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Page 1: Instructions: 1. Read country brief. 2. Select one ...WBGx+F4D01x+1T2017+type@asset+block@... · 1 of 23 Week 2 Assignment: Hypothetical Scenarios Instructions: 1. Read country brief

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Week 2 Assignment: Hypothetical Scenarios

Instructions:

1. Read country brief.

2. Select one scenario to read.

3. Answer questions for that brief (no more than 500 words).

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Contents

Country Brief – Frelandia ................................................................................................................. 3

Scenario 1: Agriculture - Boosting Cocoa production in Frelandia ................................................. 7

Scenario 2: Agriculture - Frelandia Hazelnut Project ...................................................................... 8

Scenario 3: Agriculture - Food Security and Agribusiness Potential in Refugee and Local

Communities ................................................................................................................................. 10

Scenario 4: Energy - Lighting Up Frelandia – Country Energy Access and Efficiency Case Study . 12

Scenario 5: Energy - Safe, Clean and Reliable Energy for Refugees .............................................. 14

Scenario 6: Energy - Powering-up Rural Communities ................................................................. 16

Scenario 7: Urban Development - Improving public and private urban governance for

investment and growth ................................................................................................................. 18

Scenario 8: Urban Development - Transportation for economic growth, jobs and profit ........... 20

Scenario 9: Urban Development - Investing in the business potential of displaced people in cities

....................................................................................................................................................... 22

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Country Brief – Frelandia

RECENT DEVELOPMENTS

In recent years, Frelandia (population 13 million) is continuing to recover from slipover effects

from the six years of civil war (2005-2011) in neighboring Andravia. Fought mainly along tribal

lines, the brutal conflict led to an influx of Andravians, primarily women and children, fleeing the

fighting and, for a brief period in 2009 some guerrilla fighting in the forested northern uplands.

While many of the refugees returned home, a considerable number (est. 130,000) remain in

informal settlements on the outskirts of the Capital, Quema and northern towns of Timbre and

the eastern settlement of Marshtown. An additional number of de-mobilized men (est. 10,000),

also crossed into Frelandia, looking for income and settled in the capital, in the north and west.

Already mired in poverty, the influx of weapons and underlying tribal tensions led to increase in

urban crime and violence in these areas. Severe drought conditions in the country’s northwest -

where most of Frelandia agriculture before the war- has displaced families to urban areas, in

particular the capital.

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POLITICAL ECONOMY

Democracy is brittle in Frelandia. There has not been a coup since 1994. The Frelandia Progress

Party has won every election since the first free election in 1998. President Julius Nelson has

seen his approval plummet in the last two years– based on the failure of the economy to pick-up

and the lingering social effects of the refugee crisis. Elected in 2012, Nelson is the youngest son

of a former dictator who mysteriously died in 2011. Nelson’s charismatic father came to power

via a coup d’état in 1994 and established a multi-party democracy in 1997. Nelson Jr.’s

popularity has been waning for the last two years.

The country has yet to undergo the litmus test of a grounded democracy: a peaceful transition

to the opposition. Nelson got elected in 2012 on a political manifesto which heavily relied on

subsidies and import tariffs to protect local industry. Initially, the government’s budget profited

from the ‘peace dividend’ after the Andravia truce. Regional economic growth picked up a little

and development partners and multilateral development banks transferred large amounts of

ODA into the region, including Frelandia which was long seen as the poster child for the

international community. Press freedom improved significantly in the last two decades but a

recent ‘advertising tax’ has financially crippled critical media outlets. Nelson is actively lobbying

for a second term in elections scheduled for November this year.

GEOGRAPHY

Situated in the coastal plain Frelandia has a diverse environment, from the dry north-west

through the two fertile river valleys (the Deema and the East River) in the central zone to the

swampy south-east. The extremely biodiverse, forested, north-east watershed provides all of

the freshwater needs of the population. Once self-sufficient, the livelihoods of coastal

communities, such as Cape Gurnard, are suffering due to mangrove clearance and resulting

coastal erosion and overfishing by international fleets.

