants -1.6 -2.3 -2.9 -2.3 -2.1 -2.1 -1.9 Public Debt 37.4 34.3 35.0 35.7 35.2 35.3 34.8 Domestic debt 15.4 15.8 16.0 15.5 14.3 13.4 12.5 External debt 22.0 18.5 19.1 20.2 20.8 21.9 22.3 Overall balance of payments (US$mln) 1,446 -1,215 591 435 362 399 241 Gross official reserves (US$mln) 3,044 2,114 2,704 3,140 3,502 3,901 4,142 Source: International Monetary Fund (IMF). Note: Government growth estimates and projections differ for 2010/11 and beyond and are above 11% per year (e.g.: 2010/11 estimate 11.4%, and 2012/13 projection 11.3%). 17. Fiscal policy needs to play a key role in GoE’s efforts to reduce inflation over the short run as well as mobilize and spend resources efficiently in the medium-term. While the current federal budget stance is tight, supported by significant increases in revenues, quasi-fiscal activities are growing (such as domestically and externally financed investment activities of state-owned enterprises). The overall general government deficit in 2010/11 was 1.6 percent of GDP, financed mostly by external project loans and privatization receipts almost without recourse to net domestic financing. Federal government data for the first half of 2011/12 indicates that the revenue performance was improved, the overall deficit was reduced, and a large repayment to the banking system from GoE was recorded. The latter, however, resulted in a large deposit accumulation at the state-owned Commercial Bank of Ethiopia (CBE) which has been extending credits to state-owned enterprises at a very rapid rate (IMF, 2012). Regarding the revenue side, implementation of the authorities’ tax reform strategy, which was started in 2010, is ongoing and already shows significant improvements in tax collection. On the expenditure side, implementation of public financial management (PFM) reforms, including the move to a program-based budgeting is ongoing and would need to be deepened to prepare for a possible increase of budget support programs of development partners. At the same time, the current tight fiscal policy stance needs to be maintained to support the reduction of inflation. 7 Ministry of Finance and Economic Development (MoFED) and NBE, as part of the Macro Update on the Current Inflation in Ethiopia. Page 6 18. The latest Debt Sustainability Analysis (DSA) carried out for the 2011/12 period indicates that Ethiopia remains at low risk of external debt distress – similar to the findings for 2009/10 and 2010/11.8 However, given the large financing requirements of the GTP, it is expected that debt ratios will rise moderately in the medium-term but stabilize in the long-term. Analysis indicates that borrowing from domestic sources is constrained and public enterprises will continue to rely significantly on external financing to sustain the large infrastructure investments that are expected to drive growth; for the latter a growing share is expected to be on non-concessional terms. Consistent with GoE's intention to keep a low risk of external debt distress, the amount of non-concessional borrowing will be limited. Indeed there may be a trade- off between GoE’s desire to maintain a low risk rating and the implementation pace of the GTP. In other words, GoE may need to increase the implementation period of the GTP in order to smooth the profile of the non-concessional financing requirements for the planned investments. Ethiopia is subject to the IDA Non-Concessional Borrowing Policy (NCBP). In the absence of an IMF program, IDA could establish a non-concessional borrowing limit if it was consistent with the maintenance of low debt vulnerabilities, and if the planned investments are critical and growth-enhancing.9 Recently GoE officially requested a non-concessional borrowing limit of US$ 1 billion and the Board will be informed of IDA management’s decision as specified in the NCBP. Governance and Public Sector Management 19. During the past decade Ethiopia has made impressive progress on the decentralization of authority and service delivery. A phased approach to federal decentralization has been adopted, with a transfer of powers from GoE to Regional States (1991- 95) followed by the decentralization of service delivery first to woredas (districts) and, for some aspects, down to kebeles (villages) (2001- ongoing). Kebele councils have been enlarged, and kebele managers put in place to be focal points for service delivery and to handle complaints. The capacity and institutions built at decentralized levels have resulted in improved access to basic services and to decision-making bodies.10 Serious efforts have been made at reforming the tax system (including policy revision, structural review, adoption of ICT and taxpayer education), resulting in a fivefold tax collection increase from 2005 to 2012. The legal and policy frameworks and operational systems of urban centers have also been reformed, and capacities strengthened. 20. Public Financial Management reforms have made good progress over the last decade, although further reforms are needed. This progress was facilitated through strengthening of the legal framework for PFM; rolling out of simple but easy to use computerized systems such as IBEX (Integrated Budget and Expenditure Management System) across GoE and regional administrations; extensive training for PFM staff; and building of 8 See Appendix 5 for details. 9 The ability to establish a non-zero ceiling for non-concessional lending in IDA's NCBP in the absence of an IMF program was outlined in "IDA's Non-concessional Borrowing Policy: Progress Update", April, 2010. (IDA Sec 54240). 10 According to the 2011 Woreda and City Benchmarking Survey, an independent survey of local governments, during 2005-11 percentage of jurisdictions graded as “high performers� by their constituencies has increased from 25 to 88 percent. Page 7 capacity at institutions including the Offices of the Federal Auditor General (OFAG) and the eleven Regional Auditor Generals. Several important laws have been drafted including: 11 a Financial Reporting Law and the law establishing a regulatory body for the accountancy profession in Ethiopia, which mandates the establishment of the Institute of Certified Accountants and adoption of accounting standards as well as International Standards on Auditing. Currently, a review of the 1960 commercial code is ongoing under the auspices of the Ministry of Justice, and supported by the World Bank. While Public Expenditure and Financial Accountability (PEFA) assessments of 2007 and 2011 have noted improvements, they have also noted the wide variability in capacity, systems and practices that exist across the country. These assessments have highlighted the need to address remaining PFM weaknesses in tax collection, procurement, internal and external audit, structured training, legislative oversight and scrutiny as well as transparency (see discussion in paragraph 89). 21. The implementation of fiscal decentralization is still ongoing. Although resources flowing through the block grant system are increasing, they are flowing to a rapidly increasing number of woredas, many of whom have yet to develop in full the capacity to handle and manage these funds. Furthermore, on average, 80 percent of these resources are used to fund salary costs while resources for capital expenditures are limited. Woredas have limited discretion on the allocation and utilization of these funds. In order to make further progress GoE needs to further explore mandates over revenue and expenditure within its intergovernmental transfers system. The affordability and sustainability of financing the large (and increasing) number of woredas also needs to be carefully analyzed. 22. Public Sector Reform has been high on Government’s agenda, and is rooted in its long term strategy of state transformation articulated in the early 1990s. There have been a series of modernization efforts across the public service including: business process reengineering (BPR) implemented at all levels of government; introduction of a balanced score card fostering greater customer orientation and performance management in service delivery; improvements in transparency and of the budget process; and access to information. Nonetheless, there is a high level of staff turnover and churning in the public service which affects the quality of service delivery. Whilst this phenomenon is not fully understood a strategy for civil service reform, with an overhaul of GoE human resource policies, including pay scales, should be considered as a matter of priority by GoE going forward (see paragraph 86). 23. The legislative and regulatory framework has undergone significant strengthening in recent years, through overhauling of old acts and enactment of improved proclamations in civil service, decentralization, tax (income and turnover tax, Value Added Tax), finance (public finance proclamation, procurement, cash management directives), Information and Communication Technology (ICT), city proclamations and urban policies, asset registration and disclosure, and criminal laws as well as laws that determine the powers and responsibilities of the three branches of government. GoE has also embarked on efforts to increase the transparency and accountability of its mining-derived financial flows, which are being analyzed, discussed, 11 Drafting of these laws was recommended by the Report on Observance and Codes - Accounting and Auditing conducted in 2007. Page 8 and made publicly available under the World Bank-supported Ethiopian Revenue Transparency Initiative. Nonetheless, Ethiopia can still do more to improve its business environment (see paragraph 30 and 62). 24. Regarding anti-corruption measures, the Federal Ethics and Anti-Corruption Commission has overseen the establishment of regional commissions in all regions, with a network of Ethics officers in all regional bureaux. The development of investigative capacitates of staff at the Commissions is still a work in progress, is moving in the right direction. The legislature at federal level has passed a number of laws aimed at enabling an environment for fighting corruption. Initiatives around asset disclosure for political leaders and public officials (defined as “government appointees, elected persons and public officials� in the Disclosure and Registration of Assets Proclamation, 2010) at federal level have resulted in the recording and disclosure of assets in respect of over 40,000 individuals. Agriculture and Rural Development 25. Agriculture remains the cornerstone of the Ethiopian economy and the most important source of growth. It accounts for almost 48 percent of GDP and 85 percent of export earnings. Principal crops include coffee, maize, teff, wheat, sorghum and other cereals, pulses (e.g., beans), oilseeds, potatoes, sugarcane, and vegetables. 12 From 2007/8 to 2010/11 the agriculture sector was reported to have grown by 6.5 percent a year on average. According to official statistics, agricultural productivity of wheat, teff and sorghum increased by an average of 14 percent,13 due to investments in agricultural extension, some increases in inputs (especially fertilizer), improvements in land tenure security and management as well as significant increases in the area farmed (by over 2 percent annually). Ethiopia is also the 10th largest producer of livestock in the world and, with 75 million head of livestock, has the largest concentration of livestock on the African continent. Agriculture remains a major earner of foreign exchange, with coffee, oilseeds, qat, flower, pulses, live animal and hides and skins making up the bulk of Ethiopia’s total exports. 26. Agriculture is the main income earner, livelihood and way-of-living for 85 percent of Ethiopians living in rural areas.14 Ethiopia’s agricultural production is by and large rain-fed and dominated by small-scale farmers and enterprises. While much of Ethiopia’s agriculture remains for subsistence purposes, smallholders also provide a large part of traded commodities, including for exports. Food is also the main consumption item for Ethiopian households, accounting for about 57 percent of the consumption basket (excluding beverages). Given the 12 Ethiopia is Africa’s biggest coffee producer and second biggest maize producer. It is the biggest teff producer in the world. 13 However some independent studies shed some doubts on the reliability of the official statistics. For instance, according to the Food and Agriculture Organization (FAO)/World Food Program (WFP) Crop and Food Security Assessment Mission to Ethiopia (2010) “national cereal and pulse production in 2009/10 is some 4.7 percent below the all time record harvest in 2008/09 but still about 7 percent above the previous five years average. Sorghum and maize crops have been most adversely affected, while production of teff and barley is less affected and production of wheat is expected to increase.� p.4. 14 Rural population is increasing at about 2.4 percent annually (e.g., over 1.5 million people). Currently, migration to urban areas is much smaller than rural population growth rate. Page 9 large rural share of the total population, there is a strong correlation between recent agricultural growth and the significant reduction in rural poverty. In recent years, GoE has been increasingly interested in pursuing large commercial agriculture schemes especially in crops with export potential (e.g., sugar cane) and in collaboration with the private sector, both domestic and foreign, which brings both opportunities and challenges going forward (see paragraph 78). 27. Land remains one of the main structural and regulatory challenges that Ethiopia faces, as a critical input into all economic activities (rural and urban). According to the Ethiopian Constitution, land belongs to “the State and the people of Ethiopia.� Private ownership of land is not allowed. Instead, private users have user rights that are different for rural and urban areas and vary by region; a significant amount of land is informally used. Formal land markets are underdeveloped and do not exist in many areas, and land is generally undervalued. Given the country’s strong economic growth, urban and industrial development, and larger-scale agricultural investments, the challenges and demand for improved land tenure security, access to land, land use planning and land management are further increasing. To address these challenges, Ethiopia can build on strong in-country experience and focus on strengthening: (i) the legal and regulatory framework; (ii) the organization set-up and administrative capacity; and (iii) the provision of effective land administration services.15 Industry and Services 28. For the past five years (2007/08 – 2010/11), industry and the service sector have experienced strong average real growth of 10.2 and 10.8 percent a year respectively. However, while the rate of growth of industry has accelerated, partially due to increased FDI, services registered a recent slowdown to 6.7 percent from 11.7 percent (IMF, 2012).16 The output structure remains reflective of a developing economy in early transition, with agriculture accounting for 48 percent of GDP, industry for 14 percent, and services for 38 percent (2010). The manufacturing sector has been growing in value terms at similar rates as GDP but remains small in terms of its contribution to GDP (5.5 percent in 2011) and employment – only around 13 percent of the employed population in urban areas is engaged in manufacturing, and the corresponding annual growth in employment has been a modest 4 percent during the last three years (CSA 2009, 2010 and 2011). 29. Public investment has in recent years been one of the major drivers of economic growth in Ethiopia. The growth in GoE and the activities of state enterprises have multiplied. Credit to the public sector from the banking system has increased five-fold from 2004/05 to 2010/11 from Birr 8 billion to an estimated 42 billion, accounting for nearly two-thirds of all banking system credit. 17 Despite a robust privatization program (so far more than 115 state- owned enterprises (SOEs) have been privatized) the share of public corporations, which are predominantly large and medium sized SOEs, has been relatively stable (around 8.6 percent of 15 Ethiopia: Options for Strengthening Land Administration, World Bank, 2011. 16 There are some discrepancies between the official Government data and those of IMF. For example, real GDP growth in industry in 2010/11 is registered at 15 percent by GOE as opposed to IMF figure of 12.5 percent. The variance is much higher with regard to the growth rate in services where IMF has shown a decline of 6.7 percent while GOE has registered a slight increase in growth rate to 12.5 percent. 17 Source: Access Capital Page 10 GDP). Further, several large enterprises that the Government considers strategic remain in the public domain resulting in limited scope for private participation and competition.18 30. The domestic private sector is dominated by the Figure 3: Doing Business in Ethiopia (2012) informal sector. In services and manufacturing the informal sector is growing but continues to be characterized by low productivity. The formal private sector represents a small part of the economy – a recent study estimated that private corporations generated only 2.7 percent of GDP and employed just 5.8 percent of the workforce. It is dominated by large and medium sized formal firms and includes mostly endowment companies (i.e., companies controlled by EPRDF) and FDI. One of the contributing factors to the small size of the formal private sector is the fact that, despite some positive developments in industry and service sectors, Ethiopia has been a difficult place to do business. In Doing Business 2012, Ethiopia ranked 111th out of 183 economies and 7th out of the 18 economies that make up the Common Market for Eastern and Southern Africa (COMESA).19 In this regard, Ethiopia’s ranking has not improved significantly over the past few years and the pace of reforms is slowing down (e.g., registration and licensing regulations as shown in Box 1). Ethiopia’s performance is also uneven across the Doing Business indicators (Figure 3), with particularly slow progress in removing barriers to trading across the borders, which in the context of regional collaboration, presents a significant barrier to Ethiopia’s export-driven growth. Financial Sector 31. The Ethiopian banking sector is relatively underdeveloped compared with its regional peers and plays a limited role in the economy. The Banking system comprises one development bank (the Development Bank of Ethiopia – DBE), two state-owned commercial banks (CBE and the Construction and Business Bank) and 14 private banks. There are no foreign-owned banks. In 2010/11 CBE’s assets were about ETB180 billion (up from ETB53 billion in 2004/05), which accounted for about 70 percent of the banking sector’s total assets; its market share in terms of credits is almost 75 percent, and in terms of deposits 65 percent. The remaining 15 banks are mainly private and have combined assets of ETB86 billion. In addition there are 30 Micro-Finance Institutions (MFIs), of which the five largest MFIs (owned by regional Governments) represent 85 percent of 2.5 million clients and 90 percent of overall outstanding loans (as of September 2011). 20 Regarding the overall financial sector depth (measured by private sector credit/GDP) Ethiopia’s standing is comparable with Uganda and 18 Public corporations that the GOE considers strategic include: Ethiopian Air Lines, Ethiopian Shipping Lines, Ethiopian Telecoms, Ethiopian Electric and Power Corporation, Ethiopian Metal Engineering Corporation, Commercial Bank of Ethiopia, Development Bank of Ethiopia, and Construction and Business Bank. 19 These results are also corroborated by the Global Competitiveness Index. Accordingly in 2010-11 Ethiopia was 119th (out of 139) in terms of its overall competitiveness, 127th with regard to macroeconomic environment, 105th in innovation, 129th in higher education and training and 121st in financial market development. 20 According to quarterly data on MFIs collected by the Association of Ethiopian MFIs, in Q3 2011 the total capital of all MFIs reached Birr 2.5bn; the stock of outstanding loans was Birr 6.7bn and savings were Birr 2.1bn. Page 11 Tanzania, especially after accounting for Ethiopia’s lower income per capita. However, while Ethiopia’s regional peers have seen credit to the private sector as a proportion of GDP rise substantially over the last five years (2006-2010)21, in Ethiopia this ratio has fallen from 18 percent to 15 percent (NBE). Table 2: Regional financial sector comparison 32. Ethiopia’s financial Ethiopia Kenya Uganda Tanzania sector penetration and access 2010 2009 2010 2009 to finance is still limited (Table GNI/capita 218 460 371 447 2). According to the IMF Population (mln) 82.9 38.6 34.6 43.2 15.0 19.4 (2010) 13.1 19.3 (2010) Financial Access Survey, during Private sec credit/GDP (%) Deposits/GDP (%) 28.8 46.0 27.9 27.0 2004-10 the number of Bank branches/100K pop 1.8 4.4 2.5 1.8 commercial bank branches per ATMs/100K pop 0.3 7.3 3.6 0.9 100,000 adults has grown from No of loans/1,000 pop 1.9 73.1 18.4 30.0 0.8 to 1.8 as well as the number No of deposits 107 370 192 130 of their depositors per 1,000 adults from 66 to 107. However, the number of outstanding deposits with commercial banks as a percent of GDP has declined from 38 to 28 percent. Similarly, while the number of borrowers from commercial banks per 1,000 adults has increased from 1.2 to 1.9, outstanding loans from commercial banks as a percent of GDP went down from 19 to 14 percent. The ability of the commercial banks to collect deposits and provide loans to the real sector is restricted by negative real interest rates prevailing in the economy and a recent GoE requirement on the commercial banks to allot 27 percent of their loan disbursements to purchase T-bills. While there are some encouraging trends in accessibility and use of financial services, there is substantial scope for the financial sector can play a more active role supporting the Government’s growth and transformation agenda. One of the possible areas worthwile exploring in Ethiopia is mobile banking, which over the past few years has substantially changed the access to banking services in Kenya and Tanzania, especially for the rural poor (see also paragraph 35). Infrastructure 33. Over the past decade, Ethiopia has made significant improvements in access to and quality of its infrastructure. It is estimated that if Ethiopia’s infrastructure platform could be improved to the level of the African leader, Mauritius, annual per capita growth rates could increase by 3.8 percent.22 Further, given Ethiopia is a landlocked country, connectivity with its neighbors and with the rest of the world brings important challenges as well as opportunities. Ethiopian Airlines is now one of the three main sub-Saharan African airlines and Bole Airport serves as a regional air transport hub for passenger and commodity transport (including cash crops such as floriculture). The quality of Ethiopia’s road network has increased: 80 percent of the paved network of over 40,000 kilometers is in good or fair condition (2010).23 Nonetheless, road density is still low: only 10 percent of the rural population lives within two kilometers of an all-weather road, which is only half of the benchmark level for low income countries in sub- 21 For example, private sector credit/GDP between 2006 and 2010 in Kenya went from 26 to 34 percent, in Uganda from 10 to 16 percent and in Tanzania from 13 to 16 percent (World Bank WDI, 2011). 22 Africa Infrastructure Country Diagnostic (AICR) Country Report. Ethiopia’s Infrastructure: A Continental Perspective World Bank, March 2010. 23 ICT, Maintenance Needs Assessment and Updating of Road Financing Study, 2011. Page 12 Saharan Africa. Ethiopia’s primary transport corridor is through Djibouti and GoE has recently initiated construction of a 5,000 kilometer national railway to link Addis Ababa with Djibouti, of which the first 2,000 kilometer phase is anticipated to be developed by 2015. Ethiopia is actively trying to develop a rail industry to serve the broader region including South Sudan, Somalia (Puntland) and northern Kenya. The Government is also exploring alternative routes to market including Berbera and Lamu. 34. Access to improved water and sanitation is rising rapidly, albeit from a very low base. Close to five percent of Ethiopia’s population is gaining access to improved water every year. Though reliance on surface water is in decline and the emphasis has shifted to multiple uses of ground water sources, matching drilling capacity with the demand for source development has been a challenge. Moreover, the assessment of groundwater potential and the management of groundwater resources have not been given sufficient attention. Exceptionally rapid expansion of traditional latrines has benefited 60 percent of Ethiopia’s population (Health and Sanitation Action Plan, 2012). The practice of open defecation, while still widespread, is declining steeply, due mainly to the government’s health extension program and partly the deployment of more than 34,000 health extension workers to implement a comprehensive health and sanitation package. GoE in collaboration with their development partners has made progress towards establishing a harmonized and integrated Water Supply, Sanitation and Hygiene (WASH) program and is putting in place the corresponding institutional arrangement for its universal access plan to provide access to improved water supply for the entire population by 2015. 35. The GTP has a clear vision to “embrace ICT as essential to creating new jobs, new business opportunities, to education and to improving the effectiveness of government administration and service delivery.� To improve the country’s mobile, internet and broadband penetration rates, GoE signed in 2011 a contract with France Telecom to manage the state-owned Ethiopian Telecom Company (ETC). After almost a year ETC now serves over 15 million subscribers and expects its total mobile subscriber base to increase to 50 million at the end of 2015, by extending coverage from 50 to 90 percent. To increase the quality and reliability of service, ETC has completed steps to eliminate faulty power equipment in Addis Ababa, and is assessing equipment needs in regional states. In addition, it has signed an agreement with the Ethiopian Electric Power Corporation (EEPCO) to facilitate the installation of optical fiber between Addis Ababa and Bahir Dar and Addis Ababa and Galafi. Ethiopia's fixed-line and internet penetration rates of 1 and 0.9 percent respectively (2011) rank among the lowest in the region; ETC plans to expand its internet subscriber base from the current 180,000 to five million by 2015. 36. Since 2005 electricity access in Ethiopia has been growing rapidly. 41 percent of rural towns and villages are now connected to the grid and the number of consumers connected grew from 800,000, in 2005, to more than 2 million in 2011 (14 percent coverage). During the same time, off-grid programs, such as: efficient cook stoves and solar lighting, have brought access to modern energy services to over 4 million households. The average rate of growth of demand for electricity was above 15 percent a year during 2005-10,24 and EEPCO implemented demand side management by replacing existing incandescent lamps with CFLs. Ethiopia is endowed with vast 24 About 25 percent in FY10 and 32 percent in FY11. Page 13 hydropower potential and could become one of the largest power exporters in Africa. In 2010, EEPCO commissioned three large hydro power plants 25 that increased its power generation capacity from about 850 MW to above 2,000 MW, providing sufficient capacity to service the current demand26 and allowing high-cost thermal plants to be decommissioned from the grid. New regional interconnectors to facilitate regional power trade are underway with Djibouti (in operation since 2010), Sudan (expected in 2012) and Kenya (expected in 2017). Climate Variability 37. Ethiopia is highly vulnerable to climate change and variability. Ethiopia has become warmer over the past century and rainfall variability is predicted to increase further. Impacts of droughts and floods will be the most acute impacts on agriculture and on average cost the economy about one percentage point of GDP growth per year. 27 However, Ethiopia is also vulnerable in terms of other sectors including water, transport, industry, energy, health, and in terms of its environmental resources. A multifaceted approach is needed to address the challenges posed by climate change, including but not limited to interventions in the agriculture sector; better management of natural resources such as land, forestry, groundwater; and promotion of “green technologies� (see discussion in paragraph 79). Reducing population growth will also be essential in reducing the stress on natural resources and addressing environmental degradation. C. Poverty and Human Development Trends Poverty Trends Table 3: Population below the national poverty line (US$0.6 per day) 38. Poverty has been reduced 1995/96 1999/00 2004/05 2010/11 substantially during the last decade, Urban (%) 33.2 36.9 35.1 25.7 in both urban and rural areas. Rural (%) 47.5 45.4 39.3 30.4 Total (%) 45.5 44.2 38.7 29.6 According to Household Income Number of poor 25.6mln 28.1mln 27.5mln 25mln Consumption and Expenditure Number of food-poor 27.9mln 26.6mln 27.0mln 28.4mln Surveys (HICES), while almost 39 Population 59mln 66mln 74mln 85mln percent of Ethiopians lived in extreme Source: HICES (several issues) poverty in 2004/05 (below the national poverty line of US$0.6 per day), six years later the number was reduced to less than 30 percent (Table 3).28 While both, urban and rural areas experienced reduced poverty rates in this period, inequality declined in urban areas but has worsened in rural areas. Nevertheless, the poverty rate in Ethiopia as measured by international standards remains very high: 39 percent of Ethiopians live below US$1.25 a day; 78 percent of Ethiopians live under US$2 a day ((United Nations Development Program - UNDP); and the Oxford Poverty and Human Development Index calculates the poverty rate in Ethiopia to be 90 percent, the second highest after Niger of the 104 developing countries covered. 25 Tekeze (300 MW), Gibe II (420 MW) and Beles (460 MW). 26 In FY11, EEPCO’s peak demand was around 1,100 MW which was well within its capacity. 27 AICR, 2010. 28 According to the GTP, the target is to reduce this further to 22.2 percent by 2014/15, which would be another decrease of 7.4 percentage points over five years. Page 14 Education 39. There has been encouraging, albeit uneven, progress towards achieving the education Millennium Development Goals (MDGs). Ethiopia continues to give high priority to the education sector by channeling significant public resources to education – in 2010/11 education expenditures were equal to 4.6 percent of GDP or 24.9 percent of public expenditure. While, as a result Ethiopia is on track to achieve gender parity in primary education (MDG Goal 3) it will likely not achieve universal primary education (MDG Goal 2).29 The primary Gender Parity Index (GPI) increased from 0.87 in 2006/07 to 0.94 on 2010/11. In the same time period increase in access to primary education was modest: the net enrollment rate (NER) increased from 79 to 85 percent, an annual growth rate of 1.9 percent, which was less than the population growth rate. Grade 8 completions increased at 2.8 percent a year, but remain low at 49.4 percent. The gross enrollment rate (GER) of early childhood development grew rapidly at 13.8 percent a year during 2006-11 though from a low base of 3.1 percent. Ethiopia has set an ambitious target of achieving universal general secondary education (grades 9-10) by 2025 as part of its strategy to become a middle-income country (MIC) by that year.30 However, progress with the expansion of general secondary education was slow reaching 38.4 percent coverage in 2010/11. There was good progress in the expansion of coverage for grades 11-12 – GER increased from 5.5 to 8.1 percent. Higher education is rapidly expanding – the gross enrollment ratio for which has increased from about 1 percent in 2000 to about 5 percent in 2010, and is expected to reach over 9 percent by 2015.31 Moving forward, more emphasis needs to be placed on addressing the quality of education, which is lagging behind (see paragraphs 65 and 81). Health and Nutrition 40. Ethiopia is on track to reach the child mortality, HIV/AIDS, and malaria MDGs (United Nations MDG Progress Assessment). The latest data report that between 1997/01 and 2007/11 Ethiopia experienced a rapid decrease in child mortality rates: neonatal mortality declined more than 30 percent (to 37 deaths per 1,000); infant mortality declined by 42 percent (to 59 deaths per 1,000); and under-5 mortality has been almost halved (to 88 deaths per 1,000). 32 The latest Demographic and Health Survey (DHS) data finds that during 2005-11 maternal mortality changed only insignificantly (decline from 676 to 673 deaths per 100,000 live births) as well as proportion of births attended by a skilled person (increase from 6 to 10 percent). While these MDG targets are still achievable, they will require intensified efforts (see paragraph 82). 41. The driving force behind Ethiopia’s success in the health sector has been a sound sector strategy – the Health Sector Development Program (HSDP) – which over the past 15 years has governed investments of the Government and its development partners to expand health infrastructure and strengthen health service delivery systems. Ethiopia is also at the forefront of international health initiatives and partnerships: it was the first country to sign the International 29 Improving the Odds of Achieving the MDGs. Global Monitoring Report 2011. World Bank. 30 Education Sector Development Plan IV 2010-2015, Addis Ababa, Ministry of Education, 2010. 31 International Standard Classification of Education, 2011. 32 Source: http://www.ophi.org.uk/policy/multidimensional-poverty-index/mpi-country-briefings/ Page 15 Health Partnership (IHP+) Compact in 2007 that allowed Ethiopia to establish an “MDG Fund�, which now serves as the preferred channel for most of the internal and external resources related to reaching health MDGs in Ethiopia.33 42. Ethiopia has one of the highest burdens of chronic under-nutrition in the world, despite some decreases of anemia in children and women. During 2005-11, prevalence of anemia among preschool aged children and women age 15-49 years was reduced by 10 percentage points each.34 Reductions have been larger in urban areas, and larger reductions have been recorded for the worse classifications (e.g., moderate and severe anemia). Nonetheless, anemia prevalence rates remain high at 44 and 17 percent (2011) in preschool aged children and women aged 15-49 years, respectively. According to the recent analysis by CSA (2011), less than one-fifth of households consume iodized salt. Vitamin and mineral deficiencies affect millions of women and children across the country. Among under-five children, 29 percent are underweight and 44 percent are stunted (chronic under-nutrition - short for their age).35 Stunting rates are similar in both food secure and food insecure woredas and children are undernourished in one-quarter of even the richest households. It is estimated that Ethiopia will lose more than US$13 billion from 2006-15 due to iron deficiency anemia and stunting. 36 This evidence suggests chronic under-nutrition is not only an issue of access to food, but also about provision of the right combination of food as well as of caring practices and disease. Social Protection 43. Despite substantial decreases in poverty rates, vulnerability exists in Ethiopia at individual and community levels. Sources of vulnerability are manifold including natural disasters (e.g., droughts and floods); food shortages; macroeconomic shocks (e.g., high levels of inflation); health and nutrition risks (e.g., HIV/AIDS, malaria and other diseases); conflict and environmental degradation coupled with climate change. These shocks by themselves have an immediate effect of lowering living standards and perpetuating the poverty trap among the poor and the vulnerable. Because there are currently few possibilities to insure against these shocks, poor Ethiopians adopt negative coping mechanisms, such as accumulating livestock, even if the returns are low, or taking their children out of school to work on the farm, which are likely to keep them in poverty now and for future generations. Although Ethiopia is a young country (70 percent of Ethiopians are below 30 years old), 3.6 million people are over the age of sixty and most them have no reliable income sources. Finally, limited opportunities for income-earning 33 The MDG Fund is managed by the Ministry of Health and follows government procedures. Several health partners (e.g., Department for International Development DFID, Global Alliance for Vaccines and Immunization GAVI, Italian Cooperation, the Spanish Government, United Nations Population Fund UNFPA) have so far pledged over US$200 million into the MDG Fund. 34 Anemia is of particular concern for children as it can increase morbidity from infectious diseases and it is found to lower educational outcomes by impairing abilities to learn. Anemia in women signals poor nutritional status and increases risk of adverse pregnancy outcomes. 35 Benson T. 2006. An assessment of the causes of malnutrition in Ethiopia. Washington, DC, International Food Policy Research Institute IFPRI. 36 Ethiopia PROFILES. There is substantial evidence on the links between improved nutrition status and improved human capital, health, and education outcomes. See: Victora CG, et al. 2008. Maternal and child undernutrition: consequences for adult health and human capital. Lancet. 371:340-57. Page 16 employment in rural and urban areas results in significant un- and underemployment especially among young Ethiopians. 44. Despite a wide range of social protection actions implemented across the country, prevalence of vulnerabilities is on the rise and food insecurity is a significant developmental challenge. The Productive Safety Net Program (PSNP), Ethiopia’s largest social protection program and one component of the Food Security Program, 37 has had a positive impact on livelihoods, especially during times of crisis.38 However, while the food security situation of program beneficiaries has improved and productive assets and livestock holdings have increased, graduation levels from the program (1.4 million thus far) have been lower than anticipated in the GTP. Addressing the issue of vulnerabilities and food insecurity exclusively by means of social protection is not going to yield the expected results nor reduce the number of households participating in the program in a sustainable way. Broad-based economic growth with agriculture and industry as the main drivers is clearly seen as key in reducing poverty, vulnerabilities and increasing resilience in the medium- to long-term. Simultaneously, strengthening national systems is needed to improve delivery of social services (e.g., health and education) and to better prepare and respond to shocks (discussed in Chapter II, section C). D. Gender 45. GoE has a strong commitment to gender equality, which is firmly rooted in national policies as well as in the signing of international and regional treaties and protocols on women’s rights. The GTP highlights gender as a cross cutting theme (p.110). The Ministry of Women, Youth and Children’s Affairs contributes to policy development and supports gender mainstreaming in all government ministries and bureaus and spearheads responses to address gender inequalities.39 To date gender units have been established in all line ministries and in the regions. However, implementation capacity remains a serious challenge. 46. Over the past decade, Ethiopia recorded good progress towards gender equality in education and health.40 During 2006-11 the female GER for primary and secondary education increased from 84 to 93 percent and from 25 to 35 percent respectively. Due to extensive campaigns and increased availability, use of contraceptives doubled from 2005 to 2011 (from 15 to 29 percent) and family planning increased from 25 to 60 percent of households (Ethiopia Population and Housing Census 2007). Fertility declined by 10 percent, while adolescent fertility was reduced by 35 percent in the same period. Despite these efforts, the share of women without education is almost double that of men (51 versus 29 percent in 2011), and literacy levels of women are markedly lower than those of men especially in rural areas and among urban poor. The retention level of girls in secondary education is lower than that of boys, and the gender gap is steep in tertiary education. Finally, harmful cultural practices such as female genital mutilation and early marriages are widely practiced and gender based violence are widespread. 37 National Food Security Program includes the Productive Safety Net Program, the Household Asset Building Program and the Complementary Capital Investments Program. 38 2010 PSNP Impact Evaluation report, IFPRI 39 The National Action Plan for Gender (NAP) and the Development and Change Package of Ethiopian Women aim at eliminating gender and cultural biases that hinder women from participating equally in economic engagements. 40 Appendix 6 provides gender analysis for Ethiopia and recommendations to streamline gender in Bank operations. Page 17 47. Significant progress has been made in providing joint land certification for wives and husbands in rural areas of the four main regions of the country. More than 20 million land- use certificates have been issued with both spouses’ names and photos on the certificates, and women’s registration for land increased significantly. Some of the benefits of those programs are already becoming apparent as women are showing a strong sense of ownership and security that their rights will be upheld in case of divorce. More intensified efforts are needed to improve women’s access to farm inputs, extension advice and credit, which will contribute to increased land productivity and the country’s economic growth. II. Development Challenges and the Government Agenda 48. The development agenda of Ethiopia for the next 3 years (until 2014/15) is governed by the Growth and Transformation Plan, GoE’s strategy that has been under implementation since 2010/11.41 The main goals of the GTP are for Ethiopia to “extricate itself from poverty to reach the level of a middle-income economy as of 2020-23.� Drawing from lessons learned from the prior poverty reduction strategy (PASDEP, 2005-10), the GTP has the following objectives (Appendix 1): (a) to attain a high average real GDP growth rate of 11 percent per annum within a stable macroeconomic framework; (b) to achieve MDG goals in the social sectors, especially the quality of education and health services; and (c) to establish a stable and democratic, developmental state. In order to attain these goals, GTP places strong emphasis on economic growth and job creation with industry and modern agriculture as key drivers. During the transition period social protection will play an important role, especially in providing safety nets to the large food-insecure population. 49. The “developmental state� model adopted by GoE has shown significant results over the past decade, nevertheless attaining the GTP goals will most likely become more difficult in coming years as the easier gains have already been made, and the global environment is not as conducive as before. Enabling the country to move to the higher growth trajectory needed to achieve these goals may require attention to several challenges, including: ensuring macroeconomic stability; addressing the persistently high numbers of poor and food- insecure people despite double-digit economic growth and gains in poverty reduction; lagging quality of social services; and the weak capacity of the public sector. 50. The development model adopted by GoE relies heavily on high levels of largely government-led investments (like the Asian model of development), but faces low saving rates and limited availability of domestic resources (unlike the Asian model). Given the high investment requirements of the GTP, public investments which in the past years have been one of the major drivers of economic growth in Ethiopia, may not be sufficient on their own to maintain Ethiopia’s high growth performance going forward. GoE needs to continue its efforts to complement its own financing with additional domestic and foreign investments and to increase the share of the formal private sector. Over-reliance on public sector investments could result in 41 See IDA/SecM2011-0581, Report No. 63592-ET, for the Joint IDA-IMF Staff Advisory Note on the GTP. Appendix 1 provides GTP vision, pillars and selected targets. Page 18 an increasing deficit on the External Current Account over the medium to long-term with the possibility of increased external vulnerability. Since opportunities for external borrowing will be limited, high fiscal deficits may occur, which in turn may further crowd out private investment or contribute to increasing inflation rates, if the deficits are monetized. 51. A major challenge for monetary policy will be to keep inflation subdued, despite recent bouts of high inflation which could have reversed some of the positive poverty trends. The efficiency of current monetary policy is hampered by two main barriers: negative real interest rates, which limit demand for government bonds and Treasury Bills (T-bills) and thus the ability of GoE to finance its ambitious development plans; and direct central bank financing of the government deficit. At the same time, monetary policy instruments are very limited in Ethiopia relying mainly on interventions in the foreign exchange market (e.g., selling foreign currency to absorb domestic liquidity). High and persistent inflation also negatively impacts savings, which at current levels of 6-7 percent of GDP are insufficient to support GTP’s growth targets. 52. Another challenge facing Ethiopia is to ensure that poverty gains are sustainable and that high economic growth benefits the poor. As discussed in paragraph 38, based on the 2010/11 HICE and Welfare Monitoring Surveys, the proportion of poor people in the country declined to 29.6 percent and food poverty to 33.6 percent. However, the number of poor in 2010/11 estimated at 25 million is still at the same absolute level as 15 years ago (25.6 million in 1995/96) and food poverty has increased in absolute terms from 27 million people in to 28.4 million, partially due to population growth. Despite strong real GDP and GDP per capita growth, the number of chronic and transitory food-insecure people remains persistently high, reaching the same absolute number of people in need as during the 2003 crisis (Figure 4). If the current high level of livelihood dependency on subsistence agriculture remains, food insecurity and vulnerability will likely increase because of the impact from climate change. Figure 4: Food-insecure people assisted by PSNP or relief 14 Number of people (in mln) 12 10 8 6 4 2 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 PSNP 0 0 0 5 7.2 7.2 7.2 7.3 7.5 7.5 Relief 6.5 13.2 7.15 2.2 2.6 1.36 4.6 4.9 5.2 4.6 Source: PSNP data 53. While access to basic social services (especially health and education) and infrastructure has considerably improved, the quality of those services and public sector capacity has not kept pace. This is partly due to the focus on increased access in order to achieve the MDGs, which has placed a strain on existing facilities. However, accelerated economic growth will increasingly require skilled labor that can respond to the changing demands of the real sector. In this context quality primary, secondary and tertiary education will Page 19 become progressively more important. Achievements of some of the MDGs (such as maternal mortality rate and the proportion of births attended by a skilled person) will also require a renewed focus on health care quality. Delivering quality services will in turn require continued efforts to build the capacity of the public service, both its institutions and its human resources. Decentralization will need to be deepened including by providing adequate resources especially for capital investments, and by allowing regions and woredas to exercise discretion in their utilization. 