FOR INTERNAL USE ONLY - World Bankdocuments.worldbank.org/curated/en/... · The previous Country Assistance Strategy for Benin was discussed on July 1, 2003. AAA ABC AFD AfDB AFR

Document of The World Bank

FOR INTERNAL USE ONLY

Report No. 46485 - BJ

INTERNATIONAL DEVELOPMENT ASSOCIATION

COUNTRY ASSISTANCE STRATEGY

FOR

THE REPUBLIC OF BENIN

FOR THE PERIOD FY 09-12

January 30,2009

Country Department for Benin AFCF2 Africa Region

This document has a restricted distribution and may be used by recipients only in the performance o f their official duties. I t s contents may not otherwise be disclosed without World Bank authorization.

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The previous Country Assistance Strategy fo r B e n i n was discussed o n July 1, 2003.

AAA ABC AFD AfDB AFR A I C

AMSME

APRM ARPP

BCEAO

BDI B O A D CAS CASCR CDD CEB C E M CFAA

CFAF CIDA

CIGOP

CPI CPIA

CPPR cso CSPR

CSR C T

CURRENCY EQUIVALENTS (As of January 16,2009)

Currency Unit = CFA Franc (CFAF) US$1 = 496CFAF

WEIGHTS AND MEASURES Met r i c System

FISCAL YEAR January 1 - December 31

ABBREVIATIONS AND ACRONYMS

Analytic and Advisory Activities Appui Budge'taire Conjoint Agence Franqaise de De'veloppement African Development Bank Africa Region, World Bank Association Interprofessionnelle du Coton Africa Micro Small and Medium Enterprises Africa Peer Review Mechanism Annual Review o f Portfolio Performance Banque Centrale des Etats de I'Afrique de I'Ouest Business Development Infrastructure West Africa Development Bank Country Assistance Strategy CAS Completion Report Community Driven Development Compagnie Electrique du Bknin Country Economic Memorandum Country Financial Accountability Assessment CFA Franc Canadian International Development Agency Competitiveness and Integrated Growth Opportunity Project Consumer Price Index Country Policy and Institutional Assessment Country Portfolio Performance Review CAS Strategic Objective Centrale de Skcurisation des Paiements et du Recouvrement Country Status Report Country Team

CWIQ DANIDA DHS DO DOS

D P L D S A ECOWAS

EFA/FTI

EMICoV

ESW EU FDI FIAS FMTAAS

FY GBAR

GDP GEF GTFP HIPC HIV/AIDS

I C R I C T

IDA

IEG I F C

Core Welfare Indicator Questionnaire Danish Development Agency Demographic and Health Survey Development Objective Document d 'Orientations Strate'giques Development Policy Lending Debt Sustainability Analysis Economic Community o f West African States Education for All/ Fast Track Initiative Enqu2te Modulaire Inte'gre'e sur les Conditions de Vie des Me'nages Economic and Sector Work European Union Foreign Direct Investment Foreign Investment Advisory Services Financial Mechanism for Technical Assistance and Advisory Services Fiscal Year Gestion Budge'taire Axe'e sur les Re'sultats Gross Domestic Product Global Environment Facility Global Trade Finance Program Highly Indebted Poor Country Human Immunodeficiency VirusIAcquired Immune Deficiency Syndrome Implementation Completion Report Information and Communication Technology International Development Association Independent Evaluation Group International Finance Corporation

IMF INSAE

JSAN M&E MCA MCC MDG MDRI MIGA

MITEP

MOU MSME NPV NTIC

PAP PBA PBGI PEFA

PER PERAC

PFM PFSE

PGUD

International Monetary Fund Institut National de la Statistique et de 1 'Analyse Economique Joint Staff Advisory Note Monitoring and Evaluation Millennium Challenge Account Millennium Challenge Corporation Millennium Development Goal Multilateral Debt Relief Initiative Multilateral Investment Guarantee Agency Minimum Integrated Trade Expansion Platform Memorandum of Understanding Micro, Small and Medium Enterprises Ne t Present Value Nouvelles Technologies de l'information et de la Communication Priority Action Plan Performance-Based Approach Performance-Based Grant Initiative Public Expenditure and Financial Accountability Public Expenditure Review Public Expenditure Reform and Adjustment Credit Public Financial Management Projet de Fourniture de Services d 'Energie Projet de Gestion Urbaine Dtcentraliste

PIU Project Implementation Unit

FOR OFFICIAL USE ONLY

WBI World Bank Institute

PNDCC

PRGF

PRSC PRSP QAG QUIBB

ROSC

RWSS SBEE

SCRP

SDO SDR SME SONAPRA

SONEB

SWAP TFR UNDP us WAEMU

WBG

Projet National d'Appui au Ddveloppement Conduit par les Communautts Poverty Reduction and Growth Facility Poverty Reduction Support Credit Poverty Reduction Strategy Paper Quality Assurance Group Questionnaire Unij2 des Indicateurs de base pour le Bien-&e Reports on the Observance o f Standards and Codes Rural Water Supply and Sanitation Soci t t t BCninoise d'Energie Electrique Strattgie de Croissance pour la Rtduction de la Pauvrett Strategic Development Orientations Special Drawing Rights Small and Medium Enterprises Sociktt Nationale pour la Promotion Agricole SociCtt Nationale des Eaux du Benin (National Water Company of Benin) Sector-Wide Approach Total Fertility Rate United Nations Development Program United States West Africa Economic and Monetary Union World Bank Group

Country Director: Ma Task Team Leader: Jos

The following staff contributed to the preparation of the CAS: Joseph Baah-Dwomoh (TTL), Evelyn Kennedy, Joelle Dehasse, Antonella Bassani, Nouridine Kane Dia, Marc Lixi, N ie ls Planel, Alexandre Eyraud, Franke Toomstra, Nancy Benjamin, Bruno Boccara, Fily d'Almeida, Hugues Agossou, Sylvain Adokpo, Christophe Prevost, Daniel M. Sellen, Papa Demba Thiam, Yann Burtin, Tjaarda P. Storm Van Leeuwen, Fanny Missfeldt-Ringus, William Experton, Nicolas Ahouissoussi, Ilhem Baghdadli, Stephen Mink, Alain Onibon, Remi Kini, Ida Pswarayi-Riddihough, Franck Bousquet, Kwabena Amankwah-Ayeh, Serge Theunynck, Cassandra Colbert, Imoni Akpofore, Sylvie Nenonene, Helene Grandvoinnet, Susana Carrillo, Karine Measson, Anca Dumitrescu, Deo Ndikumana, Sonia Gnon Josiane Nieri, and Kathy Li Tow Ngow.

This document has a restricted distribution and may be used by recipients only in the performance o f their off icial duties. I t s contents may not be otherwise disclosed without Wor ld Bank authorization.

THE REPUBLIC OF BENIN COUNTRY ASSISTANCE STRATEGY

TABLE OF CONTENTS

EXECUTIVE SUMMARY ............................................................................................... i

I . COUNTRY CONTEXT. ECONOMIC AND SOCIAL DEVELOPMENTS .......... 1

A . Country Context .................................................................................................... 1

B . Recent Economic Developments .......................................................................... 3

C . Social Context, Poverty and Country status vis-his the MDGs ..................... 4

I1 . THE GOVERNMENT’S GROWTH AND POVERTY REDUCTION PROGRAM ....................................................................................................................... 6

A . Government’s Growth Strategy for Poverty Reduction ................................... 6 B . Economic Prospects and Key Development Challenges .................................... 7

Macroeconomic outlook .......................................................................................... 7 Benin ’s Key Development Challenges .................................................................. I O

I11 . DONOR SUPPORT TO BENIN ............................................................................ 11

Partner Coordination and Harmonization ............................................................. 11

I V . THE BANK GROUP ASSISTANCE STRATEGY ............................................. 12

A . The Bank’s Track Record in Benin ................................................................... 12

Conclusions drawnfrom the FY04-FY06 CAS ..................................................... 13 Lessons Learned and Messagesfrom 2007 Client Survey .................................... 14

B . CAS Strategic Choices and Guiding Principles ............................................... 15

Portfolio performance under the FY04-FY06 CASperiod ................................... 12

V . DELIVERING THE BANK GROUP ASSISTANCE PROGRAM ..................... 20

A . Leveraging the Existing Portfolio ...................................................................... 20

B . Lending Program ................................................................................................ 22

C . Analytical and Advisory Program ..................................................................... 23

D . Result-Based Monitoring and Evaluation ........................................................ 24

V I . MANAGING R I S K S ............................................................................................... 24

List of Tables Table 1 : Sectors’ Contribution to Real Growth in Benin (Percentage Points) ................................ 3 Table 2: Progress Towards the Millennium Development Goals .................................................... 5 Table 3: Economic Trends and Medium-Tern Projections ............................................................. 8 Table 4: Selected Indicators o f Bank Portfolio Performance as o f October 3 1. 2008 ................... 12 Table 5: Composition o f Active IDA Country Portfolio (as o f 11/30/08) ..................................... 21 Table 6: Proposed IDA Assistance for FY09-12 and Corresponding CAS Strategic Objectives (CSO) (million US$) ...................................................................................................................... 22 Table 7: Proposed AAA Program for FY09-12 ............................................................................. 23

List of Graphs Graph 1 : Client Survey* . Evaluation o f Key Sectors and Bank Competencies ........................... 14

List of Appendixes . Country-specijk Appendixes Appendix 1 : Benin Cas Results Matrix . FY09- 12 ....................................................................... 26 Appendix 2: Selectivity o f the Bank’s Program ............................................................................ 38 Appendix 3: Benin’s External Partners .......................................................................................... 39 Appendix 4: Implementing the Paris Declaration: the Bank’s efforts in Benin ............................ 41 Appendix 5: Benin: Country Financing Parameters ...................................................................... 42 Appendix 6: Republic Of Benin 2003 CAS Completion Report ................................................... 43

Standard CAS Annexes A2: Country at a Glance & MDGs .............................................................................................. 77 B2: Selected Indicators o f Bank Portfolio Performance and Management ................................ 80 B3: IBRD/IDA Program Summary ............................................................................................. 81 B3: IFC and MIGA Program Summary ...................................................................................... 82 B4: Summary o f Non-Lending Services ..................................................................................... 83 B5: Benin Social Indicators ........................................................................................................ 84 B6: Key Economic Indicators ..................................................................................................... 85 B7: Key Exposure Indicators ...................................................................................................... 87 B8: Operations Portfolio (IBRD/IDA and Grants) ..................................................................... 88 B8: Statement o f IFC’s Held and Disbursed Portfolio ............................................................... 89

Map N o . IBRD 33372

EXECUTIVE SUMMARY

1. Benin has a high potential economy but has underperformed in recent years. With a favorable geographical location, macroeconomic stability, low debt levels, and political stability, Benin would seem to have the foundations for a dynamic, diversified economy. While growth performance has been similar to that o f low-income countries and to Sub-Saharan A h c a over the last decade and a half, the country’s economic structure has not evolved, structural reforms have progressed slowly, and the economy remains highly dependent on cotton and transit trade with Nigeria. A Country Economic Memorandum (CEM) completed in June 2008 has established that the relative poor growth and diversification o f Benin’s economy result from four binding cross- sectoral constraints relating to: a poor business environment; weak institutions and corruption; costly and unreliable infrastructure services; and a political structure that hinders the adoption o f pro-growth policies.

ii. Despite the beginning of an encouraging economic recovery process in 2006, issues’ persist on the economic and social fronts that make it difficult to achieve the growth levels that Benin is capable o$ In addition to political economy issues which have affected the pace o f structural reforms, the key constraints include persistence o f corruption, an unfavorable business environment, a weak infrastructure base, and a lack o f competitiveness o f Benin’s agriculture and industries. The low level o f diversification o f the economy and the weak institutional and implementation capacity make the economy quite vulnerable to external shocks. The business environment i s unfavorable in important respects for formal production and trade and outside o f cotton and transit trade, export-oriented enterprises are scarce. Poverty remains widespread and continues to predominate in rural areas and to be a challenge in urban areas. Social indicator trends are improving, but the country needs to make more progress towards achieving the MDGs, particularly in health. Population growth i s s t i l l high at 3.2 percent per year and puts a heavy burden on the demand for basic social services.

... 111. The government intends to take advantage of Benin’s opportunities and aspires to transform Benin into an emerging economy by 2025. Benin’s Second Poverty Reduction Strategy Paper, the Stratdgie de Croissance pour la Rkduction de la Pauvretk (SCRP) lays out strategic priorities for accelerating growth and reducing poverty over the period 2007-2009. The SCRP operationalizes the government’s five year development plan for 2006-201 1 included in i t s Strategic Orientations Document (SDO). Both the SDO and the SCRP are articulated around five pillars. They are: (a) accelerating growth; (b) using infrastructure development as a tool for growth; (c) developing human capital to improve basic services and lay the foundations for medium- and long-term economic growth; (d) improving governance, including transparency and the fight against corruption; and (e) promoting balanced and sustainable development.

iv. The CAS strategic objectives are in line with the second PRSP. The Bank’s strategic priorities have been informed by the Government’s SCRP, the lessons learnt from the implementation o f the previous CAS (FY04-FY06), and from the results o f a Client Survey conducted in 2007. Selectivity, ownership and government leadership, better harmonization o f donor efforts, and capacity enhancement drive the program. The CAS i s structured around three main strategic objectives: (i) strengthening competitiveness and accelerating private sector-led growth; (ii) improving access to basic services; and (iii) promoting better governance and strengthening institutional capacities. The CAS will use a mix o f instruments, including DPLs, programmatic approaches (SWAPS), and investment operations. Whi le the CAS i s not a formal joint IDA/IFC assistance strategy, it was prepared in strong collaboration with IFC and it will exploit the synergies within the World Bank Group and with other donors to deliver this program o f assistance.

V. The new CAS was prepared through aparticipatoryprocess to ensure that i t s objectives are closely aligned with country needs and priorities and built on lessons learned. The strategy draws on an effective implementation o f the Paris declaration that seeks to ensure greater efficiency and effectiveness in aid allocation and implementation for Benin. As part o f the CAS process, the Bank has started an exercise o f reviewing i t s comparative advantage through a strategic positioning tool, in consultation with Government and other donors. The preliminary results from this analysis, as well as consultations with partners and results from the Client Survey, have helped the Bank identify strategic priorities and areas where i t s involvement can leverage support from other donors to meet country needs for growth and poverty reduction.

vi. The total indicative I D A allocation for Benin during the CASperiod, FY09-12, is SDR 191.3 million. This consists o f the IDA-15 indicative allocation o f SDR 142.4 million, and SDR48.9 mil l ion projected for FY12. In light o f the limited IDA resources, the Bank will use selectively self-standing operations in energy, agriculture, telecom, health, urban and community development and yearly development policy operations. IDA will also rely on the effective implementation o f the ongoing IDA portfolio and t rust funds to achieve the CAS strategic objectives. The planned knowledge program i s designed to address some o f the key gaps and development challenges that remain, some o f which have been pointed out by QAG in a recent evaluation o f the Bank’s Analytic and Advisory Activities (AAA) in Benin.

vii. The CASprogram is designed to mitigate risks that could affect the effectiveness of Bank support. The risks include (i) weakening commitment to and consensus for structural reforms to sustain economic growth; (ii) weak capacity to implement programs and to promote reforms; and (iii) vulnerability to commodity and exchange rate volatility, as well as the recent international financial crisis. The Bank will mitigate these r isks in several ways. The Bank will support Government in the objective analysis o f what needs to be done to move the reform agenda forward, and will encourage Government to: (i) arrive at significant improvements in budget execution; and (ii) accelerate the reform process in the cotton, telecommunications, energy and agricultural sectors to improve the medium term prospects for diversification. We will improve our ability to support reforms through informed outreach to important stakeholders as well as leverage the dissemination o f AAA, such as the CEM and the telecom study. We will offer high quality, timely analytical work and technical advice, as well as a selective combination o f budget support (PRSCs) and investment operations. In addition, partnerships and participation by civil society organizations, private sector representatives, donors, and other key stakeholders in development programs wil l be used to enhance the sustainability o f Bank’s interventions. Under the IMF PRGF, there will be regular and close monitoring o f the macroeconomic environment.

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I. COUNTRY CONTEXT, ECONOMIC AND SOCIAL DEVELOPMENTS

A. COUNTRY CONTEXT

1. Benin is a small country located along the Gulf of Guinea next to Nigeria with a population of 9 million and a per capita income of U S 5 7 0 in 2007 (Atlas method). The country has been an important transit point for trade with Nigeria’ and access to the landlocked countries o f Niger, Burkma Faso and some o f the northern Nigerian states. The country has good agricultural potential, though it has focused mainly on cotton and has exploited less than 4 percent o f the irrigation potential.

2. Benin has enjoyed relative political stability and democracy for nearly 20 years, but suffers from weak governance and corruption. In 1990, the country changed from a Marxist- Leninist system to a pluralist democracy, and elections and peaceful transfers o f power have regularly taken place since then. In the most recent presidential elections in March 2006, Dr. Thomas Boni Yayi, an independent candidate, was elected President o f the Republic. Legislative and municipal elections were held in March 2007 and April 2008, respectively. Immediately after coming into office, President Yayi announced that working for democratic and economic renewal and fighting corruption would be top priorities. This early statement was significant given the severe governance challenges that Benin faced and provided a vital entry point for new initiatives and reforms. The f i rst actions taken by the Government to improve governance included auditing the main parastatals and government ministries; imposing sanctions in cases o f corruption and bad governance and taking measures to improve budget and expenditure management. In June 2008, Benin submitted itself for evaluation under the Africa Peer Review Mechanism (APRM) and has been championing the process ever since. However, governance problems in Benin are deep-seated and the campaign against corruption will need to persist over the long te rm to resolve them.

3. The political and economic reforms ajier 1990 helped Benin register good economic performance until 2001. Benin had an average growth rate o f 5 percent during the latter part o f the 1990s, resulting in modest increases in per capita incomes, as well as in human development indicators. Cotton exports and transit trade with Nigeria drove much o f this growth. Since 2001, however, the cotton sector and trade with Nigeria have shown themselves to be increasingly vulnerable to shocks and, combined with poor policy decisions, this has led to a general slowdown o f economic activity. Economic growth slowed from 4.9 percent in 1997-2001 to 3.3 percent in 2002-2006. With a population growth rate o f 3.2 percent, growth impacts on poverty were limited.

4. Benin’s seemingly well-functioning democracy has not provided the political foundations for pro-growth policies. A recent Bank study’ on challenges and opportunities for growth in Benin showed that the country’s political structure i s one factor that hinders the adoption o f growth policies. The study identified four main reasons for this: (i) Political parties lack policy- based platforms and are unable to make credible commitments to voters about their growth agenda; (ii) institutional arrangements are such that they significantly reduce incentives for legislators to pay attention to policy issues; (iii) voters are poorly informed about economic decisions and how policies affect their welfare; and (iv) citizens have a high level o f mistrust o f government. The study suggests: (i) Government needs an aggressive public communications program to disseminate information on policy decisions, how they are implemented and what i s their impact; (ii) Government needs to work together with the media; and (iii) better education, including civic

’ Transit trade with Nigeria i s estimated to represent between 6.5 and 7.5 percent o f GDP.

Memorandum, June 2008, World Bank. Benin - Constraints to Growth and Potential for Diversification and Innovation - Country Economic

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education i s crucial to create a citizenry prepared to make sound judgments about government performance.

5 . The weak political consensus for major structural reforms has slowed the reform momentum and hindered economic growth. Whi le Government has consistently indicated its commitment to far-reaching structural reforms, the momentum and pace o f reforms has repeatedly been slowed by individual interests and sometimes polit ical opposition. Whi le the current Government has proceeded with reforms that do not require parliamentary approval, such as in cotton, energy and state disengagement, recent polit ical tensions between the Government and the opposition have slowed down parliament approval o f some laws and bi l ls in support o f the reform program. The President has initiated consultations with the main polit ical parties, c iv i l society and the private sector to create consensus o n reforms. The Bank i s launching an initiative to raise Parliamentarians’ awareness and understanding o f key reforms and their significance for Benin’s growth and development process.

6. Beyond the political economy issues, there are some key economic and social challenges for restoring economic growth in Benin. These include persistent corruption, an unfavorable business environment, a weak infrastructure base, a lack o f competitiveness of Benin’s agriculture and industries, an undiversified economy, weak institutional and implementation capacity, and a need for improved basic services. These issues are discussed under K e y Development Challenges. Benin’s Government has prepared a Growth Strategy for Poverty Reduction (SCRP), the country’s second PRSP which was adopted in April 2007, to address these issues.

7. Benin’s location provides special opportunities and challenges for regional integration with W A E M U and non- W A E M U countries. Located next to Nigeria and bordering a number o f land-locked countries, Niger, Burkina Faso, northern Nigerian States, Benin i s a natural transportation hub. Since the bulk o f i t s intra-regional trade i s with Nigeria, Benin i s also well- placed to benefit f rom renewed growth in Nigeria. However, Benin must compete with neighboring CBte d’Ivoire, Ghana and Togo to be a key port o f entry for trade. Whi le the Port o f Cotonou could p lay a crucial ro le in making Benin more competitive as a regional transport hub, it suffers f rom considerable congestion and delays due to corruption and weak administration.

8. The Government is set on making Benin an emerging economy by 2025 as presented in its long-term vision strategy, “Alafza Benin 2025. ” In order to achieve this target, Government intends to embark o n a series o f second generation reforms to modernize public services and provide a competitive environment for the private sector. Government’s objective i s to strengthen ongoing reforms and make new institutions function more effectively in order to reach and maintain an ambitious target o f double digit growth rate over the next several years. The key areas o f focus will be to: (i) improve the business climate; (ii) improve investments in human resources; (iii) modernize infrastructure, including having a well-functioning, well-managed port and customs systems; (iv) provide reliable energy services; and (v) raise the quality o f public sector governance to improve economic management.

9. The Government’s program of reforms and investments to help Benin become an emerging economy is included in the Strategic Orientation Document (SDO), a 5-year development strategy adopted in 2006. In April 2007, the specifics o f this strategy, along with an action plan, budget, and monitoring system were adopted as Benin’s Second Poverty Reduction Strategy Paper, f o p a l l y called the Growth Strategy for Poverty Reduction (Strate‘gie de Croissancepour la Re‘duction de la Pauvreti, SCRP). The Joint Staff Advisory Note (JSAN) o f the SCRP concluded that i t provides a good framework for implementing the Government’s growth and poverty reduction agenda over the next three years. This CAS constitutes the Bank’s strategic response to Benin’s SCRP.

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B. RECENT ECONOMIC DEVELOPMENTS

10. Despite a dijJTcCult international environment, Benin’s economic performance has remained broadly satisfactory and macroeconomic stability has been maintained. Macroeconomic performance picked up in 2006 and real GDP growth rate recovered to 3.8 percent in 2006 from 2.9 percent in 2005 and further strengthened to 4.6 percent in 2007 reflecting a rebound in cotton and services sectors. Real GDP growth i s expected to reach 5.1 percent in 2008. Inflation was under the WAEMU convergence criterion o f 3.0 percent for 2003-06 due to strong fiscal discipline and a prudent monetary policy at the regional level. While Benin, like other WAEMU countries, was hit hard by the rising world market prices for food and o i l during the latter part o f 2007 and early 2008, the falling prices over the past few months have brought some rel ief.

11. Agriculture, trade, transport and other services were the main sources of growth in Benin over the past decade, while industry output stagnated (Table 1). Agricultural output growth added almost 2 percentage points to annual real growth, while growth in services added a little more than 2 percentage points. By contrast, industrial production including manufacturing and construction stagnated, and returns in these sectors were low. Over the years, the economy also grew primarily through accumulation o f factors rather than efficiency improvements. In the 1990s, total factor productivity growth (TFP) was positive reflecting the dividends from structural reforms, but since the end o f the 1990s productivity growth has tumed negative as reforms slowed. Government’s macro objectives, therefore, seek to build on the growth sectors through accelerated reforms while seeking to reverse the declining TFP through structural reforms and infrastructure investments (para 26).