ECONOMY

Frelandia’s strategic and economic importance pivots around its deep-sea port. The country is

an important corridor for the economies in the landlocked countries to the North. The port has

been built in the 1950s, with major investments in the 80s (which also contributed to the 1992

debt crisis). It is in dire need of an overhaul. Frelandia’s strategic position has led to continued

interest from investors in the country, in particular after father Nelson created the special

economic zone. At the same time, the tax-to-GDP ratio has been hovering around 10% for years

and the country’s fledgling public sector is heavily dependent on international support, provided

by many donors. While this support has been credited for facilitating the jump from autocracy

to democracy, domestic revenues keep lagging behind and policy reforms have stalled or failed.

The country, once the world’s largest cocoa producer, has seen a steady decline over the past 20

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years of its share in global cocoa export, despite relatively high global prices. Rare earth

production in the north-west, in particular tantalum, has a major share in exports. There is a

sizable hardwood timber production around Timbre, but this threatens the only remaining

habitat of the critically endangered Great Western Gorilla. Concerns have emerged about the

award of one of the major concessions to the President’s kindergarten friend, the opera singer.

In terms of future potential, a recent feasibility study identified shea nut production, as well as

possible expansion of cotton, organic cacao, mung beans and vanilla. A similar study also

identified the potential for eco-tourism development in the pristine northern coastal zone and

the cloud forest areas north of Timbre.

A World Bank study in 2004 identified potential for several small hydro-power plants (total

generating capacity of 25MW) in the upper valley of the Deema, further work being shelved due

to the spillover from Andravia’s civil war and the complexity of the social and environmental

issues that the project would face. The generating capacity would bring attractive regional

export possibilities.

Frelandia has a small but growing middle class, primarily in the urban areas. The middle class’

support for Nelson seems to be declining. Frelandia also has a sizeable diaspora. It is estimated

that around 22% of GDP comes from remittances.

At the other end of the scale, small-scale peri-urban manufacturing includes automotive repair,

textiles and furniture. There is a soft-drink/beer bottling plant and a cement plant, largely

supporting domestic needs. Women play a dominant role in many parts of the economy and

society. There is a vibrant civil society aimed at supporting a growing artisanal niche market for

handicrafts that are now being sold internationally online.

INFRASTRUCTURE

Frelandia is at an increasing regional disadvantage due to its lack of a functioning deep-water

port. Much of the freight serving the region now enters into the state-of-the-art facilities in

neighboring Congania, even though goods have a more complex connection to the landlocked

countries in the dry savanna zone of the continent. Trade is subsequently along the rapidly

deteriorating Coastal Highway. Similar constraints affect the internal movement of goods,

although the newly upgraded highway to Mineville and Congelada have opened up this arid, if

productive zone. There is a desperate need to improve the road to Palmville and Timbre to

facilitate growth of the export market.

Energy production is largely through the aging diesel plant at Quema and smaller diesel plants in

the regional centers. Diesel is imported. Power-cuts are a frequent fact of life in the cities and a

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major issue for industry, most of which operates its own generating capacity. Domestic cooking

is still via kerosene and wood, the former of which is heavily subsided by the government.

Due mainly to the insight of a local innovator, who started a cellphone company (now serving

the regional market), cell phone penetration in Frelandia is over 80%.

Laid in 1998, the offshore XAFIRCA fibre-optic cable has yet to make landfall in Andravia due to

regulatory issues, notably the unwillingness of the government to issue guidance on use-rights.

EMPLOYMENT

Frelandia’s youth population (15-24 year olds) is estimated to be the fastest-growing in the

region, although reliable data are missing. 20% of the population falls in this category,

comprising 40% of the workforce. Most of these youth rely on jobs in the informal economy and

are underemployed. Some 45% of Frelandia’s population lives in rural villages and practices

subsistence agriculture taking advantage of vibrant market centers to generate modest cash

income. In the cities, employment is largely in government service, retail, peri-urban industries

and in the few mid-sized industries.

SOCIAL SERVICES

Based on advances made in the 1980’s and 1990’s Frelandia has regionally high literacy rates

(72% M 55% F). Both the education and health systems remain comparable to its neighbors but

have been strained by the refugee crisis and chronic lack of investment. Donor activity has been

focused on primary education and basic health services, the latter to counter HIV/AIDs and

threats of zoonotic disease. Retention of trained teachers and medical staff remains a concern

and many facilities are operated by international charities and religious organizations.

