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AFRICAN DEVELOPMENT BANK GROUP
MADAGASCAR
INVESTMENT PROMOTION SUPPORT PROJECT
(PAPI)
OSGE/GECL DEPARTMENTS
June 2015
Translated Document
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TABLE OF CONTENTS
1. STRATEGIC THRUST AND RATIONALE ........................................................................ 1
1.1 Project Linkages with Country Strategy and Objectives .......................................................... 1
1.2 Rationale for Bank Intervention .............................................................................................. 2
1.3 Coordination of Technical and Financial Partners’ Operations ................................................ 5
2. PROJECT DESCRIPTION ................................................................................................ 7
2.1 Project Components ................................................................................................................. 7
2.2 Technical Solutions Adopted and Alternatives Explored ...................................................... 10
2.3 Project Type ............................................................................................................................ 10
2.4 Project Cost and Financing Arrangements ............................................................................. 11
2.5 Project Target Area and Beneficiaries .................................................................................... 12
2.6 Participatory Approach for Project Design and Implementation............................................ 12
2.7 Bank Group Experience Reflected in Project Design ............................................................. 12
2.8 Key Performance Indicators ................................................................................................... 13
3. PROJECT FEASIBILITY ................................................................................................ 14
3.1 Economic and Financial Performance .................................................................................... 14
3.2 Environmental and Social Impacts ......................................................................................... 14
4. PROJECT IMPLEMENTATION ................................................................................. 15
4.1 Implementation Arrangements ............................................................................................... 15
4.2 Monitoring and Evaluation ..................................................................................................... 16
4.3 Governance ............................................................................................................................. 17
4.4 Sustainability .......................................................................................................................... 17
4.5 Risk Management ................................................................................................................... 17
4.6 Knowledge Building ............................................................................................................... 18
5. LEGAL INSTRUMENT AND AUTHORITY ................................................................... 18
5.1 Legal Instrument ..................................................................................................................... 18
5.2 Conditions for Bank Intervention ........................................................................................... 18
5.3 Compliance with Bank Policies .............................................................................................. 18
6. RECOMMENDATION ...................................................................................................... 18
LIST OF TABLES
Table 1 : Donor Operations in Project Thrust Areas
Table 2 : Complementarity between World Bank IGP 2 Project and PAPI
Table 3 : Project Components and Sub-components
Table 4 : Estimated Project Cost by Component
Table 5 : Sources of Financing
Table 6 : Project Cost by Expenditure Category in UA Thousand
Table 7 : Expenditure Schedule by Project Component in UA Thousand
Table 8 : Expenditure Schedule by Expenditure Category in UA Thousand
Table 9 : Lessons Learned from Previous Institutional Support Projects
Table 10: Key PAPI Implementation Stages
Table 11: Risks and Mitigation Measures
LIST OF GRAPHS
Graph 1: Public and Private Investments (as % of GDP)
Graph 2: Madagascar – Poverty According to International Definition (%)
LIST OF ANNEXES
Annex I: Country’s Comparative Socio-economic Indicators
Annex II: Table of AfDB Portfolio in the Country
Annex III: Mainstreaming Risks Related to Fragility Factors Identified in the Assessment of the
Country’s Fragility and Based on Project Sector Knowledge
Annex IV: PAPI Gender Analysis
Annex V: Map of Project Area
i
Currency Equivalents
March 2015
Madagascar’s Currency Unit = Ariary Currency Unit = Ariary (MGA)
UA 1 = USD 1.41
UA 1 = EURO 1.25
UA 1 = MGA 3 678.68
Fiscal Year
January - December
List of Abbreviations
ADF African Development Fund
AFD French Development Agency
AfDB African Development Bank
EDBM Economic Development Board of Madagascar
FAPST Textile Sector Promotion Support Fund
GDP Gross Domestic Product
IGP Integrated Growth Pole
IMF International Monetary Fund
MFB Ministry of Finance and Budget
MGFO Bank’s Field Office in Madagascar
N/A Not Applicable
PAGI Institutional Governance Support Project
PCR Project Completion Report
PPP Public-Private Partnership
PRIBG Project on Institutional Capacity Building for Good Governance
PRSP Poverty Reduction Strategy Paper
TFP Technical and Financial Partners
TSF Transition Support Facility
UA Unit of Account
WB World Bank
ii
LOAN INFORMATION
Client Information Sheet
BORROWER : Republic of Madagascar
EXECUTING AGENCY : Economic Development Board of Madagascar (EDBM)
Financing Plan
Source of Financing Amount
(in UA million) Instrument
TSF (Pillar I) 3.00 Loan
ADF 4.00 Loan
Government 0.77
Total Amount 7.77
AfDB Key Financing Information
* relating to ADF loans
Timeframe – Main Milestones (expected)
Activity Date
Preparation January 2015
Appraisal March 2015
Negotiation May 2015
Project Approval June 2015
Effectiveness December 2015
Mid-term Review December 2017
Project Completion June 2019
Last Disbursement September 2019
Loan/Grant Currency UA
Interest Type* Not Applicable
Interest Rate Margin* Not Applicable
Commitment Charge* 0.5% (5 base point)
Other Charges* 0.75% (service charge)
Tenor 40 years
Grace Period 10 years
NPV (baseline scenario) Not Applicable (NA)
ERR (baseline scenario) NA
iii
PROJECT EXECUTIVE SUMMARY
Project
Overview
Project Name: Investment Promotion Support Project (PAPI)
Geographic Coverage: Nationwide
General Schedule: from 1 December 2015 to 30th June 2018
Financing: UA 7.770 million (ADF Loan: UA 4 million; TSF Loan: UA 3 million National
Counterpart Contribution: UA 0.770 million)
Operational Instrument: Institutional Support Project
Expected Outcomes: the main expected project (PAPI) outcomes are: (i) increase in
the level of private investments in Madagascar from 15.2% of GDP in 2013 to 18%
in 2018, leading to a rise in the creation of new jobs in the textile industry from
80,000 in 2014 to 120,000 in 2018; (ii) improved PPP projects preparation and
implementation framework, leading to the implementation of two PPP projects by
2018.
Direct Project Beneficiaries: the beneficiaries of PAPI are: (i) the entire State of
Madagascar through the building of the institutional capacity of entities responsible
for promoting private investment and the public-private partnership framework; (ii)
enterprises (small- and medium-size) of the textile sector which will benefit from a
more investment-friendly institutional framework; (iii) enterprises in the priority
sectors (agri-business, mining, information and communication technologies)
through improved access to production infrastructure; (iv) women and young
entrepreneurs who will be supported by the Textile Sector Promotion Support Fund;
(v) the entire populations of Madagascar who will be the indirect end-beneficiaries
of the positive impacts of increased private investment in terms of job creation and
improved living conditions; (vi) ministries and public bodies, non-State players,
civil society and the private sector will also indirectly benefit from PAPI.
Needs
Assessment
and
Relevance
Madagascar is emerging from a long crisis period (2009-2013) marked by the
country’s suspension from various international community bodies and cooperation
with development partners, except the Bank which has never interrupted its
assistance to the country. Economic recovery following political normalization in
2014 is very slow, partly because of the many challenges faced by the private sector,
namely: an unfavourable business climate for a dynamic private sector, drop in
public and private investment as well as the deterioration of infrastructure.
Madagascar has major assets in the textile sector. The textile and clothing industry
sector accounts for more than 51% of the exports of free zone enterprises. Prior to
the 2009 crisis, Madagascar was among the countries whose textile exports recorded
the highest growth, coming after Vietnam and China. To stimulate private
investment and economic growth, and improve the living conditions of the people,
PAPI will directly support the textile sector because of its high foreign investment,
export and job creation potential. PAPI will also play a catalytic role by helping the
Government to attract private financing for infrastructure rehabilitation and
modernization through PPP, and supporting the establishment of the Special
Economic Zone which is a modern infrastructure platform for enhancing the
competitiveness of growth sectors, including those supported by other donors. PAPI
builds on two operational components, namely: (i) Investment Promotion Support;
and (ii) Public-Private Partnership Framework Support. The project’s specific
operational objectives are to: (i) build institutional capacity for investment
promotion; (ii) improve economic intelligence for investment promotion; (iii)
operationalize a PPP Central Unit; and (iv) support the implementation of PPP
activities.
Bank’s Value
Added
PAPI seeks to support Government’s efforts to create conditions for sustainable and
inclusive growth by stimulating private investment in priority sectors, and
establishing a public-private partnership framework for mobilizing the resources
iv
required for infrastructure development and modernization. Through PAPI, the
Bank plans to support the new authorities in Madagascar to face the major
challenges arising from the serious political crisis, particularly the infrastructure
gap. Public investment alone would not be able to address the situation. As such,
private investment promotion is an important means of enabling greater private
sector contribution to Madagascar’s economic recovery. Specifically, the project
will help to address the fragility factors associated with low private investment,
deteriorating investment climate, rising unemployment and under-employment,
especially among youths and women, and poverty. This support falls in line with
the policy of complementarity with the operations of other donors, especially the
World Bank’s Integrated Growth Pole Project Phase 2 (IGP-2) (Table 2) for
developing regional agri-food and tourism development poles.
Knowledge
Management
PAPI will contribute to building knowledge in Madagascar, especially in the areas
of private investment promotion. Knowledge will be acquired through the transfer
of skills from advisers and consultants to the staff of the beneficiary institutions,
notably the National Investments Promotion Agency (EDBM) and the PPP Central
Unit. In addition, the various data and information platforms and user manuals, and
the various training sessions and workshops will also contribute to knowledge
management. The operationalization of an economic and strategic monitoring unit
will help to make relevant analyses on investment opportunities in Madagascar.
Knowledge acquired through this project will also be developed through a rigorous
system of monitoring and evaluating expected outputs and outcomes, and
supervision and project completion report missions.
v
Results-Based Logical Framework
Country and Project Name: Madagascar – Investment Promotion Support Project (PAPI)
Goal: Contribute to stimulating strong, inclusive, sustainable and job-creating growth through the creation of conditions for increased private
investments in infrastructure and priority sectors.
RESULTS CHAIN
PERFORMANCE INDICATORS
MEANS OF
VERIFICAT
ION
RISKS/
MITIGATION
MEASURES
Indicator (including CSI) Baseline
Sit. Target
OU
TC
OM
ES
Conditions for strong and
inclusive growth created
through enhanced promotion
of productive and innovative
investments
Incidence of poverty 71.7% in
2012 62.5% in 2019
Outcome 1: The level of
private investment (domestic
and foreign) in Madagascar
has increased
Number of new jobs created in the
textile industry (% of which is
reserved for women)
80 000 jobs
(2014), of
which 70%
for women
120 000 jobs, of which 75% for
women in 2018 DB, EDBM
and
GEFP reports
R1 – Political: Politically
motivated social
tensions. Such a
risk would lead to
a considerable
reduction in FDI
and donor aid
inflows, and a
drop in export
earnings and
tourism revenue.
