Type of Review: Annual Review Project Title:Private Sector Development analysis programme in the Democratic Republic of Congo inception phase Date started: April 2012 Date review undertaken: June 2013 Instructions to help complete this template: Before commencing the annual review you should have to hand: the Business Case or earlier project documentation. the Logframe the detailed guidance (How to Note)- Reviewing and Scoring Projects the most recent annual review (where appropriate) and other related monitoring reports key data from ARIES, including the risk rating the separate project scoring calculation sheet (pending access to ARIES) You should assess and rate the individual outputs using the following rating scale and description. ARIES and the separate project scoring calculation sheet willcalculate the overall output score taking account of the weightings and individual outputs scores: Description Outputs substantially exceeded expectation Outputs moderately exceeded expectation Outputs met expectation Outputs moderately did not meet expectation Outputs substantially did not meetexpectation Scale A++ A+ A B C Introduction and Context What support is the UK providing? The UK is providing £2.5million between 2012 and 2013 to commission the analysis necessary to underpin a Private Sector Development (PSD) programme in the Democratic Republic of Congo (DRC). What are the expected results? 1 The intended impact of the PSD inception phase is the design of a systemic, context-specific PSD programme which strategically targets key constraints in order to empower the private sector to be an engine of growth, job creation and poverty alleviation in DRC. The inception phase will: Provide benchmarking data necessary to monitor and evaluate the results of our PSD programme Diagnose the key constraints to private sector development in DRC Build relationships with key stakeholders in the private sector, the Government of DRC and other donors. Design interventions in collaboration with these stakeholders to address the key constraints to private sector development in DRC. In so doing it will facilitate a subsequent PSD programme in DRC. The Business Case for this will be submitted to the Secretary of State for approval in October 2013. At the outcome level, the inception phase will generate a robust evidence and analysis base on private sector development in DRC. At the output level, evidence and analysis sufficient to inform the PSD implementation phase Business Case will be gathered around three pillars; business environment reform, meso level reform and market sector development. By the point of this first Annual Review, milestones were for sufficient evidence to have been gathered to inform the Strategic Case element of the Business Case, including an opening portfolio of interventions. Finally, the inception phase will produce valuable information of use to the Government of DRC, other donors, researchers, civil society, the private sector and potential investors. What is the context in which UK support is provided? Decades of economic mismanagement and war have exacted a heavy toll on the economy of the Democratic Republic of Congo (DRC). Despite average growth rates of 5.7% since 2005, official GDP per capita is still the lowest in the world ($311) – less than half of its 1980 value in constant terms. Around 59% of the population live on less than $1.25 per day. As emphasised by the World Development Report 2011, recovery of the private sector in fragile and conflict affected states is vital for job creation, poverty alleviation and stability. In line with this, DFID DRC has committed to deliver a “significantly enhanced drive towards wealth creation and economic growth” in its Country Operational Plan (COP). Through interventions on roads and the mining sector, DFID DRC is already addressing some of the constraints to private sector development (PSD) in DRC. However, much more needs to be done. Evidence of the need for PSD in DRC is overwhelming. Lacklustre donor support in this area suggests a role for DFID, particularly given DFID’s institutional knowledge and experience of PSD. However, designing an effective, low carbon, climate resilient PSD programme requires significant evidence, analysis and benchmarking data. This inception programme will develop this evidence and analysis base to underpin the design of DFID DRC’s PSD programme.Since the approval of the PSD Inception Phase Business Case in April 2012, there has been one main context change to note. In mid2012, DRC acceded to OHADA (the Organisation for the Harmonisation of Business Law in Africa), a system of harmonised business laws and institutions adopted by 17 Francophone African countries to improve legal certainty for businesses and promote both foreign and domestic investment.OHADA dramatically updates commercial, accountancy and arbitration laws in DRC, supplanting archaic laws 2 dating back to the 19th century. The associated potential benefits are enormous. As such, under the business environment reform pillar, DFID has incorporated a focus on OHADA implementation. Section A: Detailed Output Scoring Output 1: Evidence and analysis on business environment reform Output 1 score and performance description: A + (outputs moderately exceeded expectation) Progress againstexpected results: Expected results by July2013 Annual Reviewwere: Sufficient evidence and data gathered to inform the business environment reform aspects of the PSD strategic case, including an