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Scenario 1: Agriculture - Boosting Cocoa production in Frelandia

Frelandia, despite its travails, remains among the world’s largest producers of cocoa beans and

their export is a mainstay of their economy.

Nearly all cocoa production in the country comes from small farmers, many of whom belong to

farming cooperatives. Yet logistics has historically proved a major challenge for those farmers,

as bad roads lead to problems with damaged vehicles, and proper maintenance and repair has

often proved to be prohibitively expensive.

Local farmer cooperatives have access to short-term financing through exporters, but the

duration of those loans has generally prevented them from access to new trucks. Thus they have

resorted to second or third-hand vehicles which involve huge maintenance costs. Cocoa

collection via existing or older trucks is the largest component in the farmer cooperative cost

structure.

There exists a business opportunity for a big multinational to secure a reliable supply of cocoa,

in order to meet a rising global demand for cocoa and chocolate. Improving the coops’

profitability by reducing the burden of maintaining old trucks may mean a stronger cocoa value

chain and a more reliable supply of cocoa beans for the multinational.

This would require adding a financing arm to service the local farmer cooperatives with

medium-term finance arrangements. With access to finance, coops could lease trucks to more

easily and efficiently collect beans from the fields.

Questions:

1. How would you structure the financing of leases to the local coops?

2. How do you mitigate (or share) the credit risk among investors.

3. The credit arrangement can be replicated for other crops in Frelandia and beyond, giving

farmer cooperatives across Africa access to medium-term finance to cut costs and improve

profitability. Who can catalyze this scale up across sectors and countries? How?

4. What else will be required in addition to finance/credit, e,g business development and other

non-financial services for cooperatives?

5. How would you prevent cooperatives from being captured by some elite farmers? Would you

consider options to cooperatives such as aggregators or contract farming?

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Scenario 2: Agriculture - Frelandia Hazelnut Project

The ability of the private sector in Frelandia to be more competitive and to generate jobs is

constrained by several key obstacles, notably,

(a) Weak business enabling environment. Frelandia is ranked 155 of 189 countries according to

Doing Business Indicators 2015.

(b) Limited access to (concessional) finance. Main constraints include low business and financial

literacy on the part of entrepreneurs, and a lack of information and experience in assessing

MSMEs on the part of financial institutions.

(c) Insufficient skills to seize market opportunities. Potential business opportunities have not yet

been well-leveraged by firms—particularly because of limited market knowledge and business

skills.

Given that three quarters of Frelandia’s population live in rural areas, improved performance in

agribusiness has the potential to be highly beneficial for Frelandia.

Frelandia had committed more than US$100 million of international loans and grants to the

agricultural sector. However, these existing projects were focused mainly on the supply side of

the agricultural industry (irrigation, dams, and extension services). Two other key constraints to

growth have not yet been systematically addressed: access to finance and access to markets.

Your business venture is to provide young hazelnut trees to poor farmers, who would grow

them on degraded or fallow land. Processing facilities would have to be constructed and

operated, and supply chains developed to move your product to market.

This business venture should focus on a three-part mission:

• Be commercially profitable and sustainable.

• Provide economic opportunities to rural farmers and communities.

• Provide environmental benefits, as trees planted in degraded areas would reduce soil erosion

and sedimentation of rivers.

Traditional venture capital sources are unlikely to provide funding. Frelandia has no past private

investment, is remote, fragile, and poor. Finally, the company needs a relatively small amount

of capital—most venture capitalists needed to put larger amounts of money to work, with

commensurate expectations on returns.

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Questions:

1. Who could be the potential investors in this business venture?

2. What are the tradeoffs between different sources of finance – i.e foundations, private sector,

crowdsourcing, international organizations such as the IFC?

3. Supply Chain – What key supply chain issues, e.g. where to procure the trees, transport

logistics, training, collection facilities, etc, exist?

4. How could financial risk be mitigated by the business venture?

5. Can the project be designed to be replicable in other countries (assuming there is continued

strong demand for the hazelnut)?