M1 – The stated
determination of
the new
authorities to
create a climate
of sustainable
political
appeasement, the
formation of a
broad-based and
national
reconciliation
government, and
technical and
financial support
from the
international
community,
especially the
United Nations
system, to
promote
democracy,
security and
national
reconciliation are
likely to reduce
this risk.
R2 – Fiduciary :
Madagascar’s
control
environment and
finance
management
systems present a
fiduciary risk
level
Private investment rate (% of GDP) 15.2 %
(2013) 18% of GDP (2018)
Outcome 2: The PPP project
preparation and
implementation framework
has improved
Number of PPP projects signed by
the Government of Madagascar 0 in 2014
2 PPP projects matured and
ready for implementation in
2018
EDBM, PPP
Central Unit
OU
TP
UT
S
Component I – Investment Promotion Support
I.1 – Investment Promotion Institutional Capacity Building
(Op.I.1.1) – Investment
opportunities in the textile
sector are better promoted
Strategy and action plan on
investment opportunities in the
textile sector
Non-
existent
Report on the textile sector
development strategy in 2016
PAPI and
EDBM
reports
Public-private consultation
framework for the implementation
of the textile sector development
action plan
Non-
existent
More than 60% of the actions
contained in the action plan
implemented in 2017
Feasibility study on the
establishment of a textile Special
Economic Zone (SEZ)
Non-
existent
Business plan for the
establishment of SEZ in 2016
Number of small- and medium-size
enterprises supported by the Textile
Sector Promotion Support Fund
(FAPST)
Non-
existent
50 micro-enterprises and SMEs
(40% of women business
leaders) in 2017
(Op.I.1.2) –The capacity of
EDBM and entities involved
in investment promotion is
built
Assessment of the training needs of
EDBM and government and
private entities
Non-
existent
Report on the study and
Training Plan in 2015
PAPI and
EDBM
reports
Number of staff of EDBM and other
private and government entities
trained (% of women)
Low
capacity
100% of the staff of EDBM and
other private and government
entities responsible for
investment promotion are
trained (40% of them women)
in 2017
PAPI and
EDBM
reports
EDBM Website Not
functional
Redesign of the EDBM website
in 2016
PAPI and
EDBM
reports
Various communication mediums
(promotional film, brochures, etc.)
/Awareness-raising and information
campaigns on growth sectors
(particularly textile)
Non-
existent
1 promotional film and
brochures for investors/5
awareness-raising campaigns
on investment promotion in
priority sectors in 2017
I.2 – Improving Economic Intelligence in the Growth Sectors
(Op.I.2.1) – An information
system on private
investment opportunities and
monitoring is developed
Information system on investment
opportunities
Non-
existent
Information system operational
in 2016 PAPI and
EDBM
reports Operationalization of the
investment monitoring system
Not
operational
Information system operational
in 2016
vi
(Op.I.2.2) – An economic
and strategic intelligence
unit is established
Operationalization of the strategic
intelligence unit
Not
operational Unit operational in 2016
M2 – Project
funds will be
managed in
accordance with
Bank financial
management,
procurement,
disbursement and
auditing rules and
procedures, and
the project will be
managed in a
transparent
manner. Bank
monitoring and
supervision in
close
collaboration
with other TFPs
will also
contribute to
mitigating this
risk.
Number of sector and analytical
studies
Non-
existent 5 studies conducted in 2018
II – Public-Private Partnership (PPP) Framework Support
II.1 – Support for the Establishment of PPP Central Unit
(Op. II.1.1) - A PPP policy
and manual are prepared
PPP policy Non-
existent Policy ready in 2016
PAPI and
EDBM
reports
PPP procedures manual Non-
existent Manual ready in 2016
(Op.II.1.2) – The PPP
Central Unit is
operationalized
Number of PPP advisers placed at
the disposal of the unit
Non-
existent
2 advisers (legal and financial
experts) in 2016
Number of senior officers from the
PPP Central Unit, sector ministries
and local communities trained in the
various aspects of PPP
No training 100 people trained (40% of
them women) in 2017
II.2 – Support for the Implementation of PPP Activities
(Op. II.2.1) – The
implementation of PPP-
funded projects is supported
Pilot projects identified by the
authorities with project support
Undergoing
identificatio
n
2 pilot projects identified in
2017 PAPI and
EDBM
reports (Op. II.2.2) – Awareness-
raising and information
campaigns on PPPs are
stepped up
Information and awareness-raising
campaigns on PPPs
Non-
existent
10 information and awareness-
raising campaigns on PPPs in
2018
KE
Y
AC
TIV
ITIE
S COMPONENTS
Component I – Investment Promotion Support
Technical Assistance, Human Capacity Building Activities, Study Tours, Equipment and Studies;
Component II – Public-Private Partnership Framework Support
Technical Assistance, Human Capacity Building Activities, Study Tours, Equipment and Studies;
Component III – Project Management :
The estimated project cost is UA
7.77 million: Bank: UA 7 million;
National counterpart
contribution: UA 0.77 million
(*): Core sector indicators (CSI)
vii
Provisional Project Implementation Schedule
Year
Activity/Month M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D
Start-up Prerequisites
Presentation to Board of Directors
Loan Effectiveness
Selection of the other Project Management Members
Project Launching Mission
Equipement and Supplies
Comp. Bid. for Proc. of Comput. Hardware and Off. Equip.
Comp. Bid. for Proc. of Vehicles and other Roll. Stock
Comp. Bid. for other Equip.
Supply of Goods
Consultancy Services
Preparation of BDs and Consti. of LR
Launching of BDs, Bid Analysis and Contract Award
Services of Consultants
Training and Sundry Activities
Preparation of BDs and Consti. of LR
Launching of BDs, Bid Analysis and Contract Award
Services of Consultants
Operating Expenses
Mid-term Review
Monitoring and Evaluation
Auditing
Annual Financial Audit
Final Financial Audit
2015 2016 2017 2018
1
REPORT AND RECOMMENDATION OF MANAGEMENT TO THE BOARD OF
DIRECTORS CONCERNING A PROPOSAL TO GRANT ADF FUNDING TO THE
INVESTMENT PROMOTION SUPPORT PROJECT (PAPI)
This proposal submitted by Management for Board approval concerns the award of UA 7
million African Development Fund financing (of which a UA 3 million TSF loan and a UA 4
million ADF loan) to the Republic of Madagascar to finance the Investment Promotion Support
Project (PAPI). It is an institutional support operation to help to create conditions for sustainable
and inclusive growth by stimulating private investment in priority sectors and establishing a public-
private partnership framework for mobilizing the resources required for infrastructure development
and modernization.
1. STRATEGIC THRUST AND RATIONALE
1.1 Project Linkages with Country Strategy and Objectives
1.1.1. PAPI is consistent with Madagascar’s National Development Plan (NDP)1 2015-2019,
adopted by the Government in December 2014, which builds on the following five strategic thrusts:
(a) Governance, Rule of Law, Security, Decentralization, Democracy and National Solidarity;
(b) Preservation of Macro-economic Stability and Development Support; (c) Inclusive Growth and
Territorial Anchoring of Development; (d) Appropriate Human Capital for the Development Process;
and (e) Development of Natural Capital and Strengthening Resilience to Disaster Risks. PAPI is in
line with the NDP’s strategic development objectives in general, and particularly with four of its focus
areas, namely: (a), (b), (c) and (d). By supporting theses focus areas, the project seeks to help the
country to gradually emerge from its fragility situation. Hence, PAPI will contribute to creating
conditions for inclusive and sustainable growth, partly driven by private sector investments and
public-private partnership for structuring infrastructure modernization.
1.1.2. At the level of the Bank, PAPI is fully aligned with the first thrust “Inclusive Growth “
and four of the five key operational priorities of the Bank’s Ten-year Strategy (TYS) 2013 –
2022 which are: (a) Private Sector Development; (b) Infrastructure Development; (c) Strengthening
Governance; and (d) Skills and Technology. PAPI also covers the two pillars of Madagascar’s Interim
Country Strategy Paper (I-CSP) 2014-20162, namely: (a) Strengthening Governance to Consolidate
the State; and (b) Developing Rural Infrastructure and Opening up Production Areas. It is also
consistent with the main objective of the I-CSP which is to contribute to the country’s inclusive and
sustainable economic and social recovery by strengthening resilience through governance and food
security. This is reflected in PAPI through the building of State capacity, the creation of an appropriate
environment to attract private investments in infrastructure and sectors with the highest growth
potential in terms of job creation.
1.1.3. PAPI is also in line with the guidelines of the Governance Action Plan (GAP II) 2014 -
2018, through Pillar 3 “Investment and Business Climate” and with the objectives of the Private
Sector Development Strategy. By supporting the sectors with the greatest impact on women’s
employment and empowerment, PAPI is aligned with the Bank’s Gender Strategy 2014 -2018 and
new Strategy for Addressing Fragility and Building Resilience.
1.1.4. The fragility prism was applied in designing PAPI which addresses the sources of socio-
economic vulnerability in order to reduce the political, institutional and security fragility risks
identified in the report on the study on Madagascar’s fragility (Annex III). In fact, repeated political
crises fuel deepening poverty and inequalities (Graph 2) which nurture uncertainty about the security
1 The NDP is backed by the General State Policy (GSP) which was presented in May 2014. The GSP is centred on three priority themes: (i) strengthening governance,
the rule of law and the establishment of a fair justice system; (ii) economic recovery by creating a stable social and political environment, maintaining macroeconomic stability and restoring an attractive business environment; and (iii) expanding access to quality basic social services.
2 Ref: ADF/BD/WP/2014/120 of 15 October 2014.
2
of the State and the population. To mitigate risks of fragility arising from pressure from the most
underprivileged segments of society, PAPI will address the following challenges: (i) inadequate
infrastructure; (iv) low productivity and competitiveness of the economy; (v) unattractive business
climate for private investments; and (vi) under-employment and low income.
1.2 Rationale for Bank Intervention
1.2.1. Madagascar is emerging from a long crisis period (2009-2013) marked by the
suspension of the country from the various bodies of the international community and
cooperation with development partners, except the Bank which has never interrupted its assistance to
the country. This situation has led to a general deterioration in the living conditions of the people of
Madagascar and affected the fundamentals of the economy as well as the capacity of the State and
the private sector to address the people’s growth, employment, agricultural productivity and food
security concerns. As a result, the country ended up being considered as a fragile State in 2013,
according to the methodology common to multilateral development banks (AfDB and the World
Bank).
1.2.2. The gradual normalization of the domestic political situation with the support of the
international community offers a unique opportunity to assist the Government in implementing
an economic policy aimed at promoting strong and inclusive growth. This will help to reduce the
economic and social vulnerability which plunged the country into a vicious circle of political
instability and poverty. On the political front, Madagascar was able to organize presidential and
legislative elections in 2013, thereby restoring constitutional order. New institutions such as the
Presidency, the Parliament and the Supreme Constitutional Court were established in 2014. They will
be completed in 2015 with the establishment of municipal and local councils, as well as the Senate,
thereby operationalizing the functioning of the High Court of Justice. The country has also normalized
its relations with the key development partners and reassured investors by officially re-adhering to
the African Growth and Opportunity Act (AGOA) as well as the Extractive Industries Transparency
Initiative (EITI). The major challenge on the political front is the inclusive implementation of national
reconciliation measures in order to create a climate for sustainable political appeasement.
