Document of The World Bank FOR OFFICIAL USE ONLY Report No: PAD880 INTERNATIONAL DEVELOPMENT ASSOCIATION PROJECT APPRAISAL DOCUMENT ON A PROPOSED GRANT IN THE AMOUNT OF SDR 6.6 MILLION (US$10.20 MILLION EQUIVALENT) TO THE REPUBLIC OF CHAD FOR THE VALUE CHAIN SUPPORT PROJECT April 29, 2014 Financial and Private Sector Development Western and Central Africa Africa Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS (Exchange Rate Effective March 31, 2014) Currency Unit = CFAF CFAF 480.58 = US$1 SDR 0.646985 = US$1 FISCAL YEAR January 1 – December 31 ABBREVIATIONS AND ACRONYMS AAA Analytical and Advisory Activities AFD Agence Française de Développement (French Development Agency) AfDB African Development Bank ANIE Agence Nationale des Investissements et des Exportations (National Investment and Export Agency) ASYCUDA Automated System for Customs Data CECOQDA Centre de Contrôle de la Qualité des Denrées Alimentaires (Center for Food Product Quality Control) CEMAC Communauté Économique et Monétaire de l'Afrique Centrale (Economic Community of Central African States) CFAF CFA franc CNPT Conseil National du Patronat Tchadien (National Council of Employers of Chad) COJO Commission d’Ouverture et de Jugement des Offres (National Tender Board) CPAR Country Procurement Assessment Report CQ Selection Based on Consultants Qualifications DB The World Bank’s Doing Business Report DEELCPN Direction des Evaluations Environnementales et de la Lutte Contre les Pollutions et les Nuisances (Directorate of Environmental Assessment and Combatting Pollution) DTIS The World Bank’s Diagnostic Trade Integration Study EOI Expression of Interest ERR Economic Rate of Returns ESIA Environmental and Social Impact Assessment ESMF Environmental and Social Management Framework ESMP Environmental and Social Management Plan EU European Union EUR Euro FAO Food and Agriculture Organization of the United Nations FM Financial Management GDP Gross Domestic Product GOC Government of Chad GPN General Procurement Notice GS/MPDLP General Secretariat of the Ministry of Pastoral Development and Livestock Production HACCP Hazard Analysis and Critical Control Points HDI Human Development Index IBRD International Bank for Reconstruction and Development IC Individual Consultants ICB International Competitive Bidding ii IDA International Development Association IEG The World Bank’s Independent Evaluation Group IFC International Finance Corporation ISN Interim Strategy Note LCS Least-Cost Selection LEIA Limited Environmental Impact Assessment M&E Monitoring and Evaluation MEP Ministère de l’Économie et du Plan (Ministry of the Economy and Planning) MPDLP Ministry of Pastoral Development and Livestock Production MSME Micro, Small, and Medium-Sized Enterprises MTR Mid-Term Review NCB National Competitive Bidding NDP National Development Plan NSDL National Strategy for the Development of Livestock NPRS National Poverty Reduction Strategy NPV Net Present Value OHADA Organisation pour l'Harmonisation en Afrique du Droit des Affaires (African Business Law Harmonization Organization) ORAF Operational Risk Assessment Framework PAD Project Appraisal Document PADIAT Projet d’Appui au Développement des Industries Animales du Tchad (Project to support the Development of Livestock Industries in Chad) PAMFIP Plan d’Action pour la Modernisation et la Gestion des Finances Publiques (Public Finance Management and Modernization Action Plan) PCU Project Coordination Unit PDO Project Development Objectives PFM Public Finance Management PIM Project Implementation Manual PNDE Plan National de Développement de l’Élevage (National Strategy for the Development of Livestock Farming) PPA Project Preparation Advance QBS Quality-Based Selection QCBS Quality-and-Cost-Based Selection RPSP Regional Pastoralism Support Project SDR Special Drawing Rights SME Small and Medium-Sized Enterprises SSS Single-Source Selection SYSCOHADA OHADA accounting system UNDP United Nations Development Programme VAT Value Added Tax WB World Bank Regional Vice-President: Makhtar Diop Country Director: Paul Noumba Um Sector Director: Gaiv Tata Sector Manager: John F. Speakman Task Team Leader: Adja Mansora Dahourou iii REPUBLIC OF CHAD Value Chain Support Project TABLE OF CONTENTS Page I.  STRATEGIC CONTEXT .................................................................................................1  A.  Country Context ............................................................................................................ 1  B.  Sectoral and Institutional Context................................................................................. 1  C.  Higher Level Objectives to Which the Project Contributes........................................ 10  II.  PROJECT DEVELOPMENT OBJECTIVE ................................................................11  A.  PDO............................................................................................................................. 11  B.  Project Beneficiaries ................................................................................................... 11  C.  PDO-Level Result Indicators ...................................................................................... 12  III.  PROJECT DESCRIPTION ............................................................................................12  A.  Project Components .................................................................................................... 12  B.  Project Financing ........................................................................................................ 18  C.  Lessons Learned and Reflected in the Project Design ................................................ 18  IV.  IMPLEMENTATION .....................................................................................................19  A.  Institutional and Implementation Arrangements ........................................................ 19  B.  Results Monitoring and Evaluation ............................................................................ 20  C.  Sustainability............................................................................................................... 21  V.  KEY RISKS AND MITIGATION MEASURES ..........................................................22  A.  Risk ratings summary table ......................................................................................... 22  B.  Explanation of Overall Risk Rating ............................................................................ 22  VI.  APPRAISAL SUMMARY ..............................................................................................24  A.  Economic and Financial Analysis ............................................................................... 24  B.  Technical ..................................................................................................................... 26  C.  Financial Management ................................................................................................ 27  D.  Procurement ................................................................................................................ 30  E.  Social (Including Safeguards) ..................................................................................... 30  F.  Environment (Including Safeguards) .......................................................................... 31  iv Annex 1 : Results Framework and Monitoring ........................................................................32  Annex 2: Detailed Project Description .......................................................................................35  Annex 3: Implementation Arrangements ..................................................................................43  Annex 4: Operational Risk Assessment Framework (ORAF) .................................................65  Annex 5: Project Readiness Table ..............................................................................................68  Annex 6: Implementation Support Plan ....................................................................................70  Annex 7: Economic Analysis .......................................................................................................73  Figures Figure 1: Stakeholders in the Meat Value Chain ............................................................................ 3  Figure 2: Snapshot of Business Environment Constraints in Chad ................................................ 7  Figure 3: Benefit Streams from the Project .................................................................................. 25  Figure 4: Project implementation arrangements ........................................................................... 45  Figure 5: Funds Flow Diagram ..................................................................................................... 51  Figure 6: Stakeholders in the meat value chain ............................................................................ 73  Figure 7: Profitability across stakeholders – in the slaughterhouse .............................................. 74  Figure 8: Profitability across stakeholders – in sacrifice areas ..................................................... 74  Figure 9: Profitability across stakeholders – in the slaughterhouse WITH the project ................ 76  Figure 10: Profitability across stakeholders – in sacrifice areas WITH the project ..................... 76  Figure 11: Benefit streams from the project ................................................................................. 79  Tables Table 1: Chad’s Doing Business Rankings in 2013 and 2014 ........................................................ 7  Table 2: Main Donor Interventions in the Livestock Sector......................................................... 10  Table 3: Project Costs and Financing ........................................................................................... 18  Table 4: FM Action Plan............................................................................................................... 29  Table 5: Detailed Project Costs.................................................................................................... 42  Table 6: FM Action Plan.............................................................................................................. 48  Table 7: Implementation Support Plan ........................................................................................ 52  Table 8: Strengthening Procurement Capacities – Procurement Unit of Ministry of Pastoral Development and Livestock Production ....................................................................................... 55  Table 9: Improving Procurement Capacity in PCU ..................................................................... 56  Table 10: Implementation Support Plan - Financial .................................................................... 71  Table 11: Focus and resources ...................................................................................................... 71  Table 12: Skills mix required........................................................................................................ 72  Table 13: Slaughtered animals per year – in Farcha and in sacrifice areas .................................. 77  Table 14: Taxes paid at the slaughter areas .................................................................................. 77  Table 15: Costs and benefits ......................................................................................................... 79  v . PAD DATA SHEET Chad Value Chain Support Project (P133021) PROJECT APPRAISAL DOCUMENT . AFRICA AFTFW Report No.: PAD880 . Basic Information Project ID EA Category Team Leader P133021 B - Partial Assessment Adja Mansora Dahourou Lending Instrument Fragile and/or Capacity Constraints [ ] Investment Project Financing Financial Intermediaries [ ] Series of Projects [ ] Project Implementation Start Date Project Implementation End Date 22-May-2014 22-May-2019 Expected Effectiveness Date Expected Closing Date 30-Sep-2014 30-Sep-2019 Joint IFC No Sector Manager Sector Director Country Director Regional Vice President John F. Speakman Gaiv M. Tata Paul Noumba Um Makhtar Diop . Borrower: Ministry of Planning, Economy and International Cooperation Responsible Agency: Ministry of Pastoral Development and Livestock Production Contact: Issa Title: Ali Taher Minister Telephone No.: 235-2252-5364 Email: . Project Financing Data(in USD Million) [ ] Loan [ ] Grant [ ] Guarantee [ ] Credit [ X ] IDA Grant [ ] Other Total Project Cost: 10.20 Total Bank Financing: 10.20 Financing Gap: 0.00 vi . Financing Source Amount BORROWER/RECIPIENT 0.00 IDA Grant 10.20 Total 10.20 . Expected Disbursements (in USD Million) Fiscal Year 2015 2016 2017 2018 2019 2020 Annual 1.00 2.25 2.25 2.25 2.45 0.00 Cumulative 1.00 3.25 5.50 7.75 10.20 10.20 . Proposed Development Objective(s) The proposed project development objective is to improve: (i) targeted aspects of the business environment; and (ii) the performance of agro-pastoral value chains in the Republic of Chad. . Components Component Name Cost (US$ Millions) Component 1: Improving the business environment 2.00 Component 2: Support to the meat and dairy value chains 6.00 Component 3: Project Management 1.30 Contingencies 0.90 . Institutional Data Sector Board Competitive Industries Practice . Sectors / Climate Change Sector (Maximum 5 and total % must equal 100) Major Sector Sector % Adaptation Mitigation Co-benefits % Co-benefits % Public Administration, Law, and Public administration- 20 Justice Industry and trade Industry and trade Agro-industry, 60 marketing, and trade Industry and trade General industry and 20 trade sector Total 100 I certify that there is no Adaptation and Mitigation Climate Change Co-benefits information applicable to this project. vii . Themes Theme (Maximum 5 and total % must equal 100) Major theme Theme % Financial and private sector development Regulation and competition policy 35 Financial and private sector development Micro, Small and Medium Enterprise 30 support Financial and private sector development Other Private Sector Development 20 Trade and integration Trade facilitation and market access 15 Total 100 . Compliance Policy Does the project depart from the CAS in content or in other significant Yes [ ] No [ X ] respects? . Does the project require any waivers of Bank policies? Yes [ ] No [ X ] Have these been approved by Bank management? Yes [ ] No [ ] Is approval for any policy waiver sought from the Board? Yes [ ] No [ X ] Does the project meet the Regional criteria for readiness for implementation? Yes [ X ] No [ ] . Safeguard Policies Triggered by the Project Yes No Environmental Assessment OP/BP 4.01 X Natural Habitats OP/BP 4.04 X Forests OP/BP 4.36 X Pest Management OP 4.09 X Physical Cultural Resources OP/BP 4.11 X Indigenous Peoples OP/BP 4.10 X Involuntary Resettlement OP/BP 4.12 X Safety of Dams OP/BP 4.37 X Projects on International Waterways OP/BP 7.50 X Projects in Disputed Areas OP/BP 7.60 X . Legal Covenants Name Recurrent Due Date Frequency Financial Management, Financial 31-Mar-2015 Reports and Audits Description of Covenant The Recipient shall recruit not later than six months after the Effective Date of the Financing viii Agreement, the external auditor referred to in Section 4.09 (b) of the General Conditions in accordance with Section III of Schedule 2 of the Financing Agreement and pursuant to terms of reference satisfactory to the Association. Name Recurrent Due Date Frequency Financial Management, Financial 31-Dec-2014 Reports and Audits Description of Covenant The Recipient shall recruit not later than three (3) months after the Effective Date of the Financing Agreement, an internal auditor, whose qualifications and experience and terms of reference are acceptable to the Association. Name Recurrent Due Date Frequency Financial Management, Financial 30-Nov-2014 Reports and Audits Description of Covenant The Recipient shall, not later than two months after the Effective Date of the Financing Agreement, acquire, install and thereafter maintain an accounting software acceptable to the Association, for the Project. . Conditions Source Of Fund Name Type IDA Project Implementation Manual Effectiveness Description of Condition The Recipient has adopted the Project Implementation Manual in accordance with the provisions of Section l.B of Schedule 2 to the Financing Agreement. Source Of Fund Name Type IDA Recruitment of project personnel Effectiveness Description of Condition The Recipient has recruited a Deputy Project coordinator, a procurement specialist, a matching grant specialist, and an accountant in accordance with the provision of Section l.A.2 (b) of Schedule 2 to the Financing Agreement. Source Of Fund Name Type IDA Matching Grant Manual Disbursement Description of Condition Notwithstanding the provisions of Part A of Section IV of Schedule 2 of the Financing Agreement, no withdrawal shall be made under Category (2), until and unless the Matching Grant Manual has been adopted in form and substance satisfactory to the Association. Team Composition Bank Staff Name Title Specialization Unit Adja Mansora Dahourou Private Sector Team Lead AFTFW ix Development Specialist Abdoulaye Gadiere E T Consultant E T Consultant AFTN1 Arnaud D. Dornel Lead Financial Sector Lead Financial Sector AFTFW Specialist Specialist Berthe Tayelim Program Assistant Program Assistant AFMTD Cecile Thioro Niang Senior Economist Senior Economist AFTFW Celestin Adjalou Sr Financial Sr Financial AFTMW Niamien Management Specialist Management Specialist Faly Diallo Financial Officer Financial Officer CTRLA Inoussa Ouedraogo Operations Officer Operations Officer GTCAF Jacqueline Beatriz Veloz Program Assistant Program Assistant AFTFW Lockward Jean Charles Amon Kra Sr Financial Sr Financial AFTMW Management Specialist Management Specialist Johanne Buba Jr. Professional Officer Jr. Professional Officer AFTFP Maya Abi Karam Senior Counsel Counsel LEGAM Milaine Rossanaly Finance and Private Finance and Private AFTFW Sector Development Sector Development Mohamadou S Hayatou Private Sector Private Sector AFTFW Development Specialist Development Specialist Monique Courchesne Senior Operations Senior Operations GTCAF Officer Officer Ningayo Charles Donang Senior Procurement Senior Procurement AFTPW Specialist Specialist Olivier Beguy Economist Economist AFTP4 Taiyeba Granier Sr Program Asst. Sr Program Asst. LEGAM Wolfgang M. T. Chadab Senior Finance Officer Senior Finance Officer CTRLA Non-Bank Staff Name Title Office Phone City Ibrahima Dione Consultant . Locations Country First Location Planned Actual Comments Administrative Division Chad Région de la Ville Ville de N'Djamena X X de N'Djamena x I. STRATEGIC CONTEXT A. Country Context 1. Chad is one of the poorest countries in the world, with economic growth mainly driven by the oil sector. Periodic bouts of civil conflict, a shortage of resources, weak institutional capacity, and challenging agro-climatic conditions have undermined the efforts of successive governments of the Republic of Chad to boost economic growth. Chad is a low-income country with per capita gross national income (GNI) of US$740 in 2012. Since 2003, with the advent of the oil era and the high level of investment in this sector, the country has been highly dependent on oil. Oil accounts for about 90 percent of total goods exports (exports earnings reached US$4 billion in 2011), and about 35 percent of Gross Domestic Product (GDP). In 2012, real GDP growth increased to 5.4 percent (from 2 percent in 2011) and was largely driven by several industrial projects becoming operational, including a full year of operation of the first oil refinery in the country, which started production in mid-2011, and the opening of a new cement plant. 2. Despite this recent performance, Chad was ranked 184 out of 187 on the UNDP Human Development Index (HDI) for 2013. The second National Poverty Reduction Strategy 2008-11 (NPRS-II) reported that poverty in Chad is disproportionally rural, with 87 percent of the poor living in rural areas. As Chad enjoys the fruits of a strong hydrocarbon sector, the challenge of generating broad-based economic growth and stable, well-paid jobs remains. The country needs to develop non-oil sectors and diversify its economy, which is now vulnerable to terms of trade and shocks. 3. Agriculture is the one of the most promising non-oil sectors and is the second greatest source of export earnings in Chad. It provides the bulk of non-oil export revenues, with commodities such as cotton, cattle, and gum Arabic. In late 2011, a severe drought led to a decline in agricultural production (cotton, cereals, oil seeds, sugar, cattle, etc.), causing a food security crisis and a sharp increase in inflation. Favorable weather conditions spurred a recovery in agricultural output, which should yield an increase in the main crops in the coming years. It is estimated that only six percent of arable land is cultivated and that water resources remain largely untapped, with only nine percent of potential resources being used. 4. The country now finds itself at a crossroads, with a need to diversify its economy. Existing sources of growth have to be strengthened through support to development of value chains for high-value products. The agriculture sector has considerable potential and continues to be the major engine of growth, job creation, and poverty reduction. B. Sectoral and Institutional Context 5. Chad’s competitiveness in the non-oil sector is weak due to a lack of market and goods diversification in its exporting sectors. The country’s current national value proposition focuses on its “comparative” advantages (oil resources) rather than on its ability to be competitive in select export sectors. Low-skilled labor and low rates of added value are highly prevalent in 1 Chad’s current productive sectors, leading to a path that undermines the country’s growth potential and is fundamentally unsustainable. 6. The country needs to pursue a three-pronged strategy of improving its business environment, repositioning traditional sectors, and diversifying its export products. The proposed project is at the heart of this strategy through its focus on one of the most important sectors in the country, and one that plays a decisive role in the business environment. Agriculture is the cornerstone of Chad’s economy, accounting for 21 percent of GDP, and is the greatest source of employment, employing more than 2.3 million people (80 percent of the labor force). The majority of the country’s population lives in rural areas and is heavily dependent on subsistence farming and livestock for its livelihood. In the new 2013–2015 National Development Plan (NDP), the government identified specific agricultural value chains in which the country can be competitive and whose impacts on the economy would be substantial. Based on their ability to develop quickly, those high-growth value chains are as follows: (i) Tier 1 value chains with a developmental timeframe of 1–5 years included cotton, peanuts, fruits and vegetables, livestock, gum arabic, and shea nuts; (ii) Tier 2 value chains with a developmental timeframe of 6–10 years included cereals, rice, cassava, and white meat, and; (iii) Tier 3 value chains with a developmental timeframe of 10+ years included sugar, tobacco, and fisheries. 7. Several potential value chains were considered during project identification, following consultations with the government and the private sector. Building on the analysis and recommendations of the 2014 World Bank Group’s Chad Livestock and Gum Arabic Value Chain Study, priorities highlighted in the Government’s NDP, and on field consultations, the project’s initial focus will be to support the development of the meat value chain and dairy subsector in the capital N’Djamena and surrounds. By doing so, the project will tackle urban- rural linkages in serving a large geographical area where urban poverty is equally prevalent. The project would aim to strengthen the value chains and cover the upstream portion of meat and dairy production, in which most activities take place in rural areas. The project interventions would bring together the meat and dairy stakeholders to address domestic market needs in the short term, with a medium- to long-term objective of developing exports to regional and international markets. Meat Value Chain Overview and Challenges 8. Despite having the largest bovine livestock herds in Sub-Saharan Africa with more than 11 million head, of which 7 million are cattle, Chad’s potential for generating remunerative activities from livestock is under-exploited. Three value chains (meat, dairy, and hides and skins) were investigated during project preparation. The meat industry is substantially more mature than the dairy industry or the hides and skins value chain. In the 1970s, the country was one of the main meat exporters in Central Africa, exporting about 12,000 tons of meat per year. Today, Chad is not exporting meat anymore and beef produced in the country is mostly consumed domestically. The top-quality live cattle is sent to Nigeria (between 300,000 and 600,000 head annually), while about 140,000 head of lower quality cattle are slaughtered in the main slaughterhouse of Farcha-N’Djamena and in about 40 individual slaughter areas in the country. The informal sector is dominant and it has been estimated that only half the exported cattle and 20 percent of the meat produced in Chad are officially declared. Overall, 90,000 tons of meat is 2 produced annually (including in the informal sector), which is less than half the annual production of Cameroon, a country with a smaller livestock industry than Chad. According to an analysis by the World Bank of Livestock and Arabic Gum Value Chains,1 the domestic market in Chad consumes about 150,000 tons of beef per year. Chad's population consumes more red meat than other neighboring countries (13 kg per capita per year against 8 kg for Cameroon, 4.5 to 13 kg for the Congo to Gabon, according to FAO estimates). This consumption is particularly high in urban areas. If N’Djamena’s production and population growth figures are considered, it appears that from 2000 to 2010, the average consumption of meat in the capital has increased from 8.5 kg per capita per year to 21 kg for beef, 0.8 kg to 2.4 kg for mutton and lamb, and 0.3 kg to 2 kg for goat meat. Chad has an opportunity to better serve the domestic market and conquer export markets with this product, as illustrated by the large untapped reserves of livestock and by the country’s past experience in the meat industry. Moreover, 40 percent of the population, including poor households (nomads and rural households), are heavily dependent on livestock. 9. There is significant potential for formalizing the meat-packing industry and for developing a formal private sector in meat production, given the large number of small and informal butchers and the abundant availability of livestock. Butchers are organized into a National Federation of Butchers comprised of 17 regional federations that represent individuals, firms, and their associations, including the association of women processors of livestock products. Just in N’Djamena surrounds, the National Federation has 841 members, including 691 butchers, 130 tanners, and 60 women meat processors. Stakeholders in the entire livestock value chain are comprised of six main groups, from the herders, to the collectors who act as intermediaries, to the retail butchers. Figure 1 below shows the interconnection between the stakeholders in the value chain. Figure 1: Stakeholders in the Meat Value Chain Source: Livestock and Gum Arabic Value Chain Analysis (2014) 1 The World Bank, Livestock and Gum Arabic Value Chains Analysis, Washington, DC: World Bank Group, 2014. 