Table 1: Sectors’ Contribution to Real Growth in Benin (Percentage Points) 1997 1998 1999 2000 2001 2002 2003 2004 2005 Average

GDP 6.1 4.5 4.7 5.8 5.0 4.5 3.9 3.1 2.9 4.5 Agriculture 2.3 2.6 1.7 2.6 1.2 2.6 0.6 1.5 0.8 1.8 Industry 0.6 0.1 0.3 1.3 1.4 0.8 0.3 -0.4 0.3 0.5

Manufacturing 0.2 0.1 0.2 0.2 0.2 0.2 0.2 0.1 0.1 0.2 Utilities 0.1 0.0 0.2 0.2 0.2 0.1 0.2 0.1 0.1 0.1 Mining -0.2 -0.1 -0.5 0.0 0.0 0.0 -0.1 0.0 0.0 -0.1 Construction 0.5 0.1 0.4 0.9 0.9 0.5 0.0 -0.6 0.1 0.3

Services 3.3 1.9 2.7 1.9 2.4 1.1 3.0 2.0 1.8 2.2 Transport 0.5 0.4 0.5 0.3 0.4 0.2 0.5 0.4 0.4 0.4 Trade 1.5 0.5 1.3 0.8 0.9 0.4 1.1 0.8 0.7 0.9 Public 0.5 0.4 0.3 0.3 0.3 0.1 0.4 0.1 0.1 0.3

Other services 0.9 0.6 0.7 0.5 0.7 0.5 1.0 0.7 0.6 0.7 Administration

Source: Staf f estimates based on data from World B a n k (LDB).

12. Despite a decrease in export volumes and higher oilprices, the external current account deficit (excluding current official grants) remained broadly in line with the IMF-supported program targets at 6.9 percent o f GDP in 2007 as compared with 7.9 percent o f GDP in 2004. As a result, the overall balance o f payments improved from -3.2 percent o f GDP in 2004 to 3.1 percent o f GDP in 2007. Debt cancellation under HIPC and MDRI initiatives and improved debt management helped to steadily reduce the country’s total public external debt from 58.3 percent in 2000 to around 1 1.9 percent o f GDP at end-2007.

13. The fiscal situation has continued to improve thanks to a strong revenue performance. Fiscal revenue has gradually increased from 16.4 percent o f GDP in 2004 to 16.8 percent o f GDP

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in 2006 and 20.6 percent o f GDP in 2007. This revenue performance combined with lower than projected investment expenditures in 2007 led to a slight improvement in the fiscal deficit which narrowed from 4.6 percent o f GDP in 2005 to 1.4 percent o f GDP in 2007.

14. I n summary, macroeconomic management has remained sound despite delays and reversals in some structural reforms. The macro performance under the three-year Poverty Reduction and Growth Facility (PRGF) arrangement approved by the IMF Board in August 2005 has been satisfactory with strong fiscal performance, containment o f inflation, and satisfactory, albeit lower than expected, growth. However, delays in some key structural reforms continue to pose development challenges that need to be addressed to achieve higher growth rates and sustained poverty reduction.

C. SOCIAL CONTEXT, POVERTY AND COUNTRY STATUS VIS-A-VIS THE MDGs

15. Benin remains a verypoor country. Per capita incomes are low averaging US$570 in 2007 and the country ranks 163 out o f 177 countries according to the 2007 UN Human Development Report. During the f i rst PRSP, per capita GDP growth was small but positive and non monetary poverty dropped from 43 to 40 percent between 2002 and 2006. Survey results also indicate that perceptions o f poverty have improved slightly in households’ self-assessment o f well- being. The two recent PRSP progress reports estimate the monetary poverty rate at 37.4 percent in 2006.

16. As in most countries, poverty is higher in the rural areas. The incidence o f non-monetary poverty in rural areas stood at 58.3 percent in 2006 compared with 18.4 percent in urban areas. Overall inequality, as measured by the Gini index, declined from 2002 to 2006, although the national picture hides contrasting trends for urban and rural areas. With Benin experiencing more rapid urbanization, and thus movement from higher to lower poverty areas, income disparity within urban areas i s increasing. The Bank will undertake analytical work on poverty early in the CAS period to update information on the poverty trends.

17. The country has steadily improved access to basic social services, in particular in the education, health, and water sectors. Benin has achieved universal access to the first year o f primary education. Between 2001 and 2006, primary school enrollment increased by more than 18 percent and the education system has proved able to accommodate an increasing number o f primary students. Wh i le the primary completion rate rose from 44 percent in 2001 to 66 percent in 2006, reducing the dropout rate remains a key priority for Government if the education-related MDG i s to be reached by 2015. Gender disparity has been significantly reduced, particularly at the primary level, but the trend needs to be extended to secondary and tertiary levels.

18. I n the health sector, the indicators have improved slightly during the last five years. Geographical access to health services increased to 86 percent in 2006 while child and maternal , mortality was significantly reduced over the same period. At less than two percent, the HIV/AIDS prevalence i s in the lower range o f countries in the region. However, malnutrition o f children under five remains very high and hampers human capital formation and economic development. Whi le Benin’s commitment to nutrition started earlier than in most other countries in the sub- region, nutrition action has suffered from inter-sectoral paralysis. Renewed attention for consolidated and effective action i s warranted from the Government. Maternal and infant mortality are s t i l l lagging behind MDG standards despite recent progress3. The rapid rate o f population growth, at 3.2 percent per year, constitutes a significant obstacle to reducing poverty and maintaining maternal health. To reduce the rate, the government will need to accelerate implementation o f the National Population Policy and reinforce the synergies between reproductive

The maternal mortality rate was estimated at 397 deaths per 100,000 live births in 2006 while the child mortality rate was 125 deaths per 1,000 live births in 2006.

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health services and education (in particular girls’ education), the economic empowerment o f women, and access to adequate family planning programs.

Millennium Development Goals

19. The Government has made signiflcantprogress in increasing access to potable water for the rural population, from 35 percent in 2002 to 46.5 percent in 2007, and water facilities functionality rate has improved from 75 percent in 2002 to 87 percent in 2007. This has been particularly important for addressing gender issues and reducing the burden on females. However, maintaining these trends will require substantial resources for new construction and maintenance, along with community participation to improve the quality o f basic services that wil l continue to be supported during the CAS period.

1990 M D G Benchmark

20. Achieving the MDGs remains a signijkant challenge and will require sustained growth and improvements in the efficiency o f public service delivery as well as in funding (Table 2). Benin i s one o f 10 pilot countries included in the initiative o f the UN Secretary General to support the implementation o f commitments to achieve the MDGs. The main objective o f the initiative i s to mobilize the additional resources needed to this end. A costing exercise carried out by the Government with UNDP assistance estimates Benin’s total financial needs to meet the MDGs as o f 2006 to represent CFAF 11,894 billion, the equivalent o f US$300 per year, per person until 2015.4

Current status (year)

Likelihood of achieving target by 2015

1. Poverty and Hunger - Eliminate extreme poverty - Eliminate hunger 2. Achieve universal primary education - increase completion rate to 100% 3. Promote gender equality - Raise ratio o f girlshoys in primary school to 100% - Raise ratio o f girlshoys in secondary school to 100% 4. Reduce child mortality - Reduce child mortality in children under 5 by two-thirds 5. Improve maternal health - Reduce the rate o f maternal mortality by three-fourths

6. Combat HIV/AIDS, malaria & other diseases - Fight against HIV/AIDS

7. Ensure environmental sustainability - Halve the proportion o f individuals without access to safe water ources: SCRP and Bank reports.

32% (estimated) 35% (estimated)

3 1 % (estimated)

69% (1 990)

54% (estimated)

185 per 1000 live births

547 per 100,000 live births (estimated)

3.8%

37% (estimated)

22% (2003) Unclear

66% (2007) Likely for boys

79.9% (2006) Unlikely

59%(2004) I Unlikely

125 per 1000 live Unlikely

397 per 100,000 Unlikely live births (2006)

1.2 % (2006) Likely

46.5% (2007) Likely

These estimates are three times those for other Af r ican countries and should be interpreted with care. 4

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11. THE GOVERNMENT’S GROWTH AND POVERTY REDUCTION PROGRAM

A. GOVERNMENT’S GROWTH STRATEGY FOR POVERTY REDUCTION

21. Implementation of the country’s first PRSP, from 2003-2005, was mixed. Whi le Benin maintained a stable macroeconomic framework and improved some key social indicators, economic performance was much weaker than envisaged and no real progress was made in reducing poverty (see paragraphs 3 and 15). Progress in strengthening institutional capacities and improving governance was also mixed with strong results in improving public finance management but l i t t le progress in advancing public administrative and judicial system reforms.

22. I n October 2006, the Government published the Strategic Development Orientations (SDO) which defines the development policy framework for 2006-2011 to put Benin on a path to becoming an emerging economy. The SDO has two fundamental objectives: (i) creating and stimulating growth and development poles by improving competitiveness; and (ii) reducing poverty and improving the quality o f l i fe o f the population. The SDO includes a growth scenario that would lead to a quadrupling o f the GDP per capita by 2025. To be able to achieve this ambitious GDP per capita growth rate, Government i s seeking to change profoundly the structure o f the economy, diversify, and identify new growth poles it will have to support.

23. The Growth Strategy for Poverty Reduction (SCRP), is based on the main elements of the SDO and lessons from thefirst PRSP. The Government believes that there can be no effective poverty reduction without emphasizing and accelerating growth, which it has made the focus o f i t s strategy. The SCRP was adopted in April 2007 as Benin’s second generation PRSP and as i t s three year strategy (2007-2009) to implement the SDO. The SCRP, together with i t s Priority Action Plan, has been built around five strategic pillars linked to the SDO priority areas o f intervention:

Pillar 1 - Accelerating growth. Under this pillar, Government has identified five priority areas for direct intervention to intensify growth: (i) stabilization o f the macroeconomic framework; (ii) promotion o f the private sector through enterprise and entrepreneurship development; (iii) identification o f new growth poles and promotion o f potential export activities; (iv) adjusting fiscal policy to support economic development; and (v) promotion o f regional integration.

Pillar 2 - Infrastructure development. This pillar emphasizes the importance o f infrastructure for linkmg farmers and producers to markets, reducing factor costs, and improving competitiveness and growth potential o f the economy. This pillar stresses reliable and cost-effective supply o f electricity, improved transport and port infrastructure, and accessible telecoms services. The top three priority infrastructure sectors to be supported during the SCRP period are transport infrastructure, energy, and water and sanitation.

Pillar 3 - Developing human capital and improving basic services. The Government intends to act in four priority areas o f intervention, namely: (i) enhancing the quality o f education services; (ii) strengthening professional education to develop the sk i l l s needed in the labor market; (iii) increasing access to quality health and nutrition services; and (iv) strengthening social solidarity and protection.

Pillar 4 - Improving governance and transparency and fighting corruption. The objective i s to promote the private sector and improve the effectiveness o f government actions and expenditures. The top three priority programs under this pillar are: (i) speeding up administrative reforms; (ii) strengthening the ru le o f law; and (iii) reforming ru les and procedures that negatively affect the business environment.

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0 Pillar 5 - Promoting balanced and sustainable development. The objective i s to promote greater territorial equity, as a means o f protecting the environment, and sustainable management o f natural resources. The two broad areas o f intervention are: (i) increasing financial transfers to localities and training for local officials in managing budgets and sustainable development plans; and (ii) investing in regional development centers that would provide infrastructure, serving the development needs o f several communities in a given region.

24. While the SCRP provides an adequate framework for accelerating growth and fighting poverty, it needs further refinement in some key areas, according to the Joint Staff Advisory Note (JSAN). The SCRP puts renewed focus on economic diversification as key to accelerate growth. However, it does not describe the actions to operationalize the diversification strategy. In particular, i t does not clarify how the Government would address the main bottlenecks to the development and diversification o f the agriculture sector, such as high cost and poor quality o f infrastructure services, lack o f technologies and knowledge, and poor quality o f agricultural products. Also, given the port’s critical economic role, the strategy needs to clarify how institutional reforms and MCA-supported investments wil l improve competitiveness. Regarding the mixed results in the social sectors, the JSAN concludes that the strategy should improve the institutional framework, budget management, and personnel management for basic services. Government’s challenge in this area will be to simplify and prioritize the SCRP’s Priority Action Plan and to incorporate key actions in the proposed sector program budgets and related Medium- Term Expenditure Framework. This will help make the strategy operational.

B. ECONOMIC PROSPECTS AND KEY DEVELOPMENT CHALLENGES

Macroeconomic outlook 25. Despite the world-wide economic slowdown, the Bank and IMF expect that Government plans to accelerate reforms and robust levels of trade with Nigeria will help real GDP growth rate progressively recover from 3.8 percent in 2005-2007 to reach 5.7 percent in 2008-2012 (Table 3). In the short term, Benin’s recovery i s expected to be resi l ient due to the renewed impetus o f reforms in the Port o f Cotonou, energy, telecommunications and cotton, as well as increased public investments in economic infrastructure. Furthermore, current projections indicate that Nigeria’s transit trade with Benin will remain fairly robust and Foreign Direct Investment (FDI) i s expected to hold up given ongoing projects and Benin’s long-term growth prospects. However, i f the international environment remains sluggish, with demand for exports and financial flows continuing to be weak, and commodity prices and exchange rates being volatile, this could dampen Benin’s economic prospects. Other possible shocks could include poor agricultural production due to weather conditions, and capital outflows due to loss o f confidence. Furthermore, a protracted global economic downturn could lead to slower growth in Benin over the medium term. Despite these risks, a joint Bank and lMF review o f the macroeconomic situation in September 2008 has concluded that the macroeconomic framework i s broadly adequate.

Table 3: Economic Trends and Medium-Term Projections

NPV o f debt-to-exports ratio (%) 81.6 88.5 66.0 65.8 74.3 79.0 84.4 90.3 Real effective exchange rate (%, minus=depreciation) 2.2 1.1 0.9

Sources: Beninese authorit ies and IMF and B a n k s ta f f estimates and project ions

26. According to the SCRP, economic growth in Benin will be driven by: (i) a more dynamic services sector; (ii) a pick-up in agricultural production; and (iii) an increase in public investments in infrastructure. In this context, the authorities intend to pursue and improve commercial relations with Nigeria to facilitate transit trade and re-exports. Reforms such as improvements in the efficiency o f operations o f the Cotonou port, measures to improve the business climate, would spur growth in trade and services and private sector investments. Government will encourage agricultural production for domestic consumption (food crops) and for exports (cotton, pineapples, o i l palm, etc.). Wh i le cotton sector reform had stalled until recently (see box l), Government has restarted the reform process and intends to pursue a more comprehensive reform program that should see the sector turning around from the 2009/10 season. Finally, improvements and expansion in public infrastructure investments (energy, telecommunications and transport) should help restore industrial and service sectors. These additional measures are expected to counteract some o f the downturn expected with the current world-wide recession and financial crises.

27. The investment ratio i s projected to increase from 21.4 percent in 2007 to 24.3 percent in 2010 fuelled by an ambitious public investment program and to a lesser extent by private investment. The external current account deficit i s expected to slightly improve to 7.5 percent o f GDP in 2010 after a sharp deterioration in 2008-09 (9.7 percent on average) as a result o f severe exogenous shocks. The overall fiscal deficit (on a payment order basis and excluding grants) would widen from 1.4 percent o f GDP in 2007 to about 4.2 percent o f GDP in 2008-10 reflecting increased social and development expenditures required for the implementation o f the strategy’s Priority Action Plan. Total expenditures would increase from 22 percent o f GDP in 2007 to 24.2 percent o f GDP by 2010, o f which 48 percent would be allocated to priority sectors. External conditions are l ikely to remain challenging and pose significant r isks to the above macroeconomic outlook.

28. The preliminary results of the 2008 debt sustainability analysis conducted by the Bank and IMF confirm that Benin’s debt is sustainable. Debt cancellation under the Heavily Indebted

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Poor Countries (HIPC) Initiative and the Multilateral Debt Rel ief Initiative (MDRI)’ coupled with a prudent borrowing policy have helped reduce the country’s total public external debt from 58.3 percent o f GDP in 2000 to around 12.5 percent o f GDP at end-2007. However, although the risks to medium-term debt sustainability are estimated to remain moderate, the DSA stresses the importance o f government maintaining a prudent borrowing policy and borrowing only on concessional terms.

Box 1 Cotton Sector Reform

Background. Cotton remains Benin’s top export commodity and accounts for about 40-50 percent o f merchandise exports and 10-15 percent o f GDP. Though cotton has dominated Benin’s economy for years, production and exports have plummeted in recent years due to adverse global and domestic developments. L o w world market prices partly attributable to subsidies in developed exporting countries and partly to the appreciation o f the CFAF vis-a-vis the U S dollar have contributed to the crisis in the sector. However, the more significant cause has been the failure o f domestic reforms, due mainly to malfknctioning o f mechanisms established by the inter-profession, and the ambiguous role played by the State in the intended gradual transition to greater liberalization o f the sector.

Reform process. Benin started i t s liberalization process in the early 1990s and by 2000, i t had partially privatized and liberalized the sector. I t then put in place new institutions to ensure that the sector remains integrated. The main responsibility for cotton sector oversight was placed with the Association Znterprofessionelle du Coton (AIC), which brings together al l sector participants, including farmers, ginners, and input suppliers, wi th cotton seed marketing and reimbursement o f input credit assured by the Centrale de Stcurisation des Paiements et du Recouvrement (CSPR).

Although the initial results o f the reforms were promising, the organization o f the sector quickly unraveled as different actors by-passed rules established by the A I C and CSPR; and delays in payments, loan servicing and delivery o f services, eroded confidence in the sector. As a result, cotton production which reached 425,000 tons in 2004/05 declined to 190,000 tons in 2005/2006 before recovering to less than 300,000 tons in the two most recent campaigns. The domestic input price and cotton price-setting mechanisms and the privatization o f SONAPRA (the cotton ginning agency) became sources o f contention. The government has repeatedly stepped in to establish input and output prices, ignoring the mechanism in place for agreeing on prices. The privatization o f SONAPRA has been repeatedly postponed.

Bank involvement. An IDA-financed’ Cotton Sector Reform Project (May 2002- Dec 2008) has helped build the capacity to establish a more competitive sector and recent PRSCs have supported the reform process. While significant results were achieved under the investment project, notably in consolidating and strengthening producer organizations, and in defining the key rules o f the game and the roles o f key actors in the sector, the reform program stalled due to frequent interventions by the government, including in 2007 with the abrogation o f the regulatory framework and cancellation o f the process to convert SONAPRA to a majority private-owned company.

Current issues and next steps. Government has recently launched a new privatization process. A new ginning company, SODECO, has been created to take over the ginning activities o f SONAPRA starting wi th the 2008-2009 season. To consolidate sector reforms, Government and members o f the inter- profession have just signed a new framework agreement (January 2009) that establishes the rules o f the game and the role o f the different actors, private and public. I t would be essential that this framework be upheld. The sector also needs to agree on a strategy on input imports and distribution joint ly by Government and private sector actors.

Benin i s one o f the first 19 countries that have graduated from the HIPC Initiative and have received 100 percent cancellation o f their eligible debt under the Multilateral Debt Relief Initiative (MDRI), effective as o f July 2006. Total debt re l i e f from IDA, the IMF and the African Development Bank (ADB) amounted to approximately US$ I .I bil l ion or 23.2 percent o f 2006 GDP (60 percent o f which was provided by IDA).

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Benin’s Key Development Challenges 29. A narrow economic base, unreliable and expensive infrastructure services, poor basic services, corruption and weak institutions remain major challenges for Benin’s economy. T o accelerate growth to levels that will transform Benin into an emerging economy by 2025, and to improve the quality o f l i fe o f the population, these issues need to be successfully addressed.

30. Government will need to pursue reforms and investments that promote competitiveness, diversification and innovation. T o strengthen competitiveness, the Government i s investing in infrastructure and tahng measures to reduce factor costs, by improving road transport, port services, energy services, and telecommunications. IFC will work with Government to put in place a program focused o n reforms to improve the business climate and improve Benin’s Doing Business indicators. The on-going BanWIFC financed Competitiveness and Integrated Growth Opportunity Project (CIGOP), i s also helping to improve the business environment and promoting diversification especially for export. With support f rom the MCA and IFC, Government i s implementing new strategic investments, reforms, and the restructuring o f the Port o f Cotonou to significantly enhance i t s productivity and improve Benin’s regional competitiveness. T o diversify the economy and reduce dependence on cotton and trade with Nigeria, Government has identified five high growth potential clusters for which it will provide more strategic and innovative support: i) Transport and services; ii) Cotton and textile; iii) Agribusiness; iv) Tourism and handicrafts; and v) Public works and new information and communication technologies (NTIC)6.

31. Improving basic health outcomes. Despite support for the health sector through the budget support program and a number o f vertical programs (such as malaria, TB and HIV/AIDS), there i s l i tt le support for the health system and to ensure performance of institutions (i.e. health care centers) or individuals (i.e. health workers). Weak governance and administration in the health sector i s the major bottleneck for achieving the health MDGs. With donor support, Government plans to: (a) raise the technical and organizational quality o f care by improving health education, governance and payment mechanisms; (b) tackle inefficiency in the public health system and the poor quality o f services provided in public health facilities; (c) reinforce the capacity o f the Ministry o f Health (both at central and at local levels) to perform i ts functions; (d) improve hygiene, drinkable water and sanitation systems; and (e) ensure adequate financing for the health system and introduce incentives for performance.

32. Providing quality and relevant education. K e y challenges in the sector include: (i) stark disparities in the provision o f education services based o n social status and geographic location; (ii) the lack o f decentralization at the municipal level and weak participatory school management; (iii) insufficiencies in init ial and in-service training and monitoring performance o f teaching stafe (iv) lack o f resources to meet the growing demand for higher education; and (v) the mismatch between what i s taught in the education and professional training system and the sk i l l s needed in the economy. In addressing these issues, the Government will also improve female education and gender equality in education. The on-going EFA Fast-Track Initiative Partnership i s addressing some o f these issues to help Benin achieve the MDG o f Education for All, by improving quality o f primary education, retention rates, especially for girls, and strengthening the institutional environment o f the education sector.

33. Improving access to safe drinking water. Access to potable water in rural areas has increased f rom 35 percent in 2002 to 42 percent in 2006 and i s expected to reach 67 percent o f the

The C E M identified a large set o f nontraditional export possibilities across agro- and natural resource- based products that can serve as a starting point for diversification for Benin. A number o f these products are in l ine wi th what Government had already identified. Benin - Constraints to Growth and Potential for Diversification and Innovation - Country Economic Memorandum (June 2008)

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population in rural areas by 2015. To sustain this trend, Government will need to continue: (i) to improve the performance o f budget execution; (ii) to strengthen the Sector Wide Approach (SWAP) while developing the administrative and financial deconcentration o f the Water Directorate; (iii) to empower rural municipalities in investment planning, financing, contracting and managing water supply services; and (iv) to put in place an adequate national framework for Integrated Water Resource Management.

34. Improving governance and strengthening institutional capacities. Despite progress made in promoting governance, important challenges remain in tackling corruption and strengthening the quality o f governance to promote economic development. A diagnostic survey on governance and corruption in Benin carried out over 2005-2007 confirms governance issues are perceived as a major challenge. The households surveyed deplored the quality o f essential public services (water, health, and electricity) and the problem o f bribes needed to obtain public services. Corruption was reported to be most frequent in the taxation, customs and police services. In addition, there i s a lack o f t rust in key accountability institutions including the parliament and judiciary. Similar observations were made by the private sector which identified problems with performance o f public services, fiscal requirements and bribes for registration. Many aspects o f budget and personnel management in public institutions remain problematic and making the budget an effective tool for poverty reduction i s a major challenge. The relatively recent move toward program budgeting and a result-based approach have the potential to improve transparency and the impact o f public spending. Wh i le the Public Expenditure and Financial Accountability (PEFA) assessment conducted in April 2007 confirmed that the Government has made some progress in Public Financial Management (PFM) reforms since the last CFAA undertaken in 2005, further improvements are needed.

111. DONOR SUPPORT TO BENIN

PARTNER COORDINATION AND HARMONIZATION

35. A large number o f development partners are present in Benin (Appendix 3) and this poses a challenge for coordinating donor support and aligning aid with country priorities. The challenge wil l be even greater as China, the MCC’ and the Islamic Banks become development partners in Benin. Although the PRSP process and budget support programs have fostered collaboration and coordination between the Government and development partners, this needs to be greatly improved in cross-cutting areas, such as promoting gender equality, c iv i l service reform, decentralization and governance.