1.2.3. Madagascar’s fragile situation is an impediment to strong and sustainable growth. In
fact, the numerous political conflicts experienced over the last decades have led to a drop in public
and private investments, the dilapidation of infrastructure as well as deepening poverty and
inequalities. The normalization of the domestic political situation in 2014 has not brought about an
improvement in the country’s economic performance. In fact, economic growth recorded a 3%
increase in 2014, showing a slight improvement relative to 2013 (2.4%). However, this rate falls far
short of the country’s pre-crisis growth potential and the average in sub-Saharan Africa which is
estimated at 5% (Technical Annex A.1). Low growth is the consequence of limited progress in
governance, energy shortages, late mobilization of external financing, inadequate domestic resources
and a decline in private investment. Growth in 2014 was driven by the same branches as in 2013,
especially extractive industries, which are the main source of growth, agri-business, banking,
transport, livestock breeding and fisheries. Inflation was higher in 2014 (6.9%) than in 2013 (5.8%)
owing to the progressive adjustment of the price of energy to market conditions. Growth prospects
are expected to be brighter in 2015 (5% according to International Monetary Fund forecasts)
compared with 2014, without, however, reaching3 the pre-crisis4 performance level.
1.2.4. Access to financing is still limited for women entrepreneurs in Madagascar. Periods of
political instability have not allowed for a smooth implementation of women’s empowerment
policies, in particular the National Women’s Empowerment Policy for the period 2000-2015 and the
National Gender and Development Action Plan (PANAGED) 2004-2008. Although these legal and
3 Owing to the still fragile political environment and the time required to: (i) implement structural reforms that contribute to improving the business environment and
the governance situation; and (ii) carry out the major public investments provided for in the NDP. 4 Prior to the 2009 crisis, the growth rate stood at: 2006 (5%), 2007 (6.2%), 2008 (7%), 2009 (7.3%).
3
regulatory frameworks put men and women on the same footing, land titles are often granted to men
while female heirs receive their share of inheritance in the form of financial compensation. The
consequence is that women cannot independently contract loans. Also, women entrepreneurship
support programmes and quantitative and qualitative basic data on women entrepreneurs are lacking
in Madagascar, thereby impeding access to information. Unemployment also affects more women
than men. In 2012, six out of ten unemployed people were women (58.5%) and unsuitable
employment which was generalized after the crisis, affects more than 81% of rural women.
1.2.5. To support the normalization of the political situation and effectively combat poverty,
it is indispensable to meet the challenge of reviving private investment, ensuring
competitiveness and creating jobs in the growth sectors defined in the National Development Plan
2015-2019, especially tourism, textile, information and communication technologies (ICTs), agri-
business, mining, etc. Private investment revival requires a targeted investment promotion policy to
finance priority sectors and an appropriate Public-Private Partnership legal framework to channel
private capital towards infrastructure development and rehabilitation in the energy, road, port, airport,
water and sanitation, education and health sectors.
1.2.6. The first major constraint on private sector dynamism is the uncertainty about the
business environment. In the World Bank’s 2015 Doing Business ranking, Madagascar dropped six
places and occupies the 163rd position out of 189 countries (see Annex III) compared with the 2014
ranking. Repeated political crises and the absence of structural reforms have resulted in the country’s
decline with respect to most of the indicators measured by this report, as well as a fall in foreign direct
investments and export market shares. According to the World Economic Forum’s 2014-2015 report
on global competiveness, the most problematic key factors affecting Madagascar’s business climate
include: unstable governments, political instability, access to financing, corruption, inadequate
infrastructure, insecurity, high taxes, laws and regulations and an untrained labour force. Moreover,
although Madagascar is member of several sub-regional organizations (COMESA, SADC, IOC),
intra-regional trade is not well developed5.
1.2.7. The second major constraint is the sharp drop in public and private investment over
the last decade. The decline in public investment is due to difficulties in mobilizing domestic
resources (tax revenue dropped from 11.8% of GDP in 2008 to 9.6% in 2013) and the suspension of
foreign aid during the political crisis. With regard to private investment, the level of bank loans to the
economy is still low compared with countries at the same level of development, thereby limiting
domestic private investment. In addition, foreign direct investments (FDIs) are highly volatile owing
to the political climate. After fluctuating around 0.2% between 1970 and 2005, FDIs edged up from
2006 (Graph 1) to reach a record level in 2008-2012 thanks to recent QMM operations in Fort
Dauphin and Ambatovy. However, these investments are facing significant challenges in terms of
physical infrastructure quality and high cost of access to electricity.
5 According to the General Directorate of Customs (www.douanes.gov.mg), Madagascar’s exports to SADC member countries in the first half of 2014 represented
only 6.4% of the value of its total exports, against 49.6% to Europe, 23.8% to Asia and 12.3% to America. Over the same period, only 7.6% of its total imports came from SADC member countries, against 20.3% from Europe, 36.8% from Asia, and 28.5% from the Middle East.
4
1.2.8. The infrastructure gap is the third major constraint on private sector development and
growth acceleration. Thus, the rate of access to electricity in 2013 was estimated at 15.3% at the
national level (or 57.6 % in urban areas, against 4.7 % in rural areas). Concerning road transport, the
national network density is 9 km/km² in Madagascar, against an average of 35 km/km² in sub-Saharan
Africa, and roads in good condition represent only 10% of the
entire existing road network in 2013 (according to the NDP).
However, at present, roads are the means of movement most
widely used by the majority of the population, given the high cost
of air transport, an almost non-existent rail transport barely
covering 895 km and a hardly used river network. Regarding the
telecommunications sector, the rates of fixed/mobile telephone
and Internet penetration were only 43.4% and 0.44% respectively
in 2011 (according to the NDP). Therefore, Madagascar’s
infrastructure sector in general requires huge investments which
are not within Government’s reach, whereas they are needed to reduce the current deficits and remove
the constraints on strong and sustainable growth.
1.2.9. As a result of all the above constraints, Madagascar has not been able to roll back
poverty since 2001. The majority of the population (about 81.29%) lived below the USD 1.25 a day
poverty line in 20106 and more than 92.62% of the population live on at most USD 2 per day (Graph
2). Two-thirds of the labour force are unemployed or under-employed. According to ENSOMD
2012/2013, more than 81% of workers, especially rural women
and youths, are affected by the unsuitable or unstable job
situation which became widespread due to the crisis. Moreover,
achievement of the MDGs has been jeopardized. Some progress
has been made in basic education, with the reduction of gender
disparities and HIV/AIDS control leading to a prevalence rate
below 1%. However, almost no progress has been made in the
areas of poverty reduction, malnutrition which affects more than
half of under-five children, infant mortality and maternal health.
Owing to budget cuts resulting from the crisis, the low income
of households and the country’s climate conditions, Madagascar still suffers from some diseases
eradicated in most countries, such as the plague7 for which the Bank has just awarded an emergency
grant in 2015.
1.2.10. Regarding the competitiveness challenge, Madagascar must find the appropriate
solutions to make up for several decades of under-investment in infrastructure and put its
exporting enterprises under the same performance conditions as their foreign competitors. In
2008, industrial free zone enterprises accounted for 15.1% of GDP. This contribution has dropped
due to the crisis. To revive this momentum, the Government has decided to add to the current free
zone regime opened to all exporting enterprises irrespective of their geographical location, a
territorially defined Special Economic Zone regime which provides priority sectors with an
international quality infrastructure platform in order to reduce production costs (energy,
telecommunications, storage areas, logistics, nearby port and customs services, etc.) and facilitate the
creation of industrial centres as well as trade between enterprises in the value chain (exporting
enterprises, sub-contractors, support structures, etc.).
1.2.11. Concerning the employment challenge, emphasis must be laid on the promotion of
investment, production and exports in labour-intensive sectors, as well as holistic and inclusive
support to the value chains concerned in order to build synergies between leading enterprises and
small enterprises, particularly those managed by youth and women or which are the highest employers
of these segments of the population. It should be noted that 88% of women in Madagascar are part of
6 According to the World Bank world development indicators and UN demographic projections (see IMF Report No.15/24 of January 2015). 7In 2014, 249 cases were recorded between 4 August and 31 December, of which 70 deaths.
Graph 1 – Public and Private Investments (as
% of GDP)
Source: IMF Report No.15/24 of January
2015
Graph 2: Madagascar – Poverty According to
International Definition (%)
Source: IMF Report No.15/24 of January 2015
5
the labour force and 48% of professionals and technicians are women (Global Gender Gap Index
2014). Recent experience has shown that mining sector growth creates less jobs. The World Bank
supports the creation of regional growth poles in the tourism and agri-business sectors. Consequently,
PAPI will be geared towards other sectors for employment promotion, particularly the textile sector.
1.2.12. Madagascar has major assets in the textile sector. According to a recent survey conducted
by the National Institute of Statistics (INSTAT), the textile and clothing industry sector accounted
for 56.4% of all free zone enterprises in 2013, followed by the agri-business branch (10.5%) and ICTs
(8.3%). The textile and clothing industry sector employs about 98,415 people, more than 60% of
whom are women. The free zone enterprise in the textile and clothing branch employs 1200 people
on average, against 100 for the agri-business branch. The textile and clothing industry sector accounts
for more than 51% of free zone enterprise exports. Prior to the 2009 crisis, Madagascar was among
the countries whose textile exports recorded the highest growth, behind Vietnam and China. On the
American market, textile exports increased by 21.4% between 2006 and 2007, against 22.8% for
China and 35.3% for Vietnam. On the European market, Madagascar’s textile exports increased by
25.3%, between 2003 and 2007, against 27.8% for China and 28.6% for Vietnam. In addition, the
major niche as well as mass production clothing industry enterprises covering all ranges of products
are established in Madagascar. Some are ready to come back so as to benefit from Madagascar’s
comparative advantages. Despite the distance from North American and European markets,
Madagascar offers investors: (i) some of the lowest labour costs in the world; (ii) high know-how and
productivity; (iii) a pool of more than 200,000 employees experienced in the manufacture of ready-
made clothing; (iv) unconditional access to American, European Union and South African markets
through AGOA, interim EPAs and SADC; (v) a relatively developed textile chain (ready-made
clothing, accessories, various suppliers, logistic services, certification agencies, etc); (vi) closeness
to major textile industry centres such as South Africa and Mauritius; and (vii) a logistic chain with
proven export experience based on an incentive free zone regime.
1.2.13. Bank intervention in Madagascar under PAPI is therefore justified for two main
reasons. Firstly, the Bank plans to support the new authorities in Madagascar to face the major
challenges arising from the serious political crisis8, particularly concerning the infrastructure gap.
