Document of The World Bank Report No: ICR00003321 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA-44680) ON A CREDIT IN THE AMOUNT OF SDR 8.24 MILLION (US$ 11.4 MILLION EQUIVALENT) TO THE REPUBLIC OF NICARAGUA FOR A MICRO, SMALL, AND MEDIUM ENTERPRISE DEVELOPMENT PROJECT May 27, 2015 Trade & Competitiveness Global Practice Latin America & Caribbean Region Central America Country Management Unit CURRENCY EQUIVALENTS (Exchange Rate Effective April 3, 2015) Currency Unit = SDR 1.00 = US$ [ 1.3829 ] US$ 1.00 = [0.723117 ] FISCAL YEAR (Nicaragua): January 1 – December 31, 2015 ABBREVIATIONS AND ACRONYMS CAFTA - Central American Free Trade Agreement CAMIPYME - Centros de Apoyo a las MIPYME (Support centers for MSMEs) GoN - Government of Nicaragua INPYME - Instituto Nicaragüense de la Pequeña y Mediana Empresa (Institute for SMEs) LANAMET - Laboratorio Nacional de Metrología (National Metrology Laboratory) MG - Matching grants MHCP - Ministerio de Hacienda y Crédito Público (Ministry of Treasury and Public Credit) MEFCCA - Ministerio de Economía Familiar, Comunitaria, Cooperativa y Asociativa (Ministry of Familial, Community, Cooperative and Associative Economy) MIFIC - Ministerio de Fomento, Industria y Comercio (Ministry of Development, Industry and Commerce) MINSA - Ministerio de Salud (Ministry of Health) MIPYME/MSME - Micro, Pequeña y Mediana Empresa (Micro, Small, Medium Enterprises) MITRAB - Ministerio del Trabajo (Ministry of Labor) MSMEs - Micro, small and medium enterprises PIU - Project implementation unit POA - Plan Operativo Anual (Annual Operations Plan) PRODEMIPYME - Proyecto de Desarrollo de la Micro, Pequeña y Mediana Empresa (Project of Development of the MSME) RACCN - Región Autónoma del Caribe Norte (Autonomous Region of the North Caribbean) RACCS - Región Autónoma del Caribe Sur (Autonomous Region of the South Caribbean) RPI - Registro de la Propiedad Intelectual de Nicaragua (Intellectual Property Registry) RUM - Registro Único MIPYME (Unique Registration of MSMEs) RUC - Registro Único de Contribuyente (Unique Tax Registration) VUI - Ventanillas Únicas de Inversión (One-stop shop for business registration) 2 Vice President: Jorge Familiar Calderon Country Director: J. Humberto Lopez Senior Global Practice Director Anabel Gonzalez Sector Manager: Marialisa Motta Project Team Leader: Sunita Varada ICR Team Leader: Penelope Demetra Fidas 3 REPUBLIC OF NICARAGUA MICRO, SMALL, AND MEDIUM ENTERPRISE DEVELOPMENT PROJECT Contents A. Basic Information................................................................................................. 5 B. Key Dates ............................................................................................................ 5 C. Ratings Summary ................................................................................................. 5 D. Sector and Theme Codes ...................................................................................... 6 E. Bank Staff ............................................................................................................ 6 F. Results Framework Analysis ................................................................................. 6 G. Ratings of Project Performance in ISRs................................................................. 9 H. Restructuring (if any) ......................................................................................... 11 I. Disbursement Profile .......................................................................................... 12 1. Project Context, Development Objectives and Design .......................................... 13 2. Key Factors Affecting Implementation and Outcomes .......................................... 16 3. Assessment of Outcomes..................................................................................... 22 4. Assessment of Risk to Development Outcome ..................................................... 30 5. Assessment of Bank and Borrower Performance .................................................. 30 6. Lessons Learned ................................................................................................. 33 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners .......... 34 Annex 1. Project Costs and Financing...................................................................... 35 Annex 2. Outputs by Component............................................................................. 36 Annex 3. Economic and Financial Analysis ............................................................. 46 Annex 4. Bank Lending and Implementation Support/Supervision Processes ............ 50 Annex 5. Beneficiary Survey Results....................................................................... 51 Annex 6. Stakeholder Workshop Report and Results................................................ 53 Annex 7. Summary of Borrower's ICR .................................................................... 54 Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders ...................... 67 Annex 9. List of Supporting Documents .................................................................. 68 4 A. Basic Information Micro, Small and Country: Nicaragua Project Name: Medium Enterprise Development Project ID: P109691 L/C/TF Number(s): IDA-44680 ICR Date: 10/29/2014 ICR Type: Core ICR GOVERNMENT OF Lending Instrument: SIL Borrower: NICARAGUA Original Total XDR 12.30M Disbursed Amount: XDR 7.61M Commitment: Revised Amount: XDR 8.08M Environmental Category: B Implementing Agencies: Ministry of Familial, Communitarian and Cooperative Economy; Ministry of Development, Industry and Commerce Cofinanciers and Other External Partners: N/A B. Key Dates Revised / Actual Process Date Process Original Date Date(s) Concept Review: 12/04/2007 Effectiveness: 06/16/2009 06/16/2009 Appraisal: 04/30/2008 Restructuring(s): Approval: 06/12/2008 Mid-term Review: 02/13/2012 02/13/2012 Closing: 12/31/2013 12/31/2014 C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Satisfactory Risk to Development Outcome: Low Bank Performance: Satisfactory Borrower Performance: Satisfactory C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Satisfactory Government: Satisfactory Implementing Quality of Supervision: Satisfactory Satisfactory Agency/Agencies: Overall Bank Overall Borrower Satisfactory Satisfactory Performance: Performance: 5 C.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments (if Indicators Rating Performance any) Potential Problem Project Quality at Entry No None at any time (Yes/No): (QEA): n/a Problem Project at any Quality of Supervision Yes None time (Yes/No): (QSA): n/a DO rating before Satisfactory n/a n/a Closing/Inactive status: D. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Central government administration 30 43 General industry and trade sector 44 57 Microfinance 13 0 SME Finance 13 0 Theme Code (as % of total Bank financing) Micro, Small and Medium Enterprise support 67 53 Regulation and competition policy 33 47 E. Bank Staff Positions At ICR At Approval Vice President: Jorge Familiar Calderon Pamela Cox Country Director: J. Humberto Lopez Laura Frigenti Sr. Global Practice Director Anabel Gonzalez N/A Practice Manager/Manager: Marialisa Motta Lily L. Chu Project Team Leader: Sunita Varada Michael Goldberg ICR Team Leader: Sunita Varada ICR Primary Author: Penelope Demetra Fidas F. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) The objective of the Project is to improve the competitiveness of micro, small, and medium enterprises (MSMEs) and the business climate that affects those firms. Revised Project Development Objectives (as approved by original approving authority) 6 (a) PDO Indicator(s) Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years Indicator 1 MSMEs receiving matching grants introduce new products or processes Value (number) 0 30 80 469 Date achieved 12/31/13 12/31/14 12/31/14 Comments (incl The number of beneficiary MSMEs that introduced new products or processes % achievement)surpassed the target by 377% Indicator 2 Decrease in time needed to start a business Value (days) 39 27 27 13 Date achieved 10/15/09 12/31/13 12/31/14 12/31/14 Comments (incl The decrease in time to start a business (in Managua) surpassed the target by % achievement)100% (i.e., the target decrease was 30%, while the actual achievement was 60%.) (b) Intermediate Outcome Indicator(s) Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised Target approval Completion or Values documents) Target Years 30% decrease in time needed to obtain a (see below, by each business license and municipality) construction permit. (Days) Business license: Alcaldia 14 n/a 10 1 de Matagalpa (Days) Construction Permit: Alcaldia de Matagalpa 2 1 1 1 (Days) Business license: Alcaldia Municipal de Leon 2 n/a 1 0.25 (Days) Construction Permit: Alcaldia Municipal de 12 n/a 8 1 Leon (Days) Business license: Alcaldia Municipal de Rivas 2 n/a 1 0.25 (Days) Construction Permit: Alcaldia Municipal de 2 n/a 1 1 Rivas (Days) Business License: Alcaldia Municipal de 3 n/a 2 0.25 Chinandega (Days) 7 Construction Permit: Alcaldia de Chinandega 4 n/a 3 1 (Days) Business license: Alcaldia Municipal de Granada 1 n/a 1 0.25 (Days) Construction Permit: Alcaldia Municipal de 3 n/a 2 1 Granada (Days) Business license: Alcaldia Municipal de Masaya 3 n/a 2 0.25 (Days) Construction Permit: Alcaldia Municipal de 5 n/a 3 2 Masaya (Days) Business license: Alcaldia Municipal de Bluefields 10 n/a 7 0.25 (Days) Construction Permit: Alcaldia Municipal de 10 n/a 7 1 Bluefields (Days) Business license: Alcaldia Municipal de Puerto 9 n/a 6 3 Cabezas (Days) Construction Permit: Alcaldia Municipal de 10 n/a 7 1 Puerto Cabezas (Days) 30%decrease in the time (see below by food to obtain food and health n/a and health permits) permits (Days) Health permit (Days) 180 n/a 126 78 Food Permit (Days) 15 n/a 11 10 Number of firms served by Decentralized Support 600 1000 3400 51,318 Centers (CAMIPYMEs) Commerce code has been revised and consulted with the Commerce code No revision of Revised National Assembly. presented to National n/a commerce code. commerce code It was submitted to Assembly (Text) the Office of the Presidency on December 19, 2014 10 month reduction in the time to obtain trademark 18 n/a 8 4 at RPI (Months) 8 12 month reduction in the time to obtain patent at 24 n/a 12 12 RPI (Months) At least 100 MSME understand and practice health and safety 0 n/a 100 279 measures at MITRAB (Number) Number of grants 0 620 600 864 awarded (total) Amount of grants 0 6,200,000 5,800,000 5,564,424 awarded. (Amount(USD) Number of firms that implemented product or 0 159 120 628 process quality enhancement projects Number of firms that introduce new products 0 159 80 469 and/or processes Number of firms that 0 n/a 120 617 increase sales Staff trained in project management, planning 0 n/a 60 53 and monitoring (Number) Adequate technical fiduciary staff in place, N Y Y Y clean audits (Yes/No,) Operational and Procurement Plans Y Y Y Y presented at start of every year. (Yes/No) G. Ratings of Project Performance in ISRs Date ISR Actual Disbursements No. DO IP Archived (US$ millions) 1 08/12/2008 Satisfactory Satisfactory 0.00 2 01/29/2009 Satisfactory Satisfactory 0.00 3 10/14/2009 Satisfactory Satisfactory 0.50 4 06/16/2010 Moderately Unsatisfactory Moderately Unsatisfactory 0.65 5 06/30/2010 Moderately Unsatisfactory Moderately Unsatisfactory 0.65 6 01/02/2011 Moderately Unsatisfactory Moderately Satisfactory 0.77 7 04/16/2011 Moderately Unsatisfactory Moderately Satisfactory 1.14 8 07/06/2011 Satisfactory Satisfactory 1.43 9 01/18/2012 Moderately Satisfactory Moderately Satisfactory 2.24 10 07/30/2012 Moderately Satisfactory Moderately Satisfactory 4.46 11 03/03/2013 Moderately Satisfactory Moderately Satisfactory 5.64 9 12 07/10/2013 Moderately Satisfactory Satisfactory 6.05 13 09/14/2013 Moderately Satisfactory Satisfactory 6.12 14 04/12/2014 Satisfactory Satisfactory 8.53 15 07/23/2014 Satisfactory Satisfactory 10.45 16 10/09/2014 Satisfactory Satisfactory 11.51 10 H. Restructuring (if any) Restructuring Board ISR Ratings at Amount Reason for Date(s) Approved Restructuring Disbursed at Restructuring PDO Restructuring & DO IP Key Change in USD Changes Made DO IP millions 07/18/11 No MU MS US$ 0.73 Designated FNI as the leader of C3; included support to revise the Commercial Code; installed a public-private steering committee for C1. 07/10/13 No MS MS US$ 3.97 Changes to institutional arrangements & some activity descriptions; cancellation of C3; one-year extension of the project due to effectiveness and some implementation delays 02/10/14 No MS S US$ 5.45 Reallocation of funding in the expenditure categories, less than 15% of the original amounts, ensuring that activities are complete by project close. 11 I. Disbursement Profile I.i. Actual disbursement amounts, by Component • Component 1: US$ 3.65 m • Component 2: US$ 6.44 m • Component 3 (cancelled): US$ 0 • Component 4: US$ 1.95 m 12 1. Project Context, Development Objectives and Design 1.1 Context at Appraisal Country and Sector issues From 2002-2008, Nicaragua experienced macroeconomic stability with steady positive GDP growth, stable exchange rates and declining interest rates. Foreign investment climbed to levels not seen since the 1970s and annual GDP growth averaged 3.2 percent between 2001 and 2006. However, this level of economic growth was inadequate to ensure long term economic growth and poverty alleviation, and the sustainability of these positive tendencies was not clear. Growth in GDP per capita averaged only 2.1 percent between 2001 and 2006, and remained in the single digits thereafter. Between 2001 and 2005, consumer price inflation jumped to an estimated 17 percent in 2007 (IMF), largely driven by high oil prices and the effect of Hurricane Felix. In November of 2006, the Frente Sandinista de Liberación Nacional (FSLN, the Sandinista Party) was elected after more than 15 years of the Liberal Party rule. The Government of the Liberal Party Rule confirmed the importance of private sector development in national economic development, particularly with micro and small businesses. In the years 2005-2008, the Government demonstrated its commitment to maintaining fiscal discipline. The enactment of the Public Financial Administration Law in August 2005 was an important step toward putting public finances in order. While delays in paying government treasury bills surfaced in 2008, the overall fiscal and monetary approach seemed to be sound. At the time of project design, free trade agreements presented a major challenge for the private sector in Nicaragua to grow, modernize and become more productive—or be left behind in the evolving regional trade regime. With the signing of the Central American Free Trade Agreement (CAFTA) in 2006, Nicaragua gained favorable access to the U.S. market. Other free trade agreement partners included Panama, Mexico and the Republic of China (Taiwan). However, for these openings to turn into economic gains, Nicaraguan firms would need to improve the quality of products (meeting international quality and process standards, such as international organization standards (ISOs) and Hazardous Analysis and Critical Control Point certification, and provide products on time and in large quantities. Forty-one percent of Nicaraguan exports with revealed comparative advantage to the rest of the world could not enter the United States market, mainly for reasons related to food sanitation. 1 The private sector was dominated by micro and small businesses, and a large informal sector. The MSME law defines microenterprises as having one to five workers, with small enterprises employing six to 20 employees, and medium-sized businesses with up to 150 workers. Nicaragua’s private sector was characterized by high levels of informality (estimated at 45 percent of the Gross Domestic Product in 2002). At the urban level, MSMEs were accountable for approximately 247,660 jobs or 74 percent of the total. About 56 percent of urban MSMEs were involved in commerce and services, 17 percent in manufacturing and the rest are spread across other sectors. Urban areas were characterized by non-agricultural business activities. Rationale for Bank Involvement The project supported the update of the Government’s Poverty Reduction Strategy under the National Human Development Plan, which emphasized private sector development. The National Human Development Plan called for maintaining support to the private sector in seven areas: (i) a more efficient 1 World Bank. 2005. DR-CAFTA: Challenges and Opportunities. 32953. Washington 13 regulatory framework; (ii) enhanced recognition of property rights; (iii) improved access to financial services; (iv) export and investment promotion; (v) increased productivity through value chains and clusters; (vi) rural development; and (vii) environmental sustainability. It highlighted the role of micro, small and medium enterprises in stimulating national growth and creating jobs. This project built upon previous Bank operations and studies in Nicaragua. The Bank had played a leading role in MSME development in the country, thanks to its work through the Competitiveness Learning and Innovation Credit (#3456-NI) executed by the Presidential Competitiveness Commission (CPC) and the Ministry of Development, Industry and Commerce (MIFIC). Also, the focus on MSMEs complemented the Bank’s important role in microfinance, with the Broad Based Access to Financial Services Project (#3903-NI). This project was structured to take advantage of possible synergies between different components. The business climate work complemented improved financial sector stability, enabling the project to address two key issues highlighted as constraints to growth by the private sector in the 2004 Investment Climate Assessment. This was expected to help institutions such as MIFIC and the Financiera Nicaragüense de Inversiones (FNI) to coordinate more closely than if they were supported by different Bank operations. 1.2 Original Project Development Objectives (PDO) and Key Indicators (as approved) The objective of the Project was to improve the competitiveness of micro, small, and medium enterprises (MSMEs) and the business climate that affects those firms. The key indicators were (i) MSMEs receiving matching grants introduce new products or processes and (ii) the decrease in time needed to start a business. 1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification The PDO and the key indicators remained unchanged during the two major project restructurings. However the targets, monitoring and evaluation indicators were enhanced during each restructuring: the team and the Project Implementation Unit (PIU) agreed to add targets to Component 1 to decrease the times to obtain a construction permit and a business license in eight municipalities; a binary indicator to reform the Commercial Code; and drastic reductions in the times to obtain a trademark and a patent at the Intellectual Property Registry (RPI.) They also added targets to Component 2 to train at least 100 MSMEs in occupational health and safety; and increase the number of beneficiary firms that would increase their sales. 1.4 Main Beneficiaries The main beneficiaries of the project are Nicaraguan MSMEs; additional beneficiaries include: the rest of the universe of Nicaraguan firms, and selected direct beneficiaries of project support within the Government of Nicaragua (GoN) (i.e., Commercial Registry of Managua, One-stop shop for Investments (VUI), Intellectual Property Registry, Ministry of Health, Ministry of Labor, National Laboratory of Measurements, Ministry of Family, Communitarian and Cooperative Economy; Ministry of Development, Industry and Commerce), and nine municipalities. 2 1.5 Original Components (as approved) The project was envisaged to be implemented over five years to improve the quality and affordability of services to MSMEs through four components: (i) improvements to the business and investment climate for MSMEs; (ii) matching grants for MSMEs to support, inter alia innovations, environmental improvements, and forward and backward linkages; (iii) innovative financial services such as a pilot partial credit risk guarantee system for MSMEs in coordination with regulated financial institutions; and (iv) improved 2 The municipalities included: Bluefields, Chinandega, Granada, León, Rivas, Managua, Masaya, Matagalpa, and Puerto Cabezas 14 strategic, technical and coordination abilities of MIFIC in the field of competitiveness. The components were designed to maximize complementarity. However, it was expected that if the implementation of one component were to lag, this would not have a significant negative effect on the other components. The primary focus of the project’s interventions was on urban MSMEs. 1.6 Revised Components The institutional arrangements for Components 1, 2 and 4 were changed, while Component 3 was dropped. - Component 1" Business and Investment Climate Improvement" Support Centers for Micro, Small, and Medium Enterprises (CAMIPYMEs) (Part 1.A (vi) in the amended financing agreement), was mapped to Ministry of Familial, Community, Cooperative and Associative Economy (MEFCCA). The rest of Component 1 remained with MIFIC. - Component 2 “Matching Grants for Eligible MSMEs” was mapped to MEFCCA - Component 4 “Institutional Development”, would be implemented by both MEFCCA and MIFIC. The scope of the component was expanded to cover both of these Ministries. Each Ministry was assigned a specific budget to implement their respective parts of this component. - Component 3 “Increased Access to Financial Services for MSMEs”, was dropped from the project, as the Government decided not to launch the partial credit risk guarantee mechanism, due to institutional and legal changes occurring in 2009 that were incompatible with the Component (see Section 2.2 for more details). All references to the Nicaraguan Finance Institution (FNI), which was to operate the facility, were deleted from the agreement. 1.7 Other significant changes i. Partial shift of implementation responsibility (MEFCCA/MIFIC) ii. Loss of US$1.1 m due to fluctuations in SDR value (in which the loan was denominated, while activities were planned in USD). iii. Cancellation and addition of activities in Component 1. First, the responsibility for implementation was agreed between the WBG team and the client to shift from solely in MIFIC, to shared responsibility with MEFCCA. That is, MIFIC was the executing agency at the start of the project, though later on Component 2 and part of Component 4 were transferred to MEFCCA in order to comply with a new law at the time that reorganized the executive power of the Government (Ley 804 “Ley de reforma y Adición a la Ley N° 290, Ley de Organización Competencia y Procedimiento del Poder Ejecutivo”). Second, as with many projects across the WBG portfolio and particularly in Nicaragua, exchange rate fluctuations between SDR and US dollars resulted in a net loss—US$ 1.1 m during the lifetime of the project. During the phase of project preparation, from 2007 to 2008, the entire Nicaragua portfolio was denominated in SDR as it was not possible to opt for credit denominated in US dollars, although activities were typically planned in US dollars. The ability to track and cope with these changes varied across the Nicaragua portfolio. The finance team in the PIU responsible for this project was not aware of the fluctuations in the exchange rate and consequent losses during the first four years of the project, meaning that planned activities and procurement were misaligned with the resources available. An initial loss of US$ 1 million became apparent by February 2012 and the total loss eventually reached US$ 1.1 million. However, the overall impact on the project was mitigated by several factors. At the time, the credit had only disbursed about 10.5%, so the GoN team adjusted their plans, started monitoring the exchange rate on Client Connection, and established a cushion against further losses. Also, after the midterm review in February 2012, a significant amount of the loan (~US$ 5.3m) that was originally allocated to the discontinued Component 3 was also cancelled. 