opening portfolio of interventions. Enterprise Survey underway Doing Business Memorandum underway Legal review of impediments to female participation in business underway Progress against those results: Sufficient evidence and data has been gathered to successfully inform the relevant sections of the PSD strategic case, and propose an opening portfolio of interventions. The World Bank activity on the Enterprise Survey, Doing Business Memorandum and Legal Review of Impediments to Female Participation in Business are well underway. Final products have not yet been produced as a result of unanticipated delays on the World Bank side, stemming from: World Bank senior management taking longer than expected to approve the original Externally Financed Output agreement and subsequent outputs; embargoes on dissemination of these outputs to DFID (even in draft form) in advance of formal approval; and, staff changes including the Task Team Leader moving to Mauritius without being replaced.It would have been preferable to have finished products at an earlier stage, to add greater weight of evidence to the Strategic Case, but this has not affected the production of the Business Case. Additional, unanticipated, activity has taken place under the business environment reform output as a result of DRC’s accession to OHADA. DRC’s accession to OHADA was unanticipated at the time of Business Case approval, however at the stage of this Annual Review not only have we gathered sufficient evidence on this aspect to inform the Strategic Case, but we are also well advanced with progress on the full intervention plan for the business environment reform pillar as draft terms of reference for OHADA implementation have already been completed. In addition, under the business environment reform element, there have been some non-quantifiable results not anticipated in the logframe. The PSD inception phase has allowed us to build relationships with key stakeholders and positioned DFID DRC as a trusted partner on business environment reform. We have been working closely with the Prime Minister, Minister of Justice and others to design the OHADA implementation programme, and, along with the FCO, working with the Prime Minister’s office in support of the anti-corruption pact. This puts us in a strong position for taking the PSD programme through to the implementation phase. Recommendations: DFID should work closely with the World Bank to ensure agreed outputs do not slip any further, and are received in time to helpfully inform the full PSD Implementation Phase Business Case. 3 Impact Weighting (%):33% Revised since last Annual Review?N Risk: Medium Revised since last Annual Review?Y At the start of the inception phase, this output was judged to be high risk given how dependent its success was on high-level political will. This has been lowered to medium risk as we are making significant progress on OHADA and there has been continued strong political will. Output 2: Evidence and analysis on meso-level reform Output 2 score and performance description: A (Outputs met expectation) Progress against expected results: Expected 2012/13 results were: Sufficient evidence and data gathered to inform themeso-level finance/trade reform aspects of the PSD strategic case, including an opening portfolio of interventions. Progress against those results: Progress on gathering data and establishing entry points on trade reform has been slower than expected due to lacklustre donor and Government of DRC activity in this area, difficulties Trade Mark East Africa and Trade Mark Southern Africa have experienced in extending their activities into DRC, and the enormity of the challenge given the chaotic state of trade policy and implementation in DRC. With respect to finance, progress on commissioning studies has stalled due to the slow progress of preparatory work by other donors and potential implementing partners – driven in part by the difficulty they have experienced in finding a competent statistics partner within the Government. However, the inception phase has allowed us to conduct our own desk-based review of existing evidence, hold informal interviews with banks, and develop a close relationship with the Fund for Inclusive Finance in DRC (FPM). All of this has informed the meso-level reform pillar of the Strategic Case, and has allowed us to begin developing an opening portfolio intervention related to investing in the FPM to allow it to provide financial institutions with technical assistance to support MSME-lending in tandem with funding for on-lending to the private sector. Recommendations: In advance of the full Business Case submission it will be important to create a coherent intervention plan for FPM activity, including how the fund will be managed. In continuing activities into the implementation phase, activities of other donors on access to finance should be monitored, with a view to responding to further intervention opportunities as they arise. Entry points to promote trade reform should continue to be explored during both the inception and implementation phases. Impact Weighting (%): 33% Revised since last Annual Review?N 4 Risk: Medium Revised since last Annual Review?N Output 3: Evidence and analysis on market development Output 3 score and performance description: A (outputs met expectation) Progress against expected results: Expected 2012/13 results were: Sufficient evidence and data gathered to inform the market development aspects of the PSD strategic