54. To address these key challenges and succeed in meeting the GTP goals of reducing poverty and becoming a middle income country within a decade Ethiopia will need to succeed in transforming its economy in at least the following four dimensions:  Increased productivity and competitiveness of the industrial and services sectors for rapid and sustained job creation (GTP pillars 3 and 4);  Transformation to modern and productive agriculture (GTP pillar 2);  Strengthened systems to better respond to shocks and increase resilience (GTP pillar 5); and,  Improved government effectiveness (GTP pillar 6). The Government needs to pursue these objectives concurrently, as strong synergies exist between them. 55. Experiences from a range of countries indicate that economic growth cannot be sustained unless there is also a structural transformation where people move from subsistence agriculture to higher productivity activities.42 New and diverse job opportunities in urban, peri-urban and rural areas will draw the excess of unemployed and underemployed population (mostly youth) from overpopulated rural settings to where their skills can be utilized more productively. However, lowering population pressure on land will not on its own be sufficient to transform subsistence agriculture into modern and more productive agriculture. Complementary efforts are needed to diversify livelihoods, as well as to enhance agricultural growth (e.g., provision of key public infrastructure, stable regulatory framework, private sector engagement, leveraging mobile technologies to enhance productivity of farmers and businesses). Improving the effectiveness of GoE support will also be critical so that it can effectively and efficiently promote the transformation process through direct and indirect interventions. GoE also has a key role to play in providing basic social services (e.g., health and education), which will underpin people’s ability to respond positively to new opportunities. In time, this virtuous circle will enhance social cohesion by creating positive economic and social spillovers for individuals as well as the country. Finally, as the urbanization process accelerates, important challenges will need to be addressed, such as adequate planning at the municipal level, and the provision of adequate infrastructure (especially transport and energy), housing and other services. In the absence of such provision, rising urbanization will lead to poverty, the creation of slums, and deteriorating environmental quality. 42 Light Manufacturing in Africa (LMS), Volume I, World Bank, 2012. The book was released in Addis Ababa in March 2012. Page 20 56. Broad-based economic growth in all sectors of the economy will, in the long term, lead to a sustainable enhancement of resilience and reduction of vulnerabilities of the Ethiopian people. Since the 1990s GoE and its development partners have sought to meet the challenge of food insecurity primarily through investments that directly targeted a large, chronically food insecure population. These programs have demonstrated benefits to bridge food gaps, reduce asset depletion, increase resilience to shocks, and modestly diversify and increase income. However experience to date suggests that sustainable graduation from food insecurity cannot be expected to be achieved with only safety net participation and limited assistance from food security focused interventions; it will require a more comprehensive support including programs that focus on increasing agricultural productivity, access to microcredit as well as improved delivery and quality of social services (especially health and education). While there is a need for a comprehensive social protection system that allows GoE to manage risks and respond to disasters (and indeed social transfers may be necessary for the chronic poor), for the majority of the population diversification of livelihoods and employment opportunities, in both rural and urban areas, and a comprehensive approach to agricultural growth, in both low potential and high potential areas, offers the only viable and sustainable solution to food- insecurity in the medium- to long-term. A. Job Creation through Increased Productivity and Competitiveness 57. Ethiopia needs to urgently address the needs of a rapidly increasing job-seeking population through accelerated growth of off-farm employment and labor intensive industries. Around 85 percent of Ethiopia's population depends on small-holder agriculture, mostly in subsistence farming. Rural population growth is leading to a decreasing average size of holdings resulting in an increasing number of households for which subsistence farming is no longer a viable way of life. However, many young men and women in rural communities have limited or no formal employment prospects. This challenge will persist in the context of a high population growth rate. In addition, thousands of students graduating from universities and colleges have aspirations of not returning to their parents’ farms, but instead moving into urban and peri-urban areas, to look for jobs. Between 2 and 2.5 million young people are entering the labor market every year. This contrasts with a total of 2.5 million people in paid employment in 2011, of which only 1.5 million were employed in the formal private sector. During the GTP period, the number of young people entering the urban labor market will be almost ten times the number of people retiring (CSA, 2011). As Ethiopia aspires to become a middle income country, urbanization is therefore not just inevitable, but it is also a key factor in delivering economic growth.43 58. To maintain GDP growth at double digits and create new jobs, industrial and export-led growth is critical, as appropriately acknowledged by the GTP (p.22).44 Accordingly during 2010-15 industrial growth is expected to double (from 10 to 20 percent) and export growth to accelerate from 12.5 to 19.4 percent. This will lead to a higher contribution of manufacturing to GDP and a larger share of light manufacturing in exports (currently 5.5 and 9 43 As the 2009 World Development Report shows, no developed country has reached its current per capita income without the advantages of urbanization and vibrant cities. 44 Agriculture sector is also singled out as a major source of growth, which is the focus of section B below. Page 21 percent respectively). The GTP (p.56-60) defines a two-pronged approach to ensuring faster and sustained development of the industrial sector. The main strategic direction is to support expansion and development of micro and small enterprises (MSEs), as well as to promote the establishment of medium and large scale firms.45 Secondly, a special focus will be given to five sectors which, based on recent analysis, capitalize on the country’s endowment and comparative advantage: textiles and garments; leather and leather products; sugar and related products; cement; and the metal and engineering industry.46 In addition, GTP identifies tourism sector as a source of job creation particularly for MSEs and women (Box 2). 59. GoE’s focus on job creation is well-placed reflecting a challenge faced by Governments across the globe. In this context the 2013 World Development Report (WDR) highlights that jobs are at the center of three transformations: living standards, productivity and social cohesion. Across the world jobs are a key source of household income and a prerequisite for poverty reduction. Employment growth is compatible with productivity growth as more productive jobs are created at the expense of less productive ones. Clustering of firms, participation in international and regional trade, and foreign investment all bring new ideas and support knowledge spillovers and specialization. However, while micro- and small enterprises account for the bulk of job creation in developing countries, they also account for the bulk of job destruction, resulting in job “churn� but not growth. Finally, jobs are more than just earnings and benefits as they are the main source of satisfaction with life and employment status across regions. In conclusion, jobs have important spillover effects – both economic and social for individuals as well as a broadly defined community.47 Figure 5: Contribution to job creation and employment by firm size in Ethiopia 100% 78% 80% Contribution share 60% 45% 40% 26% 29% 15% 20% 6% 0% Contribution to job creation Contribution to employment Small (5-19 empl.) Medium (20-99 empl.) Large (100+ empl.) 60. Supporting enterprises across all sizes and sectors will be critical in creating new jobs in Ethiopia. According to the preliminary results of the 2012 World Bank Enterprise Survey for Ethiopia,48 during FY2008-10 Ethiopia experienced an overall employment growth 45 Small enterprises employ 5-19 people; medium 20-99 people; large employ more than 100 people. 46 In addition the GTP also singles out the chemical and pharmaceutical industry. 47 Regarding social cohesion, jobs have an important role to play in terms of improving the well-being of individuals, influencing values and behaviors, and connecting people of different social and ethnic backgrounds thus increasing tolerance. 48 This analysis is based on 2011-12 WB Enterprise Survey. Data collected thus far covered 301 firms located in Addis Ababa: 149 manufacturing and 152 services firms. Since the survey was still ongoing at the time of writing, weights, which are indispensable in making assertions about the whole economy, have not yet been computed. Page 22 rate of 11.1 percent.49 Among enterprises, small firms had the highest employment growth rate of 14.4 percent, while medium and large firms experienced growth rate of 9.5 and 2 percent respectively. Firms in services had slightly higher employment growth (12 percent) compared to firms in manufacturing (10 percent). In terms of job creation, medium-sized firms generated 45 percent of the total of new jobs, while small firms generated almost as many new jobs as large firms (Figure 5). 50 However large firms remain the main contributor to total employment (78 percent of total jobs in 2010) compared to medium firms which contributed 15 percent of total employment in the same period. Table 4: Structural constraints to light-manufacturing sectors in Ethiopia to grow and create jobs Apparel Leather products Wood products Metal products Agribusiness Smaller Large Smaller Large Smaller Large Smaller Large Smaller Large Input industries Important Important Critical Critical Critical Critical Critical Critical Critical Critical Land Critical Critical Important Important Important Important Critical Critical Finance Critical Critical Important Important Important Important Critical Important Entrepreneurship Important Important Important Important Important Important Important Important Important skills Worker skills Important Important Important Important Important Trade logistics Critical Important Source: World Bank, 2012, Light Manufacturing in Africa, Volume I. 61. While there are many ongoing initiatives in Ethiopia to promote labor intensive industries (e.g., recent success stories in the footwear and garment industries), in order for Ethiopia to rapidly create jobs in the manufacturing sector a more systematic approach to investments is needed. This would require GoE to tackle several structural and regulatory challenges. Recent analytical work on Africa’s manufacturing experience, in comparison to China and Vietnam, provides insights and recommendations for developing Ethiopia’s light manufacturing and labor- intensive industries. Accordingly, the availability and quality of inputs, access to finance and land seem the most critical constraints to improving competitiveness and accelerating growth in selected light manufacturing sectors in Ethiopia (Table 4). These results are also corroborated by the 2012 WB Enterprise Survey, which highlighted access to finance and land as two critical constraints across sectors in Ethiopia. Both constraints seem to be more acute for small and medium size firms. Finally it is important to recognize that frequent and abrupt changes to the Caution is needed in interpreting the results for the global comparison as results for SSA and global averages are representative at the country level (i.e. survey weights are used to make inferences). 49 Employment growth is measured as the ratio of the annualized change in employment over the average employment of the initial and final year (Haltiwanger index). This measure reduces the impact of a very low initial level of employment, which can produce very high rates of growth (i.e., a firm that grows employment from 1 to 10, would render a 900 percent growth rate). Employment growth rate is measured over FY 2008-10. 50 Contribution to job creation is computed as the share of different sub-population groups (e.g. small, medium and large firms or manufacturing and services firms) to net job creation, where job creation is the change in the number of permanent, full-time employees between FY08-10. Changes in employment are derived by aggregating the changes reported by each firm in the sample. Size is defined using 2008 as the baseline year. Contribution to employment is computed as the share of different sub-population groups to total employment, where total employment is the number of permanent, full-time employees in 2010 and derived by aggregating the employment reported by each firm in the sample. Size is defined using 2010 as the base year. Page 23 regulatory framework heighten the perception of risk in the country and may negatively affect decisions by domestic as well as foreign investors. 62. GoE has shown strong interest in addressing these key obstacles by implementing a range of financial and non-financial instruments. As part of a broader industrial and trade development strategy, the GTP (p.61) plans to establish Special Economic Zones (SEZs) as a platform for catalyzing diversification, upgrading and growth. Similarly, to promote the Micro, Small and Medium Enterprise (MSME) sector, GoE intends to facilitate development of industrial clusters, which would connect firms in a particular field with links to related institutions such as financial providers, educational institutions, and various levels of government. 51 These initiatives aim to enable firms to overcome constraints in the areas of capital, skills, technology, and logistics as well as to grow and compete by fostering production value chains and achieving efficiency gains. 52 To ensure that the SEZ platform energizes MSMEs along with FDI and larger domestic investors, the Government recognizes that policies to support effective links between local SMEs and the globally-competitive firms anchored in the zones will be critical. Since specialized lending to MSMEs typically comes at a relatively later stage of banking sector development, GoE is considering using lines of credit as effective tools to build capacity in the banking sector and to improve access to finance by MSMEs. Simultaneously, there is a need for capacity building,53 financial infrastructure development54 and a proper corporate governance framework, so that commercial banks (state and private) can play their intermediation function in financing MSMEs (GTP, p.62). 63. While Government’s efforts to alleviate some of the key constraints facing light manufacturing through the establishment of SEZs and clustering of firms are commendable, the importance of strengthening the regulatory environment that will encourage entrepreneurship and innovation, and enhance earning opportunities for the vast majority working in the formal and informal sectors cannot be overstated. Successful implementation of the GTP is predicated on finding a path to sustain its very high financing requirements. 55 Attracting more private inflows (domestic and FDI) into the targeted sectors will play an important role in leveraging public resources. However, as most jobs in Ethiopia are created by new and usually small enterprises, creating a positive overall business environment for the MSMEs operating in “other� sectors is critical to unleashing their potential, improving their productivity and facilitating their transition from informal-to-formal status (Box 1). Failure to do so would constitute a missed opportunity. In this context, improving registration, licensing, taxation and trade logistics seems to be of particular importance.56 Strengthening public-private 51 In this context MSE development also contributes to the GoE’s efforts to increase the economic empowerment of women, and the development of small scale income generating activities for women is a specific aim of the GTP. 52 Zeng, Douglas Zhihua, Knowledge, Technology and Cluster-Based Growth in Africa, World Bank, 2008 53 Such as tailoring information requirements and monitoring practices to MSME clients; using credit scoring techniques in lieu of collateral; developing innovative ways of lending, including using stock as collateral, order financing and invoice discounting. 54 Such as a national payment system at the wholesale and retail level, and credit information centre. Some of these initiatives were supported by the World Bank as part of the first phase of the Financial Sector Capacity Project. 55 GTP financing requirements amount to US$57.4 billion over 2010/11 based on an exchange rate of 17 Birr/USD. 56 See Chapter III, section D on IFC ongoing and proposed program to improve investment climate in Ethiopia. Page 24 partnership and dialogue can also greatly contribute to GoE’s job creation agenda (Box 5 in Chapter III). Box 1: Entry and operation constraints to MSMEs Registration: currently businesses need to renew their license every year as a commercial registration for the whole life span of a business does not exist. Moreover, there is a requirement to inform the register every time a registered business starts carrying out commercial activities in a new location as well as for permit for expansion and upgrading. Initial capital requirements for limited liability companies also represent a barrier to entry. Integration of commercial and tax registrations, introduction of the principle of the validity of commercial registration for the whole life span of a business, substituting annual renewal with annual information update would address some of these constraints. Licensing: the lack of a unique “license to sell� for all registered business implies that businesses are required to comply with different licensing requirements (including the requirement for obtaining an export/import license) leading to an excessive and costly administrative burden. Taxation: uncertainty related to the basis of criteria and turnover proxies used for the presumptive taxation for “small� taxpayers (Category C) below the 100,000 ETB/year (about US$5,860/year) represent another significant barrier to MSME development. Appeals system is perceived to be costly and have limited independence. Trade logistics: currently a large number of declarations and supporting documents are required for border clearance (import/export) leading to costly trade logistics (higher inland transport cost, higher port and terminal handling fees, letters of credit). Recognizing the poor performance in this regard, Ethiopian Revenue and Customs Authority is currently taking encouraging reform initiatives including the enactment of a new Customs Proclamation that is expected to improve the import/export environment in Ethiopia and streamline the documentation process. 64. Regional integration and the boosting of intra-regional trade can play a critical role in driving productivity and growth over a sustained period as happened in East Asia in the 1980s and 1990s and recently in China. As correctly noted by the GTP (p.63-64), implementing a less restrictive and more efficient trading regime would help Ethiopia deepen regional trade integration in goods and services within the African continent and beyond. There is substantial potential for Ethiopia to increase its share in regional trade, especially with the East African Community (EAC), the fastest growing regional group in the World after ASEAN. In 2010 only 0.3 percent of Ethiopia’s export went to the EAC, compared to Uganda’s 20 percent. GoE’s plans to implement measures that would help Ethiopia’s light-manufacturing industry become more competitive internationally would also improve its regional competitiveness. In addition, it may be worthwhile exploring the possibility of Ethiopia participating in regional supply chains and how this might encourage inward FDI. Ethiopia can also play an important role in cross- border trade in agricultural products (paragraph 77). Regarding services, a recent World Bank study found that Ethiopia had the most restrictive trade policy in the services sector of 78 developing and transition countries sampled (financial services, telecommunications, professional and retail distributions).57 Exports of services appear to be of particular importance for land-locked countries, such as Ethiopia, for whom opportunities to diversify into the export of manufactures are more limited by the high costs of transporting goods. 65. Entrepreneurship and technical skills development and technology upgrading are critical for rapid expansion of all firms, regardless of their size and sector. In order to improve firms’ productivity and competitiveness, it is important to adopt new and more efficient technologies and ensure the quality of products. To do so, a skilled and semi-skilled labor force is necessary. Unfortunately, currently the availability of training is limited and its quality is often low. 58 Institutions mandated with provision of training (e.g., Regional State Micro & Small 57 De-Fragmenting Africa. Deepening Regional Trade Integration in Goods and Services. World Bank , 2012. 58 Only 7 percent of all MSEs have access to training (Ethiopia Development and Research Institute EDRI, 2004) and training is not tailored well to the needs of managers (Triodos Facet 2011, Grunder 2010). Page 25 Enterprises Development Agency (REMSEDA), Technical and Vocational Education and Training (TVET) institutions and One Stop Shops) lack understanding and appreciation of demand driven approaches. While it is important to build their capacity, as planned under the GTP (p.86-91), it is equally important to shift towards market based approaches and partnership with industry so that firms’ demands for aptly skilled labor are met. Support is also necessary to strengthen three government technical institutes mandated to provide technical support and technology transfer to selected manufacturing industries with high potential for export, income and employment growth (e.g., the Textile Industry Development Institute, the Leather Development Institute and the Metal Industry Development Institute). Upgrading of the institutes can benefit MSEs through transfer of technology and technical assistance especially to strengthen the clusters in the cities. In addition to specialized training, GTP (p.86-91) recognizes the importance of improving quality of education, especially secondary and tertiary discussed in paragraph 81 below. Box 2: Tourism sector – an untapped source of jobs Tourism sector in Ethiopia can become an important source of jobs benefitting many poor, particularly SMEs, women, and youth. Currently, the hotels and restaurants subsector alone employs over 408,000 people in urban areas compared to 22,000 people employed in leather industry and 35,000 in floriculture (CSA, 2011). Close to 88 percent of the people employed in restaurants and hotels are women, about 60 percent are self-employed, and more than 50 percent are less than 30 years old. Ethiopia’s craft sector has the highest impact potential in terms of poverty reduction, with 55 percent of tourist expenditure benefiting poor households (ODI 2009). Ethiopia has clear advantages as the “All-of-Africa� in one country destination with a good mix of unspoiled culture and nature resources; it has a reputation as a safe and secure destination; and it has good opportunities to build on complementarities with well marketed neighboring countries such as Kenya, Tanzania, and Djibouti. Ethiopian Airlines offers good accessibility and competitive air fares. Addis Ababa is quickly becoming a diplomatic capital and a major regional hub for air transport. The GTP recognizes this potential and establishes ambitious targets for the tourism sector including doubling of tourism arrivals (to 1 million) and a twelve-fold increase of tourists´ expenditures (to Birr 3bn) during 2010-15. In order to achieve these goals, Ethiopia needs to address challenges related to the tourism-related regulatory framework and business environment; institutional management capacity; and cross-sectoral linkages. The WBG, in collaboration with the Ministry of Culture and Tourism, is actively supporting the implementation of the 2009 National Tourism Development Policy. Through the Ethiopia Sustainable Tourism Development Program and policy dialogue supported by the recently published analysis “Ethiopia’s Tourism Sector: Strategic Paths to Competitiveness and Job Creation� (June 2012). IFC is currently organizing a Tourism Public-Private Dialogue Forum and is also planning to increase its investment activity in the sector. Sources: CSA (2011) Statistical Report on Urban Employment Unemployment Survey; ODI (2009) Value chain analysis and poverty reduction at scale: Evidence from tourism is shifting mindsets; WB (2011) Towards a Globally Competitive Ethiopian Economy: The Role of Services and Urbanization. Case Studies-Rose and Polo Shirt Value Chains, prepared by Global Development Solutions for The World Bank. 66. Addressing gender inequality and gaps in women’s and men’s development opportunities will help advance the Government’s job creation agenda. Global experience indicates that including women in economic activities brings substantial benefits to growth.59 According to recent analysis, reducing gender inequalities in education and the labor market could increase the annual GDP growth in Ethiopia by 1.9 percentage points (World Bank, 2008). However, currently women in Ethiopia are mainly responsible for household duties; they lack economic opportunities, they have limited involvement in cash crop production, non-farm enterprises, and wage employment; and they face much larger barriers to doing business than men do. The unemployment rate among females is more than twice as large as that of males in 59 See Appendix 6 for detailed analysis. Page 26 urban areas, so they are less experienced and the wage gap between men and women with a similar background, doing the same job, is around 50 percent. Tourism sector, which offers significant employment opportunities for women, is still relatively underdeveloped although GoE is taking important steps in promoting the sector (Box 2). There is also a pronounced gender gap in access to and control of productive resources. Although women contribute much of the agricultural labor, their access to land continues to be limited despite joint land certification efforts. 67. Government’s focus on the job creation agenda through industrialization will inevitably lead to acceleration of urbanization. According to the most recent data, about 14 million Ethiopians lived in urban areas in 2011 (up from 9.8 million in 2000), of which about 3 million live in Addis Ababa.60 The annual growth rate of the urban population is 4.3 percent and by 2020 cities are projected to be home to 20 percent of Ethiopia’s population. 61 The urban economy is emerging as a major driver of growth: urban areas are estimated to now account for close to 50 percent of GDP and about 60 percent of growth in GDP.62 However, for Ethiopia to realize the benefits of urbanization important challenges need to be addressed including, inter alia, limited capacity of urban local governments in the area of planning and budgeting; expansion and maintenance of good quality of infrastructure; and delivery of basic social services (GTP, p.24). 68. Despite good progress in improving access to infrastructure (as discussed in Chapter I) power disruptions and shortages, and high transport costs were identified among the top ten obstacles to firms’ growth and job expansion.63 To address problems related to electricity (Table 5) and to keep up with the expected 25 percent per year growth of domestic demand for electricity, GoE’s Energy Sector Strategy envisages ambitious expansion of grid and off-grid connectivity 64 to 75 percent of towns and villages and to double the number of consumers connected to the grid to 4 million by 2015. The high cost of the planned energy sector investment program under the GTP (estimated at US$11bn, of which US$3.5bn has already been raised mostly through short term bonds) has created financial viability challenges for EEPCO, and will create an additional burden of about US$2bn on GoE’s budget in FY2012-20 (cumulatively) which is equivalent to 3-4 percent of GoE’s annual budget expenditure. GoE, therefore, needs to develop and implement a medium term program of revenue enhancement and/or debt restructuring for EEPCO. Efficiency improvements (by reducing system losses) also may contribute, but only modestly, since operational efficiency gains would improve the financial performance by only about 1-2%. In addition, EEPCO needs to modernize its operations and build its capacity by investing in human resources and training in order to be capable of handling 60 Population Size of Towns by Sex, Region, Zone and Wereda, Central Statistical Agency, July 2011 61 World Urbanization Prospects, the 2011 Revision. Department of Economic and Social Affairs, Population Division, United Nations, April 2012. 62 The challenge of urbanization in Ethiopia, Implications for Growth and Poverty Alleviation, World Bank, June 2007. 63 According to the results of the 2012 Enterprise Survey, electricity was identified as the third most important constraint and transport as ninth. 64 GOE plans on expanding grid intensification programs as well as increasing the adoption of renewable energy and energy efficiency products and services in areas where gird is not present today and also to provide modern energy services to households in grid connected areas unable to afford grid connection. Page 27 current and forthcoming growth. This agenda will require upgrading the skills and strengthening the organization, including for planning, executing and operating the electricity network and services, as well as improving back-office operations, such as billing and accounting. Table 5: Challenges and opportunities in infrastructure Power  Capacity constraints in managing current investments; Environment and Social Safeguards given the high sector growth.  Financing large investment program.  Address underpricing of power - financial viability of EEPCO is at high risk as EEPCO has borrowed short term loans to finance its long term investments. Debt service shortfall in FY2012-20 is expected to be about US$2bn. Surface  Capacity constraints at the Ethiopian Roads Authority (ERA). Transport  Large delays and cost overruns of ongoing road construction projects.  Deficiencies in full compliance with environmental and social safeguards.  Improve rural accessibility (to be done through URAP).  Concession railway between Addis Ababa and the Port of Djibouti (ongoing). ICT  Modernize regulatory framework; award a second mobile license; rebalance ICT tariffs in line with costs. Source, AICD, 2010; Bank’s staff assessment 69. Ethiopia has vast potential renewable energy resources (about 45,000 MW hydro; 10,000 MW geothermal and 5,000 MW wind potential). GOE intends to become the power hub of East Africa and play a critical role in the East Africa Power Pool (EAPP) area, where demand is expected to increase by 69 percent over the next 10 years. Realization of this ambition requires organizational structures that can help plan and implement cross-border interconnection facilities, harmonize operational rules of practice for interconnected national power grids, and put in place a transparent, fair, and viable commercial framework for cross-border trading in energy services. Such trade will put East Africa on a cleaner development path in terms of carbon emissions and will also help balance loads when other renewable energy resources, such as concentrated solar and geothermal energy, are deployed on a large scale. Effective and viable modern utilities will be essential to support timely and effective implementation of these large investment projects. 70. For the past decade the Government, in collaboration with other partners (including the World Bank), has been heavily investing in expansion of the road network and to reform and modernize the sector in accordance with the Road Sector Development Program (RSDP). The GTP (p.68) reconfirms GoE’s commitment to increase the size and quality of the road network to keep pace with rising demand and sets out ambitious targets. So far donors have mainly focused on federal roads (e.g., regional arterial and link roads). However, there is a great need for improved infrastructure and efficiencies within the rural and community road networks. To that end the Universal Rural Road Access Program (URRAP), one of the largest public works programs in Ethiopia, is focusing on building the necessary rural road networks and at the same time generating employment opportunities, both for skilled and unskilled labor. The Ethiopian Road Authority, which is responsible for overall network planning, road development and coordination in the country, needs capacity support so that the timeliness and quality of road construction projects is improved. Page 28 71. International best practices show that a vibrant local ICT industry creates jobs, improves productivity and fosters innovation.65 The National ICT for Development (ICT4D) Action Plan for Ethiopia (2006-10) aims to build an ICT-driven economy. While some progress has been achieved, GoE should consider leveraging opportunities presented in the global and domestic IT-based services market for the Ethiopian economy. To facilitate this process, steps need to be undertaken to improve policy, legal, regulatory and institutional framework; facilitate development of a highly skilled talent pool and adaptation to new technologies; and improving access to finance and ICT infrastructure. B. Transformation to Modern and Productive Agriculture 72. Agriculture is Ethiopia’s largest area of private sector activity and a major source of economic growth. The sector employs the vast majority of Ethiopians, makes up most of the country’s exports, and is at the center of Ethiopia’s development challenges, whether related to poverty and food security or to the environment, natural resources management and climate change (as discussed in paragraphs 25 and 26). Rapid industrialization and urbanization will be necessary to achieve Ethiopia’s growth goals, but the dominance of agriculture in the economy and employment–combined with high population growth–means that the performance of the sector will remain central to overall growth and poverty reduction for many years to come. 73. The GTP (p.45) sets out GoE’s intention to transform the sector from subsistence to more market-led production. Notwithstanding high growth rates over past years, agricultural productivity is still at low levels and most of the food produced on the farm remains consumed by the farm household. Transformation requires a significant increase in agricultural production, driven by an increase in productivity, as well as development of more effective and efficient markets. Building on experience with the implementation of previous strategies, 66 the GTP (p.45-55) outlines a three-pronged approach: (i) small-holder agriculture development, the mainstay of Ethiopia agriculture, dominating overall production and employment; (ii) pastoral development; and (iii) large-scale commercial farming development (including horticulture). Agricultural commercialization is reflected in an emphasis that increased agricultural production can provide the inputs for the development of agro-based industries as well as being a basis for becoming commercially viable in international markets. 74. Farms, businesses and smallholder farmers have needs similar to MSEs and face similar constraints to their growth, such as limited access to markets, land, finance, and skills and technology (as discussed in paragraphs 60-64).67 Therefore, addressing these constraints and creating a favorable regulatory environment would also benefit farming as a business (whether small- or large-scale), agribusiness and other related sectors, thereby impacting the profitability of primary agriculture itself. However, agriculture would also require reforms in areas specific to the sector including seeds, soil fertility and fertilizer, and the role and functioning of 65 Every single job created in IT-based services is estimated to create indirect employment for 3 to 4 people in other sectors. Everest analysis; National Association of Software and Services Companies , NASSCOM, 2011 66 Namely, the long-standing Agricultural Development-Led Industrialization (ADLI) Strategy and the previous five-year development strategy, PASDEP. 67 Although some of the constraints are exacerbated given factors such as remoteness from financial center with services, high risks and seasonality of production, or weak land administration and management. Page 29 cooperatives. To address these issues, in 2010 GoE established an Agricultural Transformation Agency (ATA). This new institution, in close coordination with the Ministry of Agriculture, is working on some of the most crucial reform areas specific to agriculture as well as new initiatives to form public-private partnerships that encourage agribusinesses to invest and source from smallholder farmers. 75. Land is a factor of the business environment which is especially important for agriculture. For most farmers user rights to land is their biggest asset or production factor. As has been shown globally and for Ethiopia, land tenure security and the ease with which user rights can be transferred are important determinants of investments into agriculture. Ethiopia has remarkable land resources, but land is scarce in most of the densely populated highlands, and under threat from serious land degradation. More land for cultivation is available in other parts of the country, but the expansion of agriculture in these areas will require careful management to address serious social and environmental risks associated with it. The management of communal land – including pastoral land – including the protection of communal land rights is also critical for the return and sustainability of these resources. 76. Domestically, although cooperatives play a crucial role in input markets, the direct or indirect influence of the Government in key areas such as seeds, fertilizer, breeds and other agricultural inputs undermines competition and thus innovation and effectiveness. The agro- dealer sector, a vibrant part of most rural economies in Africa, is small and underdeveloped in Ethiopia. While GoE’s strategy strengthens the uptake of agricultural inputs and technological innovations, the private sector role in these activities has so far been limited. Recent initiatives, however, to involve agribusiness enterprises, including international ones, through public-private partnerships (PPPs) promise to change this situation over time. These PPPs can strengthen agricultural value chains from the farm producer to the consumer of food and other agricultural products. Linking farmers to markets through such supply chains will be critical in transforming Ethiopian agriculture from subsistence to production. This requires re-thinking and strengthening of producer organizations, in particular cooperatives, and the promotion of linkages between smallholders and larger commercial farms. ICT, primarily mobile technology, could also provide a useful platform to enhance productivity of farmers by delivering just in-time extension services, weather and market prices information and connecting them to external markets as well as to facilitate more effective seeds and fertilizer management, tracking the distribution. 77. Great benefits for the agricultural sector can also be realized through international trade in the context of regional collaboration. Improved cross-border trade in agricultural products is particularly important given the problems of food security in the region and the demand for food staples from growing urban centers. Although a member of COMESA, Ethiopia only partially participates in the Free Trade Agreement and has not reached agreement with neighboring countries on the COMESA Simplified Trade Regime, which is designed to grant simplified certificates of origin to an agreed list of products to enable them enjoy duty and quota free access. Barriers to trade along the value chain prevent Ethiopia from realizing its potential in the agriculture sector. For example, it is estimated that in Ethiopia only about one quarter of the demand for improved seed is being satisfied. But the use of improved hybrid maize could Page 30 quadruple productivity. Even if just half the farmers achieved the productivity associated with using hybrid seeds, domestic production could replace commercial imports.68 78. Commercial agriculture is a challenging business, requiring knowledge in areas as diverse as agronomy, economics, finance, and marketing as well as project management. Consequently, the needs to be addressed by the research, education and extension systems are changing. Traditional agricultural research, which mainly focuses on crops, needs to diversity and specialize at the same time. It also needs to be complemented with an education system that teaches future farmers and other professionals working in the sector relevant skills. Finally, it requires an extension system that provides diversified and specialized information and knowledge on demand. Consequently, these agricultural innovation systems need to evolve from ones dominated by a public sector with limited capacity towards a more pluralistic approach, in which the public sector continues to provide a strong role where needed, but is complemented by the private sector, either farmer-controlled or through private firms and institutions. 79. Finally, climate change is particularly important for the agricultural sector as farmers are most vulnerable to climate change and agriculture (in particular livestock, forests and soils) has the bulk of the potential to reduce green-house gases (GHG) in Ethiopia. It is estimated that unless steps to build climate resilience are effective, climate change will reduce Ethiopia’s GDP growth by between 0.5 and 2.5 percent each year.69 GoE recognizes the importance and urgency of the situation as well as the country’s significant mitigation potential and aims to put Ethiopia on a carbon neutral growth trajectory. The Climate Resilience Green Economy (CRGE) Strategy is based on four pillars including (i) improved crop and livestock practices; (ii) forestry; (iii) renewable energy; and (iv) “leapfrogging to modern and energy-efficient technologies in transport, industrial sectors, and buildings.� A major emphasis will be on agriculture and forestry, which “contribute around 45 percent and 25 percent respectively to projected GHG emission levels under business-as-usual assumptions and together account for around 80 percent of the total abatement potential.� Given the ambitious CRGE agenda, changes will be required in policies, regulations, and institutions as well as program designs and financial support. C. Strengthened Systems to Better Respond to Shocks and Increase Resilience 80. Reducing vulnerability and building resilience to shocks is important for sustainable economic growth in Ethiopia. While Ethiopia has significant opportunities for transformation and growth, many Ethiopians are subject to a large number of shocks, which have an immediate effect of lowering living standards, and in many cases can result in permanent stunting of the potential intellectual capacity of the next generation of Ethiopians. GoE is currently drafting a comprehensive National Social Protection Policy that will provide a framework for the coordination and provision of social protection services in Ethiopia. The Policy recognizes that effective social protection services contribute to social cohesion and achievement of broader national socio-economic development and security, making growth more effective equitable. It aims to address the imbalance in access to basic social services and facilitates investment in 68 Alemu and Dawit, The Political Economy of Ethiopian Cereal Seed Systems: State Control, Market Liberalization and Decentralization, Future Agricultures, Working Paper 17, 2010. 69 Economics of Climate Change in Ethiopia, World Bank, 2008. Page 31 human capital for poor households and communities. The policy commits GoE to prioritize additional provision for vulnerable groups through programs such as social safety nets, livelihood schemes, social pensions and those programs addressing inequalities in basic services. With regard to DRM, GoE’s approach is shifting from response to shocks (saving lives and livelihoods) and recovery (immediate post-crisis assistance), to a multi-sectoral multi-hazard Disaster Risk Management (DRM) approach, as outlined in the draft National Policy and Strategy on Disaster Risk Management (May 2010). Accordingly, in a complete disaster management cycle more emphasis will be given to prevention, mitigation and preparedness. Enhancing disaster prevention is facilitated by addressing vulnerabilities and building resilience to shocks. This can be achieved, inter alia, by enhancing opportunities for income-earning employment (discussed in Chapter II, section A); improving productivity of agriculture and shifting towards more sustainable natural resource management (discussed in Chapter II, section B); and improved social services delivery, especially health and education, discussed below. 81. Over the past decade access to education services in Ethiopia has expanded considerably (paragraph 39), but quality of education has been lagging behind. There is commitment from GoE to improve the quality of education and accordingly there are ongoing programs with the support of development partners (including WB) complementing GoE efforts. Nevertheless, the bulk of those who have completed primary education may not have acquired basic literacy and numeracy.70 In 2010, 38 percent of grade 10 graduates scored below 50 percent - a Ministry of Education (MOE) benchmark for minimum competency. The low level of education reduces people’s prospects for finding or creating income-earning jobs and, by default, forces them to remain in a less-than optimal situation. This also presents opportunity costs. If Ethiopia is to achieve its goal to become a MIC in a decade, it will require a labor force with a significant share of secondary school graduates. However, the present situation is far from this goal. In 2010, 56 percent of the labor force did not have schooling, and 29 percent had only primary education. The problem of low pass rates and achievement levels is associated not only with quality of teaching and learning but also with the nature of the curriculum. Therefore, there is an urgent need to reform the secondary curriculum so that it responds better to the skills needed for employment rather than just focusing on building knowledge for higher education. For primary education, the focus should be on improving the quality of education and increasing completion rates. 82. Similarly, while access to health services has considerably improved, some indicators remain stubbornly high, such as maternal mortality or chronic under-nutrition. This demonstrates that access to services, while a necessary condition, is not sufficient. In order to make progress increased capital investments into the sector and focus on quality are required. The recent GoE shift under the framework of the latest health sector strategy, HSDP IV, is an important step in the right direction. The strategy prioritizes the MDGs and emphasizes concrete results over the next 5 years (2011-15) by identifying a list of high impact health inventions and measurable performance indicators. The “MDG Fund� is GoE’s mechanism for providing more resources (government and donor funds) to the health sector, allocating them based on results and building stronger M&E systems. Finally, for improved quality of services (in health as well 70 According to 2008 National Learning Assessments, 60 percent of those who have completed grade 8 did not acquire the basic competency in mathematics and English. Page 32 as education), is it important to ensure that the woreda-level platforms for service delivery rest on solid foundations of fiduciary, administrative, and information governance, as discussed in Section D below. 83. Regarding disaster mitigation the focus will be on minimizing potential disaster impacts through a flexible social safety net mechanism that can quickly scale up when crisis hits and scale down when it abates. During the recent 2011 drought in the Horn of Africa, Ethiopia was one of the few cases where a scalable safety net under the WB-funded PSNP was in place with an early warning system and a risk-financing mechanism, that facilitated increasing the coverage and volume of support to those in need in a timely manner, thus allowing the country to avoid a more acute crisis. GoE is also considering social insurance as another possible complementary mechanism to mitigate the impacts of a disaster on the vulnerable. Finally, GoE is committed to increase its focus on preparedness through strengthening early warning system, building logistic capacity, maintaining adequate resource reserves and other precautionary measures. D. Increasing Government Effectiveness 84. For GoE to realize its vision of national and economic transformation and attainment of middle-income status through broad-based growth with a strong middle class, it needs a government institutional framework which is effective, staffed by civil servants who are dedicated to delivering quality services and providing an enabling environment for Ethiopia’s transformation. The GTP (p.95) fully recognizes this, and sees the establishment of “… government structures with strong implementation capacity� as one of the key strategic directions needed to build capacity and establish good governance. The strategy “…aims to increase the efficiency, effectiveness, accountability and transparency of public sector service delivery�. Whilst significant progress has been made over the last 20 years in building an effective state operating through a federal and decentralized architecture, significant challenges remain. 