6. Would you consider investment in SMEs as an option as large companies are likely to invest if

some aggregation is already happening?

7. There are tradeoffs between economic returns and social/environmental returns. How can

the project stay true to its social/environmental mission while ensuring a financial return for its

funders? How can it ensure that the stakeholder incentives are aligned?

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Scenario 3: Agriculture - Food Security and Agribusiness Potential in Refugee and Local

Communities

Scene Setting

Agriculture is the backbone of livelihoods for the majority of people in conflict and post-conflict

situations. Roughly about 40,000 of the remaining Andravian refugees live in a settlement near

Marshtown. Most of the refugees already returned to their country after the civil war ended.

Refugees in Marshtown, mostly farmers, could not go back due to land disputes and destroyed

land and infrastructure back at home. The conflict has had a devastating impact on agriculture,

with food markets and supply chains dysfunctional, much of the irrigation and other

infrastructure destroyed and farmers and livestock keepers left with no other option than to

abandon their fields and animals. The ones who remained could not access markets or afford

seeds, fertilizers and other inputs. Meanwhile the influx of refugees also impacted agriculture in

Frelandia.

Challenge

Not too far from the EastRiver, Marshtown has good farmland potential however productivity is

low and the distribution channels are close to nonexistent. Traditionally rice plantations have

flourished in this area. But lack of investment, warehousing and distribution channels hurt this

business in the last five years. EastRiver floods during the rainy season pose a risk to the

farmland. Food security is a critical issue both for the local population of 100,000 as well as the

refugees. Some refugees have been growing their own food in the settlement with limited

resources and productivity.

Recently, US$50 million of concessional financing has been made available by a donor to boost

Frelandia’s support to the region, focusing specifically on children and adults who are facing

hunger and malnutrition. A similar loan was also approved for Andravia. Recent feasibility

studies identified shea nut and vanilla production as potential for the area. A few global firms

have been working with farming communities in the neighboring countries to develop capacity

for vanilla and cacao production.

Questions:

1. Please identify 3 potential business ideas and top 3 risks based on the above scenario?

2. How can the Frelandia government leverage the WBG fund to bring in additional

resources to the area?

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3. Do you see any partnership opportunities that could produce sustainable solutions that

benefit both locals and the refugees in the region?

4. What role can technology play?

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Scenario 4: Energy - Lighting Up Frelandia – Country Energy Access and Efficiency Case Study

Scene Setting

Only 35% of the Frelandian population has access to electricity. Electricity service is

concentrated in and around the capital, Quema, and remains unreliable even there. Those with

access to electricity receive power for an average of only five to ten hours per day. Outside the

capital, electrification rates drop to an average of 10%. Frelandia depends on imported

petroleum for 85% of its electricity generation, exposing the country to volatile fuel costs, and

diverting a significant portion of budget to importing a fuel that has negative impacts on human

health and the environment. Existing electricity infrastructure is aging and poorly maintained. In

2011, one-thirds of total electricity production was lost to technical inefficiencies or theft,

posing immense challenges to the sector’s financial viability. Industry accounts for more than

40% of electricity consumption. In 2012, all 19 registered textile manufacturers in Frelandia had

their own diesel generators on site. Frelandia has no nationwide electricity grid. It has nine

isolated electricity grids—covering major population centers.

Challenges

Frelandia’s installed operating capacity of 244 MW will have to more than tripple over the next

decade to meet expected demand and improve reliability. This will still leave large amounts of

rural populations without access. Despite significant subsidies, the national electric utility (NEU)

is in severe debt, and thus unable to invest in the infrastructure needed. Improved metering,

billing, management, and enforcement are key to electricity sector reform.

Government has made energy and the environment two of its five major priorities. The 2008–

2017 Energy Sector Development Plan highlights solar, wind, hydropower, and bagasse as viable

sources to offset the fossil fuel use. Major policy and regulatory changes are necessary to make

this a reality.