36. The Government and development partners are committed to harmonization and alignment (Appendix 4). Joint Government-donor reviews are regularly carried out in the core sectors o f rural water, health, and education. T h i s promising experience i s being expanded to other sectors, such as agriculture, decentralization and transport. Moreover, donor coordination has improved with joint budget support, leading to a better aid alignment with the SCRP. Since 2004, joint missions o f the main donors that are providing budget support for PRSP implementation take place each year in September and the development partners meet regularly every month at the agency head level and also in 12 sectoral or thematic working groups, several o f which are chaired

’ Benin i s one o f the countries selected for the M i l l enn ium Challenge Account (MCA). The proposed assistance is equivalent t o approximately US$307 m i l l i on to be disbursed over a five year-period.

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by a government ministry. Finally, joint analytical work i s becoming more common, in particular in the area o f public finance', and a joint performance assessment framework i s being developed.

37. Cooperation with the IMF. Bank and Fund teams have closely coordinated the contents o f their respective programs as well as the determination o f their respective triggers, with the PRSC covering the structural and social benchmarks, while the PRGF covers macroeconomic issues. In that context, the three-year Poverty Reduction and Growth Facility (PRGF) arrangement approved in August 2005 has addressed issues o f fiscal consolidation and structural reforms to maintain macroeconomic stability and foster growth. The f i rst three annual PRGF reviews were completed in November 2006, June 2007 and January 2008, respectively. IMF and IDA staffs will continue to conduct joint PRSP missions and prepare joint assessments on the PRSP Progress Reports.

38. This CAS has been prepared in close coordination with the Government and other major partners. The CAS preparation was launched in September 2007 during a Government-Bank retreatg, with the participation o f 7 ministers, notably the Minister o f State in charge o f Development. Discussions have also been organized with other development partners, civi l society and the private sector to review the strategic choices for the Bank. A client survey, supported by a strategic positioning exercise, has been used to help the country team better understand what sectors and instruments to focus on and where the Bank has added value.

IV. THE BANK GROUP ASSISTANCE STRATEGY

A. THE BANK'S TRACK RECORD IN BENIN

Portfolio performance under the Fy04-Fy06 CAS period 39. During the last CAS period, project implementation was affected by long delays in effectiveness" and in procurement. Whi le there were problems with timely project effectiveness, procurement planning and disbursements, counterpart financing improved with the adoption o f new Country Financing Parameters adopted in May 2005 (allowing for 100 percent Bank financing o f projects).

Table 4: Selected Indicators o f Bank Portfolio Performance as o f October 31,2008

Average implementation period (years) 3.3 2.8 2.5 2.5 2 2.1 Percent o f problem projects by Number 14.3 28.6 16.7 22.2 0 0 Percent o f problem projects by Amount 14.0 31.0 22.3 21.7 0 0 Percent o f projects at risk by number 14.3 57.1 16.70 22.2 12.5 11.1

Disbursement ratio (%) 26.8 46.5 18.6 16.7 23.4 9.9 Percent o f projects at risk by amount 14.0 45.7 22.30 21.7 11.1 10.8

8 For instance, the Bank and Denmark worked joint ly on a Public Expenditure Review (PER) in 2004 while the 2005 Country Financial Accountability Assessment (CFAA) was conducted joint ly by Denmark, the Netherlands, the European Commission and the Bank. There i s joint work currently on Country Status Reports (CSR) for Health and Education. There are discussions on joint AAA work in Agriculture in FY09. 9 During the retreat, the priority areas that the Government stated it would l i ke the Bank to concentrate on in preparing i t s assistance strategy were the following: diversification o f the economy; capacity strengthening in the public sector; development o f human capital wi th emphasis on education and health; infrastructure and private sector development; and promotion o f good governance. 10 Delays in effectiveness average 6-8 months after Board approval and occur mostly at the level o f credit ratification at the National Assembly but also sometimes from delays in recruiting key project staff.

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40. Results f rom ICR reviews conducted by IEG for Benin projects which closed over the FY04-08 period, indicated that 57 percent o f the outcomes were satisfactory. Bank overall performance was rated satisfactory for 50 percent o f projects, and institutional development impact and sustainability were 75 percent and 60 percent, respectively. The overall disbursement ratio averaged 30.3 percent for the period 2004-2006, above the average o f 25 percent for the Afr ica Region. This reflects in large part the quick disbursing PRSC operations starting in FY04. Overall, the mediocre portfolio performance reflects the weakness in implementation capacity in the Benin administration and the need for stronger monitoring and evaluation systems, issues which are being addressed through a close portfolio monitoring program within the Country Office. These efforts will continue under the new CAS.

Conclusions drawn from the FYO4-FY06 CAS 41. The CAS Completion Report (CASCR) concluded that CAS implementation and Bank performance were broadly satisfactory (Appendix 5). In particular, the CASCR highlighted that whi le about 75 percent o f outcomes were achieved, growth performance was weak and there was litt le progress in poverty reduction. Outcomes include the maintenance o f macroeconomic stability; the strengthening o f public expenditure management; improvements in access to safe water and electricity for the rural population and in access to education; and containment o f HIV/AIDS prevalence. These results correspond to the areas where the Government showed more ownership and commitment. However, CAS achievements fe l l short o f what was envisaged with respect to expanding the private sector, structural reforms, strengthening institutional capacities and effectiveness o f the M&E framework for the PRSP.

The CASCR also pointed out the fo l lowing lessons:

The progressive transition to programmatic lending benefitted from preparatory work on budget and expenditure management. For example, implementation o f the PRSC-supported program greatly benefited f rom the results-based budgeting and public expenditure management reforms established under the IDA-financed Public Expenditure Reform and Adjustment Credit.

Much remain to be done to improve the availability and quality of data needed to monitor the results. As discussed in the JSAN o f the SCRP, reliable data for a number o f results indicators i s not available. Under the current CAS, the Bank should support efforts to strengthen M&E capacities, including data management, and establish a results-based M&E framework for the s o . The CAS period was characterized by improved policy dialogue between the Bank and the Government and strengthened coordination with other development partners. However, implementation o f the program was hampered by capacity constraints, particularly in line ministries and partners need to continue to support the Government efforts to strengthen i t s capacity to deliver public services. Bank support was most effective when Government showed ownership and commitment, such as in public financial management and macroeconomic stability, and was least successful when dealing with more politically-sensitive issues, such as with c iv i l service and structural reforms.

Private sector development and economic diversification will help sustain growth performance in Benin. The economy’s dependence o n a single cash crop and trade with Nigeria calls for a redoubling of efforts to promote more broad-based growth through agricultural diversification and improved competitiveness and diversification o f the secondary and tertiary sectors. Accelerating economic growth wil l also require improving the overall quality of the investment climate by strengthening the institutional pol icy and regulatory frameworks, the adequacy and quality o f infrastructure as wel l as an effective judicial system and a well-functioning financial system.

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Lessons Learned and Messages from 2007 Client Survey

42. The survey was useful in conveying Beninese perceptions of the Bank and of its contribution to Benin’s development outcomes as well as what they consider as the country’s top development priorities (Graph 1). The views expressed on Benin’s top development priorities suggest that the Bank has an important role to play in supporting health services, the fight against corruption in projects, agriculture, poverty reduction, education, employment, private sector development, growth and good governance.

Flnanclal System* Decentralization Policies*

P u b l i c S e c t o r , Private Sector. *Gender Disparltles

Regulatory Framework. *Natural of Modern Agrlcultural Development*

Graph 1: Client Survey* - Evaluation of Key Sectors and Bank Competencies

*Environmental Impact of Bank Programs Access to Basic Services* .Transparency In

Governance *Infrastructure Development

*Reduce Poverty Resources Mgmt. Economic Orowth

‘Reduce Corruption In the Country

3.7

3.6

3.5

3.4

t 3.3 3.2 1 3.1

e 3.0

2.9

2.6

2.7

2.6

2.5

I

Bank not so good, but issue not perceived to be

_. -. Bankgood, but issue noi perceived to be a priority

a priority Bank not so good on priority issues

- . - - . - - - - - __ - - - - - Bank relatively good and issue is-a priorit)

Health Sector.

Safeguard against Project Corruption. Education Sector*

*Urban Quality of Life *Judicial System 2 Social Protectlon Sector

3.6 3.9 4.0 4.1 4.2 4.3 4.4 4.5 4.6

Mean Importance

* The results from the Client Survey were discussed with the Government during a CAS retreat on September 15,2007 and have been used to inform this Country Assistance Strategy.

43. Based on feedback received, the following lessons can be drawn from the Client Survey: (i) the Bank needs to better demonstrate its effectiveness on the ground, explaining why i t may not be as flexible as stakeholders would like, and why i t s strategies are in fact realistic, sustainable and in line with the priorities o f the country; (ii) finding the right balance between the need to stay focused on key priorities and greater demand for Bank involvement i s a challenge; (iii) there i s a need to demonstrate more effectively the value o f the Bank’s policy and economic advice through systematic dissemination o f analytical work and improved policy dialogue; (iv) dialogue with other key stakeholders in Benin, in particular with civi l society and private sector needs to be strengthened; and (v) the Bank needs to improve i t s communication about i t s role, including with respect to poverty reduction.

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B. CAS STRATEGIC CHOICES AND GUIDING PRINCIPLES

Strategic Choices

44. The objective of the Bank’s assistance to Benin is to selectively support implementation of the SCRP (PRSP-Io. The Bank will focus o n activities that (i) induce broad-based growth; (ii) improve access to basic services and ensure greater efficiency o f public expenditures; and (iii) promote better governance. The Bank will leverage other donor financing (health, energy, agriculture) and additional private sector investments (energy, telecommunications) to complement i t s support, particularly in sectors where it i s not directly present. The Bank wil l also pursue stronger partnerships with IFC and MIGA; and use i t s analytical services to broaden and in form the reform program and development dialogue.

45. Preliminary results from the Client Survey and consultations on IDA’S comparative advantage highlight priority areas for Bank support. These include: (i) growth acceleration programs including private sector support and diversification programs and basic infrastructure development; (ii) spatial development, including rural, urban and community management programs; (iii) social sector support; and (iv) governance. T o promote regional integration and collaboration, the Bank will also promote programs that are regional in nature and develop regional infrastructure and trade. In al l these areas, the Bank will continue to play an important catalytic role to gamer support for SCRP programs.

Guiding Principles

46. Promote donor harmonization and coordination: Since the 2003 CAS, and particularly in the context o f the PRSP, there has been increased collaboration and better partnerships between the Bank and other development partners. The Bank wil l continue taking the lead in coordinating donors’ programmatic lending activities through the PRSC whi le encouraging the use o f sector wide approaches. Under the leadership o f the Government, the Bank will work with key donors to deepen harmonization and alignment for increased a id effectiveness and better development results (Box 2).

47. Be selective and focus on results. Bank assistance will be aligned with a subset o f the SCRP pillars and provide support t o a selected group o f activities aimed at achieving the C A S objectives o f accelerating private sector-led growth and improving access to basic services, as described under Appendix 2: Selectivity o f the Bank’s program. The Results Matr ix (Appendix 1) provides a comprehensive overview o f how the C A S results and indicators are aligned with the SCRP objectives.

48. Ensure adequate dissemination of analytical work: Although the 2007 QAG assessment o f the AAA program under the previous C A S rated the quality o f the program satisfactory, i t concluded that the impact o f the Bank’s AAA program on pol icy dialogue and capacity building was l imi ted by the lack o f sufficient dissemination o f the results o f the analytical work. Based o n these conclusions, this CAS will ensure that sufficient resources are devoted to the dissemination o f the results o f ESW and that the AAA program i s more effectively uti l ized to influence pol icy reform design and enhance capacity. The Bank will encourage jo in t analytic work with other donors as called for in the Paris Declaration.

49. Promote partnerships within the Bank Group to enhance synergies with IFC and M I C A . These will be developed with IFC notably in the area o f infrastructure (power, the port, and telecommunications). Joint projects with IFC will be prepared to help improve the business environment, and a close collaboration i s also envisaged between the Bank and IFC to support the development o f the financial sector and the SMEs. MIGA’s portfolio in Benin consists o f two

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projects: an ongoing investment in telecommunications aimed at improving the country’s teledensity, and an equity investment which the Agency underwrote in FY09 toward the acquisition and reconstruction o f a hotel in Cotonou.

C. BANK GROUP PROGRAM AND STRATEGIC OBJECTIVES

C A S Strategic Objective 1: Strengthening Competitiveness and Accelerating Private Sector- led Growth

50. Support stable macroeconomic framework and improve public financial management (CAS Outcome 1.1). To achieve this outcome, the Bank will help strengthen the implementation capacity o f the administration to increase budget execution rates and ensure that the budget process i s well aligned with the SCRP objectives and that Government continues prudent macro-economic management. IDA will support this agenda through the PRSC series, updates o f PEFNCFAA and through i t s dialogue with the authorities. Together with the budget support donor group and other development partners, the Bank will regularly review SCRP implementation and with the IMF undertake periodic reviews o f progress under the PRGF.

5 1. Improve the investment climate and revitalize the private sector (CAS Outcome 1.2). Private sector development continues to be hampered by Benin’s investment climate, administrative and regulatory constraints and poor infrastructure. IDA, in strong partnership with IFC, will work to help Government improve the investment climate and attract private sector investments in key sectors. During the CAS period, the focus will remain on improving transparency in administrative processes and providing the needed infrastructure for private sector development. The ongoing I D N I F C Competitiveness and Integrated Growth Opportunity project (CIGOP) and an IFC TA (FY09) wil l help to (i) improve business registration and licensing processes; (ii) provide comprehensive tax reform; and (iii) consolidate the institutions created to support the private sector. The CIGOP project and the PRSC series will complement activities under the US-financed MCA”.

52. Enhance the contribution of agriculture to growth (CAS Outcome 1.3). This includes emergency measures to enhance domestic food crop production in the short-term to respond to the food price increases and design o f a medium to longer-term strategy to improve competitiveness and diversification in the sector.

Response to Food Price increases. From 2006 to 2007, the production o f Benin’s main cereal staples, rice and maize, decreased by about 9 percent and 14 percent respectively. Since November 2007, the Government has taken measures to limit the impact o f increasing prices o f food crops on the consumer. In early 2008, the Government launched an Emergency Food Security Program (EFSP) aimed at enhancing domestic food production in the short- and medium- terms. In response, the Bank approved in October 2008 an Emergency Food Security Support Project for $9 mil l ion which i s being undertaken under the Global Food Crisis Response Program and financed under the Food Price Crisis Response Trust Fund. The grant, which became effective November 5, 2008, will support over a two year period Government’s efforts by subsidizing and strengthening emergency operations for the provision o f fertilizers to about 50,000 producers o f rice and maize, to boost food production in the short run. The grant will help lay the groundwork

The reforms supported by MCA include: land market reform, involving land registration, titling and transfers; judiciary reform to improve the transparency and accountability o f court decisions; overhaul o f customs systems including making the one stop shop at the port operational and completing the computerization o f transactions as well as investments to improve port capacity.

11

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for future Bank agriculture operations envisioned in 2009, which should include activities aimed at promoting food crops commodity chains.

Strategy to Promote Competitiveness and DiversiJication. Benin’s agriculture exports have been sluggish because o f low productivity, constraints in input procurement, and lack o f competitiveness in the sector. Measures to alleviate these constraints to improve productivity, input distribution, and establish effective supply chains, quality control and sanitary norms, will be essential to successfully diversify the sector. An agriculture diversification study (FY09) will analyze these issues to see how best to promote private sector development and publidprivate partnerships in agriculture. The study will provide input for a subsequent agricultural diversification operation that could support reforms in the cotton sector, the value chain (from production to transformatiodexportation) o f other promising agro-products, improve productivity o f food crops and help address gender issues in the sector. The on-going CIGOP operation will also install a minimum integrated trade expansion platform (MITEP) that will help entrepreneurs identify and transform products to fit market development opportunities.

53. Promote growth inducing infrastructure -Telecommunications (CAS Outcome 1.4). This sector represents a key growth area for Benin and the Bank will provide support to establish the regulatory and institutional framework for fair access to Benin’s telecom network, prevent unlicensed operators from entering the sector and ensure a level playing field between all operators (including mobile operators). Other recommendations from the ICT study completed in FY08 will be followed up through an ICT project (FY10) and the PRSC series. The Bank’s support w i l l also include the implementation o f a modernized framework law governing electronic communication, including PPPs in the sector. The ongoing CIGOP i s currently helping with the privatization o f Benin Telecom (opening it up to the private sector).

54. Promote growth inducing infrastructure - Energy services (CAS Outcome 1,5), Benin has faced severe energy crises over the last two to three years as a result o f the lack o f effective energy sector planning and financial crises facing the energy sector companies, namely the local electricity distribution company, the Sociktk Bdninoise d ’Energie Electrique (SBEE), and also the bi-national Compagnie Electrique du Bdnin, CEB. The high cost o f establishing adequate national generation capacity has also been a major cause o f the energy deficit and problems. Through the PRSC series and an ongoing Energy Sector project (PFSE), the Bank i s helping Government put in place a program to reduce the operating costs o f SBEE and improve i t s efficiency, and define an appropriate sector strategy, including defining the role o f private operators. A new energy sector operation (FY09) and a regional energy operation (FY12) will help increase access to electricity and improve the operational efficiency o f the generation, transmission and distribution system.

55. Increase competitiveness through greater regional integration and reduced trade costs (CAS Outcome 1.6). Through the regional Abidjan-Lagos transport and transit facilitation project (FYlO), the Bank will help to address transport and facilitation bottlenecks identified along the corridor. Benin’s participation in the project i s crucial to reduce the bottlenecks to trade and transport and increase the country’s competitiveness. The West and Central Africa Air Transport Safety and Security Program (FY09) will strengthen the Civ i l Aviation Authority’s oversight capacity in both safety and security and make improvements to Cotonou airport’s security. Wh i le the M C A has taken the lead in helping the government improve port efficiency, the Bank Group will jo in M C A to design an implementation strategy for an action plan designed in June 2007. IFC i s providing advisory services to promote sound PPPs for the port. The Abidjan-Lagos Corridor Project may include a component for establishing a one-stop window at the port.

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C A S Strategic Objective 2: Improving Access to Basic Services

56. Improve environmental and urban sanitation improvements (CAS Outcome 2.1). Very poor sanitary conditions in some neighborhoods o f Benin’s main cities (Cotonou, Porto-Novo and Parakou) have for years endangered the health o f residents and restricted their access to social services and economic activity. Since the Bank’s in i t ia l investments in the 1990s to improve these conditions by upgrading infrastructure, other donors, such as France, the EU, BOAD have provided additional investments which have helped strengthen the technical and financial capacity o f municipalities to increase resources needed to maintain equipment and infrastructure. The most recent Bank support was an additional financing o f $40 mi l l ion (FY08) to support and strengthen the Second Decentralized Urban Management Project (PGUD-2). Support during the CAS period will be re-oriented toward improving urban environmental management, including solid waste management, increasing access to urban sanitation and drainage services, and strengthening capacities to manage the environment. A proposed IDA UrbadEnvironment project (FY 1 1) would leverage other investments in the urban environment domain in addition to the drainage infrastructure that i s currently funded by the donors. T w o ongoing GEF Projects (FY06 and FY08) are helping Benin to promote conservation and sustainable use o f coastal wetlands and marine resources, as wel l as integrated management o f forests and adjacent lands.

57. Improve access to safe and sustainable drinking water and sanitation service (CAS Outcome 2.2). The Bank, through the PRSC, and in close collaboration with donor partners, wil l continue to strengthen the successful sector-wide approach implemented in the Rural Water Supply and Sanitation (RWSS) program. M o r e specifically, the Bank wil l support the implementation o f critical reforms aiming at : (i) accelerating the whole cycle o f services delivery to increase sustainable and equitable access to water supply; (ii) enhancing efficiency and transparency in the sector expenditures; (iii) achieving the transfer o f responsibility f rom the central administration to the local governments, including investment planning, financing, contracting and managing water supply services; and (iv) improving the sustainability o f water services through a greater participation o f local government, private operators and water consumer associations.

58. Improve quality education services to better respond to development needs (CAS Outcome 2.3). The Bank will continue to support the Government in i t s efforts to reach the education MDGs, in particular gender equality through the PRSC series and the Education For All Fast-Track Initiative Catalytic Fund (effective December 2008). As part o f the AAA effort to support education, the Bank has prepared an Education Country Status Report, whose analysis will help the Government to refine i t s priorities for sector development and this will be followed up through the PRSC. The Bank would also play a catalytic role in tertiary education reform through a TA assessment o f the sub-sector, which would be undertaken in complement to the CSR. Meanwhile, the Bank would undertake additional sector work (FY10) o n s h l l needs for the key sectors o f the economy and how vocational, technical and tertiary education should respond to these.

59. Increase access to health and nutrition services and treatment for HIV/MDS and Malaria (CAS Outcome 2.4). Health outcomes have been stagnating due to weak sector governance, whi le poor nutrition, H IV /A IDS and malaria remain serious concerns. The Bank i s currently preparing a Country Status Report for the Health sector (FY09) which has already demonstrated the need to find a new financing approach in the sector at least until the governance and institutional set-up are improved. The CSR will provide the government o f Benin, the Wor ld Bank and other donors and partners in health with the knowledge base to better define the nature and scope o f future support. This would be based o n two different mechanisms: one on the supply side (performance contracts) and the other on the demand side (mandatory health insurance schemes). Major improvements (in terms o f building capacity in the Health Services with regards to the analysis o f health policies, enhancing the Ministry’s abil ity to assess, design and monitor

- 1 8 -

policies) can be achieved in the sector through the development o f a health SWAP (FY10). The SWAP will emphasize the implementation o f result-based financing (RBF) mechanisms, which offer a promising solution for achieving several MDGs in a fast and sustainable way. Bank financing for the health sector, though modest, i s supplemented by Trust Funds (Global Alliance for Vaccination and Immunization and Health Results Based Financing) and will leverage additional donor resources to support implementation o f the National Strategic Health Plan. Ongoing projects to support control and fight against HIV/AIDS and malaria wil l continue and a new TA project will support nutrition programs.

CAS Strategic Objective 3: Promoting better governance and strengthening institutional capacities

60. Improve public administration, transparency and anti-corruption (CAS Outcome 3.1). Corruption and institutional dysfunction waste scarce public resources and constitute a challenge to good governance. The PRSC series will continue to support implementation o f the Government’s policy framework for Results-Oriented Budget Management (GBAR) adopted in December 200512 and will be used to strengthen internal capacity, with support from the budget support donor partners. The CAS would also support implementation o f the Government’s PFM action plan prepared by the authorities to address the weaknesses and key challenges identified by the 2007 PEFA diagnostic (see paragraph 34). During the CAS period, the Bank and partners will work to ensure that short and medium term measures are well sequenced and prioritized. Key donors including the EU, the Netherlands and DANIDA are planning to set-up a fund to support implementation o f the action plan. The Governance and Anti-Corruption Diagnostic Survey, finished in June 2007 with technical support from the World Bank Insti tute and financial support from the AfDB and the World Bank, will provide the analytical underpinnings for the policy and institutional reforms on governance and for updating the Strategic Anti-Corruption Plan. Through TA and the PRSC, the Bank Group would provide support to the Government’s anti-corruption and institutional reform agenda which i s focused on actions that will reduce corruption in key public sector institutions and will place a strong accent on strengthening the demand side o f governance. With regard to Benin’s judicial and legal systems, the Government i s implementing a ten year reform program which was prepared in 2001 with Bank’s support. This i s being supported by programs financed by the EU and the MCA13 to improve capacity o f the justice system and permit acceleration o f judicial reforms.

61. Strengthen budget accounting, implementation and control (CAS Outcome 3.2). Whi le the ambitious public finance reform started in 2006 has increased accountability in sector ministries and transparency in accounting and financial information, there are s t i l l weaknesses in the production o f financial reports, the monitoring o f resources, and in accounting. The PRSC series will support Government’s plan to further strengthen budget accounting and accelerate production o f financial reports and internal control mechanisms currently under implementation. A ROSC AAA work (FY09) i s ongoing and will help develop and implement a country action plan to improve institutional capacity and the country’s corporate financial reporting regime in the accounting and auditing profession. An IDF Grant for strengthening capacity o f the accountancy

The GBAR strategy was based on the 2005 CFAA update and the PEFA assessments. l3 The M C A Access to Justice Project (US$34.27 million) has as its objective improving ability o f the justice system to enforce contracts and reconcile claims. The project includes: strengthening o f the Arbitration, Mediation and Conciliation Centre (CAMeC) and the Business Registration Centre (CFE); strengthening and improvement o f the judicial system (training and support to the Inspector General), construction o f the court o f appeals in Abomey, o f eight (8) courts o f f i r s t instance and o f a Legal and Judicial Information Centre, and the establishment o f a support fund for the access o f the poor and the unprivileged to judicial services. The EU program o f 12 mil l ion Euros, finances some construction for the Appeals Court, helps with internal reorganization o f the various jurisdictions and training o f magistrates and judges, and computerization o f some o f the courts.