3 10. The meat value chain faces several challenges due to poor quality infrastructure and lack of storage capacity. All slaughterhouses and sacrifice areas are characterized by a lack of basic hygiene and poor organization. Due to the risky environment, the private sector has not yet come forward to invest in and operate the slaughterhouses in a sustainable manner, resulting in a market failure. First, the top-quality cattle is not slaughtered in Chad for domestic meat consumption but is rather exported to Nigeria, as market participants favor exporting live cattle rather than sell to the less profitable domestic market. The meat currently produced in Chad does not meet the optimal quality requirements and could pose significant health risks. At present, the country has three operational slaughterhouses, including the main slaughterhouse in the capital, and about 40 sacrifice areas (four of which in the capital: N’Guéli, Walia, Goudji, and Diguel). More importantly, the main slaughterhouse of Farcha-N’Djamena, built in 1958, is supposed to be the best facility in the country in terms of quality. It is state-owned and operated via a management contractor with private sector participants/butchers’ associations. The infrastructure has gradually deteriorated without adequate maintenance and new investments in it, and it is in need of renovation. 11. Conditions in the four dedicated slaughter areas managed by the butchers’ associations in the periphery of N’Djamena are of poor quality as most do not have holding areas, proper floors, systems for collecting blood and waste fluids, or adequate waste management systems. In 2010, a total of about 140,000 cattle were slaughtered in a controlled manner, that is to say, in formal slaughterhouses and slaughter areas. Various sources from the Ministry of Pastoral Development and the 2013 FAO study on slaughterhouses and meat production in Central Africa2 report that illegal slaughter, undertaken without any sanitary and veterinary controls, is a widespread practice in the country, hence preventing the collection of accurate data on the total number of animals slaughtered. 12. Cold chain, storage capacity, and transportation/distribution channels to retail markets remain a challenge for the main slaughterhouse and slaughter areas. In the main slaughterhouse in N’Djamena, only four of the eleven cold rooms are operational. It has a capacity of 110 tons/day, or about 22,000 tons per year, but with the facility only partially used today, latest estimates indicate that only 12,000 tons are produced annually. In the sacrifice areas, butchers report problems related to improperly chilled meat because of a lack of cold storage rooms and faulty refrigeration systems in the transport vans. In most cases, meat is transported from the slaughter areas to meat markets with motorcycles, without any refrigeration system. There are three types of butcheries in Chad. Only a handful of high-end butcheries in N’Djamena offer high-quality meat from well-finished animals—imported or from the slaughterhouse of Farcha- N’Djamena —and choice cuts that are priced differently. The middle segment is found in the central market of N’Djamena, where there is a deep freezer where meat is stored overnight, but that has limited refrigeration facilities during the day. The lowest segment is found in the small markets and some open-air points of sale on the side of the street that have no refrigeration. 13. The low capacity of the private sector involved in the meat industry and low levels of transparency in the sales price structure make it difficult for butchers to reach optimal sales and margins. Chad has a high concentration of butchers, who are represented in seventeen regional federations, which include around 1,150 firms, associations of individual butchers (500), 2 Study on slaughterhouses in Central Africa (Cameroon, Congo, Gabon, Chad), FAO, 2013. 4 slaughterers (500), and transporters (150).3 Many of these butchers are in the informal sector and have limited managerial capacities. Most of the informal entrepreneurs in the industry do not maintain written accounts. These are clear indicators of weak entrepreneurial capacity, which as consequence has led to a low level of productivity. The large informal market drives down prices, thereby reducing margins. 14. A number of bottlenecks undermine the country’s ability to export value-added products (meat and other processed byproducts rather than live animals). Low quality or lack of accreditation services to enable the industry to implement food safety systems such as Hazard Analysis and Critical Control Points (HACCP) prevent the meat produced domestically from meeting international food safety standards. Unofficial barriers to exporting meat and other meat products to neighboring countries such as Nigeria or other central African countries (long transit delays, preference given to imported frozen meat products from South America and Asia) are challenges that the industry will have to overcome, assuming live cattle exporters are offered the right incentive to invest in meat production and Chad can reach an agreement with Nigeria concerning the exporting of meat as opposed to live animals. Unlike Nigeria, Chad has no formal trade agreements signed with other countries such as the Middle Eastern countries (Saudi Arabia and Algeria), the CEMAC countries (Congo, Gabon, Cameroon, and Equatorial Guinea), or neighboring countries such as Sudan that represent an important market for meat products. CEMAC countries in particular could become attractive markets for Chad as three of them (Congo, Gabon, and Equatorial Guinea) imported meat worth CFAF 500 billion (US$1 billion) in 2010. The Dairy Subsector: Overview and Challenges 15. Like the meat value chain, the dairy subsector faces similar cold chain and storage capacity challenges. In villages in Chad, while the animal itself traditionally belongs to the household and therefore to the man (the head of the family), women are responsible for milking the cows and are considered owners of the milk and milk products. According to FAO statistics, milk production in Chad was estimated at 272,000 tons in 2010, used with little or no processing, and from which 60 percent was mainly for local consumption. In the N’Djamena area, there are approximately 40 traditional milk and dairy product sales centers, but the sector as a whole faces conservation constraints from production sites to points of sale. Inadequate storage and limited refrigeration systems force producers and sales points’ owners to sell their products in small quantities and at daily rates, and sometimes to sell at a loss in order to avoid being left with unsold stock. 16. Challenges in the dairy sector are compounded by low milk production. In Chad, cows produce an average of 2 liters of milk per day, while global milk production standards are estimated at between 30 and 50 liters per cow—15 to 25 times more than in Chad. With a productivity gain of 50 percent, the country could double its production and be able to export to neighboring markets that are net importers, such as Nigeria and the CEMAC countries. 17. To reach global milk production standards, numerous complex challenges need to be addressed. These include the poor quality and quantity of animal inputs (feed and animal health), 3 Source: Chad Livestock and Gum Arabic Value Chain Analysis (2013). 5 the lack of modern production methods and byproducts quality management, and the lack of organization between the various stakeholders. According to the Value Chain Analysis, Chad’s milk production could be increased to 3.5 liters per cow per day for a productivity gain equivalent to 5 percent of the global standard. Production could then exceed 500,000 tons per year if conditions for production, collection, and preservation were also improved. 18. At the production level, the dairy sector is almost entirely run by women, with some gender mixing at the sales level. The Value Chain Analysis reports that there are approximately 150,000 milk producers and 300 collectors from the villages at the national level. There are approximately 100 transporters with basic and obsolete refrigerated tanks, only 10 raw milk processors, and 40 points of sale identified. In 2010, a union of women milk and dairy producers was created in Naala, about 60 km from N’Djamena. The Union is composed of 34 groups and accounts approximately 1,500 women. 19. At present, the biggest challenges in the Chadian dairy industry are productivity, collection methods, and conservation systems for milk and other dairy products produced by women (such as traditional cheese, yoghurt, and butter). It is therefore paramount that assistance be offered in structuring the sector and that technical assistance and financing opportunities be provided for the stakeholders in the sector in order to produce higher value products through improved productivity, conservation methods, and more competitive marketing of dairy products. The project will tackle only one set of challenges in the dairy value chain, namely the conservation and marketing issues in the area of the project with a focus on the potential impact in terms of immediate income generation, leaving milk productivity improvement to core agricultural projects in the Bank portfolio and to other donor interventions. Special attention will be given to women small holders through the establishment of a pilot milk collection and conservation center, and through a matching grant scheme. Investment Climate: Overview and Challenges 20. The country’s investment climate and business environment are widely perceived as being unfavorable to the development of the private sector. The private sector currently includes fewer than a dozen large firms in industry (breweries, sugar mills, cigarette manufacturers, etc.), construction and public works, services, and oil; a number of SMEs active in the agri-business sector, construction materials, and handicrafts; and a large number of small companies operating primarily in the informal sector in a wide range of activities, –including small-scale manufacturing, trade, and services. Political instability, electricity constraints, a high level of corruption, cumbersome customs and trade regulations, weak transportation systems, widespread informal sector practices, limited access to credit, complex tax administration, and high tax rates were the top constraints identified as impediments to business activity in the World Bank 2009 Enterprise Survey in Chad (see Figure 2 below). Business environment has slightly improved since then, although similar challenges to private sector development were singled out in the National Council of Employers of Chad (CNPT) White Book published in 2011. 6 Figure 2: Snapshot of Business Environment Constraints in Chad 21. Chad was ranked 189 out of 189 countries in the latest Doing Business report (2014). The Doing Business report rates the ease of starting a business, paying taxes, and trading across borders, among other things. Although Chad made starting a business easier in 2012 by eliminating one procedure and by operationalizing a one-stop shop for business creation in the National Investment and Export Agency (ANIE) in 2013, the cost and time required for starting a business in Chad remain high compared to similar countries. The country remains among the lowest ranked for ease of doing business, as shown in the table below, where the country ranked almost last for the “starting a business” indicator in the past two years. Table 1: Chad’s Doing Business Rankings in 2013 and 2014 DB 2014 ranking (189 DB 2013 ranking (189 countries ranked) countries ranked) Ease of Doing Business 189 189 Starting a Business 183 184 Dealing with Construction Permits 139 133 Getting Electricity 149 150 Registering Property 146 143 Getting Credit 130 126 Protecting Investors 157 156 Paying Taxes 189 189 Trading Across Borders 183 178 Enforcing Contracts 171 171 Resolving insolvency 189 189 Source: Doing Business 2014 22. The administrative burden of complying with taxes and trading across borders remains high and constitutes an obstacle to value chains’ competitiveness. DB 2014 shows that firms make an average of 54 tax payments per year (compared to a sub-Saharan average of 39 payments), spend 732 hours a year filing, preparing, and paying taxes, that amount to 73.8 percent of profits. On the logistics side, the country made trading across borders more difficult 7 by introducing a new export and import document in 2013. Exporting a standard container of goods requires 8 documents, takes 73 days, and costs US$6,615. Importing the same container of goods requires 11 documents, takes 98 days, and costs US$9,025. Figure 3: Overview of 2014 Doing Business indicators Source: Doing Business database, 2014 23. Given the high number of informal businesses in the meat and dairy value chains, improving the business environment and especially issues related to business registration and procedures for trading across borders would therefore have a significantly positive impact with regard to increasing formalization in the value chains selected, and will contribute to improving the country’s competitiveness. The expected impact is an increase in private investments in key tradable sectors, more exports, and job creation. Government Strategy 24. The Government launched an ambitious program of reforms in 2011, with the objectives of fostering private sector growth and diversifying the economy. These reforms focused particularly on establishing appropriate frameworks for private sector development, and were laid out in an action plan that was adopted in 2012, with 13 resolutions for improving the business environment in Chad. The ANIE was appointed as the main agency responsible for coordinating and implementing the reforms. However, these reforms have stalled due to institutional instability and the ANIE’s weak ability to encourage sectoral ministries to keep up the momentum of reforms. Other actions included implementing reforms for enhanced trade integration, based on the 2007 World Bank’s Diagnostic Trade Integration Study (DTIS) and the updated version of 2013 (DTIS II), the preparation and adoption of a new Investment Code, and the adoption of a new strategy for SME development, adopted in 2012. 25. The project will help complete and implement major reforms initiated by the government, especially those pertaining to the business environment and private sector development in the selected value chains. The private sector and producers in the meat industry need to be supported 8 in order for the value chain to become competitive. The government is following its 2009–2016 National Strategy for the Development of Livestock (Plan National de Développement de l’Élevage/PNDE). Renovation and construction of new refrigerated slaughterhouses in the country are underway, funded by government and by donors. The slaughterhouse in Abeche has already been renovated by the IDA-funded Urban Development Project. Moreover, the government plans to build additional modern industrial slaughterhouses in Abeche, Moundou, and Djarmaya, under the government-led project PADIAT, with funding from the East African Development Bank. The proposed project will therefore complete the government’s strategy and efforts to support private sector stakeholders in the sector, improve the business environment, and strengthen the capacity of local SMEs to respond to local demand and market needs. Rationale for the Bank’s Involvement 26. This project will contribute directly to the World Bank’s objective of poverty reduction and shared prosperity. It will focus on demand-driven financing of goods and services for the meat and dairy stakeholders (associations, cooperatives, MSMEs, butchers, and women involved in meat processing and dairy production) in order to improve their livelihoods, thus reducing poverty for the poorest segments of the population. Entrepreneurs in the project area and their families will benefit from investment opportunities and increased income, including women small holders involved in meat processing, milk production/collection, and the production and sale of traditional dairy products. The project will also address the imperatives of a more competitive private sector, as well as wider social inclusion in distributive impact, especially in terms of gender equity. 27. The proposed project will be an integral part of the World Bank’s Chad portfolio. It seeks to generate synergies with ongoing IDA operations, such as the Agricultural Production Support Project (P126576), the Urban Development Project (P072030), the regional CEMAC Transport- Transit Facilitation Project (P079736), and the Regional Pastoralism Support Project (RPSP- P147674). The RPSP resulted from the Nouakchott Declaration on Pastoralism of October 29, 2013 and the N’Djamena Declaration on Pastoralism and Security, and is expected to be delivered in FY15. 28. The project will also complement the IFC’s operations related to implementing reforms to improve trade logistics. The IFC plans to focus on (i) reducing the number of procedures associated with import and export; (ii) undertaking transit regulation reforms; (iii) increasing access to information for cross-border trade with simple users’ manuals and electronic forms; and (iv) improving cross-border trade management for customs administration. 29. The project will complement other development partners’ ongoing and/or upcoming operations, and will serve as a catalyst to further reforms in Chad. Current development partners’ programs in the livestock sector focus on animal production and pastoral transhumance in various regions of the country, but these interventions have few connections to specific value chain development and the business environment, apart from the upcoming African Development Bank (AfDB) project of 5 million unit accounts in the AfDB’s special financing currency4 (approximately US$7,805,000) which aims to: (i) improve institutional capacity and 4 UA 1 = US$1.561 as of March 2014. 9 the business environment for business creation, reviving public-private dialog; (ii) support property registration and enforce contracts through the establishment of commercial courts and the creation of alternative dispute resolution systems (arbitration and mediation center); and (iii) provide technical assistance for select value chain studies and export promotion. Other donors’ programs currently under implementation in the sector are shown in Table 2 below. Table 2: Main Donor Interventions in the Livestock Sector Project Amount Implementation Project Donor (million) period Beef Sector Support Project European Commission (EU) EUR 6.5 Feb 2009–Feb 2013 Livestock Action Project EU EUR 3.0 Jan 2011–Jan 2015 Central Chad Hydraulic Pastoral French Development Agency EUR 11.0 Jan 2011–Jan 2014 Project (AFD) Almy Alfia Chad Government USD 0.15 Support to Pastoral Platform AFD EUR 0.40 Dec 2011–Dec 2014 Hydraulic Pastoral Project FIDA/Chad Government USD 17.00 Mar 2010–Mar 2014 Rural Infrastructure and Pastoral African Development Bank/Chad USD 16.2 June 2011–June 2016 Transhumance Project Government C. Higher Level Objectives to Which the Project Contributes 30. This project is aligned with the World Bank’s FY10-FY12 Interim Strategy Note (ISN, discussed on May 25, 2010), which has three main pillars of engagement: (i) strengthening governance and public financial management (a cross-cutting component); (ii) improving livelihoods and access to key social services; and (iii) improving regional integration and connectivity. In line with the ISN approach of developing and delivering extensive knowledge and analytical and advisory activities (AAA) in selected sectors, the value chain analysis initiated in 2013 aimed to create the knowledge base that would inform the country’s economic diversification strategy and provided the analytical basis for the project. The Bank and the Government are working towards a new Systematic Country Diagnostic (SCD) and Country Partnership Framework (CPF) in 2015. 31. In addition, the project will contribute to the achievement of the Government’s goals as spelled out in the 2013–2015 National Development Plan (NDP) and the 2009–2016 National Strategy for the Development of Livestock (NSDL). Both NDP and NSDL place the livestock sector at the center of economic opportunities in the country, with the aim of professionalizing and modernizing the meat industry, developing the domestic market for top quality meat products in a first phase, and turning to meat exports to regional markets in a second phase. The authorities have also developed a strategy for SME development that was adopted by the Council of Ministers in 2012. The overall objective of this development policy is to increase SMEs’ share in the country’s economy, both in terms of job creation and wealth, and thus contribute to poverty reduction and economic growth. 10 II. PROJECT DEVELOPMENT OBJECTIVE A. PDO 32. The proposed project development objective is to improve: (i) targeted aspects of the business environment; and (ii) the performance of agropastoral value chains in the Republic of Chad. 33. In order to promote shared prosperity, the project will mainly support the development of the meat value chain, but will also include the dairy subsector, which offers a high potential for sustainable and inclusive economic growth and a potential increase in income for the local population, particularly for women. This project is part of the government’s national strategy for diversifying the local economy and industrializing the livestock sector in order to meet domestic demand for high quality meat and dairy products. It also aims to provide a business environment that is more attractive to investors, especially those active in the targeted sectors. Particular attention will be paid to the impact of project activities on improving living conditions for women small holders. The geographical area of the project intervention will be limited to the capital city of N’Djamena and its surroundings, as there are rural-urban linkages in the selected value chains, and other donor and government initiatives focusing on other regions of the country. B. Project Beneficiaries 34. The project will directly benefit an estimated 600 micro, small, and medium-sized enterprises (MSMEs),5 individuals, and their associations, in N’Djamena and its surroundings, including the association of women processors of livestock byproducts, and women involved in milk production and the dairy industry. The number of beneficiaries is based on a conservative number of 60 percent beneficiaries among the 892 butchers in the N’Djamena area, and 60 percent of the 60 women meat processors and individual milk producers. Expected direct and indirect beneficiaries from the project are estimated to be 1,100 butchers and 20,000 milk producers through their cooperatives. 35. The project will benefit two main groups of stakeholders. The first group of private sector beneficiaries are the MSMEs, cooperatives, butchers’ organizations, and other stakeholders (including women small holders) operating in the meat industry and the dairy subsector; the second group is composed of government and public institutions (such as the ANIE) that play a key role in improving the business environment. 36. Private sector group: (i) cooperatives, butchers’ organizations, and individuals operating in the meat industry and dairy subsector, including women small holders: in addition to benefiting from the overall improvement in the business environment, they will directly benefit from technical assistance provided through the project, the financing of infrastructure and services (training, business development services, etc.) to increase their production capacity and to improve the quality of their products. It is expected that the project will contribute to 5 MSMEs are defined in the Chad 2012 National SME Strategy as private entities with fewer than 50 employees and annual sales less than CFAF 200 million (approximately US$400,000). 11 increasing their income through increased productivity and sales opportunities; (ii) MSMEs: they will benefit from improved business registration services, and simplified and reduced transaction costs, including cross-border trade. Informal stakeholders in the value chain are expected to benefit from simplified procedures for business creation, helping to formalize their businesses and as a result to expand their activities. In addition, SMEs and their employees will directly benefit through the matching grant program, which is expected to enhance their performance, their managerial capacities, know-how, and productivity. Special attention will be given to women small holders through the matching grant scheme, which will also provide financing opportunities for the expansion and/or development of existing MSMEs. 37. Public sector group. The project will directly support a number of government entities through technical assistance and training. The public agencies that will specifically benefit from direct support are the National Investment and Export Agency (ANIE) and the center for food product quality control, the Centre de Contrôle de la Qualité des Denrées Alimentaires/CECOQDA. C. PDO-Level Result Indicators 38. The PDO outcome indicators are: (i) the time required to create a business is reduced to at least the level of the rest of sub-Saharan Africa by the end of the project; (ii) an increased volume of meat processed in slaughterhouses/slaughter areas in target zones by the end of the project; (iii) the number of beneficiaries, including the number of women; (iv) the time required to export is reduced to the level of other Sub-Saharan countries; and (v) the private sector contribution through the matching grant scheme. III. PROJECT DESCRIPTION A. Project Components 39. The proposed project aims to support the development of a value chain that is recognized as being a government priority and as a high growth value chain with high potential for job creation, as documented in various analytical and strategy documents. At present, there is a strong consensus among stakeholders, including the government, on the need to develop value chains with great social and economic impact, and yet that have considerable and untapped potential. The livestock products value chain faces several constraints from production to markets. Targeted interventions in the meat value chain would ultimately improve livestock products’ exploitation rate, provide more export revenues to the country and to households evolving in the sectors. Actions should be comprehensive enough to pave the way for future interventions concerning other promising exportable livestock products, such as skins and hides. 40. The project is designed to: (i) improve specific business environment issues related to business registration and trading across borders; (ii) overcome the major hurdles in the meat and dairy value chains such as adequate critical public goods (infrastructure facilities for storage, conservation, processing, etc.) and; (iii) improve the capacity of the private sector to supply the domestic market and to enhance its ability to compete on regional and international markets in the future. This would be achieved by streamlining the business registration processes, 12 implementing policy reforms to encourage live cattle exporters to invest in meat production, and providing support to explore new markets for the meat produced, resulting in greater formalization of the meat and dairy industries and better firm performance throughout the value chain. Support provided for business development services is expected to improve productivity at the firm level, promote the availability of quality products, and increase private productive investment in the selected value chains. 41. The approach in the selected value chains is to focus on private operators, producers and their organizations, MSMEs, and the main agency in charge of exports and investment promotion. The meat and dairy value chains’ stakeholders will directly benefit from an improved business environment, as business registration issues will be addressed to encourage the formalization of a fair number of meat and dairy stakeholders trading informally. Constraints related to the time and cumbersome administrative procedures needed for trading across borders will also be addressed in order to improve the value chains’ organization and competitiveness. The project is composed of three components that are well aligned with the PDO. Component 1: Improving the Business Environment (US$2 million) 42. The objective of this component is to support the Chad government’s efforts to improve the business environment. As documented under the sectoral context, almost all business environment indicators are at the lowest level for Chad, especially those pertaining to starting a business, paying taxes, trading across borders, and resolving insolvency. It is therefore of the utmost importance that business environment reforms be supported through an entry point that will benefit not only the selected value chains, but the private sector as a whole. Given the limited envelope allocated, the approach is to start by targeting the business registration process in order for the value chains’ stakeholders to benefit from faster and less onerous procedures, to increase formalization in the industries, and to establish a framework to incentivize the private sector to shift from live cattle export to investing in meat production. 