Public investment alone cannot address the situation. Hence, private investment promotion remains
an important means of enabling greater private sector contribution to Madagascar’s economic
recovery. Secondly, the Bank is supporting Madagascar in the area of institutional governance
through improved public finance management and internal and external auditing (PAGI under
implementation) and structural reforms for better economic recovery through enhanced budget
management (PURE under implementation). PAPI’s focus area, namely private investment
promotion to sustain economic growth and create jobs for the young generations, is complementary
to the areas supported by ongoing projects and programmes. The implementation of PAPI is therefore
expected to contribute, in conjunction with PAGI and PURE, to increasing the Bank’s visibility in
Madagascar and help the country to progressively emerge from its fragility situation consequent on
the 2009 political crisis. Specifically, this project will help to address the fragility factors associated
with low private investment, the deteriorating investment climate, rising unemployment and under-
employment, especially among youths and women, and poverty.
1.3 Coordination of Technical and Financial Partners’ Operations
1.3.1. With economic recovery following the 2014 presidential election, technical and
financial partners (TFPs) have revived the mechanism for coordinating their political dialogue
and operations alignment and harmonization efforts. They coordinate their activities through
sector and thematic groups, namely: private sector, governance/budget support, rural development,
environment, decentralization, transport, energy, education and health. The Bank is leader of the
"Drinking Water and Sanitation" and "Rural Development" consultation frameworks. The other
8 The challenges include: (i) restoring production infrastructure and basic education and health services to mitigate the socio-economic impacts of the crisis, thereby
helping to sustainably fight rising poverty; and (ii) enhancing strategic, equitable and efficient management of public resources and creating an environment conducive to private sector activities to enable it to participate in economic recovery efforts and create jobs (for women and youths in particular).
6
leaders are: the French Development Agency (AFD) for urban development; UNICEF for education;
the World Health Organization (WHO) for health; the European Union (EU) for energy; and the
World Bank (WB) for budget support, infrastructure and the private sector. At the highest level, there
is a consultation framework referred to as "Strategic Dialogue Group" chaired by the Prime Minister.
It brings together the heads of TFP missions and ministers. Following normalization of the political
situation, the Government is striving to resume leadership of aid coordination at the global and sector
levels.
1.3.2. Like the Bank, the WB, the French Development Agency (AFD) and the EU are
involved in private investment promotion and private sector development in Madagascar. WB
provides support for investment promotion and facilitation and to the public-private partnership
framework through the Integrated Growth Pole Project Phase 2 (IGP-2) which was approved in
November 2014. This operation focuses on an integrated territorial support approach for the
development of the tourism and agri-business growth sectors as defined in the NDP. It also deals with
cross-cutting reforms through business environment improvement, support for the implementation of
the PPP legal and regulatory framework and investment promotion, with special emphasis on tourism
and agri-business. AFD supports the private sector, particularly the thrust on capacity building for
exporting micro-enterprises and small- and medium-size enterprises (SME) through a EUR 4 million
project. It operates through institutional support to the Madagascar National Tourism Board and the
Franco-Malagasy Chamber of Commerce to ensure access to markets and financing for lobbying and
participation in international fairs. The EU supports economic recovery and the development of
Madagascar’s private sector through the Employment and Regional Integration Support Programme
whose goal is to build the private sector’s capacity to develop and enhance its competitiveness on
national, regional and international markets. PAPI’s support was the subject of concerted dialogue
with TFPs and Madagascar’s authorities in order to ensure complementarity with other operations,
the selectiveness of activities and their ownership by the beneficiary entities. As such, for example,
PAPI, which will deal with private investment promotion (textile sector and Special Economic Zone)
and the operationalization of the PPP Central Unit, is complementary to the World Bank IGP-2
Project. Table 1 below summarizes TFP operations in PAPI’s focus areas.
Table 1
Donor operations in project focus areas
Partner Private Investment Promotion PPP Framework
Support
Support to
Enterprises
World Bank X X X
European Union X
AfDB X X X
French Cooperation X
United Nations system X
7
Table 2
Complementarity between World Bank IGP-2 Project and PAPI
IGP-2 PAPI
1. Investment Promotion Support
Develop an investment promotion strategy for the Economic Development Board of Madagascar
(EDBM) X
Investment promotion in the tourism sector X
Investment promotion in the agri-business sector X
Investment promotion in the textile sector X
EDBM institutional capacity building X
Establishment of an economic intelligence strategic unit at EDBM X
Development and operationalization of an information system for priority sectors X
2. Public-Private Partnership (PPP) Framework Support
Preparation of a PPP law and related decrees X
Identification of a first list of PPP projects in 2015 X
Operationalization of the PPP Central Unit at the Ministry of Finance (capacity building) X
Preparation of the PPP policy and manual X
PPP awareness-raising and information campaigns X
Building the PPP capacity of sector ministries (PPP project identification, preparation,
negotiation and monitoring) X
Operationalization of the PPP Central Unit at the Ministry of Infrastructure X
Support for the implementation of two PPP projects, from feasibility study to contract award X
Support for the implementation of two PPP projects, from feasibility study to contract award X
2 PROJECT DESCRIPTION
2.1 Project Components
2.1.1. To foster private investment and economic growth and improve the living conditions
of the population, PAPI will directly support the textile sector in view of its huge foreign direct
investment, export and employment potential. It will also play a catalytic role by helping the
Government to attract private funding for infrastructure rehabilitation and modernization through
PPPs and supporting the establishment of the Special Economic Zone which is a modern
infrastructure platform for enhancing the competitiveness of growth sectors, including those
supported by other donors. This support is complementary to other donors’ operations, particularly
the World Bank’s Integrated Growth Pole Project Phase 2 (IGP-2) (Table 2) relating to the
establishment of regional agri-business and tourism development poles.
2.1.2. PAPI builds on two operational components, namely: (i) Investment Promotion
Support and (ii) Public-Private Partnership Framework Support. The third component concerns
project management. The project’s specific operational objectives are to: (i) build institutional
capacity for investment promotion; (ii) improve economic intelligence for investment promotion; (iii)
operationalize a PPP Central Unit; and (iv) support the implementation of PPP activities.
2.1.3. Component I - Investment Promotion Support: support for investment promotion
comprises two sub-components, namely: Support for the Development of the Textile Sector and the
Establishment of the Special Economic Zone (SEZ), and Institutional Capacity Building for
Investment Promotion.
8
2.1.4. The first sub-component seeks to: (i) identify and use investment and export
opportunities in the textile sector which is Madagascar’s largest source of employment after
agriculture; and (b) create a modern infrastructure platform to enhance the competitiveness of
all growth sectors through the establishment of a SEZ. To that end, PAPI will provide integrated
support to the textile sector by: (i) carrying out a study on the design of a national textile sector
development strategy; (ii) supporting public and private actors in the implementation of the Textile
Sector Development Action Plan and reforms (reforms and joint initiatives to remove impediments
to the textile value chain, etc.); (iii) establishing a fund to build the capacity of textile sector micro-,
small- and medium-size enterprises; and (iv) supporting the conduct of a feasibility study and design
of a strategy for the establishment of a Special Economic Zone.
2.1.5. The objective of the USD 2 million (about UA 1.421 million) Textile Sector Promotion
Support Fund (FAPST) will be to promote conditions for inclusive growth by providing
technical assistance and support to informal sector textile enterprises and small-size enterprises
to acquire basic equipment. The Fund will enable Madagascar’s textile sector micro-enterprises to
build their capacity so as to invest, modernize, create jobs, and tap into growth opportunities in the
domestic market and in the subcontracting of some textile accessories currently imported by large
export-oriented enterprises. The support to individual enterprises or groups of enterprises and
associations will be used to build managerial and organizational capacity, improve basic processes
and technologies, build business capacity, etc. The Textile Sector Promotion Support Fund will put
special emphasis on promoting women and youth entrepreneurship through specific objectives to be
achieved in terms of impact. PAPI will take into account best practices in Africa and worldwide in
the establishment of SMEs and micro-enterprises support funds. To that end, it will finance: (i) the
conduct of a feasibility study and preparation of a procedures manual defining opportunities for the
development of small-size and micro-enterprises in the textile and clothing industry sector, target
enterprises, eligibility conditions, grant and support mechanisms, tools for communicating with, and
mobilizing, beneficiaries and service providers, expected outcomes and impact indicators; (ii) the
recruitment of a firm (a Director and two Project Officers) to manage the Fund under the supervision
of the Investment Promotion Agency (EDBM).
2.1.6. The second sub-component seeks to build capacity for investment promotion and
improve the quality and monitoring of the investment promotion strategy. The project will
support: (i) on-the-job training, the establishment of a coaching and mentoring system for EDBM
senior officers to ensure support sustainability; (ii) the operationalization of an information system
on investment opportunities in growth sectors in Madagascar, and the operationalization of an
investor tracking system to enable the EDBM to assess the impact of its action in terms of actual
investments generated and jobs created; and (iii) the establishment of a strategic intelligence unit to
promote public-private dialogue on the competitiveness of Madagascar.
2.1.7. Component II – Public-Private Partnership Framework Support: to meet the growing
infrastructure and public service delivery needs and mitigate budgetary constraints, the Government
intends to create an enabling and transparent environment to facilitate private sector involvement in
infrastructure financing and management using private sector skills and resources. To that end, the
authorities have prepared a bill on public-private partnerships (with the Bank’s financial support
through the PRIBG and the World Bank’s IGP-2 project) which will be adopted by the National
Assembly during the October 2015 parliamentary session. This law provides for the creation of an
enabling environment for private sector development, the construction and rehabilitation of key
infrastructure and capacity building for local communities, while ensuring the implementation of
social and environmental sub-components.
2.1.8. The Bank will work in close collaboration with the World Bank to assist the Malagasy
Government in implementing the new law on PPPs. The World Bank will provide assistance for
enactment and dissemination of the law and its implementing decrees. The Bank will provide
assistance for the operationalization of the PPP Central Unit through the following focus areas: the
9
establishment and capacity building of the PPP Central Unit and support for the implementation of
pilot PPP operations. Operationalization of the PPP Central Unit will involve formulating a PPP
national policy and procedures manual, building the capacity of the unit through training in the
preparation, contracting and management of PPP-funded projects, posting of two PPP Resident
Experts (legal and financial) to the unit for a two-year period. The main objective of support for the
implementation of operations will be not only to demonstrate the efficiency of PPP mechanisms to
investors and the public and implement a suitable PPP communication policy, but also to help the
country to implement at least two PPP operations (see the detailed description of the two components
in Technical Annex C). The table below presents a summary of the project.
Table 3
Project Components and Sub-components Code Components UA Thousand Component Description
I Component I 4 493.6 Investment Promotion Support
I.1
Institutional
Capacity Building
for Investment
Promotion
3 688.9
Output I.1.1: Textile sector investment opportunities
are promoted: preparation of a strategy and an action
plan on investment opportunities in the textile sector;
establishment of a public-private partnership
framework for the implementation of the Textile Sector
Development Action Plan; conduct of a feasibility study
for the establishment of a Special Economic Zone for
the textile sector; organization of (national and
international) promotion and marketing campaigns on
textile sector investment opportunities; establishment of
a Textile Sector Promotion Support Fund (FPST).
