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2 Project Information Document (PID) Report No: AB787 Not Sent to InfoShop Yet Country Project Name Region Nigeria Civil Service Renewal Africa Regional Office Sector Public Sector (100%) Theme Civil Service Reform and Capacity Building Project ID Number P Borrower(s) Federal Government of Nigeria Implementing Agency Ministry of Finance Finance Headquarters Central Area, Abuja Federal Capital Territory Telephone: (234) Contact Person: Dr. Ngozi Okonjo Iweala, Minister of Finance Environment Category C (Not Required) Date PID Prepared February 9, 2004 Auth Appr/Negs Dates May 5-20, 2004 Bank Approval Date June 22, Country and Sector Background With a GDP of about $40 billion, Nigeria is Africa s second largest economy. However, close to 70 percent of the population lives below the poverty line with an estimated per capita income of about $290. The country is characterized by a dual-economy: a middle-income oil-producing economy, of perhaps five million people, with per capita income of about US$2,200, and a low-income non-oil producing economy of about 125 million people with a per capita GDP of about $220 per capita. Nigeria is ranked 152 out of 175 countries on the UNDP s Human Development Index. The fundamental cause of poverty in Nigeria is the economic stagnation that the country has experienced for almost two decades. While best estimates suggest that economic growth has picked up between 2000 and 2003, averaging about 4.1 percent annually, substantial poverty reduction would require annual growth of at least five percent in agriculture and eight to ten percent in the non-agricultural economy (excluding government and the oil and gas sectors). Since assuming office for a second term in June 2003, President Obasanjo has launched an ambitious economic reform program aimed at laying the foundations for economic growth, employment creation and poverty reduction. Key components of the program (National Economic Empowerment and Development Strategy NEEDS) include: (i) promoting macroeconomic stability; (ii) accelerating privatization and liberalization of the economy; (iii) reforming the public service, including reforming public expenditure, budget and civil service; (iv) fighting corruption, improving government transparency and accountability; and (v) strengthening basic service delivery. Already, important early measures have been the deregulation of the downstream petroleum sector and committing Nigeria to the Extractive Industries Transparency Initiative (EITI). The Government has

3 - 3 - reinvigorated its anti-corruption efforts through the establishment of the Economic and Financial Crimes Commission (EFCC) which has had impressive early successes. It is taking several actions to strengthen macroeconomic performance, including preparing a Fiscal Responsibility Bill and limiting recourse to monetary financing of the government deficit. A key constraint to effective economic management and social service delivery remains the performance of the public service, which has become bloated, de-skilled and unable to perform well either the key regulatory functions of government, supply classic public goods such as law and order, and deliver key social services. Building on diagnostics started during the first term, the Government has announced a Public Service Reform Program (PSRP), the goals of which are now being translated into an action plan. The PSRP is recognized as fundamental to the success of the larger reform effort. The Government is beginning implementation of the PSRP in a few pilot Ministries: the Ministry of Finance, the National Planning Commission; the State House, and the Ministry of the Federal Capital Territory 2. Objectives The project will support the roll-out of reforms to modernize and strengthen capacity in the pilot agencies in line with the Government s PSRP. The objectives are to: (i) ensure that the process of civil service renewal is firmly launched; (ii) capitalize on the strong climate for overall change and build a reform momentum, as work conditions improve in the pilot ministries and agencies and staff see the benefits of better training and equipment; (iii) strengthen government payroll controls and lay the foundations for a second phase of reforms, which are civil service-wide; and (iv) build capacity in the three central management agencies, to equip them to take the National Economic Empowerment and Development Strategy (NEEDS) program forward, and to manage more effectively the machinery of government. 3. Rationale for Bank's Involvement Bank involvement will help the Federal Government fund much needed technical assistance for more detailed reform design and implementation. Aside from political factors, extremely weak technical capacity is a key constraint to the government s ability to move quickly and effectively on the reform agenda. It will also help relieve pressure on domestic resources 1 by funding the costs of separation packages in those pilot agencies where there is a pressing need for rightsizing. It will bring in lessons from global experience and catalyze the support of other donors for Nigeria s ambitious reform agenda. 4. Description The proposed operation will have three broad components: First, support for a minimum set of system wide reforms, currently being developed by the Office of the Head of Civil Service of the Federation (OHCSF), and which are critical for success of the pilot reforms and for launching the broader civil service reforms. Second, support to the implementation of reforms in the pilot ministries and agencies, which are likely to include downsizing and thus need to finance severance payments. Third, support to the full take off of the activities of the Economic and Financial Crimes Commission (EFCC), one of the Government s leading anti-corruption agency. (i) Critical Civil Service Wide System Reforms 1 Government is already incurring considerable upfront costs of other reforms e.g. the move to a contributory pensions system and monetization of public sector benefits

