The World Bank Report No: ISR15264 Implementation Status & Results Congo, Democratic Republic of DR Congo Private Sector Development and Competitiveness Project (P071144) Public Disclosure Copy Operation Name: DR Congo Private Sector Development and Competitiveness Project Stage: Implementation Seq.No: 23 Status: ARCHIVED Archive Date: 29-Jun-2014 Project (P071144) Country: Congo, Democratic Republic of Approval FY: 2004 Product Line: IBRD/IDA Region: AFRICA Lending Instrument: Specific Investment Loan Implementing Agency(ies): COPIREP Key Dates Board Approval Date 29-Jul-2003 Original Closing Date 01-May-2010 Planned Mid Term Review Date Last Archived ISR Date 29-Dec-2013 Effectiveness Date 02-Dec-2003 Revised Closing Date 30-Jun-2014 Actual Mid Term Review Date Project Development Objectives Project Development Objective (from Project Appraisal Document) The objective of the Project is to support the Borrower#s policy of the promotion of private-sector led growth through: (a) improving the investment climate; (b) supporting parastatal reform in the telecommunications, energy, finance, transport, and mining sectors; and (c) improving mining competitiveness in the Katanga region of the Borrower. Has the Project Development Objective been changed since Board Approval of the Project? Yes No Component(s) Component Name Component Cost IMPROVING THE INVESTMENT CLIMATE 34.76 IMPLEMENTING THE PARASTATAL REFORM 70.24 PIONEERING MINING COMPETITIVENESS IN THE KATANGA REGION 7.30 PROJECT COORDINATION AND IMPLEMENTATION ARRANGEMENTS 6.20 Public Disclosure Copy UNALLOCATED (PPF) 1.50 Overall Ratings Previous Rating Current Rating Progress towards achievement of PDO Moderately Satisfactory Moderately Satisfactory Overall Implementation Progress (IP) Moderately Satisfactory Moderately Satisfactory Overall Risk Rating Substantial Substantial Implementation Status Overview Page 1 of 9 The World Bank Report No: ISR15264 The project will close on June 30, 2014. This is the final ISR before the project closes and therefore weill report on the overall achievements achieved under this project and arrangements made for remaining activities. This ISR is based on supervision reports obtained in May 2014 and subsequent mission in June 2014. Overall achievements of the PDO as well as Implementation performance are rated as Moderately Satisfactory. The rating is moderated due to the fact the project is an overage Public Disclosure Copy project. If the project ratings were solely based on achievements of the indicators, it would have been rated as Satisfactory. All measurable performance indicators have been achieved, as the project nears closure on June 30, 2014. Of the total loan $180 million, 94.5% has been disbursed, through award of 895 service contracts, 206 contracts for goods, and 68 contracts for works, while registering satisfactory procurement and FMS performance. The project has broadly achieved virtually every single outcome indicator, with the exception of one (Return on Assets), which cannot be measured on same basis as the baseline, due to changes in the balance sheets and accounting methods, as result of the transformation of the state-owned enterprises (SOEs). The full result of the project will be known when the Impact Assessment studies which is in progress is completed. However, some of the indicators demonstrate the achievements made: for example, annual Foreign Direct Investment (FDI) volumes across key industry sectors (in 2012 was US$3.3 billion vs target of US$1 billion), growth in total domestic credit to private sector rose to 18.11% of GDP (vs target of 4.8% by 2011), and increase in total savings (M3) in financial sector reached 33.92% of GDP in 2012 (vs target of 10.4% by 2011). Supporting these outcomes are achievements in reduction of cost of doing business, as reflected in 70% (and possibly 98%, once validated in practice by the Doing Business Report 2015) reduction in number of days to register a business, in the application of specialized courts and arbitration centers to enforce business contracts, by the explosive growth of microfinance industry (over 1 million accounts vs target 300,000, and 149 institutions created vs target of at least 5), improved compliance with prudential framework by commercial banks due to better supervision capacity and privatization, and irreversible transformation of the large SOEs into viable corporate entities. DETAILS: Implementation of reforms to improve the investment climate is progressing well. In 2013, the time to register a company was reduced to 31 days, from 58 the previous year, and now it may be as low as 3 days with the introduction of a one-stop-shop. Access to credit has improved substantially due to introduction of regulations for secured transactions (specifically, providing legal definition of movable collateral) that was funded by the Project. The establishment of a movable pledge registry is currently in process as well. Labor law was amended to give more rights to employers and allow women to work late hours. Progress was also made on the Family Law to allow women to register business, open bank account, etc. This bill is awaiting approval in the second house of National Assembly. Good progress continues (albeit