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profession (FY08) will help increase in the medium-term the number o f qualified accountants in Benin. The Bank wil l work with AfDB and the Netherlands to accompany Government efforts to increase the effectiveness o f internal and external audit institutions. The CAS will also support the implementation o f the new procurement code and restructuring o f the institutional set-up for procurement in conformity with the new WAEMU Regional Directives on legal and institutional frameworks, as well as the preparation and implementation o f a national strategy on capacity building in public procurement.

62. Support decentralization through community development (CAS Outcome 3.3). Better implementation o f the decentralization program i s needed to strengthen accountability, transparency in local decision malung and responsiveness to local concerns. The IDA-financed CDD project has supported decentralization by providing communes and communities with technical and financial support; and encouraging Government to increase i t s financial support to communes and communities. The Bank will seek to leverage support from other donors for the CDD approach. A follow-up operation in FY11 will seek to use a SWAP approach to support decentralization and could provide an opportunity to harmonize donor support in this arena. The SWAP could be designed to help local governments prepare local development plans and link them to the SCRP. The Bank would undertake sector work on decentralization and local development in FY12. Support for decentralization i s also being provided to municipalities through the IDA- financed urban sanitation program.

63. I n conjunction with the different instruments, the Bank is also launching a program of outreach and technical assistance for parliamentarians, civil society, and the media on key development issues. This technical assistance will be used to disseminate information on Bank and donor activities, address issues o f governance, political economy, and implementation capacity that are best addressed through dialogue and exchange with the different stakeholders, rather than by studies or formal training programs.

V. DELIVERING THE BANK GROUP ASSISTANCE PROGRAM

A. LEVERAGING THE EXISTING PORTFOLIO

64. Successful implementation of the existing portfolio will be key to achieve the CAS outcomes and support the growth strategy. As o f November 30, 2008, the IDA portfolio consists o f 7 operations totaling US$287.3 mil l ion in commitments (Table 5). This excludes budget support through the PRSCs which has averaged about US$30 mil l ion per year14. There are also two GEF- Financed operations totaling $10.3 million. Portfolio performance faced particular challenges over the f i rst nine months o f FY08 and this led QAG to activate a Country Record Flag for Benin. Wi th the closing o f the two main problem projects at the end o f FY08, however, portfolio performance o f the portfolio has improved (table 4). The IDA portfolio i s supplemented increasingly by t rust funds (Bank and recipient-executed). Whi le TF disbursements in FY07/08 were small relatively to IDA (less than $1 million, i.e. about 4%), they are expected to increase substantially in FY09 and beyond. In FY09, TF disbursements are projected to more than double the FY08 level, not including projected disbursements for Education for All.

Exceptionally, the budget support for FY07 (PRSC 3 and PRSC4) totaled $70 million. There was no 14

budget support operation in FY08 but PRSC 4 was disbursed in April 2008.

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Table 5: Composition of Active IDA Country Portfolio (as o f 11/30/08)

et comrmtments

17.4 50.0 26.3

18.1 52.0 33.5

Urban Development 26.1 75.0 49.5

EnvironmentlNRM 3.6 10.3 7.7

Private Sector Development 8.7 25.0 24.7

I Total 100.0 287.3 201.5

65. The main challenges over the last 18 months have involved management performance, dijjficult political choices, in addition to the normal areas of delays in effectiveness and procurement, and quite high disbursement lags. The deterioration o f the portfolio during the f i rs t nine months o f 2008 involved about three main operations that were rated “at risk”: the Cotton Sector Reform, the GEF Forests and Private Sector Support projects. Both the Private Sector and Cotton projects have closed with their Development Objectives (DO) rated unsatisfactory. In the case o f the Cotton Sector Reform project, this was due to the very slow pace o f action on reform o f the cotton sector and i ts transition to a more liberal and competitive system. The Private Sector Support project, on the other hand, had an overly ambitious design that made it impossible to achieve most o f the objectives. Wh i le the implementation progress o f the GEF financed Forestry project had been plagued by management problems and delays in procurement and disbursement, it has began to turn around over the last several months, and implementation progress i s now satisfactory.

66. The country team has started over the last 18 months a systematic monitoringprocess of the portfolio. The reviews help to provide a better understanding o f projects’ performance, to identify problems as they arise and to address some o f the generic issues. In particular, the team has instituted quarterly mini-CPPR meetings with P IU coordinators and relevant staff from the Ministr ies o f Finance and Development to discuss ways to address implementation problems. The f irst meetings have focused on procurement and disbursement issues but there st i l l remain additional efforts to improve procurement management at all levels.

67. I n addition to DPLs and SWAPS which are already being implemented through the country PFM system, the Bank is conducting a review of the use of Benin PFM system for investment operationsfinanced by the Bank The objectives o f the review are to: (i) support better project design and portfolio management on the part o f the Bank; (ii) provide a solid basis for increased use o f FM country systems for investment projects in Benin; (iii) provide inputs for a comprehensive action plan to assist the Government in strengthening the aspects o f the system which need improvement before they can be used, and to discuss relevant implementation including transition measures, if any. The use o f the country PFM system will help scale up development impact, foster country ownership, facilitate harmonization and simplify and reduce transaction costs as called for in the Paris Declaration. Therefore, the country PFM system will be used by default for the delivery o f Bank’s assistance wherever i t i s deemed appropriate. The Bank will accompany this transition with appropriate level o f technical assistance, especially in the areas of budgeting, information system, accounting, treasury/fund flows, asset management, internal audit and external audit.

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B. LENDING PROGRAM

0 PRSC V-VI11 (CSO I, 2 & 3)

0 Energy Services (CSO I)

68. I t is hoped that Benin can, under the CAS, reestablish its performance to receive at least the same I D A allocation under IDA15 as it did under I D A 14. The current IDA15 allocation for Benin shows a reduction o f 7 percent compared to IDA14. The total indicative IDA allocation for Benin during the CAS period (FY09-FY 12), i s SDR191.3 million, approximately US$3 12 mill ion (see table 6). This total amount consists o f the IDA15 (FY09-FY11) indicative amount o f SDR 142.2 mil l ion and a projected SDR48.9 mil l ion for FY12, the f i rst year o f IDA16. The actual IDA allocation will be determined annually based on: (i) country performance as reflected in the Country Policy and Institutional Assessment (CPIA) and portfolio performance; (ii) Benin’s performance relative to that o f other IDA countries; (iii) lending terms (mix o f grants and credit); (iv) the overall IDA resources available; and (v) changes in the l i s t o f IDA-eligible counties. Better portfolio performance and a more favorable CPIA score over the course o f the CAS period absolutely and relative to other counties, would help increase the IDA allocation. Thus, the size o f IDA financing would be influenced significantly by Government policy and institutional reforms as well as by absorptive capacity as reflected in progress in implementing the country project portfolio. In addition to the ongoing trust finds (para. 64), the country team will pursue future trust fund financing to complement the limited IDA resources.

30 20 20 20

45 40

69. If slippages occur in the structural reform and governance areas that constitute the core performance indicators under budget support, the lending program, both the PRSC series as well as some investment projects, would need to be reconsidered. The Bank Group will help Government improve portfolio quality through i ts engagement, project supervision and direct follow-up as issues arise and through portfolio management.

0 Agricultural Diversif icat ionRSD (CSO I)

0 Telecom and ITC (CSO I)

Table 6: Proposed IDA Assistance for FY09-12 and Corresponding CAS Strategic Objectives (CSO) (million US%)

20

10

0 Health Services (CSO 2)

Community Development (CSO 2 & 3)

15

30

1 UrbadEnvironment (CSO 2 & 3) I I I 30 I I

0 Regional operations (CSO I)

Total for All Operations

3 9 20

78 74 80 80

I Total for Country Operations I 75 I 65 I 80 I 60 I

70. I n light of the limited I D A resources and the need to support growth, the Bank will rely on a selective combination of budget support (PRSCs) and investment operations. Past Bank experience has shown that a combination o f budget support coupled by key investments and project assistance are needed to have a coherent approach to supporting structural reforms. Profiting from

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the lessons learned under the f i rst four PRSC series in Benin, the pol icy dialo gue under the PRSCs series during this CAS period will focus o n macroeconomic and public finance management, education and other social issues to bolster efforts o f sector investment operations. The PRSC has proven an effective instrument for supporting the Bank’s dialogue with Government and development partners o n growth and poverty reduction issues.

7 1. The self-standing investment operations together with regional programs will help reinforce the impact of the structural reforms in the key sectors. The main investment and regional operations to be financed by IDA would be in the key areas o f growth-inducing infrastructure (energy, telecommunications, and regional roads), social and community infrastructure (urban sanitation and environmental improvement, and community development), agriculture reform (cotton, diversification) and support for food-crop production, and human development (heath sector reform and development).’’ IDA will emphasize SWAPS to better harness donor support around shared reform and investment objectives. The main regional programs in which Benin i s expected to participate are the West and Central A f i i ca Air Transport Safety and Security (FY09); the Abidjan-Lagos Transport and Transit Facilitation Project (FY lo), and the Adjarala-Hydro-electric program (FY 12).

c. ANALYTICAL AND ADVISORY PROGRAM

72. Building on the recent QAG assessment of the AAA program under the previous CAS, the planned knowledge program will be guided by the following principles ; (i) AAA studies should clearly indicate the strategic priorities and define the accountabilities o f the institutions; (ii) use local consultants whenever possible; (iii) use better monitoring arrangements and results indicators; and (iv) improve the dissemination and outreach strategy and the engagement/consultation process with the clients. The Bank wil l ensure that sufficient resources are devoted to the dissemination o f programmed E S W and that key stakeholders are engaged during al l phases.

Table 7: Proposed M A Program for FYO9-12 FYO FY FY11 12

Health Country Status e Report

Agriculture Diversification

Country Environmental Assessment

Report on Observance o f Standards and Codes (ROSC)