15 Finally, following the client’s request, the support to regional one-stop shops for investment was cancelled from Component 1, 3 as well as support to the National Accreditation Office and MIFIC’s food technology laboratory since they were supported through other projects, while other activities were added. For example, the support to the Intellectual Property Registry (RPI) was added after it was found that beneficiary MSMEs from Component 2 lacked knowledge and usage of intellectual property rights. Furthermore, support to revise the Commercial Code was added, building on an Institutional Development Fund (IDF) Grant. 2. Key Factors Affecting Implementation and Outcomes 2.1 Project Preparation, Design and Quality at Entry Project preparation was sound: design quality was satisfactory and considered WBG previous work, studies, strategies, as well as the priorities of the GoN. The team took into account lessons of earlier operations; identified the risks—several of them substantial—and devised plans to mitigate them; and ensured a broad participatory process to ensure the design responded to as broad a constituency as possible. Importantly, the team used innovative approaches in the design of the matching grants system that contributed to its great success (as measured by its results, see Section 3). The project built on previous WBG projects (e.g., the Competitiveness Learning and Innovation Project, completed in 2006), and was informed by findings from the Investment Climate Assessment of Nicaragua in 2004, the Municipal Scorecard Study of 2008, and the annual Doing Business reports. The project responded to the World Bank’s Interim Strategy Note (2005) Economic Growth for Poverty Reduction objective of “improving the investment climate by making reforms to the regulatory framework for businesses to decrease bureaucratic costs, improve property rights, broaden financial services, promote exports, support clusters, increase the use of technology for agro-industrial production and promote environmentally sustainable growth.” Furthermore, it was relevant for the GoN’s Poverty Reduction Strategy under the National Human Development Plan, and complemented a new government strategy called the Micro, Small and Medium Enterprise Development Program (PROMIPYME by its Spanish acronyms). Incorporation of lessons learned from previous projects The project incorporated important lessons from previous WBG operations, as well as those of other donors: the World Bank’s recently closed Competitiveness Learning and Innovation Project in Nicaragua; the implementation of the Poverty Reduction Strategy Paper (PRSP); the results of the Nicaragua Investment Climate Assessment; other Bank-financed competitiveness projects in the region, and discussions with the Government, private sector, and donors; while the results from a small DFID grant contributed specifically to the design of the Partial Credit Risk Guarantee (PCRG). Key lessons from these sources included: • Investment climate improvements are important, but not sufficient, to improve private sector efficiency and competitiveness. • Quality and certification are essential to opening doors for MSMEs in the new free trade environment. 3 The client requested cancellation of funds to support the regional one-stop shops in favor of strengthening the nationally unified and electronic one-stop shop, the VUI. Funding to support the implementation of the other VUIs was cancelled after the midterm review. This was primarily due to concerns that the VUIs in the municipalities could not be sustained after the project and because a decision on the model to implement was significantly delayed. 16 • If public agencies operate matching grant programs, specific public sector administrative procedures should be adapted to increase efficiency and improve responsiveness to private sector demand. • Matching grants experiences reveal that there are three factors that characterize high-performing matching grants systems: (i) an agile matching grant promotion and selection mechanism, (ii) an experienced management firm or agency; and (iii) a supportive investment climate. • Free trade agreements present special challenges to governments, the private sector and civil society. • PCRGs can leverage loans to MSMEs from commercial banks with high liquidity when they offer the right incentives and have streamlined payment processes. • Donor activities in the field of competitiveness have grown rapidly in the region as a result of CAFTA, and coordination plays an increasingly important role. Specifically on Component 2, the team adeptly incorporated lessons into the design that were gathered from articles, literature and the WBG’s experience in over 37 private sector development Projects with matching grants components (from 1994 to 2008). The analysis was updated in 2011 and extended to 60 Matching Grant (MG) projects. 4 • Political economy issues and the risk of capture: It is typical in MG programs that those in government or other entities (such as chambers of commerce or local authorities) see the prospect of giving out free money as an opportunity to gain influence with their constituents. The project mitigated this risk through a very broad stakeholder engagement during the design phase. It identified potential beneficiary firms in several areas of the country, ensuring that marginalized groups such as ethnic and linguistic minorities were included, as well as a significant representation of female entrepreneurs. • Overly strict eligibility criteria: Many MG programs suffer from low take-up, which seems counter- intuitive given that MSMEs should leap at the prospect of 'free money' or assistance. However, looking into the operations manuals of MG programs, it appears that a common constraint to take-up is the imposition of strict eligibility criteria that does not consider the lack of information or bureaucratic hurdles faced by MSMEs. The Nicaragua MG program took this lesson on board by establishing only the most essential eligibility criteria (such as a level of formal registration, but not detailed procurement practices), simplifying the process and application forms, and increasing firms' chances of selection by offering technical assistance to them at the application stage. • 'Last mile' issues and red tape: In MG programs where eligibility criteria are not a deterrent, the implementation of the program—that is, the way in which MSMEs actually receive the services—may still discourage take-up. For example, some MG programs may require that participating firms pay for services and small investments upfront, with the promise of reimbursement later on. Many MSMEs may be unwilling to take such a risk. Or, they may be required to follow relatively burdensome procurement practices, such as obtaining three bids for every purchase subsidized by the program. In Nicaragua, the program was designed to mitigate these risks for firms, leaving much of the administrative responsibility to the implementing agency, while providing beneficiary firms with guidelines and the minimal requirements they needed to take advantage of the program. 4 The original lessons referred to the paper on the WBG matching grants internal website http://go.worldbank.org/OVDGTHSWY0. The updated study refers to: Campos, Francisco; Coville, Aidan; Fernandes, Ana M.; Goldstein, Markus; McKenzie, David. Learning from the Experiments that Never Happened : Lessons from Trying to Conduct Randomized Evaluations of Matching Grant Programs in Africa © World Bank, published in the Journal of the Japanese and International Economies (2014) 2014-01-08 CC By-NC-ND 3.0 IGO http://creativecommons.org/licenses/by-nc-nd/3.0/igo 17 Quality of risk assessment The overall risk to the project was appropriately deemed “moderate” at the approval stage. This assessment was composed of seven separate risks identified to the project, ranging from moderate to high. The team devised appropriate mitigation plans for each of these risks, mainly focused on capacity building, consultations with key stakeholders, and a plan of action in case such measures were ineffective. For example, the risks of procurement and financial management were rated as high and substantial, respectively. The team proposed to mitigate these risks with high quality technical training as well as additional human resources. In the case of the PCRG (originally Component 3), the team conducted broad stakeholder consultations as described below. The team also conferred with IFC during the identification stage on the justification of the pilot PCRG and possibilities of WB-IFC cooperation. IFC agreed on the importance of a PCRG at the sector level to alleviate market imperfections precluding Financial Institutions from expanding in the MSME sector. The WB, with technical assistance provided by the Banco del Estado of Chile, had assessed the preconditions and expected a viable pilot PCRG to be satisfactory, with a positive reception from the market. These preconditions included a stable financial sector, a strong interest by highly liquid banks (established through interviews) and the government (in the form of a strong initial proposal by FNI), as well as the positive reaction by the Supervisor of Banking and Financial Institutions, SIBOIF. Still, the risks to the implementation of Component 3 were recognized, such as a low market response, and therefore provisions upfront to discontinue the component if necessary were included. Adequacy of participatory processes The team further mitigated the overall risk through broad stakeholder consultations. With the aim of informing the preparation of the project design, an extensive social evaluation was implemented. The social evaluation was carried out in December 2007 and January 2008 and included consultations with indigenous leaders from the Caribbean Coast of Nicaragua (RAAN and RAAS regions) and meetings with government representatives from RAAN (Bilwi). A special discussion with representatives from the Mayagna people was organized simultaneously with bilateral meetings with representatives from the Ministry of Affairs for the Nicaraguan Atlantic Coast. The project was also designed in consultation with the private sector. In order to determine which groups are marginalized in the development of the Nicaraguan private sector, a social assessment was completed that highlighted the importance of including women, African descendants and indigenous groups in MSME development programs, due to the gaps in financial services and their uneven geographic distribution that they face. This assessment was based on statistics from the Central Bank of Nicaragua and from consultations with over 25 authorities on MSME development, consisting of representatives from: the Association of Microfinance Institutions (ASOMIF), the Association for the Development of the Atlantic Coast (Pana Pana), MIFIC, the Institute for Support of SMEs (INPYME), the Nicaraguan Council on MSMEs (CONIMIPYME), the National Chamber of Medium and Small Industry and Handicrafts (CONAPI), the Technological Institute (INATEC), and the Government of the North Atlantic Autonomous Region (RAAN). The team also held consultations with small business owners and community leaders. The PCRG component design integrated extensive consultations with the financial sector as well as internally within the WBG, both of which pointed to positive prospects for the success of the program. In these discussions, commercial banks expressed an interest in participating in the program. Moreover, a significant consultation process with financial institutions and other key stakeholders in RAAN was undertaken as part of the Nicaragua Broad Based Access to Financial Services Project. These institutions include Banco de la Produccion (BANPRO), the Association of Indigenous Women of the Atlantic Coast (AMICA), Pana Pana, the Rural National Cooperative (CARUNA), the Government of RAAN (GRAAN), and some cooperative associations. These authorities identified credit constraints to local MSME development. 18 2.2 Implementation Overall project implementation was delayed by the one-year lag between Board approval (June 2008) and effectiveness (June 2009), due to the recent (2007) change in Government and the time to obtain approval by the National Assembly, as required by Nicaraguan law. However, the project maintained its original lifespan, thanks to a one-year extension granted upon request by the GoN in 2012. The midterm review concluded that several activities under Component 1 would be cancelled, along with the entire Component 3. Furthermore, the project was considered a problem project in 2011, due to a number of issues as described below. Resolution of implementation issues by Component Component 1: Among other activities to support reform to the investment climate, this Component supported amendments to the Commercial Code. Although it was expected that MIFIC would present the revised Code to the Office of the President and then to the National Assembly in 2013, MIFIC complied with this target just two weeks before the project closed in December 2014. The one-year delay was caused by procurement and approval issues. In the middle of the project, the GoN modified the structure of the committees involved in this activity - it took about one year to re-organize and obtain their approval on the ToRs before executing the contract for the firm. Component 2: The matching grants component faced a 20-month delay in starting operations because there was a prolonged discussion within the GoN on whether to place the component under the auspices of MIFIC or Banco Produzcamos. The decision was handled within the top levels of government, which was a cause of the delay and a general difficulty in the operating environment in Nicaragua (for further details, see section 5.2 on borrower performance). Nevertheless, thanks to the one-year project extension, combined with the diligence of the implementation team and the close supervision of the WB team, this component exceeded most of its targets and nearly reached the remaining ones. Component 3 (cancelled): A series of institutional and legal changes during project implementation eventually prevented this Component from launching. While the project design planned that the Financiera Nicaraguense de Inversiones (FNI) would take the lead, the nature of the FNI radically changed in a way incompatible with the envisaged Partial Credit Guarantee Fund (PCGF). The GoN transformed FNI from a state-owned first and second-tier bank, to a second-tier government bank interested in both commercial and social lending. Prior to this change, commercial banks had been interested and on board with the PCGF. However, the transformed nature of FNI led to a conflict of interest in which those commercial banks became reticent to cooperate with a potential competitor bank in FNI. Meanwhile, the GoN channeled some social welfare schemes (such as ‘hunger grants’) through FNI and eventually renamed it Banco Produzcamos (BP), through Law 640 in 2009. 5 Given that Component 3, after the dissolution of FNI, was meant to operate through BP, this evolution posed additional risk to WB support because BP could have been perceived as a political instrument. Moreover, the leadership of BP wanted to charge a fee of 9 percent on the commercial banks in order to join the guarantee system, which is unusually high (for example, in Chile this rate does not surpass 3.5 percent). Commercial banks were not interested in joining the scheme at a rate of 9 percent, compounded with the other risks mentioned. Secondly, legal issues arose during implementation. In 2009, the GoN passed the Law 663 of the System of Societies of Reciprocal Guarantees for MSMEs, which was found to be legally incompatible with the proposed PCGF. Lastly, the timing of these issues during the global financial/economic crisis presented another threat to the PCGF, as banks were not keen to lend in general. 5 See article: “Daniel juramenta junta directiva del Banco Produzcamos.” July 15, 2009. Found on: http://www.lavozdelsandinismo.com/nicaragua/2009-07-15/daniel-juramenta-junta-directiva-del-banco- produzcamos/ 19 While these problems came up during implementation, they took 1.5 years to clarify and Component 3 was finally cancelled at the midterm review in 2012. 2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization The M&E design focused on close tracking of project activities and their intended results, with the outcome being a thorough and comprehensive quantitative account of the project’s achievements. Reporting formats were defined by the project’s targets and indicators. In addition to routine data collection by the PIU and the project team, the PIU personally visited all beneficiaries of Component 2, and an independent consultant was contracted to provide an interim and a final report on the component. Furthermore, the PIU committed to collecting data on impacts that had not been originally contemplated in the project design but that became evident over the course of implementation. The PIU was generally proactive in obtaining regular reports from each beneficiary agency in addition to individual beneficiaries in Component 2 and provided a summary of progress across all indicators to the team at regular intervals, including all supervision missions. Note that while an impact evaluation for Round 3 of the MGs was suggested midway through the project, it was not considered a priority for the country program at the time. Rather, it was recommended that the project dedicate funds to contract an outside consultant to undertake a separate in-depth evaluation of all three rounds, which is what was eventually done. The PIU and the project team collaborated closely to monitor the regular data reports and adapted the project activities according to lessons learned in real time. For example, during each round of matching grants, the PIU conducted surveys and on-site visits of the beneficiaries to collect data on the M&E indicators, as well as disaggregated data by gender, ethnicity, industry, location and size. Some beneficiary feedback was also gathered. In the first round, a majority of recipients reported that the lack of trademarks and patents, and the onerous process to obtain them, was negatively affecting their businesses and potential growth. The team therefore adjusted the activities in Component 1 to include support to the Intellectual Property Registry (RPI) specifically targeted to improving access for MSMEs. Two corresponding indicators were included in the M&E framework to track the times required to obtain a trademark and a patent. Yet the teams went beyond these two measurements to track additional data, which together provided a detailed picture of the improved access of MSMEs to intellectual property rights. They found that the number of trademarks registered annually tripled from its baseline; RPI revenue from trademark registrations correspondingly tripled from its baseline; the number of brands registered by MSMEs jumped from 26 in 2010 to 1,200 in 2014; and the number of intellectual property training events held for MSMEs rose from 4 in 2010 to 36 in 2014. 2.4 Safeguard and Fiduciary Compliance i. Safeguards: The project triggered the Bank’s Operational Policy 4.10 on Indigenous Peoples. Also, due to the potential negative environmental effects of the project, it was categorized as a “B”. The team and the implementation agencies made significant efforts to encourage positive social and environmental impacts of the project. These included, for example, attention to the inclusion of indigenous minorities and women as project beneficiaries in Components 1 and 2, as well as emphasis on good environmental practices for beneficiaries in Component 2. a. Social: The team and PIU made efforts to extend the project benefits to indigenous minorities and women through the formulation and implementation of an Indigenous Peoples Plan, thereby complying with OP 4.10 Indigenous Peoples. For example, the revised Commercial Code includes a type of indigenous community-driven company. Furthermore, consultations with the private sector and civil society were targeted to regions where indigenous people are present. Specific to Component 1, the occupational health and safety manual for MSMEs was translated into all 20 indigenous languages. For Component 2, the outreach video had subtitles in local indigenous languages and where those languages are spoken, subtitles were in Spanish. Social inclusion was also encouraged and tracked in supplementary M&E indicators: matching grant beneficiaries were disaggregated by indigenous-owned businesses, and by gender within those (and for all beneficiaries). b. Environmental: The PIU formulated and implemented an Environmental and Social Management Framework that guided their activities, especially for Component 2. The counterparts and the Bank team were committed to establishing safeguards to prevent any adverse environmental effects of the project. A negative list of activities was developed for the matching grants facility (and the partial credit guarantee mechanism, although it was cancelled), to ensure that activities supported by the project would have neutral or positive environmental impacts. Participating MSMEs in Component 2 were informed in writing of the negative list. As was described in the PAD, the Environmental Management Unit (UGA) of MIFIC and the Ministry of Environment and Natural Resources (MARENA) were involved in the screening and monitoring process for matching grants proposals to ensure that no inappropriate investments were supported. Furthermore, the improvement plans for the MSMEs comprised a section on reducing environmental impact. Thanks to this encouragement, some MSMEs changed their practices in favor of more environmentally friendly ones. For example, some bakeries were using charcoal and wood ovens, and have since switched to electric. ii. Fiduciary compliance: The financial management (FM) and procurement arrangements at the PIU were adequate and improved over time. The procurement, accounting, financial reporting, budgeting, staffing, external auditing and funds flow were acceptable for the implementation and closing of the project. Internal controls were sufficient, and periodic external audits and reports to the WB were satisfactory and on time in most instances. Several errors occurred during the lifetime of the project, which were later corrected and served as learning experiences for the PIU. The major instance occurred in February 2012, when the PIU realized that the exchange rate between SDR and USD had resulted in a loss of USD 1 million by that point for the project activities. At that time, the finance staff in the PIU made a quick turnaround and began closely tracking the exchange rate and adjusting project activities accordingly, using Client Connection. Most recently, the final interim financial report was delivered late because a fire in the server area of the Ministry delayed access to the system. 