Documentof TheWorldBank FOR OFFICIAL USE ONLY ReportNo. 31882-GA INTERNATIONAL BANKFORRECONSTRUCTIONAND DEVELOPMENT COUNTRY ASSISTANCESTRATEGY FOR THE GABONESEREPUBLIC FOR THE PERIODFY05-FY09 May 2,2005 Gabon Country Management Unit Africa Region This document has a restricted distribution and may be usedby recipients only inthe performance of their official Duties. Its contents mav not otherwise be disclosed without World Bank authorization. The date of the last Country Assistance Strategy was October 15, 1998. CURRENCY EQUIVALENTS Currency Unit = CFA Franc (CFAF) US$l.OO = 506 CFAF (April 12,2005) FISCAL YEAR Calendar year ABBREVIATIONS AND ACRONYMS AAA Analytical andAdvisory Activities ICR ImplementationCompletionReport AFD Agence FranGaise de D&veloppement(French IFR Infrastructure FrameworkReport DevelopmentAgency) AfDB African DevelopmentBank IDA InternationalDevelopmentAssociation APDF Africa ProjectDevelopment Facility (APDF) IDF InstitutionalDevelopmentFund APIP Agence de Promotion des Investissements Privks IFC InternationalFinanceCorporation (PrivateInvestmentPromotionAgency) BGD Banque Gabonaisede Dkeloppement (Development IMF InternationalMonetaryFund Bankof Gabon) BEAC Banque des Etats d'Afrique Centrale (CentralBank of LIL LearningandInnovationLoan CentralAfrica) CAS CountryAssistance Strategy MIGA Multilateral InvestmentGuaranteeAgency CASCR CountryAssistance StrategyCompletionReport MDGs Millennium DevelopmentGoals CEMAC Communautt!Economiqueet Mone`taired'Aj'rique MTEF Medium-Tern ExpenditureFramework Centrale (EconomicandMonetaryCommunityof CentralAfrica) CET Commonexternaltariff NGO Non-GovernmentalOrganization CEM CountryEconomicMemorandum NTICs New Technologies for Information and Communication CFAA CountryFinancialAccountability Assessment OED OperationsEvaluationDepartment CGAP The ConsultativeGroup to Assist the Poor PAPSUT A semi-autonomousagencyunder the Ministry of PlanningandEconomy COMIFAC CentralAfrican ForestCommission PIP PublicInvestmentProgram CPAR CountryProcurementandAudit Review PROMOGABON Agence nationale de lapromotion de la petite et moyenne entreprise National (PromotionAgency for SMEs) cso Civil SocietyOrganization PRSP PovertyReductionStrategy Paper C W Q CoreWelfareIndicatorsQuestionnaire PSD PrivateSector Development DPL DevelopmentPolicy Loan PSFE Programme Sectoriel Fore^t-Environnemenl (ForestryandEnvironmentProgram DPR DevelopmentPolicy Review PSR ProjectStatus Report ElTI ExtractiveIndustriesTransparency Imitative ROSC Reporton Observanceof Standardsand Codes ESW Economic andSector Work SME Smalland MediumEnterprise EU EuropeanUnion SNBG Socie`tkNationale de Bois Gabonais (NationalTimber Marketing Company) FIAS ForeignInvestmentAdvisory Service (ajoint service of SSA Sub-SaharanAfrica the IFC andWBG) FSAP FinancialSectorAssessment Program UNDP UnitedNationsDevelopmentProgram GDP GrossDomesticProduct WBG World BankGroup GEF GlobalEnvironmentFacility WBI World BankInstitute GPRSP Growth andPovertyReductionStrategyPaper WHO World HealthOrganization IBRD Vice President: Gobind T. Nankani,AFRVP Director: Ali M.Khadr, AFC07 Task Team Leader: Mehrnaz Teymourian, AFMGA TABLE OFCONTENTS FOROFFICIALUSEONLY EXECUTIVESUMMARY ........................................................................................................................... i I INTRODUCTION . ............................................................................................................................... 1 I1 COUNTRY CONTEXT . ........................................................................................................................ 2 A . Political Economy and SocialContext ............................................................................................. 2 B. 3 C. Poverty Profile .................................................................................................................................. Macroeconomic Track Record.......................................................................................................... 5 I11. ECONOMIC OUTLOOK .............................................................................................................. 8 A B .. Medium-TennMacro-Economic Framework .................................................................................. 9 Key Economic Challenges................................................................................................................ 8 C. Debt Sustainability............................................................................................................................ 9 IV COUNTRY DEVELOPMENT PROGRAMAND ISSUES . ............................................................ 11 A Country Priorities and Agenda ....................................................................................................... 11 V WORLD BANKGROUPASSISTANCESTRATEGY .B .. KeyDevelopmentChallenges ........................................................................................................ 13 ................................................................... 23 A. LessonsLearned.............................................................................................................................. 23 B . Partnership andParticipation.......................................................................................................... 25 C. The World Bank Group Assistance Strategy.................................................................................. 26 Pillar 1: Strengthening the management of public resources (both natural and financial) for improved social outcomes......................................................................................................................................... 28 Improving efSiciency and equity in public expenditures ..................................................................... 28 Improving revenue mobilization and ensuring sustainable management of natural resources.........29 Completing and implementing the GPRSP......................................................................................... 30 Addressing the challenge of HIV/AIDS ............................................................................................... 30 Pillar 2: Improving the investment climate to foster sustainable.private sector-led growth.................30 Improving the investment climate ....................................................................................................... 30 Building local capacity in theprivate sector ...................................................................................... 32 D 32 V I MANAGINGRISK . . Scenarios and Triggers.................................................................................................................... ............................................................................................................................ 36 VI11 CONCLUDINGREMARKS . .......................................................................................................... 37 TABLES: Table 1: Situating Gabon relative to other middle-income countries........................................................... 4 Table 2: Gabon .Key Economic Indicators 2001-2004 ............................................................................... 6 6 Table 4: Gabon .Key Economic Indicators 2005-2008 ............................................................................... Table 3: External Account Indicators and Financing Requirements 2001-2004.......................................... Table 5: ExternalAccount Indicators and Financing Requirements 2005-2008 ........................................ 9 Table 6: ExternalDebt Exposure Indicators 2001-2006 (inpercent) ......................................................... 10 10 Table 8. PlannedWorld Bank Group ProgramFYO5-09 ........................................................................... Table 7: Gabon and the MillenniumDevelopmentGoals .......................................................................... 12 27 Table 9: IBRDDebt Exposure Indicators................................................................................................... 35 This document hasa restricteddistributionand may be usedby recipientsonly in the performanceof their official duties Its contents may not be otherwise disclosed without World Bank authorization . . FIGURES: Figure 1: Oil ProductioninMillions of Barrels.. ................................................................... ..5 Figure 2: Importance of Oil Sector inthe Economy................................................................. .8 Figure 3: Real GDP Growth.. .......................................................................................... .8 Figure 4: Recent Achievements inthe Forest Sector.. ............................................................ .16 BOXES: Box 1. FIAS Diagnostic of the Investment Environment - Key Recommendations .................................. 15 Box 2. Past and Planned Bank Involvement inForest and Environment in Gabon ................................... 17 Box 3. Pilot Community Infrastructure Works and Capacity BuildingProject ......................................... Box 4. Gabon and the Extractive Industries Transparency Initiative (EITI).............................................. 19 21 Box 5. Capacity Development for Civil Society ........................................................................................ Box 6. Lessons Learnedfrom the CAS CR ................................................................................................ 23 22 Box 7. 2004-2005 Client Survey ................................................................................................................ 24 CASANNEXES: Annex 1. Gabon 2005-2009 CAS Results Framework Annex 2. Capacity Buildingfor Parliamentarians Annex 3. CAS Consultations Annex 4. CAS Completion Report Annex 5. DevelopmentPartners Coordination Annex 6. Country FinancingParameters CASSTANDARDANNEX TABLES: Annex A2: Country at a glance Annex B2: Selected Indicators of Bank Portfolio Performance and Management Annex B3: IBRDDDAProgram Summary Annex B3: IFC Program Summary Annex B4: Summary of Non-lending Services Annex B5: Poverty and Social Development Indicators Annex B6: Key Economic Indicators Annex B7: Key Exposure Indicators Annex B8: Operations Portfolio (IBRDDDAand Grants) Annex B8: Statement of IFC's Held and DisbursedPortfolio MAPof Gabon(IBRD 33408) 1. Gabon i s a resource-rich country with a small, highly urbanized population. The country i s well- endowed with arable land, forest and mineral resources,but oil has been for long Gabon's maineconomic sector and the principal driving force of its growth. Despite the high per capita income that the oil sector has afforded, the country has not been able to overcome the challenges of equitable economic development and minimum social welfare for all. Inequality i s high, and large sections of the population do not have effective access to public services. While Gabon has made progress towards meeting the Millennium Development Goals, several social indicators are still lagging. In particular, a rising HIV/AIDS prevalence rate is a serious concern. As the prospectsfor oil decline, the situation is expected to worsen. 2. Recognizing the challenges facing the country, the Government prepared an Interim Poverty Reduction Strategy Paper (I-PRSP) in June 2003, even though as an IBRD country it was not a requirement. Important policy actions have been taken since mid-2002, marking a significant break from past performance and demonstrating a renewed commitment on the part of the authorities to sound macroeconomic management. After a history of repeated slippages against IMF-supported program targets, performance under the current Stand-By Arrangement i s on track. The Government has made striking progress in the forest sector reform agenda, and has taken important steps towards greater transparency in the management of oil revenues, as evidenced notably by the recent declaration of intent to adhereto the Extractive Industries Transparency Initiative (EITJ) and work towards its implementation. The combination of declining revenues and the need to improve social outcomes has been a powerful incentive for Government to improve transparency and efficiency in the use of its public resources, both natural and financial. The planned World Bank Group assistance program has been designed to support Gabon's efforts and to ensure that the current window of opportunity i s not lost. 3. The present CAS takes its lead from the main development objectives of the Government as highlighted in I-PRSP and the national prospective study "Gabon 2025". The priorities of the Government over the medium term, as reflected in these documents, are: (i) to improve efficiency in the use of public resources, with a focus on improving the quality and quantity of basic services; and (ii) to improve the environment for private sector-led investment in the non-oil sectors of the economy. Gabon's national development strategy seeks to generate sustained growth for poverty reduction. Following the completion of its I-PRSP, Gabon has undertaken the preparation of a Growth and Poverty Reduction Strategy Paper (GPRSP) that will form the basis of its future development strategy. The Bank i s assisting Government to finalize the GPRSP. 4. This is the third assistance strategy the Bank' has prepared for Gabon. The first two were prepared in 1994 and 1998, respectively. Although the horizon of the 1998 Country Assistance Strategy (CAS) did not extend beyond 2001, after that date the Bank continued to implement operations prepared under the previous programs. The last two operations in the Bank's portfolio, an urban development LIL and a privatization project, closed in June 2004. The 1998 CAS embraced an ambitious agenda for political and social reform, including significant attention to poverty alleviation. However, while some progress was made on privatization and macroeconomic management, it did not achieve the majority of the proposed CAS outcomes. 5. This CAS sets out planned lending and non-lending World Bank Group support to Gabon over the periodFY05-09 that i s less ambitious. Activities have been selectedbased on their alignment with the Government's objectives and the World Bank Group's comparative advantage. Other development partners plan lending, grant and technical support in areas that complement the Bank's areas of comparative advantage. The CAS i s articulated around two pillars: (1) strengthening the management of public resources (both natural and financial) for improved social outcomes; and (2) improving the 1 The "Bank' refers to the IBRD and IDA; the "World Bank Group" refers to the Bank, FC, FIAS and MIGA. investment climate to foster sustainable, private sector led non-oil growth. Cross-cutting themes are developing capacity in Government, civil society, and improving governance and participation. 6. The Bank's base-case assistance program will include three lending operations in the urban, natural resources, and infrastructure sectors: a US$25 million Public Investment Program for Local Infrastructure Development Project expected to be presented to the Board in June 2005, a US$15 million Natural Resources Management Development Policy Loan for FY06, and a US$25 million Infrastructure Project in FYO8. Each operation places emphasis on improving transparency and efficiency in use of public resources, including natural resources, and on improving the environment for greater participation of the private sector. In the Base Case, the lending program planned for FY05 to FY09 thus amounts to US$65 million, in addition to US$1.5 million which would be sought in IDF grants, and a US$10million GEF supporting the national Forest and Environment Sector Program (PSFE). Non-lending activities include continuing support for GPRSP preparation (and its subsequent implementation), public financial management, private sector development, civil society capacity development and a Poverty Assessment. Currently IFC has an exposure of US$3.8 million in the oil and gas sector, and the World Bank Group's Foreign Investment Advisory Services (FMS) has recently completed a diagnostic study of the investment climate. A US$61 million MIGA guarantee facility for rehabilitation and modernization of a professional training institute i s expected to be presented to the Board in May 2005. This project i s MIGA's first inthe education sector. 7. The current situation in Gabon i s considered to be the Base Case. Remaining in the Base Case would be predicated on continued satisfactory macroeconomic performance and continuedprogress in the implementation of the forest reform agenda as evidenced notably by continued implementation of the moratorium on allocation of new permits until the new transparent auction procedures are implemented. In the event that the country falls short of meeting the base-casecriteria, a low-case scenario would be activated which would involve no new lending and a reduced level of AAA support. 8. Consideration for moving to a High Case would be based on a modulated approach whereby in the first instance a particularly good track record of performance of reforms inthe natural resource sector would trigger presentation of a second Natural Resources Management DPL (US$10 million) for Board consideration in FY08. Beyond this, specific actions to improve the broader investment climate would trigger preparation of a Diversification support operation (US$18 million) for Board presentation in FY09. More substantial BanklIFC collaboration would also be considered. 9. The mainexternal risk affecting the ability of this CAS to achieve its objectives would be a sharp drop inpetroleumprices. The main internal riski s of a departure from good fiscal management practices. There i s also a risk that commitment to structural reforms will diminish over time and/or vested interests will succeed in preventing such reforms from being implemented. Commitment to the reform agenda i s likely to be strengthened following elections, as the Government will face less pressure to manage the impact of policy implementation on vested interests. A stronger role for Parliament, the private sector, and civil society, along with a credible and well functioning law andjustice sector, will also help to hold the Government accountable. Bank- and other partner-supported capacity development activities will help strengthen these roles. The following issues are suggestedfor Board discussion: The appropriateness of the two "pillars", as defined in paragraph 6, as entry points towards the ultimate goal of poverty reduction; and Whether the Bank program strikes the right balance between being realistic, as recommended inthe CASCR, andproviding adequate support to addressGabon's development priorities. I. INTRODUCTION 1. This Country Assistance Strategy (CAS) sets out planned lending and non-lending World Bank Group support to Gabon over the period FY05-09. The last CAS for Gabon was discussed by the Board inSeptember 1998. Itcalled for the Bankto transcendits traditional lendingrole and instead play the role of a knowledge bank. Although many of the outcomes envisaged in the FY99 CAS did not materialize, ongoing projects provided for continuity in the dialogue with Gabon. Beginning in 2003, the Bank became more active in Gabon, and country economic performance improved. Lessons learned since FY99, reviewed in a CAS Completion Report (CASCR) (see Annex 4), have been taken into account in preparing the present CAS. 2. Although Gabon i s an IBRD Borrower, it has undertaken the preparation of a PRSP, known locally as the Growth and Poverty Reduction Strategy paper or GPRSP, which will form the basis of its future development strategy. Because the GPRSP i s not yet complete, the Government has not yet established definitive monitorable development goals. Consequently, while this CAS i s rooted in the GPRSP, it does not meet the full requirements for a Results-Based CAS. However, an Interim-PRSP (I- PRSP) was prepared in June 2003 and underpins this CAS. The CAS i s also rooted in a results-based framework (Annex 1) linking planned Bank actions to Gabon's medium- and long-term development objectives via intermediate (CAS period) outcomes. The mid-term CAS review (to take place in FY07) will, if needed, provide an opportunity to fine-tune the alignment of the CAS with the completed GPRSP and to establish quantitativemeasures of performance. 3. The CAS i s articulated around two pillars: (1) strengthening the management of public resources (both natural and financial) for improved social outcomes; and (2) improving the investment climate to foster sustainable, private-sector-led growth. Cross-cutting themes are developing capacity in Government, civil society, and the private sector, and improving governance and participation. 4. Planned lending in the BaseCase would amount to US$65 million for three operations in support of these pillars, and US$11.5 million inrelatedGEF and IDFgrants. Remainingin the Base Case would be predicated on continued satisfactory macroeconomic performance as evidenced by, inter alia, a successor arrangement with the IMFfollowing the expiration of the Stand-By inJune 2005 and continued satisfactory performance under such an arrangement; and continuedprogress inthe implementation of the forest reformagenda as evidenced notably by continuedimplementation of the moratorium on allocation of new permits untilthe new transparent auction procedures are implemented. Departure from these would trigger a Low Case, under which Bank involvement would be restricted to non-lending activities after an initial project in FY05. 5. Consideration for moving to a High Case would be based on a modulated approach whereby in the first instance a particularly good track record of performance of reforms inthe natural resource sector would trigger presentation of a second Natural Resources Management DPL (US$lO million) for Board presentation in FY08. The specific triggers for this first module would include: full implementation of the Extractive Industries Transparency Initiative (EITI); and the full and effective abolition of the export monopoly of SNBG by January 2006. Beyond this, remaining in the HighCase would be predicated on specific actions to bring about significant improvements in the investment climate, which would trigger preparation of a Diversification support operation (US$18 million) for Board presentation in FY09. Specific criteria for moving forward with this operation would be the completion of the privatization of Gabon Telecom and of actions recommended by the World Bank Group's Foreign Investment Advisory Services (FIAS) on public procurement and real estate titles. 6. Beyond IBRD, broader World Bank Group support i s currently limited, although such support could develop over the CAS period. There is scope for increased Bank/IFC collaboration if Gabon continues to make good progress, especially if it moves to the High Case. A US$61 million MIGA guarantee facility for rehabilitation and modernizationof a professional training institute i s expected to be presented to the BoardinMay 2005. 11. COUNTRYCONTEXT A. Political Economy and Social Context 7. Gabon is a resource-rich country with a small, highly urbanized population. Extending over 267,667 km2on the west coast of equatorial Africa, Gabon i s well-endowed with arable land, forest and mineral resources. It i s the fourth-largest producer of petroleum in Africa after Nigeria, Angola and Equatorial Guinea, and the second largest exporter of timber after Cameroon. It has extraordinary biodiversity as well as rich deposits of magnesium and iron ore. The country i s one of the most urbanized in Sub-Saharan Africa, with a population currently estimated at 1.3 million, with more than 50 ethnic groups2. Approximately 75 percent of the population i s concentrated in two major urban centers, Libreville (pop. 450,000) and Port Gentil (pop. 100,000), and in about fifty smaller towns. The rural population i s thinly scatteredover the vast hinterland where access i s difficult. 8. The country has been politically stable since independence and is a force for stability in the Central Africa Region. The country has had two political leaders, Leon Mba, the hero of independence in 1960, and ElHadj Omar Bongo Ondimba, in power since 1967 and now the longest serving President in Africa. The country shifted from single-party rule back to a multi-party political system in the early 1990s. However, the party of the President, PDG (Parti Democratique Gabonais) maintains a dominant position, and organized opposition i s not sufficiently significant to form a common front against the ruling party. The party has succeededin maintaining political stability and social peace by ensuring that rents and rewards are distributed among traditional authorities across ethnic lines. Parliamentary elections last took place in 2001, and the next Presidential election i s scheduled for December 2005. Gabon has also played a strategic role in promoting peace and stability in the central Africa region. The President i s a respectedsenior statesmanwho i s often called upon to mediate inconflicts (recent examples include the Central African Republic, Republic of Congo, and Togo). The importance of such stability in a region plagued by conflict helps to explain the continued support of some development partners, in spite of the country's uneven track record in transparency and public resource management. 9. Gabon plays a leading economic role in Central Africa. Gabon's membership in CEMAC (Communaute' Economique et Mone'taire de 1'Afrique Centrale), the Central African Economic and Monetary Union, with a common CFA currency and exchange rate regime, has strengthened economic management by creating a regional framework for macroeconomic surveillance and an institutional forum for policy dialogue. Adherence to the CEMAC convergence criteria, a set of fiscal and structuraltargets, has helped constrain monetary and fiscal expansion. Furthermore, Gabon's membership in the trade regime, with a common external tariff (CET), has acted as an inducement to considerable trade liberalization from the early 1990s, both through reduction of average tariffs and by removing quantitative restrictions. Finally, Gabon, together with Cameroon, has been one of the prime movers of sub-regional integration in Central Africa, and has promoted regional initiatives to boost the economic inter-relationships among the member states of the zone. 2 For the purposeof the CAS thepublishedfigure of 1.3 millioni s used, althoughresults of a recent census suggest populationcouldbe as highas 1.5 million. -2- 10. Gabon is also a key member of the Congo Basin Forest Partnership. In 2005 and 2006, Gabon will chair the Central African Forest Commission (COMIFAC), following the Heads of State Summit held in Brazzaville in February 2005. Shared responsibility for forest management i s a driver of regional integrationin Central Africa. All Central African countries share the Congo Basin Forest, which i s of unique value to the global community. This group of countries has common interests and common claims, including the maintenance and sustainableuse of biodiversity. B. Poverty Profile 11. Despite high per capita income, Gabon has not been able to overcome the challenges of equitable economic development and minimum social welfare for all. During the initial years after independence, the Government invested heavily in capital projects and industries, assuming substantial debt in the process. During the oil boom years of 1973 to 1985, the Government adopted economic policies aimed at promoting full employment through public sector initiatives such as creation of parastatals. The Government provided generous wages and established an elaborate social security system which, in spite of its imperfections, was considered among the best in sub-Saharan Africa. Oil wealth brought benefits to the urban elite which were further shared through family networks, contributing to a massive rural to urban exodus. Lack of recent data poses a challenge in understanding the evolution in recent years of the distributional effect of oil wealth on poverty, but the general perception of local citizens, conveyed to the Bank during the CAS consultations, i s that living conditions have been steadily worsening over the past decade. While the redistribution of rents has been successful inreducingpoverty insome countries with similar per capita incomes, this does not appear to be the case for Gabon. 12. Inequality is high, and large sections of the population do not have effective access to public services. Inequalities plague the current social service delivery system, priorities are often misplaced, and access of the poor to services remains low. The Bank`s participatory Poverty Assessment, completed in 1997, servedto raise awareness of these problems within Government. It showed that despite Gabon's highper capita income, relative poverty inconsumption terms is widespread (at about 60 per~ent)~.Many of Gabon's social indicators are lagging behind other IBRD countries with similar GDP per capita (see Table 1). While Gabon has been able to improve access to primary education and access to improved water sources other social indicators such as immunization of one year olds, the maternal mortality ratio and HIV/AIDS prevalence (where estimates have doubled in the past two years) are of particular concern. In the longer run, significant progress on equity as well as growth will be essential for effective and sustainedpoverty reduction. 3 RelativepovertyinGabon(definedas per capitaincomesof less than the minimumwage, equivalent to aboutUS $1,440 in 1993 dollars) i s very different fromthe extremepovertyexperiencedinmostof Sub-SaharanAfrica. Still, the Poverty Assessment showedthatper capitaincomesbelow halfthis level(lessthanUS $700)were insufficientto meetminimum nutritionalneedsandother basic spendingrequirementsinurbanareas of Gabon. -3- Source: 2004 UNDP Human Development Indicators Report 13. In 2000, the authorities began preparing a Poverty Reduction Strategy Paper, although as an IBRD borrower Gabon was not required to do so. An I-PRSP was completed in June 2003. Subsequent work has focused on expanding public participation in the process, developing a statistical database to better estimate current levels of poverty, and working out sectoral strategies to focus government activities on poverty reduction. While there i s room for much improvement in public service delivery and the management of public resources, the ultimate solution to the poverty problem in Gabon i s seen in economic diversification and creation of productive economic opportunities in the private sector for the poor. The GPRSP preparation process i s still ongoing, with a final product expected around end- 2005. 14. Despite the fact that the GPRSP work is still on-going, it was important not to delay a new CAS at this time. There i s a need to set Bank interventions in the context of a strategic framework discussed with and understood by our clients and partners. Good progress has been made recently in improving our dialogue with Gabon and in the country's own performance. The new CAS i s needed to demonstrate Bank commitment and to maintain the momentum of this dialogue, as well as to pave the way for new financial commitment and analytical and advisory work by the Bank inthe country. 15. The timing is favorable in order to capitalize on current high-level commitment to the reform process, as well as to respond to growing pressures from Parliament and civil society for reform. Major progress has been achieved in macroeconomic management, and the Government i s fully engaged with civil society and the donor community in finalizing the GPRSP. The next frontier i s for the momentum for reform to penetrate the sector ministries and be reflected in better institutional -4- performance. The activities included in the Bank support program, together with the contributions of other development partners, will help strengthen Government commitment and capacity at a critical moment for Gabon. 