case, including an opening portfolio of interventions. Progress against those results: The work completed by Adam Smith International (ASI) so far has provided sufficient evidence and data needed to complete the market sector development elements of the PSD Implementation Phase Business Case. As a result of contracting delays, ASI did not arrive in country until the end of February 2013, 4 months later than expected. As such, it was necessary to revise the initial output schedule, with monthly outputs originally listed against a 12 month schedule condensed to fit an 8 month schedule. To date, ASI’s work has progressed well, with an inception report and design phase work plan submitted to, and accepted by, DFID DRC at the end of March 2013, and the Scoping Study Report, which identified a short list of sectors, submitted to us at the start of May 2013 and accepted later that month. The 5 Year Strategic Plan and revised commercial proposal are expected at the end June 2013. Recommendations: DFID should work with ASI to ensure that revisions and recommendations provided by the Private Sector Development advisor and DFID DRC cross-cutting advisors in response to their Scoping Study Report are incorporated into their 5 Year Strategic Plan. Impact Weighting (%):34% Revised since last Annual Review?N Risk: Low Revised since last Annual Review?N Section B: Results andValue for Money. 1. Progress and results 1.1 Has the logframe been updated since last review? Y Some milestones against outputs were missing when the logframe was first created, these have now been added. 1.2 Overall Output Score and Description: 5 A (Outputs met expectation) 1.2 Direct feedback from beneficiaries The inception phase is concerned with evidence and data gathering, and analysis of this data. As such, there are no direct beneficiaries – these will come at the implementation stage of the PSD Programme. However, scoping work during the inception phase is also about generating entry points with the Government of DRC, and developing intervention plans with them. The Minister of Justice and her advisers have informally indicated that they are happy with the progress made to date. 1.3 Summary of overall progress The PSD inception phase has met most of its milestones. Most crucially, sufficient data and analysis has been gathered to allow us to write the Strategic Case. This has included information on key constraints to private sector development in DRC, as well as scoping work on possible interventions to inform the opening portfolio proposed in the Strategic Case. In addition, the inception phase has facilitated the formation of positive working relationships with key stakeholders in the private sector, Government of DRC and other donors working on similar issues. Such relationships will become even more important as the PSD programme moves into the implementation phase.Finally, the inception phase has allowed us to begin generating benchmarking data which will be used to monitor and evaluate the results of our PSD implementation phase. Further data will be gathered between now and the commencement of the PSD implementation phase. 1.5Key challenges Contracting issues with ASI meant that their arrival in country was delayed, which in turn meant that their output schedule had to be condensed to meet the same overall deadlines. Feedback from the team has suggested this has resulted in significant resource pressures. In order to have the staff capacity to deliver the same amount of work in a shorter amount of time, more team members have had to be recruited, but ASI have kept within the original budget ceiling. Procurement for work in DRC presents certain challenges. The difficult environment means that there is not a wide range of implementing partners to choose from. The francophone environment and specific technical aspects (for example knowledge of OHADA) can further limit the market, and has meant that implementing partners are on occasion functioning as ‘body shops’ for sub-contractors. This challenge is likely to remain as we move to procurement for the implementation phase. Whilst work with the Prime Ministers’ Office and the Minister of Justice on developing a OHADA implementation programme has progressed well, work to progress trade reform has been hampered by a lack of interest from the Ministry of Economy and Trade. Developing entry points on trade reform is likely to remain a challenge during the implementation phase. Developing options on trade reform has been further hampered by the difficulties Trade Mark East Africa and Trade Mark Southern Africa face in extending their activities into DRC. This challenge is likely to continue to affect the implementation programme. 1.6Annual Outcome Assessment A (Outcome met expectation) Based on the available evidence, and having tracked progress against milestones, it is judged that the inception phase is well on track to achieve the outcome of ‘a robust evidence and analysis base on private sector development in DRC’. Robust evidence and analysis has already been generated to inform the Strategic Case and opening portfolio of interventions. Any further information generated will contribute to the full business case, and on-going analysis will underpin the implementation of our PSD programme, as well as providing value to other stakeholders. 