2.5 Post-completion Operation/Next Phase Sustainability is expected at two levels: (i) the improved performance of national firms and (ii) the technical and administrative abilities of MIFIC and beneficiary agencies. By modernizing production processes, Nicaraguan firms will be able to take fuller advantage of the opportunities of free trade agreements, becoming more sustainable. Technically sound business plans and more profitable activities will eventually enable firms to gain better access to financing. In fact, during the third round of grants, 163 out of 459 were able to obtain loans while benefitting from project grants. Firms will be able to access bank financing to invest in equipment and other physical assets. Improvements in the business and investment climate supported by the project will reduce the time that managers spend on permit and asset registry processes, enabling them to focus on the challenges of new processes and practices. Furthermore, the project development objective reflects the importance of enhancing MIFIC’s institutional capacity. The institutional capacity of both MIFIC and MEFCCA has been improved by project activities. In the first place, both ministries have gained the ability to handle World Bank projects—an important factor given that they will likely be tasked with future World Bank and other donor projects. Specifically, MIFIC has improved its understanding of private sector needs, as well as its capacity as a project coordinator and technical and strategic leader for private sector development. Lastly, agency-level beneficiaries have also gained sustainable advantages, thanks to the project’s intervention. To maintain the equipment and systems provided by the project, the Commercial Registry has 21 set up a dedicated IT team. Furthermore, the Intellectual Property Agency (RPI) has opened a window of access and communication to MSMEs. This has secured an additional source of (currently growing) revenues for the RPI. 6 Similarly, the support to facilitate transactions at the Commercial Registry and One- Stop Shop has provided the agencies extended access to the MSME population and possibly afforded them an additional stream of revenue. 7 Comparable gains were made in the eight municipalities targeted by Component 1: facilitation of the business license and construction permit coincided with an increase in municipal revenue in several cases. 8 In the absence of a rigorous evaluation or established counterfactual, the support provided by the project, combined with testimonials from municipal staff/mayors, demonstrates some level of attribution. Increased tax collection in targeted municipalities was assisted by the following project activities: reduction of the time required to pay taxes; support to develop/improve systems; new equipment to run the tax system; and improved HR management and working conditions. As a result of these improvements, staff and municipal officials report that taxpayers’ data improved and the amount they have to pay is clear and accurate, therefore increasing tax collection. Although the WBG and the Government have discussed options, there are no definite plans at the moment for a follow-on project, neither from the WBG nor from other donors. 3. Assessment of Outcomes 3.1 Relevance of Objectives, Design and Implementation Objectives: High The project objectives, design and implementation were highly relevant to Nicaragua’s priorities and the Bank assistance strategies at the time of preparation and today. The two elements of the PDO: i) to improve the competitiveness of micro, small, and medium enterprises (MSMEs); and ii) the business climate that affects those firms, were and are highly relevant for to the WBG and GoN priorities. The PDO responded to the World Bank’s Interim Strategy Note (2005) Economic Growth for Poverty Reduction objective of “improving the investment climate by making reforms to the regulatory framework for businesses to decrease bureaucratic costs, improve property rights, broaden financial services, promote exports, support clusters, increase the use of technology for agro-industrial production and promote environmentally sustainable growth.” It continues to be relevant to the current Country Partnership Strategy FY13-17, which emphasizes the importance of increasing competitiveness. Furthermore, it was relevant for the GoN’s Poverty Reduction Strategy under the National Human Development Plan (NHDP), which called for inclusive growth driven by private sector development, particularly the role of MSMEs in this endeavor and the importance of a more efficient regulatory framework—these objectives continue to be relevant for the NHDP today. This complemented a new government strategy at the time called the Micro, Small and Medium Enterprise Development Program (PROMIPYME). It included these as well as the additional objective of access to finance. 6 RPI revenue from trademark registrations correspondingly tripled from its baseline; the number of brands registered by MSMEs jumped from 26 in 2010 to 1,116 in 2014; and the number of intellectual property training events held for MSMEs rose from 4 in 2010 to 36 in 2014. 7 From 2010 to 2014, the number of transactions in the Commercial Registry doubled from 6,000 to 12,000. Over the same time period, the One-Stop Shop saw an increase in revenue from about US$20k to US$130k. Source: Final Implementation Status Report (ISR) December 2014. 8 For example, in Rivas, tax revenue increased by 50%, from US$3.9m in 2013 to US$5.8m in 2014. 22 Design: High The design was based on a theory of change that a combined effort to address both the external and internal constraints to MSME competitiveness would contribute towards sustainable and inclusive growth. The external constraints were identified as specific factors in the business environment that raised the cost to do business, keeping many firms out of the market and maintaining high operating costs (and hence uncompetitive) for existing MSMEs. Internally, Nicaraguan MSMEs were found to lack both skills and access to finance to be competitive. The project therefore designed a series of activities—business environment reform, matching grants, and a partial credit guarantee mechanism—to respond to these constraints, thereby paving the way for the growth anticipated by the GoN and the WBG. Implementation: High The implementation of the designed activities was also highly relevant. The WBG team together with the PIU made a concerted effort to continuously assure the project activities were relevant to the PDO and therefore the overarching goals of the WBG and the GoN, and adjusted these activities as necessary. Adjustments were made based on a strong M&E plan that also enabled the teams to ensure that activities were associated with results that were compatible with these goals. To this end, the project was also restructured three times in order to maintain its relevance and respond to changing priorities. 3.2 Achievement of Project Development Objectives The Project aimed to improve the competitiveness of micro, small, and medium enterprises (MSMEs) and the business climate that affects those firms. To achieve this, the Project addressed both external (Component 1) and internal (Component 2) constraints to the growth of Nicaraguan MSMEs, while also addressing the institutional capacity to manage and strategize for the MSME sector (Component 4.). The project improved the country’s business climate and the competitiveness of 864 beneficiary firms—or 9.3 percent of the total universe of MSME firms that have a minimum level of formalization as of 2014 9 —that created 1,196 permanent and 351 temporary jobs. The key indicators were (i) MSMEs receiving matching grants introduce new products or processes and (ii) the decrease in time needed to start a business. By these two measures, the project met and exceeded its objective. Improvement of the competitiveness of MSMEs--High. Through the three rounds of matching grants,10 the Project aimed to address the internal constraints preventing Nicaraguan MSMEs 11 from being competitive, particularly their lack of technical skills and access to finance. Almost all of its targets set in the intermediate results indicators were exceeded. Matching grants amounting to US$ 5.56 million (slightly lower than the planned US$ 5.8 million because of losses and some money transferred from grants to operation of grants) were provided to 864 MSMEs, far beyond the target of 600 firms. Matching grants were provided in five strategic productive sectors, pre-selected by the GoN: food agribusiness; wooden furniture; clothing textiles; leather goods; and artisan products. The grants were put towards both small equipment and technical assistance to achieve their objectives as laid out in their improvement plans. During the program’s implementation from 2010 to 2014, the beneficiaries created 1,196 permanent jobs (on average 1.4 jobs per firm) and 351 temporary jobs; 469 firms (54 percent) introduced new products or 9 Note that the Central Bank estimates the total universe of MSMEs in Nicaragua to be 106,619. Therefore the project has supported 0.8 percent of this population. To clarify, in the context of Nicaragua, “minimum level of formalization” refers to firms that register with the Unique Registry of MSMEs (RUM) but likely have not completed all of the steps to formalize. The firms registered with the RUM form a more accurate universe of comparable firms to the beneficiaries of Component 2, since it focused on micro firms, most of which are not fully formal. The average beneficiary MSMEs had 4.6 employees. 10 The MG activity was managed by the PIU, located within MIFIC, and then MEFCCA after the transfer. 11 By Law 645, Article 3, MSMEs in Nicaragua are defined as having between 1 and 100 employees; turnover between 200,000 and 6 million cordobas; and total sales between 1 and 40 million cordobas. 23 processes; 628 (73 percent) improved their products or processes; and 617 firms (71 percent) increased sales. Among the 54 percent of beneficiary firms, together they introduced 736 new 12 products. 13 To put these results in perspective, job creation rates among the general population of Nicaraguan firms are much lower in comparison: in 2010, small firms typically grew their staff by 3.3 percent; medium firms by 3.2 percent; and large firms by 7.3 percent. Converting the job creation rate among the beneficiary firms to the same measure, and given that on average, each firm started with 4.6 employees, their job creation rate was 30 percent. For additional (though imperfect) comparison, on average, FDI into Nicaragua typically produces six jobs per US$ 1 million of investment, which is also the highest rate in Central America. Given that Component 2 invested just US$ 5.56 million, the creation of 1,196 jobs is striking when juxtaposed with the mere 34 jobs that would be created by a similar amount of FDI. 14 These results were measured during the effective implementation period of Component 2. The first round of grants began in December 2010, with 180 jobs created by its close in March 2012. The second round ran for 15 months, ending in 2013 with beneficiaries creating 210 jobs; while the third round ran through 2014 and 806 jobs were created. The results were measured through self-reporting, various verification visits from the monitoring and evaluation team of the PIU, and sampled verification from an additional independent consultant. Because the project provided support to enhance the productivity of these firms, the total 1,196 jobs created during its lifetime is a conservative estimate, as it could be reasonably expected that the beneficiary firms would continue to create additional jobs after the project closing. However, this data is not available to date, as the PIU lacks funding for continued operations, including monitoring and evaluation. Further to the indicators tracked by the project, additional data demonstrate the extensive results associated with this project and the beneficiary MSMEs as well as the economy. Within the 617 firms that increased their sales during project support, the average rise in nominal monthly sales was 165 percent 15 . This rise varied across the three rounds: from 58 percent in the first round, to 268 percent in the second, and 171 percent in the third. By (imperfect) comparison, the average annualized real sales growth of small Nicaraguan firms was just 0.8 percent in 2010; for medium firms it was a mere 0.3 percent; and for large firms, 12.2 percent. At the economy level, improved competitiveness among firms is expected to lead to sustained long-term growth. These impacts are overwhelmingly positive. While comparison with the trends among non-beneficiary firms in Nicaragua and the region point to a potential causal relationship between the project’s intervention and the reported impacts, since the project did not include a rigorous impact evaluation or otherwise establish a counterfactual, it is impossible to determine any stronger attribution than what is presented here. In terms of social impact, the program also benefited Nicaragua’s minorities, counting 147 (17 percent) beneficiaries from the Creole, Miskito, Mayangna, Rama, Mozonte and Monimbó indigenous populations including those in remote areas on the Northern Atlantic coast. While together these groups comprise just 14 percent of the population, their over-representation in this program was important as they tend to suffer 12 “New” here refers to an innovation at the firm level, not at the economy level. 13 These data were collected by the PIU directly from MSME beneficiaries, and verified through multiple onsite visits to the firms. 14 Economic Commission for Latin America and the Caribbean (ECLAC), based on FDI markets investment announcements. Quoted in a blog on the US Council on Foreign Relations website by Shannon K. O’Neil, “Foreign Direct Investment and Jobs in Latin America”. September 12, 2013. Found on: http://blogs.cfr.org/oneil/2013/09/12/foreign-direct-investment-and-jobs-in-latin-america/ 15 The rise in sales among beneficiary firms was calculated using data provided by them and verified by the PIU. The increase is calculated as the average monthly sales increase after the project compared with before. 24 disproportionally from poverty and unemployment. Geographically, beneficiaries were located in 10 administrative departments and two regions, which together represented 71 percent of the country. In terms of gender, the majority of the 864 beneficiary firms were led by women (55 percent); that is, the program over-sampled women-led firms, given that as of 2010, only 36.8 percent of small firms had a female top manager. In the third round of the program, the team began to disaggregate the job creation data by gender and found that 319 permanent and 126 temporary jobs were created for women by the 459 firms in that phase. This is important, given that labor market participation for women has been much lower than for men, at 38.6 and 63.1 percent respectively. Women-led firms were also found to be comparably productive as those led by men. Women-led firms introduced more new products compared to those led by men, launching 72 percent of all new products. In Round 1, women beneficiaries introduced 160 new products; in Round 2, 159; in Round 3, 215 new products. Among women-led firms, the rate of job creation was substantial: 73 jobs in Round 1; 130 jobs in Round 2; and 344 jobs in Round 3. That is, 47 percent of the total permanent jobs created during this project were found in women-led firms. Improvement of the business climate--High: The project contributed to the improvement of the business climate in Nicaragua as measured by the key indicator, intermediate results indicators, and additional relevant outcomes beyond the monitoring and evaluation plan. The PDO indicator targeted a reduction in the time to start a business from 39 days to 27; the actual time at project’s end (as measured by the Doing Business in 2015 report) was 13 days, thanks to a full upgrade and streamlined procedures at the one-stop shop (VUI) and the Commercial Registry. 16 To achieve this, the project supported the development of the website of the VUI, in addition to office renovations, materials, capacity-building, technical assistance and equipment. At the Commercial Registry, the project supported similar activities, as well as automation of internal procedures, which together reduced the number of steps and time to complete registration. Thanks to these efforts, it is hoped that the next Doing Business report will testify to an additional reduction, once it is published in October 2015. 17 Improvements in the business climate were further demonstrated by the revision of the almost 100 year-old Commercial Code and the reduction in the times needed to obtain a business license and a construction permit across eight municipalities. Changes to the Commercial Code are expected to strengthen the legal security of companies and their property rights, and generally improve the country’s image vis-à-vis foreign investors. To this end, the project supported the following amendments to the Code: the inclusion of entrepreneurs (rather than solely commercial entities); the provision of a new company law; the update of the regulations surrounding commercial contracts; and the strengthening of the MSME special regime. While these legal reforms were vital to updating the framework governing commercial activities, the procedural reforms to business licenses and construction permits have made concrete impacts in the business environment. The time to obtain a business license decreased from an average of 5.5 days across the eight municipalities, to just 0.6 days on average, while the time to obtain a construction permit decreased from 6.4 days to 1.25 days on average. These reforms coincided with an increase in the number of formally registered licenses and construction permits, thereby boosting municipal revenue and budgetary self- reliance. The average increase in revenue across municipalities from 2012 to 2014 (the period in which reforms were realized) was 70 percent, while the average increase from 2010 to 2012 was 49 percent. One 16 The Project did not focus on lowering the costs for starting a business; however, during the last 10 years Nicaragua has made important progress in this aspect. During the Project implementation, the costs decreased from 111.7% in 2010 to 73.9 % of income per capita in 2015. Since 2004 the costs have decreased from 337.8% to 73.9% of GNI per capita in 2015. 17 The next report, Doing Business in 2016, covers the time period of July 2014 to June 2015. As of writing of this ICR, it is not yet confirmed whether the report will indeed report the expected reduction. 25 municipality, Leon, has been ranked number one in Central America and the Dominican Republic in terms of ease of obtaining construction permits by the Subnational Doing Business report 2015 on this region. Additional reforms targeted bureaucratic hurdles that posed particular constraints to MSMEs. First, support centers specifically oriented to MSMEs (CAMIPYMEs) were provided with technical assistance and equipment, in order to better serve their clients. Following this support, the eight regional offices together attended to an annual average of 14,780 enquiries from MSMEs after the reform, compared to 6,978 before. While these centers served as intermediaries and facilitators to help MSMEs to navigate the business climate, some institutions and regulations needed reform in order for MSMEs to access them. Before the project, many MSMEs were prevented from entering larger supply chains or exporting for lack of standards, both in quality and sanitary conditions. Prior to the project, health and food permits took six months and two weeks to obtain, respectively, and were only valid within Nicaragua. Moreover, the process to standardize and calibrate all types of products was unduly complex for MSMEs. These procedures hindered Nicaraguan MSMEs from trading and exporting consumable products. The project therefore contributed to the purchase of equipment for the National Metrology Lab (LANAMET) in order to upgrade and improve its standardization services, especially for MSMEs. Furthermore, with project support, the Ministry of Health (MINSA) was able to automate health and food permits, decreasing the processing times from six months to 2.5 months and from two weeks to 10 days, respectively. To enable this decrease, the project also contributed to the purchase of new equipment for the MINSA lab, to enable it to efficiently test the safety of products. The automation has also improved the Ministry’s capacity to monitor these permits and their users, including the firm’s size, sector and location. Moreover, the MINSA system is now ready to be linked with other systems in Central America (which is envisioned by a parallel WBG advisory services project 18 ), to eventually facilitate the export of Nicaraguan products therein. Since the reduction in time, MINSA has issued 180 new health and food permits, facilitating the ability of MSMEs to trade and export their products. Worker health and safety were additional concerns for MSMEs, which often lacked the knowledge and resources to comply with such standards, thereby sacrificing potential productivity gains. 19 The project addressed these issues at the firm level and at the policy level. At the firm level, worker health and safety standards were included in a number of improvement plans of the beneficiary MSMEs in Component 2. At the policy level, the project built capacity at MITRAB, the Ministry of Labor, including: training of staff; drafting of manuals and guidelines for good practices in health and safety, specifically targeted to MSMEs, and written in all national languages; and the capacity of MITRAB to train MSMEs in these good practices. The project allowed MITRAB to create a sustainable link with MSMEs in order to access its support—not only during the project, but thereafter as well. MITRAB has dedicated its own resources to continuing this link through 2015. By the end of the project, MITRAB had trained 279 MSMEs in good worker health and safety standards. These MSMEs are expected to reduce absenteeism and worker turnover, improve worker morale, and thereby increase their productivity. Through the beneficiary feedback obtained in the matching grants program, it became apparent that the lack of knowledge and use of patents and trademarks were preventing MSMEs from innovating and expanding 18 The Central America regional trade project (#599066) objective is to streamline, harmonize and automate procedures for sanitary registration for processed food and beverages in Costa Rica, El Salvador, Guatemala and Honduras. These procedures will include first time registry and mutual recognition registries. Nicaragua is now ready to integrate into this regional system, thanks to this project. 