16. It should be recognized, however, that this CAS is only an intermediate step toward supporting poverty reductionin Gabon. Improving managementof public resources by strengthening revenue mobilization and public expenditure management is a necessary prerequisite for the Government to provide more efficient and effective services to the poor. Similarly, improvements in infrastructure and natural resources management will enhance the country's growth potential but will not necessarily bring benefits directly to the poor. More targeted assistance will need to be articulated by the entire donor community around the sector strategies which are expected to be included in the GPRSP, in order to ensure that benefits from externally-fundedprograms actually flow to the poor in the future. C. MacroeconomicTrack Record 17. While Gabon's past history of program implementation has been poor, important policy actions undertaken since mid-2002 and the broadly satisfactory track record of budgetary implementationin 2003 and 2004 have demonstratedthe renewed commitment on the part of the authorities to implement sustained adjustment. In May 2004, the Executive Board of the IMF approved a 14-month, US$102 million Standby Arrangement supporting the Government's economic program. The main thrust of the program is to promote economic diversification through sustained fiscal adjustment and comprehensive structural reforms. The first, second and third reviews were satisfactorily concluded in August and December 2004, and March 2005 respectively. The current Standby Arrangement expires in June 2005, and it i s expected that it will be followed by further IMF support, the exact nature of which i s still under discussion. Gabon i s keen to remain under an IMF arrangement following the expiration of the Stand-By Arrangement. The IMF will consider the most appropriate arrangement, provided that performance under the Stand-By Arrangement remains satisfactory, and based on the extent to which the foundations for a medium-term program are deemed to be in place. The IMF will also carry out a fiscal Report on Observance of Standards and Codes (ROSC) as part of the process of determining what form of support would be most appropriate for Gabon inthe future. 18. Growth has recovered somewhat but remains modest. While the overall Figure1. Oil ProductioninMillions ofBarrels macroeconomic environment has remained stable since 2000, the economy has been 160y vulnerable to fluctuations in oil prices as well as to a declining trend in oil production (see Figure 1). Real GDP growth recovered from -1.9 percent in 2000 to 2.0 percent in 2001, followed by a decline to 0 percent in 2002, rebounding to 2.6 percent in 2003 and then dropping back to 1.4 percent in 2004 (see Table 2). In terms of the expected evolution of the composition of GDP, while the oil sector accounts for close Year -5- a better economic performance in 2004 than envisaged and resulted in more optimistic forecasts for economic growth in the future, assuming the continuation of higher oil prices, continued prudent fiscal management and successful export diversification (Table 2). Table 2: Gabon Key Economic Indicators 2001-2004 - 2001 2002 2003 2004(Prel.) RealGDP growth(% per year) 2.0 0.0 2.6 1.4 Oil (% per year) -5.7 -1.4 6.8 -1.0 Non-oil(% per year) 5.3 0.6 1.o 2.3 Inflation (end period) (% per year) 1.o 0.4 3.5 -0.6 Gross investment/GDP (%) 25.8 24.4 24.0 24.3 Gross nationalsavings/GDP(%) 36.8 29.6 33.5 34.8 Revenue/GDP(9%) 34.0 31.5 29.8 29.1 Oil revenue/GDP 21.8 17.7 16.2 15.7 Non-oilrevenue/GDP 12.2 13.9 13.6 13.4 Total expenditure/GDP (%) 30.8 28.1 22.4 21.6 Primarybudgetbalance/GDP(9%) 3.2 3.5 7.4 11.5 Overallbalance(excludinggrants)/GDP(%) 3.2 3.4 7.4 7.5 Source: IMFand World Bank 19. Fiscal policy has generally been consistentwith macroeconomic objectives. The Government continued its consolidation of public finances in 2003 and 2004, with the budget posting a surplus of 7.4 percent of GDP in 2003 and 7.8 percent in 2004. Gabon has been successful in curtailing the growth of current expenditure by reducing the ratio from 19.9 percent of GDP in 2000 to 16.4 percent in 2004 and the wage billfrom 6.4 percent to 5.9 percent of GDP over the same period. Moreover, the Government of Gabon, in consultation with international development partners, will assess the public expenditure framework for social services and poverty reduction in the preparation of the GPRSP. However, low execution rates of the investment budget and gaps between allocated and the executed budgets continue to hamper public financial management and affect the delivery of public services. Due to tighter fiscal measures, a reduction in tax and customs exemptions, and collection of tax arrears, an increase in the mobilization of non-oil revenue from 12.2 percent of GDP in 2001 to 13.4 percent in 2004 has partially compensated for the recent and projected decline in oil revenue. The target under the IMF-supported program of reducing the non-oil primary deficit from 8.2 percent of non-oil GDP in2003 to 7.7 percent in 2004 and 5.7 percent in 2005 i s broadly on track. Table 3: External Account Indicators and Financing Requirements2001-2004 2001 2002 2003 2004 (Prel.) Exports4(annual % change) -19.0 -5.7 4.2 21.5 Imports' (annual% change) 9.3 7.1 -5.4 19.3 Current account balance/GDP(%) 11.0 5.2 9.6 10.4 Capital account balance/GDP(%) -12.6 -6.3 -9.8 -10.7 Overallbalance/GDP (%) -1.6 -1.1 -0.2 -0.2 Financinggap (% of GDP) 0.0 0.0 0.0 0.0 Source: IMFand WorldBank 4 Current dollarterms. 5 Ibid. -6- 20. The external current account, includinggrants, has posted a surplus since the last CAS and has risen to close to 10.4 percent of GDP in 2004 due to higher oil prices and a rise in manganese exports (see Table 3). In 2004, total exports increased by close to 21.5 percent with non-oil exports increasing by more than 12 percent, while imports increased by 19.3 percent. However, the capital account has remained in deficit due to capital outflows and repatriation of oil profits by foreign companies, resulting in a slight overall balance of payments deficit. The financing gaps in 2005-2006 are expected to be covered by ParisClub debt rescheduling, use of Fundresources, and drawdown of foreign reserves. 21. Like other countries in the CFA Zone, Gabon's inflation rate has remained relatively low over the last several years. Due to prudent monetary policy at the regional Central Bank (BEAC), inflation was contained through the period and averaged below 2 percent. Furthermore, the fixed exchange peg to the Euro ensures that monetary policy i s being used to stabilize the exchange rate and not for domestic credit expansion. Also, the strict implementation of fiscal rules that set limits on BEAC financing to monetize deficits has helped curtail inflation in Gabon. The country has successfully adhered to the regional convergence criteria relating to fiscal balances, consumer price inflation, and external debt, but has slipped on the criteria of net changes in government arrears. The appreciation of the Euro, especially vis a vis the dollar, has led to a slight appreciation of the real effective exchange rate and a weakening of overall export competitiveness. 22. The Government has made considerable progress on the structural reform agenda, but some challenges remain. Even though the former General Directorate of Price Controls has been replaced by a new General Directorate of Competition, Government commitment to price liberalization has sometimes been questionable, in particular regarding the automatic adjustment of domestic retail prices for petroleum products, which have not changed since 2002. With regard to foreign trade, quantitative restrictions still exist, especially in the sugar sector. Some public enterprises, such as the palm oil company AgroGabon and the rubber company Hevegab, have been successfully privatized. However, progress has been slow in privatizing other companies such as Gabon Telecom and Air Gabon. 23. While the financial sector in Gabon is, in general, profitable and stable, certain structural features could contribute to medium-term-solvency and growth concerns. Banks dominate the financial sector, and are generally cost-efficient and liquid. Short-termbanking sector risks are tempered by a high level of liquidity and adequate access to central refinancing. However, the activities and potential of commercial banks are limited by the relatively small size of the non-oil economy at present, particularly given the financing of the oil sector i s largely undertaken outside of the country. In addition, the banking sector i s highly concentrated, with a loan portfolio that i s non-diversified6. At end-February 2001, three out of five operating banks did not meet prudential ratios on risk diversification, leaving the sector as a whole exposed to a small number of enterprises. The Banks April 2003 Gabon Financial Sector Assessment (FSA) recommended that banks: (a) diversify domestically by entering into underserved markets; (b) proceed with cross-border diversification; and (c) syndicate with foreign banks. All of these trends needto be closely followed by supervisory authorities. 24. As a CEMAC country, Gabon follows the BEAC regulations which treat money laundering and terrorist financing as criminal offences. On November 20, 2002, the BEAC Board of Directors approved draft anti-money laundering and counter-terrorist financing regulations that would apply to banks, exchange houses, stock brokerages, casinos, insurance companies, and intermediaries such as lawyers and accountantsin all six member countries. The BEAC regulations would also require banks to record and report the identity of customers engaging in large transactions. Gabon has signed, but not yet 6 The largestbank accounts for morethan 40 percent of loans anddeposits, andthe largestthree banks accountfor more than 80 percentof all bank loans and deposits. -7- ratified, both the 1988 UNDrugConvention and the UNInternational Convention for the Suppression of the Financing of Terrorism. The Gabonese Ministry of Foreign Affairs reports that the National Assembly will pass the latter convention in 2005. Gabon i s expected to comply with the regional international standards and take concrete steps to regulate and operationalize these measures so as to establish a viable anti-money laundering and counterterrorist financing regime. 25. Transparency in oil revenue management has begun to be addressed. To help address this issue, in 1998 the Government passed a law to set up a Fund for Future Generations (FFG). Under the law, the FFG should receive 10 percent of projected oil revenues, 50 percent of "windfall" revenues (in excess of projections), and accumulated interest, up to a minimum capital of CFAF 500 billion. The Government has been making regular deposits to the FFG account in BEAC since 2002, in agreement with the IMF. Since January 2005, the deposits have been credited with interest at 1.7 percent. The FFG held a balance of CFAF'60 billion as of February 2005. Together with the recent declaration of intent to adhere to the EITIand the first steps towards implementation with the technical support of the Bank, the recent history of FFG management suggests a move in the direction of greater transparency in the management of oil revenues. 111. ECONOMIC OUTLOOK A. Key Economic Challenges Figure 2. Importance of Oil Sector inEconomy (percent) 26. Prospects for oil, traditionally Gabon's key 90 economic sector and the principal driving force of economic growth, are declining. Since 1998, Gabon has been facing the prospect of a gradual decline in oil output because its current oil fields are aging. Despite government and foreign investment in new exploration, so far no new large oil fields have been discovered. Recently, the oil production curve has been relatively flat at around 13.5 50 i4 I million metric tons a year. Production i s expected to decline 40 2000 2001 2002 2003 2004 over the next two years, to 11 million tons a year, as Oil revenuemotal revenue compared to the peak of 17 million tons in 1998. No other ....... Oilexportsmotal exports single resource in Gabon could be sustainably exploited at a Oil GDPKotal GDP rate that could replace the projected petroleum revenue shortfalls. The challenge facing Gabon is to ensure continued Figure 3. Real GDP Growth (percent) growth and i mproved social indicators in the face of declining petroleum production. 27. In order to compensate for declining oil production, other economic activity will need to be promoted. In the medium and longer term, economic -4 - 0 - 0` diversification will be needed in order to address the future -6 - 0 . -8 - 0. gaps in revenue due to oil shortfalls. Financing from exports 0' -10 - " will be quite critical especially given Gabon's high level of -12 1 import requirements, currently close to 40 percent of GDP. GDP growth Inthis context, promising areas of diversification are mining, ..-.-.. Oil growth Non-oilgrowth forestry, fisheries, construction, and tourism, and new sectors such as information, communication and technology services. In 2003, the mining sector contributed 1.4 percent to GDP, while forestry and construction contributed 2.9 percent and 11 percent of GDP respectively. The Government will need to implement sound strategies to create new sources of growth -8- implement sound strategies to create new sources of growth in these sectors by creating an enabling environment for private sector activity and selective publicinvestment. B. Medium-TermMacro-Economic Framework 28. Despite these challenges, prospects for the medium term indicate stable, though very modest, growth. High petroleum prices over the past year have allowed the coming on stream of additional fields that would have otherwise been considered non-commercial, thus helping to stabilize oil production for a few years. Investment in rubber production, ongoing expansion in the agri-business sector, as well investment in the forest and miningsectors should boost the non-oil GDP growth rate from about 2.3 percent in 2004 to 3.5 percent on average over the period 2005 to 2008. The expected gains in the non-oil sectors should somewhat offset the declining oil production (oil production i s expected to decline by about 4.8 percent annually on average between 2004 and 2008), to achieve an average GDP growth rate of about 1 percent in the period 2004 to 2008. The projected elevated prices for oil and manganesewould also help the external position. The external current account surplus at 10.4 percent of GDPin2004 i s forecast to increase to about 12.2 percent in2006 (see Table 3 and 5 respectively). Table 4: Gabon Kev Economic Indicators 2005-2008 - 2005 2006 2007 2008 Proj Proj Proj Proj RealGDPgrowth (% per year) 2.0 0.2 0.7 1.o Oil (% per year) -0.6 -8.6 -8.0 -7.0 Non-oil(% per year) 3.0 3.5 3.5 3.4 Inflation (endperiod) (% per year) 1.o 2.0 1.4 1.5 Gross investment/GDP (%) 22.7 22.3 22.2 21.4 Gross nationalsavings/GDP(%) 38.1 38.2 39.2 40.1 Revenue/GDP (%) 32.4 32.2 32.2 32.1 Oilrevenue/GDP 16.9 16.7 15.6 15.1 Non-oilrevenue/GDP 15.5 14.6 16.6 17.0 Total expenditure/GDP (%) 19.6 20.7 21.0 21.3 Primarybudget balance/GDP(%) 13.8 12.3 10.4 10.2 Overallbalance(excludinggrants)/GDP (%) 10.8 9.5 8.4 8.2 Source: IMFandWorld Bank 29. Sustained growth depends on the commitment of the authorities to continue prudent fiscal policy, as suggested under the Fund-supported program. Gabon must continue to demonstrate its determination to confront its economic challenges by pursuingpolicies aimed at diversifying the economy and further improving the enabling environment for private sector investment inthe medium term C. Debt Sustainability 30. Historically, Gabon has borrowed extensively to implement its expansionist economic policies. This approach has left the country with expensive debt and heavy debt-service ratios. While the debt i s manageable over the longer term, high debt-service ratios pose a problem in the short run, constraining the possibility of redirecting fiscal resources to improve public service delivery. Most external debt i s owed to official creditors, in particular to France. For this reason, there i s less risk of an unforeseen increase in the interest cost of debt, unlike other middle-income countries that raise most of their financing in capital markets. -9- 31. In the past two years, Gabon has strengthened its overall debt management. Due to better liquidity management, the country's payments to banks and commercial institutions have been regular. With the approval of the IMFStandby Arrangement, the Paris Club took note of the country's improved macroeconomic and fiscal performance. In June 2004, it reached an agreement with the Government of Gabon to reschedule part of the country's external debt. The Paris Club consolidated around 717 million, which resulted in a reduction in debt service to Paris Club creditors from 953 million to 270 million over the life of the debt. Because Gabon i s an IBRD country, the debt rescheduling took place under Paris Club's classic terms, with all credits to be repaid progressively over fourteen years, including three years of grace. Paris Club creditors also included a goodwill clause, signaling their agreement to consider a further restructuring which could include an element of debt reduction. At this stage the Paris Club creditors do not see a needto implement the goodwillclause inlight of the improvement in the debt situation, underpinnedby high oil prices. Table 5: ExternalAccount Indicators and FinancingRequirements 2005-2008 2005 2006 2007 2008 Proj. Proj. Proj Proj Exports' (annual% change) 13.9 -8.8 -8.7 -8.5 Imports' (annual% change) 7.7 -0.2 -13.9 2.5 Current account balance/GDP (%) 13.7 12.2 10.2 10.1 Capital account balance/GDP (%) -10.6 -8.6 -8.4 -8.0 Overall balance/GDP (%) 3.1 3.6 1.8 1.9 Financing gap (% of GDP) 0.0 0.0 -2.2 -2.2 Source: IMFandWorld Bank Table 6: External Debt Exposure Indicators 2001-2006 (inpercent) 2001 2002 2003 2004 2005 2006 External Debt stock/GDP 63.1 62.7 55.9 50 45.5 42.4 External Debt-service ratio/exports 24.2 9.8 13.7 14.1 12.8 13.5 External Debt-service ratio/ revenue 40 16.2 23.4 33.7 29.2 33.1 Sources: Governmentof Gabon, IMF,andBank staff estimates 32. The external debt stock of the country has decreased from 63.1 percent of GDP in 2001 to 50 percent in 2004 and i s projected to fall further to 42.4 percent in 2006 (Table 6). The latest debt sustainability analysis indicates that this decline i s due to three factors: (a) a less rapid decline in oil receipts due to higher prices and less rapidly declining production volumes; (b) moderate non-oil growth; and (c) continued fiscal adjustment that results in no financing gaps. The baseline analysis indicates that the external debt to GDP ratio decreases continuously, financing gaps disappear and the debt service ratios peak within the next five years and decline thereafter. Similarly, Gabon's total external debt to GDP ratio is projectedto decrease to 45.7 percent in 2006 and fall to less than one-fifth of GDP within the next ten years. One key assumption underlying this trajectory i s the growth of non-oil GDP which i s projected to average 3.5 percent in 2004-2010. At the same time, stress tests reveal that Gabon's debt sustainability continues to be sensitive to shocks in non-oil growth (which affect both non-oil exports and budget revenues) and to changes in oil prices, since higher projected oil prices translate into greater ease inmeetingdebt service obligations. 7 Currentdollar terms. 8 bid. -10- Iv.COUNTRY DEVELOPMENT PROGRAMAND ISSUES A. Country PrioritiesandAgenda (i) National Development Strategy Objectives 33. The overarching goal of Gabon's national development strategy is to generate sustained growth for poverty reduction. The country's medium-term development goals, as described in the I- PRSP and the long-term vision document "Gabon 2025", are (1) to foster non-oil private-sector-led growth; and (2) to strengthen public sector effectiveness and efficiency. The I-PRSP highlights the Government's commitment to ensure that the fruits of this growth benefit the poor more directly, through job creation in non-oil sectors. The Government also intends to improve the efficiency and equity of public expenditures, specifically to improvethe quality of investments ineducation and health. 34. Government's view of the approach to reducing poverty has evolved over time. The major objectives identified inthe I-PRSP were to: (i) reduce unemployment; (ii) the ruraleconomic decline; halt (iii)improve access to basic social services; (iv) strengthen the social safety nets; (v) ensure that the poor have better living conditions; (vi) improve the position of women in society; and (vii) introduce more efficient governance systems. These objectives and the means to achieve them will be more fully developed in the full PRSP. While initially the authorities conceived the PRSP as a catalog of measures to fight poverty directly, they have now adopted the classic format of the PRSP that includes growth policies. The document i s now referred to as the growth and poverty reduction strategy paper or Document de strate`gie de croissance et de rkduction de la pauvrete` (GPRSP), to emphasize the growth- basedpro-poor vision of development that the country i s pursuing. 35. The Bank is assisting Government to finalize the GPRSP. The Bank has provided technical assistance particularly to improve the statistical base, develop an accurate poverty profile, and improve the participatory process in the preparation of the document. In this context, provincial workshops with civil society, major stakeholders, and development partners were held around the country from July 2004 and will be completed during the first semester of 2005. Work on the poverty profile i s underway and results are expected by June 2005. At the same time, the authorities are preparing key sectoral policies and quantifying the costs of the related investment program. (ii) Links to MDGs 36. Gabon has made substantial progress towards meeting the Millennium Development Goals (Table 7), although significant challenges remain. Extreme poverty i s believed not to be very widespread in Gabon (11percent is the current estimate, extrapolated from earlier calculations based on 1993 data). A highproportionof school-age children (93.5 percent) are enrolledinprimary school, with a gender gap of only 2 percent in favor of males. However, the poor quality of education and highrepeater and drop- out rates suggest that not all the goals of primary education are being achieved. Gabon has made significant progress inreducing child mortality, from 155 per 1000live births in 1992 to 91.4 per 1000 in 2000. This i s impressive given that the average Sub-Saharan African child mortality rate i s 161.5 per 1000live births and increasing. Similarly, the maternal mortality rate in Gabon, though higher than the global average, i s one of the lowest in Sub-Saharan Africa. The country has not, however, been able to ensure access to adequate basic health services for all. For example, immunization rates in 2002 were lower than the Sub-Saharan Africa average, standing at 38 percent for DPT and 55 percent for measles, versus the Sub-SaharanAfrica average of 59 percent and 57 percent respectively. -11- I 7: Gabonand the Mill d u m Development G MDGGoals World Situation SituationinSub-Saharan Africa CurrentSituationinGabon 1.Halvebetween 1990and From 1990to 1999the From 1990to 1999the The proportionof peoplein Gabonliving 2015 the proportion of proportionof the world's proportionof peoplein an less than US$ 1aday was estimated peoplein extreme poverty peopleliving on less than extremepoverty slightly at 23 % in 19939.On the assumption andwho suffer fromhunger US$l aday fell from 29 % decreased, from 47.7 % to that pasttrendshave continued, extreme to 23 %, butprogresswas 46.7 %, too smallto reach povertyin Gabonwould now be only uneven. the 23.9 % target by 2015. about 11% of the population. 2. Achieve universal 90 % of the world's 14countries are considered 93.5 % enrollmentof elementary-school- completionof primary elementary-school-age off track and 19seriously age childrenin 2000. However, educationby 2015 for both children (6-14) are enrolled. off track. 34.8 % of students repeateda year of boys andgirls elementary school. 22.9 % of children enrolledfinishedthe elementary school cycle in 2002. 3. Eliminategender There is a gender gap of 7.6 Only 25 % of SSA countries The 2000 primary enrollmentrate of disparitiesinprimary and % inthe primaryeducation are likely to achieve the women was 92.2 % versus 94.2 for men secondaryeducation by gross enrollmentratio. goal. -hence the gender gap inGaboni s only 2005 andfor all levelsby 2.0 percentagepoints at this level. 2015 4. Reducechildmortality The world-widechild SSA average was 187 From 1992to 2000, the under-5 ratesby two-thirds between mortality rate is 161.5 per deaths per 1,000 live births mortality rate decreasedfrom 155to 91.4 1990and2015 1,000 live births. At least in 1990,decreasingto 174 per 1,000 live births. Ifthis trend 60 % of countriesare in2002. At this rate, the continues, Gabonis on trackto achieve unlikely or very unlikely to goal will notbe achievedby the goal. achievethe goal. 2015. 5. Reducematernal There are 400maternal There has beenno Despiterelatively high access to prenatal mortality rateby three- deaths per 100,000 live significantchange from verj care for women aged 15 to 49, maternal quarters between 1990and births. high maternalmortality mortality rate is still high in Gabonat 2015 ratios (917per 100,000 live 420 per 100,000 births in2002. births in 2000) on average ir However,this representsa significant SSAcountries." decline from 519 in2000. If this decline continues, Gabon appears to be ontrack to achievethe goal bv 2015. 6. Halt andreverseby 2015 In 1999the prevalencerate The WHO estimates that Officialprevalenceof HIV/AIDS among the spreadof HIV/AIDS, of HIV/AIDS among adults there were 2.3 million adults aged 15-49increasedfrom 2.8 % malaria, andother diseases aged 15-49 was 1.07 %. AIDS-relateddeaths in2001 in 1991to 8.1 %in 2003. andthat the prevalencerate 55% of childrenunder one year have has reached8.4%. beenimmunizedagainstmeasles. Estimatedcases of malariaper 100,000 oeoole were 2,148 in2000. 7. Ensureenvironmental In2000 environment and Therei s continuedloss of Deforestationratei s lower than inmost sustainabilityandaccess to forests are degradingat an biodiversity. However,loss parts of CentralAfrica. Threemillions an improvedwater source acceleratedspeedin most of forestcover seems to be hectares of productionforest are inthe tropicalcountries and about lower in CentralAfrica than processof comingunder sustainable 80 % of the populationhad inother tropical areas. management.Status of fisheries access to water. Access to improvedwater resourcesis uncertain.Access to an source rosefrom 48.7 % in improvedwater source rose from 67 % L 1990to 55.4 % in 2000. in 1995to 86 % in2000. Tidimie du VIH/SIDA ail Gabon, rapport 2003, Ministire de la Santi Publique rumain 2004, PNUD. Objectifs du Millinaire pour le Diveloppement, Premier Rapport National, dicembre 2003, Ministire e la Planijication et de la Programmationdu Dkveloppement et des Nations Unies 9 There i s norecent quantitativedata on poverty sincethe 1997World BankPoverty Analysis (usingdatafrom 1993). An ongoinghouseholdsurveyto be completedin June 2005 shouldprovide moreupto date informationon the povertylevels in Gabon. 10 World Bank GenderStatsdatabase. -12- 37. With respect to environmentalsustainability and access to potable water, Gabon faces new challenges. Low population density in Gabon's hinterland makes it more likely to preserve biodiversity than in most other tropical countries. However, significant commercial poaching takes place in connection with industrial logging. The fishing industry i s poorly monitored, and fish stocks are uncertain. Surface water resources are relatively abundant; however, recent problems in the supply and distribution of potable water to urban centers and deteriorating sanitation conditions have given rise to significant health concerns. 38. HIV/AIDS and other diseases are of concern. The HIV prevalence rate in Gabon is estimated at over 8 percent in 2003, with the two major urban centers reporting even higher prevalence rates, especially among the productive age group of 25 to 39. The Government i s well aware of the increasing urgency of the problem and has begun working on a National Strategy for HIV/AIDS prevention and control. The country received US$3.15 million from the Global Fundto address the alarming progression of the HIV/AIDS epidemic and to reduce its impact on the general population, and in particular on groups in a vulnerable situation. Prevention campaigns have also been implemented with the support of UNAIDS. Other diseases such as malaria and tuberculosis are also prevalent in Gabon, as well as occasional outbreaks of Typhoid and Ebola. 39. Gabon can contribute relatively little to the global effort towards the Millennium Development Goals, both because of its small population and because it has largely succeeded in addressing the most extreme characteristics of poverty as seen in a global perspective. The poverty challenges facing Gabon today are addressing severe economic inequalities, generating more benefits from non-oil natural resources and ensuring their equitable distribution, ensuring sustainability of the resource base, finding productive employment for the poor and non-poor alike, and improving the quality of basic services, while enhancing the access of the poor through targeted redistribution of resources within existing programs and budgets. Continued progress in meeting the challenge of HIV/AIDS will also be critical. B. Key Development Challenges 40. Gabon faces two main challenges in order to reduce poverty, improve governance, and foster economic growth. These challenges are: (i) improving efficiency and equity in the use of public resources, both natural and financial; and (ii) diversifying the economy by improving the investment climate, including infrastructure, for private sector development. A cross-cutting theme i s better governance, through improved transparency and accountability inthe use of public resources and inbasic service delivery mechanisms. The planned assistanceprogram of the World Bank Group has been set up inorder to assistthe Government inaddressing these challenges. (i) Improving Efficiency and Equity in Public Resources Management 41. Improving delivery of social services to all households is a key medium-term challenge facing the Gabonese authorities. The success of the Government's effort to achieve the Millennium Development Goals (MDGs) depends on the allocation of increasingly scarce resources to support improvements inhuman capital and the delivery of social services. The GPRSP, to be completedin2005, will help further discipline the Government's policy-setting and allocation processes during the CAS period by giving priority to areas most likely to assist in achieving the MDGs. Sectoral strategies to be prepared under the GPRSP will provide guidance for future institutional and policy reforms, which were not accomplished as planned during the last CAS. -13- 42. Low budget execution, particularly with regard to the investment budget, has hampered the effectiveness of public spending. Despite relatively significant budget resources earmarked for health (for example, Gabon budgets about 3.6 percent of GDP on health), poor management and cash flow problems have constrained the execution of programs aimed at combating diseases and achieving the MDGhealthoutcomes. This explains partly why Gabon, although arelativelywealthy country, has social indicators similar to lower income countries (Gabon i s ranked 122 in the world according to the Human Development Index). The vaccination rate, for example, dropped steadily in the latter half of the 1990s: in 1996, the percentage of children immunized against DPT was estimated at 62 percent, but by 2001 it had decreasedto 38 percent." 