43. The component will be undertaken in collaboration with the ANIE, which is under the authority of the Ministry of Trade and Industry. The agency was previously in charge of business environment reforms, but without having sufficient leverage on technical ministries. It has now been designated by the Prime Minister’s office as the agency in charge of monitoring the business environment in Chad, and now acts as the main focal point for all investment climate reforms. 44. In particular, this component will provide support to carrying out a program of activities aimed at formulating and implementing business reforms in the Recipient’s territory through, inter alia, developing: (a) selected reforms for business creation, registration and licensing, including: (i) formulating an action plan for the transfer of business establishment process to ANIE; (ii) simplifying administrative steps for businesses’ incorporation; and (iii) supporting the transposition of the OHADA Business Law into the Recipient’s legal framework; (b) an action plan to reduce live cattle export and increase private investment in meat production; (c) the operational capacity of ANIE and its one-stop-shop, and; carrying out a program of activities aimed at improving trade logistics to reduce export and import time and costs through: (a) formulation and implementation of administrative procedures; (b) acquisition of modern 13 equipment including for telecommunications; and (c) provision of training for custom administration officers and inspectors. 45. This component is composed of two subcomponents. Sub-Component 1.1: Support with formulating and implementing business environment reforms (US$1.5 million) 46. This subcomponent aims to establish a favorable policy framework for reforming existing regulations, policies on business registration, and business licensing. A detailed process-mapping exercise for business start-up procedures, technical standards permits, and licenses required will be undertaken, as well as a mapping process to eliminate duplications and unnecessary administrative steps for business creation and licensing procedures. The project will also support policy reforms to stimulate productive investment in the value chains. 47. In terms of regulatory reforms, the project will specifically finance inter alia: (i) the engagement of consultancies to formulate an action plan to implement the reform that will transfer all business creation procedures from the center for business creation in the Chamber of Commerce (Centre de Formalité des Entreprises) to the ANIE; and (ii) the engagement of consultancies to formulate reforms that simplify the obligation to obtain an administrative authorization before becoming incorporated in the business register, thereby reducing the time and number of procedures required of private sector operators. The project will provide technical assistance with drafting reforms that aim to simplify procedures, such as the obligation for businesses to make a company seal and to formally announce their existence in legal journals/newspapers, by allowing publication through the ANIE’s modernized website. The project will finance the transposition by consultants of the new supranational OHADA law (Acte Uniforme Relatif au Droit des Sociétés Commerciales et du Groupement d’Intérêt Économique) adopted by 17 African states on January 31, 2014, into Chad’s legislation and will support its dissemination. This new law allows each country to make the role of the notary optional for the company’s deeds and articles of association and to determine its own minimum capital requirement. 48. In addition, the project will provide technical assistance with: (i) developing an action plan to reduce live cattle exports and increasing private investment in meat production in Chad; (ii) acquiring and/or developing an interactive business database in Chad, providing equipment (hardware and software) and training for the operationalization of the Guichet Unique (One-Stop Shop); (iii) drafting and implementing a communication plan for the Guichet Unique. Technical assistance will also be provided with developing and implementing a training plan for the Guichet Unique’s employees (including training in management, computerization, customer service, etc.) for faster processing times and use of the computerized system provided. 49. Finally, the project will provide assistance and institutional support to the ANIE by, inter alia: (i) financing consultancies to develop an IT master plan and modernize the agency’s website; (ii) supporting research into global market opportunities; (iii) conducting studies to understand changes on the demand side; and (iii) providing training to allow ANIE staff to fulfill their mandate, including staff from its regional satellite offices. 14 Sub-Component 1.2: Improving trade logistics procedures (US$0.5 million) 50. The aim of this subcomponent is to contribute to improving trade logistics procedures by establishing a favorable environment in the customs administration. Improving trade logistics procedures could be an important factor for the country as it faces several issues related to accessing regional and international markets, and is highly dependent on the ports of neighboring countries (mainly Cameroon). The efforts undertaken in this subcomponent will facilitate access by the private sector and value chains’ stakeholders to regional or international markets in the long term. 51. The trade logistics activities will be implemented in complement to technical assistance from the IFC, and will cover the following: (i) technical assistance to formulate key reforms in administrative procedures and practices relating to trade; (ii) capacity building and specific training of customs officers and inspectors in areas such as customs valuation, rules of origin, risk management, and post clearance audits; (iii) acquisition of modern equipment for customs administration in a dedicated warehouse, with improvement of connectivity to the clearance system (ASYCUDA) by acquiring (amongst other things) broad band Internet equipment and services. This need is particularly critical at N’Gueli, the main customs clearing office where 80 percent of total customs duties are collected. The implementation of these reforms and activities will prepare the country for implementing the One-Stop Shop (guichet unique) for trade that the investment promotion agency (ANIE) is willing to set up in the near future. Component 2: Support to the Meat and Dairy Value Chains (US$6 million) 52. The aim of this component is to strengthen the meat and dairy value chains by carrying out a program of activities aimed at improving meat and milk facilities, assisting the Recipient in enhancing the meat industry to meet regionally accepted certification standards through: (a) rehabilitation and refurbishing meat slaughterhouses and slaughter areas in N’djamena and its suburbs; (b) acquisition and installation of solid waste management systems in said slaughterhouses and slaughter areas; (c) provision of mobile cold chain systems such as refrigerated transportation equipment to related federations; (d) provision of equipment for milk collection and conservation and; financing through the provision of Matching Grants, of specific development projects (“Sub-projects”) to Beneficiaries, for meat and dairy value chains quality improvements and business development services to improve productive capacity and competitiveness, increase performance and access to local and regional markets. The private sector’s contribution will take the form of: (i) better private management of slaughterhouses and slaughter areas with renewed performance contracts to maintain renovated facilities; (ii) private sector investments as per the cost-sharing mechanism in the matching grants for business development services and/or micro-projects. This component is composed of two subcomponents. Sub-Component 2.1: Upgrading existing infrastructure and facilities (US$2.5 million) 53. This subcomponent aims to complete and/or upgrade existing infrastructure and facilities for storage, conservation, and transportation for the meat value chain stakeholders, so that end- 15 consumers have access to safe, top quality meat. The project will finance (i) the upgrading of existing slaughterhouses and eligible sacrifice areas (with no land nor property dispute issues) in greater N’Djamena in order to increase their production capacity and efficiency; (ii) the acquisition and installation of solid waste management systems (incinerators, composting machinery) and; (iii) refrigerated transportation equipment for the federations running the slaughterhouses and the slaughter areas. The slaughterhouses and slaughter areas are privately run, either by privately owned companies under a management contract with the government or by the butchers’ federation. It is expected that the public investment will be sustainable and maintained through increased fee collection for the use of the modernized facilities, or through fees collected by the butchers’ federation. 54. In this sub-component, the project will also support women small holders in the dairy industry by financing equipment for a pilot milk collection and conservation center that will provide adequate refrigerated milk supply to the cooperatives’ buyers. This will be done in close collaboration with existing women’s cooperatives active in the dairy sector in the project area. Sub-Component 2.2: Support to business development in the meat and dairy value chains (US$3.5 million) 55. The aim of this subcomponent is to strengthen the domestic meat and dairy industries in order to allow the businesses involved to respond to the growing demands from the local market for high quality and affordable meat and dairy products. To this end, the project will provide technical and financial assistance to butchers and their associations, women meat processors and milk producers, and private veterinarians in order to improve the quality and the marketing of meat produced in slaughterhouses and slaughter areas, and milk produced and sold by women small holders and women’s cooperatives. This would be achieved through the following activities: 56. Assistance to certification and quality standards (US$1 million). The project will provide technical assistance and training to enable the meat industry to achieve certification of regionally accepted quality and hygiene standards. This will include training of employees of slaughterhouses and slaughter areas to improve hygiene and sanitation practices, as well as improved management and worker skills. Assistance will be provided to the newly created center for food product quality control (Centre de Controle de la Qualité des Denrees Alimentaires/CECOQDA) to develop norms, standards regulation, testing protocols, and enforcement capacity in slaughterhouses and sacrifice areas. The project will also finance consumables for the newly equipped microbiology, chemistry and physics laboratories at the CECOQDA, as well as training for the laboratory staff in the use of equipment. 57. Business development in the meat and dairy value chains (US$2.5 million). Through a matching grant scheme managed directly by the PCU and using a two-window funding approach, the project will provide financing with the aim of increasing SMEs’ production, improving their performance, and facilitating their access to local and regional markets with top quality products: 16 (a) Matching grants to SMEs, butchers, and their associations, private veterinarians and women processors: the matching grants will finance a maximum of 70 percent for a range of soft business development services, including capacity- building programs in business management, and workforce training to SMEs; they will also finance consultancy services to support improvements in productivity, production processes, processing, and/or marketing, develop business plans and develop export plans to access regional markets. In order to take stock of ongoing activities in Chad, the project will work with business development advisers who received training through the IFC Business Edge™ program,6 and will build on their expertise to scale up their activities and reach the maximum possible number of beneficiaries. (b) Matching grants for micro-projects in the meat and dairy sectors, financing goods acquisition, in particular for the creation of modern butcher shops, the establishment of private veterinary services to meet public health and meat quality standards, acquisition of refrigeration systems in butcheries and dairy shops, for meat transportation, etc. Activities financed on behalf of applicants in the dairy sector could be for the creation of milk collection and dairy processing centers with small equipment, and installation of cold chain systems that use solar power in areas with no electricity supply. 58. The matching grant manual will be prepared in order to explain how the matching grant scheme will be implemented, and will be separate from the Project Implementation Manual (PIM). It is expected that the draft matching grant manual will be received three months after project effectiveness at the latest. Project funds will be provided to businesses and organizations (through the PCU) via a cost-sharing mechanism. The matching grant program will finance up to 70 percent of the cost of business development services and up to 60 percent of the cost of micro-projects carried out by SMEs and cooperatives in the meat and dairy value chains. The maximum matching grant to a single firm or consortium would be US$50,000 equivalent. While the matching grant would encourage firms from the meat value chain to apply, it would not be limited to this value chain. The eligibility criteria and the type of activities to be funded are defined in Annex 2. The detailed selection method of requests for business development services and micro-projects is included in the matching grant manual. 59. Activities financed under this sub-component will complement and leverage achievements produced under other existing operations by promoting managerial skills for producers’ organizations, rural entrepreneurs, and women from the N’Djamena area. Synergies will be sought in the area of capacity building in order to multiply the impact on SMEs, and especially on youth and women in the targeted regions. 6 An initiative supported by the IFC, Business Edge™ is an international training system which aims to strengthen the management capacity of individual entrepreneurs, managers, and staff of small and medium enterprises (SMEs). It is offered by local certified Business Edge™ trainers. 17 Component 3: Project Management (US$1.3 million) 60. The aim of this component is to build the capacity of national institutions, especially the coordination unit that will be responsible for project management and monitoring and evaluation. The project will be managed on a day-to-day basis through a Project Coordination Unit (PCU) based in the Ministry of Pastoral Development and will support the Recipient in the areas of Project coordination, supervision, financial management, communication and outreach, procurement, monitoring and evaluation, supervision of implementation of the Safeguards Instruments, including through the provision of technical assistance, Training, Operating Costs, goods and services for the required purpose. Financing for the PCU may also include capacity building for PCU staff. B. Project Financing 61. The lending instrument will take the form of Investment Project Financing. The project is an International Development Association (IDA) grant for SDR 6.6 million (US$10.20 million equivalent). It is a five year operation, with an expected end date of September 30, 2019. Table 3: Project Costs and Financing IDA GOC Total Component Local Foreign Total (Millions (Millions (Millions (Millions (Millions of US$) of US$) of US$) of US$) of US$) Component 1: Improving the Business 0.5 1.5 2.0 2.0 Environment 1.1. Support with formulating and implementing 0.5 1.1 1.5 1.5 business environment reforms 1.2. Improving trade logistics procedures 0.1 0.5 0.5 0.5 Component 2: Support to the Meat and Dairy 1.3 4.7 6.0 6.0 Value Chains 2.1. Upgrading existing infrastructure and facilities 0.8 1.8 2.5 2.5 2.2. Support to business development in the meat and 0.5 3.0 3.5 3.5 dairy value chains Component 3. Project Management 0.6 0.7 1.3 1.3 Total Base Costs 2.4 6.9 9.3 - 9.3 Contingencies 0.9 0.9 0.9 Total Financing Required 2.4 7.8 10.2 - 10.2 C. Lessons Learned and Reflected in the Project Design 62. This project is designed to leverage existing and potential private sector investments and to create a context in which public-private partnerships can be widely used in the selected value chains. Based on the literature and World Bank Group experience, there is a common understanding that the value chain approach is a powerful tool for creating wealth in poor communities and for promoting equitable economic growth. Public investments in infrastructure and the business environment should support the development of larger private sector operations in the selected value chains, while technical assistance provided to SMEs will enhance their 18 capabilities and will trigger further investments. To ensure that the poor are not excluded by economic growth strategies, the project will focus on building micro and small enterprises’ capacities and improving the competitiveness of industries (or value chains) in which significant numbers of small firms participate, while addressing the constraints that hinder SMEs’ potential contributions to and benefits derived from value chain growth. 63. Given the importance of a reliable business environment, the project will focus on rapid gains in order to generate sustained support for the broader reform program. To ensure success in business environment reforms, a combination of targeted policy and regulatory reforms will be financed by the project. This focus should have spillover effects in the meat and butchery industry, in other selected value chains in the current and future projects, and across the private sector as a whole. 64. The design of the matching grants draws lessons from past experiences in World Bank support to SMEs and the March 2011 Independent Evaluation Group (IEG) assessment of World Bank intervention on growth and productivity in agriculture and agribusiness. The Bank has developed several matching grant programs to support SMEs in sub-Saharan countries, with relatively good results. Key criteria for success in the assessment include the following aspects and will be reflected in the design of the project’s matching grant program: (i) ensuring that the capacity of the implementing agency is strengthened and that it is capable of managing the funds; (ii) incorporating best governance practices in the manual of procedures; (iii) maintaining a demand-driven approach, and making sure there will be sufficient demand from the private sector without much need for stimulation, and adequate targeting of matching grant beneficiaries; (iv) building strong monitoring and evaluation (M&E) systems that measure outcomes from the beginning; and (v) keeping the scheme simple and making sure it is open to new beneficiaries. 65. The project also draws lessons from the FPD portfolio review undertaken in 2012,7 which revealed key success factors for private sector development projects: simple design, emphasis on working with private operators rather than public institutions, and inclusion of monitoring and evaluation systems early in the process. IV. IMPLEMENTATION A. Institutional and Implementation Arrangements 66. A Steering Committee will be set up and will be chaired by the General Secretary of the Ministry of Pastoral Development and Livestock Production. This steering committee will be comprised of high-level representatives from across ministries and public institutions, and will have the strategic role of providing guidance and advice to the project coordination unit (PCU) and the implementing institutions and agencies involved in the project (the Ministry of Pastoral Development and Livestock Production, the Ministry of Trade and Industry, the Ministry of the Environment, the Ministry of Finance , the National Agency for Investment and Export (ANIE) and the National Federation of Butchers). 7 AFTFP Portfolio Quality Review, World Bank, 2012. 19 67. The PCU will be the main coordinating agency for the project. It will be anchored in the Ministry of Pastoral Development and Livestock Production that will be responsible for the day- to-day management of the project and will serve as the main coordination point between the institutions involved in the project. 68. In 2012, an act was passed by the Prime Minister to encourage development partners to use integrated PCUs. At present, not all donors’ projects have coordination units that are embedded in technical ministries. Some are independent units, others are completely embedded in ministries with all staff being from the ministry’s technical directorates, and there are also examples of mixed coordination units, with some staff from the technical ministries and others recruited to complement the team. Discussions are ongoing as to how to strengthen capacity in all ministries and have full implementation of the 2012 ministerial act. 69. In light of the above, the project will have a team composed of civil servants and external experts. Representation from the Ministry of Pastoral Development will ensure the PCU’s sustainability after project closure and will allow capacity building that will lead to the implementation of other future projects. Key qualified staff within the ministry will be appointed to the PCU and their capacity will be strengthened during the project. The following staff will be appointed, based on qualifications and level of experience being satisfactory to the IDA: (i) a project coordinator, who will be appointed from the Ministry of Pastoral Development and Livestock Productions; (ii) a financial management specialist; and (iii) a monitoring and evaluation specialist. Additional staff will be recruited in a competitive manner to complete the PCU: (i) a deputy project coordinator, (ii) a procurement specialist; (iii) a senior accountant; (iv) a matching grant specialist; and (v) an internal auditor. During project appraisal, discussions were held with the government concerning the PCU composition, and an agreement was reached as to which positions would be held by public servants and which would be subject to competitive recruitment. The PCU has been formally established through a ministerial act, and appointment of the three public servants will follow, subject to the IDA’s approval. 70. Sectoral ministries (Ministry of Trade and Industry, Ministry of the Environment, and Ministry of Finance) will appoint focal points to follow-up and implement the technical activities for which they will be responsible. The National Investment and Export Promotion Agency (ANIE) will also appoint a focal point, who will be responsible for activities related to regulatory reforms, institutional support, and trade logistic activities. It is also expected that other government entities such as the Centre de Controle de la Qualité des Denrees Alimentaires will appoint a focal point who will participate in the implementation of various activities related to quality control in the selected value chains and training of the center’s employees. B. Results Monitoring and Evaluation 71. The project’s M&E system will provide data needed for assessing project performance in a timely manner and guide the timely adoption of corrective measures. The system is based on the results framework presented in Annex 1. The results monitoring framework will assess progress towards the PDO by means of four key indicators. In addition, intermediate indicators will be used to monitor the progress of each component over the life of the project. A rigorous 20 monitoring and evaluation (M&E) system will enable the government and all partners to monitor progress on all indicators. The overall M&E system will be overseen by the M&E specialist in the PCU, with support from the focal points and technical ministries for data collection. Monitoring will occur at every stage of the project’s implementation in order to provide a framework for learning lessons, to identify potential problems and issues, and to promptly consider and adopt corrective measures in order to improve the design of the project accordingly. The PCU will provide semiannual/annual reports on all indicators. 72. Approximately two and a half years after effectiveness, a mid-term review (MTR) will be conducted. The MTR will assess the project’s performance, intermediate results and outcomes. This will provide an opportunity to assess the project’s performance and ensure that lessons learnt in the implementation of the first cycle are taken into account in the second. The MTR will gauge the extent to which progress is being made towards achieving the PDO, and assess the quality of the technical assistance provided, along with the overall efficiency of the project. C. Sustainability 73. The sustainability of the project’s impact will depend on several aspects, including institutional, economic, and environmental requirements. As the institutional environment in Chad is characterized by a weak capacity and recurrent government reshufflings, the project includes institutional arrangements that will help build stakeholders’ capacities, ensure coordination between the various ministries involved in the project, and will be isolated from political pressures. The PCU will be based in the Ministry of Pastoral Development and Livestock Production but will be staffed with dedicated personnel appointed based on their qualifications or recruited competitively to ensure adequate project implementation. The project has been designed to respond to national development needs as expressed in the government’s development strategy. The government is committed to significantly improving the business environment, as shown by the recently developed action plan to improve the investment climate, the creation and support of the National Investment Promotion Agency (ANIE), and the creation of the One-Stop Shop (Guichet Unique) for business registration. The government has also undertaken several self-funded or donor-funded projects aimed at improving value chain competitiveness, especially in the meat industry (ongoing construction of public slaughterhouses in Abeche, Djermaya, and Moundou). These actions taken together will contribute to the development of select value chains and to improving the business environment. 74. The sustainability of the project’s benefits depends on the strength of the beneficiary associations, and particularly the federations involved in the meat industry, as well as on the capacity of their leaders and members to manage the proposed project investments and future improvements and reforms. The project’s matching grants program will offer capacity-building efforts to build technical and managerial expertise as well as help to improve the management of the slaughterhouses and increase the availability of cold chain and transport equipment. 