19 Worker health and safety standards are associated with firm productivity, according to the World Health Organization. In particular for MSMEs, where workers may be at higher risk and typically balance on the poverty line, any absence due to injury or illness is likely to have a significant impact on both the business as well as the income of the employee. See: http://www.who.int/occupational_health/topics/workplace/en/index1.html 26 their business. The project addressed this constraint with support to the Intellectual Property Registry (RPI) to improve access to patents and trademarks for MSMEs. As a result, the number of trademarks registered annually has tripled from about 3,000 in 2010 to more than 10,000 in 2014; and the number of MSMEs registering their brands jumped from just 26 in 2010 up to 1,196 in 2014. As a percentage of MSMEs registered in the RUM (Unique Registration of MSMEs), this is 13 percent. This rate is on a par with the 15 percent average registration rate of intellectual property rights by firms in comparable LAC economies. 20 In Nicaragua, the revenue generated for the RPI from these trademarks also tripled from around US$ 400,000 to US$ 1.2 million in the same time period. To achieve these results, the project supported the RPI with equipment, furniture, systems, capacity-building and assistance to hold training events for MSMEs to educate them on the value and importance of intellectual property rights. While previously the RPI only held four such events per year in 2010, this number rose to 36 such events in 2014. Institutional strengthening. The project aimed to strengthen the capacity of the coordinating agencies (MEFCCA and MIFIC) to manage the MSME sector and strategize to increase its competitiveness, as well as plan reforms to the business environment. To attain this, the project supported the training of 53 personnel in project management, planning and monitoring, slightly falling short of the target of 60. Furthermore, as an outcome of this training, the project monitored the presence of adequate fiduciary staff and the delivery of clean audits—this was fully achieved. The PIU delivered audits for all five periods of the project. Furthermore, they produced four annual operational and procurement plans, in addition to 14 modifications to those, over the project lifetime. Counting these accomplishments and their overall experience managing a World Bank project, MEFCCA and MIFIC have significantly improved their ability to lead their respective agendas. MIFIC in particular has gained important knowledge and experience to enhance its capacity to create and lead a strategic vision for private sector development, focused on MSME competitiveness and improvements to the business environment. To put these reforms in context—without specifically claiming attribution to this project—it is worth highlighting the progression of Nicaragua’s ranks on two Worldwide Governance indicators during the project period. In Government Effectiveness, from 2008 to 2013, the rank rose steadily from 17th to 23rd percentile. This compares favorably with the period from 2002 to 2007, when its rank was on a steady decline from 25.9 to 16.5 percentile. Furthermore, in the indicator Regulatory Quality, Nicaragua has been on an upward trend from 2008 to 2013, starting at 38.3 and reaching 43.1 percentile. From 2002 to 2007, this rank fluctuated along a downward trend, from 39.7 to 35.4. 3.3 Efficiency Rating: Substantial While the project did not include an ex-ante economic analysis, based on a literature review, it was expected to yield a positive ERR. An ex-post analysis confirmed this expectation, based on the results of Components 1 and 2 only, in the absence of generally accepted methods to quantify the effects of the types of institutional reforms supported by Component 4. A partial NPV, based on job creation in the beneficiary firms as a proxy for the impact of the matching grants, was calculated for Component 2: US$ 4.6 million, while US$ 6.4 m was disbursed for this component, 18 percent of which was for operating costs. Note that this operating cost compares favorably with the experience of similar programs in other countries that spent, for example: Argentina, 36 percent; Indonesia, 47 percent; Kenya, 57 percent; and Mauritius, 19 percent. For more details, see Annex 3. 20 World Bank Group. Innovating in the Manufacturing Sector in Latin America and the Caribbean. Latin America and the Caribbean Series Note No. 9. Rev 8/2014. See: http://www.enterprisesurveys.org/~/media/GIAWB/EnterpriseSurveys/Documents/Topic-Analysis/Innovating-in- the-Manufacturing-Sector.pdf 27 3.4 Justification of Overall Outcome Rating Rating: Satisfactory Given that the project highly achieved the PDO; it exceeded the main indicators; it was implemented with substantial efficiency; and it is highly relevant to both the GoN’s current objectives and World Bank current assistance strategy and its design and implementation are highly relevant to achieve the objectives, the overall outcome rating is Satisfactory. The outcomes associated with the first objective of the project resulted in a near total disbursement of matching grants to 864 beneficiary firms, who created 1,196 permanent and 351 temporary jobs and introduced 736 new products. Likewise for objective 2, the project resulted in an improved business environment, as indicated by the decrease in the time to start a business from 39 to just 13 days. 3.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development i. Poverty impacts: The project directly supported the creation of 1,196 jobs in MSMEs over its lifetime, as found in numerous follow-up visits and surveys by the PIU on the beneficiary firms. Given that Nicaragua has a national poverty rate of 42.5 percent, with even higher rates among women and minorities, these jobs will allow many people an opportunity to increase and receive a steady income for themselves and their families. Considering that the average fertility rate is three children per woman 21 , these 1,196 jobs are expected to raise the income of up to 5,980 people. Furthermore, the increased sales among the beneficiary firms has a direct impact on raising the income of the business owners, while also increasing their demand for local inputs, thereby producing positive multiplier effects in the economy. Their introduction of new products and processes is also expected to raise their productivity and therefore their earning potential. ii. Gender aspects: The project had positive impacts on women entrepreneurs. Component 1 facilitated business start-up and operations procedures. Complex business regulations typically pose a heavier burden to female vs. male-owned firms because women are more ‘time-poor’, dedicating more time than men to both earning a living as well as taking care of their families. Therefore women entrepreneurs are more likely to operate in the informal sector and remain small businesses, as they lack the time to navigate a complex business environment. They are also found to be more likely to be subject to bribe-seeking by officials. 22 Component 1 is therefore expected to have made the processes of business entry, construction permits, health and food permits, patents and trademarks, and occupational health and safety standards more accessible to women, thereby encouraging them to operate in the formal sector, and utilize these services to enhance the productivity of their firms. Component 2 over-represented women among its beneficiaries, providing 55 percent of the matching grants to women. In the third round of the program, the team began to disaggregate the job creation data by gender and found that 319 permanent and 126 temporary jobs were created for women by the 459 firms in that phase. This is important, given that labor market participation for women has been much lower than for men, at 38.6 and 63.1 percent respectively. Moreover, Nicaraguan women are rated by the World Economic Forum’s Global Gender Gap Report to fall short in terms of salary equity, estimated income, and participation in high-level and technical roles in the work place. 23 Therefore, these grants provided an 21 World Bank. World Development Indicators data. See: www.data.worldbank.org. 22 Amanda Ellis, Claire Manuel, and C. Mark Blackden. Gender and Economic Growth in Uganda: Unleashing the Power of Women. World Bank, Washington, DC. 2006. 23 These data are from 2005, based on the report by the Banco Centroamericana de Integracion Economica “Ficha Estadistica de Nicaragua.” Found on: http://www.bcie.org/uploaded/content/article/1249943988.pdf 28 opportunity to the beneficiary female entrepreneurs to strengthen their skills, leadership roles and increase their income, in order to narrow the gender gap. iii. Social development: Component 2 also over-represented ethnic minorities, with 17 percent of beneficiaries from the Creole, Miskito, Mayangna, Rama, Mozonte and Monimbó indigenous populations. This is a key achievement in terms of promoting social cohesion and alleviating poverty. In the Pacific and North-Central regions, 45 percent of indigenous people live in poverty, and 37 percent in extreme poverty. In the autonomous regions, also targeted by the program, the numbers are dismal: 76 percent of Miskitos, 51 percent of Mayangnas and 62 percent of Ramas live below the poverty line. 24 Thus, the support provided to the minority-led beneficiary firms will afford those entrepreneurs, their employees and their families, the potential to escape from such poverty. There may be other positive spillover effects in their local communities caused by the increased sales and jobs among beneficiary firms. (b) Institutional Change/Strengthening The institutional changes and capacity support are described fully above in Section 3.2. (c) Other Unintended Outcomes and Impacts (positive or negative) Among the beneficiary firms and the 1,196 employees they hired, the effects of the global economic and financial crisis were cushioned. Financing equivalent to US$ 5.56 million was provided to 864 firms during a time when overall credit to the private sector was contracting. This credit allowed the recipient firms to create new products and processes, which is expected to contribute to their increased competitiveness, and the overall sustainable growth of the economy. This contribution is also important, given that during the crisis, GDP growth rates dipped to -3 percent in 2009, before rising again to 3 percent in 2010 and remaining steady at 5 percent since 2012. Furthermore, jobs were created while the unemployment rate was rising— from 6 percent in 2008 to 7 percent in 2009, to its height at 8 percent in 2010-12, until finally starting to recover at 7 percent in 2013. 25 3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops Several surveys were conducted, focused on Component 2. The PIU conducted in-depth evaluations of the progress of the matching grants recipients after each of the three rounds, conducted principally through multiple on-site visits to the beneficiary firms. These reports monitored data at the project level, as well as disaggregated by gender and location of the beneficiary firms. They also investigated any issues with implementation of the overall program as well as the individual improvement plans of the firms. To complement this, the PIU hired an independent consultant to conduct a sample survey and report on all three rounds of Component 2. While the findings are similar, the consultant report also includes feedback from the beneficiary firms and supplementary analysis of the data. The PIU reports reaffirm the results of the M&E indicators and supplementary data mentioned in Section 3.2 of this report. Furthermore, they disaggregated the data on the distribution of beneficiaries by gender, ethnicity, size, industry and location. This analysis allowed the PIU to monitor the representativeness of the program and align with its objective to target firms managed by women and ethnic minorities. It also provided insights for the PIU, the coordinating agencies and the GoN in general that will be useful in future programs to support MSMEs, such as the prevalence of female entrepreneurs in certain industries and the location of those industries around the country. For more details, see Annex 2 on the results of the project. 24 GIZ. Working paper: “Pueblos Indigenas en Nicaragua.” October 2010. Found on: http://www.giz.de/expertise/downloads/giz2010-es-laenderpapier-nicaragua.pdf 25 World Bank. World Development Indicators for Nicaragua. www.data.worldbank.org 29 The report by the independent consultant corroborated many of the findings of the reports completed by the PIU. The data related to the indicators tracked by the project were very similar, as presented in Section 3.2 of this report. Yet the report went beyond these to include beneficiary feedback on their experience with the program, analysis of the data, and commentary on the implementation of the program, including efficiency. The report included a survey of 51 beneficiary firms of the program, representative of the three rounds, all industries and locations covered by the program. It also comprises feedback gathered from the PIU, the suppliers of the goods and services covered by the grants, and firms that were not beneficiaries of the program, as a point of comparison. For more details, see Annex 5. It is also noteworthy that the matching grants component of the project has been highlighted by the WB LAC region as a best practice in their ‘Lunch and Learn’ series of knowledge-sharing presentations. Moreover, in Nicaragua, the impact of the overall project has been underscored by numerous press articles. In one of these, a beneficiary of the program noted indicated how her bakery business grew as a result of project support: “Before, we only used one bushel of flour. Now we use quintals.” 26 Another article mentioned that the support provided by PRODEMIPYME was a “momentous step” for the five targeted sectors. 27 These positive reports are further reinforced by the consistently positive feedback from beneficiary agencies of Component 1 and the firms supported by Component 2. 4. Assessment of Risk to Development Outcome Rating: Low There does not appear to be any imminent risk that technical, economic or political factors could reverse or decrease the effectiveness of the development outcome as it has been achieved by the project. The policies of the GoN that provided the framework for the design of this project are still relevant and promoted by the current administration. Both the beneficiary agencies of Components 1 and 4 and the beneficiary firms of Component 2 have received capacity support and enhanced skills that are difficult to remove. Furthermore, the support provided to the beneficiary firms is self-sustaining, in that their enhanced competitiveness has provided them with increased income and improved opportunities to access finance, which will allow them to grow. One minor risk to the sustainability of the development outcome, for all beneficiaries, is that they may not have access to the funds or the suppliers to make repairs and maintain the equipment that were financed by the project. One exception is the Commercial Registry, which set up an in-house IT team to conduct software updates and maintain the equipment provided by the project. For other beneficiaries, this risk may be slightly higher for the MSMEs of Component 2 that are located in remote and rural areas. 28 5. Assessment of Bank and Borrower Performance 5.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Satisfactory The Bank presented a team of Spanish-speaking experts with ample experience in the main areas of the project: investment climate reform, matching grants, and access to finance for MSMEs (for the original partial credit guarantee component). The team analyzed the key constraints based on the information 26 Nicaragua Emprendedores. “Emprendedores: el pulso de la economía de un país” 27 El Nuevo Diario. “85% de los empleos vienen del sector mipyme”. Published on October 30, 2014. 28 This point was also raised in the report on Component 2 conducted by the independent consultant. 30 available at that time to increasing the competitiveness of Nicaraguan MSMEs—both external (the investment climate) and internal (business skills and access to finance)—and designed a project to address these. The team also did not shy away from including the innovative partial credit guarantee component, while acknowledging that this was a risky approach with a high probability of failure. The design incorporated the GoN’s vision for poverty reduction and MSME development, as well as extensive stakeholder consultations. The focus was on development impact: the team supported the GoN to set up a M&E system with targets that would be linked to economic impact. The design process was effective in setting up a relevant and well-structured project that the GoN felt empowered to own and manage. (b) Quality of Supervision (including of fiduciary and safeguards policies) Rating: Satisfactory The WB team provided close supervision and support to the borrower team. The WB team made themselves available for any questions or concerns from the borrower team, and usually responded to their queries within 24 hours. They provided thoughtful guidance to the borrower team, backed up by analysis and presented with examples of international good practices. Supervision of overall project The WB team was transparent in its assessments and advice for moving forward, as well as flexible in adapting to the changing circumstances of the project and the needs of the clients therein. For example, when Component 3 was cancelled, the team was quick to cancel the corresponding funds. In another instance, when preliminary results from the matching grants program found that MSMEs lacked knowledge and usage of trademarks, the team responded by adding support to the Intellectual Property Registry to Component 1, specifically targeted to MSMEs. Furthermore, the supervision missions assessed the status of the project in situ, as the team met with all implementing agencies to discuss progress and address any lags. Before departing Nicaragua, the team would always hold a closing meeting in which they conferred on the Aide Memoire, including project status, any pending issues, next steps and deadlines. Between missions, the team would follow up with VCs, conference calls, and emails. This approach allowed the WB-GoN to jointly track objectives and reach targets, thereby galvanizing the development of the project. Supervision of fiduciary and safeguards The WBG provided sufficient support overall to the GoN to comply with fiduciary and safeguard requirements. Training on procurement forms and the accompanying materials provided were helpful for the GoN team. However, it was noted that the WBG procurement team was more accessible when there was a specialist located in Managua, as in the beginning of the project, compared to having to rely on a specialist in Washington later on. Different WBG procurement specialists were sometimes observed to interpret procurement rules differently. It was also noted that WBG procurement rules are sometimes more demanding than similar rules from the IADB for example. For low cost acquisitions, for instance, the WB asks for three eligible bids, while the IADB does not limit the bids to only eligible ones and does not require three. Financial management support was equally satisfactory. The GoN team received fast and adequate responses from the WB FM team in Brasilia and later on in the project, with the FM specialist in Managua. It was noted that the WB FM rules are easy to understand and follow. Role in ensuring adequate transition arrangements after closing The closing arrangements were sufficient. The WB team presented a clear plan to close the project, including WB rules regarding final disbursements and the post-project grace period. (c) Justification of Rating for Overall Bank Performance 31 Rating: Satisfactory The Bank contributed to the success of the project through its global knowledge and experience, as well as sensitivity to the local context. It therefore ensured a relevant and participatory design that empowered the GoN to achieve its own development objective to enhance the competitiveness of MSMEs and improve the business environment affecting them. The team provided diligent supervision and responded promptly to requests, questions and changes to the priorities of the counterparts. 5.2 Borrower Performance (a) Government Performance Rating: Satisfactory The GoN was satisfactory in providing an environment in which the project could be appropriately designed and implemented. The key ministries responsible for implementing the project, MIFIC and MEFCCA, coordinated exceedingly well among all 14 agencies and institutions, including eight municipalities that were involved in Project implementation, in a manner that exemplified best practice. These ministries and the Ministry of Finance were also very supportive of the project objective and made significant efforts towards its success. There were a few impediments posed by GoN functions and decision processes along the lifetime of the project that could have been improved. These were: (i) the GoN policy requiring National Assembly approval resulted in a delay of one-year between approval and effectiveness (ii) the decision to move half of the project to another ministry during implementation caused additional delays; (iii) the fluctuation of the decision on where to construct LANAMET was disruptive; (iv) and the GoN’s decision to modify the structure of the committees in charge of the Commercial Code amendments also caused approximately a one-year delay to this activity. Furthermore, in some instances, the communication between MIFIC and MEFCCA vis-à-vis the Ministry of Finance could have been stronger and more consistent. Some turnover in the ministerial posts of MIFIC and MEFCCA may have contributed to this. (b) Implementing Agency or Agencies Performance Rating: Satisfactory The PIU and implementing agencies were fully committed to achieving the PDO and demonstrated this through their ownership of the project and diligence in carrying out the activities. This was especially notable, given that they did not have previous experience with WBG projects nor matching grant programs. The PIU was also able to leverage resources within MIFIC, such as environmental specialists, to build their team. Further, they ensured that the design was inclusive, conducting extensive stakeholder consultations and obtaining beneficiary feedback throughout the project. In the same vain, they ensured strong coordination among parallel donor efforts—for example, the VUI was supported by both the IDB and EU in complementary aspects to the support provided by this project, and there was no overlap. Moreover, their biggest achievement in terms of coordination was in Component 1 – the PIU very successfully coordinated among 14 different agencies, including GoN agencies at the same level (e.g., MINTRAB and MINSA), the commercial registry and VUI, and municipalities. They also resolved any implementation issues in a timely manner and requested help from the WB team as needed. A comprehensive M&E system, including both project-level, intermediate, and complementary data collection allowed this close monitoring of activities and quick adjustments when needed. For example, when the PIU learned that beneficiary firms in Component 2 lacked knowledge and use of trademarks and patents, they quickly adjusted activities in Component 1 to include support to the RPI to improve access for MSMEs. In line with safeguard policies, the PIU made special efforts to use the project as a vehicle for social and economic empowerment of women and minorities, and to promote environmentally sound policies in the agency and firm beneficiaries. Financial management was sound, except for the initial lack of monitoring of the SDR to US$ exchange rate, though this was later corrected. Borrower procurement processes, and contract administration were of generally good quality, reliability, timeliness, and transparency with minor corrective actions needed by the WBG team. Procurement practices were followed correctly, though some delays occurred due to lack of 32 experience of the PIU in estimating the time required to complete the requisite procedures. Overall, however, the PIU and implementing agencies took charge of the project activities, owned them and implemented them to achieve and surpass nearly all targets. (c) Justification of Rating for Overall Borrower Performance Rating: Satisfactory The GoN, together with the PIU and implementing agencies, completed a successful project that met and exceeded nearly all targets. The achievement of the PDO to enhance the competitiveness of MSMEs and improve the business environment is likely to be sustained and contribute to the overall competitiveness of the economy. 