43. Since 2002, Gabon has begun undertaking reforms to strengthen the impact of public spending, under the guidance of the Fund and the Bank. Some of these reforms have attempted to restructure budget procedures in order to strengthen the programmatic links between the budget and the Government's poverty reduction objectives. For instance, in 2003, the Government introduced program budgets and initiated the development of a medium-term expenditure framework (MTEF). The medium- term program i s aimed at sustaining fiscal adjustment and boosting non-oil sectors' growth and poverty reduction potential. A public expenditure review exercise, supported by several development partners, has recently begun and i s designed to support government efforts to improve public resources management and to provide input into the GPRSP. It will provide an overall diagnosis of public financial management issues and address key elements of budget preparation and execution. 44. Gabon lacks timely and reliable statistics, and needs to develop statistical capacity in order to measure progress in achieving results. Timely and reliable statistics are key inputs to the results management process. Lack of reliable data in Gabon affects the authorities' ability to formulate policies based on solid analytical work and to monitor or evaluate development programs. The Bank's ability to offer meaningful policy advice i s also constrained by the paucity of data. The ongoing preparation of the GPRSP has drawn attention to the deficient statistical base. The 1993 household budget and consumption survey provides the most recent data available for analytical work on poverty. Results of the 2003 Census of Population and Housing are yet to be published. The sampling frame for the most recent data on social indicators, the health and demographic survey (2002)' was based on the 1993 census (i.e. outdated census information). In order to update statistical information on poverty, the authorities are working closely with the Bank to undertake a new rapid household survey of the CWIQ (Core Welfare Indicators Questionnaire) type. This survey instrument will allow the authorities to update the non-pecuniary measures of poverty while building the capacity to process data rapidly using optical scanning technology. The results of this survey, when available, will be shared with all stakeholders as part of the Bank's support to the GPRSP process. (ii) Improving the InvestmentEnvironmentfor Private Sector Development 45. To reduce the country's heavy dependenceon oil, Gabon needsto jumpstart private-sector- led diversification. To foster economic development and increase employment, non-oil naturalresources need to contribute more significantly to the GDP, through improved public sector management and increased private sector investment in these sectors. The Government i s aware that measures need to be taken to improve the investment climate and attract investment in the non-oil sectors. The Foreign Investment Advisory Services (FIAS), a joint service of the Bank and the IFC, recently completed a diagnostic study of the investment climate in Gabon (see Box 1). It identified several areas in need of attention: (i)improving governance and the rule of law; (ii) improving investment-related administrative procedures; (iii) reforming the tax system; (iv) improving infrastructure; and (v) reducing the costs of inputs. 11 2004 African DevelopmentIndicators,from the World Bank Africa Database. -14- Box 1. FIAS Diagnostic of the InvestmentEnvironment Key Recommendations - Improve Governance and the Rule of Law: Makethis a top priority of the Government's programand announceit at highestlevel. Follow through by quickly designing a multi-faceted, multi-year strategy to improvethe Rule of Law (with components on anti-conuption, judicial reform, civil service reform, legal reform and information, legalandjudicial training, deregulation, etc.). Integrate the currently scatteredinitiatives into this holistic strategy. With development partners' assistance, start implementing the multi-year comprehensive govemance strategy. Facilitate Private Sector Development: Strengthen Banque Gabonaisede Dkveloppement (BGD) by increasing its resources and the number of financial instruments it can use to support private enterprise development. Consider introducing venture capital inGabon, through BGDor otherwise.Consider increasingBDG's capital. Review the role and assess the impact of PROMOGABON and APIP in order to decide whether they should be maintainedintheir current form or restructuredwith a view to making them more effective instruments. Design a strategy to encourage informal operators to formalize. The strategy should aim to simplify the administrative procedures for investment, to simplify the tax system, to provide accounting support, and to tackle all the constraints that currently encourage entrepreneurs to remain in the informal sector. Reform education and professional training to reduce the gap between private sector needs and the skills of the labor force. As part of the investment climate improvement program being conducted by FIAS, launch a study focusing on SME access to credit to diagnose the constraints limiting S M E access to commercial finance and to recommendways and means to improve such access (including through micro-finance schemes). The study could bedone inpartnershipwith CGAP and/or PEP-Africa. Agree on priority actions that need to be undertaken to alleviate the other constraints facing private sector operators, taking into account the recommendationsof World Bank-supportedstudies including the FIASdiagnostic study and the upcoming IFR. Streamline formalities and reducethe cost of businessregistration. Ensure that all agencies concerned contribute to the functioning of the "one-stop shop" (under the Investment Promotion Agency). Adopt transparentproceduresfor businessvisas and clarify and standardizeproceduresfor residency permits. Publishpublicprocurementopportunities and contract awards. Improvecustomsclearanceproceduresand remove the statistical tax for customs (RUSID). Clarify procedures and reduce delays to secure final property title, inform the public of the revised procedures. Reform the tax system: Implement the State Finance Act of 1995 prohibiting taxes not included in the budget law (para- fiscalitd). Launcha specific study on corporatetaxation and investment incentives as plannedunder the program agreed with FIAS. This study would constitute a useful input for the broader program of tax reform that the Govemment i s discussingwith the IMF. Improve infrastructure and reduce costs of inputs: Engageconsultationswith developmentpattners and the private sector on priorities (energy, telecom, transport) and on that basisdesign a strategy. Complete privatization of Air Gabon and pursue the restructuring of the telecom market by completing the privatization of Gabon Telecoms and strengtheningthe telecom regulatory agency. -15- 46. The inefficient functioning of the law and justice sector represents a major impediment to private sector development in Gabon. There i s a consensus among relevant stakeholders regardingthe need to invest adequate resources in this sector to promote the rule of law both as a matter of general concern and a means to enhancebusinessand investment climate inGabon. 47. Gabon's strategy inthe non-oil sectors is different from those of its neighbors. Unlike most Sub-Saharan African countries, Gabon does not depend very much on agricultural exports. Rather, its strategy i s to become a base for international services, especially those neededby the petroleum industry, while developing natural-resource-related transformation industries and tourism. If this strategy is successful, Gabon could become an important economic partner for its neighbors as well as for the international community. Its collaboration within the Congo Basin Initiative on the Tri-National Park i s one example of such partnership in the area of tourism, which involves joint efforts by the three park agencies concerned. such as coherent land use planning across borders, harmonization of procedures and regulations, joint awareness raising and consultations processes. joint surveillance and other law enforcement activities, and setting upjoint planning and monitoring and evaluation systems. 48. Forestry, currently the second-largestsector in terms of job creation after the public sector, has significantly greater potential to contribute to economic development. Gabon has 22.5 hectares of forest per capita, one of the highest ratios in the world. However, the sector's contribution to the national economy remains below its potential in terms of employment. revenues and community development. The timber industry today provides about 7,000 direct jobs, whereas it could probably provide twice as much employment in related transformation and transport services, without increasing the level of harvesting. The challenge for Gabon i s to increase forest-based benefits for the population while maintaining timber harvesting at a sustainable level, in accordance with forest management plans. Greater transparency and law enforcement i s needed at all steps of the sequence to foster accountability and reduce the room for corruption and arbitrary decisions. This requires removing policy and governance bottlenecks that have hampered sector performance duringthe last four decades. 49. Striking progress inforest sector reform marks a significant break from the past. Over the recent past, the Government has taken bold and concrete steps to improve transparency and efficiency in the forestry sector. Highlights of the recent reforms include notably: (i) passing a new Forest Code in 2001; (ii) creating 13 national parks which total ten percent of Gabon's total surface areal2in 2002; (iii) simplifying the fiscal regime under the 2004 finance law; (iv) approving a letter of sector policy in May 2004 spelling out the priority Fiscalregime simplified in 2004 finance law reform agenda with a focus Letter of Sector Policy adoptedby Councilof Ministers on transparency and basic law enforcement; (v) enacting a decree establishing a moratorium on the discretionary allocation of logging rights in August 2004; (vi) enacting a decision to abolish the long-standing monopoly on export marketing by the public marketing agency (SNBG) by January 2006; and (vii) disclosing the list of logging and non-compliant permits in the local newspaper and on the internet in 2005. The recent achievements mark a significant break from the past performance of the sector which was characterized by a lack of transparency, interference by vested interests, and distortions in the incentive framework. These are important first steps that need to be followed with further reforms in the same direction. 12 The creationof thirteennationalparksby PresidentBongoOndimbain 2002was explicitly presentedas amove towards diversificationof the economy, intendedto stimulateeco-tourismandprivate sector activities. -16- 50. The recent reforms create a unique window of opportunity to deepen forest sector reforms and ensure their sustainability. The reform agenda in the forest sector, as described in the May 2004 letter of development policy, i s far reaching and includes provision for development of participatory forest zoning, monitoring of sustainable management plans and of illegal logging, development of community forestry, retrocession of a share of revenues to local entities, and the development of non- extractive uses of forests. Through fiscal incentives the Government i s also encouraging the expansion of domestic processing interms of both quantity and quality.13 Removal of the SNBG export monopoly will remove market distortions and increase the sector's competitiveness. The planned Bank support for the forest reform agenda (see Box 2) will be crucial to ensure the momentumi s not lost. Box 2. Pastand PlannedBankInvolvementinForest andEnvironmentinGabon The Bank's Forest andEnvironmentProject (PFE) laidthe early groundworkfor improvedmanagement of Gabon's forest and environmentalresources. Approved in 1992, the project closed in 2002. Inthe interval since the PFEclosedin2002, policy dialogue has developed and gathered momentumthroughthe preparationby the Governmentof aNationalForestand EnvironmentSectorProgram(PSFE) incoordinationwith all interested donors, privatesector andcivil society. Gabon has significantly expanded its protected areas network, which now covers more than 10percent of the nation's surface area, including marine ecosystems, and i s settingup an autonomous agency for national park management. In2004, Gabon's Council of Ministers adopted aLetter of SectorPolicy onnaturalresources management, including forests, fisheries, biodiversity protection and environmental management. This policy aims at promoting employment, revenues, rural development and increased entrepreneurship while protecting natural ecosystems and biodiversity. Later in 2004, the Government confirmed its commitment to greater transparency in managing the forest sector by establishing a moratoriumon sole-source attribution of logging permits. In December 2004, the Government decided to remove the monopoly of the National Timber Marketing Company (SNBG), starting January 2006, so as to liberalize the timber trade. These reforms represent a striking departure from the long-standing climate of opacity, discretion and distorted incentives. These are f i s t steps which shouldbefollowed by further reformsinthe same direction. Throughthe two plannedNaturalResourcesDevelopmentPolicy Loans andaplannedGrant from the Global EnvironmentFacility, the Bankintends to support the implementationof Gabon's PSFEprogramin synergy with other developmentpartners (France, EU,US, AfDB amongothers). Bank and other donor support will helpcapitalizeonthe very significantrecent Governmentreformsto ensurethat they take hold andare deepened. The PSFEprogramwill also provideuniqueopportunitiesto involvethe Bank andother partners in the reform processthat i s also startingto emergeinthe fisheries and mining sectors. By linkinglendingto the implementationof reforms, the plannedoperations will strengthenthe voice of reformers and increasetheir capacity to overcomeresistance from vestedinterests. The two-staged DPL approachwill also mitigateagainst the loss of momentuminthe reformprocess. 51. Gabon has important geological reserves and a long history of mining, especially of manganese and uranium. However, compared to other countries with similar mineral endowments, the contribution of the mining sector to the country's wealth has remained relatively small. Besides manganese, of which Gabon i s the world's third largest producer, mining activities are restricted to artisanal production of gold and diamonds and, to a lesser extent, excavation of construction material. Gabon i s considered to have good miningpotential and several mineral deposits have been identified over the years such as: gold (with a number of high grade small deposits identified in 11regions in Gabon), iron ore, and columbium, along with several other minerals. The mining potential of the country i s not reflected in its current mining output. Potential mining output i s estimated to be capable of generating about US$300 to US$400 million annually in revenues in the long term if a favorable investment 13 Domestic processing capacity increasedfrom about 10percent in 1990to about 30 percent in 2002. -17- environment exists and the appropriate regulatory systems are put in place. A recent diagnostic review of the mining sector, conducted by the Bank, has identified key reforms neededand has also highlighted the importance of addressing artisanal mining activities (diamonds) and improving environmental management of miningactivities. 52. Fisheries also represent a potential growth sector. At over 40 kg per capita Gabon's fish consumption i s among the highest in Africa. Recorded fish production in 2004 was 45,000 metric tons of which over 70 percent i s produced by artisanal fishers. Interms of biological potential the annual yield of the fisheries has been estimated at 230,000 tons, but reliable estimates of the sustainable level of production have not been made and despite a recent promising survey of deeper waters, the resource base i s poorly known. Non-Gabonese nationals constitute 80 percent of the sector's labor force which complicates stakeholder engagement. Weak sector governance, ineffective monitoring and control and lack of transparency in licensing contribute to the absence of a clear vision for the future of the sector. Gabon sees the development of this sector as an alternative source of food for the local population and a potential revenue earner. On-shore fishing by communities and families can probably improve food security and increase cash income for poor communities and households. With regard to industrial off- shore fishing, the margin of improvement probably resides more in providing Government with sustainable revenues that can then be allocated to improved social service provision through public expenditures. 53. The current transport situation hinders the development of productive sectors, particularly inthe rural hinterland. Gabon has 9,170 kilometers of roads, of which only 10percent are paved. The two planned main axes connecting northto south and east to west are not completed. Part of the east-west axis i s connected by an old and dilapidated railway system. Development of a new roads system i s difficult to justify economically given the very low population density and low economic activity in the rural areas and on the other side of the borders. The solution more favored by developing partners most active in the transport sector, including EU, the AfDB and AFD, i s to rehabilitate existing priority networks and to ensure that adequate public financing i s available for their maintenance. The railroad concession, which was suspendedfollowing a dispute with the operator and i s currently functioning under temporary arrangements, will have to be renewed under more financially viable terms and conditions. The National Airline needs to be quickly restructured and re-capitalizedby the private sector. 54. Tourism has a high potential in this country that is part of one of the largest rainforest ecosystems in the world. However, tourism has not yet attracted significant investment. Gabon i s endowed with a 10,000 km coastline, wetlands, rivers, and rich faunal and floral wildlife. Its forests belong to the Congo Basin tropical rainforest ecosystem, the world's second largest area of contiguous rainforest. Although the Government has recently taken bold conservationist measures and introduced new tax incentives to promote high-value, low-volume tourism, growth has been slow. Airfares to Europe and the U S remain expensive, tourism-related infrastructure and services are inadequate and costly, and both Government and private sector have failed to embark on a serious sector growth strategy. Foreign investors can only be expected when the sector-specific business environment reaches a critical threshold. -18- 55. Despite the major role of cities in Gabon's economic growth, urbaninfrastructure has been globally under-funded (less than 10percent of public investments) in the last two decades. Poor works supervision by the administration and failure to pay the contractors on time has had consequences in terms of cost overruns and poor quality of works. Most public works are capital intensive, with very little impact on employment in the construction sector. Financial resources that could enable cities to better manage urban infrastructurehave not been transferred to municipalities. With the exception of Libreville and Port Gentil, most towns in Gabon have little capacity to handle infrastructure development and maintenance. Box 3. Pilot Community Infrastructure .Worksand Capacity BuildingProject The Pilot Community Infrastructure Works and Capacity Building Project (Learning and InnovationLoan) provided a practical test of approaches adopted in the Urban Sector Strategy developedunder the earlier Transport Sector technical Assistance project (approved in FY95 and closed in 9'00). It was designed to test new methods for building community-based infrastructure and providing support for local contractors. The goal was to improve living conditions in selected poor urban neighborhoods in a sustainable way and with substantial community participation. The project also aimed at building local capacity to undertakealarger programof community based-publicworks. Despite its small size, the project was perceived by its stakeholders as the most concrete and practical way to address the poverty issue in Gabon. This project has allowed for the definition of appropriate approaches and modus operandifor "soft" and community-basedupgrading of low-income settlementsas opposedto heavy restructuring. Rather than starting with heavy land restructuring and regularization and major infrastructure change that would have dramatically raised land values and upset the social composition of the targeted settlements, the infrastructure upgrading effort focused on adapted improvements to existing main access and transit roads. The objective was to facilitate physical access to services (such as transportation, fire crews, ambulances) and improve sanitation and drainage in the targeted areas. In additiqn, and with technical support provided by PAPSUT through the municipalities, the recipient communities put together community-based micro-projects centered around the already improved access and transit road through their neighborhoods. As a result, micro-projects (essentially water, sanitation, and drainage facilities and pedestrian paths to the main transit roads) were identified in the targeted neighborhoods and implemented with the effective contribution of municipalities andcommunities. All works included in the project were carried out by local entrepreneurs selected after open competitive bidding and without noticeable cost overruns. These works apparently have been the only ones included in the national PIP actually procured through open and competitive bidding. The technology used for access and transit road pavement (cement blocks) turned out to be the most appropriate to facilitate involvement of local SMEsinthe infrastructure upgrading process. For the first time in Gabon, municipalities were involved inroad paving projects. They learned how to procure these works and participated with community leaders in the design and implementation of micro- projects. As the methodology was developed, manuals were prepared, and training was performed on the project sites. This early experience was then used to train local government staff on thejob, creating technical units in the municipalities and involving them inproject implementation. The project also trained professionals to help communities select the works to be performed, mobilize community contributions, and explain work procedures. A methodology for community participation was developed, tested, and improved. This process, although time- consuming, now provides the basis for larger future initiatives. A similar learning-by-doing process was used to extract lessons from the early involvement of SMEs and design and provide trainingfor young entrepreneursin procurementand other managementskills. A few months before its closure on June 30, 2004, the project was discussedand evaluated openly at a national workshop that includedrepresentatives from all relevant line ministries, local governments, the local private sector, and civil society. The participants in the workshop praised the project's achievements and requestedthat the initiative be expanded, in terms of both sector coverage (social infrastructure in health and education, transport andmunicipal facilities) and geographicalcoverage (urbanand ruralareas). -19- 56. Rapid urban growth challenges Gabon's capacity to provide acceptable living conditions. Access to housing i s a big problem in Gabon, particularly in the main urban centers such as Libreville and Port Gentil. And while more than 30 percent of Gabonese households have access to electricity, and 71 percent have access to clean water, the infrastructure in place i s aging and there i s an urgent need to rehabilitate the existing facilities and expand them to serve peri-urban areas. There i s insufficient public funding or private interest to finance these works on a large scale. Through a Learning and Innovation Loan (LIL), the Bank has been supporting the development of community-based small-scale infrastructure and the growth of small construction contractors. The success of this pilot project has led to the preparation of a new project that will be developed on a larger scale during the coming CAS period and to extend its scope to the reconstruction of small-scale public buildings such as schools and clinics (see Box 3). (iii) Governanceand Participation 57. Efficient and transparent management of public finances has been an ongoing challenge to the Government and the donor community. Annual budgets are formulated and approved, but off-line expenditures arranged through unorthodox procedures often preclude effective execution of the budget. These problems are well recognized by civil servants who are constrained in their ability to run their programs, but are powerless to control the budgetary process. The circulation of information i s highly restricted both within and outside the Government. As a result, there i s little confidence within the private sector, and high costs are attached to any government transaction. Under the Bank-supported Privatization Project approved in 1997 and closed inJune 2004, the Government began to gain experience with more transparent procedures and to understand better why poor governance could constitute an obstacle to private investment. 58. More timely dissemination of statistics will help strengthen governance. In order to improve fiscal transparency, the Gabonese authorities have made a significant effort to ensure the proper flow of fiscal information to the public by making available (through the Finance Ministry's statistical unit) a comprehensive database on fiscal activity. More timely publication of such information i s necessary, particularly with regardto the proper monitoring of the FundStandby Arrangement. 59. Gabon has made significant progress toward liberalization of the economy, but challenges remain. Although the agendai s not yet complete, there has recently been visibly increasing commitment to improve the business climate and implement a reform agenda in key sectors such as forestry and mining. However, several issues remain to be tackled. For example, efficient and transparent pricing mechanisms for natural resources and related tax collection now need to be implemented, in order to allow for an adequate sharingof the rent. Inthe past, forest revenues have been poorly collected and non- compliant companies not sanctioned, which discourages responsible investors. On-going reforms in the forest sector, which focus on transparency in concession allocation and on law enforcement, will establish a more level playing field for responsible investors. 60. The combination of declining revenues and the need to attract more private investment provides a powerful incentive for Government to improve transparency and efficiency inthe use of public resources, both natural and financial. In spite of continued resistance from vested interests, there i s growing recognition among public authorities that resources need to be directed more efficiently to improve basic service delivery, and that new resources could be developed through economic diversification. At the express request of the President, the Government has declared its intention to implement the Extractive Industries Transparency Initiative (EITI) and has asked for Bank support in this area (see Box 4). This commitment to improving the transparency of revenues derived from extractive industries provides a clear indication of support for the agenda of improved transparency and governance. It i s also a signal of Government's growing commitment to increase transparency in the management of -20- public resources. Reforms agreed under the forest reform agenda set forth in the Letter of Natural Resource Policy under President Bongo Ondimba's leadership are also contributing to this objective. Box 4. Gabonandthe ExtractiveIndustriesTransparencyInitiative(EITI) The EITI aims at increasingtransparency with respect to payments made to the Government by oil, gas and mining companies. At the EITI second annual conferenceheld inLondon on March 17,2005, participants inthe Initiativeendorsedthefollowing criteria for implementation: 0 Regular publication of all material oil, gas and mining payments by companies to governments ("payments") and all material revenues received by governments from oil, gas, and mining companies ("revenues") to a wide audienceinapublicly accessible, comprehensiveandcomprehensiblemanner; 0 Where such audits do not already exist, payments and revenues are the subject of a credible, independent audit, applyinginternational auditing standards; 0 Payments and revenues are reconciled by a credible, independent administrator, applying international auditing standards and with publication of the administrator's opinion regarding reconciliation including discrepancies, should any beidentified; 0 This approachis extendedto allcompaniesincluding state-ownedenterprises; 0 Civil society i s actively engaged as a participant in the design, monitoring and evaluation of this process andcontributestowards public debate; 0 A public, financially sustainable work plan for all the above is developed by the host government, with assistance from the international financial institutions where required, including measurable targets, a timetablefor implementation, andan assessment of potentialcapacityconstraints. Implementing countries are encouraged to exceed these criteria where possible, in line with the principles of the IMF Code of Good Practices on Fiscal Transparency and the good practice examples in the accompanyingManualonFiscalTransparency. A preliminary needs assessment and a diagnostic of revenue flows and institutional responsibility for assessmentand collection of extractive industry revenueshave been carried out by the Bank with respect to the hydrocarbon and mining sectors. Further to this initial assessment, a road map for implementation of the EITI has been prepared. An inter-ministerial committee entrusted with the coordination of the EITIimplementation, the EITIWork Group, was createdby ministerial decree February 24, 2005. The EITIWork Group is currently defining adetailed action planandresponsibility for implementation. Civil Society plays an important role in ensuringthat high standards in transparencyand accountability in public life, government operations and business are applied. To this end, the creation of a Stakeholders' Group composed of civil society representative, industry representatives and government i s envisaged to facilitate public debate over measures to enhance transparency in the extractive industry. This will ensure that all necessary reforms are introduced after due consultation, which will facilitate their understanding and acceptance. Participationinthe Stakeholders' Group i s voluntary andnon-binding. While the involvement of the industry representatives does not present too many difficulties, the establishment of the civil society component of the stakeholders group poses some challenges. There are few non-governmental organizations in Gabon, familiar with the complexities of the hydrocarbon sector. The Government i s envisaging actions to improve civil society understanding of the Extractive Industry and to strengthen their ability to actively participate in its implementation. As an interim measure, the Government's advisory body, Conseil Economique et Social (a consultative body comprised of government, private sector and civil society representatives)is beingconsideredto representcivil society inthe stakeholdergroup. 