unevenly) toward completion of financial and operational restructuring of the entire SOE portfolio of 20 enterprises and 21 public establishments (6 of which were placed in liquidation). Of the 7 strategic SOEs, all steps of transformation have been completed for 3 (Gecamines, SNCC and SCPT), including debt restructuring, asset ownership confirmation, new balance sheets, etc. The other 4 are all in different stages due to their specific sector structure and circumstances, some aided by other Bank or donor operations, and still face a lengthy process, including preconditional government policy guidance on sector-level strategies. All of the SOEs face the heavy burden of resolving their employment-related debts, which is a subject being addressed at wholesale level by the Ministry of Labor and the Steering Committee for Reform of the State Portfolio (COPIREP). The remaining 4 SOEs are in different stage of transformation, for example: (1) SNEL (under management contract) is mostly done with asset and debt revaluation; (2) OCPT (complicated by not having yet spun off the postal network and the need to register a new corporation for the telecom business); (3) REGIDESO (under management contract, on track, resolved social debts, still needs unbundling), and (6) RVA (no progress achieved, until government decides on division of company and separation of regulatory functions). The issues of common concern to all SOEs, and to the authorities, are that (a) all of these SOEs will need to be re-registered again under OHADA corporate statutes to SA by the Public Disclosure Copy deadline of September 2014 (unless exempted by special law), which require them to finalize valuations of capital and prepare new balance sheets, as well as implement governance structures, taking into consideration that the President's powers to appoint the government's delegates to the Board of Directors will be supplanted by the OHADA regime, and (b) after having been transformed into commercial enterprises in 2011, which terminated their access to direct and regular government subsidies and transfers, and after having had much of their debts taken over by the government as part of their overall transformation to commercial corporations (SARL), these SOEs now face considerable tax liabilities that will need to be addressed. RELEVANCE The Project was approved in 2004 during ongoing conflict and fragile government to set the economy on recovery track toward private sector led growth through improved investment climate, reforms of public enterprises in key sectors, and improved mining competitiveness in the mining-intens ive province of Katanga. These were highly relevant objectives to a country whose social and economic fabric had unraveled after decades of infighting and invasions, genocide and pillage, leading to precipitous decline of its economic institutions and Page 2 of 9 The World Bank Report No: ISR15264 public services, amidst antiquated laws and weak governance. Following years of consolidation of governance, dealing with global economic cycles and competing priorities of the government, the Project was extended three times (2010, 2012, and 2013), to allow for passage of requisite laws, the creation of legal and regulatory institutions, and commitment by policymakers to undertake difficult reforms, particularly in the Public Disclosure Copy SOE sector and business regulatory environment. Additional financing was provided to the Project in 2008 to boost these efforts, including in the financial sector, to increase banking support to the private sector and access to finance to the vastly poor population, as well as to fund a successful labor retrenchment program at the railways company which supported another investment operation to rehabilitate the company. Implementation was boosted by key laws enacted in 2008 to propel SOE reforms across the sectors, and in 2010 by new institutions focused on improving the investment climate, and on supporting the the expansion of the banking and microfinance industry. This momentum resulted in creating conditions for high economic growth (currently at 8.5% compared with 2.9% in 2008-9) and rates of investment that are currently being experienced. It also created the space and authorizing environment for the launch of new Bank sector-specific operations directed at each of the utility industries assisted by the Project, and of recently approved new Bank operations in areas of private sector development (e.g. Growth Poles project) and SME finance (Financial Infrastructure and Markets project). As such, and throughout its lengthy life, the Project has maintained its firm, highly relevant flagship position in the Bank portfolio as the driver of key institutional and legal reforms for an enabling business environment across all key sectors, which has led to high rates of economic growth of DRC in recent years, made the economy more resilient to external shocks, and, through creation of requisite regulatory bodies and laws across the key utility industries (e.g. the Mining Law, the Electricity Law, and others), has cleared the way for continuously expanding Bank engagement in DRC. EFFICACY The Project succeeded in all targets that measure increased competitiveness of the economy