21 V. KEY RISKS AND MITIGATION MEASURES 75. The overall project risk has been rated as substantial. The risks ratings summary and mitigation measures that have been identified are presented below. A. Risk ratings summary table Risk Category Rating Stakeholder Risk Moderate Implementing Agency Risk - Capacity Substantial - Governance Substantial Project Risk - Design Substantial - Social and Environmental Moderate - Program and Donor Low - Delivery Monitoring and Sustainability Substantial Overall Implementation Risk Substantial B. Explanation of Overall Risk Rating 76. Key risks identified for the project are: (i) delays in decision making, procurement, and execution of activities; (ii) weak participation by the private sector, which would make it challenging to achieve the PDO if they do not buy into the project interventions and if there is insufficient demand for matching grants; (iii) institutional instability and exogenous shocks in the country and the region that may delay implementation; (iv) weak institutional capacity in sectoral ministries to achieve the project objectives. Risk Mitigation Measures 77. Mitigation of potential delays in decision making, procurement, and implementation of activities. The PCU will be responsible for organizing regular multi-sectoral project task force meetings of technical focal points from all the relevant public and private institutions involved in project implementation. The task force will be supported by dedicated experienced consultants who will follow up and provide the technical expertise needed to prepare and process project- related documents. Regular meetings of the multi-sectoral task force are expected to improve coordination between these institutions. To mitigate procurement risks, procurement will be handled by one single entity for all project components. A Project Implementation Manual (PIM), approved by the Bank, has been prepared to define and describe: (i) procurement procedures and process; (ii) roles and responsibilities of each actor/beneficiary in the management of the procurement cycle and the process to be followed; and (iii) the role of the Bank in the review process. A detailed procurement plan has also been prepared. In addition to the recruitment of a procurement specialist and his/her training, the government and the Bank 22 have agreed to carry out at least three missions per year for the first two years of project implementation, including two field supervision visits, to minimize the risk of procurement procedures not being followed, as well as to supervise project activities. The Bank team recommends that the government obtain a waiver authorizing the Ministry of Pastoral Development and Livestock Production and the Ministry of Planning to manage all procurement procedures for this project, including the signing and approval of all contracts. It was also agreed that the dialogue with other partners (African Development Bank, European Union, and AFD) be continued for reforms in some provisions of the new code and its decrees concerning implementation. 78. Mitigation of possible lack of participation by the private sector. The main risk is the lack of interest by private companies in the matching grant program. This project has been prepared in consultation with private stakeholders in the meat and dairy sectors, and has been designed to respond to their needs for technical assistance and financing options. It aims to provide adequate solutions to existing SMEs already present in these sectors, who have expressed their interest in expanding their activities using the matching grant scheme. On the implementation side, a matching grant specialist will be recruited as part of the project to ensure compliance with eligibility criteria. The project will support the communication and outreach to potential investors. The matching grant specialist will be responsible for promoting the program and proactively working with private investors. 79. Mitigation for possible institutional instability and exogenous shocks in the country and the region that may delay implementation. The Bank will closely monitor the country’s political and security environment and provide adequate responses to situations as they arise. The project will help to complete and implement major reforms initiated by the government, especially those pertaining to the business environment and private sector development in the selected value chains. To mitigate the governance risks and promote greater accountability, the project supports the development and strengthening of a number of innovative mechanisms, including (i) maintaining an active political economic dialogue on key aspects of the reform agenda and seeking to build consensus at every step of the way; (ii) a formal consultation process with key actors from each sector; (iii) regular formal consultation with stakeholders using external consultants and auditors; and (iv) conclusion of performance agreements and performance evaluation schedules and improvement plans in and with implementation agencies. Exogenous shocks represent an important risk for Chad. The country is prone to drought and a major part of its population depends on income from agriculture. The country is also subject to strong terms of trade fluctuations in commodities (and especially oil) that are important on either the export or the import side. A deeper and/or longer than anticipated macroeconomic downturn in the current global context could negatively affect macroeconomic stability and jeopardize the expected economic outcomes. The Bank is working with the Chad government on macroeconomic stability to help avoid severe downturns in the economy. 80. Mitigation of the possible lack of institutional capacity and incentives for relevant civil servants. As with most World Bank-financed projects and programs, this proposed project has a capacity-building component (Component 3) to provide support to key ministries involved in its implementation. The project will include an institutional arrangement to help build the government’s capacity and ensure coordination between the various ministries involved in the 23 project. A dedicated PCU will be housed within the Ministry of Pastoral Development and will be staffed with personnel appointed by the government and dedicated competitively recruited personnel. The implementation of specific activities will be delegated to the relevant ministries (with support from technical experts and specialized development institutions). The project will finance necessary capacity building of focal points and civil servants from all the relevant ministries and public entities that are expected to play a key role during project implementation. ToRs with clear deliverables and responsibilities will be prepared for all the focal points. The project will build a strong accountability system through performance contracts and will encourage the focal points to work together, provide input to and approval of relevant project- related documents, and contribute to project activities in a timely manner. 81. The project will include activities to mitigate these risks by building on existing projects and initiatives. These selected preparation and implementation activities will be supported by capacity-building. Preliminary risks and mitigation measures are presented in the Operational Risk Assessment Framework (ORAF) in Annex 4. VI. APPRAISAL SUMMARY A. Economic and Financial Analysis 82. Rationale for the public support provision. The project is designed to address coordination and information failures in the selected value chains. It will create incentives for the private sector to invest in these sectors by promoting value-added products, building capacity, strengthening SMEs, and improving the business environment. 83. Added value of the Bank’s support. Contributing to upgrading the selected value chains through support to SMEs, investment promotion, and improving the business environment is justified, as the Bank has a competitive edge in terms of knowledge and international best practices, and it has specific instruments to work with the private sector. Bank support will also serve as a catalyst for improving the investment climate in Chad and attracting private investment (domestic and foreign). 84. The analysis uses a cost-benefit analysis to calculate economic rate of returns (ERR) and their corresponding net present values (NPV). It mainly focuses on the returns from an increase in meat production in the formal sector and an improvement of the business climate related to the meat value chain. All the benefit streams arising from the project were consolidated and computed, along with the project costs. Economic and Financial IRR estimates assumed a 12 percent opportunity cost of capital and a five year project lifecycle. Subject to the above assumptions and uncertainties, results suggest that the overall project is financially and economically desirable (returns above the 12 percent threshold). The ERR is 32 percent and the NPV equals US$1,746,000. 85. Financial analysis. The project results in the following margins for each of the stakeholders: benefits for collectors and transporters remain the same; margins for traders increase from CFAF 16,000 to CFAF 17,000 per animal. For high-value meat (healthier and 24 more corpulent livestock slaughtered in the Farcha slaughterhouse), we do not take into account a substantial reduction in weight loss, and butchers purchase the animals at a higher price (due to a price increase for herders). These assumptions lead to a lower margin for butchers (from CFAF 51,000 to CFAF 47,000 per animal). For medium-value meat (livestock slaughtered in sacrifice areas), an increase in carcass weight will result in a substantial increase in butchers’ benefits (from CFAF 950 to CFAF 7,990 per animal). These margins are very sensitive to meat prices. There is a risk that higher quality meat production translates into an increase in prices. If it results in higher margins for butchers, it will also negatively affect households, for which meat is already expensive. This scenario thus assumes that prices are stable over the project’s lifetime. Assumptions and results are detailed in Annex 7. 86. Economic analysis. Project activities financed under this project are expected to generate five main benefit streams (of which four are quantifiable): (i) additional income for stakeholders in the meat value chain (in particular herders and butchers)—we do not consider collectors, transporters, and traders, since we assume that most of the livestock would have been transported and sold without the project, but on the informal market; (ii) entry of new stakeholders (new butchers and new employees in the Farcha slaughterhouse); (iii) development of the dairy sector; (iv) additional revenues to the government; and (v) the reduction of household food insecurity (unquantifiable). Assumptions are detailed in Annex 7. Figure 3: Benefit Streams from the Project 4 Millions 4 3 3 2 2 1 Butchers 1 Herders 0 Government 1 Dairy 2 Employees in Farcha 3 4 5 6 25 B. Technical 87. Choice of value chain. The process of identifying the value chains and the design of the second component were supported by the World Bank Group’s Value Chain Analysis Study, which started in FY13 and was finalized in FY14. Chad has few competitive industries, i.e., value chains or sectors that have strong potential and for which the country has a proven comparative advantage and track record. During project identification, an exhaustive long list of such value chains was identified in discussions with the government and the private sector. These value chains included: oil and oil refinery, livestock and livestock products such as meats and the butchery industry, milk and dairy production, skins and hides, gum Arabic, ground nuts, sesame, and other products such as shea nuts and palm dates; development of these value chains is related to the government’s own strategy in the national recently adopted development plan (PND 2013–2015). 88. It was decided that during the first phase the project would identify and support one value chain that simultaneously offers a high potential for growth, employment, and, more importantly, opportunities for poverty reduction. Given the differences of opinion on the use of oil revenues between the Bank and the government in the past, and taking into account the government’s economic diversification priorities, the oil and cotton value chains were not considered for this project. Based on the value chain analysis, the national development plan, and the discussions held during preparation, the meat and butchery value chain was chosen as a government priority. The project would aim to increase the incentive to invest in the livestock sector, and specifically the meat and butchery industry, by improving its competitiveness and requiring public investment in addition to national and other donors’ efforts. A scale-up would be sought for other value chains in the future. One criterion was that the meat value chain should offer high potential in terms of growth, employment, and spillover effects (economic linkages with other value chains such as the dairy industry and the skins and hides industry); the other criterion was related to the opportunities for successful reform aimed at improving competitiveness and addressing market failures in the value chain. The dairy value chain was then included in the project activities, given the direct link to the livestock sector and its potential to generate income for women small holders. 89. Improvement of entrepreneurial capacities. Entrepreneurial capacities of existing companies and associations in the meat value chain are low. Although the country has many butchers and a handful of small private butcheries in the capital N’Djamena, many of these entities operate in the informal sector. The butchers and small business owners have limited managerial capacities, exemplified by: (i) a lack of record keeping; (ii) weaknesses in cost calculation and price fixing; (iv) lack of marketing and business planning skills; and (vi) weak capacity to explore new markets and comply with quality standards. Accordingly, the support to SMEs and organizations has been designed to provide the most beneficial package of interventions possible to improve SMEs’ performance in the supported value chain. 90. Business environment improvement. This component was designed in coordination with the IFC Investment Climate Department and the private sector in Chad. Following a review of existing diagnostics and discussions with government counterparts and private sector representatives, three areas were selected: starting a business; complying with business licensing; 26 and trading across borders. These areas were deemed a key priority for the private sector in this landlocked country, as well as relevant across all socio-professional categories and to the value chains supported under this project and under future projects. Finally, dealing with these constraints would build on existing attempts at reform and create opportunities for further reforms. C. Financial Management 91. The overall FM residual risk for the project is rated “Substantial” due mainly to the weak internal control environment both at country and implementing entity levels, in addition to there being a lack of adequate previous Bank experience and the minimum FM arrangements not being in place. A financial management assessment was conducted at the General Secretariat of the Ministry of Pastoral Development and Livestock Production (GS/MPDLP) with the objective of determining: (a) whether there are adequate financial management (FM) arrangements in place within the GS/MPDLP to ensure that the funds will be used for the intended purposes in an efficient and economical manner, and that the responsible entity is capable of correctly and completely recording all transactions and balances related to the project; (b) the project’s financial reports will be prepared in an accurate, reliable, and timely manner; (c) the entity’s assets will be safeguarded; and (d) the project will be subjected to auditing arrangements acceptable to IDA. 92. The said assessment complied with the Financial Management Manual for World Bank- Financed Investment Operations that became effective on March 1, 2010 and AFTFM Financial Management Assessment and Risk Rating Principles. 93. The GS/MPDLP, which will be responsible for the overall coordination and implementation of the project, will handle the day–to-day financial management of the project. Sectoral ministries (Ministry of Trade and Industry, Ministry of the Environment, and Ministry of Finance) involved in the project will act as technical units and will not be assigned an FM role. The Ministry of Pastoral Development will chair the project technical steering committee, which will be set up to offer guidance and advice to the GS/MP. 94. The FM assessment concluded that the General Secretariat of the Ministry of Pastoral Development and Livestock Production has had experience with projects financed by donors, including the Bank, in the 1990s. In addition to the head of the finances division, the GS/MPDLP is staffed by five accountants, one of them acting as a procurement specialist. However, capacity within the GS has not been maintained (high turnover, no recent projects or regular training) to fulfill FM minimum requirements, especially on Bank FM procedures. In fact: (i) the manual of procedures in place is not consistent with IDA procedures, particularly concerning accounting, funds flow, and disbursement, as well as reporting and auditing arrangements; (ii) apart from the head of the finance division, whose FM capacity will need to be strengthened, the GS/MPDLP staff do not have experience managing Bank projects; (iii) the GS lacks an accounting software package for accounting and reporting in line with Bank rules; (iv) reviews by the national internal audit bodies are irregular, their missions conducted on a random basis, and their reports neither discussed with nor transmitted to the GS/MPDLP; (v) the Court of Auditors, which is responsible for external auditing of public funds, is not functioning adequately. 27 95. The GS/MPDLP will take the following measures to mitigate the above-mentioned weaknesses and financial management constraints: (i) By negotiations: - Appoint a Financial Management (FM) officer. A proposal for this appointment from the Ministry of Pastoral Development was already received. (ii) Effectiveness conditions: - Adopt the Project Implementation Manual in accordance with the provisions of Section l.B of Schedule 2 to the Financing Agreement; - Recruit an accountant in accordance with the provision of Section I.A.2 (b) of Schedule 2 to Financing Agreement; (iii) Dated covenants: - Recruit, not later than six months after the Effective Date of the Financing Agreement, the external auditor referred to in Section 4.09 (b) of the General Conditions in accordance with Section III of Schedule 2 of the Financing Agreement and pursuant to terms of reference satisfactory to the Association; - Recruit, not later than three months after the Effective Date of the Financing Agreement, an internal auditor, whose qualifications and experience and terms of reference are acceptable to the Association. - Acquire, install, not later than two months after the Effective Date of the Financing Agreement, and thereafter maintain accounting software acceptable to the Association, for the Project. 96. The project will finance a matching grant for activities carried out by beneficiaries with relatively weak management capacity. In addition, poor governance and poor services delivery are acknowledged to be issues in the context of Chad due to weak PFM. Specific measures will therefore be incorporated into the project design to ensure smooth implementation and mitigate the risk of fraud and corruption: (i) The internal auditor to be recruited will conduct ex-post reviews and will undertake capacity building with a special focus on the matching grant activities and beneficiaries; (ii) Focal points responsible for following up on technical activities will be appointed for each involved entity (ministries, agencies, other government entities); (iii) A dedicated matching grant (MG) specialist will be recruited and a matching grant manual will be prepared to lay out how the matching grant program included under Component 2 will be implemented. Specifically, the matching grant manual will describe (i) the process for selecting beneficiaries and the role of the matching grant specialist; (ii) the minimum eligibility requirements, e.g., qualified FM staff, experience, feasibility and usefulness of the operation, financial capacity, etc.; (iii) simplified management tools (e.g. accounting and reporting); and (iv) the external control mechanism; 28 (iv) The list of beneficiaries of the matching grant would be displayed and made accessible to the public; (v) Notwithstanding the provisions of Part A of Section IV of Schedule 2 of the Financing Agreement, no withdrawal shall be made under Category (2), until and unless the Matching Grant Manual has been adopted in form and substance satisfactory to the Association.. 97. The overall residual FM risk for the project is rated as Substantial, due mainly to the weak internal control environment, both at country and implementing entity levels, in addition to which there is a lack of adequate previous Bank experience and minimum FM arrangements are not yet in place. It was found that the related financial management arrangements in place do not satisfy the Bank’s minimum FM requirements under OP/BP 10.00. These minimum requirements will be met after the proposed mitigation measures have been implemented. FM Action Plan 98. With regard to the above described weaknesses and risks, the following action plan aims to put in place the minimum FM requirements in order to meet the Bank’s minimum FM requirements under OP/BP 10.00 and strengthened the internal control environment. Table 4: FM Action Plan No. Action Due Date Responsible 1 Adopt the project implementation manual (PIM) By effectiveness GS/MPDLP including FM 2 Recruit an experienced senior accountant to support Before effectiveness GS/MPDLP the FM team and undertake capacity building within the FM team during project implementation. 3 Appoint an FM officer. A proposal for this appointment GS/MPDLP from the Ministry of Pastoral Development was received before negotiations. 4 Purchase and set up an accounting software package No later than two months after GS/MPDLP that can automatically generate interim financial effectiveness reports and annual financial statements, and train the FM team in its use. 5 Recruit an internal auditor to conduct ex-post No later than three months after GS/MPDLP reviews of project transactions effectiveness 6 Recruit an external auditor to conduct ex-post No later than six months after GS/MPDLP reviews of project transactions effectiveness 7 Produce the MG manual Condition for disbursement to GS/MPDLP beneficiaries 29 D. Procurement 99. The overall project risk for procurement is rated Substantial. Due to existing weaknesses in Chad’s procurement system, which tend to cause substantial delays in the procurement process, the bank team recommends the following measures to facilitate speedy implementation of project activities: (i) obtain the waiver authorizing the Ministry of Pastoral Development and Livestock Production and the Ministry of Planning to manage all the project’s procurement processes, including the signing and approval of contracts by pursuing the ongoing dialog and during project implementation; (ii) anticipate all procurement activities in the procurement plan; and (iii) closely supervise all procurement activities. The measures will be pursued during PPA period and during implementation. Under the proposed project, procurement would be carried out in accordance with the following World Bank guidelines: “Procurement of Goods, Works and Non-Consulting Services under IBRD Loans and IDA Credits & Grants by World Bank Borrowers,” dated January 2011; “Guidelines: Selection and Employment of Consultants under IBRD Loans and IDA Credits & Grants by World Bank Borrowers,” dated January 2011; “Guidelines on Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants,” dated October 15, 2006 and updated January 2011, as well as the provisions stipulated in the legal agreement. The various items under different categories of expenditure are described in general below. For each contract to be financed by the grant, the various procurement methods and consultant selection methods to be used, the need for prequalification, estimated costs, prior review requirements, and timeframe will be agreed upon between the Recipient and the Association in the annual procurement plan. The procurement plan will be updated at least annually or as needed to reflect the actual project implementation needs and improvements in institutional capacity. 100. The procurement process and standard bidding documents (SBD) that will be used by the PCU are defined in the project implementation manual (PIM). E. Social (Including Safeguards) 101. The project supports the renovation and modernization of existing slaughterhouses and slaughter areas in the capital and vicinity. These activities will not lead to land acquisition or resettlements of local populations, as activities will take place on existing sites and the technical eligibility criteria of the matching grants under Component 2 explicitly include the “presence of a production site, with material resources, and human capacity to realize the subproject.” The project is expected to have positive social impacts that will benefit the country. The main social benefit would be the improvement of basic hygiene conditions in the meat and dairy sectors; hence the project will allow the population to have access to better quality meat and dairy products, with the aim of reducing illnesses and infections. In addition, activities that aim to improve the organization of the meat value chain and dairy subsectors are expected to boost economic growth and generate additional income for all beneficiaries. 102. Job creation is another beneficial impact expected from the implementation of activities relating to the modernization of unregulated sacrifice areas. Direct and indirect jobs are expected to be created, which will contribute to fighting unemployment, and particularly youth unemployment. 30 103. Women constitute the poorest stratum of society in Chad, most women living in total financial dependence to their husbands. This situation undermines their efforts towards emancipation. As women are in the majority in the dairy subsector, it is expected that interventions supporting the sector will lead to increased income for women, and therefore an improvement in the livelihood of their families and communities. 104. Due to the fact that no potential land acquisition or population displacement or any notably socially adverse impacts are envisaged, no social safeguard policy is triggered. Consequently, it is not anticipated that any social instrument will be prepared as part of this project. F. Environment (Including Safeguards) 105. The project is a Category B project, meaning that potentially environmentally adverse impacts may occur during the implementation of project activities. These may include waste management, noise, dust, etc., but all these impacts will be minor, site-specific, small scale, and thus easily manageable. However, the selection of sacrifice areas to be renovated will make use of a participatory approach due to the fact that not all of them will be concerned because of financial constraints. This means their exact locations are not yet known at this stage of project preparation. As a result, the appropriate safeguard instrument that has been prepared is an Environmental and Social Management Framework (ESMF). 106. Only one safeguard policy is triggered by the project, the OP/BP 4.01 on environmental assessment. Given that the exact sacrifice areas that will be renovated under the project are yet to be identified, an Environmental and Social Management Framework (ESMF) has been prepared. It sets forth the basic principles and operational guidelines to be followed when the participatory approach determines the targeted sacrifice areas and their exact locations. Later, GoC will prepare a focused Environmental and Social Impact Assessment (ESIA) and/or Environmental and Social Management Plan (ESMP) for each renovation site, based on the screening mechanism contained in the ESMF. The ESMF has been reviewed, consulted, and was publicly disclosed in-country on March 17, 2014, and at the Infoshop the following day (March 18, 2014). The same process will be applied for each of the ESIAs prepared by the government when necessary. 