85. To secure the GTP’s aim, GoE will need to address severe capacity limitations, particularly at decentralized level. In terms of service delivery, this has particular implications on quality. Whilst the overall coverage of basic services has increased, evidenced by sectoral data presented in previous sections, there remain serious questions about quality across sectors. Over the medium term this presents significant challenges to developmental effectiveness, particularly in education, health and agriculture, where potential gains secured by wider coverage are not fully realized. There are also capacity limitations in important institutions such as ERA and EEPCO. The limited implementation capacity of these organizations means that often mandates are not delivered upon, and support to large undertakings in infrastructural development is often insufficient. 86. The GTP recognizes the need to continue to address human resource development systems. This is fully appropriate, and builds on progress already made in civil service reform. Whilst reforms within the civil service have addressed some issues around functionality and mandate (through business process reengineering), and are creating a platform for more performance orientation (through the balanced score card approach) there appear to be human resource management challenges across the civil service evidenced by significant vacancies, high Page 33 staff turnover, and apparently movement across the civil service (or ‘churning’). There are particular challenges in the professions of engineering and accountancy and at decentralized level, especially in remote woredas. Whilst the phenomenon is not fully understood, it is agreed that it poses significant risks to the quality of service delivery, and to maintaining the hitherto positive progress made in civil service reform. 87. GoE also recognizes the need to further strengthen governmental accountability and transparency. The GTP notes (p. 97) that it is seeking “… to institutionalize systems ensuring transparency and accountability throughout the public service so that the attitudes and actions of civil servants are directed towards serving public interests�. As a result a number of initiatives relating to access to information, complaint handling, standard setting and the like have been integrated into the broader programs of civil service reform. Nevertheless, weaknesses in formal oversight institutions at different levels of government mean that service providers are less likely to be called to account over deficiencies in either service coverage or service standards. This applies to parliaments at federal and regional level, woreda councils, the Ombudsman, the Anti- Corruption Commission at both federal and regional level, and offices of Auditors General. Appropriate and strong oversight of the public service and public bodies needs to be in place to ensure governmental effectiveness. 88. Related to this, there is a need to continue to address the challenges of corruption. GoE has, from its outset, shown low tolerance to corruption, and the GTP sets out commitments to better educate civil servants in ethical matters, and to embark on practical measures such as asset disclosure for political leaders and public officials across all jurisdictions. Nevertheless there is a public perception that petty corruption, particularly at the point of service delivery, is rising (evidenced by Ethiopia’s Second National Corruption Survey, Federal Ethics and Anti- corruption Commission of Ethiopia FEACC, 2012). Effective measures need to be put in place to dispel these concerns, otherwise significant damage might be inflicted on the credibility of public administrations, particularly at decentralized level. Mobile and internet enabled platforms can serve as effective mechanisms for government to disclose information to a greater number of citizens, deliver new, innovative services, and allow for faster feedback from its citizens, including on the cases of corruption. 89. Having in place a robust PFM system is vitally important for improving the use of and accountability over public funds as well as service delivery. This is recognized in the GTP as one of its fundamental governance objectives, to “… establish an effective, efficient, transparent, accountable and modern governmental financial management system�. The GTP recognizes that while much has already been achieved in this area, a basic platform has been built on which a lot more needs to be built, including starting the next generation of PFM reforms in Ethiopia through developing a comprehensive PFM Action Plan, establishing the regulatory institutions that will manage the introduction and implementation of international standards of accounting and auditing, building tax institutions so that they can achieve the GTP target of doubling to tax to GDP ratio, improving cash management, addressing the weak control environment in the country through nascent internal audit systems and weak procurement, as well as structuring the ad hoc PFM training as it currently exists to deliver better value for money. While improvements have been made in financial transparency and Page 34 accountability through citizen’s empowerment, more needs to be done regarding legislative scrutiny of the budget and parliamentary oversight. 90. A strong commitment to federalism and decentralization remains central to GoE’s state-building agenda. The establishment of a federal structure in the constitution of 1995 has subsequently been augmented by ongoing programs of decentralization, which have given woredas more powers and gradually pushed significant service delivery through kebeles. Commitment to this approach is not without its challenges; the issues of capacity, state effectiveness, PFM, oversight and regulation are all made more complex and demanding against the decentralized agenda. There is still work to be done with respect to some aspects of the architecture if regions and woredas are to deliver on the mandates envisaged for them, including issues around revenue assignment. The recent introduction of the MDG Fund by the federal government in its budget for FY12, where (in all but Somali and Afar regions) regional governments will manage capital expenditure on programs at woreda level, may have implications for the woreda-level government. 91. Another essential component of Ethiopia’s transformation process is greater public participation in policy making and the holding of governmental administrations and agencies to popular account. In Ethiopia there is no long-standing culture of citizens holding government to account. GoE’s philosophy that development is not possible without popular participation is clearly stated in the GTP (p. 97) which notes that “… public participation is central to ensuring citizens’ own development and to the success of good governance initiatives… Citizens participate in development processes by expressing their demands and aspirations and so contribute to formulating policies and strategies, and to planning, monitoring and evaluation activities.� Some progress in this area has already been made with initiatives such as the Good Governance Package and the Financial Transparency and Accountability (FTA), which have been a vehicle for building popular policy consensus. However, a difficulty moving forward will be to ensure ongoing participation of Community-Based Organizations (CBOs) and other bodies which might foster the demand for good governance. III. Review of the Past WBG Assistance 92. As part of CPS preparation, the Ethiopia Country Team has prepared two documents that provided a retrospective view into the program implemented under the previous CAS; namely (i) a Country Assistance Strategy Completion Report (CAS CR) for the period FY08-12 (Appendix 4), and (ii) a Country Portfolio Performance Review (CPPR) covering FY09-mid FY12. 93. The CAS aimed to help sustain the “dual take-off� of growth and basic services by supporting the implementation of key elements of GoE’s Plan for Accelerated and Sustained Development to End Poverty (PASDEP, 2005-10). The CAS had four main strategic pillars: (i) fostering economic growth, in order to help sustain the emerging economic “take-off�; (ii) improving access to and quality of basic service delivery, in order to sustain the emerging basic service “take-off�; (iii) reducing Ethiopia’s vulnerability to help improve prospects for sustainability; and (iv) fostering improved governance with continued emphasis on institutional capacity building to support the first three strategic objectives and citizens’ empowerment. Page 35 Overall, the CAS CR rated the performance of the CAS program Moderately Satisfactory; CAS outcomes were fully achieved only under pillar three, “Reducing Vulnerability�; outcomes under all other pillars were rated as partially achieved. Box 3 provides a short description of successful and innovative projects during the CAS period. The CAS CR drew the following lessons applicable to the Bank’s program under the new CPS: CAS Focus  The Bank needs to find ways to engage more effectively with GoE in policy dialogue on macroeconomic and private and financial sector issues through increasing the relevance of the Bank’s economic and sector work, offering the Government a menu of instruments available from across the World Bank Group (including the International Finance Corporation (IFC) and Multilateral Investment Guarantee Agency (MIGA)) and strengthening partnerships. In this context, bridging the data and knowledge gap for evidence-based dialogue is key.  There is a need for a more comprehensive and sustainable solution for food security. Thus, while the Bank should continue to support and strengthen social protection systems and invest in disaster risk management programs, it should also strengthen its support to GoE to increase opportunities for on and off-farm employment (including by supporting private sector and agribusiness).  The Bank needs to more actively engage in improving the quality of basic services. A newly approved instrument – Program for Results – might provide a good opportunity to support this shift. CAS Design and Implementation  Monitoring the CAS results framework more regularly will help maintain realistic targets and flag deficiencies in outcome indicators. There should be better linkages between lending and non-lending instruments as well as with the indicators and the CAS outcomes.  The Bank should be ready to resume budget support under the new CPS as it provides an important forum for dialogue, enhances donor harmonization, and reduces transaction costs. Despite the successful shift in financing modalities from budget support to Provision of Basic Services Program (PBS) in reaction to the 2005 crisis, the benefits of budget support have not been fully replicated by PBS.  The CPS should promote scaling up of successful programmatic approaches as they leverage greater resources from partners, disburse faster, and have greater flexibility. 94. The CPPR (FY09-mid FY12) focused on key cross-cutting implementation and fiduciary issues; examined the quality of the project results frameworks and monitoring and evaluation (M&E) systems; and recommended specific short and medium-to-long-term actions to be implemented or initiated under the CPS.71 The following key cross-cutting and fiduciary issues were identified that affect the quality and riskiness of the Ethiopia portfolio: 71 In addition, a separate consultancy has been commissioned out to evaluate application of safeguard policies (environmental and social) across the Ethiopia portfolio, but the results have not been finalized at the time of the CPS writing. Page 36 Cross-cutting issues  The most critical cross-cutting issue by far is the high and rapid staff turnover (including difficulties in attracting adequately skilled staff as well as their retention). It affecting the majority of projects in the Ethiopia portfolio and contributing to a slower than optimal pace of implementation and disbursements. This exacerbates already weak capacity at many levels of Government and across sectors, especially in the areas of financial management and procurement, but also in project management.  Low ownership, slow implementation and weak follow-up at regional level due to limited early-on involvement of the regional counterparts in project preparation, implementation and monitoring.72  Insufficient sharing of knowledge and experience within the Bank, between the Bank and GoE and between project implementation agencies. Fiduciary risk in Bank projects  The fiduciary risk of the portfolio is “High�. The main reasons for these ratings, in addition to the cross-cutting issues identified above, arise from systemic weaknesses, the ineffectiveness of internal controls and internal audit, late financial reporting, inadequate capacity, significant unaccounted advances at various levels of implementation, long delays in bank reconciliations, insufficient controls over the usage of government property, excessive cash balances and lack of follow up on audit findings. The situation is further exacerbated by high staff turnover (over 25 percent on an annual basis at the woreda level), low fiduciary capacity and appointment of people to management positions without adequate financial management training. While the timeliness of reporting has improved, there are concerns regarding the quality of the information contained in these reports.  In the area of procurement, in addition to a lack of staff with the right skills and experience at all levels, there are weaknesses in contract management capacity especially in the infrastructure sector (i.e., roads, power and water). Different and inconsistent procurement standards at the regions further increases the risk of misprocurement. The disconnect between the Work Plans and Procurement Plans results in ineffective procurement practices during implementation particularly at the Regional and woreda levels and delays in procurement actions. 95. In addition, intensive consultations have been undertaken to gain a broad-based perspective on the Bank’s performance and future priorities. A Client Survey was conducted soliciting inputs from close to 330 respondents. Workshops and discussion foras have been organized in Addis Ababa as well as in four regions (Oromya, Tigray, Amhara and SNNP); face- to-face consultations were organized with federal and regional government officials, private sector, CSOs, academia, sectoral and thematic associations and development partners; and a meeting with Ethiopian Diaspora was organized in Washington, DC. In addition, social media, including a dedicated online consultations facility and country office sites on Facebook and 72 Bank projects under preparation are often mostly discussed at the federal level with MoFED with limited or minimal upfront consultation with regional stakeholders. Such practice has created the perception that MoFED limits the role of regions and this has led to low ownership and affected their ability to effectively address project implementation concerns. The weak implementation follow-up also evolved around the same problem of weak up- front involvement by the region. Page 37 Twitter were used to reach out to those who were not able to take part in the face to face consultations. Over 830 people were able to provide their input online. Although the different stakeholders had various points of views, there were also areas of consensus, including:73 i) The majority of stakeholders indicated that Ethiopia has made significant progress towards achieving the MDGs and that life in general had become better in the last five years. Nonetheless, the quality of services and quality of people’s lives has not kept pace. Both public officials as well as citizens at large underlined three reasons for an increasing gap between the quantity and quality of public services: (i) high and rapid staff turnover at all levels of government (federal, regional and woreda) coupled with the low capacity of public servants; (ii) limited space for private sector engagement resulting in over-reliance on public sector delivery, especially in the delivery of agriculture extension services but also, for example, the delivery of training; and (iii) significant gender inequalities hindering growth. Serious concerns also remain regarding macroeconomic stability, especially related to the eroding effects that high inflation has on people’s wealth and wellbeing. The majority of participants requested the Bank to undertake a thorough analysis of the issues and to engage with the Government in addressing them. ii) Role of the WBG. Participants perceived the Bank as an effective catalyst for discussion on critical issues related to poverty and growth, including the Bank’s role as a facilitator of discussions between the government and the private sector (e.g., though the Public-Private Dialogue Forum (PPDF)); as well as a coordinator among development partners. There was a demand for the Bank to significantly increase its engagement with the private sector and on job creation (e.g., MSE agenda, access to finance, PPPs in agriculture and agribusiness, land management in selected regions) and governance (e.g., citizens’ empowerment and social accountability; regional and woreda PFM; strengthening legislative and judiciary branch of the government). Clearly, in addition to finance, the Bank brings a unique combination of analytical knowledge and round-the-world experience. However, knowledge creation is as important as its dissemination and both aspects should be strengthened going forward. Fostering learning and experience sharing should be promoted between Ethiopia and other countries as well as between regions. Finally, Bank could consider ways to facilitate flow of knowledge and finance from a large and diverse Ethiopian Diaspora.74 iii) Demand for stronger partnership with the regions. The regions strongly advocated for a much closer partnership with the Bank going forward, not only during the preparation of the CPS but also during its implementation. WBG programs should leverage greater emphasis on 73 Also, as part of CPS preparation two workshops have been organized to inform and enrich the design and implementation of the strategy: GAC in the CAS Workshop in May 2012 and Supporting Job Creation in Ethiopia Workshop in June 2012. 74 There are two ongoing initiatives that aim to facilitate exchange of knowhow and finance from Diaspora: Ethiopian Diaspora Health and Education Professionals Mobilization project and IDF Strengthening Capacity for Mobilizing and Engaging the Ethiopian Diaspora. Further, the WB Payment System Development Group is providing TA to the Universal Postal Union and the Ethiopian Postal Service under the African Institute for Remittances (AIR) project on the remittance system that connects post offices worldwide to process money transfers. Page 38 the regions’ specific development needs. Broadening the range of stakeholders to include non-government partners should be promoted. In this context, participants requested both GoE and development partners to recognize the role CSOs, NGOs and the private sector play in the development of Ethiopia and thus a need to create space and environment that would enable for a more meaningful and active partnership in the decision making process. Continuous support to PPDF was requested. Box 3: Selected projects under 2008-12 CAS Urban Local Government Development Project (ULGDP) – how empowered local governments and local communities can transform cities and generate local employment. ULGDP (IDA $300mln, effective since Nov 2008) supports improved performance in the planning, delivery and sustained provision of priority municipal services and infrastructure by urban local governments. The performance-based grant is having a transformative effect on 17 cities in which the project is implemented. For the first time, these cities have access to transparent, predictable funding, as long as they meet objective performance criteria. Citizen participation in investment planning has more than doubled in participating cities, and investment plans are now closely aligned with the expressed priorities of citizens. Quality and timeliness of external audits has dramatically improved. The introduction of appropriate standards, particularly in the case of labor-intensive cobblestone road construction, has greatly improved access and drainage while also creating approximately 90,000 of jobs specifically targeted to the urban poor, including women and the disabled. The Agricultural Growth Program (AGP) – how partnerships can provide basis for strengthened, comprehensive and more harmonized support to agricultural growth. The AGP (IDA$150mln, effective since March 2011) aims to increase agricultural productivity and market access in selected relatively high-potential woredas with particular focus on women and youth. This approach presents an important shift in thinking and support that complements the traditional (and still existing) focus of channeling most public investments, in particular from donor resources, to directly help the most food-insecure living in the most marginal areas. While it is too early to have measurable impacts in terms of AGP’s development objectives, the project has already realized several strategic objectives. First, the participatory planning approach ensures that farmers, in particular women and youth, determine the development of their communities and themselves. Second, the AGP as a multi-stakeholder program ensures that various government agencies and DPs, each contribute in a coordinated manner in line with their comparative advantage. As such, the AGP provides a framework for strengthened, comprehensive and more harmonized support to agricultural growth and a platform for policy discussions. In addition to creating linkages between agriculture, private sector and market development, AGP supports new institutional arrangements and private-public partnerships with the aim of integrating small farmers with high-value agricultural markets. The Productive Safety Net Program (PSNP) – how a flexible instrument can help mitigate the effects of natural disaster. PSNP (IDA$850mln under APL III) was launched in 2005 to complement the existing humanitarian support system and to assist chronically food insecure people in rural Ethiopia. The PSNP helps to reduce household vulnerability, improve resilience to shocks and promote sustainable community development in food insecure areas. To mitigate the risk of economic and climate related shocks the PSNP has adaptive measures such as soil and water conservation activities, small scale irrigation and integrated watershed management. In addition the program also supports the Public Work activities to build Social Infrastructure such as schools, health clinics and roads. The effects of the 2008 food crisis in the Horn of Africa have been mitigated in Ethiopia to a great extent by PSNP, which was able to scale up its support to those affected. Currently the project benefits more than 7.5 million. Road Sector Development Program (RSDP) – how consistent support over long-term to the government’s priority area can bring good results. In 1997, GoE formulated the 10-year Road Sector Development Program (RSDP 1997–2007), a two-phased integrated package of investments, reforms, and institutional reorganization. The program was later extended and is now in its fourth phase. The Bank has provided more than US$1.4 billion to the GoE to support its efforts in improving and expanding Ethiopia’s roads network. Currently, IDA$818mln is still committed under APL2, 3 and 4. Over the past fifteen years of implementation, the WB projects have helped Ethiopia to double its roads network from 26,550 km in 1997 to over 54,000 in 2011. The WB program has also helped in strengthening the institutional capacity of the institutions responsible for transport development in Ethiopia (e.g., the Ministry of Transport and the Ministry of Urban Development and Construction) as well as institutions in charge of road sector development and maintenance (e.g., the Ethiopian Road Authority as well as roads authorities at the regional municipal and woreda level). Page 39 IV. New Partnership FY13-FY16 A. Key Principles 96. The CPS is strongly anchored within GoE’s GTP which has been under implementation since late 2010. Following the passing away of the Prime Minister in late August 2012, GoE reconfirmed its concurrence with the main thrust and focus of the CPS, which is strongly anchored in the GTP and has been developed through a highly consultative and collaborative process. Areas of World Bank Group (WBG) engagement have been selected based on their priority for the country and relevance for growth and poverty reduction as well as WBG’s comparative advantage reflected in the combination of partnerships, knowledge and finance. WBG engagement will be driven by a principle of partnering with GoE to look for pragmatic solutions. The CPS uses GoE’s “transformational approach�; it builds on what has been achieved so far (by using existing knowledge and portfolio as well as cross-country good practice and experience) and continues its support in areas where there is strong government ownership (e.g., infrastructure and social protection). However, learning from the previous CAS and in order for the WBG to more effectively support GoE’s medium to long term development agenda there are several elements in the CPS that are new: i) More effective partnership with Government in three areas: (i) macroeconomic issues by gradually establishing a dedicated dialogue mechanism and providing financial support to support macroeconomic stability through budget support; (ii) the job creation agenda by offering, in collaboration with other development partners, a comprehensive package of possible solutions from IDA,75 IFC and MIGA as well as strengthening dialogue with the Government on regional integration issues; and (iii) improving the effectiveness of the Government, by assisting GoE to strengthen the human capacities of the civil sector and building country systems (including PFM and procurement). ii) Extending partnerships with non-state stakeholders. In addition to strengthening already good collaboration with the traditional donors, WBG will endeavor to reach out to non- traditional partners, including sources of FDI. WBG will seek more active engagement with the regions though specific analytical work, closer engagement in portfolio management and building their capacities. Finally, more systematic ways of engaging with non-government partners will be pursued, including through the PPDF (Box 5). iii) Instruments. Learning from the results of the CAS CR, WBG will deploy to a larger extent its analytical work to inform its own as well as other partners’ work and to ensure that the dialogue with GoE is evidence-based. In this context the Bank will support capacity building of the Central Statistical Agency,76 to ensure better quality and reliability of data and M&E systems. Moreover, as soon as macroeconomic framework allows, the budget support agenda will be resumed (most likely starting with sectoral development policy lending and over time moving towards multi-sectoral Development Policy Operations (DPOs)) to deepen policy dialogue and support GoE’s focus on achieving macroeconomic balance, fostering use of 75 Including potential use of IDA guarantees. 76 See Section F below for details. Page 40 country systems and increasing the predictability of aid.77 Finally, in line with GoE’s focus on quality of basic services, the Bank plans to gradually increase its utilization of the recently approved Program-for Results (PforR) instrument, commencing with the health and possibly education sector. WBG will strive to allow greater in-built flexibility into the program (lending and non-lending) so that it can be opportunistic and pragmatic in providing solutions to GoE. B. CPS Design: Pillars and Outcomes 97. The CPS Pillars are consistent with the key focal areas of the GTP (i.e., supporting job creation in agriculture and industry; enhancing quality of social services; and increasing government effectiveness). 78 In line with the GTP, gender and climate change have been elevated to cross-cutting issues in the CPS and WBG will strengthen their mainstreaming into the portfolio. The CPS framework is also consistent with the World Bank Africa Strategy. Based on the existing project portfolio as well as the abovementioned CPS principles, the CPS will focus on achievement of the following key strategic objective under its main pillars.79 98. Pillar One: Fostering competitiveness and employment by supporting a stable macroeconomic environment; increasing competitiveness and productivity; increasing and improving delivery of infrastructure; and enhancing regional integration. Based on the key constraints analyzed in Chapter I, Section B and in Chapter II, Sections A and B, this pillar will focus on the following outcomes:  Supporting structural and macroeconomic policies to sustain internal and external balance and increase domestic resource mobilization;  Increasing agriculture productivity and marketing in selected areas;  Increasing competitiveness in manufacturing and services, and MSE access to financial services;  Increasing access to and quality of infrastructure – electricity, roads, and water and sanitation;  Improving regional integration by supporting the Eastern Africa Power Pool Mechanism and enhanced involvement in regional agriculture technology generation and dissemination. 99. Pillar Two: Enhancing resilience and reducing vulnerabilities by improving delivery of social services and developing a comprehensive approach to social protection and risk management. Based on the key constraints analyzed in Chapter II, Section C, this pillar will focus on the following outcomes:  Increasing access to quality health and education services;  Enhancing the resilience of vulnerable households to food insecurity; 77 The DAG Group in collaboration with the Government agreed to increase usage of country systems from the baseline of 52 percent in 2010 to 69 percent in 2014. Since many, especially bi-lateral, donors have limited scope for moving towards Chanel 1 disbursements (e.g., using country systems), greater burden will fall on multilateral institutions including the WBG. 78 See Appendix 2 for CPS results chain. 79 Appendix 2 provides a result chain for translating GTP into CPS framework. Page 41  Increasing adoption of Disaster Risk Management (DRM) systems;  Strengthening sustainable natural resource management and resilience to climate change. 100. Foundation: Good governance and state building. Based on the key constraints analyzed in Chapter II, Section D, this foundation would focus on the following outcomes:  Improving public service performance management and responsiveness;  Enhancing space for citizen participation in the development process;  Enhancing public financial management, procurement, transparency and accountability. 101. Cross-cutting themes in CPS. Gender will continued to be mainstreamed in the WBG program through including activities focused on women in the design of projects (e.g., AGP, ULGDP: Box 3) as well as through individual projects focused on women (e.g., WDEP: Box 4).80 WBG will build on the experiences from WEDP and the emerging research to further support growth-oriented women MSE owners. WBG will also intensify its Analytical and Advisory Activities (AAA) to create (to the extent possible) a full gender disaggregated poverty profile for Ethiopia. A series of gender-focused policy notes will be prepared based on research to: evaluate policies supporting female income generation; assess the effects (on school children) after including a module on the basic gender rights and responsibilities in their school curriculum; analyze constraints to access to justice of the poor and vulnerable groups (a follow- up to the study on the effectiveness of "domestic violence preventive actions" undertaken in FY12). Box 4: The Women Entrepreneurship Development Program – unleashing the growth potential of urban women entrepreneurs Recognizing the large economic potential of promoting female entrepreneurship, since May 2012 the Government is implementing an IDA funded ($50m) Women Entrepreneurship Development Program (WEDP), which aims to address the two most severe constraints to business growth as reported by growth-oriented women-owned MSEs: lack of access to finance and of entrepreneurial and technical skills together with usage of low-productivity technologies. Through provision of microfinance loans and other suitable financial instruments through MFIs to individual growth-oriented women entrepreneurs, WEDP aims to provide at least 17 thousand loans over the 5 year. MFIs will benefit from a substantial Technical Assistance (TA) to build their capacity to provide tailored financial products to female entrepreneurs. WEDP is expected to deliver entrepreneurship skills enhancement to 20 thousand women entrepreneurs, together with technology diffusion and cluster development where growth-oriented women entrepreneurs will get training and support in most basic aspects of developing, running and growing a business. In addition to being a key element in the gender strategy of the Bank in Ethiopia, WEDP also serves as an entry point for discussing private sector policies concerning the country’s MSE segment, which is the most important source of employment outside of agriculture. To contribute to the future policy dialogue, WEDP has a built-in impact evaluation that is designed to measure the exact number of jobs created by the program and by different sub-components. The WEDP thus complements the Bank’s efforts in the job creation agenda including regulatory concerns, business climate knowledge work and the overarching policy framework including macro policies by providing evidence on employment creation. 102. WBG considers climate change as an important part of the development process. Therefore, a focus on climate change will be mainstreamed into ongoing and future operations to make them more “climate-smart.�81 Consequently, WBG will (i) support key sectors of crucial importance to climate change (e.g., agricultural and pastoral development, sustainable land 80 See Appendix 5 for details. 81 See Appendix 7 for details on mainstreaming the Climate Change agenda into the Ethiopia portfolio. Page 42 management and food security, and renewable energy); (ii) engage in specific studies and trials under ongoing or future projects and programs with the aim to modify their design for an increased climate change impact; (iii) strengthen the systematic and enhanced treatment of climate impacts at the strategic level building on the IDA16 framework currently under development, and based on selected case studies; and (iv) through its engagement with line agencies, WBG will support the development of the Government’s Climate Resilient Strategy. Finally, WBG will continue engaging in few climate change-specific tasks such as climate information systems or other specific AAA products or supporting the agenda on Reducing Emissions from Deforestation and Forest Degradation. C. Existing Portfolio and New Program 103. Existing Portfolio. Much of what the WBG will achieve during the CPS will depend on the existing portfolio. As of July 1, 2012 (i.e., the start of the CPS, see Annex 9) the Bank had 25 active IDA-only projects in Ethiopia (two regional), of which 6 were added in FY12 (including 3 additional financing and one regional) for a total of US$1.12 billion. Twelve projects were co- financed with other development partners. Total IDA commitments were US$5.1 billion (the second highest in the Africa Region) and an undisbursed balance of US$2.26 billion. The disbursement ratio in FY12 was 34.2 percent with disbursements amounting to US$727.6 million. Close to a half of the active IDA Portfolio supports infrastructure development (48 percent), mostly roads and electricity; there are two programs in social protection (PSNP and PBS) which account for 39 percent of total commitments; and the remainder is distributed among projects supporting private sector and finance, agriculture and public sector capacity building and governance (2, 7 and 9 percent respectively). The existing portfolio is relatively well aligned with the CPS strategic objectives (Table 6). Commitments at risk accounted for 10 percent of the total portfolio (less than half of the average in the Africa Region) and two projects (Tourism and Tana & Beles) were rated marginally unsatisfactory for Implementation Progress and Development Objectives (suspension for the Tourism project was lifted in July 2012). However, the Realism Index for Ethiopia, as determined by the Independent Evaluation Group (IEG), stood at 40 percent, which is well below that for the World Bank and the Africa Region. The Country Team is working jointly with GoE to address this issue through, inter alia, more systematic and regular joint reviews of the portfolio and implementation issues arising. Page 43 Table 6: Existing lending program and its impact on CPS Strategic Objectives Country Strategic Objectives under CPS Social Protection Access & quality of infrastructure Competitiveness & Productivity Social Services Stable Macro Governance integration FY Regional & DRM Existing IDA and IFC portfolio FY Good appr at start of CPS FY13-16 close oved Irrigation & Drainage Project FY07 FY18 X X Pastoral Community Development Project - PCDP FY08 FY14 X Eastern African Agricultural Productivity - EAAP FY09 FY15 X X Agricultural Growth Program - AGP FY11 FY16 X X General Education Quality Improvement - GEQIP FY09 FY14 X Energy Access FY03 FY13 X Nile Basin Initiative: ET/SU Interconnection FY08 FY13 X Electricity Access (Rural) Expansion FY06 FY13 X Electricity Access Rural II FY08 FY14 X Elect. Network Reinforcement & Expansion – ENREP FY12 FY17 X East Africa Power Pool (APL 1) - EAPP FY13 FY19 X X Sustainable Land Management - SLMP FY08 FY14 X Private Sector Develop. Capacity Building - PSDCB FY05 FY13 X Tourism Development Project FY09 FY15 X Nutrition Project FY08 FY14 X Public Sector Capacity Building - PSCAP FY04 FY13 X Protection of Basic Services Phase II - PBS FY09 FY13 X X X Productive Safety Nets III - PSNP FY10 FY15 X X X RSDP Stage III Project APL3 FY07 FY15 X RSDP Stage IV APL4 FY09 FY16 X Water Supply and Sanitation – WSS FY04 FY13 X Urban Water Supply & Sanitation - UWSS FY07 FY13 X Urban Local Government Development – ULGDP FY08 FY15 X X Tana & Beles Int. Water Res Dev Project FY08 FY14 X Women Entrepreneurship Development - WEDP FY12 FY17 X Ethiopia PPDF Initiative (IFC) FY11 FY13 X Warehouse Receipt Financing Advisory Project ( IFC) FY09 FY12 X 104. New Lending. The total volume of lending is based on Ethiopia’s IDA allocation, which is determined annually by the Country Performance Rating (CPR) that takes into account the country’s policy performance and governance environment (as measured by the Country Policy and Institutional Assessment – CPIA) and the performance of existing IDA portfolio. Although over the past few years Ethiopia’s CPR has been relatively stable (e.g., between 3.35 in 2006 to 3.37 in 2011), its provisional IDA16 allocation of US$3.38 billion (e.g., US$1.1bn per year) is close to 28 percent higher than IDA15 allocation due to the increased overall size of IDA16.82 82 IDA15 covered period of FY09-11; IDA16 covers FY12-14 and IDA17 will cover FY15-17. IDA resource envelopes are provided for 3-year replenishment cycles. The FY13 allocation for Ethiopia of Special Drawing Rights SDR759.2 million (equivalent of US$1.2bn) is firm while the FY14 allocation of SDR 664.5mln (US$1.1bn) is indicative and can change depending on: (i) total IDA resources available in the respective fiscal year; (ii) Ethiopia’s performance rating; (iii) the terms of IDA's assistance to the country (grants or credits) in the respective fiscal year based on Ethiopia’s debt sustainability position; (iv) MDRI debt relief and the redistribution of the MDRI compensatory resources as applicable; (v) the performance and assistance terms of other IDA borrowers; and (vi) the number of IDA-eligible countries. Note that Ethiopia’s IDA envelope was provided in SDR terms, and the US dollar equivalent amounts are converted using the IDA16 replenishment rate of 1SDR=US$1.50233; however, the exchange rate for each IDA operation depends on the applicable prevailing rate at the time of project approval. Page 44 The CPS will span the last two years of IDA16 (FY13-14) and the first two years of IDA17 (FY15-16). In FY12 Ethiopia’s new commitments amounted to US$1.12 billion.83 The lending program for the first two years of CPS (FY13-14) has been designed with a buffer of about 19 percent (US$1.5bn in FY13 and US$1.2bn in FY14). Given that the IDA allocation for the two outer years of CPS (FY15-16) is not available, the CPS program is indicative and will be reconfirmed based on the IDA17 allocation and discussions with the Government. Table 7: Indicative new lending program and its impact on CPS Strategic Objectives Country Strategic Objectives under CPS Good Governance Social Protection Access & quality of infrastructure Competitiveness & Productivity Social Services Stable Macro integration Regional & DRM Indicative new IDA and IFC lending and non-lending under CPS FY13-16 FY2013 Regional Eastern Africa Power Pool Project APL1 - EAPP X X Transport Sector Project In Support of RSDP4 X Health MDG Support (PforR) X Promotion of Basic Services (PBS) Phase III X X Education MDG Support (follow-up to GEQIP) X X Eastern Africa Pastoral Livelihoods Recovery and Resilience X X Pastoral Community Development (PSDP) III X X Ethiopia Investment Climate Project (IFC) X FY2014 Water Supply, Sanitation and Hygiene (WASH) II X Transport Sector Project In Support of RSDP4 (Project 2) X Renewable Energy Project X Urban Local Government (ULGDP) II X X Sustainable Land Management (SLMP) II X Competitiveness and Employment Project X FY2015-16 Macro DPO X Sector-specific DPOs X X Agricultural Growth Program (AGP) II X X Halele-Werabesa Hydropower Project X X Rural Infrastructure Support (PforR) X Strengthening Public Expenditure Management Project X Regional Drought Response Program X X DRM Program/Scalable Safety Nets X Additional financing to successful operations 105. Lending selectivity and focus. The focus of the new lending program for the CPS period relative to the CPS strategic objectives is presented in Table 6. Ethiopia’s new lending will most likely remain heavily focused on infrastructure for two main reasons: (i) the Government perceives IDA to bring high value addition in infrastructure sectors; and (ii) large part of IDA support is provided through APLs (e.g., roads and water) or supporting multi-year Government programs (e.g., energy). A key constraint affecting selectivity is an expectation (especially from the donor community) for the Bank to engage more actively in the areas of macroeconomic 83 This includes an additional US$70 million from the IDA Crisis Response Window for the PSNP Additional Financing as well as the Regional Eastern Africa Power Pool Project (APL1) presented to the Board in July 2012. Page 45 development, private and financial sector support and public sector capacity building. Regarding social sectors, although they attract more than a quarter of overall Official Development Assistance ODA (2008-10, Development Assistance Group (DAG) data), there is an expectation for the Bank to stay engaged in these areas to provide a coordinating role even if WBG financing is declining (e.g., education). While acknowledging the constraints, the Country Team will maintain its good track record on selectivity84 by opening up the budget support agenda (starting most likely with sectoral DPOs), utilizing additional financing for successful projects, and seeking opportunities for portfolio consolidation. 106. Addressing fiduciary risks in country portfolio. The CPPR provided several specific recommendations on how to alleviate some fiduciary concerns. While some of the proposed actions will require high-level interventions,85 many can be undertaken at the technical level and within the CPS period.86 The Bank will address fiduciary risks through a multi-annual program of fiduciary analytical work aimed at strengthening the policy dialogue in financial management and procurement sectors (particularly at the regional level) and raising general awareness. This program will consist of (i) Bi-annual federal level PEFA and Country Procurement Assessment Report (CPAR); (ii) Regional level PEFA and financial management Economic Sector Work (ESW) as required; (iii) policy notes on specific areas of interest to the Government; and (iv) Accounting and Auditing Report On The Observance of Standards and Codes (ROSC) updates. These analytical products will be conducted in close coordination with other donors and GoE among all relevant sectors. To complement this program, management is implementing a series of regular meetings with GoE, and internal measures to ensure more effective portfolio monitoring and evaluation. Finally, GAC filters will be introduced for all projects in the pipeline for FY14. 107. Addressing safeguards risks in the country portfolio. The ambition of the GTP targets, particularly for large-scale infrastructure and other initiatives such as large-scale agriculture development which may require significant land-use change, present environmental and social risks. At the same time, there is limited capacity in government at all levels (e.g., national, regional and local) to manage effectively such risks, and this limited capacity is further undermined by the high rate of staff turnover in the civil service. While legally the Environmental Protection Agency (or the Regional Environmental Authorities for small, local projects) is responsible for review and clearance of assessments of potential environment and social impacts of proposed projects, in practice this role has been delegated to sector agencies, such as the Ministry of Agriculture, EEPCO and ERA. Moreover, quality review of environment 84 During the CAS period (FY09-11), the number of projects in the Ethiopia portfolio has decreased from 31 to 26 despite net commitments growing by US$800 million. As a result, the size of the new projects approved during this period has increased reaching on average US$234 million. 85 For example, civil service reform, more active and early-on engagement of the regions, agreement with MoFED and implementing agencies to start advanced procurement prior to WB loan approval. 86 For example, provision of regular (bi-annually or quarterly) training/FM and procurement clinics for PIU staff as well as dedicated institutions (e.g., the Public Procurement Agency) in the areas of procurement, FM and safeguards; establishment of Managers Network (PSCAP), Sectoral Groups and Finance Managers Club for information and experience sharing; more consistent and rigorous application of Bank’s readiness filters to projects under preparation; standardization of the FM Manuals; simplification of reporting at local level; development of service delivery standards; piloting join preparation of Annual Work Plans, Annual budgets and Procurement Plans. Page 46 and social safeguards for a proposal is undertaken more consistently if the proposal involves donor financing. The Bank will take a two-pronged approach to address the related risk. First, to ensure consistency of application and compliance with Bank safeguard policies, a high-level policy dialogue on safeguards issues will be continued and the supervision of environmental and social safeguards implementation in Bank financed projects will be further strengthened.87 This strengthening will be complemented by additional training from the Bank for environmental and social safeguards specialists and consultants, dissemination of resource materials on environmental and social due diligence, and other broader capacity-building activities aimed at building up expertise on environmental and social management. Second, the capacity of the government system for environment and social safeguards implementation will be strengthened in key sector agencies, such as EEPCO and ERA, through project components which focus on the modernization of these agencies (see paragraph 69 on EEPCO), as well as broad-based training on safeguards for these and other agencies. 