6 2. Costs and timescale 2.1 Is the project on-track against financial forecasts: Y Yes, largely. The approved PSD inception phase budget is £2.5m. Forecast outturn is £2.35m – this is slightly lower than the inception phase budget because costs relating to OHADA consultancy were lower than anticipated, as we did not need to contract a study on OHADA implementation (only design the ToRs for implementation),and planned work with Trade Mark Southern Africa did not happen. There has been some rearrangement against the original budget as listed in the Business Case. It became apparent early on that the FinScope survey under the meso-level reform component would not be viable, and thus more funds were allocated to the market sector development component. Spend to date is £0.77m. This is relatively low becauseASI’s delayed start date meant that spend for the market development component beganlater than initially planned;hence we have only spent £0.29m against the market development component to date, compared to the £1.1m that we had originally forecast.However, a revised payment schedule has been agreed and these revised forecasts are being met, meaning that full spend against this component should still occur. 2.2 Key cost drivers The key cost drivers for the inception phase identified in the Business Case were those stemming from consultancy fees, and the logistical costs of surveying a representative sample of firms across DRC. These are still judged to be the same. Going out to tender for the design and implementation of the market development component, and the OHADA aspects of the business environment reform componentallowed us to drive down consultancy costs. 2.3 Is the project on-track against original timescale: Y Yes, the inception phase is largely on track against the original timescale. The strategic case, supported by evidence and analysis generated in the inception phase, was completed by end May 2013 as planned. As noted earlier, the schedule for ASI’s work under the market development componenthas shifted against the original, but all outputs are still on track to be delivered to the original deadline. We have established an opening portfolio of interventions, and come to the conclusion that, given the complex, unpredictable nature of DRC, interventions further into the future will have to be complexity-theory informed, based on continual horizon scanning and reassessment of the evidence. So, whilst we have an opening portfolio of interventions, informed by evidence gathered to date, we will have to accept that some of these interventions may not progress, whilst others may exceed expectations, and new, unanticipated, opportunities are likely to emerge. 3. Evidence and Evaluation 3.1 Assess any changes in evidence and implications for the project The inception phase is concerned with evidence gathering and analysis in order to inform the PSD implementation phase. Evidence gathered so far about the constraints to private sector development has pointed towards the use of a complexity-theory informed Theory of Change for the PSD programme. Evidence gathered in this phase, and further evidence gathered once we move to implementation,will help contribute to the wider evidence base on PSD in DRC, and hopefully be of use to other stakeholders. 3.2 Where an evaluation is planned what progress has been made? N/A 7 4. Risk 4.1 Output Risk Rating: Medium 4.2 Assessment of the risk level The possible risks identified at the start of the PSD inception phase have been reviewed. The risk rating for the business environment reform component has been lowered to medium, given progress made to date and continuing high-level political will. Existing mitigating actions are currently addressing the identified risks. However, a number of these risks will continue to have relevance once we move to the implementation phase. The complexity informed approach to PSD implementation phase is going to provide an additional key mitigating action. 4.3 Risk of funds not being used as intended As stated in the original business case, the overall financial and fraud risks for the inception phaseremainrelatively low given that funding was mainly technical assistance with little procurement of goods. However DRC continues to be a very high risk environment for issues around corruption, fraud and misuse of funds. As such, the controls as outlined in the Business Case were put in place with implementing partners: DFID funds through the Externally Financed Output (EFO) arrangement with the World Bank are subject to World Bank financial management and audit procedures – judged to be robust in the Multilateral Aid Review. The selection process for both sets of consultants included consideration of capacity to manage fiduciary risk. Monitoring systems are in place including spot checks to ensure; adequate asset management (where applicable), undertaking of activities and reporting of results. In the case of the market sector development component, ASIwill be required to undertake fiduciary risk assessments of the sectors that they intervene in when they reach the implementation phase. We can confirm that at this stage there has been no identifiable financial loss. Payments are not made in advance of need, but instead made once outputs have been satisfactorily delivered, and in the case of expenses, on a receipted basis only. 4.4 Climate and Environment Risk It was judged in the Appraisal Case that the inception phase did not carry significant climate and environment risks as it was largely concerned with analysis and programme design. However, in the market development component specifically, there are a range of climate and