Output I.1.2: The capacity of the EDBM and entities
involved in investment promotion is built: assessment of
the training needs of the EDBM and private and public
entities; implementation of the training plan; posting of
a Resident Expert in investment promotion to train the
staff of the EDBM (knowledge transfer); organization
of trips to some countries to share experience in
investment promotion; strengthening of investment
promotion communication and marketing by
redesigning the website; development of different
communication mediums (promotional films,
brochures, etc.); organization of information and
awareness-raising campaigns on investment
opportunities.
I.2
Improvement of
Economic
Intelligence for
Investment
Promotion in
Growth Sectors
804.7
Output I.2.1: A private investment opportunities and
monitoring information system is designed:
establishment of an investment opportunities
information system; operationalization of the Investor
Tracking System.
Output I.2.2: An economic and strategic intelligence
unit is established: establishment and
operationalization of an economic intelligence unit;
training of Unit staff.
10
II. Component II 2 683 Public-Private Partnership Framework Support
II.1
Operationalization
of the PPP Central
Unit
1 778.7
Output II.1.1: A PPP policy and procedures manual is
prepared: support for the formulation of PPP policy and
procedures manual.
Output II.1.2: The PPP Central Unit is operationalized:
provision of computer hardware and software and office
automation; establishment of an advisory system for
coaching activities; training of Unit staff.
II.2.
Support for the
Implementation of
PPP Activities
905.2
Output II.2.1: The implementation of PPP-funded
projects is supported: support for the implementation of
two PPP operations.
Output II.2.2: Awareness-raising and information on
PPPs are carried out: carry out awareness-raising and
information campaigns on PPPs.
III. Component III 592.5 Project Management
Coordination 539.2 Allowances and sundry operating expenses, physical assets
Auditing 53 Project financial auditing
Total Cost 7 770.0
2.2 Technical Solutions Adopted and Alternatives Explored
2.2.1. PAPI design and appraisal were informed by lessons learned from the implementation
of similar projects in other countries (Technical Annex A.2) in general and particularly from the
Institutional Governance Support Project (PAGI) under implementation and the Project on
Institutional Capacity Building for Good Governance (PRIBG)9 which has been closed. Thus, several
options regarding particularly the project institutional base, the number of entities to be supported,
the scope of investments to be made and the removal of all constraints on some entities that could be
retained were considered. To enhance the efficiency and complementarity of activities with the World
Bank’s IGP-2 project, it was deemed necessary for the institutional base of the project to be EDBM
which is responsible for private investment promotion in Madagascar and coordinates all donor
operations concerning investment promotion and facilitation. Concerning arrangements for training
provided under the project, in agreement with Malagasy authorities, the decision was taken to carry
out on-the-job training using the coaching approach. This option will help to increase the number of
people trained and contribute to developing and building training capacity in the country, thus
ensuring the sustainability of the support provided.
2.2.2. The decisions taken concerning the choice of the Bank’s focus areas for this project were based
on the need for better complementarity with ongoing and planned support operations of other donors in
the target areas, but also to maximize synergies with other ongoing operations in other areas, including
public finance management (Institutional Governance Support Project).
2.3 Project Type
2.3.1. PAPI is an institutional support project focused on the creation of conditions conducive to
the enhanced promotion of domestic and foreign private investments. It was designed using a
participatory approach to assist beneficiary entities to own the project objectives and facilitate the
building of their capacity so as to ensure the sustainability of the operation.
9 The Project on Institutional Capacity Building for Good Governance (PRIBG) was implemented between 2004 and 2012 and financed by the Bank through a UA
5.86 million grant (Project Completion Report-ADF/BD/IF/2012/144).
11
2.4 Project Cost and Financing Arrangements
2.4.1 The estimated project cost, net of taxes and customs duties, is UA 7.770 million. The
Bank will contribute UA 3 million and UA 4 million in the form of TSF and ADF loans respectively.
The Government will contribute UA 0.77 million (about 10% of total project cost) as counterpart
contribution. A 3% provision for price escalation and a 1% provision for physical contingencies have
been included in the project cost. Tables 4 to 8 present the estimated project cost by component and
sub-component, source of financing, expenditure category and year. A detailed cost table is provided
in Technical Annex B1.
Table 4
Estimated project cost by component
Component Total cost in MGA Million Total cost in UA thousand In %
F.E. F.E. L.C. Total F.E. L.C. Total
Investment Promotion Support 14 668.8 1 225.9 15 894.7 3987.6 333.2 4320.8 92 %
Building Capacity for Investment
Promotion 12 603.9 444.4 13 048.2 3 426.2 120.8 3 547.0 97%
Improvement of Economic Intelligence for
Investment Promotion 2 064.9 781.5 2 846.5 561.3 212.5 773.8 73%
Public-Private Partnership Framework
Support 6 796.0 2 697.5 9 493.4 1 847.4 733.3 2 580.7 72%
Establishment and Strengthening of the
PPP Central Unit 3 594.0 2 697.5 6 291.5 977 733.3 1 710.3 57%
Support for the Implementation of PPP
Activities 3 201.9 - 3 201.9 870.4 - 870.4 100%
Project Management 326.7 1 768.9 2 095.6 88.8 480.9 569.7 16%
TOTAL BASE COST 21 791.5 5 692.3 27 483.8 5 923.8 1 547.4 7 471.2 79%
Provision for Physical Contingencies (1%) 217.9 56.9 274.8 59.2 15.5 74.7
Provision for Price Escalation (3%) 653.7 170.8 824.5 177.7 46.4 224.1
TOTAL PROJECT COST 22 663.1 5 920.0 28 583.1 6160.7 1 609.3 7770.0 79%
Table 5
Sources of financing
Sources of financing Total cost in MGA million Total cost in UA thousand
F.E. L.C. Total F.E. L.C. Total
ADF Loan 14 024.1 690.5 14 714.6 3 812.3 187.7 4 000.0
TSF Loan 8 299.2 2 736.7 11 036.0 2 256.0 744 3 000.0
Malagasy Government 339.8 2 492.8 2 832.6 92.4 677.6 770
TOTAL PROJECT COST 22 663.1 5 920.0 28 583.1 6 160.7 1 609.3 7 770.0
Table 6
Project cost by expenditure category in UA thousand
EXPENDITURE CATEGORY F.E. L.C. Total % F.E.
Goods 51.2 136.4 187.6 27
Services 5 872.6 450.5 6 323.1 93
Operation - 960.5 960.5 -
TOTAL BASE COST 5 923.8 1 547.4 7 471.2 79
Provision for Physical Contingencies (1%) 59.2 15.5 74.7
Provision for Price Escalation (3%) 177.7 46.4 224.1
TOTAL PROJECT COST 6 160.7 1 609.3 7 770.0 79
12
Table 7
Expenditure schedule by project component in UA thousand Components 2015 2016 2017 2018 Total
Investment Promotion Support 583.6 2 244.6 1 519.7 145.7 4 493.6
Public-Private Partnership Framework
Support 95.3 1 551.7 756.1 280.7 2 683.9
Project Management 127 155.2 155.2 155.2 592.5
TOTAL PROJECT COST 805.9 3 951.5 2 430.9 581.6 7 770.0
Table 8
Expenditure schedule by expenditure category in UA t EXPENDITURE CATEGORY 2015 2016 2017 2018 Total
Goods 165.5 29.6 0 0 195.1
Services 596.4 3618.3 2079.4 282 6576.0
Operation 44.0 303.7 351.5 299.7 998.9
TOTAL PROJECT COST 805.9 3951.5 2430.9 581.6 7770.0
2.5 Project Target Area and Beneficiaries
2.5.1. The project target area is the national territory of Madagascar. The main beneficiaries of
PAPI are: (i) the entire State of Madagascar, through institutional capacity building for the entities
responsible for promoting private investment and the public-private partnership framework; (ii)
textile sector enterprises (small- and medium-sized which will benefit from an institutional
framework that is more conducive to investment; (iii) women and young entrepreneurs who will be
supported by the Textile Sector Promotion Support Fund; (iv) the entire population of Madagascar
that will be the indirect end-beneficiaries of the positive impacts of the increase in the level of private
investment in terms of job creation and improvement in living conditions; (v) ministries and public
bodies, non-State actors, civil society and the private sector will also be the indirect beneficiaries of
PAPI.
2.6 Participatory Approach for Project Design and Implementation
2.6.1. During project preparation and appraisal, the Bank held meetings with the various entities
involved in PAPI’s thrust areas, notably the EDBM, the College of Economic Advisers to the
President of the Republic, the Ministry of Finance and Budget, the Association of Free Zone
Enterprises and Partners (GEFP), the Federation of Chambers of Commerce and Industry of
Madagascar (FCCIM), the private sector and civil society. Meetings were also held with the donors
involved in the same thrust areas, namely the World Bank, the European Union and the French
Development Agency. These different meetings enabled the project team to clearly identify the main
challenges of promoting investment and public entities to properly own PAPI’s objectives, and ensure
complementarity with the operations of other donors, particularly the World Bank’s IGP-2 project.
2.7 Bank Group Experience Reflected in Project Design
2.7.1. The Bank is financing a public sector portfolio in Madagascar comprising eleven
operations, three of which were approved in the fourth quarter of 2014, for UA 201.800 million
(Annex II). The three projects are the Emergency Economic Recovery Programme (PURE), the
Lower Mangoky Irrigation Area Rehabilitation and Extension Project (PEPBM), and the Emergency
Humanitarian Assistance to Fight against the Plague in Madagascar. Project loans amount to UA
200.19 million, against UA 1.61 million for grants. Overall, the portfolio enjoys robust health. The
result of the last portfolio performance review is satisfactory with a score of 2.38 on 3, against 2.04
on 3 during the 2013 review. This improvement is due to the satisfactory implementation of the
Portfolio Performance Improvement Plan recommended by the previous review, and particularly to
close monitoring by MGFO. Thus, the training organized for the staff of Project Implementation Units
(PIUs) and close monitoring by MGFO enabled them to be more familiar with the procurement and
financial management processes and improved project site performance. However, delays in the
13
signature of contracts by the administration, the irregular payment of own internal resources (OIRs),
poor contract management and inadequate project monitoring and evaluation are among the main
constraints identified during this review. The portfolio has a single aged operation, namely the Rural
Drinking Water Supply and Sanitation Programme (PAEAR) which will be closed in September
2015. Lastly, the average portfolio age dropped from 3.08 years in September 2014 to 2.13 years in
March 2015 after four new operations were approved in the fourth quarter of 2014.
2.7.2. The private sector portfolio has remained the same since 2013 with a total amount of
UA 103.70 million. It comprises a mining project (nickel and cobalt) commonly known as the
Ambatovy project, a hydroelectric power project in Sahanivotry and a feasibility study for a
renewable energy project in the northern part of the country financed by a Sustainable Energy Fund
for Africa (SEFA) grant. The implementation of the Ambatovy and Sahanivotry projects is
satisfactory.