108. Use of Country Systems (Channel 1 and 2). Ethiopia uses a number of alternative mechanisms for channeling donor funds to spending units in the country.88 A recent review of the Use of Country Systems by donors in Ethiopia confirmed that around 67 percent of World Bank support is channeled through government systems, which is higher than the target set for all donors in Ethiopia for the next reporting period. CPPR review has confirmed that World Bank funds disbursing through Channel 1 (e.g., PBS and PSNP) have an average disbursement rate of 30 percent compared to 15 percent for Channel 2 projects (traditional Specific Investment Lending). Consequently, during the CPS period, the World Bank will be proactively exploring ways to moving its portfolio towards Chanel 1 (for example though increasing use of DPO and PforR instruments). A systemic assessment for this is underway which involves analyzing the quality of country PFM systems with a specific focus on risks and the mitigation measures that need to be put in place. While there is clearly commitment to improving PFM systems in Ethiopia the approach has been fragmented and there is a need for addressing the major weaknesses identified in various diagnostics at different levels of government if donors are to 87 A particular risk arises because the Bank's Operational Policy on Indigenous Peoples (OP 4.10) has not been applied in Ethiopia, in part because of GoE concerns, but also because of uncertainty as to its compatibility with the country context. To address the situation, discussions with GoE on how to apply the policy have been ongoing since mid-2009. To enhance GoE familiarity with the policy, a joint World Bank-GoE workshop was held in early March 2011. GoE remains uncomfortable with the policy’s potential application in Ethiopia and progress has been slow in reaching a joint understanding. The issue was again discussed with the Ethiopian Delegation at the 2011 Annual Meetings, following which Bank management sent a letter to GoE with a proposal which remains under discussion. At the 2012 Spring Meetings the GoE delegation reiterated its difficulties with the policy, but noted the need for GoE and the Bank to jointly resolve this issue. Since February 2012, a note appearing in the MOP of each Board package for Ethiopia has summarized the situation as: (a) dialogue between GoE and the Bank on OP 4.10 is ongoing, (b) when agreement is reached, but in any event starting with operations considered by the Board after December 2012, the policy would be applied to the extent that it is found to be relevant to the areas of operation of the proposed projects; and (c) relevant operations presented to the Board in the meantime will endeavor to contain features that approach functional equivalence with the policy even when it is not formally triggered. In lieu of agreement with GoE on application of OP 4.10, in some projects, task teams have been able to achieve much of the intent of OP 4.10 without triggering the policy (through the Environmental Assessment or Involuntary Resettlement policies and procedures). 88 The most common are Channel 1a – viz. full use of government systems across all levels of Government though MoFED; Channel 1b which uses Government systems only at the Federal level and Channel 2 viz. project aid that bypasses MoFED and goes directly to a sector or a government entity at the sub national level. Page 47 increasingly move to country systems. The Bank will also work with GoE to increase the use of country procurement systems. Table 8: Selected proposed CPS non-lending activities and their impact on CPS Strategic Objectives Country Strategic Objectives under CPS Competitiveness & Productivity Social Services infrastructure Stable Macro Protection & Governance integration quality of Access & Regional Selected proposed IDA and IFC non-lending activities Social DRM Good during CPS FY13-16 Semi-annual Economic Updates X Poverty Assessment, Poverty Mapping X X X Country Economic Memorandum X X X Debt Sustainability Analyses, Debt Management and X Performance Assessment, MT Debt Management Strategy TA Diagnostic Trade Integration Study X Statistics for Result Trust Fund X Public Expenditure Review (including sectoral PERs, e.g., water) X X X X Strengthened RED&FS portfolio management X Land Administration TA X X Climate-smart agriculture X X Ethiopia Investment Climate Project (IFC), Ethiopia PPDF X Initiative, Ethiopia Credit Information Center (CIC)Project (IFC) Competitiveness and Job creation (NLTA), Series of FPD Policy X Note(s), incl. micro-insurance, Skills Development AAA Gender-focused policy and research notes X X X Climate Innovation Center (InfoDev) X Enhanced Regulatory Framework for Remittances X Hydropower Center of Excellence TA, Hydraulic Lab for Dam X X Modeling/Safety TA, Geothermal Sector Strategy, Decentralization X X Social Protection TA, Disaster Risk Management X Climate Change AAA X X Access to justice for poor and vulnerable groups in Addis X Analysis of civil service staff turnover and options for reform X X Woreda and City Benchmarking Survey X X PEFA Update (federal & regional), Woreda level PFM Reports X AAA Into Increasing Road Construction Costs, Urban Transport X X PPIAF ICT AAA X X X Health Results Innovation TF, IE of the health facility X X performance incentives 109. Non-lending assistance. As clearly indicated by the CAS CR and feedback from the Client Survey and multi-stakeholders consultations, the Bank needs to ramp-up its knowledge products (including analytical, advisory and technical assistance) especially in terms of its relevance and timeliness. Non-lending assistance can take a variety of forms, including standard Economic Sector Work (ESW), study tours, facilitation of knowledge and experience sharing between Ethiopia and other countries (e.g., Rwanda, which shares a similar development strategy), informal brainstorming, just-in-time studies and regular updates/policy notes. In determining the focus of future non-lending assistance priority will be given according to three criteria: (i) part of the core country diagnostics that needed regular updates; (ii) on-demand policy notes to aid the Government’s policy making discussions; and (iii) covering innovative or difficult areas of development. In addition, WBG will strive to engage more actively with the Page 48 GoE as well as local think tanks and academia in the process of designing and conducting the analytical work. Table 8 provides some of the major non-lending activities (ESW and TA) planned during the CPS period; for a complete list see Annex 11. 110. Ethiopia Trust Funds (TFs) portfolio is one of the largest in the Africa Region with US$642 million in commitments allocated in 68 TFs as of June 1, 2012.89 Recipient-executed TFs account for 38 percent of the total number of active TFs and 95 percent of the total commitments. Two donors, UK and EU, provide almost three quarters of total contributions (61 and 12 percent respectively). Ethiopia TF portfolio is well aligned with the WB program with a clear focus on social sectors: at the beginning of the CPS period, 86 percent of TF portfolio was contributing to CPS Pillar 2 (resilience and vulnerability) and 13 percent to Pillar 1 (competitiveness and employment). Further, more than a half of all TF commitments (52 percent) were co-financing one multi-donor education project (GEQIP); another 17 percent of TF supported water and sanitation sector, 13 percent went to support social sectors (PBS and PSNP) and 10 percent went to agriculture. 111. While TFs are relatively well aligned with CPS objectives, there is still a need to shift towards a more programmatic and less fragmented trust fund portfolio. The average size of a grant under a Bank-Executed trust fund was US$774,000; however close to a half of such grants were smaller than US$250,000. Recipient-Executed trust funds tend to be larger in size (US$24million on average) particularly those associated with the education, PBS and PSNP operations. Ethiopia also has a large portfolio of Financial Intermediary Funds (FIFs), where the Bank only acts as a trustee and transfers funds to implementing agencies outside the Bank. The Global Fund to Fight AIDS, Tuberculosis and Malaria (GFATM)90, the largest FIF in the Bank, had Ethiopia as its largest beneficiary in FY10. D. IFC and MIGA Programs 112. IFC Program. IFC has been “open for business� in Ethiopia since 2008 and its program supports particularly the first pillar of this strategy with a focus on three areas: (i) project development in key strategic sectors (e.g., agribusiness, infrastructure, financial services, tourism and manufacturing); (ii) removal of investment climate constraints; and (iii) building entrepreneurial capacity. Since FY08, IFC has committed a total of US$83.6 million including investments in the Ethio Cement project that helped to establish a green-field integrated cement plant; equity investment in the Saudi German Hospitals Group, which will construct a hospital in Addis Ababa, the Group’s first venture in Africa; equity investment in Nyota Minerals Ltd for its Tulu Kapi Gold to support gold exploration and in Allana Potash to help explore potash reserves; and the Ethiopian Coffee projects (with TechnoServe) that provide financing to specialty coffee farmer cooperatives under the Ethiopian component of the East Africa Coffee Initiative. IFC’s advisory services provide support to improve the investment climate, encourage entrepreneurs, 89 See Annex 12 for portfolio of active TF. Calculations exclude HIPC TFs. 90 In addition to the GFATM, Ethiopia is a major recipient of other FIFs such as the Consultative Group on International Agricultural (CGIAR), the Climate Investment Fund, the Global Alliance for Vaccines and Immunization (GAVI), the Global Agriculture & Food Security Program (GAFSP), the Global Fund to Fight AIDS, Tuberculosis and Malaria, the Global Environment Facility (GEF), the Special Climate Change Fund (SCCF), and the Least Developed Countries Fund for Climate Change (LDCF). Page 49 and promote better access to finance, especially SMEs. Establishing the Public Private Dialogue Forum and Warehouse Receipts Finance Program are among the most noteworthy IFC engagement to improve Ethiopia’s investment climate (Box 5). 113. In the coming years IFC’s portfolio is expected to grow with a particular focus on opportunities in power, mining, manufacturing and tourism:  IFC in collaboration with the WB and potentially other donors is focusing on the development of geothermal resources in Ethiopia starting with exploring the possibilities for establishing a geothermal development fund.  As part of its engagement in the mining sector, IFC will work with other parts of WBG to assist GoE in modernizing Ethiopia’s mining regulatory framework and raising investor interest in the Ethiopian mining sector.  IFC is strongly interested in assisting GoE in development of industrial zones. IFC China and Ethiopia Offices are actively engaged in developing a structure under which IFC could invest in the companies that setup operations in the Ethiopia Industrial Zone in coordination with China Africa Development Fund (CAD Fund).  IFC is keen to help Ethiopia to realize its potential as a significant tourism destination (Box 2). Box 5: IFC initiatives to improve business environment in Ethiopia Warehouse Receipts (WHR) Finance Program: IFC partnered with the Ethiopia Commodity Exchange (ECX) and selected Ethiopian commercial banks to develop Warehouse Receipts Finance markets in Ethiopia, through a combination of advisory services and investments package. The program is funded by IFC (US$1mln) and four other partners from Netherlands, Spain, Belgium and Japan (US$2.5mln). Under the investment component, up to US$10 million of financing is allocated to the participating banks in the form of guarantees (risk-sharing) or short-term lines of credit (co-financing) on their WHR lending portfolio of up to US$20 million. IFC has committed its first WHR finance facilities in March 2011 to the United Bank and NIB Bank. WHR-based loans (covering mostly sesame and pea beans) grew to US$1.5 million in FY11 from US$50,000 in FY10. This amount is expected to grow to US$ 6million by the end of the current harvest season. The advisory service component is also progressing well and ECX is now ready to launch the program with the United Bank and CBE. Ethiopia Public Private Dialogue Forum (PPDF): On July 8th 2010, GOE, the Ethiopian Chamber of Commerce and Sectoral Associations signed a Memorandum of Understanding to guide the PPDF. The first PPDF meeting was organized on February 22, 2011 bringing together representatives of the private sector and the Government in a structured dialogue to discuss and ultimately address key obstacles to firms’ growth and competiveness as well as to establish mutual trust and understanding between the public and private sector. So far the Forum has facilitated improvements in tax and trade logistics legislations. IFC jointly with UNDP have been instrumental in helping structure and lead this process and the two institutions have recently agreed to fund the first year of the PPD process at the federal level for a total of US$650,000. 114. The pipeline of IFC knowledge-based activities includes ramping up its support to GoE to improve the country’s business environment. In addition to continued support to the PPDF, the program would focus on simplification of business registration and tax administration, supporting industry specific investment climate reforms (including investment policy and promotion), and trade logistics. There are ongoing discussions in developing IFC’s Global Trade Finance Program as well as potential support that IFC could provide to the development of Alternative Dispute Resolution as a means to alleviate the burden on the court system and improve speedy, amicable resolution of commercial disputes. Finally, there is an ongoing process under the Access Leasing project, where IFC would provide a combination of equity Page 50 investments and advisory services to establish the first leasing company in the country, sponsored by Access Capital. 115. MIGA Program. MIGA is also supporting the objectives of pillar one, and is currently insuring three projects in Ethiopia (two in agribusiness and one in cement) with total net exposure of US$16.8 million (see Annex 10). The first agribusiness project supports an investment by Africa Juice BV of the Netherlands which, in Africa, is represented by Juice Tibila Share Company. Africa Juice Tibila Share Company is a producer and exporter of tropical fruit juices. The second agribusiness project involves the privatization, rehabilitation, and expansion of an existing farm which will result in a 600 hectare plantation of yellow passion fruit, an additional 600 hectares of other tropical fruits such as mango and papaya, and the construction of a new fruit-processing facility. The manufacturing project supports a minority equity investment by Schulze Global Investments (SGI) into the National Cement Share Company of Ethiopia (NCSC). The investment by SGI will help NCSC to expand its operations in Dire Dawa, through supporting the construction of a new 3,000 tpd clinker plant. In order to accelerate the construction of the new plant, NCSC engaged SGI for a round of equity financing. The expansion of the plant is expected to result in additional significant tax revenue to the government and the creation of up to 600 new local jobs directly, and potentially an additional 2,500 indirect jobs. It will also provide an increased supply of domestic cement to meet the growing demand in Ethiopia, thereby reducing the country’s reliance on expensive imports and reducing the drain on foreign exchange reserves. 116. In addition, MIGA remains open for business in Ethiopia across all of its Political Risk Insurance product lines, including Transfer Restriction, Expropriation, Breach of Contract and War and Civil Disturbance, as well as the Non-Honoring of Sovereign Obligations. MIGA has also made use of its more streamlined Small Investment Product (SIP) where more streamlined procedures have allowed smaller projects to be supported. E. Partnerships 117. Official Development Assistance to Ethiopia has been growing fast over the last decade, more than quadrupling from US$ 0.7 billion in 2000 to US$2.9 billion in 2009, before declining to US$2.6 billion in 2010.91 Although there has been a significant proliferation of donors (from 25 in 2006 to about 36 in 2010, including non-traditional donors), the US and IDA accounted for close to a half of all ODA disbursements, followed by the UK, EU, Global Fund and AfDB. Nonetheless, aid to Ethiopia has a strong multilateral dimension as almost 80 percent of ODA (2011) is administered through multilateral institutions from own resources or through multi- donor arrangements (MDTFs). Non-traditional donors92 are increasing their presence with new modalities of development finance linked to specific trade and investments deals. Over a third of ODA received by Ethiopia is humanitarian assistance over which GoE has little influence (most is delivered through multilaterals and NGO, less than 10 percent through GoE). Support to 91 Appendix 8 provides detailed donor mapping. 92 Non-traditional donors in Ethiopia include private donors such as Bill and Melinda Foundation, donors from China, India, Arab countries, and Global Programs, among others. Page 51 infrastructure accounts for 11 percent of total ODA (6 percent excluding IDA) and to the private sector (including agriculture and finance) for 8 percent (5 percent excluding IDA). 118. Donor collaboration in Ethiopia has a long track record. It includes a High Level Forum with GoE, several joint donor: GoE Sector and Technical Working Groups (SWGs, TWGs), some of which work more effectively than others, with a direct correlation with a functioning funding mechanism (see Appendix 8 for dialogue structure between the GoE and Development Partners (DPs)). Currently there are ongoing discussions between GoE and development partners on the overall dialogue structure including finalization of the ToRs for the main SWGs, definition of common operational procedures, reporting lines and links among SWGs, with funding programmes and task forces. Recently there has been a renewed interest in the Aid Management Platform (AMP) as a management and M&E tool. 119. Out of 25 IDA projects in Ethiopia portfolio at the start of the CPS, 12 were co-financed with other donors, including the two largest IDA programs (PBS and PSNP) as well as AGP, GEQIP, PSCAP, WASH and WDEP. A recent quantitative data assessment of Ethiopia´s compliance with the Paris Declaration principles on aid effectiveness concluded that many of IDA projects were in compliance with the Paris Declaration principles of aid effectiveness and showing significant progress over the years in areas such as coordinated technical cooperation, use of country systems, and untying aid. 93 Going forward, the Bank will continue with the practice of joint financing of projects wherever possible; resuming the budget support agenda would also assist in increased donor collaboration as well as use of country systems. In addition to strengthening already good collaboration with the traditional donors, the WBG will endeavor to pursue co-financing opportunities with non-traditional partners; seek more active engagement with the regions as well as with non-government partners. F. Results-based Monitoring and Evaluation 120. The CPS Results Framework (CPS RF) presents the priorities of the Bank in Ethiopia in alignment with the strategic goals of Ethiopia, and was developed in collaboration with GoE and Development Partners. The CPS RF (Appendix 3) uses Ethiopia’s GTP as its starting point, and narrows down the range of outcomes to those that the Bank intend to influence directly through its interventions over the CPS period. GoE, development partners, and other stakeholders provided detailed inputs that were incorporated into the CPS RF. In addition, the CPS outcomes are aligned with the sector strategies for the country. The CPS RF illustrates the overarching national goals from the GTP to which the CPS outcomes, milestones, and related interventions seek to contribute. As mentioned before, the results targets during the CPS period will be largely achieved with the program already under implementation 121. To the extent possible, the CPS M&E system will be linked with national M&E systems. The GTP requires a comprehensive M&E system to collect data to track its progress and report results. Hence, the CPS M&E system will focus on complementing and enhancing the government’s results management capacities. Toward that end, the Bank in developing the 93 Aid Effectiveness: Ethiopia, MoFED 2012 Page 52 CPS M&E system, will work to increase demand for M&E information at national, regional, and local levels through linking planning, budgeting, and reporting with results. It will work towards strengthening M&E and national statistical systems through improvement of data quality for basic service sectors and by supporting specific M&E studies and surveys.94 122. Efforts will continue to strengthen Ethiopia statistical capacity, which is a key to ensuring availability and timeliness of quality data to monitor high-level country outcomes and producing the national accounts statistics. The capacity challenges will primarily be addressed through TA programs to address gaps in national and sub-national statistical capacities, including though ongoing collaboration between the Central Statistical Agency of Ethiopia and the World Bank Living Standards Measurement Study team (LSMS) on the Ethiopia Rural Socioeconomic Survey.95 Recently, GoE has requested assistance from the WB Statistics for Results Facility (SRF) – Catalytic Fund. The Ethiopian SRF is expected to support the implementation of National Strategy for Development of Statistics (2019/10-2013/14) through, inter alia, infrastructure capacity development at the CSA and key Ministries; data development and management; methodological research and analysis; information dissemination; and M&E capacity building.96 123. To develop a results-oriented M&E system for the Ethiopia CPS, the new Results Integration and Management System (RIMsys) tool, developed by the World Bank, will be used to systematically capture and consolidate information on CPS targeted results and monitor the progress toward their achievement. The key feature of the RIMsys includes the ability to link the performance of Bank operations and the achievement of CPS results. In addition, the tool produces portfolio management and results reports on a periodic basis. A CPS progress report will be prepared in FY14, or earlier if needed, to report on progress toward CPS outcomes and adjust the strategy and program if necessary and update the results framework. G. Managing Risks 124. Ethiopia faces a range of external and internal risks, the potential impacts of which can be mitigated in part by WBG. Other risks may not be susceptible of mitigation but WBG nevertheless needs to be aware of them so that we can respond appropriately to the extent that the risk arises. 125. Ethiopia is vulnerable to external economic shocks, including the negative economic impact from a protracted slowdown in the EU and other high income economies, as well as natural disasters. A slowdown of remittances, standing at around 9 percent of GDP, could reduce domestic consumption, one of the main drivers of recent growth. The high concentration of exports in commodity and primary goods and the significant share of exports going to OECD 94 E.g., the Bank will supporting the Woreda and City benchmarking survey for monitoring local developments in local governance. 95 This work program is a multi-year program that encompasses the design and implementation of a household survey integrated with the Agricultural Sample Survey, a panel component of this new survey, capacity building and cross-country knowledge sharing, and efforts to improve survey methodologies. 96 Statistical capacity building is also supported by DFID, Gates-Melinda Foundation, UN and Irish Aid. Page 53 countries also pose a risk. And the recent spike in global food prices is also a cause for concern. A strong and resilient framework of macroeconomic policies can help GoE manage for such a risk, and WBG can assist GoE in the context of the proposed stronger engagement on such issues, and possible development policy lending. 126. There is a potential trade-off between economic growth and overall debt sustainability. This is particularly important in a state-led development model which relies on large public investment (double digits, above 20 percent in terms of GDP) in an environment of low levels of domestic savings (single digits in terms of GDP). The gap will, to a large extent, be shouldered through the accumulation of debt (domestic and external). Given the authorities' intention to keep to a low risk of external debt distress, the amount of non-concessional borrowing will be limited. So there may be a trade-off between the low risk rating desired by GoE and the implementation pace of the GTP, which may require lengthening of the GTP implementation period to smoothen the non-concessional financing requirements for the planned investments. This may have growth implications for the economy at large, given the large role of investment in GDP expansion at the moments. WBG has already expressed a view about this risk, in the context of the IDA-IMF staff Joint Advisory Note on the GTP. In terms of managing for this risk WBG needs to ensure the implementation schedules for operations are robust and allow for such fluctuations in the overall pace of public investment in Ethiopia. 127. For a number of years Ethiopia has been perceived as having a culture that inhibits corruption and levels of corruption have been thought to be significantly lower than for its regional comparators. However, worldwide experience shows that even countries with such a culture face increasing challenges when rapid economic growth is coupled with significant government intervention in the management of the economy. This combination can feed the emergence of unhealthy relationships between politicians and bureaucrats on the one hand, and entrepreneurs and investors on the other. Experience also shows that the discipline that comes with a vibrant private sector can help mitigate this risk. Achieving a balanced equilibrium along these lines will apply to relations both with the domestic private sector, and with foreign investors. Accountability and transparency in the oversight of FDI will be just as important as in the domestic sector, if the developmental benefits of entrepreneurialism – including those associated with broad-based growth and job creation – are to be maximized. WBG lending and non-lending assistance on fostering competitiveness and employment will offer help to GoE in striking this balance correctly, while the strong foundation of the WBG program in good governance should minimize the risk that WBG operations are exposed to risks from economic capture. 128. Natural disasters, of which droughts have been the most frequent occurrence in Ethiopia, may cause serious setbacks to economic advancements and jeopardize achievements in reducing poverty and vulnerability of Ethiopian poor. As the impact of climate change is increasingly felt in Ethiopia, the economic effects of such events are likely to grow. However, growth and diversification of the Ethiopian economy (supported under Pillar 1) together with a range of interventions supported under Pillar 2 will help to increase the resilience and decrease the vulnerability of Ethiopian people and thus help mitigate or manage this risk. Page 54 129. An essential building block of Government’s vision of economic and social transformation is a capable public service at all levels of government (at federal, regional, woreda level, and increasingly in kebeles). A public service which is appropriately capacitated to take forward service delivery of appropriate quality, whilst ensuring universal access, is fundamental to the change processes at the heart of government’s agenda of fighting poverty. That this public service acts with integrity is also critical, particularly given that the development of formal processes of checks and balances is still very much work in progress. There is a risk, however, that capacity development and probity of the public service may not be able to keep pace with the broader reform agenda. High turn-over within the public service and the expansion of the number of woredas will exacerbate this challenge. The risk of the potentials of inadequate capacity is one which has been identified by Government itself, and it has invested much effort already in building capacity and local leadership. The foundation of our CPS and the proposed lending and non-lending activities, including those supporting work on safeguards (see paragraph 107) are designed to provide the support to GoE to help them manage this risk. 130. The following are risks of which WBG needs to be aware, but for which the main available mitigation available is likely to be close participation in the arrangements for coordinating development partners in Ethiopia. These are:  Regional security risks. Relations with Eritrea have been problematic, including localized tension along the border. The ongoing tensions between Sudan and South Sudan also present challenges; whilst Ethiopia is seen as an ‘honest broker’ by both sides, conflict between the governments in Khartoum and Juba, have the tendency to spill over into Ethiopia’s borders, either by way of people fleeing conflict or, occasionally, when competing armed groups cross borders resulting in instability within Ethiopia itself. Finally, instability fed by Islamic fundamentalists in Somalia also presents problems, as the porous borders with Ethiopia’s Ogaden result in unrest being transplanted to within Ethiopia itself. The dangers of all these potential hotspots present challenges to Ethiopia on at least two accounts: (i) they represent a significant distraction and make the delivery of services in certain parts of the country more difficult; and (ii) through the spill-over of localized conflict, they carry risks for Ethiopia’s internal security.  Political transition risk. There is a risk associated with the sudden passing away of the Prime Minster and ensuring a smooth transition in the coming months. To this end, GoE has indicated that the government continues to work as usual and has expressed its confidence that the existing public institutions will continue to function normally despite the transition. Furthermore, GoE has confirmed that the GTP remains the centerpiece of the country's development strategy, its commitment to the vision and goals stated in the GTP and that it will pursue its implementation as planned. GoE also reaffirmed its concurrence with the main thrust and focus of the CPS, which is strongly anchored in the GTP and has been developed through a highly consultative and collaborative process. Since the WBG Strategy is firmly anchored in the GTP, the risk of its implementation will be closely linked to that of the national program. In the longer term there is also a risk associated with the next elections scheduled for 2015. Page 55 APPENDICES Appendix 1: GTP – Vision, Pillars and Selected Targets ........................................................................... 57 Appendix 2: CPS Results Chain ................................................................................................................. 59 Appendix 3: CPS Results Framework ........................................................................................................ 61 Appendix 4: CAS Completion Report (CAS CR) ...................................................................................... 71 Appendix 5: Joint World Bank/IMF Debt Sustainability Analysis (DSA) ............................................... 105 Appendix 6: Analysis of Gender Inequalities and Opportunities in Ethiopia ........................................... 109 Appendix 7: Mainstreaming Climate Change into WB Program ............................................................. 114 Appendix 8: Mapping of the Development Partners in Ethiopia .............................................................. 116 Page 56 Appendix 1: GTP – Vision, Pillars and Selected Targets GTP Vision for Ethiopia’s Transformation “Become a country where democratic rule, good-governance and social justice, upon the involvement of free will of its peoples, and once extricating itself from poverty to reach the level of a middle-income economy as of 2020-2023.� GTP Vision on Economic Sectors “Build an economy which has a modern and productive agricultural sector with enhanced technology and an industrial sector that plays a leading role in the economy, sustaining economic development and securing social justice and increasing per capita income of the citizens so as to reach the level of those in the middle-income countries.� GTP Objectives 1. Maintain average GDP Growth rate of 11%; 2. Attain MDGs in social sectors (health & education); 3. Creation of a stable democratic and developmental state; 4. Maintain a stable macroeconomic framework. GTP Pillars 1. Sustaining rapid and equitable economic growth; 2. Maintaining agriculture as major source of economic growth; 3. Creating conditions for industry to play key role in the economy; 4. Enhancing expansion and quality of infrastructure development; 5. Enhancing expansion and quality of social development; 6. Building capacity and deepen good governance; 7. Cross-cutting issues:  Promote gender and youth empowerment and equity  Environment & climate change  HIV/AIDS prevention and control  ICT Selected GTP Targets Sector/Indicator Baseline 2009/10 Plan Target 2014/15 The Macro Economy: 11 11.2 Real GDP growth rate (%) 401 698 Per Capita GDP at Current Market Prices (USD) 90.6 85.0 Gross Domestic Saving as % of GDP 23.7 30 Export of Goods and Non-Factor Services as % of DGP 10.5 31.2 Imports of Goods and Non-Factor Services as % of GDP 27.3 45.7 Domestic revenue as % of GDP 12.9 17.3 Tax revenue as % of GDP 9.7 15.3 Total poverty-oriented expenditure as % of GDP 12.5 15.7 Capital Expenditure as % of GDP 10 13.0 Recurrent Expenditure as % of GDP 8.5 8.6 Poverty & Welfare Total poverty Head Count (%) 29.2 22.2 Food poverty Head Count (%) 28.2 21.2 Key Sectors Agriculture and allied activities 6.4 7.3 Agriculture value added (in billion Birr) 58.4 86.2 Page 57 Sector/Indicator Baseline 2009/10 Plan Target 2014/15 Number of extension service beneficiaries (thousands) 5090 14640 Coffee export (Ton) 319,647 600,970 Meat Export (000 Metric Ton) 10 111 Number of household participating productive Safety net program (million) 7.8 1.3 Industry 13.7 21.4 Sugar product (000 ton) 17,712 42,516 Growth Rate of Industry Value Added (%) 13.3 19.1 Textile and garment industry export (in million birr) 21.8 100 Total capacity to produce cement (million ton) 2.7 27 Infrastructure Development Roads: Road network 49,000 136,000 Average time taken to all-weather road (hours) 3.7 1.7 Road density (km/1000 km2) 44.5 123.7 Road density (km/1000 population) 0.64 1.54 Roads in acceptable condition (%) 81 86.7 Proportion of Area further than 5 km from all weather roads (%) 64 29 Power Electricity coverage 41 75 Power generating capacity(mg wt) 2,000 8,000 Water Potable water coverage (%) 68.5 98.5 Urban potable water coverage (within 0.5 km) 91.5 100 Rural potable water coverage (within 1.5 km) 65.8 98 Developed irrigable land (%) 2.5 15.6 Telecom: Mobile density (per 100) 1.5 8.5 Telephone service coverage with in 5 km (%) 49.3 90 Fixed telephone subscribers (in millions) 1.2 8.6 Mobile telephone subscribers (in millions) 7.6 64.4 Internet service subscribers (in millions) 0.20 7.17 Urban Development & Housing Reduce urban unemployment rate in towns under integrated housing 176 400 development (000) Provision of housing and basic services (Number of Housing Units) 213,000 700,000 Education Gross Primary Enrollment Ratio (1 to 8) (%) 94.2 100 Primary school ratio of girls to boys 0.93:1 1:1 Primary Pupil: text book ratio 1.25:1 1:1 Primary Net enrollment ratio 87.9 97 Secondary school gross enrollment ratio 38.1 75 Government higher institution intake capacity (under graduate) 185,788 467,000 TVET intake capacity 430,562 1,127,330 Adult literacy rate (%) 36 95 Health Primary Health Services Coverage (%) 89(2008/09) 100.0 Under Five Mortality Rate (per 1000) 101 67 Maternal mortality rate (per 1000) 590 267 Contraceptive Prevalence Rate (CPR) (%) 55 80 Proportion of Births Attended by Skilled Health personnel (%) 25 60 DPT 3 vaccination coverage (%) 81.9 90 Percentage of Households in Malaria Prone Areas with INTs (%) 100 100 Page 58 Appendix 2: CPS Results Chain Figure 6: Translating GTP into the CPS Framework Page 59 Figure 7: Ethiopia CPS Results Chain Page 60 Appendix 3: CPS Results Framework97 CPS OUTCOMES and ISSUES AND OBSTACLES INDICATORS (with 2011 baselines INDICATIVE MILESTONES WORLD BANK GROUP PROGRAM and end-FY16 targets) Overall CPS Theme: Sustainable Growth and Reduced Poverty GTP Goals: 1. Maintain average GDP Growth rate of 11%. 2. Reduce total poverty headcount from 29.2% in 2010/2011 to 22.2% in 2014/15. 3. Attain MDGs in social sectors (health & education). 4. Create stable democratic and developmental state. 5. Maintain a stable macroeconomic framework. PILLAR 1: FOSTERING COMPETITIVENESS AND EMPLOYMENT CPS Strategic Objective 1: Stable Macroeconomic Environment GTP Goals: 1. Contain inflation. 2. Strengthen revenue generation capacity (tax revenue/GDP increased from 9.7% in 2010/11 to 15.3% in 2014/15). 3. Raise domestic savings (share of gross domestic savings to GDP increased from 5.5% in 2010/11 to 15% in 2014/15). 4. Maintain fiscal deficit at a sustainable level (maintain budget deficit share to GDP at less than 2%). 5. Disclose and maintain off budget public investments (quasi fiscal operations) at a sustainable level.  Rapid growth could pose risks to Outcome 1.1 - Structural and  Timely preparation and monitoring of an Indicative New Financing macro stability, in rising inflation and macroeconomic policies are conducive integrated and consistent Macro-Economic  DPOs General or Sectoral external imbalances. to sustain internal and external and Fiscal Framework  Inflation has been high and non- balance  Establishing a system (database) to Indicative AAA/TA/TF/Others subsiding since June 2011 monitor off budget investments and  Semi-annual Economic Updates  Weak dialogue mechanism to develop Indicator 1: Sound monetary and fiscal contingent liabilities in the public  Poverty Assessment, Poverty Mapping policy options to discuss emerging policies to control inflation implemented enterprises  Country Economic Memorandum issues Baseline: 21.6 (end of 2011/12)  Establishing a mechanism for discussing  Debt Sustainability Analyses Target: < 10% macroeconomic issues between the GoE  Diagnostic Trade Integration Study and development partners (IMF, WB)  Statistics for Result TF Partners  IMF  Revenue growth has fallen short of Outcome 1.2 - Increased domestic  Continued increase of taxpayer registration On-going Financing GDP growth recently and constrains resource mobilization using biometric systems (1.8 million in  Public Sector Capacity Building (PSCAP) the fiscal space. 2011) 97 For contribution of Trust Funds to CPS pillars and specific projects/programs please see Annex 12. Page 61 CPS OUTCOMES and ISSUES AND OBSTACLES INDICATORS (with 2011 baselines INDICATIVE MILESTONES WORLD BANK GROUP PROGRAM and end-FY16 targets)  Domestic resource mobilization has Indicator 2: Share of tax revenue in  Equipping tax collection institutions with Indicative New Financing been weak. Revenue to GDP is low GDP adequate enforcement power (information  Macro budget support/DPO compared to Sub-Saharan Africa’s Baseline: 9.7% and tax-auditing systems) at federal and  Public Sector Reform & Capacity Building Program average. Target: 15% regional levels (incl. PFM)  Enhancing the capacity of tax collection and administration Indicative AAA/TA/TF  Public Expenditure Review (including sectoral PERs)  Debt Management and Performance Assessment  Medium-Term Debt Management Strategy TA Partners  IMF CPS Strategic Objective 2: Increased Competitiveness & Productivity GTP Goals: 1. Agriculture: Intensify production of marketable farm products for domestic and export markets by small farm holders and private agricultural investors  Increased cereal productivity (qt/ha) form 17 qt/ha in 2010 to 22 qt/ha in 2015  Increased value of agricultural sector export (in $US) from 1.55bn in 2010 to 6.58bn in 2015 2. Private Sector and Improved Competitiveness: Raise the efficiency and competitiveness of trade sector and establish a favorable environment for productive investors  Total exports as % of GDP increased from 13.6% in 2010 to 22.5% in 2015  3mln new jobs created through MSEs; 40,000 jobs in textile and garment; 200,000 jobs in sugar industry 3. Financial sector: Strengthen the financial sector with the aim of establishing an accessible, efficient and competitive financial system  Access to finance increased from 20% currently to 75% by the end of the GTP period.  Low productivity of crop and livestock Outcome 2.1 – Increased agriculture  Land areas with improved technologies in On-going Financing in many geographical areas productivity and marketing in targeted woredas  Agricultural Growth Program (AGP)  Weak land and water management selected areas  Additional irrigation areas developed or  Eastern Africa Agricultural Productivity Project practices and institutions rehabilitated (ha)  Protection of Basic Service (PBS) II  Fragmented and uncoordinated Indicator 3: Average yields of selected  Km of feeder roads constructed or  Irrigation and Drainage Project agricultural public services crops in targeted woredas (index, see rehabilitated  Warehouse Receipts Financing Program (IFC) AGP PDO)  Ethiopia- Nib Bank Coffee Cooperative Risk Baseline: 9.9 Sharing Facility (IFC) Target : 11.5  Pastoral Community Development (PCDP) II  Productive Safety Net Project (PSNP) Indicator 4: Value of marketed agricultural products (in US$ mln) in  Tana & Beles Integrated Water Resources targeted woredas Development Project Baseline: 7,176 ETB per household Target: 8,731 ETB per household Indicative New Financing  Agricultural Growth Program (AGP) II  Pastoral Community Development (PSDP) III Page 62 CPS OUTCOMES and ISSUES AND OBSTACLES INDICATORS (with 2011 baselines INDICATIVE MILESTONES WORLD BANK GROUP PROGRAM and end-FY16 targets)  Promoting Better Services (PBS) Phase III Indicative AAA/TA/TF/Others  Strengthened RED&FS portfolio management  Land Administration TA  Climate-smart agriculture  Disaster Risk Management  Skills Development AAA  Climate Change AAA Partners  USAID, CIDA, Spain, AFO, Netherlands, UNDP  Business regulations and policies in Outcome 2.2 – Increased  Regularly convene Public-Private On-going Financing need of improvement. competitiveness in manufacturing and Dialogue Forum (PPDF) with  Private Sector Development Capacity Building (PSD  Weak public-private dialogue. services recommendations provided to the CB) Project  Shortage of Business development government for adoption  Tourism Development Project (ESTDP) services including skills. Indicator 5: Number of new jobs created  Streamlined registration and licensing  Women Entrepreneurship Development Project  Poor trade logistics. in targeted manufacturing and services requirements (WEDP) firms  Number of firms supported in selected  Urban and Local Government Development Project Baseline: zero manufacturing and service sectors through (ULGDP) Target: 200,000 business development services (BDS), by  Electricity Network Reinforcement and Expansion owner gender Project (ENREP)  Average number of trade logistic documents and steps reduced Indicative New Financing  “Ethiopian Cities Day� to promote  Competitiveness and Employment Project competition conducted on annual basis  Urban Local Government (ULGDP) II  Lack of medium and long term finance Outcome 2.3 – Increased MSE access  Coverage of the Credit Information Center  Micro and small enterprises (MSEs) to financial services (CIC) increased to include also MFIs’ Indicative AAA/TA/TF/Others currently having limited access to clients  Ethiopia Investment Climate Project (IFC) financial services. Indicator 6: Volume of bank funding:  Line of credit to support MSEs established  Ethiopia PPDF Initiative (IFC) Lines of credit to MSEs  NLTA on Competitiveness and Job Creation Baseline: zero  Series of FPD Policy Note(s), incl. Regulatory and Target: US$28mln Supervisory Framework for Micro-insurance  Climate Innovation Center (InfoDev)  Gender-focused policy and research notes  Enhanced Regulatory Framework for Remittances Partners  DFID, EU, AfDB, GTZ, IMF, IFC, CIDA Page 63 CPS OUTCOMES and ISSUES AND OBSTACLES INDICATORS (with 2011 baselines INDICATIVE MILESTONES WORLD BANK GROUP PROGRAM and end-FY16 targets) CPS Strategic Objective 3: Increased and Improved Delivery of Infrastructure GTP Goals: 1. Power: (i) Electricity coverage increased from 41% in 2010 to 75% in 2015; (ii) Power generating capacity (MW) increased from 2,000 in 2010 to 10,000 in 2015. 2. Transport: (i) Road network increased from 49,000 km in 2010 to 136,000 in 2015; (ii) Roads in fair and good conditions increased from 81% in 2010 to 86 % in 2015. 3. Water and Sanitation: (i) Potable water coverage increased from 68.5% in 2010 to 98.5% in 2015 (ii) Water sanitation coverage increased from 52.4% in 2010 to 84% in 2015 (Source: Sanitation Action Plan)  Low access rates in areas already Outcome 3.1 – Increased Access to  Increased household electricity connection On-going Financing connected to the grid. Electricity in selected areas that are already connected  Energy Access  Major network bottlenecks due to to grids and that are newly connected to  Electricity Access (Rural) Expansion rapid growth in demand require Indicator 7: Number of people provided grids  Electricity Access Rural II reinforcement of transmission with access to electricity in selected  Number of newly electrified towns and  GOPBA Electricity Access network. areas villages in selected areas  Electricity Network Reinforcement & Expansion  Low access to off-grid renewable  Number of EEPCo Staff trained. (ENREP) energy Baseline:  Nile Basin Initiative: ET/SU Interconnection  Weak implementation and On-grid: 12 million management capacity of Ethiopia Off-grid :16.5 million Indicative New Financing Power Cooperation (EPCO) to manage  Halele-Werabesa Hydropower Project Target: large and complex projects.  Renewable Energy Project On-grid: 24 million Off-grid: 60 million Indicative AAA/TA/TF/Others  CIF/SREP Aluto Langango Project  Geothermal Sector Strategy  Hydropower Center of Excellence TA  Hydraulic Lab for Dam Modeling/Safety TA  GPOBA Biogas Program  GEF Solar Lighting Program Partners  IFC, AfDB, AFD (France), SNV, Japan, Iceland  Low road density - only 10% of rural Outcome 3.2 – Improved roads,  ERA Quality Assurance System On-going Financing population lives within 2km of an all- transport infrastructure implemented  Road Sector Development Program APL III weather road.  ERA Maintenance Management System  Road Sector Development Program APL IV  Low Ethiopia Road Authority (ERA’s) Indicator 8: Additional km of roads improved  Urban Local Government Development (ULGDP) capacity for design review assessment, constructed (new or upgraded with  ERA Cost Monitoring System  Protection of Basic Service (PBS) II quality assurance, contract asphalt) or rehabilitated to fair and implemented  Productive Safety Nets III (PSNP) management, safety enforcement, and good condition  Increased routine maintenance contracts  Pastoral Community Development Project (PCDP) safeguards compliance. ERA needs to Baseline: implemented  Agricultural Growth Program (AGP) be modernized to deliver high quality Federal Constructed: zero roads at competitive cost. Rural Constructed: zero Indicative New Financing Page 64 CPS OUTCOMES and ISSUES AND OBSTACLES INDICATORS (with 2011 baselines INDICATIVE MILESTONES WORLD BANK GROUP PROGRAM and end-FY16 targets) Federal Rehabilitated/Upgraded: zero  Transport Sector Project In Support of RSDP4 Target:  Transport Sector Project In Support of RSDP4 Federal Constructed: 4,330km (Project 2) Rural Constructed: 11,215km  Urban Local Government (ULGDP) II Federal Rehabilitated/Upgraded:  Rural Roads Support (PforR) 5,750km  Pastoral Community Development (PSDP) III  Promoting Better Services (PBS) Phase III Indicator 9: Additional km of rural access roads constructed and/or Indicative AAA/TA/TF/Others rehabilitated to fair and good condition  Study Into Increasing Road Construction Costs Baseline: 800km Target: 71,500km Partners  AfDB, EU, JICA, DFID, China, BADEA  Low coverage rates, particularly in Outcome 3.3 – Increased access to  User groups’ capacities to operate and On-going Financing emerging regions improved water and sanitation maintain water sources strengthened  Water Supply, Sanitation and Hygiene (WASH) I  Utility inefficiencies largely due to services in urban and rural areas  Urban water utilities’ capacities to manage  Urban Water Supply & Sanitation (UWSS) underpricing and distribution losses and implement business plans  Urban Local Government Development (ULGDP) (typically around 40% compared with Indicator 10: Additional people strengthened  Protection of Basic Service (PBS) II 33% in other LICs in Africa) and provided with improved water resources  Productive Safety Nets III (PSNP) above good practice levels (below in selected urban and rural areas  Pastoral Community Development Project (PCDP) 23%) for developing countries (AICD, Baseline: zero 2008). Target: 4.2 million Indicative New Financing  Inadequate assessment, development  Water Supply, Sanitation and Hygiene (WASH) II and management of groundwater Indicator 11: Additional rural/urban  Urban Local Government (ULGDP) II potential households with improved sanitation  Pastoral Community Development (PSDP) III (latrines) Baseline: zero  Promoting Better Services (PBS) Phase III Target: 4.5 million  Eastern Africa Pastoral Livelihoods Recovery and Resilience Indicative AAA/TA/TF/Others  PER in Water Supply Partners  WSP, Finland, DFID, Italian Cooperation, UNICEF, AfDB, EU, France CPS Strategic Objective 4: Enhance Regional Integration GTP Goals: 1. Export power to neighboring countries 2. Produce sufficient food crops and high value products for international markets Page 65 CPS OUTCOMES and ISSUES AND OBSTACLES INDICATORS (with 2011 baselines INDICATIVE MILESTONES WORLD BANK GROUP PROGRAM and end-FY16 targets) 3. Integrate into the multilateral trading system through, inter alia, completing WTO accession, strengthening regional trade integration with IGAD and COMESA, conclude EPA with EU.  