The World Bank Djibouti: Governance for Private Sector Development and Finance Project (P146250)

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1 Public Disclosure Authorized Public Disclosure Authorized The World Bank RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF THE GOVERNANCE FOR PRIVATE SECTOR DEVELOPMENT AND FINANCE PROJECT APPROVED ON JUNE 23, 2014 TO THE REPUBLIC OF DJIBOUTI REPORT NO.: RES31734 Public Disclosure Authorized June 21, 2018 Public Disclosure Authorized FINANCE, COMPETITIVENESS AND INNOVATION MIDDLE EAST AND NORTH AFRICA Regional Vice President: Country Director: Senior Global Practice Director: Practice Manager/Manager: Task Team Leader: Hafez M. H. Ghanem Asad Alam Ceyla Pazarbasioglu-Dutz Jean Pesme Amadou Dem, Roya Vakil

2 ABBREVIATIONS AND ACRONYMS ACH Automated Clearing House AF Additional Financing ANPI National Agency for Investment Promotion (Agence Nationale de Promotion des Investissements) ANSIE National Agency for the Government Information Systems (Agence Nationale des Systèmes d Information de l Etat) ATS Automated Transfer System CBD Central Bank of Djibouti CDED Economic Development Council of Djibouti (Conseil de Développement Economique de Djibouti) DA Designated Account DATUH Urban Planning and Housing Directorate (Direction de l Aménagement du Territoire, de l Urbanisme et de l Habitat) DD Land and Property Rights Directorate (Direction des Domaines) FM Financial Management FO Financial Officer FSAP Financial Sector Assessment Program G2P Government Payments GRS Grievance Redress Service HR Human Resources IFR Interim Financial Report IPF Investment Project Financing IT Information Technology M&E Monitoring and Evaluation MoF Ministry of Economy and Finance, in charge of Industry NPS National Payment System ODPIC Office of Intellectual and Commercial Property (Office Djiboutienne de la Propriété Intellectuelle et Commerciale) OSS Operational Self-Sufficiency PDO Project Development Objective PFS Project Financial Statement PIE Project Implementing Entity PIU Project Implementation Unit POM Project Operation Manual RF Results Framework RTGS Real Time Gross Settlement SC Steering Committee SMEs Small and Medium Enterprises SOE Statement of Expenditure T&C Trade and Competitiveness

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4 Note to Task Teams: The following sections are system generated and can only be edited online in the Portal. BASIC DATA Product Information Project ID P Original EA Category Not Required (C) Approval Date 23-Jun-2014 Financing Instrument Investment Project Financing Current EA Category Not Required (C) Current Closing Date 31-Dec-2020 Organizations Borrower Min of Finance,Agence National de Promotion des Investissements (ANPI) Responsible Agency ANPI Project Development Objective (PDO) Original PDO The Project Development Objective is to help improve Djibouti's business environment. Current PDO To improve the efficiency of business regulation and establish an automated National Payment System. Summary Status of Financing Ln/Cr/Tf Approval Signing Effectiveness Closing Net Commitment Disbursed Undisbursed IDA Dec Dec Jun Dec IDA Jun Nov Mar Dec