2.7.3. The preparation of this operation built on operations using the same instrument, that is,
“institutional support” projects, in Madagascar as well as in other countries in transition
(Technical Annex A.2). Thus, the main lessons learned from the Project on Institutional Capacity
Building for Good Governance (PRIBG 2004-2012 for UA 5.86 million) were of great importance.
These include notably: (i) prioritizing a selective approach in choosing project focus areas and
ensuring project quality at entry; and (ii) ensuring close coordination with the operations of other
TFPs during project design and implementation. These lessons were reflected in PAPI design. The
project took into account the recommendations made by the mission for the evaluation of cooperation
between the Bank and Madagascar from 2002 to 2012 which underscores the need for the Bank to
increase its support for private sector development in Madagascar, particularly improvement of the
investment climate.
Table 9
Lessons learned from previous institutional support projects
Lessons learned Measures taken to incorporate lessons into the Project
Too vast thrust area The project preparation mission helped to focus on a single thrust area, namely
investment promotion which resulted in the limitation of the number of project
beneficiary entities. The direct project beneficiaries are the EDBM, the PPP
Central Unit and small- and medium-sized enterprises whose support through
the Textile Sector Promotion Support Fund will enable them to actively
participate in the sector’s development.
Poor coordination of
the operations of the
various technical and
financial partners in
the sector
The operation design was closely coordinated with the operations of other
development partners. The management team of the World Bank’s IGP-2
project participated actively in PAPI appraisal. This approach sought to ensure
the complementarity of operations. The project’s linkage with the EDBM, the
main government entity in charge of private investment promotion and
facilitation, will help to harmonize all donor operations in this thrust area.
2.8 Key Performance Indicators
2.8.1. The key performance indicators identified and expected outcomes upon completion of PAPI
are presented in the results-based logical framework.
14
Box 1
Key Performance Indicators Output indicators
The strategy and action plan on investment opportunities in the textile sector are prepared;
50 small- and medium-sized enterprises are supported by the Textile Sector Promotion Support Fund
(FAPST);
All the staff of the EDBM and of other private and public entities in charge of investment promotion (40%
of them women) are trained;
Two pilot PPP projects are identified for financing;
100 senior officers from the PPP Central Unit, sector ministries and local communities (40% of them women)
are trained on various aspects of PPP.
Outcome indicators
The level of (domestic and foreign) private investment in Madagascar increases from 15.2% of GDP in 2013
to 18% of GDP in 2018;
The number of new jobs created in the textile industry (% of them for women) increases from 80 000 (70%
of them for women) in 2014 to 120 000 (75% of them for women) in 2018;
Two PPP projects reach maturity and are implemented in 2018.
Impact indicators
The living standards of the population of Madagascar are improved through a reduction in the incidence of
poverty from 71.7% in 2012 to 62.5% in 2019.
3. PROJECT FEASIBILITY
3.1. Economic and Financial Performance
3.1.1. Given that this project is an institutional support, rate of return analysis is irrelevant.
However, improving the institutional framework for better private investment promotion will help to
increase public tax revenue due to the arrival of new investors and the creation of direct and indirect
jobs.
3.2. Environmental and Social Impacts
3.2.1. PAPI will have no direct impact on the environment. It has been classified under
Environmental Category III, in accordance with Bank criteria. Socially, building the human,
technical and operational capacity of private and public entities involved in investment promotion
will help to stimulate private investment and attract more foreign investors, thus creating jobs and
improving the living conditions of Madagascar’s population.
3.2.2. Impact on Gender: the project will mainstream gender issues. In fact, at least 30% of
participants in the training activities that will be carried out under PAPI will be women (see Annex
IV for a detailed description of the project’s impact on gender). The Textile Sector Promotion Support
Fund (FAPST) will mainstream gender-specific issues into proposals for the financing of small- and
medium-sized enterprises, of which 40% of the targeted SMEs and SMIs are headed by women (see.
1.2.4). The objective is to build their capacity to invest, modernize, create jobs, and take advantage
of growth opportunities in the domestic market and in the subcontracting of some textile accessories
currently imported by large export-oriented enterprises. Women entrepreneurs will be the major target
of sensitization and information campaigns on investment opportunities in Madagascar and will
benefit from specific training and coaching activities to facilitate and support their investment projects
in the textile sector. In addition, efforts to build the capacity of institutions involved in investment
promotion such as the EDBM and other private and public entities responsible for investment
promotion will target staff, at least 40% of whom are women. Thus, PAPI will create jobs (75% of
them for women) and improve women entrepreneurship and professional capacity through better
training and financial support.
3.2.3. Involuntary Resettlement: the project will not entail any displacement of the population.
15
4. PROJECT IMPLEMENTATION
4.1. Implementation Arrangements
4.1.1. Project Executing Agency: the Economic Development Board of Madagascar (EDBM),
which is the national agency in charge of investment promotion and facilitation, will be the
Project Executing Agency. The EDBM is a public establishment under the authority of the
Presidency of the Republic and endowed with a legal personality and financial autonomy. It has its
own assets. In accordance with Decree No. 2014-1822, the EDBM is responsible for designing and
implementing the national strategy for increasing domestic and foreign private investment, in
consultation with the Government and the private sector. According to the guidelines of its Board of
Directors, it is managed by a Director General (DG) recruited for a three-year term of office
renewable. The DG is assisted by four Directors, including a Director of Promotion and Economic
Intelligence and a Director of Administration and Finance (DAF). PAPI will be under the
responsibility of the DG of EDBM, assisted by two component heads. The Board of Directors of
EDBM will assume the role of Steering Committee of this project. The EDBM will also be
strengthened by a Monitoring and Evaluation Officer, a Procurement Officer and an Accountant
recruited under the project. To take into account fragility-related aspects, specific training will be
organized for project team members and the staff of ministries involved in project implementation.
4.1.2. Financial Management: pending the complete establishment of the management
mechanism, the EDBM and the project, the initial fiduciary risk is considered significant. The
existing fiduciary mechanism within the EDBM (PAPI’s implementing agency) was evaluated in
March 2015 during the PAPI appraisal mission. So far, the recruitment of staff, including the DG and
DAF, has not been completed. According to forecasts, the entire mechanism should be put in place
in June 2015. In principle, the procedures for recruiting the key staff of EDBM are sufficient to
guarantee quality recruitment regarding the competence and experience of those who will be selected
to fill the various positions. Under this condition and in general, the mechanism is appropriate to
provide, with reasonable assurance, financial information that is reliable and consistent with the
Bank’s minimum requirements in this domain. However, to strengthen PAPI’s financial management
mechanism, an action plan has been prepared and presented in the Technical Annexes. Based on
project implementation arrangements, the project’s fiduciary responsibility will be under the EDBM
Directorate of Administration and Finance which will be reinforced by an additional Accountant
recruited for the project. The administrative, accounting and financial procedures manual and
accounting software will be updated to reflect PAPI’s management.
4.1.3. Disbursement Arrangements: disbursements will be made according to Bank rules of
procedure. The disbursement methods adopted for PAPI are: (i) direct payment; (ii) special account;
and (iii) reimbursement. The direct payment method will be used for payments for goods and services.
The special account will be used mainly for the payment of project operating expenses. It will be
managed in accordance with Bank rules of procedure and the guidelines to be specified in the loan
agreements and disbursement letter. A deposit account will be opened at the Treasury to receive
project counterpart contributions which will be included annually in the Finance Law.
4.1.4. Auditing Arrangements: in accordance with EDBM by-laws, its accounts are subject
to review by the Audit Office and/or any other control or audit ordered by the State or the
Board of Directors. However, the accounts related to PAPI’s activities will be audited annually by
an internationally recruited independent auditing firm acceptable to the Bank. The project will be
audited in accordance with the Terms of Reference approved by the Bank. Each financial audit will
cover an accounting year. The audited financial statements of each accounting year as well as the
internal audit report will be submitted to the Bank no later than six months following the close of the
accounting year in question.
4.1.5. Procurement Arrangements: the procurement of goods through international competitive
bidding (ICB) and the selection of Consultants, financed with Bank resources, will be in accordance
with Bank Rules of Procedure for Procurement of Goods and Works (May 2008 edition, revised in
July 2012) or, as appropriate, with Bank Rules of Procedure for the Use of Consultants (May 2008
16
edition, revised in July 2012), using the relevant Bank standard bidding documents as well as the
provisions set forth in the Financing Agreement. With reference to the Letter of Agreement concluded
between the Republic of Madagascar and the African Development Bank on 2 October 2014,
procurement through local competitive bidding (LCB) and local shopping will be in accordance with
national procedures pursuant to Law No. 2004-009 of 26 July 2004 on the Public Procurement Code,
using standard LCB documents and the country’s request for quotations, according to the conditions
and terms specified in the Letter of Agreement as well as the provisions set forth in the Financing
Agreement.
4.1.6. The EDBM will be responsible for the procurement of goods and consultancy services
under the project. It will prepare a procurement plan (PP) which will serve as the basis for the
procurement of goods and consultancy services. The PP acceptable to the Borrower and the Bank
team will cover the duration of the project and will be updated annually or as required, but always
within the next 18 months during project implementation. The details of procurement arrangements
(procurement procedures and methods, review procedures, and the outcome of the evaluation of the
procurement body) are presented in Technical Annex B5.
4.2. Monitoring and Evaluation
4.2.1. EDBM Board of Directors and Management will, in close collaboration with the other
beneficiaries, be responsible for the implementation of all PAPI activities. The EDBM
Management will prepare and submit to the Board of Directors, which is the Project Steering
Committee, quarterly reports (in line with the logical framework and annual programme of activities)
on the project implementation status. The EDBM Management will be reinforced by a Monitoring
and Evaluation Specialist who will assist the Director and Project Manager. Supervision missions
(two a year) and the mid-term review will be carried out in close collaboration with MGFO and the
World Bank’s IGP-2 project implementation unit to ensure harmony and complementarity in PAPI
implementation. In addition, the Bank will prepare a project completion report within three months
after the last disbursement. The key project stages are presented in the table below.
Table 10
Key PAPI implementation milestones Schedule Key Stage Monitoring Process and Feedback Loop
June 2015 Board Approval Board Resolution/Letter to the Government
December 2015 Entry into force Government / Bank
January 2016 Finalization of additional team
recruitment Government
January 2015 Project start-up /Launching Mission Bank / Government
February 2015 - December
2018 Procurement of goods and services EDBM
Twice a year Project supervision Bank / EDBM
End of each quarter Quarterly progress reports EDBM
December 2017 Mid-term review Bank / Government / EDBM
December 2019 Project Completion Report Bank / Government / EDBM
17
4.3. Governance
4.3.1. PAPI will be implemented by a rigorous public entity whose primary objective will be
to ensure better monitoring and compliance with the rules and procedures for financial and
fiduciary management. The procurement-related risk will be mitigated through ex-post control by
the Bank of the procurement process using bidding documents and contract award proposals and
through project supervision and procurement audits. As regards project financial governance, the
Project Executing Agency will keep separate project accounts, in order to identify expenditure by
component, category and source of financing. The project accounts will be audited annually by an
audit firm recruited for that purpose. Financial and audit reports will be submitted to the TSF within
the six months following the close of the accounting period.