There are competing priorities and interests. Numerous government agencies with overlapping

(and sometimes opposing) mandates and priorities can be involved in various aspects of

planning and regulation. Public institutions that are responsible for planning and regulating the

power sector—including the Ministry of Energy Security and NEU—often face a shortage of

qualified personnel and have limited capacity to design, implement, and monitor energy and

electricity policies. NEU, managed by a cousin of Frelandia’s President for the last 10 years,

recovers only 22% of its generation costs. Frelandia does not have an independent electricity

regulator.

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Opportunities

Tremendous opportunities exist to improve service and build an electricity system that is

economically, socially, and environmentally sustainable. Frelandia has abundant renewable

energy resources, including solar, wind, and modern biomass, as well as a growing number of

renewable energy practitioners.

Hydropower is currently the country’s cheapest source of electricity generation (approx. 5 U.S.

cents per kWh). Wind and solar PV in good locations (approx. 10 U.S. cents per kWh) are fully

competitive with coal power, , even without internalizing societal costs associated with fossil

fuel combustion. By developing small and micro-hydropower, Frelandia could add at least 102

megawatts (MW) of power capacity. Several of the country’s most promising sites are located

near Quema, presenting opportunities to supply large populations at relatively low cost.

Perceived risk and a lack of institutional and finance capacity in Frelandian banks contribute to

high interest rates and a lack of long-term loans. Most private international finance institutions

do not provide sustainable energy loans in Frelandia without assurance through a sovereign

guarantee that debts will be repaid. Bilateral and multilateral development assistance

increasingly targets sustainable energy.

Nearly USD 2 billion is sent to Frelandia each year in remittances from members of the diaspora;

an estimated 10–25% of all remittances end up being used to pay for some form of fuel, mainly

kerosene and petrol.

Questions

1. Identify three key areas for private sector participation and/or potential business ideas based

on the scenario?

2. How can the Frelandia government leverage development assistance and interest in

renewable energy to bring in additional financial resources to the area?

3. What aspects of sector reform and institution-building should be prioritized?

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Scenario 5: Energy - Safe, Clean and Reliable Energy for Refugees

Access to modern energy services is a basic human need, but for displaced people access to

safe, secure and reliable energy is often inadequate. Furthermore, refugees and internally

displaced persons (IDPs) overwhelmingly use traditional biomass (primarily firewood) and

charcoal to cover their basic energy needs and this is unsafe, unhealthy and inefficient. This is

environmentally, socially, and economically unsustainable. Dependency on primitive fuels is a

cause of premature death for some displaced people as well as respiratory and heart conditions

affecting children and the elderly.

Sustainable energy initiatives can deliver benefits to refugee and displaced populations,

enhancing safety, security, health and livelihoods. Reducing the time and distance that refugees

travel to collect firewood frees additional time for livelihood activities and increases security,

particularly for women and girls. A change of approach can transform the mindset about how

camp residents are perceived – from ‘beneficiaries’ dependent on handouts – to agents able to

choose, produce, consume and take part in the running of their own communities.

According to Moving Energy Initiative only 11% of the people who live in refugee camps have

access to reliable energy sources for lighting. There are about 130,000 refugees in Frelandia,

spread over three main settlements. Most of these people have been refugees for more than 6

years. In this period they have not paid for the limited energy that they have used. There is lack

of reliable data on energy usage and costs by refugees. At the same time there is overall energy

shortage in Frelandia and wood, and charcoal is the predominant cooking fuel among the

population. An NGO proposed to introduce efficient cookstoves to replace solid fuels.

Encouraged by UNHCR, Frelandia government is beginning to look at how displaced people

access and pay for energy services, and how private-sector expertise can be leveraged through

innovative tendering and private–public partnerships. The government is bringing together a

steering committee/advisory panel consisting of public private organizations representatives to

address this issue. An overhaul of energy service procurement policy and standards is required

to engage a wider cast of private-sector actors in energy service delivery and equipment sales.

Questions

1. What are the core elements of a new safe, clean reliable energy plan for the refugees

and the local population?

2. Where will the financing come from? What are the possible roles for private or

foundational funding?

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3. How can the specific risks in this type of situation be quantified?