61. Gabon's Parliament is not yet a strong force for improving governance. The Parliament comprises two chambers: the National Assembly (120 members, elected by direct popular vote) and the Senate, (91 members, elected by municipal councils and departmental assemblies). The Constitution gives the Parliament the power to "vote laws, set public taxation and oversee the action of the executive power." The PDG members find it difficult to monitor and influence government policy and programs. There i s a strong need felt for capacity development to enable Parliament to play its proper role in ensuring better governance for the people of Gabon (see Annex 2). -21- 62. Civil society does not yet play an effective role in shaping, implementing and overseeing national policies in Gabon (see Box 5). Before 1990, a small number of Civil Society Organizations (CSOs) existed in Gabon. However, it was only with the establishment o f the multi-partypolitical system in the country that the civil society movement truly emerged in Gabon. Since then, there has been a proliferation of associations, NGOs, and labor unions. According to different accounts, between 800 and 1000 such organizations exist in the country today. However, the State i s still reluctant to accept civil society as a real partner of development. It i s seen more as a counter-power, hindering the Government's work, and a source of instability and social disturbance. Some structures o f dialogue have been put in place by individual ministries over the past few years, but they receive few funds. A legal framework to regulate civil society-government partnership has been in the works for four years, but there i s still no institutionalized forum for interaction with the Government. In addition, legal recognition of associations by the Ministry of the Interior takes a long time. Box 5. CapacityDevelopmentfor Civil Society Challenges: Many challengeshinder the effectivenessof Gabonesecivil society as adevelopmentpartner: Most Civil Society Organizations (CSOs) in Gabon lack funding and equipment, have no permanent staff or headquarters, and receivelittle donor assistance. Many organizationslack skills in project conception and implementation. They also often need to improve the transparencyof their management. There i s a lack of associative culture in the country. People do not readily mobilize behind an associative structure, and membershipfees are difficult to collect. Often, only the President and a small nucleus of people runtheorganization. The civil society movement i s strongly politicized. Very often, organizations are created by Government officials or other parties with political interests. This creates suspicion within civil society itself as well as on the part of the Govemment anddevelopmentpartners. Consequently, there i s a lack of dialogue and collaboration between the different structures of civil society. Coordinating structuresare not representativeand often overlap one another. The Conseil Economique et Social, a council composed of high-level representativesfrom different sectors of society in charge of advising the Government, has not been fully effective in promoting civil society participation. Many of these non-state actors lack a long-term vision of their role in Gabon's development. Often their activities lack cohesion with their set objectives. Many organizations change their programs according to circumstances (new elections, availability of funds, intemational forum dealing with a specific issue). Such opportunism once moreunderminestheir credibility. There i s reticenceonpart of the Stateto accept civil societyas areal partnerof development. Bank Response: Consultations for the 2005-2008 CAS stressed the importance of Bank involvement in civil society capacity development. The Bankplans to pursuethis objective through the following avenues, with the help of Country Office resources and an IDFgrant and/or a WBI training program. Systematicallyinvolve civil society inthe design, implementation, and evaluation of Bank-led programs. Undertakean extensiveoutreachcampaign (through bulletins, conferences, the Public Information Center) so as to present Bank procedures and activities and gather information on civil society organizations throughout the country (their objectives, interestsand capacities). Encouragethe Govemment to involve civil society actors inthe conception, execution and monitoringof public programs and to establish a regulatory framework to guide government interaction with civil society. The GPRSP preparation and implementation process provides an important venue for collaboration between civil society and the Government. Provide or fiance training programs in project conception and execution, financial management, activity reporting, leadership,communication and cross-cutting issues. Promote civil society collaboration through setting up fora, activities and networks where different organizations can meet and discuss strategies to enhance their credibility and influence in shaping public policies. Establish a dialogue with, and support, existing coordinating structures within civil society (NGO networks andplatforms) as well as within the Government andinvolve the Conseil Economiqueet Social. Supportand Coordinateactionsfor civil society capacity-building undertakenby other development partners. V. WORLDBANKGROUPASSISTANCE STRATEGY A. Lessons Learned (i) Implementation of the Lust CAS 63. The 1998 CAS embraced an ambitious agenda for political and social reform, including significant attention to poverty alleviation. A Completion Report for the 1998 CAS (CASCR) was prepared in June 2004 (Annex 4). CAS performance i s rated as moderately unsatisfactory. The 1998 country assistance program was relevant to broad national goals, but was not well aligned with government views about how to achieve those goals. The country did not make acceptable progress towards a majority of the CAS outcomes, although it did make progress on privatization and some progress on macroeconomic management and capacity development. The CAS expectations were probably unrealistic under the best of circumstances, particularly in the area of poverty alleviation. Furthermore, the resources available to the country team were too limited to provide all the non-lending support foreseen inthe CAS. Box 6. LessonsLearned fromthe CASCR Threekey observationscanbedrawn fromthe CASCR: 1. Gabon's future depends on its capacity to better use its naturalresourceendowment 2. Bank needs to remain present, maintain candid dialogue, and ensure wide dissemination and ownership of initiatives 3. There i s a needto invest incapacity development within the civil society 3 -23- 64. The lessons of the CASCR have been internalized by the country team and Bank management (see Box 6). Since 1999, the Bank has maintained a Country Office in Gabon, and the dialogue with Government and civil society has improved significantly in recent years. Consultations on the CASCR and the present CAS started early, in parallel with ongoing GPRSP consultations. The present CAS aims to be more realistic and less ambitious, focusing on capacity development in Government, the private sector, and civil society, while paying greater attention to the role o f development partners and the need to focus Bank interventions on areas of comparative advantage. (ii) Lessonsfrom ClientSurveysand OED Evaluations 65. Preliminary results of the client survey that was carried out in connection with this CAS indicate that the Bank's mission of poverty reduction is not well understood (see Box 7). It i s generally believed that the interests of the Bank and the Government are not the same and that the Bank imposes its vision of development on Government. However, the Government believes that the Bank can help strengthen its capacity and help it to formulate realistic action plans. These findings point to the need for the Bank to better communicate its vision and strategy and to clearly demonstrate the relationships between its planned activities and the desires of its clients. Box7. 2004-2005 ClientSurvey Results of the client survey carried out in Gabon in December 2004-January 2005 showed clients and partners would like the Bank to be more visible, more active in the social sectors, and more diversified in its investments. The survey sample included 300 clients who received written questionnaires and 30 personal interviews, The interviews included members of Parliament, other development partners, representatives of the private sector and civil society, and local authorities. Overall the client survey was welcomed by the respondents as a signal that the Bank might be willing to consult on and considerchanges inits activities inGabon. Preliminary results indicate that the image of the Bank inGabon i s rather negative. Its mission of poverty reduction is not well communicatedor understoodby the clients. They feel that the Bank does not make adequate use of the media and, when organizing information sessions, does not include all of its partners and clients. It i s believed that the interestsof the Bank and the Govemment are not the same and that the Bank imposes its vision of development on Govemment. The clients also believe that the Govemment does not really have a poverty reduction strategy nor does it have aclear view of its own developmentgoals and priorities. According to clients, the Bank has not succeeded in establishing effective development partnerships. While they recognize the achievement of a few micro projects, donor coordination i s seen as insufficient, particularly on co-financed projects. However, recent efforts to diversify Bank partnerships and activities, to finance micro-projects in other parts of Gabon with the participation of the local authorities and small enterprises, demonstratethat the Bankis makingprogressinthese areas. Clients had many suggestions to makeregarding capacity development activities that could be undertaken by the Bank. The Bank shouldhave a clear policy on this matter, allowing each sector to define its own needs and training program. The Bank should offer more seminars for the administration, NGOs, universities, local authorities, unions, associations, youth and women. The Bank should also encourage the Govemment to identify and use existing local capacity. There was a clear interest in NTICs (New Technologies for Information and Communication), a subjectto which local clients felt they could contribute. Clients acknowledgedthat Bankcommunications have greatly improved inthe recentpast. However, they are skeptical about the Bank's new client orientation since they do not have much solid information about the Bank`s work program. The Bank is still believed to operate according to rigid policies and procedures. Bank procurement, disbursement, and audit rules are not known to the clients. These rules are believed to be complex, difficult to interpret, and unrealistic in the context of Gabon. Clients also believe that the competence of local consultants is not sufficiently recognized by the Bank. More public information on this subject would be appreciated. Clients welcomed the improved relations with other development partners and Bank support for community micro-projects. However, they felt that the Bank still has not established good relations with the large enterprisesof the private sector. Bankpriorities are not seen as addressingthe most important developmentissues. This i s aperception the Bankwill seek to rectify inits outreach activities. -24- 66. OED has not conducted a Country Assistance Strategy Evaluation for Gabon. Implementation Completion Reports for three completed projects have been evaluated by OED in the last five years (Transport Sector Technical Assistance, ForestryEnvironment and the Urban LIL). The overall performance for all three was rated Satisfactory or Moderately Satisfactory. (iii) Portfolio Management 67. Portfolio performance, while generally satisfactory, has been uneven. Typically, project implementation has taken longer than expected, with an average of approximately 6 years. Some projects were slow to start because after a long period without Bank involvement in the sector, project staff was unfamiliar with Bank procedures. Timely availability of counterpart funding has been an issue, and the need for close control of procurement activities has also delayed disbursements. In the case of the ForestryEnvironment Project, the 1993 devaluation doubled the funds available (and the requirements for local counterpart funds), contributing to delays in implementation. The Privatization Project and the Urban LILclosed inJune 2004, with a satisfactory performance rating for the Urban LIL. Currently there i s no World Bank Group active lendingportfolio in Gabon, except for IFC's exposure of US$3.8 million. 68. New country financing parameters were approved in April 2005, which provide for increased flexibility in the treatment of cost sharing, taxes, recurrent costs, and local costs (see Annex 6). This flexibility will enable financing of local costs of investment projects in amounts appropriate for achieving project development objectives. One-hundred percent Bank financing could be provided for some projects and activities with strong evidence of ownership and commitment. Recurrent cost financing will be considered subject to strong demonstration of arrangements to ensure sustainability after Bank financing ceases. Taxes and duties will also be financed provided they are not excessive. The Bank may finance up to 100 percent of the costs of individual projects; however, in the planned investment projects (Local Infrastructure Development Project, InfrastructureProject, and Diversification operation) and the GEF grant, the Bank's financing share i s likely to be about 90 percent of project costs. Integration of Bank financing in the budget process (e.g, the Natural Resources Management DPLs) will ensure that increased recurrent cost financing would notjeopardize overall debt and fiscal sustainability. B. Partnership and Participation (i) Partner Roles and Donor Coordination 69. Since the Bank began strengthening its presence in Gabon, there has been much more active coordination with the other key development partners on the ground. Bilateral and multilateral donors meet regularly, and recently thematic groups have been created to improve the harmonization of donor support. In this context, the present CAS was prepared in close collaboration with the donor community. Principal development partners include the European Union (EU), the African Development Bank, France, various UN agencies and Canada, with additional contributions expected during the CAS period from the US., Spain, and Italy. Much of the bilateral support comes in the form of technical assistance. The Bank and UNDP are actively involvedin the GPRSP process, and all development partners are prepared to articulate their assistance strategies around the GPRSP program once it i s completed and approved. 70. All operations and activities planned in this CAS will be carried out as a complement to, or in partnership with other development partners (see Annex 5). As governance is a key issue in Gabon, the first pillar of this CAS complements the interventions of France, UNDP,the EU,AfDB, IMF, UNICEF, and Canada on capacity-building for macroeconomic reforms, public resources management, statistical capacity-building, and promotion of the role of the civil society. The planned Public -25- Expenditure Review will be carried out together with the EU, AfDB, and France. There i s also active coordination between the EU, the Bank and AFDProparco on private sector development and economic diversification. The Bank has been working with AFD, EU, AfDB, and the US on the preparation of the national forestry and environment program (PSFE), and these partners are also planning to support the implementation of the program. On the mining sector, the Bank i s working closely with the EU and France to improve the legal framework and attract investors in the context of economic diversification, put in place a regulatory and institutional framework, and improve miningadministration capacity. The same can be said of infrastructure, where EU, AFD, AfDB and the Bank have collaborated to support the Government on the creation of a second generation Road maintenance Fund. All of these development partners have clearly expressed to the Government the need to secure the financing of road maintenance before considering any new projects in this sector. The Bank coordinates its activities with the IMF and has close collaboration with the Fund on development and implementation of the structural reform programs. Finally, the World Bank Group works closely with the UN agencies on the fight against HIV/AIDS. 71. Consultationsduringthe CASprocessrevealedwidespreadmisunderstanding, misinformation, and lack of informationabout the Bank's role inGabon's development. Consultations with civil society and other key stakeholders (Parliamentarians, academics, and the private sector) began during the preparation of the CASCR inMarch 2004. These consultations showed that expectations raised duringthe 1994-1997 Poverty Assessment and concretized inthe 1998 CAS in terms of expanded Bank operational support and presencein-country had not been met. More extensive consultations were heldbetween October and December 2004 on the forthcoming CAS. Fourteen meetings were held, involving some 400 people, including one meeting with Parliamentarians ledby the Country Director. Most of the meetings were held inLibreville, but meetings were also held inPort Gentil and Franceville (see Annex 3). 72. The outcomesof the CASCR and CAS consultationsand the ClientSurvey are similar, even though differentclients were consultedduringeach exercise. Many clients and civil society members still wish the Bank to support the Government in providing welfare services, with little understanding of the sustainability and external debt implications. Improvements in the management of public resources and in the climate for private investment are prerequisites for success in other areas, and the Bank has a comparative advantage in working with Gabon in these areas. These views were shared by key decision makers in Government who do understand the problems and the role that World Bank Group support (including IBRDborrowing) should play. In some instances other development partners are better placed to assist Gabon in improving service delivery, often with grant resources. The client survey and consultations illustrate the need to better communicate the Bank's strategy, demonstrating how improvements in the management of both fiscal resources and natural resources will contribute to achieving the country's development goals in a sustainable manner. C. The WorldBank Group AssistanceStrategy (i) Strategic Focus and Selectivity 73. The Bank broadly shares the Government's development goals and objectives. In consultation with the Government and other development partners, the Bank has identified two areas of comparative advantage for its assistanceprogram. Both areas (or "pillars") contributeto the central cross- cutting themes of capacity development and governance. The first pillar of the CAS i s strengthening the management of public resources (both natural and financial) for improved social outcomes. The secondi s improving the investment climate to foster sustainable, private-sector-led growth. The pillars will be supported by the Bank through a combination of lending and non-lending activities, as shown in Table 8. -26- Table 8. PlannedWorld Bank GroupProgramFY05-09 FY05 FY06 FY07 FY08 FY09 Local Infrastructure GEFgrant Development US$lOm US$25m SupportGPRSP Support GPRSP Support GPRSP Support GPRSP SupportGPRSP preparation preparation implementation mplementation implementation Low Supportfor Supportfor Case HN/AIDS HIV/AIDS preventionand preventionand controlstrategy14 controlstrategy NGOParliament NGOParliament VGOParliament NGOParliament capacity capacity :apacity sapacity de~elopment'~ development levelopment levelopment 1st Natural Base Resources Case Management Lnfrastructure DPL Project US$25m US$15m Statistical PEWCFAAKPAR capacity development FIAS studies (Zndand 31dphase) FIAS Study , Poverty (I" phase) Infrastructure Assessment Framework Report EITI EITI implementation implementation } support support 2ndNatural Diversification MiningSector Resources pera at ion" High Review16 Management US$18m Case DPLUS$lOm Note: The point of eparturefor the Ch i s the Base Case 14 This representsan entry pointfor HIV/AIDS, to assist the Governmentto implementfunds fromother sources(e.g., the GlobalFund),andmanagetheir NationalHN/AIDS strategy. It is unclear if the Governmentwouldconsider usingIBRDto finance an operation, butthis option will bekeptunder review. 15 NGOParliamentaryCapacity Buildingwill be supportedthrough an increasednumber of consultationswith civil society; atargetedeffort to increase learningopportunities,throughWBIfor example, andpossibly anIDFgrant. 16 The miningsector work will review the mininglaw, includingspecifically the environmentalandregulatory requirementsinthe miningsector. 17 The plannedDiversificationoperationcouldbuild on the FIAS andIFRrecommendationsact as anumbrellafor natural resourcetransparency andaccountabilityinother sectors. -27- 74. The maincriteria for selectingBank interventions under the CAS have been whether or not the planned activity supports the two pillars,and whether or not the Bank is best placed to provide the needed assistance. The CAS includes, in addition to substantial non-lending support, three targeted lending operations that support both strategic pillars. The US$25 million Local Infrastructure Development Project expected for Board presentation in June 2005, i s designed to develop small-scale infrastructure in response to community needs and to instill transparent financing and public works contracting practices. Through the planned Natural Resources Management DPL in FY06 (US$15 million), the Bank will support the establishment of transparent natural resource governance and law enforcement practices in the forest sectors, capitalizing on the recent wave of reforms and opening the door for similar reforms in the fisheries and mining sector. This operation will also help improve the environment for investment by leveling the playing field and providing clear rules of access to investment opportunities (e.g. auctioning of forest permits). The US$10 million GEF grant will support the sustainable management and development of Gabon's national parks. The US$25 million Infrastructure Project planned for FY08 will be designed to improve the management of basic infrastructure to meet transport needs inthe country and will be complementary to other partners' programs. In the High Case, a FY09 US$18 million Diversification support operation will build on the recommendations of planned advisory work provided through FIAS, IFR, and EITI, and will develop the capacity of Gabon's private sector to contribute to economic growth. A FY08 Natural Resources Management DPL will build on the progressinthe forest sector, and pursue improved practices inthe fisheries, and mining sector. Pillar 1: Strengthening the management of public resources (both natural and financial) for improved social outcomes Improving efficiency and equity inpublic expenditures 75. The main instrument to achieve this outcome will be a combined Public Expenditure ReviewKountry Financial Accountability AssessmentlCountry Procurement and Audit Review, plannedfor completion in FY06. The aim of this activity i s to improve public expenditure management and control systems, ensuring that allocated funds are used for the purposes they were intended and that they achieve the expected results. It i s also expected that the exercise would incorporate a focus on poverty analysis, based on the results of the CWIQ survey and the GPRSP. The process i s planned to reinforce early implementation of the GPRSP by aligning budget planning to the GPRSP objectives. This exercise will be reinforced by statistical capacity development activities to improve governance and accountability and measureprogress in achieving results. 76. The implementation of the recommendations of the combined PEWCFAAKPAR report will be followed up through continuing dialogue between Government, other participating donors, the Bank and the IMF. A PER limited to expenditures in infrastructure across sectors, was carried out in 2000/2001 under the UrbanLIL. Among the findings, three are of particular interest inthe context of the current exercise: (i) more than 50 percent of the public investment program (PIP) i s allocated to infrastructure, but the execution rate i s very low (less than 20 percent of infrastructure projects were actually carried out among those identified in the PIP); (ii) given the significance of infrastructure in the PIP, the PER made some specific recommendations on how to carry out forthcoming PERs with a particular focus on infrastructure; and (iii) to the low execution ratio, much attention i s needed in the due management of public expenditures and public works contracts, which i s one of the objectives of the new Local Infrastructure Development Project. The last recommendation i s particularly important for ensuring the sustainability of SMEs, as contracts have suffered from poor management in the past (e.g., delays inpayments of greater than 250 days). -28- 77. Under the Local Infrastructure Development Project (US$25 million) expected to be presented to the Board inJune 2005, the capacity of localGovernments and community groups will be strengthened to address local needs with their own resources. This would help relieve an unsustainable burden on central Government. The project has been prepared by PAPSUT, a semi- autonomous technical unit under the Ministry of Planning and Economy. PAPSUT was previously responsible for the successful implementation of the Transport Sector Technical Assistance Project (approved in FY95 and closed in FYOO), under which strategies were prepared for transport and urban sectors, and for the Urban LIL which tested key policy features of the urban strategy. This technical unit has now acquired considerable experience in promoting community-based upgrading of poor urban neighborhoods in Gabon. 78. Through consultation and training programs, the Bank will help strengthen the role of Parliament and civil society to monitor resource revenues and public expenditures. Capacity development exercises and continued information sharing through consultation will help civil society acquire more effective ways and means to exercise their oversight role (for example, by participating in the EITI consultative committee, the Forestry oversight body, forest zoning processes and the management of community forests, and the public disclosure of relevant information, as well as the Urban Project's community consultations). WBI support will be mobilized to provide training to Parliamentarians and civil society leaders. An IDFgrant will also be sought for this purpose. Improving revenue mobilizationand ensuringsustainablemanagement of natural resources 79. Under the EITI, the Bank will support government efforts to increase the share of oil revenues transferred to the Treasury (see Box 4). The intermediate output of EITI will be the publication of a report comparing all relevant extractive industry revenues received by Government with amounts paid by E1companies, in a readily accessible and easily understandable format. An independent audit will ensure the integrity of the exercise, and appropriate legal, institutional, and financial arrangements will be put in place to ensure the sustainability of the process. The Bank will continue to provide advice and assistance to the Government in the various steps of the implementation process by providing information on the EITI, advising on the design of the associated information campaign, facilitating the dialogue with other stakeholders (civil society, companies), sharing other countries' implementation experience, andproviding comments on the reporting template and procedure. 80. The expected benefit of EITI will include an improved business environment, hence greater attractiveness of Gabon as an investment destination in the oil and gas and mining sector. In addition, the participatory approach involved inthe Initiative will help initiate abroad-based debate on better use of the country's natural resources. The training associated with the implementation of the Initiative will help improve the ability of the Executive to devise sector policies and of Parliament to oversee the implementation of these policies. 81. The two Natural Resources Management Development Policy Loans (FY06, US$15 million and FY08, US$10 million) planned for the CAS period, will help to cement the implementation of reforms for more efficient, transparent and sustainable exploitation of natural resources, thereby also contributing to public revenue mobilization. The first operation will build on the significant recent reforms already achieved in the forest sector (see paragraph 49), including the implementation of the reform agenda set forth in the 2004 Forestry Letter of Sector Policy which requires overcoming long- time vested interests. The operation will help continue to improve tax collection from the forestry sector, and will also lay the groundwork for future revenue growth from fishing and mining. Related key areas for improvement in managing natural resources which the operation will assist in implementing are: (a) improving pricing mechanisms and transparency in allocating and managing exploitation rights, licenses and concessions; (b) securing collection of fiscal revenues; (c) managing the resource base sustainably; -29- and (d) monitoring and enforcing contracts and laws, and applying penalties to reduce the appeal of non- compliance and secure a level-playing field. The choice of development policy loan as the instrumentof Bank assistance i s based on the desirability of linking financial support to implementation of reforms. The planned program will strengthen the voice of reformers and increase their capacity to overcome resistance from vested interests. The choice of two DPLs for natural resources management, with the secondbeing inthe High Case, will also help mitigate the risk of waning reform momentum. 82. The Natural Resources Management DPLs are also a first step in support of the Government's efforts to build a sustainable and responsible fisheries sector and to complement activities of other developmentpartners inthe sector, such as AfDB, EUand Japan. The operations would focus on: upstream analysis to prepare a coherent strategy for the sector's management and development; effective implementation of fisheries governance; greater transparency in order to lay the groundwork for sustainable management of fish stocks; building awareness of responsible fisheries; and buildingthe humanand institutionalcapacity requiredto effectively managethe sector. Completingand implementingthe GPRSP 83. The Bank will continue to support the GPRSPprocess by participatinginthe final stages of preparation and the early stages of implementation, in collaboration with other development partners and civil society. The focus of Bank assistance will continue to be expanding public participation in the process, improving the poverty database, supporting the development of statistical capacity, and developing mechanisms for future monitoring and evaluation, including strengthening their results-based orientation. These activities will be expanded and strengthened over time as the momentum of GPRSP implementation picks up. 84. As part of this program, a new Poverty Assessment would be undertaken for completion in FY09. This assessment will provide the basis for a more reliable analysis than was possible under the first Poverty Assessment. Together with the programs and sectoral strategies to be developed under the GPRSP, it will provide a stronger foundation for directing resources to poverty alleviation under the successorto this CAS. Addressing the challenge of HZV/AZDS 85. The Bank will seek to mobilize an IDF grant in FY06 to support institutional capacity development for the implementation of the National Strategy to Fight HIV/AIDS. The grant would be used to help strengthen government capacity to deploy resources secured from the Global Fund for HIV/AIDS control and prevention, to manage these resources efficiently, and to mobilize additional assistance. Pillar 2: Improvingthe investment climate to foster sustainable, privatesector-ledgrowth Improving the investment climate 86. The principalinstruments for achieving this outcome will be the IFR and FIAS studies and implementation of their recommendations, together with monitoringcriticalbusiness indicators. A first phase study has been conducted (see Box 1) and the Government has already held a workshop to agree on an action plan for implementing the recommendations. Work on the investment climate would also, as needed, address the remaining financial sector issues (see paragraph 23). In addition, the Government has set up a Good Governance Commission that i s designing a comprehensive Governance/Rule of Law Strategy. Government i s actively exploring donor interest in supporting, technically and financially, some of the components and activities of this strategy. Several donor-funded initiatives (AfDB, IMF,EU, and Canada) have components that address governance issues as well. -30- 87. Ina high-case lending scenario (see paragraph 102), preparationof an operation to support diversification and associated capacity development would be undertaken during the CAS period. Aside from policy and institutional reforms, possible components of such an operation would include capacity development initiatives for the private sector in selected growth sectors, including oil, mining and timber-related industries, and tourism where public and private partners will agree on specific measures to accelerate growth. In this context, the Government has expressed interest in replicating Bank-assisted experiences in supporting export diversification inother countries, such as Tunisia. 