environment risks and opportunities. The analysis undertaken during the inception phase has taken into account environmental considerations, including looking at where the greatest climate and environment risks and opportunities will lie in the resulting programme. This in turn will significantly strengthen the evidence and analytical base and allow us to develop a low carbon, climate resilient market development component of our PSD programme. Such analysishas already resulted in one of the initial shortlist sectors, Oil Palm, being dropped on account of its negative environmental impacts. The full market systems analysis, which is still to be completed, will further examine the environmental risks and opportunities, as well as ensuring that the resulting interventions are low carbon and climate resilient. The intervention plan will also include mechanisms for valuing the positive and negative climate and environment outputs and outcomes. 4.5 Gender Review A snapshot gender review of the inception phase was recently undertaken, and an Amber-Green rating 8 was awarded. The review can be found in Annex 1. It will be important that gender considerations are taken forward into the implementation phase, most notably that consideration is given to opportunities to address discriminatory socio-cultural norms. 5. Value for Money 5.1 Performance on VfM measures It was suggested in the Appraisal Case that value for money of the PSD inception phase can only really be assessed in terms of improved delivery of results for the PSD implementation phase. This measure still stands – the investment of £2.5 million under this inception phase will improve the development results associated with expenditure of at least £40 million on the full PSD programme over 5 years. Outputs generated by the PSD inception phase have so far contributed to a robust strategic case for the PSD implementation phase, and will continue to inform other aspects of the Business Case. Furthermore, as also suggested in the Appraisal Case, dissemination of the public goods created as part of the inception phase, such as the Enterprise Survey and Doing Business Memorandum, is likely to improve the results of interventions by other donors, thereby augmenting the benefits of this programme to DRC. 5.2 Commercial Improvement and Value for Money The current inception phase has given DFID DRC the opportunity to test different implementing modalities (in particular, commercial versus multilateral) in advance of undertaking a full PSD programme in DRC. We will use experiences and findings from this phase to inform commercial and value for money best practice during the implementation phase. Direct spend was awarded in contracts from DFID to ASI for the market development component, and to PwC and a solo consultant for work on the OHADA aspects of the business environment reform component. There was moderate market response to the tender for the market development component (3 bids), and ASI were awarded the contract on the basis of a strong bid. A system of output based payments is being used, and when we move to the implementation phasethis will be shifted to a system of payment by results. ASI’s5 Year Strategic Plan is not due until the end of June 2013, but early conversations suggest they will be able to scale up both spending and associated results in the implementation phase. There was less response from the market on the OHADA elements, and, as noted under the challenges section above, this is linked to the specific, technical nature of OHADA, and the francophone environment. Consequently, a full OJEU process will be used to attract more bidders for subsequent OHADA work to be undertaken as part of the implementation phase. Indirect spend delivered via partner funding has been used under the business environment reform component throughan Externally Financed Output with the World Bank.The cost and value consciousness of the World Bank (IDA) and IFC were both judged to be satisfactory in the Multilateral Aid Review. The EFO is World Bank/IFC executed and managed, implying strict compliance with World Bank policies and procedures governing recruitment/procurement. 5.3 Role of project partners Despite a later than anticipated start date in country as a result of contracting delays, ASI have consistently delivered agreed outputs to meet the revised schedule, and to an acceptable standard and within budget, and as such they are judged to be delivering value for money. Early sight of elements of the 5 Year Strategic Plan have been of a lower quality, but we have made sure to communicate this to 9 the team, who have assured us that the necessary improvements will be made in advance of final submission. We will ensure that the Strategic Plan meets the necessary high quality before we agree payment against this output. Finally, there have been some recent issues around team dynamics, but firm and decisive action has been taken by ASI to address this, and we feel satisfied that this will not have implications for their deliverables. We have stressed that this situation cannot happen again. ASI’s implementation phase commercial proposal will be built around payment-by-results so that risks are borne by them in financial terms. This should further ensure that incentives are aligned and that they continue to deliver value for money in the implementation phase. The scope of PwC’s work was expanded, following changing direction from the Government of DRC. Though some of PwC’s outputs have