4.4. Sustainability
4.4.1. PAPI’s sustainability will depend not only on the will of Malagasy authorities to
provide sustainable and inclusive support for private investment promotion, but also on the
coaching approach adopted by the project for better skills transfer. This training approach
guarantees the sustainability of the expected impacts of institutional capacity building in the
promotion of private investment and public-private partnership. In fact, the main project beneficiaries
have taken ownership of the project objectives and activities through their active participation in its
design.
4.5. Risk Management
4.5.1. The project will be implemented in a fragile State. The table below presents residual risks as
well as mitigation measures.
Table 11
Risks and Mitigation Measures
Risks Level Mitigation measures
Political/institutional risk: this risk is related to the
fragility of political institutions. It would stem from
politically motivated social tensions and could lead
to a significant reduction in FDI inflows, donor
support and a drop in export earnings and tourism
revenue. Moderate
Mitigation measures: the new authorities’
willingness to create a lasting climate of political
appeasement, the formation of an inclusive
national reconciliation government, the provision
of technical and financial support by the
international community, particularly the United
Nations system, to promote democracy, security
and national reconciliation should reduce this
risk. Development partners should work in
conjunction with the authorities to facilitate
expenditure on priority social sectors (PURE is an
example).
Fiduciary risk: the control and financial
management systems environment in Madagascar
presents a high level of fiduciary risk.
Substantial
Mitigation measures: project funds will be
managed in accordance with Bank financial
management, procurement and disbursement
rules and procedures, and project auditing and
management will be done in a transparent
manner. Monitoring and supervision of the
project by the Bank, in close collaboration with
other TFPs, will also contribute to mitigating this
risk.
18
4.6. Knowledge Building
4.6.1. Knowledge acquisition will be furthered by the transfer of skills through the training
system put in place by PAPI focusing on coaching and mentoring. Thus, PAPI intends to put at
the disposal of beneficiary entities technical experts who will play this role. The project will facilitate
the acquisition of knowledge in the promotion of investments and public-private partnership through
the conduct of studies and dissemination of findings on investment opportunities in the textile sector
which will be backed by a national export strategy; feasibility studies on the establishment of a Special
Economic Zone for the textile sector; the PPP manual and policy; etc. The different skills related to
project focus areas and day-to-day project management will be acquired through processes involving
the preparation of the following reports: reports by technical assistants, progress reports prepared by
the Project Executing Agency, supervision reports, and the project completion report. The knowledge
acquired and lessons learned will be disseminated within the Bank and in the host country.
5. LEGAL INSTRUMENT AND AUTHORITY
5.1. Legal Instrument
5.1.1. The proposed financial instruments are a TSF Pillar I loan to the tune of UA 3 million and
an ADF loan amounting to UA 4 million. The loan agreements between the Malagasy Government
and the Bank/ADF will be signed by the parties concerned.
5.2. Conditions for Bank Intervention
5.2.1 Conditions precedent to effectiveness of loan agreements: the loan agreements shall enter
into force on the date of fulfilment, to Bank/ADF satisfaction, of the conditions set forth in Section
12.01 of the General Conditions Applicable to Loan, Guarantee and Grant Agreements of the AfDB
and the ADF.
5.2.2 Conditions precedent to first loan disbursement: the first disbursement of the resources of each
loan shall be subject to their effectiveness and fulfilment by the Borrower, to Bank/ADF satisfaction,
of the following conditions:
(i) Provide evidence of attaching the project to the Economic Development Board of
Madagascar (EDBM) to enable it to manage the Project;
(ii) Provide the original or a certified true copy of the certificate of a special account
opened in the name of the Project in a bank acceptable to the Bank/Fund, to exclusively
receive TSF loan resources, and bearing full bank account details; and
(iii) The recruitment of an accountant having the required qualification.
5.3. Compliance with Bank Policies
5.3.1. The project is consistent with all applicable Bank policies.
6. RECOMMENDATION
Management recommends that: (i) the Boards of Directors of the Bank and the Fund approve
the proposal to grant a TSF Pillar I loan of UA 3 million and (ii) the Board of Directors of the Fund
approve the proposal to grant a ADF loan of UA 4 million to the Republic of Madagascar to finance
the Investment Promotion Support Project under the terms and conditions set forth in this Report.
I
ANNEX I
COUNTRY’S COMPARATIVE SOCIO-ECONOMIC INDICATORS
YearMadagasca
rAfrica
Develo-
ping
Countries
Develo-
ped
Countries
Basic Indicators
Area ( '000 Km²) 2011 587 30 323 98 458 35 811Total Population (millions) 2013 22,9 1 109,0 5 909,3 1 252,8Urban Population (% of Total) 2013 33,8 40,2 47,7 78,3Population Density (per Km²) 2013 36,3 46,9 70,7 23,5GNI per Capita (US $) 2012 430 1 719 3 815 38 412Labor Force Participation - Total (%) 2012-2013 47,0 37,4 67,9 72,1Labor Force Participation - Female (%) 2012-2013 49,1 42,5 38,6 44,6Gender -Related Dev elopment Index Value 2007-2011 0,541 0,502 0,694 0,911Human Dev elop. Index (Rank among 187 countries) 2012 151 ... ... ...Popul. Liv ing Below $ 1.25 a Day (% of Population)2008-2011 81,3 40,0 20,6 ...
Demographic Indicators
Population Grow th Rate - Total (%) 2013 2,8 2,5 1,3 0,3Population Grow th Rate - Urban (%) 2013 4,7 3,4 2,5 0,6Population < 15 y ears (%) 2013 42,4 40,9 28,3 16,4Population >= 65 y ears (%) 2013 2,8 3,5 6,1 16,8Dependency Ratio (%) 2013 82,5 77,9 52,4 49,9Sex Ratio (per 100 female) 2013 99,3 100,0 103,3 94,4Female Population 15-49 y ears (% of total population) 2013 24,0 24,0 53,1 45,2Life Ex pectancy at Birth - Total (y ears) 2013 64,7 59,2 68,4 77,8Life Ex pectancy at Birth - Female (y ears) 2013 66,2 60,3 70,3 81,2Crude Birth Rate (per 1,000) 2013 34,7 34,8 21,2 11,2Crude Death Rate (per 1,000) 2013 6,8 10,4 7,6 10,4Infant Mortality Rate (per 1,000) 2013 35,8 61,9 39,8 5,5Child Mortality Rate (per 1,000) 2013 53,0 97,4 56,3 6,6Total Fertility Rate (per w oman) 2013 4,5 4,6 2,6 1,7Maternal Mortality Rate (per 100,000) 2010 240,0 415,3 240,0 16,0Women Using Contraception (%) 2013 44,0 34,9 62,6 71,3
Health & Nutrition Indicators
Phy sicians (per 100,000 people) 2004-2011 16,1 47,1 117,8 297,8Nurses (per 100,000 people)* 2004-2011 ... 132,6 202,7 842,7Births attended by Trained Health Personnel (%) 2006-2011 43,9 52,6 66,3 ...Access to Safe Water (% of Population) 2012 49,6 68,8 87,2 99,2Access to Health Serv ices (% of Population) 2000 38,0 65,2 80,0 100,0Access to Sanitation (% of Population) 2012 13,9 39,4 56,9 96,2Percent. of Adults (aged 15-49) Liv ing w ith HIV/AIDS 2012 0,5 3,9 1,2 ...Incidence of Tuberculosis (per 100,000) 2012 234,0 223,6 144,0 23,0Child Immunization Against Tuberculosis (%) 2012 78,0 83,0 81,5 96,1Child Immunization Against Measles (%) 2012 69,0 74,0 83,0 94,3Underw eight Children (% of children under 5 y ears) 2004-2012 36,8 19,7 17,0 1,4Daily Calorie Supply per Capita 2009 2 117 2 481 2 675 3 285Public Ex penditure on Health (as % of GDP) 2011-2012 2,6 2,9 3,0 7,5
Education Indicators
Gross Enrolment Ratio (%)
Primary School - Total 2012 145,2 101,9 109,4 100,9 Primary School - Female 2012 144,2 97,9 107,6 100,6 Secondary School - Total 2012 38,0 47,4 69,1 100,2 Secondary School - Female 2012 37,1 44,0 67,8 99,7Primary School Female Teaching Staff (% of Total) 2012 55,5 46,6 58,0 84,3Adult literacy Rate - Total (%) 2009-2012 64,5 62,0 80,3 99,2Adult literacy Rate - Male (%) 2009-2012 67,4 70,7 85,9 99,3Adult literacy Rate - Female (%) 2009-2012 61,6 53,7 74,9 99,0Percentage of GDP Spent on Education 2011-2012 2,7 5,3 4,3 5,5
Environmental Indicators
Land Use (Arable Land as % of Total Land Area) 2011 6,0 7,6 10,7 10,8Annual Rate of Deforestation (%) 2000-2009 1,0 0,6 0,4 -0,2Forest (As % of Land Area) 2011 21,5 23,0 28,2 35,0Per Capita CO2 Emissions (metric tons) 2010 0,1 1,2 3,0 11,6
Sources: AfDB Statistics Department Databases; last update :
United Nations Population Division, World Population Prospects: The 2012 Revision;
World Bank: World Development Indicators; UNAIDS; UNSD; WHO, UNICEF, WRI, UNDP; Country Reports.
For any given interval, the value refers to the most recent year available during the period
Note : n.a. : Not Applicable ; … : Data Not Available.