107. In order to ensure efficient implementation of safeguard instruments, the project will support training of stakeholders, especially the PCU, on Bank safeguard policies and the monitoring of safeguard aspects, particularly at the beginning of project implementation. In that regard, capacity building needs in safeguards aspects were submitted by the Directorate of Environmental Assessment and Combatting Pollution (Direction des Évaluations Environnementales et de la Lutte Contre les Pollutions et les Nuisances / DEELCPN) during project preparation. The specific institutional arrangements for environmental and social management of sub-projects and the relevant training needs will be discussed with the government and the PCU, and agreed upon by project effectiveness, once the focal points are appointed. 31 Annex 1 : Results Framework and Monitoring REPUBLIC OF CHAD: Value Chain Support Project (P133021) . Results Framework . Project Development Objectives . PDO Statement The proposed project development objective is to improve: (i) targeted aspects of the business environment; and (ii) the performance of agro-pastoral value chains in the Republic of Chad. These results are at Project Level . Project Development Objective Indicators Cumulative Target Values Data Source/ Responsibility for Unit of Methodology Data Collection Indicator Name Core Baseline YR1 YR2 YR3 YR4 End Target Frequency Measurement Time to create a business is reduced to Doing Business at least sub-Saharan Days 62.00 56.00 45.00 40.00 35.00 29.70 Annually ANIE and PCU report average by end of project Volume of meat processed in slaughterhouses/ Tons 18,542.00 18,912.00 19,857.00 20,850.00 22,310.00 23,542.00 Semi-annually PCU report MPDLP and PCU slaughter areas in target zones by end of project MPDLP, PCU Direct project Number 0.00 60.00 182.00 296.00 418.00 543.00 Semi-annually and ANIE PCU and ANIE beneficiaries Report Percentage Female beneficiaries Sub-Type 0.00 10.00 20.00 20.00 20.00 20.00 Semi-annually Supplemental Time to export Doing Business reduced to the level of Days 73.00 73.00 70.00 65.00 61.00 57.00 Annually ANIE and PCU report other sub-Saharan 32 Cumulative Target Values Data Source/ Responsibility for Unit of Methodology Data Collection Indicator Name Core Baseline YR1 YR2 YR3 YR4 End Target Frequency Measurement countries (e.g., Niger) Contribution of the private sector through Amount (USD) 0.00 0.00 386,000.00 773,000.00 1,160,000.00 1,450,000.00 Semi-annually PCU report PCU the matching grant scheme . Intermediate Results Indicators Cumulative Target Values Data Source/ Responsibility for Indicator Name Core Unit of Measure Baseline YR1 YR2 YR3 YR4 End Target Frequency Methodology Data Collection Number of companies registered in ANIE’s Number 3000.00 3,150.00 3,307.00 3,472.00 3,646.00 3,900.00 Semi-annually ANIE report ANIE and PCU database Number of Guichet Unique's employees having received technical assistance Number 0.00 10.00 22.00 38.00 46.00 54.00 Annually ANIE report ANIE and PCU annually for faster processing and use of the computerized system Communication plan prepared and Yes/No No No Yes Yes Yes Yes Annually ANIE report ANIE and PCU implemented annually Number of customs officers and inspectors trained in areas such as customs valuation, Number 0.00 0.00 30.00 70.00 120.00 180.00 Annually ANIE report ANIE and PCU rules of origin, risk management, and post-clearance audits Number of slaughterhouses/open slaughter areas Number 0.00 0.00 1.00 2.00 3.00 3.00 Annually PCU report MPDLP and PCU renovated in targeted zones Number of workers (butcheries, Number 0.00 50.00 120.00 200.00 300.00 400.00 Annually PCU report PCU veterinarians, cooperatives, and 33 Cumulative Target Values Data Source/ Responsibility for Unit of Methodology Data Collection Indicator Name Core Baseline YR1 YR2 YR3 YR4 End Target Frequency Measurement other organizations) active in the value chain having received technical assistance to improve their performance/ product quality Percentage Of which women: Sub-Type 0.00 0.00 10.00 20.00 20.00 20.00 Annually PCU report PCU Supplemental Number of SMEs in the meat value chain and dairy subsector Number 0.00 0.00 20.00 40.00 60.00 75.00 Semi-annually PCU report PCU supported through the matching grant program Volume of matching Amount(USD) 0.00 0.00 600,000.00 1,200,000.00 1,800,000.00 2,500,000.00 Annually PCU report PCU grant disbursed . 34 Annex 2: Detailed Project Description REPUBLIC OF CHAD: Value Chain Support Project 1. The proposed project aims to support the development of a value chain recognized in various analytical works and strategy documents as a government priority and a high growth value chain with high potential for job creation. At present, there is a strong consensus among stakeholders, including the government, on the need to develop value chains with high social and economic impact, and yet that have considerable untapped potential. The livestock value chains face several constraints from production to markets. Targeted interventions in the meat value chain would ultimately improve livestock products’ rate of exploitation, provide more export revenues to the country and more income to affected households in the sectors. Actions should be comprehensive enough to pave the way for future interventions on other promising exportable livestock products, such as skins and hides. 2. The project is designed to: (i) improve specific business environment issues related to business registration and trading across borders; (ii) overcome the major hurdles in the meat value chain, such as inadequate critical public goods (infrastructure facilities for storage, conservation, processing, etc.) and; (iii) improve the capacity of the private sector to supply domestic markets and enhance its ability to compete on international markets in future. This would be achieved by streamlining business registration processes, executing policy reforms to encourage live cattle exporters to invest in meat production, and providing support with exploring new markets for the meat produced, resulting in a greater formalization of the meat and dairy industries and better performance by firms throughout the value chains. Support provided for business development services is expected to improve productivity at the firm level, promote the availability of quality products, and increase private productive investment in the selected value chains. 3. The domestic market is controlled by wholesale butchers (chevillards), while the export market is controlled by live animal exporters. Indeed, the Bank’s value chain analysis suggests that pastoral producers, as well as small-scale primary traders (who purchase small numbers of livestock on a daily basis, collect them and sell them to secondary traders or live animal exporters) have low profit margins. On the contrary, market concentration among live animal exporters is high, with just a handful of them being licensed to send cattle across the border. On the domestic market, secondary traders incur high costs and have relatively low margins. The study indicates that the wholesale butchers control a large part of the value chain, from purchasing livestock, to slaughtering it and selling it to retail butchers. This market is controlled by the existence of patentes, i.e., rights or licenses to slaughter animals. Those patentes are awarded by the National Federation of Butchers. Consequently, more competition on this leg of the value chain could break this oligopoly of butchers and reduce their margins, preventing them from increasing their prices due to an increase in quality. 4. The domestic market in Chad represents consumption of about 150,000 tons of beef per year. Chad's population consumes more red meat per capita than neighboring countries (13 kg per capita per year, compared to 8 kg for Cameroon, and between 4.5 kg and 13 kg in the other neighboring countries, according to FAO estimates). This consumption is particularly high in urban areas. Considering the production and population growth figures in N'Djamena, it appears 35 that from 2000 to 2010, the average consumption of meat in the capital has increased from 8.5 kg per capita per year to 21 kg for beef, 0.8 kg to 2.4 kg for mutton and lamb, and 0.3 kg to 2 kg for goat meat. These figures show that there are opportunities for expansion of the domestic meat market in the country, as production amounted to just 90,000 tons of red meat annually for that period. 5. Meat prices could be given per kilogram, but this is rarely done due to a lack of transparency in the way prices are set from the wholesale butchers to the retail butchers and to clients’ low purchase power. The largest market is the low-end market, where meat is sold in heaps and displayed in the open without refrigeration. Some of the outlets in this category include take-out as well as on-site eateries, serving roasted, boiled, or fried meat. Price is highly differentiated across the segments. Beef filets are sold at around $12.25 (6,000 CFAF) a kilogram on the high-end market, while lower quality beef is sold at $6.12 (3,000 CFAF) a kilogram in the central open market in N’Djamena. In other local markets, prices range from $1.42 to $3.60 (700 to 1500 CFAf) a heap, depending on the quality and the origin of the meat. Local consumers complain about the high price of meat, and the government is eager to formulate and implement reforms that will increase access to affordable food prices by a larger proportion of the population. 6. The approach in the project design is to focus on private operators, producers and their organizations, MSMEs, and the main public agency in charge of exports and investment promotion (the ANIE). This project will develop key linkages in the meat value chain and support will also be provided to women small holders involved in the dairy subsector through the matching grant program. The meat and dairy value chains’ stakeholders will directly benefit from an improved business environment, as business registration issues will be addressed in order to encourage the formalization of a fair number of informal stakeholders. Constraints related to delays and cumbersome procedures in trading across borders will also be tackled to improve the value chains’ organization and competitiveness. 7. Overall, the project will build on other ongoing projects that are intervening upstream (improving production through research and expansion, etc.) such as the IDA-financed Agriculture Production Support Project (APSP) and other donors’ interventions in pastoralism and crop farming. It will also complement the IDA-financed regional interventions in pastoralism (Regional Pastoralism Support Project). Component 1: Improving the business environment (US$2 million) 8. This component’s objective is to support the government of Chad’s efforts to improve the business environment. In particular, this component will help advance specific reforms, will be highly selective, and will focus on a few priority areas that can show results quickly. The project will provide support to the one-stop-shop at the ANIE, and to the customs administration in areas covering: (i) business registration and licensing (administrative permits); (ii) administrative procedures, in order to lower transaction costs and time required for SMEs, and to establish a framework for productive investment in the value chains; (iii) technical support to modernize the ANIE’s website and improve its ability to attract investors and; (iv) enhance ANIE and customs 36 administration employees’ competence with capacity building and technical assistance, with the aim of improving trade logistics. Sub-Component 1.1: Support with formulating and implementing business environment reforms (US$1.5 million) 9. This subcomponent aims to establish a favorable policy framework for reforming existing regulations, policies on business registration, and business licensing. The ultimate goal is to reduce the cost and time spent by the private sector to create and operate their businesses. A detailed process-mapping exercise for business start-up procedures, technical standard permits, and licenses required will be undertaken, as well as a mapping process to eliminate duplications and unnecessary administrative steps for business creation and licensing procedures. 10. In terms of regulatory reforms, the project will specifically finance, inter alia; (i) the engagement of consultancies to formulate an action plan to implement reforms, which will transfer all business creation procedures from the center for business creation (Centre de Formalité des Entreprises) in the Chamber of Commerce to the ANIE; (ii) the engagement of consultancies to formulate reforms that simplify the obligation to obtain an administrative authorization before becoming incorporated in the business register, thereby reducing the time and number of procedures required from private sector operators. The project will provide technical assistance with drafting reforms to simplify procedures such as the obligation for businesses to make a company seal and to formally announce their existence in legal journals/newspapers, by allowing publication through the ANIE’s modernized website. The project will finance the transposition by consultants of the new supranational OHADA law (Acte Uniforme Relatif au Droit des Sociétés Commerciales et du Groupement d’Intérêt Économique) adopted by 17 African states on January 31, 2014, into Chad’s legislation. This new law allows each country to make the role of the notary optional for the company’s deeds and articles of association and to determine its own minimum capital requirement. 11. In addition, the project will provide technical assistance with: (i) developing an action plan to reduce live cattle exports and increase private investment in meat production in Chad; (ii) acquiring and/or developing an interactive business database in Chad, providing equipment (hardware and software) and training for the operationalization of the Guichet Unique (one-stop- shop); (iii) drafting and implementing a communication plan for the Guichet Unique. Technical assistance will also be provided with developing and implementing a training plan for the Guichet Unique’s employees (including training in management, computerization, customer service, etc.) for faster processing times and use of the computerized system provided. 12. Finally, the project will provide assistance and institutional support to the national entity responsible for investment promotion and exports (ANIE) by, inter alia: financing the engagement of consultancies to develop an IT master plan and modernize the ANIE’s website; (ii) supporting research into global market opportunities; (iii) conducting studies to understand changes on the demand side; and (iii) providing training to allow ANIE staff to fulfill their mandate, including staff from the ANIE’s regional satellite offices. 37 Sub-Component 1.2: Improving Trade Logistics Procedures (US$0.5 million) 13. The aim of this subcomponent is to contribute to improving trade logistics procedures by establishing a favorable environment in the customs administration. As a fragile landlocked country, trade logistics is key in Chad’s competitiveness and economic growth. The country is experiencing several issues related to accessing regional and international markets, and faces constraints such as limited capacity in public administrations, limited capacity in the customs administration, weak infrastructure, weak implementation of new technologies, cumbersome procedures that lead to high costs and time to trade, a lack of inter-agency cooperation between border control agencies, a lack of transparency, a multitude of road blocks, a strong dependence on the ports of neighboring countries (mainly Cameroon), affecting transit time and costs, etc. 14. Improving trade logistics to reduce time and costs for import and export could therefore have a catalytic role and facilitate access to regional and international markets. The efforts undertaken under this component on trade logistics will complement the work already being undertaken by the government through the operationalization of the new center for food product quality control, aimed at improving the quality of food commodities being exported or imported to and from Chad. 15. The investment promotion agency (ANIE) is willing to set up a one-stop-shop (guichet unique) for trade logistics procedures in the near future, in collaboration with the Ministry of Trade and the Ministry of Finance. This guichet unique could have a huge impact in terms of improvements to import and export procedures and reduced delays when trading across borders. Before the country can achieve this goal, however, some prerequisite actions need to be taken. 16. The subcomponent’s activities will be implemented in complement to technical assistance from the IFC in the trade logistics environment. The project will finance: i) the engagement of consultancies to formulate and implement key reforms to trade administrative procedures and practices, and logistics costs for the meetings of the trade sub working group that will be examining the proposed reforms; (ii) the acquisition of modern information and telecommunication equipment with broad band Internet connection, and equipment and maintenance services for customs administration in a dedicated warehouse, with the objective of improving connectivity to the customs clearance system (ASYCUDA). This need is particularly acute at N’Gueli, the main customs clearing office, where 80 percent of total customs duties are collected. 17. In addition, the project will provide training for the customs administration. One of the trade logistics bottlenecks is the weak capacity of the customs administration. The General Directorate of Customs confirmed that only one quarter of the entire customs administration of the country is adequately trained to use computers. During IFC’s scoping mission, a strong need for training for customs officers and inspectors was identified. The project will therefore provide the customs officers and inspectors in Ngueli with capacity-building activities and specific training in areas such as customs valuation, rules of origin, risk management, and post-clearance audits. As the Guichet unique for trade is expected to be electronic, a particular focus on computer training will be provided. 38 Component 2: Support to the Meat and Dairy Value Chains (US$6 million) 18. The aim of this component is to strengthen the meat and dairy value chains by upgrading and/or expanding critical infrastructure facilities in N’Djamena and surrounds, supporting business development and promoting quality standards in the meat and dairy industries. Sub-Component 2.1: Upgrading Existing Infrastructure Facilities (US$2.5 million) 19. This subcomponent aims to complete and/or upgrade existing infrastructure facilities for storage, conservation, and transportation for the meat value chain stakeholders, so that end consumers would have access to safe, top quality meat. The project will finance the upgrade of existing slaughterhouses and two eligible sacrifice areas (with no land or property dispute issues) in greater N’Djamena for the specific purpose of increasing their production capacity and efficiency; (ii) the acquisition and installation of solid waste management systems (incinerators, composting machinery) and; (iii) the provision of a mobile cold chain system that includes refrigerated and transportation equipment, to the federations running the slaughterhouses and the sacrifice areas. 20. In this subcomponent, the project will also support women small holders in the dairy sector by financing equipment for a pilot milk collection and conservation center that will provide adequate refrigerated milk supply to the cooperatives’ buyers. This will be done in close collaboration with women cooperatives active in the dairy sector in the project area. Sub-Component 2.2: Support to Business Development in the Meat and Dairy Value Chains (US$3.5 million) 21. The objective of this subcomponent is to strengthen the domestic meat and dairy industries to allow the businesses involved to respond to the growing demand from the local market for high-quality and affordable meat and dairy products. To this end, the project will provide technical and financial assistance to butchers and their associations, women meat processors and women milk producers, and private veterinarians in the value chains in order to improve the quality and the marketing of meat produced in slaughterhouses and slaughter areas, and of the milk produced and sold by women small holders and women cooperatives. This would be achieved through the following activities: (a) Assistance with certification and quality standards (US$1 million): The project will provide technical assistance and training to enable the meat industry to meet certification of regionally accepted standards for quality and hygiene. This will include training of slaughterhouse and slaughter area employees to improve hygiene and sanitation practices, as well as to improve management and worker skills. Assistance will be provided to the newly created center for food product quality control (CECOQDA) in the Ministry of Pastoral Development to develop related norms, standards regulation, testing protocols, and enforcement capacity in slaughterhouses and sacrifice areas. The project will also finance consumables for the newly equipped microbiology and physics laboratories at the CECOQDA, as well as training for the laboratories’ staff in the use of the equipment. 39 (b) Business development in the value chains (US$2.5 million). Through a matching grant directly managed by the PCU and using a two-window funding approach, the project will provide financing with the aim of increasing SMEs’ production, and improving their performance and their access to local and regional markets with top quality products: (i) Matching grants to SMEs, butchers and their associations, private veterinarians, and women processors: the matching grants will finance up to 70 percent of a range of soft business development services (including business management capacity-building programs and workforce training to SMEs; consultancy services to support improvements in productivity, production processes, processing and/or marketing, and business plans and with developing export plans to access to regional markets). In order to take stock of ongoing activities in Chad, the project will work with business development advisers who have received training through the IFC Business Edge program, and will build on their expertise to scale up their activities and reach the maximum possible number of beneficiaries. (ii) Matching grants for micro-projects in the meat and dairy sectors: the project will finance up to 60 percent of the costs of micro-projects, goods acquisition for the creation of modern butcher shops, the establishment of private veterinary services in the project area to meet public health and meat quality standards, acquisition of refrigeration systems in butcher shops, for meat transportation etc. Activities financed for applicants in the dairy sector could be for the creation of milk collection and dairy processing centers, and acquisition and installation of cold chain systems that use solar power in areas with no electricity supply. 22. The matching grants operation manual will be prepared to lay out how the matching grant program under Component 2 will be implemented. Project funds will be made available to businesses and organizations (through the PCU) via a cost-sharing mechanism. The matching grants will finance up to 70 percent for the first window and 50 percent for the second window for the cost of micro-projects carried out by SMEs and cooperatives in the meat and dairy value chains. The maximum matching grant amount to a single firm or consortium would be US$50,000 equivalent. The detailed selection method concerning requests for business development services and grant applications for micro projects is included in the matching grants operation manual. 23. The main eligibility criteria for the matching grants are as follows:  Be engaged in the meat and dairy value chains and demonstrate 1–3 years of experience in work at a level comparable to that of the micro-project;  Carry out the micro-project in the project area;  Comply with the ceilings and eligible activities in the business development services requests and micro project applications, as well as the distribution between the requested grant and contribution required from the applicant;  Demonstrate a production level over 1–3 years that is in line with the level proposed in micro project activity (provide a “reasonable” increase in the volume of production, processing, or marketing); 40  Have a history of satisfactory credit repayment. 24. The criteria for technical evaluation of micro project applications include:  Proven existence of suitable production site (as the project will not finance land acquisition), along with material, finances, and human resources to successfully carry out the sub-project;  Knowledge of niche target market and its technical and commercial requirements;  Appropriate mitigation measures if the proposed sub-project includes the risk of having a negative impact on the environment. Component 3: Project Management (US$1.3 million) 25. The aim of this component is to build capacity in the project coordination unit and support project management and monitoring and evaluation. The project will be managed on a day-to-day basis through a Project Coordination Unit (PCU), which will be partially recruited, as some of the PCU staff will be public servants already in service to the Ministry of Pastoral Development and Livestock Production. Financing for the PCU may include operating costs for implementing the project: equipment; consultants’ fees; monitoring and evaluation system development; training and communication costs, including communication and outreach; capacity building for PCU staff; and technical assistance. 