0

e

Higher Education and e EmploymentISkill Needs

Public Expenditure Review

Poverty Assessment

e

Investment Climate e Assessment

National Governance e and Anti-corruption Strategy

Energy Sector Review

Decentralization and Local Development

~~~~ ~

Annual PRSP Progress Report (TA)

l5 Education will continue to be supported as part o f the PRSC series and through the Education for AlWast Track initiative (EFAFTI) for which Benin has a program o f $76 mil l ion over the next three years.

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D. RESULT-BASED MONITORING AND EVALUATION

73. I n the spirit of the Paris Declaration and taking into account that the CAS is fully aligned with the SCRPpillars and goals, monitoring and evaluation of the CAS will be done in coordination with the SCRP. Most o f the core outcomes and indicators (Results Matrix, Appendix 1) selected to assess progress in implementing the assistance program are derived from the SCRP and indicators from the Bank-financed portfolio and these reflect the selective areas o f Bank involvement. Also, overall reviews o f progress on meeting the CAS outcomes will take place annually and will be closely aligned with the annual joint review o f the SCRP implementation. These will be complemented by the portfolio reviews especially where there i s lack o f necessary information or when the SCRP does not specify clear and specific benchmarks and targets. The IDA-financed investment operations all have as objectives, strengthening existing monitoring and evaluation mechanisms and monitoring o f the CAS through the M&E system for the SCRP will be complemented by quarterly reviews o f the performance o f Bank’s portfolio (Para 66) as well as by annual CPPRs. The Bank wil l prepare a CAS Progress Report in 20 1 1 to evaluate progress toward CAS outcomes and adjust strategy and program if needed. The Progress Report will be completed after Benin’s presidential elections scheduled for 201 1 to allow consideration o f new government policy. A CAS Completion Report will be prepared at the end o f the CAS period.

74. The revised participatory M&E system developed for the SCRP, which builds on the assessment of the M&E mechanism for the first PRSP, establishes a simplified system that would guarantee better coordination of actions and synergy between the stakeholders involved in the monitoring and evaluation of the Poverty Reduction Strategy. The new institutional framework also gives greater responsibility to the sector ministries and the central statistical production units and strengthens the synchronization between the technical and administrative monitoring. Moreover, during the revision o f the PRSP, the Government broadened the set o f monitoring indicators (of which many are derived from the sectoral performance indicators and targets set out in sector program budgets) and prepared a detailed Priority Action Plan (PAP) which establishes a sound monitoring and evaluation framework for assessing progress under the strategy and offers a more appropriate institutional framework for monitoring the implementation o f this CAS.

75. As discussed in the JSAN of the SCRP, some weaknesses need to be addressed to achieve a more efficient system and ensure an effective monitoring of PRSP results. These include the availability and quality o f data and weak sectoral monitoring and evaluation capacities. Therefore, the Bank will continue to closely work with other main development partners to support Government’s efforts to strengthen national statistical capacity and make more effective and operational the national M&E system that will ensure a regular and adequate assessment o f the implementation o f the SCRP. In particular, the Bank and key donors will support the preparation and implementation o f the National Statistics Development Strategy which aims to strengthen the national statistical system, improve the availability and quality o f data and strengthen the coordination o f statistical agencies.

VI. MANAGING R I S K S

76. o f this strategy and that need to be mitigated.

There are a number o f factors that pose r isks for implementing and achieving the objectives

77. Weak commitment or lack of consensus for reforms. Whi le measures undertaken in the early months o f the current administration demonstrated Government commitment to structural reforms, the slowdown in the reform momentum indicates a weaker consensus or capacity to implement reforms, which may be due to a number o f factors, including personal interests and political opposition from parliament. In order to move forward with the agenda and to achieve i t s

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ambitious growth targets for Benin, Government has restated i t s commitment to the reforms and i s initiating open debates with key actors to arrive at a consensus for moving forward. This i s crucial to avoid resistance to the reform agenda and reversals o f policies. The Bank Group i s providing support to Government in the objective analysis o f reforms to support their growth and poverty reducing objectives and has initiated a new dialogue with stakeholders, such as parliamentarians to help restore the momentum for the reform agenda.

78. Weak absorptive capacity. Over the past few years, as Government has tried to improve public financial management procedures, i t has become apparent that weak absorptive capacity has contributed to slow budget execution. Sector ministries seem to face a number o f constraints in budget execution, namely long delays in spending execution, cuts in domestically-financed investments and high volume o f payment arrears, thus limiting the implementation o f sector programs, and consequently the progress towards achieving objectives. Measures to improve procurement capacity and planning in sector ministries through the PRSCs and direct TA provided by the Country Office are helping. Institutional reforms and capacity building through on-going projects and proposed SWAps should also help improve absorptive capacity. Finally, the PRSCs are designed to help improve budget execution, strengthen the dialogue between sector ministries and the Ministry o f Economy and Finance, and along with the PEFNCFAA help strengthen capacity for public expenditure management.

79. External shocks and risks to the macroeconomic framework Given the importance o f the cotton sector and transit trade with Nigeria to the economy, Benin’s economy remains very vulnerable to external shocks mainly in the form o f volatile international prices and demand for cotton and trade restrictions imposed by Nigeria. A global economic slowdown leading to lower cotton export revenues or reduced trade with Nigeria would pose a serious risk to the macroeconomic framework. In addition, current external conditions are likely to remain challenging and pose significant r isks to the country’s macroeconomic outlook. A deeper-than- expected global downturn caused by the financial crisis could dampen export demand and financial flows (notably FDI and aid). Other possible shocks include terms o f trade volatility, disaster r i sks such as droughts and floods that can affect agriculture, and loss o f confidence that could cause capital outflows. The acceleration o f the reform process in the cotton sector and the medium term prospects for diversification, as well as ongoing efforts to improve trade relations with Nigeria, should help mitigate this risk. Also, these r isks are mitigated through the m ix o f instruments included in the CAS and supported by Benin’s partners (PRSCs, investment operations and SWAps) and the specific measures included in the planned operations to (i) open the market to new producers in agriculture to diversify production and improve investments, production and marketing for cotton; and (ii) strengthen the regulatory framework and policy environment to support economic diversification and private sector-led growth.

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Appendix 2: Selectivity o f the Bank's Program

Appendix 2: Selectivity of the CAS Program

Benin SCRPISDO 2007-2011 Strategic Pillars 8 Outcomes

Selectivity of World Bank Engagement CAS Pillars 8 Outcomes and New IDA Operations

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Appendix 3: Benin’s External Partners

Multilateral

The European Commission i s a major source of funds for Benin’s investment budget with a focus on infrastructure, governance and local development. The lo * European Development Fund will cover 2009-2013 with an estimated amount o f 334 mil l ion Euros. Infrastructure will remain a strong sector o f concentration where one third o f financing wil l go to sectoral budget support. Governance and local development are the other priority sectors. EC’s Strategy wil l also target competitiveness, social cohesion, environment and support to civil society.

The African Development Bank. The PRSSP I1 o f the African Development Bank (AfDB) i s part o f the budget support program that, together with the Bank’s PRSC and budget support from other donors, supports the implementation o f the PRSP with a strong focus on public expenditure management reform, public procurement reform, internal and external controls, and capacity building. Since the signature o f the Memorandum o f Understanding (MoU) between the Bank and AfDB in 2002, coordination between the two institutions has greatly improved. In particular, the PRSSP I1 was coordinated with PRSCs prior actions’6. The Bank also collaborates very strongly with AfDB on regional operations on road transport, trade facilitation, and energy. The AfDB has also been supporting Benin in agriculture (livestock, forestry) and higher education (through a regional WAEMU project).

The United Nations has recently completed i ts W A F for 2009-2013 with an estimated US$126.64 mil l ion mobilized. I t would focus on poverty reduction and programs that would help achieve the MDGs, through rural development, employment promotion, equitable access to basic social services including health, education, gender, promotion o f good governance and participative development.

Bilateral

France’s support i s provided by the Ministry o f Foreign Affairs (Cultural and Cooperation Department o f the French embassy) and by the French Development Agency (AFD). AFD i s financing part o f the budget support. Projects focus on energy, water and sanitation infrastructures, vocational training, farmer organizations, and sustainable regional and local development .

The Dutch cooperation will focus more and more on the water and sanitation sector. They also take part in budget support. Other areas o f support are education, promotion o f good governance and agriculture.

Denmark focuses assistance on education and institutional reforms. Projects in these sectors come in complement to the aid delivered through budget support. Projects also target the financial sector, agriculture, water and sanitation supply, vocational training and gender inequalities.

German assistance focuses on decentralization and rural infrastructure. Technical cooperation i s provided through GTZ, while KfW offers financial cooperation. KfW i s involved in budget support and recently opened a local office. At present, Germany’s assistance includes

One good example o f the application o f the M o U i s the public procurement reform where the AfDB and IDA teams have enhanced the coordination o f their technical advice, leading to the selection o f joint sets o f conditionalities and prior actions.

16

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projects in sustainable natural resource management, drinking water and decentralization. They are also interested in supporting the energy sector.

U S AID i s provided through USAID and the MCA. U S A I D assistance focuses on education and health. In particular, U S A I D i s implementing the US$45 mi l l ion President’s Malaria Initiative over three to four years. This complements the U S 3 1 m i l l i on Bank-financed malaria booster program. Benin i s also one o f the countries selected for the Mi l lennium Challenge Account (MCA). The M C A assistance o f US$307.3 mi l l ion focuses on: (a) access to land; (b) access to financial services; (c) access to justice; and (d) access to markets. The access to land project (US$36.02 mill ion) i s designed to ensure secure access to land through an efficient land administration in order to facilitate investment and the creation o f a land market using land property as collateral. The access to financial services project (US19.65 mill ion) has as i t s objective the expansion o f low-cost financial services to micro, small and medium enterprises (MSME). The access to justice project (US$34.27 mill ion) supports the capacity o f the justice system to enforce contracts and reconcile claims. The access to markets project (US$) 169.45 mill ion) focuses o n improvements to the Port o f Cotonou. Government has signed a contract with IFC Advisory Services to work alongside M C A in the investments at the port. Most o f the M C A - financed activities have now started.

Multiple other donors are involved. Additional donors include the Belgian and Swiss cooperation, the Canadian International Development Agency (CIDA), China, the Japan International Cooperation Agency (JICA), the West Afr ican Development Bank (BOAD) and the Islamic Banks (Islamic Development Bank,, Arab Bank for Economic Development in Africa, etc).

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Appendix 4: Implementing the Paris Declaration: the Bank’s efforts in Benin

Since the adoption o f the Paris Declaration in March 2005, the Bank has been working with other key development partners to align support with Benin’s priorities and policies (as laid out in the PRSP) and harmonize donor procedures to reduce transaction costs and achieve greater results.

Preliminary results from the 2008 Survey on Monitoring the Paris Declaration show that the Bank has made substantial progress toward meeting the Paris Declaration targets but more efforts are needed to deepen these achievements. The Bank i s on track to meeting the Paris targets for use o f public financial management (PFM) systems and parallel project implementation unit (PIU) and has made significant progress on increasing lending through Program-based approaches (PBAs) as well as conducting joint analytic work. However, greater efforts will be needed in other important areas such as coordination o f technical cooperation and joint missions.

Program-based approaches. Since 2004, PBAs are being increasingly used by the Bank in Benin I

through PRSCs and sectorwide approaches. The share o f PBA disbursements in total IDA disbursements in Benin increased from 21 percent in 2004 to 48 percent in 2007 (compared with an average o f 30 percent for the Africa countries which participated in the 2008 Survey).

Use of national jinancial systems. Significant progress in strengthening public finance management has allowed increased use o f national PFM systems by development partners. Bank input into the 2008 Survey indicates that 48 percent o f Bank disbursements in 2007 used national PFM systems against 34 percent for the African countries group that responded to the survey, while 85 percent o f Bank operations used national procurement systems (the second highest percentage among the African participant countries).

Reliance on parallel PIUs. The Bank has made real progress in integrating project management into existing national structures. Available data suggest that more than 70 percent o f Bank- financed projects were integrated into national structures in 2007 compared with 30 percent in 2005. Furthermore, the transition to budget support and SWAP-like approaches will progressively lead to a significant reduction in PIUs.

Coordinated Technical Assistance. Coordinating technical assistance with other donors i s one o f the major areas where the Bank will need to focus to ensure that the target o f providing 50 percent o f capacity-development support through coordinated programs i s met. Under the definition used by the Survey, no coordinated Bank TA was reported for 2007, due in part to the absence o f a clear national capacity development strategy on which to align Bank capacity- development support.

Joint analytic work. The Bank has taken some important initiatives to build analytical partnership with other development assistance agencies and the Government over the last years. Joint analytical work i s becoming more common, in particular in the area o f public finance. The Bank and Denmark collaborated in a Public Expenditure Review (PER) in 2004, while the 2005 Country Financial Accountability Assessment (CFAA) was conducted jointly by Denmark, the Netherlands, the European Commission and the Bank. The 2007 PEFA assessment was closely coordinated between the Bank and the other key donors. There i s also joint work currently underway on Country Status Reports (CSR) for Health and Education, and additional joint sector work planned for Agriculture in FY09.

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Appendix 5: Benin: Country Financing Parameters

Date: May 5, 2005

The country financing parameters for Benin set out below have been approved by the Regional Vice-president, Afnca, and are being posted on the Bank’s internal website.

Item Cost Sharing. Limit on the proportion o f individual project costs that the Bank may finance.

Recurrent cost financing. Any limits that would apply to the overall amount o f recurrent expenditures o f a given project that the Bank may finance.

Local cost financing. A r e the requirements for Bank financing o f local expenditures met, namely that: (i) financing requirements for the country’s development program would exceed the public sector’s own resources (e.g., from taxation and other revenues) and expected domestic borrowing; and (ii) the financing o f foreign expenditures alone would not enable the Bank to assist in the financing o f individual projects. Taxes and duties. Are there any taxes and duties that the Bank would not finance.

Parameter up to 100%

N o country- limit level

Yes

None

Remarks / Explanation The Bank’s financing share in individual projects would be determined in a manner which supports government ownership o f projects, and on that basis counterpart funding by Government will generally be expected in all projects. The Bank wil l continue to promote harmonization o f i t s program with other donors’ assistance including through seeking cofinancing. Enhanced flexibility i s expected to be particularly appropriate in the case o f social sectors and decentralized or CDD operations, although typically contributions from Government and community contributions to local development programs will be sought. Nonetheless, there may be projects where Bank financing o f up to 100% would be required, for example in operations supporting regional HIV/AIDS or Malaria programs and reform efforts. The Bank would continue to monitor the overall fiscal and debt positiodperformance and i t s implications for recurrent cost financing. The appropriateness and the level o f recurrent cost financing in each individual project would be decided on a case-by-case basis, based on assessment o f sustainability at the project and sector levels. Recurrent cost financing i s expected to broadly remain at current levels. The criteria for local cost financing are met. Therefore, the Bank may finance local expenditures in any proportions as needed for individual projects.

The current tax and duties system i s considered to be reasonable. At the project-level, the Bank would consider whether taxes and duties constitute an excessively high share o f project cost.

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Appendix 6: Republic Of Benin 2003 CAS Completion Report

Country: Benin Date of CAS: July 16,2003

Period Covered by the CAS Completion Report: FY04 - FY06

CAS Completion Report completed by: Nouridine Kane Dia, Economist Evelyn Anna Kennedy, Operations Analyst Date: October 2008

Executive Summary

Introduction

1. This CAS Completion Report assesses the effectiveness o f the Bank’s Country Assistance Strategy for Benin covering the July 2003 - June 2006 period. The overarching objective o f the CAS was to support the implementation o f the 2003 - 2005 Poverty Reduction Strategy. I t s main findings will contribute to the preparation o f the new CAS 2009 - 2012.

CAS Objectives

2. The 2003 CAS had three broad objectives: (i) consolidate macroeconomic stability and promote growth; (ii) strengthen human development and environmental management; and (iii) improve governance and institutional capacities.

Country Outcomes

3. Benin has made substantial progress in consolidating macroeconomic stability and in improving key social indicators. However, economic performance was lower than envisaged while n o progress has been made in reducing poverty. Macroeconomic management has remained sound despite unfavorable international environment as evidenced by broadly successful implementation o f the IMF-supported program under the Poverty Reduction and Growth Facil ity arrangements. Inflation was broadly contained under the WAEMU convergence criterion o f 3 percent and the external current account deficit narrowed f rom 8.1 percent o f GDP in 2002 to 7.1 percent o f GDP in 2006. The overall budget deficit (on a payment order basis and excluding grants) was l imi ted at 2.5 percent o f GDP in 2006. However, real GDP growth rate decelerated from 5.2 percent on average over 2000-02 to 3.3 percent over the 2003-2005 period, due to declining international prices o f cotton and trade restrictions imposed by Nigeria. These developments, which highlight the vulnerability o f the economy to external shocks, underline the need to diversify the economy and strengthen i t s competitiveness.

4. Progress in reducing poverty has been mixed. The incidence o f monetary poverty seems to have increased f rom 28.5 percent in 2002 to 37.4 percent in 2006 with a more severe deterioration in rural areas. Rural poverty rates have sharply increased f rom 3 1.6 percent in 2002 to 38.8 percent in 2006 while increasing as wel l f rom 29 percent to 35 percent in urban areas. The incidence o f non-monetary poverty in rural areas stood at 58.3 percent in 2006 compared with 18.4 percent in urban areas. Reducing poverty in rural areas will require strengthening agriculture revenues and identifying new contributors to growth to diversify producers’ incomes.

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5 . Progress has been made in improving human development but further efforts would be needed to reach the MDG. In the health sector, the indicators have slightly improved, in particular geographical access to health services and uti l ization o f health services. Significant progress has also been made in reducing maternal mortality. Yet, achieving most o f the MDG targets o f the sector will be challenging and will require strengthening o f the capacity o f the ministry as wel l as the financing o f the sector. Substantial progress has also been made in improving education outcomes and prospects for meeting the MDG. Nevertheless, enhancement o f the ongoing core reforms and maintenance o f the current trends are needed for the sector to achieve i t s development goals. Benin i s also on track to reach the MDG for rural water supply.

6. Progress in strengthening institutional capacities and improving governance has been mixed. Strong results have been achieved in improving public finance management but litt le progress has been realized in advancing administrative and judic ia l system reforms. After the preparation o f the ten-year reform plan in 2001 to modernize the judicial system, effective implementation and improvement o f the performance o f the justice sector have been extremely slow. The weak internal capacity and lack o f coordination seem to be the main bottlenecks. The c i v i l service reform has also stalled for several years due to strong opposition f rom trade unions and the parliament. However, over the last months, the government has started discussions with the trade unions o n a new c i v i l service reform strategy that would include a revised merit-based promotion and remuneration system and the adoption o f a single statute for government employees covering both c iv i l servants and contractual employees. Governance indicators have slightly improved but Benin continues to rate poorly by international standards (1 18th out o f 179 surveyed countries according to the 2007 Transparency International report).

Bank’s contribution to Benin’s outcomes

7. Whi le problems o f attribution and the lack of indicators to measure the impact o f some Bank-related interventions make it diff icult t o evaluate the specific contribution o f the Bank i t i s clear nonetheless that IDA helped the country to achieve most o f i t s development outcomes. In particular, the Bank was successful in providing support to maintain a stable macroeconomic framework and improve public finance management. However, the Bank has been less successful in advancing the structural reforms and strengthening institutional capacities due to weaker than expected Government commitment.

Evaluation o f CAS performance

8. Overall, Bank’s performance has been broadly satisfactory. Benin has maintained a stable macroeconomic framework and successfully implemented the f irst cycle o f PRSC and PRGF-supported programs. The CAS strategic pillars were relevant to the country’s long-term development goals and aligned with the PRSP priorities. However, key development challenges remain to be addressed to materialize the objective o f the new Government to lift Benin to an emergent economy status.

Lessons learned

9. Bank’s assistance was more effective in the areas where the Government showed great ownership and commitment but was less successful in the areas where the Government was not firmly committed to implementing the program.

10. transition to programmatic support.

Preparatory work and pre-existing dynamics have been critical in ensuring a progressive

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1 1. The move to programmatic approach progressively improved the policy dialogue with the Government and donor coordination. Nevertheless, much remains to be done to move the harmonization agenda ahead. In particular, donor coordination should be greatly improved in cross-cutting reforms.

12. The impact o f the Bank’s AAA program on policy dialogue and capacity building has been limited by the lack o f sufficient dissemination o f the results o f the analytical work. The next CAS should ensure that sufficient resources are devoted to dissemination o f the ESW programmed over the CAS period.

13. Implementation o f the program has been hampered by capacity constraints, particularly in l ine ministries. The next PRSC-5 will continue to focus on capacity building to support judicial reform, civil service reform, improved public service management, and decentralization o f public services. I t i s expected that the education and water supply sectors will continue to be supported through the PRSC instrument, while the health sector would be covered through SWAP type operations.

14. Growth performance in Benin needs to be sustained by diversification and enhanced support to private sector development through improving the overall quality o f the investment climate. More emphasis on regional dimensions i s also needed to help the country exploit the special opportunities from i t s geographical position.

15. The consultation process for the next CAS should continue to build on PRSP consultations, and focus on how IDA can best support the program o f actions set out in the PRSP- 11. Greater emphasis should also be given to adequate participation o f key stakeholders during the implementation phase o f the CAS.

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Completion Report for Country Assistance Strategy for Benin 2004-2006

I. Introduction

1. This document evaluates the implementation o f the Country Assistance Strategy (CAS) for Benin discussed by the Board o n July 16, 2003 and which covered the fiscal years 2004-2006. More specifically, i t assesses program performance and Bank performance under the 2003 CAS. No progress report o n i t s implementation was presented to the Board. Annex 1 summarizes progress made in achieving the CAS outcomes while Annexes 2 and 3 compare the planned and actual deliveries o f lending and non-lending program. Annex 4 gives the country’s current status vis-a-vis the MDG while Annexes 5 and 6 present a summary o f the portfolio indicators.

2. Benin reached i t s completion point under the HIPC initiative in March 2003 and was granted debt rel ief totaling US$265 mi l l ion in net present value terms. Benin i s also one o f the f i rst 19 counties that have graduated f rom the HIPC Initiative and will receive 100 percent cancellation o f i t s eligible debt under the Multilateral Debt Rel ief Init iative (MDRI). Total debt rel ief f rom the World Bank, the IMF and the Afr ican Development Bank amounts to approximately US$1 . 1 b i l l ion (60 percent o f this debt rel ief will be provided by IDA). In addition to helping the country make progress towards achieving the MDGs, through ensuring adequate budgetary allocation for basic services, the MDRI will help the country keep i t s external debt situation on a sustainable path. Benin’s eligibil i ty t o the MDRI reflected i t s satisfactory recent economic performance, progress in implementing i t s Poverty Reduction Strategy and improvements in public expenditure management. However, given the country’s l imited absorptive capacity, further strengthening o f implementation capacity o f both central and line ministries will be essential to ensure adequate use o f scaled-up resources f rom the MDRI.

3. Benin adopted i t s f i rst Poverty Reduction Strategy Paper in September 2002 and prepared Annual Progress Reports (APR) on the PRSP implementation which were discussed during jo in t annual reviews in February 2005, September 2005 and September 2006. The Government revised i t s PRSP in April 2007 with a renewed emphasis o n accelerating and sustaining economic growth. The PRSP-I1 wil l provide the strategic framework for the next CAS.

11. Benin’s Longer-term national objectives

4. The overarching objective o f the 2003 CAS was to support the implementation o f Benin’s Poverty Reduction Strategy 2003-2005 (discussed by the Board in March 2003). The PRSP strategic goals were articulated around the four fo l lowing pillars:

9 Consolidating macroeconomic stability through accelerated private-sector led growth and improved public finance management;

9 Strengthening human development by improving access to quality basic social services specially for vulnerable groups;

9 Improving governance and reinforcing institutional capacities by advancing the decentralization and public administration reform and by strengthening the legal and judic ia l systems;

9 Promoting longer-term employment and income-generating opportunities for the poor, and strengthening their capacity to participate in decision-making and production.

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5. The CAS spelled out the fo l lowing core principles in the formulation o f the strategy: (i) selectivity in lending through forging stronger partnerships with other donors; (ii) closely linking support for community-driven development to decentralization, as required for sustainability; (iii) providing more programmatic and predictable assistance to underpin a more equal partnership in implementing long-term poverty reduction strategies; and (iv) for the Bank to assume a leadership role in capacity enhancing AAA in response to the Government’s request.

6. assistance through consolidated programmatic lending in the form o f annual PRSCs.

The CAS also pursued the vision la id out in the Inter im CAS to channeling IDA

7. The CAS explicit ly supported the three f i rst pil lars o f the PRSP whi le n o specific targeted assistance was envisaged for the fourth pi l lar o f the Government’s strategy. This selectivity in Bank’s support was guided by the above mentioned principles but also by the lessons learned f rom the 2001 Inter im C A S and CAS consultations that pointed to the need to be more selective and for more focused and sustained Bank support. However, i t was expected that Bank support to the promotion o f equitable economic growth (Pillar 1) would indirectly support the objective of creating more jobs and income-generating opportunities for the poor through embedding capacity building directly into planned lending operations. In retrospect, i t appears that the Bank was too optimistic about the linkages between pi l lar 1 and pi l lar 4 but also about the growth performance o f the economy.