Limited generation capacity for power Outcome 4.1 – Improved Eastern  Transmission line from Ethiopia power On-going Financing export to region Africa Power Pool Mechanism grid to Kenya designed and under  Nile Basin Initiative: ET/SU Interconnection construction by 2016. Indicator 12: MW hydropower  Halele-Werabesa Hydropower Project Indicative New Financing generation capacity for potential export begin construction by 2015.  Regional Eastern Africa Power Pool Project Baseline: 2,000 MW (EAAP) Target: 10,000 MW  Halele-Werabesa Hydropower Project Indicative AAA/TA/TF/Others  Hydropower Center of Excellence TA  Hydraulic Lab for Dam Modeling/Safety TA Partners  AfDB, AFD (France)  Inefficient dissemination of Outcome 4.2 – Enhanced  Regional Center of Excellence in Wheat On-going Financing agricultural technologies across involvement in regional agriculture established in Ethiopia.  Eastern African Agricultural Productivity (EAAP) countries technology generation and  Continued cooperation of Ethiopia  Weak regional capacity of the regional dissemination agricultural research and extension with Indicative New Financing centers of excellence regional agricultural institutions  Eastern Africa Pastoral Livelihoods Recovery and  High impact of transboundary pests Indicator 13: Number of existing and (ASARECA). Resilience and diseases. new technologies from Ethiopia Partners disseminated in more than one EAAPP  USAID/VOCA (wheat value chain), Japan (rice), country compared to plan CGIAR (wheat, rice and cassava). Baseline: zero Target: three PILLAR 2: ENHANCED RESILIENCE AND REDUCED VULNERABILITIES CPS Strategic Objective 5: Improved Delivery of Social Services GTP Goals: 1. Improve access to and quality of health services:  Maternal mortality rate (per 100,000) decreased from 590 in 2010 to 267 in 2015  Under five mortality rate (per 1000) decreased from 101 in 2010 to 67 in 2015 2. Improving access and quality of education:  Secondary gross enrollment ratio increased from 38.1 % in 2010 to 75% in 2015 Page 66 CPS OUTCOMES and ISSUES AND OBSTACLES INDICATORS (with 2011 baselines INDICATIVE MILESTONES WORLD BANK GROUP PROGRAM and end-FY16 targets) Despite some good progress in reducing Outcome 5.1 – Increased Access to  Increase in Health centers having On-going Financing child mortality, Ethiopia is facing Quality Health Services functional cold chain equipment (%)  Protection of Basic Services (PBS) Phase II significant challenges in scaling up  Increase in Health Centers providing  Nutrition Project evidence based interventions to reduce Indicator 14: Penta 3 vaccination round the clock delivery services (%) maternal deaths. The gains made in child coverage  Reduced stock out of long acting Indicative New Financing mortality reduction also need to be Baseline: % to be established by the contraceptives at health facilities (%)  Promoting Basic Services (PBS) Phase III sustained and further enhanced. ongoing cluster survey  Growth, monitoring, promotion (GMP)  Health MDG Support (PforR)  Lack of 24/7 delivery services in most Target: 10% point increase from and community conversations conducted health facilities, especially, health baseline regularly Indicative AAA/TA/TF/Others centers  Health Results Innovation TF to support  Shortage, high turnover and Indicator 15: Proportion of births performance assessment using Balanced Score Cards insufficient skills of midwives and attended by skilled health personnel  IE of the health facility performance incentives. delivery attendants Baseline: 10%  High unmet need for family planning Target: 18% Partners  All partners supporting the Health Sector Indicator 16: Contraceptive Prevalence Development Program IV and in particular those Rate financing the MDG performance fund (DFID, Baseline: 29% Spanish Corporation, Italian Corporation, Irish Aid, Target : 35% UNFPA, UNICEF and WHO).  Low quality of education resulting Outcome 5.2 – Increased Access to  Increased primary completion rate On-going Financing from, inter alia, inadequate number of Quality Education  Improved primary pupil to textbook ratio  General Education Quality Improvement (GEQIP) teachers, insufficient number of  Increased percent of primary teachers with  Protection of Basic Services (PBS) Phase II qualified teachers, inadequate number Indicator 17: Percentage of students appropriate qualification and pupil/teacher of textbooks. attaining basic competency ratio Indicative New Financing  Promoting Basic Services (PBS) Phase III Baseline (2006/07):  Education MDG Support (follow-up to GEQIP) Grade 4: Reading in mother tongue 48%; Mathematics 46% Indicative AAA/TA/TF/Others Grade 8: English 40%; Mathematics  Russian Education Aid for Development TF II 40% Partners Target (2015/16):  Global Partnership for Education, DFID, Finland, Grade 4: Reading in mother tongue Italian Development Cooperation, USAID, JICA, 58%; Mathematics 56% UNICEF, Russia. Grade 8: English 50%; Mathematics 50% CPS Strategic Objective 6: Comprehensive Social Protection and Risk Management GTP Goals: 1. Reduced number of household participating in productive safety net program from 7.8 million in 2010 to 1.3 million in 2015 2. Reduce stunting prevalence among children from 46% in 2010 to 37% in 2015 Page 67 CPS OUTCOMES and ISSUES AND OBSTACLES INDICATORS (with 2011 baselines INDICATIVE MILESTONES WORLD BANK GROUP PROGRAM and end-FY16 targets) 3. Improved disaster management and mitigation, enhanced early warning information system, disaster risk profiling introduced at woreda level and improved assessment tools 4. Area under community based natural resource management increased from 3.7 to 7.7 million ha. 5. Food reserve increased to 3 mln metric tons  High level of vulnerability for the rural Outcome 6.1 – Enhanced resilience Increasing number of PSNP clients/households: On-going Financing poor, due to repeated climatic shocks, of vulnerable households to food  able to plan ahead on the basis of program  Water Supply and Sanitation (WSS) macroeconomic shocks, health and insecurity transfers  Agricultural Growth Program (AGP) nutrition risks, conflict and  reporting direct benefit from community  Pastoral Communities Development Program environmental degradation coupled Indicator 18: Average number of assets (PCDP) II with climate change. This has resulted months PSNP households report being  reporting that they have developed an  Nutrition Project in a large number of people living food insecure (data provided by additional income generating activity  Sustainable Land Management Practices Project below the food poverty line. program beneficiaries participating in attributable to the program (SLMP) public works (PW) and/or direct  with a consumption below 1800  Tana and Beles Integrated Water Resources support (DS)) Kcal/person/day (27% in 2010) Development Project Baseline (2010):  Productive Safety Nets (PSNP) III PW: 3.64  Protection of Basic Services (PBS) II DS:3.80  GFDRR Programmatic Support to Ethiopia Disaster Target : Risk Management Country Plan PW:3.24 DS:3.42  GFDRR Support of Ethiopia – Disaster Risk Management in Capacity Building for Disaster  Persistence of systemic limitations and Outcome 6.2 – Increased Adoption of  WoredaNet service and LANs installed in Preparedness gaps in the DRM system; Disaster Risk Management Systems Woreda, Regional, Strategic Warehouses  Inadequate speed of the flow and and DRMFSS and connectivity Indicator 19: Number of Woredas with Indicative New Financing exchange of early warning information functionalized;  Water Supply, Sanitation and Hygiene (WASH) II and its quality functional connectivity, Disaster Risk  Improved speed of the flow and exchange  Pastoral Community Development (PSDP) III  Lack of disaster profiles of vulnerable Profiles and Contingency Plans of EW information; Woredas for a design of relevant Baseline: zero  Woreda Disaster Risk Profiles developed,  Promoting Better Services (PBS) III program interventions; Target: 100 endorsed and posted online;  Eastern Africa Pastoral Livelihoods Recovery and  Limited capacity of the government in  Woreda level contingency plans prepared Resilience the formulation of disaster recovery and endorsed.  Regional Drought Response Program (rehabilitation and reconstruction) plan.  Number of Government Staffs(Federal  Health MDG Support Program and Regional) trained in Post Disaster  Sustainable Land Management (SLMP) II Needs Assessment  DRM Program/Scalable Safety Nets Baseline: zero  GFDRR Programmatic Support to Ethiopia Disaster Target: 50 Risk Management Country Plan Phase II  In many parts of the country the land Outcome 6.3 – Sustainable natural  Increasing percentage of public works base has been severely degraded resource management and resilience reaching satisfactory standards and Indicative AAA/TA/TF/Others through erosion and unsustainable land to climate change sustainability ratings  Decentralization us practices. As a consequence land  Increasing percentage of public works with  Social Protection TA productivity has declined and rainfall Indicator 20: Area (ha) under an established management mechanism at  Skills Development AAA infiltration has fallen resulting in a sustainable land and water completion  Disaster Risk Management significant negative impact on management practices in selected  Climate Change AAA Page 68 CPS OUTCOMES and ISSUES AND OBSTACLES INDICATORS (with 2011 baselines INDICATIVE MILESTONES WORLD BANK GROUP PROGRAM and end-FY16 targets) agricultural GDP and food security. watersheds (PSNP, SLMP, Tana & Beles) Partners Baseline (2010): zero  EU, UNDP, WFP, UNDP Target:1,000,000 FOUNDATION: GOOD GOVERNANCE & STATE BUILDING GTP Goals: 1. All government institutions improve their institutional setup and working systems (BPR, BSC) to become more effective. 2. All government institutions will fully implement effective and transparent financial systems including, auditing and accounting systems, and standards (program budgeting, IFMIS, standards on accounting and auditing and financial laws related with the reform). 3. The established system for participation and the level of citizens’ and community-based organizations’ participation in development process at all levels. 4. Clearance rate of courts meets international standards.  Capacity limitations at all levels of Outcome 7.1 – Improved Public  BSC studies completed for all ministries On-going Financing government, particularly at Regional, Service Performance Management and regions  Public Sector Capacity Building - PSCAP Woreda and Kebele level, impacting and Responsiveness Baseline:  Protection of Basic Services (PBS) II on ability of decentralized jurisdictions Federal: All ministries  Urban Local Government (ULGDP) to deliver public services Indicator 21: Balanced Score Card Regions: 4 big regions  Under-developed culture of (BSC) implemented measuring both Target: Indicative New Financing performance measurement, appraisal organizational and individual Federal: All ministries  Promoting Better Services (PBS) III and management in the civil service at performance Regions: 7 regions  Public Sector Reform & Capacity Building Program all levels Baseline:  Municipal service standardization in place (incl. PFM) Federal ministries: zero  Strengthening complaint handling focal  Urban Local Government (ULGDP) II Regions: zero points  Macro budget support/DPO Targets:  Capacity development programs in basic Federal ministries: all service delivery for woredas and kebeles Indicative AAA/TA/TF/Others Regions: 4 big regions98 implemented  Access to justice for poor and vulnerable groups in Addis Indicator22: Percent of citizens  Analysis of civil service staff turnover and retention confident that local government will and options for reform address their service quality issues in key areas  Woreda and City Benchmarking Survey Baseline:  PEFA Update (federal & regional level) Water:65%  Woreda level PFM Reports Health: 58% Targets: Partners Water:70%  DFID, Italy, EU, AfDB, EU, Irish Aid Health: 65% 98 Four big regions include Oromia, Amhara, Tigray and SNNP. Page 69 CPS OUTCOMES and ISSUES AND OBSTACLES INDICATORS (with 2011 baselines INDICATIVE MILESTONES WORLD BANK GROUP PROGRAM and end-FY16 targets)  Weak implementation of consultation Outcome 7.2 – Enhanced space for  Regular kebele meetings held on planning framework on development needs citizen participation in the and budgeting with citizens’ participation between woreda and kebele development process  Cities prepare three-year rolling capital administrations and citizens investment plans with participation of Indicator 23: Percent of citizens citizens reporting that administrative officials sought their views on development needs Baseline: Rural and urban local Gov: 52% Target: Rural and urban local Gov: 60%  Limited public access to government Outcome 7.3 – Enhanced public  Annual Financial Statement of information at all levels financial management, procurement, Government of Ethiopia continues to be  Oversight and Accountability transparency and accountability produced within six months after the end institutions are weak. of the FY.  External audit coverage is weak at Indicator 24: Improved PFM  Public Accounts Committees / Budget and federal and regional levels. performance at Federal & regions Finance Committees are established and  Internal audit is weak across the Baseline: PEFA Score of 2.83 out of 4 in functional at the Federal Parliament / country and the oversight committees 2009 for the Federal Government Regional Councils / Woreda and City at the Federal Parliament and the Target: PEFA Score of 3.1 (top 10% of Councils at least in the 4 big regions Regional Councils have only recently countries in the Africa Region (2011)  Ongoing programs for strengthening been established and empowered. training institutions to deliver training in  Lack of transparency in award of Indicator 25: Citizens’ Charters in place IT, PFM, procurement, revenue and contracts by regions and woredas across public service at all levels of taxation.  Weak procurement system at zonal government  IBEX system is rolled out to 800 woredas and woreda levels Baseline: and cities.  Shortage of procurement and contract Federal: one (Ministry of Civil Service)  Format for citizens charter developed and management capacity Regions: zero training provided  Lack of any formal accountability Target : mechanisms between public Federal : All federal Ministries institutions and citizens Regions : 4 big regions Indicator 26: Percent of regional institutions (auditees) with annual financial audits Baseline: 26% Target: 35% Page 70 Appendix 4: CAS Completion Report (CAS CR) Federal Democratic Republic of Ethiopia: Country Assistance Strategy Completion Report FY 2008 – 2012 Date of CAS: April, 29 2008 August 6, 2012 Page 71 Acronyms and Abbreviations AAA Analytical and Advisory Activities IDA International Development AGP Agricultural Growth Program Association APL Adaptable Program Loan IEG Independent Evaluation Group CAS Country Assistance Strategy IFC International Finance Corporation CASCR CAS Completion Report IMF International Monetary Fund CASPR CAS Progress Report ISR Implementation Status Report CIFA Country Integrated Fiduciary MDG Millennium Development Goals Assessment MDTF Multi-Donor Trust Fund CPS Country Partnership Strategy MIGA Multilateral Investment Guarantee CRGE Climate Resilient Growth Agency Economy MoFED Ministry of Finance and Economic DFID Department for International Development Development NBI Nile Basin Initiative EACC Economics of Adaptation to PASDEP Plan for Accelerated and Sustained Climate Change Development to End Poverty ECX Ethiopia Commodity Exchange PBS Provision of Basic Services EFA-FTI Education for All – Fast Track Program Initiative PDO Project Development Objective EPPCF Ethiopian Public Private PE IBRD/IDA operations Consultative Forum PEFA Public Expenditure and Financial ESW Economic and Social Work Accountability FDI Foreign Direct Investment PRSC Poverty Reduction Support Credit GAP Gender Action Plan PSCAP Public Sector Development – GDP Gross Domestic Product Capacity Building Project GEF Global Environment Facility PSNP Productive Safety Nets Program GoE Government of Ethiopia SLM(P) Sustainable Land Management GPOBA Global Partnership for Output- (Project) based Aid SME Small and Medium Enterprises GTP Growth and Transformation Plan TLU Tropical Livestock Unit ICA Investment Climate Analysis ULGDP Urban Local Governance ICR Implementation Completion and Development Project Results Report UNDP United Nations Development ICT Information and Communication Program Technology UNICEF United Nations Children’s Fund ICTAD Information and Community WTO World Trade Organization Technology Assisted Development Project Page 72 Federal Democratic Republic of Ethiopia: Country Assistance Strategy Completion Report FY 2008 – 2012 Date of CAS: April 29, 2008 Date of CAS Progress Report: September 29, 2010 Period covered by CAS: FY08 – FY12 (extended one year) Period covered by this report: April 2008 – March 2012 I. Introduction A. Methodology 1. This Country Assistance Strategy Completion Report (CASCR) presents an assessment of the International Development Association’s (IDA) Country Assistance Strategy (CAS) for Ethiopia for FY08 – FY12. The CASCR aims to evaluate two dimensions of the CAS program implementation: i) program performance in influencing the CAS outcomes as laid out in the results framework and ii) the Bank’s performance in designing and managing the implementation of the program. In addition, this report offers lessons for the forthcoming Ethiopia Country Partnership Strategy (CPS). 2. The CASCR draws on key reviews undertaken during the implementation period, most notably the 2010 CAS Progress Report (CASPR), project implementation completion reports (ICR) and project implementation status and results reports (ISR). The CASPR, which was discussed with the Government and other stakeholders, made formal adjustments to the strategy reflecting realities on the ground. These changes have been taken into account in this CASCR. This report also benefits from a workshop undertaken with the country team and government counterparts in Addis Ababa, Ethiopia in February 2012. B. Summary of performance 3. The performance of the CAS program (FY08-FY12) is rated Moderately Satisfactory overall. The rating is an aggregate measure of progress made toward achieving CAS outcomes which were achieved in varying degrees. Under pillar one of the CAS, ‘Fostering Economic Growth’, progress was made during the CAS period to invest in critical infrastructure for growth. However, there was limited success in achieving macro-economic stability, particularly inflation, and structural reforms. That said, the FY08 CAS had clearly acknowledged that these were areas of weak dialogue with the Government of Ethiopia (GoE). Consequently the program was less ambitious on macro-stability and structural reform. Under pillar two, ‘Improving Access to and Quality of Basic Services’, access to basic services increased significantly under the CAS but improving the quality of services was less successful. This is partly due to the focus on increased access in order to achieve the MDGs which placed a strain on existing facilities. Under pillar three, ‘Reducing Vulnerability’, the GoE’s Food Security Program and its largest component, the Productive Safety Nets Program (PSNP), had a positive impact on securing the access to food for chronically food insecure households. PSNP and the emergency Food Crisis Response Program were important instruments through which the Bank helped mitigate the effects of the 2008 food crisis. Vulnerability to environmental degradation was reduced by investments in watershed rehabilitation and flood management. Nonetheless, environmental pressures will remain a long-term challenge in light of Ethiopia’s fast rate of population growth. Under pillar four ‘Fostering Improved Governance’, the CAS program contributed to improved social accountability at the local level through citizen groups and participatory planning processes in woredas and targeted cities. Governance was also a cross-cutting theme in all pillars (see also para 39). At the national level, an anti-corruption policy has been prepared, Page 73 but has not yet been ratified by the Council of Ministers. Finally, under “Other Outcomes�, over 60% of IDA support was provided through program-based approaches, most notably PSNP and the Provision of Basic Services Program (PBS). New lending partially complied with the Africa Gender Action Plan criteria for gender mainstreaming in lending operations. 4. Bank performance and implementation is rated Moderately Satisfactory. CAS design and CASPR adjustments were relevant and aligned to GoE objectives. The majority of indicators in the CAS results matrix are appropriate to measure the CAS outcomes; however a few outlier indicators have been identified in the assessment. While the text of the CAS and the CASPR provided a realistic account of what the constraints and opportunities were under each pillar, this was not reflected in some of the indicators and targets which were overambitious. 1 The Bank scaled-up successful programs such as PSNP, PBS, Roads APL and the Urban Local Governance and Development Project (ULGDP). Partnerships with other donors were maintained and the Bank often took the technical lead. Risk management could have been stronger had mitigation measures been better identified during CAS design and the CASPR. Portfolio performance was satisfactory as the portfolio size and composition was well managed and disbursement levels were maintained at a high level. IEG evaluations of projects that closed during the CAS period noted that efficiency (value for money) could have been better and that M&E design, implementation and utilization also need improvement. C. Economic context 5. During the CAS period, Ethiopia continued to experience strong economic growth. The main determinants of the sustained economic growth are the good performance of agricultural production (which comprises around 47.7% of the total economy)2, the manufacturing and services sectors, as well as the expansion of the construction sector (mainly roads and hydroelectric dams and housing).3 Annual real GDP growth was 10.8% in 2008, declining to 8.8% in 2009, and it is projected to be 7.6% in 2011 (see Table 1), with a per capita GDP shy of US$ 400 in 2011. 6. Similarly to many other African countries, Ethiopia’s macroeconomic situation deteriorated after the onset of the global economic crisis in 2008. The country’s end-of-period inflation rose to 64% in July 2008 and its foreign exchange reserves fell to less than US$ 770 million (or less than four weeks of import coverage) by October 2008. Recovery was supported by a 14 months arrangement under the IMF’s High Access Component of the Exogenous Shocks Facility approved in August 2009 and concluded in November 2010. During this period, inflation declined to single digits but rose again reaching 32% in January 2012 and declining slightly to 29% in April 2012. According to the IMF, Ethiopia’s highly expansionary monetary policy, that has been highly inflationary, could undermine macroeconomic stability.4 7. Structural impediments to growth remain to be tackled, namely, more room for private sector development and a better investment climate. Ethiopia’s ranking in the Doing Business report declined from 104th in 2011 to 111th in 2012. Some of the constraints in the investment climate, as perceived by the private sector, 5 include access to finance, tax administration, business licensing, reliability of electricity and a mismatch of skills in the labor market. Aside from these cross-cutting 1 Notable disconnects include maintaining single digit inflation in light of the country’s soaring inflation over period 2008 – 2010, using increased private sector credit as a ratio of GDP as a proxy for private sector activity and reaching 87% school completion rates. 2 World Bank: Ethiopia at a Glance (2010) 3 FAO/WFP Crop and Food Security Assessment Mission to Ethiopia (2010). 4 Joint IDA-IMF Staff Advisory Note on Ethiopia (August 2011). 5 Please refer to Doing Business Report 2011 and 2012 for more details. Page 74 constraints, abrupt policy changes in the regulatory environment may have undermined private sector confidence. Examples include changes to or the introduction of price caps, the trade licensing law, land leasing regulation, and a credit cap on the banking industry. Meanwhile, some positive measures to promote small and medium enterprises have been taken, such as lowering the administrative costs of entry for micro-firms. Table 1: Key economic indicators Indicator 2006 2007 2008 2009 2010 2011 Macroeconomic Stability Real GDP growth (%) 10.8 11.5 10.8 8.8 10.1 7.6 Real GDP growth, at factor cost (%) 11.5 11.8 11.2 10.0 8.0 7.5 CPI (%) 12.3 15.8 25.3 36.4 2.8 18.1 GDP deflator (%) 11.6 17.2 30.3 24.2 3.8 17.9 Investment (% of GDP) 25.2 22.1 22.4 22.7 22.3 24.7 Public fixed investment (% of GDP) 16.7 18.1 17.1 17.6 13.1 15.9 Private fixed investment (% of GDP) 8.5 4.0 5.2 5.2 9.3 8.8 Current account balance (% of GDP) -9.1 -4.5 -5.6 -5.1 -4.4 -6.4 Merchandise Terms of Trade (2000=100) 111.9 110.5 107.9 117.6 152.2 147.5 Short term debt / reserves (%) 6.6 3.7 5.5 3.0 15.9 13.3 Fiscal Policy Primary balance (% of GDP) -4.7 -4.2 -3.7 -1.8 -2.0 -3.6 Primary balance excluding grants (% of -6.6 -7.3 -6.0 -4.7 -4.0 -5.9 GDP) Interest payments / GDP (%) 0.8 0.7 0.5 0.4 0.4 0.6 Public debt / GDP (%) 67.9 40.1 33.7 37.6 41.7 33.7 Debt Management Public Debt composition Foreign Exchange (%) 54.8 29.5 30.8 36.2 45.2 57.6 Domestic Currency (%) 45.2 70.5 69.2 63.8 54.8 42.4 Source: World Bank database and IMF 8. Ethiopia has significantly invested in infrastructure for growth over the CAS period. This has been particularly prominent in the transport and communication sector. Ethiopia’s vast hydropower potential is being developed as the country prepares to become a regional power exporter. Agricultural production and productivity has increased for major crops such as barley, maize, sorghum, teff and wheat due to increases in investments in agricultural inputs and area coverage. . Exports of oil seed, livestock and legumes have also increased, however, food prices have not fallen. 9. Decentralization to the district and sub-district level is a focus of Ethiopia’s strategy to improve responsiveness and flexibility in service delivery and increase local participation. Whilst in theory districts (woredas) have substantial powers, in practice limited resources have been a brake on budget discretion, despite significant increases in sub-national revenue raising. Public sector reform and capacity building continue at the national level. 10. The worst effects of the simultaneous food and fuel crisis in 2008 were stabilized through a national food security strategy. Towards the end of 2008 6.4 million people were dependent on emergency food assistance, in addition to 7.3 million chronically food insecure people. Similarly, the PSNP and the humanitarian response system were also able to address the 2011 Horn of Africa drought to avoid the severe impacts that were seen in neighboring areas. However, the developments over the past years have shown that Ethiopia is still far away from achieving the paradigm shift away from Page 75 humanitarian food aid. Humanitarian aid provided to Ethiopia in the period of 2008 to 2011 was extremely high, averaging about US$ 807 million annually. Despite strong national growth in agriculture and food production as well as very significant investments to support food-insecure households, food insecurity increased compared to the period of the previous CAS. Based on figures from MoFED March 2012 (“Ethiopia’s Progress Towards Eradicating Poverty: An Interim Report on Poverty Analysis Study (2010/11)�), the absolute number of food-poor people in Ethiopia increased from about 27.0 million in 2004/05 to about 28.4 million in 2010/11. Given continued population pressure and increased weather volatility through climate change, a re-thinking of Ethiopia’s approach and the Bank’s support to achieve food-security might be needed. 11. Ethiopia is making significant progress on all the MDGs and is projected to be one of the few African countries on track to meet goals relating to extreme poverty and hunger, combating HIV/AIDS and malaria and developing a global partnership for development. Good progress has been made on increasing access to universal primary education, reducing child mortality and increasing access to safe drinking water. Tackling gender disparity in education and improving the quality of education and health services remain a challenge for Ethiopia. II. CAS Program Performance A. Overview and principles of engagement 12. Ethiopia’s FY08-12 CAS supported the GoE to achieve many of the outcomes envisioned in its 2005-2010 Plan for Accelerated and Sustained Development to End Poverty (PASDEP). PASDEP, finalized in 2007, was Ethiopia’s second poverty reduction strategy and placed rapid and sustained growth at its center. It also had strong emphasis on achieving the MDGs, particularly on increasing access to basic services. The key objectives of the CAS aimed to sustain Ethiopia’s rapid economic growth and improvement in service delivery. The four objectives of the CAS, i) fostering economic growth, ii) improving access to and improving quality of basic services, iii) reducing vulnerability and iv) fostering improved governance, were relevant and broadly aligned with the objectives of PASDEP. This was also Ethiopia’s first results-based CAS with clearly defined outcomes and indicators (discussed in detail in section B and annex 1). 13. The Bank responded to GoE’s request to help mitigate the shocks related to the food, fuel and financial crises in FY09. An emergency food crisis response program was included in November 2008 to avoid the worst effects of drought and rising food prices. Under this program two IDA credits were approved:  Additional financing or the Productive Safety Nets Program (PSNP), which supported food and cash assistance to food insecure households (US$ 25 million);  Fertilizer Support Project providing foreign exchange to support the import distribution and sale of fertilizer (US$ 250 million). 14. The CAS period was extended by one year to FY12 due to slower than expected progress toward CAS outcomes and to allow sufficient time to prepare a full new CAS program, in cooperation with the GoE to support its 2010-2015 Growth and Transformation Plan (GTP, November 2011). The GTP’s objectives are to (a) attain high growth within a stable macroeconomic framework; (b) achieve the MDGs in the social sectors; and (c) establish a stable democratic and developmental state. To accomplish its objectives, the GTP identifies the following strategic pillars: (i) sustained rapid growth; (ii) agriculture; (iii) industrialization; (iv) infrastructure investments; (v) enhanced social development; (vi) strengthened governance; and (vii) empowerment of youth and Page 76 women. The GTP shifts the focus towards industrialization and speeding up Ethiopia’s structural transformation to become a middle-income country by 2025. 15. The FY08-12 CAS lending program was mostly comprised of programmatic sector investments and analytical and advisory activities (AAA). In keeping with the objectives of the CAS, a large portion of sector investments focused on provision of basic services (US$1,205m, 27% of the total CAS program), infrastructure development (US$1,055m, 24% of the CAS program) and social safety net programs (US$875m, 20% of the total CAS program). A smaller portion of lending focused on agriculture (US$590m, 13% of the total CAS program), governance and public sector development (US$350m, 8% of the total CAS program), and private sector development (US$235m, 5% of the total CAS program).6 The trust fund portfolio continued to be one of the largest in the Africa Region and disbursed US$ 3.46 billion during the CAS period. The majority of trust funds were used to co-finance IDA lending operations primarily in the human development sector, ensuring there was adequate alignment. The AAA portfolio focused on promoting pillar one of the CAS, “Fostering Economic Growth� and pillars two and three, “Improving Access to and Quality of Basic Services� and “Reducing Vulnerabilities�. 16. Adjustments were made to the CAS program following the CASPR in FY10. Additional financing was favored as the most efficient lending instrument. The CASPR made a number of suggestions for the remaining CAS period FY11-12. These include scaling up existing operations, discussing a new phase on Sustainable Land Management that focuses on land administration, women’s economic empowerment and piloting results-based investment lending to support achievements in the health sector7. The CASPR suggested that the program could potentially include a PRSC if the Bank and the GoE reach an agreement on an agenda for structural change related to private sector development. This however, has not been achieved. The CASPR adjusted the timing of various operations and the Ethiopia/Kenya Interconnector was delayed until late FY12 8 , the Pastoral Community Development Project was not given additional financing and the Roads APL 5 remains pending until the completion of necessary analytical work. The CASPR also indicated that the FY11-12 non-lending program focus on improving decentralized service delivery, spurring private-sector led industrial growth and ensuring food security, most of which is planned or underway at the time of this report. Table 2: IFC portfolio over CAS period Client Industry (Sector) Exposure (US$ m) DMC Manufacturing and Services 55.00 Ethiopian Coffee Agribusiness/Financial Markets 7.29 Nyota Oil, Mining, Gas and Chemicals 5.53 Access Leasing Financial Markets 1.00 Allana Potash Oil, Mining, Gas and Chemicals 5.09 TOTAL 73.91 Source: IFC 17. IFC re-opened its offices in Ethiopia in FY10 with the appointment of a Resident Representative. IFC is expanding its investments and advisory services in the country through a strategy based on three pillars: (i) improving the investment climate; (ii) pro-active project mobilization in priority sectors and (iii) support to SMEs through linkages, improved access to finance, and integrated 6 Note that classification of investments is not exclusive, for example governance being a cross-cutting issue is also addressed in other lending programs not classified as ‘governance’. 7 Under preparation and planned to be delivered in FY13 8 Currently scheduled for approval by end FY12. Page 77 supply chain development. IFC investments as of date total US$ 74m and cover five major sectors as shown in the table below. 18. IFC advisory services, which were designed and developed in collaboration with the Government of Ethiopia, focused on access to finance and investment climate issues. On access to finance, IFC partnered with the Ethiopia Commodity Exchange (“ECX�) and select Ethiopian commercial banks to develop Warehouse Receipts Finance markets in Ethiopia. The initiative’s main objective is to promote access to finance for farmers by leveraging their own production. IFC was instrumental in helping structure and lead the Ethiopia public-private dialogue process together with UNDP, including the establishment of a secretariat for the Ethiopian Public Private Consultative Forum (EPPCF). B. Progress by strategic engagement theme (towards CAS outcomes) 19. The assessment of Bank program is based on a set of specific CAS outcomes as laid out in the CAS results framework and updated during the CASPR. The outcomes are assessed to be achieved, partly achieved or not achieved.9 The assessment is based on quantitative baselines and targets, with evidence compiled from available monitoring and evaluation arrangements. In some cases where outcomes cannot be measured quantitatively, the assessment considers additional information such as proxy indicators or progress on milestones. The assessment is corroborated with evidence gathered from the latest ISRs, ICRs, IEG evaluations of completed projects and interviews with the responsible project task team leaders. The CAS and the CASPR clearly state that satisfactory performance will have been achieved if 70 -75% of the entire set of outcomes are fully attained.10 Table 3: Overview of achievement of CAS outcomes (see Annex 1 for details) Status at completion Outcomes Partly Not Achieved achieved achieved Pillar 1: Fostering economic growth 1. Structural and macroeconomic policies are conducive to sustain internal and 1 external balance. 2. Strengthen road sector institutions and domestic road construction 1 3. Enhance regional integration 1 4. Increase agricultural productivity in selected intervention areas 1 5. Improve financial sector performance 1 6. Reduce cost of internet services 1 7. Improved investment climate helps Ethiopia benefit from increased 1 globalization Pillar 2: Improving access to and quality of basic service delivery 8. Increase girls’ enrollment in primary and secondary education 1 9. Increase delivery of key health services: malaria control, HIV/AIDS prevention, 1 vaccination, nutrition, contraception services 10. Increase sustainable access to potable water and sanitation 1 11. Improve quality of education 1 12. Roll out of kebele health extension package leads to improved services 1 13. Greater use of community radios for improved service delivery 1 9 Indicator targets are considered substantially achieved if at least 70% progress towards the target has been made. An outcome is considered achieved if all relevant indicators are achieved. An outcome is considered partly achieved if some but not all relevant indicators are on track. An outcome is considered not achieved if the majority of indicators are not achieved. (See annex 1 for details). 10 Page 23 in CAS and page 15 in CASPR. Page 78 Status at completion Outcomes Partly Not Achieved achieved achieved Pillar 3: Reducing vulnerability 14. Reduce food insecurity 1 15. Develop long-term strategy for food security and vulnerability to natural 1 disasters 16. Increased investment in community-based watershed management 1 17. Accelerate demographic transition 1 18. Increased voice of women within communities 1 Pillar 4: Fostering improved governance 19. Improve performance of the public service 1 20. Greater capacity of local government to engage with citizens for more responsive services 1 Pillar 5: Other outcomes 21. Increase donor partnership through IDA-supported multi-donor programs 1 22. Mainstream gender in IDA-supported programs 1 TOTAL 12 5 5 % ACHIEVEMENT 55 23 23 20. Fostering economic growth: the CAS program aimed to support Ethiopia’s goal to foster economic growth through structural and macroeconomic policies that are conducive to sustaining internal and external balance, strengthening the road sector institutions and the domestic road construction industry, enhancing regional integration, increasing agricultural productivity in intervention areas, improving financial sector performance, reducing the cost of internet services and improving the investment climate. These outcomes were to be supported by the Public Sector Capacity Building Program (PSCAP), Roads Sector Development APL, the Energy Access Project, the Nile Basin Initiative Power Export Project, the Pastoral Community Development Program, the Irrigation and Drainage Project and the Sustainable Land Management Project, the Private Sector and Financial Sector Development projects among others, as well as a range of AAA, particularly for outcomes 1, 5, and 7. 21. The majority of indicators used to measure outcomes under this pillar were country outcomes for which CAS attribution was difficult. For example, increased agricultural value added was not measured and was replaced by increased agricultural productivity of major crops. Other indicators that measured higher level outcomes are maintaining single-digit inflation levels, increasing revenue-to-GDP ratios and the expansion of private sector credit to GDP. 22. Strong economic growth continued over the CAS period despite the fact that the space for free private sector development remains limited. Since 2010 Ethiopia has continued to run high inflation, recorded at 32% in January 2012 and averaging 38.1% between July 2011 and January 2012. The revenue to GDP ratio while improved (it reached 13.6% in 2011/12 from 12.1% in 2007/8), was nonetheless lower than expected and the target of 14.3% was missed. FDI patterns since 2007 are very volatile and generally weaker than in the pre-crisis years. Companies from India, Turkey and China are among the leading investors in Ethiopia; for the latter, the majority of investments focus on the manufacturing sector in Ethiopia. Table 4: FDI inflows to Ethiopia (US$ million) 2005 2006 2007 2008 2009 2010 265 545 222 109 221 184 Source: UNCTAD, World Investment Report 2011 Page 79 Table 5: Composition of licensed capital of foreign investment projects (%) Sector 2007 2008 2009 2010 2011 Agriculture 47.5 40.6 15.0 36.8 31.3 Manufacturing 16.7 31.3 72.0 38.6 39.6 Construction 1.8 1.7 4.9 7.3 23.4 Real Estate 28.0 16.0 4.1 6.8 2.9 Others 6.0 10.3 4.0 10.5 2.9 Source: Ethiopian Investment Authority 23. Strides were made in the road sector as road density per 1000 km2 increased from 38.6 km in 2007 to 48.1 km in 2011. The share of domestic contractors increased to 77% in 2011 from 35% in 2008. Electrification rates reached 41% of rural towns and villages in 2011 and the number of consumers connected grew from 800,000 in 2005, to more than 2 million in 2011. A number of activities to enhance regional integration remain pending. Construction of power transmission lines between Ethiopia and Sudan is complete and the power trade between the two countries is set to begin following an agreement on prices. The Ethiopia-Kenya Interconnector project under the East Africa Power Pool is expected to be approved in 2012 and will also contribute to regional integration. Other critical investments for growth include the Information and Community Technology Assisted Development Project. The project constructed 65 community ICT centers that served over 70,000 customers per month, 7 community radios and 4 regional ICT business incubators with 55 startup company tenants. At the policy and institutional level the project developed a foundation of policies, standards and guidelines for use of ICT in Ethiopia. 24. According to official statistics, agricultural productivity of three major crops, wheat, teff and sorghum, increased by an average of 14% from 2007/8 to 2010/11.11 This has increased the agricultural income of a number of farmers close to markets, main roads and urban areas. Rice growth around the Gondar region developed over the past few decades and recent new varieties of upland rice have become increasingly popular allowing farmers to dictate prices to millers. 25. Private sector development has followed three tracks over the CAS period. Privatization of state- owned enterprises reached their targets however an environment of free competition is not yet there. A number of companies in telecom, the airline industry and shipping are not to be privatized for the time being as they are perceived by GOE as strategic industries. Secondly, support was given to establishing a Competition Authority under the Ministry of Trade and the Trade Practices and Consumer Protection Proclamation was enacted in 2010. Analytical work on the transport, telecom and finance sectors was conducted to help the GoE with its WTO accession negotiations, however little has been done in this area in terms of actual progress. Finally, under the Private Sector Development Capacity Building Project matching grants schemes to SME for exports have been successful and supported 50-60 firms in textile, leather and agro-processing manufacturing to increase exports by 25%. A high-level study tour to China and Turkey is currently under preparation to learn about different approaches to SME development and line of credits. A number of IFC advisory services have also contributed to the development of the private sector and improving the investment climate as mentioned previously. 26. Improving access to and improving quality of basic services: CAS outcomes that contributed to the country-level goal of increasing access to and quality of basic services were increasing girls enrollment in primary and secondary education, sustainable access to potable water and sanitation services, delivery of key health services, improving the quality of education, rolling out kebele health 11 However this data is not corroborated by other studies. According to the FAO/WFP Crop and Food Security Assessment Mission to Ethiopia (2010) “national cereal and pulse production in 2009/10 is some 4.7 percent below the all time record har vest in 2008/09 but still about 7 percent above the previous five years average. Sorghum and maize crops have been most adversely affected, while production of teff and barley is less affected and production of wheat is expected to increase.� p.4. Page 80 extension packages to improve services and greater use of community radios for improved service delivery. This pillar was predominantly supported by the PBS 2 Program and the associated Pastoral Community Development Project 2, the General Education Quality Improvement Project (GEQIP), the Nutrition Project, the Multisectoral HIV/AIDS Project, water supply and sanitation projects and ULGDP. A large portion of the knowledge portfolio focused on this area, for example a decentralized service delivery study, public finance reviews and a health financing policy note. 27. Indicators on increasing access to basic services were appropriate and targets were met for the large part. For long-term country level goal 2.3 ‘enhance citizen’s voice to improve quality of basic services’, the indicator on the number of community radio stations in operation is weak and insufficient. Results in this area are also demonstrated by the work on good governance under the Public Sector Capacity Building Project which established mechanisms for citizen’s participation in rural and urban kebeles. For example, the project supported the establishment of toll free call numbers that provide public information to citizens. Users of these toll free numbers have increased to over 900 per day. 28. The gender parity index increased to 90% in grades 1-4, 96% in grades 5-8, 83% in grades 9-10 and 71% in grades 11-12. Access to safe drinking water increased from 52% in 2007 to 73% in 2011 and 60% of rural households were using latrines in 2011. The proportion of malfunctioning water facilities was reduced from 25% to 20% in 2011. Health services increased as the proportion of children vaccinated against DPT3 reached 85% at the end of 2010. 29. Ethiopia has made good progress in achieving the MDGs. However, as defined in the CAS, progress on quality of services was less successful. Increasing access and simultaneously improving the quality of services were at times contradictory goals, as the supply of trained personnel was strained by increasing demand. Quality in education was measured by grade 5 completion rates which did not improve much from 65% in 2006 to 69% in 2011. However, completion rates in 2009 and 2010 were 79% and 76% respectively, indicating that some improvements in quality were made but are not stable. In terms of quality of health, the 2012 DHS shows impressive improvement in health outcomes. The CAS outcome, rollout of health extension packages, was measured by a single indicator: percentage of births attended by trained health personnel, which increased from 9% in 2004 to 16.6% in 2011 but missed the target of 27%. Relying on only two indicators to measure quality does not fairly capture this outcome. Some of the targets were also set too high, dampening a story of real progress in the area of basic services. 30. Reducing vulnerability: the CAS program contributed to decreasing vulnerability through containing food insecurity, developing a long-term food security and disaster risk management strategy and increasing investments in community-based watershed management. Results under this pillar were supported by investment in PSNP 3, the Sustainable Land Management project and the Tana and Beles Integrated Water Resources Development project. The knowledge portfolio supported this with Rural and Urban Safety Nets Notes, an Urban Poverty study and an Economics of Adaptation to Climate Change report. The CAS aimed to accelerate the demographic transition thus addressing population pressures - contraceptive prevalence rates doubled to 29% over the CAS period. 