6. Lessons Learned Technical Technical assistance at the application stage leads to greater beneficiary satisfaction and success of matching grants programs. Firms led by women and indigenous people, as well as other marginalized groups, are often those that lack the time and capacity to complete the application process and moreover, understand the needs of their own business in order to improve. To encourage take-up of matching grants programs, conduct a communications campaign with clear, simple and accessible messaging geared towards MSMEs . Such campaigns are even more effective when they are conducted through both national and local channels so that MSMEs around the country can access the information and therefore the program. Close monitoring of matching grants implementation helps to solve last-mile challenges faced by MSMEs. On-site visits of beneficiary firms allows for early detection of problems in the implementation of grants, particularly in the procurement of goods and services. This may be especially relevant in small countries, where certain goods and services may not be locally available, requiring the intervention of the implementation unit to locate them. Invest in an impact evaluation to claim results from a matching grants program. Given the mixed results seen thus far in matching grants programs supported by the WBG, it is important to invest in a rigorous impact evaluation at the start of a matching grants program in order to claim attribution to the project for impacts such as job creation and productivity gains. The results of such an evaluation can serve as a useful input to government policies on future matching grants programs, and lessons learned for the WBG in its future operations of such programs. Business climate reforms require high-level commitment and cooperation across agencies. Projects often avoid reforms that require cross-agency cooperation. However, a strong champion agency with convening power can address this challenge by, for example, signing inter-agency agreements or MOUs to facilitate cooperation. Operational Conduct procurement training for all PIU and implementing agency staff involved in the procurement process. While the responsible procurement staff are often the focus of such training, other staff may be involved in the process and affect its efficiency. For example, those staff that plan activities and corresponding timelines should be aware of procurement requirements so that their plans are realistic in terms of timing, resources and selection of providers. 33 The establishment of a Steering Committee within the counterpart government can enhance the efficiency of project implementation. Such a committee serves as a platform and mediating body among sometimes competing or unfocused interests within a government and with other stakeholders. 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies The Borrower commented that the support of the WB was fundamental to the success of the project and there were no issues raised. They rated overall WB performance as highly satisfactory. (b) Cofinanciers: N/A (c) Other partners and stakeholders. N/A 34 Annex 1. Project Costs and Financing (a) Project Cost by Component (in US$ Million equivalent) Actual/Latest Appraisal Estimate Percentage of Components 29 Estimate (US$ millions) Appraisal (US$ millions) Component 1 4.11 3.65 89 Component 2 8.36 6.44 77 Component 3 4.8 0 0 Component 4 1.48 1.95 132 Unallocated 1.25 n/a n/a Total Baseline Cost 20.00 12.04 57% Physical Contingencies 0.00 0.00 0.00 Price Contingencies 0.00 0.00 0.00 Total Project Costs 20.00 12.04 57% Front-end fee PPF 0.00 0.00 .00 Front-end fee IBRD 0.00 0.00 .00 Total Financing Required 20.00 12.04 57% (b) Financing Appraisal Actual/Latest Type of Percentage of Source of Funds Estimate Estimate Cofinancing Appraisal (US$ millions) (US$ millions) Borrower 0.00 0.00 .00 International Development Association Credit 20.00 12.04 57 % (IDA) 29 Besides these allocations at appraisal, the project originally had US$ 1.48 m unallocated at that time. 35 Annex 2. Outputs by Component The Project aimed to improve the competitiveness of micro, small, and medium enterprises (MSMEs) and the business climate that affects those firms. To achieve this, the Project addressed both external (Component 1) and internal (Component 2) constraints to the growth of Nicaraguan MSMEs. The project improved the country’s business climate and the competitiveness of 864 beneficiary firms—leading to the creation of 1,196 permanent jobs in these MSMEs. The key indicators were (i) MSMEs receiving matching grants introduce new products or processes and (ii) the decrease in time needed to start a business. By these two measures, the project met and exceeded its objective. The first PDO indicator targeted a reduction in the time to start a business from 39 days to 27; the actual time at project’s end (as measured by the Doing Business in 2015 report) was 13 days, thanks to streamlined procedures at the one-stop shop (VUI) and the Commercial Registry. Moreover, the same report is expected to testify to an additional reduction down to 7 days, once it is published in October 2015. 30 The second PDO indicator aimed to measure the level of innovation brought about by the matching grants support to MSMEs. The result far surpassed the team’s and the PIU’s expectations: 469 firms introduced new products or processes, compared to the target of 80. (see Table 2.1 below.) Table 2.1 Project Development Objective Indicators PDO indicator/ Re sults Base line Targe t Final Re sult De cre ase in time neede d 39 27 13 to start a business (Days) MSMEs re ce iving 0 80 469 matching grants introduce new products or proce sse s (Number) Component 1: Business climate improvement According to plans set out at appraisal, this component supported reforms to the business environment that posed particular constraints to MSMEs, but whose reforms have eased entry and operations for all firms. The first activities facilitated the processes to obtain business registrations, licenses and construction permits. These were measured at both the national level, in the case of the VUI for business registration (linked to the PDO results indicator above), and at the municipal level, in the case of licenses and permits. The targeted municipalities included: Bluefields, Chinandega, Granada, León, Rivas, Managua, Masaya, Matagalpa, and Puerto Cabezas. Furthermore, the project financed the digitalization and decentralization of procedures for MSME registration. Besides these practical improvements, this component supported revisions to the Commercial Code, to modernize the legal framework governing corporate activities and strengthening property rights. In all of these activities, the targets were met or exceeded. The time to obtain business licenses and construction permits decreased in all targeted municipalities. While only three municipalities were included in the intermediate indicators (Matagalpa, Leon, Rivas), the results in all eight were monitored and found to have improved. Beyond the procedural improvements, in most municipalities, these were accompanied 30 The next report, Doing Business in 2016, covers the time period of July 2014 to June 2015. 36 by notable increases in the number of licenses and permits registered, as well as the municipal income from these. Table 2.2 summarizes this data by municipality, year and indicator (below.) Table 2.2 Business licenses and construction permits Indicator / Ye ar 2010 2011 2012 2013 2014 Le ón Business license process 2 2 2 1 0.25 (days) New business licenses 579 882 623 (number) Construction permit 12 12 12 7 1 process (days) New construction permits 300 307 311 359 292 (number) T ax collection (in US$) $5,606,512 $6,552,950 $5,752,214 Rivas Business license process 2 2 2 1 0.25 (days) New business licenses 1,020 1,132 1,668 1,236 1,130 (number) Construction permit 2 2 3 5 1 process (days) New construction permits 14 19 (number) T ax collection (in US$) $4,311,856 $3,940,846 $5,837,575 Matagalpa Business license process 14 14 14 2 0.25 (days) New business licenses 343 349 643 589 410 (number) Construction permit 5 5 5 5a7 2 process (days) New construction permits 188 193 216 131 94 (number) T ax collection (in US$) $419,962 $473,646 $576,132 Masaya Business license process 3 6 6 6 0.25 (days) New business licenses 586 729 816 927 970 (number) Construction permit 5 30 30 30 2 process (days) New construction permits 73 86 132 142 (number) T ax collection (in US$) $2,332,749 $2,577,083 $2,235,005 Granada Business license process 1 5 5 5 0.25 (days) New business licenses 391 352 315 144 (number) 37 Construction permit 3 10 10 7 1 process (days) New construction permits 1060 (number) T ax collection (in US$) $5,990 $5,227 $3,245 Chinandega Business license process 3 3 3 3 0.25 (days) New business licenses 645 525 (number) Construction permit 4 10 10 10 1 process (days) New construction permits 85 140 157 (number) T ax collection (in US$) $386,226 $439,697 $401,505 Blue fields Business license process 10 10 10 2 0.25 (days) New business licenses 97 64 (number) Construction permit 10 10 10 5 1 process (days) T ax collection (in US$) $704,808 $839,137 $757,716 Bilwi- Puerto Cabezas Business license process 9 9 9 5 3 (days) New business licenses 9 11 35 (number) Construction permit 10 10 10 7 1 process (days) T ax collection (in US$) $1,000,000 $1,091,175 $1,051,422 Thanks to the increased efficiency at the commercial registry supported by the project, the number of MSME registrations steadily increased over the project lifetime, leading to the formalization of over 9,000 firms. See Table 2.3 below, where this data is divided by year and department. Table 2.3 RUM registrations of MSMEs Jan- May- De partme nt / Jun Nov Total Pe rce nt Ye ar 2008 2009 2010 2011 2012 2013 2014 of total RAAS 11 27 6 342 211 130 51 778 9.7% León 17 9 224 160 126 112 101 749 8.6% Managua 38 35 70 196 205 355 325 1224 11.9% Matagalpa 27 12 153 163 115 106 78 654 7.7% Rivas 30 80 15 147 53 47 60 432 4.9% Chontales 18 74 26 190 133 110 105 656 7.3% Masaya 51 39 65 110 132 201 144 742 7.9% Chinandega 2 10 40 174 94 62 123 505 5.1% Carazo 54 25 37 101 216 55 121 609 6.5% Granada 42 37 37 75 96 142 111 540 5.7% 38 Estelí 45 39 20 64 61 329 83 641 7.4% Boaco 23 10 10 99 47 18 53 260 2.8% Jinotega 3 10 48 60 60 131 65 377 4.1% RAAN 11 71 174 68 93 417 4.3% Madriz 18 11 12 37 47 182 62 369 4.1% Nueva Segovia 10 16 24 38 41 103 232 1.7% Rio San Juan 12 3 2 1 60 78 0.2% Total 389 434 786 2016 1810 2090 1738 9263 100.0% Component 1 also contributed to unlocking bottlenecks that MSMEs found most constraining to trade and export of their goods. Towards this end, the project simplified the processes to obtain food and health permits at the Ministry of Health (MINSA). The time needed to obtain health permits was reduced more than 50 percent, from a baseline of 180 days to 78 days in 2014. Likewise, the time needed to obtain food permits decreased more than 30 percent, from a baseline of 15 days to 10 days in 2014. In addition, with the support of the Project, MINSA improved and automatized its processes by implementing a new system that will be able to connect with other systems in Central America. Since September 2014 MINSA has processed through the new system about 180 new health and food permits and now is able to obtain detailed and updated data about its users (e.g. firm size, sector, location, etc.). To further improve MSMEs’ ability to ensure the standards and safety of their consumable products, the project also supported the national metrology laboratory (LANAMET) with new equipment, capacity and methods to conduct tests and standardize measurements in the productive sector. With the increased demand from MSMEs and other firms for the services of LANAMET, the increased revenue is expected to make LANAMET more self- sustaining. In the same vain, the project has supported institutional changes to unlock other constraints to the productivity of MSMEs. To this end, in 2013, the Ministry of Labor (MITRAB) organized capacity building activities targeting MSMEs in order to promote health and safety practices. About 500 owners and employees of 280 MSMEs participated—far exceeding the project target of 100. The change will be sustained for at least another year: after the positive feedback received from the MSMEs, MITRAB has allocated its own budget for 2014 and 2015 to continue to hold these events for MSMEs. Although not planned from appraisal stage, based on feedback from beneficiary firms in Component 2, the PIU and team enhanced Component 1 to include support to the Intellectual Property Registry (RPI). The feedback had reported that the lack of awareness and use of trademarks and patents among MSMEs was hindering their income and growth potential. Therefore, Component 1 was used to support the RPI to train MSMEs on the benefits of intellectual property rights (36 trainings conducted) and open a specific access point for MSMEs to the agency. As a result of the equipment and capacity support provided to RPI, the time needed to obtain a trademark decreased more than 70 percent, from a baseline of 18 months to 4 months by the project’s end, exceeding the target by 4 months. As a result, the number of registered trademarks per year has tripled from about 3,000 in 2010 to more than 10,000 in 2014. Accordingly, revenue generated from the trademark fee services also tripled from around $400,000 in 2010 to more than $1.2 million in 2014. The time needed to obtain a patent also decreased 50 percent, from a baseline of 24 months to 12 months. Moreover, the increased number of training events contributed to an increase in the number of MSMEs registering their brands from 26 in 2010 to 1,200 in 2014. Furthermore, to help MSMEs to navigate the requirements of the formal sector, the project built capacity at regional support centers (CAMIPYMEs) with equipment and facilitation of procedures in order to improve access for MSMEs. As a result, together the regional offices attended to 1,676 MSMEs, far beyond the target of 1,000. 39 Finally, to improve the legal framework for company activities, the project supported the reform of the Commercial Code. The Ministry of Development, Industry and Trade (MIFIC) coordinated the development of a new Commercial Code and its validation process (the current Commercial Code is from 1914). The first draft version was validated at the national level with the participation of representatives from the private sector, civil society, academia, NGOs, and from the judicial, legislative (including the National Assembly), and executive powers. A technical team from the Bank also provided inputs to the first version of the document. In addition, MIFIC provided access to the draft on its website to anyone interested in reviewing and providing comments. The final version of the new Commercial Code was finalized just before the project’s end and sent to the President’s Office. It is now expected that the new Commercial Code will be presented to the National Assembly. Component 2 Improvement of the competitiveness of MSMEs. In this set of activities, the project exceeded all of its targets set in the intermediate results indicators. Matching grants amounting to US$ 5.56 million were provided to 864 MSMEs (far beyond the target of 600 firms). The amount of grants fell just short of the target of US$5.8 million, due to some loss of funds after exchange rate differences and a small amount that was transferred to support implementation of the grants with the project's extension. The results of these grants, however, was far greater than expected and as set out in the targets. The program targeted five strategic productive sectors, pre-selected by the GoN: food agribusiness; wooden furniture; clothing textiles; leather goods; and artisanry. The grants were put towards both small equipment and technical assistance to achieve their objectives as laid out in their improvement plans. The beneficiaries created 1,196 permanent jobs (on average 1.4 jobs per firm) and 351 temporary jobs; 469 firms (54 percent) introduced new products or processes; 628 (73 percent) improved their products or processes; and 617 firms (71 percent) increased sales. Among the 469 MSMEs that innovated, together they introduced 736 new products at the firm level. To put these impacts in perspective, job creation rates among the general population of Nicaraguan firms are also much lower in comparison: in 2010, small firms typically grew their staff by 3.3 percent; medium firms by 3.2 percent; and large firms by 7.3 percent. 31 Converting the job creation rate among the beneficiary firms to the same measure, and given that on average, each firm started with 4.6 employees, their job creation rate was 30 percent. Further to the indicators tracked by the project, additional data demonstrate the extensive impact of this project on the beneficiary MSMEs and the economy. Within the 617 firms that increased their sales during project support, the average rise in sales was 165 percent. This rise varied across the three rounds: from 58 percent in the first round, to 268 percent in the second, and 171 percent in the third. Results varied across geographical departments as well: beneficiaries in Managua, Masaya and Granada created the most jobs. Yet the highest sales growth was seen elsewhere: RAAS, Leon, and Chontales. Some of this difference may be explained by the baseline sales and the size of the businesses being much smaller in the latter three areas than in those that had the highest job growth (See Table 2.4 below). 31 World Bank. Enterprise Surveys for Nicaragua. 2010. Found on: www.enterprisesurveys.org. Note that according to the same source, the average number of workers in a typical Nicaraguan firm is as follows: 8.3 in small firms; 46.4 in medium firms; and 325.5 in large firms. 40 1Table 2.4 Re sults of grants by round and ge ographical de partment Department Grants Grant Firms that Firms that Firms that New products Firms that Average Firms that New (number) amount improved introduced introduced generated increased sales generated permanent (US$) products new products new processes (number) sales increase new jobs or (number) (number) (number) (%)* permanen created processes t jobs (number) (number) (number) Round 1 Chinandega 36 198,956 36 24 4 72 36 69% 27 53 León 38 223,117 36 27 2 106 34 56% 31 73 Matagalpa 32 140,856 29 22 2 75 30 48% 22 54 Total Round 1 106 562,930 101 73 8 253 100 58% 80 180 Round 2 Boaco 58 374,074 50 19 29 22 228% 22 48 Chontales 72 496,283 67 46 5 115 49 241% 29 59 RAAN 76 315,093 61 17 4 35 31 180% 9 16 RAAS 93 587,532 77 35 6 81 39 418% 36 87 Total Round 2 299 1,772,984 255 117 15 260 141 268% 96 210 41 New permanent Firms that introduced new jobs Round 3 products/process (number) created (Male /Female) Boaco 6 28,580 2 1 1 4 155% 5 7/3 Carazo 54 403,031 31 31 25 49 139% 33 48 / 33 Chinandega 4 30,884 4 1 3 48% 1 6/0 Chontales 1 9,438 1 1 1 22% 0/0 Granada 58 395,637 34 37 37 52 167% 36 76 / 66 León 9 66,027 6 4 3 8 305% 3 6/1 Managua 163 1,267,911 77 98 91 117 188% 101 177 / 136 Masay a 92 594,854 87 52 42 80 161% 57 115 / 49 Matagalpa 2 14,957 1 2 33% 1 1/0 Nuev a Segov ia 70 453,077 30 31 23 60 180% 49 51 / 31 Total Round 3 459 3,264,400 272 256 223 376 171% 286 487 / 319 42 The results of the matching grants program also varied by industry. Among the five industries supported, the most intense job-creating ones were, in order: agribusiness (41 percent of jobs created); textile/clothes (22 percent); wooden furniture (21 percent); leather/shoes (12 percent); and artisanry (4 percent). The rate of introduction of new products followed the same pattern. Women are more present in certain industries: textiles/clothes, agribusiness and artisanry. Firms in the leather/shoe industry were concentrated in the regions of Leon, Boaco, Matagalpa and Chontales—probably close to their suppliers—while firms in the other industries were represented in all zones. Besides the impacts measured above, in all three rounds, the team and PIU tracked supplementary indicators starting in Round 3. These impacts provided a fuller picture of the extent of change brought about by the matching grants program. In addition to permanent jobs, the beneficiary firms in Round 3 also created 351 temporary jobs: 225 for men and 126 for women. Furthermore, thanks to the complementary activities in Component 1 to encourage worker safety, health and food certificates, and intellectual property rights, the firms in Round 3 also benefitted directly from these. Across all measures, Managua saw the most demand for these benefits (See Table 2.5 below). Table 2.5: MSME beneficiaries took advantage of business environment reforms supported by Component 1 Firms that Firms that Firms that formaliz e d and Firms that ope ned Firms that applied Firms that improve d re ce ive d a obtaine d a RUC De partme nt a sanitary re gistry for IP rights at the obtaine d a bar occupational sanitary be fore /during account RPI code for a product safe ty re gistration the ir improvement plan Boaco 6 5 Caraz o 38 5 1 7 50 Chinandega 4 3 4 Chontales 1 Granada 28 1 25 54 Le ón 8 1 1 9 Managua 107 12 16 42 10 130 43 Masaya 44 1 2 11 61 Matagalpa 2 2 Nue va Se govia 17 1 4 64 Total 254 20 19 93 11 380 PHI NDI RI T BL While the aggregate statistics give the broad-stroke picture of the impact of Component 2, it is also useful to delve into the details to understand how the project affected individual firms. Several illustrative stories follow, based on data and interviews with selected beneficiaries during the ICR mission in November 2014.  