8. In light o f the growth performance under the first PRSP and the persistent l o w level o f investment, the Government has emphasized the acceleration o f economic growth as a major pi l lar o f i t s newly revised poverty reduction strategy. The next C A S should take advantage of this opportunity to put more emphasis on private sector development and the development o f infrastructure services. In particular, the CAS should put a broader focus o n the improvement of the business environment and the strengthening o f infrastructure services to raise the competitiveness o f the economy.

9. Benin endorsed the Mi l lennium Declaration in September 2000 and has committed to implement policies and programs (laid out in the PRSP) towards achieving the MDGs by 2015. The PRSP targets were broadly consistent with the MDG but there were some differences between the targets in the PRSP and the MDG and definitions o f indicators to monitor progress. For example, the poverty reduction objectives were more ambitious than the MDG-related target while health targets were less ambitious than the corresponding MDGs. According to available data, Benin i s l ikely to meet one o f the targets for MDG1, namely that o f eliminating hunger as wel l as the universal primary education goal and the MDG for rural water supply. But the MDG targets for the health sector and gender would be diff icult to achieve without reinforced efforts. Annex 4 provides an analysis o f Benin’s current status vis-a-vis the Mi l lennium Development Goals.

111. CAS Outcomes

10. achieve significant progress in the following areas:

The specific objectives o f the CAS during the period 2004-2006 were to help Benin

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Bolstering the medium-term macroeconomic, through:

Accelerated private-sector-led-growth by implementing effectively the privatization program, setting a sound regulatory framework for liberalized sectors and improving private sector investment climate.

0 Expanded investments in the banking sector as wel l as expanded financing and technical assistance to small and medium enterprises by IFC.

0 Promoting rural development by supporting the Government's comprehensive rural development strategy along the fol lowing dimensions: (i) develop a strategy to increase the contribution o f cotton cultivation to poverty reduction in rural areas; (ii) improving land tenure and access to land ownership; and (iii) promotion o f productive investments necessary to diversify agricultural and livestock production systems, with special attention devoted to managing natural resources and other r isks that impact o n smallholder livelihoods.

Improved public finance management by supporting the Government's public finance management reform program and strengthening administrative and financial capacity at national and decentralized levels.

Progress in this area would be measured by the increase in the real GDP growth rate, the reduction o f the fiscal balance, the l imitation o f inflation and the increase in the investment rate.

Strengthening human development and environmental management through:

0 Improving access to education by providing responses to new school demands from the population; improving primary education teacher distribution and management; increasing the quality o f public spending and empowering communities in school management; supporting the Government in preparing i ts ten-year sector-wide education development plan; and providing technical support for the formulation o f alternative pol icy and operational options for primary and secondary teacher training and recruitment.

0 Improving access to health services by supporting the implementation o f Benin's health strategy; strengthening Government capacity to plan, implement, monitor and evaluate i t s overall sector strategy; improving financial access o f the poor to quality health services; helping the adoption and implementation o f more equitable mechanisms for the financing o f the sector; and preventing new H IV /A IDS infections.

Improving access to safe water by supporting Benin's rural water and sanitation strategy; assuring a sound and appropriate financing for the water sector; support private and decentralized maintenance systems and water point rehabilitation in order to increase the rate of water point functioning; helping the Government to improve sector implementation capacity through strengthening o f decentralized water services for planning, contracting and implementing; and implementing a sector monitoring and evaluation system and strengthening donor coordination.

Environmental management through improving capacity building in the sector and specific sector investments.

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1 1. Performance indicators identified to measure progress in strengthening human development included: the primary school enrollment ratio, the completion rate, the utilization rate o f health services, the infant mortality rate and the share o f population with access to safe water. No performance indicators were identified in environmental management but the GEF- financed National Parks Conservation and Management program would continue support for sustainable management o f Benin’s national parks.

Improving governance and institutional reforms, through:

Providing support to capacity building in public sector management; helping the Government efforts to improve good governance through the anti-corruption action plan; providing distance-learning opportunities for both the public and private sectors; strengthening Government accounting, reporting, and external oversight with a special attention to the Chamber o f Accounts.

Building strong legal and judiciary systems by supporting the implementation o f the ten- year integrated program for the development and modernization o f Benin’s legal and judiciary system; strengthening the capacity o f the Ministry o f Justice, including the provision o f technical advisory services, the recruitment and training o f staff, as well as office rehabilitation and equipment; strengthening the Courts to make them more efficient, particularly through the adoption o f new laws and regulations applicable to the judiciary and the reorganization o f the Courts’ “grefes”, as well as through better trained staff and equipped structures.

12. Two performance indicators were established to monitor progress in this area: (i) the number o f cities meeting specific criteria has increased to at least 6 in 2005 from 3 in 2003; and (ii) effective monitoring and evaluation for the PRSP i s operational and credible data on poverty trends produced on regular basis. The first indicator was too general and too complex to be monitored over the CAS period and was not clearly linked to any o f i t s specific outcomes.

IV. Benin’s track record

13. As stated in the 2003-2005 PRSP progress reports and their Joint Staff Advisory Notes (JSAN), progress has been mixed in implementing the initial PRSP”. Progress has been made in maintaining a stable macroeconomic framework and in improving key social indicators. However, economic performance was much lower than envisaged while no progress has been made in reducing poverty.

14. Macroeconomic stability has been maintained despite economic slowdown. Thus, the CAS outcome under this first pillar can be considered satisfactory. Macroeconomic policies conducted during the years o f implementation o f the f i rst Poverty Reduction Strategy (PRS) were appropriate and broadly in l ine with Benin’s PRS objectives. The Government continued to focus on maintaining macroeconomic stability, strengthening public finance management, and

” A study that evaluated the implementation o f the PRSP during 2003-2005 also observed mixed progress in achieving most o f the PRSP goals, and noted weaknesses in the poverty diagnosis and in the analysis o f obstacles to private sector development. I t recommended the strengthening o f the participation of the civil society, the private sector and the beneficiaries during the preparation o f the second-generation PRSP, the improvement in the M&E system, the sharpening of the PSD focus of the strategy; and the improvement o f the poverty profile.

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reflecting PRSP priorities in budgetary allocations to social sectors. Overall, macroeconomic management has remained sound despite a diff icult environment as evidenced by broadly successful implementation o f the IMF-supported program under the Poverty Reduction and Growth Facil ity (PRGF) arrangements.

15. However, as stressed in the Annual Progress Reports (APR) o f the Poverty Reduction Strategy and their JSAN, Government efforts have been confronted by external shocks, and economic performance was weaker than envisaged under the PRSP. Indeed, since the discussion o f the CAS by the Board in July 2003, economic activity has been adversely affected by major external shocks in the form o f volatile and declining international prices o f cotton and trade restrictions imposed by Nigeria in mid-2003. As a result, real GDP growth rate decelerated f rom 5.2 percent o n average over 2000-02 to 3.3 percent over the 2003-2005 period, as compared with a target o f 7.2 percent in the PRSP baseline scenario. These developments highlighted the vulnerability o f the economy to external shocks because o f i t s heavy dependence o n cotton and trade with Nigeria'*. The impacts o f these shocks have furthermore been exacerbated by delays in structural reforms. This underlines the need to diversify the economy and strengthen i t s competitiveness and constitutes a strategic goal to which the Bank needs to make a stronger contribution under the next CAS. However, economic growth slightly recovered to 3.8 percent in 2006 reflecting a rebound in cotton and services sectors.

16. Despite increases in the international prices, inflation was broadly contained, averaging 2.9 percent over the 2003-2006 period in l ine with the C A S target. Despite a 10 percent decrease in exports volume and higher o i l prices, the external current account deficit (excluding current of f ic ia l grants) narrowed f rom 8.1 percent o f GDP in 2002 to 7.1 percent o f GDP in 2006 as a result o f lower formal sector o i l imports and weaker capital goods imports. But the CAS outcome to increase the share o f private investment to GDP by one-half percentage point annually has not been achieved.

17. Public finance management has improved. In 2001, Benin embarked o n a number o f significant reforms to improve public expenditure management in order to raise the efficiency and transparency o f public spending and to improve the quality and poverty-focus o f public service de1ive1-y'~. Since then, public finance reforms have been consolidated and progress in implementing public expenditure management, fiduciary management, and auditing systems has been encouraging as noticed by the last HIPC Assessment Act ion Plan2'. Delegation o f spending authority granted to l ine ministries has been strengthened and budget formulation and preparation have improved with the adoption and the submission to the parliament o f a detailed and rol l ing Med ium Term Expenditure Framework (MTEF) and sectoral program budgets within many ministries, reflecting PRSP priorities. The budget execution and reporting systems have also been computerized and budget transparency and public access to data on government activities improved whi le the new procurement l aw has been adopted in 2004 and the National Regulatory

'* Cotton i s the major primary export commodity with about 65 percent o f total exports over 2003-06 while transit trade with Nigeria i s estimated to represent between 6.5 and 7.5 percent o f GDP.

These reforms have been supported by the PERAC (Public Expenditure Reform Adjustment Credit) which was the precursor to the first cycle o f PRSC which benefited from the reforms undertaken under this prior operation.

*' Benin met 7 out o f the 14 expenditure management benchmarks in the June 2005 HIPC Assessment Action Plan. The 2005 CFAA update published in June also confirmed this assessment. The conclusions o f the 2007 CFAA update seem to indicate the same trends.

19

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Agency for Procurement (CNRMP) and the National Executing Agency for Public Procurement (DNMP) established. These measures have contributed to improve the P F M performance indicators. The overall budget deficit (on a payment order basis and excluding grants) was l imited at 2.5 percent o f GDP in 2006 as against a target o f 4.5 percent o f GDP in the 2003 CAS. The average payment delay for public expenditures was reduced from 24.4 in 2003 to 22.9 days at the end o f the CAS period.

18. Despite these achievements, there are s t i l l weaknesses in monitoring resources allocated in the budget (internal and external resources) and in accounting. In particular, there have been some delays in completing budget audit reports due to lack o f resources and lack o f independence in managing resources for the Chamber o f Accounts. Further, certain bottlenecks in spending procedures hindered the execution o f some sector program budgets. Budget execution rates (excluding externally-financed investment expenditures) for the priority sectors21 have slightly deteriorated f rom 93.4 percent in 2002 to 73.0 percent in 2006. Moreover, the CAS objective o f integrating a l l expenditures in the budget management computerized system (SIGFIP) has not been achieved as some foreign grants are not s t i l l included in the system. In addition, there has been a recent tendency to circumvent the standard expenditure process through the use o f exceptional procedures during budget execution. But the new Government has taken appropriate and effective measures to limit the use o f these procedures.

19. The Government also adopted in December 2005, a pol icy framework for Results- oriented Budget Management (GBAR for Gestion Budgdtaire Axde sur les Rdsultats). The GBAR strategy was based o n the 2005 CFAA update and other public financial management reviews, including recent PERs and PEFA assessments. The objectives o f the pol icy are to use results- based budget management as a means to ensure service delivery and to ensure that public expenditures are used efficiently in the service o f development and o f citizen welfare. The GBAR also intends to raise fiduciary standards by improving public procurement and financial management. However, the GBAR strategy notes that for the budget system to achieve i t s objectives, weaknesses in human and institutional capacity will need to be overcome. The next C A S should explore ways to assist the Government in this endeavor.

20. Progress in implementing structural reforms has been mixed. The pace o f implementation o f the privatization program and establishment o f the appropriate regulatory frameworks in privatized sectors has been slow. After the separation o f the water and electricity companies o n one hand and that o f the postal services and the telecommunications o n the other in 2004, new regulatory texts have been drafted for electricity and telecoms, but i t took a longer time than anticipated to put in place the regulatory bodies. In the energy sector, although some progress has been made in defining the sector pol icy and the rehabilitation program for the National Electricity Distribution Company, SBEE, the new regulatory code has yet to be approved by Parliament, which delays reaching agreement on the regulator’s prerogatives. Similarly, in the telecoms sector, although a new legal and regulatory framework was adopted in January 2002, installation o f the regulatory agency has been delayed until very recently. Also, the implementation o f Government’s strategy to open port management to the private sector did not progress significantly. In the cotton sector, the current framework defining the relationship among the various stakeholders has been under stress, and the privatization o f the cotton parastatal, SONAPRA (which was init ially supposed to be completed within the C A S timeframe) has been repeatedly blocked. However, the new Government has shown greater commitment to speed up the implementation of the structural reforms program. In 2008, i t has set targets for cotton sector

21 Health, Basic Education, Water, Agriculture, Transport and Justice.

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reforms, including privatization o f factories, and withdrawal from involvement in the sector as private sector involvement increases.

21. Progress in improving the business climate for the private sector has also been slow. Although business regulations in Benin are broadly at par with SSA averages according to international assessments (including the 2005 ICA and Do ing Business reports), the business climate continued to be marked by poor regulations and governance which resulted in very high administrative costs (Benin ranked 137 out o f the 175 countries in the 2007 Do ing Business Report). For example, i t s t i l l takes 7 procedures and 31 days and costs twice the average annual income to register a business in Benin while i t takes 49 procedures and 720 days o n average to enforce contracts. Other obstacles reported by businesses included: harassment by fiscal authorities (according to the 2007 Do ing Business report, total tax rate represents 68.5 percent o f profits while the number o f tax payments averaged 72 in 2006); poor and expensive utility services and diff icult access to land. High corruption and poor contract enforcement by the judiciary system constitute other main concerns to investors. This explains why private investment in Benin has remained almost constant at 12 percent o f GDP during the CAS period and foreign direct investment at 2 percent o f GDP (whereas the C A S objective was to increase the investment rate by one-half percentage point per year). However, key positive steps taken with regard to the PSD agenda include the creation o f the Presidential Investment Council in February 2007. Progress in expanding investments in the banking sector as wel l as expanding financing and technical assistance to S M E was also l o w due to weaker than envisaged involvement o f IFC in Benin. Indeed, over the CAS period, IFC’s portfolio in Benin consisted o f only a US$0.34 m i l l i on investment in Finadev, a microfinance institution. However, IFC’s recent strategy for Afr ica calls for increased engagement with the private sector o f IDA countries, specifically the francophone countries in the CFA zone. Reflecting this move, a close collaboration i s envisaged between the Bank and IFC, under the next CAS, to support the development o f the financial sector and the SMEs.

22. Progress in reducing poverty has been mixed. While Government’s Second PRSP (Stratbgie de Croissance pour la Reduction de la Pauvretk: S C W ) reported that monetary poverty increased f rom 28.5 percent in 2002 to 37.4 percent in 2006, the changes in the design and methodology o f the surveys, the EMICOV and the 2002 CWIQ (Core Welfare Indicators Questionnaire) put in question the comparability o f the poverty estimates in 2002 and 2006. Indeed, as was noted in the JSANs o f two recent PRSP documents, the increase in GDP per capita combined with the decrease in inequality recorded over the 2003-2006 period bolster the conclusion that poverty has decreased, although modestly. Moreover, results based on variables representing conditions o f life22 also indicate a modest decline in non-monetary poverty f rom 43 percent in 2002 to 40.3 percent in 2006. These positive trends are more consistent with the evolution o f per-capita income, although modest. All these developments stress the necessity o f developing more robust poverty statistics that are comparable over time and more importantly to put in place a sound monitoring and evaluation system that wil l help to track progress under the next CAS.

23. Rural development has been very limited. Over the CAS period, the incidence o f non- monetary poverty in rural areas remained almost constant at 59 percent compared with 18.4 percent in urban areas. This reflected weaker than projected economic performance and particularly the declining contribution o f the agriculture sector to GDP growth. T h i s growth path reflected the poor performance o f the cotton sector that has been affected by the volati l i ty o f

The “living conditions” approach consists in defining the level o f poverty on the basis o f material 22

housing conditions.

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international prices but also by the disruptions which have characterized the functioning o f the ‘tfili8i-e” over the last years. As a result, the CAS objective with regards to poverty reduction has not been achieved (the CAS objective was to reduce rural monetary poverty to 27.1 percent by 2006). This highlights the fact that strengthening agriculture revenues and identifying new contributors to growth to diversify producers’ incomes will be key to reducing poverty in rural areas. This, in turn, will require addressing the main bottlenecks to the development and diversification o f the agriculture sector, such as high cost and l o w quality o f infrastructure services, lack o f technologies and knowledge, and l o w quality o f agricultural products.

24. Good progress has been made in improving rural electrification. Over the f irst PRSP period, electrification rates in rural areas have increased f rom 0.2 percent to 5.6 percent. Also, the Government has continued to improve i t s interventions in rural transport with the adoption o f the Strategy Note in December 2004. However, the execution o f rural roads rehabilitation program has been slow due to delay in procurement procedures and problems related to t imely availability o f funds.

25. Overall achievement under this pillar can be considered satisfactory. The different APR published during the f i rst PRSP period showed that some progress has been achieved in improving access to basic social services but recognized that further efforts would be needed to reach the MDG. In the health sector, the indicators have improved slightly between 2001 and 2006. Geographical access to health services has increased to 86 percent and the utilization rate o f health services has improved f rom 34 percent in 2001 to 43.9 percent in 2006 (well above the CAS target o f 37 percent ) while maternal mortality has decreased f rom 474.4 per 100,000 l ive births in 2002 to 397 per 100,000 l ive births in 2006. Yet, this progression would be insufficient to reach the MDG target. However, Benin has significantly reduced chi ld mortality f rom 160 per 1,000 l ive births in 2000 to 125 in 2006 suggesting that the country i s o n track to reach the MDG target. With regards to HIV/AIDS, the prevalence rate decreased from 4.1 percent in 2001 to 1.2 percent in 2006 (2.9 percentage point below the CAS target) with the implementation o f the 2000-2005 national strategic plan. As a result, the objective o f maintaining the prevalence rate below 4 percent through 2015 i s achievable. However, many constraints need to be addressed in order to improve the performance o f the health system. In particular, the capacity o f the ministry needs to be strengthened, both at central and decentralized levels and the financing o f the health sector increased. Financial access o f the poor to quality health services needs also to be improved.

Progress has been made in improving human development.

26. Significant progress has been made in increasing access to education in general and particularly to basic education. The primary gross enrollment ratio increased f rom 90 percent in 2002 to 96 percent in 2006 (compared with a CAS target o f 93.6 percent) whi le the gross enrollment ratio for girls rose f rom 80 percent to 87 percent over the same period. So, Benin i s on track to reach the MDG related target. Although the completion rate has increased from 46 percent in 2002 to 66 percent in 2006 (the CAS objective was 57 percent), reaching this MDG will be challenging. Also, while gender differences in education have been reduced, particularly at the primary level, the 2005 goal o f parity in primary and secondary education has not been met and would not be reached by 20 15 without reinforced effort. K e y challenges facing the education sector include persistent geographic and gender disparities, l o w quality o f education despite recent improvements, and the need to further define the measures to address issues in higher education and vocational training. Overall, enhancement o f the ongoing core reforms and sharp acceleration o f the current trends are needed for the sector to achieve i t s development goals.

27. The Government has also made significant progress in increasing access to potable water to the rural population f rom 35 percent in 2002 to 44 percent in 2006 and water facilities

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functionality rate has improved f rom 75 percent in 2002 to 85 percent in 2006. As a result, Benin i s o n track to reach the MDG for rural water supply. That new prospect regarding the MDG i s the result o f the successful programmatic approach implemented in partnership with the Bank and other donors. The Government has also taken strong measures to improve the execution capacity o f the sector that has more than doubled between 2001 and 2004. Although Benin i s on track to reach the MDG for rural water supply, maintaining these trends will require substantial resources for new construction and maintenance, along with community participation to improve the quality o f service.

28. Reflecting the implementation o f the Poverty Reduction Strategy, the Government constantly increased budgetary resources for basic services and pro-poor expenditures. Enhanced fiscal space for poverty-reducing spending was largely helped by debt rel ief under the HIPC initiative. Between 2003 and 2006, the share o f budgetary allocations to poverty reduction programs in the total budget increased by 4 percentage points. However, weak implementation capacity l imi ted the translation o f higher budget allocations into increased executed spending, in particular for investment expenditures. But over the last months, the Government has reinforced i t s efforts to address the implementation capacity constraints. Measures taken by the authorities include the recruitment o f additional staff in key technical positions, including specialists for procurement cells within l ine ministries and the National Directorate for Public Procurement (DNMP), the strengthening o f programming capacity o f sectoral ministries and closer monitoring o f budget execution. The Bank should continue to support Government’s efforts in this area through i t s PRSCs.

29. Progress in strengthening institutional capacities and improving governance has been mixed. The rating under this pillar is moderately unsatisfactory. Although strong results have been achieved in improving public finance management (see paragraph 15), l i tt le progress has been realized in advancing administrative and judicial system reforms. Benin prepared with the Bank’s support an exhaustive ten-year reform plan in 2001 to modernize the judic ia l system in the interest o f improving service delivery, including services to the private sector such as dispute resolution, but effective implementation and improvement o f the performance o f the justice sector have been extremely slow and delays continue to accumulate. The weak internal capacity, lack o f leadership and coordination and chronic insufficiency o f funds seem to be the main bottlenecks.

30. With regard to public administration reform, after the preparation o f a l l background documentations in 2004, the c iv i l service reform has stalled for several years due to strong opposition f rom trade unions and the parliament. However, over the last months, the government has started discussions with the trade unions on a new c iv i l service reform strategy that would include a revised merit-based promotion and remuneration system and the adoption o f a single statute for government employees covering both c i v i l servants and contractual employees. The Ministry o f Civil Service and Administrative Reform (MFPTRA) has hired technical assistance to prepare the draft statute. I t will be crucial for the text to be specific on the career and the performance based management system, rather than leaving development o f these critical issues to later decrees. K e y human resources management responsibilities have been delegated to the education ministries and the positive evaluation o f this process constitutes the basis for planning further deconcentration to more l ine ministries (with necessary capacity building in parallel, since the evaluation highlighted this as a weakness o f the previous process). More recently, the institutional framework for the integration, coordination and monitoring o f the administrative reforms (CNRA, CCRA) has been implemented, and a l l cells within line ministries have n o w been put in place.

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3 1. On decentralization, the regulatory framework for the decentralization reform has been established with 10 decrees adopted by the cabinet, and a further decree establishing communal development funds has been discussed jointly with donors. Notwithstanding this legal arsenal, implementation o f the decentralization process and policy has been slow due to many postponements o f the local elections, the lack o f operational modalities for the mandated transfers and an unclear implementation institutional framework.

32. On governance, CPIA ratings and Transparency International reports indicate that Benin has made some progress in this area. CPIA rating slightly improved from 3.5 in 2003 to 3.6 in 2006 (compared with an average o f 3.2 for the Africa region). With an overall score o f 2.7 from Transparency International in 2007, Benin rates also relatively well in SSA (21st out o f 50 countries). But Benin rates poorly by international standards (1 18th out o f 179 surveyed countries). A comparison o f the six governance indicators identified by WBI as critical to monitoring a country’s progress indicates that voice and accountability improved between 2002 and 2006 as did governance and the control o f corruption. However, political stability, respect for the ru le o f law and regulatory quality slightly deteriorated over the same period.

33. This reflects the situation o f a country undergoing reforms but with major challenges in tackling corruption. After defining i t s anti-corruption plan, the previous Government stalled all concrete anti-corruption measures in the last couple o f years. The main difficulties encountered in the past in the fight against corruption have been: a lack o f political will and poor collaboration among institutions; very weak law enforcement; very limited sanctions imposed on known cases o f corruption and fraud, creating a general sense o f impunity that has weakened the entire institutional setup. However, since April 2006, the new Government has put strong emphasis on fighting corruption and has adopted firm measures to promote good governance.

34. Overall, Benin has made good progress in meeting i t s development goals. I t has achieved most o f the CAS outcomes and the triggers for the base case. However, progress made has not been sufficient to move to the high case lending scenario. For example, completion o f the structural reforms and implementation o f comprehensive administrative reform program have not been satisfactory due to lack o f Government commitment and the opposition o f trade unions.

V. How the Bank contributed to Benin’s progress

35. Although the 2003 CAS was not a result-based strategy, i t developed a Country Partnership Strategy Matrix (CPSM) and core CAS benchmarks that would help assess progress in implementing the assistance program. These benchmarks and targets were derived from the PRSP M&E framework and reflected the selective areas o f Bank involvement during the CAS period. Thus, they represented the country’s outcomes to which the CAS proposed to make a contribution. The Country Partnership Strategy Matrix i s reproduced below with the initial targets, the current status and the associated CAS instrument that was supposed to influence the outcome.