31. The indicators measuring the CAS outcomes are appropriate. The CAS outcomes provide logical contributions to the country level goals under this pillar, except for one outlier on increasing women’s voice within communities that does not provide a logical link to reducing population pressures (in fact this indicator can be used to supplement the above mentioned outcome on increasing citizen’s voice to improve basic services). 32. An impact assessment conducted in 2010 shows that food security of chronically food-insecure people targeted by PSNP was improved from 2006 to 2010 by 1.05 months for households participating Page 81 in PSNP public works. 12 Supporting proxy measures show that there is a statistically significant increase in children’s meals consumed during the lean seasons between 2006 and 2010 and that five year participation in PSNP increased household livestock holdings by 0.38 TLU. 13 However, the overall number of food insecure people has increased, and humanitarian assistance to so-called transient food- insecure and other beneficiaries reached very high levels of about US$807 million per year between 2008 and 2011. This underlines the need for the GOE to focus its efforts on moving people out of poverty by increasing opportunities in relatively high-potential rural and urban areas and to focus on agricultural productivity increase as well as off-farm employment as more sustainable ways of improving food security. 33. PSNP has also played a large role in addressing land degradation through its public works investments. Community assets built under the program have contributed to increases in the water table, vegetation cover, species diversity, expanded use of small-scale irrigation and the construction of 119 farmer training centers. Under the Sustainable Land Management Project, 210,000 hectares of watershed were rehabilitated from 2008 – 2011, and a further 318, 212 hectares were constructed in the PSNP public works component. By June 2012, total investments in community-based flood management are expected to reach US$ 5.75 million. The Federal and Regional Sustainable Land Management Platforms hold regular meetings to provide technical guidance in the implementation of SLM activities, as established by the TerrAfrica Initiative. Population pressure is being addressed by a doubling of the contraceptive prevalence rate from 15% in 2004 to 29% in 2011. 34. Fostering improved governance: CAS outcomes under this pillar aimed to improve the performance of the public sector and enhance the capacity of local government to engage with citizens for more responsive services. Local engagement at the woreda and kebele levels has been explicitly encouraged by the GoE and has been supported by PBS 2, PSCAP and ULGDP. A public finance review, Investment Climate Assessment, procurement reforms and a Country Integrated Fiduciary Assessment (CIFA) also supported this pillar. 35. Indicators on public sector performance were drawn from the Woreda/City Benchmarking Survey, a representative survey that is routinely conducted. Results show that from 2008 to 2012 the proportion of respondents satisfied with agriculture extension services increased from 82% to 94%, satisfaction with solid waste services increased from 69.9% to 74%, satisfaction with water services decreased from 60% to 58% and satisfaction with health services rose from 34% to 70%. The proportion of people who made extra payments for general services increased from 4.3% in 2008 to 6.5% in 2011, interpreted by some as the result of the strain that the recent crises placed on service delivery. Similarly, those reporting extra legal payments for government health services have also risen from 5.8% to 8.5% between 2008 and 2011. 36. Fourteen public expenditure and financial accounting (PEFA) indicators improved out of a total of 28, showing 50% improvement over the 2007 scores. Improvement in citizen engagement in local government can be seen by the 75% increase in the number of citizen groups participating in the planning process for Capital Investment Plans in 19 cities. Participatory planning of basic services is adopted in 80% of woredas that receive the Local Investment Grants in 2011. 83% of woredas have posted their Layperson’s Budget and Service Facility Templates in 2011 and 19 cities have disseminated key information on budgets and expenditures for 2008/09, 2009/10 and 2010/11. Local accountability has also 12 Berhane, G et al, The impact of Ethiopia’s Productive Safety Nets and Household Asset Building Programme: 2006-2010, IFPRI, October 2011. 13 Tropical livestock unit. Page 82 seen improvements in financial reporting as all regions are now submitting their interim financial reports in a timely manner over the last two quarters. 37. Other outcomes: Over 60% of donor support was provided through program-based approaches, meeting the Paris Declaration target. The largest of these were PBS, PSNP and PSCAP. A CAS outcome on mainstreaming gender into project design was added in 2010. The indicator states that all new FY11- 12 lending includes gender considerations in the PDO. Gender mainstreaming has now been made a regional priority with more appropriate measures which are used as a proxy to assess achievement of this outcome. The Africa Gender Action Plan identifies the criteria for detailed coverage in lending as “gender issues are discussed and presented with quantitative data and extensive background information .� A review of FY11-12 lending shows that four out of six projects comply with GAP criteria.14 Projects such as PBS, PSNP and Urban Local Governance promoted the participation of women in community or city committees and women were given the opportunity to accrue an independent income through PSNP public works. C. Cross-cutting issues in CAS period 38. Climate change: Issues related to climate change were addressed throughout the Bank portfolio. Most interventions to promote development help address climate change adaptation and / or mitigation. Good examples are projects promoting sustainable land and water management, agricultural development including irrigation, food security and renewable energy (AGP, PSNP and SLMP). For the most part, however, the Bank made no specific efforts to make its portfolio “climate-smart�. Some analytical work on Climate Change was conducted in FY08 at the request of the Ministry of Agriculture and a report on Economics of Adaptation to Climate Change (EACC) in FY11 was a deliverable for the COP16 UN Conference on Climate Change. The analysis addressed the impact of climate change on key sectors in Ethiopia. The GoE’s investment in the development of the Climate Resilient Green Economy (CRGE, 2011) strategy is critical to climate change and overall development issues in Ethiopia and the region, and the Bank should significantly increase its engagement in this area. 39. Governance and social accountability: While some progress has been made, governance challenges at the Federal level remained persistent. Implementation of the CAS program, with financial management and procurement controls, did however ensure transparency, social gains and progress towards the MDGs. The PSCAP supported the establishment of citizen participation in local government processes, better service delivery, court reform and tax reform. Social accountability and citizen participation has played a greater role at the local level and was part of the CAS program. Significant components of PBS 2 are focused on a) accountability in decentralized financial services (US$ 50.2m) and b) social accountability (US$ 21m). Financial transparency activities such as budget literacy training to citizens and the dissemination of budgets have also created links with the PSNP and other major donor- funded programs. Awareness is not equal across all regions however, and female participation in budget literacy remains low. Due to higher-than expected performance of cities under the Urban Local Governance Development Project, Bank financing was doubled in 2011. The project provides a good model for how empowered local governments and local communities can transform cities and generate local employment. 14 PBS monitors maternal health, gender parity index in schools and women’s participation in community planning groups. The Urban Local Government Development project monitors jobs created for women and gender mainstreaming in urban local governments. A gender study commissioned under PSNP shows that the project had a positive impact on female beneficiaries. The Agricultural growth project explicitly addresses gender considerations in its design. Page 83 Overall CAS Assessment 40. The GoE assessed achievement of its national development strategy during this period, the PASDEP, as satisfactory. Indeed, there has been a visible increase in economic growth and investments in strategic infrastructure paving the way for future growth. Major efforts were also made in increasing access to basic services. The GoE’s Food Security Program was able to lower the se verity of the impact of the food crisis and Ethiopia was the only country in the Horn of Africa that did not experience famine. The CAS supported the PASDEP in select areas that reflect the Bank’s priorities and comparative advantage. However progress under the CAS pillars varied. Improvements on macro-economic stability, investment climate and the quality of basic services were not as expected. Overall CAS performance is therefore rated as Moderately Satisfactory due to uneven achievement of the outcomes under the CAS pillars. III. Evaluating Bank Performance 41. The evaluation of the Bank’s performance focuses on two key dimensions: i) CAS design and ii) implementation of the CAS program. A. CAS Design 42. The CAS was well aligned with the GoE’s priorities, namely the PASDEP, during the CAS period. The Bank’s flexibility to extend the CAS by one year up to FY12 ensured compatibility with the new GoE strategy, the GTP, which was under preparation during the CASPR. The additional year also gave the Bank sufficient room to conduct consultations with the GoE in order to prepare its upcoming CPS FY13-FY16. The CAS areas of engagement were based on the four main pillars which were aligned with Ethiopia’s national development goals. The Bank pursued CAS outcomes through a mix of investment lending and analytical advisory assistance that reflected the realities of the CAS period. Areas of strong GoE interest (such as basic services, food security and infrastructure) were heavily supported with investments and trust funds and were scaled up. In areas of divergence or lack of consensus (such as structural and macroeconomic policies) support relied on AAA to maintain dialogue. A prospective PRSC was not used in the absence of agreement between the Bank and the GoE on changes in structural issues. The PBS Program became an alternative to direct budget support and has successfully channeled resources to the woredas. However, as recognized in the previous CASCR, despite the successful shift in financing modalities from budget support to the PBS in reaction to the 2005 crisis, the benefits of budget support could not be fully replicated by PBS, being a more narrowly focused investment instrument. This argues for reconsideration of budget support agenda going forward under the new CPS. 43. The CAS program deepened partnerships with other donors. Trust Funds were well incorporated in lending. 91% of trust funds were used to co-finance IDA lending operations in FY11, 98% of which was used to fund CAS objectives 2 and 3 (improving access and quality of basic services and reducing vulnerabilities). In addition to creating multi-donor trust funds for PBS and PSNP, the Bank also housed the PBS Secretariat and the PSNP Donor Coordination Team and provided other in-kind support to the committees. The AGP, through its partnership framework, provides a basis for strengthened and more harmonized support to agricultural growth in Ethiopia. The program has leveraged more than US$ 100 million in addition to IDA financing. Similarly, the GEQIP (General Education Quality Improvement Program) is financed by a group of development partners through pooled funding arrangements. IDA financing was used to secure more than US$ 130 million for the National Nutrition Program and the Bank led the coordination along with UNICEF. The Bank also coordinated grants under global and regional programs such as the Global Environment Facility (GEF), Education for All – Fast Track Initiative (EFA-FTI), the Nile Basin Initiative (NBI), and the Global Partnership for Output Based Aid (GPOBA). Page 84 44. The expected outcomes in the CAS results framework are overall realistic. For the most part, there are good linkages between the strategic pillars, outcomes and indicators. Targets however were set too high given the role of the CAS as one of many contributions to the PASDEP. The inability to meet some of these targets dampened a story of real progress in some areas. 45. The CAS examined four groups of risks that remained relevant during the CAS period: i) Ethiopia’s vulnerability to external shocks, in particular drought and possible regional conflict, ii) two governance risks related to the possibility of disputes over local elections in April 2008 (and parliamentary elections in 2010), and the ongoing military action in the Ogaden area of Ethiopia’s Somali region to subdue separatist rebel elements, iii) macro-economic risks as a consequence of rising food and oil prices and iv) procurement and financial management risks as a result of weak capacity and shortage of skills at the local level. The CASPR heightened the risks related to vulnerability to external shocks and weak capacity in procurement and financial management, and lowered those related to governance and macro-economic stability over the period FY08 –FY10. Mitigation of risks is discussed in the following section. B. CAS implementation 46. The bulk of lending activities were done through a program-based approach and the Bank has acted as the technical lead for the majority of the activities, along with DFID and UNICEF. A number of joint AAA have also been conducted, such as the CIFA report and the Woreda/City Benchmarking Survey. 47. The Bank was highly supportive of the CAS program, as evident by the high level of project staff decentralized to the country office in Addis Ababa. Successful projects such as PBS were scaled up to be implemented nationwide. Significant investments were also made in critical development areas such as infrastructure (namely roads and energy access) and agriculture. The country team explored innovative approaches, such as results-based lending, which has been welcomed by the GoE and the new Program for Results instrument is the basis for a health project currently under preparation. Output based lending was also used under the Energy Access project but results were delayed because of the moratorium on electricity connections. The country team demonstrated efficiency by having one of the lowest administrative costs to IDA allocation ratios in Africa, along with Nigeria. 48. The Bank successfully engaged in a number of areas where the GoE has a strong program for development. There is strong commitment and ownership to increasing access to basic services and reducing vulnerability, as the progress towards CAS outcomes clearly shows. On the other hand, very little traction has been made with the GoE regarding private sector development especially in policy sensitive areas or those that may require substantial sector reform such as the financial sector and land policy. 49. Portfolio management and performance. Bank portfolio performance maintained strong growth and a high disbursement ratio, while maintaining selectivity. The Ethiopia portfolio has nearly doubled since FY08: in April 2008 net commitments were US$ 2.4 billion, compared to US$4.4 billion in February 2012. The number of projects in the portfolio has been reduced to 25, from 30 in 2009. Since FY09, the disbursement ratio has exceeded 30% and is on track to do so in FY12. Although the impressive disbursement rate is unquestionably driven by fast-disbursing projects as the PBS and PSNP, the rest of the projects have also been disbursing reasonably well, with a few exceptions. 15 Proactivity has 15 The Irrigation and Drainage SIL, Tana and Beles Integrated Water Reservation Development Project, Tourism Development Project, Urban Water Supply and Sanitation Project, and the Road Sector Development Stage IV APL Projects. Page 85 been 100% except for FY10 (67%), which is another indication of good portfolio management. Average project preparation time (IDA investments only - PE) for projects approved during the CAS period is around 14 months16 (better than the regional average – 16-18 months), although there is wide variation between individual projects (ranging from 4 to 27 months). As of February 2012, there were no overage projects in the portfolio, though the average project age has increased to 5 years. This is due to only two projects being approved since FY10. Formal restructuring, other than that carried out as part of the support under the global food crisis response, has been practically non-existent (3 restructurings altogether during the CAS period). IEG evaluations of completed projects concluded that some of the projects should have been restructured or, if they had been, the restructuring was too late or not deep enough. During the CAS period there were eleven additional financings, showing good use of the instrument. However, three of the additional financings were for projects whose funds had been previously deployed to the Global Food Crisis Response Project, which suggests that there was some trade-off between the affected projects and the emergency response. 50. Projects at risk have been relatively high, reaching 28% in FY08 and FY11, though associated commitments at risk have been comparatively lower (FY08 being an exception), indicating that risks are rather related with smaller projects. Actual problem projects, however, are 10% on average over the CAS period, which, if compared to outcome ratings in IEG evaluations of completed projects during the same period (8 projects evaluated, 37% unsatisfactory outcome ratings), suggests that ratings assessments during implementation may have been optimistic. That said, the net disconnect for Ethiopia (12.5%) is nearly half the AFR region’s (22%), and effectively reflects a net disconnect for one project. 51. IEG reviews of projects that closed during the CAS period highlighted shortcomings in the quality of M&E design, implementation and utilization. To advance policy dialogue, maintaining and tracking data sources is a necessary condition. Ethiopia continues to have weak data collection and capacity. For this the Bank may need to engage collaboratively with the statistical agency in Ethiopia to improve country data systems and improve data collection for Bank projects. 52. The total amount allocated for core knowledge products over the CAS period was US$ 5.2 million, 80% of which was for economic and social sector work (ESW) and 20% for technical assistance (TA). 46% of the analytical and advisory activities (AAA) supported the CAS objective ‘fostering economic growth’ and 45% was linked to the CAS objectives ‘improving access and quality of basic services’ and ‘reducing vulnerabilities’, the majority of which are linked to education and social services. Only 7% of AAA outside project budgets supported infrastructure lending. 39% of the knowledge budget was used to address public finance, macro-economic and private sector development themes however with limited traction on these topics. There is little evidence that analytical advisory work was disseminated and discussed with stakeholders beyond the core GoE counterparts. 53. The Bank was quick to respond to the 2008 global food and fuel crisis through the Emergency Food Crisis Response Program. The program had two parts, additional financing to the PSNP and the Fertilizer Support Project. The Fertilizer Support Project was designed to ensure an aggregate supply of chemical fertilizers for 2009 – 2010 in order to prevent a fall in agricultural output which would have exacerbated the food crisis. This was financed through re-deploying financing from 12 existing projects and additional Bank financing (total US$ 250m). The project was approved in three months, an exceptionally quick response by the Bank. However, the IEG evaluation questioned the sole importer arrangement with the GoE, the logistics of fertilizer distribution, and the efficiency of having foreign exchange resources locked in fertilizer stocks. 16 Excluding additional financing and outliers such as the Global Food Crisis Response Project (2.7 months preparation time) and the Ethiopia - Sudan Interconnector Project (43 months). Page 86 54. The Bank was slower to respond to the 2008-2010 moratorium imposed by the GoE on electricity connections, halting the implementation of the entire energy portfolio for the duration of that period. In retrospect, it was difficult to foresee when the moratorium would have ended. The risk, however, was already present at the time of the CASPR and the document should have discussed the challenges facing the energy portfolio. 55. The CASPR was used to reflect on the initial CAS period, to validate continued relevance of CAS objectives and identified risks. No major course correction was made during the CASPR. Revisions to the results matrix were made, the number of core outcomes was reduced to 22 and 39 indicators (down from 26 and 51 respectively), including adding the core sector indicators. The CASPR attempted to mainstream gender considerations and dropped indicators on a regional road network, growth corridor and support to rural diversification due to slow progress in these areas. 56. The mitigation of risks during the CAS period was mixed, with a few unforeseen risks arising. To mitigate the risk of extreme weather events, the Bank supported the GoE to prepare a disaster risk management strategy. The worst effects of the recent (2008 and 2011) droughts were mitigated through the PSNP. Vulnerability to the food crisis was mitigated by portfolio restructuring to support urgent investments in food security and boosting fertilizer supplies to boost agricultural production. The sharp decline in fertilizer prices in 2009 could not have been expected and resulted in excess funds allocated to the Ethiopia Global Food Crisis Response Project, which were re-directed to PBS 2. Macroeconomic risk did not stabilize as anticipated and, following the conclusion of the IMF program in 2010, inflation peaked to nearly 40% in late 2011. Monetary policy remains a concern. The expected post-election violence in 2010 did not occur while the security risks related to operating in the Somali region meant that operations did not take place there over the CAS period. The CASPR anticipated that drought could affect hydropower generation but offered no mitigation measures. IV. Lessons Learnt and Suggestions for New CPS CAS focus 57. Realizing Ethiopia’s full potential and achieving GTP economic and social targets would require stable macroeconomic framework and increased role of the private sector. It is therefore important for the Bank to find ways to engage more effectively with GoE in policy dialogue on macroeconomic issues and private and financial sector issues. The CAS acknowledged the limitations in policy dialogue and relied mostly on analytical advisory work to engage GoE on structural reform matters, which had limited impact. Increasing the relevance of the Bank’s ESW, through providing more flexible/just in time policy pieces requested by the GoE, could contribute to improved dialogue. In terms of financial assistance, it might be important for the Bank to offer the Government a range/menu of instruments available to support private sector growth and facilitation, including guarantees, credit lines as well as a complementary package of services provided by the IFC and MIGA. 58. Additional suggestions for improving Bank Group engagement in the area of private sector development include: (i) strengthening public-private partnership for advancing dialogue and (ii) leveraging on partnership with other development partners to align key messages to the Government in some of the challenging areas. 59. GoE’s efforts to stabilize the effect of the 2008 food crisis and 2011 drought through programs such as PSNP were relatively successful, but overall the absolute number of people who were food insecure has increased over the period 2006-2010. This result indicates that a more comprehensive solution for food security is required, which would include but not be limited to the GoE’s current Food Page 87 Security Program. Given population pressure and the possible negative effects of climate change, it would be important for the Bank to support the GoE’s efforts on moving people out of poverty by increasing opportunities for on and off-farm employment as a more sustainable way of improving food security in the medium to long term. Support to private sector and agribusiness would constitute an important part of this agenda going forward. 60. While recognizing the important role of employment generation as an additional way of improving food security in the medium to long-term, the Bank also acknowledges that there will be a portion of the population that remains highly vulnerable, particularly in the context of increasing uncertainties around climate change. In terms of addressing the policy and program responses to vulnerability, the Bank should continue to support and strengthen social protection systems and invest in disaster risk management programs. 61. In addition to supporting GoE focus on access to basic services, the Bank needs to more actively engage in improving the quality of basic services. The PASDEP was centered on achieving the MDGs which focused on access to basic services, creating a trade-off with the quality of these services. As experience showed, all focus during the CAS period was directed to increasing access, crowding out efforts to improve quality. Challenges to improving quality will be critical if the benefits from higher access are to be fully materialized in the longer term. Utilizing a newly approved instrument – Program for Results (P4R) – might provide a good opportunity for the Bank to shift its focus from access to quality. 62. Bridging the data and knowledge gap for evidence-based dialogue: An important and common challenge in Ethiopia is the scarcity and reliability of data sources. To advance policy dialogue, maintaining and tracking data sources is a necessary condition. Ethiopia continues to have weak data collection and capacity. For this the Bank may need to engage collaboratively with the statistical agency in Ethiopia to improve country data systems. At the same time, where possible, Bank projects should build in their design both rigorous impact evaluations and continuous monitoring to adjust design parameters as and when needed. CAS Design 63. Built-in flexibility and mitigations measures ensure more adequate response to identified risks at the project level: PSNP was designed with the flexibility to anticipate and scale up in the possibility of a shock, through its risk financing mechanism. In comparison, the energy portfolio, while identifying solutions to the long-term challenges that face the sector, did not have an adequate response on hand for the moratorium. The diversification of activities under the energy portfolio and not solely focusing on access projects may reduce this risk. 64. At the portfolio level better emergency responses need to be designed in countries that are prone to disasters such as Ethiopia. The portfolio restructuring in response to the food crisis was quick but it was a time and labor-intensive exercise and funds may not always be available if a future crisis were to occur. 65. Careful thought should be put into linking lending and non-lending instruments with the indicators and the CAS outcomes that form a logical results framework. This will help to avoid disconnect between the outcomes and indicators. It is particularly important to avoid pitfalls in using high-level indicators that are beyond the scope of the CAS. This was most evident in the lack of achievement of outcomes under pillar 1. Page 88 CAS Implementation 66. Monitoring the CAS results framework more regularly will help maintain realistic targets and flag deficiencies in outcome indicators. The CPPR can be used as an opportunity to check progress on the future CPS results framework in preparation for the CASPR and CASCR stages. This would ensure that data is available and efforts are being made to strengthen the quality of the results framework. 67. Recognition of the unique advantages of budget support. Despite the successful shift in financing modalities from budget support to the PBS in reaction to the 2005 crisis, the benefits of budget support could not be fully replicated by PBS, as a more narrowly focused investment instrument. Budget support provided an important forum for dialogue, especially on issues related to growth and structural reforms. In addition, the multi-donor dialogue fostered by budget support enhanced donor harmonization and reduced transaction costs. These factors argue for the resumption of budget support agenda going forward under the new CPS. 68. Programmatic approaches which can be scaled up tend to be successful, by leveraging greater resources from partners, disbursing faster, and having greater flexibility.17 Such models can also help build country systems in the sectors they are operating in. The future CPS should seek to replicate this model where possible. 17 Good examples include the Nutrition Project, PBS and PSNP. Page 89 Annex 1: FY08 – FY12 Ethiopia CAS Completion Report results matrix  Achieved (70% achieved) ≈ Partially achieved (50% - 69% achieved)  Not Achieved (below 50%) Strategic and Lending and non-lending Longer-Term Comments and lessons CAS Outcomes Milestones Status and evaluation 116 activities that contributed Country for next CAS to outcome Outcomes Strategic Objective 1: Fostering economic growth 1.1 Support 1. Structural and macroeconomic M1. Prudent management of  I1. Inflation in January 2012 AAA The target of single digit macro- policies are conducive to sustain monetary policy to curb is 32% while the average Macro Fiscal Issues inflation by 2011 should fiscal internal and external balance inflation. inflation from July 2011 – Growth have been modified during stability I1. Inflation rate declines from 34% in January 2012 was 38.1%. Partners the CASPR. 2007/08 to single digits by 2010/11 and M2. Establishment of M&E IMF is sustained through 2011/12. system for investment and contingent liabilities in the public enterprises. Increase domestic resource M3. Timely preparation of ≈ I2. Revenue to GDP ratio AAA There is a problem of mobilization an integrated and consistent was 13.5% in 2010/11 and Public Finance Review attribution between the I2. Revenue/GDP ratio increases from Macro-Economic and Fiscal expected to marginally (JBAR) interventions and the 12.1% in 2007/08 to 14.3% in 2011/12. Framework. improve to 13.6% in Macro Fiscal Issues indicator of revenue/GDP 2011/12(IMF estimate). Growth ratio. This is a higher-level M4. Full implementation of Public Expenditure Review outcome. ongoing tax administrative On-going Lending reforms. PSCAP Partners IMF, PSCAP Partners117 116 Data for indicators taken from latest project ISR unless stated otherwise. In a few cases where the CAS indicator was not measurable or where it was not sufficient to fully capture the CAS outcome, the authors have complemented the information with progress made on relevant milestones to provide a more accurate picture of achievements. 117 PSCAP Partners include DFID, CIDA, and Irish Aid, with Italy and EU support planned. Page 90 Strategic and Lending and non-lending Longer-Term Comments and lessons CAS Outcomes Milestones Status and evaluation 116 activities that contributed Country for next CAS to outcome Outcomes 1.2. Accelerate 2. Strengthen road sector M5. Domestic Construction  I3. The share of domestic AAA the level and institutions and domestic road Industry (DCI) policy contractors (volume of works Strategic Review of Road productivity of construction industry formulated and done) increased to 77% in Sector Development investment in I3. Volume of civil works contracts comprehensive capacity 2010/2011. Lending infrastructure in disbursed by Domestic Contractors building program launched. Road Sector APLs 2-4 a sustainable increased from 35% of total in 2007/08  I4. Road density per 1000 Partners manner to 54% by 2011/12. M6. Ethiopian Road sq.km is 48.1 km in 2011. EC, DFID, AfDB Authority reformed on I4. Road density per 1000 sq.km commercial basis and  M6. Ethiopian Road increases from 38.6 km in 2007 to 45.7 operational departments spun Authority reformed on km in 2011/12. off from ERA. commercial basis and operational departments spun off from ERA. 3. Enhance regional integration M7. Transmission line from  I5. Power trade between Lending I5. Power traded between Ethiopia, Ethiopian power grid to Ethiopia and Sudan has been Ethiopia/Nile Basin Sudan, and/or Djibouti. Sudanese border completed. delayed but PPA with Djibouti Initiatives Power Export: signed and trade started in Ethiopia/Sudan I6. Establishment of an East Africa M8. Eastern Nile strategic 2011. Partners Power Pool under the NBI framework basin assessment and AfDB, NBI Partners by end-2011/12. assistance strategy completed  M7. Construction of power and dissemination pending. transmission lines between Gondar-Shehedi, Shehedi- Matema and Bhair Dar-Gondar are complete. Two shunt reactors and communication equipment in Shehedi substation are still to be installed. It is expected that project work will complete before June 2012.  M8. Eastern Nile strategic basin assessment and assistance strategy completed and dissemination pending.  I6. The East Africa Power Pool - Eastern Electricity Highway Project was approved by the Board in July 2012. I7. Percent of towns with access M9. Increase the pace of  I7. Over 40% of towns and Lending Increased electrification is through at least one connection to connections to the grid by villages have access to Energy Access SIL not directly relevant to the electricity increases from 16% in 20% in electrified towns and electricity in 2011. Rural Access Exp’n 1 outcome of enhanced 2004/05 to 50% in 2010/11. villages, leveraging Output Rural Access Exp’n 2 regional integration. Page 91 Strategic and Lending and non-lending Longer-Term Comments and lessons CAS Outcomes Milestones Status and evaluation 116 activities that contributed Country for next CAS to outcome Outcomes Based Aid (OBA) GEF Energy Access instruments. Partners EIB, EC, AfDB, Italy, China, India, Kuwait Fund, GPOBA 1.3. Increase 4. Increase agricultural M10. Increase in area with  I8. Agricultural productivity AAA Agricultural value-added is productivity of productivity in selected intervention land certification. of major crops increased by Rural Investment Climate currently not being agriculture areas average of 14 % between Assessment measured in Ethiopia (past I8. Average agriculture value added to M11. Results-based M&E 2007/8 - 2010/11. Teff Rural Access Development figures were collected by increase by 5% per annum. system developed for increased from 11.7% to Regional Growth Study FAO and were 2007 agricultural extension, 12.6%, wheat increased from Lending (9.4%), 2008 (7.5%) and vocational education, and 16.2% to 18.4% and sorghum PBS 2 2009 (6%)). research. increased from 17.3% to Pastoral Community 20.9%.118 Development Program 2 Looking at value-added is M12. Sustainable Land (PCDP 2) also a higher level outcome Management Project (SLMP) ≈ M10. Increase in level one Irrigation & Drainage SIL that the interventions under and Tana Beles Project certification across the country Sustainable Land this pillar cannot claim actively implemented in a and level two certification Management1 Specific total attribution to. minimum of 35 woredas. expected to increase over Investment Loan (SIL) 2012. Tana Beles M13. Feasibility studies Eastern African completed for irrigation of  M12. Sustainable Land Agricultural Productivity 104,000 ha by end-2011/12. Management Project (SLMP) Capacity Building for and Tana Beles Project Agriculture Service actively implemented in a Agricultural Growth minimum of 35 woredas. Program PSNP 3  M11. Qualitative Partners evaluations of the ATVET and REDFS group119 Agricultural Research undertaken but no comprehensive system developed.  M13. Feasibility studies for 104,000 ha are now fully completed. 118 Value added in agriculture is not measured so increased productivity of major crops was used as a proxy. 119 Rural Economic Development and Food Security (REDFS) Group includes AfDB, Austrian Development Cooperation, CIDA, DFID, EC, FAO, German Development Cooperation, IFAD IFPRI, Irish Aid, Italian Cooperation, JICA, Norway, SIDA, The Netherlands, UNDP, USAID, WFP. Page 92 Strategic and Lending and non-lending Longer-Term Comments and lessons CAS Outcomes Milestones Status and evaluation 116 activities that contributed Country for next CAS to outcome Outcomes 1.4 Strengthen 5. Improve financial sector M14. Conclude the  I9. Private Sector credit to AAA A better measure that is supply performance implementation of National GDP ratio is reported as 14% Financial Sector Review more appropriate to the responsiveness I9. Credit to the private sector as a ratio Payments Systems (NPS) and in 2011 (baseline was 18% at Lending impact of the intervention of industry and to GDP increases from 12% in 2005/06 the Credit Information Center end of 2005/06 and declined to Financial Sec. Cap. Bldg. under this outcome should services sector to 16% in 2011. (CIC) 9% of GDP in 2009). Absolute Partners be used to measure credit did grow at 4% during IMF progress. this period.  M14. The National Payments Systems (NPS) and the Credit Information Center (CIC) are operational. 6. Reduce cost of internet service M15. At least 5 private retail  I10. Cost of broadband and AAA I10. Cost of broadband and dial-up Internet Service Providers dial-up Internet services to Telecom Reform Options Internet services to decline by 40% and operational. decline by 33% and 98%, Lending 20%, respectively, between 2008 and respectively, between 2008 ICTAD 2011. and 2011. 7. Improved investment climate M16. Public-Private  I11. FDI increased from AAA A milestone or an outcome helps Ethiopia benefit from increased Dialogue (PPD) Forum $894 million in 2008/09 to Investment Climate measuring the increase in globalization reinstituted and considered $1033 million in 2010/11 and Assessment (ICA) exports for the supported I11. Cumulative increase in FDI of at effective by private sector. estimated to reach at $1170 Public Private Forum firms under the PSD least 40% by the end of the CAS million in 2011/12. Tourism Competitiveness Capacity Building project period. M17. Revised Trade Cumulative increase in FDI Service Trade and Growth should have been included Practices Proclamation approximately 30% in 2011. Innovation for Devel’p’t here. adopted to address current Lending deficiencies.  M16. Public-Private PSD Cap. Building Dialogue (PPD) Forum Tourism Dev. Project reinstituted. Partners US, EC, DFID, ADB, IMF  M17. The Revised competition Proclamation - called the Trade Practices and Consumers’ Protection Proclamation - was enacted in June 2010. A Competition Authority has been set up and staffing and capacity building for the Authority is under way. I12. Ethiopia’s corporate sector M18. Satisfactory national ≈ I12. All commercial Banks AAA follows accounting and auditing accounting and auditing are required to follow IFRS. It ROSC Accounting and standards that are in line with standards issued, and legal is not mandatory to apply Auditing International Financial Reporting framework established to IFRS in the corporate sector, EITI MDTF Standards (IFRS) and International ensure compliance with these draft law is in place to be Page 93 Strategic and Lending and non-lending Longer-Term Comments and lessons CAS Outcomes Milestones Status and evaluation 116 activities that contributed Country for next CAS to outcome Outcomes Standards of Auditing (ISA) as standards. discussed at Council of assessed by the 2012 ROSC. Ministers in January 2012. Similarly, the same law requires all audit firms to apply ISAs when conducting the audit of corporate institutions- expected June 2012. ≈ M18. Satisfactory national accounting and auditing standards issued, and legal framework established to ensure compliance with these standards. Strategic Objective 2: Improving Access to and Quality of Basic Service Delivery 2.1 Improve 8. Increase girls’ enrollment in M19. Block grants to  I13. Gender Parity Index for AAA access/coverage primary and secondary education woredas continue to increase. primary school grade 1-4 was Decentralized Service of basic services I13. Ratio of girls to boys in primary 90%, in grade 5-8: 96%, in Delivery school increases from 89% in 2006/07 M20. PCDP coverage grade 9-10: 83% and in grade Lending to 93% in 2011/12 in grades 1-4 (1st increased to address special 11-12: 71% in 2011. PBS 2 cycle of primary), 76% to 93% in needs of pastoralist children. Pastoral Comm. Devt. 2 grades 5-8 (2nd cycle of primary), from GEQIP 63% to 75% in grades 9-10 (1st cycle of Partners secondary) and is 50% in grades 11-12 PBS Partners120 (2nd cycle of secondary). 9. Increase delivery of key health M23. Woreda governments  I17. Proportion of children AAA services: malaria control, HIV/AIDS receive increased funding for vaccinated against DPT3 is Decentralized Service prevention, vaccination, nutrition, service delivery through 85% in December 2010. Delivery contraception block grants and increased Health Financing Policy I17. Proportion of children vaccinated amounts of centrally procured ≈ I18. According to the Note against DPT3 increases from 72.6% in health commodities with PBS Ethiopia MDGs 2010 Report, Education and Nutrition 2006/07 to 83% by 2009/10. support. morbidity due to malaria Linkages declined by 48%, hospital Lending I18. Number of new malaria cases M24. 2.4 million admissions by 54% and PBS 2 decreases from 370,000 in 2006/07 to replacement Insecticide mortality by 55% in 2009/10. Mulitsectoral HIV/AIDS 2 100,000 by 2011/12. Treated Nets distributed Pastoral Comm. Devt. 2 between beginning- 2009/10  I19. Percentage of young Nutrition SIL 120 PBS Partner Group includes World Bank, DFID, AfDB, EC, CIDA, KfW, Netherlands, Austria, Italy, Ireland, Spain. Page 94 Strategic and Lending and non-lending Longer-Term Comments and lessons CAS Outcomes Milestones Status and evaluation 116 activities that contributed Country for next CAS to outcome Outcomes I19. Percentage of young people (age and end-2011/12. people (15 – 14) with Health MDG Fund 15-24) with understanding of how to understanding of how to Partners prevent HIV/AIDS transmission M25. Donors and MoH make prevent HIV/AIDS PBS Partners, USAID, increases from 67% of women and progress on implementation transmission increased to more Global Fund for Malaria, 54% of men in 2004/05 to 75% overall of IHP roadmap. than 75% for men and women TB and HIV-AIDS, Global by 2011/12. based on survey conducted in Alliance for Vaccines and M26. 95% of Multi-sectoral 2011. Immunization I20. Percentage of pregnant women HIV/AIDS Program 2 (MAP receiving iron and folate 2) participating woredas  I20. Percentage of pregnant supplementation increases from 13% in implementing action plans on women receiving iron and 2009 to 28% in 2013. HIV/AIDS prevention folate supplementation was targeting most-at-risk groups. 17% in 2011 (DHS 2011). 10. Increase sustainable access to M21. User groups organized  I14. Total population with AAA Good emphasis was placed potable water and sanitation services to operate and maintain water access to safe drinking water Decentralized Service on capacity building at the I14. Total population with access to points and promote hygiene (rural and urban) increased to Delivery woreda level for staff safe drinking water (rural and urban) and sanitation practices. 73.33% in 2011/12. Public Finance Review- working in the Water increased from 52% in 2007/08 to Water Supply, Sanitation and 74.5% in 2011/12. M22. Autonomous urban  I15. 60 % of rural/urban Lending Hygiene Sector. This has utilities strengthened to households using latrines in Urban Water and Sanitation helped address issues I15. % of rural/urban households using operate with business plans 2011/12. Water Supply & Sanitation related to high staff latrines increased from 39% 2007/08 to and with improved SIL turnover and project 60% 2011/12. management. ≈ I16. Proportion of PBS 2 sustainability. malfunctioning water facilities Pastoral Comm. Devt. 2 I16. Proportion of malfunctioning is 20% in 2010. 7168 Urban Local Government rural water facilities reduced from 25% Improved community water Development in 2007/08 to 16% in 2011/12. points constructed or Partners rehabilitated under the project DFID in 2011.  M21. User groups organized to operate and maintain water points and promote hygiene and sanitation practices. 11. Improve quality of education M27. Primary grade 1-4  I21. Completion rate grade 5 Lending A target of 87% 2.2 Enhance I21. Grade 5 completion rate increases student-teacher ratio declines is 69.1% in 2011. (Completion PBS 2 completion rates is not quality of basic from 65% in 2006/07 to above 87% in from 65:1 in 2006/07 to 54:1 rates in 2009 and 2010 were GEQIP realistic. The 2011 figure services 2011/12. in 2011/12. 79% and 76% respectively.) Partners needs to be further PBS Partners, USAID investigated to understand why it declined from 2010 and 2009. 12. Roll-out of kebele health M28. Substantially all rural  I22. Percentage of births AAA A target of 27% in this case extension package leads to improved kebeles have two trained attended by trained health Decentralized Service is also not realistic. Page 95 Strategic and Lending and non-lending Longer-Term Comments and lessons CAS Outcomes Milestones Status and evaluation 116 activities that contributed Country for next CAS to outcome Outcomes services health extension workers (an personnel is 16.6 in November Delivery I22. Percentage of births attended by increase to about 30,000 2011. Health Financing Policy The ambitious targets set trained health personnel increases from workers total from the Note have downplayed actual 9% in 2004/05 to 27% in 2011/12. 2006/07 baseline of 17,600). Lending real progress that has been Nutrition SIL made on these outcomes. PBS 2 Furthermore, relying on Health MDG Fund only two indicators to Partners measure quality does not PBS Partners, USAID, fairly capture this outcome. WHO, UNICEF 2.3 Enhance 13. Greater use of community radios M29. Regulatory and  I23. 8 woredas with Lending The indicator used is a citizens’ voice to for improved service delivery institutional framework for community radio station in ICTAD project weak measure of the use of improve quality I23. At least 10 woredas with community radios in place operation. community radios for of basic community radio station in operation. covering licensing, training of improved service delivery. services. trainers, and content development training. Strategic Objective 3: Reducing Vulnerability 3.1 Reduce 14. Reduce food insecurity M30. Proportion of PSNP  124. PSNP has improved AAA Using days as the unit of exposure to I24. Reduce the average number of program woredas completing food security by 1.05 months Urban Safety Nets Note measure is not consistent chronic food days chronically food insecure 80% of transfer distributions for households participating in Rural Safety Nets Note with the available data, insecurity and households participating in PSNP by end-July annually public works activities Urban Poverty which uses months as its shocks public works activities (comprising increases from 12% in 2007 between 2006 and 2010. Lending unit of measure. The 5.75 m people) report being food to 75% in 2010. (Impact assessment 2010) PSNP 3 available data is not so insecure from 110.6 days in 2006 to Partners accurate to be measured in 98.5 days by end-2010. PSNP Partners days. 15. Develop long-term strategy for M31. Impact assessment of  125. Food security program AAA food security and vulnerability to PSNP completed. and disaster risk management Urban Poverty natural disasters strategy has been developed Rural Safety Nets Note I25. A food security program and and expected to be approved Urban Safety Nets Note disaster risk management strategy that by third quarter of FY12. Lending is coherent and consistent with macro PSNP 3 outlook developed.  M31. 2010 impact Partners assessment of PSNP PSNP Partners completed. 16. Increase investment in M32. SLM and Tana Beles  I26. 528, 212 hectares Lending community-based watershed projects launched. watershed rehabilitated in PSNP 3 management 2007/08 and 2011/12 (210,000 Sustainable Land Mgt SIL I26. 