88. The diversification agenda will need to be accompanied by regulatory changes as well as technical skills upgrading in critical industry sectors. An overhaul of Gabonese technical training institutes and mechanisms to re-tool labor are needed as part of the investment climate reform. The MIGA guarantee supporting the vocational training project will support this need. International experience shows that the collaboration of the private sector in the implementation of national competitiveness enhancing measures i s essential. To facilitate this collaboration, a private-public dialogue platform would needto be established. Government's capacity in economic planning and policy making needs to be strengthened, as well as the information base for suchpolicies. Capacity development and streamlining of public sector functions in economic policy-making are equally important. Under the planned Diversification operation, appropriate resources will also be earmarked for activities aimed at strengthening the functioning of Gabon's law andjustice sector. 89. The two Natural Resources Management DPLs will help create more favorable conditions for future private investment in sustainable forestry and wood transformation industries. In addition, it will support the policy reforms and administrative capacity development neededto encourage future private investment in sustainable fisheries and mining. Parallel initiatives for biodiversity-related tourism activities will be supported through a GEF grant for the National Parks. Through this instrument of support, the Bank will help Gabon improve the incentive framework for attracting socially and environmentally responsible investors and creating more jobs, especially in the forest sector. The two operations will also support the promotion of national entrepreneurship, small-scale enterprises, and community forests. The potential of biodiversity and national parks to support the emergence of a Gabonese eco-tourism industry and createjobs in rural areas still needs to be developed. In addition, by removing distortions and encouraging law enforcement the two DPLs will contribute towards a level- playing field for private sector development inthe forest, fisheries and mining sectors. 90. Ways to strengthen the environment for public private partnership in infrastructure development will be analyzed in an Infrastructure Framework Report scheduled for FY06. Based on successful implementation of the recommendations from this report, it would be followed by an Infrastructure operation of some US$25 million in FY08. 91. The Mining Sector Review and support for EITI implementation will help to improve overall sector governance and efficiency and sustainability of investments in the mining sector. In addition it will assist with setting up and improving a framework and mechanisms for benefits sharing, and for the development of local communities. This Mining Sector Review, which would be undertaken only in a high-case lending scenario and would build on recent informal work by the World Bank Group on the mining sector, would promote the organization and formalization of artisanal and small-scale mining and encourage socially and environmentally responsible practices. Under the High Case lending scenario, these non-lending activities would be followed by lending for a second Development Policy Loan (US$lO million) for Natural Resources Management, and a Diversification support operation (US$18 million, FY09). -31- Building local capacity in theprivate sector 92. The Local Infrastructure Development Project will help develop capacity among small private contractors to carry out small-scale construction activities financed by neighborhood groups and local Governments. The Project will continue strengthening the skills of local contractors and consultants, and will assist them to find steady employment by earmarking portions of the Public Investment Program to be awarded through local competitive bidding for implementation by small contractors. (ii) RegionalDimension of the WorldBank Group Strategy 93. I t is important for Gabon to continue to exercise its leadership and to honor its commitments to the sub-region. Gabon's rich reserves and prime coastal location give it a fundamental role in continuing to improve the depth of regional integration in the CEMAC region. First, Gabon will need to help ensure that the CEMAC macroeconomic convergence criteria continue to be adhered to and that the system of multilateral surveillance functions effectively. Second, Gabon, together with Cameroon, will have to ensure that large transit taxes and administrative barriers to trade are progressively dismantled, and that transport logistics are strengthened (or facilitated), in order to improve the efficiency of the sub regional transit corridors and to protect the interests of the landlocked countries. Third, Gabon will need to honor its commitments to the regional compensation fund, which was set up to compensate the poorer, land-lockedcountries (e.g., the Central African Republic and Chad) for the loss of tariff revenues when they joined the CEMAC union. Finally, Gabon can act as a facilitator for sub- regional projects and initiatives in order to accelerate the momentum of regionalintegration. D. ScenariosandTriggers 94. Gabon is currently in the Base Case, based on the sustained recent improvements in macroeconomic and fiscal management under the IMF-supported program, and parallel progress inimplementingreforms and GPRSPpreparation. Inthe BaseCase, the lending programplanned for FY05 to FY09 i s around US$65 million, together with US$11.5 million in IDF and GEF grants. Lending in FY05 includes the US$25 million Local Infrastructure Development Project which builds on the successful experience of the Urban LIL. The first US$15 million Natural Resources Management Development Policy Loan (DPL) in support of the 2004 Letter of Sector Policy i s planned for FY06, associated with a US$10 million GEF grant which would support the sustainable management and development of Gabon's national parks. A US$25 million Infrastructure Project i s planned in FY08 in response to the client's request to receive Bank assistance to improve dilapidated infrastructure, notably roads. The Bank's support will complement projects financed under other donor programs, andwill focus notably on the enabling policy and institutional framework for infrastructure services. Finalization of the project will be predicated on measures to ensure its success being in place (e.g., a working second generation road fund). In addition, three IDF grants of US$500,000 each would be sought in FY06 and FY07 to support (i) institutional capacity development for the implementation of the National Strategy to Fight HIV/AIDS; (ii) capacity development to monitor the GPRSP; and (iii) capacity development for parliamentarians and civil society. -32- 95. Non-lending activities inthe Base Case include continuing support for GPRSP preparation, public financial management, private sector development, and capacity development. Specifically, informal work will include monitoring the macroeconomic environment, strengthening statistical capacity, and providing support for the national GPRSP process. Building on the Bank's current involvement, this support will focus on improving the quality of poverty data, building a performance monitoring and evaluation system with enhancedresults focus, and improving the scope and effectiveness of public consultations. The Country Office will continue to provide leadership in disseminating information about the Bank's program and carrying on continuing consultations with all relevant stakeholders, including development partners. Scheduled AAA outputs include, in FY05, the first-phase FIAS study (already completed) to improve the businessenvironment, and support for the implementation of the EITI. Planned FY06 outputs include second- and third- phase FIAS studies, an Infrastructure Framework Report, continued support for EITI implementation (leading to the publication of EITI compliant revenue reports), and a combined Public Expenditure Review, Country Financial Accountability Assessment and Country Procurement and Audit Review, as well as support from WBI for NGO capacity development. In FY09, the Bank would continue support to NGO and Parliamentary capacity development and the GPRSP implementation process, and assist the Government in completing a comprehensive assessment of poverty. 96. Up to now, IFC's direct investments have been modest, and have mainly involved natural resources operations where Gabon has a competitive advantage. IFC cumulative commitments in Gabon total US$226 million and have been in oil development, mining and pulp and paper. IFC also advised on the successful privatization of SEEG, the National Electricity and Water Company. In line with its strategic initiative for Africa, IFC's program i s centered on three major pillars: (i) a proactive role in the pursuit of direct investments; (ii) support to enhance the business environment; and (iii) active enhanced support to SMEs. In addition to the existing projects, IFC has a portfolio exposure for direct investments in Vaalco (a small offshore oil project) and Olam (a multi-country trading sector investment that includes forestry activities in Gabon). IFC i s currently processing a regional US$18 million infrastructure financing operation for a company whose largest operation i s in Gabon, and a proposed US$35 million financing for oil production expansion project with Vaalco. While the future focus will be on infrastructure and support to the sustainable development of the country's natural resources, IFC plans to enhance its field promotion activities in order to pursue bankable opportunities regardless of sector. 97. There is potential for IFC to play an increasing role in the promotion of small and medium enterprises in Gabon. IFC's most recent contribution on the SME front has included the delivery of nine training programs to women entrepreneurs, in collaboration with Gabon's national employment office. Further involvement i s being considered following the phase-out of the Africa Project Development Facility (APDF) and the introduction of Private Enterprise Partnerships for Africa (PEP Africa). PEP Africa will be a more sector-focused initiative where new programs will be designed and prioritized basedon criteria such as impact, integration with direct investment activities, and support from local authorities. Although in the short term direct investments will be IFC's primary focus in Gabon, over the medium term IFC will rely also on the contribution of FIAS to the improvement of the business environment. It should be noted that given Gabon's status of "resource-rich'' country with more than 50 percent of government revenues coming from extractive industries, favorable consideration by IFC of investments in the oil, gas, and forestry sectors also depends on the country's progress in improving transparency in the extractive industries. Government engagement in the EITI process i s an important step forward in this respect. -33- 98. Gabon became a member of M I G A in 2003. Since then, two projects have been presented to MIGA for consideration. One, the US$61 million Vocational Training Centers Rehabilitation Project, i s expected to be presented to the BoardinMay 2005. This project i s MIGA's first inthe education sector. 99. Other development partners plan lending and grant support in areas that complement the Bank's areas of comparative advantage (see Annex 5). Major lendingby other development partners foreseen for the CAS period includes 14 million from AFD (France) for priority drainage and sanitation improvements in Libreville, and 33.5 million from the African Development Bank (20 million for improving technical and professional education, and 13.5 million to support the social costs of privatization). AFD i s also interested ininvesting in the mining, forestry, fisheries, and transport sectors. The AfDB i s considering additional support to improve the business environment in the wake of privatization. Apart from these projects, most of the planned donor support will come in the form of grants, including substantial amounts from the EU, GEF, and France in support of forestry and biodiversity initiatives, rural water supply, education and health services, improved governance, and capacity development. 100. The above work program corresponds to the Base Case, which would be marked in particular by Gabon maintaining satisfactory macroeconomic performance and continued progress on the key sectoral reform agenda, notably in forestry. Under this scenario, it i s expected that the GPRSP would be completed and approved by Government and by Parliament before the CAS Mid-Term Review. Criteria for remaining in the Base Case would be: 0 Satisfactory macroeconomic performance as evidencedby, inter alia, a successor arrangement with the IMFfollowing the expiration of the Stand-By inJune 2005 and continued satisfactory performance under such an arrangement; Continuedprogress in the implementationof the forest reform agenda as evidenced notably by continued implementation of the moratorium on allocation of new permits until the new transparent auction procedures are implemented. In addition, even if the base-case criteria continue to be met, moving forward with the planned TO8 Infrastructureproject would require that a working second-generation roadfundbe inplace. 101. Failure to meet the above criteria would trigger the Low Case. The Low Case would involve no new lending and a reduced level of AAA support. However, the Bank would continue to support the GPRSP process and civil society consultation and capacity development activities of the Country Office. An IDFfor HIV/AIDS would still be sought inFY06. 102. The High Case would involve a modulatedapproach. Inthe first instance, if a track record of satisfactory performance inthe Base Case i s established and, beyond this, significant progress on reforms inthe natural resourcessector i s made, a secondNatural ResourcesManagement DPL (US$lO million) would be prepared for Boardpresentation inFY08. This operation would help sustain and further deepen transparency and accountability in naturalresourcesmanagement. Inputsfor this project would include the MiningSector Report in FY07. Criteria for movingforward with this operation would be: 0 Fullandeffective abolition of SNBGexport monopoly by January 2006, followingthe decision that was taken by Government to this effect in December 2004 (see paragraph 49); 0 Fullimplementationof EITIas evidencedbypublication of the reconciledreports of payments and revenues audited by an independent auditor, as well as establishment of an EITIcompliant mechanism for civil society oversight (see Box 4). -34- 103. Inthe HighCase, assumingperformancecontinuesto be satisfactory andconditions to accelerate improvement in the business climate are met, a Diversification operation (US$18 million) would be prepared for Board presentation in FY09. This operation would act as an umbrella to promote diversification andjob creation in non-oil sectors (both natural- resource-basedand others). Inputsfor this project would include the secondand thirdphaseof the FIASreport, as well as the InfrastructureFramework Report. Criteria for moving forward with this operation would be: 0 Completion of the privatization of Gabon Telecom as evidenced by the conclusion of a transfer agreement; and 0 Implementation of FIAS first-phase main recommendations (see Box 1) on procurement and property rights: (i) Regular publication of public procurement opportunities and contract awards, or implementingan equivalent measureto improvetransparency inprocurement proposed by the joint PEFUCFAA/CPAR; and (ii) Clarifying procedures and reducingdelays to secure definitive real estate titles, and informing the public of the revisedprocedures. 104. Monitoring and Evaluation. The relationshipbetween government goals and objectives, Bank objectives, instruments, outputs and outcomes are shown inthe Results Matrix inAnnex 1. Progress toward achieving the outcome indicators will be followed by the Country Office twice-yearly through systematized consultations and review of national economic and poverty indicators. A mid-term CAS review will be undertaken and aprogress report preparedby early FY07 (earlier if warranted). Onthe basis of this review, a move to the high-case lending scenario would be considered if the assessment justifies it. 105. The World Bank Group's work program will be coordinated with those of the other development partners, through the GPRSP process, sector-wide operations, and ongoing communication and consultation with other development partners present in Gabon, who also see capacity development as a key objective. The monitoring and evaluation system proposed in the GPRSP, once implemented, will serve to monitor future government performance on an agreedbasis for the entire donor community. 106. Bank Exposure. The portfolio risks are manageable in the CAS period. Creditworthiness indicators are moving in the right direction although the preferred creditor ratio will continue to increase due to bilateral debt being paid down and new financing from bilateral sources principally in the form of grants. To mitigate this risk new IBRDlending will be aligned to continuity of reform, including those in the forestry, miningand fisheries sector. Table 9: IBRD Debt Exposure Indicators 2001 2002 2003 2004 2005 2006 IBRDDS/publicDS 1.9 2.6 2.5 2.5 2.3 2.3 PreferredcreditorDS/public DS (%) 13.2 3.8 25.2 15.7 17.5 17.1 IBRDDS/XGS 0.7 0.7 0.7 0.7 0.9 1 IBRDTDO ($USmillion) 55 50 49 38 37 52 Sources: Government of Gabon, IMF, and Bank staff estimates -35- VI. MANAGING RISK 107. A key external riskaffecting the ability of this CAS to achieve the desired resultswould be a sharp drop in petroleum prices. This would undermine government revenues and put the country at risk of being unableto meet its commitments to the IMFand the Paris Club. Conversely, the persistence of high oil prices (above US$40per barrel) could reduce the incentive for transparency and trigger a shift to the low-case scenario. The current outlook is for world petroleum prices to remain stable (at the average of last year's levels), though there may be short-term fluctuations due to temporary imbalances between supply and demand. A related risk has to do with the ability of Gabon to maintain its current production levels. Production i s projected to decline and these projections have been taken into account inestablishing the medium-termframework. The risk of a sharper decline is relatively small, whereas the upside risk of discovering new reserves or new ways of increasing petroleum production from current fields is more significant. 108. There is a risk that Gabon's debt burden would again become unsustainable. The debt burden of Gabon i s substantial, but the country has recently improved its overall debt management strategy, particularly through Paris Club rescheduling, and the planned IBRD lending will not materially affect the country's debt position. The assumptions underlying the medium-term outlook however, are extremely sensitive to the development of oil production and prices and to non-oil output growth. If oil revenue windfalls are applied to debt reduction, this will help mitigate the risk that the debt burden would again become unsustainable. Continued donor coordination, as well as IMF oversight, should help to ensure that the Government does not embark on financing of overly large investment projects or again become involved inunsustainable borrowing. 109. A key internal risk is a departure from the recently-recovered sound fiscal management practices, which may occur in the context of the upcoming Presidential election or for other reasons. This could also disrupt relations with the IMF and limit the ability of the Treasury to meet budget requirements, with a consequent reduction in public expenditures for poverty alleviation or other development purposes. To mitigate this risk, the Bank and the IMF will seek to maintain a constant dialogue with Government to ensure that public expenditures remain on track. Failure in this area would mean that Gabon would move to a Low Case and would receive less support from the Bank. At the project level, training for project staff and effective supervision should maintain portfolio performance in satisfactory status. The PER-related exercise in FY06 should also help reduce the risk of delays in counterpart funding. 110. A related risk is that the commitment of Government to structural reforms will falter and/or that vested interests will succeed in preventing such reforms from being implemented. Currently, in part owing to the increasing urgency of oil reserve depletion and of diversifying the country's sources of income, a critical mass of government commitment to reform implementation i s apparent, with leadership from the senior-most authorities. Success in privatizing public enterprises, bringing the debt problem under control, gradually improving the transparency of forest resource management, and restoring the Road Fund has strengthened the hand of the reformers in Government. And unless the upcomingPresidentialelection brings about major change inthe policy direction espoused by the current administration, an eventuality viewed by most political observers as unlikely, government commitment to the ongoing reform process i s likely to be strengthened rather than weakened over the next five years. Technocrats, particularly younger ones, are increasingly aware that reforms are necessary to avoid a progressive undermining of the system and to preserve social peace, which i s viewed as increasingly fragile in many circles. A stronger role for Parliament, the private sector, and civil society will also help to hold the Government more accountable. This role will be underpinned by Bank and other donor activities to support improved governance and capacity development. -36- 111. There is neverthelesssome risk that the upcoming Presidential election would result in a major change of Government, bringing a new set of stakeholders to the table and slowing the pace of reform. While this risk i s considered to be small, in the event that it does occur, the Bank would undertake extensive consultations with members of the new Government to determine its commitment to the strategy outlined inthe present CAS and the appropriate course of action for the Bank to pursue. VIII. CONCLUDINGREMARKS 112. Gabon i s facing a great challenge. Replacing declining petroleum production with other sources of income will prove difficult: Gabon will have to dramatically increase the efficiency with which it uses its existing public resources; it will also need to improve the business climate to foster private investment inthe non-oil sectors. The World Bank Group has been askedto help Gabon implement the rightpolicies to ensure that the current window of opportunity -clear signs of commitment on the part of the country's top leadership to sound macroeconomic management and to implement difficult, far-reaching reforms - i s not lost. In partnership with other development partners, the Gabonese civil society and private sector, the World Bank Group i s well-placed to help Gabon succeed in diversifying its economy and improving social outcomes. -37- 00 c Q\I 3 -0 9 I- ANNEX 2. Capacity Buildingfor Parliamentarians Challenges: The Gabonese Parliament faces challenges in terms of its capacity to voice its constituents' needs and its contribution to designing and overseeing government-led initiatives. The first challenge i s political: in both chambers, the ruling party (Parti Democratique Gabonais (PDG) holds an overwhelming majority of seats. The remaining seats are held by weak opposition parties or parties that have allied with the PDG. Substantial amendments to government-submitted laws are rare, its policies are hardly ever questioned and very few legislative propositions are introduced by the Parliament. The credibility of both chambers i s therefore weakened, particularly that of the Senate which was created in 1996 and i s perceived as a venue for retired friends of the rulingregime. Their capacity to representtheir constituent's needs and concernsi s questioned. The lack of information available to the Parliamentarians constitutes a second challenge. They are poorly informed on key issues (such as NEPAD, the GPRSP process, and the HIPC initiative, including eligibility criteria) and on Government policies. Parliamentarians do not have easy access to negotiated agreements between the Government and third parties and are not aware of the international institutions' procedures and follow-up mechanisms. This situation undermines the Parliament's ability to question the executive and it also weakens its role of communicating and explaining policies and issues to member constituencies. The lack of institutional training of the members of Parliament represents a third challenge. Some members do not have a lot of experience in parliamentary procedure or in dealing with policy issues and are not fully aware of their functions and responsibility. Some members of the Finance Committee lack the necessarytraining to analyze the budget. BankResponse The Bank plans to assist the Parliamentarians by enhancing their capacity to shape public policy and represent the population through programs supported by WBI and/or the Country Office. These programs will consist of 1. Organize roundtables with both Chambers of Parliament to present the Bank, its procedures, and its relationship with Government and civil society. The members of Parliament asked for a sustained dialogue with the Bank during the CAS consultations. Quarterly meetings were suggested. 2. Finance training programs for Parliamentarians (on how to read a budget, on good governance, on control mechanisms, on issues relatingto responsibilities, etc.). Previous field visits to other countries have been much appreciated by the Parliamentarians who find them useful in terms of networking, knowledge-building and information gathering. 3. Encourage the Government to thoroughly involve Members of Parliament in the formulation and implementationof the GPRSP. 4. Assist Parliamentarians to better represent the interests of citizens in the policy process, particularlyinthe context of the GPRSP. 5. Promote dialogue and interaction between Civil Society Organizations and members of Parliament. 6. Assist in strengthening the internal organization of Parliament (for example, strengthening committee system, investing in Information and Communication Technology (ICT) so as to improve the researchcapacity of Parliamentarians). 7. Enhance public awareness of the role of Parliamentarians. 