Ana Julia Tinoco Luna is the head of the bakery “Panaderia Antonia”, a microenterprise located in Leon. She was a beneficiary in the third round of grants. Through the project, she was able to acquire new equipment, including a breadcutter, big trays and a mixer. Furthermore, she received training on production, hygiene, occupational safety, and costing. Following these interventions, she hired an additional temporary employee (female), increased her production by 23 percent, started using uniforms for her staff, and has incorporated new methods of mixing, baking and homogenization of her products. She also applied for and received a sanitary license and a RUM registration. Beyond the project measurements, Ana Julia has diversified her products and expanded her clientele to include retailers—small shops called ‘pulperias’ that she now supplies with her baked goods.  Ángela Elvira Hernández Zamora is the head of the deli “Delicatesas Leonesas,” also in Leon, that specializes in dairy products like butter, cheese and dulce de leche, among others. The project allowed her to purchase new refrigerators, in addition to training on food safety practices and improved production. She also obtained her RUM registration and sanitary license. Subsequent to these combined interventions allowed her to raise her production by 55 percent, introduce five new products, and double her staff from four to eight employees. She was also able to expand her clients to retail shops, including a supermarket in another town, Chinandega, called Supermercado Selecto. Ángela now has ambitions to export.  Terencio Jesús Salinas is the entrepreneur behind “Disprocuero”, a leather shop in Leon. Through the project, he obtained a new leather-cutting machine, as well as training on how to use the new machine and improve the design of his leather products. After the project’s support, he was able to increase his production by 56 percent, obtain his RUM registration, hire two permanent and four temporary employees, and improve his workers’ safety. Terencio also gained new clients, including other firms. Component 4: Institutional Strengthening of MIFIC. The project aimed to strengthen the capacity of the coordinating agencies (MEFCCA and MIFIC). To attain this, the project supported the training of 53 personnel in project management, planning and monitoring 44 (slightly falling short of the target of 60.) Furthermore, as an outcome of this training, the project monitored the presence of adequate fiduciary staff and the delivery of clean audits—this was fully achieved. The PIU delivered audits for all five periods of the project. Furthermore, they produced four annual operational and procurement plans, in addition to 14 modifications to those, over the project lifetime. These achievements are summarized by the intermediate indicators in Table 2.6 below. Counting these accomplishments and their overall experience managing a World Bank project, MEFCCA and MIFIC have significantly improved their ability to lead their respective agendas. MIFIC in particular has gained important knowledge and experience to enhance its capacity to create and lead a strategic vision for private sector development. Table 2.6: Indicators of institutional strengthening Indicator/ Re sults Base line Targe t Proje ct e nd Staff trained in project 0 53 60 management, planning and monitoring (Numbe r) Ade quate te chnical No Yes Yes fiduciary staff in place, cle an audits (Ye s/No) O pe rational and No Yes Yes Procure ment Plans pre se nted at start of e ve ry ye ar. (Ye s/No) 45 Annex 3. Economic and Financial Analysis While the project did not include an ex-ante economic analysis, based on a literature review, it was expected to yield a positive ERR. An ex-post analysis confirmed this expectation, based on the results of Components 1 and 2 only, in the absence of generally accepted methods to quantify the effects of the types of regulatory and institutional reforms supported by Component 4. A partial NPV is calculated for the job creation results of the beneficiaries of Component 2 only, as a proxy for the overall effects of the program: US$ 4.6 million. Component 1 is justified based on cost-effectiveness. Although a formal quantitative analysis was not done at appraisal and is not possible now, due to the capacity-building nature of most activities, it is possible to compare the level of investment in each activity with the positive results attained. In all cases, investments coincided with increased participation of firms in the formal sector—whether as first-time registrants, users of intellectual property and product standardization services, or beneficiaries of occupational safety training. These outcomes are also expected to lead to indirect economic impacts, such as job creation, increased productivity of firms, and improved competitiveness of products. These are described in detail in Table 3.1 below. Table 3.1: Component 1 investments vs. key outcomes in beneficiary agencies (I) Indicator/ VUI Commerci MINSA RPI MITRAB MIFIC LANAMET Be ne ficiary al Re gistry (CAMIPYME age ncy Managua s) Proje ct $382,551 $177,024 $442,727 $244,231 $149,720 $1,654,086 $412,073 inve stment (US$) Total ne w 3,771 3,730 8,322 firm re gistrations Total age ncy $285,048 income from ne w re gistrations Numbe r of 27,432 products te ste d Numbe r of 51,318 1,232 firms attended for product standardizatio n Total income $4,162,400 from pate nts and trade marks (US$) Numbe r of 643 MSME staff traine d in occupational he alth/safety What was the -Every -Every $47 -Every $16 -Every $1 -Every $232 -Every $198 -Every $334 dire ct ke y $101 invested invested invested invested invested invested outcome of invested yielded 1 yielded 1 generated yielded 1 yielded 1 firm yielded 1 test e ach yielded 1 new firm product lab $17 of training for registration for product US$ inve sted? new firm registration test revenue a MSME standardizatio registratio staff n n 46 -Each US$1 invested generated 75 cents of revenue What are the -New firm -New firm -Improved -Innovation, -Improved -New firm -Improved indire ct registratio registration hygiene of signaled by occupational registrations standards of impacts ns lead to s lead to a products registration safety is lead to a products e xpe cte d from a broadened increases of IP rights, associated broadened tax increase their the se broadened tax base their is associated with base and are competitivene outcome s? tax base and are competitiven with increased associated with ss and and are associated ess and increased firm-level job creation potential to associated with job potential to firm-level productivity trade and with job creation trade and productivity export creation export Component 1 supported both central government agencies as well as eight municipalities. 32 The key investments and results from the latter are summarized in Table 3.2 below. Support was focused on improving the processes to obtain a municipal license and a construction permit. The analysis in the table below is a rough calculation of the investment in each municipality vs. the outcome indicators of new licenses and permits issued. It should be noted, however, that the relationship is not linear—market forces, rather than streamlined procedures, are more likely to have determined the demand for these authorizations. For example, in the poorer regions of RAAN and RAAS, fewer authorizations were issued and counted as units, they cost the project between $187 and $550 each; this is not to be interpreted as inefficient use of project resources compared to other regions, however, as such regions are most in need of investment to decrease their high poverty levels. An improved business environment is a key contributing factor to such investment, though not the only determinant. Table 3.2: Component 1 investments vs. key outcomes in beneficiary municipalities (II) Indicator/ Chinandeg Granad Le on Masaya Matagalp RAAN RAAS Rivas Municipality a a a Proje ct $20,976 $25,229 $48,660 $32,076 $32,353 $30,251 $30,251 $32,124 inve stment (US$) Numbe r of 1,170 1,202 2,084 4,028 2334 55 161 6,186 ne w licenses Numbe r of 382 1,060 1,569 433 822 .. .. 33 ne w construction pe rmits Total tax $1,227,429 $14,463 $17,911,67 $7,144,83 $1,469,74 $3,142,59 $2,301,66 $14,090,27 colle ction 6 6 0 7 2 7 (US$) 33 What was the -Every $13 -Every -Every $13 -Every $7 -Every -Every -Every -Every $5 dire ct ke y invested $11 invested invested $10 $550 $187 invested outcome of yielded 1 invested yielded 1 yielded 1 invested invested invested yielded 1 e ach new license yielded new license new yielded 1 yielded 1 yielded 1 new license or permit 1 new or permit new new new or permit 32 The Managua municipality was also supported with US$55,200 to facilitate the process to obtain the environmental approval, as part of the overall process to start a business there. This contributed to the decrease in time to start a business as noted in Table 3.1 33 This is the total municipal taxes collected from 2010-2014. Disaggregated data for the revenue from the new licenses and construction permits is not available. Therefore, while we can estimate that this revenue collection is partially attributable, the attributable portion is not known. 47 US$ inve sted? license license or license or license or license or 34 or permit permit permit permit permit What are the -Formalization of firms, as indicated in part by business licenses, is expected to broaden the tax base and is indire ct associated with job creation. impacts -Adherence to construction regulations, as indicated by construction permits issued, is associated with e xpe cte d from increased building safety. New construction projects, as indicated by the construction permits issued, are the se expected to create temporary construction jobs and have multiplier effects in the local economy. 35 outcome s? Component 2 is also justified based on cost-effectiveness. As with the other components, a full quantitative analysis was not done at appraisal and is not possible now, due to the positive externalities generated by investments in innovation and training. However, it is possible to partially estimate the effects of the intervention, using job creation as a proxy. The project beneficiaries created 1,196 jobs, saw an average rise in sales of 165 percent, and leveraged US$ 2.635 million of private funds. The matching grants mechanism ensured that participating firms were committed to the improvements supported by the project and made efficient use of the training and equipment. Although the beneficiaries enjoyed a number of improvements during the program—from increased sales, jobs, productivity, innovation, worker safety, to product hygiene and standards—the most straightforward calculation of a partial NPV is based on job creation and the impact on GDP, as a proxy for the entire program, as the other results cannot be fully isolated and/or are not easily quantifiable. Given that the program support coincided with the creation of 1,196 permanent jobs, staggered along the three rounds of matching grants, it is possible to multiply the number of jobs by the GDP per capita in the year that they were created, and continue multiplying into subsequent years until 2019 as a conservative estimate of the duration of these jobs. Assuming a discount rate of 12 percent, the NPV of these jobs is US$ 4.6 million. See Table 3.3 below for the detailed calculations. Table 3.3: Partial NPV of Component 2, based on job creation only Ye ar 2012 2013 2014* 2015 2016 2017 2018 2019 Jobs GDP cre ate $1,753 $1,831 $1,904 $1,949 $2,040 $2,136 $2,236 $2,340 pc d Round 1 $315,61 $329,62 $421,28 180 $342,701 $350,824 $367,249 $384,442 $402,441 2 6 2 Round 2 $384,56 $491,49 210 $399,818 $409,295 $428,457 $448,516 $469,514 4 6 Round 3 $1,534,5 $1,570,9 $1,644,4 $1,721,4 $1,802,0 $1,886, 806 41 13 58 47 40 407 Total GDP $315,61 $714,18 $2,277,0 $2,331,0 $2,440,1 $2,554,4 $2,673,9 $2,799, contribu 1,196 2 9 61 32 63 05 95 184 tion pe r ye ar 34 Because the cost of a license or permit can vary but we do not have the individual cost data, each permit or license is counted here as a unit. 35 Moullier, Thomas. Reforming Building Permits: Why Is It Important And What Can IFC Really Do? Published by the IFC, World Bank Group. February 2009. 48 T otal $16,105 ,641 NPV $4,617, 722 *GDP per capita in current prices data are from the IMF. From 2014 onwards, these figures are projections. However, it should be emphasized that the economic benefits of the matching grants program goes far beyond the 1,196 jobs created. The program supported a high-level of competitiveness among the beneficiary firms, as marked by the 736 new products brought to market. Competitiveness is also related to overall sustainable growth of the economy. Likewise, investment in worker safety and upgrading of skills is associated with higher firm-level productivity. Lastly, the health, food and standards certifications that were obtained by the beneficiary firms are expected to allow them to trade their products more broadly both domestically and potentially for export. As these outcomes are intertwined (e.g., innovation is associated with higher productivity, sales and job creation), job creation stands as a proxy for the overall effect of the program. Lastly, it is important to note that the matching grants component achieved these impacts with good value for money, as is evident when comparing the management costs of the program with similar programs in Argentina, Indonesia, Kenya and Mauritius. This program had the lowest operating costs as portion of matching grants funds and the second lowest cost per business plan. See Table 3.4 below. Table 3.4: Component 2 cost-effectiveness comparison Arge ntina Indone sia Ke nya Mauritius Nicaragua Type of matching grant program Export Export Export Component 2 Competitiveness promotion promotion promotion (Competitiveness) O pe rating Costs 36 47 57 19.4 18 /Matching Grant (%) 36 6,047 3,518 1,326 1,842 1,532 O pe rating Costs/ # plans US$ 37 36 The operating costs are calculated as a proportion of the total grant monies; i.e,. the combined GoN and beneficiary contributions. 37 The cost per plan includes those plans that were supported and successful, as well as those that were not successful entrants to the program. 49 Annex 4. Bank Lending and Implementation Support/Supervision Processes (a) Task Team members Responsibility/ Names Title Unit Specialty Lending Carlos Enrique Arce Senior Economist AES - HIS Matching Grants Cidalia Brocca Finance Analyst CTRLN Regis Thomas Cunningham Sr Financial Management Specialist GGODR LCSPF - Tanja Gabriele Faller E T Consultant Business climate HIS Michael J. Goldberg Operations Adviser GPSOS TTL Senior Private Sector Development Thomas Edward Haven GTCDR Matching Grants Specialist Partial Credit Ilias Skamnelos Senior Financial Sector Specialist GFMDR Guarantee Richard James Senior Operations Officer GSURR Carmen Machicado Operations Officer GEEDR Patricia Rodrigues de Melo Senior Finance Assistant CTRLN ACS Enrique Antonio Roman Financial Management Specialist GGODR Financial management Carlos Francisco Siezar Consultant GFADR Partial credit guarantee LCSSO - Josefina Stubbs Senior Social Development Specialist Social safeguards HIS LCSPT - Rosa G. Valencia De Estrada Procurement Specialist Procurement HIS Supervision/ICR Maria Ariano HQ Consultant ST GTCDR Matching grants Daniel Ortiz del Salto HQ Consultant ST GTCDR Business climate Francisco Rodriguez Senior Procurement Specialist Procurement Enrique Roman Finance Specialist Financial management Patricia Rodrigues de Melo Senior Finance Assistant CTRLN Financial management Carlos Francisco Siezar Consultant GFADR Partial credit guarantee Sunita Varada Financial Sector Specialist GFMDR TTL Michael J. Goldberg Operations Adviser GPSOS Adviser, TTL Anita Tarce Program Assistant GFMDR ACS (b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage of Project Cycle US$ Thousands (including No. of staff weeks travel and consultant costs) Lending FY08 132.01 Total: 132.01 Supervision/ICR Total: 0.00 50 Annex 5. Beneficiary Survey Results Several surveys were conducted, focused on Component 2. The PIU conducted in-depth evaluations of the progress of the matching grants recipients after each of the three rounds, conducted principally through on- site visits to the beneficiary firms. These reports monitored data at the project level, as well as disaggregated by gender and location of the beneficiary firms. They also investigated any issues with implementation of the overall program as well as the individual improvement plans of the firms. To complement this, the PIU hired an independent consultant to conduct a sample survey and report on all three rounds of Component 2. While the findings are similar, the consultant report also includes feedback from the beneficiary firms and supplementary analysis of the data. The PIU reports reaffirm the results of the M&E indicators and supplementary data mentioned in Section 3.2 of this report. Furthermore, they disaggregated the data on the distribution of beneficiaries by gender, ethnicity, size, industry and location. This analysis allowed the PIU to monitor the representativeness of the program and align with its objective to target firms managed by women and ethnic minorities. It also provided insights for the PIU, the coordinating agencies and the GoN in general that will be useful in future programs to support MSMEs, such as the prevalence of female entrepreneurs in certain industries and the location of those industries around the country. For more details, see Annex 2 on the results of the project. The report by the independent consultant corroborated many of the findings of the reports completed by the PIU. The data related to the indicators tracked by the project were very similar, as presented in Section 3.2 of this report. Yet the report went beyond these to include beneficiary feedback on their experience with the program, analysis of the data, and commentary on the implementation of the program, including efficiency. The report included a survey of 51 beneficiary firms of the program, representative of the three rounds, all industries and locations covered by the program. It also comprises feedback gathered from the PIU, the suppliers of the goods and services covered by the grants, and firms that were not beneficiaries of the program, as a point of comparison. The main findings of the report provide useful data on the results of the program and the basis for lessons learned. Analysis of results of the program: • Demand for equipment was strong among the beneficiaries. Beneficiaries chose to use more than 82 percent of the matching grants towards equipment, followed by capacity-building (8.1), technical assistance (4.3) and marketing (4.2). Other uses represented less than 1 percent of the funds, including registration of a brand; software; lab tests; and sanitary licenses. • The geographical distribution of the grants was representative of the country and showed demand for this type of program at a national level. • Firms in the leather/shoe industry were concentrated in the regions of Leon, Boaco, Matagalpa and Chontales, while firms in the other industries were represented in all zones. • Women are more present in certain industries: textiles/clothes, agribusiness and artisanry. • Measured by the actual rate of complete execution of improvement plans, the most active industries were, in order: textiles/clothes (81 percent); wooden furniture (80 percent); agribusiness (72 percent); leather/shoes (76 percent); artisanry (50 percent); and metal works (50 percent.) • More than 78 percent of the entrepreneur beneficiaries were between the ages of 30 and 60. This, combined with the fact that 55 percent were women, could contribute to the low rate of failure among the beneficiary firms (about 7 percent) compared to the general population of firms. • The most intense job-creating industries were, in order: agribusiness (41 percent of jobs created); textile/clothes (22 percent); wooden furniture (21 percent); leather/shoes (12 percent); and artisanry (4 percent). The rate of introduction of new products followed the same pattern. 51 Beneficiary feedback: • The majority of beneficiaries were satisfied with the design of the program, including the support to draft improvement plans; the co-financing of investments; the amounts and percentages of matching grants; and the ex-post payment of the activities included in the plans. • Beneficiaries considered the most useful services and goods supported by the program to be, in order of importance: equipment; marketing; capacity building; technical assistance; improvement plans; and environmental protection. • Beneficiaries reported that suppliers were generally satisfactory or better in more than 73 percent of cases. Suppliers were found to comply with the technical specifications in more than 87 percent of the cases. However, delays in delivery occurred in 18 percent of the orders for equipment. The delivery of capacity building and marketing services also faced some delays, in 7 and 6 percent of the cases, respectively. Price compliance averaged more than 94 percent across all purchases. Performance of the program: • The program was efficient. The cost of implementing the program, at 18 percent of the total grant allocations (i.e., including both GoN and beneficiary contributions), was lower in comparison to other similar programs conducted in Argentina, Indonesia, Kenya, and Mauritius. Each job created cost the program about US$ 11,903. • The presence of regional MSME assistance centers (CAMIPYMEs), also supported by the project, was an important success factor for the program especially in rural areas. They helped to gather the applicants and support them through the process. The majority of beneficiaries (96 percent) rated these centers as excellent or very good. • Direct payments from the PIU to the suppliers reduced the financial risk that beneficiaries would assume by participating in the program. 52 Annex 6. Stakeholder Workshop Report and Results Not applicable 53 Annex 7. Summary of Borrower's ICR The implementing agency, on behalf of MIFIC and MEFCCA, submitted a detailed closing report of 46 pages (available in project files). The main points are highlighted here. This annex was translated to English from Spanish. 