5 Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No Note to Task Teams: End of system generated content, document is editable from here. I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING This restructuring proposes to revise the project s: (i) PDO indicators and Intermediate Indicators; and (ii) disbursement estimates. The project Development Objective and Implementation Progress are rated moderately satisfactory in the April 2018 ISR. As of June 21, 2018, overall disbursement is 35.9 percent. The project is contributing to the improvement of the business environment by providing technical assistance to prepare or amend and adopt major laws relevant for an improved business environment, and potential positive impact on the Doing Business indicators. These include several laws adopted in April 2018 by the parliament: (i) amendment of the Commercial code to strengthen the legal framework for secured transactions, protection of minority investors, and resolving insolvency; (ii) a law for the Office of Intellectual and Commercial Property to reduce the cost of registering a business; (iii) a new Civil Code; (iv) a new code of civil procedures strengthening contract enforcement and protection of minority investors; (v) a law amending the tax code to reduce costs to create a business and register a property; and (vi) a law amending the land management code in order to improve the quality of land administration. Ensuring effective implementation of these laws is now critical and the project is continuing to provide support for further improvement as needed. The adoption of these new laws is expected to help consolidate past investment climate reforms, and recent progress in the Doing Business (DB) Indicators. Djibouti was considered as one of the ten top reformers in the 2018 DB report. The country ranking had improved from 171 th in the 2017 DB report to 154 th in the 2018 DB report. Reform momentum accelerated subsequent to a Government workshop held in December 2016 with support from the World Bank. Several reforms were then adopted for five DB indicators: (i) the cost of starting a Business was reduced by exempting new companies from professional licensing fees and reducing the cost of registering a business and publishing the legal Ad; (ii) obtaining a construction permit was improved by reducing the cost of concrete inspections and implementing decennial liability for all professionals involved in construction projects; (iii) registering property was enhanced by improving the transparency of the land administration system; (iv) Getting credit was improved with the adoption of a new law creating a new credit information system; and (v) protection of minority investors was strengthened by requiring better disclosure of transactions with stakeholders, strengthening appeals against interested directors, broadening access to pre-trial corporate information, increasing shareholder rights and role in the company s decisions. Project coordination is also improving. The Project Implementing Unit (PIU) the Agence Nationale de Promotion des Investissements (ANPI) under the Investment Promotion unit, is more proactive and benefits from the support of a World Bank local consultant in project management and monitoring. Weekly meetings are organized to follow up on activities of the action plan prepared during project implementation support missions. The PIU is working more effectively with other stakeholders and has improved communications around the investment climate reform agenda with the recruitment of a communications consultant. As part of the strengthening of IT systems of the relevant administrations (single window for business creation, commercial chamber, Office of Intellectual and Commercial Property, the Urban Planning and Housing Directorate, the Land and Property Rights Directorate), the PIU is working more closely with the National Agency for Government Information Systems which is playing a greater role to supervise consultants and IT related services financed by the project.

6 The Government has made notable progress towards the establishment of the National Payment System (NPS) including the onboarding of a technical assistant, stakeholder consultations with various public and private entities, and the creation of a designated NPS unit within the Central Bank (with the appointment of a Head of Unit). The procurement processes for key hardware and software for the system are underway: the call for proposal for the Automated Transfer System (ATS+) was issued on April 12, and the calls for proposal for (i) the rehabilitation of the Agence Nationale des Systèmes d Information de l Etat (ANSIE) data center room and the CBD server room, and (ii) the software for the interbank network was launched in June Award of these contracts will accelerate disbursements. The CBD team is working closely with the technical assistant and the procurement officer of the PIU to efficiently write and manage the calls for proposals. Financial management is moderately satisfactory. A financial officer is handling the fiduciary aspects of the project with the overall supervision of the director of ANPI. The financial reports are being delivered on time and are acceptable. The last audit report for fiscal year 2016 has been submitted on time and found acceptable. Procurement is moderately unsatisfactory. The midterm review recommended the PIU to (i) improve the filing of documents and (ii) improve the quality of procurement packages and expedite the contract award process for contracts remaining in the project implementation period. This will contribute to accelerating disbursements. The Bank procurement specialist will continue to provide support to strengthen the capacity of the PIU. Rationale for restructuring The proposed level 2 restructuring is required to revise the results framework and the disbursement estimates. The restructuring was discussed during a workshop with stakeholders organized during the project midterm review held in March The discussions highlighted the need to improve project implementation with a greater involvement and accountability of the main stakeholders. In that sense, the Ministry of Justice, the Office of Intellectual and Commercial Property (ODPIC), the Urban Planning and Housing Directorate (DATUH), and the Land and Property Rights Directorate (DD) will each have a clear action plan and estimated budget for each activity the project will finance. Their action plan will be validated by the project steering committee. These entities will be responsible for monitoring the timely implementation of their action plan. They will organize monthly meetings with the PCU and the Bank team and adopt corrective measures when required. They will report progress and any impediment to the implementation of their action plan to the project steering committee. In addition, the discussions stressed the need to: (i) take into account duplication of indicators which can result in doublecounting; (ii), capture project outcomes not previously foreseen in the initial design of the results framework due to additional reforms in the DB environment ; (ii) reword some intermediate indicators for more precision; and (iii) better highlight the role ANSIE is playing in the implementation of IT solutions aimed at improving the effectiveness of the entities supported by the project. Based on an agreement with ANPI, and in order to optimize the relatively limited resources of the project, IT solutions and software development will be fully delegated to ANSIE. ANSIE will indeed be responsible for supervising the implementation of activities including: (i) improvement of the IT system for business creation in the ANPI s single window; (ii) integration of the entities involved in registering property; (iii) integration of the entities involved in the issuance of construction permit; and (iv) improving the commercial justice case flow management. As the Government agency responsible for coordinating and strengthening the information systems in the public sector, ANSIE is expected to manage the servers (of the government entities involved) which could be centralized on its premises. If necessary, ICT consultants will be recruited under ANSIE supervision to provide the required technical assistance. ANSIE will be in charge of technical specifications, procurement and ensuring quality service delivery with involvement of ANPI and other relevant stakeholders. Contract signing and payments will remain under the responsibility of the ANPI.