and of a growing private sector. Aside from a couple indicators that became unmeasurable or irrelevant over time, other benchmarks of SOE reform indicate that these economic drivers are better positioned to serve the private sector and population, after having been transformed into public corporations with modern statutory and governance structures conducive to private sector investment and greater capacity to deliver higher quality public services. With their indebtedness reduced by measures taken under the Project, and with clearer demarcation between commercial activities and government-led regulatory functions, the SOEs are better positioned to complete their restructuring in a new legal environment of OHADA, which will enforce tighter fiscal, fiduciary, and social accountability going forward. The SOEs are contributing to the government’s Treasury, now being taxpayers like other private companies, and providing services to private sector that contribute to further economic growth. Improved investment climate, particularly in business registration, construction, taxation, trade facilitation, etc, and most importantly in protection of investors (OHADA and New York Convention) and of creditors (new insolvency regime, credit registry, collateral registry, etc) continues to expand access to finance and to markets, fueling economic growth as well as regional trade. Improved legal enforcement of commercial laws and contracts is boosting confidence of entrepreneurs, as are recent reforms in gender laws allowing women to enter the work force, register bank accounts and companies, without restriction by male-dominated society laws and customs. Slow progress with modernization of the National Payments System (NPS), a new component introduced by Additional Financing in 2008, reflects the lengthy process of consensus- building among the public and private stakeholders after decades of mistrust, in absence of strategy for conduct of financial sector and monetary policy, in an environment dominated by use of foreign currency rather than local, and from a dead start as far as vision for financial integration across the country, as well as regionally, is concerned. The Project nevertheless produced a universally agreed, comprehensive design of long term strategy and detailed specifications of the technical hardware/software/physical facilities architecture for the NPS, all the more challenging to have it completed during a period of rapid technological change in the particular industry dominated by only two providers of the technology, Public Disclosure Copy though its implementation will be transferred to a new Bank operation which was approved during the Project, with this in mind. Finally, the Project created a long list of vital institutions which will provide continued sustainability of transformation for economic competitiveness and private sector led growth, including the executing agency, COPIREP, which will continue to serve as the main unit of government for leading economic reforms across the public enterprise sector, CPCAI as the Steering Committee for Improvement of Investment Climate, ANAPI as the national agency for investment promotion, CENACOM as the privately-run center for commercial arbitration, the National OHADA Commission, and others. EFFICIENCY The Project has been implemented during a period of changing political and economic governance of the country, starting with a fragile government at Project approval that held little control over the country and its decrepit economic institutions, then was reconstituted amidst post-election violence in 2007, followed by severe economic crisis with high inflation due to global financial crisis that collapsed the country’s export markets, which impacted on timeliness of implementation of many Project activities. Economic performance continued to Page 3 of 9 The World Bank Report No: ISR15264 be stunted by the country’s astronomic levels of indebtedness, both foreign and domestic, and by seizure of national assets, including those of SOEs, around the world by various “vulture funds” and other creditors, until debt relief was achieved through HIPC negotiations in 2010. Periods of policymaker inertia continued during the run up and immediately after the 2011 elections, as well as from October 2013 until June 2014, while the government continues to be officially in a state of resignation, awaiting reshuffle and new mandate. Public Disclosure Copy Despite these turbulent times and policymaker paralysis, the Project continued to grind out its reforms agenda, and achieving strong results, reflected in current relative macroeconomic stability and enviable pace of economic growth, one of the highest in the world since 2013 at 8.5% projected for 2014, compared with negative rates at outset of Project and average of 3-5% during most of the mid-to-late 2000s. Moreover, the Project also underwent major fiduciary reorganization, such as the transfer of government’s executing responsibility for the Project from BCECO to COPIREP, requiring the Project to provide sustained investment in COPIREP’s capacity and resources which today make it the pre-eminent reform leading institution in the country. The Project has completed over 895 service