1. INTRODUCTION In order to promote and develop the Nicaraguan MSME sector, in 2008 the Government of Nicaragua signed the Credit Agreement No. 4468-NI with the World Bank to implement the "Micro, Small, and Medium Enterprise Development Project” (PRODEMIPYME), which closed on December 31, 2014. The Project responded to government priorities set forth in the National Human Development Plan (PNDH) and was part of the strategy to foster MSME-oriented private sector growth. The Project Development Objective (PDO) was "To improve competitiveness of Micro, Small and Medium Enterprises (MSMEs) and the Business Climate affecting them". The logic of the project's intervention was designed in light of the high rates of informal MSMEs (particularly micro and small enterprises) to facilitate their formalization and assist them in implementing their Business Improvement Plans that would make them eligible for funding through Matching Grants. At the government level, PRODEMIPYME outcomes are rated satisfactory. Likewise, this rating was confirmed by the WB Project Monitoring Mission conducted from November 17 - 21, 2014. As part of the project closing activities, we have prepared this final evaluation report which will be attached to the Annexes of the Assessment Report being prepared 38 by the WB. This report contains: i) Assessment of the Project Objectives, Design and Outcomes; ii) Assessment of the Borrower's performance during the project evolution and implementation, with emphasis on lessons learned to be considered in the future; iii) Assessment of the Bank's performance including effectiveness in its relationship with the Borrower, with emphasis on lessons learned; and iv) Project’s implementation financial assessment. It also includes arrangements proposed for ensuring future sustainability of project activities. 2. ASSESSMENT OF PROJECT OBJECTIVES, DESIGN AND IMPLEMENTATION Relevance of PDOs The PDO remained unchanged throughout the project life, as it continued being relevant for achieving the country's development goals set forth in the Human Development Plan 39 . The project objectives were also consistent with the Micro, Small, and Medium Enterprise Development Program (PROMIPYME). 40 The objectives set out by PRODEMIPYME have been consistent with the country´s development objectives. At the government level, M&E around PRODEMIPYME's goals and indicators was conducted every year through SIGRUN (System of the Government of Reconciliation and National Unity). 38 Coordination for preparing the Evaluation Report started with the WB Monitoring Mission on November 2014 39 One of the strategic objectives of the PNDH 2012 - 2016 is the generation of added value for the productive and economic transformation of the country. For the small and medium enterprise sector, the plan highlights the urgency and commitment to encourage the addition of value to national production that will translate into higher wages and income levels for the families involved in production 40 PROMIPYME's objective is "to contribute to improving and strengthening competitiveness of MSMEs to be incorporated with more advantages and become generators of quality jobs and source of income for owners.” 54 We value as highly positive the degree of coordination among different activities supported by the project around the actual needs of the MSME sector, considering that the range of eligible activities was quite extensive, including a great diversity of targeted themes around six key production sectors (Agribusiness, Leather-footwear, Wood and furniture, Textile-garment, Artisanal Handicrafts, Metal-mechanics). Design The project design initially had four components: "Component 1 - Improving Business and Investment Climate"; "Component 2 - Non-reimbursable Matching Funds for MSMEs"; "Component 3 - Increased access to financial services by MSMEs"; and "Component 4: MIFIC Institutional Capacity Building.” Throughout project implementation, adjustments to the Project design were made, which did not affect the attainment of objectives of the components implemented, since these were formulated to maximize their complementarity. Also, they were designed in such a way that any delays in one component would not have any significant negative impact on others. One of the adjustments made was the cancellation of "Component 3 - Increased access to Financial Services by MSMEs". This decision was made during the Project’s Mid-Term Evaluation carried out by the World Bank and the Government in February 2012. This decision was made considering the project’s pace, the capabilities required for implementation and the remaining time until completion, which indicated that it was not possible to implement all the activities as planned. These changes and others experienced during the project implementation were included in two amendments to the Financing Agreement approved by the Government of Nicaragua and the World Bank. The first amendment was signed by MHCP on August 4, 2011 leading to the transfer of approximately USD $ 1.5 million from Component 3 to Component 1. The funds were allocated to: 1) Building LANAMET Premises, USD $ 500,000.00; 2) Support to CAMIPYME in Chontales, Boaco and RAAN, USD $ 290,000.00; and 3) Modernization of the Commercial Code of Nicaragua, USD $ 710,000.00. The second amendment, signed by MHCP on July 30, 2013, responded to a particular situation affecting the project implementation: in compliance with Act Nº 804 "Amendment and Addition to Organization, Jurisdiction and Procedures of the Executive Branch Act Nº 290", MSME competence was transferred to MEFCCA. In this scenario, MIFIC continued implementing Component 1 and partly Component 4 while MEFCCA undertook Component 2 and partly Component 4. Furthermore, the request made by MHCP on March 15, 2012 to reduce the project funding by approximately USD $ 5.3 million was included. The adjustments made to the project outcome indicators agreed during the WB-led MTR were also included: Component 3 was entirely eliminated; the investment in departmental One-Stop Shops for Investments (VUI) was also taken out of Component 1. They agreed to exclude LABAL (national food laboratory) activities, support LANAMET equipment procurement and extend the project timeframe for an additional year until December 31, 2014. In February 2014, at the request of MHCP and due to time constraints, the World Bank approved the removal of USD$ 1.2 million from project funding which had been earmarked to support the construction of the LANAMET premises. However the construction of LANAMET premises is currently underway, supported by the national treasury. Project Implementation - Situations that affected Project Implementation 1. Initial communication with institutions: During the project’s initial phase, some coordination and communication issues with government institutions arose. Some situations that occurred during the implementation of project activities are outlined as follows: In the case of Component 1, there was no consensus between the recipient municipal governments, MIFIC and INIFOM about adopting a standard software to reduce processing times regarding licensing new businesses and issuing building permits. Upon MIFIC's request, during the Project MTR, it was agreed to start 55 supporting the recipient municipal governments allowing them to use their own systems. In the case of the Public Company Register of Managua (RMM), they went through delays in implementing the Sistema de Folio Personal, 41 which were eventually overcome. In September 2009 it was proposed to transfer the execution of Component 2 to Banco Produzcamos. For more than a year, they failed to define politically and legally if the component would stay with MIFIC or would be transferred to the Banco Produzcamos or INPYME, halting its implementation. Finally, in October 2010, they decided to leave Component 2 under MIFIC’s jurisdiction and resume its implementation. 2. Reducing Project Funding: In March 2012, at the request of MHCP, the World Bank approved the reduction of IDA funding by USD$ 5.3 million. Likewise, in February 2014 the Bank took care of another MHCP request and approved the withdrawal of USD$ 1.2 million. In total, 34% of the initially approved financing was reduced. This decision was made jointly with the World Bank mission that conducted the mid-term review in February 13 - 14, 2012. This request was approved considering undisbursed funds accounting for approximately USD$ 16.3 million, which were unlikely to be executed in full by December 31, 2013, the expected closing date. This reduction translated into the total elimination of Component 3, the reduction of activities under Component 1 (New One-Stop Shops for Investments (VUI) in departments, International Congress on Successful Experiences about Improving Business Climate in Managua, Consultancy on "Development of an Information System and Economic Monitoring of Competitiveness Indicators", Support the National Committee on Exports Promotion) and funding cutbacks in Component 2 that affected primarily the scope for implementing the Matching Grants Publicity Campaign and the consultancy on "Design, Development and Implementation of a Management Information System to Monitor Matching Grants", Component 2 and other project components. The reduction of funding did not allow for the utilization of Component 3 funds to implement the proposed support in favor of some value chains, which had been agreed with the World Bank Mission conducted in September 19 - 23, 2011. 3. Adjustments in the US Dollars Exchange Rate in relation to the Special Drawing Rights (XDR): The impact of exchange rate adjustments in the Special Drawing Rights consisted of USD$ 0.7 million reduction in funds available to the project, which affected the attainment of some intended goals, like the allocation and delivery of Matching Grants for MSMEs. Due to the effect caused by the exchange rate, financial availability of funds was cut in comparison with what had been planned in the indicator originally. 4. Transferring the project partly to a new co-implementing agency: With the creation of the new Ministry of Family, Community, Cooperative and Associative Economy (MEFCCA) and its competencies, in conformity with Law Nº 804 of July 2012, the implementation of Component 2 in full and Component 4 in part was transferred to this new ministry. MIFIC continued implementing Component 1 and part of Component 4. The division and the physical transfer of these functions took place after the Second Amendment to the Project Financing Agreement signed on July 30, 2013. During this period of time, an assessment of MEFCCA’s Fiduciary Systems and Technical Staff was conducted to meet World Bank requirements to establish the institution as new co-executor of project funds and activities. Although the project activities continued during the 41 T he reduced working hours in the government sector caused delays in the implementation of these activities, since it limited the availability of this institution's officers to undertake the project duties, as well as the organizational and functional changes within the Register; however, support from the National Registry Directorate was obtained, which allowed to speed up and implement a number of activities planned. 56 transition period, some of them suffered delays, e.g. Technical assistance provided to MIPYMES to develop their own Business Improvement Plans during the third round of Matching Grants. Implementation and Impacts PDO (PRODEMIPYME). The Project Development Objective (PDO) is to improve competitiveness of Micro, Small and Medium Enterprises (MSMEs) and the Business Climate affecting them. With regard to participation and territorial coverage, the project worked in 11 departments (León, Chinandega, Matagalpa, Boaco, Chontales, Nueva Segovia, Managua, Masaya, Granada, Carazo and Rivas) and the two autonomous regions - North and South Caribbean Regions. The project worked with 15 recipient institutions (the Public Company Registry of Managua, the One-Stop Shop for Investments, the Intellectual Property Registry, the Ministry of Health, the Ministry of Labor, the National Metrology Laboratory and nine Municipal Governments) 42 and 8 MSME Support Centers 43 that served as territorial platforms for assisting MSMEs. The two PDO indicators were realized and surpassed. Indicator One -"MIPYMEs receiving matching funds introduce new products and/or processes"- Over 400 enterprises, which received matching funds achieved this indicator, exceeding the original goal of 80. Regarding Indicator Two -"Reduction of time required to start a business"- the project helped both the Public Company Registry (RMM) and the One- Stop Shop for Investment (VUI) cut filing and incorporation processing time down by over 60% for businesses in Managua, which is one third. In other words, processing time that used to take 39 days in 2010 was reduced to 13 days in 2014, exceeding the goal of 26 days (according to the project baseline study). PRODEMIPYIME invested over US$ 177,000 in technical assistance to improve the RMM processes, equipment and furniture, as well as development of technical guides for registry rating; training aimed at public registrars nationwide and the design, development and implementation of the new computer-based information personal file system. This comprehensive support replaced the manual process with an automated process, significantly reducing business filing and incorporating times in Managua. The country climbed 20 positions in the world ranking in comparison with the evaluation of 2014 assessing the business opening time indicators. As a result, Nicaragua was the Latin American country with the greatest improvement in this indicator. PDO 1 (Component 1 - Improving Business and Investments Climate) reduce the administrative and regulatory obstacles for MSMEs: The goals for this component were successfully achieved and exceeded in most cases. A summary of the achievements is presented below. Intermediate Outcome Indicator One "Reducing by 30% the time required to obtain a business license and building permits" - Municipal Governments: The project invested about USD$250,000 in municipalities of Leon, Rivas, Matagalpa, Bluefields, Puerto Cabezas, Chinandega, Masaya and Granada to support technical assistance and improve processes, computer equipment, furniture and staff training. Consequently, the targets established were achieved by all the municipalities and licensing and permitting processes have improved and processing times have been reduced. An example is the Municipality of Leon, which according to Doing Business Report 2015 44 is the Central American city with the easiest process to obtain building permits. Additionally, other indirect positive outcomes arose, including increased tax 42 Municipal Governments of Managua, León, Chinandega, Matagalpa, Rivas, Masaya, Granada, RACS and RACN 43 León, Chinandega, Matagalpa, Rivas, Boaco, Chontales, RACS and RACN 44 Finding of the first Doing Business in Central America and Dominican Republic released by /the World Bank (WB) in Nov/ 17/2014 57 revenues due to improved internal processes undergone by the municipalities. In the case of Leon city, revenue grew more than 60% between 2013 and 2014. Intermediate Outcome Indicator Two “Food and Sanitary Licensing Time Reduced by 30% - MINSA: The total investment in MINSA's improvements accounted for US$ 450,000 for technical assistance intended to speed up processes; remodeling three food laboratory modules; lab and computer equipment; furniture; ultra-pure water systems; design, development and implementation of the new Information System for sanitary license, registration and surveillance; and training provision for SILAIS officers at the national level. This helped MINSA reduce the food licensing time from 15 days in 2010 to 10 days in 2014; sanitary registration processing time dropped from 180 days in 2010 to 78 in 2014, which improved the service quality and helped to attain the targets established. Intermediate Outcome Indicator Three "Number of Project-supported Businesses Assisted by CAMIPYMEs" - MIFIC: The project invested approximately USD $ 1.0 million in operational support and capacity building through training, technical assistance, equipment and furniture for 8 CAMIPYMEs (Departments of León, Chinandega, Matagalpa, Rivas, Boaco, Chontales, RACS and RACN). A process of territorial decentralization of institutional business services was fostered, surpassing the original target by providing 51,318 services to businesses by 2014. Intermediate Outcome Indicator Four “Commercial Code presented to the National Assembly" - MIFIC: 2. – The reform process (drafting, revision and social validation) of the New Commercial Code of the Republic of Nicaragua was coordinated through the Project. The draft of the New Commercial Code of Nicaragua was completed and sent for review to the "Private Secretariat of the Presidency for National Policies" on December 19, 2014. This body will be responsible for sending the final bill to the National Assembly. It is important to point out that in order to lead this process of reform and modernization, the Presidential Decree Nº 035-2012 created a public-private Steering Committee, chaired by the MIFIC Minister and composed of the Minister of Finance, the Minister of Public Policies of the Presidency, the President of COSEP, the President of the Chamber of Commerce and Services and the President of CONIMIPYME. This committee in turn was supported by a panel of notable jurists who were tasked with the technical review of the proposals made by the firm responsible for drafting the code and integrating inputs and feedback from the Draft social validation process. The most important changes in the new Commercial Code include: a) A conceptual change about the focus of the code, which now includes business persons (unlike the previous Code, which referred only to merchants), b) Provides the country with a new corporate law and regulations, c) Modernized regulation of commercial obligations and contracts and d) Strengthened the micro and small enterprises system. This new instrument will be a determining factor in attracting foreign investment to the country, improving the business climate in general and helping to modernize the business rules and, particularly, strengthening the legal security of commercial operations. Intermediate Outcome Indicator Five “Trademark Registration Processing Time by RPI (Intellectual Property Registry Reduced by 10 months” and Outcome Indicator Six “Patents Registration Processing Time by RPI Reduced by 12 months"- MIFIC: The investment of approximately USD $ 244,000 consisted of equipment, furniture, application of certain administrative measures (express desk), and implementation of a Training Plan aimed at productive sectors in 9 departments of the country on the use of Intellectual Property Rights. This comprehensive support allowed for a substantial reduction in response times for entrepreneurs and users of the trademarks registry, whose processing time was reduced from 18 to 4 months. Similarly, patents registration processing time decreased from 24 to 12 months, thus achieving the original project goal. The trademark search processing time was reduced from 15 to 1 day and the notice by publication order was reduced from 3 weeks to 1 day, reducing backlogs in documentation processed by the Intellectual Property Registry. 58 As a result, the number of trademarks registered per year has tripled, from 3,323 trademarks in 2010 to 10,217 trademarks (January-October 2014). Likewise, patent registration rose from 66 patents in 2010 to 87 patents in 2013 and 65 patents between January and October 2014. This increase in services has tripled the revenue generated by the RPI since the onset of the Project (see Annex 2). Intermediate Outcome Indicator Seven "At least 100 MSMEs learn about and implement occupational safety and health (OSH) practices established by MITRAB": The project invested approximately USD $ 150,000 in building the technical capacity of central government officers and departmental inspectorates, as well as in terms of transportation, specialized measurement equipment, design and development of the MYPYME Labor Information System and development of OSH Good Practices Handbooks for 6 MSME sectors in Spanish, English, Creole and Miskitu. The original goal of 100 MSMEs trained was exceeded since 279 enterprises were trained and put into practice MITRAB OSH measures. Note that for the first time MITRAB gave special attention to MSMEs. In 2014 MITRAB allocated resources for the sustainability of this service, which will be also replicated in 2015 using its own resources. STRENGTHENING LANAMET CAPABILITIES FOR DELIVERING ELECTRIC AND VOLUME MAGNITUDE SERVICES. The National Metrology Laboratory’s capabilities to provide calibration services for electrical and volume magnitudes were enhanced through improved equipment and standards in these areas, which will benefit the domestic industry by enabling traceability of goods and services. Companies had previously to seek foreign laboratories for this service, which represented a higher time and cost. By expanding services to these two new parameters, the laboratory income will also increase. The amount invested in strengthening this laboratory is USD $412,000, including the study and designs of the new National Food Laboratory (LABAL) and the National Metrology Laboratory (LANAMET) premises. The statistics relating to the financial support provided and the results achieved by PRODEMIPYME are included in Annex 2. PDO 2 (Component 2 - Matching Funds for MSMEs): Provide non-reimbursable matching grants for developing Micro, Small and Medium Enterprises (MSME) Business Improvement Plans, earmarked to finance activities, including technical assistance, training, advisory and procurement of machinery, equipment and instruments for: (i) Technological innovation; (ii) Environmental protection; (iii) QC; and (iv) Improvement of Sanitation and Occupational Safety and Hygiene (OSH) conditions. MSME participation in the financing of MSME - Government non-reimbursable matching grants was focused on prioritized productive sectors, including Agribusiness, Wood Furniture, Textile-Garment, Leather-footwear and Artisanal Handicrafts. In terms of coverage, the project worked in ten (10) Departments and the two (2) North and South Caribbean Regions, representing 71% of the National Territory. 45 Activities were carried out by the Component 2 Team, and initially departments were supported through CAMIPYMEs and eventually by MEFCCA Territorial Delegations 46 when this institution undertook part of the services to MSMEs. The implementation of matching grants was governed by an Operating Manual. They also created a Committee to serve as the highest authority for approval of MSMEs’ Business Improvement Plans. 