4. How can new clean energy technologies best be financed and deployed in this scenario?

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Scenario 6: Energy - Powering-up Rural Communities

Only 35% of the Frelandian population has access to electricity. Electricity service is

concentrated in and around the capital, Quema, and remains unreliable even there; those with

access to electricity receive power for an average of only five to ten hours per day. Outside the

capital, electrification rates drop to an average of 10%. Frelandia depends on imported

petroleum for 85% of its electricity generation. Existing electricity infrastructure is aging and

poorly maintained.

While energy access has remained low, cell phone coverage has rapidly increased in the last 8 to

10 years and became almost universal. This technology has induced demand for power from

rural users who want to keep their cell phones charged—and from their mobile phone

providers. This has helped incentivise mobile phone companies to provide off-grid customers

with cheap small-scale distributed clean energy.

Tongali, a rural farming community of about 15,000 people in western Palmville had been

without electricity for decades. Over the years, the community adapted. The rich set up rooftop

solar panels that supplied a single light bulb or ceiling fan. Poorer people used kerosene lamps.

In 2013, the villagers pooled $780 and asked the local electricity board for a connection, but

they never got it. A chance encounter last year between the community chief and an NGO

activist brought the group to Kongali. The NGO wanted to set up a solar village to show the

government that it is possible to power rural communities with renewable energy. Initially, the

excitement in the village was profound.

Over three months, engineers set up 200 kW of photovoltaic panels on the rooftop of public

buildings scattered throughout the village. They installed 600 batteries to store the power. The

installation cost $500,000. All families received one compact fluorescent light bulb and a wall

outlet to charge their mobile phone. The power would be free for six months and then cost $1

per month, which is too high for some families who earn 30 cents a day. Well-to-do families

already had rooftop solar panels but many of them signed up, as well since a shared

infrastructure system, like a microgrid, promised to be more reliable.

The day the power came was one of celebration. Villagers, rich and poor alike, ate sweets. Then,

the wealthy families plugged in energy-inefficient televisions and refrigerators. With the power

suddenly facing heavy demand, the batteries drained within hours. The microgrid operators

scrambled to fix the problem. The village electrification committee decided to restrict electricity

supply to five hours at nighttime. The NGO put up posters telling people not to use energy-

hungry appliances such as rice cookers, electric water heaters, irons, space heaters and air

coolers.

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When the state governor visited the community, disappointed villagers lined up to protest,

chanting, “We want real electricity, not fake electricity!” By “real,” they meant power from the

central grid, generated mostly using solid fuels. By “fake,” they meant solar. Participation rates

in the solar microgrid declined. Ahead of the elections, the governor promised reliable

electricity from the petroleum-based central grid to the community. In the meantime, the NGO

called in a few mobile companies to discuss a rescue operation for the project.

On-Grid Solar - On-Grid Systems are solar pv systems that only generate power when the utility

power grid is available. They must connect to the grid to function. They can send excess power

generated back to the grid when you are overproducing so you credit it for later use. These are

simplest systems and the most cost effective to install. These systems will pay for themselves by

offsetting utility bills in 3-8 yrs.

These do not provide power during a grid outage.

Off-Grid/Hybrid Solar - These systems allow you to store your solar power in batteries for use

when the power grid goes down or if you are not on the grid. Hybrid systems provide power to

offset the grid power whenever the sun is shining and will even send excess power to the grid

for credit for later use. Provides power for your critical loads when the power grid is down.

Cannot be expected to provide power for all your loads since the cost and volume of batteries

would be prohibitive. Off-Grid systems require a lot more specialized equipment to function that

is more costly and more complex to install. Specifically they require a central/string inverter, a

charge controller as well as a batteries.

Questions:

1. Identify the immediate steps that could be taken to help support the sustainable

operation for the mini-grid system in place in this scenario?

2. How can the Frelandia government best support clean, distributed energy systems in

rural settings?

3. Do you see any partnership opportunities that could produce sustainable solutions that

benefit both locals and businesses in the region?

4. What role can the provision of power systems for cell tower operations play in providing

community energy needs?

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Scenario 7: Urban Development - Improving public and private urban governance for

investment and growth

With the civil war ended in neighboring Andravia, the government of Freelandia declared that

the period of centralized governance is over. The government is now devolving authority, while

strengthening capacity, legitimacy, transparency, and accountability at every level of

government. These are seen as prerequisites for restoring the rule of law and attracting

investment amid massive investment needs for rehabilitating infrastructure. In addition to

national and local formal governance systems, there exist informal networks and traditional

governance structures. Trust in formal institutions is low and corruption widespread,

undermining public confidence in the government.