8. Support and coordinate actions towards Parliamentary capacity-building undertaken by other donors (UNDPfor example). -41- ANNEX 3. CAS Consultations The consultations for the CAS 2005-2008 were carried out between October 27, and December 20, 2004. Fourteenmeetings were held inwhich more than 410 people participated. The reasons behind this very extensive consultation processwere two-fold: first, the World Bank wanted to obtain a wide range of views and opinions from all sectors of society on the development needs and issues faced by the country and on suggestions on how the Bank could assist in addressingthose needs. Second, the Bank sought to respond to the necessity made apparentinthe evaluation of the previous CAS (1998-2004) of making itself more known on the ground and extending its outreach. The groups consulted included members of the Government, the Senate, the National Assembly and the Judiciary. The Bank also organized a significant number of meetings with civil society (non- governmental organizations, associations, unions, academia, private sector and the media). It was decided to hold separatemeetings with nationalbusiness associations and foreign employers, although both representing the private sector, as their concerns differ extensively. The Social and Economic Council, a constitutionally-entrenched advisory council composed of high-level representatives from every sector of society also took part in one meeting. Inaddition, the Bank sought the opinion of Gaboneseresidingoutside the capital. Two consultations took place incities inthe interior of the country, inbothcases with a cross-section of stakeholders. The first one was held inPort-Gentil, Gabon's secondmost important city and the country's petroleum and financial capital. The other was held inFranceville, Gabon's third maincity and the center of the country's mineralindustry. Besides representing Gabon's economic poles, these two cities were pertinent for the consultationprocess as they are bothbeneficiaries of Bank-financedprojects. The consultations, conducted by the Country Representative, were facilitated by a highly- respected member of civil society. The Country Director, on a mission from Washington, was present for the meetingwith the National Assembly. The feedback from the consultations has been sharedwith the government whose representatives participated in some of the events. Each of the consultations followed the same process. Either the Country Representative or the Resident Economist made a short presentation explaining the strategic pillars of the draft CAS 2005- 2008, its measurements and the risks that could impede its implementation. A brief presentation of the workings of the World Bank and a report of the conclusions of the last CAS (1998-2004) were also included in the presentation. A discussion followed, aimed at obtaining feedback on (1) the pertinence of the proposed Bank interventions to assist the Government's ongoing efforts to diversify the economy, generate employment in the private sector and address poverty; (2) the appropriateness of the proposed assistance scenarios and triggers; and (3) whether the development of a stronger civil society constitutes a means to increase transparency, good governance and better planning for social services delivery. To summarize briefly the main conclusions of the consultations, the direction and pillars of the draft CAS were broadly endorsed. However, the participants emphasized the need to improve the education system, invest in roads, develop the agriculture sector and curve the spreadof HIV/AIDS. In addition, the people consulted repeatedly askedthe Bank to establish a direct partnership with civil society, without the involvement of the Government of which they distrust the capacity and will to implement development-related projects and reforms. Becausethe World Bank's presenceinthe country has not been sustainedover the last decade, the participants also took the opportunity to voice their questions and concerns regarding the World Bank, its procedures and its relationship with the Government. It was thus an occasion for the Gaboneseto air grievances and for the World Bank to explain misunderstandings. It was agreed that the Bank needed to extend the dialogue and the outreach and inform the public of its activities in Gabon. -42- Overall, the stakeholders consulted appreciated the fact that they could express their concerns and give suggestions directly to representativesof the World Bank. This enthusiastic response to the consultations made it clear that a more systematic and sustainedparticipatoryprocess was in demand within civil society and was necessaryto achieve the proposed goals. See the table below for a detailed description of the points discussedduring each consultation, the comments regardingthe Bank's involvement in Gabon as well as the underlyingissues that shaped the orientation of the debate. -43- e m ANNEX 4. Country AssistanceStrategy CompletionReport Country: Gabon Dateof CAS: September 22, 1998 No ProgressReports PeriodCoveredby the CAS CR: September 22, 1998to June 30,2004 CASCR Completedby: Mehrnaz Teymourian, Country Manager Cynthia Cook, Consultant Date: September 16,2004 Background Gabon is a country of some 268,000 km2with a populationcurrently estimated at 1.3 million. An estimated 75% of the population i s concentrated in two cities (Libreville, pop. 450,000, and Port Gentil, pop. 100,000) and some 50 smaller towns. The country i s rich in natural resources, including petroleum, manganese and other minerals, and tropical forests. The rural areas are virtually empty (population density <2 persons/km2) as many residents have migrated to urban centers in order to access public services and to participate in an economy based largely on the redistribution of rents from resource extraction. The country has also received a significant stream of migrants from other countries along the coast, who are active in the formal and informal sectors of the economy. There i s a significant presence of foreign investors, mainly French, who have developed the nation's natural resources in partnership with the Government. Located on the west coast of former French Equatorial Africa, Gabon has played a strategic role in maintaining peace and stability in that region since its independence in 1960. Gabon has experienced extraordinary continuity in its domestic political regime. Its Independence hero and first president, Leon M'ba, died in office in 1967. The presidency was then assumedby Albert-Bernard Bongo (now known as El Hadj Omar Bongo Ondimba), the leader of the nation's single political party. In 1990 a new constitution was approved, establishing a multiparty system of democracy. President Bongo was re- elected in 1993 and again in 1998. In addition to maintaining relative social peace internally, the regime maintains close links to France and has played an important part in mediating conflicts in neighboring countries. Gabon aspires to become a leader inthe emerging Central African economic community. Gabon i s a rich country by African standards. With a GNP equivalent to about U S $4 billion, Gabon's per capita income i s over $3,000, making it ineligible for IDA borrowing. Revenues are derived largely from petroleum exports, with additional contributions from manganese mining, wood and wood products. Agriculture adds less than 10% to GDP, with the balance about evenly divided between industry and services. During the oil boom of 1973 to 1985, the government adopted a paternalistic approach to poverty reduction by promoting full employment, providing generous wages inthe public and parastatal sectors, and establishing an elaborate social security system. This approach brought benefits to the urban elite, which were further shared through family networks, and helped to trigger a massive rural exodus. -51- This approach was successfulinreducing the incidence of extreme poverty inthe country, but did little to reduce relative poverty. Furthermore, it encouragedthe growth of a dual economy, in which rural areas were marginalized and the output of tradable goods, particularly agriculture, decreased (the "Dutch syndrome"). The government invested heavily in capital projects and industries, assuming substantial debt in the process. Despite higheducation and health expenditures, the regressive design and inefficient management of these services made little impact on social indicators, making them comparable to those for poorer IDA-eligible African countries. The World Bank was involved with Gabon in the early years of independencethrough projects in roads, education, urban water supply, and manganesemining. Duringthe oil boom, however, Gabon did not see a need for IBRDborrowing. After the oil crisis in 1986, the Bank again supported Gabonthrough a Structural Adjustment Loan, a Technical Assistance Project aimed at improving macroeconomic management, and a Road Maintenance Project. However, due to deteriorating terms of trade for its principal exports and overvaluation of the CFA franc, Gabon's economic performance continued to weaken. The devaluation of 1993, accompanied by an Economic Recovery Loan and an IMF Stand-by arrangement, enabled Gabon to restore macro-economic stability. Gabon took the lead among Central African countries inrevising trade and investment incentives, reducing or eliminating barriers to trade and special privileges. In 1995 Gabon embarked on a more ambitious reform program supported by a three- year extended arrangement with the IMF. Though this program encountered internal and external difficulties in execution, it demonstrated the commitment of the authorities to improved macroeconomic management and restored growth. Gabon's first CAS was prepared in 1994 and accompanied the Economic Recovery Loan (ERL). A prior operation, the Forestry and Environment Project (FY 93), supported institutional reform and capacity buildinginthe forestry sector. The CAS also envisaged for FY 94 and FY 95 a quick-disbursing Public Sector RestructuringLoan, a Transport and Urban InfrastructureTechnical Assistance Project, and an Agriculture Services Project. For the outer years of FY 96 and FY 97, it anticipated lending support for human resource development, a policy-based operation in the transport sector, and investment operations in transport and urban development. The ERL closed on time with satisfactory ratings. The TransportAJrban TA Loan was approved as foreseen in FY 95, and was still under implementation at the time of the 1998 CAS. Progress on privatization was slower than expected, and the Privatization and Regulatory Capacity Building Project was only approved inFY 97. An Urban LIL,based on a successful pilot under the TransportAJrban TA Project, was approved in early FY 99. In addition, a Regional Environmental Information Management Project funded by GEF and based in Gabon was approved in FY 97. Inother sectors, the anticipated operations did not materialize. In 1995, the World Bank carried out a Poverty Assessment (PA)in Gabon. It analyzed data from the 1993 General Population Census and the 1994 Household Expenditure Survey (the latter limited to about 400 households in Libreville and Port Gentil), as well as from participatory discussions with poor people in Libreville and some towns of the interior. An urban absolute poverty line was established, based on the HES results, at about U S $700 per capita income or approximately twice the rural absolute poverty line of a dollar a day (US $365 per capita). The relative poverty line was set at the legal minimumwage, corresponding to a per capita income of about U S $1,450. Usingthese definitions, the study showed that while absolute poverty had dropped from 66% to 23% between 1960 and 1994, relative poverty had declined only slightly, from 87% in 1960 to 83% in 1994. There were dramatic differences in standards of living between the elite minority and the vast majority of the population, including many public employees who had to make their incomes stretch to meet the needs of large extended families. There were also important rural-urban and inter-provincial disparities inpoverty and social indicators. The report proposed the broad outlines of a poverty reduction strategy for Gabon. The priority goals proposed for such a strategy were: (a) reducing unemployment, (b) raising incomes for small -52- farmers, (c) improving basic public health, (d) rehabilitating the urban environment, (e) reforming social protection policies, and (f) establishing a reliable statistics system. The Bank study identified several preconditions for the success of such a program: disengaging the state from industrial and commercial activities and redirecting the resources saved to programs directly benefiting the poor; creating an enabling environment for private sector development that would promote the growth of labor-intensive rather than capital-intensive activities; and improving the transparency and efficiency of budget management by promoting community involvement in service provision and facilitating the emergence of NGOs. The Poverty Assessment was carried out under the guidance of an Inter Ministerial Technical Committee chaired by the Ministry of Planning, and in collaboration with other donors, notably UNDP and France. The PA and proposed strategy were discussedand disseminated at a national seminar in 1997, and its recommendations were formally adopted. Nevertheless it remained an externally driven study, with little real ownership from Government for the poverty alleviation agenda. Dialogue between the Bank, the IMF, and the Government of Gabon was made more difficult by the lack of local representation. In 1996 the Bank opened a small office in Libreville and assigned a Resident Economist to improve contact and communications with the country. In 1997/98, with Presidential elections approaching, the Resident Economist led the team that prepared the 1998 CAS, in consultation with other donors and with reform-minded members of the Government. A. LongTerm Strategic Goals The Government's long term strategy, as described in the CAS, was to reduce its dependency on oil revenues and foster private sector-led growth in other areas.' This strategy had three pillars: (a) maintaining a stable macroeconomic framework, (b) providing an enabling environment for private sector development, and (c) developing policies to diversify the economy. Under macroeconomic stability, the Government's stated goals were to broaden the tax base, reduce the tendency to respond "pro-cyclically'' (that is, by increasing public expenditures and employment rather than decreasing them) to external shocks, and complete the ongoing program of trade liberalization. The program for private sector development included increasing the pace of privatization, improving the legal and regulatory environment, implementing a National Employment Plan, and reducing infrastructure bottlenecks, in particular, adopting a strategy to guide urban development. Action to diversify the economy would be based on a rural development strategy that would address the potential for smallholder development of perennial crops in connection with the privatization of Gabon's major agro-enterprises, promoting the wood transformation industry, and exploring the potential for further development of fishing and tourism, as well as support services for extractive industries. Poverty alleviation and the other Multilateral Development Goals (not yet articulated in 1998) did not appear among the Government's long term objectives. The CAS states that the Gabonese authorities wished Bank support in preparing a medium-term development strategy that would be based not only on the goals outlined in Gabon 2025, but also on the poverty reduction strategy proposed by the Bank and adopted by Government in 1997. Based on the assumption that the Government agreed with and accepted the Bank's analysis, the CAS described the second and third objectives of the Government's development agenda as "addressing deficiencies in human development" and "reinforcing the capacities of civil society." To implement the second objective, it would be necessary to improve the delivery and management of public goods and services, including health and education, social protection, environmental management, and poverty monitoring. 1 The documentarybasisfor this strategy is not clear. The CAS cites Gabon 2025, along-termvision study prepared with UNDPfinancing. -53- In addition, the management of public finances would need to be improved, and civil service reform would be needed to build the capacity to implement poverty-oriented reforms. The third objective, reinforcing the capacity of civil society, was seen as a key element in improving governance and the sustainability of economic reforms. Duringthe CAS periodand beyond, the Government made limited progress towards achieving its long-term goals. Economic growth stagnated, although non-oil revenues increased slightly replacing somewhat the declining oil revenues. The tax base was broadened marginally and the program of trade liberalization was largely completed. However, the Government did not succeed in adopting countercyclical expenditure policies, nor did it succeedin convincing lenders to restructure or reduce its external debt. Progress on privatization was slow and uneven, despite strong support from the Bank and the IMF. Various reforms designed to improve the legal and regulatory environment for the private sector have been prepared, and some have been adopted. However, they are yet to become effective due to capacity constraints as well as resistance from vested interests. An autonomous Road Fund was established to manage and maintain the nation's road network, and concessions were awarded to the private sector for the management of key ports. Major difficulties were encountered in an attempt to privatize the operations of the railway, and pre-privatization restructuring has only just started for Air Gabon. An urban development strategy was adopted in 2000, but it has not yet been implemented. As a result, relatively little progress has been made on diversification of the economy. Duringthis same period, a dialogue was initiated and maintainedbetween the Bank, supported by the IMF, IFC, and other donors, and the Government, through which some progress has been made towards developing a commitment to poverty alleviation and good governance as proper roles for the State. This processculminated in the preparation of an InterimPoverty Reduction Strategy Paper adopted byGovernment inlate 2003. The poverty alleviation agenda as outlined in the CAS was clearly too ambitious given the limited Bank resources that could be devoted to supporting this effort. Although current data are largely unavailable and existing data are unreliable, social indicators seemto have worsened, if anything, over the CAS period. Members of the Government of Gabon were consulted during the preparation of the CAS, butthe Government never formally agreedto accept it as their own. B. CAS Objectives Based on previous experience, the CAS team concluded that policy dialogue, ESW, technical assistance, and an active presence in Gabon had been more effective instruments of assistance than project lending. Thus, the CAS recommended that the Bank's assistance should be aimed at catalyzing domestic and international partners to help the Government address poverty. The objectives of the CAS were stated as: 0 Support reforms inpublic finance management with a focus on poverty alleviation sectors, 0 Help establish or reorient sector strategiesinkey areas where they would have a direct impact on poverty, 0 Foster transparency and improved governance, and 0 Support the privatization process while leveraging other donor resources in support of private sector development. The CAS envisaged two assistance scenarios for the period 1999-2001. Under the Base Case, macro-economic stability would be maintained as evidenced by compliance with an IMF program; the Government would make satisfactory progress in formulating a Medium-Term Expenditure Framework -54- for health, education, and rural development; progress on privatization would continue; and the Bank portfolio would remain in satisfactory status. Given this scenario, the Bank envisaged two new lending operations, a Public Sector Reform TA Loan and a Railway Rehabilitation Project, as well as substantial non-lending support to improve budget management and the effectiveness of social sector expenditures. The Low Case would be triggered by a lack of compliance with any of the above criteria, and would involve no new lending operations and a more limited provision of non-lending services. Specific actions and progress indicators were set out in an annex table, organized around the three pillars of (i) fostering non-oil private sector led growth, (ii)strengthening public sector effectiveness and efficiency, and (iii) building civil society capacity (see Annex A to this report). The matrix showed proposed outcomes and progress indicators for the Government of Gabon as well as for the Bank program. In fact, the achievement of the Bank program depended heavily on the Government's doing its part; the Bank program was mainly to provide technical advice and to comment on Government proposals. The matrix shows that the strategy relied heavily on policy advice to accomplish the objectives, and also on the cooperation of other development partners. A summary table on the following page shows the CAS objectives and the instruments that were expected to help achieve those objectives. Although little new lending was proposed, the strategy relied on sector dialogue that was ongoing under existing projects (Transpoflrban TA, Forestry and Environment, and Privatization TA) and the demonstration effects expected from the recently approved Urban LIL. In addition, an IDF grant had recently been approved to help the Government increase capacity inthe civil service. The lending and non-lending programs foreseen in the CAS and actual results are shown in Annexes 2 and 3. The CAS promised that key parameters, including shifts in the numbers of people below the poverty line, increases in educational attainment, life expectancy, and changes in infant mortality and AIDS morbidity would be monitored in collaboration with Gabonese authorities, while semi-annual joint IMF/Bank missions would monitor macroeconomic performance. In summary, the CAS called for the Bank to play the role of "Knowledge Bank" for Gabon rather than that of a traditional lender. -55- Objectives Instruments Partners Fostering non-oil private sector-ledgrowth Maintainmacroeconomic Policy advice LTvlF stability Public Sector ReformTA WWF (for debt swap) UNDP (training) ~ Promotetrade Policv advice IMF Promotethe private sector (a) Continueprivatization PrivatizationTA IMF,IFC,AfDB, UNDP (b) Ruralsector strategy Public Sector ReformTA France,AfDB, other donors (c) Institutional framework Policy advice L O , IMF,AFD, UNDP, FIAS, Forestry and EnvironmentProject MIGA, UNDO Transport/Urban TA PrivatizationTA (d) Financialsector deepening Policy advice IMF,NGOs, Canada, UNDP, PrivatizationTA AfDB UrbanLIL (e) Readaptlabor force to market Policy advice IMF,L O needs Public Sector ReformTA (f)Improveefficiencyof the Policy advice IMF, AFD, AfDB transport system RailwayRehabilitation Transport/Urban TA PrivatizationTA Strengtheningpublic sector effect enem and efficiency Building capacity inthe civil Policy advice service Capacity Building Initiative Public Sector ReformTA Policy advice management Public Sector ReformTA EU,AfDB, AFD Support fromED1(WBI) Capacity BuildingInitiative Transport/Urban TA UrbanLIL IEnsuringeffectiveprovisionof Policy advice WHO, France,EU, AfDB, Public Sector ReformTA Canada, UNFPA, UNICEF (b) Education Policy advice France, EU,AfDB, UNICEF, Public Sector ReformTA UNESCO, Canada, ILO, UNDP Policy advice L O , IMF PrivatizationTA (d) Environmentalprotection Policy advice IMF,GEF, UNDP,France, i Forestry andEnvironment Canada, WWF, AfDB Public Sector ReformTA e) Informationandknowledge Policy advice GEF, IMF,UNDP, WHO, management PrivatizationTA UNICEF, UNFPA RailwayRehabilitation Capacity Building Initiative UNDP, UNESCO,UNFPA, ED1(WBI) UNDP -56- Implementation. Gabon has wavered in and out of the Base Case since 1998. Compliance with IMF programs has been uneven; substantial slippage occurred in the implementation of the 1995-97 Extended Fund Facility and the 18-month Standby Arrangement approved in 2000. Problems in macroeconomic management were experienced in 1998 when oil revenues exceeded expectations, and again in 2002/3 in connection with municipal and parliamentary elections. However, in each case the authorities took steps to put the country back on track. The Bank and the IMF have worked closely together to carry out the macroeconomic dialogue and to support the development of domestic budget management capacity. Progress on privatization has continued, albeit slowly, and the Bank small portfolio has generally remained in satisfactory status. However, counterpart fundingof ongoing projects has been slow to materialize, and disbursements have been slow, necessitating the repeated extension of existing projects in order to accomplish their objectives. The Government, with the support of UNDP, has taken initial steps towards preparing a poverty reduction strategy, but has not yet reached the point of formulating a Medium-Term ExpenditureFramework for health, education, and rural development. To assist the Government in preparing the proposed Public Sector Reform TA Loan, the Bank secured a PHRD grant of $750,000 to Gabon in August 1999. A unit was set up within the Planning Ministry to coordinate project preparation. The grant was to be used (1) to help finance the development of social sector strategies, (2) to support an expenditure programming and debt management workshop and a pilot debt swap, and (3) to develop poverty indicators and projections as a baseline for the future PRSP. The grant was administered by the Bank and financed the contributions of several international consultants. However, the Government did not consider that the work of these consultants responded to their priority needs. In response, the Bank agreed to reorient the agenda more towards macroeconomic management than poverty alleviation. Ultimately, however, the Government informed the Bank that it did not intend to follow through with a request for a Public Sector Reform TA Loan. The Bank then offered to help prepare and supervise the project (which the Government said it would finance with domestic resources), if the Government would reimburse the Bank's costs. The Government refused this offer, and the Bank closed the PHRD grant on June 30,2001. The Public Sector Reform TA Loan did not materialize.* Policy dialogue continued through ongoing consultations with the BanMIMF team and through the implementation of ongoing projects. The Transpoflrban TA Project was closed in March 2000, four years after the original closing date, with a satisfactory rating. The project supported the development of transport and urban sector strategies and led to a Transport Sector Donor Roundtable in July 1998 which was expected to serve as a model for similar roundtables in other sectors to be carried out under the 1998 CAS. The project also carried out a pilot program of community-based, labor- intensive urban infrastructure improvement in the AvCa neighborhood of Libreville. T h i s program became the basis for the Pilot Community Infrastructure Works and Capacity Building Project (Urban LIL)approvedinAugust 1998. The ForestryEnvironment Project, started in FY 93, closed on June 30, 2002, four years after its original closing date. Its outcome was rated satisfactory3 but its sustainability unlikely unless followed up by a second project. The project aimed to restructure and strengthen the Ministry of Water and Forestry and the Ministry of Environment, Tourism, and National Parks, as part of the Government's overall effort to diversify sources of revenue away from oil. It also included research, training, and pilot activities in sustainable forest management. It supported the development of a revised Forestry Code, which was adopted in 2001, and a reform of forestry taxation, reflected in the Budget Laws of 2002 and 2003. It prepared a number of further proposals for administrative reform and capacity building whose 2 Earlier, Gabonreceiveda similar grant to preparean Agricultural ExtensionProject, which was fully disbursed, but the froject was dropped. This rating was revisedto "Moderately Satisfactory," an option not availableto ICR authors, by OEDreviewers. -57- implementation would be supported by the Forestryhvironment Sector Program currently in preparation. The PrivatizationTA project, approved in FY 97, carried much of the burden of implementing the 1998 CAS goals related to private sector development. It was moderately successful in doing so, although progress was slower than anticipated. The project has funded studies and direct technical assistance to the Government, not only in the field of privatization, but also in broader capacity building activities related to the creation of an enabling environment, including a legal framework, for private sector development. Goals that were established for FY 01 are nearing accomplishment towards the end of FY 04. Originally scheduled to close in June 2001, the project was extended three times and closed in June 2004. The Urban LIL, approved just prior to the 1998 CAS, has made a substantial contribution with a strong demonstration effect in mobilizing urban neighborhoods to improve their living conditions and in strengthening the capacity of small contractors. Expected to close in December 2001, the project was extended twice and closed in June 2004. It has successfully modeled a participatory approach to small- scale infrastructure planning with the involvement of local (chefs de quartier) and municipal authorities. It has succeeded in generating employment in the urban neighborhoods selected for the project and in stimulating the growth of small enterprises. Recently, the project unit (formerly the unit in charge of the Transpoflrban TA Project) has conducted a review of planned public expenditures in the health and education sectors to identify additional infrastructure projects that could be carried out using a similar approach, thus providing sustainability to the project. It i s believed that a new lending operation will be needed to sustain Government commitment and scale up the programto meet the needs of Gabon's urban population. Dialogue in the transport sector has continued with the aim of preparing the ground for the proposed Railway Rehabilitation Project or a similar operation. However, the process of concessioning the railways encountered numerous difficulties. Other problems cropped up in the management of the public expenditure program in transport, which has not always been consistent with the transport sector strategy adopted under the Transport/Urban TA Project. In short, the policy environment never reached the point where an investment in railway rehabilitation could be justified, and the project was finally dropped from the lending program. Thus, there has been no new lending to Gabon since the 1998 CAS was approved. Non-lending support has been provided through continuing policy dialogue involving the IMF and the World Bank, as well as ajoint Financial Sector Assessment carried out in FY 03. The Bank also assisted the Government in developing a new Procurement Code, adopted in FY 03. The planned Rural Development Strategy was never budgeted by the Bank, as the Government expressed no interest in it. Internal Bank resources were allocated for a Country Economic Memorandum, but no memorandumhas yet been produced. The position of Resident Economist was upgraded to Resident Representative in 1999, and staff and logistical support were added to the Country Office. However, the new Resident Representative did not succeed in establishing a constructive dialogue with Government. He returned to Washington in 2001, and the post remained vacant until January 2003, when the current Resident Representative arrived inGabon. Generally, the ongoing projects have remained in satisfactory status. Overall some policy dialogue has been carried out, and certain policy changes have been accomplished. Some projects had a slow start because of the unfamiliarity of project staff with Bank procedures after a long period when the Bank had not been involved in that sector. Timely counterpart funding has always been a problem, and -58- the need for close control of procurement activities has also slowed disbursement^.^ As a result, all the ongoing projects have been extended to the limit, typically taking three more years to complete than originally planned. The CAS identified three short-term risks to the Bank's strategy: (1) delays following the forthcoming presidential elections; (2) regional instability due to civil unrest in neighboring countries, and (iii) further declines in oil and commodity prices. Over the longer term, major risks related to progress (or lack thereof) on governance and institutional capacity issues. The short-term risks did not materialize. Presidential elections took place as scheduled and did not cause major delays, although they may have been related to some slippage in the implementation of the IMFprogram. Unrest did occur in neighboring countries, particularly Congo and CAR, but this has not resulted in significant spillovers, either of conflict or of refugees, into Gabon. Oil and commodity prices have fluctuated but have not declined enough to jeopardize the implementation of the Government's expenditure programs. It was slow progress on governance and institutional capacity building that impeded the implementation of ongoing projects and the development of new lending. The CAS did not foresee the risk of the Government's taking advantage of Bank technical assistance and grant support without following up by borrowing. It was correct in identifying the longer- term risks, but failed to recognize that these same risks could have significant short-term effects that would impede the realizationof CAS objectives. Fostering non-oil private sector-led growth. Performance in this area was mixed. Many of the specific actions identified in the CAS as performance indicators have in fact been carried out (although many would not have been done by the end of the official CAS period in October 2001). With respect to the maintenance of macro-economic stability, the Government has performed reasonably well on the revenue side, but has not succeededin controlling expenditures or in significantly reducing external debt. Some capacity building has taken place, but more i s probably needed; more important i s the fact that technically competent civil servants are unable to impose financial discipline on political decision- makers. On trade promotion, the necessary actions have largely been taken. The privatization program has continued with moderate success, although substantial resistancehas been encountered with respect to transport, telecommunications and postal services. One goal that seems unlikely to be met before the end of 2004 i s the creation of a mutual fund for the placement of Government-owned minority shares with the public. With regard to the legal, regulatory, and institutional framework for private sector development, the results are also mixed. New Mining and Forestry Codes (but no PetroleumCode) have been adopted, and revisions to the Law on Competition, the Labor Code, and the Social Security Code have been studied and discussed, though not yet adopted. Studies are still underway for the restructuring of the National Social Security Fund. Price controls have been largely eliminated, but remain on items of "primary ne~essity."~The Department of Price Controls has been legally renamed as the Department of Competition, but its administrative culture remains unchanged and the public i s unclear about its new responsibilities. Some training has been provided to the judiciary, and the Journal oficiel has been published regularly. New institutions have been established to regulate and promote the private sector, but their capacity requires considerable strengthening in order for them to be effective. No regulatory agency has yet been established for the recently privatized water and electricity services. 