41 Table 5: Detailed Project Costs Benefic IDA GOC iaries Total US Component TOT Local Foreign Total US TOTAL ('000) Year 1 Year 2 Year 3 Year 4 Year 5 AL ('000) ('000) ('000) Component 1: Improving the business 537.5 962.5 262.5 187.5 50.0 2,000.0 712.5 1,287.5 2,000.0 environment 1.1. Support with formulating and implementing 375.0 700.0 225.0 150.0 50.0 1,500.0 450.0 1,050.0 1,500.0 business environment reforms TA to support reforms 75.0 100.0 175.0 52.5 122.5 175.0 Support to the Guichet Unique 150.0 400.0 125.0 75.0 50.0 800.0 240.0 560.0 800.0 Support for the modernization of ANIE 150.0 200.0 100.0 75.0 525.0 157.5 367.5 525.0 1.2. Improving trade logistics procedures 162.5 262.5 37.5 37.5 500.0 262.5 237.5 500.0 TA to support customs reforms 100.0 150.0 250.0 100.0 150.0 250.0 Capacity building and training of customs staff 62.5 112.5 37.5 37.5 250.0 162.5 87.5 250.0 Component 2: Support to the meat and dairy value 1645.0 1995.0 1230.0 615.0 515.0 6,000.0 4,042.3 1,957.8 6,000.0 chains 2.1. Upgrading existing infrastructure facilities 845.0 1045.0 580.0 15.0 15.0 2,500.0 1,192.3 1,307.8 2,500.0 Upgrading and/or expansion of existing slaughter 250.0 200.0 450.0 292.5 157.5 450.0 areas Acquisition of solid waste treatment systems, a new incinerator or composting for seizures and a new 80.0 100.0 180.0 117.0 63.0 180.0 emergency generator Acquisition of slaughterhouse equipment and mobile 200.0 300.0 220.0 720.0 288.0 432.0 720.0 cold chain system Establishment of milk collection centers, cold chain 250.0 380.0 300.0 930.0 325.5 604.5 930.0 equipment and transportation system TA and training to milk producers and butchers 50.0 50.0 45.0 145.0 94.3 50.8 145.0 Maintenance 15.0 15.0 15.0 15.0 15.0 75.0 75.0 - 75.0 2.2. Support to business development in the meat 800.0 950.0 650.0 600.0 500.0 3,500.0 2,850.0 650.0 3,500.0 and dairy value chains TA for certification in quality and hygiene standards 100.0 200.0 100.0 100.0 500.0 175.0 325.0 500.0 Assistance to CECOQDA for the establishment of 200.0 250.0 50.0 500.0 175.0 325.0 500.0 quality standards Matching grant program 500.0 500.0 500.0 500.0 500.0 2,500.0 2,500.0 - 2,500.0 Component 3. Project Management and 454.0 234.0 214.0 184.0 214.0 1,300.0 1,247.5 52.5 1,300.0 Monitoring and Evaluation Project Management 384.0 164.0 114.0 114.0 114.0 890.0 890.0 - 890.0 Monitoring & Evaluation and Audits 30.0 30.0 60.0 30.0 60.0 210.0 157.5 52.5 210.0 Operating costs 40.0 40.0 40.0 40.0 40.0 200.0 200.0 - 200.0 Contingencies 900.0 900.0 900.0 Total project costs 2,636.5 3,191.5 1,706.5 986.5 779.0 10,200.0 6,002.3 4,197.8 10,200.0 42 Annex 3: Implementation Arrangements REPUBLIC OF CHAD: Value Chain Support Project Institutional and Implementation Arrangements Implementation Agency 1. The Ministry of Pastoral Development and Livestock Production (MPDLP) will be the implementation agency. The ministry will delegate daily management of the project to a Project Coordination Unit (PCU). In order for the project components to synergize, the project implementation arrangements must be flexible with adequate capacity and clear accountability assigned to all stakeholders involved. The project will seek to be sustainable and will build on existing competencies within the ministry whenever possible. Given the shortage of capacities in Chad’s post-conflict environment, the project would undertake extensive capacity building for staff involved in the project during implementation. Steering Committee 2. To oversee and provide strategic direction to the project, the Ministry of Pastoral Development and Livestock Production will establish a steering committee (SC) that will be chaired by the General Secretariat of the Ministry of Pastoral Development and Livestock Production. It will be composed of representatives from other ministries and agencies involved in the project, including the Ministry of Economy, Planning, and International Cooperation, the Ministry of Pastoral Development and Livestock Production, the Ministry of Trade and Industry, the Ministry of the Environment, the Ministry of Finance, the National Agency for Investment and Export (ANIE), and the National Federation of Butchers. The coordinator of the PCU will act as secretary to the steering committee. The SC will approve the project’s annual work plans and budgets. It will also examine annual audit reports, provide strategic guidance during project implementation, and will ensure that the project is implemented in conformance with IDA procedures. Project Coordination Unit (PCU) 3. The PCU, which will be based in the Ministry of Pastoral Development, will be the implementing unit for the project. It will be responsible for its day-to-day management. To ensure the PCU’s sustainability after project closure and to allow capacity building to lead to the implementation of other future projects in the Ministry of Pastoral Development, key qualified staff within the ministry will be appointed before negotiations based on their qualifications and experience. It should be noted that their capacity will be strengthened during the project. The PCU will be comprised of: (i) a project coordinator, who will be appointed from the Ministry of Pastoral Development based on his/her qualifications and experience being found by the IDA to be satisfactory; (ii) a financial management specialist who will be appointed based on his/her qualifications and experience being found by the IDA to be satisfactory; and (iii) a monitoring and evaluation specialist who will be appointed based on his/her qualifications and experience being found by the IDA to be satisfactory. The remaining PCU staff will be competitively 43 recruited, including: (i) a deputy project coordinator; (ii) a procurement specialist; (iii) a senior accountant; (iv) a matching grant specialist; (v) an internal auditor; and (vi) administrative support staff (an assistant and two drivers). 4. The PCU will be responsible for the coordination, fiduciary management, monitoring and evaluation, and providing support with the implementation of project activities. It will be responsible for drafting annual work plans and budgets and submitting them to the steering committee for approval. The project coordinator will report to the SC at least once every quarter to report on progress, problems, and challenges faced by the project, and will seek advice from the SC on the high-level strategy to be followed for project implementation. The PCU will be in charge of the administrative management of the SC. Responsibility for Implementation of Project Components 5. Focal points will be appointed within the ministries and agencies involved after project effectiveness, as well as within beneficiary groups, to be in charge of technical project management and execution of specific components and sub-components. These focal points will work closely with the PCU during project implementation. Component 1: Improving the Business Environment 6. This component will be undertaken and implemented in close collaboration with the ANIE, the Chad Chamber of Commerce, and other government agencies involved in business creation, business licensing, import-export, and other trade documents at the Ministry of Trade and the Ministry of Finance, Customs Directorate. A focal point will be appointed at the ANIE for the implementation of this component, including the formulation and monitoring of reforms related to the business environment, providing operational support to the Guichet Unique, and providing institutional support to the ANIE. Component 2: Support to the Meat and Dairy Value Chains Sub-Component 2.1: Upgrading Existing Infrastructure Facilities 7. A technical specialist on infrastructure development will be appointed as a focal point from the Ministry of Pastoral Development to work closely with the PCU on the implementation of the sub-component. Sub-Component 2.2: Support to Business Development in the Meat and Dairy Value Chains 8. Quality process. Assistance with improving quality, compliance with hygiene standards, as well as the general support to the meat and dairy sectors will be provided in collaboration with the technical departments of the Ministry of Pastoral Development and Livestock Production and the Center for Food Product Quality Control (CECOQDA). Two focal points, one for the selected value chains and one for quality control, will be identified to work closely with the PCU 44 on improving quality and implementing better sanitary and hygiene practices, after project effectiveness. 9. Matching grants. Activities funded by the matching grants using the two-window approach will be implemented by the beneficiaries and business service providers,8 who will support them with designing their subprojects, and will provide assistance with training, capacity building, etc. A matching grant specialist will be competitively recruited to manage the matching grant program overall, as well as to bear responsibility for the selection, approval, monitoring, and evaluation of subprojects. Subprojects submitted by beneficiaries will be selected in a transparent manner and using a selection process involving an evaluation against set criteria, a scoring process, and approval by a selection committee. Management of the matching grant and selection criteria of the sub-projects will be described in the matching grant manual. 10. The figure below illustrates the project’s implementation arrangements. Figure 4: Project implementation arrangements Ministry of Pastoral  . Project Coordinator Development and Livestock  Production Project Manager FM Specialist Steering  Senior Accountant Committee (SC) Matching Grant Specialist Procurement Specialist Project  Coordination Unit  Project Internal Auditor (PCU) M&E Specialist Component 1 Component 2 Component 3 Focal Point Sub‐Component  Sub‐Component 2.2 2.1 Quality Focal  Infrastructure  Point Focal Point Value Chains  Focal Point 8 These include the consulting firms certified through the IFC Business Edge program in Chad. 45 Financial Management, Disbursements, and Procurement Project Administration Mechanisms 11. The PCU will prepare quarterly and annual reports recording project progress. All project accounts will be audited annually by independent auditors approved by the IDA. Audit reports will be submitted to IDA no later than six months after the closing of the fiscal year in Chad. Project supervision will be carried out twice a year and a mid-term review will take place approximately two and a half years after effectiveness. The objective of the mid-term review will be to assess progress to date and to re-direct the project if necessary by integrating additional lessons learned and policy and/or strategy changes on the ground. The mid-term review will assess the project’s performance, intermediate results, and outcomes. This will be the opportunity to assess the project’s performance and ensure that lessons learned in the implementation of the first cycle are taken into account during the second cycle. The MTR will gauge the extent to which progress is being made towards achieving the PDO, the quality of the technical assistance provided, and the overall efficiency of the project. 12. A draft Project Implementation Manual (PIM) was prepared and will be adopted by the project effectiveness date. The PIM will include all periodic reporting and monitoring and evaluation arrangements throughout the life of the project, and will also include requirements for independent annual audits. A matching grant manual will be prepared and will be separate from the PIM. It is expected that the matching grant manual will be received three months after effectiveness at the latest. It will lay out how the matching grant program under Component 2 will be implemented. Project funds will be made available to businesses and organizations (through the PCU) via a cost-sharing mechanism. The matching grants will finance 60 percent of the cost of subprojects carried out by SMEs, and will finance up to 70 percent of requests for business development services. The matching grant manual will be prepared to clearly set the operating principles and procedures of the matching grant fund, and its internal control and governance mechanisms. Financial Management 13. A financial management assessment was conducted at the General Secretariat of the Ministry of Pastoral Development and Livestock Production (GS/MPDLP) with the objectives of determining: (a) whether there are adequate financial management (FM) arrangements in place within the GS/MPDLP to ensure that the funds will be used for the intended purposes in an efficient and economical manner, and that the responsible entity is capable of correctly and completely recording all transactions and balances related to the project; (b) the project’s financial reports will be prepared in an accurate, reliable, and timely manner; (c) the entity’s assets will be safely guarded; and (d) the project will be subjected to auditing arrangements acceptable to the International Development Association (IDA). The said assessment complied with the Financial Management Manual for World Bank-Financed Investment Operations that became effective on March 1, 2010 and with AFTFM Financial Management Assessment and Risk Rating Principles. 46 14. The FM assessment concluded that the General Secretariat of the Ministry of Pastoral Development and Livestock Production that will have the overall financial management responsibility for the project has had experience with projects financed by donors, including the Bank, in the 1990s. In addition to the head of the finance division, the GS/MPDLP is staffed with five accountants, one of them acting as a procurement specialist. However, capacity within the GS has not been maintained (high turnover, and no recent projects or regular training) to fulfill minimum FM requirements, especially on Bank FM procedures. In fact : (i) the manual of procedures in place is not consistent with IDA procedures, in particular regarding accounting, funds flow, and disbursement, as well as reporting and auditing arrangements; (ii) apart from the head of the finance division, whose FM capacity will only need to be strengthened somewhat, the GS/MPDLP staff do not have experience managing Bank projects; (iii) the GS lacks an accounting software package for the purpose of adequate accounting and reporting in accordance with Bank rules; (iv) there have been irregular reviews by the national internal audit bodies, whose missions are conducted on a random basis, and their reports are neither discussed with or transmitted to the GS/MPDLP; (v) the Court of Auditors, which is responsible for the external auditing of public funds, is not functioning adequately. 15. With regard to the above-mentioned weaknesses and financial management constraints, the GS/MPDLP will take the following mitigation measures: (iv) By negotiations: - Appoint a Financial Management (FM) officer. A proposal for this appointment from the Ministry of Pastoral Development was already received. (v) Effectiveness conditions: - Adopt the Project Implementation Manual in accordance with the provisions of Section l.B of Schedule 2 to the Financing Agreement; - Recruit an accountant in accordance with the provision of Section I.A.2 (b) of Schedule 2 to Financing Agreement; (vi) Dated covenants: - Recruit, not later than six months after the Effective Date of the Financing Agreement, the external auditor referred to in Section 4.09 (b) of the General Conditions in accordance with Section III of Schedule 2 of the Financing Agreement and pursuant to terms of reference satisfactory to the Association; - Recruit, not later than three months after the Effective Date of the Financing Agreement, an internal auditor, whose qualifications and experience and terms of reference are acceptable to the Association. - Acquire, install, not later than two months after the Effective Date of the Financing Agreement, and thereafter maintain accounting software acceptable to the Association, for the Project. 16. The project will finance a matching grant program for activities carried out by beneficiaries with relatively weak management capacity. In addition, poor governance and poor service delivery are acknowledged to be issues in the Chad context due to weak PFM. Specific 47 measures will therefore be incorporated in the project design to ensure smooth implementation and to mitigate the risk of fraud and corruption: - The internal auditor that is to be recruited will conduct ex-post reviews and will carry out capacity building with a special focus on the matching grant activities and beneficiaries; - Focal points responsible for following up on technical activities will be appointed for each entity involved (ministries, agencies, other government entities); - A dedicated matching grant (MG) specialist will be appointed and a matching grant manual prepared in order to lay out how the matching grant program under Component 2 will be implemented. Specifically, the MG manual will describe: (i) the selection process of beneficiaries and the role of the matching grant specialist; (ii) the minimum eligibility requirements, e.g., qualified FM staff, experience, feasibility, and usefulness of the operation, financial capacity, etc.; (iii) simplified management tools (e.g., accounting and reporting); and (iv) the external control mechanism; - The list of beneficiaries of the matching grant would be displayed and made accessible to the public. 17. The overall FM residual risk for the project is rated “Substantial” due mainly to the weak internal control environment both at country and implementing entity levels, in addition to there being a lack of adequate previous Bank experience and the minimum FM arrangements not being in place. The related financial management arrangements in place do not satisfy the Bank’s minimum FM requirements under OP/BP 10.00. These minimum requirements will be met after the proposed mitigation measures have been implemented. FM Action Plan 18. With regard to the weaknesses and risks described above, the following action plan aimed at putting in place FM arrangements that meet the Bank’s minimum FM requirements under OP/BP 10.00 and at strengthening the internal control environment. Table 6: FM Action Plan No. Action Due Date Responsible 1 Adopt the project implementation manual (PIM), By effectiveness GS/MPDLP including section on FM. 2 Recruit an experienced senior accountant to provide Before effectiveness GS/MPDLP support to the FM team and undertake capacity building with the FM team during project implementation. 3 Appoint an FM officer. A proposal for this appointment GS/MPDLP from the Ministry of Pastoral Development was received before negotiations 4 Purchase and set up an accounting software package No later than two months after GS/MPDLP with the ability to automatically generate interim effectiveness financial reports and annual financial statements and train the FM team to use it. 48 No. Action Due Date Responsible 5 Recruit an internal auditor to conduct ex-post No later than three months after GS/MPDLP reviews of project transactions effectiveness 6 Recruit an external auditor to conduct ex-post No later than six months after GS/MPDLP reviews of project transactions effectiveness 7 Compile the MG manual Disbursement condition to GS/MPDLP beneficiaries Financial Management Arrangements 19. Budgeting arrangements. The budgeting process from design to execution and control will be clearly defined in the FM section of the PIM. The budget will be reviewed and adopted by the steering committee before the beginning of the year. Annual draft budgets will be submitted to the Bank for “no objection” before adoption and implementation. To ensure that it is aligned with project absorption capacity, the annual budget will be based primarily and exclusively on signed contracts. At mid-year, the budget will be reviewed to take into account any newly signed contracts that are ready to be implemented. 20. Accounting arrangements. Project accounting, policies and procedures will be documented in the FM section of the PIM. An adequate multi-project and multi-site accounting software will be customized to record all the project’s transactions in accordance with Bank guidelines, and to prepare the financial statements for the project. At the central level, the PCU will ensure that financial activities are recorded in the books and that the interim financial reports and the annual financial statements are produced in a timely manner and in line with the SYSCOHADA accounting system. The GS/MPDLP will therefore be responsible for consolidating project accounts, including those related to matching grant activities. Simplified FM tools would be developed and provided to the beneficiaries through a simplified manual of procedures. Internal Control and Internal Auditing Arrangements 21. Internal control systems. FM and administrative procedures will be designed in order to document financial management arrangements, including internal controls, budget process, asset safeguards, and to clarify the roles and responsibilities of all stakeholders. In addition, a specific manual will be prepared for the MG to lay out how the matching grant program under Component 2 will be implemented. The MG manual will therefore describe specifically (i) the selection process for beneficiaries and the role of the matching grant specialist; (ii) the minimum eligibility requirements, e.g., qualified FM staff, experience, feasibility and usefulness of the operation, financial capacity, etc.; (iii) simplified management tools (e.g., accounting and reporting); and (iv) the external control mechanism. 22. Internal auditing. To provide reasonable assurance on the project transactions, not later than three months after the Effective Date, an internal auditor, whose qualifications and experience and terms of reference are acceptable to the Association, will be recruited. The internal auditor will develop an annual audit plan using a risk-based approach. He will be responsible for the close monitoring of the implementation of the action plans aimed at 49 addressing weaknesses revealed during supervision and audit missions, and will pay special attention to the matching grant mechanism (selection, implementation, reporting). Funds Flow and Disbursement Arrangements Designated Account 23. Two designated accounts (DAs) will be opened at commercial banks approved by the IDA to facilitate payment for eligible expenditures. The DAs will be managed by the implementing unit in accordance with the disbursement procedures described in the PIM and the disbursement letter, which will be discussed in detail with the relevant government officials during negotiations. 24. The initial advance to the designated accounts would cover approximately four (4) months of expenditures. The minimum value of direct payment and special commitment is 20 percent (20%) of the aggregate ceiling of the DAs. Funds will be transferred to beneficiaries under sub-component 2.2 only provided that the MG manual has been compiled and appropriately disseminated to beneficiaries. Disbursement Methods and Funds Flow 25. The disbursement procedures arrangement will be detailed in the PIM and the disbursement letter. Replenishment through SOEs (Statement of Expenditures), direct payment methods, and special commitments will apply to the project. The option to disburse against submission of a quarterly unaudited interim financial report (also known as report-based disbursement) might be considered once the project meets the criteria. Funds will flow from the DAs to suppliers and operators and matching grant beneficiaries’ accounts. 50 Figure 5: Funds Flow Diagram IDA Financing Account Direct PCU (SG/MPDLP) payment PCU (GS/MPDAP) DA-A (commercial bank) DA-B MG (Subcomponent 2.2) MG Beneficiaries (sub-accounts) SERVICES & GOODS PROVIDERS (Contractors, Suppliers) Flow of documents Flow of funds Financial Reporting Arrangements 26. The GS/MPDLP will produce quarterly unaudited interim financial reports (IFRs) during project implementation, encompassing activities for all components (including MG activities). The IFRs are to be produced on a quarterly basis and submitted to the Bank within 45 days after the end of the calendar quarter. The IFR will present the financial statements (sources and uses of funds and use of funds per component/category/activity) as well as a description of procurement and technical activities. 27. The GS/MPDLP will also produce the project’s annual financial statements, which will be in compliance with SYSCOHADA and World Bank requirements. These financial statements will be comprised of:  Statement of sources and uses of funds, which includes all cash receipts, cash payments, and cash balances;  Statement of commitments;  Accounting policies adopted and explanatory notes;  A statement by management indicating that project funds have been expended for the intended purposes as specified in the relevant financing agreements. 51 Auditing Arrangements 28. The financing agreement (FA) will require the submission of audited financial statements for the project to the IDA within six months after year-end. An external auditor with qualifications and experience deemed satisfactory by the World Bank will be appointed to conduct annual audits of the project’s financial statements. A single opinion on the audited project financial statements will be required in compliance with International Federation of Accountants (IFAC). In addition, the auditor will provide a specific opinion on the matching grant component activities; this would be done through field visits to selected beneficiaries. The external auditors will prepare a management letter with observations and comments, and providing recommendations for improvements to accounting records, systems, controls, and compliance with financial covenants stipulated in the FA. Financial Covenants 29. The Borrower shall establish and maintain a financial management system including records, accounts, and preparation of related financial statements in accordance with accounting standards acceptable to the Bank. The financial statements will be audited in accordance with international auditing standards. The audited financial statements for each period shall be furnished to the Association not later than six (6) months after the end of the project fiscal year. The Borrower shall prepare and furnish to the Association not later than 45 days after the end of each calendar quarter, interim un-audited financial reports for the project, in form and substance satisfactory to the Association. The Borrower will be compliant with all the rules and procedures required for withdrawals from the designated accounts of the project. Implementation Support Plan 30. Based on the outcome of the FM risk assessment, the following implementation support plan is proposed. The objective of the implementation support plan is to ensure the project maintains a satisfactory financial management system throughout the project’s life. Table 7: Implementation Support Plan FM Activity Frequency Desk reviews Interim financial reports review Quarterly Audit report review of the project Annually Review of other relevant information such as interim internal Continuous, as they become available control systems reports. On site visits Review of overall operation of the FM system Semi-annual Monitoring of actions taken on issues highlighted in audit reports, As needed auditors’ management letters, internal audits, and other reports Transaction reviews (if needed) As needed Support to capacity building FM training sessions During implementation and as needed. 52 Conclusion of the Assessment 31. The conclusion of the assessment is that the financial management arrangements will meet the Bank’s minimum requirements under OP/BP10.00 once the proposed mitigation measures are implemented. The overall FM residual risk rating is Substantial. Procurement 32. General. A Country Procurement Assessment Report (CPAR) for Chad carried out in 1993 and in 2000, and the audit of five large contracts undertaken by the Audit Office of the Supreme Court in 2002 highlighted the dysfunctions of procurement systems in Chad. The main deficiencies identified in the CPAR included: (i) absence of a procurement regulatory body; (ii) the lack of a formal recourse available to the tenderers to allow them to dispute the decisions of contract awards; (iii) very low procurement thresholds and a lack of harmonization of procurement thresholds; (iv) very cumbersome and time-consuming approval process for contracts, delaying disbursement of national and external resources; and (v) excessive recourse to direct contracting. 33. Based on the recommendations made in these reports, the government, with technical and financial support from the World Bank, undertook procurement reforms, and a new Procurement Code was published in December 2003. The Procurement Code and its implementation decrees took into account most of the recommendations of the CPAR. In Line 2 of Article 5, the Code recognizes the primacy of international agreements in the event of a conflict with the provisions of the Code and the implementation decrees. The key deficiencies of the national procurement system at present include: (a) the requirement that foreign bidders associate with national bidders or subcontract to national bidders; (b) the obligation for all bidders (national and foreign alike) to obtain a qualification certificate prior to submitting a bid; and (c) a cumbersome procedure for the awarding and signing of contracts, involving the Minister of Finance and the President of Republic in contracts of relatively low value. 34. These deficiencies were extensively discussed with the government during the appraisal mission, and their rectification in the Code and the national procurement regulations is part of the broader governance dialogue. Due to this situation, the Bank team has proposed the following measures to facilitate the speedy implementation of project activities: (i) get a waiver authorizing the Ministry of Pastoral Development and Livestock Production and the Ministry of Planning to manage all procurement processes, including signing and approval of contracts; (ii) accelerate all procurement activities in the procurement plan; and (iii) closely supervise procurement. 