4 - 4 - This component will support implementation of a first minimum set of system wide reforms to launch the civil service reforms and which are also a sine qua non for the success of the more extensive reforms in the targeted agencies. While many of the management systems of the public service are essentially sound, they have fallen into decay and need to be rebuilt and modernized. A critical area is establishment and payroll control. Considerable effort has gone into efforts in the past three years to audit payrolls and verify staff strength in the ministries and extra-ministerial departments. It is not clear that this has been fully successful. This component will assess the status of this work, and support implementation of the additional work needed to bring this work to a successful conclusion. It will also support incorporation of the findings into designing and implementing a more effective computerized system of personnel control and records management. Current systems of personnel management are highly centralized and constrained by rules and processes, which inhibit performance. There is a need to review the existing practices, such as the way in which recruitment is done, promotions are made, performance is managed, staff are posted and deployed across different agencies, and the way in which the cadre system is operated, to determine what adjustments are needed. The mandates of the Federal Civil Service Commission and the Federal Character Commission, both constitutional bodies, will also need to be reviewed and appropriate changes made consistent with the thrust of the civil service reforms. It will support any needed legislative changes in these areas. Finally, this component will support the completion of the Government s PSRP into a detailed and time bound Action Plan, drawing the early lessons from the implementation of this first phase of reforms and also ensuring better integration of other ongoing public service related reforms e.g. pension reforms and monetization of public service benefits. It will also support collection of critical data needed for the second phase of reform. This support will include financing of consultancy and diagnostic studies, computer hardware and software, and related system implementation costs, estimated at about $5 million. (ii) Reforms in Pilot Agencies: The operation will support reform in the selected pilot ministries. Federal Ministry of Finance, National Planning Commission (NPC), State House/Office of the President and the Ministry of the Federal Capital Territory. There are several reasons, additional to their leadership, for the selection of these ministries as pilots. The first three are core central management agencies of government, whose better functioning is essential to the success of the government s overall reform objectives. Both the Ministry of Finance and the NPC were seriously weakened during the period of military rule, lost relevance and rendered unable to effectively discharge their roles. Restoring a strong Finance Ministry is vital both for economy wide management and for leading the process of budget, financial management and broader fiscal policy reform, which is a key element of the public sector reform agenda. Given government s decision to move away from the current dual budget system towards a more integrated budget, the need for a NPC carrying out classic planning agency functions diminishes. A new role needs to be defined for NPC, which focus on leading the articulation of the government's broad development strategy and agenda. State House/Office of the President is the apex of government and, inter alia, it is responsible for the running of the federal cabinet, and ensuring the political coherence of policymaking. Reform here is one way in which the President can demonstrate personal commitment to reform, and send a strong leadership example to the rest of government.

5 - 5 - The Ministry of the Federal Capital Territory (MFCT) typifies a large service delivery ministry, in this case, the running of the Federal Capital area, including the provision of roads, sewerage, water supply and social services to inhabitants of the capital territory. It is currently the largest in the Federal Government and epitomizes the loss of control over staff numbers and the extent to which management control processes in Federal Government agencies have decayed into inefficiency and rent-seeking. Indeed, MFCT is notorious for corruption, especially in the areas of land registration and infrastructure contracting. The inclusion of MFCT in the project therefore reflects the fact that it is the first of a number of large service delivery ministries to undergo serious reform. Its roles and responsibilities are unlikely to change. Including MFCT in the project provides an opportunity to test different approaches to downsizing. Some of the excess staff are locally hired and can be dismissed without incurring costly severance payments. Others are career civil servants who can be terminated only at high cost to the government. For this reason the project includes severance payment financing, though when the FGN moves beyond the pilot stage of public service reform, it must budget for an increasing share of these costs from its own resources. The project could also be used to pilot innovative public/private partnerships in the delivery of basic infrastructure and social services, and also explore ways to empower citizens as customers to demand more responsive services. As already noted, reform of the MFCT has already begun with the identification and elimination of 3,000 ghost workers. Inclusion of the MFCT in the project would align Bank resources alongside DFID s behind a strongly led reform effort. Reforms in these agencies include the following components: Institutional reorganization and restructuring. The operation will support a review of governmental mandates and functions, organizational structures, processes and systems, and staffing levels and skills. This will form the basis for design and implementation of needed re-organization, restructuring and process changes to ensure that new mandates can be better achieved. This will also involve right-sizing including getting the right skills mix, the right number and the right distribution of staff across the different grades of service. Preliminary work shows that in most ministries, staffing structure is bottom heavy, with more staff than needed in the lower cadres while staffing at professional cadres is thin. The total cost of this component would be about $52 million, comprising financing for re-organization and restructuring including payment of severance where some staff are to be let go. Modernization and upgrading of work systems and processes: This component will support improvement of work systems and processes in the targeted agencies. In particular, government will seek to cut red tape and unnecessary bureaucracy in its processes and undertake substantial upgrading of IT and office technology and systems. It will also invest in the creation of local area networks where needed. It will define minimum standards for the key services delivered by these agencies. These will be widely publicized and consumers encouraged to demand that these standards are met. A framework for regular monitoring of performance against these standards will also be implemented with results published regularly. Key expenditure categories include purchase of computer software and hardware. Cost of this component is estimated at around $8 million Rebuilding Staff Technical Capacity: For the targeted ministries, government plans to outline and begin implementation of detailed capacity building strategy and action plan. This will involve developing and implementing an explicit training policy, including improvement in mechanisms to deliver training. Training will be made more regular and relevant, designed and delivered in a way that is effective in