4 Inthecase of the ForestryEhvironmentProject,the 1993devaluationalso doubledthe funds available(andthe requirementsfor local counterpartcontributions), which contributedto delays inimplementation. 5 The continuationof price controlson primary commodities(including pharmaceuticals,petroleumproducts, bread, sugar, schoolmaterialsandsupplies)is partof a recentlynegotiatedagreementbetweenGovernment, industry, andlabor, whereby labor has promisedto refrainfrom strikes for aperiodof three years, andGovernment will pay its debts to the private sector. -59- The situation of the financial sector i s relatively satisfactory, although banks remain exposed to risk from loans to public enterprises and government suppliers, as well as from the narrow (non- diversified) base of private investment. Access to micro-credit has very recently improved, with support from AfDB and bilateral donors. However, the situation with respect to credit for small and medium enterprises and industries i s still not very satisfactory. Large numbers of loans outstanding and new requirements for group guarantees limit the capacity of banking institutions to respond to the needs of this sub-sector. Little progress has been made with respect to adapting the labor force to meet market needs. In the transport sector, the reform agenda set forth in the transport sector strategy has been only partly implemented. As a result, transport costs related to internationaltrade have not declined significantly. Strengthening public sector effectiveness and efficiency. Performance in this area has been disappointing. With respect to administrative reform, the program i s proceeding slowly. This i s partly due to a recognition that changes in administrative structure should follow, rather than precede, the elaboration of sector strategies in the context of a national development strategy based on poverty reduction as well as economic growth. The CAS assumed that sector strategies would be prepared shortly after the PA workshop, and that administrative reforms would follow in due course. In fact, the preparation of sector strategies related to poverty reduction has been slowed by data difficulties, partly reflecting a lack of political will, and has not been followed closely by the Bank. Relatively little has been accomplished interms of improving the management of public finances. Some studies which were to have been financed under the PHRD grant, concerning development of a debt management strategy and promotion of the country's competitiveness, did not take place because the grant was cancelled. Lacking sectoral strategies, the Government was unable to develop a Medium-Term Expenditure Framework. A budgetary information system has been put in place with support from the Bank and IMF. However, it i s still too soon to say if this system will effectively improve expenditure control. A poverty monitoring system has not been put in place, although funds from the PHRD grant were used to support a Demographic and Health Survey carried out in 2000 which could provide some data elements for such a system. The Africa Capacity Building Foundation has carried out some training for parliamentarians, but this support has not enabled Parliament to exercise real budgetary oversight so far. In the health and education sectors, progress was also limited by the lack of action on sector strategies. Under the PHRD grant, support was provided for the preparation of a carte scolaire and a carte sanitaire, as well as for a study on education unit costs. The unit cost study was completed, but the two cartes are still in preparation. When the Bank was no longer actively involved, other U.N.agencies stepped in to help the Government work on these sector strategies. Unfortunately, severe data deficiencies have greatly constrained the effectiveness of their support. Meanwhile, social indicators appear to have worsened over the CAS period.6 With respect to social protection, the only progress made was the reassignment of financial responsibility for three hospitals from the National Social Security Fund to the Ministry of Health. The continued viability of Gabon's social protection system is now seriously in question, with declining revenues and rising rates of unemployment. On environmental protection, despite an ambitious CAS agenda, little has been done either by the Bank or by Government, except inthe context of the ForestryEnvironment Project.' 6 Data on these indicators shown in Annex A are drawn from the Government's Tableau de Bord Social, no. 2 (September 2003), covering 1996-1999. 7 However, the recent creation by the Government of thirteen new NationalParks and proposals to set up an autonomous agency for park management should be commended here. -60- The Bank did not follow through on its promise to conduct an Information Assessment for Gabon. In addition to the Demographic and Health Survey mentioned above, the Government conducted its decennial census in 2003; however, this did not include household budget information, and the results will not be available for some time. A recent Bank mission in the context of the PRSP assisted the Government in defining a survey which could be carried out quickly and could provide the basic data on which a poverty monitoring strategy could be built. The Bank i s now helping the Government seek grant funds to carry out such a survey, in order to prepare a satisfactory PRSPbeforethe end of calendar 2004. However, the broader agenda of promoting transparency and public involvement through dissemination of government information has hardly been addressed, as shown by the consultations undertaken in- country for this report. Building civil society capacity. The CAS agenda in this area was not very explicit, and it depended to a great extent on the activities of other partners. Two clearly stated objectives, the adoption of a Family Code and the adoption of a National IEC Strategy, were not accomplished. The Bank did not provide any practical support for these objectives. Little was done to build the capacity of domestic NGOs, either by the Bank or by other donors.' The program of the Africa Capacity Building Foundation did not extend to NGOs. The Bank team did not take action, as promised, to involve ED1(WBI) in this area. Without any particular help from the Bank, the Government succeeded in maintaining civil peace and providing leadership for the resolution of regional conflicts. Exogenousfactors. The implementation of the Government's program has been perturbed from time to time by fluctuations in oil revenue and by civil conflict in neighboring countries. However, these events were not of sufficient magnitude to be considered major external shocks. The Government has remained remarkably stable over the period (and indeed, over the last forty years). It has become increasingly aware of the burden of external debt and the limitations that this imposes on its ability to alleviate poverty, especially in the context of declining oil revenues and the inherent weaknesses of the rent redistribution system. The Government, with the support of UNDP has prepared an Interim PRSP and i s currently working on a full PRSP with assistancefrom the Bank. Unintended impacts. Because of the relatively light "footprint" of the Bank's program in Gabon, there have not been any unintended negative consequences, social or environmental, during the period covered by the CAS. The ForestrylEnvironment Project made a small contribution to improving the management of existing protected areas, complemented by the activities of other donors. Implementation of sustainable forest management practices through application of the revised Forestry Code may be of greater significance to Gabon's future. The failure to develop a Petroleum Code means that an opportunity to address the environmental aspects of this key sector has been missed. The TransporWrban TA project was expected to support preparation of environmental assessment guidelines for the transport and urban sectors, but these were given a lower priority than other planned outputs and were not accomplished under the project. On the social side, there is considerable public concern about the privatization program going ahead in the absence of funding for social plans for affected employees. In fact, this has not happened, but it i s one of the reasonsfor delayed implementation of the privatizationprogram. Originally the social plans were to have been funded by an AfDB loan. For a while, this funding was interrupted due to non- payment of Gabon's arrears to AfDB, and consequently some privatization activities could not be completed according to schedule. This problem has now been resolved and AfDB funding has been resumed; while the Bank`s project will come to an end in June 2004. In contrast, the community 8 The RegionalEnvironmentalInformationManagementProject, fundedby GEF andother donors, providedsome capacity building supportto environmentalNGOs inGabon and elsewhere. -61- mobilization activities pioneered by the Urban LIL has empowered some of the relatively poor to take responsibility for meetingtheir own infrastructure needs. C. Measuring Bank Performance Quality of products and services. Generally, where the Bank managed to be present, its contributions in the areas of both lending and non-lending are regarded as having been of high quality. The Urban LIL has received numerous commendations for excellence. The two projects closed during the CAS period (Transpodurban TA and ForestryEnvironment) have been rated as satisfactory, though sustainability i s believed to depend on follow-on lending operations. The Bank has worked closely with the IMF and also with IFC and MIGA to assist the Government in achieving its objectives of diversification away from oil and promoting growth through private sector development. There have been three QAG reviews of operations in Gabon duringthe CAS period: a Quality at Entryreview of the Urban LILin 1998, a Quality of Supervision assessment of the same project in 2002, and Quality of Supervision of Risky Projects review of the ForestryEnvironment Project in 2000 (previously reviewed by QAG in 1997). The Urban LIL was rated Highly Satisfactory at entry and Satisfactory in supervision. The ForestryEnvironment Project was rated Marginally Satisfactory in light of the Government's lack of early commitment and substantially delayed implementation. The CAS outlined an ambitious agenda which was supported by a small, though well-placed, cadre of reform-minded members of the Gabon Government. It did not have broad based ownership at the time, particularly with respect to the objectives of promoting greater transparency in government and a stronger focus on poverty alleviation in public expenditure management. While the Government agreed inprinciple, it was unwillingto borrow (on IBRDterms) for the implementationof such activities. There was also likely to be strong resistance on the part of vested interests in the different sectors, as illustrated by the experience of ongoing projects in transport and forestry as well as by the privatization program. During the CAS period, the Bank wisely refrained from pushing the Government to prepare new lending operations, instead devoting its limited budget to policy dialogue and supervision of ongoing operations. Over time, through extended dialogue with the Bank and IMF and other members of the donor community, and with grant support extended by other bilateral or multilateral donors, the Government has gained greater understanding of the need for improving transparency, as part of its efforts to promote private investment, and for addressingrelative poverty. From the Bank's point of view the need to limit intervention to those sectors in which Gabon i s willing to accept help from the Bank means that in practice Bank support i s concentrated in the infrastructure and PSD sectors, while education, health, and rural development (except for forestry) go unsupported by the Bank. Continuing poor performance by Gabon on the development indicators used to program Bank budgets limits the resources available to provide "free" technical assistance. A large share of these resources i s consumed by joint staff work with the IMF and by the costs of maintaining a fully equipped Country Office. Limited resources also have a demoralizing effect on the Bank country team. Lack of opportunity to work on Gabon means that the country gets a low priority from sector managers and high turnover among technical staff. Gabon has had six different Country Economists over the past six years, and for two years was without a Country Economist all together. In-country consultations on the results of the CAS reveal that its structure and contents were virtually unknown outside the Ministry of Planning, and even by some mid-level officials within the Ministry. Although the CAS was translated into French, no copy in French could be found anywhere in Government, in the Resident Mission files, or in Washington. The Englishcopy in the Ministry of Plan files did not include Annex B9, the performance matrix. Given this lack of information, most interlocutorsrefused to comment directly on the results of the CAS. Their comments revealed a mistaken belief that the Bank (in collaboration with the IMF and the international community) i s only concerned -62- about opening Gabon markets to international trade and cares little about the consequences in Gabon. They thought the Bank had abandoned the poverty agenda. They see little benefit to Gabon from privatization, and fear the consequencesin terms of unemployment and social unrest. A common theme was resentment about not being considered eligible for IDA funding (including for HIV/AIDS) or for the HIPC Initiative. The Bank did not meet the lending targets established in the CAS, as they were not consistent with the real intentions of the Government (Annex B). Country dialogue and coordination with other donors has continued, when a bank representative was present in the country, in an effort to prepare the ground for future lending operations that may be more likely to prove sustainable. In the meantime, the successful execution of ongoing operations has developed support for their continuation, and created domestic capacity to prepare and carry out new operations inthese sectors. The 1998 CAS did not present clear targets and dates for non-lendingdeliverables (see Annex C). The promised Rural Sector Strategy and Information Management Assessment were not delivered. A Country Economic Memorandum was not promised, but was budgeted, although not delivered as a document. On the other hand considerable unplanned non-lending support has been provided in response to requests from the Government and other development partners (notably the IMF). The subjects of this support (financial sector assessment, review of the procurement code ,budget management information system, poverty monitoring) were consistent with CAS objectives, although they are different from what was foreseen in the CAS. They reflect a growing emphasis on governance issues, with a corresponding decreasedemphasis on poverty issues. Portfolio assessment. With four projects in the portfolio in 1999, and only two after 2001, portfolio indicators based on averages could be misleading. Disbursement ratios reached a high of 48.2 in 2001 when the ForestryEnvironment Project came to a close, dropped to 28.9 in the next year and rose to 35.5 in 2004. Both ongoing projects (Privatization TA and Urban LIL) were rated as projects at risk and problem projects in 2003, but these problems were resolved and the risk rating removed by 2004. Typically, projects have taken longer than expected to be implemented, with a current average of 6.2 years. Three completed projects have been evaluated by OED inthe last five years (Transpodurban TA, ForestryEnvironment, and the Regional Environmental Information Management) and have been rated Satisfactory or Moderately Satisfactory. Country dialogue. The 1998 CAS was developed with the support of a Country Director who placed a priority on Gabon as a potential economic leader and guarantor of social peace in the Central African sub-region. As one tangible indicator of this priority, the position of Resident Economist was upgraded to that of a Resident Representative, and the Bank officially opened a Country Office inGabon. The new Resident Representative was faced with the task of implementing a CAS that did not enjoy widespread Government ownership. At the same time, the Country Director left the position and a year later left the Bank and was replaced by a Director who did not share h i s views. Misunderstandings arose between the Bank and the Government concerning the extent and nature of planned Bank support. To complicate matters, both the Bank and the Government were sending mixed messages through the variety of interlocutors involved in the dialogue. The Resident Representative was unable to manage this process and had no control over the allocation of the country budget. There was only partial commitment on the part of the Country Team, since the administrative budget was unable to cover all their costs. The Resident Representative returned to Washington in 2001 and the position remained vacant until a new Resident Representativetook up the assignment in January 2003. Under the circumstances, it i s remarkable that policy dialogue has continued as well as it has. This seems to be mainly dueto continuedclose collaboration between the Bank and the IMF,even though -63- there has been little continuity in the Country Economist position. The Bank has continued to provide direct support to help the Government meet IMF conditions, through such activities as preparation of a Procurement Code and a Financial Sector Assessment. The Bank`s Foreign Investment Advisory Service (FIAS) i s preparing a diagnostic review as part of a program to help improve the investment climate for the private sector. The Bank has backed away from the poverty alleviation agenda, recognizing that the Government would not be ready to receive Bank support inthis area for a long time. Consequently, much of the necessary preparation work has been left to other donors. However, now that Gabon has adopted an I-PRSP, the Bank has begun to provide support for the preparation of a full PRSP which will be actionable and acceptable to the donor community. D. Consultationand Coordinationwith Development Partners Coordinated action with other development partners was absolutely essential to achieving the CAS goals. Considering that Gabon's requirements for international assistance are relatively limited, a remarkable number of donors are present in the country, including several U.N. agencies. France, the European Union, and Canada are key bilateral partners. The African Development Bank (AfDB) i s also active in Gabon. Indeed, the implementation of some privatization activities were delayed when the AfDB, which had approved lending in support of training and "social reinsertion" of retrenched workers, suspended disbursements to Gabon due to accumulated arrears. The problem was resolved and AfDB lendingto Gabon resumed only in 2003. UNDP has assisted the Government in preparing its National Environmental Action Plan, and, more recently, its InterimPRSP. It has also assisted in strengthening economic management capacity by conducting seminars and workshops in technical ministries. WHO provided support for the development of a health sector strategy and action plan. UNESCO has carried out some studies in support of a future education sector strategy. The U.N.Fundfor Population Activities (UNFPA) planned to provide support for the development of a national IEC strategy and for NGO capacity building. However, these activities did not materialize. The ILO has been involved in revising the Labor Code but it has not been able to participate in planning educational reforms to produce a labor force better adapted to meet the needs of private investors. During the CAS period, Gabon agreed to "host" the Regional Environmental Information Management Project (REIMP) supported by GEF. The Government of Gabon was the official grant recipient, but the funds were immediately forwarded to an international NGO (ADIE) established under Gabon law, but independent of the Government, to execute the project. The REIMP collaborated closely with the ForestEnvironment Project in its later stages, and this collaboration i s likely to spill over into a GEF grant for Gabon associated with the future ForestEnvironment Sector Program. An anticipated collaboration with WWF to execute a debt-for-nature swap did not materialize, due to the unwillingness of Government to use PHRD funds to support the necessary studies, and the inability of the Bank to supply the services of an expert. Gabon also plays a leadingrole in the Central African Economic and Monetary Union (CEMAC), and inthis context is a linchpin for the Bank's strategy to promote regional integration in Central Africa. This strategy will provide technical assistance to the CEMAC countries for trade facilitation, customs reform, banking sector monitoring and market development, microfinance, road infrastructure, air safety, and institutional strengthening. Consultations in Gabon showed that stakeholders are expecting that Gabon will benefit from Bank financial participation in regional road infrastructure improvements and in microfinance initiatives. It i s to be hoped that these expectations will not be disappointed due to the fact that Gabon i s requiredto borrow on IBRDterms. -64- Some initiatives that were expected to be undertaken together with partners did not materialize, due to changes in Bank and Government priorities. For example, the Bank did not pursue the preparation of a Rural Development Strategy for Gabon, with which France was willing to assist. Similarly, UNDP and Canada were prepared to support efforts to improve access to micro-credit and credit for small and medium enterprises, in tandem with Bank efforts to develop a local market for government shares in former public enterprises. As this agenda has not progressed very far, the framework for such collaboration has not yet been established. France and the European Investment Bank had expressed interest in cofinancing the Railway Rehabilitation operation. It i s now proceeding with their funding but without Bank participation. Several bilateral donors have expressed willingness to support future operations in the social sectors, once the Bank has determined that sound and sustainable sector strategies are in place. Gabon has played a leading role in the implementation of the Africa Capacity Building Foundation (ACBF), and ACBF was expected to contribute significantly to institutional strengthening in Gabon during the CAS period. A project for capacity building in economic and financial management (PRECAGEF) was put in place but performed poorly under its first project manager. Information about opportunities provided by the project was not widely disseminated, and programs were not well designed to meet real needs for skill development. This project i s currently being restructured. The CAS also promised that the country team would solicit ED1support for a parliamentary capacity building program in Gabon. Apparently this did not take place. IFC holds significant investments in Gabon in the oil and mining sectors, and provided technical support during the privatization of electricity and water services. During the CAS period, IFC made a $18 million investment in the operations of VAALCO Gabon, a subsidiary of VAALCO Energy, Inc., responsible for developing the Etame Marine offshore oilfield. DuringCAS preparation, a participatory process was followed which is described in Annex Dof the CAS. It portrays the CAS as a direct outcome of the Poverty Assessment participatory process, as well as participatory strategic planning undertaken under the Transport/Urban TA project. It also refers to a Public Expenditure Review undertaken by the Resident Economist which helped focus the policy dialogue in the education, health, and social protection ~ectors.~The CAS mission itself had limited opportunity to consult with civil society, although it did meet with central government officials, the donor community, and representatives of Parliament. These discussions provided a forum for airing grievances on both sides, but did not result in a recognition of fundamental differences that would later impede the implementation of the CAS. The Country Office sought a broader distribution of the CAS document once it was made final, but this did not take place. The Government broadly agreed with the Bank and the donor community about the need to address poverty in Gabon. Where it disagreed was on the mechanics of how to do this. The Bank's informal public expenditure review showed that the mainproblem was not a lack of resources allocated to the social sectors, but rather the poor management of those resources. Too much was spent on "high end" services available only to the elite, at the expense of programs in primary health care and basic education. Reorienting social services and social protection to increase their impact on poverty would require fundamental administrative reforms and improved governance. Much could be achieved without increasing the fiscal burden or changing the present pattern of income distribution. However, the Government preferred to pursue an approach based on disengaging the state from productive activities and hoping that the private sector would generate sufficient, and sufficiently remunerative, employment so that the social status quo could be maintained. The links between the corrective actions needed in the 9 But which was never publishedby the Bank due to deficienciesinthe underlyingdata. However,the review was circulatedin draft form andwas muchappreciatedby the clients, according to informationreceivedduring the CASCR consultations. -65- health and education sectors and the outcomes desired by Government were not sufficiently explained, and are still not fully understoodby many highly placed decision makers. The Government also developed an HIV/AIDS Action Plan and would have liked Bank support in implementing the plan. However, it was not prepared to borrow on IBRD terms for that purpose. It felt that the findings of the Poverty Assessment ought to justify concessional lending. If such terms were not available from the Bank, it would go elsewhere, or as a last resort, would finance social programs from its own resources. The result, of course, is that relatively little has been done to combat HIV/AIDS in Gabon, and no attempt has been made to mobilize and empower groups outside the Ministry of Health for this purpose. The extent to which the goals and objectives of the CAS were really shared by the Bank and the Government i s illustrated by the extent to which progress has been made during CAS implementation. Where the Bank has been able to provide support, progress has been made, although more slowly than originally planned. Where the Bank has not been able to provide support, some progress has also been made, although possibly not in directions that the Bank would have preferred. Other donors have been key to achieving this progress. Also, the commitment of many high-level civil servants to the reform agenda should not be underestimated. Civil society has not yet been able to play much of a role in holding government to account, butits capacity i s growing and its voices are increasinglybeingheard. Overall assessment. In summary, the CAS performance can be rated as "moderately unsatisfactory". The country assistance program was relevant to broad national goals, but was not well aligned with government views about how to achieve those goals. The country did not make acceptable progress towards a majority of the proposed CAS outcomes, although it did make significant progress on privatization and some progress on macroeconomic management and capacity building. The CAS expectations were probably unrealistic under the best of circumstances, particularly in the area of poverty alleviation. Furthermore, the resources available to the country team were far too limited to provide all the non-lending support foreseen inthe CAS. This raises an issue related to Bank performance which is not within the direct managerial responsibility of the Country Team. The CAS presented a vision of what could be done in Gabon. Indeed, it was recognized as a "best practice" CAS. In reviewing the draft CAS, regional management failed to point out the discrepancy between its ambitious objectives and the resources which management was prepared to put at the disposal of the Country Team. While it i s not certain that more resources would have produced a more satisfactory outcome, it i s certain that inadequate resources forced the Bank to withdraw from several sectors where it should have been providing leadership which slowed the pace of change inmany areas. E. Lessons Learned for Subsequent CAS Design The CAS would have benefited from a more frank and open dialogue between the Bank and the Government during its preparation. On the Bank side, there should have been a more accurate appraisal of the amount of support that could likely be delivered, given budget constraints. Stakeholder analysis might also have revealed the likely strength of opposition to the reform agenda, and the weak capacity of civil society, especially the relatively poor, to hold the Government accountable in any meaningful way. The Bank's strong commitment to pursue poverty alleviation may have prevented recognition of the Government's views about the relative unimportance of this problem in comparison to the problem of managing external debt. At the same time, the Government allowed the Bank to believe that it agreed with the CAS agenda, in order to mobilize "free" TA and grant resources, while infact it had no intention of borrowing for public sector reform or poverty alleviation. -66- The Bank was also not very straightforward in its description of the poverty situation in Gabon. Inan attempt to heighten consciousnessof the problem of inequity or relativepoverty, which indeedmay present a political challenge at some point in Gabon's history, the Bank has tended to overstate the problem in comparison to other countries of Sub-Saharan Africa. While it i s true that Gabon's social indicators are much lower than they ought to be, given its income level, they are no worse than, and in many cases better than, those of most low-income countries. The incidence of extreme poverty, according to international income-based definitions, i s lower than in many countries, calling for a more targeted approach to poverty alleviation. The solutions in Gabon may not be the same as in most of Sub- Saharan Africa. Infact, the Bank's approach has largely focused on improving the distribution of wealth through redirecting public resources to social services more directly targeted to the poor. The Bank has done relatively little to address the need for economic diversification and employment generation to increase the productivity of the poor. Furthermore, the Bank has paid surprisingly little attention to HIV/AIDS in Gabon, which is a genuine concern of the country and which has reached prevalence levels (above 7%) that ought also to be of concern to the Bank. The CAS did not address directly Government concerns about "social peace," which lie at the heart of the rent redistribution system. The delicate balance of power among social groups which has been built through this system i s a significant source of resistanceto change and the problems which have been experienced in implementing and sustaining reforms. This balance will of course grow more difficult to maintain as Government's discretionary revenues decrease over time. Furthermore, there i s a real risk that improved economic performance will result inrisingexpectations and increasing demand for services from civil society. The challenge to the Government i s to manage this transition so that