45 According to the political administrative division of Nicaragua, it has 15 Departments and 2 Caribbean Coast Regions 46 In conformity with Law Nº 804 passed in June 17, 2012 59 This component had various achievements in the outcomes established to measure its performance. Regarding outcome indicators for Component 2, the five proposed indicators were attained and in most cases the goals were surpassed. The achievements of the original goals are described below: Outcome Indicator One. "Number of Grants Awarded": This indicator surpassed by 144% the original goal, since 864 Business Improvement Plans, instead of the original goal of 600, were funded. Outcome Indicator Two "Number of Grants Awarded": 100% of funding available (US $ 5.62 million) 47 was granted for Business Improvement Plans. Annex Nº 3 contains the number of approved Business Improvement Plans by territory, productive sector and type of business. Outcome Indicator Three "Number of Companies that Successfully Implemented Improved Products or Production Processes": 682 companies successfully implemented such improvements, surpassing the original goal of 120 companies. Outcome Indicator Four "Number of Companies that Introduced New Products and/or Processes" 469 companies achieved this indicator, surpassing the original goal of 80. Outcome Indicator Five "Number of Companies that Increase their Sales": 617 companies achieved this indicator, exceeding the original goal of 120. Other Achievements: During the execution of the matching grants, another remarkable achievement was the safeguards compliance; 147 MSMEs run by Creole, Miskito, Mayangna, Rama, Mozonte and Monimbó indigenous peoples received funding from matching funds. Gender participation in these investments accounted for 55% female and 45% male. PDO 4 (Component 4 - Institutional Development): The objective of this component was to improve the institutional capacity of the two co-implementing partners. Outcome Indicator One "Appropriate Technical and Fiduciary Staff, Completed Audits": This indicator was achieved. At the moment of this report, audits covering four periods were conducted, rendering satisfactory results. The 2014 audit is the only one pending. Outcome Indicator Two "Operational and Procurement Plans (OPP) Presented before the Beginning of the Calendar Year" This indicator was accomplished; 4 OPPs were presented for which 14 amendments were made; the main OPPs were presented prior to the beginning of the calendar year. 3. BANK PERFORMANCE EVALUATION The World Bank's support was fundamental to help PRODEMIPYME achieve excellent results; thus, the Bank's performance is rated highly satisfactory. In terms of knowledge required to achieve results, the World Bank staff proved to be very well qualified and with a very good level of expertise. The project was properly monitored; on average, three yearly supervision missions were conducted, which were supported with video and telephone conference technologies, as well as constant email communication. The WB team maintained an open, permanent and respectful communication without any ideological bias, without exerting excessive influence on decision making, listening to our opinions and taking them in to account, 47 Although the target was USD $ 5.8 million, according to the Project Results-Based Indicator Matrix, this amount decreased as a result of the differential exchange rate of the Special Drawing Rights applied to balances (Category 2A). A small amount was transferred to support the implementation of grants with the extension of the Project (Category 2B). 60 showing respect for positions and requirements, and making consensus-based decisions jointly with the Project Coordination Unit. The WB team also made timely recommendations to contribute to achieving goals. The Bank's team was made up of of a Project Manager and two Specialists supporting the two main components: Component 1 - Improving Business and Investment Climate and Component 2 - Matching Grants for MSMEs. Component 4 - Institutional Capacity Building- had personalized assistance provided by a Nicaragua-based WB Financial Specialist; furthermore, the financial specialists located in the Bank's Regional Office in Brazil provided support. Regarding procurement, a Washington-based WB specialist provided all required assistance on these issues; including minor telephone consultations and email-based consultations on specialized topics. This specialist also accompanied the WB missions in various instances. For special topics related to safeguards triggered by the project, two specialists were appointed to provide assistance: one for "OP/BP 4.01 Environmental Assessment" and the other for "OP/BP 4.10 Indigenous Peoples". Part of the results generated by this support was the updated "Environmental and Social Management Framework" (ESMF) and the "Indigenous Peoples Plan" (IPP). It also facilitated assistance provided by a Value Chain Specialist, with whom a proposal to be included in Component 2 was drafted, using funds that had been allocated to Component 3, which became invalid upon notice of reduction of funds requested by MHCP. 48 Table No. 2: World Bank Performance Criteria Assessment Criteria Rating Project outcomes contributed to the accomplishment of Highly Satisfactory Nicaragua’s DOs WB helped achieve the PDOs and goals Highly Satisfactory Top-quality timely response to different technical consultations Highly Satisfactory leading to practical solutions. Adaptability to challenges and circumstances under which the Satisfactory project was developed. Follow-up and Monitoring Highly Satisfactory Assistance provided under "Improving Business and Investment Highly Satisfactory Climate" and " Matching Funds for MSMEs" areas Assistance with Financial Issues Highly Satisfactory Assistance with developing Operational and Procurement Plans Highly Satisfactory Responses to No Objection Requests Highly Satisfactory Assistance with Special Topics Satisfactory 48 On March 15, 2012, based on MHCP-DM-E-0235-03-12 communication, MHCP requested to withdraw US$ 5.3 million to be reallocated to another project. 61 Note that the participation of the World Bank's team was proactive during the implementation of every Component. The most relevant aspects of the assistance received by Component are outlined as follows: Component 1 - Improving Business and Investment Climate: The World Bank-led assistance in Improvement of Business and Investment Climate is rated highly satisfactory. One distinctive feature of this component was the large number of processes for procurement of goods and services, as part of efforts to achieve the objectives. Different procurement processes faced bottlenecks that jeopardized seriously the attainment of goals. In this regard, the Bank made proactive recommendations to streamline procurement, both in technical and monitoring aspects. Tools to improve monitoring across different processes were also recommended. One of the aspects that stands out is the provision of specialists to support the revision of the draft for the new Commercial Code of Nicaragua. Component 2 - Matching Grants for MSMEs: The assistance received from the World Bank's regarding matching grants is rated as highly satisfactory. Part of the assistance consisted of support in preparing the Operational Manual for Matching Grants and the methodology for monitoring Business Improvement Plans approved; these instruments regulated the implementation of the three rounds of matching funds. The Bank made important inputs to improve the monitoring reports produced for each round; it also was involved in developing the matching grants database matrix, checking reports and measurement of indicators, which became the key instruments to monitor execution of matching grants. 4. BORROWER PERFORMANCE EVALUATION The Government of Nicaragua's performance in achieving PRODEMIPYME's objectives and goals has been rated highly satisfactory. To this end, the Government Institutions 49 involved in the project paved the way as needed to achieve an impact consistent with the country strategy to improve MSMEs competitiveness and the business climate affecting them. Based on that, a government-level assessment was made for each of the project components. Component 1 - Improving Business and Investment Climate: Nicaragua has managed to improve the business climate through successful interventions aimed at streamlining and simplifying procedures in the government apparatus. This achievement has been highlighted by Doing Business Report 2014. 50 In this regard, a number of government agencies have been very active and committed to implementing the various actions set forth in the Technical Collaboration Agreements signed under PRODEMIPYME. The investments made allowed the project to excel the original goal to reduce the business filing and incorporation processing times in both the Company Register of Managua (RMM) and the One-Stop Shop for Investment. The RMM senior management rated transcendental the support provided for the modernization of the Public Registry of Real Estate and Commercial Property. 51 The Government of Nicaragua's performance was rated highly satisfactory in drafting the new Commercial Code. By virtue of Presidential Decree Nº 035-2012 a Steering Committee was created, which in turn was supported by an Advisory Committee formed by notable jurists, who were appointed by each institution to deal exclusively with the revision of the New Commercial Code Draft, thus meeting the original goal. 49 MHCP, MINSA, MITRAB, MIFIC, MEFCCA, RMM, Alcaldías, RPI, VUI, LANAMET 50 http://www.pronicaragua.org/es/por-que-invertir-en-nicaragua/favorable-clima-de-negocios 51 http://www.poderjudicial.gob.ni/prensa/notas_prensa_detalle.asp?id_noticia=5391 62 MINSA, MITRAB, RPI and municipal governments 52 acted consistently to implement activities that allowed the achievement of indicators. Component 2 - Matching Grants for MSMEs: A significant factor for executing matching grants was the existence of Micro, Small and Medium Enterprises Support Centers (CAMIPYME), which were created under “Micro, Small and Medium Enterprise Promotion and Development Act Nº 645” (MSME Act) originally under the competence of the Micro, Small and Medium Enterprise Institute (INPYME) and subsequently absorbed by MEFCCA Territorial Delegations. 53 This team of specialists became the Territorial Platform for the implementation of the various project activities, such as the assistance provided to MSMEs in their formalization process and execution of matching funds. Another noteworthy aspect refers to the fact that the Government created at the final stage of the Project (2013 – 2014), an inter-agency follow-up team made up by MINREX, MHCP and the Secretary of the Presidency, which provided the project with monitoring and support in order to ensure the execution of matching funds under the third round. Likewise, the MHCP approved allocations in the 2014 national budget to secure disbursements for MSMEs benefited with matching funds, and secured also budgetary allocations for key personnel and project closure activities in the grace period from January to May 2015. 5. LESSONS LEARNED 54 The lessons learned from PRODEMIPYME were included in the evaluations of Components 1 and 2; a summary of the most important highlights is presented below. Component 1 - Improving Business and Investment Climate: 1. Considering the delays experienced at the beginning of the project with beneficiary institutions, in case of future initiatives,, it will be necessary to create a Periodic Monitoring Committee at both technical and decision making levels that helps address bottlenecks, overcome weaknesses caused by lack of dialogue among the different stakeholders involved, and reduce learning curve risks that may halt implementation of activities as planned. 2. In order to ensure institutional changes through projects of this nature, essential prerequisites to achieve the expected impacts include raising awareness among people involved, fostering their active participation in the change process, and encouraging exchanges of experience among participant institutions. 3. To prevent the use of automated systems dependent on suppliers often located abroad, the best approach is to develop from the onset our own information systems with proper and timely technical support to ensure adequate maintenance, operation and upgrades. It is also important to have a technically qualified partner who works jointly with the systems developer and implementer from the beginning. It may take longer and greater effort, but in the long run it proves to be the best alternative. 52 Municipal governments of Managua, León, Rivas, Matagalpa, Bluefields, Puerto Cabezas, Chinandega, Masaya and Granada 53 Law Nº 804 54 During the implementation of PRODEMIPYME, individual consutants were recruited to conduct the Assessment of Outcomes. For Component 1 a Final Evaluation was developed and submitted in December 2014; for Component 2 an Outcome Assessment Consultancy was carried out covering the first and second rounds of matching grants completed in September 2013; a consultancy for final evaluation of the third round of matching grants as well as the consolidation of final results was completed in November 2014. T he project evaluation reports included lessons learned, conclusions and recommendations. 63 4. Changes aimed to improve institutional performance are more effective when a holistic and multidimensional approach is adopted. The best approach consists of providing adequate training, technical assistance, equipment, infrastructure, software and sharing of experiences, including working at different organizational levels. 5. When a project is implemented with a number of similar institutions, e.g. Local governments, the exchange of experiences on how improvement processes is implemented in each of them can promote a healthy competition among them, facilitate changes and generate better results. Component 2 - Matching Funds for MSMEs: 6. Preconditions: To prevent delays during the initial project implementation stage, it is necessary to have all the technical personnel hired and have in place the mechanisms and instruments for gearing up the project. Regarding PRODEMIPYME, during the project implementation stage the first version of the Manual was drafted and even at the time when the project became effective (June 2009), except for the Project Coordinator, neither staff had been hired for the Matching Funds Component, nor tools necessary had been devised to implement it, e.g. Operations Manual and ToRs for hiring the necessary staff. 7. Technical Assistance: During the onset of the Project, hiring the qualified staff to provide technical assistance was not an easy task; it took a number of hiring processes to complete the team required. 8. Implementing Agency: The implementing agency had no previous experience in terms of matching funds and the in-country experience in this field was very limited. This led to a learning- by-doing process that took into consideration an on-going use of lessons learned to improve the execution of matching grants, demanding necessarily more time for completing project activities. 9. Matching grants was a new tool for the institution: For this type of project involving matching grants, it is important to carry out a pilot exercise to validate and adjust the instruments (Operating Regulations, Monitoring Methodology). The implementation of the first round was a successful pilot experience that left important operational lessons, including: (i) Need to simplify application and administrative procedures; (ii) Need to change the proportion of matching funding particularly for those business based in poverty-stricken areas; and (iii) Importance of CAMIPYMES local presence and support which has been a determinant for a successful round, as well as the need for increased program promotion and dissemination. 10. Assessing the matching grant approach: Two matching grant evaluations were conducted: a mid- term evaluation that covered the first and second rounds and a final evaluation that consolidated results of the three rounds, including the most important lessons learned: 11. There is an MSME sector in the country with capacity to invest in productive and commercial improvements: A very important fact resulting from the full implementation of the Component resources proved that: A. There is a MSME –driven demand for support, whose magnitude per annum may be around 450 plans and between US $ 3 - 4 million of matching funds; B. Such demand is nationwide (found in all departments and regions); C. 70% of the enterprises interviewed are willing to engage in co-funding investment projects with amounts below the US$10,000 and 30%, with amounts above such figure. D. Participant MSMES and sectorial representatives have a very positive opinion about the support given by the Component. This is clearly a supply oriented to attain productive and commercial improvements through investments. 12. The MSME sectorial policy approach should be productive, avoiding paternalism: The MSMEs interviewed and the discussions with sectorial representatives point out a very positive opinion about the support provided by the Component. This is clearly a supply oriented to attain 64 productive and commercial improvements through investments. Such type of supply has been validated by enterprises, including those relatively smaller ones. In the words of one of the respondents: “We are entrepreneurs; not micro-entrepreneurs”. Following this mindset, the results obtained by businesses were mostly positive. 13. MSME policy should have a national scope with regional supporting platforms: Given the nationwide nature of demand (the Project worked in all the departments and regions), any MSME- oriented program should have a platform or mechanism to ensure a presence closer to businesses nationwide. 6. PRODEMIPYME Financial Evaluation On July 25, 2008, funds for implementing the Micro, Small, and Medium Enterprise Development Project (PRODEMIPYME) were approved as Special Drawing Rights for the amount of SDR 12.3 million. June 16, 2009 was the project effectiveness date declared by the World Bank to trigger the execution of funds. During the project implementation, the approved financing experienced three changes, shrinking the initially agreed amount of SDR 12.3 million to SDR 8.1 million. Between June 2009 and December 2014, the Project disbursed 100% of available funding in the amount of USD $ 12,374,331.06 (twelve million three hundred seventy-four thousand three hundred thirty-one dollars and 06/100); managing to execute the amount of USD $ 12,103,461.45 (twelve million one hundred three thousand, four hundred sixty-one dollars and 45/100), which represented 98% of budget execution; based on these results, the financial implementation of the project is rated very satisfactory. A more detailed financial evaluation of the project is included in Annex No. 6. 7. SUSTAINABILITY OF ACTIVITY IMPACTS Component 1 - Improving Business and Investment Climate: Most of investments under this Component were made in activities that are part of each institution’s competence, which ensures sustainability of such actions: 1. Company Registry of Managua (RMM): Manual registration system was superseded by an Automated System that upgraded the delivery of services, thus increasing institutional income. Likewise, RMM provided technical assistance to 17 company registers nationwide in order to standardize their processes and build their capacities to serve Nicaraguan entrepreneurs. It is expected that improvements are also reflected in the upcoming Doing Business Report (business opening indicator). 2. One-Stop Shop for Investment (VUI): The VUI is currently operating, providing timely attention to entrepreneurs under the new project–supported infrastructure. This institution has experienced an increased demand in the number of applications. The new facilities accommodate better conditions to offer these services. 3. Intellectual Property Registry (RPI): The number of trademark and patent registration applications has increased, thus raising institutional income. An express desk was created to process (usually MSME) trademark and patent registration applications, and provide users with assistance to complete the registration process. It is planned to implement a RPI training plan aimed at different productive sectors. The training sessions already implemented have raised awareness among MSMEs to protect their intellectual property rights, generating as a result a considerable increase in applications for national registration. 4. Ministry of Health (MINSA): The new automated sanitary licensing, registration and surveillance system has been in place since September 2014. This functional tool allows the institution to have for the first time more detailed, reliable and timely statistics. MINSA also has an ultra-pure water system which enables top-quality water supply in 6 different technical divisions that comprise more 65 than 60 public health laboratories under the National Reference Center for Diagnosis, generating savings up to $ 24,000 per year. 5. Ministry of Labor (MITRAB): MSME-oriented OSH assistance has been institutionalized since 2014. MITRAB allocated resources to provide 150 new companies nationwide with assistance. This activity will also be replicated in 2015 using its own resources and is expected to reach a similar number of new businesses. 6. Local Governments of Leon, Rivas, Matagalpa, Bluefields, Puerto Cabezas, Chinandega, Masaya and Granada: As a result of streamlined internal processes, business processing times were reduced while tax revenues grew. This fosters the sustainability of the project-backed activities. Component 2 - Matching Funds for MSMEs: 7. There is a territorial platform at MEFCCA Territorial Delegations with mandates them to provide MSMEs with assistance. This will give continuum to those activities in support of MSMEs’ sectorial development. 8. Records show 864 MSMEs benefited from the three rounds of Matching Funds, out of which 617 experienced significant growth in sale volumes. This means 71% of project recipient businesses are making more profits that may be reinvested. 9. The matching grant recipient MSMEs that satisfactorily completed their Business Improvement Plans and were awarded with proof of ownership transfer, now are found eligible to be financed by commercial banking for continued business improvement and growth. 66 Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders Not applicable. 67 Annex 9. List of Supporting Documents Banco Centroamericana de Integracion Economica “Ficha Estadistica de Nicaragua.” 2005. Campos, Francisco; Coville, Aidan; Fernandes, Ana M.; Goldstein, Markus; McKenzie, David. Learning from the Experiments that Never Happened : Lessons from Trying to Conduct Randomized Evaluations of Matching Grant Programs in Africa © World Bank, published in the Journal of the Japanese and International Economies (2014.) El Nuevo Diario. “85% de los empleos vienen del sector mipyme”. Published on October 30, 2014. Ellis, Amanda, with Claire Manuel, and C. Mark Blackden. Gender and Economic Growth in Uganda: Unleashing the Power of Women. World Bank, Washington, DC. 2006. Nicaragua Emprendedores. “Emprendedores: el pulso de la economía de un país” GIZ. Working paper: “Pueblos Indigenas en Nicaragua.” October 2010 La Voz Del Sandinismo. “Daniel juramenta junta directiva del Banco Produzcamos.” July 15, 2009. MIFIC. Completion report of PRODEMIPYME. March 2015. Ventura, Juan Pablo. “Evaluation of the execution of the reimbursable matching grants – Component 2 of the PRODEMIPYME.” December 2014. World Bank Group. Innovating in the Manufacturing Sector in Latin America and the Caribbean. Latin America and the Caribbean Series Note No. 9. Rev 8/2014. World Bank Group. DR-CAFTA: Challenges and Opportunities. 32953. 2005. World Bank Group. Doing Business in 2015. October 2014. World Bank Group. Implementation Status and Results reports, #1 – 16, P109691 World Bank Group. Project Appraisal Document, P109691 68 MAP 69