At the local level, the government is engaging Quema, Freelandia’s capital, with addressing its

own challenges with urban governance, planning, and finance. Amid rapid urbanization, the city

has sprawled beyond its originally intended limits with the arrival of 32,000 Andrivian refugees

and 18,000 Internally Displaced People (IDPs) who have moved mostly to informal settlements

around the city. A complex mix of security, economic and other factors have driven

displacement, including a six year civil war in neighboring Andrivia, drought in rural areas and

flooding in coastal areas.

The city is trying to balance immediate priorities of restoring governance with long-term

investments in infrastructure, jobs and growth goals. Limited resources and capacity has

constrained its ability to provide basic services and infrastructure. Water and sanitation services

are insufficient for its rapidly growing population, while hospitals and schools are overcrowded.

Inadequate roads have led to continuous traffic jams and congestion, and there are increasing

levels of environmental pollution. Planning figures are largely based on the last census of 2005,

so it is unclear how many people currently utilize government services and infrastructure.

The city’s decisions and policies for displaced populations are highly politicized and

unpredictable, adding even greater uncertainty to the already precarious plight of the displaced.

The threat of extortion and harassment of Adrivian refugees by the security forces has been

exacerbated by plans to revoke their legal status next year. The city is trying to balance public

services between the needs of long-term residents and displaced persons. Programs targeting

solely displaced persons have excluded longer-term residents of Queman, causing tensions.

Rising rents and other pressures force many displaced families to move further and further

towards the outskirts of Quema in search of affordable and decent housing.

Refugees are not allowed to own land. IDPs, who can formally own land, face discrimination

from landlords and fierce competition, resulting in rising rents. Many longer-term residents have

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made significant profits by renting out houses to the displaced. Rising rents and other pressures

force many families to move nearly continually, often further and further towards the outskirts

in search of affordable and decent accommodation.

Despite these challenges, Quema’s city council hopes that once effective governance and the

rule of law are restored, the city will attract early stage investors with local knowledge and

higher risk appetite and collect taxes to increase public finance.

Quema has a thriving informal small and medium sized enterprises (SME) sector, which provides

a significant share of the city’s employment. Formalizing business of SMEs through a registry will

be an important step towards attracting investors, collecting taxes and helping SMEs seek

financing from local banks. SMEs have been poorly served by banks in Quema. While they

represent the backbone of Quema’s economy and provide the bulk of employment, they receive

just one-quarter of all loans and credits. Without official registration of SMEs, banks lack

knowledge about their creditworthiness. As a result, Quema’s banks have little appetite to lend

to SMEs.

Questions:

1. What additional steps should be taken to bring in SMEs into the formal sector?

2. How can the city council improve its capacity to engage and govern new investors in

Quema?

3. What roles should citizens expect the central government, city council and private

sector to play in generating jobs and growth?

4. What instruments might Quema use to reduce investment risk for domestic and foreign

investors?

5. What instruments might attract early stage investors and how might those instruments

lay the ground work for a broader groups of investors?

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Scenario 8: Urban Development - Transportation for economic growth, jobs and profit

Rapid and continuing population growth in Quema has been accompanied by an equally rapid

increase in the demand for public transport. The city council of Quema is under pressure to

provide safe, affordable, efficient, reliable and clean modes of transit. A well-functioning transit

system is seen as critical for facilitating transit of workers, which in turn underpins employment

and the city’s economic growth. However, it faces a number of dilemmas on whether to focus its

effort on formalizing the current informal transportation system – which is unregulated but is

thriving and meets the needs of many citizens and employs 15% of the population – or to move

to a formal mass transit system, or a hybrid of both.

Quema’s city government support for transport services has either dwindled, or actively

undermined established operators in the informal sector. This has been accompanied by de

factor privatization of public transport where informal operators have provided service in the

absence of a well-functioning public transit system. The informal sector has been dominated by

largely unregulated share taxi and mini-bus services – a lucrative business owned by a

prominent local politician.