been behind schedule, their overall performance is deemed to be satisfactory. There have been weaknesses in the performance of the World Bank, namely the delay in publication of the Enterprise Survey, Doing Business Memorandum and Legal Review of the Impediments to Female Participation in Business. However it is still anticipated that they will be able to deliver the agreed outputs within the timeline. The Government of DRC has proved to be a valuable partner throughout the inception phase. Strong and continued political will for business environment reform has been apparent from those departments we have worked most closely with including the Prime Minister’s officeand the Ministry of Justice. We have also built up a strong working relationship with the Comitede Pilotage pour l’Améliorationdu Climatdes Affaires et des Investissements (Steering Committee for Improving Business Environment and Investments), and the National OHADA Commission. There have been some project partners with whom we have not gained as much traction as we hoped for, for example: the FinMark Trust, who have struggled to find a national statistics partner to progresstheir FinScope survey; theMinistry of Economy and Commerce who have not been responsive to our requests; and the Enhanced Integrated Framework (EIF) who have struggled to coordinate donors sufficiently to generate entry points for us on trade reform. 5.4 Does the project still represent Value for Money : Y Assuming the outputs continue to be delivered to schedule, and based on the understanding that investment in scoping work and evidence collection now will produce a more effective implementation programme of at least £44 million,the inception phase will represent good value for money. 5.5 If not, what action will you take?n/a 6. Conditionality 6.1 Update on specific conditions n/a 7. Conclusions and actions To date, the PSD inception phase is deemed to be on track, scoring an A (met expectation) at both output and outcome level. The evidence needed to inform the Strategic Case by the end of May 2013 was gathered successfully. This evidence will also contribute to the full Business Case. One major finding that has emerged from the inception phase work is the need for the implementation phase to be complexity-theory informed. The inception phase has shown us that the constraints to private sector development in DRC are numerous and interlinked, and as such the problem is both 10 complex and unpredictable. To respond to this, our interventions will need to be highly flexible, and we will need to continually be lesson learning, responding to what works and what doesn’t, dropping particular interventions if necessary, and horizon scanning to take advantage of new and emerging opportunities. The complexity-theory informed approach will form the backbone of our Private Sector Development programme. Actions Entry points identified in the inception phase suggest that the following ‘opening portfolio’ interventions should be explored in the development of the forthcoming PSD Implementation Programme Business Case: o Support for the implementation of OHADA o Support for the development of an anti-corruption pact between the public, private and civil society sectors o Investing in the FPM o Market development following an M4P methodology 8. Review Process The Review was conducted by the DFID DRC Wealth Creation Team, drawing on information gathered from implementing partners including output reports and progress updates. No field visits were necessary as the inception phase is concerned with evidence and data gathering and no activity is yet taking place on the ground. 11 Annex 1 – Gender Review Does the programme designinclude comprehensive analysis of the situation of women and girls? Does the logframeinclude results and indicators relating to W&G, and those that include transformative change? Does the Theory of Changeexplicitly refer to W&G throughout? Does programmehave elements that seek to address discriminatory socio-cultural norms? Does programme contain specific measures on adolescent girls? Does the programme have appropriate and adequate plans and resources for gender technical support? Do implementing partners demonstrate a strong commitment to gender issues, have adequate gender capacity and a clear gender action plan? Are the programme-specific commitmentsin the Action Plan for Adolescent Girls under implementation? Overall PSD Green: Comprehensive analysis undertaken in market sector development component inception phase – to inform implementation phase Amber: No gender specific indicators in logframe for inception phase Implementation phase logframe still to be written – but will have W&G indicator(s). Amber: Theory of change still under development but will explicitly refer to W&G Amber-Red: No – not yet. Work on the Code de Famille could provide a big opportunity. Amber: No specific measures in inception phase log frame on adolescent girls, but these measures will be included in implementation phase Green: Yes – we are drawing on time from SDAand DFID’seconomic empowerment of women and girls specialist Amber-Green: ASI team have two gender specialists, one international one local, working on gender issues and a gender action plan for the market sector development component. We are currently addressing questions on how well they are delivering on this. The World Bank’s work on the Code de Famille has not yet been completed. n/a – no action points specific to PSD programme Amber-Green 12