human needs are more effectively and efficiently met while social peacei s maintained. Defining the challenge in this way mightbetter capture the area of sharedconcern between the Bank andthe Government. It is possible that in the end results would not have improved by a more realistic CAS and may have simply further reduced the resources available to the country team. Resources that were eventually redirected towards policy dialogue and technical support on issues that were important both to the Bank and to the Government. By articulating the agenda for poverty alleviation, in consultation with the donor community, the CAS, however, established a work program that was pursued by the Government and other donors at a more realistic pace, driven by the hope of debt rescheduling and IMF balance of payments support. This work has laid a foundation for continuing dialogue and may eventually result in agreement on sound sector strategies and a medium term expenditure framework. The Bank may then be able to play a role in mobilizing resources for poverty alleviation, by convening donor roundtables or by direct lending. Sustainability. Achievements in macroeconomic management are mixed but likely to be sustainable, with occasional interruptions, at least as long as Gabon requires the support of the IMF. The country has made progress in debt reduction and has nearly eliminated the fiscal burden of parastatal enterprises. It will remain dependent on oil revenues in the short to medium term. Should oil revenues fall dramatically (which does not seem immediately likely in view of the prevailing high oil prices), the Government could become eligible for blend or even IDA borrowing. However, the sustainability of present levels of public expenditure will depend in the long run on successful development of the private sector. The achievements of the CAS in the area of private sector development should be sustainable, as in most cases they are irreversible. The unfinishedprivatization agenda is likely to be finished inthe not very distant future. However, regulatory and institutional capacity remains very weak, and substantial additional support will be needed to internalize these changes. Improved transparency in procurement and the rule of law will be necessary to sustain growth in the private sector. More attention needs to be paid to the supply side inaddressing the critical problem of youth unemployment. -67- On strengthening public sector efficiency and effectiveness, particularly in sectors critical for poverty alleviation, the CAS outcomes are mixed and in general disappointing. So far, the Government's approach to poverty alleviation has been to seek additional investment more than to improve the management of existing resources. It has been noted that real public sector reform would require "nothing less than a culture change on the part of Gabon's public sector."" The Bank has not yet learned how to induce such a culture changeinthe absence of strong economic or political imperatives. One program that seems to have been successful in promoting culture change is that undertaken under the Urban LIL. Though limited in scale, this programhas succeededinimproving living conditions in underserved urban neighborhoods with broad community participation and the collaboration of local authorities. It also helped to build capacity among small contractors and temporarily alleviated the pressing problem of unemployment. However, the small-scale works undertaken by the project do not fully meet the aspirations of the people, especially local politicians. Whether this approach can be successfully "scaled up" remains to be seen. The agenda on building the capacity of civil society was almost entirely placed in the hands of other donors or institutions. It was not strongly supported by Government, and so it did not become a priority for the donor community. Consequently, little was accomplished in this area. Still, there i s an emerging civil society in Gabon, which wants and needs to become a true partner in development. In particular, it will be necessary to involve civil society (as well as Parliament, and the private sector) more fully inthe preparation of the forthcoming PRSP, as their commitment and participation will be neededin its implementation and monitoring. The Bank has recently taken steps to assist the Government in developing a participatory process for the PRSP. This initiative needs to be supported and sustained by the Bank as well as the rest of the donor community. Institutional capacity. There were, indeed, major issues concerning country institutional capacity, that emerged both inthe attempts to implement agreedpolicy reforms and in`theimplementation of ongoing projects. The CAS agenda focused largely on creating the legal and institutional frameworks for change. Where such efforts have been successful, capacity constraints have become evident, and it i s clear that future programs should focus even more strongly on capacity building in government, in small and medium size enterprises, and in civil society. Capacity building means more than training and equipment, although these may well be necessary. Both attitudinal and behavioral change will be needed, and these will have to "trickle down," at least in government institutions, from the top. Improved communications and a freer flow of information will be essential to success. On a more mundane level, to the extent that Bank projects (including grants) are implemented by people unfamiliar with Bank procedures, it will be necessary to ensure that appropriate training i s provided and strong support i s given to the teams responsible for project implementation. Annual Public Expenditure Reviews would be helpful inensuring that adequate counterpart funds are budgeted and available when needed. The consultation process for the 1998 CAS created expectations which neither the Government nor the Bank was prepared to fulfill. Participation by civil society was still a new idea, and there was little analysis by the Bank of the stakes or the stakeholders. Consultation took place around a vision for the future, perhaps not fully grounded in the realities of the past. Consultation was also largely limited to selected agendas such as the transport sector strategy or the poverty alleviation program. The overall design of the CAS and the relationships of its different parts were not apparent to a wide audience. To improve on this, it will be necessaryto start consultation much sooner (as has been done) and to base it on a shared assessment of past programs and results. Many misunderstandings may need to be expressed and explained. More extensive and sustained communication with the public will be needed, including 10 Minutesof the PCDreviewfor the Public Sector ReformTA Project,October 1, 1999. -68- identifiable groups such as labor, university students, small businessmen, women, traditional authorities, and local government officials. A truly participatory CAS process in Gabon will take a long time (as will a participatory PRSP process), but it i s likely to produce more sustainable programs and more realistic targets for the next CAS. Summary. The performance of the 1998 CAS has been rated "moderately unsatisfactory". This result is due to deficiencies on the part of both the Bank and the Government. In the first place, the CAS did not represent a realistic assessment of what the Government was prepared to do or what the Bank was prepared to support over the next three years. This can partly be explained by shifts in high-level management in both the Bank and Government that intervened shortly after the CAS was completed. However, Bank management bears the responsibility for approving and sending forward a CAS which it was not prepared to support with adequate resources. The lesson for the future may be that a CAS should be costed, at least internally, and compared to foreseeable budget allocations. A corollary i s that when the Bank i s called upon to play the role of a "Knowledge Bank," country budgeting should not be based solely on the size of the lendingprogram. A second factor affecting CAS performance was the extended hiatus in Bank presence in the field. After setting up a Country Office with a Resident Representative, the Bank (and the Government) sent mixed signals which undermined his effectiveness. After his return to Washington, more than a year passed before a suitable replacement could be found. Meanwhile, there was little continuity in the Country Economist position, although the dialogue seems to have been maintained at a fairly consistent level. There has been rather more continuity inthe Country Team as a whole, and supervision of ongoing projects has, by and large, been effective. Close collaboration between the Bank and the IMF, with a growing emphasis on governance, has been a factor in the relative success of the macroeconomic management component. Incontrast, the inability of the Bank to deliver much support in areas related to poverty reduction probably has much to do with the slow pace of progress in this area. The lack of an effective Bank presencein the field also constrained collaboration with other donors during this period. Finally,the CAS agenda was congruent with Government objectives when seen in the long run. Some progress has been made, but not at the pace that was expected. More stakeholder analysis, and a more restricted reform agenda for each operation, might have improved the chances for success. For the future CAS, it will be necessary to set even sharper priorities and to concentrate Bank resources on areas of real comparative advantage. Continued collaboration with other donors, and broadened consultation and communication with civil society, will be essential. These are likely to develop further through the process of PRSPpreparation. -69- 3 I I 8 s 93 % m 0 s 'C a M C .3 3 C E 2 B .f 0 w o 33 C a, C 0 bn Y 0 C 0 c % 2M Y m l 7 8 .r( cl m e .C Y cE 2 3 e 2 .C I I 1 5l- a K a, 8 4C a, b; zC Y z z0 ::c 8 CI -5r" V 8 Q T, -0 8 I 1" > eE3 3 a rc I 0 .5 EI s .3 Y 4 & 1 3 %a 0 $E Pg a, > 3 I 82 Y wB h 1- Y 0 0 0 z 0 1- YM a I- sa .e a Annex B Gabon: Planned Lending Program and Actual Deliveries CAS Plans (September22, 1998) CAS CompletionReport(April 30,2004) F Y I Project I IBRD FY I Project I lBRD (US$M) (US$M) 99 UrbanLIL(1) 5.0 99 UrbanLIL(1) 5.0 00 Public Sector Reform Loan 15.0 Dropped Railway Rehabilitation 15.0 Dropped 01 02 03 04 Total 35.0 Total 5.0 (1) Pilot Community InfrastructureWorks and Capacity BuildingProject. This FY 99 project had already been approved (August 1998)beforethe date of the CAS. -81- Annex C Gabon: Planned Non-Lending Programand Actual Deliveries CAS Plans(September 22, 1998) CA: Zompletion Report (April 30,2004) FY Product FY Status 99(1) IDFGrantfor CapacityBuildinginthe Securedprior to CAS Public Sector and Civil Society Grant secured-outstandingbalance PHRD Grant for PreparingaPublic cancelledinFY 91 SectorReformLoan Economic policy dialogue in Done collaboration with IMF Informalpolicy notes to be preparedon Not requested request on maritimetransport, financial sector strengthening,and aCEMAC common tariff regime RuralDevelopmentStrategy Not done PossibleGEF grant for Biodiversity Postponedto FY 05 Conservation InformationManagementAssessment Not done Training for parliamentariansto be Not done - some trainingprovided by provided by ED1(WBI) ACBF NGO capacity building to be provided by Not done EDI(WB1) TA fromFIAS to helpimplementthe Not done-FIAS study on infrastructure one-stop shop for private investors now programmedfor FY 05 Donor Round Tablesfor urban andrural Not done (sector strategies and expenditure development,health,andeducation programs not prepared) 00 Support to IMF,Statistical support through PHRD Grant (Demographic and Health survey, consultantsinhealth& education) 01 Support to IMF Managementof ForestResources TE PHR6Grant cancelled 02 Support to IMF 03 FinancialSectorAssessment (with IMF) Support for ProcurementCode 04 Support to IMF,PRSPmission on (1) participatory process and (2) poverty monitoring (1) No specific fiscal year is establishedinthe CAS for these non-lending inputs. The CAS was only intendedto cover FY 99-01. (2) This IDFgrant hadalready been approvedbefore the date of the CAS. -82- ANNEX 5. Development Partner Coordination Instrument* Period Grant Iacroeconomic Reforms JMF BS Loan BS BS ublic finance management revenuelfiscaladministration TA France TA oil resourcesmanagement WB TA +!E&@ Budgetmanagement AfDB TBS Expendituremanagement IMF TA France TA Public expenditurereview WB TA AfDB TA EU BS+TA statistics France TA annual mployment and enterprenership AfDB Project Iicrofinance EU Project Grant t UNDP Project Grant X Project rivate sector Development Proparco Project BE1 TBS WB Project WB TA griculturflisheries AFD Project AfDB Project Japan Project Grant EU ProjecmS Grant Project Grant TA Project USA Project Grant Spain Project ransports AfDB Project AFD Project BE1 Project EU Project France TA lining sector EU Project WB BSRA France TA ,nergy AFD Project WB TA i Bater and sanitation AFD Project x x EU Project Grant x x UNDP Project Grant(*) France TA Project labitat France TA !ommunity Development Project Canada Project Project UNICEF Project orestry and Environment Project WB BS WBIGEF Project Grant EU ProjecnA FFEM Project Grant France Project Grant France TA GEFRTNDP Project Grant(*) WBIGEF Project Grant(*) Project -83- ANNEX 5. Development Partner Coordination sector Donor Instrument* L o a d 1 Period Grant - after ,ducation AfDB Project Loan(*) EU 1 Project France TA France Project UNHCR Project USA Project [ealth/others social sectors GFTAM Project Canada ProjecnA Grant x x Italy ProjecVTA Grant x x UNDP Project Grant ~ X France , ProjecflA Grant x x AtDB Project Grant WB Project Grant UNICEF Project Grant(*) WHO/A~DB Project Grant(*) WHOiCANADA Project Grant(*) Project Grant Project Grant Project Grant iUSA Project Grant Spain Project Grant 1 X :ulture Project Grant x x Grant annual ;overnance I I NationalGovernanceProgram lAfDB TA PRSP /AfDB I T.4 UNDP TA France TA WB TA ~ ~ IIMF TA AudiVProcurment 1 WB TA Grant lAfDB TA/BS Grant(*) Fightagainstcoruption IIMF 1I TA Grant x x IAfDB TBS Grant Public sector capacitybuilding AfDB TBS Grant Miningadministration EU Project Grant annual Minisuyof planning EU Project Grant x x Public works administration EU Project Grant X Parliament WB TA Grant ~ UNDP TA Grant(*) Populationcensus EU Project Grant X UNFPA TA Grant x x Childrentraffic EU Project Grant X Unicef Project Grant X Civil society EU Project Grant annual Canada Project Grant __ annual 1 WR UNICEF Project Grant - annual TA Grant refugees HCR Grant mual gender UNFPA l Justice. law andorder France ProiectlTA UNICEF TA AfDB TBS ~ I d Y TA Civilsecurity France TA medias UNICEF TA Grant(*) France TA Privatizations AfDB ProjectKBS Loan(*) Youth andsport France TA (*) legend : BS:Budget support TBS: Targetedbudget suppon T A Technicalassistance G R A M The Global Fundto Fight AIDS, TuberculosisandMalaria FFEM FrenchEnviromntalFund(Fondsfrangaispour I'environnemenf mondial) (*) Under preparation -84- ANNEX 6. Gabon: Country FinancingParameters (April, 2005) The country financing parametersfor the GaboneseRepublic below have been approved by the Regional Vice President, Africa Region. Parameter ExplanatiodRemarks Cost Sharing. Limit on the 100% The actual Bank financing share would be proportion of individual determined during the preparation of each new projects that the Bank may project and are likely to be about 90% of the finance project cost inmost cases. Financing up to 100%will be applied on a selective case by case and meridjustificationbasis, particularly for activities supported by IDFgrants. Recurrent costfinancing. No country-level Inindividual projects, the Bank would take into Limits, if any, to the limit account sustainability issues at the project and overall amount of sector level, including: (i)the sustainability of recurrent expenditures that project achievementsand Bank-financed the Bank may finance recurrent costs; and (ii)the implied future budgetary outlays. The level of Bank financing of recurrent costs i s expected to be a relatively low share of total project costs, and i s mainly expected to be for salaries and operating costs associatedwith project implementation. Local costfinancing. Are Yes The requirements for local cost financing are the requirements for Bank met. The Bank may finance localcosts in any financing of local proportions requiredby individual projects. expenditures met, namely that: (i)financing requirements for the country's development program would exceedthe public sector's own resources (e.g., from taxation and other revenues) and expected domestic borrowing; and (ii) financingofforeign the expenditures alone would not enable the Bank to assist inthe financing of individual projects Taxes and duties. Are None There are no unreasonable taxes and duties. there any taxes and duties The Bank may finance all taxes and duties that the Bank would not associatedwith project expenditures. At the finance project-level, the Bank would consider whether taxes and duties constitute an excessively high share of project costs. I -85- Gabonat a dance 9115/04 sub- POVERTYand SOCIAL Saharan middle- Gabon Africa income Developmentdiamond' 2003 Population,mid-year (millions) 1.3 703 335 Lifeexpectancy GNIper capita (Atlas method, US$) 3,580 490 5,340 GNI (Atlas method, US$billions) 4.8 347 1,788 T Average annual growth, 1997-03 Population (%) 2.3 2.3 1.2 Laborforce (%) 1.8 2.4 1.8 Gross Moat recent estimate (latest year available, 1997-03) capita enrollment Poverty ofpopulationbelownationalpovertyline) Urbanpopulation (% of totalpopulation) 84 36 76 Life expectancyat birth (years) 53 46 73 I Infantmortality (per 1,000livebirths) 63 103 19 Childmalnutrition (% ofchildrenunder5) 12 Access to improvedwater source Access to an improvedwater source (% ofpopuiation) 86 58 89 Illiteracy(% ofpopulationage 154 35 Gross primaryenrollment (% ofschool-agepopulation) 134 87 -Gabon Male 135 94 Upper-middle-incomegroup Female 134 80 104 KEY ECONOMICRATIOSand LONG-TERMTRENDS 1983 1993 2002 2003 Economic ratios' GDP (US$ billions) 3.4 4.4 5.0 5.6 GrossdomesticinvestmenVGDP 35.2 22.4 28.4 31.3 Trade Exportsof goods andservicesiGDP 61.3 40.8 59.5 67.4 Gross domesticsavingJGDP 53.0 36.7 48.4 54.5 T Gross nationalsavings/GDP 21.4 28.7 44.1 Currentaccount balance/GDP 2.1 -1.3 6.1 6.1 interest payments/GDP 1.6 0.8 3.2 2.3 TotaldebffGDP 27.0 88.1 71.3 67.7 Totaldebt servicelexports 10.9 5.9 12.0 10.3 Present value of debffGDP 70.9 I Present value of debffexports 103.4 Indebtedness 1983-93 1993-03 2002 2003 2003 07 - (average annualgrowth) GDP 1.6 2.3 3.0 3.4 -0.1 -Gabon GDP per capita -1.6 -0.2 0.8 1.2 -2.2 -Upper-middle-incomegroup Exportsof goods andservices 5.9 -0.7 3.1 3.2 3.4 STRUCTURE of the ECONOMY 1983 1993 2002 2003 i Growthof investmentandGDP (%) (%of GDP) Agriculture 6.5 8.5 7.6 8.7 Industry 56.8 43.0 46.4 67.1 Manufacturing 4.5 7.1 4.7 5.3 Services 36.7 48.5 46.0 24.1 Privateconsumption 29.8 48.0 Generalgovernmentconsumption 17.2 15.3 .. i Importsof goods andservices 43.5 34.5 39.5 44.3 j -GDI +GDP 1983-93 1993-03 2002 2003 (average annualgrowthJ Growthof exports and imports (%) ~ I Agriculture 0.1 1.o 4.9 Industry 2.2 2.3 2.7 Manufacturing 0.0 Services 1.2 2.5 3.1 Privateconsumption 0.7 4.4 5.3 General governmentconsumption -4.3 2.9 2.0 Gross domesticinvestment -6.7 3.3 -0.8 1.6 -Exports +Imports Importsof goods andservices -4.4 1.2 2.8 3.3 Note:2003 data are preliminaryestimates. Thistable was producedfrom the Development Economicscentraldatabase. * The diamondsshow four key indicatorsin the country (inbold)compared with its income-groupaverage. If data are missing,the diamond will be incomplete. -86- Gabon PRICES and GOVERNMENT FINANCE 1983 1993 2002 2003 Inflation(%) Domesticprices (% change) 45 T Consumerprices 10.7 -8.9 0.1 0.5 implicit GDP deflator 2.9 1.1 5.9 -9.1 Governmentfinance (% of GDP, includescurrent grants) -15 Current revenue 22.9 24.4 26.9 I -30 Current budget balance -0.6 9.1 10.7 I -GDP deflator -CPI OverallsurDlus/deficit -5.7 3.6 4.5 TRADE 1983 1993 2002 2003 j (US$ millions) Export and import levels(US$ mill.) Total exports (fob) 2,000 2,326 3,080 3,278 ~4,000 Oil 1,776 2,138 2,203 Timber 318 442 517 Manufactures Total imports (cif) 725 635 1,266 1,345 Food 166 158 168 Fuel and energy 11 199 212 Capitalgoods 320 363 386 Export priceindex (1995=700) 100 87 88 88 00 01 02 03 Import price index (1995=100) 50 Exports w Imports Terms of trade (1995=100) 202 I BALANCE of PAYMENTS 1983 1993 2002 2003 Currentaccount balance to GDP (?h) (US$millions) Exportsof goods and services 2,201 2,637 3,394 3,632 importsof goods andservices 1,757 1,868 2,201 2,295 T Resource balance 444 770 1,192 1,337 ' O Net income -283 -633 -713 -818 Net currenttransfers -195 -175 -160 Current account balance 72 -58 305 340 Financingitems (net) -189 -21 -273 -274 Changes in net reserves 117 79 -31 -66 Memo: Reserves includinggold (US$ millions) Conversionrate (DEC, local/US$) 361.1 349.6 697.0 561.2 EXTERNAL DEBT and RESOURCE FLOWS 1983 1993 2002 2003 (US$ millions) Compositionof 2003 debt (US$ mill.) Total debt outstandingand disbursed 915 3,861 3,546 3,792 IBRD 15 66 50 49 49 IDA 0 0 0 0 339 59 Total debt sewice 243 157 407 375 IBRD 3 8 12 8 IDA 0 0 0 0 Compositionof net resourceflows Officialgrants 31 65 54 Officialcreditors 7 60 -170 -124 Privatecreditors -65 -2 16 -73 Foreigndirect investment 112 -114 123 Polffoiioequity 0 0 0 2734 World Bank program Commitments 0 23 0 0 A IBRD - E. Bilateral Disbursements 1 8 2 2 8 - IDA D.Other multilateral F Private - Principal repayments 2 5 8 6 C. IMF G - Short-term Netflows -1 3 -6 -3 Interest payments 1 4 4 2 Nettransfers -2 -1 -10 -6 Note:This table was producedfrom the Development Economics central database. 9/15/04 -87- CAS Annex 82 Gabon - Selected Indicators*of Bank PortfolioPerformanceand Management As Of April 20,2005 Indicator 2002 2003 2004 2005 PorffolioAssessment Number of Projects Under Implementationa 2 2 2 0 Average Implementation Period (years) 4.5 5.5 6.0 0.0 Percent of Problem Projects by Number 0.0 100.0 0.0 0.0 Percent of Problem Projectsby Amount 0.0 100.0 0.0 0.0 Percent of Projects at Risk by Number 0.0 100.0 0.0 0.0 Percent of Projects at Risk by Amount a, 0.0 100.0 0.0 0.0 Disbursement Ratio (%) e 28.9 32.4 52.8 0.0 Portfolio Management CPPR during the year (yesho) no no no no Supervision Resources (total US$) 166 208 182 0 Average Supervision (US$/project) 83 104 91 0 Memorandum Item Since FY 80 Last Five FYs Proj Eva1by OED by Number 7 2 Proj Eva1by OED by Amt (US$ millions) 144.6 27.8 Yo of OED Projects Rated U or HU by Number 57.1 0.0 Yo of OED Projects Rated U or HU by Amt 60.3 0.0 a. As shown in the Annual Report on Portfolio Performance (exceptfor current FY). b. Average age of projects in the Bank's country portfolio. c. Percentof projects rated U or HU on development objectives (DO) and/or implementation progress (IP). d. As defined under the Portfolio Improvement Program. e. Ratio of disbursementsduring the year to the undisbursed balance of the Bank's portfolio at the beginning of the year: Investmentprojects only. * All.indicators are for projects active in the Portfolio,with the exception of Disbursement Ratio, which includes all active projects as well as projects which exited during the fiscal year. -88- CAS Annex 83 IBRD/IDA Program Summary Gabon - - As Of April 20,2005 Proposed IBRD/IDA Base-Case Lending Program a Fiscalyear Proj ID US$(M)StrategicRewards Implementation (H/M/L) Risks (H/M/L) 2005 Local InfrastructureDevelopment 25.0 M M Result 25.0 2006 First Natural Resources Management DPL 15.0 H H Result 15.0 2008 Infrastructure Project 25.0 M M Second Natural ResourcesManagement DPL 10.0 H H Result 35.0 2009 Diversification 18.0 H H Result 18.0 Overall Result 93.0 -89- CAS Annex B3 (IFC & MIGA)for Gabon Gabon - IFCand MlGA Program, FY 2002-2005 2002 2003 2004 2005 IFC approvals (US$m) 10.00 0.00 0.00 Sector (%) Oil, Gas and Mining 100 Total 100 0 0 0 Investment instrument(%) Loans 100 Equity Quasi-Equity Other 0 Total 0 0 0 0 MlGA guarantees (US$m) 0 0 0 0 -90- CAS Annex B4 Summaryof NonlendingServices Gabon - - As Of April 20,2005 Product Completion FY Cost (US$OOO) Audiencea Objectiveb Recent completions FSAP Gabon 2003 230.5 Government Knowledge Generating FlAS Investment Climate 2005 40.0 Government Knowledge Assessment Generating, Public Debate, Problem Solving Underway Infrastructure FrameworkReport 2006 20.0 Bank & Knowledge Government Generating PER/CFANCPAR 2006 100.0 Bank & Knowledge Government Generating Planned Mining Sector Report 2007 50.0 Bank & Knowledge Government Generating PovertyAssessment 2009 250.0 Bank & Knowledge Government Generating a. Government, donor, Bank, public dissemination. b. Knowledge generation, public debate, problem-solving. -91- CAS Annex B5 Gabon Social Indicators - Latestsingle year Same regionlincomegroup Sub-Saharan Upper-middle- 1970-75 1980-85 1997-2003 Africa income POPULATION Total population, mid-year (millions) 0.59 0.81 1.3 702.6 334.9 Growth rate (Yoannual average for peric 3.3 3.1 2.3 2.3 1.2 Urban population (Yoof population) 40.0 59.2 83.7 36.1 75.8 Total fertility rate (births per woman) 4.3 4.8 4.1 5.1 2.4 POVERTY ("A of population) National headcount index Urban headcount index Rural headcount index INCOME GNI per capita (US$) 3,130 3,930 3,580 490 5,340 Consumerprice index (1995=100) 26 76 105 Food price index (1995=100) 76 116 INCOMEEONSUMPTION DISTRIBUTION Share of incomeor consumption Gini index Lowest quintile (% of income or consumptic Highestquintile (?/. of income or consumpti SOCIAL INDICATORS Public expenditure Health (YOof GDP) 1.7 2.5 3.7 Education(% of GDP) 1.9 4.6 3.9 3.4 4.4 Social securityand welfare (YOof GDP) Net primary school enrollment rate ("A of age group) Total 78 93 Male 79 93 Female 78 94 Access to an improved Water source ("A of population) Total 86 58 Urban 95 83 Rural 47 45 77 Immunizationrate ("A of childrenages 12-23months) Measles 58 55 58 94 DPT 48 38 54 90 Child malnutrition(YOunder 5 years) 12 Life expectancy at birth (Years) Total 46 50 53 46 73 Male 45 49 52 45 70 Female 48 52 54 47 77 Mortality Infant (per 1,000 live births) 75 63 103 19 Under 5 (per 1,000live births) 105 85 174 22 Adult (15-59) Male (per 1,000population) 521 474 380 519 197 Female (per 1,000population) 421 387 330 461 103 Maternal (modeled,per 100,000live birtl 420 Birthsattendedby skilled healthstaff (%) 86 Note:0 or 0.0 meanszero or lessthan half the unit shown. Net enrollment rate: break in series between 1997 and 1998due to changefrom ISCED76 to ISCED97. Immunization:refersto children ages 12-23months who receivedvaccinations before one year of age. World DevelopmentIndicatorsdatabase August 2004, World Bank -92- CAS Annex B6 Gabon Key Economic Indicators - Actual Estimate Projected Indicator 2000 2001 2002 2003 2004 2005 2006 2007 2008 Nationalaccounts (as % of GDP) Gross domestic producta 100 100 100 100 100 100 100 100 100 Agriculture 6 8 8 8 8 9 9 9 9 Industry 53 51 46 62 60 64 66 68 70 Services 40 42 46 30 28 27 25 23 21 Total Consumption 72 50 52 50 48 50 50 50 48 Gross domestic fixed investment 26 31 28 24 25 23 22 22 21 Government investment 5 6 5 4 5 5 5 5 5 Private investment 21 25 23 20 20 18 18 17 17 E X P O ~ ~(GNFS)~ S 37 60 59 62 61 53 44 39 34 Imports (GNFS) 35 41 39 41 40 50 50 50 50 Grossdomestic savings 28 50 48 50 52 50 50 50 52 Gross national savings' 11 34 29 33 35 38 38 39 40 Memorandumitems Gross domestic product 4932 4334 4971 5957 6498 7026 7016 7107 7219 (US$ millionat current prices) GNI per capita (US$,Atlas method) 3190 3160 3060 3380 3710 Real annual growth rates (%,calculatedfrom 1991 prices) Grossdomestic productat market price 2.0 2.5 0.0 2.6 1.9 2.0 0.2 0.7 1.o Gross Domestic Income 1.2 16.9 0.4 3.1 2.1 -8.5 -2.0 0.7 1.5 Realannual Der capita arowth rates (Yo,calculatedfrom 1991 prices) . - Grossdomestic productat market price -0.6 0.0 -2.3 0.4 -0.2 Total consumption 0.8 0.4 2.0 2.0 2.6 Privateconsumption 3.2 2.4 2.9 2.6 3.0 Balanceof Payments(US$ millions) E X P O ~ ~(GNFS)~ S 3018 3175 3394 3633 3872 5237 4776 4359 4601 MerchandiseFOB 2750 2897 3080 3278 3472 5237 4776 4359 4601 Imports (GNFS)~ 2034 2135 2203 2295 2400 3820 3788 3691 3771 MerchandiseFOB 887 934 988 1049 1121 1594 1790 1907 1980 Resourcebalance 984 1040 1190 1338 1472 1417 988 668 831 Net current transfers -164 -169 -174 -181 -187 -102 -102 -102 -102 Current account balance 128 168 303 341 397 551 142 -152 20 Net privateforeign direct investment -15 -33 -39 -44 -51 342 305 283 254 Long-termloans (net) Official -150 -218 -172 -172 -213 -385 -388 -403 -401 Private Other capital (net, incl. errors & ommissions) Change in reservesd -39 -31 -31 -66 -68 -597 5 26 -16 Memorandumitems Resourcebalance(Yoof GDP) 20.0 24.0 23.9 22.5 22.6 20.2 14.1 9.4 11.5 Real annual growth rates (YR91 prices) Merchandiseexports (FOB) 2.2 1.8 2.5 2.6 2.7 -5.8 -8.0 -7.3 -8.8 Primary Manufactures Merchandiseimports (CIF) 2.5 2.5 3.0 3.5 4.0 1.8 0.2 0.6 0.9 -93- CAS Annex B6 Gabon Key EconomicIndicators - (Continued) Actual Estimate Projected Indicator 2000 2001 2002 2003 2004 2005 2006 2007 2008 Publicfinance (as % of GDP at market prices)e Current revenues 22.1 25.2 24.4 29.8 30.0 32.4 32.2 32.2 32.1 Current expenditures 16.1 19.8 15.4 17.4 17.4 22.4 23.9 24.4 24.5 Current account surplus (+) or deficit (-) 6.0 5.4 9.1 12.4 12.6 10.0 8.4 7.7 7.6 Capital expenditure 5.4 4.1 5.5 3.7 4.2 4.5 4.5 4.5 4.5 Foreignfinancing -2.7 -0.9 -1.5 -2.0 -2.0 -2.1 -2.1 -2.2 -2.2 Monetary indicators M2/GDP 14.8 17.5 17.2 18.2 17.6 16.9 16.9 16.9 16.9 Growthof M2 (YO) -0.3 7.5 6.9 7.4 5.6 -4.3 2.2 2.7 3.0 Privatesector credit growthI 184.8 144.4 total credit growth (YO) Price indices(YR91 =loo) Merchandiseexport price index 97.7 101.1 104.9 108.8 112.3 128.0 115.4 111.1 107.4 Merchandiseimport price index 147.6 151.5 155.6 159.7 164.0 154.9 154.3 155.2 156.1 Merchandiseterms of trade index 66.2 66.7 67.4 68.1 68.5 82.7 74.8 71.6 68.8 Real exchange rate (US$/LCU)' 64.4 64.5 65.1 65.2 65.3 65.3 65.3 65.3 65.3 Real interestrates Consumer price index (% change) 1.4 2.0 0.1 3.5 2.0 1.o 2.0 1.4 1.5 GDP deflator (%change) 28.5 -11.7 9.1 -1.o 7.0 -2.6 2.0 2.0 2.0 a. GDP at market prices b. "GNFS"denotes "goodsand nonfactorservices." c. Includesnet unrequitedtransfers excludingofficial capital grants. d. Includesuse of IMF resources. e. Consolidatedcentral government. f. "LCU"denotes "localcurrency units."An increase in US$/LCU denotes appreciation. -94- CAS Annex B7 Gabon Key ExposureIndicators - Actual Estimate Projected Indicator 2000 2001 2002 2003 2004 2005 2006 Total debt outstanding and 3618 3449 3449 3391 3249 3451 3455 disbursed (TDO) (US$m)" Net disbursements (US$m)" 341 657 207 441 NA NA NA Total debt service Paid (TDS) 341 657 207 441 546 670 645 (us$m)" Debt and debt service indicators (Yo) TDO/XGS~ 82.9 106.7 112.0 98.0 92.1 89.2 88.7 TDO/GDP 64.1 63.1 62.7 55.9 50 45.5 42.4 TDS/XGS 18.0 24.2 9.8 13.7 14.1 12.8 13.5 ConcessionaVTDO 0.0 0.0 0.0 0.0 0.0 0.0 0.0 IBRD exposure indicators (%) IBRD DS/public DS 1.8 1.9 2.6 2.5 2.5 2.3 2.2 Preferred creditor DS/public 10.2 13.2 3.8 25.2 15.7 17.4 16.7 DS (Yo)' IBRD DS/XGS 0.7 0.7 0.7 0.7 0.7 0.9 1 IBRD TDO (us$mld 50 55 50 49 38 37 52 Of which present value of guarantees (US$m) Share of IBRD portfolio (Yo) IDATDO (us$m)d 0 0 0 0 0 0 0 IFC (US$m) Loans 3.8 Equity and quasi-equity /c MlGA MlGA guarantees (US$m) 61 a. Includespublic and publicly guaranteeddebt, private nonguaranteed,use of IMFcredits and net short- term capital. b. "XGS" denotesexportsof goods and services, includingworkers' remittances. c. Preferredcreditors are defined as IBRD, IDA, the regionalmultilateraldevelopment banks,the IMF, and the Bank for InternationalSettlements. d. Includespresentvalue of guarantees. e. Includesequityand quasi-equitytypes of both loan and equity instruments. NA: Not available -95- m .-E C 3 2 D m CAS Annex B8 (IFC) for Gabon Gabon Statementof IFC's Held and DisbursedPortfolio As of 12/31/2004 (In US DollarsMillions) Held Disbursed FYApproval Company Loan Equity Quasi Partic Loan Equity Quasi Partic 2002 VAALCO Gabon 3.75 0 0 0 3.75 0 0 0 Total Portfolio: 3.75 0 0 0 3.75 0 0 0 Approvals Pending Commitment Loan Equity Quasi Partic -97-