7 The disbursement estimates need to be revised to take into account the delay in the procurement of the payment system which represents about 50 percent of the project total cost. The PDO remains achievable and the performance of the PIU, as mentioned above, is satisfactory and continues to improve. There are no outstanding audit or accountability issues. II. DESCRIPTION OF PROPOSED CHANGES The result framework will be revised as follows: (i) The number of PDO level indicators will be reduced from four to three with the deletion of the indicator Financial institutions connected to the Automated Transfer System (ATS). This indicator is not necessary since another PDO indicator, Transactions processed through the Automated Transfer System (ATS), is more meaningful given that it implies financial institutions are connected while it can better capture the final outcome. (ii) The intermediate indicators will be revised to: - Remove Average settlement time for checks due to key aspects of the establishment of the NPS already captured by other intermediate indicators. - Reword the indicator related to capacity building of the magistrates from Magistrates trained, which demonstrate improved knowledge to Magistrates trained in resolution of commercial disputes, an indicator which reflects more precisely the project focus on commercial justice which can be measured; - Add a new indicator, Adoption of legal and regulatory texts (new or revised) taken into account by the Doing Business report, to take into account new laws that are expected to have an impact on the Doing Business indicators. This indicator will complete the two time and motion DB indicators (average number of days to create a business, and average number of days to register a property).

8 (iii) Disbursement. With the revised estimates, disbursement increased from US$1.6 million to US$2.6 million between fiscal year 2018 and fiscal year 2019, and from US$2.1 million to US$2.5 million from FY2019 and FY2020. With these revised estimates, the disbursement ratio is expected to increase from 35 percent to 62 percent between the two years and reach 100% by project closing. Note to Task Teams: The following sections are system generated and can only be edited online in the Portal. III. SUMMARY OF CHANGES Changed Change in Results Framework Not Changed Change in Disbursement Estimates Change in Implementing Agency Change in DDO Status Change in Project's Development Objectives Change in Components and Cost Change in Loan Closing Date(s) Cancellations Proposed Reallocation between Disbursement Categories Change in Disbursements Arrangements Change in Overall Risk Rating

9 PDO_IND_TABLE The World Bank Change in Safeguard Policies Triggered Change of EA category Change in Legal Covenants Change in Institutional Arrangements Change in Financial Management Change in Procurement Change in Implementation Schedule Other Change(s) Change in Economic and Financial Analysis Change in Technical Analysis Change in Social Analysis Change in Environmental Analysis IV. DETAILED CHANGE(S) OPS_DETAILEDCHANGES_RESULTS_TABLE RESULTS FRAMEWORK Project Development Objective Indicators Transactions processed through the Automated Transfer System (ATS) Unit of Measure: Percentage Value No Change Date 01-Sep Mar Dec-2020 Avg. no of days to create a business Unit of Measure: Days Value No Change Avg. no of days to register a property Unit of Measure: Days

10 Value No Change Financial institutions connected to the Automated Transfer System (ATS) Unit of Measure: Number Value Marked for Deletion Date 28-Sep Mar Dec-2020 Intermediate Indicators IO_IND_TABLE Adoption of legal and regulatory texts (new or revised) taken into account by the Doing Business report Unit of Measure: Number Value New Date 15-Jan Mar Dec-2020 Enterprises registered per year Unit of Measure: Number Value No Change Of which led by women Unit of Measure: Number Breakdown Value No Change

11 Users satisfied with the functioning of the One Stop Shop Unit of Measure: Percentage Value No Change Date 28-Sep Mar Dec-2020 Property titles digitized Unit of Measure: Percentage Value Revised Commercial Chamber Decisions Published on the Website Unit of Measure: Percentage Value No Change Magistrates trained in resolution of commercial disputes Unit of Measure: Percentage Value Revised Average Settlement time for credit transfers Unit of Measure: Days Value No Change Date 28-Sep Mar Dec-2020 Average settlement time for checks

12 Unit of Measure: Days Supplement Value Marked for Deletion Establishment of primary data center for the national payment system Unit of Measure: Yes/No Value No No Yes No Change Date 28-Sep Mar Dec-2020 OPS_DETAILEDCHANGES_DISBURSEMENT_TABLE DISBURSEMENT ESTIMATES Change in Disbursement Estimates Yes Year Current Proposed , , , , ,003, , ,972, , ,600, ,600, ,100, ,500, Note to Task Teams: End of system generated content, document is editable from here.