contracts and conventions; 206 contracts for goods; and 68 contracts for works, while maintaining fiduciary performance. The reforms supported by the Project required creation of new institutions (listed above and elsewhere) or rehabilitation of existing ones, eg Supreme Council of Magistrates, courts, etc. Over $40 million of the $70 million disbursed on SOE reform went for severance payments to retrenched workers. Finally, complaints from about 18,000 workers who lost their employment as result of some of the institutional reforms vital to economic recovery in the mining (Gecamines), telecoms (OCPT), and banking (three liquidated state-owned banks that had been non-performing for years) sectors precipitated additional mitigation measures (implementation of a Management Action Plan to address requests from the Inspection Panel) which diverted almost $10 million IDA allocation from the Project and prolonged its duration. Locations Country First Administrative Division Location Planned Actual Congo, Dem Rep Province du Katanga Province du Katanga Congo, Dem Rep Ville de Kinshasa Ville de Kinshasa Results Project Development Objective Indicators Indicator Name Core Unit of Measure Baseline Current End Target Increased FDIs in the mining, transport, Text Value US$200m annually Achieved. Over $3.3 billion in US$1bn annually energy, telecom and financial sectors. 2012 and rising. No 2013 data avail yet Date 02-Jul-2003 04-Jun-2014 31-Dec-2011 Public Disclosure Copy Comments Target largely achieved, except when hit by acute external shocks such as in 2009-10 Return on assets for targeted SOEs (SNEL, Text Value -21% Non-measurable due to lack 2% SNCC, RVA, OCPT, City Train, Gecamines, of data and continuing LAC) from -21% to 2% by end of project transformation of balance sheets Date 02-Jul-2003 04-Jun-2014 31-Dec-2011 Comments Page 4 of 9 The World Bank Report No: ISR15264 Increased net fiscal contribution from Text Value 0 Achieved. New report for US$10m annually. parastatals. 2012 shows $10.7 million, over 120% higher from 2011, and increasing Public Disclosure Copy Date 02-Jul-2003 04-Jun-2014 31-Dec-2011 Comments Total domestic credit to private sector increase Text Value 2006: 2.9% Achieved. 18.11% in 2012, 4.8% in 2011 to 4.8% of GDP by 2011 from 13.26% in 2011, and 9.47% in 2010 Date 31-Dec-2006 04-Jun-2014 31-Dec-2011 Comments Total savings (M3) in financial sector increase Text Value 2006: 6.3% Achieved. 33.92% in 2012, 10.4% in 2011 to 10.4% of GDP by 2011 from 26.84% in 2011 and 19.06% in 2010 Date 31-Dec-2006 04-Jun-2014 31-Dec-2011 Comments Intermediate Results Indicators Indicator Name Core Unit of Measure Baseline Current End Target ATI: Issuance of Insurance Contracts of Text Value 0 Achieved regularly. No 2013 Issuance of Insurance $10,000,000 by Y3 and $100,000,000 by Y6. data yet Contracts of $10,000,000. Date 16-Aug-2004 04-Jun-2014 31-Dec-2010 Comments Target achieved Legal gazette regularly published and available Text Value Legal gazette not regularly Achieved regularly Legal gazette regularly online published published and available online Date 31-Dec-2003 04-Jun-2014 31-Dec-2011 Comments Target achieved Number of days to create a company reduced Text Value 2006: 155 days Achieved. New one-stop shop 2011: 78 days by 50% between 2006 and 2011 implemented, claims 3 days, Public Disclosure Copy but won't have DB assessment till October 2014 Date 31-Dec-2006 04-Jun-2014 31-Dec-2011 Comments Target largely achieved, while Target largely achieved, with work continues on Single further improvement expected Window (one stop shop) that can process in 3 days Page 5 of 9 The World Bank Report No: ISR15264 By end 2010, the commercial courts in Text Value Commercial courts in Gombe Achieved. 2012 data says 430 50 judgments by end 2011 Kinshasa and Lubumbashi render an average and Matete (Kinshasa) and in judgments, vs 524 in 2011 of 50 judgments per year, and the new Lubumbashi are operational and 453 in 2010... commercial courts are operational Public Disclosure Copy Date 31-Dec-2007 04-Jun-2014 31-Dec-2011 Comments New courts have been added in 5 other cities OHADA Commission created within 6 months Text Value OHADA treaty not yet ratified Achieved OHADA Commission of OHADA ratification and operational within operational one year Date 31-Dec-2007 04-Jun-2014 31-Dec-2011 Comments National OHADA Commission was already inaugurated in April 2010. By end of project, the microfinance sector Text Value 100,000 (estimate) Achieved. 