60,000 hectares watershed M33. Flood preparedness ha through SLM and 318,212 Tana Beles rehabilitated in 2007/08 and 2011/12. and early warning system in ha through PSNP public Partners Tana Basin launched. works) RED&FS group I27. Investment in community based IDA/GEF, KfW, GTZ flood management rises from 0 in  I27. Investment in 2007/08 to US$5m end 2011/12. community based flood Page 96 Strategic and Lending and non-lending Longer-Term Comments and lessons CAS Outcomes Milestones Status and evaluation 116 activities that contributed Country for next CAS to outcome Outcomes management is US$ 1.4m at end of 2011/12. An additional US $4.35 has been committed to ongoing construction of emergency shelters and procurement of heavy duty equipment to support dredging and embankment construction activities. 3.2 Address I28. Federal and Regional SLM M34. Federal and Regional  I28. Platform meetings are AAA environmental Platforms hold regular meetings to SLM Platforms established. continuing and guidance and Climate Change degradation and provide policy and technical guidance directive are being provided by Climate Change Adaptation population in the implementation of SLMP the SLM steering committees Land Administration pressures activities, including annual planning established by the TerrAfrica Lending sessions to develop collaboratively Initiative. Sustainable Land Mgt SIL annual work programs. PSNP 3 Partners RED&FS group 17. Accelerate demographic M35. Hormonal  I29. Contraceptive Lending transition contraceptives distributed to prevalence rate doubled to PBS 2 I29. Contraceptive prevalence rate as cover 8.75 million couple- 29%. (DHS 2011) MAP II measured by Demographic Health years of protection in Partners Survey (DHS) increases by 2 2009/10, up from 6.1 million UNFPA, WHO, percentage points p.a. from 15% in in 2006/07. 2004/05 to 25% in 2011/12. M36. Annual distribution of male and female condoms increases from 80 m in 2006/07 to 140 m in 2009/10. 18. Increased voice of women M37. PBS 2 social  I30. No data available until AAA There is evidence that the within communities. accountability interface July 2012 when Gender Study increased income for PSNP I30. Participation of women in meetings take place in 172 implementation of sub-projects Lending beneficiaries has done community meetings (social woredas. begins. PBS 2 much to empower women, accountability interface meetings) Partners hundreds of thousands of related to PBS 2 increases by 30% PBS partners whom now have their own between December 2010 and June 50-60 CSOs incomes. 2012. Strategic Objective 4: Fostering Improved Governance 4.1 Improve 19. Improve performance of the M38. Business process ≈ I31. Percentages of people AAA government public service reengineering implemented in satisfied with Agriculture ICA effectiveness I31. Woreda/City Bench-marking all federal and regional public Extension Service, Solid-waste Public-Finance and quality of Surveys (WCBS) show improving institutions. service, Water supply service Review(JBAR) Page 97 Strategic and Lending and non-lending Longer-Term Comments and lessons CAS Outcomes Milestones Status and evaluation 116 activities that contributed Country for next CAS to outcome Outcomes public perception of integrity and performance and Health service was 94%, Procurement Reforms administration. of public service: performance 74%, 58% and 70% Lending measured by percentages of people respectively in 2011. The PSCAP satisfied with Agriculture Extension percentage of people who PBS 2 Service, Solid-waste service, Water made extra payments for Urban Local Government supply service and Health service, general service was 6.5% in Development increasing from 82%, 69.9%, 60% and 2011. Partners 34% in 2008 to 85%, 75%, 62% and PSCAP Partners, CIDA 60% in 2012 respectively, and integrity DFID measured by percentage of people who made extra payments for general service, decreasing from 4.3% in 2008 to 4% in 2012. I32. Improvement in public financial M39. Balanced score-card  I32. 14 Public Expenditure AAA: management performance evidenced by performance management and Financial Accountability Country Fiduciary at least 25% of the Public Expenditure system rolled out to all indicators improved out of a Assessment and Financial Accountability indicators federal and regional total of 28 from 2007 (50% showing improvement over institutions. improvement). corresponding 2007 scores. M40. Functional public procurement oversight with annual procurement audits for 50% of procuring entities. 4.2 Enhance the 20. Greater capacity of local M41. Planning guidelines  I33. Participatory planning AAA accountability government to engage with citizens for with procedures and formats of basic services adopted by Capacity Building TA and more responsive services for citizen engagement issued 2011/12 in 80% of woredas Lending responsiveness I33. Participatory planning of basic in woredas. that receive Local Investment PBS 2 of government. services adopted by 2011/12 in 30% of M42. Capital Investment Grants (from 0% in 2008/09. PSCAP woredas that receive Local Investment Plans in 19 selected cities Urban Local Government Grants (from 0% in 2008/09). prepared.  I34. 17 cities out of 19 Development achieved 75% increase in Partners I34. 12 out of 19 selected cities will 2010/11. PBS, PSCAP partners, have reported a 75% increase (from the CSSP, CSF, JGAM 2008 baselines reported by each city) in partners the number of citizen groups participating in the planning process for Capital Investment Plans by the end of 2011/12. Page 98 Strategic and Lending and non-lending Longer-Term Comments and lessons CAS Outcomes Milestones Status and evaluation 116 activities that contributed Country for next CAS to outcome Outcomes I35. Satisfactory implementation of M43. Knowledge and  I35. A corruption study is AAA targeted anti-corruption strategies to consensus developed over being published in the next Public Finance Review reduce corruption in key hotspots, as key corruption hotspots by few weeks, after which a (JBAR) assessed at the end of FY2011/12. end- 2010. strategy for procurement in Partners infrastructural development DFID, Dutch, CIDA M44. Strategies developed in will be developed with the selected areas by mid-2011. FEACC. I36. Layperson’s Budget and Service M45. All Regions encourage  I36. Layperson’s Budget AAA Facility Templates posted in +50% of posting of Service Delivery and Service Facility Templates Decentralized Service woredas by the end of 2011/12. Templates in service posted in 83% of woredas by Delivery providers (schools, health the end of 2011/12. Lending I37. 19 selected cities disclose budget clinics, etc.). PBS 2 and expenditure information by the end  I37. All 19 cities have PSCAP of 2011/12 from 0 in 2007/08. disseminated key information Urban Local Government to the public on budgets and Development expenditures for Partners 2008/09,2009/10and 2010/11 PBS, PSCAP partners, JGAM partners Other Outcomes 5.1 Deepen 21. Increase donor partnership M46. 66% of IDA support  I38. According to 2011 AAA partnerships through IDA-supported multi-donor provided through survey on monitoring the Paris Coordination through programs programmatic approaches by Declaration coordinated by Development Assistance I38. Paris Declaration target for 66% 2010 (Baseline: 59% in OECD-DAC, 61% of donor Group and Sector Working of donor support to be provided 2005). support was provided through Groups through program-based approaches is program-based approaches in Lending met by 2010, as measured by OECD 2010.121 Especially PSNP, Roads, (Baseline: 53% in 2005). PBS, PSCAP, Water Supply and Sanitation, SLM, GEQIP, Energy Access, AGP Partners All development partners Regional initiatives including NEPAD/ Comprehensive Africa Agriculture Development Program 121 Indicator will be achieved in 2011 with the approval of Additional Financing for PBSII and PSNP ALP3 Page 99 Strategic and Lending and non-lending Longer-Term Comments and lessons CAS Outcomes Milestones Status and evaluation 116 activities that contributed Country for next CAS to outcome Outcomes 5.2 Reinforce 22. Mainstream gender in IDA M47. All FY11 new lending ≈ I39. 4 out of 6 new lending AAA The indicator is not an gender supported programs. includes gender in FY11-12 includes gender Gender Study appropriate measure of sensitivity in I39. All new lending in FY11-12 considerations in the PDO. considerations in the project Lending gender mainstreaming in development includes gender considerations in the design and results framework PBS 2, AGP, Urban Local operations. The Africa activities. Project Development Objective (the as per GAP criteria. Development. Gender Action Plan has baseline is 0 and target is 100%). Partners more detailed and nuanced All development partners criteria of how gender considerations are to be mainstreamed into lending operations. Page 100 Annex 2 – Planned lending program and actual deliveries (FY08 – FY12) Original CAS Lending Program (IDA, US$ mln) Lending Status at Completion (IDA, US$ mln) 2008 Rural Electricity Access Expansion 2 133.5 2008 Rural Electricity Access Expansion 2 133.5 Protection of Basic Services Add. Financing 215 Protection of Basic Services Add. Financing 215 Ethiopia/NBI Power Export: Ethiopia/Sudan 41 Ethiopia/NBI Power Export: Ethiopia/Sudan 41 Tana Beles Integrated Water Resources 45 Tana Beles Integrated Water Resources 45 Urban Local Government Development 100 Urban Local Government Development 150 Sustainable Land Management 20 Sustainable Land Management 20 Nutrition 30 Nutrition 30 Pastoral Community Development 2 50 Pastoral Community Development 2 80 Total FY08 634.5 Total FY08 714.5 2009 Protection of Basic Services 2 2009 Protection of Basic Services 2 540 General Education Quality Improvement General Education Quality Improvement 50 Sustainable Tourism Roads APL 4 245 Roads Adaptable Program Loan APL 4 East Africa Agriculture Program** 30 Global Food Crisis Response Program: 250 Fertilizer Support Project 25 Productive Safety Net APL 2 Add. Financing 35 Tourism Development Project ($137.5) Total FY09 635122 Total FY09 1,175 2010 Productive Safety Net Program APL 3 2010 Productive Safety Net Program APL 3 480 Rural Electricity Access Expansion 3 Electricity Access Expansion Add. Financing 180 Rural Development Public Sector Capacity Building Program AF 50 PSD Support Water Supply and Sanitation Add. Financing 80 Public Sector Capacity Building Program Roads APL2 Additional Financing 100 Total FY10 635 Total FY10 890 Subtotal FY08 – 10 1,904.5 Subtotal FY08 – 10 2,779.5 2011 Agricultural Growth Program 150 2011 Agricultural Growth Program 150 Protection of Basic Services 2 Add. Financing 340 Protection of Basic Services 2 Add. Financing 420 Irrigation and Drainage Add. Financing 60 Total FY11 490 Total FY11 630 122 Indicative IDA15 amounts were based on IDA FY08 allocations. Page 101 2012 NA NA 2012 Urban Local Development Project Add. Financing 150 PSNP APL3 Add. Financing 370 Water Supply and Sanitation Add. Financing (pipeline) 150 East Africa Power Pool (pipeline) Electricity Network Reinforcement and Expansion 80.3 Women Entrepreneurship Development 200 50 Total FY12 1,000.3 Subtotal FY11 – 12 490 Subtotal FY11 – 12 1,630.3 Total FY08 – 12 2,539.5 Total FY08 – 12 4,409.8 Page 102 Annex 3 – Table of non-lending services and actual deliveries CAS Plans Status at Completion 2008 Investment Climate Assessment Completed Health Financing Policy Note Completed Rural ICA Completed FY09 Public Finance Review (JBAR) Completed Education and Nutrition Linkages Completed ROSC Accounting and Auditing Completed Climate Change Completed FY08 Regional Growth Study (Amhara) Completed 2009 Gender Study (Previously Gender and Poverty Study) Completed FY08 Regional Growth Study (Addis Ababa) Completed FY08 Making Finance Work for Ethiopia Financial Sector Review completed in FY08 Public Finance Review – Water Completed Economics of Climate Change (Ethiopia) Completed Policy Notes Macro-fiscal Issues Growth Completed Telecom Reform Options Note (TA) Completed Public Private Forum (TA) Completed Strategic Review of Road Sector Development (planned FY09) Completed FY10 ARD Public Expenditure Review Moved to FY12 2010 Eastern Nile Strategic Basin Assessment (Planned FY10) Completed FY11 Land Administration Note Completed FY11 Urban Poverty (Urban Vulnerability Note) Completed Urban Safety Net TA (Urban Vulnerability Note) Completed Design & Implement. a Rural Safety Net Completed Capacity Building TA Completed Financial Sector Review Completed Portfolio FM Arrangement Sty:CIFA/PEF Completed Procurement Reforms (included in CASPR) Completed FY10/11 Development Policy Review (DPR) Dropped Joint Governance Assessment and Measurement (JGAM) Now a joint donor trust fund with DFID, CIDA and RNE Country Integrated Fiduciary Assessment (CIFA) Planned or underway (FY12) CAS Progress Report Plans Status at Completion 2011 Public Expenditure Review 2011 Completed Roads Rural Access Development Planned delivery FY13 Climate Change Completed Innovation for Development Planned or underway Land Administration Note Completed (from FY10) Health Systems Note (converted to Health Systems for Outcomes Completed TA) Completed Page 103 Mining Sector Support and EITI (TA) Completed FY11 Economics of Adaptation to Climate Change 2012 ICT for Transformation (TA) Planned or underway Tourism Sector Competitiveness Planned or underway Service Trade and Growth Planned or underway Rural Access to Solve Development Constraints Planned or underway A&A ROSC follow up (TA) Planned or underway Decentralized Service Delivery Planned or underway Secondary Education Review Planned or underway Health System Strengthening and Dialog (TA) Planned or underway Poverty and Migration (TA) Planned or underway Public Sector Capacity Building Planned or underway ARD Public Expenditure Review Planned or underway Professional Services Planned or underway Land Administration (TA) Planned or underway AAA Macroeconomic Scenario Analysis Note Produced as monthly updates produced Quarterly Economic Monitoring Report Produced as monthly updates for Value Chain Analysis Notes Conducted for the Agricultural Growth Project and the Rural Capacity Building Project investment Rural Economy Survey Conducted for the Agricultural Growth Project and the Rural Capacity Building Project lending Service Delivery Quality and Decentralization Conducted through PBS 2 and PSNP Graduation Strategy Note Conducted as part of PSNP ongoing TA for SLM Platform During CASPR scope changed to Climate Change and Climate Change Adaptation AAA activities Policy dialog using FY07 Part of an engagement on health issues and demographic transformation Analysis of the Nature of Corruption Note Part of JGAM trust fund Coordination through DAG and Sector Working Groups Ongoing activity Energy Strategy Various pieces of work done over time as part of engagement with GoE Page 104 Appendix 5: Joint World Bank/IMF Debt Sustainability Analysis (DSA)1 1. The DSA shows that Ethiopia remains at a low risk of external debt distress in 2012. However, vulnerabilities remain as the most extreme stress test indicates. The debt burden indicators remain below the policy dependent-thresholds for the whole projection period including all stress tests. Even though the external debt ratio remains within thresholds, it shows sensitivity to changes in the terms of new public sector loans. Although most of macro indicators and assumptions have slightly changed (downward) compared to the projections in the previous 2011 DSA, the present value (PV) of external debt to exports remains at similar levels (around 97 percent). The projection of new debt disbursement was lower than in last year’s DSA estimate as disbursement of loans to public infrastructure investment is estimated to slow down. Furthermore, public infrastructure investment, as planned in the GTP, relies heavily on financing from domestic sources. Pursuing the full implementation of the investment plan in the originally envisioned time frame may lead to a large accumulation of public debt and could have implications of crowding the private sector. Ethiopia has substantial levels of foreign exchange receipts from remittances. Since the baseline and sensitivity tests without remittances do not breach any of the country specific thresholds, the analysis of DSA focuses on the method that does not consider remittances. 2. The 2012 DSA baseline scenario shows a rising path of public and publicly guaranteed external debt over the next few years, but will remain well under the various thresholds (see figures below). The PV of external debt in percent of exports will slowly increase peaking at 106.7 percent in 2017 and continue declining over the projection period. A similar trend is observed for the PV of debt to GDP and revenue. The debt service to exports is projected to remain well below the threshold; it will peak at 8.9 percent in 2019 and declines afterwards on account of the expectation of servicing non-concessional borrowing by public enterprises. 3. Under the historical scenario, the debt stock indicators are lower than under the baseline scenario in the short term but would rise slightly above those of the baseline scenario over time. The PV of debt to exports is projected to fall over the next five years by 23 percentage points from current levels before beginning to rise to a peak of 94.8 percent. The most extreme test which is characterized by new public sector loans negotiated on less favorable terms (200 basis point higher interest rate during the forecast horizon), would show a substantial increase to a peak of 145.7 percent (very close to the threshold), but decline after 2020. This is the result of the recent and further expected disbursement in non-concessional terms for public infrastructure investment. 4. With regard to total public sector debt (external and domestic sources), under the baseline scenario, the total public sector debt-to-GDP ratio would rise in the medium term. In addition to an accumulation of external public and publicly-guaranteed debt, a significant amount of domestic financing is projected to occur through major public enterprises, particularly the state- 1 This write-up reflects the preliminary outcomes of the latest DSA, which was carried out in May/June 2012, jointly with the IMF. The DSA document has not yet been published. Page 105 owned electricity company, which continues to run operating losses and plans to invest heavily. Among others, the Grand Renascence Dam is expected to be financed largely from domestic sources. 5. In summary, DSA 2012 indicates that Ethiopia stays at a low risk of external debt distress – similar to the findings in 2009/10 and 2010/11. But given the large financing requirements for the GTP, it is expected that debt ratios would rise moderately in the medium-term but stabilize in the long-term. New disbursement projections reflect the fact that borrowing from domestic sources is capacity constrained and public enterprises would continue to rely significantly on external financing to sustain its large infrastructure investments that are driving growth; for the latter it has to be expected that a growing share would be on non-concessional terms. Consistent with GoE's intention to keep a low risk of external debt distress, the amount of non-concessional borrowing will be limited. Indeed there may be a trade-off between GoE’s desire to maintain a low risk rating and the implementation pace of the GTP. In other words, GoE may need to increase the implementation period of the GTP in order to smooth the profile of the non- concessional financing requirements for the planned investments. Ethiopia is subject to the IDA Non-Concessional Borrowing Policy (NCBP). In the absence of an IMF program, IDA could establish a non-concessional borrowing limit if it was consistent with the maintenance of low debt vulnerabilities, and if the planned investments are critical and growth-enhancing.2 The GoE officially requested a non-concessional borrowing limit of US$ 1 billion and the Board will be informed of IDA management’s decision as specified in the NCBP. 2 The ability to establish a non-zero ceiling for non-concessional lending in IDA's NCBP in the absence of an IMF program was outlined in "IDA's Non-concessional Borrowing Policy: Progress Update", April, 2010. (IDA Sec 54240) Page 106 Ethiopia: Indicators of Public and Publicly Guaranteed External Debt under Alternatives Scenarios, 2012-2032 1/ a. Debt Accumulation b.PV of debt -to GDP ratio 6 35 45 30 40 5 35 25 4 30 20 3 25 15 20 2 10 15 1 5 10 0 0 5 2012 2017 2022 2027 2032 0 Rate of Debt Accumulation 2012 2017 2022 2027 2032 Grant-equivalent financing (% of GDP) Grant element of new borrowing (% right scale) c.PV of debt -to -exports ratio d.PV of debt -to -revenue ratio 160 300 140 250 120 200 100 80 150 60 100 40 50 20 0 0 2012 2017 2022 2027 2032 2012 2017 2022 2027 2032 e.Debt service -to -exports ratio f.Debt service -to -revenue ratio 25 25 20 20 15 15 10 10 5 5 0 0 2012 2017 2022 2027 2032 2012 2017 2022 2027 2032 Baseline Historical scenario Most extreme shock 1/ Threshold Sources: Country authorities; and staff estimates and projections. 1/ The most extreme stress test is the test that yields the highest ratio in 2022. In figure b. it corresponds to Page 107 a Terms shock; in c. to a Terms shock; in d. to a Terms shock; in e. to a Terms shock and in figure f. to a One-time depreciation shock Figure 2.Ethiopia: Indicators of Public Debt Under Alternative Scenarios, 2012-2032 1/ Baseline Fix Primary Balance Most extreme shock Growth LT Historical scenario 80 PV of Debt-to-GDP Ratio 70 60 50 40 30 20 10 0 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 500 450 PV of Debt-to-Revenue Ratio 2/ 400 350 300 250 200 150 100 50 0 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 30 Debt Service-to-Revenue Ratio 2/ 25 20 15 10 5 0 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 Sources: Country authorities; and staff estimates and projections. 1/ The most extreme stress test is the test that yields the highest ratio in 2022. 2/ Revenues are defined inclusive of grants. Page 108 Appendix 6: Analysis of Gender Inequalities and Opportunities in Ethiopia3 1. The Government of Ethiopia’s (GoE) has a strong commitment to gender equality, which is firmly rooted in national policies as well as in the signing of international and regional treaties and protocols on women’s rights. Promoting gender equality is a central element in the GoE Growth and Transformation Plan 2010/11-2014/15 and its cross cutting sectors theme (Chapter 8) identifies a range of gender concerns. The Ministry of Women, Youth and Children’s Affairs contribute to policy development and support gender mainstreaming in all government ministries and bureaus and spearhead responses to address gender inequalities. To date gender units have been established in all line ministries and in the regions. However, implementation capacity remains a challenge. 2. The gaps in women’s and men’s development opportunities are significant, and there is ample room for reduction in the country’s gender inequality. The literacy levels of women are markedly lower than those of men, especially in rural areas and among urban poor. In education, the retention level of girls in secondary education is lower than that of boys, and the gender gap is steep in tertiary education. Despite having 28 percent female parliamentarians, women are generally under-represented in decision-making (only 3 of the ministers are women). There is a pronounced gender gap in access to and control of productive resources. Although they contribute to much of the agricultural labor, women’s access to land continues to be limited despite joint land certification efforts. As a consequence their access to farm inputs, extension advice and credit are way below men’s, what slows down land productivity and the country’s economic growth. Women lack economic opportunities, have limited involvement in cash crop production, non-farm enterprises and wage employment. Harmful cultural practices (such as female genital mutilation (FGM) and early marriages) are widely practiced and gender based violence is widespread. Climatic changes, HIV/AIDS and other livelihood stresses put women’s participation in the economy, society and in education further at risk. There is also considerable heterogeneity across region and location (rural vs. urban). Indicators of empowerment show increasing disparities between the best and worst performing regions, reflecting in part the deterioration of some indicators in the worst performing regions. Further, while progress has been made gender disparities persist, with regions that were ranked poorly in 1995 and 2005 are still lagging in 2011.4 3. While reducing the large gender gaps in Ethiopia is an important development goal in its own right, it is well established that improving gender equality in the country would lead to large leaps in achieving many of the other key development goals. World Bank (2008) estimates indicate that reducing basic gender inequalities in education and the labor market could increase the annual GDP growth in Ethiopia by around 1.9 percentage points – which would be an important contribution to poverty reduction given the elasticity of growth to poverty reduction. 3 The analysis is based on a comprehensive Ethiopia Demographic and Health Surveys (DHS) conducted in 2000, 2005 and 2011. 4 For example, the Gender Parity Index (the ratio of girls to boys attending school) in secondary net schooling attendance was 0.42 in Somali region, while it was 1.08 in Tigray – a difference that has been persistent over the years (DHS, 2011, section2.6.3). Page 109 Evidence from other countries confirm that under-investing in women limits economic growth and slows down poverty reduction (2012 WDR). Moreover, evidence across the globe links increases in women’s productivity and earnings to lower household poverty and to better health and education outcomes for household members, especially children. Reduced gender inequalities in primary education, but adult education still needs attention 4. The policies to ensure gender equality in education in Ethiopia are elaborated in the Education and Training Policy (April 1994) and the Education Sector Development Program IV, 2010. The GoE Educational Statistics Annual Abstract FY11 shows an increase in the female Gross Enrollment Rate for primary education (grades 1-8) from 84% in FY06 to 93% in FY11. The girls/boys ratio for 1-4 grade worsened from 95% in FY07 to 90% in FY11, while the ratio for grade 5 to 8 improved in the same period, from 88% to 96%. Improvements continue for secondary enrolment – female GER for grades 9-10 increased from 25% in FY06 to 35% in FY11, while male GER is relatively stable around 42-45%. Hence, the girls/boys ratio in secondary education increases – from 59% in FY06 to 83% in FY10. Average drop-out rates in primary school have been approximately the same for boys and girls during the last 7 years. In 2011, 51% of women between 15 and 49 years of age did not have any education compared to 29% of men compared to 75% of women and 52% of men in 2000 (Table below). Secondary school attendance shows a much less favorable picture with very low rates for both girls and boys and the numbers are actually declining. Very few people have more than secondary school in Ethiopia and the gender difference in tertiary education and above is large. Even though the growth in shares with this level of educational attainment has been high, the shares remain low. Only 4 percent of women have education higher than secondary, while the corresponding figure for men is 7 percent. Educational status for women and men age 15-49, from 2000 to 2011. 2000 2005 2011 No education Women 75.2 65.9 50.8 Men 52.1 49.2 29.5 Primary Women 15.8 22.2 38.0 Men 33.0 37.3 53.1 Secondary Women 8.5 10.5 6.8 Men 12.8 17.3 10.1 More than secondary Women 0.6 1.4 4.4 Men 2.1 2.4 7.3 Women’s health continues to be of major concern 5. Maternal mortality remains at alarmingly high rates, despite being considered among the most important indicators of women wellbeing and one of the Millennium Development Goals. Use of contraceptives doubled from 2005 to 2011 (from 15% to 29%), family planning increased from 25% of households to 60% in the same period and population growth is declining in Ethiopia (Ethiopia Population and Housing Census 2007). Fertility declined 10% from 2005 to 2011 while adolescent fertility was reduced 35% in the same period. Despite fewer births per women and expectations of reduced maternal mortality ratio 5 , especially among very young 5 Maternal Mortality Ratio is defined as the number of deaths during pregnancy, childbirth or the first 2 months of childbirth per 100.000 live births. Page 110 women, maternal mortality remains stubbornly high (673 deaths per 100.000 live births in 2005 and 676 in 2011). 6. Women with poor nutritional status have higher risk of adverse pregnancy outcomes, and hence anemia is of particular importance for this group. The reduction of anemia in women has been large in Ethiopia from 2005 to 2011 - actually more than twice the reduction in anemia in children in the same period. The DHS 2005 and 2011 show the share of women suffering from moderate and severe anemia has been more than halved in this period, while there has been a 25 percent reduction in the share with mild anemia. The reduction has been higher in urban areas, although the urban-rural difference is much lower than what is found for children. Severe anemia was almost eliminated in urban areas as the share declined by 85 percent. Nonetheless, the prevalence of anemia in women is still high and the gap between men and women in 2011 shows the disadvantaged situation of women (prevalence of anemia is twice as high in urban women as that of urban men, while it is 40 percent higher for rural women as compared to rural men). Significant benefits to be gained from gender equalizing policies in the economic sector 7. In accessing jobs, Ethiopian women’s opportunities to leverage their labor in the market are hindered by their limited skills and greater burden of household responsibilities. As a result, women face lower economic activity rates6, lower employment rates and higher unemployment rates than men. They are also disproportionately concentrated in unpaid or flexible jobs that offer lower earnings and less security and their ability to move to better jobs is limited by some form of labor market discrimination/segmentation. Factors such as location and age are also correlated with worse labor market outcomes. Nevertheless, there are some encouraging signs of progress in Ethiopia when it comes to women’s participation in the economy. The economic activity rate is equalizing among the younger cohorts in urban areas as it increased 10 percent for young women (age 20-34) from 2009 to 2011 while there was no change for young men. Still, the gender gaps in the urban economy remains very large: the female unemployment rate is twice as large as that of males in 2011, women earn 50 percent less than men, the share of women without education is double that of men, microenterprises owned by women earn only a fraction of those owned by men and women face larger barriers for doing business. 8. Around 45 percent of the differences in earnings between men and women in Ethiopia can be explained by worker characteristics, while as much as 40 percent of the gap is unexplained. Among workers characteristics, lower investments in human capital and less experience on the job account for 25 to 39 percent of the gap in earnings between men and women. Job characteristics are also systematically less favorable for women. Independent of their observable individual characteristics, women are more likely to end up in less rewarding segments of the labor market, pointing to some implicit form of job discrimination, particularly for the younger wage employed. Finally, about 40 percent of the wage gap cannot be explained based on observable individual or job characteristics. In the economics literature this 6 According to ILO definition, economically active means to be working to produce goods and/or services for others or for own consumption, or actively seeking such work (i.e. includes unemployed). Unpaid household chores such as preparing food, cleaning the house and taking care of children are not considered economic activities. The economic activity rate measures the share of the population that is economically active to the total population. Page 111 unexplained gap is referred to as “pure wage discrimination effects� as it implies that individuals with identical characteristics other than their gender are not being paid the same. This discrimination effect appears to be more marked as the age of the workers increases. 9. Gender equality is legally provided for in business ownership and administration, although in practice biases remain. The literature suggests that Ethiopian culture discourages women from taking up a career in business. Instead, women’s core activities are often perceived as reproductive tasks. This image leads to some specific bottlenecks, such as women’s ability to travel away from home, own larger animals, and even control their own independent income (ILO, 2003). Families of growth-oriented women would often frown upon their business initiatives and many women who would like to go into business cannot because their families or husbands do not allow them (TriodosFacet 2011). For the same reason, many women face cultural obstacles to grow their small business. Also, women are culturally pressed into traditional ‘women businesses’ such as food preparation, hairdressing, and textile production confirming the segmentation identified above (Stevenson and St. Onge, 2005). Analysis of the latest investment climate assessment data revealed that women face greater barriers at start up. Likewise, results from the Rural Investment Climate Survey for Amhara suggest that women are more likely than men to do activities with low capital requirements and low productivity (and often bearing social stigma) because of lack of other options, as opposed to men entrepreneurs whose businesses tend to be much larger and much more profitable. Further, non-farm enterprises owned by women in rural areas and urban towns tend to be much smaller and less productive than men’s. 10. Gender equality in land tenure, property ownership and inheritance is guaranteed by legislation, which also recognizes the legal presumption of joint property by spouses. Yet in practice biases persist, particularly towards single women. In some regions such as Amhara and Tigray efforts have been made to ensure equal land use rights for women. The most significant development in the recent past in this area has been the programs of land certification implemented in the four main regions of the country. More than 20 million land-use certificates have been issued with both spouses’ names and photos on the certificates, and women’s registration for land increased significantly. Some of the benefits of those programs are already becoming apparent and a recent nationwide survey indicated that more than 80 percent of households expected rural land certification to improve women’s position and women respondents who had received a joint certificate almost universally pointed to this as having improved their economic and social status. Nonetheless, there is still scope for improvements in gender-mainstreaming of these programs and of their implementation on the ground. Women lack access to justice 11. Progress in the legal framework was achieved in 2005 when the Family and Penal Codes were purged of gender biases, the minimum age for marriage was raised to 18 and important concepts such as rape were broadened and domestic violence specifically listed as a crime. All new legislation is now systematically reviewed through gender lenses, reflecting a commitment by the government to close the gender gap. Ethiopia has signed, but not ratified the Women’s Rights Protocol to the African Charter, which entered into force in November 2005. Nonetheless, evidence suggests violence against women in Ethiopia is among the highest in the world – 70% have been assaulted by their partner (WHO 2006) and domestic violence in Ethiopia can increase Page 112 when women enter formal employment (WDR, 2012). The 2011 Demographic and Health Survey found that 68 percent of all Ethiopian women believe that such violence is justified for one reason or another (down from 81 percent in 2005). Abduction of young girls and of female genital cutting continues to be major problems in many parts of the country. The introduction of the Charities and Societies Proclamation law (CSO law) in 2010 has negatively affected the NGOs that promote gender equality, especially the Ethiopian Women Lawyers Association (which played a crucial role in changing the legislation towards gender neutrality in 2004-05). 12. In urban areas, more advanced women entrepreneurs face more severe challenges than their male counterparts and appear to suffer especially from vulnerability to crime, corruption and extortion. Most micro and small business owners fear taking their disputes to courts. There seems to be a general perception that going to formal courts is waste of time and that those with the most resources will win the case anyway. Hence, many entrepreneurs prefer settling disputes through mediation, arbitration or other means including at the cost of unofficial payments and undue loss of revenues. Recommendations 13. In education and health, the aims are given from GTP, MDG and Bank priorities. The WB programs will promote GOE efforts to raise the girls/boys ratio for both primary and secondary education enrolment and completion. Given the potential for adult education for women, skill development/strengthening programs (e.g., vocational and entrepreneurial training) for women will be promoted. In health, continued efforts to reduce fertility will be prioritized together with interventions that are credible for reducing maternal mortality ratios. Women’s entrepreneurship is increasingly recognized as an important untapped source of economic growth. The Bank will build on the experiences from WEDP and the emerging research in the area to further support growth-oriented women and men micro and small enterprise owners. In access to justice the main opportunity for the Bank is to support enforcement of existing laws and regulations. Bank in collaboration with the Government and other development partners will consider supporting low-level low-cost business dispute resolution mechanisms, for both women and men. 14. The Bank will intensify its AAA to assist the GoE to deliver on its national gender commitments and improve on its gender equality indicators. There is a clear need for more rigorous impact evaluations to inform the design of programs in a range of Bank supported programs. Continued assistance will be provided to support the collection of sex-disaggregated data. The Bank is currently conducting studies of Access to Justice of Poor and Vulnerable Groups in Addis Ababa to inform the future engagement. There are substantial knowledge gaps on the impacts of supporting female income generation and under the WEDP a rigorous impact evaluation will be undertaken. Page 113 Appendix 7: Mainstreaming Climate Change into WB Program 1. The Government and the Bank regard climate change and variability as an important challenge for Ethiopia. As the Government puts it in its Vision of a Climate Resilient Green Economy (CRGE): “Ethiopia did not cause climate change, but we are confronted by the threat that it poses, and should recognize the opportunity that it presents. Climate change is not a future possibility for Ethiopia, it is a present reality.� 2. Ethiopia’s climate is changing and expected to change further at unprecedented rates. Ethiopia has become warmer over the past century and, as predicted by most climate change models, human induced climate change will bring further warming, likely associated with heat waves and higher evapotranspiration. While there is uncertainty about future rainfall amounts, rainfall variability is predicted to increase further, likely leading to more droughts and floods and other challenging impacts. 3. Ethiopia is highly vulnerable to climate change and variability. Roughly 85 percent of the population are living in rural areas and are heavily dependent on rainfed agriculture; about 10 percent of the population is chronically food-insecure and several million more people fall into transitory food insecurity each year; more than a third of all Ethiopians fall under the food-poverty line (2010/11). The threat to this population from further climate variability and climate change is high. As stated in the WB report “Economics of Adaptation to Climate Change “: “Ethiopia is heavily dependent on rain-fed agriculture, and its geographical location and topography in combination with low adaptive capacity entail a high vulnerability to the impacts of climate change.� While the threat from droughts and floods on agriculture might lead to the largest and most acute impacts, Ethiopia is also vulnerable in terms of other sectors including water, transport, industry, energy, health and in terms of its environmental resources. 4. Ethiopia has also significant mitigation potential and GoE aim is a carbon neutral growth trajectory. This is emphasized by the Government it the CRGE Vision. Its Green Economy Strategy is based on four pillars including (i) improved crop and livestock practices; (ii) forestry; (iii) renewable energy; and (iv) “leapfrogging to modern and energy-efficient technologies in transport, industrial sectors, and buildings.� A major emphasis will have to be on agriculture and forestry, which “contribute around 45% and 25% respectively to projected GHG emission levels under business-as-usual assumptions and together account for around 80% of the total abatement potential.� Given the ambitious CRGE agenda, changes will be required in policies, regulations and institutions as well as program designs and financial support. 5. This CPS addressed climate change as a cross-cutting issue. It sees climate change as a challenge and opportunity to be addressed as part of and integrated into the development process, and the Bank’s support to the development process as outlined under the two pillars (Fostering Competitiveness & Employment; Enhanced Resilience & Reduced Vulnerabilities) and various sectors of this CPS. This is in line with the CRGE and how climate change aspects are being integrated into the GTP. 6. Consequently, this CPS first and foremost emphasizes the Bank’s support to key sectors of crucial importance to climate change, including agricultural and pastoral Page 114 development, sustainable land management and food security, and renewable energy. Supporting the development of these sectors are expected to lead to ‘win-wins’, i.e., an economic development that is making the country and its people more resilient and that is ‘green’ (low-carbon). In addition, the Bank is planning to undertaken work focusing on climate change. It will build on its work specific to climate change during the past CAS period7 and further strengthen its support to Government’s demands including:  Further strengthen the Bank’s climate change focus under this CPS. Specifically, it is proposed to strengthen the systematic and enhanced treatment of climate impacts at the strategic level. This would build on a framework that will be developed for IDA-16 based on selected case studies. Specifically, the work would help to provide climate change impact analysis at the strategic level, propose sector guidelines for 3 climate sensitive sectors: agriculture, water, and roads infrastructure, and seek to develop an institutional assessment tool (or scorecard) which will allow Ethiopia to understand their capacity needs and gaps. This work could provide further strategic direction and, therefore, enhance the mainstreaming of climate resilience during implementation of this CPS.  Support and actively engage in the CRGE initiatives. In particular through its engagement with line agencies, the Bank will support the development of the Government’s Climate Resilient Strategy.8 During the CPS period, the Bank also plans to support the “I-Planning� (implementation and investment-planning) progress led by the Government. In particular, we put a strong emphasis in engaging with the Ministry of Agriculture, the Ministry of Water and Energy and other relevant line agencies as well as the Regions in strengthening the integration of the I-Planning process with the development strategies and plan of the various sectors.  Support the Government in making the Bank-supported investment portfolio more ‘climate- smart’. In particular, climate change acting at spatial and temporal scales has implications, including on the interactions and trade-offs within and between sectors. The Bank’s engagement in the “I-Planning� process is crucial for this ‘mainstreaming’ of climate change into the development processes and the Bank’s portfolio. In addition, we strengthen our engagement in specific studies and trials under ongoing or for future projects and programs with the aim to modify their design for an increased climate change impact. Examples are the work already started to make the Productive Safety Net Program (PSNP) more response to the challenges and opportunities of climate change, and the planned work to do the same for the Sustainable Land Management Program (SLMP) and the Agricultural Growth Program (AGP).  Continue engaging in few climate change-specific tasks such as climate information systems or other specific AAA products or supporting the agenda on Reducing Emissions from Deforestation and Forest Degradation (REDD). However, as much as possible, these activities will also be integrated into and supporting the Government’s and Bank-supporting ‘development’ interventions. 7 Examples include the Humbo Assisted Natural Regeneration Project assisted by the BioCabon Fund, the Scaling Up Renewable Energy in Low Income Countries (SREP) for Ethiopia or the AAA work on economic adaptation to climate change referred to above. 8 The CR Strategy will complement the already existing GE Strategy and is expected to be completed before the end of 2012. Page 115 Appendix 8: Mapping of the Development Partners in Ethiopia Country Strategic Objectives under CPS Competitiveness & Good Governance Social Protection Access & quality of infrastructure Social Services Stable Macro Productivity integration Development partners Regional & DRM (ODA, DAC and non-DAC donors) Multilateral AfDF x x x x x IFAD x x IDA x x x x x x x IMF (Concessional Trust Funds) x OFID x x x UNAIDS x UNDP x x x x UNFPA x UNICEF x x x x WFP x x x EU Institutions x x x x x x Bilateral New Zealand x Norway x x x x x x Portugal x x x Spain x x x x Sweden x x x x Switzerland x x x x United Arab Emirates x x United Kingdom x x x x x United States x x x x x Australia x x x x Austria x x x x x Belgium x x x x Canada x x x x x Denmark x x x x Finland x x x x x France x x x x Germany x x x x x Greece x x Ireland x x x x Italy x x x x x Japan x x x x x Korea x x x x x Kuwait x Luxembourg x x x Netherlands x x x x Global Programs/Thematic International Organizations GAVI x GEF x Nordic Dev.Fund x Global Fund x Source: DAG data Page 116 Top development partners Total Disbursements US$ millions at Ranking Development partner % constant prices 2008-10 1 United States 2,908 26% 2 IDA 2,517 23% 3 United Kingdom 896 8% 4 EU Institutions 762 7% 5 Global Fund 588 5% 6 AfDF 508 5% 7 Canada 385 3% 8 IMF (Concessional Trust Funds) 286 3% 9 Germany 275 2% 10 Netherlands 274 2% Source: DAG data Country Strategic Objectives under CPS Competitiveness & Good Governance Social Protection Access & quality of infrastructure Social Services Stable Macro Productivity integration Development partners Regional & DRM (ODA, DAC and non-DAC donors) Multilateral 3% 5% 9% 1% 4% 4% 2% Bilateral 0% 3% 2% 0% 17% 24% 2% Global Programs 0% 0% 0% 0% 6% 0% 0% Total 3% 8% 11% 1% 27% 28% 4% Total excluding IDA 3% 5% 6% 0% 26% 28% 4% Source: DAG data Page 117 Figure 8: Dialogue Structure between the Government of Ethiopia and Development Partners Legend MA Public Finance Management Committee 1. Name of SWG CRO (PFMC) 2. Name of funding program Joint Government-Donor 3. Avg. Disb 2010/11 (US$m) Macro Fiduciary JBAR PSCAP Working Group 4. Funding Coord. Committee MSG TWG 5. Consultative Platform PBS PSCAP (US$436m) (US$17m) Education Technical Rural Economic Development & Food Security (REDFS) Transport Sector Water Sector Working Health Central Joint Steering SECTOR Woring Group SWG Working Group Group Committee WITH FUNDIN Sustainable GEQIP/FTI PIF Agricultural DRM &FS Sector WASH WRM MDG Performance Fund G ESD Land Mgmt RSD HSD (US$126m) Growth TWG TWG Budget Support TC TC (US$40m) MECHAN P TWG P P (US$87m) Technical Assistance Pool ISM Fund AGP SLMP PSNP (US$338) MDTF on WSSP (US$18m) Humanitarian UAP (US$ 25m) Global Fund (US$920m) WASH (US$240m) (US$2m) GEQIP Coordinating REDFS Joint Strategic Joint Country Committee (GCC) Platform Oversight Consultative Coord Committee Forum (JCF) Mechanism (JSOC) (CCM) SECTOR WITHOU T FUNDIN G Joint Sector working group Private Sector Development Civil Society Sector Working Monitoring MECHAN on gender equality and and Trade Sector Working Group (CSSWG) & ISM child right (JSWG-GECR) Group (PSD&T SWG) Evaluation Sector Working Group Page 118 STANDARD ANEXES Annex 1: Ethiopia at a glance ................................................................................................................... 