35. Guidelines. Procurement for the project will be carried out in accordance with the World Bank’s “Guidelines: Procurement under IBRD Loans and IDA Credits” dated May 2004 and revised in October 2006, May 2010, and January 2011; the World Bank’s “Guidelines: Selection and Employment of Consultants by World Bank Borrowers” dated May 2004 and revised in October 2006, May 2010, and January 2011; and the provisions stipulated in the legal agreement. The various items falling under the various categories of expenditures are described below. For each contract to be financed by IDA resources, the various procurement methods, consultant selection methods, the need for prequalification, estimated costs, prior review requirements, and timeframe will be agreed upon between the recipient and the World Bank and recorded in the 53 Procurement Plan. The Procurement Plan will be updated at least annually, or as required to reflect current project implementation needs and improvements to institutional capacity. The procurement process and the SBDs that will be used by the implementing agency will be defined in the PIM and in the Procurement and Financial Management Manual. 36. Advertising. A general procurement notice (GPN) will be prepared and published in the United Nations Development Business following Board approval, to advertise for major consulting assignments and any ICBs. Publication of a GPN in the national press or official gazette will be carried out for NCB. The GPN shall be prepared before negotiations and published after Board approval. It shall include all contracts under ICB and all large consulting contracts (e.g., estimated to cost US$200,000 or more). The GPN will be updated on a yearly basis and will show all outstanding International Competitive Bidding (ICB) for works and goods contracts and all international consulting services. In addition, a specific procurement notice (SPN) is required for all goods to be procured under ICB, and an Expression of Interest (EOI) for all consulting services costing US$200,000 equivalent or more will be published in the UNDB, dgMarket, as well as in the national press. 37. Procurement Plan. At the time of appraisal mission, the recipient drafted a procurement plan for project implementation that provides the basis for determining the procurement methods to be used. This plan, covering the first 18 months of project implementation, has been reviewed and agreed upon between the recipient and the Bank team during the appraisal mission. It will be updated in agreement with the project team at least once each year to reflect the proposed activities for the following 18 months of project implementation, and to reflect actual project implementation plans and improvements needed in institutional capacity. The updated Procurement Plan will be maintained in the project database and made available through the Bank’s external website once financing is approved by the IDA’s Board of Directors. 38. Procurement capacity assessment. A procurement capacity assessment of the Ministry of Pastoral Development and Livestock Production and of the preparation team was carried out during the appraisal mission: (i) The assessment revealed that a body in charge of opening and awarding bids (the Commission d’Ouverture et de Jugement des Offres – COJO) exists in the Ministry of Pastoral Development and Livestock Production. It is composed of the following members:  The General Secretariat of the Ministry of Pastoral Development and Livestock Production – President;  Representative of the MEP – Vice-President – Member;  The procurement specialist from the Procurement Unit (Service de Passation des Marchés) of the Ministry of Pastoral Development and Livestock Production – Member;  The Director of Financial Control in the Ministry of Finance and the Budget – Member;  The Public Procurement Body – Observer. (ii) In addition to the COJO, there is a Procurement Unit (Service de Passation des Marchés) in the Ministry of Pastoral Development and Livestock Production, which prepares and 54 monitors all procurement activities. The unit is staffed with two personnel members who are not familiar with World Bank procurement procedures. This unit also provides services to the secretariat of the COJO. 39. The assessment did not reveal any abnormalities in the functioning of the COJO. The delay for submission of evaluation reports by the sub-commission in charge of bids evaluation does not normally exceed one week, and COJO rules on the evaluation report within three days. However, certain deficiencies that may affect project implementation were reported during the assessment, including: (i) a slow process for contract validation and approval; (ii) an insufficient number of staff in the Procurement Unit (only two staff); and (iii) the insufficiency of World Bank procurement training for the two staff working in the Procurement Unit. To address these deficiencies, the project will: (i) ensure that the Ministry of Pastoral Development and Livestock Production will increase the number of staff by adding two additional staff; (ii) ensure that World Bank procurement training is provided to these staff at the specialized regional procurement training centers; and (iii) anticipate all procurement activities in the procurement plan. 40. The following is a schedule of actions to be carried out to strengthen procurement capacities in the Procurement Unit of the Ministry of Pastoral Development and Livestock Production. Table 8: Strengthening Procurement Capacities – Procurement Unit of Ministry of Pastoral Development and Livestock Production Actions to be undertaken Date Responsible institution Increase size of Procurement Unit Before project effectiveness SG of Ministry of Pastoral (Service de Passation des Marchés) by Development and Livestock recruiting two additional staff members Production Anticipate all activities in procurement After project effectiveness PCU and GS/Ministry of plan Pastoral Development and Livestock Production Participation in procurement workshops After project effectiveness PCU and GS/Ministry of at the specialized regional procurement Pastoral Development and training centers Livestock Production 41. Project preparation team. The mission assessed the project preparation team and concluded that there was not a dedicated person who was wholly responsible for procurement. Recommendations made in the action plan to solve this problem and possible related risks include: (i) hiring a procurement specialist for the Project Coordination Unit (PCU); (ii) preparing a procurement plan and regularly updating this plan to reduce the risk of project delay and extension; (iii) establishing a procurement planning and contract management system that is integrated with the computerized FM system to be installed at the PCU in order to ensure the follow-up of contract funds disbursement and aggregate amounts; (iv) providing procurement training workshops at the regional procurement training center (located in Dakar, Senegal); (v) providing technical assistance through short-term consultants as necessary; (vi) carrying out annual technical and financial audits specific to procurement; and (vii) clearly spelling out procurement rules and methods in the PIM. 55 42. A schedule of actions to be carried out to strengthen procurement capacity in the PCU appears below. Table 9: Improving Procurement Capacity in PCU Responsible Actions to be undertaken Dates institution Hiring of a dedicated procurement Before effectiveness Project Preparation Team and specialist for the PCU GS/Ministry of Pastoral Development and Livestock Production Preparation of a procurement plan and Done GS/Ministry of Pastoral Development regular updating of this plan to reduce and Livestock Production and Project the risk of project extension Preparation Team Participation in procurement training As needed during the life PCU and GS/Ministry of Pastoral workshops at the regional of the project Development and Livestock Production procurement center Short-term technical assistance with As needed during the life PCU procurement by consultants as of the project necessary Annual technical and financial audits At least twice a year during World Bank and External Auditors specific to procurement project implementation 43. The overall project risk for procurement is rated as Substantial because of the country conditions, the provisions of the national procurement code, delays experienced in the past with approval of evaluation reports, signing off and approval of contracts, and the overall experience of poor management of contracts in the past, despite the fairly strong arrangements in place at the level of the PCUs. To mitigate these procurement risks, in addition to the recruitment of a procurement specialist and his/her training, the recipient and the World Bank team have agreed to carry out at least three missions per year for the two first years of project implementation to minimize the risk of non-adherence to procurement procedures as well as to supervise project activities. The recipient and the World Bank have also agreed on two supervisory field visits per year to carry out post-review of procurement activities. The Bank team recommends that the government obtain a waiver authorizing the Ministry of Pastoral Development and Livestock Production and the Ministry of Planning to manage all procurement procedures for this project, including signing and approval of all contracts. It also agreed to continue the dialogue with other partners (African Development Bank, European Union and AFD) to push government to review some provisions of the new Code and its implementation decrees. 44. Frequency of procurement supervision. In addition to the prior review supervision to be carried out by the World Bank, the recipient and the World Bank team have agreed to at least three missions per year for the first two years of project implementation to minimize the risk of non-adherence to procurement procedures as well as for the supervision of project activities. The recipient and the World Bank have also agreed to conduct two supervisory field visits to carry out post-review of procurement activities. 56 45. Publication of contract awards. The outcomes of all international competitive bidding and national competitive bidding on works, goods, and consultancy contracts with an estimated cost of US$200,000 or more should be published on UNDB Online and dgMarket. 46. Fraud and corruption. All participants in the bidding process, bidders, and service providers—for example suppliers, sub-contractors, and consultants—should uphold the highest levels of ethical conduct during the procurement process and while executing contracts financed under the project, in accordance with paragraph 1.14 of the Procurement Guidelines and paragraph 1.23 of the Consultants’ Guidelines. Procurement Implementation Arrangements 47. The bulk of procurement for vehicles, equipment, expansion or renovation works, consulting services, studies, and training will be managed by the PCU through the procurement specialist. The procurement specialist will be in charge of preparing all bidding documents (ICB, NCB, local shopping and direct contracting, etc.) and all requests for proposals, as well as for submitting them to the World Bank for no objection before their publication. In collaboration with the other senior members of the PCU, the procurement specialist will manage the evaluation of the bids and proposals and will seek the no-objection of the IDA before awarding any contracts not governed by the National Tender Board (Commission d’Ouverture et de Jugement des Offres). For contracts governed by the National Tender Board, the current legislation will apply, provided that it is not in contradiction with IDA Guidelines. The procurement specialist and the staff appointed by the coordinator himself will participate in the evaluation before seeking the no-objection of the World Bank. The PCU will use consultants as necessary to carry out specific tasks related to procurement. The recruitment of all positions in the PCU should be acceptable to the World Bank, throughout the life of the project. Procurement Methods 48. Procurement methods that may be used in the project will include ICB, NCB, Shopping, Direct Contracting, QCBS, CQ, LCS, QBS, IC, and SSS. 49. Civil Works. No major civil works will be contracted under the project. Only two small works will be contracted, namely for the rehabilitation of slaughterhouses and slaughter areas eligible, estimated at approximately US$400,000 and the reorganization of the office space that will be provided to the PCU, estimated at US$40,000. Each contract for these works will be procured using shopping. 50. Goods. Goods procured for the project may include: computers and computing equipment, other office equipment, materials and furniture, etc. These goods will be procured in accordance with the procedures specified in the procurement plan. Goods that cannot be grouped into packages of least US$100,000 can be procured using shopping according to procedures acceptable to the World Bank. 51. Consultancy Services, Audits, Studies, and Training. Consultancy services, audits, studies, and training financed by the World Bank would be for: (i) specialized studies, supervision, project implementation, and monitoring, management information systems (MIS), financial management support, and financial audits; and (ii) consultancies on technical matters 57 and training. Consultants financed by the IDA, will be hired in accordance with the Bank's Guidelines for the Selection and Employment of Consultants by World Bank Borrowers (May 2004, revised in October 2006, May 2010, and January 2011).  Quality-and-Cost-Based Selection (QCBS). Unless stated otherwise in the procurement plan, all consulting service contracts costing US$200,000 equivalent or more for firms would be awarded using the Quality–and-Cost-Based Selection (QCBS) method. To ensure that priority is given to the identification of suitable and qualified national consultants, short-lists for contracts estimated at or less than US$100,000 equivalent may be made up entirely of national consultants (in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines), provided that a sufficient number of qualified individuals or firms is available (at least three). However, if foreign firms express interest, they would not be excluded from consideration. The PCU will ensure that expressions of interest are widely publicized in order to attract multiple interested candidates. Based on agreed upon criteria, the PCU will maintain and update a list of consultants that will be used to establish short-lists.  Least-Cost Selection (LCS). For financial and technical audits estimated to cost less than US$200,000, selection of consultants will be made on the basis of Least-Cost Selection (LCS).  Selection Based on Consultant’s Qualifications (CQ). Consultants for small studies, engineering design and supervision, monitoring and evaluation, and short-term assignments costing less than US$300,000, will be selected using the Selection Based on Consultant’s Qualifications (CQ).  Individual Consultants (IC). Consultants for project implementation, and assignments in sectors such as environmental and impact studies and baseline studies, technical assistance for project implementation, etc. and other types of short term appointments which can be filled by individuals, costing less than US$100,000, will be selected using comparison of qualifications among Individual Consultants (IC) expressing interest in the assignment or approached directly.  Single-Source Selection (SSS). In exceptional cases, Single-Source Selection (SSS) could be used in accordance with the provisions of paragraphs 3.8 to 3.11 of the Guidelines, with IDA’s prior consent.  Training, Workshops, Seminars, and Conferences. Training, workshops, seminars, and conferences (also including study tours) will be carried out on the basis of approved annual programs that will identify the general framework of these activities for the year, including the nature of training/study tours/workshops, the number of participants, and the estimated cost. 52. IDA Reviews. As specified in the procurement plan. 58 53. Modification or waiver of the scope and conditions of contracts. Before agreeing to any material extension, or any modification or waiver of the conditions of contracts that would increase aggregate cost by more than 15 percent of the original price, the recipient should specify the reasons for this and seek the World Bank's prior no-objection for the proposed modification. Summary of the Procurement Arrangements for the First 18 Months Goods, Works, and Non-Consulting Services (a) List of contract packages to be procured following NCB and shopping under this project Works 1 2 3 4 5 6 7 8 9 10 11 Estimated Domestic Prior or Estimated Bid Estimated Ref. Package Procurement Pre- or Post- Contract Description Amount in Preference Post Closing- Contract Comments no. Number Method Qualification US$ 000 (yes/no) Review Opening Signing Date Component 2: Support to the meat and dairy value chains 2.1. Upgrading existing infrastructure facilities Modernization and/or Post 1 expansion of slaughter 400.0 NCB NO Prior 7/28/2014 11/25/2014 qualification areas Small works for project 2 40.0 Shopping NO NO Post 6/14/2014 8/28/2014 offices Goods 1 2 3 4 5 6 7 8 9 10 11 Estimated Domestic Prior or Estimated Bid Estimated Ref. Package Procurement Pre- or Post- Contract Description Amount in Preference Post Closing- Contract Signing Comments no. Number Method Qualification US$ 000 (yes/no) Review Opening Date Component 1 : Improving the business environment 1.1: Support with formulating and implementing business environment reforms IT equipment (server, Post 1 computers, UPS, printer, 60.0 Shopping NO Post 10/25/2014 1/08/2015 Qualification scanner...) 1.2. Improving trade logistic procedures Acquisition of modern Post - 2 equipment for customs 100.0 Shopping NO Post 10/25/2014 1/08/2015 Qualification administration Component 2 : Support to the meat and dairy value chains 2.1. Upgrading existing infrastructure and facilities Acquisition of solid waste treatment systems and a Post 3 new incinerator or 40 Shopping NO post 10/25/2014 1/08/2014 qualification composting system for seizures Complete cold compressors with spare parts (2), air compressors, (2) Saws slot sternum with blades, chains with full trucks and axes, Post 4 460 NCB NO Prior 1/14/2015 4/24/2015 and chain tensioner roller Qualification (2), chains for downhill carriage (2), cleaning equipment and tractor to remove dung 59 1 2 3 4 5 6 7 8 9 10 11 Estimated Domestic Prior or Estimated Bid Estimated Ref. Package Procurement Pre- or Post- Contract Description Amount in Preference Post Closing- Contract Signing Comments no. Number Method Qualification US$ 000 (yes/no) Review Opening Date Mobile cold chain system including refrigeration and refrigerated transportation Post 5 330 NCB NO Prior 12/15/2014 3/25/2015 equipment for the Qualification federations running the sacrifice areas Cold chain equipment for Post 6 280.0 NCB NO Prior 11/14/2014 2/22/2015 milk collection Qualification Acquisition of office IT Post 7 equipment (computers, 30 Shopping NO Post 10/25/2014 1/08/2015 Qualification copiers, scanners, etc.) Acquisition of office Post 8 25 Shopping NO Post 10/25/2014 1/08/2015 furniture Qualification Post 9 Acquisition of two vehicles 80 Shopping NO Post 10/25/2014 1/08/2015 Qualification Acquisition of office Post 10 10 Shopping NO Post 6/25/2014 7/30/2014 motorbikes Qualification Acquisition of crushers and Post 11 50 Shopping NO Post 10/25/2014 1/08/2015 tract for waste cleaning Qualification Post 12 Generators 200 NCB NO Prior 9/14/2014 12/23/2014 Qualification Consulting Services 1 2 3 4 5 6 8 Estimated Review by Expected Ref. Procurement Contract Description Amount in Bank Contract Signing Comments no. Method US$ 000 (prior/Post) Date Component 1: Improving the business environment 1.1: Improving the business environment Technical assistance with formulating a policy framework for 1 CQ 175.00 prior 2/26/2015 reforming existing legislation Develop a database on companies doing business in Chad and a modern website for the ANIE to access information on Doing 2 CQ 150.00 prior 12/272014 Business, Q&A, and company registration, and supporting research into global market opportunities. 3 Develop a communication plan (brochures, pamphlets, posters) QCBS 250.00 prior 8/8/2015 4 Develop and implement a training plan for One-Stop-Shop employees CQ 50.00 Post 12/29/2014 5 Strengthening ANIE’s capacity to support specific industries QCBS 375.00 prior 8/8/2015 6 Modernisation of ANIE’s website CG 100 Prior 2/26/2015 7 Studies to understand changes on the demand side CQ 50.00 post 10/28/2014 1.2. Improving trade logistics procedures Technical assistance with formulating key reforms in the trade 8 QCBS 250.00 prior 6/08/2015 administrative procedures and practices Develop capacity building and offer specific training to customs 9 CQ 100.00 prior 11/30/2014 officers and inspectors Component 2: Support to the meat and dairy value chains 2.1: Support to business development in the meat and dairy value chains TA and training to enable butchers to meet certification in regionally 10 QCBS 200.00 prior 8/8/2015 accepted quality and hygiene standards 60 1 2 3 4 5 6 8 Estimated Review by Expected Ref. Procurement Contract Description Amount in Bank Contract Signing Comments no. Method US$ 000 (prior/Post) Date 2.2: Assistance to CECOQDA 11 Development of norms and standards, protocols and testing QCBS 300 Prior 6/8/2015 Capacity building for enforcement of quality standards in slaughter 12 QCBS 200 Prior 6/8/2015 areas Component 3: Project management 13 Design and implementation of the monitoring and evaluation system CV 70.0 prior 11/30/2014 14 TA for capacity building and project implementation CV 65.0 Prior 11/30/2014 15 Project account audit LCS 40.0 prior 4/8/2015 16 Environmental studies CV 50 Prior 10/28/2014 (a) List of consulting assignments with short-list of international firms. (b) Consultancy services estimated to cost US$100,000 or above per contract and single- source selection of consultants (firms), as well as assignments for individual consultants estimated to cost US$50,000 or above per contract, and single-source selection of individual consultants will be subject to prior review by the Bank. (c) Short lists composed entirely of national consultants: Short lists of consultants for services estimated to cost less than US$100,000 equivalent per contract may be composed entirely of national consultants in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines. Training, Workshops, and Study Tours 54. At the beginning of each year, each beneficiary will submit their proposed staff development plans in the form of an annual training plan for the coming year, to be reviewed by the IDA. The plan would indicate the persons or groups to be trained, the type of training to be provided, indicative learning outcomes, the provider or location of the training, and its estimated cost. Selection of training institutions for workshops/training should be based on a competitive process, using the consultant’s qualification method of selection. 55. Project Implementation Manual (PIM). The draft PIM was prepared , was submitted to the Bank for review and will be adopted by project effectiveness. The PIM will define the project’s internal organization and its implementation procedures, and will include, among other things: (i) the procedures for calling for bids, selecting consultants, and awarding contracts; (ii) the procedures for community-based procurement and sample contracts; (iii) the internal organization for supervision and control, including operational guidelines defining the role of the executing agency and reporting requirements; and (iv) disbursement procedures. Environmental and Social (including safeguards) 56. Environmental safeguards. The project is classified as EA category B due to the fact that potential impacts associated with planned renovation of sacrifice areas, which only include 61 civil works, are likely less adverse, small-scale, and site specific, and hence manageable to an acceptable level. 57. OP4.01 related to environmental assessment constitutes the only safeguard policy triggered by the project. In compliance with this policy, an environmental and social management framework (ESMF) has been drawn up by the borrower. Once drawn up, the report was reviewed, consulted upon, and disclosed in Chad and at the Infoshop held on March 18, 2014. This safeguard instrument provides the basic principles and operational guidelines to be followed in order to prepare the relevant safeguard instrument for each renovation project. This could take the form of a limited environmental and social impact assessment (ESIA) and/or an environmental and social management plan (ESMP) when the exact locations of these investments are known. 58. The ESMF formulates standards, methods, and procedures specifying how future activities the location, number, and scale of which are as yet unknown will systematically address environmental and social issues. It includes: (i) a systematic environmental and social impact assessment for all activities before selection and implementation; (ii) procedures for conducting activity-specific ESIAs, a limited environmental impact assessment (LEIA), or an environmental and social management plan (ESMP); (iii) capacity-building and awareness- raising campaigns targeted at relevant stakeholder groups for better implementation and monitoring of project safeguard measures; and (iv) establishment and implementation of a consultation framework for environmental control and monitoring. 59. Social and environmental management. As part of the capacity building to be provided for implementation of the proposed operations and taking into account that expected adverse impacts are minor and will be easily manageable, the PCU will not need to recruit a permanent environmental specialist. A focal point will be chosen at the Ministry for the Environment for periodic support as needed. This person will be responsible for following up safeguard-related issues and concerns, and will in particular work with the firms responsible for renovation work in applying the screening checklists to various sub-projects. To assist in this capacity building, and to provide subsequent guidance and review of the ESMF’s application, the World Bank environmental safeguard specialist on the project task team will provide guidance to both the PCU and ministries responsible for project implementation. During supervision of these operations, the WB will assess the implementation of the ESMF and recommend additional strengthening, if required. 60. As with any project, the environmental and social safeguard function concerns both the implementation and monitoring of mitigation measures. The proposed institutional arrangements (in terms of the roles and responsibilities of the main stakeholders involved) will focus on: (i) the coordination and planning of external supervision; and (ii) internal as well as external monitoring of project environmental and social measures. 61. The Directorate of Environmental Assessment and Combatting Pollution (Direction des Evaluations Environnementales et de la Lutte Contre les Pollutions et les Nuisances / DEELCPN), the national agency charged with environmental assessment, will follow up on the external monitoring of the implementation of the ESMF, including ensuring that the provisions 62 of the ESMF that lead to further environmental assessments of sub-projects are followed (i.e., sub-project categorization, review, clearance, and monitoring of the sub-project-specific ESIAs and ESMPs on behalf of the government). 62. To this end, the PCU shall establish a memorandum of understanding with the DEELCPN, which clearly describes the type of support to be provided by the project, and the attributions and deliverables of this agency. The relevance, soundness, and modus operandi of these institutional arrangements in carrying out the project’s safeguard function will be discussed with all the stakeholders concerned by the project. 63. In addition to the above institutional arrangements, the safeguard instruments will include further provisions for capacity building at all levels for the successful implementation of the project safeguard measures, in compliance with national and World Bank safeguard policies. Specific attention will be given and resources earmarked to building the capacity of the PCU and all those involved in the project’s environmental and social function. 