36. Wh i le problems o f attributionz3 and the lack o f indicators to measure the impact o f some Bank-related interventions (in the areas o f judicial system and social protection and gender promotion for e~ample) ’~ make it difficult to evaluate the specific contribution o f the Bank to

23 The transition to budget support has compounded t h i s issue o f attribution.

24 Other weaknesses identif ied in the CPSM included the absence o f specific targets for some indicators, the dif f iculty o f measuring some indicators and the lack o f clear baseline. Addressing these weaknesses and

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Benin’s strategic outcomes under the CAS period, i t i s clear nonetheless that IDA helped the country to achieve most o f i t s development outcomes. In particular, the Bank was successful in providing support to maintain a stable macroeconomic framework and improve public finance management. However, the Bank has been less successful in advancing the structural reforms and strengthening institutional capacities due to weaker than expected Government’s collaboration.

37. A review of the Country Partnership Strategy Matr ix below shows that most o f the key CAS outcomes have been achieved. About 75 percent o f the CAS outcomes were achieved, including those most relevant to Benin’s longer-term development goals. Macroeconomic stability has been maintained with inflation being limited to less than 4.0 percent on average over the CAS period; public expenditure management has been strengthened with the reduction o f the fiscal deficit from 4.2 percent o f GDP in 2003 to 2.5 percent o f GDP in 2006; the incidence o f HIV/AIDS has been contained below the CAS target; rural population with access to safe water has increased from 35 percent in 2002 to 44 percent in 2006 while higher number o f households has access to electricity. However, the CAS achievements were less than those envisaged, in particular with respects to expanded private sector and broad-based growth, poverty reduction, the privatization program, the strengthening o f institutional capacities and the effectiveness o f the M&E framework for the PRSP. Poverty incidence has sharply increased and progress towards the MDG has been mixed. Also, the monitoring and evaluation framework for the PRSP has not been fully operational and production o f reliable data on poverty trends has been limited. Annex 1 provides a detailed analysis o f progress on the CPSM and lessons learnt.

strengthening the monitoring and evaluation framework of Bank’s interventions should be one o f the objectives o f the next CAS.

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Table 1: Core CAS Outcomes

medium-term macroeconomic framework

CAS Outcomes

Reduction of monetary poverty from 23.3 percent in 2002 to 19.1 percent in 2005 in urban areas and from 33 percent to 27.1 percent in rural areas25

Achieve PRSP macroeconomic targets

6.5 percent annual GDP growth

3 percent annual inflation

Reduction of fiscal deficit from -5.2 percent of GDP in 2002 to -4.5 percent of GDP in 2005

Investment rate increases by one-half percentage point per year

Reduction in the number o f days to register a business from 63 in 2003 to 45 in 2005

Strengthened public expenditure management

SBEE and SONAPRA privatized

80 percent o f farmers are satisfied

Current status

Rural poverty stood at 38.8 percent in 2006 as against 35 percent for urban areas

Real GDP growth rate averaged 3.3 percent between 2003-2005

Inflation was contained under 3 percent

Fiscal deficit narrowed to 2.5 percent

Investment rate remained almost constant at 12 percent of GDP

The number has been reduced to 32 days in 2005

Public expenditure management has been strengthened

Ongoing26

Not available

Associated CAS instruments

A mix o f lending instruments and AAA work contributed to this goal. The f irst series of PRSCs supported the maintenance of macroeconomic stability.

Sectoral interventions also contributed to promoting growth and improving access to basic social services: Cotton project, PSD Project, HIV/AIDS, Malaria project, CDD.

The Health CSR provided a better understanding of health- related determinants o f poverty.

The AAA program included: an ICA; Doing Business Report; FIAS Land study; Financial Sector Review.

The poverty assessment update, annual Doing Business Reports and PRSP PR helped monitor the CAS outcomes.

PSD Project

The CFAA update Poverty Assessment

Electricity Services Project

Cotton sector reform project

25 Baseline values for monetary poverty were revised during CAS implementation.

26 While in the nineties privatization o f power plant was viewed as a solution to underperfonnance o f power utility, experience with privatization o f power utilities both withm Africa and in other continents world-wide, has not presented favorable results. See for example Janasb, Mot, Newbeny and Pollit (2004) “Electricity Reform in Developing Countries: a Survey o f Empirical Evidence on Determinants and Performance”. The nature o f privatization o f SBEE i s being reviewed with the Government o f Benin in this light.

However, data on access rates i s subject to uncertainty margins o f about 2-3% due to lack o f census o f household sizes connected to the grid. A future CAS wi l l consider number o f households connected as a more reliable performance indicator.

21

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CAS Outcomes

Increased revenue from forest and livestock resource management

Increased crop yields

Increased farms revenue

Access to electricity has increased from 22 percent in 2002 to 24 percent in 2006 Education Primary school enrollment ratio increases from 8 1 percent in 2001 to 93.6 percent in 2005

Girls primary school enrollment ratio improves from 42.7 percent in 2001 to 46 percent in 2006 Adult literacy rate increases from 83.5 percent to 88.1 percent Primary completion rate increases from 45 percent in 2001 to 57 percent in 2006

Drop out rates reduced from 29 percent to 25.2 percent

Health Use o f health service care increases from 34 percent in 2002 to 38 percent in 2006

Prevalence o f HIV/AIDS reduced from 4.1 percent to 2.8 percent

Infant mortality rate reduced from 89 to 65 per 1000 births

Death rate from malaria reduced from 7.6 per 10,000 to 6.2 per 10,000

Measles and DTCP immunization coverage rate remain above 80 percent

Current status

Not available

No t available

Not available

Access to electricity was about 24.1 percent in 2006.”

The GER was 96 percent in 2006

T h e GER for girls rose to 87 percent

Not available

Primary completion rate increased to 66 percent

15 percent

The utilization rate o f health services improved to 43.9 percent

The prevalence rate was 1.2 percent in 2006

Infant mortality rate was 67 percent in 2006

Not available

Estimated at 92 percent

Associated CAS instruments

GEF project.

PRSCs supported actions to improve agricultural production and productivity.

The growth and Competitiveness study helped identify new high potential exports filibres.

Electricity Services Project

The first series o f PRSCs supported the creation and rehabilitation o f schools, the recruitment o f teachers to be deployed in underserved poor areas and the scaling up o f the action plan to promote girls education and direct schooling financing. I t also supported the preparation o f the ten-year Education plan which helped the country qualify for the EFA Fast Track Initiative. T h e C D D project helped poor communities construct and rehabilitate schools. The Public Expenditure Review (PER) Instruments that helped monitor the outcomes included PRSP PR and annual sectoral reviews.

PRSCs supported the improvement o f the resources allocation in the sector. I t also supported the access to and use o f health services as well as the streamlining o f the financing mechanism o f health services delivery to the poor. The MAP and Malaria projects also contributed to the attainment o f these outcomes. The CSR and the PER helped monitor the outcomes.

The poverty assessment update, PRSP PR and annual sectoral reviews helped monitor the outcomes.

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CAS Pillars

Improving governance and institutional reforms

CAS Outcomes

Prenatal consultation rate increases from 82 percent to 85 percent

Use of modem contraceptive methods improves from 8.9 percent in 2001 to 11 percent in 2005

Water and Sanitation Share of population with access to safe water increases from 66 percent in 2001 to 74 percent in 2006

Rate o f servicing rural population’s safe water requirements increases from 49 percent in 2003 to 64.7 percent in 2005

Number o f cities meeting specific criteria has increased from 3 in 2003 to at least 6 in 2005

Implementation o f development plan in 100 pilot communes

Effective monitoring and evaluation framework for the PRSP i s operational and credible data on poverty trends are produced on regular basis

Implement the multisectoral action plan for the empowerment of women, improved access to credit for women

Improved legal and regulatory framework of the micro-credit institutions

Current status

The rate was estimated at 91 percent in 2006

Estimated at 17 percent in 2006

Estimated at 67 percent in 2004

Not available

Not available

Not available

Ongoing

An action plan i s being implemented by the Ministry of Family and access to credit for women has improved with the implementation o f the Government’s Micro-credit program for poor.

Ongoing

Associated CAS instruments

The first series of PRSCs supported the transfer of responsibility from the central administration to the municipalities for investment planning, contracting and management of the water services. I t also supported increased participation of rural communities to management of water facilities. I t supported the financing o f the construction of water points and the Small Towns Water Initiative to provide potable water to 2 million people.

ESW on the sector included the PER. PRSC, Second Decentralized City Management project

Poverty assessment update Civil Service reform stocktaking

CDD

Financial Sector Review

PSD Project

38. The 2003 CAS identified six major risks that could affect the attainment o f i t s outcomes. These included: (i) the economy’s vulnerability to a further drop in cotton prices and/or in cotton

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production; (ii) risk to the macroeconomic framework; (iii) economic and polit ical developments in Nigeria; (iv) weak institutional capacity; (v) implementation delays l inked to Benin’s democratic polit ical environment. At least three o f these r i sks materialized during the implementation o f the strategy. Indeed, the intensification o f trade restrictions in Nigeria2* and the strengthening o f border controls resulted in a substantial decline in trade and transport activities that affected the services sector and its contribution to GDP growth. One other important exogenous factor that has negatively affected the CAS outcome i s the significant decline in wor ld prices for cotton. Given the importance o f the cotton sector for Benin’s the slump in international cotton prices during the CAS period has significantly affected economic growth and poverty rates, particularly in rural areas. Due to the poor performance o f the cotton sector and weaker than projected transit activities, the assumptions underlying the economic growth projections did not materialize. Actual GDP growth rate averaged 3.3 percent over 2003-2005 as against 6.5 percent in the CAS.

39. Also, further delays in implementing critical structural reforms, in particular the privatization program and setting-up appropriate regulatory frameworks in privatized sectors have affected the CAS outcome related to the increase in private sector investment. Between 2002 and 2006, the share o f private investment in GDP has remained almost constant at 12 percent (see paragraph 19), i.e., 2.0 points below the CAS target.

40. In the light o f these developments, the country team should pay more attention to the understanding and analysis o f the r isks that may affect negatively the implementation o f the next CAS and identify ex-ante the best ways to manage and mitigate them.

41. There were n o major sectoral reforms envisaged under the C A S with respect to environment management. This main objective o f the CAS in this area was to ensure that the urban environmental management as wel l as the forest management programs were properly funded, implemented and monitored. The Bank supported the implementation o f the MEHU’s program budgets and strategic investments. It has also provided support to the implementation o f the Government’s Medium-Term Strategic Plan (2002-2006) adopted in 2002. This helped the Ministry o f Environment to strengthen i ts environmental management tools and environmental compliance and increase investments to address urban sanitation and urban air pollution in Cotonou. In addition, although Bank operations were not expected to have any significant negative environmental or social impacts, IDA helped the country to strengthen i t s capacities to manage environmental and social risks. T o this end, the Bank supported the establishment o f small environmental units within key l ine ministries and the training o f their staffs in identifying and implementing measures for mitigating any adverse environmental or social impacts o f public investment programs. Finally, according to environmental assessments and social analysis undertaken during the CAS period, implementation o f the Bank’s assistance program did not have any significant unanticipated negative consequence.

VI. The Bank’s performance

In August 2003, Nigerian authorities extended the import prohibition list f rom 29 to 44 products imported from Benin.

29 According to the National Institute o f Statistics, the cotton sector accounts for about two-thirds o f Benin’s exports, 10 percent o f total value added, provides income to about 350, 000 poor farmers and touches an estimated 40 percent o f the country’s total population.

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42. Overall, the Bank performance has been satisfactory. The move towards consolidated programmatic lending (with PRSC being the major instrument o f Bank’s assistance) has helped to strengthen the alignment o f Bank’s program to the Government’s priorities and strategies as laid out in the PRSP. The 2003 CAS program assistance has contributed to the maintenance of macroeconomic stability and to the improvement o f public finance management. But as already noted, progress in structural reforms was less than expected while Bank’s contribution to the strengthening o f institutional weaknesses has been mixed as confirmed by Benin’s Country Case Study for the Madavo report (see paragraphs 46).

43. Quality of the Portfolio. According to the ICR reviews conducted by IEG for the Benin projects which closed over the period FY04-08 (see Annex 6), 57% o f the outcomes o f the evaluated projects during this period were satisfactory. Bank overall performance was rated satisfactory only for 50% o f projects, and institutional development impact and sustainability were 75 percent and 60 percent, respectively. This reflects the weakness in implementation capacity in the Benin administration and the need for stronger monitoring and evaluation systems, issues which will be addressed in the next CAS. One project, the First Decentralized City Management Project which closed in September 2004, was evaluated very positively by IEG with a high institutional development rating. The follow-on project, approved in FY06, i s also performing very well and has been supplemented by an additional financing project in FY08.

44. Over the period o f the FY04-06 CAS, the percentage o f commitments at risk has gone from 14 percent in FY04 to 46 percent in FY05 (almost half the portfolio) down to 22 percent in FY06. Annex 5 provides a summary o f the portfolio indicators. The two potential problem projects identified in FY05, GEF National Parks Conservation and MAP/HN A I D S , closed respectively, in 2005 and 2006. A new HIV/AIDS MAP project was approved in FY07. The two problem projects identified in FY05 (Cotton Sector Reform and Energy Service Delivery) remained problem projects in FY07. In the case o f Cotton Sector Reform, which closed in June 2008, this was due to the Government’s continued lack o f action on reform o f the cotton sector and transition to a more liberal and competitive system3’. With regard to Energy Service Delivery Project which has had significant delays as reflected in the low levels o f disbursement, a mid-term review was concluded in mid-2008 with agreements reached on a project restructuring plan and measures to speed up disbursements and enhance project implementation. The Project was upgraded to “satisfactory” in FY08. An Additional Financing for this Project was approved in June 2008. The Private Sector Project was downgraded to “moderately unsatisfactory” in the last ISR in FY08 and was rated unsatisfactory in the ICR and by IEG. This was due to lack o f capacity and commitment o f Government to implement the privatization program. The follow on Private Sector Project (approved in FY08) will build on the outcomes achieved under the PSD project, particularly in capacity building for small and medium enterprises, export promotion and public private dialogue.

45. The overall disbursement ratio o f about 30.3 percent for the period 2004 to 2006 compares favorably to the CAS target o f 20 percent and to an average o f about 25 percent for the Africa Region (FY05/06). The improved disbursement ratio i s due in large part to the quick disbursing PRSC operations starting in FY04. The last CPPRs have reported that the implementation o f projects continues to be affected by long delays in effectiveness (on average 6- 8 months after Board approval) and in mobilization o f counterpart funds. The application o f the

The Government’s decision in November 2007 to cancel the process o f partial privatization o f SONAPRA, the ginning company, put the development objectives o f the project at risk. Recently, in 2008, the Government has started to move ahead on cotton sector reforms, including privatization o f factories.

30

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new Country Financing Parameters adopted in M a y 2005 allowing for 100 percent Bank financing o f projects i s progressively helping to solve the latter problem. Mos t delays in effectiveness occur at the level o f credit ratification at the National Assembly.

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IDA Projects that Exited the Portfolio during FY04-09

FY04 Distance Learning 02/18/2000 04/30/2004 I .8 0.2 4 s s ctrv FY04 Social Fund 091 9/1998 12/31/2003 16.7 0.0 5 s s c'try

'' DECF:N*C'I'Y 06/03/1999 09/30/2004 25.5 0.3 FY05 MGMT. 5 S S Ctry

FY05 1,ebor Force Deb 06/09/2000 06/30/2005 5.0 0.9 5 M S s Ctry FY05 BJ-PRSC 1 03/18/2004 06/30/2005 20.0 0.0 1 s s Ctw FY06 BJ-PRSC I1 06/14/2005 06/30/2006 30.0 0.0 1 S S None FY06 GEF Not Parks 03/30/2000 12/31/2005 6.8 0.4 5 S S None FY07 HIV/AIDS 01/04/2002 09/15/2006 23.0 0.9 5 S S None FY07 BJ-PRSC 3 11/02/2006 32/31/2007 30.0 0.0 1 S S None FYO8 BJ-PHSC 4 06/28/2007 06/30/2008 40.0 0.0 1 MS S Chy--- FY08 Private Sector 11/30/1999 12/31/2007 30.4 2.6 8 MU MU Ctrv/Met FY08 Cotton Sec Reform 01/22/2002 06/30/2008 18.0 1.8 6 U U CtryiDisb

46. U s e of instruments and AAA work. With the progressive shift towards consolidated programmatic support, the PRSC has become the key instrument o f channeling IDA assistance to the country. I t has progressively become an important instrument o f the pol icy dialogue with the Government and donor coordination. Several pieces o f economic and sector work were undertaken by the Bank during the C A S period and served as input to the design o f the first series o f PRSCs. They also informed the preparation o f the second generation o f PRSP. In particular, strong analytical work was carried out o n private sector development and supported the development o f a PSD strategy adopted by the Government in September 2006. The major studies include: (i) an Investment Climate Assessment (FY 06) which identif ied the major impediments to private sector development and i ts results were used to develop a realistic growth strategy led by the private sector; (ii) the findings o f the Annual Do ing Business indicators which also provided an input to the preparation o f the PSD strategy; (iii) a F IAS Land Market Study which examined ways to improve the access o f the private sector t o industrial, commercial, and residential property; (iv) the Financial Sector Review which provided a diagnosis o f the financial system in Benin and identified issues that need to be addressed by Government and pol icy makers for the financial system to become a better growth engine; and (v) a Public Expenditure Review completed in December 2004 which focused on an analysis o f expenditures in health, education and rural water supply and sanitation to help sharpen the sectoral content o f the PRSCs. A Poverty Assessment was also produced in September 2003 and provided a better understanding o f poverty issues in Benin, in particular the determinants o f poverty, inequality and vulnerability as wel l as poverty in rural areas. T h i s Poverty Assessment was complemented by the Country Health Status Report in 2004 which provided updated information for the Poverty Reduction Strategy Paper o f factors contributing to poor health and identified public actions that could mitigate the impoverishing impact o f disease. Finally, the portfolio benefited fkom substantial analytical work in the area o f governance, c iv i l service reform and decentralization which helped to sharpen the reform content o f the PRSC program. A country assessment o f the AAA program conducted by the QAG in M a y 2007 rated the quality o f the program satisfactory. More specifically, the strategic relevance, internal quality, coherence and integration and l ikely impact were rated satisfactory while Bank inputs and processes and dialogue and dissemination were rated moderately satisfactory.

- 63 -

47. Lending: The 2004 CAS proposed a base-case lending and grant program o f about US$200 mill ion for the period FY04-06, with US$220 mil l ion planned for the high case (higher amounts for the two PRSCs). In FY04-06, IDA provided financing o f US$217 million, including a GEF project, o f which US$43.3 mil l ion in grants. Nearly all the projects planned at the time o f the CAS were delivered in the period reviewed for this CASCR (see Annex 3 for a detailed presentation o f the planned lending program and actual delivery). The main difference with the CAS planned lending program was that the PRSC-3 was initially planned for FY06 but was approved in FY07 reflecting delays in implementation o f the reform program. In addition, an Electricity Services I1 Project, planned for FY06, was delayed to early FY09, following a Government request to review the design o f the project; while a Malaria Control Booster Program (US$3 1 mil l ion grant) was added in FY06 to support implementation o f the Government’s 2006- 2010 Roll Back Malaria Strategic Plan. Finally, in FY06, the other deviations with the CAS plan were that a GEF Forest and Adjacent Land Management Project (US$6 million) went to the Board, as well a US$15 mil l ion credit under the West Africa Power Pool Facility to facilitate cross-border exchanges o f electricity between BenidTogo, Ghana and Nigeria until 2020. Reflecting these important modifications, the amount lent (US$ 2 17 million) during the CAS period was close to that for the high case though the triggers for this scenario were not met (see paragraph 29).

48. Capacity enhancement. Although the preparation o f the AAA program mentioned above in partnership with the Government and other domestic stakeholders has contributed to enhance the country’s analytical capacity, the Bank’s contribution to Benin’s capacity building program has been limited as evidenced by an Independent Review o f World Bank Support for Capacity Building in Benin3’. Wh i le the priorities o f the 2003 CAS demonstrated an increased focus in capacity building in the context o f the move to programmatic lending, the implementation o f the Bank’s interventions was less satisfactory, due largely to shortcomings in diagnosis o f needs and constraints and the limited impact o f training and technical assistance. The Bank’s contribution was also limited by the ageing o f staff and shortages in certain critical sk i l l s following the freeze on recruitment during the 1990’s. During the CAS period, the Government has also taken on major new administrative procedures in MTEF as well as sector program budgets, PRSP monitoring and evaluation and budget execution; procurement, financial controls, and deconcentration and decentralization but lack o f information on these new procedures and to a lesser extent difficulties in adapting to new systems led to resistance and delays hampering Bank’s contribution to capacity development efforts. The WBI has conducted training programs in Benin for many years. Over the CAS period, a forum on public finance was organized and training programs were also held for ministry officials involved in IDA’S programmatic lending activities. In light o f these developments, the next CAS should identify and strengthen the country’s needed capacities to implement and monitor the progress under the new strategy, bearing in mind that transition to direct budget support requires new approaches to capacity building, including demand-driven technical assistance.

49. Monitoring and Evaluation. Monitoring and evaluation were weak during the f i rs t years of implementation o f the PRSP but the functioning and effectiveness o f the M&E framework has increased since that time as reflected by the clarification o f the roles and responsibilities o f the two main technical structures o f the system, i.e. the Monitoring Unit for Economic and Structural

3’ Benin was one o f the six countries which were chosen for an independent evaluation by OED o f the relevance and effectiveness o f Bank’s support for publ ic support capacity building in Afr ica over the 1995- 2004 period. The review concentrated o n four focal areas: education, health, roads and public expenditure management. OED rated the Bank’s overall support t o capacity building in Ben in as moderately unsatisfactory.

- 64 -

Reform Program (CSPRES) and the Observatory o f Social Conditions (OCS) and the establishment o f monitoring and evaluation units in l ine ministries. Moreover, during the revision o f the PRSP, the Government broadened the set o f monitoring indicators, and prepared a detailed Priority Act ion Plan (PAP) which establishes a sound monitoring and evaluation framework for assessing progress under the strategy and offers a more appropriate institutional framework for monitoring the implementation o f the next CAS.

50. However, some problems remain and need to be addressed to achieve a more efficient system. In the jo in t staff advisory note o f the PRSP-11, Bank and IMF staffs have underlined the continued lack o f reliable data for a number o f indicators, including poverty statistics. They therefore stress the need to improve the availability and quality o f data and to strengthen the national statistical system.

5 1. Consultations. The 2003 C A S benefited f rom extensive consultations with a l l stakeholders including Government, c i v i l society, beneficiaries, private sector and the donor community. I t also benefited f rom the nation-wide consultations held during the preparation o f the f i rst PRSP. These consultations helped to align the C A S strategic pillars with the priorities of the PRSP as wel l as to refine the C A S strategic objectives and the lending and non-lending program. However, i t i s not clear to what extent these groups have been involved during the implementation o f the CAS. The next CAS will continue to benefit from the extensive consultations held by the Government with a broad range o f stakeholders during the revision of the PRSP. But this time, the team should pay more attention to adequate participation o f key stakeholders during the implementation phase o f the CAS.

52. A client survey carried out in June 2007 provided use f i l feedback f rom key stakeholders (Government, Bank-financed project implementation units, development partners, members o f the c iv i l society, representatives o f the private sector, academia, and the media) regarding their perceptions o f the Bank and o f i t s contribution to Benin's development outcomes. The Bank was most valued by the clients surveyed for i ts financial resources, i t s contribution to the promotion o f country ownership and i t s collaboration with government and donors. However, the Bank received very negative ratings on whether i t i s flexible in the way it adjusts to changing circumstances and on' whether the strategies i t recommends are sustainable and realistic. Finally, respondents found that the Bank works too much with Government. These findings pointed out to the need for the Bank to better demonstrate its effectiveness o n the ground, strengthen the dialogue with other key stakeholders in Benin, in particular with c iv i l society and private sector and improve its communication about i t s role, including with respect to poverty reduction.

53. Aid coordination. The PRSP process has fostered collaboration between the Bank and other development partners. Joint Government-donors reviews were regularly carried out in the core sectors o f rural water, health, and education during the CAS period and led to concrete recommendations and agreements aimed at strengthening the alignment o f programs and technical assistance and institutional support to sector strategies. Discussions are underway to expand this promising experience to other sectors, such as agriculture and transport. Moreover, donor coordination has improved particularly with respect to budget support. Since 2004, jo in t mission o f the main donors that are providing budget support for PRSP implementation took place each year in September. Agreement has been reached by the participating donors and the Government to use a unique policy matrix to monitor the implementation o f main structural and sectoral reforms program. The government and development partners have also started discussions o n the implementation o f the Paris Declaration in Benin. A stocktaking report on aid effectiveness in Benin was finalized in October 2006 and an agreement has been reached on the Monitor ing and Evaluation framework o f the Paris Declaration and a jo in t Government-partners

- 65 -

technical group on aid effectiveness, chaired by the Minister o f Planning and Development (MEPDEAP), was established for this purpose. However, all parties recognize the need to improve reform monitoring and reporting and to accelerate the pace o f harmonization. In this regard, a Memorandum o f Understanding (MoU) was signed between the Government and the development partners providing budget support in December 2007 to consolidate the achievements.

54. During the implementation o f the CAS, IDA continued to closely collaborate with IMF. In particular, the staffs o f both institutions conducted joint PRSP missions and prepared joint assessments on the PRSP Progress Reports. Bank and Fund teams have also closely coordinated the contents o f their respective programs as well as the determination o f their respective triggers, with the PRSC covering the structural and social benchmarks while the PRGF covered macroeconomic issues.

VII. Lessons learned.

55. Assistance i s more effective in the areas that are top priorities o f the Government. Although CAS alignment with the PRSP was a critical factor in ensuring that Bank’s program supported Benin’s development agenda, i t s contribution to the country’s outcomes varied across sectors. Bank’s support was most effective in the areas where the Government showed great ownership and commitment such as public finance management and macroeconomic stability but was less successful in the areas where the Government was not firmly committed to implementing the program such as the civi l service reform.