COMPARATIVE SOCIO-ECONOMIC INDICATORS
Madagascar
mai 2014
0102030405060708090
2005
2006
2007
2008
2009
2010
2011
2012
2013
Infant Mortality Rate( Per 1000 )
Madagascar Africa
0
200
400
600
800
1000
1200
1400
1600
1800
2004
2005
2006
2007
2008
2009
2010
2011
2012
GNI Per Capita US $
Madagascar Africa
0,0
0,5
1,0
1,5
2,0
2,5
3,0
3,5
2005
2006
2007
2008
2009
2010
2011
2012
2013
Population Growth Rate (%)
Madagascar Africa
111213141516171
2005
2006
2007
2008
2009
2010
2011
2012
2013
Life Expectancy at Birth (years)
Madagascar Africa
II
ANNEX II
TABLE OF AFDB PORTFOLIO IN THE COUNTRY
SECTORS PROJECTS Approval Date Amount in
UA Million
Signature
Date Effectiveness Closing Date
Agriculture
1. PPF – Mid-West Young Rural Enterprise Project 24/9/2012 0.45 8/11/2012 8/11/2012 31/12/2014
2. Lower Mangoky Project Supplemental Loan 3/12/2008
15 22/1/2009 22/12/2011 31/12/2015
3. PPF - Lower Mangoky II Project Preparation 10/7/2012 5 14/9/2012 14/9/2012 31/3/2015
4.South-West Region Agricultural
Infrastructure Rehabilitation Project (PRIASO) 19/6/2013 24.8 7/8/2013 6/4/2014 31/12/2018
5. Lower Mangoky Irrigation Area Rehabilitation and
Extension Project (PEPBM) I 26/11/2014 40.14 - - 31/5/2020
6. Locust Control Grant 23/9/2013 658 2/10/2014 2/10/2014 4/30/2015
Transport 7. Road Infrastructure Development Project (PAIR) 10/18/2013 46.4 19/11/2013 5/23/2014 31/12/2018
Governance
8. Institutional Governance Support Project (PAGI) 9/17/2013 4.5 18/11/2013 8/5/2014 31/12/2017
9. Emergency Economic Recovery Programme (PURE) 11/5/2014 25 11/14/2013 1/16/2015 6/30/2015
Water and Sanitation 10. Drinking Water Supply and Sanitation Programme
(PAEAR) 21/12/2005 43.84 2/3/2006 8/6/2006 9/30/2014
Health 11.Emergency Humanitarian Assistance under the Fight
against the Plague, Epidemics of Polio and Rabies 12/23/2014 658 3/2/2015 3/2/2015 6/30/2015
Private Sector
12. Ambatovy Nickel Project 2/5/2007 99.54 22/8/2007 26/3/2008 22/8/2011
13. Sahanivotry Small Hydro Power Project 5/7/2007 5.22 25/9/2007 4/10/2007 30/6/2008
14. SEFA Grant for the Renewable Energy Study 1/28/2013
0.65 16/5/2013 16/5/2013 6/5/2015
- 1 -
ANNEX III
CONSIDERATION OF RISKS ASSOCIATED WITH FRAGILITY FACTORS IDENTIFIED
IN THE ASSESSMENT OF THE COUNTRY’S FRAGILITY AND BASED ON PROJECT
SECTOR KNOWLEDGE
The November 2014 Bank report on the assessment of Madagascar’s factors of fragility and resilience
retained four most relevant categories of factors, namely: (i) political, institutional and security factors;
(ii) economic and financial factors; (iv) social factors; and (iv) geographical and ecological factors. In
the sector covered by PAPI, the following project interventions address the first three fragility factors:
(i) Political and institutional instability: the country has returned to constitutional order
following the end of the political crisis. The confidence thus restored should enable the
authorities to strengthen inclusive socio-political dialogue and the national reconciliation
process in a calm political atmosphere.
Project intervention: PAPI is perfectly in line with the General State Policy (GSP) and the National
Development Programme (NDP) which serve as its strategic framework and rationale. From an
institutional viewpoint, it will strengthen the approach adopted by the Government to promote dialogue
within the public-private platform managed by the EDBM. The project will ensure accountability and
transparency vis-à-vis the public.
(ii) Insecurity: in general, security problems lead to violence against persons and property
through criminalization of the economy, including the informal or even illegal exploitation
of natural resources. In rural areas, the security issues also take the form of criminal attacks
against persons, conflicts between farmers and livestock breeders and between the latter and
dahalos, cattle rustlers.
Project intervention: PAPI does not provide for direct, specific measures in the security sector per se.
However, it will contribute to reducing legal and fiscal insecurity which impedes private investment and
the country’s economy as a whole by supporting legal and regulatory reforms as well as simplifying
procedures and reducing administrative costs.
(iii) Inadequate infrastructure: infrastructure is in a precarious state due particularly to various
geographical constraints related to the vastness of the territory, low population density, the
nature of the terrain and climate, as well as the destructive effects of natural disasters.
Project intervention: PAPI will indirectly support infrastructure development through the law on PPP. It
will therefore build the capacity of the State to establish appropriate PPP frameworks to promote private
sector participation in the construction and management of infrastructure and ensure the provision of
quality and competitive services to meet needs.
(iv) Low productivity and competitiveness of the economy: since 1997, the contribution of
the agricultural sector, which is the leading and pro-poor growth enhancing sector, has been
halved. The mining sector has become the engine of unshared growth. The industrial
processing sector is not articulated on the first two.
Project intervention: PAPI will support the GSP and NDP aimed at improving economic productivity and
competitiveness by diversifying sources of growth and developing the private sector, particularly the textile
- 2 -
industry and the country’s attractiveness. Thus, PAPI’s support will help to maintain an environment that
is conducive to the mobilization of private investment in growth and job-creating sectors.
(v) Deterioration of the business climate and lack of attractiveness for private investment:
since 2008, the business environment has deteriorated steadily. Nevertheless, the economic,
particularly agro-industrial and mining, potential is being developed and development could
be accelerated with the improvement of the business environment.
Project intervention: PAPI will support private sector development and create conditions conducive to
private investment promotion in order to accelerate the development of the economic potential, with the
improvement of the business environment and the establishment of appropriate assurance and security
mechanisms, particularly for the protection of property rights, as a result of the confidence that technical
and financial partners and foreign investors henceforth have in the authorities.
(vi) Social inequalities: inequalities concern the distribution of income among individuals or
groups of individuals and socio-professional categories, between women and men and
between regions. Growing inequalities as well as lack of access to basic social services
exacerbate poverty.
Project intervention: PAPI will indirectly support the GSP and NDP aimed at reducing poverty and
inequalities by helping the authorities to develop systems of incentives so as to diversify overall demand
for, and supply of, services to the poor while maintaining a green growth profile that is consistent with
increased public and private revenue mobilization, and the profitability of private investment. In addition,
it will indirectly support the equitable provision of basic social services by supporting infrastructure
development.
(vii) Under-employment and low incomes: agriculture is the largest provider of informal jobs
in Madagascar. Industries, which constitute the key sector, occupy the second position
regarding the provision of formal jobs. The most recent political crisis resulted in the loss
of more than 300 000 formal jobs and a reduction in incomes.
Project intervention: given that the industrial sector is a significant tool for combating urban poverty, PAPI
will help to provide job and income opportunities to the poor, youths and women in a relatively short time.
Linkages will also be established between agriculture and industry, by making the former the basis of
growth and the latter the engine of development. Given the increase in incomes in the longer term, the
competitiveness of the textile sector is likely to decline with an increase in income per capita, unless efforts
are made to develop innovative sectors. Hence, the country should turn to industries with more value added
such as those offered by the information and communication technology sector.
- 3 -
ANNEX IV
PAPI GENDER ANALYSIS
Women make up 50.3% of Madagascar’s population. Madagascar was ranked 41st in the 2014 Global
Gender Gap Index and 37th concerning women’s access to opportunities and participation in economic
activities. Eighty-eight per cent of women participate in Madagascar’s labour force and 48% of
Madagascar’s professionals and technicians are women.
On the political and regulatory fronts, the Malagasy Government adopted the National Women’s
Empowerment Policy for the 2000-2015 period and the National Gender and Development Action Plan
(PANAGED) whose implementation was expected to span five years (2004-2008) and which sought to
mainstream the gender dimension into all cross-sector development operations. The third thrust of the
Interim National Development Plan 2015-2019 also provides for support measures to enhance the
competitiveness and productivity of local SMEs and SMIs managed by women. Madagascar is also a
signatory to the SADC Protocol on Gender and Development (2008) committing signatories to a target
of at least 50% of women in all areas of decision-making in the private and public sectors by 2015.
However, the political instability experienced by the country did not allow for the harmonious
implementation of these policies.
Regarding the friendly environment for women entrepreneurship, although the legal and regulatory
frameworks place men and women on the same footing, social practices based on traditions and customs
effectively impede opportunities for women entrepreneurship. Thus, the Land Law adopted by the
Government in May 2005 grants equal access to land for both sexes, but paradoxically fails to promote
gender equality and equity regarding access to land tenure security. The immediate consequence is that
men own land and are issued land certificates although Law No. 2005-19 authorizes the joint registration
of property, enabling women to enjoy the same rights over household land assets. In addition, although
Law No. 68-12 grants equal rights to male and female successors, female heirs often receive their share
in the form of financial compensation. This situation, which limits women’s ability to independently
contract loans, is mainly due to the low representation of women in decision-making bodies, particularly
land offices.
To support the development of women entrepreneurship, Madagascar’s branch of the Indian Ocean
Women Entrepreneurs (EFOI) brings together women entrepreneurs. This organization has concluded a
partnership agreement with the Madagascar Rural Women Farmer’s Federation established with UNDP
support, which brings together 10,800 women’s groups and has 18,500 members throughout the country.
It should be noted that there is no specific legal and programmatic framework for the development of
women entrepreneurship. Credit is still almost inaccessible to women and support entities are scarce and
have limited resources. In addition, quantitative and qualitative basic data on women entrepreneurs in
Madagascar are lacking or inadequate. Another obstacle faced by women entrepreneurs is the difficulty
in obtaining needed information.
The report on the assessment of Madagascar’s fragility shows that gender-related indicators, especially
the socio-economic situation of women and their resilience capacity, have deteriorated. The combined
effects of the political crisis and natural disasters have had a significant impact on gender equity to such
an extent that they jeopardize or even reverse the significant progress made. The level of education
remains low: only 43% of women and 42% of men have completed primary education or attended literacy
training courses. Poverty seems to affect more women than men (79.9% as against 76.8% in 2001) and
more women household heads. Wage inequalities between men and women are still significant with a
gap of about 34% in 2012 (ENSOMD 2013). In addition, unemployment affects more women than men.
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In 2012, six out of ten unemployed people were women (58.5%). Unsuitable employment was
generalized with the crisis, affecting more than 81% of workers, especially rural women. Madagascar’s
textile and clothing industry sector has been identified as the leading provider of jobs for women after
agriculture; 60% of workers in the textile and clothing industry sector are women. According to a recent
survey carried out by the National Institute of Statistics (INSTAT), this sector accounted for 56.4% of
all free zone enterprises in 2013.
The proposed Investment Promotion Support Project (PAPI) will support women entrepreneurship in
Madagascar through its focus areas, particularly the promotion of private investment which will directly
support the textile sector owing to its high potential in terms of foreign investment, exports and job
creation.
PAPI’s support will seek to identify and use investment and export opportunities in the textile sector and
establish an infrastructure platform to strengthen the competitiveness of all growth sectors. This will be
supported by the establishment of a Fund to build the capacity of micro-, small- and medium-sized
enterprises in the textile sector and support the establishment of a Special Economic Zone.
The USD 2 million Textile Sector Promotion Support Fund (FAPST) will target individual enterprises
or groups of enterprises and associations. It will focus on women entrepreneurs and youths. The Fund
will enable Malagasy textile sector micro-enterprises and SMEs/SMIs, of which 40% are SMEs-SMIs
headed by women entrepreneurs, to build their capacity to invest, modernize, create jobs, and take
advantage of growth opportunities in the domestic market and the subcontracting of some textile
accessories currently imported by large export-oriented enterprises. The Fund will seek to contribute to
the creation of conditions conducive to inclusive growth by providing technical assistance and support
to informal sector textile enterprises and small enterprises mainly employing women to access basic
facilities. PAPI’s goal is also to strengthen institutions involved in the promotion of investment such as
the EDBM and other private and public entities in charge of investment promotion. Overall, training
under the project will target staff, at least 40% of them women.
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ANNEX V
MAP OF PROJECT AREA