While the deregulation and privatization of public transport is a phenomenon in most of the

Western world, in Freelandia, these processes have taken place by default rather than

deliberate action. In Quema this has resulted in public transport provision with little or no

government involvement or control. Lack of enforcement of regulations, increasing traffic and

rising crime in some parts of the city have made transit less safe -- incidence of harassment of

women on public transportation has increased; workers en route to work have been robbed;

and there are an increasing number of traffic accidents on Quema’s congested roads.

All modes of transportation used by Quema’s citizens - walking, cycling, and public transport –

are inadequately provided for. Commuting distances are increasing as the city expands and rent

rise in the city center, pushing low income workers to the suburbs. This together with rising fuel

costs have increased the costs of transport are also rising, estimated to be as high as 25 per cent

of household income for those in the suburbs. Higher transport costs have reduced the access of

Quema’s poor to basic services and jobs. Public transportation to and from informal settlements

is limited and expensive.

Transport by private car remains a privilege for wealthy minority - less than 10% of household

trips. While travel by private car meets less than 10% of demand, it incurs over 50% of total

system costs. By contrast, walking meets almost half of trip demand but accounts for only 1% of

total costs.

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As the city considers whether to focus on formalizing current informal modes of transit or move

the city to a mass transit system, it is considering implications of each model for financing,

congestion, pollution, safety, reach of transit system and affordability.

The mass transit system will require far greater levels of investment than are currently available

from public sources. The system would also risk crowding-out existing informal modes of transit

– which have been thriving recently with the advent of smartphone apps to order taxi and bus

services.

Questions:

1. Should the city focus on investments in its formal and informal transit systems?

2. What financing instruments would be needed to build a new mass transit system?

3. How might technology – including transport services facilitated by smartphones – shape

Quema’s transportation plans?

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Scenario 9: Urban Development - Investing in the business potential of displaced people in

cities

Freelandia’s capital city of Quema is experiencing rapid urbanization as 32,000 Andrivian

refugees and 18,000 Internally Displaced People (IDPs) have moved to informal settlements

around the city. A complex mix of security, economic and other factors have driven

displacement, including a six year civil war in neighboring Andrivia, drought in rural areas and

flooding in coastal areas.

The massive influx of displaced people has strained infrastructure and municipal services

causing frequent blackouts, housing shortages, and limited water and sanitation services.

Educational and health services are also inadequate, although NGOs and CBOs make an

important contribution in this area. Gangs and radical groups have increased their activities and

recruitment in the settlements, particularly among the young male adults.

Differences in access to services, assistance and resources have emerged between those living in

camps and those living outside them. Gated communities for wealthier residents are being built

amid security concerns. Access to power and water is limited in the settlements and there is a

black market for them. Quema’s residents, whether displaced or not, face the challenge of

finding sustainable livelihoods.

Freelandia is requesting financial support from the international community as compensation

for – for providing what it regards as a global public service - hosting refugees from Andivia. A

significant portion of international aid for refugees has been geared towards repatriation and

improving conditions for their return to Andrivia. However, the fluidity of the security situation

has made many cautious about returning permanently, especially without adequate assistance

to rebuild their lives.

With the growing recognition that the displaced population will be settled permanently in

Quema, the local government is now exploring longer-term, durable solutions to integrate

displaced persons into the city’s economy and civic life.

Freelandia has several SMEs owned or operated by refugees. Most work informally without

work permits, many are women. The local government is negotiating with the government of

Frelandia to introduce a work visa program for refugees to formalize their employment.

Meanwhile, an association of refugee women business owners in Quema has applied for a

microfinance program offered to women entrepreneurs by a private bank. Back2Business, an

international NGO received funding from international donors to start an incubator with urban

refugees in the settlements.

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Questions:

1. Can you identify three public private alliance opportunities which mutually benefits both

the public and private sectors as well as host communities and urban refugees?

2. What does it take to bring these opportunities to life?

3. Please identify the biggest risks for these opportunities?

4. What are some innovative financing mechanisms that could be deployed?

5. Are there any other partners that can play a role and in which ways?