2012 report shows 300,000 reaches around 300,000 clients in DRC over 1 million clients Date 31-Dec-2007 04-Jun-2014 31-Dec-2011 Comments Commercial banks compliance with key Text Value Information not available Achieved All banks respect key prudential norms is satisfactory prudential ratios Date 31-Dec-2007 04-Jun-2014 31-Dec-2011 Comments FSAP will examine in detail in 2013. New privatization laws promulgated Text Value Laws not yet promulgated Achieved New privatization laws promulgated Date 31-Dec-2003 04-Jun-2014 31-Dec-2009 Comments Target met in 2008, and Done reinforced by decrees in 2009. All targeted SOEs have some private sector Text Value No private sector participation Achieved in 5 of 7 strategic All targeted SOEs have some involvement, either through PPP, management SOEs. Other sector projects private sector involvement, contract or other arrangement are supporting. either through PPP, management contract or other Public Disclosure Copy arrangement Date 31-Dec-2002 04-Jun-2014 31-Dec-2011 Comments By July 2010, a restructuring strategy Text Value No restructuring strategy for Achieved By July 2010, a restructuring acceptable to IDA for SNCC is approved by the SNCC strategy acceptable to IDA for Government (includes the identification and SNCC is approved by the implementation of the most suited divestiture Government (includes the method) identification and Page 6 of 9 The World Bank Report No: ISR15264 implementationof the most suited divestiture method) Date 31-Dec-2007 04-Jun-2014 31-Jul-2010 Public Disclosure Copy Comments Restructuring strategy Done approved by government in March 2010, to be supported by Multimodal Transport Project approved by Board on June 29, 2010, in tandem with this project. By July 2009, inventories of SNCC assets and Text Value No inventory available Achieved By July 2009, inventories of liabilities are completed. SNCC assets and liabilities are completed Date 31-Dec-2007 04-Jun-2014 31-Jul-2008 Comments Complicated by the unfinished liquidation of the predecessor company SNCZ. By April 2010, an agreement on the settlement Text Value No reliable financial Achieved By April 2010, an agreement of public debts of SNCC has been reached, information available on the settlement of public commercial debts are identified debts of SNCC has been reached, commercial debts are identified Date 31-Dec-2007 04-Jun-2014 30-Apr-2010 Comments 10,000 Gecamines workers retrenched Text Value Retrenchment plan not Achieved 10,000 Gecamines workers completed retrenched Date 31-Dec-2002 04-Jun-2014 31-Dec-2009 Comments Target met in 2004. Done By April 2010, the required retrenchment Text Value Initial retrenchment plan not Achieved By April 2010, the required program at SNCC has been completed. completed retrenchment program at SNCC has been completed. Public Disclosure Copy Date 31-Dec-2007 04-Jun-2014 30-Apr-2011 Comments Retrenchment program had to Depends on when the be reformulated as a purely Multimodal Transport Project retirement program, with a becomes effective, now new requirement for scheduled for April 2011 government co-financing of all salary arrears. Union agreement had to be renegotiated in April 2010. Now awaiting funding from Page 7 of 9 The World Bank Report No: ISR15264 the project, once its restructuring/reallocation is completed by April 2011. Public Disclosure Copy Data on Financial Performance (as of 13-Jun-2014) Financial Agreement(s) Key Dates Project Ln/Cr/Tf Status Approval Date Signing Date Effectiveness Date Original Closing Date Revised Closing Date P071144 IDA-38150 Effective 29-Jul-2003 11-Aug-2003 02-Dec-2003 31-Mar-2010 30-Jun-2014 P071144 IDA-3815A Closed 29-Jul-2003 11-Aug-2003 02-Dec-2003 01-May-2010 01-May-2010 P071144 IDA-H3660 Effective 22-Apr-2008 26-May-2008 22-Aug-2008 31-Dec-2012 30-Jun-2014 Disbursements (in Millions) Project Ln/Cr/Tf Status Currency Original Revised Cancelled Disbursed Undisbursed % Disbursed P071144 IDA-38150 Effective XDR 87.10 87.10 0.00 73.64 1.62 85.00 P071144 IDA-3815A Closed XDR 0.00 0.00 0.00 11.84 0.00 85.00 P071144 IDA-H3660 Effective XDR 37.50 37.50 0.00 32.29 5.21 86.00 Disbursement Graph Public Disclosure Copy Key Decisions Regarding Implementation 1. The $11 million that were committed for implementation of the National Payments System (NPS) and the Inspection Panel Management Action Plan (MAP), was the main Page 8 of 9 The World Bank Report No: ISR15264 rationale for project extension by one year. While all the funds were committed to these activities, due to delays in execution, about $8 million will be canceled and transferred to the new Bank financed project (Financial Infrastructure and Markets), which will take-over the implementation of the NPS. 2. The completion of the National Payments System and telecoms network infrastructure will be assumed by the new project (Financial Infrastructure and Markets), which was Public Disclosure Copy approved in March 2014. The NPS was a complex procurement case because there are only two vendors in the world who provide this technology, and it is normal practice for the loser to try challenge the award to the winner, for multitude of reasons. In this case, the Bank’s Regional Procurement Manager's office is reviewing the procurement process. 3. The benefits of free health care extended to the ex-workers of Gecamines were expanded to include a number of medical needs generally faced by the older population. Implementation has been affected by the complex logistics, isolated security concerns, continuous improvement efforts to mitigate unevenly provided services and omissions, and by supplemental financial and technical audits commissioned by the Steering Committee for Reform of State Portfolio (COPIREP) to ensure due diligence and integrity of the process. Restructuring History Level two Approved on 28-Dec-2012, Level 2 RVP Decision on 28-Jun-2013 Related Projects P090872-Additional Financing for Private Sector Development and Competitiveness Project Public Disclosure Copy Page 9 of 9