56. Preparatory work and pre-existing dynamics have been critical in ensuring a progressive transition to programmatic support. For example, implementation o f the PRSC-supported program greatly benefited from the achievements under the PERAC in developing Government capacity in results-budgeting and from the public expenditure management reforms undertaken under this operation. Nevertheless, the program was too ambitious and the implementation capacity overestimated. The new series o f PRSC should seek to improve the understanding and ownership o f the process and support more strongly capacity building efforts.

57. The move to programmatic approach progressively improved the policy dialogue with the Government and donor coordination. I t also helped strengthen the alignment o f external partners’ support with the PRSP. Nevertheless, much remains to be done to move the harmonization agenda ahead. In particular, donor coordination should be greatly improved in cross-cutting reforms, such as civi l service reform and decentralization, and new programs, such as in governance.

58. Despite progress made in addressing the weaknesses identified in the JSA3* o f the first PRSP, much remain to be done to improve the availability and quality o f data needed to monitor the results. As discussed in the JSAN o f the PRSP-11, reliable data for a number o f PRSP-I1 indicators are st i l l lacking. The next CAS should support efforts to strengthen the monitoring and evaluation capacities and the establishment o f a results-based M&E framework. These efforts will be much needed as the Bank and the other donors are progressively adopting results-based ~ t ra teg ies~~.

32 See IDA/SecM2003-0076, February 2003.

33 For example, the Bank’s next CAS will be a results-based strategy.

- 66 -

59. The impact o f the Bank’s AAA program on policy dialogue and capacity building has been limited by the lack o f sufficient dissemination o f the results o f the analytical work as noted by a recent QAG’s assessment o f eight AAA carried out during FY02-06. The next CAS should ensure that sufficient resources are devoted to the dissemination o f the results o f the ESW programmed over the CAS period. The Bank’s team should also make sure that the AAA program i s more effectively utilized to broaden and inform the reform program and development dialogue.

60. Growth performance in Benin needs to be sustained by enhanced support to private sector development and through diversification. The economy’s vulnerability to a single crop, cotton, and to trade with Nigeria calls for a redoubling o f efforts to promote more broad-based growth through agricultural diversification and improved competitiveness o f the secondary and tertiary sectors. Accelerating economic growth will also require improving the overall quality o f the investment climate through a strengthening o f the institutional policy and regulatory frameworks, the adequacy and quality o f infrastructure as well as an effective judicial system and a well- functioning financial system.

61. special opportunities from i t s geographical position.

More emphasis on regional dimensions i s needed to help the country to exploit the

62. Implementation o f the program has been hampered by capacity constraints, particularly in l ine ministries. The Bank needs to continue to support the Government efforts to strengthen its capacity and improve delivery o f public services.

63. Assuring a good mix o f instruments between programmatic support and investment lending will be key to continuing to make efficient use o f Bank resources and sound implementation o f the program during the CAS.

64. The CAS consultations were broadly extensive and build on the PRSP participatory process. This has helped to better align the CAS with the PRSP priorities. The Government also held extensive consultations with a broad range o f stakeholders during the revision o f the PRSP. Therefore, the consultation process for the next CAS should continue to build on PRSP consultations, and focus on how IDA can best support the program o f actions set out in the newly revised PRSP. Broader emphasis should also be put on adequate participation o f key stakeholders during the implementation phase o f the CAS.

- 6 7 -

L

M

0 M

.C

6

U h 5 3

v! \o

c

8 K m

x 9

3 b

v) B

2 .- M

0 *

0 * E (u 0

Y

8

0 0 0 Y

8 I

6

E 0

8

8 0 Y

C

w Y

E Q E z

W 0 0 CI .6 e e

k E

E * 3

l- W

B 2

7 x c .-

3

W

3

E

.- m h *

I

0 r- I

I

3 r-

Annex 2: Planned Lending Program (base case) and Actual Deliveries (FY04-FY06)

20.0 30.0

35.0

85.0

CAS Lending Scenarios, FY04-06 (US$ million): Base Case: US$200 mil l ion H igh Case: US$220 mi l l ion L o w Case: US$85 mi l l ion (Limited to National CDD (FY04), Education (FY05) and Health Project (FY06)

Actual Forwarded to FY05

Forwarded to FY05

Subtotal FY04

FY

35.0

20.0

55.0

200.0

11.5

0

2004

2005

Forwarded to FY07

Replaced by Increased Access to Modem Energy Project (estimated at US$60 million) be delivered in FY09 (September 2008).

Decentralized City Mgmt 2 (Actual f rom FY05)

Additional Actual Projects: Malaria Control Booster Program* Forest and Adjacent Land Mgt GEF

Subtotal FY06

Total FY 2004-2006

Of which grants*

WAPP APL (FY06)

2006

CAS Plans (07/16/2003)

'RSC-I ilectricity Services

Jational CDD*

Subtotal FY04

'RSC-I1 jnd Decentralized Cities

Subtotal FY05

'RSC-I11

hergy Service Delivery Project PL 2

Subtotal FY06

I Total FY 2004-2006

Of which grants*

Regional Program

IDA 1 Actual Status (07/01/2007) U S $ M

Project APL 1(AcQ

ational CDD Support Project* (Actual fkor

60.0 Subtotal FY04

IDA U S $ M

20.00

20.0

30.0

45.0

50.0

125.0

35.0

31.0

66.0

211.0

43.3

15.0

GEF US$M

6.0

6.0

6.0

- 72 -

Annex 3: Planned Non-lending Services and Actual Deliveries (FY 2004-2006)

2004 ~

2005

2006

CAS PLANS (07/16/03) 0 Poverty Assessment Follow-up

Financial Sector Review

0 PEWIncidence Analysis o f public spending

IDF grant - capacity building in public resource management

0 Assessment o f fiscal decentralization

0 CPAWCFAA update

0 Stocktaking on civ i l service reform

0 DPWGrowth, competitiveness, and agricultural diversification

Health Cost and Financing Institutional and governance review Integration o f gender in public policies Infrastructure sectoral policy notes

COMPLETIONREPORT 0 Poverty Assessment completed in FY2004 0 Closely monitored PRSP - APR o f the PRSP and Joint Staff

Energies Modernes et rtduction de la pauvretd: un atelier

0 Costs o f Projects for orphans and other vulnerable children: case

Assessment in FY2005

multisectoriel (ESMAP paper)

studies in Eritrea and Benin (working paper)

Financial Sector Review completed in FY04; revised in June 2005

PER completed in FY05

Dropped

Studies comdeted not planned in CAS: Health Country Status Policy Note

0 Demand driven approaches to agriculture extension: Case studies

Dropped o f international initiatives, v o l 3 o f 44 (working paper)

CFAA completed in FY2005. CPAR (second generation) completed in FY07

Benin Civ i l Service Reform, Stocktaking and Opportunities: Completed in FY06

Postponed to FY08 renamed Sources o f GrowtWCEM

Studies comdeted not planned in CAS: Cotton Sector Reforms: A Poverty and Social Impact Analysis

Diagnostic Trade Integration Study 0 Discrimination o f Orphans (policy note) 0 Comparative Review o f micro-finance regulatory framework

(economic report)

issues in Benin, Ghana and Tanzania (policy research working paper)

0 Postponed to FY08: Health CSR Dropped Postponed to FY09

0 Postponed to FY08 (Telecom & ICT)

Studies comdeted not danned in CAS: Investment Climate Assessment Transport Econ Sec Review (completed in early FY07)

0 Benin Country Level Savings Assessment (working paper) 0 DTIS Trade Follow Up

- 73 -

Annex 4: Benin’s progress towards the Millennium Development Goals (MDG)

Millennium Development Goals

1990 MDG Benchmark

Current status (year)

22% (2003) 30% (2005)

66% (2006)

79.9% (2005)

59% (2004)

125 per 1000 live births (2006)

397 per 100,000 live births (2006)

Likelihood of achieving target by 2015

Unclear Likely

Likely for boys

Unlikely

Unlikely

Likely

Unlikely

1. Poverty and Hunger - Eliminate extreme poverty - Eliminate hunger

1.2% (2006) Likely

32% (estimated) 35% (estimated)

2. Achieve universal primary education - increase completion rate to 100% 3. Promote gender equality - Raise ratio o f girlshoys in primary school to 100% - Raise ratio o f girlshoys in secondary school to 100% 4. Reduce child mortality - Reduce c h l d mortality in children under 5 by two-thirds 5. Improve maternal health - Reduce the rate o f maternal mortality by three-fourths

6. Combat HIV/AIDS, malaria & other diseases - Fight against HIV/AIDS

7. Ensure environmental sustainability - Halve the proportion o f individuals without access to safe water

- 74 -

31% (estimated)

69% (1990)

54% (estimated)

185 per 1000 live births

547 per 100,000 live births

(estimated)

3.8%

37% (estimated) 44% (2006) Likely

Annex 5: Selected indicators o f Bank Portfolio Performance FY04-07

Indicators 2004 2005 2006 2007

Number o f Projects

Net Commitment Amounts (US$ million)

Number of Problem Projects

Percentage of IPDO (Actual)

Number of Potential Problem Projects

Percentage of Potential Problem Projects

Number of Projects at R i s k

Percentage of Projects at R i s k

Commitments at R i s k (US$ million)

Percentage of commitments at R i s k

Realism Index a

Proactivity Index

Disbursement Ratio (percent)

7

128.7

1

14.3

0

0.0

1

14.3

18.0

14.0

100.0

26.8

7

203.2

2

28.6

2

28.6

4

57.1

92.8

45.7

50.0

0

46.5

6

20 1.4

1

16.7

0

0.0

1

16.7

45.8

22.3

100

100

18.6

9

290.4

2

22.2

0

0.0

2

22.2

63 .O

21.7

100.0

17.3

a: The ratio o f actual problem projects to total projects at risk. b: The proportion o f projects rated as problem projects twelve months earlier which have been upgraded, restructured,

suspended, or partially or fully cancelled.

- 75 -

Annex 6: IEG Ratings for IDA Projects that exited the Portfolio during FY04-09

1.7 1 100.0 I 0.0 0.0 100.0 Distance

Result 17.9 2 ~ 100.0 ' 100.0 ' 50.0 50.0 i f)0.0 ., -!:cE!!!%." ........ ......... .~ _.,_,_._.,._. _,_._.I__., ... .,.,., ~ ......... " .......................... j " ...._I._....." ..---.I."

19 7 1 100.0 100.0

4.8 1 100 0 0 0 I 0 0 0 0.0 100.0 - L

- 76 -

Benin a t a glance 9/24/08

Key Deve lopment I n d i c a t o r s

(2007J

Population, mid-year (millions) Surface area (thousand sq. km) Population growth (%) Urban population (% of total population)

GNI (Atlas method, US$ billions) GNi per capita (Atlas method, US$) GNi per capita (PPP, international $)

GDP growth (%) GDP per capita growth (Oh)

(most recent estimate, 2000-2007J

Poverty headcount ratio at $1.25 a day (PPP, %) Poverty headcount ratio at $2.00 a day (PPP, %) Life expectancyat birth (years) Infant mortality (per 1,000 live births) Child malnutrition (% of children under 5)

Adult literacy, male (Oh of ages 15 and older) Adult literacy, female (% of ages 15 and older) Gross primaryenrollment, male (% of age group) Gross prirnaryenrollment, female (% of age group)

Access to an improved water sourw (% of population) Access to improved sanitation facilities (% of population)

Benin

9.0 113 3.0 41

5.1 570

1,310

4.6 1.5

56 60 22

48 23

105 87

65 30

Sub- Saharan

Africa

800 24,242

2.4 36

762 952

1,670

6.2 3.7

50 72 50 94 27

69 50 99 60

58 31

LOW income

1,296 21,846

2.1 32

749 570

1,500

6.5 4.3

57 85 29

72 50

100 89

68 39

Net A id Flows

(US$ millions) Net ODA and official aid Top 3 donors (in 2006):

France European Commission Denmark

Aid (% of GNI) Aid per capita (US$)

Long-Term Economic Trends

Consumer prices (annual Oh change) GDP implicit deflator (annual % change)

Exchange rate (annual average, lmi per US$) Terms of bade index (2000 = 100)

Population, mid-year (millions) GDP (US$ millions)

Agriculture Industry

Services

Household final consumption expenditure General gov't final consumption expenditure Gross capital formation

Exports of goods and services imports of goods and services Gross savings

Manufacturing

1960

66

17 14 2

6.3 24

10.2

211.3

3.7 1,405

35.4 12.3 6.0

52.3

97.7 8.6

15.2

15.0 37.3

1.1

1990 2000

267 238

67 74 44 3

0 20

14.8 10.6 52 33

1.1 4.2 1.6 3.2

272.3 712.0 100

5.2 7.2 1,645 2,255

(% of GDP) 36.1 36.5 13.2 13.9 7.8 6.8

50.7 49.6

86.8 82.4 11.0 11.6 14.2 18.9

14.3 15.2 26.3 28.1 9.9 10.9

2007 a

375

74 35 33

8.1 43

2.5 2.9

479.3 112

9.0 5,428

32.2 13.4 7.5

54.4

76.1 15.0 19.6

13.5 26. I 10.6

Age distribution, 2007

Male Female

15-78

8084

4548

30-54

15-18

M

20 10 0 10 20

percent

Jnder-5 mortality rate (per 1,000)

203,

154

1W

50

0 1880 1895 2WO 2wB

0 Benin OSubSaharan Ahica

Growth of GDP and GDP per capita (%)

80 85 00 05

GDP per capita --O-GDP -

1980-90 1990-2000 2000-07 (average annual growth %) 3.3 3.3 3.2 2.5 4.8 3.6

5.1 5.0 4.6 3.4 4.1 3.8 5.1 5.8 2.7 0.7 4.2 3.2

1.9 2.6 2.1 0.5 4.4 8.3

-5.3 12.2 7.7

-4.3 1.8 2.7 -6.2 2.1 1.6

Note: Figures in italics are for years other than those specified. 2007 data are preliminary. .. indicates data are not available. a. Aid data are for 2006.

Development Economics, Development Data Group (DECDG).

- 77 -

Benin

Balance of Payments and Trade

(US$ millions) Total merchandise exports (fob) Total merchandise imports (cif) Net trade in goods and services

Workers' remittances and compensation of employees (receipts)

as a % of GDP Current account balance

Reserves, including gold

Central Government Finance

(% of GDP) Current revenue (including grants)

Current expenditure

Overall surpiuddeficit

Highest marginal tax rate ( O h )

Tax revenue

Individual Corporate

External Debt and Resource Flows

(US$ millions) Total debt outstanding and disbursed Total debt service Debt relief (HIPC, MDRi)

Total debt (% of GDP) Total debt service (% of exports)

Foreign direct investment (net inflows) Portfolio equity (net inflows)

2000

386 447

-292

87

-181 -8.0

406

16.7 14.6 12.4

-3.4

1,591 75

344

70.6 16.6

60 0

2007

627

-573

173

-415 -7.6

492

20.3 15.2 14.4

-2.4

35 38

824 83

570

17.8 10.6

63 2

I lComposltlon of total external debt, 2006

short-term, 39

Private Sector Development 2000 2008

Time required to start a business (days) - 31

Time required to register property (days) - 120 Cost to start a business (% of GNI per capita) - 196.0

Ranked as a major constraint to business 2000 2007

Tax rates .. 66.8 Tax administration .. 65.3

(% of managers surveyed who agreed)

Stock market capitalization (%of GDP) Bank capital to asset ratio (%)

Governance indicators, 2000 and 2007

Voice and accountability

Regulatory quality

Control of corruption

Technology and Infrastructure 2000 2007

Paved roads (% of total) Fixed line and mobile phone

High technology exports subscribers (per 1,000 people)

(% of manufactured exports)

20.0 9.5

1 22

0.1 0.1

Environment

Agricultural land (% of land area) 29 32

Nationally protected areas ( O h of land area) .. 23.9 Forest area (% of land area) 24.2 21.3

Freshwater resources per capita (cu. meters) .. 1,213 Freshwater withdrawal ( O h of internal resources) 1.3

C02 emissions per capita (mt) 0.22 0.29

GDP per unit of energy use (2005 PPP $ per kg of oil equivalent) 4.2 4.0

Energy use per capita (kg of oil equivalent) 277 304

(US$ milhons)

IBRD Total debt outstanding and disbursed Disbursements Principal repayments Interest payments

i DA Total debt outstanding and disbursed Disbursements Total debt service

iFC (fiscal year) Total disbursed and outstanding portfolio

Disbursements for IFC own account Portfolio sales, prepayments and

repayments for IFC own account

of which IFC own account

MlGA Gross exposure

0 0 0 0

578 36 8

0 0 0

0

0 New guarantees 0

0 0 0 0

176 43

1

0 0 0

0

1 n

Note: Figures in italics are for years other than those specified. 2007 data are preliminary. .. indicates data are not available. - indicates ObSeNatiOn is not applicable.

Development Economics, Development Data Group (DECDG).

9/24/06

- 78 -

Millennium Development Goals Benin

With selected targets to achieve between 1990 and 2015 (estimate closest to date shown, +/- 2 years)

Goal 1: ha lve t h e ra tes f o r ex t reme pover t y a n d malnutrition 1990 1995 2000 2007 Poverty headcount ratio at $1.25 a day (PPP, % of population) Poverty headcount ratio at national poverty line (% of population)

Prevalence of malnutrition (Yo of children under 5)

26.5 29.0

21.5 Share of income or consumption to the poorest qunitile ("h) 7.4

Goal 2: ensure that children are able to complete primary schooling Primary school enrollment (net, %) 41 52 60

Youth literacy rate (% of people ages 15-24) 40 45

Primary completion rate (Oh of relevant age group) 16 27 35 64 Secondary school enrollment (gross, O h ) 10 20 32

Goal 3: eliminate gender disparity in education and empower women Ratio of giris to boys in primary and secondary education (%) 49 64 73

Proportion of seats held by women in national parliament ( O h ) 3 7 6 8 Women employed in the nonagricultural sector (% of nonagricultural employment) 46

Goal 4: reduce under-5 mortality by two-thirds Under-5 mortality rate (per 1,000) 185 170 160 146 Infant mortality rate (per 1,000 live births) Measles immunization (proportion of one-year olds immunized, O h )

Goal 5: reduce maternal mortality by three-fourths Maternal mortality ratio (modeled estimate, per 100,000 live births) Births attended by skilled health staff (% of total) Contraceptive prevalence (% of women ages 15-49)

111 102 95 66 79 65 68 69

640 60 66 79 16 19 17

Goal 6: halt and begin to reverse the spread of HIWAIDS and other major diseases Prevalence of HIV (% of population ages 15-49) 1.3 1.2

77 60 65 90 63 86 66

Incidence of tuberculosis (per 100,000 people) Tuberculosis cases detected under DOTS ("h)

Goal 7: halve the proportion of people without sustainable access to basic needs Access to an improved water source (% of population) 63 63 64 65 Access to improved sanitation facilities (% of population) 12 19 24 30 Forest area (% of total land area) 30.0 24.2 21.3 Nationally protected areas (% of total land area) 23.9 C02 emissions (metric tons per capita) 0.1 0.2 0.2 0.3 GDP per unit of energy use (constant 2005 PPP $ per kg of oil equivalent) 3.2 3.5 4.2 4.0

Goal 8: develop a global partnership for development TeleDhone mainlines (Der 100 DeoDle) 0.3 0.5 0.7 1.2 Mobile phone subscribers (per'lO0 people) Internet users (per 100 people) Personal computers (per 100 people)

iducatlon indlcators ( O h )

"1

2: i 2wo 2002 2004 2wB

+Primary net enrollment ratio

-0-Ratio of glrls to boys in primary & secondaty education

lleasles immunization (% of I-year olds)

'"1

OBenin OSubSaharan Africa

0.0 0.0 0.8 21.0 0.0 0.0 0.2 1.7

0.0 0.1 0.6

IC1 Indicators (per 1,000 people)

2wo 2002 2004 2wB

0 Fixed +mobile subscribers Internet users

Note: Figures in italics are for years other than those specified. .. indicates data are not available

Development Economics, Development Data Group (DECDG).

9/24/06

- 79 -

CAS Annex B2 - Benin Selected Indicators* of Bank Portfolio Performance and Management

As Of Date 0111 612009

Indicator 2006 2007 2008 2009

Portfolio Assessment

Average Implementation Period (years) 2.5 2.5 2.0 2.3 Number of Projects Under Implementation a 8 9 8 9

Percent of Problem Projects by Number 16.7 22.2 0.0 0.0 Percent of Problem Projects by Amount 22.3 21.7 0.0 0.0 Percent of Projects at Risk by Number 16.7 22.2 12.5 0.0 Percent of Projects at Risk by Amount a , d 22.3 21.7 11.1 0.0 Disbursement Ratio (%) e 18.6 16.7 23.4 12.8 Portfolio Management CPPR during the year (yedno) Yes Yes Yes Supervision Resources (total US$) 676 769 1116 91 1 Average Supervision (US$/project) 84 76 124 101

Memorandum Item Since FY 80 Last Five FYs

Proj Eva1 by OED by Number 53 8 Proj Eva1 by OED by Amt (US$ millions)

% of OED Projects Rated U or HU by Amt

81 3.0 161.3 20.8 37.5 15.4 33.1

% of OED Projects Rated U or HU by Number

a. As shown in the Annual Report on Portfolio Performance (except for current FY). b. Average age of projects in the Bank's country portfolio. c. Percent of projects rated U or HU on development objectives (DO) and/or implementation progress (IP). d. As defined under the Portfolio Improvement Program. e. Ratio of disbursements during the year to the undisbursed balance of the Bank's portfolio at the

beginning of the year: Investment projects only. * All indicators are for projects active in the Portfolio, with the exception of Disbursement Ratio,

which includes all active projects as well as projects which exited during the fiscal year.

- 80 -

CAS Annex B3 - IBRDLDA Program Summary - Benin

As Of Date 01/16/2009

Proposed IBRD/IDA Lending Program a

Fiscal year Proj ID

Strategic Implementation b

1H/./LL) us$(M) Rewards Risks (H/M/L)

2009

2010

201 1

2012

PRSC-5 Increased Access to Energy Result Regional Operations

PRSC-6 Agriculture DiversificationPSD Telecom &ICT Health Services Result Regional Operations

PRSC-7 UrbadEnvironment Community Development Result

PRSC-8 Energy Services Result Regional Operations

Overall Result Regional Operations

TOTAL

30.0 45 .O 75.0 3.0

20.0 20.0 10.0 15.0 65.0 9.0

20.0 30.0 30.0 80.0

20.0 40.0 60.0 20.0

280.0 32.0

312.0

H H

H H H H

H H H

H H

M M

M M L M

M M L

M M

a. This table presents the proposed program for the four fiscal years (FY09-12). b. For each project, indicate whether the strategic rewards and implementation r isks are

expected to be high (H), moderate (M), or low (L).

- 81 -

CAS Appendix B3 (IFC & MIGA) for Benin Benin - IFC and MIGA Program, FY 2006-2009

2006 2007 2008 2009

IFC approvals ($m)

Sector (YO) Telecommunications Total

Investment instrument (YO) Loans Equity Quasi-Equity Other Total

MIGA guarantees ($m)

4.51

1.03 1.03 1.03 2.25

- 82 -

CAS Annex B4 - Summary of Non-lending Services - Benin As of Date 01/16/2009

Audience" Objectiveb Completion FY (US$OOO) Product

Recent completions Transport Econ Sector Review FY07 Telecom ESW FY08 Rural Investment Climate Assessment FY08 CEM/Sources o f Growth FY08 Education Sector CSR FY08

Underway Health Sector CSR FY09 ROSC Accounting and Auditing Study FY09

Planned Agric. GrowthDiversification FY09 Country Environmental Assessment FY09

Higher Education & Employment Sk i l l FYlO Needs Public Expenditure Review FYlO Poverty Assessment FYlO

Investment Climate Assessment F Y l l National Governance and Anti- F Y l l Corruption Strategy

Energy Sector Review FY12 Decentralization &Local Development FY12

62 22

359* 45 5 221*

90 77

100 100

150

150 150

175 200

150 150

a. b. * Includes TF costs

Government, Donor, Bank, Public Dissemination Knowledge Generation, Public Debate, Problem-Solving

- 83 -

CAS Annex B5 - Benin: Key Social Indicators

POPULATION Total population, mid-year (millions)

Urban population (% of population) Total fertility rate (births per woman)

POVERTY (% of population) National headcount index

Urban headcount index Rural headcount index

Growth rate (% annual average for period)

INCOME GNI per capita (US$) Consumer price index (1995=100) Food price index (1995=100)

INCOMElCONSUMPTlON DISTRIBUTION Gini index Lowest quintile (% of income or consumption) Highest quintile (% of income or consumption) SOCIAL INDICATORS Publlc expendlture

Health (% of GDP) Education (% of GNl) Social security and welfare (% of GDP)

Net primary school enrollment rate (% of age group)

Male Female

Access to an Improved water source (% of population)

Urban Rural

Total

Total

Immunization rate (% of children ages 12-23 months)

Measles DPT

Child malnutrition (% under 5 years) Life expectancy at birth (years)

Total Male Female

M orta I ity Infant (per 7,000 live births) Under 5 (per 1,000) Adult (15-59)

Male (per 1,000 population) Female (per 1,000 population)

Maternal (per 100,000 live births) Births attended by skilled health staff (%)

Latest single year

1980-85

4.0 3.4

29.1 7.1

250

111 185

1990-95

5.7 3.3

35.7 6.5

29.0 23.3 33.0

310 100 100

36.5 7.4

44.5

66

79 74 35

53 52 54

83 151

474 60

2000-07

8.9 3.2

41.0 5.9

37.4 35

38.8

570 235

1.7 3.6

78 86 70

67 78 46

05 83 23

59 57 61

67 125

397 82

Same regionlincome group

Sub- Saharan

Africa

701.8 2.5

35.8 5.2

829 140

2.6 4.2

60 71 65

56 80 42

71 72 27

50 49 52

94 157

42 1 391 900 45

Low- Income

2,419.7 1.9

30.4 3.5

649 145

1.2 3.1

78 81 75

75 00 69

69 68 35

60 59 62

74 112

285 223 650 43

Note: 0 or 0.0 means zero or less than half the unit shown. Immunization: refers to children ages 12-23 months who received vaccinations before one year of age.

- 84 -

CAS Annex B6 - Benin: Key Economic Indicators

100 31 14 56

90 18 5

13

13 22 10 14

2320

340

2.9 8.7

Actual Estimate Projected Indicator 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

National accounlx (as YO of GDP) Gross domestic product'

Agriculture Industry Services

100 100 32 32 14 13 54 55

Total Consumption 93 93 Gross domestic fixed investment 19 18

Government investment 6 5 Private investment 13 13

Exports (GNFS)~ Imports (GNFS)

14 14 27 27

Gross domestic savings 7 7 Gross national savings' 11 12

Memorandum items Gross domestic product 2068 2138 (US$ million at current prices) GNI per capita (US$, Atlas method) 340 340

Real annual growth rates (%, calculated from 1985 prices) Gross domestic product at marketprices 3.9 3.1 Gross Domestic Income 4.9 3.7

Real annual Der capita aowth rates (%, calculated from 1985 prices) Gross domestic prodict at market prices Total consumption Private consumption

Exports (GNFSP Merchandise FOB

Imports (GNFS)~ Merchandise FOB

Resource balance Net current transfers Current account balance

Net private foreign direct investment Long-term loans (net)

Balance of Payments (US% millions)

Official Private

Other capital (net, incl. e m s & ommirsions)

Change in reserve:

Memorandum items Resource balance (% of GDP) Real annual growth rates ( YR85 prices) Merchandise exports (FOB) Primary Manufactures

Merchandise imports (CIF)

0.7 -2.9 -4.4

48 8 290 946 69 1

203 -458

-298

32

47

143 -1 6

-22.2

12.2

4:1 ' -02 4.1 -4.0 4 . 4 -5.9

581 568 343 325

1077 982 789 706

243 211 4 9 6 -413

-292 -241

50 99

83 89

-16 154 131 -134

-23.2 -17.8

7.4 -10.3

100 31 13 56

93 17 3

14

11 23

7 12

248 1

540

3.8 7.5

0.5 4.4 5.3

53 8 268

1076 760

29 7 -53 8

-270

13 1

-990

188 -222

-21.7

-20.8

100 31 13 56

91 20

6 14

12 24

9 15

2664

570

4.6 7.5

1.4 -1.2 -1.5

655 323

1333 967

4 7 8 334

-372

107

155

134 -1 80

-25.5

7.9

100 30 13 56

92 22 7

15

12 27

8 14

2991

5 85

5.1 12.4

1.8 3.1 2.8

823 427

1871 1419

4 I O -1 047

-666

2 12

190

0 73

-3 5 .O

1 1 A

100 3 1 13 56

89 23

8 15

11 25 11 16

3 309

585

5.7 10.7

2.4 4 . 4 -1 .o

868 45 4

1877 1424

-1009 42 5

-61 6

176

162

0 -9 2

-30.5

2.8

100 31 13 56

88 23

8 15

12 24

12 17

3534

585

5.9 6.7

2.6 0.7 0.2

955 509

1929 1461 -974 454 -558

140

173

0 -50

-27.6

10.8

100 31 13 56

86 24 9

16

12 23 14 19

3859

5 85

6.0 9.1

2.7 1.3 1.0

1044 5 74

2052 1556

-1 008 493

-5 59

99

184

0 -63

-26.1

9.4

100 31 13 56

86 24

9 16

12 23 14 19

4215

585

6.0 9.0

2.7 1.9 2.0

1132 643

2195 1668

-1064 52 3

-59 1

87

178

0 -7 1

-25.2

8.6

(Continued)

- 85 -

CAS Annex B6 - Benin: Key Economic Indicators (cont'd)

Actual Estimate Projected Indicator 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Public finance (as % o f GDP at market prices)' Current revenues 17.0

Current account surplus (+) or deficit (-) 2.6 Capital expenditure 6.8

Current expenditures 14.4

Foreign financing 2.1

Monetary indicators M2tGDP Growth o f M2 (%) Private sector credit growth t total credit growth (%)

29.4 6.6

Price indices( YR85 =loo) Merchandise export price index Merchandise import price index Merchandise t e r n of trade index Real exchange Tate (US$/LCUf 129.1

Real interest rates Consumer price index (%change) 1.5 GDP deflator f?? change) 1.7

16.4 16.5 13.7 14.7 2.7 1.9 6.1 6.2 1.8 1.9

26.5 29.8 -6.7 21.8

117.4 117.2

0.9 5.4 0.3 5.4

16.8 20.6 19.3 19.8 20.0 20.1 20.2 12.7 13.7 15.1 15.9 16.1 16.5 16.9 4.1 6.8 4 2 3.9 3.8 3.6 3.3 4.6 7.4 8 2 8.8 9.0 9.3 9.7

-21.0 2.6 2.8 2.1 2.1 2.0 2.0

32.4 31.7 30.6 30.0 30.5 30.3 30.0 16.3 5.2 8.4 8.4 8.4 8.4 8.4

116.3 106.5 95.9 97.2 96.8 96.8 96.8

3.8 1.3 8.8 6.5 2.8 2.8 2.8 3.1 2.6 6.9 4.6 0.8 3.0 3.0

a. GDP at market prices b. "GNFS" denotes "goods and nonfactor services." c. Includes net unrequited transfels excluding official capital grants. d Includes use o f IMF resources. e. Consolidated central government. f "LCU" denotes "local cumency units." An increase in USYLCU denotes appreciation.

- 86 -

CAS Annex B7 - Benin: Key Exposure Indicators

Actual Estimate Projected Indicator 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Total debt outstanding and 1756 1672 1599 511 665 861 1028 1206 1394 1598 disbursed (TDO) (US$m)a

Net disbursements (US$m)a 28 39 45 16

Total debt service (TDS) 107 36 35 1129 29 42 41 47 54 62 (US$m)a

Debt and debt service indicators (% )

TDOIXGS~ 305.3 240.7 232.0 74.1 79.8 83.7 94.5 100.4 106.3 131.0 TDOIGDP 84.9 782 68.9 20.6 24.9 28.8 31.1 34.1 36.1 37.9 TDSiXGS 21.9 6.1 6.2 209.8 4.4 5.1 4.7 5.0 5.2 5.4 Concessi onaVTDO 95.5 952 96.6 92.6

IBRD exposure indicators (%) IBRD DSipublic DS Preferred creditor DSIpublic DS (%)' IBRD DSiXGS 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 IBRD TDO (US$mld 0 0 0 0 0 0 0 0 0 0

Of which present value o f guarantees (US$m)

Share of IBRD portfolio (?A) IDA TDO (US$m)d 729 791 771 126 114

IFC (US$m) Loans Equity and quasi-equity I C

MIGA MIGA guarantees (US$m)

a. Includes public and publicly guaranteed debt, private mnguaranteed, use ofIMF credits and net short-

b. "XGS" denotes exports of goods and services, including workers' remittances. c. Preferred creditors are defined as IBRD, IDA, the regional multilateral development banks, the IMF, and the

Bank for International Settlements. d Includes present value ofguarantees. e. Includes equity and quasi-equity types ofboth loan and equity instruments.

term capital.

- 87 -

U

z f P i i

O m C O h w w ( D v ) v ) 3 0 0 0 0 0 0 0 0 3 0 0 0 0 0 0 0 0 ~ C V n r n r C V C V C V C V C V

m-4 4

MAP SECTION

ZouZou

CouffoCouffo

Ouémé

OuéméM

onoM

ono

SotaSota

Tassi

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Okp

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NIGER RIVER

NIGER RIVER

BIGHT OF BENINBIGHT OF BENIN

LakeLakeVoltaVolta

LakeLakeKainjiKainji

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M O N OM O N O

COUFFOCOUFFO

B O R G O UB O R G O U

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ATA K O R AATA K O R A

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D O N G AD O N G A

Z O UZ O U

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OU

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PLATEAUPLATEAU

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BohiconBohicon

AplahouéAplahoué

CovéCové

MalanvilleMalanville

Dassa-Dassa-ZouméZoumé

BembérékéBembéréké

AbomeyAbomey

CotonouCotonou

SakétéSakété

LokossaLokossa

DogboDogbo

ParakouParakou

NatitingouNatitingou

KandiKandi

OuidahOuidah

SavalouSavalou

DjougouDjougou

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oo uu nn tt aa ii nn ss

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Bembéréké

Abomey

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Lokossa

Dogbo

Parakou

Natitingou

Kandi

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Savalou

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PORTO NOVO

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NIGER

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NIGER RIVER

BIGHT OF BENIN

LakeVolta

LakeKainji

Koumongou Oué

mé

Gulf of Guinea

At a k o r a M

o u n t a i n s

To Dapaong

To Sokoto

To Dosso

To Kaiama

To Kabou

To Lomé

To Notsé

To Ibadan

0

0

1E

1E

2E

2E

3E

1E

3E 4E

7N

8N 8N

7N

9N 9N

10N 10N

11N 11N

12N

BENIN

This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other informationshown on this map do not imply, on the part of The World BankGroup, any judgment on the legal status of any territory, or anyendorsement or acceptance of such boundaries.

0 604020 80

0 20 40 60 Miles

100 Kilometers

IBRD 33372

DECEMBER 2005

BENINSELECTED CITIES AND TOWNS

DEPARTMENT CAPITALS

NATIONAL CAPITAL

RIVERS

MAIN ROADS

RAILROADS

DEPARTMENT BOUNDARIES

INTERNATIONAL BOUNDARIES