6 - 6 - building capacity and also sustainable over the medium and longer term. The operation will support collaboration with local training institutes to design training programs and materials that fit the needs of the agencies, drawing on broad basic principles and international experience. This approach will allow much larger numbers of staff to receive needed training regularly. Training needs assessment will be undertaken in each of the pilot ministries, and the results compared and training strategies developed. On the basis of these strategies, the project will support the development of a new government training policy that will ensure relevant and regular training for the staff of all ministries, departments and agencies, which undergo organizational reform. Training will be more frequent, shorter duration, and driven by functional demands rather than accreditation or as a perk for long service. In turn, training will be integrated into the APERs (annual performance reviews) of individual staff, and performance will be assessed against training received. The project will finance consultants to undertake an overall stocktaking of public and private sector training institutions in the country to evaluate their capacity to deliver relevant training. A second element will fund availability of technical capacity in the short term through selected recruitment of skills from outside of the federal civil service for stints of about 2-3 years. This could be done by building build on an existing draft document to design and begin implementation of a focused and meaningful staff exchange program with appropriate private sector entities that could facilitate access to much needed skills while public sector capacity is being built over time. Total cost of this component is estimated at about $6 million (iii) Support to the Economic and Financial Crimes Commission. Financial and other economic crimes have taken a heavy toll on the Nigerian economy. The EFCC which begun operations in April 2003 has been given the responsibility of enforcing all laws relating to financial and economic crimes in Nigeria. Since its inception the EFCC has moved swiftly and effectively to investigate and begin prosecution of several cases of economic and financial crime in Nigeria. It has taken on cases against prominent and influential Nigerians, including some members of the House of Assembly. The EFCC needs considerable support to set itself up and to ensure that these initial successes will be sustained. The government has requested specifically that the EFCC be supported in the various areas of capacity building including: (i) staff training including the setting up of a training center; (ii) upgrading of IT capability; and (iii) effective communication and publicity campaign against economic and financial crimes. This component of the proposed operation is estimated to cost about $ 4 million 5. Financing Source IDA 45.0 DIFD 25.0 FGN 5.0 Total 75.0 Amount in US$ million

7 Implementation The project will be implemented in three years, August 2004 August 2007 with the normal six month project winding-down period from July 2007-December The detailed institutional and implementation arrangements for the Project are yet to be determined. However, while the primary responsibility for Project implementation will rest with the Federal Ministry of Finances, it is expected that each agency involved will be responsible for planning, carrying out and monitoring activities that fall under its mandate. 7. Sustainability The sustainability of reforms in pilot ministries and their spread later to other ministries could be at risk if there is failure to agree new service-wide rules for the management of the civil service. What is at stake is how the civil service is to be operated in future, indeed, what sort of Federal civil service the country should have. Failure to agree on new rules, roles and responsibilities could cause reform in the pilot ministries to stall, and revert back to past practices. The way to mitigate this risk is to begin the process of agreeing service wide rule reform early, maintain consistency, and ensure continued high level political support. Labour unrest consequent upon announcement of rightsizing programs (particularly in FCT) could stymie reforms. The expectation is that this risk can be mitigated by the design of equitable and lawful separation programs (the existing rules call for compensation generally of a month s pay for every year of service), and the provision of severance pay under the project, together with a change management strategy which transparently explains the options available to staff. 8. Lessons learned from past operations in the country/sector Past efforts to reform the public service in Nigeria have mostly failed, either because reform was more rhetoric than substance, or because implementation was diverted by conflict or choked by bureaucratic delay. The aim is to demonstrate effective reform in a more limited number of mandates, thereby creating a demand for broadening the reforms to other ministries and agencies. If successful, a constituency for reform would be built among civil servants in the pilot ministries benefiting from improved working conditions, access to training and, possibly better pay for key cadres. 9. Environment Aspects (including any public consultation) Environmental Category: C 10. List of factual technical documents: To be developed

8 Contact Point: Task Managers: Victoria Kwakwa and Manga Kuoh The World Bank Country Office Abuja, Nigeria Telephone(234-9) thru75 Fax (234-9) For information on other project related documents contact: The InfoShop The World Bank 1818 H Street, NW Washington, D.C Telephone: (202) Fax: (202) Web: Note: This is information on an evolving project. Certain components may not be necessarily included in the final project.