64. Lastly, World Bank supervision teams will include the environmental safeguards specialist. To ensure effective World Bank supervision, the project’s focal point for environmental and social issues will prepare and update detailed reports on the implementation of the ESMF, as well as activity-specific ESIAs and/or ESMPs (whichever is applicable) before World Bank supervision missions. Appropriate budget for supervision will be included in the project’s financial evaluation to ensure that regular and effective safeguard supervision is carried out throughout project supervision. Monitoring and Evaluation 65. The project’s M&E system will in a timely manner provide data needed for assessing project performance and guide the timely adoption of corrective measures. The system is based on the results framework presented in Annex 1. The results monitoring framework will assess progress towards the PDO by means of five key indicators. In addition, intermediate indicators will be used to monitor the progress of each component over the life of the project. A rigorous monitoring and evaluation (M&E) system will enable the government and all partners to monitor progress on all indicators. The overall M&E system will be the responsibility of the M&E specialist at the PCU, with support from the focal points and technical ministries for data collection. Monitoring will occur at each stage of the project’s implementation in order to provide a framework for learning lessons, to identify potential problems and issues, and to promptly consider and adopt corrective measures in order to improve the design of the project accordingly. The PCU will provide semi-annual/annual reports on all indicators. Role of Partners 66. Working with the IFC Investment Climate Team, the team and the PCU will leverage expertise on issues related to reducing barriers to a favorable business environment with key policy reforms in business creation, business licensing, trade logistics, and technical assistance to SMEs with the IFC’s Business Edge toolkit. The IFC team will be involved in the supervision of activities related to business environment improvement that fall under Component 1. 63 67. The IFC Investment Climate Team is also preparing a complementary investment climate operation that includes business environment reforms such as trade logistics. The specific areas to be covered include: i) reducing the number of procedures for import and export; (ii) undertaking transit regulation reforms; (iii) increasing access to information for cross-border trade by means of simple user manuals and electronic forms; and (iv) improving management of cross-border trade by the customs administration. 64 Annex 4: Operational Risk Assessment Framework (ORAF) Republic of Chad: Value Chains Support Project (P133021) . Risks Project Stakeholder Risks Stakeholder Risk Rating Moderate Risk Description: Risk Management: Borrower/Government: The steering committee will provide overall guidance and will ensure that the project coordination unit (i) Government entities outside the Ministry of follows the procedures and uses the proceeds of the grant for their intended purpose. Regular Pastoral Development and Livestock communication activities will be undertaken to ensure that all stakeholders buy in during project Production may not be fully informed of project implementation. Private stakeholders who were involved from the identification stage and throughout the objectives and accomplishments. preparation cycle are aware of the selectivity and potential impact sought in the project design. (ii) High expectations and private stakeholders’ Resp.: Both Status: In Stage: Both Recurrent: Due Freque requests will likely not be satisfied, given Progress Date: ncy: resource constraints. This may create dissatisfaction in some stakeholders. Implementing Agency (IA) Risks (including Fiduciary Risks) Capacity Rating Substantial Risk Description: Risk Management: (i) Turn-over in ministries is generally high, The Project Implementation Manual assigns roles and responsibilities and is the institutional memory for which could cause delays in preparation and new staff. Capacity-building activities in project management will be financed. A strong project implementation if vacant posts are not filled coordination unit composed of civil servants and external experts is being appointed/ recruited and will be quickly. responsible for coordinating all activities and flow of funds. The project implementation manual has been (ii) Project management skills and experience in prepared and will be finalized before project effectiveness so as to ensure that all operational guidelines are the PCU that needs to be recruited could turn agreed upon. On the procurement side, the PCU will anticipate procurement activities in the procurement out to be limited. plan as much as possible and the Bank team will closely supervise all procurement activities. (iii) Long procurement delays could occur Resp.: Client Status: In Stage: Both Recurrent: Due Freque during project implementation due to the Progress Date: ncy: overall weak procurement capacity and cumbersome national procurement procedures. 65 Governance Rating Substantial Risk Description: Risk Management: Ownership and commitment: Although the The project preparation team and the steering committee are established to ensure strategic lines are government is closely involved in defining the respected but aligned, to the extent possible, with evolving goals. project concept and this it is mostly aligned Resp.: Both Status: In Stage: Both Recurrent: Due Freque with the government's own national Progress Date: ncy: development strategy in the area of private sector development and economic diversification, it is possible that their priorities might change. Project Risks Design Rating Substantial Risk Description: Risk Management: Technical complexity: The design is simple but The project design has been simplified from the concept stage, and the value chains as well as geographical might be complex to implement in the context scope have been limited. The project will be based in a single ministry to avoid difficulties with of Chad. coordination. Implementation arrangement complexity: Resp.: Bank Status: In Stage: Both Recurrent: Due Freque Implementation by technical departments in Progress Date: ncy: three ministries, by the private sector and coordination of activities by a PIU within the Ministry of Trade could be challenging. Social and Environmental Rating Moderate Risk Description: Risk Management: A limited capacity to implement the An ESMF has been prepared for the renovation of slaughter areas. It has been consulted upon, reviewed, environmental and social measures described in and disclosed in the country and at an Infoshop. Appropriate training will be organized to create capacity at the ESMF. all levels and also to ensure that stakeholders apply safeguard policies during implementation. A focal point will be appointed at the Ministry of the Environment to make sure that environmental impact studies are undertaken for subprojects when necessary. Other risk management measures include: making use of latest technology and products to mitigate pollution and health hazards and applying Bank safeguard procedures during implementation. Resp.: Client Status: In Stage: Both Recurrent: Due Freque Progress Date: ncy: 66 Program and Donor Rating Low Risk Description: Risk Management: Misalignment among partners on similar The project design seeks to complement other projects undertaken by donors in the same sector/value activities, and competing projects from other chains. Government, in collaboration with the World Bank, will organize regular partnership coordination donors may overstretch PIU and stakeholder meetings to share information on sector issues and interventions. capacity and slow down implementation. Resp.: Both Status: In Stage: Both Recurrent: Due Freque Progress Date: ncy: Delivery Monitoring and Sustainability Rating Substantial Risk Description: Risk Management: Project delivery/contract monitoring will Except for three people from the Ministry of Pastoral Development, all members of the PCU will be depend on future PCU skills and experience. recruited on a competitive basis. Comprehensive capacity building will be provided during implementation. The M&E system will be put in place to regularly monitor progress. Resp.: Client Status: In Stage: Both Recurrent: Due Freque Progress Date: ncy: Overall Risk Overall Implementation Risk: Substantial Risk Description: Long procurement delays could occur during project implementation due to the overall weak procurement capacity and cumbersome national procurement procedures. To mitigate this risk, the team will launch procurement activities in a timely manner. 67 Annex 5: Project Readiness Table REPUBLIC OF CHAD: Value Chain Support Project Activities Status If not completed by when Fiduciary and implementation Completed for the Ministry of Pastoral assessments Development and the Ministry of Planning (head of project preparation team). Project detailed costing Available draft reviewed and agreed upon, including infrastructure rehabilitation costs. PPA to speed up readiness PPA agreement and disbursement letter Account first deposit still signed by both parties (CD and pending- to be finalized government) and registered as official upon lapsed loan documents. resolution. Authorized signatures for DL received by March 19, 2014, cleared by lawyer and registered as official documents. Appointment of project Draft TORs completed and discussed coordinator , financial with the government management and M&E staff Proposals for these appointments from the Ministry of Pastoral Development were already received. Recruitment of project Deputy Draft TORs completed and discussed Contract to be signed and Coordinator and other staff with the government Financial proposal recruitment efforts to be (fiduciary specialists, matching for firm in charge of recruitment for launched , with expected grant specialists, etc.) remaining staff finalized by April 1, completion by June 2014 2014. Appointment of project steering Composition of Multi-sector SC headed committee by Ministry of Pastoral Development defined and SC appointed . Preparation of project ESMF completed, disclosed in-country Environmental and Social and at Infoshop by March 19, 2014. Framework Project 18 month procurement Procurement Plan available and First year work plan to be plan and first year work plan reviewed. revised and approved by September 2014 Project implementation manual Draft PIM available. Before effectiveness Detailed implementation procedures for components completed. Project accounting system Draft TORs available To be reviewed and acquisition to be undertaken with support from PPA 68 Activities Status If not completed by when Matching grants manual To be launched asap as this is a To be completed by August disbursement condition for matching 2014, with support from the grants. PPA PPA sectoral studies (7) All 7 TORs prepared by project EOI approved, start of preparation team and completed. EOI recruitment of consultants prepared by PPA procurement focal for 3 priority studies asap. point for 3 priority studies. Project Implementation Support See Annex 6. Plan 69 Annex 6: Implementation Support Plan REPUBLIC OF CHAD: Value Chain Support Project Strategy and Approach for Implementation Support 1. The Implementation Support Plan (ISP) focuses on mitigating the risks identified in the ORAF, and aims to make implementation support to the client more flexible and efficient. It also seeks to provide the technical advice necessary to facilitate achievement of the PDO (linked to results/outcomes identified in the result framework), as well as identify the minimum requirements for meeting the Bank’s fiduciary obligations.  Technical: Implementation support will require the right skills mix during project implementation, regular supervision missions, and implementation support missions in order to: (i) review progress on objectives; (ii) fine tune strategies where required; and (iii) draw lessons from the implementation for wider applicability.  Financial management: Implementation support will ensure that the project maintains a satisfactory financial management system throughout the life of the project.  Procurement: Implementation support will ensure that procurement for the project is carried out in accordance with World Bank Procurement Guidelines and the provisions stipulated in the legal agreement throughout the project implementation phase. In addition to the prior review to be carried out by the World Bank during supervision, the recipient and the World Bank team have agreed to at least three missions per year for the first two years of project implementation in order to minimize the risk of failing to follow procurement procedures as well as to supervise project activities. The recipient and the World Bank have also agreed to conduct two supervision field visits to carry out post- review of procurement activities.  Environmental and Social Safeguards: The Bank team will supervise the implementation of the EMSF and ESIAs. A focal point will be appointed at the Ministry of Environment to ensure that ESIAs are prepared for subprojects that could have adverse impacts on the environment.  Other Issues: Sector level risks will be addressed through policy dialogue with the government, implementing agencies, and stakeholders. 70 Implementation Support Plan Financial Table 10: Implementation Support Plan - Financial FM Activity Frequency Desk reviews Interim financial reports review Quarterly Audit report review of project Annually Review of other relevant information such as interim internal Continuous, as they become available control systems reports. On-site visits Review of overall functioning of the FM system Semi-annual Monitoring of actions taken on issues highlighted in audit reports, As needed auditors’ management letters, internal audits, and other reports Transaction reviews (if needed) As needed Capacity building support FM training sessions During implementation and as and when needed. Procurement Participation in procurement training As needed during the life PCU and GS/Ministry of workshops at the regional procurement training of the project Pastoral Development and center Livestock Production Short-term technical assistance with As needed during the life PCU procurement by consultants as needed of the project Annual technical and financial audits specific to At least twice each year during World Bank and External procurement project implementation Auditors 2. The main focus in terms of support to implementation during the project’s first 12 months and after will be on technical issues, procurement, financial management, environmental concerns, and M&E. Table 11: Focus and resources Time Focus Skills Needed Resource Partner Role Estimate First twelve Technical issues Project Overview: Team $120,000 months Leader Private sector Development Specialist, Livestock Specialist, Investment Climate Specialists Procurement Procurement Specialist Financial Management Financial Management Specialist 71 Time Focus Skills Needed Resource Partner Role Estimate Environmental concerns Environmental Specialist Monitoring and M&E Specialist Evaluation 12–48 months Technical issues Project Overview: Team $100 000 Leader Annually Private sector Development Specialist, Livestock Specialist, Investment Climate Specialists Procurement Procurement Specialist Financial Management Financial Management Specialist Environmental Environmental Specialist Monitoring and M&E Specialist Evaluation Remaining As with 12–48 months $150 000 project life above. Will also include an impact evaluation in 2019. Table 12: Skills mix required Skills needed Number of staff weeks Number of trips Comments Task Team Leader: Private 10 staff weeks At least 2 DC or field-based Sector Development implementation Specialist support trips Livestock Specialist 10 staff weeks At least 2 DC or field-based implementation support trips Investment Climate 5 staff weeks At least 2 Field-based Specialist (Trade implementation Logistics) support trips Procurement Specialist 5 staff weeks Not applicable Country Office-based Financial Management 5 staff weeks At least 2 Field based Specialist implementation support trips Environmental Specialist 5 staff weeks At least 2 Field based implementation support missions Monitoring and Evaluation 4 staff weeks At least 2 Field based implementation support missions 72 Annex 7: Economic Analysis REPUBLIC OF CHAD: Value Chain Support Project 1. This annex presents the economic and financial analysis for the Competitiveness and Value Chain Support Project. The analysis uses cost-benefit analysis to calculate economic rate of return (IRR) and its corresponding net present values (NPV). It mainly focuses on the returns due to an increase in meat production in the formal sector and an improvement in the business climate related to the meat value chain. Due to the absence of precise statistics on cattle, the analysis is based on consultations with livestock experts and various stakeholders, as well as the economic and sector report “Livestock and Gum Arabic Value Chains Analysis” (2014). Financial Analysis Figure 6: Stakeholders in the meat value chain 2. The organization of the meat value chain in Chad is illustrated in Figure 6. Pastoralists sell their animals to secure their subsistence. Because they usually sell animals when they need cash urgently, they are not in a position to bargain with collectors and traders, and they usually sell their animals at a very low price. Collectors are responsible for bargaining with herders, and collect animals from different herders for a trader. Traders are the ones taking the highest risks in the value chain, bearing the risks related to weight loss or death in transit. Butchers buy animals from these traders and use either slaughterhouses or sacrifice areas to slaughter them. 3. We distinguish between three tracks: (1) the healthiest and most corpulent animals (about 75,000 in N’Djamena) are slaughtered in the slaughterhouse in Farcha-N’Djamena. The meat is then transported in refrigerated trucks and sells at a high price; (2) the medium-range animals (about 55,000 in N’Djamena) are slaughtered in slaughter/sacrifice areas. The meat is then transported by motorcycles and usually sold on the local markets, (3) the rest (about 70 percent of the animals transported to N’Djamena) is slaughtered and sold through informal channels. Benefits and costs are distributed differently across stakeholders according to track. In this analysis, we consider Tracks 1 and 2 only. 4. As shown in Figure 7 and Figure 8, the difference between the two tracks lies in the benefits accrued to butchers. We assume that the selling price is about CFAF 2,200 per kilogram for meat in Track 1, and between CFAF 1,000 to CFAF 1,750 per kilogram for meat in Track 2. Meat from animals slaughtered in Farcha is of higher quality, is transported using refrigerated trucks, and is sold in modern butcheries. In addition, animals are healthier and carcass weight is much higher (about 130 kg per carcass compared to 105 kg for animals following Track 2). As a result, the margin for butchers in Track 1 is about CFAF 50,000 per animal while margins for butchers in Track 2 are very limited (CFAF 950 per animal). 73 Figure 7: Profitability across stakeholders – in the slaughterhouse Price per animal (CFAF) 290,000 270,000 250,000 230,000 210,000 190,000 170,000 150,000 Herders Collector Transporter Trader Butchers Price Costs Margin Figure 8: Profitability across stakeholders – in sacrifice areas Price per animal (CFAF) 230,000 210,000 190,000 170,000 150,000 130,000 110,000 90,000 Herders Collector Transporter Trader Butchers Price Costs Margin   74 5. We assume that the project will contribute as follows: - Market information for pastoralists. We assume that the project will address information asymmetry, which will result in a price increase for herders of about 3 percent per animal. - Reduction of informal payments. Interviews with stakeholders suggest that transporters have to make informal payments of about 5,000 CFAF per animal while moving livestock to consumer markets. The project will contribute to reducing these payments by 10 percent. - Decrease in weight loss and death in transit. We assume that weight losses range from 20 to 25 percent, while 15 percent of the livestock die in transit. Access to water points (provided by other projects), new firms in animal feeding (through the matching grant), and improved veterinary services (more veterinarians and more inputs addressing cattle diseases through dedicated training courses and the matching grant) is expected to reduce weight loss to 20 percent for the livestock and to improve animal health during transportation to local markets (mortality rate decreases to 15 percent).   - Price of meat on consumer markets. The risk associated with improving meat quality is that there will be an increase in the price of meat, which is already high compared to neighboring countries. For calculations under this analysis, we assume that the price of meat will be stable over the lifetime of the project. In other words, the project will not result in a price increase. 6. The project results in the following margins for each of the stakeholders. Benefits for collectors and transporters remain the same. Margins for traders increase from CFAF 16,000 to CFAF 17,000 per animal. For Track 1, we do not consider a substantial decrease in weight loss and butchers purchase the animals at a higher price (due to the increased price paid to herders). These assumptions lead to a lower margin for butchers (from CFAF 51,000 to CFAF 47,000 per animal). For Track 2, an increase in carcass weight results in a substantial increase in butchers’ benefits (from CFAF 950 to CFAF 7,990 per animal). The figures below show the profitability in the slaughterhouse and the sacrifice areas with the project. 75 Figure 9: Profitability across stakeholders – in the Figure 10: Profitability across stakeholders – in slaughterhouse WITH the project sacrifice areas WITH the project Price per animal (CFA per animal) Price per animal (CFA per animal) 300,000 230,000 280,000 210,000 260,000 190,000 240,000 170,000 220,000 150,000 200,000 130,000 180,000 110,000 160,000 90,000 Price Costs Margin Price Costs Margin 7. The profitability of butchers, especially in the slaughter areas, is very sensitive to prices. Below 1,425 CFAF per kilogram, the business is not profitable. Economic Analysis 8. Project activities financed under this project are expected to generate five main benefit streams (of which three are quantifiable): (i) additional income for stakeholders in the meat value chain (in particular herders and butchers) – we do not consider collectors, transporters, and traders since we assume that most of the livestock would have been transported and sold without the project, but on the informal market; (ii) entry of new stakeholders (new butchers and new employees in the Farcha slaughterhouse); (iii) development of the dairy sector; (iv) additional revenues to the government; and (v) the reduction of household food insecurity (unquantifiable). 9. Quantifiable benefits resulting from the project at the micro-project level are expected to be due to the following main assumptions: - Enhanced infrastructure. Meat production is projected to increase by 5 percent per year in sacrifice areas (instead of one percent annually at present) due to new investment in these areas. In addition, the project will renovate two cold storage rooms. The construction of these storage rooms is expected to start in Year 2 and Year 4 of the project. As a consequence, this increase in capacity will result in an increase in employees (workers and slaughter agents). The projections for the number of animals in N’Djamena are given below. 76 Table 13: Slaughtered animals per year – in Farcha and in sacrifice areas Y0 Y1 Y2 Y3 Y4 Y5 Farcha-N’Djamena Slaughterhouse Animals w/o project 75,000 75,000 75,000 75,000 75,000 75,000 Animals with project 75,000 75,000 84,375 103,125 93,750 112,500 Additional 0 0 9,375 28,125 18,750 37,500 Sacrifice areas Animals w/o project 55,000 55,550 56,106 56,667 57,233 57,806 Animals with project 55,000 57,750 60,638 63,669 66,853 70,195 Additional 0 2,200 4,532 7,003 9,620 12,390 TOTAL 0 2,200 13,907 35,128 28,370 49,890 - Distribution of benefits along the value chain. The economic analysis is based on the results and margins assessed above. As illustrated in the financial analysis, the butchers in Farcha may experience a drop in their margin per animal. It is expected that these butchers will compensate for this drop with an increase in the number of slaughtered animals. - Revenues to the government. Various taxes are collected along the value chain. Taxes are usually paid at the various markets at which the cattle is traded or in the slaughter areas. In the slaughterhouse, taxes are indexed to profits while in the sacrifice areas, they are indexed to the number of animals, regardless of the weight of the animals or the profits of the butcher. Table 14: Taxes paid at the slaughter areas Slaughterhouses Sacrifice areas Tax Recipient Details Tax Recipient Details Redevance Slaughterhouse 59 CFAF/kg (local) Droit de Treasury 200 CFAF/head d'utilisation 68 CFAF/kg (export) présentation de l'abattoir (Right of (Use tax) submission) VAT Treasury 18 % Taxe sanitaire Treasury 1,000 CFAF/head d’abattages (Slaughter sanitation tax) Prélèvement National 100–200 CFAF/ head d’abattage Federation (Slaughter of Butchers deduction) Taxe Commune 100–500 CFAF/ head communale (Municipal tax) Other taxes 400 CFAF/head Source: Présidence de la République (2008), Plan National de Développement de l’Elevage (2009–2016). 77 - Development of the dairy sub-sector. We expect that about 20,000 households will be benefiting from the project directly or indirectly. The project will contribute to animals’ health and weight gain through the improvement of veterinary services and the creation of new companies specialized in animal feed. Therefore, over the lifetime of the project, the production of milk is expected to increase from 2 liters to 3.2 liters per animal. In addition, we expect that the project will facilitate the commercialization of milk production. The proportion of milk commercially sold will increase from 40 percent to 60 percent, at a price of 200 CFAF per liter. 10. Benefits are expected from job creation at the Farcha slaughterhouse and in the butchery profession in general. For example, it is expected that under the project, the number of butchers will increase from 892 to more than 1,100. Y0 Y1 Y2 Y3 Y4 Y5 New workers at Farcha 0 6 6 12 12 12 New agents at Farcha 0 0 8.5 26 17 34 New butchers at Farcha 0 0 37 131 77 170 New butchers in Areas 0 20 41 63 86 111 Number of herders 0 220 1,391 3,513 2,837 4,989 11. Based on an exchange rate of CFAF 478 per US$1, the project is expected to result in the following benefit streams: (i) additional revenues from new employees in Farcha; (ii) additional income for existing and new butchers; (iii) additional income for herders; (iv) additional government revenues; and (v) additional income from an increase in milk production and commercialization. 78 Figure 11: Benefit streams from the project 4 Millions 4 3 3 2 2 1 Butchers 1 Herders 0 Government 1 Dairy 2 Employees in Farcha 3 4 5 6 Table 15: Costs and benefits Y0 Y1 Y2 Y3 Y4 Y5 Costs 0 2,000,000 3,500,000 2,500,000 2,000,000 1,500,000 Benefits 0 57,487 1,072,715 4,860,118 3,761,007 6,481,202 Costs/Benefits 0 -1,942,513 -2,427,285 2,360,118 1,761,007 4,981,202 12. All the benefit streams arising from the project were consolidated and computed, along with the project costs. Economic and financial IRR estimates assumed a 12 percent opportunity cost of capital and a 5 year project lifecycle. Subject to the above assumptions and uncertainties, results suggest that, overall, the project is financially and economically desirable (returns above the 12 percent threshold). The ERR is 32 percent and the NPV equals US$1,746,000. 79