120 Annex 2: Progress Towards Achieving the MDGs ................................................................................... 122 Annex 3: Key Economic Indicators .......................................................................................................... 123 Annex 4: Key Social Indicators ................................................................................................................ 125 Annex 5: Key Exposure Indicators ........................................................................................................... 126 Annex 6: Ethiopia Country Financing Parameters.................................................................................... 127 Annex 7: IDA and IFC Program Summary .............................................................................................. 128 Annex 8: Status of WBG Operations (Operations Portfolio).................................................................... 129 Annex 9: Selected Indicators of IDA Portfolio Performance and Management (end-June 2012) ............ 130 Annex 10: IFC and MIGA Program and Portfolio ................................................................................... 131 Annex 11: Indicative IDA and IFC Lending and Non-Lending Program under the CPS FY13-FY16 .... 133 Annex 12: Ethiopia Trust Fund (TF) Portfolio ......................................................................................... 135 Map. .......................................................................................................................................................... 141 Page 119 Annex 1: Ethiopia at a glance Ethiopia at a glance 5/22/12 Sub- Ke y D e v e lo pm e nt Indic a t o rs Saharan Lo w Ethio pia A frica inco me Age distribution, 2010 ( 2 0 11) Male Female P o pulatio n, mid-year (millio ns) 84.7 853 796 75-79 Surface area (tho usand sq. km) 1,104 24,243 15,551 60-64 P o pulatio n gro wth (%) 2.1 2.5 2.1 Urban po pulatio n (% o f to tal po pulatio n) 18 37 28 45-49 30-34 GNI (A tlas metho d, US$ billio ns) 33.8 1,004 421 15-19 GNI per capita (A tlas metho d, US$ ) 400 1 ,176 528 GNI per capita (P P P , internatio nal $ ) 1,040 2,1 48 1,307 0-4 10 5 0 5 10 GDP gro wth (%) 7.3 4.8 5.9 percent of total population GDP per capita gro wth (%) 5.1 2.3 3.7 ( m o s t re c e nt e s t im a t e , 2 0 0 5 – 2 0 11) P o verty headco unt ratio at $ 1 .25 a day (P P P , %) 39 48 .. Under-5 mortality rate (per 1,000) P o verty headco unt ratio at $ 2.00 a day (P P P , %) 78 69 .. Life expectancy at birth (years) 58 54 59 200 Infant mo rtality (per 1,000 live births) 59 76 70 180 Child malnutritio n (% o f children under 5) 29 22 23 160 140 A dult literacy, male (% o f ages 15 and o lder) 42 71 69 120 100 A dult literacy, female (% o f ages 15 and o lder) 18 54 54 80 Gro ss primary enro llment, male (% o f age gro up) 107 104 108 60 Gro ss primary enro llment, female (% o f age gro up) 98 95 101 40 20 0 A ccess to an impro ved water so urce (% o f po pulatio n) 38 61 65 1990 1995 2000 2010 A ccess to impro ved sanitatio n facilities (% o f po pulatio n) .. 31 37 Ethiopia Sub-Saharan Afric a a N e t A id F lo ws 19 8 0 19 9 0 2000 2 0 11 (US$ millio ns) Net ODA and o fficial aid 211 1,009 687 3,529 Growth of GDP and GDP per capita (%) To p 3 do no rs (in 2010): United States 19 50 130 875 15 United Kingdo m 4 35 11 407 10 Euro pean Unio n Institutio ns 32 109 69 238 5 0 A id (% o f GNI) 3.4 8.4 8.5 12.0 A id per capita (US$ ) 6 21 10 43 -5 -10 Lo ng- T e rm E c o no m ic T re nds -15 95 05 Co nsumer prices (annual % change) 12.5 5.2 6.2 18.1 GDP implicit deflato r (annual % change) 4.3 3.3 9.5 24.4 GDP GDP per c apita Exchange rate (annual average, lo cal per US$ ) 2.1 2.1 8.1 16.1 Terms o f trade index (2000 = 100) 131 151 100 123 19 8 0 – 9 0 19 9 0 – 2 0 0 0 2 0 0 0 – 11 (average annual gro wth %) P o pulatio n, mid-year (millio ns) 35.4 48.3 65.6 84.7 3.1 3.1 2.3 GDP (US$ millio ns) 7,269 12,083 8,180 31,715 2.2 3.8 8.9 (% o f GDP ) A griculture 60.7 54.3 49.9 46.4 0.9 2.6 7.1 Industry 9.4 9.9 12.4 10.5 3.5 4.2 9.3 M anufacturing 4.3 4.5 5.5 3.6 3.0 3.8 7.9 Services 30.0 35.8 37.8 43.1 4.0 5.2 10.9 Ho useho ld final co nsumptio n expenditure 80.0 77.2 73.8 80.1 1.3 3.4 10.9 General go v't final co nsumptio n expenditure 9.8 13.2 17.9 9.2 4.0 9.5 3.3 Gro ss capital fo rmatio n 14.5 12.9 20.3 25.8 4.9 2.7 11.5 Expo rts o f go o ds and services 7.6 5.6 12.0 16.7 3.2 7.0 8.9 Impo rts o f go o ds and services 11.9 8.8 24.0 31.8 3.2 5.8 14.2 Gro ss savings 10.8 11.9 16.2 25.6 No te: Figures in italics are fo r years o ther than tho se specified. 2011data are preliminary. .. indicates data are no t available. a. A id data are fo r 2010. Develo pment Eco no mics, Develo pment Data Gro up (DECDG). Page 120 Ethiopia B a la nc e o f P a ym e nt s a nd T ra de 2000 2 0 11 Governance indicators, 2000 and 2010 (US$ millio ns) To tal merchandise expo rts (fo b) 486 2,747 To tal merchandise impo rts (cif) 1,611 8,253 Voice and accountability Net trade in go o ds and services -976 -4,793 Political stability and absence of violence Current acco unt balance -335 -68 Regulatory quality as a % o f GDP -4.1 -0.2 Rule of law Wo rkers' remittances and co mpensatio n o f emplo yees (receipts) 53 225 Control of corruption Reserves, including go ld 349 2,319 0 25 50 75 100 Country's percentile rank (0-100) C e nt ra l G o v e rnm e nt F ina nc e 2010 2000 higher values imply better ratings (% o f GDP ) Source: Worldwide Governance Indicators (www.govindicators.org) Current revenue (including grants) 15.7 15.5 Tax revenue 9.5 11.5 Current expenditure 20.6 7.9 T e c hno lo gy a nd Inf ra s t ruc t ure 2000 2 0 10 Overall surplus/deficit -9.4 -2.6 P aved ro ads (% o f to tal) 12.0 13.7 Highest marginal tax rate (%) Fixed line and mo bile pho ne Individual 35 35 subscribers (per 1 00 peo ple) 0 9 Co rpo rate 30 30 High techno lo gy expo rts (% o f manufactured expo rts) 0.1 3.0 E xt e rna l D e bt a nd R e s o urc e F lo ws E nv iro nm e nt (US$ millio ns) To tal debt o utstanding and disbursed 5,495 8,224 A gricultural land (% o f land area) 31 35 To tal debt service 138 465 Fo rest area (% o f land area) .. .. Debt relief (HIP C, M DRI) 2,728 1,865 Terrestrial pro tected areas (% o f land area) 17.7 18.4 To tal debt (% o f GDP ) 67.2 25.9 Freshwater reso urces per capita (cu. meters) 1,767 1,503 To tal debt service (% o f expo rts) 13.1 8.8 Freshwater withdrawal (billio n cubic meters) .. .. Fo reign direct investment (net inflo ws) 135 94 CO2 emissio ns per capita (mt) 0.09 0.09 P o rtfo lio equity (net inflo ws) 0 0 GDP per unit o f energy use (2005 P P P $ per kg o f o il equivalent) 1.9 2.2 Composition of total external debt, 2010 Energy use per capita (kg o f o il equivalent) 284 402 Short-term, 314 IBRD, 0 IDA, 1,804 Wo rld B a nk G ro up po rt f o lio 2000 2 0 10 Private, 1,907 (US$ millio ns) IMF, 288 IB RD To tal debt o utstanding and disbursed – – Other multi- Disbursements – – lateral, 1,009 P rincipal repayments – – Bilateral, 1,825 Interest payments – – US$ millions IDA To tal debt o utstanding and disbursed 1,779 1,804 Disbursements 137 389 P riv a t e S e c t o r D e v e lo pm e nt 2000 2 0 11 To tal debt service 34 15 Time required to start a business (days) – 9 IFC (fiscal year) Co st to start a business (% o f GNI per capita) – 14.1 To tal disbursed and o utstanding po rtfo lio 0 5 Time required to register pro perty (days) – 41 o f which IFC o wn acco unt 0 5 Disbursements fo r IFC o wn acco unt 0 5 Ranked as a majo r co nstraint to business 2000 2 0 10 P o rtfo lio sales, prepayments and (% o f managers surveyed who agreed) repayments fo r IFC o wn acco unt 0 0 Tax rates 72.2 .. Tax administratio n 59.2 .. M IGA Gro ss expo sure – 10 Sto ck market capitalizatio n (% o f GDP ) .. .. New guarantees – 10 B ank capital to asset ratio (%) .. .. No te: Figures in italics are fo r years o ther than tho se specified. 2011data are preliminary. 5/22/12 .. indicates data are no t available. – indicates o bservatio n is no t applicable. Develo pment Eco no mics, Develo pment Data Gro up (DECDG). Page 121 Annex 2: Progress Towards Achieving the MDGs Millennium Development Goals Ethiopia With selected targets to achieve b etween 1990 and 2015 (estimate clo sest to date sho wn, +/- 2 years) E t hio pia G o a l 1: ha lv e t he ra t e s f o r e xt re m e po v e rt y a nd m a lnut rit io n 19 9 0 19 9 5 2000 2 0 10 P o verty headco unt ratio at $ 1 .25 a day (P P P , % o f po pulatio n) .. 60.5 55.6 39.0 P o verty headco unt ratio at natio nal po verty line (% o f po pulatio n) .. 45.5 44.2 38.9 Share o f inco me o r co nsumptio n to the po o rest qunitile (%) .. 7.2 9.2 9.3 P revalence o f malnutritio n (% o f children under 5) .. .. 42.0 28.7 G o a l 2 : e ns ure t ha t c hildre n a re a ble t o c o m ple t e prim a ry s c ho o ling P rimary scho o l enro llment (net, %) 30 23 40 83 P rimary co mpletio n rate (% o f relevant age gro up) 23 15 23 72 Seco ndary scho o l enro llment (gro ss, %) 14 11 14 36 Yo uth literacy rate (% o f peo ple ages 1 5-24) .. .. .. .. G o a l 3 : e lim ina t e ge nde r dis pa rit y in e duc a t io n a nd e m po we r wo m e n Ratio o f girls to bo ys in primary and seco ndary educatio n (%) .. .. .. .. Wo men emplo yed in the no nagricultural secto r (% o f no nagricultural emplo yment) .. .. .. .. P ro po rtio n o f seats held by wo men in natio nal parliament (%) .. .. .. .. G o a l 4 : re duc e unde r- 5 m o rt a lit y by t wo - t hirds Under-5 mo rtality rate (per 1 ,000) 184 161 141 88 Infant mo rtality rate (per 1,000 live births) 111 98 87 59 M easles immunizatio n (pro po rtio n o f o ne-year o lds immunized, %) 38 38 52 75 G o a l 5 : re duc e m a t e rna l m o rt a lit y by t hre e - f o urt hs M aternal mo rtality ratio (mo deled estimate, per 1 00,000 live births) 990 920 750 470 B irths attended by skilled health staff (% o f to tal) .. .. 6 6 Co ntraceptive prevalence (% o f wo men ages 1 5-49) .. .. .. .. G o a l 6 : ha lt a nd be gin t o re v e rs e t he s pre a d o f H IV / A ID S a nd o t he r m a jo r dis e a s e s P revalence o f HIV (% o f po pulatio n ages 1 5-49) .. .. .. .. Incidence o f tuberculo sis (per 100,000 peo ple) .. .. .. .. Tuberculo sis case detectio n rate (%, all fo rms) 110 25 59 72 G o a l 7 : ha lv e t he pro po rt io n o f pe o ple wit ho ut s us t a ina ble a c c e s s t o ba s ic ne e ds A ccess to an impro ved water so urce (% o f po pulatio n) 17 22 28 38 A ccess to impro ved sanitatio n facilities (% o f po pulatio n) .. .. .. .. Fo rest area (% o f land area) .. .. .. .. Terrestrial pro tected areas (% o f land area) 17.7 17.7 17.7 18.4 CO2 emissio ns (metric to ns per capita) 0.1 0.0 0.1 0.1 GDP per unit o f energy use (co nstant 2005 P P P $ per kg o f o il equivalent) 1.8 1.7 1.9 2.2 G o a l 8 : de v e lo p a glo ba l pa rt ne rs hip f o r de v e lo pm e nt Telepho ne mainlines (per 1 00 peo ple) 0.3 0.2 0.4 1.1 M o bile pho ne subscribers (per 1 00 peo ple) 0.0 0.0 0.0 8.3 Internet users (per 1 00 peo ple) 0.0 0.0 0.0 0.7 Co mputer users (per 1 00 peo ple) .. .. .. .. Education indicators (%) Measles immunization (% of 1-year ICT indicators (per 100 people) olds) 100 100 10 75 75 50 50 25 25 0 2000 2005 2010 0 0 1990 1995 2000 2010 2000 2005 2010 Primary net enrollment ratio Ethiopia Sub-Saharan Afric a Fix ed + mobile s ubs c ribers Internet us ers Ratio of girls to boy s in primary & s ec ondary educ ation (..) No te: Figures in italics are fo r years o ther than tho se specified. .. indicates data are no t available. 5/22/12 Develo pment Eco no mics, Develo pment Data Gro up (DECDG). Page 122 Annex 3: Key Economic Indicators Actual Estimate Projected Indicator 2007 2008 2009 2010 2011 2012 2013 2014 National accounts (as % of GDP) Gross domestic producta 100 100 100 100 100 100 100 100 Agriculture 47 51 51 47 46 41 41 40 Industry 13 11 10 10 11 14 14 14 Services 40 38 39 43 43 45 45 45 Total Consumption 97 97 96 95 89 93 91 90 Gross domestic fixed investment 22 22 23 25 26 27 27 27 Government investment 18 17 18 13 15 16 17 16 Private investment 4 5 5 12 11 10 10 10 Exports (GNFS)b 13 11 11 14 17 15 15 15 Imports (GNFS) 32 31 29 33 32 35 33 32 Gross domestic savings 3 3 4 5 11 7 9 10 c Gross national savings 18 17 18 21 26 18 20 20 Memorandum items Gross domestic product 0 0 0 0 0 0 0 0 (US$ million at current prices) GNI per capita (US$, Atlas method) 230 290 350 400 400 .. .. .. Real annual growth rates (%, calculated from 00 prices) Gross domestic product at market prices 11.5 10.8 8.8 9.9 7.3 5.5 5.5 6.5 Gross Domestic Income 11.3 10.5 10.1 14.0 9.7 5.1 5.3 6.8 Real annual per capita growth rates (%, calculated from 00 prices) Gross domestic product at market prices 9.0 8.4 6.5 7.6 5.1 .. .. .. Total consumption 8.2 8.6 7.1 9.5 0.7 .. .. .. Private consumption 9.5 9.0 8.1 10.5 -0.4 .. .. .. Balance of Payments (US$ ) Exports (GNFS)b 2489 3060 3381 4047 5298 5814 6593 7458 Merchandise FOB 1188 1462 1448 2003 2747 3030 3292 3735 b Imports (GNFS) 6268 8282 9241 9855 10091 13373 14604 15564 Merchandise FOB 5128 6811 7727 8324 8253 11320 12382 13126 Resource balance -3779 -5223 -5859 -5808 -4793 -7559 -8010 -8106 Net current transfers 2895 3699 4281 4623 4842 4426 4834 5255 Current account balance -871 -1504 -1620 -1293 -68 -3244 -3358 -3105 Net private foreign direct investment 482 815 894 956 1100 970 1218 1379 Long-term loans (net) 239 704 1533 1210 1486 2659 2294 1806 Official 333 340 1063 983 705 807 551 323 Private -94 364 469 227 781 1852 1743 1483 Other capital (net, incl. errors & 318 -435 -189 -476 -1453 -380 0 0 omissions) Page 123 Actual Estimate Projected Indicator 2007 2008 2009 2010 2011 2012 2013 2014 Change in reserves d -168 420 -617 -398 -1065 -6 -155 -79 (Continued) Memorandum items Resource balance (% of GDP) -19.3 -19.6 -18.3 -19.7 -15.1 -19.6 -18.1 -16.6 Real annual growth rates ( 2000 prices) Merchandise exports (FOB) 10.7 5.2 -2.3 8.3 30.2 6.9 5.9 10.7 Primary .. .. .. .. .. .. .. .. Manufactures -3.4 -1.5 -36.7 -58.0 78.9 17.0 16.7 15.8 Merchandise imports (CIF) 2.8 10.9 22.1 9.1 -8.8 30.5 9.5 3.9 Public finance (as % of GDP at market prices)e Current revenues 15.8 14.4 14.9 16.0 15.5 14.8 15.3 15.5 Current expenditures 10.0 9.2 8.1 8.4 7.9 7.4 6.7 6.4 Current account surplus (+) or deficit (-) 5.8 5.2 6.8 7.7 7.5 7.4 8.6 9.1 Capital expenditure 10.7 9.7 9.1 10.3 10.4 11.4 12.6 12.6 Foreign financing 2.9 2.6 2.3 2.4 2.8 2.8 3.2 2.8 Monetary indicators M2/GDP 33.1 28.1 25.0 27.2 28.3 26.5 25.5 25.1 Growth of M2 (%) 19.7 22.9 19.9 24.3 39.2 29.8 24.7 17.7 Private sector credit growth / total credit 38.0 36.2 34.7 55.5 30.5 30.1 40.8 44.9 growth (%) Price indices( 2000 =100) Merchandise export price index 102.7 120.2 121.7 155.5 163.8 169.0 173.4 177.7 Merchandise import price index 129.2 154.8 143.9 142.1 154.4 162.3 162.2 165.4 Merchandise terms of trade index 79.5 77.6 84.6 109.5 106.1 104.1 106.9 107.4 Real exchange rate (US$/LCU)f 50.0 52.7 66.6 60.3 .. .. .. .. Real interest rates Consumer price index (% change) 15.8 25.3 36.4 2.8 18.1 34.4 23.9 12.0 GDP deflator (% change) 17.2 30.3 24.1 3.9 24.4 31.4 23.0 12.2 a. GDP at factor cost b. "GNFS" denotes "goods and nonfactor services." c. Includes net unrequited transfers excluding official capital grants. d. Includes use of IMF resources. e. Consolidated central government. f. "LCU" denotes "local currency units." An increase in US$/LCU denotes appreciation. Page 124 Annex 4: Key Social Indicators Same region/income Latest single year group Sub- Low- 1980-85 1990-95 2005-11 Saharan income Africa POPULATION Total population, mid-year (millions) 41.1 57.0 84.7 853.4 796.3 Growth rate (% annual average for period) 3.0 3.3 2.2 2.5 2.1 Urban population (% of population) 11.5 13.9 17.6 37.4 28.3 Total fertility rate (births per woman) 7.0 6.8 4.8 4.9 4.1 POVERTY (% of population) National headcount index .. 45.5 38.9 Urban headcount index .. 33.2 35.1 Rural headcount index .. 47.5 39.3 INCOME GNI per capita (US$) 190 150 400 1,176 528 Consumer price index (2005=100) 45 92 317 147 151 INCOME/CONSUMPTION DISTRIBUTION Gini index 32.4 40.0 29.8 Lowest quintile (% of income or consumption) 8.6 7.2 9.3 Highest quintile (% of income or consumption) 41.3 47.7 39.4 SOCIAL INDICATORS Public expenditure Health (% of GDP) .. 2.1 2.0 3.0 2.0 Education (% of GNI) 1.0 2.5 12.5 5.0 3.8 Net primary school enrollment rate (% of age group) Total .. 23 83 75 80 Male .. 28 85 77 81 Female .. 18 80 73 78 Access to an improved water source (% of population) Total .. 22 38 61 65 Urban .. 82 98 83 86 Rural .. 12 26 49 57 Immunization rate (% of children ages 12-23 months) Measles 12 38 75 75 78 DPT 6 57 79 77 80 Child malnutrition (% under 5 years) .. .. 29 22 23 Life expectancy at birth (years) Total 44 49 58 54 59 Male 43 48 57 53 58 Female 46 51 60 55 60 Mortality Infant (per 1,000 live births) 123 98 59 76 70 Under 5 (per 1,000 live births) 206 161 88 121 108 Adult (15-59) Male (per 1,000 population) 491 448 311 379 297 Female (per 1,000 population) 401 358 265 346 260 Maternal (per 100,000 live births) .. 920 470 650 590 Births attended by skilled health staff (%) .. .. 6 46 44 This table was produced from the CMU LDB system. Note: 0 or 0.0 means zero or less than half the unit shown. Net enrollment rate: break in series between 1997 and 1998 due to change from ISCED76 to ISCED97. Immunization: refers to children ages 12-23 months who received vaccinations before one year of age or at any time before the survey. Page 125 Annex 5: Key Exposure Indicators Actual Estimated Indicator 2007 2008 2009 2010 2011 Total debt outstanding and disbursed (TDO) 2620 2879 5030 7147 8224 (US$m)a Net disbursements (US$m)a 265 309 2244 2023 1078 Total debt service (TDS) (US$m)a 88 72 62 130 361 Debt and debt service indicators (%) TDO/XGSb 90.6 82.3 138.5 163.6 144.6 TDO/GDP 13.4 10.8 15.7 24.2 25.9 TDS/XGS 3.0 2.0 1.7 3.0 6.3 Concessional/TDO 0.0 0.0 0.0 0.0 0.0 IBRD exposure indicators (%) IBRD DS/public DS .. .. .. .. .. c Preferred creditor DS/public DS (%) 38.9 44.9 46.0 30.2 20.3 IBRD DS/XGS .. .. .. .. .. d IBRD TDO (US$m) 0 0 0 0 0 Of which present value of guarantees (US$m) Share of IBRD portfolio (%) 0 0 0 0 0 d IDA TDO (US$m) 711 859 1422 1804 2133 a. Includes public and publicly guaranteed debt, private nonguaranteed, use of IMF credits and net short- term capital. b. "XGS" denotes exports of goods and services, including workers' remittances. c. Preferred creditors are defined as IBRD, IDA, the regional multilateral development banks, the IMF, and the Bank for International Settlements. d. Includes present value of guarantees. e. Includes equity and quasi-equity types of both loan and equity instruments. Page 126 Annex 6: Ethiopia Country Financing Parameters Para- Item Remarks/Explanation meter The actual financing share will be determined during the preparation of each new project, and will typically be around 90% of total project costs. Bank financing up to 100% will apply selectively to individual projects, on a case-by-case Cost Sharing merit/justification basis, including operations supporting reform efforts and Limit on the proportion of individual Up to addressing most basic human development needs, including but not necessarily project costs that the Bank may 100% limited to food security and safety nets, health, education, rural water supply, and finance HIV/AIDS. Higher than average share of Bank financing could be applied to specific CDD projects, IDF grants, and others where the in-kind contribution by beneficiaries is difficult to measure. The strong emphasis on borrower ownership to individual projects will continue. In determining Bank financing of recurrent costs in individual projects, the Bank will take into account sustainability issues at the sector and project levels, including implied future budgetary outlays. The approach to recurrent cost financing will be the following. First, project costing in the PAD will specifically include estimates of recurrent costs implications, and will outline what are the plans to phase out Bank financing of recurrent costs, and phase in Government’s absorption of these costs, when the project is finished. In sectors where a Recurrent Cost Financing tax/user-fee arrangement is considered essential for sustainability (e.g., roads), Any limits that would No the Bank will also take this into account in determining appropriateness and level apply to the overall country of recurrent cost financing. Second, the project will include a brief explanation of amount of recurrent -level the relative share of recurrent costs, per year, compared to the most recent expenditures that the Bank may limit. recurrent expenditure information for the sector where the project will be located. finance Third, the aggregate of recurrent costs estimated in the whole portfolio will be examined within the context of the overall composition of public expenditure, during the annual review of the national budget. This examination will focus on fiscal sustainability issues, and the schedule of progressively integrating the share of Bank financing of recurrent costs into the MEFF to show how Government will absorb these costs (implied future budgetary outlays), as Bank financed projects reach completion. The Bank will continue to monitor the overall fiscal and debt situation, in coordination with the IMF, and as part of the institutional processes around the PRSP (APR-JSAN, JBAR, PRSCs, and country strategies). Local Cost Financing Are the requirements for Bank financing of local expenditures met, namely that: (i) financing requirements for the country’s development program would exceed Ethiopia meets the two requirements for local cost financing. The Bank can the public sector’s own resources Yes finance local costs in any proportions required by individual projects. (e.g., from taxation and other revenues) and expected domestic borrowing; and (ii) the financing of foreign expenditures alone would not enable the Bank to assist in the financing of individual projects The Bank may finance the costs of taxes and duties associated with project Taxes and Duties expenditures, as there are currently no taxes that are deemed to be unreasonable Are there any taxes and duties that None or discriminatory. The final decision, however, will rest at the project level, when the Bank would not finance? the project team assesses whether taxes and duties specific to the project activities financed constitute an excessively high share of project costs. NOTE: The country financing parameters for Ethiopia set out below have been approved by the Regional Vice President, Africa Region, and are being posted on the Bank’s internal website. Date: February 2, 2006 Currently the country financing parameter s for Ethiopia are being reviewed. Page 127 Annex 7: IDA and IFC Program Summary Country Strategic Objectives under CPS Social Protection Access & quality of infrastructure Competitiveness & Productivity Social Services Stable Macro Governance integration Regional & DRM Existing IDA and IFC portfolio FY FY Good at start of CPS FY13-16 appr close Irrigation & Drainage Project FY07 FY18 X X Pastoral Community Development Project - PCDP FY08 FY14 X Eastern African Agricultural Productivity - EAAP FY09 FY15 X X Agricultural Growth Program - AGP FY11 FY16 X X General Education Quality Improvement - GEQIP FY09 FY14 X Energy Access FY03 FY13 X Nile Basin Initiative: ET/SU Interconnection FY08 FY13 X Electricity Access (Rural) Expansion FY06 FY13 X Electricity Access Rural II FY08 FY14 X Elect. Network Reinforcmt & Expansion – ENREP FY12 FY17 X East Africa Power Pool (APL 1) - EAPP FY13 FY19 X X Sustainable Land Management - SLMP FY08 FY14 X Private Sector Develop. Capacity Building - PSDCB FY05 FY13 X Tourism Development Project FY09 FY15 X Nutrition Project FY08 FY14 X Public Sector Capacity Building - PSCAP FY04 FY13 X Protection of Basic Services Phase II - PBS FY09 FY13 X X X Productive Safety Nets III - PSNP FY10 FY15 X X X RSDP Stage III Project APL3 FY07 FY15 X RSDP Stage IV APL4 FY09 FY16 X Water Supply and Sanitation – WSS FY04 FY13 X Urban Water Supply & Sanitation - UWSS FY07 FY13 X Urban Local Government Development – ULGDP FY08 FY15 X X Tana & Beles Int. Water Res Dev Project FY08 FY14 X Women Entrepreneurship Development - WEDP FY12 FY17 X Ethiopia PPDF Initiative (IFC) FY11 FY13 X Warehouse Receipt Financing Advisory Project ( IFC) FY09 FY12 X Page 128 Annex 8: Status of WBG Operations (Operations Portfolio) Indicator FY09 FY10 FY11 FY12 Portfolio Assessment Number of Projects under implementation 30 25 25 24 Average Implementation Period (years) 2.7 3.0 3.9 4.1 Number of Problem Projects 3 2 4 2 Percent of Problem Projects by Amount Number of Projects at Risk 5 6 7 3 Percent of Commitments at Risk 7.5 20.2 9.7 2.0 Disbursement ratio (%) 49.7 36.9 33.5 35.8 Portfolio Management CPPR during the year (yes/no) yes no no Yes Supervision Resources (total US$000) 3,894 4,071 3,799 3,920 Average Supervision (total US$000) 130 145 136 140 Memorandum Item Project Eval by OED by Number 4 3 1 n/a DO % Unsat (ISR Rating) 25 33 0 n/a Outcome % Unsat (IEG Rating) 25 33 100 n/a RDO % High or Significant Unsat (No) 25 100 0 n/a Page 129 Annex 9: Selected Indicators of IDA Portfolio Performance and Management (end-June 2012) Project Project Name Net Cumulative Disbursement Date Date, Age Percent Latest ISR Latest number Commitment Disbursement Ratio Effectiveness Closing yrs Disbursed DO ISR IP P092353 Irrigation & Drainage SIL (FY07) 150 23.72 2.95 01/24/08 10/31/17 5.0 16% MS MS P108932 Pastoral Community Development II (FY08) 80 50.37 34.24 10/09/08 12/31/13 4.1 63% S S P112688 Eastern African Agricultural Productivity (Regional) 30 4.90 18.53 02/16/10 02/27/15 2.9 16% MS MS P113032 Agricultural Growth Program 150 31.45 14.74 02/16/11 09/30/15 1.8 21% S MS P122764 Women Entrepreneurship Development 50 0.00 0.00 - 12/31/17 0.1 0% P106855 General Education Quality Improvement (FY09) 50 40.13 50.41 06/10/09 07/07/13 3.5 80% S MS P049395 Energy Access SIL (FY03) 313 136.05 7.24 04/09/03 06/30/13 9.8 44% MS MS P074011 Nile Basin Initiative: SU Interconnection 41 36.61 47.07 07/31/08 06/30/13 4.5 89% MS MS P097271 Electricity Access (Rural) Expansion 133 99.28 29.59 01/19/07 12/31/12 6.0 74% MS MS P101556 Elect. Access Rural II SIL (FY07) 130 26.32 11.53 03/31/08 11/30/13 5.0 20% MS MS P119893 Elect. Network Reinforcement & Expansion 200 0.00 0.00 - 12/31/17 0.1 0% P107139 Sustainable Land Management SIL (FY08) 20 12.71 33.06 10/10/08 09/30/13 4.2 64% MS MS P050272 Private Sector Development Capacity Building 17 15.76 44.54 07/15/05 07/31/12 7.5 93% S S P098132 Tourism Development Project SIL 35 5.53 3.91 02/25/10 12/30/14 3.0 16% MU MU P106228 Nutrition SIL (FY08) 30 15.80 33.49 09/10/08 01/07/14 4.2 53% S S P074020 Pub Sec Cap Bldg Project (FY04) 130 123.04 72.90 11/22/04 12/31/12 8.1 95% S S P103022 Protection of Basic Services Phase II (FY09) 960 955.79 85.24 05/22/09 01/07/13 3.1 100% S S P113220 Productive Safety Nets (APL III) 850 335.32 45.25 01/18/10 06/30/15 2.7 39% S MS P082998 Road Sector Development APL2 under RSDP 348 355.73 93.57 06/08/05 06/30/12 7.7 102% S S P091077 APL3-RSDP Stage III Project (FY07) 225 129.92 29.25 08/21/07 06/30/15 5.1 58% S MS P106872 RSDP Stage IV APL (FY09) 245 51.19 13.35 09/14/09 06/30/16 3.1 21% S MS P076735 Water Supply & Sanitation SIL (FY04) 167 126.70 48.40 11/22/04 03/31/13 8.1 76% S MS P101473 Urban WSS SIL FY07) 250 49.33 17.57 09/07/07 12/31/15 5.2 20% S MS P101474 Urban Local Government Development (FY08) 300 150.93 121.61 11/10/08 12/31/14 4.1 50% S S P096323 Tana & Beles Int. Water Resources Dev Project 45 12.94 18.63 10/08/08 09/30/13 4.1 29% MU MU TOTAL 5,094 2,833.48 34.20 Page 130 Annex 10: IFC and MIGA Program and Portfolio IFC portfolio (US$ million) 2008 2009 2010 2011 TOTAL Loans 50.60 - - 7.15 57.75 Equity and quasi-equity - - 7.56 6.09 13.65 TOTAL 50.60 - 7.56 13.24 71.40 Client Industry/Sector 2008 2009 2010 2011 TOTAL DMC Manufacturing and Services 50.60 - - - 50.60 Ethiopian Coffee Agribusiness/Financial Markets - - - 7.15 7.15 Nyota Oil, Mining, Gas and Chemicals - - 7.56 - 7.56 Access Leasing Financial Markets - - - 1.0 1.00 Allana Potash Oil, Mining, Gas and Chemicals - - - 5.09 5.09 TOTAL 50.60 - 7.56 13.24 71.40 LIST OF ACTIVE MIGA PROJECTS IN ETHIOPIA Name of Project Investor Name Investor Country Business Sector Africa Juice Tibila Share Company Industrial Development Corporation South Africa Agribusiness Africa Juice Tibila Share Company Africa Juice BV Netherlands Agribusiness National Cement SGI Ethiopia Cement Limited United Kingdom Manufacturing Page 131 Statement of MIGA'S Exposure including this and other projects approved by the Board in Ethiopia as of March 31, 2012 1. MIGA'S EXPOSURE (CONTINGENT LIABILITY) Non Honoring Transfer Expro- War & Civil Breach of of Sovereign Maximum Restriction priation Disturbance Contract Financial Obligations US$ million Gross Exposure 16.8 16.8 16.8 0.0 0.0 16.8 % of total portfolio 0.2 0.2 0.3 0.0 0.0 0.2 Net Exposure 16.8 16.8 16.8 0.0 0.0 16.8 % of total portfolio 0.4 0.3 0.5 0.0 0.0 0.3 CUP 0.0 0.0 0.0 0.0 0.0 0.0 Current Amount* 12.0 6.6 6.6 0.0 0.0 6.6 * On a gross basis 2. NET EXPOSURE BY SECTOR Ethiopia Africa MIGA Worldwide US$ million % US$ million % US$ million % Agribusiness 12.9 76.5 184.3 17.6 236.5 4.1 Construction 0.0 0.0 0.0 0.0 5.8 0.1 Financial 0.0 0.0 34.8 3.3 2,329.2 40.1 Financial Services 0.0 0.0 2.0 0.2 2.0 0.0 General Banking 0.0 0.0 32.7 3.1 2,009.6 34.6 Investment Fund 0.0 0.0 0.0 0.0 0.0 0.0 Leasing 0.0 0.0 0.0 0.0 193.5 3.3 Mortgage 0.0 0.0 0.0 0.0 124.0 2.1 Infrastructure 0.0 0.0 509.9 48.7 2,066.2 35.6 Electric, Gas and Sanitary Services 0.0 0.0 0.0 0.0 69.9 1.2 Power 0.0 0.0 334.9 32.0 654.2 11.3 Telecommunication 0.0 0.0 119.6 11.4 532.9 9.2 Transportation 0.0 0.0 0.0 0.0 303.4 5.2 Water Transportation 0.0 0.0 55.5 5.3 306.4 5.3 Water Supply 0.0 0.0 0.0 0.0 119.4 2.1 Other 0.0 0.0 0.0 0.0 80.0 1.4 Manufacturing 4.0 23.5 80.2 7.7 327.0 5.6 Mining 0.0 0.0 9.8 0.9 171.2 2.9 Oil and Gas 0.0 0.0 86.8 8.3 184.6 3.2 Retail 0.0 0.0 3.3 0.3 328.1 5.7 Services 0.0 0.0 133.3 12.7 152.0 2.6 Tourism 0.0 0.0 4.0 0.4 5.5 0.1 Total 16.8 100.0 1,046.4 100.0 5,806.0 100.0 Page 132 Annex 11: Indicative IDA and IFC Lending and Non-Lending Program under the CPS FY13-FY16 Country Strategic Objectives under CPS Good Governance Social Protection Access & quality of infrastructure Competitiveness & Productivity Social Services Stable Macro integration Regional & DRM New indicative IDA and IFC lending and non-lending under CPS FY13-16 and impact on CPS Strategic Objectives FY2013 Regional Eastern Africa Power Pool Project APL1 - EAPP X X Transport Sector Project In Support of RSDP4 X Health MDG Support (PforR) X Promotion of Basic Services (PBS) Phase III X X Education MDG Support (follow-up to GEQIP) X X Eastern Africa Pastoral Livelihoods Recovery and Resilience X X Pastoral Community Development (PSDP) III X X Ethiopia Investment Climate Project (IFC) X FY2014 Water Supply, Sanitation and Hygiene (WASH) II X Renewable Energy Project X Transport Sector Project In Support of RSDP4 (Project 2) X Urban Local Government (ULGDP) II X X Sustainable Land Management (SLMP) II X Competitiveness and Employment Project X FY2015-16 Macro DPO X Sector-specific DPOs X X Agricultural Growth Program (AGP) II X X Halele-Werabesa Hydropower Project X X Rural Infrastructure Support (PforR) X Strengthening Public Expenditure Management Project X Regional Drought Response Program X X DRM Program/Scalable Safety Nets X Additional financing to successful operations Page 133 Country Strategic Objectives under CPS Competitiveness & Productivity Social Services infrastructure Stable Macro Protection & Governance integration quality of Access & Regional Proposed non-lending IDA and IFC activities Social DRM Good during CPS FY13-16 and impact on CPS Strategic Objectives Semi-annual Economic Updates X Poverty Assessment, Poverty Mapping X X X Country Economic Memorandum X X X Debt Sustainability Analyses X Diagnostic Trade Integration Study X Statistics for Result TF X Public Expenditure Review (including sectoral PERs, incl. water) X X X X Debt Management and Performance Assessment X Medium-Term Debt Management Strategy TA X Strengthened RED&FS portfolio management X Land Administration TA X X Climate-smart agriculture X X Ethiopia Investment Climate Project (IFC) X Ethiopia PPDF Initiative (IFC) X Competitiveness and Job creation (NLTA) X Series of FPD Policy Note(s), incl. micro-insurance X Ethiopia Credit Information Center (CIC)Project (IFC) X EITI Implementation Support, X X Analytical assessment of the Ethiopian mining sector (Bank-led X initiative with the support of the IFC, DFID, CIDA and AusAid) Gender-focused policy and research notes X X X Climate Innovation Center (InfoDev) X Enhanced Regulatory Framework for Remittances X Decentralization X X Social Protection TA X Skills Development AAA X Disaster Risk Management X Climate Change AAA X X Access to justice for poor and vulnerable groups in Addis X Analysis of civil service staff turnover and options for reform X X Woreda and City Benchmarking Survey X X PEFA Update (federal & regional level) X Woreda level PFM Reports X Study Into Increasing Road Construction Costs X X Urban Transport AAA X PPIAF ICT AAA X X X CIF/SREP Aluto Langango Project X Geothermal Sector Strategy X Hydropower Center of Excellence TA X X Hydraulic Lab for Dam Modeling/Safety TA X GPOBA Biogas Program X GEF Solar Lighting Program X Health Results Innovation TF to support performance assessment X X using Balanced Score Cards Impact Evaluation of the health facility performance incentives X X Page 134 Annex 12: Ethiopia Trust Fund (TF) Portfolio ETHIOPIA TRUST FUND PORTFOLIO (as of July 1, 2012, in US$’000) TF # Trust Fund Name Closing Net Grant Disbursed Available BANK EXECUTED TRUST FUNDS TF094286 ETHIOPIA: JOINT GOVERNANCE AS 6/30/2014 1,772 1,328 251 TF011988 The Statistics for Results Facility 6/30/2014 100 9 76 TF090731 ETHIOPIAN PUBLIC SECTOR CAPACI 8/31/2012 3,540 2,674 760 TF010498 GPOBA (W3 SPN): Ethiopia Elect 4/30/2014 466 46 81 TF010499 GPOBA (W3 SPN): Ethiopia Elect 6/30/2013 90 67 22 TF011718 Ethiopia #10108 Regulatory and 11/30/2012 227 22 185 TF093597 ETHIOPIA GENERAL EDUCATION QUA 6/30/2013 587 402 151 TF094648 ETHIOPIA EFA/FTI GENERAL EDUCA 6/30/2013 298 207 80 TF011147 READ II - Ethiopia 6/30/2013 800 13 701 TF012443 Trust Fund Management and Administration 6/30/2013 166 - - TF010724 Strengthening the Nutrition 9/30/2012 99 12 87 TF093958 Piloting Community-Based Management 8/14/2013 85 82 3 TF095046 Reducing Malnutrition Caused 6/30/2013 180 131 49 TF098859 Strengthening the Early Warning 9/30/2012 300 141 154 TF055684 PSNP 6/30/2015 2,744 2,705 39 TF055879 PSNP Partnership 6/30/2015 6,476 4,800 1,294 TF056333 PSNP Partnership 6/30/2015 87 87 - TF091470 PSNP - MDTF Partnership 6/30/2015 583 553 29 TF058321 ETHIOPIA PROTECTION OF BASIC SERVICES 2/28/2013 1,754 1,732 (3) TF095900 ETHIOPIA PBS PHASE 2-BASIC SERVICES 2/28/2013 2,041 2,008 33 TF095901 ETHIOPIA PBS PHASE 2-ENHANCED 8/31/2012 134 69 66 TF099449 PSNP APLIII: Enhanced Supervision 2/28/2015 591 336 204 TF011830 Protection of Basic Services S 12/31/2016 188 49 1 TF011240 Ethiopia: DRM Specialist (GFDR 6/30/2013 55 24 8 TF012677 Ethiopia: Capacity Building in 9/28/2012 82 17 64 TF095889 Ethiopia - PBS Phase II -Basic 2/28/2013 90 44 46 TF091564 WATER SUPPLY AND SANITATION CO 12/31/2012 625 569 56 TF099708 Ethiopian Diaspora Health and 8/31/2012 320 155 115 TF010984 ET Sustainable Support for Rur 6/30/2013 50 - 50 TF094239 RED&FS CHILD TF 2/28/2013 2,499 1,924 569 TF099038 LEN&SPN for GASFP Co-financing 3/31/2016 1,070 277 61 TF010180 Agriculture Finance Support Farmers 9/30/2012 60 56 4 TF094826 Piloting an Indemnity Livestock 8/15/2012 225 152 48 TF099524 AF/ETH Scaling Up Rural Sanitation 6/30/2013 1,999 511 912 TF095587 Ethiopia: EITI Implementation 12/21/2012 255 94 54 TF099753 ROUND 29 ETHIOPIA: SUPPORT TO 11/4/2015 135 30 92 TF095395 Access to Finance for Producer 6/30/2013 250 165 51 TF096344 Access to Finance for Producer 12/31/2013 500 259 241 TF096528 Access to Finance for Producer 12/31/2013 500 53 270 TF011838 Ethiopia Climate Innovation Center 8/1/2016 900 22 870 TF099688 Ethiopia CIC Project 3/31/2013 150 150 0 TF097095 Access to Finance for Producer 6/30/2013 120 73 47 TF011647 Ethiopia Investment Climate 2/28/2013 100 79 6 Sub-Total 33,292 22,127 7,829 RECEIPIENT EXECUTED TRUST FUNDS TF092600 Ethiopia Electricity Access Rural Expansion 6/30/2013 6,200 44 6,156 TF092601 Ethiopia Electricity Access Rural Expansion 6/30/2013 1,800 13 1,787 TF096664 Promotion of Ethanol Micro- Distillers 9/30/2012 148 22 126 TF098157 Support to Accountancy Profess 3/14/2014 500 200 300 TF092320 GEF FSP - Sustainable Land Management Project 9/30/2013 9,000 6,265 2,735 TF095045 Co-financing of the Tana and Beles 9/30/2013 3,485 2,364 - TF093227 EFA FTI Catalytic Fun 7/7/2013 70,000 67,879 2,121 TF094224 GEQIP 6/13/2013 164,730 96,717 68,001 TF097263 Catalytic Fund Grant II for Ethiopia 6/30/2013 98,000 87,512 10,488 TF010247 Strengthening the Nutrition Information 9/30/2012 650 200 450 TF093946 Piloting Community-Based Management 8/14/2013 1,810 716 1,095 TF097830 PBS 12/31/2012 359 - 359 TF097831 PBS 12/31/2012 2,606 - - Page 135 ETHIOPIA TRUST FUND PORTFOLIO (as of July 1, 2012, in US$’000) TF # Trust Fund Name Closing Net Grant Disbursed Available TF099450 PSNP 12/31/2014 56,385 56,385 - TF011209 Ethiopia:(RETF) Disaster Risk 6/30/2013 1,275 - 1,275 TF099878 PBS 11/30/2013 7,500 - 7,500 TF091704 Water Supply And Sanitation 12/31/2012 111,676 80,642 27,257 TF099283 Ethiopian Diaspora Education 8/31/2012 640 170 470 TF098159 Strengthening Capacity for Mobilization 3/29/2014 486 126 359 TF099729 Grant for Co-financing of the 9/30/2015 15,480 11,298 4,182 TF011306 GAFSP Grant for the Co-financing 9/30/2015 50,000 1,842 13,158 TF098979 Ethiopia: Improving the Quality 6/30/2015 1,832 716 517 TF090962 Ethiopia Humbo Assisted Regeneration 12/31/2018 726 149 7 TF098807 ROUND 29 ETHIOPIA: SUPPORT TO 11/4/2015 2,865 200 2,665 TF096713 DM09-3959 Adaptation to climate 12/31/2012 200 200 - Sub-total 608,353 413,660 151,007 TFs TOTAL PORTFOLIO 641,644 435,787 158,836 Page 136 CONTRIBUTION OF TRUST FUNDS TO CPS PILLAR (as of July 1, 2012, in US$’000) Trust Net Disbus- Availa- Closing Trust Fund Name Exec. By Fund # Grant ed ble Date PILLAR 1: FOSTERING COMPETITIVENESS AND EMPLOYMENT TF010984 ET Sustainable Support for Rural Poor Women Entrepr. 50 - 50 6/30/2013 Bank TF094239 RED&FS CHILD TF 2,499 1,924 569 2/28/2013 Bank TF099038 LEN&SPN for GASFP Co-financing of Ethiopia - AGP 1,070 277 61 3/31/2016 Bank GPOBA (W3 SPN): Ethiopia Electricity Access Rural TF010498 Expansion Project 466 46 81 4/30/2014 Bank GPOBA (W3 SPN): Ethiopia Electricity Access Rural TF010499 Expansion Project 90 67 22 6/30/2013 Bank Ethiopia #10108 Regulatory and Supervisory Framework for TF011718 Micro insurance 227 22 185 11/30/2012 Bank TF010180 Agriculture Finance Support Facility (AFSF) 60 56 4 9/30/2012 Bank TF094826 Piloting an Indemnity Livestock Insurance in Ethiopia 225 152 48 8/15/2012 Bank TF097095 Access to Finance for Producers/Farmers 120 73 47 6/30/2013 Bank TF011647 Ethiopia Investment Climate 100 79 6 2/28/2013 Bank TF095395 Access to Finance for Producers/Farmers 250 165 51 6/30/2013 Bank TF096344 Access to Finance for Producers/Farmers 500 259 241 12/31/2013 Bank TF096528 Access to Finance for Producers/Farmers 500 53 270 12/31/2013 Bank TF011306 GAFSP Grant for the Co-financing of Agricultural Growth 50,000 1,842 13,158 9/30/2015 Recipient TF099729 Grant for Co-financing of the Agricultural Growth Project 15,480 11,298 4,182 9/30/2015 Recipient TF092600 Ethiopia Electricity Access Rural Expansion Project 6,200 44 6,156 6/30/2013 Recipient TF092601 Ethiopia Electricity Access Rural Expansion Project 1,800 13 1,787 6/30/2013 Recipient TF011838 Ethiopia Climate Innovation Center 900 22 870 8/1/2016 Bank TF099688 Ethiopia CIC 150 150 0 3/31/2013 Bank TF095587 Ethiopia: EITI Implementation 255 94 54 12/21/2012 Bank TF096664 Promotion of Ethanol Micro-Distillers in Ethiopia Project 148 22 126 9/30/2012 Recipient 81,090 16,657 27,969 Sub-Total 13% 4% 18% PILLAR 2: ENHANCING RESILIENCE AND REDUCING VULNERABILITY Ethiopian Diaspora Health and Education Professionals TF099708 Mobilization Project - Part 2 320 155 115 8/31/2012 Bank TF011147 READ II – Ethiopia 800 13 701 6/30/2013 Bank TF012443 TF Mgmt & Admin for Co-financing of GEQIP 166 - - 6/30/2013 Bank TF093597 GEQIP 587 402 151 6/30/2013 Bank TF094648 QEQIP Supervision 298 207 80 6/30/2013 Bank TF011830 PBS Social Accountability Program Mgmt & TF Admin 188 49 1 12/31/2016 Bank TF058321 PBS Secretariat 1,754 1,732 (3) 2/28/2013 Bank TF095889 PBS Phase II –Basic Services Block Grant and & TF Admin 90 44 46 2/28/2013 Bank PBS Phase 2-Basic Service Block Grants (Subprogram A) TF095900 Enhanced Pbs Program Supervision 2,041 2,008 33 2/28/2013 Bank PBS Phase 2-Enhanced Program Supervision For Subprogram B TF095901 (Health Component) 134 69 66 8/31/2012 Bank TF091564 Water Supply And Sanitation Co-Financing Mgmt & SPN 625 569 56 12/31/2012 Bank TF093227 Ethiopia EFA FTI Catalytic Fund Grant 1 70,000 67,879 2,121 7/7/2013 Recipient TF094224 GEQIP 164,730 96,717 68,001 6/13/2013 Recipient TF097263 Catalytic Fund Grant II for GEQIP 98,000 87,512 10,488 6/30/2013 Recipient TF097830 PBS Phase II Support to Subprogram D M&E 359 - 359 12/31/2012 Recipient PBS Phase II Project - Subprogram C Part 1 Accountability in TF097831 Decentralized Finances and Services 2,606 - - 12/31/2012 Recipient TF099878 PBS Social Accountability Program Project 7,500 - 7,500 11/30/2013 Recipient TF091704 Water Supply And Sanitation Co-Financing Mgmt & SPN 111,676 80,642 27,257 12/31/2012 Recipient Co-financing of the Tana and Beles Integrated Water Resources TF095045 Development Project 3,485 2,364 - 9/30/2013 Recipient Strengthening the Nutrition Information and Early Warning TF010724 System in Ethiopia 99 12 87 9/30/2012 Bank Piloting Community-Based Management of Severe Acute TF093958 Malnutrition (Bank-executed) 85 82 3 8/14/2013 Bank TF095046 Reducing Malnutrition Caused by Food Insecurity 180 131 49 6/30/2013 Bank TF098859 Strengthening the Early Warning System in Ethiopia 300 141 154 9/30/2012 Bank TF011240 Ethiopia: DRM Specialist (GFDRR: Track II TA) 55 24 8 6/30/2013 Bank TF055684 PSNP 2,744 2,705 39 6/30/2015 Bank TF055879 PSNP Partnership 6,476 4,800 1,294 6/30/2015 Bank TF056333 PSNP Partnership 87 87 - 6/30/2015 Bank Page 137 CONTRIBUTION OF TRUST FUNDS TO CPS PILLAR (as of July 1, 2012, in US$’000) Trust Net Disbus- Availa- Closing Trust Fund Name Exec. By Fund # Grant ed ble Date TF091470 PSNP - MDTF Partnership 583 553 29 6/30/2015 Bank TF099449 PSNP APLIII: Enhanced Supervision 591 336 204 2/28/2015 Bank Support To Improve The Economic, Social And Environmental TF099753 Sustainability Of Women Artisan Miners 135 30 92 11/4/2015 Bank TF092320 GEF FSP - Sustainable Land Management Project 9,000 6,265 2,735 9/30/2013 Recipient Strengthening the Nutrition Information and Early Warning TF010247 System in Ethiopia 650 200 450 9/30/2012 Recipient TF093946 Piloting Comm.-Based Mgmt of Severe Acute Malnutrit. 1,810 716 1,095 8/14/2013 Recipient TF099450 Ethiopia Productive Safety Net Program (APLIII) 56,385 56,385 - 12/31/2014 Recipient Support To Improve The Economic, Social And Environmental TF098807 Sustainability Of Artisan Miners 2,865 200 2,665 11/4/2015 Recipient TF090962 Ethiopia Humbo Assisted Regeneration Project 726 149 7 12/31/2018 Recipient TF012677 ET Disaster Risk Mgt. Plan 82 17 64 9/28/2012 Recipient TF011209 ET Disaster Risk Mgt. Plan 1,275 - 1,275 6/30/2013 Recipient TF099524 AF/ETH/16 At Scale H&S prom. in Ethiopia 1,999 511 912 6/30/2013 Both DM09-3959 Adaptation to climate change: innovative tools to TF096713 match seeds to the needs of women farmers 200 200 - 12/31/2012 Recipient 551,684 413,907 128,135 Sub Total 86% 95% 81% FOUNDATION: GOOD GOVERNANCE AND STATE BUILDING TF011988 The Statistics for Results Facility for ET: Proj Preparation 100 9 76 6/30/2014 Bank TF090731 Ethiopian PSCAP Support Facility 3,540 2,674 760 8/31/2012 Bank Strengthening Capacity for Mobilizing and Engaging the TF098159 Ethiopian Diaspora 486 126 359 3/29/2014 Recipient TF098157 Support to Accountancy Profession in Ethiopia Project 500 200 300 3/14/2014 Recipient TF099283 Ethiopian Diaspora Health Project 640 170 470 8/31/2012 Recipient Ethiopia: Improving the Quality and Policy Relevance of Household-level Data on Agriculture in Sub-Saharan Africa TF098979 Trust Fund - Ethiopia Rural Socioeconomic Survey 1,832 716 517 6/30/2015 Recipient TF094286 Joint Governance A&M 1,772 1,328 251 6/30/2014 Bank 8,870 5,223 2,733 Sub Total 1% 1% 2% TOTAL TRUST FUND PORTFOLIO 641,644 435,787 158,836 Page 138 CONTRIBUTION OF ACTIVE TRUST FUNDS TO PROGRAMS/PROJECTS (as of July 1, 2012, in US$’000) Disbu- Closing IDA Project Trust Fund # Trust Fund Name Net Grant Available Exec. By Major donors rsed Date TF010984 ET Sustainable Support for Rural Poor Women Ent. 50 - 50 6/30/2013 Bank Australia, Gates Agricultural TF094239 RED&FS CHILD TF 2,499 1,924 569 2/28/2013 Bank Foundation, Ireland, Growth Program TF099038 LEN&SPN for GASFP Co-financing of Ethiopia 1,070 277 61 3/31/2016 Bank Korea, UK, Japan, (P113032, TF099729 Grant for Co-financing of the AGP 15,480 11,298 4,182 9/30/2015 Recipient CIDA, USAID, Spain, P127507) TF011306 GAFSP Grant for the Co-financing of Agric. Growth 50,000 1,842 13,158 9/30/2015 Recipient Netherlands Sub Total 69,099 15,340 18,021 % of total TF Active Portfolio 10.8% 3.5% 11.3% General Educ. TF011147 READ II – Ethiopia 800 13 701 6/30/2013 Bank Quality Impr. TF012443 TF Mgmt & Admin for Co-financing of GEQIP 166 - - 6/30/2013 Bank Global Partnership for Project - APL 1 TF093597 GEQIP 587 402 151 6/30/2013 Bank Education, DFID, (GEQIP) TF094648 Ethiopia EFA/FTI General Education 298 207 80 6/30/2013 Bank Finland, Italian (P106855, TF093227 Ethiopia EFA FTI Catalytic Fund Grant 1 70,000 67,879 2,121 7/7/2013 Recipient Cooperation, P116863, TF094224 GEQIP 164,730 96,717 68,001 6/13/2013 Recipient Netherlands, Russia P118700) TF097263 Catalytic Fund Grant II for GEQIP 98,000 87,512 10,488 6/30/2013 Recipient Sub Total 334,581 252,731 81,541 % of total TF Active Portfolio 52.1% 58.0% 51.3% TF011830 PBS Social Accountability Prog. Mgmt & TF Admin 188 49 1 12/31/2016 Bank TF058321 PBS Secretariat 1,754 1,732 (3) 2/28/2013 Bank PBS Phase II - Basic Services Block Grant & TF TF095889 Admin 90 44 46 2/28/2013 Bank Ethiopia Protection PBS Phase 2-Basic Service Block Grants of Basic Services EU, DFID, Ireland, TF095900 (Subprogram A) Enhanced PBS Supervision 2,041 2,008 33 2/28/2013 Bank (P124475, Spain, Italy, KfW, PBS Phase 2-Enhanced Program Supervision For P103022, CIDA and Netherlands TF095901 Subprogram B (Health Component) 134 69 66 8/31/2012 Bank P129534) PBS Phase II Project - Subprogram C Part 1 TF097831 Accountability in Decentralized Finances & Services 2,606 - - 12/31/2012 Recipient TF097830 PBS Phase II Support to Subprogram D M&E 359 - 359 12/31/2012 Recipient TF099878 PBS Accountability Program Project 7,500 - 7,500 11/30/2013 Recipient Sub Total 14,672 3,901 8,003 % of total TF Active Portfolio 2.3% 0.9% 5.0% Water Supply & TF091564 WSS Co-Financing Management And Supervision 625 569 56 12/31/2012 Bank Sanitation (WSS) DFID (P076735) TF091704 WSS Co-Financing Management And Supervision 111,676 80,642 27,257 12/31/2012 Recipient Sub Total 112,301 81,211 27,313 Percentage of total TF Portfolio 17.5% 18.6% 17.2% TF011240 Ethiopia: DRM Specialist (GFDRR: Track II TA) 55 24 8 6/30/2013 Bank Productive Safety TF055684 PSNP 2,744 2,705 39 6/30/2015 Bank CIDA, SIDA, US, Nets Project TF055879 PSNP Partnership 6,476 4,800 1,294 6/30/2015 Bank WFP, Irish Aid, (P087707, TF056333 PSNP Partnership 87 87 - 6/30/2015 Bank DIFID, Denmark, P129151, TF091470 PSNP - MDTF Partnership 583 553 29 6/30/2015 Bank Netherlands, EU P113220) TF099449 PSNP APLIII: Enhanced Supervision 591 336 204 2/28/2015 Bank TF099450 Ethiopia Productive Safety Net Program (APLIII) 56,385 56,385 - 12/31/2014 Recipient Sub Total 66,920 64,890 1,575 Page 139 CONTRIBUTION OF ACTIVE TRUST FUNDS TO PROGRAMS/PROJECTS (as of July 1, 2012, in US$’000) Disbu- Closing IDA Project Trust Fund # Trust Fund Name Net Grant Available Exec. By Major donors rsed Date % of total TF Active Portfolio 10.4% 14.9% 1.0% TF010724 Strengthening the Nutrition 99 12 87 9/30/2012 Bank TF093958 Piloting Community-Based Mgmt 85 82 3 8/14/2013 Bank Nutrition TF095046 Reducing Malnutrition Caused 180 131 49 6/30/2013 Bank (P106228) Multi-donors; Japan TF098859 Strengthening the Early Warning 300 141 154 9/30/2012 Bank TF010247 Strengthening the Nutrition 650 200 450 9/30/2012 Recipient TF093946 Piloting Community-Based Mgmt 1,810 716 1,095 8/14/2013 Recipient Sub Total 3,124 1,282 1,838 % of total TF Active Portfolio 0.5% 0.3% 1.2% Page 140 32°E 36°E 40°E 42°E 44°E SUDAN ERITREA To Keren R REP. 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IBRD 33405 R2 4°N Lake Mega The boundaries, colors, denominations and any other information 4°N shown on this map do not imply, on the part of The World Bank Turkana Group, any judgment on the legal status of any territory, or any INDIAN endorsement or acceptance of such boundaries. KENYA Moyale JULY 2011 OCEAN 32°E UGANDA 34°E 36°E 38°E To 40°E To Wajir 42°E To Mogadishu 44°E 46°E 48°E Marsabit